Centene Corporation Reports 2009 Second Quarter Earnings

Company Increases Full Year 2009 EPS Guidance to $1.88-$1.96

ST. LOUIS--(BUSINESS WIRE)-- Centene Corporation (NYSE: CNC) today announced its net earnings from continuing operations for the quarter ended June 30, 2009 were $20.7 million, or $0.47 per diluted share, compared to $17.9 million, or $0.40 per diluted share in the 2008 second quarter. 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.

Second Quarter Highlights

    --  Quarter-end managed care at-risk membership of 1,289,000, an increase of
        140,200 lives year over year.
    --  Premium and Service revenues of $931.3 million, representing 16.1% year
        over year growth.
    --  Health Benefits Ratio (HBR) of 83.1%.
    --  General and administrative (G&A) expense ratio of 13.9%.
    --  Cash flow from operations of $38.7 million, which is 2.0x net earnings.
    --  Days in claims payable of 47.5, an increase from 45.3 days at March 31,
        2009.
    --  Diluted earnings per share from continuing operations of $0.47,
        representing 17.5% year over year growth.
    --  Increased 2009 EPS guidance range to $1.88-$1.96.

Other Events

    --  On July 1, 2009, CeltiCare Health Plan of Massachusetts began serving
        the Central, Northern, Boston and Southern regions under the
        Commonwealth Care program. CeltiCare was also recently granted a seal of
        approval by the Commonwealth Connector Authority for the Commonwealth
        Choice program. Commonwealth Choice is part of Massachusetts' health
        care program, serving the individual and small group market and is not a
        subsidized program. CeltiCare now participates in two of the three
        health coverage programs in Massachusetts.
    --  In July 2009, the Company was awarded a tentative contract from the
        Texas Health and Human Services Commission (HHSC) for the Children's
        Health Insurance Program (CHIP) Rural Services Area Managed Care
        Organization Procurement. The award is contingent upon the successful
        negotiation and execution of a contract with HHSC. Our Texas health plan
        will begin serving members under the new contract on September 1, 2010,
        continuing through August 31, 2013. The award covers up to 174 primarily
        rural counties in Texas.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "We are pleased that our strategic and operational focus on fundamentals continues to drive this positive operating momentum."

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


                                June 30,

                                2009         2008

Arizona                         16,200       --

Florida                         22,300       --

Georgia                         292,800      278,800

Indiana                         196,100      161,700

Ohio                            141,200      137,300

South Carolina                  46,000       22,500

Texas                           443,200      423,700

Wisconsin                       131,200      124,800

Total at-risk membership        1,289,000    1,148,800

Non-risk membership             114,000   *  3,500

Total                           1,403,000    1,152,300

______________________________

* 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 June 30, 2009 and 2008:


                          June 30,

                          2009       2008

Medicaid                  958,600    828,700

CHIP & Foster Care        261,400    256,900

ABD & Medicare            69,000     63,200

Total at-risk membership  1,289,000  1,148,800

Non-risk membership       114,000    3,500

Total                     1,403,000  1,152,300



Statement of Operations

    --  For the 2009 second quarter, Premium and Service Revenues increased
        16.1% to $931.3 million from $802.5 million in the 2008 second quarter.
        The increase was primarily driven by membership growth, especially
        related to the commencement of our Arizona acute care contract in
        October 2008, the consolidation of Access and conversion of members to
        our at-risk plan, premium rate increases and the recent acquisition of
        Celtic in July 2008.
    --  The consolidated HBR, which reflects medical costs as a percent of
        premium revenues, was 83.1%, relatively flat compared to 83.0% in the
        2008 second quarter. Sequentially, our consolidated HBR decreased from
        83.5% in the 2009 first quarter to 83.1% as a result of normal
        seasonality. During the second quarter, an increase in outpatient
        expense attributable to swine flu concerns was offset by lower inpatient
        and pharmacy costs.
    --  Consolidated G&A expense as a percent of premium and service revenues
        was 13.9% in the second quarter of 2009, an increase from 13.6% in the
        second quarter of 2008. G&A expense increased in the quarter ended June
        30, 2009 compared to 2008 as a result of new business initiatives
        including the acquisition of Celtic, the consolidation of Access Health
        Solutions LLC and the start up of CeltiCare health plan in
        Massachusetts.
    --  Earnings per diluted share from continuing operations were $0.47,
        compared to $0.40 in the 2008 second quarter.

Balance Sheet and Cash Flow

At June 30, 2009, the Company had cash and investments of $852.8 million, including $825.8 million held by its regulated entities and $27.0 million held by its unregulated entities. Medical claims liabilities totaled $394.8 million, representing 47.5 days in claims payable, an increase of 2.2 days from March 31, 2009. Total debt was $288.8 million and debt to capitalization was 33.0%. Year to date cash flow from operations was $62.1 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, March 31, 2009   45.3

Timing of claims payments                1.5

Increase in claims processing inventory  1.1

Payment of annual provider bonuses       (0.4 )

Days in claims payable, June 30, 2009    47.5



Outlook

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


                                            Full Year 2009

                                            Low      High

Premium and Service revenues (in millions)  $ 3,750  $ 3,850

Earnings per diluted share                  $ 1.88   $ 1.96



Conference Call

As previously announced, the Company will host a conference call Tuesday, July 28, 2009, at 8:30 A.M. (Eastern Time) to review the financial results for the second quarter ended June 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, August 11, 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 15407585.

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)

                                                    June 30,       December 31,

                                                    2009           2008

                                                    (Unaudited)

ASSETS

Current assets:

Cash and cash equivalents of continuing operations  $ 382,700      $ 370,999

Cash and cash equivalents of discontinued             1,799          8,100
operations

Total cash and cash equivalents                       384,499        379,099

Premium and related receivables, net of allowance
for uncollectible accounts of $48 and $595,           157,863        92,531
respectively

Short-term investments, at fair value (amortized      61,217         109,393
cost $60,749 and $108,469, respectively)

Other current assets                                  73,686         75,333

Current assets of discontinued operations other       8,499          9,987
than cash

Total current assets                                  685,764        666,343

Long-term investments, at fair value (amortized       394,395        332,411
cost $387,166 and $329,330, respectively)

Restricted deposits, at fair value (amortized cost    14,526         9,254
$14,436 and $9,124, respectively)

Property, software and equipment, net of
accumulated depreciation of $88,469 and $74,194,      194,277        175,858
respectively

Goodwill                                              218,121        163,380

Intangible assets, net                                22,714         17,575

Other long-term assets                                28,957         59,083

Long-term assets of discontinued operations           27,455         27,248

Total assets                                        $ 1,586,209    $ 1,451,152

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Medical claims liability                            $ 394,787      $ 373,037

Accounts payable and accrued expenses                 181,605        219,566

Unearned revenue                                      62,958         17,107

Current portion of long-term debt                     243            255

Current liabilities of discontinued operations        23,851         31,013

Total current liabilities                             663,444        640,978

Long-term debt                                        288,513        264,637

Other long-term liabilities                           48,678         43,539

Long-term liabilities of discontinued operations      557            726

Total liabilities                                     1,001,192      949,880

Commitments and contingencies

Stockholders' equity:

Common stock, $.001 par value; authorized
100,000,000 shares; issued and outstanding            45             45
45,344,717 and 45,071,179 shares, respectively

Additional paid-in capital                            273,029        263,835

Accumulated other comprehensive income:

Unrealized gain on investments, net of tax            5,081          3,152

Retained earnings                                     313,924        275,236

Treasury stock at cost (2,369,133 and 2,083,415       (46,405   )    (40,996   )
shares, respectively)

Total Centene stockholders' equity                    545,674        501,272

Noncontrolling interest                               39,343         --

Total stockholders' equity                            585,017        501,272

Total liabilities and stockholders' equity          $ 1,586,209    $ 1,451,152




CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(Unaudited)

                  Three Months Ended              Six Months Ended

                  June 30,                        June 30,

                  2009            2008            2009            2008

Revenues:

Premium           $ 909,698       $ 783,996       $ 1,794,704     $ 1,520,810

Service             21,591          18,466          45,440          38,996

Premium and         931,289         802,462         1,840,144       1,559,806
service revenues

Premium tax         108,180         21,468          131,760         43,352

Total revenues      1,039,469       823,930         1,971,904       1,603,158

Expenses:

Medical costs       755,706         650,878         1,495,046       1,260,252

Cost of services    14,559          14,437          30,521          30,613

General and
administrative      129,221         109,270         251,500         204,763
expenses

Premium tax         108,548         21,468          132,490         43,352

Total operating     1,008,034       796,053         1,909,557       1,538,980
expenses

Earnings from       31,435          27,877          62,347          64,178
operations

Other income
(expense):

Investment and      4,418           5,434           8,031           13,016
other income

Interest expense    (4,160     )    (4,065     )    (8,146     )    (8,059     )

Earnings from
continuing
operations,         31,693          29,246          62,232          69,135
before income
tax expense

Income tax          11,789          11,363          22,634          26,319
expense

Earnings from
continuing
operations, net     19,904          17,883          39,598          42,816
of income tax
expense

Discontinued
operations, net
of income tax
(benefit)           (485       )    320             (934       )    1,010
expense of $
(196), $(116), $
(356) and $148,
respectively

Net earnings        19,419          18,203          38,664          43,826

Noncontrolling      (811       )                    (24        )
interest (loss)

Net earnings
attributable to   $ 20,230        $ 18,203        $ 38,688        $ 43,826
Centene
Corporation

Amounts
attributable to
Centene
Corporation
common
shareholders:

Earnings from
continuing
operations, net   $ 20,715        $ 17,883        $ 39,622        $ 42,816
of income tax
expense

Discontinued
operations, net
of income tax       (485       )    320             (934       )    1,010
(benefit)
expense

Net earnings      $ 20,230        $ 18,203        $ 38,688        $ 43,826

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

Basic:

Continuing        $ 0.48          $ 0.41          $ 0.92          $ 0.99
operations

Discontinued        (0.01      )    0.01            (0.02      )    0.02
operations

Earnings per      $ 0.47          $ 0.42          $ 0.90          $ 1.01
common share

Diluted:

Continuing        $ 0.47          $ 0.40          $ 0.90          $ 0.96
operations

Discontinued        (0.01      )    0.01            (0.02      )    0.02
operations

Earnings per      $ 0.46          $ 0.41          $ 0.88          $ 0.98
common share

Weighted average
number of shares
outstanding:

Basic               43,001,157      43,375,944      43,034,390      43,457,076

Diluted             44,242,339      44,275,601      44,240,071      44,516,890




CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

                                                    Six Months Ended June 30,

                                                    2009          2008

                                                    (Unaudited)

Cash flows from operating activities:

Net earnings                                        $ 38,664      $ 43,826

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

Depreciation and amortization                         20,892        16,229

Stock compensation expense                            7,611         7,839

Loss (gain) on sale of investments, net               450           (201     )

Deferred income taxes                                 1,512         11,879

Changes in assets and liabilities --

Premium and related receivables                       (23,327  )    (23,144  )

Other current assets                                  1,357         (4,294   )

Other assets                                          (608     )    (1,671   )

Medical claims liabilities                            16,369        27,316

Unearned revenue                                      44,129        (38,753  )

Accounts payable and accrued expenses                 (48,653  )    45,907

Other operating activities                            3,723         1,743

Net cash provided by operating activities             62,119        86,676

Cash flows from investing activities:

Capital expenditures                                  (29,833  )    (34,581  )

Purchases of investments                              (415,052 )    (172,873 )

Sales and maturities of investments                   377,320       210,277

Investments in acquisitions, net of cash acquired,    (7,621   )    (7,818   )
and investment in equity method investee

Net cash used in investing activities                 (75,186  )    (4,995   )

Cash flows from financing activities:

Proceeds from exercise of stock options               1,109         3,029

Proceeds from borrowings                              288,000       56,005

Payment of long-term debt                             (264,135 )    (41,287  )

Dividend to noncontrolling interest                   (1,749   )    --

Contribution from noncontrolling interest             1,042         --

Excess tax benefits from stock compensation           15            2,792

Common stock repurchases                              (5,447   )    (13,316  )

Debt issue costs                                      (368     )    --

Net cash provided by financing activities             18,467        7,223

Net increase in cash and cash equivalents             5,400         88,904

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

Cash and cash equivalents, end of period            $ 384,499     $ 357,488

Supplemental disclosures of cash flow information:

Interest paid                                       $ 7,658       $ 7,590

Income taxes paid                                   $ 31,512      $ 15,966

Supplemental disclosure of non-cash investing and
financing activities:

Contribution from noncontrolling interest           $ 5,107       $ --




CENTENE CORPORATION

CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA

                      Q2          Q1          Q4          Q3          Q2

                      2009        2009        2008        2008        2008

MEMBERSHIP

Managed Care:

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

Florida               22,300      29,100      --          --          --

Georgia               292,800     289,300     288,300     283,900     278,800

Indiana               196,100     179,100     175,300     172,400     161,700

Ohio                  141,200     137,000     133,400     132,500     137,300

South Carolina        46,000      48,500      31,300      26,600      22,500

Texas                 443,200     421,100     428,000     433,200     423,700

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

Total at-risk         1,289,000   1,247,300   1,196,000   1,171,100   1,148,800
membership

Non-risk membership   114,000     96,000      3,700       3,700       3,500

TOTAL                 1,403,000   1,343,300   1,199,700   1,174,800   1,152,300

Medicaid              958,600     921,100     877,400     850,500     828,700

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

ABD & Medicare        69,000      69,300      61,300      58,800      63,200

Total at-risk         1,289,000   1,247,300   1,196,000   1,171,100   1,148,800
membership

Non-risk membership   114,000     96,000      3,700       3,700       3,500

TOTAL                 1,403,000   1,343,300   1,199,700   1,174,800   1,152,300

Specialty Services
(a):

Cenpatico Behavioral
Health

Arizona               110,500     104,700     105,000     102,400     99,400

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

Bridgeway Health
Solutions

Long-term Care        2,400       2,300       2,100       1,900       1,800

TOTAL                 154,000     147,600     148,200     144,400     141,200

(a) Includes external membership only.

REVENUE PER MEMBER    $ 219.75    $ 220.29    $ 218.52    $ 213.28    $ 214.76
(b)

CLAIMS(b)

Period-end inventory  362,200     325,000     269,300     323,200     389,100

Average inventory     234,500     267,600     288,600     298,400     235,300

Period-end inventory  0.28        0.26        0.23        0.28        0.34
per member

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




                           Q2         Q1         Q4         Q3         Q2

                           2009       2009       2008       2008       2008

DAYS IN CLAIMS PAYABLE(c)  47.5       45.3       48.5       47.9       47.8

(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                  $ 825.8    $ 816.8    $ 798.0    $ 692.6    $ 653.1

Unregulated                  27.0       28.9       24.1       26.8       29.0

TOTAL                      $ 852.8    $ 845.7    $ 822.1    $ 719.4    $ 682.1

DEBT TO CAPITALIZATION     33.0    %  34.6    %  34.6    %  34.4    %  32.6    %
(d)

(d) 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,

                                        2009     2008        2009     2008

Health Benefits Ratios

Medicaid and CHIP                       83.7 %   81.6 %      84.2 %   80.4 %

ABD and Medicare                        82.6     88.5        82.0     93.0

Specialty Services                      79.8     86.2        79.0     85.2

Total                                   83.1     83.0        83.3     82.9

Total General & Administrative Expense  13.9 %   13.6 %      13.7 %   13.1 %
Ratio




MEDICAL CLAIMS LIABILITIES (In thousands)

Four rolling quarters of the changes in medical claims liabilities are
summarized as follows:

Balance, June 30, 2008 $ 340,456

Acquisitions             15,398

Incurred related to:

Current period           2,924,510

Prior period             (49,381   )

Total incurred           2,875,129

Paid related to:

Current period           2,558,425

Prior period             277,771

Total paid               2,836,196

Balance, June 30, 2009 $ 394,787



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" claims 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, 2008.


    Source: Centene Corporation