Humana Inc.

Good day and thank you for standing by. Welcome to Humana's second quarter 2026 earnings conference 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. We will begin this morning with brief remarks from Jim Rechtin, Humanities President and Chief Executive Officer, and Chief Financial Officer, Celeste Mellet. Following these remarks, we will host a question and answer session with industry analysts. 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 second quarter 2026 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 and future filings or communications regarding our business or results. Today's press release and posted remarks, our historical financial news releases and our filings with the SEC are 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 call refer to diluted earnings per common share. Finally, this call is being recorded for replay purposes. That replay will be available on the investor relations page of Humana's website, humana.com, later today. With that, I'll turn the call over to Jim.

Thanks, Lisa. Good morning, everyone, and thank you for joining us. Today's headlines are, we are pleased with our year-to-date performance, and we continue to be tracking expectations. We expect that our approach to 2027 is will drive solid progress against our goal of delivering a sustainable pre-tax margin of at least 3% in 2028. We believe we are on track to meet our Investor Day commitments, including our STARS commitments, and we will host a virtual investor update on December 10th to discuss the meaningful progress we have made towards those commitments. At that point, we will have full visibility into Bonus Year 28 STARS and some preliminary insights into 27 Membership Expectations. As usual, I will frame my comments today around the four drivers of our business, product and experience, which drive customer retention and growth, clinical excellence, which delivers clinical outcomes and medical margin, highly efficient operations, and capital allocation and growth in both Centerwell and Medicaid. So let's start with product and experience. Our 2026 member growth trajectory is on track, and our membership, both the new and returning membership, is performing as expected. As we look ahead to 27, our number one priority in inmate bids was to make the necessary margin progression to remain on track to deliver our 28 commitment of returning to a sustainable margin of at least 3%. We must drive sustainable earnings and appropriate returns to be able to provide excellent health outcomes and service for our members and our patients. We expect our targeted margin expansion in 27 to be driven by our ongoing focus on clinical excellence and operating efficiency work, combined with adjustments to our plan mix-in benefits, which Celeste will touch on in a moment. Turning to clinical excellence, our outlook on bonus year 28, or BY28 stars, remains unchanged. We continue to be confident we are on the right track to return to top quartile STARS results in BY28. I want to remind everybody that at our investor day, we defined top quartile STARS results as per member per month STARS revenue that is 10% above our peer group median. STARS revenue PMPM considers the quality bonus and the percentage of rebate retained at each STARS level. We use this metric because STARS revenue PMPM is what is important from a competitive perspective. As a result, going forward, you will hear us focus on STARS revenue PMPM instead of solely on the percent of members in 4-plus star plans. Now, turning to our STARS performance. Over the last 18 months, we have said that we were making strong operational progress. I'm truly proud of how our STARS organization and the broader enterprise has risen to this challenge. Now that the measurement period for BY28 is complete, we are pleased to be able to share some tangible examples to demonstrate the progress. I would point you to Appendix A within our posted remarks. This slide shows the rate of improvement achieved in BY28 as compared to the previous four years for a selection of 12 HEDIS and patient safety metrics. We have de-identified the metrics for competitive reasons. What I want you to take away from this slide is that our rate of improvement outpaced and in many places meaningfully outpaced the historical CAGR across 11 of the 12 measures. And while we do not intend to share this detail every year, We wanted to share today as it demonstrates that the operational changes and the investments we have made in our STARS program over the last year and a half are driving the intended results. We are driven by our North Star to improve health outcomes for our members with the goal of achieving top quartile results on a sustainable basis. Finally, as you know, we don't know industry thresholds. So while we feel good about our substantial progress, we cannot guarantee an outcome in October. and as a reminder, we will go into our annual STARS blackout period as soon as we receive the plan preview information from CMS beginning in August until the final data is released by CMS in October. For BY29 STARS, we have maintained momentum with our member engagement efforts. Consistent with Q1, we remain 5% ahead of last year's quality improvement rate on a per-member basis in key HEDIS metrics at the end of Q2. Regarding our new members, we continue to remain encouraged by their performance to date as their engagement levels remain in line and on some measures higher than renewing members. Now let me turn to highly efficient operations. I mentioned last quarter that we were making good progress on our operating model changes. Our goals have been threefold. First, to be simpler, leaner, and faster, so driving efficiencies while reducing friction for our customers. Second, to lead on innovation, leveraging automation and AI and the best performing vendors. And third, to attract the best talent and ensure effective performance management. Let me provide examples to bring these changes to life. We are centralizing certain operations to simplify process and reduce variability in outcomes. One example is utilization management, where we centralized 11 markets into one team. This is driving G&A savings, but it is also creating more consistent experience for providers and members. We are also expanding outsourcing while improving vendor performance. This year, we increased outsourcing in our finance and HR functions, while we also continued to advance vendor optimization efforts in IT. We are also in the early stages of transforming select other vendor relationships from tactical labor-based engagements into strategic partnerships that can deliver greater business value and capabilities. Finally, we integrated our Care Plus operations. Care Plus is a legacy health plan acquisition that we integrated into our core platforms to eliminate redundancy, which drives greater value and scale while maintaining our reputable Care Plus brand in Florida. All in, we have made considerable progress in the first half of the year. Our operating model efforts have yielded hundreds of millions of dollars in value so far in 2026. Finally, let me turn to capital allocation. As we have previously noted, we have been pursuing non-core asset divestitures. We recently announced an agreement to divest our minority interest in Gentiva, which is valued at approximately $900 million. This divestiture will largely fund our recent acquisition of MaxHealth. We also continue to expand our Medicaid platform with the recent award of a statewide Illinois Medicaid managed care contract. That contract is set to go live in January of 27, and I'd like to note that Humana was the only new entrant awarded along with five incumbents. So in conclusion, we are performing as expected in 2026. Our member growth is expected to further fuel our ability to unlock the earnings potential of the business. We're making good progress on STARS. We expect to make meaningful progress on MA margin expansion in 27, and we remain on track to hit our investor day commitments in 28. Before I turn it over to Celeste, I would like to highlight our announcement this morning that Paul Smith and Fred Crawford will join Humana's Board of Directors. Paul is the Chief Commercial Officer at Anthropic, where he leads commercial strategy and global go-to-market operations. Paul brings over 30 years of experience leading global organizations through major technology transitions. Fred has deep financial and operational experience, having spent more than 30 years in the insurance and banking industries. Fred was the Chief Financial Officer of three publicly traded insurers and most recently served as the President and Chief Operating Officer at Aflac, until his retirement in 2024. Paul and Fred will complement our board's expertise well, bringing a unique perspective that will be invaluable as we advance along our journey of becoming a consumer healthcare company. With that, I will turn it to Celeste for a few remarks before we go to Q&A.