ST. LOUIS--(BUSINESS WIRE)--Centene Corporation (NYSE: CNC) today announced its net earnings from continuing operations for the quarter ended June 30, 2008 were $18.0 million, or $0.41 per diluted share, compared to $10.2 million, or $0.23 per diluted share in the 2007 second quarter. As a reminder, the 2008 first quarter results included the benefit of the July 1 through December 31, 2007 period rate increase for Georgia of approximately $0.28 per diluted share. Unless specifically noted, the discussions below are in the context of continuing operations.
Second Quarter Highlights
-- Quarter-end Medicaid Managed Care membership of 1.2 million.
-- Revenues of $860.1 million, or $837.9 million net of premium
taxes, an 18.2% increase over the 2007 second quarter.
-- Health Benefits Ratio (HBR), which reflects medical costs as a
percent of premium revenues, of 83.3%, compared to 83.6% in
the 2007 second quarter.
-- General and administrative (G&A) expense ratio of 13.5%,
compared to 14.4% in the 2007 second quarter.
-- Cash flow from operations of $60.0 million.
-- Days in claims payable of 48.5.
Other Events
-- Commenced operations under our Texas Foster Care contract,
effective April 1, 2008.
-- Repurchased 347,432 shares during the second quarter for
approximately $6.4 million.
-- Completed the previously announced acquisition of Celtic
Insurance Company, or Celtic, a health insurance carrier
focused on the individual health insurance market, effective
July 1, 2008.
-- Concluded operations for SSI recipients in the Northwest
region of Ohio, effective June 30, 2008.
-- Awarded a contract by the Arizona Health Care Cost Containment
System to provide Acute Care services to Medicaid recipients
in the Yavapai service area. Membership operations are
expected to commence on October 1, 2008.
Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "We are pleased with the progress our results show this quarter and believe they set a foundation for improvement that we can build on for the rest of 2008 and beyond. Our team remains committed to the goal of margin expansion and we expect to achieve a runrate pretax margin of 4% by the end of 2008 through focused medical management and G&A leverage. While the new growth opportunities available to us remain robust, we will employ a disciplined and selective approach to pursuing them," concluded Neidorff.
The following table depicts membership in Centene's managed care organizations, by state, at June 30, 2008 and 2007:
----------------------------------------------------------------------
2008 2007
---------- ----------
Georgia 278,800 281,400
Indiana 161,700 161,700
New Jersey 55,100 59,100
Ohio 137,300 128,200
South Carolina(a) 22,500 31,100
Texas 427,200 333,900
Wisconsin 124,800 136,100
---------- ----------
Total 1,207,400 1,131,500
========== ==========
(a) Reflects the conversion of South Carolina membership from non-risk
in 2007 to full risk in 2008.
----------------------------------------------------------------------
The following table depicts membership in Centene's managed care organizations, by member category, at June 30, 2008 and 2007:
----------------------------------------------------------------------
2008 2007
---------- ----------
Medicaid 866,700 846,900
SCHIP/Foster Care 267,000 216,500
SSI/Medicare 73,700 68,100
---------- ----------
Total 1,207,400(a) 1,131,500(b)
========== ==========
(a) 1,203,900 at-risk; 3,500 ASO
(b) 1,097,200 at-risk; 34,300 ASO
----------------------------------------------------------------------
Statement of Operations
-- For the 2008 second quarter, revenues, net of premium taxes,
increased 18.4% to $837.9 million from $707.9 million in the
2007 second quarter. The increase was primarily driven by
premium rate increases in Georgia, membership growth in Texas
and Ohio, which are the two markets that added SSI products in
2007, as well as growth in Texas from the new Foster Care
contract commencing in April 2008.
-- The consolidated HBR, which reflects medical costs as a
percent of premium revenues, was 83.3%, a decrease from 83.6%
in the 2007 second quarter. The decrease is primarily due to
overall increased premium yield and improvement in our Georgia
market. Sequentially, our consolidated HBR increased from
83.0% in the 2008 first quarter to 83.3% due to the effect of
the Georgia rate increase included in the first quarter,
offset by moderating medical cost trends, especially related
to SSI members in Ohio.
-- Consolidated G&A expense as a percent of premium and service
revenues was 13.5% in the second quarter of 2008, a decrease
from 14.4% in the second quarter of 2007.
-- Earnings per diluted share from continuing operations were
$0.41, compared to $0.23 in the 2007 second quarter.
Balance Sheet and Cash Flow
At June 30, 2008, the Company had cash and investments of $709.9 million, including $680.9 million held by its regulated entities and $29.0 million held by its unregulated entities. Medical claims liabilities totaled $363.7 million, representing 48.5 days in claims payable, an increase of 2.3 days from June 30, 2007 and a decrease of 0.8 days from March 31, 2008. Total debt was $222.1 million and debt to capitalization was 32.6%. Year to date cash flow from operations was $86.7 million.
A reconciliation of the Company's change in days in claims payable from the immediately preceding quarter-end is presented below:
----------------------------------------------------------------------
Days in claims payable, March 31, 2008 49.3
Effect of the addition of Foster Care (0.3)
Change in provider bonus accrual (0.2)
Claims inventory reduction (0.3)
------------
Days in claims payable, June 30, 2008 48.5
============
----------------------------------------------------------------------
Outlook
The table below depicts the Company's annual guidance for 2008:
----------------------------------------------------------------------
Full Year 2008
--------------------------
Low High
------------- ------------
Revenue (in millions)(1) $3,360 $3,410
Earnings per diluted share $1.87 $1.97
-----------------------------------------
(1) Revenue net of premium tax
----------------------------------------------------------------------
Eric R. Slusser, Centene's Chief Financial Officer, stated, "We are increasing our revenue guidance, but maintaining our previous earnings per share guidance for the year. With the acquisition of Celtic and our new Arizona contract, our revenue expectations have increased for the second half of the year. However, we do not expect either of these to have a material contribution to earnings in 2008. We are optimistic about the second half of the year as we continue to invest in infrastructure and execute on new and existing opportunities. We continue to expect an overall HBR range for the full year of 82.0% to 84.0%."
Conference Call
As previously announced, the Company will host a conference call Tuesday, July 22, 2008, at 8:00 A.M. (Eastern Time) to review the financial results for the second quarter ended June 30, 2008, and to discuss its business outlook. Michael F. Neidorff and Eric R. Slusser 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 August 5, 2008 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 51471537.
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), Foster Care, Supplemental Security Income (SSI) and Medicare (Special Needs Plans). The Company operates health plans in Arizona, Georgia, Indiana, New Jersey, Ohio, South Carolina, Texas and Wisconsin. In addition, the Company contracts with other healthcare and commercial organizations to provide specialty services including behavioral health, life and health 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)
June 30, December 31,
2008 2007
----------- -------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 357,488 $ 268,584
Premium and related receivables 113,233 90,072
Short-term investments, at fair value
(amortized cost $69,205 and $46,392,
respectively) 69,524 46,269
Other current assets 38,602 41,414
---------- -------------
Total current assets 578,847 446,339
Long-term investments, at fair value
(amortized cost $252,441 and $314,681,
respectively) 254,578 317,041
Restricted deposits, at fair value
(amortized cost $28,023 and $27,056,
respectively) 28,283 27,301
Property, software and equipment, net 157,775 138,139
Goodwill 141,009 141,030
Other intangible assets, net 12,177 13,205
Other assets 42,396 36,067
---------- -------------
Total assets $ 1,215,065 $ 1,119,122
========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Medical claims liabilities $ 363,708 $ 335,856
Accounts payable and accrued expenses 148,535 105,096
Unearned revenue 5,266 44,016
Current portion of long-term debt 338 971
Current liabilities of discontinued
operations 200 861
---------- -------------
Total current liabilities 518,047 486,800
Long-term debt 221,757 206,406
Other liabilities 15,493 10,869
---------- -------------
Total liabilities 755,297 704,075
Stockholders' equity:
Common stock, $.001 par value; authorized
100,000,000 shares; issued and
outstanding 43,261,883 and 43,667,837
shares, respectively 43 44
Additional paid-in capital 222,438 221,693
Accumulated other comprehensive income:
Unrealized gain on investments, net of
tax 1,722 1,571
Retained earnings 235,565 191,739
---------- -------------
Total stockholders' equity 459,768 415,047
---------- -------------
Total liabilities and stockholders'
equity $ 1,215,065 $ 1,119,122
========== =============
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2008 2007 2008 2007
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Revenues:
Premium $ 819,409 $ 687,842 $ 1,592,887 $ 1,312,668
Premium tax 22,192 19,874 44,823 37,690
Service 18,466 20,015 38,996 41,607
----------- ----------- ----------- -----------
Total revenues 860,067 727,731 1,676,706 1,391,965
----------- ----------- ----------- -----------
Expenses:
Medical costs 682,589 575,146 1,324,208 1,103,666
Cost of services 14,437 16,670 30,613 32,300
General and
administrative
expenses 113,199 102,007 212,482 188,474
Premium tax 22,192 19,874 44,823 37,690
----------- ----------- ----------- -----------
Total
operating
expenses 832,417 713,697 1,612,126 1,362,130
----------- ----------- ----------- -----------
Earnings from
operations 27,650 14,034 64,580 29,835
Other income
(expense):
Investment and
other income 5,600 6,588 13,369 12,605
Interest expense (4,065) (4,213) (8,059) (7,345)
----------- ----------- ----------- -----------
Earnings
before income
taxes 29,185 16,409 69,890 35,095
Income tax expense 11,146 6,234 26,314 13,323
----------- ----------- ----------- -----------
Net earnings
from
continuing
operations 18,039 10,175 43,576 21,772
Discontinued
operations,
net of income
tax expense
(benefit) of
$101,
$(5,417),
$153 and
$(32,197),
respectively 164 7,607 250 34,221
----------- ----------- ----------- -----------
Net earnings $ 18,203 $ 17,782 $ 43,826 $ 55,993
=========== =========== =========== ===========
Net earnings per
share:
Basic:
Continuing
operations $ 0.42 $ 0.23 $ 1.00 $ 0.50
Discontinued
operations -- 0.18 0.01 0.79
----------- ----------- ----------- -----------
Basic earnings
per common
share $ 0.42 $ 0.41 $ 1.01 $ 1.29
=========== =========== =========== ===========
Diluted:
Continuing
operations $ 0.41 $ 0.23 $ 0.98 $ 0.49
Discontinued
operations -- 0.17 0.01 0.76
----------- ----------- ----------- -----------
Diluted
earnings per
common share $ 0.41 $ 0.40 $ 0.98 $ 1.25
=========== =========== =========== ===========
Weighted average
number of shares
outstanding:
Basic 43,375,944 43,617,360 43,457,076 43,525,848
Diluted 44,275,601 44,815,369 44,516,890 44,871,114
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended June 30,
-------------------------
2008 2007
----------- ------------
(Unaudited)
Cash flows from operating activities:
Net earnings $ 43,826 $ 55,993
Adjustments to reconcile net earnings to
net cash provided by operating activities
--
Depreciation and amortization 16,229 12,991
Stock compensation expense 7,839 7,837
Deferred income taxes 11,879 (327)
Gain on sale of FirstGuard Missouri -- (7,472)
Changes in assets and liabilities --
Premium and related receivables (23,144) (21,823)
Other current assets (4,294) (24,583)
Other assets (1,671) (931)
Medical claims liabilities 27,316 15,035
Unearned revenue (38,753) 8,203
Accounts payable and accrued expenses 45,907 11,832
Other operating activities 1,542 3,119
----------- ------------
Net cash provided by operating
activities 86,676 59,874
----------- ------------
Cash flows from investing activities:
Purchases of property, software and
equipment (34,581) (29,352)
Purchases of investments (172,873) (290,962)
Sales and maturities of investments 210,277 196,407
Proceeds from asset sales -- 14,102
Investments in acquisitions and equity
method investee, net of cash acquired (7,818) (5,336)
----------- ------------
Net cash used in investing activities (4,995) (115,141)
----------- ------------
Cash flows from financing activities:
Proceeds from exercise of stock options 3,029 2,651
Proceeds from borrowings 56,005 191,000
Payment of long-term debt (41,287) (165,484)
Excess tax benefits from stock compensation 2,792 797
Common stock repurchases (13,316) (3,231)
Debt issue costs -- (5,070)
----------- ------------
Net cash provided by financing
activities 7,223 20,663
----------- ------------
Net increase (decrease) in cash and
cash equivalents 88,904 (34,604)
----------- ------------
Cash and cash equivalents, beginning of
period 268,584 271,047
----------- ------------
Cash and cash equivalents, end of period $ 357,488 $ 236,443
=========== ============
Interest paid $ 7,590 $ 3,738
Income taxes paid $ 15,966 $ 6,049
CENTENE CORPORATION
CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA
Q2 Q1 Q4 Q3 Q2
2008 2008 2007 2007 2007
--------- --------- --------- --------- ---------
MEMBERSHIP
Managed Care:
Georgia 278,800 282,700 287,900 286,200 281,400
Indiana 161,700 161,300 154,600 156,300 161,700
New Jersey 55,100 56,500 57,300 58,300 59,100
Ohio 137,300 131,100 128,700 127,500 128,200
South Carolina 22,500 29,300 31,800 29,300 31,100
Texas 427,200 369,000 354,400 347,000 333,900
Wisconsin 124,800 126,900 131,900 132,700 136,100
--------- --------- --------- --------- ---------
TOTAL 1,207,400 1,156,800 1,146,600 1,137,300 1,131,500
========= ========= ========= ========= =========
Medicaid 866,700 862,900 848,100 841,600 846,900
SCHIP & Foster Care 267,000 216,000 224,400 223,500 216,500
SSI & Medicare 73,700 77,900 74,100 72,200 68,100
--------- --------- --------- --------- ---------
TOTAL 1,207,400 1,156,800 1,146,600 1,137,300 1,131,500
========= ========= ========= ========= =========
Specialty
Services(a):
Arizona 99,400 97,900 99,900 99,000 95,200
Kansas 40,000 39,400 39,000 35,600 37,500
--------- --------- --------- --------- ---------
TOTAL 139,400 137,300 138,900 134,600 132,700
========= ========= ========= ========= =========
(a) Includes behavioral health contracts only.
REVENUE PER MEMBER(b) $214.63 $215.35 $210.34 $201.05 $193.09
CLAIMS(b)
Period-end
inventory 336,900 393,700 312,700 265,400 281,000
Average inventory 244,800 281,600 288,700 319,900 248,200
Period-end
inventory per
member 0.28 0.34 0.28 0.24 0.26
(b) Revenue per member and claims information are presented for the
Medicaid Managed Care segment.
Q2 Q1 Q4 Q3 Q2
2008 2008 2007 2007 2007
-------- -------- -------- -------- --------
DAYS IN CLAIMS PAYABLE(c) 48.5 49.3 49.1 49.1 46.2
(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 $ 680.9 $ 651.1 $ 626.2 $ 593.6 $ 527.9
Unregulated 29.0 25.8 33.0 45.9 65.8
-------- -------- -------- -------- --------
TOTAL $ 709.9 $ 676.9 $ 659.2 $ 639.5 $ 593.7
======== ======== ======== ========-========
DEBT TO CAPITALIZATION(d) 32.6% 32.8% 33.3% 33.1% 34.0%
(d) Debt to Capitalization is calculated as follows: total debt
divided by (total debt + equity).
OPERATING RATIOS:
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
2008 2007 2008 2007
--------- -------- -------- -------
Health Benefits Ratios
Medicaid and SCHIP 81.7% 83.2% 80.6% 83.9%
SSI and Medicare 89.8 90.2 93.7 89.6
Specialty Services 85.8 76.4 85.0 77.9
Total 83.3 83.6 83.1 84.1
General & Administrative
Expense Ratio 13.5% 14.4% 13.0% 13.9%
MEDICAL CLAIMS LIABILITIES (In thousands)
Four rolling quarters of the changes in medical claims liabilities are
summarized as follows:
Balance, June 30, 2007 $ 292,298
Incurred related to:
Current period 2,552,697
Prior period (7,669)
----------------
Total incurred 2,545,028
================
Paid related to:
Current period 2,193,031
Prior period 280,587
----------------
Total paid 2,473,618
----------------
Balance, June 30, 2008 $ 363,708
================
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