Centene Corporation Reports Thirteenth Consecutive Quarter of Increased Profitability

October 28, 2002 at 6:21 PM EST
ST. LOUIS, Oct 28, 2002 (BUSINESS WIRE) -- Centene Corporation (Nasdaq: CNTE) today announced the Company's financial results for the third quarter ended September 30, 2002.

Third Quarter Highlights

  • Revenues of $116.4 million, a 36% increase over the third quarter of 2001.
  • Earnings from operations of $8.0 million, a 50% increase over the third quarter of 2001.
  • Earnings per diluted share, net of one-time dividend, of $0.52.
  • Thirteenth consecutive quarter of increased profitability from continuing operations.
  • Days in claims payable of 62.7, reflecting improvements in claims payment efficiencies.
  • Operating cash flows of $13.2 million.

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. During the third quarter, our positive results were driven by membership growth across all of our markets, as well as an improved health benefits ratio within our target range."

Neidorff continued, "Contrary to concerns about rate decreases, we are pleased to announce that the states have demonstrated their willingness to work with us towards modest rate increases. In addition, we received approval from all three states to implement administrative changes in the policies and practices that will further add to our ability to maintain our margins going forward."

Membership totaled 296,100 at September 30, 2002, a 32% increase from 224,800 at September 30, 2001 and a 6% increase from 278,600 at June 30, 2002.

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

                                  2002                    2001
                            ------------------     -------------------
Wisconsin                         126,800                 108,100
Indiana                           101,500                  61,800
Texas                              67,800                  54,900
                            ------------------     -------------------

TOTAL                             296,100                 224,800
                            ==================     ===================

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

                                  2002                    2001
                            ------------------     -------------------
Medicaid                          266,700                 204,500
SCHIP                              29,400                  20,300
                            ------------------     -------------------

TOTAL                             296,100                 224,800
                            ==================     ===================

Statement of Earnings Highlights

  • For the third quarter of 2002, revenues increased 36% to $116.4 million from $85.4 in the third quarter of 2001. The health benefits ratio, which reflects medical services costs as a percent of premium revenues, was 82.2%, 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 11.2%. Earnings from operations increased 50% to $8.0 million from $5.4 million in 2001. Net earnings improved to $9.3 million, or $0.78 per diluted share. Exclusive of a $5.1 million one-time dividend received, net earnings were $6.1 million, or $0.52 per diluted share, compared to $3.6 million, or $0.45 per diluted share, for the third quarter of 2001.


  • Investments and other income for the third quarter of 2002 on a pre-tax basis was $6.8 million, including a one-time dividend received of $5.1 million. During July 2002, Centene received this dividend from United SPC, a captive insurance company in which Centene maintained an investment. The dividend related to underwriting gains on certain underlying books of business assumed by United SPC. This dividend amounted to $3.2 million on an after tax basis or $.26 per diluted share.


  • For the nine months ended September 30, 2002, revenues increased 35% to $319.8 million from $236.3 million in the nine months ended 2001. The health benefits ratio of 82.2% compares to 82.8% for the same period in 2001. General and administrative expenses as a percent of revenues decreased to 11.0% from 11.8%. Earnings from operations increased 72% to $22.0 million from $12.8 million in 2001. Net earnings improved to $18.8 million, or $1.63 per diluted share. Exclusive of $5.1 million in a one-time dividend received, net earnings were $15.7 million, or $1.36 per diluted share, compared to $9.0 million, or $1.15 per diluted share, for the nine months ended 2001.


  • In July 2001, the Financial Accounting Standards Board 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 September 30, 2001, this adjustment would have added $108,000 in net earnings, or $0.01 per diluted share.

The following table sets forth fully diluted earnings per share for the first, second and third quarters of 2002 compared to 2001 on a pro forma basis. Pro forma net earnings per diluted share assumes that as of January 1, 2001: 1) the Company's initial public offering was completed, 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%.

                   Fully Diluted Earnings Per Share
----------------------------------------------------------------------
                              As Reported              Pro Forma
                                 2002                    2001
                           ------------------     --------------------
First Quarter                    $0.38                    $0.22
Second Quarter                   $0.45                    $0.32
Third Quarter (a)                $0.52                    $0.34
                           ------------------     --------------------

Year To Date (b)                 $1.35                    $0.88
                           ==================     ====================

(a) Net of one-time dividend
(b) Total may be affected by rounding

Balance Sheet Highlights

At September 30, 2002, the Company had cash and investments of $143 million, a portion of which is restricted due to state regulatory requirements. Consistent with the prior quarter guidance, medical claims liabilities totaled $65.2 million, representing 62.7 days in claims payable, a reduction from the immediately preceding quarter. The decrease in days in claims payable reflects the Company's 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 0.17 per member from 0.28 at the immediately preceding quarter end.

Cash flows from operating activities of $13.2 million reflect a 14% increase year-over-year.

Outlook

The Company anticipates its full-year earnings outlook for fiscal year 2002, exclusive of the pending New Jersey transaction, to range from $2.15 to $2.17 per share. Revenues are expected to increase by 34% to 36% for the year ended December 31, 2002 compared to 2001. A review of the complete results for the third quarter and management's outlook for the fourth quarter, together with preliminary views on 2003, will take place during the Company's previously scheduled third quarter earnings call.

Neidorff commented, "We intend to continue to grow organically by adding new members in both Medicaid and SCHIP, and by increasing revenues from fee-for-service 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 thirteen 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, October 29, 2002, at 8:30 a.m. (Eastern Standard Time) to review the financial results for the third quarter ended September 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) 332-0636 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 October 29, 2002 shortly after completion of the call and ending on November 5, 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 654098. 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 State Children's Health Insurance Program (SCHIP). The Company operates health plans in Wisconsin, Indiana and Texas.

The information provided in the second paragraph following the bullet listing under "Third Quarter Highlights," 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 October 28, 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)


                                Sept. 30,   Dec. 31,
                                    2002       2001
                              (Unaudited)
ASSETS
CURRENT ASSETS:
 Cash and cash equivalents       $56,066    $88,867
 Premium and related
  receivables, net of
  allowances of $591 and
  $3,879, respectively             8,250      7,032
 Short-term investments, at
  fair value (amortized cost
  $9,890 and $1,166,
   respectively)                   9,834      1,169
 Deferred income taxes             2,589      2,515
 Other current assets              3,202      2,464
                                --------   --------
   Total current assets           79,941    102,047
LONG-TERM INVESTMENTS, at
 fair value (amortized cost
 $75,440 and $22,127,
  respectively)                   76,974     22,339
PROPERTY AND EQUIPMENT, net        5,600      3,796
INTANGIBLE ASSETS, net             3,217      2,396
DEFERRED INCOME TAXES               --          788
OTHER ASSETS                       5,034       --
                                --------   --------
     Total assets               $170,766   $131,366
                                ========   ========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
 Medical claims liabilities      $65,194    $59,565
 Unearned capitation premium         897       --
 Accounts payable and
  accrued expenses                 5,235      7,712
                                --------   --------
   Total current liabilities      71,326     67,277
OTHER LIABILITIES                  4,546       --
                                --------   --------
 Total liabilities                75,872     67,277
                                --------   --------
STOCKHOLDERS' EQUITY:
 Common stock, $.001 par
  value; authorized
  40,000,000 shares;
  10,767,407 and 10,085,112
  shares issued and
  outstanding, respectively           11         10
 Additional paid-in capital       72,058     60,857
 Net unrealized gain on
 investments, net of tax             931        135
 Retained earnings                21,894      3,087
                                --------   --------
Total stockholders' equity        94,894     64,089
                                --------   --------
Total liabilities and
 stockholders' equity           $170,766   $131,366
                                ========   ========


                 CENTENE CORPORATION AND SUBSIDIARIES
                  Consolidated Statements of Earnings
                   (In thousands, except share data)


                       Three Months Ended         Nine Months Ended
                          September 30,              September 30,
                    -----------------------  -------------------------
                         2002        2001         2002          2001
                           (Unaudited)                (Unaudited)
REVENUES:
 Premiums              $116,289     $85,313     $319,441      $235,995
 Administrative
  services fees             109         101          320           283
                    -----------  ----------  -----------  ------------
   Total revenues       116,398      85,414      319,761       236,278
                    -----------  ----------  -----------  ------------
EXPENSES:
 Medical services
  costs                  95,644      70,473      262,697       195,512
 General and
  administrative
  expenses               12,726       9,586       35,056        27,992
                    -----------  ----------  -----------  ------------
Total operating
 expenses               108,370      80,059      297,753       223,504
                    -----------  ----------  -----------  ------------
Earnings from
 operations               8,028       5,355       22,008        12,774

OTHER INCOME (EXPENSE):
 Investment and
  other income, net       6,768         909        8,659         2,806
 Interest expense           (16)        (89)         (27)         (285)
                    -----------  ----------  -----------  ------------
Earnings before
 income taxes            14,780       6,175       30,640        15,295
INCOME TAX EXPENSE        5,507       2,612       11,833         6,320
                    -----------  ----------  -----------  ------------
     Net earnings         9,273       3,563       18,807         8,975

ACCRETION OF
REDEEMABLE
PREFERRED STOCK            --          (123)        --            (369)
                    -----------  ----------  -----------  ------------
Net earnings
 attributable to
 common stockholders     $9,273      $3,440      $18,807        $8,606
                    ===========  ==========  ===========  ============

EARNINGS PER COMMON SHARE, BASIC:
  Net earnings per
   common share           $0.87       $3.78        $1.81         $9.47

EARNINGS PER COMMON SHARE, DILUTED:
  Net earnings per
   common share           $0.78       $0.45        $1.63         $1.15

SHARES USED IN COMPUTING PER SHARE AMOUNTS:
   Basic             10,694,797     908,939   10,372,053       908,918
   Diluted           11,833,381   7,862,779   11,565,345     7,787,653



                 CENTENE CORPORATION AND SUBSIDIARIES
                 Consolidated Statements of Cash Flows
                            (In thousands)

                                                 Nine Months Ended
                                                   September 30,
                                           ---------------------------
                                                  2002         2001
                                              (Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:
   Net earnings                                 $18,807       $8,975
   Adjustments to reconcile net earnings
    to net cash provided by operating
     activities --
       Depreciation and amortization              1,534        1,274
       Stock compensation expense                   264            6
       Gain on sale of investments                 (632)         (72)
   Changes in assets and liabilities --
     (Increase) decrease in premium and
      related receivables                        (1,218)       8,285
     (Increase) decrease in other current
      assets                                       (663)         810
     Decrease in deferred income taxes              248          338
     Decrease in other assets                       171         --
     Increase in medical claims
      liabilities                                 5,629       13,100
     (Decrease) increase in accounts
      payable and accrued expenses               (2,247)       6,850
     Increase in unearned capitation
      premium                                       897         --
     Decrease in other liabilities                 (659)        --
                                              ---------    ---------
 Net cash provided by operating activities       22,131       39,566
                                              ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment            (3,110)      (2,540)
   Purchase of investments                     (155,690)     (17,459)
   Sales and maturities of investments           96,975       16,148
   Contract acquisitions                           (570)      (1,250)
   Investment in subsidiary                      (3,193)       7,995
                                              ---------    ---------
 Net cash (used in) provided by investing
  activities                                    (65,588)       2,894
                                              ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Net proceeds from issuance of common stock      10,317           17
 Proceeds from exercise of stock options            339         --
 Purchase/redemption of stock                      --           (102)
                                              ---------    ---------
Net cash provided by (used in)
 financing activities                            10,656          (85)
                                              ---------    ---------
Net (decrease) increase in cash and
 cash equivalents                               (32,801)      42,375
                                              ---------    ---------
CASH AND CASH EQUIVALENTS,
 beginning of period                             88,867       19,023
                                              ---------    ---------
CASH AND CASH EQUIVALENTS,
 end of period                                  $56,066      $61,398
                                              =========    =========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Interest paid                                    $11         $817
   Income taxes paid                            $11,878       $2,107

   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

                         Q3           Q2           Q1           Q4
                        2002         2002         2002         2001
                     ------------ ------------ ------------ ----------
MEMBERSHIP
 Wisconsin            126,800      123,900      114,600      114,300
 Indiana              101,500       92,800       77,600       65,900
 Texas                 67,800       61,900       57,100       54,900
                     ------------ ------------ ------------ ----------
TOTAL                 296,100      278,600      249,300      235,100
                     ============ ============ ============ ==========

 Medicaid             266,700      254,700      228,400      214,100
 SCHIP                 29,400       23,900       20,900       21,000
                     ------------ ------------ ------------ ----------
TOTAL                 296,100      278,600      249,300      235,100
                     ============ ============ ============ ==========

REVENUE PER MEMBER    $133.20      $132.33      $131.84      $129.95

CLAIMS
 Inventory             51,719       79,013       83,957      123,355
 Inventory per Member    0.17         0.28         0.34         0.52

DAYS IN CLAIMS
 PAYABLE (a)             62.7         65.6         74.0         73.4


(a) 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.

Centene Corporation

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

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