Centene 10-Q 2022-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

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FORM 10-Q

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(Mark One)

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

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Commission file number: 001-31826

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CENTENE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware									42-1406317
(State or other jurisdiction of									(I.R.S. Employer
incorporation or organization)									Identification Number)
7700 Forsyth Boulevard
St. Louis,			Missouri						63105
(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 Class			Trading Symbol(s)			Name of Each Exchange on Which Registered
Common Stock $0.001 Par Value			CNC			New 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 October 14, 2022, the registrant had 566,259,693 shares of common stock outstanding.

CENTENE CORPORATION

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

						PAGE
			Part I
			Financial Information
Item 1.			Financial Statements			1
			Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021			1
			Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)			2
			Consolidated Statements of Comprehensive Earnings (Loss) for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)			3
			Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)			4
			Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (unaudited)			6
			Notes to the Consolidated Financial Statements (unaudited)			7
Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			37
Item 4.			Controls and Procedures			37
			Part II
			Other Information
Item 1.			Legal Proceedings			38
Item 1A.			Risk Factors			38
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			39
Item 6.			Exhibits			40
Signatures						41

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, value creation strategy, competition, expected activities in connection with completed and future acquisitions and dispositions, including statements about the impact of our recently completed acquisition of Magellan Health, Inc. (the Magellan Acquisition), other recent 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," and Part II, Item 1. "Legal Proceedings."

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 accurately predict and effectively manage health benefits and other operating expenses and reserves, including fluctuations in medical utilization rates due to the ongoing impact of COVID-19;

• 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;

• the risk that the election of new directors, changes in senior management, and any inability to retain key personnel may create uncertainty or negatively impact our ability to execute quickly and effectively;

• uncertainty as to the expected financial performance of the combined company following the recent completion of the Magellan Acquisition;

• the possibility that the expected synergies and value creation from the Magellan Acquisition or the acquisition of WellCare Health Plans, Inc. (the WellCare Acquisition) or other acquired businesses will not be realized, or will not be realized within the respective expected time periods;

• disruption from the integration of the Magellan Acquisition or the WellCare Acquisition, unexpected costs, or similar risks from other acquisitions or dispositions we may announce or complete from time to time, including potential adverse reactions or changes to business relationships with customers, employees, suppliers or regulators, making it more difficult to maintain business and operational relationships;

• the risk that the closing conditions, including applicable regulatory approvals, for the pending dispositions of Magellan Rx and our Spanish and Central European businesses, may be delayed or not obtained;

• impairments to real estate, investments, goodwill and intangible assets;

• a downgrade of the credit rating of our indebtedness;

• competition;

• membership and revenue declines or unexpected trends;

• changes in healthcare practices, new technologies, and advances in medicine;

• increased healthcare costs;

• changes in economic, political or market conditions;

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 that may result from changing political conditions, the current administration or judicial actions;

• rate cuts or other payment reductions or delays by governmental payors and other risks and uncertainties affecting our government businesses;

• our ability to adequately price products;

• tax matters;

• disasters or major epidemics;

• changes in expected contract start dates;

• provider, state, federal, foreign and other contract changes and timing of regulatory approval of contracts;

• the expiration, suspension, or termination of our contracts with federal or state governments (including, but not limited to, Medicaid, Medicare, TRICARE or other customers);

• the difficulty of predicting the timing or outcome of legal or regulatory proceedings or matters, including, but not limited to, our ability to resolve claims and/or allegations made by states with regard to past practices, including at Envolve Pharmacy Solutions, Inc. (Envolve), as our pharmacy benefits manager (PBM) subsidiary, within the reserve estimate we previously recorded and on other acceptable terms, or at all, or whether additional claims, reviews or investigations relating to our PBM business will be brought by states, the federal government or shareholder litigants, or government investigations;

• the timing and extent of benefits from our value creation strategy, including the possibility that the benefits received may be lower than expected, may not occur, or will not be realized within the expected time periods;

• challenges to our contract awards;

• cyber-attacks or other privacy or data security incidents;

• the exertion of management's time and our resources, and other expenses incurred and business changes required in connection with complying with the undertakings in connection with any regulatory, governmental or third party consents or approvals for acquisitions or dispositions;

• any changes in expected closing dates, estimated purchase price and accretion for acquisitions or dispositions;

• restrictions and limitations in connection with our indebtedness;

• the availability of debt and equity financing on terms that are favorable to us;

• inflation; and

• foreign currency fluctuations.

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, 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 presentation of this additional non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

Specifically, the Company believes the presentation of non-GAAP financial information that excludes amortization of acquired intangible assets and 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 September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
GAAP net earnings attributable to Centene			$	738					$	584					$	1,415					$	748
Amortization of acquired intangible assets			211						198						609						581
Acquisition and divestiture related expenses			30						54						149						141
Other adjustments (1)			(222)						11						1,225						1,427
Income tax effects of adjustments (2)			(2)						(102)						(521)						(455)
Adjusted net earnings			$	755					$	745					$	2,877					$	2,442
GAAP diluted earnings per share (EPS) attributable to Centene			$	1.27					$	0.99					$	2.41					$	1.27
Amortization of acquired intangible assets			0.36						0.34						1.04						0.98
Acquisition and divestiture related expenses			0.05						0.09						0.25						0.24
Other adjustments (1)			(0.38)						0.01						2.09						2.42
Income tax effects of adjustments (2)			—						(0.17)						(0.89)						(0.77)
Adjusted diluted EPS			$	1.30					$	1.26					$	4.90					$	4.14

(1) Other adjustments include the following pre-tax items:

2022:

(a) for the three months ended September 30, 2022: PANTHERx Rare (PANTHERx) divestiture gain of $490 million, or $0.84 per share ($0.65 after-tax), the impairment of assets associated with the pending divestiture of the Spanish and Central European businesses of $165 million, or $0.28 per share ($0.23 after-tax), real estate impairments of $127 million, or $0.22 per share ($0.16 after-tax), an increase to the previously reported gain on the divestiture of U.S. Medical Management (USMM) due to the finalization of working capital adjustments of $13 million, or $0.02 per share ($0.01 after-tax), gain on debt extinguishment related to the repurchases of senior notes of $10 million, or $0.02 per share ($0.01 after-tax), and an adjustment to the costs related to the PBM legal settlement of $1 million, or $0.00 per share ($0.00 after-tax);

(b) for the nine months ended September 30, 2022: real estate impairments of $1,581 million, or $2.69 per share ($1.98 after-tax), PANTHERx divestiture gain of $490 million, or $0.83 per share ($0.65 after-tax), the impairment of assets associated with the pending divestiture of the Spanish and Central European businesses of $165 million, or $0.28 per share ($0.23 after-tax), gain on debt extinguishment of $23 million, or $0.04 per share ($0.03 after-tax), an increase to the previously reported gain related to the divestiture of USMM due to the finalization of working capital adjustments of $13 million, or $0.02 per share ($0.02 after-tax), and costs related to the PBM legal settlement of $5 million, or $0.01 per share ($0.01 after-tax).

iii

2021:

(a) for the three months ended September 30, 2021: non-cash gain related to the acquisition of the remaining 60% interest of Circle Health of $309 million, or $0.52 per share ($0.52 after-tax), non-cash impairment of our equity method investment in RxAdvance of $229 million, or $0.38 per share ($0.35 after-tax), debt extinguishment costs of $79 million, or $0.13 per share ($0.10 after-tax), PBM legal settlement expense of $11 million, or $0.02 per share ($0.01 after-tax), and severance costs due to a restructuring of $1 million, or $0.00 per share ($0.00 after-tax);

(b) for the nine months ended September 30, 2021: PBM legal settlement expense of $1,261 million, or $2.13 per share ($1.79 after-tax), non-cash gain related to the acquisition of the remaining 60% interest of Circle Health of $309 million, or $0.52 per share ($0.52 after-tax), non-cash impairment of our equity method investment in RxAdvance of $229 million, or $0.39 per share ($0.35 after-tax), debt extinguishment costs of $125 million, or $0.21 per share ($0.16 after-tax), a reduction to the previously reported gain on divestiture of certain products of our Illinois health plan of $62 million, or $0.11 per share ($0.08 after-tax), and severance costs due to a restructuring of $59 million, or $0.10 per share ($0.07 after-tax).

(2) The income tax effects of adjustments are based on the effective income tax rates applicable to each adjustment. The nine months ended September 30, 2022 also include an $18 million, or $0.03 per share, increase to the tax benefit on the previously reported non-cash impairment of our equity method investment in RxAdvance.

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
GAAP selling, general and administrative expenses			$	2,846					$	2,537					$	8,391					$	6,910
Less:
Acquisition and divestiture related expenses			28						41						149						126
Restructuring costs			—						1						—						59
Costs related to the PBM legal settlement			1						11						5						11
Real estate optimization			3						—						7						—
Adjusted selling, general and administrative expenses			$	2,814					$	2,484					$	8,230					$	6,714
Note: Beginning in 2022, we have included a separate line item for depreciation expense on the Consolidated Statements of Operations, which was previously included in selling, general and administrative (SG&A) expenses. Prior period SG&A expenses have been conformed to the current presentation.

iv

PART I

FINANCIAL INFORMATION

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except shares in thousands and per share data in dollars)

			September 30, 2022						December 31, 2021
			(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents			$	14,987					$	13,118
Premium and trade receivables			13,770						12,238
Short-term investments			2,191						1,539
Other current assets			2,327						1,602
Total current assets			33,275						28,497
Long-term investments			14,053						14,043
Restricted deposits			1,205						1,068
Property, software and equipment, net			2,479						3,391
Goodwill			20,040						19,771
Intangible assets, net			7,523						7,824
Other long-term assets			2,597						3,781
Total assets			$	81,172					$	78,375
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical claims liability			$	16,465					$	14,243
Accounts payable and accrued expenses			9,995						8,493
Return of premium payable			2,205						2,328
Unearned revenue			2,416						434
Current portion of long-term debt			249						267
Total current liabilities			31,330						25,765
Long-term debt			18,084						18,571
Deferred tax liability			480						1,407
Other long-term liabilities			5,678						5,610
Total liabilities			55,572						51,353
Commitments and contingencies
Redeemable noncontrolling interests			66						82
Stockholders’ equity:
Preferred stock, $0.001 par value; authorized 10,000 shares; no shares issued or outstanding at September 30, 2022 and December 31, 2021			—						—
Common stock, $0.001 par value; authorized 800,000 shares; 606,931 issued and 570,091 outstanding at September 30, 2022, and 602,704 issued and 582,479 outstanding at December 31, 2021			1						1
Additional paid-in capital			19,774						19,672
Accumulated other comprehensive earnings			(1,394)						77
Retained earnings			9,554						8,139
Treasury stock, at cost (36,840 and 20,225 shares, respectively)			(2,557)						(1,094)
Total Centene stockholders’ equity			25,378						26,795
Nonredeemable noncontrolling interest			156						145
Total stockholders’ equity			25,534						26,940
Total liabilities, redeemable noncontrolling interests and stockholders’ equity			$	81,172					$	78,375

The accompanying notes to the consolidated financial statements are an integral part of these statements.

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except shares in thousands and per share data in dollars)

(Unaudited)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Revenues:
Premium			$	31,848					$	28,876					$	95,247					$	83,436
Service			1,878						1,638						6,679						4,054
Premium and service revenues			33,726						30,514						101,926						87,490
Premium tax			2,139						1,892						7,060						5,924
Total revenues			35,865						32,406						108,986						93,414
Expenses:
Medical costs			28,111						25,430						83,261						73,210
Cost of services			1,571						1,355						5,658						3,510
Selling, general and administrative expenses			2,846						2,537						8,391						6,910
Depreciation expense			150						147						470						414
Amortization of acquired intangible assets			211						198						609						581
Premium tax expense			2,211						1,965						7,258						6,129
Impairment			289						229						1,739						229
Legal settlement			—						—						—						1,250
Total operating expenses			35,389						31,861						107,386						92,233
Earnings from operations			476						545						1,600						1,181
Other income (expense):
Investment and other income			692						424						786						566
Debt extinguishment			10						(79)						26						(125)
Interest expense			(169)						(170)						(491)						(503)
Earnings before income tax			1,009						720						1,921						1,119
Income tax expense			269						139						500						376
Net earnings			740						581						1,421						743
(Earnings) loss attributable to noncontrolling interests			(2)						3						(6)						5
Net earnings attributable to Centene Corporation			$	738					$	584					$	1,415					$	748
Net earnings per common share attributable to Centene Corporation:
Basic earnings per common share			$	1.29					$	1.00					$	2.44					$	1.28
Diluted earnings per common share			$	1.27					$	0.99					$	2.41					$	1.27
Weighted average number of common shares outstanding:

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The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this filing. The discussion contains forward-looking statements that involve known and unknown risks and uncertainties.

EXECUTIVE OVERVIEW

General

We are a leading healthcare enterprise that is committed to helping people live healthier lives. We take a local approach - with local brands and local teams - to provide fully integrated, high-quality, and cost-effective services to government-sponsored and commercial healthcare programs, focusing on under-insured and uninsured individuals.

Results of operations depend on our ability to manage expenses associated with health benefits (including estimated costs incurred) and selling, general and administrative (SG&A) costs. We measure operating performance based upon two key ratios. The health benefits ratio (HBR) represents medical costs as a percentage of premium revenues, excluding premium tax revenues that are separately billed, and reflects the direct relationship between the premiums received and the medical services provided. The SG&A expense ratio represents SG&A costs as a percentage of premium and service revenues, excluding premium taxes separately billed.

Value Creation Plan

As introduced in June 2021, our Value Creation Plan is designed to drive margin expansion by leveraging our scale and generating sustainable profitable growth. In addition to creating shareholder value, this plan is an ongoing effort to modernize and improve how we work in order to propel our organization to new levels of success and elevate the member and provider experiences. The three major pillars of the Value Creation Plan are: SG&A expense savings, gross margin expansion, and strategic capital management. The first pillar, SG&A expense savings, includes initiatives targeting improving productivity, driving efficiencies, and reducing costs throughout the organization, including real estate optimization. The second pillar, gross margin expansion, relates to initiatives including bid discipline, clinical initiatives, quality improvement, and pharmacy cost management. The third pillar, strategic capital management, focuses on value-creating capital deployment activities such as stock repurchases, portfolio optimization, and debt and investment management.

From an operational perspective, we continue to move forward with our Value Creation Plan, including the streamlining of certain operations, such as key call centers and utilization management, evaluating our real estate footprint, and seeking opportunities for platform consolidation. We are assessing our portfolio and are focused on making strategic decisions and investments to create additional value in the short term and to seek opportunities that position the organization for long-term strength, profitability, growth, and innovation.

In the second quarter of 2022, following a strategic review of our real estate portfolio and the adoption of a more modern, flexible work environment, we initiated a reduction of our real estate footprint. As a result, in 2022 we have incurred $1.6 billion related to the impairment of leased and owned real estate and related fixed assets. We incurred impairments of $763 million related to owned real estate, $574 million related to leased real estate, and $237 million related to associated fixed assets. We anticipate additional future charges of approximately $100 million related to real estate optimization. This represents an approximate 70% decrease in domestic leased space and is expected to result in annualized lease expense savings of approximately $200 million.

Additionally, as part of our ongoing portfolio review, during 2022 we completed the divestiture of PANTHERx Rare (PANTHERx) and entered into definitive agreements to sell Magellan Rx as well as our ownership stakes in our Spanish and Central European businesses. In preparation for these transactions as well as planning for the future, our Board of Directors authorized a $3.0 billion increase to our stock repurchase program and a new $1.0 billion debt repurchase program during the second quarter of 2022.

During the nine months ended September 30, 2022, we have repurchased $1.4 billion of Centene common stock through the stock repurchase program, exclusive of the $200 million unsettled portion under the ASR, and $259 million of our senior notes through the debt repurchase program. As of September 30, 2022, $2.2 billion was available under the stock repurchase program and $753 million was available under the debt repurchase program.

During the fourth quarter of 2022, we signed a multi-year contract with Express Scripts, Inc. to provide our pharmacy benefit services, commencing in 2024. The new pharmacy benefits management (PBM) contract is expected to drive significant value in 2024 and beyond.

COVID-19 Trends and Uncertainties

The impact of COVID-19 on our business in both the short-term and long-term is uncertain and difficult to predict. The outlook for the remainder of 2022 depends on future developments, including but not limited to: the length and severity of the outbreak (including new variants, which may be more contagious, more severe or less responsive to treatment or vaccines), the effectiveness of containment actions, the timing and effectiveness of vaccinations and achievement of herd immunity, and the timing and rate at which members return to accessing healthcare. The pandemic and these future developments have impacted and will continue to affect our membership and medical utilization. From the onset of the pandemic in March 2020, our Medicaid membership has increased by 3.0 million members (excluding the new North Carolina and Missouri membership). The public health emergency (PHE) extension for COVID-19 has been extended to January 2023 with redeterminations eligible to begin in February 2023. However, the PHE may be extended beyond January 2023. Our Ambetter Health product covers the majority of our Medicaid states, and we believe we are among the best positioned in the healthcare market to capture those transitioning coverage through redeterminations. Our execution plan is well-thought out and we remain agile in working with our state partners and are prepared to support our members and promote continuity of coverage when redeterminations resume.

We continue to watch external trends closely, as COVID-19 costs could increase based upon macro trends. New variants and additional waves of the pandemic could create new dynamics and uncertainties around our expectations.

We are confident we have the team, systems, expertise, and financial strength to continue to effectively navigate this challenging pandemic landscape.

Regulatory Trends and Uncertainties

The United States government, policymakers, and healthcare experts continue to discuss and debate various elements of the United States healthcare model. We remain focused on the promise of delivering access to high-quality, affordable healthcare to all of our members and believe we are well positioned to meet the needs of the changing healthcare landscape.

In contrast to previous executive and legislative efforts to restrict or limit certain provisions of the Affordable Care Act (ACA), the American Rescue Act, enacted on March 11, 2021, contained provisions aimed at leveraging Medicaid and the Health Insurance Marketplace to expand health insurance coverage and affordability to consumers. The American Rescue Act authorized an additional $1.9 trillion in federal spending to address the COVID-19 PHE, and contained several provisions designed to increase coverage of certain healthcare services, expand eligibility and benefits, incentivize state Medicaid expansion, and adjust federal financing for state Medicaid programs, the ultimate impact of which remain uncertain. The American Resc

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INVESTMENTS AND DEBT

As of September 30, 2022, we had short-term investments of $2.2 billion and long-term investments of $15.3 billion, including restricted deposits of $1.2 billion. The short-term investments generally consist of highly liquid securities with maturities between three and 12 months. The long-term investments consist of municipal, corporate and U.S. Treasury securities, government sponsored obligations, life insurance contracts, asset-backed securities, and equity securities, and have maturities greater than one year. Restricted deposits consist of investments required by various state statutes to be deposited or pledged to state agencies. Due to the nature of the states’ requirements, these investments are classified as long-term regardless of the contractual maturity date. Substantially all of our investments are subject to interest rate risk and will decrease in value if market rates increase. Assuming a hypothetical and immediate 1% increase in market interest rates at September 30, 2022, the fair value of our fixed income investments would decrease by approximately $560 million.

For a discussion of the interest rate risk that our investments are subject to, refer to our 10-K for the fiscal year ended December 31, 2021, Part 1, Item 1A, "Risk Factors – Our investment portfolio may suffer losses which could materially and adversely affect our results of operations or liquidity."

Evaluation of Disclosure Controls and Procedures - We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

In connection with the filing of this Form 10-Q, management evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2022. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2022.

Changes in Internal Control Over Financial Reporting - No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

On January 4, 2022, we acquired Magellan. Management is currently in the process of evaluating the internal controls and procedures of Magellan and plans to integrate Magellan's internal control over financial reporting with our existing internal control over financial reporting. This integration may lead to changes in the internal control over financial reporting for us or the acquired Magellan business in future periods. Management expects the integration process to continue throughout the year and be completed during 2022.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

A description of the legal proceedings to which the Company and its subsidiaries are a party is contained in Note 13. Contingencies to the consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q, and is incorporated herein by reference.

In addition to the risk factors set forth in Part I - Item 1A - "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "2021 Form 10-K"), investors should carefully consider the following risk factor, which has been updated to reflect the impairment charges related to our real estate portfolio evaluation. This risk should be read in conjunction with the risk factors set forth in the 2021 Form 10-K and the other information contained in this report and our other filings with the Securities and Exchange Commission.

An impairment charge with respect to our real estate portfolio, recorded goodwill and intangible assets could have a material impact on our results of operations.

In connection with the evaluation of our real estate portfolio, we are downsizing our leased space and have evaluated whether the carrying value of our owned real estate may be impaired. As a result, we have incurred a charge of $811 million related to leased real estate and associated fixed asset impairments and a charge of $763 million related to owned real estate impairments through the third quarter of 2022. We anticipate additional future charges of approximately $100 million related to real estate optimization. We also periodically evaluate our goodwill and other intangible assets to determine whether all or a portion of their carrying values may be impaired, in which case a charge to earnings may be necessary. Changes in business strategy, government regulations, or economic or market conditions have resulted and may result in impairments of our real estate portfolio, goodwill and other intangible assets at any time in the future. Our judgments regarding the existence of impairment indicators are based on, among other things, legal factors, market conditions, and operational performance. For example, the non-renewal of our health plan contracts with the state in which they operate may be an indicator of impairment. If an event or events occur that would cause us to revise our estimates and assumptions used in analyzing the value of our goodwill and other intangible assets, such revision could result in a non-cash impairment charge that could have a material impact on our results of operations in the period in which the impairment occurs.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

In June 2022, our Board of Directors approved an additional $3.0 billion to the Company's existing stock repurchase program for its common stock for a total $4.0 billion. The stock repurchase program is effected primarily through regular open-market purchases (which may include repurchase plans designed to comply with Rule 10b5-1 and accelerated share repurchases), the amounts and timing of which are subject to our discretion as part of our capital allocation strategy, and may be based upon general market conditions and the prevailing price and trading volumes of our common stock. No duration has been placed on the repurchase program.

Issuer Purchases of Equity Securities Third Quarter 2022 (shares in thousands)
Period						Total Number of Shares Purchased (1)						Average Price Paid per Share						Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs						Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ($ in millions) (2)
July 1, 2022 - July 31, 2022 (3)						9,841						$	92.15					9,828						$	2,350
August 1, 2022 - August 31, 2022						7						93.52						—						2,350
September 1, 2022 - September 30, 2022						1,672						81.00						1,658						2,216
Total						11,520						$	90.53					11,486						$	2,216
(1) Shares purchased through a publicly announced plan or program and shares relinquished to the Company by certain employees for payment of taxes or option cost upon vesting of restricted stock units or option exercise. (2) In June 2022, the Company's Board of Directors approved a $3.0 billion increase to the Company's existing stock repurchase program for its common stock. A remaining amount of approximately $2.2 billion is available under the program as of September 30, 2022. (3) Includes shares repurchased through an accelerated share repurchase (ASR) and represents the spot price at inception but was subsequently settled based on the volume-weighted average price (VWAP) over the term of the agreement. See Note 10. Stockholders’ Equity for additional information.

EXHIBIT NUMBER									DESCRIPTION
3.1									Amended and Restated Certificate of Incorporation of Centene Corporation, dated September 27, 2022 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 30, 2022).
3.2									Amended and Restated By-laws of Centene Corporation, effective September 27, 2022 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 30, 2022).
31.1									Certification of Chief Executive Officer pursuant to Rule 13(a)-14(a) under the Securities Exchange Act of 1934, as amended.
31.2									Certification of Executive Vice President and Chief Financial Officer pursuant to Rule 13(a)-14(a) under the Securities Exchange Act of 1934, as amended.
32.1									Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2									Certification of Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101									The following materials from the Centene Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Earnings; (iv) the Consolidated Statements of Stockholders’ Equity; (v) the Consolidated Statements of Cash Flows and (vi) related notes.
104									Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized as of October 25, 2022.

			CENTENE CORPORATION
			By:			/s/ SARAH M. LONDON
						Chief Executive Officer (principal executive officer)

			By:			/s/ ANDREW L. ASHER
						Executive Vice President, Chief Financial Officer (principal financial officer)

			By:			/s/ KATIE N. CASSO
						Senior Vice President, Corporate Controller and Chief Accounting Officer (principal accounting officer)