Molina Healthcare Announces Third Quarter 2018 Results and Increases Full Year 2018 Guidance

Date : 10/31/2018 @ 8:15PM
Source : Business Wire
Stock : Molina Healthcare (MOH)
Quote : 126.2  0.0 (0.00%) @ 12:00PM

Molina Healthcare Announces Third Quarter 2018 Results and Increases Full Year 2018 Guidance

Molina Healthcare (NYSE:MOH)
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  • Net income of $2.90 per diluted share on a GAAP basis for the third quarter of 2018, and $7.60 for the nine months ended September 30, 2018
  • Third quarter 2018 results include a net charge of $0.35 per diluted share, and year-to-date results include a net benefit of $0.59 per diluted share, for non-run rate items
  • The overall medical care ratio improved to 86.4% from 87.0%, sequentially, when excluding non-run rate items
  • Net profit margin of 4.2% in the quarter, and 3.6% year to date
  • 2018 guidance increases by $1.65 per diluted share at the midpoint, to a range of $8.80 - $9.00 net income per diluted share on a GAAP basis

Molina Healthcare, Inc. (NYSE: MOH) today reported its financial results for the third quarter of 2018.

“We are very pleased with the continued improvement in the performance of our business,” said Joe Zubretsky, President and Chief Executive Officer. “Our financial results reflect the significant progress we are making in executing our margin recovery and sustainability plan.”

We believe that the sequential comparison of our 2018 third quarter performance with our 2018 second quarter performance is the most useful indicator of our business progress. Significant items impacting the quarter are presented in a table later in this press release.

Third Quarter of 2018 Compared With Second Quarter of 2018

Net income decreased slightly to $197 million, from $202 million in the second quarter of 2018. Net income per diluted share decreased to $2.90, from $3.02 in the second quarter of 2018.

Premium revenue decreased $177 million, or 4%, in the third quarter of 2018 compared with the second quarter of 2018. The sequential decline is mainly attributed to non-run rate items including the 2017 Marketplace risk adjustment premium that we recognized in the second quarter of 2018, and a $57 million reduction in revenues for a retroactive California Medicaid Expansion risk corridor for the state’s 2017 fiscal year that we recognized in the third quarter of 2018.

Overall, the medical care ratio (MCR) increased to 87.4%, from 85.3% in the second quarter of 2018. Excluding the retroactive California Medicaid Expansion risk corridor adjustment and a small benefit from the 2017 Marketplace cost sharing reduction (CSR), the MCR would have been 86.4% in the third quarter of 2018. Excluding the combined benefit of the 2017 Marketplace risk adjustment and CSR reimbursement, the MCR would have been 87.0% in the second quarter of 2018. The sequential improvement in the overall underlying MCR was due to a decrease in the Medicaid and Marketplace MCRs, partially offset by an increase in the Medicare MCR as follows:

  • The Medicaid MCR increased to 90.5%, from 89.8% in the second quarter of 2018. Excluding the recognition of the $57 million retroactive California Medicaid Expansion risk corridor adjustment, the Medicaid MCR would have been 89.0% in the third quarter of 2018. The sequential decrease was mainly due to improved performance in the Aged, Blind or Disabled (ABD) and Expansion programs, partially offset by a decline in performance in the Temporary Assistance for Needy Families program (TANF).
  • The Marketplace MCR increased to 64.1%, from 57.4% in the second quarter of 2018. Excluding the benefit of the 2017 CSR, the MCR would have been 65.3% in the third quarter of 2018. Excluding the combined benefit of the 2017 risk adjustment and CSR, the Marketplace MCR would have been 68.4% in the second quarter of 2018. The sequential improvement was mainly due to lower medical costs and higher revenue.
  • The Medicare MCR increased to 87.3%, from 85.0% in the second quarter of 2018, mainly due to certain premium adjustments and higher inpatient costs in our Medicare-Medicaid Integrated plans.

The general and administrative (G&A) expense ratio decreased to 6.6%, from 6.9% in the second quarter of 2018, due to continuing G&A cost containment.

Capital Plan Progress

In the third quarter of 2018, we repaid $140 million aggregate principal amount of our 1.125% Notes and entered into privately negotiated termination agreements to partially terminate the related 1.125% Call Option and 1.125% Warrants. In addition, we converted the remaining $64 million aggregate principal amount of our 1.625% Notes for cash and 0.6 million shares of our common stock. Year to date, we have reduced the principal amount of outstanding debt by $697 million. In addition, we terminated our bridge credit agreement in the third quarter of 2018.

Sale of Molina Medicaid Solutions (MMS) Segment

We closed on our sale of MMS to DXC Technology Company on September 30, 2018. The net cash selling price for the equity interests of MMS was $233 million, which we received on October 1, 2018. As a result of this transaction, we recorded a pretax gain, net of transactions costs, of $37 million, or $0.42 per diluted share.

Third Quarter of 2018 Compared With Third Quarter of 2017

Net income for the third quarter of 2018 was $197 million, compared with a net loss of $97 million for the third quarter of 2017. Net income per diluted share was $2.90 for the third quarter of 2018 compared with a net loss per diluted share of $1.70 reported for the third quarter of 2017. In the third quarter of 2017, we recorded impairment and restructuring charges of $247 million, or $3.16 per diluted share.

2018 Revised Guidance

The following table summarizes 2018 Revised Guidance (1):

Premium revenue         ~ $17.5B Service revenue ~ $390M Premium tax revenue ~ $420M Health insurer fees reimbursed ~ $325M Investment income and other revenue         ~ $125M Total revenue ~ $18.8B Medical care costs ~ $15.1B Medical care ratio (2) ~ 86% Cost of service revenue ~ $350M General and administrative expenses ~ $1.4B G&A ratio (3) ~ 7.3% Premium tax expenses ~ $420M Health insurer fees ~ $350M Depreciation and amortization ~ $100M Restructuring and separation costs

~ $40M - $45M

Losses on sale of subsidiaries, net

~ $15M

Interest expense and other expenses, net

~ $145M

Income before income taxes

$870M - $890M

Net income $585M - $600M EBITDA (4) $1,105M - $1,125M Effective tax rate 32% - 33% Net profit margin (3) 3.1% - 3.2% Diluted weighted average shares ~ 66.7M Net income per share $8.80 - $9.00 Adjusted net income per share (4) $9.05 - $9.25 End-of-year Marketplace membership 340,000 End-of-year Medicaid and Medicare membership 3,510,000

__________________(1) All amounts are estimates; actual results may differ materially. See the Company’s risk factors as discussed in its 2017 Form 10-K and other filings and the statements below in this press release after the heading “Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995.”(2) Medical care ratio represents medical care costs as a percentage of premium revenue.(3) G&A ratio represents general and administrative expenses as a percentage of total revenue. Net profit margin represents net income as a percentage of total revenue.(4) See reconciliation of non-GAAP financial measures at the end of this release.

Conference Call

Management will host a conference call and webcast to discuss Molina Healthcare’s third quarter 2018 results at 7:30 a.m. Eastern time on Thursday, November 1, 2018. The number to call for the interactive teleconference is (877) 883-0383 and the confirmation number is 5420566. A telephonic replay of the conference call will be available through Friday, November 2, 2018, by dialing (877) 344-7529 and entering confirmation number 10124788. A live audio broadcast of this conference call will be available on Molina Healthcare’s website, 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 managed health care services under the Medicaid and Medicare programs and through the state insurance marketplaces. Through its locally operated health plans, Molina Healthcare served approximately 4.0 million members as of September 30, 2018. For more information about Molina Healthcare, please visit molinahealthcare.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This earnings release contains “forward-looking statements” regarding the Company’s 2018 revised guidance, as well as its plans, expectations, and anticipated future events. Actual results could differ materially due to numerous known and unknown risks and uncertainties. Those known risks and uncertainties include, but are not limited to, the following:

  • the success of the Company’s profit improvement and maintenance initiatives, including the timing and amounts of the benefits realized, and administrative and medical cost savings achieved;
  • the numerous political and market-based uncertainties associated with the Affordable Care Act (the “ACA”) or “Obamacare;”
  • the market dynamics surrounding the ACA Marketplaces, including but not limited to uncertainties associated with risk adjustment requirements, the potential for disproportionate enrollment of higher acuity members, the discontinuation of premium tax credits, and the adequacy of agreed rates;
  • subsequent adjustments to reported premium revenue based upon subsequent developments or new information, including changes to estimated amounts payable or receivable related to Marketplace risk adjustment;
  • effective management of the Company’s medical costs;
  • the Company’s ability to predict with a reasonable degree of accuracy utilization rates, including utilization rates associated with seasonal flu patterns or other newly emergent diseases;
  • 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;
  • the full reimbursement of the ACA health insurer fee, or HIF;
  • the success of the Company’s efforts to retain existing or awarded government contracts, including the success of any protest filings or defenses;
  • the Company’s ability to manage its operations, including maintaining and creating adequate internal systems and controls relating to authorizations, approvals, provider payments, and the overall success of its care management initiatives;
  • the Company’s ability to consummate and realize benefits from divestitures and acquisitions, including the recently consummated MMS and Pathways divestitures;
  • the Company’s receipt of adequate premium rates to support increasing pharmacy costs, including costs associated with specialty drugs and costs resulting from formulary changes that allow the option of higher-priced non-generic drugs;
  • the Company’s ability to operate profitably in an environment where the trend in premium rate increases lags behind the trend in increasing medical costs;
  • the interpretation and implementation of federal or state medical cost expenditure floors, administrative cost and profit ceilings, premium stabilization programs, profit sharing arrangements, and risk adjustment provisions and requirements;
  • the Company’s estimates of amounts owed for such cost expenditure floors, administrative cost and profit ceilings, premium stabilization programs, profit-sharing arrangements, and risk adjustment provisions;
  • the Medicaid expansion medical cost corridors in California, New Mexico, and Washington, and any other retroactive adjustment to revenue where methodologies and procedures are subject to interpretation or dependent upon information about the health status of participants other than Molina members;
  • the interpretation and implementation of at-risk premium rules and state contract performance requirements regarding the achievement of certain quality measures, and the Company’s ability to recognize revenue amounts associated therewith;
  • cyber-attacks or other privacy or data security incidents resulting in an inadvertent unauthorized disclosure of protected health information;
  • the success of the Company’s health plan in Puerto Rico, including the resolution of the debt crisis and the effect of the PROMESA law, and the impact of any future significant weather events;
  • the success and renewal of the Company’s duals demonstration programs in California, Illinois, Michigan, Ohio, South Carolina, and Texas;
  • the accurate estimation of incurred but not reported or paid medical costs across the Company’s health plans;
  • efforts by states to recoup previously paid and recognized premium amounts;
  • complications, member confusion, or enrollment backlogs related to the annual renewal of Medicaid coverage;
  • government audits and reviews, or potential investigations, and any fine, sanction, enrollment freeze, monitoring program, or premium recovery that may result therefrom;
  • changes with respect to the Company’s provider contracts and the loss of providers;
  • approval by state regulators of dividends and distributions by the Company’s health plan subsidiaries;
  • changes in funding under the Company’s 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 litigation involving the ACA to which we ourselves are not a direct party;
  • the relatively small number of states in which we operate health plans, including the greater scale and revenues of the Company’s California, Ohio, Texas, and Washington health plans;
  • the availability of adequate financing on acceptable terms to fund and capitalize the Company’s expansion and growth, repay the Company’s outstanding indebtedness at maturity and meet its liquidity needs, including the interest expense and other costs associated with such financing;
  • the Company’s failure to comply with the financial or other covenants in its credit agreement or the indentures governing its outstanding notes;
  • the sufficiency of the Company’s funds on hand to pay the amounts due upon conversion or maturity of its outstanding notes;
  • the failure of a state in which we operate to renew its federal Medicaid waiver;
  • changes generally affecting the managed care or Medicaid management information systems industries;
  • increases in government surcharges, taxes, and assessments, including but not limited to the deductibility of certain compensation costs;
  • newly emergent viruses or widespread epidemics, public catastrophes or terrorist attacks, and associated public alarm;
  • the unexpected loss of the leadership of one or more of our senior executives;
  • increasing competition and 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 sec.gov. Given these risks and uncertainties, the Company can give no assurances that its forward-looking statements will prove to be accurate, or that any other results or events projected or contemplated by its forward-looking statements will in fact occur, and the Company cautions investors not to place undue reliance on these statements. All forward-looking statements in this release represent the Company’s judgment as of October 31, 2018, and the Company disclaims any obligation to update any forward-looking statements to conform the statement to actual results or changes in its expectations.

         

MOLINA HEALTHCARE, INC.UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

         

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

2018     2017 2018     2017 (Dollar amounts in millions, except per-share amounts) Revenue: Premium revenue $ 4,337 $ 4,777 $ 13,174 $ 14,165 Service revenue 130 130 391 390 Premium tax revenue 110 106 320 331 Health insurer fees reimbursed 83 — 248 — Investment income and other revenue 37   18   93   48   Total revenue 4,697   5,031   14,226   14,934   Operating expenses: Medical care costs 3,790 4,220 11,362 12,822 Cost of service revenue 111 123 349 369 General and administrative expenses 311 383 998 1,227 Premium tax expenses 110 106 320 331 Health insurer fees 87 — 261 — Depreciation and amortization 25 33 76 109 Restructuring and separation costs 5 118 38 161 Impairment losses —   129   —   201   Total operating expenses 4,439   5,112   13,404   15,220   Gain on sale of subsidiary 37   —   37   —   Operating income (loss) 295   (81 ) 859   (286 ) Other expenses, net: Interest expense 26 32 91 85 Other expense (income), net 10   —   25   (75 ) Total other expenses, net 36   32   116   10   Income (loss) before income tax expense (benefit) 259 (113 ) 743 (296 ) Income tax expense (benefit) 62   (16 ) 237   (46 ) Net income (loss) $ 197   $ (97 ) $ 506   $ (250 )   Net income (loss) per diluted share $ 2.90   $ (1.70 ) $ 7.60   $ (4.44 )   Diluted weighted average shares outstanding 67.9   56.5   66.6   56.2     Operating Statistics: Medical care ratio 87.4 % 88.3 % 86.2 % 90.5 % G&A ratio 6.6 % 7.6 % 7.0 % 8.2 % Premium tax ratio 2.5 % 2.2 % 2.4 % 2.3 % Effective income tax rate 24.0 % 14.6 % 31.9 % 15.5 % Net profit (loss) margin 4.2 % (1.9 )% 3.6 % (1.7 )%            

MOLINA HEALTHCARE, INC.UNAUDITED CONSOLIDATED BALANCE SHEETS

          September 30,     December 31, 2018 2017

(In millions,

except per-share data)

ASSETS Current assets: Cash and cash equivalents $ 2,814 $ 3,186 Investments 1,812 2,524 Restricted investments — 169 Receivables 1,346 871 Prepaid expenses and other current assets 486 239 Derivative asset 843   522   Total current assets 7,301 7,511 Property, equipment, and capitalized software, net 264 342 Goodwill and intangible assets, net 195 255 Restricted investments 118 119 Deferred income taxes 143 103 Other assets 30   141   $ 8,051   $ 8,471     LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Medical claims and benefits payable $ 2,042 $ 2,192 Amounts due government agencies 1,030 1,542 Accounts payable and accrued liabilities 824 366 Deferred revenue 178 282 Current portion of long-term debt 296 653 Derivative liability 843   522   Total current liabilities 5,213 5,557 Long-term debt 1,019 1,318 Lease financing obligations 198 198 Other long-term liabilities 60   61   Total liabilities 6,490   7,134   Stockholders’ equity:

Common stock, $0.001 par value, 150 shares authorized; outstanding: 62 shares at September 30, 2018 and 60 shares at December 31, 2017

— — Preferred stock, $0.001 par value; 20 shares authorized, no shares issued and outstanding — — Additional paid-in capital 760 1,044 Accumulated other comprehensive loss (10 ) (5 ) Retained earnings 811   298   Total stockholders’ equity 1,561   1,337   $ 8,051   $ 8,471              

MOLINA HEALTHCARE, INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

          Three Months Ended     Nine Months Ended September 30, September 30, 2018     2017 2018     2017 (In millions) Operating activities: Net income (loss) $ 197 $ (97 ) $ 506 $ (250 ) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation and amortization 31 43 104 139 Deferred income taxes (26 ) (27 ) (32 ) (68 ) Share-based compensation 7 3 20 38 Non-cash restructuring costs — 49 17 49 Amortization of convertible senior notes and lease financing obligations 5 8 18 24 Gain on sale of subsidiary (37 ) — (37 ) — Loss on debt extinguishment 10 — 25 — Impairment losses — 129 — 201 Other, net 2 6 6 13 Changes in operating assets and liabilities: Receivables (192 ) 4 (507 ) (28 ) Prepaid expenses and other current assets 64 (15 ) (117 ) (53 ) Medical claims and benefits payable 123 401 (144 ) 549 Amounts due government agencies (716 ) (520 ) (511 ) 122 Accounts payable and accrued liabilities 49 108 398 90 Deferred revenue (13 ) 185 (55 ) 153 Income taxes (9 ) 8   118   (22 ) Net cash (used in) provided by operating activities (505 ) 285   (191 ) 957   Investing activities: Purchases of investments (288 ) (258 ) (1,202 ) (1,894 ) Proceeds from sales and maturities of investments 735 662 2,070 1,536 Purchases of property, equipment, and capitalized software (10 ) (25 ) (24 ) (85 ) Other, net (14 ) (9 ) (23 ) (33 ) Net cash provided by (used in) investing activities 423   370   821   (476 ) Financing activities: Repayment of credit facility — — (300 ) — Repayment of principal amount of 1.125% Notes (140 ) — (236 ) — Cash paid for partial settlement of 1.125% Conversion Option (343 ) — (477 ) — Cash received for partial termination of 1.125% Call Option 343 — 477 — Cash paid for partial termination of 1.125% Warrants (306 ) — (419 ) — Repayment of principal amount of 1.625% Notes (64 ) — (64 ) — Proceeds from senior notes offerings, net of issuance costs — — — 325 Proceeds from borrowings under credit facility — 300 — 300 Other, net 1   (1 ) 7   7   Net cash (used in) provided by financing activities (509 ) 299   (1,012 ) 632   Net (decrease) increase in cash, cash equivalents, and restricted cash and cash equivalents (591 ) 954 (382 ) 1,113 Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period 3,499   3,071   3,290   2,912   Cash, cash equivalents, and restricted cash and cash equivalents at end of period $ 2,908   $ 4,025   $ 2,908   $ 4,025              

MOLINA HEALTHCARE, INC.UNAUDITED HEALTH PLANS SEGMENT MEMBERSHIP

          September 30,     December 31,     September 30, 2018 2017 2017 Ending Membership by Program: Temporary Assistance for Needy Families (TANF) and Children’s Health Insurance Program (CHIP) 2,436,000 2,457,000 2,451,000 Medicaid Expansion 664,000 668,000 662,000 Aged, Blind or Disabled (ABD) 415,000   412,000   411,000   Total Medicaid 3,515,000   3,537,000   3,524,000 Medicare-Medicaid Plan (MMP) - Integrated 55,000 57,000 58,000 Medicare Special Needs Plans 45,000   44,000   44,000   Total Medicare 100,000   101,000   102,000   Total Medicaid and Medicare 3,615,000   3,638,000   3,626,000   Marketplace 384,000   815,000   877,000   3,999,000   4,453,000   4,503,000     Ending Membership by Health Plan: California 623,000 746,000 751,000 Florida 395,000 625,000 641,000 Illinois 223,000 165,000 163,000 Michigan 394,000 398,000 399,000 New Mexico 234,000 253,000 256,000 Ohio 315,000 327,000 343,000 Puerto Rico 320,000 314,000 306,000 South Carolina 117,000 116,000 113,000 Texas 436,000 430,000 444,000 Washington 770,000 777,000 770,000 Other (1) 172,000   302,000   317,000   3,999,000   4,453,000   4,503,000  

__________________(1) “Other” includes the Idaho, New York, Utah and Wisconsin health plans, which are not individually significant to our consolidated operating results.

           

MOLINA HEALTHCARE, INC.UNAUDITED SELECTED HEALTH PLANS SEGMENT FINANCIAL DATA(In millions, except percentages and per-member per-month amounts)

          Three Months Ended September 30, 2018 Member

Months (1)

    Premium Revenue     Medical Care Costs     MCR (2)    

Medical

Margin

Total     PMPM Total     PMPM TANF and CHIP 7.4 $ 1,379 $ 187.03 $ 1,228 $ 166.41 89.0 % $ 151 Medicaid Expansion 2.0 671 333.11 640 317.62 95.3 31 ABD 1.2   1,322 1,054.92   1,186 946.38 89.7   136 Total Medicaid 10.6   3,372 316.86   3,054 286.86 90.5   318 MMP 0.2 353 2,159.72 323 1,981.45 91.7 30 Medicare 0.1   156 1,157.71   121 895.25 77.3   35 Total Medicare 0.3   509 1,706.95   444 1,490.63 87.3   65 Total Medicaid and Medicare 10.9   3,881 354.70   3,498 319.63 90.1   383 Marketplace 1.2   456 394.02   292 252.61 64.1   164 12.1 $ 4,337 $ 358.46 $ 3,790 $ 313.23 87.4 % $ 547     Three Months Ended September 30, 2017 Member

Months (1)

Premium Revenue Medical Care Costs MCR (2)

Medical

Margin

Total PMPM Total PMPM TANF and CHIP 7.5 $ 1,392 $ 185.95 $ 1,242 $ 165.76 89.1 % $ 150 Medicaid Expansion 2.0 773 385.58 667 332.99 86.4 106 ABD 1.2   1,288 1,038.85   1,259 1,016.06 97.8   29 Total Medicaid 10.7   3,453 321.77   3,168 295.23 91.8   285 MMP 0.2 378 2,263.07 336 2,013.67 89.0 42 Medicare 0.1   163 1,231.61   126 951.01 77.2   37 Total Medicare 0.3   541 1,806.26   462 1,543.05 85.4   79 Total Medicaid and Medicare 11.0   3,994 362.04   3,630 329.08 90.9   364 Marketplace 2.7   783 301.72   590 227.22 75.3   193 13.7 $ 4,777 $ 350.55 $ 4,220 $ 309.68 88.3 % $ 557

__________________(1) A member month is defined as the aggregate of each month’s ending membership for the period presented.(2) The MCR represents medical costs as a percentage of premium revenue.

           

MOLINA HEALTHCARE, INC.UNAUDITED SELECTED HEALTH PLANS SEGMENT FINANCIAL DATA(In millions, except percentages and per-member per-month amounts)

          Nine Months Ended September 30, 2018 Member

Months

    Premium Revenue     Medical Care Costs     MCR    

Medical

Margin

Total     PMPM Total     PMPM TANF and CHIP 22.3 $ 4,145 $ 186.12 $ 3,705 $ 166.35 89.4 % $ 440 Medicaid Expansion 6.1 2,184 359.37 1,957 322.01 89.6 227 ABD 3.7   3,864   1,034.25 3,550   950.11 91.9 314 Total Medicaid 32.1   10,193   317.70 9,212   287.10 90.4 981 MMP 0.5 1,077 2,173.90 941 1,899.26 87.4 136 Medicare 0.4   470   1,171.59 385   959.54 81.9 85 Total Medicare 0.9   1,547   1,725.71 1,326   1,479.06 85.7 221 Total Medicaid and Medicare 33.0   11,740   355.96 10,538   319.50 89.8 1,202 Marketplace 3.8   1,434   379.91 824   218.44 57.5 610 36.8   $ 13,174   $ 358.42 $ 11,362   $ 309.12 86.2 % $ 1,812         Nine Months Ended September 30, 2017 Member

Months

    Premium Revenue     Medical Care Costs     MCR    

Medical

Margin

Total     PMPM Total     PMPM TANF and CHIP 22.8 $ 4,185 $ 183.69 $ 3,861 $ 169.44 92.2 % $ 324 Medicaid Expansion 6.1 2,376 389.14 2,045 334.93 86.1 331 ABD 3.6   3,769   1,033.45 3,634   996.58 96.4 135 Total Medicaid 32.5   10,330   317.49 9,540   293.21 92.4 790 MMP 0.5 1,083 2,189.96 976 1,974.22 90.1 107 Medicare 0.4   449   1,142.68 369   939.21 82.2 80 Total Medicare 0.9   1,532   1,726.39 1,345   1,516.09 87.8 187 Total Medicaid and Medicare 33.4   11,862   354.88 10,885   325.66 91.8 977 Marketplace 8.4   2,303   276.27 1,937   232.31 84.1 366 41.8   $ 14,165   $ 339.19 $ 12,822   $ 307.03 90.5 % $ 1,343            

MOLINA HEALTHCARE, INC.UNAUDITED SELECTED HEALTH PLANS SEGMENT FINANCIAL DATA—MEDICAID AND MEDICARE(In millions, except percentages and per-member per-month amounts)

          Three Months Ended September 30, 2018 Member

Months

    Premium Revenue     Medical Care Costs     MCR    

Medical

Margin

Total     PMPM Total     PMPM California 1.7 $ 435 $ 249.00 $ 446 $ 255.22 102.5 % $ (11 ) Florida 1.0 388 363.16 362 339.33 93.4 26 Illinois 0.7 207 312.72 182 274.98 87.9 25 Michigan 1.1 397 350.05 321 282.49 80.7 76 New Mexico 0.6 304 471.66 275 426.69 90.5 29 Ohio 0.9 584 624.84 532 568.93 91.1 52 Puerto Rico 1.0 179 189.65 162 171.96 90.7 17 South Carolina 0.4 124 354.53 112 318.56 89.9 12 Texas 0.7 577 848.47 525 772.14 91.0 52 Washington 2.3 511 226.77 444 197.04 86.9 67 Other (1) 0.5   175   334.29 137   261.49 78.2 38   10.9   $ 3,881   $ 354.70 $ 3,498   $ 319.63 90.1 % $ 383       Three Months Ended September 30, 2017 Member

Months

Premium Revenue Medical Care Costs MCR

Medical

Margin

Total PMPM Total PMPM California 1.9 $ 601 $ 322.97 $ 563 $ 302.67 93.7 % $ 38 Florida 1.0 388 355.59 390 356.83 100.3 (2 ) Illinois 0.5 137 287.69 138 289.36 100.6 (1 ) Michigan 1.2 390 337.17 345 298.83 88.6 45 New Mexico 0.7 304 429.07 277 390.91 91.1 27 Ohio 0.9 549 560.06 483 492.61 88.0 66 Puerto Rico 1.0 191 202.59 159 168.25 83.1 32 South Carolina 0.3 113 332.48 101 297.74 89.6 12 Texas 0.7 541 778.50 506 728.19 93.5 35 Washington 2.3 612 276.73 522 236.11 85.3 90 Other (1) 0.5   168   294.99 146   256.99 87.1 22   11.0   $ 3,994   $ 362.04 $ 3,630   $ 329.08 90.9 % $ 364  

__________________(1) “Other” includes the Idaho, New York, Utah and Wisconsin health plans, which are not individually significant to our consolidated operating results.

           

MOLINA HEALTHCARE, INC.UNAUDITED SELECTED HEALTH PLANS SEGMENT FINANCIAL DATA—MEDICAID AND MEDICARE(In millions, except percentages and per-member per-month amounts)

          Nine Months Ended September 30, 2018 Member

Months

    Premium Revenue     Medical Care Costs     MCR    

Medical

Margin

Total     PMPM Total     PMPM California 5.3 $ 1,446 $ 270.63 $ 1,299 $ 243.14 89.8 % $ 147 Florida 3.2 1,147 356.15 1,069 331.93 93.2 78 Illinois 1.8 551 308.45 474 265.47 86.1 77 Michigan 3.4 1,161 343.08 983 290.26 84.6 178 New Mexico 2.0 936 469.19 875 438.70 93.5 61 Ohio 2.8 1,670 590.71 1,474 521.26 88.2 196 Puerto Rico 2.9 549 190.34 501 173.83 91.3 48 South Carolina 1.1 369 350.94 323 306.76 87.4 46 Texas 2.1 1,715 831.21 1,554 753.31 90.6 161 Washington 6.8 1,666 245.40 1,544 227.41 92.7 122 Other 1.6   530   323.84 442   269.98 83.4 88   33.0   $ 11,740   $ 355.96 $ 10,538   $ 319.50 89.8 % $ 1,202       Nine Months Ended September 30, 2017 Member

Months

Premium Revenue Medical Care Costs MCR

Medical

Margin

Total PMPM Total PMPM California 5.6 $ 1,771 $ 316.83 $ 1,586 $ 283.82 89.6 % $ 185 Florida 3.2 1,132 347.41 1,112 341.15 98.2 20 Illinois 1.6 447 284.18 492 312.54 110.0 (45 ) Michigan 3.5 1,162 332.60 1,035 296.28 89.1 127 New Mexico 2.2 933 431.70 887 410.24 95.0 46 Ohio 2.9 1,598 541.56 1,434 486.02 89.7 164 Puerto Rico 2.9 553 190.99 513 177.01 92.7 40 South Carolina 1.0 329 325.43 301 298.43 91.7 28 Texas 2.1 1,592 760.76 1,468 701.32 92.2 124 Washington 6.7 1,835 275.60 1,603 240.83 87.4 232 Other 1.7   510   292.93 454   261.01 89.1 56   33.4   $ 11,862   $ 354.88 $ 10,885   $ 325.66 91.8 % $ 977              

MOLINA HEALTHCARE, INC.UNAUDITED SELECTED HEALTH PLANS SEGMENT FINANCIAL DATA—MARKETPLACE(In millions, except percentages and per-member per-month amounts)

          Three Months Ended September 30, 2018 Member

Months

    Premium Revenue     Medical Care Costs     MCR

 

 

Medical

Margin

Total     PMPM Total     PMPM California 0.2 $ 49 $ 309.04 $ 37 $ 235.63

76.2

%

 

$ 12 Florida 0.2 66 548.60 45 362.39 66.1 21 Michigan — 12 233.51 7 145.13 62.1 5 New Mexico 0.1 28 419.20 18 249.33 59.5 10 Ohio 0.1 27 485.08 18 336.86 69.4 9 Texas 0.6 228 357.54 134 209.80 58.7 94 Washington — 44 656.70 34 518.75 79.0 10 Other (1) —   2   NM (1 ) NM NM 3 1.2   $ 456   $ 394.02 $ 292   $ 252.61

64.1

%

 

$ 164     Three Months Ended September 30, 2017 Member

Months

Premium Revenue Medical Care Costs MCR

Medical

Margin

Total PMPM Total PMPM California 0.3 $ 88 $ 208.19 $ 63 $ 147.87

71.0

%

 

$ 25 Florida 0.9 260 313.36 235 283.13 90.4 25 Michigan — 14 212.08 10 150.24 70.8 4 New Mexico 0.1 29 383.58 20 269.28 70.2 9 Ohio 0.1 23 386.09 20 364.31 94.4 3 Texas 0.7 183 291.14 109 172.70 59.3 74 Washington 0.1 42 327.40 33 256.52 78.3 9 Other (1) 0.5   144   375.83 100   259.15 69.0 44 2.7   $ 783   $ 301.72 $ 590   $ 227.22

75.3

%

 

$ 193

__________________(1) “Other” includes the Utah and Wisconsin health plans, which are not individually significant to our consolidated operating results. We terminated Marketplace operations at these plans effective January 1, 2018, so the ratios for 2018 periods are not meaningful (NM).

           

MOLINA HEALTHCARE, INC.UNAUDITED SELECTED HEALTH PLANS SEGMENT FINANCIAL DATA—MARKETPLACE(In millions, except percentages and per-member per-month amounts)

          Nine Months Ended September 30, 2018 Member

Months

    Premium Revenue     Medical Care Costs     MCR    

Medical

Margin

Total     PMPM Total     PMPM California 0.6 $ 171 $ 326.82 $ 89 $ 169.98 52.0 % $ 82 Florida 0.5 211 491.13 67 155.24 31.6 144 Michigan 0.1 40 248.24 23 145.38 58.6 17 New Mexico 0.2 93 426.07 55 247.57 58.1 38 Ohio 0.2 84 466.75 58 324.91 69.6 26 Texas 2.0 679 330.92 440 214.65 64.9 239 Washington 0.2 139 654.78 105 497.00 75.9 34 Other —   17   NM (13 ) NM NM 30   3.8   $ 1,434   $ 379.91 $ 824   $ 218.44 57.5 % $ 610       Nine Months Ended September 30, 2017 Member

Months

Premium Revenue Medical Care Costs MCR

Medical

Margin

Total PMPM Total PMPM California 1.2 $ 241 $ 193.33 $ 156 $ 124.32 64.3 % $ 85 Florida 2.8 821 296.14 758 273.55 92.4 63 Michigan 0.2 41 187.96 27 126.76 67.4 14 New Mexico 0.2 82 338.18 62 256.05 75.7 20 Ohio 0.2 68 365.35 64 346.93 95.0 4 Texas 2.1 517 252.32 351 171.57 68.0 166 Washington 0.4 123 315.95 128 327.51 103.7 (5 ) Other 1.3   410   333.05 391   316.86 95.1 19   8.4   $ 2,303   $ 276.27 $ 1,937   $ 232.31 84.1 % $ 366              

MOLINA HEALTHCARE, INC.UNAUDITED SELECTED HEALTH PLANS SEGMENT FINANCIAL DATA—TOTAL(In millions, except percentages and per-member per-month amounts)

          Three Months Ended September 30, 2018 Member

Months

    Premium Revenue     Medical Care Costs     MCR    

Medical

Margin

Total     PMPM Total     PMPM California 1.9 $ 484 $ 253.96 $ 483 $ 253.60 99.9 % $ 1 Florida 1.2 454 382.20 407 341.70 89.4 47 Illinois 0.7 207 312.72 182 274.98 87.9 25 Michigan 1.1 409 345.28 328 276.88 80.2 81 New Mexico 0.7 332 466.63 293 409.68 87.8 39 Ohio 1.0 611 616.95 550 555.83 90.1 61 Puerto Rico 1.0 179 189.65 162 171.96 90.7 17 South Carolina 0.4 124 354.53 112 318.56 89.9 12 Texas 1.3 805 611.01 659 500.14 81.9 146 Washington 2.3 555 239.25 478 206.38 86.3 77 Other (1) 0.5   177   336.18 136   260.19 77.4 41   12.1   $ 4,337   $ 358.46 $ 3,790   $ 313.23 87.4 % $ 547       Three Months Ended September 30, 2017 Member

Months

Premium Revenue Medical Care Costs MCR

Medical

Margin

Total PMPM Total PMPM California 2.2 $ 689 $ 301.64 $ 626 $ 273.90 90.8 % $ 63 Florida 1.9 648 337.40 625 325.09 96.4 23 Illinois 0.5 137 287.69 138 289.36 100.6 (1 ) Michigan 1.2 404 330.27 355 290.63 88.0 49 New Mexico 0.8 333 424.61 297 378.98 89.3 36 Ohio 1.0 572 550.75 503 485.61 88.2 69 Puerto Rico 1.0 191 202.59 159 168.25 83.1 32 South Carolina 0.3 113 332.48 101 297.74 89.6 12 Texas 1.4 724 546.57 615 463.83 84.9 109 Washington 2.4 654 279.52 555 237.23 84.9 99 Other (1) 1.0   312   327.47 246   257.86 78.7 66   13.7   $ 4,777   $ 350.55 $ 4,220   $ 309.68 88.3 % $ 557  

__________________(1) “Other” includes the Idaho, New York, Utah and Wisconsin health plans, which are not individually significant to our consolidated operating results.

           

MOLINA HEALTHCARE, INC.UNAUDITED SELECTED HEALTH PLANS SEGMENT FINANCIAL DATA—TOTAL(In millions, except percentages and per-member per-month amounts)

        Nine Months Ended September 30, 2018 Member

Months

    Premium Revenue     Medical Care Costs     MCR    

Medical

Margin

Total     PMPM Total     PMPM California 5.9 $ 1,617 $ 275.64 $ 1,388 $ 236.61 85.8 % $ 229 Florida 3.7 1,358 372.07 1,136 311.09 83.6 222 Illinois 1.8 551 308.45 474 265.47 86.1 77 Michigan 3.5 1,201 338.83 1,006 283.77 83.7 195 New Mexico 2.2 1,029 464.92 930 419.78 90.3 99 Ohio 3.0 1,754 583.29 1,532 509.52 87.4 222 Puerto Rico 2.9 549 190.34 501 173.83 91.3 48 South Carolina 1.1 369 350.94 323 306.76 87.4 46 Texas 4.1 2,394 581.74 1,994 484.70 83.3 400 Washington 7.0 1,805 257.82 1,649 235.59 91.4 156 Other 1.6   547   334.26 429   262.27 78.5 118   36.8   $ 13,174   $ 358.42 $ 11,362   $ 309.12 86.2 % $ 1,812       Nine Months Ended September 30, 2017 Member

Months

Premium Revenue Medical Care Costs MCR

Medical

Margin

Total PMPM Total PMPM California 6.8 $ 2,012 $ 294.26 $ 1,742 $ 254.67 86.5 % $ 270 Florida 6.0 1,953 323.86 1,870 310.09 95.7 83 Illinois 1.6 447 284.18 492 312.54 110.0 (45 ) Michigan 3.7 1,203 324.12 1,062 286.35 88.3 141 New Mexico 2.4 1,015 422.25 949 394.66 93.5 66 Ohio 3.1 1,666 531.17 1,498 477.81 90.0 168 Puerto Rico 2.9 553 190.99 513 177.01 92.7 40 South Carolina 1.0 329 325.43 301 298.43 91.7 28 Texas 4.2 2,109 509.09 1,819 439.11 86.3 290 Washington 7.1 1,958 277.83 1,731 245.62 88.4 227 Other 3.0   920   309.56 845   284.16 91.8 75   41.8   $ 14,165   $ 339.19 $ 12,822   $ 307.03 90.5 % $ 1,343              

MOLINA HEALTHCARE, INC.UNAUDITED SELECTED HEALTH PLANS SEGMENT FINANCIAL DATA(In millions, except percentages and per-member per-month amounts)

 

The following tables provide the details of our medical care costs for the periods indicated:

          Three Months Ended September 30, 2018     2017 Amount     PMPM    

% of

Total

Amount     PMPM  

% of

Total

Fee for service $ 2,865 $ 236.74 75.6 % $ 3,196 $ 234.51 75.8 % Pharmacy 495 40.90 13.1 638 46.85 15.1 Capitation 297 24.52 7.8 342 25.07 8.1 Other 133   11.07   3.5   44   3.25   1.0   $ 3,790   $ 313.23   100.0 % $ 4,220   $ 309.68   100.0 %     Nine Months Ended September 30, 2018 2017 Amount PMPM

% of

Total

 

Amount PMPM

% of

Total

 

Fee for service $ 8,471 $ 230.46 74.6 % $ 9,630 $ 230.58 75.1 % Pharmacy 1,645 44.76 14.5 1,904 45.60 14.8 Capitation 891 24.23 7.8 1,022 24.47 8.0 Other 355   9.67   3.1   266   6.38   2.1   $ 11,362   $ 309.12   100.0 % $ 12,822   $ 307.03   100.0 %  

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

  September 30, December 31, 2018 2017 Fee-for-service claims incurred but not paid (IBNP) $ 1,609

 

$

1,717 Pharmacy payable 121 112 Capitation payable 48 67 Other (1) 264   296 $ 2,042  

 

$

2,192

__________________(1) “Other” medical claims and benefits payable include amounts payable to certain providers for which we act as an intermediary on behalf of various state agencies without assuming financial risk. Such receipts and payments do not impact our consolidated statements of operations. As of September 30, 2018 and December 31, 2017, we had recorded non-risk provider payables of approximately $158 million and $122 million, respectively.

           

MOLINA HEALTHCARE, INC.UNAUDITED CHANGE IN MEDICAL CLAIMS AND BENEFITS PAYABLE(Dollars in millions, except per-member amounts)

 

Our claims liability includes a provision for adverse claims deviation 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. Our reserving methodology is consistently applied across all periods presented. The amounts displayed for “Components of medical care costs related to: Prior period” represent the amount by which our original estimate of claims and benefits payable at the beginning of the period was (more) 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 presents the components of the change in medical claims and benefits payable for the periods indicated:

      Nine Months Ended September 30,  

Year Ended

December 31,

2017

2018   2017 Medical claims and benefits payable, beginning balance $ 2,192 $ 1,929 $ 1,929 Components of medical care costs related to: Current period 11,589 12,813 17,037 Prior period (1) (227 ) 9   36   Total medical care costs 11,362   12,822   17,073     Change in non-risk provider payables 60   172   (106 ) Payments for medical care costs related to: Current period 9,866 10,944 15,130 Prior period 1,706   1,501   1,574   Total paid 11,572   12,445   16,704   Medical claims and benefits payable, ending balance $ 2,042   $ 2,478   $ 2,192     Days in claims payable, fee for service (2) 53 50 54

__________________(1) Excludes the 2018 benefit of the 2017 Marketplace CSR reimbursement.(2) Claims payable includes primarily IBNP. It also includes certain fee-for-service payables reported in “Other” medical claims and benefits payable amounting to $34 million, $78 million and $99 million, as of September 30, 2018, 2017 and December 31, 2017, respectively.

           

MOLINA HEALTHCARE, INC.UNAUDITED SUMMARY OF SIGNIFICANT ITEMS AFFECTING CURRENT QUARTER ANDYEAR-TO-DATE FINANCIAL RESULTS(In millions, except per diluted share amounts)

 

The table below summarizes the impact of certain items significant to our financial performance in the periods presented. The individual items presented below increase (decrease) income before income tax expense.

     

Three Months Ended

September 30, 2018

 

Nine Months Ended

September 30, 2018

Amount  

Per

Diluted

Share (1)

Amount  

Per

Diluted

Share (1)

Retroactive California Medicaid Expansion risk corridor for the state fiscal year ended June 30, 2017 $ (57 ) $ (0.65 ) $ (57 ) $ (0.67 ) Marketplace risk adjustment, for 2017 dates of service — — 56 0.66 Marketplace CSR subsidies, for 2017 dates of service 5 0.06 81 0.95 Gain on sale of subsidiary 37 0.42 37 0.43 Restructuring costs (5 ) (0.06 ) (38 ) (0.45 ) Loss on debt extinguishment (10 ) (0.12 ) (25 ) (0.33 ) $ (30 ) $ (0.35 ) $ 54   $ 0.59  

__________________(1) Except for certain items that are not deductible for tax purposes, per diluted share amounts are generally calculated at the statutory income tax rate of 22%.

           

MOLINA HEALTHCARE, INC.UNAUDITED NON-GAAP FINANCIAL MEASURES

 

We use non-generally accepted accounting principles, or non-GAAP, financial measures as supplemental metrics in evaluating our financial performance, making financing and business decisions, and forecasting and planning for future periods. For these reasons, management believes such measures are useful supplemental measures to investors in comparing our performance to the performance of other public companies in the health care industry. These non-GAAP financial measures should be considered as supplements to, and not as substitutes for or superior to, GAAP measures. See further information regarding non-GAAP measures below the tables (in millions, except per diluted share amounts).

 

Three Months Ended

September 30,

Nine Months Ended

September 30,

2018   2017 2018   2017   Net income (loss) $ 197 $ (97 ) $ 506 $ (250 ) Adjustments: Depreciation, and amortization of intangible assets and capitalized software 28 39 95 129 Interest expense 26 32 91 85 Income tax expense (benefit) 62   (16 ) 237   (46 ) EBITDA $ 313   $ (42 ) $ 929   $ (82 )     Three Months Ended September 30,   Nine Months Ended September 30, 2018 2017 2018   2017   Amount  

Per

Diluted

Share

Amount  

Per

Diluted

Share

Amount  

Per

Diluted

Share

Amount  

Per

Diluted

Share

Net income (loss) $ 197 $ 2.90 $ (97 ) $ (1.70 ) $ 506 $ 7.60 $ (250 ) $ (4.44 ) Adjustment: Amortization of intangible assets 6 0.08 7 0.13 16 0.23 24 0.43 Income tax effect (1) (2 ) (0.01 ) (3 ) (0.05 ) (4 ) (0.05 ) (9 ) (0.16 ) Amortization of intangible assets, net of tax effect 4   0.07   4   0.08   12   0.18   15   0.27   Adjusted net income (loss) $ 201   $ 2.97   $ (93 ) $ (1.62 ) $ 518   $ 7.78   $ (235 ) $ (4.17 )

_________________(1) Income tax effect of adjustments calculated at the blended federal and state statutory tax rate of 22% and 37% for 2018 and 2017, respectively.

The following are descriptions of the adjustments made to GAAP measures used to calculate the non-GAAP measures used in this news release:

Earnings before interest, taxes, depreciation and amortization (EBITDA): Net income (loss) (GAAP) less depreciation, and amortization of intangible assets and capitalized software, interest expense and income tax expense. We believe that EBITDA is helpful in assessing our ability to meet the cash demands of our operating units.

Adjusted net income: Net income (loss) (GAAP) less amortization of intangible assets, net of income tax effect calculated at the statutory tax rate. We believe that adjusted net income (loss) is helpful in assessing our financial performance exclusive of the non-cash impact of the amortization of purchased intangibles.

Adjusted net income per diluted share: Adjusted net income (loss) divided by weighted average common shares outstanding on a fully diluted basis.

         

MOLINA HEALTHCARE, INC.2018 REVISED GUIDANCE

 

Reconciliation of Non-GAAP Financial Measures

 

(in millions, except per-share amounts)

    Low End     High End Net income $ 585 $ 600 Adjustments: Depreciation, and amortization of intangible assets and capitalized software 120 120 Interest expense 115 115 Income tax expense 285   290   EBITDA $ 1,105   $ 1,125         Low End High End Amount    

Per share (2)

Amount Per share (2) Net income $ 585 $ 8.80 $ 600 $ 9.00 Adjustments: Amortization of intangible assets 21 0.32 21 0.32 Income tax effect (1) (5 ) (0.07 ) (5 ) (0.07 )

Amortization of intangible assets, net of tax effect

16   0.25   16   0.25   Adjusted net income $ 601   $ 9.05   $ 616   $ 9.25  

__________________(1) Income tax effect calculated at the statutory tax rate of 22%.(2) Computation assumes 66.7 million diluted weighted average shares outstanding.

Molina Healthcare, Inc.Investor Relations:Ryan Kubotam, 562-435-3666, ext. 119057

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