Centene Corporation

Good day and welcome to the Centene Corporation first quarter 2021 earnings conference call. All participants will be in listen-only mode. If 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. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn the conference over to Jennifer Gilligan, Senior Vice President of Finance and Investor Relations. Please go ahead, ma'am.

Thank you, Rocco, and good morning, everyone. Thank you for joining us on our first quarter 2021 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 calls. which also can be accessed through our website at centeen.com. Any remarks that Centeen may make about future expectations, plans, and prospects 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, and the Form 10-K dated February 22, 2021, 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 operation. 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 first quarter 2021 press release, which is available on the company's website under the Investor sections. Additionally, please mark your calendars for our upcoming Investor Day to be held virtually on June 16, 2021. 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 first quarter earnings call. On the call today, I will review our first quarter performance, provide an update on our markets and products, and discuss how we are positioned to sustain our momentum in the ongoing pandemic environment. While we have made great progress in working our way out of the pandemic, nationally, as we have seen recently, it is not yet over. We are off to a strong start in 2021 with solid revenue and earnings growth. It was a good quarter. Our teams continue to execute well generating revenue of $30 billion, an increase of 15% compared to the first quarter of 2020. Membership was 25.1 million at the quarter end. This represents an increase of 1.3 million compared to the year-ago quarter. Adjusted to the earnings per share of $1.63 compared to 86 cents in the prior year quarter, representing an increase of 90%. Overall, we are pleased with our first quarter performance and the trajectory of our business, and today we are updating our full-year guidance. This is primarily driven by several tailwinds. These include, first, continued Medicaid membership growth amid suspended eligibility redeterminations. Our current guidance anticipates the suspension continuing to at least August 1, based on the fact that is renewed 90 days at a time. Second, the marketplace special enrollment period, which I will discuss in more detail shortly. And third, the hold on the Medicare sequestration. Our results to date also reflect a decrease in normal utilization, offset by COVID-19 expenses and state recoupment of premiums which Jeff will provide additional detail on shortly. As we have done throughout the pandemic, we continue to monitor the headwinds and tailwinds we anticipate will impact our operating landscapes for the remainder of the year and possibly into 2022. Consistent with past quarters, I will provide you with updates based on the facts as we know them today. When taken together, we believe the essence of these factors to be positive. Anticipated tailwinds include continued lower than normal utilization. Overall, the first quarter was lower compared to the prior quarter, although we saw an increase in non-COVID utilization in our marketplace business. While the trajectory of utilization depends on the pandemic and remains uncertain, we continue to expect utilization to come in below historical averages during the second quarter with the potential for some normalization starting to occur in the second half of the year. Other key possible tailwinds we see include potential for continued growth resulting in higher than anticipated membership in our marketplace business from the special enrollment period and a probable extension of the Medicaid eligibility redetermination suspension beyond August and through the end of the year, possibly into the beginning of 2022. As a potential headwind, we continue to monitor additional state rate adjustments. For 2021, we anticipate a $550 million revenue impact of state revenue actions and rate actions. Jeff will provide some additional color on this shortly. But I will share that we have seen only one action in the first quarter of the year. And we are not currently aware of any additional planned adjustments or corridors. In fact, some corridors, we believe, may be allowed to expire. To reiterate, overall, as we see them today, we believe these factors balance in our favor. As we conclude the first quarter of 2021, we are pleased with our ability to drive significant growth and our updated guidance reflects the strength of our business through the year. We also remain vigilant that this is a year with unique drivers, including the suspension of Medicaid eligibility redeterminations and the marketplace special enrollment period, which we cannot be certain will continue throughout all of 2022. Consistent with prior years, at our June Investor Day, we will provide an update on these factors and 2022. We recognize that while the factors as we see them today balance to the positive, the outlook remains fluid and dependent on the public policy landscape. The strength of our diversified business is apparent across our product portfolio. In our Medicaid business, we continue to participate in an active rfp pipeline we successfully renewed our contract in hawaii at the end of march and north carolina and oklahoma both remain on track to go live later this year for 2021 we continue to expect a composite rate adjustment of 1.7 consistent with our initial guidance our medicare business delivered continued growth medicare grew by over $1 billion year-over-year in the first quarter, representing growth of 41 percent and demonstrating the strength of the platform and our ability to leverage our national scale going forward. In our marketplace business, we are pleased to be operating in a supportive environment. The administration continues to invest in the product and just last week announced an additional $80 million for Navigators to boost enrollment. Based on data released by CMS, Centene is a clear leader in new enrollment on the federal exchange. And since the beginning of the year, we have enrolled over 320,000 new members in our market case product. We believe these results demonstrate the strength of our strategy to provide consistent quality care. and not to participate in a price-related race to the bottom with narrow network coverage. I will remind you that narrow networks often encourage out-of-network utilization, which tends to be uncontrolled and expensive. We see opportunity to further grow with the enhanced advanced premium tax credits that took effect April 1. the impact of which we believe will encourage consumers to prioritize quality, consistency, and experience over premium alone. Moving ahead, we intend to maintain and consider building additional products around this strategy. On a technology front, we're making meaningful progress to advance our capabilities to provide high-quality integrated care for our members. We look forward to providing you more details, on our unique technology strategy at our investors' event in June. We continue to advance towards the completion of the Magellan Health Acquisition and remain on track to close the transaction early in the second half of 2021. The Hart-Scott-Rodino waiting period expired mid-March and we're working diligently towards obtaining the necessary state approvals. Our integration planning efforts are in full swing and we are enthusiastic about the combination, which will enable us to expand access to specialty care and nurture a fully integrated model across behavioral and physical health. I will remind you that Magellan will be part of our healthcare enterprise portfolio, which will allow them to maintain independence and serve third-party customers. I would like to take a moment to comment on the situation in Ohio. We are still in an active RFE process where we finished second out of 11 bidders, according to a scoring summary released by the Ohio Department of Medicaid. Regarding the legal and regulatory landscape, Centene has been clear that we maintain the claims to be unfounded. For additional information about our position on this matter, I would direct you to our website for links to our court findings. We look forward to answering any questions from our governmental partners regarding this issue and remain committed to the highest levels of quality and transparency in how we serve our state partners. Before I close, I'd like to talk about Centene's role in COVID-19 vaccine distribution. Over the past few months, our data and care management teams have worked tirelessly to identify members at the highest risk for COVID-19 and provide those individuals with personalized and culturally sensitive outreach. In addition, we have partnered with Lyft to support individuals with transportation to vaccine appointments. And with the Gold Jackets of the Pro Football Hall of Fame, with whom we have had an ongoing partnership we created PSA's focus on increasing awareness about the safety and efficacy of COVID vaccines. This type of innovative work is happening across the organization, and I want to recognize and thank our employees for their unwavering commitment and dedication. In closing, we started the year strong and look forward to carrying this positive momentum through the remainder of 2021. As we experience a supportive environment in expanding access to care, we continue to see long-term opportunities to drive growth in our top and bottom line and enhance margins as we provide the highest level of care to our members at the lowest cost. I look forward to seeing all of you, albeit virtually, at our investor event on June 16th. Thank you for your continued interest in Centene.