Molina Healthcare, Inc 10-Q for FY2020 Q1

Molina Healthcare, Inc. (MOH)

10-Q 2020-05-01 For: 2020-03-31

Added on April 10, 2026

About this 10-Q

Molina Healthcare, Inc filed this 10-Q on May 1, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $4.55B; up 10.4% from $4.12B a year earlier
Net income: $178M; down 10.1% from net income of $198M a year earlier
Diluted EPS: $2.92; down 2.3% from $2.99 a year earlier

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Delaware		13-4204626
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

200 Oceangate, Suite 100
Long Beach,	California	90802
(Address of principal executive offices)		(Zip Code)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 Par Value	MOH	New York Stock Exchange



ITEM NUMBER		Page

PART I

1.	Financial Statements	3

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

3.	Quantitative and Qualitative Disclosures About Market Risk	38

4.	Controls and Procedures	39

PART II

1.	Legal Proceedings	39

1A.	Risk Factors	39

2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

3.	Defaults Upon Senior Securities	Not Applicable.

4.	Mine Safety Disclosures	Not Applicable.

5.	Other Information	Not Applicable.

6.	Exhibits	41

	Signatures	42



	Three Months Ended March 31,
	2020		2019
	(In millions, except per-share amounts) (Unaudited)
Revenue:
Premium revenue	$	4,304	$	3,952
Premium tax revenue	150		138
Health insurer fees reimbursed	66		—
Investment income and other revenue	29		29
Total revenue	4,549		4,119
Operating expenses:
Medical care costs	3,716		3,371
General and administrative expenses	317		302
Premium tax expenses	150		138
Health insurer fees	68		—
Depreciation and amortization	20		25
Other	4		3
Total operating expenses	4,275		3,839
Operating income	274		280
Other expenses, net:
Interest expense	21		23
Other income, net	—		(3		)
Total other expenses, net	21		20
Income before income tax expense	253		260
Income tax expense	75		62
Net income	$	178	$	198

Net income per share - Basic	$	2.95	$	3.19
Net income per share - Diluted	$	2.92	$	2.99



	Three Months Ended March 31,
	2020			2019
	(In millions) (Unaudited)
Net income	$	178		$	198
Other comprehensive (loss) income:
Unrealized investment (loss) income	(25		)	7
Less: effect of income taxes	(6		)	2
Other comprehensive (loss) income, net of tax	(19		)	5
Comprehensive income	$	159		$	203



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	March 31, 2020			December 31, 2019
	(Dollars in millions, except per-share amounts)
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,365		$	2,452
Investments	2,010			1,946
Receivables	1,603			1,406
Prepaid expenses and other current assets	346			163
Total current assets	6,324			5,967
Property, equipment, and capitalized software, net	385			385
Goodwill and intangible assets, net	168			172
Restricted investments	82			79
Deferred income taxes	71			79
Other assets	99			105
Total assets	$	7,129		$	6,787

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical claims and benefits payable	$	1,981		$	1,854
Amounts due government agencies	777			664
Accounts payable, accrued liabilities and other	743			484
Deferred revenue	43			249
Current portion of long-term debt	26			18
Total current liabilities	3,570			3,269
Long-term debt	1,596			1,237
Finance lease liabilities	229			231
Other long-term liabilities	87			90
Total liabilities	5,482			4,827
Stockholders’ equity:
Common stock, $0.001 par value, 150 million shares authorized; outstanding: 59 million shares at March 31, 2020, and 62 million shares at December 31, 2019	—			—
Preferred stock, $0.001 par value; 20 million shares authorized, no shares issued and outstanding	—			—
Additional paid-in capital	140			175
Accumulated other comprehensive (loss) income	(15		)	4
Retained earnings	1,522			1,781
Total stockholders’ equity	1,647			1,960
Total liabilities and stockholders’ equity	$	7,129		$	6,787



	Common Stock				Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
	Outstanding		Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
	(In millions)
	(Unaudited)
Balance at December 31, 2019	62		$	—	$	175		$	4		$	1,781		$	1,960
Net income	—		—		—			—			178			178
Common stock purchases	(3	)	—		(9		)	—			(437		)	(446		)
Termination of warrants	—		—		(30		)	—			—			(30		)
Other comprehensive loss, net	—		—		—			(19		)	—			(19		)
Share-based compensation	—		—		4			—			—			4
Balance at March 31, 2020	59		$	—	$	140		$	(15	)	$	1,522		$	1,647



	Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Retained Earnings		Total
	Outstanding	Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Retained Earnings		Total
	(In millions)
	(Unaudited)
Balance at December 31, 2018	62	$	—	$	643		$	(8	)	$	1,012	$	1,647
Net income	—	—		—			—			198		198
Adoption of new accounting standard	—	—		—			—			85		85
Partial termination of warrants	—	—		(103		)	—			—		(103		)
Other comprehensive income, net	—	—		—			5			—		5
Share-based compensation	1	—		3			—			—		3
Balance at March 31, 2019	63	$	—	$	543		$	(3	)	$	1,295	$	1,835


•	The determination of medical claims and benefits payable of our Health Plans segment;


•	Health Plans segment contractual provisions that may limit revenue recognition based upon the costs incurred or the profits realized under a specific contract;


•	Health Plans segment quality incentives that allow us to recognize incremental revenue if certain quality standards are met;


•	The assessment of long-lived and intangible assets, and goodwill for impairment;


•	The determination of reserves for potential absorption of claims unpaid by insolvent providers;



	Three Months Ended March 31,
	2020			2019
	(In millions) (Unaudited)
Supplemental cash flow information:

Schedule of non-cash investing and financing activities:
Common stock used for share-based compensation	$	(7	)	$	(7	)

Details of change in fair value of derivatives, net:
(Loss) gain on call option	$	(2	)	$	155
Gain (loss) on conversion option	2			(155		)
Change in fair value of derivatives, net	$	—		$	—


•	Settlements under risk or savings sharing programs;



		Three Months Ended March 31,
		2020			2019
	(In millions)
Maximum available quality incentive premium - current period		$	61		$	45

Quality incentive premium revenue recognized in current period:
Earned current period		$	44		$	26
Earned prior periods		12			20
Total		$	56		46

Quality incentive premium revenue recognized as a percentage of total premium revenue		1.3		%	1.2		%


(2)	Source data for calculations in thousands.


•	The determination of reserves for the outcome of litigation;


•	The determination of valuation allowances for deferred tax assets; and



	March 31,
	2020		2019
	(In millions)
Cash and cash equivalents	$	2,365	$	3,224
Restricted cash and cash equivalents	58		74
Total cash, cash equivalents, and restricted cash and cash equivalents presented in the consolidated statements of cash flows	$	2,423	$	3,298



	Total		Observable Inputs (Level 1)		Directly or Indirectly Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(In millions)
Corporate debt securities	$	1,260	$	—	$	1,260	$	—
Mortgage-backed securities	451		—		451		—
Asset-backed securities	143		—		143		—
Municipal securities	138		—		138		—
Certificates of deposit	7		—		7		—
Government-sponsored enterprise securities (“GSEs”)	6		—		6		—
U.S. Treasury notes	5		—		5		—
Total assets	$	2,010	$	—	$	2,010	$	—



	Balance Sheet Location	March 31, 2020		December 31, 2019
		(In millions)
Derivative asset:
Call option	Current assets: Prepaid expenses and other current assets	$	—	$	29
Derivative liability:
Conversion option	Current liabilities: Accounts payable, accrued liabilities and other	$	—	$	29



	March 31, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In millions)
5.375% Notes	$	696	$	701	$	696	$	745
4.875% Notes	326		310		327		340
Term Loan Facility	600		600		220		220
1.125% Convertible Notes ⁽¹⁾	—		—		12		42
Totals	$	1,622	$	1,611	$	1,255	$	1,347


(1)	For more information on debt repayments, refer to Note 7, “Debt.”



	March 31, 2020
	Amortized		Gross Unrealized				Estimated Fair
	Cost		Gains		Losses		Value
	(In millions)
Corporate debt securities	$	1,277	$	4	$	21	$	1,260
Mortgage-backed securities	453		6		8		451
Asset-backed securities	144		—		1		143
Municipal securities	138		—		—		138
Certificates of deposit	7		—		—		7
GSEs	6		—		—		6
U.S. Treasury notes	5		—		—		5
Totals	$	2,030	$	10	$	30	$	2,010



	Amortized Cost		Estimated Fair Value
	(In millions)
Due in one year or less	$	375	$	375
Due after one year through five years	1,032		1,017
Due after five years through ten years	183		181
Due after ten years	440		437
Totals	$	2,030	$	2,010



	In a Continuous Loss Position for Less than 12 Months					In a Continuous Loss Position for 12 Months or More
	Estimated Fair Value		Unrealized Losses		Total Number of Positions	Estimated Fair Value		Unrealized Losses		Total Number of Positions
	(Dollars in millions)
Corporate debt securities	$	805	$	21	627	$	—	$	—	—
Mortgage-backed securities	211		8		128	—		—		—
Asset-backed securities	90		1		70	—		—		—
Totals	$	1,106	$	30	825	$	—	$	—	—



	RSAs		PSUs		Total		Weighted Average Grant Date Fair Value
Unvested balance, December 31, 2019	447,680		324,078		771,758		$	102.01
Granted	294,319		160,929		455,248		122.20
Vested	(151,110	)	(7,368	)	(158,478	)	92.92
Forfeited	(12,202	)	(22,826	)	(35,028	)	101.60
Unvested balance, March 31, 2020	578,687		454,813		1,033,500		$	112.31


(1)	Other operating revenues include premium tax revenue, health insurer fees reimbursed, and investment income and other revenue.


(2)	Other operating expenses include general and administrative expenses, premium tax expenses, health insurer fees, depreciation and amortization, and other costs.


•	the impact of the COVID-19 pandemic on our operations and financial results;


•	the numerous political, judicial, and market-based uncertainties associated with the Affordable Care Act (the “ACA”) or “Obamacare,” including the ultimate outcome of the Texas et al. v. U.S. et al. matter;


•	the market dynamics surrounding the ACA Marketplaces, including but not limited to uncertainties associated with the elasticity of demand for our products based on our pricing, risk adjustment requirements, the potential for disproportionate enrollment of higher acuity members, and the discontinuation of premium tax credits;


•	subsequent adjustments to reported premium revenue based upon subsequent developments or new information, including changes to estimated amounts payable or receivable related to Marketplace risk adjustment;


•	the availability of adequate financing on acceptable terms to fund and capitalize our expansion and growth, repay our outstanding indebtedness at maturity, and meet our general liquidity needs;


•	our ability to consummate, integrate, and realize benefits from acquisitions including the announced acquisition of Magellan Complete Care;


•	our ability to predict with a reasonable degree of accuracy utilization rates, including utilization rates associated with the flu or coronavirus;