Centene Corporation Reports 2009 Third Quarter Earnings

-- Company Updates Full Year 2009 EPS Guidance to $1.91-$1.97 --

-- Premium and Service Revenue Growth of 18.1% --

-- Strong Cash Flow Generation of $115 Million --

ST. LOUIS--(BUSINESS WIRE)-- Centene Corporation (NYSE: CNC) today announced its net earnings from continuing operations for the quarter ended September 30, 2009 were $22.7 million, or $0.51 per diluted share, compared to $18.1 million, or $0.41 per diluted share in the third quarter of 2008. The results of operations for our New Jersey health plan, University Health Plans, are classified as discontinued operations. The discussions below, with the exception of cash flow information, are in the context of continuing operations and all financial ratios are calculated using revenues excluding premium taxes and investment income.

Third Quarter Highlights

    --  Quarter-end managed care at-risk membership of 1,386,400, an increase of
        215,300 lives year over year.
    --  Premium and Service revenues of $987.3 million, representing 18.1% year
        over year growth.
    --  Health Benefits Ratio (HBR) of 83.7%.
    --  General and Administrative (G&A) expense ratio of 13.2%.
    --  Cash flow from operations of $114.9 million.
    --  Days in claims payable of 47.1.
    --  Diluted earnings per share from continuing operations of $0.51, compared
        to $0.41 in the third quarter of 2008. Earnings per diluted share in
        2008 included a $0.06 loss on investments from the Primary Reserve fund.

Other Events

    --  On August 31, 2009, Centene announced that the State of Massachusetts
        had accepted its proposal to manage healthcare services for the
        Commonwealth Bridge Program through its subsidiary, CeltiCare Health
        Plan of Massachusetts, effective October 1, 2009, through June 30, 2010.
    --  Effective September 1, 2009, Centene converted 62,100 members in Florida
        from Access Health Solutions to at-risk under our Sunshine State Health
        Plan.
    --  On October 24, 2009, Centene announced a settlement agreement with
        Amerigroup Corporation associated with the sale of our New Jersey health
        plan. Pursuant to the settlement agreement, the parties will move
        forward with the transaction, which is subject to regulatory approval
        and expected to be completed in the first quarter of 2010.
    --  In August 2009, Jason Harrold, president and CEO of OptiCare Managed
        Vision, Inc. was appointed to Senior Vice President of Centene's
        Specialty Business Unit. Mr. Harrold assumed the leadership role over
        the specialty companies previously held by William Scheffel.
    --  On October 26, 2009 our Board of Directors approved an extension of our
        stock repurchase program.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "We are pleased with the ability of our team to deliver solid results across Centene's products and markets in a challenging economic environment."

The following table depicts membership in Centene's managed care organizations, by state, at September 30, 2009 and 2008:


                                September 30,

                                2009       2008

Arizona                         17,400     --

Florida                         84,400     --

Georgia                         303,400    283,900

Indiana                         200,700    172,400

Massachusetts                   500        --

Ohio                            151,200    132,500

South Carolina                  46,100     26,600

Texas                           450,200    433,200

Wisconsin                       132,500    122,500

Total at-risk membership        1,386,400  1,171,100

Non-risk membership             63,200*    3,700

Total                           1,449,600  1,174,800

______________________________

* Increase mainly due to consolidation of our Access Health Solutions LLC
investment, effective January 1, 2009.



The following table depicts membership in Centene's managed care organizations, by member category, at September 30, 2009 and 2008:


                          September 30,

                          2009       2008

Medicaid                  1,040,500  850,500

CHIP & Foster Care        263,400    261,800

ABD & Medicare            82,500     58,800

Total at-risk membership  1,386,400  1,171,100

Non-risk membership       63,200     3,700

Total                     1,449,600  1,174,800



Statement of Operations

    --  For the third quarter of 2009, Premium and Service Revenues increased
        18.1% to $987.3 million from $835.7 million in the third quarter of
        2008. The increase was primarily driven by premium rate increases and
        membership growth in all states, including the commencement of our
        Arizona acute care contract in October 2008, the consolidation of Access
        and conversion of members to our at-risk plan in Florida.
    --  The consolidated HBR, which reflects medical costs as a percent of
        premium revenues, was 83.7%. A reconciliation of the change in HBR from
        the prior year same period and from the immediately preceding quarter is
        presented below:


 Q3:2009 vs. Q3:2008                     Q3:2009 vs. Q2:2009

 Third Quarter 2008              82.2 %  Second Quarter 2009            83.1 %

 Decrease in Texas CHIP/Perinate 1.0     New markets reserved at higher 0.1
 rates                                   rates

 Impact of additional costs      0.5     Impact of additional costs     0.3
 related to the flu                      related to the flu

 Pass-through payments           0.1     Pass-through payments          0.1

 Net change in other markets     (0.1 )  Net change in other markets    0.1

 Third Quarter 2009              83.7 %  Third Quarter 2009             83.7 %



The increase in the third quarter of 2009 over the comparable period in 2008 was due to the March 1, 2009 rate decrease for our CHIP/Perinate product in Texas which brought the HBR more in line with our normal range and the impact of additional costs related to the flu. We also experienced improvements in our ABD product, particularly in Ohio, which was mostly offset by the impact of changes in rates and benefit structures in other markets. Sequentially, the increase in the HBR reflects the impact of additional costs related to the flu along with the effect of reserving at higher rates for new markets and receiving pass-through payments which increase the HBR ratio.

    --  Consolidated G&A expense as a percent of premium and service revenues
        was 13.2% in the third quarter of 2009, a decrease from 14.2% in the
        third quarter of 2008. The reduction in the G&A ratio between years
        reflects improved leveraging of our costs over a higher revenue base and
        the impact of additional revenue from new business (Arizona Acute Care,
        Florida and South Carolina).
    --  Earnings per diluted share from continuing operations were $0.51,
        compared to $0.41 in the third quarter of 2008. Earnings per diluted
        share in 2008 included a $0.06 loss on investments from the Primary
        Reserve fund.

Balance Sheet and Cash Flow

At September 30, 2009, the Company had cash and investments of $939.0 million, including $911.4 million held by its regulated entities and $27.6 million held by its unregulated entities. Medical claims liabilities totaled $411.0 million, representing 47.1 days in claims payable, a decrease of 0.4 days from June 30, 2009. Total debt was $277.3 million and debt to capitalization was 31.9%. Year to date cash flow from operations was $177.0 million.

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, June 30, 2009       47.5

Payment of annual provider bonuses          (0.7)

Impact of Florida expansion                 0.3

Days in claims payable, September 30, 2009  47.1



Outlook

The table below depicts the Company's annual guidance from continuing operations for 2009:


                                            Full Year 2009

                                            Low      High

Premium and Service revenues (in millions)  $ 3,850  $ 3,900

Earnings per diluted share                  $ 1.91   $ 1.97



Stock Repurchase Authorization

On October 26, 2009, the Company's Board of Directors extended the Company's stock repurchase program. The program authorizes the repurchase of up to 4,000,000 shares of the Company's common stock from time to time on the open market or through privately negotiated transactions. No duration has been placed on the repurchase program and we reserve the right to discontinue the repurchase program at any time.

Conference Call

As previously announced, the Company will host a conference call Tuesday, October 27, 2009, at 8:30 A.M. (Eastern Time) to review the financial results for the second quarter ended September 30, 2009, 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 800-273-1254 in the U.S. and Canada, 973-638-3440 from abroad, or via a live Internet broadcast on the Company's website at www.centene.com, under the Investor Relations section. A replay will be available for on-demand listening shortly after the completion of the call until 11:59 PM (Eastern Time) on Tuesday, November 10, 2009, at the aforementioned URL, or by dialing 800-642-1687 in the U.S. and Canada, or 706-645-9291 from abroad, and entering access code 30957978.

About Centene Corporation

Centene Corporation is a leading multi-line healthcare enterprise that provides programs and related services to individuals receiving benefits under Medicaid, including the Children's Health Insurance Program (CHIP), as well as Aged, Blind, or Disabled (ABD), Foster Care, Long-Term Care and Medicare (Special Needs Plans). The Company operates local health plans and offers a wide range of health insurance solutions to individuals and the rising number of uninsured Americans. It also contracts with other healthcare and commercial organizations to provide specialty services including behavioral health, life and health management, managed vision, telehealth services, pharmacy benefits management and medication adherence. Information regarding Centene is available via the Internet at www.centene.com.

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)

                                                   September 30,    December 31,

                                                   2009             2008

ASSETS

Current assets:

Cash and cash equivalents of continuing            $ 389,135      $ 370,999
operations

Cash and cash equivalents of discontinued            4,847          8,100
operations

Total cash and cash equivalents                      393,982        379,099

Premium and related receivables, net of allowance
for uncollectible accounts of $19 and $595,          104,798        92,531
respectively

Short-term investments, at fair value (amortized     45,692         109,393
cost $45,332 and $108,469, respectively)

Other current assets                                 61,294         75,333

Current assets of discontinued operations other      8,292          9,987
than cash

Total current assets                                 614,058        666,343

Long-term investments, at fair value (amortized      486,889        332,411
cost $475,078 and $329,330, respectively)

Restricted deposits, at fair value (amortized        17,286         9,254
cost $17,177 and $9,124, respectively)

Property, software and equipment, net of
accumulated depreciation of $96,314 and $74,194,     209,920        175,858
respectively

Goodwill                                             219,100        163,380

Intangible assets, net                               23,454         17,575

Other long-term assets                               37,100         59,083

Long-term assets of discontinued operations          27,207         27,248

Total assets                                       $ 1,635,014    $ 1,451,152

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Medical claims liability                           $ 410,997      $ 373,037

Accounts payable and accrued expenses                204,411        219,566

Unearned revenue                                     68,024         17,107

Current portion of long-term debt                    645            255

Current liabilities of discontinued operations       23,846         31,013

Total current liabilities                            707,923        640,978

Long-term debt                                       276,687        264,637

Other long-term liabilities                          55,992         43,539

Long-term liabilities of discontinued operations     1,155          726

Total liabilities                                    1,041,757      949,880

Commitments and contingencies

Stockholders' equity:

Common stock, $.001 par value; authorized
100,000,000 shares; issued and outstanding           45             45
45,402,369 and 45,071,179 shares, respectively

Additional paid-in capital                           277,709        263,835

Accumulated other comprehensive income:

Unrealized gain on investments, net of tax           7,812          3,152

Retained earnings                                    335,192        275,236

Treasury stock, at cost (2,373,893 and 2,083,415     (46,497   )    (40,996   )
shares, respectively)

Total Centene stockholders' equity                   574,261        501,272

Noncontrolling interest                              18,996         --

Total stockholders' equity                           593,257        501,272

Total liabilities and stockholders' equity         $ 1,635,014    $ 1,451,152




CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(Unaudited)

                  Three Months Ended              Nine Months Ended

                  September 30,                   September 30,

                  2009            2008            2009            2008

Revenues:

Premium           $ 960,009       $ 817,740       $ 2,754,713     $ 2,338,550

Service             27,300          17,962          72,740          56,958

Premium and         987,309         835,702         2,827,453       2,395,508
service revenues

Premium tax         50,925          22,897          182,685         66,249

Total revenues      1,038,234       858,599         3,010,138       2,461,757

Expenses:

Medical costs       803,062         671,920         2,298,108       1,932,172

Cost of services    15,843          12,854          46,364          43,467

General and
administrative      130,024         118,628         381,524         323,391
expenses

Premium tax         51,295          23,284          183,785         66,636

Total operating     1,000,224       826,686         2,909,781       2,365,666
expenses

Earnings from       38,010          31,913          100,357         96,091
operations

Other income
(expense):

Investment and      3,750           2,708           11,781          15,724
other income

Interest expense    (4,064     )    (4,377     )    (12,210    )    (12,436    )

Earnings from
continuing
operations,         37,696          30,244          99,928          99,379
before income
tax expense

Income tax          12,426          12,145          35,060          38,464
expense

Earnings from
continuing
operations, net     25,270          18,099          64,868          60,915
of income tax
expense

Discontinued
operations, net
of income tax
(benefit)
expense of $        (1,460     )    149             (2,394     )    1,159
(792), $242, $
(1,148) and
$390,
respectively

Net earnings        23,810          18,248          62,474          62,074

Noncontrolling      2,542                           2,518
interest

Net earnings
attributable to   $ 21,268        $ 18,248        $ 59,956        $ 62,074
Centene
Corporation

Amounts
attributable to
Centene
Corporation
common
shareholders:

Earnings from
continuing
operations, net   $ 22,728        $ 18,099        $ 62,350        $ 60,915
of income tax
expense

Discontinued
operations, net
of income tax       (1,460     )    149             (2,394     )    1,159
(benefit)
expense

Net earnings      $ 21,268        $ 18,248        $ 59,956        $ 62,074

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

Basic:

Continuing        $ 0.53          $ 0.42          $ 1.45          $ 1.40
operations

Discontinued        (0.04      )                    (0.06      )    0.03
operations

Earnings per      $ 0.49          $ 0.42          $ 1.39          $ 1.43
common share

Diluted:

Continuing        $ 0.51          $ 0.41          $ 1.41          $ 1.37
operations

Discontinued        (0.03      )                    (0.05      )    0.02
operations

Earnings per      $ 0.48          $ 0.41          $ 1.36          $ 1.39
common share

Weighted average
number of shares
outstanding:

Basic               43,001,870      43,232,941      43,023,431      43,381,819

Diluted             44,291,604      44,530,347      44,247,153      44,541,424




CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

                                               Nine Months Ended September 30,

                                               2009          2008

Cash flows from operating activities:

Net earnings                                   $ 62,474      $ 62,074

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

Depreciation and amortization                    30,800        26,018

Stock compensation expense                       11,428        11,576

Loss on sale of investments, net                 261           4,923

Deferred income taxes                            4,516         13,987

Changes in assets and liabilities --

Premium and related receivables                  (381     )    (50,797         )

Other current assets                             (2,595   )    (6,422          )

Other assets                                     (593     )    (713            )

Medical claims liabilities                       31,612        28,109

Unearned revenue                                 54,725        (37,931         )

Accounts payable and accrued expenses            (17,656  )    74,723

Other operating activities                       2,386         967

Net cash provided by operating activities        176,977       126,514

Cash flows from investing activities:

Capital expenditures                             (42,696  )    (52,588         )

Purchases of investments                         (647,086 )    (372,221        )

Sales and maturities of investments              546,640       356,367

Investments in acquisitions, net of cash
acquired, and investment in equity method        (31,533  )    (83,509         )
investee

Net cash used in investing activities            (174,675 )    (151,951        )

Cash flows from financing activities:

Proceeds from exercise of stock options          1,717         4,770

Proceeds from borrowings                         468,500       152,005

Payment of long-term debt                        (456,059 )    (109,410        )

Distributions to noncontrolling interest         (3,171   )

Contribution from noncontrolling interest        7,495

Excess tax benefits from stock compensation      43            3,016

Common stock repurchases                         (5,539   )    (18,244         )

Debt issue costs                                 (405     )

Net cash provided by financing activities        12,581        32,137

Net increase in cash and cash equivalents        14,883        6,700

Cash and cash equivalents, beginning of          379,099       268,584
period

Cash and cash equivalents, end of period       $ 393,982     $ 275,284

Supplemental disclosures of cash flow
information:

Interest paid                                  $ 8,556       $ 8,467

Income taxes paid                              $ 43,308      $ 28,370

Supplemental disclosure of non-cash investing
and financing activities:

Contribution from noncontrolling interest      $ 5,491       $




CENTENE CORPORATION

CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA

                  Q3           Q2           Q1           Q4          Q3

                  2009         2009         2009         2008        2008

MEMBERSHIP

Managed Care:

Arizona           17,400       16,200       15,500       14,900      --

Florida           84,400       22,300       29,100       --          --

Georgia           303,400      292,800      289,300      288,300     283,900

Indiana           200,700      196,100      179,100      175,300     172,400

Massachusetts     500          --           --           --          --

Ohio              151,200      141,200      137,000      133,400     132,500

South Carolina    46,100       46,000       48,500       31,300      26,600

Texas             450,200      443,200      421,100      428,000     433,200

Wisconsin         132,500      131,200      127,700      124,800     122,500

Total at-risk     1,386,400    1,289,000    1,247,300    1,196,000   1,171,100
membership

Non-risk          63,200       114,000      96,000       3,700       3,700
membership

TOTAL             1,449,600    1,403,000    1,343,300    1,199,700   1,174,800

Medicaid          1,040,500    958,600      921,100      877,400     850,500

CHIP & Foster     263,400      261,400      256,900      257,300     261,800
Care

ABD & Medicare    82,500       69,000       69,300       61,300      58,800

Total at-risk     1,386,400    1,289,000    1,247,300    1,196,000   1,171,100
membership

Non-risk          63,200       114,000      96,000       3,700       3,700
membership

TOTAL             1,449,600    1,403,000    1,343,300    1,199,700   1,174,800

Specialty
Services(a):

Cenpatico
Behavioral Health

Arizona           117,300      110,500      104,700      105,000     102,400

Kansas            41,000       41,100       40,600       41,100      40,100

Bridgeway Health
Solutions

Long-term Care    2,500        2,400        2,300        2,100       1,900

TOTAL             160,800      154,000      147,600      148,200     144,400

(a)Includes external membership only.

REVENUE PER       $  222.77    $  219.75    $  220.29    $  218.52   $  213.28
MEMBER(b)

CLAIMS(b)

Period-end        414,900      362,200      325,000      269,300     323,200
inventory

Average inventory 227,100      234,500      267,600      288,600     298,400

Period-end
inventory per     0.30         0.28         0.26         0.23        0.28
member

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

                  Q3           Q2           Q1           Q4          Q3

                  2009         2009         2009         2008        2008

DAYS IN CLAIMS    47.1         47.5         45.3         48.5        47.9
PAYABLE(c)

(c) 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         $ 911.4      $ 825.8      $ 816.8      $ 798.0     $ 692.6

Unregulated         27.6         27.0         28.9         24.1        26.8

TOTAL             $ 939.0      $ 852.8      $ 845.7      $ 822.1     $ 719.4

DEBT TO           31.9      %  33.0      %  34.6      %  34.6%       34.4      %
CAPITALIZATION(d)

(d)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,

                                        2009     2008       2009     2008

Health Benefits Ratios:

Medicaid and CHIP                       84.7 %   81.3 %     84.4 %   80.7 %

ABD and Medicare                        81.1     88.1       81.7     91.4

Specialty Services                      80.5     79.9       79.6     82.9

Total                                   83.7     82.2       83.4     82.6

General & Administrative Expense Ratio  13.2 %   14.2 %     13.5 %   13.5 %




MEDICAL CLAIMS LIABILITY (In thousands)
Four rolling quarters of the changes in medical claims liability are
summarized as follows:

Balance, September 30, 2008  $ 349,502

Acquisitions                   --

Incurred related to:

Current period                 3,051,905

Prior period                   (45,634   )

Total incurred                 3,006,271

Paid related to:

Current period                 2,654,707

Prior period                   290,069

Total paid                     2,944,776

Balance, September 30, 2009  $ 410,997



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, 2008.


    Source: Centene Corporation