Molina Healthcare (MOH)

Q3 2011 Earnings Call

October 25, 2011 5:00 pm ET


Joseph W. White - Principal Accounting Officer and Vice President of Accounting

Terry P. Bayer - Chief Operating Officer

Juan José Orellana - VP, IR

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


Scott J. Green - BofA Merrill Lynch, Research Division

Charles Andrew Boorady - Crédit Suisse AG, Research Division

Sam Wass - Goldman Sachs Group Inc., Research Division

Peter H. Costa - Wells Fargo Securities, LLC, Research Division

Thomas A. Carroll - Stifel, Nicolaus & Co., Inc., Research Division

David H. Windley - Jefferies & Company, Inc., Research Division

Joshua R. Raskin - Barclays Capital, Research Division

Christian Rigg - Susquehanna Financial Group, LLLP, Research Division



Ladies and gentlemen, thank you for standing by. Welcome to the Molina Healthcare Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday October 25, 2011. I would now like to turn the conference over to Juan José Orellana, Vice President of Investor Relations with Molina Healthcare. Please go ahead, sir.

Juan José Orellana

Thank you, Allan. 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, 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. If you happen to have multiple questions, we ask that you get back in the queue so that others can have an opportunity to ask their questions as well.

Our comments today will contain forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act, including statements regarding our earnings per share guidance for 2011, expected rate changes and opportunities relating to the migration of dual eligibles into managed care. 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 at our company website or on the SEC's website. All forward-looking statements made during today's call represent our judgment as of October 25, 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

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

Joseph Mario Molina

Thank you, Juan José. Hello, everyone, and thanks for joining our discussion of third quarter 2011 financial results. Let me begin by saying that I'm very pleased with the performance of our business, both in financial terms as well as our strategic execution. Our team's efforts resulted in a quarter that reached the highest levels of both revenue and net income that we've ever had.

For the third quarter of 2011, we earned $19 million in net income or $0.41 per diluted share despite operating in the most complicated premium rate environment in the history of our company. For fiscal year 2011, 6 out of 10 of our states actually cut their premium rates. Nevertheless, today's financial results were consistent with our expected quarterly performance towards achieving the full year guidance of $1.55 per diluted share.

Our comments today will be brief since there was considerable discussion about our business as well as the key drivers of our financial performance at the company's Investor Day held on September 15. During that presentation, we discussed various business drivers, including the premium rate environment in our industry and specifically in our markets, the performance of our legacy health plans versus our newer startup health plans, and utilization trends. Although there have been no fundamental changes to these drivers, there are a few updates that we want to share with you. Let me begin with the rates.

Our forecast at the beginning of the year that premium rates in 2011 would be flat to down has borne out as we now have full rate visibility and we believe our industry will continue to operate in a state of flat to down rates for the near future. State budgets have yet to recover, and the expiration of the enhanced federal matching funds have exerted pressure on state premium rates. You may recall that at our Investor Day, we did not have premium rate information on Florida, Michigan and Washington, all of which became effective in either September or October of this year. We now have those rates.

In Washington, rates were reduced by approximately 1% effective October 1. This rate decrease is consistent with our projections that rates will be flat to down. However, in a bit of positive news regarding rates, Florida and Michigan benefited from blended rate increases of approximately 7.5% and 1%, respectively. In Florida, where the rate increase was effective September 1, the increase is particularly helpful to Medicaid reform counties like Broward, where medical cost trend has outpaced premium rates for quite some time. Blended rates in Broward County increased by nearly 10%. In Michigan, the 1% rate increase, which became effective on October 1, was consistent with our previous expectations.

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