Molina Healthcare Inc (MOH)

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Molina Healthcare, Inc. (MOH)

Q3 2010 Earnings Call Transcript

October 26, 2010 5:00 pm ET

Executives

Juan José Orellana – VP, IR

Mario Molina – Chairman, President and CEO

John Molina – CFO, EVP and Treasurer

Joseph White – Chief Accounting Officer

Analysts

Joshua Raskin – Barclays Capital

Chris Rigg – Susquehanna Financial Group

Sarah James – Wedbush Morgan Securities Inc

Scott Fidel – Deutsche Bank

Charles Verdi [ph] – Credit Suisse

Carl McDonald – Citigroup

Ken LaMont [ph] – UBS

John Rex – JPMorgan Securities Inc.

Scott Green – Bank of America/Merrill Lynch

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Molina Healthcare’s third quarter 2010 conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator instructions) As a reminder this conference is being recorded, Tuesday, October 26, 2010.

I would like to turn the conference over to Juan José Orellana, Vice President of Investor Relations. Please go ahead.

Juan José Orellana

Thank you, Edison. Hello everyone, and thank you for joining us. The purpose of this call is to discuss Molina Healthcare’s financial results for the third quarter ended September 30, 2010. The company’s earnings release reporting its results was issued today after the market closed, and was posted for viewing on our company website.

On the call with me today are Dr. Mario Molina, our CEO; John Molina, our CFO; and Joseph White, our Chief Accounting Officer. Terry Bayer and Dr. Jim Howatt are currently traveling and will not be joining us on the call today. After the completion of our prepared remarks, we will open the call to take your questions.

Our comments today will contain forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act, including statements regarding our revised guidance for 2010. All of our forward-looking statements are based on our current expectations and assumptions, which are subject to numerous risk factors that could cause our actual results to differ materially.

A description of such risk factors can be found in our earnings release and in our reports filed with the Securities and Exchange Commission, including our Form 10-K Annual Report for fiscal year 2009, our Form 10-Q quarterly reports, and our Form 8-K current reports. These reports can be accessed under the Investor Relations tab of our company website or on the SEC’s website. All forward-looking statements made during today’s call represent our judgment as of October 26, 2010, and we disclaim any obligation to update such statements.

This call is being recorded, and a 30-day replay of the conference call will be available over the Internet through the company’s website at molinahealthcare.com.

I would now like to turn the call over to Dr. Mario Molina.

Mario Molina

Thank you, Juan José, and hello everyone. Our remarks today will be brief, since we provided a comprehensive overview of our business at our Investor Day on September 14.

Results for the third quarter ended September 30, 2010 were $0.57 per diluted share. Today’s results reflect the continuing momentum of the strategic and operational initiatives that we outlined during our second quarter earnings call and our Investor Day. There are some key developments that contributed to our success this quarter that I would like to highlight.

Premium revenues increased in the third quarter as a result of greater enrolment and premium rate increases in some of our states. But they were flat on a per member per month basis compared to 2009. However, medical cost decreased by $5.49 per member per month from the same period last year leading to higher margins.

The biggest declines in medical costs were in our large states, California, Washington and Ohio, which were partially offset by increasing medical costs in New Mexico, Michigan, and Missouri.

Let me talk about these developments in greater detail starting with enrolment. Our Wisconsin acquisition and our new CHIP contract in Texas provided most of our enrolment growth in the quarter. Our enrolment in Wisconsin was approximately 28,000, nearly 10,000 more members than when we announced the acquisition of the health plan in July.

The health plan has the potential to grow even more from the third open enrolment period, which ended in mid-October. We added 54,000 members under our Rural CHIP contract in Texas effective September 1. The new members represent over 40% of the addressable market in the CHIP program. Our involvement in this program complements our existing operation in Texas Star and Star Plus Medicaid programs.

Premium rate increases in Florida, Utah and Washington were enough to offset rate decreases in Missouri and New Mexico during the quarter. The rate increases in Utah and Washington became effective on July 1. So our results reflect a full quarter of the benefit. Florida rates, on the other hand, became effective on September 1. Increases in some states and decreases in others confirm how volatile premium rates can be, and highlight the variation in premium rates that we experience in the States in which we operate. We expect this pattern to continue into 2011.

Higher medical margin combined with enrolment growth have been the keys to greater profitability. Compared to last year, we have seen very little flu activity, and the various contracting and medical management initiatives we have implemented resulted in lower medical costs this year. However, we want to remind everyone that last year the H1N1 flu peaked in late October, and that typically the flu season peaks between December and April.

Read the rest of this transcript for free on seekingalpha.com