Molina Healthcare Inc

Good day, and welcome to the Molina Healthcare Fourth Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please see the 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. Now I'll turn the conference over to your host today, Jeffrey Geyer. Please go ahead.

Good morning, and welcome to Molina Healthcare's fourth quarter and full year 2024 earnings call. Joining me today are Molina's President and CEO, Joe Zabreski, and our CFO, Mark Skine. A press release announcing our fourth quarter and full year 2024 earnings was distributed after the market closed yesterday and is available on our industrial 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, February 6, 2025, 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 fourth quarter and full year 2024 earnings release. During the call, we will be making certain forward-looking statements, including, but not limited to, statements regarding our 2025 guidance, the estimated amount of our embedded earnings power and future earnings realization, expected Medicaid rate adjustments and updates, our projected MCR, our recent RFP awards, our acquisitions and M&A activity, revenue growth related to RFPs and M&A activity, and our long-term growth strategy. 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, Files 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 Zabreski. Joe?

Thank you, Jeff, and good morning. Today, I will discuss several topics. our reported financial results for the fourth quarter and full year 2024, our growth initiatives and related increases to embedded earnings, and our full year 2025 premium revenue and earnings guidance. Let me start with our fourth quarter performance. Last night, we reported adjusted earnings per share of $5.05 on $10 billion of premium revenue. Our fourth quarter results in performance metrics did not meet our expectations, but we did demonstrate a continued ability to maintain operating discipline while navigating industry-wide headwinds. Our 90.2% consolidated MCR was higher than expected due to medical cost pressure in our Medicaid and Medicare segments. In Medicaid, our fourth quarter 2024 guidance assumed a moderate increase in trend off an elevated cost baseline from the third quarter. However, the medical cost pressure experienced in the fourth quarter was higher than anticipated, with risk corridors providing no material benefit. Medicare continued to experience higher medical costs consistent with prior quarters, and Marketplace performed very well despite the late-in-year medical cost seasonality we typically experience. For the full year of 2024, we reported adjusted earnings per share of $22.65, representing 8.5% year-over-year growth. Our full-year premium revenue of $38.6 billion represents 19% year-over-year growth, and our pre-tax margin of 4.3% was well within our long-term target range. While our fourth quarter performance resulted in our full year results falling below our guidance, we have a solid earnings jump off point heading into 2025 and continue to be very bullish on the growth opportunities within all of our businesses as evidenced by our increased embedded earnings. In Medicaid, our flagship business representing nearly 80% of revenue, we reported a 90.3% MCR for the full year, or 89.8% when adjusting for the impact of higher MCRs on new stores and the prior year California retro item. With respect to observed medical cost trend in 2024, it was certainly a tale of two halves. In the first half of the year, medical costs trended slightly higher than our initial expectations. primarily due to the acuity shift caused by redeterminations. However, MCRs remained lower in the first half of the year because the acuity shift impact was moderated by our medical cost management, risk corridor protection, and rate increases. In the second half of the year, we experienced higher than expected utilization among the continuing population. The second half rate increases and risk corridors were not sufficient to completely offset the higher medical cost pressure that continued into the fourth quarter. In Medicare, the full-year MCR was 89.1%. The business performed as well as we could have expected, given some of the dynamics the industry has experienced. In Marketplace, the MCR was 75.4% for the full year and significantly outperformed our long-term target range. This was the second consecutive year Marketplace outperformed its long-term target margins. This outperformance allowed us to reinvest excess margin into 2025 pricing to drive higher growth and sustain mid-single-digit pre-tax margins. Our G&A ratio performance has been excellent at 6.7% for the full year. We continue to have the discipline to harvest fixed-cost leverage manage our internal resources effectively, increase productivity, and negotiate attractive vendor contracts. Turning now to our growth initiatives. 2024 was an extraordinary year for securing future growth on top of the reported 19% premium revenue growth, starting with recent acquisitions. On February 1st, we closed our acquisition of Connecticut from Emblem Health and this year expect $1.2 billion of revenue, mostly in marketplace. With respect to new contract wins, in Georgia, the state announced its intent to award us a Medicaid managed care services contract. This was a significant win, with an estimated $2 billion in annual premium revenue based on expected market share. We also had significant new contract wins in our dual eligible and integrated product businesses. We successfully procured dual contracts that will expand our footprint in Ohio, Michigan, Massachusetts, and Idaho. The incremental revenue from these new contracts is over $3 billion, an increase from the prior estimate of $1.8 billion we had shared at our November Investor Day. 2024 was also a year in which we successfully defended RFPs in key states. We retained traditional Medicaid contracts in our Michigan, Florida, and Wisconsin businesses. These contracts represent over $2 billion of renewed premium revenue. While we are disappointed in the Virginia contract loss, this award is under protest, and the current contract will extend well into 2025. We are very pleased with the execution of our 2024 growth initiatives. And in that context, we further note when all of the aforementioned contracts are in force, we are well on our way to meeting our target of $46 billion of premium revenue in 2026 and at least $52 billion in 2027. With our current footprint contributing its average annual growth and now fully considering all of our recent growth successes, the path to achieve these growth milestones is very clear. And most importantly, all of this recent activity has allowed us to increase our embedded earnings to $7.75 for 2026 and beyond after harvesting $1.50 of embedded earnings in our 2025 guidance. Having embedded earnings of at least 20% to 25% of run rate EPS is an attractive benchmark to support future EPS growth. Now, at approximately 30 percent, we are very well positioned to meet our long-term targets. In short, we are solidly on track to achieve the growth outlook we projected at our recent investor day. Turning now to our 2025 guidance. We project 2025 premium revenue of approximately $42 billion. and adjusted earnings per share of at least $24.50, which is approximately 8% year-over-year growth, highlighted by an 88.7% consolidated MCR and a 4.1% pretax margin. Similar to the situation we encountered in 2023, this $24.50 EPS guidance is burdened with $1 of contract implementation costs related to yet another significant future revenue growth cycle we secured this year. These are complex programs, with a new contract in Georgia and fully integrated duals product launches in at least four states. These are not speculative investments, but investments that have near-term and certain realizable value. Mark will take you through the detailed earnings guidance bill in a few minutes, but let me offer some high-level segment commentary. First, in Medicaid, Medicaid is projected to be nearly back to performing within our target ranges with an 89.9% MCR. For 2025, we project a continuing elevated medical cost trend during the year. Our 2025 Medicaid rates, most of which are known, are expected to be sufficient to capture this elevated trend. Whichever 2024 MCR you observe, Q4 at 90.2, second half at 89.9, full year at 89.8, or our 2025 guidance at 89.9, our flagship business is hovering around the 90% mark, nearly 100 basis points off our long-term MCR target. The business is expected to produce an excellent pre-tax margin of 4.3%. When the broader market receives the rates it needs to bring itself back into balance, we expect to be operating well within our long-term ranges, and we believe that will be in the very near future. Next, in Medicare, we would characterize 2025 as a year of transition and some early growing pains as the business transforms to serve the increasingly integrated and high-growth dual-eligible populations. We expect our 2025 Medicare MCR to be slightly above our target range for three reasons. First, utilization pressure from the second half of 2024 is expected to continue into 2025. Second, recent rates have not kept pace with trend. And finally, while our long-term outlook for Bright's earnings accretion is unchanged, we expect that it will be slightly below break-even in 2025. Finally, in Marketplace, we are projecting to grow premium at 60% in total, half of which is organic. Two consecutive years of exceeding target margins have allowed us to reinvest several hundred basis points of excess margin into pricing in order to grow. Our product is competitively positioned for this year, and we are very pleased with our early enrollment results. We expect the business to produce an MCR in the middle of our target range and a solid pre-tax margin of 6% in 2025 while continuing to sustain mid single-digit pre-tax margins over the long term. Our businesses are positioned to produce an earnings per share outlook of $25.50 in 2025. This is a meaningful measure of underlying performance and represents 13% growth on full year 2024 results. When we include the new contract implementation costs of $1, our adjusted EPS guidance for 2025 is at least $24.50 per share. This is a solid foundation off of which to grow and realize the embedded earnings power of the opportunities we have already secured. Turning now to the political and legislative landscape, the facts are The Republicans control Congress with a very narrow majority and have the White House. Two budget reconciliation bills are likely to be passed in 2025. And political parties in the state legislatures and the governor's offices did not change materially in the last cycle, and the states will weigh in heavily on any policy changes. The question, and it is a question, that has been posed and remains is whether cuts to Medicaid funding will be part of these legislative packages. We continue to believe that any changes to the Medicaid program as we know it today will be marginal. Neither side of the aisle wants to see an increase in the number of uninsured, a reduction in benefits for those relying on government assistance, or the related impact to providers. While our fourth quarter results fell short of our expectations, I am pleased with our team's ability to manage through the many industry-wide headwinds in all of 2024. Our revenue growth has exceeded our long-term targets. We have produced a consolidated pre-tax margin within our long-term target range, and embedded earnings has reached a new high. The 2025 earnings profile is solid and perhaps industry-leading in managed Medicaid. All of this allows us to remain very confident in our ability to achieve the long-term targets that we shared with you at our November Investor Day. Finally, I want to thank our 18,500 dedicated associates who worked tirelessly on behalf of our members and our stakeholders. Their day-to-day efforts, particularly in the face of difficulty, danger, and natural disasters, are, in a word, heroic. With that, I will turn the call over to Mark for some additional color on the financials.