Molina Healthcare Reports First Quarter 2013 Results

Molina Healthcare Reports First Quarter 2013 Results

<0> Molina Healthcare, Inc.Juan José Orellana, 562-435-3666, ext. 111143Investor Relations </0>

Molina Healthcare, Inc. (NYSE: MOH):

Molina Healthcare, Inc. (NYSE: MOH) today reported its financial results for the quarter ended March 31, 2013.

Net income for the first quarter of 2013 was $29.9 million, or $0.64 per diluted share, compared with net income of $18.1 million, or $0.39 per diluted share, for the quarter ended March 31, 2012.

“This was a strong quarter,” said J. Mario Molina, M.D., chief executive officer of Molina Healthcare, Inc. “More importantly, we continue to lay the foundation for even greater success in the future. During the first quarter, we solidified the progress we had made during the second half of 2012, we strengthened our capital position, and we continued to prepare for the opportunities and challenges of the next few years. I thank our employees, our state partners and our providers for their continued commitment to providing health care to those most in need.”

The Company’s financial performance in the first quarter of 2013 improved substantially over the first quarter of 2012. Among the key developments affecting first quarter 2013 performance were the following:

Premium revenue for the first quarter of 2013 increased 16.7% over the first quarter of 2012, primarily due to a shift in member mix to populations generating higher premium revenue per member per month (PMPM). Medicare premium revenue was $118.4 million for the first quarter of 2013 compared with $109.8 million for the first quarter of 2012.

Growth in the Company’s ABD membership in Washington and California led to higher premium revenue PMPM in 2013. ABD membership, as a percent of total membership, has increased approximately 10% year over year. Premium revenue PMPM also increased in the first quarter of 2013 as a result of the inclusion of revenue for pharmacy benefits for the Utah health plan effective January 1, 2013, and as a result of the inclusion of revenue for inpatient facility and pharmacy benefits across all of the Texas health plan’s membership effective March 1, 2012.

Medical care costs increased in the first quarter of 2013 primarily due to the same shifts in member mix and the benefit expansions that led to increased premium revenue, particularly in California, Texas and Washington. The Company’s consolidated medical care ratio, however, decreased to 86.1% in the first quarter of 2013, from 88.1% in the first quarter of 2012. Retroactive rate increases for the California health plan and increased margins at the Texas health plan were the primary drivers of the lower medical care ratio in the first quarter of 2013. Stable inpatient utilization and lower pharmacy unit costs also contributed to the lower medical care ratio in the first quarter of 2013.

The Company has previously reported on the financial challenges faced by its Texas health plan. Although first quarter results show considerable improvement over the results reported for the first quarter of 2012, management cautions investors regarding the following points:

Cash provided by operating activities was $20.1 million for the three months ended March 31, 2013, compared with $50.6 million for the three months ended March 31, 2012. The decrease in cash provided by operating activities was primarily due to the changes in deferred revenue and medical claims and benefits payable, partially offset by the change in accounts receivable. Deferred revenue and medical claims and benefits payable were a use of operating cash amounting to $9.4 million in the aggregate in the three months ended March 31, 2013, compared with a source of operating cash amounting to $97.9 million in the aggregate in the same period in 2012. Accounts receivable was a use of operating cash amounting to $0.6 million in the three months ended March 31, 2013, compared with $54.4 million in same period in 2012.

Cash provided by financing activities for the three months ended March 31, 2013, was $374.8 million compared with $16.0 million for the three months ended March 31, 2012, an increase of $358.8 million. The significant increase was primarily due to $538.0 million in proceeds the Company received from its offering of 1.125% Notes and $75.1 million from the sale of warrants, partially offset by $149.3 million paid for the purchased call option relating to the 1.125% Notes, $50.0 million paid for repurchases of common stock, and $40.0 million used to repay the Company’s Credit Facility.

At March 31, 2013, the Company had cash and investments of $1.6 billion, and the parent company had cash and investments of $450.5 million.

The Company is revising its previously issued guidance of $1.45 to reflect updated anticipated earnings per diluted share of $1.55 for fiscal year 2013. Core operations are performing better than previously anticipated. For all of 2013, the Company believes that the improved performance of its core operations will be partially offset by the following incremental expenses.

The Company notes that its revised guidance, like its previously issued guidance, does not include certain administrative costs to be incurred in 2013 related to growth in membership that the Company expects to occur in 2014. Guidance excludes such costs because the Company still lacks visibility into the size of that membership and the timing of its expected transition into the Company’s health plans.

The Company also notes that the extrapolation of its first quarter 2013 results to the full year of 2013 is inappropriate. As noted above, first quarter results benefited from the retroactive adjustment of California premium rates. Furthermore, the incremental expense noted above for Texas provider compensation, equity compensation, and the costs associated with new membership effective in 2014 were not fully reflected in first quarter results.

The Company’s management will host a conference call and webcast to discuss its first quarter results at 5:00 p.m. Eastern time on Thursday, April 25, 2013. The number to call for the interactive teleconference is (212) 231-2932. A telephonic replay of the conference call will be available from 7:00 p.m. Eastern time on Thursday, April 25, 2013, through 6:00 p.m. on Friday, April 26, 2013, by dialing (800) 633-8284 and entering confirmation number 21653764. A live broadcast of Molina Healthcare’s conference call will be available on the Company’s website, , or at . A 30-day online replay will be available approximately an hour following the conclusion of the live broadcast.

Molina Healthcare, Inc., a FORTUNE 500 company, provides quality and cost-effective Medicaid-related solutions to meet the health care needs of low-income families and individuals and to assist state agencies in their administration of the Medicaid program. The Company’s licensed health plans in California, Florida, Michigan, New Mexico, Ohio, Texas, Utah, Washington, and Wisconsin currently serve approximately 1.8 million members, and its subsidiary, Molina Medicaid Solutions, provides business processing and information technology administrative services to Medicaid agencies in Idaho, Louisiana, Maine, New Jersey, and West Virginia, and drug rebate administration services in Florida.

Depreciation and amortization related to the Company’s Health Plans segment is all recorded in “Depreciation and Amortization” in the consolidated statements of income. Depreciation and amortization related to the Company’s Molina Medicaid Solutions segment is recorded within three different headings in the consolidated statements of income as follows:

Amortization of purchased intangibles relating to customer relationships is reported as amortization within the heading “Depreciation and Amortization;”

Amortization of purchased intangibles relating to contract backlog is recorded as a reduction of “Service Revenue;” and

Depreciation is recorded within the heading “Cost of Service Revenue.”

The following table presents all depreciation and amortization recorded in the Company’s consolidated statements of income, regardless of whether the item appears as depreciation and amortization, a reduction of revenue, or as cost of service revenue.

____________

(1) A member month is defined as the aggregate of each month’s ending membership for the period presented.

(2) The Company’s contract with the state of Missouri expired without renewal on June 30, 2012. The Missouri health plan’s claims run-out activity subsequent to June 30, 2012, is reported in “Other.”

(3) “Other” medical care costs also include medically related administrative costs at the parent company.

(4) The MCR represents medical costs as a percentage of premium revenues, where premium revenue is reduced by premium tax expense.

The following tables provide the details of the Company’s medical care costs for the periods indicated:

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

The Company’s claims liability includes an allowance for adverse claims development 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 “” represent the amount by which the Company’s original estimate of claims and benefits payable at the beginning of the period were (more) or 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 shows the components of the change in medical claims and benefits payable as of the periods indicated:

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