Molina Healthcare Inc

Good day and welcome to the Melina Healthcare first quarter 2021 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star and then two. Please note, this event is being recorded. I'd now like to turn the conference over to Julie Trudell. Please go ahead.

Good morning and welcome to Molina Healthcare's first quarter 2021 earnings call. Joining me today are Molina's president and CEO, Joe Zabredsky, and our CFO, Mark Heim. A press release announcing our first quarter earnings was distributed after the market closed yesterday and is available on our investor relations websites. Shortly after the conclusion of this call, a replay will be available for 30 days. The numbers to access the replay are in the earnings release. For those who listened to the rebroadcast of the presentation, we remind you that the remarks made herein are as of today, Thursday, April 29th, 2021, and have not been updated subsequent to the initial earnings call. In this call, we will refer to certain non-GAAP measures. A reconciliation of these measures with the most directly comparable gap measures can be found in our first quarter 2021 press release. During our call, we will be making certain forward-looking statements, including, but not limited to, statements regarding to the COVID-19 pandemic, the current environment, recent acquisitions, 2021 guidance, and our longer-term outlook. Listeners are cautioned that all of our forward-looking statements are subject to certain risks and uncertainties that can cause our actual results to differ materially from our current expectations. We advise listeners to review the risk factors discussed in our Form 10-K Annual Report for the 2020 year filed with the SEC, as well as risk factors listed in our Form 10-Q and Form 8-K filings with the SEC. After the completion of our prepared remarks, we will open up the call and take your questions. Lastly, we want to invite you to attend our virtual 2021 Investor Day meeting scheduled for Friday, September 17th, where we will share more about our future growth plan and longer-term strategy. I would now like to turn the call over to our Chief Executive Officer, Joe Zabredsky. Joe?

Thank you, Julie, and good morning. Today, we will provide you with updates on several topics. We will cover our financial results for the first quarter 2021. We will update our 2021 guidance in the context of our first quarter results. And we will then provide an update on our growth initiatives and outlook for the future. Let me start with first quarter highlights. Last night, we reported adjusted earnings per diluted share for the first quarter of $4.44, with adjusted net income of $260 million and premium revenue of $6.3 billion. Our results for the quarter were strong across many dimensions. The 86.8% MCR demonstrates solid cost management fundamentals, particularly in light of some of the challenges presented by the pandemic. We managed to a 7% adjusted G&A ratio as we continue to reinvest the benefits created by our strong enterprise-wide fixed cost leverage in our growth initiatives. We produced an adjusted after-tax margin of 4% squarely in line with our long-term targets in exceeding our first quarter expectations. Our $4.44 adjusted earnings per share in the quarter were a 47% increase over the first quarter of 2020. And we accomplished all of this as we are generating 47% year-over-year premium revenue growth and successfully integrating businesses representing approximately $5 billion in annual revenue. In summary, we are very pleased with our first quarter performance as we executed well. delivered solid operating earnings, and continued to deliver on our growth strategy. Let me provide some commentary highlighting our first quarter performance. Premium revenue was $6.3 billion, a 47% increase over the first quarter of 2020, reflecting increased membership in line with our expectations in both Medicaid and Medicare and exceeding our expectations in Marketplace. We ended the quarter with 4.6 million managed care members, an increase of 573,000 over the fourth quarter of 2020. Our Medicaid enrollment at the end of the quarter was 3.9 million members, an increase of 260,000 over the fourth quarter of 2020. This sequential increase was the result of strong organic growth of 63,000 members as the suspension of redeterminations in a slowly recovering economy continued to positively impact Medicaid membership, although this growth catalyst seems to have moderated, and growth of 197,000 members from the acquisition of Magellan Complete Care, which closed on December 31st. Our Medicare membership was 126,000 at the end of the quarter. representing growth of 11,000 over the fourth quarter of 2020, which was primarily related to our acquisitions. Our marketplace membership grew by 302,000 in the quarter to 620,000, exceeding our initial forecast of at least 500,000 members. This growth was driven by several factors, strong product design and competitive pricing, effectuation rates, substantially higher than historical averages, lower than expected natural attrition rates, and the extended open and special enrollment periods. Turning now to our medical margin results for the quarter. Our first quarter 2021 MCR was 86.8%, reflecting modest COVID-related utilization curtailment, severe winter weather, and the absence of a traditional flu season, offset by the direct costs of COVID-related care. While the net effect of COVID for the total company was negligible in the quarter and in line with our expectations, the impact varied by line of business. Our Medicare and marketplace businesses experienced a disproportionately negative impact from the net effect of COVID, exerting pressure on their respective MCRs. This was offset by a modest favorable net COVID impact in Medicaid. Some additional comments on performance by line of business. In the Medicaid business, we achieved an 87.5% medical care ratio for the first quarter, performing in line with our expectations. In addition to the external factors mentioned previously, which were unusually favorable in the quarter, the medical care ratio was also supported by our performance in utilization management and payment integrity. A portion of our Medicaid outperformance was recaptured by the risk-sharing corridors, an impact which was well within our expectations. The corridors are designed such that they will act as a buffer to absorb some of the over- and underperformance related to medical margin, no matter how that performance is derived. Our Medicare business produced a medical care ratio of 90.3% for the first quarter. The medical care ratio was negatively impacted by higher than expected direct costs of COVID-related care and the temporary industry-wide challenge of risk score capture, which results in risk scores that do not fully reflect the acuity of the membership. The Medicare business performed as expected when normalized for these two discrete impacts. Finally, our marketplace business experienced a medical care ratio of 77.3% for the first quarter. The medical care ratio was negatively impacted by higher-than-expected direct costs of COVID-related care as the COVID infection rate resurged in many of our marketplace geographies. We did, however, achieve our pre-tax earnings target due to the increased membership volume. We continue to effectively manage our resources. Our adjusted G&A ratio for the quarter was 7%, identical to the 7% reported in the first quarter of 2020. Our performance reflects disciplined cost management and the benefits of fixed cost leverage produced by our substantial growth, offset somewhat by the higher than targeted G&A ratios of our acquired businesses, which will improve as our integrations progress. we are pleased with our first quarter results as we continue to demonstrate the ability to produce excellent margins while substantially growing top line revenue and managing through the ongoing effects of the pandemic turning to our 2021 guidance beginning with premium revenue for 2021 we now project premium revenue to be more than 24 billion dollars a 31% increase over the full year 2020, and a $1 billion increase from our previous guidance. Specifically, our premium revenue guidance now includes Medicaid enrollment benefiting from the expected extension of the public health emergency period and the associated pause on membership redeterminations, which we are now projecting through the end of the third quarter. Recall, we had said that for each month public health emergency is extended beyond the month of May, it could increase our full-year revenue outlook by $150 million. And updated marketplace revenue, reflecting the strong enrollment and retention performance mentioned previously. We expect to end 2021 with slightly more than 500,000 marketplace members, and marketplace premium revenue growth is now expected to be over 50%. We have excluded from our premium revenue guidance any impact of the Affinity and Cigna acquisitions. We do expect these transactions to close this year, representing upside to our premium revenue in 2021. In summary, we are very pleased with our growth trajectory. Our growth is well balanced between a new contract win, organic growth, bolt-on acquisitions, benefit expansions in our existing geographies, and greater penetration of our marketplace and Medicare products in our Medicaid footprint. Turning now to earnings guidance. We are raising our full year 2021 adjusted earnings guidance to be no less than $13 per share, an increase from our prior guidance of $12.50 to $13 per share. Specifically, The increase to our 2021 earnings guidance reflects the favorable impacts of the increase in our revenue guidance and the associated margin, the first quarter earnings outperformance, and the combined effects of other individually minor impacts, such as the sequestration delay in Medicare. We have, however, hedged our guidance due to a variety of exogenous factors. First and foremost, we are still in a pandemic. which introduces a level of uncertainty with respect to any healthcare utilization forecast. We have continued to be cautious in forecasting utilization trends in the remaining nine months of the year as the COVID pandemic subsides. How quickly and to what extent utilization rebounds will depend upon the strength of the economy, consumer behavior, provider capacity, and the level of COVID infection rates. With respect to forecasting our marketplace utilization trends, we recognize there is an inherent level of uncertainty with regard to new member acuity levels, which we will monitor closely. And the risk sharing corridors create an added element of variability. While any individual state corridor can be a buffer to that state's over or under performance, predicting in which states over or under performance may occur can create an element of forecasting variability. Turning now to an update on our growth initiative. We are very pleased to have been re-awarded our major Medicaid contract in the state of Ohio. We were awarded contracts in all three regions in the state, maintaining our statewide presence. This re-procurement win is a testimony to our excellent service, innovative programs, strong relationships, and our reputation as a business partner that can be counted on. While Ohio did introduce at least one additional player to the statewide program, continuity of care is of the utmost importance to a Medicaid program. As such, we have every reason to believe our current business profile should not materially change. The agreement to acquire Cigna's Texas Star Plus membership is yet another example of an accretive, strategic, bolt-on acquisition. The business serves approximately 50,000 ABD and MMP members across three regions in Texas. Full year 2020 revenue is approximately $1 billion. With a modest purchase price of $60 million, we project the acquisition will deliver returns well in excess of our cost of capital, benefit from local and enterprise operating leverage, and will be immediately accretive. The expanded presence in Texas should position us well in the re-procurement should the state proceed with that process. Finally, some comments about the longer-term outlook for our business. The current rate environment is stable and rational. We continue to believe that the Medicaid risk-sharing corridors that were previously introduced are related to the declared public health emergency and will be eliminated as the COVID pandemic subsides. We continue to be bullish about the performance of our acquired businesses. The operational integrations are proceeding as or better than planned, and we have high confidence in achieving our original accretion estimates and possibly even exceeding them. In the context of the pandemic subsiding and our acquisitions maturing, the embedded earnings power of the business as it exists today is at least $4 higher than our adjusted earnings per share guidance. The emergence of embedded earnings combined with our future growth create a very attractive earnings growth outlook. Our first quarter performance demonstrates that our growth plan is working well. We have built sound operational infrastructure which allows us to operationally execute and maintain these attractive margins. We have reinvigorated our platforms to drive organic membership growth. We have built winning RFP and M&A capabilities that have catalyzed our growth in accessing new opportunities. And we continue to focus on capital allocation and free cash flow generation to create shareholder value. The political, legislative, and regulatory trends are positive for the businesses we are in, and our management team is well-established, disciplined, and laser-focused on our mission to serve members and shareholders. I look forward to sharing more about our future growth plans and longer-term strategy at our Investor Day in September. As I conclude my remarks, I want to express my gratitude to our management team and our nearly 13,000 Molina colleagues. Their skill, dedication, and steadfast service form the foundation for everything we have achieved and everything we will achieve in the years to come. With that, I will turn the call over to Mark Kime for some additional color on the financials. Mark?