Centene Corporation Reports $0.44 Earnings Per Diluted Share for the Third Quarter 2010; $0.48 From Operations Excluding a $0.04 Charge for Net Investment Writedowns

ST. LOUIS, Oct. 26 /PRNewswire-FirstCall/ -- Centene Corporation (NYSE: CNC) today announced net earnings from continuing operations for the quarter ended September 30, 2010, of $22.4 million, or $0.44 per diluted share; $0.48 from operations excluding a $0.04 charge for net investment writedowns.  The discussions below, with the exception of cash flow information, are in the context of continuing operations and all financial ratios exclude premium taxes.

Third Quarter Highlights

    --  Quarter-end managed care at-risk membership of 1,470,800, an increase of
        84,400 members, or 6.1% year over year.
    --  Premium and Service Revenues of $1.082 billion, representing 9.5% year
        over year growth.
    --  Health Benefits Ratio (HBR) of 84.2%, compared to 83.7% in the prior
        year.
    --  General and Administrative (G&A) expense ratio of 12.2%, compared to
        13.2% in the prior year.
    --  Earnings from operations of $40.2 million, compared to $38.0 million in
        the prior year.
    --  Earnings from continuing operations, net of income tax expense, of $22.4
        million.
    --  Diluted earnings per share from continuing operations of $0.44,
        including a $0.07 charge per diluted share related to an impairment of
        an investment in a software company and realized security gains of $0.03
        per diluted share recognized during the third quarter of 2010.
    --  Cash flows from operations of $72.6 million, which is 3.2 times net
        earnings from continuing operations.
    --  Days in claims payable of 47.1, including pharmacy claims payable.


Other Events

    --  In April 2010, we began offering an individual insurance product, under
        the names of Commonwealth Choice and CeltiCare Direct, for residents of
        Boston and surrounding cities who do not qualify for other state funded
        insurance programs.
    --  In July 2010, we closed on the acquisition of certain assets of NovaSys
        Health, LLC, a leading third party administrator in Arkansas that
        complements our existing Celtic business.
    --  In August 2010, we announced the acquisition in Florida of certain
        assets in non-reform counties of Citrus Health Care, Inc., a Medicaid
        and long-term care health plan. We expect the transaction to close at
        year end.
    --  In September 2010, Celtic Insurance Company, Inc. was awarded a contract
        with the Texas Department of Insurance to provide affordable health
        insurance plans for Texas small businesses under the new Healthy Texas
        initiative. We expect operations to commence during the fourth quarter
        of 2010.
    --  In September 2010, our new subsidiary, IlliniCare Health Plan, was
        selected as one of two vendors to provide managed care services to older
        adults and adults with disabilities under the Integrated Care Program in
        six counties of Illinois. We expect operations to commence in the first
        half of 2011.
    --  In October 2010, one of our highly regarded health programs, Start Smart
        for Your Baby®, won the Platinum Award for Consumer Empowerment at the
        URAC Quality Summit. Also in October, Absolute Total Care, our South
        Carolina health plan, received the prestigious New Health Plan
        accreditation from the National Committee for Quality Assurance (NCQA),
        a private, not-for-profit organization that sets standards for
        monitoring and improving healthcare quality.


Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "A strong operational quarter and exceptional new business activity set the stage for meaningful 2011 performance."

The following table depicts membership in Centene's managed care organizations, by state:




                         September 30,

                          2010       2009

Arizona                   19,300     17,400

Florida                   116,300    84,400

Georgia                   300,900    303,400

Indiana                   213,300    200,700

Massachusetts             34,400     500

Ohio                      161,800    151,200

South Carolina            90,600     46,100

Texas                     428,100    450,200

Wisconsin                 106,100    132,500

Total at-risk membership  1,470,800  1,386,400

Non-risk membership       35,900     63,200

Total                     1,506,700  1,449,600







The following table depicts membership in Centene's managed care organizations, by member category:




                         September 30,

                          2010       2009

Medicaid                  1,122,800  1,040,000

CHIP & Foster Care        219,100    263,400

ABD & Medicare            94,500     82,500

Other State programs      34,400     500

Total at-risk membership  1,470,800  1,386,400

Non-risk membership       35,900     63,200

Total                     1,506,700  1,449,600







Statement of Operations

    --  Premium and service revenues increased 9.5% for the three months ended
        September 30, 2010 over 2009 as a result of membership growth and net
        premium rate increases. This increase was moderated by the removal of
        pharmacy services in two states in 2010. These pharmacy carve outs had
        the effect of reducing 2010 third quarter revenue by approximately $48
        million.
    --  The consolidated HBR for the three months ended September 30, 2010 of
        84.2% was an increase of 0.5% over the comparable period in 2009. A
        reconciliation of the change in HBR from the prior year is presented
        below:





 Third Quarter 2009              83.7  %


 Florida health plan performance 0.9

 Net changes in other markets    (0.4)

 Third Quarter 2010              84.2  %










    --  Consolidated G&A expense as a percent of premium and service revenues
        was 12.2% in the third quarter of 2010, a decrease from 13.2% in the
        third quarter of 2009. The decrease in G&A ratio is primarily a result
        of leveraging our expenses over higher revenues and decreased variable
        compensation expense during the quarter ended September 30, 2010.
    --  Earnings per diluted share from continuing operations were $0.44,
        compared to $0.51 in the third quarter of 2009, including a $0.07 charge
        per diluted share related to an impairment of an investment in a
        software company and realized security gains of $0.03 per diluted share
        recognized during the third quarter of 2010. Earnings per diluted share
        also reflect an increase in diluted shares outstanding resulting from
        the first quarter 2010 stock offering.


Balance Sheet and Cash Flow

At September 30, 2010, we had cash and investments of $928.1 million, including $895.4 million held by our regulated entities and $32.7 million held by our unregulated entities.  Medical claims liabilities totaled $457.1 million, representing 47.1 days in claims payable, a decrease of 1.1 days from June 30, 2010.  Total debt was $264.2 million and debt to capitalization was 24.7%.  

Cash flow from operations for the quarter ended September 30, 2010 was $72.6 million.  Cash flow from operations for the nine months ended September 30, 2010 was $(25.7) million and was impacted by 1) $38.7 million decrease in unearned revenue due to advance payments received in December 2009 for January 2010 premium payments and 2) $68.1 million increase in premium and related receivables primarily for September premium payments deferred by one state until October 2010.  

A reconciliation of the change in days in claims payable from the immediately preceding quarter-end is presented below:




Days in claims payable, June 30, 2010      48.2

Timing of claims payments                  (0.9)

Impact of decrease in membership           (0.3)

Pharmacy payment timing                    0.1

Days in claims payable, September 30, 2010 47.1









Outlook

The table below depicts our guidance from continuing operations for 2010:




                                            Full Year 2010

                                            Low      High

Premium and Service revenues (in millions)  $ 4,250  $ 4,350

Earnings per diluted share (EPS)            $ 1.76   $ 1.80

HBR %                                       83.5%    84.5%

G&A %                                       12.4%    12.9%



Diluted Shares Outstanding (in thousands)   50,500









Based upon known rate adjustments and discussions with our states that finalize rates in the second half of the year, we estimate our 2010 composite premium rate increase to be between 1.5% and 2.5%.

Conference Call

As previously announced, we will host a conference call Tuesday, October 26, 2010, at 8:30 A.M. (Eastern Time) to review the financial results for the third quarter ended September 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 877-887-1134 in the U.S. and Canada; +1-412-317-0794 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, October 25, 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 444970.

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.  

This release includes earnings per diluted share excluding certain charges for net investment writedowns, which is a non-GAAP financial measure.  Management believes that this non-GAAP financial measure provides information that is useful to investors in understanding period-over-period operating results and enhances the ability of investors to analyze Centene's business trends and to understand Centene's performance.  This non-GAAP financial measure should not be considered in isolation, or as a substitute for the corresponding GAAP financial measure and may not be comparable to similar measures used by other companies.


[Tables Follow]





CENTENE CORPORATION AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

                                                  September 30,   December 31,

                                                  2010            2009

ASSETS

Current assets:

Cash and cash equivalents of continuing
operations, including $5,389 and $8,667,
respectively, from consolidated variable
interest entities                                 $ 397,519     $ 400,951

Cash and cash equivalents of discontinued
operations                                          147           2,801

Total cash and cash equivalents                     397,666       403,752

Premium and related receivables, net of
allowance for uncollectible accounts of $1,336
and $1,338, respectively, including $3,208 and
$11,313, respectively, from consolidated
variable interest entities                          182,379       103,456

Short-term investments, at fair value (amortized
cost $30,667 and $39,230, respectively)             30,857        39,554

Other current assets, including $2,023 and
$4,507, respectively, from consolidated variable
interest entities                                   63,408        64,866

Current assets of discontinued operations other
than cash                                           1,678         4,506

Total current assets                                675,988       616,134

Long-term investments, at fair value (amortized
cost $463,877 and $514,256, respectively)           479,164       525,497

Restricted deposits, at fair value (amortized
cost $20,527 and $20,048, respectively)             20,589        20,132

Property, software and equipment, net of
accumulated depreciation of $127,969 and
$103,883, respectively, including $138,008 and
$89,219, respectively, from consolidated
variable interest entities                          311,195       230,421

Goodwill                                            247,757       224,587

Intangible assets, net                              24,608        22,479

Other long-term assets, including $2,806 and
$30, respectively, from consolidated variable
interest entities                                   28,398        36,829

Long-term assets of discontinued operations         7,478         26,285

Total assets                                      $ 1,795,177   $ 1,702,364

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Medical claims liability                          $ 457,085     $ 470,932

Accounts payable and accrued expenses, including
$20,926 and $14,020, respectively, from
consolidated variable interest entities             145,877       132,001

Unearned revenue                                    52,936        91,644

Current portion of long-term debt                   663           646

Current liabilities of discontinued operations      4,531         20,685

Total current liabilities                           661,092       715,908

Long-term debt                                      263,513       307,085

Other long-term liabilities                         66,355        59,561

Long-term liabilities of discontinued operations    285           383

Total liabilities                                   991,245       1,082,937



Commitments and contingencies



Stockholders' equity:

Common stock, $.001 par value; authorized
100,000,000 shares; 51,716,723 issued and
49,265,875 outstanding at September 30, 2010,
and 45,593,383 shares issued and 43,179,373
shares outstanding at December 31, 2009             52            46

Additional paid-in capital                          400,213       281,806

Accumulated other comprehensive income:

Net unrealized gain on investments, net of tax      9,661         7,348

Retained earnings                                   428,344       358,907

Treasury stock, at cost (2,450,848 and 2,414,010
shares, respectively)                               (47,976)      (47,262)

Total Centene Corporation stockholders' equity      790,294       600,845

Noncontrolling interest                             13,638        18,582

Total stockholders' equity                          803,932       619,427

Total liabilities and stockholders' equity        $ 1,795,177   $ 1,702,364








CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(Unaudited)



                      Three Months Ended           Nine Months Ended

                      September 30,                September 30,

                      2010           2009          2010           2009

Revenues:

Premium               $ 1,060,559    $ 960,009     $ 3,085,802    $ 2,754,713

Service                 20,954         27,300        68,543         72,740

Premium and service
revenues                1,081,513      987,309       3,154,345      2,827,453

Premium tax             40,348         50,925        113,009        182,685

Total revenues          1,121,861      1,038,234     3,267,354      3,010,138

Expenses:

Medical costs           893,281        803,062       2,592,324      2,298,108

Cost of services        14,646         15,843        47,505         46,364

General and
administrative
expenses                132,095        130,024       401,072        381,524

Premium tax             41,591         51,295        114,885        183,785

Total operating
expenses                1,081,613      1,000,224     3,155,786      2,909,781

Earnings from
operations              40,248         38,010        111,568        100,357

Other income
(expense):

Investment and other
income                  713            3,750         11,912         11,781

Interest expense        (4,858)        (4,064)       (12,540)       (12,210)

Earnings from
continuing
operations, before
income tax expense      36,103         37,696        110,940        99,928

Income tax expense      13,163         12,426        42,942         35,060

Earnings from
continuing
operations, net of
income tax expense      22,940         25,270        67,998         64,868

Discontinued
operations, net of
income tax expense
(benefit) of $26, $
(792), $4,376 and $
(1,148), respectively   260            (1,460)       3,954          (2,394)

Net earnings            23,200         23,810        71,952         62,474

Noncontrolling
interest                538            2,542         2,515          2,518

Net earnings
attributable to
Centene Corporation   $ 22,662       $ 21,268      $ 69,437       $ 59,956



Amounts attributable
to Centene
Corporation common
stockholders:

Earnings from
continuing
operations, net of
income tax expense    $ 22,402       $ 22,728      $ 65,483       $ 62,350

Discontinued
operations, net of
income tax expense
(benefit)               260            (1,460)       3,954          (2,394)

Net earnings          $ 22,662       $ 21,268      $ 69,437       $ 59,956



Net earnings (loss)
per common share
attributable to
Centene Corporation:

Basic:

Continuing operations $ 0.46         $ 0.53        $ 1.35         $ 1.45

Discontinued
operations              —            (0.04)        0.08           (0.06)

Earnings per common
share                 $ 0.46         $ 0.49        $ 1.43         $ 1.39

Diluted:

Continuing operations $ 0.44         $ 0.51        $ 1.30         $ 1.41

Discontinued
operations              —            (0.03)        0.08           (0.05)

Earnings per common
share                 $ 0.44         $ 0.48        $ 1.38         $ 1.36



Weighted average
number of shares
outstanding:

Basic                   49,238,406     43,001,870    48,552,135     43,023,431

Diluted                 50,938,357     44,291,604    50,192,190     44,247,153






CENTENE CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

                                               Nine Months Ended September 30,

                                               2010         2009

Cash flows from operating activities:

Net earnings                                   $ 71,952     $ 62,474

Adjustments to reconcile net earnings to net
cash (used in) provided by operating
activities:

Depreciation and amortization                    38,620       30,800

Stock compensation expense                       10,224       11,428

(Gain) loss on sale of investments, net          (6,331)      261

(Gain) on sale of UHP                            (8,201)      -

Impairment of investment                         5,531        -

Deferred income taxes                            7,012        4,516

Changes in assets and liabilities:

Premium and related receivables                  (68,125)     (381)

Other current assets                             (2,932)      (2,595)

Other assets                                     (990)        (593)

Medical claims liabilities                       (29,304)     31,612

Unearned revenue                                 (38,708)     54,725

Accounts payable and accrued expenses            (3,174)      (17,656)

Other operating activities                       (1,267)      2,386

Net cash (used in) provided by operating
activities                                       (25,693)     176,977

Cash flows from investing activities:

Capital expenditures                             (91,960)     (42,696)

Purchases of investments                         (382,730)    (647,086)

Proceeds from asset sales                        13,420       -

Sales and maturities of investments              452,128      546,640

Investments in acquisitions, net of cash
acquired                                         (26,847)     (31,533)

Net cash used in investing activities            (35,989)     (174,675)

Cash flows from financing activities:

Proceeds from exercise of stock options          2,394        1,717

Proceeds from borrowings                         53,812       468,500

Proceeds from stock offering                     104,534      -

Payment of long-term debt                        (97,467)     (456,059)

Distributions (to) from noncontrolling
interest                                         (7,387)      4,324

Excess tax benefits from stock compensation      424          43

Common stock repurchases                         (714)        (5,539)

Debt issuance costs                              -            (405)

Net cash provided by financing activities        55,596       12,581

Net (decrease) increase in cash and cash
equivalents                                      (6,086)      14,883

Cash and cash equivalents, beginning of period   403,752      379,099

Cash and cash equivalents, end of period       $ 397,666    $ 393,982



Supplemental disclosures of cash flow
information:

Interest paid                                  $ 9,501      $ 8,556

Income taxes paid                              $ 44,407     $ 43,308



Supplemental disclosure of non-cash investing
and financing activities:

Contribution from noncontrolling interest      $ 306        $ 5,491

Capital expenditures                           $ 15,291     $ 10,106








CENTENE CORPORATION



CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA



                       Q3         Q2         Q1           Q4         Q3

                       2010       2010       2010         2009       2009

MEMBERSHIP

Managed Care:

Arizona                19,300     19,300     19,000       18,100     17,400

Florida                116,300    113,100    105,900      102,600    84,400

Georgia                300,900    295,600    301,000      309,700    303,400

Indiana                213,300    212,700    211,400      208,100    200,700

Massachusetts          34,400     30,100     26,900       27,800     500

Ohio                   161,800    159,300    156,000      150,800    151,200

South Carolina         90,600     92,600     53,900       48,600     46,100

Texas                  428,100    475,500    459,600      455,100    450,200

Wisconsin              106,100    133,600    134,900      134,800    132,500

Total at-risk
membership             1,470,800  1,531,800  1,468,600    1,455,600  1,386,400

Non-risk membership    35,900     50,900     62,200       63,700     63,200

TOTAL                  1,506,700  1,582,700  1,530,800    1,519,300  1,449,600



Medicaid               1,122,800  1,135,500  1,088,300    1,081,400  1,040,000

CHIP & Foster Care     219,100    272,400    266,300      263,600    263,400

ABD & Medicare         94,500     93,800     87,100       82,800     82,500

Other State programs   34,400     30,100     26,900       27,800     500

Total at-risk
membership             1,470,800  1,531,800  1,468,600    1,455,600  1,386,400

Non-risk membership    35,900     50,900     62,200       63,700     63,200

TOTAL                  1,506,700  1,582,700  1,530,800    1,519,300  1,449,600



Specialty Services(a):

Cenpatico Behavioral
Health

Arizona                121,300    119,700    119,300      120,100    117,300

Kansas                 39,800     39,100     39,800       41,400     41,000

Bridgeway Health
Solutions

Long-term Care         3,000      2,800      2,700        2,600      2,500

TOTAL                  164,100    161,600    161,800      164,100    160,800



(a) Includes external
membership only.



REVENUE PER MEMBER PER
MONTH(b)               $ 216.96   $ 208.58   $ 215.95(c)  $ 226.42   $ 222.77



CLAIMS(b)

Period-end inventory   469,000    480,400    341,400      423,400    414,900

Average inventory      307,500    306,900    283,900      279,000    227,100

Period-end inventory
per member             0.32       0.31       0.23         0.29       0.30



(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.










                                   Q3       Q2       Q1       Q4       Q3

                                   2010     2010     2010     2009     2009



DAYS IN CLAIMS PAYABLE

Medical                            46.0     47.2     46.6     48.1     47.1

Pharmacy                           1.1      1.0      1.1      2.0      1.8

TOTAL                              47.1     48.2     47.7     50.1     48.9

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                          $ 895.4  $ 813.0  $ 917.9  $ 949.9  $ 911.4

Unregulated                          32.7     39.4     51.3     36.2     27.6

TOTAL                              $ 928.1  $ 852.4  $ 969.2  $ 986.1  $ 939.0



DEBT TO CAPITALIZATION             24.7%    24.5%    23.7%    33.2%    31.9%

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








OPERATING RATIOS:

                                       Three Months Ended  Nine Months Ended

                                       September 30,       September 30,

                                       2010     2009       2010     2009

Health Benefits Ratios:

Medicaid and CHIP                      83.2%    84.7%      84.0%    84.4%

ABD and Medicare                       85.9     81.1       84.3     81.7

Specialty Services                     87.9     80.5       83.4     79.6

Total                                  84.2     83.7       84.0     83.4



Total General & Administrative Expense
Ratio                                  12.2%    13.2%      12.7%    13.5%








MEDICAL CLAIMS LIABILITY (In thousands)

The changes in medical claims liability are summarized as follows:



Balance, September 30, 2009 $ 426,700

Incurred related to:

Current period                3,518,220

Prior period                  (60,481)

Total incurred                3,457,739

Paid related to:

Current period                3,069,850

Prior period                  357,504

Total paid                    3,427,354

Balance, September 30, 2010 $ 457,085







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 September 30, 2009.

SOURCE Centene Corporation