Centene Corporation Reports 2017 Results And Increases 2018 Guidance

February 6, 2018 at 6:00 AM EST
-- 2017 Full Year Diluted EPS of $4.69; Adjusted Diluted EPS of $5.03 --

ST. LOUIS, Feb. 6, 2018 /PRNewswire/ -- Centene Corporation (NYSE: CNC) announced today its financial results for the fourth quarter and year ended December 31, 2017, reporting diluted earnings per share (EPS) of $1.30 and $4.69, respectively, and Adjusted Diluted EPS of $0.97 and $5.03, respectively.

In summary, the 2017 fourth quarter and full year results were as follows:

2017 Results


Q4


Full Year


Total revenues (in millions)

$

12,806



$

48,382



Health benefits ratio

87.3

%


87.3

%


SG&A expense ratio

10.9

%


9.7

%


GAAP diluted EPS

$

1.30



$

4.69



Adjusted Diluted EPS (1)

$

0.97



$

5.03



Total cash flow provided by operations (in millions)

$

450



$

1,489









(1) A full reconciliation of Adjusted Diluted EPS is shown on page eight of this release.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "The strong fourth quarter and full year results for 2017 provide positive momentum heading into 2018 as we continue to focus on revenue growth and margin expansion."

As a result of the Tax Cuts and Jobs Act of 2017 (Income Tax Reform), the Company's fourth quarter and full year results include a nonrecurring benefit associated with the revaluation of the Company's net deferred tax liabilities. The benefit of Income Tax Reform has been partially offset by a contribution to the Company's charitable foundation and additional expense due to the lack of cost sharing reduction (CSR) subsidy funding by the Federal Government in the fourth quarter and full year 2017. These items, among others, have been excluded from Adjusted Diluted EPS for the fourth quarter and full year results. A full reconciliation of Adjusted Diluted EPS is shown on page eight of this release.

The following discussions, with the exception of cash flow information, are in the context of continuing operations.

Fourth Quarter and Full Year Highlights

  • December 31, 2017 managed care membership of 12.2 million, an increase of 765,300 members, or 7% over 2016.
  • Total revenues for the fourth quarter of 2017 of $12.8 billion, representing 8% growth, compared to the fourth quarter of 2016 and $48.4 billion for the full year 2017, representing 19% growth year-over-year.
  • Health benefits ratio (HBR) of 87.3% for the fourth quarter of 2017, compared to 84.8% in the fourth quarter of 2016 and 87.3% for the full year 2017, compared to 86.5% for the full year 2016.
  • Selling, general and administrative (SG&A) expense ratio of 10.9% for the fourth quarter of 2017, compared to 10.0% for the fourth quarter of 2016. SG&A expense ratio of 9.7% for the full year 2017, compared to 9.8% for the full year 2016.
  • Adjusted SG&A expense ratio of 10.5% for the fourth quarter of 2017, compared to 9.4% for the fourth quarter of 2016. Adjusted SG&A expense ratio of 9.5% for the full year 2017, compared to 9.0% for the full year 2016.
  • Operating cash flow of $450 million and $1.5 billion for the fourth quarter and full year 2017, respectively, representing 1.8x net earnings for the full year 2017.
  • Diluted EPS for the fourth quarter of 2017 of $1.30, compared to $1.45 for the fourth quarter of 2016. Diluted EPS for the full year 2017 of $4.69, compared to $3.41 for the full year 2016.
  • Adjusted Diluted EPS for the fourth quarter of 2017 of $0.97, compared to $1.19 for the fourth quarter of 2016. Adjusted Diluted EPS for the full year 2017 of $5.03, compared to $4.43 for the full year 2016.

Other Events

  • In February 2018, Jessica L. Blume was elected to serve on our Board of Directors. Ms. Blume was appointed to both the Audit Committee and the Technology Committee. Previously, Ms. Blume held the position of Vice Chairman for Deloitte, where she was a partner until retirement in 2015.
  • In February 2018, our Arkansas subsidiary, Arkansas Total Care began managing a Medicaid special needs population comprised of people with high behavioral health needs and individuals with developmental/intellectual disabilities. Arkansas Total Care will assume full-risk on this population beginning in January 2019.
  • In January 2018, our New Mexico subsidiary, Western Sky Community Care, was awarded a statewide contract in New Mexico for the Centennial Care 2.0 Program. The new contract is expected to commence membership operations in January 2019.
  • In January 2018, our Illinois subsidiary, IlliniCare Health, began operating under a state-wide contract for the Medicaid Managed Care Program including children who are in need through the Department of Children and Family Services (DCFS)/Youth in Care by the Illinois Department of Healthcare and Family Services (HFS). Implementation dates vary by region and will be fully implemented statewide by April 2018. Foster Care will be implemented by July 2018.
  • In January 2018, we expanded our offerings in the 2018 Health Insurance Marketplace. We entered Kansas, Missouri and Nevada, and expanded our footprint in the following six existing markets: Florida, Georgia, Indiana, Ohio, Texas, and Washington.
  • In January 2018, we expanded our offerings in Medicare. We entered Arkansas, Indiana, Kansas, Louisiana, Missouri, Pennsylvania, South Carolina, and Washington and expanded our footprint in Ohio.
  • In January 2018, our subsidiary, Health Net Federal Services, began operating under the TRICARE West Region contract to provide administrative services to Military Health System eligible beneficiaries.
  • In January 2018, our Washington subsidiary, Coordinated Care of Washington, began providing managed care services to Apple Health's Fully Integrated Managed Care (FIMC) beneficiaries in the North Central Region.
  • In January 2018, our Pennsylvania subsidiary, Pennsylvania Health & Wellness, began serving enrollees in the Community HealthChoices program. Contract commencement dates vary by zone and will be fully implemented statewide by January 2020.
  • In November 2017, The People's Healthcare Services Clinic, our full-service health center partnership with Schnuck Markets Inc. and Betty Jean Kerr People's Health Centers, had its grand opening in Ferguson, Missouri.
  • In November 2017, we announced the appointment of Cynthia Brinkley to President and Chief Operating Officer, Jesse Hunter to Executive Vice President of Mergers & Acquisitions and Chief Strategy Officer, Mark Brooks to Executive Vice President and Chief Information Officer, and Kevin Counihan to Senior Vice President of Products.

Accreditations & Awards

  • In December 2017, Health Net Federal Services, LLC, earned the Health Utilization Management and Case Management Accreditations from URAC.
  • In November 2017, FORTUNE magazine announced Michael Neidorff's ranking of #17 on its "Businessperson of the Year" list. This list focuses on the largest public companies in the world, evaluating their increases in revenues and profits, as well as stock performance and return on capital.
  • In October 2017, Forbes announced Centene's position of #36 on its "Global 2000: Growth Champions" list. The top 250 public companies are identified and awarded based on compound annual growth rates in revenues from 2013 through 2016.

Membership

The following table sets forth our membership by line of business:


December 31,


2017


2016

Medicaid:




TANF, CHIP & Foster Care

5,807,300



5,630,000


ABD & LTSS

846,200



785,400


Behavioral Health

463,700



466,600


  Total Medicaid

7,117,200



6,882,000


Commercial

1,558,300



1,239,100


Medicare & MMP (1)

333,700



334,300


Correctional

157,500



139,400


  Total at-risk membership

9,166,700



8,594,800


TRICARE eligibles

2,824,100



2,847,000


Non-risk membership

216,300




  Total

12,207,100



11,441,800







(1) Membership includes Medicare Advantage, Medicare Supplement, Special Needs Plans, and Medicare-Medicaid Plans (MMP).

The following table sets forth additional membership statistics, which are included in the membership information above:


December 31,


2017


2016

Dual-eligible (2)

474,500



441,400


Health Insurance Marketplace

959,600



537,200


Medicaid Expansion

1,091,500



1,080,500







(2) Membership includes dual-eligible ABD & LTSS and dual-eligible Medicare membership in the table above.


Statement of Operations: Three Months Ended December 31, 2017

  • For the fourth quarter of 2017, total revenues increased 8% to $12.8 billion from $11.9 billion in the comparable period in 2016. The increase over prior year was primarily a result of growth in the Health Insurance Marketplace business in 2017 and expansions and new programs in many of our states in 2016 and 2017. This was partially offset by the fourth quarter of 2016 benefiting from $195 million of additional revenue associated with the minimum medical loss ratio (MLR) amendment in California, as well as the moratorium of the health insurer fee in 2017 and lower 2017 membership in the commercial business in California as a result of margin improvement actions taken in 2016.
  • Sequentially, total revenues increased 8% over the third quarter of 2017 mainly due to approximately $700 million associated with pass through payments from the State of California being received in the fourth quarter that were recorded in premium tax revenue and premium tax expense.
  • HBR of 87.3% for the fourth quarter of 2017 represents an increase from 84.8% in the comparable period in 2016. The year-over-year increase was primarily a result of the $195 million of revenue recognized in the fourth quarter of 2016, relating to the minimum MLR amendment in California, which reduced the fourth quarter of 2016 HBR by 170 basis points. In addition, the year-over-year increase was attributable to new or expanded health plans, which initially operate at a higher HBR, a premium rate reduction for California Medicaid Expansion effective July 1, 2017, an increase in flu related costs over the fourth quarter of 2016, and the additional expense recognized in the fourth quarter of 2017 due to the lack of funding of CSR subsidy payments by the Federal Government.
  • HBR decreased sequentially from 88.0% in the third quarter of 2017. The decrease was primarily attributable to improved performance in Medicaid, including the impacts of rate adjustments, as well as performance in the Health Insurance Marketplace business. These HBR improvements were partially offset by the increase in flu related costs over the third quarter of 2017 and additional expense recognized in the fourth quarter due to the lack of funding of CSR subsidy payments by the Federal Government.
  • The SG&A expense ratio was 10.9% for the fourth quarter of 2017, compared to 10.0% for the fourth quarter of 2016 and 9.0% for the third quarter of 2017. The year-over-year increase was primarily a result of increased business expansion costs over the fourth quarter of 2016, and revenue recognized in the fourth quarter of 2016, relating to the minimum MLR amendment in California, which reduced the fourth quarter of 2016 SG&A expense ratio. Sequentially, the SG&A expense ratio increased primarily due to increased selling costs associated with open enrollment and the $40 million contribution to our charitable foundation in the fourth quarter of 2017.
  • The Adjusted SG&A expense ratio was 10.5% for the fourth quarter of 2017, compared to 9.4% for the fourth quarter of 2016 and 8.9% for the third quarter of 2017. The year-over-year increase was primarily a result of increased business expansion costs over the fourth quarter of 2016, and revenue recognized in the fourth quarter of 2016, relating to the minimum MLR amendment in California, which reduced the fourth quarter of 2016 Adjusted SG&A expense ratio. Sequentially, the Adjusted SG&A expense ratio increased primarily due to increased selling costs associated with open enrollment in the fourth quarter of 2017.

Statement of Operations: Year Ended December 31, 2017

  • For the full year 2017, total revenues increased 19% to $48.4 billion from $40.6 billion in the comparable period of 2016. The increase over prior year was primarily a result of a full year of Health Net's results, as well as the impact of growth in the Health Insurance Marketplace business in 2017 and expansions and new programs in many of our states in 2016 and 2017. This was partially offset by the moratorium of the health insurer fee in 2017, lower membership in the commercial business in California as a result of margin improvement actions taken in 2016, and lower specialty pharmacy revenues.
  • HBR of 87.3% for the full year 2017 represents an increase from 86.5% in the comparable period in 2016. The increase compared to last year was primarily a result of the $195 million of revenue recognized in 2016 relating to the minimum MLR change in California, which reduced the 2016 HBR by 50 basis points, a premium rate reduction for California Medicaid Expansion effective July 1, 2017, an increase in flu related costs over 2016, and the impact of new or expanded health plans, which initially operate at a higher HBR. These increases were partially offset by growth in the Health Insurance Marketplace business, which operates at a lower HBR.
  • The SG&A expense ratio was 9.7% for the full year 2017, compared to 9.8% for the full year 2016. The decrease in the SG&A expense ratio was primarily attributable to lower acquisition related expenses, partially offset by higher business expansion costs over 2016, the Penn Treaty assessment and our results including a full year of the Health Net business, which operates at a higher SG&A expense ratio due to a greater mix of commercial and Medicare business.
  • The Adjusted SG&A expense ratio was 9.5% for the full year 2017, compared to 9.0% for the full year 2016. The increase in the Adjusted SG&A expense ratio was primarily attributable to higher business expansion costs over 2016 and a full year of the Health Net business in our 2017 results, which operates at a higher SG&A expense ratio due to a greater mix of commercial and Medicare business.

Balance Sheet and Cash Flow

At December 31, 2017, the Company had cash, investments and restricted deposits of $10.1 billion, including $310 million held by unregulated entities. Medical claims liabilities totaled $4.3 billion. The Company's days in claims payable was 41. Total debt was $4.7 billion, which includes $150 million of borrowings on the $1.5 billion revolving credit facility at quarter-end. The debt to capitalization ratio was 40.3% at December 31, 2017, excluding the $61 million non-recourse mortgage note.

Cash flow provided by operations for the three months ended December 31, 2017 was $450 million, primarily due to net earnings and a decrease in premium and trade receivables, partially offset by a decrease in unearned revenue.

Outlook

The Company's annual guidance for 2018 has been updated for the following items:

  • The benefit of Income Tax Reform that was signed into law in December 2017, partially offset by additional costs associated with the reinvestment of a portion of the tax reform benefit;
  • An increase in total revenues and earnings associated with higher membership expectations for the Health Insurance Marketplace business; and
  • A change in the timing of the equity issuance from February 1, 2018 to March 1, 2018 for the $2.3 billion of equity to finance the acquisition of New York State Catholic Health Plan, Inc. d/b/a Fidelis Care New York (Fidelis Care) (Proposed Fidelis Acquisition), which reduces diluted shares outstanding. The ultimate timing will depend on market conditions.

A rollforward of certain captions of the Company's current 2018 guidance from its previous guidance is as follows (Total Revenues in billions, per share data in dollars):



Total Revenues


GAAP diluted EPS


Adjusted Diluted EPS


Previous Guidance Range


$60.0 - $60.8


$4.63 - $4.97


$5.47 - $5.87


Income Tax Reform


(0.1)


1.38


1.58


Additional Investment



(0.30)


(0.30)


Marketplace Membership


0.7


0.14


0.14


Timing of Fidelis Care Equity



0.06


0.06


Revised Guidance Range


$60.6 - $61.4


$5.91 - $6.25


$6.95 - $7.35










The Company's full updated annual guidance for 2018 is as follows:



Full Year 2018




Low


High


Total revenues (in billions)


$

60.6



$

61.4



GAAP diluted EPS


$

5.91



$

6.25



Adjusted Diluted EPS (1)


$

6.95



$

7.35



HBR


86.2

%


86.7

%


SG&A expense ratio


9.3

%


9.8

%


Adjusted SG&A expense ratio (2)


9.2

%


9.7

%


Effective tax rate


31.0

%


33.0

%


Diluted shares outstanding (in millions)


199.1



200.1











(1)

Adjusted Diluted EPS excludes amortization of acquired intangible assets of $0.79 to $0.81 per diluted share and acquisition related expenses of $0.25 to $0.29 per diluted share.



(2)

Adjusted SG&A expense ratio excludes acquisition related expenses of $70 million to $75 million.

Conference Call

As previously announced, the Company will host a conference call Tuesday, February 6, 2018, at approximately 8:30 AM (Eastern Time) to review the financial results for the fourth quarter and year ended December 31, 2017, 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: 7714451 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, February 5, 2019, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 AM (Eastern Time) on Tuesday, February 13, 2018, by dialing 1-877-344-7529 in the U.S. and Canada, or +1-412-317-0088 from abroad, and entering access code 10115626.

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 amortization of acquired intangible assets, acquisition related expenses, as well as other items, allows investors to develop a more meaningful understanding of the Company's performance over time. The tables below provide reconciliations of non-GAAP items (in millions, except per share data in dollars):


Three Months Ended
December 31,


Twelve Months Ended
December 31,


2017


2016


2017


2016

GAAP net earnings from continuing operations

$

230



$

255



$

828



$

559


Amortization of acquired intangible assets

39



52



156



147


Acquisition related expenses

7



10



20



234


Penn Treaty assessment expense (1)





56




Cost sharing reductions (2)

22





22




Income Tax Reform (3)

(125)





(125)




Charitable contribution (4)

40



50



40



50


California minimum medical loss ratio change (5)



(195)





(195)


Debt extinguishment (6)



11





11


Income tax effects of adjustments (7)

(40)



27



(108)



(79)


  Adjusted net earnings from continuing operations

$

173



$

210



$

889



$

727




(1)

Additional expense for the Company's estimated share of guaranty association assessment resulting from the liquidation of Penn Treaty for the year ended December 31, 2017.



(2)

As a result of the lack of funding by the Federal Government of CSR subsidy payments, the Company recorded additional expense for the fourth quarter and year ended December 31, 2017.



(3)

As a result of Income Tax Reform passed in late 2017, the Company recognized lower income tax expense, primarily from the revaluation of the Company's net deferred tax liability for the fourth quarter and year ended December 31, 2017.



(4)

In connection with the favorable impact of Income Tax Reform in 2017 and the additional revenue associated with the California minimum MLR change in 2016, the Company made charitable commitments to its foundation in the fourth quarter and full year of 2017 and 2016, respectively.



(5)

A favorable impact to the fourth quarter and full year 2016 associated with the retroactive change in the minimum MLR calculation under California's Medicaid Expansion program, which relates to periods prior to 2016 for legacy Centene business and prior to the acquisition date for the legacy Health Net business.



(6)

Additional expense associated with the early redemption of the 5.75% Senior Notes due 2017 and the Health Net 6.375% Senior Notes due 2017 in the fourth quarter and full year 2016.



(7)

The income tax effects of adjustments are based on the effective income tax rates applicable to adjusted (non-GAAP) results. There is no additional income tax effect from Income Tax Reform.

 


Three Months Ended
December 31,


Twelve Months Ended
December 31,


Annual
Guidance

 December 31,
2018


2017


2016


2017


2016


GAAP diluted EPS from continuing operations

$

1.30



$

1.45



$

4.69



$

3.41



$5.91 - $6.25

Amortization of acquired intangible assets (1)

0.14



0.20



0.56



0.57



$0.79 - $0.81

Acquisition related expenses (2)

0.02



0.03



0.07



0.98



$0.25 - $0.29

Penn Treaty assessment expense (3)





0.20





Cost sharing reductions (4)

0.08





0.08





Income Tax Reform

(0.71)





(0.71)





Charitable contribution (5)

0.14



0.18



0.14



0.19



California minimum medical loss ratio change (6)



(0.71)





(0.76)



Debt extinguishment (7)



0.04





0.04



  Adjusted Diluted EPS from continuing operations

$

0.97



$

1.19



$

5.03



$

4.43



$6.95 - $7.35



(1)

The amortization of acquired intangible assets per diluted share presented above is net of an income tax benefit of $0.08 and $0.10 for the three months ended December 31, 2017 and 2016, respectively, and $0.32 and $0.33 for the twelve months ended December 31, 2017 and 2016, respectively; and an estimated $0.24 to $0.25 for the year ended December 31, 2018.



(2)

The acquisition related expenses per diluted share presented above are net of an income tax benefit of $0.02 and $0.03 for the three months ended December 31, 2017 and 2016, respectively, and $0.04 and $0.45 for the twelve months ended December 31, 2017 and 2016, respectively; and an estimated $0.08 to $0.09 for the year ended December 31, 2018.



(3)

The Penn Treaty assessment expense per diluted share presented above is net of an income tax benefit of $0.12 for the twelve months ended December 31, 2017.



(4)

Cost sharing reductions per diluted share presented above are net of an income tax benefit of $0.04 and $0.04 for the three and twelve months ended December 31, 2017, respectively.



(5)

The charitable contributions per diluted share presented above are net of an income tax benefit of $0.09 and $0.10 for the three months ended December 31, 2017 and 2016, respectively, and $0.09 and $0.11 for the twelve months ended December 31, 2017 and 2016, respectively.



(6)

The impact associated with the retroactive change in the minimum MLR calculation per diluted share presented above is net of an income tax expense of $(0.40) and $(0.43) for the three and twelve months ended December 31, 2016, respectively.



(7)

The debt extinguishment cost per diluted share presented above is net of an income tax benefit of $0.02 and $0.03 for the three and twelve months ended December 31, 2016, respectively.

 


Three Months Ended
December 31,


Twelve Months Ended
December 31,


Three Months Ended
September 30,


2017


2016


2017


2016


2017

GAAP SG&A expenses

$

1,260



$

1,065



$

4,446



$

3,676



$

1,030


Acquisition related expenses

7



10



20



234



7


Penn Treaty assessment expense





56





9


Charitable contribution

40



50



40



50




Adjusted SG&A expenses

$

1,213



$

1,005



$

4,330



$

3,392



$

1,014



About Centene Corporation

Centene Corporation, a Fortune 100 company, is a diversified, multi-national healthcare enterprise that provides a portfolio of services to government sponsored and commercial 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 Services and Supports (LTSS), 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 (Health Net Acquisition) of Health Net, Inc. (Health Net) and the proposed acquisition of New York State Catholic Health Plan, Inc., d/b/a Fidelis Care New York (Fidelis Care) (Proposed Fidelis Acquisition or Fidelis Care Transaction). 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 healthcare costs; changes in economic, political or market conditions; changes in federal or state laws or regulations, including changes with respect to government healthcare programs as well as changes with respect to the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act and any regulations enacted thereunder that may result from changing political conditions; 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; tax matters; disasters or major epidemics; the outcome of legal and regulatory proceedings; 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 or Fidelis Care's contracts with federal or state governments (including but not limited to Medicaid, Medicare, and TRICARE); the difficulty of predicting the timing or outcome of pending or future litigation or government investigations; challenges to Centene or Fidelis Care's contract awards; 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 and the Proposed Fidelis Acquisition, will not be realized, or will not be realized within the expected time period, including, but not limited to, as a result of any failure to obtain any regulatory, governmental or third party consents or approvals in connection with the Proposed Fidelis Acquisition (including any such approvals under the New York Non-For-Profit Corporation Law) or any conditions, terms, obligations or restrictions imposed in connection with the receipt of such consents or approvals; 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 any regulatory, governmental or third party consents or approvals for the Health Net Acquisition; disruption caused by significant completed and pending acquisitions, including the Health Net Acquisition and the Proposed Fidelis Acquisition, making it more difficult to maintain business and operational relationships; the risk that unexpected costs will be incurred in connection with the completion and/or integration of acquisition transactions, including among others, the Health Net Acquisition and the Proposed Fidelis Acquisition; changes in expected closing dates, estimated purchase price and accretion for acquisitions; the risk that acquired businesses, including Health Net and Fidelis Care, will not be integrated successfully; the risk that the conditions to the completion of the Proposed Fidelis Acquisition may not be satisfied or completed on a timely basis, or at all; failure to obtain or receive any required regulatory approvals, consents or clearances for the Proposed Fidelis Acquisition, and the risk that, even if so obtained or received, regulatory authorities impose conditions on the completion of the transaction that could require the exertion of management's time and Centene's resources or otherwise have an adverse effect on Centene; business uncertainties and contractual restrictions while the Proposed Fidelis Acquisition is pending, which could adversely affect Centene's business and operations; change of control provisions or other provisions in certain agreements to which Fidelis Care is a party, which may be triggered by the completion of the Proposed Fidelis Acquisition; loss of management personnel and other key employees due to uncertainties associated with the Proposed Fidelis Acquisition; the risk that, following completion of the Proposed Fidelis Acquisition, the combined company may not be able to effectively manage its expanded operations; restrictions and limitations that may stem from the financing arrangements that the combined company will enter into in connection with the Proposed Fidelis Acquisition; Centene's ability to achieve improvement in the Centers for Medicare and Medicaid Services (CMS) Star ratings and maintain or achieve improvement in other quality scores in each case that can impact revenue and future growth; availability of debt and equity financing, on terms that are favorable to Centene; inflation; foreign currency fluctuations; 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 shares in thousands and per share data in dollars)



December 31,
 2017


December 31,
 2016

ASSETS




Current assets:




Cash and cash equivalents

$

4,072



$

3,930


Premium and trade receivables

3,413



3,215


Short-term investments

531



505


Other current assets

687



715


Total current assets

8,703



8,365


Long-term investments

5,312



4,545


Restricted deposits

135



138


Property, software and equipment, net

1,104



797


Goodwill

4,749



4,712


Intangible assets, net

1,398



1,545


Other long-term assets

454



95


Total assets

$

21,855



$

20,197


LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS' EQUITY




Current liabilities:




Medical claims liability

$

4,286



$

3,929


Accounts payable and accrued expenses

4,165



3,763


Return of premium payable

549



614


Unearned revenue

328



313


Current portion of long-term debt

4



4


Total current liabilities

9,332



8,623


Long-term debt

4,695



4,651


Other long-term liabilities

952



869


Total liabilities

14,979



14,143


Commitments and contingencies




Redeemable noncontrolling interests

12



145


Stockholders' equity:




Preferred stock, $.001 par value; authorized 10,000 shares; no shares issued or outstanding at December 31, 2017 and December 31, 2016




Common stock, $.001 par value; authorized 400,000 shares; 180,379 issued and 173,437 outstanding at December 31, 2017, and 178,134 issued and 171,919 outstanding at December 31, 2016




Additional paid-in capital

4,349



4,190


Accumulated other comprehensive loss

(3)



(36)


Retained earnings

2,748



1,920


Treasury stock, at cost (6,942 and 6,215 shares, respectively)

(244)



(179)


Total Centene stockholders' equity

6,850



5,895


Noncontrolling interest

14



14


Total stockholders' equity

6,864



5,909


Total liabilities, redeemable noncontrolling interests and stockholders' equity

$

21,855



$

20,197


 

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data in dollars)

(Unaudited)



Three Months Ended
December 31,


Twelve Months Ended
December 31,


2017


2016


2017


2016

Revenues:








Premium

$

10,960



$

10,100



$

43,353



$

35,399


Service

633



577



2,267



2,180


Premium and service revenues

11,593



10,677



45,620



37,579


Premium tax and health insurer fee

1,213



1,234



2,762



3,028


  Total revenues

12,806



11,911



48,382



40,607


Expenses:








Medical costs

9,573



8,564



37,851



30,636


Cost of services

513



478



1,847



1,864


Selling, general and administrative expenses

1,260



1,065



4,446



3,676


Amortization of acquired intangible assets

39



52



156



147


Premium tax expense

1,240



1,103



2,883



2,563


Health insurer fee expense



128





461


Total operating expenses

12,625



11,390



47,183



39,347


Earnings from operations

181



521



1,199



1,260


Other income (expense):








Investment and other income

53



34



190



114


Interest expense

(66)



(75)



(255)



(217)


Earnings from continuing operations, before income tax expense

168



480



1,134



1,157


Income tax (benefit) expense

(55)



227



326



599


Earnings from continuing operations, net of income tax expense

223



253



808



558


Discontinued operations, net of income tax expense



6





3


Net earnings

223



259



808



561


Earnings attributable to noncontrolling interests

7



2



20



1


Net earnings attributable to Centene Corporation

$

230



$

261



$

828



$

562










Amounts attributable to Centene Corporation common shareholders:








Earnings from continuing operations, net of income tax expense

$

230



$

255



$

828



$

559


Discontinued operations, net of income tax expense



6





3


  Net earnings

$

230



$

261



$

828



$

562










Net earnings per common share attributable to Centene Corporation:

Basic:








  Continuing operations

$

1.33



$

1.49



$

4.80



$

3.50


  Discontinued operations



0.04





0.02


    Basic earnings per common share

$

1.33



$

1.53



$

4.80



$

3.52










Diluted:








  Continuing operations

$

1.30



$

1.45



$

4.69



$

3.41


  Discontinued operations



0.04





0.02


    Diluted earnings per common share

$

1.30



$

1.49



$

4.69



$

3.43










 

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



Year Ended December 31,


2017


2016

Cash flows from operating activities:




Net earnings

$

808



$

561


Adjustments to reconcile net earnings to net cash provided by operating activities




Depreciation and amortization

361



278


Stock compensation expense

135



148


Debt extinguishment costs



(7)


Deferred income taxes

(108)



92


Gain on contingent consideration

(1)



(5)


Changes in assets and liabilities




Premium and trade receivables

(50)



74


Other assets

(146)



167


Medical claims liabilities

359



145


Unearned revenue

19



43


Accounts payable and accrued expenses

53



402


Other long-term liabilities

68



(61)


Other operating activities, net

(9)



14


Net cash provided by operating activities

1,489



1,851


Cash flows from investing activities:




Capital expenditures

(422)



(306)


Purchases of investments

(2,704)



(2,450)


Sales and maturities of investments

1,899



1,656


Investments in acquisitions, net of cash acquired

(50)



(1,297)


Other investing activities, net

12




Net cash used in investing activities

(1,265)



(2,397)


Cash flows from financing activities:




Proceeds from borrowings

1,400



8,946


Payment of long-term debt

(1,353)



(6,076)


Common stock repurchases

(65)



(63)


Purchase of noncontrolling interest

(66)



(14)


Debt issuance costs

(3)



(76)


Other financing activities, net

5




Net cash (used in) provided by financing activities

(82)



2,717


Effect of exchange rate changes on cash and cash equivalents



(1)


Net increase in cash and cash equivalents

142



2,170


Cash and cash equivalents, beginning of period

3,930



1,760


Cash and cash equivalents, end of period

$

4,072



$

3,930


Supplemental disclosures of cash flow information:




Interest paid

$

237



$

165


Income taxes paid

$

496



$

556


Equity issued in connection with acquisitions

$



$

3,105


 

CENTENE CORPORATION

SUPPLEMENTAL FINANCIAL DATA FROM CONTINUING OPERATIONS




Q4


Q3


Q2


Q1


Q4



2017


2017


2017


2017


2016

MANAGED CARE MEMBERSHIP BY STATE

Arizona


640,500



659,500



669,500



684,300



598,300


Arkansas


85,700



89,900



91,900



98,100



58,600


California


2,877,800



2,928,600



2,925,800



2,980,100



2,973,500


Florida


848,800



852,600



871,100



872,000



716,100


Georgia


483,600



476,400



540,400



568,300



488,000


Illinois


239,500



251,000



254,600



253,800



237,700


Indiana


304,500



322,900



340,000



335,800



285,800


Kansas


129,100



127,300



130,000



133,100



139,700


Louisiana


485,500



483,300



484,600



484,100



472,800


Massachusetts


43,000



48,300



54,100



44,200



48,300


Michigan


2,500



2,400



2,300



2,100



2,000


Minnesota


9,400



9,500



9,500



9,500



9,400


Mississippi


329,900



335,600



343,600



349,500



310,200


Missouri


269,400



272,100



278,300



106,100



105,700


Nebraska


79,700



79,200



78,800



79,200




Nevada


34,900



16,800








New Hampshire


74,800



76,400



77,100



77,800



77,400


New Mexico


7,100



7,100



7,100



7,100



7,100


Ohio


332,700



336,500



332,700



328,900



316,000


Oregon


205,200



209,700



213,600



211,900



217,800


South Carolina


117,800



118,600



121,000



121,900



122,500


Tennessee


22,200



22,100



22,200



21,900



21,700


Texas


1,233,500



1,236,700



1,226,800



1,243,900



1,072,400


Vermont


1,600



1,600



1,600



1,600



1,600


Washington


237,800



239,600



248,500



254,400



238,400


Wisconsin


70,200



70,200



70,800



71,700



73,800


Total at-risk membership


9,166,700



9,273,900



9,395,900



9,341,300



8,594,800


TRICARE eligibles


2,824,100



2,823,200



2,823,200



2,804,100



2,847,000


Non-risk membership


216,300



213,900








Total


12,207,100



12,311,000



12,219,100



12,145,400



11,441,800














Medicaid:











  TANF, CHIP & Foster Care


5,807,300



5,809,400



5,854,400



5,714,100



5,630,000


  ABD & LTSS


846,200



850,300



843,500



825,600



785,400


  Behavioral Health


463,700



467,400



466,500



466,900



466,600


    Total Medicaid


7,117,200



7,127,100



7,164,400



7,006,600



6,882,000


Commercial


1,558,300



1,657,800



1,743,600



1,864,700



1,239,100


Medicare & MMP (1)


333,700



331,000



327,500



328,100



334,300


Correctional


157,500



158,000



160,400



141,900



139,400


    Total at-risk membership


9,166,700



9,273,900



9,395,900



9,341,300



8,594,800


TRICARE eligibles


2,824,100



2,823,200



2,823,200



2,804,100



2,847,000


Non-risk membership


216,300



213,900








    Total


12,207,100



12,311,000



12,219,100



12,145,400



11,441,800













(1) Membership includes Medicare Advantage, Medicare Supplement, Special Needs Plans, and MMP.












 


Q4


Q3


Q2


Q1


Q4


2017


2017


2017


2017


2016











NUMBER OF EMPLOYEES

33,700



32,400



31,500



30,900



30,500












DAYS IN CLAIMS PAYABLE (a)

41



42



40



41



42


(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.











CASH, INVESTMENTS AND RESTRICTED DEPOSITS (in millions)

Regulated

$

9,740



$

9,633



$

9,673



$

10,034



$

8,854


Unregulated

310



308



291



306



264


  Total

$

10,050



$

9,941



$

9,964



$

10,340



$

9,118












DEBT TO CAPITALIZATION

40.6

%


41.5

%


42.5

%


43.3

%


44.1

%

DEBT TO CAPITALIZATION EXCLUDING NON-RECOURSE DEBT (b)

40.3

%


41.2

%


42.1

%


43.0

%


43.7

%

(b) The non-recourse debt represents the Company's mortgage note payable ($61 million at December 31, 2017).

Debt to capitalization is calculated as follows: total debt divided by (total debt + total equity).

OPERATING RATIOS


Three Months Ended December 31,


Year Ended December 31,


2017


2016


2017


2016

HBR

87.3

%


84.8

%


87.3

%


86.5

%

SG&A expense ratio

10.9

%


10.0

%


9.7

%


9.8

%

Adjusted SG&A expense ratio

10.5

%


9.4

%


9.5

%


9.0

%

MEDICAL CLAIMS LIABILITY

The changes in medical claims liability are summarized as follows (in millions):

Balance, December 31, 2016


$

3,929


Reinsurance recoverable


5


Balance, December 31, 2016, net


3,924


Incurred related to:



  Current period


38,225


  Prior period


(374)


    Total incurred


37,851


Paid related to:



  Current period


34,196


  Prior period


3,311


    Total paid


37,507


Balance, December 31, 2017, net


4,268


Plus: Reinsurance recoverable


18


Balance, December 31, 2017


$

4,286


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. Additionally, approximately $1 million was recorded as a reduction to premium revenues resulting from development within "Incurred related to: Prior period" due to minimum HBR and other return of premium programs.

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 December 31, 2016, and prior.

 

Cision View original content:http://www.prnewswire.com/news-releases/centene-corporation-reports-2017-results-and-increases-2018-guidance-300593868.html

SOURCE Centene Corporation

Investor Relations Inquiries, Edmund E. Kroll, Jr., Senior Vice President, Finance & Investor Relations, (212) 759-0382; Media Inquiries, Marcela Manjarrez-Hawn, Senior Vice President and Chief Communications Officer, (314) 445-0790