Molina Healthcare, Inc. (MOH) Q2 2016 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Molina Healthcare Second Quarter 2016 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded Wednesday, July 27, 2016. I would now like to turn the conference over to Mr. Juan José Orellana, Senior Vice President of Investors Relations. Please go ahead. Juan José Orellana - Senior Vice President of Investor Relations & Marketing: Thank you, Pascal. 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, 2016. The company issued its earnings release reporting these results today after the market closed, and this 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; 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's website or the SEC's website. All forward-looking statements made during today's call represent our judgment as of July 27, 2016, 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. Joseph Mario Molina - Chairman, President & Chief Executive Officer: Thank you, Juan José. Thanks to everyone for joining us. I'm pleased to report that the results we published today represent a significant improvement over the first quarter. We earned $33 million in net income, or $0.58 per diluted share, and adjusted net income of $38 million, or $0.67 per diluted share. I call attention to our adjusted net income, because so many of you are now gauging our performance by that metric. We believe that adjusted net income per diluted share is very helpful in assessing our financial performance, because it removes the non-cash amortization of purchased intangibles. Last quarter, we shared with you some specific improvements that we needed to make to our operations. The results we have reported today speak to the progress we have made. We remain confident about Puerto Rico. We continue to improve our information technology and medical management infrastructure. We're making good progress in Texas, and the issues we identified in Ohio in the first quarter are substantially resolved. Now, let me take these in order. First, we told you that progress in Puerto Rico would take time, but we have reasons to be optimistic. While bad news in the Commonwealth continues to capture headlines, many of the underlying developments tell a more positive story. Governor Padilla has argued consistently that payments for essential public services are a priority. There are more than words behind the Governor's commitment. As of today, Puerto Rico is current on its premium payments, and we believe they will continue to make payments on a timely basis. I'm also happy to report that our rate discussions with the Commonwealth have gone well and that we received a rate increase of approximately 2.5% that was effective on July 1. Stepping away from the macroeconomic situation on the island, there remains much that is within our control. We have identified numerous utilization management and provider contracting opportunities in Puerto Rico that give us a great deal of confidence in the future. We also remain vigilant of Zika infection trends in Puerto Rico and are actively contributing to prevention and education efforts on the island. In addition, health officials in Florida are investigating two possible non-travel-related Zika cases. Again, this is not a Medicaid-specific risk, but a general public health threat, and the concern now is a lack of adequate funding to local government agencies to respond to Zika in a comprehensive manner. During the first quarter, we discussed the substantial growth in our enrollment and the stresses that this growth placed upon our information technology and medical management infrastructure. In order to avoid a repeat of what happened in the first quarter, we have re-prioritized and accelerated improvements that were already planned and budgeted for 2016. Costs associated with these enhancements have already been contemplated in our 2016 outlook. Two improvements are worth specific mention. In the area of information technology, we have supplemented our systems with a hyper-converged infrastructure. This software-centric architecture enables us to achieve a greater level of scalability, improved operational efficiency, shorter deployment times, and enhanced security by tightly integrating our computing, storage, and virtualization resources. On the medical management front, we have also selected a new software platform to manage pharmacy and medical care. This effort will further unify our medical and pharmacy clinical management within one platform rather than managing these two functions separately. We also spoke to the utilization management and provider contracting issues that contributed to our problems in Texas during the first quarter. Even without the benefit of the out-of-period quality revenue adjustments that John will talk about in a few minutes, the medical care ratio of the Texas health plan would have been approximately 85.3% in the second quarter. That is well under the 92.8% medical care ratio we reported in the first quarter. We continue to work with local providers in innovative ways to supplement our contracted provider network. We entered into an agreement with Memorial Hermann in Houston to add this prestigious hospital to our network in 2017. Finally, we shared with you our opinion that the problems experienced by our Ohio health plan in the first quarter were transitory in nature. Today's results support that opinion. The medical care ratio of the Ohio health plan decreased to 89.7% in the second quarter of 2016 from 92% in the first quarter. Health plan and corporate staff have worked together to address the root causes of the utilization management issues that contributed to our first-quarter results. We're pleased with our progress to date. This quarter has given us added confidence that we're making use of the right tools and getting the right results. I look forward to updating you again on our progress. I would now like to turn the call over to John. John C. Molina, JD - Chief Financial Officer & Director: Thank you, Mario, and hello, everyone. Today, as Mario said, we reported adjusted net income per diluted share of $0.67 for the second quarter compared to $0.51 per diluted share on an adjusted basis for the first quarter. These results were driven by lower medical costs as reflected by a 60 basis point improvement in our medical care ratio compared to the first quarter. Comparing our year-over-year performance is no longer meaningful given our growth, changes in product mix and acquisition activity. So, I will focus most of this discussion on sequential comparisons. While changes in accounting estimates resulted in several significant out-of-period adjustments during the quarter and for the year-to-date, it is important to note that in total these items only added $0.04 of a benefit to our quarterly results. For the first half of the year, these adjustments were, in fact, a $0.19 drag on our performance. In other words, however important these items might be to a particular geography or program, they were not significant to our consolidated quarterly results. The important facts about the quarter are as follows. As Mario said, we have reasons to be optimistic in Puerto Rico. Effective July 1, we received a 2.5% increase in premiums on the island. We also have multiple medical management and provider contracting opportunities that we are pursuing while we speak. Operationally, we have addressed the infrastructure problems that contributed to our first quarter difficulties. Despite the noise around our 2015 estimate change, we are satisfied with our marketplace performance. Through June 30 of 2016, the medical care ratio of our marketplace business for 2016 dates of service alone is approximately 78%. This accounts for risk adjustment accruals that we're making for calendar year 2016. And we believe that our marketplace pricing for 2017 is adequate. Finally, the primary drivers of our margin improvement resulted from the work that has been accomplished in Ohio and Texas. The medical care ratio in our Ohio health plan decreased by 230 basis points over the first quarter of 2016. Improvement in Texas was even more pronounced. Even without the benefit of out-of-period quality revenue adjustments, the medical care ratio of our Texas health plan was approximately 85.3% in the second quarter, that is well under the 92.8% medical care ratio that we reported in the first quarter. Now, let's quickly review the significant out-of-period adjustments in the second quarter. All of these adjustments are the result of new information we received during the quarter that required us to make changes to our accounting estimates. First, we recorded increased pre-tax income of $51 million or $0.58 per share relating to the recognition of previously-deferred Texas quality revenue. The Texas Department of Health and Human Services notified us this quarter that it would allow health plans to retain all outstanding quality revenue for calendar years 2014 through 2016. Based on that notification, we recognized $51 million of revenue for 2014, 2015 and the first quarter of 2016 that had previously been deferred. Of the $51 million, $44 million related to 2015 and 2014 dates of service, and $7 million related to the first quarter of 2016. As you know, we have been very transparent about the measurement difficulties with this program and the related accounting treatments, which has affected our earnings. We're happy to be able to put this to rest for a while. Second, we recorded a $37 million or $0.42 per share decrease to pre-tax income related to marketplace 2015 dates of service. As a reminder, on June 30, 2016, CMS published its final update on risk transfer and reinsurance payments for the 2015 calendar year, and we adjusted our accruals accordingly. Based on information received in 2016, we now know that our 2015 accruals were light. We continue to refine our accrual methodology as we get more information and believe we are more accurately reserved for the 2016 benefit year. I want to emphasize that our marketplace strategy has been to provide an accessible extension of our Medicaid product to those individuals whose eligibility for Medicaid tends to fluctuate due to variability in their income. Remember, the segment most likely to purchase an exchange product from Molina includes those individuals under 250% of the federal poverty level. Approximately 90% of our marketplace members continue to receive a government subsidy for co-pays and premiums, and it's no coincidence that we have grown significantly in states that have not expanded their Medicaid programs. We continue to have a disciplined approach to our pricing strategy, and we believe that we have adequately priced our marketplace products for 2017. An important consideration as you analyze our marketplace pricing is to compare our pricing with that of other health plans that primarily serve Medicaid members, as opposed to those that primarily serve commercial members. Next, we recorded an $11 million or $0.12 per share decrease to pre-tax income for 2015 dates of service related to Puerto Rico. As disclosed in our 10-Q for the first quarter, this matter arose as a result of enrollment discrepancies between our health plan and the Commonwealth in the early stages of our contract. Let me be clear. We believe that we have a valid claim to all of the premiums withheld. Nevertheless, we reduced premium revenue by $11 million during the second quarter in connection with this matter. The company is affirming its previously-announced earnings outlook. That outlook anticipates earnings per diluted share in the range of $2.15 to $2.60, and adjusted earnings per diluted share in the range of $2.50 to $2.95. We believe that adjusted net income per diluted share is very helpful in assessing our financial performance, because it removes the non-cash amortization of purchased intangibles. Furthermore, we expect our 2016 marketplace margins, measured absent the impact of the 2015 true-ups, to decline significantly during the second half of the year, as a result of four factors. One, we will incur higher costs as members reach the limits of the cost-sharing provisions of their insurance coverage. Two, higher-cost members will be added through the special enrollment period. Three, there will be attrition among lower utilizing members. And four, utilization among new members will increase as they become more engaged with our networks. While we expect our Ohio and Texas health plans will continue to perform well, additional improvement over and above the performance this quarter will be difficult to achieve. In particular, the decline in marketplace margins that we expect in the second half will be especially notable in Texas. Puerto Rico will begin to improve, but slowly and towards the end of the year. Rate increases will provide a modest lift to the second half performance as follows. For Medicaid rates in 2016 and excluding Medicaid expansion, we receive increases of approximately 3% in California and 2.5% in Puerto Rico, both effective July 1, and approximately 3% in Texas effective September 1. For Medicaid expansion rates in 2016, we saw decreases of approximately 11% in California and approximately 2% in Ohio, both effective July 1. Finally, and somewhat related, we saw the implementation of a medical care ratio floor of 86% for the South Carolina Medicaid business effective July 1. At June 30, 2016, days and claims payable were up two days to 48 days from the previous quarter, and cash and investments were in excess of $4.3 billion. Cash flow from operations was $139 million, in line with the prior quarter, and we held more than $465 million in cash and investments at the parent. Finally, we wanted to provide you with ample notice that we are postponing our 2016 fall Investor Day in September in order to have a more meaningful discussion that includes our third quarter results. We've moved that to another date. We will communicate that new date once it has been selected. It was a very good quarter, and I want to thank all of those employees who worked very hard to make it such a success. This concludes our prepared remarks. We're ready to take questions.

Thank you. And our first question is from the line of Joshua Raskin with Barclays. Please go ahead.

Hi. Thanks. Good work this quarter, guys. I guess my question is just starting on the marketplace, and you know this sort of – I don't what you want to call it, sort of same-store 78% MLR, excluding all the out-of-period stuff. I guess, I know we've asked this before how is that sustainable, and I know you guys keep producing solid results and you're targeting low income, but we are seeing a lot more pressure sort of across the board. So I'm just curious, are you seeing any of these issues that have been reported by others in terms of chronic cost and dialysis or substance abuse, or any of these other issues? Are any of these factors that you guys are seeing? Is it just you guys were better prepared? I'm curious. Joseph Mario Molina - Chairman, President & Chief Executive Officer: Hi, Josh, this is Mario. Yes, we have seen that, all those things to some extent in our members, just like everyone else. I don't think they were any different in that respect.

Okay. So, I guess I'm just curious, like is there – there has been no deterioration, though, in those trends, right? And it sounds like others have seen it. Are you – because you guys have taken on a ton of membership, and I'm just curious, were they previously insured with other carriers and just not new to it? I'm just curious how you guys are doing such a good job here.

Well, Josh, it's Joe. I would just point out that while we are seeing those conditions as any health plan would, we continue to have, on a risk score basis, comparatively healthier members. We've put aside for 2016 dates of service about $220 million so far this year for payables back to CMS for risk adjustment. So, I guess, I would say that we're not seeing a huge number of chronically ill members.

Okay. And then, Joe, I think you might have just hinted on this, but the CMS update where they said you guys got to catch up a little on your accruals from last year. Did that inform your accruals for 2016? Did you make any catch ups in 2Q as to where you are now?

In a nutshell, yes.

Okay. And then just last question from me. On the Texas performance fees, I just want to understand what happened with the state. Did they actually prove out, yes, Molina satisfied all of the requirements to earn these performance fees, or was it just simply the state said, okay, everyone that thinks they're owed money, yeah, we agree at this point? Just it wasn't clear from your comments if there was something specific that you guys achieved that helps you understand how this works or if this was just simply Texas kind of clearing the decks for the last couple of years. Joseph Mario Molina - Chairman, President & Chief Executive Officer: Josh, this is Mario. Texas suspended the program, and so the revenue that we had not recognized, we were able to recognize. They are going to institute a new program. We are not sure exactly what that will look like yet, and we still have to perform all the quality measures and report those to the state.

Okay. So, they sort of capitulated and just told everyone forget about the old program. We're going to start something new and recognize all the revenue that we've previously withheld, basically? Joseph Mario Molina - Chairman, President & Chief Executive Officer: That's correct.

Okay. Okay. Thanks, guys.

Thank you. Our next question is from the line of Kevin Fischbeck with Bank of America Merrill Lynch. Please go ahead. Kevin Mark Fischbeck - Bank of America – Merrill Lynch: Okay. Thanks. Just wanted to go into the ramp that your guidance basically assumes for the rest of the year. In the press release, you guys outlined a number of things that were going to kind of inform and drive that improvement. I was wondering if you could maybe try to quantify each one of those buckets between medical management initiatives and rate increases, et cetera. Joseph Mario Molina - Chairman, President & Chief Executive Officer: This is Mario. I think we've done that to the best of our ability. We've given you the factors. We've spelled out the rate increases. Beyond that, it's hard to quantify exactly how much each of those initiatives is going to contribute. But we have also told you that the back half of the year is where the lion's share of the profit is coming from this year. Kevin Mark Fischbeck - Bank of America – Merrill Lynch: So, I guess – so like the first bullet point in your guidance was savings realized from medical management initiatives. Would you say that those in aggregate are a bigger driver to the improvement in earnings than the rate increases are, or – just trying to get order of magnitude? John C. Molina, JD - Chief Financial Officer & Director: Yeah. This is John. Yes, medical management is going to continue to be the biggest profit improvement driver. Kevin Mark Fischbeck - Bank of America – Merrill Lynch: Okay. And then just trying to understand, you said that from a G&A perspective that you made a number of initiatives around assisted (22:32), et cetera, things that you'd planned for the year, but that you'd accelerated. Does that mean we should expect G&A to be a little bit lower in the back half of the year than it normally would be, because you moved what was supposed to be second half into the first half, or how do we think about modeling G&A as the year goes on?

It's Joe speaking. Generally, a lot of those kind of expenses we're talking about are capitalized, so they would be reflected in the D&A rate. With that said, though, I would expect that we'll see a little bit of moderating of the G&A rate that you saw this quarter through the second half of the year. Our full-year guidance, I think, is about 7.8% G&A ratio. Kevin Mark Fischbeck - Bank of America – Merrill Lynch: Okay. Then just last question for me then, the fact that you're postponing the Investor Day until after Q3 results, is there something unique about this year or a lack of visibility, or a catalyst that you're going to get more visibility on in that October timeframe that makes – I guess, theoretically, you've had similar issues in years past, and you've always had the Analyst Day at the same time. What was the – what are you going to get by delaying it by a couple of months? Is there something specific you're looking for? Joseph Mario Molina - Chairman, President & Chief Executive Officer: Kevin, you're right. We've had this issue in the past, and we just felt that with the passage of time, we'd be in a better position to talk about things. It's a little awkward to be talking about issues that close to the end of the quarter. Kevin Mark Fischbeck - Bank of America – Merrill Lynch: Okay. All right. Thanks.

Thank you. Our next question is from the line of Chris Rigg with Susquehanna Financial Group. Please go ahead.

Hey, guys. Just on Puerto Rico, I just want to make sure I understand sort of the dynamic there at this point. You're going to – or you did get the rate increase earlier this month, but is the improvement at this point largely just going to come from medical management initiatives? And if that is the case, where are the areas that you feel like you were weakest sort of coming into this year and where the greatest improvements will come from? John C. Molina, JD - Chief Financial Officer & Director: I would say the answer is going to be both medical management and re-contracting, Chris. On the island, the provider groups are more accustomed to taking pharmacy risk than they are, for example, on the mainland. That will become an issue for us as we re-contract with some of the medical groups. In terms of the medical management and what needs to be done additionally, some of the hospitals that we've been dealing with are fairly restrictive in terms of concurrent and prior authorization for admissions. And so, we're working with them to beef up that ability.

Okay. And then on the marketplace enrollment – or marketplaces, and the performance there in the second half, I think you mentioned Texas, specifically, as being a pressure point. I could have misheard you, but if that is, indeed, the case, can you give us a sense for what's going on there? John C. Molina, JD - Chief Financial Officer & Director: Well, again, what we said was that Texas is not going to – shouldn't be expected to improve beyond what we did in the second quarter, once you take out the effect of the additional revenue. One of the reasons that Texas had a very good MCR for the second quarter was because the marketplace performed very well in Texas in the quarter, and we're not going to see continued increases in profitability on a percentage basis.

Okay. And then just one last follow-up on the marketplace, where do you think the right sort of MCR should be for the year, or just maybe even what are you guys targeting sort of longer term? Thanks a lot.

It's Joe. I think, obviously, you have to consider all the stuff we've talked about, about higher admin burden and all of that. But I think an 83% – 82%, 83% for the year might be okay. 80% to 82%.

Great. Thanks a lot.

Thank you. Our next question is from the line of Sarah James with Wedbush Securities. Please go ahead.

Thank you, and congrats on the strong quarter. And I appreciate the level of detail you provided in the release. It makes things very clear. I wanted to talk a little bit about earnings progression. So, last quarter, on the call, you thought two-thirds of earnings would come in the back half, but this would put you guys above current guidance. So, should we think about there being some conservatism in guidance right now, or did some of the cost improvements in Ohio and Texas resolve faster than you'd previously anticipated?

Hi, Sarah. It's Joe. Let me give a technical answer to caution everybody. Then Mario and John may have something to say more strategic. First of all, be careful extrapolating on anything per share related. We're at about 38% for the first half, at the midpoint of our pre-tax guidance. Remember, obviously, the share count is going to fluctuate depending on where our share price goes. So I don't think earning 38% of pre-tax through second quarter really contradicts saying about two-thirds of our income is going to come in the second half. So, I think we're being pretty consistent on that. Obviously, we hope to spend the second half of the year developing the medical management initiatives and the other initiatives we've talked about to drive sustained profitability into 2017. John C. Molina, JD - Chief Financial Officer & Director: Yeah, let me just follow-up, Sarah. This is John. I think we've tried to be very consistent with what we've said this year. We're driving towards a 1.5% to 2% margin in Q4 of 2017. That's what we're focused on. And so, the plans that we've put in place are to get us at that point, or to that point, rather. Some of them may take longer. Some of them may catch a hold sooner, and that's what's going to be sort of the delta for 2016 as to where we are in our guidance range. But we're less focused on where we are in the guidance range this year and more, what are we putting in place to hit our commitment for next year.

Thank you. I appreciate that. And just to clarify here on Ohio, historically, it's kind of been in the mid-80%s, but I know there's some mix shift going on. It sounded like earlier on the call you thought the majority of the improvement was done. So, should we think about this as the new run rate for Ohio, or is there still more improvement to be had? John C. Molina, JD - Chief Financial Officer & Director: I think this is probably the new run rate for Ohio.

Thank you.

Thank you. Our next question is from the line of A.J. Rice with UBS. Please go ahead.

Thanks. Hi, everybody. Maybe just a couple of clarifying questions real quick here. On the comment about the 82% to 83% general MCR in the exchanges, I'm guessing that puts you solidly profitable on the exchanges this year. When you think about going forward in 2017, as you've said you've addressed what you've seen in the bids, are you thinking that you will maintain profitability or are you thinking you can improve it further from here? And I just wondered on the exchanges as well, is that – I can't tell from the comments, are you – is this the margin you thought you were going to have when you came into the year, or is the margin a little compressed versus what you thought when you came into the year? John C. Molina, JD - Chief Financial Officer & Director: This is John. The margin is tracking about what we thought, about what we've priced at. Remember, as we said, the back half of the year is going to be more challenging from a profitability standpoint on the marketplace for those four reasons that I identified.

Right. John C. Molina, JD - Chief Financial Officer & Director: And we think that for 2017, the margins are going to be similar to our Medicaid business.

Okay. And then, just to clarify on Puerto Rico, I know last time – and I think you touched on it maybe in response to Chris's question, but last time you said that one of the big issues was around branded versus generic and maybe some cross-incentives there between what the government wanted and what was potentially best in terms of long-term costs dynamics. It sounds like you're working through trying to address those incentives for the physician to prescribe the generic, et cetera. How long do you think that takes to make that adjustment? When would you expect to see us benefit from that? And how might big might that aspect of the issue of Puerto Rico will be in terms of its impact on your results? Joseph Mario Molina - Chairman, President & Chief Executive Officer: A.J., this is Mario. It's hard for me to quantify how big the impact will be. But I can tell you that we have put a pharmacy management program in place that's somewhat similar to what we use in other states and we're trying to get doctors to convert from more-expensive drugs to equivalent drugs that are lower in cost. At the same time, there are re-contracting efforts underway to give them some risk on the pharmacy side to give them an incentive to use generic drugs. That's going to take place over the course of the rest of the year, I think.

Okay. But when you go into 2017, you think you'll pretty much have in that into place? Joseph Mario Molina - Chairman, President & Chief Executive Officer: I think we will have improvement. I'm not sure exactly how much it will be in place at that point, but there will definitely be an improvement. And I think the state also acknowledged in the negotiations with us that the pharmacy costs had come in higher than they had anticipated as well. It wasn't just us, but I think the whole program seemed a little bit higher than they anticipated.

Okay. All right. Thanks a lot.

Thank you. Our next question is from the line of Andy Schenker with Morgan Stanley. Please go ahead. Andy Schenker - Morgan Stanley & Co. LLC: Thanks. Good afternoon. So I just wanted to follow-up a little bit on your MLR guidance from last quarter, assuming that's still in place. It kind of implies a step-down both sequentially and, obviously, versus the first half, but you guys have just told us marketplace is actually going to get a little worse, Ohio and Texas are stable. So, what's really going to be driving a lot of that step-down there as the rate increases in other states, there's general cost-containment in the other states? What's moving the MLRs lower for the rest of the year.

Hi. It's Joe speaking. I mean, couple of points. The rate increases we've talked about are going to be a definite help. They're obviously directed at TANF and ABD. So we should see some sequential improvement in TANF and ABD margins, which given their relative size is going to offset anything happening in marketplace. So, that's really where you should look for it. Andy Schenker - Morgan Stanley & Co. LLC: Okay. So it's kind of broad based any place we kind of got rate increases?

Yeah. Andy Schenker - Morgan Stanley & Co. LLC: Okay.

I mean, you just have to look at relative scale of the ABD and TANF to our business, and it's very substantial. Yeah. Andy Schenker - Morgan Stanley & Co. LLC: Okay. And then, Texas quality, so you recognize this taking $7 million – taking last year out $7 million in the first quarter, do you also recognize $7 million in the second quarter? And are we assuming that it's $7 million every quarter for the year for 2016? How that kind of compare to the original assumption, back at the Analyst Day where I think you guys assumed 75% of total quality revenues, would be kind of realized there? And then lastly, understanding the Texas program is changing, do you think we should be assuming those 2016 numbers are, to some extent, going to continue in some form next year as we probably put a haircut on it, thinking going forward?

It's Joe speaking. Compared to guidance for the back half of the year, it's probably closer to, yeah, $3 million, $3 million a quarter incremental. The states communication to us suggested that they're – that the program would not be resumed until 2018, but obviously they have the right to set the program how they want to. So, we'll have to see how that develops later. But the most-recent communication from the states said there would be no program in 2017. Andy Schenker - Morgan Stanley & Co. LLC: Okay. So does that – so, what are you expecting to be total revenues related to 2016 that you're going to recognize in 2016?

I mean the total – previously, the program had been $35 million to $40 million a year and we anticipated recognizing – I want to say, I think we talked about at Investor Day – maybe 70% of that. So, the difference of that would be to pick up. Andy Schenker - Morgan Stanley & Co. LLC: Okay. Perfect. Thank you very much.

Sure.

Thank you. Our next question is from the line of Ana Gupte with Leerink. Please go ahead.

Yeah. Hi. Thanks. Good evening. The first question was just on Ohio. I'm really glad you got the MLR down. Can you give us some color on what exactly was the approach taken? You had talked about systems capacity issues in Ohio more broadly and clinical staffing issues, and some of the standards you had on prior authorization. Is that all pretty much addressed? And can we be confident that there won't be something like this, again, perhaps in another state that is large enough for you to make a difference? Joseph Mario Molina - Chairman, President & Chief Executive Officer: That's a great question, Ana. And the answer is, yes, those are the things we talked about. Those are things that we did. And we've applied this across the enterprise, not just in Ohio. It's had the biggest impact in Ohio. And I think we're seeing nice results as utilization in the Medicare line of business is starting to come down.

Okay. So, you're comfortable on that on. On Texas, I had thought also when we spoke last that it was going to be mostly the second-half thing, perhaps the contracting maybe with hospitalist contracts as well on utilization. So, what exactly was undertaken in Texas and that helped so much in the first half of the year, even ex- the Texas quality payments? Joseph Mario Molina - Chairman, President & Chief Executive Officer: I think it's all the same things we've talked about. They may have taken hold little faster than we thought in Texas, but we're cautious. It's one quarter. So, we'll keep a close eye on that.

All right. Then third, on Florida and Michigan, you're running at pretty high MLRs. You did get the rate adjustment in Florida. What type of MLRs should we be baking in on a go-forward basis from a structural perspective and then just for the second half of this year?

Hi, Ana, it's Joe. We get into some of that disclosure on the state-by-state basis in the 10-Q that's been filed. I would take a look at that. Remember that Florida, in particular, had been impacted by the out-of-period marketplace adjustments.

Okay. Then finally, I think – maybe a couple more. One is on seasonality. As I understand, it is supposed to help you in the second half of the year. So, in terms of earnings progressions, what is the driver of favorable seasonality? It seems like on the health insurance marketplaces, it works against you. So, what is working for you in the second half of the year here? John C. Molina, JD - Chief Financial Officer & Director: You're right. Ana, this is John. The seasonality, typically when we were more pure Medicaid, the third quarter tends to have the lowest medical care ratio, because you're talking about summer months. However, more and more of our revenue now is coming from marketplace. And as we discussed earlier, the marketplace for the back half of the year has a deterioration in the medical care ratio, because people are eating up through their co-pays and deductibles, and then you've got a bit of adverse selection as folks who aren't utilizing the system drop off because they don't pay the premiums, and you've got people who are qualified to the special enrollment period. Marketplace hasn't been, up until this year, a significant impact on the consolidated business. So, it's been tough for us to see what the impact overall is going to be on seasonality.

And with the variance that you came out with, I thought you had assumed a significantly higher risk adjuster payable after the first quarter. So, I was a little surprised that you had such a large negative variance on the RRs compared to what the 10-Q might have suggested in the first quarter. I'm not sure if I'm missing something.

It's been a tiger by the tail, Anna. And we were getting some information, I want to think, in May was the last likely number we came out with. But suffice to say we've got a lot more information in the second quarter that we didn't have in the first quarter. John C. Molina, JD - Chief Financial Officer & Director: And the risk adjustment program for the marketplace really is unlike the risk adjustment programs that we have experienced in Medicaid or Medicare. So, it's taken us a while to thoroughly understand a fundamentally-flawed calculation.

Got it. All right. Thanks so much. Appreciate it.

Thank you. Our next question is from the line of Dave Windley with Jefferies. Please go ahead.

Hi. Thanks. A couple of smaller ones. In the Florida premium adjustment that you show in the press release, I think the view is that that would also perhaps influence or lead into forward-looking rate adjustments. Do you have any greater visibility on that, or are those baked into kind of the overall rate adjustment that you may have already gotten? John C. Molina, JD - Chief Financial Officer & Director: We haven't received any – this is John. We haven't received any additional information on prospects for our rate increase in Florida effective – I think Florida is September 1, we're waiting to see. Certainly, the fact that they miscalculated the rates for a period of time and have adjusted those upwards will have an impact, as they calculate the rates on a go-forward basis. Just how much of it is, we don't know.

Okay. In California, the Medicaid expansion rate fell, a (42:34) reduction of 11%. I'm curious about how much were you perhaps already against an MLR floor where you were rebating back, such that that doesn't really affect the go-forward profitability, or vice versa, how much does it impact profitability?

It's Joe speaking. We think we're still within the give back after that change, not by much, but we think we're still there.

Okay. So you still would be in a rebating situation?

Yeah. Very marginally, but yes.

Okay. And then, kind of on a different topic. Curious about how the series of acquisitions that the company has done, how have those integrated and how are those performing within the book of business? Not a topic that's come up yet. John C. Molina, JD - Chief Financial Officer & Director: Hi. This is John. I think that they're all in various stages, because they closed on different dates. The plans in Illinois, for instance, closed January and March. But I would say that for the most part they're all performing as expected.

And Total Care is still expected to close later in the third quarter? John C. Molina, JD - Chief Financial Officer & Director: We are expecting Total Care to close this year, yes.

Okay. And the last question. The marketplace revenue adjustments of $37 million in the quarter, is it possible to give us a sense, geographically, of how those would hit plan so that we can kind of make that adjustment? The Texas and Ohio – or excuse me, Texas and Puerto Rico are easy enough to do, but the marketplace seems like it could affect multiple states.

Yeah, it's Joe speaking. Obviously, it's going to be most pronounced in Florida, with the majority of it in Wisconsin.

Okay. Thank you.

Thank you. Our next question is from the line of Michael Baker with Raymond James. Please go ahead. Michael J. Baker - Raymond James & Associates, Inc.: Yeah. Thanks. John, you kind of indicated some confidence around seeing some Puerto Rico improvement by the fourth quarter, maybe not so much in the third quarter. Is that just a function of the timing of provider re-contracting along the lines that you guys spoke about earlier in the conference call, or are there other factors as well? John C. Molina, JD - Chief Financial Officer & Director: I think that was Mario who expressed the confidence, but I would agree with him. It's probably going to be more fourth quarter than third. Michael J. Baker - Raymond James & Associates, Inc.: And what are – so is it pretty much just the timing of provider contracting, or are there other factors as well? John C. Molina, JD - Chief Financial Officer & Director: No, that's the big one, provider contracting. Michael J. Baker - Raymond James & Associates, Inc.: All right. Thanks.

Thank you. Our next question is from the line of Scott Fidel with Credit Suisse. Please go ahead. Scott Fidel - Credit Suisse Securities (USA) LLC (Broker): Thanks. Most of my Qs have been asked. Just had one clarification, just on the California Medicaid expansion rate cut of 11%, how does that compare? I remember at the Investor Day, you had talked about a rate outlook for a 13% cut in January of 2016. Is this essentially replacing that or is this on top of that?

No. This is Joe speaking. You're correct. That January 2016 was meant to be July. Scott Fidel - Credit Suisse Securities (USA) LLC (Broker): Okay. Got it.

So, that was... Scott Fidel - Credit Suisse Securities (USA) LLC (Broker): So, at the time, you were thinking 13% for July and it came in at 11%?

Yeah. Yeah. Scott Fidel - Credit Suisse Securities (USA) LLC (Broker): Okay. Great. Thanks.

Thank you. Our next question is from the line of Peter Costa with Wells Fargo. Please go ahead.

Thanks, guys. Question on your pricing for 2017 in the marketplace. We've seen your California pricing and it seems, relative to other plans, you're increasing prices a lot less than some of the other plans, suggesting that perhaps you'll pick up some of their membership when people start to price shop. First off, question is, is that what we should expect to see, a much faster growth rate for you guys in California, and is your pricing in California in the marketplaces reflective of what you've done across the country? John C. Molina, JD - Chief Financial Officer & Director: So, this is John. I don't want to get into too much talking about enrollment for 2017. We went back a number of times and looked at pricing for all of our marketplace products, on a geographic-specific basis. We've factored in changes in our network, changes in utilization, and we thought the competition we would be doing, in order to get a competitive price product for the population we're targeting. And you mentioned California and LA County, we don't have Cedars-Sinai in our network, for example. Not that they're not a fine institution, but they're priced way above what we and our population we're targeting can afford. So, that's how we did it. We wanted to raise prices to protect ourselves against adverse selection as folks drop out. But we also didn't want to have a product that was priced so high that our people couldn't afford it. What happens in 2017 with the ultimate enrollment is going to be a function of education, broker, marketing and folks choosing our networks.

So, was California reflective then of what you've done in another country – in other states, rather? John C. Molina, JD - Chief Financial Officer & Director: Yes.

Okay. And so, when I look at the low pricing, relative to others, and others backing out of the marketplaces or raising prices much more dramatically, are you concerned at all that you're going to pick up some of their less-healthy populations and create more of an issue for you guys, going forward? John C. Molina, JD - Chief Financial Officer & Director: I think if you look at the other Medicaid-focused plans, they're staying in the markets and we're priced competitively with them.

Okay. Thank you.

Thank you. And our last question is from the line of Tommy Carroll with Stifel. Please go ahead. Thomas Carroll - Stifel, Nicolaus & Co., Inc.: Hey, guys. Good afternoon. Very, very nice quarter, like to see it. I think everything – most of my Qs have been asked and answered. One follow-up on from administrative standpoint, just cash at the parent. John, I think you mentioned that. I missed it. If you could just tell us that again. And also wanted to ask about some of the acquisitions that were done in the last 12 months, specifically drill down on a couple of the larger ones, like HealthPlus and Integral. I wonder if you could just make some comments about either one of those, anything of note. Thanks John C. Molina, JD - Chief Financial Officer & Director: Well, Tom, I'm extremely disappointed that you tuned me out. The number of cash at the parent is $465 million. In terms of the acquisitions, Integral is doing very well for us. I think Integral is actually performing better than we initially modeled it. HealthPlus is likewise doing fairly well. Thomas Carroll - Stifel, Nicolaus & Co., Inc.: So, you would that – you call those two performing better than planned? Is it fair? John C. Molina, JD - Chief Financial Officer & Director: I would, yes. Thomas Carroll - Stifel, Nicolaus & Co., Inc.: Okay. Very good, very good. And I never tune you out. I think I was doodling or something. Have a good one. John C. Molina, JD - Chief Financial Officer & Director: Thanks. Joseph Mario Molina - Chairman, President & Chief Executive Officer: Thanks, Tom.

Thank you. Joseph Mario Molina - Chairman, President & Chief Executive Officer: Well, if there are no questions, we're going to sign off. Thank you very much for attending the call. We look forward to talking to you next quarter.

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