Molina Healthcare Inc · NYSE:MOH
Molina Healthcare — Investor Day (February 2013)
79 slides from Molina Healthcare's investor day presentation, Feb 21, 2013
Slide 1: Investor Day 2013
Exhibit 99.2 Investor Day 2013A February 21, 2013 New York, New York
Slide 2: Cautionary Statement
Cautionary Statement 2 Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: This slide presentation andour accompanying oral remarks contain numerous “forward looking statements” regarding, without limitation: our short-term and long-term revenue, membership, and profita
Slide 3: Today
Today 3 Approx. Time Topic Speaker 12:30pm-12:35pm Opening Remarks Juan José Orellana, VP Investor Relations 12:35pm-1:10pm Business Overview Dr. J. Mario Molina, Chief Executive Officer 1:10pm-1:45pm Operations Review Terry Bayer, Chief Operating Officer 1:45pm-2:00pm Q&A 2:00pm-2:15pm Break 2:15pm
Slide 4: Business Overview
Business Overview J. Mario Molina, M.D. President & Chief Executive Officer February 21, 2013 New York, New York
Slide 5: Our Mission
Our Mission 5 To provide quality health services to financially vulnerable families and individuals covered by government programs. © 2013 Molina Healthcare, Inc.
Slide 6: Strategic Intent
Strategic Intent 6 Our goal over the next three years is to increase the annual revenue of the company from $6 billion to $12 billion, while increasing profitability and establishing a reputation as the premier health care organization serving low-income persons served by government programs. © 2013
Slide 7: What Makes Us Unique
What Makes Us Unique 7 We are a multistate healthcare organization with broad capabilities focused exclusively on government-sponsored healthcare programs for low income individuals and families. Managed Care Medicaid Health Healthcare Health Plans Information Mgmt. Direct Risk-based health plan Non
Slide 8: Business Snapshot
Business Snapshot 8 Our Markets (4Q2012) Washing ton 418 k (2 Michiga n Maine MMI clinics) Idaho MMI 220 S S in k Wiscons 46k Ohio Californ ia 244 New Jersey MMIS 336 Utah 87k k W VirginiaVirgini a MMISDirect k (18 Delive ry New (3 clinics) clinics) Mexico 91k (2 Membership Profile clinics) Texas 28
Slide 9: Main Elements of our Business Model
Main Elements of our Business Model 9 Strategic decision to focus exclusively on government programs Capabilities in managed care, fiscal agent and direct delivery Diversification: balance between mature and expanding markets Market presence in key Medicaid markets Management continuity © 2013 Molin
Slide 10: 2012 Performance Summary
2012 Performance Summary 10 Managed through difficult operating environment in California, Texas, and Wisconsin Revenues grew by $1.3 billion Enrollment grew by an additional 100,000 Successful in Medicaid contract bids in Ohio and Washington Selected for Medicare Medicaid Plan (duals) contracts in
Slide 11: Business Environment & State of the Industry
Business Environment & State of the Industry 11 Affordable Care Low Interest Act Rates Medicaid & Dual Eligible RFPs Competition photo: cnn.com Expansion of Medicaid in several Bad for investment income, good states represents a strong tailwind for pure-play Medicaid for borrowing. competitors. Stat
Slide 12: Business Environment and State of the Industry
Business Environment and State of the Industry 12 Three environmental factors have converged, each requiring different management priorities. 1. Mature Markets: high 2. Expanding Markets: 3. New Market/New managed care new regions, for Products: duals, penetration, TANF existing products marketplace
Slide 13: State Customer Purchasing Trends
State Customer Purchasing Trends 13 Complex Patients Financial Measures Focus on Quality Migration of higher cost patients such as Increasing the use of financial measures Greater focus on quality measured by the duals into managed care such as MCR floors, profit limits, P4P NCQA accreditation, Star
Slide 14: Listening to Our State Customers
Listening to Our State Customers 14 State contract wins (trailing 18 months) TX CA OH OH IL NM FL RFP Award Date 8/2011 4/2012 6/2012 8/2012 11/2012 2/2013 2/2013 Star TANF Star+ Duals TANF Duals Duals ABD LTC Program Type PLUS ABD ABD LTC CHIP Total Covered 3.4M 122K 1.6M 48K 38K 735K 35K Populatio
Slide 15: Long Term Incremental Growth Drivers
Long Term Incremental Growth Drivers 15 Please refer to the Company’s cautionary statements. Estimated potential revenue run-rate by 2015 as a result of duals and Medicaid expansion ~$2B ~$12B ~$4B ~$6B Current Duals 1 ACA 2 Total Health Plan Business 2012 2015 1. Duals denotes revenue potential for
Slide 16: U.S. Medicaid Coverage Estimates
U.S. Medicaid Coverage Estimates 16 Estimated Changes in Insurance Coverage by 2022* March 2012 Baseline 25M 26M 22M July 2012 Estimate Incorporating SCOTUS Decision on ACA 17M February 2013 Estimate Update 11M 12M Non-group Employer 1 Uninsured & Other 2 Medicaid Marketplaces & CHIP (3M)(4M) (3M)(3
Slide 17: Medicaid Expansion
Medicaid Expansion 17 Federal Government Will Where States Stand on Medicaid Expansion as of February 2013 2 Bear Nearly All Medicaid Expansion 1 WA Costs Over 2014-2022 NH MT ME ND VT Federal OR MN MA Share ID SD WI $931 NY RI WY MI billion CT (93%) NE IA PA States’ NV OH NJ Share UT IL IN WV CA CO
Slide 18: Molina's Participation in Health Insurance Marketplaces
Molina’s Participation in Health Insurance Marketplaces 18 Molina Healthcare will pursue entry into the health insurance marketplaces in states where it currently has Medicaid managed care contracts. Requirement: State offers government- subsidized products for low-income persons(<250% of FPL) consi
Slide 19: Molina Has Experience With Complex Patients
Molina Has Experience With Complex Patients 19 Membership by Product Membership by Product 2008 ABD & 2012 ABD & Medicare Medicare 17% 8% TANF/CHIP TANF/CHIP 92% 83% 1.3 Million Members 1.8 Million Members Molina has added 173,000 Aged, Blind or Disabled members since 2008 © 2013 Molina Healthcare,
Slide 20: Existing Infrastructure Will Support Dual Eligible Patients
Existing Infrastructure Will Support Dual Eligible Patients 20 Molina Market CA OH MI TX WA Infrastructure Mature Provider Network State Government TANF, TANF, TANF, TANF, TANF, ABD, ABD ABD, ABD, ABD, Program CHIP CHIP CHIP CHIP Federal Program (Medicare SNP) Direct Delivery - - - Presence © 2013 M
Slide 21: Pricing & Savings Targets for Duals
Pricing & Savings Targets for Duals 21 Savings percentages will be applied equally to the Medicaid and Medicare A/B components. Rate updates will take place on January 1st of each calendar year. 2, 3 CMS Rate Setting Process Ohio 2 Massachusetts 3 Guidance1 Molina Selected for 3 Regions MOU released
Slide 22: Tailwinds & Headwinds
Tailwinds & Headwinds 22 Tailwinds Headwinds Medicaid expansion Delayed State implementations Footprint includes 4 out 5 largest Medicaid Markets Industry tax Uniquely positioned to capture dual Medical cost pressure associated with eligible enrollment new contracts/populations © 2013 Molina Healthc
Slide 23: Our Strategic Priorities
Our Strategic Priorities 23 Mission Priorities Manage our growth Organic growth Medicaid expansion Dual eligible population RFPs Margin Expansion Leverage our business portfolio Health plan business MMS Direct delivery Our mission is to provide quality health Strive for operational excellence servic
Slide 24: Operations Review
Operations Review Terry Bayer Chief Operations Officer February 21, 2013 New York, New York
Slide 25: Revenue
Revenue 25 Historical Revenue 2008-2012 Percent represents year over year increase (decrease) Total revenue up 26% over 2011 © 2013 Molina Healthcare, Inc.
Slide 26: Membership
Membership 26 Historical EOY Membership 2008-2012 1,697K 1,797K 1,613K 1,455K 1,256K +16% +11% +5% +6% 2008 2009 2010 2011 2012 Percent represents year over year increase (decrease) Aggregate membership up 6% over 2011 © 2013 Molina Healthcare, Inc.
Slide 27: Quarterly Medical Care Ratio 2011-2012
Quarterly Medical Care Ratio 2011-2012 27 Quarterly MCR* 2011-2012 (2012 YE MCR 89.9%) * Figures reflect medical care ratio net of premium tax Second Half 2012 improvement in MCR © 2013 Molina Healthcare, Inc.
Slide 28: California
California 28 California MCR* FY2012 Premium rate increase for the ABD population Approximately 2% rate increase retroactive to July 1, 2011 Decrease in inpatient utilization * MCR net of premium tax © 2013 Molina Healthcare, Inc.
Slide 29: Texas
Texas 29 Effective March 1, 2012, Molina added three new service areas in Texas. Medical care costs particularly among ABD patients in Hidalgo and El Paso service area increased dramatically. Molina Healthcare of Texas 1 Adjusted Quarterly Medical Care Ratio 2012 Remediation activities: Molina Healt
Slide 30: Molina Selected To Expand Statewide in Ohio
Molina Selected To Expand Statewide in Ohio 30 In Q3 2013 Molina Healthcare will expand into 38 new counties. New Molina Statewide Service Area 1.6M eligibles (TANF+ABD) Ohio MCR 2008-2009 96% 92% 89% 86% 84% 2008 2009 2010 2011 2012 2013 Expansion counties Current service area * MCR net of premium
Slide 31: Molina Selected To Serve Dual Eligibles in Ohio
Molina Selected To Serve Dual Eligibles in Ohio 31 Molina Healthcare will also participate in the 3-year dual eligibles demonstration program in the Southwest, West Central, and Central regions. Implementation is expected late 2013. New Molina Integrated Care Coordination Program Regions 45K Dual El
Slide 32: Molina Selected for Centennial Care Contract in New Mexico
Molina Selected for Centennial Care Contract in New Mexico 32 Molina Healthcare of New Mexico selected to participate in the State’s Centennial Care plan (February 8, 2013) Molina will expand arranging for services beyond physical and acute care by including behavioral health and long term care, whi
Slide 33: New Opportunities in Florida – Long Term Care Program
New Opportunities in Florida –Long Term Care Program 33 Molina Healthcare of Florida selected to provide health care services to Long-Term Care patients (February 14, 2013) Molina will provide services to patients through the Florida Statewide Medicaid Managed Care Long-Term Care (SMMC LTC) program
Slide 34: Why the Illinois Market?
Why the Illinois Market? 34 Managed care penetration is less than 10%, at least 50% of eligibles will be transitioned to managed care by 2015. Historical IL Medicaid Enrollees FY2006-2010 Source: http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-State/illinois.html $ figures represent yea
Slide 35: The Illinois Duals Opportunity
The Illinois Duals Opportunity 35 The Illinois Medicare-Medicaid Alignment Initiative (MMAI) is expected to begin passive enrollment on 10/2013, with an effective date of 1/2014. © 2013 Molina Healthcare, Inc.
Slide 36: The Illinois ABD Opportunity
The Illinois ABD Opportunity 36 Illinois ABD for Central Illinois is expected to begin 6/2013 and East St. Louis in 7/2013. Chicago Peoria Central Illinois Bloomington 15 Counties Decatur 13k Eligibles Springfield East St. Louis 3 Counties 7k Eligibles © 2013 Molina Healthcare, Inc.
Slide 37: Duals – What Are We Doing to Get Ready?
Duals – What Are We Doing to Get Ready? 37 Systems: Person-first Claims, services: Enrollment, UM/Care Payment, etc. Coordination Dual Eligible Performance Provider and Readiness Review and Quality pharmacy Areas of Focus Improvement networks Staffing capacity Member and organizational Protections s
Slide 38: Duals – Model of Care
Duals – Model of Care 38 Health Risk Assessments Measuring Individualized Improvements Care Plans Medication Care Reviews and Transition Medication Programs Therapy Mgmt. Integrated LTSS/Acute Interdisciplinary And Rx Care Teams Care Management © 2013 Molina Healthcare, Inc.
Slide 39: Q&A
Q&A 39 © 2013 Molina Healthcare, Inc.
Slide 40: 2012 Results
2012 Results John Molina, Chief Financial Officer February 21, 2013 New York, New York
Slide 41: Quarterly Results
Quarterly Results 41 1 Q4 2012 Q4 2011 Premium Revenue $1.5B $1.2B Premium Tax Revenue $38.0M $44.0M Service Revenue $55.4M $49.2M Investment and Rental Income $5.2M $2.2M Medical Care Costs $1.3B $1.0B 2 Medical Care Ratio 85.9 % 85.7 % Service Costs $43.1M $39.0M G&A Expense $153.4M $125.0M 3 G&A
Slide 42: Year End Results
Year End Results 42 1 2012 2011 Premium Revenue $5.7B $4.4B Premium Tax Revenue $159.0M $154.6M Service Revenue $187.7M $160.4M Investment and Rental Income $14.6M $6.0M Medical Care Costs $5.1B $3.9B 2 Medical Care Ratio 89.9 % 86.8 % Service Costs $141.2M $144.0M G&A Expense $532.6M $415.9M 3 G&A
Slide 43: Earnings Margin 2006-2012
Earnings Margin 2006-2012 43 EBITDA Margin After Tax Margin Excluding Missouri Excluding write-down Missouri TX & OH Excluding Startup write-down Excluding Texas and TX & OH Missouri Texas and Startup Missouri H1N1 Flu H1N1 Flu 1. P denotes results excluding Missouri write-down in 2011, and Texas an
Slide 44: Long-Term Growth Update
Long-Term Growth Update John Molina, Chief Financial Officer February 21, 2013 New York, New York
Slide 45: Long Term Incremental Growth Drivers
Long Term Incremental Growth Drivers 45 Please refer to the Company’s cautionary statements. Estimated potential revenue run-rate by 2015 as a result of duals and Medicaid expansion ~$2B ~$12B ~$4B ~$6B 2 Current Duals¹ ACA Total Health Plan Business 2012 2015 1. Duals denotes revenue potential for
Slide 46: Dual Eligibles Market Opportunity
Dual Eligibles Market Opportunity 46 Please refer to the Company’s cautionary statements. Dual Dual Eligibles Estimated Estimated Annualized State Eligibles in Molina Potential PMPM Potential 1 2 Statewide Service Areas Enrollment Revenue Revenue California3 527K 392K 61K $2,600 $1.9B 3 Ohio 115K 48
Slide 47: Medicaid Expansion Opportunity
Medicaid Expansion Opportunity 47 Please refer to the Company’s cautionary statements. Expansion Molina’s Estimated Annualized Eligibles in 1 State Estimated Premium Potential Medicaid Enrollment PMPM Revenue Managed Care California 1M 100K $155 $185M Florida not included not included not included n
Slide 48: Marketplace Opportunity
Marketplace Opportunity 48 Please refer to the Company’s cautionary statements. Number of Molina’s Estimated Annualized Marketplace Estimated State Premium Potential Members in Marketplace PMPM Revenue Molina Markets Enrollment California 1.4M 28K $400 $136M Florida 546K 26K $400 $122M Michigan 246K
Slide 49: Convertible Debt
Convertible Debt Joseph White, Chief Accounting Officer February 21, 2013 New York, New York
Slide 50: $550M Convertible Debt Offering
$550M Convertible Debt Offering 50 Please refer to the Company’s cautionary statements. $550,000,000 February 2013 Sources and Uses Convertible Debt $550M 1.125% Convertible Senior Notes due 2020 Interest payable January 15 and July 15 Pay Down Revolver ($40M) Pay Down Existing Notes ($187M) $550M C
Slide 51: Why a Convert?
Why a Convert? 51 $550,000,000 February 2013 1.125% Convertible Senior Notes due 2020 Financing High Yield Convertible Interest payable January 15 and July 15 Equity Considerations Debt Debt Coupon High Low None Dilution None Limited High Speed of execution Slow Fast Moderate © 2013 Molina Healthcar
Slide 52: MOH Convertible Note
MOH Convertible Note 52 What Have We Done? Convert – Key Share Prices A. We have issued debt with a 1.125% coupon B. We will pay additional cash if our share price exceeds $40.77 (on 13.5 Share Price Convertible Convertible million shares) Close Price/Low Strike Price/High Strike 2/11/2013 C. We hav
Slide 53: MOH Convertible Note Settlement
MOH Convertible Note Settlement 53 At Maturity Share Price Conversion Price Underlying Shares - 13.5 million Conversion price (low strike) - $40.77 High Strike - $53.85 $550M Note Example : Share Price < $40.77 Principal Payment Holders © 2013 Molina Healthcare, Inc.
Slide 54: MOH Convertible Note Settlement
MOH Convertible Note Settlement 54 At Maturity Share Price Conversion Price but High Strike Underlying Shares - 13.5 million Conversion price (low strike) - $40.77 $550M Principal Payment High Strike - $53.85 + Note Holders Example : Share Price $45.77 ($5 above $67.5M* Conversion Premium low strike
Slide 55: MOH Convertible Note Settlement
MOH Convertible Note Settlement 55 At Maturity Share Price High Strike Underlying Shares - 13.5 million $550M Principal Payment Conversion price (low strike) - $40.77 + Note Holders High Strike - $53.85 $244M* Conversion Premium (Cash Settlement) Example : Share Price $58.85 ($5 above Bond Hedge hig
Slide 56: MOH Convertible Note Settlement
MOH Convertible Note Settlement 56 <$40.77 >$53.85 MOH share price $40.77 $40.77 MOH Share Price MOH Share Price $53.85 $53.85 Note Pay principal Pay Principal + Pay Principal + Cash Value of Shares + Cash Value of Shares greater than $40.77 greater than $40.77 Bond No Action Settle hedge; receive c
Slide 57: Accounting For Convertible Debt
Accounting For Convertible Debt 57 Why 6% of interest expense for a 1.125% coupon sold at par? GAAP requires that convertible debt be bifurcated into: A “vanilla” debt component; and a Derivative option component representing the value of the conversion feature. • For cash settled convertible debt t
Slide 58: Accounting For Convertible Debt
Accounting For Convertible Debt 58 Why 6 % of interest expense for a 1.125% coupon sold at par? Value of convertible Value of debt component debt at date of Value of option issuance (with both debt and option - at date of issuance, based on present value of cash = component at date of issuance flows
Slide 59: Funding Our Growth
Funding Our Growth John Molina, Chief Financial Officer February 21, 2013 New York, New York
Slide 60: Capital Needs
Capital Needs 60 Please refer to the Company’s cautionary statements. Current regulatory requirements Revenues are estimated to reach Future (anticipated) regulatory requirements in currents $12B by 2015 as a and new states result of duals and Medicaid expansion Capital demands on health plans in th
Slide 61: Sources of Capital
Sources of Capital 61 Please refer to the Company’s cautionary statements. Current excess net worth Issuance of securities – debt equity convertible Future earnings Alternative Financing – sale and lease back capital leases structured co-insurance or structured quota share © 2013 Molina Healthcare,
Slide 62: Regulatory Capital and Requirements
Regulatory Capital and Requirements 62 Please refer to the Company’s cautionary statements. Regulatory Capital Growth Capacity Estimated regulatory capital at 12/31/12 Surplus regulatory capital will support approximately $0.5B; compared to a $2.8B of incremental revenue requirement of approximately
Slide 63: Issuance of securities
Issuance of securities 63 Please refer to the Company’s cautionary statements. On February 11, 2013, we issued $550M convertible notes Convertible Debt……………… $550M Pay Down Revolver…….……… ($40M) Pay Down Existing Notes…….... ($187M) Share Repurchase.…………….. ($50M) Call Spread…………………….. ($74M) Fees……
Slide 64: Summary of Growth Capacity
Summary of Growth Capacity 64 Please refer to the Company’s cautionary statements. Revenue Growth Capacity $13B - $17B Capital $2.0B Revenue capacity dependent $2.0B on profitability $2.0B $0.8 - $1.1B $2.6B Retained earnings @ 1.5%* $0.1B Retained earnings @ 1.0%* $0.1B $2.8B Current Revenue Capaci
Slide 65: Alternative Financing
Alternative Financing 65 Please refer to the Company’s cautionary statements. Sale and lease back Capital leases Structured co-insurance or structured quota share © 2013 Molina Healthcare, Inc.
Slide 66: Why We Might Want To Raise More Capital?
Why We Might Want To Raise More Capital? 66 Please refer to the Company’s cautionary statements. Acquisitions Capital expenditures Variability in profitability Timing New benefits Growth above expectations Desire for capital cushion (e.g. debt covenant and rating agencies) Regulatory capital in exce
Slide 67: Q&A
Q&A 67 © 2013 Molina Healthcare, Inc.
Slide 68: Guidance
Guidance John Molina, Chief Financial Officer February 21, 2013 New York, New York
Slide 69: 2013 Guidance
2013 Guidance1 69 Please refer to the Company’s cautionary statements. Premium Revenue $6.7B Premium Tax Revenue $160M Service Revenue $200M Investment and Other Income $13M Total Revenue $7B Medical Care Costs $5.9B Medical Care Ratio 88% Service Costs $170M G&A Expense $600M G&A Ratio 8.6% Premium
Slide 70: 2013 Guidance
2013 Guidance 70 Please refer to the Company’s cautionary statements. Includes Convertible Notes Convertible Non-Cash Interest ($0.21) EPS Product and Market Expansions California & Ohio Dual Integration start up second half of year Illinois ABD and California ABD expansion start up second half of y
Slide 71: 2013 Guidance: Issued 2/7/13 and 2/21/13
1 2013 Guidance: Issued 2/7/13 and 2/21/13 71 Please refer to the Company’s cautionary statements. Issued Issued 1 2/7/13 2/21/13 Premium Revenue $6.7B $6.7B Premium Tax Revenue $160M $160M Service Revenue $200M $200M Investment and Other Income $13M $13M Total Revenue $7B $7B Medical Care Costs $5.
Slide 72: Guidance Bridge
Guidance Bridge* 72 Please refer to the Company’s cautionary statements. 1 1 Pretax EPS 2013 Guidance Issued 2/7/13 $128M $1.55 Increase in Revenue $10.4M $0.13 Convertible Debt Issuance: 2 Convertible Coupon Interest ($5.4M) ($0.07) 3 Convertible Non-Cash Interest ($17.0M) ($0.21) Incremental Inter
Slide 73: Membership Growth
Membership Growth 73 Please refer to the Company’s cautionary statements. Membership By year end we expect 2.0 million members as a result both organic growth and expansion into new products and markets 2013 YE 2.0M members 1 CA & OH Duals, New IL ABDs Products & 2% Markets CA ABDs, Organic MI & OH
Slide 74: 2013 Benefit Expansions
2013 Benefit Expansions 74 Please refer to the Company’s cautionary statements. UT Rx Carve In CA LTC & IHSS Carve In Utah carved in the Pharmacy California carved in Long Term Care Benefit effective 1/1/13 (LTC) and in Home Support Services (IHSS) starting 9/1/13 2 2013 Estimated Revenue 2013 Estim
Slide 75: Rate changes included in 2013 Guidance
Rate changes included in 2013 Guidance 75 Please refer to the Company’s cautionary statements. State 2013 Rate Change1, 2, 3 California various (3%) Florida n/a None Michigan n/a None New Mexico Jan-13 2% Ohio Jan-13 4% Texas various 1% Utah Jan-13 (16%) Washington n/a None Wisconsin Jan-13 3% Note(
Slide 76: Admin Spend Investment is required to prepare for growth
Admin Spend Investment is required to prepare for growth 76 Please refer to the Company’s cautionary statements. Administrative Costs Our FY 2013 guidance assumes In 2013 guidance implementation & administrative costs are expected to be operational costs related to growth are 600M or 8.6% of total r
Slide 77: Flu Trends
Flu Trends 77 Please refer to the Company’s cautionary statements. Google Flu Trends vs. CDC % ILI 12.0 Google Flu Trends CDC % ILI 10,000 10.0 8,000 8.0 6,000 6.0 4,000 4.0 2,000 2.0 - - © 2013 Molina Healthcare, Inc.
Slide 78: Investment Highlights
Investment Highlights 78 Please refer to the Company’s cautionary statements. Attractive sector growth prospects driven by government policies and economic conditions Focus on government-sponsored health care programs Proven flexible health care services portfolio (risk-based, fee-based and direct d
Slide 79: Q&A
Q&A 79 © 2013 Molina Healthcare, Inc.