Centene Corporation (NYSE: CNC) today announced its financial
results for the quarter and year ended December 31, 2008. As
discussed on our December 19, 2008 guidance call, the results of
operations for University Health Plans, or UHP, our New Jersey
health plan, are now classified as discontinued operations as a
result of our decision to sell certain assets of UHP. Unless
specifically noted, the discussions below are in the context of net
earnings from continuing operations and all financial ratios are
calculated using revenues excluding premium taxes and investment
income.
� � � � � �
2008 Highlights � �
Q4 � �
Full
Year Total Revenues (in millions) $ 902.8 $ 3,364.5
Consolidated HBR 82.3 % 82.5 % Diluted EPS $ 0.53 $ 1.90
Fourth Quarter Highlights
- Quarter-end Medicaid Managed
Care membership of 1.2 million.
- Revenues of $902.8 million, or
$878.8 million net of premium taxes, a 22.2% increase over the 2007
fourth quarter.
- Health Benefits Ratio (HBR),
which reflects medical costs as a percent of premium revenues, of
82.3%, compared to 85.3% in the 2007 fourth quarter.
- General and administrative
(G&A) expense ratio of 13.8%, compared to 14.9% in the 2007
fourth quarter.
- Cash flow from operations of
$95.5 million.
- Days in claims payable of
48.5.
- Diluted earnings per share, or
EPS, from continuing operations of $0.53. Total (including New
Jersey) diluted EPS of $0.49, including a $0.05 one-time charge
related to the sale of our New Jersey health plan.
Other Events
- In February 2009, we began
converting membership in Florida from Access, on a non-risk basis,
to our new subsidiary, Sunshine State Health Plan, on an at-risk
basis.
- Peach State Health Plan, Inc.,
our Georgia subsidiary, received Accreditation Status by the
National Committee for Quality Assurance (NCQA) under the New
Health Plan Accreditation Program.
Michael F. Neidorff, Centene�s Chairman and Chief Executive
Officer, stated, �We were pleased with the results of the fourth
quarter and year, which reflect our focus on fundamentals that we
will maintain going forward.�
The following table depicts membership in Centene�s managed care
organizations, by state, at December 31, 2008 and 2007:
� �
2008 � �
2007 Georgia 288,300 287,900 Indiana
175,300 154,600 Ohio 133,400 128,700 South Carolina(a) 31,300
31,800 Texas 431,700 354,400 Wisconsin 124,800 131,900 Total
1,184,800 1,089,300 � (a) Substantially all of the 2007 membership
in South Carolina was on a non-risk basis.
The following table depicts membership in Centene�s managed care
organizations, by member category, at December 31, 2008 and
2007:
� �
2008 � �
2007 Medicaid 862,500 807,600
SCHIP/Foster Care 257,300 214,600 ABD/Medicare 65,000 67,100 Total
1,184,800 (a) 1,089,300 (b) � (a) 1,181,100 at-risk; 3,700 ASO
(b) 1,054,200 at-risk; 35,100
ASO
Statement of Operations
- For the 2008 fourth quarter,
revenues, net of premium taxes, increased 22.2% to $878.8 million
from $719.4 million in the 2007 fourth quarter. The increase was
primarily driven by membership growth, especially related to the
new Foster Care contract in Texas, premium rate increases and the
recent acquisition of Celtic, which closed on July 1, 2008.
- The consolidated HBR, which
reflects medical costs as a percent of premium revenues, was 82.3%,
a decrease from 85.3% in the 2007 fourth quarter. The decrease is
primarily due to overall increased premium yield, a moderating
medical cost trend and the acquisition of Celtic. Sequentially, our
consolidated HBR increased from 82.2% in the 2008 third quarter to
82.3%.
- Consolidated G&A expense as
a percent of premium and service revenues was 13.8% in the fourth
quarter of 2008, a decrease from 14.9% in the fourth quarter of
2007. The decrease was due primarily to the restructuring charge
recorded in the fourth quarter of 2007.
- Loss from discontinued
operations in the fourth quarter of 2008 includes a $3.7 million
pre-tax, or $0.05 per diluted share, charge primarily for asset
impairments and employee severance related to the sale of our New
Jersey health plan.
- For the year ended December 31,
2008, revenues, net of premium taxes, from continuing operations
increased 21.6% to $3.3 billion from $2.7 billion for the same
period in the prior year. G&A expenses as a percent of premium
and service revenues decreased to 13.6% in the year ended December
31, 2008, compared to 14.3% in the year ended December 31, 2007.
Earnings from operations increased to $131.6 million in the year
ended December 31, 2008 from $55.3 million in the year ended
December 31, 2007. Net earnings from continuing operations, were
$84.2 million, or $1.90 per diluted share in 2008.
- The following table reconciles
diluted EPS from continuing operations to total diluted EPS:
EPS Reconciliation: � �
Diluted EPS from continuing
operations(1)
$ 1.90 Discontinued health plan operations 0.03 New Jersey one-time
exit charges � (0.05 ) Total diluted EPS $ 1.88 � � � � � � � � � �
(1)
� Includes $0.28 recorded during the first quarter of 2008 related
to the Georgia premium rate increase for July 1, 2007 � December
31, 2007.
Balance Sheet and Cash Flow
At December 31, 2008, the Company had cash and investments of
$822.1 million, including $798.0 million held by its regulated
entities and $24.1 million held by its unregulated entities.
Medical claims liabilities totaled $373.0 million, representing
48.5 days in claims payable, an increase of 0.2 days from December
31, 2007 and an increase of 0.6 days from September 30, 2008. Total
debt was $264.9 million and debt to capitalization was 34.6%. Year
to date cash flow from operations was $222.0 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, September 30, 2008 � � 47.9 State medical
expense reconciliation 0.5 Other 0.1 Days in claims payable,
December 31, 2008 48.5
Outlook
The table below depicts the Company�s annual guidance for
2009:
� �
Full Year 2009 Low � �
High
Revenue (in millions)(1)
$ 3,650 $ 3,775 Earnings per diluted share $ 1.82 $ 1.94
�
(1) Revenue net of premium tax
The Company is maintaining its previously issued 2009 financial
guidance.
Conference Call
As previously announced, the Company will host a conference call
Tuesday, February 10, 2009, at 8:30 A.M. (Eastern Time) to review
the financial results for the fourth quarter and year ended
December 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, 973-638-3440 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 February
24, 2009 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 81401888.
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), as well as Aged,
Blind, or Disabled (ABD), Foster Care,�Long-Term Care�and Medicare
(Special Needs Plans). The Company operates local health plans and
offers a range of healthcare solutions for the rising number of
uninsured Americans.�It also�contracts with other healthcare and
commercial organizations to provide specialty services including
behavioral health, life and health management, 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)
� � �
December 31, 2008 � �
2007 ASSETS
Current assets: Cash and cash equivalents of continuing operations
$ 370,999 $ 267,305 Cash and cash equivalents of discontinued
operations � 8,100 � 1,279 Total cash and cash equivalents 379,099
268,584 Premium and related receivables, net of allowance for
uncollectible accounts of $595 and $258, respectively 92,531 79,492
Short-term investments, at fair value (amortized cost $108,469 and
$46,193, respectively) 109,393 46,074 Other current assets 75,333
39,382 Current assets of discontinued operations other than cash �
9,987 � 12,807 Total current assets 666,343 446,339 Long-term
investments, at fair value (amortized cost $329,330 and $314,681,
respectively) 332,411 317,041 Restricted deposits, at fair value
(amortized cost $9,124 and $6,383, respectively) 9,254 6,430
Property, software and equipment, net 175,858 135,883 Goodwill
163,380 138,862 Intangible assets, net 17,575 11,337 Other
long-term assets 59,083 36,067 Long-term assets of discontinued
operations � 27,248 � 29,865 Total assets $ 1,451,152 $ 1,121,824
LIABILITIES AND STOCKHOLDERS� EQUITY Current liabilities:
Medical claims liability $ 373,037 $ 313,364 Accounts payable and
accrued expenses 219,566 102,944 Unearned revenue 17,107 44,016
Current portion of long-term debt 255 971 Current liabilities of
discontinued operations � 31,013 � 25,505 Total current liabilities
640,978 486,800 Long-term debt 264,637 206,406 Other long-term
liabilities 43,539 13,300 Long-term liabilities of discontinued
operations � 726 � 271 Total liabilities 949,880 706,777 �
Commitments and contingencies � Stockholders� equity: Common stock,
$.001 par value; authorized 100,000,000 shares; issued and
outstanding 42,987,764 and 43,667,837 shares, respectively 43 44
Additional paid-in capital 222,841 221,693 Accumulated other
comprehensive income: Unrealized gain on investments, net of tax
3,152 1,571 Retained earnings � 275,236 � 191,739 Total
stockholders� equity � 501,272 � 415,047 Total liabilities and
stockholders� equity $ 1,451,152 $ 1,121,824 �
CENTENE CORPORATION AND
SUBSIDIARIES
�
CONSOLIDATED STATEMENTS OF
OPERATIONS
(In thousands, except share
data)
� � �
Three Months Ended
December 31,
� � �
Year Ended
December 31,
2008 � �
2007 2008 � �
2007
(Unaudited) (Unaudited) Revenues: Premium $ 860,811 $
700,030 $ 3,199,360 $ 2,611,953 Premium tax 23,952 20,393 90,202
76,567 Service � 17,995 � � 19,399 � � 74,953 � � 80,508 � Total
revenues � 902,758 � � 739,822 � � 3,364,515 � � 2,769,028 �
Operating expenses:
�
�
Medical costs 708,163 596,971 2,640,335 2,190,898 Cost of services
13,453 15,530 56,920 61,348 General and administrative expenses
121,343 107,159 444,733 384,970 Premium tax � 24,329 � � 20,393 � �
90,966 � � 76,567 � Total operating expenses � 867,288 � � 740,053
� � 3,232,954 � � 2,713,783 � Earnings from operations 35,470 (231
) 131,561 55,245 Other income (expense):
�
Investment and other income 6,004 6,069 21,728 24,452 Interest
expense � (4,237 ) � (4,110 ) � (16,673 ) � (15,626 ) Earnings
before income tax expense 37,237 1,728 136,616 64,071 Income tax
expense � 13,971 � � 97 � � 52,435 � � 23,031 � Net earnings from
continuing operations 23,266 1,631 84,181 41,040 Discontinued
operations, net of income tax (benefit) expense of $(671), $940,
$(281), and $(31,563), respectively � (1,843 ) � (158 ) � (684 ) �
32,362 � Net earnings $ 21,423 � $ 1,473 � $ 83,497 � $ 73,402 �
�
�
Net earnings per share:
�
�
Basic:
�
�
Continuing operations $ 0.54 $ 0.04 $ 1.95 $ 0.95 Discontinued
operations � (0.04 ) � (0.01 ) � (0.02 ) � 0.74 � Basic earnings
per common share $ 0.50 � $ 0.03 � $ 1.93 � $ 1.69 � Diluted:
Continuing operations $ 0.53 $ 0.04 $ 1.90 $ 0.92 Discontinued
operations � (0.04 ) � (0.01 ) � (0.02 ) � 0.72 � Diluted earnings
per common share $ 0.49 � $ 0.03 � $ 1.88 � $ 1.64 �
�
�
Weighted average number of shares outstanding:
�
�
Basic 42,957,593 43,574,811 43,275,187 43,539,950 Diluted
44,043,749
44,951,016
44,398,955 44,823,082 �
CENTENE CORPORATION AND
SUBSIDIARIES
�
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(In thousands)
� � �
Year Ended December 31, 2008 � �
2007
Cash flows from operating activities: Net earnings $ 83,497
$ 73,402
Adjustments to reconcile net
earnings to net cash provided by operating activities�
Depreciation and amortization 35,414 27,807 Stock compensation
expense 15,328 15,781 Loss on sale of investments, net 4,988 106
Gain on sale of FirstGuard Missouri � (7,472 ) Impairment loss
2,546 7,207 Deferred income taxes 1,286 (10,223 )
Changes in assets and
liabilities�
Premium and related receivables (1,548 ) 1,663 Other current assets
(4,244 ) (6,253 ) Other assets (2,700 ) (348 ) Medical claims
liability 46,337 56,287 Unearned revenue (36,447 ) 10,085 Accounts
payable and accrued expenses 75,112 31,234 Other operating
activities � 2,409 � � 2,964 � Net cash provided by operating
activities � 221,978 � � 202,240 �
Cash flows from investing
activities: Capital expenditures (65,156 ) (53,937 ) Purchase
of investments (549,652 ) (606,366 ) Sales and maturities of
investments 546,264 456,738 Proceeds from asset sales � 14,102
Investments in acquisitions and equity method investee, net of cash
acquired � (85,377 ) � (36,001 ) Net cash used in investing
activities � (153,921 ) � (225,464 )
Cash flows from financing
activities: Proceeds from exercise of stock options 5,354 5,464
Proceeds from borrowings 236,005 212,000 Payment of long-term debt
and notes payable (178,491 ) (181,981 ) Excess tax benefits from
stock compensation 3,100 � Common stock repurchases (23,510 )
(9,541 ) Debt issue costs � � � � (5,181 ) Net cash provided by
financing activities � 42,458 � � 20,761 � Net increase (decrease)
in cash and cash equivalents � 110,515 � � (2,463 )
Cash and
cash equivalents, beginning of period � 268,584 � � 271,047 �
Cash and cash equivalents, end of period $ 379,099 � $
268,584 � � Supplemental disclosures of cash flow information:
Interest paid $ 15,312 $ 11,945 Income taxes paid $ 36,801 $ 7,348
� Supplemental disclosure of non-cash investing and financing
activities: Property acquired under capital lease obligations $ � $
1,736 �
CENTENE CORPORATION
�
CONTINUING OPERATIONS
SUPPLEMENTAL FINANCIAL DATA
� � �
Q4 � �
Q3 � �
Q2 � �
Q1 � �
Q4 2008 2008 2008 2008
2007 MEMBERSHIP Managed Care: Georgia 288,300 283,900
278,800 282,700 287,900 Indiana 175,300 172,400 161,700 161,300
154,600 Ohio 133,400 132,500 137,300 131,100 128,700 South Carolina
31,300 26,600 22,500 29,300 31,800 Texas 431,700 436,900 427,200
369,000 354,400 Wisconsin � 124,800 � � 122,500 � � 124,800 � �
126,900 � � 131,900 �
TOTAL �
1,184,800 � �
1,174,800 � �
1,152,300 � �
1,100,300 � �
1,089,300 � � Medicaid 862,500 850,500 828,700 823,600
807,600 SCHIP & Foster Care 257,300 261,800 256,900 206,300
214,600 ABD & Medicare � 65,000 � � 62,500 � � 66,700 � �
70,400 � � 67,100 �
TOTAL �
1,184,800 � �
1,174,800 � �
1,152,300 � �
1,100,300 � �
1,089,300 � � Specialty Services(a): Cenpatico Behavioral
Health Arizona 105,000 102,400 99,400 97,900 99,900 Kansas 41,100
40,100 40,000 39,400 39,000 Bridgeway Health Solutions Long-term
Care 2,100 1,900 1,800 1,700 1,600 Acute Care � 14,900 � � � � � �
� � � � � � �
TOTAL �
163,100 � �
144,400 � �
141,200 � �
139,000 � �
140,500 � � (a)
Includes external Specialty Service membership only. � �
REVENUE
PER MEMBER(b) $ 218.52 $ 213.28 $ 214.76 $ 215.39 $
210.11 �
CLAIMS(b) Period-end inventory
269,300
�
323,200
�
389,100
�
411,700
�
329,200
�
Average inventory 288,600 298,400 235,300 285,700 244,600
Period-end inventory per member 0.23 0.28 0.34 0.37 0.30 � (b)
Revenue per member and claims information are presented for the
Medicaid Managed Care segment. � � �
Q4 � �
Q3 � �
Q2 � �
Q1 � �
Q4 2008 2008
2008 2008 2007 �
DAYS IN CLAIMS
PAYABLE(c)
48.5 47.9 47.8 48.3 48.3 � (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 $ 798.0 $
692.6 $ 653.1 $ 627.1 $ 603.9 Unregulated � 24.1 � � 26.8 � � 29.0
� � 25.8 � � 33.0 �
TOTAL $ 822.1 � $ 719.4 � $ 682.1 � $
652.9 � $ 636.9 � �
DEBT TO
CAPITALIZATION(d)
34.6 % 34.4 % 32.6 % 32.8 % 33.3 % �
(d) Debt to Capitalization is
calculated as follows: total debt divided by (total debt +
equity).
�
OPERATING RATIOS:
� � �
Three Months Ended
December 31,
� � �
Year Ended
December 31,
2008 � �
2007 2008 � �
2007 Health
Benefits Ratios Medicaid and SCHIP 80.3 % 83.7 % 80.6 % 82.8 % ABD
and Medicare 90.1 94.4 91.1 91.4 Specialty Services 85.4 78.5 83.8
78.4 Total 82.3 85.3 82.5 83.9 � General & Administrative
Expense Ratios Medicaid Managed Care 10.4 % 11.9 % 10.4 % 11.2 %
Specialty Services 16.7 15.7 16.4 15.8 Total 13.8 14.9 13.6 14.3 �
MEDICAL CLAIMS LIABILITIES (In thousands)
Four rolling quarters of the
changes in medical claims liabilities are summarized as
follows:
�
Balance, December 31, 2007 � � $ 313,364 Acquisitions
15,398 Incurred related to: Current period 2,659,036 Prior period �
(18,701 ) Total incurred � 2,640,335 � Paid related to: Current
period 2,303,473 Prior period � 292,587 � Total paid � 2,596,060 �
Balance, December 31, 2008 $ 373,037 �
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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