01—Abstract
Summary
Summary of the 10-K filed February 21, 2017. Cited figures are marked; the original filing is the authoritative source.
Centene Corporation's 2016 10-K filing highlights a year of significant transformation, largely driven by the impactful acquisition of Health Net, Inc. This acquisition dramatically expanded Centene's scale and market presence, more than doubling its membership to 11.4 million and nearly doubling its total revenues to $40.6 billiona.
The company continues its core mission of providing services to government-sponsored healthcare programs, with a strong focus on Medicaid and Medicare beneficiaries. The financial performance reflects this growth, with revenues up 78%b and net earnings from continuing operations rising 57%.
While the company navigated increased selling, general, and administrative expenses due to integration costs and the expanded operations, key metrics like the Health Benefits Ratio (HBR) improved. Centene's strategy remains focused on increasing penetration in existing markets, diversifying its business lines, and addressing evolving state needs, positioning it for continued growth in the government-sponsored health insurance sector.
02—Key points
Key Highlights
- Acquisition of Health Net completed in March 2016, significantly increasing membership to 11.4 million and total revenues to $40.6 billion, representing 124% and 78% year-over-year growth, respectively.
- Net earnings from continuing operations increased by 57% to $559 million, with diluted EPS growing 18% to $3.41.
- The Health Benefits Ratio (HBR) improved to 86.5% in 2016 from 88.9% in 2015, indicating better cost management.
- Selling, General, and Administrative (SG&A) expenses increased by 104% to $3.7 billion, primarily due to acquisition-related costs and integration efforts for Health Net.
- The company's strategic focus remains on expanding in existing state markets, diversifying service offerings, and capitalizing on government-sponsored healthcare programs, particularly Medicaid and Medicare.
- Centene's extensive portfolio of member-focused programs and a decentralized, locally-based approach with centralized support infrastructure are key competitive strengths.
- The company's expanded operations are regulated at both state and federal levels, with significant reliance on contracts with government entities.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Centene Corp kept $0.01.
- Revenue$40.61B100.0%
- Cost of revenue−$1.86B4.6%
- Gross profit$38.74B95.4%
- Operating costs−$37.48B92.3%
- Operating income$1.26B3.1%
- Interest, other & tax−$701.0M1.7%
- Net income$562.0M1.4%
Where FY2016 revenue went
$40.61B- Other operating costs: $33.81B, 83% of revenue
- Net income: $562.0M, 1.4% of revenue
- Cost of revenue: $1.86B, 4.6% of revenue
- SG&A: $3.67B, 9.0% of revenue
- Interest, other & tax: $701.0M, 1.7% of revenue
Kept 1.4% as net incomeNet income $562.0M · 1.4%Interest, other & tax $701.0M · 1.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 21, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $40.61B$22.76B | +78.4% |
| Cost of Revenue | $1.86B— | — |
| Gross Profit | $38.74B— | — |
| SG&A Expenses | $3.67B$1.80B | +103.8% |
| Operating Expenses | $39.34B$22.05B | +78.4% |
| Operating Income | $1.26B$705.00M | +79.1% |
| Interest Expense | $217.00M$43.00M | +404.7% |
| Net Income | $562.00M$355.00M | +58.3% |
| EPS (Basic) | $1.76$1.49 | +18.1% |
| EPS (Diluted) | $1.71$1.44 | +18.8% |
| Shares Outstanding (Basic) | 319.13M238.20M | +34.0% |
| Shares Outstanding (Diluted) | 327.95M246.13M | +33.2% |
05—Questions
Frequently Asked Questions
What was the primary driver of Centene's growth in 2016?
The primary driver of Centene's significant growth in 2016 was the acquisition of Health Net, Inc., which closed on March 24, 2016. This acquisition substantially increased the company's membership, revenue, and geographic reach.
How did the Health Net acquisition impact Centene's financial performance?
The Health Net acquisition significantly boosted Centene's total revenues by 78% to $40.6 billion and increased its managed care membership by 124% to 11.4 million. While it also led to a substantial rise in SG&A expenses due to integration and operational expansion, the company also saw a 57% increase in net earnings from continuing operations and an improvement in its Health Benefits Ratio.
What is Centene's strategic focus for future growth?
Centene's strategy centers on increasing its penetration in existing state markets, diversifying its business lines into complementary areas, and proactively addressing emerging state needs in government-sponsored healthcare programs. This includes expanding its Medicare Advantage footprint and leveraging its expertise in serving under-insured and uninsured populations.
What are the main risks facing Centene based on this filing?
Key risks include reductions in government funding or changes to eligibility requirements for its core programs (Medicaid, Medicare), potential regulatory changes (including related to the Affordable Care Act), the inability to accurately estimate and manage medical costs, intense competition, and the successful integration of acquired businesses like Health Net. Failure to manage these risks could materially affect financial results.
06—Continue