Molina Healthcare, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Molina provides Medicaid, Medicare and Marketplace managed healthcare services. It served approximately 5.1 million members across 19 states at quarter-end.
Financial performance
Dollars in millions, except per-share amounts; comparisons are with the prior-year period.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $8,054 | $6,800 | $15,824 | $13,322 |
| Premium revenue | $7,799 | $6,583 | $15,330 | $12,889 |
| Operating income | $361 | $273 | $733 | $608 |
| Net income | $248 | $185 | $506 | $413 |
| Diluted EPS | $4.25 | $3.16 | $8.63 | $7.05 |
| Medical care ratio (MCR) | 88.1% | 88.4% | 87.6% | 87.6% |
| G&A ratio | 6.8% | 7.1% | 7.1% | 7.2% |
- Q2 net income increased 34%; first-half net income increased 23%. Management attributed the improvement mainly to membership and premium growth and, for the quarter, a lower MCR. Q2 after-tax margin was 3.1%, versus 2.7% a year earlier.
- Q2 medical margin was $927 million, versus $764 million; first-half medical margin was $1,895 million, versus $1,596 million. Q2 premium growth reflected acquisitions, organic Medicaid and Medicare growth, and Texas state-directed payments, partly offset by Marketplace attrition.
- Results varied by segment. Q2 Medicaid MCR improved to 88.0% from 89.0%, and Medicare MCR to 86.9% from 87.6%. Marketplace MCR rose to 91.2% from 84.8%, principally reflecting a higher 2021 risk-adjustment payable and membership mix. Marketplace membership was 357,000, down from 638,000 a year earlier; Medicaid membership was 4.61 million, up from 3.93 million.
- Q2 investment income rose to $22 million from $10 million, mainly due to higher interest rates and invested assets. Interest expense declined to $27 million from $30 million, following the prior-year debt refinancing. The Q2 effective tax rate was 25.8%, versus 24.2%.
Cash flow, liquidity and debt
- First-half operating cash flow was $731 million, down from $1,061 million. The filing attributes the decrease mainly to timing differences in government receivables and payables, partly offset by higher earnings. Investing cash outflow was $591 million; financing cash outflow was $268 million, including $200 million of share repurchases.
- At June 30, cash and cash equivalents were $4.312 billion, current investments $3.567 billion, and restricted investments $219 million. Management reported cash and investments of $8.1 billion and working capital of $3.1 billion. Current liabilities were $7.225 billion.
- Long-term debt was $2.175 billion; no borrowings were outstanding on the $1 billion revolving facility. The company reported compliance with debt covenants. Its notes were rated BB- by S&P and Ba3 by Moody’s.
- Regulated subsidiaries exceeded estimated minimum capital requirements of approximately $2.2 billion. About $170 million of dividends could be paid without prior regulatory approval as of quarter-end. Parent-company cash and investments were $210 million.
- Higher interest rates reduced the fair value of available-for-sale investments; first-half other comprehensive loss, net of tax, was $123 million. The company estimated that an immediate 1% rate increase would reduce fixed-income investment fair value by approximately $87 million.
Outlook, developments and risks
- Management expected Marketplace membership of approximately 315,000 at year-end 2022, raised from its prior estimate of 270,000. It expected the full-year G&A ratio to be consistent with long-term targets. The filing provides no specific full-year earnings or EPS guidance in the supplied text.
- Management expected Medicaid enrollment to benefit from the pause in eligibility redeterminations while the federal public health emergency remained in effect; the extension announced July 15, 2022 ran through October 13, 2022 unless further extended. Management cautioned that utilization could rebound as deferred care resumes.
- COVID-related effects reduced Q2 net income by approximately $0.68 per diluted share and increased MCR by 60 basis points. State COVID risk corridors reduced medical margin; the company recognized approximately $94 million for them in Q2 and $122 million in the first half. Changes to corridor terms, utilization, or estimates could materially affect results.
- The company recorded $311 million of favorable prior-year medical-claims reserve development in the first half, primarily due to lower-than-expected utilization and improved operating performance. Medical claims estimates and government premium adjustments remain significant estimation risks.
- On July 13, 2022, Molina announced a proposed acquisition of My Choice Wisconsin for approximately $150 million, subject to approvals, with closing expected in 2022. The AgeWell New York acquisition, for approximately $106 million, was expected to close in Q4 2022. The Cigna Texas Medicaid and Medicare-Medicaid acquisition closed January 1, 2022.
- California and Texas Medicaid contract procurements were pending; the California award was expected in early August 2022 and Texas awards in Q1 2023. The company also renewed its CVS Caremark PBM agreement through 2026 and planned to reduce its real-estate footprint following its shift to remote work.
- Risks include Marketplace risk-adjustment estimates, Medicaid contract renewals and rate-setting, eligibility redeterminations, medical-cost trends, acquisitions, regulatory capital and dividend restrictions, and interest-rate exposure. Disclosed litigation includes challenges to the Kentucky Medicaid contract award and a Puerto Rico dispute with ASES; outcomes were uncertain.
Most important facts for investors to verify
- Whether Marketplace risk-adjustment payables and member mix continue to pressure Marketplace margins; the quarter-end net payable was $976 million.
- Whether utilization rebounds, reserve development remains favorable, and COVID risk-corridor estimates or terms change.
- Whether Medicaid enrollment changes as eligibility redeterminations resume, and the outcomes of California and Texas procurement processes.
- Regulatory approvals, timing, funding and integration progress for the pending My Choice Wisconsin and AgeWell New York acquisitions.
- Cash generation and parent-company liquidity, including regulated-subsidiary dividend constraints, share repurchases and investment sensitivity to interest rates.