Centene Corporation Reports $0.44 Earnings Per Diluted Share for the Third Quarter 2010; $0.48 From Operations Excluding a $0.04 Charge for Net Investment Writedowns

October 26, 2010 at 6:02 AM EDT

ST. LOUIS, Oct 26, 2010 /PRNewswire via COMTEX/ --

Centene Corporation (NYSE: CNC) today announced net earnings from continuing operations for the quarter ended September 30, 2010, of $22.4 million, or $0.44 per diluted share; $0.48 from operations excluding a $0.04 charge for net investment writedowns. The discussions below, with the exception of cash flow information, are in the context of continuing operations and all financial ratios exclude premium taxes.

Third Quarter Highlights

  • Quarter-end managed care at-risk membership of 1,470,800, an increase of 84,400 members, or 6.1% year over year.
  • Premium and Service Revenues of $1.082 billion, representing 9.5% year over year growth.
  • Health Benefits Ratio (HBR) of 84.2%, compared to 83.7% in the prior year.
  • General and Administrative (G&A) expense ratio of 12.2%, compared to 13.2% in the prior year.
  • Earnings from operations of $40.2 million, compared to $38.0 million in the prior year.
  • Earnings from continuing operations, net of income tax expense, of $22.4 million.
  • Diluted earnings per share from continuing operations of $0.44, including a $0.07 charge per diluted share related to an impairment of an investment in a software company and realized security gains of $0.03 per diluted share recognized during the third quarter of 2010.
  • Cash flows from operations of $72.6 million, which is 3.2 times net earnings from continuing operations.
  • Days in claims payable of 47.1, including pharmacy claims payable.

Other Events

  • In April 2010, we began offering an individual insurance product, under the names of Commonwealth Choice and CeltiCare Direct, for residents of Boston and surrounding cities who do notqualify for other state funded insurance programs.
  • In July 2010, we closed on the acquisition of certain assets of NovaSys Health, LLC, a leading third party administrator in Arkansas that complements our existing Celtic business.
  • In August 2010, we announced the acquisition in Florida of certain assets in non-reform counties of Citrus Health Care, Inc., a Medicaid and long-term care health plan. We expect the transaction to close at year end.
  • In September 2010, Celtic Insurance Company, Inc. was awarded a contract with the Texas Department of Insurance to provide affordable health insurance plans for Texas small businesses under the new Healthy Texas initiative. We expect operations to commence during the fourth quarter of 2010.
  • In September 2010, our new subsidiary, IlliniCare Health Plan, was selected as one of two vendors to provide managed care services to older adults and adults with disabilities under the Integrated Care Program in six counties of Illinois. We expect operations to commence in the first half of 2011.
  • In October 2010,one of our highly regarded health programs, Start Smart for Your Baby(R), won the Platinum Award for Consumer Empowerment at the URAC Quality Summit. Also in October, Absolute Total Care, our South Carolina health plan,received the prestigious New Health Plan accreditation from the National Committee for Quality Assurance (NCQA), a private, not-for-profit organization that sets standards for monitoring and improving healthcare quality.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "A strong operational quarter and exceptional new business activity set the stage for meaningful 2011 performance."

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



September 30,



2010


2009

Arizona


19,300


17,400

Florida


116,300


84,400

Georgia


300,900


303,400

Indiana


213,300


200,700

Massachusetts


34,400


500

Ohio


161,800


151,200

South Carolina


90,600


46,100

Texas


428,100


450,200

Wisconsin


106,100


132,500

Total at-risk membership


1,470,800


1,386,400

Non-risk membership


35,900


63,200

Total


1,506,700


1,449,600


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



September 30,



2010


2009

Medicaid


1,122,800


1,040,000

CHIP & Foster Care


219,100


263,400

ABD & Medicare


94,500


82,500

Other State programs


34,400


500

Total at-risk membership


1,470,800


1,386,400

Non-risk membership


35,900


63,200

Total


1,506,700


1,449,600


Statement of Operations

  • Premium and service revenues increased 9.5% for the three months ended September 30, 2010 over 2009 as a result of membership growth and net premium rate increases. This increase was moderated by the removal of pharmacy services in two states in 2010. These pharmacy carve outs had the effect of reducing 2010 third quarter revenue by approximately $48 million.
  • The consolidated HBR for the three months ended September 30, 2010 of 84.2% was an increase of 0.5% over the comparable period in 2009. A reconciliation of the change in HBR from the prior year is presented below:


Third Quarter 2009

83.7

%



Florida health plan performance

0.9





Net changes in other markets

(0.4)




Third Quarter 2010

84.2

%









  • Consolidated G&A expense as a percent of premium and service revenues was 12.2% in the third quarter of 2010, a decrease from 13.2% in the third quarter of 2009.The decrease in G&A ratio is primarily a result of leveraging our expenses over higher revenues and decreased variable compensation expense during the quarter ended September 30, 2010.
  • Earnings per diluted share from continuing operations were $0.44, compared to $0.51 in the third quarter of 2009, including a $0.07 charge per diluted share related to an impairment of an investment in a software company and realized security gains of $0.03 per diluted share recognized during the third quarter of 2010. Earnings per diluted share also reflect an increase in diluted shares outstanding resulting from the first quarter 2010 stock offering.

Balance Sheet and Cash Flow

At September 30, 2010, we had cash and investments of $928.1 million, including $895.4 million held by our regulated entities and $32.7 million held by our unregulated entities. Medical claims liabilities totaled $457.1 million, representing 47.1 days in claims payable, a decrease of 1.1 days from June 30, 2010. Total debt was $264.2 million and debt to capitalization was 24.7%.

Cash flow from operations for the quarter ended September 30, 2010 was $72.6 million. Cash flow from operations for the nine months ended September 30, 2010 was $(25.7) million and was impacted by 1) $38.7 million decrease in unearned revenue due to advance payments received in December 2009 for January 2010 premium payments and 2) $68.1 million increase in premium and related receivables primarily for September premium payments deferred by one state until October 2010.

A reconciliation of the change in days in claims payable from the immediately preceding quarter-end is presented below:


Days in claims payable, June 30, 2010

48.2


Timing of claims payments

(0.9)


Impact of decrease in membership

(0.3)


Pharmacy payment timing

0.1


Days in claims payable, September 30, 2010

47.1




Outlook

The table below depicts our guidance from continuing operations for 2010:




Full Year 2010




Low


High


Premium and Service revenues (in millions)


$ 4,250


$ 4,350


Earnings per diluted share (EPS)


$ 1.76


$ 1.80


HBR %


83.5%


84.5%


G&A %


12.4%


12.9%








Diluted Shares Outstanding (in thousands)


50,500









Based upon known rate adjustments and discussions with our states that finalize rates in the second half of the year, we estimate our 2010 composite premium rate increase to be between 1.5% and 2.5%.

Conference Call

As previously announced, we will host a conference call Tuesday, October 26, 2010, at 8:30 A.M. (Eastern Time) to review the financial results for the third quarter ended September 30, 2010, and to discuss our 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 877-887-1134 in the U.S. and Canada; +1-412-317-0794 from abroad; or via a live, audio webcast on our website at www.centene.com, under the Investors section.

A 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, October 25, 2011, at the aforementioned URL, or by dialing 877-344-7529 in the U.S. and Canada, or +1-412-317-0088 from abroad and entering the playback conference number 444970.

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 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, 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.

This release includes earnings per diluted share excluding certain charges for net investment writedowns, which is a non-GAAP financial measure. Management believes that this non-GAAP financial measure provides information that is useful to investors in understanding period-over-period operating results and enhances the ability of investors to analyze Centene's business trends and to understand Centene's performance. This non-GAAP financial measure should not be considered in isolation, or as a substitute for the corresponding GAAP financial measure and may not be comparable to similar measures used by other companies.

[Tables Follow]




CENTENE CORPORATION AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)



September30,

2010


December31,

2009


ASSETS







Current assets:







Cash and cash equivalents of continuing operations, including $5,389 and $8,667, respectively, from consolidated variable interest entities


$

397,519

$

400,951


Cash and cash equivalents of discontinued operations



147


2,801


Total cash and cash equivalents



397,666


403,752


Premium and related receivables, net of allowance for uncollectible accounts of $1,336 and $1,338, respectively, including $3,208 and $11,313, respectively, from consolidated variable interest entities



182,379


103,456


Short-term investments, at fair value (amortized cost $30,667 and $39,230, respectively)



30,857


39,554


Other current assets, including $2,023 and $4,507, respectively, from consolidated variable interest entities



63,408


64,866


Current assets of discontinued operations other than cash



1,678


4,506


Total current assets



675,988


616,134


Long-term investments, at fair value (amortized cost $463,877 and $514,256, respectively)



479,164


525,497


Restricted deposits, at fair value (amortized cost $20,527 and $20,048, respectively)



20,589


20,132


Property, software and equipment, net of accumulated depreciation of $127,969 and $103,883, respectively, including $138,008 and $89,219, respectively, from consolidated variable interest entities



311,195


230,421


Goodwill



247,757


224,587


Intangible assets, net



24,608


22,479


Other long-term assets, including $2,806 and $30, respectively, from consolidated variable interest entities



28,398


36,829


Long-term assets of discontinued operations



7,478


26,285


Total assets


$

1,795,177

$

1,702,364


LIABILITIES AND STOCKHOLDERS' EQUITY







Current liabilities:







Medical claims liability


$

457,085

$

470,932


Accounts payable and accrued expenses, including $20,926 and $14,020, respectively, from consolidated variable interest entities



145,877


132,001


Unearned revenue



52,936


91,644


Current portion of long-term debt



663


646


Current liabilities of discontinued operations



4,531


20,685


Total current liabilities



661,092


715,908


Long-term debt



263,513


307,085


Other long-term liabilities



66,355


59,561


Long-term liabilities of discontinued operations



285


383


Total liabilities



991,245


1,082,937









Commitments and contingencies














Stockholders' equity:







Common stock, $.001 par value; authorized 100,000,000 shares; 51,716,723 issued and 49,265,875 outstanding at September 30, 2010, and 45,593,383 shares issued and 43,179,373 shares outstanding at December31, 2009



52


46


Additional paid-in capital



400,213


281,806


Accumulated other comprehensive income:







Net unrealized gain on investments, net of tax



9,661


7,348


Retained earnings



428,344


358,907


Treasury stock, at cost (2,450,848 and 2,414,010 shares, respectively)



(47,976)


(47,262)


Total Centene Corporation stockholders' equity



790,294


600,845


Noncontrolling interest



13,638


18,582


Total stockholders' equity



803,932


619,427


Total liabilities and stockholders' equity


$

1,795,177

$

1,702,364



CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(Unaudited)







Three Months Ended

September 30,


Nine Months Ended

September 30,



2010



2009


2010



2009


Revenues:















Premium

$

1,060,559



$

960,009


$

3,085,802



$

2,754,713


Service


20,954




27,300



68,543




72,740


Premium and service revenues


1,081,513




987,309



3,154,345




2,827,453


Premium tax


40,348




50,925



113,009




182,685


Total revenues


1,121,861




1,038,234



3,267,354




3,010,138


Expenses:















Medical costs


893,281




803,062



2,592,324




2,298,108


Cost of services


14,646




15,843



47,505




46,364


General and administrative expenses


132,095




130,024



401,072




381,524


Premium tax


41,591




51,295



114,885




183,785


Total operating expenses


1,081,613




1,000,224



3,155,786




2,909,781


Earnings from operations


40,248




38,010



111,568




100,357


Other income (expense):















Investment and other income


713




3,750



11,912




11,781


Interest expense


(4,858)




(4,064)



(12,540)




(12,210)


Earnings from continuing operations, before income tax expense


36,103




37,696



110,940




99,928


Income tax expense


13,163




12,426



42,942




35,060


Earnings from continuing operations, net of income tax expense


22,940




25,270



67,998




64,868


Discontinued operations, net of income tax expense (benefit) of $26, $(792), $4,376 and $(1,148), respectively


260




(1,460)



3,954




(2,394)


Net earnings


23,200




23,810



71,952




62,474


Noncontrolling interest


538




2,542



2,515




2,518


Net earnings attributable to Centene Corporation

$

22,662



$

21,268


$

69,437



$

59,956

















Amounts attributable to Centene Corporation common stockholders:















Earnings from continuing operations, net of income tax expense

$

22,402



$

22,728


$

65,483



$

62,350


Discontinued operations, net of income tax expense (benefit)


260




(1,460)



3,954




(2,394)


Net earnings

$

22,662



$

21,268


$

69,437



$

59,956

















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















Basic:















Continuing operations

$

0.46



$

0.53


$

1.35



$

1.45


Discontinued operations


--




(0.04)



0.08




(0.06)


Earnings per common share

$

0.46



$

0.49


$

1.43



$

1.39


Diluted:















Continuing operations

$

0.44



$

0.51


$

1.30



$

1.41


Discontinued operations


--




(0.03)



0.08




(0.05)


Earnings per common share

$

0.44



$

0.48


$

1.38



$

1.36

















Weighted average number of shares outstanding:















Basic


49,238,406




43,001,870



48,552,135




43,023,431


Diluted


50,938,357




44,291,604



50,192,190




44,247,153


CENTENE CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


Nine Months EndedSeptember 30,



2010


2009


Cash flows from operating activities:







Net earnings

$

71,952


$

62,474


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







Depreciation and amortization


38,620



30,800


Stock compensation expense


10,224



11,428


(Gain) loss on sale of investments, net


(6,331)



261


(Gain) on sale of UHP


(8,201)



-


Impairment of investment


5,531



-


Deferred income taxes


7,012



4,516


Changes in assets and liabilities:







Premium and related receivables


(68,125)



(381)


Other current assets


(2,932)



(2,595)


Other assets


(990)



(593)


Medical claims liabilities


(29,304)



31,612


Unearned revenue


(38,708)



54,725


Accounts payable and accrued expenses


(3,174)



(17,656)


Other operating activities


(1,267)



2,386


Net cash (used in) provided by operating activities


(25,693)



176,977


Cash flows from investing activities:







Capital expenditures


(91,960)



(42,696)


Purchases of investments


(382,730)



(647,086)


Proceeds from asset sales


13,420



-


Sales and maturities of investments


452,128



546,640


Investments in acquisitions, net of cash acquired


(26,847)



(31,533)


Net cash used in investing activities


(35,989)



(174,675)


Cash flows from financing activities:







Proceeds from exercise of stock options


2,394



1,717


Proceeds from borrowings


53,812



468,500


Proceeds from stock offering


104,534



-


Payment of long-term debt


(97,467)



(456,059)


Distributions (to) from noncontrolling interest


(7,387)



4,324


Excess tax benefits from stock compensation


424



43


Common stock repurchases


(714)



(5,539)


Debt issuance costs


-



(405)


Net cash provided by financing activities


55,596



12,581


Net (decrease) increase in cash and cash equivalents


(6,086)



14,883


Cash and cash equivalents, beginning of period


403,752



379,099


Cash and cash equivalents, end of period

$

397,666


$

393,982









Supplemental disclosures of cash flow information:







Interest paid

$

9,501


$

8,556


Income taxes paid

$

44,407


$

43,308









Supplemental disclosure of non-cash investing and financing activities:







Contribution from noncontrolling interest

$

306


$

5,491


Capital expenditures

$

15,291


$

10,106



CENTENE CORPORATION


CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA



Q3


Q2


Q1


Q4


Q3


2010


2010


2010


2009


2009

MEMBERSHIP










Managed Care:










Arizona

19,300


19,300


19,000


18,100


17,400

Florida

116,300


113,100


105,900


102,600


84,400

Georgia

300,900


295,600


301,000


309,700


303,400

Indiana

213,300


212,700


211,400


208,100


200,700

Massachusetts

34,400


30,100


26,900


27,800


500

Ohio

161,800


159,300


156,000


150,800


151,200

South Carolina

90,600


92,600


53,900


48,600


46,100

Texas

428,100


475,500


459,600


455,100


450,200

Wisconsin

106,100


133,600


134,900


134,800


132,500

Total at-risk membership

1,470,800


1,531,800


1,468,600


1,455,600


1,386,400

Non-risk membership

35,900


50,900


62,200


63,700


63,200

TOTAL

1,506,700


1,582,700


1,530,800


1,519,300


1,449,600











Medicaid

1,122,800


1,135,500


1,088,300


1,081,400


1,040,000

CHIP & Foster Care

219,100


272,400


266,300


263,600


263,400

ABD & Medicare

94,500


93,800


87,100


82,800


82,500

Other State programs

34,400


30,100


26,900


27,800


500

Total at-risk membership

1,470,800


1,531,800


1,468,600


1,455,600


1,386,400

Non-risk membership

35,900


50,900


62,200


63,700


63,200

TOTAL

1,506,700


1,582,700


1,530,800


1,519,300


1,449,600











Specialty Services(a):










Cenpatico Behavioral Health










Arizona

121,300


119,700


119,300


120,100


117,300

Kansas

39,800


39,100


39,800


41,400


41,000

Bridgeway Health Solutions










Long-term Care

3,000


2,800


2,700


2,600


2,500

TOTAL

164,100


161,600


161,800


164,100


160,800











(a) Includes external membership only.




















REVENUE PER MEMBER PER MONTH(b)

$

216.96


$

208.58


$

215.95(c)


$

226.42


$

222.77











CLAIMS(b)










Period-end inventory

469,000


480,400


341,400


423,400


414,900

Average inventory

307,500


306,900


283,900


279,000


227,100

Period-end inventory per member

0.32


0.31


0.23


0.29


0.30


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

(c) Reduction in revenue per member per month is a result of the pharmacy carve-outs in 2010.




Q3


Q2


Q1


Q4


Q3


2010


2010


2010


2009


2009











DAYS IN CLAIMS PAYABLE










Medical

46.0


47.2


46.6


48.1


47.1

Pharmacy

1.1


1.0


1.1


2.0


1.8

TOTAL

47.1


48.2


47.7


50.1


48.9

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

$

895.4


$

813.0


$

917.9


$

949.9


$

911.4

Unregulated


32.7



39.4



51.3



36.2



27.6

TOTAL

$

928.1


$

852.4


$

969.2


$

986.1


$

939.0











DEBT TO CAPITALIZATION

24.7%


24.5%


23.7%


33.2%


31.9%

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


OPERATING RATIOS:


Three Months Ended

September 30,


Nine Months Ended

September 30,


2010



2009


2010



2009

Health Benefits Ratios:














Medicaid and CHIP

83.2%




84.7%



84.0%




84.4%


ABD and Medicare

85.9




81.1



84.3




81.7


Specialty Services

87.9




80.5



83.4




79.6


Total

84.2




83.7



84.0




83.4
















Total General & Administrative Expense Ratio

12.2%




13.2%



12.7%




13.5%



MEDICAL CLAIMS LIABILITY (In thousands)

The changes in medical claims liability are summarized as follows:


Balance, September 30, 2009

$

426,700


Incurred related to:




Current period


3,518,220


Prior period


(60,481)


Total incurred


3,457,739


Paid related to:




Current period


3,069,850


Prior period


357,504


Total paid


3,427,354


Balance, September 30, 2010

$

457,085



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 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, increased receipts from other third party payors related to coordination of benefits and lower medical utilization and cost trends for dates of service prior to September 30, 2009.

SOURCE Centene Corporation