Centene Corporation Reports 2008 Fourth Quarter Earnings

February 10, 2009 at 6:01 AM EST

ST. LOUIS--(BUSINESS WIRE)--Feb. 10, 2009-- Centene Corporation (NYSE: CNC) today announced its financial results for the quarter and year ended December 31, 2008. As discussed on our December 19, 2008 guidance call, the results of operations for University Health Plans, or UHP, our New Jersey health plan, are now classified as discontinued operations as a result of our decision to sell certain assets of UHP. Unless specifically noted, the discussions below are in the context of net earnings from continuing operations and all financial ratios are calculated using revenues excluding premium taxes and investment income.

            2008 Highlights
    Q4     Full Year
Total Revenues (in millions) $ 902.8 $ 3,364.5
Consolidated HBR 82.3 % 82.5 %
Diluted EPS $ 0.53 $ 1.90

Fourth Quarter Highlights

  • Quarter-end Medicaid Managed Care membership of 1.2 million.
  • Revenues of $902.8 million, or $878.8 million net of premium taxes, a 22.2% increase over the 2007 fourth quarter.
  • Health Benefits Ratio (HBR), which reflects medical costs as a percent of premium revenues, of 82.3%, compared to 85.3% in the 2007 fourth quarter.
  • General and administrative (G&A) expense ratio of 13.8%, compared to 14.9% in the 2007 fourth quarter.
  • Cash flow from operations of $95.5 million.
  • Days in claims payable of 48.5.
  • Diluted earnings per share, or EPS, from continuing operations of $0.53. Total (including New Jersey) diluted EPS of $0.49, including a $0.05 one-time charge related to the sale of our New Jersey health plan.

Other Events

  • In February 2009, we began converting membership in Florida from Access, on a non-risk basis, to our new subsidiary, Sunshine State Health Plan, on an at-risk basis.
  • Peach State Health Plan, Inc., our Georgia subsidiary, received Accreditation Status by the National Committee for Quality Assurance (NCQA) under the New Health Plan Accreditation Program.

Michael F. Neidorff, Centene’s Chairman and Chief Executive Officer, stated, “We were pleased with the results of the fourth quarter and year, which reflect our focus on fundamentals that we will maintain going forward.”

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

    2008     2007
Georgia 288,300 287,900
Indiana 175,300 154,600
Ohio 133,400 128,700
South Carolina(a) 31,300 31,800
Texas 431,700 354,400
Wisconsin 124,800 131,900
Total 1,184,800 1,089,300
 
(a) Substantially all of the 2007 membership in South Carolina was on a non-risk basis.

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

    2008     2007
Medicaid 862,500 807,600
SCHIP/Foster Care 257,300 214,600
ABD/Medicare 65,000 67,100
Total 1,184,800 (a) 1,089,300 (b)
 
(a) 1,181,100 at-risk; 3,700 ASO

(b) 1,054,200 at-risk; 35,100 ASO

Statement of Operations

  • For the 2008 fourth quarter, revenues, net of premium taxes, increased 22.2% to $878.8 million from $719.4 million in the 2007 fourth quarter. The increase was primarily driven by membership growth, especially related to the new Foster Care contract in Texas, premium rate increases and the recent acquisition of Celtic, which closed on July 1, 2008.
  • The consolidated HBR, which reflects medical costs as a percent of premium revenues, was 82.3%, a decrease from 85.3% in the 2007 fourth quarter. The decrease is primarily due to overall increased premium yield, a moderating medical cost trend and the acquisition of Celtic. Sequentially, our consolidated HBR increased from 82.2% in the 2008 third quarter to 82.3%.
  • Consolidated G&A expense as a percent of premium and service revenues was 13.8% in the fourth quarter of 2008, a decrease from 14.9% in the fourth quarter of 2007. The decrease was due primarily to the restructuring charge recorded in the fourth quarter of 2007.
  • Loss from discontinued operations in the fourth quarter of 2008 includes a $3.7 million pre-tax, or $0.05 per diluted share, charge primarily for asset impairments and employee severance related to the sale of our New Jersey health plan.
  • For the year ended December 31, 2008, revenues, net of premium taxes, from continuing operations increased 21.6% to $3.3 billion from $2.7 billion for the same period in the prior year. G&A expenses as a percent of premium and service revenues decreased to 13.6% in the year ended December 31, 2008, compared to 14.3% in the year ended December 31, 2007. Earnings from operations increased to $131.6 million in the year ended December 31, 2008 from $55.3 million in the year ended December 31, 2007. Net earnings from continuing operations, were $84.2 million, or $1.90 per diluted share in 2008.
  • The following table reconciles diluted EPS from continuing operations to total diluted EPS:
EPS Reconciliation:    

Diluted EPS from continuing operations(1)

$ 1.90
Discontinued health plan operations 0.03
New Jersey one-time exit charges   (0.05 )
Total diluted EPS $ 1.88  
                 

(1)

  Includes $0.28 recorded during the first quarter of 2008 related to the Georgia premium rate increase for July 1, 2007 – December 31, 2007.

Balance Sheet and Cash Flow

At December 31, 2008, the Company had cash and investments of $822.1 million, including $798.0 million held by its regulated entities and $24.1 million held by its unregulated entities. Medical claims liabilities totaled $373.0 million, representing 48.5 days in claims payable, an increase of 0.2 days from December 31, 2007 and an increase of 0.6 days from September 30, 2008. Total debt was $264.9 million and debt to capitalization was 34.6%. Year to date cash flow from operations was $222.0 million.

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

Days in claims payable, September 30, 2008     47.9
State medical expense reconciliation 0.5
Other 0.1
Days in claims payable, December 31, 2008 48.5

Outlook

The table below depicts the Company’s annual guidance for 2009:

    Full Year 2009
Low     High

Revenue (in millions)(1)

$ 3,650 $ 3,775
Earnings per diluted share $ 1.82 $ 1.94

 

(1) Revenue net of premium tax

The Company is maintaining its previously issued 2009 financial guidance.

Conference Call

As previously announced, the Company will host a conference call Tuesday, February 10, 2009, at 8:30 A.M. (Eastern Time) to review the financial results for the fourth quarter and year ended December 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, 973-638-3440 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 February 24, 2009 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 81401888.

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), as well as Aged, Blind, or Disabled (ABD), Foster Care, Long-Term Care and Medicare (Special Needs Plans). The Company operates local health plans and offers a range of healthcare solutions for the rising number of uninsured Americans. It also contracts with other healthcare and commercial organizations to provide specialty services including behavioral health, life and health management, 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)

 
    December 31,
2008     2007
ASSETS
Current assets:
Cash and cash equivalents of continuing operations $ 370,999 $ 267,305
Cash and cash equivalents of discontinued operations   8,100   1,279
Total cash and cash equivalents 379,099 268,584
Premium and related receivables, net of allowance for uncollectible accounts of $595 and $258, respectively 92,531 79,492
Short-term investments, at fair value (amortized cost $108,469 and $46,193, respectively) 109,393 46,074
Other current assets 75,333 39,382
Current assets of discontinued operations other than cash   9,987   12,807
Total current assets 666,343 446,339
Long-term investments, at fair value (amortized cost $329,330 and $314,681, respectively) 332,411 317,041
Restricted deposits, at fair value (amortized cost $9,124 and $6,383, respectively) 9,254 6,430
Property, software and equipment, net 175,858 135,883
Goodwill 163,380 138,862
Intangible assets, net 17,575 11,337
Other long-term assets 59,083 36,067
Long-term assets of discontinued operations   27,248   29,865
Total assets $ 1,451,152 $ 1,121,824
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical claims liability $ 373,037 $ 313,364
Accounts payable and accrued expenses 219,566 102,944
Unearned revenue 17,107 44,016
Current portion of long-term debt 255 971
Current liabilities of discontinued operations   31,013   25,505
Total current liabilities 640,978 486,800
Long-term debt 264,637 206,406
Other long-term liabilities 43,539 13,300
Long-term liabilities of discontinued operations   726   271
Total liabilities 949,880 706,777
 
Commitments and contingencies
 
Stockholders’ equity:
Common stock, $.001 par value; authorized 100,000,000 shares; issued and outstanding 42,987,764 and 43,667,837 shares, respectively 43 44
Additional paid-in capital 222,841 221,693
Accumulated other comprehensive income:
Unrealized gain on investments, net of tax 3,152 1,571
Retained earnings   275,236   191,739
Total stockholders’ equity   501,272   415,047
Total liabilities and stockholders’ equity $ 1,451,152 $ 1,121,824
 

CENTENE CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

 
    Three Months Ended

December 31,

      Year Ended

December 31,

2008     2007 2008     2007
(Unaudited) (Unaudited)
Revenues:
Premium $ 860,811 $ 700,030 $ 3,199,360 $ 2,611,953
Premium tax 23,952 20,393 90,202 76,567
Service   17,995     19,399     74,953     80,508  
Total revenues   902,758     739,822     3,364,515     2,769,028  
Operating expenses:

 

 

Medical costs 708,163 596,971 2,640,335 2,190,898
Cost of services 13,453 15,530 56,920 61,348
General and administrative expenses 121,343 107,159 444,733 384,970
Premium tax   24,329     20,393     90,966     76,567  
Total operating expenses   867,288     740,053     3,232,954     2,713,783  
Earnings from operations 35,470 (231 ) 131,561 55,245
Other income (expense):

 

Investment and other income 6,004 6,069 21,728 24,452
Interest expense   (4,237 )   (4,110 )   (16,673 )   (15,626 )
Earnings before income tax expense 37,237 1,728 136,616 64,071
Income tax expense   13,971     97     52,435     23,031  
Net earnings from continuing operations 23,266 1,631 84,181 41,040
Discontinued operations, net of income tax (benefit) expense of $(671), $940, $(281), and $(31,563), respectively   (1,843 )   (158 )   (684 )   32,362  
Net earnings $ 21,423   $ 1,473   $ 83,497   $ 73,402  

 

 

Net earnings per share:

 

 

Basic:

 

 

Continuing operations $ 0.54 $ 0.04 $ 1.95 $ 0.95
Discontinued operations   (0.04 )   (0.01 )   (0.02 )   0.74  
Basic earnings per common share $ 0.50   $ 0.03   $ 1.93   $ 1.69  
Diluted:
Continuing operations $ 0.53 $ 0.04 $ 1.90 $ 0.92
Discontinued operations   (0.04 )   (0.01 )   (0.02 )   0.72  
Diluted earnings per common share $ 0.49   $ 0.03   $ 1.88   $ 1.64  

 

 

Weighted average number of shares outstanding:

 

 

Basic 42,957,593 43,574,811 43,275,187 43,539,950
Diluted 44,043,749

44,951,016

44,398,955 44,823,082
 

CENTENE CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 
    Year Ended December 31,
2008     2007
Cash flows from operating activities:
Net earnings $ 83,497 $ 73,402

Adjustments to reconcile net earnings to net cash provided by operating activities—

Depreciation and amortization 35,414 27,807
Stock compensation expense 15,328 15,781
Loss on sale of investments, net 4,988 106
Gain on sale of FirstGuard Missouri (7,472 )
Impairment loss 2,546 7,207
Deferred income taxes 1,286 (10,223 )

Changes in assets and liabilities—

Premium and related receivables (1,548 ) 1,663
Other current assets (4,244 ) (6,253 )
Other assets (2,700 ) (348 )
Medical claims liability 46,337 56,287
Unearned revenue (36,447 ) 10,085
Accounts payable and accrued expenses 75,112 31,234
Other operating activities   2,409     2,964  
Net cash provided by operating activities   221,978     202,240  
Cash flows from investing activities:
Capital expenditures (65,156 ) (53,937 )
Purchase of investments (549,652 ) (606,366 )
Sales and maturities of investments 546,264 456,738
Proceeds from asset sales 14,102
Investments in acquisitions and equity method investee, net of cash acquired   (85,377 )   (36,001 )
Net cash used in investing activities   (153,921 )   (225,464 )
Cash flows from financing activities:
Proceeds from exercise of stock options 5,354 5,464
Proceeds from borrowings 236,005 212,000
Payment of long-term debt and notes payable (178,491 ) (181,981 )
Excess tax benefits from stock compensation 3,100
Common stock repurchases (23,510 ) (9,541 )
Debt issue costs       (5,181 )
Net cash provided by financing activities   42,458     20,761  
Net increase (decrease) in cash and cash equivalents   110,515     (2,463 )
Cash and cash equivalents, beginning of period   268,584     271,047  
Cash and cash equivalents, end of period $ 379,099   $ 268,584  
 
Supplemental disclosures of cash flow information:
Interest paid $ 15,312 $ 11,945
Income taxes paid $ 36,801 $ 7,348
 
Supplemental disclosure of non-cash investing and financing activities:
Property acquired under capital lease obligations $ $ 1,736
 

CENTENE CORPORATION

 

CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA

 
    Q4     Q3     Q2     Q1     Q4
2008 2008 2008 2008 2007
MEMBERSHIP
Managed Care:
Georgia 288,300 283,900 278,800 282,700 287,900
Indiana 175,300 172,400 161,700 161,300 154,600
Ohio 133,400 132,500 137,300 131,100 128,700
South Carolina 31,300 26,600 22,500 29,300 31,800
Texas 431,700 436,900 427,200 369,000 354,400
Wisconsin   124,800     122,500     124,800     126,900     131,900  
TOTAL   1,184,800     1,174,800     1,152,300     1,100,300     1,089,300  
 
Medicaid 862,500 850,500 828,700 823,600 807,600
SCHIP & Foster Care 257,300 261,800 256,900 206,300 214,600
ABD & Medicare   65,000     62,500     66,700     70,400     67,100  
TOTAL   1,184,800     1,174,800     1,152,300     1,100,300     1,089,300  
 
Specialty Services(a):
Cenpatico Behavioral Health
Arizona 105,000 102,400 99,400 97,900 99,900
Kansas 41,100 40,100 40,000 39,400 39,000
Bridgeway Health Solutions
Long-term Care 2,100 1,900 1,800 1,700 1,600
Acute Care   14,900                  
TOTAL   163,100     144,400     141,200     139,000     140,500  
 
(a) Includes external Specialty Service membership only.
 
 
REVENUE PER MEMBER(b) $ 218.52 $ 213.28 $ 214.76 $ 215.39 $ 210.11
 
CLAIMS(b)
Period-end inventory

269,300

 

323,200

 

389,100

 

411,700

 

329,200

 

Average inventory 288,600 298,400 235,300 285,700 244,600
Period-end inventory per member 0.23 0.28 0.34 0.37 0.30
 
(b) Revenue per member and claims information are presented for the Medicaid Managed Care segment.
 
    Q4     Q3     Q2     Q1     Q4
2008 2008 2008 2008 2007
 

DAYS IN CLAIMS PAYABLE(c)

48.5 47.9 47.8 48.3 48.3
 
(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 $ 798.0 $ 692.6 $ 653.1 $ 627.1 $ 603.9
Unregulated   24.1     26.8     29.0     25.8     33.0  
TOTAL $ 822.1   $ 719.4   $ 682.1   $ 652.9   $ 636.9  
 

DEBT TO CAPITALIZATION(d)

34.6 % 34.4 % 32.6 % 32.8 % 33.3 %
 

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

 

OPERATING RATIOS:

 
   

Three Months Ended

December 31,

      Year Ended

December 31,

2008     2007 2008     2007
Health Benefits Ratios
Medicaid and SCHIP 80.3 % 83.7 % 80.6 % 82.8 %
ABD and Medicare 90.1 94.4 91.1 91.4
Specialty Services 85.4 78.5 83.8 78.4
Total 82.3 85.3 82.5 83.9
 
General & Administrative Expense Ratios
Medicaid Managed Care 10.4 % 11.9 % 10.4 % 11.2 %
Specialty Services 16.7 15.7 16.4 15.8
Total 13.8 14.9 13.6 14.3
 
MEDICAL CLAIMS LIABILITIES (In thousands)

Four rolling quarters of the changes in medical claims liabilities are summarized as follows:

 
Balance, December 31, 2007     $ 313,364
Acquisitions 15,398
Incurred related to:
Current period 2,659,036
Prior period   (18,701 )
Total incurred   2,640,335  
Paid related to:
Current period 2,303,473
Prior period   292,587  
Total paid   2,596,060  
Balance, December 31, 2008 $ 373,037  

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.

Source: Centene Corporation

Centene Corporation
Investor Relations Inquiries
Edmund E. Kroll, 212-759-0382
Senior Vice President, Finance & Investor Relations
or
Media Inquiries
Sandy McBride, 314-725-4477
Senior Director, Corporate Marketing & Communications