Molina Healthcare, Inc. — Q1 2022 Form 10-Q
Business context and period. The filing covers the three months ended March 31, 2022. Molina provides managed healthcare services through Medicaid, Medicare and state Marketplace programs. It served approximately 5.1 million members across 19 states, up 10% from a year earlier but down 114,000 sequentially.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $7.770 billion | $6.522 billion |
| Premium revenue | $7.531 billion | $6.306 billion |
| Medical care costs | $6.563 billion | $5.474 billion |
| Medical margin | $968 million | $832 million |
| Medical care ratio (MCR) | 87.1% | 86.8% |
| General and administrative expense ratio | 7.4% | 7.3% |
| Operating income | $372 million | $335 million |
| Net income | $258 million | $228 million |
| Diluted earnings per share | $4.39 | $3.89 |
| Operating cash flow | $363 million | $568 million |
Revenue increased 19%, operating income 11%, and net income 13% year over year. Revenue and earnings gains primarily reflected Medicaid and Medicare membership growth and acquisitions; the higher consolidated MCR partly offset those gains. After-tax margin was 3.3%, versus 3.5%.
Segment results: Medicaid revenue was $6.187 billion and medical margin $710 million; its MCR rose to 88.1% from 87.5%. Medicare revenue was $949 million and medical margin $128 million; its MCR improved to 86.5% from 90.3%. Marketplace revenue was $616 million and medical margin $130 million; its MCR increased to 78.6% from 77.3%. Marketplace membership declined to 371,000 from 728,000 at year-end 2021, consistent with the company’s pricing and product strategy.
Liquidity, debt and balance sheet
- At March 31, cash and cash equivalents were $4.804 billion; investments were $2.988 billion and restricted investments $221 million. Management reported consolidated cash and investments of approximately $8.0 billion and working capital of $3.1 billion.
- Total assets were $12.360 billion; total liabilities were $9.566 billion. Medical claims and benefits payable were $3.601 billion, up from $3.363 billion at year-end.
- Long-term debt was $2.174 billion, consisting of senior notes due 2028, 2030 and 2032. No amounts were outstanding on the $1.0 billion revolving credit facility; the company reported compliance with debt covenants.
- Operating cash flow was $363 million, down $205 million year over year, primarily due to timing differences in government receivables and payables. Investing activities provided $74 million; financing activities used $77 million. Cash, cash equivalents and restricted cash increased $360 million during the quarter.
Material changes, outlook and risks
- Q1 2022 net COVID-19 effects reduced diluted EPS by an estimated $0.57, versus a negligible impact in Q1 2021. The filing attributes the effect to higher COVID inpatient costs, lower COVID-related utilization curtailment and risk-sharing corridors.
- COVID-related risk corridors reduced recognized premium revenue by approximately $28 million in Q1 2022, compared with $110 million in Q1 2021. The company cautions that states may change, add or discontinue corridors, making estimates uncertain.
- Management expected the full-year 2022 G&A ratio to be consistent with its long-term targets. It expected Marketplace membership of approximately 270,000 at year-end, revising its prior estimate of 250,000 upward. The filing does not provide a clear full-year earnings or revenue guidance figure.
- Medicaid enrollment had benefited from the pause in eligibility redeterminations during the federal public health emergency. Management expected that benefit to continue at least through mid-July 2022 and warned that redeterminations and utilization rebounds could affect enrollment and costs.
- California Medicaid contract awards were expected in early August 2022, with a January 2024 effective date. Texas STAR+PLUS awards were estimated for Q4 2022, with operations expected to begin in September 2023. The Cigna Texas Medicaid and Medicare-Medicaid acquisition closed January 1, 2022, for approximately $60 million.
- Available-for-sale investments had $107 million of gross unrealized losses at March 31, primarily attributed to interest-rate movements rather than credit deterioration. The company estimated that an immediate 1% increase in rates would reduce fixed-income investment fair value by approximately $69 million.
- Material uncertainties include medical-cost and claims-reserve estimation, Marketplace risk adjustment, government contract renewals and bids, COVID-related utilization and state funding changes. The company also disclosed ongoing Kentucky Medicaid contract litigation and a Puerto Rico dispute; it said no gain or loss was probable and reasonably estimable for the Puerto Rico matter.
- Management stated that cash, available borrowing capacity and operating cash flows should support operations, regulatory requirements, debt obligations and capital expenditures for at least the next 12 months. Regulatory restrictions may limit subsidiary dividends to the parent.
Important facts for investors to verify
- Whether medical utilization, COVID-related costs and claims estimates develop as management expects, including the effects of favorable prior-year claims development of $206 million.
- How Medicaid eligibility redeterminations, state risk corridors and contract procurement outcomes affect membership, revenue and margins.
- Whether Marketplace risk-adjustment estimates and the reported $949 million payable change materially.
- Whether investment-market movements, liquidity at the parent company, regulatory capital requirements or dividend restrictions affect financial flexibility.
- Developments in the Kentucky and Puerto Rico legal matters and integration of recent acquisitions.