Good morning. My name is Al, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Centene fourth quarter 2009 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Mr. Ed Kroll, you may begin your conference.

Thank you, and good morning, everyone. I'm Ed Kroll, Senior Vice President, Finance, and Investor Relations at Centene Corporation. Thank you for joining our fourth quarter 2009 earnings call. Michael Neidorff, Centene's 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 is expected to last about 45 minutes, and may also be accessed through our Web site at centene.com. A replay will be available shortly after the call's completion, also on our Web site at centene.com, or by dialing 800-642-1687 in the US and Canada, or outside those countries, 706-645-9291, the access code, 51681793. 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-Q dated October 27, 2009 as well as 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, we specifically disclaim any obligation to do so. With that, I'd like to turn the call over to Chairman and CEO, Michael Neidorff. Michael?

Thank you, Ed. Good morning, everyone, and thank you for joining Centene's fourth quarter and full year 2009 earnings call. Before commenting on what was another solid quarter and full year performance, I would like to make some overview comments regarding the economy, our recent fall on stock offering, and Federal health reform. I would then briefly review some of the highlights of the fourth quarter and the year, and then the call over to Bill who will walk you through the financial details. It was this time last year when I first spoke about a global financial realignment taking place as a result of the 2008 economic crisis. A new era ensued in which states began facing high unemployment rates, severe budget deficits, and an expanding Medicaid eligible population. Consequently, Centene's cost effective and quality programs have become even more important to our existing and potential state customers. We need to help states stretch budget dollars further, while enhancing the access to care for vulnerable populations. It is also important for us to be a strong and reliable financial partner for our state customers with a focus on liquidity and capital adequacy, so we must be prudent balance sheet managers. Consistent with this philosophy, we made an already strong balance sheet even stronger by raising $104.5 million in a follow-on equity offering in January 2010. These proceeds allow us to reduce our debt-to-cap ratio to the low mid-20s from the low 30s, and to reload our $300 million revolver to where the full amount is available. It is generally recognized in our industry that a strong balance sheet enhances the ability to pursue M&A opportunities and new state contracts. We're always selective in choosing our growth opportunities. But this offering gives us additional flexibility to move quickly to take…

Thank you, Michael, and good morning, everyone. First, I will give an update on our New Jersey transaction. As previously announced, we anticipate closing on the sale of assets related to our New Jersey health plan later this quarter. We have classified New Jersey as a discontinued operation since last year-end and throughout 2009. Accordingly, the financial results discussed throughout this call will be in the context of continuing operations, and therefore exclude our New Jersey health plan. For the fourth quarter of 2009, premium and service revenues grew $1.05 billion, an increase of 19.6% compared to the fourth quarter of 2008. Our revenue increase was driven by membership growth in all of our states; premium rate increases, including recording the Georgia rate increase related to July 1st 2009 to December 31st 2009, all in the fourth quarter; commencement of operations in Massachusetts to manage healthcare services for member under the State Commonwealth bridge and Commonwealth care programs; the acquisition of certain assets in South Carolina last March 1st; and, in Florida, the conversion of non-risk managed care membership from Access Health Solutions to Sunshine State Health Plan on an at-risk basis. For the year ended December 31st, 2009, premium and service revenues grew to $3.878 billion, an increase of 18.4%, compared to the year ended December 31st 2008. The full year 2009 revenue increase was driven by the items I just discussed, and in addition, having a full year of Celtic operations, and acute care services in Yavapai County, Arizona. Our consolidated health benefits ratio or HBR was 83.9% for the fourth quarter of 2009, compared to 82.3% in the fourth quarter of 2008, and 83.7% in the third quarter of 2009. The 160-basis point year-over-year increase and 20-basis point sequential increase are detailed in the reconciliation of the…

(Operator Instructions) And we’ll just pause for a moment to compile the Q&A roster. And at this time there are no questions in queue.

Okay. Then we thank everybody for calling in.

Can you just hold a minute?

We’ll hold for a minute.

Well in the past we’d have some problems.

Yes. They were--

They were registering and--

That’s right, that’s--

We have no intent to cut the call.

No, of course not. Thank you, Bill. Good suggestion.

I have a question coming in from Gregg Genova form Deutsche Bank. Your line is open.

Hi, good morning. Can you remind us of your acquisition criteria, specifically around the timing of EPS secretion, and then also discuss if you would branch out the new business segments and funding arrangements, or if you think you’d stick to your historical types of deals?

Okay. I think first we -- it has to be accretive in the first 12 months after acquisition. We also use -- while we look at ROIs and other criteria, our driver is the IRR net cash flow after tax, and we use a term row discount value. It has to be the same as the entry value, and that somebody can show why it’s really different. It's just too easy to make things go (inaudible) by adjusting discount. But on the health trend side, it’s 20% to 25% hurdle rate, and on the specialty company, 15% to 20%. We all have to -- we obviously will be looking at our road strategy. It’s first in existing markets. We look at service area expansions. We look at the various new products, adding products, especially cross-selling. All of which at times can increase the need for statutory reserves, but good in market accretive businesses. We’re looking at new market developments, which we form our approach in the IRRs, but there are some new markets, and the regulatory and political environment, currently, I think are going to create some new opportunities. And then your last part of the question Gregg, we will diversify business lines. We have our O-Series [ph], Terra Haute. We look at the behavioral health, life and health management. We look at some of the things we have done. And there’re other companies I can get too -- I can’t get too specific because that will only serve to increase the cost to us, the value if somebody proceeds in those products. But we will continue to look at the government service sector and products related to that. And we see a lot of opportunities.

Okay. Thanks. On the legislative front, what are your thoughts on the FMAP expiration, and when they might tackle that, how will they tackle that?

Well, I think as they are working through, we'll have to wait and see what they do, the jobs built they’re trying to work on now, and how they start to attach things to that, or what they do with it. I think they recognize they have these issues. And nobody has a crystal ball and all, they’re going to try and do that as a separate interim, (inaudible) attach it to a jobs bill or will they make it part of the broader healthcare reform that they still trying to come back to, but -- which we believe will probably be a scaled-down budget? The most recent budget proposal does have -- what I refer to in my earlier comments, the $25 billion to extend it to June of 2011. I think we’ll find them constantly be an incremental on how they look at it to try and drive the states to using their own resources and workers -- people like us to find ways to drive down the cost.

Great. Last question on the flu. You spoke to an incremental $16 million that you guys booked this year versus ’08. And you talked about your guidance being conservative for 2010. So that’s roughly $0.25 a share that you guys took this year. So is it safe to say you have a similar amount picked in, or--?

I would say we’re -- as you look at it, you had two flus last year. You had H1N1 and we still have the seasonal that we saw. H1N1 has not gone away. Now, we’re still --we’re looking at our predictive modeling. We’re using all the new tools that we have, in fluvention, and other things we’ve talked a lot about to try and determine is there increased immunity, people developed the immunological system. But those things are yet to be seen. Is there any change in the strains? Do they change in any way? Do you still have your various seasonal? So we’re saying is we’ve looked at -- we’ve seen various supports in CDC and others that say, “You’re so far in Q1.” But we also know that’s the opportunity yet. This is still only early February, that late February, early March can have a very significant flu season. And we’re planning on that as we think about it. And Billy that ends across, and we want to be sure that because Q1 of last year had such a mild flu season that people do not presume that’s going to be -- we’re not saying it couldn’t happen, but will not happen again this year.

Okay. Thanks.

And your next question is coming from the line of Brian Wright from Collins Stewart. Your line is open.

Thanks. Good morning. Can you tell me how many Access Health lives are still AFO at this point?

Yes, Jesse?

Yes, as Michael referred to, Brian, in his comments, it's about 60, 000.

About 60,000? Okay. And then could you tell us what the February enrollment is for the Commonwealth Bridge and the Commonwealth Care?

Well, we typically -- go ahead, Jesse.

Yes, I was going to say, we generally don’t give month-to-month enrollment across the plan.

Okay.

There are other sources you can potentially look through to find that information.

Okay.

Was historic enrollment at the end of the quarter, Brian, as opposed to what we see because every state does it a little bit differently. You get your preliminary numbers and you got reconciliation. So we want to keep it simple.

Okay. Has there been a major change?

No, we have not seen a major change.

Okay. And then lastly, on the Foster Care in Mississippi, how many lives is that?

It’s a smaller piece of the overall puzzle. So we’re continuing to work through the contract discussions with the state, which includes the total expectations for the population. But Foster Care's a relatively small piece of the puzzle.

And that was in the numbers that were already projected by the state?

Yes.

Okay. Thank you.

Thank you.

And our new next question is coming from the line of Kevin Fischbeck from Bank of America. Your line is open.

Okay. Great. Thanks. I want to get a little more clarity on this closure of the MLR increase, 110 basis points sequentially due to new markets. I’m going through the math of it. And even if we assume Massachusetts has a $400 PMPM, in order to get a 110 basis points sequential MLR increase on 5% sequential increase in enrollment, it looks like the new MLR is something in the high 90s, is that right?

I think we now have Jesse add to it and Mary, and others in the room can jump in. Florida in particular, we are experiencing in the at-risk membership, some incremental costs that we’re drawing down on, taking a look at now. And Jesse, anything you want to add to that?

I would just say since we’re looking at this sequential increase from the markets, in terms of the attribution between Massachusetts and Florida, I would say Florida’s a bigger contributor to the increase than Massachusetts.

Okay. But is it directionally in the high 90s number, the right --what do you think about it then?

For Massachusetts?

No, for Florida, for the entire new enrollment.

Yes, with a ceiling towards Florida.

Okay. All right. And so it sounds like this isn’t what you guys saw, in particular in the Q3, new enrollment, is this something that was already factored into your outlook when you talked about the HBRs? Or is this something that makes you feel more comfortable about the high end of the range now than the low end of the range?

Well, with respect to the HBR, we knew the Florida HBR was running higher. And we factored that into our numbers in our guidance. And as we indicated earlier, we’re working on this as we did in Ohio a couple of years ago making sure that we do the appropriate things to get the HBR in line with our normal expectations, and that usually takes a couple of quarters.

Okay. Your guidance assumes that for a couple of quarters it stays elevated, but eventually comes back down to historical?

Correct.

Okay.

If you look at our ’08, (inaudible) a new market, that’s a pattern that’s very clear you can see them through.

Okay. Is there any color on why you’re seeing a higher costs trend in Access Health? Is it just new networks, et cetera, that takes a little what it used to or what’s the main difference between what you’re seeing and what actually is Access health is seeing?

I think there’s some new networks we’re looking with the state at they’re rating and how they looked at the risk scores there, so it’s just kind of an evolution and learning period. Anything you want to add, Jesse? Because you’re--

I think that covers every -- we’re looking at the general items that you would expect. So if we’re looking at utilization, unit costs, and then corresponding revenue that’s attributed to the member. So we’re very focused on that at this point. And as Bill said, we are doing all the things that we need to do to get the experience in line with expectations.

So if you think about it, from the standpoint of the size and the growth we’ve had there, we have critical mass in membership. It says that that is a particular issue that raises the costs. It gets exasperated. But I also says as you bring it in line, it comes down just as well. So I mean, this is nothing that we have not seen before. And I’m just pleased that we can actually go down to name, rank, and serial number adopter now with the new dashboard so that it gives us a chance. It doesn’t mean it happens instantly, but as always, our concern is that we do it in a way that is sustainable. So we--

Okay.

--the short term.

Okay. So you commented about risk scores. So there’s a revenue component for this as well as a cost component for this?

I’m saying we’re looking at everything at this point.

What I’m saying is that we look at every aspect.

Okay. And let me just follow-up on Brian’s question, so maybe not to get carried a moment, but could you breakout the quarter-end, just enrollment between Commonwealth Bridge versus Commonwealth Care? How much is Commonwealth Bridge?

Bridge, just on an order magnitude, Bridge represents the majority of the population between the industries.

Okay. And one last question, as far the continued conversion of Access Health, is there a way to be thinking about it? Should it be consistent throughout the year or is there a quarter where more -- a better enrollment will convert?

I think it's a function of us getting approval from the state on a county-by-county basis. So we have that -- our expectations when that come in at various points throughout the year, so I don’t think we’re in a position to be much more specific than that at this point.

Okay. Great. Thanks.

And your next question is coming from the line of Daryn Miller from Goldman Sachs. Your line is open.

Hi, good morning. Thank you. Just following up on the Florida medical costs that program’s been growing pretty quickly. Do you have a decent claims disability at this point to be talking to a higher trend level? Or is the claim still fairly undeveloped?

Our claims developed for the week had good visibility. Our claims that have been there, as you know, have a certain confidence level in that. But, Bill, you may want to add in terms of the dollars.

We have literally four months of claims experience at this point at the end of 2009 for some of these counties that converted in the third quarter. So that’s a little bit of experience has now a lot of experience in terms of having a good data to work from. So again, as Jesse indicated, we’re looking at all aspects of it and we’ll continue to drill down on the claims typically by provider, by area, by type of cost, and review all of these things. And that’s part of the normal process that we would go through in the new market as we try to make sure that the actual (inaudible) matches our expectations when we went into the market at the beginning. So in talking about it this much, I think that the message we’re trying to convey is were there a bit early, we’re using all the tools that we now have to work on it and to fix it, deal with it at a normal, rational, sustainable basis. And that’s different in being a victim that says, “This is what happened last quarter.” So we’re trying to give you that insight as we see this, we know it’s there and we’re working on it.

Okay. This is the tip of a high-level expense you see when you enter a new market. Great. Question on the services revenue line, this meant the volatility availability in that line over the last two quarters. How do we see that turning forward? A and then B, can you just talk a little about what’s driving the changes over the last two quarters?

I think one of the things is that we consolidated Access Health Solutions, which was they’re on a non-risk basis. So their income comes in, in the service line level. So as debt income -- as we start to convert those members at-risk, I would say less membership Access Health solutions. So therefore, they don’t have that service income. So you see, shares have come down in terms of service income as a result of that.

And what drove the increase in the third quarter?

In the third quarter, access was still growing. I mean at times they were getting membership during the quarters of the year. Because they grew up in membership quite a bit since we originally invested in them a year ago or more. Yes.

So the sequential change between the second and third quarter of ’09 was the 5 million increases Access Health growing?

I think that’s a big deal. It sounds like is reconciliation income for -- because onto their model, they received a portion of the savings, and it’s done on the 12-month leg basis so they’ll be estimating then, and then churning that up the actual. So you might have a little additional income at any one period of time from the results going back to 12 months ago.

Okay, that’s helpful. And then one last question, before you were talking about the Medipass program, any opportunities for you there if they change that program?

Yes. I think there’s a lot of talk in Florida and other states about various avenues to address improving quality and reducing costs, including moving from cheaper service in the managed care. We're infinitely involved in those discussions. And we would expect to be well positioned in the event that they go in that direction.

I think with (inaudible) and all the things we have in our torches, all the various products, systems being provided, there’s no barrier other than how they structure the program as PNA (inaudible) .

Great. Thank you.

And your next question is coming from the line of Melissa Jaffe from CJI Markets. Your line is open.

Hi, how are you guys doing?

Great.

I’m just trying to get a sense of some on the sources being used as capital this year and I guess into the next year. Have you guys quantified whether you’ll have -- how much you’ll have to contribute to the subsidiaries this year?

No, we haven’t. The other day we've talked about the extenders for example. Our estimate is Mississippi, Bill? So I think it's $20 million statutory reserves. I don’t think it’s the number we estimated there. After that it’s a -- it maybe some additional capital need as we enter new markets and have a new products within existing market, and we have a sense of that. But a lot of it will be M&A as well. And on that line, I would just have to say, “Stay tuned.” I can't give you any more specifics in that?

Okay.

You have increases in a lot of states where we have growth. We have to fund the statutory capital increases for that and in new states, which are totally different.

And a lot of these statutory needs in existing states is really generated to the cash flow we generate in those things.

Right, right.

So it’s not like it’s just all coming from the outside sources.

Right. Okay. If my math is right, you guys, you’re still looking at probably holding about $200 million in debt?

Pardon me?

You said you're going to get your debt-to cap between the low 20s or 30s? So I mean you're still -- you're not -- you're going to replace -- I mean you're going to replace it with a revolver, right?

The revolver's been paid down. It's overtaken too. We have the more permanent debt with the bonds.

With respect to the offering, we used the proceeds to the offering when we received the cash to pay our revolver down to zero. And then we put that additional cash because I think the revolver was only in the mid-80s at that time. The additional cash, this is increases in free cash. And so what we end up with from a capital structure is we have our $75 million senior notes outstanding, and then we've got some debt that's on our balance sheet with respect to our construction activity. That's about $32 million at the end of the year. And then, a little bit of debt on this building we rented for corporate headquarters. And then a $300 million revolver is available now for general business purposes.

Okay. All right. Great. Thanks.

And your next question is coming from the line of Tom Carroll from Stifel Nicolaus. Your line is now open.

Could you do the -- mention to us the three states where timing issues were a problem?

I think the states that gave us some money before the end of the year so we have a larger increase in unearned revenue this year on the face of our balance sheet, and so, each state's a little different.

I'm sorry. Did you get my whole question? I understand that we might have a problem with mine.

I think so.

Okay. The question I got was the cash flow issues. You said there were three timing issues from three markets. Can you hear me now okay?

Yes.

Okay. I guess what were those three states? And how much should be sourced from first quarter 2010 as opposed to fourth quarter?

I think there were three states before the end of the year.

Right.

And one state, the state that's the 13th payment was actually Ohio. And so they're scheduled payment then and right now is only going to take two in the first quarter in terms of the calendar days. So if they stay to that schedule, then we won't -- we'll find it up with a negative cash flow for the quarter.

Right. So how much from fourth quarter really should be at first quarter?

They will pay us maybe up to $50 million a month just from one state.

Okay. Thank you for clearing that out.

And we have no more questions in queue at this time.

So we'll give another 15 to 30 seconds just to make sure we don't have anymore problems with any--

We thank everybody, and look forward to talking to you again in April. Thanks.

This concludes today's conference call. You may now disconnect.