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Molina Healthcare Reports Third Quarter 2019 Financial Results

LONG BEACH, Calif.--(BUSINESS WIRE)--

Raises Full Year 2019 Earnings Guidance

Molina Healthcare, Inc. (MOH) today reported net income for the third quarter of 2019 of $175 million, or $2.75 per diluted share, compared to net income of $197 million, or $2.90 per diluted share, in the third quarter of 2018. Financial results for the third quarter of 2019 are summarized below:

 

Three Months Ended

 

Nine Months Ended

 

September 30,

 

September 30,

 

2019

 

2018

 

2019

 

2018

 

(In millions, except per share results)

Premium Revenue

$4,084

 

$4,337

 

$12,085

 

$13,174

Total Revenue

$4,243

 

$4,697

 

$12,555

 

$14,226

Pre-Tax Income

$233

 

$259

 

$750

 

$743

Net Income

$175

 

$197

 

$569

 

$506

EPS - Diluted

$2.75

 

$2.90

 

$8.80

 

$7.60

 

 

 

 

 

 

 

 

MCR

86.3%

 

87.4%

 

85.7%

 

86.2%

G&A Ratio

7.6%

 

6.6%

 

7.6%

 

7.0%

Pre-Tax Margin

5.5%

 

5.5%

 

6.0%

 

5.2%

Effective Tax Rate

24.7%

 

24.0%

 

24.1%

 

31.9%

After-Tax Margin

4.1%

 

4.2%

 

4.5%

 

3.6%

Highlights include:

  • Premium revenue was $4.1 billion in the third quarter of 2019, a 5.8% decrease compared to the third quarter of 2018.
  • Medical care ratio (MCR) was 86.3% in the third quarter of 2019 compared to 87.4% for the third quarter of 2018.
  • General and administrative (G&A) expense ratio increased to 7.6% in the third quarter of 2019 compared to 6.6% for the third quarter of 2018.
  • The third quarter results include a charge of $2 million, or a $0.03 net loss per diluted share, for the repayment of convertible notes.
  • After-tax margin was 4.1% for the third quarter of 2019 compared to 4.2% in the third quarter of 2018.
  • Cash and investments at the parent company amounted to $796 million as of September 30, 2019.
  • Operating cash flows for the nine months ended September 30, 2019, were $398 million.
  • Raised full year 2019 earnings guidance to $11.30 - $11.55 from $11.20 - $11.50, which does not include any future prior-period reserve development.
  • On October 10, 2019, the Company entered into a definitive agreement to acquire certain assets of YourCare Health Plan, Inc. Through this transaction, expected to close early next year, the Company will serve approximately 46,000 Medicaid members in seven counties in Western New York.

     

“We are pleased with our performance this quarter as we sustained our margin profile, produced significant excess capital, and increased our full year 2019 guidance,” said Joe Zubretsky, president and CEO. “We have accomplished this in the backdrop of commencing our pivot to growth.”

Premium Revenue

Premium revenue for the third quarter of 2019 decreased 5.8% to $4.1 billion compared to $4.3 billion in the third quarter of 2018, which was in line with the Company’s expectations.

For the nine months ended September 30, 2019, premium revenue decreased 8.3% to $12.1 billion, from $13.2 billion for the comparable period in 2018. In both periods, the lower premium revenue is primarily a result of previously announced losses of Medicaid membership in New Mexico and Florida.

Medical Care Ratio

The consolidated MCR for the third quarter of 2019 was 86.3% compared to 87.4% in the third quarter of 2018. Prior period reserve development in the quarter was negligible.

The MCR for the nine months ended September 30, 2019, improved to 85.7% compared to 86.2% for the comparable period in 2018, due to a combination of the following:

  • The Medicaid MCR improved to 88.2% compared to 90.4% for the nine months ended September 30, 2018, due to improvement in all programs.
  • The Medicare MCR improved to 85.2% compared to 85.7% for the nine months ended September 30, 2018.
  • The Marketplace MCR was 66.7% compared to 57.5% for the nine months ended September 30, 2018. The 2018 period was positively impacted by reduced medical care costs from Cost Sharing Reduction (CSR) subsidies related to 2017 dates of service. In addition, the current year was impacted by a relatively smaller benefit from prior-year Marketplace risk adjustment compared to 2018.

General and Administrative Expense Ratio

The general and administrative expenses were 7.6% of total revenues in the third quarter of 2019 compared to 6.6% in the third quarter of 2018.

For the nine months ended September 30, 2019, the G&A ratio was 7.6% compared to 7.0% in the comparable prior-year period. In both periods, the year-over-year increases are due mainly to the year-over-year decline in total revenues.

Interest Expense

Interest expense was $22 million in the third quarter of 2019 compared to $26 million in the third quarter of 2018. The decline was due to continued repayment of convertible notes.

Other Expenses

The third quarter results included a $2 million charge on the repayment of convertible notes, resulting in a $0.03 net loss per diluted share.

Balance Sheet

Cash and investments at the parent company amounted to $796 million as of September 30, 2019, compared to $467 million as of June 30, 2019.

During the third quarter of 2019, the parent company received $430 million of dividends from the regulated health plan subsidiaries.

The Company repaid $55 million of principal on the convertible notes during the quarter, and $240 million since the beginning of the year. The impact of capital deployment actions in the quarter resulted in lower interest expense, a slight loss on repayment of the convertible notes, and a lower share count.

Cash Flow

Operating cash flows for the nine months ended September 30, 2019, amounted to $398 million and were higher compared to the nine months ended September 30, 2018, primarily due to the normal fluctuations of working capital.

Outlook

The Company raised its full year 2019 earnings guidance range to $11.30 - $11.55 per diluted share, from previously issued guidance of $11.20 - $11.50.

Guidance is based on the following:

  • Assumes no future restructuring or non-run rate significant items; and
  • Assumes no future prior period development.

 

 

October 29, 2019 (1)

 

July 30, 2019 (1)

 

 

(current)

 

(previous)

Premium revenue

 

$16.1B

 

$16.1B

Medicaid

 

$12.4B

 

$12.3B

Medicare

 

$2.2B

 

$2.2B

Marketplace

 

$1.5B

 

$1.6B

Premium tax revenue

 

$565M

 

$450M

Investment income and other revenue

 

$135M

 

$115M

Total revenue

 

$16.8B

 

$16.7B

Medical care costs

 

$13.8B

 

$13.8B

General and administrative expenses

 

$1.3B

 

$1.3B

Premium tax expenses

 

$565M

 

$450M

EBITDA (2)

 

$1,140M - $1,160M

 

$1,135M - $1,160M

Depreciation and amortization

 

$90M

 

$90M

Interest expense and other expenses, net

 

$90M

 

$90M

Income before income taxes

 

$960M - $980M

 

$955M - $980M

Net income

 

$725M - $740M

 

$725M - $740M

Net income per share

 

$11.30 - $11.55

 

$11.20 - $11.50

Diluted weighted average shares

 

64.2M

 

64.5M

 

 

 

 

 

End-of-year membership:

 

 

 

 

Medicaid and Medicare

 

3.1M

 

3.1M

Marketplace

 

270K

 

270K - 280K

 

 

 

 

 

Operating Statistics:

 

 

 

 

Medical care ratio

 

86%

 

86%

G&A ratio

 

7.7%

 

7.7%

Effective income tax expense rate

 

24.3%

 

24.2%

After-tax margin

 

4.3% - 4.4%

 

4.2% - 4.4%

Medicaid

 

3%

 

3%

Medicare

 

7%

 

7%

Marketplace

 

11%

 

11%

__________________

(1) All amounts are rounded and approximations.
(2) See reconciliation of non-GAAP financial measures at the end of this release.
 
 

Conference Call

Management will host a conference call and webcast to discuss Molina Healthcare’s third quarter 2019 results at 8:00 a.m. Eastern time on Wednesday, October 30, 2019. The number to call for the interactive teleconference is (877) 883-0383 and the confirmation number is 5680857. A telephonic replay of the conference call will be available through Wednesday, November 6, 2019, by dialing (877) 344-7529 and entering confirmation number 10135133. A live audio broadcast of this conference call will be available on Molina Healthcare’s website, molinahealthcare.com. A 30‑day online replay will be available approximately an hour following the conclusion of the live broadcast.

About Molina Healthcare

Molina Healthcare, Inc., a FORTUNE 500 company, provides managed healthcare services under the Medicaid and Medicare programs and through the state insurance marketplaces. Through its locally operated health plans, Molina Healthcare served approximately 3.3 million members as of September 30, 2019. For more information about Molina Healthcare, please visit molinahealthcare.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This earnings release contains forward-looking statements regarding the Company’s revised 2019 guidance, as well as its plans, expectations, and anticipated future events. Actual results could differ materially due to numerous known and unknown risks and uncertainties. Those risks and uncertainties are discussed in the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, and the section entitled “Forward-Looking Statements” in the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019.

These reports can be accessed under the investor relations tab of the Company’s website or on the SEC’s website at sec.gov. Given these risks and uncertainties, the Company can give no assurances that its forward-looking statements will prove to be accurate, or that any other results or events projected or contemplated by its forward-looking statements will in fact occur, and the Company cautions investors not to place undue reliance on these statements. All forward-looking statements in this release represent the Company’s judgment as of October 29, 2019, and, except as otherwise required by law, the Company disclaims any obligation to update any forward-looking statements to conform the statement to actual results or changes in its expectations.

 
 
 

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

 

 

Three Months Ended

 

Nine Months Ended

 

September 30,

 

September 30,

 

2019

 

2018

 

2019

 

2018

 

(In millions, except per-share amounts)

Revenue:

 

 

 

 

 

 

 

Premium revenue

$

4,084

 

 

$

4,337

 

 

$

12,085

 

 

$

13,174

 

Premium tax revenue

119

 

 

110

 

 

367

 

 

320

 

Health insurer fees reimbursed

 

 

83

 

 

 

 

248

 

Service revenue

 

 

130

 

 

 

 

391

 

Investment income and other revenue

40

 

 

37

 

 

103

 

 

93

 

Total revenue

4,243

 

 

4,697

 

 

12,555

 

 

14,226

 

Operating expenses:

 

 

 

 

 

 

 

Medical care costs

3,523

 

 

3,790

 

 

10,360

 

 

11,362

 

General and administrative expenses

323

 

 

311

 

 

953

 

 

998

 

Premium tax expenses

119

 

 

110

 

 

367

 

 

320

 

Health insurer fees

 

 

87

 

 

 

 

261

 

Depreciation and amortization

21

 

 

25

 

 

68

 

 

76

 

Restructuring costs

 

 

5

 

 

5

 

 

38

 

Cost of service revenue

 

 

111

 

 

 

 

349

 

Total operating expenses

3,986

 

 

4,439

 

 

11,753

 

 

13,404

 

Gain on sale of subsidiary

 

 

37

 

 

 

 

37

 

Operating income

257

 

 

295

 

 

802

 

 

859

 

Other expenses, net:

 

 

 

 

 

 

 

Interest expense

22

 

 

26

 

 

67

 

 

91

 

Other expenses (income), net

2

 

 

10

 

 

(15

)

 

25

 

Total other expenses, net

24

 

 

36

 

 

52

 

 

116

 

Income before income tax expense

233

 

 

259

 

 

750

 

 

743

 

Income tax expense

58

 

 

62

 

 

181

 

 

237

 

Net income

$

175

 

 

$

197

 

 

$

569

 

 

$

506

 

 

 

 

 

 

 

 

 

Net income per share, diluted

$

2.75

 

 

$

2.90

 

 

$

8.80

 

 

$

7.60

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

63.6

 

 

67.9

 

 

64.6

 

 

66.6

 

 

 

 

 

 

 

 

 

Operating Statistics:

 

 

 

 

 

 

 

Medical care ratio

86.3

%

 

87.4

%

 

85.7

%

 

86.2

%

G&A ratio

7.6

%

 

6.6

%

 

7.6

%

 

7.0

%

Premium tax ratio

2.8

%

 

2.5

%

 

2.9

%

 

2.4

%

Effective income tax rate

24.7

%

 

24.0

%

 

24.1

%

 

31.9

%

After-tax margin

4.1

%

 

4.2

%

 

4.5

%

 

3.6

%

Medicaid

3.4

%

 

2.8

%

 

3.1

%

 

2.0

%

Medicare

6.4

%

 

1.4

%

 

7.0

%

 

3.7

%

Marketplace

8.1

%

 

15.3

%

 

11.9

%

 

16.7

%

 
 
 
 

CONSOLIDATED BALANCE SHEETS

 

September 30,

 

December 31,

 

2019

 

2018

 

Unaudited

 

 

 

(Dollars in millions,
except per-share amounts)

ASSETS

Current assets:

 

 

 

Cash and cash equivalents

$

2,679

 

 

$

2,826

 

Investments

1,757

 

 

1,681

 

Receivables

1,280

 

 

1,330

 

Prepaid expenses and other current assets

140

 

 

149

 

Derivative asset

21

 

 

476

 

Total current assets

5,877

 

 

6,462

 

Property, equipment, and capitalized software, net

379

 

 

241

 

Goodwill and intangible assets, net

176

 

 

190

 

Restricted investments

79

 

 

120

 

Deferred income taxes

82

 

 

117

 

Other assets

108

 

 

24

 

 

$

6,701

 

 

$

7,154

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

 

 

 

Medical claims and benefits payable

$

1,975

 

 

$

1,961

 

Amounts due government agencies

612

 

 

967

 

Accounts payable and accrued liabilities

478

 

 

390

 

Deferred revenue

207

 

 

211

 

Current portion of long-term debt

15

 

 

241

 

Derivative liability

21

 

 

476

 

Total current liabilities

3,308

 

 

4,246

 

Long-term debt

1,239

 

 

1,020

 

Finance lease liabilities

233

 

 

197

 

Other long-term liabilities

90

 

 

44

 

Total liabilities

4,870

 

 

5,507

 

Stockholders’ equity:

 

 

 

Common stock, $0.001 par value, 150 million shares authorized; outstanding: 63 million shares at September 30, 2019 and 62 million shares at December 31, 2018

 

 

 

Preferred stock, $0.001 par value; 20 million shares authorized, no shares issued and outstanding

 

 

 

Additional paid-in capital

160

 

 

643

 

Accumulated other comprehensive income (loss)

5

 

 

(8

)

Retained earnings

1,666

 

 

1,012

 

Total stockholders’ equity

1,831

 

 

1,647

 

 

$

6,701

 

 

$

7,154

 

 

 
 
 
 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

Three Months Ended

 

Nine Months Ended

 

September 30,

 

September 30,

 

2019

 

2018

 

2019

 

2018

 

(In millions)

Operating activities:

 

 

 

 

 

 

 

Net income

$

175

 

 

$

197

 

 

$

569

 

 

$

506

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

21

 

 

31

 

 

68

 

 

104

 

Deferred income taxes

(12

)

 

(26

)

 

7

 

 

(32

)

Share-based compensation

10

 

 

7

 

 

29

 

 

20

 

Amortization of convertible senior notes and finance lease liabilities

1

 

 

5

 

 

5

 

 

18

 

Loss (gain) on debt repayment

2

 

 

10

 

 

(15

)

 

25

 

Gain on sale of subsidiary

 

 

(37

)

 

 

 

(37

)

Non-cash restructuring costs

 

 

 

 

 

 

17

 

Other, net

(8

)

 

2

 

 

(5

)

 

6

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Receivables

(41

)

 

(192

)

 

50

 

 

(507

)

Prepaid expenses and other current assets

(24

)

 

64

 

 

(6

)

 

(117

)

Medical claims and benefits payable

208

 

 

123

 

 

14

 

 

(144

)

Amounts due government agencies

(372

)

 

(716

)

 

(355

)

 

(511

)

Accounts payable and accrued liabilities

98

 

 

49

 

 

37

 

 

398

 

Deferred revenue

177

 

 

(13

)

 

(4

)

 

(55

)

Income taxes

7

 

 

(9

)

 

4

 

 

118

 

Net cash provided by (used in) operating activities

242

 

 

(505

)

 

398

 

 

(191

)

Investing activities:

 

 

 

 

 

 

 

Purchases of investments

(776

)

 

(288

)

 

(1,938

)

 

(1,202

)

Proceeds from sales and maturities of investments

1,099

 

 

735

 

 

1,890

 

 

2,070

 

Purchases of property, equipment, and capitalized software

(10

)

 

(10

)

 

(30

)

 

(24

)

Other, net

 

 

(14

)

 

(2

)

 

(23

)

Net cash provided by (used in) investing activities

313

 

 

423

 

 

(80

)

 

821

 

Financing activities:

 

 

 

 

 

 

 

Repayment of principal amount of 1.125% Convertible Notes

(55

)

 

(140

)

 

(240

)

 

(236

)

Cash paid for partial settlement of 1.125% Conversion Option

(105

)

 

(343

)

 

(578

)

 

(477

)

Cash received for partial termination of 1.125% Call Option

105

 

 

343

 

 

578

 

 

477

 

Cash paid for partial termination of 1.125% Warrants

(90

)

 

(306

)

 

(514

)

 

(419

)

Proceeds from borrowings under Term Loan Facility

 

 

 

 

220

 

 

 

Repayment of Credit Facility

 

 

 

 

 

 

(300

)

Repayment of 1.625% Convertible Notes

 

 

(64

)

 

 

 

(64

)

Other, net

(3

)

 

1

 

 

24

 

 

7

 

Net cash used in financing activities

(148

)

 

(509

)

 

(510

)

 

(1,012

)

Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents

407

 

 

(591

)

 

(192

)

 

(382

)

Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period

2,327

 

 

3,499

 

 

2,926

 

 

3,290

 

Cash, cash equivalents, and restricted cash and cash equivalents at end of period

$

2,734

 

 

$

2,908

 

 

$

2,734

 

 

$

2,908

 

 

...
 
 
 
 

HEALTH PLANS SEGMENT MEMBERSHIP

 

 

September 30,

2019

 

December 31,

2018

 

September 30,

2018

Ending Membership by Government Program:

 

 

 

 

 

TANF and CHIP

1,993,000

 

 

2,295,000

 

 

2,436,000

 

Medicaid Expansion

598,000

 

 

660,000

 

 

664,000

 

ABD

364,000

 

 

406,000

 

 

415,000

 

Total Medicaid

2,955,000

 

 

3,361,000

 

 

3,515,000

 

MMP - Integrated

58,000

 

 

54,000

 

 

55,000

 

Medicare Special Needs Plans

44,000

 

 

44,000

 

 

45,000

 

Total Medicare

102,000

 

 

98,000

 

 

100,000

 

Total Medicaid and Medicare

3,057,000

 

 

3,459,000

 

 

3,615,000

 

Marketplace

289,000

 

 

362,000

 

 

384,000

 

 

3,346,000

 

 

3,821,000

 

 

3,999,000

 

 

 

 

 

 

 

Ending Membership by Health Plan:

 

 

 

 

 

California

580,000

 

 

608,000

 

 

623,000

 

Florida (1)