Centene Corporation Reports Twentieth Consecutive Quarter of Increased Profitability

July 26, 2004 at 4:03 PM EDT

ST. LOUIS--(BUSINESS WIRE)--July 26, 2004--Centene Corporation (NYSE:CNC) today announced its financial results for the quarter ended June 30, 2004.

    Second Quarter Highlights

    --  Revenues of $233.6 million, a 25.4% increase over the second
        quarter of 2003.

    --  Earnings from operations of $15.9 million, a 54.2% increase
        over the second quarter of 2003.

    --  Earnings per diluted share of $0.50.

    --  Organic membership growth of 12.3% over the second quarter of
        2003.

    --  Medicaid Managed Care segment G&A expense ratio of 10.2%
        (GAAP) and 9.8% (non-GAAP), exclusive of the effect of the
        premium tax.

    --  Operating cash flows of $30.1 million for the six months ended
        June 30, 2004.

    --  Days in claims payable of 53.5.

    --  Awarded contract to manage the Texas Children's Health
        Insurance Program (CHIP) Exclusive Provider Organization (EPO)
        in 170 predominantly rural counties.

Michael F. Neidorff, Centene's chairman and chief executive officer, said, "The second quarter of 2004 marked our twentieth consecutive quarter of increased profitability in which we achieved our stated financial objectives and our results are in-line with our expectations. Our Margin Protection Program(TM) that we began implementing over three years ago has produced consistent results, pricing cycle stability and ongoing financial savings for the states in which we operate. We believe that we have the operating systems, quality delivery networks and critical management team in place to be a leading total low-cost provider in Medicaid managed care.

I am pleased to report that we recently received a composite 4.5% rate increase in the State of Texas, subject to Centers for Medicare and Medicaid Services (CMS) approval, which will become effective on September 1, 2004. This rate increase, together with our Margin Protection Program, will offset Centene's medical service cost trends as we help the State by providing cost-effective healthcare to its Medicaid recipients. Our EPO contract, which we announced in May, gives us an additional opportunity to expand our footprint in the State and to reach more recipients who require quality healthcare.

In New Jersey, we received a 5.3% rate increase which with our previously approved Margin Protection Program enhances our operations in this state. Concurrent with the rate increase, New Jersey adopted an anticipated 1% premium tax. Furthermore, our growing expertise in serving the SSI population continues to provide confidence in our ability in this area as we consider expansion into other states.

Our membership growth remains strong and we continue to strive to add new members, both organically and through targeted acquisitions. In Ohio, our newest state, we are working to expand our provider network, which will lay the foundation for future market and service area expansion. Our growth in Indiana and Wisconsin is noteworthy, as expected.

As we progress in 2004 and beyond, we are confident that our strategic objectives will continue to produce predictable financial results and identify cost-savings in Medicaid managed care," concluded Neidorff.

The following table depicts membership in Centene's managed care organizations by state at June 30, 2004 and 2003:

                             2004           2003
                         ------------   ------------
Indiana                      132,900        109,000
New Jersey                    54,000         52,700
Ohio                          23,800             --
Texas                        155,300        131,400
Wisconsin                    167,300        145,600
                         ------------   ------------

TOTAL                        533,300        438,700
                         ============   ============

The following table depicts membership in Centene's managed care organizations by member category at June 30, 2004 and 2003:

                             2004           2003
                         ------------   ------------
Medicaid                     460,300        361,700
SCHIP                         63,200         68,800
SSI                          9,800(a)       8,200(b)
                         ------------   ------------

TOTAL                        533,300        438,700
                         ============   ============

(a) 4,400 at-risk; 5,400 ASO

(b) 4,300 at-risk; 3,900 ASO
    Statement of Earnings Highlights

    --  For the second quarter of 2004, revenues increased 25.4% to
        $233.6 million from $186.2 million in the second quarter of
        2003.

    --  The health benefits ratio (HBR), which reflects medical
        services costs as a percent of premium revenues, was 81.0%
        (GAAP) compared to 83.3% (GAAP) for the same period in 2003.
        Excluding the premium tax imposed by the State of Texas on
        September 1, 2003, the HBR was 81.4% (non-GAAP) for the
        current quarter. This was in-line with the Company's targeted
        range of 81.5% to 83.5%, due primarily to the ongoing
        successful implementation of our Margin Protection Program and
        disease management efforts aimed at reducing inappropriate
        utilization to promote better health outcomes and reduce
        costs.

    --  Consolidated general and administrative (G&A) expenses as a
        percent of revenues increased to 12.1% (GAAP) in 2004 from
        11.2% (GAAP) in the second quarter of 2003. Excluding the
        effect of the premium tax, the expense ratio was 11.7%
        (non-GAAP). The Medicaid Managed Care segment G&A ratio was
        9.8% (non-GAAP) compared to 10.3% (GAAP) for the same prior
        year period.

    --  Earnings from operations increased 54.2% to $15.9 million from
        $10.3 million in 2003.

    --  Net earnings improved to $10.8 million, or $0.50 per diluted
        share, compared to $7.7 million, or $0.43 per diluted share,
        for the second quarter of 2003.

    --  For the six months ended June 30, 2004, revenues increased
        26.3% to $459.1 million from $363.7 million for the same
        period in the prior year. The health benefits ratio was 81.0%
        (GAAP), with the Medicaid component at 80.4%, compared to
        82.4% for the same period in 2003. General and administrative
        expenses as a percent of revenues for the Medicaid segment
        declined slightly to 10.3% (GAAP) and 9.9% (non-GAAP) as
        compared to 10.4% (GAAP) in 2003. Earnings from operations
        increased 49.5% to $30.6 million from $20.5 million in 2003.
        Net earnings improved to $21.0 million, or $0.97 per diluted
        share.

    Balance Sheet and Cash Flow Highlights

At June 30, 2004, the Company had cash and investments of $298.4 million, a portion of which is restricted due to state regulatory requirements. Medical claims liabilities totaled $110.1 million, representing 53.5 days in claims payable. Cash flows from operating activities were $30.1 million for the six months ended June 30, 2004.

Outlook

Karey L. Witty, Centene's chief financial officer, commented, "We are updating our guidance and anticipate 2004 revenue in the range of $962 to $970 million and net earnings of $1.99 to $2.02 per share. This does not include the potential impact of any acquisitions we may undertake during 2004."

Conference Call

As previously announced, the Company will host a conference call tomorrow, July 27, 2004, at 8:30 a.m. (Eastern Time) to review the financial results for the second quarter ended June 30, 2004, 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 10, 2004 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 8350703.

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 fifth bullet under "Second Quarter Highlights," second, third and sixth bullet under "Statement of Earnings Highlights" and presented below in tables excludes the impact of a premium tax enacted in September 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 multi-line managed care programs and related services to individuals receiving benefits under Medicaid, including Supplemental Security Income (SSI), and the Children's Health Insurance Program (CHIP). The Company operates health plans in Indiana, New Jersey, Ohio, Texas and Wisconsin. 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 in the paragraphs following the bullet listing under "Second Quarter 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 26, 2004. 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,
                                                 2004         2003
                                              ----------- ------------
                                              (Unaudited)
                   ASSETS
Current assets:
      Cash and cash equivalents                  $80,478      $64,346
      Premium and related receivables, net of
       allowances of $568 and $607,
       respectively                               21,297       20,308
      Short-term investments, at fair value
       (amortized cost $31,223 and $15,192,
       respectively)                              31,185       15,160
      Deferred income taxes                        3,290        2,732
      Other current assets                         8,809        7,755
                                              ----------- ------------
            Total current assets                 145,059      110,301
Long-term investments, at fair value
 (amortized cost $167,907 and  $183,749,
 respectively)                                   165,714      184,811
Restricted deposits, at fair value (amortized
 cost $21,176 and $20,201, respectively)          21,037       20,364
Property, software and equipment                  26,008       23,106
Goodwill                                          18,430       13,066
Other intangible assets                            7,035        6,294
Other assets                                       6,532        4,750
                                              ----------- ------------
            Total assets                        $389,815     $362,692
                                              =========== ============

    LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
      Medical claims liabilities                $110,105     $106,569
      Accounts payable and accrued expenses       20,673       17,965
      Unearned revenue                             3,650        3,673
      Current portion of long-term debt and
       notes payable                                 288          579
                                              ----------- ------------
            Total current liabilities            134,716      128,786
Long-term debt                                     7,472        7,616
Other liabilities                                  5,426        6,175
                                              ----------- ------------
            Total liabilities                    147,614      142,577
Stockholders' equity:
      Common stock, $.001 par value;
       authorized 100,000,000 shares; issued
       and outstanding 20,433,040 and
       20,131,924 shares, respectively                20           20
      Additional paid-in capital                 160,724      157,380
Accumulated other comprehensive income:
      Unrealized (loss) gain on investments,
       net of tax                                 (1,469)         740
Retained earnings                                 82,926       61,975
                                              ----------- ------------
            Total stockholders' equity           242,201      220,115
                                              ----------- ------------
            Total liabilities and
             stockholders' equity               $389,815     $362,692
                                              =========== ============


                 CENTENE CORPORATION AND SUBSIDIARIES

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

                         Three Months Ended       Six Months Ended
                              June 30,                June 30,
                       ----------------------- -----------------------
                          2004        2003        2004        2003
                       ----------- ----------- ----------- -----------
                             (Unaudited)             (Unaudited)
Revenues:
   Premiums              $231,330    $182,900    $454,020    $359,112
   Services                 2,278       3,332       5,113       4,554
                       ----------- ----------- ----------- -----------
      Total revenues      233,608     186,232     459,133     363,666
                       ----------- ----------- ----------- -----------
Expenses:
   Medical costs          187,298     152,404     367,746     299,311
   Cost of services         2,022       2,613       4,038       3,588
   General and
    administrative
    expenses               28,351      20,879      56,728      40,284
                       ----------- ----------- ----------- -----------
      Total operating
       expenses           217,671     175,896     428,512     343,183
                       ----------- ----------- ----------- -----------
         Earnings from
          operations       15,937      10,336      30,621      20,483
Other income (expense):
   Investment and
    other income            1,336       1,257       2,846       2,231
   Interest expense          (101)         (4)       (191)        (31)
                       ----------- ----------- ----------- -----------
         Earnings before
          income taxes     17,172      11,589      33,276      22,683
Income tax expense          6,359       4,462      12,325       8,695
Minority interest              --         581          --         881
                       ----------- ----------- ----------- -----------
      Net earnings        $10,813      $7,708     $20,951     $14,869
                       =========== =========== =========== ===========

Earnings per share:
   Basic earnings per
    common share            $0.53       $0.47       $1.03       $0.91
   Diluted earnings
    per common share        $0.50       $0.43       $0.97       $0.83

Weighted average number of shares
outstanding:
   Basic               20,360,733  16,484,945  20,276,371  16,409,291
   Diluted             21,687,188  17,803,016  21,610,713  17,829,558


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

                                                    Six Months Ended
                                                         June 30,
                                                   -------------------
                                                     2004      2003
                                                   --------- ---------
                                                       (Unaudited)

Cash flows from operating activities:
   Net earnings                                     $20,951   $14,869
   Adjustments to reconcile net earnings to net
    cash provided by operating activities --
         Depreciation and amortization                4,701     2,761
         Stock compensation expense                      32       108
         Minority interest                               --      (881)
         Gain on sale of investments                   (103)     (777)
   Changes in assets and liabilities --
         Premium and related receivables               (989)    1,205
         Other current assets                        (1,051)   (2,065)
         Deferred income taxes                         (914)      836
         Other assets                                  (330)      286
         Medical claims liabilities                   3,536    (4,081)
         Accounts payable and accrued expenses        5,254    (3,248)
         Unearned revenue                               (23)       30
         Other operating activities                    (950)      352
                                                   --------- ---------
                  Net cash provided by operating
                   activities                        30,114     9,395
                                                   --------- ---------
Cash flows from investing activities:
   Purchase of property, software and equipment      (5,082)   (2,550)
   Purchase of investments                         (154,342) (103,310)
   Sales and maturities of investments              151,077    83,196
   Acquisitions, net of cash acquired                (7,005)   (2,295)
                                                   --------- ---------
                  Net cash used in investing
                   activities                       (15,352)  (24,959)
                                                   --------- ---------
Cash flows from financing activities:
   Reduction of long-term debt and notes payable       (435)       --
   Extinguishment of acquired liabilities                --    (1,218)
   Proceeds from stock options and employee stock
    purchase plan                                     1,805       548
                                                   --------- ---------
                  Net cash provided by (used in)
                   financing activities               1,370      (670)
                                                   --------- ---------
                  Net increase (decrease) in cash
                   and cash equivalents              16,132   (16,234)
                                                   --------- ---------
Cash and cash equivalents, beginning of period       64,346    59,656
                                                   --------- ---------
Cash and cash equivalents, end of period            $80,478   $43,422
                                                   ========= =========


   Interest paid                                       $181       $42
   Income taxes paid                                $11,034    $8,580


                          CENTENE CORPORATION

                      SUPPLEMENTAL FINANCIAL DATA

                                      Q2       Q1       Q4       Q3
                                    2004     2004     2003     2003
                                   -------- -------- -------- --------
MEMBERSHIP
   Indiana                         132,900  125,400  119,400  112,100
   New Jersey                       54,000   54,000   54,000   52,700
   Ohio                             23,800   23,800       --       --
   Texas                           155,300  154,000  158,400  152,100
   Wisconsin                       167,300  165,200  157,800  150,200
                                   -------- -------- -------- --------
TOTAL                              533,300  522,400  489,600  467,100
                                   ======== ======== ======== ========

   Medicaid                        460,300  446,900  411,800  389,200
   SCHIP                            63,200   65,900   68,400   68,600
   SSI                               9,800    9,600    9,400    9,300
                                   -------- -------- -------- --------
TOTAL                              533,300  522,400  489,600  467,100
                                   ======== ======== ======== ========

REVENUE PER MEMBER                 $145.31  $145.19  $142.38  $143.98

CLAIMS
   Period-end inventory             89,700  102,300  131,000   59,400
   Average inventory                98,800  107,400  102,500   75,600
   Period-end inventory per member    0.17     0.20     0.27     0.13

DAYS IN CLAIMS PAYABLE (a)            53.5     55.4     59.0     52.5

(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.

ANNUALIZED RETURN ON EQUITY (b)(c)    18.2%    17.9%    18.1%    21.3%

(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 Ended Six Months Ended
                                       June 30,           June 30,
                                  ------------------ -----------------
                                    2004      2003    2004      2003
                                  ---------  ------- --------  -------
Medicaid and SCHIP                    80.3%    82.4%    80.4%    82.4%
SSI                                   97.8    103.3     98.5    103.7
  Total (GAAP)                        81.0     83.3     81.0     83.3
  Total (non-GAAP)                    81.4     83.3     81.4     83.3


GENERAL AND ADMINISTRATIVE EXPENSE RATIO BY BUSINESS SEGMENT:

                             Three Months Ended    Six Months Ended
                                   June 30,             June 30,
                             -------------------- --------------------
                                 2004       2003      2004       2003
                             -------------- ----- -------------- -----
                                     Non-                 Non-
                             GAAP   GAAP(d)       GAAP   GAAP(d)
                             ----- --------       ----- --------
Medicaid Managed Care        10.2%     9.8% 10.3% 10.3%     9.9% 10.4%
Specialty Services           46.4     46.4  32.2  49.7     49.7  30.2
  Total                      12.1     11.7  11.2  12.4     11.9  11.1

(d) Excluding effect of premium tax.


                       MEDICAL CLAIMS LIABILITES
                            (In thousands)

Four rolling quarters of the changes in medical claims liabilities are
summarized as follows:
                                                             ---------
                                                               2004
                                                             ---------
Balance, June 30, 2003                                        $87,101
Incurred related to:
   Current period                                             709,548
   Prior period                                               (14,920)
                                                             ---------
      Total incurred                                          694,628
                                                             ---------
Paid related to:
   Current period                                             605,549
   Prior period                                                66,075
                                                             ---------
      Total paid                                              671,624
                                                             ---------
Balance, June 30, 2004                                       $110,105
                                                             =========

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

    SOURCE: Centene Corporation