10-QPeriod: Q3 FY2004

CENTENE CORP Quarterly Report for Q3 Ended Sep 30, 2004

Filed October 25, 2004For Securities:CNC

Summary

Centene Corporation (CNC) reported strong revenue growth in the third quarter and first nine months of 2004, driven by a significant increase in membership across its Medicaid Managed Care segment. Total revenues increased by 27.7% for the quarter and 26.8% for the nine months compared to the prior year periods, primarily due to organic growth, acquisitions, and premium rate adjustments. The company also demonstrated improved operational efficiency, with its health benefits ratio decreasing for both Medicaid/SCHIP and SSI populations, indicating better management of medical costs. Despite an increase in general and administrative expenses, largely attributed to supporting membership growth and new state premium taxes, overall earnings from operations saw a substantial rise. Diluted earnings per share also showed positive growth, reflecting the company's expanding profitability.

Key Highlights

  • 1Total revenues for the nine months ended September 30, 2004, increased by 26.8% to $712.9 million, compared to $562.4 million in the same period of 2003.
  • 2Total revenues for the three months ended September 30, 2004, increased by 27.7% to $253.7 million, compared to $198.7 million in the same period of 2003.
  • 3Total membership increased by 37.4% from September 30, 2003, to September 30, 2004, reaching 641,600 members.
  • 4The health benefits ratio for Medicaid and SCHIP improved to 80.3% for the nine months of 2004 from 82.0% in 2003, indicating better medical cost management.
  • 5Net earnings for the nine months ended September 30, 2004, rose by 37.0% to $32.3 million, compared to $23.6 million in the prior year.
  • 6Diluted earnings per share for the nine months increased to $1.49 from $1.28 in the prior year.
  • 7The company secured a new five-year, $100 million Revolving Credit Agreement in September 2004, enhancing its liquidity and financial flexibility.

Frequently Asked Questions

Centene's revenue growth was primarily driven by a significant increase in membership within its Medicaid Managed Care segment. This growth resulted from a combination of organic expansion in existing markets, strategic acquisitions (like the Family Health Plan, Inc. in Ohio and HMO Blue Texas contracts), additions of new members (such as EPO members in Texas), and favorable premium rate increases.

Centene demonstrated improved medical cost management, as evidenced by a decrease in its health benefits ratio. For the Medicaid and SCHIP segment, the ratio improved from 82.0% in the first nine months of 2003 to 80.3% in the same period of 2004. This improvement is attributed to strategic initiatives aimed at reducing inappropriate emergency room usage and the implementation of preferred drug lists.

Centene anticipates continued growth driven by its expansion strategy, including potential acquisitions and organic membership increases. The company has also secured a new $100 million credit facility, providing financial flexibility for future investments and operations. However, the company faces risks related to government funding, regulatory changes, and competition, which could impact future performance.

Centene is involved in routine legal proceedings as part of its normal course of business. The most notable mentioned is a lawsuit filed by Aurora Health Care, Inc. seeking damages of $9.4 million related to alleged under-reimbursement for services. Centene disputes this claim and is defending against it. The company states it does not expect the outcome of these matters to materially affect its financial position or results of operations.