10-QPeriod: Q1 FY2019

CENTENE CORP Quarterly Report for Q1 Ended Mar 31, 2019

Filed April 23, 2019For Securities:CNC

Summary

Centene Corporation's (CNC) first quarter 2019 filing reveals robust revenue growth, driven significantly by the acquisition of Fidelis Care and expansions in various states and product lines, most notably the Health Insurance Marketplace. Total revenues surged by 40% year-over-year to $18.4 billion. The company demonstrated strong membership growth, increasing its managed care membership by 14% to 14.7 million. While the health benefits ratio (HBR) saw a slight increase to 85.7%, the selling, general, and administrative (SG&A) expense ratio improved to 9.6% due to the Fidelis Care acquisition. Diluted earnings per share (EPS) rose to $1.24 from $0.96 in the prior year's quarter. A significant development during the quarter was the announcement of a definitive agreement to acquire WellCare Health Plans, Inc. for approximately $17.3 billion, a move expected to further solidify Centene's market position. Centene continues to navigate a complex regulatory landscape with a focus on delivering affordable healthcare. The company's liquidity remains strong, supported by operating cash flows and available credit facilities. The pending WellCare acquisition represents a major strategic initiative that, if completed, is expected to significantly reshape the company's scale and market presence in the managed care sector.

Financial Highlights

53 data points
Beta

Revenue

$18.44B

97.1% Gross Margin

Net Income

$522.00M

2.8% Net Margin

EPS (Diluted)

$1.24

Total Assets

$33.57B

Cash & Equivalents

$6.35B

Free Cash Flow

$1.14B

Financial Statements
Beta
Revenue$18.44B
Cost of Revenue$544.00M
Gross Profit$17.90B
SG&A Expenses$1.61B
Operating Expenses$17.76B
Operating Income$685.00M
Interest Expense$99.00M
Net Income$522.00M
EPS (Basic)$1.26
EPS (Diluted)$1.24
Shares Outstanding (Basic)412.92M
Shares Outstanding (Diluted)419.75M

Key Highlights

  • 1Total revenues increased by 40% year-over-year to $18.4 billion, primarily driven by the Fidelis Care acquisition and state-specific expansions.
  • 2Managed care membership grew by 14% year-over-year to 14.7 million members, indicating strong market penetration.
  • 3Diluted EPS increased to $1.24 from $0.96 in the prior year's quarter, showing improved profitability.
  • 4Announced a definitive merger agreement to acquire WellCare Health Plans, Inc. for approximately $17.3 billion, a significant strategic move for market consolidation.
  • 5Health Benefits Ratio (HBR) increased slightly to 85.7%, while the SG&A expense ratio improved to 9.6% due to acquisition efficiencies.
  • 6Operating cash flows remained strong at $1.3 billion for the quarter.
  • 7The Health Insurer Fee (HIF) moratorium for 2019 led to the absence of HIF expense, positively impacting earnings compared to the prior year.

Frequently Asked Questions

The primary drivers of Centene's revenue growth were the acquisition of Fidelis Care, expansions and new programs in various states (including Florida, Illinois, New Mexico, and Pennsylvania), and growth in the Health Insurance Marketplace business. Additionally, significant pass-through payments from states like California and New York, recorded as premium tax revenue, contributed to the increase.

Centene announced a definitive agreement to acquire WellCare Health Plans, Inc. for approximately $17.3 billion. The transaction is expected to close in the first half of 2020, subject to shareholder and regulatory approvals. This acquisition is a significant strategic move intended to enhance Centene's market position and scale in the managed care industry, with expectations of being accretive to earnings on an adjusted basis in the second year post-completion.

The Health Benefits Ratio (HBR) increased to 85.7% in Q1 2019 from 84.3% in Q1 2018. This increase was partly due to the Fidelis Care acquisition and the impact of the health insurer fee moratorium. However, the Selling, General & Administrative (SG&A) expense ratio improved to 9.6% from 10.5% in the prior year, largely attributed to the operating efficiencies from the Fidelis Care acquisition.

Centene's liquidity remains strong, supported by consistent operating cash flows of $1.3 billion in Q1 2019. The company expects its available cash, cash equivalents, investments, and revolving credit facility to be sufficient for its general operations and capital expenditures for at least the next 12 months. The company also has an $8.4 billion financing commitment for the pending WellCare acquisition, primarily through debt financing.