Molina Healthcare Inc

Good morning and welcome to Molina Healthcare's fourth quarter 2022 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Joe Korcheski, Senior Vice President, Molina Healthcare. Please go ahead.

Good morning, and welcome to Molina Healthcare's fourth quarter 2022 earnings call. Joining me today are Molina's president and CEO, Joe Zabretki, and our CFO, Mark Kime. 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 of you who listened to the rebroadcast of this presentation, we remind you that the remarks made are as of today, Thursday, February 9th, 2023, and have not been updated subsequent to the initial earnings call. On this call, we will refer to certain non-GAAP measures, a reconciliation of these measures with the most directly comparable GAAP measures for 2022 and 2023 can be found in our fourth quarter 2022 press release. During our call, we will be making certain forward-looking statements, including but not limited to statements regarding our 2023 guidance, our projected 2024 outlook and revenue, our recent RFP awards, recent and future RFP submissions, including those in Indiana, New Mexico, and Florida, our acquisitions and M&A activity, Medicaid redeterminations, our long-term growth strategy, and our embedded earnings power and margins. 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 fourth quarter and full year 2022. Our initial 2023 revenue and earnings guidance. Our growth initiatives and our strategy for sustaining profitable growth. And our outlook on premium revenue for 2024, given our new business successes in 2022. Let me start with the fourth quarter highlights. Last night, we reported fourth quarter adjusted earnings per diluted share of $4.10, representing 42% growth year over year. Our fourth quarter 88.3% consolidated medical care ratio, 7.5% adjusted G&A ratio, and 3.9% adjusted pre-tax margin demonstrate continued strong operating performance. The fourth quarter completes another strong year of operating and financial performance. For the full year, we grew premium revenue by 15% to approximately $31 billion and grew adjusted earnings per share by 32% to $17.92. Our full year adjusted pre-tax margin of 4.4% was squarely in line with our long-term targets. Medicaid, our flagship business representing approximately 80% of enterprise revenue, continues to produce very strong and predictable operating results and cash flows. For the year, we grew membership by approximately 10% and premium revenue by 21%, driven by the inception of our Nevada Medicaid contract, recently closed acquisitions, and organic growth. The rate environment is stable, and we are executing on the fundamentals of medical cost management. The full year reported MCR of 88% is at the low end of our long-term target range and consistent with pre-pandemic levels, reflecting the underlying strength of our diversified portfolio and our focused execution. Our high-acuity Medicare niche, serving low-income members, representing 12% of enterprise revenue, continues to grow organically and demonstrate strong operating performance. For the year, we grew membership by 10% and premium revenue by 13%. Membership growth was driven primarily by our low-income MAPD product, which more than doubled in 2022. The full-year reported MCR of 88.5% was modestly above our long-term target range, but includes approximately 300 basis points of pressure from COVID-related care. In Marketplace, the smallest of our three lines of business, we repositioned the business both in terms of its size in the portfolio and metallic mix. On a pure period basis, the business performed at roughly break-even. While the financial performance did not meet our initial expectations for the year, we believe we have positioned our marketplace business to achieve target margins in 2023. Turning now to the execution of our growth strategy for the year. The successes in 2022 were many. On the M&A front, we closed on the acquisition of Cigna's Texas Medicaid business at the beginning of the year. in the age well acquisition at the beginning of the fourth quarter. In July, we announced the My Choice Wisconsin acquisition, further adding to our market-leading LTSS franchise. Our performance on Medicaid RFPs in the year was exceptional. We renewed our contract in Mississippi doubled the size of our California contract for 2024, and won two new contracts, first in Iowa and then Nebraska, for a 100% win rate on RFP responses submitted. In total, we project that these RFP wins for the year will add $4.4 billion in run rate premium revenue. In summary, our full year 2022 enterprise results continue to demonstrate our ability to produce excellent margins while expanding our franchise by growing premium revenue. Turning now to our 2023 guidance. You can easily see the results of the repeatable earnings pattern we have created. We build new store contract backlog and harvest the earnings as the contracts and acquisitions mature. Meanwhile, we continue to focus on the operating fundamentals and drive operational improvements, which allows us to grow the core business at attractive margins. With regard to our 2023 guidance, we project 2023 premium revenue of $32 billion, representing a 19% compound annual growth rate since our pivot to growth in 2019. The 2022 earnings per share of $17.92 serves as a solid high-margin earnings jump-off point. We expect that $1 per share of prior embedded earnings will emerge into 2023 earnings. We expect to produce $1.50 per share of core growth and operational improvements. We expect all of these elements will combine to produce 2023 core earnings per share of at least $20.40 offset by $0.65 per share of one-time contract implementation costs, which results in our 2023 adjusted earnings per share guidance of at least $19.75. The operating improvements supporting the margins in our guidance are durable. The various elements which could impact earnings, COVID, flu, RSV, any margin impacts from redeterminations have been considered in forming our guidance. The metrics implied by guidance are squarely in line with our long-term target ranges, as our guidance produces a 4.7% pre-tax margin. With a growth rate of 14% in core earnings, and 10% on a reported adjusted basis, this is an attractive growth profile in a model that is repeatable. In addition to the growth within our guidance, we continue to build an earnings base for the future in the form of our embedded earnings profile, which provides a forward view of our earnings potential beyond 2023. The new store component of our embedded earnings, defined as earnings from achieving target margins on acquisitions and new Medicaid contract wins, is now at least $4 per share. The ongoing net effect of COVID, which at this point is the continuing earnings impact from the three remaining risk corridors, adds $2 per share of additional upside to this figure. This latent earnings growth estimate does not take into consideration any future organic growth or future strategic initiatives. Turning now to our growth strategy, we have taken major strides toward our $42 billion 2025 premium goal. At this early stage, we already have a clear line of sight to $35.5 billion in 2024. The key to our strategy is balance. A stellar record of new contract wins, Kentucky, Nevada, and now filling in the middle part of the country. The doubling of the size of our California business, including significant expansion in Los Angeles County. Preserving and securing all of our incumbent state contracts and no large re-procurements in the near term. Continuing to build the M&A pipeline. as this aspect of our strategy has already produced seven transactions for $10 billion in revenue. Not to mention organic growth, one member at a time, by focusing on greater member attraction and retention, and overcoming the regulatory headwinds of redeterminations and pharmacy carve-outs. With that as the backdrop, I will now provide an update on some specific in-flight opportunities related to our long-term growth strategy. At the end of January, the Texas Health and Human Services Commission posted a notice on its website indicating that it was issuing a notice of intent to award our Texas Health Plan a contract for all of our existing eight service areas in the state. We expect to be able to provide more of an update once these contracts have been finalized and signed. Our RFP response for the Indiana LTSS program has been submitted. It is pending evaluation and subsequent award announcement. In New Mexico, the state announced it has terminated the RFP that was in process and, according to their press release, intends to issue an expedited re-procurement as soon as possible. We have many other new state business development initiatives well underway, including the potential for expanding to our former nearly statewide footprint in Florida. Our growing Medicaid footprint still only represents half of the 41 states with managed Medicaid. With multiple new state RFP opportunities over the coming years, and our demonstrated capabilities, referenceability, and track record, we remain confident in our ability to win additional new state contracts. Our acquisition pipeline remains replete with actionable opportunities. While the timing of transactions remains difficult to predict, the strength of our pipeline, and our track record of success gives us confidence in our ability to drive further growth from this important element of our growth strategy. In summary, we are very pleased with our business performance and the progress made in 2022 on our growth strategy, which has created a solid and growing financial profile. At least $20.40 of core earnings per share and $19.75 per share of adjusted earnings in 2023. Current new store embedded earnings power of at least $4 per share with an additional $2 of upside if and when the few remaining COVID era corridors are eliminated. And $35.5 billion of identified premium revenue in 2024. All of this is before any impact from the continued execution of our growth initiatives. Of course, we could not accomplish all of this without our excellent management team and dedicated associates now approaching 15,000 strong, who in concert with our hallmark proprietary operating model and management process have produced these results. To the entire team, I once again extend my deepest thanks and heartfelt appreciation. With that, I will turn the call over to Mark for some additional insight on the financials.