Centene third quarter premium and service revenues increase 9.5% to $1.082 billion

Centene Corporation (NYSE: CNC) today announced net earnings from continuing operations for the quarter ended September 30, 2010, of $22.4 million, or $0.44 per diluted share; $0.48 from operations excluding a $0.04 charge for net investment writedowns.  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 1,470,800, an increase of 84,400 members, or 6.1% year over year.
• Premium and Service Revenues of $1.082 billion, representing 9.5% year over year growth.
• Health Benefits Ratio (HBR) of 84.2%, compared to 83.7% in the prior year.  
• General and Administrative (G&A) expense ratio of 12.2%, compared to 13.2% in the prior year.
• Earnings from operations of $40.2 million, compared to $38.0 million in the prior year.
• Earnings from continuing operations, net of income tax expense, of $22.4 million.  
• Diluted earnings per share from continuing operations of $0.44, including a $0.07 charge per diluted share related to an impairment of an investment in a software company and realized security gains of $0.03 per diluted share recognized during the third quarter of 2010.
• Cash flows from operations of $72.6 million, which is 3.2 times net earnings from continuing operations.  
• Days in claims payable of 47.1, including pharmacy claims payable.

Other Events

• In April 2010, we began offering an individual insurance product, under the names of Commonwealth Choice and CeltiCare Direct, for residents of Boston and surrounding cities who do not qualify for other state funded insurance programs.
• In July 2010, we closed on the acquisition of certain assets of NovaSys Health, LLC, a leading third party administrator in Arkansas that complements our existing Celtic business.  
• In August 2010, we announced the acquisition in Florida of certain assets in non-reform counties of Citrus Health Care, Inc., a Medicaid and long-term care health plan.  We expect the transaction to close at year end.
• In September 2010, Celtic Insurance Company, Inc. was awarded a contract with the Texas Department of Insurance to provide affordable health insurance plans for Texas small businesses under the new Healthy Texas initiative.  We expect operations to commence during the fourth quarter of 2010.
• In September 2010, our new subsidiary, IlliniCare Health Plan, was selected as one of two vendors to provide managed care services to older adults and adults with disabilities under the Integrated Care Program in six counties of Illinois.  We expect operations to commence in the first half of 2011.
• In October 2010, one of our highly regarded health programs, Start Smart for Your Baby®, won the Platinum Award for Consumer Empowerment at the URAC Quality Summit.  Also in October, Absolute Total Care, our South Carolina health plan, received the prestigious New Health Plan accreditation from the National Committee for Quality Assurance (NCQA), a private, not-for-profit organization that sets standards for monitoring and improving healthcare quality.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "A strong operational quarter and exceptional new business activity set the stage for meaningful 2011 performance."

Statement of Operations

• Premium and service revenues increased 9.5% for the three months ended September 30, 2010 over 2009 as a result of membership growth and net premium rate increases.  This increase was moderated by the removal of pharmacy services in two states in 2010.  These pharmacy carve outs had the effect of reducing 2010 third quarter revenue by approximately $48 million.
• The consolidated HBR for the three months ended September 30, 2010 of 84.2% was an increase of 0.5% over the comparable period in 2009.  
• Consolidated G&A expense as a percent of premium and service revenues was 12.2% in the third quarter of 2010, a decrease from 13.2% in the third quarter of 2009.  The decrease in G&A ratio is primarily a result of leveraging our expenses over higher revenues and decreased variable compensation expense during the quarter ended September 30, 2010.
• Earnings per diluted share from continuing operations were $0.44, compared to $0.51 in the third quarter of 2009, including a $0.07 charge per diluted share related to an impairment of an investment in a software company and realized security gains of $0.03 per diluted share recognized during the third quarter of 2010.  Earnings per diluted share also reflect an increase in diluted shares outstanding resulting from the first quarter 2010 stock offering.    

Balance Sheet and Cash Flow

At September 30, 2010, we had cash and investments of $928.1 million, including $895.4 million held by our regulated entities and $32.7 million held by our unregulated entities.  Medical claims liabilities totaled $457.1 million, representing 47.1 days in claims payable, a decrease of 1.1 days from June 30, 2010.  Total debt was $264.2 million and debt to capitalization was 24.7%.  

Cash flow from operations for the quarter ended September 30, 2010 was $72.6 million.  Cash flow from operations for the nine months ended September 30, 2010 was $(25.7) million and was impacted by 1) $38.7 million decrease in unearned revenue due to advance payments received in December 2009 for January 2010 premium payments and 2) $68.1 million increase in premium and related receivables primarily for September premium payments deferred by one state until October 2010.  

Outlook

Based upon known rate adjustments and discussions with our states that finalize rates in the second half of the year, we estimate our 2010 composite premium rate increase to be between 1.5% and 2.5%.