Molina Healthcare Inc

Good morning and welcome to the Molina Healthcare fourth quarter 2023 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the start 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 note, this event is being recorded. Standing in for Joe Koschecki today is Jeff Geyer, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Molina Healthcare's fourth quarter and full year 2023 earnings call. Joining me today are Molina's President and CEO, Joe Zabretzky, and our CFO, Mark Stein. A press release announcing our fourth quarter and full year 2023 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, February 8, 2024, 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 2023 and 2024 can be found in our fourth quarter 2023 earnings release. During the call, we will be making certain forward-looking statements, including, but not limited to, statements regarding our 2024 guidance, Medicaid redeterminations, our recent RFP awards and related revenue growth, our recent acquisitions and M&A activity, our long-term growth strategy, and our embedded earnings power and projected 2025 earnings per share. 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 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, Jeff, and good morning. Today, I will discuss several topics. Our financial results for the fourth quarter and full year 2023, our growth initiatives and our strategy for sustaining profitable growth, our 2024 premium revenue and earnings guidance, and an affirmation of our long-term growth targets. Let me start with our fourth quarter performance. Last night, we reported adjusted earnings per diluted share of $4.38 on $8.4 billion of premium revenue. Our fourth quarter results and performance metrics demonstrated strong medical cost management and operating cost disciplines. Medicaid continued to perform well, withstanding the impacts of the unprecedented redetermination process. Medicare experienced higher than target medical costs, consistent with prior quarters. And Marketplace performed very well, despite the late-in-year medical cost seasonality typically experienced. Our fourth quarter completes a strong year of operating and financial performance. Full-year adjusted earnings per share of $20.88 represents 17% year-over-year growth, squarely in line with our long-term target range of 15% to 18%, and 6% above our initial 2023 guidance of at least $19.75. Our full-year premium revenue of $32.5 billion represents 5% year-over-year growth in our pre-tax margin of 4.8% is at the high end of our long-term target range, heading into 2024. In Medicaid, our flagship business representing over 80% of revenue, we reported an 88.7% MCR for the full year, which is within our long-term target range. Throughout the redetermination process, we have managed through a number of factors that shaped Medicaid's performance. all to land the full-year result at a solid jump-off point into 2024. These factors included medical cost utilization, various state corridors and MLR minimums, and prospective rate changes. In Medicare, the full-year MCR was 90.7%. While the business is profitable, we did not meet our performance expectations due to higher utilization of supplemental benefits, in-home services, and high-cost drugs. I am confident that our 2024 bid strategy, adjustments to benefit design, and various operational improvements will return the business to target margins in 2024. In Marketplace, we reported a 75.3% MCR for the full year below the low end of our target range. which reflects the successful execution of our small, silver, and stable strategy. This business is now positioned to grow at a rate which allows us to sustain mid-single-digit margins. In addition to delivering strong financial results, in 2023 we continue to execute on our profitable growth strategy. To recap the growth milestones achieved in 2023, In January, we successfully re-procured our contract in Texas for the state's Star Plus program, retaining all eight regions and likely growing market share. In July, we successfully launched our Iowa Medicaid plan, following the RFP, which we had won in a highly competitive process in late 2022. In August, we announced that we were awarded a contract to once again served Medicaid beneficiaries in the state of New Mexico. In September, we closed on the My Choice Wisconsin acquisition, further expanding our market-leading LTSS franchise. In June, we agreed to acquire Bright Health's California Medicare business, which we have now closed, effective January 1, 2024. Also effective January 1, And after another win and a highly competitive bid process, we successfully launched our Nebraska health plan. And finally, on January 1st, we launched our expanded California platform, including Los Angeles County, which doubled the size of our business in the state. Collectively, these acquisitions and RFP successes represent $7 billion of annual premium revenue. a portion of which was in our 2023 results, most of which is in our 2024 guidance, and all of which will be fully realized in 2025. To say we are pleased with the execution of our 2023 growth initiatives would be an understatement. But the growth story doesn't stop there. The pipeline of opportunities fueling our future growth trajectory is extremely strong. Let me begin with re-procurements. We have submitted our RFP responses for contract renewals in Florida, Virginia, and Michigan. We are proven partners with all three of these states, and we are confident in our ability to retain and grow these relationships. With regard to new state opportunities, including the Florida opportunity just described, there is over $50 billion of total premium revenue opportunity, active or near term, up for bid in several states over the coming years. We have already submitted bids in the states of Kansas and Georgia. With our demonstrated capabilities and referenceable track record, we remain confident in our ability to continue to win new state contracts. With respect to our M&A initiatives, Our acquisition pipeline remains robust with actionable opportunities, and we are confident in our ability to deliver growth from this key component of our strategy. Since 2019, we have completed eight transactions, having acquired over $11 billion of premium, for which we paid 22% of revenue. This capital allocation to M&A will continue to be a value driver. Turning now to our 2024 guidance. We project 2024 premium revenue of approximately $38 billion, which is consistent with our previous outlook and represents 17 percent year-over-year growth. We project 2024 adjusted earnings per share of at least $23.50, representing 13 percent year-over-year growth. Mark will take you through the detailed guidance bill in a few minutes, but in the meantime, let me offer some high-level commentary. Our projected premium revenue growth to $38 billion represents a well-balanced combination of new contract wins, acquisitions, and growth in our current footprint, partially offset by the impact of Medicaid redeterminations. With respect to earnings guidance in the core business, In Medicaid, our guidance fully considers the impact of the redetermination process. From a margin perspective, this is playing out as we have predicted. The impact of acuity shifts is real, but not significant. The risk corridors acted as a financial buffer, and rates, prospective and retrospective, are largely capturing the trend impact. on a same store basis we are projecting the 2024 medicaid mcr to be within our long-term range we expect medicare to return to mid-single-digit profitability in 2024 as a result of our bid strategy adjustments to benefit design and operational improvements in the legacy business our marketplace product has been priced right is competitively positioned and the risk pool has stabilized. We expect the business to achieve mid to high single digit margins, membership to grow over 30% and revenue to grow 17%. On top of our 2024 earnings per share guidance of at least $23.50, we now have $4 per share of new store embedded earnings. which, as you may recall, represents the expected accretion produced by our new store growth. Mark will review the components of the updated $4 per share in his remarks. Our confidence in our 2024 guidance starts with a high-quality 2023 earnings baseline and then takes a thorough account of all the various factors, exogenous and company-specific, that could impact earnings in 2024. Now, a few comments on our longer-term trajectory. Our 2024 guidance picture is one more data point that validates our long-term targets of 13% to 15% premium growth and 15% to 18% adjusted earnings per share growth. We committed to these targets at our investor day last May, and we reaffirm that commitment today. With the majority of the $4 of new store embedded earnings expected to emerge in 2025, we already see a clear outlook to achieving the low end of our long-term EPS growth target in 2025, even before considering the execution of additional growth initiatives and driving growth from our current footprint. In summary, we are very pleased with our 2023 performance. our trajectory to deliver the growth and profitability inherent in our 2024 guidance, and the embedded earnings outlook we provided for 2025. Our confidence in continuing to achieve our long-term targets is data-driven, as demonstrated by the following historical fact set. We have re-procured approximately $12 billion in existing revenue. We have added approximately $7 billion of new revenue through wins of new or expanded contracts in seven states. From 2020 to 2023, we achieved 21% annual premium growth and 25% annual earnings per share growth. 2024 guidance, 17% premium revenue growth year over year, 13% earnings per share growth year over year. And for 2025, we expect to harvest the majority of our $4 per share of embedded earnings. Our strategy is clear and simple. We are in the business of providing access to high-quality healthcare for individuals relying on government assistance. Our business model is also clear and simple. We take uncapitated risk, take or make rates that are commensurate with medical cost trends, and manage those trends to consistently achieve our target margins while maintaining the highest standards of quality. The execution of our strategy and business model has been and will continue to be strong, which is why we look to the future with a great deal of confidence. In conclusion, I want to extend my special thanks to our 19,000 associates who are dedicated to delivering access to high-quality healthcare to our members. It is my privilege to serve with such a committed and capable group of professionals. With that, I will turn the call over to Mark for some additional color on the financials.