10-QPeriod: Q2 FY2008

CENTENE CORP Quarterly Report for Q2 Ended Jun 30, 2008

Filed July 22, 2008For Securities:CNC

Summary

Centene Corporation (CNC) reported a significant increase in total revenues for the second quarter and the first half of 2008, driven primarily by membership growth in its Medicaid Managed Care segment and expansion in its Specialty Services segment. The company saw a substantial rise in net earnings from continuing operations, more than doubling year-over-year for both periods, indicating improved operational efficiency and profitability. This growth is supported by new contracts, such as the Texas Foster Care program, and strategic acquisitions like PhyTrust and Physician’s Choice in South Carolina, and Access Health Solutions in Florida. The company also completed the acquisition of Celtic Insurance Company, expanding its reach into the individual health insurance market. Despite overall positive financial performance, the company's net earnings declined for the six-month period compared to the prior year, largely due to the cessation of significant benefits from discontinued operations in 2007. The balance sheet shows a healthy increase in cash and cash equivalents, coupled with a reduction in total liabilities. The company is actively managing its capital resources, including executing its stock repurchase program, and maintains compliance with regulatory capital requirements. Management remains focused on managing medical costs and G&A expenses while navigating a complex regulatory environment and potential future changes in government funding.

Key Highlights

  • 1Total revenues increased by 18.2% year-over-year for the three months ended June 30, 2008, and by 20.5% for the six months ended June 30, 2008.
  • 2Net earnings from continuing operations more than doubled year-over-year, increasing by 77.3% for the three months and 100.1% for the six months ended June 30, 2008.
  • 3Medicaid Managed Care membership grew by 6.7% year-over-year to 1,207,400 members as of June 30, 2008.
  • 4Acquisitions of PhyTrust, Physician’s Choice, and Access Health Solutions, along with new contracts like the Texas Foster Care program, contributed to revenue growth.
  • 5The acquisition of Celtic Insurance Company was completed on July 1, 2008, expanding the company's market presence.
  • 6Cash and cash equivalents increased significantly to $357.5 million as of June 30, 2008, up from $268.6 million at December 31, 2007.
  • 7The company's Health Benefits Ratio (HBR) remained relatively stable at 83.3% for the quarter and 83.1% for the six months, indicating effective cost management relative to revenue.

Frequently Asked Questions

Centene's revenue growth was driven by increased membership in its Medicaid Managed Care segment, particularly in states like Ohio and Texas, and by growth in its Specialty Services segment, fueled by its behavioral health and long-term care programs. Strategic acquisitions and new contracts also played a significant role.

Centene experienced a substantial improvement in profitability from continuing operations, with net earnings more than doubling year-over-year for both the three and six-month periods ending June 30, 2008. This improvement is attributed to revenue growth, effective cost management, and operational efficiencies.

The company's cash and cash equivalents saw a significant increase, reaching $357.5 million as of June 30, 2008. Total debt outstanding was $222.1 million. The company has access to a $300 million revolving credit facility and reported compliance with all covenants as of June 30, 2008.

Key risks include potential reductions in government funding for Medicaid, SCHIP, and SSI programs, changes in healthcare regulations, competition, the inability to renew state contracts, and the effective management of medical costs and claims liabilities. The company also faces risks related to its acquisition strategy and integration of new businesses.