WellCare Reports Third Quarter 2018 Results
"We delivered strong operating and financial results in the third quarter," said
"As a result of our performance, we are revising our full-year 2018 adjusted earnings per diluted share guidance to a range of
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Key Metrics 
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3Q18 |
3Q17 |
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Earnings per diluted share (EPS) (GAAP) |
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|
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Adjusted EPS(1) |
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|
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Net income margin (GAAP) |
2.6% |
3.9% |
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Adjusted net income margin(1) |
3.3% |
4.2% |
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Total Revenue (GAAP) ($ millions) |
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Adjusted Total Revenue(1) ($ millions) |
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Revenue ($ millions): |
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Medicaid Health Plans (GAAP) |
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Adjusted Medicaid Health Plans(1) |
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|
|
Medicare Health Plans |
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|
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Medicare Prescription Drug Plans (PDP) |
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|
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Segment Medical Benefits Ratios (MBR): |
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|
Medicaid Health Plans (GAAP) |
84.9% |
86.0% |
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Adjusted Medicaid Health Plans(1) |
87.8% |
86.9% |
|
Medicare Health Plans |
84.8% |
85.7% |
|
Medicare Prescription Drug Plans (PDP) |
63.1% |
70.7% |
|
Selling, General and Administrative (SG&A) Ratio (GAAP) |
8.6% |
8.5% |
|
Adjusted SG&A Ratio(1) |
8.5% |
8.3% |
|
(1) Refer to the Basis of Presentation for a discussion of these adjusted (non-GAAP) financial measures |
Key Highlights
- GAAP and adjusted total revenue of
$5.1 billion and$5.0 billion for the third quarter of 2018 increased 14.9 percent and 13.3 percent, respectively, compared with the third quarter of 2017. - GAAP and adjusted Medicaid Health Plans revenue of
$3.2 billion and$3.1 billion for the third quarter of 2018 increased 18.4 percent and 15.9 percent, respectively, compared with the third quarter of 2017. - In
August 2018 , WellCare raised approximately$2.1 billion in gross proceeds via common stock and debt offerings in order to fund the acquisition ofMeridian Health Plan of Michigan, Inc. ,Meridian Health Plan of Illinois, Inc. and MeridianRx, a pharmacy benefit manager (collectively "Meridian"). - Effective
September 1, 2018 , WellCare closed the previously announced acquisition of Meridian. - On
September 27, 2018 , WellCare announced it entered into agreements to acquire Aetna Inc.'s entire standalone Medicare Part D prescription drug business. The closing of this transaction is subject to the closing of CVS Health's acquisition of Aetna and other customary closing conditions. - WellCare's Medicare Advantage (MA) contracts serving certain of the company's members in
California ,Florida ,Texas andNew York /Maine , received an overall rating of 4.0 Stars or higher on CMS's 5-Star Rating System for the 2019 Plan Year. As ofSeptember 30, 2018 , these contracts served approximately 42.3 percent of WellCare's total MA members, excluding our two dual demonstration MA contracts, which are not subject to Star Ratings. - As of
September 30, 2018 , unregulated cash and investments were approximately$462.6 million .
2018 Financial Outlook
WellCare is increasing its full-year adjusted EPS guidance to a range of
Consolidated Operations Results
GAAP net income for the third quarter of 2018 was
GAAP net income margin for the third quarter of 2018 was 2.6 percent compared with 3.9 percent for the third quarter of 2017. Adjusted net income margin for the third quarter of 2018 was 3.3 percent compared with 4.2 percent for the third quarter of 2017.
GAAP and adjusted total revenue of
GAAP SG&A expense was
The GAAP SG&A expense ratio was 8.6 percent in the third quarter of 2018 compared with 8.5 percent in the third quarter of 2017. The adjusted SG&A expense ratio was 8.5 percent in the third quarter of 2018 compared with 8.3 percent in the third quarter of 2017.
Medicaid Health Plans Segment Results
Medicaid Health Plans membership was 3.9 million as of
GAAP and adjusted Medicaid Health Plans revenue was
The GAAP Medicaid Health Plans MBR was 84.9 percent for the third quarter of 2018 compared with 86.0 percent for the third quarter of 2017. The decrease in the GAAP Medicaid Health Plans MBR was primarily the result of the reinstatement of the Medicaid ACA HIF reimbursement in 2018. The adjusted Medicaid Health Plans MBR was 87.8 percent for the third quarter of 2018 compared with 86.9 percent for the third quarter of 2017, primarily as a result of the acquisition of Meridian and incremental retroactive revenue related to
Medicare Health Plans Segment Results
Medicare Health Plans membership was approximately 544,000 as of
Medicare Health Plans revenue of
The Medicare Health Plans MBR for the third quarter of 2018 was 84.8 percent compared with 85.7 percent for the third quarter of 2017. The year-over-year decrease was primarily due to continued operational execution and the company's 2018 bid strategy.
Medicare Prescription Drug Plans (PDP) Segment Results
Medicare PDP membership was approximately 1.1 million as of
Medicare PDP revenue of
The Medicare PDP segment MBR for the third quarter of 2018 was 63.1 percent compared with 70.7 percent for the third quarter of 2017. The decrease was primarily the result of the company's 2018 bid positioning and continued operational execution.
Operating Cash Flow and Financial Condition
Net cash used by operating activities was
As of
Days in claims payable (DCP) was 54.2 days as of
Conference Call and Webcast
A discussion of WellCare's third quarter 2018 results will be available via a conference call and live webcast today at
The conference call will be webcast live from the company's website and will be available at the following link: https://services.choruscall.com/links/wcg181030.html. The webcast should be accessed a few minutes prior to the conference call start time. A replay of the webcast will be available for one year following the conclusion of the live broadcast and will be accessible on the company's website at http://ir.wellcare.com/Event.
The conference call can also be accessed by pre-registering using the following link: http://dpregister.com/10123489. Callers who pre-register will be given dial-in instructions and a unique PIN to gain immediate access to the call. Participants may pre-register now, or at any time prior to the call, and will receive simple instructions via email.
For those parties who do not have internet access or are unable to pre-register, the conference call may be accessed by calling:
Domestic participant dial-in number (toll-free): 1-844-492-3724
International participant dial-in number: 1-412-542-4185
A telephonic replay will be available until
Domestic replay number (toll-free): 1-877-344-7529
International replay number: 1-412-317-0088
About
Headquartered in
Basis of Presentation
Discontinued Operations
In 2016, Universal American, a subsidiary of WellCare, completed the sale of its life insurance business while retaining ownership of the life insurance subsidiary. Universal American entered into a 100% quota-share reinsurance treaty with the buyer, which, among other treaties, resulted in the reinsurance of all of the life insurance policies underwritten by the retained subsidiary. Accordingly, the discontinued business has not materially affected WellCare's results of operations for the periods presented in this news release. For additional information, refer to Note 19–Discontinued Operations within the Consolidated Financial Statements included in the company's Annual Report on Form 10-K for the period ended
Non-GAAP Financial Measures
In addition to results determined under GAAP, WellCare provides certain non-GAAP financial measures that management believes are useful in assessing the company's performance. Non-GAAP financial measures should be considered in addition to, but not as a substitute for, or superior to, financial measures prepared in accordance with GAAP. The company has provided a reconciliation of the historical non-GAAP financial measures with the most directly comparable financial measure calculated in accordance with GAAP.
Earnings per share, net income and, as noted below, other specific operating and financial measures have been adjusted for the effect of certain expenses, and as appropriate, the related tax effect, related to previously disclosed government investigations and related litigation and resolution costs ("investigation costs"); amortization expense associated with acquisitions ("acquisition-related amortization expenses"); and certain one-time transaction and integration costs related to the acquisitions of Universal American and Meridian ("transaction and integration costs").
Although the excluded items may recur, WellCare believes that by providing non-GAAP measures exclusive of these items, it facilitates period-over-period comparisons and provides additional clarity about events and trends affecting its core operating performance, as well as providing comparability to competitor results. The investigation costs are related to a discrete incident which management does not expect to reoccur. WellCare has adjusted for acquisition-related amortization expenses as these transactions do not directly relate to the servicing of products for our customers and are not directly related to the core performance of its business operations. The transaction and integrations costs are related to specific 2017 and 2018 events, which do not reflect the underlying ongoing performance of the business.
In addition, because reimbursements for Medicaid premium tax and the ACA HIF are both included in the premium rates or reimbursement established in certain Medicaid contracts and also recognized separately as a component of expense, the company excludes these reimbursements from premium revenue and total revenue when calculating key ratios as the company believes that these components are not indicative of operating performance.
The company is not able to project at the time of this news release the amount of expenses associated with investigation costs or transaction and integration costs and, therefore, cannot reconcile projected non-GAAP measures affected by these items to projected GAAP measures.
Following is a description of the adjustments made to GAAP measures used to calculate the non-GAAP measures used in this news release.
Adjusted total revenue (non-GAAP) = Total revenue (GAAP) less Medicaid premium taxes revenue and ACA industry fee reimbursement.
Adjusted premium revenue (non-GAAP) = Premium revenue (GAAP) less Medicaid premium taxes revenue and ACA industry fee reimbursement. The company's adjusted Medicaid Health Plans segment premium revenue uses this non-GAAP definition of adjusted premium revenue.
MBR (GAAP) = medical benefits expense divided by premium revenue (GAAP).
Adjusted MBR (non-GAAP) = medical benefits expense divided by adjusted premium revenue. The company's adjusted Medicaid Health Plans segment MBR uses this non-GAAP definition of adjusted MBR.
SG&A expense ratio (GAAP) = SG&A expense (GAAP) divided by total revenue (GAAP).
Adjusted SG&A expense (non-GAAP) = SG&A expense (GAAP) less investigation costs and transaction and integration costs.
Adjusted SG&A ratio (non-GAAP) = adjusted SG&A expense divided by adjusted total revenue.
Adjusted depreciation & amortization (non-GAAP) = depreciation & amortization expense (GAAP) less acquisition-related amortization expenses.
Adjusted income before taxes (non-GAAP) = income before income taxes (GAAP) less investigation costs, acquisition-related amortization expenses, and transaction and integration costs.
Adjusted income tax expense (non-GAAP) = income tax associated with the applicable adjusted income before taxes, based on the applicable effective income tax rate.
Adjusted effective income tax rate (non-GAAP) = adjusted income tax expense divided by adjusted income before taxes.
Adjusted net income (non-GAAP) = adjusted income before taxes less adjusted income tax expense.
Net income margin (GAAP) = net income (GAAP) divided by total revenue (GAAP).
Adjusted net income margin (non-GAAP) = adjusted net income divided by adjusted total revenue.
Adjusted earnings per diluted share (non-GAAP) = Adjusted net income divided by weighted average common shares outstanding on a fully diluted basis.
Cautionary Statement Regarding Forward-Looking Statements
This news release contains "forward-looking" statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as "expects," "will," "anticipates," "intends," "plans," "believes," "estimates," and similar expressions are forward-looking statements. For example, statements regarding the company's financial outlook and the status of the pending acquisition of Aetna's Part D business and the status of new Medicaid programs, contain forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that may cause WellCare's actual future results to differ materially from those projected or contemplated in the forward-looking statements. These risks and uncertainties include, but are not limited to, WellCare's progress on top priorities such as integrating care management, advocating for our members, building advanced relationships with providers and government partners, ensuring a competitive cost position, and delivering prudent, profitable growth, WellCare's ability to effectively estimate and manage growth, the ability to complete the acquisition of the Aetna Part D business in a timely manner or at all (which may adversely affect WellCare's business and the price of the common stock of WellCare), the failure to satisfy the conditions to the consummation of the acquisition (including the closing of CVS Health's acquisition of Aetna and other customary closing conditions), WellCare's ability to effectively execute and integrate acquisitions, including the ability to achieve expected synergies within the expected time frames or at all, the ability to achieve accretion to WellCare's earnings, revenues or other benefits expected, disruption to business relationships, operating results, and business generally of WellCare and/or Meridian and the ability to retain Meridian employees, potential reductions in Medicaid and Medicare revenue, WellCare's ability to estimate and manage medical benefits expense effectively, including through its vendors, its ability to negotiate actuarially sound rates, especially in new programs with limited experience, WellCare's ability to improve healthcare quality and access, the appropriation and payment by state governments of Medicaid premiums receivable, the outcome of any protests and litigation related to Medicaid awards, the approval of Medicaid contracts by CMS, any changes to the programs or contracts, WellCare's ability to address operational challenges related to new business, and WellCare's ability to meet the requirements of readiness reviews. Given the risks and uncertainties inherent in forward-looking statements, any of WellCare's forward-looking statements could be incorrect and investors are cautioned not to place undue reliance on any of our forward-looking statements.
Additional information concerning these and other important risks and uncertainties can be found in the company's filings with the
2018 Financial Outlook
WellCare is increasing its full-year 2018 adjusted EPS guidance to a range of
|
Guidance Metric |
2018 Guidance |
|
Revenue: |
|
|
GAAP Medicaid Health Plans |
|
|
Adjusted Medicaid Health Plans(1) |
|
|
Medicare Health Plans |
|
|
Medicare PDP |
|
|
Medicaid ACA industry fee reimbursement |
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|
Products and services |
|
|
Investment and other income(2) |
|
|
GAAP total revenue |
|
|
Adjusted total revenue(1) |
|
|
Segment MBR: |
|
|
GAAP Medicaid Health Plans |
85.6% to 85.9% |
|
Adjusted Medicaid Health Plans(1) |
88.4% to 88.8% |
|
Medicare Health Plans |
84.1% to 84.7% |
|
Medicare PDP |
75.0% to 76.5% |
|
Costs of products and services |
|
|
Adjusted SG&A ratio(3)(4) |
8.35% to 8.45% |
|
ACA industry fee expense |
|
|
GAAP depreciation and amortization (D&A) expense |
|
|
Adjusted D&A expense(5) |
|
|
Interest expense |
|
|
Adjusted effective income tax rate(4)(6) |
34.0% to 35.0% |
|
Adjusted EPS(4)(7) |
|
|
(1) |
Excludes an estimated |
|
(2) |
Investment & other income primarily includes investment income and specialty pharmacy business sold to nonmembers. |
|
(3) |
SG&A expense (GAAP) less investigation costs and transaction and integration costs divided by premium revenue (GAAP) less Medicaid premium taxes revenue and ACA industry fee reimbursement. |
|
(4) |
WellCare is not able to estimate amounts associated with investigation costs and acquisition-related transaction and integration costs expected to be incurred in 2018 and, therefore, cannot reconcile these metrics to total projected GAAP metrics. |
|
(5) |
Excludes an estimated |
|
(6) |
Excludes the estimated income tax effect associated with the investigation costs, acquisition-related amortization expenses, and transaction and integration costs. |
|
(7) |
The company estimates adjusted earnings per diluted share guidance by adjusting net income for the estimated net-of-tax effect of investigation costs, acquisition-related amortization expense, and transaction and integration costs. |
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MEMBERSHIP INFORMATION |
||||||||||||||||||||
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(Unaudited) |
||||||||||||||||||||
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Change from |
||||||||||||||||||||
|
|
|
|||||||||||||||||||
|
|
|
|
Change |
% |
Change |
% |
||||||||||||||
|
Medicaid Health Plans Membership by State: |
||||||||||||||||||||
|
|
862,000 |
254,000 |
139,000 |
608,000 |
239.4 |
% |
723,000 |
520.1 |
% |
|||||||||||
|
|
735,000 |
737,000 |
757,000 |
(2,000) |
(0.3) |
% |
(22,000) |
(2.9) |
% |
|||||||||||
|
|
512,000 |
— |
— |
512,000 |
— |
% |
512,000 |
— |
% |
|||||||||||
|
|
502,000 |
515,000 |
498,000 |
(13,000) |
(2.5) |
% |
4,000 |
0.8 |
% |
|||||||||||
|
|
448,000 |
455,000 |
446,000 |
(7,000) |
(1.5) |
% |
2,000 |
0.4 |
% |
|||||||||||
|
|
265,000 |
279,000 |
291,000 |
(14,000) |
(5.0) |
% |
(26,000) |
(8.9) |
% |
|||||||||||
|
|
152,000 |
150,000 |
144,000 |
2,000 |
1.3 |
% |
8,000 |
5.6 |
% |
|||||||||||
|
|
143,000 |
144,000 |
156,000 |
(1,000) |
(0.7) |
% |
(13,000) |
(8.3) |
% |
|||||||||||
|
Other states |
284,000 |
284,000 |
285,000 |
— |
— |
% |
(1,000) |
(0.4) |
% |
|||||||||||
|
Total Medicaid Health Plans Membership (1) |
3,903,000 |
2,818,000 |
2,716,000 |
1,085,000 |
38.5 |
% |
1,187,000 |
43.7 |
% |
|||||||||||
|
Medicaid Health Plans Membership by Program: |
||||||||||||||||||||
|
TANF |
3,315,000 |
2,349,000 |
2,274,000 |
966,000 |
41.1 |
% |
1,041,000 |
45.8 |
% |
|||||||||||
|
SSI, ABD, Duals and LTC |
421,000 |
311,000 |
302,000 |
110,000 |
35.4 |
% |
119,000 |
39.4 |
% |
|||||||||||
|
CHIP and other |
167,000 |
158,000 |
140,000 |
9,000 |
5.7 |
% |
27,000 |
19.3 |
% |
|||||||||||
|
Total Medicaid Health Plans Membership (1) |
3,903,000 |
2,818,000 |
2,716,000 |
1,085,000 |
38.5 |
% |
1,187,000 |
43.7 |
% |
|||||||||||
|
Medicare Health Plans: |
||||||||||||||||||||
|
Medicare Advantage by State: |
||||||||||||||||||||
|
|
104,000 |
104,000 |
106,000 |
— |
— |
% |
(2,000) |
(1.9) |
% |
|||||||||||
|
|
96,000 |
96,000 |
101,000 |
— |
— |
% |
(5,000) |
(5.0) |
% |
|||||||||||
|
|
89,000 |
89,000 |
89,000 |
— |
— |
% |
— |
— |
% |
|||||||||||
|
|
50,000 |
50,000 |
46,000 |
— |
— |
% |
4,000 |
8.7 |
% |
|||||||||||
|
Other states |
205,000 |
171,000 |
150,000 |
34,000 |
19.9 |
% |
55,000 |
36.7 |
% |
|||||||||||
|
Total Medicare Health Plans (1) |
544,000 |
510,000 |
492,000 |
34,000 |
6.7 |
% |
52,000 |
10.6 |
% |
|||||||||||
|
Medicare Prescription Drug Plans |
1,056,000 |
1,056,000 |
1,141,000 |
— |
— |
% |
(85,000) |
(7.4) |
% |
|||||||||||
|
|
5,000 |
— |
— |
5,000 |
— |
% |
5,000 |
— |
% |
|||||||||||
|
Total Membership |
5,508,000 |
4,384,000 |
4,349,000 |
1,124,000 |
25.6 |
% |
1,159,000 |
26.6 |
% |
|||||||||||
|
(1) |
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|
|
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Selected Data From Consolidated Statements of Comprehensive Income |
|||||||||||||||
|
(Unaudited; dollars in millions except share and per share data) |
|||||||||||||||
|
For the Three Months Ended |
For the Nine Months Ended |
||||||||||||||
|
2018 |
2017 |
2018 |
2017 |
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Revenues: |
|||||||||||||||
|
Premium |
$ |
4,885.8 |
$ |
4,361.4 |
$ |
13,934.5 |
$ |
12,540.9 |
|||||||
|
Medicaid premium taxes |
31.5 |
29.5 |
94.2 |
90.6 |
|||||||||||
|
ACA industry fee reimbursement |
71.5 |
— |
199.0 |
— |
|||||||||||
|
Total premium |
4,988.8 |
4,390.9 |
14,227.7 |
12,631.5 |
|||||||||||
|
Products and services |
34.6 |
— |
34.6 |
— |
|||||||||||
|
Investment and other income |
34.7 |
12.0 |
81.0 |
30.6 |
|||||||||||
|
Total revenues |
5,058.1 |
4,402.9 |
14,343.3 |
12,662.1 |
|||||||||||
|
Expenses: |
|||||||||||||||
|
Medical benefits |
4,195.0 |
3,740.7 |
12,023.0 |
10,938.3 |
|||||||||||
|
Costs of products and services |
33.5 |
— |
33.5 |
— |
|||||||||||
|
Selling, general and administrative |
433.2 |
372.3 |
1,167.0 |
1,040.2 |
|||||||||||
|
ACA industry fee |
86.5 |
— |
247.0 |
— |
|||||||||||
|
Medicaid premium taxes |
31.5 |
29.5 |
94.2 |
90.6 |
|||||||||||
|
Depreciation and amortization |
46.2 |
31.4 |
117.1 |
84.6 |
|||||||||||
|
Interest |
23.6 |
17.1 |
57.8 |
51.4 |
|||||||||||
|
Total expenses |
4,849.5 |
4,191.0 |
13,739.6 |
12,205.1 |
|||||||||||
|
Income from operations |
208.6 |
211.9 |
603.7 |
457.0 |
|||||||||||
|
Loss on extinguishment of debt |
— |
— |
— |
26.1 |
|||||||||||
|
Income before income taxes and equity in losses |
208.6 |
211.9 |
603.7 |
430.9 |
|||||||||||
|
Equity in earnings (losses) of unconsolidated |
6.6 |
23.2 |
(0.1) |
22.1 |
|||||||||||
|
Income before income taxes |
215.2 |
235.1 |
603.6 |
453.0 |
|||||||||||
|
Income tax expense |
84.6 |
63.5 |
219.7 |
140.0 |
|||||||||||
|
Net income |
$ |
130.6 |
$ |
171.6 |
$ |
383.9 |
$ |
313.0 |
|||||||
|
Earnings per common share: |
|||||||||||||||
|
Basic |
$ |
2.74 |
$ |
3.86 |
$ |
8.40 |
$ |
7.04 |
|||||||
|
Diluted |
$ |
2.70 |
$ |
3.82 |
$ |
8.29 |
$ |
6.97 |
|||||||
|
Weighted average common shares outstanding: |
|||||||||||||||
|
Basic |
47,712,712 |
44,509,692 |
45,692,804 |
44,458,096 |
|||||||||||
|
Diluted |
48,384,427 |
44,969,033 |
46,287,616 |
44,909,916 |
|||||||||||
|
|
|||||||
|
Consolidated Balance Sheets |
|||||||
|
(Unaudited; dollars in millions except share data) |
|||||||
|
|
|
||||||
|
Assets |
|||||||
|
Current Assets: |
|||||||
|
Cash and cash equivalents |
$ |
4,306.6 |
$ |
4,198.6 |
|||
|
Short-term investments |
1,034.4 |
469.5 |
|||||
|
Premiums receivable, net |
969.6 |
453.4 |
|||||
|
Pharmacy rebates receivable, net |
494.6 |
335.0 |
|||||
|
Funds receivable for the benefit of members |
268.1 |
27.5 |
|||||
|
Prepaid expenses and other current assets, net |
608.9 |
335.2 |
|||||
|
Total current assets |
7,682.2 |
5,819.2 |
|||||
|
Property, equipment and capitalized software, net |
384.1 |
319.5 |
|||||
|
|
1,753.5 |
660.7 |
|||||
|
Other intangible assets, net |
1,326.6 |
367.9 |
|||||
|
Long-term investments |
844.4 |
766.2 |
|||||
|
Restricted cash, cash equivalents and investments |
234.8 |
211.0 |
|||||
|
Other assets |
17.8 |
4.9 |
|||||
|
Assets of discontinued operations (a) |
215.1 |
215.2 |
|||||
|
Total Assets |
$ |
12,458.5 |
$ |
8,364.6 |
|||
|
Liabilities and Stockholders' Equity |
|||||||
|
Current Liabilities: |
|||||||
|
Medical benefits payable |
$ |
2,901.4 |
$ |
2,146.3 |
|||
|
Unearned premiums |
20.8 |
65.9 |
|||||
|
Accounts payable and accrued expenses |
868.8 |
788.1 |
|||||
|
Funds payable for the benefit of members |
1,569.2 |
1,075.9 |
|||||
|
Other payables to government partners |
444.2 |
367.0 |
|||||
|
Total current liabilities |
5,804.4 |
4,443.2 |
|||||
|
Deferred income tax liability |
117.2 |
93.4 |
|||||
|
Long-term debt, net |
2,125.4 |
1,182.4 |
|||||
|
Other liabilities |
34.0 |
13.7 |
|||||
|
Liabilities of discontinued operations (a) |
215.1 |
215.2 |
|||||
|
Total liabilities |
8,296.1 |
5,947.9 |
|||||
|
Commitments and contingencies |
— |
— |
|||||
|
Stockholders' Equity: |
|||||||
|
Preferred stock, |
— |
— |
|||||
|
Common stock, |
0.5 |
0.4 |
|||||
|
Paid-in capital |
1,961.9 |
591.5 |
|||||
|
Retained earnings |
2,211.4 |
1,827.5 |
|||||
|
Accumulated other comprehensive loss |
(11.4) |
(2.7) |
|||||
|
Total Stockholders' Equity |
4,162.4 |
2,416.7 |
|||||
|
Total Liabilities and Stockholders' Equity |
$ |
12,458.5 |
$ |
8,364.6 |
|||
|
(a) Refer to the basis of presentation for a discussion of discontinued operations. |
|||||||
|
|
|||||||
|
Consolidated Statements of Cash Flows |
|||||||
|
(Unaudited; dollars in millions) |
|||||||
|
For the Nine Months Ended |
|||||||
|
2018 |
2017 |
||||||
|
Cash flows from operating activities: |
|||||||
|
Net income |
$ |
383.9 |
$ |
313.0 |
|||
|
Adjustments to reconcile net income to cash flows from operating activities: |
|||||||
|
Depreciation and amortization |
117.1 |
84.6 |
|||||
|
Loss on extinguishment of debt |
— |
26.1 |
|||||
|
Stock-based compensation expense |
51.5 |
32.8 |
|||||
|
Deferred taxes, net |
(9.8) |
(39.0) |
|||||
|
Other, net |
13.1 |
13.4 |
|||||
|
Changes in operating accounts, net of effects from acquisitions: |
|||||||
|
Premiums receivable, net |
(144.1) |
58.4 |
|||||
|
Pharmacy rebates receivable, net |
(138.7) |
(52.7) |
|||||
|
Medical benefits payable |
227.1 |
258.8 |
|||||
|
Unearned premiums |
(74.7) |
574.4 |
|||||
|
Other payables to government partners |
64.8 |
36.6 |
|||||
|
Accrued liabilities and other, net |
(292.2) |
(60.9) |
|||||
|
Net cash provided by operating activities |
198.0 |
1,245.5 |
|||||
|
Cash flow from investing activities: |
|||||||
|
Acquisitions and acquisition-related settlements, net of cash acquired |
(2,035.7) |
(728.5) |
|||||
|
Purchases of investments |
(1,322.6) |
(1,062.2) |
|||||
|
Proceeds from sales and maturities of investments |
822.8 |
324.1 |
|||||
|
Additions to property, equipment and capitalized software, net |
(87.5) |
(92.6) |
|||||
|
Net cash used in investing activities |
(2,623.0) |
(1,559.2) |
|||||
|
Cash flows from financing activities: |
|||||||
|
Proceeds from issuance of debt, net of financing costs paid |
739.0 |
1,182.2 |
|||||
|
Borrowings on Revolving Credit Facility, net of financing costs paid |
221.3 |
— |
|||||
|
Proceeds from issuance common stock, net of issuance fees paid |
1,342.3 |
— |
|||||
|
Payments on debt |
(25.0) |
(1,026.1) |
|||||
|
Repurchase and retirement of shares to satisfy employee tax withholding requirements |
(23.3) |
(13.6) |
|||||
|
Funds received for the benefit of members, net |
250.8 |
978.0 |
|||||
|
Other, net |
29.5 |
13.4 |
|||||
|
Net cash provided by financing activities |
2,534.6 |
1,133.9 |
|||||
|
Increase in cash, cash equivalents and restricted cash and cash equivalents |
109.6 |
820.2 |
|||||
|
Balance at beginning of period |
4,263.0 |
4,121.3 |
|||||
|
Balance at end of period |
$ |
4,372.6 |
$ |
4,941.5 |
|||
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
|||||||
|
Cash paid for taxes |
$ |
174.6 |
$ |
149.5 |
|||
|
Cash paid for interest |
$ |
65.5 |
$ |
56.3 |
|||
|
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS: |
|||||||
|
Non-cash additions to property, equipment, and capitalized software |
$ |
3.7 |
$ |
11.3 |
|||
|
|
|||||||||||||||
|
SUPPLEMENTAL INFORMATION |
|||||||||||||||
|
SELECTED SEGMENT INFORMATION |
|||||||||||||||
|
(Unaudited; dollars in millions) |
|||||||||||||||
|
For the Three Months Ended |
For the Nine Months Ended |
||||||||||||||
|
2018 |
2017 |
2018 |
2017 |
||||||||||||
|
Medicaid Health Plans Segment: |
|||||||||||||||
|
Premium Revenue (GAAP) |
$ |
3,223.3 |
$ |
2,722.7 |
$ |
8,899.4 |
$ |
8,058.3 |
|||||||
|
Medicaid premium taxes |
(31.5) |
(29.5) |
(94.2) |
(90.6) |
|||||||||||
|
ACA industry fee reimbursement |
(71.5) |
— |
(199.0) |
— |
|||||||||||
|
Adjusted premium revenue (a) |
3,120.3 |
2,693.2 |
8,606.2 |
7,967.7 |
|||||||||||
|
Medical benefits expense |
2,738.1 |
2,341.7 |
7,601.1 |
7,039.2 |
|||||||||||
|
Medical benefits ratio (GAAP) |
84.9 |
% |
86.0 |
% |
85.4 |
% |
87.4 |
% |
|||||||
|
Adjusted medical benefits ratio(a) |
87.8 |
% |
86.9 |
% |
88.3 |
% |
88.3 |
% |
|||||||
|
Medicare Health Plans Segment (GAAP): |
|||||||||||||||
|
Premium revenue |
$ |
1,582.0 |
$ |
1,466.3 |
$ |
4,684.9 |
$ |
3,877.6 |
|||||||
|
Medical benefits expense |
1,340.8 |
1,256.3 |
3,929.8 |
3,301.4 |
|||||||||||
|
Medical benefits ratio |
84.8 |
% |
85.7 |
% |
83.9 |
% |
85.1 |
% |
|||||||
|
Prescription Drug Plans Segment (GAAP): |
|||||||||||||||
|
Premium revenue |
$ |
182.3 |
$ |
201.9 |
$ |
642.2 |
$ |
695.6 |
|||||||
|
Medical benefits expense |
115.1 |
142.7 |
491.1 |
597.7 |
|||||||||||
|
Medical benefits ratio |
63.1 |
% |
70.7 |
% |
76.5 |
% |
85.9 |
% |
|||||||
|
Corporate and Other (GAAP): |
|||||||||||||||
|
Premium revenue |
$ |
1.2 |
$ |
— |
$ |
1.2 |
$ |
— |
|||||||
|
Medical benefits expense |
1.0 |
— |
1.0 |
— |
|||||||||||
|
|
|||||||||||||||
|
Premium Revenue (GAAP) |
$ |
4,988.8 |
$ |
4,390.9 |
$ |
14,227.7 |
$ |
12,631.5 |
|||||||
|
Medicaid premium taxes |
(31.5) |
(29.5) |
(94.2) |
(90.6) |
|||||||||||
|
ACA industry fee reimbursement |
(71.5) |
— |
(199.0) |
— |
|||||||||||
|
Adjusted premium revenue (a) |
4,885.8 |
4,361.4 |
13,934.5 |
12,540.9 |
|||||||||||
|
Medical benefits expense |
4,195.0 |
3,740.7 |
12,023.0 |
10,938.3 |
|||||||||||
|
Medical benefits ratio (GAAP) |
84.1 |
% |
85.2 |
% |
84.5 |
% |
86.6 |
% |
|||||||
|
Adjusted medical benefits ratio(a) |
85.9 |
% |
85.8 |
% |
86.3 |
% |
87.2 |
% |
|||||||
|
(a) Refer to the basis of presentation for a discussion of non-GAAP financial measures. |
|||||||||||||||
|
|
||||||||||||||||||
|
SUPPLEMENTAL INFORMATION (Continued) |
||||||||||||||||||
|
Reconciliation of Selling, General and Administrative Expense Ratios |
||||||||||||||||||
|
(Unaudited; dollars in millions) |
||||||||||||||||||
|
The Company reports its selling, general and administrative ("SG&A") expense ratio on an adjusted or non-GAAP basis modified to exclude the revenue effect of Medicaid premium taxes and ACA industry fee reimbursement from premiums. The Adjusted SG&A expense ratio also excludes the effect of investigation costs and acquisition-related transaction and integration costs. |
||||||||||||||||||
|
For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||||
|
2018 |
2017 |
2018 |
2017 |
|||||||||||||||
|
Company revenue: |
||||||||||||||||||
|
As determined under GAAP |
$ |
5,058.1 |
$ |
4,402.9 |
$ |
14,343.3 |
$ |
12,662.1 |
||||||||||
|
Medicaid premium taxes |
(31.5) |
(29.5) |
(94.2) |
(90.6) |
||||||||||||||
|
ACA industry fee reimbursement |
(71.5) |
— |
(199.0) |
— |
||||||||||||||
|
Adjusted revenue(1) |
$ |
4,955.1 |
$ |
4,373.4 |
$ |
14,050.1 |
$ |
12,571.5 |
||||||||||
|
SG&A Expense: |
||||||||||||||||||
|
As determined under GAAP |
$ |
433.2 |
$ |
372.3 |
$ |
1,167.0 |
$ |
1,040.2 |
||||||||||
|
Adjustments: |
||||||||||||||||||
|
Investigation costs |
(0.1) |
(0.9) |
(0.3) |
(7.2) |
||||||||||||||
|
Transaction and integration costs |
(13.1) |
(6.6) |
(25.5) |
(33.3) |
||||||||||||||
|
Adjusted SG&A Expense(1) |
$ |
420.0 |
$ |
364.8 |
$ |
1,141.2 |
$ |
999.7 |
||||||||||
|
SG&A expense ratio: |
||||||||||||||||||
|
As determined under GAAP |
8.6 |
% |
8.5 |
% |
8.1 |
% |
8.2 |
% |
||||||||||
|
Effect of Medicaid premium taxes |
0.1 |
% |
0.1 |
% |
— |
% |
— |
% |
||||||||||
|
Effect of ACA industry fee reimbursement |
0.2 |
% |
— |
% |
0.1 |
% |
— |
% |
||||||||||
|
Effect of SG&A expense adjustments above(1) (2) |
(0.4) |
% |
(0.3) |
% |
(0.2) |
% |
(0.2) |
% |
||||||||||
|
Adjusted SG&A expense ratio(1) (2) |
8.5 |
% |
8.3 |
% |
8.1 |
% |
8.0 |
% |
||||||||||
|
(1) Refer to the basis of presentation for a discussion of non-GAAP financial measures.
|
||||||||||||||||||
|
(2) Effective |
||||||||||||||||||
|
|
|||||||||||||||||||||||||
|
SUPPLEMENTAL INFORMATION (Continued) |
|||||||||||||||||||||||||
|
Reconciliation of Certain GAAP Financial Information |
|||||||||||||||||||||||||
|
(Unaudited; dollars in millions, except per share data) |
|||||||||||||||||||||||||
|
The Company reports adjusted operating results on a non-GAAP basis to exclude certain expenses and other items that management believes are not indicative of longer-term business trends and operations. The following table presents applicable financial information, as determined under GAAP, reconciled to the adjusted financial information for the same periods. Refer to the basis of presentation for a discussion of non-GAAP financial measures. |
|||||||||||||||||||||||||
|
For the Three Months Ended |
For the Three Months Ended |
||||||||||||||||||||||||
|
GAAP |
Adjustments |
Adjusted |
GAAP |
Adjustments |
Adjusted |
||||||||||||||||||||
|
Selling, general, and administrative expense |
$ |
433.2 |
$ |
(13.2) |
(1) |
$ |
420.0 |
$ |
372.3 |
$ |
(7.5) |
(1) |
$ |
364.8 |
|||||||||||
|
Depreciation and amortization |
$ |
46.2 |
$ |
(19.9) |
$ |
26.3 |
$ |
31.4 |
$ |
(10.6) |
$ |
20.8 |
|||||||||||||
|
Income tax expense |
$ |
84.6 |
$ |
2.5 |
(2) |
$ |
87.1 |
$ |
63.5 |
$ |
6.1 |
(2) |
$ |
69.6 |
|||||||||||
|
Effective tax rate
|
39.3 |
% |
(4.2) |
% |
(2) |
35.1 |
% |
27.0 |
% |
0.5 |
% |
(2) |
27.5 |
% |
|||||||||||
|
Net income |
$ |
130.6 |
$ |
30.6 |
$ |
161.2 |
$ |
171.6 |
$ |
12.0 |
$ |
183.6 |
|||||||||||||
|
Net income margin (3) |
2.6 |
% |
0.7 |
% |
3.3 |
% |
3.9 |
% |
0.3 |
% |
4.2 |
% |
|||||||||||||
|
Earnings per share: |
|||||||||||||||||||||||||
|
Basic |
$ |
2.74 |
$ |
0.64 |
$ |
3.38 |
$ |
3.86 |
$ |
0.26 |
$ |
4.12 |
|||||||||||||
|
Diluted |
$ |
2.70 |
$ |
0.63 |
$ |
3.33 |
$ |
3.82 |
$ |
0.26 |
$ |
4.08 |
|||||||||||||
|
For the Nine Months Ended |
For the Nine Months Ended |
||||||||||||||||||||||||
|
GAAP |
Adjustments |
Adjusted |
GAAP |
Adjustments |
Adjusted |
||||||||||||||||||||
|
Selling, general, and administrative expense |
$ |
1,167.0 |
$ |
(25.8) |
(1) |
$ |
1,141.2 |
$ |
1,040.2 |
$ |
(40.5) |
(1) |
$ |
999.7 |
|||||||||||
|
Depreciation and amortization |
$ |
117.1 |
$ |
(41.1) |
$ |
76.0 |
$ |
84.6 |
$ |
(22.1) |
$ |
62.5 |
|||||||||||||
|
Loss on extinguishment of debt |
$ |
— |
$ |
— |
$ |
— |
$ |
26.1 |
$ |
(26.1) |
$ |
— |
|||||||||||||
|
Income tax expense |
$ |
219.7 |
$ |
10.9 |
(2) |
$ |
230.6 |
$ |
140.0 |
$ |
32.7 |
(2) |
$ |
172.7 |
|||||||||||
|
Effective tax rate |
36.4 |
% |
(2.0) |
% |
(2) |
34.4 |
% |
30.9 |
% |
1.0 |
% |
(2) |
31.9 |
% |
|||||||||||
|
Net income |
$ |
383.9 |
$ |
56.0 |
$ |
439.9 |
$ |
313.0 |
$ |
56.0 |
$ |
369.0 |
|||||||||||||
|
Net income margin(3) |
2.7 |
% |
0.4 |
% |
3.1 |
% |
2.5 |
% |
0.4 |
% |
2.9 |
% |
|||||||||||||
|
Earnings per share: |
|||||||||||||||||||||||||
|
Basic |
$ |
8.40 |
$ |
1.23 |
$ |
9.63 |
$ |
7.04 |
$ |
1.26 |
$ |
8.30 |
|||||||||||||
|
Diluted |
$ |
8.29 |
$ |
1.21 |
$ |
9.50 |
$ |
6.97 |
$ |
1.25 |
$ |
8.22 |
|||||||||||||
|
(1) Comprised of investigation costs and transaction and integration costs, as disclosed in the "Reconciliation of Selling, General and Administrative Expense Ratios" table. |
|||||||||||||||||||||||||
|
(2) Based on the effective income tax rates applicable to adjusted (non-GAAP) results, the company estimated the effect on income tax expense and the effective tax rate associated with the non-GAAP adjustments. Refer to the basis of presentation for a discussion of non-GAAP financial measures. |
|||||||||||||||||||||||||
|
(3) Effective |
|||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
|
SUPPLEMENTAL INFORMATION (Continued) |
|||||||||||||||||||||||||||
|
Presentation of Certain Adjusted Historical Financial Information |
|||||||||||||||||||||||||||
|
(Unaudited; dollars in millions) |
|||||||||||||||||||||||||||
|
Effective |
|||||||||||||||||||||||||||
|
2017 |
2018 |
||||||||||||||||||||||||||
|
Three Months Ended |
Three Months Ended |
Three Months Ended |
Three Months Ended |
Year Ended |
Three Months Ended |
Three Months Ended |
|||||||||||||||||||||
|
Total Revenue: |
|||||||||||||||||||||||||||
|
As determined under GAAP |
$ |
3,954.2 |
$ |
4,305.0 |
$ |
4,402.9 |
$ |
4,345.1 |
$ |
17,007.2 |
$ |
4,646.2 |
$ |
4,639.0 |
|||||||||||||
|
Medicaid Premium Taxes |
(29.0) |
(31.0) |
(29.5) |
(29.2) |
(118.7) |
(32.1) |
(30.6) |
||||||||||||||||||||
|
ACA Industry Fee Reimbursement |
— |
— |
— |
— |
— |
(64.7) |
(62.8) |
||||||||||||||||||||
|
Adjusted total revenue |
$ |
3,925.2 |
$ |
4,274.0 |
$ |
4,373.4 |
$ |
4,315.9 |
$ |
16,888.5 |
$ |
4,549.4 |
$ |
4,545.6 |
|||||||||||||
|
Total SG&A Expense: |
|||||||||||||||||||||||||||
|
As determined under GAAP |
$ |
302.4 |
$ |
365.5 |
$ |
372.3 |
$ |
444.5 |
$ |
1,484.7 |
$ |
355.9 |
$ |
377.9 |
|||||||||||||
|
Adjustments: |
|||||||||||||||||||||||||||
|
Investigation Costs |
(3.1) |
(3.2) |
(0.9) |
(0.7) |
(7.9) |
(0.1) |
(0.1) |
||||||||||||||||||||
|
Acquisition costs |
(1.1) |
(25.6) |
(6.6) |
(4.2) |
(37.5) |
(2.7) |
(9.7) |
||||||||||||||||||||
|
Adjusted SG&A Expense |
$ |
298.2 |
$ |
336.7 |
$ |
364.8 |
$ |
439.6 |
$ |
1,439.3 |
$ |
353.1 |
$ |
368.1 |
|||||||||||||
|
As adjusted: |
|||||||||||||||||||||||||||
|
GAAP SG&A Ratio |
7.6 |
% |
8.5 |
% |
8.5 |
% |
10.2 |
% |
8.7 |
% |
7.7 |
% |
8.1 |
% |
|||||||||||||
|
Adjusted SG&A expense ratio |
7.6 |
% |
7.9 |
% |
8.3 |
% |
10.2 |
% |
8.5 |
% |
7.8 |
% |
8.1 |
% |
|||||||||||||
|
As reported: |
|||||||||||||||||||||||||||
|
GAAP SG&A Ratio |
7.7 |
% |
8.5 |
% |
8.5 |
% |
10.3 |
% |
8.8 |
% |
7.7 |
% |
8.2 |
% |
|||||||||||||
|
Adjusted SG&A expense ratio |
7.6 |
% |
7.9 |
% |
8.4 |
% |
10.2 |
% |
8.5 |
% |
7.8 |
% |
8.1 |
% |
|||||||||||||
|
Net income |
|||||||||||||||||||||||||||
|
As determined under GAAP |
$ |
67.3 |
$ |
74.1 |
$ |
171.6 |
$ |
60.7 |
$ |
373.7 |
$ |
101.7 |
$ |
151.6 |
|||||||||||||
|
SG&A Adjustments |
4.2 |
28.8 |
7.5 |
4.9 |
45.4 |
2.8 |
9.8 |
||||||||||||||||||||
|
Acquisition-related amortization |
3.2 |
8.3 |
10.6 |
10.6 |
32.7 |
10.5 |
10.7 |
||||||||||||||||||||
|
Loss on extinguishment of debt |
— |
26.1 |
— |
— |
26.1 |
— |
— |
||||||||||||||||||||
|
Tax effect of adjustments |
(2.7) |
(23.9) |
(6.1) |
(5.9) |
(38.6) |
(3.2) |
(5.2) |
||||||||||||||||||||
|
TCJA benefit |
— |
— |
— |
(56.1) |
(56.1) |
— |
— |
||||||||||||||||||||
|
Adjusted Net Income |
$ |
72.0 |
$ |
113.4 |
$ |
183.6 |
$ |
14.2 |
$ |
383.2 |
$ |
111.8 |
$ |
166.9 |
|||||||||||||
|
As adjusted: |
|||||||||||||||||||||||||||
|
GAAP Net Income Margin |
1.7 |
% |
1.7 |
% |
3.9 |
% |
1.4 |
% |
2.2 |
% |
2.2 |
% |
3.3 |
% |
|||||||||||||
|
Adjusted Net Income Margin |
1.8 |
% |
2.7 |
% |
4.2 |
% |
0.3 |
% |
2.3 |
% |
2.5 |
% |
3.7 |
% |
|||||||||||||
|
As reported: |
|||||||||||||||||||||||||||
|
GAAP Net Income Margin |
1.7 |
% |
1.7 |
% |
3.9 |
% |
1.4 |
% |
2.2 |
% |
2.2 |
% |
3.3 |
% |
|||||||||||||
|
Adjusted Net Income Margin |
1.8 |
% |
2.7 |
% |
4.2 |
% |
0.3 |
% |
2.3 |
% |
2.5 |
% |
3.7 |
% |
|||||||||||||
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