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2014

Centene Corporation Reports 2013 Second Quarter Earnings Of $0.70 Per Diluted Share Including $0.07 Of AcariaHealth Transaction Costs

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ST. LOUIS, July 23, 2013 /PRNewswire/ -- Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended June 30, 2013. 

Premium and Service Revenues (in millions)

$

2,634.3


Consolidated Health Benefits Ratio

88.8

%

General & Administrative expense ratio

8.7

%

Diluted earnings per share (EPS)

$

0.70


Cash flow from operations (in millions)

$

37.9


Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "The solid quarterly results reflect the positive momentum of our focus on operations and programs that we see continuing for the balance of this year and into 2014."

Second Quarter Highlights

  • Quarter-end at-risk managed care membership of 2,696,900, an increase of 299,400 members, or 12% year over year.
  • Premium and service revenues of $2.6 billion, representing 28% growth year over year.
  • Health Benefits Ratio of 88.8%, compared to 92.9% in 2012. 
  • General and Administrative expense ratio of 8.7%, compared to 8.2% in 2012.
  • Operating cash flow of $37.9 million for the second quarter of 2013.
  • Diluted EPS of $0.70 including AcariaHealth transaction costs of $0.07 per diluted share, compared to $(0.68) in 2012.

Other Events

  • In July 2013, our subsidiary, Kentucky Spirit Health Plan, discontinued serving Medicaid members in Kentucky. 
  • In July 2013, our Ohio subsidiary, Buckeye Community Health Plan (Buckeye), began operating under a new and expanded contract with the Ohio Department of Job and Family Services (ODJFS) to serve Medicaid members in Ohio.  Under the new state contract, Buckeye operates statewide through Ohio's three newly aligned regions (West, Central/Southeast, and Northeast).  Buckeye also began serving members under the ABD Children program in July 2013. 
  • In July 2013, our joint venture subsidiary, Centurion, began operating under a new contract with the Department of Corrections in Massachusetts to provide comprehensive healthcare services to individuals incarcerated in Massachusetts state correctional facilities.  Centurion was notified by the Department of Corrections in Tennessee in June 2013 that it had been awarded a contract to provide comprehensive healthcare services to individuals incarcerated in Tennessee state correctional facilities.  Operations in Tennessee are expected to begin in the third quarter of 2013. Centurion is a joint venture between Centene and MHM Services Inc.
  • In May 2013, we entered into a new unsecured $500 million revolving credit facility and terminated our previous $350 million revolving credit facility.  The new $500 million unsecured revolving credit facility increases the borrowing capacity from $350 million to $500 million; increases the expansion provision from $50 million to $100 million; decreases the interest rate for each pricing tier by 100 basis points; and extends the term from January 2016 to June 1, 2018.
  • In May 2013, our California subsidiary, California Health and Wellness Plan, was notified by the California Department of Health Care Services and the Imperial County Board of Supervisors of their intent to award a contract, contingent upon successful completion of contract negotiations, to serve Medi-Cal beneficiaries in Imperial County.  Upon execution of a contract and regulatory approval, enrollment is expected to begin in the fourth quarter of 2013.
  • In May 2013, at the Case In Point Platinum Awards, Centene won awards in four categories: Emergency Department, Medicaid Case Management, Pediatric Case Management and Women/Children Case Management.
  • In April 2013, we completed the acquisition of AcariaHealth, a specialty pharmacy company, for $146.6 million.  The transaction consideration was financed through a combination of Centene common stock and cash on hand.

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


June 30,



2013


2012

Arizona

23,200



24,000


Florida

216,200



204,100


Georgia

316,600



313,300


Illinois

18,000



17,800


Indiana

200,000



205,000


Kansas

137,500




Kentucky

133,500



143,500


Louisiana

153,700



168,700


Massachusetts

15,200



41,400


Mississippi

77,300



30,100


Missouri

58,800




Ohio

156,700



166,800


South Carolina

88,800



87,800


Texas

960,400



919,200


Washington

67,600




Wisconsin

73,400



75,800


Total

2,696,900



2,397,500


 

Membership by line of business:


June 30,



2013


2012

Medicaid

2,051,700



1,848,500


CHIP & Foster Care

275,900



222,600


ABD & Medicare

322,500



269,900


Hybrid Programs

22,400



48,100


Long-term Care

24,400



8,400


Total

2,696,900



2,397,500


 

Dual eligible membership (included in tables above):



June 30,



2013


2012

ABD

81,800



62,000


Long-term Care

16,600



7,600


Medicare

5,700



3,600


Total

104,100



73,200


Statement of Operations: Three Months Ended June 30, 2013

  • For the second quarter of 2013, Premium and Service Revenues increased 28% to $2.6 billion from $2.1 billion in the second quarter of 2012.  The increase was primarily driven as a result of the Mississippi expansion, pharmacy carve-in in Louisiana, the additions of the Kansas, Missouri and Washington contracts, rate increases in several of our markets, increased Texas membership and the acquisition of AcariaHealth. 
  • Consolidated HBR of 88.8% for the second quarter of 2013 represents an decrease from 92.9% in the comparable period in 2012 and a decrease from 90.4% in the first quarter of 2013.  The HBR decreased compared to last year primarily as a result of improvements in the performance of the Texas and individual health business from 2012, as well as the effect of the premium deficiency reserve recorded for Kentucky in 2012.  The HBR decrease compared to the first quarter of 2013 reflects a higher level of flu costs during the first quarter of 2013.
  • The following table compares the results for new business and existing business for the quarter ended June 30:

 


2013


2012

Premium and Service Revenue




New business

17

%


31

%

Existing business

83

%


69

%





HBR




New business

90.7

%


102.3

%

Existing business

88.4

%


88.7

%

Total

88.8

%


92.9

%

 


  • Consolidated G&A expense ratio for the second quarter of 2013 was 8.7%, compared to 8.2% in the prior year.   The year over year increase reflects an increase in performance based compensation expense in 2013 of approximately 70 basis points and the AcariaHealth transaction costs, partially offset by the leveraging of expenses over higher revenue in 2013.  
  • Earnings from operations were $67.0 million in the second quarter of 2013 compared to a loss from operations of $(46.7) million in the second quarter 2012.  Net earnings attributable to Centene Corporation were $39.5 million in the second quarter 2013, compared to a net loss of $(35.0) million in the second quarter of 2012. 
  • Diluted EPS was $0.70 in the second quarter of 2013 including AcariaHealth transaction costs of $0.07 per diluted share.

Balance Sheet and Cash Flow

At June 30, 2013, the Company had cash, investments and restricted deposits of $1,629.2 million, including $33.8 million held by its unregulated entities.  Medical claims liabilities totaled $1,078.4 million, representing 43.7 days in claims payable.  Total debt was $551.5 million which includes $30.0 million in borrowings on the $500 million revolving credit facility at quarter end.  Debt to capitalization was 29.8% at June 30, 2013, excluding the $74.1 million non-recourse mortgage note.  Cash flow from operations for the six months ended June 30, 2013, was $80.9 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, March 31, 2013

42.4



Timing of claim payments

1.3



Days in claims payable, June 30, 2013

43.7




Outlook

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



Full Year 2013




Low


High 


Premium and Service Revenues (in millions)


$

10,300



$

10,600



Diluted EPS


$

2.65



$

2.90



Consolidated Health Benefits Ratio


88.0

%


89.0

%


General & Administrative expense ratio


8.8

%


9.3

%


Diluted Shares Outstanding (in thousands)


56,000



56,500









Conference Call

As previously announced, the Company will host a conference call Tuesday, July 23, 2013, at 8:30 A.M. (Eastern Time) to review the financial results for the second quarter ended June 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, July 22, 2014, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 a.m. (Eastern Time) on Tuesday, July 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 10030660.

Other Information

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

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)



June 30,
2013


December 31,
2012

ASSETS




Current assets:




Cash and cash equivalents

$

688,712



$

843,952


Premium and related receivables

357,908



263,452


Short-term investments

131,330



139,118


Other current assets

164,410



127,080


     Total current assets

1,342,360



1,373,602


Long-term investments

769,905



614,723


Restricted deposits

39,291



34,793


Property, software and equipment, net

388,965



377,726


Goodwill

344,822



256,288


Intangible assets, net

52,219



20,268


Other long-term assets

107,673



64,282


     Total assets

$

3,045,235



$

2,741,682


LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Medical claims liability

$

1,078,386



$

926,302


Premium deficiency reserve

1,016



41,475


Accounts payable and accrued expenses

216,330



191,343


Unearned revenue

21,811



34,597


Current portion of long-term debt

3,029



3,373


     Total current liabilities

1,320,572



1,197,090


Long-term debt

548,473



535,481


Other long-term liabilities

53,916



55,344


     Total liabilities

1,922,961



1,787,915


Commitments and contingencies




Stockholders' equity:




Common stock, $.001 par value; authorized 100,000,000 shares; 57,661,262 issued and 54,627,735 outstanding at June 30, 2013, and 55,339,160 issued and 52,329,248 outstanding at December 31, 2012

58



55


Additional paid-in capital

563,873



450,856


Accumulated other comprehensive income:




          Unrealized (loss) gain on investments, net of tax

(4,061)



5,189


Retained earnings

629,306



566,820


Treasury stock, at cost (3,033,527 and 3,009,912 shares, respectively)

(70,969)



(69,864)


          Total Centene stockholders' equity

1,118,207



953,056


Noncontrolling interest

4,067



711


               Total stockholders' equity

1,122,274



953,767


               Total liabilities and stockholders' equity

$

3,045,235



$

2,741,682


 


CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(Unaudited)



Three Months Ended June 30,


Six Months Ended June 30,


2013


2012


2013


2012

Revenues:








Premium

$

2,528,718



$

2,034,558



$

5,037,767



$

3,669,408


Service

105,599



27,041



138,793



55,659


     Premium and service revenues

2,634,317



2,061,599



5,176,560



3,725,067


Premium tax

91,628



49,147



195,277



97,827


     Total revenues

2,725,945



2,110,746



5,371,837



3,822,894


Expenses:








Medical costs

2,244,611



1,890,405



4,512,011



3,333,081


Cost of services

93,300



21,816



118,365



45,153


General and administrative expenses

230,248



168,062



440,596



331,249


Premium tax expense

90,760



49,176



193,735



97,926


Impairment loss



28,033





28,033


     Total operating expenses

2,658,919



2,157,492



5,264,707



3,835,442


     Earnings (loss) from operations

67,026



(46,746)



107,130



(12,548)


Other income (expense):








Investment and other income

4,286



4,045



8,757



9,336


Interest expense

(7,033)



(4,739)



(13,658)



(9,538)


     Earnings (loss) before income tax expense (benefit)

64,279



(47,440)



102,229



(12,750)


Income tax expense (benefit)

25,268



(8,608)



40,307



3,479


     Net earnings (loss)

39,011



(38,832)



61,922



(16,229)


Noncontrolling interest

(473)



(3,833)



(564)



(5,208)


     Net earnings (loss) attributable to Centene Corporation

$

39,484



$

(34,999)



$

62,486



$

(11,021)










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

     Basic earnings (loss) per common share

$

0.72



$

(0.68)



$

1.17



$

(0.21)


     Diluted earnings (loss) per common share

$

0.70



$

(0.68)



$

1.13



$

(0.21)










Weighted average number of common shares outstanding:





     Basic

54,529,036



51,515,895



53,449,077



51,320,784


     Diluted

56,601,660



51,515,895



55,448,396



51,320,784


 


CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



Six Months Ended June 30,


2013


2012

Cash flows from operating activities:




Net earnings (loss)

$

61,922



$

(16,229)


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

          Depreciation and amortization

32,928



33,266


          Stock compensation expense

16,955



11,993


          Impairment loss



28,033


          Deferred income taxes

10,715



9,364


Changes in assets and liabilities




          Premium and related receivables

(71,230)



(232,745)


          Other current assets

(35,879)



(34,105)


          Other assets

(38,191)



1,520


          Medical claims liabilities

111,625



251,050


          Unearned revenue

(12,068)



19,885


          Accounts payable and accrued expenses

(1,488)



(77,010)


          Other operating activities

5,650



(4,922)


               Net cash provided by (used in) operating activities

80,939



(9,900)


Cash flows from investing activities:




Capital expenditures

(30,057)



(57,442)


Purchases of investments

(537,590)



(406,901)


Sales and maturities of investments

358,971



253,719


Investments in acquisitions, net of cash acquired

(66,832)




               Net cash used in investing activities

(275,508)



(210,624)


Cash flows from financing activities:




Proceeds from exercise of stock options

3,867



10,320


Proceeds from borrowings

30,000



75,000


Payment of long-term debt

(10,118)



(21,601)


Proceeds from stock offering

15,239




Excess tax benefits from stock compensation

1,113



5,810


Common stock repurchases

(1,105)



(1,791)


Contribution from noncontrolling interest

3,920



982


Debt issue costs

(3,587)




               Net cash provided by financing activities

39,329



68,720


               Net decrease in cash and cash equivalents

(155,240)



(151,804)


Cash and cash equivalents, beginning of period

843,952



573,698


Cash and cash equivalents, end of period

$

688,712



$

421,894


Supplemental disclosures of cash flow information:




     Interest paid

$

15,170



$

10,312


     Income taxes paid

21,694



32,394


     Equity issued in connection with acquisition

75,438




 

CENTENE CORPORATION

SUPPLEMENTAL FINANCIAL DATA



Q2


Q1


Q4


Q3


Q2


2013


2013


2012


2012


2012

AT-RISK MEMBERSHIP










Managed Care:










Arizona

23,200



23,300



23,500



23,800



24,000


Florida

216,200



214,600



214,000



209,600



204,100


Georgia

316,600



314,000



313,700



312,400



313,300


Illinois

18,000



18,000



18,000



17,900



17,800


Indiana

200,000



202,400



204,000



205,400



205,000


Kansas

137,500



133,700








Kentucky

133,500



132,700



135,800



145,400



143,500


Louisiana

153,700



162,900



165,600



167,200



168,700


Massachusetts

15,200



17,300



21,500



28,000



41,400


Mississippi

77,300



77,000



77,200



30,600



30,100


Missouri

58,800



57,900



59,600



53,900




Ohio

156,700



157,700



157,800



173,800



166,800


South Carolina

88,800



90,100



90,100



89,400



87,800


Texas

960,400



948,400



949,900



930,700



919,200


Washington

67,600



63,500



57,200



42,000




Wisconsin

73,400



72,600



72,400



72,900



75,800


          TOTAL

2,696,900



2,686,100



2,560,300



2,503,000



2,397,500












Medicaid

2,051,700



2,049,200



1,977,200



1,939,400



1,848,500


CHIP & Foster Care

275,900



267,900



237,700



229,600



222,600


ABD & Medicare

322,500



320,700



307,800



289,800



269,900


Hybrid Programs

22,400



24,600



29,100



35,700



48,100


Long-term Care

24,400



23,700



8,500



8,500



8,400


          TOTAL

2,696,900



2,686,100



2,560,300



2,503,000



2,397,500












Specialty Services(a):










Cenpatico Behavioral Health










Arizona

157,100



156,200



157,900



162,000



159,900


Kansas





49,800



48,500



44,300


          TOTAL

157,100



156,200



207,700



210,500



204,200












(a) Includes external membership only.


















REVENUE PER MEMBER PER MONTH(b)

$

305



$

304



$

292



$

283



$

279












CLAIMS(b)










Period-end inventory

752,800



1,020,100



641,000



826,800



1,195,000


Average inventory

539,800



587,800



555,200



547,400



640,600


Period-end inventory per member

0.28



0.38



0.25



0.33



0.50


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











NUMBER OF EMPLOYEES

7,900



7,100



6,800



6,400



6,200






















 


 


Q2


Q1


Q4


Q3


Q2


2013


2013


2012


2012


2012











DAYS IN CLAIMS PAYABLE (c)

43.7



42.4



41.1



42.8



41.4


(c) Days in Claims Payable is a calculation of Medical Claims Liabilities at the end of the period divided by average claims expense per calendar day for such period, excluding the Kentucky premium deficiency reserve liability. 











CASH AND INVESTMENTS (in millions)








Regulated

$

1,595.4



$

1,619.0



$

1,595.3



$

1,493.8



$

1,198.2


Unregulated

33.8



45.5



37.3



36.0



40.6


          TOTAL

$

1,629.2



$

1,664.5



$

1,632.6



$

1,529.8



$

1,238.8












DEBT TO CAPITALIZATION

32.9

%


35.2

%


36.1

%


29.2

%


30.1

%

DEBT TO CAPITALIZATION EXCLUDING NON-RECOURSE DEBT(d)

29.8

%


31.9

%


32.7

%


25.0

%


25.9

%

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 ($74.1 million at June 30, 2013).

 

Operating Ratios:



Three Months Ended June 30,



Six Months Ended June 30,



2013


2012


2013


2012

Health Benefits Ratios:








Medicaid and CHIP

89.0

%


92.4

%


90.7

%


90.2

%

ABD and Medicare

89.0



93.0



88.5



91.4


Specialty Services

82.0



98.0



82.5



93.9


Total

88.8



92.9



89.6



90.8










Total General & Administrative Expense Ratio

8.7

%


8.2

%


8.5

%


8.9

%

 

MEDICAL CLAIMS LIABILITY (In thousands)

The changes in medical claims liability are summarized as follows:


Balance, June 30, 2012


$

859,035


Incurred related to:



      Current period


8,666,880


      Prior period


(41,913)


         Total incurred


8,624,967


    Paid related to:



      Current period


7,604,434


      Prior period


800,166


         Total paid


8,404,600


    Less: Premium Deficiency Reserve


1,016


Balance, June 30, 2013


$

1,078,386


Centene's claims reserving process utilizes a consistent actuarial methodology to estimate Centene's ultimate liability.  Any reduction in the "Incurred related to: Prior period" amount may be offset as Centene actuarially determines "Incurred related to: Current period."  As such, only in the absence of a consistent reserving methodology would favorable development of prior period claims liability estimates reduce medical costs.  Centene believes it has consistently applied its claims reserving methodology in each of the periods presented.

The amount of the "Incurred related to: Prior period" above represents favorable development and includes the effects of reserving under moderately adverse conditions, new markets where we use a conservative approach in setting reserves during the initial periods of operations, receipts from other third party payors related to coordination of benefits and lower medical utilization and cost trends for dates of service prior to June 30, 2012. 

SOURCE Centene Corporation



RELATED LINKS
http://www.centene.com

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