Centene Corp (CNC) 2005 Q1 法說會逐字稿

Good morning.

My name is Monica and I will be your conference facilitator.

At this time, I would like to welcome everyone to the Centene® Corporation First Quarter Earnings Release 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 this time, simply press star, then the number 1 on your telephone keypad.

If you would like to withdraw your question, press star, then the number 2 on your telephone keypad.

I will now turn the conference over to Lisa Wilson.

Miss Wilson, you may begin your conference.

Thank you.

Good morning, everyone.

I'm Lisa Wilson, Senior Vice President, Investor Relations of Centene® Corporation.

Thank you for joining today's conference call.

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

If you have not received it, please call Livvy Avell(ph) at 212-759-5665 and it will be faxed to you immediately.

We have with us today Michael Neidorff, Chairman and Chief Executive Officer, and Karey Witty, Chief Financial Officer of Centene® Corporation.

This call is expected approximately 45 minutes and may also be accessed through the Company's website at Centene.com.

A replay of the call will be available shortly after today's call completion by dialing 800-642-1687 in the U.S. and Canada or 706-645-9291 from abroad and entering access code 5171495.

Any remarks that Centene® may make about future expectations, plans and prospects for Centene® constitute forward-looking statements for purchases 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® Form 10-Q for the period ended March 31, 2005 and the Company's other SEC filings.

Centene® anticipates that subsequent events and 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 us.

I am pleased to report another consistent, predictable and strong quarter.

Karey Witty, our CFO, will review the first quarter results in greater detail shortly.

The first quarter of 2005 was our 23rd consecutive quarter of consistent earnings growth.

We are confident that our business continues to be solid and predictable and that we have good long-term visibility.

As I have stated at recent conferences, we have every reason to feel good about the prospect for our business, and its gross profile.

Membership as of March 31, 2005 was 777,300, an increase of 49 percent versus the first quarter of last year.

Of this increase, 23 percent is organic and 26 percent in some acquisitions.

For the first quarter of 2005, revenues increased 47 percent to $332.4m, and our diluted earnings per share of 32 cents compares to 24 cents a year ago.

There has been, and will continue to be, debate and discussion at the federal and state level relating to Medicaid.

I will underscore what I said on our year-end conference call.

We are proponents of chanes to and before with the Medicaid system and we firmly believe, and have increasing evidence, that tough economic times will continue to drive better public policy.

Under current proposals, Congress is considering a cut in the range of $7b to $20b over 5 years.

What they really are talking about is reducing the rate of the increase in spending.

I submit that a $310b annual budget -- this equates to an insignificant amount, virtually noise (phonetic).

It remains a political process and we are working at the state and federal levels to participate effectively in this process.

Furthermore, there is still more than enough money in the system, particularly when one removes some of the Special Interest Income.

As you recall, we are building a multi-line enterprise with the clear and stated goal of being a total low-cost producer in the Medicaid and Specialty Services arena.

Our Margin Protection Program, and other offsets that produced savings, will enable us to continue to work effectively with the state to support their efforts to manage their budget and provide a platform for ensuring more Medicaid recipients.

As I mentioned on our last earnings call, each of our plan presidents have proposed the Margin Protection Program to state legislators and regulators, so as to bake more policy changes into the system.

Our plan can effectively mitigate the need for rate increases while further reducing costs for each state.

We believe our programs will continue to offer the best solutions for state to achieve cost savings and ensure more Medicaid recipients.

I'd now like to review our progress state-by-state, starting with Indiana membership.

During the first quarter of 2005, it grew by 20 percent year-over-year, and trends for ongoing growth are very positive.

Importantly, the state has recently announced that it will convert its remaining counties to mandated status, adding another 150,000 Medicaid eligible members over the balance of 2005.

This number excludes the eligibles in the South, where we have elected not to participate.

Our rates have been, and continue to be, adequate to support this pending growth.

We continue to focus on service area expansion and organic growth in Indiana, part of which will be rewarded by the state's recent decision to convert this membership.

We are also working with the state to convert the SSI eligibles in the managed Medicaid programs in 2006 and are pleased with our progress there.

In Wisconsin, membership increased 3.5 percent over the prior year quarter to 170,900.

Additionally, the 3.1 percent rate increase that the state granted in February of 2005 is now in effect.

We are working with the state to implement further policy changes that are important to our Margin Protection Program and that address their budget issues.

Wisconsin has also begun moving SSI in the Managed Care Programs on a voluntary basis and will commence mandatory conversion in Milwaukee County by year end.

We should initially expect a slow implementation process, which will become more meaningful as we move towards mandatory enrollment.

Texas.

We are pleased with our strong growth in the state of Texas.

The first quarter membership increased 58 percent of a 154,000 to 243,700 and the TANF membership was strong.

I remind you that you should expect the SCHIP EPO membership to decline and level somewhere between 75,000 and 80,000 members.

We ended the first quarter of 2005 with 84,000 EPO members.

We have received a large number of questions about Texas.

First and foremost, as I have said on other conference calls, the one consistent thing about Texas is that it is predictably unpredictable with respect to timing.

However, I want to point out that we feel that the service area expansion in this state for TANF and SCHIP membership is not at risk.

Second, the other significant outstanding issue in Texas relates to whether STAR+PLUS will be rolled out in this legislative session.

I would like to remind everyone that we do not personally have any risk SSI members in Texas.

However, we are working hard to support other providers in that market so that it is expanded.

We view this as strict public policy and we plan to participate when it is expanded.

As we look at the situation today, if STAR+PLUS does not go through in the current legislative session, which I am not prepared to concede, it will have a minimal impact on our future growth prospects next year.

To minimize the census (phonetic) volatility we've been experiencing, we have removed in the current guidance any impact of STAR+PLUS to our numbers.

The issues related to STAR+PLUS appear to be centered around how to treat the upper payment limit in a few county hospitals.

The administration is excessively working to resolve it.

In Kansas, one of our newest states, we have lifted the membership cap and are working with the state in its consideration of SSI.

In Missouri, we received a 7.7 percent rate increase in January.

There has been substantial press recently about the budget for Medicaid in Missouri.

We think the current proposals still have some political play in them.

However, if all the current plans do come to pass, we estimate a loss of membership of approximately 2,500 to 3,000 members in the current contracted service area.

Most importantly, these issues are forcing serious discussions about how we can work with the state to save money and maintain our (inaudible).

Ohio membership was flat.

We expect organic growth in Ohio to pick up over time and the state is now considering adding SSI.

Furthermore, we will close our SummaCare acquisition in 5 days, effective May 1st.

This transition and transaction will add approximately 39,000 new members to our subsidiary Buckeye Community Health Plan and give us a significant presence in Akron as well as in Community.

The Jersey membership declined slightly and we're still working with the state to roll out SSI beyond the current service level.

This has been hampered by the change of governorships and the fact that the current governor is not running for reelection.

In the quarter, we saw an up-tick in the health benefits ratio for SSI.

Net of 2 specific high-dollar cases, our SSI, HBR was 86.8 percent for the current quarter.

The increase in health benefits ratio is consistent with our earlier guidance that it could happen and reflects the small population, we feel.

It also reaffirms the visibility and clarity we have with the SSI business.

We remain encouraged about the expansion of the SSI population state-wide, and we have clearly demonstrated our ability to manage it.

We continue to evaluate opportunities to help the state with its fiscal budget.

In our Specialty Companies, we are pleased with our progress, particularly with the new Arizona contract, which we expect to generate annualized revenue of approximately $78m.

We now have an annual run-rate approaching $100m in the Specialty Company and expect continued growth in revenue of our Specialty Company group.

Moving onto our financial ratios, our Consolidated Health Benefits ratio, which reflects medical costs as a percent of premium revenues, was 80.9 percent in the first quarter.

Over time, our consolidation (inaudible) will be affected by the entry in SSI.

We expect the ratio to re-calibrate back into the lower end of the targeted range of 81-1/2 to 83-1/2 during the course of 2005.

Turning to G&A, we will continue to provide you with segment reporting on G&A, by core business and specialty company, and will not include interest income in the revenue lines and these depreciation and amortization expenditures.

However, with a growing number of states round-tripping money through the premium tax, and with us having to expense the premium tax in G&A, it is now necessary to recalibrate the G&A range.

We believe a more normalized range, taking this tax into consideration, is 10.5 to 11 percent.

We will continue to give you guidance on when you should expect up-ticks, or see it move into the normalized range as we relate the added improvements.

We continue to have a very full M&A pipeline and are confident that to our Specialty Company and core businesses, we can continue to expand the footprint of our business.

This expansion will occur through both small and larger acquisitions and new contract wins.

Ladies and gentlemen, let me re-state in the strongest possible terms -- our business is strong.

There is organic membership growth of 10-12 percent in 2005.

Our earnings are in line with the expectations.

The revenue growth between organic and announced acquisitions will be in the range of 50 to 53 percent for the year.

And the guidance has been influenced minimally by the conservative approach of not including SSI membership growth (inaudible).

There is a product-mix effect that can occur in any business, but is not hampering our rate of growth.

Finally, I want to remind everyone that when you look at our business, we are looking across the whole book of business.

There are different factors that can impact the market at any given point in time.

We grew membership by 4,600 members sequentially, and when you remove the loss of 3,300 members from the Texas EPO, which we anticipated would happen, we grew by 7,900 members in what had been viewed by many of you as a tough and even down quarter.

Our major focus in Medicaid healthcare enterprise gives us a unique position and platform in the marketplace.

We continue to be locally focused and our relationships with providers, members, regulators, and contractors at the local level is a key factor for our success.

Our local focus distinguishes us from companies that have a mixed model of commercial and Medicaid business.

It also allows us to leverage contracts and relationships with hospitals and other providers to effectively meet the needs of our Medicaid recipients and to work with state legislators to build greater efficiencies in the system.

I'm now going to turn this call over to Karey Witty, our CFO, who will discuss the financials.

Karey?

Thank you, Michael, and good morning, everyone.

To recap the highlights of the first quarter of 2005, membership increased 49 percent over the same period last year to 777,300.

Year-over-year, same-store membership increased by approximately 119,000, representing a 23 percent organic growth rate.

Membership growth in Indian, Wisconsin, and Texas year-over-year was strong.

In Texas, we did see, as Michael mentioned, a sequential quarter increase in our TANF and non-risk SSI membership of 2,700, and as we previously guided, this was offset by a 3,300 member climb in our EPO product.

For the first quarter of 2005, revenue was $332.4m, an increase of 47 percent, compared to $225.5m in the first quarter of 2004.

Now on acquisitions, revenue increased $44.5m, or 20 percent versus the same period in the prior year.

Our health benefits ratio, which reflects medical costs as a percent of premium revenues, was 80.9 percent compared to 81.0 percent for the same period in 2004.

HBR for our SSI populations was 94.6 percent in comparison to 99.3 percent in the prior year quarter.

As we've often commented, the potential for volatility in the SSI/HBR in any given quarter is high, given the small member base.

In fact, during the first quarter, we did have two significant cases causing a sequential quarter increase.

Net of these two cases, our SSI/HBR, was 86.8 percent.

Turning to General and Administrative expenses, our consolidated G&A as a percent of revenue was 12.8 percent in the first quarter of 2005, in comparison to 12.6 percent in the same quarter of 2004.

Our Medicaid segment ratio was 10.8 percent for the current quarter and compares to 10.4 percent in the prior year quarter.

We expect this ratio will be maintained in a range of 10.5 to 11 percent, adjusted from time to time, for start-up or transition costs related to new business developments.

Earnings from operations for the first quarter of 2005 increased 45 percent to $21.3m.

That earnings increased to $14.4m or 32 cents per diluted share, compared to $10.1m, or 24 cents per diluted share for the first quarter of 2004.

Balance sheet highlights at March 31, 2005 include cash and investments of $337.1m, $42.1m of which is free from state regulatory requirements.

While our days sales outstanding has remained relatively constant at 10 days, we do expect an increase at the end of the second quarter, as the state of Wisconsin will once again hold all MCO premium payments, this time paying premiums due in June during July, the start of the state's fiscal year.

During the quarter, we paid $4m on our outstanding credit facility, resulting in a debt to capital ratio of 13 percent.

Our medical claims liabilities totaled $177.6m, representing 59.7 days in claims payable.

This 6.8 day sequential quarter decline reflects the inclusion of FirstGuard for the full quarter versus only one month in the fourth quarter of 2004.

Net of FirstGuard, our days in claims payable would have increased 0.7 days to 61.4.

This change reflects a 2-day increase due to an increase in claims inventory.

Many of the codes under which physicians and hospitals bill are updated on an annual basis.

Certain of our state systems are currently being configured to accept these new billing codes.

Until this process is completed, select claims are pending, causing an increase in claims inventory at quarter end.

Upon completion of this process during the second quarter, we expect days and claims payable to normalize in our 50 to 55 day range and a reconciliation of our change in days claims payable for the immediately preceding quarters is included in our release.

We also remind you that we contractually pay physician bonuses during the second quarter of each year.

For the quarter ended March 31, 2005, cash flows generated from operating activities were $19.9m, compared to net income of $14.4m per 1.4 times net income.

Our operating cash flow generation during the first quarter is typically not this strong; nonetheless, we still expect the full year of 2005 to be 1.5 times net income.

Lastly, for the second quarter of 2005, we expect revenue in the range of $343m to $346m, net of experience rebates and net earnings of 33 cents to 34 cents per diluted share.

For the full year of 2005, we anticipate revenue in the range of $1.50b to $1.53b, a net earning of $1.38 to $1.48 per diluted share.

We continue to maintain organic growth membership of 10 to 12 percent year-over-year.

This guidance reflects the close of our previously announced SummaCare transaction, effective May 1, 2005, as well as our previously announced Behavioral Health contract award in Arizona, effective July 1, 2005.

We anticipate spending $1.5m during the second quarter in preparation of the Arizona contract, (inaudible).

This kind of excludes any impact, as Michael indicated, of the Texas Star Plus roll-off, a potential impact of any additional acquisitions we may undertake during 2005, and any expenses related to stock option grants under SFAS-123R.

The SEC has delayed our required implementation date of SFAS-123R to January 1, 2006, and we anticipate expensing options commencing on that date, or on a date when we may be certain that there are no further changes to the regulation or the required dates of implementation.

Regardless, we continue to disclose the effect of the (inaudible) options in accordance with SFAS-123 and our SEC filings.

And I think I may have misspoke on our guidance.

Let me just repeat, for the full year of 2005, we anticipate revenue in the range of $1.50b to $1.53b and net earnings of $1.38 to $1.44 per diluted share.

Now, I think, with that, we can open the call up to any questions.

[OPERATOR INSTRUCTIONS]

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

Please hold for your first question.

Your first question comes from the line of Gregg Nersessian of Lehman Brothers.

Your next question comes from the line of Tom Carroll, of Legg Mason.

Good morning.

Good morning, Tom.

Just a couple of quick questions for you, one on Indiana.

As you mentioned, Indiana looks like a very nice enrollment driver for you guys over the next 12 months, especially the -- well, it looks at the July group of counties that are going to transition.

In order to maintain your very strong market share in that state, are you going to have to pay providers any more if this transition occurs over the next 12 months?

No.

We have a model contract that we're sticking pretty close to.

It really would -- we'll put a cap on the max in the first year so that they get some of the positive experiences with that, no.

Okay.

So no significant change with how you interact as providers as this growth occurs?

No, we're not going out and promising them 140 percent of the --

Fee schedule?

-- of the fee schedule and a $5 or $8 monthly management fee, that type of thing.

And then, secondly, on Missouri, you said there was a 7.7 percent rate increase that went into effect in January?

Right.

What drove this increase?

Were there new benefits being put at risk for you guys at all?

No.

I just think it was some of the prior experiences.

We had not been involved and we'd owned a plan for a month, and so the previous owners and other plans in the state had worked through that process, and I think it was just -- they would just (inaudible) their cost trends at the time.

There was no margin protection.

We had no opportunity then through our typical margin protection (inaudible).

Okay.

Very good.

Thank you.

Your next question comes from the line of Steve Halper of Thomas Weisel Partners.

Yeah, hi.

You've obviously done a good job of getting down the medical loss ratio in New Jersey, but what does it take for the -- to put up some organic growth in terms of your membership in the regular population there?

In New Jersey?

Yeah.

I think it's just going to take -- continue to hammer away with contractors and out-lease programs.

I mean, it's a very penetrated state.

We knew that when we went into it and we wanted the SSI.

We still see a great opportunity in that as this rolls out, and we're making money in New Jersey.

It's on our -- it's on its business plans for us for this year.

Don't look for a whole lot of organic growth in the TANF and SCHIPs.

They're doing some things and we'rewere trying some things that they accelerated, but it's still a bit early, Steve.

So, do you think next year, 2006, you might start to see some growth tends in the TANF and SCHIP program?

No, I'm -- if some of these things we're testing now, do, we can talk -- we'll give you more guidance on our Q3 conference call relative to that.

Right, but you don't really anticipate any sort of structural upheaval in New Jersey?

I don't see that happening.

Okay.

Good.

Thank you.

Equity flat -- go ahead.

Your next question comes from the line of Joseph France of Bank of America Securities.

Thank you, Michael.

My question was related to your guidance, that the press release implies that the 10 to 12 percent organic number includes the SummaCare acquisition, but I thought you said in your former remarks that it didn't?

It does not.

So it does not include it?

We have to own a plan for 12 months before the growth in that is considered organic, so that's 10 to12 percent without Summa.

So am I -- if you gained 5,000 lives from the fourth quarter to the first quarter year, basically, looking to pick up 72,000 more organic losses over the balance of this year?

Right.

Is that correct?

Yes.

Thank you.

Your next question comes from the line of EricVeiel from Wachovia Securities.

Good morning.

Just, Michael, maybe if you could put a little bit of detail around the opportunity in Kansas now that you're reengaging growth in that market, maybe something along the lines of what you view the eligible population in your existing service area to be, compared to your current market share, or something along those lines?

I'm trying to recall the exact notes because there was a time when we had 2 (inaudible) -- I remember by their first name.

Where I'm at now is, I want to say that there is 400,000 total eligible, 300,000, 400,000 total eligible.

Of course, it's ourselves and the PCCM.

We have 1,800 doctors on a 10-year exclusive contract, the contract they wanted with us.

And so we put it -- the prior management and owners have put a cap on it, Eric, not wanting to add members until they got some fundamentals right with the state on rates and other issues.

They've now corrected that and we took off -- our management there did -- the self-imposed cap, and so now I think you'll just see, as a result of that, more and more starting to roll into this.

So are all of the other members in the PCCM program, are there -- is it also a traditional, sort of fee for service program there as well?

As I understand it, it's PCCM and us.

Thank you.

Your next question comes from the line of NewtonYoung of Piper Jaffray.

Hi.

My question is around the specialty Arizona contract and kind of, I guess, going forward, whether there could be some -- you talked about potential growth drivers there and also whether there's any other areas where there's potential expansion on that front?

Well, I think there's -- we've always talked about being kind of methodical and doing things at a sustainable way.

But we had first a little contract in Ohio and then a little bigger contract in Kansas (inaudible).

We've now run in and there are 2 areas here that we picked up this contract in, and as I think we demonstrate what we can do for the state, we will continue to have other opportunities for additional service area expansion.

Now, and this is -- now, I'll give you some insider strategy.

At one time, as a result of what was then the GPA and the acquisition, we ended up with a gradual children's program in Arizona.

I think it maybe had a million dollars in revenue; it was very small.

But it was a very -- it is, and has continued to be, a very positive experience for the state as to how we managed them.

So, taking those kinds of relationships, demonstrating your skills set, that made it -- put them in a position where they were willing to look at us for these 2 contracts.

Do those well, (inaudible) of the others, and there will be other states as well.

The momentum is starting to build on the specialty companies in that regard, so we see it growing.

So we see it growing possibly in Arizona over time, but I think our management there has wisely said, "We just picked up a large chunk that's coming up July 1.

Let's really focus on implementing that superbly.

Get everything right."

And they're doing a great job with state, very pleased with the implementation and how it's been going.

And then they'll build from strength.

I just don't -- none of us want to get ahead of themselves, including themselves (sic).

Okay?

Thanks, Michael.

Your next question comes from the line of Gregg Nersessian, of Lehman Brothers.

Hi.

Sorry about that from earlier.

I just got a couple of questions.

I apologize if this may have been asked already, but my first question is just on the MLR guidance for the year.

It came in a little bit lower than expected in the first quarter.

I was wondering if there's anything unusual in nature in that number?

And then just in terms of the removal of the STAR+PLUS expectations for the remainder of the year, what kind of an impact is that having on your full-year guidance for the MLR?

Certainly, Gregg, the MLR in the first quarter, we had, as we have often said and continue to say, every time we do a deal, you're going to see us conservatively estimate the claims liability for some period of initial ownership.

What we experienced in the first quarter was better than what we had anticipated HBR on our FirstGuard acquisition, so that certainly helps drive down our HBR in the current quarter.

What we see going forward is, and I'll answer then your second question, SSI and how that might play into the balance of the year.

Obviously, the earnings guidance that we're giving -- that we're getting -- is consistent with our earnings guidance actually increasing by 2 cents.

Essentially, what we're saying there is while the revenue guidance is coming down in relation -- as it relates to us stripping out the SSI in Texas, we had essentially calibrated that at earnings neutral.

So while the revenue is coming out, it was in our guidance on an earnings-neutral basis, with the assumption that it was going to operate at a higher loss ratio, which you should not be surprised.

That's something that we've always said that SSI (inaudible) operate at a higher loss ratio.

But also there were start-up costs bringing that on board as well, so, at the end of the day, we're up 2 cents compared to where we had been.

2 (inaudible)?

Correct.

And (inaudible) again, the Summa -- it's not the --

Right, but the old MLR guidance had said something in the range of the 81-1/2 to 83-1/2.

Would we now expect an MLR below 81-1/2 because you stripped that stop loss?

Well, what we said on our earning call was to expect to see that over time to creep back up to our guided range as well roll in FirstGuard and SSI, so, yes, withholding SSI, the loss ratio's going to be at the lower level.

Okay.

But then gradually creeping up.

Okay.

But you still get segments (inaudible) the MLR so you'll be able to see that as well.

Okay.

Great.

And then, just on -- just in terms of modeling for the second quarter, it sounds like the cash flow could be down a little bit with the Wisconsin payments coming in July and the outflow related to the claims build up?

Is that a fair expectation?

Yes.

Definitely.

Yes, generally, you'll see, and as I said in my prepared remarks, generally the first quarter is not this strong, either.

It's generally somewhat back-end loaded for us, but you're right.

The bonus payments during the second quarter is a big use of cash.

Right.

Okay, and the last question.

The bigger picture, the Ohio expansion, if you could just give us a little color.

I know they're looking to add some SSI numbers and to grow their TANF populations as well.

Where does that stand and is that more of an '05 or an '06?

Could you give color on that?

I think there may be some in '05.

They've just put in a new director over at Barbara Edwards(ph) and I think we know that the administration and legislative process wants to see the managed care rollout pick up some momentum.

So my planning, which tends to be conservative, is look for a little bit in '05 and some in '06, but let's wait.

On the next call, maybe by next fall or as you get closer to the '06 numbers, we'll get a better sense of what this new director's approach prove to be and how fast they're prepared to move.

Their commission -- at one point they were talking about rolling out SSI January 1, and then they backed it off to July 1 of '06, which we would agree what those are.

A lot of people -- a lot of -- try and do it one time, Gregg, so they're moving down the right path.

They're recognizing to overcome their budget woes.

They need to get this managed care up and running.

Okay, great.

Very helpful.

Thank you.

Your next question comes from the line of Patrick Hojlo of CSFB.

Good morning, guys.

I have a question on what you expect to drive, but would have to be a significant second half '05 ramp in membership to attain both your current membership and earnings guidance.

It looks to me like your -- if you exclude the acquisition in the second quarter, you're more or less -- it looks like you're not really much organic growth next quarter.

So it looks like you're actually in big ramp the second half of the year.

Is that coming from new Indiana counties in the Wisconsin expansion primarily?

Indiana, I mean -- so we tell everybody that we have a portfolio management approach.

In fact, I told and commented at investor conferences that we do a risk at offset.

When we put a number out there, we know what the risks are associated with that number and where the offsets are.

That's why we, in the firmest possible language, have stated that the 10 to 12 percent year-over-year will be there.

It is more back-end loaded.

You have Ohio that you may see some; you have Indiana; you have Kansas; you have Wisconsin.

That's just 4 states, okay?

You put all that together -- I mean, now I know what our worst case is.

When we sit down -- this is a Company that's very methodical and very careful, because when we make commitments and statements to investors, we maintain there will be organic growth.

We don't say that easily without a lot of testing.

You can lose credibility -- until where all those different states, and some of the alternatives that are there, we still expect there to be some roll-out in Texas, but once again, most people who have worked with us for some period of time recognize how conservative we are.

And when we say, "10 to 12 percent" I mean -- we said 10 to 12 last year.

And we came in 25, and even net of the EPO, came in at 12.4.

So my point is, we could've been at 10 and been there.

We came in at 12.3 or 4, as I said, plus EPO which is (inaudible).

So when we tell you and investors there's 10 to 12 percent there, because we know it's there.

Got it.

And you had a nice bounce in Wisconsin membership this quarter.

There were people, Eric (sic), who, for a long time, said, "Oh, you've been in Wisconsin forever."

Patrick, we have -- excuse me -- "Well, how are you going to grow in Wisconsin?

I mean, you have deep penetration," blah, blah.

But we did it, didn't we?

Now they're looking at -- that was SSI last -- or I would've expected it to be.

No, no, there's virtually -- very little SSI.

It's just when we first started to roll out in (inaudible).

That'll be later this year?

That doesn't have SSI in it.

And in Indiana's, I don't think you are -- as we expect to being conservative.

In the southern part of the state, we're seeing a little more competition and then (inaudible) you're essentially backing away from those counties in the southern part of the state.

You feel like you don't need them because there's going to be more growth upstate?

Yeah, well, let's just look at southern.

There was a failed plan there.

In the past, matching (inaudible), many years ago, before we probably had picked up some of those pieces and there's an attitude on the doctors' part. " I'll sign up with any guy who'll pay me 140 percent of the fee schedule And if they can't sustain it, so what?

I'll get as much money as I can and then managed care will fail here and we'll move on."

Now, we've been in Indiana a long time.

And I hope the others that are trying to do something there are successful.

I think it would be good for the state; it's good public policy to our CD (phonetic) .

We'd like to see some other private ways to do it.

But our experience in Indiana said, "Don't put a lot of time and energy into it because we know what the attitude -- I've spent time at ground telling myself many years ago, not that many, probably 2 or 3 years ago.

And so we know what the attitudes are, that a couple of hospitals -- there are some hospitals banding together.

I mean, we said, "We have such a big opportunity further north.

Let's focus on the big opportunity."

You're aware, though, that that reimbursement mentality, the aggressiveness on the part of the state will expand to the northern part of the state as well?

Well, it might, but the northern part of the state has had experience with plans that went in with doing some of that and they watched it not work.

And without divulging too much, we think that with the anchor we have in Indiana, in the northern part and middle part of the state, people know us well there.

They're our investors, that you do what you -- that they know that you're going to do what you say you will do and I think that serves us very well when others have tried to come in the path and I welcome it.

I mean, it's a big market.

And it could expand beyond 150,000 (inaudible).

I've often said that when you get more noise in outreach, you get expansion of the category.

That's a good thing, but I think the growth we had last year in Indiana, what we're seeing -- I mean, I know what's coming in now.

We have good visibility.

The next question comes from Ed Kroll from SG Cowen.

Good morning.

Hi, Ed.

How are you?

Okay.

Just to continue that Indiana discussion, is it -- since I have a little familiarity with the state, is it safe to say that you're avoiding the more rural counties?

Is that a good way to look at it?

I wouldn't say (inaudible), but obviously if there's 25 or 50 for the county, when you get out there, you get -- you don't have to spend a lot of time on that.

But you can't manage it?

We have probably more experience than anybody else managing rural business and we're getting more and more experienced with it.

Actually, it's EPO, but it's been a good laboratory in that sense for us, but, no, that's a fair statement.

And then the 150,000 new eligibles or new lives in mandatory counties, are those all counties that you're currently -- do those people reside in counties that you're currently operating in, or maybe they're adjacent counties?

There are some adjacent; there's new counties.

A lot of them are adjacent to where we are.

This is just -- I think, going by memory, I think there's like 70 counties, 79.

Somebody just passed me a note.

So, 79 counties and but you're obviously -- you eliminate those that have very small populations.

Got it.

Okay.

Thanks.

And then, back on the Wisconsin, that cash flow, the delayed payment, which I think we've seen the last couple years, if I'm not mistaken.

When do you get that -- when will you get that June payment?

I know in the past sometimes they've paid it out piecemeal over a period of months.

Do you think you'll get it, all of it, in July?

Yes, Ed.

We think we'll get it.

We should get it, I would guess, even the first week of July.

They're just, again, holding it over to their next fiscal year.

It's like last year, Ed, I think there was -- we had one state that paid assets January through December, okay?

So at year end, that quarter, we said, "Look at the cash flow, how it jumped."

It surprised Kansas and some states (inaudible).

Very good, but in any event, I wasn't clear on -- when you mentioned this prior, do you think operating cash flow in Q2 will be about flat with Q1 or slightly down because of this payment issue?

It should be down, Ed.

This fact, coupled with the physician bonus payments.

That's why we always remind you of this on this quarter's call because we can let you know that it is coming and it comes every year during the second quarter.

All right.

Yeah, and you actually did better in Q1 than I would've thought.

So I guess it makes it a little tougher to compare.

And then, I wonder if you could give us any update on Georgia.

I think we touched on this briefly, the opportunity there on the last earnings call.

I have historically said we have a team on the ground, but did not declare that we had (inaudible) in RFP because we like to talk about what we've done, not what we're going to do.

But in Dallas, it's public knowledge that yes, we have submitted our RFPs in Georgia and, like others, we're waiting.

I've had people ask me, "What do you think about the end of May date to get all this reviewed and awarded?"

I said, "If it was Texas, I could probably give you a more accurate answer," that it would probably not happen, but we don't know when it would happen.

Georgia, we don't have that experience with, so yes, we have RFP's in and we're -- while not in the numbers, we're hopeful for a positive outcome.

All right.

Thanks for that.

And then, finally, back on Texas, you seem pretty confident that there will be a service area expansion.

And do you feel like that incremental movement of people -- would that most likely be an '06 phenomenon?

You couldn't get any of that in '05, could you, your calendar '05?

Well, once again, it kind of goes back to the unpredictability on our EPO.

We originally said the end of Q4 and then in September, ask us in July or August, can you do it September 1?

So, sometimes one thing gets started, depending if they see we have a network and we know what we're doing, and it's in a current service area.

And they say, "Can you roll it out sooner?"

So, I guess, when it comes to Texas, the most credible thing I could ever say is, it's unpredictable.

So we have built in to our organic growth of risks and offsets around all that, and that's why we're so comfortable talking about the 10 to 12 percent.

Very good.

Thanks a lot.

Thank you.

Your next question comes from [[Dan Garou](ph)] of Palisade Capital Management

Good morning, gentlemen.

Good morning, Dan.

Most of my questions have been answered, but just wanted to comment on the recent appointment of Tommy Thompson to your Board of Directors.

What was your thought process in getting him to join your Board?

Longer range, I know you're not one to put people on the Board who aren't working hard for the Company.

What would you anticipate his role could be in assisting you in growth in the Company?

I think there's a couple of things.

One, in our conversations with him prior to his coming on the Board and asking to come on the Board, it's clear that from our experience in Wisconsin with him where we know more, he is very much engaged in working with ourselves in looking at how we can change the paradox to work to cover more people.

We spent a lot of time working with him on his managed care for Wisconsin, which was his plan and was a good plan to bring in, the parents of SCHIP-eligible kids.

So we know where he's coming from.

So, we see an opportunity to work with him in figuring out how to move this ahead.

Now, he can help us understand the reality, the political reality, of what we want to do, the timing and how to do it.

He obviously cannot approach his former HHS Department and we wouldn't expect him to.

But he can give us insights into a political process.

The fact he's not going to be at any meetings in the Mideast now, but he's in conversations with (inaudible) getting back and getting involved.

He will serve on the Governance Committee, which also says -- that puts him in a spot to help us consider other Board members as we need them.

And he has a national and international appeal, Dan, where people could make the right kinds of contributions.

So you put all that together and his interest in this space, and the reputation he brings to us because of his credibility and what he did in HHS, and as governor, 4 terms.

It's pretty unusual to be elected 4 terms in Wisconsin.

That credibility, I think, will augur well for us in the future and it's just a comfortable relationship where we can help him.

We can give him a platform and maybe achieve some things he thinks need to be -- to occur in health care.

Does that answer your question?

Absolutely.

Thanks a lot and congratulations on a great quarter.

Thanks, Dan.

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.

Your next question comes from Eric Veiel, of Wachovia Securities.

Just a quick follow-up for Karey, as it related to the recalibration of the G&A range of 10.5 to 11 percent, was that sort of a full year 2005 range?

First off, let me make a point.

That's Medicaid.

Those comments are directed around the Medicaid segment.

Okay.

And yes, we should see that over 2005.

Okay.

Thank you very much.

Your next question comes from the line of Tom Carroll of Legg Mason.

One other admin question: What was your unrestricted cash at the parent amount?

I missed that during your prepared remarks.

That was $42m, Tom.

42.

Thank you very much.

At this time, there are no further questions.

Any closing remarks?

I just want to thank everybody and we're looking forward to maybe forwarding you in the next quarter.

Thank you.

Thank you for participating in today's Centene® Corporation First Quarter Earnings Release Call.

This call will be available for replay beginning at 11:30AM today through 11:59 EST on Tuesday, May 10, 2005.

The conference ID for the replace is 5171495.

Again, the conference ID number for the replay is 5171495.

The number to dial for the replay is 1-800-642-1687 or 706-645-9291.

This concludes today's conference.

You may now disconnect.