Centene Corp (CNC) 2003 Q1 法說會逐字稿

Good morning.

My name is Jeff, and I will be your conference facilitator today.

At this time I would like to welcome everyone to the Centene Corporation first quarter results conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer period.

If you would like to ask a question during that time, simply press star, then the number 1 on your telephone keypad.

If you would like to withdraw your question, press the pound key.

Thank you.

Ms. Wilson, you may begin your conference.

Good morning, everyone.

I'm Lisa Wilson of Insight Communications, Centene's investor relations firm.

Thank you for joining today's conference call.

By now you should have a copy of the press release issued by the company yesterday after the close of market.

If you have not received it, please call Donna Renner at 314-725-4477, and it will be faxed to you immediately.

We have with us today Michael Neidorff, president and chief executive officer, and Karey Witty, chief financial officer of Centene Corporation.

This call is expected to last approximately 45 minutes.

The call may also be accessed through the company's website at www.centene.com.

A replay of the call will be available shortly after today's call's completion by dialing 800-642-1687 in the United States, or 706-645-9291 from abroad and entering access number 9309238.

Any remarks that Centene may make about future expectations, plans, and prospects for Centene constitute forward-looking statements for purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including those discussed in Centene's From 10-Q for the period ended March 31, 2003, and year-end report on Form 10-K for the period ended December 31, 2002.

Both are on file with the SEC.

Centene anticipates that subsequent events or developments will cause its estimates to change.

While the company may elect to update these forward-looking statements at some point in the future, Centene specifically disclaims any obligation to do so.

Now I would like to turn the call over to Michael Neidorff.

Michael?

Thank you, Lisa.

Good morning, everyone, and thank you for joining today's call.

While every call is important, this call is of particular importance, because it marks our transition to a multi-line company, and we are going to discuss the benefits and characteristics of our expanding business.

The first quarter of 2003 marked our 15th consecutive quarter of revenue, membership, and earnings growth.

Membership as of March 31, 2003, increased 68.2% from the year-ago quarter to 419,200, which is 55% organic and 45% from acquisition.

Revenues were up 83.3% to $177.4m for the quarter, and our earnings per share was 60 cents as compared to 38 cents in the year-ago quarter.

I am pleased to say that we were again able to deliver results that are consistent and in line with our own internal expectations.

These results also reflect our first at-risk SSI membership, solid margins in our state health plan, and ongoing tight controls over corporate expenses.

We have also provided more transparency to enable investors to better understand the various elements and differences within our business.

We operate on the premise that this knowledge and our willingness to share it builds confidence with the investment community.

We continue to grow our business on a balanced basis, and this growth was in line with expectations across the board.

We had previously guided that New Jersey would be stable for approximately two quarters as we implement our growth plan.

Overall, our entry into the state of New Jersey is going according to the implementation plan.

We are also pleased that our local management in Indiana has worked successfully with the state to deal with their enrollment issues.

The state changed the enrollment process to require Medicaid recipients who also received food stamps to certify eligibility every three months versus once a year and now in person.

This cost us some membership growth during the first quarter, but we now have procedures in place to overcome this issue.

It probably would have been more fully implemented by now, but multiple snowstorms in Indiana slowed this in-person enrollment process.

This serves as an example of how Centene has to work with the system.

Texas and Wisconsin continue to experience growth.

We are particularly pleased with San Antonio's growth, which we had previously highlighted was an opportunity for us.

As we have discussed, and consistent with our stated objectives to diversify the business into other areas that affect our Medicaid population and over the long term to become a multi-line, government services provider, the quarter marked our entry into the specialty services arena.

We entered the behavior health market through our joint venture with Group Practice Affiliates.

With about one month of experience working with them, we are pleased to have them as part of our specialty company group.

They are already at work establishing a presence in Wisconsin, which will support our health plan in Q3 and are developing additional outside fee-for-service business opportunities.

As many of you are aware, we have a 64% ownership in GPA and the right to acquire the remaining percentage after three years.

This is an important aspect in the development of our business as 6% of all ambulatory care is behavioral health, and GPA gives us an opportunity to positively affect this typically underserved population.

Additionally, it will enable us to have a focused and specialized capability as we expand our SSI membership -- a population that has as much as 40% chronic behavioral health component.

Concurrently, we purchased the assets of ScriptAssist, a medication compliance company that uses various approaches and medical expertise to promote adherence to prescription drugs.

We also completed the integration of ScriptAssist into NurseWise, our 24-hour triage line.

This business helps us to overcome the concern for compliance and will support it as we grow our business in the more high-risk SSI and fee-for-service businesses.

Further, our clients the states recognize that these programs ensure short and longer-term cost containment with better outcomes.

They are pleased that we are taking this approach.

It is our goal that, over time, our specialty business segment will contribute 20% of revenue and 25% of income, and this should occur over the next three years.

We will also continue to be acquisitive in our Medicaid business segment.

As stated and broken out in our press release, we are committed to expanding our financial transparency for our investors.

As such, we have added new line items to our reporting, including breaking out information on specialty companies as well as segments of our population, which now include SSI.

Our goal is to help investors understand our business model as clearly and transparently as possible while elucidating how well we are performing.

While Karey will speak to our numbers in more detail, I would like to point out that our results remain predictable and in line with our expectations.

Our current health benefits ratio to our Medicaid business has been consistent and within the banded target range of 82% to 83.5%.

Although it is higher in the SSI population, this is also predictable and acceptable when entering a new segment where initially we have 4,200 at-risk members.

The balance of our SSI membership is ASO.

We expect the health benefits ratio to have more volatility initially because of the small number of lives in this group.

It must be considered an investment, as SSI is an important and growing managed care segment.

The SSI program has a much higher premium and, as such, when it reaches critical mass will be accretive to our business.

As we acquire or add more lives and the segment grows, you should expect the health benefits ratio in this product in the range of 84% to 86%.

The associated G&A for this business will be lower than our Medicaid business, and be more in the 9% to 9.5% range.

G&A in our Medicaid business continues to improve and tracks for us our single-digit goal for the fourth quarter of this year.

As anticipated, the G&A in our specialty company business will be higher than our Medicaid business due to its fee-for-service component and will be closer to the 20% range.

Importantly, however, while the specialty segment tends to be a lower revenue business, it commands higher margin.

We remind you that our calculation of G&A does not include interest income in the revenue line but does include amortization and depreciation as an expense.

We look forward to keeping you apprised of our progress in this new business area and, through investor conferences, expand your insight into the strategy and numbers.

As most of you are aware, the fiscal landscape remains challenging.

However, we consistently find that the states are working with us to find constructive solutions to their budget issues, recognizing that Medicaid recipients must receive care.

It is clearer than ever before that they see us as part of the solution.

I recently had the opportunity to meet personally with several state representatives who made it clear it's their desire to expand this program into the non-mandated counties.

Importantly, we continue work constructively with our state.

They are responding well to our margin-protection program, working with us to balance rate increase and policy changes.

There have also been recent publications that highlight the support in the U.S.

Senate as part of the economic stimulus legislation to provide $30b in fiscal relief to states over the next 18 months.

At least half of that is expected to be earmarked for matching funds for Medicaid.

While this has not yet happened, it is clearly on the table.

We are currently negotiating with Texas and New Jersey for rate adjustments for September 1 and July 1, respectively.

While we remain confident that our data approach combined with our margin program will achieve the desired and appropriate outcomes.

Likewise, we are working with the states on their eligibility environment and our guidance for continued growth remains intact.

In addition, our expanded claim shop is online and continues to build efficiencies into the process.

We remain comfortable with our growth prospects for the future in spite of today's turbulent economic times and see the momentum continuing.

Essentially, we are off to a planned start for 2003 and are looking forward to the Q2 2003 conference call.

These comments have been longer than normal, but we felt it important to provide you more information on the specialty companies so that our investors may better understand the value and diversity in the specialty companies and the balanced risk it's bringing to our business.

One final note before I turn the call over to Karey.

I would like to personally invite all of you to attend Centene's first annual Investor Day, which will take place on Thursday, May 29, in St. Louis.

We will commence this event with a dinner to be hosted on the evening of Wednesday, May 28.

To confirm your attendance, please contact our investor relation person, Lisa Wilson, at 212-759-3929 for a copy of the invitation and details for the event.

We look forward to seeing you there.

I would also like to take this opportunity to thank our colleagues at WellPoint for suggesting that we hold this event in conjunction with their Investor Day being held the day prior here in St. Louis.

With that, I'd like to turn it over to Karey.

Thank you, Michael, and good morning, everyone.

To recap the highlights of the first quarter of 2003, membership increased 68% over the same period last year to 419,300.

Same-store membership grew by approximately 10,000 from the fourth quarter of 2002, representing a 3% organic growth rate.

New Jersey membership was stable, as expected, as was Indiana, which Michael has already addressed.

We still expect Indiana to demonstrate its normal organic growth rate.

For the first quarter of 2003, revenue was 177.4m, an increase of 85% compared to 95.8m in the first quarter of 2002.

Net of acquisitions, revenue increased 45.6m, or 48% versus the same prior-year period.

Our Medicaid category health benefits ratio, which reflects medical services costs as a percent of premium revenue improved 10 basis points to 82.4% compared to 82.5% for the same period in 2002.

Our consolidated health benefits ratio was 83.4% during the first quarter within the company's target range of 82.0% to 83.5% and was influenced by our entry into the at-risk SSI category through our New Jersey health plan.

We remind you that our health benefits ratio will fluctuate on a quarterly basis within this targeted band.

The addition of the SSI at-risk members gained from our University Health Plan transaction caused our health benefits ratio to increase at anticipated.

Our period at-risk SSI membership of 4,200 is building critical mass and represents a planned growth opportunity in which we have previously expressed an interest.

We expect the SSI health benefits ratio to decrease as these members become fully integrated into our medical management programs and as our membership base growth, both within the state of New Jersey as well as new markets, over time.

In an effort to increase transparency, we are now breaking out our general and administrative expenses by business segment.

Our Medicaid managed care segment, G&A, as a percent of revenue, was 10.5%, a decrease of 20 basis points from 10.7% a year ago.

We are committed to continuing to manage this trend downward and remain focused on achieving a single-digit G&A ratio for this segment by Q4 of 2003.

In our specialty services segment, which we implemented during the first quarter of 2003, our G&S expense ratio was 18.6%.

As Michael discussed previously, this segment has a higher G&A expense ratio.

On a consolidated basis, our G&A expense ratio was constant at 10.9%.

You will note a new line item in the expense caption of our statement of operations entitled "Cost of Services."

Our cost of services expenses includes all direct costs to support the local function responsible for generating our services revenue primarily from the GPA operations.

These expenses consist of salaries and wages of the physicians, clinicians, therapists, and teachers who provide services related to the clinics and schools as well as supporting facilities and equipment.

Investment in other income for the first quarter of 2003 was 974,000, an increase from 915,000 in the first quarter of 2002, and our tax rate for the quarter was 38.2%.

Earnings from operations increased 62% to 10.1m.

Net earnings improved to 7.2m, or 60 cents per diluted share versus 4.3m, or 38 cents per share in the prior-year quarter.

At March 31, 2003, the company had cash and investments of 172.4m of which approximately 46m is free from state regulatory requirements.

Our medical claims liabilities totaled 94.8m, representing 58.1 days in claims payable.

This change from the immediately preceding quarter is appropriate when fully understood and reflects reduced claims inventory per member, continuing efficiencies in claims processing, a full quarter consolidation of New Jersey, and the payment of physician-quality bonuses.

The consolidation of New Jersey alone accounted for 7.3 days of the change in days claims payable, given that the fourth quarter of 2002 results only reflected one month of medical costs.

Additionally, while period-end claims inventory declined over sequential quarters, average inventory levels increased with the integration of both the University Health Plan and Texas University Health Plan SCHIP contracts, which added approximately 76,000 members.

We do have a very efficient claim shop in Farmington, Missouri.

Our claims reserving process utilizes a consistent actuarial methodology to estimate our ultimate liability.

Through the end of the first quarter, we experienced favorable developments approximating levels that were achieved in prior years.

We have included in our supplemental financial data a summary of changes in medical claims liabilities for the 12 months ended March 31, 2003, which highlights this fact.

I would also point out that, consistent with prior years, physician bonuses related to our ambulatory capitation contracts will be paid during the second quarter.

Given this, we anticipate days and claims payable in the range of 50 to 55 days for the period ended June 30, 2003.

For the quarter, cash flow generated from operating activities were 9.9m compared to net income of 7.2m.

With respect to our guidance, we anticipate full-year 2003 revenues in the range of 720m to 730m and net earnings in the range of $2.59 to $2.64 per share.

We continue to expect organic growth membership growth rates for the full year in the range of 13 to 15%.

We reported, on our year-end 2002 call, that during 2003 we anticipated losing approximately 12,000 members in our Austin, Texas market, which we are managing for the State of Texas on an interim basis during the state's search for a solution for the two managed care organizations that exited the market.

While we are still unclear of the ultimate outcome, we continue to forecast this loss of membership will occur effective June 1, 2003.

As such, for the second quarter of 2003, we anticipate revenues in the range of 180m to 183m and net income in the range of 61 cents to 63 cents per share.

With that, we will open the call up to any questions.

At this time, I would like to remind everyone, in order to ask a question, please press star, then the number 1 on your telephone keypad.

If you would like to withdraw your question, press the pound key.

Your first question comes from Steven Halper of Thomas Weisel Partners.

Hi, good morning.

Relative to the at-risk SSI business, over what time do you think you could get the medical loss ratio to 84% to 86% as you indicated, and could you talk in terms of magnitude -- what kind of numbers you need to get that critical mass?

Sure, Steven, good morning.

I'm anticipating, over the next three to four quarters, we will ramp up that membership probably in the neighborhood of 9,000 lives -- or north of that -- and that will start to approach the critical mass you need.

Is that 9,000 in the aggregate?

That's 9,000 at-risk lives, not included in the ASO.

So you would just like to have around 13,000 at-risk lives, 13,000, 15,000, is that right?

I think when you start to get north of 12,000, then you start to get a large enough number that it helps.

Okay.

That helps, thanks.

Thank you.

I might add, it's all part of the investment.

It's just the approach we've taken to building the business methodically.

Your next question comes from Ed Kroll of SG Cowen.

Good morning, Ed.

Good morning.

On the days -- I'm wondering -- what should we think of -- I mean -- I think the previous normal days that you had guided to was in the 60 to 65 band and, of course, since then we've had technology help in your back office shorten the claims cycle, reduce the amount of inventory you have on hand -- so what would you say the new normal band for days is?

Not counting these timing issues, like the physician bonus payments and, of course, an acquisition like New Jersey.

Right.

Let me just say, Ed, that all else equal, again, just the effects of the physician bonuses, and I know you're looking for guidance outside of this, but given the fact that we do pay these bonuses in the second quarter, again, that liability, assuming that the results are there in order to cause us to accrue the physician bonuses, that accrual would take place over the balance of Q2 and certainly would build in Q3 for, again, coming into Q1, and then we would pay out again in Q2.

So, again, all else equal, you would expect to see it grow as the year progresses.

The 50- to 55-day range is an anticipated range for the end of Q2 and, I think, going forward, we're going to banter around within that stated range.

I think at this point, as far as paying claims faster, we're only -- our only options outside of the technology increases or enhancements, would be to add to the claims payment cycle, multiple cycles, in a period more than what we have today.

So for Q3 and 4, maybe it's towards the higher end of that 50 to 55 range?

Right, right.

Thanks, I'll get back in the queue.

Once again, if you would like to ask a question, please press star, then the number 1 on your telephone keypad.

Your next question comes from John Botti of Botti Brown Asset Management.

Hi, I guess a couple of my questions have already been answered, but one quick one -- the supplemental data -- is that on the website somewhere?

It's in the last two pages of our press release.

Oh, on the press release, okay.

And then just one last question -- I'm just curious on -- I mean -- the allowance for DEFLA accounts has come down pretty substantially.

It was 3.4m a year ago; it's 215,000 the most recent quarter.

Is that kind of improvement sustainable.

Going forward, should we expect at some point it has to go back up or can it stay at this level?

The high allowance in 2002 -- we ended the year with only a little more than 200,000 in the allowance, but the higher balances that you are mentioning related specifically to a Maxicare issue, which has since been resolved.

So you would expect it to remain at these very low levels.

Okay, and when you say "resolved," were the receivables written off, or was the reserve just released?

No, we had the -- the receivable was fully allowed for and, you're right, the receivable was written off, and the corresponding allowance was, as well.

Okay.

Thanks very much.

Your next question comes from Chris Sergeant of Stifel Nicolaus.

Good morning, good quarter again, thank you.

Can you talk a little bit about the claims capacity?

You mentioned it's online.

You've got your physical plant online -- how far staffed up is that?

So it's kind of a variable cost question as well as additional available capacity question.

We have 125 people employed there, which is up probably 50 people from a year ago, and we are probably occupying about somewhere between 40%, 50% of the building in terms of total capacity.

So we can continue to ramp up as needed.

We have a very low turnover rate there -- the last time I looked, it was somewhere around 10%, which is unusual for a claims shop.

And there are variations, Chris, on that, but we also have a full training program down there, and a ready source of very capable people.

So it's an environment where we can ramp up as we bring our other businesses in.

Of course, when we start due diligence on the next deal, or as we move through it, that gives us the ample time to get additional people trained.

Which city again?

Pardon me?

Which city again?

The plan for the claims shop is in Farmington, Missouri.

Okay -- a little maintenance question for Karey -- thanks, Mike.

Why was the fully diluted shares down sequentially?

Was that actual average event during the quarter as that stock dipped in the middle of the quarter?

Yes.

Okay.

No changes in effective amounts of options.

It was just pricing calculations?

No, there are no changes, right.

Thank you.

The next question comes from Seth Teash of Apex Capital.

Hi, good morning.

I was wondering if you can tell us whether New Jersey was -- and I apologize if you already answered this question, I just had to jump off the call -- if New Jersey was accretive or dilutive in the quarter?

New Jersey was essentially earnings-neutral in the first quarter.

Okay, then the minority interest was an expense of -- or a benefit, I believe -- of 300,000?

Could you help me reconcile what that is relative to your 60-cent earnings, please?

The minority interest that is on our income statement reflects the minority shareholders' interest in the health plan.

We look at the entire market, in which we have ancillary services that we provide to the health plan.

So what you're seeing on the income statement is only the result of the health plan.

All in, with all of our ancillary products, the results were earnings-neutral.

Because it was a benefit, that implies that there was a loss somewhere.

Am I doing the math wrong?

No, the interest that you see is a loss at the health plan level.

At the health plan level?

Correct.

Okay, great, and that's the loss in the remaining 20%?

That's correct.

Okay, thank you.

Once again, if you would like to ask a question, please press star, then the number 1 on your telephone keypad.

Your next question comes from Ed Kroll of SG Cowen.

Yeah, just a couple of quick follow-ups.

I wonder, Michael, can you -- looking out, maybe, three years or so, how big can the specialty business revenue line get?

What are you thinking there in terms of how big of a piece of the pie that ultimately gets to?

Our stated goals in the next two years, Ed, is that the revenue should be about 20% of the corporation's total revenue will come from the specialty line.

And that's a goal that we've set, and we're strategically working toward.

And the income, because of higher margins, probably 25% of our income will come from the specialty companies.

So these are projecting where the company is going in total and, at the end of the day, in three years, 20% revenue will be specialty and 25% of the income.

And that's something we've just been -- that's been part of our strategic plan for the past several years.

Great, and then, just a followup on the previous question -- so on New Jersey, just the HMO, you lost -- it sounds like you lost a little bit of money in Q1, but when you layer in some of the additional services, or the ancillaries, the specialty, whatever we want to call it, it's essentially neutral then -- to consolidate it?

Right, and when we look at doing these acquisitions, we look at the total impact at the Centene line.

So that's why we're saying it's neutral, and it's consistent with what we planned.

Right, got it.

So essentially the State of New Jersey is your joint venture partner on the HMO only.

The ancillary revenue and profit is all yours.

Right.

That's right.

That's right, and they understand that.

I mean, every contract in this regard, they've signed off on, they know it.

We have a local board that approves all these things, Ed.

So it's all very understood by then, and when we entered this, we told them that one of the things that were of interest to us was the opportunity to start to build the SSI, and we had done some work when there was a demonstration in Indiana, and we knew that you need at least 4,200, and now you have a mass that we can start to reach the critical mass with.

So that was all part of the thinking in going into it.

Got it.

And then, finally, Michael, you mentioned a proposal at the federal level, for 30b in state aid that's -- it's on the table, of course, it hasn't been signed into law?

Yeah, there was -- I can get it for anybody that wishes it -- but it was a sent-to-the-Senate-type thing -- which 89 senators signed on that this is what they wanted to do, and the finance committee -- I'm going by memory -- about 80% of them signed onto it -- approved that kind of approach.

So I think, as this whole economic stimulus thing unfolds, there will be some of that.

And, you know, and we count on nothing until it's done.

We just continue to work with the states on our margin protection as we did this year and going forward into next year.

Okay, and then -- well, just on that subject, what I wanted to ask had to do with the previous -- or President Bush's budget proposal to give more power to the states relative to their Medicaid programs, and I think there as additional funding being proposed in that program of, I think, $14b over 10 years.

How is that doing?

Well, I think it -- are we having any more discussion about it.

I'm sure at some point these will all be brought together as they start to move these appropriation bills through.

We were fine with that.

It's a model that we found very easy to support, because it brings in the lower-end people that need the help and tend to be a little lower-cost, but I've not -- it's kind of been dropped, but my -- this is an opinion only, Ed, I've read no back on this -- is that those things have a way of resurfacing as the bill starts to move through the two houses.

Okay, thanks for that, and then last one -- Karey, is the interest income, the interest expense for this quarter -- is that a good quarterly run rate for the final three quarters of '03?

Yes, should be it.

Okay, thanks very much.

Your next question comes from Steven Halper of Thomas Weisel Partners.

Michael, could you just give us an update for Texas -- how your discussions are going on a rate increase and also some of the political back-and-forth with respect to the CHIP program there, and what's the latest and greatest?

One, we've started our discussions with the state, and we're exchanging data and going through the normal cycle that it's going through.

We'll wait to see what the legislature does with physician fee schedules, because if they do, in fact, cut the fee schedules by 5, 10%, some number, then that significantly changes our margins, it improves them, and then we go at rates in a different way against the medical trend and what the impact is.

The CHIP program -- it's moved, as you know -- it was a 200% of the poverty level, and at the higher end, you had individuals who were employed, and the state was paying insurance for those individuals -- CHIP insurance -- to others insured in companies like ours.

They talked about doing it to zero, and now, as McKinney explained, it was up to 150, and one house has it 150, another house has it at 200, and their bantering back and forth and CHIP will be in place in Texas, going forward.

But do you think there will be a reduction in the eligible lives?

Not in a way that impacts us.

Okay, why so?

Well, because if they eliminate the people at the higher end, at the 150% to 200% of the poverty level, there's still more coming in at the bottom end, and that's part of what their dilemma is, and as they move through it, they look at mandating new counties and other areas where there is no managed care, they're moving dollars around and trading dollars.

So if they take the money out of that program, they're going to put it in something else for us.

Right, but right now, from your perspective, they're focused on that 200% and 150% of the poverty level to adjust the -- or to try to ratchet down at the high end.

Yes.

Okay.

But as I said, those become very political and -- kind of -- stay tuned, but there's no impact on us as I look at it.

Understood, thanks.

Your next question comes from Todd Allen of Kenny Securities.

Good morning, great quarter, guys.

Can you talk a little bit about acquisition pipeline -- whether you plan to pursue specialty companies or additional managed care organizations in existing markets, out of existing markets, and any target states?

I won't give you any target states.

I will tell you yes to everything.

We have a very full pipeline.

In fact, we keep talking with [inaudible] to do a good review of every opportunity.

We are going ahead in existing states, where possible.

If we see something, we'll add if it makes sense.

We're adding new states to core businesses where we find the right ones, and obviously last year at this time when everybody asked me when I said, "Stay tuned."

And I'm saying again to everybody that asks guidance in public environments and covered by FDC, too, and of course, John Tattist who is sitting in here on my left, is aggressively and actively looking at a full array of specialty companies.

So, yes, you're going to see a very balanced growth for this company -- balanced in the fee-for-serve, the risk business, the specialty companies, and it will all be focused on Medicaid and Medicaid-related products.

I want to be very clear on that.

Without giving away too much, obviously, can you tell us where the emphasis is at?

It seems like specialty companies is kind of the new push.

Is that a reasonable assumption that that's where the focus will be in the near term?

No.

I think you should expect a balanced push.

Okay.

We are looking at as many states and new opportunities, if not moreso, than ever before.

What do you see -- obviously, it was the New Jersey acquisition that had -- and also SSI -- that impacted MLR a little bit -- do you see that stable coming down?

What's your timeframe for improving that?

I think I alluded earlier that I expect it over the next three quarters you'll see a gradual improvement in the medical loss ratio for the SSI.

We went into it and -- if you'll forgive the analogy, I compare it a little bit to -- and when we looked at this and the investment in it -- a little bit like when I was in consumer practice a thousand years ago.

When you're entering a new market, you're entering a new product, you have your investment period, you have your benchmark, and, over time, you grow it, you do it right, and we're very concerned, everything we do, that it be sustainable.

And I think if you look at everything we're doing in every business line, that is an underlying factor that's critical to us.

We have to be able to sustain where we go.

So I'm not looking to find some quick fix.

We're moving through the programs, the contracting, the pharmaceutical side, the application of our specialty companies where it makes sense, to just bring it under a very methodical control.

Okay, and I apologize, I was distracted through part of the call, so if I'm asking something that's been discussed already, I apologize in advance, but in terms of rate increases, which states are locked down and which are still in question?

Well, through the end of the year, we have Wisconsin and Indiana.

Texas is eligible for rate increases, and we like to talk about margin protection effective September 1, and New Jersey will be July 1.

Okay, great, that answers my quarter, thank you.

At this time there are no further questions.

Well, we thank everybody for participating and look forward to the Q3 quarter.

I hope we will see you at the conference.

This concludes today's conference call.

You may now disconnect.