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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 8-K
 
 
Current Report
 
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): April 28, 2005
 
 
MOLINA HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
 
Delaware 1-31719 13-4204626
(State of incorporation) (Commission File Number) (I.R.S. Employer Identification Number)
 
 
One Golden Shore Drive, Long Beach, California 90802
(Address of principal executive offices)
 
Registrant’s telephone number, including area code: (562) 435-3666
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
  o     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
   
  o     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
   
  o     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
   
  o     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
 


Item 2.02. Results of Operations and Financial Condition.
   
                      On April 28, 2005, Molina Healthcare, Inc. issued a press release announcing its financial results for the first quarter ended March 31, 2005. The full text of the press release is included as Exhibit 99.1 to this report. The information contained in the websites cited in the press release is not part of this report.
   
                      The information in this Form 8-K and the exhibit attached hereto shall not be deemed to be “filed” for purposes of Section 18 of the Securities Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Act of 1934, except as expressly set forth by specific reference in such a filing.
   
Item 9.01. Financial Statements and Exhibits.
   
(c) Exhibits: 
   
Exhibit  
No.    Description
   
99.1 Press release of Molina Healthcare, Inc. issued April 28, 2005, as to financial results for the first quarter ended March 31, 2005.


SIGNATURE

                        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
     MOLINA HEALTHCARE, INC.
   
Date: April 28, 2005    By:    /s/ Mark L. Andrews
 
     Mark L. Andrews
     Executive Vice President, General Counsel
       and Corporate Secretary


EXHIBIT INDEX
   
Exhibit  
No.    Description
   
99.1 Press release of Molina Healthcare, Inc. issued April 28, 2005, as to financial results for the first quarter ended March 31, 2005.

News Release

Contact:
J. Mario Molina, M.D.
President and Chief Executive Officer
562-435-3666

MOLINA HEALTHCARE REPORTS
FIRST QUARTER RESULTS

Long Beach, California (April 28, 2005) — Molina Healthcare, Inc. (NYSE: MOH) today announced its financial results for the first quarter ended March 31, 2005.

Net income for the first quarter ended March 31, 2005, rose 33% to $14.8 million from $11.1 million for the quarter ended March 31, 2004. Earnings per diluted share for the quarter increased to $0.53 from $0.43 for the previous year.

Commenting on the first quarter results, J. Mario Molina, M.D., president and chief executive officer of Molina Healthcare, Inc., said, “Our solid first quarter results reinforce our optimism for the future of our markets and reaffirm our enthusiasm for the opportunities ahead. We continue to expand our operations through acquisitions and start up activities as well as through extension of services to more elderly and disabled Medicaid beneficiaries. The challenges that we face are not new – limited premiums, rigorous eligibility redeterminations and the unique needs of our members. We will continue to use the skills and insights we have gained through 25 years of experience as we respond to these challenges. We believe that we will continue to enhance shareholder value as we better serve our members, our government payors and our providers.”

Guidance

The Company confirms its previously issued guidance for earnings per diluted share in the range of $2.40 - $2.45 for fiscal year 2005. The Company believes that any recent developments serving to reduce earnings per share from the guidance provided earlier will be offset by other factors not previously anticipated.

Financial Results – Comparison of Quarters Ended March 31, 2005 and 2004

Premium revenue  for the first quarter of 2005 was $390.9 million, representing an increase of $173.0 million, or 79%, over 2004 premium revenue of $217.9 million.

Membership growth contributed $106.7 million to the increase in premium revenue. Enrollment was significantly higher in Washington and Michigan, principally due to the transfer of members from other health plans in the second and fourth quarters of 2004, respectively, in those states. Additionally, the first quarter of 2005 benefited from the Company’s New Mexico acquisition, which closed on July 1, 2004.

Higher premium rates contributed $66.3 million to the increase in premium revenue. Blended premium increases were most pronounced at the Company’s Michigan and Washington HMOs. Additionally, premium rates at the Company’s New Mexico HMO are considerably higher than the Company’s average.


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MOH Announces First Quarter Results
Page 2
April 28, 2005

Sequentially, enrollment grew by 2%, or 15,000 members between December 31, 2004 and March 31, 2005. Premium revenue grew sequentially by $18.2 million, or 4.9%, for the first quarter of 2005 when compared with the fourth quarter of 2004.

Medical care costs  as a percentage of premium and other operating revenue (the medical care ratio) increased to 84.9% in the first quarter of 2005 from 84.1% in the first quarter of 2004. Medical care costs increased in absolute terms to $333.1 million in the first quarter of 2005 from $184.2 million in the first quarter of 2004.

The primary source of the increase in the medical care ratio was the acquisition of the New Mexico HMO, which has traditionally experienced a higher medical care ratio than our other HMOs. Excluding the New Mexico HMO, the Company’s medical care ratio for the first quarter of 2005 would have been 84.2%, essentially flat when compared with the 84.1% medical care ratio experienced in the first quarter of 2004.

The Company’s medical margin (defined as the difference between the total of premium and other operating revenue and medical costs) grew substantially in the first quarter of 2005 when compared with the first quarter of 2004. Medical margin increased to $24.69 per member per month in 2005 from $20.10 per member per month in 2004, an increase of approximately 23%.

Salary, general and administrative expenses  were $33.5 million for the first quarter of 2005, representing 8.5% of total revenue, as compared with $17.5 million, or 7.9% of total revenue, for the first quarter of 2004. Excluding premium taxes, SG&A expenses decreased to 5.9% of total revenue in the first quarter of 2005, as compared with 6.6% in the first quarter of 2004.

Interest income doubled in the first quarter of 2005 when compared with 2004 as a result of higher invested balances and higher interest rates.

Income taxes were recognized in the first quarter of 2005 based upon an effective tax rate of 38.0%. The effective tax rate has increased in 2005 as a result of the declining relative significance of certain economic development credits that the Company continues to take.

Growth Update

Acquisitions:   The Company expects to close on its two previously announced acquisitions in San Diego, California, during June of 2005. The Company expects these two acquisitions to add combined enrollment of approximately 70,000 members to the Company’s California HMO. The Company continues to evaluate numerous other acquisitions that meet its previously announced guidelines. Such acquisitions may be in states where the Company already has a presence, in states where the Company has initiated start-up activities, or in states where the Company currently has no presence.

Start-Up Activities:  The Company’s Indiana HMO began operations effective April 1, 2005, with approximately 5,000 members.

The Company’s Ohio subsidiary has entered into a pre-contracting process with the Ohio Department of Job and Family Services (ODJFS), with the intent of entering into a contract to serve Medicaid members in Ohio. The ultimate ability of the Company to operate in Ohio will depend, among other things, on its success in obtaining an HMO Certificate of Authority, developing a satisfactory provider network and securing a Medicaid contract with ODJFS.


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MOH Announces first Quarter Results
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April 28, 2005

The Company has applied for a Certificate of Authority in Texas and is seeking to obtain Medicaid contracts in certain regions of that state.

Serving the elderly and disabled:  The Company continues to expand its membership to include more of the aged, blind and disabled population. Effective January 1, 2005, the Company’s Washington HMO entered into a pilot program serving aged, blind and disabled members in Snohomish County Washington. In addition to arranging for medical care for members enrolled in the Washington Medicaid Integration Partnership (WMIP), the Company’s Washington HMO is currently arranging for the provision of outpatient behavioral health services and will begin arranging for the provision of inpatient mental health services later in 2005. At March 31, 2005, the Company served approximately 2,500 WMIP members.

The Company has recently initiated efforts to serve Medicare beneficiaries who are also entitled to Medicaid benefits (the dual eligible population). Recent changes to the Medicare regulations allow the Company to offer medical services to the dual eligible population. The Company has submitted applications to operate Special Needs Plans (SNPs) in California, Michigan, Utah and Washington. In addition, the Company’s Utah HMO has submitted an application to serve Medicare Long Term Care beneficiaries as part of the Utah SNP. The Company believes that its efforts to establish SNPs and to attract more aged, blind and disabled members are a natural extension of its commitment to providing quality, accessible health care to underserved populations served by government programs.

Cash Flow

Operating activities provided $2.4 million in cash for the quarter ended March 31, 2005. Net cash provided by operating activities was reduced by an increase in accounts receivable at the Company’s Utah HMO of approximately $7.6 million, principally as a result of a late payment by the state that was not received until April. Accelerated claims payment (consolidated days in claims payable decreased to 48 days at March 31, 2005, from 54 days at December 31, 2004) further reduced net cash provided by operating activities by $4.6 million. Additionally, a decrease in accounts payable and accrued liabilities (primarily the result of the payment of $5.0 million in premium taxes due April 1, 2005) decreased net cash provided by operating activities by $4.7 million.

The Company believes that over time net cash provided by operating activities is approximately equal to the sum of net income and depreciation and amortization.

Membership

The following table details the Company’s membership by state at March 31, 2005; December 31, 2004; and March 31, 2004:

 
March 31,
2004		 December 31,
2004		 March 31,
2005
   
 
 
   
  Michigan   89,000     158,000     157,000    
  Washington   203,000     263,000     276,000    
  California   252,000     253,000     254,000    
  Utah   44,000     49,000     55,000    
  New Mexico   NA     65,000     61,000    
   
 
 
   
     Total   588,000     788,000     803,000    
   
 
 
   

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MOH Announces first Quarter Results
Page 4
April 28, 2005

The following table details member months (defined as the aggregation of each month’s membership for the period) by state for the quarters ended March 31, 2005; December 31, 2004; and March 31 2004:

  
Quarter Ended
March 31,
2004		 December 31,
2004		 March 31,
2005
   
 
 
   
  Michigan   256,000     479,000     471,000    
  Washington   590,000     788,000     823,000    
  California   761,000     747,000     753,000    
  Utah   132,000     148,000     159,000    
  New Mexico   NA     195,000     187,000    
   
 
 
   
     Total   1,739,000     2,357,000     2,393,000    
   
 
 
   
 

Conference Call

The live broadcast of Molina Healthcare’s conference call will begin at 5:00 p.m. Eastern Time, April 28, 2005. The number to call for this interactive conference call is 212-346-6538. A 30-day online replay will be available beginning approximately one hour following the conclusion of the live broadcast. A link to these events can be found on the Company’s website at www.molinahealthcare.comor at www.earnings.com.

Molina Healthcare, Inc. is a growing, multi-state managed care organization that arranges for the delivery of healthcare services to persons eligible for Medicaid and for other programs for low-income families and individuals. Molina Healthcare, Inc. currently operates health plans in California, Indiana, Michigan, New Mexico, Utah and Washington.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995:  This press release contains “forward-looking statements” identified by words such as “will,” “expects,” “believes,” “anticipates,” “plans,” “projects,” “estimates,” “intends,” “assumes,” and similar words and expressions. In addition, any statements that refer to earnings guidance, expectations, projections, or other characterizations of future events or circumstances are forward-looking statements. All of the Company’s forward-looking statements are based on current expectations and assumptions that are subject to numerous known and unknown risks, uncertainties and other factors that could cause actual results to differ materially. Such risk factors include, without limitation: the Company’s ability to accurately predict and effectively manage health benefits and other operating expenses, potential reductions in funding for Medicaid and other government-sponsored healthcare programs, the successful renewal of the Company’s government contracts, the Company’s ability to accurately estimate incurred but not reported medical costs, the implementation of announced rate increases, the Company’s ability to obtain regulatory approvals for acquisitions or to successfully integrate its completed acquisitions, the Company’s third-party contracts, competition, changes in healthcare practices or technologies, changes in federal or state laws or regulations or the interpretation thereof, risks associated with the Company’s start-up operations in new states, inflation, disasters or major epidemics, and other risks and uncertainties as detailed in the Company’s reports and filings with the Securities and Exchange Commission and available on its website at www.sec.gov. All forward-looking statements in this release represent the Company’s judgment as of the date of April 28, 2005. The Company disclaims any intent or obligation to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations.


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MOH Announces first Quarter Results
Page 5
April 28, 2005

 

MOLINA HEALTHCARE, INC.
CONSOLIDATED INCOME STATEMENTS
(In thousands, except for per share data and operating statistics)
(Unaudited)

 
Three Months Ended
March 31,
   2005    2004   
 
 
 
Revenue:        
    Premium revenue $ 390,924   $ 217,868  
    Other operating revenue   1,263     1,295  
 
 
 
         Total premium and other operating revenue   392,187     219,163  
    Investment income   1,765     863  
 
 
 
         Total operating revenue   393,952     220,026  
             
Expenses:            
    Medical care costs:            
      Medical services   63,667     50,768  
      Hospital and specialty services   226,532     109,789  
      Pharmacy   42,915     23,660  
 
 
 
         Total medical care costs   333,114     184,217  
    Salary, general and administrative expenses   33,546     17,458  
    Depreciation and amortization   3,198     1,599  
 
 
 
         Total expenses   369,858     203,274  
 
 
 
    Operating income   24,094     16,752  
             
Other income (expense):            
    Interest expense   (289 )   (255 )
    Other, net (1)   —     1,162  
 
 
 
         Total other income (expense)   (289 )   907  
 
 
 
    Income before income taxes   23,805     17,659  
    Provision for income taxes   9,046     6,561  
 
 
 
    Net income $ 14,759   $ 11,098  
 
 
 
  
Net income per share:
    Basic $ 0.53   $ 0.44  
 
 
 
    Diluted $ 0.53   $ 0.43  
 
 
 
             
Weighted average number of common shares and            
    potentially dilutive common shares outstanding   27,964     25,918  
 
 
 
             
Operating Statistics:            
    Medical care ratio (2)   84.9 %   84.1 %
    Salary, general and administrative expense ratio (3), excluding premium taxes   5.9 %   6.6 %
    Premium taxes included in salary, general and administrative expenses   2.6 %   1.3 %
 
 
 
         Total salary, general and administrative expense ratio   8.5 %   7.9 %
 
 
 
             
    Members (4)   803,000     588,000  
    Days in claims payable   47.9     53.1  
             
(1) For the quarter ended March 31, 2004, includes $1.162 million in income arising from the termination of a split dollar life insurance arrangement between the Company and a related party.
   
(2) Medical care ratio represents medical care costs as a percentage of premium and other operating revenue.
   
(3) Salary, general and administrative expense ratio represents such expenses as a percentage of total operating revenue.
   
(4) Number of members at end of period.

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MOH Announces first Quarter Results
Page 6
April 28, 2005
 
MOLINA HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
 (dollars in thousands, except per share data)
 
March 31,
2005		 Dec. 31,
2004
(Unaudited)
ASSETS       
      
Current assets:            
    Cash and cash equivalents $ 242,425   $ 228,071  
    Investments   73,182     88,530  
    Receivables   74,115     65,430  
    Deferred income taxes   3,086     3,981  
    Prepaid and other current assets   7,828     8,306  
 
 
 
      Total current assets   400,636     394,318  
Property and equipment, net   26,416     25,826  
Intangible assets, net   35,149     36,749  
Goodwill   61,978     61,978  
Restricted investments   10,888     10,847  
Deferred income taxes   —     —  
Other assets   8,040     4,141  
 
 
 
      Total assets $ 543,107   $ 533,859  
 
 
 
      
LIABILITIES AND STOCKHOLDERS’ EQUITY  
      
Current liabilities:            
    Medical claims and benefits payable $ 155,565   $ 160,210  
    Accounts payable and accrued liabilities   19,223     22,966  
    Net liability for commercial membership sale   725     1,676  
    Income taxes payable   5,736     7,110  
    Current maturities of long-term debt   174     171  
 
 
 
      Total current liabilities   181,423     192,133  
Long-term debt, less current maturities   4,780     1,723  
Deferred income taxes   5,745     5,315  
Other long-term liabilities   4,432     4,066  
 
 
 
      Total liabilities   196,380     203,237  
             
Stockholders’ equity:            
    Common stock, $0.001 par value; 80,000,000 shares authorized;            
      issued and outstanding: 27,668,108 shares at March 31, 2005,            
       and 27,602,443 shares at December 31, 2004   28     28  
    Preferred stock, $0.001 par value; 20,000,000 shares authorized,            
      no shares issued and outstanding         —  
    Additional paid-in capital   159,247     157,666  
    Accumulated other comprehensive income (loss)   (469 )   (234 )
    Retained earnings   208,311     193,552  
    Treasury stock (1,201,174 shares, at cost)   (20,390 )   (20,390 )
 
 
 
      Total stockholders’ equity   346,727     330,622  
 
 
 
      Total liabilities and stockholders’ equity $ 543,107   $ 533,859  
 
 
 

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MOH Announces first Quarter Results
Page 7
April 28, 2005
 
MOLINA HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 
Three Months Ended
March 31,
   2005    2004   
 
Operating activities:        
Net income $ 14,759   $ 11,098  
Adjustments to reconcile net income to net cash provided by operating activities:            
    Depreciation and amortization   3,198     1,599  
    Amortization of capitalized credit facility fees   734     157  
    Deferred income taxes   1,472     870  
    Tax benefit from exercise of employee stock options            
       recorded as additional paid-in capital   1,021     1,411  
    Stock-based compensation   175     —  
Changes in operating assets and liabilities, net of assets
     acquired and liabilities assumed in purchase transactions: 		           
      Receivables   (8,685 )   1,144  
      Prepaid and other current assets   478     574  
      Medical claims and benefits payable   (4,645 )   (7,044 )
      Deferred revenue   —     —  
      Accounts payable and accrued liabilities   (4,694 )   754  
      Income taxes payable (receivable)   (1,374 )   1,408  
 
Net cash provided by operating activities   2,439     11,971  
             
Investing activities:            
Purchases of equipment   (2,189 )   (584 )
Purchases of investments   (3,969 )   (140,237 )
Sales and maturities of investments   18,935     106,888  
Increase in restricted cash   (41 )   —  
Other long-term liabilities   366     194  
Advances to related parties and other assets   (4,633 )   1,979  
 
Net cash used in investing activities   8,469     (31,760 )
             
Financing activities:            
Issuance of common stock   —     47,360  
Borrowing under credit facility   3,100     —  
Issuance (repayment) of mortgage note   (3 )   —  
Principal payments on capital lease obligations   (37 )   —  
Proceeds from exercise of stock options and employee stock purchases   386     717  
 
Net cash provided by financing activities   3,446     48,077  
 
Net increase in cash and cash equivalents   14,354     28,288  
Cash and cash equivalents at beginning of period   228,071     141,850  
 
Cash and cash equivalents at end of period $ 242,425   $ 170,138  
 

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MOH Announces first Quarter Results
Page 8
April 28, 2005
 
MOLINA HEALTHCARE, INC.
CHANGE IN MEDICAL CLAIMS AND BENEFITS PAYABLE
(Dollars in thousands)
(Unaudited)
 
The following table shows the components of the change in medical claims and benefits payable for the quarters ending March 31, 2005 and 2004:
 
Three Months Ended
March 31,
   2005    2004   
 
             
Balances at beginning of period $ 160,210   $ 105,540  
Components of medical care costs related to:            
    Current year   343,065     190,943  
    Prior years   (9,951 )   (6,726 )
 
Total medical care costs   333,114     184,217  
Payments for medical care costs related to:            
    Current year   212,959     115,097  
    Prior years   124,800     76,164  
 
Total paid   337,759     191,261  
 
Balances at end of period $ 155,565   $ 98,496  
 

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