ST. LOUIS--(BUSINESS WIRE)--July 26, 2004--Centene Corporation (NYSE:CNC) today announced its financial results for the quarter ended June 30, 2004.
Second Quarter Highlights
-- Revenues of $233.6 million, a 25.4% increase over the second
quarter of 2003.
-- Earnings from operations of $15.9 million, a 54.2% increase
over the second quarter of 2003.
-- Earnings per diluted share of $0.50.
-- Organic membership growth of 12.3% over the second quarter of
2003.
-- Medicaid Managed Care segment G&A expense ratio of 10.2%
(GAAP) and 9.8% (non-GAAP), exclusive of the effect of the
premium tax.
-- Operating cash flows of $30.1 million for the six months ended
June 30, 2004.
-- Days in claims payable of 53.5.
-- Awarded contract to manage the Texas Children's Health
Insurance Program (CHIP) Exclusive Provider Organization (EPO)
in 170 predominantly rural counties.
Michael F. Neidorff, Centene's chairman and chief executive officer, said, "The second quarter of 2004 marked our twentieth consecutive quarter of increased profitability in which we achieved our stated financial objectives and our results are in-line with our expectations. Our Margin Protection Program(TM) that we began implementing over three years ago has produced consistent results, pricing cycle stability and ongoing financial savings for the states in which we operate. We believe that we have the operating systems, quality delivery networks and critical management team in place to be a leading total low-cost provider in Medicaid managed care.
I am pleased to report that we recently received a composite 4.5% rate increase in the State of Texas, subject to Centers for Medicare and Medicaid Services (CMS) approval, which will become effective on September 1, 2004. This rate increase, together with our Margin Protection Program, will offset Centene's medical service cost trends as we help the State by providing cost-effective healthcare to its Medicaid recipients. Our EPO contract, which we announced in May, gives us an additional opportunity to expand our footprint in the State and to reach more recipients who require quality healthcare.
In New Jersey, we received a 5.3% rate increase which with our previously approved Margin Protection Program enhances our operations in this state. Concurrent with the rate increase, New Jersey adopted an anticipated 1% premium tax. Furthermore, our growing expertise in serving the SSI population continues to provide confidence in our ability in this area as we consider expansion into other states.
Our membership growth remains strong and we continue to strive to add new members, both organically and through targeted acquisitions. In Ohio, our newest state, we are working to expand our provider network, which will lay the foundation for future market and service area expansion. Our growth in Indiana and Wisconsin is noteworthy, as expected.
As we progress in 2004 and beyond, we are confident that our strategic objectives will continue to produce predictable financial results and identify cost-savings in Medicaid managed care," concluded Neidorff.
The following table depicts membership in Centene's managed care organizations by state at June 30, 2004 and 2003:
2004 2003
------------ ------------
Indiana 132,900 109,000
New Jersey 54,000 52,700
Ohio 23,800 --
Texas 155,300 131,400
Wisconsin 167,300 145,600
------------ ------------
TOTAL 533,300 438,700
============ ============
The following table depicts membership in Centene's managed care organizations by member category at June 30, 2004 and 2003:
2004 2003
------------ ------------
Medicaid 460,300 361,700
SCHIP 63,200 68,800
SSI 9,800(a) 8,200(b)
------------ ------------
TOTAL 533,300 438,700
============ ============
(a) 4,400 at-risk; 5,400 ASO
(b) 4,300 at-risk; 3,900 ASO
Statement of Earnings Highlights
-- For the second quarter of 2004, revenues increased 25.4% to
$233.6 million from $186.2 million in the second quarter of
2003.
-- The health benefits ratio (HBR), which reflects medical
services costs as a percent of premium revenues, was 81.0%
(GAAP) compared to 83.3% (GAAP) for the same period in 2003.
Excluding 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 in-line with the Company's targeted
range of 81.5% to 83.5%, due primarily to the ongoing
successful implementation of our Margin Protection Program and
disease management efforts aimed at reducing inappropriate
utilization to promote better health outcomes and reduce
costs.
-- Consolidated general and administrative (G&A) expenses as a
percent of revenues increased to 12.1% (GAAP) in 2004 from
11.2% (GAAP) in the second quarter of 2003. Excluding the
effect of the premium tax, the expense ratio was 11.7%
(non-GAAP). The Medicaid Managed Care segment G&A ratio was
9.8% (non-GAAP) compared to 10.3% (GAAP) for the same prior
year period.
-- Earnings from operations increased 54.2% to $15.9 million from
$10.3 million in 2003.
-- Net earnings improved to $10.8 million, or $0.50 per diluted
share, compared to $7.7 million, or $0.43 per diluted share,
for the second quarter of 2003.
-- For the six months ended June 30, 2004, revenues increased
26.3% to $459.1 million from $363.7 million for the same
period in the prior year. The health benefits ratio was 81.0%
(GAAP), with the Medicaid component at 80.4%, compared to
82.4% for the same period in 2003. General and administrative
expenses as a percent of revenues for the Medicaid segment
declined slightly to 10.3% (GAAP) and 9.9% (non-GAAP) as
compared to 10.4% (GAAP) in 2003. Earnings from operations
increased 49.5% to $30.6 million from $20.5 million in 2003.
Net earnings improved to $21.0 million, or $0.97 per diluted
share.
Balance Sheet and Cash Flow Highlights
At June 30, 2004, the Company had cash and investments of $298.4 million, a portion of which is restricted due to state regulatory requirements. Medical claims liabilities totaled $110.1 million, representing 53.5 days in claims payable. Cash flows from operating activities were $30.1 million for the six months ended June 30, 2004.
Outlook
Karey L. Witty, Centene's chief financial officer, commented, "We are updating our guidance and anticipate 2004 revenue in the range of $962 to $970 million and net earnings of $1.99 to $2.02 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, July 27, 2004, at 8:30 a.m. (Eastern Time) to review the financial results for the second quarter ended June 30, 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 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 PM Eastern on August 10, 2004 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 8350703.
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 "Second Quarter Highlights," second, third and sixth 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 Children's Health Insurance Program (CHIP). 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 paragraphs following the bullet listing under "Second Quarter Highlights," and the paragraph under "Outlook" above 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 July 26, 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.
(Tables Follow)
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30, December 31,
2004 2003
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $80,478 $64,346
Premium and related receivables, net of
allowances of $568 and $607,
respectively 21,297 20,308
Short-term investments, at fair value
(amortized cost $31,223 and $15,192,
respectively) 31,185 15,160
Deferred income taxes 3,290 2,732
Other current assets 8,809 7,755
----------- ------------
Total current assets 145,059 110,301
Long-term investments, at fair value
(amortized cost $167,907 and $183,749,
respectively) 165,714 184,811
Restricted deposits, at fair value (amortized
cost $21,176 and $20,201, respectively) 21,037 20,364
Property, software and equipment 26,008 23,106
Goodwill 18,430 13,066
Other intangible assets 7,035 6,294
Other assets 6,532 4,750
----------- ------------
Total assets $389,815 $362,692
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Medical claims liabilities $110,105 $106,569
Accounts payable and accrued expenses 20,673 17,965
Unearned revenue 3,650 3,673
Current portion of long-term debt and
notes payable 288 579
----------- ------------
Total current liabilities 134,716 128,786
Long-term debt 7,472 7,616
Other liabilities 5,426 6,175
----------- ------------
Total liabilities 147,614 142,577
Stockholders' equity:
Common stock, $.001 par value;
authorized 100,000,000 shares; issued
and outstanding 20,433,040 and
20,131,924 shares, respectively 20 20
Additional paid-in capital 160,724 157,380
Accumulated other comprehensive income:
Unrealized (loss) gain on investments,
net of tax (1,469) 740
Retained earnings 82,926 61,975
----------- ------------
Total stockholders' equity 242,201 220,115
----------- ------------
Total liabilities and
stockholders' equity $389,815 $362,692
=========== ============
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Revenues:
Premiums $231,330 $182,900 $454,020 $359,112
Services 2,278 3,332 5,113 4,554
----------- ----------- ----------- -----------
Total revenues 233,608 186,232 459,133 363,666
----------- ----------- ----------- -----------
Expenses:
Medical costs 187,298 152,404 367,746 299,311
Cost of services 2,022 2,613 4,038 3,588
General and
administrative
expenses 28,351 20,879 56,728 40,284
----------- ----------- ----------- -----------
Total operating
expenses 217,671 175,896 428,512 343,183
----------- ----------- ----------- -----------
Earnings from
operations 15,937 10,336 30,621 20,483
Other income (expense):
Investment and
other income 1,336 1,257 2,846 2,231
Interest expense (101) (4) (191) (31)
----------- ----------- ----------- -----------
Earnings before
income taxes 17,172 11,589 33,276 22,683
Income tax expense 6,359 4,462 12,325 8,695
Minority interest -- 581 -- 881
----------- ----------- ----------- -----------
Net earnings $10,813 $7,708 $20,951 $14,869
=========== =========== =========== ===========
Earnings per share:
Basic earnings per
common share $0.53 $0.47 $1.03 $0.91
Diluted earnings
per common share $0.50 $0.43 $0.97 $0.83
Weighted average number of shares
outstanding:
Basic 20,360,733 16,484,945 20,276,371 16,409,291
Diluted 21,687,188 17,803,016 21,610,713 17,829,558
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
June 30,
-------------------
2004 2003
--------- ---------
(Unaudited)
Cash flows from operating activities:
Net earnings $20,951 $14,869
Adjustments to reconcile net earnings to net
cash provided by operating activities --
Depreciation and amortization 4,701 2,761
Stock compensation expense 32 108
Minority interest -- (881)
Gain on sale of investments (103) (777)
Changes in assets and liabilities --
Premium and related receivables (989) 1,205
Other current assets (1,051) (2,065)
Deferred income taxes (914) 836
Other assets (330) 286
Medical claims liabilities 3,536 (4,081)
Accounts payable and accrued expenses 5,254 (3,248)
Unearned revenue (23) 30
Other operating activities (950) 352
--------- ---------
Net cash provided by operating
activities 30,114 9,395
--------- ---------
Cash flows from investing activities:
Purchase of property, software and equipment (5,082) (2,550)
Purchase of investments (154,342) (103,310)
Sales and maturities of investments 151,077 83,196
Acquisitions, net of cash acquired (7,005) (2,295)
--------- ---------
Net cash used in investing
activities (15,352) (24,959)
--------- ---------
Cash flows from financing activities:
Reduction of long-term debt and notes payable (435) --
Extinguishment of acquired liabilities -- (1,218)
Proceeds from stock options and employee stock
purchase plan 1,805 548
--------- ---------
Net cash provided by (used in)
financing activities 1,370 (670)
--------- ---------
Net increase (decrease) in cash
and cash equivalents 16,132 (16,234)
--------- ---------
Cash and cash equivalents, beginning of period 64,346 59,656
--------- ---------
Cash and cash equivalents, end of period $80,478 $43,422
========= =========
Interest paid $181 $42
Income taxes paid $11,034 $8,580
CENTENE CORPORATION
SUPPLEMENTAL FINANCIAL DATA
Q2 Q1 Q4 Q3
2004 2004 2003 2003
-------- -------- -------- --------
MEMBERSHIP
Indiana 132,900 125,400 119,400 112,100
New Jersey 54,000 54,000 54,000 52,700
Ohio 23,800 23,800 -- --
Texas 155,300 154,000 158,400 152,100
Wisconsin 167,300 165,200 157,800 150,200
-------- -------- -------- --------
TOTAL 533,300 522,400 489,600 467,100
======== ======== ======== ========
Medicaid 460,300 446,900 411,800 389,200
SCHIP 63,200 65,900 68,400 68,600
SSI 9,800 9,600 9,400 9,300
-------- -------- -------- --------
TOTAL 533,300 522,400 489,600 467,100
======== ======== ======== ========
REVENUE PER MEMBER $145.31 $145.19 $142.38 $143.98
CLAIMS
Period-end inventory 89,700 102,300 131,000 59,400
Average inventory 98,800 107,400 102,500 75,600
Period-end inventory per member 0.17 0.20 0.27 0.13
DAYS IN CLAIMS PAYABLE (a) 53.5 55.4 59.0 52.5
(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)(c) 18.2% 17.9% 18.1% 21.3%
(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 Six Months Ended
June 30, June 30,
------------------ -----------------
2004 2003 2004 2003
--------- ------- -------- -------
Medicaid and SCHIP 80.3% 82.4% 80.4% 82.4%
SSI 97.8 103.3 98.5 103.7
Total (GAAP) 81.0 83.3 81.0 83.3
Total (non-GAAP) 81.4 83.3 81.4 83.3
GENERAL AND ADMINISTRATIVE EXPENSE RATIO BY BUSINESS SEGMENT:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2004 2003 2004 2003
-------------- ----- -------------- -----
Non- Non-
GAAP GAAP(d) GAAP GAAP(d)
----- -------- ----- --------
Medicaid Managed Care 10.2% 9.8% 10.3% 10.3% 9.9% 10.4%
Specialty Services 46.4 46.4 32.2 49.7 49.7 30.2
Total 12.1 11.7 11.2 12.4 11.9 11.1
(d) Excluding effect of premium tax.
MEDICAL CLAIMS LIABILITES
(In thousands)
Four rolling quarters of the changes in medical claims liabilities are
summarized as follows:
---------
2004
---------
Balance, June 30, 2003 $87,101
Incurred related to:
Current period 709,548
Prior period (14,920)
---------
Total incurred 694,628
---------
Paid related to:
Current period 605,549
Prior period 66,075
---------
Total paid 671,624
---------
Balance, June 30, 2004 $110,105
=========
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 Lisa M. Wilson, 212-759-3929
SOURCE: Centene Corporation