Centene Corporation (NYSE: CNC) today announced its net earnings from continuing operations for the quarter ended March 31, 2008 were $25.5 million, or $0.57 per diluted share, compared to $11.6 million, or $0.26 per diluted share in the 2007 first quarter. The first quarter results include the benefit of the July 1 through December 31, 2007 period rate increase for Georgia, approximately $0.28 per diluted share, which was included in our guidance for the first quarter. Unless specifically noted, the discussions below are in the context of continuing operations.
First Quarter Highlights
Other Events
Michael F. Neidorff, Centene’s Chairman and Chief Executive Officer, stated, “During the first quarter, our HBR was adversely affected by high medical costs in Ohio largely influenced by the ABD population and by a heavy flu season. But aside from these items and an extended rollout of full-risk enrollment in South Carolina, in aggregate our other markets and products performed generally in-line with our expectations.
“We are taking actions to improve margins in our Ohio ABD population including exiting the Northwest region as of July 1, 2008, rationalizing our provider networks in the remaining regions, and continuing an ongoing dialogue with the State on rate adequacy and benefit design. We remain committed to serving the needs of our customers in all of our markets, but are also committed to doing so only in markets and with products that produce consistent and adequate returns for our investors,” concluded Neidorff.
The following table depicts membership in Centene’s managed care organizations, by state, at March 31, 2008 and 2007:
| 2008 | 2007 | ||||||
| Georgia | 282,700 | 291,300 | |||||
| Indiana | 161,300 | 176,700 | |||||
| New Jersey | 56,500 | 59,100 | |||||
| Ohio | 131,100 | 118,300 | |||||
| South Carolina | 29,300 | — | |||||
| Texas | 369,000 | 318,500 | |||||
| Wisconsin | 126,900 | 139,400 | |||||
| Total | 1,156,800 | 1,103,300 | |||||
The following table depicts membership in Centene’s managed care organizations, by member category, at March 31, 2008 and 2007:
| 2008 | 2007 | |||||||
| Medicaid | 862,900 | 839,600 | ||||||
| SCHIP | 216,000 | 211,200 | ||||||
| SSI/Medicare | 77,900 | 52,500 | ||||||
| Total | 1,156,800 | (a) | 1,103,300 | (b) | ||||
| (a) 1,126,200 at-risk; 30,600 ASO | ||||||||
| (b) 1,099,200 at-risk; 4,100 ASO | ||||||||
Statement of Operations
Balance Sheet and Cash Flow
At March 31, 2008, the Company had cash and investments of $676.9 million, including $651.1 million held by its regulated entities and $25.8 million held by its unregulated entities. Medical claims liabilities totaled $347.5 million, representing 49.3 days in claims payable, an increase of 0.2 days from December 31, 2007. Total debt was $216.2 million and debt to capitalization was 32.8%. Cash flow from operations was $26.7 million.
Outlook
The table below depicts the Company’s guidance for the 2008 second quarter and full year.
| Q2 2008 | 2008 | ||||||||||
| Low | High | Low | High | ||||||||
| Revenue (in millions)1 | $ | 822 | $ | 832 | $ | 3,300 | $ | 3,375 | |||
| Earnings per diluted share | $ | 0.38 | $ | 0.42 | $ | 1.87 | $ | 1.97 | |||
| 1 Revenue net of premium tax | |||||||||||
Eric R. Slusser, Centene’s Chief Financial Officer, stated, “We are lowering the range of our annual revenue and earnings guidance to reflect a reduction in investment income resulting from actions taken by the Federal Reserve during the first quarter of 2008 as well as the current and expected lower results in the Ohio ABD market. We expect an overall HBR range for the full year of 82.0% to 84.0%.”
Conference Call
As previously announced, the Company will host a conference call Tuesday, April 22, 2008, at 8:00 A.M. (Eastern Time) to review the financial results for the first quarter ended March 31, 2008, and to discuss its business outlook. Michael F. Neidorff and Eric R. Slusser will host the conference call. Investors are invited to participate in the conference call by dialing 800-273-1254 in the U.S. and Canada, 706-679-8592 from abroad, or via a live internet broadcast on the Company's website at www.centene.com, under the Investor Relations section. A replay will be available for on-demand listening shortly after the completion of the call until 11:59 P.M. (Eastern Time) on May 6, 2008 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 41656800.
About Centene Corporation
Centene Corporation is a leading multi-line healthcare enterprise that provides programs and related services to individuals receiving benefits under Medicaid, including the State Children’s Health Insurance Program (SCHIP), Supplemental Security Income (SSI) and Medicare (Special Needs Plans). The Company operates health plans in Georgia, Indiana, New Jersey, Ohio, South Carolina, Texas and Wisconsin. In addition, the Company contracts with other healthcare and commercial organizations to provide specialty services including behavioral health, life and health management, long-term care, managed vision, nurse triage, pharmacy benefits management and treatment compliance. Information regarding Centene is available via the Internet at www.centene.com.
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) | ||||||
March 31, 2008 | December 31, 2007 | |||||
| (Unaudited) | ||||||
| ASSETS | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 263,780 | $ | 268,584 | ||
| Premium and related receivables | 81,468 | 90,072 | ||||
| Short-term investments, at fair value (amortized cost $60,927 and $46,392, respectively) | 60,989 | 46,269 | ||||
| Other current assets | 37,373 | 41,414 | ||||
| Total current assets | 443,610 | 446,339 | ||||
| Long-term investments, at fair value (amortized cost $319,881 and $314,681, respectively) | 324,173 | 317,041 | ||||
| Restricted deposits, at fair value (amortized cost $27,411 and $27,056, respectively) | 27,972 | 27,301 | ||||
| Property, software and equipment, net | 151,265 | 138,139 | ||||
| Goodwill | 141,023 | 141,030 | ||||
| Other intangible assets, net | 12,608 | 13,205 | ||||
| Other assets | 38,624 | 36,067 | ||||
| Total assets | $ | 1,139,275 | $ | 1,119,122 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
| Current liabilities: | ||||||
| Medical claims liabilities | $ | 347,504 | $ | 335,856 | ||
| Accounts payable and accrued expenses | 115,857 | 105,096 | ||||
| Unearned revenue | 2,231 | 44,016 | ||||
| Current portion of long-term debt | 416 | 971 | ||||
| Current liabilities of discontinued operations | 754 | 861 | ||||
| Total current liabilities | 466,762 | 486,800 | ||||
| Long-term debt | 215,818 | 206,406 | ||||
| Other liabilities | 13,460 | 10,869 | ||||
| Total liabilities | 696,040 | 704,075 | ||||
| Stockholders’ equity: | ||||||
| Common stock, $.001 par value; authorized 100,000,000 shares; issued and outstanding 43,424,326 and 43,667,837 shares, respectively | 44 | 44 | ||||
| Additional paid-in capital | 222,719 | 221,693 | ||||
| Accumulated other comprehensive income: | ||||||
| Unrealized gain on investments, net of tax | 3,110 | 1,571 | ||||
| Retained earnings | 217,362 | 191,739 | ||||
| Total stockholders’ equity | 443,235 | 415,047 | ||||
| Total liabilities and stockholders’ equity | $ | 1,139,275 | $ | 1,119,122 | ||
CENTENE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share data) | ||||||||
Three Months Ended March 31, | ||||||||
| 2008 | 2007 | |||||||
| (Unaudited) | ||||||||
| Revenues: | ||||||||
| Premium | $ | 773,478 | $ | 624,826 | ||||
| Premium tax | 22,631 | 17,816 | ||||||
| Service | 20,530 | 21,592 | ||||||
| Total revenues | 816,639 | 664,234 | ||||||
| Expenses: | ||||||||
| Medical costs | 641,619 | 528,520 | ||||||
| Cost of services | 16,176 | 15,630 | ||||||
| General and administrative expenses | 99,283 | 86,467 | ||||||
| Premium tax | 22,631 | 17,816 | ||||||
| Total operating expenses | 779,709 | 648,433 | ||||||
| Earnings from operations | 36,930 | 15,801 | ||||||
| Other income (expense): | ||||||||
| Investment and other income | 7,769 | 6,017 | ||||||
| Interest expense | (3,994 | ) | (3,132 | ) | ||||
| Earnings before income taxes | 40,705 | 18,686 | ||||||
| Income tax expense | 15,168 | 7,089 | ||||||
| Net earnings from continuing operations | 25,537 | 11,597 | ||||||
| Discontinued operations, net of income tax expense (benefit) of $52 and $(26,780) | 86 | 26,614 | ||||||
| Net earnings | $ | 25,623 | $ | 38,211 | ||||
| Net earnings per share: | ||||||||
| Basic: | ||||||||
| Continuing operations | $ | 0.59 | $ | 0.27 | ||||
| Discontinued operations | — | 0.61 | ||||||
| Basic earnings per common share | $ | 0.59 | $ | 0.88 | ||||
| Diluted: | ||||||||
| Continuing operations | $ | 0.57 | $ | 0.26 | ||||
| Discontinued operations | — | 0.59 | ||||||
| Diluted earnings per common share | $ | 0.57 | $ | 0.85 | ||||
| Weighted average number of shares outstanding: | ||||||||
| Basic | 43,538,207 | 43,433,319 | ||||||
| Diluted | 44,742,893 | 44,923,340 | ||||||
CENTENE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) | ||||||||
Three Months Ended March 31, | ||||||||
| 2008 | 2007 | |||||||
| (Unaudited) | ||||||||
| Cash flows from operating activities: | ||||||||
| Net earnings | $ | 25,623 | $ | 38,211 | ||||
| Adjustments to reconcile net earnings to net cash provided by operating activities — | ||||||||
| Depreciation and amortization | 7,798 | 6,274 | ||||||
| Stock compensation expense | 4,013 | 3,871 | ||||||
| Deferred income taxes | 9,472 | (1,398 | ) | |||||
| Gain on sale of FirstGuard Missouri | — | (4,218 | ) | |||||
| Changes in assets and liabilities — | ||||||||
| Premium and related receivables | 8,612 | 13,588 | ||||||
| Other current assets | (2,634 | ) | (26,336 | ) | ||||
| Other assets | (1,031 | ) | (636 | ) | ||||
| Medical claims liabilities | 11,608 | (4,340 | ) | |||||
| Unearned revenue | (41,788 | ) | 4,796 | |||||
| Accounts payable and accrued expenses | 4,489 | 1,309 | ||||||
| Other operating activities | 554 | 4,859 | ||||||
| Net cash provided by operating activities | 26,716 | 35,980 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property, software and equipment | (19,879 | ) | (14,794 | ) | ||||
| Purchases of investments | (86,025 | ) | (135,866 | ) | ||||
| Sales and maturities of investments | 70,888 | 122,835 | ||||||
| Proceeds from asset sales | — | 10,848 | ||||||
| Investments in acquisitions and equity method investee, net of cash acquired | (2,194 | ) | (400 | ) | ||||
| Net cash used in investing activities | (37,210 | ) | (17,377 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from exercise of stock options | 1,148 | 868 | ||||||
| Proceeds from borrowings | 26,005 | 191,000 | ||||||
| Payment of long-term debt | (17,148 | ) | (165,248 | ) | ||||
| Excess tax benefits from stock compensation | 2,638 | 417 | ||||||
| Common stock repurchases | (6,953 | ) | (644 | ) | ||||
| Debt issue costs | — | (4,138 | ) | |||||
| Net cash provided by financing activities | 5,690 | 22,255 | ||||||
| Net (decrease) increase in cash and cash equivalents | (4,804 | ) | 40,858 | |||||
| Cash and cash equivalents, beginning of period | 268,584 | 271,047 | ||||||
| Cash and cash equivalents, end of period | $ | 263,780 | $ | 311,905 | ||||
| Interest paid | $ | 463 | $ | 2,999 | ||||
| Income taxes paid | $ | 792 | $ | 5,801 | ||||
CENTENE CORPORATION CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA | ||||||||||||
| Q1 | Q4 | Q3 | Q2 | |||||||||
| 2008 | 2007 | 2007 | 2007 | |||||||||
| MEMBERSHIP | ||||||||||||
| Managed Care: | ||||||||||||
| Georgia | 282,700 | 287,900 | 286,200 | 281,400 | ||||||||
| Indiana | 161,300 | 154,600 | 156,300 | 161,700 | ||||||||
| New Jersey | 56,500 | 57,300 | 58,300 | 59,100 | ||||||||
| Ohio | 131,100 | 128,700 | 127,500 | 128,200 | ||||||||
| South Carolina | 29,300 | 31,800 | 29,300 | 31,100 | ||||||||
| Texas | 369,000 | 354,400 | 347,000 | 333,900 | ||||||||
| Wisconsin | 126,900 | 131,900 | 132,700 | 136,100 | ||||||||
| TOTAL | 1,156,800 | 1,146,600 | 1,137,300 | 1,131,500 | ||||||||
| Medicaid | 862,900 | 848,100 | 841,600 | 846,900 | ||||||||
| SCHIP | 216,000 | 224,400 | 223,500 | 216,500 | ||||||||
| SSI & Medicare | 77,900 | 74,100 | 72,200 | 68,100 | ||||||||
| TOTAL | 1,156,800 | 1,146,600 | 1,137,300 | 1,131,500 | ||||||||
| Specialty Services(a): | ||||||||||||
| Arizona | 97,900 | 99,900 | 99,000 | 95,200 | ||||||||
| Kansas | 39,400 | 39,000 | 35,600 | 37,500 | ||||||||
| TOTAL | 137,300 | 138,900 | 134,600 | 132,700 | ||||||||
(a) Includes behavioral health contracts only. | ||||||||||||
REVENUE PER MEMBER(b) | $ | 215.35 | $ | 210.34 | $ | 201.05 | $ | 193.09 | ||||
CLAIMS(b) | ||||||||||||
| Period-end inventory | 393,700 | 312,700 | 265,400 | 281,000 | ||||||||
| Average inventory | 281,600 | 288,700 | 319,900 | 248,200 | ||||||||
| Period-end inventory per member | 0.34 | 0.28 | 0.24 | 0.26 | ||||||||
(b) Revenue per member and claims information are presented for the Medicaid Managed Care segment. | ||||||||||||
| Q1 | Q4 | Q3 | Q2 | |||||||||||||
| 2008 | 2007 | 2007 | 2007 | |||||||||||||
DAYS IN CLAIMS PAYABLE(c) | 49.3 | 49.1 | 49.1 | 46.2 | ||||||||||||
(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 | $ | 651.1 | $ | 626.2 | $ | 593.6 | $ | 527.9 | ||||||||
| Unregulated | 25.8 | 33.0 | 45.9 | 65.8 | ||||||||||||
| TOTAL | $ | 676.9 | $ | 659.2 | $ | 639.5 | $ | 593.7 | ||||||||
DEBT TO CAPITALIZATION(d) | 32.8 | % | 33.3 | % | 33.1 | % | 34.0 | % | ||||||||
(d) Debt to Capitalization is calculated as follows: total debt divided by (total debt + equity). | ||||||||||||||||
OPERATING RATIOS: | |||||||
Three Months Ended March 31, | |||||||
| 2008 | 2007 | ||||||
| Health Benefits Ratios | |||||||
| Medicaid and SCHIP | 79.5 | % | 84.5 | % | |||
| SSI and Medicare | 97.5 | 88.5 | |||||
| Specialty Services | 84.1 | 79.7 | |||||
| Total | 83.0 | 84.6 | |||||
| General & Administrative Expense Ratio | 12.5 | % | 13.4 | % | |||
MEDICAL CLAIMS LIABILITIES (In thousands) Four rolling quarters of the changes in medical claims liabilities are summarized as follows: | ||||
| Balance, March 31, 2007 | $ | 267,980 | ||
| Incurred related to: | ||||
| Current period | 2,449,237 | |||
| Prior period | (11,652 | ) | ||
| Total incurred | 2,437,585 | |||
| Paid related to: | ||||
| Current period | 2,110,081 | |||
| Prior period | 247,980 | |||
| Total paid | 2,358,061 | |||
| Balance, March 31, 2008 | $ | 347,504 | ||
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” claims 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.