Press Release

Centene Corporation Reports 2017 Second Quarter Results & Raises 2017 Guidance
-- 2017 Second Quarter Diluted EPS of $1.44; Adjusted Diluted EPS of $1.59 --

ST. LOUIS, July 25, 2017 /PRNewswire/ -- Centene Corporation (NYSE: CNC) announced today its financial results for the second quarter ended June 30, 2017, reporting diluted earnings per share (EPS) of $1.44, and Adjusted Diluted EPS of $1.59. The second quarter of 2017 includes a $0.17 per diluted share net benefit related to the reconciliation of the 2016 risk adjustment under the Affordable Care Act (ACA) in connection with our Health Insurance Marketplace business. In addition, strong 2017 Marketplace performance exceeded our expectations in the second quarter by $0.12 diluted earnings per share.

In summary, the 2017 second quarter results were as follows:

Total revenues (in millions)

$

11,954



Health benefits ratio

86.3

%


SG&A expense ratio

9.3

%


GAAP diluted EPS

$

1.44



Adjusted Diluted EPS (1)

$

1.59



Total cash flow used in operations (in millions)

$

(306)






(1) A full reconciliation of Adjusted Diluted EPS is shown on page seven of this release.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "We are pleased with the strong second quarter performance across our product lines. The Marketplace business continues to be particularly strong, confirming our business as usual approach."

The following discussions, with the exception of cash flow information, are in the context of continuing operations.

Second Quarter Highlights

  • June 30, 2017 managed care membership of 12.2 million, an increase of 788,300 members, or 7% compared to the second quarter of 2016.
  • Total revenues for the second quarter of 2017 of $12.0 billion, representing 10% growth, compared to the second quarter of 2016.
  • Health benefits ratio (HBR) of 86.3% for the second quarter of 2017, compared to 86.6% in the second quarter of 2016.
  • Selling, general and administrative (SG&A) expense ratio of 9.3% for the second quarter of 2017, compared to 9.2% for the second quarter of 2016.
  • Adjusted SG&A expense ratio of 9.3% for the second quarter of 2017, compared to 9.0% for the second quarter of 2016.
  • Operating cash flow of $(306) million for the second quarter of 2017 and $942 million for the six months ended June 30, 2017.
  • Diluted EPS for the second quarter of 2017 of $1.44, compared to $0.98 for the second quarter of 2016.
  • Adjusted Diluted EPS for the second quarter of 2017 of $1.59, compared to $1.29 for the second quarter of 2016.

Other Events

  • In July 2017, we announced our partnership with Schnuck Markets, Inc. and Betty Jean Kerr People's Health Centers to launch a full-service health center located within the Schnucks supermarket in Ferguson, Missouri. Scheduled to open in November 2017, the People's Healthcare Services Clinic by Home State Health represents our continued investment in the city of Ferguson. Once the facility is fully operational, it will be able to provide services to over 8,000 people annually. 
  • In July 2017, our Georgia subsidiary, Peach State Health Plan, began operating under 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 is one of four managed care organizations providing medical, behavioral, dental and vision health benefits for its members.
  • In July 2017, our Nevada subsidiary, SilverSummit Healthplan, began serving Medicaid recipients enrolled in Nevada'sMedicaid managed care program.
  • In July 2017, our specialty solutions subsidiary, Envolve, Inc., began providing health plan management services for Medicaid operations in Maryland.
  • In June 2017, our Mississippi subsidiary, Magnolia Health, was selected by the Mississippi Division of Medicaid to continue serving Medicaid recipients enrolled in the Mississippi Coordinated Access Network (MississippiCAN). Pending regulatory approval, the new three-year agreement, which also includes the option of two one-year extensions, is expected to commence midyear 2018.
  • In June 2017, we announced that we are expanding our offerings in the 2018 Health Insurance Marketplace. We are planning to enter Kansas, Missouri and Nevada in 2018, and expanding our footprint in six existing markets: Florida, Georgia, Indiana, Ohio, Texas, and Washington.
  • In June 2017, Centurion began operating under an expanded contract to provide correctional healthcare services for the Florida Department of Corrections in South Florida.
  • In May 2017, our Washington subsidiary, Coordinated Care of Washington, was selected by the Washington State Health Care Authority to provide managed care services to Apple Health's Fully Integrated Managed Care (FIMC) beneficiaries in the North Central Region. The contract is expected to commence January 1, 2018.
  • In May 2017, our Missouri subsidiary, Home State Health, began providing managed care services to MO HealthNet Managed Care beneficiaries under an expanded statewide contract.

Accreditations & Awards

  • In July 2017, FORTUNE magazine announced Centene's position of #244 in its annual ranking of the largest companies globally by revenue. Centene jumped 226 spots from #470, making us the fastest growing company on the list.
  • In June 2017, FORTUNE magazine announced Centene's position of #66 in its annual ranking of America's largest companies by revenue. Centene jumped 58 spots from #124.
  • In May 2017, at Decision Health's Eighth Annual Case in Point Platinum Awards, Centene and three of its subsidiaries (Home State Health, Centurion, and Envolve, Inc.) were honored for four of our innovative member programs.
  • In April 2017, our subsidiary, Health Net Federal Services, LLC, was awarded the International Organization for Standardization (ISO) 9001:2015 certification, an internationally recognized standard for quality management systems.

Membership

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


June 30,


2017


2016

Arizona

669,500



597,700


Arkansas

91,900



52,800


California

2,925,800



3,097,600


Florida

871,100



726,200


Georgia

540,400



493,300


Illinois

254,600



234,700


Indiana

340,000



291,000


Kansas

130,000



144,800


Louisiana

484,600



375,300


Massachusetts

54,100



47,100


Michigan

2,300



2,200


Minnesota

9,500



9,500


Mississippi

343,600



323,800


Missouri

278,300



102,900


Nebraska

78,800




New Hampshire

77,100



79,700


New Mexico

7,100



7,100


Ohio

332,700



319,000


Oregon

213,600



221,500


South Carolina

121,000



113,700


Tennessee

22,200



20,800


Texas

1,226,800



1,037,000


Vermont

1,600



1,600


Washington

248,500



239,700


Wisconsin

70,800



76,100


Total at-risk membership

9,395,900



8,615,100


TRICARE eligibles

2,823,200



2,815,700


Total

12,219,100



11,430,800


 

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


June 30,


2017


2016

Medicaid:




TANF, CHIP & Foster Care

5,854,400



5,541,200


ABD & LTC

843,500



757,500


Behavioral Health

466,500



455,800


Commercial

1,743,600



1,391,500


Medicare & Duals (1)

327,500



332,600


Correctional

160,400



136,500


Total at-risk membership

9,395,900



8,615,100


TRICARE eligibles

2,823,200



2,815,700


Total

12,219,100



11,430,800







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

The following table sets forth additional membership statistics, which are included in the membership information above:


June 30,


2017


2016

Dual-eligible

467,500



436,100


Health Insurance Marketplace

1,084,600



617,700


Medicaid Expansion

1,101,900



1,004,200



Statement of Operations: Three Months Ended June 30, 2017

  • For the second quarter of 2017, total revenues increased 10% to $12.0 billion from $10.9 billion in the comparable period in 2016. The increase over prior year was primarily a result of growth in the Health Insurance Marketplace business in 2017 and expansions and new programs in many of our states in 2016 and 2017, partially offset by lower membership in the commercial business in California as a result of margin improvement actions taken last year, the moratorium of the Health Insurer Fee in 2017, and lower specialty pharmacy revenues. Sequentially, total revenues increased 2% over the first quarter of 2017 mainly due to favorable risk adjustments in our Health Insurance Marketplace business recorded in the second quarter of 2017, as well as the commencement of our new contract in Missouri.
  • HBR of 86.3% for the second quarter of 2017 represents a decrease from 86.6% in the comparable period in 2016 and a decrease from 87.6% in the first quarter of 2017. The year over year decrease is primarily attributable to growth in the Health Insurance Marketplace business, which operates at a lower HBR. The sequential HBR decrease is primarily attributable to favorable risk adjustments in our Health Insurance Marketplace business recorded in the second quarter of 2017 and normal seasonality. 
  • The SG&A expense ratio was 9.3% for the second quarter of 2017, compared to 9.2% for the second quarter of 2016 and 9.8% for the first quarter of 2017. The increase in the SG&A expense ratio is primarily attributable to higher variable compensation expenses based on the performance of the business in 2017 and increased business expansion costs, partially offset by higher Health Net acquisition related expenses in 2016.
  • The Adjusted SG&A expense ratio was 9.3% for the second quarter of 2017, compared to 9.0% for the second quarter of 2016. The increase in the Adjusted SG&A expense ratio is primarily attributable to higher variable compensation expenses based on the performance of the business in 2017 and increased business expansion costs. Sequentially, the Adjusted SG&A expense ratio is consistent with the first quarter of 2017.

Balance Sheet and Cash Flow

At June 30, 2017, the Company had cash, investments and restricted deposits of $10.0 billion, including $291 million held by unregulated entities. Medical claims liabilities totaled $4.2 billion. The Company's days in claims payable was 40. Total debt was $4.7 billion, which includes $150 million of borrowings on the $1 billion revolving credit facility at quarter-end. The debt to capitalization ratio was 42.1% at June 30, 2017, excluding the $63 million non-recourse mortgage note.

Cash flow used in operations for the three months ended June 30, 2017 was $(306) million. Cash flow from operating activities was negatively affected during the quarter due to an increase in premium and related receivables of approximately $750 million as a result of the timing of June capitation payments from several of our states. This was partially offset by an increase in other long-term liabilities driven by the recognition of risk adjustment payable for Health Insurance Marketplace in 2017.

A reconciliation of the Company's change in days in claims payable from the immediately preceding quarter-end is presented below:



Days in claims payable, March 31, 2017

41

Timing of claims payments

(1)

Days in claims payable, June 30, 2017

40



Outlook

The table below depicts the Company's updated annual guidance for 2017. We have adjusted our guidance to reflect the following items:

  • The strong performance for the second quarter;
  • An increase in our business expansion cost range to $0.42 - $0.47 per diluted share reflecting the shortening of the open enrollment period for the Health Insurance Marketplace and additional investments in growth initiatives in Medicare and Marketplace for 2018; and
  • An increase in our margin expectations for the Marketplace business for 2017. 

 



Full Year 2017




Low


High


Total revenues (in billions)


$

46.4



$

47.2



GAAP diluted EPS


$

3.96



$

4.29



Adjusted Diluted EPS (1)


$

4.70



$

5.06



HBR


87.0

%


87.4

%


SG&A expense ratio


9.4

%


9.8

%


Adjusted SG&A expense ratio (2)


9.3

%


9.7

%


Effective tax rate


39.0

%


41.0

%


Diluted shares outstanding (in millions)


176.3



177.3











(1)

Adjusted Diluted EPS excludes amortization of acquired intangible assets of $0.55 to $0.57 per diluted share, Health Net acquisition related expenses of $0.02 to $0.03 per diluted share, and Penn Treaty assessment expense of $0.17 per diluted share.

(2)

Adjusted SG&A expense ratio excludes Health Net acquisition related expenses of $5 million to $8 million and the Penn Treaty assessment expense of $47 million.

Conference Call

As previously announced, the Company will host a conference call Tuesday, July 25, 2017, at approximately 8:30 AM (Eastern Time) to review the financial results for the second quarter ended June 30, 2017, 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: 7772527 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, July 24, 2018, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 AM (Eastern Time) on Tuesday, August 1, 2017, by dialing 1-877-344-7529 in the U.S. and Canada, or +1-412-317-0088 from abroad, and entering access code 10110042.

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 amortization of acquired intangible assets, Health Net acquisition related expenses, 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
June 30,


Six Months Ended
June 30,


2017


2016


2017


2016

GAAP net earnings from continuing operations

$

254



$

171



$

393



$

156


Amortization of acquired intangible assets

39



43



79



52


Health Net acquisition related expenses

1



25



6



214


Penn Treaty assessment expense (1)





47




Income tax effects of adjustments (2)

(14)



(14)



(48)



(101)


  Adjusted net earnings from continuing operations

$

280



$

225



$

477



$

321




(1)

Additional expense of $47 million for the Company's estimated share of guaranty association assessment resulting from the liquidation of Penn Treaty.



(2)

The income tax effects of adjustments are based on the effective income tax rates applicable to adjusted (non-GAAP) results.

 


Three Months Ended
June 30,


Six Months Ended
June 30,


Annual
Guidance

 December 31,
2017


2017


2016


2017


2016


GAAP diluted earnings per share (EPS)

$

1.44



$

0.98



$

2.23



$

1.02



$3.96 - $4.29

Amortization of acquired intangible assets (1)

0.14



0.15



0.28



0.20



$0.55 - $0.57

Health Net acquisition related expenses (2)

0.01



0.16



0.03



0.89



$0.02 - $0.03

Penn Treaty assessment expense (3)





0.17





$0.17

Adjusted Diluted EPS from continuing operations

$

1.59



$

1.29



$

2.71



$

2.11



$4.70 - $5.06



(1)

The amortization of acquired intangible assets per diluted share presented above are net of an income tax benefit of $0.08 and $0.10 for the three months ended June 30, 2017 and 2016, respectively, and $0.17 and $0.14 for the six months ended June 30, 2017 and 2016, respectively; and estimated $0.31 to $0.35 for the year ended December 31, 2017.



(2)

The Health Net acquisition related expenses per diluted share presented above are net of an income tax benefit (expense) of $0.00 and $(0.02) for the three months ended June 30, 2017 and 2016, respectively, and $0.01 and $0.52 for the six months ended June 30, 2017 and 2016, respectively; and estimated $0.01 to $0.02 for the year ended December 31, 2017.



(3)

The Penn Treaty assessment expense per diluted share is net of an income tax benefit of $0.09 for the six months ended June 30, 2017 and estimated for the year ended December 31, 2017.

 


Three Months Ended
June 30,


Six Months Ended
June 30,


2017


2016


2017


2016

GAAP SG&A expenses

$

1,065



$

949



$

2,156



$

1,671


Health Net acquisition related expenses

1



25



6



214


Penn Treaty assessment expense





47




Adjusted SG&A expenses

$

1,064



$

924



$

2,103



$

1,457



About Centene Corporation

Centene Corporation, a Fortune 100 company, is a diversified, multi-national healthcare enterprise that provides a portfolio of services to government sponsored and commercial 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 and 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 shares in thousands and per share data in dollars)



June 30, 2017


December 31, 2016


(Unaudited)



ASSETS




Current assets:




Cash and cash equivalents

$

4,425



$

3,930


Premium and related receivables

3,901



3,098


Short-term investments

586



505


Other current assets

736



832


Total current assets

9,648



8,365


Long-term investments

4,816



4,545


Restricted deposits

137



138


Property, software and equipment, net

912



797


Goodwill

4,712



4,712


Intangible assets, net

1,466



1,545


Other long-term assets

149



95


Total assets

$

21,840



$

20,197






LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS' EQUITY




Current liabilities:




Medical claims liability

$

4,170



$

3,929


Accounts payable and accrued expenses

4,238



4,377


Unearned revenue

554



313


Current portion of long-term debt

4



4


Total current liabilities

8,966



8,623


Long-term debt

4,716



4,651


Other long-term liabilities

1,630



869


Total liabilities

15,312



14,143


Commitments and contingencies




Redeemable noncontrolling interests

136



145


Stockholders' equity:




Preferred stock, $0.001 par value; authorized 10,000 shares; no shares issued or outstanding at June 30, 2017 and December 31, 2016




Common stock, $0.001 par value; authorized 400,000 shares; 178,900 issued and 172,467 outstanding at June 30, 2017, and 178,134 issued and 171,919 outstanding at December 31, 2016




Additional paid-in capital

4,258



4,190


Accumulated other comprehensive earnings (loss)

1



(36)


Retained earnings

2,313



1,920


Treasury stock, at cost (6,433 and 6,215 shares, respectively)

(194)



(179)


   Total Centene stockholders' equity

6,378



5,895


Noncontrolling interest

14



14


Total stockholders' equity

6,392



5,909


Total liabilities, redeemable noncontrolling interests and stockholders' equity

$

21,840



$

20,197



 

CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data in dollars)
(Unaudited)



Three Months Ended
June 30,


Six Months Ended
June 30,


2017


2016


2017


2016

Revenues:








Premium

$

10,905



$

9,688



$

21,543



$

15,674


Service

536



588



1,063



1,013


Premium and service revenues

11,441



10,276



22,606



16,687


Premium tax and health insurer fee

513



621



1,072



1,163


Total revenues

11,954



10,897



23,678



17,850


Expenses:








Medical costs

9,413



8,385



18,735



13,696


Cost of services

456



515



897



882


Selling, general and administrative expenses

1,065



949



2,156



1,671


Amortization of acquired intangible assets

39



43



79



52


Premium tax expense

543



498



1,133



948


Health insurer fee expense



130





204


Total operating expenses

11,516



10,520



23,000



17,453


Earnings from operations

438



377



678



397


Other income (expense):








Investment and other income

45



32



86



47


Interest expense

(62)



(52)



(124)



(85)


Earnings from continuing operations, before income tax expense

421



357



640



359


Income tax expense

169



187



256



203


Earnings from continuing operations, net of income tax expense

252



170



384



156


Discontinued operations, net of income tax (benefit)



(1)





(2)


Net earnings

252



169



384



154


Loss attributable to noncontrolling interests

2



1



9




Net earnings attributable to Centene Corporation

$

254



$

170



$

393



$

154










Amounts attributable to Centene Corporation common shareholders:

Earnings from continuing operations, net of income tax expense

$

254



$

171



$

393



$

156


Discontinued operations, net of income tax (benefit)



(1)





(2)


  Net earnings

$

254



$

170



$

393



$

154










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

Basic:








  Continuing operations

$

1.47



$

1.00



$

2.28



$

1.05


  Discontinued operations







(0.01)


  Basic earnings per common share

$

1.47



$

1.00



$

2.28



$

1.04










Diluted:








  Continuing operations

$

1.44



$

0.98



$

2.23



$

1.02


  Discontinued operations



(0.01)





(0.01)


  Diluted earnings per common share

$

1.44



$

0.97



$

2.23



$

1.01











 

CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)



Six Months Ended June 30,


2017


2016

Cash flows from operating activities:




Net earnings

$

384



$

154


Adjustments to reconcile net earnings to net cash provided by (used in) operating activities

Depreciation and amortization

173



111


Stock compensation expense

62



83


Deferred income taxes

(58)



(13)


Changes in assets and liabilities




Premium and related receivables

(696)



(1,121)


Other assets

65



(36)


Medical claims liabilities

243



188


Unearned revenue

241



(50)


Accounts payable and accrued expenses

(257)



(8)


Other long-term liabilities

781



463


Other operating activities, net

4



6


Net cash provided by (used in) operating activities

942



(223)


Cash flows from investing activities:




Capital expenditures

(181)



(94)


Purchases of investments

(1,294)



(956)


Sales and maturities of investments

990



593


Investments in acquisitions, net of cash acquired



(862)


Other investing activities, net

(1)




Net cash used in investing activities

(486)



(1,319)


Cash flows from financing activities:




Proceeds from long-term debt

810



5,711


Payments of long-term debt

(762)



(3,124)


Common stock repurchases

(15)



(27)


Debt issuance costs



(59)


Other financing activities, net

6



(9)


Net cash provided by financing activities

39



2,492


Net increase in cash and cash equivalents

495



950


Cash and cash equivalents, beginning of period

3,930



1,760


Cash and cash equivalents, end of period

$

4,425



$

2,710


Supplemental disclosures of cash flow information:




Interest paid

$

99



$

36


Income taxes paid

$

205



$

222


Equity issued in connection with acquisitions

$



$

3,105



 

CENTENE CORPORATION
SUPPLEMENTAL FINANCIAL DATA FROM CONTINUING OPERATIONS




Q2


Q1


Q4


Q3


Q2



2017


2017


2016


2016


2016

MANAGED CARE MEMBERSHIP BY STATE

Arizona


669,500



684,300



598,300



601,500



597,700


Arkansas


91,900



98,100



58,600



57,700



52,800


California


2,925,800



2,980,100



2,973,500



3,004,500



3,097,600


Florida


871,100



872,000



716,100



732,700



726,200


Georgia


540,400



568,300



488,000



498,000



493,300


Illinois


254,600



253,800



237,700



236,700



234,700


Indiana


340,000



335,800



285,800



289,600



291,000


Kansas


130,000



133,100



139,700



145,100



144,800


Louisiana


484,600



484,100



472,800



455,600



375,300


Massachusetts


54,100



44,200



48,300



45,300



47,100


Michigan


2,300



2,100



2,000



2,100



2,200


Minnesota


9,500



9,500



9,400



9,400



9,500


Mississippi


343,600



349,500



310,200



313,900



323,800


Missouri


278,300



106,100



105,700



104,700



102,900


Nebraska


78,800



79,200








New Hampshire


77,100



77,800



77,400



78,400



79,700


New Mexico


7,100



7,100



7,100



7,100



7,100


Ohio


332,700



328,900



316,000



319,500



319,000


Oregon


213,600



211,900



217,800



218,400



221,500


South Carolina


121,000



121,900



122,500



119,700



113,700


Tennessee


22,200



21,900



21,700



21,600



20,800


Texas


1,226,800



1,243,900



1,072,400



1,041,600



1,037,000


Vermont


1,600



1,600



1,600



1,700



1,600


Washington


248,500



254,400



238,400



240,500



239,700


Wisconsin


70,800



71,700



73,800



75,100



76,100


Total at-risk membership


9,395,900



9,341,300



8,594,800



8,620,400



8,615,100


TRICARE eligibles


2,823,200



2,804,100



2,847,000



2,815,700



2,815,700


Total


12,219,100



12,145,400



11,441,800



11,436,100



11,430,800














Medicaid:











  TANF, CHIP & Foster Care


5,854,400



5,714,100



5,630,000



5,583,900



5,541,200


  ABD & LTC


843,500



825,600



785,400



754,900



757,500


  Behavioral Health


466,500



466,900



466,600



465,300



455,800


Commercial


1,743,600



1,864,700



1,239,100



1,333,000



1,391,500


Medicare & Duals (1)


327,500



328,100



334,300



333,500



332,600


Correctional


160,400



141,900



139,400



149,800



136,500


  Total at-risk membership


9,395,900



9,341,300



8,594,800



8,620,400



8,615,100


TRICARE eligibles


2,823,200



2,804,100



2,847,000



2,815,700



2,815,700


  Total


12,219,100



12,145,400



11,441,800



11,436,100



11,430,800













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












NUMBER OF EMPLOYEES


31,500



30,900



30,500



29,400



28,900


















 


Q2


Q1


Q4


Q3


Q2


2017


2017


2016


2016


2016











DAYS IN CLAIMS PAYABLE (a)

40



41



42



41



43


(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.











CASH, INVESTMENTS AND RESTRICTED DEPOSITS (in millions)

Regulated

$

9,673



$

10,034



$

8,854



$

7,825



$

7,324


Unregulated

291



306



264



268



196


  Total

$

9,964



$

10,340



$

9,118



$

8,093



$

7,520












DEBT TO CAPITALIZATION

42.5

%


43.3

%


44.1

%


44.5

%


44.8

%

DEBT TO CAPITALIZATION EXCLUDING NON-RECOURSE DEBT (b)

42.1

%


43.0

%


43.7

%


44.1

%


44.4

%

(b) The non-recourse debt represents the Company's mortgage note payable ($63 million at June 30, 2017).

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

OPERATING RATIOS


Three Months Ended June 30,


Six Months Ended June 30,


2017


2016


2017


2016

HBR

86.3

%


86.6

%


87.0

%


87.4

%

SG&A expense ratio

9.3

%


9.2

%


9.5

%


10.0

%

Adjusted SG&A expense ratio

9.3

%


9.0

%


9.3

%


8.7

%

MEDICAL CLAIMS LIABILITY

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

Balance, June 30, 2016


$

3,950


Incurred related to:



  Current period


36,106


  Prior period


(431)


Total incurred


35,675


Paid related to:



  Current period


32,109


  Prior period


3,356


Total paid


35,465


Balance, June 30, 2017, net


4,160


Plus: Reinsurance recoverable


10


Balance, June 30, 2017


$

4,170


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, approximately $9 million was recorded as a reduction to premium revenues resulting from development within "Incurred related to: Prior period" due to minimum HBR and other return of premium programs.

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 June 30, 2016, and prior.

View original content:http://www.prnewswire.com/news-releases/centene-corporation-reports-2017-second-quarter-results--raises-2017-guidance-300493312.html

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