Centene Corporation Reports 2010 Fourth Quarter and Full Year Earnings
ST. LOUIS, Feb. 8, 2011 /PRNewswire/ -- Centene Corporation (NYSE: CNC) today announced its financial results for the quarter and year ended December 31, 2010. The discussions below, with the exception of cash flow information, are in the context of continuing operations and all financial ratios exclude premium taxes.
2010 Highlights
Q4 Full Year
Premium and Service Revenues (in millions) $ 1,129.5 $ 4,283.8
Consolidated HBR 83.3 % 83.8 %
General & Administrative expense ratio 13.0 % 12.8 %
Diluted EPS $ 0.50 $ 1.80
Cash flow from operations (in millions) $ 194.6 $ 168.9
Fourth Quarter Highlights
-- Quarter-end managed care at-risk membership of 1,533,500, an increase of
75,300 members, or 5.2% year over year.
-- Premium and Service Revenues of $1,129.5 million, representing 7.5% year
over year growth.
-- Health Benefits Ratio of 83.3%, compared to 83.9% in the prior year.
-- General and Administrative expense ratio of 13.0%, compared to 12.7% in
the prior year.
-- Cash flow from operations of $194.6 million.
-- Days in claims payable of 45.6.
-- Diluted earnings per share from continuing operations of $0.50 (which
includes the dilution from the stock offering in early 2010), compared
to $0.53 in the prior year.
-- Debt to capitalization of 29.3%, or 23.9% excluding the $80.0 million
non-recourse mortgage note.
Other Events
-- During the fourth quarter of 2010, we completed the conversion of
approximately 22,500 Florida members from Access Health Solutions LLC to
our subsidiary, Sunshine State Health Plan, on an at-risk basis.
Additionally, in December 2010, we completed the acquisition of Citrus
Health Care, Inc., a Florida Medicaid and Long-term Care health plan. We
served 194,900 at-risk members in Florida as of December 31, 2010.
-- In December 2010, we refinanced the construction loan related to our
corporate headquarters development with an $80 million non-recourse
mortgage loan. In January 2011, we refinanced our $300 million Revolving
Credit Facility with a new $350 million unsecured Revolving Credit
Facility.
-- In December 2010, Cenpatico Behavioral Health of Arizona began operating
under an expanded contract to manage behavioral healthcare services in
an additional four counties.
-- In December 2010, one of our highly regarded health programs, Start
Smart for Your Baby, was the recipient of the URAC/GKEN International
Health Promotion Award for Community Health. Start Smart for Your Baby
also received a gold award at the 2010 Web Health Awards for its audio
book and a merit award for its podcasts.
-- In January 2011, Magnolia Health Plan began operating under a new
contract in Mississippi to provide managed care services to Medicaid
recipients through the Mississippi Coordinated Access Network
(MississippiCAN) Program.
-- In January 2011, we entered into 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.
Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "Our team's coordinated and consistent efforts produced solid financial and operational performance in 2010, setting the stage for continued success in 2011."
The following table depicts membership in Centene's managed care organizations, by state, at December 31, 2010 and 2009:
December 31,
2010 2009
Arizona 22,400 20,700
Florida 194,900 102,600
Georgia 305,800 309,700
Indiana 215,800 208,100
Massachusetts 36,200 27,800
Ohio 160,100 150,800
South Carolina 90,300 48,600
Texas 433,100 455,100
Wisconsin 74,900 134,800
Total at-risk membership 1,533,500 1,458,200
Non-risk membership 4,200 63,700
Total 1,537,700 1,521,900
The following table depicts membership in Centene's managed care organizations, by member category, at December 31, 2010 and 2009:
December 31,
2010 2009
Medicaid 1,177,100 1,081,400
CHIP & Foster Care 210,500 263,600
ABD & Medicare 104,600 82,800
Hybrid Programs 36,200 27,800
Long-term Care 5,100 2,600
Total at-risk membership 1,533,500 1,458,200
Non-risk membership 4,200 63,700
Total 1,537,700 1,521,900
Statement of Operations: Three Months Ended December 31, 2010
-- For the fourth quarter of 2010, Premium and Service Revenues increased
7.5% to $1,129.5 million from $1,050.8 million in the fourth quarter of
2009. 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 in 2010. This increase was
moderated by the removal of pharmacy service in two states in 2010.
These pharmacy carve outs had the effect of reducing 2010 fourth quarter
revenue by approximately $52 million.
-- Consolidated HBR of 83.3% for the fourth quarter of 2010 represents a
decrease of 0.6% from the comparable period in 2009. The year over year
improvement in HBR is due to rate increases, decreased costs associated
with the flu and better performance in our Florida health plan.
Consolidated HBR decreased 0.9% sequentially from the third quarter of
2010. The improvement in HBR was due to the impact of rate increases in
several markets and improvements in our Florida health plan.
-- Consolidated G&A expense as a percent of premium and service revenues
was 13.0% in the fourth quarter of 2010, an increase from 12.7% in the
fourth quarter of 2009. The increase in the G&A ratio between years
reflects increased business expansion costs, including Mississippi,
Dallas STAR+PLUS and Illinois.
-- Earnings from continuing operations increased to $45.5 million in 2010
from $37.8 million in 2009, or 20.4% year over year. Net earnings from
continuing operations were $25.5 million, or $0.50 per diluted share in
2010 (which includes the dilution from the stock offering in early
2010), compared to $23.7 million, or $0.53 per diluted share in the
fourth quarter of 2009.
Statement of Operations: Year Ended December 31, 2010
-- For the year ended December 31, 2010, Premium and Service Revenues
increased 10.5% to $4.3 billion in 2010 from $3.9 billion in 2009. This
reflects a 13.6% increase in member months, offset by reduced revenue of
$185 million as a result of pharmacy carve outs in 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 in 2010.
-- The consolidated HBR of 83.8% for 2010 represented a 0.3% increase from
the 2009 consolidated HBR of 83.5%. The increase is primarily due to the
growth in our Florida health plan where we have experienced a higher
HBR.
-- G&A expenses as a percent of Premium and Service Revenues decreased to
12.8% in 2010, compared to 13.3% in 2009. The decrease primarily
reflects the leveraging of our expenses over higher revenues, partially
offset by increased business expansion costs.
-- Earnings from continuing operations increased to $157.1 million in 2010
from $138.1 million in 2009, or 13.7% year over year. Net earnings from
continuing operations were $90.9 million, or $1.80 per diluted share in
2010 (which includes the dilution from the stock offering in early
2010), compared to $86.1 million, or $1.94 per diluted share in 2009.
Balance Sheet and Cash Flow
At December 31, 2010, the Company had cash and investments of $1,073.9 million, including $1,043.0 million held by its regulated entities and $30.9 million held by its unregulated entities. Medical claims liabilities totaled $456.8 million, representing 45.6 days in claims payable. Total debt was $330.6 million and debt to capitalization was 29.3%. Excluding the $80.0 million non-recourse mortgage note, our debt to capital ratio is 23.9%. Full year 2010 cash flow from operations was $168.9 million, or 1.7 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, September 30, 2010 47.1 Reduced time of claims processing and payment (1.4) Other (0.1) Days in claims payable, December 31, 2010 45.6
During the fourth quarter of 2010, we experienced increased electronic claims submissions and auto-adjudication of claims which reduced the average time from claims incurred to claims paid by 1.4 days, which is reflected in the decrease in period end claims inventory from the third quarter as presented in Supplemental Financial Data included in this release. We expect our days in claims payable to be within our targeted range of 43 to 48 days in 2011. This may be higher from time to time as we have new plans begin operations.
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 $ 2.00 $ 2.10
Consolidated HBR 84.0% 85.0%
General & Administrative expense ratio 12.0% 12.5%
Diluted Shares Outstanding (in thousands) 51,500
Conference Call
As previously announced, the Company will host a conference call Tuesday, February 8, 2011, at 8:30 A.M. (Eastern Time) to review the financial results for the fourth quarter ended December 31, 2010, 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 1-877-887-1134 in the U.S. and Canada; 1-412-317-0794 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, February 7, 2012, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 AM Eastern Time on Wednesday, February 16, 2011, by dialing 1-877-344-7529 the U.S. and Canada, or 1-412-317-0088 from abroad, and entering access code 447292.
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)
December 31, December 31,
2010 2009
ASSETS
Current assets:
Cash and cash equivalents of continuing
operations $ 433,914 $ 400,951
Cash and cash equivalents of discontinued
operations 252 2,801
Total cash and cash equivalents 434,166 403,752
Premium and related receivables, net of allowance
for uncollectible accounts of $17 and $1,338,
respectively 136,243 103,456
Short-term investments, at fair value (amortized
cost $21,141 and $39,230, respectively) 21,346 39,554
Other current assets 64,154 64,866
Current assets of discontinued operations other
than cash 912 4,506
Total current assets 656,821 616,134
Long-term investments, at fair value (amortized
cost $585,862 and $514,256, respectively) 595,879 525,497
Restricted deposits, at fair value (amortized
cost $22,755 and $20,048, respectively) 22,758 20,132
Property, software and equipment, net of
accumulated depreciation of $138,629 and
$103,883, respectively 326,341 230,421
Goodwill 278,051 224,587
Intangible assets, net 29,109 22,479
Other long-term assets 30,057 36,829
Long-term assets of discontinued operations 4,866 26,285
Total assets $ 1,943,882 $ 1,702,364
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Medical claims liability $ 456,765 $ 470,932
Accounts payable and accrued expenses 185,218 132,001
Unearned revenue 117,344 91,644
Current portion of long-term debt 2,817 646
Current liabilities of discontinued operations 3,102 20,685
Total current liabilities 765,246 715,908
Long-term debt 327,824 307,085
Other long-term liabilities 53,378 59,561
Long-term liabilities of discontinued operations 379 383
Total liabilities 1,146,827 1,082,937
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value; authorized
100,000,000 shares; and 52,172,037 issued and
49,616,824 outstanding at December 31, 2010, and
45,593,383 issued and 43,179,373 outstanding
shares at December 31, 2009 52 46
Additional paid-in capital 384,206 281,806
Accumulated other comprehensive income:
Unrealized gain on investments, net of tax 6,424 7,348
Retained earnings 453,743 358,907
Treasury stock, at cost (2,555,213 and 2,414,010
shares, respectively) (50,486) (47,262)
Total Centene stockholders' equity 793,939 600,845
Noncontrolling interest 3,116 18,582
Total stockholders' equity 797,055 619,427
Total liabilities and stockholders' equity $ 1,943,882 $ 1,702,364
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
2010 2009 2010 2009
Revenues:
Premium $ 1,106,370 $ 1,031,812 $ 4,192,172 $ 3,786,525
Service 23,118 19,018 91,661 91,758
Premium and service
revenues 1,129,488 1,050,830 4,283,833 3,878,283
Premium tax 51,481 41,896 164,490 224,581
Total revenues 1,180,969 1,092,726 4,448,323 4,102,864
Expenses:
Medical costs 922,070 865,415 3,514,394 3,163,523
Cost of services 16,414 14,425 63,919 60,789
General and
administrative
expenses 146,751 133,005 547,823 514,529
Premium tax 50,233 42,103 165,118 225,888
Total operating
expenses 1,135,468 1,054,948 4,291,254 3,964,729
Earnings from
operations 45,501 37,778 157,069 138,135
Other income
(expense):
Investment and other
income 3,293 3,910 15,205 15,691
Interest expense (5,452) (4,108) (17,992) (16,318)
Earnings from
continuing
operations, before
income tax expense 43,342 37,580 154,282 137,508
Income tax expense 16,958 13,781 59,900 48,841
Earnings from
continuing
operations, net of
income tax expense 26,384 23,799 94,382 88,667
Discontinued
operations, net of
income tax expense
(benefit) of $12, $
(56), $4,388 and $
(1,204), respectively (65) (28) 3,889 (2,422)
Net earnings 26,319 23,771 98,271 86,245
Noncontrolling
interest 920 56 3,435 2,574
Net earnings
attributable to
Centene Corporation $ 25,399 $ 23,715 $ 94,836 $ 83,671
Amounts attributable
to Centene
Corporation common
shareholders:
Earnings from
continuing
operations, net of
income tax expense $ 25,464 $ 23,743 $ 90,947 $ 86,093
Discontinued
operations, net of
income tax (benefit)
expense (65) (28) 3,889 (2,422)
Net earnings $ 25,399 $ 23,715 $ 94,836 $ 83,671
Net earnings (loss)
per share
attributable to
Centene Corporation:
Basic:
Continuing operations $ 0.52 $ 0.55 $ 1.87 $ 2.00
Discontinued
operations — — 0.08 (0.06)
Earnings per common
share $ 0.52 $ 0.55 $ 1.95 $ 1.94
Diluted:
Continuing operations $ 0.50 $ 0.53 $ 1.80 $ 1.94
Discontinued
operations — — 0.08 (0.05)
Earnings per common
share $ 0.50 $ 0.53 $ 1.88 $ 1.89
Weighted average
number of shares
outstanding:
Basic 49,356,768 43,068,502 48,754,947 43,034,791
Diluted 51,205,720 44,513,679 50,447,888 44,316,467
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
Year Ended December 31,
2010 2009
Cash flows from operating activities:
Net earnings $ 98,271 $ 86,245
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 52,000 44,004
Stock compensation expense 13,874 14,634
(Gain) loss on sale of investments, net (6,337) (141)
(Gain) on sale of UHP (8,201) —
Impairment loss 5,531 —
Deferred income taxes 10,317 3,696
Changes in assets and liabilities:
Premium and related receivables (23,359) 2,379
Other current assets (3,240) (1,263)
Other assets (2,028) 9
Medical claims liability (30,421) 79,000
Unearned revenue 25,700 78,345
Accounts payable and accrued expenses 37,398 (60,915)
Other operating activities (573) 2,202
Net cash provided by operating activities 168,932 248,195
Cash flows from investing activities:
Capital expenditures (63,304) (23,721)
Capital expenditures of Centene Center LLC (55,252) (59,392)
Purchase of investments (615,506) (791,194)
Sales and maturities of investments 570,423 642,783
Proceeds from asset sales 13,420 —
Investments in acquisitions, net of cash acquired,
and investment in equity method investee (60,388) (38,563)
Net cash used in investing activities (210,607) (270,087)
Cash flows from financing activities:
Proceeds from exercise of stock options 3,419 2,365
Proceeds from borrowings 218,538 659,059
Proceeds from stock offering 104,534 —
Payment of long-term debt (195,728) (616,219)
Purchase of noncontrolling interest (48,257) —
Distributions (to) from noncontrolling interest (7,387) 8,049
Excess tax benefits from stock compensation 963 53
Common stock repurchases (3,224) (6,304)
Debt issue costs (769) (458)
Net cash provided by financing activities 72,089 46,545
Net increase in cash and cash equivalents 30,414 24,653
Cash and cash equivalents, beginning of period 403,752 379,099
Cash and cash equivalents, end of period $ 434,166 $ 403,752
Supplemental disclosures of cash flow information:
Interest paid $ 17,296 $ 15,428
Income taxes paid $ 53,938 $ 52,928
Supplemental disclosure of non-cash investing and
financing activities:
Contribution from noncontrolling interest $ 306 $ 5,875
Capital expenditures $ 8,720 $ (1,476)
CENTENE CORPORATION
CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA
Q4 Q3 Q2 Q1 Q4
2010 2010 2010 2010 2009
MEMBERSHIP
Managed Care:
Arizona 22,400 22,300 22,100 21,700 20,700
Florida 194,900 116,300 113,100 105,900 102,600
Georgia 305,800 300,900 295,600 301,000 309,700
Indiana 215,800 213,300 212,700 211,400 208,100
Massachusetts 36,200 34,400 30,100 26,900 27,800
Ohio 160,100 161,800 159,300 156,000 150,800
South Carolina 90,300 90,600 92,600 53,900 48,600
Texas 433,100 428,100 475,500 459,600 455,100
Wisconsin 74,900 106,100 133,600 134,900 134,800
Total at-risk
membership 1,533,500 1,473,800 1,534,600 1,471,300 1,458,200
Non-risk membership 4,200 35,900 50,900 62,200 63,700
TOTAL 1,537,700 1,509,700 1,585,500 1,533,500 1,521,900
Medicaid 1,177,100 1,122,800 1,135,500 1,088,300 1,081,400
CHIP & Foster Care 210,500 219,100 272,400 266,300 263,600
ABD & Medicare 104,600 94,500 93,800 87,100 82,800
Hybrid Programs 36,200 34,400 30,100 26,900 27,800
Long-term Care 5,100 3,000 2,800 2,700 2,600
Total at-risk
membership 1,533,500 1,473,800 1,534,600 1,471,300 1,458,200
Non-risk membership 4,200 35,900 50,900 62,200 63,700
TOTAL 1,537,700 1,509,700 1,585,500 1,533,500 1,521,900
Specialty Services (a):
Cenpatico Behavioral
Health
Arizona 174,600 121,300 119,700 119,300 120,100
Kansas 39,200 39,800 39,100 39,800 41,400
TOTAL 213,800 161,100 158,800 159,100 161,500
(a) Includes external membership
only.
REVENUE PER MEMBER PER
MONTH (b) $ 239.66 $ 224.62 $ 218.40 $ 219.90(c) $ 233.66
CLAIMS(b)
Period-end inventory 434,900 469,000 480,400 341,400 423,400
Average inventory 304,700 307,500 306,900 283,900 279,000
Period-end inventory
per member 0.28 0.32 0.31 0.23 0.29
(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.
Q4 Q3 Q2 Q1 Q4
2010 2010 2010 2010 2009
DAYS IN CLAIMS PAYABLE
Medical 44.5 46.0 47.2 46.6 48.1
Pharmacy 1.1 1.1 1.0 1.1 2.0
TOTAL 45.6 47.1 48.2 47.7 50.1
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 $ 1,043.0 $ 895.4 $ 813.0 $ 917.9 $ 949.9
Unregulated 30.9 32.7 39.4 51.3 36.2
TOTAL $ 1,073.9 $ 928.1 $ 852.4 $ 969.2 $ 986.1
DEBT TO CAPITALIZATION 29.3% 24.7% 24.5% 23.7% 33.2%
DEBT TO CAPITALIZATION EXCLUDING
NON-RECOURSE DEBT (d) 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 $80.0
million at December 31, 2010.
Operating Ratios:
Three Months Ended Year Ended
December 31, December 31,
2010 2009 2010 2009
Health Benefits Ratios:
Medicaid and CHIP 82.4 % 85.3 % 83.6 % 84.6 %
ABD and Medicare 86.8 79.9 85.0 81.1
Specialty Services 83.4 81.8 83.4 80.2
Total 83.3 83.9 83.8 83.5
Total General & Administrative Expense
Ratio 13.0 % 12.7 % 12.8 % 13.3 %
MEDICAL CLAIMS LIABILITY (In thousands) The changes in medical claims liability are summarized as follows: Balance, December 31, 2009 $ 470,932 Incurred related to: Current period 3,582,463 Prior period (68,069) Total incurred 3,514,394 Paid related to: Current period 3,133,527 Prior period 395,034 Total paid 3,528,561 Balance, December 31, 2010 $ 456,765
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 December 31, 2009.
SOURCE Centene Corporation
Released February 8, 2011