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…

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.…

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.