10-KPeriod: FY2016

CENTENE CORP Annual Report, Year Ended Dec 31, 2016

Filed February 21, 2017For Securities:CNC

Summary

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 billion. 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% 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.

Financial Highlights

53 data points
Beta

Revenue

$40.61B

95.4% Gross Margin

Net Income

$562.00M

1.4% Net Margin

EPS (Diluted)

$1.71

Total Assets

$20.20B

Cash & Equivalents

$3.93B

Free Cash Flow

$1.54B

Financial Statements
Beta
Revenue$40.61B
Cost of Revenue$1.86B
Gross Profit$38.74B
SG&A Expenses$3.67B
Operating Expenses$39.34B
Operating Income$1.26B
Interest Expense$217.00M
Net Income$562.00M
EPS (Basic)$1.76
EPS (Diluted)$1.71
Shares Outstanding (Basic)319.13M
Shares Outstanding (Diluted)327.95M

Key Highlights

  • 1Acquisition 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.
  • 2Net earnings from continuing operations increased by 57% to $559 million, with diluted EPS growing 18% to $3.41.
  • 3The Health Benefits Ratio (HBR) improved to 86.5% in 2016 from 88.9% in 2015, indicating better cost management.
  • 4Selling, 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.
  • 5The 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.
  • 6Centene's extensive portfolio of member-focused programs and a decentralized, locally-based approach with centralized support infrastructure are key competitive strengths.
  • 7The company's expanded operations are regulated at both state and federal levels, with significant reliance on contracts with government entities.

Frequently Asked Questions

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.

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.

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.

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.