Centene Corporation Reports 2010 Fourth Quarter and Full Year Earnings

February 8, 2011 at 6:03 AM EST

ST. LOUIS, Feb. 8, 2011 /PRNewswire via COMTEX/ --

Centene Corporation (NYSE: CNC) today announced its financial results for the quarter and year ended December 31, 2010. The discussions below, with the exception of cash flow information, are in the context of continuing operations and all financial ratios exclude premium taxes.











2010 Highlights




Q4



Full Year




Premium and Service Revenues (in millions)

$

1,129.5



$

4,283.8




Consolidated HBR


83.3

%



83.8

%



General & Administrative expense ratio


13.0

%



12.8

%



Diluted EPS

$

0.50



$

1.80




Cash flow from operations (in millions)

$

194.6



$

168.9














Fourth Quarter Highlights

  • Quarter-end managed care at-risk membership of 1,533,500, an increase of 75,300 members, or 5.2% year over year.
  • Premium and Service Revenues of $1,129.5 million, representing 7.5% year over year growth.
  • Health Benefits Ratio of 83.3%, compared to 83.9% in the prior year.
  • General and Administrative expense ratio of 13.0%, compared to 12.7% in the prior year.
  • Cash flow from operations of $194.6 million.
  • Days in claims payable of 45.6.
  • Diluted earnings per share from continuing operations of $0.50 (which includes the dilution from the stock offering in early 2010), compared to $0.53 in the prior year.
  • Debt to capitalization of 29.3%, or 23.9% excluding the $80.0 million non-recourse mortgage note.

Other Events

  • During the fourth quarter of 2010, we completed the conversion of approximately 22,500 Florida members from Access Health Solutions LLC to our subsidiary, Sunshine State Health Plan, on an at-risk basis. Additionally, in December 2010, we completed the acquisition of Citrus Health Care, Inc., a Florida Medicaid and Long-term Care health plan. We served 194,900 at-risk members in Florida as of December 31, 2010.
  • In December 2010, we refinanced the construction loan related to our corporate headquarters development with an $80 million non-recourse mortgage loan. In January 2011, we refinanced our $300 million Revolving Credit Facility with a new $350 million unsecured Revolving Credit Facility.
  • In December 2010, Cenpatico Behavioral Health of Arizona began operating under an expanded contract to manage behavioral healthcare services in an additional four counties.
  • In December 2010, one of our highly regarded health programs, Start Smart for Your Baby, was the recipient of the URAC/GKEN International Health Promotion Award for Community Health. Start Smart for Your Baby also received a gold award at the 2010 Web Health Awards for its audio book and a merit award for its podcasts.
  • In January 2011, Magnolia Health Plan began operating under a new contract in Mississippi to provide managed care services to Medicaid recipients through the Mississippi Coordinated Access Network (MississippiCAN) Program.
  • In January 2011, we entered into an agreement with Pima Health Systems in Arizona to administer their long-term care program on a non-risk basis.
  • In February 2011, Superior HealthPlan began operating under an additional STAR+PLUS ABD contract in Texas in the Dallas service area.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "Our team's coordinated and consistent efforts produced solid financial and operational performance in 2010, setting the stage for continued success in 2011."

The following table depicts membership in Centene's managed care organizations, by state, at December 31, 2010 and 2009:




December 31,



2010


2009

Arizona


22,400


20,700

Florida


194,900


102,600

Georgia


305,800


309,700

Indiana


215,800


208,100

Massachusetts


36,200


27,800

Ohio


160,100


150,800

South Carolina


90,300


48,600

Texas


433,100


455,100

Wisconsin


74,900


134,800

Total at-risk membership


1,533,500


1,458,200

Non-risk membership


4,200


63,700

Total


1,537,700


1,521,900







The following table depicts membership in Centene's managed care organizations, by member category, at December 31, 2010 and 2009:




December 31,



2010


2009

Medicaid


1,177,100


1,081,400

CHIP & Foster Care


210,500


263,600

ABD & Medicare


104,600


82,800

Hybrid Programs


36,200


27,800

Long-term Care


5,100


2,600

Total at-risk membership


1,533,500


1,458,200

Non-risk membership


4,200


63,700

Total


1,537,700


1,521,900


Statement of Operations: Three Months Ended December 31, 2010

  • For the fourth quarter of 2010, Premium and Service Revenues increased 7.5% to $1,129.5 million from $1,050.8 million in the fourth quarter of 2009. The increase was primarily driven by membership growth resulting from acquisitions in Florida and South Carolina, conversion of membership in Florida from Access to at-risk under Sunshine State Health Plan, as well as premium rate increases in 2010. This increase was moderated by the removal of pharmacy service in two states in 2010. These pharmacy carve outs had the effect of reducing 2010 fourth quarter revenue by approximately $52 million.
  • Consolidated HBR of 83.3% for the fourth quarter of 2010 represents a decrease of 0.6% from the comparable period in 2009. The year over year improvement in HBR is due to rate increases, decreased costs associated with the flu and better performance in our Florida health plan. Consolidated HBR decreased 0.9% sequentially from the third quarter of 2010. The improvement in HBR was due to the impact of rate increases in several markets and improvements in our Florida health plan.
  • Consolidated G&A expense as a percent of premium and service revenues was 13.0% in the fourth quarter of 2010, an increase from 12.7% in the fourth quarter of 2009. The increase in the G&A ratio between years reflects increased business expansion costs, including Mississippi, Dallas STAR+PLUS and Illinois.
  • Earnings from continuing operations increased to $45.5 million in 2010 from $37.8 million in 2009, or 20.4% year over year. Net earnings from continuing operations were $25.5 million, or $0.50 per diluted share in 2010 (which includes the dilution from the stock offering in early 2010), compared to $23.7 million, or $0.53 per diluted share in the fourth quarter of 2009.

Statement of Operations: Year Ended December 31, 2010

  • For the year ended December 31, 2010, Premium and Service Revenues increased 10.5% to $4.3 billion in 2010 from $3.9 billion in 2009. This reflects a 13.6% increase in member months, offset by reduced revenue of $185 million as a result of pharmacy carve outs in 2010. The increase was primarily driven by membership growth resulting from acquisitions in Florida and South Carolina, conversion of membership in Florida from Access to at-risk under Sunshine State Health Plan, as well as premium rate increases in 2010.
  • The consolidated HBR of 83.8% for 2010 represented a 0.3% increase from the 2009 consolidated HBR of 83.5%. The increase is primarily due to the growth in our Florida health plan where we have experienced a higher HBR.
  • G&A expenses as a percent of Premium and Service Revenues decreased to 12.8% in 2010, compared to 13.3% in 2009. The decrease primarily reflects the leveraging of our expenses over higher revenues, partially offset by increased business expansion costs.
  • Earnings from continuing operations increased to $157.1 million in 2010 from $138.1 million in 2009, or 13.7% year over year. Net earnings from continuing operations were $90.9 million, or $1.80 per diluted share in 2010 (which includes the dilution from the stock offering in early 2010), compared to $86.1 million, or $1.94 per diluted share in 2009.

Balance Sheet and Cash Flow

At December 31, 2010, the Company had cash and investments of $1,073.9 million, including $1,043.0 million held by its regulated entities and $30.9 million held by its unregulated entities. Medical claims liabilities totaled $456.8 million, representing 45.6 days in claims payable. Total debt was $330.6 million and debt to capitalization was 29.3%. Excluding the $80.0 million non-recourse mortgage note, our debt to capital ratio is 23.9%. Full year 2010 cash flow from operations was $168.9 million, or 1.7 times net earnings.

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, 2010

47.1


Reduced time of claims processing and payment

(1.4)


Other

(0.1)


Days in claims payable, December 31, 2010

45.6




During the fourth quarter of 2010, we experienced increased electronic claims submissions and auto-adjudication of claims which reduced the average time from claims incurred to claims paid by 1.4 days, which is reflected in the decrease in period end claims inventory from the third quarter as presented in Supplemental Financial Data included in this release. We expect our days in claims payable to be within our targeted range of 43 to 48 days in 2011. This may be higher from time to time as we have new plans begin operations.

Outlook

The table below depicts the Company's annual guidance from continuing operations for 2011:




Full Year 2011




Low


High


Premium and Service Revenues (in millions)


$ 4,900


$ 5,100


Diluted EPS


$ 2.00


$ 2.10


Consolidated HBR


84.0%


85.0%


General & Administrative expense ratio


12.0%


12.5%








Diluted Shares Outstanding (in thousands)


51,500









Conference Call

As previously announced, the Company will host a conference call Tuesday, February 8, 2011, at 8:30 A.M. (Eastern Time) to review the financial results for the fourth quarter ended December 31, 2010, 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 dialing1-877-887-1134 in the U.S. and Canada; 1-412-317-0794 from abroad, or via a live, audio webcast on the Company's website at www.centene.com, under the Investors section. Awebcastreplay will be available for on-demand listening shortly after the completion of the callfor the next twelve monthsuntil 11:59 PM (Eastern Time) on Tuesday, February 7, 2012, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 AM Eastern Time on Wednesday, February 16, 2011, by dialing 1-877-344-7529the U.S. and Canada, or1-412-317-0088 from abroad, and entering access code447292.

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/hybrid 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.

(Tables Follow)






CENTENE CORPORATION AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)




December31,

2010


December31,

2009


ASSETS







Current assets:







Cash and cash equivalents of continuing operations


$

433,914

$

400,951


Cash and cash equivalents of discontinued operations



252


2,801


Total cash and cash equivalents



434,166


403,752


Premium and related receivables, net of allowance for uncollectible accounts of $17 and $1,338, respectively



136,243


103,456


Short-term investments, at fair value (amortized cost $21,141 and $39,230, respectively)



21,346


39,554


Other current assets



64,154


64,866


Current assets of discontinued operations other than cash



912


4,506


Total current assets



656,821


616,134


Long-term investments, at fair value (amortized cost $585,862 and $514,256, respectively)



595,879


525,497


Restricted deposits, at fair value (amortized cost $22,755 and $20,048, respectively)



22,758


20,132


Property, software and equipment, net of accumulated depreciation of $138,629 and $103,883, respectively



326,341


230,421


Goodwill



278,051


224,587


Intangible assets, net



29,109


22,479


Other long-term assets



30,057


36,829


Long-term assets of discontinued operations



4,866


26,285


Total assets


$

1,943,882

$

1,702,364



LIABILITIES AND STOCKHOLDERS' EQUITY







Current liabilities:







Medical claims liability


$

456,765

$

470,932


Accounts payable and accrued expenses



185,218


132,001


Unearned revenue



117,344


91,644


Current portion of long-term debt



2,817


646


Current liabilities of discontinued operations



3,102


20,685


Total current liabilities



765,246


715,908


Long-term debt



327,824


307,085


Other long-term liabilities



53,378


59,561


Long-term liabilities of discontinued operations



379


383


Total liabilities



1,146,827


1,082,937









Commitments and contingencies














Stockholders' equity:







Common stock, $.001 par value; authorized 100,000,000 shares; and 52,172,037 issued and 49,616,824 outstanding at December 31, 2010, and 45,593,383 issued and 43,179,373 outstanding shares at December 31, 2009



52


46


Additional paid-in capital



384,206


281,806


Accumulated other comprehensive income:







Unrealized gain on investments, net of tax



6,424


7,348


Retained earnings



453,743


358,907


Treasury stock, at cost (2,555,213 and 2,414,010 shares, respectively)



(50,486)


(47,262)


Total Centene stockholders' equity



793,939


600,845


Noncontrolling interest



3,116


18,582


Total stockholders' equity



797,055


619,427


Total liabilities and stockholders' equity


$

1,943,882

$

1,702,364





CENTENE CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(Unaudited)



Three Months Ended

December 31,


Year Ended

December 31,



2010



2009


2010



2009


Revenues:















Premium

$

1,106,370



$

1,031,812


$

4,192,172



$

3,786,525


Service


23,118




19,018



91,661




91,758


Premium and service revenues


1,129,488




1,050,830



4,283,833




3,878,283


Premium tax


51,481




41,896



164,490




224,581


Total revenues


1,180,969




1,092,726



4,448,323




4,102,864


Expenses:















Medical costs


922,070




865,415



3,514,394




3,163,523


Cost of services


16,414




14,425



63,919




60,789


General and administrative expenses


146,751




133,005



547,823




514,529


Premium tax


50,233




42,103



165,118




225,888


Total operating expenses


1,135,468




1,054,948



4,291,254




3,964,729


Earnings from operations


45,501




37,778



157,069




138,135


Other income (expense):















Investment and other income


3,293




3,910



15,205




15,691


Interest expense


(5,452)




(4,108)



(17,992)




(16,318)


Earnings from continuing operations, before income tax expense


43,342




37,580



154,282




137,508


Income tax expense


16,958




13,781



59,900




48,841


Earnings from continuing operations, net of income tax expense


26,384




23,799



94,382




88,667


Discontinued operations, net of income tax expense (benefit) of $12, $(56), $4,388 and $(1,204), respectively


(65)




(28)



3,889




(2,422)


Net earnings


26,319




23,771



98,271




86,245


Noncontrolling interest


920




56



3,435




2,574


Net earnings attributable to Centene Corporation

$

25,399



$

23,715


$

94,836



$

83,671

















Amounts attributable to Centene Corporation common shareholders:















Earnings from continuing operations, net of income tax expense

$

25,464



$

23,743


$

90,947



$

86,093


Discontinued operations, net of income tax (benefit) expense


(65)




(28)



3,889




(2,422)


Net earnings

$

25,399



$

23,715


$

94,836



$

83,671

















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















Basic:















Continuing operations

$

0.52



$

0.55


$

1.87



$

2.00


Discontinued operations


--




--



0.08




(0.06)


Earnings per common share

$

0.52



$

0.55


$

1.95



$

1.94


Diluted:















Continuing operations

$

0.50



$

0.53


$

1.80



$

1.94


Discontinued operations


--




--



0.08




(0.05)


Earnings per common share

$

0.50



$

0.53


$

1.88



$

1.89

















Weighted average number of shares outstanding:















Basic


49,356,768




43,068,502



48,754,947




43,034,791


Diluted


51,205,720




44,513,679



50,447,888




44,316,467





CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)




Year Ended December 31,




2010



2009


Cash flows from operating activities:









Net earnings


$

98,271



$

86,245


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









Depreciation and amortization



52,000




44,004


Stock compensation expense



13,874




14,634


(Gain) loss on sale of investments, net



(6,337)




(141)


(Gain) on sale of UHP



(8,201)




--


Impairment loss



5,531




--


Deferred income taxes



10,317




3,696


Changes in assets and liabilities:









Premium and related receivables



(23,359)




2,379


Other current assets



(3,240)




(1,263)


Other assets



(2,028)




9


Medical claims liability



(30,421)




79,000


Unearned revenue



25,700




78,345


Accounts payable and accrued expenses



37,398




(60,915)


Other operating activities



(573)




2,202


Net cash provided by operating activities



168,932




248,195


Cash flows from investing activities:









Capital expenditures



(63,304)




(23,721)


Capital expenditures of Centene Center LLC



(55,252)




(59,392)


Purchase of investments



(615,506)




(791,194)


Sales and maturities of investments



570,423




642,783


Proceeds from asset sales



13,420




--


Investments in acquisitions, net of cash acquired, and investment in equity method investee



(60,388)




(38,563)


Net cash used in investing activities



(210,607)




(270,087)


Cash flows from financing activities:









Proceeds from exercise of stock options



3,419




2,365


Proceeds from borrowings



218,538




659,059


Proceeds from stock offering



104,534




--


Payment of long-term debt



(195,728)




(616,219)


Purchase of noncontrolling interest



(48,257)




--


Distributions (to) from noncontrolling interest



(7,387)




8,049


Excess tax benefits from stock compensation



963




53


Common stock repurchases



(3,224)




(6,304)


Debt issue costs



(769)




(458)


Net cash provided by financing activities



72,089




46,545


Net increase in cash and cash equivalents



30,414




24,653


Cash and cash equivalents, beginning of period



403,752




379,099


Cash and cash equivalents, end of period


$

434,166



$

403,752











Supplemental disclosures of cash flow information:









Interest paid


$

17,296



$

15,428


Income taxes paid


$

53,938



$

52,928











Supplemental disclosure of non-cash investing and financing activities:









Contribution from noncontrolling interest


$

306



$

5,875


Capital expenditures


$

8,720



$

(1,476)





CENTENE CORPORATION


CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA



Q4


Q3


Q2


Q1


Q4


2010


2010


2010


2010


2009

MEMBERSHIP










Managed Care:










Arizona

22,400


22,300


22,100


21,700


20,700

Florida

194,900


116,300


113,100


105,900


102,600

Georgia

305,800


300,900


295,600


301,000


309,700

Indiana

215,800


213,300


212,700


211,400


208,100

Massachusetts

36,200


34,400


30,100


26,900


27,800

Ohio

160,100


161,800


159,300


156,000


150,800

South Carolina

90,300


90,600


92,600


53,900


48,600

Texas

433,100


428,100


475,500


459,600


455,100

Wisconsin

74,900


106,100


133,600


134,900


134,800

Total at-risk membership

1,533,500


1,473,800


1,534,600


1,471,300


1,458,200

Non-risk membership

4,200


35,900


50,900


62,200


63,700

TOTAL

1,537,700


1,509,700


1,585,500


1,533,500


1,521,900











Medicaid

1,177,100


1,122,800


1,135,500


1,088,300


1,081,400

CHIP & Foster Care

210,500


219,100


272,400


266,300


263,600

ABD & Medicare

104,600


94,500


93,800


87,100


82,800

Hybrid Programs

36,200


34,400


30,100


26,900


27,800

Long-term Care

5,100


3,000


2,800


2,700


2,600

Total at-risk membership

1,533,500


1,473,800


1,534,600


1,471,300


1,458,200

Non-risk membership

4,200


35,900


50,900


62,200


63,700

TOTAL

1,537,700


1,509,700


1,585,500


1,533,500


1,521,900











Specialty Services (a):










Cenpatico Behavioral Health










Arizona

174,600


121,300


119,700


119,300


120,100

Kansas

39,200


39,800


39,100


39,800


41,400

TOTAL

213,800


161,100


158,800


159,100


161,500











(a) Includes external membership only.



















REVENUE PER MEMBER PER MONTH (b)

$

239.66


$

224.62


$

218.40


$

219.90(c)


$

233.66











CLAIMS(b)










Period-end inventory

434,900


469,000


480,400


341,400


423,400

Average inventory

304,700


307,500


306,900


283,900


279,000

Period-end inventory per member

0.28


0.32


0.31


0.23


0.29

(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.






Q4


Q3


Q2


Q1


Q4


2010


2010


2010


2010


2009











DAYS IN CLAIMS PAYABLE










Medical

44.5


46.0


47.2


46.6


48.1

Pharmacy

1.1


1.1


1.0


1.1


2.0

TOTAL

45.6


47.1


48.2


47.7


50.1

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

$

1,043.0


$

895.4


$

813.0


$

917.9


$

949.9

Unregulated


30.9



32.7



39.4



51.3



36.2

TOTAL

$

1,073.9


$

928.1


$

852.4


$

969.2


$

986.1











DEBT TO CAPITALIZATION

29.3%


24.7%


24.5%


23.7%


33.2%

DEBT TO CAPITALIZATION EXCLUDING NON-RECOURSE DEBT (d)

23.9%









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

(d) The non-recourse debt represents our mortgage note payable of $80.0 million at December 31, 2010.




Operating Ratios:



Three Months Ended

December 31,


Year Ended

December 31,


2010



2009


2010



2009

Health Benefits Ratios:














Medicaid and CHIP

82.4

%



85.3

%


83.6

%



84.6

%

ABD and Medicare

86.8




79.9



85.0




81.1


Specialty Services

83.4




81.8



83.4




80.2


Total

83.3




83.9



83.8




83.5
















Total General & Administrative Expense Ratio

13.0

%



12.7

%


12.8

%



13.3

%




MEDICAL CLAIMS LIABILITY (In thousands)

The changes in medical claims liability are summarized as follows:


Balance, December 31, 2009

$

470,932


Incurred related to:




Current period


3,582,463


Prior period


(68,069)


Total incurred


3,514,394


Paid related to:




Current period


3,133,527


Prior period


395,034


Total paid


3,528,561


Balance, December 31, 2010

$

456,765




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 December 31, 2009.

SOURCE Centene Corporation