- Centene Corporation Reports 2014 First Quarter Results & Raises Full Year Guidance - -- Diluted earnings per share (EPS) from continuing operations of $0.57 --

-- $0.79 excluding the effect of $0.16 from the health insurer fee and $0.06 of USMM transaction costs --

ST. LOUIS, April 22, 2014 /PRNewswire/ -- Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended March 31, 2014.  The following discussions, with the exception of cash flow information, are in the context of continuing operations.

Premium and Service Revenues (in millions)

$

3,352



Consolidated Health Benefits Ratio

89.3

%


General & Administrative expense ratio

8.8

%


Diluted earnings per share (EPS)

$

0.57



Diluted EPS excluding the effect of the health insurer fee and U.S. Medical Management transaction costs

$

0.79



Total cash flow from operations (in millions)

$

252.4



 

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "The Company continues to diversify and add capabilities to the business, driving significant revenue and earnings growth year over year in the first quarter of 2014.  Our guidance increase is driven by strong first quarter results across all metrics providing positive momentum for the remainder of the year."

First Quarter Highlights

  • March 31, 2014 at-risk managed care membership of 2,885,700, an increase of 332,300 members, or 13% compared to the first quarter of 2013
  • Premium and service revenues for the first quarter of $3.4 billion, representing 38% growth compared to the first quarter of 2013.
  • Health Benefits Ratio of 89.3% for the first quarter 2014, compared to 90.2% in the first quarter of 2013. 
  • General and Administrative expense ratio of 8.8% for the first quarter of 2014, compared to 8.4% in the first quarter of 2013. 
  • Operating cash flow of $252.4 million for the first quarter of 2014, or 7.8 times net earnings.
  • Diluted earnings per share of $0.57; $0.79 excluding $0.16 of net cost associated with the health insurer fee and $0.06 of U.S. Medical Management acquisition transaction costs, compared to $0.41 in 2013.

Other Events

  • In April 2014, we signed a definitive agreement to purchase a noncontrolling interest in Ribera Salud S.A., a Spanish health management group. Centene will be a joint shareholder with Ribera Salud S.A.'s remaining investor, Banco Sabadell, the fourth largest private bank in Spain.  The transaction is expected to close in 2014, subject to closing conditions and regulatory approval.

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


March 31,


2014


2013

Arizona

7,100


23,300

Arkansas

16,400


California

118,100


Florida

230,300


214,600

Georgia

331,400


314,000

Illinois

22,400


18,000

Indiana

198,700


202,400

Kansas

145,000


133,700

Louisiana

149,800


162,900

Massachusetts

50,800


17,300

Minnesota

9,400


Mississippi

85,400


77,000

Missouri

58,100


57,900

New Hampshire

37,100


Ohio

181,800


157,700

South Carolina

96,300


90,100

Tennessee

21,100


Texas

904,000


948,400

Washington

151,700


63,500

Wisconsin

70,800


72,600

 Total

2,885,700


2,553,400

 

At March 31, 2014, we served 99,700 Medicaid members in Medicaid expansion programs in California, Massachusetts, Ohio and Washington included in the table above. 

The following table sets forth our membership by line of business:


March 31,


2014


2013

Medicaid

2,169,100


1,951,300

CHIP & Foster Care

269,200


265,400

ABD & Medicare

300,500


288,400

Health Insurance Marketplace (HIM)

39,700


Hybrid Programs

14,400


24,600

Long Term Care (LTC)

51,800


23,700

Correctional services

41,000


Total

2,885,700


2,553,400

 

The following table identifies our dual eligible membership by line of business.  The membership tables above include these members.


March 31,


2014


2013

ABD

72,800


70,000

LTC

41,300


16,100

Medicare

6,500


5,300

Total

120,600


91,400

 

At March 31, 2014, the Company also served 162,700 members under its behavioral health contract in Arizona, compared to 156,200 members at March 31, 2013.

Statement of Operations: Three Months Ended March 31, 2014

  • For the first quarter of 2014, Premium and Service Revenues increased 38% to $3.4 billion from $2.4 billion in the first quarter of 2013.  The increase was primarily as a result of expansions in Florida and Ohio, the additions of the California, New Hampshire and three Centurion contracts, our participation in the Health Insurance Marketplaces, and the acquisitions of AcariaHealth and U.S. Medical Management.
  • Consolidated HBR of 89.3% for the first quarter of 2014 represents a decrease from 90.2% in the comparable period in 2013 and an increase from 88.1% in the fourth quarter of 2013.  The HBR improvement compared to 2013 reflects a lower level of flu costs compared to prior year and reduced utilization in certain markets in the first quarter of 2014 associated with inclement weather.  The increase from the prior quarter is due to normal seasonality.
  • The following table compares the results for new business and existing business for the quarters ended March 31,:

 


2014


2013

Premium and Service Revenue




New business

20

%


37

%

Existing business

80

%


63

%





HBR




New business

93.1

%


93.7

%

Existing business

88.3

%


88.2

%

 


  • Consolidated G&A expense ratio for the first quarter of 2014 was 8.8%, compared to 8.4% in the prior year.   The year over year increase reflects U.S. Medical Management transaction costs and the addition of the Acaria business, partially offset by the leveraging of expenses over higher revenue in 2014.
  • Earnings from operations were $70.0 million in the first quarter of 2014 compared to $39.6 million in the first quarter of 2013.  Net earnings attributable to Centene Corporation were $33.0 million in the first quarter of 2014, compared to $23.0 million in the first quarter of 2013. 
  • Diluted earnings per share of $0.57, or $0.79 excluding $0.16 of net cost associated with the health insurer fee and $0.06 of U.S. Medical Management acquisition transaction costs, compared to $0.41 in 2013.

Balance Sheet and Cash Flow

At March 31, 2014, the Company had cash, investments and restricted deposits of $2,215.7 million, including $49.3 million held by its unregulated entities.  Medical claims liabilities totaled $1,298.5 million, representing 42.6 days in claims payable.  Total debt was $817.1 million which includes $295.0 million of borrowings on the $500 million revolving credit facility at quarter end.  Debt to capitalization was 34.4% at March 31, 2014, excluding the $72.1 million non-recourse mortgage note.  Cash flow from operations for the three months ended March 31, 2014, was $252.4 million, or 7.8 times net earnings.

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, December 31, 2013

42.4


Timing of claim payments

0.2


Days in claims payable, March 31, 2014

42.6



 

Outlook

The table below depicts the Company's annual guidance for 2014.



Full Year 2014




Low


High


Premium and Service Revenues (in millions)


$

14,200



$

14,800



Diluted EPS


$

3.60



$

3.90



Consolidated Health Benefits Ratio


88.7

%


89.2

%


General & Administrative expense ratio


8.5

%


9.0

%


Effective Tax Rate


50.0

%


51.0

%


Diluted Shares Outstanding (in thousands)


59,700



60,200









 

The guidance in the table above includes the impact of the acquisition of U.S. Medical Management and related transaction costs as well as the ACA health insurer fee.

Conference Call

As previously announced, the Company will host a conference call Tuesday, April 22, 2014, at 8:30 A.M. (Eastern Time) to review the financial results for the first quarter ended March 31, 2014, 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.  Or, participants can register for the conference call in advance by navigating to http://dpregister.com/10041412, which includes a calendar entry and PIN code to be activated one hour before the call.  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 PM (Eastern Time) on Tuesday, April 21, 2015, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 AM Eastern Time on Wednesday, April 30, 2014, by dialing 1-877-344-7529 in the U.S. and Canada, or +1-412-317-0088 from abroad, and entering access code 10041412.

Other Information

The discussion in the third bullet under the heading "Statement of Operations: Three Months Ended March 31, 2014" 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 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 services to government sponsored healthcare programs, focusing on 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, in-home health services, 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)



March 31,
 2014


December 31,
 2013

ASSETS




Current assets:




   Cash and cash equivalents of continuing operations

$

1,218,004


$

974,304

   Cash and cash equivalents of discontinued operations

52,788


63,769

   Total cash and cash equivalents

1,270,792


1,038,073

   Premium and related receivables

570,105


428,570

   Short term investments

99,696


102,126

   Other current assets

320,393


217,661

   Other current assets of discontinued operations

20,863


13,743

   Total current assets

2,281,849


1,800,173

Long term investments

840,152


791,900

Restricted deposits

57,826


46,946

Property, software and equipment, net

412,699


395,407

Goodwill

657,551


348,432

Intangible assets, net

85,134


48,780

Other long term assets

80,961


59,357

Long term assets of discontinued operations

30,275


38,305

   Total assets

$

4,446,447


$

3,529,300





LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




   Medical claims liability

$

1,298,513


$

1,111,709

   Accounts payable and accrued expenses

614,541


375,862

   Unearned revenue

74,260


38,191

   Current portion of long term debt

6,110


3,065

   Current liabilities of discontinued operations

28,019


30,294

   Total current liabilities

2,021,443


1,559,121

Long term debt

810,970


665,697

Other long term liabilities

70,166


60,015

Long term liabilities of discontinued operations

1,009


1,028

   Total liabilities

2,903,588


2,285,861

Commitments and contingencies




Redeemable noncontrolling interest

120,681


Stockholders' equity:




   Common stock, $.001 par value; authorized 100,000,000 shares; 61,044,175 issued and 57,657,040 outstanding at March 31, 2014, and 58,673,215 issued and 55,319,239 outstanding at December 31, 2013

61


59

   Additional paid-in capital

739,972


594,326

   Accumulated other comprehensive income:




      Unrealized loss on investments, net of tax

(614)


(2,620)

   Retained earnings

764,902


731,919

   Treasury stock, at cost (3,387,135 and 3,353,976 shares, respectively)

(91,655)


(89,643)

      Total Centene stockholders' equity

1,412,666


1,234,041

   Noncontrolling interest

9,512


9,398

   Total stockholders' equity

1,422,178


1,243,439

   Total liabilities and stockholders' equity

$

4,446,447


$

3,529,300

 

 


CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(Unaudited)



Three Months Ended March 31,


2014


2013

Revenues:




  Premium

$

3,070,887


$

2,388,639

  Service

281,174


33,194

   Premium and service revenues

3,352,061


2,421,833

  Premium tax and health insurer fee

107,827


103,649

   Total revenues

3,459,888


2,525,482

Expenses:




  Medical costs

2,742,453


2,154,546

  Cost of services

242,284


25,065

  General and administrative expenses

295,512


203,296

  Premium tax expense

78,278


102,975

  Health insurer fee expense

31,327


   Total operating expenses

3,389,854


2,485,882

   Earnings from operations

70,034


39,600

Other income (expense):




  Investment and other income

4,724


4,263

  Interest expense

(7,023)


(6,625)

   Earnings from continuing operations, before income tax expense

67,735


37,238

  Income tax expense

34,555


14,690

   Earnings from continuing operations, net of income tax expense

33,180


22,548

Discontinued operations, net of income tax expense (benefit) of $(8),and $348, respectively

(833)


363

   Net earnings

32,347


22,911

Noncontrolling interest

(636)


(91)

   Net earnings attributable to Centene Corporation

$

32,983


$

23,002





Amounts attributable to Centene Corporation common shareholders:




  Earnings from continuing operations, net of income tax expense

$

33,816


$

22,639

  Discontinued operations, net of income tax expense (benefit)

(833)


363

   Net earnings

$

32,983


$

23,002





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




  Basic:




   Continuing operations

$

0.59


$

0.43

   Discontinued operations

(0.02)


0.01

   Basic earnings per common share

$

0.57


$

0.44





Diluted:




  Continuing operations

$

0.57


$

0.41

  Discontinued operations

(0.01)


0.01

   Diluted earnings per common share

$

0.56


$

0.42





Weighted average number of common shares outstanding:




  Basic

57,483,876


52,357,119

  Diluted

59,361,266


54,266,928

 

 

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



Three Months Ended March 31,


2014


2013

Cash flows from operating activities:




  Net earnings

$

32,347


$

22,911

  Adjustments to reconcile net earnings to net cash provided by operating activities




   Depreciation and amortization

20,318


15,691

   Stock compensation expense

11,297


8,375

   Deferred income taxes

(7,873)


986

  Changes in assets and liabilities




   Premium and related receivables

(119,207)


(56,734)

   Other current assets

3,411


(50,537)

   Other assets

(14,425)


5

   Medical claims liabilities

196,221


117,385

   Unearned revenue

34,662


3,578

   Accounts payable and accrued expenses

90,481


(22,745)

   Other operating activities

5,213


4,078

   Net cash provided by operating activities

252,445


42,993

Cash flows from investing activities:




  Capital expenditures

(18,116)


(10,654)

  Purchases of investments

(167,373)


(358,131)

  Sales and maturities of investments

111,994


212,508

  Investments in acquisitions, net of cash acquired

(76,989)


   Net cash used in investing activities

(150,484)


(156,277)

Cash flows from financing activities:




  Proceeds from exercise of stock options

1,464


1,408

  Proceeds from borrowings

645,000


  Payment of long-term debt

(519,413)


(776)

  Excess tax benefits from stock compensation

312


515

  Common stock repurchases

(2,012)


(565)

  Contribution from noncontrolling interest

5,407


202

  Debt issue costs


(661)

   Net cash provided by financing activities

130,758


123

   Net increase (decrease) in cash and cash equivalents

232,719


(113,161)

Cash and cash equivalents, beginning of period

1,038,073


843,952

Cash and cash equivalents, end of period

$

1,270,792


$

730,791

Supplemental disclosures of cash flow information:




  Interest paid

$

1,648


$

1,410

  Income taxes paid

21,265


2,205

  Equity issued in connection with acquisition

132,371


 

 

CENTENE CORPORATION

SUPPLEMENTAL FINANCIAL DATA FROM CONTINUING OPERATIONS



Q1


Q4


Q3


Q2


Q1


2014


2013


2013


2013


2013

AT-RISK MEMBERSHIP










Managed Care:










  Arizona

7,100


7,100


23,700


23,200


23,300

  Arkansas

16,400





  California

118,100


97,200




  Florida

230,300


222,000


217,800


216,200


214,600

  Georgia

331,400


318,700


314,100


316,600


314,000

  Illinois

22,400


22,300


22,800


18,000


18,000

  Indiana

198,700


195,500


198,400


200,000


202,400

  Kansas

145,000


139,900


137,700


137,500


133,700

  Louisiana

149,800


152,300


152,600


153,700


162,900

  Massachusetts

50,800


22,600


23,200


15,200


17,300

  Minnesota

9,400





  Mississippi

85,400


78,300


76,900


77,300


77,000

  Missouri

58,100


59,200


58,200


58,800


57,900

  New Hampshire

37,100


33,600




  Ohio

181,800


173,200


170,900


156,700


157,700

  South Carolina

96,300


91,900


89,400


88,800


90,100

  Tennessee

21,100


20,700


20,400



  Texas

904,000


935,100


957,300


960,400


948,400

  Washington

151,700


82,100


77,100


67,600


63,500

  Wisconsin

70,800


71,500


72,000


73,400


72,600

   TOTAL

2,885,700


2,723,200


2,612,500


2,563,400


2,553,400











  Medicaid

2,169,100


2,054,700


1,953,300


1,953,600


1,951,300

  CHIP & Foster Care

269,200


275,100


274,900


273,200


265,400

  ABD & Medicare

300,500


305,300


302,000


289,800


288,400

  HIM

39,700





  Hybrid Programs

14,400


19,000


19,600


22,400


24,600

  LTC

51,800


37,800


31,600


24,400


23,700

  Correctional Services

41,000


31,300


31,100



   TOTAL

2,885,700


2,723,200


2,612,500


2,563,400


2,553,400











Specialty Services(a):










  Cenpatico Behavioral Health Arizona

162,700


156,600


160,700


157,100


156,200











(a) Includes external membership only.














REVENUE PER MEMBER PER MONTH(b)

$

355


$

335


$

328


$

306


$

304











CLAIMS(b)










  Period-end inventory

808,500


622,200


698,900


703,400


940,200

  Average inventory

555,400


511,700


505,800


510,000


555,800

  Period-end inventory per member

0.28


0.23


0.27


0.27


0.37

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











NUMBER OF EMPLOYEES

9,500


8,800


8,200


7,900


7,100

















Q1


Q4


Q3


Q2


Q1


2014


2013


2013


2013


2013











DAYS IN CLAIMS PAYABLE (c)

42.6


42.4


40.6


41.5


39.7

(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

$

2,166.4


$

1,870.6


$

1,612.9


$

1,502.9


$

1,494.0

  Unregulated

49.3


44.7


37.6


33.8


45.5

   TOTAL

$

2,215.7


$

1,915.3


$

1,650.5


$

1,536.7


$

1,539.5











DEBT TO CAPITALIZATION

36.5%


35.0%


30.5%


32.9%


35.2%











DEBT TO CAPITALIZATION EXCLUDING NON-RECOURSE DEBT(d)

34.4%


32.4%


27.4%


29.8%


31.9%


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 ($72.1 million at March 31, 2014).

 

 

Operating Ratios:



Three Months Ended March 31,


2014


2013

Health Benefits Ratios:




Medicaid, CHIP, Foster Care & HIM

86.9%


90.8%

ABD, LTC & Medicare

92.9


90.0

Specialty Services

87.7


83.4

    Total

89.3


90.2





Total General & Administrative Expense Ratio

8.8%


8.4%

 

 

MEDICAL CLAIMS LIABILITY (In thousands)


The changes in medical claims liability are summarized as follows:


Balance, March 31, 2013


$

950,090

  Incurred related to:



  Current period


9,691,530

  Prior period


(108,982)

  Total incurred


9,582,548

  Paid related to:



  Current period


8,410,937

  Prior period


823,188

  Total paid


9,234,125

Balance, March 31, 2014


$

1,298,513

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 March 31, 2013. 

SOURCE Centene Corporation



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