CENTENE CO. ST. LOUIS, Oct. 25, 2016 /PRNewswire/ -- Centene Corporation (NYSE: CNC) today announced its financial results for the third quarter ended September 30, 2016. The following discussions, with the exception of cash flow information, are in the context of continuing operations.
For the third quarter of 2016, we reported diluted earnings per share (EPS) of $0.84 and adjusted diluted EPS (Adjusted diluted EPS) of $1.11 when excluding Health Net acquisition related expenses and amortization of acquired intangible assets. The third quarter of 2016 includes a $0.05 diluted EPS charge related to a revised reconciliation of the 2015 risk adjustment in Arizona. During the third quarter, we received information from the Centers for Medicare and Medicaid Services (CMS) that some of the participants in the Arizona risk adjustment program were unable to pay the amounts owed to the Federal government associated with the 2015 risk adjustment reconciliation. As a result, the uncollected risk adjustment was pro-rated to all insurers in the market. Accordingly, we recorded a charge of $0.05 per diluted share recognizing our portion of the risk adjustment that will not be collected, which reduces the $0.19 diluted EPS benefit recorded in the second quarter. A summary of diluted EPS is highlighted below:
GAAP diluted EPS $0.84
Health Net acquisition related
expenses 0.12
Amortization of acquired
intangible assets 0.15
Adjusted diluted EPS 1.11
2015 risk adjustment charge 0.05
Total $1.16
=====
During the third quarter of 2016, we continued to make progress on resolving the issues associated with the Health Net premium deficiency reserve. Specifically, we took the following actions:
-- We reduced our estimate of the costs associated with the substance abuse
claims from $50 million to $35 million for the period from March 24,
2016 through December 31, 2016. We continue to review substance abuse
claim submissions and have lowered our estimate based on our experience
through the third quarter. This adjustment had no impact on earnings.
-- As previously disclosed, we finalized our 2017 product design and
premium rate filing with the California Department of Insurance
associated with the individual preferred provider organization (PPO) and
exclusive provider organization products. We believe the final product
design and rate adjustments will attract a balanced mix of membership to
ensure the product is competitive. Additionally, we continue to identify
medical management and network initiatives to further improve
performance.
-- We will exit the Arizona individual PPO business, effective January 1,
2017, which represents approximately $32 million of the $70 million 2016
Arizona individual premium deficiency reserve. Additionally, we will be
the only carrier in Maricopa County and will continue our presence in
Pima County for 2017. For 2017, based on our product designs and rate
increases, we expect the Arizona Health Insurance Marketplace to operate
within our normal marketplace margins.
-- We have taken various rate and product design actions in the small group
business and continue to expect our Medicare and Arizona Medicaid
business to be profitable in 2017.
As a result of the above actions, we believe we have resolved the issues associated with the premium deficiency reserve for 2017.
In summary, the 2016 third quarter results were as follows:
Total revenues (in millions) $10,846
Health benefits ratio 87.0%
General & administrative expense
ratio 9.2%
General & administrative expense
ratio, excluding Health Net
acquisition related expenses 9.1%
GAAP diluted EPS $0.84
Adjusted diluted EPS $1.11
Total cash flow provided by
operations (in millions) $480
--------------------------- ----
Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "We remain focused on successfully integrating Health Net and positioning Centene to continue its track record of achieving profitable growth."
Third Quarter Highlights
-- September 30, 2016 managed care membership of 11.4 million, an increase
of 6.6 million members, or 137% compared to the third quarter of 2015.
-- Total revenues for the third quarter of 2016 of $10.8 billion,
representing 86% growth compared to the third quarter of 2015.
-- Health benefits ratio of 87.0% for the third quarter of 2016, compared
to 89.0% in the third quarter of 2015.
-- General and administrative expense ratio of 9.2%, or 9.1% excluding
Health Net acquisition related expenses for the third quarter of 2016,
compared to 8.4% in the third quarter of 2015.
-- Operating cash flow of $480 million for the third quarter of 2016, or
3.3x net earnings.
-- Diluted EPS for the third quarter of 2016 of $0.84, or $1.11 of Adjusted
diluted EPS. Both third quarter amounts included a charge of $0.05
associated with a revised reconciliation of the 2015 risk adjustment. In
comparison, diluted EPS for the third quarter of 2015 was $0.75, or
$0.87 Adjusted diluted EPS.
Other Events
-- In October 2016, our subsidiary, Home State Health, was selected to
provide managed care services to MO HealthNet Managed Care
beneficiaries. Under the new contract, Home State Health expects to
serve MO HealthNet Managed Care beneficiaries in all 114 counties in
Missouri. The contract is expected to commence May 1, 2017, pending
regulatory approval.
-- In September 2016, the Alabama legislature approved the funding needed
to create its regional care organization (RCO) structure. Our
subsidiary, AHA Administrative Services, has contracted with five
nonprofit RCOs in Alabama to provide management services. Operations are
expected to commence July 1, 2017.
-- In August 2016, our Pennsylvania subsidiary, Pennsylvania Health &
Wellness, was selected by the department of Human Services and Aging to
serve enrollees in the Community HealthChoices program statewide.
Expected contract commencement dates vary by zone, starting July 2017,
and will be fully implemented by January 2019, pending regulatory
approval.
Accreditations & Awards
-- In October 2016, our Kansas subsidiary, Sunflower Health Plan, received
Accreditation with a Commendable status from the National Committee for
Quality Assurance.
-- In August 2016, our subsidiaries, Envolve, Inc. and Envolve PeopleCare
received honors at this year's National Health Information Awards.
Envolve, Inc. received the merit award for the pamphlet Brush with
Wisdom, while Envolve PeopleCare's Raising Well campaign won gold in the
Health Information Program category.
Membership
The following table sets forth the Company's membership by state for its managed care organizations:
September 30,
-------------
2016 2015
---- ----
Arizona 601,500 223,600
Arkansas 57,700 40,900
California 3,004,500 183,900
Florida 732,700 486,500
Georgia 498,000 406,700
Illinois 236,700 211,300
Indiana 289,600 276,700
Kansas 145,100 137,500
Louisiana 455,600 358,800
Massachusetts 45,300 63,700
Michigan 2,100 6,600
Minnesota 9,400 9,400
Mississippi 313,900 301,000
Missouri 104,700 88,400
New Hampshire 78,400 71,900
New Mexico 7,100 -
Ohio 319,500 308,100
Oregon 218,400 99,800
South Carolina 119,700 104,800
Tennessee 21,600 20,200
Texas 1,041,600 976,500
Vermont 1,700 1,500
Washington 240,500 208,600
Wisconsin 75,100 78,100
------ ------
Total at-risk membership 8,620,400 4,664,500
TRICARE eligibles 2,815,700 -
Non-risk membership - 169,900
--- -------
Total 11,436,100 4,834,400
========== =========
The following table sets forth our membership by line of business:
September 30,
-------------
2016 2015
---- ----
Medicaid:
TANF, CHIP & Foster Care 5,583,900 3,719,900
ABD & LTC 754,900 473,700
Behavioral Health 465,300 216,700
Commercial 1,365,600 155,600
Medicare & Duals 300,900 39,300
Correctional 149,800 59,300
------- ------
Total at-risk membership 8,620,400 4,664,500
TRICARE eligibles 2,815,700 -
Non-risk membership - 169,900
--- -------
Total 11,436,100 4,834,400
========== =========
At September 30, 2016, the Company served 1,048,500 members in Medicaid expansion programs in ten states, compared to 442,600 members in eight states at September 30, 2015. At September 30, 2016, the Company served 369,300 dual-eligible members, compared to 200,900 at September 30, 2015. At September 30, 2016, the Company served 582,600 members in Health Insurance Marketplaces, compared to 155,600 at September 30, 2015.
Statement of Operations: Three Months Ended September 30, 2016
-- For the third quarter of 2016, total revenues increased 86% to $10.8
billion from $5.8 billion in the comparable period in 2015 and decreased
sequentially from $10.9 billion in the second quarter of 2016. The
increase over prior year was primarily as a result of the acquisition of
Health Net, as well as the impact from expansions and new programs in
many of our states in 2015 and 2016 and growth in the Health Insurance
Marketplace business in 2016. The decrease in revenue over the second
quarter of 2016 is primarily a result of lower commercial membership
driven by Health Insurance Marketplace attrition and lower California
Medicaid membership driven by the state's annual eligibility
redetermination process, partially offset by increased revenue due to
the commencement of Medicaid expansion in Louisiana.
-- HBR of 87.0% for the third quarter of 2016 represents a decrease from
89.0% in the comparable period in 2015 and an increase from 86.6% in the
second quarter of 2016. The year over year HBR decrease is primarily
attributable to the acquisition of Health Net, which operates at a lower
HBR due to a greater mix of commercial business. The sequential increase
is due to normal seasonality.
-- G&A expense ratio of 9.2%, or 9.1% excluding Health Net acquisition
related expenses, for the third quarter of 2016, compared to 8.4%, or
8.1% excluding Health Net acquisition related expenses, in the third
quarter of 2015. The increase in the G&A expense ratio is primarily
attributable to the addition of the Health Net business, which operates
at a higher G&A ratio due to a greater mix of commercial and Medicare
business.
-- Diluted EPS for the third quarter of 2016 of $0.84, or $1.11 of Adjusted
diluted EPS, both including a $0.05 diluted EPS charge related to a
revised reconciliation of the 2015 risk adjustment under the ACA in
connection with our Health Insurance Marketplace business. In
comparison, diluted EPS for the third quarter of 2015 was $0.75, or
$0.87 Adjusted diluted EPS.
Balance Sheet and Cash Flow
At September 30, 2016, the Company had cash, investments and restricted deposits of $8.1 billion, including $268 million held by its unregulated entities. Medical claims liabilities totaled $3.8 billion. The Company's days in claims payable was 41. Total debt was $4.6 billion, which includes $300 million of borrowings on the $1.0 billion revolving credit facility at quarter-end. The debt to capitalization ratio was 44.1% at September 30, 2016, excluding the $65 million non-recourse mortgage note.
Cash flow provided by operations for the three months ended September 30, 2016, was $480 million. The cash provided by operating activities in 2016 primarily reflects net earnings and an increase in unearned revenue.
A reconciliation of the Company's change in days in claims payable from the immediately preceding quarter-end is presented below:
Days in claims payable, June
30, 2016 43
Payment of annual provider
risk share settlement (1)
Timing of claims payments (1)
---
Days in claims payable,
September 30, 2016 41
===
Outlook
The Company has adjusted its GAAP and Adjusted diluted EPS guidance ranges reflecting the charge associated with the 2015 Arizona risk adjustment reconciliation recorded in the third quarter. The table below depicts the Company's updated annual guidance for 2016.
Full Year 2016
--------------
Low High
--- ----
Total revenues (in billions) $39.4 $40.0
GAAP diluted EPS $2.73 $2.83
Adjusted diluted EPS (1) $4.28 $4.38
HBR 87.0% 87.5%
G&A expense ratio 9.4% 9.9%
G&A expense ratio, excluding
acquisition related costs (2) 9.0% 9.5%
Effective tax rate 54.5% 56.5%
Diluted shares outstanding (in
millions) 162.5 163.5
(1)Adjusted diluted EPS excludes
Health Net acquisition related
expenses of $1.00 to $1.05 per
diluted share and amortization of
acquired intangible assets of
$0.50 to $0.55 per diluted share.
(2)The G&A expense ratio excludes
Health Net acquisition related
expenses of approximately $225
million to $240 million.
The guidance above implies a fourth quarter GAAP diluted EPS guidance range of $0.83 to $0.93 and Adjusted diluted EPS guidance range of $1.05 to $1.15.
Conference Call
As previously announced, the Company will host a conference call Tuesday, October 25, 2016, at 8:30 AM (Eastern Time) to review the financial results for the third quarter ended September 30, 2016, and to discuss its business outlook. Michael Neidorff and Jeffrey Schwaneke will host the conference call.
Investors and other interested parties are invited to listen to the conference call by dialing 1-877-883-0383 in the U.S. and Canada; +1-412-902-6506 from abroad, including the following Elite Entry Number: 2467001 to expedite caller registration; or via a live, audio webcast on the Company's website at www.centene.com, under the Investors section.
A webcast replay will be available for on-demand listening shortly after the completion of the call for the next twelve months or until 11:59 PM (Eastern Time) on Tuesday, October 24, 2017, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 AM Eastern Time on Tuesday, November 1, 2016, by dialing 1-877-344-7529 in the U.S. and Canada, or +1-412-317-0088 from abroad, and entering access code 10093224.
Non-GAAP Financial Presentation
The Company is providing certain non-GAAP financial measures in this release as the Company believes that these figures are helpful in allowing investors to more accurately assess the ongoing nature of the Company's operations and measure the Company's performance more consistently across periods. The Company uses the presented non-GAAP financial measures internally to allow management to focus on period-to-period changes in the Company's core business operations. Therefore, the Company believes that this information is meaningful in addition to the information contained in the GAAP presentation of financial information. The presentation of this additional non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.
Specifically, the Company believes the presentation of non-GAAP financial information that excludes Health Net acquisition related expenses and amortization of acquired intangible assets allows investors to develop a more meaningful understanding of the Company's performance over time. The tables below provide a reconciliation of non-GAAP items ($ in millions, except per share data):
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2016 2015 2016 2015
---- ---- ---- ----
GAAP general and
administrative
expenses $940 $458 $2,611 $1,291
Health Net
acquisition related
expenses 10 18 224 20
--- ---
General and
administrative
expenses, excluding
Health Net
acquisition related
expenses $930 $440 $2,387 $1,271
==== ==== ====== ======
GAAP net earnings
from continuing
operations $146 $92 $300 $244
Health Net
acquisition related
expenses 10 18 224 20
Amortization of
acquired intangible
assets 43 6 95 18
Income tax effects
of adjustments (1) (5) (9) (106) (14)
Adjusted net
earnings from
continuing
operations $194 $107 $513 $268
==== ==== ==== ====
Three Months Ended Nine Months Ended Annual
September 30, September 30, Guidance
December 31,
2016
----
2016 2015 2016 2015
---- ---- ---- ----
GAAP diluted EPS $0.84 $0.75 $1.89 $1.99 $2.73 - $2.83
Health Net
acquisition related
expenses (2) 0.12 0.09 0.98 0.10 $1.00 - $1.05
Amortization of
acquired intangible
assets (3) 0.15 0.03 0.36 0.09 $0.50 - $0.55
---- ---- -------------
Adjusted diluted EPS $1.11 $0.87 $3.23 $2.18 $4.28 - $4.38
===== ===== ===== ===== =============
(1) The income tax effects of
adjustments are based on the
effective income tax rates
applicable to adjusted (non-GAAP)
results. The amounts are based on
the annual estimated effective
income tax rate that would
increase or decrease based on the
exclusion of these expenses.
(2) The Health Net acquisition related
expenses per diluted share
presented above are net of the
income tax benefit (expense) of
$(0.06) and $0.05 for the three
months ended September 30, 2016
and 2015, respectively, and $0.44
and $0.06 for the nine months
ended September 30, 2016 and 2015,
respectively; and estimated $0.37
to $0.41 for the year ended
December 31, 2016.
(3) The amortization of acquired
intangible assets per diluted
share presented above are net of
the income tax benefit of $0.09
and $0.02 for the three months
ended September 30, 2016 and 2015,
respectively, and $0.23 and $0.05
for the nine months ended
September 30, 2016 and 2015,
respectively; and estimated $0.31
to $0.35 for the year ended
December 31, 2016.
About Centene Corporation
Centene Corporation is a diversified, multi-national healthcare enterprise that provides a portfolio of services to government sponsored healthcare programs, focusing on under-insured and uninsured individuals. Many receive benefits provided under Medicaid, including the State Children's Health Insurance Program (CHIP), as well as Aged, Blind or Disabled (ABD), Foster Care and Long Term Care (LTC), in addition to other state-sponsored programs, Medicare (including the Medicare prescription drug benefit commonly known as "Part D"), dual eligible programs and programs with the U.S. Department of Defense and U.S. Department of Veterans Affairs. Centene also provides healthcare services to groups and individuals delivered through commercial health plans. Centene operates local health plans and offers a range of health insurance solutions. It also contracts with other healthcare and commercial organizations to provide specialty services including behavioral health management, care management software, correctional healthcare services, dental benefits management, in-home health services, life and health management, managed vision, pharmacy benefits management, specialty pharmacy and telehealth services.
Centene uses its investor relations website to publish important information about the Company, including information that may be deemed material to investors. Financial and other information about Centene is routinely posted and is accessible on Centene's investor relations website, http://www.centene.com/investors.
Forward-Looking Statements
The company and its representatives may from time to time make written and oral forward-looking statements within the meaning of the Private Securities Litigation Reform Act ("PSLRA") of 1995, including statements in this and other press releases, in presentations, filings with the Securities and Exchange Commission ("SEC"), reports to stockholders and in meetings with investors and analysts. In particular, the information provided in this press release may contain certain forward-looking statements with respect to the financial condition, results of operations and business of Centene and certain plans and objectives of Centene with respect thereto, including but not limited to the expected benefits of the acquisition of Health Net, Inc.. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Without limiting the foregoing, forward-looking statements often use words such as "anticipate", "seek", "target", "expect", "estimate", "intend", "plan", "goal", "believe", "hope", "aim", "continue", "will", "may", "can", "would", "could" or "should" or other words of similar meaning or the negative thereof. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in PSLRA. A number of factors, variables or events could cause actual plans and results to differ materially from those expressed or implied in forward-looking statements. Such factors include, but are not limited to, Centene's ability to accurately predict and effectively manage health benefits and other operating expenses and reserves; competition; membership and revenue declines or unexpected trends; changes in healthcare practices, new technologies and advances in medicine; increased health care costs; inflation; foreign currency fluctuations; tax matters; availability of debt and equity financing, on terms that are favorable to Centene; disasters or major epidemics; changes in economic, political or market conditions; the outcome of legal or regulatory proceedings; changes in federal or state laws or regulations, including the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act and any regulations enacted thereunder; changes in expected contract start dates; provider, state, federal and other contract changes and timing of regulatory approval of contracts; the expiration, suspension or termination of Centene's contracts with federal or state governments (including but not limited to Medicaid, Medicare, and TRICARE); challenges to Centene's contract awards; rate cuts or other payment reductions or delays by governmental payors and other risks and uncertainties affecting Centene's government businesses; Centene's ability to adequately price products on federally facilitated and state based Health Insurance Marketplaces; cyber-attacks or other privacy or data security incidents; the possibility that the expected synergies and value creation from acquired businesses, including, without limitation, the Health Net acquisition, will not be realized, or will not be realized within the expected time period, including, but not limited to, as a result of conditions, terms, obligations or restrictions imposed by regulators in connection with their approval of, or consent to, the acquisition; the exertion of management's time and Centene's resources, and other expenses incurred and business changes required in connection with complying with the undertakings in connection with certain regulatory approvals; disruption from the acquisition making it more difficult to maintain business and operational relationships; the risk that unexpected costs will be incurred in connection with, among other things, the acquisition and/or the integration; changes in expected closing dates, estimated purchase price and accretion for acquisitions; the risk that acquired businesses will not be integrated successfully; Centene's ability to maintain or achieve improvement in CMS Star ratings and other quality scores that impact revenue; and risks and uncertainties discussed in the reports that Centene has filed with the SEC. These forward-looking statements reflect Centene's current views with respect to future events and are based on numerous assumptions and assessments made by Centene in light of its experience and perception of historical trends, current conditions, business strategies, operating environments, future developments and other factors it believes appropriate. By their nature, forward-looking statements involve known and unknown risks and uncertainties and are subject to change because they relate to events and depend on circumstances that will occur in the future. The factors described in the context of such forward-looking statements in this press release could cause Centene's plans with respect to the Health Net acquisition, actual results, performance or achievements, industry results and developments to differ materially from those expressed in or implied by such forward-looking statements. Although it is currently believed that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct and persons reading this press release are therefore cautioned not to place undue reliance on these forward-looking statements which speak only as of the date of this press release. Centene does not assume any obligation to update the information contained in this press release (whether as a result of new information, future events or otherwise), except as required by applicable law. This list of important factors is not intended to be exhaustive. We discuss certain of these matters more fully, as well as certain other risk factors that may affect Centene's business operations, financial condition and results of operations, in Centene's filings with the SEC, including the annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
[Tables Follow]
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
September 30, 2016 December 31, 2015
------------------ -----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $2,982 $1,760
Premium and related receivables 3,445 1,279
Short term investments 406 176
Other current assets 922 390
--- ---
Total current assets 7,755 3,605
Long term investments 4,568 1,927
Restricted deposits 137 115
Property, software and equipment, net 725 518
Goodwill 4,730 842
Intangible assets, net 1,566 155
Other long term assets 153 177
--- ---
Total assets $19,634 $7,339
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Medical claims liability $3,767 $2,298
Accounts payable and accrued expenses 3,187 976
Return of premium payable 651 207
Unearned revenue 573 143
Current portion of long term debt 845 5
--- ---
Total current liabilities 9,023 3,629
Long term debt 3,744 1,216
Other long term liabilities 995 170
--- ---
Total liabilities 13,762 5,015
Commitments and contingencies
Redeemable noncontrolling interests 148 156
Stockholders' equity:
Preferred stock, $0.001 par value;
authorized 10,000,000 shares; no shares
issued or outstanding at September 30,
2016 and December 31, 2015 - -
Common stock, $0.001 par value;
authorized 400,000,000 shares;
176,467,825 issued and 170,860,752
outstanding at September 30, 2016, and
126,855,477 issued and 120,342,981
outstanding at December 31, 2015 - -
Additional paid-in capital 4,154 956
Accumulated other comprehensive earnings
(loss) 46 (10)
Retained earnings 1,655 1,358
Treasury stock, at cost (5,607,073 and
6,512,496 shares, respectively) (145) (147)
---- ----
Total Centene stockholders' equity 5,710 2,157
Noncontrolling interest 14 11
--- ---
Total stockholders' equity 5,724 2,168
----- -----
Total liabilities and stockholders'
equity $19,634 $7,339
======= ======
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2016 2015 2016 2015
---- ---- ---- ----
Revenues:
Premium $9,625 $4,983 $25,299 $13,974
Service 590 480 1,603 1,434
--- --- ----- -----
Premium and service revenues 10,215 5,463 26,902 15,408
Premium tax and health insurer fee 631 358 1,794 1,050
--- --- ----- -----
Total revenues 10,846 5,821 28,696 16,458
------ ----- ------ ------
Expenses:
Medical costs 8,376 4,433 22,072 12,475
Cost of services 504 413 1,386 1,234
General and administrative expenses 940 458 2,611 1,291
Amortization of acquired intangible
assets 43 6 95 18
Premium tax expense 512 274 1,460 794
Health insurer fee expense 129 54 333 161
--- --- --- ---
Total operating expenses 10,504 5,638 27,957 15,973
------ ----- ------ ------
Earnings from operations 342 183 739 485
Other income (expense):
Investment and other income 33 8 80 27
Interest expense (57) (11) (142) (32)
--- --- ---- ---
Earnings from continuing operations,
before income tax expense 318 180 677 480
Income tax expense 171 87 376 234
--- --- --- ---
Earnings from continuing operations, net
of income tax expense 147 93 301 246
Discontinued operations, net of income
tax benefit (1) 1 (3) -
Net earnings 146 94 298 246
(Earnings) attributable to
noncontrolling interests (1) (1) (1) (2)
--- --- --- ---
Net earnings attributable to Centene
Corporation $145 $93 $297 $244
==== === ==== ====
Amounts attributable to Centene Corporation common shareholders:
Earnings from continuing operations, net
of income tax expense $146 $92 $300 $244
Discontinued operations, net of income
tax benefit (1) 1 (3) -
Net earnings $145 $93 $297 $244
==== === ==== ====
Net earnings (loss) per common share attributable to Centene Corporation:
Basic:
Continuing operations $0.85 $0.77 $1.93 $2.05
Discontinued operations - 0.01 (0.02) -
Basic earnings per common share $0.85 $0.78 $1.91 $2.05
===== ===== ===== =====
Diluted:
Continuing operations $0.84 $0.75 $1.89 $1.99
Discontinued operations (0.01) 0.01 (0.02) -
Diluted earnings per common share $0.83 $0.76 $1.87 $1.99
===== ===== ===== =====
Weighted average number of common shares outstanding:
Basic 170,774,587 119,121,524 155,680,769 118,970,853
Diluted 174,312,416 123,131,810 158,960,068 122,904,476
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Nine Months Ended September 30,
-------------------------------
2016 2015
---- ----
Cash flows from operating
activities:
Net earnings $298 $246
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and
amortization 189 82
Stock
compensation
expense 112 48
Deferred income
taxes (17) (14)
Gain on
contingent
consideration (2) (37)
Goodwill and
intangible
adjustment - 28
Changes in assets and
liabilities
Premium and
related
receivables (906) (360)
Other current
assets (81) (103)
Medical claims
liabilities 15 394
Unearned revenue 301 (104)
Accounts payable
and accrued
expenses 99 209
Other long term
liabilities 156 101
Other operating
activities, net 91 (33)
--- ---
Net cash
provided by
operating
activities 255 457
--- ---
Cash flows from investing
activities:
Capital
expenditures (211) (101)
Purchases of
investments (1,528) (1,077)
Sales and
maturities of
investments 955 418
Investments in
acquisitions,
net of cash
acquired (848) (16)
Other investing
activities, net - 7
--- ---
Net cash used in
investing
activities (1,632) (769)
------ ----
Cash flows from financing
activities:
Proceeds from
borrowings 6,956 1,305
Payment of long
term debt (4,257) (910)
Common stock
repurchases (29) (9)
Purchase of
noncontrolling
interest (14) -
Debt issue costs (59) (4)
Other financing
activities, net 1 (15)
Net cash
provided by
financing
activities 2,598 367
----- ---
Effect of
exchange rate
changes on cash
and cash
equivalents 1 -
--- ---
Net increase in
cash and cash
equivalents 1,222 55
----- ---
Cash and cash
equivalents,
beginning of
period 1,760 1,610
----- -----
Cash and cash
equivalents,
end of period $2,982 $1,665
====== ======
Supplemental disclosures of cash
flow information:
Interest paid $113 $28
Income taxes
paid $394 $229
Equity issued in
connection with
acquisitions $3,105 $12
CENTENE CORPORATION
SUPPLEMENTAL FINANCIAL DATA FROM CONTINUING OPERATIONS
Q3 Q2 Q1 Q4 Q3
2016 2016 2016 2015 2015
---- ---- ---- ---- ----
MANAGED CARE MEMBERSHIP BY STATE
Arizona 601,500 597,700 607,000 440,900 223,600
Arkansas 57,700 52,800 50,700 41,900 40,900
California 3,004,500 3,097,600 3,125,400 186,000 183,900
Florida 732,700 726,200 660,800 510,400 486,500
Georgia 498,000 493,300 495,500 408,600 406,700
Illinois 236,700 234,700 239,100 207,500 211,300
Indiana 289,600 291,000 290,300 282,100 276,700
Kansas 145,100 144,800 141,100 141,000 137,500
Louisiana 455,600 375,300 381,200 381,900 358,800
Massachusetts 45,300 47,100 52,400 61,500 63,700
Michigan 2,100 2,200 2,600 4,800 6,600
Minnesota 9,400 9,500 9,500 9,600 9,400
Mississippi 313,900 323,800 328,300 302,200 301,000
Missouri 104,700 102,900 100,000 95,100 88,400
New Hampshire 78,400 79,700 81,500 71,400 71,900
New Mexico 7,100 7,100 - - -
Ohio 319,500 319,000 314,000 302,700 308,100
Oregon 218,400 221,500 209,000 98,700 99,800
South Carolina 119,700 113,700 107,700 104,000 104,800
Tennessee 21,600 20,800 20,100 20,000 20,200
Texas 1,041,600 1,037,000 1,036,700 983,100 976,500
Vermont 1,700 1,600 1,500 1,700 1,500
Washington 240,500 239,700 226,500 209,400 208,600
Wisconsin 75,100 76,100 78,400 77,100 78,100
------ ------ ------ ------ ------
Total at-risk membership 8,620,400 8,615,100 8,559,300 4,941,600 4,664,500
TRICARE eligibles 2,815,700 2,815,700 2,819,700 - -
Non-risk membership - - 161,400 166,300 169,900
---
Total 11,436,100 11,430,800 11,540,400 5,107,900 4,834,400
========== ========== ========== ========= =========
Medicaid:
TANF, CHIP & Foster Care 5,583,900 5,541,200 5,464,200 3,763,400 3,719,900
ABD & LTC 754,900 757,500 757,600 478,600 473,700
Behavioral Health 465,300 455,800 456,500 456,800 216,700
Commercial 1,365,600 1,423,400 1,518,900 146,100 155,600
Medicare & Duals 300,900 300,700 303,100 37,400 39,300
Correctional 149,800 136,500 59,000 59,300 59,300
------- ------- ------ ------ ------
Total at-risk membership 8,620,400 8,615,100 8,559,300 4,941,600 4,664,500
TRICARE eligibles 2,815,700 2,815,700 2,819,700 - -
Non-risk membership - - 161,400 166,300 169,900
---
Total 11,436,100 11,430,800 11,540,400 5,107,900 4,834,400
========== ========== ========== ========= =========
NUMBER OF EMPLOYEES 29,400 28,900 28,000 18,200 17,100
Q3 Q2 Q1 Q4 Q3
2016 2016 2016 2015 2015
---- ---- ---- ---- ----
DAYS IN CLAIMS PAYABLE (a) 41 43 66 44 45
(a) Days in claims payable is a calculation of medical claims liabilities at the end of the period divided by average claims expense per calendar day for such period. On a pro-forma basis, DCP for Q1 2016 was 42, reflecting adjusted medical costs to
include a full quarter of Health Net operations.
CASH, INVESTMENTS AND RESTRICTED DEPOSITS (in millions)
Regulated $7,825 $7,324 $7,682 $3,900 $3,834
Unregulated 268 196 139 78 91
--- --- --- --- ---
Total $8,093 $7,520 $7,821 $3,978 $3,925
====== ====== ====== ====== ======
DEBT TO CAPITALIZATION 44.5% 44.8% 44.6% 36.0% 38.4%
DEBT TO CAPITALIZATION
EXCLUDING NON-RECOURSE DEBT
(b) 44.1% 44.4% 44.3% 34.7% 37.1%
(b) The non-recourse debt represents the Company's mortgage note payable ($65 million at September 30, 2016).
Debt to capitalization is calculated as follows: total debt divided by (total debt + total equity).
OPERATING RATIOS
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2016 2015 2016 2015
---- ---- ---- ----
Health
benefits
ratio 87.0% 89.0% 87.2% 89.3%
General &
administrative
expense
ratio 9.2% 8.4% 9.7% 8.4%
General &
administrative
expense
ratio,
excluding
Health Net
acquisition
related
expenses 9.1% 8.1% 8.9% 8.2%
MEDICAL CLAIMS LIABILITY
The changes in medical claims liability are summarized as follows (in millions):
Balance, September 30, 2015 $2,144
Acquisitions 1,453
Incurred related to:
Current period 27,094
Prior period (255)
----
Total incurred 26,839
Paid related to:
Current period 24,807
Prior period 1,862
-----
Total paid 26,669
------
Balance, September 30, 2016 $3,767
======
Centene's claims reserving process utilizes a consistent actuarial methodology to estimate Centene's ultimate liability. Any reduction in the "Incurred related to: Prior period" amount may be offset as Centene actuarially determines "Incurred related to: Current period." As such, only in the absence of a consistent reserving methodology would favorable development of prior period claims liability estimates reduce medical costs. Centene believes it has consistently applied its claims reserving methodology in each of the periods presented. Additionally, as a result of minimum HBR and other return of premium programs, approximately $22 million of the "Incurred related to: Prior period" was recorded as a reduction to premium revenues.
The amount of the "Incurred related to: Prior period" above represents favorable development and includes the effects of reserving under moderately adverse conditions, new markets where we use a conservative approach in setting reserves during the initial periods of operations, receipts from other third party payors related to coordination of benefits and lower medical utilization and cost trends for dates of service September 30, 2015, and prior.
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SOURCE Centene Corporation
