Press Release

Centene Corporation Reports 2016 Third Quarter Results
-Diluted EPS of $0.84; Adjusted diluted EPS of $1.11, or $1.16 excluding a $0.05 charge from revised 2015 risk adjustment-

ST. LOUIS, Oct. 25, 2016 /PRNewswire/ -- Centene Corporation (NYSE: CNC) today announced its financial results for the third quarter ended September 30, 2016.  The following discussions, with the exception of cash flow information, are in the context of continuing operations.

For the third quarter of 2016, we reported diluted earnings per share (EPS) of $0.84 and adjusted diluted EPS (Adjusted diluted EPS) of $1.11 when excluding Health Net acquisition related expenses and amortization of acquired intangible assets.  The third quarter of 2016 includes a $0.05 diluted EPS charge related to a revised reconciliation of the 2015 risk adjustment in Arizona.  During the third quarter, we received information from the Centers for Medicare and Medicaid Services (CMS) that some of the participants in the Arizona risk adjustment program were unable to pay the amounts owed to the Federal government associated with the 2015 risk adjustment reconciliation.  As a result, the uncollected risk adjustment was pro-rated to all insurers in the market.  Accordingly, we recorded a charge of $0.05 per diluted share recognizing our portion of the risk adjustment that will not be collected, which reduces the $0.19 diluted EPS benefit recorded in the second quarter.  A summary of diluted EPS is highlighted below:

GAAP diluted EPS

$

0.84


    Health Net acquisition related expenses

0.12


    Amortization of acquired intangible assets

0.15


      Adjusted diluted EPS

1.11


    2015 risk adjustment charge

0.05


      Total

$

1.16


During the third quarter of 2016, we continued to make progress on resolving the issues associated with the Health Net premium deficiency reserve.  Specifically, we took the following actions:

  • We reduced our estimate of the costs associated with the substance abuse claims from $50 million to $35 million for the period from March 24, 2016 through December 31, 2016. We continue to review substance abuse claim submissions and have lowered our estimate based on our experience through the third quarter. This adjustment had no impact on earnings.
  • As previously disclosed, we finalized our 2017 product design and premium rate filing with the California Department of Insurance associated with the individual preferred provider organization (PPO) and exclusive provider organization products. We believe the final product design and rate adjustments will attract a balanced mix of membership to ensure the product is competitive. Additionally, we continue to identify medical management and network initiatives to further improve performance.
  • We will exit the Arizona individual PPO business, effective January 1, 2017, which represents approximately $32 million of the $70 million 2016 Arizona individual premium deficiency reserve. Additionally, we will be the only carrier in Maricopa County and will continue our presence in Pima County for 2017. For 2017, based on our product designs and rate increases, we expect the Arizona Health Insurance Marketplace to operate within our normal marketplace margins.
  • We have taken various rate and product design actions in the small group business and continue to expect our Medicare and Arizona Medicaid business to be profitable in 2017.

As a result of the above actions, we believe we have resolved the issues associated with the premium deficiency reserve for 2017.

In summary, the 2016 third quarter results were as follows:

Total revenues (in millions)

$

10,846



Health benefits ratio

87.0

%


General & administrative expense ratio

9.2

%


General & administrative expense ratio, excluding Health Net acquisition related expenses

9.1

%


GAAP diluted EPS

$

0.84



Adjusted diluted EPS

$

1.11



Total cash flow provided by operations (in millions)

$

480



 

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "We remain focused on successfully integrating Health Net and positioning Centene to continue its track record of achieving profitable growth."

Third Quarter Highlights

  • September 30, 2016 managed care membership of 11.4 million, an increase of 6.6 million members, or 137% compared to the third quarter of 2015.
  • Total revenues for the third quarter of 2016 of $10.8 billion, representing 86% growth compared to the third quarter of 2015.
  • Health benefits ratio of 87.0% for the third quarter of 2016, compared to 89.0% in the third quarter of 2015.
  • General and administrative expense ratio of 9.2%, or 9.1% excluding Health Net acquisition related expenses for the third quarter of 2016, compared to 8.4% in the third quarter of 2015.
  • Operating cash flow of $480 million for the third quarter of 2016, or 3.3x net earnings.
  • Diluted EPS for the third quarter of 2016 of $0.84, or $1.11 of Adjusted diluted EPS. Both third quarter amounts included a charge of $0.05 associated with a revised reconciliation of the 2015 risk adjustment. In comparison, diluted EPS for the third quarter of 2015 was $0.75, or $0.87 Adjusted diluted EPS.

Other Events

  • In October 2016, our subsidiary, Home State Health, was selected to provide managed care services to MO HealthNet Managed Care beneficiaries. Under the new contract, Home State Health expects to serve MO HealthNet Managed Care beneficiaries in all 114 counties in Missouri. The contract is expected to commence May 1, 2017, pending regulatory approval.
  •  In September 2016, the Alabama legislature approved the funding needed to create its regional care organization (RCO) structure. Our subsidiary, AHA Administrative Services, has contracted with five nonprofit RCOs in Alabama to provide management services. Operations are expected to commence July 1, 2017.
  •  In August 2016, our Pennsylvania subsidiary, Pennsylvania Health & Wellness, was selected by the department of Human Services and Aging to serve enrollees in the Community HealthChoices program statewide. Expected contract commencement dates vary by zone, starting July 2017, and will be fully implemented by January 2019, pending regulatory approval.

Accreditations & Awards

  • In October 2016, our Kansas subsidiary, Sunflower Health Plan, received Accreditation with a Commendable status from the National Committee for Quality Assurance.
  • In August 2016, our subsidiaries, Envolve, Inc. and Envolve PeopleCare received honors at this year's National Health Information Awards. Envolve, Inc. received the merit award for the pamphlet Brush with Wisdom, while Envolve PeopleCare's Raising Well campaign won gold in the Health Information Program category.

Membership

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


September 30,


2016


2015

Arizona

601,500



223,600


Arkansas

57,700



40,900


California

3,004,500



183,900


Florida

732,700



486,500


Georgia

498,000



406,700


Illinois

236,700



211,300


Indiana

289,600



276,700


Kansas

145,100



137,500


Louisiana

455,600



358,800


Massachusetts

45,300



63,700


Michigan

2,100



6,600


Minnesota

9,400



9,400


Mississippi

313,900



301,000


Missouri

104,700



88,400


New Hampshire

78,400



71,900


New Mexico

7,100




Ohio

319,500



308,100


Oregon

218,400



99,800


South Carolina

119,700



104,800


Tennessee

21,600



20,200


Texas

1,041,600



976,500


Vermont

1,700



1,500


Washington

240,500



208,600


Wisconsin

75,100



78,100


  Total at-risk membership

8,620,400



4,664,500


TRICARE eligibles

2,815,700




Non-risk membership



169,900


  Total

11,436,100



4,834,400


 

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


September 30,


2016


2015

Medicaid:




  TANF, CHIP & Foster Care

5,583,900



3,719,900


  ABD & LTC

754,900



473,700


  Behavioral Health

465,300



216,700


Commercial

1,365,600



155,600


Medicare & Duals

300,900



39,300


Correctional

149,800



59,300


  Total at-risk membership

8,620,400



4,664,500


TRICARE eligibles

2,815,700




Non-risk membership



169,900


  Total

11,436,100



4,834,400


 

At September 30, 2016, the Company served 1,048,500 members in Medicaid expansion programs in ten states, compared to 442,600 members in eight states at September 30, 2015.  At September 30, 2016, the Company served 369,300 dual-eligible members, compared to 200,900 at September 30, 2015.  At September 30, 2016, the Company served 582,600 members in Health Insurance Marketplaces, compared to 155,600 at September 30, 2015.

Statement of Operations: Three Months Ended September 30, 2016

  • For the third quarter of 2016, total revenues increased 86% to $10.8 billion from $5.8 billion in the comparable period in 2015 and decreased sequentially from $10.9 billion in the second quarter of 2016. The increase over prior year was primarily as a result of the acquisition of Health Net, as well as 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. The decrease in revenue over the second quarter of 2016 is primarily a result of lower commercial membership driven by Health Insurance Marketplace attrition and lower California Medicaid membership driven by the state's annual eligibility redetermination process, partially offset by increased revenue due to the commencement of Medicaid expansion in Louisiana.
  • HBR of 87.0% for the third quarter of 2016 represents a decrease from 89.0% in the comparable period in 2015 and an increase from 86.6% in the second 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 greater mix of commercial business. The sequential increase is due to normal seasonality.
  • G&A expense ratio of 9.2%, or 9.1% excluding Health Net acquisition related expenses, for the third quarter of 2016, compared to 8.4%, or 8.1% excluding Health Net acquisition related expenses, in the third quarter of 2015. The increase in the G&A expense ratio is primarily attributable to the addition of the Health Net business, which operates at a higher G&A ratio due to a greater mix of commercial and Medicare business.
  • Diluted EPS for the third quarter of 2016 of $0.84, or $1.11 of Adjusted diluted EPS, both including a $0.05 diluted EPS charge related to a revised reconciliation of the 2015 risk adjustment under the ACA in connection with our Health Insurance Marketplace business. In comparison, diluted EPS for the third quarter of 2015 was $0.75, or $0.87 Adjusted diluted EPS.

Balance Sheet and Cash Flow

At September 30, 2016, the Company had cash, investments and restricted deposits of $8.1 billion, including $268 million held by its unregulated entities.  Medical claims liabilities totaled $3.8 billion.  The Company's days in claims payable was 41.  Total debt was $4.6 billion, which includes $300 million of borrowings on the $1.0 billion revolving credit facility at quarter-end.  The debt to capitalization ratio was 44.1% at September 30, 2016, excluding the $65 million non-recourse mortgage note.

Cash flow provided by operations for the three months ended September 30, 2016, was $480 million. The cash provided by operating activities in 2016 primarily reflects net earnings and an increase in unearned revenue.

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, 2016


43

  Payment of annual provider risk share settlement


(1)

  Timing of claims payments


(1)

Days in claims payable, September 30, 2016


41




 

Outlook

The Company has adjusted its GAAP and Adjusted diluted EPS guidance ranges reflecting the charge associated with the 2015 Arizona risk adjustment reconciliation recorded in the third quarter.  The table below depicts the Company's updated annual guidance for 2016.



Full Year 2016




Low


High


Total revenues (in billions)


$

39.4



$

40.0



GAAP diluted EPS


$

2.73



$

2.83



Adjusted diluted EPS (1)


$

4.28



$

4.38



HBR


87.0

%


87.5

%


G&A expense ratio


9.4

%


9.9

%


G&A expense ratio, excluding acquisition related costs (2)


9.0

%


9.5

%


Effective tax rate


54.5

%


56.5

%


Diluted shares outstanding (in millions)


162.5



163.5










(1)Adjusted diluted EPS excludes Health Net acquisition related expenses of $1.00 to $1.05 per diluted share and amortization of acquired intangible assets of $0.50 to $0.55 per diluted share.


(2)The G&A expense ratio excludes Health Net acquisition related expenses of approximately $225 million to $240 million.

 

The guidance above implies a fourth quarter GAAP diluted EPS guidance range of $0.83 to $0.93 and Adjusted diluted EPS guidance range of $1.05 to $1.15.

Conference Call

As previously announced, the Company will host a conference call Tuesday, October 25, 2016, at 8:30 AM (Eastern Time) to review the financial results for the third quarter ended September 30, 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: 2467001 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, October 24, 2017, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 AM Eastern Time on Tuesday, November 1, 2016, by dialing 1-877-344-7529 in the U.S. and Canada, or +1-412-317-0088 from abroad, and entering access code 10093224.

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 and amortization of acquired intangible assets allows investors to develop a more meaningful understanding of the Company's performance over time.  The tables below provide a reconciliation of non-GAAP items ($ in millions, except per share data): 

 



Three Months Ended

September 30,


Nine Months Ended

September 30,




2016


2015


2016


2015













GAAP general and administrative expenses

$

940



$

458



$

2,611



$

1,291




Health Net acquisition related expenses

10



18



224



20




General and administrative expenses, excluding Health Net acquisition related expenses

$

930



$

440



$

2,387



$

1,271














GAAP net earnings from continuing operations

$

146



$

92



$

300



$

244




Health Net acquisition related expenses

10



18



224



20




Amortization of acquired intangible assets

43



6



95



18




Income tax effects of adjustments (1)

(5)



(9)



(106)



(14)




Adjusted net earnings from continuing operations

$

194



$

107



$

513



$

268















Three Months Ended
September 30,


Nine Months Ended
September 30,


Annual
Guidance
December 31,
2016


2016


2015


2016


2015


GAAP diluted EPS

$

0.84



$

0.75



$

1.89



$

1.99



$2.73 - $2.83

Health Net acquisition related expenses (2)

0.12



0.09



0.98



0.10



$1.00 - $1.05

Amortization of acquired intangible assets (3)

0.15



0.03



0.36



0.09



$0.50 - $0.55

  Adjusted diluted EPS

$

1.11



$

0.87



$

3.23



$

2.18



$4.28 - $4.38



(1)

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 annual estimated effective income tax rate that would increase or decrease based on the exclusion of these expenses.



(2)

The Health Net acquisition related expenses per diluted share presented above are net of the income tax benefit (expense) of $(0.06) and $0.05 for the three months ended September 30, 2016 and 2015, respectively, and $0.44 and $0.06 for the nine months ended September 30, 2016 and 2015, respectively; and estimated $0.37 to $0.41 for the year ended December 31, 2016.



(3)

The amortization of acquired intangible assets per diluted share presented above are net of the income tax benefit of $0.09 and $0.02 for the three months ended September 30, 2016 and 2015, respectively, and $0.23 and $0.05 for the nine months ended September 30, 2016 and 2015, respectively; and estimated $0.31 to $0.35 for the year ended December 31, 2016.

 

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; inflation; foreign currency fluctuations; tax matters; availability of debt and equity financing, on terms that are favorable to Centene; disasters or major epidemics; changes in economic, political or market conditions; the outcome of legal or regulatory proceedings; changes in federal or state laws or regulations, including the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act and any regulations enacted thereunder; 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; 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; 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 CMS Star ratings and other quality scores that impact revenue; 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)




September 30, 2016


December 31, 2015


(Unaudited)



ASSETS




Current assets:




Cash and cash equivalents

$

2,982



$

1,760


Premium and related receivables

3,445



1,279


Short term investments

406



176


Other current assets

922



390


Total current assets

7,755



3,605


Long term investments

4,568



1,927


Restricted deposits

137



115


Property, software and equipment, net

725



518


Goodwill

4,730



842


Intangible assets, net

1,566



155


Other long term assets

153



177


Total assets

$

19,634



$

7,339






LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Medical claims liability

$

3,767



$

2,298


Accounts payable and accrued expenses

3,187



976


Return of premium payable

651



207


Unearned revenue

573



143


Current portion of long term debt

845



5


Total current liabilities

9,023



3,629


Long term debt

3,744



1,216


Other long term liabilities

995



170


Total liabilities

13,762



5,015


Commitments and contingencies




Redeemable noncontrolling interests

148



156


Stockholders' equity:




Preferred stock, $0.001 par value; authorized 10,000,000 shares; no shares issued or outstanding at September 30, 2016 and December 31, 2015




Common stock, $0.001 par value; authorized 400,000,000 shares; 176,467,825 issued and 170,860,752 outstanding at September 30, 2016, and 126,855,477 issued and 120,342,981 outstanding at December 31, 2015




Additional paid-in capital

4,154



956


Accumulated other comprehensive earnings (loss)

46



(10)


Retained earnings

1,655



1,358


Treasury stock, at cost (5,607,073 and 6,512,496 shares, respectively)

(145)



(147)


Total Centene stockholders' equity

5,710



2,157


Noncontrolling interest

14



11


Total stockholders' equity

5,724



2,168


Total liabilities and stockholders' equity

$

19,634



$

7,339


 



CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except share data)

(Unaudited)




Three Months Ended
September 30,


Nine Months Ended
September 30,


2016


2015


2016


2015

Revenues:








  Premium

$

9,625



$

4,983



$

25,299



$

13,974


  Service

590



480



1,603



1,434


  Premium and service revenues

10,215



5,463



26,902



15,408


  Premium tax and health insurer fee

631



358



1,794



1,050


    Total revenues

10,846



5,821



28,696



16,458


Expenses:








  Medical costs

8,376



4,433



22,072



12,475


  Cost of services

504



413



1,386



1,234


  General and administrative expenses

940



458



2,611



1,291


  Amortization of acquired intangible assets

43



6



95



18


  Premium tax expense

512



274



1,460



794


  Health insurer fee expense

129



54



333



161


  Total operating expenses

10,504



5,638



27,957



15,973


  Earnings from operations

342



183



739



485


Other income (expense):








  Investment and other income

33



8



80



27


  Interest expense

(57)



(11)



(142)



(32)


  Earnings from continuing operations, before income tax expense

318



180



677



480


  Income tax expense

171



87



376



234


  Earnings from continuing operations, net of income tax expense

147



93



301



246


Discontinued operations, net of income tax benefit

(1)



1



(3)




  Net earnings

146



94



298



246


(Earnings) attributable to noncontrolling interests

(1)



(1)



(1)



(2)


  Net earnings attributable to Centene Corporation

$

145



$

93



$

297



$

244










Amounts attributable to Centene Corporation common shareholders:

  Earnings from continuing operations, net of income tax expense

$

146



$

92



$

300



$

244


  Discontinued operations, net of income tax benefit

(1)



1



(3)




    Net earnings

$

145



$

93



$

297



$

244










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

  Basic:








    Continuing operations

$

0.85



$

0.77



$

1.93



$

2.05


    Discontinued operations



0.01



(0.02)




    Basic earnings per common share

$

0.85



$

0.78



$

1.91



$

2.05










  Diluted:








    Continuing operations

$

0.84



$

0.75



$

1.89



$

1.99


    Discontinued operations

(0.01)



0.01



(0.02)




    Diluted earnings per common share

$

0.83



$

0.76



$

1.87



$

1.99










Weighted average number of common shares outstanding:





  Basic

170,774,587


119,121,524


155,680,769


118,970,853

  Diluted

174,312,416


123,131,810


158,960,068


122,904,476

 


CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)




Nine Months Ended September 30,


2016


2015

Cash flows from operating activities:




Net earnings

$

298



$

246


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

Depreciation and amortization

189



82


Stock compensation expense

112



48


Deferred income taxes

(17)



(14)


Gain on contingent consideration

(2)



(37)


Goodwill and intangible adjustment



28


Changes in assets and liabilities




Premium and related receivables

(906)



(360)


Other current assets

(81)



(103)


Medical claims liabilities

15



394


Unearned revenue

301



(104)


Accounts payable and accrued expenses

99



209


Other long term liabilities

156



101


Other operating activities, net

91



(33)


Net cash provided by operating activities

255



457


Cash flows from investing activities:




Capital expenditures

(211)



(101)


Purchases of investments

(1,528)



(1,077)


Sales and maturities of investments

955



418


Investments in acquisitions, net of cash acquired

(848)



(16)


Other investing activities, net



7


Net cash used in investing activities

(1,632)



(769)


Cash flows from financing activities:




Proceeds from borrowings

6,956



1,305


Payment of long term debt

(4,257)



(910)


Common stock repurchases

(29)



(9)


Purchase of noncontrolling interest

(14)




Debt issue costs

(59)



(4)


Other financing activities, net

1



(15)


Net cash provided by financing activities

2,598



367


Effect of exchange rate changes on cash and cash equivalents

1




Net increase in cash and cash equivalents

1,222



55


Cash and cash equivalents, beginning of period

1,760



1,610


Cash and cash equivalents, end of period

$

2,982



$

1,665


Supplemental disclosures of cash flow information:




Interest paid

$

113



$

28


Income taxes paid

$

394



$

229


Equity issued in connection with acquisitions

$

3,105



$

12


 

CENTENE CORPORATION

SUPPLEMENTAL FINANCIAL DATA FROM CONTINUING OPERATIONS





Q3


Q2


Q1


Q4


Q3




2016


2016


2016


2015


2015


MANAGED CARE MEMBERSHIP BY STATE




Arizona


601,500



597,700



607,000



440,900



223,600



Arkansas


57,700



52,800



50,700



41,900



40,900



California


3,004,500



3,097,600



3,125,400



186,000



183,900



Florida


732,700



726,200



660,800



510,400



486,500



Georgia


498,000



493,300



495,500



408,600



406,700



Illinois


236,700



234,700



239,100



207,500



211,300



Indiana


289,600



291,000



290,300



282,100



276,700



Kansas


145,100



144,800



141,100



141,000



137,500



Louisiana


455,600



375,300



381,200



381,900



358,800



Massachusetts


45,300



47,100



52,400



61,500



63,700



Michigan


2,100



2,200



2,600



4,800



6,600



Minnesota


9,400



9,500



9,500



9,600



9,400



Mississippi


313,900



323,800



328,300



302,200



301,000



Missouri


104,700



102,900



100,000



95,100



88,400



New Hampshire


78,400



79,700



81,500



71,400



71,900



New Mexico


7,100



7,100









Ohio


319,500



319,000



314,000



302,700



308,100



Oregon


218,400



221,500



209,000



98,700



99,800



South Carolina


119,700



113,700



107,700



104,000



104,800



Tennessee


21,600



20,800



20,100



20,000



20,200



Texas


1,041,600



1,037,000



1,036,700



983,100



976,500



Vermont


1,700



1,600



1,500



1,700



1,500



Washington


240,500



239,700



226,500



209,400



208,600



Wisconsin


75,100



76,100



78,400



77,100



78,100



Total at-risk membership


8,620,400



8,615,100



8,559,300



4,941,600



4,664,500



TRICARE eligibles


2,815,700



2,815,700



2,819,700







Non-risk membership






161,400



166,300



169,900



Total


11,436,100



11,430,800



11,540,400



5,107,900



4,834,400
















Medicaid:












  TANF, CHIP & Foster Care


5,583,900



5,541,200



5,464,200



3,763,400



3,719,900



  ABD & LTC


754,900



757,500



757,600



478,600



473,700



  Behavioral Health


465,300



455,800



456,500



456,800



216,700



Commercial


1,365,600



1,423,400



1,518,900



146,100



155,600



Medicare & Duals


300,900



300,700



303,100



37,400



39,300



Correctional


149,800



136,500



59,000



59,300



59,300



  Total at-risk membership


8,620,400



8,615,100



8,559,300



4,941,600



4,664,500



TRICARE eligibles


2,815,700



2,815,700



2,819,700







Non-risk membership






161,400



166,300



169,900



  Total


11,436,100



11,430,800



11,540,400



5,107,900



4,834,400















NUMBER OF EMPLOYEES


29,400



28,900



28,000



18,200



17,100



 



Q3


Q2


Q1


Q4


Q3



2016


2016


2016


2015


2015













DAYS IN CLAIMS PAYABLE (a)

41



43



66



44



45



(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

$

7,825



$

7,324



$

7,682



$

3,900



$

3,834



  Unregulated

268



196



139



78



91



    Total

$

8,093



$

7,520



$

7,821



$

3,978



$

3,925














DEBT TO CAPITALIZATION

44.5

%


44.8

%


44.6

%


36.0

%


38.4

%


DEBT TO CAPITALIZATION EXCLUDING NON-RECOURSE DEBT (b)

44.1

%


44.4

%


44.3

%


34.7

%


37.1

%


(b) The non-recourse debt represents the Company's mortgage note payable ($65 million at September 30, 2016).

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

 

OPERATING RATIOS



Three Months Ended
September 30,


Nine Months Ended
September 30,


2016


2015


2016


2015

Health benefits ratio

87.0

%


89.0

%


87.2

%


89.3

%

General & administrative expense ratio

9.2

%


8.4

%


9.7

%


8.4

%

General & administrative expense ratio, excluding Health Net acquisition related expenses

9.1

%


8.1

%


8.9

%


8.2

%

 

MEDICAL CLAIMS LIABILITY


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


Balance, September 30, 2015


$

2,144


  Acquisitions


1,453


  Incurred related to:



   Current period


27,094


   Prior period


(255)


     Total incurred


26,839


   Paid related to:



     Current period


24,807


     Prior period


1,862


      Total paid


26,669


Balance, September 30, 2016


$

3,767


 

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.  Additionally, as a result of minimum HBR and other return of premium programs, approximately $22 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 September 30, 2015, and prior.

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SOURCE Centene Corporation

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