CNC Centene Corp

Centene Corporation (NYSE: CNC) today announced its net earnings from continuing operations for the quarter ended September 30, 2009 were $22.7 million, or $0.51 per diluted share, compared to $18.1 million, or $0.41 per diluted share in the third quarter of 2008. The results of operations for our New Jersey health plan, University Health Plans, are classified as discontinued operations. The discussions below, with the exception of cash flow information, are in the context of continuing operations and all financial ratios are calculated using revenues excluding premium taxes and investment income.

Third Quarter Highlights

• Quarter-end managed care at-risk membership of 1,386,400, an increase of 215,300 lives year over year.
• Premium and Service revenues of $987.3 million, representing 18.1% year over year growth.
• Health Benefits Ratio (HBR) of 83.7%.
• General and Administrative (G&A) expense ratio of 13.2%.
• Cash flow from operations of $114.9 million.
• Days in claims payable of 47.1.
• Diluted earnings per share from continuing operations of $0.51, compared to $0.41 in the third quarter of 2008. Earnings per diluted share in 2008 included a $0.06 loss on investments from the Primary Reserve fund.

Other Events

• On August 31, 2009, Centene announced that the State of Massachusetts had accepted its proposal to manage healthcare services for the Commonwealth Bridge Program through its subsidiary, CeltiCare Health Plan of Massachusetts, effective October 1, 2009, through June 30, 2010.
• Effective September 1, 2009, Centene converted 62,100 members in Florida from Access Health Solutions to at-risk under our Sunshine State Health Plan.
• On October 24, 2009, Centene announced a settlement agreement with Amerigroup Corporation associated with the sale of our New Jersey health plan. Pursuant to the settlement agreement, the parties will move forward with the transaction, which is subject to regulatory approval and expected to be completed in the first quarter of 2010.
• In August 2009, Jason Harrold, president and CEO of OptiCare Managed Vision, Inc. was appointed to Senior Vice President of Centene’s Specialty Business Unit. Mr. Harrold assumed the leadership role over the specialty companies previously held by William Scheffel.
• On October 26, 2009 our Board of Directors approved an extension of our stock repurchase program.

Michael F. Neidorff, Centene’s Chairman and Chief Executive Officer, stated, “We are pleased with the ability of our team to deliver solid results across Centene's products and markets in a challenging economic environment.”

The following table depicts membership in Centene’s managed care organizations, by state, at September 30, 2009 and 2008:

  September 30, 2009   2008 Arizona 17,400 — Florida 84,400 — Georgia 303,400 283,900 Indiana 200,700 172,400 Massachusetts 500 — Ohio 151,200 132,500 South Carolina 46,100 26,600 Texas 450,200 433,200 Wisconsin 132,500 122,500 Total at-risk membership 1,386,400 1,171,100 Non-risk membership 63,200* 3,700 Total 1,449,600 1,174,800 ______________________________

* Increase mainly due to consolidation of our Access Health Solutions LLC investment, effective January 1, 2009.

The following table depicts membership in Centene’s managed care organizations, by member category, at September 30, 2009 and 2008:

  September 30, 2009   2008 Medicaid 1,040,500 850,500 CHIP & Foster Care 263,400 261,800 ABD & Medicare 82,500 58,800 Total at-risk membership 1,386,400 1,171,100 Non-risk membership 63,200 3,700 Total 1,449,600 1,174,800

Statement of Operations

• For the third quarter of 2009, Premium and Service Revenues increased 18.1% to $987.3 million from $835.7 million in the third quarter of 2008. The increase was primarily driven by premium rate increases and membership growth in all states, including the commencement of our Arizona acute care contract in October 2008, the consolidation of Access and conversion of members to our at-risk plan in Florida.
• The consolidated HBR, which reflects medical costs as a percent of premium revenues, was 83.7%. A reconciliation of the change in HBR from the prior year same period and from the immediately preceding quarter is presented below:

    Q3:2009 vs. Q3:2008 Q3:2009 vs. Q2:2009 Third Quarter 2008 82.2 % Second Quarter 2009 83.1 % Decrease in Texas CHIP/Perinate rates 1.0 New markets reserved at higher rates 0.1 Impact of additional costs related to the flu 0.5 Impact of additional costs related to the flu 0.3 Pass-through payments 0.1 Pass-through payments 0.1 Net change in other markets (0.1 ) Net change in other markets 0.1   Third Quarter 2009 83.7 % Third Quarter 2009 83.7 %

The increase in the third quarter of 2009 over the comparable period in 2008 was due to the March 1, 2009 rate decrease for our CHIP/Perinate product in Texas which brought the HBR more in line with our normal range and the impact of additional costs related to the flu. We also experienced improvements in our ABD product, particularly in Ohio, which was mostly offset by the impact of changes in rates and benefit structures in other markets. Sequentially, the increase in the HBR reflects the impact of additional costs related to the flu along with the effect of reserving at higher rates for new markets and receiving pass-through payments which increase the HBR ratio.

• Consolidated G&A expense as a percent of premium and service revenues was 13.2% in the third quarter of 2009, a decrease from 14.2% in the third quarter of 2008. The reduction in the G&A ratio between years reflects improved leveraging of our costs over a higher revenue base and the impact of additional revenue from new business (Arizona Acute Care, Florida and South Carolina).
• Earnings per diluted share from continuing operations were $0.51, compared to $0.41 in the third quarter of 2008. Earnings per diluted share in 2008 included a $0.06 loss on investments from the Primary Reserve fund.

Balance Sheet and Cash Flow

At September 30, 2009, the Company had cash and investments of $939.0 million, including $911.4 million held by its regulated entities and $27.6 million held by its unregulated entities. Medical claims liabilities totaled $411.0 million, representing 47.1 days in claims payable, a decrease of 0.4 days from June 30, 2009. Total debt was $277.3 million and debt to capitalization was 31.9%. Year to date cash flow from operations was $177.0 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, June 30, 2009   47.5 Payment of annual provider bonuses (0.7) Impact of Florida expansion 0.3 Days in claims payable, September 30, 2009 47.1

Outlook

The table below depicts the Company’s annual guidance from continuing operations for 2009:

  Full Year 2009 Low   High Premium and Service revenues (in millions) $ 3,850 $ 3,900 Earnings per diluted share $ 1.91 $ 1.97

Stock Repurchase Authorization

On October 26, 2009, the Company’s Board of Directors extended the Company’s stock repurchase program. The program authorizes the repurchase of up to 4,000,000 shares of the Company’s common stock from time to time on the open market or through privately negotiated transactions. No duration has been placed on the repurchase program and we reserve the right to discontinue the repurchase program at any time.

Conference Call

As previously announced, the Company will host a conference call Tuesday, October 27, 2009, at 8:30 A.M. (Eastern Time) to review the financial results for the second quarter ended September 30, 2009, and to discuss its 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 800-273-1254 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 PM (Eastern Time) on Tuesday, November 10, 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 30957978.

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 Children’s Health Insurance Program (CHIP), 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 wide range of health insurance solutions to individuals and 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, telehealth services, pharmacy benefits management and medication adherence. 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.

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CENTENE CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

  September 30,

2009

December 31,

2008

ASSETS Current assets: Cash and cash equivalents of continuing operations $ 389,135 $ 370,999 Cash and cash equivalents of discontinued operations   4,847   8,100   Total cash and cash equivalents 393,982 379,099 Premium and related receivables, net of allowance for uncollectible accounts of $19 and $595, respectively 104,798 92,531 Short-term investments, at fair value (amortized cost $45,332 and $108,469, respectively) 45,692 109,393 Other current assets 61,294 75,333 Current assets of discontinued operations other than cash   8,292   9,987   Total current assets 614,058 666,343 Long-term investments, at fair value (amortized cost $475,078 and $329,330, respectively) 486,889 332,411 Restricted deposits, at fair value (amortized cost $17,177 and $9,124, respectively) 17,286 9,254 Property, software and equipment, net of accumulated depreciation of $96,314 and $74,194, respectively 209,920 175,858 Goodwill 219,100 163,380 Intangible assets, net 23,454 17,575 Other long-term assets 37,100 59,083 Long-term assets of discontinued operations   27,207   27,248   Total assets $ 1,635,014   $ 1,451,152   LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Medical claims liability $ 410,997 $ 373,037 Accounts payable and accrued expenses 204,411 219,566 Unearned revenue 68,024 17,107 Current portion of long-term debt 645 255 Current liabilities of discontinued operations   23,846   31,013   Total current liabilities 707,923 640,978 Long-term debt 276,687 264,637 Other long-term liabilities 55,992 43,539 Long-term liabilities of discontinued operations   1,155   726   Total liabilities 1,041,757 949,880   Commitments and contingencies   Stockholders’ equity: Common stock, $.001 par value; authorized 100,000,000 shares; issued and outstanding 45,402,369 and 45,071,179 shares, respectively 45 45 Additional paid-in capital 277,709 263,835 Accumulated other comprehensive income: Unrealized gain on investments, net of tax 7,812 3,152 Retained earnings 335,192 275,236 Treasury stock, at cost (2,373,893 and 2,083,415 shares, respectively)   (46,497 ) (40,996 ) Total Centene stockholders’ equity 574,261 501,272 Noncontrolling interest   18,996   —   Total stockholders’ equity   593,257   501,272   Total liabilities and stockholders’ equity $ 1,635,014   $ 1,451,152      

CENTENE CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(Unaudited)

  Three Months Ended

September 30,

Nine Months Ended

September 30,

2009   2008 2009   2008 Revenues:   Premium $ 960,009 $ 817,740 $ 2,754,713 $ 2,338,550 Service   27,300   17,962   72,740   56,958 Premium and service revenues 987,309 835,702 2,827,453 2,395,508 Premium tax   50,925   22,897   182,685   66,249 Total revenues   1,038,234   858,599   3,010,138   2,461,757 Expenses: Medical costs 803,062 671,920 2,298,108 1,932,172 Cost of services 15,843 12,854 46,364 43,467 General and administrative expenses 130,024 118,628 381,524 323,391 Premium tax   51,295   23,284   183,785   66,636 Total operating expenses   1,000,224   826,686   2,909,781   2,365,666 Earnings from operations 38,010 31,913 100,357 96,091 Other income (expense): Investment and other income 3,750 2,708 11,781 15,724 Interest expense   (4,064 )   (4,377 )   (12,210 )   (12,436 ) Earnings from continuing operations, before income tax expense 37,696 30,244 99,928 99,379 Income tax expense   12,426   12,145   35,060   38,464 Earnings from continuing operations, net of income tax expense 25,270 18,099 64,868 60,915 Discontinued operations, net of income tax (benefit) expense of $(792), $242, $(1,148) and $390, respectively   (1,460 )   149   (2,394 )   1,159 Net earnings 23,810 18,248 62,474 62,074 Noncontrolling interest   2,542   ―   2,518   ― Net earnings attributable to Centene Corporation $ 21,268 $ 18,248 $ 59,956 $ 62,074   Amounts attributable to Centene Corporation common shareholders: Earnings from continuing operations, net of income tax expense $ 22,728 $ 18,099 $ 62,350 $ 60,915 Discontinued operations, net of income tax (benefit) expense   (1,460 )   149   (2,394 )   1,159 Net earnings $ 21,268 $ 18,248 $ 59,956 $ 62,074   Net earnings (loss) per share attributable to Centene Corporation: Basic: Continuing operations $ 0.53 $ 0.42 $ 1.45 $ 1.40 Discontinued operations   (0.04 )   ―   (0.06 )   0.03 Earnings per common share $ 0.49 $ 0.42 $ 1.39 $ 1.43 Diluted: Continuing operations $ 0.51 $ 0.41 $ 1.41 $ 1.37 Discontinued operations   (0.03 )   ―   (0.05 )   0.02 Earnings per common share $ 0.48 $ 0.41 $ 1.36 $ 1.39   Weighted average number of shares outstanding: Basic

43,001,870

43,232,941

43,023,431 43,381,819 Diluted 44,291,604

44,530,347

44,247,153 44,541,424  

CENTENE CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

  Nine Months Ended September 30, 2009   2008   Cash flows from operating activities: Net earnings $ 62,474 $ 62,074 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation and amortization 30,800 26,018 Stock compensation expense 11,428 11,576 Loss on sale of investments, net 261 4,923 Deferred income taxes 4,516 13,987 Changes in assets and liabilities — Premium and related receivables (381 ) (50,797 ) Other current assets (2,595 ) (6,422 ) Other assets (593 ) (713 ) Medical claims liabilities 31,612 28,109 Unearned revenue 54,725 (37,931 ) Accounts payable and accrued expenses (17,656 ) 74,723 Other operating activities   2,386   967 Net cash provided by operating activities   176,977   126,514 Cash flows from investing activities: Capital expenditures (42,696 ) (52,588 ) Purchases of investments (647,086 ) (372,221 ) Sales and maturities of investments 546,640 356,367 Investments in acquisitions, net of cash acquired, and investment in equity method investee   (31,533 )  

(83,509

) Net cash used in investing activities   (174,675 )   (151,951 ) Cash flows from financing activities: Proceeds from exercise of stock options 1,717 4,770 Proceeds from borrowings 468,500 152,005 Payment of long-term debt (456,059 ) (109,410 ) Distributions to noncontrolling interest (3,171 ) ― Contribution from noncontrolling interest 7,495 ― Excess tax benefits from stock compensation 43 3,016 Common stock repurchases (5,539 ) (18,244 ) Debt issue costs   (405 )   ― Net cash provided by financing activities   12,581   32,137 Net increase in cash and cash equivalents   14,883   6,700 Cash and cash equivalents, beginning of period   379,099   268,584 Cash and cash equivalents, end of period $ 393,982 $ 275,284   Supplemental disclosures of cash flow information: Interest paid $ 8,556 $ 8,467 Income taxes paid $ 43,308 $ 28,370   Supplemental disclosure of non-cash investing and financing activities: Contribution from noncontrolling interest $ 5,491 $ ―        

CENTENE CORPORATION

 

CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA

  Q3 Q2 Q1 Q4 Q3 2009 2009 2009 2008 2008 MEMBERSHIP Managed Care: Arizona 17,400 16,200 15,500 14,900 — Florida 84,400 22,300 29,100 — — Georgia 303,400 292,800 289,300 288,300 283,900 Indiana 200,700 196,100 179,100 175,300 172,400 Massachusetts 500 — — — — Ohio 151,200 141,200 137,000 133,400 132,500 South Carolina 46,100 46,000 48,500 31,300 26,600 Texas 450,200 443,200 421,100 428,000 433,200 Wisconsin 132,500   131,200   127,700   124,800   122,500   Total at-risk membership 1,386,400   1,289,000   1,247,300   1,196,000   1,171,100   Non-risk membership 63,200   114,000   96,000   3,700   3,700   TOTAL 1,449,600   1,403,000   1,343,300   1,199,700   1,174,800     Medicaid 1,040,500 958,600 921,100 877,400 850,500 CHIP & Foster Care 263,400 261,400 256,900 257,300 261,800 ABD & Medicare 82,500   69,000   69,300   61,300   58,800   Total at-risk membership 1,386,400   1,289,000   1,247,300   1,196,000   1,171,100   Non-risk membership 63,200   114,000   96,000   3,700   3,700   TOTAL 1,449,600   1,403,000   1,343,300   1,199,700   1,174,800     Specialty Services(a): Cenpatico Behavioral Health Arizona 117,300 110,500 104,700 105,000 102,400 Kansas 41,000 41,100 40,600 41,100 40,100 Bridgeway Health Solutions Long-term Care 2,500   2,400   2,300   2,100   1,900   TOTAL 160,800   154,000   147,600   148,200   144,400     (a) Includes external membership only.   REVENUE PER MEMBER(b) $ 222.77 $ 219.75 $ 220.29 $ 218.52 $ 213.28   CLAIMS(b) Period-end inventory

414,900

 

362,200

 

325,000

 

269,300

 

323,200

 

Average inventory 227,100 234,500 267,600 288,600 298,400 Period-end inventory per member 0.30 0.28 0.26 0.23 0.28     (b) Revenue per member and claims information are presented for the Managed Care at-risk members.  

Q3

Q2 Q1 Q4 Q3 2009 2009 2009 2008 2008   DAYS IN CLAIMS PAYABLE (c) 47.1 47.5 45.3 48.5 47.9 (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 $ 911.4 $ 825.8 $ 816.8 $ 798.0 $ 692.6 Unregulated   27.6   27.0   28.9   24.1     26.8   TOTAL $ 939.0 $ 852.8 $ 845.7 $ 822.1   $ 719.4     DEBT TO CAPITALIZATION (d) 31.9 % 33.0 % 34.6 % 34.6% 34.4 % (d) 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,

2009     2008 2009     2008 Health Benefits Ratios: Medicaid and CHIP 84.7 % 81.3 % 84.4 % 80.7 % ABD and Medicare 81.1 88.1 81.7 91.4 Specialty Services 80.5 79.9 79.6 82.9 Total 83.7 82.2 83.4 82.6   General & Administrative Expense Ratio 13.2 % 14.2 % 13.5 % 13.5 %  

MEDICAL CLAIMS LIABILITY (In thousands)Four rolling quarters of the changes in medical claims liability are summarized as follows:

 

  Balance, September 30, 2008 $ 349,502 Acquisitions — Incurred related to: Current period 3,051,905 Prior period   (45,634 ) Total incurred   3,006,271   Paid related to: Current period 2,654,707 Prior period   290,069   Total paid   2,944,776   Balance, September 30, 2009 $ 410,997  

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, 2008.