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Centene Corporation Reports 2013 First Quarter Results

ST. LOUIS, April 23, 2013 /PRNewswire/ -- Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended March 31, 2013. 

Premium and Service Revenues (in millions)

$

2,542.2


Consolidated Health Benefits Ratio

90.4

%

General & Administrative expense ratio

8.3

%

Diluted earnings per share (EPS)

$

0.42


Cash flow from operations (in millions)

$

43.0


Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "This quarter is a positive step in our drive to deliver strong earnings while we continue to grow and diversify our sources of revenues.  Further, we believe we are well positioned for profitable growth in 2014 and beyond."

First Quarter Highlights

  • Quarter-end at-risk managed care membership of 2,686,100, an increase of 536,600 members, or 25% year over year.
  • Premium and service revenues of $2.5 billion, representing 53% growth year over year.
  • Health Benefits Ratio of 90.4%, compared to 88.2% in 2012. 
  • General and Administrative expense ratio of 8.3%, compared to 9.8% in 2012.
  • Operating cash flow of $43.0 million for the first quarter of 2013.
  • Diluted EPS of $0.42, compared to $0.45 in 2012.

Other Events

  • In April 2013, we completed the acquisition of AcariaHealth, a specialty pharmacy company, for approximately $146.2 million.  The transaction consideration was financed through a combination of approximately 2.1 million shares of Centene common stock and approximately $55.4 million of cash on hand.
  • In March 2013, our California subsidiary, California Health and Wellness Plan, was notified by the California Department of Health Care Services of its intent to award a contract, contingent upon successful completion of contract negotiations, to serve Medicaid beneficiaries in 18 rural counties.  Under the contract, California Health and Wellness Plan will serve members under the state's Medi-Cal Managed Care Rural Expansion program. Upon execution of a contract and regulatory approval, enrollment is expected to begin in the second half of 2013.
  • In March 2013, our joint venture subsidiary, Centurion, was notified by the Department of Corrections in Massachusetts that it had been awarded a contract to provide comprehensive healthcare services to individuals incarcerated in Massachusetts state correctional facilities.  Centurion is a joint venture between Centene and MHM Services Inc., a national leader in providing healthcare services to correctional systems.  Operations are expected to begin in the third quarter of 2013. 
  • In March 2013, we were notified by the Arizona Health Care Cost Containment System that our Arizona subsidiary, Bridgeway Health Solutions of Arizona, LLC (Bridgeway), was not awarded a contract to serve acute care members in Arizona for the five years beginning October 1, 2013.  The current contract termination is effective September 30, 2013.  Bridgeway currently serves 16,200 Medicaid acute care members in Yavapai County. 
  • In March 2013, Standard & Poor's reaffirmed our senior unsecured debt rating of BB and revised its outlook to stable from negative.

The following table sets forth the Company's membership by state for its managed care organizations:


March 31,



2013


2012

Arizona

23,300



23,100


Florida

214,600



199,500


Georgia

314,000



306,000


Illinois

18,000



17,400


Indiana

202,400



206,300


Kansas

133,700




Kentucky

132,700



145,700


Louisiana

162,900



51,300


Massachusetts

17,300



36,000


Mississippi

77,000



29,500


Missouri

57,900




Ohio

157,700



161,000


South Carolina

90,100



86,700


Texas

948,400



811,000


Washington

63,500




Wisconsin

72,600



76,000


Total

2,686,100



2,149,500


Membership by line of business:


March 31,



2013


2012

Medicaid

2,049,200



1,634,800


CHIP & Foster Care

267,900



218,800


ABD & Medicare

320,700



247,400


Hybrid Programs

24,600



41,500


Long-term Care

23,700



7,000


Total

2,686,100



2,149,500


Dual eligible membership (included in tables above):



March 31,



2013


2012

ABD

80,300



60,600


Long-term Care

16,100



6,400


Medicare

5,300



3,100


Total

101,700



70,100


Statement of Operations: Three Months Ended March 31, 2013


  • For the first quarter of 2013, Premium and Service Revenues increased 53% to $2.5 billion from $1.7 billion in the first quarter of 2012.  The increase was primarily driven by the Texas, Mississippi, and Louisiana expansions, pharmacy carve-in in Texas and Louisiana, and the additions of the Kansas, Missouri and Washington contracts.
  • Consolidated HBR of 90.4% for the first quarter of 2013 represents an increase from 88.2% in the comparable period in 2012 and a decrease from 91.3% in the fourth quarter of 2012.  The increase compared to last year primarily reflects a higher level of flu costs of approximately $0.20 per diluted share during the first quarter of 2013 as well as a higher level of medical costs in new business. 
  • The following table compares the results for new business and existing business for the quarter ended March 31:

2013


2012

Premium and Service Revenue




New business

35

%


20

%

Existing business

65

%


80

%





HBR




New business

94.1

%


90.7

%

Existing business

88.4

%


87.6

%

Total

90.4

%


88.2

%

  • Consolidated G&A expense ratio for the first quarter of 2013 was 8.3%, compared to 9.8% in the prior year.  The year over year decrease reflects the leveraging of expenses over higher revenues, partially offset by increased performance based compensation.
  • Earnings from operations were $40.1 million in the first quarter of 2013 compared to $34.2 million in the first quarter of 2012.  Net earnings attributable to Centene Corporation were $23.0 million in the first quarter of 2013, compared to $24.0 million in the first quarter of 2012. 
  • Diluted EPS was $0.42 in the first quarter of 2013, including medical costs associated with flu of $0.20 higher than experienced in 2012.

Balance Sheet and Cash Flow

At March 31, 2013, the Company had cash, investments and restricted deposits of $1,664.5 million, including $45.5 million held by its unregulated entities.  Medical claims liabilities totaled $1,067.0 million, representing 42.4 days in claims payable.  Total debt was $536.2 million which reflects no borrowings on the $350 million revolving credit facility at quarter end.  Debt to capitalization was 31.9% at March 31, 2013, excluding the $74.7 million non-recourse mortgage note.  Cash flow from operations for the three months ended March 31, 2013, was $43.0 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, December 31, 2012

41.1



Timing of claim payments

1.3



Days in claims payable, March 31, 2013

42.4




Outlook

The table below depicts the Company's annual guidance for 2013.



Full Year 2013




Low


High 


Premium and Service Revenues (in millions)


$

10,100



$

10,400



Diluted EPS


$

2.60



$

2.90



Consolidated Health Benefits Ratio


88.0

%


89.0

%


General & Administrative expense ratio


8.8

%


9.3

%


Diluted Shares Outstanding (in thousands)


56,000



56,500









Included in our updated guidance above are the additions of the AcariaHealth acquisition, including the absorption of the associated transaction costs, the long-term care award in Florida, the new Medicaid contract in California, and the Massachusetts contract through our Centurion joint venture subsidiary.







Conference Call

As previously announced, the Company will host a conference call Tuesday, April 23, 2013, at 8:30 A.M. (Eastern Time) to review the financial results for the first quarter ended March 31, 2013, 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 1-877-270-2148 in the U.S. and Canada; +1-412-902-6510 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, April 22, 2014, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 a.m. (Eastern Time) on Wednesday, May 1, 2013, by dialing 1-877-344-7529 in the U.S. and Canada, or +1-412-317-0088 from abroad, and entering access code 10026527.

Other Information

The discussion in the third bullet under the heading "Statement of Operations: Three Months Ended March 31, 2013" contains financial information for new and existing businesses.  Existing businesses are primarily state markets, significant geographic expansion in an existing state or product that we have managed for four complete quarters. New businesses are primarily new state markets, significant geographic expansion in an existing state or product that conversely, we have not managed for four complete quarters.

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 (LTC), in addition to other state-sponsored/hybrid programs, and Medicare (Special Needs Plans).  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, care management software, correctional systems healthcare, life and health management, managed vision, pharmacy benefits management and telehealth services.

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 and reserves, competition, membership and revenue projections, timing of regulatory contract approval, changes in healthcare practices, changes in federal or state laws or regulations, changes in expected contract start dates, inflation, provider and state 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, as well as those factors disclosed in the Company's publicly filed documents. The expiration, cancellation or suspension of Centene's Medicaid Managed Care contracts, or the loss of any appeal of or protest to any such expiration, cancellation or suspension, by state governments would also negatively affect Centene.

 [Tables Follow]

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)






March 31,

2013


December 31,

2012

ASSETS




Current assets:




Cash and cash equivalents

$

730,791



$

843,952


Premium and related receivables

320,371



263,452


Short-term investments

146,107



139,118


Other current assets

178,002



127,080


Total current assets

1,375,271



1,373,602


Long-term investments

748,307



614,723


Restricted deposits

39,344



34,793


Property, software and equipment, net

382,853



377,726


Goodwill

256,288



256,288


Intangible assets, net

19,287



20,268


Other long-term assets

65,807



64,282


Total assets

$

2,887,157



$

2,741,682






LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Medical claims liability

$

1,067,032



$

926,302


Premium deficiency reserve

18,130



41,475


Accounts payable and accrued expenses

180,338



191,343


Unearned revenue

38,175



34,597


Current portion of long-term debt

3,419



3,373


Total current liabilities

1,307,094



1,197,090


Long-term debt

532,734



535,481


Other long-term liabilities

60,799



55,344


Total liabilities

1,900,627



1,787,915


Commitments and contingencies




Stockholders' equity:




Common stock, $.001 par value; authorized 100,000,000 shares; 55,432,271 issued and 52,410,000 outstanding at March 31, 2013, and 55,339,160 issued and 52,329,248 outstanding at December 31, 2012

55



55


Additional paid-in capital

461,360



450,856


Accumulated other comprehensive income:




Unrealized gain on investments, net of tax

4,900



5,189


Retained earnings

589,822



566,820


Treasury stock, at cost (3,022,271 and 3,009,912 shares, respectively)

(70,429)



(69,864)


Total Centene stockholders' equity

985,708



953,056


Noncontrolling interest

822



711


Total stockholders' equity

986,530



953,767


Total liabilities and stockholders' equity

$

2,887,157



$

2,741,682


 

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(Unaudited)




Three Months Ended March 31,


2013


2012

Revenues:




Premium

$

2,509,049



$

1,634,850


Service

33,194



28,618


Premium and service revenues

2,542,243



1,663,468


Premium tax

103,649



48,680


Total revenues

2,645,892



1,712,148


Expenses:




Medical costs

2,267,400



1,442,676


Cost of services

25,065



23,337


General and administrative expenses

210,348



163,187


Premium tax expense

102,975



48,750


Total operating expenses

2,605,788



1,677,950


Earnings from operations

40,104



34,198


Other income (expense):




Investment and other income

4,471



5,291


Interest expense

(6,625)



(4,799)


Earnings before income tax expense

37,950



34,690


Income tax expense

15,039



12,087


Net earnings

22,911



22,603


Noncontrolling interest

(91)



(1,375)


Net earnings attributable to Centene Corporation

$

23,002



$

23,978






Net earnings per common share attributable to Centene Corporation:

Basic earnings per common share

$

0.44



$

0.47


Diluted earnings per common share

$

0.42



$

0.45






Weighted average number of common shares outstanding:




Basic

52,357,119



51,125,674


Diluted

54,266,928



53,509,243


 

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)




Three Months Ended March 31,


2013


2012

Cash flows from operating activities:




Net earnings

$

22,911



$

22,603


Adjustments to reconcile net earnings to net cash provided by operating activities




Depreciation and amortization

15,691



16,613


Stock compensation expense

8,375



6,375


Deferred income taxes

986



5,855


Changes in assets and liabilities




Premium and related receivables

(56,734)



(120,784)


Other current assets

(50,537)



(10,723)


Other assets

5



524


Medical claims liabilities

117,385



100,769


Unearned revenue

3,578



8,576


Accounts payable and accrued expenses

(22,745)



(60,826)


Other operating activities

4,078



(1,078)


Net cash provided by (used in) operating activities

42,993



(32,096)


Cash flows from investing activities:




Capital expenditures

(10,654)



(14,980)


Purchases of investments

(358,131)



(255,212)


Sales and maturities of investments

212,508



149,341


Net cash used in investing activities

(156,277)



(120,851)


Cash flows from financing activities:




Proceeds from exercise of stock options

1,408



9,079


Payment of long-term debt

(776)



(795)


Excess tax benefits from stock compensation

515



5,472


Common stock repurchases

(565)



(1,509)


Contribution from noncontrolling interest

202




Debt issue costs

(661)




Net cash provided by financing activities

123



12,247


Net decrease in cash and cash equivalents

(113,161)



(140,700)


Cash and cash equivalents, beginning of period

843,952



573,698


Cash and cash equivalents, end of period

$

730,791



$

432,998


Supplemental disclosures of cash flow information:




Interest paid

$

1,410



$

1,589


Income taxes paid

$

2,205



$

20,514


 

CENTENE CORPORATION

SUPPLEMENTAL FINANCIAL DATA












Q1


Q4


Q3


Q2


Q1


2013


2012


2012


2012


2012

AT-RISK MEMBERSHIP










Managed Care:










Arizona

23,300



23,500



23,800



24,000



23,100


Florida

214,600



214,000



209,600



204,100



199,500


Georgia

314,000



313,700



312,400



313,300



306,000


Illinois

18,000



18,000



17,900



17,800



17,400


Indiana

202,400



204,000



205,400



205,000



206,300


Kansas

133,700










Kentucky

132,700



135,800



145,400



143,500



145,700


Louisiana

162,900



165,600



167,200



168,700



51,300


Massachusetts

17,300



21,500



28,000



41,400



36,000


Mississippi

77,000



77,200



30,600



30,100



29,500


Missouri

57,900



59,600



53,900






Ohio

157,700



157,800



173,800



166,800



161,000


South Carolina

90,100



90,100



89,400



87,800



86,700


Texas

948,400



949,900



930,700



919,200



811,000


Washington

63,500



57,200



42,000






Wisconsin

72,600



72,400



72,900



75,800



76,000


TOTAL

2,686,100



2,560,300



2,503,000



2,397,500



2,149,500












Medicaid

2,049,200



1,977,200



1,939,400



1,848,500



1,634,800


CHIP & Foster Care

267,900



237,700



229,600



222,600



218,800


ABD & Medicare

320,700



307,800



289,800



269,900



247,400


Hybrid Programs

24,600



29,100



35,700



48,100



41,500


Long-term Care

23,700



8,500



8,500



8,400



7,000


TOTAL

2,686,100



2,560,300



2,503,000



2,397,500



2,149,500












Specialty Services(a):










Cenpatico Behavioral Health










Arizona

156,200



157,900



162,000



159,900



162,100


Kansas



49,800



48,500



44,300



46,000


TOTAL

156,200



207,700



210,500



204,200



208,100












(a) Includes external membership only.











REVENUE PER MEMBER PER MONTH(b)

$

304



$

292



$

283



$

279



$

269












CLAIMS(b)










Period-end inventory

1,020,100



641,000



826,800



1,195,000



735,000


Average inventory

587,800



555,200



547,400



640,600



457,400


Period-end inventory per member

0.38



0.25



0.33



0.50



0.34


(b) Revenue per member and claims information are presented for the Managed Care at-risk members.











NUMBER OF EMPLOYEES

7,100



6,800



6,400



6,200



5,700






















 


Q1


Q4


Q3


Q2


Q1


2013


2012


2012


2012


2012











DAYS IN CLAIMS PAYABLE (c)

42.4



41.1



42.8



41.4



44.7


(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, excluding the Kentucky premium deficiency reserve liability.











CASH AND INVESTMENTS (in millions)








Regulated

$

1,619.0



$

1,595.3



$

1,493.8



$

1,198.2



$

1,166.9


Unregulated

45.5



37.3



36.0



40.6



35.5


TOTAL

$

1,664.5



$

1,632.6



$

1,529.8



$

1,238.8



$

1,202.4












DEBT TO CAPITALIZATION

35.2

%


36.1

%


29.2

%


30.1

%


26.4

%

DEBT TO CAPITALIZATION EXCLUDING NON-RECOURSE DEBT(d)

31.9

%


32.7

%


25.0

%


25.9

%


21.8

%

Debt to Capitalization is calculated as follows: total debt divided by (total debt + total equity).

(d) The non-recourse debt represents the Company's mortgage note payable ($74.7 million at March 31, 2013).

 

Operating Ratios:





Three Months Ended March 31,



2013


2012

Health Benefits Ratios:




Medicaid and CHIP

92.4

%


87.5

%

ABD and Medicare

88.0



89.3


Specialty Services

82.9



89.7


Total

90.4



88.2






Total General & Administrative Expense Ratio

8.3

%


9.8

%

 

MEDICAL CLAIMS LIABILITY (In thousands)

     The changes in medical claims liability are summarized as follows:






Balance, March 31, 2012


$

708,754


Incurred related to:



Current period


8,273,161


Prior period


(2,400)


Total incurred


8,270,761


Paid related to:



Current period


7,200,834


Prior period


693,519


Total paid


7,894,353


Less: Premium Deficiency Reserve


18,130


Balance, March 31, 2013


$

1,067,032


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 March 31, 2012. Excluding the impact of medical costs related to retroactive assignment of members in our Kentucky health plan, the amount of "Incurred related to: Prior period" shown in the table above would have been favorable development of $14.5 million.

SOURCE Centene Corporation

Investor Relations Inquiries, Edmund E. Kroll, Senior Vice President, Finance & Investor Relations, (212) 759-0382, Media Inquiries, Deanne Lane, Vice President, Media Affairs, (314) 725-4477