Press Release

Centene Corporation Reports 2017 Third Quarter Results & Updates 2017 Guidance
-- 2017 Third Quarter Diluted EPS of $1.16; Adjusted Diluted EPS of $1.35 --
-- Raises Total Revenue and Adjusted Diluted EPS Guidance --

ST. LOUIS, Oct. 24, 2017 /PRNewswire/ -- Centene Corporation (NYSE: CNC) announced today its financial results for the third quarter ended September 30, 2017, reporting diluted earnings per share (EPS) of $1.16, and Adjusted Diluted EPS of $1.35.

In summary, the 2017 third quarter results were as follows:

Total revenues (in millions)

$

11,898



Health benefits ratio

88.0

%


SG&A expense ratio

9.0

%


GAAP diluted EPS

$

1.16



Adjusted Diluted EPS (1)

$

1.35



Total cash flow provided by operations (in millions)

$

97




(1) A full reconciliation of Adjusted Diluted EPS is shown in the Outlook section of this release.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "Though headline noise may linger, we remain focused on business as usual, as evidenced by Centene's momentum, strong results and outlook."

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

Third Quarter Highlights

  • September 30, 2017 managed care membership of 12.3 million, an increase of 874,900 members, or 8% compared to the third quarter of 2016.
  • Total revenues for the third quarter of 2017 of $11.9 billion, representing 10% growth, compared to the third quarter of 2016.
  • Health benefits ratio (HBR) of 88.0% for the third quarter of 2017, compared to 87.0% in the third quarter of 2016.
  • Selling, general and administrative (SG&A) expense ratio of 9.0% for the third quarter of 2017, compared to 9.2% for the third quarter of 2016.
  • Adjusted SG&A expense ratio of 8.9% for the third quarter of 2017, compared to 9.1% for the third quarter of 2016.
  • Operating cash flow of $97 million for the third quarter of 2017 and $1,039 million for the nine months ended September 30, 2017.
  • Diluted EPS for the third quarter of 2017 of $1.16, compared to $0.84 for the third quarter of 2016.
  • Adjusted Diluted EPS for the third quarter of 2017 of $1.35, compared to $1.12 for the third quarter of 2016.

Other Events

  • In October 2017, the Company announced the early termination of the waiting period required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, for its Fidelis Care acquisition. In September 2017, the Company signed a definitive agreement under which Fidelis Care will become the Company's health plan in New York State. Under the terms of the agreement, the Company will acquire substantially all of the assets of Fidelis Care for $3.75 billion, subject to certain adjustments. The transaction is expected to close in the first quarter of 2018, subject to various closing conditions and receipt of New York regulatory approvals, including approvals under the New York Not-for-Profit Corporation Law.
  • In October 2017, the Centers for Medicare and Medicaid Services (CMS) published updated Medicare Star quality ratings for the 2018 rating year. The 2018 rating year will affect quality bonus payments for Medicare Advantage plans in 2019. The results indicate that one of Health Net of California, Inc.'sMedicare Advantage plans (H0562) will move to a 3.5 Star rating from a 4.0 Star rating for the 2018 rating year. The effect of this Star rating change would lower the Company's parent Star rating for the 2018 rating year from 4.0 Stars to 3.5 Stars. The Company intends to appeal.
  • In August 2017, our Illinois subsidiary, IlliniCare Health, was awarded the 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). The new agreement has a four-year term, with the option to renew the contract for up to an additional four years, and is expected to commence on January 1, 2018.
  • In August 2017, Centurion was recommended for a contract award by the Tennessee Department of Correction to continue providing inmate health services. This contract is expected to commence in the first quarter of 2018.

Accreditations & Awards

  • In September 2017, FORTUNE magazine announced Centene's position of #19 in its third-annual "Change the World" list of the top 50 companies that have made an important social or environmental impact through their profit-making strategy and operations. Companies are recognized for, and competitively ranked on, innovative strategies that positively impact the world.
  • In September 2017, Health Net Federal Services, LLC, earned the Disease Management Accreditation from URAC. In August 2017, Envolve Dental, Inc., earned URAC accreditations for Dental Plan and Health Management. In addition, Buckeye Health Plan, Coordinated Care of Washington, Louisiana Healthcare Connections, CeltiCare Health, and New Hampshire Healthy Families earned Commendable Health Plan Accreditations from NCQA.
  • In September 2017, FORTUNE magazine announced Centene's position of #27 on the Fortune 100 Fastest Growing Companies for 2017.
  • In August 2017, Centene was named to the 2017 list of the Best Places to Work for People with Disabilities, presented by the American Association of People with Disabilities and the U.S. Business Leadership Network.

Membership

The following table sets forth the Company's membership by state for its managed care organizations:


September 30,


2017


2016

Arizona

659,500



601,500


Arkansas

89,900



57,700


California

2,928,600



3,004,500


Florida

852,600



732,700


Georgia

476,400



498,000


Illinois

251,000



236,700


Indiana

322,900



289,600


Kansas

127,300



145,100


Louisiana

483,300



455,600


Massachusetts

48,300



45,300


Michigan

2,400



2,100


Minnesota

9,500



9,400


Mississippi

335,600



313,900


Missouri

272,100



104,700


Nebraska

79,200




Nevada

16,800




New Hampshire

76,400



78,400


New Mexico

7,100



7,100


Ohio

336,500



319,500


Oregon

209,700



218,400


South Carolina

118,600



119,700


Tennessee

22,100



21,600


Texas

1,236,700



1,041,600


Vermont

1,600



1,700


Washington

239,600



240,500


Wisconsin

70,200



75,100


Total at-risk membership

9,273,900



8,620,400


TRICARE eligibles

2,823,200



2,815,700


Non-risk membership

213,900




Total

12,311,000



11,436,100


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


September 30,


2017


2016

Medicaid:




TANF, CHIP & Foster Care

5,809,400



5,583,900


ABD & LTC

850,300



754,900


Behavioral Health

467,400



465,300


Commercial

1,657,800



1,333,000


Medicare & Duals (1)

331,000



333,500


Correctional

158,000



149,800


Total at-risk membership

9,273,900



8,620,400


TRICARE eligibles

2,823,200



2,815,700


Non-risk membership

213,900




Total

12,311,000



11,436,100






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

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


September 30,


2017


2016

Dual-eligible (2)

475,300



437,500


Health Insurance Marketplace

1,024,000



582,600


Medicaid Expansion

1,105,000



1,048,500






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

Statement of Operations: Three Months Ended September 30, 2017

  • For the third quarter of 2017, total revenues increased 10% to $11.9 billion from $10.8 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 moratorium of the Health Insurer Fee in 2017, lower membership in the commercial business in California as a result of margin improvement actions taken last year, and the addition of a competitor in Georgia. Sequentially, total revenues remained relatively consistent with the second quarter of 2017.
  • HBR of 88.0% for the third quarter of 2017 represents an increase from 87.0% in the comparable period in 2016. The year-over-year increase is primarily a result of new or expanded health plans, which initially operate at a higher HBR, an increase in higher acuity members, and a premium rate reduction for California Medicaid Expansion effective July 1, 2017.
  • HBR increased sequentially from 86.3% in the second quarter of 2017. The increase is primarily attributable to the favorable risk adjustment in our Health Insurance Marketplace business recorded in the second quarter of 2017, the previously mentioned California Medicaid Expansion premium rate reduction, and normal seasonality of the business.
  • The SG&A expense ratio was 9.0% for the third quarter of 2017, compared to 9.2% for the third quarter of 2016 and 9.3% for the second quarter of 2017. The year-over-year decrease in the SG&A expense ratio reflects the leveraging of expenses over higher revenues in 2017.
  • The Adjusted SG&A expense ratio was 8.9% for the third quarter of 2017, compared to 9.1% for the third quarter of 2016 and 9.3% for the second quarter of 2017. The year-over-year decrease in the Adjusted SG&A expense ratio reflects the leveraging of expenses over higher revenues in 2017. Sequentially, the Adjusted SG&A expense ratio decreased primarily due to higher variable compensation expense in the second quarter as a result of higher earnings.

Balance Sheet and Cash Flow

At September 30, 2017, the Company had cash, investments and restricted deposits of $9.9 billion, including $308 million held by unregulated entities. Medical claims liabilities totaled $4.3 billion. The Company's days in claims payable was 42. Total debt was $4.7 billion, which includes $150 million of borrowings on the $1 billion revolving credit facility at quarter-end. The debt to capitalization ratio was 41.2% at September 30, 2017, excluding the $62 million non-recourse mortgage note.

Cash flow provided by operations for the three months ended September 30, 2017 was $97 million, which included the impact of a $437 million payment of the 2016 risk adjustment payable.

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, 2017

40


Timing of claims payments and the impact of new business

2


Days in claims payable, September 30, 2017

42





Outlook

The table below depicts the Company's updated annual guidance for 2017. We have updated our guidance to reflect the following items:

  • The favorable performance in the third quarter of 2017.
  • An increase in our business expansion cost range from $0.42 - $0.47 per diluted share to $0.46 - $0.51 per diluted share, reflecting additional Marketplace marketing and membership outreach efforts.
  • An increase in acquisition related expenses from $5 million - $8 million to $20 million - $25 million.

As a result of the uncertainties surrounding cost sharing reduction (CSR) payments, the guidance within the table below does not include any impact of the defunding of CSR subsidies. If the CSR payments from the Federal Government for the fourth quarter of 2017 are not received, we expect the lack of those payments to have a $0.07 - $0.12 per diluted share impact on our 2017 earnings.



Full Year 2017




Low


High


Total revenues (in billions)


$

47.4



$

48.2



GAAP diluted EPS


$

4.04



$

4.18



Adjusted Diluted EPS (1)


$

4.86



$

5.04



HBR


87.0

%


87.4

%


SG&A expense ratio


9.4

%


9.8

%


Adjusted SG&A expense ratio (2)


9.3

%


9.7

%


Effective tax rate


39.0

%


41.0

%


Diluted shares outstanding (in millions)


176.3



177.3











(1)

Adjusted Diluted EPS excludes amortization of acquired intangible assets of $0.55 to $0.57 per diluted share, Health Net and Fidelis acquisition related expenses of $0.07 to $0.09 per diluted share, and Penn Treaty assessment expense of $0.20 per diluted share.



(2)

Adjusted SG&A expense ratio excludes Health Net and Fidelis acquisition related expenses of $20 million to $25 million and the Penn Treaty assessment expense of $56 million.

Conference Call

As previously announced, the Company will host a conference call Tuesday, October 24, 2017, at approximately 8:30 AM (Eastern Time) to review the financial results for the third quarter ended September 30, 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: 4014905 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 23, 2018, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 AM (Eastern Time) on Tuesday, October 31, 2017, by dialing 1-877-344-7529 in the U.S. and Canada, or +1-412-317-0088 from abroad, and entering access code 10111720.

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):


Three Months Ended
September 30,


Nine Months Ended
September 30,


2017


2016


2017


2016

GAAP net earnings from continuing operations

$

205



$

148



$

598



$

304


Amortization of acquired intangible assets

38



43



117



95


Acquisition related expenses

7



10



13



224


Penn Treaty assessment expense (1)

9





56




Income tax effects of adjustments (2)

(20)



(5)



(68)



(106)


Adjusted net earnings from continuing operations

$

239



$

196



$

716



$

517




(1)

Additional expense for the Company's estimated share of guaranty association assessment resulting from the liquidation of Penn Treaty.



(2)

The income tax effects of adjustments are based on the effective income tax rates applicable to adjusted (non-GAAP) results.

 


Three Months Ended
September 30,


Nine Months Ended
September 30,


Annual
Guidance
December 31,
2017


2017


2016


2017


2016


GAAP diluted earnings per share (EPS)

$

1.16



$

0.84



$

3.39



$

1.90



$4.04 - $4.18

Amortization of acquired intangible assets (1)

0.14



0.16



0.42



0.36



$0.55 - $0.57

Acquisition related expenses (2)

0.02



0.12



0.05



0.97



$0.07 - $0.09

Penn Treaty assessment expense (3)

0.03





0.20





$0.20

Adjusted Diluted EPS from continuing operations

$

1.35



$

1.12



$

4.06



$

3.23



$4.86 - $5.04



(1)

The amortization of acquired intangible assets per diluted share presented above are net of an income tax benefit of $0.07 and $0.09 for the three months ended September 30, 2017 and 2016, respectively, and $0.24 and $0.23 for the nine months ended September 30, 2017 and 2016, respectively; and estimated $0.31 to $0.35 for the year ended December 31, 2017.



(2)

The acquisition related expenses per diluted share presented above are net of an income tax benefit (expense) of $0.02 and $(0.06) for the three months ended September 30, 2017 and 2016, respectively, and $0.03 and $0.43 for the nine months ended September 30, 2017 and 2016, respectively; and estimated $0.04 to $0.06 for the year ended December 31, 2017.



(3)

The Penn Treaty assessment expense per diluted share is net of an income tax benefit of $0.02 and $0.12 for the three and nine months ended September 30, 2017, respectively, and $0.12 estimated for the year ended December 31, 2017.

 


Three Months Ended
September 30,


Nine Months Ended
September 30,


Three Months
Ended June 30,


2017


2016


2017


2016


2017

GAAP SG&A expenses

$

1,030



$

940



$

3,186



$

2,611



$

1,065


Acquisition related expenses

7



10



13



224



1


Penn Treaty assessment expense

9





56






Adjusted SG&A expenses

$

1,014



$

930



$

3,117



$

2,387



$

1,064


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 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. or Fidelis Care. 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'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'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 Fidelis Care 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 for the Health Net acquisition and the Fidelis Care acquisition; disruption from acquisitions, including the Health Net acquisition and the Fidelis Care 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 Health Net acquisition, the Fidelis Care acquisition and/or the successful integration of acquisitions; changes in expected closing dates, estimated purchase price and accretion for acquisitions; the risk that acquired businesses will not be integrated successfully, including the Health Net acquisition and the Fidelis Care acquisition; the risk that the conditions of the Fidelis Care acquisition may not be satisfied or completed on a timely basis, or at all; inability to pursue alternatives to the Fidelis Care acquisition, or the risk that potential competing acquirers of Centene may be discouraged from making favorable alternative transaction proposals due to certain provisions in the Fidelis Care asset purchase agreement; failure to obtain expiration or termination of applicable waiting periods or to receive any required regulatory approvals, consents or clearances for the Fidelis Care 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 or the combined company; business uncertainties and contractual restrictions while the Fidelis Care 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 Fidelis Care acquisition; loss of management personnel and other key employees due to uncertainties associated with the Fidelis Care acquisition; the risk that, following completion of the Fidelis Care 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 Fidelis Care 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; additional indebtedness incurred or equity issued to finance the Fidelis Care acquisition; 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)



September 30, 2017


December 31, 2016


(Unaudited)



ASSETS




Current assets:




Cash and cash equivalents

$

4,281



$

3,930


Premium and related receivables

3,955



3,098


Short-term investments

595



505


Other current assets

829



832


Total current assets

9,660



8,365


Long-term investments

4,927



4,545


Restricted deposits

138



138


Property, software and equipment, net

1,003



797


Goodwill

4,712



4,712


Intangible assets, net

1,428



1,545


Other long-term assets

132



95


Total assets

$

22,000



$

20,197






LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS' EQUITY




Current liabilities:




Medical claims liability

$

4,333



$

3,929


Accounts payable and accrued expenses

4,804



4,377


Unearned revenue

568



313


Current portion of long-term debt

4



4


Total current liabilities

9,709



8,623


Long-term debt

4,717



4,651


Other long-term liabilities

901



869


Total liabilities

15,327



14,143


Commitments and contingencies




Redeemable noncontrolling interests

20



145


Stockholders' equity:




Preferred stock, $0.001 par value; authorized 10,000 shares; no shares issued or outstanding at September 30, 2017 and December 31, 2016




Common stock, $0.001 par value; authorized 400,000 shares; 179,033 issued and 172,566 outstanding at September 30, 2017, and 178,134 issued and 171,919 outstanding at December 31, 2016




Additional paid-in capital

4,310



4,190


Accumulated other comprehensive earnings (loss)

9



(36)


Retained earnings

2,518



1,920


Treasury stock, at cost (6,467 and 6,215 shares, respectively)

(197)



(179)


Total Centene stockholders' equity

6,640



5,895


Noncontrolling interest

13



14


Total stockholders' equity

6,653



5,909


Total liabilities, redeemable noncontrolling interests and stockholders' equity

$

22,000



$

20,197


 

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data in dollars)

(Unaudited)



Three Months Ended
September 30,


Nine Months Ended
September 30,


2017


2016


2017


2016

Revenues:








Premium

$

10,850



$

9,625



$

32,393



$

25,299


Service

571



590



1,634



1,603


Premium and service revenues

11,421



10,215



34,027



26,902


Premium tax and health insurer fee

477



631



1,549



1,794


Total revenues

11,898



10,846



35,576



28,696


Expenses:








Medical costs

9,543



8,376



28,278



22,072


Cost of services

437



504



1,334



1,386


Selling, general and administrative expenses

1,030



940



3,186



2,611


Amortization of acquired intangible assets

38



43



117



95


Premium tax expense

510



512



1,643



1,460


Health insurer fee expense



129





333


Total operating expenses

11,558



10,504



34,558



27,957


Earnings from operations

340



342



1,018



739


Other income (expense):








Investment and other income

51



33



137



80


Interest expense

(65)



(57)



(189)



(142)


Earnings from continuing operations, before income tax expense

326



318



966



677


Income tax expense

125



169



381



372


Earnings from continuing operations, net of income tax expense

201



149



585



305


Discontinued operations, net of income tax benefit



(1)





(3)


Net earnings

201



148



585



302


(Earnings) loss attributable to noncontrolling interests

4



(1)



13



(1)


Net earnings attributable to Centene Corporation

$

205



$

147



$

598



$

301










Amounts attributable to Centene Corporation common shareholders:

Earnings from continuing operations, net of income tax expense

$

205



$

148



$

598



$

304


Discontinued operations, net of income tax benefit



(1)





(3)


Net earnings

$

205



$

147



$

598



$

301










Net earnings (loss) per common share attributable to Centene Corporation:

Basic:








Continuing operations

$

1.19



$

0.87



$

3.47



$

1.95


Discontinued operations



(0.01)





(0.02)


Basic earnings per common share

$

1.19



$

0.86



$

3.47



$

1.93










Diluted:








Continuing operations

$

1.16



$

0.84



$

3.39



$

1.90


Discontinued operations







(0.02)


Diluted earnings per common share

$

1.16



$

0.84



$

3.39



$

1.88


 

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



Nine Months Ended September 30,


2017


2016

Cash flows from operating activities:




Net earnings

$

585



$

302


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








Depreciation and amortization

264



189


Stock compensation expense

99



112


Deferred income taxes

(32)



(17)


Changes in assets and liabilities




Premium and related receivables

(749)



(906)


Other assets

(39)



7


Medical claims liabilities

406



15


Unearned revenue

255



301


Accounts payable and accrued expenses

205



99


Other long-term liabilities

45



156


Other operating activities, net



1


Net cash provided by operating activities

1,039



259


Cash flows from investing activities:




Capital expenditures

(301)



(211)


Purchases of investments

(1,720)



(1,528)


Sales and maturities of investments

1,335



955


Investments in acquisitions, net of cash acquired



(848)


Net cash used in investing activities

(686)



(1,632)


Cash flows from financing activities:




Proceeds from long-term debt

1,170



6,956


Payments of long-term debt

(1,124)



(4,257)


Common stock repurchases

(18)



(29)


Purchase of noncontrolling interest

(33)



(14)


Debt issuance costs



(59)


Other financing activities, net

2



(3)


Net cash (used in) provided by financing activities

(3)



2,594


Effect of exchange rate changes on cash and cash equivalents

1



1


Net increase in cash and cash equivalents

351



1,222


Cash and cash equivalents, beginning of period

3,930



1,760


Cash and cash equivalents, end of period

$

4,281



$

2,982


Supplemental disclosures of cash flow information:




Interest paid

$

210



$

113


Income taxes paid

$

358



$

394


Equity issued in connection with acquisitions

$



$

3,105


 

CENTENE CORPORATION

SUPPLEMENTAL FINANCIAL DATA FROM CONTINUING OPERATIONS




Q3


Q2


Q1


Q4


Q3



2017


2017


2017


2016


2016

MANAGED CARE MEMBERSHIP BY STATE

Arizona


659,500



669,500



684,300



598,300



601,500


Arkansas


89,900



91,900



98,100



58,600



57,700


California


2,928,600



2,925,800



2,980,100



2,973,500



3,004,500


Florida


852,600



871,100



872,000



716,100



732,700


Georgia


476,400



540,400



568,300



488,000



498,000


Illinois


251,000



254,600



253,800



237,700



236,700


Indiana


322,900



340,000



335,800



285,800



289,600


Kansas


127,300



130,000



133,100



139,700



145,100


Louisiana


483,300



484,600



484,100



472,800



455,600


Massachusetts


48,300



54,100



44,200



48,300



45,300


Michigan


2,400



2,300



2,100



2,000



2,100


Minnesota


9,500



9,500



9,500



9,400



9,400


Mississippi


335,600



343,600



349,500



310,200



313,900


Missouri


272,100



278,300



106,100



105,700



104,700


Nebraska


79,200



78,800



79,200






Nevada


16,800










New Hampshire


76,400



77,100



77,800



77,400



78,400


New Mexico


7,100



7,100



7,100



7,100



7,100


Ohio


336,500



332,700



328,900



316,000



319,500


Oregon


209,700



213,600



211,900



217,800



218,400


South Carolina


118,600



121,000



121,900



122,500



119,700


Tennessee


22,100



22,200



21,900



21,700



21,600


Texas


1,236,700



1,226,800



1,243,900



1,072,400



1,041,600


Vermont


1,600



1,600



1,600



1,600



1,700


Washington


239,600



248,500



254,400



238,400



240,500


Wisconsin


70,200



70,800



71,700



73,800



75,100


Total at-risk membership


9,273,900



9,395,900



9,341,300



8,594,800



8,620,400


TRICARE eligibles


2,823,200



2,823,200



2,804,100



2,847,000



2,815,700


Non-risk membership


213,900










Total


12,311,000



12,219,100



12,145,400



11,441,800



11,436,100














Medicaid:











TANF, CHIP & Foster Care


5,809,400



5,854,400



5,714,100



5,630,000



5,583,900


ABD & LTC


850,300



843,500



825,600



785,400



754,900


Behavioral Health


467,400



466,500



466,900



466,600



465,300


Commercial


1,657,800



1,743,600



1,864,700



1,239,100



1,333,000


Medicare & Duals (1)


331,000



327,500



328,100



334,300



333,500


Correctional


158,000



160,400



141,900



139,400



149,800


Total at-risk membership


9,273,900



9,395,900



9,341,300



8,594,800



8,620,400


TRICARE eligibles


2,823,200



2,823,200



2,804,100



2,847,000



2,815,700


Non-risk membership


213,900










Total


12,311,000



12,219,100



12,145,400



11,441,800



11,436,100













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












NUMBER OF EMPLOYEES


32,400



31,500



30,900



30,500



29,400


 


Q3


Q2


Q1


Q4


Q3


2017


2017


2017


2016


2016











DAYS IN CLAIMS PAYABLE (a)

42



40



41



42



41


(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

$

9,633



$

9,673



$

10,034



$

8,854



$

7,825


Unregulated

308



291



306



264



268


Total

$

9,941



$

9,964



$

10,340



$

9,118



$

8,093












DEBT TO CAPITALIZATION

41.5

%


42.5

%


43.3

%


44.1

%


44.5

%

DEBT TO CAPITALIZATION EXCLUDING NON-RECOURSE DEBT (b)

41.2

%


42.1

%


43.0

%


43.7

%


44.1

%

(b) The non-recourse debt represents the Company's mortgage note payable ($62 million at September 30, 2017).

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

OPERATING RATIOS


Three Months Ended
September 30,


Nine Months Ended
September 30,


2017


2016


2017


2016

HBR

88.0

%


87.0

%


87.3

%


87.2

%

SG&A expense ratio

9.0

%


9.2

%


9.4

%


9.7

%

Adjusted SG&A expense ratio

8.9

%


9.1

%


9.2

%


8.9

%

MEDICAL CLAIMS LIABILITY

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

Balance, September 30, 2016


$

3,767

Incurred related to:



Current period


37,321

Prior period


(479

Total incurred


36,842

Paid related to:



Current period


33,250

Prior period


3,043

Total paid


36,293

Balance, September 30, 2017, net


4,316

Plus: Reinsurance recoverable


17

Balance, September 30, 2017


$

4,333

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 $4 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 September 30, 2016, and prior.

 

View original content:http://www.prnewswire.com/news-releases/centene-corporation-reports-2017-third-quarter-results--updates-2017-guidance-300541657.html

SOURCE Centene Corporation

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