Molina Healthcare(MOH) - 2020 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported earnings per diluted share of $2.92, with net income of $178 million and an after-tax margin of 3.9%, slightly exceeding expectations [9][11] - Premium revenue increased to $4.3 billion, an 8.9% increase over the prior year, consistent with the company's pivot to growth [9][43] - The medical care ratio (MCR) was 86.3%, reflecting medical cost pressures early in the quarter due to seasonal flu and unidentified COVID-19 costs, offset by lower costs later in the quarter [10][44] Business Line Data and Key Metrics Changes - In the Medicaid line of business, the MCR was 88.9%, slightly up from 88.5% in the prior year, with solid performance attributed to effective cost management [45] - The Medicare MCR improved to 81.7% from 84.7% year-over-year, driven by rate increases and higher quality incentive revenues [47] - The Marketplace MCR increased to 72.3% from 52.2% in the prior year, primarily due to lower pricing strategies [47] Market Data and Key Metrics Changes - The company experienced a steep decline in elective medical procedures starting late March, which continued into April, impacting overall medical costs [49] - COVID-19 had a significant impact on the healthcare landscape, with 950 members hospitalized, and the average length of stay being approximately 10 days [49][50] Company Strategy and Development Direction - The company announced the acquisition of Magellan Complete Care, which is expected to enhance geographic diversity and revenue, with a projected growth to $3 billion within two years [31][34] - The acquisition is anticipated to be accretive by approximately $0.50 to $0.75 in cash earnings per diluted share in the first year and at least $1.75 in the second year [35] - The company is focused on maintaining continuity of care and stability for state partners while expanding its portfolio [36] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the unprecedented challenges posed by the COVID-19 pandemic but emphasized the company's strong financial position and operational resilience [17][19] - The company reaffirmed its full-year earnings guidance range of $11.20 to $11.70 per diluted share, despite uncertainties related to COVID-19's impact on medical costs and membership [24][52] - Management highlighted the potential for increased Medicaid and Marketplace enrollment due to rising unemployment, although the exact impact remains uncertain [23][54] Other Important Information - The company completed a share repurchase program, buying back 3.4 million shares for approximately $450 million [17] - The company drew down $380 million from its term loan facility to bolster liquidity, holding approximately $840 million in excess cash [18][60] Q&A Session Summary Question: Can you talk about the Magellan acquisition in terms of margins? - Management indicated that the acquisition is expected to improve margins significantly, with a current EBITDA margin of approximately 1% projected to reach 6% or 6.5% in the future [57][58] Question: What is the cash outlook for the rest of the year? - The company expects to extract approximately $500 million in ordinary dividends from operating subsidiaries, with a total cash position of $840 million and additional debt capacity of $900 million [60] Question: How do you see the enrollment trajectory changing? - Management noted that Medicaid membership grew by over 30,000 members in April, primarily due to the suspension of eligibility determinations, not directly from unemployment [68] Question: What might the MLR be for new members entering Medicaid? - Management acknowledged the uncertainty regarding the acuity of new members but indicated that the impact on MLR is difficult to predict at this time [70][71] Question: Are there any significant negatives not included in guidance? - Management confirmed that the guidance includes headwinds from lower investment income and increased SG&A expenses related to COVID-19, but no other significant negatives were identified [72][74]