ST. LOUIS--(BUSINESS WIRE)--Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended March 31, 2007. The revenues, general and administrative expenses and related financial ratios included in this release present premium taxes on a gross basis consistent with our past reporting practice.
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Q1 2007 Highlights
Total Revenues (in millions) $670.8
Medicaid/SCHIP HBR 82.3%
Diluted EPS (as reported) $0.85
Diluted EPS excluding FirstGuard activity $0.26
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First Quarter Summary
-- Quarter-end Medicaid Managed Care membership of 1.1 million
-- Revenues of $670.8 million, a 47.4% increase over the 2006
first quarter.
-- Earnings per diluted share of $0.26, excluding FirstGuard
activity, compared to $0.20 in the 2006 first quarter. Total
earnings per diluted share of $0.85 include a $0.67 FirstGuard
tax benefit offset by $0.08 of other FirstGuard activity. The
2007 first quarter results also include $0.01 of South
Carolina start-up costs.
-- Health Benefits Ratio (HBR) for Centene's Medicaid and SCHIP
populations, which reflects medical costs as a percent of
premium revenues, of 82.3%.
-- Medicaid Managed Care G&A expense ratio of 13.0% and Specialty
Services G&A ratio of 15.8%.
-- Operating cash flows of $36.0 million.
-- Days in claims payable of 46.4.
Other Events
-- Commenced operations in Texas under a new contract to provide
managed care for SSI recipients in the San Antonio and Corpus
Christi markets with 28,700 members at March 31.
-- Commenced operations in three of the four new regions awarded
in the Ohio Medicaid ABD contract with 10,700 members at March
31.
-- Received notice of contract award of the Texas Comprehensive
Health Care for Foster Care. Operations are scheduled to
commence in the fourth quarter of 2007.
-- Sold the assets of our FirstGuard Missouri health plan,
effective February 1, 2007.
-- Issued $175.0 million senior unsecured notes to refinance our
revolving credit facility balance.
-- In April 2007, we acquired PhyTrust of South Carolina, a
physician-driven company that serves over 30,000 members.
Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "During the first quarter of 2007 we performed within our range of expectations including a predictable level of seasonality. We commenced the Texas STAR Plus roll-out with initial membership ahead of our expectations; in Ohio, the ABD roll-out is on track. We were pleased during the quarter to announce the receipt of the Texas Foster Care contract award to serve approximately 30,000 foster care recipients in the state. We are currently in the process of building the technology infrastructure required to offer this innovative product and look forward to working with the state for a 4th quarter implementation. Although this contract has an initial overall dilutive effect on the current year, the impact on future years will produce a significant return on investment to Centene. We are also optimistic that we will be able to offer this product in other markets.
"Based upon ongoing initiatives to focus on profitability and to enter into disciplined contracts with providers, membership declines in Indiana and Wisconsin were as expected. During the quarter, the termination of certain physician contracts associated with a high-cost hospital system in Wisconsin led to the resulting membership decline and in Indiana, we focused on a smaller group of doctors as part of our state-wide contract award.
"In Georgia, our membership was consistent with our expectations. During the first quarter, the state imposed member recertification requirements commencing on January 1, 2007, which resulted in the loss of our own Peach State members. Regarding claims processing, effective February 28, 2007, we have met the state's requirements, and have substantially reduced claims backlog.
"We've continued to see the benefits of the medical management enhancements we put in place to effectively control costs. It is important to us that we continue to build the business with sustainable processes," concluded Neidorff.
The following table depicts membership in Centene's managed care organizations by state at March 31, 2007 and 2006:
2007 2006
------------ ------------
Georgia 291,300 --
Indiana 176,700 193,000
New Jersey 59,100 57,500
Ohio 118,300 59,000
Texas 318,500 237,500
Wisconsin 139,400 175,100
------------ ------------
Subtotal 1,103,300 722,100
Kansas and Missouri -- 152,700
------------ ------------
Total 1,103,300 874,800
============ ============
The following table depicts membership in Centene's managed care organizations by member category at March 31, 2007 and 2006:
2007 2006
------------- -------------
Medicaid 839,600 574,300
SCHIP 211,200 132,000
SSI 52,500 (a) 15,800 (b)
------------- -------------
Subtotal 1,103,300 722,100
Kansas and Missouri Medicaid/SCHIP members -- 152,700
------------- -------------
Total 1,103,300 874,800
============= =============
(a) 48,400 at-risk; 4,100 ASO
(b) 8,600 at-risk; 7,200 ASO
Statement of Operations
-- For the 2007 first quarter, revenues increased 47.4% to $670.8
million from $455.1 million in the 2006 first quarter.
-- The HBR for Centene's Medicaid and SCHIP populations, which
reflects medical costs as a percent of premium revenues, was
82.3% for the three months ending March 31, 2007, compared to
82.8% for the same period in 2006. The decrease is primarily
attributable to the effect of increased premium taxes.
Sequentially, our Medicaid/SCHIP HBR increased from 82.1% in
the 2006 fourth quarter to 82.3% because of utilization
seasonality. The HBR for the three months ended March 31,
2007, did not include any overall adverse medical cost
development related to prior periods.
-- G&A expense as a percent of revenues for the Medicaid Managed
Care segment was 13.0% in the first quarter of 2007 compared
to 11.9% in the first quarter of 2006. The increase in the
Medicaid Managed Care G&A expense ratio for the three months
ended March 31, 2007, primarily reflects increased premium
taxes. Premium taxes were $18.2 million in the 2007 first
quarter and $4.3 million in the 2006 first quarter. This
increase was offset by the leveraging of our expenses over
higher revenues especially in our Georgia health plan. The
first quarter of 2006 included $4.5 million of Georgia
implementation costs for which there was no associated revenue
until June 1, 2006. The first quarter of 2007 includes $0.7
million of South Carolina start-up costs.
-- Operating earnings were $17.2 million, including a $4.2
million gain on the sale of FirstGuard Missouri and $2.9
million of net expense for FirstGuard activity. Excluding the
gain and other FirstGuard activity, operating earnings were
$15.8 million compared to $12.6 million in the 2006 first
quarter.
-- The first quarter results included a tax benefit from the
stock of our Kansas health plan, a gain from the sale of our
Missouri health plan and additional FirstGuard activity. The
net effect of these FirstGuard activities was $0.59 accretive
to earnings per diluted share; $0.67 accretion per diluted
share for the FirstGuard tax benefit, offset by net costs of
$0.08 per diluted share for other FirstGuard activity.
-- Earnings per diluted share of $0.85. Earnings per diluted
share of $0.26 excluding the FirstGuard activity, compared to
$0.20 in the 2006 first quarter.
Balance Sheet and Cash Flow
At March 31, 2007, the Company had cash and investments of $562.8 million, including $491.0 million held by its regulated entities and $71.8 million held by its unregulated entities. Medical claims liabilities totaled $276.0 million, representing 46.4 days in claims payable. Total debt was $201.4 million and debt to capitalization was 35.3%.
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, December 31, 2006 46.4
Increase in claims inventory 1.7
Increase for new SSI markets 0.2
Georgia and FirstGuard claims (1.9)
-------
Days in claims payable, March 31, 2007 46.4
=======
Outlook
The tables below depict the Company's guidance for the 2007 second quarter and full year.
J. Per Brodin, Centene's Chief Financial Officer, stated, "The 2007 guidance reflects our recently announced award with Texas to provide care under the Comprehensive Health Care for Children in Foster Care and the commencement of operations in South Carolina."
Q2 2007
-------------------
Low High
--------- ---------
Revenue (in millions) $720 $730
Earnings per diluted share:
Base earnings $0.31 $0.34
South Carolina/Texas Foster Care (0.06) (0.06)
--------- ---------
Net $0.25 $0.28
========= =========
2007
---------------------
Low High
---------- ----------
Revenue (in millions) $2,920 $3,000
Earnings per diluted share:
Base earnings $2.10 $2.20
FirstGuard activity (0.59) (0.59)
South Carolina/Texas Foster Care (0.15) (0.12)
---------- ----------
Net $1.36 $1.49
========== ==========
Conference Call
As previously announced, the Company will host a conference call Tuesday, April 24, 2007, at 8:30 A.M. (Eastern Time) to review the financial results for the first quarter ended March 31, 2007, 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 May 23, 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 3639977.
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, third bullet under "First Quarter Summary" and fourth and sixth bullets under "Statement of Operations" excludes the tax benefit related to the stock of our Kansas health plan and other activity for the Kansas and Missouri health plans. This exclusion has been made in the non-GAAP financial measures as management believes that the tax benefit is an unusual event and the Kansas and Missouri health plans are not indicative of future company operations.
The Company uses the presented non-GAAP financial measures internally to focus management on period-to-period changes in the Company's core business operations. 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 table reconciles the Company's Statement of Operations for the first quarter of 2007 on a GAAP basis to a non-GAAP basis. The non-GAAP basis excludes the FirstGuard activity (in thousands, except share data).
Three Months Ended
March 31, 2007
--------------------------------
FirstGuard
GAAP Activity Non-GAAP
---------- ---------- ----------
Total revenues $670,835 $(6,601) $664,234
Expenses:
Medical costs 535,406 (6,886) 528,520
Cost of services 15,630 -- 15,630
General and administrative expenses 106,866 (2,583) 104,283
Gain on sale of FirstGuard Missouri (4,218) 4,218 --
---------- ---------- ----------
Total operating expenses 653,684 (5,251) 648,433
---------- ---------- ----------
Earnings from operations 17,151 (1,350) 15,801
Investment and other income, net 1,369 1,516 2,885
---------- ---------- ----------
Earnings before income taxes 18,520 166 18,686
Income tax (benefit) expense (19,691) 26,780 7,089
---------- ---------- ----------
Net earnings $38,211 $(26,614) $11,597
========== ========== ==========
Diluted earnings per common share $0.85 $0.26
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.
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31, December 31,
2007 2006
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $311,905 $271,047
Premium and related receivables 78,076 91,664
Short-term investments, at fair value
(amortized cost $43,309 and $67,199,
respectively) 43,054 66,921
Other current assets 48,499 22,189
------------- -------------
Total current assets 481,534 451,821
Long-term investments, at fair value
(amortized cost $183,388 and $146,980,
respectively) 182,267 145,417
Restricted deposits, at fair value
(amortized cost $25,662 and $25,422,
respectively) 25,562 25,265
Property, software and equipment, net 121,403 110,688
Goodwill 130,484 135,877
Other intangible assets, net 16,011 16,202
Other assets 14,116 9,710
------------- -------------
Total assets $971,377 $894,980
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Medical claims liabilities $275,965 $280,441
Accounts payable and accrued expenses 75,842 72,723
Unearned revenue 38,613 33,816
Current portion of long-term debt 965 971
------------- -------------
Total current liabilities 391,385 387,951
Long-term debt 200,404 174,646
Other liabilities 10,124 5,960
------------- -------------
Total liabilities 601,913 568,557
Stockholders' equity:
Common stock, $.001 par value; authorized
100,000,000 shares; issued and
outstanding 43,448,324 and 43,369,918
shares, respectively 44 44
Additional paid-in capital 213,797 209,340
Accumulated other comprehensive income:
Unrealized loss on investments, net of
tax (925) (1,251)
Retained earnings 156,548 118,290
------------- -------------
Total stockholders' equity 369,464 326,423
------------- -------------
Total liabilities and stockholders'
equity $971,377 $894,980
============= =============
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
Three Months Ended
March 31,
-----------------------
2007 2006
----------- -----------
(Unaudited)
Revenues:
Premium $649,243 $435,562
Service 21,592 19,516
----------- -----------
Total revenues 670,835 455,078
----------- -----------
Expenses:
Medical costs 535,406 361,672
Cost of services 15,630 15,588
General and administrative expenses 106,866 65,222
Gain on sale of FirstGuard Missouri (4,218) --
----------- -----------
Total operating expenses 653,684 442,482
----------- -----------
Earnings from operations 17,151 12,596
----------- -----------
Other income (expense):
Investment and other income 4,501 3,540
Interest expense (3,132) (1,998)
----------- -----------
Earnings before income taxes 18,520 14,138
Income tax (benefit) expense (19,691) 5,372
----------- -----------
Net earnings $38,211 $8,766
=========== ===========
Earnings per share:
Basic earnings per common share $0.88 $0.20
Diluted earnings per common share $0.85 $0.20
Weighted average number of shares outstanding:
Basic 43,433,319 42,987,892
Diluted 44,923,340 44,750,271
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
March 31,
-------------------
2007 2006
--------- ---------
(Unaudited)
Cash flows from operating activities:
Net earnings $38,211 $8,766
Adjustments to reconcile net earnings to net cash
provided by operating activities --
Depreciation and amortization 6,274 4,520
Stock compensation expense 3,871 3,417
Deferred income taxes (1,398) 232
Gain on sale of FirstGuard Missouri (4,218) --
Changes in assets and liabilities --
Premium and related receivables 13,588 (15,812)
Other current assets (26,336) (2,894)
Other assets (636) (158)
Medical claims liabilities (4,340) 2,278
Unearned revenue 4,796 (934)
Accounts payable and accrued expenses 1,309 9,937
Other operating activities 4,859 (9)
--------- ---------
Net cash provided by operating activities 35,980 9,343
--------- ---------
Cash flows from investing activities:
Purchase of property, software and equipment (14,794) (14,136)
Purchase of investments (135,866) (53,194)
Sales and maturities of investments 122,835 33,827
Proceeds from asset sales 10,848 --
Acquisitions, net of cash acquired (400) (39,912)
--------- ---------
Net cash used in investing activities (17,377) (73,415)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options 868 2,139
Proceeds from borrowings 191,000 37,000
Payment of long-term debt (165,248) (2,285)
Excess tax benefits from stock compensation 417 1,454
Common stock repurchases (644) (3,082)
Debt issue costs (4,138) --
--------- ---------
Net cash provided by financing activities 22,255 35,226
--------- ---------
Net increase (decrease) in cash and cash
equivalents 40,858 (28,846)
--------- ---------
Cash and cash equivalents, beginning of period 271,047 147,358
--------- ---------
Cash and cash equivalents, end of period $311,905 $118,512
========= =========
Interest paid $2,999 $2,037
Income taxes paid $5,801 $911
CENTENE CORPORATION
SUPPLEMENTAL FINANCIAL DATA
Q1 Q4 Q3 Q2
2007 2006 2006 2006
---------- ---------- ---------- ----------
MEMBERSHIP
Medicaid Managed Care:
Georgia 291,300 308,800 252,600 216,000
Indiana 176,700 183,100 198,100 193,000
New Jersey 59,100 58,900 59,100 59,000
Ohio 118,300 109,200 88,300 73,100
Texas 318,500 298,500 259,900 235,800
Wisconsin 139,400 164,800 167,100 174,600
---------- ---------- ---------- ----------
Subtotal 1,103,300 1,123,300 1,025,100 951,500
Kansas and Missouri -- 138,900 144,600 150,000
---------- ---------- ---------- ----------
TOTAL 1,103,300 1,262,200 1,169,700 1,101,500
========== ========== ========== ==========
Medicaid 839,600 887,300 818,000 755,400
SCHIP 211,200 216,200 189,100 179,700
SSI 52,500 19,800 18,000 16,400
---------- ---------- ---------- ----------
Subtotal 1,103,300 1,123,300 1,025,100 951,500
Kansas and Missouri
Medicaid and SCHIP
members -- 138,900 144,600 150,000
---------- ---------- ---------- ----------
TOTAL 1,103,300 1,262,200 1,169,700 1,101,500
========== ========== ========== ==========
Specialty Services(a):
Arizona 93,600 94,500 94,500 93,600
Kansas 36,600 36,600 37,500 39,400
---------- ---------- ---------- ----------
TOTAL 130,200 131,100 132,000 133,000
========== ========== ========== ==========
(a) Includes behavioral health contracts only.
REVENUE PER MEMBER(b) $185.90 $173.75 $169.98 $159.33
CLAIMS(b)
Period-end inventory 326,000 296,100 233,500 186,200
Average inventory 239,400 195,700 188,600 150,100
Period-end inventory per
member 0.30 0.23 0.20 0.17
(b) Revenue per member and claims information are presented for the
Medicaid Managed Care segment.
Q1 Q4 Q3 Q2
2007 2006 2006 2006
-------- -------- -------- --------
DAYS IN CLAIMS PAYABLE (c) 46.4 46.4 45.3 42.6
(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 $491.0 $479.8 $411.1 $323.9
Unregulated 71.8 28.9 29.0 25.5
-------- -------- -------- --------
TOTAL $562.8 $508.7 $440.1 $349.4
======== ======== ======== ========
ANNUALIZED RETURN ON EQUITY (d) 43.9% 17.5% (83.8)% 5.4%
(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).
DEBT TO CAPITALIZATION (e) 35.3% 35.0% 35.6% 30.7%
(e) Debt to Capitalization is calculated as follows: total debt
divided by (total debt + equity).
HEALTH BENEFITS RATIO BY CATEGORY:
Three Months Ended
March 31,
-------------------
2007 2006
--------- ---------
Medicaid and SCHIP 82.3% 82.8%
SSI 86.3 87.6
Specialty Services 79.3 84.1
GENERAL AND ADMINISTRATIVE EXPENSE RATIO BY BUSINESS SEGMENT:
Three Months Ended
March 31,
-------------------
2007 2006
--------- ---------
Medicaid Managed Care 13.0% 11.9%
Specialty Services 15.8 22.3
MEDICAL CLAIMS LIABILITIES (In thousands)
Four rolling quarters of the changes in medical claims liabilities are summarized as follows:
Balance, March 31, 2006 $172,792
Acquisitions 1,788
Incurred related to:
Current period 1,993,912
Prior period (367)
-----------------
Total incurred 1,993,545
=================
Paid related to:
Current period 1,721,354
Prior period 170,806
-----------------
Total paid 1,892,160
-----------------
Balance, March 31, 2007 $275,965
=================
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