-- Company Updates Full Year 2009 EPS Guidance to $1.91-$1.97 --
-- Premium and Service Revenue Growth of 18.1% --
-- Strong Cash Flow Generation of $115 Million --
ST. LOUIS--(BUSINESS WIRE)-- Centene Corporation (NYSE: CNC) today announced its net earnings from continuing operations for the quarter ended September 30, 2009 were $22.7 million, or $0.51 per diluted share, compared to $18.1 million, or $0.41 per diluted share in the third quarter of 2008. The results of operations for our New Jersey health plan, University Health Plans, are classified as discontinued operations. The discussions below, with the exception of cash flow information, 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 managed care at-risk membership of 1,386,400, an increase of
215,300 lives year over year.
-- Premium and Service revenues of $987.3 million, representing 18.1% year
over year growth.
-- Health Benefits Ratio (HBR) of 83.7%.
-- General and Administrative (G&A) expense ratio of 13.2%.
-- Cash flow from operations of $114.9 million.
-- Days in claims payable of 47.1.
-- Diluted earnings per share from continuing operations of $0.51, compared
to $0.41 in the third quarter of 2008. Earnings per diluted share in
2008 included a $0.06 loss on investments from the Primary Reserve fund.
Other Events
-- On August 31, 2009, Centene announced that the State of Massachusetts
had accepted its proposal to manage healthcare services for the
Commonwealth Bridge Program through its subsidiary, CeltiCare Health
Plan of Massachusetts, effective October 1, 2009, through June 30, 2010.
-- Effective September 1, 2009, Centene converted 62,100 members in Florida
from Access Health Solutions to at-risk under our Sunshine State Health
Plan.
-- On October 24, 2009, Centene announced a settlement agreement with
Amerigroup Corporation associated with the sale of our New Jersey health
plan. Pursuant to the settlement agreement, the parties will move
forward with the transaction, which is subject to regulatory approval
and expected to be completed in the first quarter of 2010.
-- In August 2009, Jason Harrold, president and CEO of OptiCare Managed
Vision, Inc. was appointed to Senior Vice President of Centene's
Specialty Business Unit. Mr. Harrold assumed the leadership role over
the specialty companies previously held by William Scheffel.
-- On October 26, 2009 our Board of Directors approved an extension of our
stock repurchase program.
Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "We are pleased with the ability of our team to deliver solid results across Centene's products and markets in a challenging economic environment."
The following table depicts membership in Centene's managed care organizations, by state, at September 30, 2009 and 2008:
September 30,
2009 2008
Arizona 17,400 --
Florida 84,400 --
Georgia 303,400 283,900
Indiana 200,700 172,400
Massachusetts 500 --
Ohio 151,200 132,500
South Carolina 46,100 26,600
Texas 450,200 433,200
Wisconsin 132,500 122,500
Total at-risk membership 1,386,400 1,171,100
Non-risk membership 63,200* 3,700
Total 1,449,600 1,174,800
______________________________
* Increase mainly due to consolidation of our Access Health Solutions LLC
investment, effective January 1, 2009.
The following table depicts membership in Centene's managed care organizations, by member category, at September 30, 2009 and 2008:
September 30,
2009 2008
Medicaid 1,040,500 850,500
CHIP & Foster Care 263,400 261,800
ABD & Medicare 82,500 58,800
Total at-risk membership 1,386,400 1,171,100
Non-risk membership 63,200 3,700
Total 1,449,600 1,174,800
Statement of Operations
-- For the third quarter of 2009, Premium and Service Revenues increased
18.1% to $987.3 million from $835.7 million in the third quarter of
2008. The increase was primarily driven by premium rate increases and
membership growth in all states, including the commencement of our
Arizona acute care contract in October 2008, the consolidation of Access
and conversion of members to our at-risk plan in Florida.
-- The consolidated HBR, which reflects medical costs as a percent of
premium revenues, was 83.7%. A reconciliation of the change in HBR from
the prior year same period and from the immediately preceding quarter is
presented below:
Q3:2009 vs. Q3:2008 Q3:2009 vs. Q2:2009 Third Quarter 2008 82.2 % Second Quarter 2009 83.1 % Decrease in Texas CHIP/Perinate 1.0 New markets reserved at higher 0.1 rates rates Impact of additional costs 0.5 Impact of additional costs 0.3 related to the flu related to the flu Pass-through payments 0.1 Pass-through payments 0.1 Net change in other markets (0.1 ) Net change in other markets 0.1 Third Quarter 2009 83.7 % Third Quarter 2009 83.7 %
The increase in the third quarter of 2009 over the comparable period in 2008 was due to the March 1, 2009 rate decrease for our CHIP/Perinate product in Texas which brought the HBR more in line with our normal range and the impact of additional costs related to the flu. We also experienced improvements in our ABD product, particularly in Ohio, which was mostly offset by the impact of changes in rates and benefit structures in other markets. Sequentially, the increase in the HBR reflects the impact of additional costs related to the flu along with the effect of reserving at higher rates for new markets and receiving pass-through payments which increase the HBR ratio.
-- Consolidated G&A expense as a percent of premium and service revenues
was 13.2% in the third quarter of 2009, a decrease from 14.2% in the
third quarter of 2008. The reduction in the G&A ratio between years
reflects improved leveraging of our costs over a higher revenue base and
the impact of additional revenue from new business (Arizona Acute Care,
Florida and South Carolina).
-- Earnings per diluted share from continuing operations were $0.51,
compared to $0.41 in the third quarter of 2008. Earnings per diluted
share in 2008 included a $0.06 loss on investments from the Primary
Reserve fund.
Balance Sheet and Cash Flow
At September 30, 2009, the Company had cash and investments of $939.0 million, including $911.4 million held by its regulated entities and $27.6 million held by its unregulated entities. Medical claims liabilities totaled $411.0 million, representing 47.1 days in claims payable, a decrease of 0.4 days from June 30, 2009. Total debt was $277.3 million and debt to capitalization was 31.9%. Year to date cash flow from operations was $177.0 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, 2009 47.5 Payment of annual provider bonuses (0.7) Impact of Florida expansion 0.3 Days in claims payable, September 30, 2009 47.1
Outlook
The table below depicts the Company's annual guidance from continuing operations for 2009:
Full Year 2009
Low High
Premium and Service revenues (in millions) $ 3,850 $ 3,900
Earnings per diluted share $ 1.91 $ 1.97
Stock Repurchase Authorization
On October 26, 2009, the Company's Board of Directors extended the Company's stock repurchase program. 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. No duration has been placed on the repurchase program and we reserve the right to discontinue the repurchase program at any time.
Conference Call
As previously announced, the Company will host a conference call Tuesday, October 27, 2009, at 8:30 A.M. (Eastern Time) to review the financial results for the second quarter ended September 30, 2009, and to discuss its business outlook. Michael F. Neidorff and William N. Scheffel will host the conference call. Investors and other interested parties are invited to listen to the conference call by dialing 800-273-1254 in the U.S. and Canada, 973-638-3440 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 Tuesday, November 10, 2009, 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 30957978.
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 Children's Health Insurance Program (CHIP), as well as Aged, Blind, or Disabled (ABD), Foster Care, Long-Term Care and Medicare (Special Needs Plans). The Company operates local health plans and offers a wide range of health insurance solutions to individuals and the rising number of uninsured Americans. It also contracts with other healthcare and commercial organizations to provide specialty services including behavioral health, life and health management, managed vision, telehealth services, pharmacy benefits management and medication adherence. 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)
(Unaudited)
September 30, December 31,
2009 2008
ASSETS
Current assets:
Cash and cash equivalents of continuing $ 389,135 $ 370,999
operations
Cash and cash equivalents of discontinued 4,847 8,100
operations
Total cash and cash equivalents 393,982 379,099
Premium and related receivables, net of allowance
for uncollectible accounts of $19 and $595, 104,798 92,531
respectively
Short-term investments, at fair value (amortized 45,692 109,393
cost $45,332 and $108,469, respectively)
Other current assets 61,294 75,333
Current assets of discontinued operations other 8,292 9,987
than cash
Total current assets 614,058 666,343
Long-term investments, at fair value (amortized 486,889 332,411
cost $475,078 and $329,330, respectively)
Restricted deposits, at fair value (amortized 17,286 9,254
cost $17,177 and $9,124, respectively)
Property, software and equipment, net of
accumulated depreciation of $96,314 and $74,194, 209,920 175,858
respectively
Goodwill 219,100 163,380
Intangible assets, net 23,454 17,575
Other long-term assets 37,100 59,083
Long-term assets of discontinued operations 27,207 27,248
Total assets $ 1,635,014 $ 1,451,152
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Medical claims liability $ 410,997 $ 373,037
Accounts payable and accrued expenses 204,411 219,566
Unearned revenue 68,024 17,107
Current portion of long-term debt 645 255
Current liabilities of discontinued operations 23,846 31,013
Total current liabilities 707,923 640,978
Long-term debt 276,687 264,637
Other long-term liabilities 55,992 43,539
Long-term liabilities of discontinued operations 1,155 726
Total liabilities 1,041,757 949,880
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value; authorized
100,000,000 shares; issued and outstanding 45 45
45,402,369 and 45,071,179 shares, respectively
Additional paid-in capital 277,709 263,835
Accumulated other comprehensive income:
Unrealized gain on investments, net of tax 7,812 3,152
Retained earnings 335,192 275,236
Treasury stock, at cost (2,373,893 and 2,083,415 (46,497 ) (40,996 )
shares, respectively)
Total Centene stockholders' equity 574,261 501,272
Noncontrolling interest 18,996 --
Total stockholders' equity 593,257 501,272
Total liabilities and stockholders' equity $ 1,635,014 $ 1,451,152
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Revenues:
Premium $ 960,009 $ 817,740 $ 2,754,713 $ 2,338,550
Service 27,300 17,962 72,740 56,958
Premium and 987,309 835,702 2,827,453 2,395,508
service revenues
Premium tax 50,925 22,897 182,685 66,249
Total revenues 1,038,234 858,599 3,010,138 2,461,757
Expenses:
Medical costs 803,062 671,920 2,298,108 1,932,172
Cost of services 15,843 12,854 46,364 43,467
General and
administrative 130,024 118,628 381,524 323,391
expenses
Premium tax 51,295 23,284 183,785 66,636
Total operating 1,000,224 826,686 2,909,781 2,365,666
expenses
Earnings from 38,010 31,913 100,357 96,091
operations
Other income
(expense):
Investment and 3,750 2,708 11,781 15,724
other income
Interest expense (4,064 ) (4,377 ) (12,210 ) (12,436 )
Earnings from
continuing
operations, 37,696 30,244 99,928 99,379
before income
tax expense
Income tax 12,426 12,145 35,060 38,464
expense
Earnings from
continuing
operations, net 25,270 18,099 64,868 60,915
of income tax
expense
Discontinued
operations, net
of income tax
(benefit)
expense of $ (1,460 ) 149 (2,394 ) 1,159
(792), $242, $
(1,148) and
$390,
respectively
Net earnings 23,810 18,248 62,474 62,074
Noncontrolling 2,542 2,518
interest
Net earnings
attributable to $ 21,268 $ 18,248 $ 59,956 $ 62,074
Centene
Corporation
Amounts
attributable to
Centene
Corporation
common
shareholders:
Earnings from
continuing
operations, net $ 22,728 $ 18,099 $ 62,350 $ 60,915
of income tax
expense
Discontinued
operations, net
of income tax (1,460 ) 149 (2,394 ) 1,159
(benefit)
expense
Net earnings $ 21,268 $ 18,248 $ 59,956 $ 62,074
Net earnings
(loss) per share
attributable to
Centene
Corporation:
Basic:
Continuing $ 0.53 $ 0.42 $ 1.45 $ 1.40
operations
Discontinued (0.04 ) (0.06 ) 0.03
operations
Earnings per $ 0.49 $ 0.42 $ 1.39 $ 1.43
common share
Diluted:
Continuing $ 0.51 $ 0.41 $ 1.41 $ 1.37
operations
Discontinued (0.03 ) (0.05 ) 0.02
operations
Earnings per $ 0.48 $ 0.41 $ 1.36 $ 1.39
common share
Weighted average
number of shares
outstanding:
Basic 43,001,870 43,232,941 43,023,431 43,381,819
Diluted 44,291,604 44,530,347 44,247,153 44,541,424
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended September 30,
2009 2008
Cash flows from operating activities:
Net earnings $ 62,474 $ 62,074
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 30,800 26,018
Stock compensation expense 11,428 11,576
Loss on sale of investments, net 261 4,923
Deferred income taxes 4,516 13,987
Changes in assets and liabilities --
Premium and related receivables (381 ) (50,797 )
Other current assets (2,595 ) (6,422 )
Other assets (593 ) (713 )
Medical claims liabilities 31,612 28,109
Unearned revenue 54,725 (37,931 )
Accounts payable and accrued expenses (17,656 ) 74,723
Other operating activities 2,386 967
Net cash provided by operating activities 176,977 126,514
Cash flows from investing activities:
Capital expenditures (42,696 ) (52,588 )
Purchases of investments (647,086 ) (372,221 )
Sales and maturities of investments 546,640 356,367
Investments in acquisitions, net of cash
acquired, and investment in equity method (31,533 ) (83,509 )
investee
Net cash used in investing activities (174,675 ) (151,951 )
Cash flows from financing activities:
Proceeds from exercise of stock options 1,717 4,770
Proceeds from borrowings 468,500 152,005
Payment of long-term debt (456,059 ) (109,410 )
Distributions to noncontrolling interest (3,171 )
Contribution from noncontrolling interest 7,495
Excess tax benefits from stock compensation 43 3,016
Common stock repurchases (5,539 ) (18,244 )
Debt issue costs (405 )
Net cash provided by financing activities 12,581 32,137
Net increase in cash and cash equivalents 14,883 6,700
Cash and cash equivalents, beginning of 379,099 268,584
period
Cash and cash equivalents, end of period $ 393,982 $ 275,284
Supplemental disclosures of cash flow
information:
Interest paid $ 8,556 $ 8,467
Income taxes paid $ 43,308 $ 28,370
Supplemental disclosure of non-cash investing
and financing activities:
Contribution from noncontrolling interest $ 5,491 $
CENTENE CORPORATION
CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA
Q3 Q2 Q1 Q4 Q3
2009 2009 2009 2008 2008
MEMBERSHIP
Managed Care:
Arizona 17,400 16,200 15,500 14,900 --
Florida 84,400 22,300 29,100 -- --
Georgia 303,400 292,800 289,300 288,300 283,900
Indiana 200,700 196,100 179,100 175,300 172,400
Massachusetts 500 -- -- -- --
Ohio 151,200 141,200 137,000 133,400 132,500
South Carolina 46,100 46,000 48,500 31,300 26,600
Texas 450,200 443,200 421,100 428,000 433,200
Wisconsin 132,500 131,200 127,700 124,800 122,500
Total at-risk 1,386,400 1,289,000 1,247,300 1,196,000 1,171,100
membership
Non-risk 63,200 114,000 96,000 3,700 3,700
membership
TOTAL 1,449,600 1,403,000 1,343,300 1,199,700 1,174,800
Medicaid 1,040,500 958,600 921,100 877,400 850,500
CHIP & Foster 263,400 261,400 256,900 257,300 261,800
Care
ABD & Medicare 82,500 69,000 69,300 61,300 58,800
Total at-risk 1,386,400 1,289,000 1,247,300 1,196,000 1,171,100
membership
Non-risk 63,200 114,000 96,000 3,700 3,700
membership
TOTAL 1,449,600 1,403,000 1,343,300 1,199,700 1,174,800
Specialty
Services(a):
Cenpatico
Behavioral Health
Arizona 117,300 110,500 104,700 105,000 102,400
Kansas 41,000 41,100 40,600 41,100 40,100
Bridgeway Health
Solutions
Long-term Care 2,500 2,400 2,300 2,100 1,900
TOTAL 160,800 154,000 147,600 148,200 144,400
(a)Includes external membership only.
REVENUE PER $ 222.77 $ 219.75 $ 220.29 $ 218.52 $ 213.28
MEMBER(b)
CLAIMS(b)
Period-end 414,900 362,200 325,000 269,300 323,200
inventory
Average inventory 227,100 234,500 267,600 288,600 298,400
Period-end
inventory per 0.30 0.28 0.26 0.23 0.28
member
(b) Revenue per member and claims information are presented for the Managed Care
at-risk members.
Q3 Q2 Q1 Q4 Q3
2009 2009 2009 2008 2008
DAYS IN CLAIMS 47.1 47.5 45.3 48.5 47.9
PAYABLE(c)
(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 $ 911.4 $ 825.8 $ 816.8 $ 798.0 $ 692.6
Unregulated 27.6 27.0 28.9 24.1 26.8
TOTAL $ 939.0 $ 852.8 $ 845.7 $ 822.1 $ 719.4
DEBT TO 31.9 % 33.0 % 34.6 % 34.6% 34.4 %
CAPITALIZATION(d)
(d)Debt to Capitalization is calculated as follows: total debt divided by (total
debt + total equity).
OPERATING RATIOS:
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Health Benefits Ratios:
Medicaid and CHIP 84.7 % 81.3 % 84.4 % 80.7 %
ABD and Medicare 81.1 88.1 81.7 91.4
Specialty Services 80.5 79.9 79.6 82.9
Total 83.7 82.2 83.4 82.6
General & Administrative Expense Ratio 13.2 % 14.2 % 13.5 % 13.5 %
MEDICAL CLAIMS LIABILITY (In thousands) Four rolling quarters of the changes in medical claims liability are summarized as follows: Balance, September 30, 2008 $ 349,502 Acquisitions -- Incurred related to: Current period 3,051,905 Prior period (45,634 ) Total incurred 3,006,271 Paid related to: Current period 2,654,707 Prior period 290,069 Total paid 2,944,776 Balance, September 30, 2009 $ 410,997
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" amount 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.
The amount of the "Incurred related to: Prior period" above includes the effects of reserving under moderately adverse conditions, new markets where we use a conservative approach in setting reserves during the initial periods of operations, increased receipts from other third party payors related to coordination of benefits and lower medical utilization and cost trends for dates of service prior to September 30, 2008.
Source: Centene Corporation