ST. LOUIS--(BUSINESS WIRE)--April 26, 2004--Centene Corporation (NYSE:CNC) today announced its financial results for the quarter ended March 31, 2004.
First Quarter Highlights
-- Revenues of $225.5 million, a 27% increase over the first
quarter of 2003.
-- Earnings from operations of $14.7 million, a 45% increase over
the first quarter of 2003.
-- Diluted earnings per share of $0.47.
-- Organic membership growth of 15% over the first quarter of
2003.
-- Medicaid Managed Care segment G&A of 10.4% (GAAP) and 9.9%
(non-GAAP), exclusive of the effect of the premium tax.
-- Operating cash flows of $12.4 million, a 25% increase over the
first quarter of 2003.
-- Entered fifth market, Ohio, effective January 1, 2004.
-- Days in claims payable of 55.4.
-- New management and board appointments.
Michael F. Neidorff, Centene's president and chief executive officer, said, "Our financial results continue to be in line with our expectations and are an ongoing validation of our ability to work effectively with states to implement our Margin Protection Program(TM). This program combines rate protection with policy initiatives that reduce costs and improve health outcomes for our recipients. To date, we have been successful in effecting changes that reduce inappropriate emergency room visits, and each of our markets has approved the implementation of our preferred drug list. We will continue to work with our states on policies which we believe will enable them to have better control over their Medicaid expenditures."
"Growth in our markets has been consistent with our objectives, and we are particularly pleased with the trends in Indiana and Wisconsin. In Texas, the state altered administrative enrollment procedures that resulted in a sequential quarter decrease in membership in the SCHIP population. We are working with our members to make them aware of such changes and are demonstrating to the state that the savings we generate will enable them to expand the enrollment base within existing budgetary goals. In Ohio, our newest market, we are on track in Toledo and remain focused on building our provider network in additional markets for future expansion," continued Neidorff.
"I would like to welcome Lisa Wilson, the newest member of our senior management team. Ms. Wilson has been working with Centene since our initial public offering in 2001 and has made significant contributions to our investor relations program, along with building awareness of the Company with the Wall Street investment community. I also welcome John Roberts, Executive Director of Civic Progress, and a former managing partner of Arthur Andersen LLP, to our Board of Directors and Audit Committee. Mr. Roberts' perspective on corporate governance and financial transparency will be invaluable as we continue to build Centene to conform to the highest standards," concluded Neidorff.
Membership totaled 522,400 at March 31, 2004, a 24.6% increase from 419,300 at March 31, 2003. The Company experienced solid growth in its Indiana, Texas and Wisconsin markets year-over-year, while membership in the New Jersey market was stable. Ohio contributed 23,800 members to the quarter through the acquisition of certain Medicaid-related assets from Family Health Plan, Inc., effective January 1, 2004. The state of Texas implemented administrative policy changes that require SCHIP members to re-enroll every six months versus annually and implemented a 90-day waiting period for enrollment. The net effect of these changes was a reduction in the state's SCHIP membership and in the Company's membership in this category from the fourth quarter of 2003. The Company is proactively reaching out to its members to make them aware of the new procedures required for enrollment under the new guidelines.
The following table depicts membership in Centene's managed care organizations by state at March 31, 2004 and 2003:
2004 2003
--------- --------
Indiana 125,400 104,800
New Jersey 54,000 52,700
Ohio 23,800 --
Texas 154,000 122,700
Wisconsin 165,200 139,100
--------- --------
TOTAL 522,400 419,300
========= ========
The following table depicts membership in Centene's managed care organizations by member category at March 31, 2004 and 2003:
2004 2003
--------- --------
Medicaid 446,900 344,700
SCHIP 65,900 66,600
SSI 9,600(a) 8,000(b)
--------- --------
TOTAL 522,400 419,300
========= ========
(a) 4,400 at-risk; 5,200 ASO
(b) 4,200 at-risk; 3,800 ASO
Statement of Earnings Highlights
-- For the first quarter of 2004, revenues increased 27.1% to
$225.5 million from $177.4 million in the first quarter of
2003. Net of acquisitions, revenue growth was $27.1 million,
or 15.3%, over the same prior year period.
-- The health benefits ratio (HBR), which reflects medical
services costs as a percent of premium revenues, was 81.0%
(GAAP) compared to 83.4% (GAAP) for the same period in 2003.
Excluding $1.1 million in premium revenue attributable to the
premium tax imposed by the state of Texas on September 1,
2003, the HBR was 81.4% (non-GAAP) for the current quarter.
This was slightly below the Company's targeted range of 81.5%
to 83.5%, due primarily to the successful implementation of
initiatives to reduce inappropriate emergency room usage and
to establish preferred drug lists.
-- Consolidated general and administrative (G&A) expenses, which
includes the Medicaid Managed Care segment and Specialty
Services, as a percent of revenues increased to 12.6% (GAAP)
in 2004 from 10.9% (GAAP) in the first quarter of 2003.
Excluding the effect of the premium tax on G&A expenses and
including the effects of the Company's specialty business,
which has a higher overall G&A ratio, the expense ratio was
12.2% (non-GAAP) in total, and 9.9% (non-GAAP) for the
Medicaid Managed Care segment compared to 10.5% (GAAP) for the
same prior year period.
-- Earnings from operations increased 44.7% to $14.7 million from
$10.1 million in 2003.
-- Net earnings improved to $10.1 million, or $0.47 per diluted
share, compared to $7.2 million, or $0.40 per diluted share,
for the first quarter of 2003.
Balance Sheet and Cash Flow Highlights
At March 31, 2004, the Company held cash and investments of $288.7 million, a portion of which is restricted due to state regulatory requirements. Medical claims liabilities totaled $109.8 million, representing 55.4 days in claims payable.
Cash flows from operating activities of $12.4 million for the quarter ended March 31, 2004, reflect a 25.4% increase year-over-year.
Outlook
Karey L. Witty, Centene's chief financial officer, commented, "We are updating our guidance and anticipate 2004 revenue in the range of $940 to $950 million and net earnings of $1.91 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 tomorrow, April 27, 2004, at 8:15 a.m. (Eastern Time) to review the financial results for the first quarter ended March 31, 2004, 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 April 27, 2004, shortly after completion of the call and ending on May 11, 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 6572189. 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 "First Quarter Highlights", second and third bullet under "Statement of Earnings Highlights" and presented below in tables excludes the impact of a premium tax enacted in September 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 multi-line 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 Indiana, New Jersey, Ohio, Texas and Wisconsin. 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 in the first and second paragraphs following the bullet listing under "First Quarter Highlights" and in the paragraph under "Outlook" above contain 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, December 31,
2004 2003
----------- ---------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $44,363 $64,346
Premium and related receivables, net
of allowances of $718 and $607,
respectively 21,634 20,308
Short-term investments, at fair
value (amortized cost $32,705 and
$15,192, respectively) 32,708 15,160
Deferred income taxes 3,174 2,732
Other current assets 9,231 7,755
----------- ---------------
Total current assets 111,110 110,301
Long-term investments, at fair value
(amortized cost $189,432 and $183,749,
respectively) 191,057 184,811
Restricted deposits, at fair value
(amortized cost $20,190 and $20,201,
respectively) 20,592 20,364
Property, software and equipment 24,056 23,106
Goodwill 18,408 13,066
Intangible assets 7,428 6,294
Other assets 4,732 4,750
----------- ---------------
Total assets $377,383 $362,692
=========== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Medical claims liabilities $109,841 $106,569
Accounts payable and accrued
expenses 17,733 17,965
Unearned revenue 3,736 3,673
Current portion of long-term debt
and notes payable 288 579
----------- ---------------
Total current liabilities 131,598 128,786
Long-term debt 7,544 7,616
Other liabilities 5,613 6,175
----------- ---------------
Total liabilities 144,755 142,577
Stockholders' equity:
Common stock, $.001 par value;
authorized 40,000,000 shares;
issued and outstanding 20,255,580
and 20,131,924 shares, respectively 20 20
Additional paid-in capital 159,237 157,380
Accumulated other comprehensive income:
Unrealized gain on investments, net
of tax 1,258 740
Retained earnings 72,113 61,975
----------- ---------------
Total stockholders' equity 232,628 220,115
----------- ---------------
Total liabilities and
stockholders' equity $377,383 $362,692
=========== ===============
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
Three Months Ended
March 31,
-----------------------
2004 2003
----------- -----------
(Unaudited)
Revenues:
Premiums $222,690 $176,212
Services 2,835 1,222
----------- -----------
Total revenues 225,525 177,434
----------- -----------
Expenses:
Medical costs 180,448 146,907
Cost of services 2,016 975
General and administrative expenses 28,377 19,405
----------- -----------
Total operating expenses 210,841 167,287
----------- -----------
Earnings from operations 14,684 10,147
Other income (expense):
Investment and other income 1,510 974
Interest expense (90) (27)
----------- -----------
Earnings before income taxes 16,104 11,094
Income tax expense 5,966 4,233
Minority interest -- 300
----------- -----------
Net earnings $10,138 $7,161
=========== ===========
Earnings per share:
Basic earnings per common share $0.50 $0.44
Diluted earnings per common share $0.47 $0.40
Weighted average number of shares outstanding:
Basic 20,192,009 16,348,274
Diluted 21,533,870 17,757,266
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
March 31,
--------------------
2004 2003
---------- ---------
(Unaudited)
Cash flows from operating activities:
Net earnings $10,138 $7,161
Adjustments to reconcile net earnings to net
cash provided by operating activities --
Depreciation and amortization 2,271 1,379
Stock compensation expense 19 5
Minority interest -- (300)
Gain on sale of investments (253) (293)
Changes in assets and liabilities --
Premium and related receivables (1,326) (1,982)
Other current assets (1,476) (626)
Deferred income taxes (755) 803
Other assets 13 58
Medical claims liabilities 3,272 3,586
Accounts payable and accrued expenses 1,211 (187)
Unearned revenue 63 19
Other operating activities (812) 236
---------- ---------
Net cash provided by operating
activities 12,365 9,859
---------- ---------
Cash flows from investing activities:
Purchase of property, software and equipment (2,126) (684)
Purchase of investments (93,742) (42,055)
Sales and maturities of investments 69,814 35,218
Acquisitions, net of cash acquired (6,983) (2,283)
---------- ---------
Net cash used in investing
activities (33,037) (9,804)
---------- ---------
Cash flows from financing activities:
Reduction of long-term debt and notes payable (363) --
Proceeds from stock options and employee stock
purchase plan 1,052 259
---------- ---------
Net cash provided by financing
activities 689 259
---------- ---------
Net (decrease) increase in cash
and cash equivalents (19,983) 314
---------- ---------
Cash and cash equivalents, beginning of period 64,346 59,656
---------- ---------
Cash and cash equivalents, end of period $44,363 $59,970
========== =========
Interest paid $91 $18
Income taxes paid $3,390 $1,230
CENTENE CORPORATION
SUPPLEMENTAL FINANCIAL DATA
Q1 Q4 Q3 Q2
2004 2003 2003 2003
-------- -------- -------- --------
MEMBERSHIP
Indiana 125,400 119,400 112,100 109,000
New Jersey 54,000 54,000 52,700 52,700
Ohio 23,800 -- -- --
Texas 154,000 158,400 152,100 131,400
Wisconsin 165,200 157,800 150,200 145,600
-------- -------- -------- --------
TOTAL 522,400 489,600 467,100 438,700
======== ======== ======== ========
Medicaid 446,900 411,800 389,200 361,700
SCHIP 65,900 68,400 68,600 68,800
SSI 9,600 9,400 9,300 8,200
-------- -------- -------- --------
TOTAL 522,400 489,600 467,100 438,700
======== ======== ======== ========
REVENUE PER MEMBER $145.19 $142.38 $143.98 $142.26
CLAIMS
Period-end inventory 102,300 131,000 59,400 109,900
Average inventory 107,400 102,500 75,600 85,400
Period-end inventory per member 0.20 0.27 0.13 0.25
DAYS IN CLAIMS PAYABLE (a) 55.4 59.0 52.5 52.0
(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) 17.9%(c) 18.1%(c) 21.3%(c) 27.1%
(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
MARCH 31,
-------------------
2004 2003
--------- --------
Medicaid (excluding SSI) and SCHIP 80.6% 82.4%
SSI 99.3 104.2
Total (GAAP) 81.0 83.4
Total (non-GAAP), excluding effect of
premium tax 81.4 83.4
GENERAL AND ADMINISTRATIVE EXPENSE RATIO BY BUSINESS SEGMENT:
THREE MONTHS ENDED
MARCH 31,
--------------------------
2004 2003
-------------------- -----
GAAP non-GAAP (d)
------ ------------
Medicaid Managed Care 10.4% 9.9% 10.5%
Specialty Services 52.9 52.9 26.6
Total 12.6 12.2 10.9
(d) Excluding effect of premium tax.
MEDICAL CLAIMS LIABILITIES
(In thousands)
Four rolling quarters of the changes in medical claims liabilities
are summarized as follows:
2004
---------
Balance, March 31, 2003 $94,767
Incurred related to:
Current period 672,473
Prior period (12,740)
---------
Total incurred 659,733
---------
Paid related to:
Current period 569,940
Prior period 74,719
---------
Total paid 644,659
---------
Balance, March 31, 2004 $109,841
=========
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.
CONTACT: Centene Corporation Karey L. Witty, 314-725-4477 or Investor Relations: Lisa M. Wilson, 212-759-3929
SOURCE: Centene Corporation