- Centene Corporation Reports 2013 Third Quarter Earnings Of $0.87 Per Diluted Share -

Oct 22, 2013, 06:00 ET from Centene Corporation

ST. LOUIS, Oct. 22, 2013 /PRNewswire/ -- Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended September 30, 2013. 

Premium and Service Revenues (in millions)

$

2,734

Consolidated Health Benefits Ratio

87.7

%

General & Administrative expense ratio

9.3

%

Diluted earnings per share (EPS)

$

0.87

Cash flow from operations (in millions)

$

130.7

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "The quarter and year to date results reflect the efforts and growing capabilities of all our employees who are committed to delivering high quality and lower cost services."

Third Quarter Highlights

  • Quarter-end at-risk managed care membership of 2,612,500, an increase of 109,500 members, or 4% year over year.
  • Premium and service revenues of $2.7 billion, representing 24% growth year over year.
  • Health Benefits Ratio of 87.7%, compared to 93.3% in 2012.
  • General and Administrative expense ratio of 9.3%, compared to 8.2% in 2012.
  • Operating cash flow of $130.7 million for the third quarter of 2013, or 2.7 times net earnings.
  • Diluted EPS of $0.87, compared to $0.07 in 2012.

Other Events

  • In August 2013, our Florida subsidiary, Sunshine State Health Plan, began operating under a contract with the Florida Agency for Health Care Administration to serve members of the Medicaid Managed Care Long Term Care program. Enrollment began in August 2013 and will be implemented by region and continue through March 2014.
  • In August 2013, Moody's Investor Service affirmed our senior debt rating of Ba2 and raised the outlook of the Company to stable.
  • In September 2013, the Florida Agency for Health Care Administration provided notice of intent to award a contract to our subsidiary, Sunshine State Health Plan, in 9 of 11 regions of the Managed Medical Assistance (MMA) program. The MMA program includes TANF recipients as well as ABD and dual eligible members. The award is subject to challenge and contract readiness periods, with enrollment expected to begin in the second quarter of 2014 and continue through October 2014. In addition, we were recommended as the sole provider under a contract award for the Child Welfare Specialty Plan (Foster Care), expected to commence in the second quarter of 2014.
  • In September 2013, we were tentatively awarded a contract with the Massachusetts Executive Office of Health and Human Services to participate in the MassHealth CarePlus program in all five regions, with operations expected to begin in January 2014. Under the contract, our subsidiary, CeltiCare, will provide comprehensive healthcare services for eligible non-pregnant Medicaid adults. Services will include medical, behavioral health, dental, vision, pharmacy, therapies and transportation.
  • In September 2013, we were tentatively awarded a contract in Texas from the Texas Health and Human Services Commission to expand our operations and serve STAR+PLUS members in two Medicaid Rural Service Areas. Upon successful negotiations, execution of a contract and regulatory approval, enrollment is expected to begin in the second half of 2014.
  • In September 2013, our joint venture subsidiary, Centurion, began operating under a new contract to provide comprehensive healthcare services to individuals incarcerated in Tennessee state correctional facilities.
  • In September 2013, we received approval from the Centers for Medicare & Medicaid Services (CMS) to operate health insurance exchanges in Arkansas, Florida, Georgia, Indiana, Mississippi, Ohio and Texas. We also received approval from Massachusetts and Washington to participate in their state-based exchanges. Enrollment began in October 2013 and coverage is expected to commence in January 2014.
  • In September 2013, our Wisconsin subsidiary, Managed Health Services, and South Carolina subsidiary, Absolute Total Care, both earned Commendable ratings from the National Committee for Quality Assurance (NCQA).
  • In October 2013, our joint venture subsidiary, Centurion, executed an agreement with the Minnesota Department of Corrections to provide managed healthcare services to offenders in the state's correctional facilities. Operations are expected to begin in the first quarter of 2014.

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

September 30,

2013

2012

Arizona

23,700

23,800

Florida

217,800

209,600

Georgia

314,100

312,400

Illinois

22,800

17,900

Indiana

198,400

205,400

Kansas

137,700

Kentucky

145,400

Louisiana

152,600

167,200

Massachusetts

23,200

28,000

Mississippi

76,900

30,600

Missouri

58,200

53,900

Ohio

170,900

173,800

South Carolina

89,400

89,400

Tennessee

20,400

Texas

957,300

930,700

Washington

77,100

42,000

Wisconsin

72,000

72,900

Total

2,612,500

2,503,000

 

Membership by line of business:

September 30,

2013

2012

Medicaid

1,953,300

1,939,400

CHIP & Foster Care

274,900

229,600

ABD & Medicare

302,000

289,800

Hybrid Programs

19,600

35,700

Long-term Care

31,600

8,500

Correctional Services

31,100

Total

2,612,500

2,503,000

 

Dual eligible membership (included in tables above):

September 30,

2013

2012

ABD

72,000

69,800

Long-term Care

19,600

7,800

Medicare

6,100

4,000

Total

97,700

81,600

Statement of Operations: Three Months Ended September 30, 2013

We have provided additional detail below on our quarterly results to further understand the changes in quarterly earnings per diluted share as compared to the third quarter 2012.  During the third quarter 2013, we recorded net earnings of $0.87 per diluted share compared to $0.07 in the corresponding period in 2012 reflecting the following:

2013

2012

Net earnings per diluted share

$

0.87

$

0.07

Loss from Kentucky operations & premium deficiency reserve

0.01

1.03

Gains on sales of investments

(0.21)

State tax benefit

(0.08)

Total, excluding above items

$

0.88

$

0.81

 

  • For the third quarter of 2013, Premium and Service Revenues increased 24% to $2.7 billion from $2.2 billion in the third quarter of 2012. The increase was primarily driven as a result of the addition of the Kansas contract on January 1, 2013, increased membership and premium rates in Texas, expansions in Mississippi and Florida and the acquisition of AcariaHealth, partially offset by decreased revenue in Kentucky as a result of our exit.
  • Consolidated HBR of 87.7% for the third quarter of 2013 represents a decrease from 93.3% in the comparable period in 2012 and a decrease from 88.8% in the second quarter of 2013. Excluding our Kentucky health plan operations, the third quarter 2012 HBR was 88.7%. The HBR improvement compared to both periods reflects the rate increase in Texas as well as a continued level of moderate utilization.
  • The following table compares the results for new business and existing business for the quarters ended September 30,:

2013

2012

Premium and Service Revenue

New business

14

%

32

%

Existing business

86

%

68

%

HBR

New business

96.5

%

106.5

%

Existing business

86.3

%

87.0

%

  • Consolidated G&A expense ratio for the third quarter of 2013 was 9.3%, compared to 8.2% in the prior year. The year over year increase reflects an increase in performance based compensation expense in 2013 and higher start-up costs, partially offset by the leveraging of expenses over higher revenue in 2013.
  • Earnings from operations were $82.2 million in the third quarter of 2013 compared to a loss from operations of $(27.6) million in the third quarter of 2012. Net earnings attributable to Centene Corporation were $49.4 million in the third quarter of 2013, compared to $3.8 million in the third quarter of 2012.

Balance Sheet and Cash Flow

At September 30, 2013, the Company had cash, investments and restricted deposits of $1,721.7 million, including $37.6 million held by its unregulated entities.  Medical claims liabilities totaled $1,071.7 million, representing 42.9 days in claims payable.  Total debt was $521.0 million which includes no borrowings on the $500 million revolving credit facility at quarter end.  Debt to capitalization was 27.4% at September 30, 2013, excluding the $73.4 million non-recourse mortgage note.  Cash flow from operations for the three months ended September 30, 2013, was $130.7 million.

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, June 30, 2013

43.7

Timing of claim payments

(0.8)

Days in claims payable, September 30, 2013

42.9

Outlook

The table below depicts the Company's annual guidance for 2013.

Full Year 2013

Low

High 

Premium and Service Revenues (in millions)

$

10,600

$

10,800

Diluted EPS

$

2.77

$

2.87

Consolidated Health Benefits Ratio

88.5

%

89.0

%

General & Administrative expense ratio

8.8

%

9.2

%

Diluted Shares Outstanding (in thousands)

56,000

56,500

Conference Call

As previously announced, the Company will host a conference call Tuesday, October 22, 2013, at 8:30 A.M. (Eastern Time) to review the financial results for the third quarter ended September 30, 2013, 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, October 21, 2014, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 a.m. (Eastern Time) on Wednesday, October 30, 2013, by dialing 1-877-344-7529 in the U.S. and Canada, or +1-412-317-0088 from abroad, and entering access code 10033731.

Other Information

The discussion in the third bullet under the heading "Statement of Operations: Three Months Ended September 30, 2013" contains financial information for new and existing businesses.  Existing businesses are primarily state markets or significant geographic expansion in an existing state or product that we have managed for four complete quarters.  New businesses are primarily new state markets or significant geographic expansion in an existing state or product that conversely, we have not managed for four complete quarters.

Non-GAAP Financial Presentation

The Company is providing certain non-GAAP financial measures in this release as the Company believes that these figures are helpful in allowing individuals to more accurately assess the ongoing nature of the Company's operations and measure the Company's performance more consistently. The Company uses the presented non-GAAP financial measures such as internally to allow management to focus on period-to-period changes in the Company's core business operations. Therefore, the Company believes that this information is meaningful in addition to the information contained in the GAAP presentation of financial information. The presentation of this additional non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

About Centene Corporation

Centene Corporation, 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 (LTC), in addition to other state-sponsored/hybrid programs, and Medicare (Special Needs Plans).  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, care management software, correctional systems healthcare, life and health management, managed vision, pharmacy benefits management, specialty pharmacy and telehealth services.

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 and reserves, 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)

September 30, 2013

December 31, 2012

ASSETS

Current assets:

Cash and cash equivalents

$

741,281

$

843,952

Premium and related receivables

355,947

263,452

Short-term investments

122,631

139,118

Other current assets

148,576

127,080

Total current assets

1,368,435

1,373,602

Long-term investments

816,910

614,723

Restricted deposits

40,911

34,793

Property, software and equipment, net

390,200

377,726

Goodwill

347,548

256,288

Intangible assets, net

50,541

20,268

Other long-term assets

124,492

64,282

Total assets

$

3,139,037

$

2,741,682

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Medical claims liability

$

1,071,672

$

926,302

Premium deficiency reserve

41,475

Accounts payable and accrued expenses

270,381

191,343

Unearned revenue

41,873

34,597

Current portion of long-term debt

3,046

3,373

Total current liabilities

1,386,972

1,197,090

Long-term debt

517,931

535,481

Other long-term liabilities

49,043

55,344

Total liabilities

1,953,946

1,787,915

Commitments and contingencies

Stockholders' equity:

Common stock, $.001 par value; authorized 100,000,000 shares; 57,872,798 issued and 54,767,551 outstanding at September 30, 2013, and 55,339,160 issued and 52,329,248 outstanding at December 31, 2012

58

55

Additional paid-in capital

578,188

450,856

Accumulated other comprehensive income:

  Unrealized (loss) gain on investments, net of tax

(1,845)

5,189

Retained earnings

678,679

566,820

Treasury stock, at cost (3,105,247 and 3,009,912 shares, respectively)

(75,541)

(69,864)

  Total Centene stockholders' equity

1,179,539

953,056

Noncontrolling interest

5,552

711

Total stockholders' equity

1,185,091

953,767

Total liabilities and stockholders' equity

$

3,139,037

$

2,741,682

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

Three Months Ended September 30,

Nine Months Ended September 30,

2013

2012

2013

2012

Revenues:

Premium

$

2,621,651

$

2,184,061

$

7,659,418

$

5,853,469

Service

112,497

28,403

251,290

84,062

Premium and service revenues

2,734,148

2,212,464

7,910,708

5,937,531

Premium tax

69,504

235,657

264,781

333,484

Total revenues

2,803,652

2,448,121

8,175,489

6,271,015

Expenses:

Medical costs

2,298,881

2,036,999

6,810,892

5,370,080

Cost of services

100,479

21,744

218,844

66,897

General and administrative expenses

253,608

181,073

694,204

512,322

Premium tax expense

68,453

235,946

262,188

333,872

Impairment loss

28,033

Total operating expenses

2,721,421

2,475,762

7,986,128

6,311,204

Earnings (loss) from operations

82,231

(27,641)

189,361

(40,189)

Other income (expense):

Investment and other income

4,946

23,244

13,703

32,580

Interest expense

(6,603)

(4,855)

(20,261)

(14,393)

Earnings (loss) before income tax expense (benefit)

80,574

(9,252)

182,803

(22,002)

Income tax expense (benefit)

31,660

(9,547)

71,967

(6,068)

Net earnings (loss)

48,914

295

110,836

(15,934)

Noncontrolling interest

(459)

(3,524)

(1,023)

(8,732)

Net earnings (loss) attributable to Centene Corporation

$

49,373

$

3,819

$

111,859

$

(7,202)

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

Basic earnings (loss) per common share

$

0.90

$

0.07

$

2.08

$

(0.14)

Diluted earnings (loss) per common share

$

0.87

$

0.07

$

2.00

$

(0.14)

Weighted average number of common shares outstanding:

Basic

54,679,660

51,584,860

53,863,779

51,393,345

Diluted

56,933,056

53,806,197

55,956,421

51,393,345

 

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

Nine Months Ended September 30,

2013

2012

Cash flows from operating activities:

Net earnings (loss)

$

110,836

$

(15,934)

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

Depreciation and amortization

50,220

49,892

Stock compensation expense

27,252

18,417

Impairment loss

28,033

Gain on sale of investment in convertible note

(17,880)

Deferred income taxes

1,626

(19,318)

Changes in assets and liabilities

Premium and related receivables

(58,587)

(139,414)

Other current assets

(19,133)

(23,487)

Other assets

(65,397)

1,918

Medical claims liabilities

103,895

374,046

Unearned revenue

7,976

122,077

Accounts payable and accrued expenses

48,840

(59,872)

Other operating activities

4,142

(11,196)

Net cash provided by operating activities

211,670

307,282

Cash flows from investing activities:

Capital expenditures

(46,383)

(70,601)

Purchases of investments

(666,016)

(501,958)

Sales and maturities of investments

451,034

434,009

Investments in acquisitions, net of cash acquired

(62,773)

Net cash used in investing activities

(324,138)

(138,550)

Cash flows from financing activities:

Proceeds from exercise of stock options

7,674

11,686

Proceeds from borrowings

30,000

215,000

Payment of long-term debt

(40,842)

(177,422)

Proceeds from stock offering

15,225

Excess tax benefits from stock compensation

1,140

6,049

Common stock repurchases

(5,677)

(2,154)

Contribution from noncontrolling interest

5,864

1,032

Debt issue costs

(3,587)

Net cash provided by financing activities

9,797

54,191

Net increase (decrease) in cash and cash equivalents

(102,671)

222,923

Cash and cash equivalents, beginning of period

843,952

573,698

Cash and cash equivalents, end of period

$

741,281

$

796,621

Supplemental disclosures of cash flow information:

Interest paid

$

16,738

$

12,127

Income taxes paid

40,921

34,001

Equity issued in connection with acquisition

75,425

CENTENE CORPORATION SUPPLEMENTAL FINANCIAL DATA

Q3

Q2

Q1

Q4

Q3

2013

2013

2013

2012

2012

AT-RISK MEMBERSHIP

Managed Care:

Arizona

23,700

23,200

23,300

23,500

23,800

Florida

217,800

216,200

214,600

214,000

209,600

Georgia

314,100

316,600

314,000

313,700

312,400

Illinois

22,800

18,000

18,000

18,000

17,900

Indiana

198,400

200,000

202,400

204,000

205,400

Kansas

137,700

137,500

133,700

Kentucky

133,500

132,700

135,800

145,400

Louisiana

152,600

153,700

162,900

165,600

167,200

Massachusetts

23,200

15,200

17,300

21,500

28,000

Mississippi

76,900

77,300

77,000

77,200

30,600

Missouri

58,200

58,800

57,900

59,600

53,900

Ohio

170,900

156,700

157,700

157,800

173,800

South Carolina

89,400

88,800

90,100

90,100

89,400

Tennessee

20,400

Texas

957,300

960,400

948,400

949,900

930,700

Washington

77,100

67,600

63,500

57,200

42,000

Wisconsin

72,000

73,400

72,600

72,400

72,900

TOTAL

2,612,500

2,696,900

2,686,100

2,560,300

2,503,000

Medicaid

1,953,300

2,051,700

2,049,200

1,977,200

1,939,400

CHIP & Foster Care

274,900

275,900

267,900

237,700

229,600

ABD & Medicare

302,000

322,500

320,700

307,800

289,800

Hybrid Programs

19,600

22,400

24,600

29,100

35,700

Long-term Care

31,600

24,400

23,700

8,500

8,500

Correctional Services

31,100

TOTAL

2,612,500

2,696,900

2,686,100

2,560,300

2,503,000

Specialty Services(a):

Cenpatico Behavioral Health

Arizona

160,700

157,100

156,200

157,900

162,000

Kansas

49,800

48,500

  TOTAL

160,700

157,100

156,200

207,700

210,500

(a) Includes external membership only.

REVENUE PER MEMBER PER MONTH(b)

$

327

$

305

$

304

$

292

$

283

CLAIMS(b)

Period-end inventory

706,100

752,800

1,020,100

641,000

826,800

Average inventory

526,000

539,800

587,800

555,200

547,400

Period-end inventory per member

0.27

0.28

0.38

0.25

0.33

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

NUMBER OF EMPLOYEES

8,200

7,900

7,100

6,800

6,400

Q3

Q2

Q1

Q4

Q3

2013

2013

2013

2012

2012

DAYS IN CLAIMS PAYABLE (c)

42.9

43.7

42.4

41.1

42.8

(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, excluding the Kentucky premium deficiency reserve liability. 

CASH AND INVESTMENTS (in millions)

Regulated

$

1,684.1

$

1,595.4

$

1,619.0

$

1,595.3

$

1,493.8

Unregulated

37.6

33.8

45.5

37.3

36.0

TOTAL

$

1,721.7

$

1,629.2

$

1,664.5

$

1,632.6

$

1,529.8

DEBT TO CAPITALIZATION

30.5

%

32.9

%

35.2

%

36.1

%

29.2

%

DEBT TO CAPITALIZATION EXCLUDING NON-RECOURSE DEBT(d)

27.4

%

29.8

%

31.9

%

32.7

%

25.0

%

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 ($73.4 million at September 30, 2013).

Operating Ratios:

Three Months Ended September 30,

Nine Months Ended September 30,

2013

2012

2013

2012

Health Benefits Ratios:

Medicaid and CHIP

84.5

%

91.4

%

88.0

%

90.6

%

ABD and Medicare

92.2

97.5

90.8

93.9

Specialty Services

86.8

87.2

84.1

91.8

Total

87.7

93.3

88.9

91.7

Total General & Administrative Expense Ratio

9.3

%

8.2

%

8.8

%

8.6

%

MEDICAL CLAIMS LIABILITY (In thousands)

The changes in medical claims liability are summarized as follows:

Balance, September 30, 2012

$

919,032

Incurred related to:

Current period

8,937,162

Prior period

(50,313)

  Total incurred

8,886,849

Paid related to:

Current period

7,888,462

Prior period

845,747

  Total paid

8,734,209

Less: Premium Deficiency Reserve

Balance, September 30, 2013

$

1,071,672

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 September 30, 2012. 

SOURCE Centene Corporation



RELATED LINKS

http://www.centene.com