ST. LOUIS, Oct 25, 2005 (BUSINESS WIRE) -- Centene Corporation (NYSE:CNC) today announced its financial results for the quarter ended September 30, 2005.
Third Quarter Highlights
-- Revenues of $400.6 million, a 57.9% increase over the third quarter of 2004.
-- Arizona behavioral health contract commenced operations effective July 1.
-- Centene's Wisconsin health plan subsidiary entered into a settlement agreement with Aurora Health Care, Inc., resulting in a one-time litigation settlement charge of $4.5 million, and a new long-term provider contract.
-- Health benefits ratio within guided range, exclusive of the one-time charge.
-- Earnings per diluted share of $0.27, net of a one-time litigation settlement charge of $0.06.
-- Membership growth of 32.1% over the third quarter of 2004.
-- Days in claims payable of 41.4, net of claims process improvements and 1.4 days for litigation settlement.
-- Operating cash flows of $51.9 million for the three months ended, an 89.8% increase over the third quarter of 2004.
-- Acquired AirLogix, Inc., an industry leader in respiratory disease management.
-- Awarded Medicaid contracts by the Georgia Department of Community Health to begin serving three regions in 2006.
Michael F. Neidorff, Centene's chairman and chief executive officer, said, "I am pleased to report that overall, it has been a predictable, in-line quarter, and we remain confident about the manner in which Centene conducts its business. Our consistent earnings growth demonstrates the solid visibility we have over the state of the business and the strength of our operating systems. Membership growth was particularly strong in Indiana, as anticipated, and Kansas posted solid gains during the quarter. Our specialty companies have made consistent progress, including our Arizona behavioral health contract, which provides a strong foundation for continued growth in this business segment.
"In keeping with our philosophy of ongoing financial transparency, we hosted for the first time a contracting and claims liability accounting methodology seminar in September. Our goal was to help participants understand the key factors for our ongoing success --claims processing and system reporting, sound contracting, consistent claims liability reserving and provider relationships --all of which enhance the predictability and consistency of our financial results. This disciplined approach, which has been in place for many years, gives consistent control over costs and reduces volatility. It is important that we recognize that the sector and industry are strong and are meeting the needs of recipients and the states in terms of quality, cost-effective care."
There were several nonrecurring events during the quarter that affected our results, including:
---------------------------------------------------------------------- Aurora one-time litigation settlement charge $(0.06) ----------------------------------------------------------- ---------- Georgia start-up costs (0.04) ----------------------------------------------------------- ---------- Claims payment process improvements (0.02) ----------------------------------------------------------- ---------- Charitable foundation contribution (0.01) ----------------------------------------------------------- ---------- Tax benefits 0.03 ----------------------------------------------------------------------
The following table depicts membership in Centene's Medicaid Managed Care segment by state at September 30, 2005 and 2004:
2005 2004
---------- ----------
Indiana 176,300 150,000
Kansas 107,600 --
Missouri 37,300 --
New Jersey 50,900 53,200
Ohio 58,100 23,500
Texas 243,600 250,200
Wisconsin 173,900 164,700
---------- ----------
TOTAL 847,700 641,600
========== ==========
The following table depicts membership in Centene's Medicaid Managed Care segment by member category at September 30, 2005 and 2004:
2005 2004
---------- ----------
Medicaid 657,500 479,500
SCHIP 176,900 152,100
SSI 13,300(a) 10,000(b)
---------- ----------
TOTAL 847,700 641,600
========== ==========
(a) 6,800 at-risk, 6,500 ASO
(b) 4,500 at-risk; 5,500 ASO
Statement of Earnings Highlights
-- For the third quarter of 2005, revenues increased 57.9% to $400.6 million from $253.7 million in the third quarter of 2004.
-- The health benefits ratio (HBR), which reflects medical costs as a percent of premium revenues, now includes a larger component of behavioral health claims and was 83.7% compared to 80.7% for the same period in 2004. The effect of the behavioral health business increased the HBR by 0.4%. The current quarter also reflects a $4.5 million litigation settlement increasing the ratio by 1.2%. Additionally, the Company's SSI HBR was 96.2% compared to 92.8% in 2004. While growing, Centene's small SSI member base can experience a volatile HBR. The table below depicts Centene's HBR by member category:
Three Months Ended
September 30,
---------------------
2005(a) 2004
---------- ----------
Medicaid and SCHIP 81.7% 80.4%
SSI 96.2 92.8
Medicaid Managed Care Total 82.1 80.7
Specialty Services 89.7 -
Total 82.5 80.7
(a) Excludes one-time litigation settlement charge.
-- General and administrative (G&A) expenses as a percent of revenues were 13.1% in the third quarter of 2005, compared to 12.7% in the third quarter of 2004. Centene's total G&A ratio increased due to implementation costs related to its new contracts in Georgia, and as discussed later, higher spending on information systems process improvements and increased contributions to its charitable foundation.
-- Earnings from operations decreased 8.1% to $15.1 million from $16.4 million in the third quarter of 2004, reflecting the one-time settlement charge and increased G&A spending.
-- Centene's effective tax rate for the quarter was 27.8% compared to 37.0% in 2004. The decrease was primarily due to a lower state income tax expense resulting from the resolution of state examinations and the recognition of deferred tax benefits related to a change in tax law during the quarter. These tax benefits, totaling $2.4 million gross of federal taxes, were reinvested in the business through the corresponding increase in G&A spending as noted above.
-- Net of the one-time charge of $0.06 and increased G&A spending, net earnings were $12.1 million, or $0.27 per diluted share, which was in-line with previous guidance and compares to $11.3 million, or $0.26 per diluted share, for the third quarter of 2004.
-- For the nine months ended September 30, 2005, revenues increased 51.9% to $1,082.6 million from $712.9 million for the same period in the prior year. The HBR was 82.0%, compared to 80.9% for the same period in 2004. G&A expenses as a percent of revenues were 12.9% as compared to 12.5% in 2004. Earnings from operations increased 24.8% to $58.8 million from $47.1 million in 2004. Net earnings improved to $41.8 million, or $0.93 per diluted share.
Balance Sheet Highlights
At September 30, 2005, the Company had cash and investments of $332.8 million, including $27.7 million held by its unregulated entities and $305.1 million held by its regulated entities. Medical claims liabilities totaled $148.9 million, representing 41.4 days in claims payable versus 49.5 days from the previous quarter. Medical claims liabilities were affected by a reduction in pended claims from 54,000 to 21,000, many of which were large liability claims. Additionally, the average cost per claim held in inventory at September 30 was $144.00 and compares to $204.00 in the immediately preceding quarter.
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, June 30, 2005 49.5
Increased efficiencies in claims processing (5.2)
Effect of AZ behavioral health block payment business (1.5)
Payment of Aurora settlement (1.4)
----------
Days in claims payable, September 30, 2005 41.4
==========
As predicted, cash flows provided by operating activities were $51.9 million for the three months ended and $44.9 million for the nine months ended September 30, 2005. Centene received the State of Wisconsin's June capitation payment of $29 million in July.
Outlook
Karey L. Witty, Centene's chief financial officer, stated, "For the fourth quarter of 2005, we expect revenue in the range of $415 million to $420 million and net earnings of $0.30 to $0.32 per diluted share. Additionally, we expect organic membership growth in excess of 10% for 2005. Our preliminary outlook for 2006 includes revenue in the range of $2.03 billion to $2.18 billion and net earnings of $1.72 to $1.87 per diluted share. This 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 ("Share Based Payment"), which is required to be adopted on January 1, 2006.
Conference Call
As previously announced, the Company will host a conference call this morning, October 25, 2005, at 8:30 a.m. (Eastern Time) to review the financial results for the third quarter ended September 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 p.m. (Eastern Time) on November 8, 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 1255588.
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, disease management, nurse triage and treatment compliance. Information regarding Centene is available via the Internet at www.centene.com.
The information provided in the first paragraph following the bullet listing under "Third Quarter Highlights," the second bullet under "Statement of Earnings Highlights," 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)
September 30, December 31,
2005 2004
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 121,424 $ 84,105
Premium and related receivables,
net of allowances of $156 and $462,
respectively 43,235 31,475
Short-term investments, at fair value
(amortized cost $58,760 and $94,442,
respectively) 58,642 94,283
Other current assets 20,500 14,429
------------- ------------
Total current assets 243,801 224,292
Long-term investments, at fair value
(amortized cost $132,394 and $117,177,
respectively) 130,347 116,787
Restricted deposits, at fair value
(amortized cost $22,614 and $22,295,
respectively) 22,344 22,187
Property, software and equipment 55,073 43,248
Goodwill 159,579 101,631
Other intangible assets 21,217 14,439
Other assets 7,250 5,350
------------- ------------
Total assets $ 639,611 $ 527,934
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Medical claims liabilities $ 148,889 $ 165,980
Accounts payable and accrued expenses 47,302 31,737
Unearned revenue 12,437 3,956
Current portion of long-term debt and
notes payable 486 486
------------- ------------
Total current liabilities 209,114 202,159
Long-term debt 87,650 46,973
Other liabilities 9,614 7,490
------------- ------------
Total liabilities 306,378 256,622
Stockholders' equity:
Common stock, $.001 par value;
authorized 100,000,000 shares;
issued and outstanding 42,646,184
and 41,316,122 shares, respectively 43 41
Additional paid-in capital 186,659 165,391
Accumulated other comprehensive income:
Unrealized loss on investments,
net of tax (1,522) (407)
Retained earnings 148,053 106,287
------------- ------------
Total stockholders' equity 333,233 271,312
------------- ------------
Total liabilities and stockholders'
equity $ 639,611 $ 527,934
============= ============
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
Three Months Ended Nine Months Ended
September 30, September 30,
----------- ----------- ----------- -----------
2005 2004 2005 2004
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
----------- ----------- ----------- -----------
Revenues:
Premiums $ 395,667 $ 251,536 $1,075,027 $ 705,556
Services 4,975 2,207 7,619 7,320
----------- ----------- ----------- -----------
Total revenues 400,642 253,743 1,082,646 712,876
----------- ----------- ----------- -----------
Expenses:
Medical costs 331,050 202,974 881,021 570,720
Cost of services 2,002 2,111 3,573 6,149
General and
administrative
expenses 52,450 32,187 139,274 88,915
----------- ----------- ----------- -----------
Total operating
expenses 385,502 237,272 1,023,868 665,784
----------- ----------- ----------- -----------
Earnings from
operations 15,140 16,471 58,778 47,092
Other income
(expense):
Investment and other
income 2,818 1,683 7,461 4,529
Interest expense (1,190) (126) (2,386) (317)
----------- ----------- ----------- -----------
Earnings before
income taxes 16,768 18,028 63,853 51,304
Income tax expense 4,662 6,677 22,087 19,002
----------- ----------- ----------- -----------
Net earnings $ 12,106 $ 11,351 $ 41,766 $ 32,302
=========== =========== =========== ===========
Earnings per share:
Basic earnings per
common share $ 0.28 $ 0.28 $ 0.99 $ 0.79
Diluted earnings per
common share $ 0.27 $ 0.26 $ 0.93 $ 0.74
Weighted average
number of shares
outstanding:
Basic 42,582,129 40,972,858 42,120,149 40,693,804
Diluted 45,278,328 43,640,180 45,078,852 43,364,120
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
September 30,
---------------------
2005 2004
---------- ----------
(Unaudited)
Cash flows from operating activities:
Net earnings $ 41,766 $ 32,302
Adjustments to reconcile net earnings to net
cash provided by operating activities --
Depreciation and amortization 9,658 7,219
Deferred income taxes (3,567) (303)
Tax benefits related to stock options 4,511 1,858
Stock compensation expense 3,557 44
Loss (gain) on sale of investments 58 (212)
Changes in assets and liabilities --
Premium and related receivables (9,396) (2,431)
Other current assets (1,990) (4,803)
Other assets (1,380) (1,773)
Medical claims liabilities (17,091) 19,825
Unearned revenue 5,892 (3)
Accounts payable and accrued expenses 11,798 5,184
Other operating activities 1,096 568
---------- ----------
Net cash provided by operating activities 44,912 57,475
---------- ----------
Cash flows from investing activities:
Purchase of property, software and equipment (16,837) (9,487)
Purchase of investments (108,630) (207,385)
Sales and maturities of investments 129,095 188,918
Acquisitions, net of cash acquired (55,410) (7,005)
---------- ----------
Net cash used in investing activities (51,782) (34,959)
---------- ----------
Cash flows from financing activities:
Reduction of long-term debt and notes payable (4,323) (507)
Proceeds from borrowings 45,000 -
Proceeds from stock options and employee stock
purchase plan 3,925 2,332
Other financing activities (413) -
---------- ----------
Net cash provided by financing activities 44,189 1,825
---------- ----------
Net increase in cash and cash equivalents 37,319 24,341
---------- ----------
Cash and cash equivalents, beginning of period 84,105 64,346
---------- ----------
Cash and cash equivalents, end of period $ 121,424 $ 88,687
========== ==========
Interest paid $ 2,184 $ 324
Income taxes paid $ 19,658 $ 18,844
Supplemental schedule of non-cash investing and
financing activities:
Common stock issued for acquisitions $ 8,991 $ -
CENTENE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA
Q3 Q2 Q1 Q4
2005 2005 2005 2004
---------- ---------- ---------- ----------
MEMBERSHIP
Indiana 176,300 152,800 149,900 150,600
Kansas 107,600 103,000 94,900 94,200
Missouri 37,300 39,900 41,300 41,200
New Jersey 50,900 52,900 52,700 52,800
Ohio 58,100 59,600 23,900 23,800
Texas 243,600 243,800 243,700 244,300
Wisconsin 173,900 173,400 170,900 165,800
---------- ---------- ---------- ----------
TOTAL 847,700 825,400 777,300 772,700
========== ========== ========== ==========
Medicaid 657,500 637,300 588,100 580,200
SCHIP 176,900 176,200 178,500 182,100
SSI 13,300 11,900 10,700 10,400
---------- ---------- ---------- ----------
TOTAL 847,700 825,400 777,300 772,700
========== ========== ========== ==========
REVENUE PER MEMBER $ 147.73 $ 143.41 $ 142.15 $ 139.38
CLAIMS
Period-end inventory 206,900 195,500 227,700 150,300
Average inventory 148,300 170,300 191,900 128,300
Period-end inventory per
member 0.24 0.24 0.29 0.19
DAYS IN CLAIMS PAYABLE (a) 41.4 49.5 59.7 66.5
(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.
CASH AND INVESTMENTS
(in millions)
Regulated $ 305.1 $ 260.5 $ 295.0 $ 271.4
Unregulated 27.7 27.4 42.1 46.0
---------- ---------- ---------- ----------
TOTAL $ 332.8 $ 287.9 $ 337.1 $ 317.4
========== ========== ========== ==========
ANNUALIZED RETURN ON
EQUITY (b) 14.9% 20.0% 20.5% 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 Ended Nine Months Ended
September 30, September 30,
---------- ---------- ---------- ----------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Medicaid and SCHIP 83.0% 80.4% 81.5% 80.5%
SSI 96.2 92.8 92.6 96.6
Medicaid Managed Care
Total 83.3 80.7 81.7 80.9
Specialty Services 89.7 - 91.0 -
Total 83.7 80.7 82.0 80.9
GENERAL AND ADMINISTRATIVE EXPENSE RATIO BY BUSINESS SEGMENT:
Three Months Ended Nine Months Ended
September 30, September 30,
---------- ---------- ---------- ----------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Medicaid Managed Care 10.6% 10.5% 10.6% 10.4%
Specialty Services 30.2 56.0 38.9 51.8
Total 13.1 12.7 12.9 12.5
MEDICAL CLAIMS LIABILITIES
(In thousands)
Four rolling quarters of the changes in medical claims liabilities are
summarized as follows:
Balance, September 30, 2004 $ 126,394
Acquisitions 24,909
Incurred related to:
Current period 1,123,677
Prior period (12,900)
----------
Total incurred 1,110,777
----------
Paid related to:
Current period 1,000,533
Prior period 112,658
----------
Total paid 1,113,191
----------
Balance, September 30, 2005 $ 148,889
==========
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 Karey L. Witty, 314-725-4477 or Lisa M. Wilson, 212-759-3929 www.centene.com