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Edited Transcript of CNC.N earnings conference call or presentation 28-Jul-20 12:30pm GMT

Q2 2020 Centene Corp Earnings Call

ST. LOUIS Jul 28, 2020 (Thomson StreetEvents) -- Edited Transcript of Centene Corp earnings conference call or presentation Tuesday, July 28, 2020 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jeffrey Alan Schwaneke

Centene Corporation - Executive VP, CFO & Treasurer

* Jennifer Gilligan

Centene Corporation - SVP of IR

* Michael Frederic Neidorff

Centene Corporation - Chairman, President & CEO

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Conference Call Participants

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* Albert J. William Rice

Crédit Suisse AG, Research Division - Research Analyst

* Charles Rhyee

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* David Howard Windley

Jefferies LLC, Research Division - MD & Equity Analyst

* Gary Paul Taylor

JPMorgan Chase & Co, Research Division - Analyst

* George Robert Hill

Deutsche Bank AG, Research Division - MD & Equity Research Analyst

* Joshua Richard Raskin

Nephron Research LLC - Research Analyst

* Justin Lake

Wolfe Research, LLC - MD & Senior Healthcare Services Analyst

* Kevin Mark Fischbeck

BofA Merrill Lynch, Research Division - MD in Equity Research

* Lance Arthur Wilkes

Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst

* Matthew Richard Borsch

BMO Capital Markets Equity Research - Research Analyst

* Ralph Giacobbe

Citigroup Inc., Research Division - Director

* Rivka Regina Goldwasser

Morgan Stanley, Research Division - MD

* Sarah Elizabeth James

Piper Sandler & Co., Research Division - Director & Senior Research Analyst

* Scott J. Fidel

Stephens Inc., Research Division - MD & Analyst

* Steven James Valiquette

Barclays Bank PLC, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Centene Corporation Second Quarter 2020 Earnings Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Jennifer Gilligan, Head of Investor Relations. Please go ahead.

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Jennifer Gilligan, Centene Corporation - SVP of IR [2]

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Thank you, Jason, and good morning, everyone. Thank you for joining us on our second quarter 2020 earnings results conference call.

Michael Neidorff, Chairman, President and Chief Executive Officer; and Jeff Schwaneke, Executive Vice President and Chief Financial Officer of Centene, will host this morning's call, which also can be accessed through our website at centene.com.

Any remarks that Centene may make about future expectations, plans and prospects constitute forward-looking statements for the purpose of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in Centene's most recent Form 10-Q filed today, July 28, and 10-K dated February 18, 2020, and other public SEC filings, including the risks and uncertainties described with respect to the potential impacts of COVID-19 on our business and results of operations.

Centene anticipates that subsequent events and developments will cause its estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so.

The call will also refer to certain non-GAAP measures. A reconciliation of these measures with the most directly comparable GAAP measures can be found in our second quarter 2020 press release, which is available on the company's website at centene.com under the Investors section.

Additionally, please mark your calendars for our third quarter earnings release, which is expected to take place on October 27, 2020.

With that, I would like to turn the call over to our Chairman, President and CEO, Michael Neidorff. Michael?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [3]

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Thank you, Jennifer. Good morning, and thank you for joining Centene's second quarter earnings call. We hope all of you and your families are staying safe and well.

There is a lot to discuss today, especially as the environment around us continues to rapidly evolve. I'll start by reiterating our confidence in the strength of our business. Centene was built to endure and manage through times of uncertainty. We have a strong balance sheet with ample liquidity, we have experience with crises, we have emerged from prior recessions with strong growth and we see opportunities for continued growth today.

With our scale, our diversity, our systems and our impact, we are confident in the strength of our business and our ability to continue to lead through this crisis. You have heard me say we make decisions based on the facts as they are today, and never has this been more true or appropriate as we manage our business in this pandemic environment.

I stated several months ago that we expect the environment and our financial results to be choppy from quarter-to-quarter. And I want to reemphasize, nothing can be truer than that today.

It is increasingly clear that we are going to be living with this pandemic for some time and probably well into next year. We are planning our business with that in mind. I'll remind you about the assumptions we made in June about what to expect in the development of this virus. At that time, we expected the initial spring peak will be followed by smaller spikes during the summer and a potential second wave in the fall. However, the current trajectory shows the infection rates are rising significantly across a number of key states, and case counts continue to go up, which differs from what we expected only a few weeks ago. With this trend in mind, we will continue to provide you with transparent updates and give you our best estimates as to how we see things at a particular point in time.

First, utilization. Utilization returned to more normalized levels towards the end of the second quarter. Volume began to return in May, and June was virtually a normal month relative to prior years. With the recent surge in the virus, we are seeing some decline in utilization in July. Note that this data is preliminary and includes COVID-related costs. While we believe hospitals are better prepared to manage COVID cases after learning from the experience of the initial outbreak, there are indications that some hospitals are reverting back to delaying elective procedures, if necessary, based on a regional infection rate.

Next, COVID-related costs. Centene has the capability and bandwidth to navigate ongoing COVID-related expenses. Based on the facts as we see them today, we are seeing COVID-related expenses increasing, which is offsetting decreased utilization. But again, as I stated, these are not normal times, and we continue to expect the environment to remain dynamic.

Case in point is our membership and revenue as expected. You will recall in April, we raised our 2020 revenue guidance by $6 billion, including $4 billion in COVID-related membership growth, which included the expectation that new membership would peak in August.

Based on recent COVID-related membership trends, we now expect new membership peak -- to peak in November, resulting in a $500 million reduction in revenue against what we had forecasted only a short while ago. Membership is coming in at lower rates than initially anticipated, and lower growth was expected based on unemployment trends. This is driven by an assumption that unemployment may be temporary and by enhanced unemployment benefits and federal rates, which are all contributing to lower application rates.

The trajectory of our membership growth for the remainder of the year will continue to be improved by various external factors, which may shift our revenue expectations up or down. However, to put the impact of membership growth in context, we still expect to add a total of $3.5 billion in COVID-driven revenue to 2020 as compared to the original guidance we provided in March.

Our earnings guidance for 2020 remains consistent with what we provided at our Investor Day. At our scale, the earnings impact of $500 million is reduced -- in reduced revenue can be offset. We recognize and are prepared to continue with the uncertainty based on what we know today. Our earnings guidance continues to be our most reliable baseline and remains our best estimate based on our revenues as well as utilization and COVID-related costs, among other factors. We remain comfortable with our current range.

With that as a backdrop, let me turn to our second quarter results. Our results were in line with our guidance, which underscores the effect of the shareholder-in-place policies on our diversified membership platform as well as our team's solid execution in a challenging operating environment. We reported second quarter revenue of $27.7 billion, an increase of 51% over the second quarter of 2019. Adjusted diluted earnings per share was $2.40 compared to $1.34 last year. This represents growth of 79%.

Our membership was approximately 25 million at the quarter end. This represents sequential growth of 3% and year-over-year growth of 64%. Due to the uniqueness of today's environment, we expect 2020 earnings per share to be front-half loaded. Applying the midpoint of our guidance, first half earnings per share of $3.31 would represent approximately 68% of our full year EPS. Overall, these results were solid.

Looking ahead at the remainder of the year, the intensity and duration of the pandemic remains a primary driver of uncertainty. But we are built for uncertainty and believe we are in a strong position to continue to execute against our strategy and grow our business. We continue to hire talented and diverse individuals, who contribute to our focus on improving the member and provider experience through technology.

Over the past few years, I've spoken about our ambition to transform Centene into a technology company that does health care, recognizing the critical role of technology and providing extraordinary member and provider experiences to 25 million individuals, that's nearly 1 in 15 Americans. We have made significant investments in modernizing our systems. And earlier last month, we announced an investment in our new East Coast headquarters, which will be our hub for technology talent.

Today, I'm pleased to announce yet another step forward in achieving our technology aspiration through the hiring of additional talent to the already present in our organization. Adding to current management, we are pleased to welcome Sarah London and Bryan Sivak to our technology team. Sarah most recently served as partner for Optum Ventures, working closely with portfolio companies on product strategy and expansion. Bryan most recently served as Managing Director for Kaiser Permanente Ventures, where he led investments in health care-focused organizations and transformative efforts. Both Sarah and Bryan will help accelerate innovation, modernization and digitalization across the enterprise.

In addition, since March, we have hired over 3,800 individuals, and we will continue to invest in our talent to enhance the value we deliver to our members and communities. At the same time, we continue to operate in a remote work environment, but I am generally pleased with the levels of productivity and engagement across our business. And we have made the required investments in our office environments to ensure the safety of our people when it is appropriate for them to return. For example, we have installed plexiglass between cubicles, temperature scanners and automatic door openers. We also continue to have courageous conversations within our company about racial and social justice. Centene has a diverse workforce at every level of the company, including our Board of Directors, and we continue to recruit and develop diverse talent, but knowing that everyone hired at Centene is hired because they are the right person for the job.

Let me now comment on discussions we're having with our states. As states move to reopen, we are working closely with our state and federal partners to develop solutions that address the cost dynamics sufficiency. With state budgets under constraint, the role of managed care companies like ours, which maximize member outcomes and cost savings, has never been more important. While we do expect some short-term pressure on rates, these rates have to be actuarially sound. Our 2020 guidance incorporates what we know at this time, and the majority of our conversations with states have been highly constructive.

In addition, we are encouraged -- we are all encouraged by ongoing budget discussions in Congress and the review of expanded FMAPs. Longer term, we continue to believe that additional states will consider managed care as a solution to their health care needs.

For example, in Oklahoma, the state has announced its intent to release an RFP in the fall of 2020. We are in active discussions with our state partners to ensure we are taking a holistic view on rates beyond 2020, taking into consideration a return on normalized utilization and COVID costs as well as appropriate risk-sharing mechanisms.

In summary, Centene has risen to the occasion by delivering on our mission of providing high-quality, low-cost health care to the most vulnerable populations during this time. We are confident in the strength of our business. And as I said, our balance sheet is strong, we have ample liquidity and we continue to see significant opportunities for future growth as we apply our all products, all market strategy.

The RFP process slowed during the pandemic, but it's now picking up in our Medicaid business. And our Medicare Advantage business remains a strong untapped opportunity. As we have mentioned, before we have emerged out of recessions with strong growth in membership and new state contracts in the past, and we continue to believe that we are well positioned to execute on both on short- and long-term growth strategy.

Finally, I again want to thank and recognize our employees for their commitment and dedication. I could not be more proud of how we work together to serve our members.

Before I turn the call over to Jeff, let me apologize for my allergies acting up in my voice. And with that, let me turn it over to Jeff, who will provide our financial details.

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [4]

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Thank you, Michael, and good morning, everyone. First, I will provide comments around the quarterly results, then I will offer more detail around the key variables that Michael just discussed. And finally, I'll walk through our updated full year guidance.

This morning, we reported second quarter revenues at $27.7 billion, an increase of 51% over the second quarter of 2019. And adjusted diluted earnings per share was $2.40 this quarter compared to $1.34 last year. These numbers were in line with the guidance that we provided at Investor Day in mid-June.

As expected, our earnings for the second quarter of 2020 were uniquely impacted by the COVID-19 pandemic through muted medical utilization and increased membership. Total revenues grew by approximately $9.4 billion over the second quarter of 2019, primarily as a result of the acquisition of WellCare, membership growth in Medicaid and the health insurance marketplace business and expansions in new programs in many of our states. Our HBR, or health benefits ratio, was 82.1% in the second quarter compared to 86.7% in last year's second quarter and 88% in the first quarter of 2020. As anticipated and highlighted at our Investor Day, the HBR was low by historical measures, and the decline was primarily driven by a reduction in medical utilization as a result of the COVID-19 pandemic, partially offset by increased costs associated with COVID-19 claims.

Utilization was down across all of our business lines. The majority of the reduction in volume was driven by ER claims and other non-inpatient costs, including fewer elective procedures, PCP visits and specialist visits. Utilization declines were partially offset by COVID-related medical costs, including inpatient and ICU admissions, testing and treatment.

In terms of monthly trends, utilization deferrals experienced during April and May, largely reversed in the month of June. June claims activity was near the historical norm.

Cash flow provided by operations was $3.7 billion in the second quarter or 3.1x earnings. The cash provided by operating activities in the second quarter of 2020 increased due to the net earnings growth, $1.4 billion in collections of previously delayed capitation payments and an increase in other long-term liabilities, driven by the recognition of the risk adjustment payable for health insurance marketplace in 2020. We continue to maintain a strong liquidity position of $1.1 billion in unregulated cash on our balance sheet at quarter end.

During the quarter, we utilized $500 million of our unregulated cash to pay down our revolving credit facility. Debt at quarter end was $16.8 billion, which includes $89 million of borrowings on our revolving credit facility. Our debt-to-capital ratio was 39.7%, excluding our nonrecourse debt, compared to 41.9% in the first quarter of 2020. Our debt-to-capital ratio would have been 38.1% when netting our unregulated cash with our debt at quarter end.

Our medical claims liability totaled $11.4 billion at quarter end and represents 51 days in claims payable compared to 47 days in the first quarter of 2020. DCP was impacted by the timing of medical expense during the quarter, with lower medical costs primarily in April contributing to the metrics increase.

A quick update on the WellCare integration. In July, we successfully integrated the WellCare business to the Centene financial and HR systems. The integration continues to be on track, and we remain comfortable with our synergy capture efforts.

Turning now to our 2020 expectations and our updated assumptions regarding the key dynamics and variables we continue to monitor closely, which are informed by additional data since our Investor Day and month end.

The midpoint of our year-end unemployment expectation continues to be 10.3%, which is consistent with what we provided at our Investor Day. We now expect peak membership growth of 1.4 million members to occur during the fourth quarter. This represents a change from the projection of 1.9 million new members provided at our Investor Day, which was forecasted to incur in August. As Michael mentioned earlier, new membership has enrolled more slowly than previously expected. We believe the temporary nature of some of the unemployment -- enhanced unemployment benefits and employers furloughing rather than terminating employees has all contributed to lower application rates than what is implied by overall unemployment levels. For example, in California, we have not seen significant membership growth since the onset of the pandemic.

In terms of utilization trends in the back half, we continue to expect normalization as the economy recovers and our members go back to visiting doctors' offices in receiving treatment. Our early look into our July claims shows a slight step-down in utilization compared to June as a result of the regional infection spikes occurring across the nation. This trend may or may not last depending on the spread of the virus in various states. And again, the numbers we are seeing from our July claims are very preliminary.

Through the end of June, we have paid approximately $550 million associated with COVID claims. This compares to $221 million we discussed at our Investor Day. One thing to highlight, the cost we have categorized as COVID costs include all the claim codes consistent with CDC guidelines. This includes costs that are not associated with confirmed positive cases, and may include costs that are not related to COVID at all.

Finally, I'll translate these factors into our updated 2020 financial guidance. We now expect revenue to be within the range of $109 billion and $111.4 billion. This is $500 million lower at the midpoint than our previous guidance, driven by the previously mentioned membership expectations.

As Michael mentioned earlier, we are providing our estimates based on where we are today. Ultimately, how membership continues to increase for the remainder of the year will affect our revenues.

However, just to add some perspective, our revenue guidance continues to be $5 billion higher than our original March guidance at the beginning of this year. This is a higher baseline from which we can continue to grow into the future.

We are maintaining our adjusted diluted earnings per share guidance of $4.76 and $4.96, driven by our overall updated projections of medical costs and revenues. With respect to rates, we continue to work with our state partners on various risk-sharing mechanisms and advocate for actuarial soundness. We have included a reasonable amount of rate actions in our guidance today. However, there continue to be a lot of unknowns, and the majority of our state partners are focused on 2020. It is our understanding that a majority of the proposals received to date have not been approved by CMS. Additionally, there continues to be discussions in Congress of additional support that would provide relief to state budgets and affect any potential changes being contemplated by the states.

As we think about earnings progression for the balance of the year, we expect third quarter adjusted diluted earnings per share to be approximately 20% of the full year 2020 EPS.

A quick note on quarterly versus full year modeling. As a result of the WellCare acquisition closing in the first quarter, the full year weighted average share count is substantially lower than the second through fourth quarters. We anticipate continued choppiness as a result of the unpredictable nature of utilization trends at this time. The scope, duration and intensity of additional COVID-19 infection spikes could have a material impact on the results for the rest of the year.

I'll conclude my remarks by reiterating our confidence in the strength of our business. Our balance sheet remains strong and we have ample liquidity to meet our operational and strategic needs. We remain focused on executing against our strategic plans and are committed to delivering shareholder value.

That concludes my remarks. And operator, you may now open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Josh Raskin from Nephron.

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Joshua Richard Raskin, Nephron Research LLC - Research Analyst [2]

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First question, just around the rate proposal conversation that Jeff was mentioning. I think you said that some of the rate proposals at the state level have not yet been approved by CMS, and you continue to talk about advocating for actuarial soundness. I just want to understand, are these proposals, what you're seeing in the states, is that what's incorporated into guidance as you sort of mentioned that you're including a lot of this in guidance? Or is there a risk that those state proposals are actually approved, and that is not consistent with actuarial soundness or something like that, that would change your guidance?

And then I'm sorry, but the second question would just be on the vaccine potential. Are you assuming that states will cover the cost of a vaccine, whether that's later this year, hopefully, or if not into next year? And maybe how would you like to see the vaccine reimbursement work?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [3]

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Okay. Let me start off first, and then Jeff can add to that but...

(technical difficulty)

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Operator [4]

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Pardon me. It appears we have been disconnected with the main speaker line. Please hold while we get in touch with the speaker.

Thank you for your patience. We're getting reconnected with the speaker as we speak right now.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [5]

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Josh, Josh, can you hear me now? Josh, are you able to hear me now?

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Joshua Richard Raskin, Nephron Research LLC - Research Analyst [6]

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Yes, absolutely. You want me to repeat the question or did you get it?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [7]

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I don't know what happened. We'll start right over. I don't know where I stopped. But on the rates, the state can, adjusting under the super ratings by 1.5% subject to programmatic changes approved by CMS. CMS has been very consistent with the need for actuarial soundness. There have been some states earlier in the year that tried to get them to waive it, and they said, no. So we'll continue to work with them. The guidance does include those things we know that make sense to do, have agreed to with the states and maintain actuarial soundness. So we'll continue to keep you informed, but there's no draconian things taking place that we see at this point in time.

We also -- the FMAP, Congress is now talking about extending the existing 6% one, and there's some talk about expanding it. You may recall at our conference -- investor conference, where the prior Medicaid director from Arizona, talked about the need to set a date, but we've been talking to congressional representatives about the need to put a date certain in, so states have a better place to -- have a better basis to plan for it. So we continue to work through it, and it's something we've done ever since we've been in this business.

Jeff, anything you want to add on that?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [8]

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No. I think as Michael mentioned, they did extend the FMAP enhancement to 90 days. And I think the biggest point here that we keep advocating with states that there's just a lot of variables to go on between now and the end of the year, right? You have the COVID costs, you have utilization, you have potential federal stimulus. And so I would just say if you package all that up, it's very fluid at this moment.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [9]

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And the second question of...

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [10]

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Vaccine. Cost of that.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [11]

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Vaccine. We have had a lot of discussions. However, we don't know what the cost is going to be or how we're going to do it, and we still have to see the vaccine. So as this unfolds, if I approach states on that now, they're going to say they have more current issues, Josh, really. But historically, that would be a requirement, once again, to keep things sound.

So when things like hep C came out, we had no trouble, which were very expensive. So I've even heard some talk where the government for public policy reasons or political reasons is talking about making vaccines available for mapping. So we will let that one play out a little bit.

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Operator [12]

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The next question comes from Ralph Giacobbe from Citi.

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Ralph Giacobbe, Citigroup Inc., Research Division - Director [13]

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Just on the rates again, you did note some near-term or short-term pressure, and it sounded like you embedded some of that in guidance. So I guess I was just hoping to get a little sense of magnitude, the short-term nature, like what is that duration? And then if the revenue reduction at all relates to any of these pressures?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [14]

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Yes. Thanks, Ralph, this is Jeff. I mean again, as Michael mentioned, we're currently in active discussions with our states. And the starting point is rarely the ending point or ending result. And it just -- it really isn't constructive for us to publicly discuss our individual state expectations or an aggregate number. That being said, we continue to believe that we're on a path in many states towards finding actuarially sound solutions to the budgetary strain. And we would like to also point out that, at this point, again, just a reminder of the federal -- potential for federal stimulus.

So I guess what I'd say is we've included, I think, a reasonable assumption of rate adjustments from now to the end of this year. And that -- the out of bounce, I would say, that's what we're pushing to make sure it doesn't happen is that we find rates that are actuarially sound. And I think that's what Michael just talked about.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [15]

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Let me help on one other regard. The states, initially, when they saw the reduced utilization, they go, "Oh, you're saving all this money." Well, they now understand that utilization will come back in the second half of the year had it followed that path. And they also see, as we reported in July, while utilization may be down elective procedures, that's being offset by COVID costs. So they're now understanding that there's no windfall over the course of the full year. And so we told them that you really have to look at these things on a rolling 4-quarter basis or 6-quarter basis because we're experiencing things that nobody's experienced, and they're starting to understand that.

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Ralph Giacobbe, Citigroup Inc., Research Division - Director [16]

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Okay. That's helpful. And if I could just follow up on that point, the 2020 utilization. I think in the release, you talked about it being sort of regionally driven. Can you help in terms of the patterns maybe you saw in areas that were early hotspots, like New York? And where utilization is there now versus some of the more recent hotspots in the south and where that utilization is?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [17]

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I can tell you what we saw last night, when we eventually went to sleep after getting our scripts done. But -- and Florida was -- had higher utilization for COVID, and then more ER -- more ICU bed in New York. But we have to be so careful in how we say this because as somebody opens up, we see it jumping. Missouri, they just announced they're going to roll back some of the things they opened up. Restaurants, they now are back to 25%. Bars are closing at 10:00. I mean they're talking about virtual schools.

So honestly, it's shifty. I mean Arizona was very low for our high. Texas was incredibly high. It's starting to back off a little bit. So it's a variable from day to day. So it's very hard to give you any kind of really specific well-grounded statement. Hope you understand that. That's what we're talking about.

The dynamic of this thing and making decisions based on how things are right now at this moment.

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Operator [18]

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Our next question comes from Charles Rhyee from Cowen.

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Charles Rhyee, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [19]

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Sorry, just one more follow-up on the rate. Is there any deadline in terms of when CMS has to make a decision on approving the state's proposals? And could these kind of stretch into next year and just be retroactive?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [20]

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I'm not aware of any deadline. I think it's just more process-oriented than anything. Just that it takes time to get the information to the government. And obviously, there could be some back and forth if they have questions. So I don't think there's any hard and fast deadline, but sometimes that process just takes a while.

And I guess what I would say is it's not like every state has come and said, "Oh, we need to make rate adjustments." There's a lot of states that we operate in that are just taking a wait-and-see approach.

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Charles Rhyee, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [21]

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Okay, it's rate increases.

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [22]

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Yes. So I guess what I would say is, I think it's just going to depend on how this plays out the rest of this year on utilization and COVID costs. And so it's just a handful of states that are thinking about some risk-sharing mechanisms. A lot of our states already had risk-sharing mechanisms in place, and they're good with those. So I think there's just more to come.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [23]

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I think also there was a case -- in some cases, they're taking the -- what the providers are paying down and [pass that]. So I think New Mexico was one...

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [24]

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Yes. Nevada.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [25]

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Nevada was one of them where they...

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [26]

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Nevada, we saw that yesterday where it was a fee schedule change effectively, so which is primarily neutral for us. But another way -- another option that obviously states have.

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Charles Rhyee, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [27]

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Great. And if I could just follow-up. I mean you've kind of touched on it in terms of we're starting things -- see things pick up in like Florida and Texas. How are you thinking about whether -- are you treating this as a second peak in infections or part of the first peak? And if that's the case, are you still assuming maybe then a third one as we get into the fall/winter again?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [28]

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I think -- I'll start there. The epidemiologists that I'm speaking with, I'll be very honest and very candid, I told them -- we told employees, we'll give them 30 days notice before we reopen. And I said to them, I think maybe I don't see us reopening fully, we will open at -- well,[I was first in the office] right now, but until after January 1. And he said to me, one of them said, I don't think you'll regret that.

So what we're saying is it's so fluid and so dynamic that it's just moving along. What I mean, [let's home what] I'm concerned about, none of this affects the performance of this company. It's just recognizing these things are there, so you deal with it ahead of time and create the right expectations. But if we have a bad flu season, that combined with COVID, could be a very serious combination. And so we're working very hard.

Now I want to get this commercially, and we're doing a PSA to help people understand it. Everybody is telling us, until we have a vaccine, the next best thing to do is wear your mask and encourage others.

And I'm going to take some poetic license to talk through what my epidemiologist told us. A couple of them. Total in Japan, there's 127 million people. And now you know, the Asian culture is masked for years. It has gone back in '80s. If somebody thought they have a cold, you wear a mask not to offend somebody.

During the time that we had 100,000 deaths, they had 832. In Hong Kong, very congested. During that same period of time, with 7 million people, they had 4 people die because they wore masks.

So if we can -- it depends. If people start to realize what they can do to help themselves and choose some good judgment, that can impact it. So we're doing all we can, as I am right now, trying to help people understand it. So I am hopeful that we will start to mitigate the intensity of the COVID until we have a vaccine. I'm also hopeful that we have a treatment, which will be very important. I was watching on one of the stations today, there's some talk about that they hope to have some of that. So it's something we've never experienced, but I'm comfortable that we have the expertise, the capabilities to deal with it.

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Operator [29]

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The next question comes from Kevin Fischbeck from Bank of America.

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Kevin Mark Fischbeck, BofA Merrill Lynch, Research Division - MD in Equity Research [30]

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Great. Just wanted to ask about the revenue decline. You mentioned low enrollment. Is there anything particular you spike out as to -- was it more Medicaid enrollment or exchange enrollment that was coming in lower?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [31]

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Yes. Yes, Kevin. Thanks. It's on the Medicaid side. And I think what's interesting is it's just -- it's sporadic, it's different by state. We saw good growth in Florida, but hardly any growth in California. And so I think what you're seeing is just the dynamics of the unemployment market. So -- but in general, effectively, the membership is coming in slower than we would have anticipated. And really looking at historical crises, financial crises and trying to align membership growth with unemployment is not spot-on at this time. So we effectively lowered the membership expectations, and that's what the $0.5 billion is for.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [32]

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It's still strong growth. And I can emphasize that, how this is. Timing.

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Kevin Mark Fischbeck, BofA Merrill Lynch, Research Division - MD in Equity Research [33]

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And I guess the other question I have would be on the exchanges. You guys mentioned that the margins on the exchanges are kind of coming back to normal. I just want to understand how you're thinking about that comment with COVID putting downward pressure on volumes, I would think that margins would be higher. But then you're also, I guess, giving some waivers on premium. Just -- how are you basing that comment? And where are all the puts and takes in there?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [34]

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Yes. Yes, Kevin, thanks for the question. I think what I would say is we've kind of included COVID into one line item, right? So you're backing it out of all the product performance. And then you're looking at, okay, absent COVID, what does it look like? And I think that's what we would have expected for this year. Again, in the exchange business, we've talked about margins normalizing. And so I think that's in line with what we were thinking. But I would say as far as the COVID impact, the way we looked at it is we tried to do our best to put COVID into one line item and then look at performance.

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Operator [35]

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The next question comes from Scott Fidel from Stephens.

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Scott J. Fidel, Stephens Inc., Research Division - MD & Analyst [36]

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Actually, just wanted to follow back up on the exchange topic as well. And just interested in terms of what -- I know it's still pretty early here, but what the enrollment mix is trending like post pandemic in terms of what you're seeing in terms of acuity and then folks coming in from -- possibly from previously being employed? And then sort of rolling that forward, I know it's a challenge, but how you're approaching pricing for the exchange business for 2020?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [37]

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Yes. Yes. I think it's still a little early, but I don't think we've seen anything that would indicate the acuity is different than the larger book. And I guess what I would say is the majority of the customers had previously had health insurance.

And the other thing is we've actually got our proportionate percentage, our market share percentage, of the growth. But the other thing that's also happened is we've held on to members longer because of the premium assistance effectively. So really, you're talking about holding on to members that we've already had, and then you have the new enrollment. So the mix is, I would say, more weighted towards retaining the enrollment that we had at the beginning of the year.

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Scott J. Fidel, Stephens Inc., Research Division - MD & Analyst [38]

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Okay. And then just a follow-up question, just on one of the stats in -- for Medicare Advantage. It looked like the PMPMs were down sequentially by around 4.5%. And just wanted an update on sort of what drove that. Was it just changing your accruals on things like risk adjustment, just given the lower utilization that you've been seeing? Or anything else going on there that you can flag for us?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [39]

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Yes. I can't think of anything unusual that would have impacted the PMPM. It could be mix. But I don't have the specifics sitting here with me right now.

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Operator [40]

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The next question comes from Ricky Goldwasser from Morgan Stanley.

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Rivka Regina Goldwasser, Morgan Stanley, Research Division - MD [41]

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First question is on the comment that you made, Michael. I think you talked about taking a holistic view on rates beyond 2020. Maybe you can elaborate a little bit about what does the holistic encompass?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [42]

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I'm sorry, you're talking about -- will you -- COVID rates, you said? I missed part of that, Ricky.

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Rivka Regina Goldwasser, Morgan Stanley, Research Division - MD [43]

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When you talked about state rates and Medicaid rates, you said you're taking more holistic views on rates beyond 2020 as you think about next year?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [44]

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Yes. I think we'll continue to work with them, and I have no reason to be concerned. I'm just saying it's something that we'll have to continue to work with whom. And I'm trying to tell them that they can't look at the rates just in one quarter, the results, the utilization, but you need to be thinking about it, how it rolls forward. And what we anticipate is going to happen on a going-forward basis.

So my comment was, in essence, a positive comment, that we're engaging the state now, so they understand it. And as we said, while we haven't announced that such certain states giving us rate increases now, and we're working through that with them. When it's finalized, we'll announce that as well. So the only comment was expect this to continue, the discussions to continue rolling forward, and that's in a very positive sense that they want to talk about.

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Rivka Regina Goldwasser, Morgan Stanley, Research Division - MD [45]

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And then shifting away from COVID. Obviously, you brought in a couple of interesting hires, and you highlight kind of like the tech aspect of the business. What areas on the digital side do you see represent the most immediate opportunities to implement and impact costs?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [46]

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Well, I think they'll be on board in the next 3, 4 weeks. And we're talking about what they can do to help with the provider experience, the member experience. And so there will be various things there that, for competitive reasons, I'm not going to get too specific, but there are some things there that we think we can do that can move us into a real leadership position in that area.

And they have the talent and the capability added to what we have. And we have a lot of great people here doing a lot of that here right now. And so -- but it just recognizes where it's moving to. And they have the talent to recognize when there are systems and capability that need to brought in and bolted on, and they'll be working aggressively in that area. Hope that helps.

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Operator [47]

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The next question comes from Lance Wilkes from Bernstein.

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Lance Arthur Wilkes, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [48]

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I just wanted to get maybe a historical context. Obviously, this isn't the first recession that states have encountered. And so if you could just give us some perspective on maybe contrasting the factors in this situation versus maybe the '08 recession. Our assessments have been that we did see some rate decreases in the '08 recession, but in general, those are more like, in aggregate, 1% to 3% kind of declines in premium PMPMs and some declines in medical cost PMPMs. So MLRs weren't as compressed. Now obviously, that's looking at an aggregate basis. So maybe if you could just kind of put some context so we can understand maybe the scope and scale we should be considering here.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [49]

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Okay. Let me -- I'll let Jeff pick up on some of this, but let me just start off. The difficulty or the issue here, and we're dealing with it well, I believe, is that in economic downturns, there's some historic precedent for what happens. So -- and what we're dealing with, with this pandemic, it's something, I guess, the last pandemic they said was in 1918, Spanish one. But the -- so the issue here is we projected minor spikes in summer, that's not what happened.

So as we talk to the states, we're helping them understand that the COVID expense is offsetting the reduction in utilization. And so that's the counterbalance on what they saw on savings.

But Jeff, what do you...

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [50]

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Yes. I mean I think, Lance, if you -- again, I think back then, we were probably -- and I was here, we're probably having the same conversations around actuarial soundness. And if you go back in time and look at our financial performance, I think you'd see it was very consistent during that time period.

And I think the other thing to highlight is, if you go back to the crisis, back in '08, '09, that's when a lot of organic growth accelerated for us and really driven by states moving to managed care in order to help solve their budget problems. And so we believe when states have budget challenges, we're part of the solution, because we can help manage costs and have higher-quality outcomes. And so obviously, that's some of the activity we're seeing here.

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Lance Arthur Wilkes, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [51]

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And are you seeing anything...

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [52]

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And it's complicated by a lot of politics in the middle of this whole thing, too. I mean everybody recognizes that. I'm just saying why people like it.

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Lance Arthur Wilkes, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [53]

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Yes. Certainly. Are you seeing any differences? I noted that in the expansion population seemed to have a little higher growth quarter-over-quarter for you. Are you seeing differences in behavior as far as, at a state level, where you're seeing the growth expansion, TANF and public exchange?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [54]

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No. I think the difference that I would call out, and I think I mentioned this before, was really some states are growing and some states aren't. And that dynamic is really, really interesting. And I think that just has to deal with the underlying unemployment situation in each individual state.

We've had certain states. And obviously, you guys, I know, go out and download some of the data from the states on Medicaid enrollment, but we've had certain states that have grown 5%, 6%, 7% since March, and we have others in the 1% to 2% range. So I find that dynamic interesting and obviously, different than what we have experienced historically, if you go back to the '08, '09 recession.

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Operator [55]

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The next question comes from Justin Lake from Wolfe Research.

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Justin Lake, Wolfe Research, LLC - MD & Senior Healthcare Services Analyst [56]

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Can you talk to how WellCare Group is performing relative to expectations, both the overall? And then give us an update there. And then also maybe talk to some of the specific businesses in terms of Medicare Advantage and Part D.

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [57]

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Yes. I would say WellCare is performing in line with expectations. Obviously, we have the pandemic here. And so a little bit harder to sort through that, but from our perspective, performing in line with expectations and achieving our synergy targets that we've laid out. And I think I mentioned in my prepared remarks that we're still comfortable with our synergy plan and being able to hit those targets that we set out there.

As far as Medicare Advantage, their Medicare Advantage continues to grow. I think if you look at this year and you look at our overall combined Medicare Advantage growth, I would say it's been very strong on the WellCare side.

You have to remember back in December on the Centene-only side, we had a provider termination and an EGWP contract that we lost. And so if you adjust for those, we've actually seen pretty strong growth this year in Medicare Advantage. And obviously, looking forward to having the WellCare team run the Centene side of the business and looking for good growth next year.

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Justin Lake, Wolfe Research, LLC - MD & Senior Healthcare Services Analyst [58]

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Great. And then just a follow up on membership growth. Can you tell us how much of your -- you've got this new COVID membership, I think, about 1.4 million. How much of that is coming from lack of churn due to federal FMAP rules and not allowing this enrollment anymore versus kind of new membership sign-ups being greater? And does the guide still assume that federal emergency ends at the end of September? And states can then start just enrolling members again?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [59]

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Yes. So good question. I would say, when I look at the March -- quarter end March membership compared to June 30, we're up about 812,000 members, predominantly at-risk members. I would say the majority of that, from our perspective, is due to the suspension of the redetermination. And I think we mentioned that at our June Investor Day. And so that's why we've kind of delayed our peak membership from August into November because it appears that there's just been a slower take-up rate for the unemployment side versus the eligibility redeterminations.

And right now, we have assumed that the eligibility redetermination of the suspension of that goes through the end of this year, because they pushed out the enhanced FMAP for another 90 days. So hope that helps. Again, our new expectations is up 1.4 million in November, 1.4 million peak members in November versus our previous was 1.9 million in August.

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Operator [60]

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The next call is from A.J. Rice from Crédit Suisse.

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Albert J. William Rice, Crédit Suisse AG, Research Division - Research Analyst [61]

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Just 2 quick questions -- 2 quick queries of questions. First on the public exchanges. It looks like in the 10-K -- 10-Q that you've had a $94 million adjustment for the risk-adjusted payable. I just want a true-up. Is that in line with what you had originally factored into your guidance earlier in the year? And is there any comment about the footprint and whether you'll expand it for the public exchanges next year?

And I'll go on to ask my other question, which was about the PBM. There were some things you were doing this year. I know WellCare extended the CVS contract. You had some other things you were doing at legacy Centene. Have those played out as expected? And is there anything about the COVID crisis that's materially impacted, either what you're seeing in script trends or utilization of specialty drugs in the higher-acuity population?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [62]

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Well, there's a lot in there, A.J., so I may have to -- you may have to refresh my memory on the first ones.

But on the PBM side, I think things are playing out as expected and as we anticipated in both the synergy and the transaction. So again, we're using the combination of all the PBM assets to get the most value there.

I think your other question -- refresh my memory on your first question that you had.

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Albert J. William Rice, Crédit Suisse AG, Research Division - Research Analyst [63]

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Is the $94 million risk adjustment...

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [64]

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Yes, yes, yes.

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Albert J. William Rice, Crédit Suisse AG, Research Division - Research Analyst [65]

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And the (inaudible) year?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [66]

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Yes, yes. That's usually one of the first topics out of gate here. But given the unusual circumstances, it's here at the end. I would say, if you recall, roughly 10%, we would have expected $95 million and that would be a net P&L benefit after RADV adjustment, et cetera, et cetera.

I think if you look at the Q, it came in roughly at $63 million, something like that. And again, if you go back to our Q1 earnings call, we talked about the fact that because of the crisis hit in March, we weren't able to really do a lot of the coding efforts that we do, and so we expected that risk adjustment to be a little bit short. And in fact, it was.

And as far as marketplace, I think you talked about expansion. Obviously, we're looking to continue to grow into next year.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [67]

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I think as it relates to the pharmacy, the one thing I will add on the pharmacy, you'll recall earlier in the pandemic, we authorized people to get a notable month supply, things of that nature to accommodate their fears and concerns. So there are things that -- once again, that makes it a little lumpy and choppy, but it's all -- it all works out over the period of time.

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Operator [68]

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The next question comes from Steven Valiquette from Barclays.

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Steven James Valiquette, Barclays Bank PLC, Research Division - Research Analyst [69]

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You guys commented that the slightly lower utilization in July versus June was primarily related to the spike of cases in certain key states. You also mentioned some hospitals were maybe voluntarily cutting back on some of the elective procedures. So now it's hard to get too granular on this, but I guess, I'm also curious if there's a dynamic that maybe June's stronger utilization as deferred care was rescheduled and performed, maybe July had less of that. And just on deferred care specifically, I guess, I'm curious how we should think about any remaining deferred care being performed in the back half of the year as we think about these overall trends. I know it's a lot in there, but just curious to get extra thoughts on that.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [70]

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Yes. If somebody is deferred, you can't be certain who's deferred what? It was obvious, when you saw the reduced trends in April, that things were being delayed. We started talking to various hospitals, larger institutions, they said they started bringing it back in. And there's 2 elements of that, the hospital being prepared to do it and the person being prepared to go to the hospital, because there's that variable.

As it relates to July, in [some of the] hospitals, some of them we know we're starting to defer deferred care now. We have to assume that some of those patients were ours because we have a big membership. But what percent of that? It's early. We don't have the details as we sit here at this point. It's still July, and we haven't closed. So we just -- as we said to you, we're going to try and be transparent and tell you what we see as we see it. There was some indication of that, there were some hospitals done it, and it's going to vary -- and that moves from day to day. That's a big problem. The hospitals in Georgia or in Florida, they may have just decided yesterday afternoon, it's time to defer. And we hear about it. And how long that stays? That's the difficulty of this pandemic. It's just so dynamic and changing. I wish I could be more granular for you, but the moment I do, then I'm going to mislead you.

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Operator [71]

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The next question comes from Gary Taylor from JPMorgan.

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Gary Paul Taylor, JPMorgan Chase & Co, Research Division - Analyst [72]

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Two questions. The first is, I believe, Michael, in your prepared commentary, I think I wrote it down correctly, that you had said RFP activity was picking up, if I got that correctly. I was just hoping for a little more detail. If you have any, is that primarily complex populations? Would that most likely be 2022 potential revenue impact?

And then my second question is just looking for some guidance, Michael, from you and sort of thinking about the HEROES bill that bumped up to a 14% FMAP, $0.5 trillion of state funding and how stingy the details appear to be leaking out of where the Senate is right now. And sort of where ultimately you think we may land with respect to state relief?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [73]

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Yes. Let me start off on the RFP front. We told you, Oklahoma has said they're going to do it. There are several states that have talked to us about who they might consult with what outside consultants because they're looking at expanding their marketplace. And they may -- if they don't have SSI or long-term care, but I'm not going to disclose who they are because it's not certain, and they just -- and as they probably asked other companies inside us who they think the consultants are. But it's a clear indication that they aren't looking to start to save the money by expanding into those areas, and they really understand that.

So I have to leave it there. I wish I could be more granular, but I really don't want to mislead somebody. And the second part of the question was?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [74]

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About HEROES.

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Gary Paul Taylor, JPMorgan Chase & Co, Research Division - Analyst [75]

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About -- yes, HEROES and (inaudible). Yes.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [76]

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Yes, sure, absolutely. Yes. Okay. We know that the House put out, 2 months ago, a $3 trillion bill. The Senate was really delaying it, and they have about $1 trillion. And it's not going to be either, it's going to be somewhere in the middle.

Now the only I know with any certainty is I don't think that they will get to $600. And this is my guess, so if I'm right, you could say how smart I am. If I'm wrong, you can kid me about it the rest of my life. But I don't think they're going to get to $600 because they realized some people were making more being unemployed than being employed. And that -- on both sides, there are people living it the wrong way. So we'll see that change.

The FMAP and state support, that's in the middle of negotiations now. And I think the FMAP has a chance because they recognize that. We're -- our counsel has put a date certain on, as I said earlier.

Relative to specific state support, that's going to be hard. It's an election year, which really complicates this whole thing. And there is a little politics being played out there.

And so I'm comfortable saying I expect it's going to be somewhere between $1.5 trillion to $2 trillion. I think we'll see some FMAP. I'm hoping some improvement there. We're going to see the unemployment. You're going to see another check go out to people, some of those things. You're going to see the -- if somebody hasn't paid their rent, being displaced, you're going to see that probably extended, that type of thing. But I think they're going to be planning on the -- around the fringes, Gary.

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Operator [77]

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The next question comes from Sarah James from Piper Sandler.

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Sarah Elizabeth James, Piper Sandler & Co., Research Division - Director & Senior Research Analyst [78]

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I have a clarification about 2Q MLR, and then I wanted to talk about technology. So I want to understand the basis of 2Q MLR. At I Day, you talked about getting claims 2 days slower, and we were estimating that, that assumption is MLR, 45 basis points. So when you closed the second quarter, was the assumption that claims are still coming in 2 days slower? And is that how you're looking at July as well?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [79]

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Yes. It's a good question. I think a couple of things. If you see the DCP, the days in claims payable in our press release, we've given an explanation down there what is driving some of that days in claims payable. The other piece, obviously, would be any slowdown in claims from data service to the date we receive the claim.

And so I'd say there's 2 components, but the majority is just the actual mathematical calculation, which is what we tried to highlight in the press release.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [80]

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May I interrupt just on -- because of timing, we're going to take probably 2 or 3 more questions throughout the show.

So I learned a long time ago, when the Board is waiting for their meeting, if you're not there, instead of talking to you, they talk about you. We're trying [to get out of it].

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Sarah Elizabeth James, Piper Sandler & Co., Research Division - Director & Senior Research Analyst [81]

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Okay. I'll try be quick with this one then. So you've made some pretty impressive technology hires. Does that indicate a strategy to enhance external sales of your technology products?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [82]

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Technology?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [83]

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Yes.

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [84]

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The hires and whether or not we're going to sell externally.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [85]

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I think that's to be determined. I'm not -- we're not trying to be like some of our peers that have products that they sell outside. We're going to focus on what serves our growing population, our growing business first. And while we've had some products historically we've sold, but that decision, I'm going to be leaving up to the senior management as they come on board, and we see how it affects our competitive position.

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Operator [86]

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The next question comes from Dave Styblo from Jefferies.

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David Howard Windley, Jefferies LLC, Research Division - MD & Equity Analyst [87]

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It's Dave Windley. How does your membership, revised membership view, both the peak and timing and the peak in number, affect your view of your 2021 revenue?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [88]

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Let me be consistent with what we've said other years at this point. And please take it the right way, but we will talk about 2021 at our December Investor Day. And to try and front-run our own meeting this far ahead is something we have always historically avoided. So I'm going to defer that question and be nonresponsive, so to speak, okay?

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David Howard Windley, Jefferies LLC, Research Division - MD & Equity Analyst [89]

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All right. I'll ask another one. Are -- as you saw claims getting back, it sounds like it got back to normal towards the end of June. Clearly, we're having some spikes here that kind of deflect the normal course of that line. But I guess I'm wondering what you did see or what you anticipate seeing in the health care system in terms of its ability to operate at or even above 100%, if we're able to get to a relatively normal environment? Or maybe you can speak to that from a regional standpoint where regions are in a normal environment now?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [90]

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What's normal today? I mean yes, sure, there are some regions in the northwest that's maybe more normal now. They've settled down. But we see the south picking up, and we thought Missouri and the Midwest was settling down, now we see Missouri, Ohio and other states starting to pick up again. So it seems to come in waves. It's -- and that's the big issue. It's -- what I see, you have to make your decisions as it is today because it's so dynamic. And we've never seen anything like it.

The risk there are offsets, puts and takes. You have -- I expect Arizona should start to come down. They've taken all the tough things they need to do. Florida, I think the governor realized what he has to do to shut some things down, and they're trying to do that. So it's -- there's no one place that I can say has it fully under control today. It's how it pops up and where. So once it gets a little bit under control, they start to say, "Oh, we can lighten up on the restrictions." And then it pops up again.

The only place I seem to -- I can talk with any confidence is some of the European countries, where they had a complete shutdown for a couple of months and they seemed to really brought it down.

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Operator [91]

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The next question comes from Matthew Borsch from BMO Capital Markets.

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Matthew Richard Borsch, BMO Capital Markets Equity Research - Research Analyst [92]

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So I'll just ask one very short, narrow, possibly dumb question, which is on the risk adjusters that you talked about coming in at a lower level for the exchanges. But because of the disruption that delayed your coding, isn't that something that would be industry-wide? And therefore, given the sort of zero-sum game that you have with the funding there that you would possibly do as well as you would have without those issues?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [93]

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Yes, Matt, this is Jeff. Good question. In theory, you would be correct. However, based on the data that we have, we are an outperformer in that area. And part of that, if you recall, a couple of Investor Days ago, maybe a year or 2 ago, it was one of our Centene Forward programs that we put together. And so due to the fact that we're an outperformer to the good of coding efficiency between January and April before you have to send in the data to the edge server, we are disproportionately impacted.

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Operator [94]

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Last question is from George Hill from Deutsche Bank.

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George Robert Hill, Deutsche Bank AG, Research Division - MD & Equity Research Analyst [95]

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You guys talked about Medicaid enrollment being slower in some states than in others with California being slower. I guess aside from what we think of as kind of the employment demographic, is there anything that you see as kind of driving the difference in the slowdown? Or I guess anything like what are the -- what do they have in common, I guess, besides the inflection rates? And then as we think about the peak enrollment later in the year, is the expectation where the California accelerates or kind of Florida continues at a faster pace?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [96]

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Yes. I think that's -- even some of the states, I don't think have the answer for why the members haven't shown up. There was an article the other day about California specifically that I saw where they're trying to figure out the dynamic as well. So I don't think there's been any common denominator, is what I would say. From our perspective, we haven't seen anything that's common across the ones that have grown versus the ones that haven't. And our assumption is that we continue to see growth, and there will be, I would say, a lagging unemployment application growth. And there would be some more in California, but not to the magnitude that we've seen in other states.

And so again, I think, as I mentioned, we're just going to have to see how this plays out. But we're sitting on 800,000 member growth today, and getting to 1.4 million by November doesn't seem impossible. And I think that's a reasonable place for us to put the guidance.

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Operator [97]

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This concludes our question-and-answer session. I'd like to turn the conference back over to Michael Neidorff for any closing remarks.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [98]

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I want to thank everybody, and we look forward to the next -- the third quarter conference call. And hopefully, we'll have some more clarity on vaccines and other things that will give us a little more certainty as to where things are. But rest assured, we're going to continue to deal with this as we're confronted with it. Stay well, stay healthy and wear your mask. Thank you.

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Operator [99]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.