Press Release

Centene Corporation Reports 2018 First Quarter Results And Adjusts 2018 Guidance
-- 2018 First Quarter Diluted EPS of $1.91; Adjusted Diluted EPS of $2.17 --

ST. LOUIS, April 24, 2018 /PRNewswire/ -- Centene Corporation (NYSE: CNC) announced today its financial results for the first quarter ended March 31, 2018, reporting diluted earnings per share (EPS) of $1.91, and Adjusted Diluted EPS of $2.17.

In summary, the 2018 first quarter results were as follows:

Total revenues (in millions)

$

13,194


Health benefits ratio

84.3

%

SG&A expense ratio

10.5

%

GAAP diluted EPS

$

1.91


Adjusted Diluted EPS (1)

$

2.17


Total cash flow provided by operations (in millions)

$

1,846




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

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "Our strong first quarter results set the stage for Centene to maintain positive operating and financial momentum throughout 2018."

First Quarter Highlights

  • March 31, 2018 managed care membership of 12.8 million, an increase of 684,000 members, or 6% over March 31, 2017.
  • Total revenues for the first quarter of 2018 of $13.2 billion, representing 13% growth, compared to the first quarter of 2017.
  • Health benefits ratio (HBR) of 84.3% for the first quarter of 2018, compared to 87.6% in the first quarter of 2017.
  • Selling, general and administrative (SG&A) expense ratio of 10.5% for the first quarter of 2018, compared to 9.8% for the first quarter of 2017.
  • Adjusted SG&A expense ratio of 10.3% for the first quarter of 2018, compared to 9.3% for the first quarter of 2017.
  • Operating cash flow of $1.8 billion for the first quarter of 2018, representing 5.5x net earnings.
  • Diluted EPS for the first quarter of 2018 of $1.91, compared to $0.79 for the first quarter of 2017.
  • Adjusted Diluted EPS for the first quarter of 2018 of $2.17, compared to $1.12 for the first quarter of 2017. Adjusted Diluted EPS for the first quarter of 2018 was higher than our previous expectations by approximately $0.12 per diluted share due to the delay in the financing for the acquisition of New York State Catholic Health Plan, Inc. d/b/a Fidelis Care New York (Fidelis Care) (Proposed Fidelis Acquisition).

Other Events

  • In April 2018, we received regulatory approvals from the New York Department of Health and the New York Department of Financial Services for the Proposed Fidelis Acquisition. The Proposed Fidelis Acquisition remains subject to regulatory approval from the New York Attorney General and certain closing conditions.
  • In April 2018, we completed the acquisition of MHM Services, Inc. (MHM), a national provider of healthcare and staffing services to correctional systems and other government agencies. Under the terms of the agreement, Centene also acquired the remaining 49% ownership of Centurion, the correctional healthcare services joint venture between Centene and MHM.
  • In March 2018, we acquired an additional 61% ownership in Interpreta Holdings, Inc. (Interpreta), a clinical and genomics data analytics business, bringing our total ownership to 80%.
  • In March 2018, we completed the acquisition of Community Medical Holdings Corp., d/b/a Community Medical Group (CMG), an at-risk primary care provider serving approximately 70,000 Medicaid, Medicare Advantage, and Health Insurance Marketplace patients in Miami-Dade County, Florida.
  • In March 2018, we made a 25% equity method investment in RxAdvance, a full-service pharmacy benefit manager (PBM), and expect to use its platform to improve health outcomes and reduce avoidable drug-impacted medical and administrative costs. This partnership includes both a customer relationship and a strategic investment in RxAdvance. As part of the initial transaction, Centene has certain rights to expand its equity investment in the future.
  • In March 2018, our Arizona subsidiary, Health Net Access, was selected to provide physical and behavioral healthcare services through the Arizona Health Care Cost Containment System Complete Care program in the Central region and the Southern region. Pending regulatory approval and successful completion of readiness review, the three-year agreement, with the possibility of two two-year extensions, is expected to commence on October 1, 2018.

Membership

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


March 31,


2018


2017

Medicaid:




TANF, CHIP & Foster Care

5,776,600



5,714,100


ABD & LTSS

866,000



825,600


Behavioral Health

454,500



466,900


   Total Medicaid

7,097,100



7,006,600


Commercial

2,161,200



1,864,700


Medicare & MMP (1)

343,400



328,100


Correctional

157,300



141,900


   Total at-risk membership

9,759,000



9,341,300


TRICARE eligibles

2,851,500



2,804,100


Non-risk membership

218,900




   Total

12,829,400



12,145,400






(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:


March 31,


2018


2017

Dual-eligible (2)

438,200



458,700


Health Insurance Marketplace

1,603,800



1,188,700


Medicaid Expansion

1,057,400



1,091,300






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

Statement of Operations: Three Months Ended March 31, 2018

  • For the first quarter of 2018, total revenues increased 13% to $13.2 billion, from $11.7 billion in the comparable period in 2017. The increase over prior year was due to growth in the Health Insurance Marketplace business in 2018, expansions and new programs in many of our states in 2017 and 2018, and the reinstatement of the health insurer fee in 2018. These increases were partially offset by lower revenues in California, which is a result of the removal of the in-home support services (IHSS) program from its Medicaid contract.
  • Sequentially, total revenues increased 3% over the fourth quarter of 2017 mainly due to growth in the Health Insurance Marketplace business and the reinstatement of the health insurer fee. These increases were partially offset by approximately $700 million of revenue received in the fourth quarter of 2017 associated with pass through payments from the State of California, which were recorded in premium tax revenue and premium tax expense.
  • HBR of 84.3% for the first quarter of 2018 represents a decrease from 87.6% in the comparable period in 2017. The year-over-year decrease was primarily a result of membership growth in the Health Insurance Marketplace business, lower medical costs in our Medicaid business, and the reinstatement of the health insurer fee in 2018. These decreases were partially offset by new or expanded health plans, which initially operate at a higher HBR, and increased flu-related costs.
  • HBR decreased sequentially from 87.3% in the fourth quarter of 2017. The decrease was primarily attributable to performance and seasonality in the Health Insurance Marketplace business and the reinstatement of the health insurer fee in 2018. These HBR improvements were partially offset by the increase in flu-related costs over the fourth quarter of 2017.
  • The SG&A expense ratio was 10.5% for the first quarter of 2018, compared to 9.8% for the first quarter of 2017. The year-over-year increase was primarily a result of growth in the Health Insurance Marketplace business, as well as increased acquisition related expenses over the first quarter of 2017. These increases were partially offset by the impact of Penn Treaty assessment expense recognized in the first quarter of 2017.
  • Sequentially, the SG&A expense ratio decreased from 10.9% in the fourth quarter of 2017, primarily due to increased selling costs associated with open enrollment in the fourth quarter of 2017 and the $40 million contribution to our charitable foundation in the fourth quarter of 2017. These decreases were partially offset by increased acquisition related expenses over the fourth quarter of 2017 and increased variable compensation expenses related to earnings performance in the first quarter of 2018.
  • The Adjusted SG&A expense ratio was 10.3% for the first quarter of 2018, compared to 9.3% for the first quarter of 2017. The year-over-year increase is primarily a result of growth in the Health Insurance Marketplace business, which operates at a higher SG&A expense ratio.
  • Sequentially, the Adjusted SG&A expense ratio decreased from 10.5% in the fourth quarter of 2017, primarily due to increased selling costs associated with open enrollment in the fourth quarter of 2017, partially offset by increased variable compensation expenses related to earnings performance in the first quarter of 2018.

Balance Sheet and Cash Flow

At March 31, 2018, the Company had cash, investments and restricted deposits of $11.9 billion, including $452 million held by unregulated entities. Medical claims liabilities totaled $4.8 billion. The Company's days in claims payable was 43, which is an increase of two days over the fourth quarter of 2017 due to growth in the Health Insurance Marketplace business, growth in new markets, and the timing of claims payments. Total debt was $5.2 billion, which includes $675 million of borrowings on the $1.5 billion revolving credit facility at quarter-end. The debt to capitalization ratio was 40.3% at March 31, 2018, excluding the $60 million non-recourse mortgage note.

Cash flow provided by operations for the three months ended March 31, 2018 was $1.8 billion due to net earnings, an increase in medical claims liabilities, primarily resulting from growth in the Health Insurance Marketplace business, and an increase in other long-term liabilities, driven by the recognition of risk adjustment payable for Health Insurance Marketplace in 2018. Cash provided by operations was also driven by increases in unearned revenue, due to the receipt of several April capitation payments received in March.

Outlook

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

  • An increase to GAAP diluted EPS and Adjusted Diluted EPS of $0.05 associated with the performance of the business in the first quarter of 2018;
  • A change in the timing of the anticipated closing of the Proposed Fidelis Acquisition from April 1, 2018 to July 1, 2018, as well as a change in the assumed timing of the equity and debt financing from March 1, 2018 to May 1, 2018. The ultimate timing of the financings will depend on market conditions;
  • The impact of undertakings that Centene is expected to enter into as part of the regulatory approval process for the Proposed Fidelis Acquisition with the New York State Department of Health. It is expected that one of the undertakings, among others, will include a $340 million contribution by Centene to the State of New York to be paid over a five-year period for initiatives consistent with our mission of providing high quality healthcare to vulnerable populations within New York State. Upon the closing of the Proposed Fidelis Acquisition, the present value of the $340 million contribution to the State of New York, estimated to be approximately $325 million, will be expensed in SG&A; and
  • The net effect of the acquisitions of CMG, MHM, and Interpreta and the investment in RxAdvance.

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


$60.6 - $61.4


$5.91 - $6.25


$6.95 - $7.35


Q1 Performance



0.05


0.05


Timing of Fidelis Care Financing & Acquisition


(2.7) - (2.9)


(0.21)


(0.25)


Undertakings for the Proposed Fidelis Acquisition



(1.26)



Recent Acquisitions and Investments


0.3 - 0.5


(0.13)



Revised Guidance Range


$58.2 - $59.0


$4.36 - $4.70


$6.75 - $7.15










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



Full Year 2018




Low


High


Total revenues (in billions)


$

58.2



$

59.0



GAAP diluted EPS


$

4.36



$

4.70



Adjusted Diluted EPS (1)


$

6.75



$

7.15



HBR


85.9

%


86.4

%


SG&A expense ratio


10.2

%


10.7

%


Adjusted SG&A expense ratio (2)


9.4

%


9.9

%


Effective tax rate


34.0

%


36.0

%


Diluted shares outstanding (in millions)


196.5



197.5











(1)

Adjusted Diluted EPS excludes amortization of acquired intangible assets of $0.81 to $0.83 per diluted share and acquisition related expenses of $1.58 to $1.62 per diluted share.



(2)

Adjusted SG&A expense ratio excludes acquisition related expenses of $415 million to $420 million.

Conference Call

As previously announced, the Company will host a conference call Tuesday, April 24, 2018, at approximately 8:30 AM (Eastern Time) to review the financial results for the first quarter ended March 31, 2018. 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: 1778901 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, April 23, 2019, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 AM (Eastern Time) on Tuesday, May 1, 2018, by dialing 1-877-344-7529 in the U.S. and Canada, or +1-412-317-0088 from abroad, and entering access code 10118311.

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
March 31,


2018


2017

GAAP net earnings

$

340



$

139


Amortization of acquired intangible assets

39



40


Acquisition related expenses

21



5


Penn Treaty assessment expense (1)



47


Income tax effects of adjustments (2)

(14)



(34)


   Adjusted net earnings

$

386



$

197




(1)

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



(2)

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

 


Three Months Ended
March 31,


Annual Guidance

 December 31,
2018


2018


2017


GAAP diluted EPS

$

1.91



$

0.79



$4.36 - $4.70

Amortization of acquired intangible assets (1)

0.17



0.14



$0.81 - $0.83

Acquisition related expenses (2)

0.09



0.02



$1.58 - $1.62

Penn Treaty assessment expense (3)



0.17



   Adjusted Diluted EPS

$

2.17



$

1.12



$6.75 - $7.15



(1)

The amortization of acquired intangible assets per diluted share presented above is net of an income tax benefit of $0.05 and $0.09 for the three months ended March 31, 2018 and 2017, 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 $0.03 and $0.01 for the three months ended March 31, 2018 and 2017, respectively, and an estimated $0.51 to $0.52 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 $0.09 for the three months ended March 31, 2017.

 


Three Months Ended
March 31,


Three Months
Ended
December 31,


2018


2017


2017

GAAP SG&A expenses

$

1,316



$

1,091



$

1,260


Acquisition related expenses

21



5



7


Penn Treaty assessment expense



47




Charitable contribution





40


Adjusted SG&A expenses

$

1,295



$

1,039



$

1,213


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, commercial programs, home-based primary care services, life and health management, vision benefits management, 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 income tax reform or 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, TRICARE or other customers); 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 or the Proposed Fidelis 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 and pending acquisitions, 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 or the completion of the Proposed Fidelis Acquisition; 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)



March 31, 2018


December 31, 2017


(Unaudited)



ASSETS




Current assets:




Cash and cash equivalents

$

5,668



$

4,072


Premium and trade receivables

3,648



3,413


Short-term investments

507



531


Other current assets

1,153



687


Total current assets

10,976



8,703


Long-term investments

5,535



5,312


Restricted deposits

140



135


Property, software and equipment, net

1,250



1,104


Goodwill

5,295



4,749


Intangible assets, net

1,519



1,398


Other long-term assets

455



454


Total assets

$

25,170



$

21,855






LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS' EQUITY




Current liabilities:




Medical claims liability

$

4,771



$

4,286


Accounts payable and accrued expenses

4,962



4,165


Return of premium payable

515



549


Unearned revenue

638



328


Current portion of long-term debt

4



4


Total current liabilities

10,890



9,332


Long-term debt

5,172



4,695


Other long-term liabilities

1,520



952


Total liabilities

17,582



14,979


Commitments and contingencies




Redeemable noncontrolling interests

8



12


Stockholders' equity:




Preferred stock, $0.001 par value; authorized 10,000 shares; no shares issued or outstanding at March 31, 2018 and December 31, 2017




Common stock, $0.001 par value; authorized 400,000 shares; 180,643 issued and 176,795 outstanding at March 31, 2018, and 180,379 issued and 173,437 outstanding at December 31, 2017




Additional paid-in capital

4,592



4,349


Accumulated other comprehensive (loss)

(54)



(3)


Retained earnings

3,104



2,748


Treasury stock, at cost (3,848 and 6,942 shares, respectively)

(139)



(244)


   Total Centene stockholders' equity

7,503



6,850


Noncontrolling interest

77



14


Total stockholders' equity

7,580



6,864


Total liabilities, redeemable noncontrolling interests and stockholders' equity

$

25,170



$

21,855


 

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data in dollars)

(Unaudited)



Three Months Ended March 31,


2018


2017

Revenues:




Premium

$

11,903



$

10,638


Service

653



527


Premium and service revenues

12,556



11,165


Premium tax and health insurer fee

638



559


Total revenues

13,194



11,724


Expenses:




Medical costs

10,039



9,322


Cost of services

543



441


Selling, general and administrative expenses

1,316



1,091


Amortization of acquired intangible assets

39



40


Premium tax expense

546



590


Health insurer fee expense

171




Total operating expenses

12,654



11,484


Earnings from operations

540



240


Other income (expense):




Investment and other income

41



41


Interest expense

(68)



(62)


Earnings from operations, before income tax expense

513



219


Income tax expense

175



87


Net earnings

338



132


Loss attributable to noncontrolling interests

2



7


Net earnings attributable to Centene Corporation

$

340



$

139






Net earnings per common share attributable to Centene Corporation:

Basic earnings per common share

$

1.95



$

0.81


Diluted earnings per common share

$

1.91



$

0.79






 

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



Three Months Ended March 31,


2018


2017

Cash flows from operating activities:




Net earnings

$

338



$

132


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

Depreciation and amortization

104



86


Stock compensation expense

33



32


Deferred income taxes

30



(51)


Changes in assets and liabilities




Premium and trade receivables

(176)



59


Other assets

51



89


Medical claims liabilities

485



358


Unearned revenue

317



320


Accounts payable and accrued expenses

157



(237)


Other long-term liabilities

477



459


Other operating activities, net

30



1


Net cash provided by operating activities

1,846



1,248


Cash flows from investing activities:




Capital expenditures

(218)



(83)


Purchases of investments

(765)



(582)


Sales and maturities of investments

445



343


Acquisitions, net of cash acquired

(226)




Other investing activities, net



(1)


Net cash used in investing activities

(764)



(323)


Cash flows from financing activities:




Proceeds from long-term debt

2,015



560


Payments of long-term debt

(1,491)



(560)


Common stock repurchases

(9)



(13)


Other financing activities, net

(2)



3


Net cash provided by (used in) financing activities

513



(10)


Net increase in cash, cash equivalents and restricted cash

1,595



915


Cash, cash equivalents, and restricted cash and cash equivalents, beginning of period

4,089



3,936


Cash, cash equivalents, and restricted cash and cash equivalents, end of period

$

5,684



$

4,851


Supplemental disclosures of cash flow information:




Interest paid

$

73



$

72


Income taxes paid

$

1



$

2


Equity issued in connection with acquisitions

$

324



$


 

CENTENE CORPORATION

SUPPLEMENTAL FINANCIAL DATA FROM CONTINUING OPERATIONS




Q1


Q4


Q3


Q2


Q1



2018


2017


2017


2017


2017

MANAGED CARE MEMBERSHIP BY STATE

Arizona


639,800



640,500



659,500



669,500



684,300


Arkansas


92,300



85,700



89,900



91,900



98,100


California


2,903,600



2,877,800



2,928,600



2,925,800



2,980,100


Florida


1,090,600



848,800



852,600



871,100



872,000


Georgia


581,500



483,600



476,400



540,400



568,300


Illinois


238,400



239,500



251,000



254,600



253,800


Indiana


317,400



304,500



322,900



340,000



335,800


Kansas


151,500



129,100



127,300



130,000



133,100


Louisiana


485,900



485,500



483,300



484,600



484,100


Massachusetts


8,900



43,000



48,300



54,100



44,200


Michigan


2,800



2,500



2,400



2,300



2,100


Minnesota


9,400



9,400



9,500



9,500



9,500


Mississippi


347,600



329,900



335,600



343,600



349,500


Missouri


329,900



269,400



272,100



278,300



106,100


Nebraska


81,500



79,700



79,200



78,800



79,200


Nevada


74,600



34,900



16,800






New Hampshire


82,900



74,800



76,400



77,100



77,800


New Mexico


7,200



7,100



7,100



7,100



7,100


Ohio


352,800



332,700



336,500



332,700



328,900


Oregon


199,300



205,200



209,700



213,600



211,900


Pennsylvania


22,400










South Carolina


119,300



117,800



118,600



121,000



121,900


Tennessee


22,000



22,200



22,100



22,200



21,900


Texas


1,260,100



1,233,500



1,236,700



1,226,800



1,243,900


Vermont


1,600



1,600



1,600



1,600



1,600


Washington


260,800



237,800



239,600



248,500



254,400


Wisconsin


74,900



70,200



70,200



70,800



71,700


Total at-risk membership


9,759,000



9,166,700



9,273,900



9,395,900



9,341,300


TRICARE eligibles


2,851,500



2,824,100



2,823,200



2,823,200



2,804,100


Non-risk membership


218,900



216,300



213,900






Total


12,829,400



12,207,100



12,311,000



12,219,100



12,145,400













Medicaid:











   TANF, CHIP & Foster Care


5,776,600



5,807,300



5,809,400



5,854,400



5,714,100


   ABD & LTSS


866,000



846,200



850,300



843,500



825,600


   Behavioral Health


454,500



463,700



467,400



466,500



466,900


   Total Medicaid


7,097,100



7,117,200



7,127,100



7,164,400



7,006,600


Commercial


2,161,200



1,558,300



1,657,800



1,743,600



1,864,700


Medicare & MMP (1)


343,400



333,700



331,000



327,500



328,100


Correctional


157,300



157,500



158,000



160,400



141,900


   Total at-risk membership


9,759,000



9,166,700



9,273,900



9,395,900



9,341,300


TRICARE eligibles


2,851,500



2,824,100



2,823,200



2,823,200



2,804,100


Non-risk membership


218,900



216,300



213,900






   Total


12,829,400



12,207,100



12,311,000



12,219,100



12,145,400













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

 


Q1


Q4


Q3


Q2


Q1


2018


2017


2017


2017


2017











NUMBER OF EMPLOYEES

34,800



33,700



32,400



31,500



30,900












DAYS IN CLAIMS PAYABLE (a)

43



41



42



40



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

$

11,398



$

9,740



$

9,633



$

9,673



$

10,034


Unregulated

452



310



308



291



306


   Total

$

11,850



$

10,050



$

9,941



$

9,964



$

10,340












DEBT TO CAPITALIZATION

40.6

%


40.6

%


41.5

%


42.5

%


43.3

%

DEBT TO CAPITALIZATION EXCLUDING NON-RECOURSE DEBT (b)

40.3

%


40.3

%


41.2

%


42.1

%


43.0

%

(b) The non-recourse debt represents the Company's mortgage note payable ($60 million at March 31, 2018).

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

OPERATING RATIOS


Three Months Ended March 31,


2018


2017

HBR

84.3

%


87.6

%

SG&A expense ratio

10.5

%


9.8

%

Adjusted SG&A expense ratio

10.3

%


9.3

%












MEDICAL CLAIMS LIABILITY

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

Balance, March 31, 2017


$

4,290


Reinsurance recoverable


8

Balance, March 31, 2017, net


4,282

Incurred related to:



   Current period


38,956

   Prior period


(388)

   Total incurred


38,568

Paid related to:



   Current period


34,446

   Prior period


3,646

   Total paid


38,092

Balance, March 31, 2018, net


4,758

Plus: Reinsurance recoverable


13

Balance, March 31, 2018


$

4,771









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 $6 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 March 31, 2017, and prior.

 

Cision View original content:http://www.prnewswire.com/news-releases/centene-corporation-reports-2018-first-quarter-results-and-adjusts-2018-guidance-300635033.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