- Centene Corporation Reports 2012 Second Quarter Results -
-- DILUTED EPS COMPOSED OF $(0.16) LOSS FROM OPERATIONS AND $(0.52) IMPAIRMENT CHARGE --

ST. LOUIS, July 24, 2012 /PRNewswire/ -- Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended June 30, 2012.  During the second quarter of 2012, the Company recorded a loss of $(0.68) per diluted share composed of a $(0.16) loss from operations and an impairment loss of $(0.52), compared to net earnings per share of $0.54 in the prior year and $0.45 in the preceding quarter.  The losses were the result of three primary factors:

  • In the Texas health plan, the Company experienced a high level of medical costs related to the March 1, 2012, expansion areas.
  • In the Kentucky health plan, the Company experienced increased medical costs primarily resulting from the retroactive assignment of members and a high level of non-inpatient claims receipts during the quarter.
  • In the Celtic subsidiary, the Company experienced a high level of medical costs related to individual health policies.  This was primarily associated with recently issued policies related to members converted from another insurer throughout the first quarter of 2012.  In addition to the operating loss, the Company also recorded an impairment loss of $28.0 million for the write down of goodwill and intangible assets in the Celtic reporting unit.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "Second quarter results were consistent with the data presented at our June 14, 2012, Investor Day.  We are actively engaged to improve the performance in Kentucky, the Texas expansion areas and the Celtic individual health business.  The balance of our portfolio is performing within normalized ranges. With a return to profitability in June, we expect a profitable third quarter with additional improvement in the fourth quarter."

Second Quarter Overview              

  • Quarter-end at-risk managed care membership of 2,397,500, an increase of 817,000 members, or 52% year over year.
  • Premium and service revenues of $2.1 billion, representing 61% growth year over year.
  • Health Benefits Ratio of 92.9%, compared to 84.8% in 2011.
  • General and Administrative expense ratio of 8.2%, compared to 11.2% in 2011.
  • Diluted net loss per share of $(0.68), including an impairment loss of $(0.52) per diluted share, compared to net earnings per share of $0.54 in the prior year.
  • Operating cash flow of $22.2 million for the second quarter of 2012.

Other Events

  • In July 2012, the Company began operating under a new contract with the Washington Health Care Authority to serve Medicaid beneficiaries in the state, initially operating as Coordinated Care. 
  • In July 2012, the Company's subsidiary, Home State Health Plan, began operating under a new contract with the Office of Administration for Missouri to serve Medicaid beneficiaries in the Eastern, Central, and Western Managed Care Regions of the state. 
  • In June 2012, the Company was notified by the Ohio Department of Job and Family Services that Buckeye Community Health Plan (Buckeye), the Company's Ohio subsidiary, was selected to be awarded a new and expanded contract to serve Medicaid members in Ohio, effective January 2013.  Under the new state contract, Buckeye will operate statewide through Ohio's three newly aligned regions (West, Central/Southeast, and Northeast).  The award remains subject to ongoing legal proceedings from other managed care organizations that were not awarded a contract.
  • In June 2012, the Company's Kansas subsidiary, Sunflower State Health Plan, was awarded a statewide contract to serve members in the state's KanCare program, which includes TANF, ABD non-duals, long-term care and CHIP beneficiaries.  Operations are expected to commence in the first quarter of 2013.  
  • In May 2012, the Company announced the Governor and Executive Council of New Hampshire had given approval for the Department of Health and Human Services to contract with the Company's subsidiary, Granite State Health Plan, to serve Medicaid beneficiaries in New Hampshire.  Operations are currently expected to commence in the first quarter of 2013.
  • In May 2012, at the Case In Point Platinum Awards, Centene won in three categories: Managed Care: Disease Management / Population Health, Medicaid Case Management, and Woman/Children's Case Management.

The following table sets forth the Company's membership by state for its managed care organizations:


June 30,


2012


2011

Arizona

24,000



22,800


Florida

204,100



190,600


Georgia

313,300



303,100


Illinois

17,800



700


Indiana

205,000



206,700


Kentucky

143,500




Louisiana

168,700




Massachusetts

41,400



32,900


Mississippi

30,100



30,800


Ohio

166,800



159,900


South Carolina

87,800



82,800


Texas

919,200



470,400


Wisconsin

75,800



79,800


Total at-risk membership

2,397,500



1,580,500


Non-risk membership



10,400


Total

2,397,500



1,590,900


The following table sets forth the Company's membership by line of business:


June 30,


2012


2011

Medicaid

1,848,500



1,172,400


CHIP & Foster Care

222,600



211,400


ABD & Medicare

269,900



156,300


Hybrid Programs

48,100



35,500


Long-term Care

8,400



4,900


Total at-risk membership

2,397,500



1,580,500


Non-risk membership



10,400


Total

2,397,500



1,590,900


The following table identifies the Company's dual eligible membership by line of business.  The membership table above includes these members.


June 30,


2012


2011

ABD

62,000



33,000


Long-term Care

7,600



4,600


Medicare

3,600



3,000


Total

73,200



40,600


Statement of Operations: Three Months Ended June 30, 2012

  • For the second quarter of 2012, Premium and Service Revenues increased 61% to $2.1 billion from $1.3 billion in the second quarter of 2011.  The increase was primarily driven by the additions between years of the Illinois, Kentucky and Louisiana contracts, Texas and Arizona expansion, pharmacy carve-ins, and membership growth. 
  • Consolidated HBR of 92.9% for the second quarter of 2012 represents an increase from 84.8% in the comparable period in 2011 and 88.2% from the first quarter of 2012.  The increase compared to last year primarily reflects (1) increased medical costs in the March 1, 2012 expansion areas in Texas, (2) increased medical costs resulting from retroactive assignment of members and increased non-inpatient claims in Kentucky, and (3) a high level of medical costs in the individual health business, especially for recently issued polices related to members converted in the first quarter of 2012.  Excluding the impact of these items, the second quarter 2012 HBR would have been 88.5%.
  • Consolidated G&A expense ratio for the second quarter of 2012 was 8.2%, compared to 11.2% in the prior year.  The year over year decrease in the G&A expense ratio reflects the leveraging of expenses over higher revenues in 2012 and a reduction in performance based compensation expense in 2012 which lowered the G&A expense ratio by 80 basis points.  The G&A ratio in 2011 reflects a 50 basis point decrease resulting from the recognition of revenue in the second quarter of 2011 from the Mississippi contract for the period January 1, 2011 through March 31, 2011.
  • Loss from operations was $(46.7) million in the second quarter 2012 compared to earnings of $55.3 million in the second quarter 2011.  Net loss attributable to Centene Corporation was $(35.0) million in the second quarter 2012, compared to net earnings of $28.4 million in the second quarter of 2011. 
  • Loss per diluted share was $(0.68) in the second quarter of 2012 compared to earnings of $0.54 in the prior year.

Balance Sheet and Cash Flow

At June 30, 2012, the Company had cash, investments and restricted deposits of $1,238.8 million, including $40.6 million held by its unregulated entities.  Medical claims liabilities totaled $859.0 million, representing 41.4 days in claims payable.  Total debt was $408.8 million which includes $55 million drawn on the $350 million revolving credit facility at quarter end (subsequently paid off in July 2012).  Debt to capitalization was 25.9% at June 30, 2012, excluding the $76.6 million non-recourse mortgage note.  Cash flow from operations for the three months ended June 30, 2012 was $22.2 million, and reflects an increase in premium receivable to $221 million due from the State of Georgia at June 30, 2012.

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, March 31, 2012

44.7



Texas pharmacy carve-in

(2.3)



Full quarter of Texas expansion

(2.4)



Timing of claim payments

1.4



Days in claims payable, June 30, 2012

41.4




The decrease in days in claims payable during the second quarter 2012 is primarily due to the following factors: (1) the carve-in of pharmacy in Texas which pays 70% faster than non-pharmacy claims; (2) the addition of the Texas expansion where the date of service to date of receipt is approximately 50% lower than the consolidated average; and (3) timing of payments at the end of the quarter.


Outlook

The table below depicts the Company's annual guidance for 2012 including business expansion costs for the recently announced contract awards in Kansas and New Hampshire. 



Full Year 2012




Low


High 


Premium and Service Revenues (in millions)


$

7,700



$

8,100



Diluted EPS (Excluding Impairment Loss)


$

1.45



$

1.65



Diluted EPS (Including Impairment Loss)


$

0.95



$

1.15



Consolidated Health Benefits Ratio


89.0

%


90.0

%


General & Administrative expense ratio


8.5

%


9.0

%


Diluted Shares Outstanding (in thousands)


53,600



53,800









The above 2012 guidance for diluted EPS includes the $28.0 million, or $26.7 million after tax, impairment loss related to the individual health business which amounts to $(0.52) per diluted share in the second quarter.  The diluted EPS calculation for the three and six months ended June 30, 2012, excludes antidilutive shares; for the full year, it is anticipated that outstanding stock awards will be dilutive and the impact of the shares will be reflected in the diluted EPS calculation, as indicated in the table above.

Conference Call

As previously announced, the Company will host a conference call Tuesday, July 24, 2012, at 8:30 A.M. (Eastern Time) to review the financial results for the second quarter ended June 30, 2012, 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 1-877-270-2148 in the U.S. and Canada; +1-412-902-6510 from abroad; or via a live, audio webcast on the Company's website at www.centene.com, under the Investors section.  A webcast replay will be available for on-demand listening shortly after the completion of the call for the next twelve months or until 11:59 p.m. (Eastern Time) on Tuesday, July 23, 2013, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 a.m. (Eastern Time) on Wednesday, August 1, 2012, by dialing 1-877-344-7529 in the U.S. and Canada, or +1-412-317-0088 from abroad, and entering access code 10015829.

About Centene Corporation

Centene Corporation, a Fortune 500 company, is a leading multi-line healthcare enterprise that provides programs and related services to the rising number of under-insured and uninsured individuals. Many receive benefits provided under Medicaid, including the State Children's Health Insurance Program (CHIP), as well as Aged, Blind or Disabled (ABD), Foster Care and long-term care, in addition to other state-sponsored/hybrid programs, and Medicare (Special Needs Plans). Centene's CeltiCare subsidiary offers states unique, "exchange based" and other cost-effective coverage solutions for low-income populations. The Company operates local health plans and offers a range of health insurance solutions. It also contracts with other healthcare and commercial organizations to provide specialty services including behavioral health, life and health management, managed vision, telehealth services, and pharmacy benefits management.

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, membership and revenue projections, timing of regulatory contract approval, changes in healthcare practices, changes in federal or state laws or regulations, changes in expected contract start dates, inflation, provider and state 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, as well as those factors disclosed in the Company's publicly filed documents. The expiration, cancellation or suspension of Centene's Medicaid Managed Care contracts, or the loss of any appeal of or protest to any such expiration, cancellation or suspension, by state governments would also negatively affect Centene.

 [Tables Follow]

CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)










June 30,
2012


December 31, 2011

ASSETS




Current assets:




Cash and cash equivalents

$

421,894



$

573,698


Premium and related receivables

400,194



157,450


Short-term investments

152,545



130,499


Other current assets

98,805



78,363


Total current assets

1,073,438



940,010


Long-term investments

630,866



506,140


Restricted deposits

33,496



26,818


Property, software and equipment, net

379,970



349,622


Goodwill

256,288



281,981


Intangible assets, net

22,481



27,430


Other long-term assets

53,011



58,335


Total assets

$

2,449,550



$

2,190,336


LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Medical claims liability

$

859,035



$

607,985


Accounts payable and accrued expenses

142,766



216,504


Unearned revenue

29,133



9,890


Current portion of long-term debt

3,302



3,234


Total current liabilities

1,034,236



837,613


Long-term debt

405,462



348,344


Other long-term liabilities

61,865



67,960


Total liabilities

1,501,563



1,253,917


Commitments and contingencies




Stockholders' equity:




Common stock, $.001 par value; authorized 100,000,000 shares; 54,320,036 issued and 51,557,064 outstanding at June 30, 2012, and 53,586,726 issued and 50,864,618 outstanding at December 31, 2011

54



54


Additional paid-in capital

450,506



421,981


Accumulated other comprehensive income:




Unrealized gain on investments, net of tax

5,842



5,761


Retained earnings

553,940



564,961


Treasury stock, at cost (2,762,972 and 2,722,108 shares, respectively)

(58,914)



(57,123)


Total Centene stockholders' equity

951,428



935,634


Noncontrolling interest

(3,441)



785


Total stockholders' equity

947,987



936,419


Total liabilities and stockholders' equity

$

2,449,550



$

2,190,336


 

CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)






Three Months Ended June 30,


Six Months Ended June 30,


2012


2011


2012


2011

Revenues:








Premium

$

2,034,558



$

1,248,588



$

3,669,408



$

2,401,365


Service

27,041



29,428



55,659



55,812


Premium and service revenues

2,061,599



1,278,016



3,725,067



2,457,177


Premium tax

49,147



36,998



97,827



74,194


Total revenues

2,110,746



1,315,014



3,822,894



2,531,371


Expenses:








Medical costs

1,890,405



1,059,120



3,333,081



2,037,687


Cost of services

21,816



20,312



45,153



40,488


General and administrative expenses

168,062



143,045



331,249



284,133


Premium tax expense

49,176



37,234



97,926



74,663


Impairment loss

28,033





28,033




Total operating expenses

2,157,492



1,259,711



3,835,442



2,436,971


Earnings (loss) from operations

(46,746)



55,303



(12,548)



94,400


Other income (expense):








Investment and other income

4,045



2,933



9,336



6,682


Debt extinguishment costs



(8,488)





(8,488)


Interest expense

(4,739)



(5,256)



(9,538)



(10,951)


Earnings (loss) from operations, before income tax expense

(47,440)



44,492



(12,750)



81,643


Income tax expense (benefit)

(8,608)



16,429



3,479



30,757


Net earnings (loss)

(38,832)



28,063



(16,229)



50,886


Noncontrolling interest

(3,833)



(311)



(5,208)



(1,233)


Net earnings (loss) attributable to Centene Corporation

$

(34,999)



$

28,374



$

(11,021)



$

52,119










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








Basic earnings (loss) per common share

$

(0.68)



$

0.57



$

(0.21)



$

1.04


Diluted earnings (loss) per common share

$

(0.68)



$

0.54



$

(0.21)



$

1.00










Weighted average number of common shares outstanding:








Basic

51,515,895



50,167,052



51,320,784



49,959,892


Diluted

51,515,895



52,489,414



51,320,784



52,171,213


 

CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)




Six Months Ended June 30,


2012


2011

Cash flows from operating activities:




Net earnings (loss)

$

(16,229)



$50,886


Adjustments to reconcile net earnings (loss) to net cash provided by operating activities




Depreciation and amortization

33,266



28,567


Stock compensation expense

11,993



8,839


Debt extinguishment costs



8,488


Impairment loss

28,033




Deferred income taxes

9,364



(3,529)


Changes in assets and liabilities




Premium and related receivables

(232,745)



(16,146)


Other current assets

(34,105)



(4,001)


Other assets

1,520



(878)


Medical claims liabilities

251,050



24,684


Unearned revenue

19,885



(12,465)


Accounts payable and accrued expenses

(77,010)



(34,739)


Other operating activities

(4,922)



3,448


Net cash (used in) provided by operating activities

(9,900)



53,154


Cash flows from investing activities:




Capital expenditures

(57,442)



(35,128)


Purchases of investments

(406,901)



(103,239)


Sales and maturities of investments

253,719



120,448


Investments in acquisitions, net of cash acquired



(3,192)


Net cash used in investing activities

(210,624)



(21,111)


Cash flows from financing activities:




Proceeds from exercise of stock options

10,320



12,264


Proceeds from borrowings

75,000



419,183


Payment of long-term debt

(21,601)



(414,695)


Excess tax benefits from stock compensation

5,810



1,369


Common stock repurchases

(1,791)



(1,029)


Contribution from noncontrolling interest

982



244


Debt issue costs



(9,095)


Net cash provided by financing activities

68,720



8,241


Net (decrease) increase in cash and cash equivalents

(151,804)



40,284


Cash and cash equivalents, beginning of period

573,698



434,166


Cash and cash equivalents, end of period

$

421,894



$

474,450


Supplemental disclosures of cash flow information:




Interest paid

$

10,312



$

11,822


Income taxes paid

$

32,394



$

40,111




 

CENTENE CORPORATION
SUPPLEMENTAL FINANCIAL DATA












Q2


Q1


Q4


Q3


Q2


2012


2012


2011


2011


2011

MEMBERSHIP










Managed Care:










Arizona

24,000



23,100



23,700



22,800



22,800


Florida

204,100



199,500



198,300



188,600



190,600


Georgia

313,300



306,000



298,200



298,000



303,100


Illinois

17,800



17,400



16,300



13,600



700


Indiana

205,000



206,300



206,900



205,300



206,700


Kentucky

143,500



145,700



180,700






Louisiana

168,700



51,300








Massachusetts

41,400



36,000



35,700



34,700



32,900


Mississippi

30,100



29,500



31,600



30,600



30,800


Ohio

166,800



161,000



159,900



162,200



159,900


South Carolina

87,800



86,700



82,900



86,500



82,800


Texas

919,200



811,000



503,800



494,500



470,400


Wisconsin

75,800



76,000



78,000



78,900



79,800


Total at-risk membership

2,397,500



2,149,500



1,816,000



1,615,700



1,580,500


Non-risk membership





4,900



10,600



10,400


TOTAL

2,397,500



2,149,500



1,820,900



1,626,300



1,590,900






















Medicaid

1,848,500



1,634,800



1,336,800



1,189,900



1,172,400


CHIP & Foster Care

222,600



218,800



213,900



210,600



211,400


ABD & Medicare

269,900



247,400



218,000



171,700



156,300


Hybrid Programs

48,100



41,500



40,500



38,400



35,500


Long-term Care

8,400



7,000



6,800



5,100



4,900


Total at-risk membership

2,397,500



2,149,500



1,816,000



1,615,700



1,580,500


Non-risk membership





4,900



10,600



10,400


TOTAL

2,397,500



2,149,500



1,820,900



1,626,300



1,590,900












Specialty Services(a):










Cenpatico Behavioral Health










Arizona

159,900



162,100



168,900



175,500



173,200


Kansas

44,300



46,000



46,200



45,600



45,000


TOTAL

204,200



208,100



215,100



221,100



218,200












(a) Includes external membership only.


















REVENUE PER MEMBER PER MONTH(b)

$

279



$

269



$

262



$

245



$

241












CLAIMS(b)










Period-end inventory

1,195,000



735,000



495,500



482,900



415,700


Average inventory

640,600



457,400



367,590



312,400



332,300


Period-end inventory per member

0.50



0.34



0.27



0.30



0.26


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











NUMBER OF EMPLOYEES

6,200



5,700



5,300



5,000



4,800























 


Q2


Q1


Q4


Q3


Q2


2012


2012


2011


2011


2011











DAYS IN CLAIMS PAYABLE (c)

41.4



44.7



45.3



43.6



43.4


(c) 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

$

1,198.2



$

1,166.9



$

1,198.9



$

1,079.3



$

1,061.9


Unregulated

$

40.6



$

35.5



$

38.2



$

35.9



$

36.5


TOTAL

$

1,238.8



$

1,202.4



$

1,237.1



$

1,115.2



$

1,098.4












DEBT TO CAPITALIZATION

30.1

%


26.4

%


27.3

%


28.0

%


28.1

%

DEBT TO CAPITALIZATION EXCLUDING NON-RECOURSE DEBT(d)

25.9

%


21.8

%


22.6

%


23.2

%


23.0

%

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

(d) The non-recourse debt represents the Company's mortgage note payable ($76.6 million at June 30, 2012.)

 

Operating Ratios:





Three Months Ended

June 30,


Six Months Ended
June 30,


2012


2011


2012


2011

Health Benefits Ratios:








Medicaid and CHIP

92.3

%


81.3

%


90.2

%


82.7

%

ABD and Medicare

92.7



90.7



91.1



89.4


Specialty Services

97.1



88.7



94.0



87.0


Total

92.9



84.8



90.8



84.9










Total General & Administrative Expense Ratio

8.2

%


11.2

%


8.9

%


11.6

%

 

MEDICAL CLAIMS LIABILITY (In thousands)
      The changes in medical claims liability are summarized as follows:






Balance, June 30, 2011


$

482,913


Incurred related to:



Current period


5,678,719


Prior period


(58,579)


Total incurred


5,620,140


Paid related to:



Current period


4,826,839


Prior period


417,179


Total paid


5,244,018


Balance, June 30, 2012


$

859,035


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 represents favorable development and 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, receipts from other third party payors related to coordination of benefits and lower medical utilization and cost trends for dates of service prior to June 30, 2011.

SOURCE Centene Corporation

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