10-QPeriod: Q3 FY2021

CENTENE CORP Quarterly Report for Q3 Ended Sep 30, 2021

Filed October 26, 2021For Securities:CNC

Summary

Centene Corporation's (CNC) third-quarter 2021 filing shows robust revenue growth driven by expansion in Medicaid and Medicare programs, alongside strategic acquisitions like Circle Health and PANTHERx. Total revenues increased by 11% year-over-year to $32.4 billion, reflecting strong membership growth, particularly in Medicaid, which benefited from the ongoing suspension of eligibility redeterminations. The company also saw an increase in Medicare membership and successfully integrated recent acquisitions. Despite revenue growth, net earnings attributable to Centene Corporation saw a decrease of 59% to $748 million for the nine months ended September 30, 2021, compared to $1.82 billion in the prior year. This decline was significantly impacted by a substantial $1.25 billion legal settlement reserve related to Envolve Pharmacy Solutions and a $229 million impairment charge on the RxAdvance investment. The company's operating expenses, particularly medical costs, increased, leading to a higher Health Benefits Ratio (HBR). However, the selling, general, and administrative (SG&A) expense ratio improved due to revenue leverage and the absence of a large charitable contribution made in the prior year.

Financial Highlights

53 data points
Beta

Revenue

$32.41B

95.8% Gross Margin

Net Income

$584.00M

1.8% Net Margin

EPS (Diluted)

$0.99

Total Assets

$77.74B

Cash & Equivalents

$13.63B

Free Cash Flow

$1.58B

Financial Statements
Beta
Revenue$32.41B
Cost of Revenue$1.35B
Gross Profit$31.05B
SG&A Expenses$2.54B
Operating Expenses$31.86B
Operating Income$545.00M
Interest Expense$170.00M
Net Income$584.00M
EPS (Basic)$1.00
EPS (Diluted)$0.99
Shares Outstanding (Basic)583.24M
Shares Outstanding (Diluted)590.70M

Key Highlights

  • 1Total revenues grew 11% year-over-year to $32.4 billion in Q3 2021, driven by strong performance in Medicaid and Medicare segments.
  • 2Managed care membership increased by 1.4 million (5%) year-over-year to 26.5 million as of September 30, 2021.
  • 3A significant $1.25 billion legal settlement reserve related to Envolve Pharmacy Solutions and a $229 million impairment charge for the RxAdvance investment were recorded, impacting net earnings.
  • 4Health Benefits Ratio (HBR) increased to 88.1% in Q3 2021 from 86.4% in Q3 2020, indicating higher medical costs relative to premium revenues.
  • 5The company completed the acquisition of the remaining 60% of Circle Health and the acquisition of PANTHERx in 2021, contributing to revenue growth.
  • 6The Magellan Health acquisition is expected to close in Q4 2021, subject to regulatory approvals.
  • 7Diluted EPS for Q3 2021 was $0.99, flat compared to $0.97 in Q3 2020 on a GAAP basis, but Adjusted Diluted EPS remained stable at $1.26.

Frequently Asked Questions

The substantial decrease in net earnings was primarily due to a $1.25 billion legal settlement reserve related to Envolve Pharmacy Solutions and a $229 million non-cash impairment charge on the RxAdvance investment. These one-time or significant charges significantly impacted the company's profitability for the period.

The repeal of the HIF effective January 2021 had a positive impact on revenue by eliminating associated expenses and revenue offsetting the expense. For example, in Q3 2021, the company reported no Health Insurer Fee expense compared to $376 million in Q3 2020. For the nine-month period, this resulted in $1.1 billion less in HIF expense for 2021 compared to 2020.

Centene announced a definitive merger agreement to acquire Magellan Health in January 2021 for approximately $2.2 billion. The transaction is expected to close in the fourth quarter of 2021, subject to regulatory approvals. The acquisition is intended to enhance Centene's 'whole health' capabilities, particularly in behavioral health. The financing for the acquisition is expected to come from debt financing and cash on hand.

The HBR increased to 88.1% in Q3 2021 from 86.4% in Q3 2020. This increase was influenced by factors such as the repeal of the health insurer fee and higher COVID-19 treatment costs. The company's management of medical costs is a critical focus, as even small fluctuations in the HBR can significantly impact profitability due to the company's business model.