Centene's first-quarter Premium and Service Revenues up 12.5% to $1.022 billion

Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended March 31, 2010.  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 exclude premium taxes.

First Quarter Highlights

• Quarter-end managed care at-risk membership of 1,468,600, an increase of 221,300 members year over year.
• Premium and Service Revenues of $1.022 billion, representing 12.5% year over year growth.
• Health Benefits Ratio (HBR) of 84.0%.  
• General and Administrative (G&A) expense ratio of 13.3%.
• Days in claims payable of 47.7, including pharmacy claims payable.
• Diluted earnings per share from continuing operations of $0.41.  

Other Events

• During the first quarter of 2010, we completed the sale of 5.75 million shares of common stock, including the underwriters' overallotment option, for a public offering price of $19.25 per share.  Net proceeds from the sale of the shares were $104.6 million.  
• In February 2010, we announced a definitive agreement to acquire certain Medicaid assets in South Carolina.  The transaction is expected to close in the second quarter of 2010 and add revenues of approximately $60 million and diluted earnings per share of $0.02 to $0.03 for 2010.
• In March 2010, we completed the previously announced sale of our New Jersey health plan, University Health Plans, and recorded a pre-tax gain on sale of $8.2 million, or $0.08 per diluted share, in discontinued operations during the first quarter of 2010.
• In March 2010, we announced that our specialty company, Cenpatico Behavioral Health, retained its existing service area contract and was also awarded an expanded contract by the Arizona Department of Health Services to manage behavioral healthcare services for an additional four counties.  The expanded contract is expected to take effect July 1, 2010, and add revenues of approximately $20 million for 2010.
• In March 2010, Moody's Investors Service upgraded our senior unsecured debt rating and our corporate family rating to Ba2 from Ba3.
• In April 2010, we announced that our Celtic Group subsidiary, CeltiCare Health Plan of Massachusetts, renewed its contract to serve Commonwealth Care members as the low cost provider in Massachusetts.  
• In April 2010, we announced that our Wisconsin subsidiary was not awarded the Southeast Wisconsin BadgerCare Plus Managed Care contract.  The loss of the contract award will reduce revenues by approximately $25 million in 2010.
• In April 2010, Fortune Magazine announced that Centene ranked #486 in the magazine's annual ranking of the world's largest companies by revenue, up from #609 last year. The ranking placed Centene in the Fortune 500 for the first time.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "We are pleased to have maintained our positive operating momentum as 2010 begins and we are dedicated to maintaining our discipline and focus in the future."

Statement of Operations

• Premium and service revenues increased 12.5% in the three months ended March 31, 2010 over 2009 as a result of membership growth in all of our states.  This increase was moderated by the removal of pharmacy services in two states beginning in 2010.  These pharmacy carve outs had the effect of reducing 2010 revenue by approximately $35 million.
• The consolidated HBR for the three months ended March 31, 2010 of 84.0% was an increase of 0.5% over the comparable period in 2009.  A reconciliation of the change in HBR from the prior year same period is presented below:

The increase in the first quarter of 2010 over the comparable period in 2009 was primarily due to higher HBR in our new markets, partially offset by improvements in our existing markets.  

• Consolidated G&A expense as a percent of premium and service revenues was 13.3% in the first quarter of 2010, a decrease from 13.5% in the first quarter of 2009.  The decrease reflects the leveraging of our expenses over higher revenues, partially offset by a $4.6 million increase in contributions to the Company's charitable foundation.  
• Other income for the quarter includes a $3.0 million gain on distributions received from the Reserve Primary Fund in excess of our adjusted basis.  An offsetting $3.0 million contribution was made to the Company's charitable foundation and is included in G&A expense discussed above.  
• Earnings per diluted share from continuing operations were $0.41, compared to $0.43 in the first quarter of 2009, and reflect the approximate 10% increase in diluted shares outstanding resulting from the stock offering.  

Balance Sheet and Cash Flow

At March 31, 2010, the Company had cash and investments of $969.2 million, including $917.9 million held by its regulated entities and $51.3 million held by its unregulated entities.  Medical claims liabilities totaled $444.8 million, representing 47.7 days in claims payable, a decrease of 2.4 days from December 31, 2009.  Total debt was $232.7 million and debt to capitalization was 23.7%.  Year to date cash flow from operations was $(38.5) million, reflecting a $73.3 million decrease in unearned revenue from December 31, 2009 as a result of the prepayment of monthly premiums.  In 2010, only two monthly premium payments were received during the quarter from Ohio and Florida.

Outlook

The Company is increasing its earnings guidance by $0.03 to reflect the first quarter performance and results of the RFP's in Arizona and Wisconsin.  The Company is adjusting its revenue guidance to reflect a shift in the start date of our Mississippi operations to October 1, 2010.  Our current guidance excludes the previously announced South Carolina transaction, which is expected to add approximately $60 million of revenue and $0.02 to $0.03 diluted earnings per share in 2010, as the transaction has not yet closed.

SOURCE Centene Corporation