- Centene Corporation Reports 2012 Second Quarter Results -

-- DILUTED EPS COMPOSED OF $(0.16) LOSS FROM OPERATIONS AND $(0.52) IMPAIRMENT CHARGE --

Jul 24, 2012, 06:00 ET from Centene Corporation

ST. LOUIS, July 24, 2012 /PRNewswire/ -- Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended June 30, 2012.  During the second quarter of 2012, the Company recorded a loss of $(0.68) per diluted share composed of a $(0.16) loss from operations and an impairment loss of $(0.52), compared to net earnings per share of $0.54 in the prior year and $0.45 in the preceding quarter.  The losses were the result of three primary factors:

  • In the Texas health plan, the Company experienced a high level of medical costs related to the March 1, 2012, expansion areas.
  • In the Kentucky health plan, the Company experienced increased medical costs primarily resulting from the retroactive assignment of members and a high level of non-inpatient claims receipts during the quarter.
  • In the Celtic subsidiary, the Company experienced a high level of medical costs related to individual health policies.  This was primarily associated with recently issued policies related to members converted from another insurer throughout the first quarter of 2012.  In addition to the operating loss, the Company also recorded an impairment loss of $28.0 million for the write down of goodwill and intangible assets in the Celtic reporting unit.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "Second quarter results were consistent with the data presented at our June 14, 2012, Investor Day.  We are actively engaged to improve the performance in Kentucky, the Texas expansion areas and the Celtic individual health business.  The balance of our portfolio is performing within normalized ranges. With a return to profitability in June, we expect a profitable third quarter with additional improvement in the fourth quarter."

Second Quarter Overview              

  • Quarter-end at-risk managed care membership of 2,397,500, an increase of 817,000 members, or 52% year over year.
  • Premium and service revenues of $2.1 billion, representing 61% growth year over year.
  • Health Benefits Ratio of 92.9%, compared to 84.8% in 2011.
  • General and Administrative expense ratio of 8.2%, compared to 11.2% in 2011.
  • Diluted net loss per share of $(0.68), including an impairment loss of $(0.52) per diluted share, compared to net earnings per share of $0.54 in the prior year.
  • Operating cash flow of $22.2 million for the second quarter of 2012.

Other Events

  • In July 2012, the Company began operating under a new contract with the Washington Health Care Authority to serve Medicaid beneficiaries in the state, initially operating as Coordinated Care. 
  • In July 2012, the Company's subsidiary, Home State Health Plan, began operating under a new contract with the Office of Administration for Missouri to serve Medicaid beneficiaries in the Eastern, Central, and Western Managed Care Regions of the state. 
  • In June 2012, the Company was notified by the Ohio Department of Job and Family Services that Buckeye Community Health Plan (Buckeye), the Company's Ohio subsidiary, was selected to be awarded a new and expanded contract to serve Medicaid members in Ohio, effective January 2013.  Under the new state contract, Buckeye will operate statewide through Ohio's three newly aligned regions (West, Central/Southeast, and Northeast).  The award remains subject to ongoing legal proceedings from other managed care organizations that were not awarded a contract.
  • In June 2012, the Company's Kansas subsidiary, Sunflower State Health Plan, was awarded a statewide contract to serve members in the state's KanCare program, which includes TANF, ABD non-duals, long-term care and CHIP beneficiaries.  Operations are expected to commence in the first quarter of 2013.  
  • In May 2012, the Company announced the Governor and Executive Council of New Hampshire had given approval for the Department of Health and Human Services to contract with the Company's subsidiary, Granite State Health Plan, to serve Medicaid beneficiaries in New Hampshire.  Operations are currently expected to commence in the first quarter of 2013.
  • In May 2012, at the Case In Point Platinum Awards, Centene won in three categories: Managed Care: Disease Management / Population Health, Medicaid Case Management, and Woman/Children's Case Management.

The following table sets forth the Company's membership by state for its managed care organizations:

June 30,

2012

2011

Arizona

24,000

22,800

Florida

204,100

190,600

Georgia

313,300

303,100

Illinois

17,800

700

Indiana

205,000

206,700

Kentucky

143,500

Louisiana

168,700

Massachusetts

41,400

32,900

Mississippi

30,100

30,800

Ohio

166,800

159,900

South Carolina

87,800

82,800

Texas

919,200

470,400

Wisconsin

75,800

79,800

Total at-risk membership

2,397,500

1,580,500

Non-risk membership

10,400

Total

2,397,500

1,590,900

The following table sets forth the Company's membership by line of business:

June 30,

2012

2011

Medicaid

1,848,500

1,172,400

CHIP & Foster Care

222,600

211,400

ABD & Medicare

269,900

156,300

Hybrid Programs

48,100

35,500

Long-term Care

8,400

4,900

Total at-risk membership

2,397,500

1,580,500

Non-risk membership

10,400

Total

2,397,500

1,590,900

The following table identifies the Company's dual eligible membership by line of business.  The membership table above includes these members.

June 30,

2012

2011

ABD

62,000

33,000

Long-term Care

7,600

4,600

Medicare

3,600

3,000

Total

73,200

40,600

Statement of Operations: Three Months Ended June 30, 2012

  • For the second quarter of 2012, Premium and Service Revenues increased 61% to $2.1 billion from $1.3 billion in the second quarter of 2011.  The increase was primarily driven by the additions between years of the Illinois, Kentucky and Louisiana contracts, Texas and Arizona expansion, pharmacy carve-ins, and membership growth. 
  • Consolidated HBR of 92.9% for the second quarter of 2012 represents an increase from 84.8% in the comparable period in 2011 and 88.2% from the first quarter of 2012.  The increase compared to last year primarily reflects (1) increased medical costs in the March 1, 2012 expansion areas in Texas, (2) increased medical costs resulting from retroactive assignment of members and increased non-inpatient claims in Kentucky, and (3) a high level of medical costs in the individual health business, especially for recently issued polices related to members converted in the first quarter of 2012.  Excluding the impact of these items, the second quarter 2012 HBR would have been 88.5%.
  • Consolidated G&A expense ratio for the second quarter of 2012 was 8.2%, compared to 11.2% in the prior year.  The year over year decrease in the G&A expense ratio reflects the leveraging of expenses over higher revenues in 2012 and a reduction in performance based compensation expense in 2012 which lowered the G&A expense ratio by 80 basis points.  The G&A ratio in 2011 reflects a 50 basis point decrease resulting from the recognition of revenue in the second quarter of 2011 from the Mississippi contract for the period January 1, 2011 through March 31, 2011.
  • Loss from operations was $(46.7) million in the second quarter 2012 compared to earnings of $55.3 million in the second quarter 2011.  Net loss attributable to Centene Corporation was $(35.0) million in the second quarter 2012, compared to net earnings of $28.4 million in the second quarter of 2011. 
  • Loss per diluted share was $(0.68) in the second quarter of 2012 compared to earnings of $0.54 in the prior year.

Balance Sheet and Cash Flow

At June 30, 2012, the Company had cash, investments and restricted deposits of $1,238.8 million, including $40.6 million held by its unregulated entities.  Medical claims liabilities totaled $859.0 million, representing 41.4 days in claims payable.  Total debt was $408.8 million which includes $55 million drawn on the $350 million revolving credit facility at quarter end (subsequently paid off in July 2012).  Debt to capitalization was 25.9% at June 30, 2012, excluding the $76.6 million non-recourse mortgage note.  Cash flow from operations for the three months ended June 30, 2012 was $22.2 million, and reflects an increase in premium receivable to $221 million due from the State of Georgia at June 30, 2012.

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, 2012

44.7

Texas pharmacy carve-in

(2.3)

Full quarter of Texas expansion

(2.4)

Timing of claim payments

1.4

Days in claims payable, June 30, 2012

41.4

The decrease in days in claims payable during the second quarter 2012 is primarily due to the following factors: (1) the carve-in of pharmacy in Texas which pays 70% faster than non-pharmacy claims; (2) the addition of the Texas expansion where the date of service to date of receipt is approximately 50% lower than the consolidated average; and (3) timing of payments at the end of the quarter.

Outlook

The table below depicts the Company's annual guidance for 2012 including business expansion costs for the recently announced contract awards in Kansas and New Hampshire. 

Full Year 2012

Low

High 

Premium and Service Revenues (in millions)

$

7,700

$

8,100

Diluted EPS (Excluding Impairment Loss)

$

1.45

$

1.65

Diluted EPS (Including Impairment Loss)

$

0.95

$

1.15

Consolidated Health Benefits Ratio

89.0

%

90.0

%

General & Administrative expense ratio

8.5

%

9.0

%

Diluted Shares Outstanding (in thousands)

53,600

53,800

The above 2012 guidance for diluted EPS includes the $28.0 million, or $26.7 million after tax, impairment loss related to the individual health business which amounts to $(0.52) per diluted share in the second quarter.  The diluted EPS calculation for the three and six months ended June 30, 2012, excludes antidilutive shares; for the full year, it is anticipated that outstanding stock awards will be dilutive and the impact of the shares will be reflected in the diluted EPS calculation, as indicated in the table above.

Conference Call

As previously announced, the Company will host a conference call Tuesday, July 24, 2012, at 8:30 A.M. (Eastern Time) to review the financial results for the second quarter ended June 30, 2012, and to discuss its business outlook.  Michael F. Neidorff and William N. Scheffel will host the conference call.  Investors and other interested parties are invited to listen to the conference call by dialing 1-877-270-2148 in the U.S. and Canada; +1-412-902-6510 from abroad; or via a live, audio webcast on the Company's website at www.centene.com, under the Investors section.  A webcast replay will be available for on-demand listening shortly after the completion of the call for the next twelve months or until 11:59 p.m. (Eastern Time) on Tuesday, July 23, 2013, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 a.m. (Eastern Time) on Wednesday, August 1, 2012, by dialing 1-877-344-7529 in the U.S. and Canada, or +1-412-317-0088 from abroad, and entering access code 10015829.

About Centene Corporation

Centene Corporation, a Fortune 500 company, is a leading multi-line healthcare enterprise that provides programs and related services to the rising number of under-insured and uninsured individuals. Many receive benefits provided under Medicaid, including the State Children's Health Insurance Program (CHIP), as well as Aged, Blind or Disabled (ABD), Foster Care and long-term care, in addition to other state-sponsored/hybrid programs, and Medicare (Special Needs Plans). Centene's CeltiCare subsidiary offers states unique, "exchange based" and other cost-effective coverage solutions for low-income populations. The Company operates local health plans and offers a range of health insurance solutions. It also contracts with other healthcare and commercial organizations to provide specialty services including behavioral health, life and health management, managed vision, telehealth services, and pharmacy benefits management.

The information provided in this press release contains 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, membership and revenue projections, timing of regulatory contract approval, changes in healthcare practices, changes in federal or state laws or regulations, changes in expected contract start dates, inflation, provider and state 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, as well as those factors disclosed in the Company's publicly filed documents. The expiration, cancellation or suspension of Centene's Medicaid Managed Care contracts, or the loss of any appeal of or protest to any such expiration, cancellation or suspension, by state governments would also negatively affect Centene.

 [Tables Follow]

CENTENE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited)

June 30, 2012

December 31, 2011

ASSETS

Current assets:

Cash and cash equivalents

$

421,894

$

573,698

Premium and related receivables

400,194

157,450

Short-term investments

152,545

130,499

Other current assets

98,805

78,363

Total current assets

1,073,438

940,010

Long-term investments

630,866

506,140

Restricted deposits

33,496

26,818

Property, software and equipment, net

379,970

349,622

Goodwill

256,288

281,981

Intangible assets, net

22,481

27,430

Other long-term assets

53,011

58,335

Total assets

$

2,449,550

$

2,190,336

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Medical claims liability

$

859,035

$

607,985

Accounts payable and accrued expenses

142,766

216,504

Unearned revenue

29,133

9,890

Current portion of long-term debt

3,302

3,234

Total current liabilities

1,034,236

837,613

Long-term debt

405,462

348,344

Other long-term liabilities

61,865

67,960

Total liabilities

1,501,563

1,253,917

Commitments and contingencies

Stockholders' equity:

Common stock, $.001 par value; authorized 100,000,000 shares; 54,320,036 issued and 51,557,064 outstanding at June 30, 2012, and 53,586,726 issued and 50,864,618 outstanding at December 31, 2011

54

54

Additional paid-in capital

450,506

421,981

Accumulated other comprehensive income:

Unrealized gain on investments, net of tax

5,842

5,761

Retained earnings

553,940

564,961

Treasury stock, at cost (2,762,972 and 2,722,108 shares, respectively)

(58,914)

(57,123)

Total Centene stockholders' equity

951,428

935,634

Noncontrolling interest

(3,441)

785

Total stockholders' equity

947,987

936,419

Total liabilities and stockholders' equity

$

2,449,550

$

2,190,336

 

CENTENE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share data) (Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2012

2011

2012

2011

Revenues:

Premium

$

2,034,558

$

1,248,588

$

3,669,408

$

2,401,365

Service

27,041

29,428

55,659

55,812

Premium and service revenues

2,061,599

1,278,016

3,725,067

2,457,177

Premium tax

49,147

36,998

97,827

74,194

Total revenues

2,110,746

1,315,014

3,822,894

2,531,371

Expenses:

Medical costs

1,890,405

1,059,120

3,333,081

2,037,687

Cost of services

21,816

20,312

45,153

40,488

General and administrative expenses

168,062

143,045

331,249

284,133

Premium tax expense

49,176

37,234

97,926

74,663

Impairment loss

28,033

28,033

Total operating expenses

2,157,492

1,259,711

3,835,442

2,436,971

Earnings (loss) from operations

(46,746)

55,303

(12,548)

94,400

Other income (expense):

Investment and other income

4,045

2,933

9,336

6,682

Debt extinguishment costs

(8,488)

(8,488)

Interest expense

(4,739)

(5,256)

(9,538)

(10,951)

Earnings (loss) from operations, before income tax expense

(47,440)

44,492

(12,750)

81,643

Income tax expense (benefit)

(8,608)

16,429

3,479

30,757

Net earnings (loss)

(38,832)

28,063

(16,229)

50,886

Noncontrolling interest

(3,833)

(311)

(5,208)

(1,233)

Net earnings (loss) attributable to Centene Corporation

$

(34,999)

$

28,374

$

(11,021)

$

52,119

Net earnings (loss) per common share attributable to Centene Corporation:

Basic earnings (loss) per common share

$

(0.68)

$

0.57

$

(0.21)

$

1.04

Diluted earnings (loss) per common share

$

(0.68)

$

0.54

$

(0.21)

$

1.00

Weighted average number of common shares outstanding:

Basic

51,515,895

50,167,052

51,320,784

49,959,892

Diluted

51,515,895

52,489,414

51,320,784

52,171,213

 

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

Six Months Ended June 30,

2012

2011

Cash flows from operating activities:

Net earnings (loss)

$

(16,229)

$50,886

Adjustments to reconcile net earnings (loss) to net cash provided by operating activities

Depreciation and amortization

33,266

28,567

Stock compensation expense

11,993

8,839

Debt extinguishment costs

8,488

Impairment loss

28,033

Deferred income taxes

9,364

(3,529)

Changes in assets and liabilities

Premium and related receivables

(232,745)

(16,146)

Other current assets

(34,105)

(4,001)

Other assets

1,520

(878)

Medical claims liabilities

251,050

24,684

Unearned revenue

19,885

(12,465)

Accounts payable and accrued expenses

(77,010)

(34,739)

Other operating activities

(4,922)

3,448

Net cash (used in) provided by operating activities

(9,900)

53,154

Cash flows from investing activities:

Capital expenditures

(57,442)

(35,128)

Purchases of investments

(406,901)

(103,239)

Sales and maturities of investments

253,719

120,448

Investments in acquisitions, net of cash acquired

(3,192)

Net cash used in investing activities

(210,624)

(21,111)

Cash flows from financing activities:

Proceeds from exercise of stock options

10,320

12,264

Proceeds from borrowings

75,000

419,183

Payment of long-term debt

(21,601)

(414,695)

Excess tax benefits from stock compensation

5,810

1,369

Common stock repurchases

(1,791)

(1,029)

Contribution from noncontrolling interest

982

244

Debt issue costs

(9,095)

Net cash provided by financing activities

68,720

8,241

Net (decrease) increase in cash and cash equivalents

(151,804)

40,284

Cash and cash equivalents, beginning of period

573,698

434,166

Cash and cash equivalents, end of period

$

421,894

$

474,450

Supplemental disclosures of cash flow information:

Interest paid

$

10,312

$

11,822

Income taxes paid

$

32,394

$

40,111

 

CENTENE CORPORATION SUPPLEMENTAL FINANCIAL DATA

Q2

Q1

Q4

Q3

Q2

2012

2012

2011

2011

2011

MEMBERSHIP

Managed Care:

Arizona

24,000

23,100

23,700

22,800

22,800

Florida

204,100

199,500

198,300

188,600

190,600

Georgia

313,300

306,000

298,200

298,000

303,100

Illinois

17,800

17,400

16,300

13,600

700

Indiana

205,000

206,300

206,900

205,300

206,700

Kentucky

143,500

145,700

180,700

Louisiana

168,700

51,300

Massachusetts

41,400

36,000

35,700

34,700

32,900

Mississippi

30,100

29,500

31,600

30,600

30,800

Ohio

166,800

161,000

159,900

162,200

159,900

South Carolina

87,800

86,700

82,900

86,500

82,800

Texas

919,200

811,000

503,800

494,500

470,400

Wisconsin

75,800

76,000

78,000

78,900

79,800

Total at-risk membership

2,397,500

2,149,500

1,816,000

1,615,700

1,580,500

Non-risk membership

4,900

10,600

10,400

TOTAL

2,397,500

2,149,500

1,820,900

1,626,300

1,590,900

Medicaid

1,848,500

1,634,800

1,336,800

1,189,900

1,172,400

CHIP & Foster Care

222,600

218,800

213,900

210,600

211,400

ABD & Medicare

269,900

247,400

218,000

171,700

156,300

Hybrid Programs

48,100

41,500

40,500

38,400

35,500

Long-term Care

8,400

7,000

6,800

5,100

4,900

Total at-risk membership

2,397,500

2,149,500

1,816,000

1,615,700

1,580,500

Non-risk membership

4,900

10,600

10,400

TOTAL

2,397,500

2,149,500

1,820,900

1,626,300

1,590,900

Specialty Services(a):

Cenpatico Behavioral Health

Arizona

159,900

162,100

168,900

175,500

173,200

Kansas

44,300

46,000

46,200

45,600

45,000

TOTAL

204,200

208,100

215,100

221,100

218,200

(a) Includes external membership only.

REVENUE PER MEMBER PER MONTH(b)

$

279

$

269

$

262

$

245

$

241

CLAIMS(b)

Period-end inventory

1,195,000

735,000

495,500

482,900

415,700

Average inventory

640,600

457,400

367,590

312,400

332,300

Period-end inventory per member

0.50

0.34

0.27

0.30

0.26

(b) Revenue per member and claims information are presented for the Managed Care at-risk members.

NUMBER OF EMPLOYEES

6,200

5,700

5,300

5,000

4,800

 

Q2

Q1

Q4

Q3

Q2

2012

2012

2011

2011

2011

DAYS IN CLAIMS PAYABLE (c)

41.4

44.7

45.3

43.6

43.4

(c) 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

$

1,198.2

$

1,166.9

$

1,198.9

$

1,079.3

$

1,061.9

Unregulated

$

40.6

$

35.5

$

38.2

$

35.9

$

36.5

TOTAL

$

1,238.8

$

1,202.4

$

1,237.1

$

1,115.2

$

1,098.4

DEBT TO CAPITALIZATION

30.1

%

26.4

%

27.3

%

28.0

%

28.1

%

DEBT TO CAPITALIZATION EXCLUDING NON-RECOURSE DEBT(d)

25.9

%

21.8

%

22.6

%

23.2

%

23.0

%

Debt to Capitalization is calculated as follows: total debt divided by (total debt + total equity).

(d) The non-recourse debt represents the Company's mortgage note payable ($76.6 million at June 30, 2012.)

 

Operating Ratios:

Three Months Ended

June 30,

Six Months Ended June 30,

2012

2011

2012

2011

Health Benefits Ratios:

Medicaid and CHIP

92.3

%

81.3

%

90.2

%

82.7

%

ABD and Medicare

92.7

90.7

91.1

89.4

Specialty Services

97.1

88.7

94.0

87.0

Total

92.9

84.8

90.8

84.9

Total General & Administrative Expense Ratio

8.2

%

11.2

%

8.9

%

11.6

%

 

MEDICAL CLAIMS LIABILITY (In thousands)       The changes in medical claims liability are summarized as follows:

Balance, June 30, 2011

$

482,913

Incurred related to:

Current period

5,678,719

Prior period

(58,579)

Total incurred

5,620,140

Paid related to:

Current period

4,826,839

Prior period

417,179

Total paid

5,244,018

Balance, June 30, 2012

$

859,035

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" amount 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.

The amount of the "Incurred related to: Prior period" above represents favorable development and includes the effects of reserving under moderately adverse conditions, new markets where we use a conservative approach in setting reserves during the initial periods of operations, receipts from other third party payors related to coordination of benefits and lower medical utilization and cost trends for dates of service prior to June 30, 2011.

SOURCE Centene Corporation



RELATED LINKS

http://www.centene.com