Molina Healthcare Inc

Good morning and welcome to the Molina Healthcare First Quarter 2023 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 telephone keypad. To withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn the conference over to Joe Kruszewski, Senior Vice President, Investor Relations. Please go ahead, sir.

Good morning, and welcome to Molina Healthcare's first quarter 2023 earnings call. Joining me today are Molina's President and CEO, Joe Zabrowski, and our CFO, Mark Kahn. A press release announcing our 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 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 27, 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 gap measures can be found in our first quarter 2023 press release. During our call, we will be making certain forward-looking statements, including, but not limited to, statements regarding our 2023 guidance, Medicaid redeterminations, our recent RFP awards, and related revenue growth, our acquisitions and M&A activity, our long-term growth strategies, and our embedded earnings power and margins. Listeners are cautioned that all of our forwarding statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from our current expectations. We advise the 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. Lastly, we want to invite you to attend our 2023 Investor Day meeting scheduled for Monday, May 15th, where we will share more about our future growth plans and longer-term strategy. Details for the event can be found at our Investor Relations website. I will now turn the call over to Chief Executive Officer Joe Zabrowski. Joe?

Thank you, Joe, and good morning. Today, we will provide updates on our financial results for the first quarter 2023, our full year 2023 guidance in the context of our first quarter results, and our growth initiatives and 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 $5.81, or 19% year-over-year growth. Total premium revenues at $7.9 billion were as expected, representing a 5% increase over the prior year. Our 87.1% consolidated MCR in the first quarter demonstrates continued strong operating performance, we produced a 5.5% adjusted pre-tax margin, 4.1% after tax, a very strong result that is above the high end of our long-term target range. In the first quarter, we continued to generate excellent margins in our Medicaid business with a medical care ratio of 88.4%. This result was in line with our guidance in long-term target range. Our portfolio of 19 state contracts in 2023, growing to 21 states in 2024, provides earnings ballast and diversification related to rate setting and contract re-procurements. Actuarially sound rates prevail as the rate setting process continues to capture a credible medical cost baseline with forward trend and benefit changes. and core medical cost trends remain stable and well-controlled. In Medicare, our reported MCR was 88%, which is at the high end of our long-term target range as a result of driving growth in the high-acuity, low-income consumer segment. In Marketplace, we ended the quarter with 271,000 members, our marketplace business is appropriately sized in the overall portfolio, given the inherent volatility of that risk pool. Our first quarter marketplace MCR was 68.6%, significantly below full-year expectations, even when considering seasonal patterns. This result reflects the successful implementation of our pricing, metallic mix, and membership continuity strategy to restore this business to mid-single-digit target margins. In summary, 2023 is off to a very strong start. Medicaid, our flagship business representing over 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 Marketplace is now well-positioned to achieve target margins in 2023. Turning now to our 2023 guidance. Based on our strong start to the year, we are increasing our full year 2023 adjusted earnings per share guidance to no less than $20.25, or 13% growth year over year, even after absorbing 75 cents of one-time implementation costs for new contract wins. We have deliberately refrained from increasing our guidance beyond the first quarter outperformance as we continue to apply appropriate conservatism to our forecasts. We believe this conservative discipline is appropriate for several reasons. First, we would not project our significant first quarter marketplace outperformance to be repeated for the balance of the year. Second, we are not forecasting short-term interest rates to remain at their current levels. Third, as a general matter, at this early stage in the year, it is prudent to anticipate potential medical cost variations. And fourth, and lastly, we do not believe the acuity shift due to redeterminations will have a significant net margin impact, but there is the potential for some sporadic and isolated shifts in acuity. If that were to be the case, there are significant mitigants to any potential impact. These mitigants include a commensurate mixed effect premium benefit, experience rebate and minimum MLR offsets in certain states, and, of course, actuarially sound rate adjustments, both retrospective and prospective. That being said, we believe that any potential shift in Medicaid member acuity that could increase medical costs for 2023 is captured in our 88.5% Medicaid MCR guidance for the year. 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 2023. At the end of January, the Texas Health and Human Services Commission posted its intent to award our Texas health plan a contract for all our existing eight service areas in the state. Given the continuity of coverage in these service areas and strong brand loyalty, we expect to see continued market share gains and revenue upside in Texas. In March, we announced that our Indiana health plan was awarded a four-year contract to provide managed long-term services and supports. We believe this contract will commence in mid 2024. As one of four managed care organizations in the program, we expect to serve approximately 33,000 members, resulting in annual premium revenue of approximately $1 billion. With the addition of the Indiana LTSS win, our five recent state RFP wins drive more than $5 billion in incremental revenue. with a portion included in our 2023 guidance, but most emerging in our 2024 outlook and achieving full run rate in 2025. Based on known building blocks, we now have line of sight to $36 billion of premium revenue in 2024, or 13% growth before additional strategic initiatives. Our new store embedded earnings are now $4.50 per share. providing meaningful visibility into our future earnings growth potential. We see an additional $2 per share of embedded earnings upside if and when the several remaining COVID-era corridors are eliminated. Our acquisition pipeline remains replete with actionable opportunities. While the timing of transactions remains inherently difficult to predict, the strength of our pipeline and our track record of success give us confidence in our ability to drive further growth from this important element of our growth strategy. The company's performance continues to validate our long-term strategy in its value creation potential. Our strategy is sound, and it's working. We are delivering top-line growth, both organically and with accretive acquisitions, while sustaining industry-leading margins. Our model is clear and proven. We will grow organically in our existing footprint. We will win new state contracts and sign new acquisitions, building clear visibility to new store revenues and their related embedded earnings. We will harvest the embedded earnings and include them in our guidance as the contracts incept and the acquisitions close, all the while adding yet additional new revenue streams to our forward outlook. I look forward to sharing more about our future growth plans and longer-term strategy at our investor meeting on May 15th. As is our hallmark style, we will provide you with our detailed playbook for achieving our growth targets and maintaining industry-leading margins. We will not only declare our goals, but also show you, with transparency and specificity, how we will achieve them. Our May 15th Investor Day session is appropriately titled, Sustaining Profitable Growth, The Next Wave. With that, I will turn the call over to Mark for some additional color on the financials. Mark?