Wells Fargo 2018 Healthcare Conference. -- Boston --

Transcription

1 Wells Fargo 2018 Healthcare Conference -- Boston -- September 6, 2018

2 Forward-Looking Statements The company and its representatives may from time to time make written and oral forward-looking statements within the meaning of the Private Securities Litigation Reform Act ("PSLRA") of 1995, including statements in this and other presentations, press releases, filings with the Securities and Exchange Commission ("SEC"), reports to stockholders and in meetings with investors and analysts. In particular, the information provided in this presentation may contain certain forward-looking statements with respect to the financial condition, results of operations and business of Centene and certain plans and objectives of Centene with respect thereto, including but not limited to the expected benefits of the acquisition of Health Net, Inc. (Health Net) (Health Net Acquisition) and the acquisition of New York State Catholic Health Plan, Inc., d/b/a Fidelis Care New York (Fidelis Care) (Fidelis Care Acquisition). These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Without limiting the foregoing, forwardlooking statements often use words such as "believe", "anticipate", "plan", "expect", "estimate", "intend", "seek", "target", "goal", "may", "will", "would", "could", "should", "can", "continue" and other similar words and expressions (and the negative thereof). We intend such forward-looking statements to be covered by the safe-harbor provisions for forwardlooking statements contained in PSLRA. A number of factors, variables or events could cause actual plans and results to differ materially from those expressed or implied in forwardlooking statements. Such factors include, but are not limited to, Centene's ability to accurately predict and effectively manage health benefits and other operating expenses and reserves; competition; membership and revenue declines or unexpected trends; changes in healthcare practices, new technologies and advances in medicine; increased healthcare costs; 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 and any regulations enacted thereunder that may result from changing political conditions; rate cuts or other payment reductions or delays by governmental payors and other risks and uncertainties affecting Centene's government businesses; Centene's ability to adequately price products on federally facilitated and state-based Health Insurance Marketplaces; tax matters; disasters or major epidemics; the outcome of legal and regulatory proceedings; changes in expected contract start dates; provider, state, federal and other contract changes and timing of regulatory approval of contracts; the expiration, suspension or termination of Centene's 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 pending or future litigation or government investigations; challenges to Centene's contract awards; cyber-attacks or other privacy or data security incidents; the possibility that the expected synergies and value creation from acquired businesses, including, without limitation, the Health Net Acquisition and the Fidelis Care Acquisition, will not be realized, or will not be realized within the expected time period; the exertion of management's time and Centene's resources, and other expenses incurred and business changes required in connection with complying with the undertakings in connection with any regulatory, governmental or third party consents or approvals for the Health Net Acquisition or the Fidelis Care Acquisition; disruption caused by significant completed and pending acquisitions, including the Health Net Acquisition and the Fidelis Care Acquisition, making it more difficult to maintain business and operational relationships; the risk that unexpected costs will be incurred in connection with the completion and/or integration of acquisition transactions, including among others, the Health Net Acquisition and the Fidelis Care Acquisition; changes in expected closing dates, estimated purchase price and accretion for acquisitions; the risk that acquired businesses, including Health Net and Fidelis Care, will not be integrated successfully; the risk that, following the Fidelis Care Acquisition, Centene may not be able to effectively manage its expanded operations; restrictions and limitations in connection with Centene's indebtedness; Centene's ability to 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; availability of debt and equity financing, on terms that are favorable to Centene; inflation; foreign currency fluctuations; and risks and uncertainties discussed in the reports that Centene has filed with the SEC. These forward-looking statements reflect Centene's current views with respect to future events and are based on numerous assumptions and assessments made by Centene in light of its experience and perception of historical trends, current conditions, business strategies, operating environments, future developments and other factors it believes 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. The factors described in the context of such forwardlooking statements in this presentation could cause Centene's plans with respect to the Health Net Acquisition, the Fidelis Care Acquisition, actual results, performance or achievements, industry results and developments to differ materially from those expressed in or implied by such forward-looking statements. Although it is currently believed that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct and persons reading this presentation are therefore cautioned not to place undue reliance on these forward-looking statements which speak only as of the date of this presentation. Centene does not assume any obligation to update the information contained in this presentation (whether as a result of new information, future events or otherwise), except as required by applicable law. This list of important factors is not intended to be exhaustive. We discuss certain of these matters more fully, as well as certain other risk factors that may affect Centene's business operations, financial condition and results of operations, in Centene's filings with the SEC, including the annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. 2

3 Earnings Guidance Policy Our Company s policy is, that the Company undertakes no obligation to update its earnings guidance, other than as part of its quarterly or yearly earnings disclosure, and that silence on guidance by the Company or Company officials should not be interpreted that guidance has or has not changed. In any event, no updated guidance would ever be given that is not previously or simultaneously disclosed in an SEC filing or other broad non-exclusionary means. Further, it is Company policy to generally not hold discussions with investors commencing two weeks prior to earnings release. This presentation also includes non-gaap financial measures. You can find Centene's presentations on the most directly comparable GAAP financial measures calculated in accordance with GAAP and reconciliations in Appendix A. Centene is providing certain non-gaap financial measures in this presentation as Centene believes that these figures are helpful in allowing investors to more accurately assess the ongoing nature of Centene's operations and measure Centene's performance more consistently across periods. Centene uses the presented non-gaap financial measures internally to allow management to focus on period-to-period changes in Centene's core business operations. Therefore, Centene 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. 3

4 Who We Are 41,200 employees # 61 on the Fortune 500 list $ 15.0 billion in cash and investments WHO WE ARE St. Louis based company founded in Milwaukee in 1984 # 210 on the Fortune Global 500 list # 27 Fortune s Fastest Growing Companies (2017) $ B expected revenue for 2018 WHAT WE DO 31 states with government sponsored healthcare programs and implementations Medicaid Marketplace Medicare Correctional 2 international markets 12.8 million members includes 2.9 million TRICARE eligible ~330 Product / Market Solutions 4

5 Source: Fortune 5

6 2017 Performance Revenues Total Revenues of $48.4 billion + 19% HBR Health Benefits Ratio of 87.3% + 80 bps Diluted EPS Diluted EPS of $ % Adjusted Diluted EPS 1 Adjusted Diluted EPS of $ % Membership Added 765K members between years + 7% 1 Represents a non-gaap measure. See Appendix A for reconciliation of non-gaap measures. 6

7 Q Performance Revenues Total Revenues of $14.2 billion + 19% HBR Health Benefits Ratio of 85.7% (60) bps Diluted EPS Diluted EPS of $ % Adjusted Diluted EPS 1 Adjusted Diluted EPS of $ % Membership Added 585K members between years + 5% 1 Represents a non-gaap measure. See Appendix A for reconciliation of non-gaap measures. 7

8 2018 Guidance Low High Total revenues (in billions) $59.2 $60.0 GAAP diluted EPS $4.25 $4.57 Adjusted Diluted EPS 1 $6.80 $7.16 HBR% 85.9% 86.4% Selling, general & administrative (SG&A) expense ratio 10.2% 10.7% Adjusted SG&A expense ratio 2 9.4% 9.9% Effective tax rate 34.0% 36.0% Diluted shares (in millions) Represents a non-gaap measure. See Appendix A for reconciliation of non-gaap measures. 2 Represents a non-gaap measure. Adjusted SG&A% excludes acquisition related expenses of $422 million to $428 million. 8

9 5 Year Compound Annual Growth Rates (F), excluding stock price $ 41% Total Revenues 1 Delivering Shareholder Value EPS 37% Adj. Diluted EPS 2 CNC 38% Stock Price 3 1 Based upon 2018 guidance midpoint. 2 Represents a non-gaap measure using the guidance midpoint. See Appendix A for reconciliation of non-gaap measures. The 5 year GAAP diluted EPS CAGR is 25% using the guidance midpoint. 3 5 year stock price CAGR as of August 27,

10 2013 vs ($ IN BILLIONS) $ $ % - 2.6% $ % Guidance REVENUE Guidance ADJ. NET INCOME MARGIN* * Excludes estimated merger costs and amortization of acquired intangible assets also excludes California minimum MLR changes; See Appendix A for reconciliation of non-gaap measures. 10

11 Adjusted Diluted Earnings Per Share* (FROM CONTINUING OPERATIONS) CNC 5 Year CAGR +37%** Guidance Range $6.80 $7.16 $2.31 $3.14 $4.43 $ (F) *Represents non-gaap measure. See Appendix A for reconciliation of non-gaap measures. **Based on 2018 guidance range mid-point. 11

12 Stock Price CAGR vs. Peers 5 YEAR CAGR, AUGUST % 29% 12% S&P 500 Composite Note: CAGR from August 27, 2013 August 27, Source: Yahoo!Finance 1 Peer group includes Aetna, Anthem, Cigna, Humana, Molina, United and WellCare. Peer Group 1 CNC 12

13 Total Revenue Growth ($ IN MILLIONS) Guidance Range $59,200 - $60,000 41% 5 Year CAGR* $40,607 $48,382 $22,760 $16,560 $4,103 $4,448 $5,211 $8,110 $10, (F) % Increase over PY 22% 8% 17% 56% 34% 52% 37% 78% 19% 23%* * Based on 2018 guidance range mid-point. 13

14 Diversifying Revenues 2015: $22.8 Billion 2018(F): $59.6 Billion 1 4% 2% 20% 84% 10% 65% 9% 6% Medicaid Commercial Medicare Other 1 Midpoint of guidance range. 14

15 Funds Flow Structured to Facilitate Free Cash Flow Unregulated Net Cash Flow Available to Service Debt Unregulated Entities Centene Corporation States Actuarially Sound Premiums Envolve Benefit Options Envolve PeopleCare Envolve Pharmacy Solutions Centene Management Company Regulated Health Plans Market-based, state-approved contractual relationship Generates sufficient cash flows to cover fixed charges 15

16 Centene: 2008 HEALTHCARE COVERAGE SOLUTIONS Government Solutions AZ FL GA IN OH SC TX Low-Income Medicaid CHIP ABD (non duals) ABD (dual-eligible) or Dual Demonstrations Long-Term Services and Supports Foster Care Medicare Special Needs Plan Specialty Health Solutions Pharmacy Benefits Behavioral & Specialty Therapies Life & Health Management Managed Vision Telehealth WI 8 States 70 Solutions 16

17 Product Solutions Populations & Products AZ AR CA CT 4 FL GA 4 IL IN IA 1 KS LA MD 2,4 MA MI MN MS MO NE NH 4 NM 3 NY NV OH OR PA 4 SC TN TX VT WA WI TANF Medicaid Expansion CHIP ABD (non-duals) ABD (Medicaid only dual-eligibles ) Medicaid-Medicare Plans Intellectually/Developmentally Disabled Long-Term Services and Supports Foster Care 31 2 ~330 Medicare Advantage Medicare Special Needs Plan Health Insurance Marketplaces Commercial Insurance (Lrg & Sm Grp) Correctional Healthcare 4 STATES Specialty Health Solutions AZ AR CA CT FL GA IL IN IA KS LA MD MA MI MN MS MO NE NH NM NY NV OH OR PA SC TN TX VT WA WI Pharmacy Benefits Behavioral & Specialty Therapies Life & Health Management Primary Care Solutions for Complex Pop. Managed Vision Dental Benefits Telehealth (Nurse Triage/Education Line) 1 Iowa operations expected to commence July 1, 2019, subject to closing conditions and regulatory approval. 2 Managed Service Organization (MSO) contract. INTERNATIONAL MARKETS PRODUCT SOLUTIONS 3 Centennial Care Medicaid managed care operations expected to commence January 1, 2019, subject to closing conditions and regulatory approval. 4 Correctional Healthcare operations in CT, GA, MD, NH & PA reflect acquisition of MHM Services, Inc., which closed in the first quarter of

18 Medicaid Leadership BRINGING EXPERIENCE TO NEW MARKETS Operations anticipated to commence January 1, Operations expected to commence July 1,

19 Envolve RECENT SUCCESSES Addressing market needs and driving external revenue growth via an integrated platform that leverages the strength of Centene s specialty solutions Health Plan management services in NY and MD Commercial Behavioral Health (ASO) and EAP for 20,000 Operating Engineers Union members On.Demand diabetes management for 43,000 county employees and dependents 19

20 National View Centene State Centene HIM Membership 2018 New HIM State Peak Membership , , ,200, ,650,000 *2015 excludes Health Net, all years exclude Fidelis New States Expansion States Sole Carrier States Where We are Covering Bare Counties Statewide Presence KS, MO, NV, NY (Fidelis Care) FL, GA, IN, OH, TX, WA AZ (2 counties) MS (Statewide) GA & IN (some rural counties) MO (25), IN (3), OH (3), NV (14), WA (2) AR, MS, NH, NV Lowest Silver in 349 of 413 Counties 20

21 Marketplace Demographics Gender and Age Female Male 2016 (avg. age 42) 54% 46% 84% 92% 2017 (avg. age 42) 55% 45% 2018* (avg. age 43) 55% 45% 16% Metal Tier Silver Bronze Gold & Platinum 85% % 12% 8% 84% 3% 16% % 87% 16% 2018* 11% 2% 92% * Based on signups as of 12/12/17 21

22 2018 Medicare Profile Products Membership: over 420k (Projected Year-End 2018) $5B Revenue Multi-product Multi-state MA / MAPD D-SNP MMP C-SNP I-SNP Med. Supp Centene Medicare Market 2018 New Centene Medicare Advantage Additions EGWP 22

23 Year-Over-Year Growth Medicare Product Breakout 15% 17% 11% % MA/MAPD DSNP MMP Med. Sup. 9% 12% 21% 2018 (P) 58% On pace to exceed 90k YoY enrollment growth target 23

24 Accelerating Our Strategy million members (pro forma as of June 30, 2018) million members Expanding our national leadership in government sponsored healthcare New York Presence, National Leadership California, Medicare and Federal Presence Shareholder Return of over 1,200% since 2010 (1) million members Expanding addressable market opportunities Organic growth new markets and new products Seeking new acquisition opportunities (1) From December 31, 2009 through August 27,

25 Diversified Government Services Platform + 9% 6% 9% 10% 9% 5% 20% 18% 65% 81% 68% LTM 6/30/2018 Revenue: $52 billion LTM 6/30/2018 Revenue: $10 billion LTM 6/30/2018 Combined Revenue: $62 billion Medicaid/Complex Care Medicare/Duals Commercial/Exchanges Specialty/Government 25

26 Recently Acquired Provider Assets Serves 250,000 individuals Leading at-risk provider in FL 300 facilities Expands correctional footprint to 5 states Covers over 80,000 government sponsored beneficiaries Specialty care and support services 26

27 Technology and Analytics Capabilities A full-service PBM will complement to Centene s internal PBM Disruptive platform that allows to drive change across the care continuum Expect to realize savings by significantly reducing both administrative and drugimpacted medical costs 27

28 Addressable $677B Medicaid Markets $783B Medicare $1.86 trillion* $100B $9B $109B Health Insurance Marketplace Correctional Healthcare Federal Services $182B International *Data based on CBO projections and Company estimates for FY19 28

29 Targeted Pipeline Medicaid Medicare $270 billion Health Insurance Marketplace Correctional Healthcare Federal Services International 29

30 Recent Contract Wins NEW MEXICO ARIZONA FLORIDA ARIZONA IOWA Centennial Care 2.0 Program AHCCCS Complete Care Statewide Medicaid Managed Care Contract Comprehensive healthcare services Statewide contract for the IA Health Link Program 30

31 Recent Contract Wins WASHINGTON NEW HAMPSHIRE KANSAS HEALTH NET FEDERAL SERVICES FLORIDA Managed care services to Apple Health's Integrated Managed Care (IMC) Medicaid beneficiaries Medical and dental staff to the NH Department of Corrections Managed care services to KanCare beneficiaries statewide Next generation Military & Family Life Counseling (MFLC) Program Comprehensive healthcare services 31

32 Medicaid Pipeline Realization ($ IN BILLIONS) Total Pipeline $174B 74 Total Contracts Targeted Pipeline $137B 52 Targeted Contracts Realized or Anticipated Revenue* $27B 42 Contract Wins 81% Win Rate *Anticipated revenue includes contract wins that have not yet gone live 32

33 Visibility on 2019 Total Revenue $59.6B* 2018P Full Year of Fidelis Marketplace & Medicare Market Expansions Pennsylvania LTC SE Region New Markets: NM & IA Reprocurement wins: AZ, FL & IL HIF and CA pass throughs $69+B 2019P *2018 mid-point of guidance range 33

34 A Growth Company Long term expectations of double digit growth in revenue and profit $1.9 Trillion Addressable Market Less than 50% Managed care penetration in government sponsored healthcare (Medicaid and Medicare expenditures) 34

35 In Summary WE ARE A GROWTH COMPANY Robust Pipeline Demonstrated Ability to Convert Opportunities to CNC Revenue Revenue Visibility Total Revenue in Excess of $69B with Significant Opportunities in Process Diversified Growth Strategy Opportunities Across Markets, Products, Specialty Services and M&A 35

36 Appendix A

37 Reconciliation of Non-GAAP Measures ($ IN MILLIONS, EXCEPT EARNINGS PER SHARE DATA) Included in this presentation are certain non-gaap financial measures that management believes provide information that is useful to investors in understanding period-overperiod operating results and enhance the ability of investors to analyze Centene s business trends and performance. These non-gaap financial measures should not be considered in isolation, or as a substitute for the corresponding GAAP financial measures and may not be comparable to similar measures used by other companies. A reconciliation of these non-gaap financial measures with the most directly comparable financial measure calculated in accordance with GAAP follows: Reconciliation of GAAP Earnings from Continuing Operations to Adjusted Diluted EPS: Q Q GAAP Earnings from continuing operations $ 161 $ 268 $ 356 $ 559 $ 828 $ 254 $ 300 Amortization of acquired intangible as s ets Acquis ition related expens es California minimum medical los s ratio changes (195) Cost sharing reductions Income tax reform (125) - - Charitable contribution Debt extinguis hment Penn Treaty assessment expense Income tax effects of adjus tments (2) (6) (20) (79) (108) (14) (16) Adjus ted Earnings from Continuing Operations $ 165 $ 278 $ 387 $ 727 $ 889 $ 280 $ 360 Diluted s hares outs tanding (in thous ands) 112, , , , , , ,451 GAAP Diluted EPS $ 1.43 $ 2.23 $ 2.89 $ 3.41 $ 4.69 $ 1.44 $ 1.50 Adjusted Diluted EPS (1) $ 1.47 $ 2.31 $ 3.14 $ 4.43 $ 5.03 $ 1.59 $ 1.80 Reconciliation of GAAP diluted EPS to Adjusted Diluted EPS: Annual Guidance December 31, 2018 GAAP diluted EPS $ $4.57 Amortization of intangible assets (2) $ $0.83 Acquisition related expenses (3) $ $1.64 California minimum medical loss ratio changes (4) $0.12 Adjus ted Diluted EPS $ $7.16 (1) Adjusted Diluted EPS is defined as GAAP diluted net earnings from continuing operations before amortization of acquired intangible assets, acquisition related expenses, other one time adjustments, and the tax impact of such adjustments, calculated on a per share basis. We believe these adjustments are not indicative of future performance. (2) The amortization of acquired intangible assets per diluted share presented are net of an income tax benefit estimated to be $0.24 to $0.25 for the year ended December 31, (3) Acquisition related expenses per diluted share are net of an income tax benefit estimated to be $0.50 to $0.51 for the year ended December 31, (4) The impact of retroactive changes to the California minimum MLR is net of an income tax benefit estimated to be $0.03 to $0.04 for the year ended December 31, 2018.

38 Reconciliation of Non-GAAP Measures ($ IN MILLIONS, EXCEPT EARNINGS PER SHARE DATA) Included in this presentation is Adjusted EBITDA and Adjusted SG&A. Management believes that these non-gaap financial measures provide information that is useful to investors in understanding period-over-period operating results and enhance the ability of investors to analyze Centene s business trends and performance. These non-gaap financial measures should not be considered in isolation, or as a substitute for the corresponding GAAP financial measures and may not be comparable to similar measures used by other companies. The Company also references 2018(F) Adjusted Net Income Margin, 2018(F) Adjusted EBITDA, and 2018(F) Adjusted SG&A. The Company cannot provide a reconciliation of these items without unreasonable efforts. As such, they have been excluded from the reconciliation below. A reconciliation of Adjusted EBITDA and Adjusted SG&A, non-gaap financial measures, with the most directly comparable financial measures calculated in accordance with GAAP follows: Reconciliation of GAAP Earnings from Continuing Operations to Adjusted EBITDA: GAAP Ea rni ngs from continui ng opera tions $ 356 $ 559 $ 828 Interes t expens e Income taxes Depreci a tion a nd a mortiza tion Non-cash stock compensation expense from cont. operations Adjusted EBITDA (1) $ 921 $ 1,804 $ 1,906 Reconciliation of GAAP Selling, General & Administrative expenses (SG&A) to Adjusted SG&A: GAAP selling, general and administrative expenses $ 1,802 $ 3,676 $ 4,446 Acquisition related expenses Penn Treaty assessment expense Cha ri tabl e contri bution Adjusted selling, general and administrative expenses $ 1,775 $ 3,392 $ 4,330 (1) Adjusted EBITDA is defined as net earnings attributable to Centene Corporation excluding income tax expense, interest expense, depreciation, amortization (excluding senior note premium amortization) and non-cash compensation expense.

39 Wells Fargo 2018 Healthcare Conference -- Boston -- September 6, 2018