Molina Healthcare Inc

I'd now like to turn the conference over to Joe Kruszewski. Please go ahead.

Good morning, and welcome to Molina Healthcare's third quarter 2021 earnings call. Joining me today are Molina's president and CEO, Joe Zabrowski, and our CFO, Mark Kine. A press release announcing our third quarter earnings was distributed after the market closed yesterday and is available on our investor relations website. 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 this presentation, we remind you that the remarks made are as of today, Thursday, October 28, 2021, and will not be 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 GAAP measures can be found in our third quarter 2021 press release. During our call, we will be making certain forward-looking statements, including but not limited to statements regarding the COVID-19 pandemic, the current environment, recent acquisitions, 2021 guidance, 2022 premium revenue outlook, our embedded earnings power, and our long-term outlook and expected EPS growth. Listeners are cautioned that all of our forward-looking statements are subject to certain risks and uncertainties that could 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 the risk factors listed in our Form 10-Q and our Form 8-K filings with the SEC. After the completion of our prepared remarks, we will open the call to take your questions. I will now turn the call over to our Chief Executive Officer, Joe Zabrowski.

Joe? Thank you, Joe, and good morning. Today, we will provide you with updates on several topics. our financial results for the third quarter of 2021, our 2021 guidance in the context of our third quarter results, our initial outlook for 2022 premium revenue and embedded earnings power, and lastly, our growth initiatives and reaffirmation of our outlook for the future. Let me start with the third quarter highlights. Last night, we reported adjusted earnings per diluted share, for the third quarter of $2.83, with adjusted net income of $164 million and premium revenue of $6.8 billion. The 88.9% consolidated medical care ratio demonstrates solid performance while managing through pandemic-related challenges. The net effect of COVID increased our consolidated medical care ratio by 110 basis points and decreased net income for diluted share by approximately $1. We managed to a 7.3% adjusted G&A ratio, reflecting continued discipline in cost management while making the appropriate investments in our business to fuel growth. We produced an after-tax margin of 2.3%, meeting our third quarter expectations. Our year-to-date performance metrics highlighted by an 88% MCR, a 7.1% adjusted GNA ratio, and a 3.1% adjusted after-tax margin, we're all squarely in line with our nine-month expectations, despite the significant COVID-related impacts we experienced, totaling $2 per share year-to-date. We accomplished all of this as year-to-date we generated approximately 50% year-over-year premium revenue growth, successfully integrated businesses representing approximately $5 billion in annual revenue, and continued to execute on our growth initiatives. In summary, we are very pleased with our third quarter and year-to-date performance. We executed well, delivered solid operating earnings, and continued to drive our growth strategy. Let me provide some additional commentary related to our third quarter performance. As we stated in the second quarter, year over year comparisons are less meaningful than they would be in a typical year due to pandemic related effects. Therefore, we will again focus our comments this morning on sequential comparisons. In the third quarter, we produced premium revenue of $6.8 billion, a 3.3% increase over the second quarter of 2021, reflecting increased membership across our entire portfolio. We ended the quarter with approximately 4.8 million members, an increase of 142,000 members over the second quarter of 2021. We have now grown to serve approximately 800,000 additional members since the end of 2020, a 20% increase. Our Medicaid enrollment at the end of the quarter was approximately 4 million members, an increase of 53,000 over the second quarter of 2021. This increase was due primarily to the continuing suspension of Medicaid redeterminations, which has resulted in an increase of over 700,000 Medicaid members since the beginning of the pandemic. Our Medicare membership was 138,000 at the end of the quarter, an increase of 8,000 members driven primarily by organic growth as we follow our Medicaid footprint with an enhanced distribution strategy. Our Marketplace membership was 719,000 at the end of the quarter, representing growth of 81,000 members over the second quarter of 2021 due to continued lower than expected attrition rates and membership additions during the special enrollment period, which ended in mid-August. Turning now to our medical margin performance in the third quarter by line of business. Medicaid, our flagship business, representing 77% of premium, continues to drive premium revenue growth and stable earnings as we execute on the underlying fundamentals. For the quarter, our Medicaid business achieved a medical care ratio of 89.6%, consistent with our expectations as the net effect of COVID was notable but manageable. Year to date, our well-diversified portfolio of state contracts continues to perform well across all dimensions. Medical cost trend is stable and well-controlled while we continue to deliver high-quality care, particularly to high acuity populations. The underlying rate environment is stable. Risk sharing corridors continue to capture some of our outperformance, but many have been and continue to be eliminated. We are winning new state contracts and we are consistently finding attractive acquisition opportunities. Moving on to Medicare. Our Medicare results exceeded our expectations. For the quarter, our medical care ratio was 82.8%. Lower net effect of COVID, including utilization curtailment and risk corridor true-ups, combined with improved risk adjustment revenue, served to drive a 490 basis point sequential improvement in the MCR. Our year-to-date Medicare MCR of 86.8% better reflects the underlying performance of this business. and demonstrates our ability to clinically and financially manage the high-acuity lives in both our DSNP and MMP programs. Our marketplace medical care ratio in the quarter was 91.3%. This reflects increased costs related to the net effect of COVID, the impact of the special enrollment period, and the natural seasonality of the business. Recall that many of the new members we attracted were in regions disproportionately affected by COVID, particularly in Texas. Moreover, we experienced higher non-COVID utilization by members enrolled through the special enrollment period due to the relaxed eligibility guidelines. Our year-to-date Marketplace MCR was 84.8%. It includes over 500 basis points of pressure from the net effect of COVID. as well as 280 basis points of impact from the special enrollment period. We remain confident that we can achieve mid-single-digit pre-tax margins in 2022. We will accomplish this through actions already taken and changes to the environment that have already occurred. Specifically, we priced to a higher medical cost trend. We redesigned our product offerings focusing on the silver tier in response to the increased premium subsidies. And we note the conclusion of the 2021 special enrollment period and the more restrictive 2022 special enrollment eligibility rules. In summary, our third quarter and year-to-date enterprise results continue to demonstrate our ability to produce excellent margins while growing top-line revenue and successfully managing through the ongoing clinical and financial impacts of the pandemic. Turning to our 2021 guidance, beginning with premium revenue. At our recent investor conference, we increased our 2021 premium revenue guidance to be more than $26 billion. With our third quarter results and the closing of affinity, we are now projecting 2021 premium revenue of no less than $26.5 billion, which represents a 45% increase over the full year 2020. We are maintaining our full year 2021 earnings guidance of no less than $13.25 per share. This represents a 50 cent increase compared to the midpoint of our initial 2021 guidance, despite absorbing an additional $1.50 per share from the net effect of COVID. revealing an improvement of $2 per share in underlying performance. Excluding the impact of the net effect of COVID, our 2021 guidance results in a 3.4% after-tax margin. This performance is consistent with our initial 2021 guidance and squarely in line with our long-term target margin expectations. We do, however, remain cautious in projecting our fourth quarter earnings due to a variety of exogenous factors primarily related to the net effects of COVID across all of our businesses. Turning now to our 2022 revenue outlook. At our September investor conference, we provided the components of our initial 2022 premium revenue outlook that delivers premium revenue growth of more than $3 billion over 2021 guidance. Specifically, $2.3 billion from already announced acquisitions, including Affinity, which we just recently closed, and the Cigna Texas Medicaid business, which we expect to close in January of 2022. Organic growth of $1 billion, representing approximately 4% growth across our current footprint. Approximately $400 million for our Nevada Medicaid launch, partially offset by a projected $500 million impact from redeterminations, which we expect to occur throughout 2022. Since then, we announced the AgeWell acquisition. Any incremental revenue from AgeWell in 2022 would likely be offset by pharmacy carve-outs in California and Ohio. A reminder, this 2022 outlook is prior to Marketplace membership changes and any additional strategic initiatives and acquisitions. Bear in mind that our marketplace approach in 2022 emphasizes margin over membership growth. At this early stage, we expect 2022 marketplace membership to be flat to down when compared to 2021. No matter where the marketplace membership and revenue eventually lands, we expect the business to generate mid-single-digit pre-tax margins in 2022. Turning now to our longer-term growth outlook. At our September investor conference, we laid out our strategy for sustaining profitable growth, a strategy that delivers 13 to 15% annual premium revenue growth off of our 2022 baseline. We expect approximately two-thirds of that growth to be organic. driven by a combination of underlying industry growth and a set of specific strategic initiatives that we described in detail. The remaining one-third will be derived from inorganic growth, the achievement of which is supported by our current track record of M&A execution. Our profitable growth outlook has us sustaining our 4 to 5 percent pre-tax margins, harvesting the potential for operating leverage and accretively deploying excess capital to deliver a very attractive EPS growth rate of 15 to 18 percent on average over time. The components of this growth engine are well established and working. Our year-to-date performance is testimony to the strength of that growth engine. Specifically, the Nevada Medicaid Contract Award speaks to our ability to win new state contracts to drive organic growth. and we continue to participate in additional RFPs we find attractive. And our M&A team continues to deliver. In addition to the Cigna Texas Medicaid business we announced earlier this year, this month we announced the acquisition of Age Well's managed long-term care business in New York for a purchase price of less than 20% of revenue. This acquisition complements our expanding New York footprint, serving high-acuity populations in the state. AgeWell serves approximately 13,000 members with full-year 2020 premium revenue of approximately $700 million. We expect AgeWell to deliver accretion of 15 cents to 20 cents per diluted share in the first full year of ownership. The M&A target pipeline is vibrant. and gives us confidence in continued execution. To recap our strategy, we remain committed to staying close to the core. We are a pure play government managed care business. We believe the government managed care business has very attractive growth characteristics, demographically and politically. We aspire to provide high quality care to our members while driving to the lowest cost of delivery to produce attractive margins in this high-growth industry. We believe we have the right strategy and the right team to execute our sustaining profitable growth agenda. We remain extremely confident that we can achieve our long-term targets of 13 to 15 percent premium revenue growth and 15 to 18 percent earnings per share growth. As I conclude my remarks, I want to express my gratitude to our management team and our nearly 13,000 Alina colleagues. Their skill, dedication, and steadfast service continue to 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?