10-Q 1 cnc-20240630.htm 10-Q cnc-20240630
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________________________________
FORM 10-Q
____________________________________________
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024

OR
☐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)
Delaware42-1406317
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification Number)
7700 Forsyth Boulevard 
St. Louis,Missouri63105
(Address of principal executive offices)(Zip Code)

Registrant's telephone number, including area code: (314) 725-4477 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock $0.001 Par ValueCNCNew 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 accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated 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 July 24, 2024, the registrant had 526,030 thousand shares of common stock outstanding.


CENTENE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 PAGE
  
Part I
Financial Information
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Part II
Other Information
Item 1.
Item 1A.
Item 2.
Item 5.
Item 6.


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," 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, competition, expected contract start dates and terms, expected activities in connection with completed 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," Part II, Item 1. "Legal Proceedings," and Part II, Item 1A. "Risk Factors."

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 design and price products that are competitive and/or actuarially sound including but not limited to 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;
•our ability to accurately predict and effectively manage health benefits and other operating expenses and reserves, including fluctuations in medical utilization rates;
•competition, including for providers, broker distribution networks, contract reprocurements and organic growth;
•our ability to adequately anticipate demand and provide for operational resources to maintain service level requirements;
•our ability to manage our information systems effectively;
•disruption, unexpected costs, or similar risks from business transactions, including acquisitions, divestitures, and changes in our relationships with third parties;
•impairments to real estate, investments, goodwill and intangible assets;
•changes in senior management, loss of 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;
•our ability to effectively and ethically use artificial intelligence and machine learning in compliance with applicable laws;
•increased healthcare costs;
•inflation and interest rates;
•the effect of social, economic, and political conditions and geopolitical events, including as a result of changes in U.S. presidential administrations or Congress;
•changes in market conditions;
i
•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;
•uncertainty concerning government shutdowns, debt ceilings or funding;
•tax matters;
•disasters, climate-related incidents, acts of war or aggression or major epidemics;
•changes in expected contract start dates and terms;
•changes in provider, broker, vendor, state, federal and other contracts and delays in the timing of regulatory approval of 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 or other customers);
•the difficulty of predicting the timing or outcome of legal or regulatory audits, investigations, proceedings or matters including, but not limited to, our ability to resolve claims and/or allegations made by states with regard to past practices on acceptable terms, or at all, or whether additional claims, reviews or investigations will be brought by states, the federal government or shareholder litigants, or government investigations;
•challenges to our contract awards;
•cyber-attacks or other data security incidents or our failure to comply with applicable privacy, data or security laws and regulations;
•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, or accretion for acquisitions or dispositions;
•losses in our investment portfolio;
•restrictions and limitations in connection with our indebtedness;
•a downgrade of our corporate family rating, issuer rating or credit rating of our indebtedness; and
•the availability of debt and equity financing on terms that are favorable to us.

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.


ii

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'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 Company strongly encourages investors to review its consolidated financial statements and publicly filed reports in their entirety and cautions investors that the non-GAAP financial measures used by the Company may differ from similar measures used by other companies, even when similar terms are used to identify such measures. The presentation of non-GAAP financial measures 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 measures that excludes amortization of acquired intangible assets, 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 June 30,Six Months Ended June 30,
2024202320242023
GAAP net earnings attributable to Centene$1,146 $1,058 $2,309 $2,188 
Amortization of acquired intangible assets173 179 346 362 
Acquisition and divestiture related expenses6 13 67 36 
Other adjustments (1)
2 (74)(97)(127)
Income tax effects of adjustments (2)
(44)(21)(126)(135)
Adjusted net earnings $1,283 $1,155 $2,499 $2,324 
GAAP diluted earnings per share (EPS) attributable to Centene$2.16 $1.92 $4.32 $3.96 
Amortization of acquired intangible assets0.33 0.33 0.65 0.66 
Acquisition and divestiture related expenses0.01 0.02 0.13 0.07 
Other adjustments (1)
— (0.13)(0.18)(0.23)
Income tax effects of adjustments (2)
(0.08)(0.04)(0.24)(0.25)
Adjusted diluted EPS$2.42 $2.10 $4.68 $4.21 
(1) Other adjustments include the following pre-tax items:
2024:
(a) for the three months ended June 30, 2024: gain on the previously reported divestiture of Circle Health Group (Circle Health) of $10 million, or $0.02 per share ($0.02 after-tax), an additional loss on the divestiture of our Spanish and Central European businesses of $7 million, or $0.01 per share ($0.01 after-tax), severance costs due to a restructuring of $4 million, or $0.01 per share ($0.01 after-tax), reduction to the net gain on the sale of property due to closing costs of $3 million, or $0.00 per share ($0.00 after-tax) and net gain on the finalization of working capital adjustments for the previously reported divestiture of Magellan Specialty Health of $2 million, or $0.00 per share ($0.00 after-tax);

iii
(b) for the six months ended June 30, 2024: net gain on the previously reported divestiture of Magellan Specialty Health due to the achievement of contingent consideration and finalization of working capital adjustments of $83 million, or $0.15 per share ($0.11 after-tax), net gain on the sale of property of $21 million, or $0.04 per share ($0.03 after-tax), gain on the previously reported divestiture of Circle Health of $20 million, or $0.04 per share ($0.12 after-tax), Health Net Federal Services asset impairment due to the 2024 final ruling on the TRICARE Managed Care Support Contract of $14 million, or $0.03 per share ($0.02 after-tax), severance costs due to a restructuring of $13 million, or $0.02 per share ($0.02 after-tax), an additional loss on the divestiture of our Spanish and Central European businesses of $7 million, or $0.01 per share ($0.01 after-tax) and gain on the previously reported divestiture of HealthSmart due to the finalization of working capital adjustments of $7 million, or $0.01 per share ($0.01 after-tax).

2023:
(a) for the three months ended June 30, 2023: gain on the sale of Apixio of $91 million, or $0.16 per share ($0.11 after-tax), gain on the previously reported divestiture of Centurion of $15 million, or $0.02 per share ($0.01 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 real estate impairments of $19 million, or $0.03 per share ($0.02 after-tax);

(b) for the six months ended June 30, 2023: gain on the sale of Apixio of $91 million, or $0.16 per share ($0.11 after-tax), gain on the sale of Magellan Specialty Health of $79 million, or $0.14 per share ($0.12 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 real estate impairments of $45 million, or $0.08 per share ($0.06 after-tax).

(2) The income tax effects of adjustments are based on the effective income tax rates applicable to each adjustment. The six months ended June 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.

Three Months Ended June 30,Six Months Ended June 30,
2024202320242023
GAAP selling, general and administrative expenses$2,894 $3,016 $6,112 $6,027 
Less:
Acquisition and divestiture related expenses6 13 67 36 
Restructuring costs4 — 13 — 
Real estate optimization— 1 — 7 
Adjusted selling, general and administrative expenses$2,884 $3,002 $6,032 $5,984 
iv
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)
June 30, 2024December 31, 2023
(Unaudited)
ASSETS  
Current assets:  
Cash and cash equivalents$17,605 $17,193 
Premium and trade receivables16,587 15,532 
Short-term investments2,609 2,459 
Other current assets1,605 5,572 
Total current assets38,406 40,756 
Long-term investments16,870 16,286 
Restricted deposits1,415 1,386 
Property, software and equipment, net2,041 2,019 
Goodwill17,558 17,558 
Intangible assets, net5,755 6,101 
Other long-term assets1,092 535 
Total assets$83,137 $84,641 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS' EQUITY 
Current liabilities:  
Medical claims liability$18,173 $18,000 
Accounts payable and accrued expenses12,232 16,420 
Return of premium payable1,615 1,462 
Unearned revenue597 715 
Current portion of long-term debt112 119 
Total current liabilities32,729 36,716 
Long-term debt17,516 17,710 
Deferred tax liability665 641 
Other long-term liabilities4,770 3,618 
Total liabilities55,680 58,685 
Commitments and contingencies
Redeemable noncontrolling interests16 19 
Stockholders' equity:  
Preferred stock, $0.001 par value; authorized 10,000 shares; no shares issued or outstanding at June 30, 2024 and December 31, 2023
— — 
Common stock, $0.001 par value; authorized 800,000 shares; 619,495 issued and 526,001 outstanding at June 30, 2024, and 615,291 issued and 534,484 outstanding at December 31, 2023
1 1 
Additional paid-in capital20,461 20,304 
Accumulated other comprehensive (loss)(646)(652)
Retained earnings14,352 12,043 
Treasury stock, at cost (93,494 and 80,807 shares, respectively)
(6,817)(5,856)
Total Centene stockholders' equity27,351 25,840 
Nonredeemable noncontrolling interest90 97 
Total stockholders' equity27,441 25,937 
Total liabilities, redeemable noncontrolling interests and stockholders' equity$83,137 $84,641 
The accompanying notes to the consolidated financial statements are an integral part of these statements. 
1
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except shares in thousands and per share data in dollars)
(Unaudited)
 Three Months Ended June 30,Six Months Ended June 30,
 2024202320242023
Revenues:
Premium$35,140 $33,713 $70,669 $67,538 
Service833 1,125 1,641 2,252 
Premium and service revenues35,973 34,838 72,310 69,790 
Premium tax3,863 2,770 7,933 6,707 
Total revenues39,836 37,608 80,243 76,497 
Expenses:  
Medical costs30,765 29,347 61,697 58,781 
Cost of services680 877 1,349 1,747 
Selling, general and administrative expenses2,894 3,016 6,112 6,027 
Depreciation expense133 146 268 288 
Amortization of acquired intangible assets173 179 346 362 
Premium tax expense3,962 2,854 8,123 6,865 
Impairment— 18 13 38 
Total operating expenses38,607 36,437 77,908 74,108 
Earnings from operations1,229 1,171 2,335 2,389 
Other income (expense):  
Investment and other income463 425 1,008 778 
Interest expense(176)(181)(354)(361)
Earnings before income tax1,516 1,415 2,989 2,806 
Income tax expense370 360 685 621 
Net earnings1,146 1,055 2,304 2,185 
Loss attributable to noncontrolling interests— 3 5 3 
Net earnings attributable to Centene Corporation$1,146 $1,058 $2,309 $2,188 

Net earnings per common share attributable to Centene Corporation:
Basic earnings per common share$2.16 $1.93 $4.34 $3.98 
Diluted earnings per common share$2.16 $1.92 $4.32 $3.96 

Weighted average number of common shares outstanding:
Basic529,602 548,932 532,385 549,850 
Diluted530,755 550,308 534,517 551,996 

The accompanying notes to the consolidated financial statements are an integral part of these statements.
2
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
(In millions, unaudited)
 Three Months Ended June 30,Six Months Ended June 30,
 2024202320242023
Net earnings$1,146 $1,055 $2,304 $2,185 
Change in unrealized gain (loss) on investments(26)(142)(107)111 
Change in unrealized gain (loss) on investments, tax effect6 34 21 (27)
Change in unrealized gain (loss) on investments, net of tax(20)(108)(86)84 
Reclassification adjustment, net of tax4 2 92 4 
Foreign currency translation adjustments, net of tax— 23 — 46 
Other comprehensive earnings (loss)(16)(83)6 134 
Comprehensive earnings1,130 972 2,310 2,319 
Comprehensive loss attributable to noncontrolling interests— 3 5 3 
Comprehensive earnings attributable to Centene Corporation$1,130 $975 $2,315 $2,322 

The accompanying notes to the consolidated financial statements are an integral part of these statements.
3
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions, except shares in thousands and per share data in dollars)
(Unaudited)

Three and Six Months Ended June 30, 2024
 Centene Stockholders' Equity  
 Common Stock   Treasury Stock  
 
$0.001 Par Value Shares
AmtAdditional Paid-in CapitalAccumulated Other Comprehensive
Earnings (Loss)		Retained Earnings
$0.001 Par Value Shares
AmtNoncontrolling
Interest		Total
Balance, December 31, 2023615,291 $1 $20,304 $(652)$12,043 80,807 $(5,856)$97 $25,937 
Comprehensive Earnings:         
Net earnings (loss)— — — — 1,163 — — (4)1,159 
Other comprehensive earnings, net of $(12) tax
— — — 22 — — — — 22 
Common stock issued for employee benefit plans3,882 — 14 — — — — — 14 
Common stock repurchases— — — — — 1,983 (151)— (151)
Stock compensation expense— — 70 — — — — — 70 
Divestiture of non-controlling interest— — — — — — — (3)(3)
Balance, March 31, 2024619,173 $1 $20,388 $(630)$13,206 82,790 $(6,007)$90 $27,048 
Comprehensive Earnings:         
Net earnings— — — — 1,146 — — — 1,146 
Other comprehensive loss, net of $(5) tax
— — — (16)— — — — (16)
Common stock issued for employee benefit plans322 — 11 — — — — — 11 
Common stock repurchases— — — — — 10,704 (810)— (810)
Stock compensation expense— — 62 — — — — — 62 
Balance, June 30, 2024619,495 $1 $20,461 $(646)$14,352 93,494 $(6,817)$90 $27,441 

4
Three and Six Months Ended June 30, 2023
 Centene Stockholders' Equity  
 Common Stock   Treasury Stock  
 
$0.001 Par Value Shares
AmtAdditional Paid-in CapitalAccumulated Other Comprehensive
Earnings (Loss)		Retained Earnings
$0.001 Par Value Shares
AmtNoncontrolling
Interest		Total
Balance, December 31, 2022607,847 $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 plans6,508 — 12 — — — — — 12 
Common stock repurchases— — — — — 5,548 (423)— (423)
Stock compensation expense— — 61 — — — — — 61 
Purchase of redeemable noncontrolling interest— — (12)— — — — — (12)
Balance, March 31, 2023614,355 $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 plans388 — 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, 2023614,743 $1 $20,183 $(998)$11,529 68,740 $(5,044)$97 $25,768 

The accompanying notes to the consolidated financial statements are an integral part of these statements.
5
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions, unaudited)

 Six Months Ended June 30,
 20242023
Cash flows from operating activities:  
Net earnings$2,304 $2,185 
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization614 650 
Stock compensation expense132 117 
Impairment13 38 
Deferred income taxes40 (160)
(Gain) loss on divestitures, net(103)(172)
Other adjustments, net(11)68 
Changes in assets and liabilities  
Premium and trade receivables(1,059)(319)
Other assets(404)(325)
Medical claims liabilities173 139 
Unearned revenue(118)1,895 
Accounts payable and accrued expenses(1,704)618 
Other long-term liabilities1,838 2,081 
Other operating activities, net4 — 
Net cash provided by operating activities1,719 6,815 
Cash flows from investing activities:  
Capital expenditures(337)(440)
Purchases of investments(3,434)(3,199)
Sales and maturities of investments2,497 2,293 
Divestiture proceeds, net of divested cash959 669 
Net cash used in investing activities(315)(677)
Cash flows from financing activities:  
Proceeds from long-term debt350 1,281 
Payments and repurchases of long-term debt(565)(1,322)
Common stock repurchases(954)(828)
Proceeds from common stock issuances25 21 
Purchase of noncontrolling interest— (85)
Other financing activities, net(4)— 
Net cash used in financing activities(1,148)(933)
Effect of exchange rate changes on cash, cash equivalents and restricted cash7 (7)
Net increase in cash, cash equivalents and restricted cash and cash equivalents263 5,198 
Cash, cash equivalents and restricted cash and cash equivalents, beginning of period
17,452 12,330 
Cash, cash equivalents and restricted cash and cash equivalents, end of period
$17,715 $17,528 
Supplemental disclosures of cash flow information:  
Interest paid$352 $348 
Income taxes paid$610 $592 
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:
June 30,
20242023
Cash and cash equivalents$17,605 $17,170 
Restricted cash and cash equivalents, included in restricted deposits110 358 
Total cash, cash equivalents and restricted cash and cash equivalents$17,715 $17,528 

The accompanying notes to the consolidated financial statements are an integral part of these statements.
6
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 Annual Report on Form 10-K for the fiscal year ended December 31, 2023. The unaudited interim financial statements herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, footnote disclosures that would substantially duplicate the disclosures contained in the December 31, 2023 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 2023 amounts in the consolidated financial statements and notes to the consolidated financial statements have been reclassified to conform to the 2024 presentation. These reclassifications have no effect on net earnings or stockholders' equity as previously reported.

Accounting Guidance Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. The amendments will require public entities to disclose significant segment expenses that are regularly provided to the chief operating decision-maker and included within segment profit and loss. The new standard is effective for annual periods beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the effect of the new disclosure requirements.

In December 2023, the FASB issued an ASU which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The new standard is effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the effect of the new disclosure requirements.

In March 2024, the SEC adopted the final rule under SEC Release No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors. This rule will require disclosure of material climate-related risks and material direct greenhouse gas emissions from operations owned or controlled (Scope 1) and/or material indirect greenhouse gas emissions from purchased energy consumed in owned or controlled operations (Scope 2). Additionally, the rules require disclosure in the notes to the financial statements of the effects of severe weather events and other natural conditions, subject to certain materiality thresholds. The disclosure requirements will begin phasing in for reports and registration statements including financial information with respect to annual periods beginning in 2025. In April 2024, the SEC voluntarily stayed the final rule pending the completion of judicial review by the Court of Appeals for the Eighth Circuit. The Company is monitoring the development of litigation related to the SEC's rule, and is currently evaluating the effect of the new disclosure requirements.

2. Acquisitions and Divestitures

Magellan Specialty Health Divestiture

For the six months ended June 30, 2024, the Company recorded an additional gain on the previously reported divestiture of Magellan Specialty Health of $83 million for achievement of contingent consideration related to the sale and finalization of working capital adjustments, which is included in investment and other income in the Consolidated Statements of Operations.

Circle Health Group Divestiture

On August 28, 2023, the Company signed a definitive agreement to sell Circle Health Group (Circle Health), one of the U.K.'s largest independent hospital operators, which is included in the Other segment.

7
In accordance with the signed definitive agreement in the third quarter of 2023, and subsequently updated in the fourth quarter of 2023, the Company recorded impairment charges related to goodwill associated with the pending divestiture totaling $292 million, or $258 million after-tax.

In order to manage the foreign exchange risk on the sale price associated with the pending divestiture of Circle Health, in August 2023 the Company entered into a foreign currency swap agreement for a notional amount of $931 million, to sell £740 million. The swap agreement was formally designated and qualified as a cash flow hedge. The swap expired on the earlier of the divestiture closing date or March 28, 2024. The gain or loss due to changes in the fair value of the foreign currency swap was recorded in other comprehensive income until the Circle Health divestiture closed, at which time the gain or loss was recorded in earnings to the same line in the Consolidated Statement of Operations as the gain or loss on sale.

On January 12, 2024, the Company completed the divestiture for $931 million. Upon closing the divestiture, the Company settled the foreign currency swap and recorded a corresponding gain of $20 million, which includes the cumulative translation adjustment previously recorded in accumulated other comprehensive income in the Consolidated Balance Sheet. The gain is included in investment and other income in the Consolidated Statements of Operations. During the six months ended June 30, 2024, the Company realized a net tax benefit of approximately $40 million on the loss recognized on the divestiture.

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):
 June 30, 2024December 31, 2023
 Amortized CostGross
Unrealized Gains		Gross
Unrealized Losses		Fair ValueAmortized CostGross
Unrealized Gains		Gross
Unrealized Losses		Fair Value
Debt securities:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies
$591 $— $(7)$584 $403 $— $(8)$395 
Corporate securities10,554 32 (468)10,118 9,984 78 (461)9,601 
Restricted certificates of deposit
4 — — 4 4 — — 4 
Restricted cash equivalents
110 — — 110 259 — — 259 
Short-term time deposits
586 — — 586 746 — — 746 
Municipal securities4,229 7 (184)4,052 4,135 21 (171)3,985 
Asset-backed securities1,741 8 (29)1,720 1,665 8 (35)1,638 
Residential mortgage-backed securities1,606 2 (129)1,479 1,503 7 (103)1,407 
Commercial mortgage-backed securities
1,222 2 (79)1,145 1,149 5 (82)1,072 
Equity securities17 — — 17 17 — — 17 
Private equity investments
890 — — 890 833 — — 833 
Life insurance contracts
189 — — 189 174 — — 174 
Total$21,739 $51 $(896)$20,894 $20,872 $119 $(860)$20,131 

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 a 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 June 30, 2024, 99% of the Company's investments in rated securities carry an investment grade rating by nationally recognized statistical rating organizations. At June 30, 2024, 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 $168 million and $153 million at June 30, 2024 and December 31, 2023, respectively, and is included in other current assets in the Consolidated Balance Sheets.

8
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 AA+ and a weighted average duration of 3 years at June 30, 2024.

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):
 June 30, 2024December 31, 2023
 Less Than 12 Months12 Months or MoreLess Than 12 Months12 Months or More
 Unrealized LossesFair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized LossesFair Value
U.S. Treasury securities and obligations of
U.S. government corporations and agencies
$— $205 $(7)$224 $— $79 $(8)$232 
Corporate securities(20)1,895 (448)6,017 (6)658 (455)6,260 
Municipal securities(11)959 (173)2,365 (4)553 (167)2,237 
Asset-backed securities(1)266 (28)519 (2)197 (33)855 
Residential mortgage-backed securities(7)397 (122)857 (2)153 (101)814 
Commercial mortgage-backed securities(1)147 (78)802 (2)114 (80)754 
Short-term time deposits— — — — — 31 — — 
Total$(40)$3,869 $(856)$10,784 $(16)$1,785 $(844)$11,152 

As of June 30, 2024, the gross unrealized losses were generated from 4,626 positions out of a total of 6,830 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-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):
 June 30, 2024December 31, 2023
 InvestmentsRestricted DepositsInvestmentsRestricted Deposits
 Amortized CostFair ValueAmortized CostFair ValueAmortized CostFair ValueAmortized CostFair Value
One year or less$2,428 $2,403 $395 $392 $2,308 $2,284 $566 $564 
One year through five years7,877 7,546 733 709 7,738 7,431 527 504 
Five years through ten years4,166 3,947 291 278 3,905 3,735 298 283 
Greater than ten years147 143 37 36 155 154 34 35 
Asset-backed securities4,569 4,344 — — 4,317 4,117 — — 
Total$19,187 $18,383 $1,456 $1,415 $18,423 $17,721 $1,425 $1,386 
 
9
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 substantially all of the securities included in the greater than ten years category listed 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 IInputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
 
Level IIInputs 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 IIIUnobservable 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 June 30, 2024, for assets and liabilities measured at fair value on a recurring basis ($ in millions):
 Level ILevel IILevel IIITotal
Assets    
Cash and cash equivalents$17,605 $— $— $17,605 
Investments:    
U.S. Treasury securities and obligations of U.S. government corporations and agencies$58 $— $— $58 
Corporate securities— 10,080 — 10,080 
Municipal securities— 3,315 — 3,315 
Short-term time deposits— 586 — 586 
Asset-backed securities— 1,720 — 1,720 
Residential mortgage-backed securities— 1,479 — 1,479 
Commercial mortgage-backed securities— 1,145 — 1,145 
Equity securities14 3 — 17 
Total investments$72 $18,328 $— $18,400 
Restricted deposits:    
Cash and cash equivalents$110 $— $— $110 
U.S. Treasury securities and obligations of U.S. government corporations and agencies526 — — 526 
Corporate securities— 38 — 38 
Certificates of deposit— 4 — 4 
Municipal securities— 737 — 737 
Total restricted deposits$636 $779 $— $1,415 
Total assets at fair value$18,313 $19,107 $— $37,420 

10
The following table summarizes fair value measurements by level at December 31, 2023, for assets and liabilities measured at fair value on a recurring basis ($ in millions):
 Level ILevel IILevel IIITotal
Assets    
Cash and cash equivalents$17,193 $