Centene Corporation Reports $0.44 Earnings Per Diluted Share for the Third Quarter 2010; $0.48 From Operations Excluding a $0.04 Charge for Net Investment Writedowns

Oct 26, 2010, 06:00 ET from Centene Corporation

ST. LOUIS, Oct. 26 /PRNewswire-FirstCall/ -- Centene Corporation (NYSE: CNC) today announced net earnings from continuing operations for the quarter ended September 30, 2010, of $22.4 million, or $0.44 per diluted share; $0.48 from operations excluding a $0.04 charge for net investment writedowns.  The discussions below, with the exception of cash flow information, are in the context of continuing operations and all financial ratios exclude premium taxes.

Third Quarter Highlights

  • Quarter-end managed care at-risk membership of 1,470,800, an increase of 84,400 members, or 6.1% year over year.
  • Premium and Service Revenues of $1.082 billion, representing 9.5% year over year growth.
  • Health Benefits Ratio (HBR) of 84.2%, compared to 83.7% in the prior year.  
  • General and Administrative (G&A) expense ratio of 12.2%, compared to 13.2% in the prior year.
  • Earnings from operations of $40.2 million, compared to $38.0 million in the prior year.
  • Earnings from continuing operations, net of income tax expense, of $22.4 million.  
  • Diluted earnings per share from continuing operations of $0.44, including a $0.07 charge per diluted share related to an impairment of an investment in a software company and realized security gains of $0.03 per diluted share recognized during the third quarter of 2010.
  • Cash flows from operations of $72.6 million, which is 3.2 times net earnings from continuing operations.  
  • Days in claims payable of 47.1, including pharmacy claims payable.

Other Events

  • In April 2010, we began offering an individual insurance product, under the names of Commonwealth Choice and CeltiCare Direct, for residents of Boston and surrounding cities who do not qualify for other state funded insurance programs.
  • In July 2010, we closed on the acquisition of certain assets of NovaSys Health, LLC, a leading third party administrator in Arkansas that complements our existing Celtic business.  
  • In August 2010, we announced the acquisition in Florida of certain assets in non-reform counties of Citrus Health Care, Inc., a Medicaid and long-term care health plan.  We expect the transaction to close at year end.
  • In September 2010, Celtic Insurance Company, Inc. was awarded a contract with the Texas Department of Insurance to provide affordable health insurance plans for Texas small businesses under the new Healthy Texas initiative.  We expect operations to commence during the fourth quarter of 2010.
  • In September 2010, our new subsidiary, IlliniCare Health Plan, was selected as one of two vendors to provide managed care services to older adults and adults with disabilities under the Integrated Care Program in six counties of Illinois.  We expect operations to commence in the first half of 2011.
  • In October 2010, one of our highly regarded health programs, Start Smart for Your Baby®, won the Platinum Award for Consumer Empowerment at the URAC Quality Summit.  Also in October, Absolute Total Care, our South Carolina health plan, received the prestigious New Health Plan accreditation from the National Committee for Quality Assurance (NCQA), a private, not-for-profit organization that sets standards for monitoring and improving healthcare quality.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "A strong operational quarter and exceptional new business activity set the stage for meaningful 2011 performance."

The following table depicts membership in Centene's managed care organizations, by state:

September 30,

2010

2009

Arizona

19,300

17,400

Florida

116,300

84,400

Georgia

300,900

303,400

Indiana

213,300

200,700

Massachusetts

34,400

500

Ohio

161,800

151,200

South Carolina

90,600

46,100

Texas

428,100

450,200

Wisconsin

106,100

132,500

Total at-risk membership

1,470,800

1,386,400

Non-risk membership

35,900

63,200

Total

1,506,700

1,449,600

The following table depicts membership in Centene's managed care organizations, by member category:

September 30,

2010

2009

Medicaid

1,122,800

1,040,000

CHIP & Foster Care

219,100

263,400

ABD & Medicare

94,500

82,500

Other State programs

34,400

500

Total at-risk membership

1,470,800

1,386,400

Non-risk membership

35,900

63,200

Total

1,506,700

1,449,600

Statement of Operations

  • Premium and service revenues increased 9.5% for the three months ended September 30, 2010 over 2009 as a result of membership growth and net premium rate increases.  This increase was moderated by the removal of pharmacy services in two states in 2010.  These pharmacy carve outs had the effect of reducing 2010 third quarter revenue by approximately $48 million.
  • The consolidated HBR for the three months ended September 30, 2010 of 84.2% was an increase of 0.5% over the comparable period in 2009.  A reconciliation of the change in HBR from the prior year is presented below:

Third Quarter 2009

83.7

%

Florida health plan performance

0.9

Net changes in other markets

(0.4)

Third Quarter 2010

84.2

%

  • Consolidated G&A expense as a percent of premium and service revenues was 12.2% in the third quarter of 2010, a decrease from 13.2% in the third quarter of 2009.  The decrease in G&A ratio is primarily a result of leveraging our expenses over higher revenues and decreased variable compensation expense during the quarter ended September 30, 2010.
  • Earnings per diluted share from continuing operations were $0.44, compared to $0.51 in the third quarter of 2009, including a $0.07 charge per diluted share related to an impairment of an investment in a software company and realized security gains of $0.03 per diluted share recognized during the third quarter of 2010.  Earnings per diluted share also reflect an increase in diluted shares outstanding resulting from the first quarter 2010 stock offering.    

Balance Sheet and Cash Flow

At September 30, 2010, we had cash and investments of $928.1 million, including $895.4 million held by our regulated entities and $32.7 million held by our unregulated entities.  Medical claims liabilities totaled $457.1 million, representing 47.1 days in claims payable, a decrease of 1.1 days from June 30, 2010.  Total debt was $264.2 million and debt to capitalization was 24.7%.  

Cash flow from operations for the quarter ended September 30, 2010 was $72.6 million.  Cash flow from operations for the nine months ended September 30, 2010 was $(25.7) million and was impacted by 1) $38.7 million decrease in unearned revenue due to advance payments received in December 2009 for January 2010 premium payments and 2) $68.1 million increase in premium and related receivables primarily for September premium payments deferred by one state until October 2010.  

A reconciliation of the change in days in claims payable from the immediately preceding quarter-end is presented below:

Days in claims payable, June 30, 2010

48.2

  Timing of claims payments

(0.9)

  Impact of decrease in membership

(0.3)

  Pharmacy payment timing

0.1

Days in claims payable, September 30, 2010

47.1

Outlook

The table below depicts our guidance from continuing operations for 2010:

Full Year 2010

Low

High 

Premium and Service revenues (in millions)

$    4,250

$  4,350

Earnings per diluted share (EPS)

$     1.76

$   1.80

HBR %

83.5%

84.5%

G&A %

12.4%

12.9%

Diluted Shares Outstanding (in thousands)

50,500

Based upon known rate adjustments and discussions with our states that finalize rates in the second half of the year, we estimate our 2010 composite premium rate increase to be between 1.5% and 2.5%.

Conference Call

As previously announced, we will host a conference call Tuesday, October 26, 2010, at 8:30 A.M. (Eastern Time) to review the financial results for the third quarter ended September 30, 2010, and to discuss our 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 877-887-1134 in the U.S. and Canada; +1-412-317-0794 from abroad; or via a live, audio webcast on our website at www.centene.com, under the Investors section.

A 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, October 25, 2011, at the aforementioned URL, or by dialing 877-344-7529 in the U.S. and Canada, or +1-412-317-0088 from abroad and entering the playback conference number 444970.

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, in addition to other state-sponsored programs, and Medicare (Special Needs Plans). Centene's CeltiCare subsidiary offers states unique, "exchange based" and other cost-effective coverage solutions for low-income populations. 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, life and health management, managed vision, telehealth services, and pharmacy benefits management.

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, competition, changes in healthcare practices, changes in federal or state laws or regulations, inflation, provider 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.  The expiration, cancellation or suspension of Centene's Medicaid Managed Care contracts by state governments would also negatively affect Centene.  

This release includes earnings per diluted share excluding certain charges for net investment writedowns, which is a non-GAAP financial measure.  Management believes that this non-GAAP financial measure provides information that is useful to investors in understanding period-over-period operating results and enhances the ability of investors to analyze Centene's business trends and to understand Centene's performance.  This non-GAAP financial measure should not be considered in isolation, or as a substitute for the corresponding GAAP financial measure and may not be comparable to similar measures used by other companies.

[Tables Follow]

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

September 30,

2010

December 31,

2009

ASSETS

Current assets:

Cash and cash equivalents of continuing operations, including $5,389 and $8,667, respectively, from consolidated variable interest entities

$

397,519

$

400,951

Cash and cash equivalents of discontinued operations

147

2,801

Total cash and cash equivalents

397,666

403,752

Premium and related receivables, net of allowance for uncollectible accounts of $1,336 and $1,338, respectively, including $3,208 and $11,313, respectively, from consolidated variable interest entities

182,379

103,456

Short-term investments, at fair value (amortized cost $30,667 and $39,230, respectively)

30,857

39,554

Other current assets, including $2,023 and $4,507, respectively, from consolidated variable interest entities

63,408

64,866

Current assets of discontinued operations other than cash

1,678

4,506

Total current assets

675,988

616,134

Long-term investments, at fair value (amortized cost $463,877 and $514,256, respectively)

479,164

525,497

Restricted deposits, at fair value (amortized cost $20,527 and $20,048, respectively)

20,589

20,132

Property, software and equipment, net of accumulated depreciation of $127,969 and $103,883, respectively, including $138,008 and $89,219, respectively, from consolidated variable interest entities

311,195

230,421

Goodwill

247,757

224,587

Intangible assets, net

24,608

22,479

Other long-term assets, including $2,806 and $30, respectively, from consolidated variable interest entities

28,398

36,829

Long-term assets of discontinued operations

7,478

26,285

Total assets

$

1,795,177

$

1,702,364

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Medical claims liability

$

457,085

$

470,932

Accounts payable and accrued expenses, including $20,926 and $14,020, respectively, from consolidated variable interest entities

145,877

132,001

Unearned revenue

52,936

91,644

Current portion of long-term debt

663

646

Current liabilities of discontinued operations

4,531

20,685

Total current liabilities

661,092

715,908

Long-term debt

263,513

307,085

Other long-term liabilities

66,355

59,561

Long-term liabilities of discontinued operations

285

383

Total liabilities

991,245

1,082,937

Commitments and contingencies

Stockholders' equity:

Common stock, $.001 par value; authorized 100,000,000 shares; 51,716,723 issued and 49,265,875 outstanding at September 30, 2010, and 45,593,383 shares issued and 43,179,373 shares outstanding at December 31, 2009

52

46

Additional paid-in capital

400,213

281,806

Accumulated other comprehensive income:

Net unrealized gain on investments, net of tax

9,661

7,348

Retained earnings

428,344

358,907

Treasury stock, at cost (2,450,848 and 2,414,010 shares, respectively)

(47,976)

(47,262)

Total Centene Corporation stockholders' equity

790,294

600,845

Noncontrolling interest

13,638

18,582

Total stockholders' equity

803,932

619,427

Total liabilities and stockholders' equity

$

1,795,177

$

1,702,364

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(Unaudited)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2010

2009

2010

2009

Revenues:

Premium

$

1,060,559

$

960,009

$

3,085,802

$

2,754,713

Service

20,954

27,300

68,543

72,740

Premium and service revenues

1,081,513

987,309

3,154,345

2,827,453

Premium tax

40,348

50,925

113,009

182,685

Total revenues

1,121,861

1,038,234

3,267,354

3,010,138

Expenses:

Medical costs

893,281

803,062

2,592,324

2,298,108

Cost of services

14,646

15,843

47,505

46,364

General and administrative expenses

132,095

130,024

401,072

381,524

Premium tax

41,591

51,295

114,885

183,785

Total operating expenses

1,081,613

1,000,224

3,155,786

2,909,781

Earnings from operations

40,248

38,010

111,568

100,357

Other income (expense):

Investment and other income

713

3,750

11,912

11,781

Interest expense

(4,858)

(4,064)

(12,540)

(12,210)

Earnings from continuing operations, before income tax expense

36,103

37,696

110,940

99,928

Income tax expense

13,163

12,426

42,942

35,060

Earnings from continuing operations, net of income tax expense

22,940

25,270

67,998

64,868

Discontinued operations, net of income tax expense (benefit) of $26, $(792), $4,376 and $(1,148), respectively

260

(1,460)

3,954

(2,394)

Net earnings

23,200

23,810

71,952

62,474

Noncontrolling interest

538

2,542

2,515

2,518

Net earnings attributable to Centene Corporation

$

22,662

$

21,268

$

69,437

$

59,956

Amounts attributable to Centene Corporation common stockholders:

Earnings from continuing operations, net of income tax expense

$

22,402

$

22,728

$

65,483

$

62,350

Discontinued operations, net of income tax expense (benefit)

260

(1,460)

3,954

(2,394)

Net earnings

$

22,662

$

21,268

$

69,437

$

59,956

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

Basic:

Continuing operations

$

0.46

$

0.53

$

1.35

$

1.45

Discontinued operations

(0.04)

0.08

(0.06)

Earnings per common share

$

0.46

$

0.49

$

1.43

$

1.39

Diluted:

Continuing operations

$

0.44

$

0.51

$

1.30

$

1.41

Discontinued operations

(0.03)

0.08

(0.05)

Earnings per common share

$

0.44

$

0.48

$

1.38

$

1.36

Weighted average number of shares outstanding:

Basic

49,238,406

43,001,870

48,552,135

43,023,431

Diluted

50,938,357

44,291,604

50,192,190

44,247,153

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Nine Months Ended September 30,

2010

2009

Cash flows from operating activities:

Net earnings

$

71,952

$

62,474

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

Depreciation and amortization

38,620

30,800

Stock compensation expense

10,224

11,428

(Gain) loss on sale of investments, net

(6,331)

261

(Gain) on sale of UHP

(8,201)

-

Impairment of investment

5,531

-

Deferred income taxes

7,012

4,516

Changes in assets and liabilities:

Premium and related receivables

(68,125)

(381)

Other current assets

(2,932)

(2,595)

Other assets

(990)

(593)

Medical claims liabilities

(29,304)

31,612

Unearned revenue

(38,708)

54,725

Accounts payable and accrued expenses

(3,174)

(17,656)

Other operating activities

(1,267)

2,386

Net cash (used in) provided by operating activities

(25,693)

176,977

Cash flows from investing activities:

Capital expenditures

(91,960)

(42,696)

Purchases of investments

(382,730)

(647,086)

Proceeds from asset sales

13,420

-

Sales and maturities of investments

452,128

546,640

Investments in acquisitions, net of cash acquired

(26,847)

(31,533)

Net cash used in investing activities

(35,989)

(174,675)

Cash flows from financing activities:

Proceeds from exercise of stock options

2,394

1,717

Proceeds from borrowings

53,812

468,500

Proceeds from stock offering

104,534

-

Payment of long-term debt

(97,467)

(456,059)

Distributions (to) from noncontrolling interest

(7,387)

4,324

Excess tax benefits from stock compensation

424

43

Common stock repurchases

(714)

(5,539)

Debt issuance costs

-

(405)

Net cash provided by financing activities

55,596

12,581

Net (decrease) increase in cash and cash equivalents

(6,086)

14,883

Cash and cash equivalents, beginning of period

403,752

379,099

Cash and cash equivalents, end of period

$

397,666

$

393,982

Supplemental disclosures of cash flow information:

Interest paid

$

9,501

$

8,556

Income taxes paid

$

44,407

$

43,308

Supplemental disclosure of non-cash investing and financing activities:

Contribution from noncontrolling interest

$

306

$

5,491

Capital expenditures

$

15,291

$

10,106

CENTENE CORPORATION

CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA

Q3

Q2

Q1

Q4

Q3

2010

2010

2010

2009

2009

MEMBERSHIP

Managed Care:

Arizona

19,300

19,300

19,000

18,100

17,400

Florida

116,300

113,100

105,900

102,600

84,400

Georgia

300,900

295,600

301,000

309,700

303,400

Indiana

213,300

212,700

211,400

208,100

200,700

Massachusetts

34,400

30,100

26,900

27,800

500

Ohio

161,800

159,300

156,000

150,800

151,200

South Carolina

90,600

92,600

53,900

48,600

46,100

Texas

428,100

475,500

459,600

455,100

450,200

Wisconsin

106,100

133,600

134,900

134,800

132,500

Total at-risk membership

1,470,800

1,531,800

1,468,600

1,455,600

1,386,400

Non-risk membership

35,900

50,900

62,200

63,700

63,200

TOTAL

1,506,700

1,582,700

1,530,800

1,519,300

1,449,600

Medicaid

1,122,800

1,135,500

1,088,300

1,081,400

1,040,000

CHIP & Foster Care

219,100

272,400

266,300

263,600

263,400

ABD & Medicare

94,500

93,800

87,100

82,800

82,500

Other State programs

34,400

30,100

26,900

27,800

500

Total at-risk membership

1,470,800

1,531,800

1,468,600

1,455,600

1,386,400

Non-risk membership

35,900

50,900

62,200

63,700

63,200

TOTAL

1,506,700

1,582,700

1,530,800

1,519,300

1,449,600

Specialty Services(a):

Cenpatico Behavioral Health

Arizona

121,300

119,700

119,300

120,100

117,300

Kansas

39,800

39,100

39,800

41,400

41,000

Bridgeway Health Solutions

Long-term Care

3,000

2,800

2,700

2,600

2,500

TOTAL

164,100

161,600

161,800

164,100

160,800

(a) Includes external membership only.

REVENUE PER MEMBER PER MONTH(b)

$

216.96

$

208.58

$

215.95(c)

$

226.42

$

222.77

CLAIMS(b)

Period-end inventory

469,000

480,400

341,400

423,400

414,900

Average inventory

307,500

306,900

283,900

279,000

227,100

Period-end inventory per member

0.32

0.31

0.23

0.29

0.30

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

(c) Reduction in revenue per member per month is a result of the pharmacy carve-outs in 2010.

Q3

Q2

Q1

Q4

Q3

2010

2010

2010

2009

2009

DAYS IN CLAIMS PAYABLE

Medical

46.0

47.2

46.6

48.1

47.1

Pharmacy

1.1

1.0

1.1

2.0

1.8

TOTAL

47.1

48.2

47.7

50.1

48.9

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

$

895.4

$

813.0

$

917.9

$

949.9

$

911.4

Unregulated

32.7

39.4

51.3

36.2

27.6

TOTAL

$

928.1

$

852.4

$

969.2

$

986.1

$

939.0

DEBT TO CAPITALIZATION

24.7%

24.5%

23.7%

33.2%

31.9%

Debt to Capitalization is calculated as follows: total debt divided by (total debt + total equity).  

OPERATING RATIOS:

Three Months Ended

September 30,

Nine Months Ended

September 30,

2010

2009

2010

2009

Health Benefits Ratios:

 Medicaid and CHIP

83.2%

84.7%

84.0%

84.4%

 ABD and Medicare

85.9

81.1

84.3

81.7

 Specialty Services

87.9

80.5

83.4

79.6

 Total

84.2

83.7

84.0

83.4

Total General & Administrative Expense Ratio

12.2%

13.2%

12.7%

13.5%

MEDICAL CLAIMS LIABILITY (In thousands)

The changes in medical claims liability are summarized as follows:

Balance, September 30, 2009

$

426,700

Incurred related to:

Current period

3,518,220

Prior period

(60,481)

Total incurred

3,457,739

Paid related to:

Current period

3,069,850

Prior period

357,504

Total paid

3,427,354

Balance, September 30, 2010

$

457,085

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 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, increased 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, 2009.

SOURCE Centene Corporation



RELATED LINKS

http://www.centene.com