Molina Healthcare Inc

Good morning, and welcome to the Molina Healthcare Third Quarter 2023 Earnings 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. Please note this event is being recorded. I would now like to turn the conference over to Joe Kroszewski, Senior Vice President of Investor Relations. Please go ahead.

Good morning. Good morning. And welcome to Molina Healthcare's third quarter 2023 earnings call. Joining me today are Molina's president and CEO, Joe Zabretzky, and our CFO, Mark Kime. A press release announcing our third 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 all of the remarks made are as of today, Thursday, October 26, 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 third quarter 2023 earnings release. During the 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 2024 outlook, 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 Zabrowski. Joe?

Thank you, Joe, and good morning. Today, I will provide updates on several topics. Our financial results for the third quarter 2023, our full year 2023 guidance, Medicaid redeterminations, our growth initiatives and our strategy for sustaining profitable growth, and our 2024 premium outlook. Let me start with our third quarter performance. Last night, we reported adjusted earnings for diluted share for the third quarter of $5.05, or 16% year-over-year growth on $8.2 billion of premium revenue. Our results reflect the continued execution of our strategy for sustaining profitable growth. Our third quarter 88.7% consolidated MCR and 4.6% adjusted pre-tax margin demonstrate continued strong medical and operating cost management. Our year-to-date consolidated MCR of 87.8% is squarely in line with our long-term target range, and our 5.1% pre-tax margin is above the high end of the range. We note that investment income continues to bolster our year-over-year earnings growth and already strong margin profile. Our Medicaid business performed as we expected. Our 88.8% MCR was within our long-term target range. Medical cost trend, including the net effect of redetermination acuity shifts in corridors in several states, was within our expectations. Medicare's results came in below our expectations with a reported MCR of 92.4%. In the quarter, we continue to experience higher utilization of outpatient, professional, and in-home services, all of which we believe we appropriately addressed in our 2024 bids. And finally, Marketplace, with a reported MCR of 78.9%, continues to perform well. Medical cost trends are in line with our pricing assumptions, and our improved risk adjustment performance is meaningful. Our small, silver, stable strategy is working. In summary, our third quarter results build on our strong first half performance. Turning now to our 2023 guidance. Based on our third quarter results, we are affirming our full year 2023 adjusted earnings per share guidance of 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 fourth quarter outlook takes full account of our year-to-date performance and considerations for seasonality and conservatism. Now a few words about Medicaid redeterminations. As of July, all our Medicaid states had begun disenrolling members. Despite the redetermination activity, our third quarter Medicaid membership was nearly unchanged from the second quarter. Growth, driven by the initiation of the Iowa contract and the closing of the My Choice Wisconsin acquisition, offset the 200,000 member decrease from the net impact of redeterminations and new enrollment. While many uncertainties remain on the ultimate impact of redeterminations, we now believe it proved to lower our retention assumption from 50% to 40%. Mark will address implications for revenue and our unchanged outlook for $38 billion in premium revenue for next year in his remarks. Although the medical cost profile of members who have left the Medicaid roles continues to be more favorable than the portfolio average, when combined with the impact of corridor offsets in several states, our overall Medicaid MCR was within our expectations. Mark will provide more color on redeterminations during his remarks. Turning now to an update on our growth initiatives and our strategy for sustaining profitable growth, beginning with our recent state wins. The implementation of our new California contract, which will nearly double the size of our current membership in the state and add approximately $2 billion in annual premium, is proceeding as planned for a January 1, 2024 start date. In July, we finalized our contract for the Texas Star Plus program, retaining our entire existing footprint. With numerous new entrants likely attracting low share, we expect our share of membership in the state to grow, driving incremental annual premium revenue of approximately $400 million. Also in July, we successfully launched our Iowa health plan, serving approximately 180,000 members, consistent with our expectations. Our Nebraska implementation is tracking to a successful launch on January 1, 2024, and will contribute an estimated annual premium of $600 million. In August, we announced that we will once again be serving Medicaid beneficiaries in the state of New Mexico. We expect the new contract to begin mid-2024 and produce approximately $500 million in annual premium revenue. In Indiana, the state deemed us not to have met the readiness requirements for a Medicaid contract due to our Medicare DSNP product becoming available to the state on January 1, 2025, and not by January 1, 2024, as required. We are proud to have won the initial award as testimony to our proposal skills, but disappointed we did not meet that one readiness requirement. Our growth agenda is in full gear. Even with the development in Indiana and changing assumptions for redetermination retention, all of these new contract wins and reprotermance combined keep us on track for approximately $38 billion of premium revenue in 2024, as previously forecasted. Shifting to our M&A activity, in early September, we announced the closing of the MyChoice Wisconsin acquisition. Recall, this transaction adds approximately 40,000 mostly MLTSS members and approximately $1 billion in annual premium revenue. The regulatory approval process for the Bright Medicare acquisition is proceeding as planned. We continue to work with Bright management on satisfying the remaining closing conditions and continue to expect to close by the first quarter of 2024. Now, looking ahead to 2024. Assuming a timely close of the Bright Medicare acquisition, we remain confident that all of the known building blocks provide line of sight to approximately $38 billion of premium revenue in 2024, which represents 19 percent year-over-year growth even before executing on additional strategic initiatives. While there are many positive earnings catalysts going into next year, which Mark will speak to in a moment, there are also some factors which have not yet fully developed. As is customary, we will provide our specific earnings guidance with you in February. Recall that at our investor day earlier this year, we announced our long-term financial targets, the centerpiece of which is a long-term earnings per share compound annual growth rate of 15 to 18 percent. With the visibility we have into our earnings trajectory, we are comfortable in reaffirming our commitment to that compound annual growth rate target over the next three years. As always, I would like to thank our management team who worked tirelessly every day to deliver these results. Our team has evolved to keep pace with our growth and to execute each stage of our strategy. Recall that most recently we promoted both Jim Boyes and Mark Heim to the position of Senior Executive Vice President, with Jim adding the title of Chief Operating Officer. In further shaping our lineup under Jim and Mark, Two Molina veterans, Executive Vice Presidents Deb Bacon and Dave Reynolds, will now lead our flagship Medicaid business. We're also adding additional management talent in our Medicare and Marketplace businesses and scaling up our integration platform, all to support our substantial growth. Mark Russo will be leaving the company with our thanks for his service. Not only our executive team, But all of our colleagues throughout the enterprise and across the nation are vital to our success. I want to extend my special thanks to our nearly 18,000 associates who are dedicated to deliver access to high quality healthcare to our members. It is my privilege to serve with such a committed and capable group of professionals. In summary, we are very pleased with our performance this quarter. We have maintained our attractive margin profile during this unprecedented industry-wide redetermination process while continuing to generate double-digit growth. With that, I will turn the call over to Mark for some additional color on the financials. Mark?