Centene Corporation

Good morning, and welcome to the Centene Corporation 2019 Fourth Quarter and Year-End Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Ed Kroll, Senior Vice President, Finance and Investor Relations. Please go ahead.

Thank you, Brandon, and good morning, everyone. Thank you for joining us on our fourth quarter and full year 2019 earnings results conference call. Michael Neidorf, Chairman, President, and Chief Executive Officer, and Jeff Schwanke, Executive Vice President and Chief Financial Officer of Centene, will host this morning's call, which can also be accessed through our website at centene.com. A replay will be available shortly after the call's completion, also at centene.com. or by dialing 877-344-7529 in the U.S. and Canada, or in other countries by dialing 412-317-0088. The playback code for both dial-ins is 1013-8090. Any remarks that Centene may make about future expectations, plans, and prospects constitute forward-looking statements for purposes of the safe harbor of under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in Centene's most recent Form 10-Q and Form 10-K and other public SEC filings. Centene anticipates that subsequent events and developments will cause its estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. The call will also refer to certain non-GAAP measures. A reconciliation of these measures with the most directly comparable GAAP measures can be found in our fourth quarter and full year 2019 press release, which is available on the company's website at centene.com under the Investors section. a reminder that Centene will host its first quarter 2020 earnings call on Tuesday, April 28, 2020. And with that, I'd like to turn the call over to our chairman and CEO, Michael Neidorf.

Michael? Thank you, Ed. Good morning, everyone, and thank you for joining Centene's fourth quarter and full year 2019 earnings call. I'd like to apologize now for any residual cough you may hear as a result of some bronchitis I had a week or so ago. Before I go through our 2019 results, let me say how pleased we are to have closed the WorldCare transaction on January 23rd. We were cautiously optimistic that the transaction would close early in the first half of 2020, and we are happy that this was the case. We are now a $100 billion-plus enterprise, providing health care services to more than 24 million members across all 50 states, or one in 15 individuals across the nation. Having achieved this, we still have a long runway ahead of us with enhanced scale, further diversification of products and capabilities, and greater opportunities for growth across portfolios. As we have previously disclosed, our planning assumption was to be ready to begin the integration by January 1. I am pleased to report that the integration process is well underway and teams are managing their various work streams. For example, we have begun to align 2021 bids for our Medicare business. In addition, we have activated integration plans in markets where welfare incentives overlap, such as New York, Georgia, and Florida. We remain on track to achieve our previously committed and communicated accretion and synergy targets. Most importantly, we are happy to welcome the WorldCare team and colleagues to Centene. Let me now turn to a recap of Centene's 2019 highlights. 2019 was another robust year for Centene. We delivered strong top and bottom line growth, enabled by operational and commercial successes across our enterprise. We remained focused, sticking to our business as usual approach, we were not distracted by the significant headline noise during the year. We continue to execute against our strategic priorities and invest in capabilities that have positioned Centene for long-term success. In 2019, we added 1.1 million members, representing growth of more than 8%, surpassing the 15 million member mark. This growth was achieved in the face of state eligibility redeterminations, which continue to moderate. we continue to grow our market-leading position in both Medicaid and the ACA marketplace. We grew revenues by 24% to $74.6 billion and adjusted earnings per diluted share by 25% to $4.42. The HBR increased 140 basis points to 87.3, driven by normalized margins in the exchange business in order to favor performance in 2018 and the health insurer fee moratorium. The adjusted net income margin increased 10 basis points to 2.6%. We continue to execute a smooth and seamless integration of Fidelis. The only remaining task in this process is to finalize the incorporation of Fidelis onto our claims systems platform. We also continue to invest in strengthening our products and capabilities with a focus on areas that will complement our core business, enable us to continually enhance how we impact patient outcomes while delivering long-term care. A few highlights. We achieved meaningful progress with Centene Forward, an important initiative that we expect will better position Centene for long-term growth, increase margins, and profitability. In 2019, we executed more than $500 million in initiatives, and the program has now evolved into a permanent part of Centene's and the company's organization and culture. We continue to migrate our membership to RxAdvance, the technology-based pharmacy platform, which enhances quality and transparency while lowering costs. We continue to focus on proof of concept and will expand as appropriately. We increased our stake in Ribera Salud from 50% to 90%. This demonstrates our commitment to continue developing Centene's international portfolio. We are also proud of the initiatives we announced in 2019 to enhance the health of the communities we serve. I would like to highlight just a few. In February, we formed the Social Health Bridge Trust to help organizations more effectively address the social determinants of health. In April, we launched the OPN Youth Challenge to raise awareness among adolescents about opioid misuse and prevention of dependence. And in September, we launched the Food for Today and Food for Tomorrow development initiative with Feeding America to help those experiencing food insecurity. These initiatives are all in line with our whole health focus, an integrated and holistic approach to how we work with our communities. We are focused on addressing the broad range of social determinants of health. For example, Medicaid employees are particularly likely to struggle with non-medical barriers to health, including nutrition, education, transportation, and proper housing. As a leading multinational managed care enterprise, we will continue to lead initiatives and partner with organizations to transform the health of communities across the globe. Moving on to the market and product updates. First, we'll discuss recent Medicaid activity. During the year, we maintained our industry-leading Medicaid RFP win rate of 80%, with success across new contracts as well as renewals and contract expansions. Medicaid membership grew approximately 3%, to year-over-year to 8.6 million recipients. Texas. In November, Centene successfully re-procured and expanded its Star Plus contract in Texas. We will be providing healthcare services to recipients in two new service areas, El Paso and Travis, while continuing to operate in our seven existing service areas. Centene continues currently serves 140,000 beneficiaries under our existing contract. The new expanded contract is scheduled to commence September 1st of 2020. On a separate note, the state of Texas has now indicated that the start ship re-procurement announcement will be sometime in February. We remain confident in the value we bring to the state. Pennsylvania, on January 1, 2017, successfully launched the third and final phase of the Pennsylvania Long-Term Care Contract, adding approximately 38,000 beneficiaries. As a reminder, we launched the Southwest Zone in January of 2018 and the Southeast Zone in January of 2019. We are the leading long-term provider in the state, currently serving approximately 90,000 recipients. The addition of the Third Zone will bring our total annual revenue in Pennsylvania to over $2 billion. Centene's participation in this important program reinforces our national leadership position in long-term care. Louisiana. I'm pleased to announce that on January 17, 2020, the Louisiana procurement officer found the state's procurement to be the most, for the most recent RFP, I quote, was fatally flawed. After months of reviewing our protests, the procurement officer agreed the state failed to comply with the requirements set forth in the RFP and the law. Consequently, the procurement was rescinded and the awards were canceled. The state and awardees have appealed the decision to the Commissioner of Administration and we are currently waiting for a resolution. We remain confident the Commissioner will uphold the procurement officer's decision. Send teams plan continues to operate under the previously mentioned emergency contract for the state. North Carolina, as we have noted, Centene as a provider-led entity has been awarded three regions in North Carolina. North Carolina's Medicaid Managed Care Program has been delayed from its previously announced February 1, 2020 start date, pending approval in the state budget. At this point, no official timeline has been announced. We continue to maintain sufficient operations for all required implementation activities during this delay. In addition, we are defending our awards against ongoing protests and expect that we will retain all awards once the process is complete. Illinois, in February, we commenced operations on the state's foster care program, serving approximately 15,000 beneficiaries. We expect additional enrollment of approximately 17,000 later this year. Health insurance marketplaces. We remain pleased with the strength of our marketplace business, which has continued to be very popular and an attractive option for many consumers. In 2019, we retained our market-leading national position. At year-end, we served approximately 1.8 million exchange members in 20 states. This represented growth of approximately 20% year-over-year. For 2020, we expanded our footprint in 10 of our existing and better states and in 106 new counties. Our continued focus on providing high-quality, affordable healthcare led to a very successful open enrollment. In January, we had almost 2.2 million members across 20 states. This represents a year-over-year increase of approximately 200,000 beneficiaries. In addition, the key demographics of these members remains relatively consistent with prior years. The average age declined by one year to 42. Our retention rate increased 2% to 82%, and our effectuation rate increased by 3% to 96%. We expect to have another strong year of operations in our industry-leading marketplace business. On the Medicare, at year-end, we served approximately 405,000 Medicare and MMP beneficiaries, a decrease of approximately 3% year-over-year. We did not achieve our growth expectations in Medicare, and overall performance has not kept pace with the rest of our product. We have been focused on addressing the underlying drivers of this underperformance. The addition of WellCare's high-performing Medicare portfolio will serve as an important catalyst to accelerate our growth and performance in this business. As I mentioned last month at an investor conference, we plan to operate our Medicare business under the WellCare brand name. Looking ahead, I'm comfortable that we will be able to reset the trajectory of this business. A couple of quick comments. On medical costs, they remain stable and in line with our expectations in the low single digits. On the rate outlook for 2019, our composite Medicaid rate increase was 2%. We are expecting a composite Medicaid rate increase of approximately 1.5% for 2020. Now let me provide commentary on health care legislation and regulatory environment. We believe that there is little desire in Washington, D.C., to revisit comprehensive health care reform. However, Congress and the administration continue to explore ways to improve the health care delivery system. We are pleased with the end-of-year legislation, which included a provision fully eliminating the health insurer fee beginning in 2021. This tax not only increased the cost for seniors and those who purchased commercial coverage, but requires states to pay hundreds of millions of dollars for attacks that place significant strain on their Medicaid programs. In addition, the marketplace provisions aimed at stabilizing the individual market further indicate bipartisan support for exchanges. Last week, the administration announced a block grant proposal aimed at giving states more flexibility with their expansion populations. We are currently reviewing this proposal and are forward to working with the administration to help promote Medicaid fiscal integrity while making sure the program remains available to those who need it. Centene welcomes the federal government's efforts to promote state innovation across all programs to make coverage more affordable and sustainable. It represents another opportunity to be an innovative partner with the state and Centene, with its local approach, is well-positioned to do so. In conclusion, 2019 was another very successful year for Centene. We delivered solid financial performance and made significant progress against our strategic priorities. We look forward to 2020 beyond with confidence as we continue to build on this positive momentum with a focus on driving significant growth across the portfolio with an enterprise on organic growth and an emphasis on organic growth, continuing our focus on operational excellence and margin expansion, and investing in the strength, scale, and quality of our enterprise and portfolio to position us to continue to deliver value over the long term. Thank you for your interest in Centene. Jeff will now provide you with further details on fourth quarter and full year 2019 financial results.