Centene Corporation Reports 2011 Fourth Quarter and Full Year Earnings

February 7, 2012 at 6:01 AM EST
PDF Version
- FOURTH QUARTER EARNINGS OF $0.57 PER DILUTED SHARE -
- FULL YEAR EARNINGS OF $2.12 PER DILUTED SHARE -

ST. LOUIS, Feb. 7, 2012 /PRNewswire/ -- Centene Corporation (NYSE: CNC) today announced its financial results for the quarter and year ended December 31, 2011.  As previously discussed, beginning with the fourth quarter of 2011, we have reclassified certain medical costs to more closely align with the NAIC definitions.  All of the information in this release has been reclassified to conform to the current presentation. For additional information, the details of the reclassification are provided in the supplemental financial data of this release.











2011 Highlights


Q4

Full Year


Premium and Service Revenues (in millions)

$

1,458.5

$

5,181.0


Consolidated Health Benefits Ratio

85.9

%

85.2

%

General & Administrative expense ratio

11.0

%

11.3

%

Diluted EPS

$

0.57

$

2.12

(1)

Cash flow from operations (in millions)

$

172.0

$

261.7

(1) Includes $0.10 per share of debt extinguishment costs.














Fourth Quarter Highlights

  • Quarter-end managed care at-risk membership of 1,816,000, an increase of 18.4% year over year.
  • Premium and Service Revenues of $1.5 billion, representing 29.1% year over year growth.
  • Health Benefits Ratio of 85.9%, compared to 85.0% in the prior year and 85.0% in the third quarter of 2011.  
  • General and Administrative expense ratio of 11.0%, compared to 11.3% in the prior year.  
  • Diluted earnings per share from continuing operations of $0.57, an increase of 14.0% from the prior year.
  • Employees increased from 4,200 at December 31, 2010 to 5,300 at December 31, 2011, reflecting our continued business expansions.  

Other Events

  • In January 2012, we were selected to contract with the Washington Health Care Authority to serve Medicaid beneficiaries in the state.  Operations are expected to commence in the third quarter of 2012.
  • In February 2012, Louisiana Healthcare Connections began operating under a new contract in Louisiana to provide healthcare services to Medicaid enrollees participating in the Bayou Health program.  In addition, Nurtur, our subsidiary which provides life, health and wellness programs, commenced operations to provide disease management services for state employees in Louisiana beginning in January 2012.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "During 2011, we were able to successfully demonstrate our ability to grow through new contract awards and expansions, while continuing to focus on our targeted margins.  I look forward to the new business commencing in 2012 and the opportunity to develop additional markets."  

The following table depicts membership in Centene's managed care organizations, by state:




December 31,


2011

2010

Arizona

23,700

22,400

Florida

198,300

194,900

Georgia

298,200

305,800

Illinois

16,300

-

Indiana

206,900

215,800

Kentucky

180,700

-

Massachusetts

35,700

36,200

Mississippi

31,600

-

Ohio

159,900

160,100

South Carolina

82,900

90,300

Texas

503,800

433,100

Wisconsin

78,000

74,900

Total at-risk membership

1,816,000

1,533,500

Non-risk membership

4,900

4,200

Total

1,820,900

1,537,700



The following table depicts membership in Centene's managed care organizations, by member category:


December 31,


2011

2010

Medicaid

1,336,800

1,177,100

CHIP & Foster Care

213,900

210,500

ABD & Medicare

218,000

104,600

Hybrid Programs

40,500

36,200

Long-term Care

6,800

5,100

Total at-risk membership

1,816,000

1,533,500

Non-risk membership

4,900

4,200

Total

1,820,900

1,537,700








Statement of Operations: Three Months Ended December 31, 2011

  • For the fourth quarter of 2011, Premium and Service Revenues increased 29.1% to $1.5 billion from $1.1 billion in the fourth quarter of 2010.  The increase was primarily driven by new operations in Mississippi, Illinois and Kentucky added during 2011, Texas expansion and overall membership growth.  
  • Consolidated HBR of 85.9% for the fourth quarter of 2011 represents an increase of 0.9% from the comparable period in 2010 and from the third quarter of 2011.  This increase is primarily a result of the commencement of operations in Kentucky in November 2011.  
  • Consolidated G&A expense ratio for the fourth quarter of 2011 was 11.0%, compared to 11.3% in the prior year.  The decrease is a result of leveraging our costs over higher revenues, offset by additional business expansion costs.  
  • Earnings from operations increased to $47.4 million in the fourth quarter 2011 from $45.5 million in the fourth quarter 2010.  Net earnings from continuing operations were $30.1 million in the fourth quarter 2011, compared to $25.5 million in the fourth quarter of 2010.  
  • Earnings per diluted share increased to $0.57 in the fourth quarter of 2011 compared to $0.50 in the prior year.

Statement of Operations: Year Ended December 31, 2011

  • For the year ended December 31, 2011, Premium and Service Revenues increased 20.9% to $5.2 billion from $4.3 billion in 2010.  The increase was driven by the commencement of operations in Mississippi, Kentucky and Illinois during 2011, Texas expansion and membership growth.  
  • Consolidated HBR of 85.2% for 2011 represents a decrease of 0.3% from 2010 primarily as a result of lower levels of utilization and contract enhancements, partially offset by our Kentucky health plan which began operations in November 2011.
  • Consolidated G&A expense ratio for 2011 was 11.3%, compared to 11.2% in the prior year.  The increase is primarily due to additional business expansion costs, offset by leveraging our expenses over higher revenues.  
  • Earnings from operations increased to $190.3 million in 2011 from $157.1 million in 2010, or 21.2% year over year.  Net earnings from continuing operations were $111.2 million in 2011, compared to $90.9 million in 2010.  
  • Earnings per diluted share increased to $2.12 in 2011, including $(0.10) of debt extinguishment costs, compared to $1.80 in the prior year.

Balance Sheet and Cash Flow

At December 31, 2011, the Company had cash, investments and restricted deposits of $1,237.1 million, including $38.2 million held by its unregulated entities.  Medical claims liabilities totaled $608.0 million, representing 45.3 days in claims payable.  Total debt was $351.6 million and debt to capitalization was 22.6% at December 31, 2011 excluding the $77.8 million non-recourse mortgage note.  Cash flows from operations for the year ended December 31, 2011 were $261.7 million, or 2.4 times net earnings.

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, 2011

43.6*   

  Impact of new business

1.8     

  Ohio pharmacy carve in

(0.8)    

  Timing of claim payments

0.7     

Days in claims payable, December 31, 2011

45.3     




* Days in claims payable for September 30, 2011 have been reduced by 1.0 day to reflect the medical cost reclassification.

Outlook

The table below depicts the Company's annual guidance for 2012:


Full Year 2012


Low

High 

Premium and Service Revenues (in millions)

$    7,200

$  7,600

Diluted EPS

$      2.60

$    2.80

Consolidated Health Benefits Ratio

87.0%

88.0%

General & Administrative expense ratio

9.5%

10.0%






Diluted Shares Outstanding (in thousands)

53,400









The above guidance has not been adjusted to include the impact associated with the Washington RFP and assumes that the Texas expansion will begin on March 1 with required CMS approval of premium rates.  

Conference Call

As previously announced, the Company will host a conference call Tuesday, February 7, 2012, at 8:30 A.M. (Eastern Time) to review the financial results for the fourth quarter and year ended December 31, 2011, 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 1-800-860-2442 in the U.S. and Canada; +1-412-858-4600 from abroad; or via a live, audio webcast on the Company's website at www.centene.com, under the Investors section.  A webcast replay will be available for on-demand listening shortly after the completion of the call for the next twelve months or until 11:59 PM (Eastern Time) on Tuesday, February 12, 2013, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 AM Eastern Time on Wednesday, February 15, 2012, by dialing 1-877-344-7529 in the U.S. and Canada, or +1-412-317-0088  from abroad, and entering access code 10008192.

About Centene Corporation

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

The information provided in this press release contains forward-looking statements that relate to future events and future financial performance of Centene. Subsequent events and developments may cause the Company's estimates to change. The Company disclaims any obligation to update this forward-looking financial information in the future. Readers are cautioned that matters subject to forward-looking statements involve known and unknown risks and uncertainties, including economic, regulatory, competitive and other factors that may cause Centene's or its industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Actual results may differ from projections or estimates due to a variety of important factors, including Centene's ability to accurately predict and effectively manage health benefits and other operating expenses, competition, membership and revenue projections, timing of regulatory contract approval, 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)


December 31,


2011

2010

ASSETS





Current assets:





Cash and cash equivalents


$

573,698

$

434,166

Premium and related receivables, net of allowance for uncollectible accounts of $639 and $17, respectively

157,450

136,243

Short-term investments, at fair value (amortized cost $129,232 and $21,141, respectively)

130,499

21,346

Other current assets

78,363

65,066

Total current assets

940,010

656,821

Long-term investments, at fair value (amortized cost $497,805 and $585,862, respectively)

506,140

595,879

Restricted deposits, at fair value (amortized cost $26,751 and $22,755, respectively)

26,818

22,758

Property, software and equipment, net of accumulated depreciation of $177,294 and $138,629, respectively

349,622

326,341

Goodwill



281,981

278,051

Intangible assets, net

27,430

29,109

Other long-term assets

58,335

34,923

Total assets

$

2,190,336

$

1,943,882

LIABILITIES AND STOCKHOLDERS' EQUITY





Current liabilities:





Medical claims liability

$

607,985

$

456,765

Accounts payable and accrued expenses

216,504

188,320

Unearned revenue

9,890

117,344

Current portion of long-term debt

3,234

2,817

Total current liabilities

837,613

765,246

Long-term debt

348,344

327,824

Other long-term liabilities

67,960

53,757

Total liabilities

1,253,917

1,146,827







Commitments and contingencies












Stockholders' equity:





Common stock, $.001 par value; authorized 100,000,000 shares; 53,586,726 issued and 50,864,618 outstanding at December 31, 2011, and 52,172,037 issued and 49,616,824 outstanding at December 31, 2010

54

52

Additional paid-in capital

421,981

384,206

Accumulated other comprehensive income:





Unrealized gain on investments, net of tax

5,761

6,424

Retained earnings

564,961

453,743

Treasury stock, at cost (2,722,108 and 2,555,213 shares, respectively)

(57,123)

(50,486)

Total Centene stockholders' equity

935,634

793,939

Noncontrolling interest

785

3,116

Total stockholders' equity

936,419

797,055

Total liabilities and stockholders' equity

$

2,190,336

$

1,943,882



CENTENE CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(Unaudited)

Three Months Ended

December 31,

Year Ended

December 31,

2011

2010

2011

2010

Revenues:













Premium

$

1,436,413

$

1,106,370

$

5,077,242

$

4,192,172

Service

22,136


23,118

103,765


91,661

Premium and service revenues

1,458,549


1,129,488

5,181,007


4,283,833

Premium tax

48,627


51,481

159,575


164,490

Total revenues

1,507,176


1,180,969

5,340,582


4,448,323

Expenses:













Medical costs

1,233,739


940,935

4,324,746


3,584,452

Cost of services

17,397


16,414

78,114


63,919

General and administrative expenses

159,937


127,886

587,004


477,765

Premium tax

48,726


50,233

160,394


165,118

Total operating expenses

1,459,799


1,135,468

5,150,258


4,291,254

Earnings from operations

47,377


45,501

190,324


157,069

Other income (expense):













Investment and other income

3,990


3,293

13,369


15,205

Debt extinguishment costs

-


-

(8,488)


-

Interest expense

(4,797)


(5,452)

(20,320)


(17,992)

Earnings from continuing operations, before income tax expense

46,570


43,342

174,885


154,282

Income tax expense

17,306


16,958

66,522


59,900

Earnings from continuing operations, net of income tax expense

29,264


26,384

108,363


94,382

Discontinued operations, net of income tax expense of $0, $12, $0 and $4,388, respectively


-


(65)

-


3,889

Net earnings

29,264


26,319

108,363


98,271

Noncontrolling interest

(848)


920

(2,855)


3,435

Net earnings attributable to Centene Corporation

$

30,112

$

25,399

$

111,218

$

94,836















Amounts attributable to Centene Corporation common shareholders:













Earnings from continuing operations, net of income tax expense

$

30,112

$

25,464

$

111,218

$

90,947

Discontinued operations, net of income tax (benefit) expense

-


(65)

-


3,889

Net earnings

$

30,112

$

25,399

$

111,218

$

94,836















Net earnings per share attributable to Centene Corporation:













Basic:













Continuing operations

$

0.60

$

0.52

$

2.22

$

1.87

Discontinued operations


-


-

-


0.08

Earnings per common share

$

0.60

$

0.52

$

2.22

$

1.95

Diluted:













Continuing operations

$

0.57

$

0.50

$

2.12

$

1.80

Discontinued operations

-


-

-


0.08

Earnings per common share

$

0.57

$

0.50

$

2.12

$

1.88















Weighted average number of shares outstanding:













Basic

50,522,726


49,356,768

50,198,954


48,754,947

Diluted

52,894,701


51,205,720

52,474,238


50,447,888



CENTENE CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


Year Ended December 31,


2011

2010

Cash flows from operating activities:







Net earnings


$

108,363

$

98,271

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







Depreciation and amortization

58,327


52,000

Stock compensation expense

18,171


13,874

Gain on sale of investments, net

(287)


(6,337)

Debt extinguishment costs

8,488


-

(Gain) on sale of UHP

-


(8,201)

Impairment loss on Casenet, LLC

-


5,531

Deferred income taxes

2,031


10,317

Changes in assets and liabilities:







Premium and related receivables

(11,306)


(23,359)

Other current assets

(11,812)


(3,240)

Other assets

(2)


(2,028)

Medical claims liability

149,756


(30,421)

Unearned revenue

(109,082)


25,700

Accounts payable and accrued expenses

38,889


37,398

Other operating activities

10,160


(573)

Net cash provided by operating activities

261,696


168,932

Cash flows from investing activities:







Capital expenditures

(68,993)


(63,304)

Capital expenditures of Centene Center LLC

(4,715)


(55,252)

Purchase of investments

(318,397)


(615,506)

Sales and maturities of investments

267,404


570,423

Proceeds from asset sales

-


13,420

Investments in acquisitions, net of cash acquired, and investment in equity method investee

(4,375)


(60,388)

Net cash used in investing activities

(129,076)


(210,607)

Cash flows from financing activities:







Proceeds from exercise of stock options

15,815


3,419

Proceeds from borrowings

419,183


218,538

Proceeds from stock offering

-


104,534

Payment of long-term debt

(416,283)


(195,728)

Purchase of noncontrolling interest

-


(48,257)

Distributions from (to) noncontrolling interest

813


(7,387)

Excess tax benefits from stock compensation

4,435


963

Common stock repurchases

(7,809)


(3,224)

Debt issue costs

(9,242)


(769)

Net cash provided by financing activities

6,912


72,089

Net increase in cash and cash equivalents

139,532


30,414

Cash and cash equivalents, beginning of period

434,166


403,752

Cash and cash equivalents, end of period

$

573,698

$

434,166









Supplemental disclosures of cash flow information:







Interest paid

$

27,383

$

17,296

Income taxes paid

$

50,444

$

53,938









Supplemental disclosure of non-cash investing and financing activities:







Contribution from noncontrolling interest

$

-

$

306

Capital expenditures

$

6,591

$

8,720



CENTENE CORPORATION


CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA

Q4

Q3

Q2

Q1

Q4

2011

2011

2011

2011

2010

MEMBERSHIP








Managed Care:








Arizona

23,700

22,800

22,800

22,600

22,400

Florida

198,300

188,600

190,600

188,800

194,900

Georgia

298,200

298,000

303,100

303,300

305,800

Illinois

16,300

13,600

700

-

-

Indiana

206,900

205,300

206,700

209,400

215,800

Kentucky

180,700

-

-

-

-

Massachusetts

35,700

34,700

32,900

34,100

36,200

Mississippi

31,600

30,600

30,800

-

-

Ohio

159,900

162,200

159,900

160,900

160,100

South Carolina

82,900

86,500

82,800

84,900

90,300

Texas

503,800

494,500

470,400

456,700

433,100

Wisconsin

78,000

78,900

79,800

81,800

74,900

Total at-risk membership

1,816,000

1,615,700

1,580,500

1,542,500

1,533,500

Non-risk membership

4,900

10,600

10,400

10,400

4,200

TOTAL

1,820,900

1,626,300

1,590,900

1,552,900

1,537,700




















Medicaid

1,336,800

1,189,900

1,172,400

1,169,700

1,177,100

CHIP & Foster Care

213,900

210,600

211,400

208,900

210,500

ABD & Medicare

218,000

171,700

156,300

123,800

104,600

Hybrid Programs

40,500

38,400

35,500

35,200

36,200

Long-term Care

6,800

5,100

4,900

4,900

5,100

Total at-risk membership

1,816,000

1,615,700

1,580,500

1,542,500

1,533,500

Non-risk membership

4,900

10,600

10,400

10,400

4,200

TOTAL

1,820,900

1,626,300

1,590,900

1,552,900

1,537,700










Specialty Services(a):








Cenpatico Behavioral Health








Arizona

168,900

175,500

173,200

172,700

174,600

Kansas

46,200

45,600

45,000

44,000

39,200

TOTAL

215,100

221,100

218,200

216,700

213,800










(a) Includes external membership only.

















REVENUE PER MEMBER PER MONTH(b)

$

261.95

$

245.27

$

240.57

$

238.31

$

239.66










CLAIMS(b)








Period-end inventory

495,500

482,900

415,700

527,100

434,900

Average inventory

367,590

312,400

332,300

347,900

304,700

Period-end inventory per member

0.27

0.30

0.26

0.34

0.28

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










NUMBER OF EMPLOYEES

5,300

5,000

4,800

4,500

4,200





Q4

Q3

Q2

Q1

Q4

2011

2011

2011

2011

2010










DAYS IN CLAIMS PAYABLE (c)

45.3

43.6

43.4

43.4

44.7

(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

$

1,198.9

$

1,079.3

$

1,061.9

$

1,096.3

$

1,043.0

Unregulated

38.2

35.9

36.5

31.7

30.9

TOTAL

$

1,237.1

$

1,115.2

$

1,098.4

$

1,128.0

$

1,073.9










DEBT TO CAPITALIZATION

27.3%

28.0%

28.1%

26.9%

29.3%

DEBT TO CAPITALIZATION EXCLUDING NON-RECOURSE DEBT(d)

22.6%

23.2%

23.0%

21.4%

23.9%

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


(d) The non-recourse debt represents our mortgage note payable ($77.8 million at December 31, 2011).



MEDICAL COST / GENERAL AND ADMINISTRATIVE EXPENSE RECLASSIFICATION IMPACT ($ in thousands):

Three Months Ended December 31,

Year Ended December 31,

2011

2010

2011

2010

Medical Costs

HBR

Medical Costs

HBR

Medical

Costs

HBR

Medical Costs

HBR

Historical

$1,206,516

84.0%

$922,070

83.3%

$4,227,916

83.3%

$3,514,394

83.8%

Reclassification impact

27,223

1.9

18,865

1.7

96,830

1.9

70,058

1.7

Revised

$1,233,739

85.9%

$940,935

85.0%

$4,324,746

85.2%

$3,584,452

85.5%





Three Months Ended December 31,

Year Ended December 31,

2011

2010

2011

2010

G&A Expense

G&A Ratio

G&A Expense

G&A Ratio

G&A

Expense

G&A Ratio

G&A Expense

G&A Ratio

Historical

$187,160

12.8%

$146,751

13.0%

$683,834

13.2%

$547,823

12.8%

Reclassification impact

(27,223)

(1.8)

(18,865)

(1.7)

(96,830)

(1.9)

(70,058)

(1.6)

Revised

$159,937

11.0%

$127,886

11.3%

$587,004

11.3%

$477,765

11.2%



Operating Ratios:



Three Months Ended

December 31,

Year Ended

December 31,

2011

2010

2011

2010

Health Benefits Ratios:












 Medicaid and CHIP

82.9

%

83.7

%

82.4

%

85.0

%

 ABD and Medicare

88.8


89.1

89.8


87.1

 Specialty Services

94.0


86.1

89.1


86.2

 Total

85.9


85.0

85.2


85.5














Total General & Administrative Expense Ratio

11.0

%

11.3

%

11.3

%

11.2

%



MEDICAL CLAIMS LIABILITY (In thousands)

The changes in medical claims liability are summarized as follows:

Balance, December 31, 2010

$

456,765



Incurred related to:





Current period 

4,390,123



Prior period

(65,377)



Total incurred

4,324,746



Paid related to:





Current period 

3,788,808



Prior period

384,718



Total paid

4,173,526



Balance, December 31, 2011

$

607,985






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 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 December 31, 2010.

SOURCE Centene Corporation

Investor Relations, Edmund E. Kroll, Senior Vice President, Finance & Investor Relations, +1-212-759-0382, or Media, Deanne Lane, Vice President, Media Affairs, +1-314-725-4477