Molina Healthcare Inc

Good day and welcome to the Molina Healthcare fourth quarter 2025 conference call. All participants will be in a 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 a touch-tone phone. To withdraw your question, please press star then two. Please note that this event is being recorded I would now like to turn the conference over to Jeff Geier, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Molina Healthcare's fourth quarter and full year 2025 earnings call. Joining me today are Molina's President and CEO, Joe Zabretzky, and our CFO, Mark Kine. A press release announcing our fourth quarter and full year 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, Friday, February 6, 2026, 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 fourth quarter and full year 2025 earnings release. During the call, we will be making certain forward-looking statements, including, but not limited to, statements regarding our 2026 guidance, the medical cost trend and our projected MCRs, Medicaid rate adjustments and updates, our recent Florida CMS RFP win and contract inception, our M&A pipeline and deal activity, upcoming RPs, our expected future growth, Medicaid, Medicare, and marketplace membership levels, earnings seasonality, the transition to Medicaid-Medicare integrated product designs, our G&A costs, our credit facility, 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 Zabreski. Joe?

Thank you, Jeff, and good morning. Today, we will provide you with updates on our reported financial results for the fourth quarter and full year 2025, our top-line growth initiatives, and our full year 2026 premium revenue and earnings guidance. Let me start with our fourth quarter performance. Last night, we reported an adjusted loss per share of $2.75 on $10.7 billion of premium revenue. Our fourth quarter results fell well below our expectations due to continued strong trend pressure in Medicare and Marketplace and two retroactive items in Medicaid, which totaled $2 per share. While disappointed in the performance for the quarter, we continue to remain confident in our durable and sustainable operating platform as the rate environment returns to equilibrium. In Medicaid, the MCR for the quarter was 93.5% and was impacted by unfavorable and unexpected retroactive premium rate actions taken by the state of California. Adjusting for these retroactive items, we produced a 2% pre-tax margin, and the MCR was favorable to our prior guidance, even as we continued to experience higher utilization of professional office visits, behavioral health services, LTSS, and high-cost drugs. In Medicare, the MCR for the quarter was 97.5%. We continued to experience elevated utilization for LTSS and high-cost drugs and slower-than-expected margin improvement in our MAPD product. Finally, in Marketplace, the MCR was 99%, which was impacted by elevated utilization and several prior period provider claim settlements. For the full year 2025, we reported premium revenue of $43 billion, representing 11% year-over-year growth. Adjusted earnings per share were $11.03, and our pre-tax margin was 1.6%, which is below our long-term target range. 2025 was clearly a tale of two halves. as the company earned over $11 per share in the first half, largely tracking expectations. Trend pressure worked against us in each of the third and fourth quarters. Our fourth quarter performance resulted in our full-year performance falling below our most recent guidance. As we compare our initial 2025 EPS guidance of $24.50 to For our final result of $11.03, nearly half of the underperformance for the year was attributable to the unprecedented trend in increased acuity in our marketplace segment, a very disproportionate outcome given that the segment is just 10% of our total premium. The rate in trend and balance in Medicaid accounted for approximately one-third of the underperformance, while the remainder was due to persistent higher utilization in Medicare. In Medicaid, our flagship business, representing 75% of our total premium revenue, we reported an MCR of 91.8% and pre-tax margin of 2.8%. Rates increased from 4.5% in our initial guidance to 6% for the year, but medical cost trend continually increased from 4.5% in initial guidance to 7.5%, an unprecedented inflection in such a short period of time. 250 basis points of this 7.5% trend is attributable to the acuity shift from membership declines related to the final stages of redeterminations. While we are disappointed in our fourth quarter and full-year results, many published reports indicate our Medicaid performance is industry-leading by 300 to 400 basis points in pre-tax margins. We believe the medical cost trend in 2025 was an aberration, an anomaly by historical standards. The important point, which I will get to in a moment, is what all this means for 2026 and the longer-term outlook for the business. But first, turning to our growth initiatives. Despite the short-term margin challenges, 2025 was another extraordinary year for securing future growth for our flagship Medicaid business. We continued our successful track record of winning renewal and new RFPs. During the quarter, Molina secured a historic RFP win in Florida, where the state awarded Molina the sole Children's Medical Services, or CMS, contract. This contract is expected to yield $6 billion in annual run rate premium and is expected to go live late 2026. This award in Florida complements our previously announced contract win in Wisconsin, where we renewed our Wisconsin My Choice LTSS contract in regions two and seven. The significant win in Florida and our previously announced Georgia and Texas Starship wins represent over $9 billion of Medicaid premium and significantly contribute to our embedded earnings. Since we embarked on this growth strategy, We have achieved an RFP win rate of 90% on renewal contracts representing $14 billion in retained revenue and 80% on new contracts representing $20 billion of new revenue. We are engaged in active RFPs in several states and have an active pipeline of $50 billion of new opportunities over the next few years. On the M&A side, Our acquisition pipeline contains a number of actionable opportunities. The current challenging operating environment is a catalyst for many smaller and less diverse health plans to consider their strategic options. We remain opportunistic about deploying capital to accretive acquisitions. In this temporary period of rate and trend imbalance, we will work to acquire as much Medicaid revenue as possible, and as we have done in the past, manage it to target margins. Turning now to our 2026 guidance, we project 2026 premium revenue of approximately $42 billion, which is slightly lower than 2025. The premium growth from the new Florida CMS contract and Medicaid and higher revenues in our Medicare segment are more than offset by the planned reduction in the marketplace segment. Our 2026 adjusted earnings per share guidance is at least $5. This guidance is burdened by $1.50 of new contract performance of the landmark Florida CMS contract and $1 due to the underperformance of our traditional MAPD product. We have determined that the MAPD product does not align with our strategic shift to focus exclusively on dual eligible members in Medicare, and we will exit the traditional MAPD product for 2027. After adjusting for these two items, our 2026 guidance produces underlying earnings of approximately $7.50 per share. There are three aspects of the business that represent significant upside to our guidance. First, our view on Medicaid cost trend could moderate from our initial estimates. Second, Medicaid rates may develop favorably due to on and off cycle adjustments as they did in 2025. Recall that every 100 basis points on the Medicaid MCR from this current rate and trend relationship is worth nearly $5 per share. Finally, Medicare and Marketplace are both going through transformations for very different reasons. Our guidance assumes these segments combine for a headwind of $1 per share in 2026, but both contain significant upside as we priced conservatively. Mark will take you through the detailed 2026 earnings guidance bill in a few minutes, but let me highlight the major assumptions underlying our $5 per share guidance. In Medicaid, 2026 rates are expected to average approximately 4% and will not offset medical cost trend projected at 5%. This trend outlook for 2026 is comparable to the 2025 trend without 250 basis point impact of the redetermination-related acuity shift. In Medicare, members are transitioning to new integrated product designs, which we expect to produce lower margins in their first year before reaching their full margin potential. Finally, in Marketplace, we made the conscious decision to reduce our exposure and stabilize margins in this highly volatile risk pool, which we expect to yield a 50% decline in our annual marketplace premium. Early enrollment results drove a larger mix of renewal members, which we expect will improve the stability and predictability of our member acuity profile. In summary, our 2025 results did not meet our expectations, but I am pleased with our team's focus on managing through these industry headwinds and producing, in the fourth quarter, a normalized pre-tax margin in Medicaid of 2%. There is little question that Medicaid rates and medical cost trends are imbalanced. We believe our 2026 forecast for Medicaid is the trough for managed Medicaid margins. In this margin trough, we expect that Molina Medicaid will produce a low single-digit margin, not losses, and that the market is underfunded by 300 to 400 basis points. We are confident in the outlook for this business and that rates and trend will eventually reach equilibrium. Even at this low point in the cycle, we remain optimistic about the future earnings trajectory of the enterprise, which is a function of anticipated rate restoration and future embedded earnings. Of note, we anticipate that actuarial soundness will ultimately prevail as Medicaid rates are restored by state actuarial processes, and that will allow us to achieve target margins. This potential is significant, as every 100 basis points on the Medicaid NCR is worth nearly $5 per share. Then, our existing new store embedded earnings, which represent future contract revenue at average target margins, are additive to the earnings accretion implied by the rate restoration cycle. Embedded earnings are now greater than $11 per share. The intrinsic value of our businesses remains unchanged. Modest capital requirements, mid-single-digit pre-tax target margins, robust parent company cash flow, and ample organic and inorganic growth opportunities will combine to yield significant shareholder value. The cycle will turn, and these underlying valuation parameters will again become apparent. Finally, we look forward to updating you on our outlook for sustaining profitable growth at an Investor Day event on Friday, May 8th. We will provide you with our long-term goals, as well as the detailed playbook for achieving our growth rates and maintaining industry-leading margins. With that, I will turn the call over to Mark for some additional color on the financials. Mark?