Centene Corporation Reports Sixteenth Consecutive Quarter of Increased Profitability

July 28, 2003 at 5:12 PM EDT

ST. LOUIS--(BUSINESS WIRE)--July 28, 2003--Centene Corporation (Nasdaq:CNTE) today announced its financial results for the quarter ended June 30, 2003.

Second Quarter Highlights

  • Revenues of $186.2 million, a 73% increase over the second quarter of 2002.
  • Earnings from operations of $10.3 million, a 34% increase over the second quarter of 2002 reflecting the integration of new business which provides a basis for sustainable margin expansion.
  • Three-for-two split of Centene stock in the form of a 50% stock dividend.
  • Earnings per diluted share of $0.43, or $0.65 on a pre-split basis.
  • Organic membership growth of 30% over second quarter of 2002.
  • Days in claims payable of 52, in the Company's target range of 50-55.
  • Health benefits ratio of 83.3%, within the Company's target range of 82% to 83.5%; at forecasted levels for New Jersey and at 82.4% for the Medicaid component.
  • Agreement by Centene's Texas subsidiary, Superior HealthPlan, to acquire the Medicaid-related contract rights of HMO Blue Texas in the San Antonio market.

Michael F. Neidorff, Centene's president and chief executive officer, said, "We are pleased to announce our sixteenth quarter of consecutive profitability and growth, and are proud to again deliver predictable and sustainable operating results which are fully in-line with our expectations. These results reflect our ongoing success in working within the states in which we operate to provide optimal care for our recipients while helping them to manage their healthcare cost objectives."

"Our margin protection programs, which combine policy changes and rate increases, continue to yield strong and consistent results. We recently received notification that our rates in Texas, which are subject to Centers for Medicare and Medicaid Services (CMS) approval, would reflect a 6.3% composite Medicaid rate increase effective September 1, 2003. Importantly, we received positive rate adjustments in each of our Texas service areas. We are currently in negotiations with the state of Texas regarding our SCHIP premium rates and expect the state to "buy-down" the rates with changes in benefits. Concurrently, Texas is planning to reduce the physician fee schedule by up to 5%, which in turn lowers our cost. New Jersey has approved a 6.2% increase, effective July 1, 2003; and we are awaiting CMS approval to expand our footprint throughout the entire state and be operating in all 21 counties. We are still in negotiations with New Jersey regarding our SSI rates. We remain confident that our approach to working with the states is positive and effective," concluded Neidorff.

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

                                   2003              2002
                              -------------     -------------
     Wisconsin                      145,600           123,900
     Texas                          131,400            61,900
     Indiana                        109,000            92,800
     New Jersey                      52,700                 -
                              -------------     -------------

     TOTAL                          438,700           278,600
                              =============     =============

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

                                   2003              2002
                              -------------     -------------
Medicaid                            361,700           250,800
SCHIP                                68,800            25,200
SSI                                   8,200 (a)         2,600
                              -------------     -------------

TOTAL                               438,700           278,600
                              =============     =============

(a) 4,300 at-risk; 3,900 ASO

Statement of Earnings Highlights

  • For the second quarter of 2003, revenues increased 73% to $186.2 million from $107.6 million in the second quarter of 2002.
  • The health benefits ratio, which reflects medical costs as a percent of premium revenues, was 83.3% for the second quarter of 2003, with the Medicaid component steady at 82.4% and compared to 82.0% for the same period in 2002. Both ratios were within the Company's targeted range of 82.0% to 83.5%. The Company experienced a slight increase in this ratio due to the addition of SSI risk members in New Jersey in December 2002. As previously reported, the health benefits ratio for SSI is affected by a low membership base; the Company expects this ratio to be more volatile until the Company has achieved a critical mass in this population base.
  • General and administrative expenses as a percent of revenues on the Company's Medicaid business has consistently decreased, and was 10.3% for the second quarter of 2003 as compared to 10.9% in the second quarter of 2002 and 10.5% in the first quarter of 2003. Including the effects of the Company's specialty business, 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 11.2%.
  • Earnings from operations increased to $10.3 million in the second quarter of 2003 from $7.7 million in the comparable period of 2002. Net earnings improved to $7.7 million, or $0.43 per diluted share, compared to $5.2 million, or $0.30 per diluted share, for the second quarter of 2002.
  • For the six months ended June 30, 2003, revenues increased 78.8% to $363.7 million from $203.4 million for the same period in the prior year. The health benefits ratio was 83.3%, with the Medicaid component steady at 82.4%, 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 10.4% from 11.0%, and was slightly higher on a combined basis, reflecting the addition of the Company's specialty segment. Earnings from operations increased 46.5% to $20.5 million from $14.0 million in 2002. Net earnings improved to $14.9 million, or $0.83 per diluted share.

Balance Sheet Highlights

At June 30, 2003, the Company had cash and investments of $169.4 million, a portion of which is restricted due to state regulatory requirements. Medical claims liabilities totaled $87.1 million, representing 52 days in claims payable. The Company continues to experience improved claims turnaround time contributing to its overall claims efficiencies, thereby reducing claims inventory levels in sequential quarters. A full reconciliation of the Company's change in days in claims payable from the immediately preceding quarter is highlighted below:

         Physician Bonus                                 (2.2)
         Pharmacy Accrual Changes                         1.2
         Faster Payment Turn-Around                      (3.6)
         Lower Ending Inventory                          (1.5)
                                                       -------
               Total                                     (6.1)
                                                       =======

Outlook

Karey L. Witty, Centene's chief financial officer, commented, "Our 2003 revenue guidance is expected to be in the range of $765 million to $768 million and reflects the addition of the 21,000 HMO Blue Texas members, effective August 1, 2003. We anticipate net earnings of $1.77 to $1.80 per diluted share, based on 17.8 million shares outstanding."

Conference Call

As previously announced, the Company will host a conference call tomorrow, July 29, 2003, at 8:30 a.m. (Eastern Time) to review the financial results for the second quarter ended June 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 PM Eastern on August 12, 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 1488323.

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.

The information provided in the second paragraph following the bullet listing under "Second Quarter Highlights," the second bullet under "Statement of Earnings Highlights" and the paragraph 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 July 28, 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)


                                               JUNE 30,   DECEMBER 31,
                                                 2003        2002
                                              ----------- -----------
                                              (Unaudited)
                   ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                   $   43,422 $   59,656
  Premium and related receivables, net of
   allowances of $246 and $219, respectively      16,739      16,773
  Short-term investments, at fair value
   (amortized cost $9,396 and $9,687,
   respectively)                                   9,405       9,571
  Deferred income taxes                            1,688       2,846
  Other current assets                             6,574       4,243
                                              ----------  ----------
    Total current assets                          77,828      93,089
LONG-TERM INVESTMENTS, at fair value
 (amortized cost $94,813 and $78,025,
  respectively)                                   96,489      79,666
RESTRICTED DEPOSITS, at fair value (amortized
 cost $19,840 and $15,561, respectively)          20,068      15,762
PROPERTY AND EQUIPMENT, net                        8,202       6,295
INTANGIBLE ASSETS, net                            13,039      10,695
DEFERRED INCOME TAXES                                726         472
OTHER ASSETS                                       4,062       4,348
                                              ----------  ----------
    Total assets                              $  220,414 $  210,327
                                              ==========  ==========

    LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Medical claims liabilities                  $   87,101 $   91,181
  Accounts payable and accrued expenses            9,810      10,748
  Other current liabilities                           30          --
                                              ----------  ----------
    Total current liabilities                     96,941     101,929
OTHER LIABILITIES                                  5,641       5,334
                                              ----------  ----------
    Total liabilities                            102,582     107,263
MINORITY INTEREST                                      7         881
STOCKHOLDERS' EQUITY:
  Common stock, $.001 par value; authorized
   40,000,000 shares; 16,606,059 and
   16,243,649 shares issued and outstanding,
   respectively                                       17          16
  Additional paid-in capital                      73,026      72,372
Accumulated other comprehensive income:
  Net unrealized gain on investments, net of
   tax                                             1,204       1,087
Retained earnings                                 43,578      28,708
                                              ----------  ----------
  Total stockholders' equity                     117,825     102,183
                                              ----------  ----------
  Total liabilities and stockholders' equity  $  220,414 $  210,327
                                              ==========  ==========


                 CENTENE CORPORATION AND SUBSIDIARIES

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

                       THREE MONTHS ENDED         SIX MONTHS ENDED
                            JUNE 30,                  JUNE 30,
                   ------------------------  ------------------------
                       2003          2002         2003        2002
                   -----------  -----------  ----------- ------------
                         (Unaudited)               (Unaudited)
REVENUES:
  Premiums         $  182, 900  $   107,503 $   359,112 $   203,152
  Services               3,332          107        4,554          211
                   -----------  -----------  -----------  -----------
    Total revenues     186,232      107,610      363,666      203,363
                   -----------  -----------  -----------  -----------
EXPENSES:
  Medical costs        152,404       88,109      299,311      167,053
  Cost of services       2,613           86        3,588          168
  General and
   administrative
   expenses             20,879       11,697       40,284       22,162
                   -----------  -----------  -----------  -----------
    Total
     operating
     expenses          175,896       99,892      343,183      189,383
                   -----------  -----------  -----------  -----------
      Earnings
       from
       operations       10,336        7,718       20,483       13,980
OTHER INCOME
 (EXPENSE):
  Investment and
   other income,
   net                   1,257          976        2,231        1,891
  Interest expense          (4)         (11)         (31)         (11)
                   -----------  -----------  -----------  -----------
      Earnings
       before
       income
       taxes            11,589        8,683       22,683       15,860
INCOME TAX EXPENSE       4,462        3,449        8,695        6,327
MINORITY INTEREST          581           --          881           --
                   -----------  -----------  -----------  -----------
    Net earnings   $     7,708 $     5,234 $    14,869 $     9,533
                   ===========  ===========  ===========  ===========
EARNINGS PER
 COMMON SHARE,
 BASIC:
    Net earnings
     per common
     share         $      0.47 $      0.34 $      0.91 $      0.62
EARNINGS PER
 COMMON SHARE,
 DILUTED:
    Net earnings
     per common
     share         $      0.43 $      0.30 $      0.83 $      0.56
SHARES USED IN
 COMPUTING PER
 SHARE AMOUNTS:
  Basic             16,484,945   15,483,915   16,409,291   15,311,427
  Diluted           17,803,016   17,319,569   17,829,558   17,152,775


                 CENTENE CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (IN THOUSANDS)

                                                  SIX MONTHS ENDED
                                                       JUNE 30,
                                                 --------------------
                                                    2003       2002
                                                 ---------  ---------
                                                      (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings                                   $  14,869 $   9,533
  Adjustments to reconcile net earnings to net
   cash provided by operating
    activities --
      Depreciation and amortization                  2,761        975
      Stock compensation expense                       108         49
      Minority interest                               (881)        --
      Gain on sale of investments                     (777)      (307)
      Loss on disposal of equipment                     44         --
  Changes in assets and liabilities --
    Decrease (increase) in premium and related
     receivables                                     1,205       (492)
    Increase in other current assets                (2,065)    (1,676)
    Decrease (increase) in deferred income taxes       836       (555)
    Decrease (increase) in other assets                286       (106)
    (Decrease) increase in medical claims
     liabilities                                    (4,081)     3,992
    Decrease in accounts payable and accrued
     expenses                                       (3,248)    (2,497)
    Increase in other current liabilities               30         --
    Increase in other liabilities                      308         --
                                                 ---------  ---------
      Net cash provided by operating activities      9,395      8,916
                                                 ---------  ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment                (2,561)    (2,431)
  Purchase of investments                         (103,310)   (87,328)
  Sales and maturities of investments               83,196     29,093
  Contract acquisitions                               (561)        --
  Investment in subsidiary                          (1,734)    (3,193)
  Proceeds from disposal of equipment                   11         --
                                                 ---------  ---------
      Net cash used in investing activities        (24,959)   (63,859)
                                                 ---------  ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from issuance of common stock            --     10,304
  Extinguishment of acquired liabilities            (1,218)        --
  Proceeds from exercise of stock options              548        108
                                                 ---------  ---------
      Net cash (used in) provided by financing
       activities                                     (670)    10,412
                                                 ---------  ---------
      Net decrease in cash and cash equivalents    (16,234)   (44,531)
                                                 ---------  ---------
CASH AND CASH EQUIVALENTS, beginning of period      59,656     88,867
                                                 ---------  ---------
CASH AND CASH EQUIVALENTS, end of period         $  43,422 $  44,336
                                                 =========  =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
 INFORMATION:
  Interest paid                                  $      42  $      --
  Income taxes paid                              $   8,580 $   9,282 CENTENE CORPORATION
                      SUPPLEMENTAL FINANCIAL DATA

                                      Q2       Q1       Q4       Q3
                                     2003     2003     2002     2002
                                   -------  -------  -------  -------
MEMBERSHIP
   Wisconsin                       145,600  139,100  133,000  126,800
   Texas                           131,400  122,700  118,000   67,800
   Indiana                         109,000  104,800  105,700  101,500
   New Jersey                       52,700   52,700   52,900        -
                                   -------  -------  -------  -------
          Total                    438,700  419,300  409,600  296,100
                                   =======  =======  =======  =======

   Medicaid                        361,700  344,700  336,100  264,100
   SCHIP                            68,800   66,600   65,900   29,400
   SSI                               8,200    8,000    7,600    2,600
                                   -------  -------  -------  -------
          Total                    438,700  419,300  409,600  296,100
                                   =======  =======  =======  =======

REVENUE PER MEMBER                 $142.26 $142.06 $134.08 $133.20

CLAIMS
   Period-end Inventory            109,865  144,465  150,717  140,432
   Average Inventory                85,412  131,382   73,800   51,700
   Period-end Inventory per Member    0.25     0.34     0.37     0.47

DAYS IN CLAIMS PAYABLE(b)             52.0     58.1     71.8     62.7

(b) 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(c)
                                      27.1%    27.0%    27.7%    27.5%

(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 ENDED  SIX MONTHS ENDED
                                      JUNE 30,           JUNE 30,
                                 ----------------  ------------------
                                  2003      2002     2003      2002
                                 -------  -------  --------  --------
   Medicaid (excluding SSI)         82.4%    82.0%     82.4%     82.2%
   SSI                             103.3       --     103.7        --
       Total                        83.3     82.0      83.3      82.2


GENERAL AND ADMINISTRATIVE EXPENSE RATIO BY BUSINESS SEGMENT:

                                THREE MONTHS ENDED  SIX MONTHS ENDED
                                     JUNE 30,           JUNE 30,
                                 ----------------  ------------------
                                  2003      2002     2003      2002
                                 -------  -------  --------  --------
   Medicaid Managed Care            10.3%    10.9%     10.4%     11.0%
   Specialty Services               32.2       --      30.2        --
       Total                        11.2     10.9      11.1      11.0

                       MEDICAL CLAIMS LIABILITIES
                            (in thousands)

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

Balance, June 30, 2002 $  63,557
Acquisitions                          16,230(d)
Incurred related to:
   Current period                    535,975
   Prior period                      (24,249)
                                   ---------
      Total incurred                 511,726
                                   ---------
Paid related to:
   Current period                    467,744
   Prior period                       36,668
                                   ---------
      Total paid                     504,412
                                   ---------
Balance, June 30, 2003 $  87,101
                                   =========

(d) Includes reserves acquired in connection with the acquisition of
    80% 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

SOURCE: Centene Corporation