Centene Corporation Reports 2011 Fourth Quarter and Full Year Earnings

February 7, 2012 at 6:01 AM EST
- FOURTH QUARTER EARNINGS OF $0.57 PER DILUTED SHARE -
- FULL YEAR EARNINGS OF $2.12 PER DILUTED SHARE -

ST. LOUIS, Feb. 7, 2012 /PRNewswire/ -- Centene Corporation (NYSE: CNC) today announced its financial results for the quarter and year ended December 31, 2011.  As previously discussed, beginning with the fourth quarter of 2011, we have reclassified certain medical costs to more closely align with the NAIC definitions.  All of the information in this release has been reclassified to conform to the current presentation. For additional information, the details of the reclassification are provided in the supplemental financial data of this release.











2011 Highlights




Q4



Full Year




Premium and Service Revenues (in millions)

$

1,458.5



$

5,181.0




Consolidated Health Benefits Ratio


85.9

%



85.2

%



General & Administrative expense ratio


11.0

%



11.3

%



Diluted EPS

$

0.57



$

2.12

(1)



Cash flow from operations (in millions)

$

172.0



$

261.7



(1) Includes $0.10 per share of debt extinguishment costs.
















Fourth Quarter Highlights

  • Quarter-end managed care at-risk membership of 1,816,000, an increase of 18.4% year over year.
  • Premium and Service Revenues of $1.5 billion, representing 29.1% year over year growth.
  • Health Benefits Ratio of 85.9%, compared to 85.0% in the prior year and 85.0% in the third quarter of 2011.  
  • General and Administrative expense ratio of 11.0%, compared to 11.3% in the prior year.  
  • Diluted earnings per share from continuing operations of $0.57, an increase of 14.0% from the prior year.
  • Employees increased from 4,200 at December 31, 2010 to 5,300 at December 31, 2011, reflecting our continued business expansions.  

Other Events

  • In January 2012, we were selected to contract with the Washington Health Care Authority to serve Medicaid beneficiaries in the state.  Operations are expected to commence in the third quarter of 2012.
  • In February 2012, Louisiana Healthcare Connections began operating under a new contract in Louisiana to provide healthcare services to Medicaid enrollees participating in the Bayou Health program.  In addition, Nurtur, our subsidiary which provides life, health and wellness programs, commenced operations to provide disease management services for state employees in Louisiana beginning in January 2012.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "During 2011, we were able to successfully demonstrate our ability to grow through new contract awards and expansions, while continuing to focus on our targeted margins.  I look forward to the new business commencing in 2012 and the opportunity to develop additional markets."  

The following table depicts membership in Centene's managed care organizations, by state:




December 31,




2011


2010


Arizona


23,700


22,400


Florida


198,300


194,900


Georgia


298,200


305,800


Illinois


16,300


-


Indiana


206,900


215,800


Kentucky


180,700


-


Massachusetts


35,700


36,200


Mississippi


31,600


-


Ohio


159,900


160,100


South Carolina


82,900


90,300


Texas


503,800


433,100


Wisconsin


78,000


74,900


Total at-risk membership


1,816,000


1,533,500


Non-risk membership


4,900


4,200


Total


1,820,900


1,537,700





The following table depicts membership in Centene's managed care organizations, by member category:




December 31,



2011


2010

Medicaid


1,336,800


1,177,100

CHIP & Foster Care


213,900


210,500

ABD & Medicare


218,000


104,600

Hybrid Programs


40,500


36,200

Long-term Care


6,800


5,100

Total at-risk membership


1,816,000


1,533,500

Non-risk membership


4,900


4,200

Total


1,820,900


1,537,700









Statement of Operations: Three Months Ended December 31, 2011

  • For the fourth quarter of 2011, Premium and Service Revenues increased 29.1% to $1.5 billion from $1.1 billion in the fourth quarter of 2010.  The increase was primarily driven by new operations in Mississippi, Illinois and Kentucky added during 2011, Texas expansion and overall membership growth.  
  • Consolidated HBR of 85.9% for the fourth quarter of 2011 represents an increase of 0.9% from the comparable period in 2010 and from the third quarter of 2011.  This increase is primarily a result of the commencement of operations in Kentucky in November 2011.  
  • Consolidated G&A expense ratio for the fourth quarter of 2011 was 11.0%, compared to 11.3% in the prior year.  The decrease is a result of leveraging our costs over higher revenues, offset by additional business expansion costs.  
  • Earnings from operations increased to $47.4 million in the fourth quarter 2011 from $45.5 million in the fourth quarter 2010.  Net earnings from continuing operations were $30.1 million in the fourth quarter 2011, compared to $25.5 million in the fourth quarter of 2010.  
  • Earnings per diluted share increased to $0.57 in the fourth quarter of 2011 compared to $0.50 in the prior year.

Statement of Operations: Year Ended December 31, 2011

  • For the year ended December 31, 2011, Premium and Service Revenues increased 20.9% to $5.2 billion from $4.3 billion in 2010.  The increase was driven by the commencement of operations in Mississippi, Kentucky and Illinois during 2011, Texas expansion and membership growth.  
  • Consolidated HBR of 85.2% for 2011 represents a decrease of 0.3% from 2010 primarily as a result of lower levels of utilization and contract enhancements, partially offset by our Kentucky health plan which began operations in November 2011.
  • Consolidated G&A expense ratio for 2011 was 11.3%, compared to 11.2% in the prior year.  The increase is primarily due to additional business expansion costs, offset by leveraging our expenses over higher revenues.  
  • Earnings from operations increased to $190.3 million in 2011 from $157.1 million in 2010, or 21.2% year over year.  Net earnings from continuing operations were $111.2 million in 2011, compared to $90.9 million in 2010.  
  • Earnings per diluted share increased to $2.12 in 2011, including $(0.10) of debt extinguishment costs, compared to $1.80 in the prior year.

Balance Sheet and Cash Flow

At December 31, 2011, the Company had cash, investments and restricted deposits of $1,237.1 million, including $38.2 million held by its unregulated entities.  Medical claims liabilities totaled $608.0 million, representing 45.3 days in claims payable.  Total debt was $351.6 million and debt to capitalization was 22.6% at December 31, 2011 excluding the $77.8 million non-recourse mortgage note.  Cash flows from operations for the year ended December 31, 2011 were $261.7 million, or 2.4 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, 2011

43.6*   


  Impact of new business

1.8     


  Ohio pharmacy carve in

(0.8)    


  Timing of claim payments

0.7     


Days in claims payable, December 31, 2011

45.3     






* Days in claims payable for September 30, 2011 have been reduced by 1.0 day to reflect the medical cost reclassification.

Outlook

The table below depicts the Company's annual guidance for 2012:




Full Year 2012




Low


High 


Premium and Service Revenues (in millions)


$    7,200


$  7,600


Diluted EPS


$      2.60


$    2.80


Consolidated Health Benefits Ratio


87.0%


88.0%


General & Administrative expense ratio


9.5%


10.0%








Diluted Shares Outstanding (in thousands)


53,400











The above guidance has not been adjusted to include the impact associated with the Washington RFP and assumes that the Texas expansion will begin on March 1 with required CMS approval of premium rates.  

Conference Call

As previously announced, the Company will host a conference call Tuesday, February 7, 2012, at 8:30 A.M. (Eastern Time) to review the financial results for the fourth quarter and year ended December 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 1-800-860-2442 in the U.S. and Canada; +1-412-858-4600 from abroad; or via a live, audio webcast on the Company's website at www.centene.com, under the Investors section.  A webcast replay will be available for on-demand listening shortly after the completion of the call for the next twelve months or until 11:59 PM (Eastern Time) on Tuesday, February 12, 2013, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 AM Eastern Time on Wednesday, February 15, 2012, by dialing 1-877-344-7529 in the U.S. and Canada, or +1-412-317-0088  from abroad, and entering access code 10008192.

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, membership and revenue projections, timing of regulatory contract approval, 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)




December 31,




2011


2010


ASSETS







Current assets:







Cash and cash equivalents


$

573,698

$

434,166


Premium and related receivables, net of allowance for uncollectible accounts of $639 and $17, respectively



157,450


136,243


Short-term investments, at fair value (amortized cost $129,232 and $21,141, respectively)



130,499


21,346


Other current assets



78,363


65,066


Total current assets



940,010


656,821


Long-term investments, at fair value (amortized cost $497,805 and $585,862, respectively)



506,140


595,879


Restricted deposits, at fair value (amortized cost $26,751 and $22,755, respectively)



26,818


22,758


Property, software and equipment, net of accumulated depreciation of $177,294 and $138,629, respectively



349,622


326,341


Goodwill



281,981


278,051


Intangible assets, net



27,430


29,109


Other long-term assets



58,335


34,923


Total assets


$

2,190,336

$

1,943,882



LIABILITIES AND STOCKHOLDERS' EQUITY







Current liabilities:







Medical claims liability


$

607,985

$

456,765


Accounts payable and accrued expenses



216,504


188,320


Unearned revenue



9,890


117,344


Current portion of long-term debt



3,234


2,817


Total current liabilities



837,613


765,246


Long-term debt



348,344


327,824


Other long-term liabilities



67,960


53,757


Total liabilities



1,253,917


1,146,827









Commitments and contingencies














Stockholders' equity:







Common stock, $.001 par value; authorized 100,000,000 shares; 53,586,726 issued and 50,864,618 outstanding at December 31, 2011, and 52,172,037 issued and 49,616,824 outstanding at December 31, 2010



54


52


Additional paid-in capital



421,981


384,206


Accumulated other comprehensive income:







Unrealized gain on investments, net of tax



5,761


6,424


Retained earnings



564,961


453,743


Treasury stock, at cost (2,722,108 and 2,555,213 shares, respectively)



(57,123)


(50,486)


Total Centene stockholders' equity



935,634


793,939


Noncontrolling interest



785


3,116


Total stockholders' equity



936,419


797,055


Total liabilities and stockholders' equity


$

2,190,336

$

1,943,882





CENTENE CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(Unaudited)



Three Months Ended

December 31,


Year Ended

December 31,



2011



2010


2011



2010


Revenues:















Premium

$

1,436,413



$

1,106,370


$

5,077,242



$

4,192,172


Service


22,136




23,118



103,765




91,661


Premium and service revenues


1,458,549




1,129,488



5,181,007




4,283,833


Premium tax


48,627




51,481



159,575




164,490


Total revenues


1,507,176




1,180,969



5,340,582




4,448,323


Expenses:















Medical costs


1,233,739




940,935



4,324,746




3,584,452


Cost of services


17,397




16,414



78,114




63,919


General and administrative expenses


159,937




127,886



587,004




477,765


Premium tax


48,726




50,233



160,394




165,118


Total operating expenses


1,459,799




1,135,468



5,150,258




4,291,254


Earnings from operations


47,377




45,501



190,324




157,069


Other income (expense):















Investment and other income


3,990




3,293



13,369




15,205


Debt extinguishment costs


-




-



(8,488)




-


Interest expense


(4,797)




(5,452)



(20,320)




(17,992)


Earnings from continuing operations, before income tax expense


46,570




43,342



174,885




154,282


Income tax expense


17,306




16,958



66,522




59,900


Earnings from continuing operations, net of income tax expense


29,264




26,384



108,363




94,382


Discontinued operations, net of income tax expense of $0, $12, $0 and $4,388, respectively


-




(65)



-




3,889


Net earnings


29,264




26,319



108,363




98,271


Noncontrolling interest


(848)




920



(2,855)




3,435


Net earnings attributable to Centene Corporation

$

30,112



$

25,399


$

111,218



$

94,836

















Amounts attributable to Centene Corporation common shareholders:















Earnings from continuing operations, net of income tax expense

$

30,112



$

25,464


$

111,218



$

90,947


Discontinued operations, net of income tax (benefit) expense


-




(65)



-




3,889


Net earnings

$

30,112



$

25,399


$

111,218



$

94,836

















Net earnings per share attributable to Centene Corporation:















Basic:















Continuing operations

$

0.60



$

0.52


$

2.22



$

1.87


Discontinued operations


-




-



-




0.08


Earnings per common share

$

0.60



$

0.52


$

2.22



$

1.95


Diluted:















Continuing operations

$

0.57



$

0.50


$

2.12



$

1.80


Discontinued operations


-




-



-




0.08


Earnings per common share

$

0.57



$

0.50


$

2.12



$

1.88

















Weighted average number of shares outstanding:















Basic


50,522,726




49,356,768



50,198,954




48,754,947


Diluted


52,894,701




51,205,720



52,474,238




50,447,888





CENTENE CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)




Year Ended December 31,




2011



2010


Cash flows from operating activities:









Net earnings


$

108,363



$

98,271


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









Depreciation and amortization



58,327




52,000


Stock compensation expense



18,171




13,874


Gain on sale of investments, net



(287)




(6,337)


Debt extinguishment costs



8,488




-


(Gain) on sale of UHP



-




(8,201)


Impairment loss on Casenet, LLC



-




5,531


Deferred income taxes



2,031




10,317


Changes in assets and liabilities:









Premium and related receivables



(11,306)




(23,359)


Other current assets



(11,812)




(3,240)


Other assets



(2)




(2,028)


Medical claims liability



149,756




(30,421)


Unearned revenue



(109,082)




25,700


Accounts payable and accrued expenses



38,889




37,398


Other operating activities



10,160




(573)


Net cash provided by operating activities



261,696




168,932


Cash flows from investing activities:









Capital expenditures



(68,993)




(63,304)


Capital expenditures of Centene Center LLC



(4,715)




(55,252)


Purchase of investments



(318,397)




(615,506)


Sales and maturities of investments



267,404




570,423


Proceeds from asset sales



-




13,420


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



(4,375)




(60,388)


Net cash used in investing activities



(129,076)




(210,607)


Cash flows from financing activities:









Proceeds from exercise of stock options



15,815




3,419


Proceeds from borrowings



419,183




218,538


Proceeds from stock offering



-




104,534


Payment of long-term debt



(416,283)




(195,728)


Purchase of noncontrolling interest



-




(48,257)


Distributions from (to) noncontrolling interest



813




(7,387)


Excess tax benefits from stock compensation



4,435




963


Common stock repurchases



(7,809)




(3,224)


Debt issue costs



(9,242)




(769)


Net cash provided by financing activities



6,912




72,089


Net increase in cash and cash equivalents



139,532




30,414


Cash and cash equivalents, beginning of period



434,166




403,752


Cash and cash equivalents, end of period


$

573,698



$

434,166











Supplemental disclosures of cash flow information:









Interest paid


$

27,383



$

17,296


Income taxes paid


$

50,444



$

53,938











Supplemental disclosure of non-cash investing and financing activities:









Contribution from noncontrolling interest


$

-



$

306


Capital expenditures


$

6,591



$

8,720





CENTENE CORPORATION


CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA



Q4


Q3


Q2


Q1


Q4


2011


2011


2011


2011


2010

MEMBERSHIP










Managed Care:










Arizona

23,700


22,800


22,800


22,600


22,400

Florida

198,300


188,600


190,600


188,800


194,900

Georgia

298,200


298,000


303,100


303,300


305,800

Illinois

16,300


13,600


700


-


-

Indiana

206,900


205,300


206,700


209,400


215,800

Kentucky

180,700


-


-


-


-

Massachusetts

35,700


34,700


32,900


34,100


36,200

Mississippi

31,600


30,600


30,800


-


-

Ohio

159,900


162,200


159,900


160,900


160,100

South Carolina

82,900


86,500


82,800


84,900


90,300

Texas

503,800


494,500


470,400


456,700


433,100

Wisconsin

78,000


78,900


79,800


81,800


74,900

Total at-risk membership

1,816,000


1,615,700


1,580,500


1,542,500


1,533,500

Non-risk membership

4,900


10,600


10,400


10,400


4,200

TOTAL

1,820,900


1,626,300


1,590,900


1,552,900


1,537,700





















Medicaid

1,336,800


1,189,900


1,172,400


1,169,700


1,177,100

CHIP & Foster Care

213,900


210,600


211,400


208,900


210,500

ABD & Medicare

218,000


171,700


156,300


123,800


104,600

Hybrid Programs

40,500


38,400


35,500


35,200


36,200

Long-term Care

6,800


5,100


4,900


4,900


5,100

Total at-risk membership

1,816,000


1,615,700


1,580,500


1,542,500


1,533,500

Non-risk membership

4,900


10,600


10,400


10,400


4,200

TOTAL

1,820,900


1,626,300


1,590,900


1,552,900


1,537,700











Specialty Services(a):










Cenpatico Behavioral Health










Arizona

168,900


175,500


173,200


172,700


174,600

Kansas

46,200


45,600


45,000


44,000


39,200

TOTAL

215,100


221,100


218,200


216,700


213,800











(a) Includes external membership only.



















REVENUE PER MEMBER PER MONTH(b)

$

261.95


$

245.27


$

240.57


$

238.31


$

239.66











CLAIMS(b)










Period-end inventory

495,500


482,900


415,700


527,100


434,900

Average inventory

367,590


312,400


332,300


347,900


304,700

Period-end inventory per member

0.27


0.30


0.26


0.34


0.28

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











NUMBER OF EMPLOYEES

5,300


5,000


4,800


4,500


4,200






Q4


Q3


Q2


Q1


Q4


2011


2011


2011


2011


2010











DAYS IN CLAIMS PAYABLE (c)

45.3


43.6


43.4


43.4


44.7

(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

$

1,198.9


$

1,079.3


$

1,061.9


$

1,096.3


$

1,043.0

Unregulated


38.2



35.9



36.5



31.7



30.9

TOTAL

$

1,237.1


$

1,115.2


$

1,098.4


$

1,128.0


$

1,073.9











DEBT TO CAPITALIZATION

27.3%


28.0%


28.1%


26.9%


29.3%

DEBT TO CAPITALIZATION EXCLUDING NON-RECOURSE DEBT(d)

22.6%


23.2%


23.0%


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 ($77.8 million at December 31, 2011).




MEDICAL COST / GENERAL AND ADMINISTRATIVE EXPENSE RECLASSIFICATION IMPACT ($ in thousands):



Three Months Ended December 31,


Year Ended December 31,


2011


2010


2011


2010


Medical Costs


HBR


Medical Costs


HBR


Medical

Costs


HBR


Medical Costs


HBR

Historical

$1,206,516


84.0%


$922,070


83.3%


$4,227,916


83.3%


$3,514,394


83.8%

Reclassification impact

27,223


1.9


18,865


1.7


96,830


1.9


70,058


1.7

Revised

$1,233,739


85.9%


$940,935


85.0%


$4,324,746


85.2%


$3,584,452


85.5%






Three Months Ended December 31,


Year Ended December 31,


2011


2010


2011


2010


G&A Expense


G&A Ratio


G&A Expense


G&A Ratio


G&A

Expense


G&A Ratio


G&A Expense


G&A Ratio

Historical

$187,160


12.8%


$146,751


13.0%


$683,834


13.2%


$547,823


12.8%

Reclassification impact

(27,223)


(1.8)


(18,865)


(1.7)


(96,830)


(1.9)


(70,058)


(1.6)

Revised

$159,937


11.0%


$127,886


11.3%


$587,004


11.3%


$477,765


11.2%




Operating Ratios:



Three Months Ended

December 31,


Year Ended

December 31,


2011



2010


2011



2010

Health Benefits Ratios:














 Medicaid and CHIP

82.9

%



83.7

%


82.4

%



85.0

%

 ABD and Medicare

88.8




89.1



89.8




87.1


 Specialty Services

94.0




86.1



89.1




86.2


 Total

85.9




85.0



85.2




85.5
















Total General & Administrative Expense Ratio

11.0

%



11.3

%


11.3

%



11.2

%




MEDICAL CLAIMS LIABILITY (In thousands)

The changes in medical claims liability are summarized as follows:


Balance, December 31, 2010

$

456,765





Incurred related to:







Current period 


4,390,123





Prior period


(65,377)





Total incurred


4,324,746





Paid related to:







Current period 


3,788,808





Prior period


384,718





Total paid


4,173,526





Balance, December 31, 2011

$

607,985








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 represents favorable development and 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, 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, 2010.

SOURCE Centene Corporation

Investor Relations, Edmund E. Kroll, Senior Vice President, Finance & Investor Relations, +1-212-759-0382, or Media, Deanne Lane, Vice President, Media Affairs, +1-314-725-4477