10-QPeriod: Q1 FY2004

CENTENE CORP Quarterly Report for Q1 Ended Mar 31, 2004

Filed April 26, 2004For Securities:CNC

Summary

Centene Corporation (CNC) reported solid performance for the first quarter ended March 31, 2004, demonstrating significant year-over-year growth in both revenues and net earnings. Total revenues increased by 27.1% to $225.5 million, driven primarily by a 26.4% rise in premium revenues, largely attributable to organic membership growth, recent acquisitions in Texas and Ohio, and expansion in existing markets. The company also saw a substantial 132.0% increase in services revenue, benefiting from a full quarter of operations from the acquired Group Practice Affiliates (GPA). Profitability improved considerably, with net earnings growing 41.6% to $10.1 million, translating to a 17.5% increase in diluted earnings per share to $0.47. This growth was achieved despite a rise in operating expenses, including medical costs and general and administrative expenses, due to membership expansion and new service initiatives. The company's health benefits ratio improved to 81.0% from 83.4% in the prior year, reflecting successful cost-management initiatives. Centene's strategic focus on expanding its Medicaid Managed Care and Specialty Services segments appears to be yielding positive results, with continued membership growth and operational enhancements contributing to a stronger financial outlook.

Key Highlights

  • 1Total revenues grew 27.1% to $225.5 million compared to Q1 2003.
  • 2Net earnings increased 41.6% to $10.1 million.
  • 3Diluted earnings per share rose 17.5% to $0.50.
  • 4Membership increased by 24.6% year-over-year, reaching 522,400 members.
  • 5Health benefits ratio improved to 81.0% from 83.4% in Q1 2003, indicating better cost management.
  • 6Acquisitions and organic growth in the Medicaid Managed Care segment were key drivers of revenue expansion.
  • 7Investment and other income increased by 49.9%, supported by higher investment balances following a 2003 stock offering.

Frequently Asked Questions

Centene's revenue growth was primarily driven by a significant increase in premium revenues, up 26.4%, fueled by organic membership growth across its existing markets, the addition of new members from acquisitions in Texas and Ohio, and a favorable change in member mix. Additionally, services revenue saw substantial growth of 132.0%, benefiting from the full inclusion of Group Practice Affiliates (GPA) operations during the quarter.

Despite an increase in overall operating expenses due to membership growth and expansion, Centene improved its profitability. Medical costs rose 22.8%, but the health benefits ratio decreased to 81.0% from 83.4% in the prior year, attributed to initiatives aimed at reducing emergency department usage and implementing preferred drug lists. General and administrative expenses increased by 46.2%, partly due to expansion and a new premium tax, but the company managed to increase net earnings by 41.6% to $10.1 million.

Centene's operating activities generated positive cash flow of $12.4 million in Q1 2004. While investing activities used $33.0 million, primarily for investment portfolio growth, the company had $77.1 million in cash, cash equivalents, and short-term investments at the end of the quarter. Management expects available funding to be sufficient for at least the next 12 months, supported by their investment policies designed to maintain liquidity and preserve capital.

Centene operates in a highly regulated environment and faces risks related to potential reductions in Medicaid and SCHIP funding or contract terminations by state governments. Other significant risks include changes in government regulations, intense competition, the challenge of effectively managing medical costs, difficulties in executing its acquisition strategy, and dependence on maintaining satisfactory relationships with its provider networks. Changes in federal funding mechanisms and the company's ability to comply with evolving healthcare regulations are also key concerns.