Centene Corporation

Good day and welcome to the Centene Corporation first quarter 2023 earnings 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. To ask a question, you may press star then one. 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, Finance and Investor Relations. Please go ahead.

Thank you, Rocco, and good morning, everyone. Thank you for joining us on our first quarter earnings results conference call. Sarah London, Chief Executive Officer, and Drew Asher, 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. Ken Fezzola, Centene's President, and Jim Murray, our Chief Operating Officer, will also be available as participants during Q&A. Any remarks that Centene 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-K, filed on February 21, 2023, and other public SEC filings. 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 gap measures can be found in our first quarter 2023 press release, which is available on the company's website under the Investors section. The company is unable to provide a reconciliation of certain 2024 measures to the corresponding gap measures without unreasonable effort due to the difficulty of predicting the timing and amounts of various items within a reasonable range. With that, I would like to turn the call over to our CEO, Sarah London. Sarah?

Thank you, Jen. And thank you all for joining us this morning as we review our first quarter 2023 results and update both our 2023 guidance and 2024 EPS floor. Centene's first quarter results were strong, reflecting continued positive momentum operationally and the beginning of another year of disciplined execution against our strategic framework. We reported $2.11 of adjusted diluted EPS for the quarter and lifted our premium and service revenue forecast by another $3.7 billion. We also moved our full year 2023 adjusted EPS guidance to at least $6.40, the top of our original range. At the same time, as you saw from the press release, we have updated our 2024 adjusted EPS floor to greater than $6.60. Given the focus on 2024, let me start there by providing more detailed commentary on our insights and current thinking. Then I'll come back to 2023 and our recent progress. A year ago, when I stepped into this role, we were in the early stages of executing against a three-year value creation plan. We saw no reason to change that plan as its basic pillars were rock solid. Streamline the company by focusing on our core businesses, price our products for profitable growth, modernize our business processes and tools, and deploy capital in a disciplined manner to create enterprise and shareholder value. After 13 months in this role, I am even more convinced that this organization has the capacity to deliver substantially more value to our customers and shareholders. This team has a clear vision for how we intend to execute and transform in a sustainable way as we set ourselves up for the long term, and we are confident in our long-term growth algorithm. We also have the benefit of a far more complete view of the near-term dynamics we will need to navigate, and the investments required to ensure Centene is positioned for market leadership. That combined insight is the underpinning of our revised 2024 earnings floor. I'll outline the major drivers of our decision, and Drew will walk through the numbers and mechanics in more detail. The first and most significant driver is Medicaid redeterminations. Over the last month and a half, with the benefit of finalized implementation plans and early data feeds from our state partners, we have refreshed our state-level models and projections to inform an updated view of the potential impact to membership and acuity of the redeterminations process across our 31 health plans. Based on that analysis, 2023 progression looks slightly better, But we now believe it is prudent to build in a more conservative view of the potential disconnect between rates and acuity that could manifest in some of our states in 2024. As a reminder, we view any disconnect as a temporary one. We fully expect that states will ultimately provide sufficient rate adjustments to reflect any changes in acuity of the Medicaid population. But we are building a provision in our 2024 target in case there is a gap in timing in some of our states. We remain committed to ensuring that the most vulnerable members of our communities have ongoing access to high-quality health care, and we are empowering our local teams to navigate the redeterminations process in a way that strengthens the partnership with our state customers, given their critical importance to our long-term success in Medicaid. The second major driver of our revised 24 outlook is based on our 2024 Medicare Bid Strategy. As we evaluated the final 2024 CMS rates, our view of potential 2025 program dynamics, and the strengths we saw in 2023 performance, we decided to use 2024 as an opportunity to more aggressively right-size our membership and focus on our core member base. This will move us away from some of the membership that resulted from a growth-at-all-costs pricing mentality during the 21 and 22 annual enrollment periods. and create a solid foundation from which to drive earnings power in the back half of the decade. At the same time, we see an opportunity to make targeted investments in Medicare that enhance our ability to reach and serve these members. These include own distribution capacity, provider enablement tools to support value-based care, and the acceleration of digital capabilities that will truly differentiate the WellCare member and provider experiences going forward. Given the fundamental impact this strategy will have on member VIX, as well as the changes CMS recently announced to the STARS program, we are also resetting our multi-year quality target, given that we will be managing members who are naturally more complex from a quality standpoint. Our focus over the next few years will be to maximize contracts that reach the three and a half star threshold, and to begin laying the groundwork for the Health Equity Index adjustment that CMS will measure starting in 2024 and 2025. Drew will walk through the mechanics, but given our target populations, we believe a near-term focus on maximizing 3.5 star plus results when combined with an adjustment from the Health Equity Index when implemented will most efficiently provide both the long-term quality profile and the economics necessary for WellCare to be competitive in our segment. For the upcoming October results, we are trending pre-caps between 14% and 18% membership in four-star plans, but we have one large contract on the bubble that represents 10% of our members. For those still watching that metric, we are conservatively assuming the downside scenario and therefore expect minimal four-star progression year over year, but we expect to see solid overall contract improvement reflecting the operational progress we have made. and we have baked a conservative view of these results into our overall assumptions. Ultimately, we believe that returning to WellCare's roots in serving lower-income, diverse, and complex seniors is an anchoring position in what will be the fastest-growing subsegment of the Medicare Advantage market, and one that aligns perfectly with our local, community-integrated model and our Medicaid footprint. We are investing today to protect and enhance this business because we firmly believe it will be a powerful earnings and growth engine for Centene in the long term. The final major driver of our revised 2024 outlook is the recognition that we need to invest in specific infrastructure that will allow us to innovate at scale. As we work to consolidate systems and simplify our technology ecosystem, we see an opportunity to future-proof our target architecture, expand and modernize our data layer, and build a digital operating structure centered around our customer relationships. Done correctly, this work will accelerate our transformation, allowing us to tap into the power of Centene's unique local data footprint, automate more of our core functions, drive innovative clinical models, and deliver market-leading customer experiences across all three of our businesses. We recognize the significance of increasing near-term investments at the expense of adjusted earnings per share. Ultimately, we are confident these investments will fortify the foundation of the enterprise and accelerate capabilities that will position us well against our long-term growth thesis. Let me close out this portion of the 2024 discussion by emphasizing a few final points. One, we do not intend to update this number between now and our annual investor day in December. Our goal is to provide you with as much detail and transparency as we possibly can about our assumptions without compromising our competitive strategy during the bid cycle. This includes the improved segment reporting you can find beginning this quarter in our 10Q. And three, this is a number we are confident in. As some of you have been correct to point out, a floor is not a finish line. And $6.60 for 2024 is not our finish line. This is a number that we intend to meet and beat. Before I turn it over to Drew, I want to comment briefly on progress in 2023 because performance this year presents an opportunity to strengthen the position from which we navigate through 2024, and we are executing well in 2023 thus far. Our local teams were fully mobilized to support the beginning of redeterminations on April 1st, although by the time planning was complete, only two of our states chose this as their start date. The remaining 28 states are evenly distributed across May, June, and July start dates. In general, states are pursuing a balanced mix of population-based and time-based approaches. Recent changes to implementation plans have biased to later start dates, reflecting the unprecedented scale of the undertaking for many states. Our focus from the beginning has been maximizing coverage continuity, both for Medicaid eligible and for marketplace potential members, and we are executing well against that goal. we have robust multi-channel communications in place for every state. In states where we have already commenced with early member communications, we are seeing positive early indicators, including low opt-out rates for text messages and higher engagement than normal in outbound live call campaigns. In all but five of our states, we have either already received membership files or have a clear model established for data exchange with the state once their process begins. Where we have already received member files, we are using them to refine the analytics driving our outreach campaigns and to inform productive discussions with state actuaries and our regulator partners. Leveraging Centene's local approach, we have deployed community-based provider education and engagement campaigns with a focus on educating our FQHC partners as well as key provider partners in every region so our members have the benefit of multiple trusted sources of information as they navigate this process. For members losing eligibility, we have launched both direct and indirect outreach campaigns to educate them about their marketplace options. Across all 25 states where we have an overlap between our Medicaid and Ambetter footprints, we have activated our unique and comprehensive Ambetter broker network so they are prepared to support members transitioning to the marketplace. And we are working closely with states where we are able to do direct outreach to members to facilitate warm handoffs in the enrollment process. In short, our teams are hard at work supporting members and continuing to build positive momentum with our state partners. Turning to Marketplace, as we've discussed, Centene's Ambetter product line experienced incredible growth during the 2023 open enrollment. This positive momentum continued during the first quarter, and we closed the quarter with more than 3 million Marketplace members. As we move through 2023, we continue to monitor new member demographics and overall claims data consistent with the rigorous tracking that occurred during the first quarter. As I mentioned earlier, the proven breadth and depth of Ambetter's broker network, a clear driver of OEP success, will also be a key differentiator as we look to maximize the catcher's mitt opportunity. Overall, we continue to view the marketplace as a durable coverage vehicle, and AMBETTER, as the market leader in this space, continues to represent a powerful organic growth opportunity for Centene. From a Medicare standpoint, while we are working through a strategic rebuild, it is important to note the strong underlying operational improvements we are seeing that align with our five-point plan. Examples include a new center of excellence for Medicare calls that has reduced per member per month calls by almost 25%. The implementation of new AI-based call sentiment technology resulting in real-time performance improvement. A 20% reduction in voluntary disenrollments and a 47% reduction in CTMs year over year. We have added almost 1,400 new clinics under value-based contracts, And most importantly, we are seeing member, provider, and broker satisfaction scores in the mid-90s year to date. We are on a journey, but there is tangible improvement, and we continue to build operating momentum as we progress through 2023. Finally, a quick update on our value creation initiatives, which remain front and center as we work to fortify the foundation of the business. Overall, we are tracking ahead of our SG&A goals, excluding the additional investments I mentioned earlier. and our slate of SG&A initiatives is progressing well against key milestones. We continue to streamline the organization through portfolio rationalization, closing three transactions in January, and more work is underway. And finally, importantly, our PBM implementation is on track across all work streams. In short, 2023 is shaping up to be another strong year of execution and earnings performance, and we expect to gather further momentum as we progress through the year that will help us to power through our updated 2024 floor. And while we are changing our earnings path to and through 2024, something we certainly don't take lightly, we have not changed our focus, our strategy, or our confidence in the ultimate earnings power of this organization and its long-term growth potential. We are not just building a company for 2024. We are making the decisions today that will enable us to deliver 12 to 15% adjusted EPS growth in the back half of the decade and ensure Centene is the market leader in government-sponsored programs for years to come. With that, I'll hand it over to Drew to walk through the details of Q1 and the interplay between 2023 and a new prudent floor for 2024 that we will work to beat. Drew?