10-QPeriod: Q1 FY2005

CENTENE CORP Quarterly Report for Q1 Ended Mar 31, 2005

Filed April 25, 2005For Securities:CNC

Summary

Centene Corporation (CNC) reported strong revenue and net earnings growth for the first quarter of 2005 compared to the same period in 2004. Total revenues increased by 47.4% to $332.4 million, driven primarily by significant membership growth in its Medicaid Managed Care segment, both organically and through acquisitions like FirstGuard. Net earnings saw a substantial increase of 42.1% to $14.4 million, resulting in diluted earnings per share of $0.32, up from $0.24 in the prior year. The company's operational efficiency remains solid, with a stable health benefits ratio of 80.9% and a slight increase in the general and administrative expense ratio to 12.8%. Centene also demonstrated robust operating cash flow generation of $19.9 million. The company is actively pursuing growth through strategic acquisitions, with a pending acquisition of Medicaid-related assets in Ohio and successful integration of the FirstGuard acquisition in late 2004, which expanded its member base in Kansas and Missouri.

Key Highlights

  • 1Total revenues surged 47.4% to $332.4 million in Q1 2005, up from $225.5 million in Q1 2004, primarily due to membership growth and acquisitions.
  • 2Net earnings increased by a significant 42.1% to $14.4 million, or $0.32 per diluted share, compared to $10.1 million, or $0.24 per diluted share, in the prior year's quarter.
  • 3Membership grew by 48.8% year-over-year, reaching 777,300 members by March 31, 2005, with notable expansion in Texas, Indiana, and Wisconsin.
  • 4The company successfully closed the FirstGuard acquisition in December 2004, contributing to membership growth and a preliminary allocation of goodwill and intangible assets.
  • 5Operating cash flow improved to $19.9 million from $12.4 million in the prior year, indicating strong cash generation from operations.
  • 6The health benefits ratio remained stable at 80.9% in Q1 2005, consistent with the prior year's ratio of 81.0%, demonstrating effective cost management relative to premium revenues.
  • 7Centene is progressing with a pending acquisition of Medicaid-related assets from SummaCare, Inc. in Ohio, expected to close in Q2 2005.

Frequently Asked Questions

The primary driver of Centene's revenue growth is membership expansion in its Medicaid Managed Care segment. This growth is achieved through both organic expansion within existing markets and strategic acquisitions, such as the recent integration of FirstGuard and the pending acquisition of SummaCare's Medicaid assets.

Centene manages its medical costs through various strategies, including negotiating contracts with healthcare providers, emphasizing preventive care, and carefully estimating incurred but not yet reported (IBNR) medical expenses. The company's health benefits ratio has remained stable, indicating effective cost management relative to premium revenues.

The acquisition of FirstGuard, effective December 1, 2004, contributed to Centene's membership growth and overall revenue increase in the first quarter of 2005. The acquisition resulted in the preliminary allocation of approximately $92,000,000 to identifiable intangible assets and goodwill.

Centene is involved in a lawsuit with Aurora Health Care, Inc. regarding reimbursement for ambulatory surgery services, with Aurora claiming an amount exceeding $8,000. Centene disputes this claim, and the company intends to appeal a recent court ruling. While the ultimate resolution is uncertain, Centene does not expect this matter to have a material effect on its financial position or results of operations.