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
Released April 26, 2011