Ladies and gentlemen, thank you for standing by. Welcome to the Molina Healthcare Year-End 2010 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Juan José Orellana, Vice President of Investor Relations. Please go ahead, sir. Juan José Orellana: Thank you, Kevin. Hello, everyone, and thank you for joining us. The purpose of this call is to discuss Molina Healthcare's financial results for the fourth quarter and fiscal year ended December 31, 2010. The company's earnings release reporting its results 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 Chief Executive Officer; 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. Our comments today will contain forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act, including statements regarding our guidance for 2011. 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 of the forward-looking statements made during today's call represent our judgment as of February 17, 2011, and we disclaim any obligation to update such statements. This call is being recorded and a 30-day replay of the conference call will be available over the Internet through the company's website at molinahealthcare.com. I would now like to turn the call over to Dr. Mario Molina.

Thank you, Juan José. Welcome, everyone, and thank you for joining us today. It has been just three weeks since we provided a comprehensive review of our business and operations at our Investor Day in New York City. Therefore, I will keep my remarks brief so that John can review some of the financial highlights for the quarter and the year and then open the call for your questions. 2010 was a very good year for Molina Healthcare. We achieved strong financial results and great operational execution. We grew revenue in enrollment, increased our EBITDA, as well as our net income, and continue to generate strong operating cash flow. It was also a very strong year for Molina strategically as we invested in our future by entering the Medicaid information or Fiscal Agent business through our acquisition from Unisys of its Health Information Management business. We now operate that business under the name Molina Medicaid Solutions. This acquisition provides another platform for growth to compliment the growth that is expected in our Medicaid Health Plan business over the next few years. I'm pleased about the direction we have chosen and about the breadth and depth of the services portfolio that we are now bringing to the Medicaid market. Moving onto our results. The fourth quarter was better than anticipated and it was consistent with the trends we shared with you at our Investor Day. The general operational performance and cash flow at our Health Plans was strong, led by our four largest Health Plans: California, Michigan, Ohio, and Washington. Of course, there are always challenges, particularly in new markets. In Florida, for example, medical costs remain volatile and elevated. As Terry pointed out in our Investor Day, the volatility in the medical care ratio at this health plan is caused…

Thank you, Mario, and good afternoon or evening to everyone. As Mario pointed out, this was a very good quarter and a very good past year for Molina Healthcare. In addition to the fourth quarter and year-end results we are releasing today, there are only a few updates beyond what we have disclosed at our Investor Day on January 26. I encourage you to view that investor presentation as it provides a great update our business, our outlook for 2011 and a first glimpse at our outlook for 2012. Let me review today's results. Net income for the quarter ended December 31, 2010, was approximately $18 million or $0.58 per diluted share compared with a loss of $5 million or $0.18 per diluted share for the same period last year. Net income for the full year was $55 million or $1.98 per diluted share, compared with net income of $31 million or $1.19 per diluted share for 2009. 2010 was a year of accomplishment and growth at Molina as evidenced by our results today. In addition to our financial objectives, we remain committed to meeting the needs of our members and the government programs that serve them. Premium revenue for the fourth quarter was $1 billion, up $80 million or approximately 8% from the fourth quarter of 2009. For all of 2010, premium revenues increased by $330 million or 9% to $4 billion. This revenue increase is primarily due to our membership growth and not because of premium rate increases. As we discussed previously, Medicaid rate increases have been minimal and are expected to remain low. Please refer back to our January Investor Day presentation where we detailed our expectations for state-by-state premium rate changes. We view EBITDA, earnings before interest, taxes, depreciation and amortization, as an excellent metric to…

[Operator Instructions] Our first question comes from the line of a Josh Raskin with Barclays Capital.

First question, I guess, on Florida. I know new state, low membership and you had talked about some of the corrective actions. And clearly, we're asking the same exact questions about Ohio and we see the improvements. So I'm just curious, do you have sort of an expectation for a Florida MLR or even a timing as to when you would see at least a more normalized MLR range?

I think our target, Josh, is less. I don't mean to be funny but with a small amount, it's volatile. So we would expect as we continue to grow the business, continue to gain some scale in the market. We can continue to drive better provider contracts. We are closer with our providers to work on utilization and bring it down. It's going to be a function in large part on how well and fast we can grow the business and then also if there's any rate changes -- positive rate changes that the state gives us. I think last year, as you may recall, we had slight decrease in the rates.

95%, that's not sustainable. You guys can't sort of run that forever. So at what point do you guys think about, okay, we don't have scale. We need to either increase scale or exit the market or start thinking more serious. I mean, is it one-rate cycle? Is it two-rate cycle? How should we think about Florida?

Joshua, I think you think about Florida the way we think about Ohio. It's an important state for us to be in. It took us a while to get the medical cost down in Ohio. But clearly, from a strategic standpoint, it was the right thing to do. And I think that, strategically, it's important for us to be in the Florida market. So we're going to continue to work on bringing those costs down and to grow our enrollment.

Second question is on the MMS. Could you maybe help us with the seasonality of earnings, sort of quarterly earnings for that book of business that, obviously, it hasn't been on -- 2010 wasn't a normal year, sort of at the top [ph] and we didn't see first quarter last year. So how should we think about the earnings contribution from MMS next year?

Hi, Josh. It's Joe speaking. We have not observed notably any kind of seasonality in the MMS business the way you would observe seasonality in our HMO business. Obviously, at some times of the year, you can have more claims and others. But we don't see anything that pronounced. What we have talked about though is with the new contracts in Maine and particularly Idaho, the timing of the start in revenue recognition. So once Maine had begun revenue recognition in 2010, once Idaho begins revenue recognition in 2011, you're going to see an increase in earnings. And that's one reason why if you'll recall back in New York, when we spoke to what we call seasonality of earnings, it was loaded toward the back end.

Would you give us some revenue targets for the second half versus the first half...

Yes.

The tax rate was a little bit higher than we'd expected. Was there anything in it? Was it just more income or is it higher state, higher tax state? Or was there anything else to it?

I would just express it as just the usual end of the year true ups in terms of credits we thought we could take versus credits we thought we could have gotten deductible expenses, nondeductible expenses. Nothing unusual.

Our next question comes from the line of Chris Rigg with Susquehana.

Obviously, a very strong cash flow quarter here and some fairly sizable changes in working capital. I was wondering if you could highlight some of the moving parts there? And what led to the significant changes sequentially?

It's Joe speaking again. I think, Chris, the biggest issue out there is simply California catching up on their premium payments in the fourth quarter. You'll recall in the third quarter, we had very bad cash flow because California had its budget crisis, in which delayed payment. So the simplest matter is just California catching up.

You've seen some states apply for waivers to reduce eligibility. Arizona is one state in particular. At this point in time, do you view any of the moving parts in the states around the nation as having a material impact on you guys in terms of eligibility reduction?

Hi, this is Mario. Chris, I would say no at this point.

I guess -- did you guys have any sense for Georgia? And when we might have an update out of the state with regard to their RFP?

Again, this is Mario, and the answer is also no.

The next question comes from the line Tom Carroll with Stifel, Nicolaus.

Question on Ohio. Very large decrease in the MLR year-over-year and I read your prepared comments in the press release. But I was wondering if you could give us a bit more color out there on the 13 percentage point decline in MLR. And then secondly, just again on the MMS business, I wonder if you could elaborate on what system stabilization costs are and if you expect them to continue into kind of first quarter of this year?

Tom, I'll take the second question first. I think we are still doing stabilization for Idaho to a lesser extent, Maine, but it is continuing on. I think that Joe talked about this in New York that we thought would trail off towards the end of the second quarter, should be over with. As far as Ohio goes, it's a combination of a lot of hard work getting the provider contracts in place and utilization, especially ER utilization down in Ohio combined with we did get a rate increase that helped.

And this is Mario. Let me just add that I think another thing that helped us year-over-year has been the absence of H1N1 flu epidemic, which did have an adverse effect on our medical costs across the board last year in all the states.

The next question comes from the line of John Rex with JP Morgan. John Rex - JP Morgan Chase & Co: Just on G&A. So I think with the Health Plan segment administrative, that line item is $72 million -- $70 million line item that was up $15 million sequentially. How much of that -- was that mostly incentive comp? I'm trying to think about kind of a run rate going forward and kind of how that was impacted by the incentive comp accruals.

It's Joe speaking. If you look back to the guidance we put out in New York, I think we said approximately 8.4% going forward. And that's what we are anticipating going forward end of the year. So what you've seen this quarter was essentially an anomaly. John Rex - JP Morgan Chase & Co: So what was the $15 million sequential increase?

Certainly, incentive comp was a big piece of it. John Rex - JP Morgan Chase & Co: So incentive comp, like what percentage of that would it be?

I don't really want to go into that in this call right here. It's a substantial portion of it as where acquisition costs with Abri and the typical year-end cost of Medicare where we have the open enrollment preparation where we're putting out open enrollment materials and that kind of thing. John Rex - JP Morgan Chase & Co: So those are not that the Medicare line item you have up above, that doesn't encompass that? The $9 million?

It would encompass that.

Yes, it would. John Rex - JP Morgan Chase & Co: So that's not part of the $15 million? I was just trying to understand the $15 million sequential move. And I guess I come away of still not understanding. Is it just incentive comp? Should we just assume that's it?

I would assume that, that's it. As Joe said, we did have issues related to the Abri acquisition and integration. And also, there's probably some spill around the MMS side because we're not quite as adept as we'd like to be in segregating those costs. So for example, as we're moving payroll over from MMS to the Molina system, those costs are probably just going to be buried in the Health Plans segment because that's where most of the growth of the corporate folks are. John Rex - JP Morgan Chase & Co: If we think about January, any trends you're seeing in the claims runs data that you've been seeing so far that suggest kind of different trend that you saw in the 4Q? Or is it more the same?

I think that it's really too early to comment much on January or 2011 in general. We did put out our guidance a couple, three weeks ago. And as of right now, we're sticking by it. John Rex - JP Morgan Chase & Co: And just so I understand that, does that mean you don't really have a view on January claims runs? Or what you have seen wouldn't just be kind of in line with how you guided?

Well, John, we're here to talk about 2010 fourth quarter and year end. I really don't want to get into 2011 at this point. John Rex - JP Morgan Chase & Co: Why not?

[Indiscernible] It's fair to say I don't think I've ever seen a January that told what the story was going to be for the year, positive or negative.

Our next question comes from the line Carl McDonald with Citigroup.

Just a little bit of give-and-take between the state of California and the plans on what the rates will be for the age, blind, disabled expansion. Does that put the -- thoughts you're thinking of sort of the mid-year timeframe on the extension there. Does that put that at risk or is that still on track at this point?

As far as we know, the enrollment is still on track.

And the 12,000 runs that you talked about, is the expectation that will come on a specific date? Or is it that it comes in sort of on a monthly rolling basis?

Monthly rolling basis.

The West Virginia RFP that you mentioned you're working on, is that for a Health Plan or is that MMIS?

MMIS.

We do have a question from the line of Scott Green with Bank of America Merrill Lynch. Scott Green - Bank of America/Merrill Lynch: First, just thinking about the MLR overall. It doesn't look like there was much prior period development in the period. And so now, the 2011, MLR guidance is supposed to be up 210 basis points from a 4Q jumping off point. And so I was curious, would you highlight maybe any sort of intra-year favorable development that would cause some of the run rate MLRs you reported in the fourth quarter to not really be reflective of a run rate?

I think that the fourth quarter MLR was probably more affected by a lack of flu season as compared to 2009 and is indicative of a trend going forward. So I think as Mario said, we did benefit from a light flu season that was virtually no H1N1. And at some point, we're going to see an uptick in utilization because there's going to be a flu season coming back. Scott Green - Bank of America/Merrill Lynch: But X flu, would there be any sort of seasonality between third quarter and fourth quarter?

Third quarter tends to be our lowest MCR and fourth quarter starts to tick back up. And historically, the first quarter then, the medical costs continue to rise from fourth quarter and then start heading back down in the second quarter. So we are sort of following historical pattern here.

It's Joe speaking. I think the point about 2011 too is, bear in mind, we've talked about the ABD life in Texas and California. We expect those to run a little bit higher than our traditional consolidated medical care ratio. We talked about that in New York. We're also going to have the full impact of the year at Wisconsin, which you can see from these results, it's also running higher than consolidated MCR. So I think expectations for 2011 are a combination of mix and anticipation of a less favorable flu season at the highest level. Scott Green - Bank of America/Merrill Lynch: On Ohio, you're about to get a rate increase January 1, is that right? You're talking about rate increase but normally, Ohio rates are effective 1/1. Is that still how it is here?

That's correct. And if you go back to the presentation we did in New York couple of weeks ago, we have Ohio at about 4%, 4.5% effective January 1. Scott Green - Bank of America/Merrill Lynch: And then in the news I saw today, Michigan Governor Snyder proposed, integrating around 250,000 dual eligibles to managed care. And I was curious if what your thoughts are if there is support for an initiative like that in Michigan? And any idea what PMPM could be?

Well, this is Mario. We've always advocated for the inclusion of the age, blind and disabled population in managed care. So we're certainly supportive of it. We think that this is a group that particularly benefits from the kinds of care management that can be applied to managed care programs. Whether it will come to pass or not, it's, I think, too early to say. But we're certainly supportive of it. These are dual eligibles and as you know, we have contracts in a number of states for the special needs plans to enroll dual eligibles through our Medicare and Medicaid contracts. So we're completely supportive. Scott Green - Bank of America/Merrill Lynch: Are there any other discussions that you're having with other states that were not on your growth drivers that you outlined at Investor Day but one of your core markets like Ohio or any other states like that, that might be more in advanced stage considerating moving more lives over?

Well, let me say this. I think that the message we give to states is all pretty much the same. We want to see the care integrated as much as possible. We want to include the elderly and the disabled beneficiaries. We want to bring in behavioral health and pharmacy benefits where possible because we think that the more that we can coordinate, the better off it is for the beneficiaries and the better it's going to be for the state budgets. So I think we are consistent in our message with all the states. Scott Green - Bank of America/Merrill Lynch: And then one last one, if I may, in Florida, where there favorable benefits from provider recontracting in this quarter that were offset by even higher costs? Or have the provider recontracting efforts not flowed through yet to your MLR?

This is Terry Bayer. The recontracting efforts in Florida is ongoing. And late last year, we got some traction on unit cost reduction that's just rolling and continuing to flow.

If I could just add to that. I think though in terms of setting reverse at the end of the year, while we know we have some favorable contracts in place or approved, I don't think you're going to see the benefit of that in the fourth quarter.

[Operator Instructions] We have no further questions from the phone at the moment.

Well, that being the case, I just want to say it's been a very good year for Molina Healthcare and it couldn't have happened without the cooperation of all of our staff. So I just want to publicly acknowledge and thank everyone for their hard work over the past year. And we look forward to speaking to you again next quarter.

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.