Centene Corporation Reports Twenty-Second Consecutive Quarter of Increased Profitability; Company Achieves $1 Billion in Full-Year Revenue

February 7, 2005 at 4:26 PM EST

ST. LOUIS, Feb 7, 2005 (BUSINESS WIRE) -- Centene Corporation (NYSE: CNC) today announced its financial results for the fourth quarter and year ended December 31, 2004.

----------------------------------------------------------------------
                       Fourth Quarter Highlights
----------------------------------------------------------------------
-     Revenues increased 39% to $288.1 million
-     Operating earnings increased 26% to $17.4 million
-     EPS increased 17% to $0.27, post-split
-     Operating cash flows of $41.9 million
----------------------------------------------------------------------
                         Full Year Highlights
----------------------------------------------------------------------
-     Revenues increased 30% to $1 billion
-     Operating earnings increased 38% to $64.5 million
-     EPS increased 17% to $1.02, post-split
-     Operating cash flows of $99.4 million
----------------------------------------------------------------------

    Additional Highlights

    --  Completed 2:1 stock split, increasing outstanding shares to
        41.3 million.

    --  Fourth quarter 2004 earnings per diluted share prior to the
        effect of the 2:1 stock split of $0.54, ahead of prior
        guidance.

    --  Membership growth of 58% over the fourth quarter of 2003;
        organic membership growth of 25% over the same prior year
        period.

    --  Closed FirstGuard acquisition marking Centene's entry into
        Kansas and Missouri, two additional Medicaid-mandated states.

    --  Days in claims payable of 66.5, primarily reflecting the
        FirstGuard acquisition.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, said, "We concluded 2004 with strong financial results, marking our 22nd quarter of consecutive earnings growth. This consistent performance enabled Centene to continue to execute its strategy of becoming a multi-line Medicaid company.

"Despite the strengthening economy, there will be tighter budgets at the state and federal levels. This provides an opportunity for Centene to work with the states to maintain eligibility for recipients while offering quality, cost-effective healthcare. Our Margin Protection Program(TM), which we began implementing over three years ago, is specifically designed to help the states address their respective budget challenges. We continue to work with the states by focusing on a combination of minimal rate increases and administrative policy changes.

"We completed the acquisition of two health plan entities known collectively as FirstGuard, which brought us into two additional Medicaid mandated markets -- Kansas and our home state of Missouri. Additionally, our efforts in Kansas and Ohio are consistent with our strategy to offer both core Medicaid and specialty services. It further confirms our belief that we can partner with our states to move more members into managed behavioral health programs and demonstrate cost savings through a more comprehensive coordination of care.

"In addition to entering new markets, we experienced strong membership growth in Indiana and Texas. As a result of the SCHIP Exclusive Provider Organization contract, we are now virtually statewide in Texas and look forward to continuing to provide cost-effective healthcare to these recipients and building our relationship with the State. As we previously discussed, we anticipate that the SCHIP membership will continue to decline over the next few quarters and then stabilize. We believe that state regulators will be working to identify funding to expand eligibility, which ultimately will result in a positive impact for the Texas SCHIP population.

"As part of our strategic efforts to expand our footprint in Ohio, we recently announced a definitive agreement to acquire the Medicaid-related assets of SummaCare, Inc. based in Akron. This transaction will add approximately 39,000 members to our subsidiary, Buckeye Community Health Plan, and make us one of the leading providers in the State. In New Jersey, we are working to further expand our membership in the SSI population and are comfortable with our progress.

"The year ahead offers significant opportunities for Centene, and we are confident that we have the systems, people and financial resources to meet them," concluded Neidorff.

The following table depicts membership in Centene's managed care organizations by state at December 31, 2004 and 2003:

                             2004              2003
                        ---------------   ---------------
Indiana                        150,600           119,400
Kansas                          94,200                --
Missouri                        41,200                --
New Jersey                      52,800            54,000
Ohio                            23,800                --
Texas                          244,300           158,400
Wisconsin                      165,800           157,800
                        ---------------   ---------------

TOTAL                          772,700           489,600
                        ===============   ===============

The following table depicts membership in Centene's managed care organizations by member category at December 31, 2004 and 2003:

                             2004              2003
                          -------------   ---------------
Medicaid (excluding SSI)       580,200           411,800
SCHIP                          182,100            68,400
SSI                             10,400(a)          9,400(b)
                          -------------   ---------------

TOTAL                          772,700           489,600
                          =============   ===============

(a)  4,600 at-risk, 5,800 ASO
(b)  4,400 at-risk, 5,000 ASO

    Statement of Earnings Highlights

    --  For the fourth quarter of 2004, revenues increased 39.0% to
        $288.1 million from $207.3 million in the fourth quarter of
        2003.

    --  The health benefits ratio (HBR), which reflects medical costs
        as a percent of premium revenues, was 80.3% in the fourth
        quarter of 2004 compared to 81.2% for the same period in 2003.
        The effect of the premium taxes imposed by the State of Texas
        beginning September 1, 2003 and the State of New Jersey
        beginning July 1, 2004 decreased Centene's HBR by 50 basis
        points for the fourth quarter of 2004, and 40 basis points in
        the prior year quarter. The HBR for the SSI category
        normalized to 84.7%, but is still expected to be volatile
        given the small member base. This further demonstrates our
        ability to manage this population.

    --  Consolidated general and administrative (G&A) expenses as a
        percent of revenues were 13.5% in the fourth quarter of 2004
        compared to 12.2% in the fourth quarter of 2003. The effect of
        the premium taxes increased Centene's G&A ratio by 50 basis
        points for the fourth quarter of 2004 and 40 basis points in
        the prior year quarter. The results for the fourth quarter of
        2004 include approximately $1.4 million in start-up costs
        associated with FirstGuard and Centene's Montana claims
        processing facility, and severance costs related to job
        eliminations. Moreover, those results also include an
        additional $1.3 million of compensation costs related to
        Centene's performance bonuses.

    --  Earnings from operations increased 26.4% to $17.4 million in
        the fourth quarter of 2004 from $13.8 million in the fourth
        quarter of 2003.

    --  Net earnings were $12.0 million, or $0.27 per diluted share,
        for the fourth quarter of 2004 compared to $9.7 million, or
        $0.23 per diluted share, for the fourth quarter of 2003.

    --  For the year ended December 31, 2004, revenues increased 30.0%
        to $1.0 billion from $769.7 million in 2003. The health
        benefits ratio was 80.7% in 2004 compared to 82.4% in 2003.
        G&A expenses as a percent of revenues were 12.8% in 2004
        compared to 11.5% in 2003. Earnings from operations increased
        37.5% to $64.5 million in 2004 from $46.9 million in 2003. Net
        earnings improved to $44.3 million, or $1.02 per diluted
        share, in 2004 compared to $33.3 million or $0.87 per diluted
        share, in 2003.

    Balance Sheet Highlights

At December 31, 2004, the Company had cash and investments of $317.4 million, $271.4 million of which was held by our regulated entities. Medical claims liabilities totaled $166.0 million, representing 66.5 days in claims payable. Excluding FirstGuard, the Company's days in claims payable was 60.7. A reconciliation of the Company's change in days in claims payable from the immediately preceding quarter is highlighted below:

Days in claims payable, September 30, 2004                     57.3
December 1, 2004 close of FirstGuard                            5.8
Increase in claims inventory, primarily EPO                     3.0
Increase in physician bonus and settlement                      0.6
Decrease in pharmacy accrual                                   (0.2)
                                                              ------
Days in claims payable, December 31, 2004                      66.5
                                                              ======

Outlook

Karey L. Witty, Centene's Chief Financial Officer, commented, "Our first quarter 2005 revenue guidance is in the range of $332 million to $335 million, and we anticipate net earnings of $0.30 to $0.31 per diluted share, based on 44.7 million fully diluted shares outstanding. For full-year 2005, we anticipate revenue in the range of $1.47 billion to $1.50 billion, and net earnings per diluted share of $1.36 to $1.42." A review of the results for the fourth quarter and additional details on management's outlook for the first quarter of 2005 will take place during the Company's scheduled fourth quarter earnings call.

Guidance for 2005 does not include either our pending acquisition of SummaCare, Inc. or the effect of new accounting rules requiring the expensing of stock options. The Financial Accounting Standards Board (FASB) has recently issued FASB Statement No. 123R, "Share-Based Payment," which covers a wide range of share-based compensation arrangements, including stock options. The Statement is effective for quarters beginning after June 15, 2005. Centene plans to begin the expensing of stock options effective July 1, 2005, in accordance with the requirements of FASB Statement No. 123 and expects to provide the estimated impact of this change during the second quarter earnings conference call.

Conference Call

As previously announced, the Company will host a conference call tomorrow, February 8, 2005, at 8:30 a.m. (Eastern Time) to review the financial results for the quarter and year-ended December 31, 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 p.m. (Eastern Time) on February 22, 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 3279480.

About Centene Corporation

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

The information provided in the second through sixth paragraphs immediately following the listings under "Additional Highlights" and the paragraphs under "Outlook" above contain forward-looking statements that relate to future events and future financial performance of Centene. These forward-looking statements represent the Company's estimates as of February 7, 2005. 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)

                                                       December 31,
                                                   -------------------
                                                      2004      2003
                                                    --------  --------
                      ASSETS
Current assets:
 Cash and cash equivalents                         $ 84,105  $ 64,346
 Premium and related receivables, net of
  allowances of $462 and $607, respectively          31,475    20,308
 Short-term investments, at fair value (amortized
  cost $94,442 and $15,192, respectively)            94,283    15,160
 Other current assets                                14,429    10,487
                                                    --------  --------
 Total current assets                               224,292   110,301
Long-term investments, at fair value (amortized
 cost $117,177 and $183,749, respectively)          116,787   184,811
Restricted deposits, at fair value (amortized cost
 $22,295 and $20,201, respectively)                  22,187    20,364
Property, software and equipment                     43,248    23,106
Goodwill                                            101,631    13,066
Other intangible assets                              14,439     6,294
Other assets                                          5,350     4,750
                                                    --------  --------
 Total assets                                      $527,934  $362,692
                                                    ========  ========

      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Medical claims liabilities                        $165,980  $106,569
 Accounts payable and accrued expenses               31,737    17,965
  Unearned revenue                                    3,956     3,673
  Current portion of long-term debt and notes
   payable                                              486       579
                                                    --------  --------
 Total current liabilities                          202,159   128,786
Long-term debt                                       46,973     7,616
Other liabilities                                     7,490     6,175
                                                    --------  --------
 Total liabilities                                  256,622   142,577
Stockholders' equity:
 Common stock, $.001 par value; authorized
  100,000,000 shares; issued and outstanding
  41,316,122 and 40,263,848 shares, respectively         41        40
 Additional paid-in capital                         165,391   157,360
 Accumulated other comprehensive income:
  Unrealized (loss) gain on investments, net of
   tax                                                 (407)      740
  Retained earnings                                 106,287    61,975
                                                    --------  --------
  Total stockholders' equity                        271,312   220,115
                                                    --------  --------
  Total liabilities and stockholders' equity       $527,934  $362,692
                                                    ========  ========
                 CENTENE CORPORATION AND SUBSIDIARIES

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


                      THREE MONTHS ENDED            YEAR ENDED
                         DECEMBER 31,              DECEMBER 31,
                   ------------------------- -------------------------
                       2004         2003         2004         2003
                    -----------  -----------  -----------  -----------
                          (Unaudited)

Revenues:
  Premiums         $   286,117  $   204,478  $   991,673  $   759,763
  Services               1,947        2,833        9,267        9,967
                    -----------  -----------  -----------  -----------
   Total revenues      288,064      207,311    1,000,940      769,730
                    -----------  -----------  -----------  -----------
Expenses:
  Medical costs        229,756      166,069      800,476      626,192
  Cost of services       1,916        2,054        8,065        8,323
  General and
   administrative
   expenses             38,948       25,384      127,863       88,288
                    -----------  -----------  -----------  -----------
   Total operating
    expenses           270,620      193,507      936,404      722,803
                    -----------  -----------  -----------  -----------
   Earnings from
    operations          17,444       13,804       64,536       46,927
Other income
 (expense):
  Investment and
   other income          1,902        1,684        6,431        5,160
  Interest expense        (363)         (92)        (680)        (194)
                    -----------  -----------  -----------  -----------
    Earnings before
     income taxes       18,983       15,396       70,287       51,893
Income tax expense       6,973        5,699       25,975       19,504
Minority interest           --           --           --          881
                    -----------  -----------  -----------  -----------
   Net earnings    $    12,010  $     9,697  $    44,312  $    33,270
                    ===========  ===========  ===========  ===========
Earnings per share:
   Basic earnings
    per common
    share          $      0.29  $      0.24  $      1.09  $      0.93
   Diluted
    earnings per
    common share   $      0.27  $      0.23  $      1.02  $      0.87
Weighted average
 number of shares
 outstanding:
  Basic             41,199,463   40,200,570   40,820,909   35,704,426
  Diluted           44,309,636   43,083,836   43,616,445   38,422,152
                 CENTENE CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands)

                                               Year Ended December 31,
                                               ----------------------
                                                  2004        2003
                                                ---------   ---------
Cash flows from operating activities:
Net earnings                                   $  44,312   $  33,270
Adjustments to reconcile net earnings to net
 cash provided by operating activities --
  Depreciation and amortization                   10,014       6,448
  Stock compensation expense                         650         188
  Minority interest                                   --        (881)
  Gain on sale of investments                       (138)     (1,646)
Changes in assets and liabilities --
  Premium and related receivables                   (425)     (2,364)
  Other current assets                              (786)     (3,180)
  Deferred income taxes                           (1,638)        772
  Other assets                                      (728)        223
  Medical claims liabilities                      34,501      15,053
  Unearned revenue                                   283       3,673
  Accounts payable and accrued expenses            6,483       3,897
  Other operating activities                       6,877         546
                                                ---------   ---------
    Net cash provided by operating activities     99,405      55,999
                                                ---------   ---------
Cash flows from investing activities:
 Purchase of property, software and equipment    (25,009)    (19,162)
 Purchase of investments                        (254,358)   (435,282)
 Sales and maturities of investments             243,623     319,564
 Acquisitions, net of cash acquired              (86,739)     (5,861)
                                                ---------   ---------
    Net cash used in investing activities       (122,483)   (140,741)
                                                ---------   ---------
Cash flows from financing activities:
 Proceeds from issuance of common stock               --      81,313
 Proceeds from exercise of stock options           4,066       1,145
 Proceeds from borrowings                         45,860       8,581
 Reduction of long-term debt and notes payable    (6,596)       (386)
 Other financing activities                         (493)     (1,221)
                                                ---------   ---------
    Net cash provided by financing activities     42,837      89,432
                                                ---------   ---------
    Net increase (decrease) in cash and cash
     equivalents                                  19,759       4,690
                                                ---------   ---------
Cash and cash equivalents, beginning of period    64,346      59,656
                                                ---------   ---------
Cash and cash equivalents, end of period       $  84,105   $  64,346
                                                =========   =========

 Interest paid                                 $     494   $     176
 Income taxes paid                             $  20,518   $  19,935
                          CENTENE CORPORATION

                      SUPPLEMENTAL FINANCIAL DATA

                                      Q4       Q3       Q2       Q1
                                     2004     2004     2004     2004
                                    -------  -------  -------  -------
MEMBERSHIP
   Indiana                          150,600  150,000  132,900  125,400
   Kansas                            94,200       --       --       --
   Missouri                          41,200       --       --       --
   New Jersey                        52,800   53,200   54,000   54,000
   Ohio                              23,800   23,500   23,800   23,800
   Texas                            244,300  250,200  155,300  154,000
   Wisconsin                        165,800  164,700  167,300  165,200
                                    -------  -------  -------  -------
TOTAL                               772,700  641,600  533,300  522,400
                                    =======  =======  =======  =======

   Medicaid                         580,200  479,500  460,300  446,900
   SCHIP                            182,100  152,100   63,200   65,900
   SSI                               10,400   10,000    9,800    9,600
                                    -------  -------  -------  -------
TOTAL                               772,700  641,600  533,300  522,400
                                    =======  =======  =======  =======

REVENUE PER MEMBER                  $139.38  $144.70  $145.31  $145.19

CLAIMS
   Period-end inventory             150,300  141,200   89,700  102,300
   Average inventory                128,300   96,800   98,800  107,400
   Period-end inventory per member     0.19     0.22     0.17     0.20


DAYS IN CLAIMS PAYABLE (a)             66.5     57.3     53.5     55.4

(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)       18.2%    18.2%    18.2%    17.9%

(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 Ended    Year Ended
                                      December 31,       December 31,
                                   ------------------ ----------------
                                     2004     2003     2004     2003
                                    -------  -------  -------  -------
Medicaid and SCHIP                    80.2%    80.7%    80.4%    81.7%
SSI                                   84.7     98.9     93.8    102.5
  Total                               80.3     81.2     80.7     82.4
GENERAL AND ADMINISTRATIVE EXPENSE RATIO BY BUSINESS SEGMENT:

                                   Three Months Ended    Year Ended
                                      December 31,       December 31,
                                   ------------------ ----------------
                                     2004     2003     2004     2003
                                    -------  -------  -------  -------
Medicaid Managed Care                 11.4%    10.2%    10.7%    10.3%
Specialty Services                    53.7     53.5     52.3     38.2
  Total                               13.5     12.2     12.8     11.5



                       MEDICAL CLAIMS LIABILITIES
                            (In thousands)

The changes in medical claims liabilities are summarized as follows:

                                       2004
                                     ---------
Balance, December 31, 2003          $ 106,569
Acquisitions                           24,909
Incurred related to:
   Current period                     816,448
   Prior period                       (15,972)
                                     ---------
      Total incurred                  800,476
                                     ---------
Paid related to:
   Current period                     681,810
   Prior period                        84,164
                                     ---------
      Total paid                      765,974
                                     ---------
Balance, December 31, 2004          $ 165,980
                                     =========

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.

SOURCE: Centene Corporation

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