ST. LOUIS--(BUSINESS WIRE)--Feb. 9, 2004--Centene Corporation (NYSE: CNC) today announced the Company's financial results for the fourth quarter and year ended December 31, 2003.
Fourth Quarter Highlights
-- Revenues of $207.3 million, a 46% increase over the fourth
quarter of 2002.
-- Earnings from operations of $13.8 million, a 44% increase over
the fourth quarter of 2002.
-- Earnings per diluted share of $0.45.
-- Organic membership growth of 15% over the fourth quarter of
2002.
-- Medicaid Managed Care segment G&A of 10.2% (GAAP) and 9.8%
(non-GAAP), exclusive of newly enacted premium tax.
-- Operating cash flows of $33.7 million.
-- Days in claims payable of 59.0.
-- Completed acquisition of Family Health Plan's Medicaid-related
assets in Toledo, Ohio with membership effective on January 1,
2004.
-- Important new management appointments.
-- Transferred listing of common stock to NYSE.
Michael F. Neidorff, Centene's president and chief executive officer, said, "Our ongoing predictable and strong financial performance enables us to continue implementing our strategy of becoming a multi-line Medicaid company. Towards this objective, we added five important management members to our team during the year. This positions Centene for continued expansion into new mandated Medicaid states and for new products to strengthen our ability to meet the needs of our patient population with a broad behavioral and specialty healthcare services offering. We look forward to the challenges and opportunities that lie ahead and are confident that we have the systems, people and financial resources to meet them."
Neidorff continued, "We closed on our Ohio acquisition within the timeframe anticipated and believe there is significant potential to grow organically in this market, where there are over one million eligible lives. Our strong relationship with Mercy Health Partners in Ohio further increases our confidence. Our other states are meeting our growth expectations, with particularly strong growth in Indiana, Texas and Wisconsin. The multiple opportunities for continued growth both organically and through acquisitions remain intact."
"The states' budget landscapes have improved since last year, and we continued to help them address their budget challenges through our margin protection programs that focus on a combination of rate increases and administrative policy changes that supplement the amount of rate increases. The year ahead offers significant opportunities for Centene, recognizing the government's growing concern for the 44 million uninsured Americans who would benefit from our programs," concluded Neidorff.
Membership totaled 489,600 at December 31, 2003, a 19.5% increase from 409,600 at December 31, 2002 and a 4.8% increase from 467,100 at September 30, 2003.
The following table depicts membership by state at December 31, 2003 and 2002:
2003 2002
--------------- ---------------
Wisconsin 157,800 133,000
Texas 158,400 118,000
Indiana 119,400 105,700
New Jersey 54,000 52,900
--------------- ---------------
TOTAL 489,600 409,600
=============== ===============
The following table depicts membership by line of business at December 31, 2003 and 2002:
2003 2002
--------------- ---------------
Medicaid 411,800 336,100
SCHIP 68,400 65,900
SSI 9,400(a) 7,600(b)
--------------- ---------------
TOTAL 489,600 409,600
=============== ===============
(a) 4,400 at-risk; 5,000 ASO
(b) 3,900 at-risk; 3,700 ASO
Statement of Earnings Highlights
-- For the fourth quarter of 2003, revenues increased 46.3%
to $207.3 million from $141.7 million in the fourth
quarter of 2002. Net of acquisitions, revenues increased
38.9% over the same prior year quarter. The health
benefits ratio (HBR), which reflects medical services
costs as a percent of premium revenues, was 81.2% and
compares to 82.5% for the same period in 2002. General and
administrative expenses as a percent of revenues increased
to 12.2% from 10.8%. Earnings from operations increased
43.8% to $13.8 million from $9.6 million in 2002. Net
earnings improved to $9.7 million, or $0.45 per diluted
share, compared to $6.8 million, or $0.38 per diluted
share, for the fourth quarter of 2002.
Both the HBR and the general and administrative expense
ratio were affected by the newly enacted premium tax
imposed by the state of Texas on September 1, 2003. The
HBR was 81.2% (GAAP) and 81.6% excluding $1.1 million in
premium revenue dollars attributable to the premium tax
(non-GAAP). Similarly, excluding the effect of the tax on
general and administrative expenses, the expense ratio was
12.2% (GAAP) and 11.8% (non-GAAP) in total, and 10.2%
(GAAP) and 9.8% (non-GAAP) for the Medicaid Managed Care
segment.
-- Investment and other income for the fourth quarter of 2003
was $1.7 million, an increase from $0.9 million in the
fourth quarter of 2002. This was largely due to interest
income generated from the increased cash and investment
balances on hand primarily resulting from the Company's
follow-on financing in August 2003. The Company's
effective tax rate for the quarter was 37.0%.
-- For the year ended December 31, 2003, revenues increased
66.8% to $769.7 million from $461.5 million in the year
ended 2002. The health benefits ratio of 82.4% compares to
82.3% for the year ended 2002. General and administrative
expenses as a percent of revenues increased to 11.5% from
10.9% reflecting the implementation of Centene's Specialty
Services segment, as well as the aforementioned premium
tax. Earnings from operations increased 48.5% to $46.9
million from $31.6 million in 2002. Net earnings improved
29.9% to $33.3 million, or $1.73 per diluted share.
-- The following table sets forth fully diluted earnings per
share for the first, second, third and fourth 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
August 2003 follow-on common stock 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 38.0%.
Q4 2003 Q3 2003 Q2 2003 Q1 2003
------------ ------------ ------------------------
Net earnings, as
reported (GAAP) $ 9,697 $ 8,704 $ 7,708 $ 7,161
Pro forma interest
income, net of
related tax effects -- 121 252 252
----------- ----------- ----------- -----------
Pro forma (non-
GAAP) net earnings $ 9,697 $ 8,825 $ 7,960 $ 7,413
=========== =========== =========== ===========
Earnings per common
share:
Diluted, as
reported (GAAP) $ 0.45 $ 0.44 $ 0.43 $ 0.40
Diluted, pro forma
(non-GAAP) $ 0.45 $ 0.41 $ 0.37 $ 0.35
Shares used in
computing per
share amounts:
As reported (GAAP) 21,541,918 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) 21,541,918 21,454,645 21,253,016 21,207,266
=========== =========== =========== ===========
Balance Sheet Highlights
At December 31, 2003, the Company had cash and investments of $284.7 million, a portion of which is restricted due to state regulatory requirements. Medical claims liabilities totaled $106.6 million, representing 59.0 days in claims payable, influenced by increased inventory levels.
Cash flows from operating activities of $56.0 million for the twelve months ended December 31, 2003, reflect a 41.2% increase year over year.
Outlook
Karey L. Witty, Centene's chief financial officer, commented, "We anticipate 2004 revenue in the range of $940 to $950 million and net earnings of $1.89 to $1.96 per share. This does not include the potential impact of any acquisitions we may undertake during 2004."
Conference Call
As previously announced, the Company will host a conference call on February 10, 2004 at 8:30 a.m. (Eastern Standard Time) to review the financial results for the fourth quarter and year ended December 31, 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 United States and Canada, and (706) 679-8592 for international participants, or via a live Internet broadcast at the Company's website, www.centene.com. A replay of the call will be available from February 10, 2004 shortly after completion of the call and ending on February 17, 2004 at 11:59 p.m. Investors may dial (800) 642-1687 in the United States and (706) 645-9291 from abroad and enter access number 4814536. Additionally, the webcast will be archived for the same period at www.centene.com.
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 fifth bullet under "Fourth Quarter Highlights," the second paragraph under "Statement of Earnings" and presented below in tables excludes the impact of a newly enacted premium tax. 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 pro forma (non-GAAP) information presented above in the fourth bullet 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, New Jersey and Ohio. 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, second and third paragraphs following the bullet listing under "Fourth 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 February 9, 2004. 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.
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31,
------------------
2003 2002
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 64,346 $ 59,656
Premium and related receivables, net of
allowances of $607 and $219, respectively 20,308 16,773
Short-term investments, at fair value (amortized
cost $15,192 and $9,687, respectively) 15,160 9,571
Deferred income taxes 2,732 2,846
Other current assets 7,755 4,243
-------- --------
Total current assets 110,301 93,089
Long-term investments, at fair value (amortized
cost $183,749 and $78,025, respectively) 184,811 79,666
Restricted deposits, at fair value (amortized cost
$20,201 and $15,561, respectively) 20,364 15,762
Property, software and equipment 23,106 6,295
Goodwill 13,066 5,022
Intangible assets 6,294 5,673
Other assets 4,750 4,820
-------- --------
Total assets $362,692 $210,327
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Medical claims liabilities $106,569 $ 91,181
Accounts payable and accrued expenses 17,965 10,748
Unearned revenue 3,673 --
Current portion of long-term debt and notes
payable 579 --
-------- --------
Total current liabilities 128,786 101,929
Long-term debt 7,616 --
Other liabilities 6,175 5,334
-------- --------
Total liabilities 142,577 107,263
Minority interest -- 881
Stockholders' equity:
Common stock, $.001 par value; authorized
40,000,000 shares; shares issued and
outstanding: 20,131,924 and 16,243,649,
respectively 20 16
Additional paid-in capital 157,380 72,372
Accumulated other comprehensive income:
Unrealized gain on investments, net of tax 740 1,087
Retained earnings 61,975 28,708
-------- --------
Total stockholders' equity 220,115 102,183
-------- --------
Total liabilities and stockholders' equity $362,692 $210,327
======== ========
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
(Unaudited)
Revenues:
Premiums $ 204,477 $ 141,590 $ 759,763 $ 461,030
Services 2,833 136 9,967 457
----------- ----------- ----------- -----------
Total revenues 207,310 141,726 769,730 461,487
----------- ----------- ----------- -----------
Expenses:
Medical costs 166,068 116,771 626,192 379,468
Cost of services 2,054 89 8,323 341
General and
administrative
expenses 25,384 15,268 88,288 50,072
----------- ----------- ----------- -----------
Total operating
expenses 193,506 132,128 722,803 429,881
----------- ----------- ----------- -----------
Earnings from
operations 13,804 9,598 46,927 31,606
Other income
(expense):
Investment and
other income 1,684 916 5,160 9,575
Interest expense (92) (18) (194) (45)
----------- ----------- ----------- -----------
Earnings before
income taxes 15,396 10,496 51,893 41,136
Income tax expense 5,699 3,798 19,504 15,631
Minority interest -- 116 881 116
----------- ----------- ----------- -----------
Net earnings $ 9,697 $ 6,814 $ 33,270 $ 25,621
=========== =========== =========== ===========
Earnings per share:
Basic earnings
per common
share $ 0.48 $ 0.42 $ 1.86 $ 1.63
Diluted earnings
per common
share $ 0.45 $ 0.38 $ 1.73 $ 1.47
Weighted average
number of shares
outstanding:
Basic 20,100,285 16,177,934 17,852,213 15,716,040
Diluted 21,541,918 17,858,936 19,211,076 17,466,116
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
-----------------------
2003 2002
-------- --------
Cash flows from operating activities:
Net earnings $ 33,270 $ 25,621
Adjustments to reconcile net earnings to net cash
provided by operating activities --
Depreciation and amortization 6,448 2,565
Stock compensation expense 188 270
Minority interest (881) (116)
Gain on sale of investments (1,646) (649)
Changes in assets and liabilities --
Premium and related receivables (2,364) (2,449)
Other current assets (3,180) (1,463)
Deferred income taxes 772 (574)
Other assets 223 857
Medical claims liabilities 15,053 15,386
Unearned revenue 3,673 (827)
Accounts payable and accrued expenses 3,897 1,910
Other operating activities 546 (872)
--------- ---------
Net cash provided by operating activities 55,999 39,659
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (19,162) (3,918)
Purchase of investments (435,282) (192,371)
Sales and maturities of investments 319,564 127,706
Acquisitions, net of cash acquired (5,861) (11,096)
--------- ---------
Net cash used in investing activities (140,741) (79,679)
--------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common stock 81,313 10,318
Proceeds from exercise of stock options 1,145 491
Extinguishment of acquired liabilities (1,218) --
Cash paid for fractional share impact of stock
split (3) --
Proceeds from borrowings 8,581 --
Reduction of long-term debt and notes payable (386) --
--------- ---------
Net cash provided by financing activities 89,432 10,809
--------- ---------
Net increase (decrease) in cash and cash
equivalents 4,690 (29,211)
--------- ---------
Cash and cash equivalents, beginning of period 59,656 88,867
--------- ---------
Cash and cash equivalents, end of period $ 64,346 $ 59,656
========= =========
Interest paid $ 176 $ 28
Income taxes paid $ 19,935 $ 16,433
CENTENE CORPORATION
SUPPLEMENTAL FINANCIAL DATA
Q4 Q3 Q2 Q1
2003 2003 2003 2003
-------- -------- -------- --------
MEMBERSHIP
Wisconsin 157,800 150,200 145,600 139,100
Texas 158,400 152,100 131,400 122,700
Indiana 119,400 112,100 109,000 104,800
New Jersey 54,000 52,700 52,700 52,700
-------- -------- -------- --------
TOTAL 489,600 467,100 438,700 419,300
======== ======== ======== ========
Medicaid 411,800 389,200 361,700 344,700
SCHIP 68,400 68,600 68,800 66,600
SSI 9,400 9,300 8,200 8,000
-------- -------- -------- --------
TOTAL 489,600 467,100 438,700 419,300
======== ======== ======== ========
REVENUE PER MEMBER $142.38 $143.98 $142.26 $142.06
CLAIMS
Period-end inventory 131,000 59,400 109,900 144,500
Average inventory 102,500 75,600 85,400 131,400
Period-end inventory per member 0.27 0.13 0.25 0.34
DAYS IN CLAIMS PAYABLE (a) 59.0 52.5 52.0 58.1
(a) 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.
ANNUALIZED RETURN
ON EQUITY (b) 18.1%(c) 21.3%(c) 27.1% 27.0%
(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 ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------ -------------
2003 2002 2003 2002
----- ------ ------ ------
Medicaid (excluding SSI) and SCHIP 80.7% 82.2% 81.7% 82.2%
SSI 98.9 100.7 102.5 100.7
Total (GAAP) 81.2 82.5 82.4 82.3
Total (non-GAAP), excluding effect of
premium tax 81.6 82.5 82.6 82.3
GENERAL AND ADMINISTRATIVE EXPENSE RATIO BY BUSINESS SEGMENT:
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
----------------------- -----------------------
2003 2002 2003 2002
----------------- ----- ----------------- -----
GAAP non-GAAP(d) GAAP non-GAAP(d)
----- ----------- ----- -----------
Medicaid Managed Care 10.2% 9.8% 10.8% 10.3% 10.1% 10.9%
Specialty Services 53.5 53.5 -- 38.2 38.2 --
Total 12.2 11.8 10.8 11.5 11.3 10.9
(d)Excluding effect of premium tax.
MEDICAL CLAIMS LIABILITES
(In thousands)
The change in medical claims liabilities is summarized as follows:
December 31,
---------------------------
2003 2002
-------- ---------
Balance, January 1 $ 91,181 $ 59,565
Acquisitions 335(e) 16,230(e)
Incurred related to:
Current year 645,482 396,715
Prior years (19,290) (17,247)
-------- ---------
Total incurred 626,192 379,468
-------- ---------
Paid related to:
Current year 544,309 324,210
Prior years 66,830 39,872
-------- ---------
Total paid 611,139 364,082
-------- ---------
Balance, December 31 $106,569 $ 91,181
======== =========
(e) Includes reserves acquired in connection with the acquisition of
the outstanding capital stock of University Health Plans, Inc.
Centene's claims reserving process utilizes a consistent actuarial
methodology to estimate Centene's ultimate liability. Any reduction
in the "Incurred related to: Prior years" claims may be offset as
Centene actuarially determines "Incurred related to: Current year."
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.
CONTACT: Centene Corporation
Karey L. Witty, 314-725-4477
or
Investor Relations Department
Lisa M. Wilson, 212-759-3929
SOURCE: Centene Corporation