Centene Corporation Q2 2009 Earnings Call Transcript

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Centene Corporation (CNC)

Q2 2009 Earnings Call Transcript

July 28, 2009 8:30 am ET

Executives

Ed Kroll – SVP, Finance and IR

Michael Neidorff – Chairman, President and CEO

Bill Scheffel – EVP, CFO and Treasurer

Mark Eggert – EVP, Health Plans

Jesse Hunter – EVP, Corporate Development

Analysts

Daryn Miller – Goldman Sachs

Greg Genova [ph] -- Deutsche Bank

Tom Carroll – Stifel

Greg Nersessian – Credit Suisse

Nakomie Smith [ph] – Wells Fargo

Joshua Raskin – Barclays Capital

Presentation

Operator

Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Centene Corporation Second Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions).

I will now turn the call over to Mr. Kroll, Senior Vice President of Investor Relations and Finance. Mr. Kroll, you may begin your conference.

Ed Kroll

Thank you, Michelle, and good morning everyone. I am Ed Kroll, Senior Vice President of Finance and Investor Relations at Centene Corporation. Thank you for joining our second quarter earnings call this morning. Michael Neidorff, our Chairman and Chief Executive Officer, and Bill Scheffel, Executive Vice President and Chief Financial Officer of Centene will host this morning’s call.

The call is expected to last approximately 45 minutes and may also be accessed through our website at centene.com. A replay will be available shortly after the call’s completion, also at centene.com or by dialing 800-642-1687 in the US and Canada or overseas at 706-645-9291. The access code for both of those is 15407585.

Any remarks that Centene may make about future expectations, plans and prospects constitute forward-looking statements for the purposes of the Safe Harbor Provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in Centene’s Form 10-Q dated today, July 28, 2009, and other public SEC filings.

Centene anticipates that subsequent events and developments will cause its estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. And with that, I would like to turn the call over to our Chairman and CEO, Michael Neidorff.

Michael Neidorff

Thank you, Ed.

Good morning, everyone, and thank you for joining Centene's second quarter earnings call. I will briefly review some of the highlights of the quarter and then turn the call over to Bill Scheffel who will walk you through the financial details. But first, I would like to take a moment to briefly discuss Centene's view of the ongoing federal health-care reform process in Washington DC.

We continue to believe that budget realities will ultimately limit reform driven changes to those that are affordable. One cannot help but notice the influence of the conservative Democrats in the house and the moderate Democrats in the Senate to slow down the process and act responsibly in a financially disciplined and policy centric manner. Recent public opinion polls show increasingly that Americans are wary of too much government intrusion in healthcare and of the higher taxes that would be necessary to fund it. The focus must be access to affordable care for all.

Centene is an agile organization and we believe that we are well positioned as any managed-care organization to work effectively in a post reform environment, given our focus on helping underserved, vulnerable populations gain better access and cost efficient health care through our wide array of products due to our unique multiline strategy.

Our new contract in Massachusetts offers evidence of our ability to meet needs of different markets and customers in a dynamic fashion. We are well versed at operating as a government contractor and while there are no guarantees, it is difficult to imagine a type of health reform under which our skills, flexibility and focus will not be valued. Importantly, if there is no mini reform enacted, under our current strategic plan, we see a very long runway ahead of us to reach our growth targets and deliver better outcome at lower cost to our state customers.

As capital markets remain volatile, we continue to stress the importance of being prudent balance sheet manages with a focus on liquidity and capital adequacy. Strategically, we will continue to build our multiline strategy, coordinating efforts between our health plans and specialty companies to drive product innovation, continue to become a low cost producer, enhance are members' health outcomes, and win new business. We have significant new market opportunities. However, it is essential that we continue to maintain an abundance of conservatism and remain selective in our pursuit of these new opportunities.

Now back to the second quarter results. The quarter's performance demonstrates that the actions we began taking last year in an effort to produce more predictable earnings and achieve financial targets are working. We had solid revenue growth in the quarter at 16.1% year over year and our risk membership grew in all states. We added almost 42,000 risk lives in quarter two across all markets and have started to see a modest lift from high unemployment and expanded CHIP eligibility.

We continue to expect average rate increases for this year in the low single digits and believe that increased FMAP funds should maintain rate stability in 2010. We understand the strain this economic environment places on our state partners and we're committed to working with them to maintain access to quality care in the most cost effective manner. Our consolidated HBR improved 40 basis points sequentially to 83.1%, which is consistent with our usual seasonal pattern, and essentially at the midpoint of our long-term expected range of 82% to 84%.

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