ST. LOUIS--(BUSINESS WIRE)--Centene Corporation (NYSE: CNC) today announced its financial results for the quarter and year ended December 31, 2006.
Highlights
--------------------------------------------------------------
Q4 Full Year
------------------------
Total Revenues (in millions) $697.4 $2,279.0
Medicaid/SCHIP HBR 82.1% 82.6%
EPS $0.31 $(1.01)
EPS excluding Impairment/Exit Costs $0.41 $1.03
--------------------------------------------------------------
Fourth Quarter Summary
-- Year-end Medicaid Managed Care membership of 1.3 million,
including 138,900 Kansas and Missouri members.
-- Membership growth of 44.8% over the 2005 fourth quarter.
-- Revenues of $697.4 million, a 64.8% increase over the 2005
fourth quarter.
-- Earnings per diluted share of $0.41, excluding $7.4 million
(pre-tax) FirstGuard exit costs, compared to $0.31 in the 2005
fourth quarter.
-- Health Benefits Ratio (HBR) for Centene's Medicaid and SCHIP
populations, which reflects medical costs as a percent of
premium revenues, of 82.1%.
-- Medicaid Managed Care G&A expense ratio of 12.7% and Specialty
Services G&A ratio of 14.4%.
-- Operating cash flows of $70.5 million.
-- Days in claims payable of 46.4.
Other Events
-- Commenced operations in the 16 new counties awarded in the
Northwest market of Ohio.
-- Commenced Arizona Long-Term Care contract effective October 1,
2006.
-- Awarded an Ohio Medicaid ABD contract in all four regions in
which we submitted a bid.
-- Received notice of tentative contract award of the Texas
Comprehensive Health Care for Foster Care, subject to contract
finalization.
-- Announced definitive agreement to divest the assets of
FirstGuard Health Plan, Inc., our Missouri health plan. The
sale was completed effective February 1, 2007.
-- Exited Kansas Medicaid market.
Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "Our fourth quarter results were consistent with our expectations, with strong growth in Georgia, Texas, and Ohio. Our overall Medicaid and SCHIP HBR was 82.1%, as guided. We saw a decline in our Indiana membership as we initiated re-contracting with our physician network and due to the state's decision to implement a one-month freeze on assigning members into new plans. Our Indiana plan continues to require focused attention on pharmacy costs; we believe that we have begun to favorably impact the medical cost trend in that state. In addition, the company-wide medical management initiatives that we put in place earlier this year are giving us added visibility of trends and we continue to evaluate further steps to more effectively control and manage these costs.
"We are pleased with the performance of our Georgia business which has exceeded our expectations, reaching 308,800 members at year-end. While we faced some specific challenges regarding provider claims due to a substantial number of doctors signing contracts at the last minute, we are paying current claims in a timely fashion and expect to have the backlog for the older claims cleared up by the end of February.
"We were disappointed with the loss of our contract to serve the state of Kansas' Medicaid recipients. We have managed a smooth transition of our membership and have recognized all of the significant financial charges in 2006. Additionally, we sold our Missouri health plan assets to Healthcare USA when the state continued its unfavorable posture towards Medicaid; this transaction closed on February 1, 2007. We expect to incur minimal additional exit costs in 2007.
"In Ohio, the state commenced its Aged, Blind or Disabled (ABD) roll-out in the Northeast and Southwest regions on January 1, and February 1, respectively; we expect the East Central and Northwest regions to begin enrolling members in March and April. Our contract to serve Texas Star Plus members commenced on February 1, a slight delay from the original January 1 start date. We look forward to serving the health needs of these recipients.
"We've closed the fourth quarter and year with the knowledge and confidence that we have taken considerable steps to address and resolve our medical management issues and look forward to pursuing the growth opportunities that exist in our core business and specialty companies with the goal of covering more of the nation's 50 million uninsured Americans," concluded Neidorff.
The following table depicts membership in Centene's managed care organizations by state at December 31, 2006 and 2005:
2006 2005
---------- --------
Georgia 308,800 --
Indiana 183,100 193,300
New Jersey 58,900 56,500
Ohio 109,200 58,700
Texas 298,500 242,000
Wisconsin 164,800 172,100
---------- --------
Subtotal 1,123,300 722,600
Kansas 107,000 113,300
Missouri 31,900 36,000
---------- --------
Total 1,262,200 871,900
========== ========
The following table depicts membership in Centene's managed care organizations by member category at December 31, 2006 and 2005:
2006 2005
------------- -----------
Medicaid 887,300 573,100
SCHIP 216,200 134,600
SSI 19,800 (a) 14,900 (b)
------------- -----------
Subtotal 1,123,300 722,600
Kansas and Missouri Medicaid/SCHIP members 138,900 149,300
------------- -----------
Total 1,262,200 871,900
============= ===========
(a) 10,200 at-risk; 9,600 ASO
(b) 8,100 at-risk; 6,800 ASO
Statement of Operations
-- For the 2006 fourth quarter, revenues increased 64.8% to
$697.4 million from $423.2 million in the 2005 fourth quarter.
Our fourth quarter 2006 revenue in Kansas and Missouri totaled
$79.6 million.
-- The HBR for Centene's Medicaid and SCHIP populations, which
reflects medical costs as a percent of premium revenues, was
82.1% for the three months ended December 31, 2006, a decrease
of 0.2% over the comparable 2005 period. The HBR for the three
months ended December 31, 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 12.7% in
the fourth quarter of 2006 compared to 10.3% in the fourth
quarter of 2005, increasing primarily because of premium taxes
enacted in certain markets and FirstGuard exit costs. Fourth
quarter 2006 premium taxes were $17.4 million. The Medicaid
Managed Care G&A ratio would have been 10.4% excluding those
premium taxes, and 9.3% excluding the premium taxes and $7.4
million of FirstGuard exit costs.
-- Operating earnings of $18.7 million, including $7.4 million of
FirstGuard exit costs, compared to $20.4 million in the 2005
fourth quarter.
-- Earnings per diluted share of $0.31. Earnings per diluted
share of $0.41, excluding the FirstGuard exit costs, compared
to $0.31 in the 2005 fourth quarter.
-- For the year ended December 31, 2006, revenues increased 51.3%
to $2.3 billion from $1.5 billion in 2005. Our 2006 revenues
in Kansas and Missouri totaled $317.0 million. Medicaid
Managed Care G&A expenses including premium tax and FirstGuard
exit costs as a percent of revenues increased to 12.6% in 2006
compared to 10.5% in 2005. Net loss in 2006 of $43.6 million,
or $1.01 per diluted share, including a non-cash intangible
asset impairment charge related to the loss of the Kansas
contract of $87.1 million pre-tax and the FirstGuard exit
costs of $7.4 million pre-tax. Net earnings, excluding the
impairment charge and exit costs, were $45.9 million or $1.03
per diluted share in 2006.
Balance Sheet and Cash Flow
At December 31, 2006, the Company had cash and investments of $508.7 million, including $479.8 million held by its regulated entities and $28.9 million held by its unregulated entities. Medical claims liabilities totaled $280.4 million, representing 46.4 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, September 30, 2006 45.3
Increase in claims inventory 1.1
-----
Days in claims payable, December 31, 2006 46.4
=====
Outlook
The table below depicts the Company's guidance for the 2007 first quarter and full year:
Q1 2007 2007
------------- ---------------
Low High Low High
Revenue (in millions) $635 $645 $2,700 $2,800
Earnings per diluted share $0.24 $0.27 $1.51 $1.61
----------------------------------------------------------------------
J. Per Brodin, Centene's Chief Financial Officer, stated, "The 2007 guidance reflects our previously announced intention to begin reporting our revenue net of premium taxes. This guidance also excludes any gain or loss from the sale of our Missouri health plan or tax benefits from the stock of our Kansas health plan and the effect of the tentative Texas Foster Care award. Our expected sequential change in EPS is summarized as follows:
Low High
------ ------
Q4 2006 adjusted non-GAAP EPS $0.41 $0.41
Q4 2006 FirstGuard net earnings (0.14) (0.14)
Reallocated corporate overhead (0.05) (0.05)
Profit improvement and growth 0.02 0.05
------ ------
Q1 2007 earnings per diluted share $0.24 $0.27
---------------------------------------------------------======-======
"The reallocated corporate overhead costs represent the centralized infrastructure for managing claims payment, IT, finance and other costs needed to support our FirstGuard operations. Our growth plans require us to maintain the existing infrastructure and will allow us to operate at an appropriate G&A ratio in 2007."
Conference Call
As previously announced, the Company will host a conference call Tuesday, February 6, 2007, at 8:30 A.M. (Eastern Time) to review the financial results for the fourth quarter and year ended December 31, 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 P.M. (Eastern Time) on February 20, 2007 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.
Non-GAAP 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 "highlights" table, fourth bullet under "Fourth Quarter Summary" and fifth and sixth bullets under "Statement of Operations" excludes the non-cash intangible asset impairment charge related to the Kansas contract non-renewal notification and exit costs for the Kansas and Missouri health plans. This exclusion has been made in the non-GAAP financial measures as management believes that these costs are 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.
The following unaudited tables reconcile the Company's Statement of Operations for the fourth quarter and full year of 2006 on a GAAP basis to a non-GAAP basis. The non-GAAP basis excludes the FirstGuard impairment and exit costs.
Three Months Ended
December 31, 2006
-------------------------------
FirstGuard
Impairment
and Exit
GAAP Costs Non-GAAP
--------- ----------- ---------
Total revenues $697,400 $ - $697,400
Expenses:
Medical costs 556,560 - 556,560
Cost of services 15,457 - 15,457
General and administrative expenses 106,637 (7,349 ) 99,288
--------- ----------- ---------
Total operating expenses 678,654 (7,349 ) 671,305
--------- ----------- ---------
Earnings from operations 18,746 7,349 26,095
Investment and other income, net 2,736 30 2,766
--------- ----------- ---------
Earnings before income taxes 21,482 7,379 28,861
Income Tax Expense 7,649 2,870 10,519
--------- ----------- ---------
Net earnings $ 13,833 $ 4,509 $ 18,342
========= =========== =========
Diluted earnings (loss) per common
share $ 0.31 $ 0.41
Year Ended
December 31, 2006
-----------------------------------
FirstGuard
Impairment
and Exit
GAAP Costs Non-GAAP
----------- ----------- -----------
Total revenues $2,279,020 $ - $2,279,020
Expenses:
Medical costs 1,819,811 - 1,819,811
Cost of services 60,735 - 60,735
General and administrative
expenses 346,284 (13,342 ) 332,942
Impairment loss 81,098 (81,098 ) -
----------- ----------- -----------
Total operating expenses 2,307,928 (94,440 ) 2,213,488
----------- ----------- -----------
Earnings (loss) from
operations (28,908 ) 94,440 65,532
Investment and other income, net 7,256 30 7,286
----------- ----------- -----------
Earnings (loss) before
income taxes (21,652 ) 94,470 72,818
Income Tax Expense 21,977 4,968 26,945
----------- ----------- -----------
Net earnings $ (43,629 ) $ 89,502 $ 45,873
=========== =========== ===========
Diluted earnings (loss) per common
share $ (1.01 ) $ 1.03
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 the State Children's Health Insurance Program (SCHIP) and Supplemental Security Income (SSI). The Company operates health plans in Georgia, Indiana, New Jersey, Ohio, Texas and Wisconsin. In addition, the Company contracts with other healthcare and commercial organizations to provide specialty services including behavioral health, disease management, long-term care, 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)
December 31,
-------------------
2006 2005
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $271,047 $147,358
Premium and related receivables, net of
allowances of $155 and $343, respectively 91,664 44,108
Short-term investments, at fair value
(amortized cost $67,199 and $56,863,
respectively) 66,921 56,700
Other current assets 22,189 24,439
-------- --------
Total current assets 451,821 272,605
Long-term investments, at fair value (amortized
cost $146,980 and $126,039, respectively) 145,417 123,661
Restricted deposits, at fair value (amortized cost
$25,422 and $22,821, respectively) 25,265 22,555
Property, software and equipment, net 110,688 67,199
Goodwill 135,877 157,278
Other intangible assets, net 16,202 17,368
Other assets 9,710 7,364
-------- --------
Total assets $894,980 $668,030
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Medical claims liabilities $280,441 $170,514
Accounts payable and accrued expenses 72,723 29,790
Unearned revenue 33,816 13,648
Current portion of long-term debt and notes
payable 971 699
-------- --------
Total current liabilities 387,951 214,651
Long-term debt 174,646 92,448
Other liabilities 5,960 8,883
-------- --------
Total liabilities 568,557 315,982
Stockholders' equity:
Common stock, $.001 par value; authorized
100,000,000 shares; issued and outstanding
43,369,918 and 42,988,230 shares,
respectively 44 43
Additional paid-in capital 209,340 191,840
Accumulated other comprehensive income:
Unrealized loss on investments, net of tax (1,251) (1,754)
Retained earnings 118,290 161,919
-------- --------
Total stockholders' equity 326,423 352,048
-------- --------
Total liabilities and stockholders'
equity $894,980 $668,030
======== ========
See notes to consolidated financial statements.
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
Three Months Ended Year Ended
December 31, December 31,
------------------------- -------------------------
2006 2005 2006 2005
------------ ------------ ------------ ------------
(Unaudited)
Revenues:
Premium $ 677,137 $ 416,872 $ 2,199,439 $ 1,491,899
Service 20,263 6,346 79,581 13,965
------------ ------------ ------------ ------------
Total revenues 697,400 423,218 2,279,020 1,505,864
------------ ------------ ------------ ------------
Expenses:
Medical costs 556,560 345,888 1,819,811 1,226,909
Cost of services 15,457 2,278 60,735 5,851
General and
administrative
expenses 106,637 54,639 346,284 193,913
Impairment loss -- -- 81,098 --
------------ ------------ ------------ ------------
Total
operating
expenses 678,654 402,805 2,307,928 1,426,673
------------ ------------ ------------ ------------
Earnings
(loss) from
operations 18,746 20,413 (28,908) 79,191
Other income
(expense):
Investment and
other income 5,836 3,194 17,892 10,655
Interest expense (3,100) (1,604) (10,636) (3,990)
------------ ------------ ------------ ------------
Earnings
(loss)
before
income taxes 21,482 22,003 (21,652) 85,856
Income tax expense 7,649 8,137 21,977 30,224
------------ ------------ ------------ ------------
Net earnings
(loss) $ 13,833 $ 13,866 $ (43,629) $ 55,632
============ ============ ============ ============
Net earnings
(loss) per share:
Basic earnings
(loss) per
common share $ 0.32 $ 0.32 $ (1.01) $ 1.31
Diluted earnings
(loss) per
common share $ 0.31 $ 0.31 $ (1.01) $ 1.24
Weighted average
number of shares
outstanding:
Basic 43,263,237 42,885,900 43,160,860 42,312,522
Diluted 44,631,117 44,812,159 43,160,860 45,027,633
See notes to consolidated financial statements.
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
-----------------------
2006 2005
----------- -----------
Cash flows from operating activities:
Net earnings (loss) $ (43,629) $ 55,632
Adjustments to reconcile net earnings
(loss) to net cash provided by operating
activities--
Depreciation and amortization 20,600 13,069
Excess tax benefits from stock
compensation -- 6,469
Stock compensation expense 14,904 4,974
Impairment loss 88,268 --
Deferred income taxes (6,692) 1,786
Changes in assets and liabilities--
Premium and related receivables (39,765) (10,305)
Other current assets 5,352 (6,177)
Other assets 91 (525)
Medical claims liabilities 108,003 4,534
Unearned revenue 20,035 8,182
Accounts payable and accrued expenses 28,136 (4,215)
Other operating activities (271) 624
----------- -----------
Net cash provided by operating
activities 195,032 74,048
----------- -----------
Cash flows from investing activities:
Purchase of property, software and
equipment (50,318) (26,909)
Purchase of investments (319,322) (150,444)
Sales and maturities of investments 286,155 176,387
Acquisitions, net of cash acquired (66,772) (55,485)
----------- -----------
Net cash used in investing
activities (150,257) (56,451)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options 6,953 5,621
Proceeds from borrowings 94,359 45,000
Payment of long-term debt and notes
payable (17,355) (4,552)
Excess tax benefits from stock
compensation 3,043 --
Common stock repurchases (7,833) --
Other financing activities (253) (413)
----------- -----------
Net cash provided by financing
activities 78,914 45,656
----------- -----------
Net increase in cash and cash
equivalents 123,689 63,253
----------- -----------
Cash and cash equivalents, beginning of period 147,358 84,105
----------- -----------
Cash and cash equivalents, end of period $ 271,047 $ 147,358
=========== ===========
Interest paid $ 10,680 $ 3,291
Income taxes paid $ 16,418 $ 31,287
Supplemental schedule of non-cash investing
and financing activities:
Common stock issued for acquisitions $ -- $ 8,991
Property acquired under capital leases $ 366 $ 5,026
See notes to consolidated financial statements.
CENTENE CORPORATION
SUPPLEMENTAL FINANCIAL DATA
Q4 Q3 Q2 Q1
2006 2006 2006 2006
---------- ---------- ---------- --------
MEMBERSHIP
Medicaid Managed Care:
Georgia 308,800 252,600 216,000 --
Indiana 183,100 198,100 193,000 193,000
New Jersey 58,900 59,100 59,000 57,500
Ohio 109,200 88,300 73,100 59,000
Texas 298,500 259,900 235,800 237,500
Wisconsin 164,800 167,100 174,600 175,100
---------- ---------- ---------- --------
Subtotal 1,123,300 1,025,100 951,500 722,100
Kansas 107,000 112,400 117,100 118,200
Missouri 31,900 32,200 32,900 34,500
---------- ---------- ---------- --------
TOTAL 1,262,200 1,169,700 1,101,500 874,800
========== ========== ========== ========
Medicaid 887,300 818,000 755,400 574,300
SCHIP 216,200 189,100 179,700 132,000
SSI 19,800 18,000 16,400 15,800
---------- ---------- ---------- --------
Subtotal 1,123,300 1,025,100 951,500 722,100
Kansas and Missouri
Medicaid and SCHIP
members 138,900 144,600 150,000 152,700
---------- ---------- ---------- --------
TOTAL 1,262,200 1,169,700 1,101,500 874,800
========== ========== ========== ========
Specialty Services(a):
Arizona 94,500 94,500 93,600 92,300
Kansas 36,600 37,500 39,400 39,200
---------- ---------- ---------- --------
TOTAL 131,100 132,000 133,000 131,500
========== ========== ========== ========
(a) Includes behavioral health contracts only.
REVENUE PER MEMBER(b) $173.75 $169.98 $ 159.33 $157.17
CLAIMS(b)
Period-end inventory 296,100 233,500 186,200 229,800
Average inventory 195,700 188,600 150,100 175,200
Period-end inventory per
member 0.23 0.20 0.17 0.26
(b) Revenue per member and claims information are presented for the
Medicaid Managed Care segment.
DAYS IN CLAIMS PAYABLE (c) 46.4 45.3 42.6 43.0
(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 $ 479.8 $ 411.1 $ 323.9 $ 314.0
Unregulated 28.9 29.0 25.5 25.8
---------- ---------- ---------- --------
TOTAL $ 508.7 $ 440.1 $ 349.4 $ 339.8
========== ========== ========== ========
ANNUALIZED RETURN ON EQUITY
(d) 17.5% (83.8)% 5.4% 9.8%
(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 Year Ended
December 31, December 31,
----------------------------------------
2006 2005 2006 2005
----------------------------------------
Medicaid and SCHIP 82.1% 82.3% 82.6% 81.8%
SSI 91.4 105.4 87.6 97.5
Specialty Services 80.2 81.3 82.5 85.0
GENERAL AND ADMINISTRATIVE EXPENSE RATIO BY BUSINESS SEGMENT:
Three Months Ended Year Ended
December 31, December 31,
------------------------------------
2006 2005 2006 2005
------------------------------------
Medicaid Managed Care 12.7% 10.3% 12.6% 10.5%
Specialty Services 14.4 30.3 16.9 35.4
MEDICAL CLAIMS LIABILITIES
(In thousands)
Four rolling quarters of the changes in medical claims
liabilities are summarized as follows:
Balance, December 31, 2005 $ 170,514
Acquisitions 1,788
Incurred related to:
Current period 1,832,096
Prior period (12,285)
----------------
Total incurred 1,819,811
================
Paid related to:
Current period 1,555,074
Prior period 156,598
----------------
Total paid 1,711,672
----------------
Balance, December 31, 2006 $ 280,441
================
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