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Centene Corporation Reports 2010 Second Quarter Earnings

ST. LOUIS, July 27 /PRNewswire-FirstCall/ -- Centene Corporation (NYSE: CNC) today announced net earnings from continuing operations for the quarter ended June 30, 2010, of $23.0 million, or $0.45 per diluted share.  The discussions below, with the exception of cash flow information, are in the context of continuing operations and all financial ratios exclude premium taxes.

Second Quarter Highlights

  • Quarter-end managed care at-risk membership of 1,531,800, an increase of 242,800 members, or 18.8% year over year.
  • Premium and Service Revenues of $1.051 billion, representing 12.8% year over year growth.
  • Health Benefits Ratio (HBR) of 83.8%, compared to 83.1% in the prior year.  
  • General and Administrative (G&A) expense ratio of 12.7%, compared to 13.9% in the prior year.
  • Earnings from operations of $41.7 million, compared to $31.4 million in the prior year.
  • Earnings from continuing operations, net of income tax expense, increased 11.0% year over year to $23.0 million.  Within the quarter, we incurred a $0.03 charge per diluted share to write off a deferred tax asset associated with our Georgia health plan and benefited by $0.03 per diluted share from a shift in start up costs for Mississippi from the second to the third quarter.  
  • Diluted earnings per share from continuing operations of $0.45.  
  • Days in claims payable of 48.2, including pharmacy claims payable.
  • Estimated 2010 composite premium rate increase between 1% and 3%.

Other Events

  • In May 2010, our Texas health plan was awarded a new ABD contract in the Dallas service area subject to execution of a final contract.  The new contract is expected to commence during the first quarter of 2011.  
  • In June 2010, we completed the acquisition of certain assets of Carolina Crescent Health Plan.  We now serve 92,600 at-risk members in South Carolina as of June 30, 2010.  
  • In June 2010, our Indiana health plan was selected to negotiate a statewide managed care contract effective January 1, 2011.  Upon successful execution of the contract, we will continue to serve Hoosier Healthwise members and begin serving Healthy Indiana Plan members.  
  • In July 2010, we closed on the acquisition of certain assets of NovaSys Health, LLC, a leading third party administrator in Arkansas that will complement our existing Celtic business.  

Michael F. Neidorff, Centene’s Chairman and Chief Executive Officer, stated, “Our team continues to focus on fundamentals and driving Centene to be a low-cost producer. These are key factors in producing another solid quarterly report and for the long-term success of our enterprise.”

The following table depicts membership in Centene’s managed care organizations, by state, at June 30, 2010 and 2009:



June 30,



2010


2009

Arizona


19,300


16,200

Florida


113,100


22,300

Georgia


295,600


292,800

Indiana


212,700


196,100

Massachusetts


30,100


Ohio


159,300


141,200

South Carolina


92,600


46,000

Texas


475,500


443,200

Wisconsin


133,600


131,200

Total at-risk membership


1,531,800


1,289,000

Non-risk membership


50,900


114,000

Total


1,582,700


1,403,000



The following table depicts membership in Centene’s managed care organizations, by member category, at June 30, 2010 and 2009:



June 30,



2010


2009

Medicaid


1,135,500


958,600

CHIP & Foster Care


272,400


261,400

ABD & Medicare


93,800


69,000

Other State programs


30,100


Total at-risk membership


1,531,800


1,289,000

Non-risk membership


50,900


114,000

Total


1,582,700


1,403,000



Statement of Operations

  • Premium and service revenues increased 12.8% for the three months ended June 30, 2010 over 2009 as a result of membership growth in each of our states.  This increase was moderated by the removal of pharmacy services in two states beginning in 2010.  These pharmacy carve outs had the effect of reducing 2010 second quarter revenue by approximately $48 million.
  • The consolidated HBR for the three months ended June 30, 2010 of 83.8% was an increase of 0.7% over the comparable period in 2009.  A reconciliation of the change in HBR from the prior year is presented below:


Second Quarter 2009

83.1%


New markets reserved at higher rates

0.6


Net changes in existing markets

0.1


Second Quarter 2010

83.8%








  • Consolidated G&A expense as a percent of premium and service revenues was 12.7% in the second quarter of 2010, a decrease from 13.9% in the second quarter of 2009.  The decrease reflects the leveraging of our expenses over higher revenues and the impact of our ongoing focus on system enhancements and operational efficiencies.  Additionally, we benefited by $0.03 per diluted share from a shift in start up costs for Mississippi from the second to the third quarter.
  • Effective July 1, 2010, our Georgia health plan will begin paying premium taxes and will no longer be subject to income taxes.  Accordingly, the deferred tax asset related to state net operating loss carry forwards was written off.  The write off increased income tax expense during the second quarter by $1.7 million, or $0.03 per diluted share.
  • Earnings per diluted share from continuing operations were $0.45, compared to $0.47 in the second quarter of 2009.  

Balance Sheet and Cash Flow

At June 30, 2010, we had cash and investments of $852.4 million, including $813.0 million held by our regulated entities and $39.4 million held by our unregulated entities.  Medical claims liabilities totaled $455.4 million, representing 48.2 days in claims payable, an increase of 0.5 days from March 31, 2010.  Total debt was $252.8 million and debt to capitalization was 24.5%.  

Cash flow from operations through June 30, 2010 was $(98.3) million and was impacted by 1) $86.0 million decrease in unearned revenue due to advance payments received in December 2009 for January 2010 premium payments and 2) $57.7 million increase in premium and related receivables for June premium payments deferred by several states until July 2010.  During the second half of 2010, we expect cash flow from operations to return to historical levels, although the timing of premium payments from each state can vary from period to period.

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

Days in claims payable, March 31, 2010

47.7


  Timing of claims payments

0.8


  Payment of annual provider bonuses

(0.5)


  Impact of new business

0.3


  Pharmacy payment timing

(0.1)


Days in claims payable, June 30, 2010

48.2





Outlook

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



Full Year 2010




Low


High 


Premium and Service revenues (in millions)


$    4,350


$  4,450


Earnings per diluted share (EPS)


$    1.78


$  1.86


HBR %


83.5%


84.5%


G&A %


12.4%


12.9%








Diluted Shares Outstanding (in thousands)


50,500










Based upon known rate adjustments and preliminary discussions with our states that finalize rates in the second half of the year, we currently estimate our 2010 composite premium rate increase to be between 1% and 3%.

Conference Call

As previously announced, we will host a conference call Tuesday, July 27, 2010, at 8:30 A.M. (Eastern Time) to review the financial results for the second quarter ended June 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 800-860-2442 in the U.S. and Canada; +1-412-858-4600 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, July 26, 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 442132.

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.  

Tables Follow



CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)



June 30,
2010


December 31,
2009


ASSETS







Current assets:







   Cash and cash equivalents of continuing operations, including $5,154 and $8,667, respectively, from
    consolidated variable interest entities


$

264,723

$

400,951


   Cash and cash equivalents of discontinued operations



877


2,801


   Total cash and cash equivalents



265,600


403,752


   Premium and related receivables, net of allowance for uncollectible accounts of $1,336 and $1,338,
    respectively, including $7,266 and $11,313, respectively, from consolidated variable interest entities



164,420


103,456


   Short-term investments, at fair value (amortized cost $29,542 and $39,230, respectively)



29,660


39,554


   Other current assets, including $3,918 and $4,507, respectively, from consolidated variable interest entities



83,843


64,866


   Current assets of discontinued operations other than cash



2,314


4,506


       Total current assets



545,837


616,134


Long-term investments, at fair value (amortized cost $522,589 and $514,256, respectively)



537,399


525,497


Restricted deposits, at fair value (amortized cost $20,485 and $20,048, respectively)



20,570


20,132


Property, software and equipment, net of accumulated depreciation of $118,995 and $103,883, respectively,
including $138,998 and $89,219, respectively, from consolidated variable interest entities



313,839


230,421


Goodwill



244,304


224,587


Intangible assets, net



24,589


22,479


Other long-term assets



35,557


36,829


Long-term assets of discontinued operations



11,442


26,285


       Total assets


$

1,733,537

$

1,702,364


LIABILITIES AND STOCKHOLDERS' EQUITY







Current liabilities:







   Medical claims liability


$

455,375

$

470,932


   Accounts payable and accrued expenses, including $30,366 and $14,020, respectively, from consolidated
    variable interest entities



167,613


132,001


   Unearned revenue



5,695


91,644


   Current portion of long-term debt



771


646


   Current liabilities of discontinued operations



7,365


20,685


       Total current liabilities



636,819


715,908


Long-term debt



252,028


307,085


Other long-term liabilities



64,870


59,561


Long-term liabilities of discontinued operations



652


383


       Total liabilities



954,369


1,082,937









Commitments and contingencies














Stockholders' equity:







   Common stock, $.001 par value; authorized 100,000,000 shares; 51,654,541 issued and 49,210,505
     outstanding at June 30, 2010, and 45,593,383 shares issued and 43,179,373 shares outstanding at
      December 31, 2009



52


46


   Additional paid-in capital



395,926


281,806


   Accumulated other comprehensive income:







    Unrealized gain on investments, net of tax



9,400


7,348


   Retained earnings



405,682


358,907


   Treasury stock, at cost (2,444,036 and 2,414,010 shares, respectively)



(47,830)


(47,262)


   Total Centene Corporation stockholders' equity



763,230


600,845


   Noncontrolling interest



15,938


18,582


       Total stockholders' equity



779,168


619,427


       Total liabilities and stockholders' equity


$

1,733,537

$

1,702,364





CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)


Three Months Ended

June 30,


Six Months Ended

June 30,



2010



2009


2010



2009


Revenues:















   Premium

$

1,025,928



$

909,698


$

2,025,243



$

1,794,704


   Service


24,682




21,591



47,589




45,440


       Premium and service revenues


1,050,610




931,289



2,072,832




1,840,144


   Premium tax


26,162




108,180



72,661




131,760


       Total revenues


1,076,772




1,039,469



2,145,493




1,971,904


Expenses:















   Medical costs


859,335




755,706



1,699,043




1,495,046


   Cost of services


15,707




14,559



32,859




30,521


   General and administrative expenses


133,470




129,221



268,977




251,500


   Premium tax


26,551




108,548



73,294




132,490


       Total operating expenses


1,035,063




1,008,034



2,074,173




1,909,557


       Earnings from operations


41,709




31,435



71,320




62,347


Other income (expense):















   Investment and other income


4,142




4,418



11,199




8,031


   Interest expense


(3,869)




(4,160)



(7,682)




(8,146)


       Earnings from continuing operations, before income
        tax expense


41,982




31,693



74,837




62,232


   Income tax expense


17,254




11,789



29,779




22,634


       Earnings from continuing operations, net of income
        tax expense


24,728




19,904



45,058




39,598


Discontinued operations, net of income tax (benefit)
expense of $(90), $(196), $4,350 and $(356),
 respectively


(226)




(485)



3,694




(934)


       Net earnings


24,502




19,419



48,752




38,664


Noncontrolling interest (loss)


1,729




(811)



1,977




(24)


       Net earnings attributable to Centene Corporation

$

22,773



$

20,230


$

46,775



$

38,688

















Amounts attributable to Centene Corporation common
stockholders:















   Earnings from continuing operations, net of income tax
   expense

$

22,999



$

20,715


$

43,081



$

39,622


   Discontinued operations, net of income tax (benefit)
    expense


(226)




(485)



3,694




(934)


   Net earnings

$

22,773



$

20,230


$

46,775



$

38,688

















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















   Basic:















    Continuing operations

$

0.46



$

0.48


$

0.89



$

0.92


    Discontinued operations





(0.01)



0.08




(0.02)


    Earnings per common share

$

0.46



$

0.47


$

0.97



$

0.90


   Diluted:















     Continuing operations

$

0.45



$

0.47


$

0.86



$

0.90


     Discontinued operations





(0.01)



0.08




(0.02)


     Earnings per common share

$

0.45



$

0.46


$

0.94



$

0.88

















Weighted average number of shares outstanding:















     Basic


49,135,552




43,001,157



48,203,312




43,034,390


     Diluted


50,866,318




44,242,339



49,807,084




44,240,071





CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)


Six Months Ended June 30,



2010


2009









Cash flows from operating activities:







   Net earnings

$

48,752


$

38,664


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







     Depreciation and amortization


24,918



20,892


     Stock compensation expense


6,888



7,611


     (Gain) loss on sale of investments, net


(3,987)



450


     (Gain) on sale of UHP


(8,201)



--


     Deferred income taxes


4,928



1,512


   Changes in assets and liabilities:







     Premium and related receivables


(57,718)



(23,327)


     Other current assets


948



1,357


     Other assets


1,719



(608)


     Medical claims liabilities


(28,868)



17,093


     Unearned revenue


(85,950)



44,129


     Accounts payable and accrued expenses


(3,536)



(49,377)


     Other operating activities


1,851



3,723


         Net cash (used in) provided by operating activities


(98,256)



62,119


Cash flows from investing activities:







   Capital expenditures


(63,602)



(29,833)


   Purchases of investments


(306,124)



(415,052)


   Proceeds from asset sales


13,420



--


   Sales and maturities of investments


291,735



377,320


   Investments in acquisitions, net of cash acquired


(21,473)



(7,621)


         Net cash used in investing activities


(86,044)



(75,186)


Cash flows from financing activities:







   Proceeds from exercise of stock options


1,759



1,109


   Proceeds from borrowings


42,161



288,000


   Proceeds from stock offering


104,534



--


   Payment of long-term debt


(97,193)



(264,135)


   Distributions to noncontrolling interest


(4,840)



(707)


   Excess tax benefits from stock compensation


295



15


   Common stock repurchases


(568)



(5,447)


   Debt issue costs


--



(368)


         Net cash provided by financing activities


46,148



18,467


         Net (decrease) increase in cash and cash equivalents


(138,152)



5,400


Cash and cash equivalents, beginning of period


403,752



379,099


Cash and cash equivalents, end of period

$

265,600


$

384,499









Supplemental disclosures of cash flow information:







   Interest paid

$

7,320


$

7,658


   Income taxes paid

$

27,940


$

31,512









Supplemental disclosure of non-cash investing and financing activities:







   Contribution from noncontrolling interest

$

306


$

5,107





CENTENE CORPORATION
CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA


Q2


Q1


Q4


Q3


Q2


2010


2010


2009


2009


2009

MEMBERSHIP










Managed Care:










   Arizona

19,300


19,000


18,100


17,400


16,200

   Florida

113,100


105,900


102,600


84,400


22,300

   Georgia

295,600


301,000


309,700


303,400


292,800

   Indiana

212,700


211,400


208,100


200,700


196,100

   Massachusetts

30,100


26,900


27,800


500


   Ohio

159,300


156,000


150,800


151,200


141,200

   South Carolina

92,600


53,900


48,600


46,100


46,000

   Texas

475,500


459,600


455,100


450,200


443,200

   Wisconsin

133,600


134,900


134,800


132,500


131,200

       Total at-risk membership

1,531,800


1,468,600


1,455,600


1,386,400


1,289,000

   Non-risk membership

50,900


62,200


63,700


63,200


114,000

       TOTAL

1,582,700


1,530,800


1,519,300


1,449,600


1,403,000











   Medicaid

1,135,500


1,088,300


1,081,400


1,040,000


958,600

   CHIP & Foster Care

272,400


266,300


263,600


263,400


261,400

   ABD & Medicare

93,800


87,100


82,800


82,500


69,000

   Other State programs

30,100


26,900


27,800


500


       Total at-risk membership

1,531,800


1,468,600


1,455,600


1,386,400


1,289,000

   Non-risk membership

50,900


62,200


63,700


63,200


114,000

       TOTAL

1,582,700


1,530,800


1,519,300


1,449,600


1,403,000











Specialty Services(a):










   Cenpatico Behavioral Health










     Arizona

119,700


119,300


120,100


117,300


110,500

     Kansas

39,100


39,800


41,400


41,000


41,100

Bridgeway Health Solutions










   Long-term Care

2,800


2,700


2,600


2,500


2,400

       TOTAL

161,600


161,800


164,100


160,800


154,000











(a) Includes external membership only.




















REVENUE PER MEMBER PER MONTH(b)

$

208.58


$

215.95(c)


$

226.42


$

222.77


$

219.75











CLAIMS(b)










   Period-end inventory

480,400


341,400


423,400


414,900


362,200

   Average inventory

306,900


283,900


279,000


227,100


234,500

   Period-end inventory per member

0.31


0.23


0.29


0.30


0.28

(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.






Q2


Q1


Q4


Q3


Q2


2010


2010


2009


2009


2009











DAYS IN CLAIMS PAYABLE










Medical

47.2


46.6


48.1


47.1


47.5

Pharmacy

1.0


1.1


2.0


1.8


1.5

TOTAL

48.2


47.7


50.1


48.9


49.0

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

$

813.0


$

917.9


$

949.9


$

911.4


$

825.8

Unregulated


39.4



51.3



36.2



27.6



27.0

TOTAL

$

852.4


$

969.2


$

986.1


$

939.0


$

852.8











DEBT TO CAPITALIZATION

24.5%


23.7%


33.2%


31.9%


33.0%

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




Operating Ratios:


Three Months Ended

June 30,


Six Months Ended

June 30,


2010



2009


2010



2009

Health Benefits Ratios:














 Medicaid and CHIP

83.4

%



83.7

%


84.5

%



84.2

%

 ABD and Medicare

86.5




82.6



83.4




82.0


 Specialty Services

81.7




79.8



81.2




79.0


 Total

83.8




83.1



83.9




83.3
















Total General & Administrative Expense
Ratio

12.7

%



13.9

%


13.0

%



13.7

%




MEDICAL CLAIMS LIABILITY (In thousands)
The changes in medical claims liability are
summarized as follows:

Balance, June 30, 2009

$

406,834


Incurred related to:




Current period


3,427,022


Prior period


(59,502)


Total incurred


3,367,520


Paid related to:




Current period


2,980,741


Prior period


338,238


Total paid


3,318,979


Balance, June 30, 2010

$

455,375





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 June 30, 2009.

SOURCE Centene Corporation

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