Centene(CNC) - 2025 Q2 - Quarterly Report

FORM 10-Q Cover Page Centene Corporation filed its Quarterly Report on Form 10-Q for Q2 2025, detailing common stock trading and shares outstanding - Centene Corporation filed its Quarterly Report on Form 10-Q for the period ended June 30, 2025[2] - As of July 23, 2025, the registrant had 491,133 thousand shares of common stock outstanding[5] Title of Each Class | 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 | Table of Contents The Table of Contents outlines the Form 10-Q structure, dividing it into Part I (Financial Information) and Part II (Other Information) with detailed items - The Table of Contents outlines the structure of the Form 10-Q, dividing it into Part I (Financial Information) and Part II (Other Information), with detailed items and sub-items[8] Cautionary Statement on Forward-Looking Statements This section warns that forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from projections - The report contains forward-looking statements, which are subject to known and unknown risks and uncertainties, and actual results may differ materially from projections[10] - Key risk factors include the ability to design and price competitive products, manage health benefits and operating expenses, potential rate cuts or payment reductions from government payors, and changes in laws or regulations[11] - Other significant risks involve competition, managing information systems, disruptions from business transactions, changes in senior management, and macroeconomic conditions like inflation and interest rates[11][13] Non-GAAP Financial Presentation This section presents non-GAAP financial measures to provide a clearer view of core performance by excluding specific adjustments Adjusted Net Earnings (Loss) and EPS Reconciliation The company provides non-GAAP financial measures, such as adjusted net earnings and adjusted diluted EPS, to offer a clearer view of core performance by excluding items like amortization of acquired intangible assets, acquisition and divestiture-related expenses, and other adjustments - Non-GAAP measures exclude amortization of acquired intangible assets, acquisition and divestiture related expenses, and other adjustments to provide a more meaningful understanding of core performance[15] Adjusted Net Earnings (Loss) and EPS Reconciliation (in millions, except per share data) | | Three Months Ended June 30, | | Six Months Ended June 30, | | :------------------------------------------------ | :---------- | :---------- | :---------- | :---------- | | | 2025 | 2024 | 2025 | 2024 | | GAAP net earnings (loss) attributable to Centene | $ (253) | $ 1,146 | $ 1,058 | $ 2,309 | | Amortization of acquired intangible assets | 173 | 173 | 346 | 346 | | Acquisition and divestiture related expenses | 1 | 6 | 1 | 67 | | (1) Other adjustments | 58 | 2 | 61 | (97) | | (2) Income tax effects of adjustments | (58) | (44) | (100) | (126) | | Adjusted net earnings (loss) | $ (79) | $ 1,283 | $ 1,366 | $ 2,499 | | GAAP diluted earnings (loss) per share attributable to Centene | $ (0.51) | $ 2.16 | $ 2.13 | $ 4.32 | | Amortization of acquired intangible assets | 0.35 | 0.33 | 0.70 | 0.65 | | Acquisition and divestiture related expenses | — | 0.01 | — | 0.13 | | (1) Other adjustments | 0.12 | — | 0.12 | (0.18) | | (2) Income tax effects of adjustments | (0.12) | (0.08) | (0.20) | (0.24) | | Adjusted diluted earnings (loss) per share | $ (0.16) | $ 2.42 | $ 2.75 | $ 4.68 | Adjusted SG&A Expenses Reconciliation The company also reconciles GAAP selling, general and administrative (SG&A) expenses to adjusted SG&A expenses by excluding acquisition and divestiture related expenses and restructuring costs, providing a clearer view of operational efficiency Adjusted SG&A Expenses Reconciliation (in millions) | | Three Months Ended | | | Six Months Ended June | | | :---------------------------------------- | :---------- | :---------- | :---------- | :---------- | | | 2025 | 2024 | 2025 | 2024 | | GAAP selling, general and administrative expenses | $ 3,036 | $ 2,894 | $ 6,389 | $ 6,112 | | Less: | | | | | | Acquisition and divestiture related expenses | 1 | 6 | 1 | 67 | | Restructuring costs | — | 4 | — | 13 | | Adjusted selling, general and administrative expenses | $ 3,035 | $ 2,884 | $ 6,388 | $ 6,032 | Part I. Financial Information This part presents Centene Corporation's unaudited consolidated financial statements, including balance sheets, statements of operations, and cash flows Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Centene Corporation, including the Balance Sheets, Statements of Operations, Comprehensive Earnings (Loss), Stockholders' Equity, and Cash Flows, providing a snapshot of the company's financial position and performance for the periods ended June 30, 2025 and 2024 Consolidated Balance Sheets The Consolidated Balance Sheets show the company's assets, liabilities, and stockholders' equity as of June 30, 2025, and December 31, 2024, indicating an increase in total assets and liabilities Consolidated Balance Sheet Highlights (in millions) | Metric | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :------------------ | | Total assets | $ 86,395 | $ 82,445 | | Total liabilities | $ 58,892 | $ 55,935 | | Total stockholders' equity | $ 27,492 | $ 26,500 | | Cash and cash equivalents | $ 14,513 | $ 14,063 | | Medical claims liability | $ 20,117 | $ 18,308 | Consolidated Statements of Operations The Consolidated Statements of Operations detail the company's revenues, expenses, and net earnings (loss) for the three and six months ended June 30, 2025, and 2024, revealing a net loss for the three months ended June 30, 2025, compared to net earnings in the prior year Consolidated Statements of Operations Highlights (in millions, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Total revenues | $ 48,742 | $ 39,836 | $ 95,362 | $ 80,243 | | Total operating expenses | $ 49,200 | $ 38,607 | $ 94,286 | $ 77,908 | | Earnings (loss) from operations | $ (458) | $ 1,229 | $ 1,076 | $ 2,335 | | Net earnings (loss) attributable to Centene Corporation | $ (253) | $ 1,146 | $ 1,058 | $ 2,309 | | Diluted earnings (loss) per common share | $ (0.51) | $ 2.16 | $ 2.13 | $ 4.32 | Consolidated Statements of Comprehensive Earnings (Loss) The Consolidated Statements of Comprehensive Earnings (Loss) present the net earnings (loss) and other comprehensive income (loss) for the three and six months ended June 30, 2025, and 2024, showing a comprehensive loss for the three months ended June 30, 2025 Consolidated Statements of Comprehensive Earnings (Loss) Highlights (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net earnings (loss) | $ (259) | $ 1,146 | $ 1,055 | $ 2,304 | | Other comprehensive earnings (loss) | $ 106 | $ (16) | $ 273 | $ 6 | | Comprehensive earnings (loss) attributable to Centene Corporation | $ (147) | $ 1,130 | $ 1,331 | $ 2,315 | Consolidated Statements of Stockholders' Equity The Consolidated Statements of Stockholders' Equity detail changes in equity components for the three and six months ended June 30, 2025, and 2024, including net earnings, stock repurchases, and stock compensation - Total Centene stockholders' equity increased from $26,500 million at December 31, 2024, to $27,492 million at June 30, 2025[30] - Common stock repurchases amounted to $403 million for the three months ended June 30, 2025, and $441 million for the six months ended June 30, 2025[30] Consolidated Statements of Cash Flows The Consolidated Statements of Cash Flows outline the cash generated from or used in operating, investing, and financing activities for the six months ended June 30, 2025, and 2024, showing a significant increase in cash provided by operating activities in 2025 Consolidated Statements of Cash Flows Highlights (in millions) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------- | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $ 3,295 | $ 1,719 | | Net cash (used in) investing activities | $ (1,428) | $ (315) | | Net cash (used in) financing activities | $ (1,424) | $ (1,148) | | Net increase in cash, cash equivalents and restricted cash | $ 443 | $ 263 | | Cash, cash equivalents and restricted cash, end of period | $ 14,599 | $ 17,715 | Notes to the Consolidated Financial Statements These notes provide additional information and details pertinent to the consolidated financial statements, covering accounting policies, investments, fair value, medical claims, ACA, debt, equity, EPS, segments, contingencies, and subsequent events 1. Organization and Operations This note describes the basis of presentation for the interim financial statements, prepared under SEC rules, and discusses the evaluation of new accounting guidance - Interim financial statements are unaudited and prepared under SEC rules, with reclassifications of certain 2024 amounts to conform to 2025 presentation, having no effect on net earnings or stockholders' equity[36][37] - The Company is evaluating the effect of ASU 2024-03, 'Income Statement - Reporting Comprehensive Income: Disaggregation of Income Statement Expenses,' effective for annual periods beginning after December 15, 2026[38] 2. Short-term and Long-term Investments, Restricted Deposits This note details the composition and fair value of the company's short-term and long-term investments and restricted deposits, primarily debt securities, and discusses unrealized losses Total Investments and Restricted Deposits (Fair Value, in millions) | Metric | June 30, 2025 | December 31, 2024 | | :---------------------------------------- | :------------ | :------------------ | | Total investments and restricted deposits | $ 22,976 | $ 21,441 | | Gross unrealized gains | $ 186 | $ 73 | | Gross unrealized losses | $ (484) | $ (727) | - As of June 30, 2025, 99% of the Company's investments in rated securities carry an investment grade rating[40] - The Company does not intend to sell securities with unrealized losses prior to maturity and does not expect to be required to sell them, thus no impairment was recorded[43] 3. Fair Value Measurements This note provides a breakdown of assets and liabilities measured at fair value on a recurring basis, categorized into Level I, Level II, and Level III inputs Total Assets at Fair Value (in millions) | Metric | June 30, 2025 | December 31, 2024 | | :----------------------- | :------------ | :------------------ | | Total assets at fair value | $ 36,408 | $ 34,457 | | Level I assets | $ 15,178 | $ 14,760 | | Level II assets | $ 21,230 | $ 19,697 | | Level III assets | $ — | $ — | - The Company primarily uses matrix-pricing services for Level II fair value measurements of securities not actively traded[47] 4. Medical Claims Liability This note details changes in medical claims liability by segment for the six months ended June 30, 2025, and 2024, including incurred and paid claims, and discusses premium deficiency reserves Medical Claims Liability (in millions) | Metric | June 30, 2025 | June 30, 2024 | | :---------------------------------------- | :------------ | :------------ | | Balance, January 1, net | $ 18,243 | $ 17,951 | | Total incurred | $ 75,014 | $ 61,612 | | Total paid | $ 73,497 | $ 61,533 | | Balance, June 30, net | $ 20,057 | $ 18,115 | | Premium deficiency reserve (June 30) | $ 297 | $ 85 | - The medical claims liability increased to $20,117 million at June 30, 2025, from $18,308 million at January 1, 2025[49] - The premium deficiency reserve for the 2025 Medicare Advantage contract year increased to $389 million in Q2 2025, reflecting the progression of earnings and anticipated impacts of the Inflation Reduction Act[51] 5. Affordable Care Act This note outlines the company's net receivables and payables related to Affordable Care Act (ACA) programs, including risk adjustment, MLR, and cost-sharing reductions ACA Program Net Receivables (Payables) (in millions) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :------------------ | | Risk adjustment receivable | $ 2,132 | $ 1,434 | | Risk adjustment payable | $ (2,769) | $ (1,605) | | Minimum medical loss ratio | $ (1,062) | $ (688) | | Cost sharing reduction receivable | $ 19 | $ 305 | | Cost sharing reduction payable | $ (79) | $ (74) | - The net risk adjustment receivable increased by $490 million in the first half of 2025 due to CMS's final risk adjustment transfers for the 2024 benefit year, resulting in a net pre-tax benefit of $211 million[53] - As of June 30, 2025, the Company's 2025 net risk adjustment payable was $985 million[54] 6. Debt This note provides a breakdown of the company's debt, including senior notes, term loan facility, and revolving credit agreement, detailing the terms of the new Credit Agreement Total Debt (in millions) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :------------------ | | Total senior notes | $ 15,678 | $ 15,677 | | Term Loan Facility | $ 2,000 | $ 2,006 | | Revolving Credit Agreement | $ — | $ 950 | | Total debt | $ 17,577 | $ 18,533 | | Long-term debt | $ 17,552 | $ 18,423 | - The Company entered into a new Credit Agreement on March 5, 2025, providing a $4,000 million revolving credit facility and a $2,000 million term loan facility, maturing on March 5, 2030[56][57] - The new Credit Agreement includes a financial covenant limiting the debt-to-capital ratio to 0.60 to 1.00, with a step-up option to 0.65 to 1.00 following a material acquisition[59] 7. Stockholders' Equity This note discusses the company's stock repurchase program, including authorized amounts and recent activity, and clarifies accounting for shares repurchased for tax withholding - The Board of Directors authorized a stock repurchase program of up to $10,000 million, with $1,830 million remaining available as of June 30, 2025[60] Share Repurchase Activity (in thousands of shares, millions of dollars) | Period | Shares Purchased | Cost | | :-------------------------- | :--------------- | :--- | | Three Months Ended June 30, 2025 | 6,713 | $ 400 | | Three Months Ended June 30, 2024 | 10,704 | $ 803 | | Six Months Ended June 30, 2025 | 7,418 | $ 441 | | Six Months Ended June 30, 2024 | 12,687 | $ 954 | 8. Earnings Per Share This note provides the calculation of basic and diluted net earnings per common share for the three and six months ended June 30, 2025, and 2024, noting anti-dilutive shares Earnings Per Share (in millions, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net earnings (loss) attributable to Centene Corporation | $ (253) | $ 1,146 | $ 1,058 | $ 2,309 | | Basic earnings (loss) per common share | $ (0.51) | $ 2.16 | $ 2.14 | $ 4.34 | | Diluted earnings (loss) per common share | $ (0.51) | $ 2.16 | $ 2.13 | $ 4.32 | | Weighted average diluted shares outstanding (thousands) | 493,548 | 530,755 | 496,328 | 534,517 | - For the three months ended June 30, 2025, 2,464 thousand shares related to stock options, restricted stock, and restricted stock units were excluded from diluted EPS calculation due to their anti-dilutive effect[62] 9. Segment Information This note provides financial information by the company's four operating segments: Medicaid, Medicare, Commercial, and Other, detailing revenues, medical costs, and gross margin - The Company operates in four segments: Medicaid, Medicare, Commercial, and Other, with the Chief Executive Officer serving as the chief operating decision-maker (CODM) and focusing on gross margin[64][65] Segment Total Revenues (in millions) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Medicaid | $ 27,998 | $ 24,113 | $ 54,428 | $ 49,643 | | Medicare | $ 9,450 | $ 5,978 | $ 18,209 | $ 11,913 | | Commercial | $ 10,070 | $ 8,535 | $ 20,219 | $ 16,286 | | Other | $ 1,224 | $ 1,210 | $ 2,506 | $ 2,401 | | Consolidated total | $ 48,742 | $ 39,836 | $ 95,362 | $ 80,243 | Segment Gross Margin (in millions) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Medicaid | $ 1,117 | $ 1,461 | $ 2,549 | $ 3,405 | | Medicare | $ 863 | $ 645 | $ 2,067 | $ 1,191 | | Commercial | $ 946 | $ 2,267 | $ 3,488 | $ 4,338 | | Other | $ 92 | $ 155 | $ 202 | $ 330 | | Consolidated total | $ 3,018 | $ 4,528 | $ 8,306 | $ 9,264 | 10. Contingencies This note addresses the company's involvement in various legal and regulatory proceedings, including a federal securities class action, and potential material adverse effects - The Company is routinely subjected to legal and regulatory proceedings, including compliance reviews, litigation from general business activities, and disputes regarding reinsurance and acquisitions/divestitures[71][75] - A federal securities class action, 'Brock Lunstrom v. Centene Corp., et al.,' was filed on July 9, 2025, alleging false and misleading statements regarding 2025 earnings guidance, with an adverse outcome potentially having a material adverse impact[74] - Amounts accrued for legal and regulatory matters were not material as of the report date, but an ultimate unfavorable resolution could still materially affect financial results in a particular period[73] 11. Subsequent Events This note discloses a subsequent event where the company plans to perform a quantitative impairment analysis due to market conditions, potentially resulting in a future impairment charge - Due to market conditions, including the One Big Beautiful Bill Act, the Company plans to perform a quantitative impairment analysis for goodwill, intangibles, or other assets, which could result in a material impairment charge in a future period[76] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a comprehensive discussion and analysis of Centene Corporation's financial condition and results of operations, including an executive overview, key trends, operating drivers, membership, detailed financial results, liquidity, capital resources, and critical accounting estimates Executive Overview The Executive Overview highlights Centene's role as a leading healthcare enterprise, discusses key operating trends and regulatory uncertainties, and summarizes Q2 2025 financial performance General Centene Corporation is a leading healthcare enterprise providing integrated, high-quality, and cost-effective services to government-sponsored and commercial healthcare programs - Centene provides services to over 1 in 15 individuals across the nation, including Medicaid, Medicare, and Health Insurance Marketplace members[79] - Operating performance is measured by the health benefits ratio (HBR) and the SG&A expense ratio, reflecting the management of medical and administrative costs[80] Trends and Uncertainties The company is experiencing an accelerated increase in medical cost trends due to rising demand, expanded access, and high-cost pharmaceuticals, intensified by legislative changes - Medical cost trends are accelerating due to increasing demand, expanded access, and new high-cost pharmaceuticals, exacerbated by legislative changes and member uncertainty[81][82] - The OBBBA and the expiration of enhanced APTCs are expected to reduce 2026 Marketplace membership and increase the morbidity of the Marketplace population[89] - The Inflation Reduction Act (IRA) significantly changed Medicare Prescription Drug Plans (PDPs) for 2025, leading to a meaningful shift in cost-sharing responsibilities and increased premiums[90] Summary Centene remains committed to delivering high-quality, cost-effective healthcare services to government and commercial partners, leveraging experience and technology - The Company is focused on delivering high-quality, cost-effective healthcare services to government and commercial partners, utilizing data and analytics to enhance member and provider experiences[92] Second Quarter 2025 Highlights Centene reported a 22% increase in total revenues to $48.7 billion for Q2 2025, despite a 2% decrease in managed care membership, with a GAAP diluted loss per share of $(0.51) Second Quarter 2025 Financial Highlights | Metric | Q2 2025 | YoY Change | | :---------------------------------------- | :------ | :--------- | | Managed care membership | 28.0 million | (2)% | | Total revenues | $48.7 billion | 22% | | Premium and service revenues | $42.5 billion | 18% | | HBR | 93.0% | +5.4 ppt | | SG&A expense ratio | 7.1% | -0.9 ppt | | Adjusted SG&A expense ratio | 7.1% | -0.9 ppt | | Operating cash flows | $1.8 billion | N/A | | GAAP diluted loss per share | $(0.51) | (124)% | | Adjusted diluted loss per share | $(0.16) | (107)% | - The GAAP and adjusted diluted loss per share were primarily driven by a reduction in the net 2025 Marketplace risk adjustment revenue transfer estimate[93] Current and Future Operating Drivers This section details current and anticipated factors influencing Centene's operations across its segments, including new contracts, regulatory changes, and strategic pricing adjustments Medicaid Medicaid operations are influenced by new contract commencements in several states and the ongoing impact of eligibility redeterminations post-PHE, leading to membership declines - Sunshine Health commenced an expanded Statewide Medicaid Managed Care (SMMC) program in Florida in February 2025, including integrated services and coverage for Behavior Analysis[96] - Medicaid membership declined due to eligibility redeterminations post-PHE, with most states substantially completing unwinding processes by December 2024[96] - Future impacts include potential contract commencements in Iowa and Mississippi in July 2025, and Nevada and Pennsylvania in January 2026, subject to protest resolutions[103][104][107] Medicare / Dual-Eligible Medicare operations are significantly impacted by the IRA's changes to Part D, leading to increased premiums; the company saw PDP membership growth but Medicare Advantage decline - PDP membership increased 19% year-over-year due to strong bid positioning, while Medicare Advantage membership declined 10% due to strategic positioning and bid strategy[102] - The IRA changes for 2025 significantly increased PDP premiums due to a larger portion of total Part D benefit costs, impacting the quarterly progression of the Medicare segment HBR[102] - The 2025 Medicare Advantage premium deficiency reserve increased to $389 million in Q2 2025, reflecting earnings progression and IRA impacts[102] Commercial Commercial Marketplace membership grew 33% year-over-year, but a reduction in risk adjustment revenue and anticipated morbidity increases are leading to rate refiling - Marketplace membership increased 33% year-over-year due to expanded geographic footprint (60 new counties across 10 states, including Iowa) and strong open enrollment results[102] - A reduction in the net 2025 Marketplace risk adjustment revenue transfer estimate was announced on July 1, 2025, due to significantly higher estimated aggregate market morbidity[102] - The company commenced refiling 2026 policy year rates to reflect a higher projected baseline of Marketplace morbidity, expecting corrective pricing actions for a substantial majority of Marketplace membership[106] Other The 'Other' segment's future results will be impacted by the successful execution of value creation initiatives, including a new third-party PBM contract - The implementation of a new third-party pharmacy benefits management (PBM) contract, which commenced in January 2024, is expected to impact future results of operations[100] - The sale of Collaborative Health Systems was completed in October 2024, and Magellan Health commenced the Idaho Behavioral Health Plan contract in July 2024[102] Membership Centene's managed care membership decreased by 2% year-over-year, primarily due to declines in Traditional Medicaid and Medicare, partially offset by growth in Marketplace and Medicare PDP - Managed care membership decreased by 473 thousand members, or 2%, year-over-year to 28.0 million as of June 30, 2025[109] Managed Care Membership by Line of Business (in thousands) | Line of Business | June 30, 2025 | December 31, 2024 | June 30, 2024 | | :-------------------------- | :------------ | :---------------- | :------------ | | Traditional Medicaid | 11,227.4 | 11,408.1 | 11,640.9 | | High Acuity Medicaid | 1,592.3 | 1,595.4 | 1,499.0 | | Total Medicaid | 12,819.7 | 13,003.5 | 13,139.9 | | Marketplace | 5,862.8 | 4,382.1 | 4,401.3 | | Individual and Commercial Group | 449.7 | 431.4 | 426.4 | | Total Commercial | 6,312.5 | 4,813.5 | 4,827.7 | | Medicare | 1,026.9 | 1,110.9 | 1,138.4 | | Medicare PDP | 7,845.8 | 6,925.7 | 6,603.6 | | Total at-risk membership | 28,004.9 | 25,853.6 | 25,709.6 | | TRICARE eligibles | — | 2,747.0 | 2,768.0 | | Total | 28,004.9 | 28,600.6 | 28,477.6 | Results of Operations This section provides a detailed comparative analysis of Centene's financial performance for the three and six months ended June 30, 2025, versus 2024, covering revenues, expenses, and segment results Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 For Q2 2025, total revenues increased 22%, but the company reported an operating loss and net loss due to a higher HBR driven by Marketplace risk adjustment and increased medical costs Total Revenues Total revenues increased 22% to $48.7 billion for Q2 2025, driven by premium and membership growth in PDP and Marketplace, and Medicaid rate increases - Total revenues increased 22% to $48.7 billion for Q2 2025, primarily due to premium and membership growth in PDP and Marketplace, and Medicaid rate increases[112] - Growth was partially offset by lower Medicaid membership due to redeterminations and lower Marketplace net risk adjustment revenue[112] Operating Expenses Operating expenses increased significantly, with the HBR rising to 93.0% due to reduced Marketplace risk adjustment and higher medical costs, while the SG&A expense ratio improved to 7.1% Key Operating Expense Ratios (Q2 YoY) | Metric | Q2 2025 | Q2 2024 | Change | | :-------------------------- | :------ | :------ | :----- | | HBR | 93.0% | 87.6% | +5.4 ppt | | SG&A expense ratio | 7.1% | 8.0% | -0.9 ppt | | Adjusted SG&A expense ratio | 7.1% | 8.0% | -0.9 ppt | - The increase in HBR was primarily driven by a reduction in the net 2025 Marketplace risk adjustment revenue transfer estimate, increased Marketplace medical costs, higher Medicaid medical costs (behavioral health, home health, high-cost drugs), and an increased Medicare Advantage premium deficiency reserve[113] - Impairment charges of $55 million were recorded in Q2 2025, primarily due to an intangible asset impairment related to the wind-down of certain contracts in the Other segment[116] Other Income (Expense) Net other income decreased to $201 million in Q2 2025 from $287 million in Q2 2024, primarily due to a $92 million decrease in investment and other income Other Income (Expense) (in millions) | Metric | Q2 2025 | Q2 2024 | | :-------------------------- | :------ | :------ | | Investment and other income | $ 371 | $ 463 | | Interest expense | $ (170) | $ (176) | | Net other income (expense) | $ 201 | $ 287 | - Investment and other income decreased by $92 million, primarily due to lower interest rates and average investment balances[117] Income Tax Expense Income tax expense for Q2 2025 was $2 million, reflecting a lower estimated full-year effective tax rate, compared to $370 million in Q2 2024 - Income tax expense for Q2 2025 was $2 million, reflecting a lower estimated full year 2025 effective tax rate[119] - For Q2 2024, income tax expense was $370 million on pre-tax earnings of $1.5 billion, with an effective tax rate of 24.4%[120] Segment Results Medicaid revenues increased 16% but gross margin decreased 24%; Medicare revenues surged 58% with a 34% gross margin increase; Commercial revenues rose 18% but gross margin plummeted 58% Segment Performance (Q2 YoY Change) | Segment | Total Revenues % Change | Gross Margin % Change | | :------------------ | :---------------------- | :-------------------- | | Medicaid | 16% | (24)% | | Medicare | 58% | 34% | | Commercial | 18% | (58)% | | Other | 1% | (41)% | - Medicaid gross margin decreased due to higher medical costs, particularly in behavioral health, home health, and high-cost drugs[122] - Commercial gross margin decreased significantly due to a reduction in the net 2025 Marketplace risk adjustment transfer estimate and increased Marketplace medical costs[124] Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 For the six months ended June 30, 2025, total revenues increased 19%, but net earnings decreased 54%, with the HBR rising to 90.2% due to Marketplace risk adjustment and medical costs Total Revenues Total revenues increased 19% to $95.4 billion for the six months ended June 30, 2025, driven by premium and membership growth in PDP and Marketplace, and Medicaid rate increases - Total revenues increased 19% to $95.4 billion for the six months ended June 30, 2025, driven by premium and membership growth in PDP and Marketplace, and Medicaid rate increases[126] - Growth was partially offset by lower Medicaid membership due to redeterminations and lower Marketplace net risk adjustment revenue[126] Operating Expenses Operating expenses increased, with the HBR rising to 90.2% due to Marketplace risk adjustment and increased medical costs, while the SG&A expense ratio improved to 7.5% Key Operating Expense Ratios (YTD YoY) | Metric | YTD 2025 | YTD 2024 | Change | | :-------------------------- | :------- | :------- | :----- | | HBR | 90.2% | 87.3% | +2.9 ppt | | SG&A expense ratio | 7.5% | 8.5% | -1.0 ppt | | Adjusted SG&A expense ratio | 7.5% | 8.3% | -0.8 ppt | - The increase in HBR was primarily driven by a reduction in the net 2025 Marketplace risk adjustment revenue transfer estimate, increased Marketplace medical costs, higher Medicaid medical costs, and an increased Medicare Advantage premium deficiency reserve[127] - Impairment charges of $55 million were recorded in YTD 2025 due to intangible asset impairment in the Other segment, compared to $13 million in YTD 2024 related to the TRICARE contract[130] Other Income (Expense) Net other income decreased to $413 million for the six months ended June 30, 2025, from $654 million in the prior year, primarily due to lower investment and other income Other Income (Expense) (in millions) | Metric | YTD 2025 | YTD 2024 | | :-------------------------- | :------- | :------- | | Investment and other income | $ 753 | $ 1,008 | | Interest expense | $ (340) | $ (354) | | Net other income (expense) | $ 413 | $ 654 | - Investment and other income decreased by $255 million, primarily due to net gains on divestitures in 2024 and lower interest rates and average investment balances in 2025[131] Income Tax Expense Income tax expense for the six months ended June 30, 2025, was $434 million on pre-tax earnings of $1.5 billion, with an effective tax rate of 29.1% - Income tax expense for YTD 2025 was $434 million on pre-tax earnings of $1.5 billion, with an effective tax rate of 29.1% (28.1% on adjusted earnings)[133] - For YTD 2024, income tax expense was $685 million on pre-tax earnings of $3.0 billion, with an effective tax rate of 22.9% (24.5% on adjusted earnings), reflecting the tax effects of the Circle Health divestiture[134] Segment Results Medicaid revenues increased 10% but gross margin decreased 25%; Medicare revenues surged 53% with a 74% gross margin increase; Commercial revenues rose 24% but gross margin decreased 20% Segment Performance (YTD YoY Change) | Segment | Total Revenues % Change | Gross Margin % Change | | :------------------ | :---------------------- | :-------------------- | | Medicaid | 10% | (25)% | | Medicare | 53% | 74% | | Commercial | 24% | (20)% | | Other | 4% | (39)% | - Medicaid gross margin decreased due to higher medical costs, particularly in behavioral health, home health, and high-cost drugs[136] - Commercial gross margin decreased due to a reduction in the net 2025 Marketplace risk adjustment transfer estimate and increased Marketplace medical costs[138] Liquidity and Capital Resources This section analyzes Centene's liquidity and capital resources, detailing cash flows, key liquidity metrics, and 2025 expectations for capital contributions and expenditures Cash Flows Provided by Operating Activities Operating activities provided $3.3 billion in cash for the six months ended June 30, 2025, a significant increase from $1.7 billion in the comparable period of 2024, driven by net earnings - Net cash provided by operating activities increased to $3.3 billion in YTD 2025 from $1.7 billion in YTD 2024[142][143] - The increase was primarily driven by net earnings and improved pharmacy rebate remittance timing in 2025, contrasting with 2024 when pharmacy remittance timing was a partial offset due to the PBM transition[144] Cash Flows (Used in) Investing Activities Investing activities used $1.4 billion in cash for the six months ended June 30, 2025, compared to $315 million in the prior year, mainly due to net additions to the investment portfolio - Net cash used in investing activities increased to $1.4 billion in YTD 2025 from $315 million in YTD 2024[142][145] - This was primarily driven by net additions to the investment portfolio of regulated subsidiaries and capital expenditures, with $343 million spent on capital expenditures in YTD 2025[145][146] Cash Flows (Used in) Financing Activities Financing activities used $1.4 billion in cash for the six months ended June 30, 2025, compared to $1.1 billion in the prior year, driven by net decreases in debt and common stock repurchases - Net cash used in financing activities increased to $1.4 billion in YTD 2025 from $1.1 billion in YTD 2024[142][148] - This was driven by net decreases in debt of $969 million and stock repurchases of $473 million in 2025[148] Liquidity Metrics Centene's debt-to-capital ratio decreased to 39.0% at June 30, 2025, reflecting reduced debt and increased stockholders' equity, with $1.8 billion remaining under its stock repurchase program - The debt-to-capital ratio decreased to 39.0% at June 30, 2025, from 41.2% at December 31, 2024, driven by a decrease in Revolving Credit Facility debt and net earnings[156] - The Company has $1.8 billion available under its stock repurchase program and $700 million available under its senior note debt repurchase program as of June 30, 2025[151][153] - Working capital was $3.6 billion at June 30, 2025, compared to $3.7 billion at December 31, 2024[157] 2025 Expectations For the remainder of 2025, Centene expects a net contribution of approximately $300 million to its insurance subsidiaries and $350 million in additional capital expenditures - The Company expects a net contribution of approximately $300 million to insurance subsidiaries and $350 million in additional capital expenditures for the remainder of 2025[158] - Available cash, cash equivalents, investments, operating cash flows, and the Revolving Credit Facility are expected to be sufficient to finance operations and capital expenditures for at least 12 months[159] Regulatory Capital and Dividend Restrictions Centene's regulated subsidiaries are subject to state-mandated minimum statutory capital requirements and dividend restrictions, with aggregate RBC levels exceeding 350% of the Authorized Control Level - Most subsidiaries are subject to state regulations requiring minimum statutory capital and restricting dividend payments to the parent company[161] - The aggregate risk-based capital (RBC) level for NAIC-filing subsidiaries was in excess of 350% of the Authorized Control Level as of December 31, 2024, and is expected to be maintained in 2025[162] - California subsidiaries must comply with tangible net equity (TNE) requirements, and the New York subsidiary must comply with contingent reserve requirements[163][164] Critical Accounting Estimates This section refers to critical accounting estimates detailed in the 2024 Annual Report on Form 10-K, supplemented by the discussion on subsequent events in Note 11 - Critical accounting estimates are discussed in the 2024 Annual Report on Form 10-K, with additional context provided in Note 11. Subsequent Events of this report[168] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risk, primarily interest rate risk on its investment portfolio, and refers to the Annual Report on Form 10-K for further details Investments and Debt Centene's investment portfolio, totaling $23.0 billion as of June 30, 2025, is primarily composed of fixed-income securities and is subject to interest rate risk - As of June 30, 2025, short-term investments were $2.8 billion and long-term investments were $20.2 billion, including $1.4 billion in restricted deposits[171] - The investment portfolio consists primarily of fixed-income securities with an average duration of 3.4 years[147] - A hypothetical 1% increase in market interest rates at June 30, 2025, would decrease the fair value of fixed-income investments by approximately $728 million[171] Item 4. Controls and Procedures This section confirms the effectiveness of Centene's disclosure controls and procedures as of June 30, 2025, and states no material changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures Centene's management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, providing reasonable assurance of timely reporting - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[173] Changes in Internal Control Over Financial Reporting No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025 - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[174] Part II. Other Information This part contains other information, including legal proceedings, risk factors, equity security sales, and exhibits Item 1. Legal Proceedings This section incorporates by reference the discussion of legal proceedings from Note 10. Contingencies to the consolidated financial statements - A description of legal proceedings is incorporated by reference from Note 10. Contingencies to the consolidated financial statements[177] Item 1A. Risk Factors This section supplements risk factors, emphasizing risks in estimating medical expenses, managing costs, and adapting to regulatory changes in government-sponsored healthcare programs - Failure to accurately estimate and price medical expenses or effectively manage medical costs could materially adversely affect results, as evidenced by a significant reduction in expected net risk adjustment revenue for 2025 due to higher Marketplace morbidity[179] - Medicaid redeterminations post-PHE have led to a higher HBR for remaining members due to increased acuity, and rate adjustments may be delayed or insufficient to offset these costs[180] - The expiration of enhanced APTCs, the Marketplace Integrity & Affordability Final Rule, and the OBBBA are anticipated to reduce 2026 Marketplace membership and increase the morbidity of the Marketplace population[187][190] - The IRA's significant changes to Medicare Part D for 2025 have increased risk exposure, underwriting risks, and market volatility, potentially impacting cash flows, revenue, and profit[195][200] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase program, authorizing repurchases up to $10.0 billion, with $1.8 billion remaining as of June 30, 2025 - The Company is authorized to repurchase up to $10.0 billion of common stock, with $1.8 billion remaining available as of June 30, 2025[201] Issuer Purchases of Equity Securities (Second Quarter 2025) | Period | Total Number of Shares Purchased (thousands) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (thousands) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) | | :-------------------------- | :--------------------------------------- | :--------------------------- | :--------------------------------------------------------------------------------------- | :---------------------------------------------------------------------------------------------------- | | April 1, 2025 - April 30, 2025 | 1,596 | $ 59.25 | 1,596 | $ 2,135 | | May 1, 2025 - May 31, 2025 | 5,117 | $ 59.69 | 5,117 | $ 1,830 | | June 1, 2025 - June 30, 2025 | — | — | — | $ 1,830 | | Total | 6,713 | $ 59.59 | 6,713 | $ 1,830 | Item 5. Other Information This section states no other material information to report and confirms no director or officer adopted or terminated a Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[205] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including compensation policies, executive certifications, and financial statements in iXBRL format - Exhibits include Non-Employee Director Compensation Policy, Restricted Stock Unit Agreement, Deferred Stock Compensation Plan, and certifications from the CEO and CFO[207] - Consolidated financial statements for the quarter ended June 30, 2025, are provided in Inline Extensible Business Reporting Language (iXBRL) format[207] Signatures This section contains the required signatures of Centene Corporation's CEO, CFO, and Chief Accounting Officer, certifying the report filing as of July 25, 2025 - The report is signed by Sarah M. London (Chief Executive Officer), Andrew L. Asher (Executive Vice President, Chief Financial Officer), and Katie N. Casso (Senior Vice President, Finance, Corporate Controller and Chief Accounting Officer) as of July 25, 2025[211][213]