10-QPeriod: Q3 FY2007

CENTENE CORP Quarterly Report for Q3 Ended Sep 30, 2007

Filed October 23, 2007For Securities:CNC

Summary

Centene Corporation (CNC) reported solid revenue growth for the nine months ended September 30, 2007, driven by its Medicaid Managed Care segment, which saw increased membership from new contracts in Texas and Ohio, and the acquisition of PhyTrust in South Carolina. Despite this growth, the company reported a net loss for the three months ended September 30, 2006, and a net earning for the same period in 2007. The company's financial performance is significantly influenced by government contracts and regulations. The company's balance sheet shows substantial growth in assets, particularly in long-term investments, and an increase in liabilities, primarily driven by medical claims and long-term debt, including new senior notes issued in March 2007. Centene's strategic focus remains on expanding its Medicaid Managed Care and Specialty Services segments, with several acquisition and contract opportunities highlighted.

Key Highlights

  • 1Total revenues increased by 18.8% to $749.9 million for the three months ended September 30, 2007, compared to the prior year period.
  • 2Net earnings for the three months ended September 30, 2007, were $15.9 million, a significant improvement from a net loss of $71.2 million in the same period of 2006.
  • 3The company issued $175 million in 7.25% Senior Notes in March 2007 to refinance existing indebtedness and for general corporate purposes.
  • 4Total assets grew to $1.086 billion as of September 30, 2007, up from $895.0 million as of December 31, 2006, driven by increases in investments and property, software, and equipment.
  • 5Medical claims liabilities increased to $316.6 million as of September 30, 2007, from $280.4 million at the end of 2006, reflecting new business and increased membership.
  • 6The company acquired a 49% stake in Access Health Solutions, LLC (Florida) and completed the acquisition of PhyTrust of South Carolina in April 2007.
  • 7Centene announced plans to locate its corporate headquarters in downtown St. Louis, Missouri, signing a letter of intent in September 2007.

Frequently Asked Questions

Centene Corporation operates in two main segments: Medicaid Managed Care and Specialty Services. Revenue is primarily generated through premiums received from government-subsidized programs like Medicaid and SCHIP for its managed care plans, and through contracts with various organizations for its specialty services, which include behavioral health, health management, and pharmacy benefits management.

For the three months ended September 30, 2007, Centene reported net earnings of $15.9 million, a substantial improvement from a net loss of $71.2 million in the same period of 2006. This turnaround is reflected in total revenues, which grew by 18.8% year-over-year to $749.9 million for the quarter.

In March 2007, Centene issued $175 million in aggregate principal amount of 7.25% Senior Notes due April 1, 2014. A portion of the proceeds was used to refinance approximately $150 million of existing indebtedness.

Centene's primary risks are related to its heavily regulated environment. These include potential reductions in government funding for Medicaid, SCHIP, and SSI programs, contract terminations or non-renewals by state agencies, changes in government regulations that could impact profitability, and the risk of adverse findings from government reviews and audits. Business-specific risks include managing medical costs, competition, provider relationships, and the successful execution of its acquisition strategy.