Centene Corporation Reports Fourth Quarter and Year-End Results; Company Achieves $1.5 Billion in Full Year Revenue

February 7, 2006 at 6:01 AM EST

ST. LOUIS--(BUSINESS WIRE)--Feb. 7, 2006--Centene Corporation (NYSE: CNC) today announced its financial results for the fourth quarter and year ended December 31, 2005.

----------------------------------------------------------------------
    Fourth Quarter Highlights              Full Year Highlights
----------------------------------  ----------------------------------
-- Revenues increased 46.9% to      -- Revenues increased 50.4% to
   $423.2 million                      $1.5 billion
-- Earnings from operations         -- Earnings from operations
   increased 17.0% to $20.4            increased 22.7% to $79.2
   million                             million
-- EPS increased 14.8% to $0.31     -- EPS increased 21.6% to $1.24
-- Operating cash flows of $29.1    -- Operating cash flows of $74.0
   million                             million
    Additional Highlights

    --  Acquired US Script, Inc., a pharmacy benefits manager.

    --  Membership growth of 12.8% over the fourth quarter of 2004;
        organic membership growth of 7.8% over the same prior year
        period.

    --  Days in claims payable of 45.4.

    --  Authorized stock repurchase program of up to 4 million shares
        of Centene's common stock.

    --  Announced key management appointments to support stated goal
        of building a multi-line healthcare enterprise.

    --  Named to The Forbes Platinum 400, a list of America's Best Big
        Companies.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "We are pleased with our 2005 results, given some market specific challenges that we faced during the year. The strength of our information systems, disciplined contracting methodology and growing business diversification give us ongoing visibility and confidence in the stability and predictability of our business model.

"During the quarter, growth in our Kansas, Indiana and New Jersey markets was strong. Specifically, Indiana completed the conversion of its remaining counties to mandatory status. We are pleased that, despite intense competition for these recipients, we achieved this significant growth in Indiana while remaining disciplined in contracting and in our approach to gaining membership. The primary challenge in converting recipients into a managed care setting is educating them on how best to access the healthcare system, which takes time and temporarily increases our medical costs. We saw this occur in the Indiana expansion and expect a similar impact as we roll out Georgia later this year. We are well-positioned for growth in Kansas and the State has plans to extend its existing Medicaid contract through the end of 2006.

"In Texas, there were a number of factors that affected our membership results during the fourth quarter, including the State's conversion to both a new enrollment broker and a new eligibility system. We achieved increased penetration in our existing service areas, while the overall market contracted. We believe that this market condition could continue to cause enrollment issues similar to those that were experienced in this fourth quarter. However, we still anticipate the service area expansion awards to be effective September 1, 2006.

"Regarding Georgia, our newest state, we anticipate that membership operations will commence on April 1; we are fully prepared to meet that schedule, and are working with the State to minimize further delays.

"We are pleased with our recent acquisition of US Script, Inc., a pharmacy benefits manager, which adds another important service component to our specialty company business and will help us to contain and manage the most significant cost driver in healthcare-prescription drug costs.

"We are looking forward to the opportunities in 2006, and are confident that we are well positioned with strong operating systems, growing depth of management and financial resources to meet them," concluded Neidorff.

The following table depicts Medicaid Managed Care membership by state at December 31, 2005 and 2004:

                                           2005              2004
                                      --------------    --------------
    Indiana                               193,300           150,600
    Kansas                                113,300            94,200
    Missouri                               36,000            41,200
    New Jersey                             56,500            52,800
    Ohio                                   58,700            23,800
    Texas                                 242,000           244,300
    Wisconsin                             172,100           165,800
                                      --------------    --------------
TOTAL                                     871,900           772,700
                                      ==============    ==============




                                           2005              2004
                                      --------------    --------------
Medicaid                                  681,100           580,200
SCHIP                                     175,900           182,100
SSI                                        14,900(a)         10,400(b)
                                      --------------    --------------

TOTAL                                     871,900           772,700
                                      ==============    ==============

(a)  8,100 at-risk;  6,800 ASO
(b)  4,600 at-risk; 5,800 ASO

The following table depicts Specialty Services membership (1) by state at December 31, 2005 and 2004:

                                           2005              2004
                                      --------------    --------------
    Arizona                                94,700                 -
    Kansas                                 38,800                 -
                                      --------------    --------------
TOTAL                                     133,500                 -
                                      ==============    ==============

(1)  Includes behavioral health contracts only.


    Statement of Earnings Highlights

    --  For the fourth quarter of 2005, revenues increased 46.9% to
        $423.2 million from $288.1 million in the fourth quarter of
        2004.

    --  For the fourth quarter of 2005, the health benefits ratio
        (HBR) for Centene's Medicaid and SCHIP populations was 82.1%,
        within the guided range of 81.5% to 83.5%, which primarily
        reflected increased costs associated with transitioning
        Indiana membership from an unmanaged setting into Medicaid
        managed care. Centene's HBR for the SSI population was 105.4%
        during the quarter, primarily due to growth in its Wisconsin
        market. One of the factors which affected the SSI HBR is a
        sixty-day continuity of care requirement in Wisconsin. The
        continuity of care requirement limits our ability to implement
        generic drug substitution or formulary utilization,
        appropriately manage inpatient utilization and monitor
        excessive durable medical equipment utilization. As Centene
        begins to manage these specific cost drivers, it expects the
        SSI HBR to fall into the target range of 84% to 86%. For the
        Specialty Services segment, the HBR was 85.0%, reflecting the
        receipt of an anticipated positive settlement associated with
        the Kansas behavioral health contract.

    --  The table below depicts Centene's HBR by member category:

                                             Three Months Ended
                                                December 31,
                                      --------------------------------
                                           2005              2004
                                      --------------    --------------
Medicaid and SCHIP                           82.1%             80.2%
SSI                                         105.4              84.7
Specialty Services                           85.0                 -
    --  Our Medicaid Managed Care general and administrative (G&A)
        expenses as a percent of revenues was 10.3% in the fourth
        quarter of 2005 compared to 11.4% in the fourth quarter of
        2004. This reduction reflected lower compensation costs
        related to Centene's year-end performance bonuses, which in
        part is driven by stock performance.

    --  Earnings from operations increased 17.0% to $20.4 million in
        the fourth quarter of 2005 from $17.4 million in the fourth
        quarter of 2004.

    --  Net earnings were $13.9 million, or $0.31 per diluted share,
        for the fourth quarter of 2005 compared to $12.0 million, or
        $0.27 per diluted share, for the fourth quarter of 2004.

    --  For the year ended December 31, 2005, revenues increased 50.4%
        to $1.5 billion from $1.0 billion in 2004. The HBR for the
        Medicaid and SCHIP populations was 81.7% in 2005 compared to
        80.4% in 2004. The increase is comprised of 0.3% of Aurora
        litigation settlement costs and 0.3% for medical costs
        experience in the new Indiana service areas. The remaining
        balance is normal variations. Earnings from operations
        increased 22.7% to $79.2 million in 2005 from $64.5 million in
        2004. Net earnings improved to $55.6 million, or $1.24 per
        diluted share, in 2005 compared to $44.3 million, or $1.02 per
        diluted share, in 2004.

    Balance Sheet Highlights

At December 31, 2005, the Company had cash and investments of $350.3 million, of which $322.6 million was held by Centene's regulated entities. Medical claims liabilities totaled $170.5 million, representing 45.4 days in claims payable. A reconciliation of the Company's change in days in claims payable from the immediately preceding quarter is presented below:

Days in claims payable, September 30, 2005                     41.4
Increase in claims inventory                                    4.3
Payment of quarterly provider settlements                      (0.3)
                                                        --------------
Days in claims payable, December 31, 2005                      45.4
                                                        ==============

Outlook

Karey L. Witty, Centene's Chief Financial Officer, commented, "Our first quarter 2006 revenue guidance is in the range of $444 million to $449 million, and we anticipate net earnings of $0.17 to $0.21 per diluted share. For full year 2006, we anticipate revenue in the range of $2.15 billion to $2.25 billion, and net earnings per diluted share of $1.61 to $1.78." Guidance for 2006 includes the effect of new accounting rules requiring the expensing of stock options. The Financial Accounting Standards Board (FASB) has issued FASB Statement No. 123R, "Share-Based Payment," which covers a range of share-based compensation arrangements, including stock options. Centene began expensing stock options effective January 1, 2006, in accordance with the requirements of FASB Statement No. 123R, the effect of which is expected to reduce diluted earnings per share by approximately $0.04 per share in the first quarter of 2006 and $0.15 per share for the full year.

A review of the results for the fourth quarter and additional details on management's outlook for 2006 will take place during the Company's scheduled fourth quarter earnings call.

                                             2006
                        ----------------------------------------------
                                  Q1                     Year
                        ----------------------  ----------------------
                           Low         High        Low         High
                        ----------  ----------  ----------  ----------
Revenue (in millions)   $     444   $     449   $   2,150   $   2,250
Earnings per share      $    0.34   $    0.35   $    1.72   $    1.87
Georgia implementation
 costs                      (0.11)      (0.09)         (a)         (a)
SFAS No. 123R               (0.04)      (0.04)      (0.15)      (0.15)
US Script                   (0.02)      (0.01)       0.04        0.06
                        ----------  ----------  ----------  ----------
Adjusted earnings per
 share                  $    0.17   $    0.21   $    1.61   $    1.78
                        ==========  ==========  ==========  ==========

(a)  Georgia effective April 1, 2006

Conference Call

As previously announced, the Company will host a conference call today, February 7, 2006, at 8:30 a.m. (Eastern Time) to review the financial results for the quarter and year ended December 31, 2005, and to discuss its business outlook. Michael F. Neidorff and Karey L. Witty will host the conference call. Investors are invited to participate in the conference call by dialing 800-273-1254 in the U.S. and Canada, 706-679-8592 from abroad, or via a live Internet broadcast on the Company's website at www.centene.com, under the Investor Relations section. A replay will be available for on demand listening shortly after the completion of the call until 11:59 p.m. (Eastern Time) on February 21, 2006 at the aforementioned URL, or by dialing 800-642-1687 in the U.S. and Canada, or 706-645-9291 from abroad, and entering access code 3978030.

About Centene Corporation

Centene Corporation provides multi-line managed care programs and related services to individuals receiving benefits under Medicaid, including Supplemental Security Income (SSI), and the State Children's Health Insurance Program (SCHIP). The Company operates health plans in Indiana, Kansas, Missouri, New Jersey, Ohio, Texas and Wisconsin. In addition, the Company contracts with other healthcare organizations to provide Specialty Services including behavioral health, disease management, nurse triage, pharmacy benefit management and treatment compliance. Information regarding Centene is available via the Internet at www.centene.com.

The information provided in the second, third and fourth paragraphs immediately following the bulleted listings under "Additional Highlights," the second bulleted listing under "Statement of Earnings Highlights," and the paragraphs under "Outlook" above contain forward-looking statements that relate to future events and future financial performance of Centene. These forward-looking statements represent the Company's estimates as of February 7, 2006. Subsequent events and developments may cause the Company's estimates to change. The Company disclaims any obligation to update this forward-looking financial information in the future. Readers are cautioned that matters subject to forward-looking statements involve known and unknown risks and uncertainties, including economic, regulatory, competitive and other factors that may cause Centene's or its industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Actual results may differ from projections or estimates due to a variety of important factors, including Centene's ability to accurately predict and effectively manage health benefits and other operating expenses, competition, changes in healthcare practices, changes in federal or state laws or regulations, inflation, provider contract changes, new technologies, reduction in provider payments by governmental payors, major epidemics, disasters and numerous other factors affecting the delivery and cost of healthcare. The expiration, cancellation or suspension of Centene's Medicaid managed care contracts by state governments would also negatively affect Centene. In addition, the actual effect of SFAS 123R on Centene's earnings per share may vary significantly due to changes in its future stock-based compensation strategy, stock price volatility, forfeitures and employee stock option exercise behavior.

                 CENTENE CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED BALANCE SHEETS
                   (In thousands, except share data)

                                                      December 31,
                                                 ---------------------
                                                    2005       2004
                                                 ---------- ----------
ASSETS
Current assets:
   Cash and cash equivalents                      $147,358    $84,105
   Premium and related receivables, net of
    allowances of $343 and $462, respectively       44,108     31,475
   Short-term investments, at fair value
    (amortized cost $56,863 and $94,442,
    respectively)                                   56,700     94,283
   Other current assets                             24,439     14,429
                                                  ---------  ---------
       Total current assets                        272,605    224,292
Long-term investments, at fair value (amortized
 cost $126,039 and $117,177, respectively)         123,661    116,787
Restricted deposits, at fair value (amortized
 cost $22,821 and $22,295, respectively)            22,555     22,187
Property, software and equipment, net               67,199     43,248
Goodwill                                           157,278    101,631
Other intangible assets, net                        17,368     14,439
Other assets                                         7,364      5,350
                                                  ---------  ---------
       Total assets                               $668,030   $527,934
                                                  =========  =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Medical claims liabilities                     $170,514   $165,980
   Accounts payable and accrued expenses            29,790     31,737
   Unearned revenue                                 13,648      3,956
   Current portion of long-term debt and
    notes payable                                      699        486
                                                  ---------  ---------
       Total current liabilities                   214,651    202,159
Long-term debt                                      92,448     46,973
Other liabilities                                    8,883      7,490
                                                  ---------  ---------
       Total liabilities                           315,982    256,622
Stockholders' equity:
   Common stock, $.001 par value; authorized
    100,000,000 shares; issued and outstanding
    42,988,230 and 41,316,122 shares,
    respectively                                        43         41
   Additional paid-in capital                      191,840    165,391
   Accumulated other comprehensive income:
     Unrealized loss on investments, net of tax     (1,754 )     (407)
   Retained earnings                               161,919    106,287
                                                  ---------  ---------
       Total stockholders' equity                  352,048    271,312
                                                  ---------  ---------
       Total liabilities and stockholders'
        equity                                    $668,030   $527,934
                                                  =========  =========




                 CENTENE CORPORATION AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF EARNINGS
                   (In thousands, except share data)

                            THREE MONTHS ENDED        YEAR ENDED
                               DECEMBER 31,           DECEMBER 31,
                          --------------------- ----------------------
                              2005       2004       2005       2004
                          --------------------- ----------------------
                               (Unaudited)

Revenues:
   Premium                  $416,872   $286,117 $1,491,899   $991,673
   Service                     6,346      1,947     13,965      9,267
                          ----------- --------- ----------- ----------
      Total revenues         423,218    288,064  1,505,864  1,000,940
                          ----------- --------- ----------- ----------
Expenses:
   Medical costs             345,888    229,756  1,226,909    800,476
   Cost of services            2,278      1,916      5,851      8,065
   General and
    administrative
    expenses                  54,639     38,948    193,913    127,863
                          ----------- --------- ----------- ----------
      Total operating
       expenses              402,805    270,620  1,426,673    936,404
                          ----------- --------- ----------- ----------
      Earnings from
       operations             20,413     17,444     79,191     64,536
Other income (expense):
   Investment and other
    income                     3,194      1,902     10,655      6,431
   Interest expense           (1,604)      (363)    (3,990)      (680)
                          ----------- --------- ----------- ----------
  Earnings before income
   taxes                      22,003     18,983     85,856     70,287
Income tax expense             8,137      6,973     30,224     25,975
                          ----------- --------- ----------- ----------
     Net earnings            $13,866    $12,010    $55,632    $44,312
                          =========== ========= =========== ==========
Earnings per share:
      Basic earnings per
       common share            $0.32      $0.29      $1.31      $1.09
      Diluted earnings per
       common share            $0.31      $0.27      $1.24      $1.02
Weighted average number of
 shares outstanding:
    Basic                 42,885,900 41,199,463 42,312,522 40,820,909
    Diluted               44,812,159 44,309,636 45,027,633 43,616,445




                 CENTENE CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands)

                                                      Year Ended
                                                      December 31,
                                                ----------------------
                                                    2005        2004
                                                ----------  ----------
Cash flows from operating activities:
   Net earnings                                   $55,632     $44,312
   Adjustments to reconcile net earnings to net
    cash provided by operating activities--
       Depreciation and amortization               13,069      10,014
       Tax benefits related to stock options        6,469       3,316
       Stock compensation expense                   4,974         650
       Loss (gain) on sale of investments              70        (138)
       Loss on disposal of property and
        equipment                                     454          --
       Deferred income taxes                        1,786      (1,638)
   Changes in assets and liabilities--
       Premium and related receivables            (10,305)       (425)
       Other current assets                        (6,177)       (786)
       Other assets                                  (525)       (728)
       Medical claims liabilities                   4,534      34,501
       Unearned revenue                             8,182         283
       Accounts payable and accrued expenses       (4,215)      9,951
       Other operating activities                     100          93
                                                 ---------   ---------
          Net cash provided by operating
           activities                              74,048      99,405
                                                 ---------   ---------

Cash flows from investing activities:
   Purchase of property, software and equipment   (26,909)    (25,009)
   Purchase of investments                       (150,444)   (254,358)
   Sales and maturities of investments            176,387     243,623
   Acquisitions, net of cash acquired             (55,485)    (86,739)
                                                 ---------   ---------
          Net cash used in investing activities   (56,451)   (122,483)
                                                 ---------   ---------

Cash flows from financing activities:
   Proceeds from exercise of stock options          5,621       4,066
   Proceeds from borrowings                        45,000      45,860
   Reduction of long-term debt and notes payable   (4,552)     (6,596)
   Other financing activities                        (413)       (493)
                                                 ---------   ---------
          Net cash provided by financing
           activities                              45,656      42,837
                                                 ---------   ---------
          Net increase in cash and cash
           equivalents                             63,253      19,759
                                                 ---------   ---------
Cash and cash equivalents, beginning of period     84,105      64,346
                                                 ---------   ---------
Cash and cash equivalents, end of period         $147,358     $84,105
                                                 =========   =========

   Interest paid                                   $3,291        $494
   Income taxes paid                              $31,287     $20,518

Supplemental schedule of non-cash investing and
 financing activities:
   Common stock issued for acquisitions            $8,991         $--
   Property acquired under capital leases          $5,026         $--




                          CENTENE CORPORATION

                      SUPPLEMENTAL FINANCIAL DATA


                                Q4         Q3         Q2         Q1
                               2005       2005       2005       2005
                            ---------  ---------  ---------  ---------
MEMBERSHIP
Medicaid Managed Care:
  Indiana                    193,300    176,300    152,800    149,900
  Kansas                     113,300    107,600    103,000     94,900
  Missouri                    36,000     37,300     39,900     41,300
  New Jersey                  56,500     50,900     52,900     52,700
  Ohio                        58,700     58,100     59,600     23,900
  Texas                      242,000    243,600    243,800    243,700
  Wisconsin                  172,100    173,900    173,400    170,900
                            ---------  ---------  ---------  ---------
TOTAL                        871,900    847,700    825,400    777,300
                            =========  =========  =========  =========

  Medicaid                   681,100    657,500    637,300    588,100
  SCHIP                      175,900    176,900    176,200    178,500
  SSI                         14,900     13,300     11,900     10,700
                            ---------  ---------  ---------  ---------
TOTAL                        871,900    847,700    825,400    777,300
                            =========  =========  =========  =========

Specialty Services:
  Arizona                     94,700     94,300          -          -
  Kansas                      38,800     37,500     37,100     35,400
                            ---------  ---------  ---------  ---------
TOTAL                        133,500    131,800     37,100     35,400
                            =========  =========  =========  =========

REVENUE PER MEMBER(a)        $152.48    $147.73    $143.41    $142.15

CLAIMS(a)
   Period-end inventory      255,000    206,900    195,500    227,700
   Average inventory         153,500    148,300    170,300    191,900
   Period-end inventory per
    member                      0.29       0.24       0.24       0.29

(a) Revenue per member and claims information are presented for the
    Medicaid Managed Care segment.

DAYS IN CLAIMS PAYABLE(b)       45.4       41.4       49.5       59.7

(b) Days in Claims Payable is a calculation of Medical Claims
    Liabilities at the end of the period divided by average claims
    expense per calendar day for such period.

CASH AND INVESTMENTS (in millions)

  Regulated                   $322.6     $305.1     $260.5     $295.0
  Unregulated                   27.7       27.7       27.4       42.1
TOTAL                         $350.3     $332.8     $287.9     $337.1
                            =========  =========  =========  =========

ANNUALIZED RETURN
 ON EQUITY (c)                  16.2%      14.9%      20.0%      20.5%

(c) Annualized Return on Equity is calculated as follows: (net income
    for quarter x 4) divided by ((beginning of period equity + end
    of period equity) divided by 2).




HEALTH BENEFITS RATIO BY CATEGORY:

                                     Three Months     Twelve Months
                                     Ended Dec. 31,   Ended Dec. 31,
                                    ---------------  -----------------
                                       2005   2004       2005    2004
                                    ---------------  -----------------
Medicaid and SCHIP                     82.1%  80.2%      81.7%   80.4%
SSI                                   105.4   84.7       97.5    93.8
Specialty Services                     85.0      -       88.1       -




GENERAL AND ADMINISTRATIVE EXPENSE RATIO BY BUSINESS SEGMENT:

                                      Three Months      Twelve Months
                                      Ended Dec. 31,    Ended Dec. 31,
                                   ------------------  ---------------
                                       2005     2004      2005   2004
                                   ------------------  ---------------
Medicaid Managed Care                  10.3%    11.4%     10.5%  10.7%
Specialty Services                     30.3     53.7      35.4   52.3




                      MEDICAL CLAIMS LIABILITIES
                            (In thousands)

Changes in medical claims liabilities during 2005 are summarized as
follows:

Balance, January 1, 2005         $165,980
Acquisitions                           --
Incurred related to:
   Current period               1,244,600
   Prior period                   (17,691)
                               -----------
      Total incurred            1,226,909
                               -----------
Paid related to:
   Current period               1,075,204
   Prior period                   147,171
                               -----------
      Total paid                1,222,375
                               -----------
Balance, December 31, 2005       $170,514
                               ===========


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" claims 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.

    CONTACT: Centene Corporation
             Karey L. Witty, 314-725-4477
             or
             Lisa M. Wilson, 212-759-3929
             www.centene.com

    SOURCE: Centene Corporation