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Magellan Health Inc (NASDAQ:MGLN)
Q2 2019 Earnings Call
Jul 30, 2019, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Thank you for standing by for the second quarter 2019 earnings call. [Operator Instructions] Today's conference is being recorded and if you have any objections, please disconnect at this time.

And now I will turn the meeting over to Joe Bogdan. Thank you, sir. You may begin.

Joe Bogdan -- Senior Vice President

Good morning and thank you for joining Magellan Health Second quarter 2019 earnings call. With me today are Magellan's chairman and CEO, Barry Smith, and our CFO, Jon Rubin. The press release announcing our second quarter earnings was distributed this morning. A replay of this call will be available shortly after the conclusion of the call through August 30th. The numbers to access the replay are in the earnings release. For those who listened to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today, Tuesday, July 30th, 2019 and have not been updated subsequent to the initial earnings call. During our call, we will make forward-looking statements, including statements related to our growth prospects and our 2019 outlook.

Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. And we advise listeners to review the risk factors discussed in our press release this morning and documents we filed with or furnished to the SEC.

In addition, please note that Magellan uses certain non-GAAP financial measures when describing our financial results. Specifically, we refer to segment profit, adjusted net income and adjusted EPS which are defined in our SEC filings and in today's press release. Segment profit is equal to net revenues, less the sum of cost of care, cost of goods sold, direct service costs and other operating expenses, and includes income from unconsolidated subsidiaries but exclude segment profit from non-controlling interests held by other parties, stock compensation expense, special charges or benefits, as well as changes in the fair value of contingent consideration recorded in relation to acquisitions.

Adjusted net income and adjusted EPS reflect certain adjustments made for acquisitions completed after July -- January 1st, 2013 to exclude non-cash stock compensation expense resulting from restricted stock purchases by sellers, changes in the fair value of contingent consideration, amortization of identified acquisition intangibles as well as impairment of identified acquisition intangibles.

Please refer to the tables included with this morning's press release, which is available on our website for reconciliation of these non-GAAP financial measures to the corresponding GAAP measures. I will now turn the call over. to our chairman and CEO, Barry Smith.

Barry Smith -- Chairman and CEO

Thank you, Joe. Good morning and thank you for joining us today. This morning, I will discuss our results for the quarter, which show the strong sequential improvement from first quarter that we anticipated. Progress on our multi-year margin improvement initiative for healthcare and pharmacy businesses, which are on track with our expectations and the regulatory environment relating to our pharmacy business.

Finally, I'll provide some thoughts regarding the leadership succession plan announced this morning before turning it over to Jon to provide additional details on the second quarter financial results and full year outlook. For the second quarter of 2019, we reported net revenue of 1.8 billion, net income of 13.6 million, and EPS at $0.56 per share.

Our adjusted net income was 21.1 million or $0.86 per share and we achieved segment profit of 62.1 million. As a company, we remain focused on our multi-year margin improvement plan initially outlined this past December. During the quarter, we made good progress in our initiatives in both our healthcare and pharmacy businesses. Our long term goal is to increase our adjusted net income margin to over 2%. Now, let me provide you with an update on key second order developments within our healthcare segment. Across our Magellan Complete Care portfolio of managed Medicaid health plans, we continue to invest in medical and analytics, care management, claims recovery and operational resources to identify and execute against our medical action plans and achieve industry competitive Medicaid managed care margins.

In addition to reducing unnecessary care and costs, our healthcare team has been focused on improving the quality and associated outcomes from the medical services provided to our members. Let me provide you with some examples on both of these fronts. In Virginia, our year to date medical loss ratio ran in the low 90s, which includes the impact of some of the favorable prior period reserve development.

We continue our work toward fully achieving market pattern of profitability levels in Virginia and the team has made good progress this year. In New York, we are seeing improvement across all quality measures in comparison to 2018 levels. The training and monitoring activities we put in place with our care management staff have started to materialize in the reported quality results.

It is also worth noting that we have not yet received our capitation rates in New York for the contract year beginning April of 2019. For the second quarter, we continue to record revenue based upon prior years capitation rates. Our expectation is that the new rates will be communicated within the next few weeks and it will be applied retrospectively to April the 1st, consistent with the department's historical practice. We had experienced year-over-year net revenue growth in our existing MCC markets despite the reduction of our footprint in Florida. This growth has been fueled by the addition of the Medicaid expansion population in Virginia and in planned growth at are other MCC markets. In Arizona, I am pleased to report that Magellan will continue to receive preferred auto assignment through to September 2020.

We continue to see opportunities for future growth both within our current MCC portfolio plans and through targeted geographic expansion. Entering the pharmacy, last quarter, we discussed our expectation that pharmacy earnings would steadily grow over the balance of 2019. As a result of our initiatives to lower cost of goods sold, adding new business throughout 2019 and the normal margin seasonality in our pharmacy business. We are pleased that our second quarter results reflect the progress we anticipated in these areas.

The improvement in terms of our wholesaler, major retail network pharmacies and drug manufacturers are on or ahead of target of -- in our PBM and distribution business. New PBM business implemented in the second quarter or committed to in the third quarter is consistent with our forecast and employer retention is solid in meeting their expectations for the year.

In our specialty pharmacy business, we implemented our medical pharmacy management program for a new regional health plan with over 2 million members on July the 1st. As experts in managing specialty span of both the prescription and medical benefit, Magellan Rx offers forward-thinking and innovative formulary management and clinical programs.

For example, Magellan Rx is introducing a new medical pharmacy program focused on biosimilar alternatives to the high cost autoimmune therapy for oncology. The management program is designed to help our health plan and customers realize cost savings while ensuring clinical efficacy and safety for their members. The program is based upon the collaboration with network oncologists are helped by customers and Magellan Oncology Advisory Board and expert clinical network of key opinion leaders.

Together we develop protocols, educational materials and utilization management programs to curb pharmaceutical spend while enhancing the quality of care. With the start of the 2020 presidential campaign, there remains a significant level of activity and attention by the Congress and the White House on the issues of high cost healthcare. Both the hou- House and the Senate are advancing legislation on these issues, including bills to address surprise medical building, Medicare Part D cost sharing and drug pricing. We all share the common objective that Americans should have access to affordable and comprehensive health insurance, as well as accurate real time information about costs so they can make the most informed decisions of publicly disclosing competitively negotiated proprietary rates and limiting the market driven tools used today to lower cost, as some of the legislative proposals have recommended, would reduce competition and only push prices higher, not lower for consumers, payers and for taxpayers.

We remain concerned over the unfruitful disruption of some of these proposals that they would cause and continue to believe a number of them do not address the fundamental issue of high drug prices. Congress is likely to struggle with these contradictions over the coming months as it grapples with various pieces of legislation and how to reduce drug prices. At this point, however, we do not expect any material impact on our operations for the foreseeable future.

As the process moves forward, we will continue to work with Congress and the administration to educate them on the essential roles-- role a PBMs and payers in improving access to quality care and managing costs within the overall healthcare market.

Before I turn the call over to Jon, I'd like to talk about the leadership succession we are announcing this morning. After several months of careful consideration, I have informed our board that I will be retiring from my role as CEO of Magellan. This is not a decision that came easily or without a great deal of thought. It is important to note how honored I am to have had the privilege of leading this tremendous organization as chairman and CEO. These past six years.

It is simply time for me to dedicate more time to my family, my community and my philanthropic work. Magellan's Board will launch a CEO search immediately and I will assist in the search and remain as CEO as a board -- and as a board member to ensure a smooth and orderly transition. Steve Shulman, a current board member and former Magellan CEO and chairman, has been appointed chairman of the board.

I have known Steve for more than 30 years as a friend and as a colleague. Steve actually recruited me to join the Board of Magellan many years ago. He is well respected in the healthcare community for his expertise and well-known inside Magellan as someone who understands the complexities of our business. I am particularly happy that he is part of our succession plan.

I cannot say enough about the talented, dedicated team of professionals I've had the pleasure of working with over these many years of Magellan. And I'm proud of the work we've done together to help transform healthcare. And positively impact the lives of our customers, members and team members, the work that we do together in the healthcare markets in which we provide products and services is important. And I'm looking forward to continuing to support this work until we find the right successor to lead this great company. I've discussed the revels of Magellan in past calls as our healthcare system continues to evolve, the need for what we provide to clients and members will continue to grow.

I remain excited about our future and look forward to working with Steve and the board on our leadership succession plan. In closing, I am pleased with the results in the second quarter across all of our business segments. Our leadership team remains focused on the execution of our multi-year margin improvement plan and I remain confident in our mission, our team and our ability to deliver sustainable growth and value creation over the long term.Now I'll turn the time over to our chief financial officer, Jon Rubin. Jon?

Jonathan Rubin -- CFO

Thanks very much, Barry, and good morning, everyone. In my comments this morning, I'll review our second quarter results and discuss our outlook for the full year. For the quarter, revenue was $1.8 billion, which is roughly consistent with the same period in 2018. Growth in MCC Virginia and new business were essentially offset by footprint reductions in MCC of Florida and Medicare Part D, as well as the previously discussed PBM health plan contract loss due to an acquisition.

Net income was $13.6 million and EPS was $0.56. This compares to net income in EPS of 13.6 million and $0.53 for the second quarter of 2018. Adjusted net income was $21.1 million and adjusted EPS with $0.86. For the second quarter of 2018, adjusted net income was 23.3 million or $0.92 per share. Segment profit for the quarter with $62.1 million compared to 68 million for the second quarter of 2018.

Our results reflect strong sequential improvement from first quarter consistent with what we discussed in our last earnings call. For our healthcare business, segment profit for the second quarter of 2019 was 41.1 million, which represents a decrease of 6% over the same period last year.

Results include approximately $12 million of favorable out of period reserved development and 6 million of favorable retroactive membership and rate changes. This decrease in segment profit year-over-year is largely driven by lost business, including the footprint reduction in Florida, a higher MLR in New York primarily Due to the delay in receiving rates for the current fiscal year and higher discretionary benefits. These decreases are partially offset by MLR improvements in Virginia and larger favorable out of period items in the current quarter versus the prior year quarter.

Now, turning to pharmacy management, we reported segment profit of $30.8 million for the quarter ended June 30th, 2019, which was an increase of 3% from the second quarter of 2018. This year-over-year increase was a result of improved cost of goods sold in our PBM business and strong medical pharmacy results, partially offset by the impact of the previously discussed customer losses and higher discretionary benefits.

As Barry noted, these results reflect the significant progress we've made in improving our cost of goods sold as we anticipated and discussed in our first quarter earnings call. Regarding other financial results, corporate costs, inclusive of eliminations but excluding stock compensation expense totaled $9.8 million versus 5.8 million in the second quarter of 2018. This increase was largely due to higher discretionary benefit expenses.

Total direct service and operating expenses, excluding stock compensation expense and changes in fair value of contingent consideration were 14.7% of revenue in the current quarter, compared to 13.7% in the prior year's quarter. This increase is primarily due to changes in business mix and an increase in discretionary benefit expenses. Stock compensation expense for the current quarter with $5.4 million, a decrease of 5 million from the prior year's quarter.

This change is primarily due to timing related to vesting of certain equity awards. The effective income tax rate for the six months ended June 30 2019 was 36.7%. This is higher than the 16% effective income tax rate for the comparable period in 2018, mainly due to book-- to tax differences related to stock compensation expense, partially offset by the suspension of the health insurer fee in 2019.

We expect a full year effective income tax rate of approximately 31%. Our cash flow from operations for the six months ended June 30th, 2019 was $29.4 million. This compares to cash flow from operations of 21.1 million for the prior year period. This increase is mainly attributable to lower tax payments, partially offset by lower segment profit. As of June 30th, 2019, the company's unrestricted cash and investments totaled $176.5 million versus $130.4 million at December 31, 2018. Approximately 73 million of the unrestricted cash and investments of June 30th, 2019 is related to excess capital and undistributed earnings held at regulated entities. Restricted cash and investments at June 30th, 2019 was 478.4 million versus 527.7 million at December 31, 2018. We are maintaining our guidance for full year 2019. As we mentioned in the first quarter call, we expect our segment profit will be higher in the second half of the year as a result of the following items: estimated mid-year rate changes primarily in MCC of New York, new business to be implemented throughout the year, normal margin seasonality in our pharmacy business and the ongoing impact of our medical action plans.

Let me provide you with more detail on each of these items. The midyear rate changes, of which 20 million to 25 million is related to New York, contribute approximately half of the forecasted increase in segment profit.

The bounce of the segment profit increase in the second half of the year is split fairly evenly between the remaining drivers of new business, pharmacy seasonality and medical action plans. For the new business, we've already sold approximately 85% of the bounce to be implemented in the second half of the year.

As we discussed in the first quarter call, the pharmacy earning seasonality is largely driven by the normal seasonality in the Medicare Part D benefit. Regarding medical actions, over 85% of the earnings improvement is from initiatives that are already live as of June 30th, particularly outpatient, behavioral health, inpatient and claims integrity initiatives.

As we've seen success in these initiatives, we are broadening the scope to further drive improvement in both quality and cost. As a result of progress in all of these key areas, I remain confident in our ability to achieve our 2019 full year guidance and our long term margin improvement plan. And with that, I'll now turn the call back over to the operator for questions.

Operator ?

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question today is from David Styblo from Jefferies.

David Styblo -- Jefferies -- Analyst

Hi there. Good morning. Thanks for the questions. Hey Barry, congrats on the retirement. I know family has always a priority for you and doing some of the other activities that you're involved. I guess I'm wondering how long you are willing to stay online for as the board searches for a CEO to replace you. And along with that,

You can imagine there comes just some questions about the reviewing kind of the strategic options process and the headlines with Magellan being announced as a potential being speculative potential take out candidate. Would you be willing to update us on sort of where the company is in that process?

Barry Smith -- Chairman and CEO

Well, there's a whole bunch of questions there to unpack here. David. Number one, thanks for the comments on the personal issues. And you're right. Family is very important. A lot of the philanthropic work I've done for years is very important to me. In terms of any specific time line that I've given the board, I told the board that I would absolutely not be willing to go beyond the year 2050. So that the void simply is at all seriousness here, that I don't have a specific timeline whatsoever, nor have we discussed a specific timeline with the board. I think it's more oriented toward finding the right CEO to--for our succession plan.

I feel very strongly about the work that we do. We just have a great team and a great opportunity for the future. And I want to do nothing that truncates that opportunity for shareholders, for our employees, for our clients, for the members we serve. So there is no timeline whatsoever there. And I think it's going to take some time. And and I'm pleased to serve as long as it takes to do so. So, again, there's no limit whatsoever.

Now, relative to any rumors in the industry, we don't, as you know, make any commentary on rumors, never have and won't. I'll simply say that we are focused on shareholder value, building shareholder value, and we evaluate opportunities from time to time that would make sense for shareholders and we'll continue to do so. I would say that we're most-- what we're most focused on is really the more long term opportunity we have to increase our net margins to at least 2%. We're very focused on that. We've made great progress in MCC of Virginia, for example, which was challenging this past year. We've got great leadership in place there. So I'm more and more-- like we have the company. Me personally in the team, we're just very focused, focused on execution.

We're pleased to see the strong performance in our pharmacy segment in particular. I know it was a weaker first quarter, but we also knew that we would have a much stronger second in going into the last half of the year. We believe we going to have a pretty strong year. So I haven't really even contemplated other than the fact that we'll start the search for a CEO letting up off the gas and I say pedal to the metal. So let's go full tilt forward. Again, there are no specific timelines.

David Styblo -- Jefferies -- Analyst

Okay, that's helpful. And then that's a good Segway into the PBM. I think the results there, sharp increase were faster than I was expecting you guys to rebound. I just want to make sure that there's nothing out of period to call out there. And then can you speak to the visibility on the PBM retention for both this year and next year, as well as the growth pipeline?

Joe Bogdan -- Senior Vice President

Yes, Dave, let me start and then I'll turn it over to Barry to give some comments on the pipeline and the sales activity. First if you rec- First quarter, we were very clear that first quarter, although the reported results were poor and below our expectations included significant, around 14 million of unfavorable timing and non-recurring items. So yeah, I think as we guided in first quarter, you really had the run rate that to get into, -- into something that was more of a quarterly run rate in sort of the low '20s. Also, at that point we had noted a lot of activity that was going on and Barry alluded to it in his prepared remarks around cost of goods sold improvement both with respect to, you know, drug manufacturers and rebate terms and in scope the wholesaler contract and negotiations with retail pharmacy.

Those all did play out, -- as we expected in the quarter and provided lift even from the the run rate. So, again, we're very pleased with the results and as Barry said very well positioned as we go forward. In terms of the actual retention of business, we actually are seeing strong retention really across the board. In the PBM segment, the employer retention has played out favorably and inconsistent with our expectations.

As we talked about last year, a year ago, we had a spike in -- on the specialty side in some customer terminations. But we really haven't seen any additional challenges based on all the efforts we took to stabilize that book of business since at this point a year ago. So all is progressed very well on that front. Barry, let me turn it to you to give some comments maybe on the pipeline and what we're seeing on the sales side.

Barry Smith -- Chairman and CEO

Yeah, we're seeing a strong- we've got a very strong pipeline. And I'd add just another comment about the retention. We're a bit unique in the industry in that we're independent. We have very strong clinical programs, as evidenced by the 2 million lives as you said, in our medical pharmacy. It's a very substantial account. It has done- they did a great evaluation of the market and we just are heads above the rest of the industry. And given the fact that over 40% of the spanned across the board is specialty. That's our strength. And that's where the money is. And that's where people want to see these clinical tools. Products like our oncology product, for example, I mentioned in the script where we have a very sophisticated approach to appropriately managing utilization, a way that benefits the individual as well as controls the costs.

Those are the kinds of programs that we think are quite unique in the industry and gives us great strength. To John's point, on the specialty front, what we've done over the last year on the retention, we've increasingly tied our rebate contracts to clinical programs and so that it isn't just a rebate by itself, stand alone out there with a quick out. Now, there's still contracts like that, so I'm not going to say that there are not. But increasingly, what we're seeing and doing is.

Joe Bogdan -- Senior Vice President

Tying these clinical programs to the contract. So you're seeing much higher rates of tech retention. We think there's far less risk in that business doing it in this fashion. And we also think in terms of new clients coming onboard, we find that we're having greater success not only on the employer side, but also on the MCO side in terms of the pipeline. I think that, again, is these-- Why? No, it's these clinical programs that are making the difference. And the last thing I would say is that we talked about this the last few quarters. I think this is accelerating with all the excitement of some of the combinations in the past. Meaning the of the CVS, Aetna and Express Scripts and Cigna. Again, great, strong competitors. The reality is the MCOs particularly, importers as well want to see competition, want to see a player that's independent that could compete very effectively. And we do that. We answer that. So I think a lot of what we're seeing is that the market is settling down. A pricing is still competitive. There's no doubt about it. But it does not preclude us.

And given our strengths on the clinical side, we're able to earn out of what would ordinarily be a scale issue. And so that we can be competitive on the pricing. So we're winning and anticipate winning deals based upon those clinical capabilities. So both from a pipeline standpoint and retention standpoint, we think the business is in quite good shape.

David Styblo -- Jefferies -- Analyst

Okay. And the last one real quick is just on understanding the healthcare evolution for earnings there. If I take out the 18 million of favor out of period items, seems like core results were lower, more like 20 or 25 million for the quarter, which is a margin of just under 2%. I know you've still got drags from Virginia and New York in there, but can you help me understand anything else that's weighing on the results and what's going to cause that to ratchet back up besides, you know, some of the things that you mention with New York rates.

Barry Smith -- Chairman and CEO

Yeah, let me take that Dav. So, yes. Well, what you're describing is correct. You know, if you were to look at what we reported as you know, prior period rather period items in the quarter, you know, I would say is that- when we did have-- You know, if you're looking quarter one to quarter two, we did have some favorable prior development in quarter one as well. You know, we hadn't spiked it out because it wasn't as material. In addition, what I'd say is we did have some isolated pockets where utilization was high in second quarter, but we don't think is something that will affect us to a large degree going forward. So a couple examples-- a couple of key examples are in Virginia, we actually had some new enrollees this year. You know, new folks that enrolled in our plans in the ABD side that had a higher risk profile and we believe higher utilization as it's emerging at the beginning of the year. Now that over time should be compensated for in the form of risk adjustment. But as you know

Joe Bogdan -- Senior Vice President

Risk adjustment always lags actual enrollment. So it does take a little bit of time for the revenue to catch up with the utilization. But we are seeing again, some of those new enrollees having having pressure. Now, the good news is we've already been able to impact similar utilization patterns in Virginia based on our care initiatives that we've implemented. So we're focusing those care initiatives on these new members over the balance of the year and are confident we'll make progress there as well.

Second area, I'd note is we did have some higher than seasonally normal utilization early in the quarter on inpatient in Massachusetts, we actually saw that improve in June. So we think it was just a spike in some sort of seasonal type admissions seems to have settled down since then. So, again, we don't think we'll be a problem for the year as we run rate things. So those are the things I'd mention. Again, second quarter, we did not get the increase we had anticipated in New York yet, although, New York has continued to say that rates will be coming in the very near future.

So we are expecting that we'll get news over the next few weeks.

David Styblo -- Jefferies -- Analyst

Great. Thank you.

Joe Bogdan -- Senior Vice President

You bet. Great. Thanks, Dave.

Operator

[Operator Instructions] And our next question is from Kevin Fischbeck of Bank of America Merrill Lynch.

Adam Ron -- Bank of America

Hey, it's actually Adam Ron filling in for Kevin. You definitely answered a lot of questions I already had, but I may be shifting gears a little bit. How does the recent consolidation in the behavioral space changed the competitive landscape in the business, if at all? Are you worried that this larger competitor would be able to leverage traditional G&A synergies and undercut on price? Are there any offsetting factors? Thanks.

Barry Smith -- Chairman and CEO

Well, thanks, Adam. It's a good question. I would say that normally having in any case, having a larger competitor certainly brings certain economies of scale and that could be transfer pricing internally. The reality is, however, we've been enormously successful in the behavioral health business, both on a stand-alone business basis as well as an integrated care basis with the acquisition of [Indecipherable] probably what you're referring too. That's a great thing in terms of Anthem's ability to execute, Anthem's a good high quality MCO and again, we have great respect for them.

But the fact is being acquired by Anthem, it puts Beacon in a situation where they have a heck of a lot more channel conflict versus being independent as they were before. So while there is some benefit certainly to having a kind of scale operationally by Anthem, there's also the offsetting, which I think is very substantial of the channel conflict that that introduces. And so even within the blues world, there are those that would not buy from a fellow blues plan. And there's also a consortium of blues plans that actually own A behavioral health entities are capable one. So I just don't think that's a factor in terms of how you the blues within themselves think about buy from each other. In the larger market, I also think that we have been very competitive competing with Beacon over the last several years. Again, we have great respect for them and their leadership. But if you looked at the hit and miss rate, we are have a very high batting average. And so we remain confident. We think that the fundamental product that we have is of a different nature and integrated in nature that is unique to be able-- to us in that we are able to customize it to our client in a very meaningful way. So we get we have great respect for Anthem, high quality company, great respect for Beacon. But we've done and done well historically. I think the channel conflict will all well offset the benefits from being acquired by Anthem competitively.

Adam Ron -- Bank of America

Thanks. Definitely appreciate the color. I get to ask one more as you work to improving margins on your existing book of business. How do you think about bidding on new RFP, especially given high start-up costs you've cited in the past, should we expect a focus more on improving margins on the existing book in the near term? Is there an appetite to grow? Any color on that dynamic would be appreciated.

Barry Smith -- Chairman and CEO

You bet. We clearly, we've grown dramatically over the last several years and part of the issue, as you point out, Adam, it was very difficult to grow at that enormously quick pace and also keep up the capabilities we needed internally to manage care and costs. We've come a long way in this last year and in Virginia was challenging. There's no doubt about it. But as you've heard and seen and they will see it going forward, we've had a pretty substantial step up in our capabilities in Virginia and we see some great progress there in Virginia. So those same tools that we've developed in Virginia that we have for New York and Massachusetts, those will allow us to address new markets in a very thoughtful and I think productive and profitable way. That said, we mentioned last quarter that we would likely put up-- and a quarter before that we would likely pause for a moment so that we could make sure that we had capabilities. I do think that we're becoming ready to take on new business, but we would not do that and haven't set ourselves up to do that until we get our fundamental chassis in order, both from an efficiency standpoint and a quality standpoint, which we're doing a very quick order. So I would expect by the end of this year, we'll be very ready to take on new business. Particularly in the public sector, it's important to think about the timelines. We try not to bundle up new wins such that it overwhelms us. And so we think about 2020 later, 2020 into 2021. We think we'll be well-positioned to grow. It could be that growth path more so than ever. The other thing I would say, Adam, it depends on the nature of the wind. So there are some winds that spread you out across to a very large geography where you don't have the density to build networks, to build a care team that can focus and concentrate on a population. Those are much more difficult wins than having a more concentrated urban area, for example, or being in a state, for example, where it is understood that there needs to be continuity of health plans for the long term for the benefit of the citizens of the state. Therefore, margins are acceptable, margins are-- the states will typically have a very pro-business orientation to them.

Those are good environments for us. And so it's not just winning, but it's winning in the right place that matters. These public sector contracts aren't contracts. You win in two and three months. They typically require years of work to prepare either legislation in some cases or the relationships to be able to be able to compete effectively. And we're out there doing that. But again, our goal and our planning is focused on not doing that too soon, but allowing those wins to occur in 2020 for implementation later in 2020 into 2021.

Adam Ron -- Bank of America

Thanks so much. That was helpful.

Barry Smith -- Chairman and CEO

You bet.

Operator

Thank you. And I am showing no further questions at this time.

Barry Smith -- Chairman and CEO

Great. Well, we thank all of you for joining our call today. We're grateful that you joined with us. We look forward to meeting again with you on our third quarter conference call. Thanks so much for joining us.

Operator

[Operator Closing Remarks]

Duration: 38 minutes

Call participants:

Joe Bogdan -- Senior Vice President

Barry Smith -- Chairman and CEO

Jonathan Rubin -- CFO

David Styblo -- Jefferies -- Analyst

Adam Ron -- Bank of America

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