Molina Healthcare Inc

Hello, and welcome to the Molina Healthcare First Quarter 2024 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. To ask a question, you may press the star then one on your telephone keypad. To withdraw your question, please press the star then two. Please note, this event is being recorded. I would now like to turn the conference over to your host today, Jeffrey Geyer. Please go ahead.

Good morning, and welcome to Molina Healthcare's first quarter 2024 earnings call. Joining me today are Molina's President and CEO, Joe Zabretzky, and our CFO, Mark Cunn. A press release announcing our first quarter 2024 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 are made as of today, Thursday, April 25th, 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, can be found in the first quarter 2024 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, our embedded earnings power and future earnings realization, and our Medicare business performance in 2025. 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, Jeff, and good morning. Today, I will cover our traditional quarterly topics, our reporting financial results for the first quarter, which were in line with our expectations, highlighted by $5.73 of earnings per share. An update on our guidance, which we reaffirm at $38 billion of premium revenue and at least $23.50 in earnings per share. And an update on our growth initiatives, which in the quarter were mixed, but we are maintaining our $4 per share estimate of abandoned earnings and our long-term growth outlook. Let me start with our first quarter performance. Last night, we reported adjusted earnings per share of $5.73, a $9.5 billion of premium revenue, supported by excellent operating metrics across all lines of business. Our 88.5% consolidated MCR reflects continued strong medical cost management with all three segments reporting MCRs in line with our expectations. We produced a 4.5% adjusted pre-tax margin, or 3.4% after-tax, a very strong result that is in the middle of our long-term target range. In Medicaid, we continued to deliver strong operating margins while growing our franchise, as the business produced a first-quarter MCR of 89.7%. Our expanded platform in California and our new Nebraska health plan together added over half a million members, and along with our new store additions in late 2023, drove an increase in the MCR above our long-term target range, but in line with our quarterly expectations. We believe we have now experienced approximately 90% of the Medicaid redetermination impact. The acuity shift unfolded, as we predicted, and appears to have stabilized in most of our markets. Rate changes, both on-cycle and off-cycle, largely offset this acuity shift, with risk corridors capturing any temporary shortfall. Medicaid rates remain actually sound, with 19 states that represent over 95% of our revenue providing acuity-related rate adjustments within 2024. Turning to Medicare. Our first quarter reported MCR with 88.7%, a performance in line with our expectations. The higher utilization we experienced in the second half of 2023 due to higher LTSS costs and pharmacy utilization continued into 2024. But the operational improvements and supplemental benefit adjustments we made in our legacy business have thus far proven to be successful. Our first quarter experience of the newly acquired Bright Medicare plans provides us with confidence in our turnaround plan to deliver the embedded earnings. Our strategy of leveraging our existing Medicaid footprint to serve high-acuity, low-income Medicare beneficiaries is working well. In Marketplace, the first quarter MCR was 73.3% and in line with our expectations. Our membership mix comprise 50% renewal members and 70% of members in our silver products. Strong renewals gives us keen insight into the acuity of our membership base. We continue to expect this business to grow throughout the year as the Medicaid redetermination process provides a great opportunity to capture membership during the special enrollment period. Turning now to our guidance for the full year. Based on our consolidated first quarter results, we reaffirm our full year 2024 adjusted earnings per share guidance of at least $23.50 or 13% year over year growth. Our full year premium revenue remains unchanged at approximately $38 billion or 17% year over year growth. While we are seeing increased underlying strength in our core business, we are maintaining our full year guidance to account for any potential earnings headwind in the second half of the year from potential contract losses in Virginia and Florida. Our 2024 revenue and EPS guidance provide a strong foundation for profitable growth in 2025 and beyond. Now, some comments on our growth initiatives. In Medicaid, We had mixed success in the quarter. We were awarded a large RFP win in Texas and a large re-procurement win in Michigan, but were not awarded contracts in two other existing states, Virginia and Florida. All these impacts combined caused no net change to our embedded earnings, which remains at $4 per share. Let me provide some commentary on these RFP outcomes. In Texas, the state announced its intent to award us all seven of our preferred service areas as part of the SAR and SHIP programs. This contract is expected to begin in September 2025 and last for six years, with the option to extend up to an additional six years. The award expands our footprint and increases our market share. We successfully defended our position in Michigan and were awarded a contract in six regions. While these regions represent 93% of our current membership, the award reduced the number of payers in many of our retained regions, and thus we expect to grow our market share. We were very disappointed with the outcome in the Virginia RFP, but we are exercising our right to challenge this decision. We were also disappointed with the RFP result in Florida. but history has shown that the ultimate outcome there could be more favorable. We will continue to refine our membership, revenue, and embedded earnings estimates as we gain clarity on the new contracts, our expanding market share, and the unwinding of any lost revenue. Now, with respect to future growth initiatives, our growth pipeline remains replete with opportunities. Regarding RFPs, many opportunities remain, with over $60 billion of premium opportunity up for bid over the next three years. This includes in-flight RFP bids in two states, Kansas and Georgia, and a projected near-term RFP in North Carolina. The Texas Star Kids program is likely going to RFP soon, where we now have a very strong statewide presence and great momentum. We remain confident in our ability to win new state contracts and deliver clinical and financial outcomes that align with the needs of our state partners. Although this quarter's RFP results were mixed, since we began our growth strategy, we are 7 for 9 in re-procurements and 8 for 10 in new business procurements. This track record gives us great confidence in our strategy and our continued ability to drive growth. With respect to M&A initiatives, our acquisition pipeline contains many actionable opportunities. We have executed eight transactions totaling $11 billion in revenue over the past four years, and M&A will continue to be a key component of our strategy. Next, as we look forward into 2025, two comments about the outlook for our Medicare portfolio. First, our Medicare product profile has different characteristics than mainstream MAPD business. Our business is a combination of legacy DSNIP, MMP demonstrations, and our newly acquired Bright business. With this lineup of products, factors such as rate setting, bidding, and revenue drivers do matter, but to a lesser extent. Second, the product portfolio is well positioned to contribute to our growth. Our penetration in dual eligible populations high acuity and low income, will benefit from further integration of Medicare and Medicaid benefits. CMS recently announced rules to closely align dual eligible populations with Medicaid MCOs, which means our Medicaid footprint will be a growth catalyst for attracting and retaining dual eligible membership. With our 2024 guidance reaffirmed, we remain committed to delivering on our long-term premium in earnings per share growth targets. With all of the successful growth activity in M&A and new and expanded contracts, even considering the potential for contract losses or reductions, we maintain our embedded earnings outlook at $4 per share. Mark will provide insight on the components in a moment, but the majority is still expected to emerge in 2025. In summary, we are very pleased with our first quarter of 2024 financial and operating performance That performance, combined with our successful track record for producing top-line revenue, keeps us on track for sustaining profitable growth consistent with our long-term targets. With that, I will turn the call over to Mark for some additional color on the financials. Mark?