10-QPeriod: Q3 FY2024

CENTENE CORP Quarterly Report for Q3 Ended Sep 30, 2024

Filed October 25, 2024For Securities:CNC

Summary

Centene Corporation (CNC) reported a mixed financial performance for the third quarter and first nine months of 2024. Total revenues showed robust year-over-year growth, driven by strong performance in the Commercial (Marketplace) segment and increased premium tax revenue, partially offset by declines in Medicaid membership due to redeterminations and divestitures in the 'Other' segment. While overall revenue grew, the company experienced a higher Health Benefits Ratio (HBR) primarily due to increased acuity in Medicaid and Medicare Star rating impacts, leading to a decrease in gross margin across Medicaid and Medicare segments. Despite these challenges, the company's net earnings and diluted EPS saw significant year-over-year increases for the quarter, though adjusted diluted EPS declined. This improvement in GAAP EPS was aided by lower income tax expense and strong investment income, as well as the absence of significant impairment charges seen in the prior year. The company continues its strategic initiatives, including geographic expansion in its Commercial business and managing its Medicare Advantage strategy despite challenges from Star ratings. Liquidity remains solid, supported by operating cash flows and a substantial stock repurchase program authorization.

Financial Highlights

53 data points
Beta

Revenue

$42.02B

9.5% Gross Margin

Net Income

$713.00M

1.7% Net Margin

EPS (Diluted)

$1.36

Total Assets

$82.35B

Cash & Equivalents

$14.58B

Free Cash Flow

-$1.13B

Financial Statements
Beta
Revenue$42.02B
Cost of Revenue$692.00M
Gross Profit$4.01B
SG&A Expenses$3.06B
Operating Expenses$41.36B
Operating Income$665.00M
Net Income$713.00M
EPS (Basic)$1.37
EPS (Diluted)$1.36
Shares Outstanding (Basic)521.97M
Shares Outstanding (Diluted)523.54M

Key Highlights

  • 1Total revenues increased by 10% year-over-year to $42.0 billion for the third quarter of 2024, driven by Medicaid rate increases and strong Marketplace membership growth.
  • 2Health Benefits Ratio (HBR) increased to 89.2% in Q3 2024 from 87.0% in Q3 2023, primarily due to higher acuity in Medicaid and Medicare Star rating impacts.
  • 3GAAP diluted EPS increased significantly to $1.36 in Q3 2024 from $0.87 in Q3 2023, while adjusted diluted EPS decreased to $1.62 from $2.00.
  • 4Medicaid membership declined due to eligibility redeterminations, impacting revenues and gross margin, though the company is focused on transitioning members to its Ambetter Health product.
  • 5Commercial (Marketplace) business showed strong growth with a 22% year-over-year membership increase and a 35% increase in total revenues for the quarter.
  • 6The company has approximately $3.2 billion remaining under its stock repurchase program as of September 30, 2024, and repurchased $1.2 billion in the third quarter.
  • 7Net cash provided by operating activities was $741 million for the first nine months of 2024, a significant decrease from $7.8 billion in the same period of 2023, largely due to timing of pharmacy rebates and risk adjustment payments.

Frequently Asked Questions

Centene's revenue growth is primarily driven by increases in premium tax revenue, Medicaid rate increases, and strong membership growth in its Commercial (Marketplace) business. The expansion of its Ambetter Health product into new states and counties also contributes significantly to this growth.

The HBR has increased due to higher acuity in the Medicaid population, a consequence of the ongoing eligibility redetermination process where members with greater healthcare needs are being retained. Additionally, impacts from Medicare's Star quality ratings have also contributed to the rise in HBR.

Medicaid redeterminations have led to a decrease in Medicaid membership, which negatively impacts revenue and gross margin. Centene is actively working with state partners to manage rate adjustments for higher acuity members and is focused on retaining these members through its Ambetter Health product.

Centene's investment portfolio primarily consists of fixed-income securities. The company maintains a solid liquidity position, supported by operating cash flows, a substantial stock repurchase program, and available funds under its Revolving Credit Facility. As of September 30, 2024, the company had $3.3 billion in working capital.