Good morning, and welcome to the Centene Corporation 2015 Fourth Quarter and Full Year Results Conference Call. All participants will be in a listen-only mode. [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 Web site 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 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 from 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’d 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 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 necessarily approvals with the exception of California, which remains pending. On January 22, Centene participated in a public hearing with the California Department of Insurance [ph]. We believe the meeting was informative and there were no surprises. It was conducted in a professional and respectful manner, a report of what has been a fair sale process. We continue to work through the process with the Department of Insurance and the Department of Managed Healthcare, and are finalizing our mutual agreement. We remain confident of the first quarter growth. We have slightly adjusted our 2016 guidance to reflect to 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 set in our strategy to build critical mass and expertise within the government-sponsored healthcare 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 services. The addition of Health Net’s Medicare Advantage platform, including its four star rating creates numerous opportunities within our existing markets, which we estimate to be in excess of $150 million. Health Net will increase our marketplace presence to 15 states, with total membership of approximately 500,000 individuals. There are significant opportunities to deploy Centene specialty solutions across the Health Net platform. Health Net has been an innovator in value-based provider contracting and…

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 reporting 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 excluding 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 expansion or new programs in many of our states. During the fourth quarter [technical difficulty] included some newly added revenue in several areas. We began an expanded contract in the Southern region of Arizona on October 1 [technical difficulty] Louisiana beginning December 1. The 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 [technical difficulty]. We also benefited from the addition of almost 250,000 more Medicaid Expansion members at this year end over the 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 recorded, there was virtually all…

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're 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 have 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 entered into the 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…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Scott Fidel of Credit Suisse. Please go ahead.

Thanks. Good morning. First question just is on Nebraska and just interested first what type of start-up expenses the guidance may assume now for this year ahead of that. And then secondly, just if you can talk about how you feel the initial rates are looking for this program? I know it’s 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.

Yes, this is Jeff. I can cover the -- the start-up costs are in our current guidance. And as far as the second question, was on rates?

That’s right.

Yes.

Yes, Scott. This is Jesse Hunter. I think as you mentioned, Nebraska’s got the experience with existing Medicaid managed 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, you know, there’s always some question mark when you go into these things. But we are not looking at this as a negative rate kind of entry point. We think there’s good visibility on the path to achieving our target margins in Nebraska.

Okay. Then I 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 guys 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 sort of interested with Jay Gellert and with Jim Woys, for example, whether it’s been determined what their role would be post the merger?

I think we have set up the structure, and [indiscernible] has done a good job getting it all laid out with the team, and as I said in my comments, it's in place to hit the ground running. We’ll be working with Jim on a consulting basis as appropriate, and Jay, we’re in conversations with, but there won’t be any active participation in the new company. It would be in a consulting role for both of them [ph].

Okay, thanks.

That’s if there is a consulting…

Okay, thanks.

Our next question is from Chris Rigg of Susquehanna. Please go ahead.

Hi, good morning. Thanks for taking my questions. Just to come back to Health Net quickly, I know during the hearing your counsel had sort of proposed if you met the last remaining document requests that the insurance commissioner might close the record as of the 29 -- 29 of January. Has the record been closed at this point?

Chris, as I understand it, it’s still open. They’re reviewing all the documents they have. And they just want to make sure they have what they need before they close it, but we’ve had no additional requests since then. We’re discussing the agreements that we’ll have between the two of us. The lawyers are [technical difficulty]. It’s moving along. And as you probably saw, if you watched the hearing, it was a very professional, well-conducted hearing.

Yes, I know. I seems like everything went pretty smoothly. It’s just, at least to me, I don’t pay attention to a lot of these things but…

We got -- 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 as of the date, once he closes the record that starts the 30-day clock. So if we’re already…

[Technical difficulty] he doesn’t have to wait 30 days.

Okay.

[Technical difficulty] with the agreements we’ve reached he can [indiscernible] approved at any point he wishes.

Okay, great. And then just can you help us -- and this is sort of the follow-up on the previous question, with regard to just insuring it. What is the incremental revenue from that contract and the guidance relative to the offset from the timing delay of Health Net?

Yes, I think Michael had quoted the number in his script as far as what the annual revenue is. Yes, it’s over 267 million, and I think the start date is in Q2.

Okay, great. Thanks a lot guys.

Our next question is from A.J. Rice of UBS. Please go ahead.

Thanks. So first all I just wanted to ask on the service revenue. I saw that it’s declined sequentially from 480 [ph] million in third quarter to 442. Is that just seasonality or is there anything else going on there?

I would say that’s primarily seasonality, and a lot of that's going to be based on Hep C.

Okay. And then the comments on the financing around the Health Net deal, I wasn’t a 100% clear. Is that the rates that you were able to attain in the marketplace? Were they consistent with what you had anticipated? And is your guidance based on current debt that’s outstanding, or are you factoring in those swap transactions, which I guess would probably lower the rate flip into the floating rate, and maybe I should confirm that as well.

Yes, you’re correct. So obviously we’ve already priced the debt. And I think what I’m saying today is that we are anticipating swapping up to a 1.6 billion to a floating rate of interest consistent with what we’ve done in the past. Our current guidance does assume some blending form of the coupon plus the benefit of the swaps. Obviously we wouldn’t execute the swap transactions if they weren’t beneficial. So I would say right now we believe we have a relatively conservative assumption based on where the spreads are on the swaps today.

Okay, great. Thanks a lot.

Our next question is from Joshua Raskin of Barclays. Please go ahead.

Hi, thanks. Good morning. Just wanted to see if there was any seasonality around the Health Net earnings, just taking the low end down by just $0.5, maybe some of that's offset by the Centurion win as well, but if it does get delayed a little bit longer, past March 1, should we think about earnings coming in kind of ratably through the year for Health Net or is there some seasonality that we should be aware of?

No, Josh. This is Jeff. I mean, 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 feel comfortable with our guidance range where it is now.

Okay. And then just a second question. You guys have talked about this Medicare platform from Health Net as a new platform to expand Medicare into your markets. And it hadn’t really been a growth business; they lost another 5%, maybe 20,000-plus lives according to the CMS data in January. So I’m just curious what gives you confidence that that becomes a growth platform. That you can kind of 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, and this will probably -- three new markets in January, 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, but 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, and in the middle of outsourcing a lot of things before the acquisition. It’s almost 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. Okay, that’s helpful, Michael. Thank you.

Our next question is from Kevin Fischbeck of Bank of America. Please go ahead.

Great, thanks. I just wanted to follow back up with the services question. When you say that Hep C was down, is that something that -- is something that we should expect to continue in 2016, or is there just something seasonally or economy-wise about that in Q4?

Well, I think on Hep C we’ve seen a little bit of plateauing that has occurred. And 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 ramp now spike 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 our abundance of [technical difficulty].

Okay. And then if you could just provide a little more color I guess on the Q4 [indiscernible] I guess -- you meant to kind of impact [indiscernible] in Q3 and Q4 to MLR. Can you just go through what exactly that was?

Sure. If you look at the quarter-over-quarter, we improved 130 basis points. And for us that was the largest item dealt with the improvement in higher acuity membership, particularly long-term care, where we see probably both -- medical management techniques that we’ve 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.

Then I guess just the premium adjustments. So was there something out of period or unusual in the quarter? [Indiscernible] something like that 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’s also risk adjustments that are made periodically by the states. And those can be somewhat lumpy at times, as when those are actually provided to us. So the combination of all those things gave us the overall rate and improvement.

I think also -- I think one of the important elements is that we look at, and you’ve seen it -- and we’ve talked about it historically. How over a course of a year the medical loss ratio and health benefit ratio normalize. And it was the significant aspects of that with the higher acuity population [technical difficulty] you expect some improvements 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 kind of true up through the year end either a positive or negative. Anything go on there as far as free [ph] articles or trend that you would highlight into Q4 versus your expectations for first three quarters?

I’ll start. [Indiscernible] but I view that as an accounting issue. And I think our team here has, of whether it be refunds to states or any aspect of it, understands wholly the business, and accrues the appropriate amounts on an ongoing basis. And that’s what the Board and myself expect of them. And so those kind of surprises are few and far between.

Yes, 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 that changed anything of any consequence.

Great, thanks.

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

Hi, 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 we commented that, one, the growth is in line with what we expected. And you have the initial enrollment, and those that actually paid the premium were good. So that’s coming in as we would expect it to. And 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 profit [indiscernible] prices with a great deal of dependency on the PRs and hence we've had a payable when you safely look at those aspects on a [indiscernible] basis within the state. We see no reason why that’s going to change. We've maintained the same approach, we have the subsidy population, we commented in the script that the profile of the individual goals are the same and so it’s a matter of -- we're 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?

We have the -- 3%.

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

Let's say 3.2% 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 '16 that you'll maybe making a conservative assumption about flu clinical catching up and then what are your assumptions for the end of 2016 and flu season in the fourth quarter of '16?

I think we see some indications of [technical difficulty] at this point in time. That's why I said it's too early to say that it's going to be no flu season at all this year. We've seen the flu season come early; we've seen them come late. I would say on fourth quarter, and Jeff can confirm this, but we have looked the normal flu range that we do as we did in every quarter. And if not the high-end or the low-end, it's what we reasonably expected.

Very good, thank you.

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

First off, let me tell you, thanks and congratulations Bill, you did a great job for us and for Centene, and good luck Jeff going forward. And I get to my question which is really about reserves for the company and days in claims payables. What do you expect days in claims payables to do this year given all the moving parts with sort of what's new business and help that coming on board? What should we be expecting to see in the days claims payable end?

Yes, this is Jeff. I mean 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, you know, low 40s to mid-40s, I'd still expect to be in that range. I don't see anything unusual happening there. I think the biggest thing that impacts that is that how fast we receive claims and the EDI rate that we have, and we have continued to see an increase in the EDI rate. And so over time you would expect that to reduce your days in claims payable, but nothing significant that I would expect.

I said probably in many presentations [technical difficulty]. We are averaging 98 plus percent, 98.6% payment and [indiscernible]. We have 99% accuracy within the payment of those things. So you put all those kinds of factors together, it gives you a high degree of confidence in your like tables, and those factors -- I think the greatest impact as Jeff highlighted will [indiscernible] some investors. 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 views -- date received methodology. So if things [indiscernible].

Should we expect any sort of the slowdown as you bring on the Health Net systems and then [indiscernible] on to your servers?

Well, we have stated that we are going to be very methodical in bringing answers to routine. Too many times when people try to do it quickly and they feel the twist and [indiscernible]. We stated that we anticipate it's going to take two years to fully integrate all systems. They are in the middle of a lot of outsourcing. That’s all coming back in. They have a lot of people offshore that will be coming back. So there's lot of different aspects. So it's anticipated couple of years, and we’ll keep you informed as…

Yes. 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. And 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.

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

Thanks, good morning. So in the past when you provide guidance you've called out kind of an investment and expansion cause. I mean given the new programs and expansion to share, excluding Health Net, maybe 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.

Yes, this is Jeff. I mean we haven't -- we’re in this spot here where we are kind of waiting for the Health Net transaction to close here. So we haven't gotten into those details. I think once the transaction closes we’ll provide all of the normal, I would say, guidance information including tax rates, shares outstanding, start-up costs etcetera, etcetera, but right now we’re just in a position where as you've seen we went from February to March 1, we are just in a position where we really have to wait until closing.

Okay. Switching gears, so Dual, obviously never been meaningful for Centene and definitely 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, or do you think any potential growth in that RFE pipeline, you talked about LTSS as a separate [indiscernible] thing?

I've had some discussions with [indiscernible], some of the needs they have to do to reduce the system enrollment [indiscernible] population. We're doing a little better or higher, I think we are -- last time I looked, it was 30% versus 50% in some other states, but I think the states recognize this and it's just a matter of what they have on their plate and their willingness and ability to do that.

Yes, just on the second part of that, Andy, we have seen the momentum really is around states looking at the other LTSS programs for Managed long-term care as kind of 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 kind of existing states or RFEs that would be specific for that set of services.

Okay, thank you.

Our next question is from Steve Halper of FBR. Please go ahead.

Yes, hi good morning. Any update on the disk drive issue?

Yes. So let me [technical difficulty] is really a data issue in our Phase 2 with no inclusion or no hacking [technical difficulty]. It was very important. If we continue down the process with continued look at it, we continue to apply an abundance of conservatism and transparency source. Clearly to this point we have seen no hint or any indication of any inappropriate user's data, and we’ll continue the discharge and looking to see if we have 22,000 -- and you're looking for sixth, that’s -- we don’t exactly know when we're doing that. Historically, again just -- that we would check. So there is no update beyond that, but it's -- as I said, we’re following through, we’re notifying everybody and importantly see if this data was an incredibly drop form. We're using it to line up the safe laboratory and other data. So it's not a very usable thing. We really have to have a lot of our systems we get to, but once again, as soon as see something that could be a issue, our policy is to get it out.

Right. So, just to confirm from your understanding, there's been no inappropriate use of any of the data that would have been on these strives?

No. Absolutely no hints even…

Okay. Thank you very much.

Thank you.

Our next question is from Ralph Giacobbe of Citi. Please go ahead.

Thanks. Good morning. I just want to go back to the exchanges 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 are at right now through open enrollment? And then second piece is just the renewal percentage, like so, of the exchange book last year, can you give us a sense of what percentage…

Roughly my memory is that [indiscernible] was around 600,000, but that doesn’t include those that have paid and [technical difficulty] for those numbers. So we expected probably the 75% or something of -- what has shown in indication is always the [indiscernible].

Sorry I missed that. Did you say 600, so 146 up to 600,000 and then you think maybe 75% stay?

Maybe they were about 400 or so, 500 or so…

Yes. Again that’s about the number for the peak point enrollment. I think it's important to know that the enrollments peaks and then continues to reduce down through the year. We anticipate that experience, so your 146 is the low point of the year in terms of comparison in terms of that.

Yes, this is Jesse, I would just add to that, Michael mentioned these comments in his prepared remarks; the growth that we are seeing is in the states where we have had longstanding participation in the market place. We are known in those products and we've seen the demographics, consistent approach that we have taken in terms of discipline or networks and pricing etcetera, and the demographics for those peak memberships that Michael referenced is wholesale in line with what we have seen over the past two years.

Okay, and then the 146 from last year, do you have a renewal process like the most of those renew as the renewal rate is high?

The renewal rate is very high, so we did see most of our people -- reasonable number renewal 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 sort of the opportunity there maybe reminders 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 kind of in line with our expectations. And then the total program size is about -- expected to be 250,000 members. That could grow over time and there are five managed care organizations in Louisiana. So those are the rough dimensions for the opportunity.

Okay. That’s helpful thank you.

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

Yes. Thanks for taking the question. Good morning. The first question is on the guidance, so you might have said a little bit of this yesterday, but since one of your contracts -- just on a standalone basis, what are you modeling in the guidance for your presenting loss ratio consolidated across your fixed growth, expansion growth, and any rate changes and then within the [indiscernible]?

Yes. This is Jeff. You're a little hard to hear there, but you know, I think as I commented in our Investor Day, we're not going to give standalone guidance for Centene. So we'll have to get into that on a combined basis once the transaction closes.

So specifically then I guess if I don't get the overall number for a directional trend, when you said start-up costs, are you modeling in a like a PDR type thing for this new correctional contract in Nebraska and all from '16 losses in two year guidance, so you don't really see that as an accounting practice that you will adopt?

[Technical difficulty] business and we tend to avoid going to businesses where there is a PDR before you see your first…

The only thing I would add is that when we prepare our budgets and operating plans, we assume 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 cost 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. And then finally just, you know, looking at some of the news flow which major [indiscernible] risks, but with what's going on in Kentucky with the new Governor, and Iowa with the Democratic Senate and all, do you think about any potential downside risks on rates and expansion states? California for Health Net and anything else you're doing, where might you see any…

We have really great actuaries [ph]. We will not sign a contract that we don’t think is adequate. We looked at it. We recognized that it may not be profitable from day one, so we have to have service ability and I can tell you it is [indiscernible].

Thanks.

Thank you.

Our next question is from Matthew Borsch of Goldman Sachs. Please go ahead.

Yes. Hi, good morning. Sorry if you covered this already, but can you just comment on your outlook for the California Duals program. I realized 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 was important. [Indiscernible] no way at any time [technical difficulty] as we look to the dual product for any of our growth, we recognized it was a very slow, difficult process the way it was structured with the opt-out, et cetera, and for that reason we have said from the beginning that it's just not something that we put our [indiscernible]. We are doing enough. I think we said it at the Investor Day [technical difficulty]. We're doing enough to demonstrate that we're ready to do it, and do it well. So when we are working with the state issues that affect the offset, so that when a new city decides to do something about it, we are in a strong position. And beyond that, I have no great expectations that it's not going to make any state or [indiscernible].

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

I think you are going to have to [indiscernible] dramatic changes to minimize the opt-out. There always will be some, but you can't have 50% opt-out and have any continuity affairs. That has changed.

Okay, thank you.

Thank you.

This concludes our question-and-answer session. I'd 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, and I look forward to another very strong year. I hope Jeff will be giving the same kind of reports that Bill has. So, thank you everybody, have a good day.