Centene Corporation Reports Second Quarter Results and Increases Guidance for 2002; Company Posts Twelfth Consecutive Quarter of Profit Improvement

July 24, 2002 at 6:25 PM EDT
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ST. LOUIS--(BUSINESS WIRE)--July 24, 2002--Centene Corporation (Nasdaq:CNTE) today announced the Company's financial results for the second quarter ended June 30, 2002.

Second Quarter Highlights

  • Revenues of $107.6 million, a 34% increase over the second quarter of 2001

  • Earnings from operations of $7.7 million, a 71% increase over the second quarter of 2001

  • Earnings per diluted share of $0.45

  • Twelfth consecutive quarter of increased profitability from continuing operations

  • Days in claims payable of 65.6, reflecting the payment of physician bonuses and improvements in claims payment efficiencies

  • Completed follow-on offering of 5.75 million shares, including underwriters' over-allotment

  • Signed definitive agreement with Texas Universities Health Plan, Inc. to purchase the Children's Health Insurance Program (CHIP) contract in certain Texas markets

  • Filing Form 10-Q concurrent with earnings release

Michael F. Neidorff, Centene's president and chief executive officer, said, "We continue to meet our targets and to deliver consistent, sustainable and predictable results. Growth this quarter was driven by significant increases in membership, an improved health benefits ratio within our target range, and continued improvement in our general and administrative expense ratio. We will continue to work with the states regarding rate increases and healthcare cost decreases that will help us to maintain margins going forward."

Membership totaled 278,600 at June 30, 2002, a 31% increase from 213,200 at June 30, 2001 and a 12% increase from 249,300 at March 31, 2002.

    The following table depicts membership by state at June 30, 2002
and 2001:

                         2002                    2001
                   ------------------     -------------------
Wisconsin                123,900                 103,000
Indiana                   92,800                  54,600
Texas                     61,900                  55,600
                   ------------------     -------------------

TOTAL                    278,600                 213,200
                   ==================     ===================


    The following table depicts membership by line of business at
June 30, 2002 and 2001:

                         2002                    2001
                   ------------------     -------------------
Medicaid                 254,700                 194,800
CHIP                      23,900                  18,400
                   ------------------     -------------------

TOTAL                    278,600                 213,200
                   ==================     ===================

Statement of Earnings Highlights

  • For the second quarter of 2002, revenues increased 34% to $107.6 million from $80.6 in the second quarter of 2001. The health benefits ratio, which reflects medical services costs as a percent of premium revenues, was 82.0%, which was within the Company's targeted range of 82.0% to 83.5% and compares to

  • 82.6% for the same period in 2001. General and administrative expenses as a percent of revenues decreased to 10.9% from

  • 11.9%. Earnings from operations increased 71% to $7.7 million from $4.5 million in 2001. Net earnings improved to $5.2 million, or $0.45 per diluted share, compared to $3.2 million, or $0.42 per diluted share, for the second quarter of 2001.

  • For the six months ended June 30, 2002, revenues increased 35% to $203.4 million from $150.9 million in the first six months of 2001. The health benefits ratio of 82.2% compares to 83.0% for the same period in 2001. General and administrative expenses as a percent of revenues decreased to 11.0% from

  • 12.2%. Earnings from operations increased 88% to $14.0 million from $7.4 million in 2001. Net earnings improved to $9.5 million, or $0.83 per diluted share, compared to $5.4 million, or $0.70 per diluted share, for the six months ended in 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 June 30, 2001, this adjustment would have added $122,000 in net earnings, or $0.02 per diluted share.

The following table sets forth the first and second quarters of 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 was invested in short-term instruments bearing interest of 3.5%.

                      As Reported             Pro Forma
                         2002                    2001
                   ------------------     -------------------
First Quarter            $0.38                   $0.22
Second Quarter           $0.45                   $0.32
                   ------------------     -------------------

Year To Date             $0.83                   $0.54
                   ==================     ===================

Balance Sheet Highlights

At June 30, 2002, the Company had cash and investments of $129.2 million, a portion of which is restricted due to state regulatory requirements. Consistent with the prior quarter guidance, medical claims liabilities total $63.6 million representing 65.6 days in claims payable, a reduction from the immediately preceding quarter. The decrease in days in claims payable reflects the Company's settlement of payments related to provider risk sharing arrangements, as well as expected improvements in claims payment efficiencies. Efficiencies gained during the quarter enabled the Company to reduce its claims inventory on hand at quarter end to 0.28 per member from

  • 0.34 at the immediately preceding quarter end.

Outlook

The Company raised its full-year earnings outlook for fiscal year 2002 to a range of $1.73 to $1.77 per share, or a 38% to 42% increase from Centene's pro forma $1.25 for 2001. Centene 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. Revenues are expected to increase by 30% to 33% for the year ended December 31, 2002 compared to 2001.

Neidorff commented, "We intend to continue to grow organically by adding new members in both Medicaid and CHIP, and by increasing our fee-for-service revenues in Medicaid-related products. Additionally, we remain optimistic about the opportunity to expand and diversify the business and intend to leverage our strong balance sheet to execute our acquisition strategy. These strategies have served us well over the past twelve quarters, and we look forward to continuing to grow revenues and increase shareholder value going forward."

Conference Call

As previously announced, the Company will host a conference call tomorrow morning, July 25, 2002, at 8:30 a.m. (Eastern Daylight Time) to review the financial results for the second quarter ended June 30, 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 (800) 450-0819 in the United States, and (612) 332-0819 for international participants, or via a live Internet broadcast at the Company's website, http://www.centene.com. A replay of the call will be available from July 25, 2002 beginning at 12:00 p.m. and ending on August 1, 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 644427. Additionally, the webcast will be archived for the same period at http://www.centene.com.

About Centene Corporation

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

The information provided in the first paragraph under "Statement of Earnings Highlights" and both paragraphs under "Outlook" above contains 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 July 24, 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 healthcare. The expiration, cancellation or suspension of Centene's Medicaid managed care contracts by state governments would also negatively affect Centene.

                 CENTENE CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED BALANCE SHEETS
                   (In thousands, except share data)


                                        June 30,     December 31,
                                          2002           2001
                                      ---------     ---------
                                      (Unaudited)

                                ASSETS
CURRENT ASSETS:
  Cash and cash equivalents            $  44,336     $  88,867
  Premium and related receivables,
    net of allowances of $3,164 and
    $3,879, respectively                   7,524         7,032
  Short-term investments, at fair
    value (amortized cost $6,135
    and $1,166, respectively)              6,132         1,169
  Deferred income taxes                    3,424         2,515
  Other current assets                     4,215         2,464
                                       ---------     ---------

    Total current assets                  65,631       102,047

LONG-TERM INVESTMENTS, at fair value
 (amortized cost $78,390 and
  $22,127, respectively)                  78,752        22,339
PROPERTY AND EQUIPMENT, net                5,395         3,796
INTANGIBLE ASSETS, net                     2,732         2,396
DEFERRED INCOME TAXES                        382           788
OTHER ASSETS                               4,844            --
                                       ---------     ---------
    Total assets                       $ 157,736     $ 131,366
                                       =========     =========


                 LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Medical claims liabilities           $  63,557     $  59,565
  Accounts payable and
    accrued expenses                       5,141          7,712
                                       ---------     ---------

    Total current liabilities             68,698        67,277

Other liabilities                          4,738            --
                                       ---------     ---------

    Total liabilities                     73,436        67,277
                                       ---------     ---------

STOCKHOLDERS' EQUITY:
  Common stock, $.001 par value;
    authorized 40,000,000 shares;
    10,638,207 and 10,085,112
    shares issued and outstanding             11            10
  Additional paid-in capital              71,443        60,857
  Net unrealized gain on
    investments, net of tax                  226           135
  Retained earnings                       12,620         3,087
                                       ---------     ---------

    Total stockholders' equity            84,300        64,089
                                       ---------     ---------

    Total liabilities and
        stockholders' equity           $ 157,736     $ 131,366
                                       =========     =========



                 CENTENE CORPORATION AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF EARNINGS
                   (In thousands, except share data)

                           Three Months Ended       Six Months Ended
                               June 30,                 June 30,
                       -----------------------  -----------------------
                          2002       2001          2002       2001
                       ----------- -----------  ----------- -----------
                               (Unaudited)              (Unaudited)

REVENUES:
  Premiums             $   107,503 $    80,458  $   203,152 $   150,682
  Administrative
    services fees              107         102          211         182
                       ----------- -----------  ----------- -----------
     Total revenues        107,610      80,560      203,363     150,864
                       ----------- -----------  ----------- -----------

EXPENSES:
  Medical services
    costs                   88,109      66,466      167,053     125,039
  General and
    administrative
    expenses                11,783       9,581       22,330      18,406
                       ----------- -----------  ----------- -----------
     Total operating
        expenses            99,892      76,047      189,383     143,445
                       ----------- -----------  ----------- -----------

     Earnings from
        operations           7,718       4,513       13,980       7,419

OTHER INCOME
    (EXPENSE):
  Investment and
    other income, net          976         931        1,891       1,897
  Interest expense            (11)       (101)         (11)       (196)
                       ----------- -----------  ----------- -----------

     Earnings before
        income taxes         8,683       5,343       15,860       9,120

INCOME TAX EXPENSE           3,449       2,113        6,327       3,708
                       ----------- -----------  ----------- -----------
     Net earnings            5,234       3,230        9,533       5,412

ACCRETION OF
    REDEEMABLE
    PREFERED STOCK              --       (123)           --       (246)
                       ----------- -----------  ----------- -----------
     Net earnings
        attributable
        to common
        stockholders   $     5,234 $     3,107  $     9,533 $     5,166
                       =========== ===========  =========== ===========

EARNINGS PER COMMON
    SHARE, BASIC:
     Net earnings per
        common share   $      0.51 $      3.41  $      0.93 $      5.68

EARNINGS PER COMMON
    SHARE, DILUTED:
     Net earnings per
        common share   $      0.45 $      0.42  $      0.83 $      0.70

SHARES USED IN
    COMPUTING PER
    SHARE AMOUNTS:
     Basic              10,322,610     911,636   10,207,618     908,907
     Diluted            11,546,379   7,738,742   11,435,183   7,748,825



                 CENTENE CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands)
                                           Six Months Ended
                                                June 30,
                                       -----------------------
                                         2002          2001
                                       ----------   ----------
                                             (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings                         $    9,533   $    5,412
  Adjustments to reconcile net
    earnings to net cash provided
    by operating activities -
      Depreciation and
        amortization                          975          631
      Stock compensation expense               49            6
      Gain on sale of investments            (307)         (49)
  Changes in assets and
   liabilities -
    (Increase) decrease in
        premium and related
        receivables                          (492)      10,882
    (Increase) decrease in other
        current assets                     (1,676)       2,104
    (Increase) decrease in
        deferred income taxes                (555)         925
    Increase in other assets                 (106)          --
    Increase in medical claims
        liabilities                         3,992        2,784
    (Decrease) increase in
        accounts payable and
        accrued expenses                   (2,497)       5,299
                                       ----------   ----------

          Net cash provided by
            operating activities            8,916       27,994
                                       ----------   ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property
    and equipment                          (2,431)      (1,793)
  Purchase of investments                 (87,328)     (15,918)
  Sales and maturities of
    investments                            29,093       10,455
  Contract acquisitions                        --       (1,000)
  Investment in subsidiary                 (3,193)       7,701
                                       ----------   ----------

          Net cash used in
            investing activities          (63,859)        (555)
                                       ----------   ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Net proceeds from issuance of
        common stock                       10,304           --
    Proceeds from exercise of
        stock options                         108           17
                                       ----------   ----------

          Net cash provided by
            financing activities           10,412           17
                                       ----------   ----------

          Net (decrease) increase
            in cash and cash
            equivalents                   (44,531)      27,456
                                       ----------   ----------

CASH AND CASH EQUIVALENTS,
  beginning of period                      88,867       19,023
                                       ----------   ----------

CASH AND CASH EQUIVALENTS,
  end of period                        $   44,336   $   46,479
                                       ==========   ==========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Interest paid                        $       --   $      439
  Income taxes paid                    $    9,282   $    1,758
  The Company purchased all of the
    capital stock of Bankers Reserve
    for $3,527.  In conjunction with
    the acquisition, liabilities were
    assumed as follows:
        Fair value of assets acquired                 $ 8,719
        Cash paid for the capital stock                (3,527)
                                                    -----------
              Liabilities assumed                     $ 5,192
                                                    ===========



                          CENTENE CORPORATION

                      SUPPLEMENTAL FINANCIAL DATA

                             Q2        Q1        Q4        Q3
                            2002      2002      2001      2001
                          -------   -------   -------   -------
MEMBERSHIP
    Wisconsin             123,900   114,600   114,300   108,100
    Indiana                92,800    77,600    65,900    61,800
    Texas                  61,900    57,100    54,900    54,900
                          -------   -------   -------   -------
TOTAL                     278,600   249,300   235,100   224,800
                          =======   =======   =======   =======

    Medicaid              254,700   228,400   214,100   205,200
    CHIP                   23,900    20,900    21,000    19,600
                          -------   -------   -------   -------
TOTAL                     278,600   249,300   235,100   224,800
                          =======   =======   =======   =======

REVENUE PER MEMBER        $132.33   $131.84   $129.95   $129.27

CLAIMS
    Inventory              79,013    83,957   123,355   142,759
    Inventory per Member     0.28      0.34      0.52      0.64

DAYS IN CLAIMS PAYABLE       65.6      74.0      73.4      83.5

--30--SH/na*

CONTACT: Centene Corporation
Karey L.Witty, 314/725-4477
or
Investor Relations:
In-Site Communications
Lisa Carlton-Wilson, 212/759-3929