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