Molina Healthcare Inc

Good day, and welcome to the Molina HealthCare Second Quarter 2024 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 answer your question, please press star, then two. Please note, this event is being recorded. We'll now turn the conference over to Jeffrey Geyer, Head of Investor Relations. Please go ahead, sir.

Good morning, and welcome to Molina Healthcare's second quarter 2024 earnings call. Joining me today are Molina's President and CEO, Joe Zabreski, and our CFO, Mark Kynes. A press release announcing our second 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, July 25, 2024, and has 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 second 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, expected Medicaid rate adjustments, medical cost initiatives and our projected MCR, our recent RFP awards and related revenue growth, our acquisitions and M&A activity, our long-term growth strategy, and our embedded earnings power and future earnings realizations. 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, we will provide you with updates on our reported financial results for the second quarter, highlighted by $5.86 of earnings per share, which was in line with our expectations. an update on our full year 2024 guidance, which we reaffirm at $38 billion of premium revenue and at least $23.50 in earnings per share, and our growth initiatives and strategy for sustaining profitable growth. Let me start with our second quarter performance. Last night, we reported adjusted earnings per share of $5.86, on $9.4 billion of premium revenue. Our 88.6% consolidated MCR reflects disciplined medical cost management despite experiencing some modest medical cost pressure. We produced a 4.6% adjusted pre-tax margin or 3.5% after-tax, a very strong result that is in the middle of our long-term target range. Year-to-date, our consolidated MCR is also 88.6%, and our adjusted pre-tax margin is 4.5%, both within our long-term target ranges. Our well-balanced portfolio of businesses and focusing on managing medical costs continue to produce results in line with our expectations. In Medicaid, the business produced a second-quarter MCR of 90.8%. above our long-term target range. This quarter included a one-time prior year retroactive premium item in our California business. Excluding this one-time item, the second quarter MCR was 90.1%, elevated by higher MCRs from our new store additions, a dynamic consistent with the first quarter. It also reflects slightly higher than expected medical costs in the legacy Medicaid portfolio, attributable to the ongoing acuity shift of redeterminations. We continue to have risk corridor protection in many geographies and expect that this medical cost pressure will be adequately captured by known rate adjustments in the second half of 2024. We expect our Medicaid results to improve in the second half of the year. Several data points indicate we are well on track in this regard. First, the California retrograde item will not repeat. Second, our new store addition results will continue to improve as they did in the second quarter. Third, we received rates in many states for the second half of 2024 that were in line with first half's developing cost trends. Approximately 35% of our Medicaid premium revenue renews in the second half. Combined with several off-cycle adjustments, these account for the expected legacy Medicaid NCR improvement through the remainder of the year. Then, with approximately 55% of our Medicaid premium revenue scheduled to renew on January 1st, our rate cycle cadence is well-timed for early 2025. Providing upside to our outlook for the balance of the year would be continued success with rate advocacy initiatives that could provide positive off-cycle rate adjustments. Turning to Medicare, our second quarter reported MCR was 84.9%, representing better-than-expected performance across all our Medicare products, primarily due to favorable risk adjustment results as well as benefit adjustments implemented for 2024. Our newly acquired Bright business in California is performing in line with expectations, and we remain confident in ultimately delivering the full run rate accretion of $1 per share. Our strategy of leveraging our existing Medicaid footprint to serve high acuity, low income Medicare beneficiaries is working well. In Marketplace, the second quarter MCR was 71.6%. This business performed better than our expectations, even as we saw higher special enrollment period membership gains from redeterminations. Our mix of renewing members, prior year pricing actions, and improved risk adjustment results position us well to continue to profitably grow this book of business. Turning now to our guidance for the full year. We remain confident in delivering our full year adjusted earnings per share guidance of at least $23.50 or 13% year over year growth. Drawn net investment income and known rates will offset the one time retro premium item and the second quarter pressure experienced in Medicaid. Performance in our core business remains strong and we expect second half improvements to be driven by known on and off cycle rate increases and new store MCRs reverting to target. Our guidance also includes our Florida and Virginia contracts extending through year end. Our full year premium revenue remains unchanged at approximately $38 billion or 17% year over year growth. Our 2024 revenue and earnings per share guidance provide a strong foundation for profitable growth in 2025 and beyond, and the building blocks to get there remain intact. Now, some comments on our growth initiatives. Our business is well-positioned to capitalize on unique long-term growth opportunities in all three segments. First, a few comments on our recently announced acquisition of Connecticut from Emblem Health. Connecticut currently serves approximately 140,000 members with $1.4 billion in annual premium revenue. This is a well-diversified government-sponsored healthcare play, which serves primarily Marketplace and Medicare membership in Connecticut. Historically, our strategy has been to establish these core product lines only in our pre-existing Medicaid footprint to leverage our Medicaid infrastructure. While that option is not available to us in Connecticut, a Medicaid fee-for-service state, we believe this is a great opportunity to execute the time-tested Molina M&A Playbook, acquire a stable revenue stream in our core products, deploy capital efficiently, and improve the asset's performance in the proven and reliable Molina way. We expect this acquisition to provide earnings accretion of $1 in earnings per share, which is now added to our embedded earnings. Our M&A pipeline remains full of many actionable opportunities. In Medicaid, we remain confident in winning new and renewed business contracts. Some comments on recent developments. In Florida, we were recently awarded a contract that successfully retains our foothold in the state. We will retain our 52,000 Medicaid members in the Miami-Dade region. In addition, by agreement, we will grow to approximately 90,000 members through preferential auto assignment. We estimate the annual premium revenue of $500 million. In Wisconsin, we successfully defended our LTSS position as the state announced its intent to award Molina a contract to provide services in Region 5, the first of a series of regional re-procurements. Additionally, we were just re-awarded our sole contract position in the IRIS Self-Directed Personal Care Program. In Georgia, while we await the award announcement, we remain confident as to our prospects. and believe that we are well positioned to serve that state's Medicaid population. And finally, there is significant market opportunity out for bid over the next three years. This includes the Texas Star Kids RFP, which represents a meaningful opportunity in a state where we have demonstrated recent success. In Medicare, we remain sharply focused on further penetration of low-income high-acuity dual eligible populations and on our high-acuity MAPD population in California. The new CMS rules on Medicare and Medicaid integration position us well to attract dual eligible members over the coming years as our footprint combines both products in most of our states, enabling a fully integrated member experience. We are in the process of further developing our suite of integrated duals products, and we will soon be establishing a new, dedicated organization to lead this effort. In Marketplace, we are positioned to grow organically in underpenetrated markets, given the stabilized risk profile and margins we've achieved. We believe our rate filings for 2025 make us very competitive in underpenetrated geographies and position us well to grow. As a reminder, our growth outlook in this business can be simply stated as grow at a rate that allows us to sustain mid-single digit pre-tax margins. We are confident in our ability to grow organically, win new state contracts, and execute our M&A strategy. These remain consistent pillars of our growth strategy, and we expect to meet our target of $46 billion of premium revenue in 2026. With our 2024 earnings per share guidance of at least $23.50 reaffirmed, and with our embedded earnings outlook of $5, we remain committed to delivering on our long-term earnings per share growth targets. As Mark will describe shortly, the building blocks to get there are intact. In summary, we are pleased with our second quarter 2024 financial performance. The Medicare and marketplace businesses significantly outperformed, while Medicaid is on track to improve in the second half of the year through known rate increases and continuing new store MCR improvements. In the meantime, we continue to focus on executing on the fundamentals, which has been the hallmark of our financial performance. The unprecedented redetermination process, which will be a 24-month journey from beginning to end, has presented some challenges that we have successfully navigated. But nothing has occurred during this period that changes our view that these are attractive businesses for the near and long term, and profitable growth can and will be sustained. In fact, our results demonstrate that the principle of rate soundness works, and that Molina's unique rate corridor position protects against transient quarter-to-quarter fluctuations of rates and medical costs. Finally, we look forward to updating you on our outlook for sustaining profitable growth at an Investor Day event on Friday, November 8th in New York City. As in past years, we will provide you with our detailed playbook for achieving our growth targets and maintaining industry-leading margins. We will outline our long-term goals and how we will achieve them with the transparency and specificity that you have come to expect from us. With that, I will turn the call over to Mark for some additional color on the financials.