ST. LOUIS, July 27 /PRNewswire-FirstCall/ -- Centene Corporation (NYSE: CNC) today announced net earnings from continuing operations for the quarter ended June 30, 2010, of $23.0 million, or $0.45 per diluted share. The discussions below, with the exception of cash flow information, are in the context of continuing operations and all financial ratios exclude premium taxes.
Second Quarter Highlights
-- Quarter-end managed care at-risk membership of 1,531,800, an increase of
242,800 members, or 18.8% year over year.
-- Premium and Service Revenues of $1.051 billion, representing 12.8% year
over year growth.
-- Health Benefits Ratio (HBR) of 83.8%, compared to 83.1% in the prior
year.
-- General and Administrative (G&A) expense ratio of 12.7%, compared to
13.9% in the prior year.
-- Earnings from operations of $41.7 million, compared to $31.4 million in
the prior year.
-- Earnings from continuing operations, net of income tax expense,
increased 11.0% year over year to $23.0 million. Within the quarter, we
incurred a $0.03 charge per diluted share to write off a deferred tax
asset associated with our Georgia health plan and benefited by $0.03 per
diluted share from a shift in start up costs for Mississippi from the
second to the third quarter.
-- Diluted earnings per share from continuing operations of $0.45.
-- Days in claims payable of 48.2, including pharmacy claims payable.
-- Estimated 2010 composite premium rate increase between 1% and 3%.
Other Events
-- In May 2010, our Texas health plan was awarded a new ABD contract in the
Dallas service area subject to execution of a final contract. The new
contract is expected to commence during the first quarter of 2011.
-- In June 2010, we completed the acquisition of certain assets of Carolina
Crescent Health Plan. We now serve 92,600 at-risk members in South
Carolina as of June 30, 2010.
-- In June 2010, our Indiana health plan was selected to negotiate a
statewide managed care contract effective January 1, 2011. Upon
successful execution of the contract, we will continue to serve Hoosier
Healthwise members and begin serving Healthy Indiana Plan members.
-- In July 2010, we closed on the acquisition of certain assets of NovaSys
Health, LLC, a leading third party administrator in Arkansas that will
complement our existing Celtic business.
Michael F. Neidorff, Centene’s Chairman and Chief Executive Officer, stated, “Our team continues to focus on fundamentals and driving Centene to be a low-cost producer. These are key factors in producing another solid quarterly report and for the long-term success of our enterprise.”
The following table depicts membership in Centene’s managed care organizations, by state, at June 30, 2010 and 2009:
June 30,
2010 2009
Arizona 19,300 16,200
Florida 113,100 22,300
Georgia 295,600 292,800
Indiana 212,700 196,100
Massachusetts 30,100 —
Ohio 159,300 141,200
South Carolina 92,600 46,000
Texas 475,500 443,200
Wisconsin 133,600 131,200
Total at-risk membership 1,531,800 1,289,000
Non-risk membership 50,900 114,000
Total 1,582,700 1,403,000
The following table depicts membership in Centene’s managed care organizations, by member category, at June 30, 2010 and 2009:
June 30,
2010 2009
Medicaid 1,135,500 958,600
CHIP & Foster Care 272,400 261,400
ABD & Medicare 93,800 69,000
Other State programs 30,100 —
Total at-risk membership 1,531,800 1,289,000
Non-risk membership 50,900 114,000
Total 1,582,700 1,403,000
Statement of Operations
-- Premium and service revenues increased 12.8% for the three months ended
June 30, 2010 over 2009 as a result of membership growth in each of our
states. This increase was moderated by the removal of pharmacy services
in two states beginning in 2010. These pharmacy carve outs had the
effect of reducing 2010 second quarter revenue by approximately $48
million.
-- The consolidated HBR for the three months ended June 30, 2010 of 83.8%
was an increase of 0.7% over the comparable period in 2009. A
reconciliation of the change in HBR from the prior year is presented
below:
Second Quarter 2009 83.1% New markets reserved at higher rates 0.6 Net changes in existing markets 0.1 Second Quarter 2010 83.8%
-- Consolidated G&A expense as a percent of premium and service revenues
was 12.7% in the second quarter of 2010, a decrease from 13.9% in the
second quarter of 2009. The decrease reflects the leveraging of our
expenses over higher revenues and the impact of our ongoing focus on
system enhancements and operational efficiencies. Additionally, we
benefited by $0.03 per diluted share from a shift in start up costs for
Mississippi from the second to the third quarter.
-- Effective July 1, 2010, our Georgia health plan will begin paying
premium taxes and will no longer be subject to income taxes.
Accordingly, the deferred tax asset related to state net operating loss
carry forwards was written off. The write off increased income tax
expense during the second quarter by $1.7 million, or $0.03 per diluted
share.
-- Earnings per diluted share from continuing operations were $0.45,
compared to $0.47 in the second quarter of 2009.
Balance Sheet and Cash Flow
At June 30, 2010, we had cash and investments of $852.4 million, including $813.0 million held by our regulated entities and $39.4 million held by our unregulated entities. Medical claims liabilities totaled $455.4 million, representing 48.2 days in claims payable, an increase of 0.5 days from March 31, 2010. Total debt was $252.8 million and debt to capitalization was 24.5%.
Cash flow from operations through June 30, 2010 was $(98.3) million and was impacted by 1) $86.0 million decrease in unearned revenue due to advance payments received in December 2009 for January 2010 premium payments and 2) $57.7 million increase in premium and related receivables for June premium payments deferred by several states until July 2010. During the second half of 2010, we expect cash flow from operations to return to historical levels, although the timing of premium payments from each state can vary from period to period.
A reconciliation of the change in days in claims payable from the immediately preceding quarter-end is presented below:
Days in claims payable, March 31, 2010 47.7 Timing of claims payments 0.8 Payment of annual provider bonuses (0.5) Impact of new business 0.3 Pharmacy payment timing (0.1) Days in claims payable, June 30, 2010 48.2
Outlook
The table below depicts our guidance from continuing operations for 2010:
Full Year 2010
Low High
Premium and Service revenues (in millions) $ 4,350 $ 4,450
Earnings per diluted share (EPS) $ 1.78 $ 1.86
HBR % 83.5% 84.5%
G&A % 12.4% 12.9%
Diluted Shares Outstanding (in thousands) 50,500
Based upon known rate adjustments and preliminary discussions with our states that finalize rates in the second half of the year, we currently estimate our 2010 composite premium rate increase to be between 1% and 3%.
Conference Call
As previously announced, we will host a conference call Tuesday, July 27, 2010, at 8:30 A.M. (Eastern Time) to review the financial results for the second quarter ended June 30, 2010, and to discuss our 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 800-860-2442 in the U.S. and Canada; +1-412-858-4600 from abroad; or via a live, audio webcast on our website at www.centene.com, under the Investors section.
A replay will be available for on-demand listening shortly after the completion of the call for the next twelve months or until 11:59 PM (Eastern Time) on Tuesday, July 26, 2011, at the aforementioned URL, or by dialing 877-344-7529 in the U.S. and Canada, or +1-412-317-0088 from abroad and entering the playback conference number 442132.
About Centene Corporation
Centene Corporation, a Fortune 500 company, is a leading multi-line healthcare enterprise that provides programs and related services to the rising number of under-insured and uninsured individuals. Many receive benefits provided under Medicaid, including the State Children's Health Insurance Program (CHIP), as well as Aged, Blind or Disabled (ABD), Foster Care and long-term care, in addition to other state-sponsored programs, and Medicare (Special Needs Plans). Centene's CeltiCare subsidiary offers states unique, "exchange based" and other cost-effective coverage solutions for low-income populations. The Company operates local health plans and offers a range of health insurance solutions. It also contracts with other healthcare and commercial organizations to provide specialty services including behavioral health, life and health management, managed vision, telehealth services, and pharmacy benefits management.
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)
June 30, December 31,
2010 2009
ASSETS
Current assets:
Cash and cash equivalents of continuing
operations, including $5,154 and $8,667,
respectively, from
consolidated variable interest entities $ 264,723 $ 400,951
Cash and cash equivalents of discontinued
operations 877 2,801
Total cash and cash equivalents 265,600 403,752
Premium and related receivables, net of allowance
for uncollectible accounts of $1,336 and $1,338,
respectively, including $7,266 and $11,313,
respectively, from consolidated variable interest
entities 164,420 103,456
Short-term investments, at fair value (amortized
cost $29,542 and $39,230, respectively) 29,660 39,554
Other current assets, including $3,918 and $4,507,
respectively, from consolidated variable interest
entities 83,843 64,866
Current assets of discontinued operations other
than cash 2,314 4,506
Total current assets 545,837 616,134
Long-term investments, at fair value (amortized
cost $522,589 and $514,256, respectively) 537,399 525,497
Restricted deposits, at fair value (amortized cost
$20,485 and $20,048, respectively) 20,570 20,132
Property, software and equipment, net of
accumulated depreciation of $118,995 and $103,883,
respectively,
including $138,998 and $89,219, respectively, from
consolidated variable interest entities 313,839 230,421
Goodwill 244,304 224,587
Intangible assets, net 24,589 22,479
Other long-term assets 35,557 36,829
Long-term assets of discontinued operations 11,442 26,285
Total assets $ 1,733,537 $ 1,702,364
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Medical claims liability $ 455,375 $ 470,932
Accounts payable and accrued expenses, including
$30,366 and $14,020, respectively, from
consolidated
variable interest entities 167,613 132,001
Unearned revenue 5,695 91,644
Current portion of long-term debt 771 646
Current liabilities of discontinued operations 7,365 20,685
Total current liabilities 636,819 715,908
Long-term debt 252,028 307,085
Other long-term liabilities 64,870 59,561
Long-term liabilities of discontinued operations 652 383
Total liabilities 954,369 1,082,937
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value; authorized
100,000,000 shares; 51,654,541 issued and
49,210,505
outstanding at June 30, 2010, and 45,593,383
shares issued and 43,179,373 shares outstanding at
December 31, 2009 52 46
Additional paid-in capital 395,926 281,806
Accumulated other comprehensive income:
Unrealized gain on investments, net of tax 9,400 7,348
Retained earnings 405,682 358,907
Treasury stock, at cost (2,444,036 and 2,414,010
shares, respectively) (47,830) (47,262)
Total Centene Corporation stockholders' equity 763,230 600,845
Noncontrolling interest 15,938 18,582
Total stockholders' equity 779,168 619,427
Total liabilities and stockholders' equity $ 1,733,537 $ 1,702,364
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2010 2009 2010 2009
Revenues:
Premium $ 1,025,928 $ 909,698 $ 2,025,243 $ 1,794,704
Service 24,682 21,591 47,589 45,440
Premium and service
revenues 1,050,610 931,289 2,072,832 1,840,144
Premium tax 26,162 108,180 72,661 131,760
Total revenues 1,076,772 1,039,469 2,145,493 1,971,904
Expenses:
Medical costs 859,335 755,706 1,699,043 1,495,046
Cost of services 15,707 14,559 32,859 30,521
General and
administrative
expenses 133,470 129,221 268,977 251,500
Premium tax 26,551 108,548 73,294 132,490
Total operating
expenses 1,035,063 1,008,034 2,074,173 1,909,557
Earnings from
operations 41,709 31,435 71,320 62,347
Other income
(expense):
Investment and other
income 4,142 4,418 11,199 8,031
Interest expense (3,869) (4,160) (7,682) (8,146)
Earnings from
continuing
operations, before
income
tax expense 41,982 31,693 74,837 62,232
Income tax expense 17,254 11,789 29,779 22,634
Earnings from
continuing
operations, net of
income
tax expense 24,728 19,904 45,058 39,598
Discontinued
operations, net of
income tax (benefit)
expense of $(90), $
(196), $4,350 and $
(356),
respectively (226) (485) 3,694 (934)
Net earnings 24,502 19,419 48,752 38,664
Noncontrolling
interest (loss) 1,729 (811) 1,977 (24)
Net earnings
attributable to
Centene Corporation $ 22,773 $ 20,230 $ 46,775 $ 38,688
Amounts attributable
to Centene
Corporation common
stockholders:
Earnings from
continuing
operations, net of
income tax
expense $ 22,999 $ 20,715 $ 43,081 $ 39,622
Discontinued
operations, net of
income tax (benefit)
expense (226) (485) 3,694 (934)
Net earnings $ 22,773 $ 20,230 $ 46,775 $ 38,688
Net earnings (loss)
per common share
attributable to
Centene Corporation:
Basic:
Continuing operations $ 0.46 $ 0.48 $ 0.89 $ 0.92
Discontinued
operations — (0.01) 0.08 (0.02)
Earnings per common
share $ 0.46 $ 0.47 $ 0.97 $ 0.90
Diluted:
Continuing operations $ 0.45 $ 0.47 $ 0.86 $ 0.90
Discontinued
operations — (0.01) 0.08 (0.02)
Earnings per common
share $ 0.45 $ 0.46 $ 0.94 $ 0.88
Weighted average
number of shares
outstanding:
Basic 49,135,552 43,001,157 48,203,312 43,034,390
Diluted 50,866,318 44,242,339 49,807,084 44,240,071
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
2010 2009
Cash flows from operating activities:
Net earnings $ 48,752 $ 38,664
Adjustments to reconcile net earnings to net cash
(used in) provided by operating activities:
Depreciation and amortization 24,918 20,892
Stock compensation expense 6,888 7,611
(Gain) loss on sale of investments, net (3,987) 450
(Gain) on sale of UHP (8,201) --
Deferred income taxes 4,928 1,512
Changes in assets and liabilities:
Premium and related receivables (57,718) (23,327)
Other current assets 948 1,357
Other assets 1,719 (608)
Medical claims liabilities (28,868) 17,093
Unearned revenue (85,950) 44,129
Accounts payable and accrued expenses (3,536) (49,377)
Other operating activities 1,851 3,723
Net cash (used in) provided by operating activities (98,256) 62,119
Cash flows from investing activities:
Capital expenditures (63,602) (29,833)
Purchases of investments (306,124) (415,052)
Proceeds from asset sales 13,420 --
Sales and maturities of investments 291,735 377,320
Investments in acquisitions, net of cash acquired (21,473) (7,621)
Net cash used in investing activities (86,044) (75,186)
Cash flows from financing activities:
Proceeds from exercise of stock options 1,759 1,109
Proceeds from borrowings 42,161 288,000
Proceeds from stock offering 104,534 --
Payment of long-term debt (97,193) (264,135)
Distributions to noncontrolling interest (4,840) (707)
Excess tax benefits from stock compensation 295 15
Common stock repurchases (568) (5,447)
Debt issue costs -- (368)
Net cash provided by financing activities 46,148 18,467
Net (decrease) increase in cash and cash equivalents (138,152) 5,400
Cash and cash equivalents, beginning of period 403,752 379,099
Cash and cash equivalents, end of period $ 265,600 $ 384,499
Supplemental disclosures of cash flow information:
Interest paid $ 7,320 $ 7,658
Income taxes paid $ 27,940 $ 31,512
Supplemental disclosure of non-cash investing and
financing activities:
Contribution from noncontrolling interest $ 306 $ 5,107
CENTENE CORPORATION
CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA
Q2 Q1 Q4 Q3 Q2
2010 2010 2009 2009 2009
MEMBERSHIP
Managed Care:
Arizona 19,300 19,000 18,100 17,400 16,200
Florida 113,100 105,900 102,600 84,400 22,300
Georgia 295,600 301,000 309,700 303,400 292,800
Indiana 212,700 211,400 208,100 200,700 196,100
Massachusetts 30,100 26,900 27,800 500 —
Ohio 159,300 156,000 150,800 151,200 141,200
South Carolina 92,600 53,900 48,600 46,100 46,000
Texas 475,500 459,600 455,100 450,200 443,200
Wisconsin 133,600 134,900 134,800 132,500 131,200
Total at-risk
membership 1,531,800 1,468,600 1,455,600 1,386,400 1,289,000
Non-risk membership 50,900 62,200 63,700 63,200 114,000
TOTAL 1,582,700 1,530,800 1,519,300 1,449,600 1,403,000
Medicaid 1,135,500 1,088,300 1,081,400 1,040,000 958,600
CHIP & Foster Care 272,400 266,300 263,600 263,400 261,400
ABD & Medicare 93,800 87,100 82,800 82,500 69,000
Other State programs 30,100 26,900 27,800 500 —
Total at-risk
membership 1,531,800 1,468,600 1,455,600 1,386,400 1,289,000
Non-risk membership 50,900 62,200 63,700 63,200 114,000
TOTAL 1,582,700 1,530,800 1,519,300 1,449,600 1,403,000
Specialty Services(a):
Cenpatico Behavioral
Health
Arizona 119,700 119,300 120,100 117,300 110,500
Kansas 39,100 39,800 41,400 41,000 41,100
Bridgeway Health
Solutions
Long-term Care 2,800 2,700 2,600 2,500 2,400
TOTAL 161,600 161,800 164,100 160,800 154,000
(a) Includes external
membership only.
REVENUE PER MEMBER PER
MONTH(b) $ 208.58 $ 215.95(c) $ 226.42 $ 222.77 $ 219.75
CLAIMS(b)
Period-end inventory 480,400 341,400 423,400 414,900 362,200
Average inventory 306,900 283,900 279,000 227,100 234,500
Period-end inventory
per member 0.31 0.23 0.29 0.30 0.28
(b) Revenue per member and claims information are presented for the Managed
Care at-risk members.
(c) Reduction in revenue per member per month is a result of the pharmacy
carve-outs in 2010.
Q2 Q1 Q4 Q3 Q2
2010 2010 2009 2009 2009
DAYS IN CLAIMS PAYABLE
Medical 47.2 46.6 48.1 47.1 47.5
Pharmacy 1.0 1.1 2.0 1.8 1.5
TOTAL 48.2 47.7 50.1 48.9 49.0
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 $ 813.0 $ 917.9 $ 949.9 $ 911.4 $ 825.8
Unregulated 39.4 51.3 36.2 27.6 27.0
TOTAL $ 852.4 $ 969.2 $ 986.1 $ 939.0 $ 852.8
DEBT TO CAPITALIZATION 24.5% 23.7% 33.2% 31.9% 33.0%
Debt to Capitalization is calculated as follows: total debt divided by
(total debt + total equity).
Operating Ratios:
Three Months Ended Six Months Ended
June 30, June 30,
2010 2009 2010 2009
Health Benefits Ratios:
Medicaid and CHIP 83.4 % 83.7 % 84.5 % 84.2 %
ABD and Medicare 86.5 82.6 83.4 82.0
Specialty Services 81.7 79.8 81.2 79.0
Total 83.8 83.1 83.9 83.3
Total General & Administrative Expense
Ratio 12.7 % 13.9 % 13.0 % 13.7 %
MEDICAL CLAIMS LIABILITY (In thousands) The changes in medical claims liability are summarized as follows: Balance, June 30, 2009 $ 406,834 Incurred related to: Current period 3,427,022 Prior period (59,502) Total incurred 3,367,520 Paid related to: Current period 2,980,741 Prior period 338,238 Total paid 3,318,979 Balance, June 30, 2010 $ 455,375
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 June 30, 2009.
SOURCE Centene Corporation