Centene Corporation Reports Seventeenth Consecutive Quarter of Increased Profitability

October 27, 2003 at 4:02 PM EST

ST. LOUIS--(BUSINESS WIRE)--Oct. 27, 2003--Centene Corporation (NYSE:CNC) today announced its financial results for the quarter ended September 30, 2003.

Third Quarter Highlights

  • Revenues of $198.4 million, a 70% increase over the third quarter of 2002.
  • Earnings from operations of $12.6 million, a 57% increase over the third quarter of 2002.
  • Centene completed a follow-on offering on August 13, 2003, issuing 3,450,000 shares of common stock from which the Company received net proceeds of $81.4 million.
  • Earnings per diluted share of $0.44.
  • Organic membership growth of 28% over the third quarter of 2002.
  • Days in claims payable of 52.5, within the Company's target range of 50-55.
  • Health benefits ratio of 82.0%, within the Company's target range of 82.0% to 83.5%.
  • Effective August 1, 2003, the Company's Texas subsidiary, Superior HealthPlan, acquired the Medicaid-related contract rights of HMO Blue Texas in the San Antonio, Texas market.
  • In September 2003, the Company signed a definitive agreement to acquire the Medicaid-related assets of Family Health Plan, Inc., a wholly owned subsidiary of Mercy Health Partners. This transaction includes the right to serve up to 24,000 of Family Health Plan's Medicaid members in Toledo, Ohio, a new market and state for the Company.

Michael F. Neidorff, Centene's president and chief executive officer, said, "We are pleased with the ongoing predictable performance of our Company including strong organic growth in our existing markets. We continue to demonstrate the clear capability to acquire and integrate companies that achieve our goals and save states money. Our objective is to build a balanced multi-line company, in both the Medicaid Managed Care and Specialty Services arenas. To that end, we are in the process of adding our fifth state, Ohio, where we believe there is a significant opportunity to grow organically while providing better health outcomes for our Medicaid members. Additionally, our recent service area expansion and increased investment in New Jersey confirms our commitment to this market. We continue to add the requisite management to be able to successfully grow organically and through acquisitions."

The following table depicts membership in Centene's managed care organizations by state at September 30, 2003 and 2002:

                             2003              2002
                        ---------------   ---------------
Wisconsin                      150,200           126,800
Texas                          152,100            67,800
Indiana                        112,100           101,500
New Jersey                      52,700                 -
                        ---------------   ---------------

TOTAL                          467,100           296,100
                        ===============   ===============

The following table depicts membership in Centene's managed care organizations by member category at September 30, 2003 and 2002:

                                2003             2002
                            -------------   ---------------
Medicaid (excluding SSI)         389,200           264,100
SCHIP                             68,600            29,400
SSI                              9,300(a)            2,600
                            -------------   ---------------

TOTAL                            467,100           296,100
                            =============   ===============

(a) 4,300 at-risk; 5,000 ASO


    Statement of Earnings Highlights

    --  For the third quarter of 2003, revenues increased 70% to
        $198.4 million from $116.4 million in the third quarter of
        2002.

    --  The health benefits ratio, which reflects medical costs as a
        percent of premium revenues, was 82.0% for the third quarter
        of 2003, with the Medicaid category at 81.3% as compared to
        82.2% for the same period in 2002. The Medicaid portion of
        this ratio was affected by a distribution from an escrow
        account for costs incurred prior to the Company's acquisition
        of UHP.

    --  General and administrative expenses as a percent of revenues
        on the Company's Medicaid business segment has consistently
        decreased and was 10.1% for the third quarter of 2003 as
        compared to 10.9% for the third quarter of 2002 and 10.3% for
        the second quarter of 2003. Including the effects of the
        Company's specialty business segment, which the Company
        entered into during the first quarter of 2003 and which has a
        higher level of general and administrative expenses, the
        combined general and administrative expense ratio was 11.3%
        for the third quarter of 2003.

    --  Earnings from operations increased to $12.6 million in the
        third quarter of 2003 from $8.0 million in the comparable
        period of 2002. Net earnings were $8.7 million, or $0.44 per
        diluted share, compared to $9.3 million, or $0.52 per diluted
        share, for the third quarter of 2002. The Company's 2002
        operating results included a one-time dividend of $5.1 million
        from a captive insurance company in which the Company
        maintained an investment. Excluding this one-time gain, net
        income in the third quarter of 2002 was $6.1 million, or $0.34
        per share.

    --  For the nine months ended September 30, 2003, revenues
        increased 76% to $562.1 million from $319.8 million for the
        same period in the prior year. The health benefits ratio was
        82.9%, with the Medicaid component at 82.0%, and compares to
        82.2% for the same period in 2002. General and administrative
        expenses as a percent of revenues for the Medicaid segment
        decreased to 10.3% from 10.9% and were slightly higher on a
        combined basis at 11.2%, reflecting the addition of the
        Company's specialty segment. Earnings from operations
        increased 51% to $33.1 million from $22.0 million in 2002. Net
        earnings improved to $23.6 million, or $1.28 per diluted
        share.

    --  The following table sets forth fully diluted earnings per
        share for the first, second and third quarters of 2003 as
        reported (GAAP) and on a pro-forma basis (non-GAAP). Pro forma
        (non-GAAP) net earnings per diluted share assumes that as of
        January 1, 2003: 1) the Company's follow-on public offering
        was completed, 2) the net proceeds were invested in short-term
        instruments bearing interest of 2.0% and 3) the Company's tax
        rate was 38%.


                                     Q3 2003     Q2 2003     Q1 2003
                                   ----------- ----------- -----------
Net earnings, as reported (GAAP)       $8,704      $7,708      $7,161

Pro forma interest income, net of
 related tax effects                      121         252         252
                                   ----------- ----------- -----------
Pro forma (non-GAAP) net earnings      $8,825      $7,960      $7,413
                                   =========== =========== ===========

Earnings per common share:
Diluted, as reported (GAAP)             $0.44       $0.43       $0.40
Diluted, pro forma (non-GAAP)           $0.41       $0.37       $0.35

Shares used in computing per share amounts:
As reported (GAAP)                 19,842,145  17,803,016  17,757,266
Pro forma effect (non-GAAP)         1,612,500   3,450,000   3,450,000
                                   ----------- ----------- -----------
Pro forma (non-GAAP)               21,454,645  21,253,016  21,207,266

Balance Sheet Highlights

At September 30, 2003, the Company had cash and investments of $258.3 million, a portion of which is restricted due to state regulatory requirements. Medical claims liabilities totaled $91.7 million, representing 52.5 days in claims payable versus 52.0 days from the previous quarter.

Outlook

Karey L. Witty, Centene's chief financial officer, commented, "Our fourth quarter 2003 revenue guidance is in the range of $204 million to $206 million, and we anticipate net earnings of $0.43 to $0.44 per diluted share, based on 21.5 million shares outstanding." A review of the complete results for the third quarter and management's outlook for the fourth quarter, together with preliminary views on 2004, will take place during the Company's scheduled third quarter earnings call.

Conference Call

As previously announced, the Company will host a conference call tomorrow, October 28, 2003, at 8:15 a.m. (Eastern Time) to review the financial results for the third quarter ended September 30, 2003, 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 November 4, 2003 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 3204094.

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 individuals to more accurately assess the ongoing nature of the Company's operations and measure the Company's performance more consistently.

The pro forma (non-GAAP) information presented above in the sixth paragraph under "Statement of Earnings Highlights" assumes that the Company's follow-on public offering was completed as of January 1, 2003. This assumption has been made in the non-GAAP financial measures as management believes that this assumption generally provides a more consistent measure of the Company's performance.

The Company uses the presented non-GAAP financial measures internally to focus management on period-to-period changes in the Company's core business. 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.

About Centene Corporation

Centene Corporation provides 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 Wisconsin, Texas, Indiana and New Jersey. In addition, the Company contracts with other healthcare organizations to provide specialty services including behavioral health, nurse triage and pharmacy compliance. Information regarding Centene is available via the Internet at www.centene.com.

The information provided above in the first paragraph following the bullet listing under "Third Quarter Highlights" and in the paragraph under "Outlook" 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 October 27, 2003. 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.

(Tables Follow)


                 CENTENE CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED BALANCE SHEETS
                   (IN THOUSANDS, EXCEPT SHARE DATA)

                                            SEPTEMBER 30, DECEMBER 31,
                                                  2003        2002
                                            ------------- ------------
                                             (Unaudited)

                  ASSETS
Current assets:
      Cash and cash equivalents                  $62,906      $59,656
      Premium and related receivables, net
       of allowances of $720 and $219,
       respectively                               22,076       16,773
      Short-term investments, at fair value
       (amortized cost $10,660 and $9,687,
       respectively)                              10,659        9,571
      Deferred income taxes                        2,049        2,846
      Other current assets                         5,283        4,243
                                            ------------- ------------
            Total current assets                 102,973       93,089
Long-term investments, at fair value
 (amortized cost $162,533 and  $78,025,
 respectively)                                   164,685       79,666
Restricted deposits, at fair value
 (amortized cost $19,844 and  $15,561,
 respectively)                                    20,038       15,762
Property and equipment, net                       20,953        6,295
Intangible assets, net                            15,232       10,695
Deferred income taxes                                586          472
Other assets                                       3,985        4,348
                                            ------------- ------------
            Total assets                        $328,452     $210,327
                                            ============= ============

   LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
      Medical claims liabilities                 $91,739      $91,181
      Accounts payable and accrued expenses       13,471       10,748
      Current portion of long-term debt and
       notes payable                                 869           --
      Other current liabilities                      631           --
                                            ------------- ------------
            Total current liabilities            106,710      101,929
Long-term debt                                     7,688           --
Other liabilities                                  5,504        5,334
                                            ------------- ------------
            Total liabilities                    119,902      107,263
Minority interest                                     --          881
Stockholders' equity:
      Common stock, $.001 par value;
       40,000,000 shares authorized;
       20,060,949 and 16,243,649 shares
       issued and outstanding, respectively           20           16
      Additional paid-in capital                 154,775       72,372
   Accumulated other comprehensive income:
      Net unrealized gain on investments,
       net of tax                                  1,477        1,087
   Retained earnings                              52,278       28,708
                                            ------------- ------------
     Total stockholders' equity                  208,550      102,183
                                            ------------- ------------
     Total liabilities and stockholders'
      equity                                    $328,452     $210,327
                                            ============= ============


                 CENTENE CORPORATION AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF EARNINGS
                   (IN THOUSANDS, EXCEPT SHARE DATA)

                         THREE MONTHS ENDED       NINE MONTHS ENDED
                            SEPTEMBER 30,           SEPTEMBER 30,
                       ----------------------- -----------------------
                          2003        2002        2003        2002
                       ----------- ----------- ----------- -----------
                             (Unaudited)             (Unaudited)

Revenues:
   Premiums              $195,827    $116,289    $554,939    $319,441
   Services                 2,580         109       7,134         320
                       ----------- ----------- ----------- -----------
      Total revenues      198,407     116,398     562,073     319,761
                       ----------- ----------- ----------- -----------
Expenses:
   Medical costs          160,672      95,644     459,983     262,697
   Cost of services         2,681          84       6,269         252
   General and
    administrative
    expenses               22,414      12,642      62,698      34,804
                       ----------- ----------- ----------- -----------
      Total operating
       expenses           185,767     108,370     528,950     297,753
                       ----------- ----------- ----------- -----------
         Earnings from
          operations       12,640       8,028      33,123      22,008
Other income (expense):
   Investment and
    other income, net       1,245       6,768       3,476       8,659
   Interest expense           (71)        (16)       (102)        (27)
                       ----------- ----------- ----------- -----------
         Earnings before
          income taxes     13,814      14,780      36,497      30,640
Income tax expense          5,110       5,507      13,805      11,833
Minority interest              --          --         881          --
                       ----------- ----------- ----------- -----------
      Net earnings         $8,704      $9,273     $23,573     $18,807
                       =========== =========== =========== ===========
Earnings per common share, basic:
      Net earnings per
       common share         $0.47       $0.58       $1.38       $1.21
Earnings per common share, diluted:
      Net earnings per
       common share         $0.44       $0.52       $1.28       $1.08
Shares used in computing per share amounts:
   Basic               18,430,713  16,042,196  17,094,621  15,558,080
   Diluted             19,842,145  17,750,072  18,439,050  17,348,018


                 CENTENE CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (IN THOUSANDS)

                                                    NINE MONTHS ENDED
                                                      SEPTEMBER 30,
                                                   -------------------
                                                     2003      2002
                                                   --------- ---------
                                                       (Unaudited)

Cash flows from operating activities:
   Net earnings                                     $23,573   $18,807
   Adjustments to reconcile net earnings to net
    cash provided by operating activities --
         Depreciation and amortization                4,299     1,534
         Stock compensation expense                     232       264
         Minority interest                             (881)       --
         Gain on sale of investments                 (1,188)     (632)
         Loss on disposal of equipment                  102        --
   Changes in assets and liabilities --
      Increase in premium and related receivables    (4,132)   (1,218)
      Increase in other current assets                 (849)     (663)
      Decrease in deferred income taxes                 452       248
      Decrease in other assets                          363       171
      Increase in medical claims liabilities            558     5,629
      Decrease in accounts payable and accrued
       expenses                                        (396)   (2,247)
      Increase in unearned capitation premium            --       897
      Increase in other current liabilities              27        --
      Increase (decrease) in other liabilities          164      (659)
                                                   --------- ---------
         Net cash provided by operating activities   22,324    22,131
                                                   --------- ---------
Cash flows from investing activities:
   Purchase of property and equipment               (16,253)   (3,110)
   Proceeds from disposal of equipment                   11        --
   Purchase of investments                         (291,462) (155,690)
   Sales and maturities of investments              202,306    96,975
   Contract acquisitions                             (1,451)     (570)
   Investment in subsidiary, net of cash acquired    (1,767)   (3,193)
                                                   --------- ---------
         Net cash used in investing activities     (108,616)  (65,588)
                                                   --------- ---------
Cash flows from financing activities:
   Net proceeds from issuance of common stock        81,403    10,317
   Extinguishment of acquired liabilities            (1,218)       --
   Proceeds from borrowings                           8,581        --
   Reduction of long-term debt                          (24)       --
   Cash dividends paid                                   (3)       --
   Proceeds from exercise of stock options              803       339
                                                   --------- ---------
         Net cash provided by financing activities   89,542    10,656
                                                   --------- ---------
         Net increase (decrease) in cash and cash
          equivalents                                 3,250   (32,801)
                                                   --------- ---------
Cash and cash equivalents, beginning of period       59,656    88,867
                                                   --------- ---------
Cash and cash equivalents, end of period            $62,906   $56,066
                                                   ========= =========

Supplemental disclosures of cash flow information:
   Interest paid                                        $85       $11
   Income taxes paid                                $13,479   $11,878


                          CENTENE CORPORATION
                      SUPPLEMENTAL FINANCIAL DATA

                                      Q3       Q2       Q1       Q4
                                    2003     2003     2003     2002
                                   -------- -------- -------- --------
MEMBERSHIP
   Wisconsin                       150,200  145,600  139,100  133,000
   Texas                           152,100  131,400  122,700  118,000
   Indiana                         112,100  109,000  104,800  105,700
   New Jersey                       52,700   52,700   52,700   52,900
                                   -------- -------- -------- --------
          Total                    467,100  438,700  419,300  409,600
                                   ======== ======== ======== ========

   Medicaid                        389,200  361,700  344,700  336,100
   SCHIP                            68,600   68,800   66,600   65,900
   SSI                               9,300    8,200    8,000    7,600
                                   -------- -------- -------- --------
          Total                    467,100  438,700  419,300  409,600
                                   ======== ======== ======== ========

REVENUE PER MEMBER                 $143.73  $142.26  $142.06  $134.08

CLAIMS
   Period-end inventory             59,436  109,865  144,465  150,717
   Average inventory                75,615   85,412  131,382   73,800
   Period-end inventory per member    0.13     0.25     0.34     0.37

DAYS IN CLAIMS PAYABLE(a)             52.5     52.0     58.1     71.8

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

ANNUALIZED RETURN ON EQUITY(b)        21.3%(c) 27.1%    27.0%    27.7%

(b) 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).

(c) Reflects a 3,450,000 share follow-on offering completed August 13,
    2003.

HEALTH BENEFITS RATIO BY CATEGORY:
                                       THREE MONTHS       NINE MONTHS
                                           ENDED            ENDED
                                       SEPTEMBER 30,     SEPTEMBER 30,
                                      --------------    --------------
                                       2003     2002   2003     2002
                                      ------  ------   ------   ------
   Medicaid (excluding SSI)
    and SCHIP                         81.3%    82.2%    82.0%    82.2%
   SSI                               102.9%      --    103.5%      --
       Total                          82.0%    82.2%    82.9%    82.2%



GENERAL AND ADMINISTRATIVE EXPENSE RATIO BY BUSINESS SEGMENT:

                                       THREE MONTHS       NINE MONTHS
                                           ENDED            ENDED
                                       SEPTEMBER 30,     SEPTEMBER 30,
                                      --------------    --------------
                                       2003     2002   2003     2002
                                      ------  ------   ------   ------
   Medicaid Managed Care               10.1%   10.9%    10.3%   10.9%
   Specialty Services                  32.0%     --     31.0%     --
        Total                          11.3%   10.9%    11.2%   10.9%


                       MEDICAL CLAIMS LIABILITES
                            (in thousands)

Four rolling quarters of the changes in medical claims liabilities are
summarized as follows:

Balance, September 30, 2002                 $65,194
Acquisitions                               16,230(d)
Incurred related to:
   Current period                           597,338
   Prior period                             (20,585)
                                   -----------------
      Total incurred                        576,753
                                   -----------------
Paid related to:
   Current period                           524,945
   Prior period                              41,493
                                   -----------------
      Total paid                            566,438
                                   -----------------
Balance, September 30, 2003                 $91,739
                                   =================

(d) Includes reserves acquired in connection with the acquisition of
    the outstanding capital stock of University Health Plans, Inc.

Our claims reserving process utilizes a consistent actuarial methodology to estimate our ultimate liability. Any reduction in the "Incurred related to: Prior period" claims may be offset as we actuarially determine "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. We believe we have consistently applied our 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