10-QPeriod: Q3 FY2022

CENTENE CORP Quarterly Report for Q3 Ended Sep 30, 2022

Filed October 25, 2022For Securities:CNC

Summary

Centene Corporation (CNC) reported a solid third quarter for 2022, demonstrating revenue growth and improved profitability year-over-year. Total revenues reached $35.9 billion, an 11% increase driven by organic Medicaid growth, strong performance in the Medicare segment, and the acquisition of Magellan Health. While the Health Benefits Ratio (HBR) saw a slight increase, operating expenses were managed effectively, leading to a 26% increase in net earnings attributable to Centene Corporation. The company continues to execute its Value Creation Plan, focusing on SG&A savings, gross margin expansion, and strategic capital management. Significant progress has been made in real estate optimization, resulting in cost savings and the divestiture of non-core assets like PANTHERx Rare. The company also returned capital to shareholders through substantial stock and debt repurchases, underscoring a commitment to shareholder value. Looking ahead, Centene is well-positioned to navigate the evolving healthcare landscape, including the upcoming Medicaid redeterminations and continued expansion of its Ambetter Health Marketplace product. Despite ongoing operational and regulatory complexities, the company's diversified business model and strategic initiatives provide a foundation for sustainable growth and profitability.

Financial Highlights

54 data points
Beta

Revenue

$35.87B

11.3% Gross Margin

Net Income

$738.00M

2.1% Net Margin

EPS (Diluted)

$1.27

Total Assets

$81.17B

Cash & Equivalents

$14.99B

Free Cash Flow

$3.08B

Financial Statements
Beta
Revenue$35.87B
Cost of Revenue$1.57B
Gross Profit$4.04B
SG&A Expenses$2.85B
Operating Expenses$35.39B
Operating Income$476.00M
Interest Expense$169.00M
Net Income$738.00M
EPS (Basic)$1.29
EPS (Diluted)$1.27
Shares Outstanding (Basic)573.96M
Shares Outstanding (Diluted)580.61M

Key Highlights

  • 1Total revenues increased 11% to $35.9 billion for the third quarter of 2022, driven by membership growth and acquisitions.
  • 2Net earnings attributable to Centene Corporation rose by 26% to $738 million, or $1.27 per diluted share, compared to the prior year quarter.
  • 3The company completed the divestiture of PANTHERx Rare and made significant progress on its Value Creation Plan, including real estate optimization and strategic portfolio reviews.
  • 4Managed care membership grew by 1.2 million (5%) year-over-year to 26.8 million, primarily in Medicaid and Medicare segments.
  • 5Centene returned capital to shareholders through $1.4 billion in stock repurchases and $259 million in debt repurchases during the first nine months of 2022.
  • 6The acquisition of Magellan Health was completed in January 2022, contributing to revenue growth, though also increasing SG&A expenses.
  • 7The company anticipates Medicaid eligibility redeterminations to begin in February 2023, and is prepared to support members transitioning coverage.

Frequently Asked Questions

Centene's revenue growth in the third quarter of 2022 was primarily driven by organic growth in its Medicaid business due to the ongoing suspension of eligibility redeterminations, a significant increase in Medicare membership, and the recent acquisition of Magellan Health. The company also benefited from premium tax revenue and retroactive state-directed payments.

The Health Benefits Ratio (HBR) slightly increased to 88.3% in Q3 2022 from 88.1% in Q3 2021, attributed to a return to more normalized Medicaid utilization. The SG&A expense ratio was 8.4%, up from 8.3% in the prior year, influenced by the inclusion of Magellan and increased Medicare marketing costs. Centene is actively pursuing SG&A savings through initiatives like real estate optimization, which is expected to yield annualized savings of approximately $200 million.

The acquisition of Magellan Health, completed in January 2022 for approximately $2.5 billion, contributed positively to revenue growth in Q3 2022. However, it also led to an increase in Selling, General, and Administrative (SG&A) expenses because Magellan's business operates at a higher SG&A ratio. The integration of Magellan is ongoing, and its performance is a key factor in the Specialty Services segment results.

Centene is actively returning capital to shareholders through its stock repurchase program and debt management. During the first nine months of 2022, the company repurchased $1.4 billion of its common stock, including a $1 billion accelerated share repurchase (ASR) agreement. Additionally, $259 million of its senior notes were repurchased. The company's Board of Directors has authorized significant amounts for these repurchase programs, indicating a strong commitment to shareholder value.