Centene Corporation Reports 2009 Second Quarter Earnings

July 28, 2009 at 6:01 AM EDT
Company Increases Full Year 2009 EPS Guidance to $1.88-$1.96

ST. LOUIS--(BUSINESS WIRE)--Jul. 28, 2009-- Centene Corporation (NYSE: CNC) today announced its net earnings from continuing operations for the quarter ended June 30, 2009 were $20.7 million, or $0.47 per diluted share, compared to $17.9 million, or $0.40 per diluted share in the 2008 second quarter. The results of operations for our New Jersey health plan, University Health Plans, are classified as discontinued operations. The discussions below, with the exception of cash flow information, are in the context of continuing operations and all financial ratios are calculated using revenues excluding premium taxes and investment income.

Second Quarter Highlights

  • Quarter-end managed care at-risk membership of 1,289,000, an increase of 140,200 lives year over year.
  • Premium and Service revenues of $931.3 million, representing 16.1% year over year growth.
  • Health Benefits Ratio (HBR) of 83.1%.
  • General and administrative (G&A) expense ratio of 13.9%.
  • Cash flow from operations of $38.7 million, which is 2.0x net earnings.
  • Days in claims payable of 47.5, an increase from 45.3 days at March 31, 2009.
  • Diluted earnings per share from continuing operations of $0.47, representing 17.5% year over year growth.
  • Increased 2009 EPS guidance range to $1.88-$1.96.

Other Events

  • On July 1, 2009, CeltiCare Health Plan of Massachusetts began serving the Central, Northern, Boston and Southern regions under the Commonwealth Care program. CeltiCare was also recently granted a seal of approval by the Commonwealth Connector Authority for the Commonwealth Choice program. Commonwealth Choice is part of Massachusetts’ health care program, serving the individual and small group market and is not a subsidized program. CeltiCare now participates in two of the three health coverage programs in Massachusetts.
  • In July 2009, the Company was awarded a tentative contract from the Texas Health and Human Services Commission (HHSC) for the Children’s Health Insurance Program (CHIP) Rural Services Area Managed Care Organization Procurement. The award is contingent upon the successful negotiation and execution of a contract with HHSC. Our Texas health plan will begin serving members under the new contract on September 1, 2010, continuing through August 31, 2013. The award covers up to 174 primarily rural counties in Texas.

Michael F. Neidorff, Centene’s Chairman and Chief Executive Officer, stated, “We are pleased that our strategic and operational focus on fundamentals continues to drive this positive operating momentum.”

The following table depicts membership in Centene’s managed care organizations, by state, at June 30, 2009 and 2008:

 
 
June 30,
2009   2008
Arizona 16,200

--

Florida 22,300

--

Georgia 292,800 278,800
Indiana 196,100 161,700
Ohio 141,200 137,300
South Carolina 46,000 22,500
Texas 443,200 423,700
Wisconsin 131,200 124,800
Total at-risk membership 1,289,000 1,148,800
Non-risk membership

114,000

*

3,500
Total 1,403,000 1,152,300
______________________________
* Increase mainly due to consolidation of our Access Health Solutions LLC investment, effective January 1, 2009.
 

The following table depicts membership in Centene’s managed care organizations, by member category, at June 30, 2009 and 2008:

 
 
June 30,
2009   2008
Medicaid 958,600 828,700
CHIP & Foster Care 261,400 256,900
ABD & Medicare 69,000 63,200
Total at-risk membership 1,289,000 1,148,800
Non-risk membership 114,000 3,500
Total 1,403,000 1,152,300
 

Statement of Operations

  • For the 2009 second quarter, Premium and Service Revenues increased 16.1% to $931.3 million from $802.5 million in the 2008 second quarter. The increase was primarily driven by membership growth, especially related to the commencement of our Arizona acute care contract in October 2008, the consolidation of Access and conversion of members to our at-risk plan, premium rate increases and the recent acquisition of Celtic in July 2008.
  • The consolidated HBR, which reflects medical costs as a percent of premium revenues, was 83.1%, relatively flat compared to 83.0% in the 2008 second quarter. Sequentially, our consolidated HBR decreased from 83.5% in the 2009 first quarter to 83.1% as a result of normal seasonality. During the second quarter, an increase in outpatient expense attributable to swine flu concerns was offset by lower inpatient and pharmacy costs.
  • Consolidated G&A expense as a percent of premium and service revenues was 13.9% in the second quarter of 2009, an increase from 13.6% in the second quarter of 2008. G&A expense increased in the quarter ended June 30, 2009 compared to 2008 as a result of new business initiatives including the acquisition of Celtic, the consolidation of Access Health Solutions LLC and the start up of CeltiCare health plan in Massachusetts.
  • Earnings per diluted share from continuing operations were $0.47, compared to $0.40 in the 2008 second quarter.

Balance Sheet and Cash Flow

At June 30, 2009, the Company had cash and investments of $852.8 million, including $825.8 million held by its regulated entities and $27.0 million held by its unregulated entities. Medical claims liabilities totaled $394.8 million, representing 47.5 days in claims payable, an increase of 2.2 days from March 31, 2009. Total debt was $288.8 million and debt to capitalization was 33.0%. Year to date cash flow from operations was $62.1 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, March 31, 2009 45.3
Timing of claims payments 1.5
Increase in claims processing inventory 1.1
Payment of annual provider bonuses (0.4 )
Days in claims payable, June 30, 2009 47.5  
 

Outlook

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

 
Full Year 2009
Low   High
Premium and Service revenues (in millions) $ 3,750 $ 3,850
Earnings per diluted share $ 1.88 $ 1.96
 

Conference Call

As previously announced, the Company will host a conference call Tuesday, July 28, 2009, at 8:30 A.M. (Eastern Time) to review the financial results for the second quarter ended June 30, 2009, and to discuss its 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 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 PM (Eastern Time) on Tuesday, August 11, 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 15407585.

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 Children’s Health Insurance Program (CHIP), 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 wide range of health insurance solutions to individuals and 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, telehealth services, pharmacy benefits management and medication adherence. 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)

 
 

June 30,

2009

 

December 31,

2008

(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents of continuing operations $ 382,700 $ 370,999
Cash and cash equivalents of discontinued operations   1,799     8,100  
Total cash and cash equivalents 384,499 379,099
Premium and related receivables, net of allowance for uncollectible accounts of $48 and $595, respectively 157,863 92,531
Short-term investments, at fair value (amortized cost $60,749 and $108,469, respectively) 61,217 109,393
Other current assets 73,686 75,333
Current assets of discontinued operations other than cash   8,499     9,987  
Total current assets 685,764 666,343
Long-term investments, at fair value (amortized cost $387,166 and $329,330, respectively) 394,395 332,411
Restricted deposits, at fair value (amortized cost $14,436 and $9,124, respectively) 14,526 9,254
Property, software and equipment, net of accumulated depreciation of $88,469 and $74,194, respectively 194,277 175,858
Goodwill 218,121 163,380
Intangible assets, net 22,714 17,575
Other long-term assets 28,957 59,083
Long-term assets of discontinued operations   27,455     27,248  
Total assets $ 1,586,209   $ 1,451,152  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical claims liability $ 394,787 $ 373,037
Accounts payable and accrued expenses 181,605 219,566
Unearned revenue 62,958 17,107
Current portion of long-term debt 243 255
Current liabilities of discontinued operations   23,851     31,013  
Total current liabilities 663,444 640,978
Long-term debt 288,513 264,637
Other long-term liabilities 48,678 43,539
Long-term liabilities of discontinued operations   557     726  
Total liabilities 1,001,192 949,880
 
Commitments and contingencies
 
Stockholders’ equity:
Common stock, $.001 par value; authorized 100,000,000 shares; issued and outstanding 45,344,717 and 45,071,179 shares, respectively 45 45
Additional paid-in capital 273,029 263,835
Accumulated other comprehensive income:
Unrealized gain on investments, net of tax 5,081 3,152
Retained earnings 313,924 275,236
Treasury stock at cost (2,369,133 and 2,083,415 shares, respectively)   (46,405 )   (40,996 )
Total Centene stockholders’ equity 545,674 501,272
Noncontrolling interest   39,343    

--

 
Total stockholders’ equity   585,017   501,272  
Total liabilities and stockholders’ equity $ 1,586,209  

$

1,451,152  
 
 
 

CENTENE CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(Unaudited)

 
  Three Months Ended

June 30,

  Six Months Ended

June 30,

2009   2008 2009   2008
Revenues:
Premium $ 909,698 $ 783,996 $ 1,794,704 $ 1,520,810
Service   21,591   18,466   45,440   38,996
Premium and service revenues 931,289 802,462 1,840,144 1,559,806
Premium tax   108,180   21,468   131,760   43,352
Total revenues   1,039,469   823,930   1,971,904   1,603,158
Expenses:
Medical costs 755,706 650,878 1,495,046 1,260,252
Cost of services 14,559 14,437 30,521 30,613
General and administrative expenses 129,221 109,270 251,500 204,763
Premium tax   108,548   21,468   132,490   43,352
Total operating expenses   1,008,034   796,053   1,909,557   1,538,980
Earnings from operations 31,435 27,877 62,347 64,178
Other income (expense):
Investment and other income 4,418 5,434 8,031 13,016
Interest expense   (4,160 )   (4,065 )   (8,146 )   (8,059 )
Earnings from continuing operations, before income tax expense 31,693 29,246 62,232 69,135
Income tax expense   11,789   11,363   22,634   26,319
Earnings from continuing operations, net of income tax expense 19,904 17,883 39,598 42,816

Discontinued operations, net of income tax (benefit) expense of $(196), $(116), $(356) and $148, respectively

  (485 )   320   (934 )   1,010
Net earnings 19,419 18,203 38,664 43,826
Noncontrolling interest (loss)   (811 )     (24 )  
Net earnings attributable to Centene Corporation $ 20,230 $ 18,203 $ 38,688 $ 43,826
 
Amounts attributable to Centene Corporation common shareholders:
Earnings from continuing operations, net of income tax expense $ 20,715 $ 17,883 $ 39,622 $ 42,816
Discontinued operations, net of income tax (benefit) expense   (485 )   320   (934 )   1,010
Net earnings $ 20,230 $ 18,203 $ 38,688 $ 43,826
 
Net earnings (loss) per share attributable to Centene Corporation:
Basic:
Continuing operations $ 0.48 $ 0.41 $ 0.92 $ 0.99
Discontinued operations   (0.01 )   0.01   (0.02 )   0.02
Earnings per common share $ 0.47 $ 0.42 $ 0.90 $ 1.01
Diluted:
Continuing operations $ 0.47 $ 0.40 $ 0.90 $ 0.96
Discontinued operations   (0.01 )   0.01   (0.02 )   0.02
Earnings per common share $ 0.46 $ 0.41 $ 0.88 $ 0.98
 
Weighted average number of shares outstanding:
Basic 43,001,157 43,375,944 43,034,390 43,457,076
Diluted 44,242,339 44,275,601 44,240,071 44,516,890
 
 
 

CENTENE CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 
  Six Months Ended June 30,
2009   2008
(Unaudited)
 
Cash flows from operating activities:
Net earnings $ 38,664 $ 43,826
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization 20,892 16,229
Stock compensation expense 7,611 7,839
Loss (gain) on sale of investments, net 450 (201 )
Deferred income taxes 1,512 11,879

Changes in assets and liabilities —

Premium and related receivables (23,327 ) (23,144 )
Other current assets 1,357 (4,294 )
Other assets (608 ) (1,671 )
Medical claims liabilities 16,369 27,316
Unearned revenue 44,129 (38,753 )
Accounts payable and accrued expenses (48,653 ) 45,907
Other operating activities   3,723     1,743  
Net cash provided by operating activities   62,119     86,676  
Cash flows from investing activities:
Capital expenditures (29,833 ) (34,581 )
Purchases of investments (415,052 ) (172,873 )
Sales and maturities of investments 377,320 210,277
Investments in acquisitions, net of cash acquired, and investment in equity method investee   (7,621 )   (7,818 )
Net cash used in investing activities   (75,186 )   (4,995 )
Cash flows from financing activities:
Proceeds from exercise of stock options 1,109 3,029
Proceeds from borrowings 288,000 56,005
Payment of long-term debt (264,135 ) (41,287 )
Dividend to noncontrolling interest (1,749 )

--

Contribution from noncontrolling interest 1,042

--

Excess tax benefits from stock compensation 15 2,792
Common stock repurchases (5,447 ) (13,316 )
Debt issue costs   (368 )  

--

 
Net cash provided by financing activities   18,467     7,223  
Net increase in cash and cash equivalents   5,400     88,904  
Cash and cash equivalents, beginning of period   379,099     268,584  
Cash and cash equivalents, end of period $ 384,499   $ 357,488  
 
Supplemental disclosures of cash flow information:
Interest paid $ 7,658 $ 7,590
Income taxes paid $ 31,512 $ 15,966
 
Supplemental disclosure of non-cash investing and financing activities:
Contribution from noncontrolling interest $ 5,107 $

--

 
 
 

CENTENE CORPORATION

 

CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA

 
  Q2   Q1   Q4   Q3   Q2
2009 2009 2008 2008 2008
MEMBERSHIP
Managed Care:
Arizona 16,200 15,500 14,900

--

--

Florida 22,300 29,100

--

--

--

Georgia 292,800 289,300 288,300 283,900 278,800
Indiana 196,100 179,100 175,300 172,400 161,700
Ohio 141,200 137,000 133,400 132,500 137,300
South Carolina 46,000 48,500 31,300 26,600 22,500
Texas 443,200 421,100 428,000 433,200 423,700
Wisconsin 131,200   127,700   124,800   122,500   124,800  
Total at-risk membership 1,289,000   1,247,300   1,196,000   1,171,100   1,148,800  
Non-risk membership 114,000   96,000   3,700   3,700   3,500  
TOTAL 1,403,000   1,343,300   1,199,700   1,174,800   1,152,300  
 
Medicaid 958,600 921,100 877,400 850,500 828,700

CHIP & Foster Care

261,400 256,900 257,300 261,800 256,900
ABD & Medicare 69,000   69,300   61,300   58,800   63,200  
Total at-risk membership 1,289,000   1,247,300   1,196,000   1,171,100   1,148,800  
Non-risk membership 114,000   96,000   3,700   3,700   3,500  
TOTAL 1,403,000   1,343,300   1,199,700   1,174,800   1,152,300  
 

Specialty Services(a):

Cenpatico Behavioral Health
Arizona 110,500 104,700 105,000 102,400 99,400
Kansas 41,100 40,600 41,100 40,100 40,000
Bridgeway Health Solutions
Long-term Care 2,400   2,300   2,100   1,900   1,800  
TOTAL 154,000   147,600   148,200   144,400   141,200  
 

(a) Includes external membership only.

 

REVENUE PER MEMBER(b)

$ 219.75 $ 220.29 $ 218.52 $ 213.28 $ 214.76
 
CLAIMS(b)
Period-end inventory

362,200

 

325,000

 

269,300

 

323,200

 

389,100

 

Average inventory 234,500 267,600 288,600 298,400 235,300
Period-end inventory per member 0.28 0.26 0.23 0.28 0.34
 
 
(b) Revenue per member and claims information are presented for the Managed Care at-risk members.
         
 
Q2 Q1 Q4 Q3 Q2
2009 2009 2008 2008 2008
 

DAYS IN CLAIMS PAYABLE (c)

47.5 45.3 48.5 47.9 47.8
 
(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 $ 825.8 $ 816.8 $ 798.0 $ 692.6 $ 653.1
Unregulated   27.0     28.9     24.1     26.8     29.0  
TOTAL $ 852.8   $ 845.7   $ 822.1   $ 719.4     $ 682.1  
 

DEBT TO CAPITALIZATION (d)

33.0 % 34.6 % 34.6 % 34.4 % 32.6 %
 

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

 
 
 

OPERATING RATIOS:

 
  Three Months Ended

June 30,

    Six Months Ended

June 30,

2009     2008 2009     2008
Health Benefits Ratios

Medicaid and CHIP

83.7 % 81.6 % 84.2 % 80.4 %
ABD and Medicare 82.6 88.5 82.0 93.0
Specialty Services 79.8 86.2 79.0 85.2
Total 83.1 83.0 83.3 82.9
 
Total General & Administrative Expense Ratio 13.9 % 13.6 % 13.7 % 13.1 %
 
 
 

MEDICAL CLAIMS LIABILITIES (In thousands)

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

 
Balance, June 30, 2008 $ 340,456
Acquisitions 15,398
Incurred related to:
Current period 2,924,510
Prior period   (49,381 )
Total incurred   2,875,129
Paid related to:
Current period 2,558,425
Prior period   277,771
Total paid   2,836,196
Balance, June 30, 2009 $ 394,787
 
 

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.

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 June 30, 2008.

Source: Centene Corporation

Centene Corporation
Investor Relations Inquiries:
Edmund E. Kroll
Senior Vice President, Finance & Investor Relations
212-759-0382
or
Media Inquiries:
Deanne Lane
Senior Director, Media Affairs
314-725-4477