Press Release

Centene Corporation Reports 2016 Fourth Quarter And Full Year Results
-- 2016 Full Year Diluted EPS of $3.41; Adjusted Diluted EPS of $4.43 --

ST. LOUIS, Feb. 7, 2017 /PRNewswire/ -- Centene Corporation (NYSE: CNC) announced today its financial results for the fourth quarter and year ended December 31, 2016.  The following discussions, with the exception of cash flow information, are in the context of continuing operations.

For the fourth quarter and year ended December 31, 2016, the Company reported diluted earnings per share (EPS) of $1.45 and $3.41, respectively, and Adjusted Diluted EPS of $1.19 and $4.43, respectively.  A summary of diluted EPS is highlighted below:


Q4


Full Year

GAAP diluted EPS

$

1.45



$

3.41


Health Net acquisition related expenses

0.03



0.98


Amortization of acquired intangible assets

0.20



0.57


California minimum medical loss ratio change (1)

(0.71)



(0.76)


Charitable contribution (2)

0.18



0.19


Debt extinguishment (3)

0.04



0.04


   Adjusted Diluted EPS

$

1.19



$

4.43




(1)

A favorable impact associated with the retroactive change in the minimum medical loss ratio (MLR) calculation under California's Medicaid expansion program, $195 million of which relates to periods prior to 2016 for the legacy Centene business and prior to the acquisition date for the legacy Health Net business. 



(2)

In connection with the additional revenue associated with the California minimum MLR change, the Company committed to a charitable contribution to its foundation of $50 million in the fourth quarter of 2016. 



(3)

Additional expense of $11 million associated with the early redemption of the 5.75% Senior Notes due 2017 and the Health Net Inc. 6.375% Senior Notes due 2017. 

 

Included in diluted EPS and Adjusted Diluted EPS for the fourth quarter and year ended December 31, 2016 are $0.03 and $0.05 diluted EPS benefits, respectively, related to the early adoption of the stock-based compensation accounting standard, as well as the incorporation of retirement provisions in our stock-based compensation agreements.

In summary, the 2016 fourth quarter and full year results were as follows:

2016 Results


Q4


Full Year

Total revenues (in millions)

$

11,911



$

40,607


Health benefits ratio

84.8

%


86.5

%

Selling, general & administrative expense ratio

10.0

%


9.8

%

Selling, general & administrative expense ratio, excluding Health Net acquisition related expenses

9.9

%


9.2

%

GAAP diluted EPS

$

1.45



$

3.41


Adjusted Diluted EPS

$

1.19



$

4.43


Total cash flow provided by operations (in millions)

$

1,596



$

1,851


 

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "Our strong fourth quarter results give us favorable operating momentum heading into 2017, and the successful integration of Health Net bolsters this with greater scale and product diversity."

Fourth Quarter and Full Year Highlights

  • December 31, 2016 managed care membership of 11.4 million, an increase of 6.3 million members, or 124% over 2015.
  • Total revenues for the fourth quarter of 2016 of $11.9 billion, representing 89% growth compared to the fourth quarter of 2015 and $40.6 billion for the full year 2016, representing 78% growth year over year.
  • Health benefits ratio (HBR) of 84.8% for the fourth quarter of 2016 compared to 88.0% in the fourth quarter of 2015 and 86.5% for the full year 2016 compared to 88.9% for the full year 2015.
  • Selling, general and administrative (SG&A) expense ratio of 10.0% for the fourth quarter of 2016 compared to 8.7% for the fourth quarter of 2015. SG&A expense ratio of 9.8% for the full year 2016 compared to 8.5% for the full year 2015.
  • SG&A expense ratio excluding Health Net acquisition related expenses of 9.9% for the fourth quarter of 2016 compared to 8.6% for the fourth quarter of 2015. SG&A expense ratio excluding Health Net acquisition related expenses of 9.2% for the full year 2016 compared to 8.3% for the full year 2015.
  • Operating cash flow of $1.6 billion and $1.9 billion for the fourth quarter and full year of 2016, respectively, representing 3.3x net earnings for the full year of 2016.
  • Diluted EPS for the fourth quarter of 2016 of $1.45 compared to $0.91 for the fourth quarter of 2015. Diluted EPS for the full year of 2016 of $3.41 compared to $2.89 for the full year of 2015.
  • Adjusted Diluted EPS for the fourth quarter of 2016 of $1.19 compared to $0.97 for the fourth quarter of 2015. Adjusted Diluted EPS for the full year of 2016 of $4.43 compared to $3.14 for the full year of 2015.

Other Events

  • In January 2017, we signed a joint venture agreement with the North Carolina Medical Society, working in conjunction with the North Carolina Community Health Center, to collaborate on a patient-focused approach to Medicaid under the reform plan enacted in the State of North Carolina. The newly created health plan, Carolina Complete Health, was created to establish, organize and operate a physician-led health plan to provide Medicaid managed care services in North Carolina.
  • In January 2017, our Pennsylvania subsidiary, Pennsylvania Health & Wellness, was selected by the Pennsylvania Department of Human Services to serve Medicaid recipients enrolled in the HealthChoices program in three zones. Pending regulatory approval and successful completion of a readiness review, the three-year agreement is expected to commence June 1, 2017.
  • In January 2017, our Indiana subsidiary, Managed Health Services, began operating under a contract with the Indiana Family & Social Services Administration to provide risk-based managed care services for enrollees in the Healthy Indiana Plan and Hoosier Healthwise programs.
  • In January 2017, our Nebraska subsidiary, Nebraska Total Care, began operating under a contract with the Nebraska Department of Health and Human Services' Division of Medicaid and Long Term Care as one of three managed care organizations to administer its new Heritage Health Program for Medicaid, ABD, CHIP, Foster Care and LTC enrollees.
  • In November 2016, our subsidiary, Peach State Health Plan, was awarded a statewide managed care contract to continue serving members enrolled in the Georgia Families managed care program, including PeachCare for Kids and Planning for Healthy Babies. Through the new contract, Peach State Health Plan will be one of four managed care organizations providing medical, behavioral, dental and vision health benefits for its members. The contract is expected to become effective July 1, 2017.
  • In November 2016, our Nevada subsidiary, Silver Summit Health Plan, was selected to serve Medicaid recipients enrolled in Nevada'sMedicaid managed care program. The contract is expected to commence on July 1, 2017, pending regulatory approval and successful completion of a readiness review.
  • In November 2016, the Company issued $1.2 billion in aggregate principal amount of 4.75% Senior Notes due 2025. The Company used the net proceeds of the offering to redeem its 5.75% Senior Notes due 2017 and Health Net Inc.'s 6.375% Senior Notes due 2017, to repay amounts outstanding under its Revolving Credit Facility, to pay related fees and expenses and for general corporate purposes.

Membership

The following table sets forth the Company's membership by state for its managed care organizations:


December 31,


2016


2015

Arizona

598,300


440,900

Arkansas

58,600


41,900

California

2,973,500


186,000

Florida

716,100


510,400

Georgia

488,000


408,600

Illinois

237,700


207,500

Indiana

285,800


282,100

Kansas

139,700


141,000

Louisiana

472,800


381,900

Massachusetts

48,300


61,500

Michigan

2,000


4,800

Minnesota

9,400


9,600

Mississippi

310,200


302,200

Missouri

105,700


95,100

New Hampshire

77,400


71,400

New Mexico

7,100


Ohio

316,000


302,700

Oregon

217,800


98,700

South Carolina

122,500


104,000

Tennessee

21,700


20,000

Texas

1,072,400


983,100

Vermont

1,600


1,700

Washington

238,400


209,400

Wisconsin

73,800


77,100

Total at-risk membership

8,594,800


4,941,600

TRICARE eligibles

2,847,000


Non-risk membership


166,300

Total

11,441,800


5,107,900

 

The following table sets forth our membership by line of business:


December 31,


2016


2015

Medicaid:




TANF, CHIP & Foster Care

5,630,000


3,763,400

ABD & LTC

785,400


478,600

Behavioral Health

466,600


456,800

Commercial

1,239,100


146,100

Medicare & Duals (1)

334,300


37,400

Correctional

139,400


59,300

   Total at-risk membership

8,594,800


4,941,600

TRICARE eligibles

2,847,000


Non-risk membership


166,300

   Total

11,441,800


5,107,900


(1) Membership includes Medicare Advantage, Medicare Supplement, Special Needs Plans, and Medicare-Medicaid Plans.

 

At December 31, 2016, the Company served 1,080,500 members in Medicaid expansion programs in ten states, compared to 449,000 members in eight states at December 31, 2015.  At December 31, 2016, the Company served 372,800 dual-eligible members, compared to 204,800 at December 31, 2015.  At December 31, 2016, the Company served 537,200 members in Health Insurance Marketplaces, compared to 146,100 at December 31, 2015.

Statement of Operations: Three Months Ended December 31, 2016

  • For the fourth quarter of 2016, total revenues increased 89% to $11.9 billion from $6.3 billion in the comparable period in 2015. The increase over prior year was primarily a result of the acquisition of Health Net, the impact from expansions and new programs in many of our states in 2015 and 2016, and growth in the Health Insurance Marketplace business in 2016. Sequentially, revenue increased over the third quarter of 2016 partially due to $195 million of revenue recognized associated with the minimum MLR change in California. Additionally, during the fourth quarter we received approximately $500 million associated with pass through payments from the state of California that were recorded in Premium tax revenue and Premium tax expense.
  • HBR of 84.8% for the fourth quarter of 2016 represents a decrease from 88.0% in the comparable period in 2015 and a decrease from 87.0% in the third quarter of 2016. The year over year HBR decrease is primarily attributable to the acquisition of Health Net, which operates at a lower HBR due to a higher mix of commercial business. Also, in the fourth quarter of 2016, we recognized revenue relating to amendments to our California contracts with the Department of Health Care Services to amend the Medicaid expansion minimum MLR definition, reducing the fourth quarter HBR by 170 basis points.
  • SG&A expense ratio of 10.0% for the fourth quarter of 2016 compared to 8.7% for the fourth quarter of 2015. SG&A expense ratio excluding Health Net acquisition related expenses of 9.9% for the fourth quarter of 2016 compared to 8.6% for the fourth quarter of 2015. The increase in the SG&A expense ratio is primarily attributable to the addition of the Health Net business, which operates at a higher SG&A expense ratio due to a higher mix of commercial and Medicare business. The charitable contribution of $50 million increased the fourth quarter SG&A expense ratio by 50 basis points.

Statement of Operations: Year Ended December 31, 2016

  • Total revenues increased 78% in the year ended December 31, 2016 over the corresponding period in 2015 primarily as a result of the acquisition of Health Net, growth in the Health Insurance Marketplace business, and the impact from expansions, acquisitions or new programs in many of our states in 2016 and 2015.
  • The consolidated HBR for the year ended December 31, 2016 was 86.5%, a decrease of 240 basis points over the comparable period in 2015. The decrease compared to last year is primarily attributable to the acquisition of Health Net, membership growth in Medicaid expansion and Health Insurance Marketplace products, and improvement in HBR in the higher acuity populations. Also, in the fourth quarter we recognized additional revenue relating to the California minimum MLR change, which reduced our 2016 HBR by 50 basis points.
  • SG&A expense ratio of 9.8% for the full year 2016 compared to 8.5% for the full year 2015. SG&A expense ratio excluding Health Net acquisition related expenses of 9.2% for the full year 2016 compared to 8.3% for the full year 2015. The increase in the SG&A expense ratio is primarily attributable to the addition of the Health Net business.

Balance Sheet and Cash Flow

At December 31, 2016, the Company had cash, investments and restricted deposits of $9.1 billion, including $264 million held by its unregulated entities.  Medical claims liabilities totaled $3.9 billion.  The Company's days in claims payable was 42.  Total debt was $4.7 billion, which includes $100 million of borrowings on the $1 billion revolving credit facility at quarter-end.  The debt to capitalization ratio was 43.7% at December 31, 2016, excluding the $64 million non-recourse mortgage note.

Cash flow provided by operations for the three months ended December 31, 2016, was $1.6 billion. The cash provided by operating activities during the quarter reflects a decrease in premium and related receivables and an increase in accounts payable and accrued expenses.  The fourth quarter 2016 cash provided by operations was increased by approximately $445 million due to the finalization of the opening balance sheet for Health Net. 

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, 2016

41


Timing of claims payments

1


Days in claims payable, December 31, 2016

42





 

Outlook

The table below depicts the Company's annual guidance for 2017 and reflects a revised GAAP diluted EPS range to reflect the updated amortization expense as a result of finalizing the Health Net opening balance sheet intangibles valuation in the fourth quarter of 2016.



Full Year 2017




Low


High


Total revenues (in billions)


$

46.0



$

46.8



GAAP diluted EPS


$

3.82



$

4.26



Adjusted Diluted EPS (1)


$

4.40



$

4.85



HBR


87.0

%


87.5

%


SG&A expense ratio


9.0

%


9.5

%


SG&A expense ratio, excluding Health Net acquisition related expenses


9.0

%


9.5

%


Effective tax rate


39.0

%


41.0

%


Diluted shares outstanding (in millions)


176.9



177.9











(1)

Adjusted Diluted EPS excludes Health Net acquisition related expenses of $0.01 to $0.03 per diluted share and amortization of acquired intangible assets of $0.54 to $0.58 per diluted share.

 

Conference Call

As previously announced, the Company will host a conference call Tuesday, February 7, 2017, at 8:30 AM (Eastern Time) to review the financial results for the fourth quarter and year ended December 31, 2016, and to discuss its business outlook.  Michael Neidorff and Jeffrey Schwaneke will host the conference call. 

Investors and other interested parties are invited to listen to the conference call by dialing 1-877-883-0383 in the U.S. and Canada; +1-412-902-6506 from abroad, including the following Elite Entry Number: 4994074 to expedite caller registration; 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 6, 2018, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 AM (Eastern Time) on Tuesday, February 14, 2017, by dialing 1-877-344-7529 in the U.S. and Canada, or +1-412-317-0088 from abroad, and entering access code 10098783.

Non-GAAP Financial Presentation

The Company is providing certain non-GAAP financial measures in this release as the Company believes that these figures are helpful in allowing investors to more accurately assess the ongoing nature of the Company's operations and measure the Company's performance more consistently across periods. The Company uses the presented non-GAAP financial measures internally to allow management to focus on period-to-period changes in the Company's core business operations. Therefore, the Company believes that this information is meaningful in addition to the information contained in the GAAP presentation of financial information. The presentation of this additional non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

Specifically, the Company believes the presentation of non-GAAP financial information that excludes Health Net acquisition related expenses, amortization of acquired intangible assets, as well as other items, allows investors to develop a more meaningful understanding of the Company's performance over time. The tables below provide reconciliations of non-GAAP items ($ in millions, except per share data): 


Three Months
Ended
December 31,


Year Ended
December 31,


2016


2015


2016


2015

GAAP net earnings from continuing operations

$

255


$

112


$

559


$

356

Health Net acquisition related expenses

10


7


234


27

Amortization of acquired intangible assets

52


6


147


24

California minimum MLR change (1)

(195)



(195)


Charitable contribution (2)

50



50


Debt extinguishment (3)

11



11


Income tax effects of adjustments (4)

27


(5)


(79)


(20)

Adjusted net earnings from continuing operations

$

210


$

120


$

727


$

387



(1)

 A favorable impact associated with the retroactive change in the minimum MLR calculation under California's Medicaid expansion program, $195 million of which relates to periods prior to 2016 for the legacy Centene business and prior to the acquisition date for the legacy Health Net business. 



(2)

 In connection with the additional revenue associated with the California minimum MLR change, the Company committed to a charitable contribution to its foundation of $50 million in the fourth quarter of 2016. 



(3)

Additional expense of $11 million associated with the early redemption of the 5.75% Senior Notes due 2017 and the Health Net Inc. 6.375% Senior Notes due 2017. 



(4)

The income tax effects of adjustments are based on the effective income tax rates applicable to adjusted (non-GAAP) results. The amounts are based on the effective income tax rate that would increase or decrease based on the exclusion of these exceptions.

 


Three Months
Ended
December 31,


Year Ended
December 31,


Annual
Guidance
December 31,


2016


2015


2016


2015


2017

GAAP diluted earnings per share (EPS)

$

1.45


$

0.91


$

3.41


$

2.89


$3.82 - $4.26

Health Net acquisition related expenses (1)

0.03


0.03


0.98


0.14


$0.01 - $0.03

Amortization of acquired intangible assets (2)

0.20


0.03


0.57


0.11


$0.54 - $0.58

California minimum MLR change (3)

(0.71)



(0.76)



Charitable contribution (4)

0.18



0.19



Debt extinguishment (5)

0.04



0.04



   Adjusted Diluted EPS

$

1.19


$

0.97


$

4.43


$

3.14


$4.40 - $4.85



(1)

The Health Net acquisition related expenses per diluted share presented above are net of the income tax benefit of $0.03 and $0.02 for the three months ended December 31, 2016 and 2015, respectively, and $0.45 and $0.08 for the years ended December 31, 2016 and 2015, respectively; and estimated $0.01 to $0.02 for the year ended December 31, 2017.



(2)

The amortization of acquired intangible assets per diluted share presented above are net of the income tax benefit of $0.10 and $0.02 for the three months ended December 31, 2016 and 2015, respectively, and $0.33 and $0.08 for the years ended December 31, 2016 and 2015, respectively; and estimated $0.31 to $0.35 for the year ended December 31, 2017.



(3)

The impact associated with the retroactive change in the minimum MLR calculation per diluted share presented above is net of income tax expense of $(0.40) for the quarter ended December 31, 2016 and $(0.43) and for the year ended December 31, 2016.



(4)

The charitable contributions per diluted share presented above are net of the income tax benefit of $0.10 for the quarter ended December 31, 2016 and $0.11 for the year ended December 31, 2016.



(5)

The debt extinguishment cost per diluted share presented above is net of income tax benefit of $0.02 for the quarter ended December 31, 2016 and $0.03 for the year ended December 31, 2016.

 


Three Months
Ended
December 31,


Year Ended

December 31,


2016


2015


2016


2015

GAAP SG&A expenses

$

1,065


$

511


$

3,676


$

1,802

Health Net acquisition related expenses

10


7


234


27

SG&A expenses, excluding Health Net acquisition related expenses

$

1,055


$

504


$

3,442


$

1,775

 

About Centene Corporation

Centene Corporation is a diversified, multi-national healthcare enterprise that provides a portfolio of services to government sponsored healthcare programs, focusing on 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 (LTC), in addition to other state-sponsored programs, Medicare (including the Medicare prescription drug benefit commonly known as "Part D"), dual eligible programs and programs with the U.S. Department of Defense and U.S. Department of Veterans Affairs. Centene also provides healthcare services to groups and individuals delivered through commercial health plans. Centene 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 management, care management software, correctional healthcare services, dental benefits management, in-home health services, life and health management, managed vision, pharmacy benefits management, specialty pharmacy and telehealth services.

Centene uses its investor relations website to publish important information about the Company, including information that may be deemed material to investors. Financial and other information about Centene is routinely posted and is accessible on Centene's investor relations website, http://www.centene.com/investors.

Forward-Looking Statements

The company and its representatives may from time to time make written and oral forward-looking statements within the meaning of the Private Securities Litigation Reform Act ("PSLRA") of 1995, including statements in this and other press releases, in presentations, filings with the Securities and Exchange Commission ("SEC"), reports to stockholders and in meetings with investors and analysts. In particular, the information provided in this press release may contain certain forward-looking statements with respect to the financial condition, results of operations and business of Centene and certain plans and objectives of Centene with respect thereto, including but not limited to the expected benefits of the acquisition of Health Net, Inc. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Without limiting the foregoing, forward-looking statements often use words such as "anticipate", "seek", "target", "expect", "estimate", "intend", "plan", "goal", "believe", "hope", "aim", "continue", "will", "may", "can", "would", "could" or "should" or other words of similar meaning or the negative thereof. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in PSLRA.  A number of factors, variables or events could cause actual plans and results to differ materially from those expressed or implied in forward-looking statements. Such factors include, but are not limited to, Centene's ability to accurately predict and effectively manage health benefits and other operating expenses and reserves; competition; membership and revenue declines or unexpected trends; changes in healthcare practices, new technologies and advances in medicine; increased health care costs; changes in economic, political or market conditions; changes in federal or state laws or regulations, including changes with respect to government health care programs as well as changes with respect to the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act and any regulations enacted thereunder that may result from changing political conditions; rate cuts or other payment reductions or delays by governmental payors and other risks and uncertainties affecting Centene's government businesses; Centene's ability to adequately price products on federally facilitated and state based Health Insurance Marketplaces; tax matters; disasters or major epidemics; the outcome of legal or regulatory proceedings; changes in expected contract start dates; provider, state, federal and other contract changes and timing of regulatory approval of contracts; the expiration, suspension or termination of Centene's contracts with federal or state governments (including but not limited to Medicaid, Medicare, and TRICARE); challenges to Centene's contract awards; cyber-attacks or other privacy or data security incidents; the possibility that the expected synergies and value creation from acquired businesses, including, without limitation, the Health Net acquisition, will not be realized, or will not be realized within the expected time period, including, but not limited to, as a result of conditions, terms, obligations or restrictions imposed by regulators in connection with their approval of, or consent to, the acquisition; the exertion of management's time and Centene's resources, and other expenses incurred and business changes required in connection with complying with the undertakings in connection with certain regulatory approvals; disruption from the acquisition making it more difficult to maintain business and operational relationships; the risk that unexpected costs will be incurred in connection with, among other things, the acquisition and/or the integration; changes in expected closing dates, estimated purchase price and accretion for acquisitions; the risk that acquired businesses will not be integrated successfully; Centene's ability to maintain or achieve improvement in the Centers for Medicare and Medicaid Services (CMS) Star ratings and other quality scores that impact revenue; availability of debt and equity financing, on terms that are favorable to Centene; inflation; foreign currency fluctuations; and risks and uncertainties discussed in the reports that Centene has filed with the SEC. These forward-looking statements reflect Centene's current views with respect to future events and are based on numerous assumptions and assessments made by Centene in light of its experience and perception of historical trends, current conditions, business strategies, operating environments, future developments and other factors it believes appropriate. By their nature, forward-looking statements involve known and unknown risks and uncertainties and are subject to change because they relate to events and depend on circumstances that will occur in the future.  The factors described in the context of such forward-looking statements in this press release could cause Centene's plans with respect to the Health Net acquisition, actual results, performance or achievements, industry results and developments to differ materially from those expressed in or implied by such forward-looking statements. Although it is currently believed that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct and persons reading this press release are therefore cautioned not to place undue reliance on these forward-looking statements which speak only as of the date of this press release. Centene does not assume any obligation to update the information contained in this press release (whether as a result of new information, future events or otherwise), except as required by applicable law.  This list of important factors is not intended to be exhaustive. We discuss certain of these matters more fully, as well as certain other risk factors that may affect Centene's business operations, financial condition and results of operations, in Centene's filings with the SEC, including the annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

[Tables Follow]

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

(Unaudited)



December 31, 2016


December 31, 2015

ASSETS




Current assets:




Cash and cash equivalents

$

3,930



$

1,760


Premium and related receivables

3,098



1,279


Short term investments

505



176


Other current assets

832



390


   Total current assets

8,365



3,605


Long term investments

4,545



1,927


Restricted deposits

138



115


Property, software and equipment, net

797



518


Goodwill

4,712



842


Intangible assets, net

1,545



155


Other long term assets

95



177


   Total assets

$

20,197



$

7,339






LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Medical claims liability

$

3,929



$

2,298


Accounts payable and accrued expenses

3,763



976


Return of premium payable

614



207


Unearned revenue

313



143


Current portion of long term debt

4



5


   Total current liabilities

8,623



3,629


Long term debt

4,651



1,216


Other long term liabilities

869



170


   Total liabilities

14,143



5,015


Commitments and contingencies




Redeemable noncontrolling interests

145



156


Stockholders' equity:




Preferred stock, $0.001 par value; authorized 10,000,000 shares; no shares issued or outstanding at December 31, 2016 and December 31, 2015




Common stock, $.001 par value; authorized 400,000,000 shares; 178,134,306 issued and 171,919,071 outstanding at December 31, 2016, and 126,855,477 issued and 120,342,981 outstanding at December 31, 2015




Additional paid-in capital

4,190



956


Accumulated other comprehensive loss

(36)



(10)


Retained earnings

1,920



1,358


Treasury stock, at cost (6,215,235 and 6,512,496 shares, respectively)

(179)



(147)


   Total Centene stockholders' equity

5,895



2,157


Noncontrolling interest

14



11


      Total stockholders' equity

5,909



2,168


      Total liabilities and stockholders' equity

$

20,197



$

7,339


 

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except share data)

(Unaudited)



Three Months Ended
December 31,


Year Ended
December 31,


2016


2015


2016


2015

Revenues:








Premium

$

10,100



$

5,415



$

35,399



$

19,389


Service

577



442



2,180



1,876


   Premium and service revenues

10,677



5,857



37,579



21,265


Premium tax and health insurer fee

1,234



445



3,028



1,495


   Total revenues

11,911



6,302



40,607



22,760


Expenses:








Medical costs

8,564



4,767



30,636



17,242


Cost of services

478



387



1,864



1,621


Selling, general and administrative expenses

1,065



511



3,676



1,802


Amortization of acquired intangible assets

52



6



147



24


Premium tax expense

1,103



357



2,563



1,151


Health insurer fee expense

128



54



461



215


   Total operating expenses

11,390



6,082



39,347



22,055


   Earnings from operations

521



220



1,260



705


Other income (expense):








Investment and other income

34



8



114



35


Interest expense

(75)



(11)



(217)



(43)


   Earnings from continuing operations, before income tax expense

480



217



1,157



697


Income tax expense

227



105



599



339


   Earnings from continuing operations, net of income tax expense

253



112



558



358


Discontinued operations, net of income tax expense (benefit) of $3, $0, $2, and $(1), respectively

6



(1)



3



(1)


   Net earnings

259



111



561



357


(Earnings) loss attributable to noncontrolling interests

2





1



(2)


   Net earnings attributable to Centene Corporation

$

261



$

111



$

562



$

355










Amounts attributable to Centene Corporation common shareholders:

Earnings from continuing operations, net of income tax expense

$

255



$

112



$

559



$

356


Discontinued operations, net of income tax expense (benefit)

6



(1)



3



(1)


   Net earnings

$

261



$

111



$

562



$

355










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

Basic:








   Continuing operations

$

1.49



$

0.94



$

3.50



$

2.99


   Discontinued operations

0.04



(0.01)



0.02



(0.01)


      Basic earnings per common share

$

1.53



$

0.93



$

3.52



$

2.98










Diluted:








   Continuing operations

$

1.45



$

0.91



$

3.41



$

2.89


   Discontinued operations

0.04



(0.01)



0.02



(0.01)


      Diluted earnings per common share

$

1.49



$

0.90



$

3.43



$

2.88










Weighted average number of common shares outstanding:





Basic

171,143,624


119,486,183


159,567,607


119,100,744

Diluted

175,511,179


123,350,506


163,975,407


123,066,370

 

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



Year Ended December 31,


2016


2015

Cash flows from operating activities:




Net earnings

$

561



$

357


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


   Depreciation and amortization

278



111


   Stock compensation expense

148



71


   Debt extinguishment costs

(7)




   Deferred income taxes

92



(17)


   Gain on contingent consideration

(5)



(44)


   Goodwill and intangible adjustment



38


Changes in assets and liabilities




   Premium and related receivables

74



(360)


   Other assets

167



(102)


   Medical claims liabilities

145



536


   Unearned revenue

43



(27)


   Accounts payable and accrued expenses

402



39


   Other long term liabilities

(61)



51


   Other operating activities, net

14



5


      Net cash provided by operating activities

1,851



658


Cash flows from investing activities:




Capital expenditures

(306)



(150)


Purchases of investments

(2,450)



(1,321)


Sales and maturities of investments

1,656



669


Investments in acquisitions, net of cash acquired

(1,297)



(18)


Proceeds from asset sale



7


      Net cash used in investing activities

(2,397)



(813)


Cash flows from financing activities:




Proceeds from borrowings

8,946



1,925


Payment of long term debt

(6,076)



(1,583)


Common stock repurchases

(63)



(53)


Debt issuance costs

(76)



(4)


Other financing activities, net

(14)



20


      Net cash provided by financing activities

2,717



305


Effect of exchange rate changes on cash and cash equivalents

(1)




      Net increase in cash and cash equivalents

2,170



150


Cash and cash equivalents, beginning of period

1,760



1,610


Cash and cash equivalents, end of period

$

3,930



$

1,760


Supplemental disclosures of cash flow information:




Interest paid

$

165



$

55


Income taxes paid

$

556



$

328


Equity issued in connection with acquisitions

$

3,105



$

12


 

CENTENE CORPORATION

SUPPLEMENTAL FINANCIAL DATA FROM CONTINUING OPERATIONS




Q4


Q3


Q2


Q1


Q4




2016


2016


2016


2016


2015


MANAGED CARE MEMBERSHIP BY STATE


Arizona


598,300



601,500



597,700



607,000



440,900



Arkansas


58,600



57,700



52,800



50,700



41,900



California


2,973,500



3,004,500



3,097,600



3,125,400



186,000



Florida


716,100



732,700



726,200



660,800



510,400



Georgia


488,000



498,000



493,300



495,500



408,600



Illinois


237,700



236,700



234,700



239,100



207,500



Indiana


285,800



289,600



291,000



290,300



282,100



Kansas


139,700



145,100



144,800



141,100



141,000



Louisiana


472,800



455,600



375,300



381,200



381,900



Massachusetts


48,300



45,300



47,100



52,400



61,500



Michigan


2,000



2,100



2,200



2,600



4,800



Minnesota


9,400



9,400



9,500



9,500



9,600



Mississippi


310,200



313,900



323,800



328,300



302,200



Missouri


105,700



104,700



102,900



100,000



95,100



New Hampshire


77,400



78,400



79,700



81,500



71,400



New Mexico


7,100



7,100



7,100







Ohio


316,000



319,500



319,000



314,000



302,700



Oregon


217,800



218,400



221,500



209,000



98,700



South Carolina


122,500



119,700



113,700



107,700



104,000



Tennessee


21,700



21,600



20,800



20,100



20,000



Texas


1,072,400



1,041,600



1,037,000



1,036,700



983,100



Vermont


1,600



1,700



1,600



1,500



1,700



Washington


238,400



240,500



239,700



226,500



209,400



Wisconsin


73,800



75,100



76,100



78,400



77,100



      Total at-risk membership


8,594,800



8,620,400



8,615,100



8,559,300



4,941,600



TRICARE eligibles


2,847,000



2,815,700



2,815,700



2,819,700





Non-risk membership








161,400



166,300



   Total


11,441,800



11,436,100



11,430,800



11,540,400



5,107,900
















Medicaid:












   TANF, CHIP & Foster Care


5,630,000



5,583,900



5,541,200



5,464,200



3,763,400



   ABD & LTC


785,400



754,900



757,500



757,600



478,600



   Behavioral Health


466,600



465,300



455,800



456,500



456,800



Commercial


1,239,100



1,333,000



1,391,500



1,487,900



146,100



Medicare & Duals (1)


334,300



333,500



332,600



334,100



37,400



Correctional


139,400



149,800



136,500



59,000



59,300



   Total at-risk membership


8,594,800



8,620,400



8,615,100



8,559,300



4,941,600



TRICARE eligibles


2,847,000



2,815,700



2,815,700



2,819,700





Non-risk membership








161,400



166,300



   Total


11,441,800



11,436,100



11,430,800



11,540,400



5,107,900















(1) Membership includes Medicare Advantage, Medicare Supplement, Special Needs Plans, and Medicare-Medicaid Plans.














NUMBER OF EMPLOYEES


30,500



29,400



28,900



28,000



18,200



 


Q4


Q3


Q2


Q1


Q4



2016


2016


2016


2016


2015













DAYS IN CLAIMS PAYABLE (a)

42



41



43



66



44



(a) 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.  On a pro-forma basis, DCP for Q1 2016 was 42, reflecting adjusted medical costs to include a full quarter of Health Net operations.












CASH, INVESTMENTS AND RESTRICTED DEPOSITS (in millions)

Regulated

$

8,854



$

7,825



$

7,324



$

7,682



$

3,900



Unregulated

264



268



196



139



78



   Total

$

9,118



$

8,093



$

7,520



$

7,821



$

3,978














DEBT TO CAPITALIZATION

44.1

%


44.5

%


44.8

%


44.6

%


36.0

%


DEBT TO CAPITALIZATION EXCLUDING NON-RECOURSE DEBT (b)

43.7

%


44.1

%


44.4

%


44.3

%


34.7

%


(b) The non-recourse debt represents the Company's mortgage note payable ($64 million at December 31, 2016).

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

 

OPERATING RATIOS



Three Months Ended
December 31,


Year Ended
December 31,


2016


2015


2016


2015

HBR

84.8

%


88.0

%


86.5

%


88.9

%

SG&A expense ratio

10.0

%


8.7

%


9.8

%


8.5

%

SG&A expense ratio, excluding Health Net acquisition related expenses

9.9

%


8.6

%


9.2

%


8.3

%

 

MEDICAL CLAIMS LIABILITY


The changes in medical claims liability are summarized as follows (in millions):


Balance, December 31, 2015


$

2,298


Acquisitions


1,482


Incurred related to:



   Current period


30,946


   Prior period


(310)


      Total incurred


30,636


Paid related to:



   Current period


28,532


   Prior period


1,960


      Total paid


30,492


Balance, December 31, 2016, net


3,924


Reinsurance recoverable


5


Balance, December 31, 2016


$

3,929


 

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.  Additionally, as a result of minimum HBR and other return of premium programs, approximately $39 million of the "Incurred related to: Prior period" was recorded as a reduction to premium revenues.

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 December 31, 2015, and prior.

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/centene-corporation-reports-2016-fourth-quarter-and-full-year-results-300403104.html

SOURCE Centene Corporation

Investor Relations Inquiries, Edmund E. Kroll, Jr., Senior Vice President, Finance & Investor Relations, (212) 759-0382; or Media Inquiries, Marcela Manjarrez-Hawn, Senior Vice President and Chief Communications Officer, (314) 445-0790