Molina Healthcare Inc

Good day and welcome to the Molina Healthcare Second 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 Kercheski, Senior Vice President, Investor Relations. Please go ahead.

Good morning, and welcome to Molina Healthcare's second quarter 2023 earnings call. Joining me today are Molina's President and CEO, Joe Zabreski, and our CFO, Mark Kine. A press release announcing our second 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, July 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 GAAP measures can be found in our second quarter 2023 earnings 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 RRP awards and related revenue growth, our recent acquisitions and M&A activity, 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 our 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 Zabreski. Joe?

Thank you, Joe, and good morning. Today, we will provide updates on our financial results for the second quarter of 2023, our full year of 2023 guidance, in the context of our second quarter results, Medicaid redeterminations, and our growth initiatives and our strategy for sustaining profitable growth, including our 2024 premium revenue growth drivers. Let me begin with the second quarter highlights. Last night, we reported adjusted earnings for a diluted share for the second quarter of $5.65. or 24% year-over-year growth on $8 billion of premium revenue. Our 87.5% consolidated MCR in the second quarter demonstrates continued strong operating performance in medical cost management and was at the low end of our long-term target range. We produced a 5.3% adjusted pre-tax margin, or 3.9% after tax, a very strong result that was above the high end of our long-term target range. Year-to-date, our consolidated MCR is 87.3%, and our adjusted pre-tax margin is 5.4%. We note that investment income produced higher than expected results due to the increasing yield environment. In the second quarter, we continued to generate excellent margins in our Medicaid business, with an MCR of 88.3%, bringing our year-to-date MCR to 88.4%. This result was in line with our full year guidance and long-term target range. As expected, the medical cost impact of redeterminations was negligible, although we are in the very early stages of that process. In Medicare, Our reported MCR was 89.2%, which is above the high end of our long-term target range. We are experiencing some cost pressure in professional and outpatient services and higher first-year MCRs associated with growth. With a year-to-date Medicare MCR of 88.6%, the book of business continues to produce attractive margins. In Marketplace, our reported MCR was 73.7% for the quarter and 71.2% year-to-date. This result reflects the successful implementation of our pricing, metallic mix, and membership continuity strategies to restore this business to mid-single-digit target margins. In summary, our second quarter results build on our strong start to the year. 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 our marketplace business is now well-positioned to achieve target margins. Turning now to our 2023 guidance. Based on our strong second quarter results, we are increasing our full-year 2023 adjusted earnings per share guidance by 50 cents per share to at least $20.75, or 16% growth year over year, consistent with our long-term earnings per share growth target of 15 to 18%. Our earnings per share guidance is now $1 per diluted share higher than our initial guidance issued in February. Our pre-tax margins are exceeding our expectations. The Medicaid MCR is right on target, Medicare, slightly behind target, and Marketplace, substantially better. We note that these target ratios produce best in industry margins. Then, of course, the interest rate environment has allowed us to produce investment income that has provided a short-term earnings boost. Now, a few words on Medicaid redeterminations. During the second quarter, all but four of our states began disenrolling members. with the remaining states initiating disenrollments on July 1st. Our Medicaid membership declined by 93,000 members during the quarter, which was well within our expectations. Although the medical cost profile of members who have left is slightly more favorable than the portfolio average, the impact on our overall Medicaid MCR was negligible and within our expectations. We continue our outreach to members to minimize procedural disenrollment. We also continue to work with our state partners to ensure rates remain actually sound to account for any potential shifts in acuity. To date, all of our states have expressed a willingness to adjust rates as needed to account for any changes in acuity or trend. Mark will provide more color on redetermination during his remarks. Turning now to an update on our growth strategy. At our May investor conference, we laid out our strategy for sustaining profitable growth. We plan to grow premiums at 13 to 15% through a combination of growth in our current footprint, strategic initiatives, and accretive acquisitions. We also established a 2026 premium revenue target of $46 billion. We already have significant momentum toward achieving these growth goals. Our five recent state RFP wins drive more than $5 billion in incremental premium revenue. A portion of this incremental revenue is included in our 2023 guidance attributable to our Iowa contract, which we successfully launched July 1st with approximately 200,000 members consistent with our expectations. Most of the remainder emerges in our 2024 revenue outlook and a small component in 2025. We are also executing on the M&A component of our growth strategy, consistent with our strategy of acquiring capitated government-sponsored assets. In June, we announced the acquisition of Bright Healthcare's California Medicare business for an attractive purchase price of approximately 28% of expected 2023 premium revenue. Bright's Medicare business serves approximately 125,000 MAPD, DSNP, and CSNP members across 23 counties in California with 60% membership overlap with Molina's Medicaid footprint. We expect the transaction to add approximately $1.8 billion of premium revenue, deliver $1 of adjusted earnings per share at full run rate, but no earnings contribution in the first full year of ownership. We expect the transaction to close by the first quarter of 2024. The closing is subject to the solvency and continued operation as a going concern of Bright Health Group throughout the pre-closing period, as well as federal and state regulatory approvals and other closing conditions. Based on known building blocks, We now have line of sight to approximately $38 billion of printed revenue in 2024, or 19% growth before executing on additional strategic initiatives. Our new store embedded earnings is now $5.50 per share, providing meaningful visibility into our future earnings growth potential. We see additional embedded earnings upside if and when the several remaining COVID-era corridors are eliminated. Two short months ago at our investor day, we reaffirmed our long-term financial targets, the centerpiece of which is the long-term earnings per share annual growth rate of 15 to 18 percent. Our performance this quarter supports that outlook. The revenue base and new store earnings profile continue to build with highly accretive new contract wins and M&A. Our second quarter in year-to-date operating results provide a very solid earning space off of which to grow. And we have seen nothing in the early stages of the Medicaid redetermination process that changes our view of the earnings trajectory of the business. With that, I will turn the call over to Mark for some additional color on the financials. Mark?