Centene Corporation Reports 2010 Second Quarter Earnings

ST. LOUIS, July 27 /PRNewswire-FirstCall/ -- Centene Corporation (NYSE: CNC) today announced net earnings from continuing operations for the quarter ended June 30, 2010, of $23.0 million, or $0.45 per diluted share.  The discussions below, with the exception of cash flow information, are in the context of continuing operations and all financial ratios exclude premium taxes.

Second Quarter Highlights

    --  Quarter-end managed care at-risk membership of 1,531,800, an increase of
        242,800 members, or 18.8% year over year.
    --  Premium and Service Revenues of $1.051 billion, representing 12.8% year
        over year growth.
    --  Health Benefits Ratio (HBR) of 83.8%, compared to 83.1% in the prior
        year.
    --  General and Administrative (G&A) expense ratio of 12.7%, compared to
        13.9% in the prior year.
    --  Earnings from operations of $41.7 million, compared to $31.4 million in
        the prior year.
    --  Earnings from continuing operations, net of income tax expense,
        increased 11.0% year over year to $23.0 million. Within the quarter, we
        incurred a $0.03 charge per diluted share to write off a deferred tax
        asset associated with our Georgia health plan and benefited by $0.03 per
        diluted share from a shift in start up costs for Mississippi from the
        second to the third quarter.
    --  Diluted earnings per share from continuing operations of $0.45.
    --  Days in claims payable of 48.2, including pharmacy claims payable.
    --  Estimated 2010 composite premium rate increase between 1% and 3%.


Other Events

    --  In May 2010, our Texas health plan was awarded a new ABD contract in the
        Dallas service area subject to execution of a final contract. The new
        contract is expected to commence during the first quarter of 2011.
    --  In June 2010, we completed the acquisition of certain assets of Carolina
        Crescent Health Plan. We now serve 92,600 at-risk members in South
        Carolina as of June 30, 2010.
    --  In June 2010, our Indiana health plan was selected to negotiate a
        statewide managed care contract effective January 1, 2011. Upon
        successful execution of the contract, we will continue to serve Hoosier
        Healthwise members and begin serving Healthy Indiana Plan members.
    --  In July 2010, we closed on the acquisition of certain assets of NovaSys
        Health, LLC, a leading third party administrator in Arkansas that will
        complement our existing Celtic business.


Michael F. Neidorff, Centene’s Chairman and Chief Executive Officer, stated, “Our team continues to focus on fundamentals and driving Centene to be a low-cost producer. These are key factors in producing another solid quarterly report and for the long-term success of our enterprise.”

The following table depicts membership in Centene’s managed care organizations, by state, at June 30, 2010 and 2009:


                          June 30,

                          2010       2009

Arizona                   19,300     16,200

Florida                   113,100    22,300

Georgia                   295,600    292,800

Indiana                   212,700    196,100

Massachusetts             30,100     —

Ohio                      159,300    141,200

South Carolina            92,600     46,000

Texas                     475,500    443,200

Wisconsin                 133,600    131,200

Total at-risk membership  1,531,800  1,289,000

Non-risk membership       50,900     114,000

Total                     1,582,700  1,403,000





The following table depicts membership in Centene’s managed care organizations, by member category, at June 30, 2010 and 2009:


                          June 30,

                          2010       2009

Medicaid                  1,135,500  958,600

CHIP & Foster Care        272,400    261,400

ABD & Medicare            93,800     69,000

Other State programs      30,100     —

Total at-risk membership  1,531,800  1,289,000

Non-risk membership       50,900     114,000

Total                     1,582,700  1,403,000





Statement of Operations

    --  Premium and service revenues increased 12.8% for the three months ended
        June 30, 2010 over 2009 as a result of membership growth in each of our
        states. This increase was moderated by the removal of pharmacy services
        in two states beginning in 2010. These pharmacy carve outs had the
        effect of reducing 2010 second quarter revenue by approximately $48
        million.
    --  The consolidated HBR for the three months ended June 30, 2010 of 83.8%
        was an increase of 0.7% over the comparable period in 2009. A
        reconciliation of the change in HBR from the prior year is presented
        below:



 Second Quarter 2009                  83.1%

 New markets reserved at higher rates 0.6

 Net changes in existing markets      0.1

 Second Quarter 2010                  83.8%







    --  Consolidated G&A expense as a percent of premium and service revenues
        was 12.7% in the second quarter of 2010, a decrease from 13.9% in the
        second quarter of 2009. The decrease reflects the leveraging of our
        expenses over higher revenues and the impact of our ongoing focus on
        system enhancements and operational efficiencies. Additionally, we
        benefited by $0.03 per diluted share from a shift in start up costs for
        Mississippi from the second to the third quarter.
    --  Effective July 1, 2010, our Georgia health plan will begin paying
        premium taxes and will no longer be subject to income taxes.
        Accordingly, the deferred tax asset related to state net operating loss
        carry forwards was written off. The write off increased income tax
        expense during the second quarter by $1.7 million, or $0.03 per diluted
        share.
    --  Earnings per diluted share from continuing operations were $0.45,
        compared to $0.47 in the second quarter of 2009.


Balance Sheet and Cash Flow

At June 30, 2010, we had cash and investments of $852.4 million, including $813.0 million held by our regulated entities and $39.4 million held by our unregulated entities.  Medical claims liabilities totaled $455.4 million, representing 48.2 days in claims payable, an increase of 0.5 days from March 31, 2010.  Total debt was $252.8 million and debt to capitalization was 24.5%.  

Cash flow from operations through June 30, 2010 was $(98.3) million and was impacted by 1) $86.0 million decrease in unearned revenue due to advance payments received in December 2009 for January 2010 premium payments and 2) $57.7 million increase in premium and related receivables for June premium payments deferred by several states until July 2010.  During the second half of 2010, we expect cash flow from operations to return to historical levels, although the timing of premium payments from each state can vary from period to period.

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


Days in claims payable, March 31, 2010 47.7

Timing of claims payments              0.8

Payment of annual provider bonuses     (0.5)

Impact of new business                 0.3

Pharmacy payment timing                (0.1)

Days in claims payable, June 30, 2010  48.2







Outlook

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


                                            Full Year 2010

                                            Low      High

Premium and Service revenues (in millions)  $ 4,350  $ 4,450

Earnings per diluted share (EPS)            $ 1.78   $ 1.86

HBR %                                       83.5%    84.5%

G&A %                                       12.4%    12.9%



Diluted Shares Outstanding (in thousands)   50,500







Based upon known rate adjustments and preliminary discussions with our states that finalize rates in the second half of the year, we currently estimate our 2010 composite premium rate increase to be between 1% and 3%.

Conference Call

As previously announced, we will host a conference call Tuesday, July 27, 2010, at 8:30 A.M. (Eastern Time) to review the financial results for the second quarter ended June 30, 2010, and to discuss our business outlook.  Michael F. Neidorff and William N. Scheffel will host the conference call.  

Investors and other interested parties are invited to listen to the conference call by dialing 800-860-2442 in the U.S. and Canada; +1-412-858-4600 from abroad; or via a live, audio webcast on our website at www.centene.com, under the Investors section.

A replay will be available for on-demand listening shortly after the completion of the call for the next twelve months or until 11:59 PM (Eastern Time) on Tuesday, July 26, 2011, at the aforementioned URL, or by dialing 877-344-7529 in the U.S. and Canada, or +1-412-317-0088 from abroad and entering the playback conference number 442132.

About Centene Corporation

Centene Corporation, a Fortune 500 company, is a leading multi-line healthcare enterprise that provides programs and related services to the rising number of under-insured and uninsured individuals. Many receive benefits provided under Medicaid, including the State Children's Health Insurance Program (CHIP), as well as Aged, Blind or Disabled (ABD), Foster Care and long-term care, in addition to other state-sponsored programs, and Medicare (Special Needs Plans). Centene's CeltiCare subsidiary offers states unique, "exchange based" and other cost-effective coverage solutions for low-income populations. The Company operates local health plans and offers a range of health insurance solutions. It also contracts with other healthcare and commercial organizations to provide specialty services including behavioral health, life and health management, managed vision, telehealth services, and pharmacy benefits management.

The information provided in this press release contains forward-looking statements that relate to future events and future financial performance of Centene.  Subsequent events and developments may cause the Company’s estimates to change.  The Company disclaims any obligation to update this forward-looking financial information in the future.  Readers are cautioned that matters subject to forward-looking statements involve known and unknown risks and uncertainties, including economic, regulatory, competitive and other factors that may cause Centene’s or its industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.  Actual results may differ from projections or estimates due to a variety of important factors, including Centene’s ability to accurately predict and effectively manage health benefits and other operating expenses, competition, changes in healthcare practices, changes in federal or state laws or regulations, inflation, provider contract changes, new technologies, reduction in provider payments by governmental payors, major epidemics, disasters and numerous other factors affecting the delivery and cost of healthcare.  The expiration, cancellation or suspension of Centene’s Medicaid Managed Care contracts by state governments would also negatively affect Centene.  


Tables Follow






CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

                                                    June 30,      December 31,
                                                    2010          2009

ASSETS

Current assets:

Cash and cash equivalents of continuing
operations, including $5,154 and $8,667,
respectively, from
consolidated variable interest entities             $ 264,723   $ 400,951

Cash and cash equivalents of discontinued
operations                                            877         2,801

Total cash and cash equivalents                       265,600     403,752

Premium and related receivables, net of allowance
for uncollectible accounts of $1,336 and $1,338,
respectively, including $7,266 and $11,313,
respectively, from consolidated variable interest
entities                                              164,420     103,456

Short-term investments, at fair value (amortized
cost $29,542 and $39,230, respectively)               29,660      39,554

Other current assets, including $3,918 and $4,507,
respectively, from consolidated variable interest
entities                                              83,843      64,866

Current assets of discontinued operations other
than cash                                             2,314       4,506

Total current assets                                  545,837     616,134

Long-term investments, at fair value (amortized
cost $522,589 and $514,256, respectively)             537,399     525,497

Restricted deposits, at fair value (amortized cost
$20,485 and $20,048, respectively)                    20,570      20,132

Property, software and equipment, net of
accumulated depreciation of $118,995 and $103,883,
respectively,
including $138,998 and $89,219, respectively, from
consolidated variable interest entities               313,839     230,421

Goodwill                                              244,304     224,587

Intangible assets, net                                24,589      22,479

Other long-term assets                                35,557      36,829

Long-term assets of discontinued operations           11,442      26,285

Total assets                                        $ 1,733,537 $ 1,702,364

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Medical claims liability                            $ 455,375   $ 470,932

Accounts payable and accrued expenses, including
$30,366 and $14,020, respectively, from
consolidated
variable interest entities                            167,613     132,001

Unearned revenue                                      5,695       91,644

Current portion of long-term debt                     771         646

Current liabilities of discontinued operations        7,365       20,685

Total current liabilities                             636,819     715,908

Long-term debt                                        252,028     307,085

Other long-term liabilities                           64,870      59,561

Long-term liabilities of discontinued operations      652         383

Total liabilities                                     954,369     1,082,937



Commitments and contingencies



Stockholders' equity:

Common stock, $.001 par value; authorized
100,000,000 shares; 51,654,541 issued and
49,210,505
outstanding at June 30, 2010, and 45,593,383
shares issued and 43,179,373 shares outstanding at
December 31, 2009                                     52          46

Additional paid-in capital                            395,926     281,806

Accumulated other comprehensive income:

Unrealized gain on investments, net of tax            9,400       7,348

Retained earnings                                     405,682     358,907

Treasury stock, at cost (2,444,036 and 2,414,010
shares, respectively)                                 (47,830)    (47,262)

Total Centene Corporation stockholders' equity        763,230     600,845

Noncontrolling interest                               15,938      18,582

Total stockholders' equity                            779,168     619,427

Total liabilities and stockholders' equity          $ 1,733,537 $ 1,702,364








CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)

                      Three Months Ended           Six Months Ended

                      June 30,                     June 30,

                      2010           2009          2010           2009

Revenues:

Premium               $ 1,025,928    $ 909,698     $ 2,025,243    $ 1,794,704

Service                 24,682         21,591        47,589         45,440

Premium and service
revenues                1,050,610      931,289       2,072,832      1,840,144

Premium tax             26,162         108,180       72,661         131,760

Total revenues          1,076,772      1,039,469     2,145,493      1,971,904

Expenses:

Medical costs           859,335        755,706       1,699,043      1,495,046

Cost of services        15,707         14,559        32,859         30,521

General and
administrative
expenses                133,470        129,221       268,977        251,500

Premium tax             26,551         108,548       73,294         132,490

Total operating
expenses                1,035,063      1,008,034     2,074,173      1,909,557

Earnings from
operations              41,709         31,435        71,320         62,347

Other income
(expense):

Investment and other
income                  4,142          4,418         11,199         8,031

Interest expense        (3,869)        (4,160)       (7,682)        (8,146)

Earnings from
continuing
operations, before
income
tax expense             41,982         31,693        74,837         62,232

Income tax expense      17,254         11,789        29,779         22,634

Earnings from
continuing
operations, net of
income
tax expense             24,728         19,904        45,058         39,598

Discontinued
operations, net of
income tax (benefit)
expense of $(90), $
(196), $4,350 and $
(356),
respectively            (226)          (485)         3,694          (934)

Net earnings            24,502         19,419        48,752         38,664

Noncontrolling
interest (loss)         1,729          (811)         1,977          (24)

Net earnings
attributable to
Centene Corporation   $ 22,773       $ 20,230      $ 46,775       $ 38,688



Amounts attributable
to Centene
Corporation common
stockholders:

Earnings from
continuing
operations, net of
income tax
expense               $ 22,999       $ 20,715      $ 43,081       $ 39,622

Discontinued
operations, net of
income tax (benefit)
expense                 (226)          (485)         3,694          (934)

Net earnings          $ 22,773       $ 20,230      $ 46,775       $ 38,688



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

Basic:

Continuing operations $ 0.46         $ 0.48        $ 0.89         $ 0.92

Discontinued
operations              —            (0.01)        0.08           (0.02)

Earnings per common
share                 $ 0.46         $ 0.47        $ 0.97         $ 0.90

Diluted:

Continuing operations $ 0.45         $ 0.47        $ 0.86         $ 0.90

Discontinued
operations              —            (0.01)        0.08           (0.02)

Earnings per common
share                 $ 0.45         $ 0.46        $ 0.94         $ 0.88



Weighted average
number of shares
outstanding:

Basic                   49,135,552     43,001,157    48,203,312     43,034,390

Diluted                 50,866,318     44,242,339    49,807,084     44,240,071








CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

                                                     Six Months Ended June 30,

                                                     2010         2009



Cash flows from operating activities:

Net earnings                                         $ 48,752     $ 38,664

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

Depreciation and amortization                          24,918       20,892

Stock compensation expense                             6,888        7,611

(Gain) loss on sale of investments, net                (3,987)      450

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

Deferred income taxes                                  4,928        1,512

Changes in assets and liabilities:

Premium and related receivables                        (57,718)     (23,327)

Other current assets                                   948          1,357

Other assets                                           1,719        (608)

Medical claims liabilities                             (28,868)     17,093

Unearned revenue                                       (85,950)     44,129

Accounts payable and accrued expenses                  (3,536)      (49,377)

Other operating activities                             1,851        3,723

Net cash (used in) provided by operating activities    (98,256)     62,119

Cash flows from investing activities:

Capital expenditures                                   (63,602)     (29,833)

Purchases of investments                               (306,124)    (415,052)

Proceeds from asset sales                              13,420       --

Sales and maturities of investments                    291,735      377,320

Investments in acquisitions, net of cash acquired      (21,473)     (7,621)

Net cash used in investing activities                  (86,044)     (75,186)

Cash flows from financing activities:

Proceeds from exercise of stock options                1,759        1,109

Proceeds from borrowings                               42,161       288,000

Proceeds from stock offering                           104,534      --

Payment of long-term debt                              (97,193)     (264,135)

Distributions to noncontrolling interest               (4,840)      (707)

Excess tax benefits from stock compensation            295          15

Common stock repurchases                               (568)        (5,447)

Debt issue costs                                       --           (368)

Net cash provided by financing activities              46,148       18,467

Net (decrease) increase in cash and cash equivalents   (138,152)    5,400

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

Cash and cash equivalents, end of period             $ 265,600    $ 384,499



Supplemental disclosures of cash flow information:

Interest paid                                        $ 7,320      $ 7,658

Income taxes paid                                    $ 27,940     $ 31,512



Supplemental disclosure of non-cash investing and
financing activities:

Contribution from noncontrolling interest            $ 306        $ 5,107








CENTENE CORPORATION
CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA

                       Q2         Q1           Q4         Q3         Q2

                       2010       2010         2009       2009       2009

MEMBERSHIP

Managed Care:

Arizona                19,300     19,000       18,100     17,400     16,200

Florida                113,100    105,900      102,600    84,400     22,300

Georgia                295,600    301,000      309,700    303,400    292,800

Indiana                212,700    211,400      208,100    200,700    196,100

Massachusetts          30,100     26,900       27,800     500        —

Ohio                   159,300    156,000      150,800    151,200    141,200

South Carolina         92,600     53,900       48,600     46,100     46,000

Texas                  475,500    459,600      455,100    450,200    443,200

Wisconsin              133,600    134,900      134,800    132,500    131,200

Total at-risk
membership             1,531,800  1,468,600    1,455,600  1,386,400  1,289,000

Non-risk membership    50,900     62,200       63,700     63,200     114,000

TOTAL                  1,582,700  1,530,800    1,519,300  1,449,600  1,403,000



Medicaid               1,135,500  1,088,300    1,081,400  1,040,000  958,600

CHIP & Foster Care     272,400    266,300      263,600    263,400    261,400

ABD & Medicare         93,800     87,100       82,800     82,500     69,000

Other State programs   30,100     26,900       27,800     500        —

Total at-risk
membership             1,531,800  1,468,600    1,455,600  1,386,400  1,289,000

Non-risk membership    50,900     62,200       63,700     63,200     114,000

TOTAL                  1,582,700  1,530,800    1,519,300  1,449,600  1,403,000



Specialty Services(a):

Cenpatico Behavioral
Health

Arizona                119,700    119,300      120,100    117,300    110,500

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

Bridgeway Health
Solutions

Long-term Care         2,800      2,700        2,600      2,500      2,400

TOTAL                  161,600    161,800      164,100    160,800    154,000



(a) Includes external
membership only.



REVENUE PER MEMBER PER
MONTH(b)               $ 208.58   $ 215.95(c)  $ 226.42   $ 222.77   $ 219.75



CLAIMS(b)

Period-end inventory   480,400    341,400      423,400    414,900    362,200

Average inventory      306,900    283,900      279,000    227,100    234,500

Period-end inventory
per member             0.31       0.23         0.29       0.30       0.28

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

(c) Reduction in revenue per member per month is a result of the pharmacy
carve-outs in 2010.










                       Q2           Q1       Q4       Q3       Q2

                       2010         2010     2009     2009     2009



DAYS IN CLAIMS PAYABLE

Medical                47.2         46.6     48.1     47.1     47.5

Pharmacy               1.0          1.1      2.0      1.8      1.5

TOTAL                  48.2         47.7     50.1     48.9     49.0

Days in Claims Payable is a calculation of Medical Claims Liabilities
at the end of the period divided by average claims expense per
calendar day for such period.



CASH AND INVESTMENTS (in millions)

Regulated              $ 813.0      $ 917.9  $ 949.9  $ 911.4  $ 825.8

Unregulated              39.4         51.3     36.2     27.6     27.0

TOTAL                  $ 852.4      $ 969.2  $ 986.1  $ 939.0  $ 852.8



DEBT TO CAPITALIZATION 24.5%        23.7%    33.2%    31.9%    33.0%

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








Operating Ratios:

                                       Three Months Ended  Six Months Ended

                                       June 30,            June 30,

                                       2010     2009       2010     2009

Health Benefits Ratios:

Medicaid and CHIP                      83.4 %   83.7 %     84.5 %   84.2 %

ABD and Medicare                       86.5     82.6       83.4     82.0

Specialty Services                     81.7     79.8       81.2     79.0

Total                                  83.8     83.1       83.9     83.3



Total General & Administrative Expense
Ratio                                  12.7 %   13.9 %     13.0 %   13.7 %








MEDICAL CLAIMS LIABILITY (In thousands)
The changes in medical claims liability are
summarized as follows:

Balance, June 30, 2009 $ 406,834

Incurred related to:

Current period           3,427,022

Prior period             (59,502)

Total incurred           3,367,520

Paid related to:

Current period           2,980,741

Prior period             338,238

Total paid               3,318,979

Balance, June 30, 2010 $ 455,375







Centene's claims reserving process utilizes a consistent actuarial methodology to estimate Centene's ultimate liability. Any reduction in the "Incurred related to: Prior period" amount may be offset as Centene actuarially determines "Incurred related to: Current period." As such, only in the absence of a consistent reserving methodology would favorable development of prior period claims liability estimates reduce medical costs. Centene believes it has consistently applied its claims reserving methodology in each of the periods presented.

The amount of the "Incurred related to: Prior period" above includes the effects of reserving under moderately adverse conditions, new markets where we use a conservative approach in setting reserves during the initial periods of operations, increased receipts from other third party payors related to coordination of benefits and lower medical utilization and cost trends for dates of service prior to June 30, 2009.

SOURCE Centene Corporation