Molina Healthcare Inc

Good morning and welcome to Molina Healthcare's third quarter 2025 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 the Molina Healthcare's third quarter 2025 earnings call. Joining me today are Molina's President and CEO, Joe Zabreski, and our CFO, Mark Keim. A press release announcing our third 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, October 23rd, 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 third 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, our preliminary 2026 outlook, the medical cost trend and our projected MCRs, Medicaid rate adjustments and updates, our 2026 marketplace pricing and rate filings, our RFP awards, including our contract wins in Georgia and Texas, as well as our M&A pipeline and activity, revenue growth related to RFP wins and M&A activity, the recently enacted Big Beautiful Bill and expected Medicaid, Medicare, and marketplace program changes, our expected future growth in both our existing footprint and in the new products and markets, and the estimated amount of our embedded earnings power. 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 third quarter, an update on our full year 2025 guidance, our outlook for 2026, and our growth initiatives. Let me start with our third quarter performance. Last night, we reported adjusted earnings per share of $1.84 on $10.8 billion of premium revenue below our expectations. Our 92.6% consolidated MCR reflects the continuation of a very challenging medical cost environment in the third quarter. We produced an adjusted pre-tax margin of 1%. The headline for the quarter is that approximately half of our underperformance is driven by the marketplace business, and that Medicaid, while experiencing some pressure, is still producing strong margins. Year to date, our consolidated MCR is 90.8% and our adjusted pre-tax margin is 2.7%, some color on the quarter. In Medicaid, our flagship business representing 75% of our total premium revenue, we reported an MCR of 92% and an adjusted pre-tax margin of 2.6%. Medical cost trend was higher than expected and driven by utilization of behavioral health, pharmacy, LTSS, and inpatient care, largely consistent with what we observed throughout the year. A few positive rate updates were not enough to offset the elevated trend, and our risk corridor protection is now very limited. While our Medicaid performance did not meet our expectations for the quarter, many would characterize these results as best in class in this environment. In Medicare, we reported a third-quarter MCR of 93.6 percent. We continue to experience higher utilization in this high-acuity population, particularly related to LTSS and high-cost drugs. In Marketplace, the third-quarter MCR of 95.6 percent was significantly higher than expected. we continue to experience much higher utilization relative to risk adjustment revenue. Our third quarter adjusted G&A ratio of 6.3% was very strong, reflecting our continued operating discipline. Turning now to our 2025 guidance, our full year premium revenue increases to approximately $42.5 billion. Our full year 2025 adjusted earnings per share guidance is now expected to be approximately $14 per share, which is $5 below our prior guidance of $19 per share. This revised guidance reflects a consolidated MCR of 91.3% and a pre-tax margin of 2.1%. As we recount our original EPS guidance of $24.50 and the $10.50 revision to $14, we note that half of this revision emerges from the unprecedented utilization trend in Marketplace, which represents nearly 10% of our business. Only one-third emerges from the rate and trend imbalance in Medicaid, which is 75% of our business, and the remainder from Medicare. Now some color on the segments related to our revised guidance. In Medicaid, our guidance assumes a full-year MCR of 91.5%, which produces a pre-tax margin of 3.2%. This Medicaid MCR result is above the high end of our long-term target range, but we evaluate it in the context of this challenging trend environment. Average rates achieved are now expected to be 5.5%, but medical cost trend for the year is now expected to be 7%, which is 100 basis points higher than previous guidance. Our early 2025 rate increases were sufficient at the beginning of the year, but as medical cost trends increased beyond those rates, our MCR increased each quarter. The rate updates we received later in the year and risk corridors did not provide an adequate buffer. In Medicare, our full-year guidance includes an MCR of 91.3 percent, and pre-tax margin is at break-even. We continue to effectively manage elevated utilization through our cost control protocols. In Marketplace, the full year guidance NCR of 89.7% produces a negative pre-tax margin. We expect higher utilization to persist as in past quarters with little to no risk adjustment revenue offset. Our Marketplace business has significantly underperformed our expectations, but its performance appears consistent with industry-wide trends. As noted a moment ago, approximately half the earnings per share reduction from initial guidance and prior guidance is attributable to this business, which represents just 10% of our consolidated revenue. Marketplace was initially projected to produce over $3 of earnings per share, but it's now expected to produce a loss of $2 per share, a swing of over $5 of the $10.50 reduction from our initial 2025 guidance. Our updated full-year guidance at $14 per share implies earnings per share of approximately 35 cents in the fourth quarter. Within this fourth quarter EPS guidance, Medicaid is projected to earn $3 per share with a 92.5% MCR and a pre-tax margin of approximately 2.5 percent. Medicare and Marketplace are expected to offset the Medicaid performance with a combined $2.65 loss per share. The fourth quarter and second half projected Medicaid performance provides a strong jump off point for our 2026 outlook. Now, some commentary on our outlook for 2026. While it is far too early to provide formal guidance, We believe a discussion of the 2026 building blocks for both revenue and earnings per share will be helpful. I will lay out the components, and Mark will provide further details. Our 2026 premium revenue outlook anticipates growth in our current footprint consistent with historical levels, significant new Medicaid contracts in Georgia and Texas, and Medicare dual growth in five states through our recent RFP wins and MMP conversions. These items alone would put us on track to meet our target of $46 billion of revenue in 2026. However, our 2026 pricing strategy for Marketplace, with the intention and expectation of reducing our exposure, will likely be a revenue headwind, although earnings accretive. With respect to our outlook for 2026 earnings per share, there are several items to consider, particularly related to the Medicaid earnings baseline. First, our Medicaid performance in the second half of 2025 is expected to produce a 92.3 percent MCR and a 2.5 percent pre-tax margin. This equates to $6.50 per share in the second half, the annualization of which is an appropriate jumping off point for 2026. Second, we note that there is normal rate-related seasonality pressure in Medicaid in the second half of the year. Third, with some early views of our January rate cycle, which comprises 60 percent of our full-year revenue, we project rates will be modestly in excess of trend. And Medicare and Marketplace are projected to at least break even, although we are striving to achieve our target margins. This early view of the 2026 earnings per share baseline should provide for an outlook for 2026, which likely approximates this year's updated full-year guidance. However, we further note the following areas of potential upside to this baseline view. Medicaid rates, as every hundred basis points of improvement produces an additional $4.50 per share. performing better than breakeven in Medicare and Marketplace as we continue to target low to mid-single-digit pre-tax margins and harvesting a portion of our $8.65 of embedded earnings. That, at a high level, is our outlook for 2026. Mark will take you through more detail on this in a moment. Finally, turning to our growth initiatives, Despite the short-term margin challenges, we continue to fuel our growth engines and see a clear path to surpass the $50 billion premium revenue mark in the next few years. During the third quarter, we continued our successful track record of winning RFPs with the renewal of our Wisconsin My Choice contract in Regions 2 and 7. We are engaged in active RFPs in several states and have an active pipeline of $54 billion of new opportunities over the next few years. On the M&A side, our acquisition pipeline contains a growing number of actionable opportunities. This current challenging operating environment has been a catalyst for many smaller and less diverse health plans to consider their strategic options. We remain opportunistic in deploying capital to accretive acquisitions. In this temporary period of rate and trend imbalance, we are going to work to acquire as much Medicaid revenue as possible, and as we have done in the past, work it up to target margins. At our last Investor Day, we characterized this environment as inclement weather rather than climate change, metaphorically meaning temporary rather than permanent. We continue to believe this to be true. Medicaid is expected to produce a 3.2% pre-tax margin and contribute approximately $16 per share this year. Rates will come back into balance with medical cost trend, and the business will recalibrate to target margins. Medicare is experiencing a rejuvenation aimed at serving the very attractive dual eligible segment, which we believe is poised for significant profitable growth. And Marketplace is undergoing a rationalization addition by subtraction, as we reduce our exposure while the risk pool stabilizes. In short, these businesses are well positioned for the long term and sustainable, profitable growth. With that, I will turn the call over to Mark for some additional color on the financials. Mark?