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Analysis

A Month After Announcing WellCare Deal, Centene Produces Robust Q1 Earnings

By Jack O'Brien  
   April 23, 2019

Centene achieved strong financials during the start of 2019 as it eyes the next steps in its WellCare deal.

Centene Corp. reported total quarterly revenues of nearly $18.4 billion, up 40% year-over-year, and beat its adjusted earnings per share (EPS) estimate by $0.07, according to its Q1 earnings report released Tuesday morning.

The St. Louis-based insurer's managed care membership reached 14.7 million, rising by more than 1.8 million members year-over-year, despite a considerable drop in behavorial health membership under Medicaid.

The insurer made noticeable membership gains in its dual-eligible, health insurance marketplace, and Medicaid expansion segments.

Centene's earnings come just about one month after it announced a $17.3 billion deal to acquire Tampa-based WellCare Health Plans, in a decisive play to grow in the government business space. 

Related: With $17.3B Plan to Buy WellCare, Centene Doubles Down on Growth Goals in ACA Markets

The company's revenues spiked in Q1 due to several factors, most notably the $3.75 billion acquisition of Fidelis Care. As previously reported in HealthLeaders, Centene's entrance New York market is expected to generate more than $11 billion in revenue.

Centene also reported an adjusted EPS of $1.39, beating the Zacks Consensus estimate of $1.32. 

In response to another positive earnings report, company leadership once again raised the annual guidance for total revenues from a range of $70.3 billion and $71.1 billion to a range of $72.8 billion to $73.6 billion.

C-suite perspective: 

"Solid first quarter results and increased 2019 guidance are indicative of the sustainability of our profitable growth trajectory," Michael Neidorff, CEO of Centene, said in a statement. "We continue to focus on the fundamentals of the business that will drive long-term shareholder value, irrespective of headline volatility." 

Related: Adjusted EPS Rose 40% for Centene in 2018, Revenues Top $60B

Speaking on the recent healthcare policy developments and discussion at the federal level regarding the future of the ACA, Neidorff said that he sees "little appetite" for comprehensive healthcare reform coming out of Washington.

He added that Centene will continue to work with lawmakers on Capitol Hill to craft a bipartisan solutions that improve healthcare access and costs for consumers. 

On the topic of the role of PBMs, Neidorff indicated a preference for increased price transparency through net pricing on prescription drugs.

Related: Undaunted By Trump's ACA Threats, Centene Plans to Forge Ahead

Centene recorded total cash, cash equivalents, and restricted cash and cash equivalents of $6.3 billion in Q1, up from $5.7 billion this time last year.

The insurer experienced a $530 million year-over-year drop in net cash provided by operating activities but reduced its negative cash flow losses from $764 million to $373 million during the same period of time.

“Centene’s credit profile benefited from solid growth in revenues and operating earnings in Q1 2019, driven by the Fidelis acquisition, while adding new and expanded Medicaid programs in several states along with growth in its leading position in the individual market," Dean Ungar, vice president of Moody's Investors Service, said in a statement to HealthLeaders on Tuesday. "The company also incrementally reduced leverage. However, the previously announced  acquisition of WellCare Health Plans, Inc., its largest acquisition to date, will increase leverage and add integration risk. In addition, legal challenges to the Affordable Care Act, from which we estimate accounted for approximately 20% of earnings in Q1, and proposals for Medicare for All, albeit low probability occurrences, have increased event risk.”

Additional Centene Q1 earnings report highlights:  

  • Centene's adjusted net earnings were $585 million, an increase of nearly $200 million year-over-year.

  • Medicaid revenues rose 54% year-over-year, more than twice as much as any other segment. 

  • Medicare and commercial revenues both rose 19% compared to Q1 2018, respectively.

  • Centene distributed a two-for-one split of its stock in the form of a 100% dividend on February 6. 

  • The insurer expanded its footprint in Arkansas earlier this month through its acquisition of QCA Health Plan, Inc. and QualChoice Life and Health Insurance Company, Inc.

  • Centene's annual investor day will be held on June 14 in New York City.

For complete financial information, review Centene's filing with the Securities and Exchange Commission.

Editor's note: This story has been updated to include a comment from Moody's.

Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.

Photo credit: KIEV, UKRAINE - Dec 11, 2018: Centene Corporation Insurance company logo seen displayed on smart phone. - Image / Editorial credit: IgorGolovniov / Shutterstock.com


KEY TAKEAWAYS

The St. Louis-based insurer continued its hot streak, with higher revenues and earnings per share.

Centene attributed part of its success to last year's purchase of Fidelis Care in New York state.

The next move on the horizon is securing regulatory approvals for its $17.3 billion acquisition of WellCare Health Plans.


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