Centene (CNC) Misses Q1 EPS by 13c, Revenues Beat; Raises FY20 Revenue Guidance, Maintains FY20 EPS Outlook

Centene (NYSE: CNC) reported Q1 EPS of $0.86, $0.13 worse than the analyst estimate of $0.99. Revenue for the quarter came in at $26.03 billion versus the consensus estimate of $24.3 billion.

First Quarter Highlights

• On January 23, 2020, Centene acquired all of the issued and outstanding shares of WellCare Health Plans, Inc. (WellCare). The transaction is valued at approximately $19.6 billion, including the assumption of debt. The Centene and WellCare combination creates a premier healthcare enterprise focused on government-sponsored healthcare programs. Our consolidated financial statements as of and for the three months ended March 31, 2020 reflect WellCare operations beginning January 23, 2020.
• March 31, 2020 managed care membership of 23.8 million, an increase of 9.0 million members, or 61%, over March 31, 2019.
• Total revenues of $26.0 billion for the first quarter of 2020, representing 41% growth compared to the first quarter of 2019.
• Health benefits ratio (HBR) of 88.0% for the first quarter of 2020, compared to 85.7% in the first quarter of 2019.
• Selling, general and administrative (SG&A) expense ratio of 9.9% for the first quarter of 2020, compared to 9.6% for the first quarter of 2019.
• Adjusted SG&A expense ratio of 8.6% for the first quarter of 2020, compared to 9.5% for the first quarter of 2019.
• Diluted EPS for the first quarter of 2020 of $0.08, compared to $1.24 for the first quarter of 2019, reflecting an increase of acquisition related expenses due to the closing of the WellCare acquisition.
• Adjusted Diluted EPS for the first quarter of 2020 of $0.86, compared to $1.39 for the first quarter of 2019. Both diluted EPS and Adjusted Diluted EPS for the first quarter of 2020 have been negatively impacted by $0.05 due to lower investment income and incremental senior note interest expense. The $0.05 of lower investment and other income resulted from a sharp decrease in interest rates, which caused a fair value decrease to our exchange traded fund portfolio, as well as incremental interest expense associated with our decision to defer the redemption of the 2022 senior debt securities.
• Share repurchases of 9 million shares of Centene common stock for $500 million through the Company's stock repurchase program during the three months ended March 31, 2020, using divestiture proceeds.
• Operating cash flow of $(240) million for the first quarter 2020. Operating cash flow was negatively affected by a delay in premium payments from the state of New York of approximately $700 million and growth in our Medicare Prescription Drug Plan (PDP) business, which used working capital.

"We all recognize the unprecedented nature of the COVID-19 pandemic and the significant impact from both a health and economic perspective. This is not a business as usual environment and economic recovery will be choppy. In this challenging landscape that we all face, Centene has the team, systems, expertise and financial strength to rise to the occasion," said Michael F. Neidorff, Chairman, President and Chief Executive Officer of Centene. "We are confident in our approach to navigate the crisis while executing on our priorities and remain highly committed to meeting the needs of our members, providers and our state customers."

GUIDANCE:

Centene sees FY2020 EPS of $4.56-$4.76, versus the consensus of $4.74. Centene sees FY2020 revenue of $110-112.4 billion, versus the consensus of $105.22 billion.

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