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Molina Healthcare, Inc. (MOH)
January 26, 2012 12:30 pm ET
Joseph W. White - Principal Accounting Officer and Vice President of Accounting
Juan José Orellana -
Terry P. Bayer - Chief Operating Officer
Unknown Executive -
Joseph Mario Molina - Chairman, Chief Executive Officer and President
John C. Molina - Chief Financial Officer, Executive Vice President of Financial Affairs, Treasurer, Director and Member of Compliance Committee
Carl R. McDonald - Citigroup Inc, Research Division
Juan José Orellana
Previous Statements by MOH
» Molina Healthcare's CEO Discusses Q3 2011 Results - Earnings Call Transcript
» Molina Healthcare Inc. - Analyst/Investor Day
» Molina Healthcare's CEO Discusses Q2 2011 Results - Earnings Call Transcript
Up on the screens right now, you see our agenda for today. And these are just recommended time frames that we have for each of the presentations. We'll start with a business overview by our Chief Executive Officer, Dr. Molina. And he'll talk about several things that are happening in the company right now. We'll also hear from Terry Bayer, our Chief Operating Officer, who will be providing an operations update. And back on the lineup, by popular analyst demand, is Joseph White, providing a discussion on capital adequacy. Again, that is by popular demand. And finally, we'll go ahead and have John make some remarks related to our outlook for 2012.
A press release announcing our outlook for 2012 was issued before the market opened this morning. You can access it by checking out our website. A lot of the information is there. It's also included in the materials that we have here in the room.
I do have to draw your attention to our cautionary statement. And I know it's -- and I'm sure it might be difficult to read, so what I'll do is I'll actually read it for you.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. This slide presentation and our accompanying oral remarks contain forward-looking statements regarding the company's expected results for fiscal year 2012. All of our forward-looking statements are based on our current expectations and assumptions. Actual results could differ materially due to the unexpected failure of our assumptions or due to adverse developments related to numerous risk factors, including but not limited to the following: Uncertainty regarding the effect of our Washington health plan's being named an apparently successful bidder by the Healthcare Authority of Washington in that state's recent managed care procurement; significant budget pressures on state governments which cause them to lower rates unexpectedly or to rescind expected rate increases, or their failure to maintain existing benefit packages or membership eligibility thresholds or criteria; uncertainties regarding the impact of the Patient Protection and Affordable Care Act, including its possible repeal, judicial overturning of the individual insurance mandate or Medicaid expansion, the effect of various implementing regulations, and uncertainties regarding the impact of other federal or state healthcare and insurance reform measures; management of our medical costs, including costs associated with unexpectedly severe or widespread illnesses such as influenza, and rates of utilization that are consistent with our expectations; the success of our efforts to retain existing government contracts and to obtain new government contracts in connection with state requests for proposals in both existing and new states, and our ability to grow our revenues consistent with our expectations; the 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 in dual eligible members; retroactive adjustments to premium revenue or accounting estimates which require adjustment based upon subsequent developments; the 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; the timing of receipt and recognition of revenue and the amortization of expense under the state contracts of Molina Medicaid Solutions in Maine and Idaho; government audits and reviews; changes with respect to our provider contracts and the loss of providers; the establishment, interpretation and implementation of a federal or state medical cost expenditure floor as a percentage of the premiums we receive, administrative cost and profit ceilings and profit-sharing arrangements; the interpretation and implementation of at-risk premium rules regarding the achievement of certain quality measures; the successful integration of our acquisitions; approvals 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, and the costs associated therewith; restrictions and covenants in our credit facility; the availability of financing to fund and capitalize our acquisitions and start-up activities, and to meet our liquidity needs and the costs and fees associated therewith; a state's failure to renew its federal Medicaid waiver; an inadvertent, unauthorized disclosure of protected health information by us or our business associates; changes generally affecting the managed care or Medicaid Management Information System industries; increases in government surcharges, taxes and assessments; changes in general economic conditions; including unemployment rates and numerous other risk factors, including those identified within the slide presentation and/or our accompanying oral remarks and those discussed in our periodic reports and filings with Securities and Exchange Commission.
These reports can be accessed under the Investor Relations tab of our company website or on the SEC's website at sec.gov. Given these risks and uncertainties, we can give no assurances that our forward-looking statements will prove to be accurate or that any other results or events projected or contemplated by our forward-looking statements will in fact occur and we caution investors not to take place undue reliance on these -- not to place, excuse me, undue reliance on these statements. All forward-looking statements in this release represent our judgment as of January 26, 2012, and we disclaim any obligation to update any forward-looking statements to conform the statement to actual results or changes in our expectations. I will now read this in Spanish.
Actually, without further ado, I would like to turn the mic over to Dr. Mario Molina, our Chief Executive Officer.
Joseph Mario Molina
I'd like to thank Jeff Barlow for that cautionary statement and Juan José for reading it because it gave me time for lunch. Next year, we're thinking of doing it in Latin and sign language. I want to talk -- start off, by talking a little bit about 2011, what we have accomplished and how we have executed on our business plan. The health plan business remains stable and our Medicare Special Needs plans continue to grow. Despite a difficult rate environment, we've been able to improve profitability in 2011, and we received certification from CMS on our fiscal agent contract in Maine.
Looking forward to 2012, we're expecting a lot of growth in Texas beginning in March of 2012, and we look forward to the dual eligible care coordination and integration. So in short, we've made solid progress in 2011 in building long-term value. Now, you've all seen this slide many, many times. I think we use it in almost every investor presentation. This shows the states that we're in. In the teal color, you see the health plan states and in the purple, you see the fiscal agent or newly [indiscernible] Medicaid Solutions states. Virginia in yellow is where we operate clinics for the County. And you see our enrollment and the distribution of our membership.
I want to point out a couple of things. First, if you go back probably 6 years, maybe even 8 years ago and look at our early investor presentations, you may recall seeing my pyramid. And that pyramid had a base, a wide base of [indiscernible] patients, patients that have relatively simple healthcare needs, a lot of episodic care, low premiums or relatively low risk. The next year, for the Aged Blind and Disabled patients, more complex, fewer in number. The next year, getting even smaller for the Duals, and the cast on long-term care.
While you may not realize it, we have been talking about and planning for the implementation of the Duals for many, many years. And it's no coincidence that we're in the states that we're in. Florida, Texas and California are the 3 states that stand to grow the most because of the Affordable Care Act, with inclusion of the uninsured into Medicaid. And they also happen to be states with larger number of Duals. In fact, there are roughly 9 million Duals in the United States and about 1.2 million of them live in California. Florida is also a big state for the Duals. So we have been -- we've had a strategy. The board revisits that strategy every year and we revise it every 3 years. We've been executing against that strategy.
This shows our enrollment growth from third quarter of 2007 to the third quarter of 2011. And we've had pretty good growth in most of the states. You'll see that the Missouri, Wisconsin and Florida don't show a growth because they're too new. They weren't around back then. But the growth ranges from 3% in Michigan, up to almost 400% in Texas. And growth has been an important part of our strategic plan, but so is quality. So along the way, we've made sure that all of the health plans have achieved NCQA accreditation. And with the exception of Wisconsin, all of our health plans now have been accredited by NCQA and we expect in the near future that Wisconsin will be accredited as well.
For our company, it's become table stakes. All the health plans must be accredited, that's a given. And what I want to tell you now is that we're going to be raising the bar on that. Because we're expecting our health plans now to do more than just be accredited, we want to see improvement in their HEDIS scores and improvement satisfaction. And over the next couple of years, we're going to be making a real effort to get closer to our members and better understand their needs and their desires.
This slide shows you data from third quarter of 2010 compared to the third quarter of 2011. Enrollment's been growing, enrollment is up over that period about 5%. Revenue is up 15% in the same period, reflecting growth in the ABD population which comes with higher per-member per-month premiums. EBITDA is up 32%, reflecting the improvement in profitability from 2010 to 2011, and net income is up 44%.
Here you see our earnings per share, on a fully [ph] adjusted basis beginning 2007 at $1.35, which coincidentally is where we find ourselves at the end of the third quarter of 2011. And I'm overall happy with the earnings. They haven't grown as much on EPS basis as we would have liked, but it think it's important to reflect on what our real goal is. And for me, the real goal of this company is sustained growth and sustained profitability over the long term.
I'm a large shareholder, so I take a long-term view. And I don't think you measure the success of a health plan in quarter-to-quarter earnings or even year-over-year. Molina Healthcare is entering its fourth decade in serving vulnerable populations served by government programs. So for, me long-term sustainability of growth and profitability is what really matters.
The company is well positioned for growth. And in fact, people have asked me lately, what are my big concerns? My big concern right now is how do we position ourselves for the growth that we're going to see in 2013 and 2014. We've had some good contract wins and we gained some contracts and we've been able to leverage our Special Need Plans. We now have over 30,000 Medicare beneficiaries, starting with 0 a few years ago, and that's all been organic growth.
We're investing company-owned direct delivery. And I'm going to talk more about that later, but we're one of the few companies that really, I think, has ability to go out and serve vulnerable populations and put clinics in areas where there are physician shortages to make sure that those of us, some of our members who are less fortunate than those of us in this room will continue to have access to physicians.
And we're investing in a corporate infrastructure for that growth. We put a new data center in New Mexico. We've got adequate capacity for our systems to grow in New Mexico. We recently purchased the corporate office building in Long Beach. We occupy about 40% of that building, but it gives us more room to grow, and over the next 2 years as you're going to see, we're going to need space.
This shows you the growth in spending and the growth in enrollments in the Medicaid program beginning in 1998. And what you see is it reached a nadir in 2007, it's been growing ever since, especially during the recession. In the last couple of years, it's grown by 8.5% and last year, membership grew by 5.5%. So the Medicaid program, the number of Medicaid beneficiaries continues to growth. It's slowing down a little bit, but notice, it's projected to grow at the rate of 4.1% in 2012.