ST. LOUIS, Feb 7, 2005 (BUSINESS WIRE) -- Centene Corporation (NYSE: CNC) today announced its financial results for the fourth quarter and year ended December 31, 2004.
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Fourth Quarter Highlights
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- Revenues increased 39% to $288.1 million
- Operating earnings increased 26% to $17.4 million
- EPS increased 17% to $0.27, post-split
- Operating cash flows of $41.9 million
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Full Year Highlights
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- Revenues increased 30% to $1 billion
- Operating earnings increased 38% to $64.5 million
- EPS increased 17% to $1.02, post-split
- Operating cash flows of $99.4 million
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Additional Highlights
-- Completed 2:1 stock split, increasing outstanding shares to
41.3 million.
-- Fourth quarter 2004 earnings per diluted share prior to the
effect of the 2:1 stock split of $0.54, ahead of prior
guidance.
-- Membership growth of 58% over the fourth quarter of 2003;
organic membership growth of 25% over the same prior year
period.
-- Closed FirstGuard acquisition marking Centene's entry into
Kansas and Missouri, two additional Medicaid-mandated states.
-- Days in claims payable of 66.5, primarily reflecting the
FirstGuard acquisition.
Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, said, "We concluded 2004 with strong financial results, marking our 22nd quarter of consecutive earnings growth. This consistent performance enabled Centene to continue to execute its strategy of becoming a multi-line Medicaid company.
"Despite the strengthening economy, there will be tighter budgets at the state and federal levels. This provides an opportunity for Centene to work with the states to maintain eligibility for recipients while offering quality, cost-effective healthcare. Our Margin Protection Program(TM), which we began implementing over three years ago, is specifically designed to help the states address their respective budget challenges. We continue to work with the states by focusing on a combination of minimal rate increases and administrative policy changes.
"We completed the acquisition of two health plan entities known collectively as FirstGuard, which brought us into two additional Medicaid mandated markets -- Kansas and our home state of Missouri. Additionally, our efforts in Kansas and Ohio are consistent with our strategy to offer both core Medicaid and specialty services. It further confirms our belief that we can partner with our states to move more members into managed behavioral health programs and demonstrate cost savings through a more comprehensive coordination of care.
"In addition to entering new markets, we experienced strong membership growth in Indiana and Texas. As a result of the SCHIP Exclusive Provider Organization contract, we are now virtually statewide in Texas and look forward to continuing to provide cost-effective healthcare to these recipients and building our relationship with the State. As we previously discussed, we anticipate that the SCHIP membership will continue to decline over the next few quarters and then stabilize. We believe that state regulators will be working to identify funding to expand eligibility, which ultimately will result in a positive impact for the Texas SCHIP population.
"As part of our strategic efforts to expand our footprint in Ohio, we recently announced a definitive agreement to acquire the Medicaid-related assets of SummaCare, Inc. based in Akron. This transaction will add approximately 39,000 members to our subsidiary, Buckeye Community Health Plan, and make us one of the leading providers in the State. In New Jersey, we are working to further expand our membership in the SSI population and are comfortable with our progress.
"The year ahead offers significant opportunities for Centene, and we are confident that we have the systems, people and financial resources to meet them," concluded Neidorff.
The following table depicts membership in Centene's managed care organizations by state at December 31, 2004 and 2003:
2004 2003
--------------- ---------------
Indiana 150,600 119,400
Kansas 94,200 --
Missouri 41,200 --
New Jersey 52,800 54,000
Ohio 23,800 --
Texas 244,300 158,400
Wisconsin 165,800 157,800
--------------- ---------------
TOTAL 772,700 489,600
=============== ===============
The following table depicts membership in Centene's managed care organizations by member category at December 31, 2004 and 2003:
2004 2003
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Medicaid (excluding SSI) 580,200 411,800
SCHIP 182,100 68,400
SSI 10,400(a) 9,400(b)
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TOTAL 772,700 489,600
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(a) 4,600 at-risk, 5,800 ASO
(b) 4,400 at-risk, 5,000 ASO
Statement of Earnings Highlights
-- For the fourth quarter of 2004, revenues increased 39.0% to
$288.1 million from $207.3 million in the fourth quarter of
2003.
-- The health benefits ratio (HBR), which reflects medical costs
as a percent of premium revenues, was 80.3% in the fourth
quarter of 2004 compared to 81.2% for the same period in 2003.
The effect of the premium taxes imposed by the State of Texas
beginning September 1, 2003 and the State of New Jersey
beginning July 1, 2004 decreased Centene's HBR by 50 basis
points for the fourth quarter of 2004, and 40 basis points in
the prior year quarter. The HBR for the SSI category
normalized to 84.7%, but is still expected to be volatile
given the small member base. This further demonstrates our
ability to manage this population.
-- Consolidated general and administrative (G&A) expenses as a
percent of revenues were 13.5% in the fourth quarter of 2004
compared to 12.2% in the fourth quarter of 2003. The effect of
the premium taxes increased Centene's G&A ratio by 50 basis
points for the fourth quarter of 2004 and 40 basis points in
the prior year quarter. The results for the fourth quarter of
2004 include approximately $1.4 million in start-up costs
associated with FirstGuard and Centene's Montana claims
processing facility, and severance costs related to job
eliminations. Moreover, those results also include an
additional $1.3 million of compensation costs related to
Centene's performance bonuses.
-- Earnings from operations increased 26.4% to $17.4 million in
the fourth quarter of 2004 from $13.8 million in the fourth
quarter of 2003.
-- Net earnings were $12.0 million, or $0.27 per diluted share,
for the fourth quarter of 2004 compared to $9.7 million, or
$0.23 per diluted share, for the fourth quarter of 2003.
-- For the year ended December 31, 2004, revenues increased 30.0%
to $1.0 billion from $769.7 million in 2003. The health
benefits ratio was 80.7% in 2004 compared to 82.4% in 2003.
G&A expenses as a percent of revenues were 12.8% in 2004
compared to 11.5% in 2003. Earnings from operations increased
37.5% to $64.5 million in 2004 from $46.9 million in 2003. Net
earnings improved to $44.3 million, or $1.02 per diluted
share, in 2004 compared to $33.3 million or $0.87 per diluted
share, in 2003.
Balance Sheet Highlights
At December 31, 2004, the Company had cash and investments of $317.4 million, $271.4 million of which was held by our regulated entities. Medical claims liabilities totaled $166.0 million, representing 66.5 days in claims payable. Excluding FirstGuard, the Company's days in claims payable was 60.7. A reconciliation of the Company's change in days in claims payable from the immediately preceding quarter is highlighted below:
Days in claims payable, September 30, 2004 57.3
December 1, 2004 close of FirstGuard 5.8
Increase in claims inventory, primarily EPO 3.0
Increase in physician bonus and settlement 0.6
Decrease in pharmacy accrual (0.2)
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Days in claims payable, December 31, 2004 66.5
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Outlook
Karey L. Witty, Centene's Chief Financial Officer, commented, "Our first quarter 2005 revenue guidance is in the range of $332 million to $335 million, and we anticipate net earnings of $0.30 to $0.31 per diluted share, based on 44.7 million fully diluted shares outstanding. For full-year 2005, we anticipate revenue in the range of $1.47 billion to $1.50 billion, and net earnings per diluted share of $1.36 to $1.42." A review of the results for the fourth quarter and additional details on management's outlook for the first quarter of 2005 will take place during the Company's scheduled fourth quarter earnings call.
Guidance for 2005 does not include either our pending acquisition of SummaCare, Inc. or the effect of new accounting rules requiring the expensing of stock options. The Financial Accounting Standards Board (FASB) has recently issued FASB Statement No. 123R, "Share-Based Payment," which covers a wide range of share-based compensation arrangements, including stock options. The Statement is effective for quarters beginning after June 15, 2005. Centene plans to begin the expensing of stock options effective July 1, 2005, in accordance with the requirements of FASB Statement No. 123 and expects to provide the estimated impact of this change during the second quarter earnings conference call.
Conference Call
As previously announced, the Company will host a conference call tomorrow, February 8, 2005, at 8:30 a.m. (Eastern Time) to review the financial results for the quarter and year-ended December 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 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 February 22, 2005 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 3279480.
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, Kansas, Missouri, 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 treatment compliance. Information regarding Centene is available via the Internet at www.centene.com.
The information provided in the second through sixth paragraphs immediately following the listings under "Additional Highlights" and the paragraphs 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 February 7, 2005. 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,
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2004 2003
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ASSETS
Current assets:
Cash and cash equivalents $ 84,105 $ 64,346
Premium and related receivables, net of
allowances of $462 and $607, respectively 31,475 20,308
Short-term investments, at fair value (amortized
cost $94,442 and $15,192, respectively) 94,283 15,160
Other current assets 14,429 10,487
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Total current assets 224,292 110,301
Long-term investments, at fair value (amortized
cost $117,177 and $183,749, respectively) 116,787 184,811
Restricted deposits, at fair value (amortized cost
$22,295 and $20,201, respectively) 22,187 20,364
Property, software and equipment 43,248 23,106
Goodwill 101,631 13,066
Other intangible assets 14,439 6,294
Other assets 5,350 4,750
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Total assets $527,934 $362,692
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Medical claims liabilities $165,980 $106,569
Accounts payable and accrued expenses 31,737 17,965
Unearned revenue 3,956 3,673
Current portion of long-term debt and notes
payable 486 579
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Total current liabilities 202,159 128,786
Long-term debt 46,973 7,616
Other liabilities 7,490 6,175
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Total liabilities 256,622 142,577
Stockholders' equity:
Common stock, $.001 par value; authorized
100,000,000 shares; issued and outstanding
41,316,122 and 40,263,848 shares, respectively 41 40
Additional paid-in capital 165,391 157,360
Accumulated other comprehensive income:
Unrealized (loss) gain on investments, net of
tax (407) 740
Retained earnings 106,287 61,975
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Total stockholders' equity 271,312 220,115
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Total liabilities and stockholders' equity $527,934 $362,692
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CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------------- -------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
(Unaudited)
Revenues:
Premiums $ 286,117 $ 204,478 $ 991,673 $ 759,763
Services 1,947 2,833 9,267 9,967
----------- ----------- ----------- -----------
Total revenues 288,064 207,311 1,000,940 769,730
----------- ----------- ----------- -----------
Expenses:
Medical costs 229,756 166,069 800,476 626,192
Cost of services 1,916 2,054 8,065 8,323
General and
administrative
expenses 38,948 25,384 127,863 88,288
----------- ----------- ----------- -----------
Total operating
expenses 270,620 193,507 936,404 722,803
----------- ----------- ----------- -----------
Earnings from
operations 17,444 13,804 64,536 46,927
Other income
(expense):
Investment and
other income 1,902 1,684 6,431 5,160
Interest expense (363) (92) (680) (194)
----------- ----------- ----------- -----------
Earnings before
income taxes 18,983 15,396 70,287 51,893
Income tax expense 6,973 5,699 25,975 19,504
Minority interest -- -- -- 881
----------- ----------- ----------- -----------
Net earnings $ 12,010 $ 9,697 $ 44,312 $ 33,270
=========== =========== =========== ===========
Earnings per share:
Basic earnings
per common
share $ 0.29 $ 0.24 $ 1.09 $ 0.93
Diluted
earnings per
common share $ 0.27 $ 0.23 $ 1.02 $ 0.87
Weighted average
number of shares
outstanding:
Basic 41,199,463 40,200,570 40,820,909 35,704,426
Diluted 44,309,636 43,083,836 43,616,445 38,422,152
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
----------------------
2004 2003
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Cash flows from operating activities:
Net earnings $ 44,312 $ 33,270
Adjustments to reconcile net earnings to net
cash provided by operating activities --
Depreciation and amortization 10,014 6,448
Stock compensation expense 650 188
Minority interest -- (881)
Gain on sale of investments (138) (1,646)
Changes in assets and liabilities --
Premium and related receivables (425) (2,364)
Other current assets (786) (3,180)
Deferred income taxes (1,638) 772
Other assets (728) 223
Medical claims liabilities 34,501 15,053
Unearned revenue 283 3,673
Accounts payable and accrued expenses 6,483 3,897
Other operating activities 6,877 546
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Net cash provided by operating activities 99,405 55,999
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Cash flows from investing activities:
Purchase of property, software and equipment (25,009) (19,162)
Purchase of investments (254,358) (435,282)
Sales and maturities of investments 243,623 319,564
Acquisitions, net of cash acquired (86,739) (5,861)
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Net cash used in investing activities (122,483) (140,741)
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Cash flows from financing activities:
Proceeds from issuance of common stock -- 81,313
Proceeds from exercise of stock options 4,066 1,145
Proceeds from borrowings 45,860 8,581
Reduction of long-term debt and notes payable (6,596) (386)
Other financing activities (493) (1,221)
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Net cash provided by financing activities 42,837 89,432
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Net increase (decrease) in cash and cash
equivalents 19,759 4,690
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Cash and cash equivalents, beginning of period 64,346 59,656
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Cash and cash equivalents, end of period $ 84,105 $ 64,346
========= =========
Interest paid $ 494 $ 176
Income taxes paid $ 20,518 $ 19,935
CENTENE CORPORATION
SUPPLEMENTAL FINANCIAL DATA
Q4 Q3 Q2 Q1
2004 2004 2004 2004
------- ------- ------- -------
MEMBERSHIP
Indiana 150,600 150,000 132,900 125,400
Kansas 94,200 -- -- --
Missouri 41,200 -- -- --
New Jersey 52,800 53,200 54,000 54,000
Ohio 23,800 23,500 23,800 23,800
Texas 244,300 250,200 155,300 154,000
Wisconsin 165,800 164,700 167,300 165,200
------- ------- ------- -------
TOTAL 772,700 641,600 533,300 522,400
======= ======= ======= =======
Medicaid 580,200 479,500 460,300 446,900
SCHIP 182,100 152,100 63,200 65,900
SSI 10,400 10,000 9,800 9,600
------- ------- ------- -------
TOTAL 772,700 641,600 533,300 522,400
======= ======= ======= =======
REVENUE PER MEMBER $139.38 $144.70 $145.31 $145.19
CLAIMS
Period-end inventory 150,300 141,200 89,700 102,300
Average inventory 128,300 96,800 98,800 107,400
Period-end inventory per member 0.19 0.22 0.17 0.20
DAYS IN CLAIMS PAYABLE (a) 66.5 57.3 53.5 55.4
(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) 18.2% 18.2% 18.2% 17.9%
(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).
HEALTH BENEFITS RATIO BY CATEGORY:
Three Months Ended Year Ended
December 31, December 31,
------------------ ----------------
2004 2003 2004 2003
------- ------- ------- -------
Medicaid and SCHIP 80.2% 80.7% 80.4% 81.7%
SSI 84.7 98.9 93.8 102.5
Total 80.3 81.2 80.7 82.4
GENERAL AND ADMINISTRATIVE EXPENSE RATIO BY BUSINESS SEGMENT:
Three Months Ended Year Ended
December 31, December 31,
------------------ ----------------
2004 2003 2004 2003
------- ------- ------- -------
Medicaid Managed Care 11.4% 10.2% 10.7% 10.3%
Specialty Services 53.7 53.5 52.3 38.2
Total 13.5 12.2 12.8 11.5
MEDICAL CLAIMS LIABILITIES
(In thousands)
The changes in medical claims liabilities are summarized as follows:
2004
---------
Balance, December 31, 2003 $ 106,569
Acquisitions 24,909
Incurred related to:
Current period 816,448
Prior period (15,972)
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Total incurred 800,476
---------
Paid related to:
Current period 681,810
Prior period 84,164
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Total paid 765,974
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Balance, December 31, 2004 $ 165,980
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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.
SOURCE: Centene Corporation
Centene Corporation, St. Louis Karey L. Witty, 314-725-4477 or Lisa M. Wilson, 212-759-3929