Good morning, and welcome to the Centene Corporation First Quarter 2015 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [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, sir.

Thank you, Denise, and good morning, everyone. I’m Ed Kroll, SVP of IR for Centene Corporation. Thank you for joining our first quarter of 2015 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 website at centene.com. A replay will be available shortly after the call’s completion, also at centene.com, or by dialing 877-344-7529 in the U.S. and Canada, or in other countries by dialing 412-317-0088. The playback number for both of those calls is 10061838. 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 today April 28, 2015 and our 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 Friday, June 12, 2015, in New York City. Please mark your calendars. With that, I'd like to turn the call over to our Chairman and CEO, Michael Neidorff. Michael?

Thank you, Ed. Good morning, everyone, and thank you for joining Centene's first quarter 2015 earnings call. We were pleased to have started 2015 with another successful quarterly performance marked by exceptional top- and bottom-line growth. We expect this momentum to continue throughout the year and are raising our 2015 financial guidance accordingly. Bill will provide details on our enhanced outlook. During the course of this morning’s call, we will discuss our strong first quarter results and provide update on Centene’s market and products. I will begin with first quarter highlights. We added 1.4 million members compared to the first quarter of 2014. This represents a 44% increase to 4.4 million beneficiaries. First quarter premium and service revenues grew 42% year-over-year to $4.8 billion. The HBR increased 50 basis points year-over-year to 89.8%. This reflects an increase in the higher acuity membership as well as a higher flu cost, compared to last year’s relatively mild flu season. Importantly, this fell within our planning assumptions and guidance. Bill will deliver further HBR detail, including new and existing business mix. Overall, we continue to see as well as anticipate stable medical cost trends. We recorded first quarter diluted earnings per share of $0.52, compared to $0.29 in last year’s first quarter. I would like to note that the ACA health insurer fee had no impact on the first quarter 2015 earnings as we have secured agreement with our state for 100% of the fee on a grossed up basis. Now on to market and product update. First, we will discuss recent Medicaid activity. Louisiana, we added over 200,000 full risk members in the first quarter as the state transitioned out of a shared saving ASO model. At March 31, we had approximately 360,000 recipients in Louisiana, which is above the high-end of…

Thank you, Michael, and good morning. Our first quarter results are consistent with the growth rate we have experienced over the last several years. Membership increased 44% year-over-year, an increase of almost 1.4 million members, and our premium and service revenues increased 42% year-over-year totaling $4.8 billion. The revenue increase between years of $1.4 billion is a result of a full quarter’s impact this year from expansions and new programs in 2014 in a number of our states, particularly Florida, Illinois, and Ohio. We increased our full risk membership in Louisiana this quarter as the new contract began, which eliminated the shared savings program and we converted 200,000 of these members to the at-risk program. In the first quarter, we also began serving additional members in Indiana for the Healthy Indiana Plan 2.0 program and we began covering nursing facility benefits in Texas. Service revenue increased 64% year-over-year primarily from our carrier health specialty pharmacy business. During the quarter, we received an agreement in California for the full reimbursement of the health insurer fee on a grossed up basis for income taxes. We now have agreements going forward in all of our states for reimbursement of the health insurer fee. The consolidated health benefits ratio this quarter was 89.8%, an increase of 50 basis points over both last year’s first quarter and the fourth quarter of 2014. The increase year-over-year is primarily due to the increase in higher acuity membership, which carries a higher health benefits ratio and a lower G&A ratio and higher flu cost this year, when compared to our relatively mild season last year. The increase from the fourth quarter is primarily seasonal as the first quarter is typically our highest HBR quarter. In the first quarter, approximately 23% of our revenues were from new business compared…

Thank you, Sir. We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Josh Raskin of Barclays. Please go ahead.

Hi, thanks. Just skimming to the Q, I just want to confirm, it looks like there was a $10 million benefit from the Louisiana transaction and then I saw $10 million for charitable contributions to foundation. Is it fair to say those were offsetting and no impact to the P&L together?

I think that’s correct.

Okay. Okay. Second question, on the commercial revenues, your health insurance exchange membership came in a little bit stronger than we were looking for. Are you guys still below the 2% threshold for the deductibility of compensation expense?

Yes, we are still below in our plans forecast and our approach to it. So it’s continuing to be below 2%.

Okay. And maybe that as you trail down through the rest of the year, is that sort of fair to say?

Yeah, there is various ways we approach it and we are ensuring that we do stay below it.

Okay. Thank you, Michael. And then just last one on sort of RFP pipeline and any changes in guidance, the revenues are up a couple of hundred million bucks. Is any of that a change in your assumptions around your underlying business or is that just sort of Centurion and things that you’ve announced, I guess maybe just oppose that with how the current RFP pipeline look?

Bill, do you want to comment on the [indiscernible]?

I think our guidance increases generally reflecting the impact of several of the outstanding RFPs we had at the end of the year were the reprocurements. Those were all now baked into our guidance, Arizona, Missouri, and the Texas Foster Care and a few other changes that we’ve had an update from that point in time. So, I’ll let Jesse speak to the open RFP.

Yeah, Josh, I would speak to just – as it relates to the cycle, there were number of RFPs that are in process right now. Once those come to their natural conclusion and we will reflect those in our results accordingly.

Okay. But you are assuming like existing business like Georgia et cetera, I assume you’ve just got an assumption of reprocurement. I mean, I’m curious if Ohio was [ph] in there or anything else?

So, Georgia would not really impact 2015, I think that’s a July 2016 effective date. So I think that with respect to the remainder of the year, we are not anticipating any changes in terms of particular wins or losses in our guidance numbers.

If we go after the new state assembly, we never included those. It’s one rewarded and we don’t comment on until the state announces that particular [indiscernible].

Okay. Alright, perfect, thanks.

Thank you.

Your next question will come from Kevin Fischbeck of Bank of America. Please go ahead.

Hi, this is actually Steve Baxter on for Kevin. I was hoping you could talk about the performance of the Florida MMA and Long Term Care Programs. I guess can you talk about your progress in managing medical cost lower since the launch of these contracts? And I guess whether you see a path towards sustainable margin in these businesses without receiving a rate increase from the state?

Well, we continue to – I’ll let Rone and others add to it. We continue working effectively with the state. We are looking at the rate side as well, but obviously, where you can see from the guidance we continue to believe we will achieve our goals there in that market. Anything you want to add, Rone?

Well, we always anticipate a level of pressure with respect to the HBR in the initial year of our program and that’s something that we expect. We saw that with the LTC program and we saw working with the state getting to a more appropriate place with respect to the program. We are seeing similar pressure in the MMA program and it’s something that’s actively been discussed among all the plans in Florida and the state of Florida as well.

And is there…

We’re optimistic that this – we’ve had a long history in Florida. They’ve been a good partner to work with. As Rone indicated, Long Term Care was resolved last year particularly in the fourth quarter and we would expect in 2015 to have similar changes impacting the MMA program.

Okay. Now that makes sense, I guess has there been any update on the discussion around the formulary in Florida, because it seems like that would be a potentially painless way for the state to come up with a fix without necessarily having to budget more money?

We talk about it, but as was the case last year, our guidance and budgeting includes the formulary as it is today. And if we affect any changes, we can reflect that, but as it is conservative and appropriate to not plan on one at this time.

Okay thanks and then I guess in terms of the composite rate update of 0% to 1% is there an assumption in there for Florida?

Well it is a mix of all the plans to what amount, but …

We’ve not anticipated in the guidance numbers any significant change in the MMA program for 2015. We’ve included in our guidance and where we are right now, and so we will wait and see how that progresses during the course of the year.

Okay. Thank you very much.

The next question will come from Brian Wright of Sterne, Agee. Please go ahead.

Thanks good morning. I apologize if I missed this, but did you quantify the impact of flu on the quarter?

We didn’t put specific dollars in there. I think that from our perspective we really have, last year the 13, 14 season was a relatively mild season. We anticipated in our guidance that we would have a more average flu season and I think what we probably had was slightly above average, but within our range of expectations and estimates that we had for flu during the course of this current year. So, I think from our standpoint we don’t really want to quantify specific numbers, others say was within our range of expectations.

Okay. And then, so how do we think about see – historically borrowing product mix, historically the second quarter has been a better quarter than the first quarter, is that – I would expect kind of given where flu was this year that this year that trend would continue, is there any reason to not think that that would occur.

Typically the first quarter is our highest cost quarter and so we have seen that year-after-year, so…

Okay. And then just one last follow-up if I can, the sequential increase in the services revenue, how much of that was, you told us primarily that year-over-year increase in services was a carrier, was most of the sequential increase that carry as well?

Yes.

Great, thank you.

Our next question will come from Sarah James of Wedbush Securities. Please go ahead.

Thank you. As some of the complex care contracts anniversary and move into the existing business line, how should we think about what an appropriate existing MLR looks like in 2015 to 2017?

I think that the first year obviously has been running higher. We think this is going to run closer to our longer term expectations by the time you get into the second year, but the complex care products are rated generally at a higher HBR up unto the low 90s in most cases. So, we would expect that we would have that normal progression. We give you our health benefits ratio guidance of 89.2% to 89.6%, we feel that’s a good number for the whole year on a blended basis without trying to break that into a complex care and everything else. But we do expect as we’ve added more complex care. So we will start rolling over into be existing business, but it won’t have a dramatic impact in our overall HBR other than what we show in our guidance.

Got it. And wonder if your peers, roll-out their Medicaid revenue guidance based on those opt-out turning higher than expected, can you speak to how opt-out levels are trending in your market and how that compares to your expectation?

Bill you want to make a comment on this?

Opt-out has affected us in our dual demonstration programs really in Ohio with this point and as Michael mentioned, our opt-out rate in his opening comments, our opt-out rate was 30% which was approximately 30%, which was very much in-line with our expectations. So, our experience with opt-out has been very much in accordance with what our projections were at this point?

Great, thank you.

Our next question will come from Andy Schenker of Morgan Stanley. Please go ahead.

Thanks good morning. Maybe if you could just talk about obviously you gave the flat to 1%, but within that any views on the price declines for expansion rate, if you guys have less exposure than maybe some of our peers expansions there?

Yeah, I think we have to be recognizing that this ongoing discussions with a lot of states is probably prudent to not get too specific on any one state to indicate what our expectations are.

I think the one thing that I would mention is, on the Medicaid expansion business, in many of the states it started out with relatively high rates, but it had a minimum HBR. So what’s happened and we had to accrue for the minimum, so to the extent that they reduced rates, it also reduced the amount that we have to pay back to the states for the minimum. So I don’t think overall it’s going to have much of an impact on our overall rate increase number because we were already accruing for that payback.

Okay, that’s helpful. Maybe change of direction here, since [indiscernible] announced another win in that program here, maybe if you could just talk to us a little bit more about how we should think about that business longer term here, the type of margin potential and it sounds like RFP is coming to market at a faster rate versus maybe your original expectations or how should we think about those opportunities coming to market? Thank you.

Jesse?

So, thanks for the question. Obviously, we are excited about the momentum on the correctional space with our fifth contract. And one of the things that we’ve looked at from the beginning is, in the context of our – broadening our offerings for our state customers, I think Mississippi is a good example of that where we already have a strong presence in that market. But there are – I think the reason we are going after these opportunities, there is a number of states that either have correctional programs that are coming up for bid or these services are changing or states on current departments of corrections that are moving in that general direction. So we are seeing what, I would call, a strong momentum in that area. That’s a subset of the pipeline that is, I’d say, quite active at this point and we are fortunate to be successful in that. To your other question, these are going to be relatively smaller. It’s not going to be the same size as, say, our health plan contracts by example. But we do think that there are some of the pricing dynamics that we talk more generally about our 3% to 5% pre-tax margin objectives. We’ve had reason to believe in our initial experience that we can achieve that in the correctional space as well.

And then, just a quick follow-up on that. How do you guys consider this business, as a government business, commercial business, does it apply to the de minimis rule?

Yeah, we definitely would consider this to be a government business.

Okay. Thank you.

Our next question will come from Peter Costa of Wells Fargo Securities. Please go ahead.

Hi, just like to get a little more clarity on the $11 per member per month drop in revenue sequentially from fourth quarter to the first quarter. You think with the higher acuity business that would be going higher or was there some one-time items in either the fourth quarter or the first quarter that caused that to drop?

It takes a couple of things. In the fourth quarter, we received some additional revenue in Florida on Long Term Care and a few other things which sort of raised the PMPM number in the fourth quarter. And in Q1, we also added a large membership in Louisiana for two months, which ends up showing a lower PMPM when you do that calculation. So there is nothing unusual in there.

It’s a timing mix.

And rate had no impact on that, really the 0% to 1% rate is relatively true for the first quarter here?

Yes.

Yes.

Okay. And any updates on Kentucky and what’s going on there, if you don’t mind?

Well, as we’ve said many times, we don’t comment on litigation, so it continues to wind its way through the various courts. And as promised, it’s going to take some time.

Okay. Thanks.

I might add we are still optimistic.

Our next question will come from Matt Borsch of Goldman Sachs. Please go ahead.

Yes. Hi, I might have missed this earlier in the call, but can you talk about the 3R’s and I realize it’s not a big business for you, but have you finished – it looked like from the state insurance report, you did actually quite well on the exchanges in terms of underwriting results at least based on Celtic. So can you address that and then how you are treating the 3R’s to come into 2015?

Sure. I think that with respect to 2014, we did finish out better probably than we anticipated we do. And based on the information that we have and our estimations on risk adjustment for example, we estimate there will be a payer and we will have to pay back in, same thing on the risk corridor. And there is a footnote in our 10-Q on the amounts that we have as receivables and payables for December 31 and March 31, and so you can look there for additional detail. And so, we think that in 2015, it’s early to have any solid predictions for the year, but right now, based on our current estimates, we’re assuming we will be in a similar position on risk adjustment given we have a similar membership and the characteristics of the membership that we’ve added in the states of the same.

And those numbers have been approved. So…

Yeah, it’s all…

[indiscernible] footnote. All these numbers are included, so there is no impact on the recorded earnings.

Got it. And maybe on a separate level, can you give us some sense of how many of your states you’re running up against – or I should say, for full year 2014, you were running up against points where you needed to payback rebates? And I’m sorry, if you disclosed this information already.

I don’t think we get into level of detail by state, but generally, I would say, most, if not all.

Okay.

We feel pretty consistent in that.

Yeah.

Alright. Alright, thank you.

Our next question will come from Ana Gupte of Leerink Partners. Please go ahead.

Yeah, thanks, good morning. So the first question is about your G&A. You came in at 8.8%, but you are reiterating 8% to 8.4%. I’m curious about how those synergies are playing out with your CHS transaction in Louisiana, and if that’s the driver of your guidance reiteration? And then going beyond that, if this OpEx leverage as your growing membership in existing states and shifting next to lower G&A products, what is your normalized G&A likely to be and when might you get there?

Sure. I think for the first quarter, our G&A rate was 8.5% and our guidance for the whole year is 8.0% to 8.4%. So I think typically what happens in the first quarter, we are making our normal estimates for the whole year i.e. one fourth of the estimate [ph] for lot of items. In the fourth quarter, those accrued up to actual when you get to the end of the year. So I think we are probably a little more conservative in the first quarter on the G&A, then we might – which will play out during the course of the year. And I think that we’ve also got additional revenues coming on during the course of the year. The membership for example in Louisiana was only there for two months in the first quarter as opposed to the whole quarter. And so that will have an impact – slight impact to the rest of the year also.

Okay. Thanks. So it sounds like you make 8.2%, but 8.2% your floor or can you get below that going forward? On the midpoint basis, with all the…?

I think there is a lot of different things that go into that in terms of additions in other types of business that we have, so that the mix can be an important element of that. But generally, when we peal back some of the nonrecurring items, let’s say, we are seeing a definite improvement in our G&A ratio and reduction as we gain leverage with the additional revenue growth.

Okay, thanks. The second question, I’m hearing again that any day this federal regulation is due for managed Medicaid and you’ve talked about the rates and context of MLR floors in many states. And I think one of your competitors has been talking about cross subsidization of over earning with under earning segments. What might you be expecting going forward and what are companies like you lobbying for with CMS?

I think, we expect minimum [indiscernible] is actively engaged on those regulations and working through it and we are comfortable that the regulations that will come out as best we can estimate it to this point in time will be consistent with our expectations and guidance.

Okay, thanks. And then last one on Georgia, any update on that as far as the current RFP and then the likelihood of ABD being privatized as well?

[indiscernible] The RFP will continue to respond to it and we have real confidence on that. I’m confident on that [indiscernible] equivocally and we are very confident on it. And as far as the additional products that have been not included in the RFP at this point in time and until they do, we presume they are not. Anything you want to add, Jesse?

No, I think that’s – we’ve certainly been preparing for reprocurement in Georgia for a long time. We are strong believers in our performance. We are doing everything we can to retain that contract and put ourselves into position that if the programs do expand, we will be able to participate in that.

Great, thanks so much, very helpful.

Our next question will come from Chris Rigg of Susquehanna Financial. Please go ahead.

Hi good morning. I apologize if you already provided some color on this stuff, but the HPR for this sort of the traditional Medicaid chip foster care line, we you gave the detail did go up pretty meaningfully year-to-year and that looks like a slightly different trend than what we saw at the end of 2014, is there anything going on there that’s notable?

I would say that there is, you know mix comes into play in the growth that we have in some of those areas like we added in Louisiana, several hundred thousand members and so we’re relatively conservative in the initial estimates for a new block of business and so that continues. Nothing I would say of any great consequence that there is true-ups in the fourth quarter sometimes, but the MMA business in Florida is still running a little higher than what the original actuarial targeted rate would be that the State set that causes some increase.

I mean there is no underlying major increase in trend. We added 200,000 in Louisiana and that’s – we always built as you know new membership at a higher MMR for the first few quarters.

Okay. Just a follow-up on one of their earlier questions related to the RFP pipeline and clearly understand sensitivity is when you are actually involved in a process and not wanting to sort of predict the outcome, but right now we sort of have visibility that Iowa is coming down the pike and I think some more smaller chunks in maybe Louisiana, but are there any notable RPFs out there that we The Street might not be aware of that are worth highlighting to people just to get a sense for what might be coming next year [indiscernible] these invisibility and something that’s known to you guys, but not to us.

Jesse?

I would say the answer is yes, that’s part of our job. Our job obviously is to create some of these opportunities that we have visibility before we can communicate those things more broadly, both for you and for competitors and others. So, I think we’re – I would say we continue to be very active on that front and optimistic that we will maintain momentum to create opportunities in new markets and additional opportunities in our existing markets.

Okay, alright, I will leave it at that. Thanks a lot guys.

Thank you.

Our next question will come from Dave Windley of Jefferies. Please go ahead.

Sure, good morning. It’s Dave Styblo for Windley. Couple of questions, just want to start off with your capital structure that the cap is up now to 37% since steadily rising over the last several years, just curious where you guys see that shaking out in the long-term and your appetite for continuing to put on more debt versus when you might need to tap into the equity markets if ever?

I think that the reason that it is up in the first quarter is we had I think about $188 million of capital contributions into our subs in the first quarter. So that’s a higher proportion in the first quarter than the whole, I think the whole year is around 550. So we put more than the proportion, you know the one-fourth of it in the first quarter for a number of reasons and so as a result it’s a little higher now, we expect it to trend downward for the rest of calendar year and I think as we say, have been doing some of the acquisitions we’ve been doing we include equity as a meaningful part of the consideration, one way or the other and I think we have still as a practice that we want to continue to follow. So, I think we are comfortable with where we are in the debt-to-cap ratio in the mid-30s. We expect to continue to be there, given the interest rates that make sense to be there and so that’s our plan.

Okay, and then at a conference last month, you had mentioned that your 2% to 3% net income margin, long term margin was partially depended on interest rates picking up and getting some sort of benefit from that, I’m curious, how much of an impact from your call it, 1.5% level this year would be baked into that 2% to 3% goal?

I think we said, we are looking to be in the 2% to 3%, but above the 3% over time from operations. And that additional upside beyond that would be a function of interest income.

Okay. So the 2% to 3% doesn’t – you don’t need any benefit from the interest income?

We may get some from it while we are blooming through the operation side, improving operations margins, but that 2% to 3% should be from operations.

And none of that is baked into 2015, we are not – we’re considering flat rates for the year in our guidance calculations.

Okay. And then lastly just on the business expansion cost that you’ve reiterated, curious how do we think about these evolving over time at some point, do you – is there some sort of leverage where you are able to possibly pull that number on down or is that sort of a sustained level that’s needed as you continue to reprocure business or go after new business?

A lot of it’s going to be a size of the particular deal that we do. And so, its – there is many factors as we get larger, obviously, we expect more of if we can absorb [ph] it. We are also looking at other capabilities, other deals that maybe larger some point in time.

I think we’ve seen the market expand over the last several years as indicated by our revenue growth. So we are a key participant in that. And so I would not expect our business expansion cost to go down. I would expect they would continue to go up and that’s what drives us a large revenue increase. So I would say more the same.

Sure. Okay. Thank you very much.

Our next question will come from Scott Fidel of Deutsche Bank. Please go ahead.

Thanks. First question and sorry if this has already been addressed in the prepared remarks, but where you paid yet for the Texas industry fee that you had accrued for at the end of the year and if not in the first quarter, when are you expecting to receive that payment?

I think the plans in Texas are to pay that in the second quarter and so everything is on target for that I believe.

Okay. And then just a second question, just on the existing MLR, looks like that increased year-over-year, was that really just a function of increased flu pressure or were there some other factor worth spiking out? And then also with Florida MMA, is that included within existing business or is that included within new business in the first quarter?

MMA is in both because we had some pretty – we already had existing business Medicaid, TANF business in Florida market before they expanded to the whole state. I think our increase year-over-year in our HBR is really driven, we said earlier, by the mix. We continue to have higher acuity membership, which drives that. And then when you are comparing first quarter this year to first quarter last year, last year was a relatively mild flu season. This year, we said it was a more normal average or slightly above average season, but it was within our expectations and guidance forecast. So, nothing unusual on that regard and typical first quarter has the higher – seasonally it’s the highest HBR quarter for us.

Okay. Thank you.

And ladies and gentlemen, that will conclude our question-and-answer session. I would like to hand the conference back over to Michael Neidorff for his closing remarks.

We thank you for joining us. We look forward to seeing you June 12 in New York for our Investor Day and take care.

Thank you, sir. Ladies and gentlemen, the conference has now concluded. We thank you for attending today’s presentation. You may now disconnect your lines.