Good morning, and welcome to the Molina Healthcare Fourth Quarter 2018 Earnings 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 Ryan Kubota, Vice President of Investor Relations. Mr. Kubota, please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us. The purpose of this call is to discuss Molina Healthcare's financial results for the fourth quarter ended December 31, 2018. The company issued its earnings release reporting fourth quarter 2018 results last night after the market closed, and this release is now posted for viewing on the company website. On the call with me today are Joe Zubretsky, our President and Chief Executive Officer; and Tom Tran, our Chief Financial Officer. After the completion of our prepared remarks, we will open the call to take your questions. If you have multiple questions, we ask that you get back into the queue so that others can have the opportunity to ask their questions. Our comments today will contain forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act. All of our forward-looking statements are based on our current expectations and assumptions, which are subject to numerous risk factors that could cause our actual results to differ materially. A description of such risk factors can be found in our earnings release and in our reports filed with the Securities and Exchange Commission, including our Form 10-K Annual Report, our Form 10-Q Quarterly Reports, and our Form 8-K Current Reports. These reports can be accessed under the Investor Relations tab of our company website, or on the SEC's website. All forward-looking statements made during today's call represent our judgment as of February 12, 2018, and we disclaim any obligation to update such statements, except as required by the securities laws. This call is being recorded, and a 30-day replay of the conference call will be available at our company's website, molinahealthcare.com. I would now like to turn the call over to our Chief Executive Officer, Joe Zubretsky.

Thank you, Ryan, and thank you all for joining us this morning. Last night, we reported earnings per diluted share for the fourth quarter of $3.01, and $10.61 for the full year ending December 31, 2018. For the full year 2018, we produced pre-tax earnings of $9,99 million and after-tax earnings of $707 million, resulting in pre-tax and after-tax margins of 5.3% and 3.7% respectively on a reported basis. As these results indicate, we have accomplished much over the last year as we executed the first phase of our margin recovery and sustainability plan. The rapid improvement in our operating margin profile has allowed us to shift our focus to driving our profit improvement initiatives for continued margin expansion, while we are quickly pivoting to achieving top-line revenue growth. The quarter itself was very strong with pure performance earnings per share of $3.82 and an after-tax margin of 5.4%. Continuing the momentum, we established early in the year. All-in-all we are very pleased with the results for the quarter. The scope of our prepared remarks today will focus primarily on the margin expansion success we have already achieved and our confidence in sustaining it. However, to be clear, we are equally focused on and have already invested in top-line revenue growth and our very attractive lines of business, Medicaid, Medicare and marketplace as well as our existing and potential new geographies. We plan to showcase this growth plan at our Investor Day in May. Now returning to our financial results, in order to provide the context for our 2019 guidance, it is best to focus much of our commentary on recapping the full year 2018, a year in which we produced pure performance earnings per share of $10.83 far surpassing our initial and revised guidance. This result includes on a…

Thank you, Joe and good morning. As described in our earnings release, we report fourth quarter earnings per diluted share of $3.01 and adjusted earnings per diluted share of $3.07, excluding the amortization of intangible assets. We reported full year 2018 earnings per diluted share of $10.61 and full year 2018 adjusted earnings per diluted share of $10.86, excluding the amortization of intangible assets. First, I will highlight the non-recurring items that occur in the quarter, resulting in fourth quarter pure performance earnings per diluted share of $3.82. It is important to note that these items are included in the fourth quarter GAAP reported numbers that we cited in the earnings release. Specifically, we recorded a $52 million previously-tax loss on the self of our pathway's subsidiary. $8 million of restructuring expenses primarily related to costs associated with our ongoing IT restructuring plan. A $3 million gain as part of the repurchase of the 2020 convertible notes and related and medical option termination. And a $24 million pre-tax expense for a retroactive risk corridor adjustment or a California expansion business, primarily related to the state fiscal year ended June 30, 2018. Next, I would like to make some comments on the fourth quarter earnings beat of over $130 million pre-tax or approximately $1.90 per diluted share on a pure performance basis, relative to the top and about pure performance guidance range. That beat can be attributed primarily to the following four items. First, we had prior period development of approximately $90 million in a quarter, most of which is in for a year development and therefore is accounted for in our pure performance result for the full year. Second, our marketplace product continues to perform exceptionally well. The seasonal increase the medical costs we have historically seen did not materialize…

We will now begin the question-and-answer session [Operator Instructions]. The first question today comes from Joshua Raskin with Nephron Research. Mr. Raskin, please go ahead.

Hi. Thanks. Good morning, guys. Wanted to ask a little bit more about the revenue bridge and sort of backing up to the Investor Day, where you guys started with the $15.6 billion of premiums. And I know you've got $500 million back in Florida, you talked about I think Mississippi being about $300 million and then Illinois, Ohio, some other growth et cetera. I guess what are the offsets? It looks like only $200 million higher. So, it sounds like some stuff has add, but I don't know how much of that is asset sales versus the exchanges. And then, I think last quarter, you guys were a little bit more optimistic about potential growth in the marketplace, and so just wanted to hear a little bit I guess within that answer what changed there.

Well, Joshua, on the revenue bridge, very clearly Florida and New Mexico were a major component of the decline at $2.2 billion. We also note that if you're looking at total revenue, you always have to adjust where they have of $400 million. And yes, the service businesses that we divested in 2018, NMS and Pathways have $400 million in revenue, which effectively disappears in 2019 guidance. But we did pickup $900 million of organic growth, and you cited all the reasons, Mississippi, Illinois full year run-rate of increased membership calling back to $500 million in Florida certainly helped. Washington as we bested certain competitors in various of the regions, we will have increased Medicaid membership and the behavioral caravan. So all-in-all, $900 million of organic growth embedded and what was a disappointing year of contract losses certainly bode well for our revenue pickup in the future.

Got it, got it. And then just a quick question on the outsourcing you guys announced recently. Could you just walk through a little bit more of the specific functions that were outsourced and maybe how much of that savings is in guidance?

The contract we just signed the outsourcing arrangement with Infosys related to our IT infrastructure, datacenters, user services et cetera. So, at the hardware. We think it as the hardware. It will result in rebadging certain employees to Infosys that will result in certain number of position eliminations. But we also have increased the effectiveness of the operation, better up times, better response times and just more effective operations. That agreement has already incepted. There is a 90 to 120-day transition period. So, the outsourcing will actually occur to about until about the middle of the year. And so, the savings in 2019 guidance is modest, but we'll ramp the full run-rate in 2020.

Perfect. Thanks.

The next question comes from Matthew Porsche [ph] with BMO Capital Markets. Please go ahead.

Thank you and congratulations. Thank you for all the disclosure. So, can you just help us think about where you would like to get to in terms of a run-rate on the operating cost ratio, if that's even the right way to think about it? I mean I know that there are structural differences depending on how much you grow to the various parts of the business, but I'm just trying to look at your mid-7s guidance for 2019 relative to the low-7s that you achieved in 2018 and then the stranded overhead in the G&A that you're spending to achieve savings.

Sure Matt, while we're not giving a forecast for 2020 and beyond. We certainly believe there is more upside to our G&A ratio than downside risk. So you're right about the puts and takes in 2019 painful reminder of how the operating leverage works in this business this 306 cost of the loss contribution margin from the Mexico and Florida put 30 to 40 basis points pressure on that ratio, but more importantly we're investing $90 million to $100 million in lot of G&A to invest in medical cost improvements and other improvements to our core business. I believe in the future we will as we grow we'll get positive operating leverage we'll continue to invest in the business and of course you cited the mix effects that we're likely to get depending on how big the marketplace business in the future so we believe that the G&A ratio as we move for improvement going forward but we're not giving a forecast more room for upside and downside.

Thank you.

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

Thanks. Good morning. So, the focus shifts to the top-line growth just hoping you can walk us through any kind of early view of your exchange strategy for 2020 as well as any key RFPs or opportunities for state membership transactions that could fuel revenue growth into next year?

Sure, Justin on the exchanges as we said in a public forum just about a month ago, we plan to grow this business. We actually think we can double with size and still have a proportional relationship between our exchange business in our Medicaid business in the states in which we do business. Obviously, that won't come in one year and the interesting thing about this business is as you know the prices are in relation to the competitors, so we've done a very exhaustive pricing elasticity study. We know where our prices are to ridge against the competition, we plan for 2020 to ease up on price we certainly are going to price to 50% pre-tax margins and 10% after-tax margins. But we believe we can grow the business have the MCR move up from the mid-60s to 70% maybe into the low 70s, maintain a high single-digit margin without ever tripping the minimum MOR. So, we're feeling really good about the growth prospects of this business and the ability to grow it, produce a high single-digit margin and have the pool of profits grow overtime.

Any Medicaid opportunities?

Right now, the early lead I can give you on growth for 2020 beyond would be in Medicaid and Medicare. In DSNP, we plan to file a Notice of Intent to play in 170 additional counties in DSNP alone, two states of which would-be brand-new Ohio and South Carolina. With respect to Medicaid there are $30 billion of opportunities coming into the market in our estimation over the next three years, way one Louisiana, Minnesota, Hawaii, Kentucky and possibly Pennsylvania, way two, Tennessee, West Virginia and Indiana. We have a newly developed business development team we vent our key team we're on the ground and many of these geographies are doing a feasibility study, the regulatory environment strength the competitors, our ability to build networks so we're actively at work working on the growth phase of this turnaround.

Thanks.

The next question comes from Ana Gupte with SPV Leerink. Please go ahead.

Hey, thanks good morning. Congrats on 2018 a great performance and just wanted to question about what you put out in January which I thought was a very nice logical presentation on your opportunities to grow. But when you kind of look at the Medicaid if you start with Medicaid benchmarking again the commentary and performance you're seeing from near the national competitors doesn't look like it's that easy to expand margins neither unite it or health care or Cetin [ph] have shown great performance on margin expansion there and trends the spread as you see ups and pressure. And while I can look at all of your margin expansion drivers and they're on the expense I mean is there any read across or why does it look like you can do so much better than yourself and other I guess one on the projector?

Well, I think Ana, I think the first thing I like to remind folks is that the cost structure that is built into the rating structures is the entire market. And so that, if you can create a cost structure, both your G&A profile and your medical costs profile, that is better than your competitors, you get the lifting rates from the market cost structure. And then you can operate at a more efficient structure and produce best-in-class margins. Now, whether it's sustainable, or now we have to prove that. But to your point about Medicaid, we broke through the 90% barrier on pure performance Medicaid for the year at 89.4. But I would remind everybody that ABD still at 91%, that's $5.5 billion of premium in 2018 alone. So, I do believe there are still is room for modest improvement and our Medicaid line, which obviously is a $13 billion line of business for us.

Okay. All right. And then just following up on the earlier question related to marketplaces and margins and growth. It's going to go from low-double to very high-single and this year, you'd see, you're not going into 2019 and margins look like there are a bit under pressure. The overall exchange book is down a bit year-over-year and their policy changes and competitive forces at play. Do you think that will remain a big growth driver, I mean looking at 2019, it seems challenging to me to see that happening?

Well, I think, our market niche is very differentiated. We are servicing, as I mentioned in my prepared remarks. the working poor 20% of our membership are fully subsidized, another 70% are partially subsidized. We get to leverage our Medicaid network not only the network itself, but the cost structure in the network to give us very, very competitive cost structure. So, look, for 2019. At this time last year, we were compelled nearly to put trend into the market on top of our 2018 rates. We didn't know at this time last year that 2018 would have turned into a 15% pre-tax year. So, we put trend into the market on top of what we're already very rich rates and we're paying for it on the membership line coming into 2019. That is not going to be the phenomenon in 2019 or 2020. We now know exactly where we sit with our membership. We know the acuity. The churn of members is very low. So, 80% of these members we haven't in prior years. So, we're feeling really good about the stability of our book of business, our ability to now put a more reasonable price point in the market to begin growing again.

Thanks, Joe for color very helpful.

You're welcome.

The next question comes from Scott Fidel [ph] with Stephens, Inc. Please go ahead.

Hi. Thanks. Good morning. Just the first question, just wanted to get a little more detail on the negative spread that you discussed that you're building in for 2019 in Medicaid, and maybe just can you call out which markets in particular where you're seeing rate cost bright upside down? Is it just a few markets or are you seeing that more widespread?

Well Scott, we don't really like to talk about rates and the strength of rates in individual markets. But I would tell you that it's marginal across all markets, 20 basis points here, 50 basis points there. You're always having debates about trend components. How is pharmacy trending? Sometimes when benefits are carved-in and carved-out. How much premium is a state taking away on a carved-out benefit and how much premium are they putting on our carved-in benefit. So. I would just say all-in-all these are the normal puts and takes of the rating environment. And right now, at about 100 basis points of negative spread this year, it's very stable and very rational and will always have profit improvement initiatives, always have an inventory of profit improve initiatives of 150 to 200 basis points of premium. That is the way you need to run this business. To make sure that in a year where we're presented with a negative spread, we can offset it and keep our margins whole.

Okay, and then just head just one follow-up. Just interested in and what you can update us at this point, just around some of the recent headlines coming out of Ohio on them discussing potentially rebidding the Medicaid contract and just given some of the even sort of above average scrutiny of the PBM servicing the Medicaid plants in that market.

Sure. We were fully expecting Ohio to reprocure, to drop an RFP perhaps late in 2019, for an effective date in 2020. So, we're fully prepared for that. The new administration, always when near to change administration, you never know what the new plan would be. The new administration in Ohio does seem to be prepared for reprocuring the Medicaid program. So, we're fully prepared to deal with that and given the scope of our business, our market share, in the way we perform, we're extremely confident of prevailing and perhaps even growing in that reprocurement. With respect to PBM and pharmacy, yeah Ohio has been particularly scrutinizing the pharmacy industry. Look, the pharmacy trends where they are, they are putting pressure on cost and everybody knows that. I would say this, we have enough flexibility in our contract with CBS care mark that if whatever Ohio decides they want for a pharmacy benefit carved in, carved out, separate PBM, carved in PBM, we would be able to deal with it and put a proposal that would satisfy their requirements both in medical and for PBM.

Okay, thanks.

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

Hi, good morning. Thanks for taking my question. Joe you mentioned that the Infosys contract, it sounds like will ramp through the balance of the first half of this year and not generate a lot of savings for 2019, I wondered if you could put a ballpark number on what you expect the total savings to be overtime and is that part of the remaining kind of overall cost savings bogey that you have laid out recently or is that somehow separate from that? thanks.

David, this is Tom. We're not going to disclose specific cost saving with the Infosys contract, but it will be fair to say that it's quite significant compare to our current base of operating - our current base of expenses. And that it's really a multi-year contract, so you should expect to see that to be lasting over a number of years. And it is embedded in the $550 million of saving that we have put out at the last JPM conference.

Okay, thank you.

The next question comes from Steve Tanal, with Goldman Sachs. Please go ahead.

Good morning, guys. Just two questions for me. I think on the first one, just thinking about some of the thought processes around Tax Reform and Medicaid rates last year, I think it all suggested that Tax Reform benefits would find their way back to Medicaid rates. But, just wanted to get your updated thoughts on that, are you seeing any actions from the states in that front is that maybe part of the related to the trend discussion or how are you all thinking about that now?

No, the discussion about the tax regime really enters into rate discussions. Just had most of discussions are around debates about different cost components how they are trending, and the rate take up or take out for benefit carve in and carve out, but very really if ever is there a discussion specifically about taxes.

Great, okay. So broad and more sustainable now and I guess just the other one that I had was wondering if you could give us a little more specificity on sort of the savings that are baked into 2019 versus 2020, so in the slides for the call looks like you're stating there was a portion of the $550 million of remaining profit improvement opportunity, if you can maybe size what you expect to sort of book in 2019 in the context of the guide and maybe give us some clarity on what you expect to drive your sort of annual G&A run rate down by about that amount sort of exiting 2019 into 2020.

Sure, if you look at the $1.87 of earnings per share, we put in the guidance bridge. Just as pull that a part. It's about a $150 million pre-tax. That number is $250 million of gross profit improvements offset by $90 million to a $100 million of hard G&A cost to produce them. And the first thing I would say is we were very exact by including all of the cost to produce those benefits but very cautious in forecasting the benefits that will actually emerge in the P&L. So that $150 million of net profit improvement is $250 million of gross profit improvement offset by a $100 million of the hard cost to produce them. We still consider that conservative and that will build into the run rate that we'll project forward into 2020.

Perfect. Great. Thanks for all the clarity.

You're welcome.

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

Thank you. So great guidance for 2019 obviously a very impressive margin profile. Can you Help us understand or breakout parts of that maybe unsustainable, help us understand what part of that is in different products or various lines? Thank you.

Sarah, as we look at the margin guidance. So, let's to keep it simple, after-tax margin is probably the easier metric to look at, so we're not adjusting for all the puts and takes that hits some things like that. We are maintaining a 3.8% after-tax margin consolidated in an environment where revenues are declining by 10% and in environment where the 2018 margins included $137 million pre-tax were $1.55 of favorable development. So, the question of sustainability is an interesting one, but to maintain that level of margin in that environment particularly compared to 2018 we think is a really good solid forecast to project forward. 2.8% Medicaid, 5% in Medicare and still double digit in marketplace is a very attractive margin profile and really and, in this environment, we think that's a very good start to the year.

Second, just to clarify so if we take those segment margin profiles that you talked about in the 3.8 in 2019. Are you seeing that this is sustainable net margin profile for the company? So, I'm thinking back to either there was the 2.3 to 2.7 laid off for 2020. But as you move through some of the cost savings initiatives, is this where the company looks like it's going to be going forward?

We think high-twos for Medicaid is certainly sustainable. We think that a mid-single digit for Medicare is certainly sustainable. And as we described previously, we believe that as we grow our marketplace business the margin will drop from low double digit to high-single digit. Conscious effort to move the MCR up from the mid-60s to 70 or even low-70s not trip the minimum MLR and grow the profit pool rather than focusing just on the percentage margin.

Thank you.

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

Great. Thanks. So, related to that exchange comment. Is that transition to that new margin profile expected to happen in 2020 or just like a multi-year move for you?

It's an analysis of the elasticity, the pricing elasticity of the product. And how much growth you think you can put on the books for the level of margin that you're willing to give up to do it. And it's market-by-market geography by geography. We know where our competitors fit, we certainly know their strategy for the metallic tiers. They know ours as well. but with our new marketplace management team, and now that we have a book of business that is 80% repeating, we think we have a very, very good visibility on our marketplace business to grow it at high-single digit rates and never trip the minimum MRR. So it's all the question of how fast we want to grow. It is a multi-year effort. You never like to grow any book of business too quickly. So, it's probably a multi-year effort.

Okay. And then you've mentioned that I guess you still have $350 million of cost savings out of the 550 beyond 2019. How should we think about the ramp of and kind of the rest of those savings for the next few years?

Well, we're just now getting by the point where we've planned for 2019. We'll probably give the market by view of that at our Investor Day in May which will also give glimpse of the 2020 growth rate as well. So, if we could wait another month or so couple of months until May try to give you a forward look of how the profit improvement will emerge over the next couple of years and also how the top-line will grow in the next couple of years. But it's there, we certainly we put it out there for public disclosure so we certainly understand it, we have models that I don't want to say prove it but strongly suggested that it's real and tangible and actionable and they can offset a wide of rate erosion in the marketplace and also help sustain our margins.

And I guess you probably I think you just said that you don't want to answer this question and wait as well but you mentioned kind of two ways of Medicaid RFPs over the next few years that you worry talk a little bit just about exchange membership and then expanding Medicare into next year. Do you think that you're going to actually grow better in 2020 than your top-line that you did in 2019 excluding the contract losses if you can just kind of put those aside? Is 2020 going to be a year showing that growth or is 2020 still you got so many things investing and it's really 2021, before the top-line grow?

I think just to give us the next few months, we're in the middle of our three-year strategic planning process, which is culminating in mid-April shared with our Board in May and showing to marketplace in late May. So, you can just indulge us and wait to that point in time, we'll give you a good view of 2020 at that time.

All right. Fair enough. Thank you.

The next question comes from Zac Sopcak with Morgan Stanley. Please go ahead.

Thanks. Good morning and congrats on a great 2018. Want to ask about the $1.35 higher developments just I'm clear it sounds like your reserving methodology is similar for 2019 is there anything in that $1.35 we should think about unusual as we think about 2019 might progress?

I wouldn't say there is anything unusual from a sense that our reserve methodology has been very consistently applied quarters-over-quarters. And so, we saw that development coming out and we have the same approach going through 2019. So, we're not predicting any favorable and unfavorable development, but certainly if you follow that methodology then you can draw your own conclusion. What we also see in the first quarter so far is that flu effect has been somewhat attain a low comparing to prior year so that certainly can be a positive sign for potentially a mind seasonal effect of a seasonal high medical cost that you see in winter.

Okay, that's helpful. Thank you. And that leads to my second question on seasonality so you seem in 2018 kind of buck traditional seasonality probably given you have a lot of different things going on what's profit improvement opportunities, is there any way you can help us think about seasonality for 2019 given you're also reharvesting additional opportunities or any other way to think about the kind of progression throughout the year?

Medicare and Medicaid books are pretty evenly distributed from a seasonality perspective. Marketplace is generally backend loaded as to medical cost but last year in 2018, it wasn't. we think we had more chronic members that doesn't mean they were necessarily bad members, but they were just chronic members that were utilizing services throughout the year. So, I think this year you'll see a pretty even seasonality pattern, marketplace could be a little bit back loaded but Medicare and Medicaid could be pretty evenly distributed.

Okay, great. Thank you.

Next question comes from Gary Taylor with JP Morgan. Please go ahead.

Hi. Good morning. Two-part question; one, you provided GAAP guidance without in relation of intangibles which I think was roughly $0.30 last year I know a little bit of that goes away with the clockwise deals so if you have an update or estimate for 2019?

We disclosed that in a table in our earnings release the amortization and intangible for 2018. For 2019 you're right it's going to be lower and we estimate it to be in our neighborhood of about $0.20 EPS.

Thank you. And the second part of my question, can you help us understand a little bit so the exchange enrollment down for 2019. You talked about that the effect of your pricing essentially. Can you talk about Florida a little bit, and what is the impact on your cost structure in Florida and your big strategy in Florida and maybe could you just talk about enrollment and changes in Florida? But does the impact happen - you are all from portion of the state, from the Medicaid perspective have an impact on the Florida exchange enrollment?

Yeah. So Florida, I would say the Medicaid contract that we have lost in certain region. The space started transition in the fourth quarter late fourth quarter. So, when you look at membership that we disclosed in the table in the earnings release, you would see that 10-F membership declined quarter-over-quarter. And the big chunk of that is really from the Florida market decline as membership transitioned to duration that we will exit. From a view point of impact on a change, the two really doesn't have that much effect, there is not really related. In fact, we do see membership growth for the hit's membership in the State of Florida.

Okay. So, which states would have been the largely exchanged declined for 2019?

The larger membership we have in that, if the exchange is really in the State of Texas. So, we do see decline in State of Texas from 2018 into 2019. So, the fluctuation in many different spaces some gains some loss, but certainly Texas has a major impact on the decline from 2018 into 2019.

Okay. Thank you.

The next question comes from Steve Valiquette with Barclays. Please go ahead.

Thanks, and good morning, everybody. So, Joe, I don't want to beat the exchange topic to depth here. But just coming back to your investor presentation from last month and again that slide that shows Malina marketplace growth scenarios where you talk about the marketplace raise for Malina growing to either $2.6 billion or $3.6 billion. You touched on the margin component of that slide already. But again, just for the revenue side just want to clarify whether those revenue numbers were intended to be actual targets for Malina. And what the timeframe is if there is one, or again was the revenue portion of that slide more just for illustrative purposes. Thanks.

It was for illustrative purposes. And to be very clear, we're not giving a specific outlook or forecast until our Investor Day in May. But it was really to make the point that if we were to return the business to its original size which was $4 billion. Knowing what we know about our pricing competitiveness, knowing what we know about administrative cost leverage, can we produce high-single digit margins and grow the business back with original state. So, it was less illustrative. We do believe it's doable over some period of time, and how that manifests itself in our ongoing forecast will be showcased at our Investor Day in May.

Okay got it. Okay, thanks.

The next question comes from Michael Newshel with Evercore ISI. Please go ahead.

Thanks. I know you touched on some specific dates, but can you just break down the exchange loan results for the year, between the same market declines versus gains you saw in new markets.

We're not going to go into specifics dates by state here. But Michael and I mentioned before is that Texas which were roughly about 55% to 60% of our membership in 2018. We did see decline there, so that's where really the main driver of the membership decline from 2018 into 2019. As you know we have reentered into some new space, the former states that we exited Utah and Wisconsin. We did see some level of membership there. Nothing significant, but the remaining market there are fluctuations up and down. Some we gain, some we lose. I mentioned in fourth quarter we gained some membership. Some market we fairly stable for example state of California fairly stable. So overall, there is a decline definitely from 360 at the end of 2018 into January right now, we are somewhere around 325 to 330.

Okay. How about, can you signal the impact of the investments that are in the bridge from 2018 to 2019? I think you said pathways and move is a loss, but MMS may have been a slight contributor is the net impact material at all there?

I would say that about $0.10.

I'm sorry, was that, it's about a $0.10 headwind the divestment?

2018.

Okay. Thanks.

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

Hi, guys. Good morning. Congrats on the quarter. Really want to talk to a bigger picture about what's going on with RFPs in Medicaid in general. You saw the North Carolina quality scores that came out and you've seen other recent scores that have come out. Have you seen anything that has given you more positive or less positive views on your Texas bid? And in particular, beyond that, do you think there's something that you guys are missing or that you need to have to acquire to look better for some of these are RFPs that seem to be favoring more population health and things like that?

So, Peter, we're still very optimistic based on everything we know about our RFP bid on Star Plus in Texas. No news is emerged that makes us any more or less competent. We've always been very, very confident in the outcome. We think our strategy and building capabilities internally and our rent to own strategy is the right balance. We really don't believe you need to acquire the equity of a company in order to import an integrated capability. And you've seen us announced a major partnership with some world class partners and you'll see more of that on esoteric and niche capabilities that we think couldn't possibly be scaled adequately or capably in order to deliver into our operating platforms for delivery into a service model. So, we're building capabilities internally on core capabilities. We're looking for co-sourcing partners and a rent to own strategy for esoteric capabilities and as long as they're fully integrated. We believe our products can win in the marketplace and continue to win RFPs. We have no reason to believe that they can't.

Okay. So, we shouldn't expect any further acquisitions regarding especially capabilities or anything like that?

So, any front I'd always welcome an opportunity to look for a bolt-on membership opportunity and a current state where we get some good operating leverage. But no, not spending capital on EBITDA multiples for capability place.

Okay. Thank you.

Last question today is a follow-up from Justin Lake with Wolfe Research. Mr. Lake please go ahead.

Thanks, good morning. So, thanks for the extra question. Just wanted to ask a numbers question on investment income, it looked like you guys guiding to about $195 million. I think there might be other stuff in there besides investment income, but big step up and that number, so, just wanted to get some clarity on that. Thanks.

Justin, the $70 million increase in investment and other revenue is due to two things. One is that higher investment income, I would say that roughly about 40% of that change and the rest is really the full year effect of the ASO fee for the pharmacy benefit or carve out in a state of Washington whereby work pay when they saw see the manage that program for the state. So, the last year it was only a half year and 2019 is really a full year. So, hope that clarifies the change there.

Thanks for the color.

You're welcome.

This concludes our question-and-answer session and also concludes our conference. Thank you for attending today's presentation. You may now disconnect.