Centene Corporation Reports 2011 Second Quarter Earnings of $0.54 Per Diluted Share

July 26, 2011 at 6:03 AM EDT

- Includes $(0.10) per diluted share charge for Debt Extinguishment Costs -
- Includes $0.07 per diluted share benefit recognized for Q1 Mississippi Earnings -

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

Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended June 30, 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.

Second Quarter Highlights

  • Quarter-end managed care at-risk membership of 1,580,500, an increase of 45,900 members year over year.
  • Premium and Service Revenues of $1.3 billion, representing 21.6% year over year growth.
  • Health Benefits Ratio of 83.0%, compared to 83.8% in the prior year and 83.0% in the first quarter of 2011.
  • General and Administrative expense ratio (G&A ratio) of 13.0%, compared to 12.7% in the prior year. The G&A ratio for the six months ended June 30, 2011 was 13.4%, compared to 13.0% in the prior year.
  • Diluted earnings per share from continuing operations of $0.54, including $(0.10) of debt extinguishment costs, compared to $0.45 in the prior year.
  • Recognition of Mississippi revenue and medical costs for the period January 1, 2011 through June 30, 2011 during the second quarter of 2011 (includes $0.07 per diluted share benefit for period from January 1, 2011 - March 31, 2011 recognized in the second quarter of 2011).

Other Events

  • In July 2011, Louisiana Healthcare Connections, our joint venture subsidiary, was selected to contract with the Louisiana Department of Health and Hospitals to provide healthcare services to Medicaid enrollees participating in the Medicaid Coordinated Care Network project in all three of the state's geographical services areas for a three year term. Services for these members are expected to begin in the first quarter of 2012, with a three-phased membership roll-out ending in the second quarter of 2012.
  • In July 2011, our subsidiary, Kentucky Spirit Health Plan, announced it was awarded a three-year contract with the Kentucky Finance and Administration Cabinet (KFAC) to serve Medicaid beneficiaries. Kentucky Spirit Health Plan will provide integrated healthcare, behavioral health, pharmacy, vision and dental services to Medicaid recipients. Operations are expected to commence in the fourth quarter of 2011.
  • In June 2011, CeltiCare Health Plan of Massachusetts, Inc. announced the extension of its contract with the Commonwealth of Massachusetts to serve Commonwealth Care Bridge members on an exclusive basis, effective July 1, 2011.
  • In June 2011, our subsidiary, Managed Health Services was awarded the 2011 National Environmental Leadership Award in Asthma Management from the Environmental Protection Agency.
  • In May 2011, the Company called its $175 million 7.25% Senior Notes and recorded debt extinguishment costs of $(0.10) per diluted share for the call premium and the write off of unamortized debt issuance costs. The Company replaced the notes with new $250 million 5.75% Senior Notes due June 2017 and entered into interest rate swap agreements, converting the Senior Notes to a floating rate of interest at the three month LIBOR rate plus 3.50%.
  • In May 2011, Bridgeway Health Solutions announced it was awarded a contract to deliver Long-term Care services in three geographic service areas in Arizona effective October 1, 2011. This contract award represents an estimated 50% increase in Bridgeway's Long-term Care at-risk membership.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "We are especially pleased with our results for the second quarter and the continuation of our positive operating momentum as well as our success in winning profitable new growth opportunities."

The following table depicts membership in Centene's managed care organizations, by state, at June 30, 2011 and 2010:



June 30,




2011


2010


Arizona


22,800


22,100


Florida


190,600


113,100


Georgia


303,100


295,600


Illinois


700


--


Indiana


206,700


212,700


Massachusetts


32,900


30,100


Mississippi


30,800


--


Ohio


159,900


159,300


South Carolina


82,800


92,600


Texas


470,400


475,500


Wisconsin


79,800


133,600


Total at-risk membership


1,580,500


1,534,600


Non-risk membership


10,400


50,900


Total


1,590,900


1,585,500


The following table depicts membership in Centene's managed care organizations, by member category, at June 30, 2011 and 2010:



June 30,




2011


2010


Medicaid


1,172,400


1,135,500


CHIP & Foster Care


211,400


272,400


ABD & Medicare


156,300


93,800


Hybrid Programs


35,500


30,100


Long-term Care


4,900


2,800


Total at-risk membership


1,580,500


1,534,600


Non-risk membership


10,400


50,900


Total


1,590,900


1,585,500


Statement of Operations: Three Months Ended June 30, 2011

  • For the second quarter of 2011, Premium and Service Revenues increased 21.6% to $1,278.0 million from $1,050.6 million in the second quarter of 2010. The increase was primarily driven by the addition of our Mississippi contract, membership growth and premium rate increases during the second half of 2010. During the second quarter of 2011, premium revenue from the Mississippi contract of $100.4 million was recognized for the period January 1, 2011 through June 30, 2011, of which $52.8 million related to the first quarter of 2011.
  • Consolidated HBR of 83.0% for the second quarter of 2011 represents a decrease of 0.8% from the comparable period in 2010. The year over year improvement in HBR is due to lower utilization levels in 2011. Consolidated HBR was consistent with the first quarter of 2011 at 83.0%.
  • Consolidated G&A expense ratio for the first and second quarters in 2011 has been impacted by the timing of the recognition of our Mississippi contract. For the three months ended June 30, 2011, our G&A expense ratio was 13.0%, compared to 12.7% in the prior year and 13.8% in the first quarter of 2011. For the six months ended June 30, 2011, our G&A expense ratio was 13.4%, compared to 13.0% in the prior year. The overall increase is due to additional business expansion costs compared to the prior year.
  • Earnings from operations increased to $55.3 million in 2011 from $41.7 million in 2010, or 32.6% year over year. Net earnings from continuing operations were $28.4 million, compared to $23.0 million in the second quarter of 2010.
  • Earnings per diluted share increased to $0.54 in the second quarter of 2011, which included a $(0.10) per diluted share charge for debt extinguishment costs as well as the benefit of $0.07 per diluted share from the recognition of Q1 2011 Mississippi earnings, compared to $0.45 per diluted share in the second quarter of 2010.

Balance Sheet and Cash Flow

At June 30, 2011, the Company had cash and investments of $1,098.4 million, including $1,061.9 million held by its regulated entities and $36.5 million held by its unregulated entities. Medical claims liabilities totaled $482.9 million, representing 44.4 days in claims payable, consistent with March 31, 2011. Total debt was $339.6 million and debt to capitalization was 23.0% at June 30, 2011 excluding the $79.0 million non-recourse mortgage note. Cash flows from operations for the six months ended June 30, 2011 were $53.2 million, or 1.0 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, March 31, 2011

44.4


Reduced time of claims processing and payment

(0.4)


Payment of annual provider bonuses

(0.1)


Impact of new business

0.5


Days in claims payable, June 30, 2011

44.4



Outlook

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



Full Year 2011




Low


High


Premium and Service Revenues (in millions)


$ 5,000


$ 5,200


Diluted EPS


$ 2.03


$ 2.13


Consolidated HBR


83.0%


84.0%


General & Administrative expense ratio


12.8%


13.3%








Diluted Shares Outstanding (in thousands)


52,500








The updated guidance reflects the Senior Note issuance, the expected commencement of the Kentucky contract during the fourth quarter of 2011 and start up costs for the second half of 2011 related to Louisiana Healthcare Connections, our Louisiana health plan.

Conference Call

As previously announced, the Company will host a conference call Tuesday, July 26, 2011, at 8:30 A.M. (Eastern Time) to review the financial results for the second quarter ended June 30, 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 p.m. (Eastern Time) on Tuesday, July 24, 2012, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 a.m. (Eastern Time) on Thursday, August 4, 2011, by dialing 1-877-344-7529 in the U.S. and Canada, or +1-412-317-0088 from abroad, and entering access code 10001393.

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)




June 30,

2011


December 31,

2010


ASSETS







Current assets:







Cash and cash equivalents of continuing operations


$

474,450

$

433,914


Cash and cash equivalents of discontinued operations



--


252


Total cash and cash equivalents



474,450


434,166


Premium and related receivables, net of allowance for uncollectible accounts of $574 and $17, respectively



152,135


136,243


Short-term investments, at fair value (amortized cost $77,560 and $21,141, respectively)



78,808


21,346


Other current assets



69,143


64,154


Current assets of discontinued operations other than cash



--


912


Total current assets



774,536


656,821


Long-term investments, at fair value (amortized cost $508,299 and $585,862, respectively)



518,490


595,879


Restricted deposits, at fair value (amortized cost $26,615 and $22,755, respectively)



26,662


22,758


Property, software and equipment, net of accumulated depreciation of $157,706 and $138,629, respectively



340,392


326,341


Goodwill



281,981


278,051


Intangible assets, net



30,342


29,109


Other long-term assets



38,041


30,057


Long-term assets of discontinued operations



--


4,866


Total assets


$

2,010,444

$

1,943,882



LIABILITIES AND STOCKHOLDERS' EQUITY







Current liabilities:







Medical claims liability


$

482,913

$

456,765


Accounts payable and accrued expenses



152,578


185,218


Unearned revenue



111,110


117,344


Current portion of long-term debt



3,172


2,817


Current liabilities of discontinued operations



--


3,102


Total current liabilities



749,773


765,246


Long-term debt



336,468


327,824


Other long-term liabilities



53,899


53,378


Long-term liabilities of discontinued operations



--


379


Total liabilities



1,140,140


1,146,827









Commitments and contingencies














Stockholders' equity:







Common stock, $.001 par value; authorized 100,000,000 shares; 52,831,462 issued and 50,295,329 outstanding at June 30, 2011, and 52,172,037 issued and 49,616,824 outstanding at December 31, 2010



53


52


Additional paid-in capital



405,711


384,206


Accumulated other comprehensive income:







Unrealized gain on investments, net of tax



7,183


6,424


Retained earnings



505,862


453,743


Treasury stock, at cost (2,536,133 and 2,555,213 shares, respectively)



(50,343)


(50,486)


Total Centene stockholders' equity



868,466


793,939


Noncontrolling interest



1,838


3,116


Total stockholders' equity



870,304


797,055


Total liabilities and stockholders' equity


$

2,010,444

$

1,943,882



CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(Unaudited)



Three Months Ended

June 30,


Six Months Ended

June 30,



2011



2010


2011



2010


Revenues:















Premium

$

1,248,588



$

1,025,928


$

2,401,365



$

2,025,243


Service


29,428




24,682



55,812




47,589


Premium and service revenues


1,278,016




1,050,610



2,457,177




2,072,832


Premium tax


36,998




26,162



74,194




72,661


Total revenues


1,315,014




1,076,772



2,531,371




2,145,493


Expenses:















Medical costs


1,035,740




859,335



1,992,814




1,699,043


Cost of services


20,312




15,707



40,488




32,859


General and administrative expenses


166,425




133,470



329,006




268,977


Premium tax


37,234




26,551



74,663




73,294


Total operating expenses


1,259,711




1,035,063



2,436,971




2,074,173


Earnings from operations


55,303




41,709



94,400




71,320


Other income (expense):















Investment and other income


2,933




4,142



6,682




11,199


Debt extinguishment costs


(8,488)




--



(8,488)




--


Interest expense


(5,256)




(3,869)



(10,951)




(7,682)


Earnings from continuing operations, before income tax expense


44,492




41,982



81,643




74,837


Income tax expense


16,429




17,254



30,757




29,779


Earnings from continuing operations, net of income tax expense


28,063




24,728



50,886




45,058


Discontinued operations, net of income tax expense (benefit) of $0, $(90), $0 and $4,350, respectively


--




(226)



--




3,694


Net earnings


28,063




24,502



50,886




48,752


Noncontrolling interest (loss)


(311)




1,729



(1,233)




1,977


Net earnings attributable to Centene Corporation

$

28,374



$

22,773


$

52,119



$

46,775

















Amounts attributable to Centene Corporation common stockholders:















Earnings from continuing operations, net of income tax expense

$

28,374



$

22,999


$

52,119



$

43,081


Discontinued operations, net of income tax (benefit) expense


--




(226)



--




3,694


Net earnings

$

28,374



$

22,773


$

52,119



$

46,775

















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















Basic:















Continuing operations

$

0.57



$

0.46


$

1.04



$

0.89


Discontinued operations


--




--



--




0.08


Earnings per common share

$

0.57



$

0.46


$

1.04



$

0.97


Diluted:















Continuing operations

$

0.54



$

0.45


$

1.00



$

0.86


Discontinued operations


--




--



--




0.08


Earnings per common share

$

0.54



$

0.45


$

1.00



$

0.94

















Weighted average number of shares outstanding:















Basic


50,167,052




49,135,552



49,959,892




48,203,312


Diluted


52,489,414




50,866,318



52,171,213




49,807,084



CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



Six Months EndedJune 30,



2011


2010









Cash flows from operating activities:







Net earnings

$

50,886


$

48,752


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







Depreciation and amortization


28,567



24,918


Stock compensation expense


8,839



6,888


Gain on sale of investments, net


(107)



(3,987)


Debt extinguishment costs


8,488



--


Gain on sale of UHP


--



(8,201)


Deferred income taxes


(3,529)



4,928


Changes in assets and liabilities







Premium and related receivables


(16,146)



(57,718)


Other current assets


(4,001)



948


Other assets


(878)



1,719


Medical claims liabilities


24,684



(28,868)


Unearned revenue


(12,465)



(85,950)


Accounts payable and accrued expenses


(34,739)



(3,536)


Other operating activities


3,555



1,851


Net cash provided by (used in) operating activities


53,154



(98,256)


Cash flows from investing activities:







Capital expenditures


(31,744)



(31,177)


Capital expenditures of Centene Center LLC


(3,384)



(32,425)


Purchases of investments


(103,239)



(306,124)


Proceeds from asset sales


--



13,420


Sales and maturities of investments


120,448



291,735


Investments in acquisitions, net of cash acquired


(3,192)



(21,473)


Net cash used in investing activities


(21,111)



(86,044)


Cash flows from financing activities:







Proceeds from exercise of stock options


12,264



1,759


Proceeds from borrowings


419,183



42,161


Proceeds from stock offering


--



104,534


Payment of long-term debt


(414,695)



(97,193)


Contributions from (distributions to) noncontrolling interest


244



(4,840)


Excess tax benefits from stock compensation


1,369



295


Common stock repurchases


(1,029)



(568)


Debt issue costs


(9,095)



--


Net cash provided by financing activities


8,241



46,148


Net increase (decrease) in cash and cash equivalents


40,284



(138,152)


Cash and cash equivalents, beginning of period


434,166



403,752


Cash and cash equivalents, end of period

$

474,450


$

265,600









Supplemental disclosures of cash flow information:







Interest paid

$

11,822


$

7,320


Income taxes paid

$

40,111


$

27,940









Supplemental disclosure of non-cash investing and financing activities:







Contribution from noncontrolling interest

$

--


$

306


Capital expenditures

$

1,381


$

36,280



CENTENE CORPORATION


CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA



Q2


Q1


Q4


Q3


Q2


2011


2011


2010


2010


2010

MEMBERSHIP










Managed Care:










Arizona

22,800


22,600


22,400


22,300


22,100

Florida

190,600


188,800


194,900


116,300


113,100

Georgia

303,100


303,300


305,800


300,900


295,600

Illinois

700


--


--


--


--

Indiana

206,700


209,400


215,800


213,300


212,700

Massachusetts

32,900


34,100


36,200


34,400


30,100

Mississippi

30,800


--


--


--


--

Ohio

159,900


160,900


160,100


161,800


159,300

South Carolina

82,800


84,900


90,300


90,600


92,600

Texas

470,400


456,700


433,100


428,100


475,500

Wisconsin

79,800


81,800


74,900


106,100


133,600

Total at-risk membership

1,580,500


1,542,500


1,533,500


1,473,800


1,534,600

Non-risk membership

10,400


10,400


4,200


35,900


50,900

TOTAL

1,590,900


1,552,900


1,537,700


1,509,700


1,585,500





















Medicaid

1,172,400


1,169,700


1,177,100


1,122,800


1,135,500

CHIP & Foster Care

211,400


208,900


210,500


219,100


272,400

ABD & Medicare

156,300


123,800


104,600


94,500


93,800

Hybrid Programs

35,500


35,200


36,200


34,400


30,100

Long-term Care

4,900


4,900


5,100


3,000


2,800

Total at-risk membership

1,580,500


1,542,500


1,533,500


1,473,800


1,534,600

Non-risk membership

10,400


10,400


4,200


35,900


50,900

TOTAL

1,590,900


1,552,900


1,537,700


1,509,700


1,585,500











Specialty Services(a):










Cenpatico Behavioral Health










Arizona

173,200


172,700


174,600


121,300


119,700

Kansas

45,000


44,000


39,200


39,800


39,100

TOTAL

218,200


216,700


213,800


161,100


158,800











(a) Includes external membership only.



















REVENUE PER MEMBER PER MONTH(b)

$

240.57


$

238.31


$

239.66


$

224.62


$

218.40











CLAIMS(b)










Period-end inventory

415,700


527,100


434,900


469,000


480,400

Average inventory

332,300


347,900


304,700


307,500


306,900

Period-end inventory per member

0.26


0.34


0.28


0.32


0.31


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




Q2


Q1


Q4


Q3


Q2


2011


2011


2010


2010


2010











DAYS IN CLAIMS PAYABLE (c)

44.4


44.4


45.6


47.1


48.2

(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 (Days in Claims Payable for Q2 2011 reflects the most recent three months of Mississippi medical expense).


CASH AND INVESTMENTS (in millions)









Regulated

$

1,061.9


$

1,096.3


$

1,043.0


$

895.4


$

813.0

Unregulated


36.5



31.7



30.9



32.7



39.4

TOTAL

$

1,098.4


$

1,128.0


$

1,073.9


$

928.1


$

852.4











DEBT TO CAPITALIZATION

28.1%


26.9%


29.3%


24.7%


24.5%

DEBT TO CAPITALIZATION EXCLUDING NON-RECOURSE DEBT(d)

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 of $79.0 million at June 30, 2011, $79.6 million at March 31, 2011 and $80.0 million at December 31, 2010.


OPERATING RATIOS:



Three Months Ended

June 30,


Six Months Ended

June 30,


2011



2010


2011



2010

Health Benefits Ratios:














Medicaid and CHIP

80.1

%



83.4

%


81.3

%



84.5

%

ABD and Medicare

88.0




86.5



86.8




83.4


Specialty Services

85.8




81.7



84.2




81.2


Total

83.0




83.8



83.0




83.9
















Total General & Administrative Expense Ratio

13.0

%



12.7

%


13.4

%



13.0

%


MEDICAL CLAIMS LIABILITY (In thousands)

The changes in medical claims liability are summarized as follows:


Balance, June 30, 2010

$

455,375


Incurred related to:




Current period


3,870,465


Prior period


(62,300)


Total incurred


3,808,165


Paid related to:




Current period


3,398,570


Prior period


382,057


Total paid


3,780,627


Balance, June 30, 2011

$

482,913


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 June 30, 2010.


SOURCE Centene Corporation