10-QPeriod: Q2 FY2005

CENTENE CORP Quarterly Report for Q2 Ended Jun 30, 2005

Filed July 25, 2005For Securities:CNC

Summary

Centene Corporation (CNC) reported strong revenue growth for the six months ended June 30, 2005, primarily driven by a significant increase in membership, up 54.8% year-over-year. This growth was fueled by both organic expansion (21.1%) and strategic acquisitions, including SummaCare and FirstGuard. The company's premium revenue increased by 49.6% for the six-month period, reflecting successful market penetration and premium rate adjustments. Profitability also saw a substantial increase, with net earnings growing by 41.6% to $29.7 million for the first six months of 2005. This was achieved while maintaining a stable health benefits ratio of 81.0%. Despite increased general and administrative expenses related to growth and new premium taxes, the company's operational efficiency remained strong. Centene's robust financial performance positions it well for continued expansion in the government-subsidized managed care sector.

Key Highlights

  • 1Total revenues increased by 48.5% to $682.0 million for the six months ended June 30, 2005, compared to the prior year period.
  • 2Net earnings surged by 41.6% to $29.7 million for the first six months of 2005, demonstrating strong profitability.
  • 3Membership grew by 54.8% year-over-year to 825,400 members as of June 30, 2005, driven by both organic growth and acquisitions.
  • 4The health benefits ratio remained stable at 81.0% for both the six-month periods in 2005 and 2004, indicating effective cost management relative to premium revenue.
  • 5The company completed several acquisitions, including SummaCare and FirstGuard, which contributed significantly to membership growth and market expansion.
  • 6Goodwill increased substantially from $101.6 million at the end of 2004 to $130.3 million as of June 30, 2005, reflecting the impact of acquisitions.
  • 7Diluted earnings per share increased by 37.5% to $0.66 for the six months ended June 30, 2005, compared to $0.48 in the prior year.

Frequently Asked Questions

Revenue growth was primarily driven by a substantial increase in membership, up 54.8% year-over-year. This expansion was achieved through both organic growth within existing markets and strategic acquisitions, notably SummaCare and FirstGuard, which added a significant number of members to Centene's rolls.

Centene maintained a stable health benefits ratio of 81.0% for the six months ended June 30, 2005, consistent with the prior year. While general and administrative expenses increased due to expansion, including new premium taxes and implementation costs, the company effectively managed its medical costs relative to its premium revenue, supporting overall profitability.

The company acquired certain Medicaid-related assets from SummaCare, Inc. for approximately $30.3 million (cash and stock), adding about 37,500 members. In late 2004, it acquired FirstGuard, Inc. and FirstGuard Health Plan, Inc. for $96.0 million, adding approximately 143,000 members. More recently, in July 2005, Centene acquired AirLogix, Inc., a respiratory disease management provider, for about $35.0 million. These acquisitions have significantly boosted membership and expanded the company's market presence.

Centene reported cash and cash equivalents of $65.6 million and short-term investments of $65.3 million as of June 30, 2005. The company has a $100 million revolving credit facility, with $75.0 million borrowed at the time of the filing. Management expects available funding to be sufficient to finance operations and capital expenditures for at least the next 12 months, supported by its investment policies designed to provide liquidity and preserve capital.