10-QPeriod: Q2 FY2007

CENTENE CORP Quarterly Report for Q2 Ended Jun 30, 2007

Filed July 24, 2007For Securities:CNC

Summary

Centene Corporation (CNC) reported a substantial increase in revenue for the quarter and six months ended June 30, 2007, driven primarily by significant growth in its Medicaid Managed Care segment. Total revenues jumped by 46.9% year-over-year for the quarter and 47.2% for the six-month period, reflecting successful expansion efforts through new contracts and acquisitions in key states like Georgia and Ohio, as well as a strategic shift towards higher-premium SSI memberships. Despite strong revenue growth, the company's profitability saw an even more dramatic improvement. Net earnings more than tripled year-over-year for both the quarter (258.1% increase) and the six-month period (307.8% increase), leading to a significant rise in diluted EPS to $0.40 and $1.25, respectively. This enhanced profitability was partly due to a significant after-tax benefit from the sale and abandonment of its FirstGuard health plans, which contributed $0.13 per share in the second quarter. The company also managed its Health Benefits Ratio (HBR) effectively, seeing improvements in Medicaid and SCHIP HBRs due to prior-year adverse development and strategic shifts. Financially, Centene ended the period with total assets of $1.05 billion, up from $895 million at year-end 2006. While current liabilities increased significantly, driven by medical claims and accounts payable, the company secured additional financing through a $175 million issuance of senior notes. This provides flexibility for future growth and operational needs. The company also maintained compliance with its regulatory capital requirements, with aggregate statutory capital and surplus exceeding minimums.

Key Highlights

  • 1Revenue surged by 46.9% for the quarter and 47.2% for the six-month period, driven by strong Medicaid Managed Care segment growth and acquisitions.
  • 2Net earnings saw a dramatic increase of 258.1% for the quarter and 307.8% for the six-month period, indicating significant operational improvements and benefits from asset disposals.
  • 3Diluted EPS improved substantially to $0.40 for the quarter and $1.25 for the six-month period, aided by a $0.13 per share benefit from the FirstGuard health plan activity.
  • 4The company's Health Benefits Ratio (HBR) improved for Medicaid and SCHIP members, reflecting better cost management and favorable comparisons to the prior year.
  • 5Total assets grew to $1.05 billion, with a significant increase in long-term investments, signaling strategic asset allocation.
  • 6The company issued $175 million in senior notes, strengthening its financial position and providing capital for general corporate purposes.
  • 7Centene maintained compliance with statutory capital requirements, demonstrating financial stability within its regulated operations.

Frequently Asked Questions

Centene's revenue growth was primarily driven by its Medicaid Managed Care segment, fueled by new contracts and acquisitions in states like Georgia and Ohio. The company also benefited from a strategic shift towards higher-premium SSI (Supplemental Security Income) memberships and general premium rate increases across its markets.

Centene's profitability improved significantly, with net earnings increasing by 258.1% for the quarter and 307.8% for the six-month period. This substantial improvement was largely due to strong revenue growth, effective management of the Health Benefits Ratio (HBR), and a notable after-tax benefit of $0.13 per share resulting from the sale and abandonment of its FirstGuard health plans.

As of June 30, 2007, Centene had total assets of $1.05 billion and total liabilities of $659 million. While the company experienced negative working capital due to increased long-term investments, it maintained significant cash and investments totaling $279.8 million in cash and short-term investments, plus $313.9 million in long-term investments. The company also secured financing through a $175 million senior note issuance, providing additional liquidity, and had $275.5 million available under its revolving credit facility.

Centene had two class action lawsuits filed against it and its officers/directors, which were consolidated and subsequently dismissed by the court on June 29, 2007. The company also noted a $3,700 fine levied by the Georgia Department of Community Health for alleged violations of prior authorization timeliness provisions, which Centene is appealing. The company generally does not expect the resolution of these or other routine legal proceedings to materially affect its financial position or results of operations.