ST. LOUIS--(BUSINESS WIRE)--Oct. 27, 2003--Centene Corporation (NYSE:CNC) today announced its financial results for the quarter ended September 30, 2003.
Third Quarter Highlights
- Revenues of $198.4 million, a 70% increase over the third quarter of 2002.
- Earnings from operations of $12.6 million, a 57% increase over the third quarter of 2002.
- Centene completed a follow-on offering on August 13, 2003, issuing 3,450,000 shares of common stock from which the Company received net proceeds of $81.4 million.
- Earnings per diluted share of $0.44.
- Organic membership growth of 28% over the third quarter of 2002.
- Days in claims payable of 52.5, within the Company's target range of 50-55.
- Health benefits ratio of 82.0%, within the Company's target range of 82.0% to 83.5%.
- Effective August 1, 2003, the Company's Texas subsidiary, Superior HealthPlan, acquired the Medicaid-related contract rights of HMO Blue Texas in the San Antonio, Texas market.
- In September 2003, the Company signed a definitive agreement to acquire the Medicaid-related assets of Family Health Plan, Inc., a wholly owned subsidiary of Mercy Health Partners. This transaction includes the right to serve up to 24,000 of Family Health Plan's Medicaid members in Toledo, Ohio, a new market and state for the Company.
Michael F. Neidorff, Centene's president and chief executive officer, said, "We are pleased with the ongoing predictable performance of our Company including strong organic growth in our existing markets. We continue to demonstrate the clear capability to acquire and integrate companies that achieve our goals and save states money. Our objective is to build a balanced multi-line company, in both the Medicaid Managed Care and Specialty Services arenas. To that end, we are in the process of adding our fifth state, Ohio, where we believe there is a significant opportunity to grow organically while providing better health outcomes for our Medicaid members. Additionally, our recent service area expansion and increased investment in New Jersey confirms our commitment to this market. We continue to add the requisite management to be able to successfully grow organically and through acquisitions."
The following table depicts membership in Centene's managed care organizations by state at September 30, 2003 and 2002:
2003 2002
--------------- ---------------
Wisconsin 150,200 126,800
Texas 152,100 67,800
Indiana 112,100 101,500
New Jersey 52,700 -
--------------- ---------------
TOTAL 467,100 296,100
=============== ===============
The following table depicts membership in Centene's managed care organizations by member category at September 30, 2003 and 2002:
2003 2002
------------- ---------------
Medicaid (excluding SSI) 389,200 264,100
SCHIP 68,600 29,400
SSI 9,300(a) 2,600
------------- ---------------
TOTAL 467,100 296,100
============= ===============
(a) 4,300 at-risk; 5,000 ASO
Statement of Earnings Highlights
-- For the third quarter of 2003, revenues increased 70% to
$198.4 million from $116.4 million in the third quarter of
2002.
-- The health benefits ratio, which reflects medical costs as a
percent of premium revenues, was 82.0% for the third quarter
of 2003, with the Medicaid category at 81.3% as compared to
82.2% for the same period in 2002. The Medicaid portion of
this ratio was affected by a distribution from an escrow
account for costs incurred prior to the Company's acquisition
of UHP.
-- General and administrative expenses as a percent of revenues
on the Company's Medicaid business segment has consistently
decreased and was 10.1% for the third quarter of 2003 as
compared to 10.9% for the third quarter of 2002 and 10.3% for
the second quarter of 2003. Including the effects of the
Company's specialty business segment, which the Company
entered into during the first quarter of 2003 and which has a
higher level of general and administrative expenses, the
combined general and administrative expense ratio was 11.3%
for the third quarter of 2003.
-- Earnings from operations increased to $12.6 million in the
third quarter of 2003 from $8.0 million in the comparable
period of 2002. Net earnings were $8.7 million, or $0.44 per
diluted share, compared to $9.3 million, or $0.52 per diluted
share, for the third quarter of 2002. The Company's 2002
operating results included a one-time dividend of $5.1 million
from a captive insurance company in which the Company
maintained an investment. Excluding this one-time gain, net
income in the third quarter of 2002 was $6.1 million, or $0.34
per share.
-- For the nine months ended September 30, 2003, revenues
increased 76% to $562.1 million from $319.8 million for the
same period in the prior year. The health benefits ratio was
82.9%, with the Medicaid component at 82.0%, and compares to
82.2% for the same period in 2002. General and administrative
expenses as a percent of revenues for the Medicaid segment
decreased to 10.3% from 10.9% and were slightly higher on a
combined basis at 11.2%, reflecting the addition of the
Company's specialty segment. Earnings from operations
increased 51% to $33.1 million from $22.0 million in 2002. Net
earnings improved to $23.6 million, or $1.28 per diluted
share.
-- The following table sets forth fully diluted earnings per
share for the first, second and third quarters of 2003 as
reported (GAAP) and on a pro-forma basis (non-GAAP). Pro forma
(non-GAAP) net earnings per diluted share assumes that as of
January 1, 2003: 1) the Company's follow-on public offering
was completed, 2) the net proceeds were invested in short-term
instruments bearing interest of 2.0% and 3) the Company's tax
rate was 38%.
Q3 2003 Q2 2003 Q1 2003
----------- ----------- -----------
Net earnings, as reported (GAAP) $8,704 $7,708 $7,161
Pro forma interest income, net of
related tax effects 121 252 252
----------- ----------- -----------
Pro forma (non-GAAP) net earnings $8,825 $7,960 $7,413
=========== =========== ===========
Earnings per common share:
Diluted, as reported (GAAP) $0.44 $0.43 $0.40
Diluted, pro forma (non-GAAP) $0.41 $0.37 $0.35
Shares used in computing per share amounts:
As reported (GAAP) 19,842,145 17,803,016 17,757,266
Pro forma effect (non-GAAP) 1,612,500 3,450,000 3,450,000
----------- ----------- -----------
Pro forma (non-GAAP) 21,454,645 21,253,016 21,207,266
Balance Sheet Highlights
At September 30, 2003, the Company had cash and investments of $258.3 million, a portion of which is restricted due to state regulatory requirements. Medical claims liabilities totaled $91.7 million, representing 52.5 days in claims payable versus 52.0 days from the previous quarter.
Outlook
Karey L. Witty, Centene's chief financial officer, commented, "Our fourth quarter 2003 revenue guidance is in the range of $204 million to $206 million, and we anticipate net earnings of $0.43 to $0.44 per diluted share, based on 21.5 million shares outstanding." A review of the complete results for the third quarter and management's outlook for the fourth quarter, together with preliminary views on 2004, will take place during the Company's scheduled third quarter earnings call.
Conference Call
As previously announced, the Company will host a conference call tomorrow, October 28, 2003, at 8:15 a.m. (Eastern Time) to review the financial results for the third quarter ended September 30, 2003, and to discuss its business outlook. Michael F. Neidorff and Karey L. Witty 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 November 4, 2003 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 3204094.
Financial Presentation
The Company is providing certain non-GAAP financial measures in this release as the Company believes that these figures are helpful in allowing individuals to more accurately assess the ongoing nature of the Company's operations and measure the Company's performance more consistently.
The pro forma (non-GAAP) information presented above in the sixth paragraph under "Statement of Earnings Highlights" assumes that the Company's follow-on public offering was completed as of January 1, 2003. This assumption has been made in the non-GAAP financial measures as management believes that this assumption generally provides a more consistent measure of the Company's performance.
The Company uses the presented non-GAAP financial measures internally to focus management on period-to-period changes in the Company's core business. Therefore, the Company believes that this information is meaningful in addition to the information contained in the GAAP presentation of financial information. The presentation of this additional non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.
About Centene Corporation
Centene Corporation provides managed care programs and related services to individuals receiving benefits under Medicaid, including Supplemental Security Income (SSI), and the State Children's Health Insurance Program (SCHIP). The Company operates health plans in Wisconsin, Texas, Indiana and New Jersey. In addition, the Company contracts with other healthcare organizations to provide specialty services including behavioral health, nurse triage and pharmacy compliance. Information regarding Centene is available via the Internet at www.centene.com.
The information provided above in the first paragraph following the bullet listing under "Third Quarter Highlights" and in the paragraph under "Outlook" contain forward-looking statements that relate to future events and future financial performance of Centene. These forward-looking statements represent the Company's estimates as of October 27, 2003. 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)
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $62,906 $59,656
Premium and related receivables, net
of allowances of $720 and $219,
respectively 22,076 16,773
Short-term investments, at fair value
(amortized cost $10,660 and $9,687,
respectively) 10,659 9,571
Deferred income taxes 2,049 2,846
Other current assets 5,283 4,243
------------- ------------
Total current assets 102,973 93,089
Long-term investments, at fair value
(amortized cost $162,533 and $78,025,
respectively) 164,685 79,666
Restricted deposits, at fair value
(amortized cost $19,844 and $15,561,
respectively) 20,038 15,762
Property and equipment, net 20,953 6,295
Intangible assets, net 15,232 10,695
Deferred income taxes 586 472
Other assets 3,985 4,348
------------- ------------
Total assets $328,452 $210,327
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Medical claims liabilities $91,739 $91,181
Accounts payable and accrued expenses 13,471 10,748
Current portion of long-term debt and
notes payable 869 --
Other current liabilities 631 --
------------- ------------
Total current liabilities 106,710 101,929
Long-term debt 7,688 --
Other liabilities 5,504 5,334
------------- ------------
Total liabilities 119,902 107,263
Minority interest -- 881
Stockholders' equity:
Common stock, $.001 par value;
40,000,000 shares authorized;
20,060,949 and 16,243,649 shares
issued and outstanding, respectively 20 16
Additional paid-in capital 154,775 72,372
Accumulated other comprehensive income:
Net unrealized gain on investments,
net of tax 1,477 1,087
Retained earnings 52,278 28,708
------------- ------------
Total stockholders' equity 208,550 102,183
------------- ------------
Total liabilities and stockholders'
equity $328,452 $210,327
============= ============
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Revenues:
Premiums $195,827 $116,289 $554,939 $319,441
Services 2,580 109 7,134 320
----------- ----------- ----------- -----------
Total revenues 198,407 116,398 562,073 319,761
----------- ----------- ----------- -----------
Expenses:
Medical costs 160,672 95,644 459,983 262,697
Cost of services 2,681 84 6,269 252
General and
administrative
expenses 22,414 12,642 62,698 34,804
----------- ----------- ----------- -----------
Total operating
expenses 185,767 108,370 528,950 297,753
----------- ----------- ----------- -----------
Earnings from
operations 12,640 8,028 33,123 22,008
Other income (expense):
Investment and
other income, net 1,245 6,768 3,476 8,659
Interest expense (71) (16) (102) (27)
----------- ----------- ----------- -----------
Earnings before
income taxes 13,814 14,780 36,497 30,640
Income tax expense 5,110 5,507 13,805 11,833
Minority interest -- -- 881 --
----------- ----------- ----------- -----------
Net earnings $8,704 $9,273 $23,573 $18,807
=========== =========== =========== ===========
Earnings per common share, basic:
Net earnings per
common share $0.47 $0.58 $1.38 $1.21
Earnings per common share, diluted:
Net earnings per
common share $0.44 $0.52 $1.28 $1.08
Shares used in computing per share amounts:
Basic 18,430,713 16,042,196 17,094,621 15,558,080
Diluted 19,842,145 17,750,072 18,439,050 17,348,018
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2003 2002
--------- ---------
(Unaudited)
Cash flows from operating activities:
Net earnings $23,573 $18,807
Adjustments to reconcile net earnings to net
cash provided by operating activities --
Depreciation and amortization 4,299 1,534
Stock compensation expense 232 264
Minority interest (881) --
Gain on sale of investments (1,188) (632)
Loss on disposal of equipment 102 --
Changes in assets and liabilities --
Increase in premium and related receivables (4,132) (1,218)
Increase in other current assets (849) (663)
Decrease in deferred income taxes 452 248
Decrease in other assets 363 171
Increase in medical claims liabilities 558 5,629
Decrease in accounts payable and accrued
expenses (396) (2,247)
Increase in unearned capitation premium -- 897
Increase in other current liabilities 27 --
Increase (decrease) in other liabilities 164 (659)
--------- ---------
Net cash provided by operating activities 22,324 22,131
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (16,253) (3,110)
Proceeds from disposal of equipment 11 --
Purchase of investments (291,462) (155,690)
Sales and maturities of investments 202,306 96,975
Contract acquisitions (1,451) (570)
Investment in subsidiary, net of cash acquired (1,767) (3,193)
--------- ---------
Net cash used in investing activities (108,616) (65,588)
--------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common stock 81,403 10,317
Extinguishment of acquired liabilities (1,218) --
Proceeds from borrowings 8,581 --
Reduction of long-term debt (24) --
Cash dividends paid (3) --
Proceeds from exercise of stock options 803 339
--------- ---------
Net cash provided by financing activities 89,542 10,656
--------- ---------
Net increase (decrease) in cash and cash
equivalents 3,250 (32,801)
--------- ---------
Cash and cash equivalents, beginning of period 59,656 88,867
--------- ---------
Cash and cash equivalents, end of period $62,906 $56,066
========= =========
Supplemental disclosures of cash flow information:
Interest paid $85 $11
Income taxes paid $13,479 $11,878
CENTENE CORPORATION
SUPPLEMENTAL FINANCIAL DATA
Q3 Q2 Q1 Q4
2003 2003 2003 2002
-------- -------- -------- --------
MEMBERSHIP
Wisconsin 150,200 145,600 139,100 133,000
Texas 152,100 131,400 122,700 118,000
Indiana 112,100 109,000 104,800 105,700
New Jersey 52,700 52,700 52,700 52,900
-------- -------- -------- --------
Total 467,100 438,700 419,300 409,600
======== ======== ======== ========
Medicaid 389,200 361,700 344,700 336,100
SCHIP 68,600 68,800 66,600 65,900
SSI 9,300 8,200 8,000 7,600
-------- -------- -------- --------
Total 467,100 438,700 419,300 409,600
======== ======== ======== ========
REVENUE PER MEMBER $143.73 $142.26 $142.06 $134.08
CLAIMS
Period-end inventory 59,436 109,865 144,465 150,717
Average inventory 75,615 85,412 131,382 73,800
Period-end inventory per member 0.13 0.25 0.34 0.37
DAYS IN CLAIMS PAYABLE(a) 52.5 52.0 58.1 71.8
(a) Days in Claims Payable is a calculation of Medical Claims
Liabilities at the end of the period divided by average medical
costs per calendar day for such period.
ANNUALIZED RETURN ON EQUITY(b) 21.3%(c) 27.1% 27.0% 27.7%
(b) Annualized Return on Equity is calculated as follows: (net income
for quarter x 4) divided by ((beginning of period equity + end of
period equity) divided by 2).
(c) Reflects a 3,450,000 share follow-on offering completed August 13,
2003.
HEALTH BENEFITS RATIO BY CATEGORY:
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- --------------
2003 2002 2003 2002
------ ------ ------ ------
Medicaid (excluding SSI)
and SCHIP 81.3% 82.2% 82.0% 82.2%
SSI 102.9% -- 103.5% --
Total 82.0% 82.2% 82.9% 82.2%
GENERAL AND ADMINISTRATIVE EXPENSE RATIO BY BUSINESS SEGMENT:
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- --------------
2003 2002 2003 2002
------ ------ ------ ------
Medicaid Managed Care 10.1% 10.9% 10.3% 10.9%
Specialty Services 32.0% -- 31.0% --
Total 11.3% 10.9% 11.2% 10.9%
MEDICAL CLAIMS LIABILITES
(in thousands)
Four rolling quarters of the changes in medical claims liabilities are
summarized as follows:
Balance, September 30, 2002 $65,194
Acquisitions 16,230(d)
Incurred related to:
Current period 597,338
Prior period (20,585)
-----------------
Total incurred 576,753
-----------------
Paid related to:
Current period 524,945
Prior period 41,493
-----------------
Total paid 566,438
-----------------
Balance, September 30, 2003 $91,739
=================
(d) Includes reserves acquired in connection with the acquisition of
the outstanding capital stock of University Health Plans, Inc.
Our claims reserving process utilizes a consistent actuarial methodology to estimate our ultimate liability. Any reduction in the "Incurred related to: Prior period" claims may be offset as we actuarially determine "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. We believe we have consistently applied our claims reserving methodology in each of the periods presented.
CONTACT: Centene Corporation
Karey L. Witty, 314-725-4477
or
Lisa M. Wilson, 212-759-3929
www.centene.com
SOURCE: Centene Corporation