Investor Day 2013A February 21, 2013 New York, New York Exhibit 99.2 |
Cautionary Statement Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: presentation and our accompanying oral remarks contain numerous “forward looking statements” regarding, without limitation: our short-term and long-term revenue, membership, and profitability growth projections; market opportunities across all of our health plans related to dually eligible members, to the Affordable Care Act Medicaid expansion, and to the insurance exchanges or marketplaces; the New Mexico Centennial Care program and the Florida Long Term Care program; duals and ABD opportunities in Illinois; our capital requirements and potential financing sources; benefit expansions in California and Utah; rate changes expected in 2013; our 2013 financial guidance; and various other matters. All of our forward-looking statements are subject to numerous risks, uncertainties, and other factors that could cause our actual results to differ materially. Anyone viewing or listening to this presentation is urged to read the risk factors and cautionary statements found under Item 1A in our annual report on Form 10-K, as well as the risk factors and cautionary statements in our quarterly reports and in our other reports and filings with the Securities and Exchange Commission and available for viewing on its website at www.sec.gov. Except to the extent otherwise required by federal securities laws, we do not undertake to address or update forward-looking statements in future filings or communications regarding our business or operating results. © 2013 Molina Healthcare, Inc. This slide 2 |
3 © 2013 Molina Healthcare, Inc. Today Approx. Time Topic Speaker 3 © 2013 Molina Healthcare, Inc. Juan José Orellana, VP Investor Relations Opening Remarks 12:30pm-12:35pm 1:45pm-2:00pm 12:35pm-1:10pm 1:10pm-1:45pm 2:00pm-2:15pm 2:15pm-2:45pm 2:45pm-3:05pm 3:05pm-3:50pm 3:50pm-4:30pm 4:30pm Business Overview Operations Review Q&A Break Financial Discussion Q&A Financial Discussion Q&A End of Program Dr. J. Mario Molina, Chief Executive Officer Terry Bayer, Chief Operating Officer Joseph White, Chief Accounting Officer John Molina, Chief Financial Officer |
Business Overview J. Mario Molina, M.D. President & Chief Executive Officer February 21, 2013 New York, New York |
Our Mission To provide quality health services to financially vulnerable families and individuals covered by government programs. 5 © 2013 Molina Healthcare, Inc. |
Strategic Intent Our goal over the next three years is to increase the annual revenue of the company from $6 billion to $12 billion, while increasing profitability and establishing a reputation as the premier health care organization serving low-income persons served by government programs. 6 © 2013 Molina Healthcare, Inc. |
Non-risk fee based fiscal agent services, business process outsourcing, and care and utilization management. What Makes Us Unique Risk-based health plan outsourcing for Medicaid and other government programs. We are a multistate healthcare organization with broad capabilities focused exclusively on government-sponsored healthcare programs for low income individuals and families. Company owned or company operated primary care community clinics. Managed Care Health Plans Medicaid Health Information Mgmt. Healthcare Direct 7 © 2013 Molina Healthcare, Inc. No other company in the Medicaid space can do all three |
1.8 million members Our Markets (4Q2012) Business Snapshot Californ ia 336 k (18 clinics) New Mexico 91k (2 clinics) Wiscons in 46k Michiga n 220 k Florida 73k (2 clinics) Idaho MMI S Utah 87k Washing ton 418 k (2 clinics) Texas 282 k W Virginia MMIS Ohio 244 k Louisiana MMIS Maine MMI S New Jersey MMIS Virgini a Direct Delive ry (3 clinics) 75% TANF 15% ABD 8% CHIP 2% Medicare Membership Profile 8 © 2013 Molina Healthcare, Inc. |
Strategic decision to focus exclusively on government programs Capabilities in managed care, fiscal agent and direct delivery Diversification: balance between mature and expanding markets Market presence in key Medicaid markets Management continuity Main Elements of our Business Model 9 © 2013 Molina Healthcare, Inc. |
Managed through difficult operating environment in California, Texas, and Wisconsin Revenues grew by $1.3 billion Enrollment grew by an additional 100,000 Successful in Medicaid contract bids in Ohio and Washington Selected for Medicare Medicaid Plan (duals) contracts in California, Ohio, and Illinois Earned CMS certification for MMIS system in Idaho 2012 Performance Summary 10 © 2013 Molina Healthcare, Inc. |
State finances in fiscal 2013 are modestly recovering in step with the slowly improving national economy. MCOs are becoming increasingly focused on vertical integration with providers. Robust pipeline as States expand service areas, increase eligibility groups, and increasingly turn over the most costly members to managed care. Medicaid and government focused businesses are highly valued for their growth potential. Bad for investment income, good for borrowing. Affordable Care Act Expansion of Medicaid in several states represents a strong tailwind for pure-play Medicaid competitors. Growth in the Medicaid addressable market and greater adoption of Medicaid managed care Business Environment & State of the Industry Direct Delivery Competition Low Interest Rates State Fiscal Conditions Medicaid & Dual Eligible RFPs photo: sacbee.com photo: cnn.com 11 © 2013 Molina Healthcare, Inc. |
12 © 2013 Molina Healthcare, Inc. 1. Mature Markets: high managed care penetration, TANF Examples: California Michigan Management Priorities: Actively manage margins Efficiently gain market share Administrative cost efficiency 2. Expanding Markets: new regions, for existing products Examples: Texas Washington Management Priorities: Gain profitable market share Network re-contracting Leverage existing infrastructure 3. New Market/New Products: duals, marketplaces, carve- ins Examples: California Illinois New Mexico Management Priorities: Invest in support infrastructure Build/Buy domain experience Three environmental factors have converged, each requiring different management priorities. Business Environment and State of the Industry |
13 © 2013 Molina Healthcare, Inc. States are exhibiting new programmatic purchasing trends State Customer Purchasing Trends Inclusion or exclusion of separate specific services from a general Medicaid contract Carve-Ins & Carve Outs Care Management Required care management programs based on nationally recognized and accepted evidence-based clinical protocols Complex Patients Financial Measures Focus on Quality Migration of higher cost patients such as the duals into managed care Increasing the use of financial measures such as MCR floors, profit limits, P4P programs Greater focus on quality measured by NCQA accreditation, Star ratings, HEDIS, CAPHS |
14 © 2013 Molina Healthcare, Inc. Listening to Our State Customers TX CA OH OH IL NM FL RFP Award Date 8/2011 4/2012 6/2012 8/2012 11/2012 2/2013 2/2013 Program Type Star Star+ PLUS CHIP Duals TANF ABD Duals Duals ABD TANF ABD LTC LTC Total Covered Population 3.4M 122K 1.6M 48K 38K 735K 35K Effective Date 3/2012 6/2013 7/2013 9/2013 Summer 2013 (ABD) Winter 2013 (Duals) 1/2014 12/2013 State contract wins (trailing 18 months) |
15 © 2013 Molina Healthcare, Inc. Estimated potential revenue run-rate by 2015 as a result of duals and Medicaid expansion Please refer to the Company’s cautionary statements. Long Term Incremental Growth Drivers Duals 1 Current Health Plan Business ~$6B ~$4B ACA 2 ~$12B Total 1. Duals denotes revenue potential for dual eligibles in CA, MI, OH, IL, WA and TX. 2. ACA denotes revenue potential as a result of Medicaid expansion in CA, MI, OH, NM, UT, WA, WI; and exchanges in CA, FL, MI, NM, OH, TX, UT, WA, WI. ~$2B 2012 2015 |
© 2013 Molina Healthcare, Inc. Medicaid & CHIP Marketplaces Employer Non-group & Other Uninsured Estimated Changes in Insurance Coverage by 2022* 1 2 March 2012 Baseline July 2012 Estimate Incorporating SCOTUS Decision on ACA February 2013 Estimate Update U.S. Medicaid Coverage Estimates 17M 22M (3M) (3M)(3M) (33M) 11M 25M (4M) (30M) 12M 26M (7M) (4M) (27M) 16 * Source: Congressional Budget Office, “Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision.” July 2012. 1. The change in employment-based coverage is the net result of increases in cost and losses of offers of health insurance from employers and changes in enrollment by workers and their families. 2. Other includes Medicare; the effects of the ACA are almost entirely on non-group coverage . |
© 2013 Molina Healthcare, Inc. Medicaid Expansion Where States Stand on Medicaid Expansion as of February 2013 2 Participating Leaning Toward Participating Undecided/No Comment Leaning Toward Not Participating CA OR WA ID NV UT CO NM AR MT WY ND SD NE KS OK TX MN WI IA IL MO MI LA AR MS AL GA FL TN KY IN OH PA NY ME SC NC VA WV DE MD DC VT NH MA RI CT Not Participating HI AK Federal Government Will Bear Nearly All Medicaid Expansion Costs Over 2014-2022 1 States’ Share $73 billion (7%) Source(s): 1. Center on Budget and Policy Priorities analysis of the Congressional Budget Office March 2012 baseline. www.Cbpp.org 2. http://www.advisory.com/Daily-Briefing/2012/11/09/MedicaidMap 17 NJ © 2013 Molina Healthcare, Inc. Federal Share $931 billion (93%) |
18 © 2013 Molina Healthcare, Inc. Molina Healthcare will pursue entry into the health insurance marketplaces in states where it currently has Medicaid managed care contracts. Requirement: State offers government- subsidized products for low-income persons(<250% of FPL) consistent with our mission. Be a partner with our state customers as they manage the impact of the transition point Extend our services to the low–income uninsured who share many characteristics with our low income population 134% - 250% (Health Insurance Marketplace) 0 – 133% FPL (Medicaid/CHIP) Molina’s Participation in Health Insurance Marketplaces |
19 © 2013 Molina Healthcare, Inc. Membership by Product 2012 TANF/CHIP 83% ABD & Medicare 17% Membership by Product 2008 TANF/CHIP 92% ABD & Medicare 8% 1.3 Million Members 1.8 Million Members Molina Has Experience With Complex Patients Molina has added 173,000 Aged, Blind or Disabled members since 2008 |
Molina Market Infrastructure CA OH MI TX WA Mature Provider Network State Government Program TANF, ABD, CHIP TANF, ABD TANF, ABD, CHIP TANF, ABD, CHIP TANF, ABD, CHIP Federal Program (Medicare SNP) Direct Delivery Presence - - - Existing Infrastructure Will Support Dual Eligible Patients 20 © 2013 Molina Healthcare, Inc. |
21 © 2013 Molina Healthcare, Inc. Pricing & Savings Targets for Duals CMS Rate Setting Process Guidance Sample Aggregate Savings Targets Under the Demonstrations 1. CMS Joint Rate Setting Process Under the Capitated Financial Alignment Initiative 2. Memorandum of Understanding (MOU) between CMS and the State of Ohio 3. Memorandum of Understanding (MOU) between CMS and the State of Massachusetts Massachusetts Not a Molina State MOU released August 2012 Ohio Molina Selected for 3 Regions MOU released December 2012 Savings targets may differ among States with low historic Medicare spending, low utilization of institutional long-term care services, or a high penetration of Medicaid managed care. Savings percentages will be applied equally to the Medicaid and Medicare A/B components. Rate updates will take place on January 1st of each calendar year. 2, 3 3 2 1 |
Tailwinds & Headwinds Medicaid expansion Tailwinds Footprint includes 4 out 5 largest Medicaid Markets Uniquely positioned to capture dual eligible enrollment Delayed State implementations Headwinds Industry tax Medical cost pressure associated with new contracts/populations © 2013 Molina Healthcare, Inc. 22 |
23 © 2013 Molina Healthcare, Inc. Mission Priorities Manage our growth Organic growth Medicaid expansion Dual eligible population RFPs Leverage our business portfolio Health plan business MMS Direct delivery Strive for operational excellence Quality Care Star Ratings Our Strategic Priorities Our mission is to provide quality health services to financially vulnerable families and individuals covered by government programs. Margin Expansion |
Operations Review Terry Bayer Chief Operations Officer February 21, 2013 New York, New York |
25 © 2013 Molina Healthcare, Inc. Historical Revenue 2008-2012 Percent represents year over year increase (decrease) Revenue Total revenue up 26% over 2011 |
26 © 2013 Molina Healthcare, Inc. +16% +11% +5% +6% Historical EOY Membership 2008-2012 Percent represents year over year increase (decrease) Membership Aggregate membership up 6% over 2011 1,256K 1,455K 1,613K 1,697K 1,797K 2008 2009 2010 2011 2012 |
27 © 2013 Molina Healthcare, Inc. Quarterly MCR* 2011-2012 (2012 YE MCR 89.9%) * Figures reflect medical care ratio net of premium tax Quarterly Medical Care Ratio 2011-2012 Second Half 2012 improvement in MCR |
28 California Premium rate increase for the ABD population Approximately 2% rate increase retroactive to July 1, 2011 Decrease in inpatient utilization California MCR* FY2012 * MCR net of premium tax © 2013 Molina Healthcare, Inc. |
29 © 2013 Molina Healthcare, Inc. Texas Effective March 1, 2012, Molina added three new service areas in Texas. Medical care costs particularly among ABD patients in Hidalgo and El Paso service area increased dramatically. Remediation activities: New President & Management Team Provider contract changes – Re-contracted at lower unit costs – Implementation of state required fee schedules – Utilization management Blended rate increase of 4% effective 9/1/2012 Molina Healthcare of Texas Adjusted Quarterly Medical Care Ratio 2012 1. Adjusted medical care ratio is estimated based upon retroactive adjustments to revenue and medical cost for all quarters in 2012 Added new service areas 3/1/2012 Molina Healthcare of Texas Historical Enrollment Growth 2008-2012 29 © 2013 Molina Healthcare, Inc. 1 |
30 © 2013 Molina Healthcare, Inc. Molina Selected To Expand Statewide in Ohio In Q3 2013 Molina Healthcare will expand into 38 new counties. * OH Molina members as of December 31, 2012 Ohio MCR 2008-2009 * MCR net of premium tax 2013 Expansion counties Current service area 96% 92% 86% 84% 89% New Molina Statewide Service Area 1.6M eligibles (TANF+ABD) 2008 2009 2010 2011 2012 Source: Ohio Department of Job and Family Services http://jfs.ohio.gov/rfp/JFSR1213078019/JFSR1213078019.stm http://jfs.ohio.gov/ohp/bmhc/documents/reports/December2011 _CFC_Penetration-Enrollment.pdf |
31 © 2013 Molina Healthcare, Inc. Dayton Columbus Molina Selected To Serve Dual Eligibles in Ohio Molina Healthcare will also participate in the 3-year dual eligibles demonstration program in the Southwest, West Central, and Central regions. Implementation is expected late 2013. New Molina Integrated Care Coordination Program Regions 45K Dual Eligible beneficiaries West Central Region 12k Eligibles Central Region 16k Eligibles South West Region 17k Eligibles Cincinnati Source: Ohio Department of Job and Family Services http://jfs.ohio.gov/rfp/JFSR1213078019/JFSR1213078019.stm http://jfs.ohio.gov/ohp/bmhc/documents/reports/December2011_CFC_Penetration- Enrollment.pdf |
32 © 2013 Molina Healthcare, Inc. Molina Selected for Centennial Care Contract in New Mexico Molina will expand arranging for services beyond physical and acute care by including behavioral health and long term care, which were previously procured as separate contracts Approximately 735,000 beneficiaries ¹ 560,000 current Medicaid beneficiaries Up to 175,000 individuals starting in 2014 (ACA) Number of health plans reduced from 6 to 4 Effective January 1, 2014 In 2012, Molina’s contract in New Mexico covered 90,000 New Mexicans and generated $331 Million in premium revenues. Molina Healthcare of New Mexico selected to participate in the State’s Centennial Care plan (February 8, 2013) 1. Centennial Care: Ensuring Care for New Mexicans for the Next 100 Years and Beyond; New Mexico Human Services Department; February 21, 2012 |
33 © 2013 Molina Healthcare, Inc. New Opportunities in Florida – Long Term Care Program Molina will provide services to patients through the Florida Statewide Medicaid Managed Care Long-Term Care (SMMC LTC) program Regions awarded include Regions 5, 6 and 11 No change to price submission Approximately 35,000 eligible members Effective December 1, 2013 Molina Healthcare of Florida selected to provide health care services to Long-Term Care patients (February 14, 2013) 1 1. Regions encompass Pasco, Pinellas, Hillsborough, Polk, Manatee, Hardee, Highland, Miami-Dade, and Monroe counties |
34 Historical IL Medicaid Enrollees FY2006-2010 Illinois ranks as the 4 th largest Medicaid market by number of eligibles Managed care penetration is less than 10%, at least 50% of eligibles will be transitioned to managed care by 2015. $ figures represent yearly Medicaid payments © 2013 Molina Healthcare, Inc. Why the Illinois Market? Source: http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-State/illinois.html |
35 The Illinois Duals Opportunity The Illinois Medicare-Medicaid Alignment Initiative (MMAI) is expected to begin passive enrollment on 10/2013, with an effective date of 1/2014. © 2013 Molina Healthcare, Inc. |
36 © 2013 Molina Healthcare, Inc. The Illinois ABD Opportunity Springfield Decatur Bloomington Peoria Central Illinois 15 Counties 13k Eligibles East St. Louis 3 Counties 7k Eligibles Chicago Illinois ABD for Central Illinois is expected to begin 6/2013 and East St. Louis in 7/2013. 36 © 2013 Molina Healthcare, Inc. |
37 © 2013 Molina Healthcare, Inc. Duals – What Are We Doing to Get Ready? Dual Eligible Readiness Review Areas of Focus Staffing capacity and organizational structure Provider and pharmacy networks Systems: Claims, Enrollment, Payment, etc. Person-first services: UM/Care Coordination Performance and Quality Improvement Member Protections 37 © 2013 Molina Healthcare, Inc. |
38 © 2013 Molina Healthcare, Inc. Duals – Model of Care Integrated LTSS/Acute And Rx Care Transition Programs Measuring Improvements Individualized Care Plans Medication Reviews and Medication Therapy Mgmt. Interdisciplinary Care Teams Health Risk Assessments Care Management 38 © 2013 Molina Healthcare, Inc. |
39 © 2013 Molina Healthcare, Inc. Q&A |
2012 Results John Molina, Chief Financial Officer February 21, 2013 New York, New York |
© 2013 Molina Healthcare, Inc. Quarterly Results Premium Revenue Premium Tax Revenue Service Revenue Investment and Rental Income Medical Care Costs Medical Care Ratio 2 Service Costs G&A Expense G&A Ratio 3 Premium Tax Expense Depreciation & Amortization Operating Income Interest Expense Income Tax Net Income Diluted EPS Weighted Average Diluted Shares Outstanding $1.5B $38.0M $55.4M $5.2M $1.3B 85.9 % $43.1M $153.4M 9.7 % $38.0M $16.3M $54.1M $4.3M $24.5M $25.6M $0.54 47.1M $1.2B $44.0M $49.2M $2.2M $1.0B 85.7 % $39.0M $125.0M 9.6 % $44.0M $12.1M ($16.1M) $3.9M $13.0M ($33.0M) ($0.72) 45.7M Q4 2012 Q4 2011 1 41 1. Results for the quarter ended December 31, 2011 were affected by an impairment charge of $64.6 million related to the Company’s Missouri health plan. 2. Medical care ratio represents medical care costs as a percentage of premium revenue, net of premium taxes. 3. Computed as a percentage of total revenue. |
© 2013 Molina Healthcare, Inc. Year End Results Premium Revenue Premium Tax Revenue Service Revenue Investment and Rental Income Medical Care Costs Medical Care Ratio 2 Service Costs G&A Expense G&A Ratio 3 Premium Tax Expense Depreciation & Amortization Operating Income Interest Expense Income Tax Net Income Diluted EPS Weighted Average Diluted Shares Outstanding $5.7B $159.0M $187.7M $14.6M $5.1B 89.9 % $141.2M $532.6M 8.8 % $159.0M $63.7M $35.5M $16.8M $9.3M $9.8M $0.21 47.0M $4.4B $154.6M $160.4M $6.0M $3.9B 86.8 % $144.0M $415.9M 8.7 % $154.6M $50.7M $80.2M $15.5M $43.8M $20.8 $0.45 46.4M 2012 2011 1 42 1. Results for the year ended December 31, 2011 were affected by an impairment charge of $64.6 million related to the Company’s Missouri health plan. 2. Medical care ratio represents medical care costs as a percentage of premium revenue, net of premium taxes. 3. Computed as a percentage of total revenue. |
Earnings Margin 2006-2012 EBITDA Margin H1N1 Flu Excluding Texas and Missouri After Tax Margin Excluding Missouri write-down TX & OH Startup H1N1 Flu Excluding Texas and Missouri Excluding Missouri write-down TX & OH Startup 1. P denotes results excluding Missouri write-down in 2011, and Texas and Missouri operations in 2012 43 © 2013 Molina Healthcare, Inc. |
Long-Term Growth Update John Molina, Chief Financial Officer February 21, 2013 New York, New York |
© 2013 Molina Healthcare, Inc. Estimated potential revenue run-rate by 2015 as a result of duals and Medicaid expansion Please refer to the Company’s cautionary statements. Long Term Incremental Growth Drivers Duals ¹ Current Health Plan Business ~$6B ~$4B ACA ~$12B Total 1. Duals denotes revenue potential for dual eligibles in CA, MI, OH, IL, WA and TX. 2. ACA denotes revenue potential as a result of Medicaid expansion in CA, MI, OH, NM, UT, WA, WI; and exchanges in CA, FL, MI, NM, OH, TX, UT, WA, WI. ~$2B 2012 2015 2 45 |
46 © 2013 Molina Healthcare, Inc. Dual Eligibles Market Opportunity State Dual Eligibles Statewide Estimated Potential Enrollment 1 Estimated PMPM Revenue Annualized Potential Revenue 2 California 527K 392K 61K $2,600 $1.9B Ohio 115K 48K 24K $2,600 $0.7B Illinois 156K 18K 9K $2,600 $0.3B Michigan 4 199K 62K 31K $2,600 $1.0B Washington 4 115K 40K 20K $2,600 $0.6B Texas 4 214K 160K 80K $2,600 $2.5B Total 1.3M 720K 225K $2,600 $7.0B Potential impact of delays in implementation, reduced Molina market share or reductions in covered individuals Estimated Total Revenue $4.0B Please refer to the Company’s cautionary statements. 3 3 Dual Eligibles in Molina Service Areas ($3.0B) Source: Company estimates, figures may not add due to rounding. 1) Based on 50% market share in Molina Service areas and counties in Ohio, Illinois, Michigan, Texas and Washington. In California assumes 50% market share in San Diego, Riverside and San Bernardino markets. Membership projections exclude LA county 2) Assumes a $2,600 premium based on Ohio Medicaid dual eligibles premiums, estimated Medicare premiums and assumes 40% opt out of Medicare. 3) 2013 start date 4) 2014 Start date 3 |
47 © 2013 Molina Healthcare, Inc. Medicaid Expansion Opportunity State Expansion Eligibles in Medicaid Managed Care Molina’s Estimated Enrollment Estimated Premium 1 PMPM Annualized Potential Revenue California 1M 100K $155 $185M Florida not included not included not included not included Michigan 500K 100K $215 $260M New Mexico 100K 30K $310 $110M Ohio 500K 145K $375 $650M Texas not included not included not included not included Utah 125K 40K $240 $115M Washington 250K 125K $230 $345M Wisconsin 125K 15K $130 $20M Total 2.6M 555K - $ 1.7B Please refer to the Company’s cautionary statements. Source: Company estimates, figures may not add due to rounding. 1. Based on Molina’s current TANF and ABD premium |
48 © 2013 Molina Healthcare, Inc. State Number of Marketplace Members in Molina Markets Molina’s Estimated Marketplace Enrollment Estimated Premium PMPM Annualized Potential Revenue California 1.4M 28K $136M Florida 546K 26K $400 $122M Michigan 246K 35K $400 $87M New Mexico 63K 4K $400 $19M Ohio 264K 22K $400 $106M Texas 693K 66K $400 $319M Utah 87K 5K $400 $22M Washington 266K 30K $400 $14M Wisconsin 76K 20K $400 $54M Illinois not included not included not included not included Total 3.6M 236K $0.9B Potential impact of delays in implementation, reduced Molina market share or reductions in covered individuals ($0.3B) Estimated Total Revenue $0.6B Marketplace Opportunity Source: Company estimates, figures may not add due to rounding. Please refer to the Company’s cautionary statements. $400 |
Convertible Debt Joseph White, Chief Accounting Officer February 21, 2013 New York, New York |
© 2013 Molina Healthcare, Inc. $550M Convertible Debt Offering Please refer to the Company’s cautionary statements. Convertible Debt $550M Pay Down Revolver ($40M) Pay Down Existing Notes ($187M) Share Repurchase ($50M) Call Spread ($74M) Fees ($17M) Balance from Proceeds $182M Sources and Uses $550M Convertible Debt Underlying shares (13.5 million) 1.125% coupon ($ 0.07 2013 EPS) 32.5% conversion ($40.77 per share) 75.0% high call ($53.85 per share) Cash Settle Maturity 1/15/2020 GAAP interest rate 6% ($0.21 2013 EPS related to non cash interest expense) $550,000,000 February 2013 1.125% Convertible Senior Notes due 2020 Interest payable January 15 and July 15 50 |
© 2013 Molina Healthcare, Inc. Why a Convert? Financing Considerations High Yield Debt Convertible Debt Equity Coupon High Low None Dilution None Limited High Speed of execution Slow Fast Moderate $550,000,000 February 2013 1.125% Convertible Senior Notes due 2020 Interest payable January 15 and July 15 51 |
52 © 2013 Molina Healthcare, Inc. MOH Convertible Note A. We have issued debt with a 1.125% coupon B. We will pay additional cash if our share price exceeds $40.77 (on 13.5 million shares) C. We have bought a bond hedge requiring counter parties to pay us the amount we pay to the note holders in B above D. We must issue shares to the bond hedge counter parties to make them whole above a share price of $53.85 What Have We Done? Convert – Key Share Prices Share Price Close 2/11/2013 Convertible Price/Low Strike Convertible Price/High Strike $30.77 $40.77 $53.85 32.5% 75% |
53 © 2013 Molina Healthcare, Inc. MOH Convertible Note Settlement Note Holders 53 © 2013 Molina Healthcare, Inc. Underlying Shares - 13.5 million Conversion price (low strike) - $40.77 High Strike - $53.85 Example : Share Price < $40.77 At Maturity Share Price Conversion Price $550M Principal Payment |
MOH Convertible Note Settlement Note Holders Bond Hedge Counter Parties * 13.5 million underlying shares x $5 per share ($45.77 market price less $40.77 conversion/low strike) At Maturity Share Price Conversion Price but High Strike Example : Share Price $45.77 ($5 above low strike) Underlying Shares - 13.5 million Conversion price (low strike) - $40.77 High Strike - $53.85 $550M Principal Payment $67.5M* + Conversion Premium $67.5M* Bond Hedge (Cash Settlement) Settlement © 2013 Molina Healthcare, Inc. 54 |
55 © 2013 Molina Healthcare, Inc. MOH Convertible Note Settlement Note Holders Bond Hedge Counter Parties *13.5 million underlying shares x $18.08 per share ($58.85 market price less $40.77 conversion/low strike) ** $67.5 million (13.5 million underlying shares x $5 per share( $58.85 market price less $53.75 high strike price) divided by market price ($58.85) 55 © 2013 Molina Healthcare, Inc. Underlying Shares - 13.5 million Conversion price (low strike) - $40.77 High Strike - $53.85 Example : Share Price $58.85 ($5 above high strike) At Maturity $550M Principal Payment + $244M* Conversion Premium (Cash Settlement) $244M* Bond Hedge Settlement 1.15M Shares MOH Common Stock** Share Price High Strike |
56 © 2013 Molina Healthcare, Inc. <$40.77 >$53.85 MOH Convertible Note Settlement MOH share price $40.77 $40.77 MOH Share Price $53.85 MOH Share Price $53.85 Pay Principal + Cash Value of Shares greater than $40.77 Settle hedge; receive cash value of share price in excess of $40.77 Issue shares at $53.85 Pay Principal + + Cash Value of Shares greater than $40.77 Settle hedge; receive cash value of share price in excess of $40.77 No Action Pay principal Note Bond Hedge Warrant No Action No Action |
57 © 2013 Molina Healthcare, Inc. Value of convertible debt at date of issuance (with both debt and option components) - Value of debt component at date of issuance, based on present value of cash flows = Value of option component at date of issuance GAAP requires that convertible debt be bifurcated into: A “vanilla” debt component; and a Derivative option component representing the value of the conversion feature. • For cash settled convertible debt the derivative is classified as a liability. Accounting For Convertible Debt Why 6% of interest expense for a 1.125% coupon sold at par? |
© 2013 Molina Healthcare, Inc. Accounting For Convertible Debt Why 6 % of interest expense for a 1.125% coupon sold at par? Value of convertible debt at date of issuance (with both debt and option components) - Value of debt component at date of issuance, based on present value of cash flows = Value of option component at date of issuance Value of the debt component is based on NPV of cash flows (principal plus interest) Interest rate is estimate of what Molina would pay on similar non-convertible debt The debt component is recoded on the balance sheet net of a debt discount. That discount is written off (the amount of the debt component is increased) over time by the recognition of non-cash interest expense. Non-cash interest expense will reduce EPS by an estimated $0.21 in 2013. Value of the option based derivative liability is determined by subtracting the value of the debt component from the value of the convertible at date of issuance. The derivative liability will be matched by an asset derivative representing Molina’s right to collect on the bond hedge. Both derivatives (asset + liability) will be marked to market quarterly. 58 |
Funding Our Growth John Molina, Chief Financial Officer February 21, 2013 New York, New York |
© 2013 Molina Healthcare, Inc. Capital Needs Current regulatory requirements Future (anticipated) regulatory requirements in currents and new states Capital demands on health plans in the event of losses Costs of acquisitions and other expansions Costs of MMS implementations in new and existing states Costs of infrastructure $6B Revenues are estimated to reach $12B by 2015 as a result of duals and Medicaid expansion 2012 2015 Please refer to the Company’s cautionary statements. 60 $12B |
© 2013 Molina Healthcare, Inc. Sources of Capital Current excess net worth Issuance of securities – debt equity convertible Future earnings Alternative Financing – sale and lease back capital leases structured co-insurance or structured quota share Please refer to the Company’s cautionary statements. 61 |
© 2013 Molina Healthcare, Inc. Estimated regulatory capital at 12/31/12 approximately $0.5B; compared to a requirement of approximately $0.3B. 1. Denotes estimated required regulatory capital for 12/31/12 2. Excess assumes actual regulatory capital as of 12/31/12 Regulatory Capital and Requirements $0.3B $0.2B Excess Regulatory Capital Capital 1 $0.5B Surplus regulatory capital will support $2.8B of incremental revenue $5.7B $2.8B Growth Capacity with Existing Regulatory Capital Current Revenue $8.5B Required minimum net worth on average is 7% of revenue Please refer to the Company’s cautionary statements. 62 2 Regulatory Capital Growth Capacity Required Regulatory |
© 2013 Molina Healthcare, Inc. Issuance of securities Convertible Debt……………… $550M Pay Down Revolver…….……… ($40M) Pay Down Existing Notes…….... ($187M) Share Repurchase.…………….. ($50M) Call Spread…………………….. ($74M) Fees……………………………. ($17M) Balance from Proceeds………... $182M On February 11, 2013, we issued $550M convertible notes Please refer to the Company’s cautionary statements. 63 Net proceeds from convertible debt issuance supports $2.6 billion of revenue Required minimum net worth on average is 7% of revenue |
© 2013 Molina Healthcare, Inc. Summary of Growth Capacity Current required capital $0.3B $0.2B $0.2B $0.8 - $1.1B $5.7B $2.8B $2.6B $13B - $17B Required minimum net worth on average is 7% of revenue Current excess capital Proceeds from convertible Retained earnings @ 0.5%* Retained earnings @ 1.0%* Retained earnings @ 1.5%* $0.1B $0.1B $0.1B * Retained earnings @ % of net income margin, each 0.5% equates to $0.1B Capital $2.0B $2.0B $2.0B Current Revenue Capacity Revenue capacity dependent on profitability Please refer to the Company’s cautionary statements. 64 Revenue Growth Capacity |
65 © 2013 Molina Healthcare, Inc. Alternative Financing Sale and lease back Capital leases Structured co-insurance or structured quota share Please refer to the Company’s cautionary statements. |
66 © 2013 Molina Healthcare, Inc. Why We Might Want To Raise More Capital? Acquisitions Capital expenditures Variability in profitability Timing New benefits Growth above expectations Desire for capital cushion (e.g. debt covenant and rating agencies) Regulatory capital in excess of minimum requirements Regulatory requirements in advance of premium receipts Please refer to the Company’s cautionary statements. |
© 2013 Molina Healthcare, Inc. Q&A 67 |
Guidance John Molina, Chief Financial Officer February 21, 2013 New York, New York |
© 2013 Molina Healthcare, Inc. 2013 Guidance Premium Revenue Premium Tax Revenue Service Revenue Investment and Other Income Total Revenue Medical Care Costs Medical Care Ratio Service Costs G&A Expense G&A Ratio Premium Tax Expense Depreciation & Amortization Operating Income Interest Expense Excluding Non-Cash Interest Expense Non-Cash Income Before Tax Income Tax Net Income Weighted Average Diluted Shares Outstanding Diluted EPS EBITDA 2 $6.7B $160M $200M $13M $7B $5.9B 88% $170M $600M 8.6% $160M $78M $157M $18M $24M $115M $48M $67M 46.1M $1.45 $255M Please refer to the Company’s cautionary statements. 1 69 Note(s): 1. Denotes guidance. Amounts are estimates and subject to change. Actual results may differ materially. See cautionary statement. 2. EBITDA includes approximately $20 million in depreciation and amortization recoded in service revenue and service costs related to our Molina Medical Solutions segment. |
70 © 2013 Molina Healthcare, Inc. 2013 Guidance Includes Convertible Notes Convertible Non-Cash Interest ($0.21) EPS Product and Market Expansions California & Ohio Dual Integration start up second half of year Illinois ABD and California ABD expansion start up second half of year Negligible rate increases Additional administrative costs required to prepare for growth: Ramp up for New Mexico Expansion (Implementation & Operations) Illinois ABDs (Implementation & Operations) California & Ohio Dual Integration programs (Implementation & Operations) Implementation costs for Florida LTC, Market Place, Medicaid Expansion and Duals Integration in states other than California & Ohio 42% Effective Tax Rate Anticipated Resolution of California AB 97 rate cuts Excludes Acquisitions Operational ramp up costs for Florida LTC, Market Place, Medicaid Expansion, and Duals Integration in states other than California & Ohio Rate impact of PCP parity rules Anticipated Settlement for California rate disputes Please refer to the Company’s cautionary statements. |
71 © 2013 Molina Healthcare, Inc. 2013 Guidance: Issued 2/7/13 and 2/21/13 1 Premium Revenue Premium Tax Revenue Service Revenue Investment and Other Income Total Revenue Medical Care Costs Medical Care Ratio Service Costs G&A Expense G&A Ratio Premium Tax Expense Depreciation and Amortization Operating Income Interest Expense Excluding Non-Cash Interest Expense Non-Cash Income Before Tax Income Tax Effective Tax Rate Net Income Weighted Average Diluted Shares Outstanding Diluted EPS EBITDA Issued 2/7/13 $6.7B $160M $200M $13M $7B $5.9B 88% $170M $600M 8.6% $160M $78M $146M $11M $6M $128M $54M 42% $74M 47.7M $1.55 $245M Please refer to the Company’s cautionary statements. Issued 2/21/13 $6.7B $160M $200M $13M $7B $5.9B 88% $170M $600M 8.6% $160M $78M $157M $18M $24M $115M $48M 42% $67M 46.1M $1.45 $255M Note(s): 1. Denotes guidance. Amounts are estimates and subject to change. Actual results may differ materially. See cautionary statement. 1 2 2. EBITDA includes approximately $20 million in depreciation and amortization recoded in service revenue and service costs related to our Molina Medical Solutions segment. |
72 © 2013 Molina Healthcare, Inc. Note(s): Denotes guidance. Amounts are estimates and subject to change. Actual results may differ materially. See cautionary statement. The upsizing of the Company’s convertible note offering from the $375 million anticipated at launch to the ultimate amount of $550 million resulted The upsizing of the Company’s convertible note offering from the $375 million anticipated at launch to the ultimate amount of $550 million resulted Increase in Revenue Convertible Debt Issuance: Convertible Coupon Interest 2 Convertible Non-Cash Interest 3 Incremental Interest Income (assumes 40bps investment income ) Other Fees and Costs Impact of Share Buy Back Subtotal - Impact of Convertible Debt Issuance 2013 Guidance Issued 2/7/13 Revised 2013 Guidance Pretax 1 EPS 1 $10.4M ($5.4M) ($17.0M) $1.2M ($1.6M) - ($22.8M) $128M $115M $1.55 $1.45 $0.13 ($0.07) ($0.21) $0.02 ($0.02) $0.06 ($0.23) Total Change ($12.4M) ($0.10) Add: Non-Cash Interest Expense related to New Convertible Debt $17M $0.21 Guidance excluding New Convertible Debt Non Cash Interest $132M $1.66 Please refer to the Company’s cautionary statements. Guidance Bridge* 1. 2. 3. in incremental coupon interest of approximately $0.03 per diluted share for all of 2013. in incremental non cash interest costs of approximately $0.07 per diluted share for all of 2013. |
© 2013 Molina Healthcare, Inc. Membership Growth By year end we expect 2.0 million members as a result both organic growth and expansion into new products and markets Membership 2012 YE 1.8M members New Products & Markets Organic Expansion 4% Organic Growth 3% 2013 YE 2.0M members CA ABDs, MI & OH ABD Kids, WI regions CA & OH Duals, IL ABDs Please refer to the Company’s cautionary statements. 73 1 2% Note(s): 1. Denotes guidance. Amounts are estimates and subject to change. Actual results may differ materially. See cautionary statement. |
© 2013 Molina Healthcare, Inc. 2013 Benefit Expansions Please refer to the Company’s cautionary statements. California carved in Long Term Care (LTC) and in Home Support Services (IHSS) starting 9/1/13 Utah carved in the Pharmacy Benefit effective 1/1/13 Note(s): 1. Denotes guidance. Amounts are estimates and subject to change. Actual results may differ materially. See cautionary statement 2. Members will be rolled in the LTC and IHSS programs on their birth date. . UT Rx Carve In CA LTC & IHSS Carve In 2013 Estimated Revenue 2013 Estimated Revenue 2 $30M $70M 74 1 1 |
�� 2013 Molina Healthcare, Inc. Rate changes included in 2013 Guidance Please refer to the Company’s cautionary statements. State 2013 Rate Change 1, 2, 3 California various (3%) Florida n/a None Michigan n/a None New Mexico Jan-13 2% Ohio Jan-13 4% Texas various 1% Utah Jan-13 (16%) Washington n/a None Wisconsin Jan-13 3% 75 1. 2. 3. Denotes estimated rate changes included in 2013 guidance. Amounts are estimates and subject to change. Actual results may differ materially. See cautionary statement. 2013 rates do not reflect potential rate changes as a result of PCP parity rules. Does not include impact of risk adjustments. Note(s): |
© 2013 Molina Healthcare, Inc. Admin Spend Investment is required to prepare for growth Our FY 2013 guidance assumes administrative costs are expected to be 600M or 8.6% of total revenues Administrative Costs 2013 Operational Costs (CA, OH Duals, IL ABD, NM) Implementation Costs Current Business Implementation Operational Timing: Up to a year before membership Timing: Approx. 1-3 months before membership Functions: Program & Benefit Design IT & Systems Development Functions: Member Care Activities Claims Call Center Fixed Variable Guidance includes implementation costs for all growth products Guidance includes operational costs for only CA, OH Duals, IL ABDs & NM build out Market Place, Medicaid Expansion, Other Duals, FL LTC 0.4% In 2013 guidance implementation & operational costs related to growth are approximately 0.7% of total revenue or $0.60 EPS Excluded Please refer to the Company’s cautionary statements. Note(s): 1. Denotes guidance. Amounts are estimates and subject to change. Actual results may differ materially. See cautionary statement. 1 1 76 $22M $29M $550M 7.9% 0.3% |
© 2013 Molina Healthcare, Inc. Flu Trends Please refer to the Company’s cautionary statements. 2.0 4.0 6.0 8.0 10.0 12.0 2,000 4,000 6,000 8,000 10,000 Google Flu Trends CDC % ILI - - 77 Google Flu Trends vs. CDC % ILI |
78 © 2013 Molina Healthcare, Inc. Investment Highlights Attractive sector growth prospects driven by government policies and economic conditions Focus on government-sponsored health care programs Proven flexible health care services portfolio (risk-based, fee-based and direct delivery) Diversified geographic exposure in 15 states with significant presence in high growth regions Scalable administrative efficiencies stemming from centralized and standardized functions Seasoned management team with strong track record of delivering earnings growth Over 30 years of experience Please refer to the Company’s cautionary statements. |
© 2013 Molina Healthcare, Inc. Q&A 79 |