Molina Healthcare Inc

Good morning and welcome to Molina Healthcare's third quarter 2024 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. 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 this event is being recorded. I would now like to turn the conference over to Jeffrey Geyer, Vice President, Investor Relations at Molina Healthcare. Please go ahead.

Good morning, and welcome to Molina Healthcare's third 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 third quarter 2024 earnings was distributed after the market closed yesterday, and it's 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, October 24, 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 third 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 and updates, medical cost initiatives and our projected MCR, our recent RFP awards and pending RFP submissions, our acquisitions and M&A activity, revenue growth related to RFPs and M&A activity, our long-term growth strategy, our 2025 marketplace pricing, 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 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 Zabriskie. Joe?

Thank you, Jeff, and good morning. Today, we will provide you with updates on our reported financial results for the third quarter, highlighted by $6.01 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 third quarter performance. Last night, we reported adjusted earnings per share of $6.01, a $9.7 billion of premium revenue. Our 89.2% consolidated MCR was higher than expected as we experienced some medical cost pressure in our Medicaid and Medicare segments. However, we still produced a 4.5% adjusted pre-tax margin, or 3.4% after tax, a very strong result. Year to date, our consolidated MCR is 88.8%, slightly above our long-term target range, and our adjusted pre-tax margin is 4.5%, which is within our long-term target range. Together, these results reflect a well-balanced and well-performing portfolio of businesses. In Medicaid, the business produced a third-quarter MCR of 90.5% above our long-term target range. This result included a premium rate reduction in our California business that was retroactive to the beginning of the year. We are working with the state to understand its methodology and actuarial support for this adjustment, both of which remain unclear. Excluding this retroactive item, the third quarter Medicaid MCR was 90%. The quarter reflects higher than expected medical costs, elevated by the impact of redetermination related to acuity shifts and higher utilization among our continuing population. particularly for LTSS, pharmacy, and behavioral health services. However, this higher trend continued to be partially offset by three dynamics. First, our new store additions continued to improve toward target margins. Second, on-cycle and off-cycle rate adjustments went into effect during the quarter. And finally, our risk corridors continue to act as a financial buffer against elevated medical cost trend. The short-term disparity between rates and medical cost trend may have reached its widest point in the third quarter. We expect this short-term disparity to narrow, starting with known rate updates. In the third quarter, we received five on-cycle rate updates that averaged 4.5%. We also received several positive off-cycle rate adjustments, which is an important indication that many of our states have recognized that certain aspects of their program are underfunded. For the fourth quarter, we received three on-cycle rate updates that averaged 9%. In total, the second half of 2024 now reflects these known rate increases that amount to a benefit of approximately $350 million or 230 basis points, on the Medicaid MCR. This 230 basis point benefit, along with risk corridor protection, is expected to substantially offset the elevated cost trend in the second half of 2024. Looking forward to 2025, the progression of rates and cost trend is not entirely clear. 55% of our Medicaid premium renews on January 1st. and we are encouraged by the draft rates we have seen from several of these states. These draft rates are an important starting point for 2025, and we remain cautiously optimistic while we wait to see how medical cost trend progresses in the fourth quarter and early 2025. Given the confluence of the many MCR dynamics concentrated in the quarter, we are very pleased to be operating at a 90% Medicaid MCR for the full year. merely 100 basis points above the top end of our long-term range. With the assumption that rates may continue to improve and appropriately capture cost trend in this upcoming rate cycle, there is line of sight to be operating within our long-term MCR target range for 2025. Turning to Medicare, our third quarter MCR was 89.6%, above our long-term target range, The medical cost pressure in the quarter was consistent with the elevated LTSS and pharmacy costs we experienced through the first half of the year, while we also experienced higher outpatient utilization in the third quarter. Our bright business in California performed in line with expectations. In Marketplace, the third quarter MCR was 73%. The business continued to perform better than our expectations even with the higher special enrollment period membership gained from redeterminations this year. Our third quarter adjusted G&A ratio of 6.4% was a very strong result and reflects effective operating discipline, including labor cost management, one-time credits related to vendor contracts, and leveraging our fixed cost base as we grow. Turning now to our guidance for the full year, Our full-year premium revenue remains unchanged at approximately $38 billion, or 17% year-over-year growth. We maintain our full-year adjusted EPS guidance of at least $23.50, representing 13% year-over-year growth. We expect continued strong performance in our marketplace segment, G&A efficiencies, and higher net investment income to offset the higher NCRs we are experiencing in Medicaid and Medicare. Our 2024 revenue and earnings per share guidance provide a strong foundation for profitable growth in 2025 and beyond, and the building blocks to achieve our long-term growth targets remain intact. Now, some comments on our growth initiatives. Our business is well positioned to capitalize on long-term growth opportunities in all three segments. In traditional Medicaid, as previously reported, we retained our presence in Florida with a contract to serve approximately 90,000 members in Miami-Dade County. This contract recovery is an important component of our portfolio given the state of Florida's significant Medicare and marketplace profile. In Georgia, we await the announcement of statewide contract awards. We remain confident in the strength of our proposal and our ability to serve as strong state partners for these populations. We had significant wins in the quarter in our dual eligible integrated product businesses, which are a major strategic focus for us. In Michigan, we were awarded a contract to provide benefits to the state's highly integrated dual eligible special needs population in six service regions, including Detroit. This is an increase from our current MMP footprint of two service regions. This win facilitates the transition of our existing MMP members to a high D product and ensures a new due eligible growth opportunity. We project $1 billion of incremental premium revenue by 2027 and have added 50 cents per share to our embedded earnings. The contract, which is effective January 1, 2026, in select regions, will be implemented statewide in 2027 and continue for seven years. Given our success in this Michigan MMP transition, we are confident about our prospects in both Ohio and Illinois. In Massachusetts, the Commonwealth awarded us a new contract to operate the One Care Under 65 program and retain our position in the Senior Care Options Program for 2026. Incremental revenue is expected to reach nearly $400 million in three years' time, and for this, we have added 25 cents per share to our embedded earnings. Also in Medicare, beginning in 2025, we will no longer offer MAPD products in 13 states, totaling approximately $200 million in annual premium. This adjustment allows us to strategically focus on our dual eligible populations, where we increased our county footprint by 23%, and on our low-income MAPD population in California. Recall, the new CMS final rule on integration positions us well as a major Medicaid player. In Marketplace, we are positioned to grow organically in under-penetrated markets given the stabilized risk profile and margins we've achieved. Our rate filings for 2025 are very competitive and position us to grow in under-penetrated markets. We are confident in our strategy to grow this segment at a rate that allows us to achieve mid-single-digit pre-tax margins. Finally, we continue to expect that our announced acquisition of Connecticut will close in the first quarter of 2025. Our ability to grow organically, win new state contracts, and execute M&A are the pillars of our growth strategy, and we fully 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 raised to $5.75 per share, we remain on track to deliver long-term profitable growth. Mark will discuss the building blocks of our 2025 outlook in his remarks. In summary, we are pleased with the quarter's results as we continue to power through unprecedented short-term dynamics and just keep executing on the fundamentals. Our businesses remain on solid operational and financial foundations and are positioned well for long-term profitable growth. We look forward to updating you on the next wave of long-term value creation at our Investor Day event on Friday, November 8th in New York City. With that, I will turn the call over to Mark for some additional color on the financials. Mark?