Centene Corporation

Good day and welcome to the Centene Corporation 2026 First Quarter Earnings Report. 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 on your telephone keypad, and to withdraw your question, please press star then two. We do ask that you limit yourself to one question. Please also note today's event is being recorded. I'd now like to turn the conference over to Jennifer Gilligan, Senior Vice President, Investor Relations. Please go ahead.

Thank you, Rocco, and good morning, everyone. Thank you for joining us on our first quarter 2026 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. 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. Specifically, our commentary on our full year 2026 outlook, including the drivers of such outlook, are forward-looking statements. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in our first quarter 2026 press release and other public SEC filings, which are available on the company's website under the Investor section. 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 2026 press release. With that, I would like to turn the call over to our CEO, Sarah London.

Sarah? Thanks, Jen, and thanks to everyone for joining us. This morning, we reported first quarter adjusted diluted EPS of $3.37. exceeding our previous expectations for the period. The strength of our first quarter performance enables us to increase our full year 2026 adjusted EPS outlook to greater than $3.40, up from our previous expectation of greater than $3. We are pleased to be off to a strong start this year as increased visibility and operational improvements are yielding positive momentum and lifting our overall financial performance. The results in the quarter included excellent progress within our Medicaid business, as we continue to drive margin improvement through targeted and increasingly scaled initiatives to modernize and standardize processes to better manage medical cost trend. Our Medicare segment results were ahead of expectations without performance from both Medicare Advantage and PDP offerings. And finally, our commercial segment, the vast majority of which is made up of marketplace, performed in line with expectations on a pre-tax margin basis as a slightly higher than expected HBR in the period was offset by favorability in segment SG&A. As everyone knows, it is early, so while we are off to a great start, we are taking a prudent outlook for the balance of 2026 as we continue to gain visibility into key factors that will influence the remainder of the year. With that, let's dig into the results. Medicaid results in the quarter were ahead of our previous projection, outperforming our HBR expectation in the period. Within that, we experienced a flu season that was lighter than our original forecast and saw a slight utilization benefit from weather events. That said, we were pleased to also deliver solid fundamental outperformance in the quarter thanks to continued focus and disciplined execution on trend management initiatives across the portfolio. Behavioral health remains the largest driver of trend, with other categories like home health and high-cost drugs continuing to be consistent contributors. That said, we are beginning to see pockets of deceleration across this cohort, largely in line with our expectations for how trend would mature from 2025 into 2026. At the same time, we continue to strengthen and scale the multi-pronged trend program we deployed in the back half of 2024 and ramped significantly in the face of elevated trend in 2025. This includes standardizing best practices on utilization management across our markets, the addition and further expansion of successful clinical programs, ongoing data-driven network optimization to ensure our members have access to the highest performing providers, advocacy around program reform with our state partners, and increasingly aggressive efforts to stamp out fraud, waste, and abuse. We've discussed here at some length the work we've done around ABA, but with the benefit of more than a year's worth of data under our belt, we are seeing stabilizing year-over-year ABA trends that we believe are a direct result of the actions we have taken to ensure appropriate high-quality care for ABA members across the country. We continue to strengthen our identification of outlier providers who exhibit suspect or fraudulent billing patterns. At the same time, we continue to advocate for the ability to more fully address fraud, waste, and abuse in a standardized, prevention-focused posture across Medicaid programs. We recently highlighted several potential reforms in response to an RFI from CMS, including allowing proactive payment suspensions, creating safe harbors, and improving two-way data sharing. We look forward to partnering with CMS and the states we serve to better protect taxpayer dollars and strengthen overall program integrity. Looking to the remainder of the year, our guidance assumes net trend, defined as medical costs net of these trends management initiatives, remains in the mid-4% range, and we continue to execute with the goal of outperforming that target. Rates are, of course, the other major contributor to our margin restoration agenda, and we continue to work closely with our state partners to ensure alignment between program revenue and member acuity. With respect to the full-year outlook, we continue to track in line with our expectation for a composite rate yield of roughly 4.5%. Conversations with Medicaid departments remain constructive, and we continue to present refreshed data and, in many instances, programmatic solutions for challenges our state partners are facing as they look to balance costs and benefits within the Medicaid program. Though it is still early, we are pleased with the momentum we are seeing across the Medicaid portfolio, and we continue to see opportunity for advancement in 2026 and beyond. Our Medicare segment also delivered strong results in the quarter. Both Medicare Advantage and PDP exceeded expectations, producing an HBR of 84.9, better than our previous forecast and contributing nicely to the first quarter adjusted EPSB. With Medicare Advantage, we continue to strategically align our membership with our Medicaid footprint and make great progress on our path to positive earnings. While trend continues to be elevated versus historical baselines, it is so far consistent with what we planned for in our bids, with slight favorability in Q1. Thanks to strong execution during both AEP and OEP, we are seeing a slightly more favorable membership mix, and our decent membership is now at 40% of our overall portfolio. You're also seeing stronger year-over-year member retention, the continuation of a now multi-year theme, reinforcing the value of investments made over the last few years to redesign our sales and onboarding experience. This durable member base gives us the opportunity to deploy differentiated care models and drive both quality and health outcomes for members over the long term. Business also continues to make solid progress on our value-based care strategy. The team has built a disciplined, performance-driven model that is tightly integrated with network strategy, clinical execution, and cost management. We have simplified our contract structure and focused the portfolio to a partner ecosystem that we believe can truly move the needle on quality and cost outcomes. We're also deploying innovative total cost of care models against high-cost specialties such as oncology, chronic kidney disease, and behavioral health. These are part of a broader portfolio of initiatives designed to build critical momentum as we look to return the business to profitability. Our PDP business ended the quarter with just over 8.7 million members, thanks to the team's once again thoughtful and data-driven approach to bid design and positioning. While it is still early, fundamental outperformance in the quarter was driven by slightly lower than assumed specialty drug trends. which gives us increased confidence in the trajectory of the business for the year. We are pleased that our Medicare members will have the opportunity to participate in the CMS Bridge Program, and we support the goal of expanded GLP-1 access for more seniors. As the largest standalone Part D provider in the country, we've also been actively engaged in dialogue around the balance model and remain committed to partnering with the administration to leverage data, best practices, and lessons learned from the Bridge Program to position balance for success in the future. Looking ahead, we are encouraged that the finalized 2027 Medicare Advantage rates showed improvement compared to the advance rate notice. While the final rate remains below observed medical cost trend, we continue to see a path to delivering break-even financial results next year. Medicare Advantage and PDP programs play a vital role, providing access to care for millions of Americans, including some of the most vulnerable of our nation. And we look forward to working with the administration to identify new and important ways to fortify this program and strengthen the safety net overall. Finally, Marketplace. We ended the quarter with just under 3.6 million members, consistent with our previous commentary about post-grace period membership. Metal tier distribution and age stayed consistent with patterns we reported on in early March, with just under half of our members in silver, roughly 35% of members in bronze, and the remainder in gold. Other member demographics, like age and gender, remained consistent with expectations and with recent year's results. Marketplace results were in line for the quarter, with a slightly higher HBR offset by outperformance in SG&A. Within these results, the Q1 HBR was driven by higher than originally expected utilization isolated in our silver tier membership, a dynamic we foreshadowed in early March. With the benefit of additional visibility, including the new March weekly report and more complete claims experience, we now view this utilization as consistent with the acuity of the silver members we enrolled, and we expect this membership to receive a meaningful risk adjustment offset as we look to the balance of the year. Let me talk about the additional insight we have gained since March. After last year's unexpected volatility, Centene committed to finding ways to create additional and earlier visibility into this market to support long-term stability. Last fall, we reached out to many of our peers, all of whom are receptive to submitting earlier data on membership demographics. Wakely, the independent actuarial firm that calculates interim risk transfer estimates for the market throughout the year, agreed to aggregate and publish that data at the end of March. As a result of that collaboration, the industry has more visibility than it has ever had at this time of the year about overall market dynamics. Having received this demographic data from almost all of our 29 markets, we are pleased to see that the market overall behaved in line to slightly favorable to our expectations, despite 2026 being a year of unprecedented change. First, the overall market contracted as expected in a post-EAPTC environment. That said, market-by-market membership loss was in almost every market less than we expected, which suggests that more healthy members stayed in the market in aggregate and that our pricing was appropriate relative to the overall market morbidity. Second, the Wakely data confirmed a meaningful market-wide shift from silver members into bronze and to a lesser degree gold, consistent with our expectations and with a directional shift in our own metal distribution. Finally, and perhaps most importantly, this data, when combined with our final Q1 paid membership and a full quarter's worth of claims experience, strongly supports the view that AMBEDR retains silver membership with higher acuity relative to the market and that this membership will ultimately receive a meaningful risk adjustment offset. Within our silver tier, 75% of our members were renewals, giving us a high degree of visibility into year-over-year risk score capture. Through Q1, risk scores tracked closely in line with what we would expect given our claims experience in the period. Wakely data further allowed us to see a strong, consistent correlation between markets where we lost share due to price action and an increase in the overall acuity of our silver population. Both of these data points strongly support the makeshift hypothesis. Looking to the rest of the year, we have taken what we believe to be a prudent posture relative to our forecast for the business, not reflecting the full suggested risk adjustment offset for this population within our new greater than $3.40 guidance. The June weekly data, which consists of claims and risk score data across the market, will be key to allowing us to further refine this assumption. We continue to believe in our ability to deliver meaningful margin recovery in the marketplace business and look forward to updating our full year view with the benefit of the June data. Stepping back, we are pleased that the disciplined execution this quarter yielded solid financial results. As we strengthen the fundamental operations of each of our businesses, we are increasingly well-positioned to deliver tangible progress against our margin recovery goals. To support this work, we announced an evolution of our leadership structure earlier this month. We are pleased that Dan Finke joined the organization to serve as our group president overseeing the Medicaid and commercial businesses, and we were pleased to elevate Michael Carson to group president overseeing our Medicare, PDP, and specialty businesses. Their collective experience will be instrumental as we continue to strengthen performance across the portfolio and deliver sustainable, profitable growth. I'd like to close by calling out two additional bright spots from Q1. First is progress that Centene and the entire industry have made against our prior authorization commitments, including additional commitments announced last week that will make the prior authorization process faster, easier, and less expensive. In our view, this work is not about self-regulating. It's about self-disrupting. Industry leadership has worked closely together over the last year and a half, not because it is easy, but because it is the right thing to do for our members and for the healthcare system overall. I'd like to thank my peers for their awesome partnership and acknowledge the many team members at those organizations who, along with the CENT team, are committed to transforming our systems and the system overall through an unprecedented level of collaboration and transparency. Finally, I'd like to close by congratulating the entire CENT team for being named to the Forbes Best Employers for Company Culture list for the second year in a row, jumping more than 150 spots from our inaugural ranking last year into the top 50 employers in the country this year. While I'm pleased we delivered strong results in Q1, I'm even more pleased by how we delivered those results. Collaborating as one CENT team, living our values and behaviors, and staying focused on our mission of transforming the health of the communities we serve one person at a time. With that, I'll turn it over to Drew to provide more details on the quarter.