Document
false0001071739 0001071739 2020-07-28 2020-07-28




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 28, 2020

CENTENE CORPORATION
(Exact Name of Registrant as Specified in Charter)

Delaware
 
001-31826
 
42-1406317
(State or Other Jurisdiction
of Incorporation)
 
(Commission File Number)
 
(IRS Employer
Identification No.)
7700 Forsyth Boulevard,
 
 
St. Louis,
Missouri
 
63105
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (314) 725-4477
(Former Name or Former Address, if Changed Since Last Report): N/A
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
Emerging growth company 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common stock, $0.001 Par Value
 
CNC
 
NYSE






ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(a) On July 28, 2020, we issued a press release announcing our financial results for the second quarter ended June 30, 2020. The full text of the press release is included as Exhibit 99.1 to this report. The information contained in the website cited in the press release is not a part of this report.

The information contained in this Form 8-K and Exhibit 99.1 attached hereto shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section. Nor shall such information or exhibit be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as expressly set forth by specific reference in such a filing.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits
The following exhibit relating to Item 2.02 shall be deemed to be furnished and not filed:
99.1 Press release of Centene Corporation issued July 28, 2020, as to financial results for the second quarter ended June 30, 2020.







EXHIBIT INDEX
Exhibit Number
 
Description
99.1*
 
104
 
Cover page information from Centene Corporation’s Current Report on Form 8-K filed on July 28, 2020 formatted in iXBRL (Inline Extensible Business Reporting Language).
*
 
The press release is being furnished pursuant to Item 2.02, and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange of 1934, as amended.







SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
CENTENE CORPORATION
 
 
 
 
 
Date:
July 28, 2020
By:
 
/s/ Jeffrey A. Schwaneke
 
 
 
 
Jeffrey A. Schwaneke
Executive Vice President & Chief Financial Officer




Exhibit


Exhibit 99.1        
https://cdn.kscope.io/396026f00d536278b9b1b7e04ef17ec8-centenelogoa60.jpg
N E W S R E L E A S E                                                                                
Contact:
Investor Relations Inquiries
 
Jennifer Gilligan
 
Senior Vice President, Finance & Investor Relations
 
(212) 549-1306
 
 
 
Media Inquiries
 
Marcela Manjarrez-Hawn
 
Senior Vice President and Chief Communications Officer
 
(314) 445-0790

FOR IMMEDIATE RELEASE

CENTENE CORPORATION REPORTS SECOND QUARTER 2020 RESULTS
-- Diluted EPS of $2.05; Adjusted Diluted EPS of $2.40 --

ST. LOUIS, MISSOURI (July 28, 2020) -- Centene Corporation (NYSE: CNC) announced today its financial results for the second quarter ended June 30, 2020, reporting diluted earnings per share (EPS) of $2.05 and Adjusted Diluted EPS of $2.40.

In summary, the 2020 second quarter results were as follows:
Total revenues (in millions)
$
27,712

Health benefits ratio
82.1
%
SG&A expense ratio
8.8
%
Adjusted SG&A expense ratio (1)
8.5
%
GAAP diluted EPS
$
2.05

Adjusted Diluted EPS (1)
$
2.40

Total cash flow provided by operations (in millions)
$
3,714

 
 
(1) A full reconciliation of the Adjusted SG&A expense ratio and Adjusted Diluted EPS are shown on pages six and seven of this release.

The 2020 second quarter results benefited from lower medical utilization as a result of the COVID-19 pandemic.

“I am pleased with our solid second quarter performance, which came in line with our expectations. Our performance underscores the impact of shelter in place policies on our diversified platform in addition to our team’s solid execution in what continues to be a challenging operating landscape," said Michael F. Neidorff, Chairman, President and Chief Executive Officer of Centene.

“Looking ahead, while we expect the national economic trajectory to remain choppy as we move through the second half of the year, we believe that the return of utilization by our members seeking treatments will be regionally driven. We continue to provide the highest quality of care to our members during this critical time and are well-positioned to respond quickly to evolving dynamics as we execute on our growth strategy. We are further supported by the strength of our balance sheet and solid financial position.”





1




Second Quarter Highlights

June 30, 2020 managed care membership of 24.6 million, an increase of 9.6 million members, or 64%, over June 30, 2019.

Total revenues of $27.7 billion for the second quarter of 2020, representing 51% growth compared to the second quarter of 2019.

Health benefits ratio (HBR) of 82.1% for the second quarter of 2020, compared to 86.7% in the second quarter of 2019.

Selling, general and administrative (SG&A) expense ratio of 8.8% for the second quarter of 2020, compared to 9.1% for the second quarter of 2019.

Adjusted SG&A expense ratio of 8.5% for the second quarter of 2020, compared to 9.0% for the second quarter of 2019.

Diluted EPS for the second quarter of 2020 of $2.05, compared to $1.18 for the second quarter of 2019.

Adjusted Diluted EPS for the second quarter of 2020 of $2.40, compared to $1.34 for the second quarter of 2019.

Operating cash flow of $3.7 billion for the second quarter 2020, representing 3.1x net earnings.

Other Events

In July 2020, Centene announced that it will establish an East Coast headquarters in Charlotte, North Carolina. The Company expects to begin construction on the new campus in August and plans to create 3,200 new jobs, with eventual accommodations for up to 6,000 employees, and invest $1 billion in the Charlotte community over time.

In July 2020, Centene's subsidiary, Meridian Health Plan of Illinois, Inc. (Meridian), began serving Medicaid members in Cook County, Illinois as a result of a Member Transfer Agreement under which Meridian was assigned 100% of NextLevel Health Partners, Inc.'s approximately 54,000 members who access benefits from the Illinois Department of Healthcare and Family Services' HealthChoice Illinois Program.

In July 2020, Centene's subsidiary, Centurion, commenced a two-year contract with the Kansas Department of Administration to provide healthcare services in the Department of Corrections’ facilities.

In June 2020, Centene's subsidiary, WellCare of Kentucky, was selected by the state of Kentucky to continue serving the Commonwealth's Medicaid managed care program statewide. The new four-year contract is anticipated to begin on January 1, 2021 running through December 31, 2024 with the option for six, two-year renewal extensions.

Accreditations & Awards

In July 2020, for the third consecutive year, Centene was recognized with a 100 percent score on the Disability Equality Index (DEI) as one of the Best Places to Work for People with Disabilities.

In July 2020, Forbes announced Centene's position of #14 on its Corporate Responders list, which assesses how well the 100 largest publicly-held companies in the U.S. have responded to COVID-19.

In June 2020, Centene's subsidiary, Envolve Dental, earned Accreditation from the National Committee for Quality Assurance (NCQA).

In May 2020, FORTUNE announced Centene's position of #42 in its annual ranking of America's largest companies based on 2019 revenue.

In April 2020, several Centene health plans earned Accreditation from NCQA, including Ambetter from Arkansas Health and Wellness, Sunflower Health Plan and QualChoice Health Insurance.


2



COVID-19 Pandemic

Beginning in March 2020, Centene announced a series of actions in support of various populations impacted by the COVID-19 pandemic. A detailed list of specific actions taken by the Company in response to the pandemic is shown on page 15 of this release.

Membership

The following table sets forth our membership by line of business:
 
June 30,
 
2020
 
2019
Medicaid:
 
 
 
TANF, CHIP & Foster Care
10,894,200

 
7,388,700

ABD & LTSS
1,496,000

 
997,900

Behavioral Health
173,900

 
68,800

Total Medicaid
12,564,100

 
8,455,400

Medicare PDP
4,443,100

 

Commercial
2,763,300

 
2,449,400

Medicare (1)
996,100

 
398,500

International
600,400

 
463,100

Correctional
166,000

 
153,900

Total at-risk membership
21,533,000

 
11,920,300

TRICARE eligibles
2,864,700

 
2,855,800

Non-risk membership
223,300

 
228,100

Total
24,621,000

 
15,004,200

 
 
 
 
(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:
 
June 30,
 
2020
 
2019
Dual-eligible (2)
969,700

 
600,800

Health Insurance Marketplace
2,245,600

 
1,910,700

Medicaid Expansion
1,931,600

 
1,290,200

 
 
 
 
(2) Membership includes dual-eligible ABD & LTSS and dual-eligible Medicare.

Revenues

The following table sets forth supplemental revenue information ($ in millions):
 
Three Months Ended June 30,
 
2020
 
2019
 
% Change
Medicaid
$
18,129

 
$
12,119

 
50
%
Commercial
4,136

 
3,872

 
7
%
Medicare (3)
3,538

 
1,465

 
142
%
Medicare PDP
674

 

 
n.m.

Other
1,235

 
900

 
37
%
Total Revenues
$
27,712

 
$
18,356

 
51
%
 
 
 
 
 
 
(3) Medicare includes Medicare Advantage, Medicare Supplement, Special Needs Plans, and MMP.
 n.m.: not meaningful
 

3




Statement of Operations: Three Months Ended June 30, 2020

For the second quarter of 2020, total revenues increased 51% to $27.7 billion from $18.4 billion in the comparable period in 2019. The increase over the prior year was due to the acquisition of WellCare, growth in the Health Insurance Marketplace business, expansions, new programs and growth in many of our states, particularly Iowa and Pennsylvania, and the reinstatement of the health insurer fee in 2020, partially offset by the divestiture of our Illinois health plan.

HBR of 82.1% for the second quarter of 2020 represents a decrease from 86.7% in the comparable period in 2019. The substantial decrease was attributable to lower medical utilization due to the COVID-19 pandemic, partially offset by the Health Insurance Marketplace business, where margins continue to normalize.

The SG&A expense ratio was 8.8% for the second quarter of 2020, compared to 9.1% in the second quarter of 2019. The decrease to the SG&A expense ratio was driven by the addition of the WellCare business, which operates at a lower SG&A ratio, and the leveraging of expenses over higher revenues. The decrease was partially offset by higher acquisition related expenses due to the recent closing of the WellCare acquisition and additional support provided to our Health Insurance Marketplace members through the extension of grace periods for member premiums for those impacted by the COVID-19 pandemic.

The Adjusted SG&A expense ratio was 8.5% for the second quarter of 2020, compared to 9.0% in the second quarter of 2019. The Adjusted SG&A expense ratio benefited from the addition of the WellCare business, which operates at a lower SG&A ratio, and the leveraging of expenses over higher revenues. The decrease was partially offset by additional support provided to our Health Insurance Marketplace members through the extension of grace periods for member premiums for those impacted by the COVID-19 pandemic.

The effective tax rate was 38.2% for the second quarter of 2020, compared to 25.7% in the second quarter of 2019. The increase in the effective tax rate was driven by the reinstatement of the health insurer fee in 2020. For the second quarter of 2020, our effective tax rate on adjusted earnings was 36.1%.

Balance Sheet

At June 30, 2020, the Company had cash, investments and restricted deposits of $25.6 billion and maintained $1.1 billion of cash and cash equivalents held by unregulated entities. Medical claims liabilities totaled $11.4 billion. Total debt was $16.8 billion, which included $89 million of borrowings on our $2.0 billion revolving credit facility at quarter end. The debt to capitalization ratio was 39.7% at June 30, 2020, excluding $217 million of non-recourse debt. Our debt to capital ratio would have been 38.1% at June 30, 2020, when netting unregulated cash and cash equivalents with debt, and excluding non-recourse debt.

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, March 31, 2020(1)
47

 
Impact of the COVID-19 Pandemic
4

 
Days in claims payable, June 30, 2020
51

 
 
 
 
(1) A pro-forma adjustment has been made to medical costs to include a full quarter of WellCare medical costs. Using actual medical costs, days in claims payable was 51.
 
 

The Company’s days in claims payable was 51 days, an increase of four days over the pro-forma first quarter of 2020. The increase in days in claims payable is due to lower medical expense in April and May as a result of shelter-in-place orders resulting from COVID-19. A significant portion of the quarter end Medical Claims Liability includes June dates of service where claims were near normalized levels.

4




Outlook

The Company's annual guidance for 2020 is as follows:
 
 
Full Year 2020
 
 
 
Low
 
High 
 
Total revenues (in billions)
 
$
109.0

 
$
111.4

 
GAAP diluted EPS
 
$
3.04

 
$
3.18

 
Adjusted Diluted EPS (1)
 
$
4.76

 
$
4.96

 
Diluted shares outstanding (in millions)
 
577.9

 
580.9

 
 
 
 
 
 
 

(1) 
Adjusted Diluted EPS excludes estimated amortization of acquired intangible assets of $0.98 to $1.00 per diluted share, acquisition related expenses of $0.67 to $0.71 per diluted share, the gain on the sale of the Illinois health plan of approximately $0.10 per diluted share, debt extinguishment costs of approximately $0.07 per diluted share, and non-cash asset impairment of $0.10 per diluted share.

Conference Call

As previously announced, the Company will host a conference call Tuesday, July 28, 2020, at approximately 8:30 AM (Eastern Time) to review the financial results for the second quarter ended June 30, 2020. 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: 0580014 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, July 27, 2021, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 AM (Eastern Time) on Tuesday, August 4, 2020, by dialing 1-877-344-7529 in the U.S. and Canada, or +1-412-317-0088 from abroad, and entering access code 10145373.

5




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 and 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 June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
GAAP net earnings attributable to Centene
$
1,206

 
$
495

 
$
1,252

 
$
1,017

Amortization of acquired intangible assets
197

 
64

 
363

 
129

Acquisition related expenses
71

 
23

 
384

 
41

Other adjustments (1)
(11
)
 

 
12

 

Income tax effects of adjustments (2)
(53
)
 
(21
)
 
(125
)
 
(41
)
Adjusted net earnings
$
1,410

 
$
561

 
$
1,886

 
$
1,146

(1) 
Other adjustments for the three months ended June 30, 2020 include an adjustment to the gain related to the divestiture of certain products of our Illinois health plan of $11 million, or $0.00 per diluted share, net of income tax expense $0.02. Other adjustments include the following adjustments for the six months ended June 30, 2020: (a) divestiture gain of $104 million, or $0.11 per diluted share, (b) non-cash impairment of $72 million, or $0.10 per diluted share, and (c) debt extinguishment costs of $44 million, or $0.06 per diluted share.
(2) 
The income tax effects of adjustments are based on the effective income tax rates applicable to each adjustment.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Annual Guidance December 31, 2020
 
2020
 
2019
 
2020
 
2019
 
GAAP diluted EPS attributable to Centene
$
2.05

 
$
1.18

 
$
2.20

 
$
2.42

 
$3.04 - $3.18
Amortization of acquired intangible assets (3)
0.25

 
0.12

 
0.48

 
0.24

 
$0.98 - $1.00
Acquisition related expenses (4)
0.10

 
0.04

 
0.58

 
0.07

 
$0.67 - $0.71
Other adjustments (5)

 

 
0.05

 

 
$0.07
Adjusted Diluted EPS
$
2.40

 
$
1.34

 
$
3.31

 
$
2.73

 
$4.76 - $4.96
(3) 
The amortization of acquired intangible assets per diluted share presented above is net of an income tax benefit of $0.09 and $0.04 for the three months ended June 30, 2020 and 2019, respectively, and $0.16 and $0.07 for the six months ended June 30, 2020 and 2019, respectively, and an estimated $0.30 to $0.32 for the year ended December 31, 2020.
(4) 
The acquisition related expenses per diluted share presented above are net of an income tax benefit of $0.02 and $0.01 for the three months ended June 30, 2020 and 2019, respectively, and $0.09 and $0.03 for the six months ended June 30, 2020 and 2019, respectively, and an estimated $0.11 to $0.12 for the year ended December 31, 2020.
(5) 
Other adjustments include the following items:
(1) gain related to the divestiture of certain products of the Company's Illinois health plan of $0.11 per diluted share, net of income tax expense of $0.08 for the six months ended June 30, 2020, and an estimated $0.10 per diluted share, net of income tax expense of $0.08 for the year ended December 31, 2020;
(2) non-cash impairment of our third party-care management software system of $0.10 per diluted share, net of an income tax benefit of $0.03 for the six months ended June 30, 2020, and an estimated $0.10 per diluted share, net of an income tax benefit of $0.03 for the year ended December 31, 2020; and
(3) debt extinguishment costs of $0.06 per diluted share, net of an income tax benefit of $0.02 for the six months ended June 30, 2020, and an estimated $0.07 per diluted share, net of an income tax benefit of $0.02 for the year ended December 31, 2020.

6



 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
GAAP SG&A expenses
$
2,255

 
$
1,574

 
$
4,639

 
$
3,183

Acquisition related expenses
70

 
21

 
365

 
38

Adjusted SG&A expenses
$
2,185

 
$
1,553

 
$
4,274

 
$
3,145


To provide clarity on the way management defines certain key metrics and ratios, the Company is providing a description of how the metric or ratio is calculated as follows:

Health Benefits Ratio (HBR) (GAAP) = Medical costs divided by premium revenues.

SG&A Expense Ratio (GAAP) = Selling, general and administrative expenses divided by premium and service revenues.

Adjusted SG&A Expenses (non-GAAP) = Selling, general and administrative expenses, less acquisition related expenses.

Adjusted SG&A Expense Ratio (non-GAAP) = Adjusted selling, general and administrative expenses divided by premium and service revenues.

Adjusted Net Earnings (non-GAAP) = Net earnings less amortization of acquired intangible assets, less acquisition related expenses, as well as adjustments for other items, net of the income tax effect of the adjustments.

Adjusted Diluted EPS (non-GAAP) = Adjusted net earnings divided by weighted average common shares outstanding on a fully diluted basis.

Debt to Capitalization Ratio (GAAP) = Total debt, divided by total debt plus total stockholder’s equity.

Debt to Capitalization Ratio Excluding Non-Recourse Debt (non-GAAP) = Total debt less non-recourse debt, divided by total debt less non-recourse debt plus total stockholder’s equity.

Average Medical Claims Expense (GAAP) = Medical costs for the period, divided by number of days in such period. Average Medical Claims Expense is most often calculated for the quarterly reporting period.

Days in Claims Payable (GAAP) = Medical claims liabilities, divided by average medical claims expense. Days in Claims Payable is most often calculated for the quarterly reporting period.

In addition, the following terms referenced in this press release and other Company filings are defined as follows:

State Directed Payments: Payments directed by a state that have minimal risk, but are administered as a premium adjustment.  These payments are recorded as premium revenue and medical costs at close to a 100% HBR. The Company has little visibility to the timing of these payments until they are paid by a state. 

Pass Through Payments: Non-risk supplemental payments from a state that the Company is required to pass through to designated contracted providers. These payments are recorded as premium tax revenue and premium tax expense.

About Centene Corporation

Centene Corporation, a Fortune 50 company, is a leading multi-national healthcare enterprise that is committed to helping people live healthier lives. The Company takes a local approach – with local brands and local teams – to provide fully integrated, high-quality, and cost-effective services to government-sponsored and commercial healthcare programs, focusing on under-insured and uninsured individuals. Centene offers affordable and high-quality products to nearly 1 in 15 individuals across the nation, including Medicaid and Medicare members (including Medicare Prescription Drug Plans) as well as individuals and families served by the Health Insurance Marketplace, the TRICARE program, and individuals in correctional facilities. The Company also serves several international markets, and contracts with other healthcare and commercial organizations to provide a variety of specialty services focused on treating the whole person. Centene focuses on long-term growth and the development of its people, systems and capabilities so that it can better serve its members, providers, local communities, and government partners.


7



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

All statements, other than statements of current or historical fact, contained in this press release are forward-looking statements. Without limiting the foregoing, forward-looking statements often use words such as “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “seek,” “target,” “goal,” “may,” “will,” “would,” “could,” “should,” “can,” “continue” and other similar words or expressions (and the negative thereof). Centene (the Company, our, or we) intends such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we are including this statement for purposes of complying with these safe-harbor provisions. In particular, these statements include, without limitation, statements about our future operating or financial performance, market opportunity, growth strategy, competition, expected activities in completed and future acquisitions, including statements about the impact of our recently completed acquisition (the WellCare Acquisition) of WellCare Health Plans, Inc. (WellCare), other recent and future acquisitions, investments and the adequacy of our available cash resources. These forward-looking statements reflect our current views with respect to future events and are based on numerous assumptions and assessments made by us in light of our experience and perception of historical trends, current conditions, business strategies, operating environments, future developments and other factors we believe 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, including economic, regulatory, competitive and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions. All forward-looking statements included in this press release are based on information available to us on the date hereof. Except as may be otherwise required by law, we undertake no obligation to update or revise the forward-looking statements included in this press release, whether as a result of new information, future events or otherwise, after the date hereof. You should not place undue reliance on any forward-looking statements, as actual results may differ materially from projections, estimates, or other forward-looking statements due to a variety of important factors, variables and events including but not limited to: the impact of COVID-19 on global markets, economic conditions, the healthcare industry and our results of operations, which is unknown, and the response by governments and other third parties; uncertainty as to our expected financial performance during the period of integration of the WellCare Acquisition; the possibility that the expected synergies and value creation from the WellCare Acquisition will not be realized, or will not be realized within the expected time period; the risk that unexpected costs will be incurred in connection with the integration of the WellCare Acquisition or that the integration of WellCare will be more difficult or time consuming than expected; unexpected costs, charges or expenses resulting from the WellCare Acquisition; the inability to retain key personnel; disruption from the integration of the WellCare Acquisition, including potential adverse reactions or changes to business relationships with customers, employees, suppliers or regulators, making it more difficult to maintain business and operational relationships; the risk that we may not be able to effectively manage our expanded operations; our ability to accurately predict and effectively manage health benefits and other operating expenses and reserves, including fluctuations in medical utilization rates due to the impact of COVID-19; 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 (ACA) and the Health Care and Education Affordability Reconciliation Act, collectively referred to as the ACA and any regulations enacted thereunder that may result from changing political conditions or judicial actions, including the ultimate outcome in “Texas v. United States of America” regarding the constitutionality of the ACA; rate cuts or other payment reductions or delays by governmental payors and other risks and uncertainties affecting our government businesses; our ability to adequately price products on the Health Insurance Marketplaces and other commercial and Medicare products; tax matters; disasters or major epidemics; the outcome of legal and regulatory proceedings; changes in expected contract start dates; provider, state, federal, foreign and other contract changes and timing of regulatory approval of contracts; the expiration, suspension, or termination of our 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 our contract awards; cyber-attacks or other privacy or data security incidents; the possibility that the expected synergies and value creation from acquired businesses, including businesses we may acquire in the future, will not be realized, or will not be realized within the expected time period; the exertion of management’s time and our 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 acquisitions; disruption caused by significant completed and pending acquisitions, including, among others, the WellCare 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; changes in expected closing dates, estimated purchase price and accretion for acquisitions; the risk that

8



acquired businesses will not be integrated successfully; restrictions and limitations in connection with our indebtedness; our ability to maintain or 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 us; inflation; foreign currency fluctuations and risks and uncertainties discussed in the reports that Centene has filed with the Securities and Exchange Commission. This list of important factors is not intended to be exhaustive. We discuss certain of these matters more fully, as well as certain other factors that may affect our business operations, financial condition and results of operations, in our filings with the Securities and Exchange Commission (SEC), including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Due to these important factors and risks, we cannot give assurances with respect to our future performance, including without limitation our ability to maintain adequate premium levels or our ability to control our future medical and selling, general and administrative costs.



[Tables Follow]

9





CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except shares in thousands and per share data in dollars)
 
June 30,
2020
 
December 31,
2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
12,798

 
$
12,123

Premium and trade receivables
10,339

 
6,247

Short-term investments
1,558

 
863

Other current assets
2,127

 
1,090

Total current assets
26,822

 
20,323

Long-term investments
10,231

 
7,717

Restricted deposits
1,050

 
658

Property, software and equipment, net
2,544

 
2,121

Goodwill
17,434

 
6,863

Intangible assets, net
8,702

 
2,063

Other long-term assets
1,564

 
1,249

Total assets
$
68,347

 
$
40,994

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS' EQUITY
 

 
 

Current liabilities:
 

 
 

Medical claims liability
$
11,418

 
$
7,473

Accounts payable and accrued expenses
8,704

 
4,164

Return of premium payable
1,242

 
824

Unearned revenue
448

 
383

Current portion of long-term debt
106

 
88

Total current liabilities
21,918

 
12,932

Long-term debt
16,708

 
13,638

Other long-term liabilities
4,516

 
1,732

Total liabilities
43,142

 
28,302

Commitments and contingencies
 
 
 
Redeemable noncontrolling interests
33

 
33

Stockholders' equity:
 

 
 

Preferred stock, $0.001 par value; authorized 10,000 shares; no shares issued or outstanding at June 30, 2020 and December 31, 2019

 

Common stock, $0.001 par value; authorized 800,000 shares; 595,160 issued and 579,345 outstanding at June 30, 2020, and 421,508 issued and 415,048 outstanding at December 31, 2019

 

Additional paid-in capital
19,333

 
7,647

Accumulated other comprehensive earnings
245

 
134

Retained earnings
6,236

 
4,984

Treasury stock, at cost (15,815 and 6,460 shares, respectively)
(758
)
 
(214
)
Total Centene stockholders' equity
25,056

 
12,551

Noncontrolling interest
116

 
108

Total stockholders' equity
25,172

 
12,659

Total liabilities, redeemable noncontrolling interests and stockholders' equity
$
68,347

 
$
40,994





10



CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except shares in thousands and per share data in dollars)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Revenues:
 
 
 
 
 
 
 
Premium
$
24,745

 
$
16,554

 
$
47,959

 
$
32,757

Service
979

 
745

 
1,937

 
1,380

Premium and service revenues
25,724

 
17,299

 
49,896

 
34,137

Premium tax and health insurer fee
1,988

 
1,057

 
3,841

 
2,663

Total revenues
27,712

 
18,356

 
53,737

 
36,800

Expenses:
 
 
 
 
 
 
 
Medical costs
20,307

 
14,354

 
40,727

 
28,236

Cost of services
833

 
615

 
1,658

 
1,159

Selling, general and administrative expenses
2,255

 
1,574

 
4,639

 
3,183

Amortization of acquired intangible assets
197

 
64

 
363

 
129

Premium tax expense
1,723

 
1,106

 
3,348

 
2,765

Health insurer fee expense
379

 

 
724

 

Impairment

 

 
72

 

Total operating expenses
25,694

 
17,713

 
51,531

 
35,472

Earnings from operations
2,018

 
643

 
2,206

 
1,328

Other income (expense):
 
 
 
 
 
 
 
Investment and other income
113

 
120

 
280

 
219

Debt extinguishment costs

 

 
(44
)
 

Interest expense
(187
)
 
(101
)
 
(367
)
 
(200
)
Earnings from operations, before income tax expense
1,944

 
662

 
2,075

 
1,347

Income tax expense
742

 
170

 
827

 
336

Net earnings
1,202

 
492

 
1,248

 
1,011

Loss attributable to noncontrolling interests
4

 
3

 
4

 
6

Net earnings attributable to Centene Corporation
$
1,206

 
$
495

 
$
1,252

 
$
1,017

 
 
 
 
 
 
 
 
Net earnings per common share attributable to Centene Corporation:
Basic earnings per common share
$
2.08

 
$
1.20

 
$
2.23

 
$
2.46

Diluted earnings per common share
$
2.05

 
$
1.18

 
$
2.20

 
$
2.42

 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
 
 
 
Basic
579,189

 
413,370

 
561,623

 
413,144

Diluted
587,498

 
419,671

 
569,559

 
419,707





11



CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions, unaudited)
 
Six Months Ended June 30,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net earnings
$
1,248

 
$
1,011

Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization
618

 
313

Stock compensation expense
164

 
72

Impairment
72

 

Loss on debt extinguishment
44

 

Deferred income taxes
17

 
(10
)
Gain on divestiture
(104
)
 

Other adjustments, net
2

 

Changes in assets and liabilities
 

 
 

Premium and trade receivables
(1,159
)
 
234

Other assets
202

 
(47
)
Medical claims liabilities
146

 
558

Unearned revenue
(127
)
 
(138
)
Accounts payable and accrued expenses
1,309

 
(616
)
Other long-term liabilities
1,028

 
869

Other operating activities, net
14

 
(13
)
Net cash provided by operating activities
3,474

 
2,233

Cash flows from investing activities:
 

 
 

Capital expenditures
(412
)
 
(336
)
Purchases of investments
(1,849
)
 
(1,280
)
Sales and maturities of investments
1,768

 
719

Acquisitions, net of cash acquired
(3,000
)
 
(32
)
Divestiture proceeds, net of divested cash
466

 

Other investing activities, net
(5
)
 

Net cash used in investing activities
(3,032
)
 
(929
)
Cash flows from financing activities:
 

 
 

Proceeds from long-term debt
2,630

 
5,617

Payments of long-term debt
(1,598
)
 
(5,353
)
Common stock repurchases
(561
)
 
(37
)
Payments for debt extinguishment
(21
)
 

Debt issuance costs
(93
)
 

Other financing activities, net
22

 
9

Net cash provided by financing activities
379

 
236

Effect of exchange rate changes on cash, cash equivalents, and restricted cash
3

 
2

Net increase in cash, cash equivalents and restricted cash and cash equivalents
824

 
1,542

Cash, cash equivalents, and restricted cash and cash equivalents, beginning of period
12,131

 
5,350

Cash, cash equivalents, and restricted cash and cash equivalents, end of period
$
12,955

 
$
6,892

Supplemental disclosures of cash flow information:
 

 
 

Interest paid
$
360

 
$
132

Income taxes paid
$
75

 
$
381

Equity issued in connection with acquisitions
$
11,526

 
$

 
 
 
 
The following table provides a reconciliation of cash, cash equivalents, and restricted cash and cash equivalents reported within the Consolidated Balance Sheets to the totals above:
 
June 30,
 
2020
 
2019
Cash and cash equivalents
$
12,798

 
$
6,875

Restricted cash and cash equivalents, included in restricted deposits
157

 
17

Total cash, cash equivalents, and restricted cash and cash equivalents
$
12,955

 
$
6,892


12



CENTENE CORPORATION
SUPPLEMENTAL FINANCIAL DATA
 
Q2
 
Q1
 
Q4
 
Q3
 
Q2
 
2020
 
2020
 
2019
 
2019
 
2019
 
 
 
 
 
 
 
 
 
 
Medicaid:
 
 
 
 
 
 
 
 
 
TANF, CHIP & Foster Care
10,894,200

 
10,259,700

 
7,528,700

 
7,623,400

 
7,388,700

ABD & LTSS
1,496,000

 
1,410,100

 
1,043,500

 
1,045,700

 
997,900

Behavioral Health
173,900

 
158,000

 
66,500

 
73,300

 
68,800

Total Medicaid
12,564,100

 
11,827,800

 
8,638,700

 
8,742,400

 
8,455,400

Medicare PDP
4,443,100

 
4,416,500

 

 

 

Commercial
2,763,300

 
2,728,200

 
2,331,100

 
2,388,500

 
2,449,400

Medicare (1)
996,100

 
976,700

 
404,500

 
404,500

 
398,500

International
600,400

 
599,900

 
599,800

 
462,400

 
463,100

Correctional
166,000

 
172,000

 
180,000

 
187,200

 
153,900

Total at-risk membership
21,533,000

 
20,721,100

 
12,154,100

 
12,185,000

 
11,920,300

TRICARE eligibles
2,864,700

 
2,864,800

 
2,860,700

 
2,860,700

 
2,855,800

Non-risk membership
223,300

 
216,200

 
227,000

 
227,800

 
228,100

Total
24,621,000

 
23,802,100

 
15,241,800

 
15,273,500

 
15,004,200

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

 
 
 
 
 
 
 
 
 
 
NUMBER OF EMPLOYEES
71,800

 
69,700

 
56,600

 
53,600

 
52,000

 
 
 
 
 
 
 
 
 
 
DAYS IN CLAIMS PAYABLE (2)
51

 
51

 
45

 
48

 
47

(2) Days in Claims Payable is a calculation of Medical Claims Liabilities at the end of the period divided by average claims expense per calendar day for such period. On a pro-forma basis, DCP for Q1 2020 was 47, reflecting adjusted medical costs to include a full quarter of WellCare operations.
 
 
 
 
 
 
 
 
 
 
CASH, INVESTMENTS AND RESTRICTED DEPOSITS (in millions)
Regulated
$
23,655

 
$
19,358

 
$
14,204

 
$
14,734

 
$
15,101

Unregulated
1,982

 
2,871

 
7,157

 
855

 
801

Total
$
25,637

 
$
22,229

 
$
21,361

 
$
15,589

 
$
15,902

 
 
 
 
 
 
 
 
 
 
DEBT TO CAPITALIZATION
40.0
%
 
42.2
%
 
52.0
%
 
36.2
%
 
36.8
%
DEBT TO CAPITALIZATION EXCLUDING NON-RECOURSE DEBT (3)
39.7
%
 
41.9
%
 
51.7
%
 
35.6
%
 
36.3
%
(3) The non-recourse debt represents the Company's mortgage note payable ($52 million at June 30, 2020) and construction loan payable ($165 million at June 30, 2020). As of December 31, 2019, excluding non-recourse debt and the senior debt issued to fund the WellCare acquisition in advance of closing, our debt to capital was 34.3%. The non-recourse debt represents the Company's mortgage note payable ($54 million at December 31, 2019) and construction loan payable ($140 million at December 31, 2019). The WellCare related senior notes represent $6,921 million of long-term debt as of December 31, 2019.

OPERATING RATIOS
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
HBR
82.1
%
 
86.7
%
 
84.9
%
 
86.2
%
SG&A expense ratio
8.8
%
 
9.1
%
 
9.3
%
 
9.3
%
Adjusted SG&A expense ratio
8.5
%
 
9.0
%
 
8.6
%
 
9.2
%



13



MEDICAL CLAIMS LIABILITY

The changes in medical claims liability are summarized as follows (in millions):
Balance, June 30, 2019
 
$
7,447

Less: reinsurance recoverable
 
19

Balance, June 30, 2019, net
 
7,428

Acquisitions and divestitures
 
3,744

Incurred related to:
 
 
Current period
 
71,919

Prior period
 
(566
)
Total incurred
 
71,353

Paid related to:
 
 
Current period
 
64,761

Prior period
 
6,363

Total paid
 
71,124

Balance, June 30, 2020, net
 
11,401

Plus: reinsurance recoverable
 
17

Balance, June 30, 2020
 
$
11,418

 
 
 

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 $23 million was recorded as a decrease 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 June 30, 2019, and prior.

14



Our Response to COVID-19

Demonstrating our commitment to our members and the communities we serve, employees, and providers and government partners.
Members and Communities
Waiving COVID-19 related prior authorizations and member cost sharing
for related screening, testing and treatment for all Medicare, Medicaid and Marketplace members.
Delivering 50,000 gift cards, with $35 of value each, to be used to purchase essential
healthcare and educational items including diapers, over-the-counter medicines, cleaning supplies and books.
Donating 1 million meals a month for 12 months to feed our neighbors in communities all over the country.
Providing grants to Area Agencies on Aging to enable grocery and
meal deliveries for members with disabilities who are unable to access nutritious food.
Matching funds in partnership with workforce development boards and other safety net organizations
to prepare them for a career in healthcare to support the direct care workforce and newly unemployed individuals.
Investment in new technology and supplies to improve access to quality healthcare for the incarcerated population, including expanding PPE supplies in prisons and expanding the partnership with the Concordance Academy and other charitable agencies to enhance long-term outcomes for incarcerated individuals.
Creation of Health Disparities Task Force, focused on studying the causes of healthcare disparities, recommending improvements in policies and practices and performing outreach to key leaders in impacted areas to increase education.
Waiving all cost sharing for in-network primary care, behavioral health and telehealth costs for Medicare Advantage members for the remainder of 2020.  In addition, offering our Community Connections Help Line, available to anyone in need of help beyond medical care, as well as expanded benefits including extended meal program benefits, over-the-counter (OTC) allowances, and annual wellness visit incentives to help members in need of extra support.
Formed partnership with the National Minority Quality Forum (NMQF) to study the impact of COVID on racial minorities and underserved communities.
Expanded partnership with Quartet Health to help members quickly and easily access behavioral health care.
Employees
10 additional working days of paid leave to support employees
Waiving prior authorizations and employee cost sharing for COVID-19 related screening, testing and treatment
Encouraging employees to work from home, with approximately 90% working remotely
Providing essential workers with a one-time payment of $750
in appreciation and recognition of their willingness to serve in their important office roles
Scheduling essential workers to preserve social distancing,
and enhancing health and safety protocols such as daily cleaning and disinfecting for essential workers
Establishing a Medical Reserve Leave policy to support clinical staff
paid leave and benefits for up to three months of volunteer COVID pandemic service
Hiring continues across the country to fill nearly 2,000 open positions
Providers and Government Partners
Expediting the rollout of FirstNet that will streamline access to affordable,
high-speed wireless broadband services for primary care providers in rural and underserved communities.
Dedicating funds to the Medicaid Telehealth Partnership's efforts,
which will be used to purchase equipment and provide training and technical assistance to FQHCs.
Expediting the distribution of approximately 2 million pieces of PPE
including safety goggles, facemasks, hand sanitizers and disaster kits.
Extending grants to providers to assist with the upfront investment costs of new devices and equipment.
Developing a new Provider Accessibility Initiative (PAI) COVID-19 Web Series to provide timely recommendations on how
providers and organizations can deliver disability-competent care during the pandemic and beyond.
In partnership with Quest Diagnostics, distributing 25,000 COVID test kits each week to FQHCs in ten states or districts across the country.
Investments in Mental Health Resources, including training and support to thousands of front-line providers, donations to local organizations with increased demand for ‘warmline’ call centers, and an investment in the National Council for Behavioral Health for a virtual training program.
Donated $500,000 to the National Domestic Violence Hotline.

15