Centene Corporation Reports 2008 Fourth Quarter Earnings

ST. LOUIS--(BUSINESS WIRE)-- Centene Corporation (NYSE: CNC) today announced its financial results for the quarter and year ended December 31, 2008. As discussed on our December 19, 2008 guidance call, the results of operations for University Health Plans, or UHP, our New Jersey health plan, are now classified as discontinued operations as a result of our decision to sell certain assets of UHP. Unless specifically noted, the discussions below are in the context of net earnings from continuing operations and all financial ratios are calculated using revenues excluding premium taxes and investment income.


      2008 Highlights

                                     Q4          Full Year

      Total Revenues (in millions)   $ 902.8     $ 3,364.5

      Consolidated HBR                 82.3  %     82.5    %

      Diluted EPS                    $ 0.53      $ 1.90



Fourth Quarter Highlights

    --  Quarter-end Medicaid Managed Care membership of 1.2 million.
    --  Revenues of $902.8 million, or $878.8 million net of premium taxes, a
        22.2% increase over the 2007 fourth quarter.
    --  Health Benefits Ratio (HBR), which reflects medical costs as a percent
        of premium revenues, of 82.3%, compared to 85.3% in the 2007 fourth
        quarter.
    --  General and administrative (G&A) expense ratio of 13.8%, compared to
        14.9% in the 2007 fourth quarter.
    --  Cash flow from operations of $95.5 million.
    --  Days in claims payable of 48.5.
    --  Diluted earnings per share, or EPS, from continuing operations of $0.53.
        Total (including New Jersey) diluted EPS of $0.49, including a $0.05
        one-time charge related to the sale of our New Jersey health plan.

Other Events

    --  In February 2009, we began converting membership in Florida from Access,
        on a non-risk basis, to our new subsidiary, Sunshine State Health Plan,
        on an at-risk basis.
    --  Peach State Health Plan, Inc., our Georgia subsidiary, received
        Accreditation Status by the National Committee for Quality Assurance
        (NCQA) under the New Health Plan Accreditation Program.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "We were pleased with the results of the fourth quarter and year, which reflect our focus on fundamentals that we will maintain going forward."

The following table depicts membership in Centene's managed care organizations, by state, at December 31, 2008 and 2007:


                    2008        2007

Georgia             288,300     287,900

Indiana             175,300     154,600

Ohio                133,400     128,700

South Carolina(a)   31,300      31,800

Texas               431,700     354,400

Wisconsin           124,800     131,900

Total               1,184,800   1,089,300

(a) Substantially all of the 2007 membership in South Carolina was on a
non-risk basis.



The following table depicts membership in Centene's managed care organizations, by member category, at December 31, 2008 and 2007:


                    2008            2007

Medicaid            862,500         807,600

SCHIP/Foster Care   257,300         214,600

ABD/Medicare        65,000          67,100

Total               1,184,800 (a)   1,089,300 (b)

(a) 1,181,100 at-risk; 3,700 ASO

(b) 1,054,200 at-risk; 35,100 ASO



Statement of Operations

    --  For the 2008 fourth quarter, revenues, net of premium taxes, increased
        22.2% to $878.8 million from $719.4 million in the 2007 fourth quarter.
        The increase was primarily driven by membership growth, especially
        related to the new Foster Care contract in Texas, premium rate increases
        and the recent acquisition of Celtic, which closed on July 1, 2008.
    --  The consolidated HBR, which reflects medical costs as a percent of
        premium revenues, was 82.3%, a decrease from 85.3% in the 2007 fourth
        quarter. The decrease is primarily due to overall increased premium
        yield, a moderating medical cost trend and the acquisition of Celtic.
        Sequentially, our consolidated HBR increased from 82.2% in the 2008
        third quarter to 82.3%.
    --  Consolidated G&A expense as a percent of premium and service revenues
        was 13.8% in the fourth quarter of 2008, a decrease from 14.9% in the
        fourth quarter of 2007. The decrease was due primarily to the
        restructuring charge recorded in the fourth quarter of 2007.
    --  Loss from discontinued operations in the fourth quarter of 2008 includes
        a $3.7 million pre-tax, or $0.05 per diluted share, charge primarily for
        asset impairments and employee severance related to the sale of our New
        Jersey health plan.
    --  For the year ended December 31, 2008, revenues, net of premium taxes,
        from continuing operations increased 21.6% to $3.3 billion from $2.7
        billion for the same period in the prior year. G&A expenses as a percent
        of premium and service revenues decreased to 13.6% in the year ended
        December 31, 2008, compared to 14.3% in the year ended December 31,
        2007. Earnings from operations increased to $131.6 million in the year
        ended December 31, 2008 from $55.3 million in the year ended December
        31, 2007. Net earnings from continuing operations, were $84.2 million,
        or $1.90 per diluted share in 2008.
    --  The following table reconciles diluted EPS from continuing operations to
        total diluted EPS:


EPS Reconciliation:

Diluted EPS from continuing operations(1)   $ 1.90

Discontinued health plan operations           0.03

New Jersey one-time exit charges              (0.05 )

Total diluted EPS                           $ 1.88




              Includes $0.28 recorded during the first quarter of 2008 related
         (1)  to the Georgia premium rate increase for July 1, 2007 - December
              31, 2007.



Balance Sheet and Cash Flow

At December 31, 2008, the Company had cash and investments of $822.1 million, including $798.0 million held by its regulated entities and $24.1 million held by its unregulated entities. Medical claims liabilities totaled $373.0 million, representing 48.5 days in claims payable, an increase of 0.2 days from December 31, 2007 and an increase of 0.6 days from September 30, 2008. Total debt was $264.9 million and debt to capitalization was 34.6%. Year to date cash flow from operations was $222.0 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, September 30, 2008   47.9

State medical expense reconciliation         0.5

Other                                        0.1

Days in claims payable, December 31, 2008    48.5



Outlook

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


                             Full Year 2009

                             Low       High

Revenue (in millions)(1)     $ 3,650   $ 3,775

Earnings per diluted share   $ 1.82    $ 1.94

(1) Revenue net of premium tax



The Company is maintaining its previously issued 2009 financial guidance.

Conference Call

As previously announced, the Company will host a conference call Tuesday, February 10, 2009, at 8:30 A.M. (Eastern Time) to review the financial results for the fourth quarter and year ended December 31, 2008, and to discuss its business outlook. Michael F. Neidorff and Eric R. Slusser will host the conference call. Investors are invited to participate in 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 P.M. (Eastern Time) on February 24, 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 81401888.

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 State Children's Health Insurance Program (SCHIP), 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 range of healthcare solutions for 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, nurse triage, pharmacy benefits management and treatment compliance. 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)

                                                       December 31,

                                                       2008          2007

ASSETS

Current assets:

Cash and cash equivalents of continuing operations     $ 370,999     $ 267,305

Cash and cash equivalents of discontinued operations     8,100         1,279

Total cash and cash equivalents                          379,099       268,584

Premium and related receivables, net of allowance
for uncollectible accounts of $595 and $258,             92,531        79,492
respectively

Short-term investments, at fair value (amortized         109,393       46,074
cost $108,469 and $46,193, respectively)

Other current assets                                     75,333        39,382

Current assets of discontinued operations other than     9,987         12,807
cash

Total current assets                                     666,343       446,339

Long-term investments, at fair value (amortized cost     332,411       317,041
$329,330 and $314,681, respectively)

Restricted deposits, at fair value (amortized cost       9,254         6,430
$9,124 and $6,383, respectively)

Property, software and equipment, net                    175,858       135,883

Goodwill                                                 163,380       138,862

Intangible assets, net                                   17,575        11,337

Other long-term assets                                   59,083        36,067

Long-term assets of discontinued operations              27,248        29,865

Total assets                                           $ 1,451,152   $ 1,121,824

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Medical claims liability                               $ 373,037     $ 313,364

Accounts payable and accrued expenses                    219,566       102,944

Unearned revenue                                         17,107        44,016

Current portion of long-term debt                        255           971

Current liabilities of discontinued operations           31,013        25,505

Total current liabilities                                640,978       486,800

Long-term debt                                           264,637       206,406

Other long-term liabilities                              43,539        13,300

Long-term liabilities of discontinued operations         726           271

Total liabilities                                        949,880       706,777

Commitments and contingencies

Stockholders' equity:

Common stock, $.001 par value; authorized
100,000,000 shares; issued and outstanding               43            44
42,987,764 and 43,667,837 shares, respectively

Additional paid-in capital                               222,841       221,693

Accumulated other comprehensive income:

Unrealized gain on investments, net of tax               3,152         1,571

Retained earnings                                        275,236       191,739

Total stockholders' equity                               501,272       415,047

Total liabilities and stockholders' equity             $ 1,451,152   $ 1,121,824





CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

                 Three Months Ended                 Year Ended

                 December 31,                       December 31,

                 2008             2007              2008             2007

                 (Unaudited)                        (Unaudited)

Revenues:

Premium          $ 860,811        $ 700,030         $ 3,199,360      $ 2,611,953

Premium tax        23,952           20,393            90,202           76,567

Service            17,995           19,399            74,953           80,508

Total revenues     902,758          739,822           3,364,515        2,769,028

Operating
expenses:

Medical costs      708,163          596,971           2,640,335        2,190,898

Cost of            13,453           15,530            56,920           61,348
services

General and
administrative     121,343          107,159           444,733          384,970
expenses

Premium tax        24,329           20,393            90,966           76,567

Total
operating          867,288          740,053           3,232,954        2,713,783
expenses

Earnings from      35,470           (231       )      131,561          55,245
operations

Other income
(expense):

Investment and     6,004            6,069             21,728           24,452
other income

Interest           (4,237     )     (4,110     )      (16,673    )     (15,626    )
expense

Earnings
before income      37,237           1,728             136,616          64,071
tax expense

Income tax         13,971           97                52,435           23,031
expense

Net earnings
from               23,266           1,631             84,181           41,040
continuing
operations

Discontinued
operations,
net of income
tax (benefit)
expense of $       (1,843     )     (158       )      (684       )     32,362
(671), $940, $
(281), and $
(31,563),
respectively

Net earnings     $ 21,423         $ 1,473           $ 83,497         $ 73,402

Net earnings
per share:

Basic:

Continuing       $ 0.54           $ 0.04            $ 1.95           $ 0.95
operations

Discontinued       (0.04      )     (0.01      )      (0.02      )     0.74
operations

Basic earnings
per common       $ 0.50           $ 0.03            $ 1.93           $ 1.69
share

Diluted:

Continuing       $ 0.53           $ 0.04            $ 1.90           $ 0.92
operations

Discontinued       (0.04      )     (0.01      )      (0.02      )     0.72
operations

Diluted
earnings per     $ 0.49           $ 0.03            $ 1.88           $ 1.64
common share

Weighted
average number
of shares
outstanding:

Basic              42,957,593       43,574,811        43,275,187       43,539,950

Diluted            44,043,749       44,951,016        44,398,955       44,823,082




CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

                                                     Year Ended December 31,

                                                     2008           2007

Cash flows from operating activities:

Net earnings                                         $ 83,497       $ 73,402

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

Depreciation and amortization                          35,414         27,807

Stock compensation expense                             15,328         15,781

Loss on sale of investments, net                       4,988          106

Gain on sale of FirstGuard Missouri                    --             (7,472   )

Impairment loss                                        2,546          7,207

Deferred income taxes                                  1,286          (10,223  )

Changes in assets and liabilities--

Premium and related receivables                        (1,548   )     1,663

Other current assets                                   (4,244   )     (6,253   )

Other assets                                           (2,700   )     (348     )

Medical claims liability                               46,337         56,287

Unearned revenue                                       (36,447  )     10,085

Accounts payable and accrued expenses                  75,112         31,234

Other operating activities                             2,409          2,964

Net cash provided by operating activities              221,978        202,240

Cash flows from investing activities:

Capital expenditures                                   (65,156  )     (53,937  )

Purchase of investments                                (549,652 )     (606,366 )

Sales and maturities of investments                    546,264        456,738

Proceeds from asset sales                              --             14,102

Investments in acquisitions and equity method          (85,377  )     (36,001  )
investee, net of cash acquired

Net cash used in investing activities                  (153,921 )     (225,464 )

Cash flows from financing activities:

Proceeds from exercise of stock options                5,354          5,464

Proceeds from borrowings                               236,005        212,000

Payment of long-term debt and notes payable            (178,491 )     (181,981 )

Excess tax benefits from stock compensation            3,100          --

Common stock repurchases                               (23,510  )     (9,541   )

Debt issue costs                                       --             (5,181   )

Net cash provided by financing activities              42,458         20,761

Net increase (decrease) in cash and cash               110,515        (2,463   )
equivalents

Cash and cash equivalents, beginning of period         268,584        271,047

Cash and cash equivalents, end of period             $ 379,099      $ 268,584

Supplemental disclosures of cash flow information:

Interest paid                                        $ 15,312       $ 11,945

Income taxes paid                                    $ 36,801       $ 7,348

Supplemental disclosure of non-cash investing and
financing activities:

Property acquired under capital lease obligations    $ --           $ 1,736





CENTENE CORPORATION

CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA

             Q4             Q3             Q2             Q1             Q4

             2008           2008           2008           2008           2007

MEMBERSHIP

Managed
Care:

Georgia        288,300        283,900        278,800        282,700        287,900

Indiana        175,300        172,400        161,700        161,300        154,600

Ohio           133,400        132,500        137,300        131,100        128,700

South          31,300         26,600         22,500         29,300         31,800
Carolina

Texas          431,700        436,900        427,200        369,000        354,400

Wisconsin      124,800        122,500        124,800        126,900        131,900

TOTAL          1,184,800      1,174,800      1,152,300      1,100,300      1,089,300

Medicaid       862,500        850,500        828,700        823,600        807,600

SCHIP &
Foster         257,300        261,800        256,900        206,300        214,600
Care

ABD &          65,000         62,500         66,700         70,400         67,100
Medicare

TOTAL          1,184,800      1,174,800      1,152,300      1,100,300      1,089,300

Specialty
Services
(a):

Cenpatico
Behavioral
Health

Arizona        105,000        102,400        99,400         97,900         99,900

Kansas         41,100         40,100         40,000         39,400         39,000

Bridgeway
Health
Solutions

Long-term      2,100          1,900          1,800          1,700          1,600
Care

Acute Care     14,900         --             --             --             --

TOTAL          163,100        144,400        141,200        139,000        140,500

(a)Includes external Specialty Service membership only.

REVENUE
PER MEMBER   $ 218.52       $ 213.28       $ 214.76       $ 215.39       $ 210.11
(b)

CLAIMS(b)

Period-end     269,300        323,200        389,100        411,700        329,200
inventory

Average        288,600        298,400        235,300        285,700        244,600
inventory

Period-end
inventory      0.23           0.28           0.34           0.37           0.30
per member

(b) Revenue per member and claims information are presented for the Medicaid Managed
Care segment.




                       Q4          Q3          Q2          Q1          Q4

                       2008        2008        2008        2008        2007

DAYS IN CLAIMS           48.5        47.9        47.8        48.3        48.3
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              $ 798.0     $ 692.6     $ 653.1     $ 627.1     $ 603.9

Unregulated              24.1        26.8        29.0        25.8        33.0

TOTAL                  $ 822.1     $ 719.4     $ 682.1     $ 652.9     $ 636.9

DEBT TO                  34.6  %     34.4  %     32.6  %     32.8  %     33.3  %
CAPITALIZATION(d)

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




OPERATING RATIOS:

                                          Three Months Ended    Year Ended

                                          December 31,          December 31,

                                          2008     2007         2008     2007

Health Benefits Ratios

Medicaid and SCHIP                        80.3 %   83.7 %       80.6 %   82.8 %

ABD and Medicare                          90.1     94.4         91.1     91.4

Specialty Services                        85.4     78.5         83.8     78.4

Total                                     82.3     85.3         82.5     83.9

General & Administrative Expense Ratios

Medicaid Managed Care                     10.4 %   11.9 %       10.4 %   11.2 %

Specialty Services                        16.7     15.7         16.4     15.8

Total                                     13.8     14.9         13.6     14.3




MEDICAL CLAIMS LIABILITIES (In thousands)

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

Balance, December 31, 2007   $ 313,364

Acquisitions                   15,398

Incurred related to:

Current period                 2,659,036

Prior period                   (18,701   )

Total incurred                 2,640,335

Paid related to:

Current period                 2,303,473

Prior period                   292,587

Total paid                     2,596,060

Balance, December 31, 2008   $ 373,037



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.


    Source: Centene Corporation