Centene Corporation Reports Twenty-Third Consecutive Quarter of Increased Profitability

April 25, 2005 at 4:13 PM EDT

ST. LOUIS, Apr 25, 2005 (BUSINESS WIRE) -- Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended March 31, 2005.

First Quarter Highlights

-- Revenues of $332.4 million, a 47% increase from the first quarter of 2004.

-- Earnings from operations of $21.3 million, a 45% increase from the first quarter of 2004.

-- Earnings per diluted share of $0.32, a 33% increase from the first quarter of 2004.

-- Membership growth of 49% from the first quarter of 2004.

-- Operating cash flows of $19.9 million, a 61% increase from the first quarter of 2004.

-- Days in claims payable of 59.7.

-- Signed definitive agreement to acquire Medicaid assets of SummaCare, Inc. in Akron, Ohio; transaction to add approximately 39,000 members.

-- Specialty group awarded a $78 million behavioral health contract in Arizona.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, said, "The first quarter of 2005 marked our twenty-third consecutive quarter of consistent earnings growth and was consistent with our expectations. This quarter continued to show strong organic growth in membership of 23%, and combined with acquisition growth of 26%. We are confident that our goal to be a total low-cost producer and our strategy of building a multi-line enterprise will continue to offer predictability and strong long-term growth.

"We are pleased with the collective progress in our states and in particular the solid year-over-year growth in our Indiana, Texas and Wisconsin markets. The State of Indiana recently announced plans to convert its remaining counties to mandated status by the end of 2005, which will add approximately 150,000 Medicaid eligible members in managed care programs. In Wisconsin, membership growth was solid and the rollout of SSI is underway and will occur throughout 2005. In Kansas, our FirstGuard subsidiary has recently lifted its membership cap, which will allow for future expansion. While Missouri is in the process of finalizing legislation to reduce benefits to Medicaid beneficiaries, we expect these changes will only marginally affect our membership. In Ohio, we are preparing for the close of our SummaCare acquisition, effective May 1, 2005.

"In Texas, the service area expansion for the STAR+PLUS (SSI) population is still being reviewed by the legislature and administration. We remain optimistic about the expansion efforts and believe that they will create an opportunity to benefit more recipients while producing cost savings for the state. Although we do not presently have at-risk SSI membership in Texas, we are working to support organizations that do. We are proponents of any change that creates better public policy to protect members and providers, and promotes a more efficient and cost-effective healthcare environment.

"We are pleased with the progress in our specialty companies, particularly with the new Arizona contract, which will be effective July 1, 2005, and is expected to generate annualized revenues of approximately $78 million. Giving effect to the Arizona contract, we will have an annual run rate approaching $100 million in this segment, and we expect continuing growth in revenue from our specialty companies," concluded Neidorff.

Membership totaled 777,300, a 48.8% increase from 522,400 at March 31, 2004. The following table depicts membership in Centene's managed care organizations by state at March 31, 2005 and 2004:

2005        2004
                                               ----------- -----------
Indiana                                           149,900     125,400
Kansas                                             94,900          --
Missouri                                           41,300          --
New Jersey                                         52,700      54,000
Ohio                                               23,900      23,800
Texas                                             243,700     154,000
Wisconsin                                         170,900     165,200
                                               ----------- -----------

TOTAL                                             777,300     522,400
                                               =========== ===========

The following table depicts membership in Centene's managed care organizations by member category at March 31, 2005 and 2004:

2005       2004
                                              ----------- ----------
Medicaid                                         588,100    446,900
SCHIP                                            178,500     65,900
SSI                                               10,700(a)   9,600(b)
                                              ----------- ----------

TOTAL                                            777,300    522,400
                                              =========== ==========

       (a)  4,500 at-risk; 6,200 ASO
       (b)  4,400 at-risk; 5,200 ASO

Statement of Earnings Highlights

-- For the first quarter of 2005, revenues increased 47.4% to $332.4 million from $225.5 million in the first quarter of 2004.

-- The health benefits ratio (HBR), which reflects medical costs as a percent of premium revenues, was 80.9% compared to 81.0% for the same period in 2004. The HBR for the SSI category was 94.6%, and is still expected to be volatile given Centene's relatively small member base.

-- General and administrative (G&A) expenses as a percent of revenues were 12.8% in the first quarter of 2005 compared to 12.6% in the first quarter of 2004.

-- Earnings from operations increased 45.2% to $21.3 million from $14.7 million in 2004.

-- Net earnings were $14.4 million, or $0.32 per diluted share, compared to $10.1 million, or $0.24 per diluted share, for the first quarter of 2004.

Balance Sheet and Cash Flow Highlights

At March 31, 2005, the Company held cash and investments of $337.1 million, a portion of which is restricted due to state regulatory requirements. Medical claims liabilities totaled $177.6 million, representing 59.7 days in claims payable. A reconciliation of the Company's change in days in claims payable from the immediately preceding quarter is presented below:

Days in claims payable, December 31, 2004                        66.5
Effect of full quarter of FirstGuard expense                     (9.4)
Increase in claims inventory                                      2.0
Increase in physician settlements                                 0.4
Increase in pharmacy payables                                     0.2
                                                               -------
Days in claims payable, March 31, 2005                           59.7
                                                               =======

Cash flows from operating activities of $19.9 million for the quarter ended March 31, 2005; a 60.8% increase year-over-year.

Outlook

Karey L. Witty, Centene's Chief Financial Officer, commented, "For the second quarter of 2005, we expect revenue in the range of $343 million to $346 million, net of experience rebates, and net earnings of $0.33 to $0.34 per diluted share. For the full-year 2005, we anticipate revenue in the range of $1.50 billion to $1.53 billion and net earnings of $1.38 to $1.44 per diluted share. We continue to maintain organic membership growth of 10% to 12%, year-over-year. This guidance reflects the close of our previously announced SummaCare transaction, effective May 1, 2005, as well as our previously announced behavioral health contract award in Arizona, effective July 1, 2005. We anticipate spending approximately $1.5 million during the second quarter in preparation for the Arizona contract effective date. This guidance excludes any impact of the Texas STAR+PLUS (SSI) rollout, the potential impact of any other acquisitions we may undertake during 2005, and expenses related to stock option grants under SFAS 123R. The SEC has delayed our required implementation date of SFAS 123R to January 1, 2006, and we anticipate expensing options commencing on that date."

Conference Call

As previously announced, the Company will host a conference call tomorrow, April 26, 2005, at 8:30 a.m. (Eastern Time) to review the financial results for the quarter ended March 31, 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 United States and Canada, and (706) 679-8592 for international participants, or via a live Internet broadcast at the Company's website, www.centene.com, under the Investor Relations section. A replay of the call will be available from April 26, 2005, shortly after completion of the call until 11:59 p.m. (Eastern Time) on May 4, 2005 at the aforementioned URL, or by dialing (800) 642-1687 in the United States and (706) 645-9291 from abroad and entering access code 5171495.

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 first, second and fourth paragraphs following the bullet listing under "First Quarter Highlights" and in 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)

                                              March 31,   December 31,
                                                 2005         2004
                                             ------------ ------------
                                             (Unaudited)

                  ASSETS
Current assets:
      Cash and cash equivalents                 $103,276      $84,105
      Premium and related receivables, net
       of allowances of $145 and $462,
       respectively                               36,987       31,475
      Short-term investments, at fair value
       (amortized cost $89,466 and $94,442,
       respectively)                              89,288       94,283
      Other current assets                        19,689       14,429
                                             ------------ ------------
            Total current assets                 249,240      224,292
Long-term investments, at fair value
 (amortized cost $124,630 and $117,177,
 respectively)                                   122,536      116,787
Restricted deposits, at fair value
 (amortized cost $22,299 and $22,295,
 respectively)                                    21,994       22,187
Property, software and equipment                  45,264       43,248
Goodwill                                         101,830      101,631
Other intangible assets                           13,889       14,439
Other assets                                       6,031        5,350
                                             ------------ ------------
            Total assets                        $560,784     $527,934
                                             ============ ============

   LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
      Medical claims liabilities                $177,582     $165,980
      Accounts payable and accrued expenses       39,995       31,737
      Unearned revenue                             3,935        3,956
      Current portion of long-term debt and
       notes payable                                 486          486
                                             ------------ ------------
            Total current liabilities            221,998      202,159
Long-term debt                                    42,852       46,973
Other liabilities                                  5,935        7,490
                                             ------------ ------------
            Total liabilities                    270,785      256,622
Stockholders' equity:
      Common stock, $.001 par value;
       authorized 100,000,000 shares;
       issued and outstanding 41,787,406
       and 41,316,122 shares, respectively            42           41
      Additional paid-in capital                 170,857      165,391
      Accumulated other comprehensive
       income:
            Unrealized loss on investments,
             net of tax                           (1,598)        (407)
      Retained earnings                          120,698      106,287
                                             ------------ ------------
            Total stockholders' equity           289,999      271,312
                                             ------------ ------------
            Total liabilities and
             stockholders' equity               $560,784     $527,934
                                             ============ ============


                 CENTENE CORPORATION AND SUBSIDIARIES

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

                                                 Three Months Ended
                                                      March 31,
                                               -----------------------
                                                  2005        2004
                                               ----------- -----------
                                                     (Unaudited)
Revenues:
   Premiums                                      $330,944    $222,690
   Services                                         1,432       2,835
                                               ----------- -----------
      Total revenues                              332,376     225,525
                                               ----------- -----------
Expenses:
   Medical costs                                  267,756     180,448
   Cost of services                                   843       2,016
   General and administrative expenses             42,459      28,377
                                               ----------- -----------
      Total operating expenses                    311,058     210,841
                                               ----------- -----------
         Earnings from operations                  21,318      14,684
Other income (expense):
   Investment and other income                      2,120       1,510
   Interest expense                                  (562)        (90)
                                               ----------- -----------
         Earnings before income taxes              22,876      16,104
 Income tax expense                                 8,465       5,966
                                               ----------- -----------
      Net earnings                                $14,411     $10,138
                                               =========== ===========

Earnings per share:
   Basic earnings per common share                  $0.35       $0.25
   Diluted earnings per common share                $0.32       $0.24

Weighted average number of shares
   outstanding:
   Basic                                       41,560,587  40,384,018
   Diluted                                     44,861,989  43,067,740


                 CENTENE CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands)

                                                    Three Months Ended
                                                        March 31,
                                                    ------------------
                                                      2005     2004
                                                    --------- --------
                                                         (Unaudited)

Cash flows from operating activities:
   Net earnings                                      $14,411  $10,138
   Adjustments to reconcile net earnings to net
    cash provided by operating activities --
         Depreciation and amortization                 2,782    2,271
         Deferred income taxes                          (983)    (755)
         Tax benefits related to stock options         2,871      786
         Stock compensation expense                    1,091       19
         Loss (gain) on sale of investments               10     (253)
   Changes in assets and liabilities --
         Premium and related receivables              (5,512)  (1,326)
         Other current assets                         (4,268)  (1,476)
         Other assets                                   (491)      13
         Medical claims liabilities                   11,602    3,272
         Unearned revenue                                (21)      63
         Accounts payable and accrued expenses        (2,446)   1,211
         Other operating activities                      831   (1,598)
                                                    --------- --------
                  Net cash provided by operating
                   activities                         19,877   12,365
                                                    --------- --------
Cash flows from investing activities:
   Purchase of property, software and equipment       (3,665)  (2,126)
   Purchase of investments                           (21,767) (93,742)
   Sales and maturities of investments                27,542   69,814
   Acquisitions, net of cash acquired                     --   (6,983)
                                                    --------- --------
                  Net cash provided by (used in)
                   investing activities                2,110  (33,037)
                                                    --------- --------
Cash flows from financing activities:
   Reduction of long-term debt and notes payable      (4,121)    (363)
   Proceeds from stock options and employee stock
    purchase plan                                      1,390    1,052
   Other financing                                       (85)      --
                                                    --------- --------
                  Net cash (used in) provided by
                   financing activities               (2,816)     689
                                                    --------- --------
                  Net increase (decrease) in cash
                   and cash equivalents               19,171  (19,983)
                                                    --------- --------
Cash and cash equivalents, beginning of period        84,105   64,346
                                                    --------- --------
Cash and cash equivalents, end of period            $103,276  $44,363
                                                    ========= ========

   Interest paid                                        $692      $91
   Income taxes paid                                  $1,133   $3,390


                          CENTENE CORPORATION

                      SUPPLEMENTAL FINANCIAL DATA

                                      Q1       Q4       Q3       Q2
                                    2005     2004     2004     2004
                                   -------- -------- -------- --------
MEMBERSHIP
   Indiana                         149,900  150,600  150,000  132,900
   Kansas                           94,900   94,200       --       --
   Missouri                         41,300   41,200       --       --
   New Jersey                       52,700   52,800   53,200   54,000
   Ohio                             23,900   23,800   23,500   23,800
   Texas                           243,700  244,300  250,200  155,300
   Wisconsin                       170,900  165,800  164,700  167,300
                                   -------- -------- -------- --------
TOTAL                              777,300  772,700  641,600  533,300
                                   ======== ======== ======== ========

   Medicaid                        588,100  580,200  479,500  460,300
   SCHIP                           178,500  182,100  152,100   63,200
   SSI                              10,700   10,400   10,000    9,800
                                   -------- -------- -------- --------
TOTAL                              777,300  772,700  641,600  533,300
                                   ======== ======== ======== ========

REVENUE PER MEMBER                 $142.15  $139.38  $144.70  $145.31

CLAIMS
   Period-end inventory            227,700  150,300  141,200   89,700
   Average inventory               191,900  128,300   96,800   98,800
   Period-end inventory per member    0.29     0.19     0.22     0.17

DAYS IN CLAIMS PAYABLE (a)            59.7     66.5     57.3     53.5

(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)       20.5%    18.2%    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 Ended
                                                       March 31,
                                                   2005        2004
                                                 ----------  ---------
Medicaid and SCHIP                                    80.7%      80.6%
SSI                                                   94.6       99.3
  Total                                               80.9       81.0


GENERAL AND ADMINISTRATIVE EXPENSE RATIO BY BUSINESS SEGMENT:

                                                   Three Months Ended
                                                        March 31,
                                                     2005      2004
                                                   ---------  --------
Medicaid Managed Care                                  10.8%     10.4%
Specialty Services                                     50.2      52.9
  Total                                                12.8      12.6


                      MEDICAL CLAIMS LIABILITIES
                            (In thousands)

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

Balance, March 31, 2004                                      $109,841
Acquisitions                                                   24,909
Incurred related to:
   Current period                                             897,838
   Prior period                                               (10,054)
                                                             ---------
      Total incurred                                          887,784
                                                             ---------
Paid related to:
   Current period                                             755,468
   Prior period                                                89,484
                                                             ---------
      Total paid                                              844,952
                                                             ---------
Balance, March 31, 2005                                      $177,582
                                                             =========

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