10-QPeriod: Q2 FY2023

CENTENE CORP Quarterly Report for Q2 Ended Jun 30, 2023

Filed July 28, 2023For Securities:CNC

Summary

Centene Corporation (CNC) reported a strong second quarter for 2023, demonstrating significant year-over-year revenue growth and a substantial increase in net earnings. Total revenues rose by 5% to $37.6 billion, driven by membership gains in the Commercial Marketplace and stable performance in Medicaid, despite ongoing eligibility redeterminations. The company successfully executed on its Value Creation Plan, completing several strategic divestitures and repurchasing $777 million in common stock during the first six months, with an additional $300 million in July. Financially, Centene saw a significant turnaround in profitability, reporting diluted earnings per share of $1.92, a stark contrast to the loss reported in the prior year. This improvement was supported by strong operating cash flows of $2.5 billion for the quarter and strategic divestitures which streamlined operations. The company also highlighted its expanding footprint in the Commercial Marketplace, anticipating continued growth opportunities, and is actively managing the transition of Medicaid members post-PHE redeterminations.

Financial Highlights

54 data points
Beta

Revenue

$37.61B

12.3% Gross Margin

Net Income

$1.06B

2.8% Net Margin

EPS (Diluted)

$1.92

Total Assets

$82.85B

Cash & Equivalents

$17.53B

Free Cash Flow

$2.33B

Financial Statements
Beta
Revenue$37.61B
Cost of Revenue$877.00M
Gross Profit$4.61B
SG&A Expenses$3.02B
Operating Expenses$36.44B
Operating Income$1.17B
Interest Expense$181.00M
Net Income$1.06B
EPS (Basic)$1.93
EPS (Diluted)$1.92
Shares Outstanding (Basic)548.93M
Shares Outstanding (Diluted)550.31M

Key Highlights

  • 1Total revenues increased 5% year-over-year to $37.6 billion, driven by membership growth in the Commercial Marketplace and Medicaid.
  • 2Diluted EPS improved significantly to $1.92 from a loss of $(0.29) in the prior year's second quarter, indicating a strong return to profitability.
  • 3The company completed several key divestitures as part of its Value Creation Plan, including Magellan Specialty Health, Centurion, and HealthSmart, which is expected to streamline operations.
  • 4Managed care membership grew by 2.0 million (7%) year-over-year to 28.4 million, primarily due to Commercial Marketplace expansion and Medicaid growth.
  • 5Operating cash flows were robust at $2.5 billion for the quarter, supporting the company's financial flexibility.
  • 6Centene repurchased $777 million of its common stock in the first six months of 2023, funded by divestiture proceeds and operational cash flow, with an additional $300 million in July.
  • 7The company's Commercial Marketplace segment (Ambetter Health) saw significant membership growth, expanding its reach and positioning it well for future growth opportunities.

Frequently Asked Questions

Revenue growth was primarily driven by a 7% increase in managed care membership year-over-year, particularly in the Commercial Marketplace segment due to expanded reach and strong open enrollment results. The turnaround in profitability from a loss in Q2 2022 to a substantial profit in Q2 2023 was supported by strong operating cash flows, the positive impact of strategic divestitures completed as part of the Value Creation Plan, and improved investment and other income, partly due to higher interest rates and gains on sales of businesses.

Centene is actively managing the Medicaid eligibility redeterminations that began in April 2023. While these redeterminations are expected to lead to some membership decline, the company believes it is well-positioned to capture members transitioning to other coverage options through its Ambetter Health product. The company has a strategy in place to support members through this transition.

The divestitures of businesses like Magellan Specialty Health, Centurion, and HealthSmart are key components of Centene's Value Creation Plan. These actions are intended to streamline operations, focus on core competencies, and improve financial performance by exiting non-core or underperforming segments, allowing the company to concentrate on higher-growth and more profitable areas like the Commercial Marketplace and government-sponsored programs.

Centene continues to execute on its capital allocation strategy, which includes significant share repurchases. In the first six months of 2023, the company repurchased $777 million of its common stock, funded by divestiture proceeds and operating cash flow. An additional $300 million was repurchased in July 2023. As of June 30, 2023, approximately $2.0 billion remained available under the stock repurchase program, indicating a continued commitment to returning capital to shareholders.