CNC Centene Corp

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.