ST. LOUIS, April 28, 2020 /PRNewswire/ -- Centene
Corporation (NYSE: CNC) announced today its financial results for
the first quarter ended March 31, 2020, reporting diluted
earnings per share (EPS) of $0.08 and
Adjusted Diluted EPS of $0.86.
In summary, the 2020 first quarter and results were as
follows:
Total revenues (in
millions)
|
$
|
26,025
|
|
Health benefits
ratio
|
88.0
|
%
|
SG&A expense
ratio
|
9.9
|
%
|
Adjusted SG&A
expense ratio (1)
|
8.6
|
%
|
GAAP diluted
EPS
|
$
|
0.08
|
|
Adjusted Diluted EPS
(1)
|
$
|
0.86
|
|
Total cash flow used
in operations (in millions)
|
$
|
(240)
|
|
|
|
(1) A full
reconciliation of Adjusted SG&A expense ratio and Adjusted
Diluted EPS are shown on page seven of this release.
|
Both diluted EPS and Adjusted Diluted EPS have been negatively
impacted by $0.05 due to lower
investment income and incremental senior note interest expense.
Taking into account the $0.05 per
diluted share, our Adjusted Diluted EPS was in line with our
expectations and the guidance of high $0.80 to low $0.90
range provided on March 4, 2020.
"We all recognize the unprecedented nature of the COVID-19
pandemic and the significant impact from both a health and economic
perspective. This is not a business as usual environment and
economic recovery will be choppy. In this challenging landscape
that we all face, Centene has the team, systems, expertise and
financial strength to rise to the occasion," said Michael F. Neidorff, Chairman, President and
Chief Executive Officer of Centene. "We are confident in our
approach to navigate the crisis while executing on our priorities
and remain highly committed to meeting the needs of our members,
providers and our state customers."
First Quarter Highlights
- On January 23, 2020, Centene
acquired all of the issued and outstanding shares of WellCare
Health Plans, Inc. (WellCare). The transaction is valued at
approximately $19.6 billion,
including the assumption of debt. The Centene and WellCare
combination creates a premier healthcare enterprise focused on
government-sponsored healthcare programs. Our consolidated
financial statements as of and for the three months ended
March 31, 2020 reflect WellCare
operations beginning January 23,
2020.
- March 31, 2020 managed care
membership of 23.8 million, an increase of 9.0 million members, or
61%, over March 31, 2019.
- Total revenues of $26.0 billion
for the first quarter of 2020, representing 41% growth compared to
the first quarter of 2019.
- Health benefits ratio (HBR) of 88.0% for the first quarter of
2020, compared to 85.7% in the first quarter of 2019.
- Selling, general and administrative (SG&A) expense ratio of
9.9% for the first quarter of 2020, compared to 9.6% for the first
quarter of 2019.
- Adjusted SG&A expense ratio of 8.6% for the first quarter
of 2020, compared to 9.5% for the first quarter of 2019.
- Diluted EPS for the first quarter of 2020 of $0.08, compared to $1.24 for the first quarter of 2019, reflecting
an increase of acquisition related expenses due to the closing of
the WellCare acquisition.
- Adjusted Diluted EPS for the first quarter of 2020 of
$0.86, compared to $1.39 for the first quarter of 2019. Both diluted
EPS and Adjusted Diluted EPS for the first quarter of 2020 have
been negatively impacted by $0.05 due
to lower investment income and incremental senior note interest
expense. The $0.05 of lower
investment and other income resulted from a sharp decrease in
interest rates, which caused a fair value decrease to our exchange
traded fund portfolio, as well as incremental interest expense
associated with our decision to defer the redemption of the 2022
senior debt securities.
- Share repurchases of 9 million shares of Centene common stock
for $500 million through the
Company's stock repurchase program during the three months ended
March 31, 2020, using divestiture
proceeds.
- Operating cash flow of $(240)
million for the first quarter 2020. Operating cash flow was
negatively affected by a delay in premium payments from the state
of New York of approximately
$700 million and growth in our
Medicare Prescription Drug Plan (PDP) business, which used working
capital.
Other Events
- In April 2020, Centene's
subsidiary, Centurion, was awarded a contract by the Kansas
Department of Administration to provide healthcare services in the
Department of Corrections' facilities. The two-year contract is
expected to commence on July 1, 2020
and includes two, two-year renewal options.
- In April 2020, Centurion began
providing medical services, behavioral healthcare, and substance
abuse treatment within four prisons and six community corrections
centers across the state of Delaware.
- In February 2020, Centene issued
$2.0 billion 3.375% Senior Notes due
2030. The Company used a portion of the net proceeds to redeem all
of its outstanding $1.0 billion
6.125% Senior Notes due 2024, including the call premiums, accrued
interest and costs and expenses related to the redemption and
termination of the $1.0 billion
interest rate swap associated with the notes. The Company also
intended to use remaining proceeds to redeem its $1.0 billion 4.75% Senior Notes due 2022, and
related interest and premiums. However, as a result of the spread
of COVID-19 and the resulting disruption and volatility in the
global capital markets, the Company has deferred the redemption of
the 2022 notes at this time.
Accreditations
- In March 2020, Centene's
Iowa subsidiary, Iowa Total Care,
earned Accreditation from the National Committee for Quality
Assurance (NCQA).
- In February 2020, Centene's
subsidiary, Envolve People Care, earned Accreditation from
NCQA.
- In January 2020, Centene's
subsidiary, Sunshine Health Plan, earned Accreditation from
NCQA.
COVID-19 Pandemic
In March and April 2020, Centene
announced a series of actions in support of various populations
impacted by the COVID-19 crisis. A detailed list of specific
actions taken by the Company in response to the pandemic is shown
on page 16 of this release.
Membership
The following table sets forth our membership by line of
business:
|
March
31,
|
|
2020
|
|
2019
|
Medicaid:
|
|
|
|
TANF, CHIP &
Foster Care
|
10,259,700
|
|
|
7,491,100
|
|
ABD &
LTSS
|
1,410,100
|
|
|
1,036,200
|
|
Behavioral
Health
|
158,000
|
|
|
56,000
|
|
Total
Medicaid
|
11,827,800
|
|
|
8,583,300
|
|
Medicare
PDP
|
4,416,500
|
|
|
—
|
|
Commercial
|
2,728,200
|
|
|
2,472,700
|
|
Medicare
(1)
|
976,700
|
|
|
393,900
|
|
International
|
599,900
|
|
|
151,600
|
|
Correctional
|
172,000
|
|
|
153,200
|
|
Total at-risk
membership
|
20,721,100
|
|
|
11,754,700
|
|
TRICARE
eligibles
|
2,864,800
|
|
|
2,855,800
|
|
Non-risk
membership
|
216,200
|
|
|
211,900
|
|
Total
|
23,802,100
|
|
|
14,822,400
|
|
|
(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,
|
|
2020
|
|
2019
|
Dual-eligible
(2)
|
879,000
|
|
|
625,600
|
|
Health Insurance
Marketplace
|
2,199,300
|
|
|
1,968,700
|
|
Medicaid
Expansion
|
1,764,600
|
|
|
1,312,100
|
|
|
(2)
Membership includes dual-eligible ABD & LTSS and dual-eligible
Medicare membership in the table above.
|
Revenues
The following table sets forth supplemental revenue information
for the three months ended March 31,
2020 ($ in millions):
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
|
%
Change
|
Medicaid
|
$
|
17,041
|
|
|
$
|
12,608
|
|
|
35
|
%
|
Commercial
|
4,119
|
|
|
3,645
|
|
|
13
|
%
|
Medicare
(3)
|
3,016
|
|
|
1,382
|
|
|
118
|
%
|
Medicare
PDP
|
600
|
|
|
—
|
|
|
n.m.
|
|
Other
|
1,249
|
|
|
809
|
|
|
54
|
%
|
Total
Revenues
|
$
|
26,025
|
|
|
$
|
18,444
|
|
|
41
|
%
|
|
(3)
Medicare includes Medicare Advantage, Medicare Supplement, Special
Needs Plans, and MMP.
|
n.m.: not
meaningful
|
Statement of Operations: Three Months Ended March 31,
2020
- For the first quarter of 2020, total revenues increased 41% to
$26.0 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 and new programs in many of our states throughout 2019
and 2020, particularly Iowa and
Pennsylvania, and the
reinstatement of the health insurer fee in 2020, partially offset
by the divestiture of our Illinois
health plan and the timing of pass through payments from the state
of New York.
- HBR of 88.0% for the first quarter of 2020 represents an
increase from 85.7% in the comparable period in 2019. The
year-over-year increase was attributable to the Health Insurance
Marketplace business where margins continue to normalize, as
expected and consistent with the previous guidance shared. The
increase also includes the acquisition of WellCare and new or
expanded markets, which initially operate at a higher HBR. These
increases were partially offset by the reinstatement of the health
insurer fee.
- The SG&A expense ratio was 9.9% for the first quarter of
2020, compared to 9.6% in the first quarter of 2019. The increase
to the SG&A expense ratio was driven by higher acquisition
related expenses due to the closing of the WellCare acquisition,
partially offset by the addition of the WellCare business, which
operates at a lower SG&A ratio.
- The Adjusted SG&A expense ratio was 8.6% for the first
quarter of 2020, compared to 9.5% in the first 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.
- During the first quarter of 2020, the Company recorded
$72 million of non-cash impairment of
its third-party care management software business.
- During the first quarter of 2020, the Company recognized a
$93 million gain in investment and
other income related to the divestiture of certain products of the
Company's Illinois health plan as
part of the previously announced divestiture agreements associated
with the WellCare Acquisition.
- During the first quarter of 2020, the Company issued
$2.0 billion 3.375% Senior Notes due
2030 (the 2030 Notes). The Company used a portion of the net
proceeds from the 2030 Notes to redeem all of its outstanding
$1.0 billion 6.125% Senior Notes due
2024. The Company recognized a pre-tax loss on extinguishment of
approximately $44 million, including
the call premium, the write-off of unamortized debt issuance costs,
and a loss on the termination of the $1.0
billion interest rate swap associated with the notes.
- The effective tax rate was 64.9% for the first quarter of 2020,
compared to 24.2% in the first quarter of 2019. The increase in the
effective tax rate was driven by the reinstatement of the health
insurer fee in 2020, the non-deductibility of certain acquisition
related expenses, and the tax impact associated with the
Illinois divestiture. For the
first quarter of 2020, our effective tax rate on adjusted earnings
was 24.8%.
Balance Sheet
At March 31, 2020, the Company had cash, investments and
restricted deposits of $22.2 billion
and maintained $2.0 billion of cash
and cash equivalents held by unregulated entities. Medical claims
liabilities totaled $11.4 billion.
Total debt was $17.3 billion, which
included $588 million of borrowings
on our $2.0 billion revolving credit
facility at quarter end. The debt to capitalization ratio was 41.9%
at March 31, 2020, excluding $202
million of non-recourse debt. Our debt to capital ratio
would have been 38.9% at March 31, 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, December 31, 2019
|
45
|
|
|
Timing of claims
payments
|
2
|
|
|
Days in claims
payable, March 31, 2020 (1)
|
47
|
|
|
|
|
|
(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.
|
|
|
Outlook
The Company's annual guidance for 2020 is as follows:
|
|
Full Year
2020
|
|
|
|
Low
|
|
High
|
|
Total revenues (in
billions)
|
|
$
|
110.0
|
|
|
$
|
112.4
|
|
|
GAAP diluted
EPS
|
|
$
|
2.89
|
|
|
$
|
3.03
|
|
|
Adjusted Diluted EPS
(1)
|
|
$
|
4.56
|
|
|
$
|
4.76
|
|
|
Diluted shares
outstanding (in millions)
|
|
577.3
|
|
|
580.3
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Adjusted Diluted EPS
excludes estimated amortization of acquired intangible assets of
$0.98 to $1.00 per diluted share, acquisition related expenses of
$0.62 to $0.66 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,
non-cash asset impairment of $0.10 per diluted share.
|
A rollforward of total revenues and Adjusted Diluted EPS from
our previous guidance to our current guidance is shown in the
tables below (total revenues in billions):
|
|
Total
Revenues
|
|
Previous guidance
range
|
|
$104.8 -
$105.6
|
|
Pass through and
non-economic environment revenue growth
|
|
$2.0
|
|
Current economic
environment revenue growth
|
|
$4.0
|
|
Revised guidance
range
|
|
$110.0 -
$112.4
|
|
|
|
|
|
|
|
|
Adjusted Diluted
EPS
|
|
Previous guidance
range
|
|
$4.56 -
$4.76
|
|
Revenue
growth
|
|
+
|
|
Avoided / delayed
costs
|
|
+
|
|
State program
changes
|
|
+ / ( - )
|
|
COVID-19
costs
|
|
( - )
|
|
Risk adjustment
initiatives
|
|
( - )
|
|
Delay in WellCare
synergies
|
|
( - )
|
|
Lower investment
income and higher interest expense
|
|
(0.17)
|
|
Revised guidance
range
|
|
$4.56 -
$4.76
|
|
|
|
|
|
Conference Call
As previously announced, the Company will host a conference call
Tuesday, April 28, 2020, at approximately 8:30 AM (Eastern Time) to review the financial
results for the first quarter ended March 31,
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: 7601227 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 27, 2021, at the aforementioned URL. In
addition, a digital audio playback will be available until
9:00 AM (Eastern Time) on Tuesday,
May 5, 2020, by dialing 1-877-344-7529 in the U.S. and Canada, or +1-412-317-0088 from abroad, and
entering access code 10141297.
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
March 31,
|
|
2020
|
|
2019
|
GAAP net earnings
attributable to Centene
|
$
|
46
|
|
|
$
|
522
|
|
Amortization of
acquired intangible assets
|
166
|
|
|
65
|
|
Acquisition related
expenses
|
313
|
|
|
18
|
|
Other adjustments
(1)
|
23
|
|
|
—
|
|
Income tax effects of
adjustments (2)
|
(72)
|
|
|
(20)
|
|
Adjusted net
earnings
|
$
|
476
|
|
|
$
|
585
|
|
|
|
(1)
|
Other adjustments
include the following adjustments for the three months ended March
31, 2020: (a) divestiture gain of $93 million, or $0.10 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
March 31,
|
|
Annual
Guidance
December 31, 2020
|
|
2020
|
|
2019
|
|
GAAP diluted EPS
attributable to Centene
|
$
|
0.08
|
|
|
$
|
1.24
|
|
|
$2.89 -
$3.03
|
Amortization of
acquired intangible assets (3)
|
0.23
|
|
|
0.12
|
|
|
$0.98 -
$1.00
|
Acquisition related
expenses (4)
|
0.49
|
|
|
0.03
|
|
|
$0.62 -
$0.66
|
Other adjustments
(5)
|
0.06
|
|
|
—
|
|
|
$0.07
|
Adjusted Diluted
EPS
|
$
|
0.86
|
|
|
$
|
1.39
|
|
|
$4.56 -
$4.76
|
|
|
|
(3)
|
The amortization of
acquired intangible assets per diluted share presented above is net
of an income tax benefit of $0.07 and $0.04 for the three months
ended March 31, 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 $0.08 and $0.01 for the three months ended
March 31, 2020 and 2019, respectively, and an estimated $0.09
to $0.10 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 $0.10 per diluted share, net of income tax expense of $0.07
for the three months ended March 31, 2020, and an estimated
$0.10 per diluted share, net of income tax expense of $0.06 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 three
months ended March 31, 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 three months ended March 31, 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.
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
GAAP SG&A
expenses
|
$
|
2,384
|
|
|
$
|
1,609
|
|
Acquisition related
expenses
|
295
|
|
|
17
|
|
Adjusted SG&A
expenses
|
$
|
2,089
|
|
|
$
|
1,592
|
|
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 100 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.
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: uncertainty as to our expected financial
performance following completion 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 completion
and 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;
competition; membership and revenue declines or unexpected trends;
disasters or major epidemics; the impact of the COVID-19 pandemic
and response by governments and other third parties;
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, collectively
referred to as the Affordable Care Act (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; 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 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 acquired businesses will not be
integrated successfully; the risk that we may not be able to
effectively manage our operations as they have expanded as a result
of the WellCare Acquisition; 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]
CENTENE
CORPORATION AND SUBSIDIARIES
|
CONSOLIDATED
BALANCE SHEETS
|
(In millions,
except shares in thousands and per share data in
dollars)
|
|
|
March 31, 2020
|
|
December 31, 2019
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
9,308
|
|
|
$
|
12,123
|
|
Premium and trade
receivables
|
11,304
|
|
|
6,247
|
|
Short-term
investments
|
1,386
|
|
|
863
|
|
Other current
assets
|
2,698
|
|
|
1,090
|
|
Total current
assets
|
24,696
|
|
|
20,323
|
|
Long-term
investments
|
10,521
|
|
|
7,717
|
|
Restricted
deposits
|
1,014
|
|
|
658
|
|
Property, software
and equipment, net
|
2,439
|
|
|
2,121
|
|
Goodwill
|
17,417
|
|
|
6,863
|
|
Intangible assets,
net
|
8,898
|
|
|
2,063
|
|
Other long-term
assets
|
1,446
|
|
|
1,249
|
|
Total
assets
|
$
|
66,431
|
|
|
$
|
40,994
|
|
LIABILITIES,
REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS'
EQUITY
|
|
|
|
Current
liabilities:
|
|
|
|
Medical claims
liability
|
$
|
11,413
|
|
|
$
|
7,473
|
|
Accounts payable and
accrued expenses
|
8,531
|
|
|
4,164
|
|
Return of premium
payable
|
1,052
|
|
|
824
|
|
Unearned
revenue
|
526
|
|
|
383
|
|
Current portion of
long-term debt
|
129
|
|
|
88
|
|
Total current
liabilities
|
21,651
|
|
|
12,932
|
|
Long-term
debt
|
17,150
|
|
|
13,638
|
|
Other long-term
liabilities
|
3,938
|
|
|
1,732
|
|
Total
liabilities
|
42,739
|
|
|
28,302
|
|
Commitments and
contingencies
|
|
|
|
Redeemable
noncontrolling interests
|
36
|
|
|
33
|
|
Stockholders'
equity:
|
|
|
|
Preferred stock,
$0.001 par value; authorized 10,000 shares; no shares issued or
outstanding at March 31, 2020 and December 31, 2019
|
—
|
|
|
—
|
|
Common stock, $0.001
par value; authorized 800,000 shares; 594,890 issued and 579,122
outstanding at March 31, 2020, and 421,508 issued and 415,048
outstanding at December 31, 2019
|
—
|
|
|
—
|
|
Additional paid-in
capital
|
19,279
|
|
|
7,647
|
|
Accumulated other
comprehensive earnings (loss)
|
(5)
|
|
|
134
|
|
Retained
earnings
|
5,030
|
|
|
4,984
|
|
Treasury stock, at
cost (15,768 and 6,460 shares, respectively)
|
(755)
|
|
|
(214)
|
|
Total Centene
stockholders' equity
|
23,549
|
|
|
12,551
|
|
Noncontrolling
interest
|
107
|
|
|
108
|
|
Total stockholders'
equity
|
23,656
|
|
|
12,659
|
|
Total liabilities,
redeemable noncontrolling interests and stockholders'
equity
|
$
|
66,431
|
|
|
$
|
40,994
|
|
CENTENE
CORPORATION AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(In millions,
except shares in thousands and per share data in
dollars)
|
(Unaudited)
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
Revenues:
|
|
|
|
Premium
|
$
|
23,214
|
|
|
$
|
16,203
|
|
Service
|
958
|
|
|
635
|
|
Premium and service
revenues
|
24,172
|
|
|
16,838
|
|
Premium tax and
health insurer fee
|
1,853
|
|
|
1,606
|
|
Total
revenues
|
26,025
|
|
|
18,444
|
|
Expenses:
|
|
|
|
Medical
costs
|
20,420
|
|
|
13,882
|
|
Cost of
services
|
825
|
|
|
544
|
|
Selling, general and
administrative expenses
|
2,384
|
|
|
1,609
|
|
Amortization of
acquired intangible assets
|
166
|
|
|
65
|
|
Premium tax
expense
|
1,625
|
|
|
1,659
|
|
Health insurer fee
expense
|
345
|
|
|
—
|
|
Impairment
|
72
|
|
|
—
|
|
Total operating
expenses
|
25,837
|
|
|
17,759
|
|
Earnings from
operations
|
188
|
|
|
685
|
|
Other income
(expense):
|
|
|
|
Investment and other
income
|
167
|
|
|
99
|
|
Debt extinguishment
costs
|
(44)
|
|
|
—
|
|
Interest
expense
|
(180)
|
|
|
(99)
|
|
Earnings from
operations, before income tax expense
|
131
|
|
|
685
|
|
Income tax
expense
|
85
|
|
|
166
|
|
Net
earnings
|
46
|
|
|
519
|
|
Loss attributable
to noncontrolling interests
|
—
|
|
|
3
|
|
Net
earnings attributable to Centene Corporation
|
$
|
46
|
|
|
$
|
522
|
|
|
|
|
|
Net earnings per
common share attributable to Centene Corporation:
|
|
|
|
|
|
|
|
Basic earnings per
common share
|
$
|
0.08
|
|
|
$
|
1.26
|
|
Diluted earnings per
common share
|
$
|
0.08
|
|
|
$
|
1.24
|
|
|
|
|
|
Weighted average
number of common shares outstanding:
|
|
|
|
Basic
|
544,436
|
|
|
412,924
|
|
Diluted
|
552,062
|
|
|
419,752
|
|
CENTENE
CORPORATION AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
(In millions,
unaudited)
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
Cash flows from
operating activities:
|
|
|
|
Net
earnings
|
$
|
46
|
|
|
$
|
519
|
|
Adjustments to
reconcile net earnings to net cash provided by operating
activities
|
Depreciation and
amortization
|
288
|
|
|
155
|
|
Stock compensation
expense
|
117
|
|
|
38
|
|
Impairment
|
72
|
|
|
—
|
|
Loss on debt
extinguishment
|
44
|
|
|
—
|
|
Deferred income
taxes
|
112
|
|
|
23
|
|
Gain on
divestiture
|
(93)
|
|
|
—
|
|
Other adjustments,
net
|
24
|
|
|
(11)
|
|
Changes in assets and
liabilities
|
|
|
|
Premium and trade
receivables
|
(2,182)
|
|
|
(662)
|
|
Other
assets
|
97
|
|
|
20
|
|
Medical claims
liabilities
|
252
|
|
|
548
|
|
Unearned
revenue
|
(88)
|
|
|
(22)
|
|
Accounts payable and
accrued expenses
|
704
|
|
|
357
|
|
Other long-term
liabilities
|
361
|
|
|
347
|
|
Other operating
activities, net
|
6
|
|
|
4
|
|
Net cash (used in)
provided by operating activities
|
(240)
|
|
|
1,316
|
|
Cash flows from
investing activities:
|
|
|
|
Capital
expenditures
|
(177)
|
|
|
(176)
|
|
Purchases of
investments
|
(1,400)
|
|
|
(580)
|
|
Sales and maturities
of investments
|
902
|
|
|
383
|
|
Acquisitions, net of
cash acquired
|
(3,048)
|
|
|
—
|
|
Divestiture proceeds,
net of divested cash
|
456
|
|
|
—
|
|
Other investing
activities, net
|
(5)
|
|
|
—
|
|
Net cash used in
investing activities
|
(3,272)
|
|
|
(373)
|
|
Cash flows from
financing activities:
|
|
|
|
Proceeds from
long-term debt
|
2,542
|
|
|
1,018
|
|
Payments of long-term
debt
|
(1,039)
|
|
|
(927)
|
|
Common stock
repurchases
|
(558)
|
|
|
(35)
|
|
Payments for debt
extinguishment
|
(21)
|
|
|
—
|
|
Debt issuance
costs
|
(92)
|
|
|
—
|
|
Other financing
activities, net
|
7
|
|
|
2
|
|
Net cash provided by
financing activities
|
839
|
|
|
58
|
|
Effect of exchange
rate changes on cash, cash equivalents, and restricted
cash
|
(1)
|
|
|
—
|
|
Net increase
(decrease)
|
(2,674)
|
|
|
1,001
|
|
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
|
$
|
9,457
|
|
|
$
|
6,351
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
Interest
paid
|
$
|
104
|
|
|
$
|
87
|
|
Income taxes
paid
|
$
|
3
|
|
|
$
|
6
|
|
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:
|
|
March
31,
|
|
2020
|
|
2019
|
Cash and cash
equivalents
|
$
|
9,308
|
|
|
$
|
6,345
|
|
Restricted cash and
cash equivalents, included in restricted deposits
|
149
|
|
|
6
|
|
Total cash, cash
equivalents, and restricted cash and cash equivalents
|
$
|
9,457
|
|
|
$
|
6,351
|
|
CENTENE
CORPORATION
|
SUPPLEMENTAL
FINANCIAL DATA
|
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
2020
|
|
2019
|
|
2019
|
|
2019
|
|
2019
|
MANAGED CARE
MEMBERSHIP BY LINE OF BUSINESS
|
Medicaid:
|
|
|
|
|
|
|
|
|
|
TANF, CHIP &
Foster Care
|
10,259,700
|
|
|
7,528,700
|
|
|
7,623,400
|
|
|
7,388,700
|
|
|
7,491,100
|
|
ABD &
LTSS
|
1,410,100
|
|
|
1,043,500
|
|
|
1,045,700
|
|
|
997,900
|
|
|
1,036,200
|
|
Behavioral
Health
|
158,000
|
|
|
66,500
|
|
|
73,300
|
|
|
68,800
|
|
|
56,000
|
|
Total
Medicaid
|
11,827,800
|
|
|
8,638,700
|
|
|
8,742,400
|
|
|
8,455,400
|
|
|
8,583,300
|
|
Medicare
PDP
|
4,416,500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial
|
2,728,200
|
|
|
2,331,100
|
|
|
2,388,500
|
|
|
2,449,400
|
|
|
2,472,700
|
|
Medicare
(1)
|
976,700
|
|
|
404,500
|
|
|
404,500
|
|
|
398,500
|
|
|
393,900
|
|
International
|
599,900
|
|
|
599,800
|
|
|
462,400
|
|
|
463,100
|
|
|
151,600
|
|
Correctional
|
172,000
|
|
|
180,000
|
|
|
187,200
|
|
|
153,900
|
|
|
153,200
|
|
Total at-risk
membership
|
20,721,100
|
|
|
12,154,100
|
|
|
12,185,000
|
|
|
11,920,300
|
|
|
11,754,700
|
|
TRICARE
eligibles
|
2,864,800
|
|
|
2,860,700
|
|
|
2,860,700
|
|
|
2,855,800
|
|
|
2,855,800
|
|
Non-risk
membership
|
216,200
|
|
|
227,000
|
|
|
227,800
|
|
|
228,100
|
|
|
211,900
|
|
Total
|
23,802,100
|
|
|
15,241,800
|
|
|
15,273,500
|
|
|
15,004,200
|
|
|
14,822,400
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Membership includes Medicare Advantage, Medicare Supplement,
Special Needs Plans, and MMP.
|
|
|
|
|
|
|
|
|
|
|
NUMBER OF
EMPLOYEES
|
69,700
|
|
|
56,600
|
|
|
53,600
|
|
|
52,000
|
|
|
48,100
|
|
|
|
|
|
|
|
|
|
|
|
DAYS IN CLAIMS
PAYABLE (2)
|
51
|
|
|
45
|
|
|
48
|
|
|
47
|
|
|
48
|
|
(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
is 47, reflecting adjusted medical costs to include a full quarter
of WellCare operations.
|
|
|
|
|
|
|
|
|
|
|
CASH, INVESTMENTS
AND RESTRICTED DEPOSITS (in millions)
|
Regulated
|
$
|
19,358
|
|
|
$
|
14,204
|
|
|
$
|
14,734
|
|
|
$
|
15,101
|
|
|
$
|
14,303
|
|
Unregulated
|
2,871
|
|
|
7,157
|
|
|
855
|
|
|
801
|
|
|
507
|
|
Total
|
$
|
22,229
|
|
|
$
|
21,361
|
|
|
$
|
15,589
|
|
|
$
|
15,902
|
|
|
$
|
14,810
|
|
|
|
|
|
|
|
|
|
|
|
DEBT TO
CAPITALIZATION
|
42.2
|
%
|
|
52.0
|
%
|
|
36.2
|
%
|
|
36.8
|
%
|
|
36.9
|
%
|
DEBT TO
CAPITALIZATION EXCLUDING NON-RECOURSE DEBT
(3)
|
41.9
|
%
|
|
51.7
|
%
|
|
35.6
|
%
|
|
36.3
|
%
|
|
36.5
|
%
|
(3)
The non-recourse debt represents the Company's mortgage note
payable ($53 million at March 31, 2020) and construction loan
payable ($149 million at March 31, 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
March 31,
|
|
2020
|
|
2019
|
HBR
|
88.0
|
%
|
|
85.7
|
%
|
SG&A expense
ratio
|
9.9
|
%
|
|
9.6
|
%
|
Adjusted SG&A
expense ratio
|
8.6
|
%
|
|
9.5
|
%
|
MEDICAL CLAIMS LIABILITY
The changes in medical claims liability are summarized as
follows (in millions):
Balance, March 31,
2019
|
|
$
|
7,381
|
|
Less: reinsurance
recoverable
|
|
20
|
|
Balance, March 31,
2019, net
|
|
7,361
|
|
Acquisitions and
divestitures
|
|
3,659
|
|
Incurred related
to:
|
|
|
Current
period
|
|
65,970
|
|
Prior
period
|
|
(570)
|
|
Total
incurred
|
|
65,400
|
|
Paid related
to:
|
|
|
Current
period
|
|
58,652
|
|
Prior
period
|
|
6,376
|
|
Total paid
|
|
65,028
|
|
Balance, March 31,
2020, net
|
|
11,392
|
|
Plus: reinsurance
recoverable
|
|
21
|
|
Balance, March 31,
2020
|
|
$
|
11,413
|
|
|
|
|
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 $40
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 March 31, 2019, and
prior.
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
|
|
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
|
View original
content:http://www.prnewswire.com/news-releases/centene-corporation-reports-first-quarter-2020-results-301048011.html
SOURCE Centene Corporation