Centene Corporation Reports 2012 Third Quarter Results
During the third quarter of 2012, we recorded net earnings of
Earnings excluding Kentucky operations |
$ |
0.78 |
Third quarter loss from Kentucky operations |
(0.31) |
|
Subtotal |
0.47 |
|
Kentucky premium deficiency reserve |
(0.69) |
|
Gains on sales of investments |
0.21 |
|
State tax benefit |
0.08 |
|
Net earnings per diluted share |
$ |
0.07 |
During the third quarter of 2012, we recorded a
Third Quarter Highlights
- Quarter-end at-risk managed care membership of 2,503,000, an increase of 887,300 members, or 55% year over year.
- Premium and service revenues of
$2.2 billion , representing 75% growth year over year. - Health Benefits Ratio of 93.3%, compared to 85.0% in 2011. Excluding our
Kentucky operations, the HBR was 88.7% for the third quarter of 2012. - General and Administrative expense ratio of 8.2%, compared to 11.3% in 2011.
- Operating cash flow of
$317.2 million for the third quarter of 2012.
Other Events
- In
July 2012 , the Company began operating under a new contract with theWashington Health Care Authority to serveMedicaid beneficiaries in the state, initially operating as Coordinated Care. - In
July 2012 , the Company's subsidiary, Home State Health Plan, began operating under a new contract with theOffice of Administration forMissouri to serveMedicaid beneficiaries in the Eastern, Central, and Western Managed Care Regions of the state. - In
August 2012 , we were notified by theOhio Department of Job and Family Services that Buckeye Community Health Plan, ourOhio subsidiary, was selected to serveMedicaid members in a dual-eligible demonstration program in three ofOhio 's pre-determined seven regions: Northeast (Cleveland ), Northwest (Toledo ) and West Central (Dayton). This three-year program, which is part of the state ofOhio 's Integrated Care Delivery System expansion, will serve those who have bothMedicare andMedicaid eligibility. Enrollment is expected to begin in the second half of 2013. - In
October 2012 , we announced that our subsidiary, Kentucky Spirit Health Plan (Kentucky Spirit), notified the Cabinet for Health andFamily Services that it is exercising a contractual right that it believes allows Kentucky Spirit to terminate itsMedicaid managed care contract with the Commonwealth of Kentucky effectiveJuly 5 , 2013. We have also filed a formal dispute with the Cabinet for damages incurred under the contract. In addition, we have filed a lawsuit inFranklin Circuit Court against the Commonwealth of Kentucky seeking declaratory relief as a result of the Commonwealth's failure to completely and accurately disclose material information.
The following table sets forth the Company's membership by state for its managed care organizations:
September 30, |
|||||
2012 |
2011 |
||||
Arizona |
23,800 |
22,800 |
|||
Florida |
209,600 |
188,600 |
|||
Georgia |
312,400 |
298,000 |
|||
Illinois |
17,900 |
13,600 |
|||
Indiana |
205,400 |
205,300 |
|||
Kentucky |
145,400 |
— |
|||
Louisiana |
167,200 |
— |
|||
Massachusetts |
28,000 |
34,700 |
|||
Mississippi |
30,600 |
30,600 |
|||
Missouri |
53,900 |
— |
|||
Ohio |
173,800 |
162,200 |
|||
South Carolina |
89,400 |
86,500 |
|||
Texas |
930,700 |
494,500 |
|||
Washington |
42,000 |
— |
|||
Wisconsin |
72,900 |
78,900 |
|||
Total at-risk membership |
2,503,000 |
1,615,700 |
|||
Non-risk membership |
— |
10,600 |
|||
Total |
2,503,000 |
1,626,300 |
The following table sets forth our membership by line of business:
September 30, |
|||||
2012 |
2011 |
||||
Medicaid |
1,939,400 |
1,189,900 |
|||
CHIP & Foster Care |
229,600 |
210,600 |
|||
ABD & Medicare |
289,800 |
171,700 |
|||
Hybrid Programs |
35,700 |
38,400 |
|||
Long-term Care |
8,500 |
5,100 |
|||
Total at-risk membership |
2,503,000 |
1,615,700 |
|||
Non-risk membership |
— |
10,600 |
|||
Total |
2,503,000 |
1,626,300 |
The following table identifies the Company's dual eligible membership by line of business. The membership tables above include these members.
September 30, |
||||
2012 |
2011 |
|||
ABD |
76,900 |
34,000 |
||
Long-term Care |
7,800 |
4,700 |
||
Medicare |
4,000 |
3,100 |
||
Total |
88,700 |
41,800 |
Statement of Operations: Three Months Ended September 30, 2012
- For the third quarter of 2012, Premium and Service Revenues increased 75% to
$2.2 billion from$1.3 billion in the third quarter of 2011. The increase was primarily driven by theTexas andArizona expansions, pharmacy carve-ins inTexas andOhio , the additions between years ofKentucky ,Louisiana ,Missouri andWashington contracts and membership growth. - Consolidated HBR of 93.3% for the third quarter of 2012 represents an increase from 85.0% in the comparable period in 2011 and 92.9% from the second quarter of 2012. The increase compared to last year primarily reflects the recognition of a
$63.0 million premium deficiency reserve for ourKentucky contract as well as increased medical costs in Kentucky. Excluding theKentucky health plan operations, the third quarter 2012 HBR was 88.7%. - Consolidated G&A expense ratio for the third quarter of 2012 was 8.2%, compared to 11.3% in the prior year. The year over year decrease reflects the leveraging of expenses over higher revenues and a reduction in performance based compensation expense which lowered the ratio by 50 basis points.
- Earnings from operations were
$(27.6) million in the third quarter 2012 compared to$48.5 million in the third quarter 2011. Net earnings attributable toCentene Corporation were$3.8 million in the third quarter 2012, compared to$29.0 million in the third quarter of 2011. - Earnings per diluted share were
$0.07 in the third quarter of 2012 compared to$0.55 in the prior year.
Balance Sheet and Cash Flow
At September 30, 2012, the Company had cash, investments and restricted deposits of
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, 2012 |
41.4 |
||
Timing of claim payments |
0.9 |
||
Impact of new business |
0.5 |
||
Days in claims payable, September 30, 2012 |
42.8 |
||
Outlook
The table below depicts the Company's annual guidance for 2012.
Low |
High |
||||||||
Premium and Service Revenues (in millions) |
$ |
8,100 |
$ |
8,300 |
|||||
Diluted EPS |
$ |
0.56 |
$ |
0.66 |
|||||
Consolidated Health Benefits Ratio |
90.0 |
% |
91.0 |
% |
|||||
General & Administrative expense ratio |
8.5 |
% |
8.8 |
% |
|||||
Diluted Shares Outstanding (in thousands) |
53,600 |
53,800 |
|||||||
The Company's updated guidance reflect business expansion costs of
Conference Call
As previously announced, the Company will host a conference call Tuesday, October 23, 2012, at
Non-GAAP Financial Presentation
The Company is providing certain non-GAAP financial measures in this release as the Company believes that these figures are helpful in allowing individuals to more accurately assess the ongoing nature of the Company's operations and measure the Company's performance more consistently. The Company uses the presented non-GAAP financial measures internally to allow management to focus on period-to-period changes in the Company's core business operations. Therefore, the Company believes that this information is meaningful in addition to the information contained in the GAAP presentation of financial information. The presentation of this additional non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.
About
The information provided in this press release contains forward-looking statements that relate to future events and future financial performance of
[Tables Follow]
CENTENE CORPORATION AND SUBSIDIARIES |
|||||||
September 30, |
December 31, |
||||||
ASSETS |
|||||||
Current assets: |
|||||||
Cash and cash equivalents |
$ |
796,621 |
$ |
573,698 |
|||
Premium and related receivables |
316,123 |
157,450 |
|||||
Short-term investments |
139,920 |
130,499 |
|||||
Other current assets |
123,841 |
78,363 |
|||||
Total current assets |
1,376,505 |
940,010 |
|||||
Long-term investments |
559,714 |
506,140 |
|||||
Restricted deposits |
33,509 |
26,818 |
|||||
Property, software and equipment, net |
381,781 |
349,622 |
|||||
Goodwill |
256,288 |
281,981 |
|||||
Intangible assets, net |
21,375 |
27,430 |
|||||
Other long-term assets |
61,764 |
58,335 |
|||||
Total assets |
$ |
2,690,936 |
$ |
2,190,336 |
|||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|||||||
Current liabilities: |
|||||||
Medical claims liability |
$ |
919,032 |
$ |
607,985 |
|||
Premium deficiency reserve |
63,000 |
— |
|||||
Accounts payable and accrued expenses |
162,778 |
216,504 |
|||||
Unearned revenue |
131,967 |
9,890 |
|||||
Current portion of long-term debt |
3,337 |
3,234 |
|||||
Total current liabilities |
1,280,114 |
837,613 |
|||||
Long-term debt |
391,973 |
348,344 |
|||||
Other long-term liabilities |
61,785 |
67,960 |
|||||
Total liabilities |
1,733,872 |
1,253,917 |
|||||
Commitments and contingencies |
|||||||
Stockholders' equity: |
|||||||
Common stock, $.001 par value; authorized 100,000,000 shares; 54,405,296 issued and 51,632,704 outstanding at September 30, 2012, and 53,586,726 issued and 50,864,618 outstanding at December 31, 2011 |
54 |
54 |
|||||
Additional paid-in capital |
458,741 |
421,981 |
|||||
Accumulated other comprehensive income: |
|||||||
Unrealized gain on investments, net of tax |
6,702 |
5,761 |
|||||
Retained earnings |
557,759 |
564,961 |
|||||
Treasury stock, at cost (2,772,592 and 2,722,108 shares, respectively) |
(59,277) |
(57,123) |
|||||
Total Centene stockholders' equity |
963,979 |
935,634 |
|||||
Noncontrolling interest |
(6,915) |
785 |
|||||
Total stockholders' equity |
957,064 |
936,419 |
|||||
Total liabilities and stockholders' equity |
$ |
2,690,936 |
$ |
2,190,336 |
CENTENE CORPORATION AND SUBSIDIARIES |
|||||||||||||||
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||
2012 |
2011 |
2012 |
2011 |
||||||||||||
Revenues: |
|||||||||||||||
Premium |
$ |
2,184,061 |
$ |
1,239,464 |
$ |
5,853,469 |
$ |
3,640,829 |
|||||||
Service |
28,403 |
25,817 |
84,062 |
81,629 |
|||||||||||
Premium and service revenues |
2,212,464 |
1,265,281 |
5,937,531 |
3,722,458 |
|||||||||||
Premium tax |
235,657 |
36,754 |
333,484 |
110,948 |
|||||||||||
Total revenues |
2,448,121 |
1,302,035 |
6,271,015 |
3,833,406 |
|||||||||||
Expenses: |
|||||||||||||||
Medical costs |
2,036,999 |
1,053,320 |
5,370,080 |
3,091,007 |
|||||||||||
Cost of services |
21,744 |
20,229 |
66,897 |
60,717 |
|||||||||||
General and administrative expenses |
181,073 |
142,934 |
512,322 |
427,067 |
|||||||||||
Premium tax expense |
235,946 |
37,005 |
333,872 |
111,668 |
|||||||||||
Impairment loss |
— |
— |
28,033 |
— |
|||||||||||
Total operating expenses |
2,475,762 |
1,253,488 |
6,311,204 |
3,690,459 |
|||||||||||
Earnings (loss) from operations |
(27,641) |
48,547 |
(40,189) |
142,947 |
|||||||||||
Other income (expense): |
|||||||||||||||
Investment and other income |
23,244 |
2,697 |
32,580 |
9,379 |
|||||||||||
Debt extinguishment costs |
— |
— |
— |
(8,488) |
|||||||||||
Interest expense |
(4,855) |
(4,572) |
(14,393) |
(15,523) |
|||||||||||
Earnings (loss) from operations, before income tax expense |
(9,252) |
46,672 |
(22,002) |
128,315 |
|||||||||||
Income tax expense (benefit) |
(9,547) |
18,459 |
(6,068) |
49,216 |
|||||||||||
Net earnings (loss) |
295 |
28,213 |
(15,934) |
79,099 |
|||||||||||
Noncontrolling interest |
(3,524) |
(774) |
(8,732) |
(2,007) |
|||||||||||
Net earnings (loss) attributable to Centene Corporation |
$ |
3,819 |
$ |
28,987 |
$ |
(7,202) |
$ |
81,106 |
|||||||
Net earnings (loss) per common share attributable to Centene Corporation: |
|||||||||||||||
Basic earnings (loss) per common share |
$ |
0.07 |
$ |
0.58 |
$ |
(0.14) |
$ |
1.62 |
|||||||
Diluted earnings (loss) per common share |
$ |
0.07 |
$ |
0.55 |
$ |
(0.14) |
$ |
1.55 |
|||||||
Weighted average number of common shares outstanding: |
|||||||||||||||
Basic |
51,584,860 |
50,345,512 |
51,393,345 |
50,089,845 |
|||||||||||
Diluted |
53,806,197 |
52,620,350 |
51,393,345 |
52,320,906 |
CENTENE CORPORATION AND SUBSIDIARIES |
|||||||
Nine Months Ended September 30, |
|||||||
2012 |
2011 |
||||||
Cash flows from operating activities: |
|||||||
Net earnings (loss) |
$ |
(15,934) |
$ |
79,099 |
|||
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities |
|||||||
Depreciation and amortization |
49,892 |
43,055 |
|||||
Stock compensation expense |
18,417 |
13,263 |
|||||
Impairment loss |
28,033 |
— |
|||||
Gain on sale of investment in convertible note |
(17,880) |
— |
|||||
Gain on sale of investments, net |
(1,460) |
(213) |
|||||
Debt extinguishment costs |
— |
8,488 |
|||||
Deferred income taxes |
(19,318) |
(223) |
|||||
Changes in assets and liabilities |
|||||||
Premium and related receivables |
(139,414) |
(13,306) |
|||||
Other current assets |
(23,487) |
(6,667) |
|||||
Other assets |
1,918 |
(1,230) |
|||||
Medical claims liabilities |
374,046 |
40,476) |
|||||
Unearned revenue |
122,077 |
(65,183) |
|||||
Accounts payable and accrued expenses |
(59,872) |
(11,414) |
|||||
Other operating activities |
(9,736) |
3,528 |
|||||
Net cash provided by operating activities |
307,282 |
89,673 |
|||||
Cash flows from investing activities: |
|||||||
Capital expenditures |
(70,601) |
(56,938) |
|||||
Purchases of investments |
(501,958) |
(201,145) |
|||||
Sales and maturities of investments |
434,009 |
180,124 |
|||||
Investments in acquisitions, net of cash acquired |
— |
(3,192) |
|||||
Net cash used in investing activities |
(138,550) |
(81,151) |
|||||
Cash flows from financing activities: |
|||||||
Proceeds from exercise of stock options |
11,686 |
13,582 |
|||||
Proceeds from borrowings |
215,000 |
419,183 |
|||||
Payment of long-term debt |
(177,422) |
(415,475) |
|||||
Excess tax benefits from stock compensation |
6,049 |
1,632 |
|||||
Common stock repurchases |
(2,154) |
(1,280) |
|||||
Contribution from noncontrolling interest |
1,032 |
569 |
|||||
Debt issue costs |
— |
(9,242) |
|||||
Net cash provided by financing activities |
54,191 |
8,969 |
|||||
Net increase in cash and cash equivalents |
222,923 |
17,491 |
|||||
Cash and cash equivalents, beginning of period |
573,698 |
434,166 |
|||||
Cash and cash equivalents, end of period |
$ |
796,621 |
$ |
451,657 |
|||
Supplemental disclosures of cash flow information: |
|||||||
Interest paid |
$ |
12,127 |
$ |
16,097 |
|||
Income taxes paid |
$ |
34,001 |
$ |
49,996 |
CENTENE CORPORATION |
|||||||||||||||||||
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
|||||||||||||||
2012 |
2012 |
2012 |
2011 |
2011 |
|||||||||||||||
MEMBERSHIP |
|||||||||||||||||||
Managed Care: |
|||||||||||||||||||
Arizona |
23,800 |
24,000 |
23,100 |
23,700 |
22,800 |
||||||||||||||
Florida |
209,600 |
204,100 |
199,500 |
198,300 |
188,600 |
||||||||||||||
Georgia |
312,400 |
313,300 |
306,000 |
298,200 |
298,000 |
||||||||||||||
Illinois |
17,900 |
17,800 |
17,400 |
16,300 |
13,600 |
||||||||||||||
Indiana |
205,400 |
205,000 |
206,300 |
206,900 |
205,300 |
||||||||||||||
Kentucky |
145,400 |
143,500 |
145,700 |
180,700 |
— |
||||||||||||||
Louisiana |
167,200 |
168,700 |
51,300 |
— |
— |
||||||||||||||
Massachusetts |
28,000 |
41,400 |
36,000 |
35,700 |
34,700 |
||||||||||||||
Mississippi |
30,600 |
30,100 |
29,500 |
31,600 |
30,600 |
||||||||||||||
Missouri |
53,900 |
— |
— |
— |
— |
||||||||||||||
Ohio |
173,800 |
166,800 |
161,000 |
159,900 |
162,200 |
||||||||||||||
South Carolina |
89,400 |
87,800 |
86,700 |
82,900 |
86,500 |
||||||||||||||
Texas |
930,700 |
919,200 |
811,000 |
503,800 |
494,500 |
||||||||||||||
Washington |
42,000 |
— |
— |
— |
— |
||||||||||||||
Wisconsin |
72,900 |
75,800 |
76,000 |
78,000 |
78,900 |
||||||||||||||
Total at-risk membership |
2,503,000 |
2,397,500 |
2,149,500 |
1,816,000 |
1,615,700 |
||||||||||||||
Non-risk membership |
— |
— |
— |
4,900 |
10,600 |
||||||||||||||
TOTAL |
2,503,000 |
2,397,500 |
2,149,500 |
1,820,900 |
1,626,300 |
||||||||||||||
Medicaid |
1,939,400 |
1,848,500 |
1,634,800 |
1,336,800 |
1,189,900 |
||||||||||||||
CHIP & Foster Care |
229,600 |
222,600 |
218,800 |
213,900 |
210,600 |
||||||||||||||
ABD & Medicare |
289,800 |
269,900 |
247,400 |
218,000 |
171,700 |
||||||||||||||
Hybrid Programs |
35,700 |
48,100 |
41,500 |
40,500 |
38,400 |
||||||||||||||
Long-term Care |
8,500 |
8,400 |
7,000 |
6,800 |
5,100 |
||||||||||||||
Total at-risk membership |
2,503,000 |
2,397,500 |
2,149,500 |
1,816,000 |
1,615,700 |
||||||||||||||
Non-risk membership |
— |
— |
— |
4,900 |
10,600 |
||||||||||||||
TOTAL |
2,503,000 |
2,397,500 |
2,149,500 |
1,820,900 |
1,626,300 |
||||||||||||||
Specialty Services(a): |
|||||||||||||||||||
Cenpatico Behavioral Health |
|||||||||||||||||||
Arizona |
162,000 |
159,900 |
162,100 |
168,900 |
175,500 |
||||||||||||||
Kansas |
48,500 |
44,300 |
46,000 |
46,200 |
45,600 |
||||||||||||||
TOTAL |
210,500 |
204,200 |
208,100 |
215,100 |
221,100 |
||||||||||||||
(a) Includes external membership only. |
|||||||||||||||||||
REVENUE PER MEMBER PER MONTH(b) |
$ |
283 |
$ |
279 |
$ |
269 |
$ |
262 |
$ |
245 |
|||||||||
CLAIMS(b) |
|||||||||||||||||||
Period-end inventory |
826,804 |
1,195,000 |
735,000 |
495,500 |
482,900 |
||||||||||||||
Average inventory |
547,393 |
640,600 |
457,400 |
367,590 |
312,400 |
||||||||||||||
Period-end inventory per member |
0.33 |
0.50 |
0.34 |
0.27 |
0.30 |
||||||||||||||
(b) Revenue per member and claims information are presented for the Managed Care at-risk members. |
|||||||||||||||||||
NUMBER OF EMPLOYEES |
6,400 |
6,200 |
5,700 |
5,300 |
5,000 |
||||||||||||||
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
|||||||||||||||
2012 |
2012 |
2012 |
2011 |
2011 |
|||||||||||||||
DAYS IN CLAIMS PAYABLE(c) |
42.8 |
41.4 |
44.7 |
45.3 |
43.6 |
||||||||||||||
(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, excluding the Kentucky premium deficiency reserve expense and liability. |
|||||||||||||||||||
CASH AND INVESTMENTS (in millions) |
|||||||||||||||||||
Regulated |
$ |
1,493.8 |
$ |
1,198.2 |
$ |
1,166.9 |
$ |
1,198.9 |
$ |
1,079.3 |
|||||||||
Unregulated |
$ |
36.0 |
$ |
40.6 |
$ |
35.5 |
$ |
38.2 |
$ |
35.9 |
|||||||||
TOTAL |
$ |
1,529.8 |
$ |
1,238.8 |
$ |
1,202.4 |
$ |
1,237.1 |
$ |
1,115.2 |
|||||||||
DEBT TO CAPITALIZATION |
29.2 |
% |
30.1 |
% |
26.4 |
% |
27.3 |
% |
28.0 |
% |
|||||||||
DEBT TO CAPITALIZATION EXCLUDING NON-RECOURSE DEBT(d) |
25.0 |
% |
25.9 |
% |
21.8 |
% |
22.6 |
% |
23.2 |
% |
|||||||||
Debt to Capitalization is calculated as follows: total debt divided by (total debt + total equity). |
|||||||||||||||||||
(d) The non-recourse debt represents the Company's mortgage note payable ($76.0 million at September 30, 2012.) |
Operating Ratios:
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||
2012 |
2011 |
2012 |
2011 |
||||||||
Health Benefits Ratios: |
|||||||||||
Medicaid and CHIP |
91.8 |
% |
81.5 |
% |
90.8 |
% |
82.3 |
% |
|||
ABD and Medicare |
97.3 |
92.0 |
93.4 |
90.3 |
|||||||
Specialty Services |
89.5 |
87.9 |
92.5 |
87.4 |
|||||||
Total |
93.3 |
85.0 |
91.7 |
84.9 |
|||||||
Total General & Administrative Expense Ratio |
8.2 |
% |
11.3 |
% |
8.6 |
% |
11.5 |
% |
MEDICAL CLAIMS LIABILITY (In thousands)
The changes in medical claims liability are summarized as follows:
Balance, September 30, 2011 |
$ |
498,705 |
||
Incurred related to: |
||||
Current period |
6,659,744 |
|||
Prior period |
(55,925) |
|||
Total incurred |
6,603,819 |
|||
Paid related to: |
||||
Current period |
5,684,404 |
|||
Prior period |
436,088 |
|||
Total paid |
6,120,492 |
|||
Less: Premium Deficiency Reserve |
$ |
63,000 |
||
Balance, September 30, 2012 |
$ |
919,032 |
The amount of the "Incurred related to: Prior period" above represents favorable development and 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, 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, 2011.
SOURCE
Investor Relations Inquiries, Edmund E. Kroll, Senior Vice President, Finance & Investor Relations, +1-212-759-0382, or Media Inquiries, Deanne Lane, Vice President, Media Affairs, +1-314-725-4477
Released October 23, 2012