Centene (NYSE: CNC) reported Q1 EPS of $2.17, $0.29 better than the analyst estimate of $1.88. Revenue for the quarter came in at $13.2 million versus the consensus estimate of $13.28 million.

First Quarter Highlights

• March 31, 2018 managed care membership of 12.8 million, an increase of 684,000 members, or 6% over March 31, 2017.
• Total revenues for the first quarter of 2018 of $13.2 billion, representing 13% growth, compared to the first quarter of 2017.
• Health benefits ratio (HBR) of 84.3% for the first quarter of 2018, compared to 87.6% in the first quarter of 2017.
• Selling, general and administrative (SG&A) expense ratio of 10.5% for the first quarter of 2018, compared to 9.8% for the first quarter of 2017.
• Adjusted SG&A expense ratio of 10.3% for the first quarter of 2018, compared to 9.3% for the first quarter of 2017.
• Operating cash flow of $1.8 billion for the first quarter of 2018, representing 5.5x net earnings.
• Diluted EPS for the first quarter of 2018 of $1.91, compared to $0.79 for the first quarter of 2017.
• Adjusted Diluted EPS for the first quarter of 2018 of $2.17, compared to $1.12 for the first quarter of 2017. Adjusted Diluted EPS for the first quarter of 2018 was higher than our previous expectations by approximately $0.12 per diluted share due to the delay in the financing for the acquisition of New York State Catholic Health Plan, Inc. d/b/a Fidelis Care New York (Fidelis Care) (Proposed Fidelis Acquisition).

Outlook

The Company\'s annual guidance for 2018 has been updated for the following items:

• An increase to GAAP diluted EPS and Adjusted Diluted EPS of $0.05 associated with the performance of the business in the first quarter of 2018;
• A change in the timing of the anticipated closing of the Proposed Fidelis Acquisition from April 1, 2018 to July 1, 2018, as well as a change in the assumed timing of the equity and debt financing from March 1, 2018 to May 1, 2018. The ultimate timing of the financings will depend on market conditions;
• The impact of undertakings that Centene is expected to enter into as part of the regulatory approval process for the Proposed Fidelis Acquisition with the New York State Department of Health. It is expected that one of the undertakings, among others, will include a $340 million contribution by Centene to the State of New York to be paid over a five-year period for initiatives consistent with our mission of providing high quality healthcare to vulnerable populations within New York State. Upon the closing of the Proposed Fidelis Acquisition, the present value of the $340 million contribution to the State of New York, estimated to be approximately $325 million, will be expensed in SG&A; and
• The net effect of the acquisitions of CMG, MHM, and Interpreta and the investment in RxAdvance.

GUIDANCE:

Centene sees FY2018 EPS of $6.75-$7.15, versus the consensus of $7.09. Centene sees FY2018 revenue of $58.2-59 billion, versus the consensus of $60.28 billion.

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