Molina Healthcare Inc

Good day and welcome to the Molina Healthcare first quarter 2022 earnings conference 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, then two. Please also note this event is being recorded. And I would now like to turn the conference over to Joe Krocheski, Senior Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Molina Healthcare's first quarter 2022 earnings call. Joining me today are Molina's President and CEO, Joe Zabrowski, and our CFO, Mark Kimes. A press release announcing the first 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 made 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, April 28, 2022, 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 GAAP measures can be found in our first quarter 2022 press release. During our call, we will be making certain forward-looking statements, including, but not limited to, statements regarding our 2022 guidance, our growth strategy and expected growth, our RFP submissions, the COVID-19 pandemic, our acquisitions, our future margins and embedded learning 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 the 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 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 first quarter 2022, our full year 2022 guidance in the context of our first quarter results, and our growth initiatives and the reaffirmation of our strategy for sustaining profitable growth. Let me start with the first quarter highlights. Last night, we reported adjusted earnings per diluted share for the first quarter of $4.90, with adjusted net income of $288 million. First quarter premium revenue grew 19% year over year to $7.5 billion, driven by strong membership gains in Medicaid and Medicare. Our 87.1% consolidated MCR in the first quarter is squarely in line with our long-term target range and demonstrates strong operating performance, even as we continue to navigate pandemic-related challenges. In the quarter, the net effect of COVID increased our consolidated MCR by approximately 50 basis points, decreasing net income per diluted share by approximately 57 cents. Within the net effect of COVID, inpatient COVID costs in the quarter were the highest since the beginning of the pandemic, surging in the month of January and then steadily subsiding throughout the quarter. These costs were mostly offset by COVID-related utilization curtailment and effective medical cost management. Despite the continued pandemic-related impacts, of 3.7%, a very strong result that is at the high end of our long-term target range and consistent with normal seasonal patterns. Turning now to highlights by line of business. In Medicaid, we ended the quarter with approximately 4.6 million members, an increase of approximately 700,000, or 18% year over year. This strong performance drove 24% Medicaid premium revenue growth year over year. Increased membership was the balanced result of our recent acquisitions and organic gains supported by the redetermination pause. In the first quarter, we continued to generate excellent margins in our Medicaid business, with a medical care ratio at 88.1%, which is in line with our long-term target. The enduring highlights of our flagship Medicaid business are as follows. Our diversified portfolio of 18 state contracts provides for excellent distribution of risk related to rate setting and contract re-procurements. Actuarially, found rates prevail, and the rate setting process establishes a credible medical cost baseline with forward trend and benefit changes. Poor medical cost trends remain stable and well-controlled. The few remaining COVID risk-sharing corridors continue to capture some of our outperformance, but we expect these to be eliminated over time. And we continue to execute our growth strategy. Our in-state market shares are large enough to be relevant to our state customers, yet small enough to support significant growth opportunity. In Medicare, We ended the quarter with 148,000 members, or 17% growth year-over-year, with related premium revenue growth of 18%. Our performance was driven primarily by organic gains in our DSNP and MAPD products as we continue to increase our market share and our existing footprint and expand geographically to match our Medicaid footprint. Our reported Medicare MCR was very strong in the quarter at 86.5%, which is below the low end of our long-term target range, even after absorbing 190 basis points of COVID-related pressure. In Marketplace, we ended the quarter with 371,000 members. This result is higher than previously projected, driven by higher than expected effectuation rates, during the later stages of open enrollment. The declines in membership and premium from prior year are consistent with our previously communicated strategy to reposition the book of business and its risk profile. Our marketplace business is now more appropriately sized in the overall portfolio. Our first quarter marketplace MCR was 78.6%. This result is in line with our long-term target even after absorbing 270 basis points of COVID-related pressure and reflects the successful implementation of our strategy to restore this business to target margins. As Mark will discuss in a moment, the favorable mix of renewal membership and the silver tier products gives us great confidence that we will achieve our 2022 margin goal. In summary, 2022 is off to a very strong start. Medicaid, our flagship business, representing 80% of revenue, continues to produce strong, predictable operating results and cash flows. Our high-acuity Medicare niche, serving low-income members, continues to grow organically and exceeded our long-term target margins. And Marketplace, A complementary product in our government-subsidized strategy is now well positioned for success at 7% of total company premium revenue. Turning now to our 2022 guidance, beginning with premium revenue. We now project premium revenue to be approximately $29.25 billion, or approximately $750 million above our previous guidance. our revenue growth rates are consistent with our long-term targets. Specifically, our updated premium revenue guidance now includes approximately $400 million of additional Medicaid revenue resulting from the extension of the public health emergency from April to July and the associated suspension of membership redeterminations. Approximately $100 million of marketplace revenue resulting from stronger open enrollment as we now expect to end 2022 with approximately 270,000 members and approximately $250 million related to state-based pass-through revenue payments. As in the past, we have excluded from our premium revenue guidance any impact of the age well acquisition, which we expect to close in the third quarter of this year. Turning now to earnings guidance. We are increasing our full year 2022 adjusted earnings per share guidance to no less than $17.10. Specifically, our increased 2022 earnings guidance reflects the favorable impacts of strong first quarter performance, underlying strength in the business in the rest of the year, the margin associated with the increase in our premium revenue, the combination of which is largely offset by a 50 cent per share increase in projected net effect of COVID. We have remained cautious in forecasting utilization trends in the remaining nine months of the year due to the uncertainties of COVID and related utilization curtailment, as well as core medical cost trend. We believe at the end of the second quarter, our membership will have seasoned enough to allow us to fine-tune our forecast of COVID-related medical costs and core medical cost trend. We are confident in our 2022 outlook that features revenue growth rates consistent with our long-term targets, an after-tax margin at the midpoint of our long-term guidance range, and strong earnings per share growth of 26%. Turning now to an update on our strategy for sustaining profitable growth. Building on our momentum from last year, we are off to a strong start in 2022. Based on our past track record, we are confident in successfully retaining the Medicaid contracts that are currently in a re-procurement process. Our RFP responses have been submitted in Mississippi and California, and our pending evaluation and subsequent award announcement. The Texas Star Plus RFP has been issued by the state, and our response is currently being developed. We have a high degree of confidence in retaining these contracts as a result of our operational and clinical excellence, standing and reputation, innovation, and the demonstrated ability to write winning proposals. At the beginning of the year, we successfully launched our Medicaid plan in Nevada, adding a new state to our footprint and 125,000 members. With multiple RFP opportunities over the coming years, we remain confident in our ability to win additional new state contracts. We have one new state proposal pending in Rhode Island and many other new state business development opportunities well in process. Our M&A platform continues to execute at a high level. On January 1st, we closed on the acquisition of Cigna's Texas Medicaid business, deepening our service offerings in the state and adding 44,000 high-acuity members. Our acquired businesses are achieving or exceeding their earnings accretion targets. The pipeline of acquisition opportunities remains robust. We are confident in our ability to drive continued value from this important dimension of our growth strategy. The company's performance continues to validate our long-term strategy and its value creation potential. We can and will grow the top line at 13% to 15% per year on average over time by a combination of market share gains, new contract wins, footprint expansion, and of course, bolt-on M&A. We can achieve this growth and maintain pre-tax margins in the range of 4% to 5%. Rates are stable, and our effectiveness at medical cost management while ensuring optimum quality has been consistently demonstrated. A number of external factors are combining to support government-sponsored health care. In particular, demographics, economic disruptions, and political priorities are working together to generate meaningful tailwinds the industry. And finally, our strong cash flow generation gives us ample capacity to invest in new capabilities and acquisitions. Our strategy is sound, validated with each quarter's performance, and will continue to be value-creating. As I conclude my remarks, I want to express my continued gratitude to our management team and to our nearly 14,000 Molina colleagues. Their skill and 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?