Exhibit 99.1
N E W S R E L E A S E
Contact: | Karey L. Witty | |
Chief Financial Officer | ||
(314) 725-4477
| ||
Lisa M. Wilson | ||
Senior Vice President, Investor Relations | ||
(212) 759-3929 |
FOR IMMEDIATE RELEASE
CENTENE CORPORATION REPORTS THIRD QUARTER
NET EARNINGS OF $0.27 PER SHARE, NET OF ONE-TIME
LITIGATION SETTLEMENT CHARGE
ST. LOUIS, MISSOURI (October 25, 2005) — Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended September 30, 2005.
Third Quarter Highlights
• | Revenues of $400.6 million, a 57.9% increase over the third quarter of 2004. |
• | Arizona behavioral health contract commenced operations effective July 1. |
• | Centene’s Wisconsin health plan subsidiary entered into a settlement agreement with Aurora Health Care, Inc., resulting in a one-time litigation settlement charge of $4.5 million, and a new long-term provider contract. |
• | Health benefits ratio within guided range, exclusive of the one-time charge. |
• | Earnings per diluted share of $0.27, net of a one-time litigation settlement charge of $0.06. |
• | Membership growth of 32.1% over the third quarter of 2004. |
• | Days in claims payable of 41.4, net of claims process improvements and 1.4 days for litigation settlement. |
• | Operating cash flows of $51.9 million for the three months ended, an 89.8% increase over the third quarter of 2004. |
• | Acquired AirLogix, Inc., an industry leader in respiratory disease management. |
PAGE 2 : CENTENE CORPORATION REPORTS THIRD QUARTER NET EARNINGS OF $0.27 PER SHARE
• | Awarded Medicaid contracts by the Georgia Department of Community Health to begin serving three regions in 2006. |
Michael F. Neidorff, Centene’s chairman and chief executive officer, said, “I am pleased to report that overall, it has been a predictable, in-line quarter, and we remain confident about the manner in which Centene conducts its business. Our consistent earnings growth demonstrates the solid visibility we have over the state of the business and the strength of our operating systems. Membership growth was particularly strong in Indiana, as anticipated, and Kansas posted solid gains during the quarter. Our specialty companies have made consistent progress, including our Arizona behavioral health contract, which provides a strong foundation for continued growth in this business segment.
“In keeping with our philosophy of ongoing financial transparency, we hosted for the first time a contracting and claims liability accounting methodology seminar in September. Our goal was to help participants understand the key factors for our ongoing success —claims processing and system reporting, sound contracting, consistent claims liability reserving and provider relationships —all of which enhance the predictability and consistency of our financial results. This disciplined approach, which has been in place for many years, gives consistent control over costs and reduces volatility. It is important that we recognize that the sector and industry are strong and are meeting the needs of recipients and the states in terms of quality, cost-effective care.”
There were several nonrecurring events during the quarter that affected our results, including:
Aurora one-time litigation settlement charge | $ | (0.06 | ) | |
Georgia start-up costs | (0.04 | ) | ||
Claims payment process improvements | (0.02 | ) | ||
Charitable foundation contribution | (0.01 | ) | ||
Tax benefits | 0.03 |
PAGE 3 : CENTENE CORPORATION REPORTS THIRD QUARTER NET EARNINGS OF $0.27 PER SHARE
The following table depicts membership in Centene’s Medicaid Managed Care segment by state at September 30, 2005 and 2004:
2005 | 2004 | |||
Indiana | 176,300 | 150,000 | ||
Kansas | 107,600 | — | ||
Missouri | 37,300 | — | ||
New Jersey | 50,900 | 53,200 | ||
Ohio | 58,100 | 23,500 | ||
Texas | 243,600 | 250,200 | ||
Wisconsin | 173,900 | 164,700 | ||
TOTAL | 847,700 | 641,600 | ||
The following table depicts membership in Centene’s Medicaid Managed Care segment by member category at September 30, 2005 and 2004:
2005 | 2004 | |||||
Medicaid | 657,500 | 479,500 | ||||
SCHIP | 176,900 | 152,100 | ||||
SSI | 13,300 | (a) | 10,000 | (b) | ||
TOTAL | 847,700 | 641,600 | ||||
(a) | 6,800 at-risk, 6,500 ASO |
(b) | 4,500 at-risk; 5,500 ASO |
Statement of Earnings Highlights
- For the third quarter of 2005, revenues increased 57.9% to $400.6 million from $253.7 million in the third quarter of 2004.
- The health benefits ratio (HBR), which reflects medical costs as a percent of premium revenues, now includes a larger component of behavioral health claims and was 83.7% compared to 80.7% for the same period in 2004. The effect of the behavioral health business increased the HBR by 0.4%. The current quarter also reflects a $4.5 million
PAGE 4 : CENTENE CORPORATION REPORTS THIRD QUARTER NET EARNINGS OF $0.27 PER SHARE
litigation settlement increasing the ratio by 1.2%. Additionally, the Company’s SSI HBR was 96.2% compared to 92.8% in 2004. While growing, Centene’s small SSI member base can experience a volatile HBR. The table below depicts Centene’s HBR by member category:
Three Months Ended September 30, | ||||||
2005* | 2004 | |||||
Medicaid and SCHIP | 81.7 | % | 80.4 | % | ||
SSI | 96.2 | 92.8 | ||||
Medicaid Managed Care Total | 82.1 | 80.7 | ||||
Specialty Services | 89.7 | — | ||||
Total | 82.5 | 80.7 |
* | Excludes one-time litigation settlement charge. |
- General and administrative (G&A) expenses as a percent of revenues were 13.1% in the third quarter of 2005, compared to 12.7% in the third quarter of 2004. Centene’s total G&A ratio increased due to implementation costs related to its new contracts in Georgia, and as discussed later, higher spending on information systems process improvements and increased contributions to its charitable foundation.
- Earnings from operations decreased 8.1% to $15.1 million from $16.4 million in the third quarter of 2004, reflecting the one-time settlement charge and increased G&A spending.
- Centene’s effective tax rate for the quarter was 27.8% compared to 37.0% in 2004. The decrease was primarily due to a lower state income tax expense resulting from the resolution of state examinations and the recognition of deferred tax benefits related to a change in tax law during the quarter. These tax benefits, totaling $2.4 million gross of federal taxes, were reinvested in the business through the corresponding increase in G&A spending as noted above.
- Net of the one-time charge of $0.06 and increased G&A spending, net earnings were $12.1 million, or $0.27 per diluted share, which was in-line with previous guidance and compares to $11.3 million, or $0.26 per diluted share, for the third quarter of 2004.
PAGE 5 : CENTENE CORPORATION REPORTS THIRD QUARTER NET EARNINGS OF $0.27 PER SHARE
- For the nine months ended September 30, 2005, revenues increased 51.9% to $1,082.6 million from $712.9 million for the same period in the prior year. The HBR was 82.0%, compared to 80.9% for the same period in 2004. G&A expenses as a percent of revenues were 12.9% as compared to 12.5% in 2004. Earnings from operations increased 24.8% to $58.8 million from $47.1 million in 2004. Net earnings improved to $41.8 million, or $0.93 per diluted share.
Balance Sheet Highlights
At September 30, 2005, the Company had cash and investments of $332.8 million, including $27.7 million held by its unregulated entities and $305.1 million held by its regulated entities. Medical claims liabilities totaled $148.9 million, representing 41.4 days in claims payable versus 49.5 days from the previous quarter. Medical claims liabilities were affected by a reduction in pended claims from 54,000 to 21,000, many of which were large liability claims. Additionally, the average cost per claim held in inventory at September 30 was $144.00 and compares to $204.00 in the immediately preceding quarter.
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, 2005 | 49.5 | ||
Increased efficiencies in claims processing | (5.2 | ) | |
Effect of AZ behavioral health block payment business | (1.5 | ) | |
Payment of Aurora settlement | (1.4 | ) | |
Days in claims payable, September 30, 2005 | 41.4 | ||
As predicted, cash flows provided by operating activities were $51.9 million for the three months ended and $44.9 million for the nine months ended September 30, 2005. Centene received the State of Wisconsin’s June capitation payment of $29 million in July.
PAGE 6 : CENTENE CORPORATION REPORTS THIRD QUARTER NET EARNINGS OF $0.27 PER SHARE
Outlook
Karey L. Witty, Centene’s chief financial officer, stated, “For the fourth quarter of 2005, we expect revenue in the range of $415 million to $420 million and net earnings of $0.30 to $0.32 per diluted share. Additionally, we expect organic membership growth in excess of 10% for 2005. Our preliminary outlook for 2006 includes revenue in the range of $2.03 billion to $2.18 billion and net earnings of $1.72 to $1.87 per diluted share. This guidance excludes the potential impact of any other acquisitions we may undertake during the remainder of 2005 as well as expenses related to stock option grants under SFAS 123R (“Share Based Payment”), which is required to be adopted on January 1, 2006.
Conference Call
As previously announced, the Company will host a conference call this morning, October 25, 2005, at 8:30 a.m. (Eastern Time) to review the financial results for the third quarter ended September 30, 2005, and to discuss its business outlook. Michael F. Neidorff and Karey L. Witty 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 November 8, 2005 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 1255588.
PAGE 7 : CENTENE CORPORATION REPORTS THIRD QUARTER NET EARNINGS OF $0.27 PER SHARE
About Centene Corporation
Centene Corporation provides multi-line managed care programs and related services to individuals receiving benefits under Medicaid, including Supplemental Security Income (SSI), and the State Children’s Health Insurance Program (SCHIP). The Company operates health plans in Indiana, Kansas, Missouri, New Jersey, Ohio, Texas and Wisconsin. In addition, the Company contracts with other healthcare organizations to provide specialty services including behavioral health, disease management, nurse triage and treatment compliance. Information regarding Centene is available via the Internet at www.centene.com.
The information provided in the first paragraph following the bullet listing under “Third Quarter Highlights,” the second bullet under “Statement of Earnings Highlights,” and the paragraph under “Outlook” above contain 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]
PAGE 8 : CENTENE CORPORATION REPORTS THIRD QUARTER NET EARNINGS OF $0.27 PER SHARE
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30, | December 31, | |||||||
2005 | 2004 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 121,424 | $ | 84,105 | ||||
Premium and related receivables, net of allowances of $156 and $462, respectively | 43,235 | 31,475 | ||||||
Short-term investments, at fair value (amortized cost $58,760 and $94,442, respectively) | 58,642 | 94,283 | ||||||
Other current assets | 20,500 | 14,429 | ||||||
Total current assets | 243,801 | 224,292 | ||||||
Long-term investments, at fair value (amortized cost $132,394 and $117,177, respectively) | 130,347 | 116,787 | ||||||
Restricted deposits, at fair value (amortized cost $22,614 and $22,295, respectively) | 22,344 | 22,187 | ||||||
Property, software and equipment | 55,073 | 43,248 | ||||||
Goodwill | 159,579 | 101,631 | ||||||
Other intangible assets | 21,217 | 14,439 | ||||||
Other assets | 7,250 | 5,350 | ||||||
Total assets | $ | 639,611 | $ | 527,934 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Medical claims liabilities | $ | 148,889 | $ | 165,980 | ||||
Accounts payable and accrued expenses | 47,302 | 31,737 | ||||||
Unearned revenue | 12,437 | 3,956 | ||||||
Current portion of long-term debt and notes payable | 486 | 486 | ||||||
Total current liabilities | 209,114 | 202,159 | ||||||
Long-term debt | 87,650 | 46,973 | ||||||
Other liabilities | 9,614 | 7,490 | ||||||
Total liabilities | 306,378 | 256,622 | ||||||
Stockholders’ equity: | ||||||||
Common stock, $.001 par value; authorized 100,000,000 shares; issued and outstanding 42,646,184 and 41,316,122 shares, respectively | 43 | 41 | ||||||
Additional paid-in capital | 186,659 | 165,391 | ||||||
Accumulated other comprehensive income: | ||||||||
Unrealized loss on investments, net of tax | (1,522 | ) | (407 | ) | ||||
Retained earnings | 148,053 | 106,287 | ||||||
Total stockholders’ equity | 333,233 | 271,312 | ||||||
Total liabilities and stockholders’ equity | $ | 639,611 | $ | 527,934 | ||||
PAGE 9 : CENTENE CORPORATION REPORTS THIRD QUARTER NET EARNINGS OF $0.27 PER SHARE
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Revenues: | ||||||||||||||||
Premiums | $ | 395,667 | $ | 251,536 | $ | 1,075,027 | $ | 705,556 | ||||||||
Services | 4,975 | 2,207 | 7,619 | 7,320 | ||||||||||||
Total revenues | 400,642 | 253,743 | 1,082,646 | 712,876 | ||||||||||||
Expenses: | ||||||||||||||||
Medical costs | 331,050 | 202,974 | 881,021 | 570,720 | ||||||||||||
Cost of services | 2,002 | 2,111 | 3,573 | 6,149 | ||||||||||||
General and administrative expenses | 52,450 | 32,187 | 139,274 | 88,915 | ||||||||||||
Total operating expenses | 385,502 | 237,272 | 1,023,868 | 665,784 | ||||||||||||
Earnings from operations | 15,140 | 16,471 | 58,778 | 47,092 | ||||||||||||
Other income (expense): | ||||||||||||||||
Investment and other income | 2,818 | 1,683 | 7,461 | 4,529 | ||||||||||||
Interest expense | (1,190 | ) | (126 | ) | (2,386 | ) | (317 | ) | ||||||||
Earnings before income taxes | 16,768 | 18,028 | 63,853 | 51,304 | ||||||||||||
Income tax expense | 4,662 | 6,677 | 22,087 | 19,002 | ||||||||||||
Net earnings | $ | 12,106 | $ | 11,351 | $ | 41,766 | $ | 32,302 | ||||||||
Earnings per share: | ||||||||||||||||
Basic earnings per common share | $ | 0.28 | $ | 0.28 | $ | 0.99 | $ | 0.79 | ||||||||
Diluted earnings per common share | $ | 0.27 | $ | 0.26 | $ | 0.93 | $ | 0.74 | ||||||||
Weighted average number of shares outstanding: | ||||||||||||||||
Basic | 42,582,129 | 40,972,858 | 42,120,149 | 40,693,804 | ||||||||||||
Diluted | 45,278,328 | 43,640,180 | 45,078,852 | 43,364,120 |
PAGE 10 : CENTENE CORPORATION REPORTS THIRD QUARTER NET EARNINGS OF $0.27 PER SHARE
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended September 30, | ||||||||
2005 | 2004 | |||||||
(Unaudited) | ||||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 41,766 | $ | 32,302 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities — | ||||||||
Depreciation and amortization | 9,658 | 7,219 | ||||||
Deferred income taxes | (3,567 | ) | (303 | ) | ||||
Tax benefits related to stock options | 4,511 | 1,858 | ||||||
Stock compensation expense | 3,557 | 44 | ||||||
Loss (gain) on sale of investments | 58 | (212 | ) | |||||
Changes in assets and liabilities — | ||||||||
Premium and related receivables | (9,396 | ) | (2,431 | ) | ||||
Other current assets | (1,990 | ) | (4,803 | ) | ||||
Other assets | (1,380 | ) | (1,773 | ) | ||||
Medical claims liabilities | (17,091 | ) | 19,825 | |||||
Unearned revenue | 5,892 | (3 | ) | |||||
Accounts payable and accrued expenses | 11,798 | 5,184 | ||||||
Other operating activities | 1,096 | 568 | ||||||
Net cash provided by operating activities | 44,912 | 57,475 | ||||||
Cash flows from investing activities: | ||||||||
Purchase of property, software and equipment | (16,837 | ) | (9,487 | ) | ||||
Purchase of investments | (108,630 | ) | (207,385 | ) | ||||
Sales and maturities of investments | 129,095 | 188,918 | ||||||
Acquisitions, net of cash acquired | (55,410 | ) | (7,005 | ) | ||||
Net cash used in investing activities | (51,782 | ) | (34,959 | ) | ||||
Cash flows from financing activities: | ||||||||
Reduction of long-term debt and notes payable | (4,323 | ) | (507 | ) | ||||
Proceeds from borrowings | 45,000 | — | ||||||
Proceeds from stock options and employee stock purchase plan | 3,925 | 2,332 | ||||||
Other financing activities | (413 | ) | — | |||||
Net cash provided by financing activities | 44,189 | 1,825 | ||||||
Net increase in cash and cash equivalents | 37,319 | 24,341 | ||||||
Cash and cash equivalents, beginning of period | 84,105 | 64,346 | ||||||
Cash and cash equivalents, end of period | $ | 121,424 | $ | 88,687 | ||||
Interest paid | $ | 2,184 | $ | 324 | ||||
Income taxes paid | $ | 19,658 | $ | 18,844 | ||||
Supplemental schedule of non-cash investing and financing activities: | ||||||||
Common stock issued for acquisitions | $ | 8,991 | $ | — |
PAGE 11 : CENTENE CORPORATION REPORTS THIRD QUARTER NET EARNINGS OF $0.27 PER SHARE
CENTENE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA
Q3 2005 | Q2 2005 | Q1 2005 | Q4 2004 | |||||||||||||
MEMBERSHIP | ||||||||||||||||
Indiana | 176,300 | 152,800 | 149,900 | 150,600 | ||||||||||||
Kansas | 107,600 | 103,000 | 94,900 | 94,200 | ||||||||||||
Missouri | 37,300 | 39,900 | 41,300 | 41,200 | ||||||||||||
New Jersey | 50,900 | 52,900 | 52,700 | 52,800 | ||||||||||||
Ohio | 58,100 | 59,600 | 23,900 | 23,800 | ||||||||||||
Texas | 243,600 | 243,800 | 243,700 | 244,300 | ||||||||||||
Wisconsin | 173,900 | 173,400 | 170,900 | 165,800 | ||||||||||||
TOTAL | 847,700 | 825,400 | 777,300 | 772,700 | ||||||||||||
Medicaid | 657,500 | 637,300 | 588,100 | 580,200 | ||||||||||||
SCHIP | 176,900 | 176,200 | 178,500 | 182,100 | ||||||||||||
SSI | 13,300 | 11,900 | 10,700 | 10,400 | ||||||||||||
TOTAL | 847,700 | 825,400 | 777,300 | 772,700 | ||||||||||||
REVENUE PER MEMBER | $ | 147.73 | $ | 143.41 | $ | 142.15 | $ | 139.38 | ||||||||
CLAIMS | ||||||||||||||||
Period-end inventory | 206,900 | 195,500 | 227,700 | 150,300 | ||||||||||||
Average inventory | 148,300 | 170,300 | 191,900 | 128,300 | ||||||||||||
Period-end inventory per member | 0.24 | 0.24 | 0.29 | 0.19 | ||||||||||||
DAYS IN CLAIMS PAYABLE (a) | 41.4 | 49.5 | 59.7 | 66.5 | ||||||||||||
(a) 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 | $ | 305.1 | $ | 260.5 | $ | 295.0 | $ | 271.4 | ||||||||
Unregulated | 27.7 | 27.4 | 42.1 | 46.0 | ||||||||||||
TOTAL | $ | 332.8 | $ | 287.9 | $ | 337.1 | $ | 317.4 | ||||||||
ANNUALIZED RETURN ON EQUITY (b) | 14.9 | % | 20.0 | % | 20.5 | % | 18.2 | % |
(b) | Annualized Return on Equity is calculated as follows: (net income for quarter x 4) divided by ((beginning of period equity + end of period equity) divided by 2). |
PAGE 12 : CENTENE CORPORATION REPORTS THIRD QUARTER NET EARNINGS OF $0.27 PER SHARE
HEALTH BENEFITS RATIO BY CATEGORY:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||
Medicaid and SCHIP | 83.0 | % | 80.4 | % | 81.5 | % | 80.5 | % | ||||
SSI | 96.2 | 92.8 | 92.6 | 96.6 | ||||||||
Medicaid Managed Care Total | 83.3 | 80.7 | 81.7 | 80.9 | ||||||||
Specialty Services | 89.7 | — | 91.0 | — | ||||||||
Total | 83.7 | 80.7 | 82.0 | 80.9 |
GENERAL AND ADMINISTRATIVE EXPENSE RATIO BY BUSINESS SEGMENT:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||
Medicaid Managed Care | 10.6 | % | 10.5 | % | 10.6 | % | 10.4 | % | ||||
Specialty Services | 30.2 | 56.0 | 38.9 | 51.8 | ||||||||
Total | 13.1 | 12.7 | 12.9 | 12.5 |
MEDICAL CLAIMS LIABILITIES
(In thousands)
Four rolling quarters of the changes in medical claims liabilities are summarized as follows:
Balance, September 30, 2004 | $ | 126,394 | ||
Acquisitions | 24,909 | |||
Incurred related to: | ||||
Current period | 1,123,677 | |||
Prior period | (12,900 | ) | ||
Total incurred | 1,110,777 | |||
Paid related to: | ||||
Current period | 1,000,533 | |||
Prior period | 112,658 | |||
Total paid | 1,113,191 | |||
Balance, September 30, 2005 | $ | 148,889 | ||
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.