10-QPeriod: Q2 FY2018

CENTENE CORP Quarterly Report for Q2 Ended Jun 30, 2018

Filed July 24, 2018For Securities:CNC

Summary

Centene Corporation (CNC) reported strong revenue growth and improved profitability in its second quarter and first half of 2018, driven by expansion in its Health Insurance Marketplace business and strategic acquisitions. Total revenues increased by 19% year-over-year for the quarter and 16% for the first half. Net earnings attributable to Centene Corporation saw a significant increase of 18% for the quarter and 63% for the first half, indicating successful operational execution and integration of new business lines. The company also successfully closed the significant acquisition of Fidelis Care New York on July 1, 2018, which is expected to further expand its market presence. Despite ongoing investments and integration efforts, Centene demonstrated solid financial performance and a robust liquidity position.

Financial Highlights

53 data points
Beta

Revenue

$14.18B

95.4% Gross Margin

Net Income

$300.00M

2.1% Net Margin

EPS (Diluted)

$0.75

Total Assets

$28.74B

Cash & Equivalents

$8.53B

Free Cash Flow

-$670.00M

Financial Statements
Beta
Revenue$14.18B
Cost of Revenue$658.00M
Gross Profit$13.52B
SG&A Expenses$1.24B
Operating Expenses$13.69B
Operating Income$489.00M
Interest Expense$80.00M
Net Income$300.00M
EPS (Basic)$0.77
EPS (Diluted)$0.75
Shares Outstanding (Basic)391.04M
Shares Outstanding (Diluted)398.90M

Key Highlights

  • 1Total revenues grew by 19% year-over-year to $14.2 billion for Q2 2018 and 16% to $27.4 billion for the first six months of 2018.
  • 2Net earnings attributable to Centene Corporation increased by 18% to $300 million for Q2 2018 and 63% to $640 million for the first six months of 2018.
  • 3Managed care membership increased by 5% year-over-year to 12.8 million members as of June 30, 2018.
  • 4The company successfully completed the acquisition of Fidelis Care New York on July 1, 2018, for approximately $3.75 billion.
  • 5The Health Benefits Ratio (HBR) improved to 85.7% in Q2 2018 from 86.3% in Q2 2017.
  • 6Diluted EPS increased to $1.50 in Q2 2018 from $1.44 in Q2 2017, with Adjusted Diluted EPS rising to $1.80 from $1.59.
  • 7Cash flow from operations significantly improved, providing $1.32 billion in the first six months of 2018 compared to $942 million in the prior year.

Frequently Asked Questions

Revenue growth was primarily driven by an 11% increase in premium revenues, a 42% increase in service revenues, and a significant 155% increase in premium tax and health insurer fee revenues. This was fueled by expansion in the Health Insurance Marketplace, acquisitions, new state programs, and the reinstatement of the health insurer fee.

The acquisition of Fidelis Care, completed on July 1, 2018, for approximately $3.75 billion, significantly expanded Centene's presence into New York State. The transaction was funded through new equity and long-term debt. While the valuation of acquired assets and liabilities is not yet finalized, the company anticipates significant goodwill and expects the acquisition to enhance its scale and capabilities. Pro forma information suggests a positive impact on revenues and EPS.

Centene is currently involved in several legal proceedings, including a California taxpayer action, a federal securities class action, and derivative suits. The company denies wrongdoing and is vigorously defending itself against these claims. While management believes the ultimate outcome of most proceedings will not have a material adverse effect, the California taxpayer action and the federal securities class action are subject to uncertainties, and an adverse outcome could potentially have a material adverse impact on financial position, results of operations, and cash flows.

Centene's profitability is heavily dependent on managing medical costs. The Health Benefits Ratio (HBR), which represents medical costs as a percentage of premium revenues (excluding certain taxes and fees), was 85.7% for Q2 2018, a slight improvement from 86.3% in Q2 2017. This improvement is attributed to membership growth in the Health Insurance Marketplace and the reinstatement of the health insurer fee, partially offset by retroactive minimum MLR changes in California.