Molina Healthcare Inc (MOH) 2004 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Molina Healthcare year-end conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded Wednesday, February 23, 2005.

I would now like to turn the conference over to Mr. Juan Jose Orellana with Molina Healthcare. Please go ahead, sir.

Thank you, David. Good afternoon. I'd like to welcome all of you to our fourth-quarter 2004 earnings conference call. Joining me here today are Dr. Mario Molina, our President and Chief Executive Officer, and John Molina, our Chief Financial Officer.

In today's call, we will review Molina's results and accomplishments for the fourth quarter ending December 31, 2004; discuss our guidance for 2005; and field questions at the conclusion of our remarks.

Before we begin, I would like to caution everyone that our comments today contain forward-looking statements. Except for the historical information referred to in this conference call, all forward-looking statements are predictions by the Company's management and are subject to numerous risks and uncertainties that may cause actual results to differ materially from management's current expectations. Such factors include -- 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 health-care programs; the successful renewal of the Company's government contracts; the Company's ability to accurately estimate incurred but not reported medical cost; the implementation of announced rate increases or budgetary proposals; the Company's ability to obtain regulatory approvals for its pending acquisitions or to successfully integrate its completed acquisitions; competition; changes in health-care practices or technologies; changes in federal or state laws or regulations or the interpretation thereof; risks associated with the Company's startup operations in these 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. All forward-looking statements in this release represent the Company's judgments as of February 23, 2005. The Company disclaims any intent or obligation to update any forward-looking statement to conform the statements to actual results or changes in the Company's expectations.

As a reminder, this call is being recorded and a 30-day replay of the conference call will be available over the Internet through the Company's Web site at www.MolinaHealthcare.com. Our earnings press release was distributed at approximately 4 PM Eastern time today. And you may also view it on our company website.

At this time, I will turn the call over to Dr. Mario Molina.

Thank you, Juan Jose. Good afternoon, everyone, and thank you for joining our conference call. 1 year ago, our Company committed to executing a strategy that would deliver long-term shareholder value by growing profitably, diversifying our revenue sources, and controlling our administrative costs. I'm pleased to report that Molina Healthcare had an excellent year, both operationally and financially, and that our fourth-quarter and fiscal-year 2004 results were a product of our commitment and progress in each of these areas.

Before John reviews our financial results I would like to focus my comments today on 2 broader topics. First, I would like to review our strategy and our accomplishments in this past year, as well as outline some of the key actions we have taken while executing our business plan. Second, and more importantly, I want to share some thoughts on our business environment and our priorities going forward in 2005.

From a strategic perspective, 2004 was a very gratifying year. Our positive operational results continue to support our belief that our strategy is working. Additionally, we're particularly proud that every aspect in the execution of our business strategy has mirrored our message to stakeholders. Ever since our initial public offering in 2003, we have communicated to investors that our intent is to grow the business by expanding within our existing states, entering new states (technical difficulty) acquisitions or startups, and by focusing primarily on low income and uninsured families and children.

I will now discuss each of these components of our strategy.

First, expansion within existing states. At the end of 2003, Molina served Medicaid patients across 4 states -- California, Michigan, Utah, and Washington. In 2004, we gained significant ground and furthered our growth objectives. Our Washington health plan further solidified its position as the largest Medicaid health plan in the state by integrating the contracts and membership it acquired from Primera Blue Cross of Washington in the second quarter of 2004. Membership gains in this state also resulted from Snohomish County converting to mandatory enrollment.

In Utah, our health plan expanded our service area, and now manages the SCHIP program statewide while the Medicaid program covers all but 2 of Utah's counties.

Molina Healthcare of Michigan almost doubled its size. We were propelled to the top market position in Michigan with the acquisition of the Wellness Plan membership in the fourth quarter.

As we discussed in previous earnings calls, the state of California's eligibility redetermination efforts contributed to the erosion in membership across all Medicaid health plans in the state earlier this year. Today, membership in our California subsidiary has almost returned to the level prior to the implementation of the state's eligibility initiative. Molina Healthcare of California has also announced its intent to enter San Diego County through 2 acquisitions. The 2 transactions, which involve the acquisition of the Medicaid and SCHIP contracts of Sharp Health Plan and Universal Care Health Plan, are still subject to regulatory approvals by California state agencies.

When taking all this growth activity into account, our 4 initial states at the end of 2003 grew by 159,000 members, or approximately 28 percent by the end of 2004.

The second component of our strategy is entry into new states. During 2004, we announced the addition of 2 new states, New Mexico and Indiana. This expansion increased the number of states we serve from 4 to 6. In July of 2004, our Company completed the acquisition of Health Care Horizons, the parent company to Cimarron Health Plan in Albuquerque, New Mexico. This was Molina's first new state entry since acquiring the Washington Health Plan in 2000.

The New Mexico transaction added over 60,000 new members and provided Molina with an immediate and competitive presence in the state. Today, Cimarron Health Plan is known as Molina Healthcare of New Mexico. And the health plan's integration into the Molina model is reaching its final stages.

As we discussed in the past, in a state which meets our strategic criteria, we will consider acquisitions as a means of entering a new state. If an acquisition candidate is not available, or if a target does not meet our financial criteria, we will evaluate entering that state by means of a startup operation.

In the fourth quarter of 2004, we announced that our newly formed subsidiary, Molina Healthcare of Indiana, was awarded an HMO license and a 2-year contract to serve Medicaid beneficiaries in the state of Indiana. The Indiana operation exemplifies Molina's entry into a new state through a startup. We're convinced that this state has great potential, and look forward to begin serving new members in the second quarter of 2005.

Our entry into New Mexico and Indiana demonstrates our business flexibility in addressing new states. We continue to evaluate our expansion prudently, and have adhered to our publicly stated criteria for new states. We're interested in states with sizable Medicaid populations, favorable regulatory environments, and competitive provider settings. New Mexico and Indiana meet all of these criteria.

Our third strategy component is to preserve our focus on serving low-income and uninsured families and children. Our mission is to provide quality medical services for a population that is most in need and that finds it difficult to access health care due to barriers of language and culture. We remained committed to this population, and have made significant progress this past year by increasing our enrollment and participating in new government programs.

Among the new programs are demonstration projects that coordinates the care with aged, blind, and disabled. In Washington, we've contracted with the state to coordinate the delivery of medical care, substance abuse, mental health, and long-term care under a managed care setting. The contract covers Snohomish County and approximately 3,100 of the 5,000 eligible residents have already enrolled.

Similar efforts and demonstration projects are underway in other parts of the country. Our Utah subsidiary is home to 2 other demonstration projects involving long-term care. Michigan, New Mexico, and Utah already address a sizable number of aged, blind, and disabled patients. As of December 31, 2004, our consolidated aged, blind, and disabled enrollment constituted approximately 50,000 members, almost double what it was in 2003. We believe this population represents an emerging opportunity, as states facing budgetary problems seek to shift the aged, blind, and disabled to managed care as a cost-cutting measure.

Our business strategy has resulted in significant growth for our Company. A year-over-year comparison shows that our overall membership grew by approximately 224,000 members, or 40 percent, while our net income grew by 31 percent. Our objective is to grow profitably and to make this growth sustainable.

As discussed in our third quarter call, we have expanded our infrastructure to accommodate current and future growth. We have added staff as well as new executive positions to enhance our day-to-day operations and to improve our administrative needs. Terry Bayer and Sheila Shapiro recently joined the executive team. Terry will be responsible for health plan operations, while Sheila will focus on leading our common support functions, including information systems. George Goldstein is now Executive Vice President of Public Policy.

We continue to stress quality care in all that we do. 4 out of 5 of our operating health plans have received accreditation from the National Committee on Quality Assurance, covering 93 percent of our current membership. Utah recently underwent their site review, and we expect to hear about their accreditation status shortly. Indiana, our newest health plan, will also be reviewed once it is operational.

Medicaid managed care continues to gain support as a proven cost-saving strategy for states facing financial challenges. In California, the governor's budget proposes to migrate 13 counties from a fee-for-service model to a managed care model (technical difficulty) by 2007. In Indiana, the state has begun implementing mandatory managed care enrollment in 13 additional counties. These programmatic changes and cost measures have historically been implemented as solutions for the TANF populations, which constitutes approximately 75 percent of all Medicaid beneficiaries.

However, as expenditures among the aged, blind, and disabled group have grown and now constitute 70 percent of all Medicaid expenditures, more states are considering moving these high-cost patients to managed care. The experience we've been developing by caring for this population in different states puts us in an excellent position to benefit from these political and economic trends.

We will continue to focus our diversification efforts from a geographic and program standpoint. Despite all of the acquisition activity in 2004, many other opportunities still remain. And we plan to execute on opportunities that meet our strategic and financial criteria. By focusing on these activities, which have made us successful, we believe we can sustain our growth and continue to deliver growth in earnings per share.

Looking into the future, our plan is to stay the course and continue executing our strategy. We have achieved a strong marketplace position, and we remain agile and disciplined in our resource allocation. For 2005, we believe the momentum we and the market environment generated will continue as the year unfolds.

With that, I would like to now turn the call over to John.

Thank you, Mario. As Mario said, the results announced this afternoon reflect our progress in growing profitably, diversifying our revenue base, and improving on an already competitive cost structure. I'm happy to report that we've achieved our key financial goals in 2004, and that the outlook for 2005 is promising.

Premium revenues for the fourth quarter ending December 31, 2004 were up almost 80 percent from a year ago. The increase in revenue was driven primarily by membership growth. Our membership at year-end reached 788,000 members, up 40 percent from a year ago. The year-end enrollment was significantly higher in Michigan and Washington when compared to the fourth quarter of 2003. And we had added New Mexico. This increased enrollment includes the membership gains that resulted from the acquisitions we closed in those states.

While on the topic of acquisitions, I would like to take a moment to summarize our transaction history for 2004. Since completing our secondary offering in March 2004, we have closed 3 transactions and announced 2 acquisitions which are still pending. Our closed acquisitions have performed at or above our expectations. Our 2 pending strategic transactions, with Sharp Health Plan and Universal Care Health Plan, were announced late in Q4, and are not reflected on our 2004 results nor in our 2005 guidance, as they are still under regulatory review.

Coming back to our results, in the fourth quarter of 2004, the Company's medical care ratio increased as expected to 84.2 percent from 83 percent in the fourth quarter of 2003. This increase can be attributed to enrollment growth in states and programs with a medical care ratio above our corporate average.

General and administrative expenses, excluding premium taxes, decreased to 5.6 percent of revenue in the fourth quarter of 2004 as compared to 5.8 percent in the fourth quarter of 2003. Our controllable G&A continues to the among the most competitive in our industry and gives us the ability to make infrastructure investments. This competitive cost structure enables us to derive synergies from the companies we acquire.

Including premium taxes, which are directly related to membership and revenue, G&A stood at 8.3 percent of revenue in the fourth quarter of 2004 as compared to 7.1 percent of revenue for the fourth quarter of 2003. The increase in total G&A was mainly attributable to the membership gains from our acquisition in states that impose a premium tax, such as Michigan, New Mexico, and Washington.

Net income for the quarter ending December 31, 2004 totaled approximately $16.3 million or 58 cents per fully diluted share, as compared to $11.9 million or 46 cents per fully diluted share for the quarter ending December 31, 2003. This represents a 37 percent increase in net income, and a 26 percent increase in earnings per diluted share.

Earnings per diluted share growth has trailed net income growth because the share count used to calculate net income per diluted share in the fourth quarter of 2004 was 27.9 million compared to 25.7 million shares in the fourth quarter of 2003. The increase in diluted shares over 2003 is mainly attributed to the issuance of additional shares during the Company's follow-on offering completed in March 2004.

Cash flow from operating activities provided approximately $42.2 million in cash for the quarter ending December 31, 2004. Cash flow from operating activities for all of 2004 was $91 million. Days in claims payables increased from 50 days at the end of the third quarter of 2004 to 54 days at the end of the fourth quarter. This increase can be attributed to increases in claims payable, particularly in Michigan, where we added the Wellness Plan membership starting October 1, 2004.

The Company ended the fourth quarter of 2004 with cash and investments at the parent of approximately $54 million. Our subsidiaries had a combined $67 million of cash and investments in excess of statutory requirements. And our 75 million credit facility remains undrawn.

As we look to 2005, I would like to reconfirm our guidance which was previously given in our last earnings call and repeated subsequently at investor conferences. Our guidance remains the same as it was that we said last November. It reflects only closed acquisitions, and does not include the announced acquisitions that are still pending regulatory approval.

Guidance for the year ending December 31, 2005 is as follows. Earnings from continuing operations will be in the range of $2.40 to $2.45 per diluted share, an increase of 18 to 20 percent in 2004 earnings. That income will be in the range of $67 million to $69 million. Premium revenue will be in the range of $1.57 billion to $1.59 billion. Medical care ratio will be in the range of 84.2 percent to 84.4 percent. G&A, including premium taxes, will be in the range of 8.2 percent to 8.4 percent of total revenue. These estimates assume weighted average diluted shares outstanding of 28.2 million shares.

Finally, I would like to remind everyone that the Company expects results in fiscal year 2005 to follow seasonality patterns historically experienced by the Company. These patterns reflect our historical medical care ratio trends of higher medical costs in the first half of the year. As a result of these trends, we would anticipate earnings in the first half of the year to be less than those of subsequent quarters.

This concludes our prepared remarks. Operator, we're now ready to take calls.

(Operator Instructions). Patrick Hojlo, Credit Suisse First Boston. I beg your pardon, Mr. Hojlo. Your line is now open. You may proceed with your question. It appears he is no longer available. Greg Nersessian, Lehman Brothers.

I just had a couple of questions. The first one was just on the Michigan enrollment -- it looked like if you adjust for the acquisition, there seemed to be some attrition following the addition of the 73,000 lives from Wellness. Is that because there was some scrubbing that needed to be done on that 73,000, or was there some legislation or something like that resulted in some slowdown in the enrollment there?

It's really a function of timing, Greg. The announcement -- 73,000 that we announced was at the time that we did the announcement of the acquisition. At that point in time, the state stops enrolling new members in the Wellness Plan. As you know, there's always a monthly decrease or turnover in enrollment. Usually, it's an replaced by new members. But once the state stops enrolling new members, you do get a slight decrease from the announced transaction. It was not unexpected for us with the decline that we got from the Wellness Plan.

Okay, okay. So, presumably, now, Wellness Plan will become an option again for those beneficiaries who get to select their own plan in that county, and so that there could be additional enrollment there?

Well, the Wellness Plan wouldn't, but the physicians associated with the Wellness Plan -- the former Wellness Plan that are now associated with Molina will be. We should see some enrollment gains.

Right, right, okay. That's what I meant. And then, you mentioned on a couple of occasions the opportunity on the aged, blind, and disabled, the SSI -- had a couple of questions there. Just I guess first, are there any plans in any of your current states -- you mentioned Washington, as starting to move some people there. That would move ABD members into mandatory environment in the current year in '05, or potentially into '06? Or are these things that we should think about as more of a late '06, '07 type of event?

Greg, I think the way to think about that is that we may see some mandatory enrollment policy changes in '06 and '07. Right now, a lot of the enrollment that we're seeing is voluntary.

Okay, but some of the expansion that they're talking about in California and in some of the new states that you're entering -- that would presumably not be until '06, '07?

Yes, in California, Washington -- I know that Indiana is considering it. So we believe this is the way of the future. But the exact timing is up in the air.

Okay. And then just on that topic, in terms of your aged, blind, and disabled, how many of your current aged, blind, and disabled are dual-eligibles? And of that amount, do you bear pharmacy risk for any of them? I'm just trying to figure out if/when the pharmacy costs move to Medicare, you guys would -- there would be any adjustment in premiums or anything like that. Is that something we should keep an eye out for?

There are a relatively small number that are dual eligibles. However, we do bear the pharmacy risk for the most part right now. We don't bear the pharmacy risk in Utah. I think that there will be some adjustments as Medicare picks up the pharmacy component.

Is there any way to quantify that?

At this point, Greg, it's such a small amount that it's probably not going to materially affect results. And it would be an '06 item anyway.

Right, okay. And then last quick one, just in terms of the California approvals, you're still expecting 2Q close on those 2 plants?

Well, California -- as you know, the regulators are very thorough in their reviews. And it is subject to regulatory review by 4 different agencies right now. We are hoping that it will close in the second quarter. But at this point, I wouldn't -- I don't want to be more firm than that. I mean, it really is pending regulatory approval. Once we get the approval, we will make an announcement and let everyone know.

Eric Veiel, Wachovia Securities.

2 questions. First, Mario, if you could just discuss Indiana in a little bit more detail. I guess there were at least 1 other plans that were thinking about moving into that market, but felt like some of the physician reimbursement contracts that were being offered had just moved up to an untenable level. What were your thoughts about the way the contracting was going and how comfortable are you with your physician cost structure there?

Hey Eric, it's John, I'm going to answer that, because I did a lot of work on the Indiana project. There was a plan that initially applied, and then pulled out. Indiana has a different enrollment process than any other states that we are in currently. And that is the member chooses a physician; the physician can sign up with only one health plan; and all of that physicians members go to that health plan. So there is some competition for physicians.

What we have tried to do in assembling our network is keep a discipline around what we're going to pay the providers. That means we probably won't grow as fast in Indiana as others might. But we're in this for the long-term. So we don't want to gain a whole lot of membership, a huge cost in the first year or 2, and find ourselves in trouble. We'd rather have a very steady growth. And have a sustainable plan.

Okay, that's helpful. And second, have you guys decided whether you're going to be applying as a special-needs plan under the Medicare Modernization Act?

Eric, we're not going to comment on that at the present time.

Ed Kroll, SG Cowen.

I was wondering on the guidance for '05 if you could give us a little more color, especially relative to the next quarter -- Q1 '05, what that seasonality will look like in the first quarter?

Can you be more specific, Ed?

Well, basically, I'm looking for the EPS guidance, I guess, for the first quarter if that's possible.

You know, Ed, we haven't gone down and given specific quarterly guidance. I can tell you historically, the first half of the year is probably about 45 percent of our total, with the first quarter having the highest medical cost. Medical costs improve in second quarter. But they're still higher than average in the second quarter; and then move down third quarter, back up slightly in fourth quarter.

If you look at the data that we reported, Ed -- in '02, our medical loss ratio in the first quarter was 85.4 percent. And for the first quarter of '03, it was 84.9 percent. And we think that that sort of seasonality will continue. '04 was damped out a little bit because of the acquisitions, which makes it a little more difficult to follow the changes. But in a more steady-state environment, we clearly have the highest medical costs in the first quarter. They come down, but they're still high in the second quarter. And they reach a nadir in the third quarter, and come back up a little bit in the fourth.

Okay, all right, so I guess for the first half, it's safe to say that the second quarter should be higher than the first quarter, given the lower medical costs, right?

That's right.

Exactly.

Okay. And then on the Indiana and then Ohio also, does the full year '05 guidance -- the 240 to 245 incorporate any ramp costs that you are aware of, anyway, that are associated with those 2 market entries?

The guidance numbers include the cost of the startups, but they do not include any revenue or operating results.

Okay, good. And then finally, back on the 2 acquisitions that are announced but not closed in San Diego, I think you put out some accretion guidance for the larger of the 2 trends (technical difficulty) if I'm not mistaken. But if you close those in Q2 -- let me put it to you this way -- do you anticipate that both of those deals would add to '05 EPS (multiple speakers) if it closed in Q2?

What we've said (multiple speakers), Ed, is that we will only do acquisitions that are accretive. So the answer is we would expect that they would be accretive. And we close on those transactions (technical difficulty) accretion numbers. I don't believe that we did before.

Matt Curry (ph), Wachovia Securities.

Just one question kind of following up on what Ed asked. Could you just go into a little more detail on the entry into the Ohio market, and how -- what the total opportunity might be in Franklin County for membership that's up for grabs, and how that might track in the second half of the year?

Sure. We're currently talking with the state of Ohio about entering the Ohio market in Franklin County, which is basically the Columbus and surrounding areas. There are approximately 40,000 Medicaid beneficiaries in that service area that have not enrolled in a managed care plan that would be required to join one of the plans once there is a second health plan in their that's licensed. Right now, there's only one health plan in the service area.

And is this the case where the state will just have the 1 existing plan, and then you guys will be the other, and there won't be any other competition there?

I don't know about other competition there. Right now, there's only one health plan currently serving that market. And we look to be the second.

(Operator Instructions). Patrick Hojlo, Credit Suisse First Boston.

This is Lennox Cutner (ph) in for Patrick. 2 questions. One is on the Utah enrollment. It came in a little bit below our expectations there; it went down a little bit sequentially. I was just wondering if we could get a little bit of color on that and where you think that that loss might be stemming from?

I think that the -- Utah enrollment, actually, we think has been fairly stable. We have seen some problems with the SCHIP membership. The state has not allowed as many patients to enroll in the SCHIP as we had hoped. When they open up the open enrollment, we expect to get more patients. But it's really been an issue of the state not having more open enrollment available to the patients there.

Okay, and you're not sure when they will open it up, then?

They've been doing it maybe once or twice a year. Maybe in May, but we're not positive.

Okay, and then you mentioned the potential conversion of more counties in California by 2007. Is that -- has the governor actually made a proposal yet, or is that still something that's kind of being talked about?

Well, I get to talk about the California budget, one of my favorite topics. In California, the governor announces his budget proposal. It comes out in January. And in it, he outlines some Medi-Cal reform measures which basically say, we're going to expand managed care initially by adding more counties and putting more TANF patients into managed care. That will be followed by enrolling the aged, blind, and disabled patients probably in 2007.

However, what you have to understand about California is that that's followed by the May revise, which comes out after the tax revenues are known. The good news is that we're probably $2 billion to the positive. That was just announced. So the budget problems in California have eased a little bit.

What this will finally look like is going to depend on the interaction between the governor and the legislature, which typically takes place in the summer. But right now, the plan is to expand and add 13 more counties, followed in '07 by the ABDs.

Okay, so the 13 counties then would be like a 2006 event, probably?

Probably.

Joseph France, Banc of America.

John, following up Ed's question about Sharp and Universal, the latest stat (ph) filings that we have for '03 show that they were losing money. Can you tell us what their profitability or lack thereof was in '04?

I don't know if they filed the '04 numbers yet, Joe.

Just the first 9 months would be fine.

I think what it showed is high medical care ratios for Sharp. Much of that had to do with the fact that it is a provider-owned health plan. It's not atypical for us to find that provider-owned plans tend to have a higher medical care ratio. And for Universal Care, I think it was largely a function of the commercial business more than anything else.

I think that Universal Care was profitable for the year. They've been on monthly filing, so it's little bit easier to follow their numbers. And they are showing a profit. The problem you run into in trying to dissect these things out is that the orange blank filings don't give you the numbers by product line. They just give you the combined, rolled-up number

Oh, okay. Is the 17,000 for Universal -- is that all Medicaid, or does that include commercial?

No, the 17,000 that we're talking about from Universal Care is a combination of Medicaid and SCHIP. It's the same for both Sharp and Universal -- a combination of Medicaid and CHIP.

Last question, John -- and answer, I think it was to Matt -- if you could size Indiana like you did Ohio, the opportunity there -- is that 2 counties in Indiana?

Indiana -- we have the potential to go into as many as 21 counties, depending on how we build the network. I think that our initial network is focusing on 2 counties in the south. I've got the numbers here. There's a total of approximately 700,000 Medicaid beneficiaries in the state. And the state is going to open up, as Mark said, 13 additional counties which will add approximately 300,000 beneficiaries to the pool.

Greats. And one more question if you don't mind. Would you mind breaking out enrollment by dual eligibles, TANF, SCHIP, etc.?

For what, Joe?

For the enrollment, I'm sorry -- enrollment by TANF, SSI, SCHIP?

You know, I don't think we have broken out by product line in the past.

No, you haven't. That's correct.

(multiple speakers) the majority of our membership is going to be TANF. We mentioned that we've got roughly 50,000 in the ABD population spread out across all of our states.

David Gruber (ph), Nomura Securities.

Just a quick question. Any plans to enter the Texas market or participate in the bidding process?

Thanks, David. You know, we don't comment on things like potential market entries. So typically the way we do these things is when we enter a new market, we will issue a press release and do a filing. But we don't comment on potential states.

Ed Kroll, SG Cowen.

I was wondering for '05 if you could tell us, say, a range of what kind of organic enrollment growth you're expecting?

Probably in the neighborhood of 4 percent, Ed.

I just want to comment on that, Ed -- it's really hard for us, given our very acquisitive nature in existing markets, to really break out "organic growth."

Probably especially in a place like Michigan, right?

Right, because as we're acquiring things, we have patients that may come over early. We have opportunities like we had in Michigan where, if we didn't do the Wellness Plan acquisition, we would have gotten some of those 73,000 members, maybe not all of them. And that would have been great "organic growth." But we put out what we thought was a very fair number, and we got them all. And that was strategically a better use of our capital than sitting around waiting to get the patients on an organic basis.

Okay, how about -- let's say, all in then, including the impact of the Michigan transaction that closed October 1, would that be more like 6 percent, let's say?

I'm sorry, I don't quite understand your question, Ed.

Well, 12/31 -- or during the year 2005, how much enrollment growth, all-in, do you think you'll have?

How many members do we think we're going to grow in 2005?

Yes, membership 12/31/05 versus 12/31/04 -- I guess that would be -- if you think the organic is 4 percent, I guess that would be the same number, right? Because if we're not going to assume any acquisitions until they close, Michigan is in the 12/31/04 -- the Michigan acquisition that closed October 1 is in the 12/31/04 number.

That's correct, Ed.

I just want to make one more comment about membership growth. We really are trying to focus more on revenue growth than strictly membership growth. And the reason is that our membership revenue on a per member, per month basis varies tremendously across the spectrum of the states. And so when you're just counting heads, it can be very misleading. For example, a member in California brings about a third as much revenue as a member in New Mexico.

So you can't simply equate them. And you have to be very careful about using sort of an average membership number. If you apply an average membership number to new members in California, you're going to overestimate the revenue.

Dr. Molina, there are no further questions from the phone line at this time. I'll turn the call back over to you.

Thank you. We have a clear vision of where we are going. And every day, we take action to execute our strategy. We have gathered a strong management team. Some have been with the Company for quite some time, while many others are new. All are strong and capable managers. And I'm confident that together, we will get the job done.

This is an exciting time for Molina Healthcare, and I look forward to reporting on our progress in 2005. Thank you for joining the call.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and ask that you please disconnect your lines.