Molina Healthcare, Inc. (NYSE:MOH) Q2 2022 Earnings Conference Call July 28, 2022 8:00 AM ET Company Participants Joe Krocheski - Senior Vice President of Investor Relations Joe Zubretsky - President and Chief Executive Officer Mark Keim - Chief Financial Officer Conference Call Participants Josh Raskin - Nephron Research Matthew Borsch - BMO Capital Markets Stephen Baxter - Wells Fargo A.J. Rice - Credit Suisse Nathan Rich - Goldman Sachs Kevin Fischbeck - Bank of America Michael Hall - Morgan Stanley Geor ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission file number: 001-31719 MOLINA HEALTHCARE, INC. (Exact name of registrant as specified in its charter) (State ...

Molina Healthcare, Inc. (NYSE:MOH) Q1 2022 Earnings Conference Call April 27, 2022 8:00 AM ET Company Participants Joe Krocheski ??? Senior Vice President-Investor Relations Joe Zubretsky ??? President and Chief Executive Officer Mark Keim ??? Chief Financial Officer Conference Call Participants Ben Rossi ??? BMO Capital Markets Kevin Fischbeck ??? Bank of America Steven Valiquette ??? Barclays Justin Lake ??? Wolfe Research Nathan Rich ??? Goldman Sachs Michael Hall ??? Morgan Stanley A. J. Rice ??? Credit ...

Financial Performance - Total revenue for Q1 2022 was $7,770 million, a 19.2% increase from $6,522 million in Q1 2021[7] - Net income for Q1 2022 was $258 million, up from $228 million in Q1 2021, representing a 13.2% year-over-year growth[7] - Operating income for Q1 2022 was $372 million, compared to $335 million in Q1 2021, reflecting an increase of 11.0%[7] - Comprehensive income for Q1 2022 was $182 million, down from $217 million in Q1 2021, a decrease of 16.1%[8] - The total margin for the three months ended March 31, 2022, was $971 million, compared to $836 million in the same period of 2021, reflecting a margin increase of 16.1%[77] - Net income for the first quarter of 2022 was $258 million, compared to $228 million in Q1 2021, representing a 13.2% year-over-year growth[7] Membership and Revenue Sources - The company served approximately 5.1 million members eligible for government-sponsored healthcare programs across 19 states as of March 31, 2022[16] - Membership increased by 480,000, or 10%, year-over-year, totaling approximately 5.1 million members as of March 31, 2022[93][94] - Medicaid revenue increased to $6,187 million in Q1 2022 from $5,020 million in Q1 2021, representing a growth of 23.2%[76] - Medicare revenue rose to $949 million in Q1 2022, up 17.9% from $805 million in Q1 2021[76] - Premium revenue reached $7.5 billion, a 19% increase compared to $6.3 billion in Q1 2021, driven by organic membership growth and acquisitions[94][99] - Medicaid premium revenue increased by $1.1 billion, or 24%, in Q1 2022 compared to Q1 2021, driven by organic membership growth and acquisitions[130] Medical Care Costs - Medical care costs increased to $6,563 million in Q1 2022, up from $5,474 million in Q1 2021, indicating a rise of 19.8%[7] - The consolidated medical care ratio (MCR) was 87.1%, up from 86.8% in Q1 2021, with COVID-related factors increasing the MCR by approximately 50 basis points[94][101] - The medical margin for Medicaid increased by $106 million, or 18%, in Q1 2022 compared to Q1 2021, despite an increase in the medical care ratio (MCR) to 88.1%[132][133] - The Medicaid MCR increased by 60 basis points year-over-year, reflecting the net effect of COVID-19 and improved operations[133] Cash and Investments - Cash and cash equivalents at the end of Q1 2022 were $4,866 million, compared to $4,497 million at the end of Q1 2021, showing an increase of 8.2%[14] - As of March 31, 2022, cash and cash equivalents totaled $4,804 million, an increase from $4,431 million in the same period of 2021, representing a growth of 8.4%[26] - Cash, cash equivalents, and investments at the parent company totaled $250 million as of March 31, 2022, down from $348 million at the end of 2021[142] - Total cash, cash equivalents, and restricted cash and cash equivalents amounted to $4,866 million as of March 31, 2022, compared to $4,497 million in the prior year, indicating a year-over-year increase of about 8.2%[26] Acquisitions and Contracts - The company completed the acquisition of Cigna Corporation's Texas Medicaid and Medicare-Medicaid Plan contracts on January 1, 2022[20] - The acquisition of Affinity Health Plan, Inc. was finalized on October 25, 2021, for an initial purchase consideration of approximately $176 million, with subsequent adjustments resulting in a net increase of $11 million to goodwill[43] - The company announced an agreement to acquire the Medicaid Managed Long Term Care business of AgeWell New York for approximately $106 million, expected to close by Q3 2022[166] Legal and Regulatory Matters - The company is involved in legal proceedings that may impact its financial position, including a breach of contract case in Puerto Rico[84] - The company expects to announce the award for the California Medicaid procurement in early August 2022, with an effective date of January 2024[19] Financial Position and Liabilities - Total assets as of March 31, 2022, were $12,360 million, compared to $12,209 million at the end of 2021, reflecting a growth of 1.2%[10] - Total liabilities decreased slightly to $9,566 million as of March 31, 2022, from $9,579 million at the end of 2021[10] - The company had $2,174 million in total non-current long-term debt as of March 31, 2022, slightly up from $2,173 million as of December 31, 2021[63] - The minimum capital and surplus requirement for regulated subsidiaries was approximately $2.1 billion as of March 31, 2022, with aggregate capital exceeding this requirement[155] Operational Metrics - The medical care ratio (MCR) is a key metric for assessing performance, representing medical care costs as a percentage of premium revenue[74] - General and administrative (G&A) expense ratio was 7.4%, slightly up from 7.3% in Q1 2021, reflecting temporary labor costs and investments for growth[94][106] - Interest expense decreased to $28 million in Q1 2022 from $30 million in Q1 2021, following the early redemption of senior notes[94][109] COVID-19 Impact - The company recognized approximately $28 million related to COVID-19 risk corridors for the three months ended March 31, 2022, a decrease from $110 million recognized in the same period of 2021[34] - The company continues to monitor the financial impact of the COVID-19 pandemic, believing that cash resources and borrowing capacity will be sufficient to support operations[80] - The company recognized approximately $28 million for the impact of COVID-related risk corridors in Q1 2022, down from $110 million in Q1 2021[115]

Revenue Growth - Premium revenue for 2021 was $26,855 million, a 47% increase from $18,299 million in 2020[16] - Total revenue for 2021 reached $27,771 million, up from $19,423 million in 2020, reflecting a 43% growth[16] - In 2021, consolidated Medicaid premium revenue was $20,461 million, representing a significant increase from $14,265 million in 2020[61] - Marketplace revenue growth was 99% in 2021, with a total of 728,000 members, an increase of 129% compared to December 31, 2020[70] - The net effect of COVID-19 decreased 2021 net income per diluted share by $3.50, compared to a decrease of $2.30 in 2020[205] Membership Growth - The total membership as of December 31, 2021, was approximately 5.2 million, up from 4.0 million in 2020, representing a 29% increase[20] - Membership increased by 1.2 million members year-over-year to 5.2 million at December 31, 2021[207] - The acquisition of Affinity Health Plan added approximately 310,000 members in New York[27] - The acquisition of Magellan Complete Care added approximately 200,000 members and 25,000 long-term services and supports participants in Wisconsin[31] - Medicaid enrollment increased by approximately 750,000 members since March 31, 2020, primarily due to the suspension of redeterminations for Medicaid eligibility[69] Profitability and Margins - The after-tax margin for 2021 was 2.4%, down from 3.5% in 2020, indicating a decrease in profitability relative to total revenue[16] - The overall medical care ratio for the year ended December 31, 2021, was 88.3%, and a one percentage point increase would have reduced net income per diluted share from $11.25 to approximately $7.76, a difference of $3.49[166] - The consolidated Medical Care Ratio (MCR) increased by approximately 90 basis points in 2021 due to COVID-related inpatient costs, compared to an increase of approximately 50 basis points in 2020[205] - The company operates with very low profit margins, and small changes in operating performance can disproportionately impact reported net income[159] Acquisitions and Contracts - The acquisition of AgeWell New York is expected to close by Q3 2022, with AgeWell serving approximately 13,000 members and generating $700 million in premium revenue for 2020[28] - The acquisition of Cigna's Texas Medicaid and Medicare contracts was completed on January 1, 2022[30] - The Ohio Medicaid contract is expected to begin on July 1, 2022, and represented approximately $2,308 million, or 11%, of consolidated Medicaid premium revenue in 2021[39] - The Texas Medicaid contracts accounted for approximately $2,158 million, or 11%, of consolidated Medicaid premium revenue in 2021[40] - The Washington Medicaid contract represented approximately $3,939 million, or 19%, of consolidated Medicaid premium revenue in 2021[41] Regulatory and Compliance - The company is subject to stringent regulatory requirements, including maintaining minimum statutory capital and compliance with fraud and abuse laws[113] - The company has implemented a HIPAA compliance program to ensure adherence to privacy and security regulations[107] - Legislative proposals could significantly reduce federal or state spending on the Medicaid program, potentially adversely affecting the company's financial condition[75] - The company is subject to various risks in the government contracting process, including audits and investigations, which could lead to penalties or loss of contracts[140] Risks and Challenges - The company anticipates a 66% decrease in Marketplace enrollment in 2022, projecting a total of 250,000 members and a premium revenue decline of approximately 38%[55] - Increased pharmaceutical costs, including new high-cost specialty drugs, could adversely impact the company's financial condition and results of operations[137] - The company may incur increased costs due to the ongoing COVID-19 pandemic, affecting cash flows and operating results[126] - The pandemic has led to significant declines in state tax revenues, potentially impacting capitation payments to the company[126] - The company faces significant competition in the Medicare market, with large competitors holding substantial market shares[103] Employee and Operational Insights - As of December 31, 2021, the company employed nearly 14,000 employees, including over 2,600 from recent acquisitions[114] - The company has increased focus on employee health and safety, offering new benefits in response to the COVID-19 pandemic[115] - The company offers a comprehensive suite of benefits, including 401(k) matching contributions and wellness programs[123] - The company has introduced improvements in employee development and diversity as part of its workplace modernization program[116] Financial Management - The company completed a private offering of $750 million in senior notes, using approximately $725 million to redeem existing notes and fund general corporate purposes[32] - The company authorized a stock repurchase program of up to $500 million, which will be funded with cash on hand and extends through December 31, 2022[32] - The company received $564 million and $635 million in dividends from regulated health plan subsidiaries in 2021 and 2020, respectively[129] - The company has not paid cash dividends on its common stock to date, with future dividends dependent on various factors including financial condition and regulatory restrictions[202]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission file number: 001-31719 MOLINA HEALTHCARE, INC. (Exact name of registrant as specified in its charter) (S ...

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission file number: 001-31719 MOLINA HEALTHCARE, INC. (Exact name of registrant as specified in its charter) (State ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission file number: 001-31719 MOLINA HEALTHCARE, INC. (Exact name of registrant as specified in its charter) (State ...

Part I [Business](index=6&type=section&id=Item%201.%20Business) Molina Healthcare, a FORTUNE 500 company, provides managed healthcare services through Medicaid, Medicare, and Marketplace programs, serving approximately 4.0 million members across 18 states as of year-end 2020 [Overview](index=6&type=section&id=Item%201.%20Business%20-%20Overview) Molina Healthcare, a FORTUNE 500 company, specializes in government-sponsored healthcare services, serving 4.0 million members in 15 states, expanding to 18 states with acquisitions, and prioritizing organic growth and shareholder returns - As of December 31, 2020, Molina served approximately **4.0 million members** through its health plans in 15 states. The acquisition of Magellan Complete Care on the same day added about **200 thousand members**, expanding operations to 18 states[15](index=15&type=chunk) - Key 2020 achievements include the acquisition of Magellan Complete Care, Passport, and YourCare, representing over **$6 billion** in annualized premium revenues, and a capital structure overhaul with the issuance of **$1.5 billion** in senior notes and an increased **$1 billion** credit facility[18](index=18&type=chunk)[22](index=22&type=chunk) 2020 Financial Highlights | | 2020 | 2019 | | :--- | :--- | :--- | | | (Dollars in millions, except per-share amounts) | | | **Premium Revenue** | $18,299 | $16,208 | | **Total Revenue** | $19,423 | $16,829 | | **Medical Care Ratio (MCR)** | 86.5% | 85.8% | | **After-Tax Margin** | 3.5% | 4.4% | | **Net Income per Diluted Share** | $11.23 | $11.47 | Membership by Program (as of Dec 31) | Program | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Medicaid | 3,599 | 2,956 | | Medicare | 115 | 101 | | Marketplace | 318 | 274 | | **Total** | **4,032** | **3,331** | [Our Business Programs](index=9&type=section&id=Item%201.%20Business%20-%20Our%20Business%20Programs) Molina's business centers on three government-sponsored programs: Medicaid (73% of 2020 revenue), Medicare, and Marketplace, with active expansion and significant contracts in key states - Medicaid premium revenue constituted **73% of total revenue** in 2020. Contracts in California, Ohio, Texas, and Washington each accounted for **10% or more** of consolidated Medicaid premium revenue[35](index=35&type=chunk) - The company closed on the acquisition of Magellan Complete Care on December 31, 2020, adding approximately **200 thousand members** and operations in six states with total 2020 revenue of approximately **$2.9 billion**[42](index=42&type=chunk) - Molina operates Medicare-Medicaid Plans (MMPs) in six states (CA, IL, MI, OH, SC, TX) to coordinate care for dual-eligible individuals[51](index=51&type=chunk) - The company expects Marketplace enrollment to grow by approximately **25% to 400 thousand members** by the end of 2021, representing an estimated premium revenue growth of **$485 million**[60](index=60&type=chunk) - In 2020, the company received a **$128 million judgment** for Marketplace risk corridor claims from 2014-2016, which was recognized as a gain in the fourth quarter[63](index=63&type=chunk) [Basis for Premium Rates](index=13&type=section&id=Item%201.%20Business%20-%20Basis%20for%20Premium%20Rates) Premium rates for Molina's Medicaid, Medicare, and Marketplace programs are determined by fixed per-member per-month rates from states or CMS, or annually developed based on utilization and risk, subject to regulatory approval Consolidated Premium Revenue by Program (Year Ended Dec 31) | Program | 2020 (in millions) | 2019 (in millions) | | :--- | :--- | :--- | | Medicaid | $14,265 | $12,466 | | Medicare | $2,512 | $2,243 | | Marketplace | $1,522 | $1,499 | | **Total** | **$18,299** | **$16,208** | - PMPM premium revenues for 2020 varied significantly by program: Medicaid ranged from **$190.00 to $1,560.00**, Medicare from **$1,060.00 to $3,150.00**, and Marketplace from **$310.00 to $590.00**[68](index=68&type=chunk)[69](index=69&type=chunk)[70](index=70&type=chunk) [COVID-19 Pandemic](index=13&type=section&id=Item%201.%20Business%20-%20COVID-19%20Pandemic) The COVID-19 pandemic negatively impacted 2020 earnings due to $564 million in premium refunds and direct care costs, despite reduced utilization, while federal support and suspended redeterminations led to significant Medicaid membership growth - The combination of COVID-related impacts netted to a significant negative impact on earnings in 2020[78](index=78&type=chunk) - In 2020, direct costs to care for COVID patients totaled **$205 million**. The effect of curtailed utilization, net of direct care costs, reduced medical care costs and increased pretax earnings by approximately **$420 million**[80](index=80&type=chunk) - The company recognized **$564 million** in retroactive premium refunds and related actions in 2020 due to reduced medical service demand from COVID-19[81](index=81&type=chunk) - Excluding acquisitions, Molina added approximately **415 thousand new Medicaid members** since March 31, 2020, largely due to the suspension of eligibility redeterminations during the public health emergency[84](index=84&type=chunk) [Legislative and Political Environment](index=15&type=section&id=Item%201.%20Business%20-%20Legislative%20and%20Political%20Environment) Molina operates in a dynamic legislative environment with significant uncertainties, including a pending Supreme Court decision on the ACA and risks of reduced Medicaid funding due to state budget pressures - A U.S. Supreme Court case challenging the constitutionality of the ACA was heard in November 2020, with a decision expected by June 2021. A ruling that the ACA is unconstitutional could have a material adverse effect on the business[89](index=89&type=chunk) - As of December 31, 2020, Molina served approximately **771 thousand Medicaid Expansion members** and **318 thousand Marketplace members**. In 2020, premium revenue from these members was **$4.9 billion**, contributing **$826 million** in Medical Margin[90](index=90&type=chunk) - The company faces risks from legislative proposals aimed at reducing Medicaid spending, such as capping federal health spending, reversing Medicaid expansion, or changing Medicaid to a state block grant program[88](index=88&type=chunk)[93](index=93&type=chunk) [Operations](index=16&type=section&id=Item%201.%20Business%20-%20Operations) Molina's operations focus on delivering high-quality, low-cost healthcare, with 13 health plans accredited by NCQA. The company contracts with a vast network of providers, primarily through fee-for-service, and outsources key functions like pharmacy benefit management and IT services - As of December 31, 2020, **13** of the company's health plans were accredited by the National Committee for Quality Assurance (NCQA)[92](index=92&type=chunk) Consolidated Medical Care Costs by Type (Year Ended Dec 31, 2020) | Type | Amount (in millions) | PMPM | % of Total | | :--- | :--- | :--- | :--- | | Fee-for-service | $11,590 | $261.30 | 73.3% | | Pharmacy | $2,012 | $45.37 | 12.7% | | Capitation | $1,459 | $32.88 | 9.2% | | Other | $759 | $17.10 | 4.8% | | **Total** | **$15,820** | **$356.65** | **100.0%** | - The company outsources pharmacy benefit management services and has partnered with a third-party vendor to manage key information technology services, including infrastructure operations and data centers[103](index=103&type=chunk)[109](index=109&type=chunk) [Competitive Conditions and Environment](index=19&type=section&id=Item%201.%20Business%20-%20Competitive%20Conditions%20and%20Environment) Molina Healthcare faces significant competition across all business lines, with major national players like Centene, UnitedHealth, and Anthem as primary competitors in Medicaid, Medicare, and Marketplace segments - Primary competitors in the Medicaid managed care industry include Centene Corporation, UnitedHealth Group Incorporated, Anthem, Inc., and Aetna Inc[114](index=114&type=chunk) - The Medicare market is highly competitive, with large competitors such as UnitedHealth Group Incorporated, Humana Inc., and Aetna Inc. holding significant market share[115](index=115&type=chunk) - The primary competitor for low-income Marketplace membership is Centene Corporation[117](index=117&type=chunk) [Regulation](index=20&type=section&id=Item%201.%20Business%20-%20Regulation) Molina's health plans are extensively regulated by state and federal laws, including HIPAA, HITECH, and fraud and abuse statutes, requiring strict compliance and minimum capital levels - The company is subject to HIPAA and HITECH regulations, which impose strict requirements for protecting patient health information and mandate data breach notifications[119](index=119&type=chunk) - As a recipient of federal and state funds, Molina is subject to fraud and abuse laws, including the False Claims Act, which allows for qui tam (whistleblower) lawsuits and can result in treble damages and exclusion from government programs[122](index=122&type=chunk)[124](index=124&type=chunk) - The company's health plans are licensed by state insurance or health departments and must maintain minimum statutory capital levels, which restricts their ability to pay dividends to the parent company[125](index=125&type=chunk)[126](index=126&type=chunk) [Human Capital](index=21&type=section&id=Item%201.%20Business%20-%20Human%20Capital) Molina Healthcare had approximately 10,500 employees at year-end 2020, with an additional 2,500 from acquisitions, and has implemented a workplace modernization program focusing on development, compensation, and diversity - As of December 31, 2020, the company had approximately **10,500 employees**, adding about **2,500** more from the Magellan Complete Care and Passport acquisitions effective January 1, 2021[126](index=126&type=chunk) - Recent human capital programs include a cash bonus plan for all non-executive employees, improved benefits, enhanced recognition programs, and a formal diversity, equity, and inclusion program[128](index=128&type=chunk) - The company offers a comprehensive benefits suite, including a **401(k) with a 100% match on the first 4%** contributed by the employee, and an employee stock purchase program[131](index=131&type=chunk)[132](index=132&type=chunk) [Risk Factors](index=22&type=section&id=Item%201A.%20Risk%20Factors) Molina Healthcare faces significant risks across its industry, business operations, and general corporate functions, many heightened by the COVID-19 pandemic, including contract loss, integration challenges, and regulatory non-compliance [Risks Related to Our Industry](index=22&type=section&id=Item%201A.%20Risk%20Factors%20-%20Risks%20Related%20to%20Our%20Industry) The company's industry is fraught with risks, primarily stemming from the COVID-19 pandemic, political and judicial uncertainty surrounding the ACA, potential government funding cuts, and stringent privacy regulations - The COVID-19 pandemic continues to pose risks, including increased member medical costs, potential for states to pursue retroactive rate refunds, and financial stress on providers[137](index=137&type=chunk)[138](index=138&type=chunk) - A pending U.S. Supreme Court decision on the constitutionality of the ACA creates significant uncertainty, as an adverse ruling could materially harm the business[140](index=140&type=chunk) - State and federal budget deficits may lead to funding cuts for Medicaid, CHIP, or Medicare. In 2020, the company recognized **$564 million** in retroactive premium actions related to COVID-19, and future refunds are possible[141](index=141&type=chunk) - As a holding company, Molina depends on dividends from its regulated subsidiaries to meet debt obligations. In 2020, the parent company received **$635 million** in dividends from these subsidiaries. State regulators can restrict these payments, which could negatively affect liquidity[144](index=144&type=chunk) - Failure to comply with privacy regulations like HIPAA and the California Consumer Privacy Act (CCPA) could result in significant civil penalties, liability, and reputational harm[145](index=145&type=chunk)[148](index=148&type=chunk)[149](index=149&type=chunk) [Risks Related to Our Business](index=26&type=section&id=Item%201A.%20Risk%20Factors%20-%20Risks%20Related%20to%20Our%20Business) Molina's business faces substantial operational risks, including legal challenges to contracts, reliance on major state contracts, integration complexities of large acquisitions, cybersecurity threats, and the difficulty of accurately estimating medical claims liabilities - The company's Kentucky Medicaid contract award and its acquisition of Passport are subject to ongoing legal challenges, the outcome of which is unpredictable[160](index=160&type=chunk)[161](index=161&type=chunk) - The company's top four health plans in California, Ohio, Texas, and Washington generated approximately **63%** of consolidated Medicaid premium revenue in 2020. The loss or non-renewal of these contracts could materially reduce revenues[162](index=162&type=chunk) - The integration of acquired businesses like Magellan Complete Care, Passport, and the pending Affinity acquisition is complex and involves risks such as unforeseen expenses, employee retention issues, and difficulties integrating IT systems[167](index=167&type=chunk)[168](index=168&type=chunk) - A failure to accurately estimate incurred but not paid (IBNP) medical care costs could negatively impact results. The estimation process is based on numerous complex assumptions[174](index=174&type=chunk) - The company's profitability is highly sensitive to its medical care ratio (MCR). A **one-percentage-point increase** in the 2020 MCR (from **86.5% to 87.5%**) would have reduced diluted EPS from **$11.23 to approximately $8.88**[178](index=178&type=chunk) - As of December 31, 2020, the company had **$2.35 billion** of indebtedness outstanding and **$1 billion** available under its Revolving Credit Facility. This substantial debt could increase vulnerability to adverse economic conditions[198](index=198&type=chunk) [General Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors%20-%20General%20Risk%20Factors) The company faces general risks including high dependency on key executives, exposure to various legal actions, and significant disruption risk from natural disasters due to its Southern California headquarters - The business is highly dependent on the leadership of its CEO, Joseph M. Zubretsky, and other key executives[203](index=203&type=chunk) - The location of the corporate headquarters in Long Beach, California, exposes the company to significant disruption risk from major earthquakes or wildfires[205](index=205&type=chunk) [Properties](index=35&type=section&id=Item%202.%20Properties) Molina Healthcare owns and leases real properties to support its business operations, believing current facilities are adequate for near-term needs while continuously evaluating future requirements - The company owns and leases real properties for its operations and believes its current facilities are adequate for near-term needs[207](index=207&type=chunk) [Legal Proceedings](index=35&type=section&id=Item%203.%20Legal%20Proceedings) Molina Healthcare is involved in a significant legal dispute in Kentucky regarding the 2020 Medicaid managed care RFP awards, with competing health plans challenging the awards and Molina's acquisition of Passport members - Molina's Kentucky health plan is a defendant in consolidated legal actions brought by Anthem, UnitedHealthcare, and Humana challenging the state's Medicaid RFP awards and the allocation of Passport members to Molina[208](index=208&type=chunk)[209](index=209&type=chunk) - A temporary injunction allows Molina Healthcare of Kentucky to continue operating under its contract. The company is vigorously defending its position, but the outcome is uncertain[210](index=210&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=35&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Molina Healthcare's common stock trades on the NYSE; the company authorized a $500 million stock repurchase program in September 2020 and does not currently pay cash dividends, intending to retain future earnings for operations - In September 2020, the board authorized a new **$500 million** stock repurchase program extending through December 31, 2021[215](index=215&type=chunk) Q4 2020 Stock Repurchases | Period | Total Shares Purchased | Avg Price Paid | Shares Purchased (Public Program) | Value Remaining in Program | | :--- | :--- | :--- | :--- | :--- | | Oct 1-31 | 1,000 | $188.27 | — | $500,000,000 | | Nov 1-30 | — | — | 323,000 | $432,000,000 | | Dec 1-31 | — | — | 443,000 | $341,000,000 | - The company has not paid cash dividends on its common stock to date and currently intends to retain future earnings to fund operations[217](index=217&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2020, Molina's total revenue grew 15% to $19.4 billion, driven by acquisitions and membership growth, despite a net negative earnings impact from COVID-19, while maintaining strong liquidity and strengthening its capital position [Overview and 2020 Highlights](index=38&type=section&id=Item%207.%20MD%26A%20-%20Overview%20and%202020%20Highlights) Molina Healthcare reported strong 2020 performance with total revenue increasing 15% to $19.4 billion, driven by membership growth and acquisitions, despite a net negative COVID-19 impact of $2.30 per diluted share due to premium refunds - Total revenue for 2020 was **$19.4 billion**, a **15% increase** from 2019, with net income per diluted share of **$11.23**[221](index=221&type=chunk) - The net effect of COVID-19 was estimated to decrease net income for 2020 by **$2.30 per diluted share** and increase the MCR by approximately **50 basis points**[221](index=221&type=chunk) - COVID-related impacts included a **$420 million decrease** in medical costs from utilization curtailment, offset by **$564 million** in premium refunds to states[220](index=220&type=chunk) - Membership grew by approximately **900 thousand** to **4.2 million**, with about half from acquisitions (Magellan, Passport, YourCare) and the rest from the suspension of Medicaid redeterminations[221](index=221&type=chunk) [Consolidated Results of Operations](index=40&type=section&id=Item%207.%20MD%26A%20-%20Consolidated%20Results%20of%20Operations) For 2020, net income was $673 million ($11.23/share), with premium revenue growing 13% to $18.3 billion, offset by COVID-related refunds, leading to an increased consolidated MCR of 86.5% and a higher effective tax rate - Premium revenue increased by **$2.1 billion (13%)** in 2020, primarily due to increased membership from acquisitions (YourCare, Passport) and the suspension of Medicaid redeterminations. This was net of a **$564 million reduction** for COVID-related premium refunds[227](index=227&type=chunk)[228](index=228&type=chunk)[229](index=229&type=chunk) - The consolidated MCR increased to **86.5%** in 2020 from **85.8%** in 2019, with the net effect of COVID-19 contributing approximately **50 basis points** to the increase[230](index=230&type=chunk) - The company recognized a **$128 million gain** from a Marketplace risk corridor judgment for prior years (2014-2016), which was received in October 2020[234](index=234&type=chunk)[235](index=235&type=chunk) - The effective income tax rate increased to **30.0%** in 2020 from **24.2%** in 2019, primarily due to the non-deductible Health Insurer Fee (HIF), which was under a moratorium in 2019 and has been repealed for years after 2020[239](index=239&type=chunk)[232](index=232&type=chunk) [Reportable Segments Performance](index=41&type=section&id=Item%207.%20MD%26A%20-%20Reportable%20Segments%20Performance) The Health Plans segment's Medical Margin increased to $2.5 billion in 2020, with Medicaid margin growing by $307 million, while the Marketplace segment's margin fell sharply by $152 million due to a deteriorated MCR of 78.7% Medical Margin and MCR by Program (Year Ended Dec 31) | Program | Premium Revenue 2020 (M) | Medical Margin 2020 (M) | MCR 2020 | Premium Revenue 2019 (M) | Medical Margin 2019 (M) | MCR 2019 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Medicaid | $14,265 | $1,804 | 87.4% | $12,466 | $1,497 | 88.0% | | Medicare | $2,512 | $351 | 86.0% | $2,243 | $330 | 85.3% | | Marketplace | $1,522 | $324 | 78.7% | $1,499 | $476 | 68.2% | | **Total** | **$18,299** | **$2,479** | **86.5%** | **$16,208** | **$2,303** | **85.8%** | - The Medicaid program's Medical Margin increased by **$307 million (21%)** in 2020, driven by revenue from membership growth and a **60 basis point improvement** in its MCR[255](index=255&type=chunk)[256](index=256&type=chunk) - The Marketplace MCR increased significantly to **78.7%** in 2020 from **68.2%** in 2019. This was caused by lower premium rates PMPM (due to competitive pricing) combined with higher medical costs PMPM from a higher acuity member mix and COVID-19 costs[262](index=262&type=chunk)[264](index=264&type=chunk) [Liquidity and Financial Condition](index=44&type=section&id=Item%207.%20MD%26A%20-%20Liquidity%20and%20Financial%20Condition) Molina maintained strong liquidity in 2020, with net cash from operations surging to $1.89 billion, enhancing financial flexibility through new senior notes and a revolving credit facility, and planning future acquisitions and stock repurchases Cash Flow Summary | Activity | 2020 (in millions) | 2019 (in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,890 | $427 | | Net cash used in investing activities | ($400) | ($293) | | Net cash provided by (used in) financing activities | $225 | ($552) | - Cash and investments at the parent company decreased to **$644 million** at year-end 2020 from **$997 million** in 2019, mainly due to cash used for acquisitions and stock repurchases, partially offset by net debt financing and dividends from subsidiaries[269](index=269&type=chunk) - Regulated subsidiaries held aggregate capital and surplus of approximately **$2.44 billion**, exceeding the minimum required amount of approximately **$1.54 billion** as of December 31, 2020[282](index=282&type=chunk)[496](index=496&type=chunk) - Future uses of liquidity include the pending acquisition of Affinity Health Plan for approximately **$380 million** and continued stock repurchases under a program with approximately **$219 million** remaining available as of February 11, 2021[292](index=292&type=chunk) [Critical Accounting Estimates](index=48&type=section&id=Item%207.%20MD%26A%20-%20Critical%20Accounting%20Estimates) Molina's most critical accounting estimate is the incurred but not paid (IBNP) medical claims liability, requiring significant judgment based on actuarial methods and assumptions like completion factors and healthcare cost trends, with sensitivity analyses provided - The estimation of the IBNP liability is a critical accounting estimate requiring significant judgment. The most critical assumptions are estimated completion factors and the assumed healthcare cost trend[303](index=303&type=chunk) Sensitivity of Claims Liability to Completion Factor Changes (as of Dec 31, 2020) | Change in Estimated Completion Factors | (Decrease) Increase in Medical Claims and Benefits Payable (in millions) | | :--- | :--- | | (6)% | $491 | | (4)% | $327 | | (2)% | $164 | | 2% | ($164) | | 4% | ($327) | | 6% | ($491) | Sensitivity of Claims Liability to Medical Cost Trend Changes (as of Dec 31, 2020) | (Decrease) Increase in Trended PMPM Cost Estimates | (Decrease) Increase in Medical Claims and Benefits Payable (in millions) | | :--- | :--- | | (6)% | ($179) | | (4)% | ($120) | | (2)% | ($60) | | 2% | $60 | | 4% | $120 | | 6% | $179 | [Quantitative and Qualitative Disclosures About Market Risk](index=52&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Molina Healthcare's primary market risk exposure is to interest rate changes, affecting its fixed-income investment portfolio and variable-rate borrowings, with a hypothetical 1% rate increase decreasing investment fair value by $39 million - The company's primary financial market risk is from changes in interest rates[318](index=318&type=chunk) - A hypothetical **1% increase** in market interest rates at December 31, 2020, would decrease the fair value of the company's fixed income investments by approximately **$39 million**[319](index=319&type=chunk) [Financial Statements and Supplementary Data](index=53&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the audited consolidated financial statements for Molina Healthcare, Inc. for the fiscal year ended December 31, 2020, detailing financial performance, position, and cash flows, with an unqualified auditor opinion [Consolidated Financial Statements](index=54&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data%20-%20Consolidated%20Financial%20Statements) The consolidated financial statements for 2020 show total revenues of $19.4 billion, net income of $673 million, total assets of $9.5 billion, and strong cash flow from operations of $1.9 billion, with equity changes driven by net income and stock repurchases Consolidated Statement of Income Highlights (Year Ended Dec 31, 2020) | Metric | Amount (in millions) | | :--- | :--- | | Total Revenue | $19,423 | | Medical Care Costs | $15,820 | | Operating Income | $1,078 | | Net Income | $673 | | Diluted EPS | $11.23 | Consolidated Balance Sheet Highlights (as of Dec 31, 2020) | Metric | Amount (in millions) | | :--- | :--- | | Total Current Assets | $7,876 | | Total Assets | $9,532 | | Medical Claims and Benefits Payable | $2,696 | | Total Liabilities | $7,436 | | Total Stockholders' Equity | $2,096 | Consolidated Statement of Cash Flows Highlights (Year Ended Dec 31, 2020) | Metric | Amount (in millions) | | :--- | :--- | | Net cash provided by operating activities | $1,890 | | Net cash used in investing activities | ($400) | | Net cash provided by financing activities | $225 | [Notes to Consolidated Financial Statements](index=59&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data%20-%20Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed disclosures on business combinations (Magellan, Passport, YourCare), the $2.7 billion medical claims payable liability with $119 million favorable development, $2.15 billion in long-term debt, and regulatory capital requirements - The company closed on three business combinations in 2020: Magellan Complete Care (purchase consideration ~**$1.04 billion**), Passport Health Plan (**$66 million**), and YourCare Health Plan (**$42 million**)[398](index=398&type=chunk)[400](index=400&type=chunk)[406](index=406&type=chunk)[407](index=407&type=chunk) - The liability for medical claims and benefits payable was **$2.7 billion** at year-end 2020. The company recognized **$119 million** in favorable prior-year claims development during 2020, primarily due to lower-than-expected utilization by Medicaid members[441](index=441&type=chunk)[443](index=443&type=chunk)[444](index=444&type=chunk) - As of Dec 31, 2020, the company had **$2.15 billion** in principal debt outstanding, primarily consisting of senior notes due in 2022, 2028, and 2030[453](index=453&type=chunk) - The company's regulated subsidiaries are required to maintain minimum statutory capital. As of Dec 31, 2020, the required minimum was approximately **$1.54 billion** in aggregate, and the company was in excess of this requirement[496](index=496&type=chunk)[282](index=282&type=chunk) [Controls and Procedures](index=93&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2020, excluding recent acquisitions, with an unqualified auditor opinion on internal control effectiveness - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[528](index=528&type=chunk) - Management's assessment of internal control over financial reporting excluded the recently acquired Passport and Magellan Complete Care businesses, which in aggregate constituted **11% of total assets** and **3% of revenues** for the year[532](index=532&type=chunk) - Ernst & Young, LLP, the independent registered public accounting firm, issued an unqualified opinion on the company's internal control over financial reporting as of December 31, 2020[534](index=534&type=chunk)[537](index=537&type=chunk) [Other Information](index=99&type=section&id=Item%209B.%20Other%20Information) There is no information to be reported under this item - None[560](index=560&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=99&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information required for this item, including details about directors, executive officers, and corporate governance matters, is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the registrant's Proxy Statement for the 2021 Annual Meeting of Stockholders[561](index=561&type=chunk) [Executive Compensation](index=99&type=section&id=Item%2011.%20Executive%20Compensation) Information required for this item, concerning executive compensation, is incorporated by reference from the "Executive Compensation" section of the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the registrant's Proxy Statement for the 2021 Annual Meeting of Stockholders[562](index=562&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=99&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information required for this item, regarding security ownership of certain beneficial owners and management, is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the registrant's Proxy Statement for the 2021 Annual Meeting of Stockholders[563](index=563&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=99&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information required for this item, covering related party transactions and director independence, is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the registrant's Proxy Statement for the 2021 Annual Meeting of Stockholders[564](index=564&type=chunk) [Principal Accountant Fees and Services](index=99&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information required for this item, detailing fees paid to the independent registered public accounting firm, is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the registrant's Proxy Statement for the 2021 Annual Meeting of Stockholders[565](index=565&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=100&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements and exhibits filed as part of the Form 10-K, with consolidated financial statements included and an index to all exhibits provided - The consolidated financial statements are included in the report. Financial statement schedules are omitted as they are inapplicable or the required information is included elsewhere[567](index=567&type=chunk) - An index to all exhibits filed with the report is provided[568](index=568&type=chunk)[571](index=571&type=chunk)

Molina Healthcare, Inc. (NYSE:MOH) Q4 2020 Results Conference Call February 11, 2021 8:00 AM ET Company Participants Julie Trudell - Senior Vice President of Investor Relations Joseph Zubretsky - President and Chief Executive Officer Thomas Tran - Chief Financial Officer Conference Call Participants Matthew Borsch - BMO Capital Markets Ricky Goldwasser - Morgan Stanley Robert Jones - Goldman Sachs Charles Rhyee - Cowen & Company Gary Taylor - JPMorgan Justin Lake - Wolfe Research Scott Fidel - Stephens Davi ...