Q2 2021 Molina Healthcare Inc Earnings Call
Good day, and good day and welcome to the Molina healthcare second quarter 2021 earnings conference call.
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I would now like to turn the conference over to Julie Trudell Senior Vice President of Investor Relations. Keith go ahead.
Good morning, and welcome to.
And health Care's second quarter 2021 earnings call.
Joining me today are Molina, as president and CEO, Joseph Brodsky, and our CFO and Mark time.
A press release announcing our second quarter earnings was distributed after the market closed yesterday and is available on our Investor Relations website.
Shortly after that.
And have you seen of this call a replay will be available for 30 day the numbers to access the replay are and our earnings release.
For those who are listening to the rebroadcast of this presentation. We remind you that remarks made here and are as of today Thursday July 29th 2021 and have not been updated subsequent.
The initial earnings call.
And 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 our second quarter 2021 press release.
During our call, we will be making certain forward looking statements, including but not limited to.
Statements regarding the COVID-19 pandemic the current environment.
Ironman and recent acquisition.
2000, and 'twenty 1 guidance.
Our embedded earnings power and our longer term outlook.
Listeners are cautioned that all of our forward looking statements are subject to certain risks and uncertainties that can 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 for the 2020 year filed with the SEC as well as the risk factors listed in our form 10-Q, and our form 8-K filings with the SEC.
After the completion of our prepared remarks.
Remarks, we will open up the call to take your questions.
Lastly, we want to invite you to attend our virtual 2021 Investor Day meeting scheduled for Friday September 17th where we will share more about our future growth plans and longer term strategy.
I would now like to turn the call over to our Chief Executive Officer, Jos the breadth.
So.
Thank you Julie and good morning.
Today, we will provide you with updates on several topics.
We will present, our financial results for the second quarter 2021.
We will update our 2021 guidance.
And we will summarize the status of our growth initiatives and the outlook.
And the future.
Let me start with the second quarter highlights.
Last night, we reported adjusted earnings per diluted share for the second quarter of $3.45, with adjusted net income of $199 million and.
And premium revenue of $6.6 billion.
And those.
The 88.4% medical care ratio demonstrates solid performance, while managing through pandemic related medical cost challenges that increased the ratio by 110 basis points.
The net effect of Covid decreased net income.
Per diluted share by approximately $1.
We managed to a 6.9% adjusted G&A ratio, reflecting continued disciplined cost management.
Which allowed us to harvest the benefits of scale produced by our substantial growth.
We.
We produced an adjusted after tax margin of 2.9% meeting our second quarter expectations.
Our 6 month year to date performance highlighted by and 87, 6% MCR.
A 7% adjusted G&A ratio.
And a 3.
4% after tax margin, where all where are we in line with our year to date expectations.
This allowed us to produce as projected 60% of our full year earnings guidance and the first half of the year.
And we accomplished all of this.
As we generated approximately 50% year over year premium revenue growth and.
And successfully integrated businesses, representing approximately $5 billion and.
Annual revenue.
In summary, we are pleased with our second quarter performance, we executed well and delivered.
Solid operating earnings and continued to drive our growth strategy.
Let me provide some commentary highlighting our second quarter performance.
First I note that year over year comparisons are less meaningful than they would be and a typical year.
The second quarter of last year.
Liberty was the first full quarter of the Covid pandemic and.
And was distorted by the significant positive net effect of Covid that characterized that early phase of the crisis.
In contrast, the <unk>.
Current quarter was negatively impacted by the net effect of Covid.
As a result.
With sequential comparisons are the more meaningful reflection of underlying business performance and will be the focus of our comments. This morning.
In the second quarter, we produced premium revenue of $6.6 billion.
A 4% increase over the first quarter of 2021, reflecting.
Increased membership across our portfolio.
We ended the quarter with approximately $4.7 million members and increase of 91000 members over the first quarter of 2021.
Our Medicaid enrollment at the end of the quarter was approximately 3 <unk>.
<unk> 8.9 million members and increase of 69000 over the first quarter of 2021.
This increase was due primarily to the continuing suspension of Medicaid redetermination.
And although this growth catalyst seems to have moderated.
Our Medicare membership.
<unk> was 130000 at the end of the quarter and increase of 4000 and in line with our growth plan.
Our marketplace membership with 638000 at the end of the quarter representing growth of 18000 over the first quarter of 2021 due to lower than expected attrition.
Knights.
And membership additions during the extended open enrollment period.
Turning now to our medical margin performance from the second quarter by line of business.
Our Medicaid business achieved a medical care ratio of 89%.
While we are.
Tricia thing with the impacts of the pandemic on utilization and medical cost as well as the continuing temporary impact of the risk corridors, we continue to execute on the underlying fundamentals.
Our well diversified portfolio of state contracts across all dimensions of the medication.
Our deal and product suite is performing well.
We continued to deliver high quality care at a reasonable cost, particularly to high acuity populations.
The underlying rate environment is stable.
Our hallmark medical management capabilities continued to deliver appropriate.
Medical outcomes for our members.
While achieving strong financial results.
Our Medicare results were excellent having posted a medical care ratio of 87, 6%.
We continue to produce excellent MCR and margins and this portfolio of high acuity lives and both.
Our D SNP product and the <unk> programs.
Although our results were moderately depressed due to COVID-19 utilization and.
And despite the temporary risk scored softness for the current year.
The underlying results were squarely in line with our expectations.
Our marketplace.
Results have been significantly impacted by direct cost of Covid related care as we posted a medical care ratio of 84, 8% and the quarter.
Many of the new members, we attracted where in regions disproportionately affected by Covid include.
Including California.
Michigan.
Texas and Washington.
With nearly 500 basis points of pressure on the MCR and each of the first 2 quarters, we can and should achieve mid single digit pre tax margins as the pandemic subsides.
In short, our second quarter and first half results across the.
The entire portfolio continued to demonstrate our ability to produce excellent margins, while growing top line revenue and successfully managing through the ongoing clinical and financial impacts of the pandemic.
Turning to our 2021 guidance beginning with premium revenue.
For 2021, we now project premium revenue to be more than 25 billion.
A 37% increase over the full year of 2020, and a $1 billion increase from our previous guidance.
Specifically, our premium revenue guidance now includes.
Medicaid enrollment and benefiting from the expected extension of the public health emergency period.
And the associated pause on membership Redetermination, which we are now projecting through the end of the fourth quarter.
Recall that for each month, the public health emergency has extended beyond the month.
Month of September it increases our full year revenue outlook by $150 million.
Our updated guidance also contemplates the impact from retaining pharmacy related premium revenue and California, New York, and Kentucky, due to postponement of and changes too.
Irrespective pharmacy carve out initiatives.
And updated marketplace revenue, reflecting the strong enrollment and retention performance mentioned previously.
We expect to end 2021 with approximately 590000 marketplace members.
We have exclude.
<unk> from our premium revenue guidance any impact of the affinity and Cigna acquisitions.
We expect the affinity acquisition to close and the fourth quarter, representing upside to our premium revenue guidance and 2021, and we expect the Sigma acquisition to close in January 2022.
Turning now to earnings guidance.
We are raising our full year 2021 earnings guidance and now expect to end the year with adjusted earnings of no less and $13.25 per share and.
And increase from our prior guidance of no less and $13 per share.
We remain on track.
Track for full year after tax margins of at least 3%.
Specifically the increase to our 2021 earnings guidance reflects our underlying outperformance the.
The increase and our revenue guidance and the associated margin.
Offset by a $1 increase.
Net cost of Covid, which we now expect to be $2.50 per share for the full year.
We have and cautious and projecting our back half earnings due to a variety of exogenous factors.
The Delta variant adds variability to any utilization forecast.
While highly.
And then pages the delta variant disproportionately affects the on vaccinated.
Older and more vulnerable population cohorts have significantly higher vaccination rates.
As a result, the delta various cases, resulting proportionately fewer hospital admissions and lower per admission costs.
Moderating the potential impact.
In addition, it remains unknown, how quickly and to what extent utilization will return to normal levels.
This will depend upon the strength of the economy.
<unk> behaviour provider capacity and the emergence of any new COVID-19 variance.
There is an inherent level of uncertainty with regard to new marketplace remember acuity levels and their susceptibility to COVID-19 infection.
And the Covid related risks sharing corridors free an added element of variability.
Turning now to an update on our growth initiatives.
We continue.
<unk> see many actionable opportunities and our acquisition pipeline.
Which remains an important aspect of our growth strategy.
Our M&A team is fully deployed and is working and active list of health plan targets and our core businesses.
Our acquisition strategy remains focused on buying stable med.
Membership and revenue streams, particularly focused on underperforming properties.
Our M&A integration team is also fully deployed and successfully migrating our acquired properties to Molina operating infrastructure and cost structure to ensure we deliver the earnings accretion we expected.
To date, we are on track to meet or exceed our earnings accretion commitments.
We continue to pursue new Medicaid procurement opportunities.
We have contract winning capabilities and aggressive in state ground game and a winning proposal writing platform.
We are confident that.
Continued to win new contracts that will contribute to our growth trajectory and 2022 and 2023.
Finally, some comments about the longer term outlook for our business.
The current rate environment is stable and rational.
We now have confirmed data points.
We will support the continued belief that the Medicaid risk sharing corridors related to the declared public health emergency will be eliminated as the Covid pandemic subsides.
And <unk> related corridors have already been eliminated for the 2022 state fiscal years and calories.
California.
New York, South Carolina, and Michigan with momentum towards similar outcomes and other states.
The current Medicare risk scores shortfall phenomenon is temporary as our 2022 bids did fully account for the current assessment of next year's risk scores.
We continue to be bullish about the performance of our acquired businesses.
The operational integrations are proceeding as or better than planned and we have high confidence in achieving our original accretion estimates and possibly even exceeding them.
And the context of the pandemic subsiding and our acquisitions maturing.
Incremental embedded earnings power of the business as it exists today is meaningful.
With the increased outlook for the net negative effect of Covid or.
Our incremental embedded earnings power is now more than $5 above our 2021 adjusted earnings per share guidance.
In short our pro forma run rate after the natural relaxation of these temporary constraints would produce adjusted earnings per share comfortably in the mid teens and an after tax margin of approximately 4%.
I look forward to sharing more about our future growth plans and longer term strategy.
At our Investor Day on September 17th.
At our Investor Day, we will provide you with an initial 2022 revenue outlook.
We will also provide you with an updated view of our long term targets.
Our revenue growth for our 3 lines of business operating metrics for our 3 lines of business and and.
And margins net income and earnings per share expectations.
And as importantly, as has been our hallmark style, we will provide you with our detailed playbook for achieving those results.
We will continue not just to declare our goals, but to show you with transparent.
Enterprises and specificity, how we will achieve them.
Suffice it to say, we are and inherently high growth businesses and have demonstrated an ability to grow the top line and maintain and attractive margin profile, even during a global pandemic.
The political.
<unk> and regulatory environments are all positive catalysts.
And the social demographic profile of the U S population remains and significant need of the social safety net we manage.
As I conclude my remarks, I want to express my gratitude to our management team and our nearly 13000.
Molina colleagues.
Their skill and dedication and steadfast service continued to form the foundation for everything we have achieved and everything we will achieve in the years to come.
With that I will turn the call over to Mark time for some additional color on the financials.
Mark.
Thank you Joe This morning, I will discuss some additional details of our second quarter performance and then turn to our growth strategy the balance sheet and some thoughts on our 2021 guidance.
Beginning with some detailed commentary about our second quarter results.
The net effect of Covid negatively impacted second quarter results by <unk> 70.
And for approximately $1 a share.
This increase the second quarter MCR by 110 basis points to 88, 4%.
The impact was higher than our expectations and negatively affected all 3 lines of business.
We experienced high COVID-19 related and patient costs early in the.
7 which tapered off as the quarter progressed.
We also saw increases in professional and outpatient costs, which we attribute to what may be the return to normal pre COVID-19 utilization patterns.
And Medicaid the net effect of Covid was a cost of approximately $25 million and accounted for a 40 basis point increase.
A quarter and is included within our reported 89% MCR.
The first quarter and Medicaid MCR had 150 basis point benefit due to Covid, which substantially explains the sequential increase and MCR.
And we continue to expect the full year, Medicaid MCR to be and the high Eighty's.
And Medicare the net.
Kris if COVID-19 was a cost of approximately $17 million, increasing the MCR by 200 basis points to 87, 6% in the quarter.
The first quarter Medicare MCR was increased by 400 basis points due to COVID-19.
Sequentially, the MCR improved driven by this lower net effect of Covid and improved.
Net effect line performance compared to the first quarter.
We anticipate a full year Medicare MCR in the high eighties.
And marketplace. The net effect of Covid was a cost of approximately $35 million, increasing the MCR by 480 basis points.
The first quarter marketplace MCR included.
On a similar impact from the net effect of Covid, which increased the first quarter MCR by approximately 500 basis points.
The resulting sequential increase and MCR versus the first quarter reflects the normal seasonality associated with members, reaching their policy deductible limits.
Due to the higher than expected impact from the net effect of.
<unk> hundred in the first half of the year, we now expect marketplace pre tax margins to moderate to low single digits.
We expect that when the Covid pandemic subsides, our marketplace pre tax margin will be squarely on target with our mid single digit pre tax margin expectations.
Turning now to our balance.
Covid, we received $145 million of subsidiary dividends and the quarter, which brought our parent company cash balance to $564 million at the end of the quarter.
We have ample capacity to fund the announced acquisitions.
And our current margins, we generate significant excess cash and additional debt capacity.
After funding our announced pending acquisitions, we will have year and acquisition capacity of over $1.4 billion.
At the multiples we are paid and recent transactions. This gives us the ability to drive 3% to $4 billion and annualized revenue growth.
More importantly, and our current level of performance this level.
Sheet acquisition capacity is generated each year.
Our reserve approach remains consistent with prior quarters, and our reserve position remains strong.
Days and claims payable at the end of the quarter represented 48 days of medical cost expense and.
Changed from the first quarter.
Prior year Reserve development and the second quarter of 2021 was modestly favorable but any P&L impact was mostly absorbed by the COVID-19 related risk corridors.
Debt at the end of the quarter is 2.2 times trailing 12 month EBITDA.
Our debt to cap ratio was 50%.
However.
However, on a net debt basis net of parent company cash these ratios fall to 1.7 times and 43% respectively.
These metrics reflect a conservative leverage position.
A few additional comments related to our earnings guidance.
We raised full year 2020.
And 1 adjusted earnings per share guidance to be no less than $13.25 per share.
Which reflects the following.
Our underlying outperformance.
And increase in our revenue guidance and the associated margin.
The net effect of Covid expectations, which has increased by 1 dollar per share and.
It is now expected to be approximately $2.50 per share for the full year.
And continued caution and forecasting utilization trends and the remaining 6 months of the year due to the Covid pandemic.
And a typical year the seasonality of utilization and timing of open enrollment periods results in the third quarter earnings being higher than.
Quarter earnings.
However, this year, we expect second half earnings to be distributed more evenly between the quarters due to the net effect of Covid and particularly the impact of risk sharing corridors.
As Joe discussed we believe the incremental embedded earnings power of the company is in excess of $5.
This is composed of several items.
The increased net effect of Covid, which is now expected to create a $2.50 per share decrease that should dissipate as the pandemic subsides.
Medicare risk or disruption that created approximately 1 dollar a share overhang.
And as we obtain.
And fourth net margins on Magellan complete care, and Kentucky, and once affinity and Sigma acquisitions are closed and synergize, we expect to achieve additional adjusted earnings per share of at least $2.
This embedded earnings power does not represent 2022 guidance, but rather and accounting of the dynamic impacts that are temporarily depressing.
Our target earnings profile.
There are many other items that will affect our actual earnings guidance for 2022, including several possible scenarios for the impact of Medicaid membership Redetermination.
In short our 2021 earnings jump off point into 2022 is very strong.
This concludes.
<unk> are paired remarks, operator, we're now ready to take questions.
Thank you we will now begin the question and answer session on.
Ask a question you May press star 1 on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the key.
<unk>.
Any time Youre question has been a J and you would like to withdraw your question Keith touched on.
And then too.
At this time, we will pause momentarily to assemble the roster.
Keith.
Question comes from Kevin Fischbeck from Bank of America. Please go ahead Kevin.
Alright, great. Thanks, I wanted to maybe just dig into that last comment about.
The earnings power.
And and I guess your point about potential offset from.
Terminations and is there any framework that you guys have that you think would be helpful to think about how much.
Redetermination is adding to this to this space number and how to think about.
And the timing of when that might roll off.
Kevin This is Joe on.
And we did turn out last number of months or we have formed a view of what's going to happen with the suspension of the redetermination pause and.
And the way we now characterize it we believe that this will be.
A very organized and orderly approach to move on.
Many members that are no longer eligible for Medicaid into the uninsured population or other forms of insurance.
On slide 3 things our way.
1 there is a reasonable possibility that the federal government actually expense the public health emergency.
Second many.
Many states are actually applying for types of waivers to manage their populations and different ways, Illinois has suggested to CMS that they want to continued public health emergency for another year, New Jersey wants to re determined its members on their anniversary date.
So we believe.
And that this is going to be a very very orderly transition nobody wants to have Medicaid members stranded without coverage.
Bearing in mind, we have over 70 million members nationally that need to go through the Redetermination process and the states just do not have the capacity to do this and the mandated 6.
And the period of time.
Which suggests to us that the government and CMS may actually relax that standard and allow for more time to transition. These members. So we're looking at this as a protracted orderly event over 2022, perhaps even into 2023 to make sure that.
At all Medicaid members, who are no longer eligible have the opportunity to agent to a decent net product to income up into a highly subsidized marketplace product or as they obtain work and up and the employer sponsored insurance marketplace.
We will provide a variety of scenarios of what.
6 might look like for 2022 at our Investor Day on September 17th.
Okay. That's really helpful. I guess, maybe just to wrap that up and.
How do you think about the margin on that business I guess in general and you would think that anyone we determined it's probably a better risk pool.
And therefore, a little bit higher margin should we be thinking about it that way or are there offsets to be considering there.
There are offsets there is no question that if you look at medical economic data or actuarial data that generally speaking.
Duration of membership causes acuity.
That might a client the level of acuity to decline and there's no question about that the longer they are on the roles and less acute they are.
2 factors as you referenced offsets 1 many states took that into consideration and setting rates. So it's already in the rates that we have a lower acuity population and second.
Bear in mind that while the volume won't get picked up by the risk corridors any excess margin on those members is surely picked up by the risk corridors and 30% of our revenue is already and the 100% tier.
So yes, I would look at there is a margin on those members, but the margins likely no more than a low single digit target margin.
But we do that as a trading off the books over a very long period of time and a very orderly fashion as I suggested.
The way we look at it is the margin on those members is no greater or less and the average margin and the portfolio.
Okay. That's helpful. Thanks.
Thank you and the next question comes from Matt Borsch from BMO Capital markets. Please go ahead, Matt.
Yes. Good morning. Thank you I was hoping maybe you could talk a little bit more about E.
Utilization and medical cost components during the second quarter specifically.
And I'm trying to understand.
You know how the direct costs of Covid has evolved and marketplace and Medicaid relative to D. You know non COVID-19, if you're able to talk about non COVID-19 relative to sort of normal base line.
And I'm just a little confused on on how much pressure you're getting directly from Covid in particular.
Sure Mat and let me start with what we call just traditional normal utilization of health care services, we believe and the data supports it that the health care system is coming back to operating at full capacity.
Not greater than full capacity and not more but at full capacity, which means utilization all those types of procedures, the elected and discretionary procedures wellness visits preventive care primary care visits for checkups are all coming back to pre pandemic levels and fat and our forecast we actually trend offer.
2090 medical cost data to make sure that we appropriately capture free pandemic utilization.
And our forecast and the entire year, we trended off that full utilization.
Baseline so we are assuming that the.
The system has reverted back to prepandemic levels of utilization for all those types of services that were either deferred or eliminated during the pandemic.
Now with respect to Covid the situation, while similar is actually somewhat different today than earlier and the pandemic.
We are seeing the delta variant and the Delta variant is affecting the on vaccinated. The on vaccinated tend to be younger and healthier than folks that were vaccinated. So while we're seeing prevalence of delta variant COVID-19 infection rates.
Fewer of those incidents are required and hospital stays so much of the care is being provided and and outpatient ambulatory setting and.
And the cases that do required admission.
B the length of stay is shorter there's.
Lower incidence of icy utilization, which is expensive and lower utilization of ventilator with suggest lower acuity. So while we're seeing a prevalence of delta various COVID-19 related cases, the severity of those cases is a lot lower than the severity of the cases earlier and the pandemic.
During the quarter.
We experienced about $95 million of Covid related direct costs, a inpatient care during the quarter, but it really tapered off was.
He was about $50 million and the first month of the quarter about <unk>.
$30 million and the second and about 15 million or so and the last month and a quarter.
We expect that to research.
The Delta very and infection rate is popping, particularly and states that have low vaccination rates and and our full year forecast, we have forecasted forward a continuation of Covid direct.
Related costs of care.
And a certain level.
Hopefully that's helpful to your analysis.
Yeah very helpful. Thank you.
Thank you and the next question comes from a J re some critics fee teeth and I hate a J.
Thanks <unk> body.
Maybe just a drill down a little bit on the public exchanges, and what you're saying and the marketplace environment is.
Sounds like the cost and running a little bit ahead somewhat ahead.
And it sounds like a lot of that's COVID-19 related but can you talk about.
Why that is you think and also is the demographics of the new enrollees you've seen over the course of this year different and those that have traditionally been attracted to.
Molina publicly exchange product.
Sure a J the first thing I would say is the infection rate is very geographically.
Correlated is probably the best word to use and so while we wrote a lot of new membership and Texas Washington.
California, Mississippi, where the infection rates are high so we wrote new business at the beginning of the pandemic not knowing and not realise independent groups and at last this long and persist this long.
Granted we wrote new membership purposely growth to grow.
At the early stages of the pandemic independent and the cast persisted longer than anybody imagined.
Second any product that has and extended enrollment period or a special enrollment period has the.
Aspect of inviting adverse selection.
If you can buy insurance anytime you want you can buy it when you need it now we don't think the adverse selection bias and this population was that high but it's there and if you are writing with a selection bias.
Into markets that are COVID-19 prone, you're going to get Covid cases, and when you strip. It all back on 500 basis points of pressure and each of the first 2 quarters is the reason we are running and low single digit margins and not mid single digits and we absolutely believe is the pandemic subsides will produce and 80% ish.
MCR for the entire year and be squarely on line with those low single digit margins enabled to lift at and mid single digits into 2022.
Okay. Thanks, a lot.
Thank you and the next question comes from Stephen Valiquette <unk> Steven.
Great. Thanks, good morning, everybody.
So I guess just in relation to the the Medicare and Redeterminations being pushed out and I guess on on 1 hand, you mentioned the incremental $150 million revenue for every month and extension, which and thank you also stated several quarters ago, and you mentioned again today and at the impact is moderated somewhat and thank you talk more about 300 to 400 million incremental.
And opportunity and the remainder of 21.
And last quarter, if they saw a delay and further so I guess I wanted to just confirm that within the.
The 1 billion dollar revenue guidance increase for this year, how much of it is tied to the Redetermination and just to triangulate all the numbers.
To arrive just fed it and my remarks.
Partially due to redeterminations the marketplace and the pharmacy carve outs I will turn to Mark to walk you through the bridge.
So on on the incremental billion that we're talking about.
About 450 is the simple math on 3 additional months of the Redetermination 3 times 150, and we've also done better on marketplace as you have seen and our numbers both on OAP and.
We've picked up additional members as that market growth, that's probably another 150 on full year.
And then as we mentioned some of the pharmacy carve outs, there were 3 states, California, and New York, and Kentucky, all of which extended.
Any view on carve outs, which gave us about another 400 and you put those numbers together, that's the 1 billion and upset.
Steven does and answer all your questions do you have any further questions.
That's good for me thanks.
Thank you and the next question comes from cash in Lake from will free Sandwich. Please can I hate Justin.
Thanks, Good morning push it the comments on the RFP pipe line Jow GA prepared remarks is hoping you might be able to give us a little more color. There in terms of what are some of the key rfps we might be.
Focused on over the next 12 to 18 months and then anything on how you think California's shapes up I know, that's probably a couple of years out from any kind of decision, but obviously and importance day.
Sure Justin whereas I said, we we continue to be very bullish on our prospects and these open procurement and new states and there are a couple of states that we believe Ohio and.
Michigan, which will be.
Put in behavioral and <unk> and 2 managed care sometime in the near future and those are states, where we already have and transfer relationships and feel very good about it but on the new new.
Pointing to Nevada, Rhode Island GA, Iowa.
Tennessee is out there and.
Now, we may or may not bid on all of those they have to be sequenced appropriately with re procurement bids and other things you are working on but those are 4 to 5 GA. If I did and mentioned it those are the 4 to 5 that come to mind over the next 3 or 4 years.
And based on our track record we feel we have.
Contract winning capabilities are great proposal, writing team and we've really really amped up our and state round game building those relationships years and years advance procurement.
In order to really understand the state program and.
And to have those relationships that are so important to a state contract.
Your last part of your question, sorry was California.
What day.
Day of announced.
Year and.
Dropping of the RFP with working on it and 2022, so we're working on that timeline.
But these things have been delayed before it's the first free procurement and California, I think and over a decade and pretty sure about that it's a complicated state every state as you know as a different managed care model, but.
We do really really well and law and Sacramento and San Diego the inland Empire and we have every reason to believe that not only do we have every opportunity to defend our current positions the day actually grow and a few other counties, where we currently don't play.
And so on top.
You are welcome Justin.
Thank you and the next question comes from Dave Wendy from cafes piece going Hey date.
Hi, Good morning, Thanks for taking my question and you are.
Or quantification of the $5 of earnings power I think the last couple of dollars or.
From Fuller's fully synergizing acquisitions and wanted to make sure I was clear on whether that was just counting those that you've completed or if you are also including those that you talked about completing at the end of this year and early next year. So that's my first question.
Data is a little bit of both and I'll kick it to mark for the actual bridge.
Yeah. So recall the numbers total around 550.250 of that was the net effect of Covid, we talked about the Medicare risk scores, you're pointing to the remaining $2 of M&A upside.
Dave that split evenly between a dollar of incremental run rate on MCC and Kentucky. Those are the ones that are already in current year performance.
So in their second year, they'll mature to their full run rate that gives you a 1 dollar.
Than the ones, we've announced but not closed.
And will be in next year's.
Aw.
Performance that will give you the remaining dollar.
Got it and then Joe you talked about and I. Thank you and really touched on this maybe last time, but talked.
Talked about the risk quarter quarter is going away and that you feel pretty comfortable and if that's.
What's going to happen.
And thinking about.
The state's kind of hedge they win tails you lose on this that they put the risk corridor and to get money back when you were underspending, but in the event that.
That the utilization bounces back and and your overspending non medical costs, they've taken them away is that how do you protect against.
That risk.
And it's really good question because as you know these risks corridors by rule has to be symmetrical. So anything you potentially give up on the upside you get on the downside work the targets have been set at a point, where as a company or operators Mark time, our financial officer and myself.
Don't even think about winning.
Winning.
Getting money back on the downside.
It's possible, but we think.
We think we know there's lots of non for profit players that may get checks from the state government because they are operating above.
We are not operating anywhere near that target, which is why.
Our quarters are substantial we have some of the highest margins and the industry and many of our states and therefore, whether a dollar of outperformance is related to COVID-19 or just skill you'll get it back and the corridor appeared on 100% here. So we don't think about being.
Being protected on the downside because we have we're not skating that close to the edge at all and if we were and that suggest a different set of problems that were not operating and an excellent way, we're nowhere near that territory. So we're not at all relying on north put value and the upside protection and the corridor.
Got it thanks, and and then quick last 1 you talked about.
The quantification of your buying power for for new plans and and fairly substantial amount and.
And the ability to regenerate that is your cash flow where does your.
Your infrastructure stand or are you, making steady investments and infrastructure to be able to on board that much revenue or or do you face a step function at some point and the next couple of years.
I'll give.
And give you a quick answer and then kick it to mark, but we have a fully ramped up integration team and.
And on.
Our analysis is we have lots of runway.
Many billions of dollars of revenue to add and our current and infrastructure with our current.
Cloud supported applications are data centers, which are now moving to the cloud the entire infrastructure physical infrastructure application infrastructure all the on the shelf applications. We use all have the scale ability to take on billions of dollars of additional revenue.
Without hitting a step function. It's a question I have been asked before and when I look at very seriously, there's not a big Bang technology redo here because of our acquisition strategy are platforms and handle the additional scale.
Thank you and.
Thank you and the next question comes from Fidel from Stevens, He's Gonna hate Scott.
Hi on.
Thanks have good morning, everyone 1.
1 asked a question just on going back to the marketplace and just thinking about philosophically, how you've approached the pricing strategy for 2022.
Targeting wanted to get to that and a single digit margin that you feel that you have underneath the COVID-19 impact spot interest interested as we think about how you have have a view sort of input and sort of continued COVID-19 impact and into next year potential acuity dynamics relating to the members that came in and this.
This year, particularly related to some of the.
The extended fighting.
And then I guess just game theory to around the competitive environment.
With some of these these newer players in particular.
And.
More aggressive on some of the pricing strategies. Thanks.
Sure.
This is a business the marketplace business.
Putting a frame around it.
First of all it's a it's a strategic adjacency to Medicaid and follows our Medicaid footprint and Leverages, Our Medicaid network, both in terms of network adequacy.
And and pricing so it's very much attached to the Medicaid business the marketplace business will follow the Medicaid footprint, so strategically and fifth.
At just over 10% of revenue, it's sort of in line with an adjunct and adjacency that fits nicely into the portfolio. So we liked the position and it has to your point about 2022.
Manage this business for margin first and membership later on.
Because it's a blind bid business, where you're being against competitors not knowing exactly how they are going to bid you have to be careful.
And so when we established our 2022 bidding strategy I'll stay away from geographic detailed because I'd be giving away proprietary information.
We pretty much used the high cost higher cost base line that we've been experiencing here early and the year now and that means somebody else took a flyer on it and decided that as the pandemic subsides. All this cost goes away and they beat US on price line will give up the member and we'll make sure we have mid single digit margins. So.
This business because of the blinded strategy because of the inherent.
Movement of members, who will move for price.
We are pricing for margin over membership, but we believe we will continue to have a very robust and profitable business and to next year, but again following our Medicaid footprint.
Got it thanks and.
Just 1 follow up question.
And you stop giving and some of these unique dynamics, particularly related to the corridor.
I'm looking at the balance of Pps's, you're expecting over the rest of the year any anti itch youre willing to provide us just and turns how to split may walk between <unk> and <unk>.
Sure and are typically year, you'd see a little better margin and the third quarter and a little taper off into force and my prepared remarks, what I've said is that we expect to see more of a level dynamic between Q3 and Q4, partly it's the utilization patterns just aren't like what we've seen.
And and a normal year right.
But we've got and continuing COVID-19 potentially the delta variant going into Q3 here, but the other thing is just the leveling effect of these corridors.
Level out the performance from 1 quarter to the next so not quite the normal seasonality you would expect to see you might model something a little moral level between the quarters.
Okay. Thank you.
Thank you ladies and gentlemen, just another reminder, if you would like to ask a question Keith.
And then the next question comes from Josh My skin from next on the stage he's going to hate Josh.
Thanks, and good morning and.
I'm gonna get back to that sort of scalability question and you look at the quarter and you added $280 million, a rap and use and G&A was only up $11 million and.
I know typically we hear about new revenues coming and it less profitable levels and I have a large majority of that's on the MLR line and not necessarily the G&A, but just trying to figure out and you guys are now and industry leading level and.
And so how sustainable is that G&A and do you think there's investment's needed and certain areas and maybe more specifically just where is it cost savings and are coming or is it really just leverage on new revenues.
Jeffrey continue to be disciplined on the cost line and when we talk about fixed costs leverage.
Hope is not a strategy you don't hope that it happens you actually manage to it.
You bring on the signal book of business and additional $1 billion and revenue.
We can run it with half the people that were running it before because of our presence and Texas and at the corporate headquarters you don't need to add more accountants lawyers and HR people in order to manage the business. So we have a SOG and non strategy in terms of corporate overhead and when we're bringing on bolt on and tuck ins and our existing J.
Agra fees, we make sure that we appropriately resource the business to make sure that every member and providers getting the service they need but that we use local scale and only take on that variable cost and run the business and Mark and his finance team and the operators are really disciplined about doing it which which is why.
And we've said many many times and we'll say it again on the 17th.
That whatever MLR pressure pressure exists in this business and it's managed care. So it's always exists. We believe can be overcome if we're successful on our growth strategy with fixed cost leverage and we're already starting to drive our SG&A ratio down below 7 on a consolidated basis. It is a lot lower than that and medic.
Cade and obviously Medicare brings it up Medicare as a mid.
Mid teens GAA ratio. So the mix effect will will affect that but we have every intention of driving this ratio given our growth trajectory down to the sixes.
Okay. Thanks.
Thank you. The next question comes from Stephen Baxter from Wells Fargo.
And please can I get Steven.
Yes, hi, thanks.
Just similar to how you broke down the incremental premiums that are included and guidance. It seems like you know, there's and implied dollars 25, and incremental earnings power and you think about areas and the guidance and flag and the extra dollars from Covid. So I was wondering if you could similar to how you talked about the extra near Hfdf Medicaid revenues extra day 150 <unk>.
Exchange premiums and part of that and any sense of what the extra 125 breaks down to in terms of the drivers there would be helpful.
Sure I'll take that a couple of chunks, obviously the headwind there was the dollar of incremental net COVID-19, so offsetting that $1.25 of upside right.
It's probably broken into 2 components I think about 80 cents of that dollars 25, just related to that billion incremental revenue we talked about.
Maybe an additional 45.
It's just on our underlying performance a little bit and the front half of the year and what we see for the second half of the year and that's things like our payment integrity programs are you M. R C and some of that SG&A disciplined and that Joe was just talking about so the 80 cents on the $1 billion to 45 cents, just our underlying performance that.
Gets you to about $1.25.
And the point you made is really an important 1 even though the guide is optically only 25 cents higher on if you want on normalized for Covid, we're adding $1.25 really true earnings performance.
And margin on revenue, which is a really good trajectory as a jumping off point into 2022.
Thanks, and then just on 1 follow up on the question.
7 asked before about Redeterminations when you talk about the overall redetermination population and not really thinking that's kind of carry a different margin and the broader Medicaid book are you talking about a gross margin or and operating margin and I guess, how do you think about dealing with SG&A deleveraging potential for that population. Thanks.
We did we did have to take on additional resources to service fee increase population. So.
So it's not as though we leverage the complete infrastructure and therefore, it's only contribution margin it's going to be we will have some SG&A that we'll be able to depart. The company. We took on on contract resources. We worked overtime, we added resources and our call centers.
And and our clinical services and those who will be able to be relieved when that membership when that membership interest and again the point I want to make as we're at 680000 members up organically since the beginning of the pandemic that number is likely to be $750 and by the end of the year.
It's not going to zero.
The structural level of unemployment, particularly in the lower wage service economy that economy was far more stressed than the average economy.
The stimulus checks and the unemployment benefits is still out there and.
And that number is just not going to zero now where it lands, we don't know, but we believe and it's been proven over 35 years that any time, there's been an event usually some type of economic event or recession, where Medicaid enrollment has swelled that.
Post event.
Membership the enrollment nationally has stayed at and increase levels 4 years. After the crisis has abated. So we're pretty comfortable and saying that 750000 were likely to be up will not go to zero, where it lands and we don't know, but at the unemployment rates and many of our space, particularly low wage service economy are still quite high.
And the only other thing to sprinkle on top of that is we'll talk more about this and at Investor day, but as that Redetermination.
And the revenues from that obviously form a headwind you talked a little bit about G&A leveraged component, but don't forget that'll be offset with our growth initiatives are new M&A right. We've got 2 deals that will effect next year, new procurement and our other organic growth initiatives. So it's still a growing revenue pie and still a very and.
Tractive G&A proposition.
Got it thank you.
Thank you. This concludes our question and answer session.
France has now compete thank you for attending today's presentation you may now disconnect.
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