Humana Inc.

Good day and thank you for standing by. Welcome to the Humana third quarter earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Lisa Stoner, Vice President of Investor Relations. Please go ahead.

Thank you and good morning. I hope everyone had a chance to review our press release and posted remarks, which are available on our website. We will begin this morning with brief remarks from Jim Recton, Humana's President and Chief Executive Officer, and Chief Financial Officer, Celeste Millay. Following these remarks, we will host a question and answer session where Jim and Celeste will be joined by George Ruttedon, President of the Insurance Segment, and David Dittenfoss, President of Enterprise Growth. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K, our other filings with the Securities and Exchange Commission, and our third quarter 2025 earnings press release as they relate to forward-looking statements along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements in future filings or communications regarding our business or results. Today's press release, our historical financial news releases, and our filings with the SEC are all also available on our investor relations site. Call participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. Any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. Finally, the call is being recorded for replay purposes. That replay will be available on the investor relations page of our website, Humana.com, later today. With that, I will turn the call over to Jim.

Thanks, Lisa, and good morning, everyone, and thank you for joining us today. Before we get started, I just want to take a second to acknowledge that Tragedy that occurred here in Louisville last night had quite an impact on the community and our thoughts go out to the community and all the families who were impacted. With that, let me turn to the quarter and let me hit the headlines. As you have already seen, we delivered a solid third quarter in line with our expectations. A third quarter medical cost trends continue to be in line with expectations. and we also continue to anticipate our full year 2025 EPS outlook of approximately $17. We remain committed to achieving individual MA pre-tax margin of at least 3% over time, and the external environment continues to evolve largely in line with expectations, and we are executing against our plan. I'll now briefly describe the progress we are making operationally, and as usual, I will frame my comments today around the four drivers of our business. The first of those is product and experience, which drive customer retention and growth. Second is clinical excellence, which delivers clinical outcomes and medical margin. Third is highly efficient operations. And fourth is our capital allocation and growth in CenterWell and Medicaid. I'm going to spend most of my time today on product and experience as well as clinical excellence. Let me start with our Medicare product and experience. So first, I want to emphasize that it's very early in AEP. We have roughly two weeks of incomplete data. And while we will provide a sense of what we are seeing, this is very much subject to change. Second, I want to reinforce how we think about growth. Our focus is on maximizing customer lifetime value and customer NPV. That's our focus. The way we do that is delivering an exceptional experience that fuels member retention. Other key growth levers, like benefit design and member and product mix and channel mix, are all tightly aligned with our operational capacity so that we can absorb onboard and serve members in a way that maximizes lifetime value in NPV. Third, I want to reinforce again that we are confident in our pricing and we're pleased that we expect to return to growth. We will take as much growth as possible from improved retention. This is unquestionably desirable growth and we welcome new sales. However, we are prepared to take targeted actions to slow new sales if we reach the point where the volume risks negatively impacting member experience. We do recognize that you want us to provide a specific growth target. We do not think that focusing on a net growth target is the right metric because as I just shared, growth through retention is desirable and we will take as much of it as we can. We also will not give a specific number around new sales targets because the amount that we can absorb is dependent upon member product and channel mix. So now as to what we are seeing. New sales are at the high end of the range, the high end of the anticipated range of outcomes that we expected in AAP. Channel mix is meaningfully improved relative to prior years. We have greater volume in our own distribution channel with select high-performing partners and in digital distribution. This channel mix tends to be correlated with customer segments that have higher lifetime value and are more engaged. We're also seeing favorable product mix, including higher than initially expected sales and plans with four stars and greater. We are not seeing outsized sales in areas where competitors have exited plans. we are experiencing significantly reduced Humana plan-to-plan mix with plan-to-plan sales down year over year. We believe that this is likely an early indicator that our stable benefit strategy and changes to our customer service approach are working to reduce voluntary attrition, though we need more time to validate this assumption. So while it's early, we feel good about what we are seeing so far in AEP. And as we have said previously, we will continue to monitor new sales volume and manage it dynamically. We are prepared to take further mitigating actions, as we did heading into AAP, if it appears that new sales will put member experience at risk. We do recognize that there's a lot of interest in our overall growth strategy and the ongoing AAP, so I'm pleased that David Bittenfoss will join Celeste, George, and I for Q&A today. David joined the company nearly two years ago as President of Enterprise Growth. He came to Humana with 30 years of experience across a range of industries, including financial services, where he was focused on customer segmentation, acquisition, driving an experience that fuels retention to ultimately drive sustainable and profitable growth. David's consumer-focused experience and perspective has been and is instrumental to our journey to become a consumer healthcare company. Now to turn to clinical excellence, I will focus on STARS performance. Just to recap the key messages from our 8K and audio file released in early October, we are disappointed but we are not surprised by our bonus year 27 STARS results. The results are consistent with our baseline planning scenario and our outlook remains the same as we previously communicated at our investor conference in June. We have We did see operational gains in Q4 of 2024 that have continued into 2025, and we feel good about our operational progress this year. More specifically, in our current measurement year, bonus year 28, we are seeing meaningful year-over-year improvement across the vast majority of metrics. We also continue to see week-over-week improvement as recently as October, and we are showing 600,000 more gaps closed year over year as our momentum continues to remain steady. Given the STARS program is measured on a curve, it would not be prudent to share additional results at this time. However, once the hybrid season is complete in the second quarter of next year, we will provide some additional visibility into our final operating results. However, we will not speculate on thresholds. All in, The takeaway remains that we continue to be confident that we're on the right track to return to top quartile STARS results in bonus year 28. Now I'm going to turn to our highly efficient operations where we are making meaningful progress. I'm going to share a couple of examples. We recently partnered with GENPAC to outsource elements of our finance capabilities. This will both improve our capabilities and it will reduce costs. We also have a newly introduced agentic AI platform, which is helping deliver capabilities like agent assist that help our call center advocates and agents focus on supporting our members. This is helping to improve call accuracy and deliver faster response times, which drive better outcomes and experience. Collectively, we expect these items to generate greater than $100 million of savings over a few years while also improving the quality of our operations. These changes are a small sample of our multi-year transformation, which will include near-term tactical cost programs, but also longer-term efforts that change how we operate. Now turning to capital allocation, we have freed up capital by selling a non-core asset, the Enclara Pharmacia business, and are working to sell additional non-core assets. We also agreed to deploy capital to a deal that is expected to close this month in Florida, the village's health, which provides primary and specialty care services at the fastest growing retirement community in the country. We also continue to feel good about our center well pharmacy strategies. We continue to develop our direct-to-consumer capability, and we're also moving into direct-to-employer opportunities. So in conclusion, we're pleased with our solid performance year to date, and we continue to have confidence in the full year 2025 outlook. We feel good about our pricing and the outlook for AEP 2026. Bonus year 27 STARS results were disappointing but consistent with our expectations, and the outlook for bonus year 28 STARS continues to trend in the right direction, and we remain confident in a return to top quartile results. With that, I will turn it over to Celeste for a few remarks before we go to Q&A.