Centene Corporation

Good morning. Welcome to Centene Corporation's third quarter 2020 financial 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 Jennifer Goss. Gillian, please go ahead.

Thank you, Kate, and good morning, everyone. Thank you for joining us on our third quarter 2020 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 also can be accessed through our website at centene.com. Any remarks that Centene may make about future expectations, plans, and processes constitute forward-looking statements for the purpose of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in Centene's most recent Form 10-Q, filed today, October 27th, and Form 10-K, dated February 18, 2020, and other public SEC filings, including the risks and uncertainties described with respect to the potential impacts of COVID-19 on our business and results of operations. Centene anticipates that subsequent events and developments may 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 third quarter 2020 press release, which is available on the company's website at centene.com under the Investors section. Additionally, please mark your calendars for our upcoming Virtual Investor Day, which will take place on December 18, 2020. Finally, in connection with this morning's earnings release, we have shared some illustrative exhibits. These slides are available on our website under the Investor section. With that, I would like to turn the call over to our Chairman, President, and CEO, Michael Neidorf. Michael?

Thank you, Jennifer. Good morning, and thank you for joining Centene's third quarter earnings call. We all hope you and your families are safe and well. On today's call, I will review our strong third quarter performance and discuss the operating environment as we see it today. I will also provide perspective on how Centene is positioned for continued growth and success, including some thoughts on 2021 and an update on the WorldCare integration. I'm pleased with our third quarter results, which demonstrate the strength of our underlying business and diversified platform, as well as our team's solid execution. We reported third quarter revenues of $29.1 billion, an increase of 53% from the third quarter of 2019. Adjusted diluted earnings per share was $1.26, or 97 cents, when accounting for the one-time items referenced in our press release. This is consistent with previous guidance. I remind you that on our second quarter earnings call, we shared that in this COVID environment, we expected 68% of our income to be received in the first half of the year. We also advise that the third quarter would amount to roughly 20% of the year's earnings, which happens to be 97 cents. We delivered strong organic membership growth driven by new programs being introduced across many of our states, as well as some COVID-related membership growth. Membership was approximately 25.2 million at the quarter end. This represents a sequential growth of 2% and a year-over-year growth of 65%, largely driven by the addition of well-care. Excuse me. Membership Quills remains in line with the guidance provided in July, and we continue to expect 2020 membership to peak in November with 1.4 million new members. Our earnings benefited from a number of one-time items, which will be reinvested back into the business. As you all know, Centene is now a $110 billion enterprise health care unit. At our size and scale, we expect there will be impacts to our earnings on a quarter-to-quarter basis. We are utilizing the risk corridor settlement to reinvest in growth initiatives. In addition, we have allocated a portion of the settlement towards making a significant one-time contribution to the Centene Charitable Foundation, the earnings of which will be used towards public programs and medical research. that support the communities we serve. In this environment, we continue to take a leading role in accelerating our approach to community care with programs that address social determinants of health, such as improved access to virtual care and support for individuals experiencing food insecurity. Turning now to the operating environment and how we view the rest of the year. If you exclude the 12 cent increase to reflect the favorable tax settlement in the third quarter. Our earnings guidance for 2020 remains consistent with what we provided at our June investigation. Our business is strong and we remain confident in our ability to lead in today's operating landscape. State partnerships continue to present opportunities for constructive relationships. The discussions that have taken place with our state counterparts this year underscore the strength of our partnerships as well as the value we provide to our state partners. The typical rate setting process has continued throughout the year, including a 5.3% rate increase in Texas, effective September 1, and approximately 1.5% increase in Florida, effective October 1. We continue to hold discussions with our state partners related to rate setting and risk adjustment mechanisms. We also have certain states that outside the normal process have put additional risk sharing mechanisms in place related to COVID-19. These are specific to the pandemic and we expect them to be short term in nature. Overall, we continue to navigate the evolving landscape together with our state partners as we work to provide our members with access to critical care. Other key factors include membership growth and medical utilization continue to track in line with our expectations. While there is continued uncertainty, including the intensity and duration of the pandemic and the outcome of next week's election, We believe we have the scale and size to deliver results as the environment continues to evolve. We manage the business based on the facts as we see them today, and we are well positioned to continue to grow and execute against our strategy. We also continue to provide you with transparent updates and give you our best estimates as to how we see things at a particular point in time. With that in mind, Jeff will provide you with some factors to consider when thinking about our 2021 earnings power. As is our practice, we provide details at our December investor day. However, in these unusual times, we want to ensure that where the factors are known, you are considering them for your models. I'll highlight here that we continue to see attractive opportunities for growth. both organically driven and by an uptick in RFP pipeline, and through delivering on the WorldCare deal accretion. In addition, we see potential opportunities for investment consistent with our discipline M&A process. The WorldCare integration remains on track and is progressing well. Our finance and HR systems are integrated seamlessly in the New York plan integration, was completed timely in line with the state's expectations. Routine integration activities will continue throughout 2021. At our upcoming Virtual Investor Day, we look forward to sharing more detail regarding our outlook as well as our strategy to transform Centene into a healthcare technology enterprise. In summary, we are pleased with our third quarter results, which demonstrate the strength of our underlying business and diversified platform. We intend to demonstrate solid growth in 2021, driven by well-care deal, accretion, and organic growth. And we continue to see significant opportunities for growth longer term, as additional states look to managed care as a solution to their healthcare needs. While some uncertainty remains, at our size and scale, and with our capabilities, Centene is well positioned for continued success. Before I hand over the mic to Jeff, I again want to thank and recognize the continued commitment and dedication of our employees. It is because of their relentless focus that we have been able to continue to serve our members during these times, while also accelerating programs that support our communities. The value of the system and people we are investing in to continue to prove themselves. Stay safe, wear your mask, and stay well.