Centene Corporation Reports 2008 First Quarter Earnings

April 22, 2008 at 6:01 AM EDT

ST. LOUIS--(BUSINESS WIRE)--April 22, 2008--Centene Corporation (NYSE: CNC) today announced its net earnings from continuing operations for the quarter ended March 31, 2008 were $25.5 million, or $0.57 per diluted share, compared to $11.6 million, or $0.26 per diluted share in the 2007 first quarter. The first quarter results include the benefit of the July 1 through December 31, 2007 period rate increase for Georgia, approximately $0.28 per diluted share, which was included in our guidance for the first quarter. Unless specifically noted, the discussions below are in the context of continuing operations.

    First Quarter Highlights

    --  Quarter-end Medicaid Managed Care membership of 1.2 million.

    --  Revenues of $816.6 million, or $794.0 million net of premium
        taxes, a 22.8% increase over the 2007 first quarter.

    --  Health Benefits Ratio (HBR), which reflects medical costs as a
        percent of premium revenues, of 83.0%, compared to 84.6% in
        the 2007 first quarter. The first quarter 2008 HBR reflects
        the benefit of the previously mentioned Georgia rate increase.

    --  General and administrative (G&A) expense ratio of 12.5%,
        compared to 13.4% in the 2007 first quarter.

    --  Cash flow from operations of $26.7 million.

    --  Days in claims payable of 49.3.

    Other Events

    --  Announced the acquisition of Celtic Insurance Company, a
        health insurance carrier focused on the individual health
        insurance market. Pending regulatory approval, we expect to
        complete this acquisition in the third quarter of 2008.

    --  Commenced operations under our Texas Foster Care contract
        effective April 1, 2008.

    --  Notified the State of Ohio of our intent to withdraw from
        covering Aged, Blind or Disabled (ABD) members in the
        Northwest region of Ohio effective July 1.

    --  Repurchased 350,332 shares during the first quarter for
        approximately $7.0 million.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "During the first quarter, our HBR was adversely affected by high medical costs in Ohio largely influenced by the ABD population and by a heavy flu season. But aside from these items and an extended rollout of full-risk enrollment in South Carolina, in aggregate our other markets and products performed generally in-line with our expectations.

"We are taking actions to improve margins in our Ohio ABD population including exiting the Northwest region as of July 1, 2008, rationalizing our provider networks in the remaining regions, and continuing an ongoing dialogue with the State on rate adequacy and benefit design. We remain committed to serving the needs of our customers in all of our markets, but are also committed to doing so only in markets and with products that produce consistent and adequate returns for our investors," concluded Neidorff.

The following table depicts membership in Centene's managed care organizations, by state, at March 31, 2008 and 2007:

                                                   2008        2007
                                               ----------- -----------
 Georgia                                           282,700     291,300
 Indiana                                           161,300     176,700
 New Jersey                                         56,500      59,100
 Ohio                                              131,100     118,300
 South Carolina                                     29,300          --
 Texas                                             369,000     318,500
 Wisconsin                                         126,900     139,400
                                                ----------  ----------
    Total                                        1,156,800   1,103,300
                                                ==========  ==========

The following table depicts membership in Centene's managed care organizations, by member category, at March 31, 2008 and 2007:

                                              2008          2007
                                          ----------- ----------------
 Medicaid                                     862,900       839,600
 SCHIP                                        216,000       211,200
 SSI/Medicare                                  77,900        52,500
                                           ----------    ----------
    Total                                   1,156,800 (a) 1,103,300(b)
                                           ==========    ==========

  (a) 1,126,200 at-risk; 30,600 ASO
  (b) 1,099,200 at-risk; 4,100 ASO
----------------------------------------------------- ----------------
    Statement of Operations

    --  For the 2008 first quarter, revenues, net of premium taxes,
        increased 22.8% to $794.0 million from $646.4 million in the
        2007 first quarter. The increase was mainly driven by
        membership growth in Texas and Ohio, which are the two markets
        that added SSI products in 2007, as well as the recognition of
        the Georgia premium rate increase retroactive to July 1, 2007
        of $20.8 million.

    --  The consolidated HBR, which reflects medical costs as a
        percent of premium revenues, was 83.0%, a decrease from 84.6%
        in the 2007 first quarter. The decrease resulted from the
        recognition of the Georgia premium rate increase, offset by
        increases from seasonal medical cost trends, in part related
        to the flu, and continued high medical costs in the Ohio ABD
        markets.

    --  Consolidated G&A expense as a percent of premium and service
        revenues was 12.5% in the first quarter of 2008, a decrease
        from 13.4% in the first quarter of 2007.

    --  Earnings per diluted share from continuing operations were
        $0.57, compared to $0.26 in the 2007 first quarter.

    Balance Sheet and Cash Flow

At March 31, 2008, the Company had cash and investments of $676.9 million, including $651.1 million held by its regulated entities and $25.8 million held by its unregulated entities. Medical claims liabilities totaled $347.5 million, representing 49.3 days in claims payable, an increase of 0.2 days from December 31, 2007. Total debt was $216.2 million and debt to capitalization was 32.8%. Cash flow from operations was $26.7 million.

Outlook

The table below depicts the Company's guidance for the 2008 second quarter and full year.

                                               Q2 2008       2008
                                             ----------- -------------
                                              Low  High   Low    High
                                             ----- ----- ------ ------
Revenue (in millions)(1)                     $ 822 $ 832 $3,300 $3,375
Earnings per diluted share                   $0.38 $0.42 $ 1.87 $ 1.97

(1) Revenue net of premium tax
----------------------------------------------------------------------

Eric R. Slusser, Centene's Chief Financial Officer, stated, "We are lowering the range of our annual revenue and earnings guidance to reflect a reduction in investment income resulting from actions taken by the Federal Reserve during the first quarter of 2008 as well as the current and expected lower results in the Ohio ABD market. We expect an overall HBR range for the full year of 82.0% to 84.0%."

Conference Call

As previously announced, the Company will host a conference call Tuesday, April 22, 2008, at 8:00 A.M. (Eastern Time) to review the financial results for the first quarter ended March 31, 2008, and to discuss its business outlook. Michael F. Neidorff and Eric R. Slusser will host the conference call. Investors are invited to participate in the conference call by dialing 800-273-1254 in the U.S. and Canada, 706-679-8592 from abroad, or via a live internet broadcast on the Company's website at www.centene.com, under the Investor Relations section. A replay will be available for on-demand listening shortly after the completion of the call until 11:59 P.M. (Eastern Time) on May 6, 2008 at the aforementioned URL, or by dialing 800-642-1687 in the U.S. and Canada, or 706-645-9291 from abroad, and entering access code 41656800.

About Centene Corporation

Centene Corporation is a leading multi-line healthcare enterprise that provides programs and related services to individuals receiving benefits under Medicaid, including the State Children's Health Insurance Program (SCHIP), Supplemental Security Income (SSI) and Medicare (Special Needs Plans). The Company operates health plans in Georgia, Indiana, New Jersey, Ohio, South Carolina, Texas and Wisconsin. In addition, the Company contracts with other healthcare and commercial organizations to provide specialty services including behavioral health, life and health management, long-term care, managed vision, nurse triage, pharmacy benefits management and treatment compliance. Information regarding Centene is available via the Internet at www.centene.com.

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.

                             Tables Follow

                 CENTENE CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS
                  (In thousands, except share data)

                                              March 31,   December 31,
                                                 2008         2007
                                             ------------ ------------
                                                    (Unaudited)

                   ASSETS
Current assets:
   Cash and cash equivalents                 $    263,780 $    268,584
   Premium and related receivables                 81,468       90,072
   Short-term investments, at fair value
    (amortized cost $60,927 and $46,392,
    respectively)                                  60,989       46,269
   Other current assets                            37,373       41,414
                                             ------------ ------------
      Total current assets                        443,610      446,339
Long-term investments, at fair value
 (amortized cost $319,881 and $314,681,
 respectively)                                    324,173      317,041
Restricted deposits, at fair value
 (amortized cost $27,411 and $27,056,
 respectively)                                     27,972       27,301
Property, software and equipment, net             151,265      138,139
Goodwill                                          141,023      141,030
Other intangible assets, net                       12,608       13,205
Other assets                                       38,624       36,067
                                             ------------ ------------
      Total assets                           $  1,139,275 $  1,119,122
                                             ============ ============

    LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Medical claims liabilities                $    347,504 $    335,856
   Accounts payable and accrued expenses          115,857      105,096
   Unearned revenue                                 2,231       44,016
   Current portion of long-term debt                  416          971
   Current liabilities of discontinued
    operations                                        754          861
                                             ------------ ------------
      Total current liabilities                   466,762      486,800
Long-term debt                                    215,818      206,406
Other liabilities                                  13,460       10,869
                                             ------------ ------------
         Total liabilities                        696,040      704,075
Stockholders' equity:
   Common stock, $.001 par value; authorized
    100,000,000 shares; issued and
    outstanding 43,424,326 and 43,667,837
    shares, respectively                               44           44
   Additional paid-in capital                     222,719      221,693
   Accumulated other comprehensive income:
      Unrealized gain on investments, net of
       tax                                          3,110        1,571
   Retained earnings                              217,362      191,739
                                             ------------ ------------
         Total stockholders' equity               443,235      415,047
                                             ------------ ------------
         Total liabilities and stockholders'
          equity                             $  1,139,275 $  1,119,122
                                             ============ ============

                 CENTENE CORPORATION AND SUBSIDIARIES

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

                                                Three Months Ended
                                                     March 31,
                                             -------------------------
                                                 2008         2007
                                             ------------ ------------
                                                    (Unaudited)
Revenues:
      Premium                                $   773,478  $   624,826
      Premium tax                                 22,631       17,816
      Service                                     20,530       21,592
                                             ------------ ------------
            Total revenues                       816,639      664,234
                                             ------------ ------------
Expenses:
      Medical costs                              641,619      528,520
      Cost of services                            16,176       15,630
      General and administrative expenses         99,283       86,467
      Premium tax                                 22,631       17,816
                                             ------------ ------------
            Total operating expenses             779,709      648,433
                                             ------------ ------------
            Earnings from operations              36,930       15,801
Other income (expense):
      Investment and other income                  7,769        6,017
      Interest expense                            (3,994)      (3,132)
                                             ------------ ------------
            Earnings before income taxes          40,705       18,686
Income tax expense                                15,168        7,089
                                             ------------ ------------
            Net earnings from continuing
             operations                           25,537       11,597
            Discontinued operations, net of
             income tax expense (benefit) of
             $52 and $(26,780)                        86       26,614
                                             ------------ ------------
            Net earnings                     $    25,623  $    38,211
                                             ============ ============

Net earnings per share:
   Basic:
      Continuing operations                  $      0.59  $      0.27
      Discontinued operations                         --         0.61
                                             ------------ ------------
      Basic earnings per common share        $      0.59  $      0.88
                                             ============ ============
   Diluted:
      Continuing operations                  $      0.57  $      0.26
      Discontinued operations                         --         0.59
                                             ------------ ------------
      Diluted earnings per common share      $      0.57  $      0.85
                                             ============ ============

Weighted average number of shares
 outstanding:
      Basic                                   43,538,207   43,433,319
      Diluted                                 44,742,893   44,923,340

                 CENTENE CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands)

                                                Three Months Ended
                                                     March 31,
                                             -------------------------
                                                 2008         2007
                                             ------------ ------------
                                                    (Unaudited)

Cash flows from operating activities:
   Net earnings                              $    25,623  $    38,211
   Adjustments to reconcile net earnings to
    net cash provided by operating
    activities --
      Depreciation and amortization                7,798        6,274
      Stock compensation expense                   4,013        3,871
      Deferred income taxes                        9,472       (1,398)
      Gain on sale of FirstGuard Missouri             --       (4,218)
   Changes in assets and liabilities --
      Premium and related receivables              8,612       13,588
      Other current assets                        (2,634)     (26,336)
      Other assets                                (1,031)        (636)
      Medical claims liabilities                  11,608       (4,340)
      Unearned revenue                           (41,788)       4,796
      Accounts payable and accrued expenses        4,489        1,309
      Other operating activities                     554        4,859
                                             ------------ ------------
            Net cash provided by operating
             activities                           26,716       35,980
                                             ------------ ------------
Cash flows from investing activities:
   Purchases of property, software and
    equipment                                    (19,879)     (14,794)
   Purchases of investments                      (86,025)    (135,866)
   Sales and maturities of investments            70,888      122,835
   Proceeds from asset sales                          --       10,848
   Investments in acquisitions and equity
    method investee, net of cash acquired         (2,194)        (400)
                                             ------------ ------------
            Net cash used in investing
             activities                          (37,210)     (17,377)
                                             ------------ ------------
Cash flows from financing activities:
   Proceeds from exercise of stock options         1,148          868
   Proceeds from borrowings                       26,005      191,000
   Payment of long-term debt                     (17,148)    (165,248)
   Excess tax benefits from stock
    compensation                                   2,638          417
   Common stock repurchases                       (6,953)        (644)
   Debt issue costs                                   --       (4,138)
                                             ------------ ------------
            Net cash provided by financing
             activities                            5,690       22,255
                                             ------------ ------------
            Net (decrease) increase in cash
             and cash equivalents                 (4,804)      40,858
                                             ------------ ------------
Cash and cash equivalents, beginning of
 period                                          268,584      271,047
                                             ------------ ------------
Cash and cash equivalents, end of period     $   263,780  $   311,905
                                             ============ ============

   Interest paid                             $       463  $     2,999
   Income taxes paid                         $       792  $     5,801

                         CENTENE CORPORATION

          CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA

                               Q1         Q4         Q3         Q2
                              2008       2007       2007       2007
                           ---------- ---------- ---------- ----------
MEMBERSHIP
Managed Care:
   Georgia                    282,700    287,900    286,200    281,400
   Indiana                    161,300    154,600    156,300    161,700
   New Jersey                  56,500     57,300     58,300     59,100
   Ohio                       131,100    128,700    127,500    128,200
   South Carolina              29,300     31,800     29,300     31,100
   Texas                      369,000    354,400    347,000    333,900
   Wisconsin                  126,900    131,900    132,700    136,100
                           ---------- ---------- ---------- ----------
      TOTAL                 1,156,800  1,146,600  1,137,300  1,131,500
                           ========== ========== ========== ==========

   Medicaid                   862,900    848,100    841,600    846,900
   SCHIP                      216,000    224,400    223,500    216,500
   SSI & Medicare              77,900     74,100     72,200     68,100
                           ---------- ---------- ---------- ----------
      TOTAL                 1,156,800  1,146,600  1,137,300  1,131,500
                           ========== ========== ========== ==========

Specialty Services(a):
   Arizona                     97,900     99,900     99,000     95,200
   Kansas                      39,400     39,000     35,600     37,500
                           ---------- ---------- ---------- ----------
      TOTAL                   137,300    138,900    134,600    132,700
                           ========== ========== ========== ==========

(a) Includes behavioral health contracts only.

REVENUE PER MEMBER(b)      $   215.35 $   210.34 $   201.05 $   193.09

CLAIMS(b)
   Period-end inventory       393,700    312,700    265,400    281,000
   Average inventory          281,600    288,700    319,900    248,200
   Period-end inventory
    per member                   0.34       0.28       0.24       0.26

(b) Revenue per member and claims information are presented for the
 Medicaid Managed Care segment.

                                      Q1       Q4       Q3       Q2
                                     2008     2007     2007     2007
                                   -------- -------- -------- --------

DAYS IN CLAIMS PAYABLE(c)             49.3     49.1     49.1     46.2
(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.

CASH AND INVESTMENTS (in millions)
   Regulated                       $ 651.1  $ 626.2  $ 593.6  $ 527.9
   Unregulated                        25.8     33.0     45.9     65.8
                                   -------- -------- -------- --------
      TOTAL                        $ 676.9  $ 659.2  $ 639.5  $ 593.7
                                   ======== ======== ======== ========

DEBT TO CAPITALIZATION(d)             32.8%    33.3%    33.1%    34.0%
(d) Debt to Capitalization is calculated as follows: total debt
 divided by (total debt + equity).

OPERATING RATIOS:

                                                    Three Months Ended
                                                        March 31,
                                                    ------------------
                                                      2008      2007
                                                    --------  --------
            Health Benefits Ratios
               Medicaid and SCHIP                      79.5%     84.5%
               SSI and Medicare                        97.5      88.5
               Specialty Services                      84.1      79.7
               Total                                   83.0      84.6

            General & Administrative Expense Ratio     12.5%     13.4%

MEDICAL CLAIMS LIABILITIES (In thousands)
Four rolling quarters of the changes in medical claims liabilities are
 summarized as follows:

            Balance, March 31, 2007                        $  267,980
            Incurred related to:
               Current period                               2,449,237
               Prior period                                   (11,652)
                                                           -----------
                  Total incurred                            2,437,585
                                                           ===========
            Paid related to:
               Current period                               2,110,081
               Prior period                                   247,980
                                                           -----------
                  Total paid                                2,358,061
                                                           -----------
            Balance, March 31, 2008                        $  347,504
                                                           ===========

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" claims 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.

CONTACT: Centene Corporation
Edmund E. Kroll, 212-759-0382
Senior Vice President, Finance & Investor Relations
or
Eric R. Slusser, 314-725-4477
Executive Vice President and Chief Financial Officer

SOURCE: Centene Corporation