Centene Corporation Reports Twenty-Fourth Consecutive Quarter of Increased Profitability

July 25, 2005 at 5:06 PM EDT

ST. LOUIS--(BUSINESS WIRE)--July 25, 2005--Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended June 30, 2005.

    Second Quarter Highlights

    --  Revenues of $349.6 million, a 49.7% increase over the second
        quarter of 2004.

    --  Consistent healthcare cost trends generating an 81.0% health
        benefits ratio.

    --  Earnings from operations of $22.3 million, a 40.1% increase
        over the second quarter of 2004.

    --  Earnings per diluted share of $0.34, a 36.0% increase from the
        second quarter of 2004.

    --  Membership growth of 54.8% over the second quarter of 2004.

    --  Days in claims payable of 49.5, net of 1.2 days for payments
        on claims in litigation.

    --  Closed acquisition of Medicaid-related assets of SummaCare,
        Inc., based in Akron, Ohio.

    --  Elected Tommy G. Thompson, former U.S. Health and Human
        Services (HHS) Secretary and former Governor of Wisconsin, to
        Board of Directors.

    Subsequent Events

    --  Announced tentative award of contracts by State of Texas for
        existing and new service areas.

    --  Awarded Medicaid contracts by State of Georgia for Atlanta and
        Central regions, two of the largest service areas, with
        approximately 500,000 and 150,000 eligibles, respectively.

Michael F. Neidorff, Centene's chairman and chief executive officer, said, "The second quarter of 2005 marked our twenty-fourth consecutive quarter of increased profitability and was fully in-line with our expectations. We remain pleased with the progress in our states, particularly with the solid growth in the Kansas and Wisconsin markets. The roll-out of SSI membership in Wisconsin is on track, and we continue to see organic growth in that market. Membership trends have been strong in Kansas following the removal of the membership cap. As predicted and guided, our year-to-date organic membership growth was light. We want to remind you that we elected not to participate in the Southern Indiana expansion, which we viewed as a high cost market.

"Our 81.0% health benefits ratio remained at the low end of our target range with the SSI HBR at 85.2% for the current quarter. Our recently announced acquisition of AirLogix enhances our demonstrated ability to manage healthcare costs for our growing SSI opportunity.

"There were a number of events marking the success of the quarter. Notably, we received notice of the tentative contract awards by the State of Texas for the STAR and CHIP members in our existing service areas of Austin, El Paso, Lubbock and San Antonio, and new service area expansion awards to serve both STAR and CHIP members in the Corpus Christi market. We expect these contracts to be finalized on or before August 17, 2005 and become effective July 1, 2006. Also, on May 1, 2005, we closed the acquisition of the Medicaid-related assets of SummaCare, Inc., a wholly owned subsidiary of Summa Health System, based in Akron, Ohio. We look forward to capitalizing on additional opportunities to grow in this State.

"As we progress in 2005 and beyond, we are confident that our consistent 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, 2005 and 2004:

                                  2005              2004
                        ---------------   ---------------
Indiana                        152,800           132,900
Kansas                         103,000                --
Missouri                        39,900                --
New Jersey                      52,900            54,000
Ohio                            59,600            23,800
Texas                          243,800           155,300
Wisconsin                      173,400           167,300
                        ---------------   ---------------

TOTAL                          825,400           533,300
                        ===============   ===============

The following table depicts membership in Centene's managed care organizations by member category at June 30, 2005 and 2004:

                                  2005              2004
                        ---------------   ---------------
Medicaid                       637,300           460,300
SCHIP                          176,200            63,200
SSI                             11,900(a)          9,800(b)
                        ---------------   ---------------

TOTAL                          825,400           533,300
                        ===============   ===============

                       (a) 5,500 at-risk; 6,400 ASO
                       (b) 4,400 at-risk; 5,400 ASO
    Statement of Earnings Highlights

    --  For the second quarter of 2005, revenues increased 49.7% to
        $349.6 million from $233.6 million in the second quarter of
        2004.

    --  The health benefits ratio (HBR), which reflects medical
        services costs as a percent of premium revenues, remained
        consistent at 81.0% period-over-period. The Company's SSI HBR
        was within the guided range of 84.0% to 86.0%, demonstrating
        Centene's ability to manage this population. While growing,
        Centene's small SSI member base can experience a volatile HBR,
        period-over-period.

    --  General and administrative (G&A) expenses as a percent of
        revenues were 12.7% in the second quarter of 2005 compared to
        12.1% in the second quarter of 2004. As previously guided, the
        results for the second quarter of 2005 included approximately
        $1.3 million in implementation costs relative to Centene's
        Arizona behavioral health contract award, effective July 1,
        2005.

    --  Earnings from operations increased 40.1% to $22.3 million in
        the second quarter of 2005 from $15.9 million in the second
        quarter of 2004.

    --  Net earnings improved to $15.2 million, or $0.34 per diluted
        share, in the second quarter of 2005 compared to $10.8
        million, or $0.25 per diluted share, for the second quarter of
        2004.

    --  For the six months ended June 30, 2005, revenues increased
        48.5% to $682.0 million from $459.1 million for the same
        period in the prior year. The HBR remained consistent at 81.0%
        period-over-period. General and administrative expenses as a
        percent of revenues increased slightly to 12.7% in the first
        half of 2005 compared to 12.4% in the first half of 2004.
        Earnings from operations increased 42.5% to $43.6 million in
        the first half of 2005 from $30.6 million in the first half of
        2004. Net earnings improved to $29.7 million, or $0.66 per
        diluted share, in the first half of 2005.

    Balance Sheet and Cash Flow Highlights

At June 30, 2005, the Company had cash and investments of $287.9 million, including $27.4 million held by its unregulated entities and $260.5 million held by its regulated entities. Medical claims liabilities totaled $153.6 million, representing 49.5 days in claims payable. This included a 1.2 day decrease related to payments on disputed claims in litigation.

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

Days in claims payable, March 31, 2005                  59.7
Decrease in claims inventory                            (5.8)
Payment of annual physician performance bonuses         (3.0)
Payment on disputed claims in litigation                (1.2)
Decrease in pharmacy payable                            (0.2)
                                                        -----
Days in claims payable, June 30, 2005                   49.5
                                                        =====

Cash flows used in operating activities were $7.0 million for the six months ended June 30, 2005. As expected, this primarily reflected the State of Wisconsin's holding our June capitation payment of approximately $29 million until after June 30, 2005, the State's fiscal year-end. This amount was received in July. In addition, cash flow for the quarter was affected by the anticipated decline in medical claims liabilities. The following table depicts the significant uses of cash flows from operations year-to-date:

(in millions)

Increase in Wisconsin premium and related receivables   $28.6
Reduction in claims inventory                            18.1
Payment of annual physician performance bonuses           9.3
Income tax payments                                       7.9
Payment on disputed claims in litigation                  3.6

New Opportunity

In July 2005, the Company received notification that the State of Georgia had awarded to the Company's subsidiary, Peach State Health Plan, contracts to serve a portion of the Medicaid recipients in two of the State's largest regions, Atlanta and Central. These two service areas represent a combined 650,000 eligible members and present a significant organic growth opportunity for 2006 and beyond. The Company has structured the organization with the critical management team in place and believes it will be able to serve this new marketplace successfully and to work with the State on a smooth transition.

Outlook

Karey L. Witty, Centene's chief financial officer, stated, "We are revising our 2005 earnings guidance to include an estimated $7.5 to $10.0 million in implementation costs related to the Georgia contract award. We will continue to provide quarterly updates as these expenditures occur. Additionally, we are including our recently announced acquisition of AirLogix. We continue to maintain organic membership growth of 10% to 12% for 2005. This revised guidance excludes the potential impact of any other acquisitions we may undertake during the remainder of 2005 as well as expenses related to stock option grants under SFAS 123R, which is required to be adopted on January 1, 2006. Consistent with prior practices, we will provide a preliminary outlook for 2006 in conjunction with our third quarter 2005 earnings announcement."

The table below depicts the Company's revised guidance for the balance of 2005:

                                             Q3              Q4
                                       --------------- ---------------
                                         Low    High     Low    High
                                       ------- ------- ------- -------
Revenue (in millions)                  $398.0  $403.0  $429.0  $452.0
Earnings per share without Georgia     $ 0.36  $ 0.37  $ 0.37  $ 0.41
Georgia implementation costs            (0.04)  (0.03)  (0.10)  (0.07)
                                       ------- ------- ------- -------
Adjusted earnings per share            $ 0.32  $ 0.34  $ 0.27  $ 0.34
                                       ======= ======= ======= =======

Conference Call

As previously announced, the Company will host a conference call tomorrow, July 26, 2005, at 8:30 a.m. (Eastern Time) to review the financial results for the second quarter ended June 30, 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 PM Eastern Time on August 19, 2005 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 7237632.

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 organizations to provide specialty services including behavioral health, disease management, nurse triage 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 following the bullet listing under "Second Quarter Highlights," the paragraph under "New Opportunity" and the paragraph under "Outlook" above contain forward-looking statements that relate to future events and future financial performance of Centene. 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.

                 CENTENE CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED BALANCE SHEETS
                   (In thousands, except share data)


                                              June 30,    December 31,
                                                2005         2004
                                             -----------  -----------
                                             (Unaudited)

                   ASSETS
Current assets:
  Cash and cash equivalents                  $    65,598  $    84,105
  Premium and related receivables, net of
   allowances of $437 and $462, respectively      69,839       31,475
  Short-term investments, at fair value
   (amortized cost $65,453 and $94,442,
   respectively)                                  65,337       94,283
  Other current assets                            16,482       14,429
                                             -----------  -----------
    Total current assets                         217,256      224,292
Long-term investments, at fair value
 (amortized cost $135,626 and  $117,177,
 respectively)                                   134,621      116,787
Restricted deposits, at fair value
 (amortized cost $22,507 and $22,295,
 respectively)                                    22,323       22,187
Property, software and equipment                  48,479       43,248
Goodwill                                         130,262      101,631
Other intangible assets                           15,188       14,439
Other assets                                       6,317        5,350
                                             -----------  -----------
    Total assets                             $   574,446  $   527,934
                                             ===========  ===========

    LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Medical claims liabilities                 $   153,593  $   165,980
  Accounts payable and accrued expenses           31,045       31,737
  Unearned revenue                                 9,657        3,956
  Current portion of long-term debt and
   notes payable                                     486          486
                                             -----------  -----------
    Total current liabilities                    194,781      202,159
Long-term debt                                    52,731       46,973
Other liabilities                                  8,215        7,490
                                             -----------  -----------
    Total liabilities                            255,727      256,622
Stockholders' equity:
  Common stock, $.001 par value; authorized
   100,000,000 shares; issued and
   outstanding 42,481,098 and 41,316,122
   shares, respectively                               42           41
  Additional paid-in capital                     183,539      165,391
  Accumulated other comprehensive income:
    Unrealized loss on investments, net of
     tax                                            (809)        (407)
  Retained earnings                              135,947      106,287
                                             -----------  -----------
    Total stockholders' equity                   318,719      271,312
                                             -----------  -----------
    Total liabilities and stockholders'
     equity                                  $   574,446  $   527,934
                                             ===========  ===========


                 CENTENE CORPORATION AND SUBSIDIARIES

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


                      Three Months Ended         Six Months Ended
                           June 30,                  June 30,
                   ------------------------  ------------------------
                       2005         2004         2005         2004
                   -----------  -----------  -----------  -----------
                          (Unaudited)               (Unaudited)
Revenues:
 Premiums          $   348,416  $   231,330  $   679,360  $   454,020
 Services                1,212        2,278        2,644        5,113
                   -----------  -----------  -----------  -----------
   Total revenues      349,628      233,608      682,004      459,133
                   -----------  -----------  -----------  -----------
Expenses:
 Medical costs         282,215      187,298      549,971      367,746
 Cost of services          728        2,022        1,571        4,038
 General and
  administrative
  expenses              44,365       28,351       86,824       56,728
                   -----------  -----------  -----------  -----------
   Total operating
    expenses           327,308      217,671      638,366      428,512
                   -----------  -----------  -----------  -----------
     Earnings from
      operations        22,320       15,937       43,638       30,621
Other income
 (expense):
 Investment and
  other income           2,523        1,336        4,643        2,846
 Interest expense         (634)        (101)      (1,196)        (191)
                   -----------  -----------  -----------  -----------
     Earnings
      before
      income taxes      24,209       17,172       47,085       33,276
Income tax expense       8,960        6,359       17,425       12,325
                   -----------  -----------  -----------  -----------
   Net earnings    $    15,249  $    10,813  $    29,660  $    20,951
                   ===========  ===========  ===========  ===========

Earnings per
 share:
 Basic earnings
  per common share $      0.36  $      0.27  $      0.71  $      0.52
 Diluted earnings
  per common share $      0.34  $      0.25  $      0.66  $      0.48

Weighted average
 number of shares
 outstanding:
 Basic              42,203,946   40,721,466   41,884,044   40,552,742
 Diluted            45,087,772   43,374,376   44,984,818   43,221,426



                 CENTENE CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands)


                                                 Six Months Ended
                                                     June 30,
                                             ------------------------
                                                 2005         2004
                                             -----------  -----------
                                                    (Unaudited)

Cash flows from operating activities:
 Net earnings                                $    29,660  $    20,951
 Adjustments to reconcile net earnings to
  net cash provided by operating
  activities --
    Depreciation and amortization                  5,901        4,701
    Deferred income taxes                          1,191         (914)
    Tax benefits related to stock options          3,782        1,507
    Stock compensation expense                     2,304           32
    Loss (gain) on sale of investments                39         (103)
 Changes in assets and liabilities --
    Premium and related receivables              (38,364)        (989)
    Other current assets                          (2,224)      (1,051)
    Other assets                                    (946)        (330)
    Medical claims liabilities                   (12,387)       3,536
    Unearned revenue                               5,701          (23)
    Accounts payable and accrued expenses         (2,716)       3,747
    Other operating activities                     1,034         (950)
                                             -----------  -----------
      Net cash (used in) provided by
       operating activities                       (7,025)      30,114
                                             -----------  -----------
Cash flows from investing activities:
 Purchase of property, software and
  equipment                                       (8,768)      (5,082)
 Purchase of investments                         (74,928)    (154,342)
 Sales and maturities of investments              84,984      151,077
 Acquisitions, net of cash acquired              (21,342)      (7,005)
                                             -----------  -----------
      Net cash used in investing activities      (20,054)     (15,352)
                                             -----------  -----------
Cash flows from financing activities:
 Reduction of long-term debt and notes
  payable                                         (4,242)        (435)
 Proceeds from borrowings                         10,000           --
 Proceeds from stock options and employee
  stock purchase plan                              2,864        1,805
 Other financing                                     (50)          --
                                             -----------  -----------
      Net cash provided by financing
       activities                                  8,572        1,370
                                             -----------  -----------
      Net (decrease) increase in cash and
       cash equivalents                          (18,507)      16,132
                                             -----------  -----------
Cash and cash equivalents,  beginning of
 period                                           84,105       64,346
                                             -----------  -----------
Cash and cash equivalents, end of period     $    65,598  $    80,478
                                             ===========  ===========

 Interest paid                               $     1,209  $       181
 Income taxes paid                           $    12,904  $    11,034

Supplemental schedule of non-cash investing
 and financing activities:
   Common stock issued for acquisitions      $     8,995  $        --



                 CENTENE CORPORATION AND SUBSIDIARIES

                      SUPPLEMENTAL FINANCIAL DATA


                                     Q2       Q1       Q4       Q3
                                    2005     2005     2004     2004
                                  -------- -------- -------- --------
MEMBERSHIP
 Indiana                           152,800  149,900  150,600  150,000
 Kansas                            103,000   94,900   94,200       --
 Missouri                           39,900   41,300   41,200       --
 New Jersey                         52,900   52,700   52,800   53,200
 Ohio                               59,600   23,900   23,800   23,500
 Texas                             243,800  243,700  244,300  250,200
 Wisconsin                         173,400  170,900  165,800  164,700
                                  -------- -------- -------- --------
 TOTAL                             825,400  777,300  772,700  641,600
                                  ======== ======== ======== ========

 Medicaid                          637,300  588,100  580,200  479,500
 SCHIP                             176,200  178,500  182,100  152,100
 SSI                                11,900   10,700   10,400   10,000
                                  -------- -------- -------- --------
TOTAL                              825,400  777,300  772,700  641,600
                                  ======== ======== ======== ========

REVENUE PER MEMBER                 $143.41  $142.15  $139.38  $144.70

CLAIMS
 Period-end inventory              195,500  227,700  150,300  141,200
 Average inventory                 170,300  191,900  128,300   96,800
 Period-end inventory per member      0.24     0.29     0.19     0.22

DAYS IN CLAIMS PAYABLE (a)            49.5     59.7     66.5     57.3

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


CASH AND INVESTMENTS (in millions)
 Regulated                          $260.5   $295.0   $271.4   $200.3
 Unregulated                          27.4     42.1     46.0    123.3
                                  -------- -------- -------- --------
TOTAL                               $287.9   $337.1   $317.4   $323.6
                                  ======== ======== ======== ========


ANNUALIZED RETURN ON EQUITY (b)       20.0%    20.5%    18.2%    18.2%

(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).



HEALTH BENEFITS RATIO BY CATEGORY:

                                      Three Months       Six Months
                                          Ended             Ended
                                         June 30,          June 30,
                                      -------------     -------------
                                      2005     2004     2005     2004
                                      ----     ----     ----     ----
Medicaid and SCHIP                    80.9%    80.5%    80.8%    80.5%
SSI                                   85.2     97.8     89.3     98.5
  Total                               81.0     81.0     81.0     81.0



GENERAL AND ADMINISTRATIVE EXPENSE RATIO BY BUSINESS SEGMENT:


                                      Three Months       Six Months
                                          Ended             Ended
                                         June 30,          June 30,
                                      -------------     -------------
                                      2005     2004     2005     2004
                                      ----     ----     ----     ----
Medicaid Managed Care                 10.5%    10.2%    10.6%    10.3%
Specialty Services                    58.8     46.4     54.6     49.7
  Total                               12.7     12.1     12.7     12.4



                      MEDICAL CLAIMS LIABILITIES
                            (In thousands)

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


Balance, June 30, 2004              $110,105
Acquisitions                          24,909
Incurred related to:
 Current period                      997,061
 Prior period                        (14,360)
                                    --------
  Total incurred                     982,701
                                    --------
Paid related to:
 Current period                      869,428
 Prior period                         94,694
                                    --------
  Total paid                         964,122
                                    --------
Balance, June 30, 2005              $153,593
                                    ========

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, St. Louis
Karey L. Witty, 314-725-4477
or
Lisa M. Wilson, 212-759-3929

SOURCE: Centene Corporation