Centene Corporation (CNC) Earnings

Management highlights

• Sarah London mentioned first quarter adjusted diluted EPS of $3.37, increased full year 2026 adjusted EPS outlook to greater than $3.40. • Medicaid made progress with margin improvement initiatives, flu season lighter than forecast and weather events provided utilization benefit. • Medicare segment results strong with both MA and PDP exceeding expectations. • Marketplace had membership and metal tier distribution consistent with patterns, gained additional visibility from data collaboration. • Announced evolution of leadership structure, two bright spots: progress on prior authorization commitments and being named to Forbes Best Employers for Company Culture list for second year. • Drew Asher discussed revenue, adjusted diluted earnings per share, Medicaid membership and HBR, Medicare segment results, Marketplace pre-tax earnings, consolidated adjusted SG&A expense ratio, cash position, and guidance updates.

Guidance

• Increased full-year adjusted EPS guidance to greater than $3.40. • Added a billion of premium revenue largely driven by Texas Medicaid. • Expected overall Medicaid membership to be down about 6% from year end to year end. • Continue to be on track for Medicaid composite rate yield around 4.5 percent. • Adjusted consolidated SG&A guidance range down by 10 basis points and added $50 million to expected investment income, no change to HBR full-year range.

Segment performance

Medicaid: Ended Q1 with 12.4 million members, Q1 HBR at 93.1%, improvement of 50 basis points from Q1 2025; Medicare: Both Medicare Advantage and PDP exceeded expectations, HBR at 84.9%; Commercial (Marketplace): Ended quarter with just under 3.6 million members, Q1 HBR driven by higher than expected utilization in silver tier, offset by outperformance in SG&A

Risks & headwinds

• Actual results may differ materially from forward-looking statements due to various factors including those discussed in press release and SEC filings. • Uncertainties around work requirements impact on Medicaid risk pool. • Volatility in the business affecting debt refinancing and balance sheet management. • Potential impact of fraud, waste, and abuse on program integrity and rates. • Uncertainties around resolution of marketplace program integrity measures and their impact on membership and risk pool.

Analyst Q&A

• Q: Follow up on higher acuity in ACA silver tier, why attracted higher acuity cohort and impact on margin if full risk adjustment offset.

  A: Expiration of enhanced APTCs drove market changes, silver tier remaining membership became more morbid, risk adjustment mechanism can be profitable, additional visibility from data confirms higher acuity silver membership will get risk adjustment receivable, guidance is prudent in advance of June data, still confident in margin improvement.

• Q: Medicaid cost trend and rate updates, primary driver of outperformance.

  A: Flu, weather, and fundamental solid outperformance from multi-tenant program including network optimization, clinical programs, payment integrity; states more receptive to program changes, outperformance may lean positive for rest of year.

• Q: Risk adjustment receivable in marketplace, magnitude and coverage.

  A: Receivable accounts for entire marketplace population, not booked full amount suggested by data, range wraps around original target margin and outpaces it.

• Q: Balance sheet, refinancing of senior notes due in 2027 and 2028.

  A: Aware of maturities, will look to refinance or modify debt, pleased with cash generation, evaluate right debt load.

• Q: Rate development in Medicaid and work requirements impact.

  A: Conscious of work requirements impact on rate conversations, CMS guidance helpful, states flexing muscles from redeterminations process, confident in managing through 2027 and 2028.

• Q: Quarterly progression in terms of MLR and earnings.

  A: EPS sloping with step down in Q2, Q3 round break even, Q4 loss due to seasonality; Medicaid Q2, Q3 HBRs higher than average, Q1, Q4 lower; commercial businesses including marketplace have steady HBR slope; Medicare HBR sloping higher due to PDP proportion.

• Q: Fraud, waste, and abuse in ABA, impact on rates.

  A: Focus on excess trend, states taking direct action on suspect providers, opportunity for program reform without rate headwind.

• Q: Net trend impacts in Medicaid, pockets of deceleration and acuity.

  A: Behavioral health, home health, high-cost drugs are trend drivers, seeing pockets of deceleration in behavioral health units per utilizer, ABA trend stabilizing, embedded attrition and risk pool shift in trend assumption.

• Q: Medicaid net trend impacts and RFP perspective.

  A: 2026 RFP lighter, states aligning RFP processes, well positioned for RFP, levers like network, clinical programs, payment integrity drive net trend, states considering rolling higher acuity membership into RFP.

• Q: HBR and slope on Part D and blended Medicare.

  A: Medicare segment HBR slope steeper due to PDP proportion, pleased with Q1 outperformance in Medicare Advantage and PDP, assume revert to previous assumptions for Q2, Q3, Q4 but continue to drive outperformance.

• Q: Part D membership mix and specialty pharmacy spending trends.

  A: PDP membership mix about a third LIS, two-thirds non-LIS, different behaviors in non-LIS vs LIS, high non-L income trend in specialty pharmacy, model change not taken, direct subsidy expected to go up in 2027