10-QPeriod: Q2 FY2006

CENTENE CORP Quarterly Report for Q2 Ended Jun 30, 2006

Filed July 25, 2006For Securities:CNC

Summary

Centene Corporation's (CNC) Q2 2006 10-Q filing reveals a period of significant growth, primarily driven by its Medicaid Managed Care segment. Total revenues surged by 41.7% year-over-year to $495.3 million, largely due to a 33.5% increase in membership. The company expanded its reach in Georgia and Ohio through acquisitions and new contracts, with total Medicaid Managed Care membership reaching 1.1 million. While revenue growth was strong, earnings from operations declined by 71.7% to $6.3 million, and net earnings dropped 67.4% to $4.9 million, or $0.11 per diluted share. This decline is attributed to increased medical costs (up 41.8%) and a significant rise in general and administrative (G&A) expenses (up 67.8%), partly due to the adoption of SFAS 123R and implementation costs in new markets. The company also faced adverse development in medical claims liabilities from Q1 2006, impacting the Health Benefits Ratio (HBR) for the Medicaid and SCHIP programs.

Key Highlights

  • 1Total revenues increased by 41.7% to $495.3 million in Q2 2006 compared to Q2 2005, driven by strong membership growth in the Medicaid Managed Care segment.
  • 2Medicaid Managed Care membership grew 33.5% year-over-year, reaching 1,101,500 members, with significant expansion in Georgia and Ohio.
  • 3Acquisitions, including US Script (PBM) and Cardium Health Services (disease management), contributed to revenue growth in the Specialty Services segment.
  • 4Earnings from operations significantly decreased by 71.7% to $6.3 million, and net earnings fell 67.4% to $4.9 million, primarily due to increased medical costs and G&A expenses.
  • 5General and administrative expenses rose 67.8% due to new market implementations, stock compensation expenses from SFAS 123R adoption, and increased premium taxes.
  • 6The Health Benefits Ratio (HBR) for Medicaid and SCHIP increased to 84.0% due to higher utilization, cost trends, and adverse development in medical claims liabilities from Q1 2006.
  • 7The company repurchased 179,700 shares of common stock during the six months ended June 30, 2006, as part of its authorized stock repurchase program.

Frequently Asked Questions

Revenue growth was primarily driven by a significant increase in membership within the Medicaid Managed Care segment (up 33.5% year-over-year), along with premium rate increases and expansion in the Specialty Services segment through acquisitions.

The decrease in earnings was mainly due to a substantial increase in medical costs, which rose by 41.8%, and a sharp rise in general and administrative expenses, up 67.8%. This rise in G&A was influenced by costs associated with new market implementations (Georgia), adoption of SFAS 123R for stock compensation, and higher premium taxes. Additionally, adverse development in medical claims liabilities from the first quarter impacted results.

Acquisitions, such as US Script (a pharmacy benefits manager) and Cardium Health Services (a disease management company), contributed to the growth of the Specialty Services segment's revenue. The acquisition of MediPlan Corporation also expanded Centene's Medicaid membership in Ohio. These acquisitions also contributed to increased costs, particularly in G&A and cost of services.

The Health Benefits Ratio (HBR) represents medical costs as a percentage of premium revenues. For the Medicaid and SCHIP segments, the HBR increased to 84.0% in Q2 2006 from 80.9% in Q2 2005. This increase was attributed to higher utilization and cost trends, compounded by adverse development in estimated medical claims liabilities from the first quarter of 2006.