Centene Corporation (NYSE: CNC) (“the Company”) announced today its financial results for the second quarter ended June 30, 2023. In summary, the 2023 second quarter results were as follows:
| Total revenues (in millions) | $ 37,608 | ||
| Premium and service revenues (in millions) | $ 34,838 | ||
| Health benefits ratio | 87.0 % | ||
| SG&A expense ratio | 8.7 % | ||
| Adjusted SG&A expense ratio (1) | 8.6 % | ||
| GAAP diluted EPS | $ 1.92 | ||
| Adjusted diluted EPS (1) | $ 2.10 | ||
| Total cash flow provided by operations (in millions) | $ 2,546 | ||
| (1) A full reconciliation of the adjusted diluted earnings per share (EPS) and adjusted selling, general and administrative (SG&A) expenses is shown in the Non-GAAP Financial Presentation section of this release. | |||
“Our strong second quarter performance demonstrates Centene’s ability to deliver excellent financial results in a dynamic healthcare landscape. New business wins, strong Marketplace membership growth and continued advancement of our Value Creation Plan contributed to another solid quarter of execution. We are increasing our full year 2023 adjusted diluted EPS guidance, reflecting year-over-year growth of at least 12%, consistent with our long-term growth algorithm,” said Chief Executive Officer of Centene, Sarah M. London.
Other Events
- In July 2023, Centene’s Texas subsidiary, Superior HealthPlan, announced it entered into a contract to continue to provide healthcare coverage to the aged, blind, or disabled (ABD) population in the state’s STAR+PLUS program. The contract is anticipated to begin in September 2024 for a six-year term with a maximum of three additional two-year extensions.
- In June 2023, Centene was selected by the Oklahoma Health Care Authority for statewide contracts to provide managed care for the SoonerSelect and SoonerSelect Children’s Specialty Plan programs. The contracts are anticipated to begin in April 2024 for a one-year term with five, one-year renewal options.
- In June 2023, Centene completed the divestiture of Apixio, repositioning the business with a financial partner that can continue to invest in it. The Company maintains a close relationship with, and a minority interest in, the business.
Awards
- In July 2023, Centene received a top score of 100% in the 2023 Disability Equality Index, a comprehensive benchmarking tool that measures disability inclusion in the workplace.
- Also in July, Centene was named one of America’s Greatest Workplaces by Newsweek magazine. As one of 1,000 U.S. companies making the inaugural list, Centene received a five-star rating, the highest possible score.
- In May 2023, Centene was named a Top 50 Company for Diversity by DiversityInc for the fourth consecutive year.
Membership
The following table sets forth membership by line of business:
| June 30, | ||||
| 2023 | 2022 | |||
| Traditional Medicaid (1) | 14,260,400 | 13,758,000 | ||
| High Acuity Medicaid (2) | 1,799,200 | 1,688,000 | ||
| Total Medicaid (4) | 16,059,600 | 15,446,000 | ||
| Commercial Marketplace | 3,295,200 | 2,033,300 | ||
| Commercial Group | 435,000 | 448,700 | ||
| Total Commercial | 3,730,200 | 2,482,000 | ||
| Medicare (3) (4) | 1,329,000 | 1,483,900 | ||
| Medicare PDP | 4,493,700 | 4,165,500 | ||
| Total at-risk membership | 25,612,500 | 23,577,400 | ||
| TRICARE eligibles | 2,799,300 | 2,862,400 | ||
| Total | 28,411,800 | 26,439,800 | ||
| (1) | Membership includes Temporary Assistance for Needy Families (TANF), Medicaid Expansion, Children’s Health Insurance Program (CHIP), Foster Care, and Behavioral Health. | |||
| (2) | Membership includes Aged, Blind, or Disabled (ABD), Intellectual and Developmental Disabilities (IDD), Long-Term Services and Supports (LTSS), and Medicare-Medicaid Plans (MMP) Duals. | |||
| (3) | Membership includes Medicare Advantage and Medicare Supplement. | |||
| (4) | Medicaid and Medicare membership includes 1,329,100 and 1,252,600 Dual Eligible Special Needs Plans (D-SNP) beneficiaries for the periods ending June 30, 2023, and June 30, 2022, respectively. | |||
Premium and Service Revenues
The following table sets forth supplemental revenue information ($ in millions):View News Release Full Screen
| Three Months Ended June 30, | ||||||
| 2023 | 2022 | % Change | ||||
| Medicaid | $ 21,895 | $ 20,487 | 7 % | |||
| Commercial | 5,734 | 4,555 | 26 % | |||
| Medicare (1) | 5,665 | 5,639 | n.m. | |||
| Other | 1,544 | 3,287 | (53) % | |||
| Total Premium and Service Revenues | $ 34,838 | $ 33,968 | 3 % | |||
| (1) | Medicare includes Medicare Advantage, Medicare Supplement, D-SNPs, and Medicare Prescription Drug Plan (PDP). | |||||
| n.m.: not meaningful | ||||||
Statement of Operations: Three Months Ended June 30, 2023
- For the second quarter of 2023, premium and service revenues increased 3% to $34.8 billion from $34.0 billion in the comparable period of 2022. The increase was driven by membership growth in the Marketplace business due to strong product positioning and open enrollment results as well as overall market growth; and Medicaid growth, primarily due to the impact of membership growth during the public health emergency, partially offset by reductions as eligibility redeterminations began in the second quarter of 2023. The decrease in Other revenue was driven by recent divestitures.
- Health benefits ratio (HBR) of 87.0% for the second quarter of 2023 represents an increase from 86.7% in the comparable period in 2022. 2023 included the impact of strong growth in Marketplace membership, including continued growth subsequent to the annual enrollment period. Intra-year growth has a higher HBR due to partial year risk adjustment. In addition, the base measurement period of the second quarter of 2022 was impacted by favorable 2021 risk adjustment.
- The SG&A expense ratio was 8.7% for the second quarter of 2023, compared to 8.2% in the second quarter of 2022. The adjusted SG&A expense ratio was 8.6% for the second quarter of 2023, compared to 8.2% in the second quarter of 2022. The increases were driven by growth in the Marketplace business, which operates at a meaningfully higher SG&A ratio as compared to Medicaid.
- The effective tax rate was 25.4% for the second quarter of 2023, compared to 27.7% in the second quarter of 2022. For the second quarter of 2023, our effective tax rate on adjusted earnings was 24.9%, compared to 27.1% in the second quarter of 2022.
- Cash flow provided by operations for the second quarter of 2023 was $2.5 billion, driven by net earnings and timing of premium payments from our state partners.
Balance Sheet
At June 30, 2023, the Company had cash, investments and restricted deposits of $36.8 billion and maintained $243 million of cash and cash equivalents in our unregulated entities. Medical claims liabilities totaled $16.9 billion. The Company’s days in claims payable was 52 days, which is a decrease of two days as compared to the first quarter of 2023, and a decrease of three days as compared to the second quarter of 2022. The decrease in days reflects the impact of state-directed payments collected over prior quarters and paid in the second quarter of 2023. Total debt was $18.0 billion, which included $61 million of borrowings on our $2.0 billion revolving credit facility at quarter end.
During the second quarter of 2023, the Company repurchased 6.0 million shares for $400 million. In July 2023, the Company repurchased an additional 4.5 million shares for $300 million. As of July 28, 2023, the Company has a remaining amount of $1.7 billion available under the stock repurchase program.
Outlook
The Company is increasing its 2023 premium and services revenues guidance range by $1.8 billion to reflect an additional $1.0 billion of Medicaid and Commercial premiums as well as $800 million for Medicaid state-directed payments. The Company is also increasing its 2023 adjusted diluted EPS guidance by $0.05 to at least $6.45.
The Company’s updated annual guidance for 2023 is as follows and will be discussed further on our conference call:View News Release Full Screen
| Full Year 2023 | ||||||
| GAAP diluted EPS | at least $5.60 | |||||
| Adjusted diluted EPS (1) | at least $6.45 | |||||
| (1) A full reconciliation of adjusted diluted EPS is shown beginning on page 6 of this release. | ||||||
| Full Year 2023 | ||||||
| Low | High | |||||
| Total revenues (in billions) | $ 147.3 | $ 149.3 | ||||
| Premium and service revenues (in billions) | $ 137.0 | $ 139.0 | ||||
| HBR | 87.1 % | 87.7 % | ||||
| SG&A expense ratio | 8.8 % | 9.2 % | ||||
| Adjusted SG&A expense ratio (2) | 8.7 % | 9.1 % | ||||
| Effective tax rate | 22.5 % | 23.5 % | ||||
| Adjusted effective tax rate (3) | 24.1 % | 25.1 % | ||||
| Diluted shares outstanding (in millions) | 546.6 | 549.6 | ||||
| (2) Adjusted SG&A expense ratio excludes acquisition and divestiture related expenses of approximately $40 million to $50 million. | ||||||
| (3) Adjusted effective tax rate excludes income tax effects of adjustments of approximately $240 million to $250 million. | ||||||
Conference Call
As previously announced, the Company will host a conference call Friday, July 28, 2023, at approximately 8:30 AM (Eastern Time) to review the financial results for the second quarter ended June 30, 2023.
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: 6765870 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 12 months or until 11:59 PM (Eastern Time) on Friday, July 26, 2024, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 AM (Eastern Time) on Friday, August 4, 2023, by dialing 1-877-344-7529 in the U.S., 1-855-669-9658 in Canada, or +1-412-317-0088 from abroad, and entering access code 8191341.
Non-GAAP Financial Presentation
The Company is providing certain non-GAAP financial measures in this report 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 in evaluating the Company’s performance and for planning purposes, by allowing management to focus on period-to-period changes in the Company’s core business operations, and in determining employee incentive compensation. 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.
The Company is unable to provide a reconciliation of its 2024 adjusted diluted EPS target to the corresponding GAAP measure without unreasonable effort due to the difficulty of predicting the timing and amounts of various items within a reasonable range. As such, this has been excluded from the reconciliation below.
The Company believes the presentation of non-GAAP financial information that excludes amortization of acquired intangible assets and acquisition and divestiture related expenses, as well as other items, allows investors to develop a more meaningful understanding of the Company’s core 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, | ||||||
| 2023 | 2022 | 2023 | 2022 | ||||
| GAAP net earnings (loss) attributable to Centene | $ 1,058 | $ (172) | $ 2,188 | $ 677 | |||
| Amortization of acquired intangible assets | 179 | 199 | 362 | 398 | |||
| Acquisition and divestiture related expenses | 13 | 22 | 36 | 119 | |||
| Other adjustments (1) | (74) | 1,445 | (127) | 1,447 | |||
| Income tax effects of adjustments (2) | (21) | (452) | (135) | (519) | |||
| Adjusted net earnings | $ 1,155 | $ 1,042 | $ 2,324 | $ 2,122 | |||
| (1) | Other adjustments include the following pre-tax items: | ||
| 2023: | |||
| (a) | for the three months ended June 30, 2023: gain on the sale of Apixio of $91 million, gain on the previously reported divestiture of Centurion of $15 million, an additional loss on the divestiture of our Spanish and Central European businesses of $13 million, and real estate impairments of $19 million; | ||
| (b) | for the six months ended June 30, 2023: gain on the sale of Apixio of $91 million, gain on the sale of Magellan Specialty Health of $79 million, gain on the previously reported divestiture of Centurion of $15 million, an additional loss on the divestiture of our Spanish and Central European businesses of $13 million, and real estate impairments of $45 million. | ||
| 2022: | |||
| (a) | for the three months ended June 30, 2022: real estate impairments of $1,454 million, gain on debt extinguishment of $13 million, and costs related to the pharmacy benefits management (PBM) legal settlement of $4 million; | ||
| (b) | for the six months ended June 30, 2022: real estate impairments of $1,454 million, gain on debt extinguishment of $13 million, and costs related to the PBM legal settlement of $6 million. | ||
| (2) | The income tax effects of adjustments are based on the effective income tax rates applicable to each adjustment. In addition, the six months ended June 30, 2023, include a one-time income tax benefit of $69 million resulting from the distribution of long-term stock awards to the estate of the Company’s former CEO. The three and six months ended June 30, 2022, also include an $18 million increase to the income tax benefit on the previously reported non-cash impairment of our equity method investment in RxAdvance. | ||
View News Release Full Screen
| Three Months Ended June 30, | Six Months Ended June 30, | Annual Guidance December 31, 2023 | |||||||
| 2023 | 2022 | 2023 | 2022 | ||||||
| GAAP diluted earnings (loss) per share attributable to Centene | $ 1.92 | $ (0.29) | $ 3.96 | $ 1.15 | at least $5.60 | ||||
| Amortization of acquired intangible assets | 0.33 | 0.34 | 0.66 | 0.68 | ~$1.31 | ||||
| Acquisition and divestiture related expenses | 0.02 | 0.04 | 0.07 | 0.20 | ~$0.08 | ||||
| Other adjustments (3) | (0.13) | 2.45 | (0.23) | 2.45 | ~$(0.10) | ||||
| Income tax effects of adjustments (4) | (0.04) | (0.77) | (0.25) | (0.88) | ~$(0.44) | ||||
| Adjusted diluted EPS | $ 2.10 | $ 1.77 | $ 4.21 | $ 3.60 | at least $6.45 | ||||
| (3) | Other adjustments include the following pre-tax items: | ||
| 2023: | |||
| (a) | for the three months ended June 30, 2023: gain on the sale of Apixio of $0.16 ($0.11 after-tax), gain on the previously reported divestiture of Centurion of $0.02 ($0.01 after-tax), an additional loss on the divestiture of our Spanish and Central European businesses of $0.02 ($0.01 after-tax), and real estate impairments of $0.03 ($0.02 after-tax); | ||
| (b) | for the six months ended June 30, 2023: gain on the sale of Apixio of $0.16 ($0.11 after-tax), gain on the sale of Magellan Specialty Health of $0.14 ($0.12 after-tax), gain on the previously reported divestiture of Centurion of $0.03 ($0.02 after-tax), an additional loss on the divestiture of our Spanish and Central European businesses of $0.02 ($0.01 after-tax), and real estate impairments of $0.08 ($0.06 after-tax); | ||
| (c) | for the year ended December 31, 2023, an estimated: $0.21 ($0.16 after-tax) of real estate impairments, $0.17 ($0.12 after-tax) gain on the sale of Apixio, $0.14 ($0.12 after-tax) gain on the sale of Magellan Specialty Health, $0.03 ($0.02 after-tax) gain on the previously reported divestiture of Centurion, and $0.03 ($0.02 after-tax) additional loss on the divestiture of our Spanish and Central European businesses. | ||
| 2022: | |||
| (a) | for the three months ended June 30, 2022: real estate impairments of $2.46 per share ($1.80 after-tax), gain on debt extinguishment of $0.02 per share ($0.01 after-tax), and costs related to the PBM legal settlement of $0.01 per share ($0.01 after-tax); | ||
| (b) | for the six months ended June 30, 2022: real estate impairments of $2.46 per share ($1.80 after-tax), gain on debt extinguishment of $0.02 per share ($0.01 after-tax), and costs related to the PBM legal settlement of $0.01 per share ($0.01 after-tax). | ||
| (4) | The income tax effects of adjustments are based on the effective income tax rates applicable to each adjustment. In addition, the six months ended June 30, 2023, as well as the annual 2023 guidance, includes a one-time income tax benefit of $0.12 per share resulting from the distribution of long-term stock awards to the estate of the Company’s former CEO. The three and six months ended June 30, 2022, also include a $0.03 per share increase to the income tax benefit on the previously reported non-cash impairment of our equity method investment in RxAdvance. | ||
View News Release Full Screen
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||
| 2023 | 2022 | 2023 | 2022 | ||||
| GAAP selling, general and administrative expenses | $ 3,016 | $ 2,800 | $ 6,027 | $ 5,545 | |||
| Less: | |||||||
| Acquisition and divestiture related expenses | 13 | 22 | 36 | 121 | |||
| Costs related to the PBM legal settlement | — | 2 | — | 4 | |||
| Real estate optimization | 1 | 4 | 7 | 4 | |||
| Adjusted selling, general and administrative expenses | $ 3,002 | $ 2,772 | $ 5,984 | $ 5,416 | |||
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 Expense Ratio (non-GAAP) = Adjusted selling, general and administrative expenses divided by premium and service revenues.
- Adjusted Effective Tax Rate (non-GAAP) = GAAP income tax expense (benefit) excluding the income tax effects of adjustments to net earnings divided by adjusted earnings (loss) before income tax expense.
- Adjusted Net Earnings (non-GAAP) = Net earnings less amortization of acquired intangible assets, less acquisition and divestiture 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.
- 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 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. In many instances, 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.
Source: https://investors.centene.com/
