Molina Healthcare Inc

Good morning and welcome to the Molina Healthcare Fourth Quarter Earnings Conference Call. All participants will be in 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 your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Joe Kruszewski, Krzyzewski, SEP Investor Relations. Please go ahead.

Good morning, and welcome to Molina Healthcare's fourth quarter 2021 earnings call. Joining me today are Molina's president and CEO, Joe Zabrowski, and our CFO, Mark Kahn. A press release announcing our fourth 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, February 10, 2022, and have not been updated subsequent to the initial earnings call. In this call, we'll refer to certain non-GAAP measures. A reconciliation of these measures with the most directly comparable GAAP measures can be found in our fourth 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, 2022 guidance, our embedded earnings power, and our long-term outlook. 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 filed with the SEC, as well as risk factors listed in our Form 10-Q and Form 8-A 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 updates on several topics. Our financial results for the fourth quarter and full year 2021, our initial 2022 revenue and earnings guidance, and our growth initiatives and reaffirmation of our Sustaining Profitable Growth Strategy. Let me start with the fourth quarter highlights. Last night, we reported adjusted earnings per diluted share for the fourth quarter of $2.88, with adjusted net income of $170 million and premium revenue of $7.2 billion, an increase of 48% over the prior year. The 88.8% 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 150 basis points, decreasing net income per diluted share by approximately $1.50, which is 50 cents more than previously expected. We managed to a 7.4% adjusted G&A ratio, reflecting continued discipline in cost management while making the appropriate investments in our business to fuel growth. We produced an adjusted after-tax margin of 2.3%. Excluding the net effect of COVID, our adjusted after-tax margin was 3.5%, squarely in line with our long-term target. We are very pleased with our fourth quarter performance with respect to both the delivery of solid earnings and the focused execution of our profitable growth strategy. The quarter marks the end of yet another very successful year, a year in which we continue to produce a high level of financial performance while navigating the effects of the global pandemic. We executed well and sustained solid operating margins while driving significant revenue growth. Now, turning to full year highlights. We reported full-year 2021 adjusted earnings per diluted share of $13.54, a 6% increase over initial full-year guidance. We absorbed $3.50 of costs related to the net effect of COVID, which was $2 higher than initial guidance, implying $2.80 of improved underlying performance. Excluding the net effect of COVID, our after-tax margin was 3.6%, consistent with our long-term target. We generated premium revenue of $26.9 billion, an increase of 47% over our full-year 2020 premium revenue, and $3.9 billion above our initial 2021 guidance. This strong premium revenue growth was well-balanced between organic growth and bolt-on acquisitions. and is a testament to our successful transition to sustained profitable growth. From a membership perspective, we ended the year with 5.2 million members, a 1.2 million member increase year over year. Notably, this 29% growth across all three segments was enhanced by the suspension of Medicaid redeterminations and the special enrollment period in Marketplace. Turning now to our full-year performance highlights by line of business. Medicaid, our flagship business, representing 76% of total company premium, produced strong premium revenue growth and stable earnings as we continued to execute on the underlying fundamentals. For the full year, our Medicaid business achieved a medical care ratio of 88.7%, consistent with our long-term MCR target as moderate net effect of COVID was offset by strong medical cost management. For the year, our diversified portfolio of state contracts performed well across all dimensions. Underlying medical cost trend was stable and well-controlled, particularly within our growing population of high-acuity members, while we continued to deliver high-quality care. The rate environment was stable, and risk-sharing corridors we captured some of our outperformance, but many already have been and will continue to be eliminated. For the year, our Medicare medical care ratio was 87.2%, a very strong result, squarely in line with our long-term target range, and demonstrating our ability to clinically and financially manage the high-acuity members in both our DSNP and MMP programs. This line of business plays an important role in the portfolio, as each year over 30,000 of our Medicaid members turn age 65. Our marketplace medical care ratio for the full year was 86.9%, well above our long-term target. This reflects the significant cost related to the net effect of COVID in our largest geographies and the high cost impact of the adverse selection related to the special enrollment period. Approximately 300,000 members were attracted to our product during the special enrollment period, accounting for 25% of full-year Marketplace member month. All told, our Marketplace performance has been a disappointment. Later, Mark will summarize the steps we have taken and the environmental factors which will allow us to restore margins to our mid-single-digit target in 2022. you will hear that included in our revenue guidance is a planned reduction in marketplace membership and a related 38% decrease in 2022 marketplace revenue. However, we expect this repositioning of our product to be significantly accretive to 2022 earnings and establish a strong foundation for this business going forward. 2021 was also a very successful year across multiple dimensions of our profitable growth strategy. Specifically, we successfully reprocured our Ohio Medicaid contract and were awarded a new state contract in Nevada, validating our ability to retain existing state contracts as well as win new business in new states. Our M&A engine continued to execute at a high level. During the year, we announced two new acquisitions, Cigna's Texas Medicaid business and Agewell in New York, for combined premium revenue of approximately $1.7 billion. In October, we closed the New York-based Affinity acquisition, adding over 300,000 members and approximately $1.6 billion of annual premium revenue. And we successfully integrated three previously closed acquisitions representing approximately $5 billion in annual revenue, which continued to provide earnings accretion. In summary, our full-year 2021 enterprise results continue to demonstrate our ability to produce excellent margins while growing premium revenue and successfully managing through the ongoing clinical and financial impacts of the pandemic. Turning to our 2022 guidance, beginning with premium revenue. We are very pleased with the continued success of our profitable growth strategy. In 2022, we project premium revenue of approximately $28.5 billion, a 6% year-over-year increase on a reported basis, and 14% growth before the effect of regulatory headwinds and the planned decline in marketplace revenue. This is consistent with the initial outlook provided on our third quarter 2021 earnings call. This growth is well balanced between the new contract win, organic growth in our current footprint, and the full annual run rate of our recent acquisitions. Incremental to our revenue guidance will be the age well acquisition when closed and any further extension of the public health emergency and the resulting suspension in Medicaid redeterminations beyond April. Moving to earnings guidance, our initial full-year 2022 adjusted earnings guidance per share is no less than $17, or 26% growth year-over-year. We project a 3.4% adjusted after-tax margin, consistent with our long-term target. Our 2022 earnings profile reflects durable and sustainable operating improvements and earnings growth. Included in our 2022 guidance is the realization of $3.50 per share of our 2021 embedded earnings hour and additional organic earnings growth partially offset by the effects of regulatory headwinds. With COVID still providing $2 of earnings per share pressure in 2022, and a few of our acquisition integrations not yet fully matured, we still have embedded earnings power remaining to support future earnings growth. In summary, our 2022 guidance features premium revenue growth of 14% before regulatory headwinds and the marketplace reset, and strong earnings per share growth of 26%, with key operating and margin metrics squarely in line with the long-term targets we shared at our September 2021 investor conference. I will now provide a few concluding comments that frame our profitable growth strategy. We remain committed to staying close to the core. We intend to remain a pure play government managed care business, which 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. We believe we have the right strategy and the right team to execute it. Our strong finish to 2021 and our 2022 guidance position us well and give us great confidence we can achieve our long-term targets of 13% to 15% premium revenue growth and 15% to 18% earnings per share growth on average over time. As I conclude my remarks, I want to express my gratitude to our management team and our nearly 14,000 Molina 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 for some additional color on the financials and 2022 guidance. Mark?