Todd S. Farha - Chairman, President, and CEO
Paul L. Behrens - Sr. VP and CFO
WellCare Health Plans, Inc. (WCG) Q3 2007 Earnings Call November 5, 2007 8:30 AM ET
[Call Starts Abruptly]
Friday, until independent investigation conducted by the special committee is complete or substantially complete, the Company will not be in a position to file its Form 10-Q for the third quarter. Therefore, the filing of the 10-Q will be delayed.
The Company is unable to predict how long the special committee’s investigation will take or when it will complete or substantially complete its work. Depending on when the special committee complete its work, the filing of the Company’s Form 10-K for the year ending December 31, 2007, may also be delayed. Because of the delay and filing our third quarter 10-Q, today we are reporting certain preliminary un-audited financial and operating data.
Further, as described in our press release issued earlier today, the Wall Street Journal published an article that reported among other things “according to a person familiar with the details of the investigation” federal and Florida medicated authorities are investigating allegations that the Company inflated the amount it spent on mental healthcare in order to keep money it should have refunded the Florida’s medicate program. According to the article the investigation followed the filing of a so-called whistleblower lawsuit. We have not been served with nor have we seen any such whistleblower lawsuit.
We also learned from a docket search of a qui tam lawsuit filed in Florida state court against several defendants including the Company and one of its subsidiaries. The complaint is under seal and we cannot determine the nature of the allegations and, therefore do not know whether the qui tam action relates to the subject matter of the federal and Florida investigations or to the allegations reported in the Wall Street Journal article.
Before turning the call over to Paul, I would like to add that despite the investigation, our primary focus continues to be ensuring that our members and providers are served by continuing to pay provider claims timely, answering our customer’s calls, and providing access to cover healthcare services for our members. Our call centers continue serving our members and providers with an average speed of answer of under 10 seconds.
Our Tampa service center continues paying our provider claims with a turnaround time of over 95% within 10 days. We are also maintaining our turnaround times on healthcare authorizations processing 90% within two business days. Our pharmaceutical care teams continue to engage in an average of 6,000 interactions per business day, with members, physicians and pharmacies about drug therapies, and we continue to process an average of more than 150,000 prescriptions per business day.
Now Paul will review certain preliminary un-audited operations cash flow and financial condition highlights for the quarter.
Paul L. Behrens - Senior Vice President and Chief Financial Officer
Thank you, Todd and good morning everyone.
Total revenues for the third quarter 2007 rose 41.7% year-over-year to $1.43 billion. The growth is attributable principally to the increase in Company’s membership, including the launch of the Georgia Medicaid Health Plan, which began operations in June 2006 as well as growth in Medicare products. Medicare Advantage membership growth was 83.9% year-over-year and 77.8% year-to-date.
Medical benefits expenses were $1.14 billion compared with the $802.9 million for the same period last year. The medical benefits ratio was 81.5% compared with 80.3% in 2006, excluding the 0.5% impact of the 2006 net reinsurance charge for the Company's Medicare prescription drug plan product. Including the reinsurance charge, the third quarter 2006 medical benefits ratio was 80.8%. As previously disclosed, the Company did not renew its PDP reinsurance in 2007. The 120 basis point increase in the medical benefits ratio was due primarily to changes in the demographic mix of our members, including the addition of new Medicare Advantage products.
SG&A expenses were $163.4 million, representing 11.4% of total revenues compared with $124.9 million or 12.4% of total revenues for the same period last year. The increase in SG&A expenses is inline with the expansion of our Company’s operations and growth initiatives. For the nine month ended September 30, 2007, the Company’s net cash provided by operations was $366.5 million or 2.4 times net income, after adjusting for the timing of receipt of payments from the Company's government partners. Please refer to the reconciliation on the attachment to the Company’s press release of adjusted net cash provided by operations to net cash provided by operations of $361.6 million on a GAAP basis.
Days in claims payable were 52 as of September 30, 2007, compared with 51 as of June 30, 2007, and 56 as of September 30, 2006. The quarter-to-quarter increase resulted principally from the 2007 launch of the Company's Medicare private fee-for-service products. As of September 30, 2007, the Company had cash and cash equivalents of $1.2 billion as well as investments classified as current assets of $287.5 million for a total of $1.49 billion in cash and short-term investments.
As indicated at the beginning of today’s call, the financial and operating data included today are preliminary and un-audited. Such data have not been reviewed by the Company's outside auditors. Actual results for the three and nine months ended September 30, 2007, may differ materially from the preliminary data reported on today, depending on whether and the extent to which the outcomes of the governmental and special committee investigations impact the interim financial statements for such periods and any currently unanticipated issues that the Company's outside auditors may raise, when they review the Company's interim financial statements for these periods following completion or substantial completion of the special committee’s investigation.
The Company is also unable at this time to assess the impact, if any, on the ongoing investigations on the Company's previously issued historical financial statements. Pending completion of the special committee’s investigation, the Company will not be providing earnings guidance.
Todd S. Farha - Chairman, President, and Chief Executive Officer
Thank you, Paul. The past 12 days have been difficult and challenging for WellCare and all our stakeholders. I have never been more proud of our 3,500 associates and their dedication to WellCare’s members, providers, government partners and other stakeholders. Our associates have risen to the occasion and continue to conduct themselves in a highly professional manner. We thank them for their commitment to serving our 2.3 million members.
We will continue to provide additional information regarding WellCare’s operations and the investigation as appropriate. Thank you for listening today.
Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.