UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20222023
OR
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to _____
Commission file number: 001-31826
CENTENE CORPORATION
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
| Delaware | | 42-1406317 |
| (State or other jurisdiction of | | (I.R.S. Employer |
| incorporation or organization) | | Identification Number) |
| | | |
| 7700 Forsyth Boulevard | | |
| St. Louis, | Missouri | | 63105 |
| (Address of principal executive offices) | | (Zip Code) |
Registrant’sRegistrant's telephone number, including area code: (314) 725-4477
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
| Common Stock $0.001 Par Value | CNC | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large"large accelerated filer"filer", "accelerated filer""accelerated filer", "smaller"smaller reporting company"company", and "emerging"emerging growth company"company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large Accelerated Fileraccelerated filer | ☒ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 14, 2022,20, 2023, the registrant had 566,259,693534,201 thousand shares of common stock outstanding.
CENTENE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
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| Part I | |
| Financial Information | |
| Item 1. | | |
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| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
| Part II | |
| Other Information | |
| Item 1. | | |
| Item 1A. | | |
| Item 2. | | |
| Item 6. | | |
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CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
All statements, other than statements of current or historical fact, contained in this filing are forward-looking statements. Without limiting the foregoing, forward-looking statements often use words such as "believe," "anticipate," "plan," "expect," "estimate," "intend," "seek," "target," "goal," "may," "will," "would," "could," "should," "can," "continue""continue," and other similar words or expressions (and the negative thereof). Centene Corporation and its subsidiaries (Centene, the Company, our or we) intends such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we are including this statement for purposes of complying with these safe-harbor provisions. In particular, these statements include, without limitation, statements about our future operating or financial performance, market opportunity, value creation strategy, competition, expected activities in connection with completed and future acquisitions and dispositions, including statements about the impact of our recently completed acquisition of Magellan Health, Inc. (the Magellan Acquisition), other recent and future acquisitions and dispositions, our investments, and the adequacy of our available cash resources. These statements may be found in the various sections of this filing, such as Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations," and Part II, Item 1. "Legal Proceedings."
These forward-looking statements reflect our current views with respect to future events and are based on numerous assumptions and assessments made by us in light of our experience and perception of historical trends, current conditions, business strategies, operating environments, future developments, and other factors we believe appropriate. By their nature, forward-looking statements involve known and unknown risks and uncertainties and are subject to change because they relate to events and depend on circumstances that will occur in the future, including economic, regulatory, competitive, and other factors that may cause our or our industry's actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and assumptions.
All forward-looking statements included in this filing are based on information available to us on the date of this filing. Except as may be otherwise required by law, we undertake no obligation to update or revise the forward-looking statements included in this filing, whether as a result of new information, future events, or otherwise, after the date of this filing. You should not place undue reliance on any forward-looking statements, as actual results may differ materially from projections, estimates, or other forward-looking statements due to a variety of important factors, variables, and events including, but not limited to:
•our ability to accurately predictdesign and effectively manage health benefits and other operating expenses and reserves,price products that are competitive and/or actuarially sound including fluctuations in medical utilization rates duebut not limited to the ongoing impact of COVID-19;any impacts resulting from Medicaid redeterminations;
•our ability to maintain or achieve improvement in the Centers for Medicare and Medicaid Services (CMS) Star ratings and maintain or achieve improvement in other quality scores in each case that can impact revenue and future growth;
•the risk that the election of new directors, changes in senior management, and any inability to retain key personnel may create uncertainty or negatively impact our ability to execute quicklyaccurately predict and effectively;effectively manage health benefits and other operating expenses and reserves, including fluctuations in medical utilization rates;
•uncertainty ascompetition, including our ability to the expected financial performance of the combined company following the recent completion of the Magellan Acquisition;reprocure our contracts and grow organically;
•the timing and extent of benefits from our value creation strategy, including the possibility that the benefits received may be lower than expected, synergies and value creation from the Magellan Acquisition or the acquisition of WellCare Health Plans, Inc. (the WellCare Acquisition) or other acquired businesses willmay not be realized,occur, or will not be realized within the respective expected time periods;
•our ability to manage our information systems effectively;
•disruption, from the integration of the Magellan Acquisition or the WellCare Acquisition, unexpected costs, or similar risks from otherbusiness transactions, including acquisitions, or dispositions we may announce or complete from time to time, including potential adverse reactions ordivestitures, and changes to businessin our relationships with customers, employees, suppliers or regulators, making it more difficult to maintain business and operational relationships;
•the risk that the closing conditions, including applicable regulatory approvals, for the pending dispositions of Magellan Rx and our Spanish and Central European businesses, may be delayed or not obtained;third parties;
•impairments to real estate, investments, goodwill, and intangible assets;
•a downgradechanges in senior management, loss of the credit rating of our indebtedness;
•competition;one or more key personnel or an inability to attract, hire, integrate and retain skilled personnel;
•membership and revenue declines or unexpected trends;
•rate cuts or other payment reductions or delays by governmental payors and other risks and uncertainties affecting our government businesses;
•changes in healthcare practices, new technologies, and advances in medicine;
•increased healthcare costs;
•inflation;
•changes in economic, political, or market conditions;
•changes in federal or state laws or regulations, including changes with respect to income tax reform or government healthcare programs as well as changes with respect to the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act (collectively referred to as the ACA) and any regulations enacted thereunder that may result from changing political conditions, the current administration or judicial actions;
•rate cuts or other payment reductions or delays by governmental payors and other risks and uncertainties affecting our government businesses;
•our ability to adequately price products;thereunder;
•tax matters;
•disasters or major epidemics;
•changes in expected contract start dates;
•changes in provider, state, federal, foreign, and other contract changescontracts and delays in the timing of regulatory approval of contracts;contracts, including due to protests;
•the expiration, suspension, or termination of our contracts with federal or state governments (including, but not limited to, Medicaid, Medicare, TRICARE, or other customers);
•the difficulty of predicting the timing or outcome of legal or regulatory proceedings or matters, including, but not limited to, our ability to resolve claims and/or allegations made by states with regard to past practices, including at Centene Pharmacy Services (formerly Envolve Pharmacy Solutions, Inc. (Envolve)), as our pharmacy benefits manager (PBM) subsidiary, within the reserve estimate we previously recorded and on other acceptable terms, or at all, or whether additional claims, reviews or investigations relating to our PBM business will be brought by states, the federal government or shareholder litigants, or government investigations;
•the timing and extent of benefits from our value creation strategy, including the possibility that the benefits received may be lower than expected, may not occur, or will not be realized within the expected time periods;
•challenges to our contract awards;
•cyber-attacks or other privacy or data security incidents;
•the exertion of management's time and our resources, and other expenses incurred and business changes required in connection with complying with the terms of our contracts and the undertakings in connection with any regulatory, governmental, or third party consents or approvals for acquisitions or dispositions;
•any changes in expected closing dates, estimated purchase price, andor accretion for acquisitions or dispositions;dispositions, including due to the timing of regulatory approval for the pending sale of Circle Health Group (Circle Health);
•losses in our investment portfolio;
•restrictions and limitations in connection with our indebtedness;
•a downgrade of the credit rating of our indebtedness;
•the availability of debt and equity financing on terms that are favorable to us;
•inflation; and
•foreign currency fluctuations.
This list of important factors is not intended to be exhaustive. We discuss certain of these matters more fully, as well as certain other factors that may affect our business operations, financial condition, and results of operations, in our filings with the Securities and Exchange Commission (SEC), including our annual report on Form 10-K, other quarterly reports on Form 10-Q and current reports on Form 8-K. Due to these important factors and risks, we cannot give assurances with respect to our future performance, including without limitation our ability to maintain adequate premium levels or our ability to control our future medical and selling, general and administrative costs.
Non-GAAP Financial Presentation
The Company is providing certain non-GAAP financial measures in this report as the Company believes that these figures are helpful in allowing investors to more accurately assess the ongoing nature of the Company's operations and measure the Company's performance more consistently across periods. The Company uses the presented non-GAAP financial measures internally in evaluating the Company’sCompany's performance and for planning purposes, by allowing management to focus on period-to-period changes in the Company's core business operations, and in determining employee incentive compensation. Therefore, the Company believes that this information is meaningful in addition to the information contained in the GAAP presentation of financial information. The presentation of this additional non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.
Specifically, the Company believes the presentation of non-GAAP financial information that excludes amortization of acquired intangible assets, and acquisition and divestiture related expenses, as well as other items, allows investors to develop a more meaningful understanding of the Company's core performance over time.
The tables below provide reconciliations of non-GAAP items ($ in millions, except per share data):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| | GAAP net earnings attributable to Centene | GAAP net earnings attributable to Centene | $ | 738 | | | $ | 584 | | | $ | 1,415 | | | $ | 748 | | GAAP net earnings attributable to Centene | $ | 469 | | | $ | 738 | | | $ | 2,657 | | | $ | 1,415 | |
| Amortization of acquired intangible assets | Amortization of acquired intangible assets | 211 | | | 198 | | | 609 | | | 581 | | Amortization of acquired intangible assets | 180 | | | 211 | | | 542 | | | 609 | |
| Acquisition and divestiture related expenses | Acquisition and divestiture related expenses | 30 | | | 54 | | | 149 | | | 141 | | Acquisition and divestiture related expenses | 16 | | | 30 | | | 52 | | | 149 | |
Other adjustments (1) | Other adjustments (1) | (222) | | | 11 | | | 1,225 | | | 1,427 | | Other adjustments (1) | 472 | | | (222) | | | 345 | | | 1,225 | |
| Income tax effects of adjustments (2) | Income tax effects of adjustments (2) | (2) | | | (102) | | | (521) | | | (455) | | Income tax effects of adjustments (2) | (55) | | | (2) | | | (190) | | | (521) | |
| Adjusted net earnings | Adjusted net earnings | $ | 755 | | | $ | 745 | | | $ | 2,877 | | | $ | 2,442 | | Adjusted net earnings | $ | 1,082 | | | $ | 755 | | | $ | 3,406 | | | $ | 2,877 | |
| | GAAP diluted earnings per share (EPS) attributable to Centene | GAAP diluted earnings per share (EPS) attributable to Centene | $ | 1.27 | | | $ | 0.99 | | | $ | 2.41 | | | $ | 1.27 | | GAAP diluted earnings per share (EPS) attributable to Centene | $ | 0.87 | | | $ | 1.27 | | | $ | 4.85 | | | $ | 2.41 | |
| Amortization of acquired intangible assets | Amortization of acquired intangible assets | 0.36 | | | 0.34 | | | 1.04 | | | 0.98 | | Amortization of acquired intangible assets | 0.33 | | | 0.36 | | | 0.99 | | | 1.04 | |
| Acquisition and divestiture related expenses | Acquisition and divestiture related expenses | 0.05 | | | 0.09 | | | 0.25 | | | 0.24 | | Acquisition and divestiture related expenses | 0.03 | | | 0.05 | | | 0.09 | | | 0.25 | |
Other adjustments (1) | Other adjustments (1) | (0.38) | | | 0.01 | | | 2.09 | | | 2.42 | | Other adjustments (1) | 0.87 | | | (0.38) | | | 0.63 | | | 2.09 | |
Income tax effects of adjustments (2) | Income tax effects of adjustments (2) | — | | | (0.17) | | | (0.89) | | | (0.77) | | Income tax effects of adjustments (2) | (0.10) | | | — | | | (0.35) | | | (0.89) | |
| Adjusted diluted EPS | Adjusted diluted EPS | $ | 1.30 | | | $ | 1.26 | | | $ | 4.90 | | | $ | 4.14 | | Adjusted diluted EPS | $ | 2.00 | | | $ | 1.30 | | | $ | 6.21 | | | $ | 4.90 | |
(1) Other adjustments include the following pre-tax items:
2023:
(a) for the three months ended September 30, 2023: Circle Health impairment of $251 million, or $0.46 per share ($0.50 after-tax), Operose Health impairment of $142 million, or $0.26 per share ($0.24 after-tax), real estate impairments of $47 million, or $0.09 per share ($0.09 after-tax), severance costs due to a restructuring of $22 million, or $0.04 per share ($0.03 after-tax), and a reduction to the previously recorded gain on the sale of Magellan Rx of $10 million, or $0.02 per share ($0.00 after-tax);
(b) for the nine months ended September 30, 2023: Circle Health impairment of $251 million, or $0.46 per share ($0.49 after-tax), Operose Health impairment of $142 million, or $0.26 per share ($0.24 after-tax), real estate impairments of $92 million, or $0.17 per share ($0.15 after-tax), gain on the sale of Apixio of $91 million, or $0.17 per share ($0.12 after-tax), gain on the sale of Magellan Specialty Health of $79 million, or $0.14 per share ($0.12 after-tax), severance costs due to a restructuring of $22 million, or $0.04 per share ($0.03 after-tax), gain on the previously reported divestiture of Centurion of $15 million, or $0.03 per share ($0.02 after-tax), an additional loss on the divestiture of our Spanish and Central European businesses of $13 million, or $0.02 per share ($0.01 after-tax), and a reduction to the previously recorded gain on the sale of Magellan Rx of $10 million, or $0.02 per share ($0.00 after-tax).
2022:
(a) for the three months ended September 30, 2022: gain on the sale of PANTHERx Rare (PANTHERx) divestiture gain of $490 million, or $0.84 per share ($0.65 after-tax), the impairment of assets associated with the pending divestiture of theour Spanish and Central European businesses of $165 million, or $0.28 per share ($0.23 after-tax), real estate impairments of $127 million, or $0.22 per share ($0.16 after-tax), an increase to the previously reported gain on the divestiture of U.S. Medical Management (USMM) due to the finalization of working capital adjustments of $13 million, or $0.02 per share ($0.01 after-tax), gain on debt extinguishment related to the repurchases of senior notes of $10 million, or $0.02 per share ($0.01 after-tax), and an adjustment to the costs related to the PBM legal settlement of $1 million, or $0.00 per share ($0.00 after-tax);
(b) for the nine months ended September 30, 2022: real estate impairments of $1,581 million, or $2.69 per share ($1.98 after-tax), gain on the sale of PANTHERx divestiture gain of $490 million, or $0.83 per share ($0.65 after-tax), the impairment of assets associated with the pending divestiture of theour Spanish and Central European businesses of $165 million, or $0.28 per share ($0.23 after-tax), gain on debt extinguishment of $23 million, or $0.04 per share ($0.03 after-tax), an increase to the previously reported gain related toon the divestiture of USMM due to the finalization of working capital adjustments of $13 million, or $0.02 per share ($0.02 after-tax), and costs related to the PBM legal settlement of $5 million, or $0.01 per share ($0.01 after-tax).
2021:
(a) for the three months ended September 30, 2021: non-cash gain related to the acquisition of the remaining 60% interest of Circle Health of $309 million, or $0.52 per share ($0.52 after-tax), non-cash impairment of our equity method investment in RxAdvance of $229 million, or $0.38 per share ($0.35 after-tax), debt extinguishment costs of $79 million, or $0.13 per share ($0.10 after-tax), PBM legal settlement expense of $11 million, or $0.02 per share ($0.01 after-tax), and severance costs due to a restructuring of $1 million, or $0.00 per share ($0.00 after-tax);
(b) for the nine months ended September 30, 2021: PBM legal settlement expense of $1,261 million, or $2.13 per share ($1.79 after-tax), non-cash gain related to the acquisition of the remaining 60% interest of Circle Health of $309 million, or $0.52 per share ($0.52 after-tax), non-cash impairment of our equity method investment in RxAdvance of $229 million, or $0.39 per share ($0.35 after-tax), debt extinguishment costs of $125 million, or $0.21 per share ($0.16 after-tax), a reduction to the previously reported gain on divestiture of certain products of our Illinois health plan of $62 million, or $0.11 per share ($0.08 after-tax), and severance costs due to a restructuring of $59 million, or $0.10 per share ($0.07 after-tax).
(2) The income tax effects of adjustments are based on the effective income tax rates applicable to each adjustment. In addition, the nine months ended September 30, 2023, include a one-time income tax benefit of $69 million, or $0.12 per share, resulting from the distribution of long-term stock awards to the estate of the Company's former CEO. The nine months ended September 30, 2022, also include an $18 million, or $0.03 per share, increase to the income tax benefit on the previously reported non-cash impairment of our equity method investment in RxAdvance.
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| | GAAP selling, general and administrative expenses | GAAP selling, general and administrative expenses | $ | 2,846 | | | $ | 2,537 | | | $ | 8,391 | | | $ | 6,910 | | GAAP selling, general and administrative expenses | $ | 3,048 | | | $ | 2,846 | | | $ | 9,075 | | | $ | 8,391 | |
| Less: | Less: | | Less: | |
| Acquisition and divestiture related expenses | Acquisition and divestiture related expenses | 28 | | | 41 | | | 149 | | | 126 | | Acquisition and divestiture related expenses | 16 | | | 28 | | | 52 | | | 149 | |
| Restructuring costs | Restructuring costs | — | | | 1 | | | — | | | 59 | | Restructuring costs | 22 | | | — | | | 22 | | | — | |
| Costs related to the PBM legal settlement | Costs related to the PBM legal settlement | 1 | | | 11 | | | 5 | | | 11 | | Costs related to the PBM legal settlement | — | | | 1 | | | — | | | 5 | |
| Real estate optimization | Real estate optimization | 3 | | | — | | | 7 | | | — | | Real estate optimization | — | | | 3 | | | 7 | | | 7 | |
| Adjusted selling, general and administrative expenses | Adjusted selling, general and administrative expenses | $ | 2,814 | | | $ | 2,484 | | | $ | 8,230 | | | $ | 6,714 | | Adjusted selling, general and administrative expenses | $ | 3,010 | | | $ | 2,814 | | | $ | 8,994 | | | $ | 8,230 | |
| Note: Beginning in 2022, we have included a separate line item for depreciation expense on the Consolidated Statements of Operations, which was previously included in selling, general and administrative (SG&A) expenses. Prior period SG&A expenses have been conformed to the current presentation. | |
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except shares in thousands and per share data in dollars)
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
| | (Unaudited) | | | | (Unaudited) | | |
| ASSETS | ASSETS | | | | ASSETS | | | |
| Current assets: | Current assets: | | | | Current assets: | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 14,987 | | | $ | 13,118 | | Cash and cash equivalents | $ | 18,190 | | | $ | 12,074 | |
| Premium and trade receivables | Premium and trade receivables | 13,770 | | | 12,238 | | Premium and trade receivables | 15,503 | | | 13,272 | |
| Short-term investments | Short-term investments | 2,191 | | | 1,539 | | Short-term investments | 2,241 | | | 2,321 | |
| Other current assets | Other current assets | 2,327 | | | 1,602 | | Other current assets | 5,471 | | | 2,461 | |
| Total current assets | Total current assets | 33,275 | | | 28,497 | | Total current assets | 41,405 | | | 30,128 | |
| Long-term investments | Long-term investments | 14,053 | | | 14,043 | | Long-term investments | 15,234 | | | 14,684 | |
| Restricted deposits | Restricted deposits | 1,205 | | | 1,068 | | Restricted deposits | 1,343 | | | 1,217 | |
| Property, software and equipment, net | Property, software and equipment, net | 2,479 | | | 3,391 | | Property, software and equipment, net | 2,004 | | | 2,432 | |
| | Goodwill | Goodwill | 20,040 | | | 19,771 | | Goodwill | 17,558 | | | 18,812 | |
| Intangible assets, net | Intangible assets, net | 7,523 | | | 7,824 | | Intangible assets, net | 6,277 | | | 6,911 | |
| Other long-term assets | Other long-term assets | 2,597 | | | 3,781 | | Other long-term assets | 560 | | | 2,686 | |
| Total assets | Total assets | $ | 81,172 | | | $ | 78,375 | | Total assets | $ | 84,381 | | | $ | 76,870 | |
| LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY | | | | |
| LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS' EQUITY | | LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS' EQUITY | | | |
| Current liabilities: | Current liabilities: | | | | Current liabilities: | | | |
| Medical claims liability | Medical claims liability | $ | 16,465 | | | $ | 14,243 | | Medical claims liability | $ | 17,141 | | | $ | 16,745 | |
| Accounts payable and accrued expenses | Accounts payable and accrued expenses | 9,995 | | | 8,493 | | Accounts payable and accrued expenses | 15,081 | | | 9,525 | |
| Return of premium payable | Return of premium payable | 2,205 | | | 2,328 | | Return of premium payable | 2,160 | | | 1,634 | |
| Unearned revenue | Unearned revenue | 2,416 | | | 434 | | Unearned revenue | 2,356 | | | 478 | |
| Current portion of long-term debt | Current portion of long-term debt | 249 | | | 267 | | Current portion of long-term debt | 113 | | | 82 | |
| Total current liabilities | Total current liabilities | 31,330 | | | 25,765 | | Total current liabilities | 36,851 | | | 28,464 | |
| Long-term debt | Long-term debt | 18,084 | | | 18,571 | | Long-term debt | 17,888 | | | 17,938 | |
| Deferred tax liability | Deferred tax liability | 480 | | | 1,407 | | Deferred tax liability | 577 | | | 615 | |
| Other long-term liabilities | Other long-term liabilities | 5,678 | | | 5,610 | | Other long-term liabilities | 3,649 | | | 5,616 | |
| Total liabilities | Total liabilities | 55,572 | | | 51,353 | | Total liabilities | 58,965 | | | 52,633 | |
| Commitments and contingencies | Commitments and contingencies | | Commitments and contingencies | |
| Redeemable noncontrolling interests | Redeemable noncontrolling interests | 66 | | | 82 | | Redeemable noncontrolling interests | 21 | | | 56 | |
| Stockholders’ equity: | | | | |
| Preferred stock, $0.001 par value; authorized 10,000 shares; no shares issued or outstanding at September 30, 2022 and December 31, 2021 | — | | | — | | |
| Common stock, $0.001 par value; authorized 800,000 shares; 606,931 issued and 570,091 outstanding at September 30, 2022, and 602,704 issued and 582,479 outstanding at December 31, 2021 | 1 | | | 1 | | |
| Stockholders' equity: | | Stockholders' equity: | | | |
| Preferred stock, $0.001 par value; authorized 10,000 shares; no shares issued or outstanding at September 30, 2023 and December 31, 2022 | | Preferred stock, $0.001 par value; authorized 10,000 shares; no shares issued or outstanding at September 30, 2023 and December 31, 2022 | — | | | — | |
| Common stock, $0.001 par value; authorized 800,000 shares; 614,956 issued and 534,596 outstanding at September 30, 2023, and 607,847 issued and 550,754 outstanding at December 31, 2022 | | Common stock, $0.001 par value; authorized 800,000 shares; 614,956 issued and 534,596 outstanding at September 30, 2023, and 607,847 issued and 550,754 outstanding at December 31, 2022 | 1 | | | 1 | |
| Additional paid-in capital | Additional paid-in capital | 19,774 | | | 19,672 | | Additional paid-in capital | 20,243 | | | 20,060 | |
| Accumulated other comprehensive earnings | (1,394) | | | 77 | | |
| Accumulated other comprehensive (loss) | | Accumulated other comprehensive (loss) | (1,122) | | | (1,132) | |
| Retained earnings | Retained earnings | 9,554 | | | 8,139 | | Retained earnings | 11,998 | | | 9,341 | |
| Treasury stock, at cost (36,840 and 20,225 shares, respectively) | (2,557) | | | (1,094) | | |
| Total Centene stockholders’ equity | 25,378 | | | 26,795 | | |
| Treasury stock, at cost (80,360 and 57,093 shares, respectively) | | Treasury stock, at cost (80,360 and 57,093 shares, respectively) | (5,825) | | | (4,213) | |
| Total Centene stockholders' equity | | Total Centene stockholders' equity | 25,295 | | | 24,057 | |
| Nonredeemable noncontrolling interest | Nonredeemable noncontrolling interest | 156 | | | 145 | | Nonredeemable noncontrolling interest | 100 | | | 124 | |
| Total stockholders’ equity | 25,534 | | | 26,940 | | |
| Total liabilities, redeemable noncontrolling interests and stockholders’ equity | $ | 81,172 | | | $ | 78,375 | | |
| Total stockholders' equity | | Total stockholders' equity | 25,395 | | | 24,181 | |
| Total liabilities, redeemable noncontrolling interests and stockholders' equity | | Total liabilities, redeemable noncontrolling interests and stockholders' equity | $ | 84,381 | | | $ | 76,870 | |
The accompanying notes to the consolidated financial statements are an integral part of these statements.
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except shares in thousands and per share data in dollars)
(Unaudited)
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| Revenues: | Revenues: | | | | | | | | Revenues: | | | | | | | |
| Premium | Premium | $ | 31,848 | | | $ | 28,876 | | | $ | 95,247 | | | $ | 83,436 | | Premium | $ | 33,866 | | | $ | 31,848 | | | $ | 101,404 | | | $ | 95,247 | |
| Service | Service | 1,878 | | | 1,638 | | | 6,679 | | | 4,054 | | Service | 1,101 | | | 1,878 | | | 3,353 | | | 6,679 | |
| Premium and service revenues | Premium and service revenues | 33,726 | | | 30,514 | | | 101,926 | | | 87,490 | | Premium and service revenues | 34,967 | | | 33,726 | | | 104,757 | | | 101,926 | |
| Premium tax | Premium tax | 2,139 | | | 1,892 | | | 7,060 | | | 5,924 | | Premium tax | 3,075 | | | 2,139 | | | 9,782 | | | 7,060 | |
| Total revenues | Total revenues | 35,865 | | | 32,406 | | | 108,986 | | | 93,414 | | Total revenues | 38,042 | | | 35,865 | | | 114,539 | | | 108,986 | |
| Expenses: | Expenses: | | | | | | | | Expenses: | | | | | | | |
| Medical costs | Medical costs | 28,111 | | | 25,430 | | | 83,261 | | | 73,210 | | Medical costs | 29,479 | | | 28,111 | | | 88,260 | | | 83,261 | |
| Cost of services | Cost of services | 1,571 | | | 1,355 | | | 5,658 | | | 3,510 | | Cost of services | 856 | | | 1,571 | | | 2,603 | | | 5,658 | |
| Selling, general and administrative expenses | Selling, general and administrative expenses | 2,846 | | | 2,537 | | | 8,391 | | | 6,910 | | Selling, general and administrative expenses | 3,048 | | | 2,846 | | | 9,075 | | | 8,391 | |
| Depreciation expense | Depreciation expense | 150 | | | 147 | | | 470 | | | 414 | | Depreciation expense | 148 | | | 150 | | | 436 | | | 470 | |
| Amortization of acquired intangible assets | Amortization of acquired intangible assets | 211 | | | 198 | | | 609 | | | 581 | | Amortization of acquired intangible assets | 180 | | | 211 | | | 542 | | | 609 | |
| Premium tax expense | Premium tax expense | 2,211 | | | 1,965 | | | 7,258 | | | 6,129 | | Premium tax expense | 3,156 | | | 2,211 | | | 10,021 | | | 7,258 | |
| | Impairment | Impairment | 289 | | | 229 | | | 1,739 | | | 229 | | Impairment | 440 | | | 289 | | | 478 | | | 1,739 | |
| Legal settlement | — | | | — | | | — | | | 1,250 | | |
| | Total operating expenses | Total operating expenses | 35,389 | | | 31,861 | | | 107,386 | | | 92,233 | | Total operating expenses | 37,307 | | | 35,389 | | | 111,415 | | | 107,386 | |
| Earnings from operations | Earnings from operations | 476 | | | 545 | | | 1,600 | | | 1,181 | | Earnings from operations | 735 | | | 476 | | | 3,124 | | | 1,600 | |
| Other income (expense): | Other income (expense): | | | | | Other income (expense): | | | | |
| Investment and other income | Investment and other income | 692 | | | 424 | | | 786 | | | 566 | | Investment and other income | 214 | | | 692 | | | 992 | | | 786 | |
| Debt extinguishment | Debt extinguishment | 10 | | | (79) | | | 26 | | | (125) | | Debt extinguishment | — | | | 10 | | | — | | | 26 | |
| Interest expense | Interest expense | (169) | | | (170) | | | (491) | | | (503) | | Interest expense | (181) | | | (169) | | | (542) | | | (491) | |
| Earnings before income tax | Earnings before income tax | 1,009 | | | 720 | | | 1,921 | | | 1,119 | | Earnings before income tax | 768 | | | 1,009 | | | 3,574 | | | 1,921 | |
| Income tax expense | Income tax expense | 269 | | | 139 | | | 500 | | | 376 | | Income tax expense | 293 | | | 269 | | | 914 | | | 500 | |
| Net earnings | Net earnings | 740 | | | 581 | | | 1,421 | | | 743 | | Net earnings | 475 | | | 740 | | | 2,660 | | | 1,421 | |
| (Earnings) loss attributable to noncontrolling interests | (2) | | | 3 | | | (6) | | | 5 | | |
| (Earnings) attributable to noncontrolling interests | | (Earnings) attributable to noncontrolling interests | (6) | | | (2) | | | (3) | | | (6) | |
| Net earnings attributable to Centene Corporation | Net earnings attributable to Centene Corporation | $ | 738 | | | $ | 584 | | | $ | 1,415 | | | $ | 748 | | Net earnings attributable to Centene Corporation | $ | 469 | | | $ | 738 | | | $ | 2,657 | | | $ | 1,415 | |
|
| | | | | | | |
| | | | | | | |
| Net earnings per common share attributable to Centene Corporation: | Net earnings per common share attributable to Centene Corporation: | | Net earnings per common share attributable to Centene Corporation: | |
| Basic earnings per common share | Basic earnings per common share | $ | 1.29 | | | $ | 1.00 | | | $ | 2.44 | | | $ | 1.28 | | Basic earnings per common share | $ | 0.87 | | | $ | 1.29 | | | $ | 4.86 | | | $ | 2.44 | |
| Diluted earnings per common share | Diluted earnings per common share | $ | 1.27 | | | $ | 0.99 | | | $ | 2.41 | | | $ | 1.27 | | Diluted earnings per common share | $ | 0.87 | | | $ | 1.27 | | | $ | 4.85 | | | $ | 2.41 | |
|
| |
| |
| Weighted average number of common shares outstanding: | Weighted average number of common shares outstanding: | | Weighted average number of common shares outstanding: | |
| Basic | Basic | 573,961 | | | 583,244 | | | 580,277 | | | 582,636 | | Basic | 539,535 | | | 573,961 | | | 546,374 | | | 580,277 | |
| Diluted | Diluted | 580,607 | | | 590,702 | | | 587,084 | | | 590,154 | | Diluted | 541,270 | | | 580,607 | | | 548,412 | | | 587,084 | |
|
The accompanying notes to the consolidated financial statements are an integral part of these statements.
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
(In millions)
(Unaudited)
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| Net earnings | Net earnings | $ | 740 | | | $ | 581 | | | $ | 1,421 | | | $ | 743 | | Net earnings | $ | 475 | | | $ | 740 | | | $ | 2,660 | | | $ | 1,421 | |
| Reclassification adjustment, net of tax | 3 | | | 1 | | | 12 | | | (16) | | |
| Change in unrealized gain (loss) on investments | | Change in unrealized gain (loss) on investments | (235) | | | (503) | | | (124) | | | (1,664) | |
| Change in unrealized gain (loss) on investments, tax effect | | Change in unrealized gain (loss) on investments, tax effect | 56 | | | 120 | | | 29 | | | 397 | |
| Change in unrealized gain (loss) on investments, net of tax | Change in unrealized gain (loss) on investments, net of tax | (383) | | | (47) | | | (1,267) | | | (125) | | Change in unrealized gain (loss) on investments, net of tax | (179) | | | (383) | | | (95) | | | (1,267) | |
| | Foreign currency translation adjustments | (101) | | | (17) | | | (216) | | | (20) | | |
| Reclassification adjustment, net of tax | | Reclassification adjustment, net of tax | 57 | | | 3 | | | 61 | | | 12 | |
| Foreign currency translation adjustments, net of tax | | Foreign currency translation adjustments, net of tax | (22) | | | (101) | | | 24 | | | (216) | |
| Net unrealized gain on cash flow hedge, net of tax | | Net unrealized gain on cash flow hedge, net of tax | 20 | | | — | | | 20 | | | — | |
| Other comprehensive earnings (loss) | Other comprehensive earnings (loss) | (481) | | | (63) | | | (1,471) | | | (161) | | Other comprehensive earnings (loss) | (124) | | | (481) | | | 10 | | | (1,471) | |
| Comprehensive earnings (loss) | Comprehensive earnings (loss) | 259 | | | 518 | | | (50) | | | 582 | | Comprehensive earnings (loss) | 351 | | | 259 | | | 2,670 | | | (50) | |
| Comprehensive (earnings) loss attributable to noncontrolling interests | (2) | | | 3 | | | (6) | | | 5 | | |
| Comprehensive (earnings) attributable to noncontrolling interests | | Comprehensive (earnings) attributable to noncontrolling interests | (6) | | | (2) | | | (3) | | | (6) | |
| Comprehensive earnings (loss) attributable to Centene Corporation | Comprehensive earnings (loss) attributable to Centene Corporation | $ | 257 | | | $ | 521 | | | $ | (56) | | | $ | 587 | | Comprehensive earnings (loss) attributable to Centene Corporation | $ | 345 | | | $ | 257 | | | $ | 2,667 | | | $ | (56) | |
The accompanying notes to the consolidated financial statements are an integral part of these statements.
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’STOCKHOLDERS' EQUITY
(In millions, except shares in thousands and per share data in dollars)
(Unaudited)
Three and Nine Months Ended September 30, 20222023
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Centene Stockholders’ Equity | | | | | |
| | Common Stock | | | | | | | | Treasury Stock | | | | | |
| | $0.001 Par Value Shares | | Amt | | Additional
Paid-in
Capital | | Accumulated
Other
Comprehensive Earnings
(Loss) | | Retained
Earnings | | $0.001 Par Value Shares | | Amt | | Non-redeemable
Non-
controlling
Interest | | Total | |
| Balance, December 31, 2021 | 602,704 | | | $ | 1 | | | $ | 19,672 | | | $ | 77 | | | $ | 8,139 | | | 20,225 | | | $ | (1,094) | | | $ | 145 | | | $ | 26,940 | | |
| Comprehensive Earnings: | | | | | | | | | | | | | | | | | | |
| Net earnings (loss) | — | | | — | | | — | | | — | | | 849 | | | — | | | — | | | (1) | | | 848 | | |
| Other comprehensive loss, net of $(171) tax | — | | | — | | | — | | | (562) | | | — | | | — | | | — | | | — | | | (562) | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Common stock issued for employee benefit plans | 3,221 | | | — | | | 28 | | | — | | | — | | | — | | | — | | | — | | | 28 | | |
| Fair value of unvested equity awards in connection with acquisition | — | | | — | | | 60 | | | — | | | — | | | — | | | — | | | — | | | 60 | | |
| Common stock repurchases | — | | | — | | | — | | | — | | | — | | | 846 | | | (71) | | | — | | | (71) | | |
| Stock compensation expense | — | | | — | | | 70 | | | — | | | — | | | — | | | — | | | — | | | 70 | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Balance, March 31, 2022 | 605,925 | | | $ | 1 | | | $ | 19,830 | | | $ | (485) | | | $ | 8,988 | | | 21,071 | | | $ | (1,165) | | | $ | 144 | | | $ | 27,313 | | |
| Comprehensive Earnings: | | | | | | | | | | | | | | | | | | |
| Net earnings (loss) | — | | | — | | | — | | | — | | | (172) | | | — | | | — | | | (3) | | | (175) | | |
| Other comprehensive loss, net of $(106) tax | — | | | — | | | — | | | (428) | | | — | | | — | | | — | | | — | | | (428) | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Common stock issued for employee benefit plans | 519 | | | — | | | 10 | | | — | | | — | | | — | | | — | | | — | | | 10 | | |
| Common stock repurchases | — | | | — | | | — | | | — | | | — | | | 4,249 | | | (349) | | | — | | | (349) | | |
| Stock compensation expense | — | | | — | | | 59 | | | — | | | — | | | — | | | — | | | — | | | 59 | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Balance, June 30, 2022 | 606,444 | | | $ | 1 | | | $ | 19,899 | | | $ | (913) | | | $ | 8,816 | | | 25,320 | | | $ | (1,514) | | | $ | 141 | | | $ | 26,430 | | |
| Comprehensive Earnings: | | | | | | | | | | | | | | | | | | |
| Net earnings (loss) | — | | | — | | | — | | | — | | | 738 | | | — | | | — | | | (2) | | | 736 | | |
| Other comprehensive loss, net of $(120) tax | — | | | — | | | — | | | (481) | | | —�� | | | — | | | — | | | — | | | (481) | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Common stock issued for employee benefit plans | 487 | | | — | | | 24 | | | — | | | — | | | — | | | — | | | — | | | 24 | | |
| Common stock repurchases | — | | | — | | | (200) | | | — | | | — | | | 11,520 | | | (1,043) | | | — | | | (1,243) | | |
| Stock compensation expense | — | | | — | | | 51 | | | — | | | — | | | — | | | — | | | — | | | 51 | | |
| Reclassification to non-redeemable noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 17 | | | 17 | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Balance, September 30, 2022 | 606,931 | | | $ | 1 | | | $ | 19,774 | | | $ | (1,394) | | | $ | 9,554 | | | 36,840 | | | $ | (2,557) | | | $ | 156 | | | $ | 25,534 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Centene Stockholders' Equity | | | | | |
| | Common Stock | | | | | | | | Treasury Stock | | | | | |
| | $0.001 Par Value Shares | | Amt | | Additional Paid-in Capital | | Accumulated Other Comprehensive
Earnings (Loss) | | Retained Earnings | | $0.001 Par Value Shares | | Amt | | Noncontrolling
Interest | | Total | |
| Balance, December 31, 2022 | 607,847 | | | $ | 1 | | | $ | 20,060 | | | $ | (1,132) | | | $ | 9,341 | | | 57,093 | | | $ | (4,213) | | | $ | 124 | | | $ | 24,181 | | |
| Comprehensive Earnings: | | | | | | | | | | | | | | | | | | |
| Net earnings | — | | | — | | | — | | | — | | | 1,130 | | | — | | | — | | | — | | | 1,130 | | |
| Other comprehensive earnings, net of $61 tax | — | | | — | | | — | | | 217 | | | — | | | — | | | — | | | — | | | 217 | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Common stock issued for employee benefit plans | 6,508 | | | — | | | 12 | | | — | | | — | | | — | | | — | | | — | | | 12 | | |
| Common stock repurchases | — | | | — | | | — | | | — | | | — | | | 5,548 | | | (423) | | | — | | | (423) | | |
| Stock compensation expense | — | | | — | | | 61 | | | — | | | — | | | — | | | — | | | — | | | 61 | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Purchase of redeemable noncontrolling interest | — | | | — | | | (12) | | | — | | | — | | | — | | | — | | | — | | | (12) | | |
| | | | | | | | | | | | | | | | | | |
| Balance, March 31, 2023 | 614,355 | | | $ | 1 | | | $ | 20,121 | | | $ | (915) | | | $ | 10,471 | | | 62,641 | | | $ | (4,636) | | | $ | 124 | | | $ | 25,166 | | |
| Comprehensive Earnings: | | | | | | | | | | | | | | | | | | |
| Net earnings (loss) | — | | | — | | | — | | | — | | | 1,058 | | | — | | | — | | | (3) | | | 1,055 | | |
| Other comprehensive loss, net of $(34) tax | — | | | — | | | — | | | (83) | | | — | | | — | | | — | | | — | | | (83) | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Common stock issued for employee benefit plans | 388 | | | — | | | 9 | | | — | | | — | | | — | | | — | | | — | | | 9 | | |
| Common stock repurchases | — | | | — | | | — | | | — | | | — | | | 6,099 | | | (408) | | | — | | | (408) | | |
| Stock compensation expense | — | | | — | | | 56 | | | — | | | — | | | — | | | — | | | — | | | 56 | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Purchase of non-redeemable noncontrolling interests | — | | | — | | | (3) | | | — | | | — | | | — | | | — | | | (24) | | | (27) | | |
| | | | | | | | | | | | | | | | | | |
| Balance, June 30, 2023 | 614,743 | | | $ | 1 | | | $ | 20,183 | | | $ | (998) | | | $ | 11,529 | | | 68,740 | | | $ | (5,044) | | | $ | 97 | | | $ | 25,768 | | |
| Comprehensive Earnings: | | | | | | | | | | | | | | | | | | |
| Net earnings | — | | | — | | | — | | | — | | | 469 | | | — | | | — | | | 3 | | | 472 | | |
| Other comprehensive loss, net of $(34) tax | — | | | — | | | — | | | (124) | | | — | | | — | | | — | | | — | | | (124) | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Common stock issued for employee benefit plans | 213 | | | — | | | 11 | | | — | | | — | | | — | | | — | | | — | | | 11 | | |
| Common stock repurchases | — | | | — | | | — | | | — | | | — | | | 11,620 | | | (781) | | | — | | | (781) | | |
| Stock compensation expense | — | | | — | | | 50 | | | — | | | — | | | — | | | — | | | — | | | 50 | | |
| Purchase of non-redeemable noncontrolling interests | — | | | — | | | (1) | | | — | | | — | | | — | | | — | | | — | | | (1) | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Balance, September 30, 2023 | 614,956 | | | $ | 1 | | | $ | 20,243 | | | $ | (1,122) | | | $ | 11,998 | | | 80,360 | | | $ | (5,825) | | | $ | 100 | | | $ | 25,395 | | |
Three and Nine Months Ended September 30, 20212022
| | | | Centene Stockholders’ Equity | | | | | | Centene Stockholders' Equity | | | | |
| | | Common Stock | | | | | | | | Treasury Stock | | | | | | Common Stock | | | | | | | | Treasury Stock | | | | |
| | | $0.001 Par Value Shares | | Amt | | Additional
Paid-in
Capital | | Accumulated
Other
Comprehensive Earnings
(Loss) | | Retained
Earnings | | $0.001 Par Value Shares | | Amt | | Non-redeemable
Non-
controlling
Interest | | Total | | $0.001 Par Value Shares | | Amt | | Additional Paid-in Capital | | Accumulated Other Comprehensive
Earnings (Loss) | | Retained Earnings | | $0.001 Par Value Shares | | Amt | | Noncontrolling
Interest | | Total |
| Balance, December 31, 2020 | 598,249 | | | $ | 1 | | | $ | 19,459 | | | $ | 337 | | | $ | 6,792 | | | 16,770 | | | $ | (816) | | | $ | 112 | | | $ | 25,885 | | |
| Balance, December 31, 2021 | | Balance, December 31, 2021 | 602,704 | | | $ | 1 | | | $ | 19,672 | | | $ | 77 | | | $ | 8,139 | | | 20,225 | | | $ | (1,094) | | | $ | 145 | | | $ | 26,940 | |
| Comprehensive Earnings: | Comprehensive Earnings: | | | | | | | | | | | | | | | | | | Comprehensive Earnings: | | | | | | | | | | | | | | | | | |
| Net earnings (loss) | Net earnings (loss) | — | | | — | | | — | | | — | | | 699 | | | — | | | — | | | (5) | | | 694 | | Net earnings (loss) | — | | | — | | | — | | | — | | | 849 | | | — | | | — | | | (1) | | | 848 | |
| Other comprehensive loss, net of $(49) tax | — | | | — | | | — | | | (161) | | | — | | | — | | | — | | | — | | | (161) | | |
| Other comprehensive loss, net of $(171) tax | | Other comprehensive loss, net of $(171) tax | — | | | — | | | — | | | (562) | | | — | | | — | | | — | | | — | | | (562) | |
| | Common stock issued for employee benefit plans | | Common stock issued for employee benefit plans | 3,221 | | | — | | | 28 | | | — | | | — | | | — | | | — | | | — | | | 28 | |
| Fair value of unvested equity awards in connection with acquisition | | Fair value of unvested equity awards in connection with acquisition | — | | | — | | | 60 | | | — | | | — | | | — | | | — | | | — | | | 60 | |
| Common stock repurchases | | Common stock repurchases | — | | | — | | | — | | | — | | | — | | | 846 | | | (71) | | | — | | | (71) | |
| Stock compensation expense | | Stock compensation expense | — | | | — | | | 70 | | | — | | | — | | | — | | | — | | | — | | | 70 | |
| | Balance, March 31, 2022 | | Balance, March 31, 2022 | 605,925 | | | $ | 1 | | | $ | 19,830 | | | $ | (485) | | | $ | 8,988 | | | 21,071 | | | $ | (1,165) | | | $ | 144 | | | $ | 27,313 | |
| Comprehensive Earnings: | | Comprehensive Earnings: | | | | | | | | | | | | | | | | | |
| Net (loss) | | Net (loss) | — | | | — | | | — | | | — | | | (172) | | | — | | | — | | | (3) | | | (175) | |
| Other comprehensive loss, net of $(106) tax | | Other comprehensive loss, net of $(106) tax | — | | | — | | | — | | | (428) | | | — | | | — | | | — | | | — | | | (428) | |
| | Common stock issued for employee benefit plans | Common stock issued for employee benefit plans | 1,675 | | | — | | | 9 | | | — | | | — | | | — | | | — | | | — | | | 9 | | Common stock issued for employee benefit plans | 519 | | | — | | | 10 | | | — | | | — | | | — | | | — | | | — | | | 10 | |
| Common stock repurchases | Common stock repurchases | (316) | | | — | | | (19) | | | — | | | — | | | 156 | | | (10) | | | — | | | (29) | | Common stock repurchases | — | | | — | | | — | | | — | | | — | | | 4,249 | | | (349) | | | — | | | (349) | |
| Stock compensation expense | Stock compensation expense | — | | | — | | | 51 | | | — | | | — | | | — | | | — | | | — | | | 51 | | Stock compensation expense | — | | | — | | | 59 | | | — | | | — | | | — | | | — | | | — | | | 59 | |
| Contribution from noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 9 | | | 9 | | |
| | Balance, March 31, 2021 | 599,608 | | | $ | 1 | | | $ | 19,500 | | | $ | 176 | | | $ | 7,491 | | | 16,926 | | | $ | (826) | | | $ | 116 | | | $ | 26,458 | | |
| | Balance, June 30, 2022 | | Balance, June 30, 2022 | 606,444 | | | $ | 1 | | | $ | 19,899 | | | $ | (913) | | | $ | 8,816 | | | 25,320 | | | $ | (1,514) | | | $ | 141 | | | $ | 26,430 | |
| Comprehensive Earnings: | Comprehensive Earnings: | | | | | | | | | | | | | | | | | | Comprehensive Earnings: | | | | | | | | | | | | | | | | | |
| Net earnings (loss) | Net earnings (loss) | — | | | — | | | — | | | — | | | (535) | | | — | | | — | | | (3) | | | (538) | | Net earnings (loss) | — | | | — | | | — | | | — | | | 738 | | | — | | | — | | | (2) | | | 736 | |
| Other comprehensive earnings, net of $19 tax | — | | | — | | | — | | | 63 | | | — | | | — | | | — | | | — | | | 63 | | |
| Other comprehensive loss, net of $(120) tax | | Other comprehensive loss, net of $(120) tax | — | | | — | | | — | | | (481) | | | — | | | — | | | — | | | — | | | (481) | |
| | Common stock issued for employee benefit plans | Common stock issued for employee benefit plans | 390 | | | — | | | 9 | | | — | | | — | | | — | | | — | | | — | | | 9 | | Common stock issued for employee benefit plans | 487 | | | — | | | 24 | | | — | | | — | | | — | | | — | | | — | | | 24 | |
| Common stock repurchases | Common stock repurchases | (10) | | | — | | | — | | | — | | | — | | | 60 | | | (4) | | | — | | | (4) | | Common stock repurchases | — | | | — | | | (200) | | | — | | | — | | | 11,520 | | | (1,043) | | | — | | | (1,243) | |
| Stock compensation expense | Stock compensation expense | — | | | — | | | 36 | | | — | | | — | | | — | | | — | | | — | | | 36 | | Stock compensation expense | — | | | — | | | 51 | | | — | | | — | | | — | | | — | | | — | | | 51 | |
| Contribution from noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 21 | | | 21 | | |
| | Reclassification to redeemable | | Reclassification to redeemable | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 17 | | | 17 | |
| | Balance, June 30, 2021 | 599,988 | | | $ | 1 | | | $ | 19,545 | | | $ | 239 | | | $ | 6,956 | | | 16,986 | | | $ | (830) | | | $ | 134 | | | $ | 26,045 | | |
| Comprehensive Earnings: | | | | | | | | | | | | | | | | | | |
| Net earnings (loss) | — | | | — | | | — | | | — | | | 584 | | | — | | | — | | | (8) | | | 576 | | |
| Other comprehensive loss, net of $(15) tax | — | | | — | | | — | | | (63) | | | — | | | — | | | — | | | — | | | (63) | | |
| | Common stock issued for employee benefit plans | 720 | | | — | | | 9 | | | — | | | — | | | — | | | — | | | — | | | 9 | | |
| Common stock repurchases | — | | | — | | | — | | | — | | | — | | | 222 | | | (15) | | | — | | | (15) | | |
| Stock compensation expense | — | | | — | | | 40 | | | — | | | — | | | — | | | — | | | — | | | 40 | | |
| Contribution from noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 5 | | | 5 | | |
| | Divestiture of noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (10) | | | (10) | | |
| Acquisition resulting in noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | 3 | | | 3 | | |
| Balance, September 30, 2021 | 600,708 | | | $ | 1 | | | $ | 19,594 | | | $ | 176 | | | $ | 7,540 | | | 17,208 | | | $ | (845) | | | $ | 124 | | | $ | 26,590 | | |
| Balance, September 30, 2022 | | Balance, September 30, 2022 | 606,931 | | | $ | 1 | | | $ | 19,774 | | | $ | (1,394) | | | $ | 9,554 | | | 36,840 | | | $ | (2,557) | | | $ | 156 | | | $ | 25,534 | |
The accompanying notes to the consolidated financial statements are an integral part of these statements.
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions, unaudited)millions)
| | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2022 | | 2021 |
| Cash flows from operating activities: | | | |
| Net earnings | $ | 1,421 | | | $ | 743 | |
| Adjustments to reconcile net earnings to net cash provided by operating activities |
| Depreciation and amortization | 1,178 | | | 1,098 | |
| Stock compensation expense | 180 | | | 127 | |
| Impairment | 1,739 | | | 229 | |
| (Gain) loss on debt extinguishment | (26) | | | 125 | |
| (Gain) on acquisition | (2) | | | (309) | |
| Deferred income taxes | (682) | | | (143) | |
| (Gain) loss on divestitures | (503) | | | 62 | |
| Other adjustments, net | 164 | | | (6) | |
| Changes in assets and liabilities | | | |
| Premium and trade receivables | (1,274) | | | (1,723) | |
| Other assets | 152 | | | (124) | |
| | | |
| Medical claims liabilities | 1,976 | | | 1,661 | |
| Unearned revenue | 1,964 | | | (169) | |
| Accounts payable and accrued expenses | 686 | | | 993 | |
| Other long-term liabilities | 863 | | | 964 | |
| Other operating activities, net | 1 | | | 2 | |
| Net cash provided by operating activities | 7,837 | | | 3,530 | |
| Cash flows from investing activities: | | | |
| Capital expenditures | (771) | | | (662) | |
| Purchases of investments | (5,118) | | | (5,253) | |
| Sales and maturities of investments | 2,842 | | | 4,069 | |
| Acquisitions, net of cash acquired | (1,457) | | | (534) | |
| Divestiture proceeds, net of divested cash | 1,362 | | | (62) | |
| | | |
| Net cash used in investing activities | (3,142) | | | (2,442) | |
| Cash flows from financing activities: | | | |
| | | |
| Proceeds from long-term debt | 357 | | | 9,247 | |
| Payments and repurchases of long-term debt | (1,202) | | | (7,411) | |
| Common stock repurchases | (1,663) | | | (49) | |
| Payments for debt extinguishment | (14) | | | (157) | |
| Debt issuance costs | — | | | (72) | |
| Other financing activities, net | 57 | | | 39 | |
| Net cash (used in) provided by financing activities | (2,465) | | | 1,597 | |
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (37) | | | (8) | |
| Net increase in cash, cash equivalents, and restricted cash and cash equivalents | 2,193 | | | 2,677 | |
| Cash and cash equivalents reclassified from (to) held for sale | (192) | | | — | |
Cash, cash equivalents, and restricted cash and cash equivalents, beginning of period | 13,214 | | | 10,957 | |
Cash, cash equivalents, and restricted cash and cash equivalents, end of period | $ | 15,215 | | | $ | 13,634 | |
| Supplemental disclosures of cash flow information: | | | |
| Interest paid | $ | 462 | | | $ | 479 | |
| Income taxes paid | $ | 448 | | | $ | 477 | |
| | | |
| | | |
| The following table provides a reconciliation of cash, cash equivalents, and restricted cash and cash equivalents reported within the Consolidated Balance Sheets to the totals above: |
| September 30, |
| 2022 | | 2021 |
| Cash and cash equivalents | $ | 14,987 | | | $ | 13,423 | |
| Restricted cash and cash equivalents, included in restricted deposits | 228 | | | 211 | |
| Total cash, cash equivalents, and restricted cash and cash equivalents | $ | 15,215 | | | $ | 13,634 | |
| | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2023 | | 2022 |
| Cash flows from operating activities: | | | |
| Net earnings | $ | 2,660 | | | $ | 1,421 | |
| Adjustments to reconcile net earnings to net cash provided by operating activities | | | |
| Depreciation and amortization | 978 | | | 1,079 | |
| Stock compensation expense | 167 | | | 180 | |
| Impairment | 478 | | | 1,739 | |
| (Gain) loss on debt extinguishment | — | | | (26) | |
| | | |
| Deferred income taxes | 14 | | | (682) | |
| (Gain) loss on divestitures | (172) | | | (503) | |
| | | |
| Other adjustments, net | 158 | | | 164 | |
| Changes in assets and liabilities | | | |
| Premium and trade receivables | (2,329) | | | (1,274) | |
| Other assets | (103) | | | 152 | |
| | | |
| Medical claims liabilities | 401 | | | 1,976 | |
| Unearned revenue | 1,878 | | | 1,964 | |
| Accounts payable and accrued expenses | 3,127 | | | 686 | |
| Other long-term liabilities | 583 | | | 863 | |
| Other operating activities, net | (4) | | | 98 | |
| Net cash provided by operating activities | 7,836 | | | 7,837 | |
| Cash flows from investing activities: | | | |
| Capital expenditures | (576) | | | (771) | |
| Purchases of investments | (4,729) | | | (5,118) | |
| Sales and maturities of investments | 4,373 | | | 2,842 | |
| Acquisitions, net of cash acquired | — | | | (1,457) | |
| Divestiture proceeds, net of divested cash | 690 | | | 1,362 | |
| | | |
| Net cash (used in) investing activities | (242) | | | (3,142) | |
| Cash flows from financing activities: | | | |
| Proceeds from long-term debt | 2,170 | | | 357 | |
| Payments and repurchases of long-term debt | (1,970) | | | (1,202) | |
| Common stock repurchases | (1,602) | | | (1,663) | |
| Proceeds from common stock issuances | 32 | | | 62 | |
| Payments for debt extinguishment | — | | | (14) | |
| Purchase of noncontrolling interest | (87) | | | — | |
| | | |
| Other financing activities, net | — | | | (5) | |
| Net cash (used in) financing activities | (1,457) | | | (2,465) | |
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 19 | | | (37) | |
| Net increase in cash, cash equivalents, and restricted cash and cash equivalents | 6,156 | | | 2,193 | |
| Cash and cash equivalents reclassified from (to) held for sale | (36) | | | (192) | |
Cash, cash equivalents, and restricted cash and cash equivalents, beginning of period | 12,330 | | | 13,214 | |
Cash, cash equivalents, and restricted cash and cash equivalents, end of period | $ | 18,450 | | | $ | 15,215 | |
| Supplemental disclosures of cash flow information: | | | |
| Interest paid | $ | 496 | | | $ | 462 | |
| Income taxes paid | $ | 759 | | | $ | 448 | |
| | | |
| | | |
| The following table provides a reconciliation of cash, cash equivalents, and restricted cash and cash equivalents reported within the Consolidated Balance Sheets to the totals above: |
| September 30, |
| 2023 | | 2022 |
| Cash and cash equivalents | $ | 18,190 | | | $ | 14,987 | |
| Restricted cash and cash equivalents, included in restricted deposits | 260 | | | 228 | |
| Total cash, cash equivalents, and restricted cash and cash equivalents | $ | 18,450 | | | $ | 15,215 | |
The accompanying notes to the consolidated financial statements are an integral part of these statements.
CENTENE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Operations
Basis of Presentation
The accompanying interim financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the audited financial statements included in the Form 10-K for the fiscal year ended December 31, 2021.2022. The unaudited interim financial statements herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, footnote disclosures that would substantially duplicate the disclosures contained in the December 31, 20212022 audited financial statements have been omitted from these interim financial statements, where appropriate. In the opinion of management, these financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of the interim periods presented.
Certain 20212022 amounts in the consolidated financial statements and notes to the consolidated financial statements have been reclassified to conform to the 2022 presentation. Beginning in 2022, the Company has included a separate line item for depreciation expense on the Consolidated Statement of Operations, which was previously included in selling, general and administrative (SG&A) expenses. Prior period SG&A expense ratios have also been conformed2023 presentation, including reclassifications related to the current presentation.Company's new segment reporting structure as outlined below. These reclassifications have no effect on net earnings or stockholders’stockholders' equity as previously reported.
Segment Reporting
On January 4, 2022,
In the first quarter of 2023, and in conjunction with the Company's updated strategic plan, executive leadership realignment, and corresponding 2023 divestitures, the Company acquired allrevised the way it manages the business, evaluates performance, and allocates resources, resulting in an updated segment structure comprised of (1) a Medicaid segment, (2) a Medicare segment, (3) a Commercial segment, and (4) an Other segment.
The Medicaid, Medicare, and Commercial segments represent the issuedgovernment-sponsored or subsidized programs under which the Company offers managed healthcare services. Specifically, the Medicaid segment includes the Temporary Assistance for Needy Families (TANF) program, Medicaid Expansion programs, the Aged, Blind, or Disabled (ABD) program, the Children's Health Insurance Program (CHIP), Long-Term Services and outstanding shares of MagellanSupports (LTSS), Foster Care, Medicare-Medicaid Plans (MMP), which cover beneficiaries who are dually eligible for Medicaid and Medicare, and other state-based programs. The Medicare segment includes Medicare Advantage, Medicare Supplement, Dual Eligible Special Needs Plans (D-SNPs), and Medicare Prescription Drug Plans (PDPs), also known as Medicare Part D. The Commercial segment includes the Health Inc. (Magellan) (the Magellan Acquisition).Insurance Marketplace product along with individual, small group, and large group commercial health insurance products. The acquisition was accounted for as a business combination. See Note 2. AcquisitionsOther segment includes the Company's pharmacy operations, vision and Divestitures for further details.dental services, clinical healthcare, behavioral health, international operations, and corporate management companies, among others.
Accounting Guidance Not Yet Adopted
The Company has determined that there are no recently issued accounting pronouncements that will have a material impact on its consolidated financial position, results of operations, or cash flows.
2. Acquisitions and Divestitures
Magellan AcquisitionOn January 5, 2023, the Company completed the divestiture of HealthSmart, its third-party health plan administration business.
On January 4,10, 2023, the Company signed and closed on a definitive agreement to divest Centurion, its prison healthcare business. During 2022, the Company acquired allrecorded impairment charges related to goodwill and other current assets associated with the divestiture. During the second quarter of 2023, the Company recognized a $15 million gain on the divestiture of the issuedCenturion business reflecting additional proceeds for contingent consideration, partially offset by net working capital adjustments. The gain is included in investment and outstanding sharesother income in the Consolidated Statements of Magellan. Total considerationOperations.
On January 20, 2023, the Company completed the divestiture of Magellan Specialty Health for the acquisition was $2,491 million, consisting of $2,431approximately $646 million in cash and $60stock, including an estimated working capital adjustment, and recognized a pre-tax gain of $79 million. The stock consideration was subsequently sold in April 2023 for cash proceeds of $245 million. The Company could also receive up to an additional $150 million in cash and stock in 2024 based on certain 2023 performance metrics. The Company will recognize the appropriate amount of contingent consideration related to the fair value of replacement equity awards associated with pre-combination service. The purchase price has been adjusted to reflect the net effective settlement of preexisting relationships between the Company and Magellan of $70 million. The Company recognized $8additional $150 million and $100 million of acquisition related expenses related to Magellan for the three and nine months ended September 30, 2022, respectively.
The Magellan Acquisition was accounted for as a business combination using the acquisition method of accounting that requires assets acquired and liabilities assumed to be recognized at fair value as of the acquisition date. The significant areas of the assessment of fair value that remain preliminary include identifiable intangible assets and goodwill, premium and related receivables, medical claims liability, and income taxes, and accordingly, the Company has recorded provisional amounts which are subject to adjustment. Measurement period adjustments will be recorded in the period in which they are determined, as if they had been completed at the acquisition date.
The Company's preliminary allocation of the fair value of assets acquired and liabilities assumed as of the acquisition date of January 4, 2022 is as follows ($ in millions):
| | | | | | | | |
Assets acquired and liabilities assumed | | |
Cash and cash equivalents | | $ | 998 | |
Premium and related receivables | | 791 | |
Short-term investments | | 144 | |
Other current assets | | 194 | |
Long-term investments | | 43 | |
Restricted deposits | | 7 | |
Property, software and equipment | | 90 | |
Intangible assets (a)
| | 751 | |
Other long-term assets | | 50 | |
Total assets acquired | | 3,068 | |
| | |
Medical claims liability | | 247 | |
Accounts payable and accrued expenses | | 495 | |
Return of premium payable | | 53 | |
Unearned revenue | | 8 | |
Current portion of long-term debt | | 5 | |
Long-term debt (b)
| | 542 | |
Deferred tax liabilities (c)
| | 123 | |
Other long-term liabilities | | 69 | |
Total liabilities assumed | | 1,542 | |
Mezzanine equity | | 32 | |
Total identifiable net assets | | 1,494 | |
Goodwill (d)
| | 997 | |
Total assets acquired and liabilities assumed | | $ | 2,491 | |
The Company has made the following preliminary fair value adjustments based on information reviewed through September 30, 2022. Significant fair value adjustments are noted as follows:
(a) The identifiable intangible assets acquired are to be measured at fair value as of the completion of the acquisition. The fair value of intangible assets will be determined primarily using variations of the income approach, which is based on the present value of the future after-tax cash flows attributable to each identified intangible asset. Other valuation methods, including the market approach and cost approach, will be considered in estimating the fair value. The identifiable intangible assets include purchased contract rights, trade names, provider contracts, and developed technologies. The Company has estimated the fair value of intangible assets to be $751 million with a weighted average life of 13 years. The Company adjusted its estimate of the identifiable intangible assets during the third quarter, resulting in additional amortization of $15 million.
The fair values and weighted average useful lives for identifiable intangible assets acquired are as follows:
| | | | | | | | | | | | | | |
| | Fair Value | | Weighted Average Useful Life (in years) |
| Purchased contract rights | | $ | 470 | | | 13 |
| Provider contracts | | 100 | | | 15 |
| Trade names | | 80 | | | 17 |
| Developed technologies | | 101 | | | 5 |
| Total intangible assets acquired | | $ | 751 | | | 13 |
| | | | |
(b) Debt is required to be measured at fair value under the acquisition method of accounting. The fair value of Magellan's Senior Notes and Credit Agreement assumed in the acquisition was $535 million. In January 2022, the Company paid off Magellan's debt acquired in the transaction using Magellan's cash on hand.
(c) The preliminary deferred tax liabilities are presented net of $116 million of deferred tax assets.
(d) Goodwill is estimated at $997 million and primarily relates to synergies expected from the acquisition and the assembled workforce of Magellan. The assignment of goodwill to the Company’s respective segments has not been completed at this time, but the majority of goodwill is expected to be allocated to the Specialty segment. The majority of the goodwill is not deductible for income tax purposes.
PANTHERx Rare Divestiturewhen realized or realizable.
On July 14, 2022,June 13, 2023, the Company completed the previously announced saledivestiture of PANTHERx Rare (PANTHERx) for $1,373 million.its majority stake in Apixio. The Company recognized a pre-tax gain of $490$91 million, or $382$63 million after-tax, which is included in investment and other income onin the Consolidated Statements of Operations.
During the second quarter of 2023, the Company recognized an additional $13 million expense related to the divestiture of its Spanish and Central European businesses, in addition to the previously recorded impairment charge of $163 million, or $140 million after-tax. The expense is included in investment and other income in the Consolidated Statements of Operations.
Circle Health Group Divestiture
On July 25, 2022, as part ofAugust 28, 2023, the Company’s previously announced review of strategic alternatives for its international portfolio, the Company announced it has signed a definitive agreement to sell its ownership stakesCircle Health Group (Circle Health), one of the U.K.'s largest independent hospital operators, which is included in its Spanish and Central European businesses, including Ribera Salud, Torrejón Salud, and Pro Diagnostics Group.
the Other segment. As of September 30, 2022,2023, the assets and liabilities of the Spanish and Central European businessesCircle Health were considered held for sale resulting in $666$3,744 million of assets held for sale in Other Current Assetsother current assets and $582$2,947 million of liabilities held for sale in Accounts Payableaccounts payable and Accrued Expenses onaccrued expenses in the Consolidated Balance Sheet. The majority of the held for sale assets were previously reported as cash and cash equivalents, premium and trade receivables,other long-term assets, goodwill and property, software and equipment. The majority of the liabilities were previously reported as debt and other long-term liabilities.
During the third quarter of 2023, the Company recorded an impairment charge primarily related to intangible assets and goodwill associated with the pending divestiture of $165$251 million, or $138$269 million after-tax.
3. Short-term and Long-term Investments, Restricted Deposits
Short-term and long-term investments and restricted deposits by investment type consist of the following ($ in millions):
| | | | September 30, 2022 | | December 31, 2021 | | | September 30, 2023 | | December 31, 2022 |
| | | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized Losses | | Fair
Value | | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized Losses | | Fair
Value | | | Amortized Cost | | Gross
Unrealized Gains | | Gross
Unrealized Losses | | Fair Value | | Amortized Cost | | Gross
Unrealized Gains | | Gross
Unrealized Losses | | Fair Value |
| Debt securities: | Debt securities: | | | | | | | | | | | | | | | | Debt securities: | | | | | | | | | | | | | | | |
| U.S. Treasury securities and obligations of U.S. government corporations and agencies | U.S. Treasury securities and obligations of U.S. government corporations and agencies | $ | 666 | | | $ | — | | | $ | (18) | | | $ | 648 | | | $ | 642 | | | $ | — | | | $ | (2) | | | $ | 640 | | U.S. Treasury securities and obligations of U.S. government corporations and agencies | $ | 421 | | | $ | — | | | $ | (13) | | | $ | 408 | | | $ | 695 | | | $ | — | | | $ | (16) | | | $ | 679 | |
| Corporate securities | Corporate securities | 9,648 | | | 1 | | | (897) | | | 8,752 | | | 8,145 | | | 130 | | | (75) | | | 8,200 | | Corporate securities | 9,922 | | | 2 | | | (750) | | | 9,174 | | | 10,127 | | | 12 | | | (778) | | | 9,361 | |
| Restricted certificates of deposit | Restricted certificates of deposit | 4 | | | — | | | — | | | 4 | | | 4 | | | — | | | — | | | 4 | | Restricted certificates of deposit | 4 | | | — | | | — | | | 4 | | | 4 | | | — | | | — | | | 4 | |
| Restricted cash equivalents | Restricted cash equivalents | 228 | | | — | | | — | | | 228 | | | 96 | | | — | | | — | | | 96 | | Restricted cash equivalents | 260 | | | — | | | — | | | 260 | | | 256 | | | — | | | — | | | 256 | |
| Short-term time deposits | Short-term time deposits | 275 | | | — | | | — | | | 275 | | | 109 | | | — | | | — | | | 109 | | Short-term time deposits | 470 | | | — | | | — | | | 470 | | | 204 | | | — | | | — | | | 204 | |
| Municipal securities | Municipal securities | 3,980 | | | — | | | (320) | | | 3,660 | | | 3,398 | | | 85 | | | (15) | | | 3,468 | | Municipal securities | 3,931 | | | 1 | | | (294) | | | 3,638 | | | 4,055 | | | 6 | | | (280) | | | 3,781 | |
| Asset-backed securities | Asset-backed securities | 1,335 | | | — | | | (68) | | | 1,267 | | | 1,308 | | | 5 | | | (5) | | | 1,308 | | Asset-backed securities | 1,633 | | | 2 | | | (52) | | | 1,583 | | | 1,396 | | | — | | | (70) | | | 1,326 | |
| Residential mortgage-backed securities | Residential mortgage-backed securities | 1,154 | | | — | | | (135) | | | 1,019 | | | 850 | | | 10 | | | (7) | | | 853 | | Residential mortgage-backed securities | 1,475 | | | — | | | (172) | | | 1,303 | | | 1,165 | | | 2 | | | (121) | | | 1,046 | |
| Commercial mortgage-backed securities | Commercial mortgage-backed securities | 970 | | | — | | | (96) | | | 874 | | | 870 | | | 13 | | | (10) | | | 873 | | Commercial mortgage-backed securities | 1,100 | | | — | | | (112) | | | 988 | | | 961 | | | — | | | (99) | | | 862 | |
Equity securities (1) | Equity securities (1) | 6 | | | — | | | — | | | 6 | | | 326 | | | — | | | — | | | 326 | | Equity securities (1) | 2 | | | — | | | — | | | 2 | | | 5 | | | — | | | — | | | 5 | |
| Private equity investments | Private equity investments | 551 | | | — | | | — | | | 551 | | | 587 | | | — | | | — | | | 587 | | Private equity investments | 810 | | | — | | | — | | | 810 | | | 529 | | | — | | | — | | | 529 | |
| Life insurance contracts | Life insurance contracts | 165 | | | — | | | — | | | 165 | | | 186 | | | — | | | — | | | 186 | | Life insurance contracts | 178 | | | — | | | — | | | 178 | | | 169 | | | — | | | — | | | 169 | |
| Total | Total | $ | 18,982 | | | $ | 1 | | | $ | (1,534) | | | $ | 17,449 | | | $ | 16,521 | | | $ | 243 | | | $ | (114) | | | $ | 16,650 | | Total | $ | 20,206 | | | $ | 5 | | | $ | (1,393) | | | $ | 18,818 | | | $ | 19,566 | | | $ | 20 | | | $ | (1,364) | | | $ | 18,222 | |
| (1) Investments in equity securities as of December 31, 2021 primarily consisted of exchange traded funds in fixed income securities. | |
The Company's investments are debt securities classified as available-for-sale with the exception of equity securities, certain private equity investments, and life insurance contracts. Private equity investments include direct investments in private equity securities as well as private equity funds. The Company's investment policies are designed to provide liquidity, preserve capital, and maximize total return on invested assets with thea focus on high credit quality securities. The Company limits the size of investment in any single issuer other than U.S. treasury securities and obligations of U.S. government corporations and agencies. As of September 30, 2022, 98%2023, 99% of the Company's investments in rated securities carry an investment grade rating by nationally recognized statistical rating organizations. At September 30, 2022,2023, the Company held certificates of deposit, equity securities, private equity investments, and life insurance contracts, which did not carry a credit rating. Accrued interest income on available-for-sale debt securities was $119$144 million and $96$132 million at September 30, 20222023 and December 31, 2021,2022, respectively, and is included in other current assets onin the Consolidated Balance Sheets.
The Company's residential mortgage-backed securities are primarily issued by the Federal National Mortgage Association, Government National Mortgage Association, or Federal Home Loan Mortgage Corporation, which carry implicit or explicit guarantees of the U.S. government. The Company's commercial mortgage-backed securities are primarily senior tranches with a weighted average rating of AAAAA+ and a weighted average duration of 4 years at September 30, 2022.2023.
The fair value of available-for-sale debt securities with gross unrealized losses by investment type and length of time that individual securities have been in a continuous unrealized loss position were as follows ($ in millions):
| | | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
| | | Less Than 12 Months | | 12 Months or More | | Less Than 12 Months | | 12 Months or More | | Less Than 12 Months | | 12 Months or More | | Less Than 12 Months | | 12 Months or More |
| | | Unrealized Losses | | Fair
Value | | Unrealized Losses | | Fair
Value | | Unrealized Losses | | Fair
Value | | Unrealized Losses | | Fair
Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value |
| U.S. Treasury securities and obligations of U.S. government corporations and agencies | U.S. Treasury securities and obligations of U.S. government corporations and agencies | $ | (14) | | | $ | 556 | | | $ | (4) | | | $ | 67 | | | $ | (2) | | | $ | 598 | | | $ | — | | | $ | 3 | | U.S. Treasury securities and obligations of U.S. government corporations and agencies | $ | (1) | | | $ | 161 | | | $ | (12) | | | $ | 247 | | | $ | (5) | | | $ | 342 | | | $ | (11) | | | $ | 184 | |
| Corporate securities | Corporate securities | (562) | | | 6,737 | | | (335) | | | 1,975 | | | (66) | | | 4,209 | | | (9) | | | 209 | | Corporate securities | (76) | | | 2,470 | | | (674) | | | 6,393 | | | (340) | | | 5,368 | | | (438) | | | 3,400 | |
| Municipal securities | Municipal securities | (228) | | | 2,998 | | | (92) | | | 586 | | | (14) | | | 1,173 | | | (1) | | | 39 | | Municipal securities | (44) | | | 1,308 | | | (250) | | | 2,211 | | | (142) | | | 2,437 | | | (138) | | | 995 | |
| Asset-backed securities | Asset-backed securities | (57) | | | 1,094 | | | (11) | | | 166 | | | (5) | | | 770 | | | — | | | 33 | | Asset-backed securities | (7) | | | 486 | | | (45) | | | 946 | | | (29) | | | 786 | | | (41) | | | 486 | |
| Residential mortgage-backed securities | Residential mortgage-backed securities | (86) | | | 770 | | | (49) | | | 244 | | | (7) | | | 472 | | | — | | | 15 | | Residential mortgage-backed securities | (23) | | | 517 | | | (149) | | | 786 | | | (55) | | | 629 | | | (66) | | | 352 | |
| Commercial mortgage-backed securities | Commercial mortgage-backed securities | (59) | | | 650 | | | (37) | | | 218 | | | (8) | | | 380 | | | (2) | | | 32 | | Commercial mortgage-backed securities | (11) | | | 228 | | | (101) | | | 748 | | | (49) | | | 513 | | | (50) | | | 330 | |
| | Total | Total | $ | (1,006) | | | $ | 12,805 | | | $ | (528) | | | $ | 3,256 | | | $ | (102) | | | $ | 7,602 | | | $ | (12) | | | $ | 331 | | Total | $ | (162) | | | $ | 5,170 | | | $ | (1,231) | | | $ | 11,331 | | | $ | (620) | | | $ | 10,075 | | | $ | (744) | | | $ | 5,747 | |
As of September 30, 2022,2023, the gross unrealized losses were generated from 6,6886,355 positions out of a total of 6,8476,604 positions. The change in fair value of available-for-sale debt securities is primarily a result of movement in interest rates subsequent to the purchase of the security.
For each security in an unrealized loss position, the Company assesses whether it intends to sell the security or if it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual, or regulatory purposes. If the security meets this criterion, the decline in fair value is recorded in earnings. The Company does not intend to sell these securities prior to maturity and it is not likely that the Company will be required to sell these securities prior to maturity; therefore, the Company did not record an impairment for these securities.
In addition, the Company monitors available-for-sale debt securities for credit losses. Certain investments have experienced a decline in fair value due to changes in credit quality, market interest rates, and/or general economic conditions. The Company recognizes an allowance when evidence demonstrates that the decline in fair value is credit related. Evidence of a credit relatedcredit-related loss may include rating agency actions, adverse conditions specifically related to the security, or failure of the issuer of the security to make scheduled payments.
The contractual maturities of short-term and long-term debt securities and restricted deposits are as follows ($ in millions):
| | | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
| | | Investments | | Restricted Deposits | | Investments | | Restricted Deposits | | Investments | | Restricted Deposits | | Investments | | Restricted Deposits |
| | | Amortized
Cost | | Fair
Value | | Amortized
Cost | | Fair
Value | | Amortized
Cost | | Fair
Value | | Amortized
Cost | | Fair
Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| One year or less | One year or less | $ | 2,053 | | | $ | 2,029 | | | $ | 521 | | | $ | 518 | | | $ | 1,390 | | | $ | 1,396 | | | $ | 368 | | | $ | 368 | | One year or less | $ | 2,121 | | | $ | 2,091 | | | $ | 537 | | | $ | 534 | | | $ | 2,207 | | | $ | 2,179 | | | $ | 534 | | | $ | 532 | |
| One year through five years | One year through five years | 7,296 | | | 6,752 | | | 518 | | | 482 | | | 6,212 | | | 6,294 | | | 460 | | | 457 | | One year through five years | 7,421 | | | 6,906 | | | 531 | | | 496 | | | 7,651 | | | 7,147 | | | 524 | | | 490 | |
| Five years through ten years | Five years through ten years | 4,077 | | | 3,496 | | | 241 | | | 205 | | | 3,647 | | | 3,681 | | | 244 | | | 243 | | Five years through ten years | 3,931 | | | 3,501 | | | 312 | | | 282 | | | 4,066 | | | 3,613 | | | 224 | | | 195 | |
| Greater than ten years | Greater than ten years | 95 | | | 85 | | | — | | | — | | | 73 | | | 78 | | | — | | | — | | Greater than ten years | 123 | | | 113 | | | 32 | | | 31 | | | 135 | | | 129 | | | — | | | — | |
| Asset-backed securities | Asset-backed securities | 3,459 | | | 3,160 | | | — | | | — | | | 3,028 | | | 3,034 | | | — | | | — | | Asset-backed securities | 4,208 | | | 3,874 | | | — | | | — | | | 3,522 | | | 3,234 | | | — | | | — | |
| Total | Total | $ | 16,980 | | | $ | 15,522 | | | $ | 1,280 | | | $ | 1,205 | | | $ | 14,350 | | | $ | 14,483 | | | $ | 1,072 | | | $ | 1,068 | | Total | $ | 17,804 | | | $ | 16,485 | | | $ | 1,412 | | | $ | 1,343 | | | $ | 17,581 | | | $ | 16,302 | | | $ | 1,282 | | | $ | 1,217 | |
Actual maturities may differ from contractual maturities due to call or prepayment options. Equity securities, private equity investments, and life insurance contracts are excluded from the table above because they do not have a contractual maturity. The Company has an option to redeem at amortized cost substantially all of the securities included in the greater than ten years category listed above.above at amortized cost.
4. Fair Value Measurements
Assets and liabilities recorded at fair value in the Consolidated Balance Sheets are categorized based upon observable or unobservable inputs used to estimate fair value. Level inputs are as follows:
| | | | | | | | |
| Level Input: | | Input Definition: |
| Level I | | Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date. |
| | | |
| Level II | | Inputs other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date. |
| | | |
| Level III | | Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. |
The following table summarizes fair value measurements by level at September 30, 2023, for assets and liabilities measured at fair value on a recurring basis ($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Level I | | Level II | | Level III | | Total |
| Assets | | | | | | | |
| Cash and cash equivalents | $ | 18,190 | | | $ | — | | | $ | — | | | $ | 18,190 | |
| Investments: | | | | | | | |
| U.S. Treasury securities and obligations of U.S. government corporations and agencies | $ | 81 | | | $ | — | | | $ | — | | | $ | 81 | |
| Corporate securities | — | | | 9,142 | | | — | | | 9,142 | |
| Municipal securities | — | | | 2,918 | | | — | | | 2,918 | |
| Short-term time deposits | — | | | 470 | | | — | | | 470 | |
| Asset-backed securities | — | | | 1,583 | | | — | | | 1,583 | |
| Residential mortgage-backed securities | — | | | 1,303 | | | — | | | 1,303 | |
| Commercial mortgage-backed securities | — | | | 988 | | | — | | | 988 | |
| Equity securities | — | | | 2 | | | — | | | 2 | |
| Total investments | $ | 81 | | | $ | 16,406 | | | $ | — | | | $ | 16,487 | |
| Restricted deposits: | | | | | | | |
| Cash and cash equivalents | $ | 260 | | | $ | — | | | $ | — | | | $ | 260 | |
| U.S. Treasury securities and obligations of U.S. government corporations and agencies | 327 | | | — | | | — | | | 327 | |
| Corporate securities | — | | | 32 | | | — | | | 32 | |
| Certificates of deposit | — | | | 4 | | | — | | | 4 | |
| Municipal securities | — | | | 720 | | | — | | | 720 | |
| Total restricted deposits | $ | 587 | | | $ | 756 | | | $ | — | | | $ | 1,343 | |
| Other current assets: | | | | | | | |
| Foreign currency swap agreement | $ | — | | | $ | 27 | | | $ | — | | | $ | 27 | |
| Total assets at fair value | $ | 18,858 | | | $ | 17,189 | | | $ | — | | | $ | 36,047 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The following table summarizes fair value measurements by level at December 31, 2022, for assets and liabilities measured at fair value on a recurring basis ($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Level I | | Level II | | Level III | | Total |
| Assets | | | | | | | |
| Cash and cash equivalents | $ | 14,987 | | | $ | — | | | $ | — | | | $ | 14,987 | |
| Investments: | | | | | | | |
| U.S. Treasury securities and obligations of U.S. government corporations and agencies | $ | 313 | | | $ | — | | | $ | — | | | $ | 313 | |
| Corporate securities | — | | | 8,721 | | | — | | | 8,721 | |
| Municipal securities | — | | | 3,053 | | | — | | | 3,053 | |
| Short-term time deposits | — | | | 275 | | | — | | | 275 | |
| Asset-backed securities | — | | | 1,267 | | | — | | | 1,267 | |
| Residential mortgage-backed securities | — | | | 1,019 | | | — | | | 1,019 | |
| Commercial mortgage-backed securities | — | | | 874 | | | — | | | 874 | |
| Equity securities | 4 | | | 2 | | | — | | | 6 | |
| Total investments | $ | 317 | | | $ | 15,211 | | | $ | — | | | $ | 15,528 | |
| Restricted deposits: | | | | | | | |
| Cash and cash equivalents | $ | 228 | | | $ | — | | | $ | — | | | $ | 228 | |
| Certificates of deposit | — | | | 4 | | | — | | | 4 | |
| Corporate securities | — | | | 31 | | | — | | | 31 | |
| Municipal securities | — | | | 607 | | | — | | | 607 | |
| U.S. Treasury securities and obligations of U.S. government corporations and agencies | 335 | | | — | | | — | | | 335 | |
| Total restricted deposits | $ | 563 | | | $ | 642 | | | $ | — | | | $ | 1,205 | |
| Total assets at fair value | $ | 15,867 | | | $ | 15,853 | | | $ | — | | | $ | 31,720 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The following table summarizes fair value measurements by level at December 31, 2021, for assets and liabilities measured at fair value on a recurring basis ($ in millions):
| | | | Level I | | Level II | | Level III | | Total | | Level I | | Level II | | Level III | | Total |
| Assets | Assets | | | | | | | | Assets | | | | | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 13,118 | | | $ | — | | | $ | — | | | $ | 13,118 | | Cash and cash equivalents | $ | 12,074 | | | $ | — | | | $ | — | | | $ | 12,074 | |
| Investments: | Investments: | | | | | | | | Investments: | | | | | | | |
| U.S. Treasury securities and obligations of U.S. government corporations and agencies | U.S. Treasury securities and obligations of U.S. government corporations and agencies | $ | 171 | | | $ | — | | | $ | — | | | $ | 171 | | U.S. Treasury securities and obligations of U.S. government corporations and agencies | $ | 366 | | | $ | 5 | | | $ | — | | | $ | 371 | |
| Corporate securities | Corporate securities | — | | | 8,170 | | | — | | | 8,170 | | Corporate securities | — | | | 9,328 | | | — | | | 9,328 | |
| Municipal securities | Municipal securities | — | | | 2,999 | | | — | | | 2,999 | | Municipal securities | — | | | 3,165 | | | — | | | 3,165 | |
| Short-term time deposits | Short-term time deposits | — | | | 109 | | | — | | | 109 | | Short-term time deposits | — | | | 204 | | | — | | | 204 | |
| Asset backed securities | Asset backed securities | — | | | 1,308 | | | — | | | 1,308 | | Asset backed securities | — | | | 1,326 | | | — | | | 1,326 | |
| Residential mortgage backed securities | — | | | 853 | | | — | | | 853 | | |
| Commercial mortgage backed securities | — | | | 873 | | | — | | | 873 | | |
| Residential mortgage-backed securities | | Residential mortgage-backed securities | — | | | 1,046 | | | — | | | 1,046 | |
| Commercial mortgage-backed securities | | Commercial mortgage-backed securities | — | | | 862 | | | — | | | 862 | |
| Equity securities | Equity securities | 324 | | | 2 | | | — | | | 326 | | Equity securities | 3 | | | 2 | | | — | | | 5 | |
| Total investments | Total investments | $ | 495 | | | $ | 14,314 | | | $ | — | | | $ | 14,809 | | Total investments | $ | 369 | | | $ | 15,938 | | | $ | — | | | $ | 16,307 | |
| Restricted deposits: | Restricted deposits: | | | | | | | | Restricted deposits: | | | | | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 96 | | | $ | — | | | $ | — | | | $ | 96 | | Cash and cash equivalents | $ | 256 | | | $ | — | | | $ | — | | | $ | 256 | |
| U.S. Treasury securities and obligations of U.S. government corporations and agencies | | U.S. Treasury securities and obligations of U.S. government corporations and agencies | 308 | | | — | | | — | | | 308 | |
| Corporate securities | | Corporate securities | — | | | 33 | | | — | | | 33 | |
| Certificates of deposit | Certificates of deposit | — | | | 4 | | | — | | | 4 | | Certificates of deposit | — | | | 4 | | | — | | | 4 | |
| Corporate securities | — | | | 30 | | | — | | | 30 | | |
| Municipal securities | Municipal securities | — | | | 469 | | | — | | | 469 | | Municipal securities | — | | | 616 | | | — | | | 616 | |
| U.S. Treasury securities and obligations of U.S. government corporations and agencies | 469 | | | — | | | — | | | 469 | | |
| Total restricted deposits | Total restricted deposits | $ | 565 | | | $ | 503 | | | $ | — | | | $ | 1,068 | | Total restricted deposits | $ | 564 | | | $ | 653 | | | $ | — | | | $ | 1,217 | |
| Other long-term assets: | | | | | | | | |
| Interest rate swap agreements | $ | — | | | $ | 15 | | | $ | — | | | $ | 15 | | |
| | | Total assets at fair value | Total assets at fair value | $ | 14,178 | | | $ | 14,832 | | | $ | — | | | $ | 29,010 | | Total assets at fair value | $ | 13,007 | | | $ | 16,591 | | | $ | — | | | $ | 29,598 | |
|
The Company utilizes matrix-pricing services to estimate fair value for securities which are not actively traded on the measurement date. The Company designates these securities as Level II fair value measurements. In addition, the aggregate carrying amount of the Company's private equity investments and life insurance contracts, which approximates fair value, was $716$988 million and $773$698 million as of September 30, 20222023 and December 31, 2021,2022, respectively.
5. Property, Software and Equipment
Property, software and equipment consist of the following ($ in millions):
| | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
| Computer software | $ | 2,211 | | | $ | 1,825 | | |
| Building | 641 | | | 1,116 | | |
| Furniture and office equipment | 407 | | | 753 | | |
| Leasehold improvements | 454 | | | 732 | | |
| Computer hardware | 648 | | | 617 | | |
| Land | 178 | | | 248 | | |
| Property, software and equipment, at cost | 4,539 | | | 5,291 | | |
| Less: accumulated depreciation | (2,060) | | | (1,900) | | |
| Property, software and equipment, net | $ | 2,479 | | | $ | 3,391 | | |
During the second quarter of 2022, in connection with the adoption of a more modern, flexible work environment, the Company undertook a real estate optimization initiative to evaluate future real estate needs5. Goodwill and downsize its real estate footprint for owned and leased properties. As a result of this evaluation, during the second quarter of 2022, the Company substantially changed the use or abandoned various properties and assessed for impairment. The Company engaged a third-party real estate specialist to determine the fair value of its owned properties. The valuation primarily considered comparable properties in each market as well as future cash flows.Intangible Assets
As a resultdiscussed in Note 1. Organization and Operations, in the first quarter of 2023, the Company updated its segment structure. Prior year information has been adjusted to reflect the change in segment reporting.
The following table summarizes the changes in goodwill by operating segment ($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Medicaid | | Medicare | | Commercial | | Other | | Consolidated Total |
| Balance, December 31, 2021 | $ | 10,194 | | | $ | 1,592 | | | $ | 5,424 | | | $ | 2,561 | | | $ | 19,771 | |
| Acquisition and purchase accounting adjustments | — | | | — | | | — | | | 1,077 | | | 1,077 | |
| Divestitures | — | | | — | | | — | | | (1,533) | | | (1,533) | |
| Reallocation | 4 | | | — | | | — | | | (4) | | | — | |
| Impairments | — | | | — | | | — | | | (370) | | | (370) | |
| Translation impact | — | | | — | | | — | | | (133) | | | (133) | |
| Balance, December 31, 2022 | $ | 10,198 | | | $ | 1,592 | | | $ | 5,424 | | | $ | 1,598 | | | $ | 18,812 | |
| Divestitures | — | | | — | | | — | | | (933) | | | (933) | |
| | | | | | | | | |
| Impairments | — | | | — | | | — | | | (348) | | | (348) | |
| Translation impact | — | | | — | | | — | | | 27 | | | 27 | |
| Balance, September 30, 2023 | $ | 10,198 | | | $ | 1,592 | | | $ | 5,424 | | | $ | 344 | | | $ | 17,558 | |
The decrease in the Other segment goodwill in 2023 was primarily driven by the pending divestiture of Circle Health, which resulted in held for sale accounting and an impairment of $251 million as discussed in Note 2. Acquisitions and Divestitures, and an impairment of the optimization, the Company has recognized impairment charges related to owned real estateCompany's Operose Health business based on market indicators of $57 million and $763 million for the three and nine months ended September 30, 2022, respectively. The Company also recognized impairment on fixed assets related to leased real estate of $14 million and $237 million for the three and nine months ended September 30, 2022, respectively. These impairments are primarily related to the Managed Care segment. The remainder of the $1,574 million charge relates to right-of-use (ROU) asset impairments, which is included within Other Long-term assets on the balance sheet, refer toNote 9. Leases.fair value.
6. Medical Claims Liability
As discussed in Note 1. Organization and Operations, in the first quarter of 2023, the Company updated its segment structure. Prior year information has been adjusted to reflect the change in segment reporting.
The following table summarizes the change in medical claims liability for the nine months ended September 30, 2023 ($ in millions):
| | | Nine Months Ended September 30, | | Medicaid | | Medicare | | Commercial | | Other | | Consolidated Total |
| 2022 | | 2021 | |
| | Balance, January 1 | | $ | 14,243 | | | $ | 12,438 | | |
| Balance, January 1, 2023 | | Balance, January 1, 2023 | $ | 11,253 | | | $ | 3,431 | | | $ | 1,921 | | | $ | 140 | | | $ | 16,745 | |
| Less: Reinsurance recoverable | Less: Reinsurance recoverable | | 23 | | | 23 | | Less: Reinsurance recoverable | 7 | | | — | | | 19 | | | — | | | 26 | |
| Balance, January 1, net | | 14,220 | | | 12,415 | | |
| Acquisitions and divestitures | | 249 | | | — | | |
| Balance, January 1, 2023, net | | Balance, January 1, 2023, net | 11,246 | | | 3,431 | | | 1,902 | | | 140 | | | 16,719 | |
| | Incurred related to: | Incurred related to: | | Incurred related to: | |
| Current year | Current year | | 84,457 | | | 74,736 | | Current year | 60,379 | | | 14,680 | | | 13,994 | | | 1,095 | | | 90,148 | |
| Prior years | Prior years | | (1,196) | | | (1,526) | | Prior years | (1,303) | | | (326) | | | (256) | | | (3) | | | (1,888) | |
| Total incurred | Total incurred | | 83,261 | | | 73,210 | | Total incurred | 59,076 | | | 14,354 | | | 13,738 | | | 1,092 | | | 88,260 | |
| Paid related to: | Paid related to: | | | | | Paid related to: | | | | | | | | | |
| Current year | Current year | | 70,305 | | | 62,205 | | Current year | 50,774 | | | 12,069 | | | 11,575 | | | 984 | | | 75,402 | |
| Prior years | Prior years | | 10,968 | | | 9,344 | | Prior years | 8,517 | | | 2,452 | | | 1,376 | | | 136 | | | 12,481 | |
| Total paid | Total paid | | 81,273 | | | 71,549 | | Total paid | 59,291 | | | 14,521 | | | 12,951 | | | 1,120 | | | 87,883 | |
| Balance, September 30, net | | 16,457 | | | 14,076 | | |
| Balance, September 30, 2023, net | | Balance, September 30, 2023, net | 11,031 | | | 3,264 | | | 2,689 | | | 112 | | | 17,096 | |
| Plus: Reinsurance recoverable | Plus: Reinsurance recoverable | | 8 | | | 23 | | Plus: Reinsurance recoverable | 4 | | | — | | | 41 | | | — | | | 45 | |
| Balance, September 30 | | $ | 16,465 | | | $ | 14,099 | | |
| Balance, September 30, 2023 | | Balance, September 30, 2023 | $ | 11,035 | | | $ | 3,264 | | | $ | 2,730 | | | $ | 112 | | | $ | 17,141 | |
The following table summarizes the change in medical claims liability for the nine months ended September 30, 2022 ($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Medicaid | | Medicare | | Commercial | | Other | | Consolidated Total |
| Balance, January 1, 2022 | $ | 9,845 | | | $ | 2,286 | | | $ | 2,014 | | | $ | 98 | | | $ | 14,243 | |
| Less: Reinsurance recoverable | 23 | | | — | | | — | | | — | | | 23 | |
| Balance, January 1, 2022, net | 9,822 | | | 2,286 | | | 2,014 | | | 98 | | | 14,220 | |
| Acquisitions and divestitures | — | | | — | | | — | | | 249 | | | 249 | |
| Incurred related to: | | | | | | | | | |
| Current year | 57,074 | | | 14,624 | | | 10,609 | | | 2,150 | | | 84,457 | |
| Prior years | (966) | | | (22) | | | (193) | | | (15) | | | (1,196) | |
| Total incurred | 56,108 | | | 14,602 | | | 10,416 | | | 2,135 | | | 83,261 | |
| Paid related to: | | | | | | | | | |
| Current year | 47,481 | | | 11,603 | | | 9,046 | | | 2,175 | | | 70,305 | |
| Prior years | 7,343 | | | 1,963 | | | 1,580 | | | 82 | | | 10,968 | |
| Total paid | 54,824 | | | 13,566 | | | 10,626 | | | 2,257 | | | 81,273 | |
| Balance, September 30, 2022, net | 11,106 | | | 3,322 | | | 1,804 | | | 225 | | | 16,457 | |
| Plus: Reinsurance recoverable | 8 | | | — | | | — | | | — | | | 8 | |
| Balance, September 30, 2022 | $ | 11,114 | | | $ | 3,322 | | | $ | 1,804 | | | $ | 225 | | | $ | 16,465 | |
Reinsurance recoverables related to medical claims are included in premium and trade receivables. Changes in estimates of incurred claims for prior years are primarily attributable to reserving under moderately adverse conditions. The impact from COVID-19 on healthcare utilization and medical claims submission patterns continues to provide increased estimation uncertainty on the incurred but not reported liability. Additionally, as a result of minimum health benefits ratio (HBR) and other return of premium programs,development within "Incurred related to: Prior years," the Company recorded $121$341 million and $438$121 million as a reduction to premium revenue in the nine months ended September 30, 2023 and 2022, respectively, for minimum health benefits ratio (HBR) and 2021, respectively.other return of premium programs.
Incurred but not reported (IBNR) plus expected development on reported claims as of September 30, 20222023 was $11,130$11,661 million. Total IBNR plus expected development on reported claims represents estimates for claims incurred but not reported, development on reported claims, and estimates for the costs necessary to process unpaid claims at the end of each period. The Company estimates its liability using actuarial methods that are commonly used by health insurance actuaries and meet Actuarial Standards of Practice. These actuarial methods consider factors such as historical data for payment patterns, cost trends, product mix, seasonality, utilization of healthcare services, and other relevant factors.
7. Affordable Care Act
The Affordable Care Act established risk spreading premium stabilization programs as well as a minimum annual medical loss ratio (MLR) and cost sharing reductions.
The Company's net receivables (payables) for each of the programs are as follows ($ in millions):
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
| Risk adjustment receivable | Risk adjustment receivable | $ | 1,068 | | | $ | 522 | | Risk adjustment receivable | $ | 1,130 | | | $ | 838 | |
| Risk adjustment payable | Risk adjustment payable | (652) | | | (536) | | Risk adjustment payable | (2,312) | | | (780) | |
| Minimum medical loss ratio | Minimum medical loss ratio | (69) | | | (196) | | Minimum medical loss ratio | (90) | | | (103) | |
| Cost sharing reduction receivable | 10 | | | 69 | | |
| | Cost sharing reduction payable | Cost sharing reduction payable | (81) | | | (42) | | Cost sharing reduction payable | (104) | | | (99) | |
In June 2022, CMS2023, the Centers for Medicare and Medicaid Services (CMS) announced the final risk adjustment transfers for the 20212022 benefit year. As a result of and subsequent to the announcement, the Company increased its risk adjustment net receivables by $403$244 million from December 31, 2021.2022. After consideration of minimum MLR and other related impacts, the net pre-tax benefit recognized was approximately $368$198 million in the nine months ended September 30, 2022.2023.
8. Debt
Debt consists of the following ($ in millions):
| | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
| $2,500 million 4.25% Senior Notes due December 15, 2027 | $ | 2,403 | | | $ | 2,484 | |
| $2,300 million 2.45% Senior Notes due July 15, 2028 | 2,304 | | | 2,304 | |
| $3,500 million 4.625% Senior Notes due December 15, 2029 | 3,324 | | | 3,500 | |
| $2,000 million 3.375% Senior Notes due February 15, 2030 | 2,000 | | | 2,000 | |
| $2,200 million 3.00% Senior Notes due October 15, 2030 | 2,200 | | | 2,200 | |
| $2,200 million 2.50% Senior Notes due March 1, 2031 | 2,200 | | | 2,200 | |
| $1,300 million 2.625% Senior Notes due August 1, 2031 | 1,300 | | | 1,300 | |
| | | |
| Total senior notes | 15,731 | | | 15,988 | |
| Term loan facility | 2,196 | | | 2,195 | |
| Revolving credit agreement | 120 | | | 149 | |
| Construction loan payable | 181 | | | 184 | |
| Finance leases and other | 258 | | | 493 | |
| Debt issuance costs | (153) | | | (171) | |
| Total debt | 18,333 | | | 18,838 | |
| Less current portion | (249) | | | (267) | |
| Long-term debt | $ | 18,084 | | | $ | 18,571 | |
Of the Company's total debt, approximately 15% is variable rate debt tied to London Interbank Offered Rate (LIBOR). The debt agreements that may be impacted by the discontinuation of LIBOR include provisions that the Company believes are sufficient to transition from the existing LIBOR rates to the prevailing successor market rates as necessary.
Senior Notes
In connection with the Magellan Acquisition in January 2022, the Company redeemed Magellan’s existing outstanding 4.4% Senior Notes due 2024 and paid off the existing Credit Agreement using Magellan’s cash on hand. The Company recognized an immaterial net pre-tax gain on extinguishment including related fees and expenses and the write-off of the unamortized premium.
During the third quarter of 2022, the Company utilized a portion of the proceeds from the PANTHERx divestiture to repurchase $83 million of its par value Senior Notes due 2027 and $176 million of its par value Senior Notes due 2029 through the Company’s debt repurchase program. The Company recognized a $10 million gain on the redemptions of the notes.
Foreign Currency Swap
In order to manage the foreign exchange risk associated with an intercompany note receivable related to the Circle Health acquisition, the Company entered into a foreign currency swap agreement for a notional amount of $705 million, to purchase £509 million. The swap agreement was formally designated and qualified as a fair value hedge. All gains and losses due to changes in the fair value of the foreign currency swap completely offset changes in the remeasurement of the intercompany note receivable within investment and other income in the Consolidated Statement of Operations, resulting in no net impact to the Consolidated Statement of Operations.
On March 31, 2022, the foreign currency swap settled in connection with its expiration, and the Company received cash proceeds of $35 million. The Company does not hold or issue any derivative instruments for trading or speculative purposes.
Circle Health Debt Refinancing | | | | | | | | | | | |
| | September 30, 2023 | | December 31, 2022 |
| $2,500 million 4.25% Senior Notes due December 15, 2027 | $ | 2,395 | | | $ | 2,393 | |
| $2,300 million 2.45% Senior Notes due July 15, 2028 | 2,303 | | | 2,303 | |
| $3,500 million 4.625% Senior Notes due December 15, 2029 | 3,277 | | | 3,277 | |
| $2,000 million 3.375% Senior Notes due February 15, 2030 | 2,000 | | | 2,000 | |
| $2,200 million 3.00% Senior Notes due October 15, 2030 | 2,200 | | | 2,200 | |
| $2,200 million 2.50% Senior Notes due March 1, 2031 | 2,200 | | | 2,200 | |
| $1,300 million 2.625% Senior Notes due August 1, 2031 | 1,300 | | | 1,300 | |
| | | |
| Total senior notes | 15,675 | | | 15,673 | |
| Term Loan Facility | 2,142 | | | 2,183 | |
| Revolving Credit Agreement | 309 | | | 58 | |
| Finance leases and other | 3 | | | 253 | |
| Debt issuance costs | (128) | | | (147) | |
| Total debt | 18,001 | | | 18,020 | |
| Less: current portion | (113) | | | (82) | |
| Long-term debt | $ | 17,888 | | | $ | 17,938 | |
In May 2022,2023, the Company refinanced certain debt agreements for its Circle Health subsidiary withentered into a new £250 million credit facility maturing in May 2025. The Company recognized a $13 million pre-tax gain on the extinguishment of the existing debt. As of September 30, 2022, £180 million was drawn on the facility, which is included within Finance leases and other in the table above. The new facility is guaranteed by the Company and has similar borrowing rates and covenantsfirst amendment to the Company's RevolvingFourth Amended and Restated Credit Agreement.
Construction Loan
In October 2017, The amendment removed and replaced the Company executed a $200 million non-recourse construction loan to fund the expansion of the Company's corporate headquarters. Until final completion of the construction project, which occurred in July 2021, the loan bore interest rate benchmark based on one month LIBOR plus 2.70%, which reducedthe London Interbank Offered Rate (LIBOR) and related LIBOR-based mechanics applicable to LIBOR plus 2.00% at the time construction was completed. The agreement contains financial and non-financial covenants similar to those contained in the Company Credit Facility. The Company guaranteed completion of the construction project associated with the loan. As of September 30, 2022, the Company had $181 million inU.S. dollar borrowings outstanding under the loan, which is included in the current portion of long-term debt.
In April 2022, the Company extended the term of the loan forAmended and Restated Credit Agreement with an additional one year. The extension reduced interest rate benchmark based on the loan to the Secured Overnight Financing Rate (SOFR) plus 1.85%(including a customary credit spread adjustment) and matures in April 2023.
Debt Repurchase Program
In June 2022,related SOFR-based mechanics. Additionally, the Company's Board of Directors authorized a new $1,000 million debt repurchase program in preparation for future debt reductions as partamendment removed certain provisions which required the Company to make certain mandatory prepayments of the Company’s strategic value creation initiatives. During the quarter ended September 30, 2022, the Company repurchased $259 million of its par value senior notes, as described above, for $247 million.
As of September 30, 2022, there was $753 million available under the program. In October 2022, the Company repurchased an additional $58 million of its par value senior notes for $53 million.Term Loan Facility.
9. Leases
The following table sets forth the ROUright-of-use (ROU) assets and lease liabilities ($ in millions):
| | | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
| Assets | Assets | | | | Assets | | | |
| | ROU assets (recorded within other long-term assets) | ROU assets (recorded within other long-term assets) | $ | 2,456 | | | $ | 3,566 | | ROU assets (recorded within other long-term assets) | $ | 430 | | | $ | 2,554 | |
| | Liabilities | Liabilities | | Liabilities | |
| Short-term (recorded within accounts payable and accrued expenses) | Short-term (recorded within accounts payable and accrued expenses) | $ | 193 | | | $ | 204 | | Short-term (recorded within accounts payable and accrued expenses) | $ | 170 | | | $ | 180 | |
| Long-term (recorded within other long-term liabilities) | Long-term (recorded within other long-term liabilities) | 3,038 | | | 3,619 | | Long-term (recorded within other long-term liabilities) | 936 | | | 3,133 | |
| Total lease liabilities | Total lease liabilities | $ | 3,231 | | | $ | 3,823 | | Total lease liabilities | $ | 1,106 | | | $ | 3,313 | |
The decrease in ROU assets and lease liabilities in 2023 was primarily driven by divestiture related activity as discussed in Note 2. Acquisitions and Divestitures. Specifically, as of September 30, 2023, Circle Health was considered held for sale and accordingly the associated ROU assets and lease liabilities were reclassified to other current assets and accounts payable and accrued expenses, respectively, in the Consolidated Balance Sheet.
As part of the
Additionally, in conjunction with ongoing real estate optimization initiative as described in Note 5. Property, Software and Equipment, the Company vacated and abandoned various domestic leased properties. As a result, the Company assessed the ROU assets for impairment. The Company engaged a third-party real estate specialist to determine the recoverability of the leased properties. The valuation primarily considered comparable leased properties in each market and the assessment of potential future rental income that could be generated by the ROU assets.
As a result of the optimization,initiatives, the Company recognized $53$35 million and $574$37 million of ROU asset impairments infor the three and nine months ended September 30, 2022, respectively, primarily related to the Managed Care segment.2023, respectively. The remainder of the $1,574$85 million real estate optimization impairment charge for the nine months ended September 30, 2023 was recorded within Property, Softwarerelated to property, software and Equipment, refer to Note 5. Property, Software and Equipment.equipment.
As of September 30, 2022,2023, the weighted average remaining lease term for the Company was 20.120.3 years. The average remaining lease term of the Circle Health portfolio is 26.5 years. Excluding Circle Health, the Company's portfolio average remaining lease term is 8.3 years. The lease liabilities as of September 30, 20222023, reflect a weighted average discount rate of 5.6%.5.8%, or 3.2% excluding Circle Health.
Excluding Circle Health, the Company had $51 million remaining in lease payments for 2023 as of September 30, 2023. Lease payments over the next five years and thereafter are as follows ($ in millions):
| | | | | | | | |
| | | Lease Payments |
| 2024 | | $ | 201 | |
| 2025 | | 176 | |
| 2026 | | 151 | |
| 2027 | | 133 | |
| 2028 | | 113 | |
| Thereafter | | 441 | |
| Total lease payments | | 1,215 | |
| Less: imputed interest | | (160) | |
| Total lease liabilities | | $ | 1,055 | |
10. Stockholders' Equity
The Company's Board of Directors has authorized a stock repurchase program of the Company's common stock from time to time on the open market or through privately negotiated transactions. In June 2022, the Company's Board of Directors authorized increases under the program including $3,000 million in June 2022 and an additional $3,000 million to the Company’s existing stock repurchase program for its common stock, for a total $4,000$2,000 million in preparation for closing of the Magellan Rx and PANTHERx divestitures as well as planning for the future.
During the third quarter of 2022,December 2022. With these increases, the Company entered into an accelerated shareis authorized to repurchase (ASR) agreement with Bankup to $6,000 million, inclusive of America to purchase $1,000 million of the Company's common stock in aggregate under the Company’s stock repurchase program. In July 2022, 8.6 million shares were delivered to the Company, representing 80% of the notional amount under the ASR. In October 2022, an additional 3.0 million shares were delivered upon settlement of the ASR based upon the volume-weighted average price (VWAP) over the term of the agreement, less a discount. In total, 11.6 million shares were purchased through the $1,000 million ASR.
The Company also repurchased an additional 2.9 million shares for $240 million during the third quarter. The remaining common stock repurchases relate to the purchase of shares to satisfy tax withholding requirements in connection with employee equity awards.
During the nine months ended September 30, 2022, the Company has repurchased a total of 15.7 million shares of Centene common stock for $1,384 million, exclusive of the $200 million unsettled portion under the ASR.past authorizations. As of September 30, 2022,2023, the Company had a remaining amount of $2,216$1,256 million available under the Company’s stock repurchase program.
In October 2022,2023, the Company repurchased an additional 828397 thousand shares for $66$27 million.
The following represents the Company's share repurchase activity ($ in millions, shares in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 (2) | | 2023 | | 2022 (2) | | |
| | Shares | Cost | | Shares | Cost | | Shares | Cost | | Shares | Cost | | | |
| Share buybacks | 11,609 | | $ | 773 | | | 11,486 | | $ | 1,040 | | | 22,489 | | $ | 1,550 | | | 15,674 | | $ | 1,384 | | | | |
| Income tax withholding | 11 | | 1 | | | 34 | | 3 | | | 778 | | 52 | | | 941 | | 79 | | | | |
Total share repurchases (1) | 11,620 | | $ | 774 | | | 11,520 | | $ | 1,043 | | | 23,267 | | $ | 1,602 | | | 16,615 | | $ | 1,463 | | | | |
| | | | | | | | | | | | | | | |
| (1) | Excludes share repurchase excise tax of $10 million accrued as of September 30, 2023. | | | |
| (2) | Includes 8.6 million shares delivered as part of an accelerated share repurchase (ASR) agreement, representing 80% of the $1,000 million notional amount. Remaining shares were delivered in the fourth quarter of 2022 upon the settlement of the ASR. | | | |
Shares repurchased for income tax withholding are shares withheld in connection with employee stock plans to meet applicable tax withholding requirements. These shares are typically included in the Company's treasury stock.
11. Earnings Per Share
The following table sets forth the calculation of basic and diluted net earnings per common share ($ in millions, except per share data in dollars and shares in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 |
| | Earnings attributable to Centene Corporation | Earnings attributable to Centene Corporation | $ | 738 | | | $ | 584 | | | $ | 1,415 | | | $ | 748 | | Earnings attributable to Centene Corporation | $ | 469 | | | $ | 738 | | | $ | 2,657 | | | $ | 1,415 | |
| | Shares used in computing per share amounts: | Shares used in computing per share amounts: | | | Shares used in computing per share amounts: | | |
| Weighted average number of common shares outstanding | Weighted average number of common shares outstanding | 573,961 | | | 583,244 | | | 580,277 | | | 582,636 | | Weighted average number of common shares outstanding | 539,535 | | | 573,961 | | | 546,374 | | | 580,277 | |
Common stock equivalents (as determined by applying the treasury stock method) | Common stock equivalents (as determined by applying the treasury stock method) | 6,646 | | | 7,458 | | | 6,807 | | | 7,518 | | Common stock equivalents (as determined by applying the treasury stock method) | 1,735 | | | 6,646 | | | 2,038 | | | 6,807 | |
| Weighted average number of common shares and potential dilutive common shares outstanding | Weighted average number of common shares and potential dilutive common shares outstanding | 580,607 | | | 590,702 | | | 587,084 | | | 590,154 | | Weighted average number of common shares and potential dilutive common shares outstanding | 541,270 | | | 580,607 | | | 548,412 | | | 587,084 | |
| | | | | | | | | | | | | | |
| Net earnings per common share attributable to Centene Corporation: | Net earnings per common share attributable to Centene Corporation: | | Net earnings per common share attributable to Centene Corporation: | |
| Basic earnings per common share | Basic earnings per common share | $ | 1.29 | | | $ | 1.00 | | | $ | 2.44 | | | $ | 1.28 | | Basic earnings per common share | $ | 0.87 | | | $ | 1.29 | | | $ | 4.86 | | | $ | 2.44 | |
| Diluted earnings per common share | Diluted earnings per common share | $ | 1.27 | | | $ | 0.99 | | | $ | 2.41 | | | $ | 1.27 | | Diluted earnings per common share | $ | 0.87 | | | $ | 1.27 | | | $ | 4.85 | | | $ | 2.41 | |
| | (1) | | (1) | The reduction in common stock equivalents is primarily driven by the distribution of long-term stock awards to the estate of the Company's former CEO during the first quarter of 2023, which were fully dilutive prior to their distribution. |
The calculation of diluted earnings per common share for the three months ended September 30, 2023 and 2022 and 2021 excludes 1521,313 thousand shares and 111152 thousand shares, respectively, related to anti-dilutive stock options, restricted stock, and restricted stock units.
The calculation of diluted earnings per common share for the nine months ended September 30, 2023 and 2022 and 2021 excludes the impact of 1931,383 thousand shares and 57193 thousand shares, respectively, related to anti-dilutive stock options, restricted stock, and restricted stock units.
12. Segment Information
Centene operatesIn the first quarter of 2023, and in two segments: Managed Careconjunction with the Company's updated strategic plan, executive leadership realignment, and Specialty Services. corresponding 2023 divestitures, the Company revised the way it manages the business, evaluates performance, and allocates resources, resulting in an updated segment structure comprised of (1) a Medicaid segment, (2) a Medicare segment, (3) a Commercial segment and (4) an Other segment. Prior year information has been adjusted to reflect the change in segment reporting.
The Managed CareMedicaid, Medicare, and Commercial segments represent the government-sponsored or subsidized programs under which the Company offers managed healthcare services. The Other segment consists of Centene'sincludes the Company's pharmacy operations, vision and dental services, clinical healthcare, behavioral health, plans, including all of the functions needed to operate them. The Specialty Services segment consists of Centene's specialtyinternational operations, and corporate management companies, offering auxiliary healthcare services and products. among others.
Factors used in determining the reportable business segments include the nature of operating activities, the existence of separate senior management teams, and the type of information presented to the Company's chief operating decision-maker to evaluate all results of operations. The Company does not report total assets by segment since this is not a metric used to allocate resources or evaluate segment performance.
Segment information for the three months ended September 30, 2023, is as follows ($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Medicaid | | Medicare | | Commercial | | Other/Eliminations | | | | Consolidated Total |
| Premium | $ | 21,619 | | | $ | 5,430 | | | $ | 6,451 | | | $ | 366 | | | | | $ | 33,866 | |
| Service | — | | | — | | | 2 | | | 1,099 | | | | | 1,101 | |
| Premium and service revenues | 21,619 | | | 5,430 | | | 6,453 | | | 1,465 | | | | | 34,967 | |
| Premium tax | 3,075 | | | — | | | — | | | — | | | | | 3,075 | |
| Total external revenues | 24,694 | | | 5,430 | | | 6,453 | | | 1,465 | | | | | 38,042 | |
| Internal revenues | — | | | — | | | — | | | 3,978 | | | | | 3,978 | |
| Eliminations | — | | | — | | | — | | | (3,978) | | | | | (3,978) | |
| Total revenues | $ | 24,694 | | | $ | 5,430 | | | $ | 6,453 | | | $ | 1,465 | | | | | $ | 38,042 | |
| | | | | | | | | | | | |
| Medical costs | $ | 19,607 | | | $ | 4,462 | | | $ | 5,089 | | | $ | 321 | | | | | $ | 29,479 | |
| | | | | | | | | | | | |
| Cost of services | $ | — | | | $ | — | | | $ | — | | | $ | 856 | | | | | $ | 856 | |
| | | | | | | | | | | | |
Gross margin (1) | $ | 2,012 | | | $ | 968 | | | $ | 1,364 | | | $ | 288 | | | | | $ | 4,632 | |
| | | | | | | | | | | | |
| (1) | Gross margin represents premium and service revenues less medical costs and cost of services. |
Segment information for the three months ended September 30, 2022, is as follows ($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Managed
Care | | Specialty
Services | | Eliminations | | Consolidated
Total |
| Total revenues from external customers | $ | 33,722 | | | $ | 2,143 | | | $ | — | | | $ | 35,865 | |
| Total revenues from internal customers | 2 | | | 3,264 | | | (3,266) | | | — | |
| Total revenues | $ | 33,724 | | | $ | 5,407 | | | $ | (3,266) | | | $ | 35,865 | |
| Earnings from operations | $ | 527 | | | $ | (51) | | | $ | — | | | $ | 476 | |
| | | | | | | |
Segment information for the three months ended September 30, 2021, is as follows ($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Managed
Care | | Specialty
Services | | Eliminations | | Consolidated
Total |
| Total revenues from external customers | $ | 30,888 | | | $ | 1,518 | | | $ | — | | | $ | 32,406 | |
| Total revenues from internal customers | 1 | | | 3,209 | | | (3,210) | | | — | |
| Total revenues | $ | 30,889 | | | $ | 4,727 | | | $ | (3,210) | | | $ | 32,406 | |
| Earnings from operations | $ | 699 | | | $ | (154) | | | $ | — | | | $ | 545 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Medicaid | | Medicare | | Commercial | | Other/Eliminations | | | | Consolidated Total |
| Premium | $ | 21,154 | | | $ | 5,639 | | | $ | 4,291 | | | $ | 764 | | | | | $ | 31,848 | |
| Service | — | | | — | | | 1 | | | 1,877 | | | | | 1,878 | |
| Premium and service revenues | 21,154 | | | 5,639 | | | 4,292 | | | 2,641 | | | | | 33,726 | |
| Premium tax | 2,139 | | | — | | | — | | | — | | | | | 2,139 | |
| Total external revenues | 23,293 | | | 5,639 | | | 4,292 | | | 2,641 | | | | | 35,865 | |
| Internal revenues | — | | | — | | | — | | | 6,420 | | | | | 6,420 | |
| Eliminations | — | | | — | | | — | | | (6,420) | | | | | (6,420) | |
| Total revenues | $ | 23,293 | | | $ | 5,639 | | | $ | 4,292 | | | $ | 2,641 | | | | | $ | 35,865 | |
| | | | | | | | | | | | |
| Medical costs | $ | 19,075 | | | $ | 4,730 | | | $ | 3,613 | | | $ | 693 | | | | | $ | 28,111 | |
| | | | | | | | | | | | |
| Cost of services | $ | — | | | $ | — | | | $ | — | | | $ | 1,571 | | | | | $ | 1,571 | |
| | | | | | | | | | | | |
Gross margin (1) | $ | 2,079 | | | $ | 909 | | | $ | 679 | | | $ | 377 | | | | | $ | 4,044 | |
| | | | | | | | | | | | |
| (1) | Gross margin represents premium and service revenues less medical costs and cost of services. |
Segment information for the nine months ended September 30, 2023, is as follows ($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Medicaid | | Medicare | | Commercial | | Other/Eliminations | | | | Consolidated Total |
| Premium | $ | 65,741 | | | $ | 16,971 | | | $ | 17,437 | | | $ | 1,255 | | | | | $ | 101,404 | |
| Service | — | | | — | | | 2 | | | 3,351 | | | | | 3,353 | |
| Premium and service revenues | 65,741 | | | 16,971 | | | 17,439 | | | 4,606 | | | | | 104,757 | |
| Premium tax | 9,782 | | | — | | | — | | | — | | | | | 9,782 | |
| Total external revenues | 75,523 | | | 16,971 | | | 17,439 | | | 4,606 | | | | | 114,539 | |
| Internal revenues | — | | | — | | | — | | | 11,634 | | | | | 11,634 | |
| Eliminations | — | | | — | | | — | | | (11,634) | | | | | (11,634) | |
| Total revenues | $ | 75,523 | | | $ | 16,971 | | | $ | 17,439 | | | $ | 4,606 | | | | | $ | 114,539 | |
| | | | | | | | | | | | |
| Medical costs | $ | 59,076 | | | $ | 14,354 | | | $ | 13,738 | | | $ | 1,092 | | | | | $ | 88,260 | |
| | | | | | | | | | | | |
| Cost of services | $ | 2 | | | $ | — | | | $ | — | | | $ | 2,601 | | | | | $ | 2,603 | |
| | | | | | | | | | | | |
Gross margin (1) | $ | 6,663 | | | $ | 2,617 | | | $ | 3,701 | | | $ | 913 | | | | | $ | 13,894 | |
| | | | | | | | | | | | |
| (1) | Gross margin represents premium and service revenues less medical costs and cost of services. |
Segment information for the nine months ended September 30, 2022,
is as follows ($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Managed Care | | Specialty
Services | | Eliminations | | Consolidated
Total |
| Total revenues from external customers | $ | 101,428 | | | $ | 7,558 | | | $ | — | | | $ | 108,986 | |
| Total revenues from internal customers | 6 | | | 9,939 | | | (9,945) | | | — | |
| Total revenues | $ | 101,434 | | | $ | 17,497 | | | $ | (9,945) | | | $ | 108,986 | |
| Earnings from operations | $ | 1,634 | | | $ | (34) | | | $ | — | | | $ | 1,600 | |
| | | | | | | |
Segment information for the nine months ended September 30, 2021, follows ($ in millions): | | | | | | | | | | | | | | | | | | | | | | | |
| | Managed Care | | Specialty
Services | | Eliminations | | Consolidated
Total |
| Total revenues from external customers | $ | 89,078 | | | $ | 4,336 | | | $ | — | | | $ | 93,414 | |
| Total revenues from internal customers | 4 | | | 9,217 | | | (9,221) | | | — | |
| Total revenues | $ | 89,082 | | | $ | 13,553 | | | $ | (9,221) | | | $ | 93,414 | |
| Earnings from operations | $ | 1,240 | | | $ | (59) | | | $ | — | | | $ | 1,181 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Medicaid | | Medicare | | Commercial | | Other/Eliminations | | | | Consolidated Total |
| Premium | $ | 62,763 | | | $ | 17,035 | | | $ | 12,977 | | | $ | 2,472 | | | | | $ | 95,247 | |
| Service | (1) | | | — | | | 2 | | | 6,678 | | | | | 6,679 | |
| Premium and service revenues | 62,762 | | | 17,035 | | | 12,979 | | | 9,150 | | | | | 101,926 | |
| Premium tax | 7,060 | | | — | | | — | | | — | | | | | 7,060 | |
| Total external revenues | 69,822 | | | 17,035 | | | 12,979 | | | 9,150 | | | | | 108,986 | |
| Internal revenues | — | | | — | | | — | | | 18,856 | | | | | 18,856 | |
| Eliminations | — | | | — | | | — | | | (18,856) | | | | | (18,856) | |
| Total revenues | $ | 69,822 | | | $ | 17,035 | | | $ | 12,979 | | | $ | 9,150 | | | | | $ | 108,986 | |
| | | | | | | | | | | | |
| Medical costs | $ | 56,108 | | | $ | 14,602 | | | $ | 10,416 | | | $ | 2,135 | | | | | $ | 83,261 | |
| | | | | | | | | | | | |
| Cost of services | $ | — | | | $ | — | | | $ | — | | | $ | 5,658 | | | | | $ | 5,658 | |
| | | | | | | | | | | | |
Gross margin (1) | $ | 6,654 | | | $ | 2,433 | | | $ | 2,563 | | | $ | 1,357 | | | | | $ | 13,007 | |
| | | | | | | | | | | | |
| (1) | Gross margin represents premium and service revenues less medical costs and cost of services. |
13. Contingencies
Overview
The Company is routinely subjected to legal and regulatory proceedings in the normal course of business. These matters can include, without limitation:
•periodic compliance and other reviews and investigations by various federal and state regulatory agencies with respect to requirements applicable to the Company's business, including, without limitation, those related to payment of out-of-network claims, submissions to CMS forrelated to risk adjustment payments, or the False Claims Act, the calculation of minimum MLR and rebates related thereto, submissions to state agencies related to payments or state false claims acts, pre-authorization penalties, timely review of grievances and appeals, timely and accurate payment of claims, cybersecurity issues, including those related to the Company's or the Company's third party vendors' information systems, and the Health Insurance Portability and Accountability Act of 1996 and other federal and state fraud, waste and abuse laws;
•litigation arising out of general business activities, such as tax matters, disputes related to healthcare benefits coverage or reimbursement, putative securities class actions, and medical malpractice, privacy, real estate, intellectual property and employment-related claims; and
•disputes regarding reinsurance arrangements, claims arising out of the acquisition or divestiture of various assets, class actions, and claims relating to the performance of contractual and non-contractual obligations to providers, members, employer groups and others, including, but not limited to, the alleged failure to properly pay claims and challenges to the manner in which the Company processes claims, claims related to network adequacy and claims alleging that the Company has engaged in unfair business practices.
Among other things, these matters may result in awards of damages, fines or penalties, which could be substantial, and/or could require changes to the Company's business. The Company intends to vigorously defend itself against legal and regulatory proceedings to which it is currently a party; however, these proceedings are subject to many uncertainties. In some of the cases pending against the Company, substantial non-economic or punitive damages are being sought.
The Company records reserves and accrues costs for certain legal proceedings and regulatory matters to the extent that it determines an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. While such reserves and accrued costs reflect the Company's best estimate of the probable loss for such matters, the recorded amounts may differ materially from the actual amount of any such losses. In some cases, no estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made because of the inherently unpredictable nature of legal and regulatory proceedings, which may be exacerbated by various factors, including but not limited to, they may involve indeterminate claims for monetary damages or may involve fines, penalties or punitive damages; present novel legal theories or legal uncertainties; involve disputed facts; represent a shift in regulatory policy; involve a large number of parties, claimants or regulatory bodies; are in the early stages of the proceedings; involve a number of separate proceedings and/or a wide range of potential outcomes; or result in a change of business practices.
As of the date of this report, amounts accrued for legal proceedings and regulatory matters were not material, except for the reserve estimate as described below with respect to claims or potential claims involving services provided by Envolve Pharmacy Solutions, Inc. (Envolve), as the Company's pharmacy benefits managermanagement (PBM) subsidiary. It is possible that in a particular quarter or annual period the Company's financial condition, results of operations, cash flow and/or liquidity could be materially adversely affected by an ultimate unfavorable resolution of or development in legal and/or regulatory proceedings, including as described below. Except for the proceedings discusseddiscussion below, the Company believes that the ultimate outcome of any of the regulatory and legal proceedings that are currently pending against it should not have a material adverse effect on financial condition, results of operations, cash flow, or liquidity.
California
On October 20, 2015, the Company's California subsidiary, Health Net of California, Inc. (Health Net California), was named as a defendant in a California taxpayer action filed in Los Angeles County Superior Court, captioned as Michael D. Myers v. State Board of Equalization, Dave Jones, Insurance Commissioner of the State of California, Betty T. Yee, Controller of the State of California, et al., Los Angeles Superior Court Case No. BS158655. This action is brought under a California statute that permits an individual taxpayer to sue a governmental agency when the taxpayer believes the agency has failed to enforce governing law. Plaintiff contends that Health Net California, a California licensed Health Care Service Plan (HCSP), is an "insurer" for purposes of taxation despite acknowledging it is not an "insurer" under regulatory law. Under California law, "insurers" must pay a gross premiums tax (GPT), calculated as 2.35% on gross premiums. As a licensed HCSP, Health Net California has paid the California Corporate Franchise Tax (CFT), the tax generally paid by California businesses. Plaintiff contends that Health Net California must pay the GPT rather than the CFT. Plaintiff seeks a writ of mandate directing the California taxing agencies to collect the GPT, and seeks an order requiring Health Net California to pay GPT, interest and penalties for a period dating to eight years prior to the October 2015 filing of the complaint. This lawsuit is being coordinated with similar lawsuits filed against other entities (collectively, Related Actions). In March 2018, the Court overruled the Company's demurrer seeking to dismiss the complaint and denied the Company's motion to strike allegations seeking retroactive relief. In August 2018, the trial court stayed all the Related Actions pending determination of a writ of mandate by the California Court of Appeals in two of the Related Actions. In March 2019, the California Court of Appeals denied the writ of mandate. The defendants in those Related Actions sought review by the California Supreme Court, which declined to review the matter. Upon the return of the matter to the Los Angeles County Superior Court, motions for summary judgment were scheduled. Health Net California's motion for summary judgment was heard by the Court in March 2020. In March 2020, the Court granted Health Net California's motion for summary judgment. In September 2020, the plaintiff appealed the Court's decision. The Company intends to continue its vigorous defense against these claims; however, this matter is subject to many uncertainties, and an adverse outcome in this matter could potentially have a materially adverse impact on the Company's financial position, results of operations and cash flows.Accellion
Beginning in April 2021, several lawsuits have been filed against the Company and its subsidiaries, alleging that the defendants failed to prevent Health Net members' personal and health data from being exposed in connection with a data breach involving Accellion's File Transfer Appliance. The Company denies any wrongdoing, and is seeking indemnification from Accellion for these claims. In Decemberat a mediation in September 2021, the Company reached a settlement with plaintiffs in three of the pending class actions filed a motion for preliminary approval of a settlement with the Company and its subsidiaries, which, if approved by the court, should resolve most or all of the pending litigation.litigation related to this matter. In addition, claims related to these lawsuits are anticipated to be covered in part by the Company's insurance carrier. As a result, while these matters are subject to many uncertainties, the Company does not believe that an adverse outcome in these matters is likely to have a materially adverse impact on the Company’sCompany's financial position,condition, results of operations and cash flows.
Pharmacy Benefits Management Matters
On March 11, 2021, the State of Ohio filed a civil action against the Company and the Company's subsidiaries, Buckeye Health Plan Community Solutions, Inc. and Envolve, in Franklin County Court of Common Pleas, captioned as Ohio Department of Medicaid, et al. v. Centene Corporation, et al. The complaint alleged breaches of contract with the Ohio Department of Medicaid relating to the provision of PBM services and violations of Ohio law relating to such contracts, including among other things, by (i) seeking payment for services already reimbursed, (ii) not accurately disclosing to the Ohio Department of Medicaid the true cost of the PBM services and (iii) inflating dispensing fees for prescription drugs. The plaintiffs sought an undisclosed sum of money in damages, penalties, and possible termination of the contract with Buckeye Health Plan. The Company has reached a no-fault settlement with the Ohio Attorney General regarding this matter and the complaint was dismissed.
The Company has reached no-fault settlement agreements with the Attorney GeneralsAttorneys General in 13other states including Ohio, to resolve claims and/or allegations made by thethose states related to services previously provided by Envolve. As a result of the settlement, the Ohio Attorney General’s litigation against the Company was dismissed. Additionally, the Company is in discussions to bring final resolution to similar concerns in other affected states. Consistent with those discussions, the Company recorded a reserve estimate of $1,250 million in the second quarter of 2021 related to this issue, inclusive of the above settlements and rebates that the Company determined in the course of the matter are payable across products. Additional claims, reviews or investigations relating to the Company's historical PBM business across products may be brought by other states, the federal government, or shareholder litigants, and there is no guarantee the Company will have the ability to settle such claims with other states within the reserve estimate the Company has recorded and on other acceptable terms, or at all. This matter is subject to many uncertainties, and an adverse outcome in this matter could have an adverse impact on the Company's financial position,condition, results of operations and cash flows.
Item 2. Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this filing. The discussion contains forward-looking statements that involve known and unknown risks and uncertainties.
EXECUTIVE OVERVIEW
General
We are a leading healthcare enterprise, that is committed to helping people live healthier lives.lives, with an established expertise in lower-income and medically complex populations. We takeprovide access to high-quality healthcare, innovative programs, and a wide range of health solutions that help families and individuals get well, stay well, and be well. We believe that our local approach - with local brands and local teams -enables us to provide fully integrated, high-quality, and cost-effective servicesaccessible, quality, culturally sensitive healthcare coverage to government-sponsored and commercial healthcare programs, focusing on under-insured and uninsured individuals.our communities.
Results of operations depend on our ability to manage expenses associated with health benefits (including estimated costs incurred) and selling, general and administrative (SG&A) costs. We measure operating performance based upon two key ratios. The health benefits ratio (HBR) represents medical costs as a percentage of premium revenues, excluding premium tax revenues that are separately billed, and reflects the direct relationship between the premiums received and the medical services provided. The SG&A expense ratio represents SG&A costs as a percentage of premium and service revenues, excluding premium taxes separately billed.
Value Creation Plan
As introduced in June 2021,We established our Value Creation Plan is designed to drive margin expansion by leveraging our scale and generating sustainable, profitable growth. In addition to creating shareholder value, this plan is an ongoing effort to modernize and improve how we work in order to propel our organization to new levels of success and elevate the member and provider experiences. The three major pillars of the Value Creation Plan are: SG&A expense savings, gross margin expansion, and strategic capital management. The first pillar, SG&A expense savings, includes initiatives targeting improving productivity, driving efficiencies, and reducing costs throughout the organization, including real estate optimization. The second pillar, gross margin expansion, relates to initiatives including bid discipline, clinical initiatives, quality improvement, and pharmacy cost management. The third pillar, strategic capital management, focuses on value-creating capital deployment activities such as stock repurchases, portfolio optimization, and debt and investment management.
From an operational perspective, we continue to move forward with our Value Creation Plan, including the streamlining of certain operations, such as key call centers and utilization management, evaluating our real estate footprint, and seeking opportunities for platform consolidation. We are assessing our portfolio and are focused on making strategic decisions and investments to create additional value in the short term and to seek opportunities that position the organization for long-term strength, profitability, growth, and innovation.
In the second quarter of 2022, following a strategic review of our real estate portfolio and the adoption of a more modern, flexible work environment, we initiated a reduction of our real estate footprint. As a result, in 2022 we have incurred $1.6 billion related to the impairment of leased and owned real estate and related fixed assets. We incurred impairments of $763 million related to owned real estate, $574 million related to leased real estate, and $237 million related to associated fixed assets. We anticipate additional future charges of approximately $100 million related to real estate optimization. This represents an approximate 70% decrease in domestic leased space and is expected to result in annualized lease expense savings of approximately $200 million.
Additionally, as part of our ongoing portfolio review, during 2022 we completed the divestiture of PANTHERx Rare (PANTHERx) and entered into definitive agreements to sell Magellan Rx as well as our ownership stakes in our Spanish and Central European businesses. In preparation for these transactions as well as planning for the future, our Board of Directors authorized a $3.0 billion increase to our stock repurchase program and a new $1.0 billion debt repurchase program during the second quarter of 2022.
During the nine months ended September 30, 2022,2023, we have repurchased $1.4completed the following key milestones in our Value Creation Plan:
•Completed the divestitures of Magellan Specialty Health, Centurion (our prison healthcare business), HealthSmart (our third-party health plan administration business), and our majority stake in Apixio. In addition, in the third quarter of 2023, we entered into a definitive agreement to sell Circle Health Group (Circle Health).
•Completed $1.6 billion of Centene common stock repurchases through theour stock repurchase program, exclusive of the $200 million unsettled portion under the ASR,which were funded through divestiture proceeds and $259free cash flow generated from operations. In October 2023, we completed an additional $27 million of common stock repurchases.
•Completed operating model changes initiated in 2022, including streamlining call center management and utilization management.
•Initiated standardization of our senior notes throughpharmacy operating model and completed an RFP for pharmacy benefits management (PBM) services.
•Launched our next-gen clinical population health platform.
Segments Update
In the debt repurchase program. Asfirst quarter of September 30, 2022, $2.2 billion was available2023, and in conjunction with our updated strategic plan, executive leadership realignment, and corresponding 2023 divestitures, we revised the way we manage the business, evaluate performance, and allocate resources, resulting in an updated segment structure comprised of (1) a Medicaid segment, (2) a Medicare segment, (3) a Commercial segment and (4) an Other segment. We began reporting under this new segment structure in 2023. Prior year information has been adjusted to reflect the stock repurchase program and $753 million was available under the debt repurchase program.change in segment reporting.
During the fourth quarter of 2022, we signed a multi-year contract with Express Scripts, Inc. to provide our pharmacy benefit services, commencing in 2024. The new pharmacy benefits management (PBM) contract is expected to drive significant value in 2024 and beyond.
COVID-19 Trends and Uncertainties
The impact of COVID-19 on our business in both the short-term and long-term is uncertain and difficult to predict. The outlook for the remainder of 2022 depends on future developments, including but not limited to: the length and severity of the outbreak (including new variants, which may be more contagious, more severe or less responsive to treatment or vaccines), the effectiveness of containment actions, the timing and effectiveness of vaccinations and achievement of herd immunity, and the timing and rate at which members return to accessing healthcare. The pandemic and these future developments have impacted and will continue to affect our membership and medical utilization. From the onset of the pandemic in March 2020, our Medicaid membership has increased by 3.0 million members (excluding the new North Carolina and Missouri membership). The public health emergency (PHE) extension for COVID-19 has been extended to January 2023 with redeterminations eligible to begin in February 2023. However, the PHE may be extended beyond January 2023. Our Ambetter Health product covers the majority of our Medicaid states, and we believe we are among the best positioned in the healthcare market to capture those transitioning coverage through redeterminations. Our execution plan is well-thought out and we remain agile in working with our state partners and are prepared to support our members and promote continuity of coverage when redeterminations resume.
We continue to watch external trends closely, as COVID-19 costs could increase based upon macro trends. New variants and additional waves of the pandemic could create new dynamics and uncertainties around our expectations.
We are confident we have the team, systems, expertise, and financial strength to continue to effectively navigate this challenging pandemic landscape.
Regulatory Trends and Uncertainties
The United States government, policymakers, and healthcare experts continue to discuss and debate various elements of the United States healthcare model. We remain focused on the promise of delivering access to high-quality, affordable healthcare to all of our members and believe we are well positioned to meet the needs of the changing healthcare landscape.
In contrast to previous executive and legislative efforts to restrict or limit certain provisions of the Affordable Care Act (ACA), legislation and regulations at the American Rescue Act, enacted on March 11, 2021,federal level over the last few years have contained provisions aimed at leveraging Medicaid and the Health Insurance Marketplace to expand health insurance coverage and affordability to consumers. The American Rescue Plan Act authorized an additional $1.9 trillion(ARPA), enacted in federal spending to address the COVID-19 PHE, and contained several provisions designed to increase coverage of certain healthcare services, expand eligibility and benefits, incentivize state Medicaid expansion, and adjust federal financing for state Medicaid programs, the ultimate impact of which remain uncertain. The American Rescue ActMarch 2021, initially enhanced eligibility for the advance premium tax credit for certain enrollees in the Health Insurance Marketplace. TheMarketplace, which was extended through the 2025 tax year by the Inflation Reduction Act, enacted onin August 16, 2022, extended the enhanced eligibility for the advance premium tax credit for Marketplace members through the 2025 tax year.2022.
In Octoberaddition, federal regulators for the Centers for Medicare & Medicaid Services (CMS) have finalized some regulations enhancing opportunities for beneficiaries dually enrolled in Medicare and Medicaid to receive integrated care through Medicare Advantage (MA) Dual Eligible Special Needs Plans (D-SNPs). Centene is positioned well given our overlapping Medicaid and MA footprints.
The COVID-19 pandemic has impacted and continues to affect our business as it relates to Medicaid eligibility changes and vaccines and treatments. The Families First Coronavirus Response Act, enacted in March 2020, increased federal matching rates for state Medicaid programs with a requirement that states suspend Medicaid redeterminations throughout the public health emergency (PHE). As a result, since the onset of the PHE through March 2023, our Medicaid membership increased by 3.6 million members (excluding new states North Carolina and Delaware and various state product expansions or managed care organization changes). The Consolidated Appropriations Act, 2023, signed into law on December 29, 2022, delinked the Treasury Department issuedMedicaid continuous coverage requirements from the PHE and, as a final ruleresult, some states began Medicaid disenrollments on April 1, 2023. Per the Act and clarifying CMS guidance, redeterminations related to the PHE should conclude during the second quarter of 2024. Redeterminations in certain states may move at a slower pace due to CMS compliance action to pause and/or complete corrective action prior to disenrolling beneficiaries. Some states could see redeterminations extend past the second quarter of 2024 given CMS compliance actions.
We are actively engaged to help ensure individuals take the state agency requested action to confirm eligibility in their Medicaid coverage or find other appropriate coverage that is best for themselves and their families. Our Ambetter Health product covers the majority of our Medicaid states, and we believe we are among the best positioned in the healthcare market to enroll those transitioning coverage through redeterminations. Although Medicaid continuous coverage requirements were decoupled from the PHE, we are working to address provisions that were tied to the family glitch inend of the ACA,PHE which relatesexpired on May 11, 2023, including COVID costs related to determining who is eligiblevaccines and treatments, coverage requirements, and various other payment structures.
We also closely monitor state legislation across our markets and are advocating for premium subsidies. We see thisand seeing adoption of coverage expansions for Medicaid adult populations (e.g. North Carolina), postpartum, foster care, children, among others, as a significant step in making Marketplace more affordable for working families.well as mitigating adverse legislation addressing pharmacy, prior authorization, and other issues.
We have more than three decades of experience, spanning seven presidents from both sides of the aisle, in delivering high-quality healthcare services on behalf of states and the federal government to under-insured and uninsured families, commercial organizations, and military families. This expertise has allowed us to deliver cost effectivecost-effective services to our government sponsorspartners and our members. While healthcare experts maintain focus on personalizedWith trends in the personalization of healthcare technology, we continue the use of data and analytics to make strategic decisions to accelerate development of new software platforms and analytical capabilities.optimize our business. We continue to believe we have both the capacity and capability to successfully navigate industry changes to the benefit of our members, customers, providers, and shareholders.
Third Quarter 20222023 Highlights
Our financial performance for the third quarter of 20222023 is summarized as follows:
•Managed care membership of 26.828 million, an increase of 1.2 million members, or 5% year-over-year.
•Total revenues of $35.9$38.0 billion, representing 11%6% growth year-over-year.
•Premium and service revenues of $33.7$35.0 billion, representing 11%4% growth year-over-year.
•HBR of 88.3%87.0%, compared to 88.1%88.3% for the third quarter of 2021.2022.
•SG&A expense ratio of 8.7%, compared to 8.4% for the third quarter of 2022.
•Adjusted SG&A expense ratio of 8.6%, compared to 8.3% for the third quarter of 2021.2022.
•Adjusted SG&A expense ratio of 8.3%, compared to 8.1% for the third quarter of 2021.
•Operating cash flows of $3.3$1.0 billion for the third quarter of 2023.
•Diluted earnings per share (EPS) of $0.87, compared to $1.27 for the third quarter of 2022.
•Adjusted diluted earnings per share (EPS)EPS of $1.30,$2.00, compared to $1.26$1.30 for the third quarter of 2021.2022.
A reconciliation from GAAP diluted EPS to adjusted diluted EPS is highlighted below, and additional detail is provided above under the heading "Non-GAAP Financial Presentation":
| | | Three Months Ended September 30, | | | Three Months Ended September 30, | |
| | 2022 | | 2021 | | | 2023 | | 2022 | |
| GAAP diluted EPS attributable to Centene | GAAP diluted EPS attributable to Centene | $ | 1.27 | | | $ | 0.99 | | | GAAP diluted EPS attributable to Centene | $ | 0.87 | | | $ | 1.27 | | |
| Amortization of acquired intangible assets | Amortization of acquired intangible assets | 0.36 | | | 0.34 | | | Amortization of acquired intangible assets | 0.33 | | | 0.36 | | |
| Acquisition and divestiture related expenses | Acquisition and divestiture related expenses | 0.05 | | | 0.09 | | | Acquisition and divestiture related expenses | 0.03 | | | 0.05 | | |
Other adjustments (1) | Other adjustments (1) | (0.38) | | | 0.01 | | | Other adjustments (1) | 0.87 | | | (0.38) | | |
Income tax effects of adjustments (2) | Income tax effects of adjustments (2) | — | | | (0.17) | | | Income tax effects of adjustments (2) | (0.10) | | | — | | |
| Adjusted diluted EPS | Adjusted diluted EPS | $ | 1.30 | | | $ | 1.26 | | | Adjusted diluted EPS | $ | 2.00 | | | $ | 1.30 | | |
(1) Other adjustments include the following pre-tax items:
(a) forCircle Health impairment of $251 million, or $0.46 per share ($0.50 after-tax), Operose Health impairment of $142 million, or $0.26 per share ($0.24 after-tax), real estate impairments of $47 million, or $0.09 per share ($0.09 after-tax), severance costs due to a restructuring of $22 million, or $0.04 per share ($0.03 after-tax), and a reduction to the three months ended September 30, 2022:previously recorded gain on the sale of Magellan Rx of $10 million, or $0.02 per share ($0.00 after-tax).
2022:
(b) gain on the sale of PANTHERx divestiture gainRare (PANTHERx) of $490 million, or $0.84 per share ($0.65 after-tax), the impairment of assets associated with the pending divestiture of theour Spanish and Central European businesses of $165 million, or $0.28 per share ($0.23 after-tax), real estate impairments of $127 million, or $0.22 per share ($0.16 after-tax), an increase to the previously reported gain on the divestiture of U.S. Medical Management (USMM) due to the finalization of working capital adjustments of $13 million, or $0.02 per share ($0.01 after-tax), gain on debt extinguishment related to the repurchases of senior notes of $10 million, or $0.02 per share ($0.01 after-tax), and an adjustment to the costs related to the PBM legal settlement of $1 million, or $0.00 per share ($0.00 after-tax);
(b) for the three months ended September 30, 2021: non-cash gain related to the acquisition of the remaining 60% interest of Circle Health of $309 million, or $0.52 per share ($0.52 after-tax), non-cash impairment of our equity method investment in RxAdvance of $229 million, or $0.38 per share ($0.35 after-tax), debt extinguishment costs of $79 million, or $0.13 per share ($0.10 after-tax), PBM legal settlement expense of $11 million, or $0.02 per share ($0.01 after-tax), and severance costs due to a restructuring of $1 million, or $0.00 per share ($0.00 after-tax).
(2) The income tax effects of adjustments are based on the effective income tax rates applicable to each adjustment.
Current and Future Operating Drivers
The following items contributed to our results of operations inas compared to the currentprevious year:
Medicaid
•Circle Health. In July 2021, we acquiredSeptember 2023, our subsidiary, Superior HealthPlan (Superior), commenced a new, six-year contract awarded by the remaining interestTexas Health and Human Services Commission to continue providing youth in our equity method investmentfoster care with healthcare coverage through the STAR Health Medicaid program. Superior has been the sole provider of STAR Health coverage since the program launched in Circle Health, one of the U.K.'s largest independent operators of hospitals.2008.
•Commercial. In 2022, we introduced our Health Insurance Marketplace product, Ambetter Health, into five new states, as well as expanded coverage to 274 new counties across 13 existing states. We now serve members in 27 states across the country in 1,480 counties. Additionally, we introduced three new Ambetter Health product offerings to address growing needs of our members: Ambetter Value, Ambetter Select, and Ambetter Virtual Access.
•Eligibility Redeterminations. Revenue growth was driven by organic Medicaid growth dueApril 2023, eligibility redeterminations related to the ongoing suspensionPHE began. We expect that these redeterminations will extend over a 14-month period, with the majority concluding in the second quarter of eligibility redeterminations as well as Medicare2024. Eligibility suspensions from the onset of the PHE drove increased membership growth during the annual enrollment period.through March 2023.
•Hawaii. In July 2021, we began operating under two new statewideApril 2023, the state of New York removed pharmacy services for certain of our managed care contracts in Hawaii to continue administering coveredconnection with the state's transition of pharmacy services to eligible Medicaid and Children's Health Insurance Program (CHIP) members for medically necessary medical, behavioral health, and long-term services and support and to continue administering services through the Community Care Services program in partnership with the Hawaii Department of Human Services' Med-QUEST Division.fee-for-service.
•MagellanIn February 2023, our subsidiary, Buckeye Health Inc. (Magellan). In January 2022, we acquired allPlan, commenced the Medicaid contract awarded by the Ohio Department of the issuedMedicaid to continue servicing members with quality healthcare, coordinated services, and outstanding shares of Magellan for approximately $2.5 billion.benefits.
•Medicare Advantage. We experienced strong Medicare membership growth duringIn January 2023, our subsidiary, Delaware First Health, commenced its contract for the 2022 annual enrollment period. In 2022, we introduced WellCare into three new states, as well as expanded coverage to 327 new counties across existing states. We now serve members in 36 states across the country in 1,575 counties.statewide Medicaid managed care programs.
•MissouriIn January 2023, our subsidiary, Louisiana Healthcare Connections, commenced the Medicaid contract awarded by the Louisiana Department of Health to continue administering quality, integrated healthcare services to members across the state.
•. In January 2023, our subsidiary, Managed Health Services, commenced the contract awarded by the Indiana Department of Administration to continue serving Hoosier Healthwise and Health Indiana Plan members with Medicaid and Medicaid alternative managed care and care coordination services.
•In October 2022, the state of Ohio removed pharmacy services in connection with the state's transition from managed care to a single PBM.
•In July 2022, our subsidiary, Home State Health, commenced the MO HealthNet Managed Care General Plan and Specialty Plan contracts. Under the General Plan, Home State will continue servingHealth continues to serve multiple MO HealthNet programs including Children's Health Insurance members and the state's newly implemented Medicaid expansion population, across all regions of Missouri. Additionally, as the sole provider of the newly awarded Specialty Plan, Home State Health now serves approximately 51,00049,300 foster children and children receiving adoption subsidy assistance.
•North Carolina. In July 2021, WellCare of North Carolina commenced operations under a new statewide contract in North Carolina providing Medicaid managed care services. In addition, we also began operating under a new contract to provide Medicaid managed care services in three regions in North Carolina through our provider-led North Carolina joint venture, Carolina Complete Health.Medicare
•Ohio. In October 2022, Ohio pharmacy services were carved out in connection withMedicare membership declined year-over-year due to lower enrollment during both the state's transition of pharmacy services from managed care to a single PBM.annual and open enrollment periods.
•PANTHERx. In July 2022, we completed the previously announced sale of PANTHERx. The divestiture illustrates our continued progress on the Value Creation Plan.
In addition, we have been negatively impacted by the previously disclosed carve out of California pharmacy services effective January 2022, which occurred in connection with the state’s transition of pharmacy services from managed care to fee for service, and the decrease in the number of our Medicare members in a 4.0 star or above plan for the 2021 rating year (2022 revenue year).
We expect the following items to impact to our future results of operations:
•We have continued to execute on key Value Creation Plan initiatives including the award of the new PBM contract commencing in 2024, the portfolio review, real estate optimization, stock and debt repurchases, along with ongoing focus on quality improvement actions. We expect these actions will drive future margin expansion, create shareholder value, and improve the experience for our members and providers.Commercial
•In October 2022, we announced that2023, our Health Insurance Marketplace product, Ambetter Health, will expandexpanded into Alabama and extendextended its footprint by more than 60 counties across 12 existing states in 2023. We also announced our updated brand name, Ambetter Health, reflecting our commitment to putting better health at the forefront of our mission.states. In total, the Marketplace plan will beis available in more than 1,500 counties across 28 states in 2023.
•In October 2022,states. Additionally, Marketplace membership increased year-over-year due to the Centers for Medicareexpanded footprint, strong product positioning and Medicaid Services (CMS) published updated Medicare Star quality ratings for the 2023 rating year, which impacts the 2024 revenue year. The decrease in Star quality ratings is driven by the expiration of certain disaster relief provisionsopen enrollment results, as well as deterioration in select metrics. Over the past year, our leadership team launched a multi-year plan to build and improve quality across the enterprise with a strong focus on enhanced patient experience and access to care. We expect to begin to see the results of these efforts with the 2024 rating year (2025 revenue year).overall market growth.
Other
•In June 2023, we completed the divestiture of Apixio, repositioning the business with a financial partner that can continue to invest in it. We maintain a close relationship with, and a minority interest in, the business.
•In January 2023, we completed the divestitures of Magellan Specialty Health, Centurion (our prison healthcare business), and HealthSmart (our third-party health plan administration business).
•In December 2022, we completed the divestiture of Magellan Rx, which was part of the Magellan Health, Inc. (Magellan) business acquired in January 2022.
•In November 2022, we completed the divestiture of our ownership stakes in our Spanish and Central European businesses, including Ribera Salud, Torrejón Salud, and Pro Diagnostics Group.
•In July 2022, we completed the divestiture of PANTHERx Rare (PANTHERx).
We expect the following items to impact our future results of operations:
Medicaid
•In July 2023, our subsidiary, Superior, announced it entered into a contract to continue to provide healthcare coverage to the aged, blind, or disabled (ABD) population in the state's STAR+PLUS program. The contract is anticipated to begin in September 2024 for a six-year term with a maximum of three additional two-year extensions.
•In June 2023, our subsidiary, Oklahoma Complete Health, was selected by the Oklahoma Health Care Authority for statewide contracts to provide managed care for the SoonerSelect and SoonerSelect Children's Specialty Plan programs. The contracts are anticipated to begin in April 2024 for a one-year term with five, one-year renewal options.
•In March 2023, the state of North Carolina passed legislation for Medicaid Expansion. We expect the program to commence in December 2023.
•In December 2022, the federal government's year-end spending bill was passed, including key coverage expansions for Medicaid and the Children's Health Insurance Program (CHIP). The provisions require states to provide 12 months of continuous coverage for children under Medicaid and CHIP effective January 2024 and made the state option to extend coverage for postpartum women for up to 12 months permanent.
•In December 2022, our subsidiary, Health Net of California, was selected by the California Department of Health Care Services for direct Medicaid contracts in 10 counties, including Los Angeles (in which a portion will be subcontracted). The contracts are anticipated to begin in January 2024.
•In September 2022, Centene's Nebraskaour subsidiary, Nebraska Total Care, was awarded the Nebraska Department of Health and Human Services statewide Medicaid managed care contract. Under the new contract, Nebraska Total Care will continue serving the state's Medicaid Managed Care Program, known as Heritage Health. The new contract term is five years and includes the option for two, one-year renewals. The contract is anticipated to begin in January 2024, subject to the resolution of third-party protests.
•In September 2022, Centene's Texas subsidiary, Superior HealthPlan (Superior), was awarded a new, six-year contract by the Texas Health and Human Services Commission to continue providing youth in foster care with healthcare coverage through the STAR Health Medicaid program. Superior has been the sole provider of STAR Health coverage since the program launched in 2008. The contract is anticipated to begin in September 2023.
•In August 2022, we announced California Department of Health Care Services awarded our subsidiary, Health Net of California, contracts to continue serving members in nine counties across California. However, Health Net of California was not awarded contracts in Los Angeles, Sacramento and Kern counties. We are actively protesting the decision to protect our members and their access to quality healthcare. The contracts are anticipated to begin in January 2024, subject to the resolution of the protest process.
•In August 2022, Centene's Mississippi subsidiary, Magnolia Health Plan (Magnolia), was awarded the Mississippi Division of Medicaid contract. Under the new contract, Magnolia will continue serving the state's Coordinated Care Organization Program, which will consist of the Mississippi Coordinated Access Network and the Mississippi Children's Health Insurance Program.CHIP. The contract is anticipated to begin in July 2023,2024, subject to the resolution of third-party protests.
•In July 2022, as part of our previously announced review of strategic alternatives for our international portfolio, we signed a definitive agreement to sell our ownership stakes in our Spanish and Central European businesses, including Ribera Salud, Torrejón Salud, and Pro Diagnostics Group. The transaction is expected to close by the end of 2022.
•In July 2022, we announced our subsidiary, Delaware First Health, was awarded contracts for the statewide Medicaid Managed Care programs. The new contracts are anticipated to begin in January 2023.
•In May 2022, we signed a definitive agreement to sell Magellan Rx as part of our ongoing portfolio review. The transaction is expected to close by the end of 2022, pending regulatory approvals.
•In March 2022, we announced our subsidiary, Managed Health Services, was selected by the Indiana Department of Administration to continue serving Hoosier Healthwise and Health Indiana Plan members with Medicaid and Medicaid alternative managed care and care coordination services. The new contract is anticipated to begin in January 2023.
•In February 2022, our Louisiana subsidiary, Louisiana Healthcare Connections, was awarded a Medicaid contract by the Louisiana Department of Health to continue administering quality, integrated healthcare services to members across the state. The contract is expected to commence in January 2023.
•In August 2021, we announced that our North Carolina subsidiaries, Carolina Complete Health and WellCare of North Carolina, willwere selected to coordinate physical and/or other health services with Local Management Entities/Managed Care Organizations under the state's new Tailored Plans. The Tailored Plans which are expected to launch in April 2023, are integrated health plans designed for individuals with significant behavioral health needs and intellectual/developmental disabilities. The Tailored Plans are expected to commence no later than July 2024.
Medicare
•In August 2021,October 2023, CMS issued 2024 Medicare Advantage Star Ratings on the Medicare Plan Finder. Based on the data, approximately 73% of membership is associated with contracts showing year-over-year unrounded score improvement, and approximately 87% of membership is associated with contracts rated 3.0 stars or better - compared to 53% in the prior year. While we have work to do to improve star scores, this demonstrates the first step towards our Ohio subsidiary, Buckeye Health Plan, was awarded a Medicaid contract by the Ohio Department of Medicaid to continue servicing members with quality healthcare, coordinated services, and benefits. The contract is expected to commence in December 2022.multi-year goals.
•We expect Medicaid eligibility redeterminationsthat the decrease in Star quality ratings in the 2023 rating year, which CMS published in October 2022, will adversely impact our 2024 Medicare revenue. The decrease in Star quality ratings is driven by the expiration of certain disaster relief provisions as well as deterioration in select metrics. Over the past year, our leadership team launched a multi-year plan to beginbuild and improve quality across the enterprise with a strong focus on enhanced patient experience and access to care.
Other
•In August 2023, Centene signed a definitive agreement to sell Circle Health Group, one of the U.K.'s largest independent hospital operators. The transaction is subject to customary closing conditions, including regulatory approvals, and is expected to close in February 2023, although it could be further extended.the first quarter of 2024.
•We may be negatively impacted by potential Medicaid state rate actions and risk corridor mechanisms as a resultcontinue to execute on Value Creation Plan initiatives including the award of the COVID-19 pandemic.new PBM contract commencing in 2024, portfolio review, real estate optimization, stock and debt repurchases, along with an ongoing focus on quality improvement actions. We expect these actions will drive future margin expansion, create shareholder value, and improve the experience for our members and providers.
MEMBERSHIP
From September 30, 20212022 to September 30, 2022,2023, we increased our managed care membership by 1.2 million, or 5%. The following table sets forth our membership by line of business:
| | | | | | | | | | | | | | | | | |
| | September 30,
2022 | | December 31,
2021 | | September 30,
2021 |
Traditional Medicaid (1) | 14,000,100 | | | 13,328,400 | | | 13,202,500 | |
High Acuity Medicaid (2) | 1,698,100 | | | 1,686,100 | | | 1,566,000 | |
| Total Medicaid | 15,698,200 | | | 15,014,500 | | | 14,768,500 | |
| Commercial Marketplace | 2,087,800 | | | 2,140,500 | | | 2,177,000 | |
| Commercial Group | 439,800 | | | 462,100 | | | 468,500 | |
| Total Commercial | 2,527,600 | | | 2,602,600 | | | 2,645,500 | |
Medicare (3) | 1,517,900 | | | 1,252,200 | | | 1,248,300 | |
| Medicare PDP | 4,186,200 | | | 4,070,500 | | | 4,064,400 | |
Total at-risk membership (4) | 23,929,900 | | | 22,939,800 | | | 22,726,700 | |
| TRICARE eligibles | 2,832,300 | | | 2,874,700 | | | 2,874,700 | |
| Total | 26,762,200 | | | 25,814,500 | | | 25,601,400 | |
| | | | | |
(1) Membership includes Temporary Assistance for Needy Families (TANF), Medicaid Expansion, Children's Health Insurance Program (CHIP), Foster Care, and Behavioral Health. (2) Membership includes Aged, Blind, and Disabled (ABD), Intellectual and Developmental Disabilities (IDD), Long-Term Services and Supports (LTSS), and Medicare-Medicaid Plans (MMP) Duals. (3) Membership includes Medicare Advantage and Medicare Supplement. (4) Membership includes 1,285,600, 1,178,000, and 1,168,400 dual-eligible beneficiaries for the periods ending September 30, 2022, December 31, 2021, and September 30, 2021, respectively. |
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2023 | | December 31, 2022 | | September 30, 2022 |
Traditional Medicaid (1) | 13,470,900 | | | 14,264,800 | | | 14,000,100 | |
High Acuity Medicaid (2) | 1,769,600 | | | 1,710,000 | | | 1,698,100 | |
Total Medicaid (4) | 15,240,500 | | | 15,974,800 | | | 15,698,200 | |
| Commercial Marketplace | 3,681,600 | | | 2,076,100 | | | 2,087,800 | |
| Commercial Group | 424,200 | | | 441,100 | | | 439,800 | |
| Total Commercial | 4,105,800 | | | 2,517,200 | | | 2,527,600 | |
Medicare (3) (4) | 1,310,600 | | | 1,511,100 | | | 1,517,900 | |
| Medicare PDP | 4,539,800 | | | 4,226,000 | | | 4,186,200 | |
| Total at-risk membership | 25,196,700 | | | 24,229,100 | | | 23,929,900 | |
| TRICARE eligibles | 2,773,200 | | | 2,832,300 | | | 2,832,300 | |
| Total | 27,969,900 | | | 27,061,400 | | | 26,762,200 | |
| | | | | | |
| (1) | Membership includes Temporary Assistance for Needy Families (TANF), Medicaid Expansion, Children's Health Insurance Program (CHIP), Foster Care, and Behavioral Health. |
| (2) | Membership includes Aged, Blind, or Disabled (ABD), Intellectual and Developmental Disabilities (IDD), Long-Term Services and Supports (LTSS), and Medicare-Medicaid Plans (MMP) Duals. |
| (3) | Membership includes Medicare Advantage and Medicare Supplement. |
| (4) | Membership includes 1,311,500, 1,291,300, and 1,285,600 Dual Eligible Special Needs Plans (D-SNP) beneficiaries for the periods ending September 30, 2023, December 31, 2022, and September 30, 2022, respectively. |
RESULTS OF OPERATIONS
The following discussion and analysis is based on our Consolidated Statements of Operations, which reflect our results of operations for the three and nine months ended September 30, 20222023 and 2021,2022, prepared in accordance with generally accepted accounting principles in the United States.States (GAAP).
Summarized comparative financial data for the three and nine months ended September 30, 20222023 and 20212022 is as follows ($ in millions, except per share data in dollars):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2022 | | 2021 | | % Change | | 2022 | | 2021 | | % Change | | 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
| Premium | Premium | $ | 31,848 | | | $ | 28,876 | | | 10 | % | | $ | 95,247 | | | $ | 83,436 | | | 14 | % | Premium | $ | 33,866 | | | $ | 31,848 | | | 6 | % | | $ | 101,404 | | | $ | 95,247 | | | 6 | % |
| Service | Service | 1,878 | | | 1,638 | | | 15 | % | | 6,679 | | | 4,054 | | | 65 | % | Service | 1,101 | | | 1,878 | | | (41) | % | | 3,353 | | | 6,679 | | | (50) | % |
| Premium and service revenues | Premium and service revenues | 33,726 | | | 30,514 | | | 11 | % | | 101,926 | | | 87,490 | | | 17 | % | Premium and service revenues | 34,967 | | | 33,726 | | | 4 | % | | 104,757 | | | 101,926 | | | 3 | % |
| Premium tax | Premium tax | 2,139 | | | 1,892 | | | 13 | % | | 7,060 | | | 5,924 | | | 19 | % | Premium tax | 3,075 | | | 2,139 | | | 44 | % | | 9,782 | | | 7,060 | | | 39 | % |
| Total revenues | Total revenues | 35,865 | | | 32,406 | | | 11 | % | | 108,986 | | | 93,414 | | | 17 | % | Total revenues | 38,042 | | | 35,865 | | | 6 | % | | 114,539 | | | 108,986 | | | 5 | % |
| Medical costs | Medical costs | 28,111 | | | 25,430 | | | 11 | % | | 83,261 | | | 73,210 | | | 14 | % | Medical costs | 29,479 | | | 28,111 | | | 5 | % | | 88,260 | | | 83,261 | | | 6 | % |
| Cost of services | Cost of services | 1,571 | | | 1,355 | | | 16 | % | | 5,658 | | | 3,510 | | | 61 | % | Cost of services | 856 | | | 1,571 | | | (46) | % | | 2,603 | | | 5,658 | | | (54) | % |
| Selling, general and administrative expenses | Selling, general and administrative expenses | 2,846 | | | 2,537 | | | 12 | % | | 8,391 | | | 6,910 | | | 21 | % | Selling, general and administrative expenses | 3,048 | | | 2,846 | | | 7 | % | | 9,075 | | | 8,391 | | | 8 | % |
| Depreciation expense | Depreciation expense | 150 | | | 147 | | | 2 | % | | 470 | | | 414 | | | 14 | % | Depreciation expense | 148 | | | 150 | | | (1) | % | | 436 | | | 470 | | | (7) | % |
| Amortization of acquired intangible assets | Amortization of acquired intangible assets | 211 | | | 198 | | | 7 | % | | 609 | | | 581 | | | 5 | % | Amortization of acquired intangible assets | 180 | | | 211 | | | (15) | % | | 542 | | | 609 | | | (11) | % |
| Premium tax expense | Premium tax expense | 2,211 | | | 1,965 | | | 13 | % | | 7,258 | | | 6,129 | | | 18 | % | Premium tax expense | 3,156 | | | 2,211 | | | 43 | % | | 10,021 | | | 7,258 | | | 38 | % |
| Impairment | | Impairment | 440 | | | 289 | | | 52 | % | | 478 | | | 1,739 | | | (73) | % |
| | Impairment | 289 | | | 229 | | | 26 | % | | 1,739 | | | 229 | | | n.m. | |
| Legal settlement | — | | | — | | | n.m. | | — | | | 1,250 | | | n.m. | |
| Earnings from operations | Earnings from operations | 476 | | | 545 | | | (13) | % | | 1,600 | | | 1,181 | | | 35 | % | Earnings from operations | 735 | | | 476 | | | 54 | % | | 3,124 | | | 1,600 | | | 95 | % |
| Investment and other income | Investment and other income | 692 | | | 424 | | | 63 | % | | 786 | | | 566 | | | 39 | % | Investment and other income | 214 | | | 692 | | | (69) | % | | 992 | | | 786 | | | 26 | % |
| Debt extinguishment | Debt extinguishment | 10 | | | (79) | | | n.m. | | 26 | | | (125) | | | n.m. | Debt extinguishment | — | | | 10 | | | n.m. | | — | | | 26 | | | n.m. |
| Interest expense | Interest expense | (169) | | | (170) | | | 1 | % | | (491) | | | (503) | | | 2 | % | Interest expense | (181) | | | (169) | | | (7) | % | | (542) | | | (491) | | | (10) | % |
| | Earnings before income tax | Earnings before income tax | 1,009 | | | 720 | | | 40 | % | | 1,921 | | | 1,119 | | | 72 | % | Earnings before income tax | 768 | | | 1,009 | | | (24) | % | | 3,574 | | | 1,921 | | | 86 | % |
| Income tax expense | Income tax expense | 269 | | | 139 | | | 94 | % | | 500 | | | 376 | | | 33 | % | Income tax expense | 293 | | | 269 | | | 9 | % | | 914 | | | 500 | | | 83 | % |
| Net earnings | Net earnings | 740 | | | 581 | | | 27 | % | | 1,421 | | | 743 | | | 91 | % | Net earnings | 475 | | | 740 | | | (36) | % | | 2,660 | | | 1,421 | | | 87 | % |
| (Earnings) loss attributable to noncontrolling interests | (2) | | | 3 | | | n.m. | | (6) | | | 5 | | | n.m. | |
| (Earnings) attributable to noncontrolling interests | | (Earnings) attributable to noncontrolling interests | (6) | | | (2) | | | n.m. | | (3) | | | (6) | | | 50 | % |
| Net earnings attributable to Centene Corporation | Net earnings attributable to Centene Corporation | $ | 738 | | | $ | 584 | | | 26 | % | | $ | 1,415 | | | $ | 748 | | | 89 | % | Net earnings attributable to Centene Corporation | $ | 469 | | | $ | 738 | | | (36) | % | | $ | 2,657 | | | $ | 1,415 | | | 88 | % |
| | Diluted earnings per common share attributable to Centene Corporation | Diluted earnings per common share attributable to Centene Corporation | $ | 1.27 | | | $ | 0.99 | | | 28 | % | | $ | 2.41 | | | $ | 1.27 | | | 90 | % | Diluted earnings per common share attributable to Centene Corporation | $ | 0.87 | | | $ | 1.27 | | | (31) | % | | $ | 4.85 | | | $ | 2.41 | | | 101 | % |
| | n.m.: not meaningful | n.m.: not meaningful | | n.m.: not meaningful | |
Three Months Ended September 30, 20222023 Compared to Three Months Ended September 30, 20212022
Total Revenues
The following table sets forth supplemental revenue information for the three months ended September 30, ($ in millions):
| | | 2022 | | 2021 | | % Change | | 2023 | | 2022 | | % Change |
| Medicaid | Medicaid | $ | 23,293 | | | $ | 21,624 | | | 8 | % | Medicaid | $ | 24,694 | | | $ | 23,293 | | | 6 | % |
| Commercial | Commercial | 4,292 | | | 4,383 | | | (2) | % | Commercial | 6,453 | | | 4,292 | | | 50 | % |
Medicare (1) | Medicare (1) | 5,639 | | | 4,322 | | | 30 | % | Medicare (1) | 5,430 | | | 5,639 | | | (4) | % |
| Other | Other | 2,641 | | | 2,077 | | | 27 | % | Other | 1,465 | | | 2,641 | | | (45) | % |
| Total Revenues | $ | 35,865 | | | $ | 32,406 | | | 11 | % | |
| Total revenues | | Total revenues | $ | 38,042 | | | $ | 35,865 | | | 6 | % |
| (1) Medicare includes Medicare Advantage, Medicare Supplement, and Medicare Prescription Drug Plan (PDP). | |
| (1) | | (1) | Medicare includes Medicare Advantage, Medicare Supplement, D-SNPs, and Medicare Prescription Drug Plan (PDP). |
|
Total revenues increased 11%6% in the three months ended September 30, 20222023, over the corresponding period in 2021,2022, driven by organic Medicaid growth, primarily due to the ongoing suspension of eligibility redeterminations, 22% membership growth in the MedicareMarketplace business and our acquisition of Magellan,due to strong product positioning as well as overall market growth. The revenue growth was partially offset by the PANTHERx divestiture.recent divestitures.
Operating Expenses
Medical Costs/HBR
The HBR for the three months ended September 30, 2022,2023, was 88.3%87.0%, compared to 88.1%88.3% in the same period in 2021.2022. The decrease is primarily attributed to growth in the Marketplace business, which runs at a lower HBR for the third quarter of 2022 was unfavorably impacted by a return to more normalized Medicaid utilization compared to the third quarter of 2021. The increase is partially offset by the impact of Marketplace and Medicare healthcare affordability initiatives as well as disciplined Marketplace pricing.strong performance from pricing discipline and execution.
Cost of Services
Cost of services increaseddecreased by $216$715 million in the three months ended September 30, 2022,2023, compared to the corresponding period in 2021, driven by the Magellan business, partially offset by the PANTHERx divestiture.2022. The cost of service ratio for the three months ended September 30, 2022,2023, was 83.7%77.7%, compared to 82.7%83.7% in the same period in 2021.2022. The increase in the cost of service ratio wasdecreases were driven by recent acquisitions and divestitures.
Selling, General & Administrative Expenses
The SG&A expense ratio was 8.4%8.7% for the third quarter of 2022,2023, compared to 8.4% in the third quarter of 2022. The adjusted SG&A expense ratio was 8.6% for the third quarter of 2023, compared to 8.3% in the third quarter of 2021. The adjusted SG&A expense ratio was 8.3% for the third quarter of 2022, compared to 8.1% in the third quarter of 2021.2022. The increases were due todriven by growth in the addition of Magellan,Marketplace business, which operates at a meaningfully higher SG&A expense ratio dueas compared to the nature of its business, and the PANTHERx divestiture. Increases were also driven by costs associated with Medicare marketing and value creation investment spending, partially offset by savings due to real estate optimization efforts and the leveraging of expenses over higher revenues as a result of increased membership.Medicaid.
Impairment
During the third quarter of 2023, we recorded total impairment charges of $440 million, including a $251 million charge related to assets associated with the pending divestiture of Circle Health, a $142 million charge related to assets associated with our Operose Health business based on market indicators of fair value, and additional impairments of $47 million related to our ongoing real estate optimization initiatives.
During the third quarter of 2022, we recorded total impairment charges of $289 million, including a $165 million charge related to assets associated with the pending divestiture of theour Spanish and Central European businesses and $124 million of additional impairments related to the reduction of our ongoing real estate optimization initiatives,footprint consisting of leased and owned real estate assets and related fixed assets.
During the third quarter of 2021, we recorded a $229 million non-cash impairment of our equity method investment in RxAdvance, a pharmacy benefit manager. The impairment was the result of our focus on simplification of our pharmacy operations.
Other Income (Expense)
The following table summarizes the components of other income (expense) for the three months ended September 30, ($ in millions):
| | | | 2022 | | 2021 | | 2023 | | 2022 |
| Investment and other income | Investment and other income | $ | 692 | | | $ | 424 | | Investment and other income | $ | 214 | | | $ | 692 | |
| Debt extinguishment | Debt extinguishment | 10 | | | (79) | | Debt extinguishment | — | | | 10 | |
| Interest expense | Interest expense | (169) | | | (170) | | Interest expense | (181) | | | (169) | |
| Other income (expense), net | Other income (expense), net | $ | 533 | | | $ | 175 | | Other income (expense), net | $ | 33 | | | $ | 533 | |
Investment and other income. Investment and other income increaseddecreased by $268$478 million in the three months ended September 30, 20222023, compared to the corresponding period in 2021, driven by2022. The three months ended September 30, 2023 included a $75 million realized loss on the sale of investments from rebalancing a portion of our portfolio with a focus on higher interest rate investments. The three months ended September 30, 2022 included a $490 million PANTHERx divestiture gain and higher interest rates. 2021 included a $309 million gain related toon the acquisitionsale of the remaining 60% interest of Circle Health.PANTHERx.
Debt extinguishment. InDuring the third quarter of 2022, we repurchased $83 million of our 4.25% Senior Notes due 2027 and $176 million of our 4.625% Senior Notes due 2029 through our debt repurchase program, resulting in a pre-tax gain on extinguishment of $10 million.
In August 2021, we redeemed all of our outstanding 5.375% Senior Notes due 2026 and all of WellCare Health Plans, Inc.'s outstanding 5.375% Senior Notes due 2026, including all premiums and accrued interest. We recognized a pre-tax loss on extinguishment of $79 million, including the call premium, the write-off of the unamortized premium and debt issuance costs, and expenses related to the redemptions.
Interest expense. Interest expense decreasedincreased by $1$12 million in the three months ended September 30, 2022,2023, compared to the corresponding period in 2021.2022. The increase was driven by higher interest rates on variable rate debt.
Income Tax Expense
For the three months ended September 30, 2023, we recorded income tax expense of $293 million on pre-tax earnings of $768 million, or an effective tax rate of 38.2%. The effective tax rate for the third quarter of 2023 reflects the tax effects of impairments as well as the pending divestiture of Circle Health. For the third quarter of 2023, our effective tax rate on adjusted earnings was 24.2%.
For the three months ended September 30, 2022, we recorded an income tax expense of $269 million on pre-tax earnings of $1.0 billion, or an effective tax rate of 26.6%. For the third quarter of 2022, our effective tax rate on adjusted earnings was 26.3%. For the three months ended September 30, 2021, we recorded an income tax expense
Segment Results
The following table summarizes our consolidated operating results by segment for the three months ended September 30, ($ in millions):
| | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | % Change |
| Total Revenues | | | | | |
| Managed Care | $ | 33,724 | | | $ | 30,889 | | | 9 | % |
| Specialty Services | 5,407 | | | 4,727 | | | 14 | % |
| Eliminations | (3,266) | | | (3,210) | | | (2) | % |
| Consolidated Total | $ | 35,865 | | | $ | 32,406 | | | 11 | % |
| Earnings from Operations | | | | | |
| Managed Care | $ | 527 | | | $ | 699 | | | (25) | % |
| Specialty Services | (51) | | | (154) | | | 67 | % |
| | | | | |
| Consolidated Total | $ | 476 | | | $ | 545 | | | (13) | % |
| | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | % Change |
| Total Revenues | | | | | |
| Medicaid | $ | 24,694 | | | $ | 23,293 | | | 6 | % |
| Medicare | 5,430 | | | 5,639 | | | (4) | % |
| Commercial | 6,453 | | | 4,292 | | | 50 | % |
| Other | 1,465 | | | 2,641 | | | (45) | % |
| Consolidated total | $ | 38,042 | | | $ | 35,865 | | | 6 | % |
Gross Margin (1) | | | | | |
| Medicaid | $ | 2,012 | | | $ | 2,079 | | | (3) | % |
| Medicare | 968 | | | 909 | | | 6 | % |
| Commercial | 1,364 | | | 679 | | | 101 | % |
| Other | 288 | | | 377 | | | (24) | % |
| Consolidated total | $ | 4,632 | | | $ | 4,044 | | | 15 | % |
| | | | | | |
| (1) | Gross margin represents premium and service revenues less medical costs and cost of services. |
| |
Managed CareMedicaid
Total revenues increased 9%6% in the three months ended September 30, 2022,2023, compared to the corresponding period in 2021. The increase was due to organic Medicaid growth, partially due to the ongoing suspension of eligibility redeterminations and
membership growth in the Medicare business. Earnings from operations2022. Gross margin decreased $172 million between years primarily as a result of the previously discussed asset impairments and a return to more normalized Medicaid utilization compared to the third quarter of 2021.
Specialty Services
Total revenues increased 14% in the three months ended September 30, 2022, compared to the corresponding period in 2021, primarily due to our acquisition of Magellan, partially offset by the divestiture of PANTHERx. Earnings from operations increased $103$67 million in the three months ended September 30, 2022,2023, compared to the corresponding period in 2021,2022, driven by an increase in total revenue, offset by a retroactive rate decrease from one state.
Medicare
Total revenues decreased 4% in the three months ended September 30, 2023, compared to the corresponding period in 2022 driven by lower membership. Gross margin increased $59 million in the three months ended September 30, 2023, compared to the corresponding period in 2022, driven by product offerings designed to improve HBR.
Commercial
Total revenues increased 50% in the three months ended September 30, 2023, compared to the corresponding period in 2022. Gross margin increased $685 million in the three months ended September 30, 2023, compared to the corresponding period in 2022. Increases were primarily driven by 76% membership growth in the Marketplace business, resulting from strong product positioning and overall market growth.
Other
Total revenues decreased 45% in the three months ended September 30, 2023, compared to the corresponding period in 2022. Gross margin decreased $89 million in the three months ended September 30, 2023, compared to the corresponding period in 2022. Decreases were primarily due to the prior year impairmentrecent divestitures.
Nine Months Ended September 30, 20222023 Compared to Nine Months Ended September 30, 20212022
Total Revenues
The following table sets forth supplemental revenue information for the nine months ended September 30, ($ in millions):
| | | 2022 | | 2021 | | % Change | | 2023 | | 2022 | | % Change |
| Medicaid | Medicaid | $ | 69,827 | | | $ | 62,612 | | | 12 | % | Medicaid | $ | 75,523 | | | $ | 69,822 | | | 8 | % |
| Commercial | Commercial | 12,980 | | | 12,391 | | | 5 | % | Commercial | 17,439 | | | 12,979 | | | 34 | % |
Medicare (1) | Medicare (1) | 17,035 | | | 13,125 | | | 30 | % | Medicare (1) | 16,971 | | | 17,035 | | | n.m. |
| Other | | Other | 4,606 | | | 9,150 | | | (50) | % |
| Total revenues | | Total revenues | $ | 114,539 | | | $ | 108,986 | | | 5 | % |
| | Other | 9,144 | | | 5,286 | | | 73 | % | |
| Total Revenues | $ | 108,986 | | | $ | 93,414 | | | 17 | % | |
| (1) Medicare includes Medicare Advantage, Medicare Supplement, and Medicare PDP. | |
| (1) | | (1) | Medicare includes Medicare Advantage, Medicare Supplement, D-SNPs, and Medicare PDP. |
| | | n.m.: not meaningful |
|
Total revenues increased 17%5% in the nine months ended September 30, 2022,2023, over the corresponding period in 2021 primarily due to Medicaid membership growth resulting from the ongoing suspension of eligibility redeterminations,2022 driven by 76% membership growth in the MedicareMarketplace business our acquisitions of Magellan and Circle Health, the commencement of our contracts in North Carolina, additional premium taxdue to strong product positioning as well as overall market growth. The revenue and retroactive state directed payments,growth was partially offset by the PANTHERx divestiture.recent divestitures.
Operating Expenses
Medical Costs/HBR
The HBR for the nine months ended September 30, 20222023 was 87.4%87.0%, compared to 87.7%87.4% in the same period in 2021.2022. The decrease is primarily attributed to growth in the Marketplace business, which runs at a lower HBR for 2022 was positively impacted by Marketplace and Medicare healthcare affordability initiatives as well as disciplined Marketplace pricing. These impacts were partially offset by a return to more normalized Medicaid utilization compared to 2021.strong performance from pricing discipline and execution.
Cost of Services
Cost of services increaseddecreased by $2.1$3.1 billion in the nine months ended September 30, 2022,2023, compared to the corresponding period in 2021, driven by the Magellan business, partially offset by the PANTHERx divestiture.2022. The cost of service ratio for the nine months ended September 30, 2022,2023 was 84.7%77.6%, compared to 86.6%84.7% in the same period in 2021.2022. The decrease in the cost of service ratio wasdecreases were driven by recent acquisitions and divestitures.
Selling, General & Administrative Expenses
The SG&A expense ratio for the nine months ended September 30, 20222023 was 8.2%8.7%, compared to 7.9%8.2% for the corresponding period in 2021.2022. The adjusted SG&A expense ratio for the nine months ended September 30, 20222023 was 8.1%8.6%, compared to 7.7%8.1% for the nine months ended September 30, 2021.2022. The increases were due todriven by growth in the additions of the Magellan and Circle Health businesses,Marketplace business, which operateoperates at a meaningfully higher SG&A ratios due to the nature of their respective businesses. Increases were also driven by costs associated with Medicare marketing, value creation investment spending, and variable compensation. These impacts were partially offset by the leveraging of expenses over higher revenuesratio as a result of increased membership and reduced restructuring charges compared to 2021.Medicaid.
Impairment
During the nine months ended September 30, 2023 we recorded total impairment charges of $478 million, including a $251 million charge related to assets associated with the pending divestiture of Circle Health, a $142 million charge related to assets associated with our Operose Health business based on market indicators of fair value, and additional impairments of $85 million related to our ongoing real estate optimization initiatives.
During the nine months ended September 30, 2022, we recorded total impairment charges of $1.7 billion, primarily driven by $1.6 billion associated withrelated to the reduction of our ongoing real estate optimization initiative,footprint consisting of leased and owned real estate assets and related fixed assets, along withassets. The nine months ended September 30, 2022 also included a $165 million charge related to assets associated with the pending divestiture of theour Spanish and Central European businesses.
Legal Settlement
During the second quarter of 2021, we recorded a legal settlement reserve estimate of $1.25 billion (inclusive of the 13 states with which we have reached no-fault agreements) related to services provided by Envolve Pharmacy Solutions, Inc. (Envolve), our PBM subsidiary, essentially during 2017 and 2018.
Other Income (Expense)
The following table summarizes the components of other income (expense) for the nine months ended September 30, ($ in millions):
| | | | 2022 | | 2021 | | 2023 | | 2022 |
| Investment and other income | Investment and other income | $ | 786 | | | $ | 566 | | Investment and other income | $ | 992 | | | $ | 786 | |
| Debt extinguishment | Debt extinguishment | 26 | | | (125) | | Debt extinguishment | — | | | 26 | |
| Interest expense | Interest expense | (491) | | | (503) | | Interest expense | (542) | | | (491) | |
| Other income (expense), net | Other income (expense), net | $ | 321 | | | $ | (62) | | Other income (expense), net | $ | 450 | | | $ | 321 | |
Investment and other income. Investment and other income increased by $220$206 million in the nine months ended September 30, 2022,2023, compared to the corresponding period in 2021,2022, driven by the $490 million PANTHERx divestiture gain and higher interest rates on larger investment balances, a $91 million gain on the sale of Apixio, a $79 million gain on the sale of Magellan Specialty Health, and a $15 million gain on the sale of Centurion, partially offset by decreases ina $75 million realized loss on the performancesale of investments from rebalancing a portion of our deferred compensation investment fund portfolio which fluctuate with their underlying investments.a focus on higher interest rate investments, an additional loss on the sale of our Spanish and Central European businesses of $13 million, and a $10 million reduction to the previously recorded gain on the sale of Magellan Rx. The losses from our deferred compensation portfolio were substantially offset by decreases in deferred compensation expense, recorded in SG&A expense.nine months ended September 30, 2022 included a $490 million gain on the sale of PANTHERx.
Debt extinguishment. InDuring the third quarter of 2022, we repurchased $83 million of our 4.25% Senior Notes due 2027 and $176 million of our 4.625% Senior Notes due 2029 through our debt repurchase program, resulting in a pre-tax gain on extinguishment of $10 million. In May 2022, we recognized a $13 million pre-tax gain on the extinguishment of debt related to the refinancing of debt for our of Circle Health subsidiary. The 2022 debt extinguishment also includes an immaterial gain related to the redemption of Magellan’sMagellan's outstanding Senior Notes in January 2022.
In August 2021, we redeemed all of our outstanding 5.375% Senior Notes due 2026 and all of WellCare Health Plans, Inc.'s outstanding 5.375% Senior Notes due 2026, including all premiums and accrued interest. We recognized a pre-tax loss on extinguishment of $79 million, including the call premium, the write-off of the unamortized premium and debt issuance costs, and expenses related to the redemptions. In February 2021, we tendered or redeemed all of our outstanding $2.2 billion 4.75% Senior Notes, due 2025 and recognized a pre-tax loss on extinguishment of approximately $46 million. The loss includes the call premium and the write-off of unamortized premium and debt issuance costs.
Interest expense. Interest expense decreasedincreased by $12$51 million in the nine months ended September 30, 2022,2023, compared to the corresponding period in 2021,2022. The increase was driven by our 2022 and 2021 refinancing actions.higher interest rates on variable rate debt.
Income Tax Expense
For the nine months ended September 30, 2023, we recorded income tax expense of $914 million on pre-tax earnings of $3.6 billion, or an effective tax rate of 25.6%. The effective tax rate for 2023 reflects the tax effects of the distribution of long-term stock awards to the estate of the Company's former CEO, divestiture gains, impairments as well as the pending divestiture of Circle Health. For the nine months ended September 30, 2023, our effective tax rate on adjusted earnings was 24.5%.
For the nine months ended September 30, 2022, we recorded income tax expense of $500 million on pre-tax earnings of $1.9 billion, or an effective tax rate of 26.0%. For the nine months ended September 30, 2022, our effective tax rate on adjusted earnings was 26.2%. For the nine months ended September 30, 2021, we recorded income tax expense of $376 million on pre-tax earnings of $1.1 billion, or an effective tax rate of 33.6%, which reflects the partial non-deductibility of the legal settlement reserve.
Segment Results
The following table summarizes our consolidated operating results by segment for the nine months ended September 30, ($ in millions):
| | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | % Change |
| Total Revenues | | | | | |
| Managed Care | $ | 101,434 | | | $ | 89,082 | | | 14 | % |
| Specialty Services | 17,497 | | | 13,553 | | | 29 | % |
| Eliminations | (9,945) | | | (9,221) | | | (8) | % |
| Consolidated Total | $ | 108,986 | | | $ | 93,414 | | | 17 | % |
| Earnings from Operations | | | | | |
| Managed Care | $ | 1,634 | | | $ | 1,240 | | | 32 | % |
| Specialty Services | (34) | | | (59) | | | 42 | % |
| Consolidated Total | $ | 1,600 | | | $ | 1,181 | | | 35 | % |
| | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | % Change |
| Total Revenues | | | | | |
| Medicaid | $ | 75,523 | | | $ | 69,822 | | | 8 | % |
| Medicare | 16,971 | | | 17,035 | | | n.m. |
| Commercial | 17,439 | | | 12,979 | | | 34 | % |
| Other | 4,606 | | | 9,150 | | | (50) | % |
| Consolidated total | $ | 114,539 | | | $ | 108,986 | | | 5 | % |
Gross Margin (1) | | | | | |
| Medicaid | $ | 6,663 | | | $ | 6,654 | | | n.m. |
| Medicare | 2,617 | | | 2,433 | | | 8 | % |
| Commercial | 3,701 | | | 2,563 | | | 44 | % |
| Other | 913 | | | 1,357 | | | (33) | % |
| Consolidated total | $ | 13,894 | | | $ | 13,007 | | | 7 | % |
| | | | | | |
| (1) | Gross margin represents premium and service revenues less medical costs and cost of services. |
| n.m.: not meaningful |
Managed CareMedicaid
Total revenues increased 14%8% in the nine months ended September 30, 2022,2023, compared to the corresponding period in 2021, driven by organic Medicaid growth, partially due to the ongoing suspension of eligibility redeterminations, membership growth in the Medicare business, our recent acquisition of Circle Health, the commencement of our contracts in North Carolina, along with premium tax revenue and retroactive state directed payments. Earnings from operations2022. Gross margin increased $394 million between years primarily as a result of Medicaid and Medicare membership growth, 2021 risk adjustment in 2022, lower traditional utilization in the Marketplace business, profitability growth in the PDP business, and the acquisition of Circle Health, partially offset by the $1.7 billion pre-tax real estate impairment. 2021 was negatively impacted by the legal settlement reserve estimate of $1.25 billion related to services provided by Envolve and higher utilization in the Marketplace business in 2021.
Specialty Services
Total revenues increased 29% in the nine months ended September 30, 2022, compared to the corresponding period in 2021, resulting primarily from our acquisition of Magellan, increased services associated with membership growth in the Managed Care segment, and new contracts in our correctional business. Earnings from operations increased $25$9 million in the nine months ended September 30, 2022,2023, compared to the corresponding period in 2021,2022 primarily driven by net rate increases, partially offset by higher utilization.
Medicare
Total revenues were flat in the nine months ended September 30, 2023, compared to the corresponding period in 2022. Gross margin increased $184 million in the nine months ended September 30, 2023, compared to the corresponding period in 2022 driven primarily by product offerings designed to improve HBR.
Commercial
Total revenues increased 34% in the nine months ended September 30, 2023, compared to the corresponding period in 2022. Gross margin increased $1.1 billion in the nine months ended September 30, 2023, compared to the corresponding period in 2022. Increases were primarily driven by 76% membership growth in the Marketplace business, resulting from strong product positioning and overall market growth.
Other
Total revenues decreased 50% in the nine months ended September 30, 2023, compared to the corresponding period in 2022. Gross margin decreased $444 million in the nine months ended September 30, 2023, compared to the corresponding period in 2022. Decreases were primarily due to favorable Magellan operations and the prior year impairmentrecent divestitures.
LIQUIDITY AND CAPITAL RESOURCES
Shown below is a condensed schedule of cash flows used in the discussion of liquidity and capital resources ($ in millions).
| | | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2022 | | 2021 | | 2023 | | 2022 |
| Net cash provided by operating activities | Net cash provided by operating activities | $ | 7,837 | | | $ | 3,530 | | Net cash provided by operating activities | $ | 7,836 | | | $ | 7,837 | |
| Net cash used in investing activities | (3,142) | | | (2,442) | | |
| Net cash (used in) provided by financing activities | (2,465) | | | 1,597 | | |
| Net cash (used in) investing activities | | Net cash (used in) investing activities | (242) | | | (3,142) | |
| Net cash (used in) financing activities | | Net cash (used in) financing activities | (1,457) | | | (2,465) | |
| Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | (37) | | | (8) | | Effect of exchange rate changes on cash and cash equivalents | 19 | | | (37) | |
| Net increase in cash, cash equivalents, and restricted cash and cash equivalents | Net increase in cash, cash equivalents, and restricted cash and cash equivalents | $ | 2,193 | | | $ | 2,677 | | Net increase in cash, cash equivalents, and restricted cash and cash equivalents | $ | 6,156 | | | $ | 2,193 | |
Cash Flows Provided by Operating Activities
Normal operations are funded primarily through operating cash flows and borrowings under our revolving credit facility. Operating activities provided cash of $7.8 billion in the nine months ended September 30, 2022,2023, compared to providing cash of $3.5$7.8 billion in the comparable period in 2021. 2022. Cash flows provided by operations in 2023 were driven by net earnings and increases in unearned revenue and accounts payable driven by the early receipt of payments from CMS.
Cash flows provided by operations in 2022 were primarily driven by net earnings before the non-cash real estate impairment charge, an increase in medical claims liabilities, and increases in unearned revenue and accounts payable due to the early receipt of payments from CMS.
Cash flows provided by operations in 2021 were due to net earnings before the legal settlement reserve, an increase in state risk sharing mechanism payables, partially offset by risk adjustment and minimum medical loss ratio (MLR) payments for the Health Insurance Marketplace 2020 plan year.
Cash Flows Used in Investing Activities
Investing activities used cash of $3.1 billion$242 million in the nine months ended September 30, 2022,2023, and $2.4$3.1 billion in the comparable period in 2021.2022. Cash flows used in investing activities in 20222023 primarily consisted of net additions to the investment portfolio of our regulated subsidiaries (including transfers from cash and cash equivalents to long-term investments) and capital expenditures, partially offset by divestiture proceeds.
In 2022, cash flows used in investing activities primarily related to net additions to the investment portfolio of our regulated subsidiaries (including transfers from cash and cash equivalents to long-term investments) and our acquisition of Magellan, partially offset by our PANTHERx divestiture proceeds.
Cash flows used in investing activities in 2021 primarily consisted of the net additions to the investment portfolio of our regulated subsidiaries (including transfers from cash and cash equivalents to long-term investments), acquisition and divestiture activity primarily related to the acquisition of the remaining 60% interest of Circle Health, and capital expenditures.
We spent $771$576 million and $662$771 million in the nine months ended September 30, 20222023 and 2021,2022, respectively, on capital expenditures forthe majority of which was driven by system enhancements market growth, and our corporate and regional buildings.computer hardware.
As of September 30, 2022,2023, our investment portfolio consisted primarily of fixed-income securities with an average duration of 3.43.5 years. We had unregulated cash and cash equivalentsinvestments of $436 million$1.0 billion at September 30, 2022, including $49 million in our international subsidiaries,2023, compared to $2.7$1.4 billion at December 31, 2021, including $430 million in our international subsidiaries. Unregulated cash was substantially reduced in January 2022 upon the closing of the Magellan Acquisition for the purchase price payment and corresponding closing costs.2022.
Cash Flows Used in Financing Activities
Financing activities used cash of $2.5$1.5 billion in the nine months ended September 30, 2022,2023, compared to providingusing cash of $1.6$2.5 billion in the comparable period in 2021. 2022. Financing activities in 2023 were driven by stock repurchases of $1.6 billion.
Financing activities in 2022 were driven by stock repurchases of $1.6 billion through our stock repurchase program, the redemption of Magellan's outstanding debt of $535 million assumedacquired in the transaction using Magellan's cash on hand, and senior note debt repurchases of $259 million. In 2021, net financing activities were driven by costs associated with our debt refinancing, offset by increased borrowings.
Liquidity Metrics
We have a stock repurchase program authorizing us to repurchase common stock from time to time on the open market or through privately negotiated transactions. In June 2022, ourthe Company's Board of Directors approved an increaseauthorized up to a cumulative total of $6.0 billion of repurchases under the existingprogram.
During the quarter, we repurchased 11.6 million shares of common stock for $773 million under the stock repurchase program for Centene’s common stock by $3.0 billion, for a total $4.0 billion.program. We have approximately $2.2$1.3 billion remaining under the program for repurchases as of September 30, 2022.2023. No duration has been placed on the repurchase program. We reserve the right to discontinue the repurchase program at any time. Refer to Note 10. Stockholders' Equity for further information on stock repurchases.
In July 2022, we remitted $1.0 billion upon entering into an accelerated share repurchase (ASR) agreement to repurchase our common stock under our stock repurchase program using a portion of the proceeds from the PANTHERx divestiture. At inception, we received an initial delivery of approximately 8.6 million shares representing 80% of the $1.0 billion notional amount. In October 2022, an additional 3.0 million shares were delivered upon settlement of the ASR based upon the volume-weighted average price (VWAP) over the term of the agreement, less a discount. In total, 11.6 million shares were purchased through the $1.0 billion ASR.
During the quarter, we also repurchased an additional 2.9 million shares of common stock for $240 million under the stock repurchase program and repurchased $259 million of our par value senior notes, for $247 million, under the debt repurchase program.
From time to time, we raise capital through the issuance of debt in the form of senior notes or make decisions to repurchase shares or reduce debt as part of our capital allocation strategy. As of September 30, 2022,2023, we had an aggregate principal amount of $15.7 billion of senior notes issued and outstanding. The indentures governing our various maturities of senior notes contain restrictive covenants. As of September 30, 2022,2023, we were in compliance with all covenants. Refer
As part of our capital allocation strategy, we may decide to Note 8. Debt for further information regardingrepurchase debt or raise capital through the issuance and redemptionof debt in the form of senior notes and Note 10. Stockholders' Equity for information on stock repurchases.notes. In 2022, the Company's Board of Directors also authorized a $1.0 billion senior note debt repurchase program. No repurchases were made during the quarter ended September 30, 2023. As of September 30, 2023, there was $700 million available under the senior note debt repurchase program.
The credit agreement underlying our Revolving Credit Facility and Term Loan Facility contains customary covenants as well as financial covenants including a minimum fixed charge coverage ratio and a maximum debt-to-EBITDA ratio. Our maximum debt-to-EBITDA ratio under the credit agreement may not exceed 4.0 to 1.0. As of September 30, 2022,2023, we had $120$309 million of borrowings outstanding under our Revolving Credit Facility, $2.2$2.1 billion of borrowings under our Term Loan Facility, and we were in compliance with all covenants. As of September 30, 2022,2023, there were no limitations on the availability of our Revolving Credit Facility as a result of the debt-to-EBITDA ratio.
We had outstanding letters of credit of $211$212 million as of September 30, 2022,2023, which were not part of our revolving credit facility. The letters of credit bore weighted interest of 0.6%0.7% as of September 30, 2022.2023. In addition, we had outstanding surety bonds of $1.4 billion$892 million as of September 30, 2022.2023.
At September 30, 2022,2023, our debt to capital ratio, defined as total debt divided by the sum of total debt and total equity, was 41.5%, compared to 42.7% at December 31, 2022. The debt to capital ratio decrease was driven by net earnings partially offset by year-to-date stock repurchases. We utilize the debt to capital ratio as a measure, among others, of our leverage and financial flexibility.
At September 30, 2023, we had working capital, defined as current assets less current liabilities, of $1.9$4.6 billion, compared to $2.7$1.7 billion at December 31, 2021. Working capital was substantially reduced in January 2022 upon the closing of the Magellan Acquisition for the purchase price payment and corresponding closing costs.2022. We manage our short-term and long-term investments with the goal of ensuring that a sufficient portion is held in investments that are highly liquid and can be sold to fund short-term requirements as needed.
At September 30, 2022, our debt to capital ratio, defined as total debt divided by the sum of total debt and total equity, was 41.8%, compared to 41.2% at December 31, 2021. Excluding $181 million of non-recourse debt, our debt to capital ratio was 41.6% as of September 30, 2022, compared to $184 million and 40.9% at December 31, 2021. The debt to capital ratio increase was driven by stock repurchases in the quarter. We utilize the debt to capital ratio as a measure, among others, of our leverage and financial flexibility.
20222023 Expectations
During the remainder of 2022,2023, we expect to receive net dividends from our insurance subsidiaries of approximately $511$340 million and spend approximately $300$180 million in additional capital expenditures. In October 2022,2023, we made additional purchases of $66$27 million through our stock repurchase program and $58 million of our par value senior notes for $53 million through our debt repurchase program.
If the previously announced divestiture of Magellan Rx closes in 2022, we would have additional proceeds to utilize for additional stock repurchases and debt reduction.
Based on our operating plan, we expect that our available cash, cash equivalents and investments, cash from our operations and cash available under our Revolving Credit Facility will be sufficient to finance our general operations and capital expenditures for at least 12 months from the date of this filing. While we are currently in a strong liquidity position and believe we have adequate access to capital, we may elect to increase borrowings on our Revolving Credit Facility. Our long-term liquidity position is stable, with our senior notes maturing between December 2027 and August 2031, and our Revolving Credit Facility maturing in August 2026. From time to time we may elect to raise additional funds for theseworking capital and other purposes, either through issuance of debt or equity, the sale of investment securities or otherwise, as appropriate. In addition, we may strategically pursue refinancing or redemption opportunities to extend maturities and/or improve terms of our indebtedness if we believe such opportunities are favorable to us.
We intend to continue to evaluate strategic actions in connection with our Value Creation Plan, targeting initiatives to improve productivity, efficiencies and reduced organizational costs, as well as capital deployment activities, including stock repurchases, portfolio optimization and the evaluation of refinancing opportunities. In addition to creating shareholder value, this plan encompasses a larger organizational mission to enhance our member and provider experience, improve outcomes for our members, and to initiate new ways of doing business that make Centene a great partner in all aspects of our operations.
REGULATORY CAPITAL AND DIVIDEND RESTRICTIONS
Our operations are conducted through our subsidiaries. As managed care organizations, most of our subsidiaries are subject to state regulations and other requirements that, among other things, require the maintenance of minimum levels of statutory capital, as defined by each state, and restrict the timing, payment and amount of dividends and other distributions that may be paid to us. Generally, the amount of dividend distributions that may be paid by a regulated subsidiary without prior approval by state regulatory authorities is limited based on the entity's level of statutory net income and statutory capital and surplus.
Our regulated subsidiaries are required to maintain minimum capital requirements prescribed by various regulatory authorities in each of the states in which we operate. During the nine months ended September 30, 2022,2023, we received dividends of $773 million$1.8 billion from and made $627$261 million of capital contributions to our regulated subsidiaries. For our subsidiaries that file with the National Association of Insurance Commissioners (NAIC), the aggregate risk-based capital (RBC) level as of December 31, 2021,2022, which was the most recent date for which reporting was required, was in excess of 350% of the Authorized Control Level. We intend to continue to maintain an aggregate RBC level in excess of 350% of the Authorized Control Level during 2022.2023.
Under the California Knox-Keene Health Care Service Plan Act of 1975, as amended (Knox-Keene), certain of our California subsidiaries must comply with tangible net equity (TNE) requirements. Under these Knox-Keene TNE requirements, actual net worth less certain unsecured receivables and intangible assets must be more than the greater of (i) a fixed minimum amount, (ii) a minimum amount based on premiums or (iii) a minimum amount based on healthcare expenditures, excluding capitated amounts.
Under the New York State Department of Health Codes, Rules and Regulations Title 10, Part 98, our New York subsidiary must comply with contingent reserve requirements. Under these requirements, net worth based upon admitted assets must equal or exceed a minimum amount based on annual net premium income.
The NAIC has adopted rules which set minimum RBC requirements for insurance companies, managed care organizations and other entities bearing risk for healthcare coverage. As of September 30, 2022,2023, each of our health plans was in compliance with the RBC requirements enacted in those states.
As a result of the above requirements and other regulatory requirements, certain of our subsidiaries are subject to restrictions on their ability to make dividend payments, loans or other transfers of cash to their parent companies. Such restrictions, unless amended or waived or unless regulatory approval is granted, limit the use of any cash generated by these subsidiaries to pay our obligations. The maximum amount of dividends that can be paid by our insurance company subsidiaries without prior approval of the applicable state insurance departments is subject to restrictions relating to statutory surplus, statutory income and unassigned surplus.
CRITICAL ACCOUNTING ESTIMATES
Please see "Critical Accounting Estimates in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2022 Annual Report on Form 10-K for a description of our Critical Accounting Estimates.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
INVESTMENTS AND DEBT
As of September 30, 2022,2023, we had short-term investments of $2.2 billion and long-term investments of $15.3$16.6 billion, including restricted deposits of $1.2$1.3 billion. The short-term investments generally consist of highly liquid securities with maturities between three and 12 months. The long-term investments consist of municipal, corporate and U.S. Treasury securities, government sponsoredgovernment-sponsored obligations, life insurance contracts, asset-backed securities, and equity securities, and have maturities greater than one year. Restricted deposits consist of investments required by various state statutes to be deposited or pledged to state agencies. Due to the nature of the states’states' requirements, these investments are classified as long-term regardless of the contractual maturity date. Substantially all of our investments are subject to interest rate risk and will decrease in value if market rates increase. Assuming a hypothetical and immediate 1% increase in market interest rates at September 30, 2022,2023, the fair value of our fixed income investments would decrease by approximately $560$601 million.
We have a foreign currency swap for a notional amount of $931 million with a creditworthy financial institution to manage foreign exchange risk related to the pending Circle Health divestiture. As a result, the fair value of the swap varies with foreign exchange rate fluctuations. Assuming a 1% increase in the Great British Pound to US Dollar foreign exchange rate at September 30, 2023, the fair value of our swap would decrease by approximately $9 million. An increase in the US Dollar to Great British Pound foreign exchange rate decreases the fair value of the swap and conversely, a decrease in the foreign currency exchange rate increases the value. We do not hold or issue any derivative instruments for trading or speculative purposes.
For a discussion of the interest rate risk that our investments are subject to, refer to our 10-K for the fiscal year ended December 31, 2021,2022, Part 1, Item 1A, "Risk Factors – Our investment portfolio may suffer losses which could materially and adversely affect our results of operations or liquidity."
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures - We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
In connection with the filing of this Form 10-Q, management evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2022.2023. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2022.2023.
Changes in Internal Control Over Financial Reporting - No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended September 30, 20222023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
On January 4, 2022, we acquired Magellan. Management is currently in the process of evaluating the internal controls and procedures of Magellan and plans to integrate Magellan's internal control over financial reporting with our existing internal control over financial reporting. This integration may lead to changes in the internal control over financial reporting for us or the acquired Magellan business in future periods. Management expects the integration process to continue throughout the year and be completed during 2022.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
A description of the legal proceedings to which the Company and its subsidiaries are a party is contained in Note 13. Contingencies to the consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q, and is incorporated herein by reference.
Item 1A. Risk Factors.
In additionThere have been no material changes to the risk factors set forthdisclosed in Part I - Item 1A - "Risk Factors" of our 2022 Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "2021 Form 10-K"), investors should carefully consider the following risk factor, which has been updated to reflect the impairment charges related to our real estate portfolio evaluation. This risk should be read in conjunction with the risk factors set forth in the 2021 Form 10-K and the other information contained in this report and our other filings with the Securities and Exchange Commission.10-K.
An impairment charge with respect to our real estate portfolio, recorded goodwill and intangible assets could have a material impact on our results of operations.
In connection with the evaluation of our real estate portfolio, we are downsizing our leased space and have evaluated whether the carrying value of our owned real estate may be impaired. As a result, we have incurred a charge of $811 million related to leased real estate and associated fixed asset impairments and a charge of $763 million related to owned real estate impairments through the third quarter of 2022. We anticipate additional future charges of approximately $100 million related to real estate optimization. We also periodically evaluate our goodwill and other intangible assets to determine whether all or a portion of their carrying values may be impaired, in which case a charge to earnings may be necessary. Changes in business strategy, government regulations, or economic or market conditions have resulted and may result in impairments of our real estate portfolio, goodwill and other intangible assets at any time in the future. Our judgments regarding the existence of impairment indicators are based on, among other things, legal factors, market conditions, and operational performance. For example, the non-renewal of our health plan contracts with the state in which they operate may be an indicator of impairment. If an event or events occur that would cause us to revise our estimates and assumptions used in analyzing the value of our goodwill and other intangible assets, such revision could result in a non-cash impairment charge that could have a material impact on our results of operations in the period in which the impairment occurs.
Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds.Proceeds, and Issuer Purchases of Equity Securities
In June 2022, ourNovember 2005, the Company's Board of Directors approved an additional $3.0 billion to the Company's existingannounced a stock repurchase program, for its common stock for a total $4.0 billion. which was most recently increased in December 2022. The Company is authorized to repurchase up to $6.0 billion, inclusive of past authorizations.
The stock repurchase program is effected primarily through regular open-market purchases (which may include repurchase plans designed to comply with Rule 10b5-1 and accelerated share repurchases), the amounts and timing of which are subject to ourthe Company's discretion as part of ourits capital allocation strategy, and may be based upon general market conditions and the prevailing price and trading volumes of ourits common stock. No duration has been placed on the repurchase program. The Company reserves the right to discontinue the repurchase program at any time.
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Issuer Purchases of Equity Securities Third Quarter 2022 (shares in thousands) |
| Period | | Total Number of Shares Purchased (1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ($ in millions) (2) |
July 1, 2022 - July 31, 2022 (3) | | 9,841 | | | $ | 92.15 | | | 9,828 | | | $ | 2,350 | |
| August 1, 2022 - August 31, 2022 | | 7 | | | 93.52 | | | — | | | 2,350 | |
| September 1, 2022 - September 30, 2022 | | 1,672 | | | 81.00 | | | 1,658 | | | 2,216 | |
| Total | | 11,520 | | | $ | 90.53 | | | 11,486 | | | $ | 2,216 | |
(1) Shares purchased through a publicly announced plan or program and shares relinquished to the Company by certain employees for payment of taxes or option cost upon vesting of restricted stock units or option exercise. (2) In June 2022, the Company's Board of Directors approved a $3.0 billion increase to the Company's existing stock repurchase program for its common stock. A remaining amount of approximately $2.2 billion is available under the program as of September 30, 2022. (3) Includes shares repurchased through an accelerated share repurchase (ASR) and represents the spot price at inception but was subsequently settled based on the volume-weighted average price (VWAP) over the term of the agreement. See Note 10. Stockholders’ Equity for additional information. |
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Issuer Purchases of Equity Securities Third Quarter 2023 (Shares in thousands) |
| Period | | Total Number of Shares Purchased (1) | | Average Price Paid per Share (2) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ($ in millions) (3) |
| July 1, 2023 - July 31, 2023 | | 4,549 | | | $ | 66.02 | | | 4,545 | | | $ | 1,729 | |
| August 1, 2023 - August 31, 2023 | | 2,986 | | | 67.05 | | | 2,984 | | | 1,529 | |
| September 1, 2023 - September 30, 2023 | | 4,085 | | | 66.88 | | | 4,080 | | | 1,256 | |
| Total | | 11,620 | | | $ | 66.59 | | | 11,609 | | | $ | 1,256 | |
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| (1) | Includes 11 thousand shares relinquished to the Company by certain employees for payment of taxes. |
| (2) | Average price paid per share excludes accrued share repurchase excise tax of $7 million. |
| (3) | A remaining amount of approximately $1.3 billion is available under the stock repurchase program as of September 30, 2023. |
Item 6. Exhibits.
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EXHIBIT
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DESCRIPTION |
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3.1 | | | |
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3.2 | | | |
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| 31.1 | | | |
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| 31.2 | | | |
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| 32.1 | | | |
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| 32.2 | | | |
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| 101 | | | The following materials from the Centene Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 2022,2023, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Earnings;Earnings (Loss); (iv) the Consolidated Statements of Stockholders’Stockholders' Equity; (v) the Consolidated Statements of Cash Flows and (vi) related notes. |
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| 104 | | | Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized as of October 25, 2022.24, 2023.
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| | CENTENE CORPORATION |
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| | By: | /s/ SARAH M. LONDON |
| | Chief Executive Officer
(principal executive officer)
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| | By: | /s/ ANDREW L. ASHER |
| | Executive Vice President, Chief Financial Officer
(principal financial officer)
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| | By: | /s/ KATIE N. CASSO |
| | Senior Vice President, Corporate Controller and Chief Accounting Officer
(principal accounting officer)
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