- Centene Corporation Reports 2014 Second Quarter Results & Raises Guidance -

-- Diluted earnings per share (EPS) from continuing operations of $0.79 --

-- $0.95 excluding $0.16 impact from the Health Insurer Fee --

22 Jul, 2014, 06:00 ET from Centene Corporation

ST. LOUIS, July 22, 2014 /PRNewswire/ --  Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended June 30, 2014.  The following discussions, with the exception of cash flow information, are in the context of continuing operations.

Premium and Service Revenues (in millions)

$

3,741

Consolidated Health Benefits Ratio

88.9%

General & Administrative expense ratio

8.6%

Diluted earnings per share (EPS)

$

0.79

Diluted EPS excluding the effect of the health insurer fee

$

0.95

Total cash flow from operations (in millions)

$

159.4

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "The Company delivered strong top and bottom line growth in the second quarter, driven by the ongoing successful execution of our growth and diversification strategy.  We are pleased with the results in the first half of 2014 and have increased our full year guidance to reflect the additional growth and profitability in the business."

Second Quarter Highlights

  • June 30, 2014 at-risk managed care membership of 3,164,500, an increase of 601,100 members, or 23% compared to the second quarter of 2013.
  • Premium and service revenues for the second quarter of $3.7 billion, representing 49% growth compared to the second quarter of 2013.
  • Health Benefits Ratio of 88.9% for the second quarter of 2014, compared to 88.4% in the second quarter of 2013. 
  • General and Administrative expense ratio of 8.6% for the second quarter of 2014, compared to 8.9% in the second quarter of 2013. 
  • Operating cash flow of $159.4 million for the second quarter of 2014, or 3.3 times net earnings.
  • Diluted earnings per share of $0.79, or $0.95 excluding a $0.16 impact associated with the health insurer fee, compared to $0.71 in 2013.

Other Events

  • In July 2014, our Illinois subsidiary, IlliniCare Health, began operating under a new five-year contract with the Cook County Health and Hospitals System (CCHHS) to perform third party administrative services to members enrolled in the CountyCare program, as well as care coordination, behavioral health, vision care and pharmacy benefit management services.
  • In July 2014, our Mississippi subsidiary, Magnolia Health, began operating as one of two contractors under a new statewide managed care contract serving members enrolled in the Mississippi Coordinated Access Network program.  The program provides for membership expansion beginning in late 2014.
  • In July 2014, we completed the transaction whereby Community Health Solutions of America, Inc. (CHS) assigned its contract with the Louisiana Department of Health and Hospitals under the Bayou Health Shared Savings Program to our subsidiary, Louisiana Healthcare Connections. 
  • In July 2014, we completed the purchase of 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.
  • In April 2014, we issued $300 million 4.75% Senior Notes due May 2022 and entered into interest rate swap agreements, converting the Senior Notes to a floating rate of interest at the three month LIBOR rate plus 2.27%.

Accreditations & Awards

  • In June and July 2014, our Illinois subsidiary, IlliniCare Health, our Louisiana subsidiary, Louisiana Healthcare Connections, our Kansas subsidiary, Sunflower Health Plan, and our Washington subsidiary, Coordinated Care, all received accreditation from the National Committee for Quality Assurance.
  • In June 2014, FORTUNE magazine announced Centene's position of #251 in its annual ranking of America's largest companies by revenue.
  • In June 2014, Centene was added to the Russell 1000 index and Russell Midcap index.
  • In May 2014, at the Case In Point Platinum Awards, Centene and its subsidiaries were honored with awards in five categories: Disease Management/Population Health, Managed Care, Long-Term Care, Pediatric Case Management and Wellness/Prevention.
  • In May 2014, our Georgia subsidiary, Peach State Health Plan, received the 2014 National Environmental Leadership Award in Asthma Management from the U.S. Environmental Protection Agency.

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

June 30,

2014

2013

Arizona

7,000

23,200

Arkansas

31,100

California

131,100

Florida

313,800

216,200

Georgia

373,000

316,600

Illinois

29,500

18,000

Indiana

200,500

200,000

Kansas

146,100

137,500

Louisiana

148,600

153,700

Massachusetts

47,200

15,200

Minnesota

9,400

Mississippi

97,400

77,300

Missouri

58,700

58,800

New Hampshire

39,500

Ohio

225,900

156,700

South Carolina

101,800

88,800

Tennessee

21,300

Texas

921,500

960,400

Washington

193,800

67,600

Wisconsin

67,300

73,400

Total

3,164,500

2,563,400

At June 30, 2014, the Company served 155,800 Medicaid members in Medicaid expansion programs in California, Massachusetts, Ohio and Washington included in the table above. The Company also served 182,200 members at June 30, 2014 under its behavioral health contract in Arizona, compared to 157,100 members at June 30, 2013.

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

June 30,

2014

2013

Medicaid

2,385,500

1,953,600

CHIP & Foster Care

261,800

273,200

ABD & Medicare

329,700

289,800

Health Insurance Marketplace (HIM)

75,700

Hybrid Programs

17,000

22,400

Long Term Care (LTC)

53,500

24,400

Correctional services

41,300

Total

3,164,500

2,563,400

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

June 30,

2014

2013

ABD

89,300

71,400

LTC

41,800

16,600

Medicare

8,200

5,700

Total

139,300

93,700

Statement of Operations: Three Months Ended June 30, 2014

  • For the second quarter of 2014, Premium and Service Revenues increased 49% to $3.7 billion from $2.5 billion in the second quarter of 2013.  The increase was primarily as a result of the expansion in Florida, growth in the AcariaHealth business, the addition of the California contract, the expansion in Ohio and our participation in the Health Insurance Marketplaces.
  • Consolidated HBR for the second quarter of 2014, was 88.9%, compared to 88.4% in the same period in 2013, reflecting an increase in higher acuity membership.  Consolidated HBR decreased from 89.3% in the first quarter of 2014 due to normal seasonality.
  • The following table compares the results for new business and existing business for the quarters ended June 30,:

2014

2013

Premium and Service Revenue

New business

26%

18%

Existing business

74%

82%

HBR

New business

91.8%

90.4%

Existing business

87.9%

88.0%

  • Consolidated G&A expense ratio for the second quarter of 2014 was 8.6%, compared to 8.9% in the prior year.   The year over year decrease reflects the leveraging of expenses over higher revenue in 2014.  The 2013 G&A expense ratio also includes the impact of $0.07 per diluted share of AcariaHealth transaction costs which increased the 2013 G&A expense ratio by approximately 20 basis points.
  • Earnings from operations were $92.7 million in the second quarter of 2014 compared to $68.7 million in the second quarter of 2013.  Net earnings attributable to Centene Corporation were $47.2 million in the second quarter of 2014, compared to $40.3 million in the second quarter of 2013. 
  • Diluted earnings per share of $0.79, or $0.95 excluding a $0.16 impact associated with the health insurer fee, compared to $0.71 in 2013.

Balance Sheet and Cash Flow

At June 30, 2014, the Company had cash, investments and restricted deposits of $2,402.5 million, including $50.3 million held by its unregulated entities.  Medical claims liabilities totaled $1,394.1 million, representing 42.9 days in claims payable.  Total debt was $891.0 million, which includes $70.0 million of borrowings on the $500 million revolving credit facility at quarter end.  Debt to capitalization was 35.5% at June 30, 2014, excluding the $71.4 million non-recourse mortgage note.  Cash flow from operations for the three months ended June 30, 2014, was $159.4 million, or 3.3 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, March 31, 2014

42.6

Timing of claim payments

0.3

Days in claims payable, June 30, 2014

42.9

Outlook

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

Full Year 2014

Low

High

Premium and Service Revenues (in millions)

$

15,000

$

15,500

Diluted EPS

$

3.70

$

3.90

Consolidated Health Benefits Ratio

88.7%

89.2%

General & Administrative expense ratio

8.5%

9.0%

Effective Tax Rate

49.5%

50.5%

Diluted Shares Outstanding (in thousands)

60,000

60,400

The guidance in the table above includes the impact of the Illinois CCHHS contract award, the Louisiana transaction with CHS as well as the acquisition of Ribera Salud.  The diluted EPS guidance for 2014 includes approximately $0.12 of transaction costs associated with CHS and Ribera Salud, as well as $0.06 related to the USMM acquisition recorded in the first quarter.

Conference Call

As previously announced, the Company will host a conference call Tuesday, July 22, 2014, at 8:30 A.M. (Eastern Time) to review the financial results for the second quarter ended June 30, 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 1-866-739-7850 in the U.S. and Canada; +1-412-902-6577 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/10048780, to receive a dial-in number upon registration.   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, July 21, 2015, at the aforementioned URL.  In addition, a digital audio playback will be available until 9:00 AM Eastern Time on Wednesday, July 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 10048780.

Other Information

The discussion in the third bullet under the heading "Statement of Operations: Three Months Ended June 30, 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, including the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act and any regulations enacted thereunder; changes in expected contract start dates; changes in expected closing dates, estimated purchase price and accretion for acquisitions; inflation; provider and state contract changes; new technologies; advances in medicine; reduction in provider payments by governmental payors; major epidemics; disasters and numerous other factors affecting the delivery and cost of healthcare; the expiration, cancellation or suspension of our Medicare or Medicaid managed care contracts by federal or state governments; the outcome of pending legal proceedings; availability of debt and equity financing, on terms that are favorable to us; and general economic and market conditions, as well as those factors disclosed in the Company's publicly filed documents.

[Tables Follow]

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

June 30,

 2014

December 31,

 2013

ASSETS

Current assets:

Cash and cash equivalents of continuing operations

$

1,199,784

$

974,304

Cash and cash equivalents of discontinued operations

59,013

63,769

Total cash and cash equivalents

1,258,797

1,038,073

Premium and related receivables

610,969

428,570

Short term investments

127,348

102,126

Other current assets

313,946

217,661

Other current assets of discontinued operations

13,826

13,743

Total current assets

2,324,886

1,800,173

Long term investments

996,965

791,900

Restricted deposits

78,442

46,946

Property, software and equipment, net

423,905

395,407

Goodwill

642,613

348,432

Intangible assets, net

81,359

48,780

Other long term assets

107,967

59,357

Long term assets of discontinued operations

26,430

38,305

Total assets

$

4,682,567

$

3,529,300

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Medical claims liability

$

1,394,115

$

1,111,709

Accounts payable and accrued expenses

670,343

375,862

Unearned revenue

22,472

38,191

Current portion of long term debt

6,135

3,065

Current liabilities of discontinued operations

24,642

30,294

Total current liabilities

2,117,707

1,559,121

Long term debt

884,890

665,697

Other long term liabilities

73,897

60,015

Long term liabilities of discontinued operations

451

1,028

Total liabilities

3,076,945

2,285,861

Commitments and contingencies

Redeemable noncontrolling interest

119,671

Stockholders' equity:

Common stock, $.001 par value; authorized 200,000,000 shares; 61,265,156 issued and 57,837,919 outstanding at June 30, 2014, and 58,673,215 issued and 55,319,239 outstanding at December 31, 2013

61

59

Additional paid-in capital

754,637

594,326

Accumulated other comprehensive income:

    Unrealized gain (loss) on investments, net of tax

2,214

(2,620)

Retained earnings

813,765

731,919

Treasury stock, at cost (3,427,237 and 3,353,976 shares, respectively)

(94,512)

(89,643)

    Total Centene stockholders' equity

1,476,165

1,234,041

Noncontrolling interest

9,786

9,398

Total stockholders' equity

1,485,951

1,243,439

Total liabilities and stockholders' equity

$

4,682,567

$

3,529,300

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2014

2013

2014

2013

Revenues:

Premium

$

3,331,058

$

2,413,312

$

6,401,945

$

4,801,951

Service

410,029

105,599

691,203

138,793

Premium and service revenues

3,741,087

2,518,911

7,093,148

4,940,744

Premium tax and health insurer fee

282,613

91,628

390,440

195,277

Total revenues

4,023,700

2,610,539

7,483,588

5,136,021

Expenses:

Medical costs

2,960,101

2,134,283

5,702,554

4,288,829

Cost of services

365,888

93,300

608,172

118,365

General and administrative expenses

321,042

223,459

616,554

426,755

Premium tax expense

252,669

90,760

330,947

193,735

Health insurer fee expense

31,328

62,655

Total operating expenses

3,931,028

2,541,802

7,320,882

5,027,684

Earnings from operations

92,672

68,737

162,706

108,337

Other income (expense):

Investment and other income

7,252

4,078

11,976

8,342

Interest expense

(8,604)

(7,033)

(15,627)

(13,658)

Earnings from continuing operations, before income tax expense

91,320

65,782

159,055

103,021

Income tax expense

44,874

25,966

79,429

40,657

Earnings from continuing operations, net of income tax expense

46,446

39,816

79,626

62,364

Discontinued operations, net of income tax expense (benefit) of $1,461, $(698), $1,453, and $(350), respectively

1,680

(805)

847

(442)

Net earnings

48,126

39,011

80,473

61,922

Noncontrolling interest

(737)

(473)

(1,373)

(564)

Net earnings attributable to Centene Corporation

$

48,863

$

39,484

$

81,846

$

62,486

Amounts attributable to Centene Corporation common shareholders:

Earnings from continuing operations, net of income tax expense

$

47,183

$

40,289

$

80,999

$

62,928

Discontinued operations, net of income tax expense (benefit)

1,680

(805)

847

(442)

    Net earnings

$

48,863

$

39,484

$

81,846

$

62,486

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

    Basic:

      Continuing operations

$

0.82

$

0.74

$

1.41

$

1.18

      Discontinued operations

0.03

(0.02)

0.01

(0.01)

      Basic earnings per common share

$

0.85

$

0.72

$

1.42

$

1.17

    Diluted:

      Continuing operations

$

0.79

$

0.71

$

1.36

$

1.14

      Discontinued operations

0.03

(0.01)

0.01

(0.01)

      Diluted earnings per common share

$

0.82

$

0.70

$

1.37

$

1.13

Weighted average number of common shares outstanding:

Basic

57,758,683

54,529,036

57,622,039

53,449,077

Diluted

59,717,258

56,601,660

59,547,420

55,448,396

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Six Months Ended June 30,

2014

2013

Cash flows from operating activities:

Net earnings

$

80,473

$

61,922

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

Depreciation and amortization

42,101

32,928

Stock compensation expense

22,750

16,955

Deferred income taxes

(11,258)

10,715

Changes in assets and liabilities

Premium and related receivables

(160,714)

(71,230)

Other current assets

28,826

(35,879)

Other assets

(28,733)

(38,191)

Medical claims liabilities

284,134

111,625

Unearned revenue

(18,066)

(12,068)

Accounts payable and accrued expenses

160,128

(1,488)

Other operating activities

12,248

5,650

Net cash provided by operating activities

411,889

80,939

Cash flows from investing activities:

Capital expenditures

(41,568)

(30,057)

Purchases of investments

(475,347)

(537,590)

Sales and maturities of investments

221,342

358,971

Investments in acquisitions, net of cash acquired

(94,004)

(66,832)

Net cash used in investing activities

(389,577)

(275,508)

Cash flows from financing activities:

Proceeds from exercise of stock options

3,670

3,867

Proceeds from borrowings

1,145,000

30,000

Payment of long-term debt

(945,892)

(10,118)

Proceeds from stock offering

15,239

Excess tax benefits from stock compensation

1,115

1,113

Common stock repurchases

(4,869)

(1,105)

Contribution from noncontrolling interest

5,407

3,920

Debt issue costs

(6,019)

(3,587)

Net cash provided by financing activities

198,412

39,329

Net increase (decrease) in cash and cash equivalents

220,724

(155,240)

Cash and cash equivalents, beginning of period

1,038,073

843,952

Cash and cash equivalents, end of period

$

1,258,797

$

688,712

Supplemental disclosures of cash flow information:

Interest paid

$

16,439

$

15,170

Income taxes paid

110,118

21,694

Equity issued in connection with acquisition

132,371

75,438

CENTENE CORPORATION

SUPPLEMENTAL FINANCIAL DATA FROM CONTINUING OPERATIONS

Q2

Q1

Q4

Q3

Q2

2014

2014

2013

2013

2013

AT-RISK MEMBERSHIP

Managed Care:

Arizona

7,000

7,100

7,100

23,700

23,200

Arkansas

31,100

16,400

California

131,100

118,100

97,200

Florida

313,800

230,300

222,000

217,800

216,200

Georgia

373,000

331,400

318,700

314,100

316,600

Illinois

29,500

22,400

22,300

22,800

18,000

Indiana

200,500

198,700

195,500

198,400

200,000

Kansas

146,100

145,000

139,900

137,700

137,500

Louisiana

148,600

149,800

152,300

152,600

153,700

Massachusetts

47,200

50,800

22,600

23,200

15,200

Minnesota

9,400

9,400

Mississippi

97,400

85,400

78,300

76,900

77,300

Missouri

58,700

58,100

59,200

58,200

58,800

New Hampshire

39,500

37,100

33,600

Ohio

225,900

181,800

173,200

170,900

156,700

South Carolina

101,800

96,300

91,900

89,400

88,800

Tennessee

21,300

21,100

20,700

20,400

Texas

921,500

904,000

935,100

957,300

960,400

Washington

193,800

151,700

82,100

77,100

67,600

Wisconsin

67,300

70,800

71,500

72,000

73,400

TOTAL

3,164,500

2,885,700

2,723,200

2,612,500

2,563,400

Medicaid

2,385,500

2,169,100

2,054,700

1,953,300

1,953,600

CHIP & Foster Care

261,800

269,200

275,100

274,900

273,200

ABD & Medicare

329,700

300,500

305,300

302,000

289,800

HIM

75,700

39,700

Hybrid Programs

17,000

14,400

19,000

19,600

22,400

LTC

53,500

51,800

37,800

31,600

24,400

Correctional Services

41,300

41,000

31,300

31,100

TOTAL

3,164,500

2,885,700

2,723,200

2,612,500

2,563,400

Specialty Services(a):

Cenpatico Behavioral Health Arizona

182,200

162,700

156,600

160,700

157,100

(a) Includes external membership only.

REVENUE PER MEMBER PER MONTH(b)

$

359

$

355

$

335

$

328

$

306

CLAIMS(b)

Period-end inventory

745,400

808,500

622,200

698,900

703,400

Average inventory

584,000

555,400

511,700

505,800

510,000

Period-end inventory per member

0.24

0.28

0.23

0.27

0.27

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

NUMBER OF EMPLOYEES

10,500

9,500

8,800

8,200

7,900

Q2

2014

Q1

2014

Q4

2013

Q3

2013

Q2

2013

DAYS IN CLAIMS PAYABLE (c)

42.9

42.6

42.4

40.6

41.5

(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, INVESTMENTS AND RESTRICTED DEPOSITS (in millions)

Regulated

$

2,352.3

$

2,166.4

$

1,870.6

$

1,612.9

$

1,502.9

Unregulated

50.3

49.3

44.7

37.6

33.8

    TOTAL

$

2,402.6

$

2,215.7

$

1,915.3

$

1,650.5

$

1,536.7

DEBT TO CAPITALIZATION

37.5%

36.5%

35.0%

30.5%

32.9%

DEBT TO CAPITALIZATION EXCLUDING NON-RECOURSE DEBT(d)

35.5%

34.4%

32.4%

27.4%

29.8%

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 ($71.4 million at June 30, 2014).

Operating Ratios:

Three Months Ended

June 30,

Six Months Ended

June 30,

2014

2013

2014

2013

Health Benefits Ratios:

Medicaid, CHIP, Foster Care & HIM

84.7%

88.4%

85.8%

89.6%

ABD, LTC & Medicare

94.9

89.1

94.0

89.6

Specialty Services

80.4

82.6

84.0

83.0

  Total

88.9

88.4

89.1

89.3

Total General & Administrative Expense Ratio

8.6%

8.9%

8.7%

8.6%

MEDICAL CLAIMS LIABILITY (In thousands)

The changes in medical claims liability are summarized as follows:

Balance, June 30, 2013

$

972,641

Incurred related to:

  Current period

10,541,171

  Prior period

(132,805)

Total incurred

10,408,366

Paid related to:

  Current period

9,171,457

  Prior period

815,435

Total paid

9,986,892

Balance, June 30, 2014

$

1,394,115

SOURCE Centene Corporation