- Centene Corporation Reports 2011 Third Quarter Earnings of $0.55 Per Diluted Share -

ST. LOUIS, Oct. 25, 2011 /PRNewswire/ -- Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended September 30, 2011. The discussions below, with the exception of cash flow information, are in the context of continuing operations and all financial ratios exclude premium taxes.

Third Quarter Highlights

Quarter-end managed care at-risk membership of 1,615,700, an increase of 141,900 members year over year.
Premium and Service Revenues of $1.3 billion, representing 17.0% year over year growth.
Health Benefits Ratio of 83.0%, compared to 84.2% in the prior year and 83.0% in the second quarter of 2011.
General and Administrative expense ratio (G&A ratio) of 13.3%, compared to 12.2% in the prior year.
Diluted earnings per share from continuing operations increased 25.0% from the prior year to $0.55.
Employees increased 25.0% from the prior year to 5,000 at September 30, 2011, reflecting our continued business expansions.

Other Events

In August 2011, Superior HealthPlan, Inc. announced it was awarded renewed and expanded contracts by the Texas Health and Human Services Commission. The contracts expand Superior’s STAR, STAR+PLUS and CHIP product offerings to include the new 10 county Hidalgo Service Area (STAR and STAR+PLUS), Medicaid RSA West Texas, Medicaid RSA Central Texas, Medicaid RSA North-East Texas and Lubbock (STAR+PLUS). All of the service areas and products will now include the management of the pharmacy benefit for Superior’s members. In addition, the state has added inpatient facility services to the managed care structure for the STAR+PLUS program. Operations in the expanded areas are expected to commence late in the first quarter of 2012.
In October 2011, Buckeye Community Health Plan began operating under an amended contract with the Ohio Department of Job and Family Services. The amended contract includes the management of the pharmacy benefit for Buckeye’s members.
In October 2011, our respiratory syncytial virus (RSV) prevention and management program was awarded the silver medal for health care consumer empowerment and protection by URAC, a leading healthcare accreditation organization, at the 2011 URAC Quality Summit and Awards Program. We also received an honorable mention for our Nurse Response program, a 24-hour medical triage telehealth service. A program coordinator for Nurse Response was also honored with a URAC Health Care Stars! Award at the same event.

Michael F. Neidorff, Centene’s Chairman and Chief Executive Officer, stated, “We are pleased to report solid quarterly results for the third quarter of 2011. The focus of our team and the dependability of our processes continue to drive Centene’s successful execution.”

The following table depicts membership in Centene’s managed care organizations, by state:

	September 30,
	2011	2010
Arizona	22,800	22,300
Florida	188,600	116,300
Georgia	298,000	300,900
Illinois	13,600	—
Indiana	205,300	213,300
Massachusetts	34,700	34,400
Mississippi	30,600	—
Ohio	162,200	161,800
South Carolina	86,500	90,600
Texas	494,500	428,100
Wisconsin	78,900	106,100
Total at-risk membership	1,615,700	1,473,800
Non-risk membership	10,600	35,900
Total	1,626,300	1,509,700

The following table depicts membership in Centene’s managed care organizations, by member category:

	September 30,
	2011	2010
Medicaid	1,189,900	1,122,800
CHIP & Foster Care	210,600	219,100
ABD & Medicare	171,700	94,500
Hybrid Programs	38,400	34,400
Long-term Care	5,100	3,000
Total at-risk membership	1,615,700	1,473,800
Non-risk membership	10,600	35,900
Total	1,626,300	1,509,700

Statement of Operations: Three Months Ended September 30, 2011

For the third quarter of 2011, Premium and Service Revenues increased 17.0% to $1,265 million from $1,082 million in the third quarter of 2010. The increase was primarily driven by the addition of our Mississippi and Illinois contracts, Texas expansion and membership growth. Sequentially, Premium and Service Revenues increased 3.3% after adjusting for the recognition of $52.8 million of revenue from our Mississippi contract during the second quarter 2011 related to the first quarter of 2011.
Consolidated HBR of 83.0% for the third quarter of 2011 represents a decrease of 1.2% from the comparable period in 2010 primarily as a result of lower levels of utilization and contract enhancements. Consolidated HBR was consistent with the second quarter of 2011 at 83.0%.
Consolidated G&A expense ratio for the third quarter of 2011 was 13.3%, compared to 12.2% in the prior year. The increase is primarily due to additional business expansion costs.
Earnings from operations increased to $48.5 million in the third quarter 2011 from $40.2 million in the third quarter 2010, or 20.6% year over year. Net earnings from continuing operations were $29.0 million in the third quarter 2011, compared to $22.4 million in the third quarter of 2010.
Earnings per diluted share increased to $0.55 in the third quarter of 2011 over the comparable period in 2010. Earnings per diluted share in the third quarter of 2010 were $0.44, including a net $0.04 charge per diluted share related to investment writedowns.

Balance Sheet and Cash Flow

At September 30, 2011, the Company had cash, investments and restricted deposits of $1,115 million, including $1,079 million held by its regulated entities and $35.9 million held by its unregulated entities. Medical claims liabilities totaled $498.7 million, representing 44.6 days in claims payable, an increase of 0.2 days from 44.4 days at June 30, 2011. Total debt was $351.3 million and debt to capitalization was 23.2% at September 30, 2011 excluding the $78.4 million non-recourse mortgage note. Cash flows from operations for the nine months ended September 30, 2011 were $89.7 million, or 1.1 times net earnings.

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, 2011	44.4
Impact of new business	0.2
Days in claims payable, September 30, 2011	44.6

Outlook

The table below depicts the Company’s updated annual guidance from continuing operations for 2011:

	Full Year 2011
	Low	High
Premium and Service Revenues (in millions)	$ 5,100	$ 5,200
Diluted EPS	$ 2.09	$ 2.13
Consolidated HBR	83.2%	83.6%
General & Administrative expense ratio	12.9%	13.4%

Diluted Shares Outstanding (in thousands)	52,400

Conference Call

As previously announced, the Company will host a conference call Tuesday, October 25, 2011, at 8:30 A.M. (Eastern Time) to review the financial results for the third quarter ended September 30, 2011, 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 1-800-860-2442 in the U.S. and Canada; +1-412-858-4600 from abroad; or via a live, audio webcast on the Company’s website at www.centene.com, under the Investors section. A webcast replay will be available for on-demand listening shortly after the completion of the call for the next twelve months or until 11:59 p.m. (Eastern Time) on Tuesday, October 23, 2012, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 a.m. (Eastern Time) on Thursday, November 3, 2011, by dialing 1-877-344-7529 in the U.S. and Canada, or +1-412-317-0088 from abroad, and entering access code 10004770.

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/hybrid 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, membership and revenue projections, timing of regulatory contract approval, 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)
	September 30, 2011			December 31, 2010
ASSETS
Current assets:
Cash and cash equivalents of continuing operations	$	451,657	$	433,914
Cash and cash equivalents of discontinued operations		—		252
Total cash and cash equivalents		451,657		434,166
Premium and related receivables, net of allowance for uncollectible accounts of $592 and $17, respectively		139,467		136,243
Short-term investments, at fair value (amortized cost $104,914 and $21,141, respectively)		106,344		21,346
Other current assets		68,908		64,154
Current assets of discontinued operations other than cash		—		912
Total current assets		766,376		656,821
Long-term investments, at fair value (amortized cost $521,229 and $585,862, respectively)		530,452		595,879
Restricted deposits, at fair value (amortized cost $26,697 and $22,755, respectively)		26,768		22,758
Property, software and equipment, net of accumulated depreciation of $166,442 and $138,629, respectively		345,600		326,341
Goodwill		281,981		278,051
Intangible assets, net		28,795		29,109
Other long-term assets		57,526		30,057
Long-term assets of discontinued operations		—		4,866
Total assets	$	2,037,498	$	1,943,882
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Medical claims liability	$	498,705	$	456,765
Accounts payable and accrued expenses		173,708		185,218
Unearned revenue		54,764		117,344
Current portion of long-term debt		3,203		2,817
Current liabilities of discontinued operations		—		3,102
Total current liabilities		730,380		765,246
Long-term debt		348,093		327,824
Other long-term liabilities		54,926		53,378
Long-term liabilities of discontinued operations		—		379
Total liabilities		1,133,399		1,146,827

Commitments and contingencies

Stockholders' equity:
Common stock, $.001 par value; authorized 100,000,000 shares; 52,921,255 issued and 50,377,774 outstanding at September 30, 2011, and 52,172,037 issued and 49,616,824 outstanding at December 31, 2010		53		52
Additional paid-in capital		411,924		384,206
Accumulated other comprehensive income:
Unrealized gain on investments, net of tax		6,478		6,424
Retained earnings		534,849		453,743
Treasury stock, at cost (2,543,481 and 2,555,213 shares, respectively)		(50,594)		(50,486)
Total Centene stockholders' equity		902,710		793,939
Noncontrolling interest		1,389		3,116
Total stockholders' equity		904,099		797,055
Total liabilities and stockholders' equity	$	2,037,498	$	1,943,882

CENTENE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share data) (Unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Revenues:
Premium	$	1,239,464	$	1,060,559	$	3,640,829	$	3,085,802
Service		25,817		20,954		81,629		68,543
Premium and service revenues		1,265,281		1,081,513		3,722,458		3,154,345
Premium tax		36,754		40,348		110,948		113,009
Total revenues		1,302,035		1,121,861		3,833,406		3,267,354
Expenses:
Medical costs		1,028,586		893,281		3,021,400		2,592,324
Cost of services		20,229		14,646		60,717		47,505
General and administrative expenses		167,668		132,095		496,674		401,072
Premium tax		37,005		41,591		111,668		114,885
Total operating expenses		1,253,488		1,081,613		3,690,459		3,155,786
Earnings from operations		48,547		40,248		142,947		111,568
Other income (expense):
Investment and other income		2,697		713		9,379		11,912
Debt extinguishment costs		—		—		(8,488)		—
Interest expense		(4,572)		(4,858)		(15,523)		(12,540)
Earnings from continuing operations, before income tax expense		46,672		36,103		128,315		110,940
Income tax expense		18,459		13,163		49,216		42,942
Earnings from continuing operations, net of income tax expense		28,213		22,940		79,099		67,998
Discontinued operations, net of income tax expense of $0, $26, $0 and $4,376, respectively		—		260		—		3,954
Net earnings		28,213		23,200		79,099		71,952
Noncontrolling interest (loss)		(774)		538		(2,007)		2,515
Net earnings attributable to Centene Corporation	$	28,987	$	22,662	$	81,106	$	69,437

Amounts attributable to Centene Corporation common stockholders:
Earnings from continuing operations, net of income tax expense	$	28,987	$	22,402	$	81,106	$	65,483
Discontinued operations, net of income tax expense		—		260		—		3,954
Net earnings	$	28,987	$	22,662	$	81,106	$	69,437

Net earnings per common share attributable to Centene Corporation:
Basic:
Continuing operations	$	0.58	$	0.46	$	1.62	$	1.35
Discontinued operations		—		—		—		0.08
Earnings per common share	$	0.58	$	0.46	$	1.62	$	1.43
Diluted:
Continuing operations	$	0.55	$	0.44	$	1.55	$	1.30
Discontinued operations		—		—		—		0.08
Earnings per common share	$	0.55	$	0.44	$	1.55	$	1.38

Weighted average number of shares outstanding:
Basic		50,345,512		49,238,406		50,089,845		48,552,135
Diluted		52,620,350		50,938,357		52,320,906		50,192,190

CENTENE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
	Nine Months Ended September 30,
	2011		2010

Cash flows from operating activities:
Net earnings	$	79,099	$	71,952
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization		43,055		38,620
Stock compensation expense		13,263		10,224
Gain on sale of investments, net		(213)		(6,331)
Debt extinguishment costs		8,488		—
Gain on sale of UHP		—		(8,201)
Impairment of investment		—		5,531
Deferred income taxes		(223)		7,012
Changes in assets and liabilities
Premium and related receivables		(13,306)		(68,125)
Other current assets		(6,667)		(2,932)
Other assets		(1,230)		(990)
Medical claims liabilities		40,476		(29,304)
Unearned revenue		(65,183)		(38,708)
Accounts payable and accrued expenses		(11,414)		(3,174)
Other operating activities		3,528		(1,267)
Net cash provided by (used in) operating activities		89,673		(25,693)
Cash flows from investing activities:
Capital expenditures		(52,931)		(50,353)
Capital expenditures of Centene Center LLC		(4,007)		(41,607)
Purchases of investments		(201,145)		(382,730)
Proceeds from asset sales		—		13,420
Sales and maturities of investments		180,124		452,128
Investments in acquisitions, net of cash acquired		(3,192		(26,847)
Net cash used in investing activities		(81,151)		(35,989)
Cash flows from financing activities:
Proceeds from exercise of stock options		13,582		2,394
Proceeds from borrowings		419,183		53,812
Proceeds from stock offering		—		104,534
Payment of long-term debt		(415,475)		(97,467)
Contributions from (distributions to) noncontrolling interest		569		(7,387)
Excess tax benefits from stock compensation		1,632		424
Common stock repurchases		(1,280)		(714)
Debt issue costs		(9,242)		—
Net cash provided by financing activities		8,969		55,596
Net increase (decrease) in cash and cash equivalents		17,491		(6,086)
Cash and cash equivalents, beginning of period		434,166		403,752
Cash and cash equivalents, end of period	$	451,657	$	397,666

Supplemental disclosures of cash flow information:
Interest paid	$	16,097	$	9,501
Income taxes paid	$	49,996	$	44,407

Supplemental disclosure of non-cash investing and financing activities:
Contribution from noncontrolling interest	$	—	$	306
Capital expenditures	$	(4,833)	$	15,291

CENTENE CORPORATION CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA
	Q3		Q2		Q1		Q4		Q3
	2011		2011		2011		2010		2010
MEMBERSHIP
Managed Care:
Arizona	22,800		22,800		22,600		22,400		22,300
Florida	188,600		190,600		188,800		194,900		116,300
Georgia	298,000		303,100		303,300		305,800		300,900
Illinois	13,600		700		—		—		—
Indiana	205,300		206,700		209,400		215,800		213,300
Massachusetts	34,700		32,900		34,100		36,200		34,400
Mississippi	30,600		30,800		—		—		—
Ohio	162,200		159,900		160,900		160,100		161,800
South Carolina	86,500		82,800		84,900		90,300		90,600
Texas	494,500		470,400		456,700		433,100		428,100
Wisconsin	78,900		79,800		81,800		74,900		106,100
Total at-risk membership	1,615,700		1,580,500		1,542,500		1,533,500		1,473,800
Non-risk membership	10,600		10,400		10,400		4,200		35,900
TOTAL	1,626,300		1,590,900		1,552,900		1,537,700		1,509,700


Medicaid	1,189,900		1,172,400		1,169,700		1,177,100		1,122,800
CHIP & Foster Care	210,600		211,400		208,900		210,500		219,100
ABD & Medicare	171,700		156,300		123,800		104,600		94,500
Hybrid Programs	38,400		35,500		35,200		36,200		34,400
Long-term Care	5,100		4,900		4,900		5,100		3,000
Total at-risk membership	1,615,700		1,580,500		1,542,500		1,533,500		1,473,800
Non-risk membership	10,600		10,400		10,400		4,200		35,900
TOTAL	1,626,300		1,590,900		1,552,900		1,537,700		1,509,700

Specialty Services(a):
Cenpatico Behavioral Health
Arizona	175,500		173,200		172,700		174,600		121,300
Kansas	45,600		45,000		44,000		39,200		39,800
TOTAL	221,100		218,200		216,700		213,800		161,100

(a) Includes external membership only.

REVENUE PER MEMBER PER MONTH(b)	$	245.27	$	240.57	$	238.31	$	239.66	$	224.62

CLAIMS(b)
Period-end inventory	482,900		415,700		527,100		434,900		469,000
Average inventory	312,400		332,300		347,900		304,700		307,500
Period-end inventory per member	0.30		0.26		0.34		0.28		0.32
(b) Revenue per member and claims information are presented for the Managed Care at-risk members.

NUMBER OF EMPLOYEES	5,000		4,800		4,500		4,200		4,000


	Q3		Q2		Q1		Q4		Q3
	2011		2011		2011		2010		2010

DAYS IN CLAIMS PAYABLE (c)	44.6		44.4		44.4		45.6		47.1
(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	$	1,079.3	$	1,061.9	$	1,096.3	$	1,043.0	$	895.4
Unregulated		35.9		36.5		31.7		30.9		32.7
TOTAL	$	1,115.2	$	1,098.4	$	1,128.0	$	1,073.9	$	928.1

DEBT TO CAPITALIZATION	28.0%		28.1%		26.9%		29.3%		24.7%
DEBT TO CAPITALIZATION EXCLUDING NON-RECOURSE DEBT(d)	23.2%		23.0%		21.4%		23.9%
Debt to Capitalization is calculated as follows: total debt divided by (total debt + total equity). (d) The non-recourse debt represents our mortgage note payable of $78.4 million at September 30, 2011.

OPERATING RATIOS:
	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Health Benefits Ratios:
Medicaid and CHIP	80.0	%	83.2	%	80.8	%	84.0	%
ABD and Medicare	89.1		85.9		87.6		84.3
Specialty Services	84.9		87.9		84.5		83.4
Total	83.0		84.2		83.0		84.0

Total General & Administrative Expense Ratio	13.3	%	12.2	%	13.3	%	12.7	%

MEDICAL CLAIMS LIABILITY (In thousands) The changes in medical claims liability are summarized as follows:
Balance, September 30, 2010	$	457,085
Incurred related to:
Current period		3,991,598
Prior period		(48,128)
Total incurred		3,943,470
Paid related to:
Current period		3,497,216
Prior period		404,634
Total paid		3,901,850
Balance, September 30, 2011	$	498,705

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 represents favorable development and 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, 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, 2010.

SOURCE Centene Corporation

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