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2014

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

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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

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