Molina Healthcare, Inc. (MOH)

Investor Day 2019

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May 30, 2019

Good morning. I'm Julie Trudell, and I head up Investor Relations here at Molina. Welcome to our 2019 Investor Day. We're so delighted you took the time this morning to be with us. And for those of you joining on the web, you will be able to follow on in audio and we will have the slides up so you can follow the cadence in the room. So let me spend a minute and talk about how we're going to spend our time this morning. So with our margin recovery complete and margin sustainability well on its way, Joe is going to spend time this morning talking about our pivot to growth, and we'll provide you color on what's to come. We'll take a break, and then Joe will host the panel with our executives, Dan Sedmack, Tom Tran and Jim Voigt. After that, we'll turn it to you and find out what it is that you would like to talk about. For those of you on the web, if you'd like to ask a question, I'll facilitate it on your behalf. You can send your question to julie. Trudellmadellanhealthcare.com. With that, I will turn to Molina Healthcare, sorry, Molina Amerigroup, Magellan. With that, let me turn to the cautionary statement and tell you that we will have forward looking statements today. Our actual results could be different than what we talk about. I won't read you the whole thing. You're very familiar with this. And with that, I'll turn the stage over to Joe. Good morning, Joe. Thank you, Julie. Good morning, everyone, and thanks for being here at the 2nd Investor Day of the new Molina. And to leave nothing to the imagination and for absolute clarity, the title of this morning's session is Our Pivot to Growth. The content we will share with you this morning will stand in stark contrast to that which we shared with you in this very room at this very time last year. If you recall, at that time, the new management team hadn't arrived yet. We were sifting through a very long inventory of profit improvement initiatives across the entire spectrum of managed care fundamentals, trying to identify the levers that we would pull quickly to restore our margins. We were all wondering whether the dismal financial performance of 2017 was truly the bottom. And we were sorting through the complexity of a balance sheet that had imbalanced capital at its subsidiaries, a dearth of dividends to the parent, struggling to cover its fixed charges, volatile and expensive convertible debt and the question that loom large over this room was whether we would have to do an equity raise to fight our way through those problems. In addition, if you recall, we are also the receivers of the stunning news of 2 major contract losses knowing that we'd have to deal with those in 2019. In that same context, we worked hard during the year to restore our margins to respectability. At the time, we were projecting 2%, long term 2.7% and we achieved 3.8%. And so I'm a tough grader. I think we all under any definition of success will declare the 2018 Margin Recovery Phase a success and mission accomplished. Now after celebrating that success for the shortest time in managed care history, the question then turned to is it sustainable and we get that. I assure you, this is not a one hit wonder. This was not done by serendipity. This was not done by alchemy. This was done by hard work of the executives that are here today to repair operational and financial infrastructure permanently to execute on the managed care fundamentals to create durable financial performance. And while 1 quarter does not is not conclusive, I believe our guidance for the year at the upper end of $11 of earnings per share, which is higher than we achieved in 2018 with projected margins in excess of 4% in a year where revenues were down by 10% is an incredible accomplishment. And again, I believe and my team believes a validation that we are well on the way to margin sustainability, if not there already. So if you buy into that, the question then becomes, yes, but can you grow? Today, with our theme being pivoting to growth, here's where the resemblance to last year's Investor Day takes place. We are going to show you with specificity, with granular detail and with complete transparency, a growth model that will tell you what we're going to do and how, where we're going to do it and the financial results that we'll create. We've worked hard over the last 9 to 10 months on a strategic plan, a distilled version of which we will share with you today. Our goal today is for you not to leave here without understanding perfectly what we say we're going to do to grow. Your prerogative to believe it or not is what you do, but you will understand it is we're going to lay it out there and leave nothing to the imagination. Margin recovery done, sustainability well underway, the growth story to be conveyed to you here this morning. We don't want to be presumptuous because you're developing your own investment thesis. That's what you do. But we develop our own. We know why we're excited about this. We know why we're excited about the potential equity growth in this company. And in words, we aspire to be the lowest cost, highest margin producer in the business and a turbo growth industry. We are committing to double digit revenue growth on a long term basis. We believe that because for the most part we're a rate taker. If we can execute and have the best cost structure in the industry and get the benefit of our competitors' higher cost structures and rates, we can have high top decile margins. Somebody has to be the highest margin player in the industry. And with our maniacal focus on cost structure, both in the G and A line and the medical cost line, we believe we could be the highest margin player in a fast growth business. We also recognize that if your margins are the highest and your capital requirements for the ratings we choose to hold are modest, we'll also produce incredibly attractive returns on equity, which means we should have more excess cash flow per dollar of earnings than our competitors and we will return that to shareholders in an accretive way. And on the softer side of our investment thesis, this management team we've assembled is incredibly accomplished, long experienced and chemistry is working really well. It's working so well as a team, which gives me great confidence that having restored the margins, sustained them and now executing a growth strategy is the next charge that they will be responsible for and they'll do it with the same discipline, rigor and success that they executed Phase 1 and 2. And lastly, we're a pure play government business. Now I say that because today, I'll tell you what you won't hear. You will not hear any delusions of grandeur. I'm not going to sit up here and tell you that we're going to reinvent the healthcare economy and the delivery system. I'm not going to stand up here and tell you that we can solve the opioid use disorder epidemic in the country. I'm not going to stand up here and tell you that we'll solve poverty through the social determinants of health. All those are very important facets of strategy. Rather than delusions of grandeur, we're going to give you illusions of practicality. So the theme here today is stick to your knitting, stay in your lane, stay close to the core, do what you do, do it very well and just do more of it every year. We will ride the vortex of incredible growth in the products that we enjoy being a pure play government business. That's our strategy. We decided not to wait not to have you wait to page 70 for the punch line. So we'll give it to you upfront. I think this is helpful because if I stand up here and make comments for the next hour, at least you'll have the context of where it's headed. This is our long term outlook. Tom will be up here later to put some more color around it. I think of it as a 3 to 5 year trajectory off of 2019 guidance. So think about it as 2024 and these are long term caters average over time, not including any M and A that we choose to do over time because it's hard to predict. We are committing to double digit revenue growth. It will show you how 4.5% growth comes from just market growth in premium deal. Another 4.5% growth comes off the strategic initiatives that we're going to talk about here today. So there's a 9% growth rate just in our existing portfolio. Add in new territory wins, which we'll talk about later this morning, and we're at the midpoint of 11%. 4.5% from the market, 4.5% from strategy, 2% from new territories, 10% to 12% growth CAGR over time our commitment to double digit revenue growth. We believe in doing so, we can maintain the margin profile that we've created. We put a range of 3.8% to 4.2%, the midpoint being 4%, which is about where we are today. Now you'll see later on where we're purposely going to allow the marketplace margins to slip to produce more revenue and a greater pool of profits. We think our Medicare margins are operating at the very high end of the range of what is sustainable. They'll probably recede a bit, but I call that reversion to the mean, not backing up. And our Medicaid margins at about 3% are probably in the right zip code. So we actually believe we can grow at these rates and maintain the margin profile that we've created in the past 2 years. All of which means net income should grow at nearly the rate of revenue and then by deploying the significant excess capital this plan creates over time, in our model, we've made a share repurchase assumption to account for it in earnings per share conservatively at 12% to 15%. Double digit revenue growth, hold margins, net income growing nearly at the same rate of revenue, EPS reduced by 300 basis points due to the deployment of capital. That's our commitment to you over the next number of years. I'll spend a few minutes just talking about the franchise. The first thing I would say is this is the new Molina. Just whatever you remember from the past 2017 and prior, we're best just to forget, because it doesn't exist anymore. We have a new management team. We have new processes. We have new technology. We have a new financial profile. Everything is new. We do have a franchise. We have plenty of revenue, plenty of membership, an incredible geographic footprint. There's a real scale play here, where we're not disadvantaged because of our size in our local markets. We're 3,400,000 members. And with $16,400,000,000 of revenue, that's a great base off of which to grow. So the franchise is there. This company was high on mission. And my message to the 10,000 people that come in every day to do the hard work is never lose sight of it. It. Taking care of members is and getting them access to high quality healthcare is an incredibly noble mission. But what was missing was equal weight to make sure that shareholders were cared for. So the new Molina balances our attention to all of our stakeholders, including our shareholders. And I think that's evident in the way we communicate with transparency, the way we guide with conservatism and how we try to deliver on our commitments. We are a national company. Now having said that, later today, we're going to show you that we're not as fully penetrated as we could be in many of these geographies. But we are as well geographically diversified as many of our top competitors. We have incredibly strong relationships and incumbency status in our states, which makes reprocurement effort, which gives us high confidence in reprocurement efforts. And we're national in scope. Yes, we have a headquarters in Orange Beach, California. We recently opened up an office here in New York, where many corporate functions will reside to take advantage of a new labor pool here on the East Coast, which is very rich with managed care talent. Geographically diverse, the portfolio is fine. There are no states and territories here that I wouldn't choose to do business in today if we were not there. We have gone through a major, major shift, which is the essence of the turnaround success that we've had early. We had to change completely the operating model and the management process of the company, none of that existed. All the things that you would routinely think happened in companies now happened with a great deal of cadence and discipline and rigor. The culture needed to change. Ask anyone on my team what a plan is and you'll get the answer, a plan is a commitment. It's not a suggestion. It's not this is the best I can do given the cards that were dealt me. A plan is a commitment and we will do whatever it takes to deliver on those commitments. We want to be known as the reliable company. We want to make commitments that are realistic, that are achievable and consistently deliver on them that we're not surprising our investors. And the last point on the culture, and I can't help myself but raising the question of the Molina brand. Let me tell you what we're not going to do. We are not going to rebrand the company or change its name as a symbolic gesture to distance ourselves from the past. We believe turning a $500,000,000 loss into a $1,000,000,000 gain is testament enough that the turnaround has occurred and we don't need a symbolic gesture. But I tell you what we will do. We will as part of this growth strategy study the branding of the company both at the institutional level and at the local level. And if we do make changes, it will all be to facilitate growth. The question won't be, is it symbolic? Is it cool? Does it make you feel good? The answer is going to be, do I get more members? And do I hold on to business longer by doing this? Because it's expensive to do only if it facilitates growth. I wanted to make sure I address that as a whole part of the cultural statement that I'm making here this morning. And lastly, the team's here. It's an incredible team. Most of them are new. Pam running the health plans, driving the P and L results in 15 different geographies. Jim always with decades of experience running decentralized services to backbone of all the transactional services that PAM and the Health plans rely on to be successful. Mark Heim has been with me now in 2 prior lives, Head of Transformation, helping Jim structure all those very complex outsourcing deals. He is responsible for strategy and our future M and A approach. And of course, Tom Tran, who has decades in the managed care business living through the WellCare turnaround. And then of course, Larry, Carolyn and Jeff running some very, very important corporate functions. Great team. They're here today. You'll hear from a few of them and you'll get to mingle with them at lunchtime. As you build a company that is going to produce durable financial results that lacks surprises that delivers on its commitments, you have to build a strong foundation, one that's forged in steel. And we're pretty focused on that. When we fix things, we don't do it with, as I say, bum and gum and band aids. This is permanent infrastructure fixes to make sure our business processes and our technologies can support the revenue base and the complexity of the business. So we've built an incredibly strong foundation. Obviously, our 2019 guidance, I think, is testament to that strong foundation. Who would have thought that we'd be producing $1,100,000,000 of EBITDA 2 years into this turnaround? Net income margins of 4.2 percent, EBITDA margins of 6.8 percent and have $1,800,000,000 by the end of the year on our balance sheet and the free debt capacity to do the things that we might want to do. An incredible story really quickly manifested itself in a very, very strong financial foundation, both earnings and operational and balance sheet. Our margins, I constantly get asked, they seem to be the best in the industry, you'd be the judge of that, what are you doing differently than competitors? All I can tell you is what we're doing. We're constantly working the cost structure. We'll be talking about that today. We're in a very reasonable and rational rate environment that's actuarially found. We continue to identify profit improvement opportunities that when we began with $500,000,000 in size. And now even after harvesting most of it through earnings, we still have $450,000,000 remaining. So with our profit improvement initiatives with a rational rate environment and having investments to be made in growth that can be funded out of earnings, we believe that this margin story that we've created for the most part is sustainable and gives us an incredible amount of flexibility to execute this growth strategy. This is a really important point. As I mentioned a few moments ago, that if you do have high margins, if as a pure play Medicaid play, your capital requirements to hold the rating that you aspire to are roughly 10% of premium. Your unlevered ROE on sort of regulatory capital is 40%. That's just pure simple math. But we leverage at the parent company 45% to 50%. So the ROEs are incredibly attractive and robust, which means that in this plan, we will generate significant excess cash flow, you'll see later, about $4,000,000,000 worth, some of which we plowed back into share repurchase and create that 300 basis point increase in EPS, but most of which would still sit on the balance sheet and act as a cushion to our guidance. So it's an incredibly attractive story from a deployment of capital perspective that produces more excess cash flow for dollar burnings and our competitors that we will then look for additional organic growth opportunities, look for M and A opportunities that are in our strike zone. And of course, if we run out of opportunities to use it, we would return it to our shareholders in an accretive way. One of the parts of the story that we are as a management team most proud of is the restoration of the disheveled balance sheet that we inherited. I will tell you that, first of all, with all the losses the company absorbed, the capital in all of our operating subsidiaries is completely out of balance. Some were over capitalized, some were under capitalized and you can never get the capital out of the over capitalized ones from the under capitalized ones. You're constantly raising capital, which was why we were sitting here last year kind of scratching our heads, where is this leading at an equity rate or not. By restoring our earnings, by Tom and his team and Mark Heim working really hard, we have created an incredibly balanced capital story at our subsidiaries, created a robust flow of dividends to the parent company to where we now by the end of the year will have $1,800,000,000 of cash and unused debt capacity at the parent company. What an incredible liquidity picture. Meanwhile, our credit stats are extraordinary. We can pay back our entire debt load with 1 year of EBITDA, one times EBITDA coverage. We're covering our fixed charges with like 3.5 weeks of earnings at 14.7 times. Even holding a 45% debt to cap, which we do in our projection period, And of course, there are our ratings. The credit stats are fantastic. The cash flows to the parent are robust. And lastly, I would mention what I'll call the operational balance sheet improvement. This is a complex business. It's always hard to sift through the complexity of the actuarial information, the medical cost information, the complexity of risk adjustment, it's really complex. But we needed to get better at our operational accruals, reserves, risk adjustment and we have. And testament to that is most of the time in the past 15 months we've been doing this, every time we've had a quarter, you know your accrual is either efficient or deficient by some amount, things have been running off favorably, which is our intention is to be very conservative. Operational strength of the balance sheet, fantastic credit stats, our subs are capitalized at the right levels, which creates an incredible amount of dividend flow to the parent company where we're over liquid at the parent company and plenty of deployable cash and debt capacity. I made this point before, but if you're producing 45% ROEs unlevered and pick your number levered, your first and foremost and highest and best use of capital is go find those organic growth opportunities to sign up more premium. You can even do it at a margin that's slightly diluted to your overall margin at those returns. You do that every day of the week. The problem isn't the debt the problem isn't the capital capacity to write the business. The problem is finding the business. It's a highly competitive market. We have market share where it is and we fight for this business every day, but we're not burdened by constraint of capital in order to write new business. We have an expert acquisition team in place and we will look for bolt on tuck in opportunities all around the theme of the same products we're in today, in the geographies we're in today, bolt on, tuck in or geographies we're not in today, expanding our territories. We'll look for underperforming opportunities since we have a history of turning around underperforming businesses in our own portfolio, we believe we can bring those skills to bear in the M and A market. 1st and foremost, use of capital to find organic opportunities to sign up more premium. 2nd, look for accretive bolt on tuck in acquisitions. And third, return it to shareholders or repurchase your debt if it's a good buy. We'll spend a few moments just putting a point, because as I said, 1 year and 1 quarter of actual doesn't necessarily conclude the sustainability phase. Sustainability by its very nature, by its very definition means long term. But we want to put a point on why we believe our margin profile is sustainable. So first, we're getting a lot better at forecasting. We're identifying the risks in the portfolio. We're finding small problems before they come large ones and fixing them, which has given us the ability over time to admittedly issue conservative guidance, constantly beat it. But more importantly to this story, this story wasn't just conservative forecasting. This story was a building to a crescendo of the profit improvement opportunities that we commenced upon at the beginning of last year. If you recall, the initial portfolio has $500,000,000 in it, something was coming from our new pharmacy contract, payment integrity, SG and A and it's hard work. And when you add it, the momentum just builds and the opportunities then begin to manifest themselves in the earnings stream. So not only were we just being conservative and we were admittedly, but the profit improvement was building more rapidly than even we imagined, which gave us the picture last year of starting out the year with margins that were below 2% and ending the year with margins that were 3.7%, nearly 4%, and gave us the ability to guide this year to margins that are in the same zone at $11 a share. So the profit improvement opportunities continue to build and manifest themselves in earnings. 2nd, we inherited a portfolio that had what I call performance SKUs. I would rather have a portfolio where every property in the portfolio was performing at one standard deviation to the mean and there were no outliers. I'd actually give up 50 basis points of margin to have that be a regular occurrence. That's not the way the world works. The world works in SKUs, the world works in distributions with tails. So we inherited a portfolio that had some incredible over performers and some incredible underperformers. Pam and her team and Jim and the operators did a great job of working with the underperformers to where for full year 2018, every business, every product in every geography made money on a fully allocated basis. Only one made money, but was below our target margin, which I think was 2% after tax and everything was at target and the portfolio we inherited in 2017 had many performance SKUs. So the portfolio is working really, really well. We hold them to high standards. We build stretch plans and a plan is a commitment and we push hard for them to constantly improve their profitability to make sure that we don't have to push 2 or 3 properties to produce more because 2 or 3 properties are lagging. Everybody needs to perform a plan and close to the mean to get rid of those ugly performance SKUs that we inherited in 2017. Our margin sustainability story is backed by a premise And that premise is that rates stay rational, stable and actuarially sound. And I will tell you because we're a rate taker in Medicaid, that's the environment we're in today. We put up on the charge here all the different rating factors that you're always negotiating with states. You're always arguing about whether medical cost trend is 4% or 3.5%. You're always looking at shifts in the acuity of your membership and trying to make sure you're getting rated adequately for that. When benefits get carved in and carved out, are you getting enough premium for the carved in benefits? Are you giving up the right amount of premium for the carved out benefits? That's always an interesting exercise. And lastly, risk adjustment matters. How risky is the portfolio and can you articulate and document the risk of your portfolio to make sure you're getting an adequate rate? Right now, the rate environment is rational, stable, actuarially sound and for the most part, rates are tracking with medical cost trends. Now if that should change, then perhaps the outlook changes, but that's the environment we're in today. And I see nothing in current rate deliberations with states that would cause me to change that tune in the foreseeable future. This is a condensed version of the inventory we showed you last year. Early on, we identified $500,000,000 of profit improvement opportunity, much of which dropped through to the performance of 2018. We freshened that up at the beginning of the year. I think we articulated to you at a major conference. It was $550,000,000 at the time. So we freshened it up. We told you that we best estimation is we pulled $200,000,000 of that into the 2019 earnings picture, some of which went to absorb some rate deficiency, some of which went to absorb the stranded fixed costs of the 2 loss contracts, but $200,000,000 nonetheless, we believe is manifesting itself in the 20 19 run rate. And our recent work has caused us to freshen up estimate by an additional $100,000,000 to what we believe there's still $450,000,000 remaining. Profit improvement opportunity, levers 1 would pull across the following spectrum. Utilization control, there's still more there. We're good, we're not great, we need to be better, particularly in high acuity. If you can't manage NICU, OUD, behavioral and LTSS in this business, you can't be in the business. We're good at it. We need to get better. Our clinical policies are dated. Those are being modernized. We're constantly looking at our medical econ information and making it better, richer, more insightful, higher veracity, higher velocity, so we can look at inpatient admissions, ER utilization, length of stay and all the pharmacy data that gets quite complex. So we're at this every single day. There's still more there. We're good. We want to be great. 2nd, payment integrity, which is a very generic term for a very discrete set of activities that is critical to running a managed care company. You can see the capabilities down the left side of the page. Think of this as claim edits. Think of this as the arms race of providers who are constantly working with their revenue cycle management people, finding clever ways to bill you. And then the arms race of having the managed care industry respond with its own technologies to figure that out and eradicate it. Meanwhile, the providers are then working on the next generation of revenue cycle management and your job is to catch all that and keep it in balance. So whether it's prepay, pause and pay or post pay, we were not modern with our technology stacks to do that. We brought in vendor partners who are best in class at this to help us. And we've harvested much of this opportunity in 2018. A lot of it is manifesting in 2019, but a lot of it still remains. In fact, this has a lagged effect on earnings. The work we're doing today will benefit not only today's earnings, but 2020 2021 earnings. And so the claim that is that we're building is building to a point where the earnings impact is quite significant. And our best in class vendor partners certainly have been a huge help there. The company has done a great job of really focusing on the G and A line. With $1,800,000,000 $1,900,000,000 of G and A irrespective of what is reported in the income statement and 10,000 people, there's a lot to manage here. G and A in our company has either been an art or a science. It clearly hasn't been a science, but it's becoming one. We are creating an environment where we're going to have a manufacturer's activity based costing discipline to constantly work on the actions we can endeavor in order to reduce costs. Outsourcing, spans of control, looking at lower labor cost pools and clearly introducing automation, process design and digitization to get rid of manual work, continuing working on cost actions and with the growth we're projecting, we'll leverage a fixed cost base. Now arguably, sometimes your cost base is sixty-forty, sometimes it operates at forty-sixty, fifty-fifty is a good number. There's a significant amount of cost leverage there is by growing the business, particularly the way we say we're going to grow it in market, in product, leveraging the infrastructure that's already in place, taking the cost actions we are taking, leveraging the fixed cost base gives us the flexibility to include in our forecast all the investments we need to make to grow the business. The investments we need to grow the business are in our projection they're funded through cost actions and leveraging the fixed cost base. And whether it's just working in new business development, in state, ground game, on the ground, developing relationships, whether it's the licensing of the technologies I referred to, whether it's the cost to actually get an operation outsource and our rent to own vendor approach, whether it's just more marketing and media to grow, it's all in the run rate of the business funded by continued cost actions and the incredible fixed cost leverage we get from growing the business. Lastly, if you're not good at this, you can't be in the government sponsored managed care business. Every one of our product lines relies on capturing appropriate risk scores and quality measures. And I know you know how this works, so I won't go through a tutorial. You not only need to be good at this and get better at it, you need to get better at this relative to your competitors, because for the most part, these things are budget neutral. You only can take out of the system what gets paid in and vice versa. You need to get better at this relative to your competitors. Jim and his team have been working really hard at implementing new technologies and processes to identify the gaps in quality scores and identifying the people where we can really get appropriate level of intervention, get them into the doctor, make sure their acuity is documented appropriately. So we're collecting the right amount of premium. All we want to be able to do is collect the right amount of premium for the acuity of our population. And we've invested a tremendous amount of time and energy in this and we're getting better at this all the time. And as I mentioned before with payment integrity, this truly has a lagging effect as the work we're doing today will actually benefit 2020 2021, particularly in Medicare and in Medicaid. There's some immediate benefit with the portfolio build, which is creating lasting, durable and future value. Last point I'll make on our trip down the sustainability road, to put a point on why we really think our margins are sustainable is our operating model. We believe that there are certain things that we need to do in order to deliver on our promises to our customers. There are certain things that need to be proprietary. We need to do high acuity care management. We need to do frontline utilization control and care management. We certainly need to do our own provider contracting and have the relationships with providers, whether it's a fee for service rate or whether it's a value based contract. Calls, member calls, certainly, provider calls maybe, but having that touch point with a customer and a provider partner is critically important. So there's things that we know need to be proprietary are the essence of what you do, are front and center with the customer and you would never outsource that touch point with the customer that would distance the Molina brand from the customer. Having said that, there's a host of activities that we couldn't possibly scale. There are niche capabilities that are so esoteric, it would be hard to imagine that we could hire effectively to get the best transplant team in the business review transplant. And so we ventured on a rent to own model with highly prestigious vendors and make sure we take advantage of capabilities that already exist in the market, they're already fully scaled and give us the ability to integrate them with our proprietary process and make promises to our customer. Yes, we're giving the ways of EBITDA margin. But trust me, these relationships are giving away a little bit on the SG and A line, pays multiple times over in the medical cost line, particularly with CVS Caremark, Novo On and the payment integrity routines. So our co source outsourced model, our rent to own model, 1 preserves capital. As it tells you, our M and A strategy is not to go out and buy something at 10 times revenue and some company that has some capabilities, we can rent those capabilities and enjoy the benefits of that particular skill without owning the equity of the company that's doing it. And I'm not criticizing other models for doing that. That's fine for others. It's not what we're doing. It's not what we're going to do. We don't need to buy these capabilities. We can rent them. And by the way, if they get big enough to scale, our agreements give us the ability to bring them back in house. Rent to own, a winning optimal operating model. So now that we've talked about the solid foundation that we believe we've created, financial and operational, Now we've talked about what gives us confidence in our ability to sustain the margin profile that we've built. We're now going to talk about our discipline and steady growth, our growth strategy. I find it actually unhelpful, I think to you all, I don't want to put words in your mouth, to give you 25 pages on the industry. You've all written about that. You did the same research we've done. You read all the government reports, all the consulting house reports. But we're going to talk about the market on one page, because and again, I don't want to be presumptuous here, but I think we can all agree that being in the government managed care space is a pretty good place to be today. And we'll talk a little bit about that. But we're only going to do it on one page. Believe me, we've got plenty of pages to support all this, but we're not going to read back to you what you've already written to us. Medicaid, these are addressable markets, not our growth rates. This is what we believe our consensus view is of the growth rates in these markets. Medicaid growing at 5% to 8%. Yes, there's a little bit of redetermination pressure going on right now. But that's just the ebb and flow of the economy. Economies grow at 3.6% unemployment, particularly in expansion population, some people are going back to work. They kind of income out of Medicaid eligibility fine. And when unemployment goes back up to 5%, which inevitably will at some point, they'll come back in. So a little bit of pressure right now. But long term, we believe it's a stable market. No regulator, politician or legislation is going to get rid of healthcare access for poor people. And the underlying segment growth is really the high acuity populations that are still in fee for service. It's still less than half more than 2 thirds of the lives are in managed care, less than half of the money is. And states are still holding on to ADD money. They're still holding on to LTSS money and money for all those other different programs that service the severely ill mentally and physically. It's just true. When is it all going managed? Over time. But we believe there's a 5% to 8% growth rate, including trend in the Medicaid business, which means the addressable market is pretty reasonable and pretty attractive. A refresher on what our Medicare business is. Our Medicare business is not traditional Medicare Advantage, MAPD or whatever our competitors call it. Our business is dual, both integrated through the MMP program and in the free market DSNP program. The duals is growing. This looks like a wide range of growth rates, but the consensus is it's growing and it's probably growing at double digit rates. One of the reasons is with 10,000, 11,000 people aging into Medicare every day, some of those people are already in Medicare, Medicaid, they'll age into Medicare. Secondly, it is really irrefutable that right now the number of people in DSNP is underpenetrated, meaning that there are more people eligible for it that actually know about it and that are in it. And so not only are people aging in to Medicare every day, but there are already people whether they've aged into it or whether they're severely disabled who are eligible for it and don't know about it. And we absolutely believe that us and our competitors are going to make sure we find them either through brokers or direct to community outreach. And we also have strong evidence that our state business partners are really, really focused on getting these people into an integrated and managed program. So we could go on for hours about all the data. It's a complex marketplace, how they access the program, how you service it. Pam will be up here later to talk a little bit about that. But I think suffice it to say, it's a double digit growth market and one that we're going to take advantage of. And lastly, the marketplace. It's not growing as to membership. Most of that 3% to 5% is just trend in yield. But the growth story we'll tell is our under penetration in it and we're more fully penetrated across our Medicaid footprint and we'll be able to grow. But 3% to 5% growth in the marketplace is mostly just the trend effect of premium yields. So the addressable markets are there. They match up with our product portfolio really well. And we think this is not only high growth, but all of these products are perfectly synergistic. We provide access to the disadvantaged access to quality healthcare to the disadvantaged through government programs. And whether someone is in Medicaid and aging into the duals, whether they're in the marketplace and lose their jobs and go back into Medicaid, whether they come out of Medicaid, they make a little bit of money, but are highly subsidized in the marketplace, Our membership is moving in and out of these programs every single day and we have the products to capture them and keep the membership to life. So not only is it a high growth portfolio inherently, it is a synergistic portfolio, meaning the products make sense together in the same portfolio. What did we do during 2018 when it became clear that we had sufficiently solved the margin restoration and recovery process, We knew the question that would be immediately asked is when can you start growing again. And so we began working on building the infrastructure to do that. About 2 thirds of the way through 2018, we built our new business development team to identify the opportunities in greenfield states, engage in a ground game and go after new opportunities. We knew we couldn't wait. We did pass the North Carolina, if you recall, I announced that last year. It was the right thing to do at the time. And now we knew we needed to reengage in that activity. So we rebuilt the new business development team. We also rebuilt the corporate development team under Mark Heinz leadership to look at interesting M and A opportunities. And as we'll talk about later, we have the human resource capacity to do them in the skill. We've got the financial capacity to do them. Actionability of targets is the only issue, but you got to look you just have to look harder. They're there. Coming back to the left side of the page, early in the year, we had to rebuild the RFP process, because obviously with the stunning news of New Mexico and Florida and then with the post mortem having reviewed those, we knew we didn't have the right stuff. It was pretty obvious that the proposals were not responsive for the needs of the state. The proposals did not well articulate the skills and the capabilities we had that Pam and her team really needed to rebuild that entire engine. Why? Because they had Washington, Puerto Rico and Mississippi chip coming up, particularly Washington and Puerto Rico. And while your success is only what it is, we're at least 3 for 3 with the new team. And not only did our proposal win in Washington, but as you'll see in a few minutes, we were able to actually win more business in Washington through the strength of our proposal and showcasing our ability to integrate behavioral and medical care. This is an extraordinary win. And yes, I know what's looming large now for the next couple of weeks is Texas. I've been asked maybe a half dozen times just as you were milling around this morning. And I continue to say, we have confidence in our success in the state of Texas. Our standing in the state is great. We're performing well. There is no interaction between the team and the state that is disallowed. So you're in blackout and you're waiting for the answer, which should happen in a few weeks. We are still confident that not only will we retain our Star Plus footprint that we have, but we have a reasonable degree of optimism that will win some or all of the additional 7 regions. We're in 6 regions today. We're not in 7 others. We have a reasonable degree of optimism. We'll be able to win some of all the 7. And as I told you before, the math is very simply. If we had the same market share we have in the 6, in the other 7, that could mean an incremental one point $2,000,000,000 revenue opportunity for our company. So the pivot to growth happened in 2018, early on with the RFP process, about 2 thirds of the way through the year with building a new business development team and a corporate development team to take advantage of greenfield opportunities, which have a very long gestation period and putting people out into the marketplace, really rummaging around looking for discrete M and A opportunities, both ons and tuck ins. The last slide to set up the actual growth strategy is a really important data point. If you recall at the top of my presentation, I said that we're national in scope, we are. We're in 15 states and territories. It's a diversified footprint. It's no more concentrated than any of our competitors. We have great incumbency status, which gives us a high degree of confidence when we go through a re procurement effort. Yet, we are still not as highly penetrated in any of these products where we could be just based on either a look at our competitor set or look at what we believe is reasonable to aspire to. So in Medicaid, we're number 5 nationally, 5% national share, but that's not really important because it doesn't mean anything. It really doesn't. It's too high level. Look down below. Our market share in state is averaging around 9% and our competitors are 15% to 20%, which means many of our competitors have higher stakes of the business than we do in many of our states. Now you can't just hope that you grow market share. We're going to show you in a few minutes how we plan to grow it. But we are under penetrated in Medicaid relative to the best competitors in the business. Same thing in duals, nationally doesn't matter. With 8% in state market share against 10% to 30% of our competitors in the same thing in marketplace. Now in marketplace, the math is actually easier. We're at $4,000,000,000 gross premium a few years ago, granted it was unprofitable, but it's possible to have that much business and keeping it perfectly in balance with the way we like to manage the portfolio. We know the marketplace business can be 1.5 to 2 times the sizes today and not be out of balance with the portfolio. So the 3 slides that I wanted to share with you to set up the growth strategy were the underpenetrated market share that we have today, even though we're scaled and national in scope, and the fact that we're geographically diversified and there's tremendous opportunity to take advantage rather than looking at this as a risk, looking at it as an opportunity. Okay. So I know you're dying to get into the numbers, but you're going to have to suffer for 5 minutes through what we're calling our taxonomy of growth. And as we build plans, they have to be structured, they have to be compartmentalized, they have to be actionable. And the way we built this plan, as I was mentioning to a few this morning, is down to the zip code. And we're certainly not going to share that level of detail, but we are going to share with you a structure of how we built the plan that makes it at least easy to understand, easy to follow, and it's the way we're actually executing our strategy. And we call it our taxonomy of growth. It's going to have 3 dimensions. The first and the one we think is underappreciated and maybe it was even underappreciated by us until we started analyzing it was how much growth power there is in our existing geographic footprint with our existing products. And so the first dimension of the strategy doesn't have us venturing anywhere, but in the 14 states in Puerto Rico where we are today and looking at the opportunities that exist today to grow the business right where we are, tremendous infrastructure leverage, relationships, provider networks. If you can do it, it's a highly leverageable opportunity. The first dimension of our growth taxonomy is leveraging the existing portfolio. The second dimension of our strategy is obviously to win new territories. Equally important, long gestation period, can't control it, they either come to market or they don't. And as I've said many times, we can have our eyes on these fantastic states, what an opportunity, unless it's coming up for procurement. The point is moot. The second dimension of our strategy is how is Molina going to sort through the myriad of opportunities that exist over the next number of years, action them and produce revenue. And of course, the 3rd set, which we are not including in any of the growth rates you're looking at in our financial forecast is inorganic opportunities. How are we going to put our financial power to work in accessing bolt on and tuck in opportunities, particularly in our 3 core product lines. Leverage the 3 dimensions, leveraging the existing portfolio, winning new territories and executing on inorganic opportunities. Let's take the first dimension. Without who, what, where, when and how, you've got a vision, you don't have a plan. And in complete concert with the way we've laid out our margin recovery plan for you last year, we're going to lay this out in a pretty detailed way. And the first lens is actionability. What are you going to do? What are the actions you are actually going to take in a market to grow the business? And here they are and we're going to talk about them in much more detail. If you don't know where you're going to do it, again, it's not a plan. We do. We have this down to the rating territory, down to the zip code based on competitive information, based on analysis of markets, based on our broker relationships. We know the actions we're going to take in what states and in what markets. And our growth plan, as I said, is down to the rating region of the ZIP code. And of course, the last one is okay, if you've identified the market opportunities in your various geographies, what are you going to sell the folks you've identified. And of course, it's across our core product line, including duals and LTSS, resulting in what we believe is a very predictable and stable growth rate. This is what we call sort of the core flow. As you'll see in a minute, winning new territories is lumpy, it's unpredictable, it happens or it doesn't happen. You win, you don't win. This should produce a regular cadence to a growth rate off of the existing portfolio. Actionability, how and what, geography, where, product, all producing a predictable annual growth rate that we'll talk about in a moment. Next, we're going to talk about the addressable markets. I think it's 14 states over the next 3 years adding up to $60,000,000,000 of opportunity. We're going to talk about how we prioritize the opportunity and how we choose where we're going to play. And then we're going to talk about how we're approaching the RFP process. And I've heard from many of you, I get it, the team knows how to execute on the operating fundamentals of the business, but now convince me you can win a proposal. Legitimate question, not offended by it, but we're going to talk about that. All producing long term annual growth is quite unpredictable, but we've got an estimate of what it can produce over the next 4 years. And lastly, inorganic, bolt on tuck ins, not doing capability plays, strategic fit, we're not doing it for ego. These things have to be accretive. If there are turnaround opportunities, we'll hand it to our operators to fix the same way they fix the rest of the portfolio. It's opportunistic capital deployment. No M and A opportunities are in any of the growth numbers we're going to show you. It is all organic off leveraging the existing portfolio or new territory wins. That's our taxonomy of growth. That's how we built our growth plan and that's how we're communicating it to you, right? Leveraging the existing portfolio. I was already asked this morning in sidebar conversation, what actions are you actually going to take? How are you going to do it? First, we believe we can increase our Medicaid market share, as it says on the slide. In many of our plans that are not statewide plans, We have the ability through reprocurement process to expand our territories in states we already enjoy business. As I mentioned previously, not all the benefits, particularly the complex high acuity ones are already in managed care. And so we believe that over the next 4 or 5 years, there will be benefit card events, pharmacy, behavioral, LTSS, ADD. And lastly, in their 2 product non Medicaid product lines, DSNP and Marketplace, we are nowhere near as penetrated in our Medicaid footprint as we can be based on our analysis of the competitive landscape. Increased Medicaid market share, adjacent Medicaid geographies, benefits being carved into managed care that are currently in fee for service and getting Marketplace and DSNP fully penetrated in our footprint. That's the how. Here's how we do it. National market share 5, you saw the number before, in state 9. Our service area market share is only 16%. And even if you take it down from the state level and you say, we're only in these service areas, 16%, not 20%, it's not 25%. And in many of our states, there's a big player with maybe 20%, 25%, even sometimes 50% market share. Ohio is a great example, like 1 player is 50%, while others are 12%. We're not talking about going from 10% to 25%. We're talking about go from 12% to 13%. And if you do that in every single geography, 1% of in service market share across our entire portfolio is $750,000,000 in revenue. Now you can't just sit around and hope that it happens. There's real work that has to take place. And on the right side of the page, you see the operating actions we are going to take to increase our market share over the next 4 years. Don't know if you're aware of how Medicaid works, but there's a eligibility redetermination that happens routinely every year. It's constant. We believe that we've under invested in many of the operating routines allow us to hold on to membership. In fact, we believe that through the redetermination process, members are leaking out of Molina into other health plans, because we don't capture them soon enough. We're not helping them in the redetermination process where we have the right to do so. We're not doing the outbound outreach to capture them. We know who they are. We know when they're going to be redetermined. We just don't have the operational chops to do this work. We're building it. Capturing more members and keeping them in Molina upon redetermination. 2nd, auto assignment. In most states and in most geographies, auto assignment happens and is assigned based on your ranking on quality scores. And when you don't rank highly on quality scores, you're lower in the hierarchy of who gets auto assignment. At a high quality score you have, the higher you rank, the more auto signs you get. It's that simple. By improving our quality scores, we want to move up from 4th, 3rd and second place position in the hierarchy to 1 and 2. And we believe we can do that with all the work that Jim and Pam and their teams are doing to improve our quality scores, we believe we can do that. Next, community involvement, local marketing, community outreach and provider relationships. Providers may not help you enroll a member, but they can sure help disenroll 1 if they're not liking what they see in your service profile. So by eliminating the provider abrasion that we've worked so hard to eliminate over the past year or so by pushing more money that we're spending corporate down to the local level for community outreach, branding and charitable contributions. We are spending more money locally on community outreach, network provider relationships in order to capture more members with media and marketing spend on the light side of heavy investment. Local branding and marketing, provider relationships, auto assignment and eligibility redeterminations are the operational activities we will undertake in order to grow our market share in most, if not all our geographies, maybe Washington. Opportunity set too, that we can add adjacent Medicaid geographies. As I said, our in service market share is actually still pretty low at 16%. Our state share is pretty low at 9%. So there are various states. Texas is probably the best example where we have these 7 regions we're bidding on. And if we get them, it's $1,200,000,000 of opportunity. When California goes re procurement later on, perhaps the ability to expand there as well. And not only through reprocurement, but there are certain states that where we are statewide like Ohio, where we play really well in Columbus and don't play at all in Cleveland. So by rounding out, by looking at our infrastructure, where we are in states and looking at the entire state, where are the MSAs, where are the populations, what's coming up with reprocurement and where we can expand our footprint opportunity set to is making sure we expand our reach in states where we already have great relationships and great business, but just cover more of the state. That simple. Opportunity step 3, lot of words on the page, but think behavioral, think LTSS and we've listed some of the states where we think that's going to happen. Michigan is a great example. LTSS and BH probably goes into managed care soon. As you know, Ohio recently was drafting legislation to go through it. They balked on it, but it will come back at some point. When you look at where we are in MLTSS, managing $2,000,000,000 of spend, we believe we're the 2nd largest managed care player and LTSS spend. When it goes to manage, we're in prime position. And if we convince the states, which I don't think they need a lot of convincing, to attach these benefits to the Medicaid contract, we're beautifully positioned. ABD is going to be attached to the Medicaid contract without question. MLTSS doesn't have to be, but probably will. In behavioral, if they're smart, they'll carve in and have an integrated program the same way it works in Washington. And the fact that we're so successful in Washington with behavioral carbon and integration, the fact that we have $2,000,000,000 of ML ESS and the fact that the states that are listed on the left side of the page are already contemplating it, gives us great deal of optimism with our great relationships, strong incumbency status and our proven proof points that we know how to manage these benefits, we can win benefits are carved in to managed care. Opportunity set 3, participate in increased Medicaid carbons. Opportunity set 4 is both Medicare and Marketplace. This slide covers Medicare. We've just stopped growing, right? We had a $600,000,000 business a few years ago. It's still $600,000,000 As the company is going through its issues, it just said push the pause button, manage what you have. We didn't lose anything. We still have $2,000,000,000 of business in total, dollars 1,400,000,000 is in the MMP program, dollars 600,000,000 in DSNP. We have a great business. We just pushed the pause button 2 years ago and didn't we let it atrophy. We are currently in 400 counties in the United States were Medicaid only. We don't have marketplace or Medicare. And we filed this year, I know the number we initially reported to is 170. We did file 170. We decided not to go into 20 of them. So the number now is 150. New counties in 2019. We have a competitive product. It's priced well. We know who our competitors are. We've got great broker relationships. We're also selling our marketplace product. Our agency plant is working quite well, and we're leveraging those relationships. And because our margins are where they are, we've got some flexibility to price at an attractive point, keep the price, the product competitive and still keep our margins in the 5% after tax range. The opportunity set 4 is making sure our Medicare eSNP product is well represented and fully penetrated in our Medicaid footprint. Next opportunity set is the same issue with respect to marketplace. And I said before, I think the easiest metric is we had $4,000,000,000 of business before. We had great broker relationships. And I hate to just oversimplify this, because it's a complex issue, but I will oversimplify it. Our product is overpriced and our agents are underpaid. That's what happened. We put rich prices into the market because we felt we had to. We did not have visibility on the profitability for 2018. So we put full trend into the market on top of a 60% rate increase in 2018 over 2017. And our prices were too rich, which gives us the margins we have, but we lost some membership. So make sure your product is priced appropriately. Make sure you pitch the metallic tiers the right way. We also under club the bronze, and we're not going to do that again. A lot of people are shifting from silver to bronze. We'll make sure we're represented in bronze. We also have to make sure our commissions are represented are well represented and competitive. So our products are no longer going to be overpriced and our agents are no longer going to be underpaid and that will get us back to full market share in marketplace. And as you'll see on the next page, a condensed version of the slide we already show you, our commitment is to make sure we grow the pool of profits. I never said we can hold on to 11% after tax margins. In fact, you can't and grow. But if you ease up on the margins, make sure your price or the price of your product lines up with your competitors, and you do that by rating region, step by step, region by region. We believe that by easing up on the price, easing up on the margin, we can grow the pool of profits here illustrated as 2 growth rates easing up on the margins to 9% and 6%, but still demonstrating that you can grow the profit pool. Ease up on the margins, price the product competitively, make sure it's selected well represented with the agents, pay the agents a fair price and we'll grow again. That's the thesis. Next, Geography. And just so I don't miss anything, I'm going to refer to a few cards here. As I said, if you don't know where you're going to do it, then it's a vision, not a plan. Every single one of our health plans has a growth mandate. Specific to it, are you underrepresented in DSNP? Are you underrepresented in Marketplace? Have you not done a great job holding on to your membership and redetermination? Every single state has a growth plan and we've identified a few here that are contributing to the growth that we have. In South Carolina, we'll launch DSNP next year and MLTSS probably comes into managed care. Ohio is another DSNP entry. Those are the 2 new DSNP entries for next year. Ohio will see some marketplace expansion. And marketplace is again underrepresented in Ohio. Michigan, as I said, MLTSS and behavioral probably come into managed care and VSNP is underrepresented and so on and so forth. Mississippi has ramp up, it has the new ship contract. Texas certainly has the potential for the 7 new regions. Even Washington has a growth rate that we actually even though I have 50% to 65% market share, we actually think we can grow the business in Washington, really not to the extent we've grown in the past. And we presented this slide just as testimony that if you focus on it, you can actually make it happen. When we took over the company in 2017, Washington and Illinois weren't where they are today. Illinois is bumping up against $1,000,000,000 of revenue run rate, which is extraordinary because when we inherited it, it was a little over half that and not profitable. And now it's one of our star performers in the portfolio and close to $1,000,000,000 of revenue through the activities you see here today. When Washington won their recotirmative, we bumped out some competitors, got membership in regions. Pharmacy was carved out, but behavioral was carved in. We were a net winner in that trade and our DSNP and marketplace products are still underrepresented and have grown. So if you focus on it, we've done it before, it's happened before and we gave you 2 case studies to illustrate that this is not a hope. Hope is not a strategy. This is actual, it's state by state. It's already happened. And we believe that on the chart we just showed you a few minutes ago, it's very, very specific geography specific. Each state has a growth mandate that we expect them to execute on. And lastly, how are you going to do it? Where are you going to do it? What does the product look like? What does the product lineup look like? Without new RFP wins, that's coming on the future page, without new RFP wins, this results in 7% to 8% Medicaid growth, some of which is market growth and yield, some of which is our strategy, 14% to 16% Medicare growth, all off of our 2019 guidance and marketplace growth of the same number again off our 2019 guidance. Without new RFP wins off the existing portfolio leveraging the core business, 7% to 8% in Medicaid without RFPs, 14% to 16% in each of Medicare and marketplace. How we're going to do it, where we're going to do it, what it will result in. As I said, while maybe leveraging the leverage off existing portfolio might be slightly underappreciated. We know that what gets all the buzz in the market is winning new territory. And it's value creating. You know you can never make money out of the gate, but if you get a reasonable price and a reasonable win, you can make money by year 3. And with 2 successful renewals, you've got a nice long term trajectory for great net present value. So we're at this. Back to our taxonomy. And winning new territories, the first thing you have to do is look at the addressable market. And as I said before, we can have our eyes on the prize of some state, which we think is fantastic, unless it's coming up for reprocurement. It's an interesting point, but a moot one. So what's the addressable market look like? We have 3 ways. 2020, you can see the map, dollars 33,000,000,000 of opportunity, Louisiana, Minnesota, Kentucky, Pennsylvania and Hawaii. Now when Pam is up around the panel, she'll put some color around how we approach these things. But let me make some brief comments. We have chosen, as we said, I think, on our earnings call, to play in Kentucky, because we ran through our screens and we thought we have a reasonable chance to win. The rational rate environment, strength of the competitors, ability to build a network, actual experience of my management team in that state from prior lives, they actually think we have a chance to win and we're going to play in Kentucky. We chose not to participate in the Minnesota process as a Louisiana process. 1, timing, we would have had to been on the ground in early 2018 and we were busy in 2018 doing other stuff. And there were structural aspects of the RFPs that gave us the feeling that timing aside, it was probably hardwired for the incumbents to remain being successful there. So structural aspects of the RFP, which caused us a little bit to pause, but the timing just didn't work, we would have had a ground game going on in those 2 states early in 2018, we're busy doing other stuff. But Kentucky, we're there, and we're actively working on the RFP. Pennsylvania and Hawaii have not dropped yet, so we don't know. Dollars 33,000,000,000 of opportunity for contracts that are supposed to be set in 2020. Next wave 2021 to 2022, you can see the states. I know I'm going to get asked what are your favorites. We just can't discuss that right now. You can rest assured that every state goes through the screens that we'll talk about in a few minutes. Missouri, Indiana, West Virginia, Tennessee and Georgia, dollars 17,000,000,000 of addressable market for the 2021 2022 vintage. And lastly, big land mass, few number of people in Nevada, Iowa, you can sort of scratch your head on that one. And Delaware District of Columbia $10,000,000,000 for 2023. That's a light year away. I'm not even thinking that long term right now. The $60,000,000,000 of opportunity comes together pretty quickly, dollars 33,000,000,000 of which is right in front of us, one of which we are absolutely approaching, 2 of which we agreed not to and 2 of which haven't happened yet. Dollars 60,000,000,000 of opportunity and our probability of success and how we prioritize is very simply a function of these seven criteria, as I mentioned before. Is the size of the contract worth going? If you're going to end up with 10% to 15% market share, it better be a multi $1,000,000,000 program, so it matters. The last thing I need is an under scaled property that I got to worry about. And getting scale and the ability to win against the strength of the incumbents. Who are the incumbents? What are the number of awardees? Are they shrinking the panel? If they shrink the panel, there is yet one more incumbent that has to be replaced in order for you to win. So the strength of the incumbents, the number of awardees, the ability to build a network, is the state looking for a plan to build a network? Are they looking for letters of intent? Or are they actually looking for contracts? It matters because those take much different time elements. And of course, the rate environment, major growth prospects, can we launch Medicare in marketplace, etcetera, etcetera. So we look through a variety of screens in order to choose where we go. We're going to remain disciplined and we're going to go if we have a 50% chance of better of winning, we're going and we're going to try. This gets asked all the time. And it's I get the fact that you're operating the business well. I get all the operational stuff you're doing, but this is a different deal. This is winning new business. And I just fundamentally don't agree with that premise. Here's why. If the sales process in this business was some sort of secret sauce, like selling big ticket life insurance, you need a general agency plan, selling burial life insurance, you need door to door salespeople or direct to consumer to sell certain things. That's not what this is. This is a highly technical sale to a highly technical customer using the same folks that deliver these capabilities and services on a daily basis. The issue we had wasn't whether we had the capabilities either table stakes or innovation, as we didn't package them the right way and articulate them their way back 1. I'm absolutely convinced that when it comes to table state capabilities and those things that states call innovation with a small I, LTSS, complex care management, the transparency of PBM, etcetera, that our capabilities based on our past performance stacked right up against the competitors where we were lacking was our ground game in the states to develop those relationships to get a foothold in that state and the ability to deliver a quality proposal. This is a technical sale made to the same type of people we deal with every single day in servicing the 15 states rent, judged and ranked by the same type of technical people that we deal with every single day. So the fact that we're great technically at operating the business is exactly the skill set you package to convince someone to entrust me with your members. And that leads to the value proposition. What do states actually want? Yes, all the innovation things, they're really important. Social determinants of health is a real big buzzword right now. Opioid use disorder is an epidemic. It's incredible, the amount of medical costs we're paying. But what states really want gets back to the culture of the company, durability, sustainability, reliability. Last thing the Governor's office wants is phone calls from a provider saying we're not getting paid appropriately. The last thing the Medicaid director wants are calls from consumer activists saying your members aren't getting access to care. They can't get to see a PCP. They can't get a specialist. They're in a waiting line for service. That can't happen. Reliability, effective high cost service, no friction or abrasion and low cost, which gives us the ability to take their rates. That's what they want. And yes, the innovation is really important and we're as good as the innovation piece as any of our competitors. We have not branded it. We have not packaged it and have we not delivered it to the marketplace in a way that's consumable and digestible. We have corrected that. But that's the Molina value proposition. And that's why I believe that we have just a good just as good a chance at winning new procurements and unseating an incumbent as anybody else does. What does it all mean? Admittedly, we're conservative forecasters. By using a conservative set of assumptions, if you assume that we chase 40% of the opportunities, we win 40% of the $60,000,000,000 and a market share of 15% to 20%, when our plan is fully manifested in 2023 revenue, that could represent upwards to $2,000,000,000 of new revenue, bearing in mind first dollars of revenue don't even hit until 2021 as we're starting today. It has to build over time. Chase 40% of the opportunities, win 40% of them, build up to 50% to 20% market share, which hits a revenue number of nearly $2,000,000,000 by 2023, which then has additional ramp as it achieves its full run rate. Conservative set of assumptions and as you'll see later, because it happens only halfway through our projection period, it only adds about 2 to 2.5 points to the growth rate. But it certainly is a very, very significant set of activities and certainly value creating because once you get the 1st reprocurement and the 2nd reprocurement, you're building a portfolio of lasting value. Conservative set of assumptions, yes, But purposely done to suggest that even with a conservative set of assumptions on $60,000,000,000 of opportunity, nearly 9% of our 2023 revenue can be represented by business that doesn't exist today. Now since we can't and won't talk about specific opportunities, we're going to talk about inorganic growth just generally before we get to the numbers. And I'll sift through this pretty quickly. We have the M and A talent under Mark Heinz leadership. We have the financial capacity. And we actually do have a fairly robust inventory of targets, questionable whether they're all actionable or not, but we know where they are. Provider owned plans, underperforming health plans, single state, single city health plans, they're out there, special situations, they're out there, you just have to rummage around to find them. So again, no capability plays. Our first foray into M and A will be in market or a new market plays in our existing product portfolio, maybe Medicare, Medicaid and marketplace membership, maybe an underperforming property I don't have to pay a lot for and we'll hand it to Pam to Jim and they'll make it perform and be incredibly value creating. I skipped the page just an instance of time. But one of the things we did want to showcase here is the capacity we have for M and A. I think the first thing is going to like, if these guys are talking about M and A, are they going to dilute us with an equity raise in order to do it? No, not in the size and scope we're looking at right now. If you recall, by the end of the year, I have $1,800,000,000 of dry powder on the balance sheet, either with parent company and pet cash or unused debt capacity in our Term Loan A facility and our undrawn revolver, dollars 1,800,000,000 of capacity existing this year. This chart actually shows another very interesting point. At every single year, if you maintain the level of margins we enjoy today, if you reserve some of that some of those earnings to fund organic growth. Your remaining deployable capital levered is over $1,000,000,000 Every single year, you're producing totally levered capital of over $1,000,000,000 Interesting point. What is the point? The point is at today's multiples, that gives you the ability to buy every single year about $2,000,000,000 of revenue at today's margins. Multiples are right now about 50% of revenue in terms of valuations. So the capacity is there. It's on the balance sheet today. And if we can maintain this margin and capital profile every single year, we are building the capacity to do small tuck ins and small bolt ons. So what are we looking to do? Provide our own plans, they're all across the country. If you talk to providers that are not in the business, they want to get in. If you talk to the ones that are in, they want to get out. It's hard business. None of them are very good at it. A lot of these are 501(3)s, all types of conversion mechanics. It gets complicated, but we have a team really surveying the landscape to make sure we identify underperforming plans, single state plans, provider owned plans. We will not pursue capability plays. I see no reason in order to take advantage of the incredible skills of a vendor, where I might represent 2% or 3% of its revenue to buy its equity. Why would I do that? I'm not trying to build the optimum of Molina. That's not what we're here to do. This is underwriting membership premium leverage. We're not going to buy capabilities. Hard book value, tangible book value plays, membership, give me some premium. That's what we're after and we have the capacity to do it. A quick spin through the numbers. First, a word about 2020. We are not giving earnings guidance for 2020. But since we're telling a growth story and since the work you do in a year is usually producing the revenue for the following year, I thought it would be a credible thing to do. Here we are almost in the middle of 2019. You sort of better have a good idea of what your revenue flows are going to look like for 2020, because you've already acted upon them. The events that needed to occur to generate 2020 growth have occurred or we've caused them to occur. And so although we said long term 10% to 12%, we're saying next year 7% to 9%, and I would posit that the 1st year out of the gate and an incredible $1,500,000,000 margin turnaround, the unfortunate loss of 2 legacy contracts by the legacy team that resulted in 10% decline in revenue for 'nineteen that out of the gate at 7% to 9% is a really good start to the long term 10% to 12%. There's growth in all three lines of business. We have not counted any new RFP wins. In fact, I think that includes Texas expansion is not counted. It says it right there, it's in steady state in Texas. Deal is to wish volume in mix 6 and health insurer fees just for comparative purposes are not included. And if I go through the wheel of what's included here, many of our Illinois did a great job of building membership this year as some of our competitors went into sanction. South Carolina did the same. Mississippi has ramped that will go into 2020 off of 2019, and it's not at full run rate. And then there's the Mississippi, the CHIP award that hasn't even happened yet. Washington has some growth next year on some new programs that will manifest itself in 2020. So you don't need headlines. I don't need headlines. I need revenue growth. And before any of the big tickets happen, produce 7% to 9% revenue growth off a 10% decline in the 1st year of your growth strategy, not even accounting for some of the big ticket items that can happen, we think is a really good start. So we wanted to give you visibility at this early stage into how we're thinking about 2020 revenue growth. This is the page that I talked about at the top of our remarks. Compounding your growth rate, think of it as 3 to 5 years, 'nineteen off of 'nineteen guidance for 2023. As I said before, 10% to 12% revenue growth, 4.5% of which is end market growth and yield, 4.5%, which is right emanating from the actions we've taken in our strategy and about 2.2% on the $2,000,000,000 of new territory growth, adding up to 11% to 12%. Amid its long term premium growth of 10% to 12%, holding serve on our margins at a midpoint of 4%, which produces net income growth almost equal to revenue and with the extra juice by deploying some only a third of our excess capital produces an additional 300 basis points of growth to EPS. 10% to 12% in the revenue line, hold serve on margins, net income almost equal to revenue, 12% to 15% EPS without deploying nearly 2 thirds of the excess capital we're generating. That's the commitment. Here's the tail of the tape by product. This is just a recap of everything we showed you in the prior slides. There's the 7% to 8% Medicaid growth rate we previously showed you without RFP wins. There's a $1,500,000,000 to $2,000,000,000 of projected RFP wins. Again, they only start happening in 'twenty one and build slowly to 'twenty three, all producing a 9% to 11% Medicaid growth rate. There's the 14% to 16% for each of our non Medicaid products, marketplace and Medicare, adding up to the 10% to 12% premium growth we're projecting over the long term. We'll remain disciplined. Our margins give us tremendous flexibility to have competitive products at the right price in order to produce these growth rates. A quick spin by product, just to give you a view of, okay, if I'm looking at Medicaid, Medicare and Marketplace and I'm trying to understand it by how much is just there inherently versus how much are you guys actually producing. We cut this by product line and saying, okay, in Medicaid, eligibles might grow 2%, modest, maybe a little conservative. Yield is probably about 2. That's the way it's been trending, which means that we're producing 6 percentage points of growth through the strategic initiatives that we talked about. Increasing Medicaid market share of the adjacent geographies, cost ends and winning new RFPs. 6% of the 10% growth rate at the midpoint is our strategic initiatives. Same thing in Medicare. Deals a little more, 4%, eligible same 2%. Our strategic initiatives produced 9% growth. And that's off of our DSNP line of business, which is a smaller component of our total Medicare book, 15 points at the midpoint, increasing market share and increasing our Medicare footprint Medicare penetration in our Medicaid footprint. 9% of the 15% growth rate are specifically tied to the initiatives we said we would undertake to grow the business. Same thing in marketplace. There is no membership growth in the marketplace. It's pretty flat by everybody's definition. So the strategic initiatives, which is basically to just get better penetrated, to get back to where we were, to get back up to the $3,500,000,000 to $4,000,000,000 to make sure our marketplace business continues to track our Medicaid book of business. It leverages the same network. It leverages the same network rates for servicing the working poor. These are highly subsidized members. There's more of them out there. And as I said before, we overpriced our product, underpaid our brokers. It ain't any more complicated than that. We can get back to the 15% growth rate mostly through just additional focus on pricing and commissions and getting back to the market share we enjoyed a few years ago. Coming back to our long term trajectory, really repetitive, but this gets back to the sustainability question. Why do I then believe that if you can grow revenue at those rates, can you hold margins somewhere in the 3% to 4% to 2% range? As I said before, Medicare is operating really, really well right now. We think a better view, a more credible view of Medicare performance is 5 percent to 5.5 percent, which is hardly backing up. I wouldn't say those margins are backing up. I would say they're reverting for the meeting. They're probably still top decile at 5 to 5.5. So they're not backing up. And of course, in marketplace, we're purposely going to bring them down into high single digit, we can grow the business again. And in Medicaid, sorry, I know 3% sounds high and it sounds way at the top of where everybody is, but we actually think we can hold our Medicaid margins in the 3% range. Why? If we can grow the business and 50% of your costs are fixed, we can leverage the heck out of the fixed cost base. We think our MBRs, our MLRs are right where they need to be. There's tremendous leverage in the SG and A ratio. If the rate environment remains rational and we remain a smart rate taker, leverage the G and A, the margin improvement activities, the $450,000,000 portfolio that I showed you earlier, we continue to action, add up those factors in futures and make your own judgment. Is this margin picture sustainable? We believe so. Rate environment remains stable. We continue to harvest the $450,000,000 of profit opportunity, and the G and A leverage brings down our G and A ratio substantially over time if you assume 50% of your costs are fixed. That's why we believe our margins are sustainable at this level. The last point, if you recall our guidance page, was how did you get to 12% to 15% EPS? And again, in sort of the realm of conservative assumptions, there's another. This plan produces about $4,000,000,000 of cash, 2.5 of Rich's law earnings, add your leverage on top of it, you'd lever up to keep your leverage ratio at 45%. If you only assume you use 35% of that cash to buy back shares at a trailing multiple, you reduce your share count, you're going to get 300 basis points of lift your EPS growth. The reason that's a conservative assumption is after doing that, there's still $45 of cash per share on the balance sheet at the end of this period. So there's cushion and margin for error in all these calculations. Conservative assumption on the capital deployment assumption we've used, but it's there. Every managed care company that has a share repurchase program has earnings per share that are 3 to 5 hundred basis points higher than its earnings growth. We're positing that the amount of capital deployment juice we get in our EPS could actually be the highest in the industry since our ROEs, at least in our view, are planned to be higher, because our margins are higher, our capital requirements are lower. So that's how we get conservatively pitched and viewed an EPS assumption that's 300 basis points higher than earnings. It's through the effective deployment of capital pitched in an incredibly conservative way. Those are the numbers. That's the tail of the tape. It was really hard work getting the margins to where we needed to get them. And if we recall, we said maybe by 2020 we get to 2, maybe by 2020 20, I think it was, we get to 2.7. And getting close to 4 in the 1st year was hard work, discipline, rigor, improving processes, harvesting performance improvement and just managing the business more effectively. I don't think we proved anything in sustainability because sustainability by its very definition has a long term future to it. But with the guidance we've given this year, with the Q1 we've reported, we have a belief because the rational rate environment $450,000,000 of continued profit improvement opportunity that we have a margin picture that is truly sustainable at the current levels, all of which give us a really, really strong foundation to begin executing the growth phase of our strategy. That's our story in a nutshell. And in a few moments, you're going to meet 3 members of the team who make a lot of this happen. But right now, thank you for listening to me for the last hour and a half. I hope it was instructive and helpful. Let's take a break and we'll come back to the panel discussion. Thank you for listening. All right. Are we ready to kick it off and circle back up after the break? I'll ask everybody to come on in and retake your seats. For those of you who have a question, give us a minute to get settled and we will kick off our panel discussions. All right. We're going to get settled. Welcome back from the break. So before we have Joe kick off our executive panel discussion, I just want to remind you all of our forward looking statements that we made remarks today that include forward looking statements and our actual results in the future may differ materially. Again, we have our forward looking statement in your PowerPoint, so you can read it yourself. With that, let me turn it over to the team. Joe? Okay. Welcome back. Welcome back. First, I don't think I need to go through the resumes of Jim Royce, Pan Sednak and Tom Tran, but highly accomplished managed care executives and the ones responsible for really executing a lot of the hard work that has created value for us up to now and will create in the future. Jim is going to offer some thoughts, maybe more detail and color around some of the margin sustainability questions that come up and that we discussed during today's meeting. And I think one of the areas that has created a tremendous amount of value for us manifesting itself in earnings for 'eighteen, 'nineteen and continuing in the future was the generic category of profiting improvement we call payment integrity. And Jim's team was primarily responsible for rejuvenating the entire program, making it work and harvesting that improvement opportunity. So Jim, more color, more detail, give the audience your view of what you're doing in payment integrity to create that value? Sure. In our business, a high performing payment integrity program is really integral to great operating and financial performance. So the first thing we did last summer is we went and looked at our payment integrity programs as they existed last year. And through that review and our prior experience, we determined that they were underperforming. And so it was part of the opportunity for us to figure out how we're going to change the underperforming capability to a high performing capability, which is so important for our success. So when I think about payment integrity, it really is, are we paying the most appropriate amount to have received claims payment? And are we actually paying have the right responsibility for that claims payment? So who does have the actual financial responsibility for the payment of that claim? So when we think about this, when we think across the work streams, it really starts with coordination of benefits, prepayment, claims review, post payment claims review that we have are the subrogation and classical sort of fraud, waste, abuse programs. So let me give you a couple of examples of our early success. One of the areas in which is really important to Medicaid plans is determine who's got primary financial responsibility for members' care. It's acutely important for Medicaid because Medicaid is usually always the payer of last resort. So they're always secondary to any other coverage. Normally, in a Medicaid population, you would normally see that there would be some evidence and some other coverage in the range of about 8% to 10% of your population. When we first looked at this metric back last summer, we were tracking to about 4% to 5%. So you can see we're substantially underperforming in identification about where there was other coverage. To date, through our efforts, we're sitting right just below 8%, still some room to go, but I think we've made some pretty substantial progress in the coordination of benefit area. Another example would be in the prepayment area, especially around medical policy and medical necessity edits. Again, as we looked at it last summer, we looked at those edits and said that we weren't really performing at a market level. They're really important to our business that when we look at medical policies or actually medical necessity that we are performing kind of consistent with everybody else in the market. So we've we looked at those. They hadn't been updated in a while. The last few months, we've been updating those data. So we moved from a point to where we were last summer to today of improving our financial performance somewhere in the range of about $25,000,000 to $30,000,000 on an annual basis as a result of updating those edits. So in summary, we've built a sustainable payment integrity organization. We partnered with best in class vendors, as you saw in Joe's slide before. And then we've also established a continuous improvement program because this is a piece of our business that continuously evolves, and we have to be continued and capable of reaching those needs. So at the end of the day, I feel really comfortable that we made pretty substantial progress, but we still have some work to go. Great. Thanks, Jim. Another area we talked about that gives us great confidence in our ability to maintain our margin profile was in the area of risk scoring and quality. And as I mentioned, you cannot be in the 3 products we're in without being really good at this. It was clearly an area that you had identified when you came in that was under managed and under invested in over the years. And we just weren't keeping up with the competition and therefore we are eroding our position rather than improving it. You've done a lot of work in the area and maybe again share with the audience your perspective on how much you've done and how much more there is to go. Sure. So similar to Payment Integrity, last summer, we and took a look at our the appropriateness and the level of risk and quality scores that we were achieving and where we at market. Again, just like Vima Integra, we determined that we were underperforming in this area. So at this time last year, we estimate that we had a substantial opportunity to improve get to market level risk and quality scores. Our work to date has proven that, that opportunity is real, that's achievable and most of it is yet to be realized. And so what we've been focusing on is building sort of organizational capabilities to build to achieve those goals, to enhance our analytical and technical capabilities to be able to identify those opportunities where we can drive better payment and better risk and quality scores, and we've been using best in class vendors. So let me just give you a couple of examples of why when we look at why this opportunity is still yet to be realized, So there is just purely a lag factor from the time that when the work is performed and when those final results will end up in your financial results. In marketplace, marketplace, the work that we're doing in 2019 to get appropriate risk scores in marketplace will actually show up in our financial results here in 2019 and a little bit in 2020. The risk adjustment in Marketplace affects the current year risk transfer payment. However, in Medicare, the work that we're doing in 2019 will really affect the risk scores and the revenue in 2020. And in Medicaid, time lagging even farther that the work that we do in 2019 in risk and quality scores will eventually show up in our rate development probably in 2021. So you can see that it takes approximately 3 years to get a full run rate of the work that we're doing in 2019 to get full impact to our financial results. So what it tells us is that these future opportunities can give us some really benefits. 1, in marketplace, these improvements can allow us to price our product more competitively. In Medicare, it allows us to enhance our benefit options, again, improving our opportunity to grow in Medicare. And in Medicaid, it gives us some opportunity to sustain any future margin pressure. All three of these areas really enhances our ability to grow. So I'm extremely confident that we've built the right sustainable organization to achieve these results, and we'll look forward to further improvement in this market in this area. Thank you. One of the other aspects of our profit improvement plan that gives us again great confidence in our ability to sustain margins is our continued progress in utilization management, whether it's medical costs, behavioral costs or pharmacy costs. We've done really good work here to improve our operations, but there's more to do. And as we said, we always want to make sure our members get the right service in the right setting at the right cost. But we obviously have a financial profile to protect as well. So can you maybe shed some light on how we balance those 2 phenomena and the work that we've done and the work we continue to have to do? Sure, Joe. Most of our medical management activities in the area of utilization management and case management are done on the ground, in the field and in local markets. Though it's not completely standardized, the results have been very good as evidenced by our 1st class medical loss ratios. So the job of the enterprise is to develop medical management programs that are standardized, that are consistent, that can be deployable to our markets in a sort of consistent standardized way to achieve better results. It's the opportunity to identify best practices at the corporate level and be able to deploy both operational and technology advances to the enterprise consistently across the board. In partnership with PAM and our health plans, we've identified several medical management opportunities that will improve our future operational performance. They include things like a Nu. Q medical management program or a kidney disease medical management program or programs that will integrate behavioral health and physical health. These programs, like other programs, similar programs, will allow us to better give not only improve our financial performance but also improve the health outcomes of our patients. Another area that we looked at was an area of utilization management, in particular activities like advanced imaging or radiation therapy, where we just didn't have the skill or the capacity or capability to perform these in the most effective and efficient way. So we did look outside of our own walls and look for best in class partners, in this case, eviCore, to help us deliver these programs in a much more effective way and integrate with our operations. These will result in sustainable improvements to our health care costs. Lastly, as an enterprise, we look at utilization metrics daily. We look at them from the perspective of what happens by market, by segment. We look for any variations in those practices and then make real time adjustments to those to the decisions to make sure that we fall on track of what those medical management activities are occurring, both in the field and at the corporate level. So Joe, I think we're well on our way of building a really first class medical management capability at Molina. Another area that got a lot of play early on was as you came in, you and I got together, tried to decide what to do with what was at the time a pretty disheveled IT operation. They've gone through a lot of turnover. There were a lot of gaps in our capability. And it became pretty obvious to us early on that in order to stabilize it and in order to deliver on our commitments, we needed a world class partner. And then you took us through a process to analyze the market, identify a world class partner and begin with outsourcing our infrastructure. So maybe specifically with respect to the Infosys deal, but also with respect to our future strategy for IT, cost savings and effectiveness, Put some color on it and shed some light on it. Sure. You said Joe, we got here last year. You and I had a discussion around what we should do with our technology asset. We started that time a pretty extensive procurement process to look at best in class IT partners to help us with infrastructure, application development, application maintenance and testing. So the purpose of this procurement was to find best in class partners to help us enhance our performance and to prepare us for future growth. At the same time that we were doing the outsourcing activity, we took the opportunity to rightsize our IT organization to look for enhancements into our capabilities and efficiency gains within the IT organization and at the same time build what I call critical retained organization skills in order to manage the company and the IT structure in the future as we move to an outsourcing model. The combination of these activities and our outsourcing efforts is reducing our ongoing run rate IT costs by $85,000,000 $85,000,000 to $90,000,000 a year. So again, the purpose of this outsourcing is to get best in class capabilities to improve our performance substantially, to get substantial improvement in our reliability of our performance, to get capabilities around scalability for future growth and to improve our security position. I think we're now able to use technology as a strategic asset to fulfill our objectives. And you for 1 are one of the few people in the industry to claim to have like real time experience doing this with the vendor we selected, correct? I have. I spent a big chunk of my prior career doing just this activity. Great. Thanks, Jim. Okay. Shifting the topic area to growth. We've asked Pam to put some color around and some depth in detail to some of the topics we talked about this morning. So Pam's first topic is we talked about the RFP pipeline, $60,000,000,000 14 States. And the process of evaluating where we go, where we have the ability win. But since you're responsible for executing on the growth strategy in those areas, Tell us how you're going to do it, how you're approaching it and what the outlook is. Thanks, Sterling. And you really touched on much of this earlier, But I think it's important to go over it again. We actively look at every RFP opportunity in the pipeline. As you noted, it's about $60,000,000,000 as we see it today that certainly can ebb and flow at any point in time. And we're very selective and disciplined in our approach and how we look at the opportunities. And we need to gather regularly as a leadership team to go over those and prioritize the target, the markets which we're going to focus on based on our confidence and our ability to win in those procurements. So what's the process of evaluating? What do we go through? First is, what's the state's desire for change? Is it a state with a new administration that has new goals for the program and they want to put their imprint onto that program? Or is it a state where the administration has a stable program and has no desire really for change? What's the regulatory and rate environment like? Is the are the requirements onerous, unit or reasonable? Are rates reasonable and ability to attain a decent margin over time is critically important. What's the competition framing? Every market is in a little different state. And is anybody being challenged, having challenges and a little bit of hot water potentially with the state? Of what's an internal reoccurring within the state or any plans leaving the state is an example. Boots on the ground. What are we hearing from the advocates, from the providers, from our state partners, from legislators and Medicaid directors and so forth? What are they telling us in terms of what that opportunity framing is going to be. And our ability to foster strong relationships, especially with the providers and the community based organizations and the advocates as well as with the administration and legislature. And just as importantly, and last but certainly not least, was our ability to build a low cost provider network that clarifies the access to the care of high quality care that our members need. Okay. Along the same lines, getting a little more specific now, We've chosen to participate in Kentucky. That sort of became public information because of our being awarded a certificate of authority. But we also decided not to participate in Minnesota and Louisiana, a couple of states where we've had prior experience in evaluating. I think just to give the audience a flavor of when we do decide to go somewhere why and when we decide not to why, Using those two states of example, can you give us some color around them? All right. Let's first touch on Kentucky. Why Kentucky? It's a large market. It has about 1,300,000,000 eligibles, about currently $7,000,000,000 in managed care spend with the current populations that they have. The additional populations and benefits have not been carved in yet. Our leadership team has experienced direct experience in this market. Several members of our team dialed. We view this as an open receptive We view this as an open, receptive regulatory environment, new Medicaid director, who we know, as well as the administration that seems open to hear from new players. The rate environment has been stable. Many of us remember when Kentucky first went live, right? It was a really, really challenging environment. First went into managed care. The timing of the RFP here was also important for us because it gave us the opportunity to begin the critical pre RFP planning activity that you need to do within the market and in order to get to know the market. And also we didn't know whether we were going to require a fully contracted network or not. So we just assumed we did need 1, and we need to go and start building on that network and get ahead of the game. The competitive dynamics in that market are highly fluid right now, which we view as a potential opportunity. So where are we? The RFP dropped on May 16. The due date of the RFP is July 5. They haven't said when they're going to make an award likely Q3 or Q4. It was a go live date of sevenone of 2020. So that's Kentucky. What about Louisiana and Minnesota? So again, we evaluated all the criteria that we had already discussed. De novo RP, Medicaid RPs are a long sales cycle. And typically, you need boots on the ground planning 12 to 18 months well ahead of those procurements. Both Louisiana and Minnesota are ceased dropped in Q1, Louisiana in January, Minnesota in February. That would have been about this time or earlier last year, we would have boots on the ground as cultivating those markets and beginning to prepare for those RFPs. Well, we were a little busy focusing on other things at this point last year. And so the timing of these RFPs was not ideal for us, 1st and foremost, again, assuming they would have met our criteria. However, there are a couple of other footnotes I also want to make about both of these. In Minnesota, as the RP dropped, guess what, it required an attestation and a fully contracted network upon submission. That takes at least a good solid 6 months to build. You're not going to build that at the time you drop an RFP. In Louisiana, the RFP required letters of intent. That was different actually from the last procurement that they did, where they just asked for a plan of how you were going to build that network. And Joe kind of mentioned the nuances within that. And neither RFP mentioned how members would be allocated to a new MCL. One of the obvious popular topics is free procurement. I don't know how many times I can actually voice confidence in Texas, but I think I did it 3 more times today. You can do it yet another. But the question has often been asked. I mean, it's 3 weeks away, 3, 4 weeks away, so we'll know soon. But talk about Texas. But we also have some recent news on the timing of Ohio and some not so recent, but fairly recent news on California. So maybe in that order. Okay. Texas, Ohio and California. California, got it. Okay, Texas. Again, we might take us back a year to where we were at this time last year. Can you go back? We had just come off losing 2 reprocurements when Joe and I joined the organization. We knew we needed to put together a high caliber RFP team in place. But we already had a bunch of RFPs supply, Texas being one of those, along with certainly Washington, Puerto Rico. So before that team in place to Texas, what we had to do was change the approach on the RFP, completely 188. 1st and foremost, we co located the RFP team along with the subject matter experts in the plan with the plan team. We ensured executive support for touch points regularly with the executive team, making sure we were bringing to bear every resource in the enterprise to ensure we could write a winning bid. Thirdly, we brought in 3rd party reviewers to read our versions our early versions of the draft and critique us along the way where our scores have, where can we punch it up and do better, where we bring in more proof points to make our points. It's really important to get that iterative feedback from other than who's a third party, not just us talking to ourselves. And lastly, we review every RFP, every single word before it goes on. Today, we're in a much different place. We still won those we still won 3 RFPs with that approach. But today, as Joe mentioned, by the back half of last year, we now have built in what I call as part of the growth team. We have a new RP leader and riders. We have a new Medicaid DISA development leader, and we have a new implementation leader and partnering very closely with our government affairs team and Carolyn's team is really a whole new approach for us going forward. We'll still leverage the best practice we did on colocation and third party reviewers, but now we have the growth engine on top of that. This enables us to fully engage in pursuing new procurements. And like I said, we're 3 for 3, even before this growth engine was put in place, winning the state of Washington state wide, the island wide of Puerto Rico and the new RFP unseating the competitors in Mississippi Chip. So what gives us confidence how we view Texas? We feel confident. We don't know for sure, right? But we're pleased with the value add that we've brought into our state to our Texas, our state partner. We know this market. We serve this market well. We remain good standing in the state. With every reprocurement, there's an opportunity for us to increase our footprint, in this case, Texas. Joe already touched on this. Just in STAR plus if we maintain our market share in the 7 new regions on top of the 6 we already have, that's $1,200,000,000 in annual incremental revenue. And Star Chip, similarly, is just incremental on top of that if we do the same. So we're continuing to participate in the STAR plus and STAR chip re procurement process, and remain confident going forward. The award date for Star Plus is just referenced is June 28. Star Chip could be August 24. The go live for Star Plus tentatively is June of 2020 and for STAR chip September of 2020. It just holds to that schedule. Okay. Let's touch on Ohio. So Governor DeWine, new administration announced the intent to reprocure the program as the program stands today. So that meant we're looking at LTSS and let them carve that in. Our legislative committee did not recommend doing so at the end of last year. So it is within the current footprint. And we just got some new news yesterday, Nuance shares, and they had a meeting with the managed care organization and they set out the proposed timeline. So here's the updated timeline from the state. They're looking to drop an RFP in early 2020, probably January. Award date likely by July with a go live date of Oneonetwenty 1. In addition, I do want to mention also in Ohio, because it is important, is Ohio was the first to file for an extension of the MMP demonstration program with CMS. CMS has approved that extension through the end of 2022. And we're waiting this revitalization of the three way contract between the state, the plans and CMS. And then let me touch on California. New administration as well. What they have announced on their website is they intend to reprocure in 2020 with an effective date out to 2023. So that's the timeline that we're working through as we speak. Thanks, Pam. We made a point during the prepared remarks this morning on what states are really looking for, both in table stakes and in innovation innovative capabilities. You spent a lot of time working with your BD team packaging up the why Molina store. What is our value problem? Why select Molina over one of our competitors? And maybe just put your spinning color on that. Yes. And you really kept well on this, Joe. I want to hit on it one more time, though. Our overarching goal and our overarching value add proposition is one to provide MedImmared access to high quality care, That's evidence based care in the right setting at the right time. We want to provide our states, our members and our providers a seamless and reliable experience. That sounds so simple, but it's so critical. So I don't want the phone to ring the Medicaid director's office, as you mentioned, or the governor's office. I don't want providers being upset because we didn't pay a claim on And we don't want members upset if they can't get access to the specialists that they need. We want to be efficient cost stewards. Yes, we want to be low cost and affordable for the states, but also are entrusted with taxpayer money, so we want to be good stewards with those monies. And then we want to be the partner of choice for our states and the plan of choice for our members and our providers. So again, what does it mean when we say we want a seamless, reliable experience? That's taking care of our states and our members and providers in a consistent manner. Choosing Molina varies by, say, what their priorities and pain points are and what their goals are. Our quality score is low, Are diabetes, opioid use disorders significant concerns? Out of Texas, Ohio, opioid abuse disorders is a significant concern. We need to craft and outline between those pain points or to their goals, how malignant helps the state achieve their objectives. And then also show our track record and proof points on how we've done it before. We strive to be the best responding to the voice of a local plant. That's why cultivating these markets is so critical in advance. We have to talk and the nuances of that local market. We have to be Kentuckians in Kentucky, Texans in Texas. We're the important community based organizations in serving disadvantaged populations. And how can we partner them to meet the health of the goals of the state, whether it's rural access to care, food and security, self empowerment, whatever the goals of the state are, we want to make sure we're partnering with the best community based organizations to help to achieve those goals as they truly understand local community needs and the local nuances of the community. Who are the critical access providers and key member advocates we need to work with? Again, being that voice, doing focus groups, having the conversations is so critical. Understanding the nuance of market. Cuyahoga County, making sure you pronounce that right and you know what that means in Ohio. For the Appalachian area within Kentucky and how that differs from Louisville, significant night and day. We understand and know how to manage the full spectrum of managing the Medicaid population. It's a very wide spectrum from temporary aging families to the children's health insurance program, expansion population, age blind disabled, manage long term services supports benefits, working with dual, the intellectual and developmentally disabled, those with serious persistent mental illness, foster children. We know how to successfully work across that spectrum of the Medicaid population, especially those of high acuity population. A couple of footnotes that Joe mentioned this. MMP, the Medicare Medicaid Program Demonstration. We are the largest in the country. We're in 6 states. We manage over 225,000 members who have managed long term service and support benefits, about $2,000,000,000 is spent. We have tremendous success in managing high community populations in states like Texas, Ohio, Illinois, California, South Carolina. And we've long recognized the importance of integrating truly clinically for a member the integration of physical and behavioral health. We don't have a separate behavioral health entity standing over here that we contract with and they manage that. We look at it holistically from a member's perspective. They have a clinical team and a model comprised to support them on both sides of that and in an integrated fashion doing clinical rounds together. Washington is a significant reference point for those, as Joe mentioned, because they're fully integrating BH into their physical health across the state. Agree, Pam. You really put a point on it. We in my view and in your view, we've always had the capabilities to do what states need to happen in order for us to win. We didn't, A, have an advanced ground game, which we never have and, B, we actually just weren't really good at packaging it and delivering it in a coherent way, and I think we solved that one as well. Thanks for putting a point on that. Question came up during the break as we're milling around about the aspect of our strategy where I mentioned growing market share, Medicaid market share in our existing markets. And one of the areas was the suspicion we have, a very well rounded one, that we have members leaking off the Molina rolls during the redetermination process. And the question came up as well, is that true and sort of how do you solve it operationally? Do you have the ability to solve it operationally? So you're the one who's managing that aspect of the business. You're the one who owns that strategy. So maybe helping the audience understand that would be helpful. Okay, great. And I'll just touch on that specifically. But first, let me frame it. Market share growth within your existing footprint in Medicaid means you have to excel in 2 parameters. 1 is in auto assignment enrollment and optimizing your position relative to that. And the other is in voluntary selection. Members here have choice. And you want to make sure you are the plan of choice for members. And that also includes those being that plan of choice providers because they can add Midland to relative to that member choice. So let's first start on the redetermination question. We just have to be better than our competition and holding on to members and not letting them fall off the roll. Right now, that had not been something an area of focus for this organization. It's a hyper focus for us, and we have a disciplined process we're putting in place. States give us a file about 90 days in advance of when a member is going to be potentially falling off their roles that they don't redetermine. So we actively take that list and outreach both from Jim's organization and then down through the health plan to ensure those members hold on to their eligibility status. And we just are hyper focused on that, and we have metrics that we measure to ensure we are improving on that redetermination process. So we know who they are. We know when they're going to roll off. We have to go and find them and outreach them, so whether it's locally in the community or if we can reach them by phone. And we want to make sure that we're doing better than we did before and also better than in our competitors are doing. That's really the process of how you do that. It sounds easy. It's hard to do. But it's critical. It's just a productivity and efficiency and then ensuring to be able to outreach the members and help them through that process. On the auto assignment algorithm, there's various ways in which states do this. Increasingly, they're putting quality as a key element into that on assignment algorithm. And so we have to make sure that we are best in class relative to our performance on those metrics to ensure we're at the top tier relative to that algorithm. We have to improve the consistency and efficiency of our core operations. Again, I want to use the word delight our members and our providers. So we want to have high satisfaction in our call center and our claims payments and just the overall experience they have in their interaction with Molina. We want to increase our member and provider satisfaction scores. Super Cruise, CAPS is usually the one that's for members that are used. We are very keen and focused and we have game plans in every single state on how to work to improve those scores. And we want to create strong base relationships with our providers. If we're going to be the plan of choice for them because of that arrangement, that has influenced relative to provider select I mean, member selection of our plan. And then finally and certainly not least, we want to have compelling value added benefits for our members. The ones that are impactful, important to them in that local market and that varies by market, but we want to make sure we're hitting on what's important to them and differentiating for them. Great. Thanks, Pam. Mr. Tran, we talked a lot about our financial profile, particularly in 1 year, you working with Mark Heim really reconfiguring the balance sheet and making it a strength rather than a weakness. And one of the areas we talked about this morning was the return on equity model, having best in class numerators and moderate denominators, we're producing ROEs that are going to produce significant excess cash flow. As the CFO of the company, how do you think about it? Maybe put some color around it from your perspective. Sure. Absolutely, Joe. And Joe commented earlier in your deck, there are a couple of patients there, maybe Page 7 Page 66, as you talk about the ROE and deployment of capital. Let me just provide a few a little bit more color on that. In our business, managed share business, the capital required for growth is not that significant and typically 8% to 10% of revenue that you need capital to support that. And if you look at our guidance, we provided after tax margin of 4%. An unlevered basis, that's like a 40% ROE. So if you put leverage on top of that, let's say debt to capitalization ratio of 50%, you can get ROE up to 75%. So that just illustrates the power of the business model. And when you think about it from our guidance that we provided, I take that as an illustration, We have $16,000,000,000 in premium in 2019 full year. And let's just say you grow the business 10%, that's $1,600,000,000 Capital needs to support that, looks a little bit less than 10%, let's call it $150,000,000 round number. And our guidance for 2019, we have $700,000,000 of net income at the midpoint. So we need $150,000,000 to support growth. You have $550,000,000 left as excess cash for deployment. This is what Joe illustrated before, the power of excess cash that you can generate it, you can lever on top of that to really grow. Similar topic. We believe our model produces significant excess cash flow. The question always becomes, what is your what are the lenses you look through to deploy it? How do we think about it? What is the highest and best use of our excess capital? So maybe just give us your on the CFO's chair, your spin on that very issue. Sure. Before I dive into capital deployment, let me talk a little bit about what we have accomplished over the past year or so in terms of really, I would say, to put a balance sheet and cash structure in a great position. We have lowered our leverage ratio, the essentially debt to EBITDA from 2.7 times to 1.0 times today. And that we have also improved our interest coverage ratio from about 7 times to 15 times. And during that period of time also, we have reduced the convertible notes that provide a lot of volatility in our share count from the original amount of 550,000,000 down to about 78,000,000. And as you know, these convertible notes will be out of our capital structure by January 2020 and when they mature. So we've done a lot of things to really put ourselves in a great position. And as Joe commented earlier, in one of the slide, maybe Slide 18, that at the end of Q1, we had cash at the parent company of $440,000,000 In addition, we expect additional dividends from the sub between now and the end of the year of about $500,000,000 it could be more and that we have untapped capacity in our debt is about $900,000,000 So, there's about $1,800,000,000 in total that we can deploy essentially for any purpose and especially for M and A acquisition and so on. Now, obviously, for capital deployment, the top priority for us is really to support the growth, organic growth in our Medicaid, Medicare and in our marketplace business. 2nd, we maintain capacity for acquisition. We have demonstrated that before in discussion about excess capital we generate every year. And if we exhaust those opportunities, then we have to look at potentially return capital to our shareholders, probably primarily through share repurchase. Those are really our capital deployment strategy. Thanks, Tom, for that additional color. Our growth strategy relies on us growing the marketplace of 14% to 16% of the top line. I think one of the areas that you and I often have to discuss with investors, and to be very clear, we actually never claimed that we could hold on to the double digit after tax margin position we enjoy today. That was the function of a necessary approach to pricing before we understood the profitability of the product in 'eighteen. We put yet another year's worth of trend on top of the price, which made us slightly uncompetitive. We lost some membership, but it was the right thing to do at the time. Can you maybe just go through one more time of the dynamics between pricing the product appropriately, making sure it's competitive, giving up a little bit on the margin, but growing the profit pool? And then maybe Pam can add some color around our distribution strategy, our product profile in order to get that done. Sure. So just to maybe put away the landscape for a second. We finished Q1 in marketplace with approximately 330,000 members at the end of Q1. And we expect some attrition monthly from there to the end of the year. We provide guidance that membership will be roughly about 280,000 by the end of 2019. So the business we is highly profitable. In the Q1, we provide, obviously, margin somewhere in the mid teens. We expect for the full year margin of around 11% on an asset tax basis. So from that perspective, they generate about will generate about $165,000,000 in net income. Obviously, Joe said already that at the very high margin today that we don't expect to be able to hold on to that for a longer term. So we're on the throw of basically pricing our products right now. In some markets, we already submit pricing for 2020. And some markets actually happened in May. June July will be very busy month for all of us to really submit pricing for our marketplace products. In addition to existing counties that we're in, we're expanding counties in the current geography for marketplace. And in addition to that, we're entering into existing MediKs say that we don't currently have marketplace products. So we expect to grow this business in 2020. Obviously, we're very mindful that we want to maintain a decent profit margin. I won't go into the detail of what that is from a competitive viewpoint, but certainly we expect it to grow next year and also to really maintain a decent margin. With that, I'll have Tan talk a little bit more about our product strategy and distribution and things that we see as opportunity. All right, Tom. And marketplace serves as a working poor, as Joe talked about. And it's an extension of Ross and priced off of our Medicaid network. The working port acts as the Medicaid like network. And so it's important that we have our network priced from a Medicaid view, not from a commercial down view. We have a specialized local channel specific to our population, and we have room to grow. As Joe mentioned, back in 2017, Marketplace was a $4,000,000,000 revenue for the organization. So how will we do all this? 1st, pillar our network unit cost to match our pricing, really, really important. We engaged an intense analysis of our competitive position. We went and looked at in every single county within our existing footprint and then those that we were targeting where our rates needed to get to and how we could get there and put a plan in place to do so. So that could then be informed relative to our rate setting that we're going through that Tom mentioned right now. We're refreshing our product suite as we speak with more products, new benefits and then going into, as Joe mentioned, back into the branch product, where we have walked away from that a little bit in this year. And just continuing to believe that this business can grow with slightly lower margins, but more profit pool. And again, it's a blind auction, right? Our competitors are also going through this framing as well. But we believe with a great deal of intensity and planning that we're well positioned for growth here in marketplace. Tom, Pam, thanks for the color in the marketplace. Tom from the CFO's chair, any last words on the financial outlook that we conveyed to our investors this morning? Sure, Joe. Before I go into our longer term outlook, let me just, again, provide some additional viewpoints here and comments that you already said earlier today regarding 2020. So the business model we're in provide us with very good visibility into 2020 revenue from the existing block of business. We're not even talking about new RFP wins or any potential Texas outcome. So from that perspective, we're looking at next year 7% to 9% premium income growth. So that's between $17,000,000,000 to $17,300,000,000 Now if you add premium tax investment and all income on top of that, that will be another $500,000,000 on top. So that's a total revenue will be 17.5 to 17.8. Percent. Now these numbers are without the health insurer fee. We want to provide that on the same basis for ease of comparison. So to put health insurer fee on top of that, obviously, with price set in our product, the marketplace of Medicare as we speak. However, we didn't put that into the numbers for same basis of comparison. So looking at a longer term, Joe already commented, we're looking at growth top line 10% to 12% net income 9% to 11% after tax margin 3.8% to 4.2%, some years would be less more, some years will be less, but over a period of time, it will be in that range of 3.8% to 4.2% and that CTS growth of 12% to 15%. So with potential excess cash and capital deployment, either through accretion, through share buyback or any other means, it could be upside from that 12% to 15% range as well. The order numbers we talked here are GAAP numbers, and we include this and don't include any especially for 2020 potential development. Great, Tom. Thanks. Before we go to executive Q and A, it's almost like you can't have a Managed Care Investor Day without some commentary on record, our official on the record our official view of what's going on with the Texas Supreme Court decision, our view of that and also the sort of the rhetoric around Medicare for all and those types of programs. And I asked Jeff Barlow, our General Counsel, to provide some commentary on those issues. Jeff? Sure, Joe. Thanks. With regard to the Medicare for all question, it's kind of striking the disconnect we perceive and a lot of commentators have perceived between the political reality of actually getting it done and the reaction that we've observed in the sector with regard to the healthcare stocks. Sure, the Democrats could recapture the House or the White House and retain the House of Representatives. But I think the big impediment is going to be getting the majority necessary in the Senate to get anything passed. The current political thinking is it will be a struggle for them to even get a majority in the Senate, let alone to the 60 Senate mark, Senator mark that would be required to do something so sweeping and major in terms of the $30,000,000,000,000 in expenditures as required under the Byrd rule. Plus a lot of Democratic politicians and congressmen themselves oppose it. A lot of media play has been given to those more prominent presidential candidates who are advocating for it. But there's still a large number of very powerful Democratic politicians who actually oppose Medicare for all and that's not been accentuated as much in the media. And then finally, the political opposition that would come out of nowhere if it actually were perceived to be a viable possibility would readily squelch it. So just as in terms of the practical politics of it, we just don't see it happening. And so we think it's just been exaggerated too much in the media. With regard to the Supreme Court case or the 5th Circuit case, oral argument for that is now set for the afternoon of July 9. This is a case that goes to the constitutionality of the Affordable Care Act. Just last week, both the intervener states and the House of Representatives filed their appellate briefs. They're actually pretty good reads. The point being that this was involving the zeroing out of the tax penalty for the individual mandate. If you think back to the NFIB case that the Supreme Court decided back in 2012, a big element of the unconstitutionality was the coercive mandatory element of purchasing insurance. That now is gone. And so as the state AGs point out in their brief, it's now effectively become a precatory provision in the law, encouraging people to buy health insurance, but there's no consequence if they don't. So the constitutionality question is we think is actually going to be decided in the favor of those intervener states. A lot of political commentators take the same view. Other possibilities is a finding that the states that are opposing the lot actually don't have standing. So again, we're confident as with the great weight of political or leaked judicial commentary that, that case is going to be overturned. And again, that concern is sort of a red We're in the last half hour and the panel is going to remain up here with me and we are going to respond to your questions. Please wait for a microphone so folks on the webcast can hear it. We'll go to Matt, Peter and Anna. Matt? So while we wait, for those on the web, let me provide my new e mail address as the newest team. It is julie.trudell melenahealthcare.com. You send me your question, I can ask if you're in the room. Matt? Joe, if I could ask a question on the sustainability of margins and what I'm looking at is comparing your margins on a business mix adjusted basis with some of the larger companies and asking how do you outperform them at your size relative to them? And I know you were with 1 of the larger companies, when in fact you even have places to go that you haven't gone yet where you've got more work to do? What's really interesting and we've done all the scale math. In developing our strategy, we've actually done in-depth work at the local market level on scale. And with our margins, it's hard to argue that even though we're under penetrated that we don't have local market scale, implying that our MLRs could get better because of purchasing power and SG and A, they should get better if we were bigger in Ohio and Texas. We think that's just untrue. So we actually have local scale. I think what folks generally miss is everybody's revenue gets the same rate. So therefore, your margins have to be the same. It's completely untrue. When particularly when you only have 15% or 20% market share. If our cost structure is better than everybody else's and whether it is or not, arguable, but let's just say it is, you're getting a rate that is benefiting with the higher cost structures of the rest of the competitors. So the best position you can be in is to have 15% to 20% market share, have the best cost structure in the geography, get the benefit of the higher cost structures in your rate and have the best in class margins. And that's what we think is happening. The fact that we actually can grow in our local markets, we think adds upside to that. But the real upside is here is a rational rate environment and the $450,000,000 of additional profit improvement opportunity. I think generally what is missed is the idea that if you make money, you just give it back to your customer because it's like a retrospectively rated product. It's not. It's prospectively rated. And if you're operating at a better cost structure than your competitors, you're getting the benefit of their cost structure and your rates. That's what we believe is the truth. Thank you. Thanks. I think Anna and then Peter had his hand up. Thanks. The question is on margin sustainability. Jim talked about the kind of real time feedback loop and daily monitoring of your cost base. Have you tested that against new contract onboarding and or MLTSS or behavioral integration and other stuff? So as you pivot to growth, what gives you confidence that you're managing against the risk of the top line growth that you haven't seen so far? Sure. Anytime you get new premium, either on new members or new benefit, you're putting your actuaries against the state actuaries and you're trying to come up with a reasonable view. Now the interesting thing about that is if you actually miss, the states are actually pretty reasonable about recognizing the fact that, oh, the population is higher acuity than we thought or this benefit on which we gave you this much premium was inadequate. In fact, on the higher acuity population in Ohio, Pam, we're going through those types of discussions with the state right now, recognizing that if the healthier lives went back into employment, leaving the unhealthier lives in managed care, shouldn't there be a rating adjustment. So on whether it's new benefits, new members or different acuity of existing members, the states actually readily entertain a discussion about getting the rates right, certainly prospectively, but hopefully retroactively. Now we're not promising retroactive rate increases on some of those issues we have in our portfolio. We're hopeful that they'll be retroactive, but we know they'll at least be reasonable and prospective, right? Every time you grow and you're taking on a new member or a new benefit, you're trusting your actuaries to be smart rate takers. And so far, I think we've proven that we can do that. Peter? We'll go here and then we'll go Sarah and Scott. Peter, right over there. Thanks. Your 7% to 8% growth without any RFP wins seems fairly aggressive. The story you tell is quite good. You've got some good execution here recently. But if I compared you to say United or Anthem or Centene, somebody else's big and strong in Medicaid, and I put all of you guys at 7 percent to 8% growth, that wouldn't happen. I'd be wrong. So you've got to actually outperform some other good competitors to do that. To the extent that some of your other estimates maybe in terms of R and P wins was maybe on the conservative side, Have you considered what would happen if you didn't make the 7% to 8% growth and you were more like 5% or 6% or 7% 5% or 6% and then perhaps made it up in terms of membership from RFP wins, what would that do to your EPS growth rate of 12% to 15%? Certainly, it's highly leveraged to that. But let me comment and take your questions in sequence. First of all, in that 7% to 8% growth rate, bear in mind that there was some slight growth in membership just generally, even though the membership roles are challenged right now with redetermination. And I think we put a 2% trend factor in. So a third to half of it actually is just the lift of the market. The rest of it actually is gaining ground on our competitors. And the reason we think we can do it is if we're at a market and we're at 12% market share and we have the 2 top competitors in market share with over 20, we believe that by doing the 4 things we said we needed to do, be higher in the hierarchy of auto assignment, and we're not today, doing a better job of not allowing members to leak out of Molina roles on redetermination, we actually believe we can incrementally grow market share. And we're not talking about huge double digit gains here. When we said that 1% market share on our in market share is actually $750,000,000 of revenue across our portfolio, we're talking about going from 11 to 12 in a market, 15 to 16 in a market, not 15 to 25. So clearly, there are some gains in our growth rate on performing better than the market, but about half that growth rate actually is just membership and yield leveraging off a trend. Plan B, look, we're conservative forecasters. Maybe some of our forecasts were conservative, maybe some of them were more liberal than you'd like to see. And certainly, our new business forecast was perfectly conservative. Our view is in total, none of that stuff is going to become perfectly true. The real story here is there is so much opportunity across the entire portfolio, existing and new, that we absolutely believe that double digit revenue growth and mid double digit, mid teens earnings per share growth is possible across this wide portfolio of opportunity. Whether one falls short and one comes in heavy, we'll be the judge of that eventually. But there's so much opportunity that we believe these numbers are actually reasonable and somewhat conservative. And just to put words in your mouth, if you swap 2% of that same store growth for 2% new wins, your EPS growth would still be the same? No, it wouldn't. Because when you gain $1 of market share in a market, you're leveraging infrastructure, adding no fixed costs, you're not even adding variable costs. When you win a new market, you're investing in the program. Generally speaking, in our forecast, I actually believe in our forecast, new business doesn't actually produce a black age until the 4th year. We build from a deficit to a lower deficit to breakeven in the 3rd and makes money in the 4th. But to be honest with you, the $2,000,000,000 of new revenue, 9% of that 2023 number is new, new, actually doesn't have much of a profit at all in EPS. So you're right, it's the EPS is sort of leveraged to leveraging the existing business. Thanks. Yes. You're welcome. Sarah, and then we'll go to this gentleman and we'll come back to Dave and A. J. Over here. And Kevin's got a question too. We'll try to get all of them in. I'm sorry, Scott, your hand went up before. Bill and then Scott. Thank you. So on SG and A, the 50% split between fixed and variable costs, I was doing the math and it worked out to be about 22 basis points leverage on a $1,000,000,000 revenue add, which is really great because previously Molina had given guidance of 10 to 20 basis points under the last management team that kind of shows the effort that you guys are doing here. So first, is that in the right ballpark or the right way to think about it? And then second, the idea of fixed cost leverage was your assumption of maintaining Medicaid margins. So as we think about this fifty-fifty split, does that exist in Medicaid? Because I imagine HICS might have a little bit more variable costs with the broker fees. So can we think about that fixed cost structure applying also to your Medicaid book? Yes. Actually, I think I'll let Tom just look up, but I'm trying to process everything you said. I think it actually works even more dramatically on the Medicaid book. As I said, you get a net you're in Ohio, you got business, you get one more member in the same That new business, meaning it's new membership, That new business, meaning it's new membership on existing infrastructure, is highly leveraged in our EPS. And it's not an even swap between $1 of new, new and $1 of existing old. It's not. Tom, any comment on the leverage effect? Sure. If you think about Medicaid, which is about 75% of our premium today, and it doesn't have commission, right? So And much of the growth that we're talking about over the next couple of years will be in existing market where we already have infrastructure, we add counties to that to develop a network, we have the same management team, you can provide a network service. So the add on cost is not significant at all. Now when you're entering into a new market, like a new RFP, for example, Kentucky, definitely there is upfront start up expenses that will chew up some of your margin in the beginning. But from a leveraging perspective, we expect that to play out for us over the next few years. And then new business, you can see about $2,000,000,000 over the next 3 to 4 years, will just be a small portion of our total. So it does we still gain leverage over the next several years, definitely. Todd? No, we'll go to Chad. We'll get everybody here. We have time. Thanks. One last question just on the M and A pipeline. I know you don't want to go into too specifically, but just thinking philosophically right now in terms of how opportunistic you could be because think about a couple of things just over the next year or so. 1, the while your Medicaid margins are very strong right now, overall industry Medicaid profitability is a lot softer. I think the overall industry, including all the non profits, are barely profitable in terms of Medicaid margins. And then when you think about your competitors for assets, particularly in things like underperforming plans, you tend to think about Centene and WellCare being typically 2 of your primary competitors. Obviously, they have other dynamics in play right now with their deal pending and then even afterwards initial integration. So you tend to think about a couple of things right now providing more of this near term window over the next 12, 18 months or so. And just interested in how you think about that and how opportunistic it would be around those types of factors. No, that's exactly the environment we're in. We now have the capital. We have the business development team under Mark's leadership. And we're scouring the universe. We're talking to everybody, trying to find either underperforming plans, provider own plans in bolt on tuck in markets where we already have membership and infrastructure, but to light up new markets. So you're right, with 2 of the top competitors who would be acquisitive tied up with their own deal, it sort of presents a unique opportunity. Look, right now, I would say, Scott, that the biggest challenge isn't the financial capacity or the human resource capacity to do it. It's actionable inventory. And the fact that they're not for profits is good in a way because they're underperformed probably. And the fact that they're not for profits is difficult in ways because it requires conversion and social issues and those types of things. But we're out there hunting and scouring, and we're willing to deploy capital. And we believe we don't have to deploy capital at much above tangible book value in order to access some of these things. So we're actively looking at it. Nothing the pipeline is very robust and we're working on it. Nothing close to being announced or actioned, but we're at it every single day. Hand it to AJ and then we'll come back to Kevin and then we'll get to we'll go right we'll go to you next day and then we'll go across. We got it. We got plenty of time. Thanks for the question. Just maybe trying to get behind the expectations around the marketplace growth for next year, the 15%. Obviously, some of that could it sounds like it's coming from just expanding your footprint into all the other Medicaid markets where you're at. Can you tell us how much of the 15% you think comes from that as opposed to the other because I think if you expand in the markets and get your normal share, that would be easy to sort of accept that. And then the other dynamic and I'd be interested in your thoughts about this is it seems like the marketplace is stabilizing now, the cost trend is stabilizing. And this year we think we saw competitions, people that had left the market, blue plants and so forth come back. Are you assuming for 2020 and your 15% growth sort of steady state competitive landscape? Or are you assuming more competition comes back into the health exchanges next year? Let me just set up the answer and I'll take it to Pam and Tom. First of all, when we say there's going to be additional competition, I think it's really important to focus on the segment of the marketplace we're playing in. It's Medicaid. Just happen to make a little more money to qualify for Medicaid. It's the working poor. 25% of our members are fully subsidized. 95% of them are highly and partially subsidized. It's leveraging off our Medicaid network. You can't price down from commercial and be in the business we're in. You have to price up for Medicaid on your network. So that's number 1. Number 2, we assumed a highly competitive environment for next year. And the third thing I'll say before Kiki hit the TAM is I wouldn't actually even calling it expansion. I'd call it reestablishing ourselves. We already had business in many of these markets with many of the brokers. Brokers wanted to see us back, but they said your prices are too rich. We're actually just reestablishing ourselves in our Medicaid footprint where we were before. Anything else on that, Pam? And to build on that, Joe, keep in mind, we entered Utah and Wisconsin. We have 2 highly priced there. We're going to get and focus and gain more competitive. We're looking across we went county by county, provider by provider, competitor by competitor to determine where we need to be in order to inform our rate setting for 2020, a very, very detailed plan around that. So on the expansion side, we don't have as much experience in that, right? We did the same process. So I'd probably say we're pretty conservative in terms of expansion areas of what our estimates are. But we do have clear line as I what we need to do within our existing geographies and then put laser focus relative to growth on that. Again, just to put a plan because this executive team crawls through this stuff every single week because we're right in the pricing cycle. This is rating area by rating area. Here's our product across all the metallic tiers. Here are our top 3 competitor products across all the metallic tiers. Here's their price point. Here's our price point. Growth and fully subsidized. We know exactly where we are. What price point do we need to hit in order to be more competitive? And does that require us just to drop our margin by a couple of points? Or do we have to go back and get more weight out of our network? It's that granular and that detailed and it's zip code by zip code. Now the swag factor in all this is what are your competitors doing that you don't know about. And that's the business. You're making a blind bid against your competitors, but we're assuming that it's going to be a fairly competitive environment. Just to follow-up on one thing you said there. In the and they're price sensitive, but they're nearly 100% subsidized. That seems like they wouldn't be On fully subsidized, it doesn't matter. But it's actually a really weird dynamic. If you draw a curve, a member that is partially subsidized and more price sensitive than a member is not. You say, why? Because I'm only paying $20 and I'm $10 off, it's 50%. So if you think about the leverage effect of what I'm paying out of pocket, if you're $10 off on $20, it's a 50% that's next week's groceries. And that's the way the market works. Fully subsidized doesn't matter. Completely unsubsidized, it matters, but to a price point right in the middle, it's highly leveraged to that subsidy. Let's go we're going to get Kevin in and then we'll get the mic's right, get Kevin and then we'll go to Dave. Kevin, then Dave. Quick clarification question before I ask my other question. Tom, you mentioned that the guidance doesn't infinite. The margin target, the 3 to 5 year margin target, are those also excluding HIF? What are those Yes. For those on asset tax, so HIF really doesn't play a factor, right? So on an after tax basis, really It doesn't imply the higher pretax mark. Yes. So on the pretax, you're absolutely right. There'll be some impact because it's in play your pretax number, right, because you in play your revenue, in play your pretax. But after tax, when you kind of exclude it out, it will be about the same. Okay. That's helpful. And then going back to the kind of Medicaid long term growth, the organic part of it, I liked how you guys framed the new win opportunity and kind of said 40% to 40%. In that carbon side of it, where you kind of do have to win a reprocurement, win the carbon. Is there a similar math behind that? I mean, I guess, I'm assuming you would assume you win all of your reprocurements. But as far as the incremental revenue from carbons and things like that, is it cut a similar way where you assume a certain percentage win on the new ones? Or how do you think about that? Yes. We did model it. Tom or Tammy, you want to talk about what's I mean, we can't tell you exactly what's in the model, but we did have an assumption about how much of that we would get. You're talking about a margin for new business, talking about, right? No, he's talking about Carvins, right? On the carvins. On the carvins. The growth how much of the carvins the same way we modeled new business and our growth rate, how do we model carbons in our growth rate? Right. So carbon will be a small component of our total growth. It is a component. And we know in certain particular geographies, there are potential carbon, let's say LTSS is one of them, or ABD is another one that tied in together. So, and we factored that based on certain geography that we know about, right. So, and when and we know based on experience what the potential revenue PMPM is for these particular carbon and that's how we got to model that in our growth rate. So in Michigan, if they're going to carbon BH and ML2 cells, we're assuming within our existing geographies that we would capture those because they're talking about those not doing an RFP for them, but bringing those into the program. And in that case, yes, where we have line of sight relative to that. And others where we're unsure, we took an adjustment for that. But we were really conservative, only no notes what we knew about. We didn't include Paracis, Ohio on ML at TSS because we knew the states, they had not decided to do that. I mean, the 2 major assumptions are, 1, they attach the benefit to the Medicaid contract, meaning the Medicaid players get first dibs. And second, the second assumption, we why wouldn't we assume we get equal market share? Whatever our Medicaid market share is, we'd at least get that market share is probably the way to think about it. I'll update the question on marketplace. So I think I've heard you say that you're really not assuming growth in the overall enrollment marketplace. Correct. You're kind of giving on margin to pick up on enrollment. Correct. Your pricing from the Medicaid up standpoint, etcetera. In the network. There's at least one other competitor that Centene that comes at it in a very similar fashion, very dominant market share over earning has to bring kind of margin down over time, we'll give on price to do that. I'm also thinking about the Blues and memory expanding in states where they kind of paired back after losing money. I'm struggling to understand how this doesn't end up kind of being a stalemate and you give on margin, but you don't pick up the enrollment? Again, clearly not offended by the question. It's legitimate. That's the math. You could end up you can't give up margin. I mean, you're giving up you're purposely giving up margin on the entire book in order for the entire book to grow. That's what you're doing. It's very local market knowledge driven, knowledge of what the competitors are doing, where they choose to play, how they choose to play. Some of our competitors just love to occupy a ton of real estate on .gov. That's how they do it. They slash their product everywhere they can on .gov, hopefully somebody picks it. So we know all these things. We know how the brokers are compensated. And don't think that broker compensation doesn't matter. I've been in insurance a long time. It matters a lot. And in many places, we just underpaid our brokers. We weren't competitive with the commissions. They want us back in the fold. And we think a lot of the business is going to move back because we're now paying the brokers more fairly. So we understand exactly the competitive set locally. We understand where the competitor you mentioned and others are priced. We think we know where we need to be priced. And in many cases, we think all we have to do is ease up on price and margin and don't have to be contract the network. But if we came to the conclusion in order to win, we actually had to get a couple of points of rate out of the network, we go back out with the network and try to get the rate. But you're raising the strategic questions. How do you know when you put that price into the market to try to target that margin to try to grow your membership by 50,000 or 70,000 or 100,000 that the whole thing is going to work. It's not a bet. It's a calculated strategy. It's backed with great actuarial data and science and the attention of this management team, but it's a very legitimate question. We actually think the math works. Okay. Thank you for that. If I could pivot and ask a question on your rent to own strategy. In those capabilities, it's a 2 part question. Are those vendors, do they have skin in the game? So I know like an HMSY model is a contingency based model. Are many of those vendors on a model similar to that? And can their efforts get you to an industry leading level, in the things that they're doing for you? Or do you sacrifice? Do you have to take a discount off the ceiling in those services relative to what you can do? You want to take that? Sure. I think across the board, whether it's in payment integrity or risk and quality scores or whatever you're doing around outsourcing technology or some of our operations, we've orchestrated all those contracts where our vendors have scanned the game. Absolutely, that's really important that they're in the same path with us. And we don't intentionally don't call them vendors. We call them partners. And because we have monthly quarterly meetings with our partners, We do quarterly business reviews with our partners. We sit down, and we try to make sure that we're all sort of aligned in the same path. So we want it to be a win win relationship because otherwise, they're not in the game with us. And so each one of our partners knows what our strategy is, and they're quite frankly embedded with us. I mean, we actually have their people embedded in our facility, and we're working these issues every single day with the same process around how are we going to improve our financial performance, how they win, how do we grow our business together. Josh, and then we'll Terry, this next question will be behind you. Josh? Question and I guess questions on Centene WellCare. And so first would be, where are we in the progress of their divestitures? 2nd would be, should we think about that as the typical divestiture process where it's a pretty good deal for those that end up as the buyers? And then 3rd, maybe a little bit more globally, is there a change in the way you think about the dynamics of either the markets or Alina as an entity with those 2 coming together, leaving you relatively large standalone auction? Sure. I mean, on the first issue, I come at it quite simply. They have said in many public forums that they're likely going to have to divest some properties to get their deals on. And they're going to be the ones that determine whether they have to do it and which ones they are. I've said that we would work hard to get invited into that process. Whether I could assure we get invited to that process is an appropriate statement, but we work hard to get invited into that process. And if there were properties where we were not conflicted, anywhere we also had business, we would try to compete responsibly but vigorously for those. You're right to get them done. Typically, I'm not commenting on Centene WellCare, so I'm not making comments respective to competition right now. Generally speaking, having been in that position myself, yes, certainty of closure is paramount to make sure you get your own deal done. And we'd hope that, that meant the prices and values would be reasonable. But sure, we hope to get invited in. We compete responsibly and vigorously and hope the deals are well priced. From the market dynamic point of view, I think the math is quite simple. First of all, 2 great competitors find companies that execute really well are, I want to say tied up, but doing a major deal is an endeavor that ties up resources for a period of time, 1. And 2, it's the game theory map. If every state has 4 parties on their panel and there's 6 people competing for them, and that number goes to 5, your chances of winning are higher, period. And so having 2 competitors that you're always going to head to head with on new procurements combining and making 2 strong competitors 1 just makes the game theory math easier in a market. So yes, I think long term having one competitor combined with another makes great new procurement math workforce. And then we'll come back. Please, sir. Yes. Hi, it's Steve Valiquette at Barclays. So not to get too granular on the Medicaid RFPs, but for the Texas one, since it is coming up here pretty soon, you did mention we should all assume a steady state for Malini. I think if I heard you right, you mentioned 7 new potential regions. Right. And I guess around that part, can you remind us just around any revenue potential for Malin, their total spend in those regions or if you have some market share assumption minus revenue potential? We do, we do actually. And bear in mind, we're just not putting in our 2020 forecast in no way should be viewed as a diminishment of our confidence in the win. It's just binary. And so putting in the growth rate was just the wrong thing to do. We'll increase the growth rate for 2020 should we be successful. We've given the math and that is if we won in all seven regions where today we don't play and we were able to climb to the market share we enjoy in the 6 regions where we do play, that would be an incremental $1,200,000,000 of revenue. So take the 7 regions in total, apply our market share at its ultimate end state, could be upwards of a $1,200,000,000 opportunity. And I think on the smaller award For Starship, it would add another couple of 100,000,000 $200,000,000 on the Starship award. So $1,400,000,000 to $1,500,000,000 of total new opportunities should we be successful in the new regions. A quick question. We didn't hear one word about Medicaid expansion today. I'm sorry? Medicaid expansion. Is it happening in some of the states that didn't expand? Had a big election where states voted. Are you participating or what's up? Sure. I mean the one state where we're in where I mean it expanded already, but Utah is the one where it has expanded. And every couple of weeks they get an update. And if they're going to go do it in fee for service, then they're going to do it in managed care. Pam, do you have a recent update on Utah Medicaid expansion? So as you know, the voters voted to expand Medicaid in Utah, to your question. And right now, they're in process of getting that program implemented. They do indeed plan to implement it for SIPV for service and then bring it into managed care likely sometime next year. I don't have a specific date yet for you. That's the ones we do know about right now. One more. We have time for one more question, Harry. Back row. Thanks, Joe. Can you give your best guess in terms of what you think the 3 to 5 year industry targets would be for after tax margins for both Medicare and Marketplace? The industry? Just discuss where you think the industry is. I think we have said our aspirational goal here is to operate, I hate say top decile, but at least top quartile. So clearly, I think the margin profile that we said we've aspired to and have projected here at this growth rate is at the top end of where the market is. Now whether we can hold that position or not depends on a lot of things. As I said, stable and rational rate environment, our ability to drive on the $450,000,000 of profit improvement opportunity and leveraging our fixed cost base if we're growing at the 10% to 12%. So I don't know exactly where the industry rates are going, but I will tell you that I believe, just asking me as a general business person, that these margins that we're forecasting to be sustainable would be operating at the top end of the market, probably top quartile. Well, we've come to the end of our time. Thank you for attending today. We've enjoyed having you here. It bears repeating. It would if you could hear me, please. Okay. We've crafted our own investment thesis, which we think is very easy to understand. And we tried to present to you today with specificity, granularity and with complete transparency. We do believe that long term we can achieve a double digit revenue growth rate that we're in the right segments and in the right markets riding both the vortex of incredible growth engines in these markets, but also growing faster than the market due to our operating initiatives. 2nd, we believe we can do so by aspiring to have the best cost structure in the industry and therefore the highest margins. And having the highest margins in a high growth industry is just an incredibly attractive investment thesis. And extrapolating that to a best in class numerator and a best in class denominator, our ROEs are going to be incredibly attractive, which throw off a tremendous amount of excess cash flow, more dollars of excess cash flow per dollar of earnings than our competitors that will redeploy in to shareholders in an accretive way either through additional organic growth, M and A opportunities or financial engineering and just giving it back to you. Lastly, an accomplished management team here on stage and here on my left that has done Phase 1, is doing Phase 2, and I have a great deal of confidence will accomplish Phase 3. And lastly, as I said, there's no glitz here. There's no glamour. There's no delusions of grandeur. There's an incredible amount of practicality and a strategy that says, stick to your knitting, stay in your lane, don't venture far from the core, do what you do really well and just do more of it every single year. On behalf of me, my management team and our Board of Directors, we know we serve at your pleasure and we're privileged to have this opportunity. Thanks for being here today.

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