Reports Third Quarter GAAP EPS of $3.10 and
Adjusted EPS of $3.36
Molina Healthcare, Inc. (NYSE: MOH) today reported net income
for the third quarter of 2020 of $185 million, or $3.10 per diluted
share, compared to net income of $175 million, or $2.75 per diluted
share, for the third quarter of 2019. Adjusted EPS for the third
quarter of 2020 was $3.36, compared to $2.83 for the third quarter
of 2019. Financial results for the third quarter of 2020 are
summarized below:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2020
2019
2020
2019
(In millions, except per share
results)
Premium Revenue
$4,768
$4,084
$13,444
$12,085
Total Revenue
$5,021
$4,243
$14,188
$12,555
Pre-Tax Income
$262
$233
$910
$750
Net Income
$185
$175
$639
$569
GAAP EPS – Diluted
$3.10
$2.75
$10.65
$8.80
Adjusted EPS – Diluted (1)
$3.36
$2.83
$11.15
$8.84
MCR
85.9
%
86.3
%
84.9
%
85.7
%
G&A Ratio
7.3
%
7.6
%
7.3
%
7.6
%
Effective Tax Rate
29.5
%
24.7
%
29.8
%
24.1
%
After-Tax Margin
3.7
%
4.1
%
4.5
%
4.5
%
__________________
(1) See reconciliation of GAAP EPS to
Non-GAAP Adjusted EPS at the end of this release.
Highlights
- Premium revenue was $4.8 billion for the third quarter of 2020,
a 16.8% increase compared to the third quarter of 2019.
- Medical care ratio (MCR) was 85.9% for the third quarter of
2020, compared to 86.3% for the third quarter of 2019.
- General and administrative (G&A) expense ratio was 7.3% for
the third quarter of 2020, a 30 basis point decrease compared to
7.6% for the third quarter of 2019.
- After-tax margin was 3.7% for the third quarter of 2020,
compared to 4.1% for the third quarter of 2019.
- Net income increased to $185 million for the third quarter of
2020, compared to $175 million for third quarter of 2019.
- The Company estimates that the net effect of COVID-19 was
negligible to slightly positive to the Company’s results for the
third quarter of 2020.
- The Company’s full year GAAP earnings guidance range remains at
$11.20 to $11.70 per diluted share.
“Our third quarter performance was marked by the continued
delivery of solid earnings and the focused execution of our growth
strategy, all achieved in the midst of a global pandemic,” said
Joseph Zubretsky, president and CEO of Molina Healthcare. “We
continue to take major steps forward in our transformation,
expanding our business portfolio while staying focused on our
members and customers to help them during this most difficult
time.”
Recent Acquisitions
Affinity Acquisition On September 29, 2020, Molina
announced that it had entered into a definitive agreement to
acquire substantially all of the assets of Affinity Health Plan.
The net purchase price for the transaction is approximately $380
million, net of expected tax benefits and inclusive of an amount
representing Molina’s target allocation of required regulatory
capital. Molina intends to fund the purchase with cash on hand.
Passport Acquisition On September 1, 2020, Molina closed
on its acquisition of certain assets of Passport Health Plan, Inc.,
in Kentucky. Effective on that same date, the Kentucky Medicaid
agency approved the novation of Passport’s Medicaid contract to
Molina Healthcare of Kentucky, Inc. In connection with this
transaction, Molina added approximately 325,000 Medicaid members in
Kentucky.
Quarterly Performance Review
Premium Revenue Premium revenue for the third quarter of
2020 increased 16.8% to $4.8 billion, compared to $4.1 billion for
the third quarter of 2019.
For the nine months ended September 30, 2020, premium revenue
increased 11.3% to $13.4 billion, compared to $12.1 billion for the
comparable period in 2019. In both periods, the higher premium
revenue reflected the increase in membership, primarily in
Medicaid, and included the impact from the YourCare and Passport
acquisitions.
COVID-19 In the third quarter of 2020, the net effect of
all COVID-related impacts, including the reduced demand for some
medical services and the cost of COVID-related care, along with
premium refunds and related actions, was negligible to slightly
positive to the Company’s results.
Medical Care Ratio The consolidated MCR for the third
quarter of 2020 improved to 85.9%, compared to 86.3% for the third
quarter of 2019.
- Medicaid MCR: Decreased to 86.4%, compared to 88.1% for
the third quarter of 2019. While COVID-related impacts were
slightly favorable in the Medicaid business, the Company’s
performance and resulting margins still exceeded the Company’s
pre-COVID expectations.
- Medicare MCR: Unchanged at 85.6%, compared to the third
quarter of 2019. While COVID‑related impacts were slightly
favorable in the Medicare business, the Company’s performance and
resulting margins still exceeded the Company’s pre-COVID
expectations.
- Marketplace MCR: Increased to 81.6%, compared to 71.2%
for the third quarter of 2019. The Marketplace MCR was negatively
affected by COVID-related impacts and some modest underachievement
of risk scores relative to the acuity of certain Marketplace
members.
The consolidated MCR for the nine months ended September 30,
2020, improved to 84.9% compared to 85.7% for the comparable period
in 2019.
General and Administrative Expense Ratio General and
administrative expenses decreased to 7.3% of total revenues for the
third quarter of 2020, compared to 7.6% for the third quarter of
2019.
For the nine months ended September 30, 2020, the G&A ratio
was 7.3% compared to 7.6% in the comparable prior-year period. In
both periods, the ratio improved due to increased revenues,
partially offset by increased costs associated with the COVID-19
pandemic.
Balance Sheet Cash and investments at the parent company
amounted to $1,286 million as of September 30, 2020, compared to
$997 million as of December 31, 2019.
Cash Flow Operating cash flows for the nine months ended
September 30, 2020, amounted to $591 million, and were higher
compared to the nine months ended September 30, 2019, primarily due
to stronger operating results and the normal fluctuations in timing
of premium receipts and government payments.
2020 Guidance The Company has increased its full year
2020 total revenue guidance to approximately $19.6 billion, from
its previous estimate of $18.8 billion, which reflects revenue from
the Passport membership that was effective September 1, 2020, and
higher Medicaid enrollment through the third quarter of 2020. The
total revenue guidance includes $18.6 billion in premium
revenue.
While the Company’s core performance is expected to remain
strong through the fourth quarter of 2020, the Company is choosing
to maintain its existing guidance. The Company is taking this
cautious approach because of the continued uncertainty related to
COVID’s impact on medical care costs and the possibility for
additional COVID-related rate refunds.
2021 Outlook The Company previously provided a 2021
premium revenue outlook. That outlook included a proforma estimate
of the revenue associated with its announced acquisition of
Magellan Complete Care, which is on track to close around the end
of the year, and an estimate of the revenue expected from auto
assigned membership in its new Kentucky Medicaid contract. That
outlook, which included only a modest early estimate of organic
growth, was 2021 premium revenue of $21.5 billion.
The 2021 outlook has improved now that the Company currently
serves all of Passport’s existing membership in Kentucky, the
majority of which Molina is expecting to keep. The Company’s
expectation is not affected by a court ruling last Friday that a
sixth player should be added to the Kentucky Medicaid program for
2021. That ruling did not rescind the Company’s Medicaid contract
award, does not impact the earlier novation of the Passport
Medicaid contract to Molina, and does not affect its status as a
current incumbent in the program. The Company’s 2021 outlook has
also improved with the announcement of the Affinity acquisition.
The Company will provide full year 2021 guidance in its fourth
quarter 2020 earnings release.
Conference Call Management will host a conference call
and webcast to discuss Molina Healthcare’s third quarter 2020
results at 8:00 a.m. Eastern Time on Thursday, October 29, 2020.
The number to call for the interactive teleconference is (877)
883-0383 and the confirmation number is 2828216. A telephonic
replay of the conference call will be available through Thursday,
November 5, 2020, by dialing (877) 344-7529 and entering
confirmation number 10148270. 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 healthcare 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, 2020. 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 and the Company’s
accompanying oral remarks contain forward-looking statements
regarding its 2020 guidance, as well as its plans, expectations,
and the Company’s anticipation regarding future developments.
Actual results could differ materially due to numerous known and
unknown risks and uncertainties. These risks and uncertainties are
discussed under the headings “Forward-Looking Statements” and “Risk
Factors” in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2019, and also in its Quarterly Reports on Form
10-Q for the periods ended March 31, 2020, June 30, 2020, and
September 30, 2020. 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
developments 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 28, 2020, and, except as otherwise required
by law, the Company disclaims any obligation to update any
forward-looking statement to conform the statement to actual
results or changes in the Company’s expectations.
MOLINA HEALTHCARE,
INC.
UNAUDITED CONSOLIDATED
STATEMENTS OF INCOME
Three Months Ended
Nine Months Ended
September 30,
September 30,
2020
2019
2020
2019
(In millions, except per-share
amounts)
Revenue:
Premium revenue
$
4,768
$
4,084
$
13,444
$
12,085
Premium tax revenue
170
119
477
367
Health insurer fees reimbursed
69
—
206
—
Investment income and other revenue
14
40
61
103
Total revenue
5,021
4,243
14,188
12,555
Operating expenses:
Medical care costs
4,098
3,523
11,412
10,360
General and administrative expenses
368
323
1,030
953
Premium tax expenses
170
119
477
367
Health insurer fees
70
—
209
—
Depreciation and amortization
23
21
64
68
Other
3
—
9
5
Total operating expenses
4,732
3,986
13,201
11,753
Operating income
289
257
987
802
Other expenses, net:
Interest expense
27
22
72
67
Other expense (income), net
—
2
5
(15)
Total other expenses, net
27
24
77
52
Income before income tax expense
262
233
910
750
Income tax expense
77
58
271
181
Net income
$
185
$
175
$
639
$
569
Net income per share - Diluted
$
3.10
$
2.75
$
10.65
$
8.80
Diluted weighted average shares
outstanding
59.6
63.6
60.0
64.6
Operating Statistics:
Medical care ratio
85.9
%
86.3
%
84.9
%
85.7
%
G&A ratio
7.3
%
7.6
%
7.3
%
7.6
%
Premium tax ratio
3.4
%
2.8
%
3.4
%
2.9
%
Effective income tax rate
29.5
%
24.7
%
29.8
%
24.1
%
After-tax margin
3.7
%
4.1
%
4.5
%
4.5
%
MOLINA HEALTHCARE,
INC.
CONSOLIDATED BALANCE
SHEETS
Sept. 30,
Dec. 31,
2020
2019
Unaudited
(Dollars in millions,
except per-share amounts)
ASSETS
Current assets:
Cash and cash equivalents
$
3,196
$
2,452
Investments
1,769
1,946
Receivables
1,775
1,406
Prepaid expenses and other current
assets
213
163
Total current assets
6,953
5,967
Property, equipment, and capitalized
software, net
395
385
Goodwill and intangible assets, net
265
172
Restricted investments
93
79
Deferred income taxes
74
79
Other assets
101
105
Total assets
$
7,881
$
6,787
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Medical claims and benefits payable
$
2,289
$
1,854
Amounts due government agencies
640
664
Accounts payable, accrued liabilities and
other
566
502
Deferred revenue
61
249
Total current liabilities
3,556
3,269
Long-term debt
1,813
1,237
Finance lease liabilities
226
231
Other long-term liabilities
85
90
Total liabilities
5,680
4,827
Stockholders’ equity:
Common stock, $0.001 par value, 150
million shares authorized; outstanding: 59 million shares at
September 30, 2020, and 62 million shares at December 31, 2019
—
—
Preferred stock, $0.001 par value; 20
million shares authorized, no shares issued and outstanding
—
—
Additional paid-in capital
181
175
Accumulated other comprehensive income
37
4
Retained earnings
1,983
1,781
Total stockholders’ equity
2,201
1,960
Total liabilities and stockholders’
equity
$
7,881
$
6,787
MOLINA HEALTHCARE,
INC.
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
2020
2019
(In millions)
Operating activities:
Net income
$
639
$
569
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
64
68
Deferred income taxes
(3)
7
Share-based compensation
43
29
Loss (gain) on debt repayment
5
(15)
Other, net
2
—
Changes in operating assets and
liabilities:
Receivables
(369)
50
Prepaid expenses and other current
assets
(98)
(6)
Medical claims and benefits payable
431
14
Amounts due government agencies
(24)
(355)
Accounts payable, accrued liabilities and
other
55
37
Deferred revenue
(188)
(4)
Income taxes
34
4
Net cash provided by operating
activities
591
398
Investing activities:
Purchases of investments
(670)
(1,938)
Proceeds from sales and maturities of
investments
891
1,890
Net cash paid in business combinations
(62)
—
Purchases of property, equipment, and
capitalized software
(64)
(30)
Other, net
3
(2)
Net cash provided by (used in) investing
activities
98
(80)
Financing activities:
Proceeds from senior notes offering, net
of issuance costs
789
—
Repayment of term loan facility
(600)
—
Common stock purchases
(453)
—
Proceeds from borrowings under term loan
facility
380
220
Cash paid for partial termination of
warrants
(30)
(514)
Cash paid for partial settlement of
conversion option
(27)
(578)
Cash received for partial settlement of
call option
27
578
Repayment of principal amount of
convertible senior notes
(12)
(240)
Other, net
(5)
24
Net cash provided by (used in) financing
activities
69
(510)
Net increase (decrease) in cash, cash
equivalents, and restricted cash
and cash equivalents
758
(192)
Cash, cash equivalents, and restricted
cash and cash equivalents
at beginning of period
2,508
2,926
Cash, cash equivalents, and restricted
cash and cash equivalents at end of period
$
3,266
$
2,734
MOLINA HEALTHCARE,
INC.
UNAUDITED HEALTH PLANS SEGMENT
DATA
(Dollars in millions)
Sept. 30,
Dec. 31,
Sept. 30,
2020
2019
2019
Ending Membership by Government
Program:
Medicaid
3,595,000
2,956,000
2,955,000
Medicare
113,000
101,000
102,000
Marketplace
325,000
274,000
289,000
Total
4,033,000
3,331,000
3,346,000
Ending Membership by Health
Plan:
California
584,000
565,000
580,000
Florida
136,000
132,000
136,000
Illinois
282,000
224,000
224,000
Kentucky
325,000
—
—
Michigan
391,000
362,000
361,000
Ohio
348,000
288,000
292,000
South Carolina
153,000
131,000
134,000
Texas
357,000
341,000
350,000
Washington
947,000
832,000
818,000
Other (1)
510,000
456,000
451,000
Total
4,033,000
3,331,000
3,346,000
__________________
(1) “Other” includes the Idaho,
Mississippi, New Mexico, New York, Puerto Rico, Utah and Wisconsin
health plans, which are not individually significant to the
Company’s consolidated operating results.
Three Months Ended September
30,
2020
2019
Premium Revenue
Medical Care Costs
MCR (1)
Premium Revenue
Medical Care Costs
MCR (1)
Medicaid
$
3,754
$
3,245
86.4
%
$
3,168
$
2,790
88.1
%
Medicare
632
541
85.6
559
479
85.6
Marketplace
382
312
81.6
357
254
71.2
Consolidated
$
4,768
$
4,098
85.9
%
$
4,084
$
3,523
86.3
%
Nine Months Ended September
30,
2020
2019
Premium Revenue
Medical Care Costs
MCR (1)
Premium Revenue
Medical Care Costs
MCR (1)
Medicaid
$
10,415
$
8,988
86.3
%
$
9,239
$
8,151
88.2
%
Medicare
1,896
1,563
82.4
1,682
1,433
85.2
Marketplace
1,133
861
76.0
1,164
776
66.7
Consolidated
$
13,444
$
11,412
84.9
%
$
12,085
$
10,360
85.7
%
__________________
(1) The MCR represents medical costs as a
percentage of premium revenue.
MOLINA HEALTHCARE, INC. CHANGE IN
MEDICAL CLAIMS AND BENEFITS PAYABLE (Dollars in
millions)
The Company’s claims liabilities include additional reserves to
account for moderately adverse conditions 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 year” represent the amounts by which
the original estimates of claims and benefits payable at the
beginning of the year were more than the actual liabilities based
on information (principally the payment of claims) developed since
those liabilities were first reported. The following table presents
the components of the change in medical claims and benefits payable
for the periods indicated:
Nine Months Ended
Year Ended Dec. 31,
2019
September 30,
2020
2019
Unaudited
Medical claims and benefits payable,
beginning balance
$
1,854
$
1,961
$
1,961
Components of medical care costs related
to:
Current year
11,478
10,613
14,176
Prior year
(66)
(253)
(271)
Total medical care costs
11,412
10,360
13,905
Change in non-risk and other provider
payables
50
131
24
Payments for medical care costs related
to:
Current year
9,500
8,996
12,554
Prior year
1,527
1,481
1,482
Total paid
11,027
10,477
14,036
Medical claims and benefits payable,
ending balance
$
2,289
$
1,975
$
1,854
Days in claims payable, fee for service
(1)
52
50
50
______________________
(1) Claims payable includes
primarily claims incurred but not paid, or IBNP. It also includes
certain fee-for-service payables reported in medical claims and
benefits payable amounting to $79 million, $42 million and $50
million, as of September 30, 2020, September 30, 2019, and December
31, 2019, respectively.
MOLINA HEALTHCARE, INC.
RECONCILIATION OF UNAUDITED NON-GAAP FINANCIAL MEASURES
(In millions)
The Company believes that certain non-generally accepted
accounting principles, or non-GAAP, financial measures are useful
supplemental measures to investors in comparing the Company’s
performance to the performance of other public companies in the
health care industry. These non‑GAAP financial measures, presented
below, should be considered as supplements to, and not as
substitutes for or superior to, GAAP measures.
Earnings before interest, taxes, depreciation and
amortization (“EBITDA”): GAAP net income less
depreciation and amortization, interest expense and income tax
expense. The Company believes that EBITDA is helpful to investors
in assessing the Company’s ability to meet the cash demands of its
operating units.
Three Months Ended
Nine Months Ended
September 30,
September 30,
2020
2019
2020
2019
Net income
$
185
$
175
$
639
$
569
Adjustments:
Depreciation and amortization
23
21
64
68
Interest expense
27
22
72
67
Income tax expense
77
58
271
181
EBITDA
$
312
$
276
$
1,046
$
885
MOLINA HEALTHCARE, INC.
RECONCILIATION OF UNAUDITED NON-GAAP FINANCIAL MEASURES
CONTINUED (In millions, except per diluted share
amounts)
Adjusted net income: GAAP net income less amortization of
intangible assets, premium deficiency reserves relating to the
Company’s exit of the Puerto Rico Medicaid market, restructuring
costs, loss (gain) on debt repayment, acquisition-related expenses
(beginning in the third quarter of 2020), and the aggregate income
tax effect calculated at the blended federal and state statutory
tax rate. The Company believes that adjusted net income is helpful
to investors in assessing the Company’s financial performance
exclusive of the non-cash impact of the amortization of purchased
intangibles and the impact of certain expenses and other items that
management believes are not indicative of longer-term business
trends and operations.
Adjusted net income per diluted share: Adjusted net
income divided by weighted average common shares outstanding on a
fully diluted basis. Source data for the calculations is in
thousands.
Three Months Ended September
30,
Nine Months Ended September
30,
2020
2019
2020
2019
Amount
Per Diluted Share
Amount
Per Diluted Share
Amount
Per Diluted Share
Amount
Per Diluted Share
Net income
$
185
$
3.10
$
175
$
2.75
$
639
$
10.65
$
569
$
8.80
Adjustments:
Amortization of intangible assets
4
0.06
4
0.07
12
0.19
13
0.21
Premium deficiency reserve - Puerto
Rico
10
0.17
—
—
10
0.17
—
—
Restructuring costs
3
0.04
—
—
9
0.15
5
0.08
Loss (gain) on debt repayment
—
—
2
0.04
5
0.08
(15)
(0.24)
Acquisition-related expenses (1)
4
0.07
—
—
4
0.06
—
—
Subtotal, adjustments
21
0.34
6
0.11
40
0.65
3
0.05
Income tax effect
(5)
(0.08)
(1)
(0.03)
(9)
(0.15)
(1)
(0.01)
Adjustments, net of tax
16
0.26
5
0.08
31
0.50
2
0.04
Adjusted net income
$
201
$
3.36
$
180
$
2.83
$
670
$
11.15
$
571
$
8.84
______________________
(1) Beginning in the third quarter of 2020, reflects
non-recurring costs associated with acquisitions, including various
transaction and integration costs.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201028006048/en/
Investor Contact: Julie Trudell,
Julie.Trudell@molinahealthcare.com, 562-912-6720 Media
Contact: Caroline Zubieta,
Caroline.Zubieta@molinahealthcare.com, 562-951-1588
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