Centene Corporation Reports 2011 First Quarter Earnings

ST. LOUIS, April 26, 2011 /PRNewswire/ -- Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended March 31, 2011.  The discussions below, with the exception of cash flow information, are in the context of continuing operations and all financial ratios exclude premium taxes.

First Quarter Highlights

    --  Quarter-end managed care at-risk membership of 1,542,500, an increase of
        71,200 members, or 4.8% year over year.
    --  Premium and Service Revenues of $1.2 billion, representing 15.4% year
        over year growth.
    --  Health Benefits Ratio of 83.0%, compared to 84.0% in the prior year.
    --  General and Administrative expense ratio of 13.8%, compared to 13.3% in
        the prior year.
    --  Cash flow from operations of $94.0 million, or 4.1 times net earnings.
    --  Diluted earnings per share from continuing operations of $0.46 (which
        does not include earnings of $0.07 per diluted share as a result of the
        delay in the recognition of our Mississippi contract discussed below),
        compared to $0.41 in the prior year.


In January 2011, we began operating in Mississippi through the Mississippi Coordinated Access Network (MississippiCan) program, serving 33,100 members at March 31, 2011.  While the plan has been operating since January 1, 2011 and we have received monthly premium payments and paid claims, the contract remains subject to CMS approval.  Accordingly, we did not recognize revenue of $54.5 million and associated medical costs, which delayed the recognition of earnings of approximately $0.07 per diluted share.  General and administrative expenses related to the Mississippi operations were recognized in our consolidated statement of operations. Upon CMS approval, the revenues, medical costs and related earnings from our Mississippi operations will be recognized in our consolidated statement of operations in the period final approval is obtained, retroactive to January 1, 2011.

Other Events

    --  In February 2011, we began operating under an agreement with Pima Health
        Systems in Arizona to administer their long-term care program on a
        non-risk basis.
    --  In February 2011, Superior HealthPlan began operating under an
        additional STAR+PLUS ABD contract in Texas in the Dallas service area.
    --  In March 2011, Standard & Poor's raised its counterparty credit and
        senior unsecured debt ratings on Centene Corporation to BB from BB-.
    --  In April 2011, CeltiCare Health Plan of Massachusetts, Inc. announced
        the renewal of its contract with the Commonwealth of Massachusetts to
        serve Commonwealth Care members, effective July 1, 2011. CeltiCare will
        continue to be one of the lowest-cost health plan options for
        low-income, working adults (up to 300% of the federal poverty level)
        enrolled in the Commonwealth Care program.


Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "Our continued focus on fundamentals and enhanced systems capabilities drove solid first quarter performance and a favorable start in a year of opportunity."

The following table depicts membership in Centene's managed care organizations, by state, at March 31, 2011 and 2010:




                              March 31,

                              2011       2010

Arizona                       22,600     21,700

Florida                       188,800    105,900

Georgia                       303,300    301,000

Indiana                       209,400    211,400

Massachusetts                 34,100     26,900

Ohio                          160,900    156,000

South Carolina                84,900     53,900

Texas                         456,700    459,600

Wisconsin                     81,800     134,900

Total at-risk membership (1)  1,542,500  1,471,300

Non-risk membership           10,400     62,200

Total                         1,552,900  1,533,500








(1)In January 2011, we began operating in Mississippi through the Mississippi
Coordinated Access Network (MississippiCan) program, serving 33,100 members at
March 31, 2011. While the plan has been operating since January 1, 2011 and we
have received monthly premium payments and paid claims, the contract remains
subject to CMS approval.





The following table depicts membership in Centene's managed care organizations, by member category, at March 31, 2011 and 2010:




                          March 31,

                          2011       2010

Medicaid                  1,169,700  1,088,300

CHIP & Foster Care        208,900    266,300

ABD & Medicare            123,800    87,100

Hybrid Programs           35,200     26,900

Long-term Care            4,900      2,700

Total at-risk membership  1,542,500  1,471,300

Non-risk membership       10,400     62,200

Total                     1,552,900  1,533,500







Statement of Operations: Three Months Ended March 31, 2011

    --  For the first quarter of 2011, Premium and Service Revenues increased
        15.4% to $1,179.2 million from $1,022.2 million in the first quarter of
        2010. The increase was primarily driven by membership growth resulting
        from acquisitions in Florida and South Carolina, conversion of
        membership in Florida from Access to at-risk under Sunshine State Health
        Plan, as well as premium rate increases.
    --  Consolidated HBR of 83.0% for the first quarter of 2011 represents a
        decrease of 1.0% from the comparable period in 2010. The year over year
        improvement in HBR is due to rate increases and lower utilization levels
        in 2011. Consolidated HBR decreased 0.3% sequentially from the fourth
        quarter of 2010.
    --  Consolidated G&A expense as a percent of premium and service revenues
        was 13.8% in the first quarter of 2011, an increase from 13.3% in the
        first quarter of 2010. The 2011 G&A ratio reflects an increase of 0.6%
        as a result of including general and administrative expenses for
        Mississippi but not recording the Mississippi premium revenue discussed
        above.
    --  Earnings from continuing operations increased to $39.1 million in 2011
        from $29.6 million in 2010, or 32.0% year over year. Net earnings from
        continuing operations were $23.7 million, or $0.46 per diluted share in
        2011, compared to $20.1 million, or $0.41 per diluted share in the first
        quarter of 2010.


Balance Sheet and Cash Flow

At March 31, 2011, the Company had cash and investments of $1,128.0 million, including $1,096.3 million held by its regulated entities and $31.7 million held by its unregulated entities.  Medical claims liabilities totaled $471.7 million, representing 44.4 days in claims payable.  Total debt was $305.4 million and debt to capitalization was 21.4% at March 31, 2011 excluding the $79.6 million non-recourse mortgage note.  Cash flows from operations were $94.0 million, or 4.1 times net earnings.

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, December 31, 2010     45.6

Reduced time of claims processing and payment (0.6)

Reduced utilization                           (0.3)

Pharmacy                                      (0.3)

Days in claims payable, March 31, 2011        44.4









During the first quarter of 2011, we continued to experience increased electronic claims submissions and auto-adjudication of claims which reduced the average time from claims incurred to claims paid by 0.6 days.  Reduced utilization and the related absence of claims payable due to average completion time decreased days in claims payable by 0.3 days.  Days in claims payable was also reduced by 0.3 days as a result of the timing of pharmacy claims payments.  As we continue to experience increasing claims auto-adjudication (5% increase from the fourth quarter 2010 to the first quarter 2011) and EDI submission rates, our targeted range for days in claims payable is under review.

Outlook

The table below depicts the Company's annual guidance from continuing operations for 2011:




                                            Full Year 2011

                                            Low      High

Premium and Service Revenues (in millions)  $ 4,900  $ 5,100

Diluted EPS                                 $ 2.03   $ 2.13

Consolidated HBR                            83.5%    84.5%

General & Administrative expense ratio      12.4%    12.9%



Diluted Shares Outstanding (in thousands)   52,000









Conference Call

As previously announced, the Company will host a conference call Tuesday, April 26, 2011, at 8:30 A.M. (Eastern Time) to review the financial results for the first quarter ended March 31, 2011, 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 1-800-860-2442 in the U.S. and Canada; +1-412-858-4600 from abroad, or via a live, audio webcast on the Company's website at www.centene.com, under the Investors section.  A webcast replay will be available for on-demand listening shortly after the completion of the call for the next twelve months until 11:59 PM (Eastern Time) on Tuesday, April 24, 2012, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 AM Eastern Time on Wednesday, May 4, 2011, by dialing 1-877-344-7529 the U.S. and Canada, or +1-412-317-0088 from abroad, and entering access code 449378.

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/hybrid 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)

                                                    March 31,     December 31,

                                                    2011          2010

ASSETS

Current assets:

Cash and cash equivalents of continuing operations  $ 492,045   $ 433,914

Cash and cash equivalents of discontinued
operations                                            —         252

Total cash and cash equivalents                       492,045     434,166

Premium and related receivables, net of allowance
for uncollectible accounts of $17 and $17,
respectively                                          132,023     136,243

Short-term investments, at fair value (amortized
cost $51,950 and $21,141, respectively)               52,699      21,346

Other current assets                                  67,062      64,154

Current assets of discontinued operations other
than cash                                             —         912

Total current assets                                  743,829     656,821

Long-term investments, at fair value (amortized
cost $548,013 and $585,862, respectively)             556,806     595,879

Restricted deposits, at fair value (amortized cost
$26,502 and $22,755, respectively)                    26,482      22,758

Property, software and equipment, net of
accumulated depreciation of $148,051 and $138,629,
respectively                                          334,180     326,341

Goodwill                                              278,105     278,051

Intangible assets, net                                27,813      29,109

Other long-term assets                                36,470      30,057

Long-term assets of discontinued operations           —         4,866

Total assets                                        $ 2,003,685 $ 1,943,882



Current liabilities:

Medical claims liability                            $ 471,659   $ 456,765

Accounts payable and accrued expenses                 214,900     185,218

Unearned revenue                                      127,451     117,344

Current portion of long-term debt                     3,037       2,817

Current liabilities of discontinued operations        —         3,102

Total current liabilities                             817,047     765,246

Long-term debt                                        302,326     327,824

Other long-term liabilities                           53,116      53,378

Long-term liabilities of discontinued operations      —         379

Total liabilities                                     1,172,489   1,146,827



Commitments and contingencies



Stockholders' equity:

Common stock, $.001 par value; authorized
100,000,000 shares; 52,533,873 issued and
49,965,357 outstanding at March 31, 2011, and
52,172,037 issued and 49,616,824 outstanding at
December 31, 2010                                     53          52

Additional paid-in capital                            396,380     384,206

Accumulated other comprehensive income:

Unrealized gain on investments, net of tax            5,969       6,424

Retained earnings                                     477,488     453,743

Treasury stock, at cost (2,568,516 and 2,555,213
shares, respectively)                                 (50,888)    (50,486)

Total Centene stockholders' equity                    829,002     793,939

Noncontrolling interest                               2,194       3,116

Total stockholders' equity                            831,196     797,055

Total liabilities and stockholders' equity          $ 2,003,685 $ 1,943,882








CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(Unaudited)

                                                   Three Months Ended

                                                   March 31,

                                                   2011           2010

Revenues:

Premium                                            $ 1,152,777    $ 999,315

Service                                              26,384         22,907

Premium and service revenues                         1,179,161      1,022,222

Premium tax                                          37,196         46,499

Total revenues                                       1,216,357      1,068,721

Expenses:

Medical costs                                        957,074        839,708

Cost of services                                     20,176         17,152

General and administrative expenses                  162,581        135,507

Premium tax                                          37,429         46,743

Total operating expenses                             1,177,260      1,039,110

Earnings from operations                             39,097         29,611

Other income (expense):

Investment and other income                          3,749          7,057

Interest expense                                     (5,695)        (3,813)

Earnings from continuing operations, before income
tax expense                                          37,151         32,855

Income tax expense                                   14,328         12,525

Earnings from continuing operations, net of income
tax expense                                          22,823         20,330

Discontinued operations, net of income tax expense
of $0 and $4,440, respectively                       —            3,920

Net earnings                                         22,823         24,250

Noncontrolling interest                              (922)          248

Net earnings attributable to Centene Corporation   $ 23,745       $ 24,002



Amounts attributable to Centene Corporation common
shareholders:

Earnings from continuing operations, net of income
tax expense                                        $ 23,745       $ 20,082

Discontinued operations, net of income tax expense   —            3,920

Net earnings                                       $ 23,745       $ 24,002



Net earnings per share attributable to Centene
Corporation:

Basic:

Continuing operations                              $ 0.48         $ 0.43

Discontinued operations                              —            0.08

Earnings per common share                          $ 0.48         $ 0.51

Diluted:

Continuing operations                              $ 0.46         $ 0.41

Discontinued operations                              —            0.08

Earnings per common share                          $ 0.46         $ 0.49



Weighted average number of shares outstanding:

Basic                                                49,750,430     47,260,714

Diluted                                              51,811,721     48,761,528








CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

                                                  Three Months Ended March 31,

                                                  2011         2010



Cash flows from operating activities:

Net earnings                                      $ 22,823     $ 24,250

Adjustments to reconcile net earnings to net cash
provided by operating activities

Depreciation and amortization                       14,325       12,527

Stock compensation expense                          4,394        3,460

Gain on sale of investments, net                    (118)        (3,547)

Gain on sale of UHP                                 —          (8,201)

Deferred income taxes                               (700)        950

Changes in assets and liabilities

Premium and related receivables                     4,216        (4,457)

Other current assets                                (1,636)      (1,375)

Other assets                                        151          1,937

Medical claims liabilities                          13,430       (33,129)

Unearned revenue                                    10,106       (73,282)

Accounts payable and accrued expenses               26,268       40,433

Other operating activities                          732          1,934

Net cash provided by (used in) operating
activities                                          93,991       (38,500)

Cash flows from investing activities:

Capital expenditures                                (15,725)     (12,520)

Capital expenditures of Centene Center LLC          (1,157)      (10,579)

Purchases of investments                            (40,423)     (146,935)

Proceeds from asset sales                           —          13,420

Sales and maturities of investments                 45,327       117,469

Investments in acquisitions, net of cash acquired   —          (2,019)

Net cash used in investing activities               (11,978)     (41,164)

Cash flows from financing activities:

Proceeds from exercise of stock options             6,518        519

Proceeds from borrowings                            127,300      22,030

Proceeds from stock offering                        —          104,557

Payment of long-term debt                           (152,577)    (97,136)

Distributions to noncontrolling interest            —          (3,585)

Excess tax benefits from stock compensation         1,132        96

Common stock repurchases                            (402)        (480)

Debt issue costs                                    (6,105)      —

Net cash (used in) provided by financing
activities                                          (24,134)     26,001

Net increase (decrease) in cash and cash
equivalents                                         57,879       (53,663)

Cash and cash equivalents, beginning of period      434,166      403,752

Cash and cash equivalents, end of period          $ 492,045    $ 350,089



Supplemental disclosures of cash flow
information:

Interest paid                                     $ 1,714      $ 345

Income taxes paid                                 $ 9,567      $ 8,272



Supplemental disclosure of non-cash investing and
financing activities:

Contribution from noncontrolling interest         $ —        $ 306

Capital expenditures                              $ 1,477      $ 789








CENTENE CORPORATION



CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA



                          Q1         Q4         Q3         Q2         Q1

                          2011       2010       2010       2010       2010

MEMBERSHIP

Managed Care:

Arizona                   22,600     22,400     22,300     22,100     21,700

Florida                   188,800    194,900    116,300    113,100    105,900

Georgia                   303,300    305,800    300,900    295,600    301,000

Indiana                   209,400    215,800    213,300    212,700    211,400

Massachusetts             34,100     36,200     34,400     30,100     26,900

Ohio                      160,900    160,100    161,800    159,300    156,000

South Carolina            84,900     90,300     90,600     92,600     53,900

Texas                     456,700    433,100    428,100    475,500    459,600

Wisconsin                 81,800     74,900     106,100    133,600    134,900

Total at-risk membership
(a)                       1,542,500  1,533,500  1,473,800  1,534,600  1,471,300

Non-risk membership       10,400     4,200      35,900     50,900     62,200

TOTAL                     1,552,900  1,537,700  1,509,700  1,585,500  1,533,500



(a) In January 2011, we began operating in Mississippi through the Mississippi
Coordinated Access Network (MississippiCan) program, serving 33,100 members at
March 31, 2011. While the plan has been operating since January 1, 2011 and we
have received monthly premium payments and paid claims, the contract remains
subject to CMS approval.



Medicaid                  1,169,700  1,177,100  1,122,800  1,135,500  1,088,300

CHIP & Foster Care        208,900    210,500    219,100    272,400    266,300

ABD & Medicare            123,800    104,600    94,500     93,800     87,100

Hybrid Programs           35,200     36,200     34,400     30,100     26,900

Long-term Care            4,900      5,100      3,000      2,800      2,700

Total at-risk membership  1,542,500  1,533,500  1,473,800  1,534,600  1,471,300

Non-risk membership       10,400     4,200      35,900     50,900     62,200

TOTAL                     1,552,900  1,537,700  1,509,700  1,585,500  1,533,500



Specialty Services(b):

Cenpatico Behavioral
Health

Arizona                   172,700    174,600    121,300    119,700    119,300

Kansas                    44,000     39,200     39,800     39,100     39,800

TOTAL                     216,700    213,800    161,100    158,800    159,100



(b) Includes external membership
only.



REVENUE PER MEMBER PER
MONTH(c)                  $ 238.31   $ 239.66   $ 224.62   $ 218.40   $ 219.90



CLAIMS(c)

Period-end inventory      527,100    434,900    469,000    480,400    341,400

Average inventory         347,900    304,700    307,500    306,900    283,900

Period-end inventory per
member                    0.34       0.28       0.32       0.31       0.23

(c) Revenue per member and claims information are presented for the Managed
Care at-risk members.










                               Q1         Q4         Q3       Q2       Q1

                               2011       2010       2010     2010     2010



DAYS IN CLAIMS PAYABLE         44.4       45.6       47.1     48.2     47.7

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                      $ 1,096.3  $ 1,043.0  $ 895.4  $ 813.0  $ 917.9

Unregulated                      31.7       30.9       32.7     39.4     51.3

TOTAL                          $ 1,128.0  $ 1,073.9  $ 928.1  $ 852.4  $ 969.2



DEBT TO CAPITALIZATION         26.9%      29.3%      24.7%    24.5%    23.7%

DEBT TO CAPITALIZATION
EXCLUDING NON-RECOURSE DEBT(d) 21.4%      23.9%

Debt to Capitalization is calculated as follows: total debt divided by (total
debt + total equity).

(d) The non-recourse debt represents our mortgage note payable of $79.6
million at March 31, 2011 and $80.0 million at December 31, 2010.








OPERATING RATIOS:

                                             Three Months Ended March 31,

                                             2011     2010

Health Benefits Ratios:

Medicaid and CHIP                            82.4 %   85.6 %

ABD and Medicare                             85.1     80.3

Specialty Services                           82.7     80.6

Total                                        83.0     84.0



Total General & Administrative Expense Ratio 13.8 %   13.3 %








MEDICAL CLAIMS LIABILITY (In thousands)

The changes in medical claims liability are summarized as follows:



Balance, March 31, 2010 $ 444,826

Incurred related to:

Current period            3,697,199

Prior period              (65,439)

Total incurred            3,631,760

Paid related to:

Current period            3,234,366

Prior period              370,561

Total paid                3,604,927

Balance, March 31, 2011 $ 471,659







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 March 31, 2010.

SOURCE Centene Corporation