Molina Healthcare Inc

Good day, and welcome to the Molina Healthcare First Quarter 2025 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 a 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 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. Please go ahead.

Good morning, and welcome to Molina Healthcare's first quarter 2025 earnings call. Joining me today are Molina's president and CEO, Joe Zabreski, and our CFO, Mark Kine. A press release announcing our first quarter 2025 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 24th, 2025, 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 2025 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, organic Medicaid and marketplace membership growth, our recent RFP awards, our acquisitions and M&A activity, revenue growth related to RFPs and M&A activity, potential Medicaid funding cuts or program changes, 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 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 Zabreski. Joe?

Thank you, Jeff, and good morning. Today, I will discuss several topics. our reported financial results for the first quarter, our growth initiatives and the related increase to embedded earnings, and our full year 2025 guidance, which we reaffirm at $42 billion of premium revenue and at least $24.50 in earnings per share. Let me start with our first quarter performance. Last night, we reported adjusted earnings per share of $6.08 on $10.6 billion of premium revenue supported by strong operating metrics across all lines of business. Our 89.2% consolidated MCR reflects strong medical cost management and an improving rate environment. We produced a 3.9% adjusted pre-tax margin or 3% after-tax, a very strong result. In Medicaid, the business produced an MCR of 90.3% in the quarter, which was in line with our expectations. As contemplated in our initial guidance, medical costs increased moderately due to continued utilization of LTSS, high-cost drugs, and behavioral health services, as well as seasonal illnesses, the impacts of which were mostly offset by updates in the new rate cycle. In Medicare, we reported a first quarter MCR of 88.3%, which was in line with our expectations. Medical cost trend was as expected and was adequately captured by rates and risk adjustment. 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 81.7%, and was higher than expected. This was the result of prior year items related to final risk adjustment and membership reconciliations, as well as a higher new store MCR related to the first quarter results of our Connecticut acquisition. Excluding these items, the normalized MCR was approximately 77.7%, more in line with our expectations. Turning now to our growth initiatives. We continued our successful track record of winning RFPs in the quarter. In Medicaid, we successfully defended our position in Nevada as we were awarded a contract to serve Medicaid beneficiaries in the two largest urban areas in the state. In our Medicare dual eligible business, we were awarded a contract in Illinois to provide a fully integrated dual eligible special needs plan. This win completes the full transition of our existing MMP members to an integrated DSNP product in all of our MMP states for January 1st, 2026. We project incremental annual premium revenue of approximately $800 million from this new contract and have added 50 cents per share to our embedded earnings. This contract win also moves us closer to achieving our premium revenue target of $46 billion in 2026 and at least $52 billion, which is the low end of our target range for 2027. With respect to M&A activity, our acquisition pipeline continues to contain many actionable opportunities as we remain opportunistic in deploying capital to accretive acquisitions. Embedded earnings have now increased from approximately $7.75 to $8.65 per share. This represents approximately one-third of our current EPS and serves to support our target future growth rate. Turning now to our 2025 guidance. Full-year 2025 premium revenue guidance remains unchanged at approximately $42 billion. We also reaffirm our full-year 2025 adjusted earnings per share guidance of at least $24.50 or 8% year-over-year growth. Mark will discuss a few of the changing components within our EPS guidance, a major point of which will be that full-year 2025 Medicaid rates are projected to be slightly higher than previously expected, as states reflect recent cost trends in on- and off-cycle rate updates. Given that known fact, we also increased our outlook for cost trend, reflecting some conservatism at this early point in the year. Our 2025 guidance is a strong foundation off of which to grow and to realize the embedded earnings power of the opportunities we have already secured. Turning now to the political and legislative landscape. In Medicaid, we continue to believe that any changes to the Medicaid program in the near term will be marginal. The general perception is that Congress and the current administration will implement Medicaid program changes through possible combinations of various funding reduction approaches in order to meet federal spending targets. There are many credible estimates of the potential impact of these various approaches. We continue to believe that any impacts to membership or the acuity of the risk pool will be manageable and will not disrupt the earnings trajectory of our business. You are all well aware of the complex legislative process which will ensue over the coming months to reconcile the Senate and House resolutions to a final bill. While we await a definitive legislative framework, we continue to believe that neither side of the aisle wants to see an increase in the number of uninsured, a significant reduction in benefits for those relying on government assistance, or the inevitable related impact to providers. In Medicare, we are pleased with the recent CMS final rate notice for Medicare Advantage. In addition, the early read on states promoting the integration of Medicaid and Medicare bodes well for us having a significant Medicaid footprint and a competitive DSNP offering. Finally, in Marketplace, we remain confident in the stability of our membership and the outlook for the business, despite the various program integrity initiatives and a final decision on the enhanced subsidies, which would impact Marketplace enrollment in 2026. Any impacts to membership have been contemplated in current year guidance and our future year revenue outlook. States have also communicated a willingness to allow market participants to update rates for 2026 based on the final resolution of the enhanced subsidies, which would substantially mitigate any related pricing risk. Our first quarter results and reaffirmed full-year 2025 guidance reflect our team's disciplined approach to medical cost management in an improving rate environment. Our revenue growth and pre-tax margin profiles across all segments remain consistent with our long-term targets. and we continue to harvest and replenish embedded earnings. As we take an early look into 2026, we are confident in the process for actuarial soundness and the adequacy of Medicaid rates. In reviewing publicly available information state by state, we believe that the broad Medicaid market appears to need 200 to 300 basis points of rate in excess of trend to obtain some level of program equilibrium. If rate updates were to be made at that level, recognizing that all market participants obtained the same rate, Molina should be soon returned to performing at 89% or better, perhaps also while paying into the corridors. Our businesses, while not immune to external forces, have been resilient in the face of many uncertainties over the past many years. The redetermination process is behind us. Any legislative changes to the Medicaid program are likely to be marginal, and health care is generally less sensitive to economic cycles. Our 2025 earnings and growth profiles are solid, and therefore remain very confident in our ability to achieve our 13% to 15% long-term earnings per share growth target. With that, I will turn the call over to Mark for some additional color on the financials. Mark?