ST. LOUIS--(BUSINESS WIRE)--Centene Corporation (NYSE: CNC) today announced its net earnings from continuing operations for the quarter ended September 30, 2008 were $18.3 million, or $0.41 per diluted share, compared to $16.5 million, or $0.37 per diluted share in the 2007 third quarter. The current quarter results include a loss on investments of $5.2 million pre-tax, or $0.07 per diluted share. Excluding this loss, net earnings were $0.48 per diluted share. Unless specifically noted, the discussions below are in the context of continuing operations and all financial ratios are calculated using revenues excluding premium taxes and investment income.
Third Quarter Highlights
-- Quarter-end Medicaid Managed Care membership of 1.2 million.
-- Revenues of $897.1 million, or $873.5 million net of premium
taxes, an 19.8% increase over the 2007 third quarter.
-- Health Benefits Ratio (HBR), which reflects medical costs as a
percent of premium revenues, of 82.4%, compared to 83.4% in
the 2007 third quarter.
-- General and administrative (G&A) expense ratio of 14.0%,
compared to 13.7% in the 2007 third quarter.
-- Cash flow from operations of $39.8 million.
-- Days in claims payable of 49.6.
Other Events
-- Received notification of a ruling by the Eighth Circuit of The
United States Court of Appeals upholding the dismissal of a
Consolidated Class Action Lawsuit.
-- Stock repurchase program extended through October 31, 2009.
Repurchased 245,740 shares of our common stock during the
third quarter for approximately $5 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.
-- Commenced a new acute care contract in the Yavapai Service
Area of Arizona, effective October 1, 2008.
-- Appointed Donald G. Imholz as Senior Vice President and Chief
Information Officer.
Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "We are pleased with the continued progress that our results show this quarter. It is gratifying to see the operating traction that our team has gained over the past two quarters and we are working hard to ensure that this positive momentum will be maintained in 2009 and beyond," concluded Neidorff.
The following table depicts membership in Centene's managed care organizations, by state, at September 30, 2008 and 2007:
----------------------------------------------------------------------
2008 2007
---------- ----------
Georgia 283,900 286,200
Indiana 172,400 156,300
New Jersey 54,900 58,300
Ohio 132,500 127,500
South Carolina(a) 26,600 29,300
Texas 436,900 347,000
Wisconsin 122,500 132,700
---------- ----------
Total 1,229,700 1,137,300
========== ==========
(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 September 30, 2008 and 2007:
----------------------------------------------------------------------
2008 2007
---------- ---------
Medicaid 887,700 841,600
SCHIP/Foster Care 271,700 223,500
SSI/Medicare 70,300 72,200
--------- ---------
Total 1,229,700(a) 1,137,300(b)
========= =========
(a) 1,226,000 at-risk; 3,700 ASO
(b) 1,104,700 at-risk; 32,600 ASO
----------------------------------------------------------------------
Statement of Operations
-- For the 2008 third quarter, revenues, net of premium taxes,
increased 19.8% to $873.5 million from $729.2 million in the
2007 third quarter. The increase was primarily driven by
membership growth, especially related to the new Foster Care
contract in Texas, premium rate increases and the recent
acquisition of Celtic which closed on July 1, 2008.
-- The consolidated HBR, which reflects medical costs as a
percent of premium revenues, was 82.4%, a decrease from 83.4%
in the 2007 third quarter. The decrease is primarily due to
overall increased premium yield, a moderating medical cost
trend and the acquisition of Celtic. Sequentially, our
consolidated HBR decreased from 83.3% in the 2008 second
quarter to 82.4% due to the medical management efforts in
Ohio, moderating medical cost trends and the affect of the
acquisition of Celtic, which operates at a lower HBR than our
existing business.
-- Consolidated G&A expense as a percent of premium and service
revenues was 14.0% in the third quarter of 2008, an increase
from 13.7% in the third quarter of 2007. The increase was due
to the acquisition of Celtic which operates at a higher G&A
ratio.
-- Other income in the third quarter included a loss on
investments of $5.2 million, or $0.07 per diluted share. As
previously disclosed in an October 14, 2008, press release and
8-K filing, the loss was primarily due to investments in the
Reserve Primary money market fund whose Net Asset Value fell
below $1.00 per share due to its holdings of securities by
Lehman Brothers Holdings, Inc. The impairment losses represent
less than 1% of Centene's investment portfolio as of September
30, 2008. While the ultimate amount of loss may change, we
currently expect to recover 95% of our investment in the
Reserve Primary fund and have more than sufficient liquidity
to fund our operations in the near term.
-- Earnings per diluted share from continuing operations were
$0.41, or $0.48 excluding the previously mentioned loss on
investments, compared to $0.37 in the 2007 third quarter.
Balance Sheet and Cash Flow
At September 30, 2008, the Company had cash and investments of $754.8 million, including $728.0 million held by its regulated entities and $26.8 million held by its unregulated entities. Medical claims liabilities totaled $379.8 million, representing 49.6 days in claims payable, an increase of 0.5 days from September 30, 2007 and an increase of 1.1 days from June 30, 2008. Total debt was $250.0 million and debt to capitalization was 34.4%. Year to date cash flow from operations was $126.5 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, June 30, 2008 48.5
Celtic Acquisition 0.8
Other 0.3
----
Days in claims payable, September 30, 2008 49.6
====
----------------------------------------------------------------------
Outlook
The table below depicts the Company's annual guidance for 2008:
Full Year 2008
--------------
Low High
------- ------
Revenue (in millions)1 $3,390 $3,410
Earnings per diluted share $ 1.87 $ 1.92
-------------------------------------------------------
(1) Revenue net of premium tax
----------------------------------------------------------------------
Eric R. Slusser, Centene's Chief Financial Officer, stated, "Despite the effects of the $0.07 loss on investments in the third quarter, Centene will not revise the lower end of its previous 2008 earnings per diluted share guidance range. We are tightening the previous range and currently expect 2008 EPS to range from $1.87 to $1.92 and revenue guidance of $3.39 to $3.41 billion, net of premium taxes. We continue to expect the 2008 consolidated HBR to range from 82% to 84%."
Stock Repurchase Authorization
On October 27, 2008, the Company's Board of Directors extended the expiration date of the Company's stock repurchase program to October 31, 2009. The program would have expired October 31, 2008. The program authorizes the repurchase of up to 4,000,000 shares of the Company's common stock from time to time on the open market or through privately negotiated transactions.
Conference Call
As previously announced, the Company will host a conference call Tuesday, October 28, 2008, at 8:30 A.M. (Eastern Time) to review the financial results for the third quarter ended September 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 November 11, 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 63471844.
Non-GAAP Financial Presentation
The Company is providing certain non-GAAP financial measures in this release as the Company believes 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. Specifically, the Company has presented diluted earnings per share for the third quarter of 2008 excluding the effects of a $0.07 loss on investments recorded in the quarter.
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 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 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, individual health insurance, 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.
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30, December 31,
2008 2007
------------- ------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 275,284 $ 268,584
Premium and related receivables 150,351 90,072
Short-term investments, at fair value
(amortized cost $160,199 and $46,392,
respectively) 160,376 46,269
Other current assets 48,109 41,414
------------ -----------
Total current assets 634,120 446,339
Long-term investments, at fair value
(amortized cost $288,140 and $314,681,
respectively) 288,212 317,041
Restricted deposits, at fair value
(amortized cost $30,630 and $27,056,
respectively) 30,919 27,301
Property, software and equipment, net of
accumulated depreciation of $68,834 and
$54,584, respectively 170,038 138,139
Goodwill 167,008 141,030
Other intangible assets, net 19,886 13,205
Other assets 47,870 36,067
------------ -----------
Total assets $ 1,358,053 $ 1,119,122
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Medical claims liabilities $ 379,845 $ 335,856
Accounts payable and accrued expenses 200,766 105,096
Unearned revenue 15,623 44,016
Current portion of long-term debt 276 971
Current liabilities of discontinued
operations 255 861
------------ -----------
Total current liabilities 596,765 486,800
Long-term debt 249,697 206,406
Other liabilities 34,017 10,869
------------ -----------
Total liabilities 880,479 704,075
Stockholders' equity:
Common stock, $.001 par value;
authorized 100,000,000 shares; issued
and outstanding 43,159,927 and
43,667,837 shares, respectively 43 44
Additional paid-in capital 223,369 221,693
Accumulated other comprehensive
income:
Unrealized gain on investments, net
of tax 349 1,571
Retained earnings 253,813 191,739
------------ -----------
Total stockholders' equity 477,574 415,047
------------ -----------
Total liabilities and
stockholders' equity $ 1,358,053 $ 1,119,122
============ ===========
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2008 2007 2008 2007
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
Revenues:
Premium $ 855,505 $ 709,455 $ 2,448,392 $ 2,022,123
Premium tax 23,670 20,737 68,493 58,427
Service 17,962 19,696 56,958 61,303
----------- ----------- ----------- -----------
Total revenues 897,137 749,888 2,573,843 2,141,853
----------- ----------- ----------- -----------
Operating
expenses:
Medical costs 704,731 591,383 2,028,939 1,695,049
Cost of services 12,854 13,622 43,467 45,922
General and
administrative
expenses 122,627 100,235 335,109 288,709
Premium tax 24,057 20,737 68,880 58,427
----------- ----------- ----------- -----------
Total
operating
expenses 864,269 725,977 2,476,395 2,088,107
----------- ----------- ----------- -----------
Earnings from
operations 32,868 23,911 97,448 53,746
Other income
(expense):
Investment and
other income 2,165 6,352 15,534 18,957
Interest expense (4,377) (4,171) (12,436) (11,516)
----------- ----------- ----------- -----------
Earnings
before income
taxes 30,656 26,092 100,546 61,187
Income tax expense 12,395 9,628 38,709 22,951
----------- ----------- ----------- -----------
Net earnings
from
continuing
operations 18,261 16,464 61,837 38,236
Discontinued
operations,
net of income
tax (benefit)
expense of
$(8), $(323),
$145 and
$(32,520),
respectively (13) (528) 237 33,693
----------- ----------- ----------- -----------
Net earnings $ 18,248 $ 15,936 $ 62,074 $ 71,929
=========== =========== =========== ===========
Net earnings per
share:
Basic:
Continuing
operations $ 0.42 $ 0.38 $ 1.43 $ 0.88
Discontinued
operations -- (0.01) -- 0.77
----------- ----------- ----------- -----------
Basic earnings
per common
share $ 0.42 $ 0.37 $ 1.43 $ 1.65
=========== =========== =========== ===========
Diluted:
Continuing
operations $ 0.41 $ 0.37 $ 1.39 $ 0.85
Discontinued
operations -- (0.01) -- 0.75
----------- ----------- ----------- -----------
Diluted
earnings per
common share $ 0.41 $ 0.36 $ 1.39 $ 1.61
=========== =========== =========== ===========
Weighted average
number of shares
outstanding:
Basic 43,232,941 43,532,832 43,381,819 43,528,201
Diluted 44,530,347 44,628,560 44,541,424 44,787,981
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended September 30,
-------------------------------
2008 2007
--------------- ---------------
(Unaudited)
Cash flows from operating activities:
Net earnings $ 62,074 $ 71,929
Adjustments to reconcile net
earnings to net cash provided by
operating activities
Depreciation and amortization 26,018 20,381
Stock compensation expense 11,576 11,753
Deferred income taxes 13,987 (859)
Loss on sale of investments, net 4,923 161
Gain on sale of FirstGuard
Missouri -- (7,472)
Changes in assets and liabilities --
Premium and related receivables (50,797) 6,855
Other current assets (6,422) (15,540)
Other assets (713) (934)
Medical claims liabilities 28,109 36,312
Unearned revenue (37,931) 10,680
Accounts payable and accrued
expenses 74,723 27,981
Other operating activities 967 3,505
-------------- --------------
Net cash provided by operating
activities 126,514 164,752
-------------- --------------
Cash flows from investing activities:
Purchases of property, software and
equipment (52,588) (41,774)
Purchases of investments (372,221) (464,378)
Sales and maturities of investments 356,367 341,450
Proceeds from asset sales -- 14,102
Investments in acquisitions and
equity method investee, net of cash
acquired (83,509) (26,425)
-------------- --------------
Net cash used in investing
activities (151,951) (177,025)
-------------- --------------
Cash flows from financing activities:
Proceeds from exercise of stock
options 4,770 3,737
Proceeds from borrowings 152,005 202,000
Payments of long-term debt (109,410) (176,729)
Excess tax benefits from stock
compensation 3,016 1,028
Common stock repurchases (18,244) (8,581)
Debt issue costs -- (5,181)
-------------- --------------
Net cash provided by financing
activities 32,137 16,274
-------------- --------------
Net increase (decrease) in
cash and cash equivalents 6,700 4,001
-------------- --------------
Cash and cash equivalents, beginning
of period 268,584 271,047
-------------- --------------
Cash and cash equivalents, end of
period $ 275,284 $ 275,048
============== ==============
Supplemental cash flow information:
Interest paid $ 8,467 $ 4,480
Income taxes paid $ 28,370 $ 6,965
CENTENE CORPORATION
CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA
Q3 Q2 Q1 Q4 Q3
2008 2008 2008 2007 2007
--------- --------- --------- --------- ---------
MEMBERSHIP
Managed Care:
Georgia 283,900 278,800 282,700 287,900 286,200
Indiana 172,400 161,700 161,300 154,600 156,300
New Jersey 54,900 55,100 56,500 57,300 58,300
Ohio 132,500 137,300 131,100 128,700 127,500
South Carolina 26,600 22,500 29,300 31,800 29,300
Texas 436,900 427,200 369,000 354,400 347,000
Wisconsin 122,500 124,800 126,900 131,900 132,700
--------- --------- --------- --------- ---------
TOTAL 1,229,700 1,207,400 1,156,800 1,146,600 1,137,300
========= ========= ========= ========= =========
Medicaid 887,700 866,700 862,900 848,100 841,600
SCHIP & Foster
Care 271,700 267,000 216,000 224,400 223,500
SSI & Medicare 70,300 73,700 77,900 74,100 72,200
--------- --------- --------- --------- ---------
TOTAL 1,229,700 1,207,400 1,156,800 1,146,600 1,137,300
========= ========= ========= ========= =========
Specialty
Services(a):
Arizona 102,400 99,400 97,900 99,900 99,000
Kansas 40,100 40,000 39,400 39,000 35,600
--------- --------- --------- --------- ---------
TOTAL 142,500 139,400 137,300 138,900 134,600
========= ========= ========= ========= =========
(a) Includes behavioral health contracts only.
REVENUE PER
MEMBER(b) $ 213.95 $ 214.63 $ 215.35 $ 210.34 $ 201.05
CLAIMS(b)
Period-end
inventory 321,200 336,900 393,700 312,700 265,400
Average inventory 317,100 244,800 281,600 288,700 319,900
Period-end
inventory per
member 0.26 0.28 0.34 0.28 0.24
(b) Revenue per member and claims information are presented for the
Medicaid Managed Care segment.
Q3 Q2 Q1 Q4 Q3
2008 2008 2008 2007 2007
------- ------- ------- ------- -------
DAYS IN CLAIMS PAYABLE(c) 49.6 48.5 49.3 49.1 49.1
(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 $728.0 $680.9 $651.1 $626.2 $593.6
Unregulated 26.8 29.0 25.8 33.0 45.9
------- ------- ------- ------- -------
TOTAL $754.8 $709.9 $676.9 $659.2 $639.5
======= ======= ======= ======= =======
DEBT TO CAPITALIZATION(d) 34.4% 32.6% 32.8% 33.3% 33.1%
(d) Debt to Capitalization is calculated as follows: total debt
divided by (total debt + equity).
OPERATING RATIOS:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2008 2007 2008 2007
--------- -------- -------- --------
Health Benefits Ratios
Medicaid and SCHIP 81.3% 81.3% 80.9% 82.9%
SSI and Medicare 89.7 92.4 92.3 90.8
Specialty Services 79.5 82.2 82.7 79.4
Total 82.4 83.4 82.9 83.8
General & Administrative Expense
Ratio 14.0% 13.7% 13.4% 13.9%
MEDICAL CLAIMS LIABILITIES (In thousands)
Four rolling quarters of the changes in medical claims liabilities are
summarized as follows:
Balance, September 30, 2007 $ 315,311
Acquisitions 15,398
Incurred related to:
Current period 2,665,373
Prior period (6,997)
----------
Total incurred 2,658,376
==========
Paid related to:
Current period 2,304,281
Prior period 304,959
----------
Total paid 2,609,240
----------
Balance, September 30, 2008 $ 379,845
==========
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