Good morning, everyone and welcome to the Centene Corporation First Quarter Earnings Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note, today's event is being recorded. At this time, I would like to turn the conference call over to Ed Kroll, Senior Vice President of Finance and Investor Relations. Sir, please go ahead.

Thank you, Operator. Good morning, everyone. Thank you for joining us on our 2018 First Quarter Earnings Results Conference Call. Michael Neidorff, Chairman and Chief Executive Officer, and Jeff Schwaneke, Executive Vice President and Chief Financial Officer of Centene, will host this morning's call, which can 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 code for both dial-ins is 10118311. 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 24, 2018 and our Form 10-K dated February 20, 2018 and 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. The call will also refer to certain non-GAAP measures. A reconciliation of these measures with the most directly comparable GAAP measures can be found in our First Quarter 2018 Press Release, which is available on the Company's website, Centene.com under the Investors section. Finally, a reminder that our next Investor Day will be on Friday, June 15, 2018 in New York City. 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 2018 Earnings Call. During the course of this morning's call, we will discuss our first quarter results and provide updates on Centene's markets and products. We will also provide commentary around the healthcare legislation and regulatory landscape. Additionally, we will discuss recent acquisitions of investments including updates on Fidelis. I would like to begin by discussing Centene's position in today's ever-changing healthcare environment. Centene is no longer just a Medicaid-focus company. To a combination of organic and strategic acquisitions of investments, we have evolved into a multinational diversified healthcare enterprise. We bring approximately 300 solutions to 30 states, totaling 12.8 million U.S. citizens and approximately 900,000 individuals in two international markets. Centene is the largest Medicaid-managed care organization in the country. Upon the close of the Fidelis acquisition, we will be a leader in the four of the largest Medicaid states. Centene is the largest provider of managed long term support services and to our Ambetter product; we are also the largest provider in the marketplace segment. One of the chief benefits of our evolution is the scale we have gained. This scale enhances our ability to maintain positive operating performance despite transitory issues that can incur in any business. We are positioning Centene for the future by continuing to invest in systems and capabilities. This is to ensure that we can sustain our ability to provide the highest quality healthcare at the lowest cost. I would now like to go through our most recent acquisitions and investments. Fidelis Care; we are encouraged by the progress being made related to the regulatory approval process. As we reported yesterday, we have received approval from the New York Department of Health and the New York Department of Financial…

Thank you, Michael, and good morning. This morning, I will cover the strong first quarter results and update on the Fidelis acquisition and provide more color on the changes we made to our annual guidance as announced this morning. As Michael mentioned, we had a good start to the year with strong first quarter results led by the growth and performance in our marketplace business, and year-over-year improvements in the performance of our Medicaid business. This more than compensated for the additional flu cost we experienced in the first quarter. I will provide more details on that in a minute. For the first quarter 2018, total revenues were $13.2 billion, an increase of 13% over 2017 and adjusted diluted earnings per share for the first quarter 2018 were $2.17, an increase of 94% over the last year. The first quarter adjusted diluted earnings per share were driven by membership growth and the associated profitability in the health insurance marketplace business and the benefit of tax reform. Additionally, the first quarter results were approximately $0.12 per diluted share higher than previous expectations due to the lower share count and lower interest expense associated with the delay in the financing for the Fidel's acquisition which was included in our previous guidance on March 1. Let me provide some more details for the quarter. Total revenues grew by approximately $1.5 billion year-over-year primarily as a result of growth in the health insurance marketplace business, the expansion in new programs in many of our states in 2017 and 2018 including the expansion of the Missouri contract and the Pennsylvania LTSS program and the return of the health insurer fee in 2018. This growth was partially offset by lower revenues in California, associated with the removal of the in-home support services program from managed care.…

[Operator Instructions] Our first question today comes from Steve Tanal from Goldman Sachs. Please go ahead with your question.

A random one here, just thinking about Medicare Advantage, star scores of '19. In the final call notice, it seemed like they decoupled the audit measures in related penalties in the BAP score. I know that was an issue for you, guys. Just trying to understand whether there was any implications for your '19 rates, star scores or the appeal processes underway?

Well, we have the appealed process still underway and we continue to evaluate the alternatives. The crosswalk et cetera is appropriate, so we see minimizing any impact on the 2019 rates and income.

Got it. So nothing really direct there? Okay. And just to help us wrap our heads around the seasonality of the marketplace, is there any way you could frame or call out the discreet upside the EPS on seasonality in Q1 and then relatedly, what kind of offset we should be thinking about later in the year like the 4Q?

I'll let Jeff go into that.

Yes. A couple of things. I would say first, it's two things in the first quarter. Number one, it's higher membership; and two, a little bit better performance on a year-over-year basis from an HBR perspective. So really, two things driving the phenomenon in the first quarter. I'm not going to get into specifics, but I think I made commentary in the past that marketplaces close to break even by the fourth quarter, so the majority of the earnings are in the first quarter with the fourth quarter really being the offset and it starts to decline from the first quarter to the fourth quarter.

Got it. Just last one for me real quick. July 1 for Fidel, it sounds like you're framing that as maybe a little bit more of conservatism than actual timing given there's only one regulatory approval out there. Is that a fair statement?

I think it's fair to say that we do everything with certain abundance of conservatism, but I want to be realistic. I don't want to end up saying something that is not certainly [ph]. So I think saying no later than July 1 is probably the best way to represent.

Great. Thank you, guys. Appreciate it.

Our next question comes from Sarah James from Piper Jaffray. Please go ahead with your question.

Thank you. As I walk through the guidance updates, one of the areas that looked conservative to me was the SG&A and I was hoping maybe you could bridge the changing guidance for us. I know we got some Fidelis payments and strong kicks [ph] growth, but it still just seem pretty conservative, so maybe you can break out some of the investments you spoke about and any other moving pieces? Thanks.

Yes. A couple of things. A lot of the metrics are changing just because of the reblending of the Fidelis. When you move Fidelis out of quarter, we've talked about before that they've had a lower G&A ratio compared to the Centene business as it stands today. So when you adjust for that timing, effectively, it changes all the metrics because of the reblending of the two companies for half a year. I think that's the largest thing going on. Obviously we've talked a little bit about the investments -- some of the investments that we've made this morning as far as transactions and investments that we've already closed. Obviously, those have effects on the ratio as well, but the largest driver is really the reblending of the company when you move Fidelis out of quarter.

Got it. And I think that Florida is expected to be announced today. I know in the past you guys have talked about your IPNs and I'm just wondering if there's any update that you can share with us on Florida?

Stay tuned. The rest of us -- we'll hear hopefully, they do today. There's nothing more to say about that, Sarah. It's just wait and see.

Got it. Thank you.

Our next question comes from Kevin Fischbeck from Bank of America. Please go ahead with your question.

Great, thanks. I wanted to dive into the guidance a little bit as far as the $0.05 from the quarter out-performance. You guys mentioned flu being up 40 basis points year-over-year, which I guess is about $0.20 out of EPS. I just want to ensure how you were thinking about that $0.05 of out performance in the quarter? Were you already assuming something like 40 basis points from flu, or was that actually better and a little bit of an offset versus how you thought about your guidance?

Jeff, you want to take that?

Yes. I guess, Kevin, the way I'd look at it is the last guidance update we gave was February 6, so we've had indications that flu is a little bit higher. The way we view it is we were $0.05 ahead of our internal forecast and really what I would do is I'd start with the $2.17 and obviously back off the $0.12. It was just mathematics on the movement of the shares and then you have the $0.05 beat that we mentioned. With the commentary we made on February 6 was really that Q1 would be higher than Q2 and it's really driven by the marketplace business and the early enrollment that I mentioned. So I think if you do that, that's the number you will come up with.

We are also ahead on our over the individual estimate on the marketplace, which was a contributor to it. A combination of things, but what we try to say earlier was when you reach the scale we have, the flu is about one line on the medical expense.

Yes. So I think everything to Michael's point is consistent with the commentary that we provided on February 6.

Okay. So what was the actual $0.05 out-performance in the quarter? I guess if you beat by $0.05 per quarter, the thought might be, well, then you raise guidance by $0.20 for the year. Is there something kind of had an offset as you think about the rest of the year?

I'll start and you can pick it up. If you look at it and we said that some of it had to do -- a lot of it with the over performance and the growth of the exchange and we also said that the earnings on the exchange starts to be reduced each quarter, that's just the nature of deductibles and things of that nature, that should help explain it. Jeff, you want to add?

Yes. Again, I'll go back to -- this is $0.05 better than our expectations, not the discreet consensus number. We were always here. I make commentary on February 6 that said effectively, 2018 is going to lay out similar to '17 which would imply something like 54% of the earnings are on the first half of the year and then Q1 was going to be higher than Q2. If you do that math, I think that gets you to where we are right now, which is a kind of $0.05 ahead of expectations and to Michael's point is really driven by performance in the HBR line and the revenue line with the marketplace, and Medicaid and all those things that we've listed in the press release.

Okay. I guess any color on Fidelis' actual performance so far? Any updates there?

Yes. I made comments in my prepared remarks that they're in-line with expectations. So I think they continue to perform well and really all that we're talking about this morning is really out-performancing Q1 and the rest is really just timing of the transaction closing.

Great, thank you.

Thank you.

Our next question comes from Michael Newshel from Evercore. Please go ahead with your question.

Thanks. So now that you have some of the claims experiences or any change on how you're viewing exchange margins for the full year? It sounds like in the first quarter, at least that it's starting out a little bit higher than what you thought. And also since now you're developing rates for 2019, do you have any initial commentary there on what you're going to make into rates and whether you're going to have a consistent footprint, or expand or shrink?

I'll start and let Jeff pick up. But I think when we talk about the first quarter marketplace, I'll remind you that we had an increasing moment over our original expectations and we tend not to get too much into '19 until we do guidance in December of the year. It's kind of early that we're talking about expectations in the way we do business on the marketplace. Jeff, anything?

I think Michael is right. It's really volume-driven. You'll notice in our filings we do have some minimal MLR payables. To some extent, we're projecting a full-year margin and that's what we're recording to.

And what's your booking on risk adjustment? Is that consistent with what you did in prior years? Are you still on net payer on risk adjustment?

Yes. We're net payer, but obviously the volume has grown because of the increase in the size of the business.

Got it. Anything that recently happened on the policy front that changes any of your thinking on whether you might participate in 2019 if the administration try to put some restrictions on several loading or anything like that. Would that change your approach at all? Or you'll take any changes and you can fully expect to participate?

Kevin?

I think there's a couple of things. We number one, think that regular changes are going to be made via regulation as Michael said; number two is that the state flexibility that exist in the payment notice we think actually could be a positive to us because it's just that we've been a payer, so stay flexibility in that regard may actually help us lower MOR. There's obviously going to be a positive. There are a number of things in the payment notice that we're encouraged by.

I might also add, mind you that were very decentralized, so we're really structured to work on a state-by-state basis and we see that as a plus.

Got it. Thanks, guys.

Our next question comes from Dave Windley from Jefferies. Please go ahead with your question.

All right. Thanks for taking my question. I just wanted to understand some of the pennies of movement here in the Fidelis' timing. I think when you last updated us and pushed the timing from February to March, that was a $0.06 change and then the loss or the push from March out of the quarter is a $0.12 change, and then you're funding two months ahead of when you anticipated to close in the second quarter. So first, what's the difference between the $0.06 and the $0.12 and then secondly, just for the full year, how much should we think about 2018? How much drag is 2018 caring that will then not be present in 2019? Thanks.

A couple of things. The $0.12 you're mentioning is Q1. Right? The $0.12?

Well, I think you said in your prepared remarks that the $0.12 upside in the quarter was the result of delay from March 1?

Yes. That's $0.12 for Q1. That would not be the case for the full year because the first quarter share count, it would be one-third of the total shares for the quarter versus on the full year, it gets diluted by the full year share count. So the $0.12 is not the number for the full year, it's really the Q1 number. That's a little bit different there. What we've done is we've packaged up all of the movement of Fidelis into one line item. We have assumed the offerings in March, we're moving those to May, the transaction closing April, we're moving that to July. That is all encapsulated in the $0.25 that's in the adjusted diluted EPS range.

Yes. Is it possible to give me what the advanced funding -- the two months of advanced funding is?

Yes. The overhang? Sure.

Definitely.

Yes. The overhang is between $0.10 to $0.12 for sure.

Okay. Thank you for that. The second question. On Medicare Advantage, Michael, what would you describe to us as your learnings from the annual enrollment period this year in your positioning? It looks like your membership pick up was scattered across your various new entry states and I guess I'm curious about how that influences your competitive positioning and your desire for that to be a substantial driver of growth going forward.

I think one of these we've -- pick up with me -- but we will be adjusted our marketing approach as much as anything, how we go at the open enrollment period. So it's more the direct approach to the consumer that we'll fine-tune and we expect to see continued improved results from.

Okay, thank you.

Thank you.

Our next question comes from Matt Borsch from BMO Capital Markets. Please go ahead with your question.

Yes. Thank you. If I could ask about a different topic. Just give us your assessment of the group commercial market as you come into this year. I realized a lot of that or the vast majority is in California, but just like to hear what your update is on price competition in medical cost trends? Thanks.

Sure. I think we've stated we're committed to the commercial business intel frame we acquire and we believe it's going to perform very well for us, continue to grow it. Personally, I was involved when they were doing some renewal work and they have a good product that's very well-received out there. As I think about it and I'm just giving you as candid of statement as I can, over time there may be additional opportunities working with state governments and things that is not just pure commercial assessment work, government-related. We're talking about that kind of thing. We believe it is good learning coming out of the California model and as time and energy permits, we'll consider alternatives to how it might be expanded.

Okay, thank you. If I could ask just on a different area of business on the individual. Can you just talk about retention rate on ACA numbers or have you seen anything that might indicate that there's less retention this year as opposed to last year? Whether it's for any real reason or just did the awareness that the individual mandate is going away?

I think we're not seeing that. I'll let Kevin give you more details.

Good morning. We actually have not experienced that. Our persistency rate is remaining at 80% which is above the national average, by the way. We're actually encouraged by that. What we're also particularly encouraged by is our effectuation rate. It's at 90%, which is about 10% higher than it was a year ago. That's something, which is you know is very critical in terms of predicting future retention. We're encouraged by what we're seeing. Now with respect to the individual mandate, it's kind of an interesting question because when I was at CMS, I never really thought the individual mandate was all that powerful and I'll tell you why. Because number one, the dollar value for the penalty was not that significant particularly compared to premium; and number two is there were so many opportunities for people to appeal. Whether it was for affordability, for college education, for religious purposes and others. So I think in a way, the new mandate is actually higher healthcare cost. I think people want to have insurance coverage, they want to protect themselves and their families. And I think we've seen with the enrollment going to 2018 how attractive these products are.

Thank you, Kevin.

Thank you for all that.

Our next question comes from A. J. Rice from Credit Suisse. Please go ahead with your question.

First question. Obviously the industry backdrop around pharmacy benefit is really evolving and you made an investment at RX Advance. I know you have your own PBM and you have legacy health net relationship with CBS. Can you just give us any thoughts that you have on updated thinking around pharmacy benefit and light up what you're doing and what the industry is doing?

I'll just give you an open comment and Jeff's either comment -- he's been doing most of work to this point from the M&A perspective. But we see this as really the modernization and the direction that pharmacy benefits needs to go. I'll let you pick it up.

Yes, AJ. A complicated number of moving parts with respect to the topic, but I think the starting point as -- you know, because I think you've see a lot from an industry perspective is some things need to change from the PBM model if you will and I think there's a couple of dimension to that that are both tied into our investment in RX Advance. One is just the underlying technology opportunity for automation, cloud, et cetera and that brings both administrative cost efficiencies that I think are important, number one, but it also improves the overall quality and experience and the ability to connect the interoperability of systems across in our case the payer landscape. But the other thing which I think is increasingly important is everybody understands that the benefit of having an internalized capability with respect to pharmacy management, how that ties to physical health and behavioral and the like, as you all know, we've been very focused on that from the beginning. I think what we see now is the ability to marry the technology, marry the scale benefits that exists, but also implement some new operating models. In particular the relationship for total cost of care and moving towards a value-based arrangement in pharmacy that has not existed in the past. I think that will address some of the transparency concerns that has been embedded n the industry for a long time.

Okay, great. Maybe one other follow up. You guys have done great at expanding your health marketplace enrollment and now you're the largest player in the marketplace, I think nationwide with more than 10% of the market. As you've gotten these additional members that are maybe earlier in the year to figure this out. But if you go ahead to make adjustments to your traditional provider networks because you're now picking up people that are outside of those geographies, a one metric I know you might measure that is out of network claims and so forth. Any update on thinking around those issues?

I'll just leave a comment. I was thinking about traditional network and do we deserve that support and that's the network, our recipient's wish. We've of course had to expand it with the increasing membership. But i.e. that's not a strategic change there.

Okay. Any thought about the -- so that network expansion, you're not seeing a lot of other network claims, or is it too early in the year to know whether you will?

I would say that it's pretty consistent with our historic experience. Any time we see that is if we had a deficiency, just including the total increase in some of the markets. We need to expand the network and there's a lot of energy being put to getting that network expanded. We're going to stick to our 'knitting', so to speak, to use the old cliché and we stick to 400% of federal property level below and the majority is up 250% of the federal property level below and that's our market, we're not trying to be all things to all people.

Okay, all right. Thanks a lot.

Our next question comes from Peter Costa from Wells Fargo. Please go ahead with your question.

Good morning. Looking back to the annual guidance again and sort of where the different numbers are, I'm just trying to understand a couple of different aspects of it. First, you said if you had filled that else for the whole year your earnings would be $0.35 to $0.40 higher. Yet, you adjusted for the delay of potentially a quarter your earnings by $0.25. You took out more for the quarter. Then your share price is about 20% higher than when you announced the deal. So in theory, the Fidelis Care is actually more accretive than it was before. And then you mentioned the out-performance that you had in the quarter being $0.05, but you didn't raised the guidance for the full year by anything more than what it was in the Q1 performance despite some of the cost in flu being overcome. I'm just trying to understand why your numbers are so conservative? Is there something with Fidelis that is not performing or some changes from the conversion that you had not considered before that makes that deal less attractive?

There is a lot in that question but I'll start at the beginning here. So the $0.25, you have to remember that includes another month of overhang, right, on -- compared to last guidance that includes another month of both shares and the debt overhang. So that number is probably larger than what you're expecting just because of the additional month of overhang. My second point would be; I'd go to my prepared remarks, I think Fidelis is performing exactly what we expected, so -- and I reiterated the accretion targets there. As far as the share price, we have updated -- I would say both two things, compared to when we announced this transaction in September of last year, both a share price and interest expense. So bond rates have moved against this, the share price has moved in our favor. I would tell you we have what we believe are relatively conservative expectations but we haven't raised the capital sitting here today.

I think that chapter -- it is a very important point. Until it's done, it's not done so you want to be conservative to see what's in, how those numbers come out.

And in terms of the synergies from Fidelis Care, you talked about $100 million, is that still the number that you're thinking about or is that improved having multiple [ph] business?

We said $25 million in the first year. I made a comment today that we're on target to get half of that in 2018. We did say $100 million in year two, we've always targeted a higher level of synergies but we felt comfortable with the $100 million and that's where we are today.

I think what's really important is that every aspect of the deal has been very consistent and we're not seeing any changes in the original assumptions we made, the management is as strong as we believe today, so has engaged us. We believe they were -- they have managed through the delay incredibly well, so it's a very strong team. The regulatory is in New York, we find just very -- we are very good at work with MOL [ph], they are very professional in all the things they do, their approach to it and we'll just see every aspect of the Fidelis deal being a positive one.

Our next question comes from Joshua Raskin from Nephron Research. Please go ahead with your question.

Good morning, I'm just going to beat the Fidelis horse one more time. No impact in the first quarter, obviously second quarter sounds like it's $0.12 dilutive at this point just from the financing overhang with no operations. What's the Fidelis impact on the second half? I'm just trying to figure it's just an accretive deal for 2018.

Yes, we've had this conversation before. I think if you go back to the numbers that we said today where if we had Fidelis for a full year, right, you would be increasing $0.35 to $0.40. So if you just do that math, I think -- and then assume mid to up or single digit accretion as we've said, it is an accretive deal for the year. So, and we're picking up half of that accretion in 2018.

Okay, got it. And then the second question, just -- you guys mentioned obviously a much better MLR in the quarter and a lot of that was the marketplace but you did say there were some Medicaid MLR improvement; I'm just curious were there any specific states or geographies, any segments, any specific drivers of that Medicaid MLR that was better?

Yes, I think we saw improvement really driven by network and unit cost initiatives in addition to medical management. We did have some states that had favorable pay for performance metrics, certain part percentages of our contracts are at risk based on meeting usually quality and performance metrics and some of those came in favorable which we're pleased about. So overall it was -- it crossed the board, I would say generally a good performance in the Medicaid business.

Okay. So those are 2017 performance metrics that get paid in the first quarter, so that's the idea that maybe part of the reason you're not expecting some of this to recur the rest of the year?

Yes, there is actually two things. Number one, it's -- some of those are 2017 metrics but it also changes your opinions on 2018 as well, right. Meaning, if you meet the metric in a previous year then you have more confidence that you'll meet the metric in the future year as well.

Our next question comes from Justin Lake from Wolfe Research. Please go ahead with your question.

Couple of things; first, on the pricing side. Going into 2019 on the exchanges, obviously you're doing well and even better than expected. There has been some chatter and you can just look at the results, I mean the not-for-profits have been doing pretty well. They all got tax benefits just like you did and they are probably going to price some of it back and specifically even some of the public comments they have made indicates that maybe a larger percentage of that pricing is going to come in the individual, the exchange market. I'm just curious in terms of your view of how competitive they are today and if they do get more competitive from RO [ph], is that something you need to consider from a market share or pricing perspective for 2018 or do you feel like you're just so positively differentiated that even if they were to come price a little bit lower that you still keep your share in your margins?

I mean, I think as we mentioned before we're not going to get into the details of 2019 pricing but I think all of those factors are factors that we would take into account when we're looking at the competitive dynamics of the marketplace business and what our goals and objectives are for 2019.

I think also, when you -- some of the systems and the [indiscernible] we have, it's -- it helps as we said, it's going to help drive cost in the right direction in '19 and forward. So I think we'll continue to be very competitive in all our products going forward.

I mean could you give us an update I think at your Investor Day last you had said, you're above that 5% margin; I think people came away thinking 6% or 7%. And on exchanges for 2018, is there -- now it sounds like it's better. Can you help us with that?

I think we just want to be consistent and say it's at the high end of our range.

Justin, remember what we said was that the full year expectations aren't really any different here than what I would have communicated on February 6. We saw a little bit better performance in the first quarter but ultimately for the full year we think we're going to be consistent with what we previously communicated.

Got it. And then just a follow-up on Fidelis, Michael, during your prepared comments, you're pretty definitive that the deal will close by July 1 and your new guidance assumes the equity and the debt are basically done by this time next week. So just given your apparent increase certainty on the deal close, what should we assume on the equity issuance here on terms of timing?

I think -- Jeff can add to it. We said it's going to be a lot dependant on the market conditions and if market conditions continue to be strong we will move forward with the equity deal. So let's not pre-suppose the whole lot and pre-save something because once again, we know we have a very vulnerable market, not only with us, it's just the total environment we're in. So if you advise us, if you probably say take a little bit more time [ph] and make your decision based on that. If it's a strong market, we can go out; if it's uncertainty because of some global condition or something, then we'll -- well, we have time and we'll be patient and do it when it's the right time to do it. We're not -- we always talked about how -- it's not how fast but how well you do, so you know that, we've talked about that Justin. So I'm not going to pre-state -- I like to do it as soon as reasonable.

Obviously we had to pick a date for guidance in order to revise the guidance, right; so that's what that date reflects. As Michael indicated, I think it's going to be based on market conditions.

Our next question comes from Lance Wilkes from Bernstein. Please go ahead with your question.

I've just got a question on the vertical integration strategy and a deal obviously that you did. I was interested in understanding kind of what your value proposition is in owning clinics or care centers and certain markets is more about access or the alignment of interest kind of value based approach there? And then also -- what percent of your Medicaid business today uses an urgent care clinic or retail clinic as it's primary care provider?

I think one of the -- what we try to say is this gives us an opportunity where we see access more limited, I'm not going to go into specific markets and tip that hammer door or some where access is more limited. We see this as having a scalability and capability to expand in some of those markets and they have a capability to do it with reasonable dispatch was necessary; so that's very important. The use of urgent care is somewhat limited in our approach. We like individuals that have a primary care, we encourage adding and push that; so we think that's very important. We have a quality committee that we work with former deans in medical schools and deans of public health and they are consistent with urgent care and urgent clinics are intended to be just that, an episodic type. And we have one here at our own facility for employees and it's -- if you go in there without a primary care for that physician, when you come out you will have one. So that's pretty much the approach that we follow in that.

Got you. And as you're thinking about the strategy beyond that one transaction going forward and you're thinking of potential partnerships with pharmacies or retailers are getting into retail clinics or things like that, do you see that as being more episodic as well or do you see that as potentially transforming into something that could replace primary care?

I don't see it replacing primary care. I think -- so as we work, we do have very close relationship, we have a lot of confidence in this very qualified health centers. We work with them, with one clinic we've setup in St. Louis, it's staff and some of the nurses, so if they see something that needs a physician, they have the access to it to immediately refer it to that physician group. So we have a very strong belief and support in the primary care physicians and helping them to be more successful with assistance in capabilities and we're putting more and more emphasis on that than trying to support these more transitory operations; there is a place for it [indiscernible] if there is -- if someone has a cold or something minor, that's great, use it once but you should have your own doctor you can call. We want our recipients [ph] treated the way our children have been treated; you know, you call your pediatrician and take his advice.

And just one follow-up question would be, as you're looking at the Medicaid enrollment kind of market-by-market and contract-by-contract; how are you seeing the improving economy impacting kind of in-market growth or shrink? Just interested in that and if it varies, not just by geography but by -- kind of product type there?

Yes, I think that what we have found is that with economic environment we continue to have a fairly stable situation. States will consider increase in coverage if their budgets become strong or they just need healthcare, and when we're working with the Congress and other we're encouraging that either marketplace be expanded to allow for individuals that are working so that individuals start to learn how to use an insurance system. So I mean there is some public policy issues that play there that allow us to be fairly consistent.

Our next question comes from Stephen [ph] from Barclays. Please go ahead with your question.

So just from the four recent smaller acquisitions that closed in March/April; I think you mentioned that two are accretive, two are dilutive. Just curious, if that was always your expectation around those deals or perhaps anything -- did any trends change within any of those, after closing there was any different than your prior expectation?

I would say, we recognized that in some of the system opportunities that they -- they have a clear benefits and payout in the very near future. But when you close the mid-year, we're saying that in the impact on '18 but now everything we do is very precise navigated [ph]. We don't receive surprises, we see a surprise we dodge in things upto the point that the wire is sent and the money is in the other persons bank.

One or two other quick ones, I'm not sure if you'd quantify this or not; are you -- any chance you're able to quantify how much of the return of the health insurer fee improved the medical benefits ratio in 1Q '18?

I think it's only the component that's in premium revenue; so I think it's roughly between 20 to 30 basis points, something like that.

Okay. Maybe just a final quick one; you mentioned you still expect medical cost inflation to remain in lower single digits, is there any high level color you can provide just on 1Q trends and some of the bigger cost categories within that, whether it's in-patient, out-patient or pharmacy or physician, just any high level trends?

As we've said, it's been very stable.

Okay, fair enough. Okay, thanks.

Our next question comes from Zack Sopcak from Morgan Stanley. Please go ahead with your question.

I'm wondering if first quarter you saw anything unusual in your pharmacy utilization? Eli Lily this morning lowered their -- sorry, increased their guidance based on expected lower Medicaid utilization for this quarter normally end of the year. Have you seen anything along those lines?

No, I mean the only thing we did see obviously was the flu. So flu costs were higher than let's say average, so we did see higher drug spent on the flu side.

And then, I'll remind you that some of these new systems that we're putting in place now would mitigate in the upward trend.

Got it, understood. One of the question and back on your success in the marketplace, given the shorter enrollment period and more of the investment into marketing came from you instead of -- from the government. Any major learnings that you think will help as you go into the next enrollment period for next year?

Yes, I think what the total is, we were wise to anticipate that we would have to pick up that frac and we did; it was the right benefit, we were able to enroll people directly and due to the things that -- in fact, we had a bigger response and it includes overwhelmed in the enrollment system. So if anything we've learned from these, be prepared for more upside than what we expected going forward. I mean, is this a high satisfaction as far as Kevin talked about, our retention rate at 80% year-over-year; that's pretty good for any kind of commercial product that's out there. So it says that some things were being done right.

Our next question comes from Gary Taylor from JPMorgan. Please go ahead with your question.

Just a couple of quick ones. On the tax rate change, you didn't talk about that and why there was an impact to EPS; is that just sort of churning [ph] up or reconciling that that hits non-deductibility, is that why the tax rate guidance went up a little bit?

No. Again, the tax rate guidance went up because of the reblending of Fidelis. So in New York, they pay a premium tax versus the state income tax; so if you take the post-tax reform, they would need a much lower rate than the Centene average. So when you reblend the year after moving Fidelis a quarter, the rate goes up.

Got it. On the exchange business, what's a good estimate of full year G&A load in that business? Is that as high as 15%?

Yes, that's a pretty good number, that's close.

Okay. And then last question on Fidelis G&A which is materially lower than your corporate average, can you just remind us why that's the case? And I don't think given the synergy…

I will start a little bit there. Some of the benefit plans are different -- benefit, competition, structures, things of that nature can be impacted by.

I think the other thing is that as we've planned the acquisition, we've looked at actually investing more G&A dollars there to really get medical management savings and I think we've mentioned that at the beginning of the transaction that things like payment integrity, fraud ways and abuse; all the analytic capabilities that we have here that we can support them with case management system, etcetera, etcetera. We think more of the opportunity is in medical expense versus G&A.

And our final question today comes from Ana Gupte from Leerink Partners. Please go ahead with your question.

The first question was on involve, I wanted to get a sense for how much you're actively marketing that Fide services outside obviously are growing quite remarkably as you're rolling up the acquisitions helpnet and then in the future Fidelis? But is that also targeted more beyond inside?

So our -- we're actually going through a strategic planning process uninvolved at present. One of the things that we want to do is make sure that those products are refreshed in a way that reflect the opportunities of the marketplace. Let me just give you an example; so one of the things that we're looking at is whether our EAP Program can be reconfigured in a way to support social determinants in a way to get software they could actually have one of our members call in and be able to be directed to a housing shelter if they need shelter for that night or a food bank if they need access to food or other kinds of things. So our real focus right now is making sure that the involved suite is meeting the needs of the current market.

Off your current internal market, in other words?

Correct.

Okay, all right. Secondly, as you know, the growth is coming on both on involve as well as the base business that's all the roll ups; to what degrees there are more wide space on for profit conversions like you saw in Fidelis in New York, are there others elsewhere?

I think whether they are out there and I'm not going to talk too much about where we're going and how we're going and for obvious competitive reasons.

Okay, all right. And then finally, on the worker requirements, it looks like Virginia is on the brink of Medicaid expansion. What are your thoughts about you hearing around Florida or any of the other…

We're very supportive of the work requirements back when [indiscernible] was governor of -- Indiana was installed and we were very supportive there helping to how to do it. And I remind you it's childless adults who don't have physical disabilities and we think that's good public policy, we will work very diligently with the seats [ph] who want to do it to implement it in a very responsible way.

And ladies and gentlemen, at this time we'll conclude today's question-and-answer session. I'd like to turn the conference call back over to Mr. Neidorff for any closing remarks.

I just want to thank everybody. As we said, it's -- this quarter had a lot of moving parts because of Fidelis and different issues but it was a solid quarter, it was a stronger quarter, we eventually had anticipated, we planned forward, we're pleased with that. We're pleased with what how the safety use is going to unfold and looking forward to another very strong year. So, we thank you and look forward to talk to you in subsequent calls. Have a good day. Thanks.

Ladies and gentlemen, today's conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.