10-QPeriod: Q3 FY2020

CENTENE CORP Quarterly Report for Q3 Ended Sep 30, 2020

Filed October 27, 2020For Securities:CNC

Summary

Centene Corporation's (CNC) Q3 2020 10-Q filing reveals a period of significant growth and strategic integration, largely driven by the acquisition of WellCare Health Plans, Inc. Total revenues surged by 53% year-over-year for the quarter, reaching $29.1 billion, primarily due to the consolidation of WellCare's operations and increased membership across its government-sponsored healthcare programs. The company demonstrated robust membership growth, increasing by 9.9 million members (65%) year-over-year, indicating successful expansion and strong demand for its health insurance offerings. The company reported a notable improvement in profitability, with net earnings attributable to Centene Corporation increasing by 498% to $568 million for the quarter, and diluted EPS rising to $0.97 from $0.23 in the prior year. This growth was supported by favorable adjustments, including a significant benefit from the ACA risk corridor receivable settlement and lower medical utilization due to the COVID-19 pandemic, partially offset by a substantial charitable contribution commitment. The balance sheet reflects the scale of the WellCare acquisition, with total assets more than doubling to $68.4 billion, driven by increases in goodwill and intangible assets. Despite increased debt related to the acquisition, the company's liquidity position remains adequate.

Financial Highlights

53 data points
Beta

Revenue

$29.09B

97.0% Gross Margin

Net Income

$568.00M

2.0% Net Margin

EPS (Diluted)

$0.97

Total Assets

$68.36B

Cash & Equivalents

$12.34B

Free Cash Flow

-$1.20B

Financial Statements
Beta
Revenue$29.09B
Cost of Revenue$861.00M
Gross Profit$28.23B
SG&A Expenses$2.51B
Operating Expenses$28.23B
Operating Income$861.00M
Interest Expense$184.00M
Net Income$568.00M
EPS (Basic)$0.98
EPS (Diluted)$0.97
Shares Outstanding (Basic)579.51M
Shares Outstanding (Diluted)587.97M

Key Highlights

  • 1Total revenues grew by 53% to $29.1 billion in Q3 2020, largely driven by the WellCare acquisition and membership expansion.
  • 2Managed care membership increased by 9.9 million (65%) year-over-year to 25.2 million, highlighting strong market penetration.
  • 3Net earnings attributable to Centene Corporation saw a substantial increase of 498% to $568 million in Q3 2020, reflecting improved profitability.
  • 4Diluted EPS rose significantly to $0.97 in Q3 2020, up from $0.23 in the prior year, indicating enhanced shareholder value.
  • 5The acquisition of WellCare significantly increased total assets to $68.4 billion, with substantial additions to goodwill and intangible assets.
  • 6The Health Benefits Ratio (HBR) improved to 86.4% in Q3 2020 from 88.2% in Q3 2019, indicating better cost management relative to premiums.
  • 7Despite increased debt due to the WellCare acquisition, the company reported positive operating cash flows of $2.5 billion for the nine months ended September 30, 2020.

Frequently Asked Questions

The primary driver of Centene's significant revenue growth in Q3 2020 was the acquisition of WellCare Health Plans, Inc., which was completed in January 2020. This acquisition substantially expanded the company's scale and diversified its offerings, leading to a 53% year-over-year increase in total revenues.

The WellCare acquisition led to a substantial increase in Centene's total assets, which more than doubled to $68.4 billion at September 30, 2020. This increase was primarily due to the recognition of significant goodwill ($11.2 billion) and intangible assets ($6.6 billion) related to the acquisition, as well as the assumption of WellCare's assets and liabilities.

Centene noted that while the COVID-19 pandemic created uncertainties, it expected the overall impact for 2020 to be a slight benefit. This was attributed to increased Medicaid and Health Insurance Marketplace membership, while medical utilization normalized after an initial dip, and incremental COVID-19 costs were offset by other factors like the ACA risk corridor settlement. However, the company acknowledged ongoing uncertainties related to the pandemic's duration and severity.

Centene's total debt increased significantly, largely due to financing the WellCare acquisition. The company issued substantial amounts of senior notes in 2020. Despite the increased debt, Centene reported positive operating cash flows of $2.5 billion for the first nine months of 2020 and had $12.2 billion in cash and cash equivalents as of September 30, 2020, indicating a stable liquidity position.