10-QPeriod: Q3 FY2015

CENTENE CORP Quarterly Report for Q3 Ended Sep 30, 2015

Filed October 27, 2015For Securities:CNC

Summary

Centene Corporation (CNC) reported robust financial performance for the third quarter and the first nine months of 2015, driven by significant membership growth across its managed care segments. Total revenues grew substantially year-over-year, reflecting expansions in key states and new program implementations. The company's Health Benefits Ratio (HBR) remained strong, demonstrating effective cost management. However, General and Administrative (G&A) expenses saw an increase, partly due to merger-related expenses for the anticipated acquisition of Health Net, Inc., and operational investments to support membership expansion. Financially, Centene saw a healthy increase in net earnings attributable to common shareholders, alongside growth in diluted earnings per share. The company's balance sheet strengthened with a notable increase in total assets, primarily driven by higher premium receivables and investments. The company also advanced its strategic growth initiatives, including significant acquisitions and expansion into new markets. Looking ahead, Centene is progressing with its planned acquisition of Health Net, which is expected to close in early 2016, and is confident in its ability to fund its operations and strategic initiatives.

Financial Highlights

51 data points
Beta

Revenue

$5.82B

Net Income

$93.00M

1.6% Net Margin

EPS (Diluted)

$0.38

Total Assets

$7.32B

Cash & Equivalents

$1.67B

Free Cash Flow

$19.00M

Financial Statements
Beta
Revenue$5.82B
Operating Expenses$5.64B
Operating Income$183.00M
Interest Expense$11.00M
Net Income$93.00M
EPS (Basic)$0.39
EPS (Diluted)$0.38
Shares Outstanding (Basic)238.24M
Shares Outstanding (Diluted)246.26M

Key Highlights

  • 1Total revenues increased by 31.4% year-over-year for the three months ended September 30, 2015, reaching $5.82 billion, and by 39.1% for the nine months ended September 30, 2015, reaching $16.46 billion.
  • 2Managed care membership grew by 24% year-over-year to 4.83 million members as of September 30, 2015.
  • 3Net earnings attributable to Centene Corporation increased by 13.4% to $93 million for the three months ended September 30, 2015, and by 48.8% to $244 million for the nine months ended September 30, 2015.
  • 4Diluted earnings per share (EPS) from continuing operations were $0.75 for the three months ended September 30, 2015, up from $0.67 in the prior year period, and $1.99 for the nine months ended September 30, 2015, up from $1.35 in the prior year period.
  • 5The company announced a definitive agreement to acquire Health Net, Inc. for approximately $6.8 billion, expected to close in early 2016.
  • 6Acquisitions of LiveHealthier, Inc., Fidelis SecureCare of Michigan, Inc., and Agate Resources, Inc. were completed, expanding Centene's capabilities and market presence.
  • 7Total assets increased to $7.32 billion as of September 30, 2015, from $5.82 billion as of December 31, 2014, driven by growth in premium receivables and investments.

Frequently Asked Questions

Centene's significant revenue growth is primarily driven by a substantial increase in managed care membership, which rose by 24% year-over-year to 4.83 million members. This growth is further supported by expansions and new programs in various states, including Florida, Illinois, Louisiana, Mississippi, Ohio, and Texas.

Centene's Health Benefits Ratio (HBR) for the third quarter of 2015 was 89.0%, a slight improvement from 89.7% in the prior year's period. This indicates effective management of medical costs relative to premium revenues. The company attributes the improvement to a lower HBR associated with new Medicaid expansion programs and a shift in new business mix towards lower-HBR Medicaid expansion programs.

While the acquisition of Health Net is a significant strategic development expected to close in early 2016, it had a direct financial impact on Centene's current results primarily through merger-related expenses. For the three months ended September 30, 2015, these expenses amounted to approximately $18 million, reducing diluted EPS by $0.09. For the nine months ended September 30, 2015, these expenses totaled approximately $20 million, reducing diluted EPS by $0.10.

Centene's financial position shows robust growth. Total assets increased to $7.32 billion by September 30, 2015, from $5.82 billion at the end of 2014. This growth is largely due to an increase in premium and related receivables and long-term investments. Liabilities also increased, primarily driven by a higher medical claims liability reflecting membership growth. Despite increased leverage from recent debt issuances to support growth and acquisitions, the company maintains adequate liquidity.