Centene Corporation (NYSE: CNC) today announced its net earnings
from continuing operations for the quarter ended March 31, 2008
were $25.5 million, or $0.57 per diluted share, compared to $11.6
million, or $0.26 per diluted share in the 2007 first quarter. The
first quarter results include the benefit of the July 1 through
December 31, 2007 period rate increase for Georgia, approximately
$0.28 per diluted share, which was included in our guidance for the
first quarter. Unless specifically noted, the discussions below are
in the context of continuing operations. First Quarter Highlights
Quarter-end Medicaid Managed Care membership of 1.2 million.
Revenues of $816.6 million, or $794.0 million net of premium taxes,
a 22.8% increase over the 2007 first quarter. Health Benefits Ratio
(HBR), which reflects medical costs as a percent of premium
revenues, of 83.0%, compared to 84.6% in the 2007 first quarter.
The first quarter 2008 HBR reflects the benefit of the previously
mentioned Georgia rate increase. General and administrative
(G&A) expense ratio of 12.5%, compared to 13.4% in the 2007
first quarter. Cash flow from operations of $26.7 million. Days in
claims payable of 49.3. Other Events Announced the acquisition of
Celtic Insurance Company, a health insurance carrier focused on the
individual health insurance market. Pending regulatory approval, we
expect to complete this acquisition in the third quarter of 2008.
Commenced operations under our Texas Foster Care contract effective
April 1, 2008. Notified the State of Ohio of our intent to withdraw
from covering Aged, Blind or Disabled (ABD) members in the
Northwest region of Ohio effective July 1. Repurchased 350,332
shares during the first quarter for approximately $7.0 million.
Michael F. Neidorff, Centene�s Chairman and Chief Executive
Officer, stated, �During the first quarter, our HBR was adversely
affected by high medical costs�in Ohio largely influenced by the
ABD population and by a heavy flu season. But�aside from�these
items and an extended rollout of full-risk enrollment�in South
Carolina,�in aggregate our other markets and products performed
generally in-line with our expectations. �We are taking actions to
improve margins in our Ohio ABD population including�exiting�the
Northwest region as of July 1, 2008,�rationalizing our provider
networks in the remaining regions, and continuing an ongoing
dialogue with the State on rate adequacy and benefit design.�We
remain�committed to serving the needs of our customers in all of
our markets, but are also committed to doing so only in markets and
with products that�produce consistent and adequate returns for our
investors,� concluded Neidorff. The following table depicts
membership in Centene�s managed care organizations, by state, at
March 31, 2008 and 2007: � 2008 � � 2007 Georgia � � 282,700 � �
291,300 Indiana 161,300 176,700 New Jersey 56,500 59,100 Ohio
131,100 118,300 South Carolina 29,300 � Texas 369,000 318,500
Wisconsin � 126,900 � 139,400 Total � 1,156,800 � 1,103,300 The
following table depicts membership in Centene�s managed care
organizations, by member category, at March 31, 2008 and 2007: �
2008 � � 2007 � Medicaid � � 862,900 � 839,600 SCHIP 216,000
211,200 SSI/Medicare � 77,900 � 52,500 Total � 1,156,800 (a) �
1,103,300 (b) � (a) 1,126,200 at-risk; 30,600 ASO (b) 1,099,200
at-risk; 4,100 ASO � � � � � � � Statement of Operations For the
2008 first quarter, revenues, net of premium taxes, increased 22.8%
to $794.0 million from $646.4 million in the 2007 first quarter.
The increase was mainly driven by membership growth in Texas and
Ohio, which are the two markets that added SSI products in 2007, as
well as the recognition of the Georgia premium rate increase
retroactive to July 1, 2007 of $20.8 million. The consolidated HBR,
which reflects medical costs as a percent of premium revenues, was
83.0%, a decrease from 84.6% in the 2007 first quarter. The
decrease resulted from the recognition of the Georgia premium rate
increase, offset by increases from seasonal medical cost trends, in
part related to the flu, and continued high medical costs in the
Ohio ABD markets. Consolidated G&A expense as a percent of
premium and service revenues was 12.5% in the first quarter of
2008, a decrease from 13.4% in the first quarter of 2007. Earnings
per diluted share from continuing operations were $0.57, compared
to $0.26 in the 2007 first quarter. Balance Sheet and Cash Flow At
March 31, 2008, the Company had cash and investments of $676.9
million, including $651.1 million held by its regulated entities
and $25.8 million held by its unregulated entities. Medical claims
liabilities totaled $347.5 million, representing 49.3 days in
claims payable, an increase of 0.2 days from December 31, 2007.
Total debt was $216.2 million and debt to capitalization was 32.8%.
Cash flow from operations was $26.7 million. Outlook The table
below depicts the Company�s guidance for the 2008 second quarter
and full year. Q2 2008 � 2008 Low � High Low � High Revenue (in
millions)1 $ 822 $ 832 $ 3,300 $ 3,375 Earnings per diluted share $
0.38 $ 0.42 $ 1.87 $ 1.97 � 1 Revenue net of premium tax � � � � �
� � Eric R. Slusser, Centene�s Chief Financial Officer, stated, �We
are lowering the range of our annual revenue and earnings guidance
to reflect a reduction in investment income resulting from actions
taken by the Federal Reserve during the first quarter of 2008 as
well as the current and expected lower results in the Ohio ABD
market. We expect an overall HBR range for the full year of 82.0%
to 84.0%.� Conference Call As previously announced, the Company
will host a conference call Tuesday, April 22, 2008, at 8:00 A.M.
(Eastern Time) to review the financial results for the first
quarter ended March 31, 2008, and to discuss its business outlook.
Michael F. Neidorff and Eric R. Slusser will host the conference
call. Investors are invited to participate in the conference call
by dialing 800-273-1254 in the U.S. and Canada, 706-679-8592 from
abroad, or via a live internet broadcast on the Company's website
at www.centene.com, under the Investor Relations section. A replay
will be available for on-demand listening shortly after the
completion of the call until 11:59 P.M. (Eastern Time) on May 6,
2008 at the aforementioned URL, or by dialing 800-642-1687 in the
U.S. and Canada, or 706-645-9291 from abroad, and entering access
code 41656800. About Centene Corporation Centene Corporation is a
leading multi-line healthcare enterprise that provides programs and
related services to individuals receiving benefits under Medicaid,
including the State Children�s Health Insurance Program (SCHIP),
Supplemental Security Income (SSI) and Medicare (Special Needs
Plans). The Company operates health plans in Georgia, Indiana, New
Jersey, Ohio, South Carolina, Texas and Wisconsin. In addition, the
Company contracts with other healthcare and commercial
organizations to provide specialty services including behavioral
health, life and health management, long-term care, managed vision,
nurse triage, pharmacy benefits management and treatment
compliance. Information regarding Centene is available via the
Internet at www.centene.com. 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) � � March 31, 2008 � December 31, 2007 (Unaudited) �
ASSETS Current assets: Cash and cash equivalents $ 263,780 $
268,584 Premium and related receivables 81,468 90,072 Short-term
investments, at fair value (amortized cost $60,927 and $46,392,
respectively) 60,989 46,269 Other current assets � 37,373 � 41,414
Total current assets 443,610 446,339 Long-term investments, at fair
value (amortized cost $319,881 and $314,681, respectively) 324,173
317,041 Restricted deposits, at fair value (amortized cost $27,411
and $27,056, respectively) 27,972 27,301 Property, software and
equipment, net 151,265 138,139 Goodwill 141,023 141,030 Other
intangible assets, net 12,608 13,205 Other assets � 38,624 � 36,067
Total assets $ 1,139,275 $ 1,119,122 � LIABILITIES AND
STOCKHOLDERS� EQUITY Current liabilities: Medical claims
liabilities $ 347,504 $ 335,856 Accounts payable and accrued
expenses 115,857 105,096 Unearned revenue 2,231 44,016 Current
portion of long-term debt 416 971 Current liabilities of
discontinued operations � 754 � 861 Total current liabilities
466,762 486,800 Long-term debt 215,818 206,406 Other liabilities �
13,460 � 10,869 Total liabilities 696,040 704,075 Stockholders�
equity: Common stock, $.001 par value; authorized 100,000,000
shares; issued and outstanding 43,424,326 and 43,667,837 shares,
respectively 44 44 Additional paid-in capital 222,719 221,693
Accumulated other comprehensive income: Unrealized gain on
investments, net of tax 3,110 1,571 Retained earnings � 217,362 �
191,739 Total stockholders� equity � 443,235 � 415,047 Total
liabilities and stockholders� equity $ 1,139,275 $ 1,119,122 �
CENTENE CORPORATION AND SUBSIDIARIES � CONSOLIDATED STATEMENTS OF
OPERATIONS (In thousands, except share data) � � Three Months Ended
March 31, 2008 � 2007 (Unaudited) Revenues: Premium $ 773,478 $
624,826 Premium tax 22,631 17,816 Service � 20,530 � � 21,592 �
Total revenues � 816,639 � � 664,234 � Expenses: Medical costs
641,619 528,520 Cost of services 16,176 15,630 General and
administrative expenses 99,283 86,467 Premium tax � 22,631 � �
17,816 � Total operating expenses � 779,709 � � 648,433 � Earnings
from operations 36,930 15,801 Other income (expense): Investment
and other income 7,769 6,017 Interest expense � (3,994 ) � (3,132 )
Earnings before income taxes 40,705 18,686 Income tax expense �
15,168 � � 7,089 � Net earnings from continuing operations 25,537
11,597 Discontinued operations, net of income tax expense (benefit)
of $52 and $(26,780) � 86 � � 26,614 � Net earnings $ 25,623 � $
38,211 � � Net earnings per share: Basic: Continuing operations $
0.59 $ 0.27 Discontinued operations � � � � 0.61 � Basic earnings
per common share $ 0.59 � $ 0.88 � Diluted: Continuing operations $
0.57 $ 0.26 Discontinued operations � � � � 0.59 � Diluted earnings
per common share $ 0.57 � $ 0.85 � � Weighted average number of
shares outstanding: Basic 43,538,207 43,433,319 Diluted 44,742,893
44,923,340 � CENTENE CORPORATION AND SUBSIDIARIES � CONSOLIDATED
STATEMENTS OF CASH FLOWS (In thousands) � � Three Months Ended
March 31, 2008 � 2007 (Unaudited) � Cash flows from operating
activities: Net earnings $ 25,623 $ 38,211 Adjustments to reconcile
net earnings to net cash provided by operating activities �
Depreciation and amortization 7,798 6,274 Stock compensation
expense 4,013 3,871 Deferred income taxes 9,472 (1,398 ) Gain on
sale of FirstGuard Missouri � (4,218 ) Changes in assets and
liabilities � Premium and related receivables 8,612 13,588 Other
current assets (2,634 ) (26,336 ) Other assets (1,031 ) (636 )
Medical claims liabilities 11,608 (4,340 ) Unearned revenue (41,788
) 4,796 Accounts payable and accrued expenses 4,489 1,309 Other
operating activities � 554 � � 4,859 � Net cash provided by
operating activities � 26,716 � � 35,980 � Cash flows from
investing activities: Purchases of property, software and equipment
(19,879 ) (14,794 ) Purchases of investments (86,025 ) (135,866 )
Sales and maturities of investments 70,888 122,835 Proceeds from
asset sales � 10,848 Investments in acquisitions and equity method
investee, net of cash acquired � (2,194 ) � (400 ) Net cash used in
investing activities � (37,210 ) � (17,377 ) Cash flows from
financing activities: Proceeds from exercise of stock options 1,148
868 Proceeds from borrowings 26,005 191,000 Payment of long-term
debt (17,148 ) (165,248 ) Excess tax benefits from stock
compensation 2,638 417 Common stock repurchases (6,953 ) (644 )
Debt issue costs � � � � (4,138 ) Net cash provided by financing
activities � 5,690 � � 22,255 � Net (decrease) increase in cash and
cash equivalents � (4,804 ) � 40,858 � Cash and cash equivalents,
beginning of period � 268,584 � � 271,047 � Cash and cash
equivalents, end of period $ 263,780 � $ 311,905 � � Interest paid
$ 463 $ 2,999 Income taxes paid $ 792 $ 5,801 � CENTENE CORPORATION
� CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA � � Q1 � Q4 �
Q3 � Q2 2008 2007 2007 2007 MEMBERSHIP Managed Care: Georgia
282,700 287,900 286,200 281,400 Indiana 161,300 154,600 156,300
161,700 New Jersey 56,500 57,300 58,300 59,100 Ohio 131,100 128,700
127,500 128,200 South Carolina 29,300 31,800 29,300 31,100 Texas
369,000 354,400 347,000 333,900 Wisconsin � 126,900 � 131,900 �
132,700 � 136,100 TOTAL � 1,156,800 � 1,146,600 � 1,137,300 �
1,131,500 � Medicaid 862,900 848,100 841,600 846,900 SCHIP 216,000
224,400 223,500 216,500 SSI & Medicare � 77,900 � 74,100 �
72,200 � 68,100 TOTAL � 1,156,800 � 1,146,600 � 1,137,300 �
1,131,500 � Specialty Services(a): Arizona 97,900 99,900 99,000
95,200 Kansas � 39,400 � 39,000 � 35,600 � 37,500 TOTAL � 137,300 �
138,900 � 134,600 � 132,700 � (a) Includes behavioral health
contracts only. � REVENUE PER MEMBER(b) $ 215.35 $ 210.34 $ 201.05
$ 193.09 � CLAIMS(b) Period-end inventory 393,700 312,700 265,400
281,000 Average inventory 281,600 288,700 319,900 248,200
Period-end inventory per member 0.34 0.28 0.24 0.26 � (b) Revenue
per member and claims information are presented for the Medicaid
Managed Care segment. � � � � Q1 Q4 Q3 Q2 2008 2007 2007 2007 �
DAYS IN CLAIMS PAYABLE(c) 49.3 49.1 49.1 46.2 (c) Days in Claims
Payable is a calculation of Medical Claims Liabilities at the end
of the period divided by average claims expense per calendar day
for such period. � CASH AND INVESTMENTS (in millions) Regulated $
651.1 $ 626.2 $ 593.6 $ 527.9 Unregulated � 25.8 � � 33.0 � � 45.9
� � 65.8 � TOTAL $ 676.9 � $ 659.2 � $ 639.5 � $ 593.7 � � DEBT TO
CAPITALIZATION(d) 32.8 % 33.3 % 33.1 % 34.0 % (d) Debt to
Capitalization is calculated as follows: total debt divided by
(total debt + equity). � OPERATING RATIOS: � � Three Months Ended
March 31, 2008 � � 2007 Health Benefits Ratios Medicaid and SCHIP
79.5 % 84.5 % SSI and Medicare 97.5 88.5 Specialty Services 84.1
79.7 Total 83.0 84.6 � General & Administrative Expense Ratio
12.5 % 13.4 % � MEDICAL CLAIMS LIABILITIES (In thousands) Four
rolling quarters of the changes in medical claims liabilities are
summarized as follows: � Balance, March 31, 2007 � $ 267,980
Incurred related to: Current period 2,449,237 Prior period �
(11,652 ) Total incurred � 2,437,585 � Paid related to: Current
period 2,110,081 Prior period � 247,980 � Total paid � 2,358,061 �
Balance, March 31, 2008 $ 347,504 � 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� claims 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.
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