April 27, 2010 at 06:00 AM EDT
Centene Corporation Reports 2010 First Quarter Earnings

ST. LOUIS, April 27 /PRNewswire-FirstCall/ -- Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended March 31, 2010.  The results of operations for our New Jersey health plan, University Health Plans, are classified as discontinued operations.  The discussions below, with the exception of cash flow information, are in the context of continuing operations and all financial ratios exclude premium taxes.

First Quarter Highlights

  • Quarter-end managed care at-risk membership of 1,468,600, an increase of 221,300 members year over year.
  • Premium and Service Revenues of $1.022 billion, representing 12.5% year over year growth.
  • Health Benefits Ratio (HBR) of 84.0%.  
  • General and Administrative (G&A) expense ratio of 13.3%.
  • Days in claims payable of 47.7, including pharmacy claims payable.
  • Diluted earnings per share from continuing operations of $0.41.  

Other Events

  • During the first quarter of 2010, we completed the sale of 5.75 million shares of common stock, including the underwriters' overallotment option, for a public offering price of $19.25 per share.  Net proceeds from the sale of the shares were $104.6 million.  
  • In February 2010, we announced a definitive agreement to acquire certain Medicaid assets in South Carolina.  The transaction is expected to close in the second quarter of 2010 and add revenues of approximately $60 million and diluted earnings per share of $0.02 to $0.03 for 2010.
  • In March 2010, we completed the previously announced sale of our New Jersey health plan, University Health Plans, and recorded a pre-tax gain on sale of $8.2 million, or $0.08 per diluted share, in discontinued operations during the first quarter of 2010.
  • In March 2010, we announced that our specialty company, Cenpatico Behavioral Health, retained its existing service area contract and was also awarded an expanded contract by the Arizona Department of Health Services to manage behavioral healthcare services for an additional four counties.  The expanded contract is expected to take effect July 1, 2010, and add revenues of approximately $20 million for 2010.
  • In March 2010, Moody's Investors Service upgraded our senior unsecured debt rating and our corporate family rating to Ba2 from Ba3.
  • In April 2010, we announced that our Celtic Group subsidiary, CeltiCare Health Plan of Massachusetts, renewed its contract to serve Commonwealth Care members as the low cost provider in Massachusetts.  
  • In April 2010, we announced that our Wisconsin subsidiary was not awarded the Southeast Wisconsin BadgerCare Plus Managed Care contract.  The loss of the contract award will reduce revenues by approximately $25 million in 2010.
  • In April 2010, Fortune Magazine announced that Centene ranked #486 in the magazine's annual ranking of the world's largest companies by revenue, up from #609 last year. The ranking placed Centene in the Fortune 500 for the first time.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "We are pleased to have maintained our positive operating momentum as 2010 begins and we are dedicated to maintaining our discipline and focus in the future."

The following table depicts membership in Centene's managed care organizations, by state, at March 31, 2010 and 2009:


March 31,


2010


2009

Arizona

19,000


15,500

Florida

105,900


29,100

Georgia

301,000


289,300

Indiana  

211,400


179,100

Massachusetts

26,900


Ohio  

156,000


137,000

South Carolina

53,900


48,500

Texas  

459,600


421,100

Wisconsin  

134,900


127,700

     Total at-risk membership

1,468,600


1,247,300

Non-risk membership

62,200


96,000

     Total  

1,530,800


1,343,300



The following table depicts membership in Centene's managed care organizations, by member category, at March 31, 2010 and 2009:


March 31,


2010


2009

Medicaid

1,088,300


921,100

CHIP & Foster Care

266,300


256,900

ABD & Medicare  

87,100


69,300

Other State programs  

26,900


   Total at-risk membership

1,468,600


1,247,300

Non-risk membership

62,200


96,000

   Total  

1,530,800


1,343,300



Statement of Operations

  • Premium and service revenues increased 12.5% in the three months ended March 31, 2010 over 2009 as a result of membership growth in all of our states.  This increase was moderated by the removal of pharmacy services in two states beginning in 2010.  These pharmacy carve outs had the effect of reducing 2010 revenue by approximately $35 million.
  • The consolidated HBR for the three months ended March 31, 2010 of 84.0% was an increase of 0.5% over the comparable period in 2009.  A reconciliation of the change in HBR from the prior year same period is presented below:



First Quarter 2009

83.5%



  Improvements in existing markets

(0.5)



  New markets reserved at higher rates

1.0



First Quarter 2010

84.0%









The increase in the first quarter of 2010 over the comparable period in 2009 was primarily due to higher HBR in our new markets, partially offset by improvements in our existing markets.  

  • Consolidated G&A expense as a percent of premium and service revenues was 13.3% in the first quarter of 2010, a decrease from 13.5% in the first quarter of 2009.  The decrease reflects the leveraging of our expenses over higher revenues, partially offset by a $4.6 million increase in contributions to the Company's charitable foundation.  
  • Other income for the quarter includes a $3.0 million gain on distributions received from the Reserve Primary Fund in excess of our adjusted basis.  An offsetting $3.0 million contribution was made to the Company's charitable foundation and is included in G&A expense discussed above.  
  • Earnings per diluted share from continuing operations were $0.41, compared to $0.43 in the first quarter of 2009, and reflect the approximate 10% increase in diluted shares outstanding resulting from the stock offering.  

Balance Sheet and Cash Flow

At March 31, 2010, the Company had cash and investments of $969.2 million, including $917.9 million held by its regulated entities and $51.3 million held by its unregulated entities.  Medical claims liabilities totaled $444.8 million, representing 47.7 days in claims payable, a decrease of 2.4 days from December 31, 2009.  Total debt was $232.7 million and debt to capitalization was 23.7%.  Year to date cash flow from operations was $(38.5) million, reflecting a $73.3 million decrease in unearned revenue from December 31, 2009 as a result of the prepayment of monthly premiums.  In 2010, only two monthly premium payments were received during the quarter from Ohio and Florida.

A reconciliation of the Company's change in days in claims payable from the immediately preceding quarter-end is presented below:



Days in claims payable, December 31, 2009

50.1


  Additional processing days at quarter end

(1.5)


  Pharmacy carve out

(0.9)


Days in claims payable, March 31, 2010

47.7







Outlook

The table below depicts the Company's annual guidance from continuing operations for 2010:



Full Year 2010




Low


High 


Premium and Service revenues (in millions)


$4,300


$4,400


Earnings per diluted share (EPS)


$1.73


$1.83


HBR %


84.0%


86.0%


G&A %


12.4%


12.9%








Diluted Shares Outstanding (in thousands)


50,500












The Company is increasing its earnings guidance by $0.03 to reflect the first quarter performance and results of the RFP's in Arizona and Wisconsin.  The Company is adjusting its revenue guidance to reflect a shift in the start date of our Mississippi operations to October 1, 2010.  Our current guidance excludes the previously announced South Carolina transaction, which is expected to add approximately $60 million of revenue and $0.02 to $0.03 diluted earnings per share in 2010, as the transaction has not yet closed.

Conference Call

As previously announced, the Company will host a conference call Tuesday, April 27, 2010, at 8:30 A.M. (Eastern Time) to review the financial results for the first quarter ended March 31, 2010, and to discuss its business outlook.  Michael F. Neidorff and William N. Scheffel will host the conference call.  Investors and other interested parties are invited to listen to the conference call by dialing 800-273-1254 in the U.S. and Canada; 973-638-3440 from abroad, or via a live, audio webcast on the Company's website at www.centene.com, under the Investors section.  A replay will be available for on-demand listening shortly after the completion of the call for the next twelve months or until 11:59 PM (Eastern Time) on Tuesday, May 11, 2011, at the aforementioned URL, or by dialing 800-642-1687 in the U.S. and Canada, or 706-645-9291 from abroad and entering access code 63527302.

About Centene Corporation

Centene Corporation, a Fortune 500 company, is a multi-line healthcare enterprise operating in two segments: Medicaid Managed Care and Specialty Services.  Our Medicaid Managed Care segment provides Medicaid and Medicaid-related health plan coverage to individuals through government subsidized programs, including Medicaid, the State Children's Health Insurance Program, or CHIP, Foster Care, Medicare Special Needs Plans and the Supplemental Security Income Program, also known as the Aged, Blind or Disabled Program, or collectively ABD.  Our Specialty Services segment offers products for behavioral health, health insurance exchanges, individual health insurance, life and health management, long-term care programs, managed vision, telehealth services, and pharmacy benefits management to state programs, healthcare organizations, employer groups and other commercial organizations, as well as to our own subsidiaries.  

The information provided in this press release contains forward-looking statements that relate to future events and future financial performance of Centene.  Subsequent events and developments may cause the Company's estimates to change.  The Company disclaims any obligation to update this forward-looking financial information in the future.  Readers are cautioned that matters subject to forward-looking statements involve known and unknown risks and uncertainties, including economic, regulatory, competitive and other factors that may cause Centene's or its industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.  Actual results may differ from projections or estimates due to a variety of important factors, including Centene's ability to accurately predict and effectively manage health benefits and other operating expenses, competition, changes in healthcare practices, changes in federal or state laws or regulations, inflation, provider contract changes, new technologies, reduction in provider payments by governmental payors, major epidemics, disasters and numerous other factors affecting the delivery and cost of healthcare.  The expiration, cancellation or suspension of Centene's Medicaid Managed Care contracts by state governments would also negatively affect Centene.  

(Tables Follow)


CENTENE CORPORATION AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)


March 31,
2010


December 31,
2009

ASSETS





Current assets:





Cash and cash equivalents of continuing operations, including $5,918 and $8,667, respectively, from consolidated variable interest entities

$

350,075

$

400,951

Cash and cash equivalents of discontinued operations


14


2,801

Total cash and cash equivalents


350,089


403,752

Premium and related receivables, net of allowance for uncollectible accounts of $1,338 and $1,338, respectively, including $6,565 and $11,313, respectively, from consolidated variable interest entities


110,120


103,456

Short-term investments, at fair value (amortized cost $39,953 and $39,230, respectively)


40,220


39,554

Other current assets, including $5,023 and $4,507, respectively, from consolidated variable interest entities


69,136


64,866

Current assets of discontinued operations other than cash


2,337


4,506

Total current assets


571,902


616,134

Long-term investments, at fair value (amortized cost $547,148 and $514,256, respectively)


558,270


525,497

Restricted deposits, at fair value (amortized cost $20,532 and $20,048, respectively)


20,618


20,132

Property, software and equipment, net of accumulated depreciation of $111,938 and $103,883, respectively, including $110,764 and $89,219, respectively, from consolidated variable interest entities


269,492


230,421

Goodwill


229,512


224,587

Intangible assets, net


22,008


22,479

Other long-term assets


35,416


36,829

Long-term assets of discontinued operations


23,453


26,285

Total assets

$

1,730,671

$

1,702,364

LIABILITIES AND STOCKHOLDERS' EQUITY





Current liabilities:





Medical claims liability

$

444,826

$

470,932

Accounts payable and accrued expenses, including $23,122 and $14,020, respectively, from consolidated variable interest entities


200,615


132,001

Unearned revenue


18,362


91,644

Current portion of long-term debt


660


646

Current liabilities of discontinued operations


20,650


20,685

Total current liabilities


685,113


715,908

Long-term debt


232,064


307,085

Other long-term liabilities


63,575


59,561

Long-term liabilities of discontinued operations


385


383

Total liabilities


981,137


1,082,937






Commitments and contingencies










Stockholders' equity:





Common stock, $.001 par value; authorized 100,000,000 shares; 51,490,256 issued and 49,049,990 outstanding at March 31, 2010, and 45,593,383 shares issued and 43,179,373 shares outstanding at December 31, 2009


51


46

Additional paid-in capital


390,878


281,806

Accumulated other comprehensive income:





Unrealized gain on investments, net of tax


7,203


7,348

Retained earnings


382,909


358,907

Treasury stock, at cost (2,440,266 and 2,414,010 shares, respectively)


(47,742)


(47,262)

Total Centene stockholders' equity


733,299


600,845

Noncontrolling interest


16,235


18,582

Total stockholders' equity


749,534


619,427

Total liabilities and stockholders' equity

$

1,730,671

$

1,702,364






CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(Unaudited)


Three Months Ended
March 31,



2010



2009


Revenues:








Premium

$

999,315



$

885,006


Service


22,907




23,849


Premium and service revenues


1,022,222




908,855


Premium tax


46,499




23,580


Total revenues


1,068,721




932,435


Expenses:








Medical costs


839,708




739,340


Cost of services


17,152




15,962


General and administrative expenses


135,507




122,279


Premium tax


46,743




23,942


Total operating expenses


1,039,110




901,523


Earnings from operations


29,611




30,912


Other income (expense):








Investment and other income


7,057




3,613


Interest expense


(3,813)




(3,986)


Earnings from continuing operations, before income tax expense


32,855




30,539


Income tax expense


12,525




10,845


Earnings from continuing operations, net of income tax expense


20,330




19,694


Discontinued operations, net of income tax expense (benefit) of $4,440 and $(160), respectively


3,920




(449)


Net earnings


24,250




19,245


Noncontrolling interest


248




787


Net earnings attributable to Centene Corporation

$

24,002



$

18,458










Amounts attributable to Centene Corporation common shareholders:








Earnings from continuing operations, net of income tax expense

$

20,082



$

18,907


Discontinued operations, net of income tax expense (benefit)


3,920




(449)


Net earnings

$

24,002



$

18,458










Net earnings (loss) per share attributable to Centene Corporation:








Basic:








Continuing operations

$

0.43



$

0.44


Discontinued operations


0.08




(0.01)


Earnings per common share

$

0.51



$

0.43


Diluted:








Continuing operations

$

0.41



$

0.43


Discontinued operations


0.08




(0.01)


Earnings per common share

$

0.49



$

0.42










Weighted average number of shares outstanding:








Basic


47,260,714




43,067,992


Diluted


48,761,528




44,238,863







CENTENE CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


Three Months Ended March 31,



2010


2009









Cash flows from operating activities:







Net earnings

$

24,250


$

19,245


Adjustments to reconcile net earnings to net cash provided by operating activities







Depreciation and amortization


12,527



10,233


Stock compensation expense


3,460



3,789


(Gain) loss on sale of investments, net


(3,547)



439


(Gain) on sale of UHP


(8,201)



-


Deferred income taxes


950



2,282


Changes in assets and liabilities







Premium and related receivables


(4,457)



(39,396)


Other current assets


(1,375)



(1,397)


Other assets


1,937



(497)


Medical claims liabilities


(33,129)



2,165


Unearned revenue


(73,282)



44,507


Accounts payable and accrued expenses


40,433



(18,674)


Other operating activities


1,934



722


Net cash (used in) provided by operating activities


(38,500)



23,418


Cash flows from investing activities:







Capital expenditures


(23,099)



(11,157)


Purchases of investments


(146,935)



(292,964)


Proceeds from asset sales


13,420



-


Sales and maturities of investments


117,469



224,312


Investments in acquisitions, net of cash acquired


(2,019)



(5,191)


Net cash used in investing activities


(41,164)



(85,000)


Cash flows from financing activities:







Proceeds from exercise of stock options


519



890


Proceeds from borrowings


22,030



108,000


Proceeds from stock offering


104,557



-


Payment of long-term debt


(97,136)



(82,573)


Distributions to noncontrolling interest


(3,585)



(1,181)


Excess tax benefits from stock compensation


96



(17)


Common stock repurchases


(480)



(407)


Net cash provided by financing activities


26,001)



24,712


Net decrease in cash and cash equivalents


(53,663)



(36,870)


Cash and cash equivalents, beginning of period


403,752



379,099


Cash and cash equivalents, end of period

$

350,089


$

342,229









Supplemental disclosures of cash flow information:







Interest paid

$

345


$

724


Income taxes paid

$

8,272


$

18,602









Supplemental disclosure of non-cash investing and financing activities:







Contribution from noncontrolling interest

$

306


$

-







CENTENE CORPORATION


CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA


Q1


Q4


Q3


Q2


Q1


2010


2009


2009


2009


2009

MEMBERSHIP










Managed Care:










Arizona

19,000


18,100


17,400


16,200


15,500

Florida

105,900


102,600


84,400


22,300


29,100

Georgia

301,000


309,700


303,400


292,800


289,300

Indiana

211,400


208,100


200,700


196,100


179,100

Massachusetts

26,900


27,800


500



Ohio

156,000


150,800


151,200


141,200


137,000

South Carolina

53,900


48,600


46,100


46,000


48,500

Texas

459,600


455,100


450,200


443,200


421,100

Wisconsin

134,900


134,800


132,500


131,200


127,700

Total at-risk membership

1,468,600


1,455,600


1,386,400


1,289,000


1,247,300

Non-risk membership

62,200


63,700


63,200


114,000


96,000

TOTAL

1,530,800


1,519,300


1,449,600


1,403,000


1,343,300











Medicaid

1,088,300


1,081,400


1,040,000


958,600


921,100

CHIP & Foster Care

266,300


263,600


263,400


261,400


256,900

ABD & Medicare

87,100


82,800


82,500


69,000


69,300

Other State programs

26,900


27,800


500



Total at-risk membership

1,468,600


1,455,600


1,386,400


1,289,000


1,247,300

Non-risk membership

62,200


63,700


63,200


114,000


96,000

TOTAL

1,530,800


1,519,300


1,449,600


1,403,000


1,343,300











Specialty Services(a):










Cenpatico Behavioral Health










Arizona

119,300


120,100


117,300


110,500


104,700

Kansas

39,800


41,400


41,000


41,100


40,600

Bridgeway Health Solutions










Long-term Care

2,700


2,600


2,500


2,400


2,300

TOTAL

161,800


164,100


160,800


154,000


147,600











(a) Includes external membership only.











REVENUE PER MEMBER PER MONTH(b)

$

215.95

(c)

$

226.42


$

222.77


$

219.75


$

220.29











CLAIMS(b)










Period-end inventory

341,400


423,400


414,900


362,200


325,000

Average inventory

283,900


279,000


227,100


234,500


267,600

Period-end inventory per member

0.23


0.29


0.30


0.28


0.26

(b) Revenue per member and claims information are presented for the Managed Care at-risk members.

(c) Reduction in revenue per member per month is a result of the pharmacy carve-outs in 2010.








Q1


Q4


Q3


Q2


Q1


2010


2009


2009


2009


2009











DAYS IN CLAIMS PAYABLE










Medical

46.6


48.1


47.1


47.5


45.3

Pharmacy

1.1


2.0


1.8


1.5


1.8

TOTAL

47.7


50.1


48.9


49.0


47.1

Days in Claims Payable is a calculation of Medical Claims Liabilities at the end of the period divided by average claims expense per calendar day for such period.



CASH AND INVESTMENTS (in millions)

Regulated

$917.9


$949.9


$911.4


$825.8


$816.8

Unregulated

51.3


36.2


27.6


27.0


28.9

TOTAL

$969.2


$986.1


$939.0


$852.8


$845.7











DEBT TO CAPITALIZATION

23.7%


33.2%


31.9%


33.0%


34.6%

Debt to Capitalization is calculated as follows: total debt divided by (total debt + total equity).  





Operating Ratios:


Three Months Ended March 31,



2010


2009


Health Benefits Ratios:





Medicaid and CHIP

85.6

%


84.8

%


ABD and Medicare

80.3



81.4



Specialty Services

80.6



78.3



Total

84.0



83.5










General & Administrative Expense Ratios

13.3



13.5








MEDICAL CLAIMS LIABILITY (In thousands)

The changes in medical claims liability are summarized as follows:

Balance, March 31, 2009

$

387,242 


Incurred related to:




Current period


3,313,053 


Prior period


(49,162)


Total incurred


3,263,891 


Paid related to:




Current period


2,874,916 


Prior period


331,391 


Total paid


3,206,307 


Balance, March 31, 2010

$

444,826 






Centene's claims reserving process utilizes a consistent actuarial methodology to estimate Centene's ultimate liability.  Any reduction in the "Incurred related to:  Prior period" amount may be offset as Centene actuarially determines "Incurred related to: Current period."  As such, only in the absence of a consistent reserving methodology would favorable development of prior period claims liability estimates reduce medical costs.  Centene believes it has consistently applied its claims reserving methodology in each of the periods presented.

The amount of the "Incurred related to: Prior period" above includes the effects of reserving under moderately adverse conditions, new markets where we use a conservative approach in setting reserves during the initial periods of operations, increased receipts from other third party payors related to coordination of benefits and lower medical utilization and cost trends for dates of service prior to March 31, 2009.

SOURCE Centene Corporation

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