Centene Corporation Reports Eleventh Consecutive Quarter of Increased Profitability

April 25, 2002 at 6:09 PM EDT
ST. LOUIS, Apr 25, 2002 (BUSINESS WIRE) -- Centene Corporation (Nasdaq:CNTE) today announced the Company's financial results for the first quarter of 2002.

    First Quarter Highlights
    --  Revenue of $95.8 million, a 36% increase year over year
    --  Earnings from operations increased 115% to $6.3 million
    --  Earnings per diluted share of $0.38, a 31% increase over that
        of the prior year period
    --  Eleventh consecutive quarter of increased profitability from
        continuing operations
    --  Days in claims payable remained flat at 74
    --  Completed the purchase of Bankers Reserve Life Insurance
        Company of Wisconsin
    --  Strengthened the management team with the addition of
        Christopher D. Bowers, president and CEO of Superior
        HealthPlan (TX), and Jesse Hunter, manager of mergers and
        acquisitions
Michael F. Neidorff, Centene's president and chief executive officer, said, "We had a consistent and predictable first quarter while achieving record revenue and profitability. We are pleased with the growth in membership and are confident that our Medicaid focused model is positioned with the necessary resources and technology required to continue with strong same store growth. We are the solution for states as they seek to resolve their budget issues and improve health outcomes for their Medicaid beneficiaries."

Membership increased 22% to 249,300 at March 31, 2002, from 205,000 for the same period end last year, and increased 6% from 235,100 at December 31, 2001.

The following table depicts membership by market for the quarters ended March 31, 2002 and 2001:

                   2002               2001
              ---------------     --------------
Wisconsin        114,600             96,600
Indiana           77,600             54,500
Texas             57,100             53,900
              ---------------     --------------
Total            249,300            205,000
    Statement of Earnings Highlights
Revenue for the first quarter of 2002 increased 36% to $95.8 million from $70.3 in the first quarter of the prior year. The health benefits ratio of 82.5% was within the Company's targeted range of 82.0% to 83.5% and compares to 83.4% for the same period in 2001. General and administrative expenses as a percent of revenue decreased 160 basis points to 11.0% from 12.6% year over year. Earnings from operations increased 115% to $6.3 million from $2.9 million in 2001.

For the quarter ended March 31, 2002, net earnings improved to $4.3 million, or $0.38 per diluted share, compared to $2.2 million, or $0.29 per diluted share, for the first quarter of 2001. In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets which requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested at least annually for impairment. The Company adopted SFAS No. 142 effective January 1, 2002. For the quarter ended March 31, 2001, this adjustment would have added $123,000 in net earnings, or $0.01 per diluted share.

The following table sets forth the first quarter 2002 compared to 2001 on a pro forma basis. Pro forma net earnings per diluted share assume that 1) the Company's initial public offering was completed as of January 1, 2001, 2) all classes of preferred and common stock were converted into a single class of common stock, 3) subordinated notes of $4.0 million were repaid with a portion of the net proceeds of $41.0 million from the Company's initial public offering, and 4) the balance of the net proceeds were invested in short-term instruments bearing interest of 3.5%.

                              Pro
                             Forma             As Reported
                             2001                  2002
                       ----------------      ---------------
First Quarter               $0.22                 $0.38
    Balance Sheet Highlights
At March 31, 2002, the Company had cash and investments of $112 million, a portion of which is restricted due to state regulatory requirements. Other long-term assets and long-term liabilities of $5.6 million and $5.2 million, respectively, reflect the Company's acquisition of the Bankers Reserve Life Insurance Company. Medical claims liabilities total $64.9 million representing 74 days in claims payable which is unchanged from the immediately preceding quarter. The Company anticipates that days in claims payable will decrease in the quarter ended June 30, 2002, as the Company settles payments related to provider risk sharing arrangements.

    Outlook
The Company reaffirmed that it anticipates revenue growth in the range of 22% to 25% for the full year 2002. Centene also expects to continue to operate within its targeted 82.0% to 83.5% health benefits ratio while reducing general and administrative expenses as a percentage of total revenue by 60 to 100 basis points year over year. EPS is expected to increase by 33% to 37% for the year ended December 31, 2002.

Neidorff commented, "We intend to continue to grow organically, evaluate opportunities to diversify the business in new states and increase our fee-for-service revenues in Medicaid-related products. In Texas, the appointment of Christopher Bowers as president and CEO of Superior HealthPlan provides us the leadership necessary to take advantage of growth opportunities.

"We will also evaluate acquisition opportunities to diversify the business and increase market share, and have added Jesse Hunter to help manage our M&A activity. With the financial resources available, Centene has ample flexibility to execute strategic acquisitions. We are in a strong position to deliver future growth that will drive shareholder value."

As previously announced, the Company will host a conference call tomorrow morning, April 26, 2002, at 8:30 a.m. (Eastern Daylight Time) to review the financial results for the first quarter ended March 31, 2002, and to discuss its business outlook. Michael F. Neidorff and Karey L. Witty, chief financial officer of Centene, will host the conference call. Investors are invited to participate in the conference call by dialing 888/276-0006 in the United States, and 612/332-0418 for international participants, or via a live Internet broadcast at the Company's Web site, http://www.centene.com. A replay of the call will be available from April 26, 2002, beginning at 12:00 p.m. and ending on May 3, 2002, at 11:59 p.m. Investors may dial 800/475-6701 in the United States and 320/365-3844 from abroad and enter access number 634205. Additionally, the webcast will be archived for the same period at http://www.centene.com.

    About Centene
Centene Corporation provides managed care programs and related services to individuals receiving benefits under Medicaid, including Supplemental Security Income (SSI), and the State Children's Health Insurance Program (CHIP). The Company operates health plans in Wisconsin, Indiana and Texas.

The third, seventh, eighth and ninth paragraphs of this press release contain forward-looking statements that relate to future events and future financial performance of Centene. These forward-looking statements represent the Company's estimates as of April 25, 2002. 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 health care 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 health care. The expiration, cancellation or suspension of Centene's Medicaid managed care contracts by state governments would also negatively impact Centene.

                 CENTENE CORPORATION AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF EARNINGS
                   (In thousands, except share data)
                                               Three months ended
                                                    March 31,
                                               2002          2001
                                           -----------   -----------
                                                  (Unaudited)
REVENUES:
 Premiums                                  $    95,650   $    70,224
 Administrative services fees                      103            80
                                           -----------   -----------
  Total revenues                                95,753        70,304
                                           -----------   -----------
EXPENSES:
 Medical services costs                         78,944        58,573
 General and administrative expenses            10,547         8,825
                                           -----------   -----------
  Total operating expenses                      89,491        67,398
                                           -----------   -----------
  Earnings from operations                       6,262         2,906
OTHER INCOME (EXPENSE):
 Investment and other income, net                  915           966
 Interest expense                                 --             (95)
                                           -----------   -----------
  Earnings before income taxes                   7,177         3,777
INCOME TAX EXPENSE                               2,877         1,595
                                           -----------   -----------
  Net earnings                                   4,300         2,182
ACCRETION OF REDEEMABLE PREFERRED STOCK           --            (123)
                                           -----------   -----------
  Net earnings attributable
   to common stockholders                  $     4,300   $     2,059
                                           ===========   ===========
EARNINGS PER COMMON SHARE, BASIC:
  Net earnings per common share            $      0.43   $      2.27
EARNINGS PER COMMON SHARE, DILUTED:
  Net earnings per common share            $      0.38   $      0.29
SHARES USED IN COMPUTING PER SHARE AMOUNTS:
  Basic                                     10,091,348       906,148
  Diluted                                   11,317,634     7,751,273
                 CENTENE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED BALANCE SHEETS
                   (In thousands, except share data)
                                            March 31,    December 31,
                                               2002          2001
                                           -----------   -----------
                                           (Unaudited)
                ASSETS
CURRENT ASSETS:
 Cash and cash equivalents                 $    91,738   $    88,867
 Premium and related receivables,
  net of allowances of $3,385 and
   $3,879, respectively                          9,672         7,032
 Short-term investments, at fair value
  (amortized cost $707 and $1,166,
   respectively)                                   707         1,169
 Deferred income taxes                           3,121         2,515
 Other current assets                            4,953         2,464
                                           -----------   -----------
   Total current assets                        110,191       102,047
LONG-TERM INVESTMENTS, at fair value
 (amortized cost $20,004 and $22,127,
  respectively)                                 19,706        22,339
PROPERTY AND EQUIPMENT, net                      4,724         3,796
INTANGIBLE ASSETS, net                           2,804         2,396
DEFERRED INCOME TAXES                               83           788
OTHER ASSETS                                     5,614           --
                                           -----------   -----------
   Total assets                            $   143,122   $   131,366
                                           ===========   ===========
                LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
 Medical claims liabilities                $    64,928   $    59,565
 Accounts payable and accrued expenses           4,895         7,712
                                           -----------   -----------
   Total current liabilities                    69,823        67,277
Other liabilities                                5,214           --
                                           -----------   -----------
   Total liabilities                            75,037        67,277
                                           -----------   -----------
STOCKHOLDERS' EQUITY:
  Common stock, $.001 par value;
   authorized 40,000,000 shares; 10,098,712
    and 10,085,112 shares issued
     and outstanding                                10            10
 Additional paid-in capital                     60,876        60,857
 Net unrealized gain (loss) on investments,
  net of tax                                      (188)          135
 Retained earnings                               7,387         3,087
                                           -----------   -----------
   Total stockholders' equity                   68,085        64,089
                                           -----------   -----------
   Total liabilities and
    stockholders' equity                   $   143,122   $   131,366
                                           ===========   ===========
                 CENTENE CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands)
                                               Three months ended
                                                   March 31,
                                               2002          2001
                                           -----------   -----------
                                                  (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net earnings                              $     4,300   $     2,182
 Adjustments to reconcile net
  earnings to net cash provided
   by operating activities --
   Depreciation and amortization                   476           331
   Stock compensation expense                        4             6
   Gain on sale of investments                    (205)          (50)
 Changes in assets and liabilities --
  (Increase) decrease in premium
   and related receivables                      (2,640)        7,151
  (Increase) decrease in other
   current assets                               (2,413)          475
  Decrease in deferred income taxes                288           186
  Increase in medical claims liabilities         5,363         9,492
  Increase in unearned premiums                    --         13,235
  Decrease in accounts payable
   and accrued expenses                         (2,869)       (1,880)
                                           -----------   -----------
   Net cash provided by operating activities     2,304        31,128
                                           -----------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchase of property and equipment             (1,338)       (1,249)
 Purchase of investments                        (6,673)      (10,024)
 Sales and maturities of investments            11,751         8,160
 Contract acquisitions                             --         (1,000)
 Investment in subsidiary                       (3,188)        7,995
                                           -----------   -----------
   Net cash provided
    by investing activities                        552         3,882
                                           -----------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from exercise of stock options            15            11
                                           -----------   -----------
   Net cash provided
    by financing activities                         15            11
                                           -----------   -----------
   Net increase in cash
    and cash equivalents                         2,871        35,021
                                           -----------   -----------
CASH AND CASH EQUIVALENTS,
 beginning of period                            88,867        19,023
                                           -----------   -----------
CASH AND CASH EQUIVALENTS, end of period   $    91,738   $    54,044
                                           ===========   ===========
 Interest paid                             $       --    $       439
 Income taxes paid                         $     4,330   $       207
CONTACT:          Centene Corporation
                  Karey L. Witty, 314/725-4477
                  or
                  Investor Relations:
                  In-Site Communications
                  Lisa Carlton Wilson, 212/759-3929

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