ST. LOUIS--(BUSINESS WIRE)--July 25, 2005--Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended June 30, 2005.
Second Quarter Highlights
-- Revenues of $349.6 million, a 49.7% increase over the second
quarter of 2004.
-- Consistent healthcare cost trends generating an 81.0% health
benefits ratio.
-- Earnings from operations of $22.3 million, a 40.1% increase
over the second quarter of 2004.
-- Earnings per diluted share of $0.34, a 36.0% increase from the
second quarter of 2004.
-- Membership growth of 54.8% over the second quarter of 2004.
-- Days in claims payable of 49.5, net of 1.2 days for payments
on claims in litigation.
-- Closed acquisition of Medicaid-related assets of SummaCare,
Inc., based in Akron, Ohio.
-- Elected Tommy G. Thompson, former U.S. Health and Human
Services (HHS) Secretary and former Governor of Wisconsin, to
Board of Directors.
Subsequent Events
-- Announced tentative award of contracts by State of Texas for
existing and new service areas.
-- Awarded Medicaid contracts by State of Georgia for Atlanta and
Central regions, two of the largest service areas, with
approximately 500,000 and 150,000 eligibles, respectively.
Michael F. Neidorff, Centene's chairman and chief executive officer, said, "The second quarter of 2005 marked our twenty-fourth consecutive quarter of increased profitability and was fully in-line with our expectations. We remain pleased with the progress in our states, particularly with the solid growth in the Kansas and Wisconsin markets. The roll-out of SSI membership in Wisconsin is on track, and we continue to see organic growth in that market. Membership trends have been strong in Kansas following the removal of the membership cap. As predicted and guided, our year-to-date organic membership growth was light. We want to remind you that we elected not to participate in the Southern Indiana expansion, which we viewed as a high cost market.
"Our 81.0% health benefits ratio remained at the low end of our target range with the SSI HBR at 85.2% for the current quarter. Our recently announced acquisition of AirLogix enhances our demonstrated ability to manage healthcare costs for our growing SSI opportunity.
"There were a number of events marking the success of the quarter. Notably, we received notice of the tentative contract awards by the State of Texas for the STAR and CHIP members in our existing service areas of Austin, El Paso, Lubbock and San Antonio, and new service area expansion awards to serve both STAR and CHIP members in the Corpus Christi market. We expect these contracts to be finalized on or before August 17, 2005 and become effective July 1, 2006. Also, on May 1, 2005, we closed the acquisition of the Medicaid-related assets of SummaCare, Inc., a wholly owned subsidiary of Summa Health System, based in Akron, Ohio. We look forward to capitalizing on additional opportunities to grow in this State.
"As we progress in 2005 and beyond, we are confident that our consistent 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, 2005 and 2004:
2005 2004
--------------- ---------------
Indiana 152,800 132,900
Kansas 103,000 --
Missouri 39,900 --
New Jersey 52,900 54,000
Ohio 59,600 23,800
Texas 243,800 155,300
Wisconsin 173,400 167,300
--------------- ---------------
TOTAL 825,400 533,300
=============== ===============
The following table depicts membership in Centene's managed care organizations by member category at June 30, 2005 and 2004:
2005 2004
--------------- ---------------
Medicaid 637,300 460,300
SCHIP 176,200 63,200
SSI 11,900(a) 9,800(b)
--------------- ---------------
TOTAL 825,400 533,300
=============== ===============
(a) 5,500 at-risk; 6,400 ASO
(b) 4,400 at-risk; 5,400 ASO
Statement of Earnings Highlights
-- For the second quarter of 2005, revenues increased 49.7% to
$349.6 million from $233.6 million in the second quarter of
2004.
-- The health benefits ratio (HBR), which reflects medical
services costs as a percent of premium revenues, remained
consistent at 81.0% period-over-period. The Company's SSI HBR
was within the guided range of 84.0% to 86.0%, demonstrating
Centene's ability to manage this population. While growing,
Centene's small SSI member base can experience a volatile HBR,
period-over-period.
-- General and administrative (G&A) expenses as a percent of
revenues were 12.7% in the second quarter of 2005 compared to
12.1% in the second quarter of 2004. As previously guided, the
results for the second quarter of 2005 included approximately
$1.3 million in implementation costs relative to Centene's
Arizona behavioral health contract award, effective July 1,
2005.
-- Earnings from operations increased 40.1% to $22.3 million in
the second quarter of 2005 from $15.9 million in the second
quarter of 2004.
-- Net earnings improved to $15.2 million, or $0.34 per diluted
share, in the second quarter of 2005 compared to $10.8
million, or $0.25 per diluted share, for the second quarter of
2004.
-- For the six months ended June 30, 2005, revenues increased
48.5% to $682.0 million from $459.1 million for the same
period in the prior year. The HBR remained consistent at 81.0%
period-over-period. General and administrative expenses as a
percent of revenues increased slightly to 12.7% in the first
half of 2005 compared to 12.4% in the first half of 2004.
Earnings from operations increased 42.5% to $43.6 million in
the first half of 2005 from $30.6 million in the first half of
2004. Net earnings improved to $29.7 million, or $0.66 per
diluted share, in the first half of 2005.
Balance Sheet and Cash Flow Highlights
At June 30, 2005, the Company had cash and investments of $287.9 million, including $27.4 million held by its unregulated entities and $260.5 million held by its regulated entities. Medical claims liabilities totaled $153.6 million, representing 49.5 days in claims payable. This included a 1.2 day decrease related to payments on disputed claims in litigation.
A reconciliation of the Company's change in days in claims payable from the immediately preceding quarter-end is presented below:
Days in claims payable, March 31, 2005 59.7
Decrease in claims inventory (5.8)
Payment of annual physician performance bonuses (3.0)
Payment on disputed claims in litigation (1.2)
Decrease in pharmacy payable (0.2)
-----
Days in claims payable, June 30, 2005 49.5
=====
Cash flows used in operating activities were $7.0 million for the six months ended June 30, 2005. As expected, this primarily reflected the State of Wisconsin's holding our June capitation payment of approximately $29 million until after June 30, 2005, the State's fiscal year-end. This amount was received in July. In addition, cash flow for the quarter was affected by the anticipated decline in medical claims liabilities. The following table depicts the significant uses of cash flows from operations year-to-date:
(in millions) Increase in Wisconsin premium and related receivables $28.6 Reduction in claims inventory 18.1 Payment of annual physician performance bonuses 9.3 Income tax payments 7.9 Payment on disputed claims in litigation 3.6
New Opportunity
In July 2005, the Company received notification that the State of Georgia had awarded to the Company's subsidiary, Peach State Health Plan, contracts to serve a portion of the Medicaid recipients in two of the State's largest regions, Atlanta and Central. These two service areas represent a combined 650,000 eligible members and present a significant organic growth opportunity for 2006 and beyond. The Company has structured the organization with the critical management team in place and believes it will be able to serve this new marketplace successfully and to work with the State on a smooth transition.
Outlook
Karey L. Witty, Centene's chief financial officer, stated, "We are revising our 2005 earnings guidance to include an estimated $7.5 to $10.0 million in implementation costs related to the Georgia contract award. We will continue to provide quarterly updates as these expenditures occur. Additionally, we are including our recently announced acquisition of AirLogix. We continue to maintain organic membership growth of 10% to 12% for 2005. This revised guidance excludes the potential impact of any other acquisitions we may undertake during the remainder of 2005 as well as expenses related to stock option grants under SFAS 123R, which is required to be adopted on January 1, 2006. Consistent with prior practices, we will provide a preliminary outlook for 2006 in conjunction with our third quarter 2005 earnings announcement."
The table below depicts the Company's revised guidance for the balance of 2005:
Q3 Q4
--------------- ---------------
Low High Low High
------- ------- ------- -------
Revenue (in millions) $398.0 $403.0 $429.0 $452.0
Earnings per share without Georgia $ 0.36 $ 0.37 $ 0.37 $ 0.41
Georgia implementation costs (0.04) (0.03) (0.10) (0.07)
------- ------- ------- -------
Adjusted earnings per share $ 0.32 $ 0.34 $ 0.27 $ 0.34
======= ======= ======= =======
Conference Call
As previously announced, the Company will host a conference call tomorrow, July 26, 2005, at 8:30 a.m. (Eastern Time) to review the financial results for the second quarter ended June 30, 2005, 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 Time on August 19, 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 7237632.
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 organizations to provide specialty services including behavioral health, disease management, nurse triage and treatment compliance. Information regarding Centene is available via the Internet at www.centene.com.
The information provided in the second, third and fourth paragraphs following the bullet listing under "Second Quarter Highlights," the paragraph under "New Opportunity" and 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.
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30, December 31,
2005 2004
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 65,598 $ 84,105
Premium and related receivables, net of
allowances of $437 and $462, respectively 69,839 31,475
Short-term investments, at fair value
(amortized cost $65,453 and $94,442,
respectively) 65,337 94,283
Other current assets 16,482 14,429
----------- -----------
Total current assets 217,256 224,292
Long-term investments, at fair value
(amortized cost $135,626 and $117,177,
respectively) 134,621 116,787
Restricted deposits, at fair value
(amortized cost $22,507 and $22,295,
respectively) 22,323 22,187
Property, software and equipment 48,479 43,248
Goodwill 130,262 101,631
Other intangible assets 15,188 14,439
Other assets 6,317 5,350
----------- -----------
Total assets $ 574,446 $ 527,934
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Medical claims liabilities $ 153,593 $ 165,980
Accounts payable and accrued expenses 31,045 31,737
Unearned revenue 9,657 3,956
Current portion of long-term debt and
notes payable 486 486
----------- -----------
Total current liabilities 194,781 202,159
Long-term debt 52,731 46,973
Other liabilities 8,215 7,490
----------- -----------
Total liabilities 255,727 256,622
Stockholders' equity:
Common stock, $.001 par value; authorized
100,000,000 shares; issued and
outstanding 42,481,098 and 41,316,122
shares, respectively 42 41
Additional paid-in capital 183,539 165,391
Accumulated other comprehensive income:
Unrealized loss on investments, net of
tax (809) (407)
Retained earnings 135,947 106,287
----------- -----------
Total stockholders' equity 318,719 271,312
----------- -----------
Total liabilities and stockholders'
equity $ 574,446 $ 527,934
=========== ===========
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Revenues:
Premiums $ 348,416 $ 231,330 $ 679,360 $ 454,020
Services 1,212 2,278 2,644 5,113
----------- ----------- ----------- -----------
Total revenues 349,628 233,608 682,004 459,133
----------- ----------- ----------- -----------
Expenses:
Medical costs 282,215 187,298 549,971 367,746
Cost of services 728 2,022 1,571 4,038
General and
administrative
expenses 44,365 28,351 86,824 56,728
----------- ----------- ----------- -----------
Total operating
expenses 327,308 217,671 638,366 428,512
----------- ----------- ----------- -----------
Earnings from
operations 22,320 15,937 43,638 30,621
Other income
(expense):
Investment and
other income 2,523 1,336 4,643 2,846
Interest expense (634) (101) (1,196) (191)
----------- ----------- ----------- -----------
Earnings
before
income taxes 24,209 17,172 47,085 33,276
Income tax expense 8,960 6,359 17,425 12,325
----------- ----------- ----------- -----------
Net earnings $ 15,249 $ 10,813 $ 29,660 $ 20,951
=========== =========== =========== ===========
Earnings per
share:
Basic earnings
per common share $ 0.36 $ 0.27 $ 0.71 $ 0.52
Diluted earnings
per common share $ 0.34 $ 0.25 $ 0.66 $ 0.48
Weighted average
number of shares
outstanding:
Basic 42,203,946 40,721,466 41,884,044 40,552,742
Diluted 45,087,772 43,374,376 44,984,818 43,221,426
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
June 30,
------------------------
2005 2004
----------- -----------
(Unaudited)
Cash flows from operating activities:
Net earnings $ 29,660 $ 20,951
Adjustments to reconcile net earnings to
net cash provided by operating
activities --
Depreciation and amortization 5,901 4,701
Deferred income taxes 1,191 (914)
Tax benefits related to stock options 3,782 1,507
Stock compensation expense 2,304 32
Loss (gain) on sale of investments 39 (103)
Changes in assets and liabilities --
Premium and related receivables (38,364) (989)
Other current assets (2,224) (1,051)
Other assets (946) (330)
Medical claims liabilities (12,387) 3,536
Unearned revenue 5,701 (23)
Accounts payable and accrued expenses (2,716) 3,747
Other operating activities 1,034 (950)
----------- -----------
Net cash (used in) provided by
operating activities (7,025) 30,114
----------- -----------
Cash flows from investing activities:
Purchase of property, software and
equipment (8,768) (5,082)
Purchase of investments (74,928) (154,342)
Sales and maturities of investments 84,984 151,077
Acquisitions, net of cash acquired (21,342) (7,005)
----------- -----------
Net cash used in investing activities (20,054) (15,352)
----------- -----------
Cash flows from financing activities:
Reduction of long-term debt and notes
payable (4,242) (435)
Proceeds from borrowings 10,000 --
Proceeds from stock options and employee
stock purchase plan 2,864 1,805
Other financing (50) --
----------- -----------
Net cash provided by financing
activities 8,572 1,370
----------- -----------
Net (decrease) increase in cash and
cash equivalents (18,507) 16,132
----------- -----------
Cash and cash equivalents, beginning of
period 84,105 64,346
----------- -----------
Cash and cash equivalents, end of period $ 65,598 $ 80,478
=========== ===========
Interest paid $ 1,209 $ 181
Income taxes paid $ 12,904 $ 11,034
Supplemental schedule of non-cash investing
and financing activities:
Common stock issued for acquisitions $ 8,995 $ --
CENTENE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA
Q2 Q1 Q4 Q3
2005 2005 2004 2004
-------- -------- -------- --------
MEMBERSHIP
Indiana 152,800 149,900 150,600 150,000
Kansas 103,000 94,900 94,200 --
Missouri 39,900 41,300 41,200 --
New Jersey 52,900 52,700 52,800 53,200
Ohio 59,600 23,900 23,800 23,500
Texas 243,800 243,700 244,300 250,200
Wisconsin 173,400 170,900 165,800 164,700
-------- -------- -------- --------
TOTAL 825,400 777,300 772,700 641,600
======== ======== ======== ========
Medicaid 637,300 588,100 580,200 479,500
SCHIP 176,200 178,500 182,100 152,100
SSI 11,900 10,700 10,400 10,000
-------- -------- -------- --------
TOTAL 825,400 777,300 772,700 641,600
======== ======== ======== ========
REVENUE PER MEMBER $143.41 $142.15 $139.38 $144.70
CLAIMS
Period-end inventory 195,500 227,700 150,300 141,200
Average inventory 170,300 191,900 128,300 96,800
Period-end inventory per member 0.24 0.29 0.19 0.22
DAYS IN CLAIMS PAYABLE (a) 49.5 59.7 66.5 57.3
(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.
CASH AND INVESTMENTS (in millions)
Regulated $260.5 $295.0 $271.4 $200.3
Unregulated 27.4 42.1 46.0 123.3
-------- -------- -------- --------
TOTAL $287.9 $337.1 $317.4 $323.6
======== ======== ======== ========
ANNUALIZED RETURN ON EQUITY (b) 20.0% 20.5% 18.2% 18.2%
(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 Six Months
Ended Ended
June 30, June 30,
------------- -------------
2005 2004 2005 2004
---- ---- ---- ----
Medicaid and SCHIP 80.9% 80.5% 80.8% 80.5%
SSI 85.2 97.8 89.3 98.5
Total 81.0 81.0 81.0 81.0
GENERAL AND ADMINISTRATIVE EXPENSE RATIO BY BUSINESS SEGMENT:
Three Months Six Months
Ended Ended
June 30, June 30,
------------- -------------
2005 2004 2005 2004
---- ---- ---- ----
Medicaid Managed Care 10.5% 10.2% 10.6% 10.3%
Specialty Services 58.8 46.4 54.6 49.7
Total 12.7 12.1 12.7 12.4
MEDICAL CLAIMS LIABILITIES
(In thousands)
Four rolling quarters of the changes in medical claims liabilities
are summarized as follows:
Balance, June 30, 2004 $110,105
Acquisitions 24,909
Incurred related to:
Current period 997,061
Prior period (14,360)
--------
Total incurred 982,701
--------
Paid related to:
Current period 869,428
Prior period 94,694
--------
Total paid 964,122
--------
Balance, June 30, 2005 $153,593
========
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, St. Louis
Karey L. Witty, 314-725-4477
or
Lisa M. Wilson, 212-759-3929
SOURCE: Centene Corporation