Q4 2024 Earnings Summary
- Centene increased its 2025 premium and service revenue guidance by $4 billion to a range of $158 billion to $160 billion, driven by stronger-than-expected Medicare enrollment and an additional $1.5 billion in Medicaid revenue from program changes. This enhances Centene's long-term earnings power.
- Medicare Part D (PDP) margins in 2024 were higher than the anticipated 1%, with strong performance in the fourth quarter. This strong finish bodes well for the execution and performance of the $16 billion PDP business in 2025.
- The company is starting 2025 from a position of strength in its commercial segment, with higher-than-expected effectuated enrollment in the ACA marketplace due to strong member retention. This could lead to better-than-expected performance in their marketplace business.
- Despite increasing revenue guidance by $4 billion for 2025, Centene's EPS guidance remains unchanged at greater than $7.25, indicating potential margin pressure or conservatism regarding profitability.
- Uncertainty in exchange membership and revenue due to potential impacts from program integrity measures like Failure to Report (FTR), which may lead to a decline in membership in Q1 and Q2 of 2025, affecting Centene's commercial revenue guidance of $34 billion.
- Centene anticipates a possible 20% to 30% reduction in marketplace membership if enhanced Advanced Premium Tax Credits (APTCs) are not renewed, which could significantly impact revenue and earnings.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +3.4% (from $39,460M to $40,805M) | Total Revenue saw a modest increase due to steady growth across core segments—Medicaid, Medicare, Commercial, and Other. This growth builds on previous period trends demonstrating resilient demand and market expansion. |
Operating Income | Turnaround from a loss of $194M to a profit of $175M | A dramatic rebound in Operating Income reflects improved operational efficiency and cost controls. This turnaround suggests that measures implemented in earlier periods were effective, resulting in a shift from losses to profitability. |
Net Income | +528% improvement (from $45M to $283M) | Net Income surged as a result of the operational turnaround combined with better expense management and likely favorable tax or non-operational income factors. This significant recovery builds upon earlier progress seen in Q3 metrics. |
Basic EPS | Increased from $0.11 to $0.62 | The rise in Basic EPS highlights the effect of both improved profitability and potential share reduction strategies. This increase reflects operational gains and a more favorable bottom line compared to Q4 2023. |
Cost of Goods Sold | +23% increase (from $28,031M to $34,538M) | COGS increased significantly, likely driven by higher medical cost pressures and a cost structure shift associated with growth in high-cost segments. The $6,507M increase indicates that while revenue grew modestly, service costs accelerated. |
SG&A Expenses | -7% decrease (from $3,488M to $3,231M) | Reduced SG&A expenses are attributable to proactive cost-cutting measures such as the divestiture of high-cost businesses (e.g., Circle Health) and improved expense leveraging over increased revenues. This reduction supports overall margin improvement. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Consolidated premium & service revenue | FY 2025 | no prior guidance | $158B–$160B | no prior guidance |
Adjusted diluted EPS | FY 2025 | no prior guidance |
| no prior guidance |
Medicare segment premium revenue | FY 2025 | no prior guidance | +$2.5B higher than previously discussed | no prior guidance |
Medicaid revenue | FY 2025 | no prior guidance | +$1.5B from program changes | no prior guidance |
Commercial revenue | FY 2025 | no prior guidance | $34B | no prior guidance |
Medicaid membership | FY 2025 | no prior guidance | 12.9M–13M | no prior guidance |
Medicaid rate adjustments | FY 2025 | no prior guidance | 3%–4% | no prior guidance |
Share repurchase | FY 2025 | no prior guidance | $2B embedded in guidance | no prior guidance |
Medicare rates | FY 2026 | no prior guidance | Low to mid–3% range | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Adjusted Diluted EPS | FY 2024 | Greater than $6.80 | Sum of quarterly Diluted EPS (used as proxy): 2.16(Q1) + 2.16(Q2) + 1.37(Q3) + 0.62(Q4) = 6.31 | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Increased premium and service revenue guidance | In Q1 2024, guidance was raised driven by Medicaid premium revenue additions and steady Medicare figures ; in Q2 2024, guidance was increased by $5 billion across Medicaid, commercial and Medicare segments. | In Q4 2024, guidance was raised by $4 billion driven by strong Medicare enrollment and additional Medicaid revenue from program changes. | Consistent focus on premium revenue improvements with a shift in the drivers and magnitude of adjustments. |
Robust Medicare Part D (PDP) performance | In Q1 2024, PDP performance was discussed with an emphasis on IRA-driven subsidy increases and a cautious approach to bidding for 2025 ; in Q2 2024, PDP growth was attributed to IRA-related changes with focus on revenue yield and profitability. | In Q4 2024, PDP performance was highlighted by strong enrollment (growth from 6.9 million to over 7.5 million members), improved margins exceeding the 1% target, and a $16 billion revenue expectation for 2025. | Recurring and increasingly positive, with improved margins and more confident execution noted in Q4. |
Mixed signals in Medicare Advantage | In Q1 2024, there was optimism on improving STAR ratings (targeting 85% in 3.5-star plans) but caution over funding and regulatory challenges ; in Q2 2024, improvements in STAR ratings were noted alongside persistent operational inefficiencies and regulatory headwinds. | In Q4 2024, visible improvements in STAR ratings were reported (55% of members in 3.5-star plans or better), yet the company acknowledged ongoing operational adjustments and regulatory challenges (such as the footprint pruning and anticipation of funding changes for 2026). | Consistently mixed sentiment—quality improvements are encouraging but operational and regulatory challenges remain a concern. |
Marketplace business dynamics | In Q1 2024, strong enrollment (growing from 3.9 million to 4.3 million members) and margins within the 5%–7.5% range were reported, along with concerns about membership volatility from APTC renewal risks and cybersecurity incident impacts ; in Q2 2024, strong enrollment and margin expansion were emphasized with APTC dynamics noted but without cybersecurity focus. | In Q4 2024, strong enrollment and margins were again noted alongside membership volatility risks due to APTC policy uncertainty; cybersecurity concerns were not mentioned in this period. | Recurring robust performance with consistent enrollment and margin strength, while the cybersecurity focus dropped in later periods. |
Ongoing Medicaid management | In Q1 2024, management described being 90% through redeterminations with active discussions on rate adjustments and state policy dependencies to align rates with member acuity ; in Q2 2024, detailed discussions on redeterminations, higher acuity driving higher MLR, and proactive rate adjustments were noted. | In Q4 2024, the focus remained on managing redeterminations, achieving a mid-4% composite rate adjustment for key cohorts, and engaging with states to align rates with acuity and policy expectations. | Consistent focus on managing redetermination impacts and rate adjustments, with ongoing proactive state engagements to stabilize margins. |
Margin pressure concerns | In Q1 2024, although improved EPS guidance was noted (up $0.10 to >$6.80), margin pressures were evident with higher Medicaid HBR and underlying cost challenges ; Q2 2024 did not explicitly address margin pressure despite discussing operational improvements. | In Q4 2024, margin concerns were highlighted via unchanged EPS guidance despite a significant revenue increase, with management noting that earnings power would materialize over time and reaffirming margin targets in PDP and Marketplace segments. | Recurring caution—while revenues are rising, margin pressures remain a concern that management expects to resolve over time. |
Regulatory and policy impacts | In Q1 2024, the impact of the Inflation Reduction Act (IRA) on Part D direct subsidies and changes in Medicare Advantage risk models were discussed, along with adjustments required in Medicaid ; in Q2 2024, extensive commentary on IRA adjustments, redeterminations, and even election dynamics was provided. | In Q4 2024, regulatory impacts were discussed in the context of PDP (benefiting from the IRA) and program integrity measures affecting multiple segments, with emphasis on how these policies are shaping future performance. | Balanced sentiment—regulatory changes are seen as both challenges and opportunities, with management adapting strategies accordingly across periods. |
Emerging growth opportunities | In Q1 2024, new Medicaid contracts were announced (notably, the Oklahoma statewide contract and Arizona LTSS win) ; in Q2 2024, further expansion into new markets (e.g., Delaware, additional state wins in Florida, Michigan, Kansas, and Arizona LTSS) was highlighted. | In Q4 2024, there was no mention of these emerging growth opportunities or new Medicaid contracts from states like Oklahoma or Arizona LTSS. | No longer emphasized in Q4 2024, indicating a possible shift in focus or that earlier expansion news has been fully integrated. |
Cybersecurity risks | In Q1 2024, cybersecurity risks were explicitly discussed in response to the Change Healthcare incident, with management detailing proactive measures to maintain claims visibility and ensure margin sustainability ; in Q2 2024, the topic was not addressed. | In Q4 2024, there was no discussion of cybersecurity risks impacting claims visibility or margins. | Dropped in later periods—initial cybersecurity concerns appear to have been resolved or deprioritized by Q4 2024. |
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ACA Enrollment and Impact of Program Integrity
Q: How is ACA enrollment growth affected by program integrity changes?
A: Centene saw stronger than expected ACA enrollment, with effectuation rates in line with historical norms, resulting in membership slightly above 5 million. However, program integrity measures, such as the failure to report (FTR) process, may impact membership in Q2. The company is cautious and will monitor how these measures play out but remains hopeful for minimal negative surprises. -
Medicaid Rate Assumptions and Margins
Q: What are the expectations for Medicaid rate increases and margins in 2025?
A: Centene expects a full-year 2025 composite Medicaid rate increase between 3% and 4%, with stronger rates in the January 1 cohort. The company has made progress in influencing states with data to achieve appropriate funding but acknowledges timing uncertainties. Utilization trends remain stable with no alarming shifts, supporting a positive margin outlook. -
Operating Cash Flow and Share Repurchases
Q: What are the 2025 operating cash flow expectations and plans for share repurchases?
A: Despite weaker operating cash flow in 2024 due to shifts in receivables and payables, Centene expects operating cash flow to average 1.3 to 1.4 times adjusted net income over multiple years. The company plans to repurchase about $2 billion of shares in 2025, consistent with prior guidance, and 2024 cash flow issues won't impact this plan. -
PDP Performance and Margins
Q: How did the PDP segment perform, and what's the margin outlook?
A: The PDP segment finished strong in 2024, exceeding expectations with membership increasing from 6.9 million to over 7.5 million. This performance was driven by competitive product positioning and a strong cost structure. Margins were higher than the targeted 1%, contributing positively to full-year results. While exact margins can't be mapped to 2025, this bodes well for future performance. -
Guidance Despite Higher Revenue
Q: Why didn't EPS guidance increase with higher expected revenue?
A: Centene anticipates $4 billion more in revenue but maintains its EPS guidance due to prudence and early-year uncertainty. The company prefers to wait until results are fully understood before adjusting EPS guidance. Marketplace margins are expected to remain well within the 5% to 7.5% range, and PDP margins are targeted at 1% for 2025. -
Seasonality and Earnings Phasing
Q: How will earnings and medical loss ratios (MLR) trend throughout 2025?
A: Centene expects a greater proportion of earnings in the first half of 2025, with over 60% of EPS anticipated during this period. The Medicaid MLR should improve in the back half of the year. In Medicare, the MLR will start lower and increase due to IRA changes affecting the PDP business, which now comprises about half of Medicare segment revenue. -
Potential Impact of Enhanced APTCs Expiring
Q: What happens if enhanced APTCs expire for ACA members?
A: Without major mitigation efforts, expiration of enhanced APTCs could lead to a 20% to 30% decrease in ACA membership. However, various scenarios could lessen the impact, such as partial reductions or changes targeting different income levels. Centene is evaluating all possibilities and planning accordingly. -
Strategic Investments and M&A Priorities
Q: What are Centene's strategic priorities for investments and M&A?
A: Centene is focusing on opportunities in areas like ICRA (Individual Coverage Health Reimbursement Arrangements) and enhancing capabilities across business lines. The company is also monitoring potential inorganic growth opportunities while considering the best use of capital, including share repurchases given current valuations.