Centene Corporation

Good day and welcome to the Centene Corporation third quarter 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 on your telephone keypad. To withdraw your question, please press star then two. To ask, you please limit yourself to one question. Please also note, today's event is being recorded. I would 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 third 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 third 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 gap measures can be found in our third quarter 2026 press release. With that, I would like to turn the call over to our CEO, Sara London.

Sara? Thanks, Jen, and thank you all for joining us to review Centene's third quarter results. This morning, we reported third quarter adjusted diluted earnings per share of 58 cents ahead of our previous expectations. These results, driven by outperformance in our Medicare segment and inline performance from our Medicaid and commercial businesses, support an improved full-year financial outlook. We now expect 2026 adjusted diluted earnings per share of greater than $5.20. As we remain focused on disciplined execution to finish the year strong, we are excited to carry the positive momentum we are producing across our businesses into 2027. Let's unpack the results by business line, starting with Medicaid. Our Medicaid business was right on track for the quarter, reflecting the positive rate actions highlighted during our second quarter call and effective execution against key quality and affordability initiatives, including member and provider engagement, network management, and a diverse portfolio of fraud, waste, and abuse interventions. We reported a Medicaid HBR of 93.6, improving sequentially by 30 basis points from Q2, and keeping pace with our trajectory to achieve a full year Medicaid HBR of 93.5. Overall, core trend in the quarter was in line with expectations and the key drivers that we have been watching for the last 18 months, namely behavioral health, home health and high cost drugs, remain among our top areas of focus and intervention. On a positive note, we observed another quarter of year over year stabilization in behavioral health trend with a similar pattern beginning to emerge in home health. Evidence of the impact of our cost management and policy advocacy efforts. In the quarter, as expected, we continued to see evidence of states cleaning up eligibility ahead of OB-3 implementation, including mixed impact from New York's EP program changes. In the back half of the quarter, we also saw some increased utilization from Children's Medical Services members in Florida ahead of the program transition. In all cases, we were able to absorb that pressure with no impact to our overall trajectory. Medicaid membership tracked largely in line with expectations at quarter end. We continue to expect an incremental step down in Q4 in line with our previous view that year-end 2026 membership would reflect attrition of roughly 8% to 9% compared to year-end 2025. As a reminder, 10-1 marked both the roll-off of the Florida CMS membership as well as the beginning of OB-3 eligibility terminations for legal noncitizens, and we have at least one state planning to begin work requirements in Q4. These shifts are reflected in our full-year membership projections and we have accounted for corresponding Q4 acuity impacts in our guidance. Rate updates since July have been consistent with expectations and our view of the full-year 2026 composite rate remains steady at roughly 5%. Just over 40% of our Medicaid revenue re-rates as of 1-1 and while our view there is still early, we do see signs that rates will continue to reflect better alignment with our cost experience particularly as 2025 dates of service come more fully into focus for the look-back period. As we think about rate actions specific to the Medicaid expansion population, you'll recall that we had a few states in the 7 cohort who explicitly accounted for anticipated acuity shifts related to work requirements, mainly states with either early starts or intentional OB-3 prep activity in the period. Based on our discussions, we expect the remaining expansion states to revisit rate discussions mid-cycle once their implementation timelines and plans become clearer. For the 1-1 cohort, we are similarly seeing strong engagement in the rate setting process with explicit dialogue around the best way to address OB-3 acuity impacts as they construct and draft 2027 rates. Looking ahead, we are confident we can work with Medicaid departments across our portfolio to make progress on rate adequacy amid the evolving coverage landscape. In the meantime, our local teams are actively partnering to prepare for the implementation of work requirements. States are broadly opting for a more methodical approach to eligibility verifications, which should smooth both membership and acuity impacts across 2027 and into early 2028. This will create more opportunities to correctly calibrate rate to the ultimate mix shift. Based on state guidance, we are mobilizing to support member education, work and community resource referrals, as well as provider education and readiness support. These efforts are important to ensure that as a system we can maximize the opportunity for coverage continuity. Ultimately, we see significant opportunity for margin restoration and sustainable long-term growth in Medicaid. Our unmatched expertise and uniquely mission-driven model position us to help our state partners achieve their Medicaid program goals while supporting our members throughout their health journeys. As signs of trend stabilization emerge and policy changes advance, we look forward to helping to shape the next chapter of Medicaid managed care. Turning to Medicare, our Medicare segment results were strong in the quarter, with Medicare Advantage and standalone Part D performance both exceeding our expectations. Strength in Medicare Advantage was driven by favorable medical cost experience and continued discipline management of the business. As a result of strong execution against our turnaround plan, we are now on track to achieve break-even financial results in 2026, a year ahead of expectations. With the annual enrollment period underway, we are closely monitoring our portfolio evolution for 2027. As many on this call are aware, we made changes to the way we are going to market for Medicare Advantage in 2027. focusing our efforts on populations and geographies where we can provide differentiated products that create the most value for our members and the communities we serve. We expect Medicare Advantage membership to be down year over year in 2027 as we construct a footprint that will allow us to advance margin expansion in 2027 and beyond while delivering high quality service and benefits to our members. Earlier this month, CMS released Medicare Advantage STARS results which impact the 2028 plan year. These results, representing roughly 42% of members at or above 3.5 stars with 10% of members in 4 stars, were in line with our expectations given known program headwinds. Despite cut point pressure, the team delivered meaningful raw score improvement in key categories, including results that outpaced the industry in several measures related to preventative care and clinical outcomes. We remain focused on improving quality fundamentals and we continue to advocate for STARS reforms that will better support the vulnerable populations we serve. We believe this important work will ultimately lead to better STARS scores and the associated revenue benefit. Our standalone Part D offerings also performed well in the quarter, once again demonstrating the benefits of prudent bid posture, scale, and continued optimization of our cost structure. Reflecting year-to-date results, we now expect PDP to generate pre-tax margins in the mid to high threes, a step up from the greater than 3% outlook we shared in July. While we are still early in AEP, based on the landscape and our product positioning, we expect enrollment to tilt toward growth. We continue to see excellent long-term opportunity in Part D, leveraging a deeply established footprint and expertise that we believe uniquely positions us to provide affordable access to pharmacy benefits for American seniors. Finally, our marketplace team continues to deliver, positioning the product for meaningful year-over-year margin restoration in 2026. The marketplace business fundamentally outperformed in the quarter with trend in our higher acuity silver tier continuing to moderate. During the quarter, we received updated data and refreshed our estimates relative to 2026 independent dispute resolution activity and other standard program integrity processes. The strength of the underlying business allowed us to absorb the impact of these adjustments, and we now expect Marketplace will produce a full-year pre-tax margin at the top of our previous range of 4.5% to 5%. CMS continues their efforts to reduce unauthorized enrollments and crack down further on broker fraud. The reserves we had in place coming into Q3 sufficiently accounted for the revenue and risk adjustment impact of this activity in the quarter, and we believe we have similarly accounted for the trailing effects of these efforts through the end of the year in our full year guidance. Our full year assumptions for Marketplace also include continued membership attrition and the expected sloping of Q4 medical expenses. In September, we received updated risk adjustment data from Wakely, Reflecting claims through July of 2026 and inclusive of data on unauthorized membership. This data was in line with our expectations and we continue to expect to be in a meaningful receivable position at the end of the year. While the Embedder team has been expertly navigating a dynamic landscape, they have also found time to innovate. We will step into 2027 open enrollment with an expanded product suite, including more tailored benefit plans and whole health programs that meet our members where they are. and make it easier for them to get affordable, local and innovative support for their health. We are pleased with where Ammeter's pricing strategy has positioned our products for the 2027 shopping season and remain focused on driving additional margin expansion for Marketplace in 2027. We are proud of how this team has executed in the wake of market disruption and coverage changes, demonstrating agility in 2025 that paved the way for meaningful margin recovery in 2026. We believe we are well-positioned to harness this positive momentum as we enter the 2027 cycle. Overall, we are pleased with the performance of our core businesses in the quarter and the momentum we are building across the portfolio. And while we have made great progress managing cost trends and improving our own cost structure, I am equally excited about the impact the CEN team has had delivering health outcomes for our members. One example of this is the work we have done across the country to turn food from a basic need into a powerful driver of health and affordability. For example, our Nebraska Total Care team has partnered with a leading grocer to offer a healthy food benefit with incremental rewards for evidence-based nutrition counseling, education, and blood sugar screenings to re-engage at-risk members and drive behaviors that improve diabetes management. Improving quality of life, encouraging healthy choices, and supporting chronic disease management are just some of the ways our members can benefit from healthy food programs. Along the same lines, over the last two years, Centene has taken a data-driven approach to designing our Medicare D-SNP supplemental benefits around groceries, housing and transportation based on a hypothesis that by investing in critical needs like food insecurity, we would not only be offering an attractive benefit for enrollees, but one that we know drives better health outcomes. Over the last two quarters, we've completed analyses of these member cohorts and saw that members with higher healthy food benefits had almost $200 per member per month in lower claims spend and better clinical outcomes, including lower blood pressure, HbA1c, and BMI. By using proven models, prioritizing rigorous data-driven evaluation, and embracing innovation, Centene is delivering on the promise of managed care, better outcomes, lower costs, and improve quality for the members we serve. As we turn our focus to next year, we look forward to building on the important progress we are making operationally, financially and relative to the impact we have on our members and the communities we serve. Drew will speak to headwinds and tailwinds in more detail in a moment, but based on what we know today, we expect to grow earnings in 2027 off both our updated baseline and our updated guidance. We'll be able to provide more precision on this view as we gain visibility into AEP and OEP performance, 1-1 Medicaid rates, and the overall exit trajectory of the businesses. We look forward to sharing more details when we issue formal 2027 guidance in early February. With that, I'll turn it over to Drew to provide more detail on the quarter and our early view of 2027. Thank you, Sara.