Molina Healthcare Reports Second Quarter 2013 Results

Molina Healthcare, Inc. (NYSE: MOH):

  • Net income per diluted share from continuing operations of $0.34 for the quarter versus a net loss of $0.71 per diluted share from continuing operations for the second quarter of 2012.
  • Quarterly premium revenues rose to $1.5 billion, an 8% increase compared with the second quarter of 2012.
  • Consolidated medical care ratio declined 830 basis points year over year to 86.2%.
  • Sale-leaseback completed to raise $158 million.
  • Assumption of Lovelace Community Health Plan’s contract in New Mexico expected to close by August 1, 2013.

Molina Healthcare, Inc. (NYSE: MOH) today reported its financial results for the second quarter and six months ended June 30, 2013. Net income for the second quarter of 2013 rose to $24.6 million, or $0.53 per diluted share, versus a net loss of $37.3 million, or $0.80 per diluted share, for the second quarter of 2012. Net income per diluted share from continuing operations was $0.34, an increase of $1.05 per diluted share from continuing operations over the second quarter of 2012.

“Our operating performance during the second quarter remained strong. We continued to strengthen our capital position, and, in anticipation of the full implementation of health reform, we increased our capacity to serve a significant number of new members,” said J. Mario Molina, M.D., chief executive officer of Molina Healthcare, Inc. “We expect our previously announced transaction in New Mexico to accelerate our growth in that state beginning in the third quarter.”

Overview of Financial Results

Premium revenue for the second quarter of 2013 increased 8% over the second quarter of 2012, primarily due to membership growth in Washington and Wisconsin and rate increases in Texas and Washington in the second half of 2012.

The Company’s consolidated medical care ratio decreased to 86.2% in the second quarter of 2013 from 94.5% in the second quarter of 2012. The decline in the consolidated medical care ratio was the result of dramatically improved operating results in Texas combined with improved performance at most of the Company’s other health plans. Medical care ratios decreased in seven of the Company’s nine health plans, while medical margin (measured as the excess of premium revenue over medical care costs) increased in eight out of nine health plans.

General and administrative expenses increased to 10.1% of revenue in the second quarter of 2013 from 8.5% in the second quarter of 2012, primarily due to higher costs incurred as a result of the Company’s preparations for significant membership growth in 2014 and a litigation charge of $3.5 million related to the final settlement of a provider dispute.

Second quarter 2013 results include a one-time non-cash charge of $3.9 million related to warrants issued in conjunction with the Company’s convertible senior notes offering in February 2013. As originally issued, certain terms in the warrant agreements required that they be recorded as a derivative liability requiring mark-to-market accounting treatment. The warrants were reclassified to equity during the second quarter and there will be no further mark-to-market adjustments.

The Company previously reported that its Medicaid managed care contract with the state of Missouri expired without renewal on June 30, 2012. Effective June 30, 2013, the transition obligations associated with that contract terminated. Therefore, the Company has reclassified the results relating to the Missouri health plan to discontinued operations for all periods presented. These results are presented in a single line item, net of taxes, in the unaudited consolidated statements of operations. Additionally, the Company abandoned all of its equity interests in the Missouri health plan during the second quarter of 2013, resulting in the recognition of a tax benefit of approximately $9.5 million, which is also included in discontinued operations in the unaudited consolidated statements of operations.

Net Income Per Share Guidance

The Company expects net income per diluted share from continuing operations to be $1.55 for full year 2013 and net income per diluted share (including discontinued operations) to be $1.72 for full year 2013. The Company believes that its estimated net income per diluted share from continuing operations of $1.55 for full year 2013 is consistent with previously issued earnings per diluted share guidance of $1.55.

Conference Call

The Company’s management will host a conference call and webcast to discuss its second quarter results at 5:00 p.m. Eastern time on Thursday, July 25, 2013. The number to call for the interactive teleconference is (212) 231-2929. A telephonic replay of the conference call will be available from 7:00 p.m. Eastern time on Thursday, July 25, 2013, through 6:00 p.m. on Friday, July 26, 2013, by dialing (800) 633-8284 and entering confirmation number 21661283. A live broadcast of Molina Healthcare’s conference call will be available on the Company’s website, www.molinahealthcare.com. A 30-day online replay will be available approximately an hour following the conclusion of the live broadcast.

About Molina Healthcare

Molina Healthcare, Inc., a FORTUNE 500 company, provides quality and cost-effective Medicaid-related solutions to meet the health care needs of low-income families and individuals and to assist state agencies in their administration of the Medicaid program. The Company’s licensed health plans in California, Florida, Michigan, New Mexico, Ohio, Texas, Utah, Washington, and Wisconsin currently serve approximately 1.8 million members, and its subsidiary, Molina Medicaid Solutions, provides business processing and information technology administrative services to Medicaid agencies in Idaho, Louisiana, Maine, New Jersey, and West Virginia, and drug rebate administration services in Florida.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: This earnings release contains “forward-looking statements” regarding the Company’s plans, expectations, and anticipated future events. Actual results could differ materially due to numerous known and unknown risks and uncertainties, including, without limitation, risk factors related to the following:

  • uncertainties associated with the implementation of the Affordable Care Act, including the impact of the health insurance industry excise tax, the expansion of Medicaid eligibility in participating states to previously uninsured populations unfamiliar with managed care, the implementation of state insurance exchanges currently expected to become operational by October 1, 2013, the effect of various implementing regulations, and uncertainties regarding the impact of other federal or state health care and insurance reform measures, including the duals demonstration programs in California, Ohio, Michigan, and Texas;
  • the success of our medical cost containment initiatives in Texas, and other risks associated with the expansion of our Texas health plan’s service areas in 2012;
  • significant budget pressures on state governments and their potential inability to maintain current rates, to implement expected rate increases, or to maintain existing benefit packages or membership eligibility thresholds or criteria;
  • management of our medical costs, including seasonal flu patterns and rates of utilization that are consistent with our expectations and our accruals for incurred but not reported medical costs;
  • the success of our efforts to retain existing government contracts and to obtain new government contracts in connection with state requests for proposals (RFPs) in both existing and new states, and our ability to increase our revenues consistent with our expectations;
  • accurate estimation of incurred but not reported medical costs across our health plans;
  • risks associated with the continued growth in new Medicaid and Medicare enrollees, and the development of actuarially sound rates with respect to such new enrollees, including duals;
  • retroactive adjustments to premium revenue or accounting estimates which require adjustment based upon subsequent developments, including Medicaid pharmaceutical rebates;
  • continuation and renewal of the government contracts of both our health plans and Molina Medicaid Solutions and the terms under which such contracts are renewed;
  • government audits and reviews, and any enrollment freeze or monitoring program that may result therefrom;
  • changes with respect to our provider contracts and the loss of providers;
  • the establishment of a federal or state medical cost expenditure floor as a percentage of the premiums we receive, and the interpretation and implementation of medical cost expenditure floors, administrative cost and profit ceilings, and profit sharing arrangements;
  • interpretation and implementation of at-risk premium rules regarding the achievement of certain quality measures;
  • approval by state regulators of dividends and distributions by our health plan subsidiaries;
  • changes in funding under our contracts as a result of regulatory changes, programmatic adjustments, or other reforms;
  • high dollar claims related to catastrophic illness;
  • the favorable resolution of litigation, arbitration, or administrative proceedings, including our pending litigation against the state of California related to rates paid to our California plan in earlier years that were not actuarially sound;
  • restrictions and covenants in any future credit facility;
  • the relatively small number of states in which we operate health plans;
  • the availability of adequate financing to fund and capitalize our expansion and growth activities and to meet our liquidity needs, including the interest expense and other costs associated with such financing;
  • a state’s failure to renew its federal Medicaid waiver;
  • inadvertent unauthorized disclosure of protected health information;
  • changes generally affecting the managed care or Medicaid management information systems industries;
  • increases in government surcharges, taxes, and assessments;
  • changes in general economic conditions, including unemployment rates; and
  • increasing consolidation in the Medicaid industry;

and numerous other risk factors, including those discussed in the Company’s periodic reports and filings with the Securities and Exchange Commission. These reports can be accessed under the investor relations tab of the Company’s website or on the SEC’s website at www.sec.gov. Given these risks and uncertainties, we can give no assurances that the Company’s forward-looking statements will prove to be accurate, or that any other results or events projected or contemplated by the Company’s forward-looking statements will in fact occur, and we caution investors not to place undue reliance on these statements. All forward-looking statements in this release represent the Company’s judgment as of July 25, 2013, and we disclaim any obligation to update any forward-looking statements to conform the statement to actual results or changes in the Company’s expectations.

MOLINA HEALTHCARE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

June 30,

Six Months Ended

June 30,

2013201220132012
(Amounts in thousands, except net income (loss) per share)
Revenue:
Premium revenue $ 1,501,729 $ 1,394,049 $ 2,999,162 $ 2,620,656
Premium tax 46,883 38,354 83,883 80,540
Service revenue 49,672 41,724 99,428 83,929
Investment income 1,628 1,059 3,144 2,738
Rental and other income 5,922 3,977 10,616 8,236
Total revenue 1,605,834 1,479,163 3,196,233 2,796,099
Expenses:
Medical care costs 1,294,706 1,317,597 2,582,621 2,395,464
Cost of service revenue 39,305 30,613 79,075 61,107
General and administrative expenses 161,479 125,819 302,757 241,048
Premium tax expenses 46,883 38,354 83,883 80,540
Depreciation and amortization 17,015 16,210 33,578 31,058
Total expenses 1,559,388 1,528,593 3,081,914 2,809,217
Income (loss) from operations 46,446 (49,430 ) 114,319 (13,118 )
Other expenses:
Interest expense 11,667 3,808 24,704 8,106
Other expense 3,502 1,086 3,371 1,086
Total other expenses 15,169 4,894 28,075 9,192

Income (loss) from continuing operations before income taxes

31,277 (54,324 ) 86,244 (22,310 )
Income tax expense (benefit) 15,481 (21,267 ) 39,926 (9,147 )
Income (loss) from continuing operations 15,796 (33,057 ) 46,318 (13,163 )

Income (loss) from discontinued operations, net of tax benefit of $9,968, $4,502, $10,143, and $5,589, respectively

8,775 (4,249 ) 8,168 (6,054 )
Net income (loss) $ 24,571 $ (37,306 ) $ 54,486 $ (19,217 )
Basic income (loss) per share:

Income (loss) from continuing operations

$ 0.35 $ (0.71 ) $ 1.01 $ (0.29 )

Income (loss) from discontinued operations

0.19 (0.09 ) 0.18 (0.13 )
Basic net income (loss) per share $ 0.54 $ (0.80 ) $ 1.19 $ (0.42 )
Diluted income (loss) per share:
Income (loss) from continuing operations $ 0.34 $ (0.71 ) $ 1.00 $ (0.29 )
Income (loss) from discontinued operations 0.19 (0.09 ) 0.17 (0.13 )
Diluted net income (loss) per share $ 0.53 $ (0.80 ) $ 1.17 $ (0.42 )
Weighted average shares outstanding:
Basic 45,446 46,355 45,712 46,176
Diluted 46,507 46,355 46,506 46,176
Operating Statistics, Continuing Operations:
Medical care ratio (1) 86.2 % 94.5 % 86.1 % 91.4 %
Service revenue ratio (2) 79.1 % 73.4 % 79.5 % 72.8 %
General and administrative expense ratio (3) 10.1 % 8.5 % 9.5 % 8.6 %
Premium tax ratio (1)

3.0

%

2.7

%

2.7

%

3.0

%
Effective tax rate 49.5 % (39.1 %) 46.3 % (41.0 %)

(1) Medical care ratio represents medical care costs as a percentage of premium revenue, net of premium taxes; premium tax ratio represents premium taxes as a percentage of premium revenue.

(2) Service revenue ratio represents cost of service revenue as a percentage of service revenue.

(3) Computed as a percentage of total revenue.

MOLINA HEALTHCARE, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

June 30,

2013

Dec. 31,

2012

(Amounts in thousands,

except per share data)

ASSETS
Current assets:
Cash and cash equivalents $ 742,670 $ 795,770
Investments 718,544 342,845
Receivables 213,776 149,682
Deferred income taxes 21,995 32,443
Prepaid expenses and other current assets 47,817 28,386
Total current assets 1,744,802 1,349,126
Property, equipment, and capitalized software, net 249,298 221,443
Deferred contract costs 51,319 58,313
Intangible assets, net 68,987 77,711
Goodwill and indefinite-lived intangible assets 153,152 151,088
Derivative asset 207,123
Restricted investments 56,935 44,101
Auction rate securities 12,527 13,419
Other assets 35,773 19,621
$ 2,579,916 $ 1,934,822
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical claims and benefits payable $ 465,487 $ 494,530
Accounts payable and accrued liabilities 180,227 184,034
Deferred revenue 45,949 141,798
Income taxes payable 15,496 6,520
Current maturities of long-term debt 1,155
Total current liabilities 707,159 828,037
Convertible senior notes 585,825 175,468
Lease financing obligations 175,666
Other long-term debt 86,316
Derivative liability 207,017 1,307
Deferred income taxes 3,919 37,900
Other long-term liabilities 23,943 23,480
Total liabilities 1,703,529 1,152,508
Stockholders’ equity:

Common stock, $0.001 par value; 150,000 shares authorized; outstanding: 45,683 shares at June 30, 2013 and 46,762 shares at December 31, 2012

46 47

Preferred stock, $0.001 par value; 20,000 shares authorized, no shares issued and outstanding

Additional paid-in capital 324,360 285,524
Accumulated other comprehensive loss (2,705 ) (457 )
Treasury stock, at cost; 111 shares at December 31, 2012 (3,000 )

Retained earnings

554,686 500,200
Total stockholders’ equity 876,387 782,314
$ 2,579,916 $ 1,934,822

MOLINA HEALTHCARE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

June 30,

Six Months Ended

June 30,

2013201220132012
(Amounts in thousands)
Operating activities:
Net income (loss) $ 24,571 $ (37,306 ) $ 54,486 $ (19,217 )

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:

Depreciation and amortization 22,108 19,671 43,907 38,010
Deferred income taxes (22,139 ) (9,527 ) (22,155 ) (1,264 )
Stock-based compensation 7,729 5,146 12,150 9,812
Gain on sale of subsidiary (1,747 )
Amortization of convertible senior notes 5,965 1,472 9,688 2,915
Change in fair value of derivatives 3,503 1,086 3,384 1,086
Amortization of premium/discount on investments 2,796 1,765 4,298 3,615
Amortization of deferred financing costs 1,118 257 2,366 515
Tax deficiency from employee stock compensation 4 (19 ) (38 ) (50 )
Changes in operating assets and liabilities:
Receivables (63,525 ) 61,247 (64,094 ) 6,891
Prepaid expenses and other current assets (11,292 ) (4,712 ) (22,856 ) (10,352 )
Medical claims and benefits payable (25,658 ) 69,705 (29,043 ) 123,062
Accounts payable and accrued liabilities 14,879 11,814 (16,968 ) (22,982 )
Deferred revenue (89,855 ) 80,883 (95,849 ) 125,426
Income taxes 552 (16,074 ) 8,976 (19,737 )
Net cash (used in) provided by operating activities (129,244 ) 185,408 (111,748 ) 235,983
Investing activities:
Purchases of equipment (24,062 ) (19,796 ) (35,229 ) (33,301 )
Purchases of investments (456,139 ) (56,149 ) (532,151 ) (144,348 )
Sales and maturities of investments 73,773 71,005 149,420 136,772

Proceeds from sale of subsidiary, net of cash surrendered

9,162
Change in deferred contract costs 2,494 (10,062 ) 6,994 (23,055 )
Increase in restricted investments (1,818 ) (1,661 ) (12,834 ) (2,154 )
Change in other noncurrent assets and liabilities (7,468 ) (1,926 ) (8,012 ) (4,383 )
Net cash used in investing activities (413,220 ) (18,589 ) (431,812 ) (61,307 )
Financing activities:

Proceeds from issuance of 1.125% Notes, net of deferred issuance costs

537,973
Proceeds from sale-leaseback transactions 158,694 158,694
Purchase of 1.125% Notes call option (149,331 )
Proceeds from issuance of warrants 75,074
Treasury stock purchases (50,000 )
Repayment of amounts borrowed under credit facility (10,000 ) (40,000 ) (10,000 )
Amount borrowed under credit facility 50,000 60,000
Principal payments on term loan (47,180 ) (272 ) (47,471 ) (573 )
Settlement of interest rate swap (875 ) (875 )
Proceeds from employee stock plans 4,617 2,737 4,852 5,485
Excess tax benefits from employee stock compensation 367 85 1,544 3,677
Net cash provided by financing activities 115,623 42,550 490,460 58,589
Net (decrease) increase in cash and cash equivalents (426,841 ) 209,369 (53,100 ) 233,265
Cash and cash equivalents at beginning of period 1,169,511 517,723 795,770 493,827
Cash and cash equivalents at end of period $ 742,670 $ 727,092 $ 742,670 $ 727,092

MOLINA HEALTHCARE, INC.
UNAUDITED NON-GAAP FINANCIAL MEASURE

The Company has included presentations of earnings before interest, taxes, depreciation and amortization (EBITDA) below. EBITDA is a non-GAAP financial measure and is reconciled to net income, which the Company believes to be the most comparable GAAP measure (GAAP stands for U.S. generally accepted accounting principles).

EBITDA is not prepared in conformity with GAAP because it excludes depreciation and amortization, as well as interest expense and income tax expense. This non-GAAP financial measure should not be considered as an alternative to the GAAP measures of net income, operating income, operating margin, or cash provided by operating activities; nor should EBITDA be considered in isolation from these GAAP measures of operating performance. Management uses EBITDA as a supplemental metric in evaluating the Company’s financial performance, in evaluating financing and business development decisions, and in forecasting and analyzing future periods. For these reasons, management believes that EBITDA is a useful supplemental measure to investors in evaluating the Company’s performance and the performance of other companies in the Company’s industry.

Three Months Ended

June 30,

Six Months Ended

June 30,

2013201220132012
(In thousands)
Net income (loss) $ 24,571 $ (37,306 ) $ 54,486 $ (19,217 )
Add back:
Depreciation and amortization reported in the consolidated statements of cash flows 22,108 19,671 43,907 38,010
Interest expense 11,667 3,808 24,704 8,106
Provision for income taxes 5,513 (25,769 ) 29,783 (14,736 )
EBITDA $ 63,859 $ (39,596 ) $ 152,880 $ 12,163

MOLINA HEALTHCARE, INC.
UNAUDITED DEPRECIATION AND AMORTIZATION DATA

Depreciation and amortization related to the Company’s Health Plans segment is all recorded in “Depreciation and amortization” in the consolidated statements of operations. Depreciation and amortization related to the Company’s Molina Medicaid Solutions segment is recorded within three different headings in the consolidated statements of operations as follows:

Amortization of purchased intangibles relating to customer relationships is reported as amortization within the heading “Depreciation and amortization;”

Amortization of purchased intangibles relating to contract backlog is recorded as a reduction of “Service revenue;” and

Depreciation is recorded within the heading “Cost of service revenue.”

The following table presents all depreciation and amortization recorded in the Company’s consolidated statements of operations, regardless of whether the item appears as depreciation and amortization, a reduction of revenue, or as cost of service revenue.

Three Months Ended June 30,
20132012
Amount% of Total

Revenue

Amount% of Total

Revenue

(Dollar amounts in thousands)
Depreciation and amortization of capitalized software, continuing operations $ 12,896 0.8 % $ 10,674 0.7 %

Amortization of intangible assets, continuing operations

4,119 0.3 5,536 0.4

Depreciation and amortization, continuing operations

17,015 1.1 16,210 1.1

Depreciation and amortization, discontinued operations

177

Amortization recorded as reduction of service revenue

728 153

Amortization of capitalized software recorded as cost of service revenue

4,365 0.3 3,131 0.2
$ 22,108 1.4 % $ 19,671 1.3 %

Six Months Ended June 30,
20132012

Amount% of Total

Revenue

Amount% of Total

Revenue

(Dollar amounts in thousands)

Depreciation and amortization of capitalized software, continuing operations

$ 25,341 0.8 % $ 19,969 0.7 %

Amortization of intangible assets, continuing operations

8,237 0.3 11,089 0.4

Depreciation and amortization, continuing operations

33,578 1.1 31,058 1.1

Depreciation and amortization, discontinued operations

2 354

Amortization recorded as reduction of service revenue

1,457 306

Amortization of capitalized software recorded as cost of service revenue

8,870 0.3 6,292 0.2
$ 43,907 1.4 % $ 38,010 1.3 %

MOLINA HEALTHCARE, INC.

UNAUDITED MEMBERSHIP DATA, CONTINUING OPERATIONS

June 30,

2013

March 31,

2013

Dec. 31,

2012

June 30,

2012

Total Ending Membership by Health Plan:
California 355,000 332,000 336,000 350,000
Florida 81,000 75,000 73,000 70,000
Michigan 215,000 217,000 220,000 220,000
New Mexico 92,000 91,000 91,000 89,000
Ohio 240,000 242,000 244,000 260,000
Texas 266,000 274,000 282,000 301,000
Utah 87,000 87,000 87,000 86,000
Washington 413,000 416,000 418,000 356,000
Wisconsin 98,000 86,000 46,000 42,000
1,847,000 1,820,000 1,797,000 1,774,000
Total Ending Membership by State for the Medicare Advantage Plans:
California 8,100 7,700 7,700 7,000
Florida 600 600 900 900
Michigan 9,500 9,200 9,700 8,900
New Mexico 900 900 900 900
Ohio 400 300 300 200
Texas 2,300 1,900 1,500 800
Utah 7,800 7,600 8,200 8,300
Washington 6,600 6,100 6,500 5,700
36,200 34,300 35,700 32,700
Total Ending Membership by State for the Aged, Blind or Disabled Population:
California 45,400 44,600 44,700 41,100
Florida 11,200 10,400 10,300 10,400
Michigan 45,000 44,000 41,900 40,000
New Mexico 6,000 5,800 5,700 5,600
Ohio 28,000 28,200 28,200 29,600
Texas 92,000 94,200 95,900 111,000
Utah 9,400 9,200 9,000 8,800
Washington 31,700 31,300 30,000 4,400
Wisconsin 1,600 1,600 1,700 1,700
270,300 269,300 267,400 252,600

MOLINA HEALTHCARE, INC.

UNAUDITED SELECTED FINANCIAL DATA BY HEALTH PLAN, CONTINUING OPERATIONS

(Amounts in thousands, except per member per month amounts)

Three Months Ended June 30, 2013
Member

Months (1)

Premium RevenueMedical Care CostsMCR (3)

Medical

Margin

TotalPMPMTotalPMPM
California 1,055 $ 180,927 $ 171.58 $ 170,777 $ 161.96 94.4 % $ 10,150
Florida 238 61,837 260.61 51,915 218.80 84.0 9,922
Michigan 648 167,485 258.40 141,859 218.86 84.7 25,626
New Mexico 275 84,449 307.20 68,253 248.28 80.8 16,196
Ohio 722 270,107 373.78 215,664 298.44 79.8 54,443
Texas 805 318,955 396.05 275,959 342.66 86.5 42,996
Utah 261 77,511 296.69 61,677 236.08 79.6 15,834
Washington 1,238 299,533 241.89 263,512 212.80 88.0 36,021
Wisconsin 293 37,740 128.79 31,185 106.43 82.6 6,555
Other (2) 3,185 13,905 (10,720 )
5,535 $ 1,501,729 $ 271.30 $ 1,294,706 $ 233.91 86.2 % $ 207,023
Three Months Ended June 30, 2012
Member

Months (1)

Premium RevenueMedical Care CostsMCR (3)

Medical

Margin

TotalPMPMTotalPMPM
California 1,056 $ 164,961 $ 156.22 $ 149,239 $ 141.34 90.5 % $ 15,722
Florida 210 57,324 273.09 48,442 230.79 84.5 8,882
Michigan 662 162,727 245.84 141,682 214.04 87.1 21,045
New Mexico 266 80,449 302.45 67,836 255.03 84.3 12,613
Ohio 762 274,058 359.65 245,284 321.89 89.5 28,774
Texas 907 352,816 389.27 393,237 433.87 111.5 (40,421 )
Utah 259 76,911 297.00 63,419 244.90 82.5 13,492
Washington 1,068 203,675 190.67 174,045 162.93 85.5 29,630
Wisconsin 125 18,788 150.12 22,758 181.84 121.1 (3,970 )
Other (2) 2,340 11,655 (9,315 )
5,315 $ 1,394,049 $ 262.32 $ 1,317,597 $ 247.90 94.5 % $ 76,452

(1) A member month is defined as the aggregate of each month’s ending membership for the period presented.

(2) “Other” medical care costs also include medically related administrative costs at the parent company.

(3) The MCR represents medical costs as a percentage of premium revenues, where premium revenue is reduced by premium tax expense.

MOLINA HEALTHCARE, INC.

UNAUDITED SELECTED FINANCIAL DATA BY HEALTH PLAN, CONTINUING OPERATIONS

(Amounts in thousands, except per member per month amounts)

Six Months Ended June 30, 2013
Member

Months (1)

Premium RevenueMedical Care CostsMCR (3)

Medical

Margin

TotalPMPMTotalPMPM
California 2,056 $ 368,715 $ 179.36 $ 330,540 $ 160.79 89.6 % $ 38,175
Florida 461 120,001 260.38 101,319 219.84 84.4 18,682
Michigan 1,300 334,042 256.96 288,607 222.01 86.4 45,435
New Mexico 549 168,449 307.08 140,402 255.95 83.3 28,047
Ohio 1,448 538,915 372.10 443,118 305.96 82.2 95,797
Texas 1,637 648,406 396.01 542,408 331.27 83.7 105,998
Utah 520 152,467 293.16 126,706 243.63 83.1 25,761
Washington 2,488 597,819 240.29 524,909 210.98 87.8 72,910
Wisconsin 493 64,864 131.53 54,849 111.22 84.6 10,015
Other (2) 5,484 29,763 (24,279 )
10,952 $ 2,999,162 $ 273.85 $ 2,582,621 $ 235.81 86.1 % $ 416,541
Six Months Ended June 30, 2012
Member

Months (1)

Premium RevenueMedical Care CostsMCR (3)

Medical

Margin

TotalPMPMTotalPMPM
California 2,115 $ 324,337 $ 153.34 $ 290,588 $ 137.39 89.6 % $ 33,749
Florida 418 113,507 271.47 98,011 234.41 86.3 15,496
Michigan 1,327 322,593 243.11 275,893 207.92 85.5 46,700
New Mexico 532 159,722 300.37 134,947 253.78 84.5 24,775
Ohio 1,508 544,730 361.34 481,985 319.72 88.5 62,745
Texas 1,499 547,855 365.53 573,326 382.53 104.6 (25,471 )
Utah 511 152,049 297.29 121,300 237.17 79.8 30,749
Washington 2,135 415,469 194.59 355,470 166.49 85.6 59,999
Wisconsin 250 35,930 143.54 39,644 158.31 110.3 (3,714 )
Other (2) 4,464 24,300 (19,836 )
10,295 $ 2,620,656 $ 254.55 $ 2,395,464 $ 232.68 91.4 % $ 225,192

(1) A member month is defined as the aggregate of each month’s ending membership for the period presented.

(2) “Other” medical care costs also include medically related administrative costs at the parent company.

(3) The MCR represents medical costs as a percentage of premium revenues, where premium revenue is reduced by premium tax expense.

MOLINA HEALTHCARE, INC.
UNAUDITED SELECTED FINANCIAL DATA
(Amounts in thousands, except per member per month amounts)

The following tables provide the details of the Company’s medical care costs from continuing operations for the periods indicated:

Three Months Ended June 30,
20132012
AmountPMPM% of

Total

AmountPMPM% of

Total

Fee for service $ 879,865 $ 158.96 68.0 % $ 925,039 $ 174.04 70.2 %
Pharmacy 222,992 40.29 17.2 212,944 40.06 16.2
Capitation 138,409 25.00 10.7 136,376 25.66 10.3
Other 53,440 9.66 4.1 43,238 8.14 3.3
$ 1,294,706 $ 233.91 100.0 % $ 1,317,597 $ 247.90 100.0 %
Six Months Ended June 30,
20132012
AmountPMPM% of

Total

AmountPMPM% of

Total

Fee for service $ 1,746,620 $ 159.48 67.6 % $ 1,653,024 $ 160.57 69.0 %
Pharmacy 454,830 41.53 17.6 386,181 37.51 16.1
Capitation 278,733 25.45 10.8 269,968 26.22 11.3
Other 102,438 9.35 4.0 86,291 8.38 3.6
$ 2,582,621 $ 235.81 100.0 % $ 2,395,464 $ 232.68 100.0 %

The following table provides the details of the Company’s medical claims and benefits payable as of the dates indicated:

June 30,

2013

Dec. 31,

2012

June 30,

2012

Fee-for-service claims incurred but not paid (IBNP) $ 360,153 $ 377,614 $ 378,782
Capitation payable 47,474 49,066 79,739
Pharmacy 37,241 38,992 34,848
Other 20,619 28,858 32,169
$ 465,487 $ 494,530 $ 525,538

MOLINA HEALTHCARE, INC.
UNAUDITED CHANGE IN MEDICAL CLAIMS AND BENEFITS PAYABLE

The Company’s claims liability includes an allowance for adverse claims development based on historical experience and other factors including, but not limited to, variations in claims payment patterns, changes in utilization and cost trends, known outbreaks of disease, and large claims. The Company’s reserving methodology is consistently applied across all periods presented. The amounts displayed for “Components of medical care costs related to: Prior periods” represent the amount by which the Company’s original estimate of claims and benefits payable at the beginning of the period were (more) or less than the actual amount of the liability based on information (principally the payment of claims) developed since that liability was first reported. The following table shows the components of the change in medical claims and benefits payable from continuing and discontinued operations as of the periods indicated:

Six Months Ended

June 30,

Three Months Ended

June 30

Year Ended

Dec. 31,

2012

2013201220132012
(Dollars in thousands, except per-member amounts)
Balances at beginning of period $ 494,530 $ 402,476 $ 491,145 $ 455,833 $ 402,476
Components of medical care costs related to:
Current period 2,647,083 2,544,922 1,345,592 1,377,084 5,136,055
Prior periods (62,757 ) (36,357 ) (50,020 ) 493 (39,295 )
Total medical care costs 2,584,326 2,508,565 1,295,572 1,377,577 5,096,760
Payments for medical care costs related to:
Current period 2,206,474 2,033,611 940,186 891,573 4,649,363
Prior periods 406,895 351,892 381,044 416,299 355,343
Total paid 2,613,369 2,385,503 1,321,230 1,307,872 5,004,706
Balances at end of period $ 465,487 $ 525,538 $ 465,487 $ 525,538 $ 494,530
Benefit from prior period as a percentage of:
Balance at beginning of period 12.7 % 9.0 % 10.2 % (0.1 %) 9.8 %
Premium revenue, trailing twelve months 1.0 % 0.7 % 0.8 % 0.0 % 0.7 %
Medical care costs, trailing twelve months

1.2

% 0.8 % 1.0 % 0.0 % 0.8 %
Claims Data:

Days in claims payable, fee for service

38

44 38 44 40

Number of members at end of period

1,847,000 1,853,000 1,847,000 1,853,000 1,797,000

Number of claims in inventory at end of period

109,900 209,200 109,900 209,200 122,700

Billed charges of claims in inventory at end of period

$ 200,400 $ 324,500 $ 200,400 $ 324,500 $ 255,200

Claims in inventory per member at end of period

0.06 0.11 0.06 0.11 0.07

Billed charges of claims in inventory per member at end of period

$ 108.50 $ 175.12 $ 108.50 $ 175.12 $ 142.01

Number of claims received during the period

10,524,500 10,375,700 5,253,500 5,520,100 20,842,400

Billed charges of claims received during the period

$ 10,477,900 $ 9,388,700 $ 5,307,200 $ 5,051,800 $ 19,429,300

Contacts:

Molina Healthcare, Inc.
Investor Relations:
Juan José Orellana, 562-435-3666, ext. 111143

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