Centene Corp (CNC) 2015 Q4 法說會逐字稿

Good morning, and welcome to the Centene Corporation 2015 fourth-quarter and full-year results conference call.

(Operator Instructions)

Please note this event is being recorded.

I would now like to turn the conference over to Ed Kroll, Senior Vice President of Finance and Investor Relations.

Please go ahead.

Thank you, Emily and good morning, everyone.

Thank you for joining us on our 2015 fourth-quarter and full-year earnings results conference call.

Michael Neidorff, Chairman and Chief Executive Officer; and Bill Scheffel, Executive Vice President and Chief Financial Officer of Centene, will host this morning's call.

The call should last approximately 45 minutes, and may also be accessed through our website at www.centene.com.

A replay will be available shortly after the call's completion, also at www.centene.com, or by dialing 877-344-7529 in the US and Canada, or in other countries by dialing 412-317-0088.

The playback number for both dial-ins is 10078696.

Any remarks that Centene may make about future expectations, plans and prospects 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 most recently filed Form 10-K from February 23, 2015 and 10-Q dated October 27, 2015.

Centene's registration statement on form S-4 relating to the proposed Health Net transaction dated September 21, 2015 and in other public 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, we specifically disclaim any obligation to do so.

As a reminder, our next investor day is June 17 in New York City.

And with that, I would like to turn the call over to our Chairman and Chief Executive Officer, Michael Neidorff.

Michael?

Thank you Ed.

Good morning everyone and thank you for joining Centene's fourth-quarter and full-year 2015 earnings conference call.

I would like to begin with an update on the status of the Health Net acquisition.

We have made significant progress towards completing this transaction.

We have received all necessary approvals with the exception of California, which remains pending.

On January 22, Centene participated in a public hearing with the California Department of Insurance.

We believe the meeting was informative and there were no surprises.

It was conducted in a professional and respectful manner and was part of what has been a fair, thorough process.

We continue to work through the process with the Department of Insurance and the Department of Managed Health Care and are finalizing our mutual agreement.

We remain confident of the first quarter.

We have slightly adjusted our 2016 guidance to reflect a March 1 closing date for Health Net.

Jeff will provide further details on this.

I would like to take a moment to remind you of the rationale behind the Health Net acquisition.

It is a significant step in our strategy to build critical mass and expertise within the government-sponsored health care category.

When the deal closes, Centene will be a $40 billion plus company.

We will be the largest Medicaid managed care organization in the country and the leader in managed long-term support systems.

The addition of Health Net's Medicare Advantage platform, including its four-star rating, creates numerous opportunities within our existing market, which we estimate to be in excess of $150 million.

Health Net will increase our marketplace presence to15 states with total membership of approximately 500,000 individuals.

There are significant opportunities to deploy Centene's specialty solutions across the Health Net platform

Health Net has been an innovator in value-based provider contracting and risk sharing.

Finally, the deal is 20% accretive in adjusted EPS in the first year following the close.

The planning portion of Centene's comprehensive integration process is now largely completed.

We have reorganized our management team to facilitate collaboration and efficiency.

We will be ready to hit the ground running to begin executing a plan on the day it closes.

Now shifting to fourth-quarter and full-year 2015 highlights.

Centene ended 2015 in a strong, balanced and secure structural and financial position.

What do I mean by this?

Several months ago when I questioned a single contract in [onespay], Bill Scheffel, our CFO for the next few days, commented -- we are an aircraft carrier, and you don't throw aircraft carriers off course very easily.

Today, we are in 23 states, soon to be 24 with Nebraska.

In these 23 states, we have 231 separate solutions, which are products per contract.

This diversity provides strength and stability.

In other words, if one product in one state has an issue, late, something of that nature, there are more than enough options.

Many of you recognize that this has been our strategy from the beginning.

Clearly 2015 was a banner year for Centene.

Our long-term growth strategy is intact.

We continue to execute against our pipeline as evidenced by recent wins in Florida and Nebraska.

We added over 1 million members representing growth of 26% to 5.1 million beneficiaries.

Premium and service revenues increased 36% year over year to $21.3 billion.

The HBR improved 40 basis point year over year to 88.9%.

We reported diluted earnings per share of $2.89 or $3.03 when excluding $0.14 of Health Net merger-related expenses.

This compares to $2.23 reported for full-year 2014.

The pre tax margin excluding merger costs improved to 3.4% from 2.9% in 2014 and 2.6% in 2013.

We remain committed to margin and future margin expansion with a targeted range of 3% to 5%.

Bill will provide further financial details in his prepared remarks.

A quick note on flu.

Current indicators point to a slower start to the 2015-2016 flu season.

It is, however, still too early to draw an absolute conclusion.

Overall, we continue to see as well as anticipate stable medical cost trends.

Next, market and product updates.

First we will discuss recent Medicaid activity.

Nebraska, we were pleased to be selected last week as one of three managed care organizations to administer Nebraska's Heritage Health program.

Heritage Health is the new healthcare delivery system that combines the state's current physical health, behavioral health and pharmacy program into a single comprehensive and coordinated system.

This program covers 230 Medicaid and CHIP enrollees.

Centene operates statewide in Nebraska, which marks our 24th state of operation.

The contract is expected to commence on January 1, 2017, and we expect a normal margin ramp.

This entry point provides future opportunities in the state such as long-term care.

Arizona.

The fourth quarter was our first full quarter providing services under the expanded contract for Arizona's newly formed Southern region.

Membership in Arizona doubled over the third quarter of 2015.

At December 31, we served approximately 441,000 beneficiaries in the state.

Mississippi.

Mississippi became a $1 billion market for Centene in 2015.

In December, we began managing inpatient services for Medicaid and ABD members in the state.

We ended the year with 302,000 lives.

This compares to 109,000 at the end of 2014.

Louisiana.

Louisiana also became a $1 billion market in 2015.

During the year, we executed a successful acquisition and integration in this state.

We more than doubled our at-risk membership to 382,000 lives.

In December, we further expanded our Louisiana contract to begin including behavioral health benefits.

The [carving] of additional benefits to Mississippi and Louisiana is consistent with Centene's holistic approach to provide integrated care for its members.

Oregon.

The fourth quarter marked the first full quarter of operations for our Trillium subsidiary, which provides Medicaid, Medicare Advantage and marketplace services to Oregon residents.

Membership at year end was approximately 100,000.

While it is still early, Trillium is performing in line with our expectations.

Now on to dual eligible, we ended the fourth quarter with 26,300 members across our five dual demonstration contracts.

We continue to work with our state providers and CMS to make these programs successful and sustainable.

I remind you that we have always taken the view that the dual demonstration programs would not be a significant near-term growth driver for Centene.

Next, Medicaid Expansion.

We ended 2015 with almost 450,000 Medicaid Expansion members, more than double what was at the end of 2014.

In January, the governor of Louisiana signed an executive order to expand Medicaid coverage under ACA by July 1, 2016.

This represents a future growth opportunity for Centene given our status as the largest Medicaid health plan in the states.

We have not yet included the Louisiana expansion in our 2016 financial guidance.

We will provide an update when additional information becomes available.

Health Insurance Marketplaces.

Our exchange experience continues to be favorable.

92% of our membership is subsidy eligible.

We're achieving margins within our targeted range.

We have taken a disciplined approach to pricing from day one.

In fact, the aggregate in each of Centene's states reflected a payable position for both 2014 and 2015 for the Three Rs program.

This approach has allowed us to build profitably from 75,000 members in nine states in 2014, to over 146,000 members in 12 states in 2015.

Please note we have not been impacted by special enrollment periods.

For 2016, we expanded into a 13 state, New Hampshire.

We've also increased our geographic footprint in certain of our other 12 states.

Enrollment so far in 2016 is in line or ahead of expectations.

The demographics of these new members are consistent with previous years and over 90%.

Our pricing and underwriting is also in line with prior year.

And we're not reliant on risk orders.

Centurion.

We continue to successfully expand our correctional health business.

Last week, Centurion reached a formal agreement with the Florida Department of Corrections to provide comprehensive healthcare services to over 70,000 inmates throughout the three regions.

The contract was awarded through an accelerated GAAP procurement.

It was structured as a cost plus arrangement with a maximum of $267 million in annual revenue.

Centurion was the only awardee.

This contract is expected to commence in the second quarter of 2016 and run through January of 2018.

Shifting gears, our rate outlook.

The 2015 composite rate adjustment was approximately 1%, in line with our expectation.

Composite rate adjustment has been consistent for the past three years.

We expect a similar composite rate adjustment in 2016.

In conclusion, our strong 2015 results reaffirm our growth momentum for 2016 and beyond.

As we begin this new year, we're in a good place both financially and strategically.

With the additional products and capabilities Health Net provides, our [lowslow] pipeline is bigger than ever.

We are well positioned to gain market share in the government-sponsored healthcare space, the fastest-growing category in the industry.

Thank you for your interest in Centene.

Before I turn the call over to Bill, I want to thank him for his years of dedicated service.

As previously announced, he will be retiring at the end of the month after the K is filed.

You will now witness part of that turnover.

Bill will cover 2015 information, and Jeff will pick up and report information relative to 2016.

Bill, I will turn it over to you.

Thank you Michael and good morning everyone.

This morning, we will cover both our fourth-quarter and full-year 2015 results.

For the fourth quarter, premium and service revenues were $5.9 billion, an increase of 33% over the fourth quarter of 2014.

And diluted earnings per share excluding Health Net merger costs were $0.95, compared to $0.87 last year.

And as you will recall, last year's fourth-quarter included a $0.24 benefit from recording the health insurer fee reimbursement for Texas for all of 2014 in the fourth quarter.

Looking at the full year for 2015, membership was 5.1 million members, an increase of 26% between years.

Premium and service revenues were $21.3 billion, an increase of 36%.

Earnings from operations were $705 million, an increase of 52%, and diluted earnings per share including Health Net merger costs was $3.03, an increase of 36% between years and well above our most recent guidance numbers of $2.90 to $2.94.

In more detail, premium and service revenues grew by $1.4 billion in the fourth quarter year over year, primarily as a result of the expansion for new programs in many of our states.

During the fourth quarter, we benefited from newly added revenue in several areas.

We began an expanded contract in the Southern region of Arizona on October 1, we came from health services in Louisiana beginning December 1.

Inpatient services were added in Mississippi beginning December 1. And the fourth quarter included a full quarter of operations in Oregon relating to our acquisition at the end of September.

We also benefited from the addition of almost 250,000 more Medicaid Expansion members as of year end compared to last year.

During 2015, we recognized $344 million in revenue associated with the health insurer fee, compared to $195 million in 2014.

For both years, the revenue reported covers virtually all of the health insurer fee on a grossed-up basis for tax purposes.

Our health benefits ratio was 88.0% in the fourth quarter of this year, compared to 89.3% from last year's fourth quarter and 89.0% in the third quarter.

The 130 basis point decrease year over year results from improvement in the overall HBR for higher acuity membership, particularly long-term care; premium increases and adjustments; and a milder flu season in the fourth quarter of this year.

Sequentially, the 100 basis point improvement from the third quarter reflects rate increases and adjustments received during the [third and] fourth quarter.

For the fourth quarter, 20% of premium and service revenue came from new business, compared to 30% in the fourth quarter of 2014.

The health benefits ratio for new business was 88.2%, and the existing business was 88.0% in the fourth quarter, both of which are decreases of 120 basis points between years.

The Health Insurance Marketplace product has performed well for us in 2014 and 2015, reflecting our disciplined strategy to focus on subsidized members familiar with our provider network.

This same methodology and process is used for 2016 as well.

Similar to last year end, we continue to be in a payable position for the risk corridor and risk adjustment components of the Three Rs.

We also have a payable at year end recorded, but the minimum loss ratio for the Health Insurance Marketplace business.

For the 2014 plan year, we have severed the Three R amounts and paid the rebate related to the minimum loss ratio.

Our general and administrative expense ratio was 8.8% in Q4 of this year, 8.7% without Health Net merger costs, compared to 8.2% last year and 8.2% in the third quarter, also including Health Net merger costs.

The increase in the fourth quarter of this year both year-over-year and sequentially reflect the higher level of fee costs related to the open enrollment for the Marketplace Exchange product, and higher amounts of variable compensation costs.

Excluding Health Net merger cost, business expansion cost was [76] for the third and fourth quarter and $0.23 for all of 2015.

Investment and other income was $8 million for the fourth quarter, compared to $10 million last year and $8 million in the third quarter.

Interest expense was $11 million this year, compared to $10 million last year and $11 million in the third quarter.

Our effective income tax rate was 48.4%(sic) in the fourth quarter and 48.6%(sic) for all of 2015.

The relatively high rate reflects the non-deductable nature of the health insurer fee.

Diluted earnings per share from continuing operations for the fourth quarter was $0.91, $0.95 excluding the Health Net merger costs.

For the full-year 2015, our EPS was $2.89 or $3.03 excluding the merger costs.

Cash and investments came in almost $4 billion at year end, including $78 million held by unregulated subsidiaries.

Our risk-based capital percentage continues to be in excess of 350% of the authorized control.

Debt at December 31 was $1.2 billion including $225 million of borrowings on our revolver.

Our debt to capital ratio was 34.7% excluding our non-recourse mortgage notes and [71.7%] at last year end.

[Tobacco] claims liability totaled $2.3 billion at December 31 and represents 44.3 days in claims payable.

Cash flow from operations was $201 million in the fourth quarter and $658 million for the full year.

Both amount to approximately 1.8 times net earnings, which is consistent with out expected range of 1.5 to 2.4 times net earnings.

Now for 2016, Jeff Schwaneke will discuss our 2016 guidance.

Thank you Bill and good morning.

I would like to spend a few minutes to discuss our combined guidance for 2016.

In our press release this morning reporting our full-year results for 2015, we have also included our 2016 annual guidance.

The guidance has been adjusted for the following items.

First, we have changed our assumption with respect to the closing date of the Health Net transaction.

We're now assuming the transaction closes on March 1. While this does not impact our run rate revenues or earnings, it does change the number of months in Health Net we are able to include in the consolidated financial statements for 2016.

As mentioned in our December investor day, one month of Health Net revenue is approximately $1.3 billion.

The March 1 closing date is an assumption we have made for guidance purposes, and the transaction remains subject to regulatory approval in California.

The actual closing date of the Health Net transaction will determine the number of months and days of Health Net results that will be included in our consolidated financial statements for 2016.

Second, we recently announced the pricing of $2.4 billion of senior unsecured debt in connection with the Health Net transaction and have updated our assumptions with respect to interest expense.

Consistent with what we've done in the past in matching our balance sheet exposure to short-term interest rates, we intend to swap up to approximately $1.6 billion of the senior debt to a floating rate of interest at transaction closing.

Since we have not entered into that interest rate swap agreements, the ultimate interest rate of the transaction financing will continue to fluctuate.

Third, we have adjusted our range on Health Net merger-related expenses, which will continue to change until closing and have reduced the guidance range for the amortization of intangible assets associated with acquisitions b one month to reflect the assumed March 1 closing date.

And finally, we have updated our guidance to include the recent contract award for Centurion in Florida.

As a result of all these items for 2016, our combined guidance is as follows.

Total revenues of $40 billion to $40.8 billion, GAAP diluted earnings per share of $2.80 to $3.15, adjusted diluted earnings per share of $4.05 to $4.40.

Adjusted diluted earnings per share excludes the amortization of intangible assets associated with acquisitions, which we estimate to be between $0.50 and $0.55 per share, and Health Net related merger expenses, which we estimate to be between $0.70 and $0.75 per diluted share with both items reflecting the revised closing date assumption.

We have adjusted the bottom end of our diluted earnings per share guidance range to reflect the one-month delay and the assumed closing date of the Health Net transaction.

For 2016, we expect approximately 45% of our annual adjusted diluted earnings per share to be earned in the first half of the year, and we expect the first quarter to be lower than the second quarter, due to seasonality of the business, the extra day from leap year, and only including one month of Health Net in our consolidated results for the first quarter.

Additionally, our guidance assumes no receivables for the risk corridor program and a payable for the risk adjustment program in 2016.

We will provide further details on our 2016 guidance after regulatory approval and the closing of the Health Net transaction.

This concludes our remarks.

Operator, you may now open the line for questions.

Thank you.

We will now begin the question-and-answer session.

(Operator Instructions)

Scott Fidel, Credit Suisse.

First question is on Nebraska, and interested first on what type of start-up expenses the guidance may assume now for this year ahead of that.

And then, secondly, if you can talk about how you feel the initial rates are looking for this program.

I know it is a mature managed care market already, but obviously they're moving more to an integrated benefit now.

So, interested how you feel about the rates.

This is Jeff.

I can cover -- the start-up costs are in our current guidance.

As far as the second question, was on rates?

That's right.

Scott, this is Jesse Hunter.

I think, as you mentioned, Nebraska has got experience with existing Medicaid Advantage care players.

I think when you take that plus the benefits of the integrated services that you referenced, particularly on behavioral and pharmacy, we think there's been a very prudent process with good visibility on rate setting, actuarial soundness, and the like.

So we feel -- there's always some question mark when you go into these things, but we're not looking at this as a negative rate entry point.

We think there's good visibility on the path of achieving our target margins in Nebraska.

Okay.

Then just had a follow-up question, just heard when listening to the California hearing that Steve Sell from Health Net is going to be running the California business after the merger.

So it sounds like you have made some decisions around the Management Team at this point.

Just interested if there's any updates on any other decisions there, particularly as it relates to some of the senior management from Health Net.

Just interested, with Jay Gellert and Jim Woys, for example, whether it's been determined what their role will be, post the merger.

We have set up the structure, and [Finny's] done a good job getting it all laid out with the team.

As I said in my comments, it's in place to hit the ground running.

We will be working with Jim on a consulting basis, as appropriate, and Jay, we're in conversations with.

There won't be any active participation in the new company.

It would be in a consulting role for both.

Okay, thanks.

That's if there is a consultant.

Okay, thanks.

Chris Rigg, Susquehanna.

Good morning, thanks for taking my question.

Just to come back to Health Net quickly, I know during the hearing your counsel had proposed, if you met the last remaining document request, that the insurance commissioner might close the record as of the 29th of January.

Has the record been closed at this point?

As I understand it, it's still open.

They are reviewing all the documents they have, and they just want to make sure they have what they need before they close it.

We have had no additional requests since then.

We're discussing the agreements that we will have between the two of us, the lawyers are.

It's moving along.

As you probably saw if you watched the hearing, it was a very professional, well-conducted hearing.

Yes.

It seems like everything went pretty smoothly.

At least to me, I don't pay attention to a lot of these things.

We heard no testimony that was not anticipated.

Yes.

I guess I'm just trying -- if you're looking at a March -- again, my understanding is that if the date -- once he closes the record, that starts the 30-day clock.

So if we're already --

He does not have to wait 30 days.

Okay.

(Technical difficulty) with the agreements we reached, he can declare it approved at any point he wishes.

Okay, great.

And can you help us, and this is a follow-up on the previous question, with regards to insuring it, what is the incremental revenue from that contract in the guidance relative to the offset from the timing delay of Health Net?

I think Michael had the -- quoted the number in his script as far as what the annual revenue is.

It's over $267 million, and I think the start date is in Q2.

Okay, great.

Thanks a lot guys.

A.J. Rice, UBS.

Thanks.

First of all, I just wanted to ask on the service revenue, I saw that decline sequentially from $489 million in third quarter to $442 million.

Is that just seasonality, or is there anything else going on there?

I would say that's primarily seasonality.

And a lot of that is going to be based on Hep C.

Okay.

Okay.

And then, the comments on the financing around the Health Net deal, I wasn't 100% clear.

Is that the rate that you were able to obtain in the marketplace, were they consistent with what you had anticipated?

And is your guidance based on the current debt that's outstanding, or are you factoring in those swap transactions, which would probably lower the rate relative to the floating rate and maybe I should confirm that as well.

Yes.

You are correct.

Obviously, we have already priced the debt, and what I'm saying today is that we are anticipating swapping up to $1.6 billion to a floating rate of interest consistent with what we have done in the past.

Our current guidance does assume some blending form of the coupon plus the benefit of the swaps.

Obviously, we would not execute the swap transactions if they were not beneficial.

So, right now, we believe we have relatively conservative assumption based on where the spreads are on the swaps today.

Okay, great.

Thanks a lot.

Joshua Raskin, Barclays Capital.

Good morning.

Just wanted to see if there was any seasonality around the Health Net earnings, taking the low end down by $0.05.

Maybe some of that is offset by the Centurion win as well.

If it does get delayed a little bit longer past March 1, should we think about earnings coming in ratably through the year for Health Net, or is there some seasonality that we should be aware of?

No, Josh -- this is Jeff.

As you are aware, not all months are created equal, so I'm not going to get into the details on a month-by-month basis of Health Net.

However, I would say, when you shift out an entire month of the transaction, there's a lot of things that play into that -- amortization, share count on the diluted shares outstanding, et cetera.

So, I think we had a lot of puts and takes, and when you add it all together, we felt comfortable with our guidance range where it is now.

Okay.

And just a second question.

You have talked about this Medicare platform from Health Net as a new platform to expand Medicare into your markets.

It hasn't really been a growth business, they lost another 5% maybe 20,000 plus lives according to the CMS data in January.

I'm just curious what gives you confidence that, that becomes a growth platform that you can turn it around.

And what exactly are you acquiring that gives you comfort that you're going to be able to become a larger MA player?

I think, one, we've indicated we're going to enter methodically, carefully, initially probably three new markets in January of next year.

We're not saying which ones for obvious competitive reasons.

I think that the big difference is that we've done -- some of us have done Medicare before, and they understand it.

They have some systems and capabilities, they have the four stars, which does give you a premium benefit with the first two years -- 5%.

And I think the major difference, Josh, is that there's a corporation now that has the commitment to build the systems and capabilities to continue to grow and expand the MA versus someone -- a company that was in a different mode in the middle of outsourcing a lot of things before the acquisition.

So, it's a mentality thing as much as anything.

There's very capable people there that are excited about what this opportunity working with us means.

Okay.

That's helpful, Michael.

Thank you.

Kevin Fischbeck, Bank of America.

Great, thanks.

Just wanted to follow up with the services question.

When you say that Hep C was down, is that something that we should expect to continue into 2016, or is that something seasonally or economy-wise about that in Q4?

I think on Hep C, we have see a little bit of plateauing that has occurred.

I think with some of the changing guidelines in the future, that may ramp up again.

But, right now, I think what you're seeing our 2015 results is more of a plateauing.

Okay, so is that what you're assuming in 2016, or you're assuming that the ramps back up?

We don't have any significant ramp-up in 2016 in our initial guidance and plan.

I think you know, we've been by an abundance of (technical difficulty), maintaining a plateau at this point would be considered (technical difficulty).

Okay.

And then, could you provide a little more color on the Q4 MLR improvement?

You mentioned the impact of adjustments in Q3 and Q4 to MLR.

Can you go through what exactly that was?

Sure.

If you look at the quarter over quarter, we improved 130 basis points.

For us, that was -- the largest item dealt with the improvement in the higher acuity membership, particularly long-term care where we see probably both medical management techniques that we have applied and rates over the year.

We've also had the premium increases and adjustments that we received between year over year, particularly in some of our larger states.

And then, flu season was much lower this year than last year.

I guess just the premium adjustments, was there something out of period or unusual in the quarter?

I wasn't sure what that language was meant to convey something like that or whether it was just a normal rate update.

It's a combination of both.

We get rate increases in three of our largest states in the second half of the year, with Georgia on July 1, and Florida and Texas on September 1. And then, there is also risk adjustments that are made periodically by the states, and those are going to be somewhat lumpy at times as to when those are actually provided to us.

So the combination of all those things gave us the overall rate improvement.

I think, also, one of the important elements that we look at, and we've talked about it historically how, over the course of the year, the medical loss ratio, health benefits ratio normalizes.

And there was a significant aspect to that with the higher-acuity population (inaudible).

So, it's the kind of thing you expect for improvement in operations.

Okay.

And then, just last question on the exchanges, it seems like some of the companies have had I guess unusual Q4 results as you true up through the year end, either positive or negative.

Anything go on there as far as fee articles or trend that you would highlight into Q4 versus your expectations for the first three quarters?

I'll start.

(Inaudible) I view that as an accounting issue.

I think our team here, whether it be refunds to the state or any aspect of it, understands fully the business and accrues the appropriate amounts on an ongoing basis.

That's what the Board and myself expected, and so those kind of surprises are few and far between.

I agree.

The product has performed very steadily for us and well over the last two years.

And there was nothing in the fourth quarter that really was a significant adjustment to change anything of any consequence.

Great, thanks.

Dave Windley, Jefferies & Company.

A follow-up to that last one.

In terms of your comments in the prepared remarks about, I think you said enrollment in the individual business was in line to maybe slightly better than what your early expectations were.

Can you confirm that?

And then, what are your expectations for margin performance in the individual business baked into your guidance?

Thanks.

I think that we commented that, one, the growth is in line with what we expected.

You had the initial enrollment, and those that actually paid their premium were good.

That is coming in as we would expect it to.

On margins, we continue to price it, and it continues to perform in line fully with our margins.

As I said, we have not priced this product because we don't think it's right to price it with a great deal of dependency on the three Rs.

And, hence, we've had a payable in [all our space] when you look at those aspects (inaudible) within the space.

We see no reason why that is going to change.

We've maintained the same approach.

We have the subsidy populations.

We commented in the script that the profile of the individuals we have enrolled are the same.

And so it's a matter of, we are in the risk business, and it's called managing the risk.

And so, Michael, those expectations are 3%?

Or what is your level of expectation?

In the 3%.

And then, my follow-up would be just around guidance assumptions --

I would say 3.3% to 3.5% to be more accurate.

I appreciate the precision.

In terms of comments on flu, are you assuming, in the early part of 2016, that may be making a conservative assumption about flu, quote-unquote catching up?

And then, what are your assumptions for the end of 2016 and flu season in the fourth quarter of 2016?

I think we see some indications of the (inaudible) at this point in time.

That's why I said it's too early to say that there's going to be no flu season at all this year.

We have seen flu seasons come early, we've seen them come late.

I would say on fourth quarter, and Jeff can confirm this, but we have booked the normal flu range that we do -- as we did in every quarter.

It's not the high end or the low end.

It's what we reasonably expect it to be.

Very good, thank you.

Peter Costa, Wells Fargo Securities.

First off, let me say thanks, and congratulations, Bill.

You did a great job for us and for Centene.

Good luck, Jeff, going forward.

And that gets me to my question, which is really about reserves for the Company and days in claims payable.

What do you expect days in claims payable to do this year, given all the moving parts with less new business and Health Net coming on board?

What should we be expecting to see in the days claims payable line?

This is Jeff.

As far as on a combined basis with Health Net, we haven't given out anything on that as far as Centene is concerned.

I think we have a range from the 40 -- low 40s to mid-40s I would still expect to be in that range.

I don't see anything unusual happening there.

I think the biggest thing that impacts that is how fast we receive claims and the EDI rate that we have, and we have continued to see an increase in the EDI rate.

So, over time, you would expect that to reduce your days in claims payable.

But nothing significant that I would expect.

I've said probably in many presentations and meetings that we are averaging 98% plus, 98.6% payment is six to eight days or less from the date the claim comes in.

We have a 99% accuracy within the payment of those claims.

You put all those factors together and it gives you a high degree of confidence in your lag tables in those factors, and the greatest impact, as Jeff highlighted, will be, as claims continue to come in faster, that's the variable.

And when you have a constant on the other end of it, that says you don't have to measure as many different [wheels] as dates received methodology.

So, if things start going faster and more of them, then we have two out of the three factors (inaudible).

Should we expect any slowdown as you bring on the Health Net systems and then platform onto your servers?

We have stated that we are going to be very methodical in bringing on systems.

We've seen too many times when people try to do it quickly, and they throw the switch and the lights (inaudible).

We want to avoid that.

We've stated that we anticipate it's going to take two years to fully integrate all the systems.

They're in the middle of a lot of outsourcing that is all coming back in.

They have a lot of people offshore that will be coming back.

There's a lot of different aspects.

So, anticipate a couple years, and we will keep you informed on these calls how it's going.

Again, the most significant component of time on days in claims payable is how long it takes from the date of service to when we receive the claims.

That's the majority of the time, as Michael mentioned, how fast we actually process those payments once we receive the claim.

Okay, thanks a lot.

Andy Schenker, Morgan Stanley.

Thanks, good morning.

In the past, when you've provided guidance, you called out investment and expansion costs.

Given the new programs and expansions this year, excluding Health Net, how should we think about investment costs in either ideally absolute terms or at least relative to 2015?

And how should we think about that trend going forward?

Thanks.

This is Jeff.

We haven't -- we're in this spot here where we're waiting for the Health Net transaction to close here.

So, we haven't gotten into those details.

I think once the transaction closes, we will provide all of the normal, I would say, guidance information, including tax rates, shares outstanding, start-up costs, et cetera.

But, right now, we're in a position where, as you have seen, we went from February to March 1. We're just in a position where we really have to wait until closing.

Okay.

Switching gears then.

Dual, obviously, never been meaningful for Centene, and that's only been a slightly disappointing program here.

But, given concerns around the program, are you seeing any changes from the state around renewed interest and maybe independent or separate long-term support services programs?

Are you seeing any potential growth in that [RFP] pipeline?

You talked about LTSS separate from dual.

Thanks.

I'll take that.

I have had some discussion with duals.

Some of the needs they have to do to reduce the disenrollment that one sees in that population.

We're doing a little better in Ohio.

I think we're at, last time I looked, about 30% opposed to 50% they're seeing in some other states.

I think the states recognize this, and it's just a matter of what they have on their plates and their willingness to do that.

Just on the second part of that, Andy, we have seen -- the momentum really is around states looking at the LTSS programs for managed long-term care as an extension, if you will, of the dual demo program.

So, you're not seeing a lot of new dual demo programs coming up, but you are seeing a meaningful amount of momentum on managed long-term care contracts either embedded within existing states or RFPs that would specific for that set of services.

Thank you.

Steve Halper, FBR.

Hi, good morning.

Any update on the disk-drive issue?

Yes.

I can tell you about the disk drive issue.

It's really a data issue in our case.

There was no inclusion, there was no hacking.

Appreciate the way you articulated that, it was very important.

We continue down the process, we continue to look at it, we continue to apply an abundance of conservative wisdom and transparency to it.

Clearly, to this point, we have seen no hint or any indication of any inappropriate use of the data, and we will continue the search in looking to see -- if we have 26,000 disks, and you are looking for 6, that's the proverbial needle in a haystack.

We are doing that methodically, again, just to double check.

There's no update beyond that.

As I said, we're following through, we're notifying everybody.

And importantly, Steve, this data was in an incredibly raw form.

We're using it to line up the state's laboratory and other data.

So, it's not a very usable state.

You really have to have a lot of our systems to get to it.

But, once again, as soon as we see something that could be an issue, our policy is to get it out there.

Just to confirm, from your understanding, there has been no inappropriate use of any of the data that would have been on these drives.

No.

Absolutely no hint even of [inappropriate use].

Okay.

Thank you very much.

Ralph Giacobbe, Citi.

I just want go back to the changes real quick.

I certainly understand that I guess the enrollment numbers are coming in line with your expectation.

Can you give us what those numbers are in terms of where you're at right now through open enrollment?

And then, second piece is just the renewal percentage.

So, of the exchange book last year, can you give us a sense of what percentage of --

(Multiple speakers) around 600,000, but that does not include those who have paid (inaudible) those numbers, so we expect it would probably be about 75% or something of what I showed an indication.

There's always this early indication, and then (inaudible) until you pay, you do not have the coverage.

Did you say 600,000 -- so [146,000] up 600,000, and then, you think maybe 75%?

It may be in the neighborhood of, what, [400]or so, [500].

Again, that's about the number for the peak point in enrollment.

I think is important to know that the enrollment peaks and then continues to reduce down through the year.

We anticipate that experience, so your 146,000 is the low point of the year in terms of comparison in terms of that.

This is Jesse.

I would just add to that, Michael made some of these comments in his prepared remarks, the growth that we are seeing is in the states where we have had long-standing participation in the marketplace, we're known in those products and we've seen the demographics, consistent approach that we've taken in terms of discipline in our networks and pricing, et cetera.

And the demographics for those -- the peak membership that Michael referenced is wholesale in line with what we have seen over the past two years.

And then, the 146,000 from last year, do you have a renewal percent?

Did most of those renew?

Is the renewal rate high?

The renewal rate is very high.

We did see most of our people -- reasonable number renew like we expected.

Okay, and then just one more, can you maybe help frame the opportunity from Louisiana expanding Medicaid?

I think you mentioned it isn't in guidance, so just wondering the opportunity there.

Maybe remind us of cost trend and MLR within the states that already have expanded Medicaid.

I think in the past you've suggested that MLR actually runs lower than average within the Medicaid-expansion population.

Should we expect the same from Louisiana?

Thanks.

MLRs are slightly lower for the Medicaid expansion population than our overall average MLR, given the lower -- slightly lower acuity of the population.

So that would be in line with our expectations, and then the total program size is about -- expected to be about 250,000 members.

That could grow over time, and they're five managed care organizations in Louisiana.

So those are the rough dimensions for the opportunity.

Okay.

That's helpful, thank you.

Ana Gupte, Leerink Partners.

Thanks for taking the question, good morning.

The first question is on the guidance.

You might have said a little bit of this at Investor Day, but you've since won a few contracts.

Just on a stand-alone basis, what are you modeling in the guidance for your -- for Centene's loss ratio consolidated across your fixed growth, expansion growth, and any rate changes.

Within Centene itself, the (inaudible) for existing businesses and integrating your acquisition?

Yes.

This is Jeff.

You are a little hard to hear.

As I commented at our Investor Day, we're not going to give stand-alone guidance for Centene.

So, we will have to get into that on a combined basis once the transaction closes.

Specifically then, if I don't get the overall numbers or the directional trend, when you said start-up costs, are you modeling in like a PDR-type thing for this new correctional care contract in Nebraska and all from 2016 losses into your guidance, or you don't really see that as an accounting practice that you will adopt?

We don't see PDRs (inaudible) and we tend to avoid going into businesses with PDR before you see your first [numbers].

The only thing that I would add is that, when we prepare our budgets and operating plans, we assume that we're going to win business and have new plans coming in every year.

So when we said, for example, in the fourth quarter, we've included the start-up costs for something like Nebraska.

That's because we are always anticipating a certain level of those business expansion costs.

Okay, so no PDR but expansion costs.

Finally, just looking at some of the news flow which may just be all headline risk, but with what's going on in Kentucky, with the new governor in Iowa, with the democratic senate and all, as you think of any potential downside risk on rates in expansion states, California for Health Net and anything else you are doing, where might you see --?

(Multiple speakers).

We will not sign a contract where we don't think the tax (inaudible).

We look at it, we recognize that it may not be profitable from day one, but we have to have service authority.

And, I can tell you, it is policy to not go into the state if we think we're going to do a PDR (inaudible).

I'm going to drop it at that point (technical difficulty).

Thanks.

Thank you.

Matthew Borsch, Goldman Sachs.

Good morning.

Sorry if you covered this already, but can you just comment on your outlook for the California duals program?

I realize that's not under your umbrella yet but it will be soon.

And it's been -- the program has been held up politically.

I'm just wondering what type of opportunity you see there and how you think it might unfold.

It's important, and I said this multiple times, in no way at any time in the past since we started doing the demonstration have we looked to the dual product for any of our growth.

We recognize that would be a very slow difficult process the way we're structured, with the opt-outs, et cetera.

And, for that reason, we have said from the beginning that it's just not something we put a lot behind.

We are doing enough.

I think we said at the Investor Day if we get to a high total [between two companies 50,000], we're doing enough to demonstrate and we really know how to do it and do it well.

And we're working with the state issues that affect the outcome so that when and if they decide to do something about it, we're in a strong position.

Beyond that, I have no great expectations.

It's not going to make or break any state or any year.

Philosophically, do you think the dual program can work on an opt-out basis, or do you think you going to have to get to a point where you put one program in as opposed to running two concurrently?

I think you're going to have to have programmatic changes to minimize the opt-out.

You can't have 50% opt out and have any continuity (inaudible).

[That has to change.]

Thank you.

Thank you.

That concludes our question-and-answer session.

I would like to turn the conference back over to Michael Neidorff for any closing remarks.

Thank you.

I want to thank you all for your interest, comments.

We look forward to another very strong year.

I hope Jeff will be giving the same reports that Bill has.

Thank you, everybody.

Have a good day.

The conference is now concluded.

Thank you for attending today's presentation.

You may now disconnect.