10-QPeriod: Q1 FY2013

CENTENE CORP Quarterly Report for Q1 Ended Mar 31, 2013

Filed April 23, 2013For Securities:CNC

Summary

Centene Corporation's (CNC) Q1 2013 filing shows robust revenue and membership growth, driven by significant expansions in states like Texas, Mississippi, and Louisiana, as well as new contracts in Kansas and Missouri. Total revenues surged by 54.5% year-over-year to $2.65 billion, with premium and service revenues up 52.8%. Membership increased by a substantial 25% to nearly 2.7 million at-risk members. While the company experienced increased medical costs (Health Benefits Ratio of 90.4% vs. 88.2% in Q1 2012), largely attributed to higher flu costs and new business expenses, it effectively managed its General and Administrative expense ratio, which improved to 8.3% from 9.8% due to leveraging expenses over higher revenue. Operating cash flow turned positive, reaching $43 million, a significant improvement from a negative $32.1 million in the prior year's quarter, indicating better operational cash generation. The company also announced the acquisition of AcariaHealth, a specialty pharmacy, and several strategic contract wins and expansions expected to fuel future growth.

Financial Highlights

50 data points
Beta

Revenue

$2.52B

Net Income

$23.00M

0.9% Net Margin

EPS (Diluted)

$0.10

Total Assets

$2.89B

Cash & Equivalents

$730.79M

Free Cash Flow

$32.34M

Financial Statements
Beta
Revenue$2.52B
Operating Expenses$2.49B
Operating Income$39.60M
Interest Expense$6.63M
Net Income$23.00M
EPS (Basic)$0.11
EPS (Diluted)$0.10
Shares Outstanding (Basic)209.43M
Shares Outstanding (Diluted)217.07M

Key Highlights

  • 1Total revenues increased by 54.5% year-over-year to $2.65 billion.
  • 2At-risk managed care membership grew by 25% to 2,686,100 members.
  • 3Health Benefits Ratio (HBR) increased to 90.4% from 88.2% in the prior year quarter, primarily due to higher flu costs and new business.
  • 4General and Administrative (G&A) expense ratio improved to 8.3% from 9.8% due to expense leverage on higher revenues.
  • 5Operating cash flow turned positive, generating $43.0 million compared to a use of $32.1 million in the prior year.
  • 6Acquisition of AcariaHealth, a specialty pharmacy company, completed in April 2013 for approximately $146.2 million.
  • 7Positive outlook with multiple new contract awards and expansions expected to drive future growth.

Frequently Asked Questions

Centene's significant revenue growth was primarily driven by expansions in existing states like Texas, Mississippi, and Louisiana, along with new contracts secured in Kansas and Missouri, and Washington. The "pharmacy carve-in" in Texas and Louisiana also contributed to revenue increases.

Centene experienced an increase in its Health Benefits Ratio (HBR) to 90.4% from 88.2% year-over-year, attributed to higher flu costs and initial expenses from new business ventures. However, the company improved its General and Administrative expense ratio to 8.3% from 9.8% by leveraging fixed costs over higher revenues. Operating cash flow also turned positive, indicating improved expense management relative to cash generation.

The company has a strong growth outlook based on several factors. These include realizing the full year benefits from business commenced in 2012, the recent acquisition of AcariaHealth, and several new contract awards or expansions in California, Massachusetts, Florida, Illinois, Ohio, and New Hampshire. These initiatives are expected to contribute significantly to future membership and revenue growth.

Compared to Q1 2012, Centene saw a substantial increase in total revenues (up 54.5%) and membership (up 25%). While net earnings attributable to Centene Corporation slightly decreased by 4.1% to $23.0 million, diluted EPS fell to $0.42 from $0.45. The company's operating cash flow dramatically improved, turning positive from a negative position.