Centene Corporation Reports 2011 First Quarter Earnings

April 26, 2011 at 6:02 AM EDT

ST. LOUIS, April 26, 2011 /PRNewswire via COMTEX/ --

Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended March 31, 2011. The discussions below, with the exception of cash flow information, are in the context of continuing operations and all financial ratios exclude premium taxes.

First Quarter Highlights

  • Quarter-end managed care at-risk membership of 1,542,500, an increase of 71,200 members, or 4.8% year over year.
  • Premium and Service Revenues of $1.2 billion, representing 15.4% year over year growth.
  • Health Benefits Ratio of 83.0%, compared to 84.0% in the prior year.
  • General and Administrative expense ratio of 13.8%, compared to 13.3% in the prior year.
  • Cash flow from operations of $94.0 million, or 4.1 times net earnings.
  • Diluted earnings per share from continuing operations of $0.46 (which does not include earnings of $0.07 per diluted share as a result of the delay in the recognition of our Mississippi contract discussed below), compared to $0.41 in the prior year.

In January 2011, we began operating in Mississippi through the Mississippi Coordinated Access Network (MississippiCan) program, serving 33,100 members at March 31, 2011. While the plan has been operating since January 1, 2011 and we have received monthly premium payments and paid claims, the contract remains subject to CMS approval. Accordingly, we did not recognize revenue of $54.5 million and associated medical costs, which delayed the recognition of earnings of approximately $0.07 per diluted share. General and administrative expenses related to the Mississippi operations were recognized in our consolidated statement of operations. Upon CMS approval, the revenues, medical costs and related earnings from our Mississippi operations will be recognized in our consolidated statement of operations in the period final approval is obtained, retroactive to January 1, 2011.

Other Events

  • In February 2011, we began operating under 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.
  • In March 2011, Standard & Poor's raised its counterparty credit and senior unsecured debt ratings on Centene Corporation to BB from BB-.
  • In April 2011, CeltiCare Health Plan of Massachusetts, Inc. announced the renewal of its contract with the Commonwealth of Massachusetts to serve Commonwealth Care members, effective July 1, 2011. CeltiCare will continue to be one of the lowest-cost health plan options for low-income, working adults (up to 300% of the federal poverty level) enrolled in the Commonwealth Care program.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "Our continued focus on fundamentals and enhanced systems capabilities drovesolid first quarter performance and a favorable start in a year of opportunity."

The following table depicts membership in Centene's managed care organizations, by state, at March 31, 2011 and 2010:




March 31,



2011


2010

Arizona


22,600


21,700

Florida


188,800


105,900

Georgia


303,300


301,000

Indiana


209,400


211,400

Massachusetts


34,100


26,900

Ohio


160,900


156,000

South Carolina


84,900


53,900

Texas


456,700


459,600

Wisconsin


81,800


134,900

Total at-risk membership (1)


1,542,500


1,471,300

Non-risk membership


10,400


62,200

Total


1,552,900


1,533,500


(1)In January 2011, we began operating in Mississippi through the Mississippi Coordinated Access Network (MississippiCan) program, serving 33,100 members at March 31, 2011. While the plan has been operating since January 1, 2011 and we have received monthly premium payments and paid claims, the contract remains subject to CMS approval.

The following table depicts membership in Centene's managed care organizations, by member category, at March 31, 2011 and 2010:




March 31,



2011


2010

Medicaid


1,169,700


1,088,300

CHIP & Foster Care


208,900


266,300

ABD & Medicare


123,800


87,100

Hybrid Programs


35,200


26,900

Long-term Care


4,900


2,700

Total at-risk membership


1,542,500


1,471,300

Non-risk membership


10,400


62,200

Total


1,552,900


1,533,500


Statement of Operations: Three Months Ended March 31, 2011

  • For the first quarter of 2011, Premium and Service Revenues increased 15.4% to $1,179.2 million from $1,022.2 million in the first quarter of 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.
  • Consolidated HBR of 83.0% for the first quarter of 2011 represents a decrease of 1.0% from the comparable period in 2010. The year over year improvement in HBR is due to rate increases and lower utilization levels in 2011. Consolidated HBR decreased 0.3% sequentially from the fourth quarter of 2010.
  • Consolidated G&A expense as a percent of premium and service revenues was 13.8% in the first quarter of 2011, an increase from 13.3% in the first quarter of 2010. The 2011 G&A ratio reflects an increase of 0.6% as a result of including general and administrative expenses for Mississippi but not recording the Mississippi premium revenue discussed above.
  • Earnings from continuing operations increased to $39.1 million in 2011 from $29.6 million in 2010, or 32.0% year over year. Net earnings from continuing operations were $23.7 million, or $0.46 per diluted share in 2011, compared to $20.1 million, or $0.41 per diluted share in the first quarter of 2010.

Balance Sheet and Cash Flow

At March 31, 2011, the Company had cash and investments of $1,128.0 million, including $1,096.3 million held by its regulated entities and $31.7 million held by its unregulated entities. Medical claims liabilities totaled $471.7 million, representing 44.4 days in claims payable. Total debt was $305.4 million and debt to capitalization was 21.4% at March 31, 2011 excluding the $79.6 million non-recourse mortgage note. Cash flows from operations were $94.0 million, or 4.1 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, December 31, 2010

45.6


Reduced time of claims processing and payment

(0.6)


Reduced utilization

(0.3)


Pharmacy

(0.3)


Days in claims payable, March 31, 2011

44.4




During the first quarter of 2011, we continued to experience increased electronic claims submissions and auto-adjudication of claims which reduced the average time from claims incurred to claims paid by 0.6 days. Reduced utilization and the related absence of claims payable due to average completion time decreased days in claims payable by 0.3 days. Days in claims payable was also reduced by 0.3 days as a result of the timing of pharmacy claims payments. As we continue to experience increasing claims auto-adjudication (5% increase from the fourth quarter 2010 to the first quarter 2011) and EDI submission rates, our targeted range for days in claims payable is under review.

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


$ 2.03


$ 2.13


Consolidated HBR


83.5%


84.5%


General & Administrative expense ratio


12.4%


12.9%








Diluted Shares Outstanding (in thousands)


52,000









Conference Call

As previously announced, the Company will host a conference call Tuesday, April 26, 2011, at 8:30 A.M. (Eastern Time) to review the financial results for the first quarter ended March 31, 2011, 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 1-800-860-2442in the U.S. and Canada; +1-412-858-4600from 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, April 24, 2012, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 AM Eastern Time on Wednesday, May 4, 2011, by dialing 1-877-344-7529the U.S. and Canada, or+1-412-317-0088 from abroad, and entering access code 449378.

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)

(Unaudited)



March 31,

2011


December 31,

2010


ASSETS







Current assets:







Cash and cash equivalents of continuing operations


$

492,045

$

433,914


Cash and cash equivalents of discontinued operations



--


252


Total cash and cash equivalents



492,045


434,166


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



132,023


136,243


Short-term investments, at fair value (amortized cost $51,950 and $21,141, respectively)



52,699


21,346


Other current assets



67,062


64,154


Current assets of discontinued operations other than cash



--


912


Total current assets



743,829


656,821


Long-term investments, at fair value (amortized cost $548,013 and $585,862, respectively)



556,806


595,879


Restricted deposits, at fair value (amortized cost $26,502 and $22,755, respectively)



26,482


22,758


Property, software and equipment, net of accumulated depreciation of $148,051 and $138,629, respectively



334,180


326,341


Goodwill



278,105


278,051


Intangible assets, net



27,813


29,109


Other long-term assets



36,470


30,057


Long-term assets of discontinued operations



--


4,866


Total assets


$

2,003,685

$

1,943,882









Current liabilities:







Medical claims liability


$

471,659

$

456,765


Accounts payable and accrued expenses



214,900


185,218


Unearned revenue



127,451


117,344


Current portion of long-term debt



3,037


2,817


Current liabilities of discontinued operations



--


3,102


Total current liabilities



817,047


765,246


Long-term debt



302,326


327,824


Other long-term liabilities



53,116


53,378


Long-term liabilities of discontinued operations



--


379


Total liabilities



1,172,489


1,146,827









Commitments and contingencies














Stockholders' equity:







Common stock, $.001 par value; authorized 100,000,000 shares; 52,533,873 issued and 49,965,357 outstanding at March 31, 2011, and 52,172,037 issued and 49,616,824 outstanding at December 31, 2010



53


52


Additional paid-in capital



396,380


384,206


Accumulated other comprehensive income:







Unrealized gain on investments, net of tax



5,969


6,424


Retained earnings



477,488


453,743


Treasury stock, at cost (2,568,516 and 2,555,213 shares, respectively)



(50,888)


(50,486)


Total Centene stockholders' equity



829,002


793,939


Noncontrolling interest



2,194


3,116


Total stockholders' equity



831,196


797,055


Total liabilities and stockholders' equity


$

2,003,685

$

1,943,882



CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(Unaudited)


Three Months Ended

March 31,



2011



2010


Revenues:








Premium

$

1,152,777



$

999,315


Service


26,384




22,907


Premium and service revenues


1,179,161




1,022,222


Premium tax


37,196




46,499


Total revenues


1,216,357




1,068,721


Expenses:








Medical costs


957,074




839,708


Cost of services


20,176




17,152


General and administrative expenses


162,581




135,507


Premium tax


37,429




46,743


Total operating expenses


1,177,260




1,039,110


Earnings from operations


39,097




29,611


Other income (expense):








Investment and other income


3,749




7,057


Interest expense


(5,695)




(3,813)


Earnings from continuing operations, before income tax expense


37,151




32,855


Income tax expense


14,328




12,525


Earnings from continuing operations, net of income tax expense


22,823




20,330


Discontinued operations, net of income tax expense of $0 and $4,440, respectively


--




3,920


Net earnings


22,823




24,250


Noncontrolling interest


(922)




248


Net earnings attributable to Centene Corporation

$

23,745



$

24,002










Amounts attributable to Centene Corporation common shareholders:








Earnings from continuing operations, net of income tax expense

$

23,745



$

20,082


Discontinued operations, net of income tax expense


--




3,920


Net earnings

$

23,745



$

24,002










Net earnings per share attributable to Centene Corporation:








Basic:








Continuing operations

$

0.48



$

0.43


Discontinued operations


--




0.08


Earnings per common share

$

0.48



$

0.51


Diluted:








Continuing operations

$

0.46



$

0.41


Discontinued operations


--




0.08


Earnings per common share

$

0.46



$

0.49










Weighted average number of shares outstanding:








Basic


49,750,430




47,260,714


Diluted


51,811,721




48,761,528



CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


Three Months EndedMarch 31,



2011


2010









Cash flows from operating activities:







Net earnings

$

22,823


$

24,250


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







Depreciation and amortization


14,325



12,527


Stock compensation expense


4,394



3,460


Gain on sale of investments, net


(118)



(3,547)


Gain on sale of UHP


--



(8,201)


Deferred income taxes


(700)



950


Changes in assets and liabilities







Premium and related receivables


4,216



(4,457)


Other current assets


(1,636)



(1,375)


Other assets


151



1,937


Medical claims liabilities


13,430



(33,129)


Unearned revenue


10,106



(73,282)


Accounts payable and accrued expenses


26,268



40,433


Other operating activities


732



1,934


Net cash provided by (used in) operating activities


93,991



(38,500)


Cash flows from investing activities:







Capital expenditures


(15,725)



(12,520)


Capital expenditures of Centene Center LLC


(1,157)



(10,579)


Purchases of investments


(40,423)



(146,935)


Proceeds from asset sales


--



13,420


Sales and maturities of investments


45,327



117,469


Investments in acquisitions, net of cash acquired


--



(2,019)


Net cash used in investing activities


(11,978)



(41,164)


Cash flows from financing activities:







Proceeds from exercise of stock options


6,518



519


Proceeds from borrowings


127,300



22,030


Proceeds from stock offering


--



104,557


Payment of long-term debt


(152,577)



(97,136)


Distributions to noncontrolling interest


--



(3,585)


Excess tax benefits from stock compensation


1,132



96


Common stock repurchases


(402)



(480)


Debt issue costs


(6,105)



--


Net cash (used in) provided by financing activities


(24,134)



26,001


Net increase (decrease) in cash and cash equivalents


57,879



(53,663)


Cash and cash equivalents, beginning of period


434,166



403,752


Cash and cash equivalents, end of period

$

492,045


$

350,089









Supplemental disclosures of cash flow information:







Interest paid

$

1,714


$

345


Income taxes paid

$

9,567


$

8,272









Supplemental disclosure of non-cash investing and financing activities:







Contribution from noncontrolling interest

$

--


$

306


Capital expenditures

$

1,477


$

789



CENTENE CORPORATION


CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA



Q1


Q4


Q3


Q2


Q1


2011


2010


2010


2010


2010

MEMBERSHIP










Managed Care:










Arizona

22,600


22,400


22,300


22,100


21,700

Florida

188,800


194,900


116,300


113,100


105,900

Georgia

303,300


305,800


300,900


295,600


301,000

Indiana

209,400


215,800


213,300


212,700


211,400

Massachusetts

34,100


36,200


34,400


30,100


26,900

Ohio

160,900


160,100


161,800


159,300


156,000

South Carolina

84,900


90,300


90,600


92,600


53,900

Texas

456,700


433,100


428,100


475,500


459,600

Wisconsin

81,800


74,900


106,100


133,600


134,900

Total at-risk membership (a)

1,542,500


1,533,500


1,473,800


1,534,600


1,471,300

Non-risk membership

10,400


4,200


35,900


50,900


62,200

TOTAL

1,552,900


1,537,700


1,509,700


1,585,500


1,533,500











(a) In January 2011, we began operating in Mississippi through the Mississippi Coordinated Access Network (MississippiCan) program, serving 33,100 members at March 31, 2011. While the plan has been operating since January 1, 2011 and we have received monthly premium payments and paid claims, the contract remains subject to CMS approval.











Medicaid

1,169,700


1,177,100


1,122,800


1,135,500


1,088,300

CHIP & Foster Care

208,900


210,500


219,100


272,400


266,300

ABD & Medicare

123,800


104,600


94,500


93,800


87,100

Hybrid Programs

35,200


36,200


34,400


30,100


26,900

Long-term Care

4,900


5,100


3,000


2,800


2,700

Total at-risk membership

1,542,500


1,533,500


1,473,800


1,534,600


1,471,300

Non-risk membership

10,400


4,200


35,900


50,900


62,200

TOTAL

1,552,900


1,537,700


1,509,700


1,585,500


1,533,500











Specialty Services(b):










Cenpatico Behavioral Health










Arizona

172,700


174,600


121,300


119,700


119,300

Kansas

44,000


39,200


39,800


39,100


39,800

TOTAL

216,700


213,800


161,100


158,800


159,100











(b) Includes external membership only.



















REVENUE PER MEMBER PER MONTH(c)

$

238.31


$

239.66


$

224.62


$

218.40


$

219.90











CLAIMS(c)










Period-end inventory

527,100


434,900


469,000


480,400


341,400

Average inventory

347,900


304,700


307,500


306,900


283,900

Period-end inventory per member

0.34


0.28


0.32


0.31


0.23

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




Q1


Q4


Q3


Q2


Q1


2011


2010


2010


2010


2010











DAYS IN CLAIMS PAYABLE

44.4


45.6


47.1


48.2


47.7

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

$

1,096.3


$

1,043.0


$

895.4


$

813.0


$

917.9

Unregulated


31.7



30.9



32.7



39.4



51.3

TOTAL

$

1,128.0


$

1,073.9


$

928.1


$

852.4


$

969.2











DEBT TO CAPITALIZATION

26.9%


29.3%


24.7%


24.5%


23.7%

DEBT TO CAPITALIZATION EXCLUDING NON-RECOURSE DEBT(d)

21.4%


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 $79.6 million at March 31, 2011 and $80.0 million at December 31, 2010.


OPERATING RATIOS:


Three Months Ended March 31,


2011



2010

Health Benefits Ratios:







Medicaid and CHIP

82.4

%



85.6

%

ABD and Medicare

85.1




80.3


Specialty Services

82.7




80.6


Total

83.0




84.0









Total General & Administrative Expense Ratio

13.8

%



13.3

%


MEDICAL CLAIMS LIABILITY (In thousands)

The changes in medical claims liability are summarized as follows:





Balance, March 31, 2010

$

444,826


Incurred related to:




Current period


3,697,199


Prior period


(65,439)


Total incurred


3,631,760


Paid related to:




Current period


3,234,366


Prior period


370,561


Total paid


3,604,927


Balance, March 31, 2011

$

471,659



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 March 31, 2010.

SOURCE Centene Corporation