Molina Healthcare Inc (MOH)

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Molina Healthcare (MOH)

Q2 2011 Earnings Call

July 21, 2011 5:00 pm ET

Executives

Terry Bayer - Chief Operating Officer

Joseph White - Chief Accounting Officer

Joseph Molina - Chairman, Chief Executive Officer and President

John Molina - Chief Financial Officer, Executive Vice President of Financial Affairs, Treasurer, Director and Member of Compliance Committee

Juan José Orellana - VP, IR

Analysts

Christian Rigg - Susquehanna Financial Group, LLLP

Joshua Raskin - Barclays Capital

Sarah James - Wedbush Securities Inc.

Brian Wright - Citadel Securities, LLC

Charles Boorady - Crédit Suisse AG

Carl McDonald - Citigroup Inc

Scott Fidel - Deutsche Bank AG

Scott Green - BofA Merrill Lynch

John Rex - JP Morgan Chase & Co

Kenneth Lavine - UBS Investment Bank

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Molina Healthcare Second Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, July 21, 2011. I would now like to turn the conference over to Juan José Orellana, Vice President of Investor Relations. Please go ahead, sir.

Juan José Orellana

Thank you, Andre. Hello, everyone, and thank you for joining us. The purpose of this call is to discuss Molina Healthcare's financial results for the second quarter ended June 30, 2011. The company's earnings release reporting its results was issued today after the market closed, and is now posted for viewing on our company website.

On the call with me today are Dr. Mario Molina, our CEO; John Molina, our CFO; Terry Bayer, our COO; and Joseph White, our Chief Accounting Officer. 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, without limitations, statements regarding expected rate revisions, enrollment in business growth, utilization and unit cost reductions, and an upward revision of our EPS guidance for fiscal year 2011. 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 2010, 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 July 21, 2011, 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.

Joseph Molina

Thank you, Juan Jose. Hello, everyone, and thank you for participating on the call. Today Molina Healthcare reported earnings per diluted share of $0.38 for the second quarter of 2011. A 41% improvement over the second quarter 2010. We are pleased with these results, which reflect our continued strength and momentum in the Medicaid space, as well as the strategic benefits derived from our diversified business. Even more exciting, though, are the many opportunities over the next few years. These include upcoming Medicaid managed care procurements, ABD population expansions, dual eligible special needs plan expansions and MMIS procurements.

With half of the year behind us, the close of the second quarter provides an appropriate point to review the progress of our business, and to talk about the developments since our most recent Investor Day, last January. At that time, we talked about the key measures of our financial performance: revenue, medical cost and administrative cost. Let's review each of these measures in greater detail and spend some time discussing the drivers behind each of them.

Premium revenues in the second quarter grew approximately 16% over the same period last year. At our January Investor Day, we said that our revenue growth would primarily be driven by membership increases and membership mix as opposed to premium rate increases. Our results so far this year have been consistent with that expectation. So far, 2011 has seen an acceleration of the transition of the aged, blind and disabled beneficiaries into Medicaid managed care. During the first half of the year, we added 30,000 new ABD members in the Dallas-Fort Worth service area. As of today, we've added 5,000 new ABD members in California as a result of that state's expansion. We expect that our ABD membership in both Texas and California will continue to grow in 2011. Today, ABD members account for nearly 10% of our total enrollment.

We have also seen growth in our Medicare membership. In terms of enrollment, our Medicare special needs plan for dual-eligibles ranks 10th overall nationwide and third in the markets we serve according to the CMS Health Plan Management Systems website.

It's important to remember that all of our Medicare Special Needs Plan members are duly eligible for Medicaid and Medicare. The experience we have gained in serving these populations will serve us well, as more of this membership this moves into managed care over the next few years. Please note that both of these populations, ABD and Medicare, have much higher premium revenues than our traditional membership.

Our membership for the Temporary Assistance to Needy Families, or TANF, consisting mainly of mothers and children, has remained static during the first 2 quarters of 2011, when compared to the same periods in 2010 and 2009. This is not surprising nor is it cause for concern. As the unemployment rate across our states decline or remain flat, membership growth begins to ease. However, we have plenty of opportunity for continued growth among new populations and new markets.

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