10-QPeriod: Q1 FY2009

CENTENE CORP Quarterly Report for Q1 Ended Mar 31, 2009

Filed April 28, 2009For Securities:CNC

Summary

Centene Corporation's (CNC) first quarter 2009 results show a notable increase in total revenues, driven by membership growth and premium rate adjustments, alongside expansion in its Specialty Services segment. However, the company experienced a decrease in net earnings attributable to Centene Corporation shareholders, primarily due to increased medical costs and a shift in investment income. Significant acquisitions and consolidations, including Access Health Solutions, are impacting the balance sheet and operational structure. The company is actively managing its liquidity and capital resources, which are considered sufficient for at least the next 12 months, supported by operating cash flows and available credit facilities. However, a negative working capital of $(44.2) million at quarter-end warrants attention, attributed to increased long-term investments and reclassification of debt. Centene also faces ongoing legal proceedings and regulatory scrutiny inherent in the managed care industry, which are detailed as risk factors.

Key Highlights

  • 1Total revenues increased by 19.7% to $932.4 million for the three months ended March 31, 2009, compared to $779.2 million in the prior year period.
  • 2Net earnings attributable to Centene Corporation decreased by 28.0% to $18.5 million for the quarter, down from $25.6 million in the same period last year.
  • 3At-risk membership grew to 1,247,300 as of March 31, 2009, an increase of 16.6% year-over-year, reflecting successful contract wins and acquisitions.
  • 4Goodwill increased significantly from $163.4 million to $218.2 million, primarily due to the consolidation of Access Health Solutions and other acquisitions.
  • 5The Health Benefits Ratio (HBR) slightly increased to 83.5% from 82.7%, with management noting a decrease when adjusted for a retroactive Georgia premium rate increase in the prior year.
  • 6General and Administrative (G&A) expense ratio increased to 13.5% from 12.6%, attributed to new business initiatives and the consolidation of Access.
  • 7The company reported negative working capital of $(44.2) million as of March 31, 2009, a shift from positive working capital of $25.4 million at the end of 2008.

Frequently Asked Questions

Total revenues increased by 19.7% to $932.4 million, driven by membership growth across various states (notably Florida, Indiana, South Carolina, and Texas), premium rate increases, and growth in the Specialty Services segment due to new contracts and acquisitions like Celtic.

Net earnings attributable to Centene Corporation decreased by 28.0% to $18.5 million. This was primarily due to a significant increase in medical costs (up 21.3%) and a decrease in investment and other income, which was partially offset by a lower income tax expense.

The consolidation of Access Health Solutions beginning January 1, 2009, led to a significant increase in goodwill (approximately $44.6 million) and other identified intangible assets. It also resulted in the presentation of a noncontrolling interest within stockholders' equity and a decrease in 'Earnings from equity method investee' within other income (expense).

Centene's liquidity appears sufficient, with $23.4 million in net cash provided by operating activities for the quarter. Cash, cash equivalents, and short-term investments totaled $410.0 million. The company expects available cash, operations, and its credit facility to cover at least the next 12 months, although negative working capital requires monitoring.