ST. LOUIS--(BUSINESS WIRE)--Oct. 24, 2006--Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended September 30, 2006.
Third Quarter Summary
-- Revenues of $631.2 million, a 57.6% increase over the 2005
third quarter.
-- Loss from operations of $66.6 million, including a non-cash
impairment charge related to the loss of the Kansas contract
of $87.1 million pre-tax, or $1.96 per diluted share.
-- Earnings from operations of $20.5 million, excluding the
non-cash impairment charge, compared to $15.1 million in the
2005 third quarter.
-- Loss per diluted share of $1.65. Earnings per diluted share of
$0.31, excluding the non-cash impairment charge compared to
$0.27 in the 2005 third quarter.
-- Operating cash flows of $110.1 million.
-- Quarter-end Medicaid Managed Care membership of 1.2 million.
-- Membership growth of 38.0% over the 2005 third quarter.
-- Health Benefits Ratio (HBR) for Centene's Medicaid and SCHIP
populations, which reflects medical costs as a percent of
premium revenues, of 82.0%.
-- Medicaid Managed Care G&A expense ratio of 12.1% and Specialty
Services G&A ratio of 17.0%.
-- Days in claims payable of 45.3.
Other Events
-- Initiated operations in the Southwest region of Georgia,
ending the quarter with 252,600 members state-wide.
-- Commenced operations in the seven new counties awarded in the
East Central market of Ohio.
-- Started operations in the Corpus Christi market and expanded
operations in the Austin and Lubbock markets of Texas.
-- Awarded state-wide Medicaid managed care contract to manage a
portion of eligible Hoosier Healthwise members through our
Indiana subsidiary, Managed Health Services (MHS).
-- Acquired managed vision business of OptiCare Health Systems,
Inc. effective July 1.
-- Commenced Arizona Long-Term Care contract effective October 1,
2006.
-- Received preliminary notification of Ohio Medicaid ABD
contract award in all four regions in which we submitted a
bid.
Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, commented, "We believe that many of the initiatives that we implemented during the second quarter, including a back-to-basics approach and an evaluation of our medical management practices at a number of levels, have yielded results that indicate that we are back on the right track. We are pleased that our medical claims reserves that were recorded in the 2006 second quarter have developed appropriately and that our third quarter results are in line with our expectations. We continue to evaluate opportunities to implement additional processes and protective measures to help manage our cost trends.
"We are pleased with our membership and revenue growth for the quarter, particularly our strong membership in Georgia, where our subsidiary, Peach State Health Plan, Inc., ended the quarter with 252,600 members, ahead of our expectations. We are now operating in the Atlanta, Central and Southwest regions and we achieved strong membership there despite an overall decline in the total eligible membership in the State. We also experienced growth due to our market expansions in Ohio and Texas.
"On September 1, 2006, we commenced operations in Texas in the Corpus Christi market caring for Medicaid and SCHIP members; we also began serving new Medicaid members in the Lubbock market and SCHIP members in Austin. In addition, our contract to provide managed care services for SSI recipients in the San Antonio and Corpus Christi markets will commence membership operations in January 2007. While we are still seeing higher than average utilization trends in Texas NICU, we expect this cost trend to moderate as the members transition from an unmanaged population into a managed care environment.
"Our Specialty Services segment has experienced year-over-year growth largely due to acquisitions, namely US Script, and to a lesser extent, Cardium and OptiCare. In addition, effective October 1, we began providing services in Yuma/LaPaz and Maricopa counties under our Arizona Long-Term Care contract.
"As we enter the fourth quarter, we look forward to making continued progress in our medical management and to capture future growth opportunities," concluded Neidorff.
The following table depicts membership in Centene's managed care organizations by state at September 30, 2006 and 2005:
2006 2005
------------------ ---------------
Georgia 252,600 -
Indiana 198,100 176,300
Kansas 112,400 107,600
Missouri 32,200 37,300
New Jersey 59,100 50,900
Ohio 88,300 58,100
Texas 259,900 243,600
Wisconsin 167,100 173,900
------------------ ---------------
TOTAL 1,169,700 847,700
================== ===============
The following table depicts membership in Centene's managed care organizations by member category at September 30, 2006 and 2005:
2006 2005
------------------- ---------------
Medicaid 922,300 657,500
SCHIP 229,400 176,900
SSI 18,000 (a) 13,300 (b)
------------------- ---------------
TOTAL 1,169,700 847,700
=================== ===============
(a) 10,000 at-risk; 8,000 ASO
(b) 6,800 at-risk; 6,500 ASO
Statement of Operations
-- For the 2006 third quarter, revenues increased 57.6% to $631.2
million from $400.6 million in the 2005 third quarter.
-- The HBR for Centene's Medicaid and SCHIP populations, which
reflects medical costs as a percent of premium revenues, was
82.0% for the three months ending September 30, 2006, a
decrease of 1.1% over the comparable 2005 period, which
included $4.5 million for settlement of a lawsuit with Aurora
Health Care, Inc. (Aurora). This settlement increased the HBR
by 1.2% for the three months ended September 30, 2005. The
decrease for the three months ended September 30, 2006 is the
result of premium rate increases in certain markets, an
increase in maternal delivery revenue, and the effect of the
2005 Aurora settlement, offset by an 8.9% increase in average
in-patient days and higher physician costs. The HBR for the
three months ended September 30, 2006 did not include any
overall adverse medical cost development related to prior
periods.
-- General and administrative (G&A) expense as a percent of
revenues for the Medicaid Managed Care segment was 12.1% in
the third quarter of 2006 compared to 10.6% in the third
quarter of 2005, primarily due to premium tax or similar
assessments enacted in certain markets.
-- Non-cash intangible asset impairment charge of $87.1 million
(pre-tax), $85.0 million (after-tax), or $1.96 per diluted
share related to the Kansas Medicaid contract non-renewal
notification.
-- Loss from operations of $66.6 million, including a non-cash
impairment charge related to the loss of the Kansas contract
of $87.1 million pre-tax, or $1.96 per diluted share.
-- Earnings from operations of $20.5 million, excluding the
non-cash impairment charge, compared to $15.1 million in the
2005 third quarter.
-- Loss per diluted share of $1.65. Earnings per diluted share of
$0.31, excluding the non-cash impairment charge compared to
$0.27 in the 2005 third quarter.
-- For the nine months ended September 30, 2006, revenues
increased 46.1% to $1,581.6 million from $1,082.6 million for
the same period in the prior year. Medicaid Managed Care G&A
expenses as a percent of revenues increased to 12.1% in the
first nine months of 2006 compared to 10.6% in the first nine
months of 2005. Earnings from operations, excluding the
non-cash impairment charge, decreased to $39.4 million in the
first nine months of 2006 from $58.8 million in the first nine
months of 2005. Net earnings, excluding the non-cash
impairment charge, were $27.5 million or $0.62 per diluted
share in the first nine months of 2006.
Balance Sheet and Cash Flow
At September 30, 2006, the Company had cash and investments of $440.1 million, including $411.1 million held by its regulated entities and $29.0 million held by its unregulated entities. Medical claims liabilities totaled $246.7 million, representing 45.3 days in claims payable.
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, 2006 42.6
Increase in claims inventory 2.7
Increase for Georgia and Texas claims 0.3
Conversion of pharmacy benefits to U.S. Script (0.3)
-----
Days in claims payable, September 30, 2006 45.3
=====
Outlook
The table below depicts the Company's revised guidance for the fourth quarter of 2006 and preliminary guidance for 2007:
Q4 2007
---------------- ----------------
Low High Low High
Revenue (in millions) $685.0 $690.0 $2,730 $2,830
Earnings per diluted share $0.38 $0.43 $1.51 $1.61
----------------------------------------------------------------------
J. Per Brodin, Centene's Chief Financial Officer, stated, "The 2006 fourth quarter and 2007 guidance excludes any potential shut-down costs for our Kansas health plan that would be necessary if our efforts to retain the contract are unsuccessful. The 2007 guidance includes the estimated effect of initiating our Texas Star+ SSI operations effective January 1, 2007 and the Ohio Aged, Blind and Disabled preliminary award which is expected to transition throughout 2007."
Conference Call
As previously announced, the Company will host a conference call Tuesday, October 24, 2006, at 8:30 a.m. (Eastern Time) to review the financial results for the third quarter ended September 30, 2006, and to discuss its business outlook. Michael F. Neidorff and J. Per Brodin 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 November 7, 2006 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 6573810.
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 non-GAAP information presented above in the third and fourth bullet under "Third Quarter Summary" and sixth through eighth bullets under "Statement of Earnings" excludes the non-cash intangible asset impairment charge related to the Kansas contract non-renewal notification. This exclusion has been made in the non-GAAP financial measures as management believes that this charge is an unusual event.
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 is a leading multi-line healthcare enterprise that provides 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 Georgia, 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, managed vision, nurse triage, pharmacy benefits management and treatment compliance. Information regarding Centene is available via the Internet at www.centene.com.
The information provided in this press release contains 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)
September 30, December 31,
2006 2005
------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $200,480 $147,358
Premium and related receivables, net
of allowances of $125 and $343,
respectively 86,108 44,108
Short-term investments, at fair value
(amortized cost $67,679 and $56,863,
respectively) 67,392 56,700
Other current assets 20,776 24,439
------------- ------------
Total current assets 374,756 272,605
Long-term investments, at fair value
(amortized cost $148,415 and $126,039,
respectively) 146,666 123,661
Restricted deposits, at fair value
(amortized cost $25,691 and $22,821,
respectively) 25,565 22,555
Property, software and equipment, net 103,175 67,199
Goodwill 136,519 157,278
Other intangible assets, net 14,949 17,368
Other assets 12,211 7,364
------------- ------------
Total assets $813,841 $668,030
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Medical claims liabilities $246,669 $170,514
Accounts payable and accrued expenses 67,957 29,790
Unearned revenue 18,597 13,648
Current portion of long-term debt and
notes payable 1,032 699
------------- ------------
Total current liabilities 334,255 214,651
Long-term debt 168,429 92,448
Other liabilities 5,252 8,883
------------- ------------
Total liabilities 507,936 315,982
Stockholders' equity:
Common stock, $.001 par value;
authorized 100,000,000 shares;
issued and outstanding 43,168,505
and 42,988,230 shares, respectively 44 43
Additional paid-in capital 202,760 191,840
Accumulated other comprehensive
income:
Unrealized loss on investments,
net of tax (1,356) (1,754)
Retained earnings 104,457 161,919
------------- ------------
Total stockholders' equity 305,905 352,048
------------- ------------
Total liabilities and
stockholders' equity $813,841 $668,030
============= ============
See notes to consolidated financial statements.
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Revenues:
Premium $610,661 $395,667 $1,522,302 $1,075,027
Service 20,588 4,975 59,318 7,619
----------- ----------- ----------- -----------
Total revenues 631,249 400,642 1,581,620 1,082,646
----------- ----------- ----------- -----------
Expenses:
Medical costs 501,350 331,050 1,263,251 881,021
Cost of services 15,373 2,002 45,278 3,573
General and
administrative
expenses 93,991 52,450 233,654 139,274
Impairment loss 87,091 - 87,091 -
----------- ----------- ----------- -----------
Total operating
expenses 697,805 385,502 1,629,274 1,023,868
----------- ----------- ----------- -----------
Earnings (loss)
from operations (66,556) 15,140 (47,654) 58,778
Other income
(expense):
Investment and other
income 4,625 2,818 12,056 7,461
Interest expense (3,082) (1,190) (7,536) (2,386)
----------- ----------- ----------- -----------
Earnings (loss)
before income
taxes (65,013) 16,768 (43,134) 63,853
Income tax expense 6,180 4,662 14,328 22,087
----------- ----------- ----------- -----------
Net earnings (loss) $(71,193) $12,106 $(57,462) $41,766
=========== =========== =========== ===========
Earnings (loss) per
share:
Basic earnings
(loss) per common
share $(1.65) $0.28 $(1.33) $0.99
Diluted earnings
(loss) per common
share $(1.65) $0.27 $(1.33) $0.93
Weighted average
number of shares
outstanding:
Basic 43,219,053 42,582,129 43,126,062 42,120,149
Diluted 43,219,053 45,278,328 43,126,062 45,078,852
See notes to consolidated financial statements.
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
September 30,
-------------------
2006 2005
--------- ---------
(Unaudited)
Cash flows from operating activities:
Net earnings (loss) $(57,462) $41,766
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities --
Depreciation and amortization 15,286 9,658
Excess tax benefits from stock
compensation -- 4,511
Stock compensation expense 11,168 3,557
Impairment loss 87,091 --
Loss on sale of investments 33 58
Deferred income taxes (4,493) (3,567)
Changes in assets and liabilities --
Premium and related receivables (34,209) (9,396)
Other current assets 2,705 (1,990)
Other assets (455) (1,380)
Medical claims liabilities 74,367 (17,091)
Unearned revenue 4,816 5,892
Accounts payable and accrued expenses 25,929 11,798
Other operating activities (221) 1,096
--------- ---------
Net cash provided by operating
activities 124,555 44,912
--------- ---------
Cash flows from investing activities:
Purchase of property, software and equipment (39,494) (16,837)
Purchase of investments (235,501) (108,630)
Sales and maturities of investments 200,155 129,095
Acquisitions, net of cash acquired (66,921) (55,410)
--------- ---------
Net cash used in investing
activities (141,761) (51,782)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options 4,594 3,925
Proceeds from borrowings 83,359 45,000
Payment of long-term debt and notes payable (12,505) (4,323)
Excess tax benefits from stock compensation 2,094 --
Common stock repurchases (7,214) --
Other financing activities -- (413)
--------- ---------
Net cash provided by financing
activities 70,328 44,189
--------- ---------
Net increase in cash and cash
equivalents 53,122 37,319
--------- ---------
Cash and cash equivalents, beginning of period 147,358 84,105
--------- ---------
Cash and cash equivalents, end of period $200,480 $121,424
========= =========
Interest paid $7,582 $2,184
Income taxes paid $5,223 $19,658
Supplemental schedule of non-cash financing
activities:
Common stock issued for acquisitions $-- $8,991
See notes to consolidated financial statements.
CENTENE CORPORATION
SUPPLEMENTAL FINANCIAL DATA
Q3 Q2 Q1 Q4
2006 2006 2006 2005
---------- ---------- -------- --------
MEMBERSHIP
Medicaid Managed Care:
Georgia 252,600 216,000 - -
Indiana 198,100 193,000 193,000 193,300
Kansas 112,400 117,100 118,200 113,300
Missouri 32,200 32,900 34,500 36,000
New Jersey 59,100 59,000 57,500 56,500
Ohio 88,300 73,100 59,000 58,700
Texas 259,900 235,800 237,500 242,000
Wisconsin 167,100 174,600 175,100 172,100
---------- ---------- -------- --------
TOTAL 1,169,700 1,101,500 874,800 871,900
========== ========== ======== ========
Medicaid 922,300 863,500 683,700 681,100
SCHIP 229,400 221,600 175,300 175,900
SSI 18,000 16,400 15,800 14,900
---------- ---------- -------- --------
TOTAL 1,169,700 1,101,500 874,800 871,900
========== ========== ======== ========
Specialty Services(a):
Arizona 94,500 93,600 92,300 94,700
Kansas 37,500 39,400 39,200 38,800
---------- ---------- -------- --------
TOTAL 132,000 133,000 131,500 133,500
========== ========== ======== ========
(a) Includes behavioral health contracts only.
REVENUE PER MEMBER(b) $169.98 $159.33 $157.17 $152.48
CLAIMS(b)
Period-end inventory 233,500 186,200 229,800 255,000
Average inventory 188,600 150,100 175,200 153,500
Period-end inventory per
member 0.20 0.17 0.26 0.29
(b) Revenue per member and claims information are presented for the
Medicaid Managed Care segment.
DAYS IN CLAIMS PAYABLE (c) 45.3 42.6 43.0 45.4
(c) 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 $411.1 $323.9 $314.0 $322.6
Unregulated 29.0 25.5 25.8 27.7
---------- ---------- -------- --------
TOTAL $440.1 $349.4 $339.8 $350.3
========== ========== ======== ========
ANNUALIZED RETURN ON EQUITY (d) (83.8)% 5.4% 9.8% 16.2%
(d) 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,
---------------------- ---------------------
2006 2005 2006 2005
----------- ---------- ---------- ----------
Medicaid and SCHIP 82.0% 83.1% 82.8% 81.6%
SSI 84.1 96.2 86.2 92.6
Specialty Services 82.9 87.2 83.5 88.7
GENERAL AND ADMINISTRATIVE EXPENSE RATIO BY BUSINESS SEGMENT:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ----------------------
2006 2005 2006 2005
----------- ---------- ---------- ----------
Medicaid Managed Care 12.1% 10.6% 12.1% 10.6%
Specialty Services 17.0 30.2 18.3 38.9
MEDICAL CLAIMS LIABILITIES
(In thousands)
Four rolling quarters of the changes in medical claims liabilities are
summarized as follows:
Balance, September 30, 2005 $148,889
Acquisitions 1,788
Incurred related to:
Current period 1,618,282
Prior period (9,144)
----------
Total incurred 1,609,138
----------
Paid related to:
Current period 1,374,777
Prior period 138,369
----------
Total paid 1,513,146
----------
Balance, September 30, 2006 $246,669
==========
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
Chief Financial Officer:
J. Per Brodin, 314-725-4477
or
Senior Vice President, Investor Relations:
Lisa M. Wilson, 212-759-3929
SOURCE: Centene Corporation