Molina Healthcare Inc (MOH) 2015 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Molina Healthcare second-quarter 2015 earnings 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 Thursday, July 30, 2015.

I would now like to turn the conference over to Mr. Juan Jose Orellana, SVP of Investor Relations. Please go ahead, sir.

Thank you Thaddeus. Hello, everyone, and thank you for joining us. The purpose of this call is to discuss Molina Healthcare's financial results for the second quarter ended June 30, 2015. The Company's earnings release reporting its result was issued today after the market closed and is now posted for viewing on our Company website.

On the call with me today are Dr. Mario Molina, our CEO; John Molina, our CFO; Terry Bayer, our COO; and Joseph White, our Chief Accounting Officer. After the completion of our prepared remarks, we will open the call to take your questions. If you have multiple questions, we ask that you get back in the queue so that others can have an opportunity to ask their questions.

Our comments today will contain forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act. All of our forward-looking statements are based on our current expectations and assumptions, which are subject to numerous risk factors that could cause our actual results to differ materially. A description of such risk factors can be found in our earnings release and in our reports filed with the Securities and Exchange Commission, including our Form 10-K annual report, our Form 10-Q quarterly reports, and our Form 8-K current reports. These reports can be accessed under the Investor Relations tab of our Company website, or on the SEC's website. All forward-looking statements made during today's call represent our judgment as of July 30, 2015, and we disclaim any obligation to update such statements except as required by securities laws.

This call is being recorded and 30-day replay of the conference call will be available at our Company's website, MolinaHealthcare.com.

I would now like to turn the call over to Dr. Mario Molina.

Thank you, Juan Jose. Good afternoon, everyone, and thank you for joining us today as we report our second-quarter results for 2015. I am pleased to report that, during the second quarter, we maintained momentum in our business and continued to deliver great financial results. We are growing, we are diversifying, and we are driving strong operating results.

Striking a balance between growth and profitability is an imperative for us. As a result, we were very pleased to deliver both revenue and enrollment growth that was nearly 50% greater than what we reported during the second quarter of 2015. After the first two quarters of the year, our net profit margin now stands at 1%, and we saw a net profit expansion of 80 basis points sequentially.

My father used to say, shoemaker, mind I last. And we have done so. While speculation and megadeals among the commercial players have been grabbing all the headlines, we have remain focused on growing our core business and we have been involved in several key acquisitions of our own.

The transactions that we have announced demonstrate our continued focus on government programs and our ability to use our expertise in providing access to healthcare to those who need it most and who are least able to afford it. We remain focused on our mission to serve low income individuals that require government assistance. Let me provide you with some greater detail on each of these transactions.

Our transaction with Preferred Medical Plan in Florida will add about 25,000 Medicaid members to our Florida health plan, doubling our Medicaid enrollment in the Miami-Dade market. Many of our existing providers are also contracted with Preferred Medical Plan. Therefore, this acquisition will deepen our relationships with providers. We anticipate this transaction will add about $80 million in annual revenue.

Medicaid health plans in Florida are currently engaged in discussions with the state regarding premium rates for the next fiscal year, and some increases are expected. While premium rates in Florida have not kept pace with medical costs during the current rate year, we remain optimistic about our future in Florida. In fact, we believe that this is the right time to be acquiring other health plans in this market. After all, Florida is the fourth-largest Medicaid market in the country.

The acquisition of Health Plus of Michigan is expected to add 90,000 Medicaid and 6,000 CHIP members. This will increase our enrollment in Michigan by 40% and expand our geographic footprint by adding two additional counties in the central part of the state. We expect the transaction to add roughly $300 million in annual revenue.

With the acquisition of MyCare Chicago, we are entering one of the largest Medicaid counties in the country. Cook County alone accounts for nearly half of the state's 3.2 million Medicaid eligibles and gives us an opportunity for future growth. In addition to the long-term opportunity, this acquisition brings in 60,000 additional members, increasing our enrollment in Illinois by 60%. And we expect the incremental revenue from this transaction to be $190 million on an annual basis.

Combined, these transactions are expected to add an additional 180,000 new members and approximately $570 million in annualized revenue.

While the impact to 2015 may be small given the anticipated closing dates, all transactions are expected to be accretive. And when combined with our enrollment from our startup in Puerto Rico, Medicaid expansion in the marketplace, we will have added 900,000 members by the end of the year.

In-market acquisitions are an important part of our growth strategy and highly accretive, helping us to expand margins in the future. This is because in-market acquisitions are generally asset purchases, provide us with additional scale, and in some instances a larger service footprint at a small marginal cost. We have considerable experience integrating these types of transactions as we have completed more than 10 asset purchases over the past decade. For the most part, speed to integration for these types of lower-risk acquisitions, coupled with our existing infrastructure, result in significant accretion value.

The acquisition pipeline remains robust. Our recent equity offering and credit facility allow us to remain nimble and continue to take advantage of such opportunities as they arise.

Changing gears, I want to briefly address the debt and budgetary challenges currently being faced by Puerto Rico. Puerto Rico pays our premiums weekly and is current with their payments. We will continue to monitor the situation there.

We would like to welcome those of you that are new to Molina and to our story. We look forward to speaking with you about our business. We are committed to making a difference by providing compassionate care to those receiving government assistance and most in need our help. We are pleased with our results so far and more broadly how they contribute to our longer-term objectives.

Now I will turn the call over to John.

Thank you Mario. Good afternoon everyone.

Today we reported net income of $0.72 per diluted share and adjusted net income per diluted share of $0.86. We are particularly pleased that we achieved these results by growing both our topline and our profit margins. As Mario briefly touched upon, premium revenue grew in excess of 50% compared with the second quarter of 2014 and our medical care ratio dropped by 60 basis points. This improved medical margin performance coupled with greater administrative cost efficiency and more complete reimbursement of the Affordable Care Act's health insurer fee, or HIF.

Our second-quarter after-tax margin grew to 1.1%. This is the first time in our Company's 35-year history that we have reported pretax income of $100 million for a quarter.

Our second-quarter results demonstrate the diversification of our business even as we remain focused on Medicaid-related markets. Medical care ratios at nine of our health plans were lower this quarter than in the second quarter of 2014. Based on our results during the last two quarters, we expect that six of our health plans will each have revenues in excess of $2 billion by the end of the year. Pardon me -- will have in excess of $1 billion by the end of the year.

We also continue to make progress in securing reimbursement from the HIF. During the second quarter, we received a commitment to reimburse the fee from California, leaving only Michigan and Utah among our state plan partners that have not formally committed to reimbursement of the fee.

During the second quarter, we recognized all of the 2014 HIF reimbursement due from California and half of the amount due for 2015. This amounted to $29 million. But because we are still not recognizing HIF reimbursement from Michigan and Utah, the net impact of the HIF reimbursement was only $12 million, or $0.14 per diluted share, favorable for the quarter. But I want to emphasize the impact is actually $5 million, or $0.06 per share, unfavorable year-to-date.

Since we are now largely caught up on the HIF collections, we will cease reporting on this issue on a regular basis in future periods.

Regarding Texas quality revenue, you will recall that, since the beginning of 2014, about half of our total potential quality revenue is determined based upon performance measures for which we do not have historical information, clear definition, or clarity around minimum standards. Through June of this year, this portion of our potential quality revenue amounted to about $32 million, $20 million for all of 2014 and $12 million for the first half of 2015. We will continue to defer recognition of this revenue until we get greater clarity from the state of Texas.

I've already mentioned that our medical care ratio decreased 60 basis points in the second quarter of this year compared to the second quarter of 2014. Our medical care ratio was unchanged from the first quarter of 2015 at 88.7%. But if we exclude our Puerto Rico operations, which was new this quarter, our medical care ratio fell 40 basis points to 88.3% from the first quarter of 2015. Our health plans generally report high MCRs in initial years of operation and we attach no particular long-term significance to Puerto Rico's high medical care ratio this quarter.

This point about Puerto Rico leads to another matter which I want to touch upon, the high degree of variability that occurs in the granular data that we provide. We'll always share details of our individual health plan performance. Starting last quarter, we disclosed our revenue and medical care ratios by product line in order to further increase transparency.

I want to repeat something that I said on last quarter's call. Financial information presented with this degree of granularity is inevitably subject to quarter-to-quarter fluctuations. Please use the detailed geographic and product line data to better understand our business tactics, our market opportunities and challenges, and the complexities of our business. These are consolidated results to understand our strategic goals and opportunities to weigh our performance over time and to form your own assessment of the long-term potential of our Company.

Now, getting back to the results, general and administrative expense ratio declined by 30 basis points when compared with the second quarter of 2014.

Days and claims payable dropped slightly from the first to second quarters from 50.52 days last quarter to 49.47 this quarter, a decrease of 1.05 days. However, we are up three days when compared to the same period last year.

As of June 30, 2015, the Company had cash and investments of approximately $3.5 billion, including in excess of $530 million at our parent company.

During the second quarter, we issued 5.75 million shares of common stock, raising more than $370 million in net proceeds. As a result of the offering, our diluted weighted average shares outstanding have increased to just over 52 million shares for the six months ending June 2015. We expect diluted shares outstanding to be approximately 60 million for the third and fourth quarters, and approximately 56 million for the full year 2015. These estimates are consistent with the revised outlook we issued June 1.

During our roadshow for the secondary offering, we told investors that we were exploring a large number of potential acquisitions. As Mario discussed, we have been able to sign up three of those acquisitions. I want to remind everyone that these transactions are still going through the formal closing process and that we expect them to close during the third and fourth quarters of this year. As such, these acquisitions will have limited impact on our 2015 results.

Finally, I wanted to highlight that today marks a historic milestone in our industry. Medicaid turns 50 years old. On July 30, 1965, President Lyndon B. Johnson signed into law the Medicaid and Medicare programs. Over the last five decades, these programs have transformed the nation's healthcare system, protecting the health and well-being of millions of families. As we pay tribute to this event, we feel privileged that Molina Healthcare has played an active role in the program since our inception 35 years ago, and we are excited to continue shaping the future of the program by providing more people with access to quality healthcare.

We look forward to talking to you again during our next investor day in New York on September 17. This concludes our prepared remarks. We are now ready to take questions.

(Operator Instructions). A.J. Rice, UBS.

Thanks. Hello everybody. On the MLR for the first half, so you're at 88.7%, and I think your full-year guidance is still 89.5%. Can you give us some of the factors that sits on seasonality in the back half of the year, any other factors? Does that MLR number now look increasingly conservative? Any color?

This is John. What I would say is we do have some seasonality Q4, but really the medical costs are coming in line a little bit faster than we expected. But I wouldn't draw any conclusions on what the first half of the year is to the second half of the year because, as we've talked about in the past, we are not going to update guidance unless something material changes.

Right. Right. Similarly, this is my follow-up on the SG&A lin. If I look at that, you are at 8.1% in the first half. Your outlook for the year is 7.6%. So in that one, you'd need the back half be quite a bit stronger. Is that mainly just leverage or is there something else that would happen that would help you on that?

It would be continued leverage, but I think the thing we have to look at with respect to the admin ratio is, as we've discussed before, we have profit caps, medical cost floors, and those are achieved largely by reductions in revenue. But in the case of a marketplace, for example, while we may reduce the revenue for things like risk adjustments, the marketing costs, the broker commissions, etc., are flat. So as a percentage of the revenue we get from marketplace, it's higher. I would say all in all, both admin and medical claims -- or medical costs are coming in in a way, as Mario said, that makes us very pleased.

Okay. All right. Thanks a lot.

Sarah James, Wedbush Securities.

Thank you, and congratulations, guys, on the record quarter.

Thank you Sarah.

I was wondering if you could walk us through some of the moving pieces in the quarter. So, as I think about MLR, were there any rate updates that came through and improved things sequentially? Was there any benefit from a three-R true-up? And on the SG&A side, was there any impact at all from either the financing transactions or due diligence for M&A that impacted the quarter that wouldn't be an ongoing cost?

This is John. Let me see if I can take those three questions now in order.

On the MLR side, there were no rate increases. I think the MLR is where it is because we are doing good medical management.

On the three Rs, there was no true-up. And in terms of the SG&A, there was no significant increase either from the offering or from M&A.

Got it. And I guess just as a follow-up, excluding out the one-time items, on Texas, I think you guys had talked about in the past the state providing data finally last quarter to the plans, and then there was a review or appeal process. So where does that stand now as far as closing out (multiple speakers)?

This is like the John show, I'm getting all the questions. There are two systems the state provides to us to use. And unfortunately, the last time we heard from the state, the two systems were in a bit of a conflict. So we have no further information other than the state is rerunning the data and will get back to us as soon as they have good confirmation.

Thank you.

Tom Carroll, Stifel.

Good afternoon. Another follow-up on Texas while I'm thinking about it. The $32 million that you highlight, remind us again. Are you cash flowed that money or is that just money you are owed at some point in time?

And secondly, in terms of the process, I think you have some peers in the state that have recognized a fair amount of their share. So should we take that as being maybe the probability is a bit higher that you will eventually recognize those dollars in the near future?

It's Joe speaking. To your first question, that's not a cash flow issue for us. The state, the state, if it were to take money back, would have to take money back from us if we missed a measure. So it's not a cash flow issue.

To the second point, obviously we don't know what our peers are doing in the state, but from our perspective, the quality measures break into two broad categories. About half of them we have -- which are HEDIS based measures, we have good insight to, and we've been recognizing revenue associated with those measures. It's just these other measures that we don't have insight to that we are not recognizing revenue. So for us, it splits out about 50-50 on the potential. I don't know what our peers are doing, obviously.

So on the $32 million, half of that you have recognized, or half (multiple speakers) you have better visibility on?

No. That $32 million is what is unrecognized. So if you think of the total potential, it would've been around $64 million. We recognized $32 million and there's another $32 million out there.

And then just for clarification, the health insurer fee items, those are all contemplated as part of your outlook this year, correct?

That's correct.

Okay. Thanks very much.

Andy Schenker, Morgan Stanley.

This is Cornelia in for Andy. I guess just focusing on Florida for a second, the MLR fell more than 600 basis points quarter-to-quarter. Was that all driven by your marketplace numbers, or did you see any improvement in MMA as well?

No, it's marketplace.

Okay. And then can you just remind us what you've included in guidance for a rate increase in Florida?

I think, if you go back in January, we were expecting 3%.

Okay. And then just following up on the marketplace MLR, obviously down significantly to 55.4%. It sounds like that's not related to any three R true-ups. Is there anything is going on in the quarter that we should be thinking about? All these Florida members are super-profitable, or --.

It's Joe speaking. In general, we've been seeing very good experience on the marketplace. As far as three R true-ups, we're helped a few of our states because of credibility factors where we are not having to accrue MLR give-backs. But we've actually got a nice table on the three Rs at the very end of our 10-Q where you can see how we are positioned for 2015.

I think in general, though, it's fair to say that pretty much across the board the marketplaces have come in very well for us this year.

Okay. Great. Thanks.

Josh Raskin, Barclays.

This is Mary Shang in for Josh this afternoon. So you clearly saw some significant initial enrollment in Puerto Rico. Was this enrollment that you saw in line with your expectations, and could you maybe provide some more color on the cost trends of these numbers so far?

Sure. This is John. The enrollment is right where we expected it to be. Remember, in Puerto Rico, we are serving two regions and we are the only health plan in those two regions. So if you are on Medicaid in either of those regions, you are a member of Molina.

In terms of the cost trends, it's still a little early to say anything. We've got three months' worth of experience, so we may have more to report at the end of the third quarter and certainly going into the fourth quarter.

Okay, great. And just one follow-up. You've been active with your recent acquisitions in Florida, Illinois, Michigan. Could you just provide some more color around what the future pipeline looks for you? I know you mentioned Florida health plans in your prepared remarks.

Sure. We are seeing smaller health plans, just like the three that we talked about today, provider sponsored plans that realize they want to focus on being providers first and not being in the health plan business. And as we've discussed in the past, we are also looking at companies that can help broaden our service capabilities.

Okay, great. Thanks.

Peter Costa, Wells Fargo.

Thanks. Good quarter guys. The marketplace MLR is so low, 70% or so for the first six months. Do you think that that is something that's going to trigger the medical loss ratio minimums in that category, or is that being accounted for correctly already?

In some states it will, as Joe mentioned. In some states, there's credibility factors which have a different effect. But we are confident that we are accruing everything correctly for the marketplace.

So we shouldn't expect that to go higher going forward as you see the performance continue to be good, if you will?

It's Joe speaking. I think as we leave the protection, if you will, the credibility factors, as plans get bigger, we could obviously see higher MCRs.

Okay. And then sort on the same MLR line but different business, the California MLR continues trend a little bit worse. I know you have had a lot of improvement in almost every other state but just focusing on California where it did deteriorate again, do you expect that to continue to deteriorate or do you think that can start to improve from here?

This is John. I think it will start to improve.

Do want to give us any color on why?

I was waiting for you to ask me that question. We are seeing more of our members go into our own delivery system. We've seen -- that has two effects. We do know that in enrollment clinics we tend to get patients with more chronic illnesses, so until we get the risk scores and everything turned around there, I think we'll see a little bit higher MCR. We also have some hospital contracts that we are in the process of renegotiating which are a bit higher than we would like them to be.

Can you give us a time frame on when some of that stuff will start to hit?

Probably early next year.

Okay, terrific. Thank you very much. Good quarter.

Dave Windley, Jefferies.

Hi. If I take your year-to-date performance -- and thanks for taking the questions by the way, sorry. If I take your year-to-date performance and then tack on, say, the net benefit from the HIF that you haven't collected in the first six months, and from everything you've said so far, it doesn't sound like there is significant negative seasonality in the back half. So if I kind of annualize your number, you are running pretty significantly above your $235 million guidance. I know to A.J.'s question you kind of mentioned materiality. Is it still not material enough to make a change on guidance?

This is Mario. We said at the beginning of the year that we are going to provide annual guidance unless there was a material change. Earlier this year when we did the stock offering, we did update the guidance because of the change in the share count. But at this point, we're going to stick by our policy of providing annual guidance. The number is what it is, the performance is running better than what we had forecast.

Got you, okay. All right. Moving on then, a couple of maybe organic opportunities in Iowa where I think you are bidding, and then Michigan where you are going to close an acquisition and there is opportunity there or re-procurement there. I'm wondering what your views are on your opportunity to win and/or defend position as the case may be.

This is Mario. We obviously feel pretty good about Michigan. As far as Iowa goes, I wouldn't care to speculate at this point. We submitted what we think was a good response and we'll just have to see how the scoring of the awards come out.

Okay, great. Thanks, good luck.

Kevin Fischbeck, Bank of America.

This is actually Steve Baxter on for Kevin. I just want to clarify the HIF commentary just to put a fine point on it. The $0.14 when you flagged that in the press release, that's the amount of revenue you recognized not related to the second quarter of 2015, right? So if we were trying to think of a run rate, $0.14 is the right number to adjust?

That's correct.

Okay, great. And I guess I would love to get a little bit of an update on the duals population. I know you caution against too much quarter-to-quarter MLR comparisons, but it looks like the MLR jumped up a little bit there. I guess any color on that would be great. And I guess just ongoing dialogue with the states to kind of improve the sustainability of that program would be of interest as well.

This is Mario. With regard to the MMP contracts, I think the results right now are lumpy, and that's for a couple of reasons. First of all, we are getting a lot of new enrollment and the numbers are still small. So until thing stabilize, I think you will see fluctuations.

The other thing is that, depending on the state, in some cases, our medical costs are higher than anticipated on the Medicare side whereas, in other states, the costs may have come in a little higher than anticipated on the Medicaid or the LTSS services. And some of that is a function of our experience with those services. But I think that, as John pointed out, I wouldn't read too much into it at this point. The numbers are small, things are still in flux, and it's going to be a while before everything I think settles out. Generally speaking, it takes nine months to a year for things to kind of stabilize, so don't read too much into the quarter-to-quarter numbers.

Okay, thanks. I guess just one question on the exchanges. It seems like you have a significant amount of room to reprice that business to kind of get to a margin that might be a little more sustainable and won't really put you up against all the three R corridors. Can you talk about what your expectations are for growth during that program over the next couple of years and how that might impact your government comp tax susceptibility?

This is John. We don't anticipate being able to deduct the executive comps starting next year because the marketplace has been successful for us, we like the product and are going to continue to try and grow it the way we did in 2015.

Okay, thanks. I guess that just begs the question then, do you have a sense of what that adjustment would look like to your tax rate?

It is Joe speaking. I think it was around 40 BPS, but obviously our tax rate has been in such flux lately that I'm not sure you can really adjust that very easily. But I believe it was around 40 BPS when we talked about it last year.

Great, okay. Thanks.

Ana Gupte, Leerink.

Thanks. Good afternoon. Just following up again on the marketplace, why is it that you are doing so well? I'm just curious. Why is it that your margins are so good? And it seems like, for Medicaid players in general as compared to players like Humana which are generally in the same states as well, not just in California, seem to be in trouble. Is it because you're contracting on Medicaid networks, whereas they are not? Or I'm just curious what's going on.

This is Mario. It's a difficult question for us to answer. What I can say is that our strategy was to offer products that would be attractive to people who were at the lower end of the FPL, so maybe up to about 250% of poverty, and that we wanted to build this as an extension of Medicaid so that people who were coming off of Medicaid, the so-called churn, would be able to stay with their health plan and stay with their doctor. That's how we designed the products.

I can't tell you why there's a difference between us and some of the other health plans, but we had a strategy. I also think we were conservative going in and that's allowed us to lower our rates a little bit in the second year. So far, our strategy is holding. We'll see what it does in the third year.

So it's partly maybe not just the networks, but you are targeting a certain segment of that subsidized population it sounds like.

Then just following up on that, when I look at the 2016 proposed rates, and I expect you all are still in the negotiating phase of the HIF marketplaces, you are filing for something on average that looks like a rate reduction, probably -- and I may not have all the states and all -- but somewhere in the 8-ish% range. And is that to kind of get to the more normalized sustainable state, or am I missing some data somewhere?

This is John. The ability to have affordable products for the population that Mario talked about is very important and core to the mission of the Company. So our ability to lower the price going into next year was very important, and we have to balance being able to lower our costs for our members and making sure that we have the right margin on the business. I don't know if it was 8% across the board or what, but it was our goal to balance those two items.

Got it. Thanks so much. Appreciate it.

Brian Wright, Sterne Agee CRT.

Thanks. Good afternoon. Two real quick ones. On the California PMPM, I'm just would have thought that with the health insurance you accrue this quarter, it would've been a bit higher, because I mean even with that, it's down year-over-year. So is there anything one-time-ish in the revenue that's driving that?

I don't know if it's one-time-ish, but remember last year there was the PCP parity, and then also we had some retroactive adjustments to our MMP rates in California, sort of normal course reconciliations that hit this quarter.

Also, if you're looking at the revenue in the detail, we exclude the HIF from that.

Great, okay. Thank you. And then lastly, it looks like CMS is allowing the states to have the option to extend the duals pilots another two years. I was just curious if you had spoken to California and kind of gotten their lenience on that option.

We haven't started to engage with the states, obviously. We put a lot of effort into the MMP programs across all the states, and so we would like to see the programs continue. But we are not going to speak for the state Medicaid agencies.

Let me just add -- this is Mario -- I think that it's really appropriate to extend these pilots because the truth of the matter is some of them got started late and three years is a very short time to really analyze the effectiveness. By the time you get all the data and then try to analyze it, you're talking about probably two to three years anyway. So, I think the three-year timeframe was pretty short to do a really good analysis of the value of these new MMP programs. It makes sense to extend them.

Great. Thank you.

(Operator Instructions). Matthew Borsch, Goldman Sachs.

Congrats on another great quarter. This is Christopher Benassi on for Matthew Borsch. With all the industry consolidation that has been occurring, could you touch on where Molina sits within the managed care ecosystem, and how you are strategically positioned? And just following that up, do think the push for scale has been overemphasized?

This is Mario. Let me take a minute on that. I think that the way things are settling out, Molina is turning out to be the purest of the pure-plays, that we are really focused on our mission, which is to serve low income patients who receive some form of government assistance with their healthcare premiums.

As you can see from the acquisitions that we have done, we continue to grow. We're going to add 900,000 members this year. We have a lot of opportunity in front of us in Medicaid and especially when it comes to programs like the duals and the long-term care services. So there's plenty of room for us to grow, lots of accretive opportunities in front of us. And that's I think where we sit in this sort of managed care ecosystem.

Okay. That makes sense. Just to dovetail off that, would you maybe be willing to touch on any areas you'd be interested in expanding into geographically? And how do you think you'll be positioned for any divestitures in the upcoming consolidation -- in the upcoming wave of consolidation?

Yes, great question. Clearly, we are interested in Georgia and Iowa. We remain interested in states that have significant managed-care opportunities in Medicaid. We are looking at companies for acquisitions that might give us capabilities that we don't currently have. And as far as divestitures go, the fact that we have the equity offering behind us now and the line of credit, we are well poised to take advantage and move quickly in opportunities that may arise.

Great. I guess one more quick follow-up as well. Where would you feel comfortable with your debt to cap? You screen towards the bottom end of our coverage and you have great balance sheet, so just kind of curious around that.

I think that, after the equity offering, we are pretty happy with where we are right now.

Fantastic. Thank you very much.

Gary Taylor, JPMorgan.

Good evening. Most of my questions have been answered. I actually just have one small clarification from a question earlier. Did I hear correctly that you said the sequential year-over-year improvement in the Florida medical loss ratio was mostly due to the performance of marketplace plans? Was that correct?

That's correct, Gary.

Okay. Thank you. That's all I had.

Chris Rigg, Susquehanna Financial Group.

Thanks for taking my question. Mario, just a follow-up on what you said a few minutes ago about potentially buying capabilities that you don't have. Does that theoretically mean if some Medicare Advantage assets came up for sale, you guys would take a look?

Yes. I think that we would be willing to take a look at Medicare Advantage assets, sure. We would be looking at Medicare, Medicaid, other companies that could fill in parts of our business portfolio in the area of long-term care services. There's a variety of things. We wouldn't necessarily shy away from Medicare Advantage.

Okay. And then this is really just a follow-up on at least two questions that have been asked with regard to guidance. I guess when I look at the year-to-date MCR and the year-to-date G&A, then look back where you are at guidance-wise, is it just conservatism in the outlook or are you actually indeed looking for a big step down on an absolute basis of G&A and the MCR to go up in a very meaningful way in the last half of the year? Thanks.

This is Mario. I would say that we tend to be conservative. If you look at the way we've handled things like the Texas pay-per-performance revenue and some of these other things, we tend to be on the conservative side, and we would rather be that way. The same thing with the health insurance fees. We think the health insurance tax will ultimately all be paid, and we have assumed that in our guidance, but we haven't recognized all of it yet. So we tend to be conservative.

Got it. And I appreciate that. But on the MCR in particular, is there anything that we should know about that actually is going to drive that meaningfully higher in the back half of the year, or we should just take the conservative commentary on its face? Thanks.

There are no events that we are aware of right now that I think will drive the MCR higher. John did mention there is some seasonality. We typically see higher medical costs in the fourth and first quarters of the year, but aside from that, no. We continue to work on the MMP and the Medicare costs, but nothing out of the ordinary.

Great, thanks a lot.

Tom Carroll, Stifel.

Thanks for the follow-up. A few others here just to think about. So, on Texas, the $32 million, how do you expect that to hit the bottom line should it come into play? Is this just a tax adjustment and the rest of it falls right to the bottom line? And is it around $0.30 a share? Is that what you think about?

It's Joe speaking. Whatever comes in will be a direct increase to pretax income. So there's no (multiple speakers) expenses or anything.

Thank you for that. And then secondly, somewhat conceptual, in Utah and Michigan, the Affordable Care Act rolled out 18 months ago. We've had visibility on this thing now for, what, five years. I can't believe it's been that long. What do you think the holdup is in these two markets? Are these guys just stringing you along for another few months and then eventually it's going to hit? Or maybe give us some sense of what you think these markets are -- what are they thinking?

This is John. I don't think that either state is intentionally stringing us along. In both Michigan and in Utah, the dollars have been passed through the budgets by the legislatures. But in fairness, there's a lot of stuff going on in both of those states. Michigan is putting out a new RFP. Utah is talking about expansion of Medicaid. And what we are waiting for is the contractual language -- contract amendment to solidify that. So we are very comfortable that the state -- both states intend to pay us in the future. And we are being patient, and that's why, again, it's becoming a smaller and smaller issue. So we are happy not to talk about it anymore.

Tom, I'm sorry. Is your question about the health insurance fee or Medicaid expansion?

The health insurance fee, the fee side of things.

Okay. I misunderstood. Thanks.

John, I won't ask you about it anymore. And then lastly, on your acquisitions, I think you said they were going to be accretive. But where do you expect these to operate in 2016? Are these operating in line with your broader organization in terms operating margin, or is there going to be some further ramp in year one where you've got to get in there with the Molina secret sauce and get it going?

This is John. Since these are in-market or "bolt-on" acquisitions, they tend to perform slightly better than the Company average. But we'll get into the accretion numbers, etc., in 2016 at our normal investor day A.

Great. Thank you very much. That's what I was looking for.

There are no other questions left in the queue. I'll turn it back to you. Please continue with your presentation or closing remarks.

Great, thank you. Well, everyone, we hope that you will have a good summer, what's left of it, and look forward to seeing you again at the investor day in New York in September.

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.