Centene Corp (CNC) — Q4 2018 Earnings Call Transcript

Thank you, Anita, and good morning, everyone. Thank you for joining us on our 2018 fourth quarter and full-year 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 of those dial-ins is 10127647. 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 which is dated October 23, 2018, 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, that’s Generally Accepted Accounting Principles. A reconciliation of these measures with the most directly comparable GAAP measures can be found in our fourth quarter 2018 press release, which is also available on the Company's website at centene.com under the Investors section. Finally, a reminder that our next Investor Day will be on Friday, June 14, 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 fourth quarter and full-year 2018 earnings call. During the course of this morning's call, we will discuss our fourth-quarter and full-year 2018 financial results and provide updates on Centene's markets and products. We will also bring you up-to-date on the integration of Fidelis and the regulatory and legislative environment. First, let me provide commentary on healthcare legislation, legal and regulatory environment. We're hopeful that the divided government leads to a greater constructive dialogue from both parties when it comes to healthcare policy. It is clear Medicaid and the services we provide are needed more than ever. Clearly, numerous governors from both parties strongly supported Medicaid managed care during the repeal and replace debate. We also have seen Utah, Nebraska and Idaho, by ballot initiative recently passing Medicaid expansion. It also appears from the most recent marketplace enrollment figures there continues to be consistent demand for affordable, high quality healthcare coverage. As stated in the 2020 proposed payment notice, we support CMS's goal of maintaining a stable regulatory environment allowing for greater product predictability. The payment notices CMS is annual regulatory and financial guidance for the marketplace. Importantly, we support the administration's continued efforts to give states greater flexibility by 13.32, 11.15 waivers. This works well with our local operating model where we have strong relationships with providers and regulators. We look forward to working with the states who are on the frontlines in making sure all of their citizens have access to affordable high-quality healthcare. Next, I'd like to recap Centene's highlights of 2018. 2018 was another year of strong growth and accomplishment for Centene, capped off by the robust fourth-quarter results we reported this morning. In 2018, we added 1.8 million members, surpassing the 14 million mark. We grew revenues by 24% to $60.1 billion and adjusted EPS by 41% to $7.08. The HBR improved 140 basis points year-over-year to 85.9%. The adjusted net income margin improved 50 basis points to 2.5%. Cash flows from operations remain strong at 1.4x net earnings. During the year, we stuck to our business as usual approach. We have not been distracted by ACA legal headlines. As we agree with all the legal experts, it will be reversed. While there has been chatter about possible disruption to the exchanges, individuals like to have an insurance card with comprehensive coverage. We remain the leader in the ACA marketplace. In 2018, Centene successfully entered three new exchange markets and expanded in six existing Ambetter markets. I remind you, in 2018 year-over-year, our exchange membership increased by approximately 500,000 members or 52% to 1.5 million. Please note, this is ahead of our initial expectations. In Medicaid, we successfully reprocured contracts in Arizona, Florida, Washington and Kansas and won two new Medicaid contracts in New Mexico and Iowa. Overall, our win rate in Medicaid RFPs remains an industry-leading 80%. Also, our medical management efforts and network initiatives continue to gain traction and help drive the improved HBR I previously noted. In addition, it is our strong organic growth, we engaged in strategic M&A and investments throughout the year. In 2018, we closed the acquisition of Fidelis, the only statewide health plan in all 62 counties of New York. During the year, we began integrating Fidelis, now our New York health plan, into our enterprise. We're very pleased with how the integration is going. For example, on January 1, we moved all Fidelis employees to Centene's HR systems without incident. Fidelis has also been on our general ledger since the day we closed the transaction. We remain on track to achieve the accretion in synergy targets. We anticipate high single-digit percentage accretion to adjusted EPS in the first 12 months following the close and low to mid-teens percentage accretion to adjusted EPS in the second full-year following the close. We are also anticipating approximately $25 million in pre-tax net synergies in the first 12 months following the close and $100 million in total pre-tax net synergies in year two. On a run rate basis, we expect Fidelis to add approximately $12 billion in revenue and over $550 million in adjusted EBITDA, including net synergies. In addition to Fidelis, we completed the acquisition of MHS Services, a National Provider in Healthcare and Staffing to correctional systems and other government agencies. MHM was previously our joint venture partner in Centurion. We are now providing correctional services in 15 states with 32 contracts. We also completed the acquisition of Community Medical Group, CMG, a leading at-risk primary care provider in Miami-Dade, Florida. CMG has 15 clinics that focus on low-income beneficiaries with an expertise in social determinants. We increased our ownership in Interpreta, a technology company focused on clinical and genomic data as well as real-time analytics. Our total ownership is now 80%. We made an investment in RxAdvance, a technology-based pharmacy benefits management platform. We support a shift towards a more transparent PBM model, that is sustainable with higher quality and lower costs for consumers. Over the past year, we have been advocating for net pricing versus rebates. Lastly, Centene purchased a controlling stake in University Hospital of Torreon, in Madrid. This is an important addition to our Ribera Salud model, which sets the standard for successful public-private partnerships in healthcare. As a final point, we introduced Centene Forward, a transformative program to enhance key parts of our enterprise. We expect Centene Forward to realize up to $500 million in savings over a multiyear period. It is important to note that this is not a short-term effort to have savings immediately go to the bottom line in 2019. Rather, it is a self-generating effort to reinvest capital into additional capabilities and technologies that better position Centene for long-term growth, increased margin and profitability. Moving on to market product updates…

Thank you, Michael, and good morning. This morning we reported strong fourth-quarter and full-year 2018 results. Fourth quarter revenues were $16.6 billion, an increase of 29% over the fourth quarter of 2017, and adjusted diluted earnings per share was $1.38 this quarter compared to $0.97 last year. Both the fourth quarter and full-year results include additional costs associated with the marketplace open enrollment period. During the fourth quarter, we invested an additional $0.04 per diluted share into growth-related initiatives, including member outreach efforts associated with the marketplace business. This was above our forecast and previous business expansion costs guidance range. The strong fourth-quarter caps off a very successful year for the company. Total revenues grew 24% in 2018 to $60.1 billion, driven by the acquisition of Fidelis Care, continued growth in the health insurance marketplace business, product and market expansions, and the return of the health insurer fee in 2018. This growth led to record adjusted earnings in 2018 with adjusted diluted earnings per share of $7.08, an increase of 41% over 2017. The growth and earnings year-over-year was driven by the Fidelis acquisition and the growth in the marketplace business.

Great. Thanks. I wanted to focus on the exchanges. I guess, the first question there is you mentioned retention similar and the demographic is similar. Any markets in particular that you would highlight as kind of faster growing than average?

I think we have a very balanced approach to our markets. Different markets have different sizes, so different penetration. But it's very balanced across our markets. And the demographics across markets are the same. The middle tiers, everything about it, Kevin, is just consistent with what we have historically seen.

Okay.

Do you want to add to that?

No.

I was going to ask also, Jeff, your comment there where you said, at the very end you said the growth in the marketplace business provides tailwinds for 2019 and you expect to drive long-term growth and margin expansion. I wasn’t sure if you were saying that you expect additional margin expansion in the exchanges or whether that was a broader comment about the overall business in margin expansion?

No, that was a general statement. I believe the positive influences are clear since we haven't even finalized January's numbers and we're still raising our guidance. Membership exceeded our expectations, and with the new win in Centurion, Arizona, along with the acquisition, we're updating our guidance accordingly.

Hi. Thanks. Good morning. I want to stick with the exchanges as well. Good morning, Michael. Two questions, I guess, related to the exchanges. One is can we get an updated revenue contribution, in terms of your total top that 70 billion-ish or so? How much of that is actually exchanges? And then, is there any assumed margin reset? It doesn’t sound like there's any reason to think that. I know you talked about conservatism in the past and certain years, so curious on that. And then, just on new competition, I don’t know are you seeing any traction from the Oscars or even new competitors in any of your markets? Sorry for a bunch of questions on exchanges, but that's it.

Go ahead, Jeff.

Yes. So, Josh, regarding a few points, I think you might be able to connect our Investor Day slide to this. For 2019, I would estimate the exchange product to be around the $10 billion mark. Concerning margins, as we indicated during our Investor Day in December, we project that the margins for 2019 will be similar to those of 2017, 2016, and 2015, which were in the range of 5% to 10%. That is precisely what we are anticipating for 2019.

And from a competitor standpoint, we are not seeing activity that in any way affects us.

Okay. You’re not seeing any pockets of growth from some new entrants or anything like that in any of the specific markets?

No. If anything, I mean, we would like to see more people out there because it creates more noise and more activity and in a competitive environment, we tend to do very well.

Got you. And then, just one last one. Just wanted to ask on North Carolina. Could you size sort of the startup and development cost? I know you guys have been in the stage, you guys were one of the earliest in there. I know you’ve entered the exchanges well. Any way to size what that total cost of kind of market entry was in North Carolina?

We acknowledge that we received the information just yesterday. Our license indicates that we should postpone that discussion until the next quarter, specifically at the first quarter call, if that's alright, Josh. We have some rough estimates, but we prefer to provide precise details. We are addressing an appeal in this matter, so I want to avoid sharing anything that could potentially mislead. Do you agree, Jeff?

That’s fair.

Yes. I would agree on the specific number. I would say that included in our guidance that we gave today are our costs. We are refining those estimates obviously based on what we learn yesterday.

Thank you.

Hi. Thanks. Good morning.

Good morning.

I just wanted to follow-up on North Carolina and just as you continue to do the postmortem today on the results yesterday. Just interested in as you evaluate the awards, what do you think were the key reasons, why the state didn’t award Centene a statewide contract? And then, Michael, as you mentioned, you’re considering the appeal. Maybe help us think about some of the key sort of substantive points that you think that Centene can raise around the appeal?

I want to clarify that we are not unhappy. Winning the largest service region and the third largest is significant, and I view this as a win rather than a loss. The state may not have fully grasped our innovative approach, which has been successfully implemented by providers in the past. As they start to understand our model—something emphasized in the legislation—we believe that our partnership with the FQHC, the Medical Society, and other entities will become a successful model in North Carolina, especially when considering the historical performance of similar models. We aim to be a strong provider in those two regions, and we plan to examine their decision-making process. If our model works there, it could influence future standardization efforts. While there are various factors at play, we will collaborate with them and pursue an appeal. Regardless of the outcome, we are committed to being a strong partner with the states, and we foresee positive impacts on quality and cost-effectiveness in the long and short term for the state.

Got it. If I could just ask a related follow-up, I know you’re not ready to size the revenue impact from North Carolina, but we're trying to understand what the margin profile of the North Carolina business might look like. There are different dynamics at play, including the joint venture with providers, the minimum medical loss ratios in North Carolina, and other factors. Conceptually, how do you view the margin profile of North Carolina compared to the broader normalized margins you target in the Medicaid book?

I expect our margin over time because, as you know, we have always taken conservatism and said that for the first 3, 4 quarters as an investment period. In the MLR we booked high until we see that the system is understanding what's involved in the managed care profile and system that we use. And so, I mean, I don’t expect great, great margins in the first 3, 4 quarters. But I do believe that these margins will be consistent to better. And I think working with the providers effectively and just to give you a model we have some pretty good systems with Interpreta and Casenet and other things that will help make these providers particularly successful. And so, I see an opportunity for in '20, because, I mean, we are not going to start immediately. I do see over as the year unfolds, some opportunity for some upside on it. So I think we are going to be putting together a model here that others will when they emulate over time.

Thanks. Michael, can you address the contract extension disclosed last night? And it means for succession planning? And did the Board ask you to stay longer or did the impetus come from you?

I would say that as we move forward with succession planning as initially intended with the Board, we are making progress. While discussing succession planning, the Board inquired if I would be open to an extension, and I agreed. We are enjoying our work and experiencing success. I don't want to tempt fate, but we are fortunate to have good health and an excellent team that makes it enjoyable to lead. They are taking on more responsibilities, allowing me to continue my role and possibly fit in a few rounds of golf.

So succession planning is still like you want to continue in the meantime?

No, succession planning can be a point in time, but it can also be a process that can be implemented whenever one feels it's appropriate. I prefer this approach. It's business as usual, and it was their idea to extend it. I have many questions about it, and I want to reassure everyone in the company that there will be continuity and we will move forward.

Got it. I mean, if I can just squeeze one more. Can you just also confirm whether you're buying the QualChoice Health plan in Arkansas from CHI, and what the financial impact and timing would be?

Yes, we have the terms decided. We've not closed on it yet. And now we have to close, Jeff what, later this month, next month?

Yes, so we have executed the contract on that, Mike, so we'd expect to close in the second quarter. And I would just say, I mean, this is an end market transaction, so we tend to like those and look for those. So not material in the macro scheme but certainly Arkansas has been a good market, and we're excited to expand our presence there.

Thanks and congratulations on the quarter.

Thanks, Peter.

I wanted to ask about the expected startup costs in North Carolina for 2019 and 2020, considering your business doesn’t begin until 2020. Also, regarding 2020, could you discuss what changes might occur with silver overloading and the cost-sharing subsidies?

Yes. So, Pete, this is Jeff. I will handle the first question on the cost. I think what we said was we have some cost in for our 2019 guidance, but since we just got this information yesterday, it's a little early and we are reevaluating those costs. And I guess this is what I would say. So early for us to give a pinpoint number on that, given the information that came out yesterday. And on the second, I mean, we're not talking about 2020 guidance here today. So I don’t know if...

Hey, Peter, it's Kevin. Yes, you’re right. If you look at the '19 payment notice, they make allusion to that. I think, again, it's premature to think about what that might actually look like into 2020. We are going to be prepared to pivot irrespective of what the policy decides. And again as you know, within CMS a year is a long time. So we'll see what happens.

Yes, I believe we have two sides of the government examining these issues, and we think that can be a positive development if we can engage in constructive discussions. We will do everything we can to focus on policy rather than politics, as there may be significant opportunities arising from this.

Okay. Thank you.

Thank you.

Thank you.

In North Carolina did Centene submit a bid as a health plan also or only a PLE? And I’m wondering since the provider led entities could be awarded regions and health plan statewide. Can you speak a little bit to the strategy around deciding to submit a bid as a PLE?

We submitted both aspects, but we focused on the PLE. It's important to consider the historical programs in the state and the role of providers. Collaborating with the State Medical Society has been productive, as they are committed to providing high-quality care and are aware of the related costs. They wanted to partner with us because of our systems that can help them perform better and ensure a successful outcome for everyone involved. I believe that this approach is favorable, particularly in markets like North Carolina, where we have a rich history. Over time, I think this model will prove effective. Although we pursued both avenues, we recognized a significant need to highlight this aspect. The state appreciated the value, which is why we were awarded the largest and third largest regions instead of working solely with provider-led organizations. We plan to revisit discussions with them to explore potential expansions through the appeal process. Regardless of the outcome, this will still be a significant program, and it was fully represented in our Q1 call.

Got it. That makes a lot of sense. And one more question, if I can. If I look back at 2018, there were points of 2Q where consensus didn't really get seasonality right on a couple of different lines and that caused some confusion. So I'm wondering if there's any commentary you can offer around 2019 seasonality or cadence and how you see that different from 2018?

I’m going to make an opening comment and let Jeff take over. We don’t focus on consensus; we concentrate on the business and its development. Jeff, would you like to discuss seasonality?

Yes, yes. I think what we said in our December Investor Day. we've been trying to give more insight, I guess, to the seasonality of the business, giving a first half, second half view as far as how earnings progression goes. And I would say that the comment we made there, I think were consistent. So over 60% in the first half of the year. And again, as we continue to grow the marketplace business that shift continues to happen. I mean, the real driver of our change in seasonality is really the product mix. It's the diversification of the product mix. And so to the extent you have a higher mix of exchange, then you will pull more earnings forward to the first half of the year because of the: number one, that's when we have the highest level of membership. And number two, that's when we have the lowest HBR as a result of deductibles.

Okay. So even though you guys are doing much better on exchange growth than you thought at Investor Day, you still think the 60-40 net is an appropriate way to think about the year?

Yes, yes. I would think that's a good place to start.

Thank you.

Thanks. Hi, everyone.

Hi.

First of all, just to ask about Fidelis a little more. It sounds like, generally, on a broad sense, everything is tracking. Are there any pockets as you drill down where you see new opportunities, now that you have it for a while or are there any areas where you’re seeing challenges or that weren't anticipated?

I will begin, and others can add their thoughts. I believe it's an exceptionally well-managed company. We are satisfied with our progress and will keep our focus on social responsibility. For obvious legal reasons, it was crucial to appoint a new CEO, and we have achieved that, ensuring great continuity. The entire team is in place. Recently, he mentioned that since we announced the acquisition, the turnover rate has been the lowest historically, indicating high employee satisfaction. There are opportunities for further growth, particularly in improving the medical loss ratio with our systems. They are meeting all their targets and operating at a high level of efficiency. I remarked once that if we could find more businesses like this one, I would want to do one deal in the morning and another in the afternoon. They are truly a well-managed company.

Okay. I was going to also ask about Mississippi. In the press release, you highlight that you completed the implementation of the new PBM model. Can you update us on your thought about rolling it out to other markets and will you wait for sort of proof-of-concept? In Mississippi, you play out for a little while or how should we think about that?

No, we are actively rolling it out now and I want to do it as effectively as possible. I want to ensure that it is successful. It is working incredibly well in Mississippi, and we are confident about expanding it to additional markets. We are currently working on that, and by the end of 2020, we aim to be in all markets. However, I don’t want to rush the process. It's a great system, and I believe it will set the direction for the future of pharmacy benefits.

Okay. What’s the most significant economic benefit of making that transition that you’re seeing in Mississippi?

There are administrative expenses associated with the cloud-based system, and we can significantly reduce these costs. I'm collaborating with John Sculley, Ravi, and their team, who are truly innovative and creative. I am committed to exploring the possibility of moving to net pricing instead of relying on rebates. I believe they have the necessary systems, skills, and capabilities to engage in these discussions. While this won't happen overnight, there is considerable importance to our efforts. What they are doing is very innovative, and as we demonstrate more of it, you will notice the impact.

Yes. Good morning. Could you talk a little bit about in the Medicaid book, medical cost trend and management, in particular, if could just kind of hit up on some color on what's doing better-than-expected, what’s doing worse? How important the original restrictive networks are, and what's going on with risk profile at the state level with some of the reenrollment efforts that are taking place at those levels?

Jeff, you want to comment on that?

We observed an improvement in Medicaid during the third quarter, which is due to several factors, including our management network initiatives and premium rate adjustments, along with stable cost trends in the fourth quarter. Regarding the risk profile, it’s important to examine it on a state-by-state basis. When looking at the business overall, one advantage of diversification is that the risk profile has remained fairly consistent.

I would like to add that when you consider the scale and size we have, particularly in newer markets like Mexico with a population of 65,000, we achieve a balanced book of business. We anticipated having some healthier segments, and as we review the entire portfolio, we're observing that. Much of this is due to our size, being the largest Medicaid provider. Additionally, as Jeff pointed out, we operate in 31 states, which strengthens our position. I remind investors that there may be instances where one or two stocks in their portfolio are underperforming, but in our case, while we may encounter some challenges in specific areas, we have others that perform well and balance those out, providing us with a sense of security.

And can you just talk to the or just clarify on the behavioral membership for the quarter? What was the decrease in that? Does it go into an integrated medical offering?

Yes, it's progressing, and we are increasingly shifting towards integrated medical services. I want to accelerate this process as much as possible because I believe it's crucial. For example, when someone is newly diagnosed as diabetic, I strongly feel they should speak with a behavioral specialist as soon as possible, as it provides better management of their overall medical condition.

Yes, the membership decreased. We previewed this at our Investor Day. It was really a behavioral health only program in Arizona that was integrated with the traditional Medicaid program. And so while the membership decreased quite a bit, the revenues are up on a consolidated basis. So lower membership, higher revenue because it's been integrated with the physical health.

Good morning, guys. Thanks for the question.

Good morning.

Just one quick one on the marketplace. I missed the minimum MLR accrual number. If you can just give us that once more, and then maybe just let us know where 2018 margins ended for the business?

Yes. So, I think approximately $260 million. And as I said, in our December Investor Day, we are not going to give it. It's a competitively priced product, we are not going to give a specific margin number.

Okay. All right. Fair enough. And then the other question I had, we are hearing a little bit more sort of anecdotally around the eligibility redeterminations in Medicaid, potentially affecting risk pools and making for a bit of a short-term blip as some of the MCOs go back to the states for better rates. What are your views on whether or not that's happening? And if it is, maybe it's just part of sort of the uptick in Medicaid rates where you’re looking for 1.5 composite increase in '19 or just one in '18 or how should we think about that if that's not really behind that?

You need to consider this on a state-by-state basis. We've observed that redeterminations have influenced the risk pool, and states have generally responded quickly. I wouldn't label this as significant. While it is beneficial, it doesn't play a major role in medical costs when you examine the actual number of redeterminations. However, states have made adjustments relatively swiftly following these redeterminations. The acuity mix varies by state, and in some cases, the redeterminations have had no impact on acuity.

Yes, it's once again the law of large numbers with a large number of states involved.

That’s helpful. And then the acceleration in the rate, is there anything specifically we can sort of think about is driving that?

The acceleration in what rate? The composite.

The composite. Yes, the composite rate, 1.5 versus 1 in '18.

Yes, I believe I mentioned this during our December Investor Day. We have certain states that are achieving long-term margin performance. Some of this is related to rating issues, and we have seen and are forecasting some improvements in rates in 2019.

Hi. Good morning.

Good morning.

Its Dave Styblo on for Dave Windley. First question I have was just on the Medicaid business. It seems like that’s driving the MLR move into the bottom end of your 2018 guidance range. I would be curious just to get a better sense of where the margins are at this point and we're hearing peers, obviously, talk about net margins getting close to 3% over the next couple of years. Do you think that's something possible for Centene or is there some business mix or other structural considerations that might make it hard for you guys to replicate that type of profile?

Yes, I commented on this in our December Investor Day where we've also grown faster than anybody else in the industry on the Medicaid side. And as Michael mentioned before, when you're starting of these new markets, you have compressed margins versus what you would say is your long-term margin target. So I think from our standpoint we still think 3% to 5% is a good margin target. And just because of the mix and the growth that we've had, it's probably different than our competitors.

I would like to add something. When you look at our net margin of 50 basis points, it's straightforward to speculate about future outcomes. However, we prefer to emphasize our ongoing commitment to margin expansion while growing the business. We aim to deliver on this rather than simply stating a specific target, which can be easy to do. I've learned that in Brazil and other places, people will accept anything. Therefore, I will clearly state that we will continue to expand this business, which I find impressive. We will actively pursue margin expansion through systems and other capabilities to enhance outcomes and lower costs.

Yes. I think you just have to watch the regulatory environments. Always something that can potentially influence margins, but our plan is that we want to expand margins on our existing business across most of our products.

Hi. Good morning. Just a couple of questions left. The first is on the 2019 exchange enrollment, have you guys disclosed or be willing to help us with, on the four new states, how much does that contribute to the 250,000 increase at Fidelis?

Jeff?

Yes. I guess, what I would say is, consistent with what we've done historically, it's not the largest driver of membership growth. Typically, when we go into new markets, it's a test and learn approach. And I think we followed that for the new markets this year. So it's not the majority of the driver of the membership growth. It really is coming from existing markets that we’ve had.

Okay. My second question is that cash from operations for 2018 was negatively impacted by about $1 billion due to California accruals that were settled this year. If we exclude that, free cash flow appears quite strong relative to earnings. As we look ahead to 2019, could you remind us if there are any significant deviations from your long-term guidance of 1.5x to 2x cash from operations compared to earnings?

I believe the 1.5x to 2x range applies. There are always timing issues to consider, such as state payments that may not be received by the end of the quarter or year but could arrive in the following days. Given our size in certain states, these can be significant. So, while there are timing matters that arise, I can't recall anything similar to the $1 billion of MLR payables we experienced in California.

Thanks, good morning. So you ended with a 1.46 million fixed numbers. You mentioned the $2 million which I understand is sort of the peak number. And I think you also said, 250,000 year-over-year, so just wanted to clarify that. sort of year-end membership on the hicks, somewhere in that kind of 1.7 to 1.8, is that the right way to think about it?

We don’t provide the year-end numbers. Clearly, there was some attrition from the peak membership. If you refer back to our Investor Day slides, the peak in 2018 was $1.650 million. You add $250 million on top of that, along with the addition of 80,000 members from Fidelis, which brings you close to $2 million. However, we are not providing a year-end number for 2019.

Okay. Is there any reason to think that it wouldn’t just be similar to prior years in terms of ending versus peak?

Yes, I would expect to normal attrition rate. That’s certainly what we’ve forecasted.

Okay. That’s helpful. And then, just real quick, effective tax rate, we should use for 2019? It's in the guidance, I provided that in the guidance this morning.

Yes, yes. It's in the press release.

Okay. And one more, if I could. Can you just remind us the level of incremental, maybe strategic investment that you call out and just framing on sort of the ongoing expense or if you see that pace flow. Thanks.

Yes, I think what we said, now this is on a split adjusted basis, obviously, 12 to 14 cents.

I want to thank everyone for their questions and time. We look forward to maintaining our record year after year. Have a good first quarter, and we will talk to you soon.