01—Abstract
Summary
Summary of the 10-K/A filed December 17, 2004. Cited figures are marked; the original filing is the authoritative source.
Centene Corp's (CNC) amended 10-K/A for fiscal 2003 shows a managed care company that grew rapidly by serving Medicaid and SCHIP populations.
Total revenues rose 66.8% to $769.7 milliona in 2003, driven by 64.8% premium growth and membership that climbed 108% over two years to 489,600 members. Net earnings grew 29.9% to $33.3 million, and diluted EPS was $0.87 after split adjustments. The company's health benefits ratio held steady at 82.4%, with Medicaid and SCHIP improving to 81.7% from 82.2% thanks to emergency-room utilization and drug-list initiatives.
The balance sheet strengthened considerably. Stockholders' equity more than doubled to $220.1 millionb, supported by an August 2003 follow-on offering of 6.9 million shares that netted $81.3 million. Total assets reached $362.7 million, and cash plus investments grew substantially.
Long-term debt is modest at $7.6 millionc, consisting mainly of a mortgage on the newly purchased St. Louis headquarters. Investors should note that the company operates in only five states, depends heavily on state Medicaid and SCHIP contracts that often run one to two years, and faces a pending $9.4 million Aurora lawsuit. Per-share figures reflect a two-for-one split payable December 17, 2004, so this amendment restates earlier share data.
The main investor considerations are growth durability and concentration risk. Growth depends on winning and renewing state contracts, on managing a health benefits ratio that has historically fluctuated, and on expanding into mandatory managed care states such as Ohio, which began January 1, 2004. The company's diversification into behavioral health, medication compliance, and nurse triage is still early and small relative to Medicaid premiums.
02—Key points
Key Highlights
- Total revenues grew 66.8% to $769.7M in 2003, with premium revenue up 64.8% to $759.8M
- Net earnings rose 29.9% to $33.3M; diluted EPS was $0.87 versus $0.73 in 2002
- Medicaid membership expanded 108% from 2001 to 489,600 members at year-end 2003
- Medicaid and SCHIP health benefits ratio improved to 81.7% from 82.2%, while total ratio held at 82.4%
- Stockholders' equity more than doubled to $220.1M after an $81.3M August 2003 public offering
- Revenue concentration: Wisconsin, Texas, Indiana and New Jersey each exceeded 10% of 2003 revenues
- Entered Ohio January 1, 2004 via $6.8M acquisition of FHP Medicaid assets; diversifying into specialty services through GPA, ScriptAssist and NurseWise
03—Questions
Frequently Asked Questions
What drove Centene's revenue growth in 2003?
Revenue growth came mainly from organic membership gains in existing markets, the purchase of Texas SCHIP and HMO Blue Texas contracts, and the consolidation of New Jersey through the UHP acquisition. Premium rate increases averaging 4.6% across markets also contributed.
How concentrated is Centene's business?
Centene operates health plans in only five states, and most premium revenue comes from state Medicaid and SCHIP contracts. Contracts generally run one to two years and can be terminated or opened for rebidding, so losing or failing to renew a major state contract would materially affect results.
Is the company's balance sheet strong enough to fund growth?
Yes. Cash and investments were substantial, the company had no borrowings under its $25M LaSalle credit line, and it expected cash plus operating cash flow to fund operations for at least 12 months. Its long-term debt was limited to a $7.6M mortgage on its headquarters building, and statutory capital of subsidiaries exceeded minimum requirements.
What are the main risks to earnings?
Key risks include changes in state or federal Medicaid funding, premium rates that may not keep pace with medical costs, errors in estimating IBNR medical claims liabilities, and dependence on continued state contract awards. A one percent change in the medical claims liability would have affected 2003 net earnings by about $0.7M.
Why was this 10-K/A filed and how do the share figures look?
The figures are restated for a three-for-two split in July 2003 and a two-for-one split payable December 17, 2004, so per-share amounts are lower than originally reported. Investors comparing with earlier filings should use these adjusted figures.
04—Continue