Molina Healthcare, Inc. (MOH) Q1 2015 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Molina Healthcare First Quarter 2015 Earnings Conference Call. During the presentation all participants will be in a listen-only mode. Afterwards we'll conduct a question-and-answer session. As a reminder, this conference is being recorded Thursday, May 7, 2015. I would now like to turn the conference over to Juan Jose Orellana, SVP of Investor Relations. Please go ahead. Juan José Orellana - Senior Vice President, Investor Relations & Marketing: Thank you, Scott. Hello, everyone, and thank you for joining us. The purpose of this call is to discuss Molina Healthcare's financial results for the first quarter ended March 31, 2015. The company issued its release reporting the results today after the market closed, and the release 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 it 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 May 7, 2015, and we disclaim any obligation to update such statements, except as required by securities laws. This call is being recorded and a 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. J. Mario Molina, MD - Chairman, President & Chief Executive Officer: Thank you, Juan Jose. Hello, everyone and thank you for joining our call today. I will speak for a few minutes on our start for the year and then hand the call over to John who will provide a financial summary of the quarter. Molina is off to an excellent start in 2015, and I am very pleased with our current trajectory and progress. We delivered 38% enrollment growth and 53% revenue growth, which together resulted in net income that was about six times higher than the first quarter of 2014. This success underscores the current growth opportunities of our business, and validates our strategic push to diversify into new markets and new programs to manage the healthcare of complex patients, and to leverage our administrative infrastructure. All of this without ever losing sight of quality. Today's results establish a solid foundation for us to build upon as we set our sights on our targets for the year, and to achieve our long-term goals and objectives. During the first quarter, strong membership growth continued as we increased enrollment by 342,000 members sequentially, growing to nearly three million members across all of our markets. Arranging healthcare services for three million members is no simple task. So I want to take this opportunity to congratulate all of our employees on this milestone achievement. But more importantly, I want to thank them for their hard work, and for remaining grounded by always keeping in mind our humble beginnings in a single clinic. Thank you. We are currently operating in one of the most exciting periods in the history of Medicaid managed care, two of the fastest growing programs in the managed care industry. The dual eligible demonstration and the expansion of Medicaid are core areas of focus at Molina. As individuals in these programs transition into managed care, the demands for our services will continue to increase. Our dual eligible membership increased by nearly 90% sequentially, fueled by the three health plans that began operations under this program last year, California, Illinois and Ohio. Many of you listening to this call have been keenly interested in the opt-out rates for our duals programs. We continue to experience a consolidated opt-out rate of about 50%, consistent with the number we have shared in the past. Medicaid expansion membership grew by 50,000 new members during the first quarter and by 300,000 when compared to the same period one year-ago. This product has been and continues to be an area of significant growth for the company. The health plans that we operate in states that chose to expand their Medicaid programs experienced significant growth. For example our health plans in California and Washington have each added more than 100,000 new expansion members since the beginning of 2014. And Michigan, New Mexico and Ohio have each added more than 50,000 expansion members as well. However, Texas and Florida, two states with large numbers of people without health insurance continue to refrain from expanding their Medicaid program. While lawmakers continue their debate over Medicaid expansion, managed care remains an important value and cost savings proposition. In terms of new markets, our health plan in Puerto Rico went live on April 1, as we welcomed 350,000 new members in the East and Southwest regions of the Commonwealth. I had a chance to visit with our employees at our offices in San Juan right before the launch and I was very impressed with their efforts to bring up the business under a very compressed timeframe. From our recent experience in large managed care implementations in Florida, Illinois, South Carolina and Texas we have learned that anytime large numbers of beneficiaries are transitioned into a new program, lack of awareness and confusion are always present among members and providers in the near-term. Therefore in keeping with past practice we expect to record higher medical costs in Puerto Rico during the onset of the implementation until we have our own claims data. Now let's talk a little bit about premium rates. As we think about some of our concerns from last year the rate environment immediately comes to mind. We continue to view rates in general as an ongoing headwind, especially for members in the Temporary Assistance for Needy Families category or TANF. The good news is that the rate relief in the Aged, Blind and Disabled category or ABD, as demonstrated in our New Mexico and Washington health plans provides us with some comfort that these issues will be mitigated and resolved over time. Another issue of concern last year was the reimbursement of the Affordable Care Act health insurer fee by our state partners. While not all states have formally committed to reimbursement of the health insurer fee for 2015 we remain confident of full reimbursement. As I mentioned previously, I am very pleased with our results for the quarter as our revenue and membership growth have maintained the momentum that we developed in 2014. I remain excited about the continued opportunities we are seeing and the progress we are making as we continue positioning the company for success. I would now like to turn the call over to John.

Thank you, Mario, and hello, everyone. Today we reported net income per diluted share from continuing operations of $0.56. Additionally, we're reporting adjusted net income per diluted share from continuing operations of $0.71. Both numbers represent significant improvements over our results for the first quarter of 2014 and we are all very pleased with our performance. The first quarter was notable for several key reasons. First we continue to see robust top line growth. We added more than 340,000 new members over the course of the quarter with almost three-quarters of those new members coming through the Marketplace. As we have said previously, we took a deliberate and measured approach toward the Marketplace in 2014 given the many uncertainties. For 2015 we refined our pricing based on 2014 experience and concentrated our network development. These efforts resulted in significant membership growth during the first quarter. Florida is our largest Marketplace health plan with 185,000 members while our Wisconsin health plan has about 25,000 Marketplace members and California has nearly 20,000. While we are still early in the year our cost and utilization experience so far suggests that our Marketplace business for 2015 is priced appropriately. Second, top line growth reflects our growing diversity both geographically and across different programs. In order to help you better understand that diversity we are for the first time disclosing in today's earnings release, our revenue and medical care ratios by product line. I caution everyone that financial information presented with this degree of granularity is subject to quarter-to-quarter fluctuations. This is the same situation as with the health plan specific information that we've always provided. I urge you to use the detailed geographical and product line data to better understand our business tactics, our market opportunities and challenges and the complexities of our business. But use our 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. Third, we've gained traction, for the time being, at least, in our efforts to control medical care costs. Our medical care ratio for the first quarter was the same as it was a year ago, and down 70 basis points sequentially. Fourth, administrative cost leverage is improving our profitability. Finally, we achieved strong first quarter results, despite the continued drag on earnings from the ACA health insurer fee and Texas quality revenue. Of course there are always challenges. As we've said before, increases to our base premiums in recent years have not kept pace with medical cost trends. And we continue to give back revenue due to limitations on medical margins for some programs, even as we suffer unacceptably low medical margins in other programs. Now for some additional details: Premium revenue grew 53% from a year ago and 14% from the fourth quarter of 2014. While additional memberships certainly contributes to revenue growth, membership is only one component of the overall revenue growth story. Per member per month premium revenue has increased by 15% over the last year as a result of additional membership in higher premium groups such as Medicaid expansion, the dual eligibles, Aged, Blind and Disabled populations and Marketplace. Turning to medical costs, our consolidated medical care ratio remained flat year-over-year at 88.7%, and declined by 70 basis points from the fourth quarter of 2014. As always, our health plan financial data disclosure, and now our product line financial data disclosure present a complex picture. To reiterate what I said a minute ago, it is our consolidated financial performance that tells you where we're headed. With that said, here are some general observations on our medical cost performance. First, premium rates for our MMP plans in California, Illinois and Ohio appear for now to be adequate to support the costs associated with those programs. Let me remind you that the MMP are the fully integrated duals programs. Of course we are unable to comment at the moment on our MMP programs in Michigan, South Carolina or Texas, which have just been launched. Second, we have seen some margin relief for the Aged, Blind and Disabled line of business in Washington and New Mexico, although not for the long-term care benefit attached to the ABD population in New Mexico. We are experiencing margin compression in the TANF line of business, as Mario said, particularly in the states of New Mexico, Washington, Florida and Utah. This is consistent with what we've said previously about base premium rates not keeping pace with increases in medical costs. Third the Medicaid expansion and Marketplace lines of business are for now experiencing lower medical care ratios than our other lines of business. Fourth on a consolidated basis prior period development did not have a significant impact on our results. Although we reported a benefit from prior period development in the quarter of $136 million approximately $25 million of that favorable development was offset by reductions to revenue as the result of medical cost floors and corridors. Once you strip out the PPD that resulted in offsetting adjustments to revenue our metrics look very similar to the first quarters of 2013 and 2012 because we strive to maintain consistent reserving methodologies and do not believe that prior period development had a material impact on our consolidated results. Days in Claims Payable increased sequentially from December by 2 days to 51 days and by 5 days from the first quarter 2014. As we've said before diversification across geographers and product lines allows us to mitigate the variations in contribution by market and product. This is particularly important as we continue to grow and expand our business. Not only have we been able to diversify on a geographic basis but product line diversification has also provided us with additional stability and opportunity. First quarter results continue to show the benefits of the administrative cost leverage that we have discussed in the past. As noted in our earnings release and our 10-Q, administrative costs associated with the startup of our Puerto Rico health plan, Marketplace broker commissions and Marketplace exchange fees resulted in a general and administrative expense ratio that was higher than in the fourth quarter of 2014. Absent these costs associated with Puerto Rico and our Marketplace build out our administrative cost ratio would have been approximately 7.4% for the quarter, this is consistent with our expectations. We believe a key comparison to make is with our general and administrative expense ratio for the first quarter of 2014 which was a full percentage point higher than our G&A ratio for the first quarter this year. I am pleased that we achieved good results this quarter despite headwinds from the lack of full Affordable Care Act health insurer fee reimbursement and our decision to defer recognition of quality revenue related to Texas. In the first quarter of 2014 we did not record reimbursement for the 2015 health insurer fee in California, Michigan and Utah reducing our first quarter income by approximately $16 million or $0.20 per diluted share. Nor do we recognize any of the outstanding health insurer fee reimbursement related to 2014 which stood at approximately $20 million as of March 31, 2015. We remain confident that all states will eventually reimburse us for the health insurer fee, but the timing of our revenue recognition remains uncertain. To that point, the state of California has just reimbursed us for our 2014 health insurer fee. So we will be recognizing that revenue in the second quarter. We still do not have formal documentation of California's intent to reimburse us for the 2015 health insurance fee. So we don't know when we'll be able to recognize 2015 health insurer fee reimbursement from California. We're only recognizing a portion of the Texas Health Plan's quality revenue for the first quarter of 2015 due to the lack of clarity around the methodology of the calculations. We have discussed this previously. As a result, about $7 million of the approximately $9 million of quality revenue available in Texas for the first quarter of 2015, which is equivalent to about $0.09 per diluted share, was not recognized this quarter. Nor do we recognize any quality related revenue from 2014 during the first quarter of this year. The balance from 2014 is $20 million. The import of this discussion is that our first quarter results for 2015 would have been $0.29 better had we been in a position to recognize these last two items. You will notice that our convertible debt, due February of 2020, has been reclassified as a short-term liability effective March 31, 2015, and that the related derivative asset and liability have also been reclassified as current. Because of the sharp increase in our share price, the stock price trigger allowing conversion of the notes into cash has occurred. No notes have been presented to us for conversion. And the notes continue to trade at a price in excess of the value that could be realized by a note holder upon conversion. The excess in value of the notes over the conversion value reflects the value of the coupon rate attached to the notes, and the optionality value of the conversion feature over the remaining life of the notes. As of March 31, 2015, the company had cash and investments in excess of $3 billion, including in excess of $200 million at the parent. We've also made some changes to the methodology by which we calculate adjusted net income and related per share amounts. Specifically, we're no longer subtracting depreciation and amortization of capitalized software and share based compensation from net income to arrive at adjusted net income and the related per share amount. We made this change to better reflect the way in which we evaluate our financial performance, making financing and business decisions, and forecasts and plan for the future periods. In addition, we believe this calculation makes our adjusted net income more comparable to our peers. A reconciliation of the GAAP to non-GAAP calculation has been included in today's release and is available there for your review. Finally and as a reminder from our Investor Day presentation, we only provide guidance annually and we don't intend to change guidance unless there's an event that has a material impact on our business. This concludes our prepared remarks. We are now ready to take questions.

Thank you. And our first question is from Sarah James with Wedbush. Please proceed.

Thank you. And congratulations on the strong quarter. It looks like without a few of the delays it would have been even further above consensus. So I just appreciate the new detail on the product MLR and it's a new metric so I was hoping we could get a little bit more context. I was looking at the TANF, CHIP, MLR compared to kind of the range that you guys gave at Investor Day of high 80s for 2014 and 2015 and there's a little bit of gap there between where first quarter is and where the years' were. And I was hoping you could talk about maybe how non-recognition of the ACA fee or rate updates expected later in the year may be kind of skewing this quarter off of what you had previously talked about annually?

So, Sarah, this is John. I think while we still continue to grow and get very big we can't forget about seasonality and I think you're looking at one quarter and comparing it to our entire year so that's going to be the big difference. I don't think that the recognition of the ACA fee is going to have anything to do with – or much to do with that and the Texas quality revenue is primarily in the ABD population so if anything, would benefit the ABD population some. But again short answer is seasonality.

Got it. And then could you remind us how you guys are thinking about share count with respect to your existing guidance? What's in there as far as share count or treatment of the convert?

Sure, Sarah. It's Joe speaking. I think for guidance we were at around 50 million – I think we were around 50 million which is where we ended up for this quarter, I think we were like at 51 million this quarter. The way I would look at it is once you cross $53 in share price, increment about 250,000 shares on a full year basis. Obviously you've got to weight it for the weighted average over the days. But about 225,000 shares to 250,000 shares per $1 over $53. So you can take what we gave you and then peg your estimate of where our share price is going to be for the year and adjust it accordingly.

Okay. Appreciate that, Joe. Thanks.

Sure.

And our next question is from Josh Raskin with Barclays. Please proceed.

Hi. Thanks. I know you don't update guidance, but I'm just curious, did 1Q come in better than your estimates? I mean obviously above the Street. But how did that compare to your previous expectations? J. Mario Molina, MD - Chairman, President & Chief Executive Officer: Hello, Josh. This is Mario. As we said at the outset, we're going to provide annual guidance. So for us to comment on the quarter-to-quarter development would in effect be giving quarterly guidance. So we're not going to comment on that aspect.

Okay. I'll skip that one. Second question... J. Mario Molina, MD - Chairman, President & Chief Executive Officer: On the other hand...

Yep? J. Mario Molina, MD - Chairman, President & Chief Executive Officer: On the other hand, as I said in my remarks, I'm very pleased with the company's performance so far.

All right. I will add very pleased to the rest of the year I guess. Texas performance payments, so for the 2014 year, what are you still – the $20 million that you're waiting on, what metrics or what information are you waiting on to see if you can actually record those? And have you been able to rule? I know you're not – you haven't been able to recognize any of that. But have you been able to rule out any of it? Were there any metrics that you don't think you hit?

It's Joe speaking. We know we definitely missed $4 million in Texas last year. So there's another $20 million out there. And it's the – you know it's the same story, Josh. We're just waiting to hear how the state has calculated through its third party, how it has calculated the metrics versus how we've calculated.

Okay. And you don't – so you can't just rely on your own calculations. You've got to wait until...?

No. No, because it's a very complex calculation subject to a lot of interpretation. And it's also dependent on other health plan performance.

Josh, this is John. This is the biggest thing is, it's rank ordered against other health plans. So until we know how they did, our internal data is only half the picture.

Got you. So you may know how you did, right, but that doesn't help you in the calculations. And then just the last one on the health insurer's exchange, you know the MLR in the quarter under 81% seems relatively low for a new entrant and big growth, et cetera. Can you talk a little bit about how you're accruing the claims? And then if there's any three Rs assumption? I don't want to preempt Joe's September presentation, I'm sure that's coming but curious what the accruals are.

What we're finding so far, Josh, and this is the beginning of the year – what we're finding though is that utilization is less than we anticipated. Pretty much substantially less which would suggest that there could conceivably be a – there could conceivable be a risk adjustment downward – adjustment to revenue but we think we've captured that in the calculations of the risk adjustment in the MLR floor and all of that. So I think in general it's fair to say we don't have any big receivables booked back on anything like risk adjustment.

Do you have any payables then, Joe?

No. We haven't – I think it's fair to say that we anticipate that and we've worked that into our calculation of the anticipated MLR. I don't want go into details about whether we've got that booked as a higher medical claims liability or a risk adjustment liability but the exercise gets you to the same point. In a nutshell experience is coming in much less, so far much lower than we anticipated.

Okay. I mean but just so I understand it's coming in much lower but you don't have a payable?

We've adjusted – the best way to express this is between the claims reserved we recorded and the risk adjustment liability we've recorded, we think we're very nicely positioned.

Okay. Got you. It accrued over...

Yeah. I guess what I'm trying to say, Josh, is we don't anything substantial in the way of receivables and we anticipate, yes, there will payables to put back on risk adjustment.

Okay. Thanks.

And our next question is from Kevin Fischbeck with Bank of America. Please proceed.

Hi. Great. Thanks. I guess maybe just following up on that one, so I think you said that you think you've priced appropriately so I guess based on that last comment we should be thinking that the exchanges are tracking to profit this year so far?

In our case, yes.

Okay. And then just on the Medicaid expansion MLR, can you talk a little bit about the MLR in the quarter? I know some states or many states have these rebate floors, wasn't sure if there was anything seasonality where you book the rebate floors more in the back half and so we should expect MLR to rise as the year goes on? Or whether this captures that number and this number might be in some ways sustainable?

This is John, Kevin. I think on the expansion the things you have to consider are the rates changed. And in many cases, we discussed this at the Investor Day, the rates – the premium rates dropped quite a bit. So if the MLR goes up, it largely is a function of the revenue per member going down. And then the methodology that different states use to calculate, either the floors or the give-backs are different. So that's going to have a little bit of an impact. And lastly, the time horizon, especially for a state like California, the measurement period's over 18 months as opposed to 12 months. So I think what we see in Q1 it's good. It might rise a little bit. I don't expect it to go shooting through the roof, but I don't expect it to drop much more.

Yeah. I would just add to that we've had 15 months of experience now with this population. So I think we've got a pretty good handle on the MLR corridors and floors. I don't think there's any snapback in that we would anticipate.

Okay. And the number – because I mean we normally think about floors being in that kind of mid-80 or low-80 range if you're at 77.5. So can you just remind us maybe how much of your states have floors, versus don't have floors there?

It's Joe speaking. They all have some sort of what the states call risk mitigation, strategies, some kind of risk corridor. Remember, though, that the definitions of revenue and expense in those calculations don't match what we show on a GAAP income statement. So oftentimes our revenue is reduced by certain items, and expense can be adjusted too so that the net effect of that is often an MLR floor that is slightly different than that which you would calculate from GAAP.

Okay. Because I guess the reason that I ask is that obviously you've got a state in Kentucky who's looking to kind of rebid that contract pretty quickly because people were doing well there. And I know you're not there, but just trying to make sure. So you think that kind of where you are, or even in California this past year where there was a big rate cut, you kind of think where you are is more in line with directionally where the MLR floors – or do you think that there's rate risk to that over time?

I didn't hear the last part of your question. There's what over time?

I was just saying there's rate and risk to that number over time and that states may additionally look to bring that MLR up. Or whether this MLR is generally in line with kind of where the corridors would put you on a GAAP adjusted basis?

Yeah. I think that the states are taking the same approach. Their actuaries are looking at the data, utilization, expected trends, et cetera, and they're pricing it accordingly. They weren't as much in the dark as we were in the first year. And as Joe says, as we get more data, we would expect that the rates will be adjusted to be more in line with what the actual experience is.

Okay. Thanks very much...

Which is what we saw starting January 1, of this year.

Right.

Okay. Great. Thanks.

And our next question is from Andy Schenker with Morgan Stanley. Please proceed. Cornelia Miller - Morgan Stanley & Co. LLC: Hey. This Cornelia in for Andy. I guess just first it looks like your commercial revenues related to the exchanges were 7% of total premiums in the quarter. Do you think you'll still qualify for the de minimis rule?

It's Joe speaking. We'll have to see how that plays out over the year. I would just – the only commentary I would make on this is we run this business on an operating basis not a tax basis. And we're not going to adjust our business strategy directly for a tax strategy but we'll have to see how the year plays out. But agree we're above the de minimis threshold first quarter. Cornelia Miller - Morgan Stanley & Co. LLC: Okay. And then just to come back to the Texas quality payments. So I just want to make sure the 2015 outlook only assumed you received 80% of the 2015 payments, is that correct?

Mechanically that's correct. The guidance we gave assumed 80% recovery of the 2015 amount and nothing for 2014. Cornelia Miller - Morgan Stanley & Co. LLC: Okay. And it now looks like you're sort of tracking similarly to 2014 at this point in the year.

It's difficult to say after one quarter. We're certainly bluntly still in the dark on the metrics that we haven't heard about from 2014 as we go into 2015. But also the portion of the revenue that's tied to HEDIS scores, we've found it very difficult to recognize that in the first quarter until our data develops further. So I guess I would just say I don't see anything happening in the first quarter that's going to take us off of what we said in guidance. Cornelia Miller - Morgan Stanley & Co. LLC: Okay. Great. Thank you.

Sure.

Our next question is from Brian Wright with Sterne, Agee, CRT. Please proceed. Brian M. Wright - Sterne, Agee & Leach, Inc.: Thanks. Good morning – good morning, geez. Good evening. So one real quick question, if one has a view that the stock price goes to $90 what's the cap on the conversion? The incremental kind of share count?

I mean the total – I want to say the total shares underlying the 2020 convert, Brian, are about 13.5 million and then I want to say – I want to say it's something like five million shares underlying the 2014 convert. I mean I haven't done the math to know what happens at a given share price. And I think it's unrealistic we'd ever reach those numbers. But I think it's $13.5 million on the 2020 and $5.5 million on the 2044. Brian M. Wright - Sterne, Agee & Leach, Inc.: Okay. I'll follow up with you after on some of the details on how to calculate it. Thanks.

Okay. Looking forward to it. Thanks.

And a question from Ana Gupte with Leerink Partners. Please proceed.

Yes. Thanks. Good evening. I wanted to follow up on I think some of the questions around MLR particularly. So as I look at your – now you have all the membership disclosed by product. A lot of the new growth is Medicaid expansion and the Marketplaces. So it seems like a lot of the new business, they're probably running at a higher MLR than kind of the existing ABDs and duals where there's not much growth, and after 2016 levels sort of anniversary. So how do you think about what the normalized loss ratio should be across your book of business? And this year you're getting a nice lift, I would imagine, from some of these higher margin businesses, lower MLR. How does that look as you go forward? And what type of improvement are you seeing in your existing ABD and duals populations as far as normalizing the MLR?

Ana, give us a minute. We're going back to take a look at what we said at the Investor Day. I think the important thing is rather than look at each individual product line, as we said in our prepared remarks, to look at where the company's going to end up overall, we look at the consolidated. And what we've consistently said is that we want to reach a 1.5% to 2% margin by 2017.

Okay. So I think you had guided to 90 at the Investor Day for this year, which you haven't updated, a 7.5% on the G&A ratio. So it's not a very high bar I guess with 1.5% to 2%. That's net right? I imagine (37:00), I think that's what it was...

That's right. The bar I think is – from the outside it may look easy. From the inside, with all the moving parts, it's a challenge.

No, I didn't mean it that way (37:12)...

And our goal by 2017 is to lower that by 0.5% to 1.5%.

Okay. So right now I just I think what – all I'm trying to say is that it doesn't look like you would miss that, your normalized parts (37:27). If anything it feels like there might be some upside given that at least for the first quarter you've come in a little bit better, right. So hopefully that's...

Well, I think that as Mario and Terry talked about at the last Investor Day, we have a new Chief Medical Officer, Dr. Keith Wilson, who is re-energizing the medical management. And they've taken a very member-centric approach to things. And it seems that as we said, for the first quarter we can say it seems that some of the efforts are taking hold.

Okay. And then you had mentioned also at the I-Day that there's a federal regulation which will help you cross-subsidize. And some of my channel checks are saying that that's due any day. Any more color on that? And will that help you out? J. Mario Molina, MD - Chairman, President & Chief Executive Officer: No.

No? J. Mario Molina, MD - Chairman, President & Chief Executive Officer: We are – we're still waiting for those regulations. We thought they would be out. We have no further information. We're just going to have to wait. They'll come out when they come out.

And, Ana, to clarify, I don't think we said that the regulations would allow us to cross-subsidize. What we said was it was our opinion, our profession that these are all Medicaid patients. So it makes sense to include the Medicaid expansion lives and the TANF and the ABD in one set of risk mitigation calculations as opposed to three separate ones.

Okay. So, blended with Medicaid. Got it. All right. Thank you.

And we have a question from Dave Windley with Jefferies. Please proceed.

Sure. Thanks. This is Ace Fablo (39:12) in for Windley. I wanted to circle back to the G&A and just get a sense of that 8.1% starting point. Sure sounds like Puerto Rico once that comes on, that will help out with the leverage. But wanted to get a view of whether or not that was consistent with what you guys were thinking for the first quarter?

It's Joe speaking. Yeah, when we line up everything on the G&A side it's first quarter, it was very consistent with what we expected for our guidance.

Okay. And then besides Puerto Rico, are there other actions that are going to continue to help drive it lower? Or is it more of a function of business mix and scalability? J. Mario Molina, MD - Chairman, President & Chief Executive Officer: It's scalability really. You know we've got a fair amount of revenue. And you can see by looking at our full-year guidance, we got a fair amount of revenue in addition to Puerto Rico still to come on this year. We've got the three MMP dual programs coming on in Michigan, Texas and South Carolina. If you look back to Investor Day, we also talked about some new programs in Texas that are going to add a lot to the top line. So I would say it's more scalability than anything, plus Puerto Rico.

Okay. And then circling back to the HIF, I know you mentioned California. Can you – I think Michigan and Utah were the other hanging chads. What are the updates there with those states? And what's preventing them from locking up 2015 for you guys? J. Mario Molina, MD - Chairman, President & Chief Executive Officer: I think it's just an issue of getting the appropriate documentation. We know that both Utah and Michigan have passed in their most recent budgets dollars to fund the payments but our policy is either we get a check or we get a contract amendment. And we haven't got the contract amendments in Utah or Michigan as of yet.

Okay. And then just lastly on Florida, can you just give us an updated view on how things are trending there and what you're expecting in the full negotiation coming up here? J. Mario Molina, MD - Chairman, President & Chief Executive Officer: On the MMA product I think that Molina like a lot of the other health plans are seeing higher medical care costs than we anticipated when the program was first bid and we are active discussions with ACA and legislature to increase the rates so that things turn out for the, as we expected.

Okay. Thanks.

And our next question is from Matthew Borsch with Goldman Sachs. Please proceed. Christopher J. Benassi - Goldman Sachs & Co.: Hi, there. This is Christopher Benassi on behalf of Matthew Borsch with Goldman Sachs. Congrats on the quarter. I was wondering if you wouldn't mind walking us back through the HIF reimbursement timeline, I believe you mentioned it would have a $0.29 improvement to EPS. And then following up on that do you see any potential for this HIF timeline to be reduced going forward?

Sure. So, on the HIF we did not recognize any HIF revenue associated with the first quarter of 2015 for California, Michigan or Utah. That amount was $16 million or $0.20. The balance, the other $0.09, had to do with the non-recognition of the quality revenue in Texas. Getting back to the HIF we also have $20 million still hanging from 2014 which we did not recognize in the first quarter. We did get a check from the state of California after the quarter was over so we'll recognize that amount in the second quarter and that relates to 2014 unless we get a contract amendment or something from the state of California we will not recognize any of the HIF for 2015. Christopher J. Benassi - Goldman Sachs & Co.: Okay. Thank you. And just following up on that quickly; MCR looked strong in the quarter. However, with all the market commentary regarding utilization I was just curious if you've seen any upticks geographically or within certain subpopulations? Thank you.

We didn't see anything unusual in the first quarter. Christopher J. Benassi - Goldman Sachs & Co.: Okay. Thank you very much.

Thanks.

And we have a question from Peter Costa with Wells Fargo Securities. Please proceed.

Sure. A question around the costs, in particular hep C costs for the quarter. How much of that have you gotten arranged to be passed through to your states at this point versus how much you don't have pass through or don't have agreements on? And then looking at your cost breakdown I can see that pharmacy and capitation costs as a percent of your overall costs is declining. Is that mix related or is there anything in terms of pricing on the fee for service side that's causing that to go down?

It's Joe speaking. I don't have anything specific on hep C, I will say though in most of our states that issue has either been addressed either through some kind of risk pool, some kind of specific state reimbursement or an attempt to reimburse it in our rates. So I don't think hep C had a – treatments had a material impact on the first quarter. I think it's a matter now of just refining how states reimburse that's rather than trying to get over the concept of reimbursement. The second point is why is pharmacy would be dropping as a percentage of total medical spend is really driven by just the long-term services and support spend that we incur. One of the things as we shift to – we talked about shifting to more chronically ill patients or members who need home health assistance. Obviously for someone in some sort of home and community based services setting or in nursing facilities the drug cost is going to be – while large in absolute terms is a smaller percentage of their total spend.

And is that with...

That's the issue (45:23) in a nutshell.

Okay. And is it true with the capitation component as well?

Yeah. It's the same story. Nothing dramatically has changed our capitation structure again it's just a lot of the costs with the LTSS are direct rather than capitated.

Got it. Thank you very much.

And our next question is from Chris Rigg with Susquehanna Financial Group. Please proceed.

Thanks. Hey, guys. I know this is a small number in the Texas quality revenue but the amount you didn't recognize increased by $1 million year-to-year, I just want to make sure there's nothing to read into that, i.e. you have even lower visibility now than you did last year or something is tracking for the worse on the quality side?

Well that's a really – that's an astute question. The numbers are very small but curiously enough the percentage of quality revenue that's tied to those measures that we don't have visibility into went from about 50% last year to 60% this year. So I think that's what you're seeing.

Okay. And then the cost of service ratio declined quite a bit year-to-year and came in below where we are. Can you give us some color on what happened there? And just any – I know you give annual guidance. But sort of quarterly this has been a tough one to predict. Sort of any way to help us think about that would be helpful. Thank you.

The cost of service revenue associated with MMS? You know, Chris, nothing leaps to mind. Maybe we can dig into those numbers a little bit more to see what gets ferreted out.

Okay. And then I guess the cash flow too was pretty strong. Was there anything there notable? Thanks. And I'll leave it at that.

No. I mean we've been having very strong cash flow. DCP is up. We still – and a couple of the health plans are accruing money that we have to return to the states. So that is helping cash flow a bit.

Okay. Thanks a lot.

Thanks, Chris.

And that was our final question. And I'll now turn the call back to Dr. Molina. J. Mario Molina, MD - Chairman, President & Chief Executive Officer: Well, I want to thank everyone for joining us. It was a very strong quarter. And we're looking forward to talking to you next quarter on our next earnings release.