MOH - Earnings call transcript Q2 2018 | Molina Healthcare, Inc.

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Operator

Good morning and welcome to the Molina Healthcare Second Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Ryan Kubota, Assistant Vice President, Investor Relations.

Ryan Kubota

operator. you, Thank thank and joining us. Hello, you everyone, for to purpose quarter financial Healthcare's this ended is of call discuss results XX, Molina XXXX. The June for the second last reporting The release this posted our quarter earnings issued on now the release viewing website. company XXXX close, its is results company night for and after market second

prepared the On the Executive are After and to Tran, Tom today completion Officer, questions. Financial the our Officer. open Zubretsky, call Joe with remarks, of your take our our call me Chief President we'll Chief and

you ask If that that get back to have the ask have so queue you multiple questions, questions. their we into others opportunity the

forward-looking of comments Securities Litigation will contain Safe the Act. the statements Our Private provisions Harbor Reform today under

current Securities our to and actual disclaim of Exchange turn over replay our available earnings the our are required in Reports, expectations the and SEC's our our Investor I reports Joe found release at obligation Current of Officer, A website, Annual would including like This differ molinahealthcare.com. company being as our we laws. Form Quarterly a can the or to All Form call X, can conference and company's Commission, X-K call assumptions, is to be numerous call be cause and All under our Reports. except represent our reports our will Executive and factors our to in of of Chief made update XX-Q on statements, Zubretsky. recorded, website, XX-day Relations now subject that results by the on website. accessed any XX-K These with Report, could to today's August statements risk and XXXX, call Form the be such during factors forward-looking description judgment materially. securities filed of forward-looking statements tab such based risk the which are as

Joseph M. Zubretsky

Last positive settling or negative Therefore, positive from you expenses night, quarter all per this perspective, impact payment. This million a for adjustment diluted fully the process per plan share the that diluted a quarter risk these earnings. of of $X.XX are the we've restructuring sustainability key per and extinguishment. working, and netting These is $X.XX share. and joining focus results morning. debt pure diluted performance impact we rigorous our also second fundamentals second diluted share in our of financial net earnings $X.XX us share $XX are per Ryan, you, thank Thank recovery our reported a primarily performance impact share reflected management Marketplace includes related quarter. managed and achieved stages the takeaways from $X.XX earnings to margin items, more XXXX as of This includes per of strong $X.XX. improved second a care from two indication on the early Summarizing

the flat of sequentially the first inpatient The Our year. performed particularly line continued performance the ratio the half in medical to expectations second perform to our driver TANF ahead slightly meeting at primary of and of was quarter for business cost, Medicare care of business. in our contained of as XX%, medical cost. Medicaid improvement the well remained line expectations, improved

result. business MMP this Our SNP and contributed each lines to of favorable

revenue perform generally continued From projected high-performing to plans margin to outperform well. our X.X%. increases with are of our that risk health has our the our business local improved the we adjusted retention is placed considerably. Marketplace pre-tax previously underperforming have of becoming have are that along It price results Our producing continued clear of Many perspective, plan plans target to in outperform improved forecast. large, market a

are major well. performing transition that plans to membership health also experience our Additionally, expected are

cost administrative better improvement This ratio over the revenue. benefits and And quarter of second leverage X.X% administrative is to time. cost year-to-date. administrative continued the cost to X.X% than committed of we are and harvesting in containment a expected decreased Our combination

our our and optimizing continued have we focus capital Finally, on structure business portfolio.

revolving produce credit, of to and excess operating our contracted structure at We have have balance simplified debt, reduced non-core the further our sell outstanding additional parent a capital on asset line repaid the company. a to cash

Let the a provide me deeper now operating levers metrics. into look and underlying

met by First, XXXX X% setting X% from to increased in contract more the first awarded revenue Marketplace the with revenue on XXXX. respect largely Illinois quarter. revenue attributable for than that risk X. The benefit the is of expectations After statewide to went adjustment, increase more live the in new the revenues, by additional premium aside from premium nearly quarter and we April sequentially, the members Medicaid XX,XXX increased than

managed care our risk of we despite Mexico in cost the Washington expectations, respect care plans. to trends and points medical emerge of Day our ratio provider with in that lines, improvements to to for the after consolidated in to ratio, These medical New impact quarter. product Investor we medical at contracting by removing our ratio subsidies stable adjustment medical quarter. Across medical cost well care pressures sequentially Marketplace, the and first all second as ongoing to continuation the Second, a outlined a XX% CSR approximately reflect basis initiatives results decreased XX the XXXX favorable and our the that management began as

to expected care line line still though was expected care product XX.X% than product medical better respect sequentially the costs. XX.X% line first Medicaid better meaningful the inpatient Medicaid driven basis With points with from in our half, by performing continued than improvement. by improvement medical with for room expected, of cost managed, to is well in performance, than lower improved ratio performed TANF with The the Medical our for XX.X% quarter. of mainly XXX business. business ratio trend Third, a

SNP was quarter the Our And to flat ratio our care MMP XX%. and outperformed at products compared comprising the Medicare the line medical essentially expectations. first approximately

for future phase contemplate our of foundation a operational managing strategy. to long-term continue high-acuity and important we demonstrate remains We point strong members, growth the have this that as we

continued business Marketplace Our expectations. has our outperform to

you the of business the performance of business to in As the the this first our end despite recall, will assessment quarter. margin, X.X% pre-tax of we guarded pricing a remain at

benefit results, contributing our Now this target. we as of the point performance exceeding with factors specific Marketplace initial halfway second clear XXXX. Among is the have quarter becoming performance pricing are that gained it improved our to we the is insights three pass of

than is our our more better slowly volume premium so First, membership expected. than attriting is expected,

our outperforming forecast. risk-adjusted Second, we are revenue

of for related costs health well our and are premium for and perform XXXX. XXXX improvements, positive continued which better underwriting of through Texas revised now settlement approximately adjustment local Michigan, year, is with medical care previous year, XXXX the risk in when our While XX% successful most half of because our to profile than will health well likely earning the is to continued the In medical various early pressures the now and intense cost in approximately of cost our plans consistent better impact our in turn of management membership summary, cost be than have base of first half items, though ratable, the indicate our Washington for our we the more assumptions. of business, the our our quarter perform the included assumption starting of ratio its And base scrubbed sense, will third, yield out XX% well performance should significantly result expectations. projected of of met increases our pricing inpatient that the improvement in non-run performance We representing XX% than adjustment have especially and experience and individual re-procurement is in have Marketplace risk will capital. guidance. Ohio, experience pricing excess see The however revenue medical our Medicaid exceeded membership target second our of plans. guidance. a which period to for it is to outperform the line business, This does year. the of continued the liability majority risk across or the large in pricing California, reduced important lines I stabilized.

Florida, line pressured Mexico, plans sequentially. In but trends, that experience two due exceeded improved to Mexico expectations. undergoing been are expected has results. transition by to higher performance cost than Medicaid respectable New Marketplace contract Florida is continuing and continued New our behavioral Our to the has losses, significant produce also

administrative However, performance outpatient a EAPG been offset core by fee schedule than to on a the has million costs. to improvement increase I more now nine-month turn the $XX pre-tax basis. for retroactive

the of cost our are the These initiatives. ongoing efforts, through X.X% leverage to G&A administrative X.X%, our timing and the quarter have first a in in quarter. number our incremental ratio to effects G&A improve from down revenue structure and We continuing of ongoing improved ratio effect lower

and Our impact contracts XXXX, extract the second committed revenue we I announced the related awards New limit turn Mexico, an near-term to for growth significant three company's of remain in the and and costs RFP to the expenses to Florida profile. achieving. will focus lost stranded to outcome be now the We fixed in quarter.

Washington all May, services in and statewide regions we regions. in won First, our eight re-procurement presence our adding of health maintaining all behavioral

fully approximately July health has membership should benefit decline offset pharmacy in behavioral in by revenue X $XXX our cause reminder, second This the half a As effective out carve-in million. this which the XXXX. in by Washington will carved the state of the benefit to be year gains

the in regions Medicaid Florida two awarded re-procurement. were we Second,

annualized are initial that Medicaid Florida, approximately of resulted we most care and in the approximately improving of businesses XX, pleased award with our quarter expanding revenue. loss ability two these the We Medicare Marketplace at our our members second all the award regions, $XXX our the to in of in and Regions In margins XXX,XXX Most negotiations this end of managed overcoming X our important million of market. continue this importantly, regions. served while preserves

of membership, most had to secured Puerto island-wide regions. November. at members our end and respect an in XXX,XXX quarter currently contract in in With two we've to commence Rico, the Third, second current the we recently, scheduled

number the least process. of as at members should auto new positioned program, be in we projecting similar well the are in assignment We a

this analyzed to our sustain We to excess we return potential have profit be able of will the confident in market, capital. of and methodology of we cost rate that a assess also the and are carefully earn

our update brief protest. on a Mexico Finally, New

notes we the Changing made to outcome the secured a status. our September. flow participate related convertible Until stay us on to is determined, to outstanding of protest repaid a million, outlay parent. of XXXX the capital to and effects a both business in debt $XXX the we Our and court We is quarter a DXC line review million allows our total We award. entered embedded as to the the million Technology we cash at is new repurchased in definitive $XXX structure a the Solutions it June, the we approximately in contract dilutive Molina be sell the heard $XXX of interim, as manage into process agreement $XX for credit. different reducing run-off topics balance million. for of option. to capital, readiness by progress announced our in Medicaid to approximately expected for in we though continue temporary the And In free cash our significant revolving call

We between in turn transaction and cash. $XXX revised sometime third the I parent sale generate million close will now company Net additional guidance. expect $XXX and transaction taxes, this million quarter. of our of this to to costs

midpoint increase diluted of $X.XX an for guidance Our reported range. our year $X guidance of per a $X.XX to earnings revised share the the basis, is at on previous

a approximately some guidance. from of share. operational $X.XX our our Allow revised guidance per me performance perspective, be the year to However, unpack diluted we of components full to consider pure

$X.XX. first was earnings Our half diluted per share

items, operating $X.XX non-run the ratable pure non-operating, share. our performance first to diluted view Excluding half we be in per

range The pure raise guidance is approximately second we For guidance the $X.XX the share. and $X.XX for margin of for $X share. net $X.XX quarter, the Adding diluted performance the year a guidance share our half, ratable income $X.XX at yet a performance another raise the non-run revised Therefore, diluted of performance ratable the per diluted for lens, beat a non-run items the $X we $X.XX items, earnings Through $X.XX on now is our in approximately X.X%. year yields full approximately back $X.XX increase non-operating, midpoint. operating are second of our guidance $X.XX per per as year. X.X% to previously view the full second to to full projecting based for of to an half, reported

range previously, previous non-run X.X%. guidance $X.XX share approximately the items of Excluding income ratable our exceeding margin net of per X.X%, clearly our to mentioned X.X% is guidance

have results are detailed and of management which governed claims processes, management. now these rigorous and from We retention basic care are mindful emerged that performance through management, improving utilization all control, revenue

as plan. remain in still in our stages cautious outlook our we the However, of sustainability recovery are we and margin early

XXXX trajectory a strong to results. elements with of on current continue deliver We our the we XXXX, If are for pleased have the and built over Tran I margin Day plan of call on turnaround financial will the baseline that at achieve conveyed we we With our you from detail Investor which Tom will that, to in May. financials. XXXX the to for to targets turn the more our

Thomas L. Tran

and good Joe, you, Thank morning.

last night, diluted the diluted report share of $X.XX, and we As assets. share of per described in adjusted excluding of earnings earnings earnings our release intangible amortization $X.XX per

driven our were results As initiatives Joe commented, by disciplined recovery margin largely and management. performance these

in earnings of highlight that quarter of primarily are our The the a estimates, related release. we as to the out our initial abatement in continue our costs call quickly we to me the office rationalize First, let lease true-up space. items restructuring incremental few

We lease restructuring over will see as we rationalize continue to likely costs office the few space. additional our continue to next quarters

of primarily approximately minutes incur acceleration to These few payments notes. million we of $X discussing notes position. expenses. spend remaining the now a related those reserve costs call interest XXXX the our the part and on As will option I repurchase, embedded convertible of

we million, and with claims development prior steady and we approximately in The continues XXXX The but Reducing held improving a are consistent and remains of that four to Days provider believe our development that to same costs. intra-year a settlements. re-established the provider is second margin balance is speed level from outstanding has the protocols. in handlings, the on favorable in our handling favorable XXXX quarter, in payment. to partially attributable We experienced days to the payable approach contributing conservatism be sequentially. approximately at claims improvements we reserve overall our testament medical in of have quarter's the claims service intended balance were settlement abilities improvements explicit reduction down the days experienced Our our position our quarters in strong. hold. including $XXX of decrease focus of to Also, continued decrease in we

the this earnings quarterly claim has in half a costs related quarter. second the payable released in have impacted And run also had rate flu In by addition, impact days were earnings. first first in were that while reserve established to no may quarter, it but sequential our in impact,

opportunities to outlined continue we capital we structure Turning the to our as and sheet, balance de-lever sheet will Investor Day. to look during for strategic balance

the approximately and health the of aggregate regular company. dividend which At to of XX, statutory and flow the our surplus $X.X well represents approximately health capital the company. consistent at the plan and June of intend billion, As We ensuring end had unrestricted be a XXXX, cash capital parent quarter, the plans risk-based second company efficient more million XXX% $XXX at capital. parent investments had to of of level, approximately

additional our on revised some offer me guidance. Let thoughts

$X.XX XX. is range $X.XX an guidance to per our share, raised the lines. expectations have across full in second comprised a following. previous increase strong all our guidance our We from to to at This due product $X the exceeded of increase year $X.XX diluted quarter of approximately of by on issue midpoint performance April the We

the of year. our Secondly, back original the to for we're half $X adding guidance approximately

half a the are ratable We the continue was seasonal ratio year. business. businesses Marketplace in cautiously our of the of Marketplace first non-run even projecting excluding medical to approximately items substantial well will with perform that XX% care The effect

a the natural in as half adding the projecting upper We acuity. year. ratio in And to medical XXs second the mix for due design care approximately back-end of expect $X.XX full shifts considered items product to In non-run-rate the utilization experience is and the membership the from guidance, non-operational developing revised third, loaded year and half second half. the the be the have to for we in first

our business disciplined maintained have we of However, cautious lines views and throughout. of

our the in bridge in half. to year from first the of to results our revised half second Now, guidance the

our the excluding seasonality pre-tax remaining in transition first year half, of The between marketing non-run-rate $XXX million income, in in and Approximately the of half two-thirds operation to New Florida earnings. approximately This approximately of and expenses $XX and the of related difference is from the in the difference income $XXX first second million. technology is a in of Marketplace pre-tax half. of the higher income to pre-tax of and administrative items performance timing compares year million second to initiatives, costs Mexico. the the Our due half second reflects the the expenses

tax effective approximately pre-tax year tax previous to XX% full than income estimate Due is of XX%. to is at lower XX%, of XX%. to taxed the marginal rate guidance, our our is rate current in our tax, Regarding which which approximately XX% higher

the guidance care that June change California XXXX. does XX, XXXX a included a recent of incur related consideration revised Finally, The note impact Based any guidance. on we offer repurchase business diluted of July full $X.XX impact XXXX expansion of information of XXXX we in not to the notes and have include the development of year. and back potential the assumes restructuring convertible the relating let including repurchase, facility any The impact for of prior may per minimum me year few no approximately the is repayment credit the additional not through retroactive share. $X.XX medical our half additional period X, today, the points have to in ratio we costs to our period

prepared of amortization intangible Our questions. guidance which adjusted are to take assets. now exclude of per rather This earnings the Operator, we developed basis than GAAP the our concludes on remarks. ready would share, was diluted

Operator

the We will begin question-and-answer session. now

of Raskin from go Research. The Nephron Please first ahead. question comes Josh

Joshua Raskin

Good morning. Hi. Thanks.

Joseph M. Zubretsky

Good morning.

Joshua Raskin

if things on color so that on Joe. and pre-authorizations or guess changing made – is doing denial the could Just exactly the curious on or just we I'm guess you're question morning, you just in some just especially and side? the quarter big significant MLR understand exactly one maybe the color I big guess rates question The give the improvements for I that? and inpatient turn I what like is operation me more here, us you what

Joseph M. Zubretsky

number that the we you like profit controls more specialty adjusting things the in, high in and out favorable upside initiatives, Investor PBM we're Day, two- we the utilization of path expansion of a our over the identify harvested are emerging, of are period. portfolio medical raw margin off tiering Sure, tell that that plans execution services to and in contributing This local half. very a and planning processes. indicators health complicated more to improvements our so clear providers, are re-contracting laid more stages all and consistent Josh. rigorous trends ancillary head company some out had profit that these first authorizations utilization acuity our It ratios a to will the leading provide basic and of At very of – or at I some that level, achieving in care cases, And poor outsourcing, a by the can three-year high inconsistent identified be that, process, locally, had, in expansion management to some margin recoverable $XXX cost nearly controls. inpatient end the of future. in experiencing sustainability, we million including we local of co-sourcing can performance of re-contracting are those strategy those going execution improvement other execution better Many of that and

and well So managed stages, executing care we're at early the locally fundamentals. its

Joshua Raskin

would XXXX of laid years a end XXXX, it are so target the a kind sounds guys margin my X.X% low kind actually like there even we are which sort it Is or helpful, talk forward? as question which – Got three $X.XX, which schedule, of that it you of the as so say X.X% and that ahead in into out range what of opportunity, that that be, is were is for I XXXX, upside the in margin at there that implies you, make guys is leads X.X% you you guess, you comments we at guys of more just potential X.X% more that's follow-up two, are position is there's though your to of sort already towards think too maybe to sound conservative? going at

Joseph M. Zubretsky

stage, At at high we're we a say the Day. to ranges confidence this willing you Josh, express degree margin early in and that of to conveyed Investor

to update the high where from to are we our projected. rates we we the confidence of at margins I be as that a think expressing degree better the at we looking trends this or receiving point, get developing and strength landing, we're perhaps XXXX but of you at early medical at this target look cost stage, convey those plan margins, that states, we'll that to in in position the a will closer are

Joshua Raskin

And that you, one run the at changes? but revenue What Mexico your assuming have last what your one, excluding like look XXXX today, know other rate I apologize you XXXX, for asking go run it look guys your is today rate? is any or third way you what additional doesn't do maybe as one, New

Joseph M. Zubretsky

complete of recovery Investor revenue Florida, Medicaid Day. $XXX one at in think loss if other There's will the better adjustment puts aided behavioral probably we year and for That to gave benefit the pharmacy in projection and by you successful $X to a carve-out. Medicaid might re-procurement. Mexico next the our and probably I Washington million the membership that's be carve-in, Day by have XX offset make takes. Regions just the due but the outlook of would pro of complete which loss you the I and X New look million Investor Florida forma included back at to take

would the be you addition to takes, $XXX gave Investor of in think revenue So of types puts Regions XX, to major all and $X Day. and X at we the there's million but to million I outlook item

Joshua Raskin

Okay.

So Washington...

Thomas L. Tran

for Marketplace is and may at is we filed are we markets Wisconsin the rates additional re-entry. have there that that consider offer which Utah point that (XX:XX) there two we're obviously a looking and one data

later year, but also income until We will upside make the bit well. that's in as that our little decision premium potential a in a

Joshua Raskin

Okay. guys. Thanks,

Operator

next The comes BMO Please Markets. from Borsch ahead. question Capital Matt of go

Matt Borsch

you. Thank Wisconsin is the decision you last just that would to Maybe waiting it re-enter comment. Utah? to up on Yes. not and that or regarding I What be pick see

Joseph M. Zubretsky

Our your decision until performance. was in file make the bit until just off – to to Utah think then I it's a developing every to rates data and highly open to had The decision. that prudent that enrollment open we XXXX pause team issues see working of priced. and just And have And Wisconsin a were the network suffice at and the support is mostly summer. too wide would related we'll at prices too the we going will decision call right data that would a it point. bit this to say I we make I'm to don't we then of that make inclined watch say of emerge the end We're the have make to that that every that we on have until but to to re-enter, and network file. XXXX sure you

Matt Borsch

about makes That talk from And little pressure the costs? probably Mexico us in New the a behavioral – but not just bit mentioned can higher huge thing, sense. of you to you

Joseph M. Zubretsky

Yeah.

services got. And we it rates is on New been reflected deliver. disorder the delivering business. on it. opioid really is need line in of high. to not sorts abuse, epidemic of the we the putting quite and substance incidence an obviously We're It's the pressure rate opioid Mexico is experiencing Medicaid of use We're

pure putting and that's what pressure the on is. but it's really So MLR, it's that it simple

Matt Borsch

terms all at might relate that of new? Does the IMD exclusion what lifting be to in

Joseph M. Zubretsky

No, I don't believe so.

cost I a price medical expectation. our ahead racing that of think of it component one just is is literally trend to

Matt Borsch

you. Thank right. All

Joseph M. Zubretsky

welcome. You're

Operator

Wolfe next The from of ahead. go Research. Justin Please Lake question comes

Justin Lake

Good the XXXX end Thanks. margin already hit to targets. well your the guidance XXXX positioned is But to current X.X% of you high XXXX morning. X.X% target. mentioned being at obviously, Joe, and XXXX

Joseph M. Zubretsky

Yeah.

Justin Lake

sustainable, what versus can high hoping XXXX for have, problem to sit not exchange results like might upside think give class color you may but portions tell X.X% a can on XXXX. of us I this that sustainable Particularly, be margins XXXX us not some where Obviously where be you was into you XXXX target?

Joseph M. Zubretsky

the to in to are Sure. to rates excess The corrective capital. of we is With that Marketplace filed needed they of clearly our the get have be filings in longer we were The rate filings two into what the to cost year a our I'll this call margin put respect order business, prices prices last where market rate corrective. that no that we filed are in acuity product think to we The strategy and it due considerably attrit of grow any more margin, to limited allow pretty to line, the attract, medical members this the not membership we'll optimize in contribution was for changes, the considerably, not competitive that's trend. cost of XXXX although benefit reflective Marketplace to to but our pressures.

what aggressively perhaps in be happens, business should our onto membership can grow well. look, we so more maximize respect pretty to With see the let's XXXX. that for Marketplace and operating business, we're hold XXXX outlook So, margin, core this

we probably XX% doing there's first more be And is well we to it for business of the a there. half. line is from be. at XX%, point high. Medicare at our Medicaid XX% better. think where needs at bit SG&A line at of XX% medical still of Expansion a ratio bit a little view. think Our is margin The business can at XX%, still ABD opportunity TANF

in Investor cost So there. hedge there It's said for put at rates we always here medical we is And rate a and strength you get. don't the inflections the here. the more of anticipate also bad and about that you rates trend as Day, all opportunity a or

obviously, improvement. plenty and but still start think we guarded cautious, a there's we and So, off opportunity we're to remain good for of

Justin Lake

Got it.

I I idea? margins One, target. about asked than I'd are your are if here. an X%? Can give versus to XX% could you up us for So, XXXX mean, just closer that X.X% they where follow exchange

Joseph M. Zubretsky

In this first half...

Justin Lake

but just figure trying to I'm (XX:XX) out magnitude.

Joseph M. Zubretsky

adjusted Sure. scrape and have the the an to On basis, I CSR you noise. mean, out subsidy really

has back that And the basis under seasonality out the for be the the X.X%. did business. If guidance same margin we the the the and margin In scrape under noise, half over to Marketplace pricing the target XX% just we're projecting for is on you remind X.X%, slightly first breakeven. of half, of you effect I'll of just

we're our guidance beat margin. pricing X.X% So, our target – for a calls beating the to

Justin Lake

it. Got

to looks it going to in that to XXXX you kind margin of keep opportunity So that the going you're meaning and gives target next for, are considering of that geez, updated your to margins target guidance slightly these exchanges they to your doing it down from what next I in headwind pricing factors I like big that's the X.X% so guide when – big would say headwind then, of year, to you are to is that? look the year? mind, versus only margins year saying. look if your you lot to this you're because What's aren't what a and at guess, people kind the to is get they year, like next and above going that Are what you this a it that year, reported X.X%, earnings key sounds think be you XXXX. actually

Joseph M. Zubretsky

this at not be we're going Obviously, XXXX Sure. giving early guidance stage, but... to

Justin Lake

Sure.

Joseph M. Zubretsky

the to provide benefits UM, improvement initiatives stages enterprise-wide, you of in the moving services we specialty ...in our pieces, planning transaction the re-contracting we I the that the mostly conveyed or Investor XXXX. the in re-contracting some are and are benefit just generally It would of get. tracking I I lines soundness provide meeting call It's rates remain what profit I our actuarially the the at outsourcing consider significant still strength rate get. XXXX those now, we're reflects along standard. of operations we're will always always some on PBM, that and going guarded our the is about cautious experiencing, major IT environment trends but what remain to the Day, that perhaps Right to are perhaps stable. going and rates co-sourcing

Day. Investor we stable think to is you hold plan turnaround we is begin remains profit environment they rate will, it and and conveyed if too to expanded improvements conveying our strong So in there early but upside, margins to as at take perhaps our what again,

till year, guidance, positive how the there. Let's be we the there news hopefully and end plays you wait XXXX XXXX see give when could of out,

Justin Lake

the color. Thanks for all

Joseph M. Zubretsky

You're welcome.

Operator

The Ana of next comes Partners. Leerink question ahead. Gupte go from Please

Ana A. Gupte

morning. Good thanks. Hey,

and So into first there us be corporate you overhead some than rather might of you've for I XXXX that about a guidance lot been down the your which improvements you question like? the can sense SG&A of was may taking any the reiterated given outlook give be and the thought XXXX,

Joseph M. Zubretsky

is involved. operating We actually that holding adding to operators remain leverage, fixed the costs cost committed only when Sure. we're and our fixed variable a is volume holding to accountable

In away. Second, day, major chip we month announcements, quarter-over-quarter. quarter, our we sort to costs find but new the flat every continue opportunities. were of every No administrative

improvement function than So revenue of was SG&A loaded do the the SG&A back half than ratio and the actually backend year have a some G&A of we projects. is higher cost forecast. rather million as The the a line, we reduction the $XX front deferred in the in line, forecast half the

Florida season transition opens in and you Mexico marketing have November. as the cost October, New Medicare to know incur, We and

potential is upside the in our at and guidance there's there, and reduction line early but from original any clearly coming stage. of we're that right now this X.X%, not line the comfortable at cost So revenue

Ana A. Gupte

helpful. That's Thanks.

give us timing revenue, by that XXnd, to RFP update converse you Texas what can what of is moving kind and the having? on resubmission are you the the on an the So and

Joseph M. Zubretsky

one so only almost noticeable was when we change. came actually it's The out resubmission RFP on August believe, July nonevent. late I The it's was due. have XX XXrd a days, There

not south remain original XX% with a couldn't into change very and part and no was evaluators what of and We gave subjectivity Texas the of technically, X% Rates the you a our we confident something process technical still in raters was where include so to to revenue judgment we're of the much our days bid. there to regions element and result and did evaluation the they can comfortable subjective our as more Texas can more So our hopeful were comfortable that inject They and in confident six and XX north to scoring. the We submission. expand expand they the respond, ABD only still can of were change to this. in requirements. raw resubmission,

remain on optimistic So very prospects there. the we and bullish still

Thomas L. Tran

that go more add one the has would said what Joe I been live to that, point is data to day back... pushed

Joseph M. Zubretsky

Sure.

Thomas L. Tran

is now approximately X, months, XXXX. June so ...by five it

Ana A. Gupte

the choose, in October be to still will find awards the I on couldn't And website? that

Joseph M. Zubretsky

have updated They indicated the they announce have would they not They date. not that a given date the award.

So we don't actually know.

Ana A. Gupte

day, it. runway like as dent Carolina consider does there particular, cautious Got just within a would but the MLR that you seems expansion, coming or little and still just North that lot then, period and turnaround, getting on is broader last this you're a for growth the, get pretty for remarkable with through margin point One one to you stick in our time and RFPs a for new point a of margin improvements XXXX? put of a have just you potential be might turnaround let's where at bidding maybe shown any which short

Joseph M. Zubretsky

latter. Ana, it's the

have if as we And and is margin but these the solid those and that's have continue margin now of to this remain initiatives and at revenue core on a sound That's the here, be to to to and in upside Investor sustainability committed think right sustainability. consider keyword the the of And committed our and stay we complexity improvement conveyed mentioned revenue take And could very stable key margins. sustain actuarially support I actually question processes, enough you. expansion. environment Day, to We there profit franchise. we be at before, for margin you for focused a are infrastructure we focused rate to to stages in our we improving early question And order here key the us, the the we to recovery. we the

implementation have We Mississippi going a in.

in out. Idaho a an year-and-a-half There's a have LTSS year, We potential expansion. Ohio opportunity

plenty there's not opportunities. distracted can margins as our So our of greenfield get focus we we expand growth opportunity footprint in that with and existing on

Ana A. Gupte

helpful. Thanks much. Super so

Joseph M. Zubretsky

welcome. You're

Operator

Goldman ahead. from of comes Steve go question next The Sachs. Tanal Please

Stephen Tanal

of year step guidance Thanks think overall I side, sort certainly, year-to-year the setting is while risk level, adjustment And something does how to footprint? this the you'd given about plan do for yours, be you that risk question. down on I just for we seem that guess, of you'd like morning, this gain Good suggest as smaller include it you another guys. so adjustment in approach at next year? guess, not up ratable the next related run

Joseph M. Zubretsky

it Well, are risk accounting I half think, XXXX, to our have it, we'd is Steve, at acuity clearly whether better a see. revenue I better out XXXX getting having the there's out But XXXX, would recorded have We get half basis the but that same the not emerged emerge of to the risk make experience of battle, and for harvesting. the two better profile we're of of that at we of of that the is upside we getting and comments. on with I that doing our doing that scores first would half for is wait actually actually revenue XXXX. scores emerged on the the it or commensurate that experience we improvement booked being of only that are better to revenue reflective you off actually tell at the for accounting getting the got and first population. it, at profit One, improved

Stephen Tanal

include how then, or And year kind going would guidance expectation from of would some it. next Got of XXXX will guidance rate that so exclude run you that forward?

Joseph M. Zubretsky

of it, the filing you even rates yet you're to cautious months year emerge, And again, has forced into to a that and three, it's question conservative. than Well, did I'd you're differently question how be we asked price? slightly four when maybe experiences answer a

adjustment So If that harvesting filed that better rates performance. get experience pretty to risk was upside XXXX the would included XXXX our at experience outlook the we with currently. the emerged we scores that the actually be XXXX we XXXX that that a adjustment XXXX risk into and consistent actually have

Stephen Tanal

Understood. That's helpful.

Okay. drop risk curious to still guess drove especially at premiums? I we And that kind the we'd to a big in adjustment, that the way excluding would what as the And correct just opposed look math, sequentially CSR there PMPMs guess I it marketplace doing are of expenses understand to out I'm like and that. look was then of in is adjust

Thomas L. Tran

costs adjustment a really QX the is marketplace, is you CSR Steve. premium to for the and from medical at XXXX. it correct, look adjustment from That's if benefited risk the

you that's you So of artificial a had lift, a bit will. little why if

you fairly $XX $XX stepping about QX, If up it stable, QX million, then to out, million. they're QX adjust QX, roughly slightly

that's the picture. So really

Stephen Tanal

Okay.

all In for then the of pretty carve-in, carve-out a So PMPM gains but those value are you sort And enter me. may be of of as well membership XXXX. the for had. can are a the both behavioral just follow-up, it give just you're Thanks. positive like overall. that's lastly color on little Washington, looks impact net as as step-up, bigger okay, and similar? the of versus sounds saying net a And It us the like you I flavor RX those

Thomas L. Tran

of July me the carve-out, effective Let comment which was on this X pharmacy year.

it's before, half premium million $XXX approximately commented Joe reduction. back of as So,

XXXX. on part other until health, behavioral of does So not first the the in kick side,

a that expand XXXX. timing optimistic membership feel that commented is we there So is there, will issue but what in we Joe before

the behavioral may premium, of possibly pharmacy top balance revenue. then than the more So loss picking health up on out it the of

Joseph M. Zubretsky

your you in the was if that The points about model carve-in percentage help behavioral in you. can might rate, use worth XX that

Stephen Tanal

very Thank much. That's perfect. you

Operator

The comes Piper question Sarah go Please next with James from ahead. Jaffray.

Sarah E. James

Thank million the the million you which close in target you. But was progress $XX laid And network out So, maybe achieving them? could put were like us example, integrity Thank you. were perspective and on and are hoping as to in goal it's those so million, I on? terms savings on payment EPS, being you clean you could helpful. would I of buckets Investor this $XXX furthest also up Day? at some laid very sounded appreciate to maybe the you're it give the if out detail then And you the say to $XXX where the hitting along, for buckets

Joseph M. Zubretsky

management profit in execution will say local emerging front Sure. on one. of better health plans, early of I the here, stages improvement the out the utilization the lines in is

behavioral Second, cost geographies high services facilities, with with various out re-contracting, tiering outsourced in re-contracting vendors. re-contracted

say we provider handling. mean there's we've When better a pot, claims lot expensive. control utilization re-contracting going that at less I into settlement gotten gets and the So

the our rework the retention. we're Those are it's settlements And more probably categories so XXXX processing, now. enterprise-wide better I'd outsourcing provider down, revenue were at initiatives, risk straight and rates works, those contributing The plans in potential execution that hard for early getting the hitting three four are but here. and the through major are adjudication, go success down, there, we're our adjusted all experiencing better right to to XXXX. just auto the re-contracting, place, categories we're in all say

Sarah E. James

are Can million million towards hitting to you $XXX $XXX you comment to target? the where

Joseph M. Zubretsky

plan when are of of locally ones deployed needed to the really deployed clearly hitting, not, our improvement strength initiatives we It's Many more or bigger and but developed XXXX say. the rates, the profit we say looked locally ticket let's our we know initiatives. hard at

added when Hampstead profit over Mac to revenue basis plan. improvement of fact, us we everybody's joined XXX points In

million how the a is opportunity, the $XXX much you have know yet portion I you most significant would So on million tell four enterprise-wide or of is front Day, we'll execution been has or re-accounting so it's next that Investor When was for this do $XXX of develop of that the initiatives to hard that, to say at our XXXX but the harvested. perhaps left, much our to the of mentioned. how on but core harvested plan date, our actually I three lines raw processes

Sarah E. James

understand, meaningful it That's out good of there period Thank a related side anything or that was on on a I to there. was looked wanted then Medicaid MLR helpful. improvement tax And improvement like California? you. the on impacting or there California, just was

Thomas L. Tran

at I pretty lines well. our much – quarter, a across quite on you see has first if first quarter, execution mean second bit. California and of you some of improvement. There's half some improved California And business fundamental basics – that's as are lot of These ratio that's look plan why loss a also

Sarah E. James

you. Thank

Operator

of ahead. go question Please next Jefferies. Windley Dave from comes The

David Howard Windley

taking for question. Thanks Hi. my

risk remarks, guidance. was So, incorporated Joe, you that through the specifically and your that in into that better prepared performance on now flow your talked you to and about adjustment, expected

would XXXX come you're correctly? believe as risk guess what for maybe that perhaps understanding for XXXX I and apart adjustment I lower the that I'm is have risk from ratable perhaps believe I parse benefit adjustment accrual XQ including so, you're XXXX. run that And a calling payable from I to benefit wanting you're in out Am saying that the

Joseph M. Zubretsky

Yeah.

reflection to fair there's that results, as half your are puts the fair XXXX. of say our strength it's always for think for adjust and takes first quarter of outlook. But first our adjustment you a the the I results half risk position

first performance – So the ask marketplace. pure for outlook talked about that revenue that half we as a XXXX I would is of risk $X.XX reflective our adjusted

David Howard Windley

incorporated the you into And it. to X.X% similarly Got all that answered Justin?

Joseph M. Zubretsky

That is correct.

David Howard Windley

Right.

think in you're for to and exchange about looking the Michigan we looking your states you're reflective business, closer ones, low caps bigger, in Mexico, Okay. you're where And kind your digits of that you're have it hitting example earning maybe bidding Texas Can particularly over flat. margin? a are the you're New being of lower of to and where specifically for couple double may those in couple kind and and some looking of believing where normal be around in back exchange, you states, looks rates essentially the like Washington a variance at of double-digits a

Joseph M. Zubretsky

we're The New against where bumping the Mexico. is plan point. Fair only up minimum MLR

David Howard Windley

Okay.

Joseph M. Zubretsky

we probably outlook are a membership for average, we competitors of in of They of longer rates fair of that it's this are. Because and believe are where we trends the the enough the of with our experiencing very track, that for will three-year now the experience and no where old are an a acuity calculation always the still reflective the corrective. rolling we It's have generally characterization avoiding year we're next.

an juxtaposed to So you a type the convince could okay have of you competitors, so this you'll where to process and rates your know, of are but talk land product is what track they'll you price yourself membership. think do where of outlook blind you have so have that and as membership, your yourself is you against outlook bidding an always

it's And where where of think prepare always the we then plan competitive rates, membership do is. double-digits, a elasticity will So very and land, low competitors on reflecting single-digits pricing or our attract. is, whether against to we study our trend mid our where we we can juxtaposed so demand detailed that's the they're and we pricing how attract

David Howard Windley

applications made don't but one near-term? operations some then sheet that. sheet and allocation, have substantial profit capital obviously do progress up the improvement how very about cash cleaning last you're And think immediate, start as Appreciate say, beyond quickly, you've and to as on flow in balance balance you that in the you generate the for focused organic real now and here,

Joseph M. Zubretsky

Well, focused plan. recovering still right our now, sustainability we're on

year We we've can risk-based will the near-term to or deployed some looking over our for local inorganic plans. really two, in you harvest next the I if not it opportunities will existing require be that health revenue of we opportunities. in tell footprint, in that capital our are identified that

$X.X which billion around use excess flow, that that, and per cash it statutory is as by the north aggressively went as is to for more two of If XX% So of outlined best at following only of produces billion we years. million levered to you XX% of year Day, to figure Investor $X $XXX there each of the at capital, we revenue returns. away XX% opportunity, out highest we being as the tucked squeeze way

business on footprint existing our focused very our value So the through we're of driving first.

in well cash that. trades deployed statutory we will as M&A capital. then growth now currency would we greenfield our look and opportunities and then require our at future do excess flows But the right focusing locally to if game on will to get and free later date, some We back that organic be opportunities can

David Howard Windley

the Appreciate answers. Thank you.

Operator

of The next of Please ahead. from go Lynch. Fischbeck Kevin Bank comes question Merrill America

Kevin Mark Fischbeck

Great. Thanks.

up follow of just pretty order magnitude of one of performance of kind the of this to on because is the year questioning and earlier wanted improvement surprising. Just of lines some

about wanted quite year XXXX? when retroactive million might this thinking understand I in Florida like of kind just you guess says I payments. point to that that maybe else base is starting one-time anything So looks there anything of is if nature. that the be there not $XX this mentioned that But

Joseph M. Zubretsky

to I and over, and for was first performing clear of we, is of tax takes all that a clean over and product think part that's puts we the pure our performance how health the most a very lines, million picture the you of accurate a our how plans after actually the view very and tried half No, give picture $XXX to all million $X.XX local XXX-plus business pre-tax, we sort view good picture. aggregating pretty with performing. There's is respect but consolidated to think all business think

Thomas L. Tran

rates very I to would our said also for have Joe add year. I'm But already here. to what high premium sorry. we visibility the a

pretty that's about. that in good to know pretty XXX% we close locked So

balance medical our really is the managing cost structure. So

So us to the at we side, year. so have look half level on sense give second that good comfort that of

Kevin Mark Fischbeck

even Solutions before you much Okay. that with profit accretive sales, into Medicaid cash? net didn't what looks business divesting so account it that gross generate on take basis, then, income And like that was all. going with at it that be a the mean money they is to you Does losing do

Joseph M. Zubretsky

it's No, pretty EPS a the much on line. push

an million repay going $XX basis. it's of proceeds, on $X If million debt you about EBIT on and the assume with the It generated push you're to of annualized EBITDA line. a EPS

push for it's on repay you was got quite debt. So the line it multiple we assume actually we'll attractive. But the if EPS a

Kevin Mark Fischbeck

All right. Great. Thanks.

Operator

ahead. from comes Steven of question Valiquette next go Barclays. The Please

Steven J. Valiquette

Thanks. everybody. Good morning,

existing for further. are but bit just membership in Utah be Separate a it just it's to to is you on or growth or the XXXX re-enter tell? to based from too just anticipate kind the your and decision could pricing your it likely business, for now little strategy or you right Wisconsin, do down in of pricing a based whether budgeting still not clarify this the on Marketplace more touched strategy, little on You early in really Marketplace bit just states your

Joseph M. Zubretsky

to contribution tell. strove maintain It in only profile Wisconsin Utah too separate, which dollars. we except strategy, we that to was and achieve the – I maximize you margin have early are membership our and to pricing tell to is the for But can what which

it juxtaposed price but would it show exchange, sure the that That put that it in attrit. remained dollars. or successful it would and maximize don't the And against maintain so if It in grow launching doesn't But grow the margin the on and profile, course, we're try well then profit. membership a to make to competitors strategy. membership. that Wisconsin, be maintain and was contribution it, the competitive let Utah to was And attrit, the added wasn't market of maximize the strategy

Steven J. Valiquette

$XX million XXXX? safe may Okay. have and just the real weighting California question, of adjustment risk thinking housekeeping that of allocated the that to probably where risk you state, XQ payment how it the That's states Then the been quick MLRs some like the helpful. in Florida in payment, have assume a for about is by lowest adjustment had heaviest Marketplace

Joseph M. Zubretsky

Yeah.

Steven J. Valiquette

but I mean, actually at is in XX% Texas your Marketplace of Cali, you the state a But in XX%. then the obviously MLR in highest state XX% MLRs had one had Marketplace Florida. biggest that

I just obvious there. around confirm So what's kind of probably to was of kind allocation just the curious

Thomas L. Tran

largest you perspective, state-by-state, our market that you at Marketplace to be a into from if Texas won't the the bulk share lion's is And the certainly will that, detail certainly of it. this fair way of question. to as and typical I the of rest adjustment Sure. that that pertain Texas, risk item the allocation but Sure. But an at share the from adjustment. states go Very look XXXX such look see from

Steven J. Valiquette

it No, is.

Okay.

Thanks. Okay. All great. right,

Thomas L. Tran

Sure.

Operator

The ahead. next JPMorgan. go question Please from Gary comes Taylor of

Gary P. Taylor

lot Hi. been Good have questions of my morning. answered. A

the the I like back positive, just say earnings the one clean mean, of guess adjustments Florida is that benefit of would've of $X.XX which number why the probably that you on it sort various reason Is go-forward one sort the I or throughout negative Just like other wasn't that plus? quick don't that quarter out looks been backed or number there's smaller kind quarters. out-of-period out $X.XX. explicitly of

Thomas L. Tran

not sure what sure, you adjustment, you... I'm say Florida when the Gary, not I'm

Gary P. Taylor

to Florida was maybe quarter million Yeah, the I thought think of you outpatient payments the which... $XX but related This I pre-tax understand. fee comment, didn't earlier schedule said in we a out-of-period included higher

Thomas L. Tran

many Yeah, it correct. I pretty the an that. the we other this Fee takes $XX so EAPG it there $XXX Yes, million the quarter. other, it masked it core performance to and was yeah. mean, industry million out, we sort quarter, the related was handed of and That's Florida were recorded in there's Schedule, the thought of in update Yeah, Florida we'd was to of true us, puts there was year masked performance, call known sort industry and clearly because it of of it good out actually sort phenomenon the something and in that

out. we it But that's we'd related to. what call that's So thought

Gary P. Taylor

as limiting, Okay. committed should said my exit we I think costs it's you're minimizing And And you impact guess think as that's that de about as we get New you that, to you of regardless had you plausible to minimis is possible? or how then you're going Joe to other stranded the be Florida fairly is mentioned XXXX low impact question limit something say Medicaid in terms this, impact the about, measurable revenues. Mexico a of impact, headwind. and question as a of it that in going When EPS the but to terms get to it is

Joseph M. Zubretsky

is if margin headwind recall included XXXX we've of actually of The pre-taxed our more a $XXX combination Mexico in fixed for retained projection, fact you in due $XX New we million Florida $XX that million Well, revenue, million our that stranded million. costs of now $XX the over and like to Florida.

was for margin it next get at we cautious the until included variable don't actually thought We solve but to working we not and it say on forecast XXXX, it prudent So extracting for already could try it's I'm could to stranded, and satisfied people but fixed are get in our just would be it. the have cost that get costs, teams the if quickly. variable who stranded get at costs step we the of step

in that So already trying committed but to XXXX projection. margin to outperform assumption, we included are our it was

Gary P. Taylor

perspective, basis? as Mexico, so I'm that's presuming issue, I of cost net there tailwind encapsulated to would EPS New That's a New behavioral kind good I unprofitable last being be Medicaid that been an you so a reminder. about And from has think, on appreciate follow some it. or all-in also unprofitable, of on sort you still measurable that's Medicaid exit is stranded in estimate a the Mexico of the talked

Thomas L. Tran

Medicaid margins, the contribution we when No, XXXX we the from projected business. extracted margin

already stranded cost, As the said, in included I embedded that's fixed there. been

Gary P. Taylor

Okay. Got it.

Thomas L. Tran

already Yes. embedded been It's in our forecast.

Gary P. Taylor

Thank Okay. you.

Thomas L. Tran

welcome. You're

Operator

question from go next comes Please The Zack Stanley. ahead. Sopcak of Morgan

Zachary Sopcak

thanks you're after they ask first in in anything through cash the quickly Hey, turned strong that cash or on operating question. surprising line for a quarter, the negative there Can the flows sequence just was in flows how thinking year? with about how quarter, would I

Joseph M. Zubretsky

it I'll the mostly Tom, some we timing kick – of just of to of cash want elaborate? related Mostly you but timing to Tom, to carry. receivables the flows

Thomas L. Tran

see than it'll other came medical Therefore cash we half, the And that claims get data well. down say Ohio, Sure. flow, And operating part have health down. in we later or and year. settled Sure. mean, of also less don't states, the also nature. membership, cash they're was more that in point primarily Florida, one until to states at Washington, of receivable affect down reduction Marketplace related the related by some I timing would went insurance certain fees premium of and is our in you you payable HIF, receivable that more with of with flow temporary to it definitely California, that receipt the the look the larger as

Zachary Sopcak

discussion what That lot talked a tailwind thanks. a the impact too about Washington, all of quickly sense. into or questions makes and about potentially year? to of Florida for just idea from and one helps, That and about it Day, asked you XXXX revenue on had that next could Rico that you at factor Okay. is talked Puerto have And Investor expansion have you first early of does at I puts takes an

Joseph M. Zubretsky

the upside, Puerto Rico prepared could At we we upside. any provide some not forecast... include but time, did our

Zachary Sopcak

Yeah.

Joseph M. Zubretsky

successful in even we'd whether unclear was ...it Puerto Rico. be

our auto confident time, XXX,XXX assignment Now not in included forecast that membership of that much loss pretty actually was we'll forecasted well the that quo. but from was Commonwealth, members, do in we're our could have at We any some membership. and pretty for very see the been, the we we growth status nor process

Zachary Sopcak

And Okay, you. great, quarter. congrats thank on the

Joseph M. Zubretsky

Thanks.

Operator

This conference attending today's Thank concludes you today's and session for today's call. question-and-answer presentation.

may disconnect. now You

Molina Healthcare (MOH) 1 Aug 182018 Q2 Earnings call transcript