Centene Corporation Reports 2010 Second Quarter Earnings
Second Quarter Highlights
- Quarter-end managed care at-risk membership of 1,531,800, an increase of 242,800 members, or 18.8% year over year.
- Premium and Service Revenues of $1.051 billion, representing 12.8% year over year growth.
- Health Benefits Ratio (HBR) of 83.8%, compared to 83.1% in the prior year.
- General and Administrative (G&A) expense ratio of 12.7%, compared to 13.9% in the prior year.
- Earnings from operations of $41.7 million, compared to $31.4 million in the prior year.
- Earnings from continuing operations, net of income tax expense, increased 11.0% year over year to $23.0 million. Within the quarter, we incurred a $0.03 charge per diluted share to write off a deferred tax asset associated with our Georgia health plan and benefited by $0.03 per diluted share from a shift in start up costs for Mississippi from the second to the third quarter.
- Diluted earnings per share from continuing operations of $0.45.
- Days in claims payable of 48.2, including pharmacy claims payable.
- Estimated 2010 composite premium rate increase between 1% and 3%.
- In May 2010, our Texas health plan was awarded a new ABD contract in the Dallas service area subject to execution of a final contract. The new contract is expected to commence during the first quarter of 2011.
- In June 2010, we completed the acquisition of certain assets of Carolina Crescent Health Plan. We now serve 92,600 at-risk members in South Carolina as of June 30, 2010.
- In June 2010, our Indiana health plan was selected to negotiate a statewide managed care contract effective January 1, 2011. Upon successful execution of the contract, we will continue to serve Hoosier Healthwise members and begin serving Healthy Indiana Plan members.
- In July 2010, we closed on the acquisition of certain assets of NovaSys Health, LLC, a leading third party administrator in Arkansas that will complement our existing Celtic business.
Michael F. Neidorff, Centenes Chairman and Chief Executive Officer, stated, Our team continues to focus on fundamentals and driving Centene to be a low-cost producer. These are key factors in producing another solid quarterly report and for the long-term success of our enterprise.
The following table depicts membership in Centenes managed care organizations, by state, at June 30, 2010 and 2009:
Total at-risk membership
The following table depicts membership in Centenes managed care organizations, by member category, at June 30, 2010 and 2009:
CHIP & Foster Care
ABD & Medicare
Other State programs
Total at-risk membership
Statement of Operations
- Premium and service revenues increased 12.8% for the three months ended June 30, 2010 over 2009 as a result of membership growth in each 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 second quarter revenue by approximately $48 million.
- The consolidated HBR for the three months ended June 30, 2010 of 83.8% was an increase of 0.7% over the comparable period in 2009. A reconciliation of the change in HBR from the prior year is presented below:
Second Quarter 2009
New markets reserved at higher rates
Net changes in existing markets
Second Quarter 2010
- Consolidated G&A expense as a percent of premium and service revenues was 12.7% in the second quarter of 2010, a decrease from 13.9% in the second quarter of 2009. The decrease reflects the leveraging of our expenses over higher revenues and the impact of our ongoing focus on system enhancements and operational efficiencies. Additionally, we benefited by $0.03 per diluted share from a shift in start up costs for Mississippi from the second to the third quarter.
- Effective July 1, 2010, our Georgia health plan will begin paying premium taxes and will no longer be subject to income taxes. Accordingly, the deferred tax asset related to state net operating loss carry forwards was written off. The write off increased income tax expense during the second quarter by $1.7 million, or $0.03 per diluted share.
- Earnings per diluted share from continuing operations were $0.45, compared to $0.47 in the second quarter of 2009.
Balance Sheet and Cash Flow
At June 30, 2010, we had cash and investments of $852.4 million, including $813.0 million held by our regulated entities and $39.4 million held by our unregulated entities. Medical claims liabilities totaled $455.4 million, representing 48.2 days in claims payable, an increase of 0.5 days from March 31, 2010. Total debt was $252.8 million and debt to capitalization was 24.5%.
Cash flow from operations through June 30, 2010 was $(98.3) million and was impacted by 1) $86.0 million decrease in unearned revenue due to advance payments received in December 2009 for January 2010 premium payments and 2) $57.7 million increase in premium and related receivables for June premium payments deferred by several states until July 2010. During the second half of 2010, we expect cash flow from operations to return to historical levels, although the timing of premium payments from each state can vary from period to period.
A reconciliation of the change in days in claims payable from the immediately preceding quarter-end is presented below:
Days in claims payable, March 31, 2010
Timing of claims payments
Payment of annual provider bonuses
Impact of new business
Pharmacy payment timing
Days in claims payable, June 30, 2010
The table below depicts our guidance from continuing operations for 2010:
Full Year 2010
Premium and Service revenues (in millions)
Earnings per diluted share (EPS)