- Centene Corporation Reports 2011 Third Quarter Earnings of $0.55 Per Diluted Share -

October 25, 2011 at 6:04 AM EDT

ST. LOUIS, Oct. 25, 2011 /PRNewswire via COMTEX/ --

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

Third Quarter Highlights

  • Quarter-end managed care at-risk membership of 1,615,700, an increase of 141,900 members year over year.
  • Premium and Service Revenues of $1.3 billion, representing 17.0% year over year growth.
  • Health Benefits Ratio of 83.0%, compared to 84.2% in the prior year and 83.0% in the second quarter of 2011.
  • General and Administrative expense ratio (G&A ratio) of 13.3%, compared to 12.2% in the prior year.
  • Diluted earnings per share from continuing operations increased 25.0% from the prior year to $0.55.
  • Employees increased 25.0% from the prior year to 5,000 at September 30, 2011, reflecting our continued business expansions.

Other Events

  • In August 2011, Superior HealthPlan, Inc. announced it was awarded renewed and expanded contracts by the Texas Health and Human Services Commission. The contracts expand Superior's STAR, STAR+PLUS and CHIP product offerings to include the new 10 county Hidalgo Service Area (STAR and STAR+PLUS), Medicaid RSA West Texas, Medicaid RSA Central Texas, Medicaid RSA North-East Texas and Lubbock (STAR+PLUS). All of the service areas and products will now include the management of the pharmacy benefit for Superior's members. In addition, the state has added inpatient facility services to the managed care structure for the STAR+PLUS program. Operations in the expanded areas are expected to commence late in the first quarter of 2012.
  • In October 2011, Buckeye Community Health Plan began operating under an amended contract with the Ohio Department of Job and Family Services. The amended contract includes the management of the pharmacy benefit for Buckeye's members.
  • In October 2011, our respiratory syncytial virus (RSV) prevention and management program was awarded the silver medal for health care consumer empowerment and protection by URAC, a leading healthcare accreditation organization, at the 2011 URAC Quality Summit and Awards Program. We also received an honorable mention for our Nurse Response program, a 24-hour medical triage telehealth service. A program coordinator for Nurse Response was also honored with a URAC Health Care Stars! Award at the same event.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "We are pleased to report solid quarterly results for the third quarter of 2011. The focus of our team and the dependability of our processes continue to drive Centene's successful execution."

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



September 30,




2011


2010


Arizona


22,800


22,300


Florida


188,600


116,300


Georgia


298,000


300,900


Illinois


13,600


--


Indiana


205,300


213,300


Massachusetts


34,700


34,400


Mississippi


30,600


--


Ohio


162,200


161,800


South Carolina


86,500


90,600


Texas


494,500


428,100


Wisconsin


78,900


106,100


Total at-risk membership


1,615,700


1,473,800


Non-risk membership


10,600


35,900


Total


1,626,300


1,509,700


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



September 30,




2011


2010


Medicaid


1,189,900


1,122,800


CHIP & Foster Care


210,600


219,100


ABD & Medicare


171,700


94,500


Hybrid Programs


38,400


34,400


Long-term Care


5,100


3,000


Total at-risk membership


1,615,700


1,473,800


Non-risk membership


10,600


35,900


Total


1,626,300


1,509,700


Statement of Operations: Three Months Ended September 30, 2011

  • For the third quarter of 2011, Premium and Service Revenues increased 17.0% to $1,265 million from $1,082 million in the third quarter of 2010. The increase was primarily driven by the addition of our Mississippi and Illinois contracts, Texas expansion and membership growth. Sequentially, Premium and Service Revenues increased 3.3% after adjusting for the recognition of $52.8 million of revenue from our Mississippi contract during the second quarter 2011 related to the first quarter of 2011.
  • Consolidated HBR of 83.0% for the third quarter of 2011 represents a decrease of 1.2% from the comparable period in 2010 primarily as a result of lower levels of utilization and contract enhancements. Consolidated HBR was consistent with the second quarter of 2011 at 83.0%.
  • Consolidated G&A expense ratio for the third quarter of 2011 was 13.3%, compared to 12.2% in the prior year. The increase is primarily due to additional business expansion costs.
  • Earnings from operations increased to $48.5 million in the third quarter 2011 from $40.2 million in the third quarter 2010, or 20.6% year over year. Net earnings from continuing operations were $29.0 million in the third quarter 2011, compared to $22.4 million in the third quarter of 2010.
  • Earnings per diluted share increased to $0.55 in the third quarter of 2011 over the comparable period in 2010. Earnings per diluted share in the third quarter of 2010 were $0.44, including a net $0.04 charge per diluted share related to investment writedowns.

Balance Sheet and Cash Flow

At September 30, 2011, the Company had cash, investments and restricted deposits of $1,115 million, including $1,079 million held by its regulated entities and $35.9 million held by its unregulated entities. Medical claims liabilities totaled $498.7 million, representing 44.6 days in claims payable, an increase of 0.2 days from 44.4 days at June 30, 2011. Total debt was $351.3 million and debt to capitalization was 23.2% at September 30, 2011 excluding the $78.4 million non-recourse mortgage note. Cash flows from operations for the nine months ended September 30, 2011 were $89.7 million, or 1.1 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, June 30, 2011

44.4


Impact of new business

0.2


Days in claims payable, September 30, 2011

44.6



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)


$ 5,100


$ 5,200


Diluted EPS


$ 2.09


$ 2.13


Consolidated HBR


83.2%


83.6%


General & Administrative expense ratio


12.9%


13.4%








Diluted Shares Outstanding (in thousands)


52,400








Conference Call

As previously announced, the Company will host a conference call Tuesday, October 25, 2011, at 8:30 A.M. (Eastern Time) to review the financial results for the third quarter ended September 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, October 23, 2012, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 a.m. (Eastern Time) on Thursday, November 3, 2011, by dialing 1-877-344-7529 in the U.S. and Canada, or +1-412-317-0088 from abroad, and entering access code 10004770.

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)




September 30,

2011


December 31,

2010


ASSETS







Current assets:







Cash and cash equivalents of continuing operations


$

451,657

$

433,914


Cash and cash equivalents of discontinued operations



--


252


Total cash and cash equivalents



451,657


434,166


Premium and related receivables, net of allowance for uncollectible accounts of $592 and $17, respectively



139,467


136,243


Short-term investments, at fair value (amortized cost $104,914 and $21,141, respectively)



106,344


21,346


Other current assets



68,908


64,154


Current assets of discontinued operations other than cash



--


912


Total current assets



766,376


656,821


Long-term investments, at fair value (amortized cost $521,229 and $585,862, respectively)



530,452


595,879


Restricted deposits, at fair value (amortized cost $26,697 and $22,755, respectively)



26,768


22,758


Property, software and equipment, net of accumulated depreciation of $166,442 and $138,629, respectively



345,600


326,341


Goodwill



281,981


278,051


Intangible assets, net



28,795


29,109


Other long-term assets



57,526


30,057


Long-term assets of discontinued operations



--


4,866


Total assets


$

2,037,498

$

1,943,882



LIABILITIES AND STOCKHOLDERS' EQUITY







Current liabilities:







Medical claims liability


$

498,705

$

456,765


Accounts payable and accrued expenses



173,708


185,218


Unearned revenue



54,764


117,344


Current portion of long-term debt



3,203


2,817


Current liabilities of discontinued operations



--


3,102


Total current liabilities



730,380


765,246


Long-term debt



348,093


327,824


Other long-term liabilities



54,926


53,378


Long-term liabilities of discontinued operations



--


379


Total liabilities



1,133,399


1,146,827









Commitments and contingencies














Stockholders' equity:







Common stock, $.001 par value; authorized 100,000,000 shares; 52,921,255 issued and 50,377,774 outstanding at September 30, 2011, and 52,172,037 issued and 49,616,824 outstanding at December 31, 2010



53


52


Additional paid-in capital



411,924


384,206


Accumulated other comprehensive income:







Unrealized gain on investments, net of tax



6,478


6,424


Retained earnings



534,849


453,743


Treasury stock, at cost (2,543,481 and 2,555,213 shares, respectively)



(50,594)


(50,486)


Total Centene stockholders' equity



902,710


793,939


Noncontrolling interest



1,389


3,116


Total stockholders' equity



904,099


797,055


Total liabilities and stockholders' equity


$

2,037,498

$

1,943,882



CENTENE CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(Unaudited)



Three Months Ended

September 30,


Nine Months Ended

September 30,



2011



2010


2011



2010


Revenues:















Premium

$

1,239,464



$

1,060,559


$

3,640,829



$

3,085,802


Service


25,817




20,954



81,629




68,543


Premium and service revenues


1,265,281




1,081,513



3,722,458




3,154,345


Premium tax


36,754




40,348



110,948




113,009


Total revenues


1,302,035




1,121,861



3,833,406




3,267,354


Expenses:















Medical costs


1,028,586




893,281



3,021,400




2,592,324


Cost of services


20,229




14,646



60,717




47,505


General and administrative expenses


167,668




132,095



496,674




401,072


Premium tax


37,005




41,591



111,668




114,885


Total operating expenses


1,253,488




1,081,613



3,690,459




3,155,786


Earnings from operations


48,547




40,248



142,947




111,568


Other income (expense):















Investment and other income


2,697




713



9,379




11,912


Debt extinguishment costs


--




--



(8,488)




--


Interest expense


(4,572)




(4,858)



(15,523)




(12,540)


Earnings from continuing operations, before income tax expense


46,672




36,103



128,315




110,940


Income tax expense


18,459




13,163



49,216




42,942


Earnings from continuing operations, net of income tax expense


28,213




22,940



79,099




67,998


Discontinued operations, net of income tax expense of $0, $26, $0 and $4,376, respectively


--




260



--




3,954


Net earnings


28,213




23,200



79,099




71,952


Noncontrolling interest (loss)


(774)




538



(2,007)




2,515


Net earnings attributable to Centene Corporation

$

28,987



$

22,662


$

81,106



$

69,437

















Amounts attributable to Centene Corporation common stockholders:















Earnings from continuing operations, net of income tax expense

$

28,987



$

22,402


$

81,106



$

65,483


Discontinued operations, net of income tax expense


--




260



--




3,954


Net earnings

$

28,987



$

22,662


$

81,106



$

69,437

















Net earnings per common share attributable to Centene Corporation:















Basic:















Continuing operations

$

0.58



$

0.46


$

1.62



$

1.35


Discontinued operations


--




--



--




0.08


Earnings per common share

$

0.58



$

0.46


$

1.62



$

1.43


Diluted:















Continuing operations

$

0.55



$

0.44


$

1.55



$

1.30


Discontinued operations


--




--



--




0.08


Earnings per common share

$

0.55



$

0.44


$

1.55



$

1.38

















Weighted average number of shares outstanding:















Basic


50,345,512




49,238,406



50,089,845




48,552,135


Diluted


52,620,350




50,938,357



52,320,906




50,192,190



CENTENE CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



Nine Months EndedSeptember 30,



2011


2010









Cash flows from operating activities:







Net earnings

$

79,099


$

71,952


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







Depreciation and amortization


43,055



38,620


Stock compensation expense


13,263



10,224


Gain on sale of investments, net


(213)



(6,331)


Debt extinguishment costs


8,488



--


Gain on sale of UHP


--



(8,201)


Impairment of investment


--



5,531


Deferred income taxes


(223)



7,012


Changes in assets and liabilities







Premium and related receivables


(13,306)



(68,125)


Other current assets


(6,667)



(2,932)


Other assets


(1,230)



(990)


Medical claims liabilities


40,476



(29,304)


Unearned revenue


(65,183)



(38,708)


Accounts payable and accrued expenses


(11,414)



(3,174)


Other operating activities


3,528



(1,267)


Net cash provided by (used in) operating activities


89,673



(25,693)


Cash flows from investing activities:







Capital expenditures


(52,931)



(50,353)


Capital expenditures of Centene Center LLC


(4,007)



(41,607)


Purchases of investments


(201,145)



(382,730)


Proceeds from asset sales


--



13,420


Sales and maturities of investments


180,124



452,128


Investments in acquisitions, net of cash acquired


(3,192



(26,847)


Net cash used in investing activities


(81,151)



(35,989)


Cash flows from financing activities:







Proceeds from exercise of stock options


13,582



2,394


Proceeds from borrowings


419,183



53,812


Proceeds from stock offering


--



104,534


Payment of long-term debt


(415,475)



(97,467)


Contributions from (distributions to) noncontrolling interest


569



(7,387)


Excess tax benefits from stock compensation


1,632



424


Common stock repurchases


(1,280)



(714)


Debt issue costs


(9,242)



--


Net cash provided by financing activities


8,969



55,596


Net increase (decrease) in cash and cash equivalents


17,491



(6,086)


Cash and cash equivalents, beginning of period


434,166



403,752


Cash and cash equivalents, end of period

$

451,657


$

397,666









Supplemental disclosures of cash flow information:







Interest paid

$

16,097


$

9,501


Income taxes paid

$

49,996


$

44,407









Supplemental disclosure of non-cash investing and financing activities:







Contribution from noncontrolling interest

$

--


$

306


Capital expenditures

$

(4,833)


$

15,291



CENTENE CORPORATION


CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA



Q3


Q2


Q1


Q4


Q3


2011


2011


2011


2010


2010

MEMBERSHIP










Managed Care:










Arizona

22,800


22,800


22,600


22,400


22,300

Florida

188,600


190,600


188,800


194,900


116,300

Georgia

298,000


303,100


303,300


305,800


300,900

Illinois

13,600


700


--


--


--

Indiana

205,300


206,700


209,400


215,800


213,300

Massachusetts

34,700


32,900


34,100


36,200


34,400

Mississippi

30,600


30,800


--


--


--

Ohio

162,200


159,900


160,900


160,100


161,800

South Carolina

86,500


82,800


84,900


90,300


90,600

Texas

494,500


470,400


456,700


433,100


428,100

Wisconsin

78,900


79,800


81,800


74,900


106,100

Total at-risk membership

1,615,700


1,580,500


1,542,500


1,533,500


1,473,800

Non-risk membership

10,600


10,400


10,400


4,200


35,900

TOTAL

1,626,300


1,590,900


1,552,900


1,537,700


1,509,700





















Medicaid

1,189,900


1,172,400


1,169,700


1,177,100


1,122,800

CHIP & Foster Care

210,600


211,400


208,900


210,500


219,100

ABD & Medicare

171,700


156,300


123,800


104,600


94,500

Hybrid Programs

38,400


35,500


35,200


36,200


34,400

Long-term Care

5,100


4,900


4,900


5,100


3,000

Total at-risk membership

1,615,700


1,580,500


1,542,500


1,533,500


1,473,800

Non-risk membership

10,600


10,400


10,400


4,200


35,900

TOTAL

1,626,300


1,590,900


1,552,900


1,537,700


1,509,700











Specialty Services(a):










Cenpatico Behavioral Health










Arizona

175,500


173,200


172,700


174,600


121,300

Kansas

45,600


45,000


44,000


39,200


39,800

TOTAL

221,100


218,200


216,700


213,800


161,100











(a) Includes external membership only.



















REVENUE PER MEMBER PER MONTH(b)

$

245.27


$

240.57


$

238.31


$

239.66


$

224.62











CLAIMS(b)










Period-end inventory

482,900


415,700


527,100


434,900


469,000

Average inventory

312,400


332,300


347,900


304,700


307,500

Period-end inventory per member

0.30


0.26


0.34


0.28


0.32

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











NUMBER OF EMPLOYEES

5,000


4,800


4,500


4,200


4,000




Q3


Q2


Q1


Q4


Q3


2011


2011


2011


2010


2010











DAYS IN CLAIMS PAYABLE (c)

44.6


44.4


44.4


45.6


47.1

(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

$

1,079.3


$

1,061.9


$

1,096.3


$

1,043.0


$

895.4

Unregulated


35.9



36.5



31.7



30.9



32.7

TOTAL

$

1,115.2


$

1,098.4


$

1,128.0


$

1,073.9


$

928.1











DEBT TO CAPITALIZATION

28.0%


28.1%


26.9%


29.3%


24.7%

DEBT TO CAPITALIZATION EXCLUDING NON-RECOURSE DEBT(d)

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 of $78.4 million at September 30, 2011.


OPERATING RATIOS:



Three Months Ended

September 30,


Nine Months Ended

September 30,


2011



2010


2011



2010

Health Benefits Ratios:














Medicaid and CHIP

80.0

%



83.2

%


80.8

%



84.0

%

ABD and Medicare

89.1




85.9



87.6




84.3


Specialty Services

84.9




87.9



84.5




83.4


Total

83.0




84.2



83.0




84.0
















Total General & Administrative Expense Ratio

13.3

%



12.2

%


13.3

%



12.7

%


MEDICAL CLAIMS LIABILITY (In thousands)

The changes in medical claims liability are summarized as follows:


Balance, September 30, 2010

$

457,085





Incurred related to:







Current period


3,991,598





Prior period


(48,128)





Total incurred


3,943,470





Paid related to:







Current period


3,497,216





Prior period


404,634





Total paid


3,901,850





Balance, September 30, 2011

$

498,705






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 September 30, 2010.

SOURCE Centene Corporation