Centene Corporation Reports 2013 Second Quarter Earnings Of $0.70 Per Diluted Share Including $0.07 Of AcariaHealth Transaction Costs

July 23, 2013 at 6:01 AM EDT
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ST. LOUIS, July 23, 2013 /PRNewswire/ -- Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended June 30, 2013. 

Premium and Service Revenues (in millions)

$

2,634.3

Consolidated Health Benefits Ratio

88.8

%

General & Administrative expense ratio

8.7

%

Diluted earnings per share (EPS)

$

0.70

Cash flow from operations (in millions)

$

37.9

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "The solid quarterly results reflect the positive momentum of our focus on operations and programs that we see continuing for the balance of this year and into 2014."

Second Quarter Highlights

  • Quarter-end at-risk managed care membership of 2,696,900, an increase of 299,400 members, or 12% year over year.
  • Premium and service revenues of $2.6 billion, representing 28% growth year over year.
  • Health Benefits Ratio of 88.8%, compared to 92.9% in 2012. 
  • General and Administrative expense ratio of 8.7%, compared to 8.2% in 2012.
  • Operating cash flow of $37.9 million for the second quarter of 2013.
  • Diluted EPS of $0.70 including AcariaHealth transaction costs of $0.07 per diluted share, compared to $(0.68) in 2012.

Other Events

  • In July 2013, our subsidiary, Kentucky Spirit Health Plan, discontinued serving Medicaid members in Kentucky. 
  • In July 2013, our Ohio subsidiary, Buckeye Community Health Plan (Buckeye), began operating under a new and expanded contract with the Ohio Department of Job and Family Services (ODJFS) to serve Medicaid members in Ohio.  Under the new state contract, Buckeye operates statewide through Ohio's three newly aligned regions (West, Central/Southeast, and Northeast).  Buckeye also began serving members under the ABD Children program in July 2013. 
  • In July 2013, our joint venture subsidiary, Centurion, began operating under a new contract with the Department of Corrections in Massachusetts to provide comprehensive healthcare services to individuals incarcerated in Massachusetts state correctional facilities.  Centurion was notified by the Department of Corrections in Tennessee in June 2013 that it had been awarded a contract to provide comprehensive healthcare services to individuals incarcerated in Tennessee state correctional facilities.  Operations in Tennessee are expected to begin in the third quarter of 2013. Centurion is a joint venture between Centene and MHM Services Inc.
  • In May 2013, we entered into a new unsecured $500 million revolving credit facility and terminated our previous $350 million revolving credit facility.  The new $500 million unsecured revolving credit facility increases the borrowing capacity from $350 million to $500 million; increases the expansion provision from $50 million to $100 million; decreases the interest rate for each pricing tier by 100 basis points; and extends the term from January 2016 to June 1, 2018.
  • In May 2013, our California subsidiary, California Health and Wellness Plan, was notified by the California Department of Health Care Services and the Imperial County Board of Supervisors of their intent to award a contract, contingent upon successful completion of contract negotiations, to serve Medi-Cal beneficiaries in Imperial County.  Upon execution of a contract and regulatory approval, enrollment is expected to begin in the fourth quarter of 2013.
  • In May 2013, at the Case In Point Platinum Awards, Centene won awards in four categories: Emergency Department, Medicaid Case Management, Pediatric Case Management and Women/Children Case Management.
  • In April 2013, we completed the acquisition of AcariaHealth, a specialty pharmacy company, for $146.6 million.  The transaction consideration was financed through a combination of Centene common stock and cash on hand.

The following table sets forth the Company's membership by state for its managed care organizations:

June 30,

2013

2012

Arizona

23,200

24,000

Florida

216,200

204,100

Georgia

316,600

313,300

Illinois

18,000

17,800

Indiana

200,000

205,000

Kansas

137,500

—

Kentucky

133,500

143,500

Louisiana

153,700

168,700

Massachusetts

15,200

41,400

Mississippi

77,300

30,100

Missouri

58,800

—

Ohio

156,700

166,800

South Carolina

88,800

87,800

Texas

960,400

919,200

Washington

67,600

—

Wisconsin

73,400

75,800

Total

2,696,900

2,397,500

 

Membership by line of business:

June 30,

2013

2012

Medicaid

2,051,700

1,848,500

CHIP & Foster Care

275,900

222,600

ABD & Medicare

322,500

269,900

Hybrid Programs

22,400

48,100

Long-term Care

24,400

8,400

Total

2,696,900

2,397,500

 

Dual eligible membership (included in tables above):

June 30,

2013

2012

ABD

81,800

62,000

Long-term Care

16,600

7,600

Medicare

5,700

3,600

Total

104,100

73,200

Statement of Operations: Three Months Ended June 30, 2013

  • For the second quarter of 2013, Premium and Service Revenues increased 28% to $2.6 billion from $2.1 billion in the second quarter of 2012.  The increase was primarily driven as a result of the Mississippi expansion, pharmacy carve-in in Louisiana, the additions of the Kansas, Missouri and Washington contracts, rate increases in several of our markets, increased Texas membership and the acquisition of AcariaHealth. 
  • Consolidated HBR of 88.8% for the second quarter of 2013 represents an decrease from 92.9% in the comparable period in 2012 and a decrease from 90.4% in the first quarter of 2013.  The HBR decreased compared to last year primarily as a result of improvements in the performance of the Texas and individual health business from 2012, as well as the effect of the premium deficiency reserve recorded for Kentucky in 2012.  The HBR decrease compared to the first quarter of 2013 reflects a higher level of flu costs during the first quarter of 2013.
  • The following table compares the results for new business and existing business for the quarter ended June 30:

 

2013

2012

Premium and Service Revenue


New business

17

%

31

%

Existing business

83

%

69

%




HBR


New business

90.7

%

102.3

%

Existing business

88.4

%

88.7

%

Total

88.8

%

92.9

%

 


  • Consolidated G&A expense ratio for the second quarter of 2013 was 8.7%, compared to 8.2% in the prior year.   The year over year increase reflects an increase in performance based compensation expense in 2013 of approximately 70 basis points and the AcariaHealth transaction costs, partially offset by the leveraging of expenses over higher revenue in 2013.  
  • Earnings from operations were $67.0 million in the second quarter of 2013 compared to a loss from operations of $(46.7) million in the second quarter 2012.  Net earnings attributable to Centene Corporation were $39.5 million in the second quarter 2013, compared to a net loss of $(35.0) million in the second quarter of 2012. 
  • Diluted EPS was $0.70 in the second quarter of 2013 including AcariaHealth transaction costs of $0.07 per diluted share.

Balance Sheet and Cash Flow

At June 30, 2013, the Company had cash, investments and restricted deposits of $1,629.2 million, including $33.8 million held by its unregulated entities.  Medical claims liabilities totaled $1,078.4 million, representing 43.7 days in claims payable.  Total debt was $551.5 million which includes $30.0 million in borrowings on the $500 million revolving credit facility at quarter end.  Debt to capitalization was 29.8% at June 30, 2013, excluding the $74.1 million non-recourse mortgage note.  Cash flow from operations for the six months ended June 30, 2013, was $80.9 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, 2013

42.4

Timing of claim payments

1.3

Days in claims payable, June 30, 2013

43.7


Outlook

The table below depicts the Company's annual guidance for 2013.

Full Year 2013


Low

High 

Premium and Service Revenues (in millions)

$

10,300

$

10,600

Diluted EPS

$

2.65

$

2.90

Consolidated Health Benefits Ratio

88.0

%

89.0

%

General & Administrative expense ratio

8.8

%

9.3

%

Diluted Shares Outstanding (in thousands)

56,000

56,500







Conference Call

As previously announced, the Company will host a conference call Tuesday, July 23, 2013, at 8:30 A.M. (Eastern Time) to review the financial results for the second quarter ended June 30, 2013, 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 1-877-270-2148 in the U.S. and Canada; +1-412-902-6510 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 p.m. (Eastern Time) on Tuesday, July 22, 2014, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 a.m. (Eastern Time) on Tuesday, July 30, 2013, by dialing 1-877-344-7529 in the U.S. and Canada, or +1-412-317-0088 from abroad, and entering access code 10030660.

Other Information

The discussion in the third bullet under the heading "Statement of Operations: Three Months Ended June 30, 2013" contains financial information for new and existing businesses.  Existing businesses are primarily state markets, significant geographic expansion in an existing state or product that we have managed for four complete quarters.  New businesses are primarily new state markets, significant geographic expansion in an existing state or product that conversely, we have not managed for four complete quarters.

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 (LTC), in addition to other state-sponsored/hybrid programs, and Medicare (Special Needs Plans).  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, care management software, correctional systems healthcare, life and health management, managed vision, pharmacy benefits management, specialty pharmacy and telehealth services.

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 and reserves, competition, membership and revenue projections, timing of regulatory contract approval, changes in healthcare practices, changes in federal or state laws or regulations, changes in expected contract start dates, inflation, provider and state 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, as well as those factors disclosed in the Company's publicly filed documents.  The expiration, cancellation or suspension of Centene's Medicaid Managed Care contracts, or the loss of any appeal of or protest to any such expiration, cancellation or suspension, by state governments would also negatively affect Centene.

 [Tables Follow]

 


CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)


June 30,
2013

December 31,
2012

ASSETS


Current assets:


Cash and cash equivalents

$

688,712

$

843,952

Premium and related receivables

357,908

263,452

Short-term investments

131,330

139,118

Other current assets

164,410

127,080

     Total current assets

1,342,360

1,373,602

Long-term investments

769,905

614,723

Restricted deposits

39,291

34,793

Property, software and equipment, net

388,965

377,726

Goodwill

344,822

256,288

Intangible assets, net

52,219

20,268

Other long-term assets

107,673

64,282

     Total assets

$

3,045,235

$

2,741,682

LIABILITIES AND STOCKHOLDERS' EQUITY


Current liabilities:


Medical claims liability

$

1,078,386

$

926,302

Premium deficiency reserve

1,016

41,475

Accounts payable and accrued expenses

216,330

191,343

Unearned revenue

21,811

34,597

Current portion of long-term debt

3,029

3,373

     Total current liabilities

1,320,572

1,197,090

Long-term debt

548,473

535,481

Other long-term liabilities

53,916

55,344

     Total liabilities

1,922,961

1,787,915

Commitments and contingencies


Stockholders' equity:


Common stock, $.001 par value; authorized 100,000,000 shares; 57,661,262 issued and 54,627,735 outstanding at June 30, 2013, and 55,339,160 issued and 52,329,248 outstanding at December 31, 2012

58

55

Additional paid-in capital

563,873

450,856

Accumulated other comprehensive income:


          Unrealized (loss) gain on investments, net of tax

(4,061)

5,189

Retained earnings

629,306

566,820

Treasury stock, at cost (3,033,527 and 3,009,912 shares, respectively)

(70,969)

(69,864)

          Total Centene stockholders' equity

1,118,207

953,056

Noncontrolling interest

4,067

711

               Total stockholders' equity

1,122,274

953,767

               Total liabilities and stockholders' equity

$

3,045,235

$

2,741,682

 


CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(Unaudited)


Three Months Ended June 30,

Six Months Ended June 30,

2013

2012

2013

2012

Revenues:






Premium

$

2,528,718

$

2,034,558

$

5,037,767

$

3,669,408

Service

105,599

27,041

138,793

55,659

     Premium and service revenues

2,634,317

2,061,599

5,176,560

3,725,067

Premium tax

91,628

49,147

195,277

97,827

     Total revenues

2,725,945

2,110,746

5,371,837

3,822,894

Expenses:






Medical costs

2,244,611

1,890,405

4,512,011

3,333,081

Cost of services

93,300

21,816

118,365

45,153

General and administrative expenses

230,248

168,062

440,596

331,249

Premium tax expense

90,760

49,176

193,735

97,926

Impairment loss

—

28,033

—

28,033

     Total operating expenses

2,658,919

2,157,492

5,264,707

3,835,442

     Earnings (loss) from operations

67,026

(46,746)

107,130

(12,548)

Other income (expense):






Investment and other income

4,286

4,045

8,757

9,336

Interest expense

(7,033)

(4,739)

(13,658)

(9,538)

     Earnings (loss) before income tax expense (benefit)

64,279

(47,440)

102,229

(12,750)

Income tax expense (benefit)

25,268

(8,608)

40,307

3,479

     Net earnings (loss)

39,011

(38,832)

61,922

(16,229)

Noncontrolling interest

(473)

(3,833)

(564)

(5,208)

     Net earnings (loss) attributable to Centene Corporation

$

39,484

$

(34,999)

$

62,486

$

(11,021)








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

     Basic earnings (loss) per common share

$

0.72

$

(0.68)

$

1.17

$

(0.21)

     Diluted earnings (loss) per common share

$

0.70

$

(0.68)

$

1.13

$

(0.21)








Weighted average number of common shares outstanding:



     Basic

54,529,036

51,515,895

53,449,077

51,320,784

     Diluted

56,601,660

51,515,895

55,448,396

51,320,784

 


CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


Six Months Ended June 30,

2013

2012

Cash flows from operating activities:


Net earnings (loss)

$

61,922

$

(16,229)

Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities

          Depreciation and amortization

32,928

33,266

          Stock compensation expense

16,955

11,993

          Impairment loss

—

28,033

          Deferred income taxes

10,715

9,364

Changes in assets and liabilities


          Premium and related receivables

(71,230)

(232,745)

          Other current assets

(35,879)

(34,105)

          Other assets

(38,191)

1,520

          Medical claims liabilities

111,625

251,050

          Unearned revenue

(12,068)

19,885

          Accounts payable and accrued expenses

(1,488)

(77,010)

          Other operating activities

5,650

(4,922)

               Net cash provided by (used in) operating activities

80,939

(9,900)

Cash flows from investing activities:


Capital expenditures

(30,057)

(57,442)

Purchases of investments

(537,590)

(406,901)

Sales and maturities of investments

358,971

253,719

Investments in acquisitions, net of cash acquired

(66,832)

—

               Net cash used in investing activities

(275,508)

(210,624)

Cash flows from financing activities:


Proceeds from exercise of stock options

3,867

10,320

Proceeds from borrowings

30,000

75,000

Payment of long-term debt

(10,118)

(21,601)

Proceeds from stock offering

15,239

—

Excess tax benefits from stock compensation

1,113

5,810

Common stock repurchases

(1,105)

(1,791)

Contribution from noncontrolling interest

3,920

982

Debt issue costs

(3,587)

—

               Net cash provided by financing activities

39,329

68,720

               Net decrease in cash and cash equivalents

(155,240)

(151,804)

Cash and cash equivalents, beginning of period

843,952

573,698

Cash and cash equivalents, end of period

$

688,712

$

421,894

Supplemental disclosures of cash flow information:


     Interest paid

$

15,170

$

10,312

     Income taxes paid

21,694

32,394

     Equity issued in connection with acquisition

75,438

—

 

CENTENE CORPORATION

SUPPLEMENTAL FINANCIAL DATA


Q2

Q1

Q4

Q3

Q2

2013

2013

2012

2012

2012

AT-RISK MEMBERSHIP








Managed Care:








Arizona

23,200

23,300

23,500

23,800

24,000

Florida

216,200

214,600

214,000

209,600

204,100

Georgia

316,600

314,000

313,700

312,400

313,300

Illinois

18,000

18,000

18,000

17,900

17,800

Indiana

200,000

202,400

204,000

205,400

205,000

Kansas

137,500

133,700

—

—

—

Kentucky

133,500

132,700

135,800

145,400

143,500

Louisiana

153,700

162,900

165,600

167,200

168,700

Massachusetts

15,200

17,300

21,500

28,000

41,400

Mississippi

77,300

77,000

77,200

30,600

30,100

Missouri

58,800

57,900

59,600

53,900

—

Ohio

156,700

157,700

157,800

173,800

166,800

South Carolina

88,800

90,100

90,100

89,400

87,800

Texas

960,400

948,400

949,900

930,700

919,200

Washington

67,600

63,500

57,200

42,000

—

Wisconsin

73,400

72,600

72,400

72,900

75,800

          TOTAL

2,696,900

2,686,100

2,560,300

2,503,000

2,397,500










Medicaid

2,051,700

2,049,200

1,977,200

1,939,400

1,848,500

CHIP & Foster Care

275,900

267,900

237,700

229,600

222,600

ABD & Medicare

322,500

320,700

307,800

289,800

269,900

Hybrid Programs

22,400

24,600

29,100

35,700

48,100

Long-term Care

24,400

23,700

8,500

8,500

8,400

          TOTAL

2,696,900

2,686,100

2,560,300

2,503,000

2,397,500










Specialty Services(a):








Cenpatico Behavioral Health








Arizona

157,100

156,200

157,900

162,000

159,900

Kansas

—

—

49,800

48,500

44,300

          TOTAL

157,100

156,200

207,700

210,500

204,200










(a) Includes external membership only.
















REVENUE PER MEMBER PER MONTH(b)

$

305

$

304

$

292

$

283

$

279










CLAIMS(b)








Period-end inventory

752,800

1,020,100

641,000

826,800

1,195,000

Average inventory

539,800

587,800

555,200

547,400

640,600

Period-end inventory per member

0.28

0.38

0.25

0.33

0.50

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










NUMBER OF EMPLOYEES

7,900

7,100

6,800

6,400

6,200




















 


 

Q2

Q1

Q4

Q3

Q2

2013

2013

2012

2012

2012










DAYS IN CLAIMS PAYABLE(c)

43.7

42.4

41.1

42.8

41.4

(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 liability. 











CASH AND INVESTMENTS (in millions)






Regulated

$

1,595.4

$

1,619.0

$

1,595.3

$

1,493.8

$

1,198.2

Unregulated

33.8

45.5

37.3

36.0

40.6

          TOTAL

$

1,629.2

$

1,664.5

$

1,632.6

$

1,529.8

$

1,238.8










DEBT TO CAPITALIZATION

32.9

%

35.2

%

36.1

%

29.2

%

30.1

%

DEBT TO CAPITALIZATION EXCLUDING NON-RECOURSE DEBT(d)

29.8

%

31.9

%

32.7

%

25.0

%

25.9

%

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 ($74.1 million at June 30, 2013).

 

Operating Ratios:



Three Months Ended June 30,

Six Months Ended June 30,

2013

2012

2013

2012

Health Benefits Ratios:






Medicaid and CHIP

89.0

%

92.4

%

90.7

%

90.2

%

ABD and Medicare

89.0

93.0

88.5

91.4

Specialty Services

82.0

98.0

82.5

93.9

Total

88.8

92.9

89.6

90.8








Total General & Administrative Expense Ratio

8.7

%

8.2

%

8.5

%

8.9

%

 

MEDICAL CLAIMS LIABILITY (In thousands)

The changes in medical claims liability are summarized as follows:

Balance, June 30, 2012

$

859,035

Incurred related to:

      Current period

8,666,880

      Prior period

(41,913)

         Total incurred

8,624,967

    Paid related to:

      Current period

7,604,434

      Prior period

800,166

         Total paid

8,404,600

    Less: Premium Deficiency Reserve

1,016

Balance, June 30, 2013

$

1,078,386

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 June 30, 2012. 

SOURCE Centene Corporation

Edmund E. Kroll, Jr., Senior Vice President, Finance & Investor Relations, (212) 759-0382, Media Inquiries:Deanne Lane, Vice President, Media Affairs, (314) 725-4477