Centene Corp (CNC) — Q1 2015 Earnings Call Transcript

Thank you, Denise, and good morning, everyone. I’m Ed Kroll, SVP of IR for Centene Corporation. Thank you for joining our first quarter of 2015 earnings call. Michael Neidorff, Centene's Chairman and Chief Executive Officer; and Bill Scheffel, Executive Vice President and Chief Financial Officer of Centene will host this morning's call. The call is expected to last about 45 minutes and may also be accessed through our website at centene.com. A replay will be available shortly after the call’s completion, also at centene.com, or by dialing 877-344-7529 in the U.S. and Canada, or in other countries by dialing 412-317-0088. The playback number for both of those calls is 10061838. Any remarks that Centene may make about future expectations, plans, and prospects constitute forward-looking statements for purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in Centene's most recently filed Form 10-Q dated today April 28, 2015 and our other public SEC filings. Centene anticipates that subsequent events and developments will cause its estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. As a reminder, our next Investor Day is Friday, June 12, 2015, in New York City. Please mark your calendars. With that, I'd like to turn the call over to our Chairman and CEO, Michael Neidorff. Michael?

Thank you, Ed. Good morning, everyone, and thank you for joining Centene's first quarter 2015 earnings call. We were pleased to have started 2015 with another successful quarterly performance marked by exceptional top- and bottom-line growth. We expect this momentum to continue throughout the year and are raising our 2015 financial guidance accordingly. Bill will provide details on our enhanced outlook. During the course of this morning’s call, we will discuss our strong first quarter results and provide an update on Centene’s market and products. I will begin with first quarter highlights. We added 1.4 million members compared to the first quarter of 2014. This represents a 44% increase to 4.4 million beneficiaries. First quarter premium and service revenues grew 42% year-over-year to $4.8 billion. The HBR increased 50 basis points year-over-year to 89.8%. This reflects an increase in the higher acuity membership as well as a higher flu cost compared to last year’s relatively mild flu season. Importantly, this fell within our planning assumptions and guidance. Bill will deliver further HBR detail, including new and existing business mix. Overall, we continue to see as well as anticipate stable medical cost trends. We recorded first quarter diluted earnings per share of $0.52, compared to $0.29 in last year’s first quarter. I would like to note that the ACA health insurer fee had no impact on the first quarter 2015 earnings as we secured an agreement with our state for 100% of the fee on a grossed-up basis. Now on to the market and product update. First, we will discuss recent Medicaid activity. In Louisiana, we added over 200,000 full-risk members in the first quarter as the state transitioned out of a shared saving ASO model. As of March 31, we had approximately 360,000 recipients in Louisiana, which is above the high end of our prior guidance of 320,000 to 350,000. Centene is now the largest Medicaid managed care organization in the state. In Indiana, we commenced operations under the state’s new program Healthy Indiana Plan 2.0 in February. This contract is proceeding according to plan, and we expect membership to continue to increase throughout 2015. In April, Centene began serving ABD beneficiaries in Indiana under the state’s new Hoosier Care Connect Program. In Texas, we successfully re-secured our exclusive Foster Care contract intention in February. As of March 31, Centene served approximately 30,000 children under this program. Centene created this innovative product with Texas in 2008 to meet the specific healthcare needs of a vulnerable population. Since that time, we have served over 100,000 Foster Care beneficiaries in this space. Additionally, this quarter, Texas began carving nursing facilities benefit for its STAR+PLUS program. In Missouri, Centene was selected to continue serving Medicaid beneficiaries in the state in March. As part of the state’s reprocurement process, this contract is expected to begin in the third quarter. At the end of the first quarter, we served over 75,000 members in Missouri. Moving on to duals, as of March 31, we served 12,600 members across our dual demonstration contracts in Illinois, Ohio, South Carolina, and Texas. We are now reporting our dual membership as individuals who receive both Medicare and Medicaid benefits through a Centene health plan. For year-end 2014, we noted approximately 16,000 duals. This included Ohio beneficiaries receiving Medicaid but not Medicare through a Centene health plan. Overall, these contracts are performing in line with our projections, which includes an approximate 30% opt-out rate in Ohio. We expect our Michigan dual program to begin in the second quarter. Next, Centurion. Last week, Centurion was recommended for an award to provide correctional healthcare services to 17,000 individuals incarcerated in Mississippi. Operations are expected to commence in the third quarter of 2015. Now, Health Insurance Marketplace. Marketplace membership doubled in the first quarter. As of March 31, we served approximately 162,000 members in select regions across 11 states. Please note, this is the membership level at the conclusion of the open enrollment period. Membership will likely diminish slightly throughout the course of 2015. Over 90% of these beneficiaries were subsidy eligible, consistent with Centene’s marketplace strategy. The demographics remain in line with our pricing. A quick comment on international: we are pleased with our investments in Spain and the UK, which are proceeding as expected. We continue to look for additional international opportunities, particularly in Spain. Shifting gears to our rate outlook, we continue to project a 2015 composite rate adjustment of flat to 1%. In conclusion, first quarter results offer further evidence of Centene’s financial strength and operating capabilities. Centene’s pipeline of future opportunities remains robust. We continue to explore new growth and diversification prospects both domestically and internationally while maintaining a focus on margins. We look forward to seeing you at our June 12 Investor Day in New York City. Thank you for your interest in Centene. Bill will now provide further details on our first quarter financial results.

Thank you, Michael, and good morning. Our first quarter results are consistent with the growth rate we have experienced over the last several years. Membership increased 44% year-over-year, an increase of almost 1.4 million members, and our premium and service revenues increased 42% year-over-year, totaling $4.8 billion. The revenue increase between years of $1.4 billion is a result of a full quarter’s impact this year from expansions and new programs in 2014 in several of our states, particularly Florida, Illinois, and Ohio. We increased our full risk membership in Louisiana this quarter as the new contract began, which eliminated the shared savings program, and we converted 200,000 of these members to the at-risk program. In the first quarter, we also began serving additional members in Indiana for the Healthy Indiana Plan 2.0 program, and we began covering nursing facility benefits in Texas. Service revenue increased 64% year-over-year primarily from our carrier health specialty pharmacy business. During the quarter, we received an agreement in California for the full reimbursement of the health insurer fee on a grossed-up basis for income taxes. We now have agreements going forward in all of our states for reimbursement of the health insurer fee. The consolidated health benefits ratio this quarter was 89.8%, an increase of 50 basis points over both last year’s first quarter and the fourth quarter of 2014. The increase year-over-year is primarily due to the increase in higher acuity membership, which carries a higher health benefits ratio and a lower G&A ratio, and higher flu cost this year compared to our relatively mild season last year. The increase from the fourth quarter is primarily seasonal as the first quarter is typically our highest HBR quarter. In the first quarter, approximately 23% of our revenues were from new business compared to 20% in the first quarter of 2014. The HBR for new business was 91.0%, compared to 89.5% from existing business. Our general and administrative expense ratio was 8.5% this quarter compared to 8.8% in Q1 of 2014 and 8.2% in Q4 of 2014. The 30 basis point decrease year-over-year reflects additional scale this year and the incurrence of acquisition transaction cost for U.S. medical management in Q1 of last year. Business expansion cost, excluding the acquisition transaction cost totaled $0.06 this year, compared to $0.03 from last year’s first quarter. Investment income was $9 million for Q1, and interest expense was $10 million. During the first quarter, we issued $200 million of additional 4.75% senior notes and simultaneously entered into $200 million of interest rate swap agreements, which have an interest rate of 2.88%, plus the three-month LIBOR. The effective income tax rate was 49.2% in Q1, compared to 51.5% last year. The relatively higher tax rates are due to the non-deductibility of the health insurance fee. Diluted earnings per share from continuing operations was $0.52 this year, compared to $0.29 last year. Last year’s number included a $0.11 impact from the health insurance fee and transaction cost. Diluted shares outstanding were 122.6 million shares for this year, compared to 118.7 million shares in Q1 last year. Cash, investments, and restricted deposits totaled $3 billion at March 31, including $97 million held by unregulated entities. For risk-based capital, we continue to maintain capital in excess of 350% of the authorized control level, excluding any interim statutory impact related to the health insurance fee. Our medical claims liability was almost $2 billion at March 31 and represented 45.5 days in claims payable. Our total debt was $1.1 billion at quarter-end, including $125 million of borrowings under our revolving credit agreement. Our debt-to-capital ratio, excluding our $69 million non-recourse mortgage note, was 36.6%, compared to 31.7% at year-end. Cash flow from operations was $45 million, which was 0.7 times net earnings. This is a lower level than we have been running, primarily as a result of one state changing the timing of their payment to us. This resulted in our receiving only two monthly capitation payments during the quarter. Going forward, we will receive three payments each quarter. Our 2015 guidance numbers have been updated to reflect our first quarter performance. For the full year 2015, we expect premium and service revenues of $20.5 billion to $21 billion, diluted earnings per share of $2.60 to $2.72, consolidated health benefits ratio of 89.2% to 89.6%, G&A expense ratio of 8.0% to 8.4%, effective income tax rate of 48% to 50%, and diluted shares outstanding of 123 million to 124 million shares. As has been our policy, our guidance numbers do not include any impact from acquisitions that have not yet closed. Lastly, our business expansion costs are estimated to be between $0.22 to $0.25 per share for this year. This concludes my remarks and operator you may now open the line for questions.

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

I think that’s correct.

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

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

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

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

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

Bill, would you like to provide your thoughts on that?

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

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

Okay. But you are assuming existing business like Georgia. I’m curious if Ohio is included in there or anything else?

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

If we pursue the new state assembly, we do not include those. It's one that is rewarded, and we won't comment on it until the state makes that specific announcement.

Okay. Alright, perfect, thanks.

Thank you.

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

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

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

And is there…

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

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

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

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

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

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

Okay. Thank you very much.

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

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

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

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

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

Yes.

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

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

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

Bill, do you want to make a comment on this?

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

Great, thank you.

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

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

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

That's helpful. Could you discuss the long-term prospects of that business, including its margin potential? It seems like requests for proposals are coming to market more quickly than expected. How should we consider these opportunities? Thank you.

Jesse?

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

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

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

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

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

It’s a timing mix.

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

Yes.

Yes.

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

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

Okay. Thanks.

I might add we are still optimistic.

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

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

And those numbers have been approved. So…

Yeah, it’s all…

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

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

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

We feel pretty consistent in that.

Yeah.

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

In the first quarter, our G&A rate was 8.5%, and we are guiding for the entire year to be between 8.0% and 8.4%. Typically, in the first quarter, we make our usual estimates for the year, which means we're considering one-fourth of the total estimates for various items. By the fourth quarter, those estimates align with actual figures at the end of the year. Therefore, I believe we were a bit more conservative in our G&A estimates for the first quarter, and this will balance out over the course of the year. Additionally, we expect to see increased revenues throughout the year. For example, our membership in Louisiana was only accounted for two months in the first quarter, not the entire quarter, which will have a slight impact on our results for the rest of the year.

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

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

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

We expect to be actively engaged with the regulations and are confident that the upcoming regulations will align with our expectations and guidance as best as we can estimate at this time.

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

The RFP will continue to respond, and we have strong confidence in that. I am confident in it unequivocally, and we are very sure about it. Regarding the additional products not currently included in the RFP, we assume they are not included until further notice. Jesse, do you have anything to add?

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

Great, thanks so much, very helpful.

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

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

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

Okay. Just a follow-up on one of their earlier questions about the RFP pipeline. I understand the sensitivity involved in being part of a process and not wanting to predict the outcome. However, we currently have visibility that Iowa is on the horizon, and there may be some smaller opportunities in Louisiana as well. Are there any significant RFPs that we might not be aware of that you could highlight? This would help us understand what might be coming in the next year, considering the visibility you have that we do not.

Jesse?

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

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

Thank you.

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

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

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

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

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

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

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

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

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

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

Sure. Okay. Thank you very much.

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

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

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

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

Okay. Thank you.

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