Q1 2024 Molina Healthcare Inc Earnings Call
After todays presentation, there will be an opportunity to ask questions.
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.
Now I'll turn the conference over to your host today Jeffrey Guyer. Please go ahead.
Jeffrey Guyer: Good morning, and welcome to Molina Healthcare's first quarter 2024 earnings call joining.
Jeffrey Guyer: Joining me today are Molina, as president and CEO, Joseph rescue and our CFO Marc <unk> cut.
Jeffrey Guyer: A press release announcing our first quarter 2024 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.
Jeffrey Guyer: For those of you who listen to the rebroadcast of this presentation. We remind you that all of the remarks are made as of today Thursday April 25th 'twenty 'twenty four and have not been updated subsequent to the initial earnings call.
Jeffrey Guyer: On this call we will refer to certain non-GAAP measures.
Jeffrey Guyer: A reconciliation of these measures with the most directly comparable GAAP measures can be found in the first quarter 2024 earnings release.
Jeffrey Guyer: During the call, we won't be making certain forward looking statements, including but not limited to statements regarding our 2024 guidance Medicaid Redetermination. Our recent RFP award and related revenue growth, our recent acquisitions and M&A activity, our long term growth strategy.
Jeffrey Guyer: Our embedded earnings power in future earnings realization and our Medicare business performance in 2025.
Jeffrey Guyer: 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.
Jeffrey Guyer: We advise listeners to review the risk factors discussed in our Form 10-K annual report filed with the SEC as well as the risk factors listed in our Form 10-Q, and form 8-K filings with the SEC.
Jeffrey Guyer: After the completion of our prepared remarks, we will open the call to take your questions.
Jeffrey Guyer: I'll now turn the call over to our Chief Executive Officer, Joe Zebrowski Joe.
Joseph Michael Zubretsky: Thank you, Jeff and good morning.
Today, I will cover our traditional quarterly topics.
Joseph Michael Zubretsky: Our reported financial results for the first quarter.
Joseph Michael Zubretsky: Which were in line with our expectations highlighted by $5.72 of earnings per share.
Speaker Change: An update on our guidance, which we reaffirmed at $38 billion with premium revenue.
Speaker Change: At least $23 50 in it.
Speaker Change: Earnings per share and an.
Speaker Change: For an update on our growth initiatives, which in the quarter were mixed but we are maintaining our $4 per share estimate of embedded earnings and our long term growth outlook.
Let me start with our first quarter performance.
Speaker Change: Last night, we reported adjusted earnings per share of $5 73.
A $9 $5 billion of premium revenue.
Speaker Change: Supported by excellent operating metrics across all lines of business.
Speaker Change: Our 88, 5% consolidated MCR reflects continued strong medical cost management with all three segments reporting Mcr's in line with our expectations.
Speaker Change: We produced a four 5% adjusted pre tax margin or three 4% after tax a very strong result that is in the middle of our long term target range.
Speaker Change: In Medicaid, we continue to deliver strong operating margins, while growing our franchise as the business produced a first quarter MCR of 89, 7%.
Speaker Change: Our expanded platform in California, and our new Nebraska Health plan together added over half a million members and along with our new store additions in late 2023 drove an increase in the MCR above our long term target range, but in line with our quarterly expectation.
We believe we have now experienced approximately 90% of the Medicaid Redetermination impact.
Speaker Change: The acuity shift unfolded as we predicted and appears to have stabilized in most of our markets.
Speaker Change: Rate changes, both onsite and off cycle, largely offset this acuity shift.
Speaker Change: With risk corridor, capturing any temporary shortfall.
Speaker Change: Medicaid rates remain Actuarially sound with 19 states that represent over 95% of our revenue providing acuity related rate adjustments within 2024.
Turning to Medicare our first quarter reported MCR was 88, 7% a performance in line with our expectations.
Speaker Change: The higher utilization, we experienced in the second half of 2023.
Speaker Change: Due to higher L. P. S S cost in pharmacy utilization continued into 2024.
Speaker Change: But the operational improvements and supplemental benefit adjustments, we made in our legacy business have thus far proven to be successful.
Our first quarter experience of the newly acquired Brian Medicare plans provides us with confidence in our turnaround plan to deliver the embedded earnings.
Speaker Change: Our strategy of leveraging our existing Medicaid footprint to serve high acuity low income Medicare beneficiaries is working well.
Speaker Change: And marketplace. The first quarter MCR was 73, 3% and in line with our expectations.
Speaker Change: Our membership mix comprised 50% renewal members and 70% of members in our silver product.
Speaker Change: So our renewal gives us keen insight into the acuity of our membership base.
We continue to expect this business to grow throughout the year as the Medicaid Redetermination process.
Speaker Change: It's a great opportunity to capture membership during the special enrollment period.
Speaker Change: Turning now to our guidance for the full year.
Speaker Change: Based on our consolidated first quarter results, we reaffirm our full year 2024 adjusted earnings per share guidance of at least $23 50.
Speaker Change: Or 13% year over year growth.
Speaker Change: Our full year premium revenue remains unchanged at approximately $38 billion or 17% year over year growth.
While we are seeing increased underlying strength in our core business. We are maintaining our full year guidance to account for any potential earnings headwind in the second half of the year from potential contract losses in Virginia and Florida.
Speaker Change: Yeah.
Speaker Change: Our 2020 for revenue and EPS guidance provide a strong foundation for profitable growth in 2025 and beyond.
Speaker Change: Now some comments on our growth initiatives.
Speaker Change: In Medicaid we had mixed success in the quarter.
Speaker Change: We were awarded a large RFP win in Texas.
Speaker Change: A large re procurement when in Michigan.
Speaker Change: Were not awarded contracts in two other existing states, Virginia and Florida.
Speaker Change: All of these impacts combined Cros no net change to our embedded earnings which remained at $4 per share.
Speaker Change: Let me provide some commentary on these RFP outcomes.
Speaker Change: In Texas, the state announced its intent to award US all seven of our preferred service areas as part of its star and chip programs.
Speaker Change: This contract is expected to begin in September 2025, and last for six years with the option to extend up to an additional six years.
Speaker Change: <unk> expands our footprint and increases our market share.
Speaker Change: We successfully defended our positions in Michigan and were awarded a contract in six regions.
Speaker Change: While these regions represent 93% of our current membership.
Speaker Change: Reward reduced the number of payers and many of our retained regions.
Speaker Change: We expect to grow our market share.
Speaker Change: We were very disappointed with the outcome and the Virginia, RFP, but we are exercising our right to challenge this decision.
Speaker Change: We were also disappointed with the RFP results in Florida.
Speaker Change: But history has shown that the ultimate outcome, there could be more favorable.
Speaker Change: We will continue to refine our membership revenue and embedded earnings estimates as we gain clarity on the new contracts are expanding market share and the unwinding of any lost revenue.
Speaker Change: Now with respect to future growth initiatives, our growth pipeline remains replete with opportunity.
Speaker Change: Regarding rfps, many opportunities remain with over $60 billion of premium opportunity up for bid over the next three years.
Speaker Change: This includes inflight RFP bids in two states, Kansas and Georgia.
Speaker Change: A projected nearer term RFP in North Carolina.
Speaker Change: The Texas Star Kids program is likely going to RFP soon where we now have a very strong statewide presence and great momentum.
Speaker Change: We remain confident in our ability to win new state contracts and deliver clinical and financial outcomes that align with the needs of our state partners.
Although this quarter's RFP results were mixed.
Speaker Change: Since we began our growth strategy, we are seven for nine and re procurements and eight for 10 and new business procurements.
Speaker Change: This track record gives us great confidence in our strategy and our continued ability to drive growth.
Speaker Change: With respect to M&A initiatives, our acquisition pipeline contains many actionable opportunities we have executed eight transactions totaling $11 billion in revenue over the past four years and M&A will continue to be a key component of our strategy.
Speaker Change: Next as we look forward into 2025, two comments about the outlook for our Medicare portfolio.
Speaker Change: First our Medicare product profile has different characteristics than mainstream MAA PD business.
Speaker Change: Our business is a combination of legacy decent.
Speaker Change: MMP demonstrations and our newly acquired brake business.
Speaker Change: With this lineup of products factors, such as rate setting bidding and revenue drivers do matter, but to a lesser extent.
Speaker Change: Second the product portfolio is well positioned to contribute to our growth.
Speaker Change: Our penetration and dual eligible populations high acuity and all income will benefit from further integration of Medicare and Medicaid benefits.
Speaker Change: CMS recently announced rules to closely align dual eligible populations with Medicaid MCR.
Which means our Medicaid footprint will be a growth catalyst for attracting and retaining dual eligible membership.
Speaker Change: With our 2024 guidance reaffirmed we remain committed to delivering on our long term premium and earnings per share growth targets.
Speaker Change: With all of the successful growth activity in M&A, and new and expanded contracts, even considering the potential for contract losses of reductions, we maintain our embedded earnings outlook at $4 per share.
Speaker Change: Mark will provide insight on the components in a moment, but the majority is still expected to emerge in 2025.
Speaker Change: In summary, we are very pleased with our first quarter 2024 financial and operating performance.
Speaker Change: That performance combined with our successful track record for producing topline revenue keeps us on track for sustaining profitable growth consistent with our long term targets.
Speaker Change: With that I will turn the call over to Mark for some additional color on the financials.
Speaker Change: Mark.
Mark: Thanks, Joe and good morning, everyone.
Mark: Today I'll discuss additional details on our first quarter performance the balance sheet, our 2020 for guidance and thoughts on embedded earnings.
Mark: Beginning with our first quarter results.
Mark: For the quarter, we reported approximately $10 billion in total revenue and $9 5 billion of premium revenue with adjusted EPS of $5 73.
Mark: Our first quarter consolidated MCR was $88 five and reflects continued strong medical cost management.
The change health care, an outage did not materially impact quarterly result.
Mark: And all of our segments reported MCR in line with our expectations.
Mark: In Medicaid our first quarter reported MCR was $89 seven.
Mark: As expected the new store additions in California in Nebraska, as well as the Iowa and the my choice, Wisconsin acquisition in late 2023 drove a higher reported MCR in the first quarter.
Recall, we have added approximately 800000 Medicaid members in the past three quarters and these new store members typically experience higher MLR in the early stages.
Mark: Across our Medicaid business, the major medical cost categories were largely in line with our expectations and the normal quarter to quarter trend fluctuations within our guidance.
Mark: Yeah.
Mark: In Medicare our first quarter reported MCR was $88 seven in line with our expectations.
Mark: L. T S. That's cost and pharmacy utilization continued in our legacy business, but were somewhat offset by the operational improvements and benefit adjustments that we implemented for 2024.
Mark: Segment results now include the newly acquired Great plans with initial performance as expected.
Mark: In marketplace, our first quarter reported MCR was 73, three and we are pleased with the high renewal rates and significant silver membership composition.
Mark: Our adjusted G&A ratio for the quarter was $7, one as expected, reflecting operating discipline and the continued benefit of fixed cost leverage as we grow our business.
Mark: Moving on to Medicaid Redetermination.
In the quarter, we estimated a net loss of 50000 members due to re determinations.
Mark: This was on track with our expectations and brings the total net loss from Redetermination since its inception to 550000.
Mark: We estimate that our membership is approximately 90% of the way through the Redetermination process.
Mark: We expect to lose another 50000 members in the second quarter.
Mark: The last quarter of pandemic related redetermination to reach our total estimated net loss of 600000.
Yeah.
Mark: Our reconnect rate was 30%.
Mark: We expect this rate to remain near 30% in the second quarter and of course, some of the reconnect benefit will continue into the third quarter and beyond.
Mark: We continue to see strong marketplace membership growth as Medicaid members, losing eligibility moved to Molina marketplace products.
Turning to our balance sheet.
Mark: Our capital Foundation remains strong.
Mark: On January <unk>, we closed a bright acquisition at a final price of approximately $425 million funded with cash on hand.
Mark: In the quarter, we harvested approximately $110 million a subsidiary of dividends, bringing our parent company cash balance to $194 million at the end of the quarter.
Mark: Debt at the end of the quarter was unchanged and one four times trailing 12 month EBITDA.
Mark: With our debt to cap ratio at about 35%.
Mark: These ratios reflect a low leverage position and ample cash and capital capacity for additional growth and investment.
Mark: In the quarter, both S&P and Moody's upgraded our credit ratings based on our low debt.
Mark: Table earnings profile and high transparency.
Mark: Yeah.
Mark: Days and claims payable at the end of the quarter was 49 and.
Mark: And consistent with prior quarters.
While the change healthcare outage impacted our February operations with claims 20% lower than normal.
Mark: We're pleased to report that our quick response through alternative clearinghouses, we stored claims and payments to near normal levels in March.
Mark: Given the mid quarter disruption, we've been appropriately prudent and are confident in the strength of our reserve position.
Mark: Next a few.
Mark: <unk> comments on our 2020 forward guidance.
Speaker Change: As Joe mentioned, we reaffirm our full year guidance with premium revenue of approximately 38 billion.
Speaker Change: Our revenue guidance remains unchanged as we work with state partners to understand the timing and impact of any contract losses in Virginia and Florida.
Speaker Change: Our full year consolidated MCR is unchanged at $88 two.
Speaker Change: Medical cost trends are in line with expectations across all businesses and we remain appropriately conservative in our outlook on utilization and acuity trends at this stage in the year.
Speaker Change: We continue to expect full year EPS of at least $23 50 per share.
Speaker Change: We see underlying strength in our core business. However, we are maintaining our full year guidance recognizing any potential earnings headwinds in the second half of the year for potential contract losses in Virginia and Florida.
Speaker Change: Looking ahead to 2025, a few observations on our Medicare portfolio.
Speaker Change: The CMS final rate notice for Medicare advantage has received a lot of attention.
Speaker Change: For Molina, it's important to note that only two thirds of our Medicare segment revenue.
Speaker Change: We're only 10% of total enterprise revenue is fully subject to these rates.
Speaker Change: With a heavy concentration in California, we yielded a more favorable rate profile than CMS national averages.
Unknown Executive: 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. Now, I turn the comments over to your host today, Jeffrey Geyer. Please go ahead.
Jeffrey Geyer: Good morning, and welcome to Molina Healthcare's first quarter 2024 earnings call. Joining me today are Molina's President and CEO, Joe Zubretsky, and our CFO, Mark Keim.
The remaining one third of our Medicare segment, the MMP demonstrations receives rate determined by CMS and our state partners, which continues to be appropriate commensurate.
Speaker Change: With cost trends.
Unknown Executive: A press release announcing our first quarter 2024 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.
Speaker Change: We remain confident that the rate environment, and our product profile will position us to grow our Medicare business profitably.
The integration of our recent rate acquisition is off to a great start.
Speaker Change: Recall that we are expecting modest dilution for bright this year, we expect an improvement to breakeven in 2025, and then full run rate accretion of $1 EPS in 2026.
Unknown Executive: 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 25th, 2024, and have not been updated subsequent to the initial earnings call. In this call, we will refer to certain non-GAAP measures. A reconciliation of these measures with the most directly comparable gap measures can be found in the first quarter 2024 earnings report. During the call, we will be making certain forward-looking statements, including, but not limited to, statements regarding our 2024 guidance, Medicaid redeterminations, our recent RFP awards and related revenue growth, our recent acquisitions and M&A activity, our long-term growth strategy, our embedded earnings power and future earnings realization, and our Medicare business performance in 2025.
Speaker Change: Looking at our Medicare segment from a different perspective, as Joe mentioned earlier, we believe that the recent CMS 2025 final rule strategically advantage to us to grow.
Speaker Change: Currently many dual eligible members received their Medicaid and Medicare benefits from two different Mcs.
Speaker Change: CMS announced rules that will move these underlying dual members to the D. SNP plan run by their Medicaid MCR.
Speaker Change: As such incumbent Medicaid players will see increased growth opportunities in decent it.
Speaker Change: While the new rule will phase in over time.
Speaker Change: It's clear that our substantial Medicaid footprint positions us well to grow our D SNP product to serve dual eligible members.
Speaker Change: This shift along with demand for our state partners to service these complex populations.
Unknown Executive: 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, Joseph Raskin. Joe?
Speaker Change: This covenant, our Medicare portfolio will meet our long term growth and margin targets.
Speaker Change: Turning to embedded earnings we continue to guide to $4 of new store embedded earnings as we now expect approximately 80 cents.
From the new contract win in Texas, It's uptick next year to be offset by our best estimate of next year's impact of the Virginia, and Florida potential losses.
Speaker Change: We expect the majority of this new store embedded earnings to emerge in 2025 with the remainder in 2026.
Speaker Change: Giving us further confidence in our 15% to 18% long term growth rate for EPS.
Joshua Raskin: Thank you, Jeff, and good morning. Today, I will cover our traditional quarterly topic, reporting financial results for the first quarter, which were in line with our expectations, highlighted by $5.72 a burn rate per share. An update on our guidance, which we reaffirm at $38 billion of premium revenue and at least $23.50 in earnings, and an update on our growth initiatives, which were mixed in the quarter, but we are maintaining our four dollars per share estimate of advantaged earnings and our long-term growth outlook. Let me start with our first quarter performance.
This concludes our prepared remarks.
Speaker Change: Operator, we're now ready to take questions.
Speaker Change: Thank you we will now begin the question and answer session.
Speaker Change: A question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys is that anytime. Your question has been addressing and collect withdraw it. Please press star then two.
Speaker Change: Time, we will pause momentarily to assemble the roster.
Speaker Change: And today's first question comes from <unk> <unk> with J P. Morgan.
Speaker Change: Hey, good morning, Thanks for the question.
Speaker Change: I guess first I wanted to start on the guidance here.
Speaker Change: You talked about the strength in the core business in the MCR are sort of being in line with your expectations. So I guess is the right way to think that the strength is really coming from G&A and then when we think about the back half is I guess it was the outperformance and the current but not enough to allow you to me.
Joshua Raskin: Last night, we reported adjusted earnings per share of $5.73, a $9.5 billion premium, supported by excellent operating metrics across all lines of business. Our 88.5% consolidated MCR reflects continued strong medical cost management, with all three segments reporting MCRs in line with our expectations. We produced a 4.5% adjusted pre-tax margin, or 3.4% after-tax, a very strong result that is in the middle of our long-term target range. In Medicaid, we continue to deliver strong operating margins while growing our franchise, as the business produced a first quarter MCR of 89.7%.
Speaker Change: <unk> guidance or if you think about the potential contracts going away are there additional SG&A savings you'd need to target in the back half to be able to offset those losses, but any color to help us frame that would be great.
Speaker Change: Okay.
Speaker Change: We are clearly, saying that if we have a revenue loss in the second third and fourth quarters due to the contract losses.
Speaker Change: And the related earnings.
Strength in our core business will produce enough earnings power to offset that.
Speaker Change: And it's no one thing it's just general performance of all the portfolios for loss ratios and our Medicaid and Medicare business get better as the year progresses for a variety of reasons, obviously in marketplace. It's higher in the back half due to the normal seasonality of that business, but there is <unk>.
Joshua Raskin: Our expanded platform in California and our new Nebraska health plan together added over half a million members, and along with our new store additions in late 2023 drove an increase in the MCR above our long-term target range but in line with our quarterly expectations. We believe we have now experienced approximately 90% of the Medicaid redetermination impact. The acuity shift unfolded as we predicted and appears to have stabilized in most of our markets. Rate changes, both on-cycle and off-cycle, largely offset the security shift, with risk corridors capturing any temporary shortfalls.
90 basis points of improvement projected and the Medicaid MCR in the last three quarters of the year and 90 basis points of improvement in the Medicare MCR.
And the second third and fourth quarters. So just general performance of the business the seasonality happens for a variety of reasons general strength of the business to offset any potential earnings drag from potentially lost contracts.
Speaker Change: Got it and then I wanted to ask about the SNP regs as well.
Joshua Raskin: Medicaid rates remain actuarially sound, with 19 states that represent over 95% of our revenue providing acuity-related rate adjustments within 2024. Turning to Medicare, our first quarter reported MCR was 88.7%, a performance in line with our expectations. However, the higher utilization we experienced in the second half of 2023 due to higher LTSS costs and pharmacy utilization continued into 2020. But the operational improvements and supplemental benefit adjustments we made in our legacy business have thus far proven to be successful.
Speaker Change: Typically you know how does that change your strategic thinking about M&A.
Speaker Change: M&A.
Speaker Change: I mean, I think the bright deal was really the first big Medicare as if you've gotten purchases. This change the way you think about whether you'd be more biased towards MAA or Medicaid or is it really just more.
Motivation to sort of double down on the organic growth.
Speaker Change: It doesn't really change our M&A strategy I mean, we look for opportunities across all of our product lines are here to for most of our M&A activity has been in Medicaid, but the bright acquisition represents.
Speaker Change: First M&A opportunity that reaction in Medicare.
Speaker Change: What we're really saying is the fact that we have this 20 state footprint in Medicaid and growing.
Joshua Raskin: Our first quarter experience of the newly acquired Bright Medicare plans provides us with confidence in our turnaround plan to deliver the embedded earnings. Our strategy of leveraging our existing Medicaid footprint to serve high-acuity, low-income Medicare beneficiaries is working well. In the Marketplace, the first quarter MCR was 73.3% and was in line with our expectations. Our membership mix comprised 50% renewal members and 70% of members in our silver product.
Speaker Change: The D. SNP opportunity is just one more way to monetize your significant Medicaid footprint and the fact that we have a very robust and very oh.
Speaker Change: Operationally excellent decent business those two platforms combined will allow us to participate and duly eligible population growth rate that's going to happen here over the next number of years. So we're very very pleased with the final rule that came out from CMS, which basically says that.
Joshua Raskin: Strong Renewals gives us keen insight into the acuity of our membership. We continue to expect this business to grow throughout the year as the Medicaid redetermination process provides a great opportunity to capture membership during the special enrollment period. Turning now to our guidance for the full year. Based on our consolidated first quarter results, we reaffirm our full year 2024 adjusted earnings per share guidance of at least $23.50, or 13% year-over-year growth. Our full year of premium revenue remains unchanged at approximately $38 billion, or 17% year over year.
Speaker Change: Medicaid will be the anchor tenant.
Speaker Change: We're actioning the dual eligible population.
Speaker Change: Thank you Brandon.
Speaker Change: Next question comes from Josh Raskin with Nephron research.
Joshua Raskin: Hi, Thanks, I'm, just I'd go back on the Virginia, and Florida, I heard the 80 cents from Texas, and then the offset Fab, Virginia, Florida is that 80% and annual number and is it say 40 45 for 2024, specifically and then just a second question on the M&A pipeline to follow up there as well I'm curious if your experience with the.
Joshua Raskin: A bright and then the 2025 rate update does that change the way you've thought about Medicare advantage.
I'll kick it to Mark for the for the question on the Florida and Virginia Earnings Go ahead, Yeah, Hey, Josh Good morning.
Joshua Raskin: While we are seeing increased underlying strength in our core business, we are maintaining our full-year guidance to account for any potential earnings headwind in the second half of the year from potential contract losses in Virginia and Florida. Our 2024 revenue and EPS guidance provide a strong foundation for profitable growth in 2025 and beyond. Now, some comments on our growth initiative. In Medicaid, we had mixed success in the quarter. We were awarded a large RFP win in Texas and a large re-procurement win in Michigan, but we were not awarded contracts in two other existing states, Virginia and Florida. All these impacts combined cause no net change to our embedded earnings, which remains at $4 per share.
On Virginia, and Florida, just to set the stage, we think right now it's about a $2 billion revenue run rate and about a $1 10 on EPS full year.
Mark: Now at the simplifying assumption is we lose both in the fourth quarter the headwind would be a half billion on revenue and 30 cents, but look we're still working that through.
Mark: Those are under protest at exactly what the timing is is somewhat unclear, but if you're a pause is that assumption. It would be a 30 cent component to this years guidance, which as we mentioned in our prepared remarks. It is offset by the underlying strength of the business.
Mark: So if the full run rate of $1 10, we recognized 30. This year. What's left is 84 embedded earnings and that is exactly offset by the 80 sensitive accretion we see in star and chip.
Joshua Raskin: Let me provide some commentary on these RFP outcomes. In Texas, the state announced its intent to award us all seven of our preferred service areas as part of the SAR and CHIP program. This contract is expected to begin in September 2025 and last for six years, with the option to extend up to an additional six.
Okay.
Mark: Josh in your second question related to <unk> right.
Speaker Change: Now that we've owned the business for a full quarter we are.
Speaker Change: Very optimistic.
Speaker Change: And confident in the $1 ultimate accretion the way to think about that business.
Speaker Change: Very simple.
Joshua Raskin: The award expands our footprint and increases our market share. We successfully defended our position in Michigan and were awarded a contract in six regions. While these regions represent 93% of our current membership, the award reduced the number of payers in many of our retained regions, and thus, we expect to grow our market. We were very disappointed with the outcome of the Virginia RFP, but we are exercising our right to challenge this decision. We were also disappointed with the RFP results in Florida.
Speaker Change: Operationally breakeven in year, one with a slight earnings drag related to the carrying costs.
Speaker Change: Breakeven in year operationally breakeven in year two.
Speaker Change: And.
Speaker Change: For $1 accretion in year, three and we get there by we inherited a 95% MCR in the business, we manage it to 87, we inherited a 13% G&A ratio in the business, we manage it to 8300 basis points of turnaround, which on 1 billion sticks of revenue would show you how we get to the full accretion.
Speaker Change: The G&A savings will likely happen sooner.
Speaker Change: As we need to go through to pricing cycles to get the MCR down to 87, but now that we've owned it for a quarter and have an excellent line of sight to the operating metrics and it did.
Joshua Raskin: But history has shown that the ultimate outcome there could be more favorable. We will continue to refine our membership, revenue, and embedded earnings estimates as we gain clarity on the new contracts, our expanding market share, and the unwinding of any lost revenue. Now, with respect to future growth initiatives, our growth pipeline remains replete with opportunity. Regarding RFPs, many opportunities remain, with over $60 billion of premium opportunities up for bid over the next three years. This includes in-flight RFP bids in two states, Kansas and Georgia, and a projected near-term RFP in North Carolina.
Speaker Change: Amateur the business we're.
Speaker Change: Very confident and producing.
Speaker Change: That portion of our embedded earnings.
Speaker Change: Okay.
Speaker Change: Thank you and the next question comes from Stephen Baxter with Wells Fargo.
Stephen Baxter: Hi, Thanks two.
Stephen Baxter: Two questions for you just first I was hoping you could potentially spike out the new store Medicaid impact on MLR and then when you think about the.
Stephen Baxter: The 90 basis point improvement that you're talking about how much of that is normal seasonality versus maybe new store coming down or maybe just getting back some of the the last bit of acuity adjustment and then the second question is just on the Medicaid deal pipeline I think your last announcement on that front I know these deals take a long time to close but you know in July 2022, I was just wondering if you could give us an update.
Joshua Raskin: The Texas Star Kids Program is likely going to RFP soon, and we now have a very strong statewide presence and great momentum. We remain confident in our ability to win new state contracts and deliver clinical and financial outcomes that align with the needs of our state partners. Although this quarter's RFP results were mixed, since we began our growth strategy, we are 7 for 9 in re-procurements and 8 for 10 in new business procurement.
Stephen Baxter: On the pipeline there and it seems like you know maybe there's been some slowdown maybe it's redetermination disturbing maybe it's now just kind of here when you think about the pipeline in Medicaid over the next six to 12 months. Thanks.
Speaker Change: David I'll answer the first question first and then kick it to Mark on the Medicaid MCR Medicaid MCR of 89 seven.
Speaker Change: In the quarter was as expected.
Joshua Raskin: This track record gives us great confidence in our strategy and our continued ability to drive growth. With respect to M&A initiatives, our acquisition pipeline contains many actionable opportunities. We have executed eight transactions totaling $11 billion in revenue over the past four years, and M&A will continue to be a key component of our strategy. Next, as we look forward into 2025, two comments about the outlook for our Medicare portfolio. First, our Medicare product profile has different characteristics than mainstream MAPD businesses. Our business is a combination of legacy DSNP. MNP demonstrations and the Our Newly Acquired Rights Institute.
And heavily influenced by 20% of the member month volume in the quarter was a new business either new business that came in from California, Nebraska, and one one or our second half of our Iowa contract from 2023 and that my choice acquisition.
Speaker Change: That new business runs in the nineties. So you can do the math that created pressure.
Speaker Change: On the Medicaid MCR in the first quarter.
Speaker Change: As we work through the Molina playbook operational improvements across all the dimensions of managed care that performance improves second third and fourth quarter, which really creates a very different tilt to the the way. The earnings pattern is emerging this year versus prior years starts out high and improved throughout the year.
Joshua Raskin: With this lineup of products, factors such as rate setting, bidding, and revenue drivers do matter, but to a lesser extent. Second, the product portfolio is well positioned to contribute to our growth. Our penetration in dual eligible populations, high acuity and low income, will benefit from further integration of Medicare and Medicaid benefits. CMS recently announced rules to closely align dual eligible populations with Medicaid MCOs, which means our Medicaid footprint will be a growth catalyst for attracting and retaining dual-eligible membership.
Speaker Change: As I said the MCR in the last few quarters or 90 basis points better than the first and we're still on target.
Speaker Change: Hit, 89% and our full year guidance on Medicaid, which is at the top end of our long term target range.
Speaker Change: Mark Stephen I'd, just add to that a year ago, our Medicaid MCR was 88 four.
Speaker Change: This quarter the legacy MTR was very close to that so as Joe mentioned coming out at 80 97 is a function of that new store MCR, which comes in hot and recall, we said that this year margins and earnings were a little bit back end loaded so consistent with our expectations. We came out really right where we.
Joshua Raskin: With our 2024 guidance reaffirmed, we remain committed to delivering on our long-term premium and earnings per share growth targets. With all of the successful growth activity in M&A, in new and expanded contracts, even considering the potential for contract losses or reductions, we maintain our embedded earnings outlook at $4 per share. Mark will provide insight on the components in a moment, but the majority is still expected to emerge in 2025. In summary, we are very pleased with our first quarter 2024 financial and operating performance.
Speaker Change: <unk> you know on the deal pipeline I wouldn't say, it's slowed down it's always fits and starts what's most important to Joe and I is we constantly have a pipeline of advanced stage discussions.
Speaker Change: Times their banker processes, but just as often there are one off bespoke discussions relationship development, where we're out selling the Molina story, which is very appealing to many not for profit. So we've got a good pipeline of both if.
Speaker Change: If we could wave a wand and time them exactly where we want it you might have seen one this quarter, but what we are always hopeful that the pipeline is developing we like what we see so stay tuned on that.
Joshua Raskin: That performance, combined with our successful track record for producing top-line revenue, keeps us on track for sustaining profitable growth consistent with our long-term targets. With that, I will turn the call over to Mark for some additional color on the financials.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Thank you and the next question comes from Kevin Fischbeck with Bank of America.
Okay.
Kevin Mark Fischbeck: Please go ahead Mr. Fischbeck your line is live.
Mark Lowell Keim: Thanks, Joe. And good morning, everyone.
Kevin Mark Fischbeck: Great. Thanks.
Kevin Mark Fischbeck: It took a little bit about how redetermination are going both on the Medicaid and.
Mark Lowell Keim: Today, I'll discuss additional details on our first quarter performance, the balance sheet, our 2024 guidance, and thoughts on embedded earnings, beginning with our first quarter results. For the quarter, we reported approximately $10 billion in total revenue and $9.5 billion of premium revenue with adjusted EPS of $5.73. Our first quarter consolidated MCR was 88.5 and reflects continued strong medical cost management. The change healthcare outage did not materially impact quarterly results, and all of our segments reported MCRs in line with our expectations.
Kevin Mark Fischbeck: The exchange side of things it sounds like you're 90% done do you still expect.
Fischbeck: Strong growth on the exchanges I guess, one when should that tailwind kind of be fully into the numbers and then on the Medicaid side.
Fischbeck: You talked about a 30% recapture rate just trying to see any details about the acuity of that population. Thanks.
Speaker Change: I'll start off and then I'll kick it tomorrow, but just to recap the entire redetermination process from start to finish we estimate that.
Speaker Change: At the height of the Phe, we have grown 1 million members.
Mark Lowell Keim: In Medicaid, our first quarter reported MCR was 89.7. As expected, the new store additions in California and Nebraska, as well as Iowa and the MyChoiceWisconsin acquisition in late 2023, drove a higher reported MCR in the first quarter.
Due to the pause in the Redetermination process, we're now projecting to lose 600000 of those 550000 wants to date another 50000 in the second quarter.
Speaker Change: We have been experiencing a 30% reconnect rate.
And once the Redetermination process.
Mark Lowell Keim: Recall, we have added approximately 800,000 Medicaid members in the past three quarters, and these new store members typically experience higher MLRs in the early stages. Across our Medicaid business, the major medical cost categories were largely in line with our expectations and the normal quarter-to-quarter trend of fluctuations within our guidance. In Medicare, our first quarter reported MCR was 88.7, in line with our expectations. Higher LTSS costs and pharmacy utilization continued in our legacy business, but were somewhat offset by the operational improvements and benefit adjustments that we implemented for 2024. Segment results now include the newly acquired Bright plans, with initial performance as expected.
Speaker Change: Stops that reconnect rate will continue on into the late spring and perhaps even into the summer.
Speaker Change:
Speaker Change: We are seeing a significant increase in our special enrollment in marketplace now whether you are coming in for Medicaid or not is a self reporting feature. So we don't have exact statistics on how many are coming from other companies Medicaid rolls, but we've been averaging 12% to 15000 FEP members.
Speaker Change: Uh huh.
Speaker Change: Prior quarters, and Thats doubled its up to 30000 hour, which is obviously being heavily influenced by members coming often medicaid into marketplace Mark anything to add.
Speaker Change: Yeah.
Mark Lowell Keim: If you look at our marketplace. We reported 346000 members in the first quarter. We will go to $3 70 per our original guidance that's unchanged and that's on the continued strength of folks coming in from Redetermination, which is obviously an anomaly. This year remember marketplace always has normal lapses through the year. So typically mark.
Mark Lowell Keim: In Marketplace, our first quarter reported MCR was 73.3, and we are pleased with the high renewal rates and significant silver membership composition. Our adjusted GNA ratio for the quarter was 7.1, as expected, reflecting operating discipline and the continued benefit of fixed cost leverage as we grow our business. Moving on to Medicaid redetermination. In the quarter, we estimated a net loss of 50,000 members due to redetermination. This was on track with our expectations and brings the total net loss from redetermination since its inception to $550,000.
Mark Stephen: Place volumes declined through the year in this case will increase through the year to our guidance of $3 70.
Mark Stephen: I think you asked about the reconnect rate, we're still seeing 30% on reconnects.
Mark Stephen: Coming back in.
Mark Stephen: In both the folks coming into marketplace as well as the reconnects, we're not seeing an anomaly on the MLR. So that would really change our outlook for the year, so pretty much right on track, Kevin right, where we want to be.
Mark Lowell Keim: We estimate that our membership is approximately 90% of the way through the redetermination process. We expect to lose another 50,000 members in the second quarter, the last quarter of pandemic-related redeterminations, to reach our total estimated net loss of 600,000.
Kevin Mark Fischbeck: Great. Thanks.
Speaker Change: Thank you.
Mark Stephen: Comes from AJ Rice with UBS.
Mark Stephen: Okay.
Albert Rice: Thanks, Hi, everybody.
Albert Rice: Maybe just to follow on that last train of thought but a little different focus.
Albert Rice: Obviously as we move into next year, you'll have given to the Redetermination will subside as we get through the summer.
Albert Rice: You'll have the full impact of whatever change on the acuity risk pool, whereas for legacy people that stay on the Medicaid when you sort of look at that at this early date you got you say you signaled that you got a decent rate increases.
Mark Lowell Keim: Our reconnect rate was 30%. We expect this rate to remain near 30% in the second quarter, and, of course, some of the ReConnect benefit will continue into the third quarter and beyond. We continue to see strong Marketplace SEP membership growth as Medicaid members losing eligibility move to Molina Marketplace products. Now, turning to our balance sheet. Our Capital Foundation remains strong. On January 1st, we closed the Bright acquisition at a final price of approximately $425 million, funded with cash on hand.
Albert Rice: Proactively in 17 states. This year do you need a second year do you think of above average rate increases wasn't that acuity.
Albert Rice: It's fully reflected in the run rate for all of next year and what is the timing on knowing.
Albert Rice: Whether you're getting adequate rate increases for next year.
Mark Lowell Keim: In the quarter, we harvested approximately $110 million of subsidiary dividends, bringing our parent company cash balance to $194 million at the end of the quarter. Debt at the end of the quarter was unchanged and 1.4 times trailing 12-month EBITDA, with our debt-to-cap ratio at about 35%. These ratios reflect our low leverage position and ample cash and capital capacity for additional growth and investment. In the quarter, both S&P and Moody's upgraded our credit ratings based on our low debt.
Speaker Change: Well I mean, let me recap, where we are in the rate environment, and then I'll kick it to mark for some more color.
Speaker Change: We couldn't be more pleased.
Mark Lowell Keim: With the way our state customers have responded.
Mark Lowell Keim: Two.
Mark Lowell Keim: Having rates be commensurate with normal cost trends and trends that have been influenced by the acuity shift.
Mark Lowell Keim: We received acuity related adjustments in 19 states, representing 95% of our revenue we had five retroactive rate adjustments and we're actually anticipating perhaps for more so the states have been very responsive and rates have been actuarially sound look we're guiding to the top end of our MCR right for the entirety of it.
Mark Lowell Keim: Stable Earnings Profile and High Transparency. Dazing claims payable at the end of the quarter were 49, and consistent with prior quarters. While the changed healthcare outage impacted our February operations, with claims 20% lower than normal, we're pleased to report that our quick response through alternative clearinghouses restored claims and payments to near normal levels in March. Given the mid-quarter disruption, we have been appropriately prudent and are confident in the strength of our reserve position.
Mark Stephen: We're at 89% and that's with two very unprecedented phenomenon going on in the book of business. One is the unprecedented shift in the national risk pool due to the Redetermination process and the other is bringing on 800000, new members that come in at higher MCR.
Mark Stephen: Those two phenomenon influencing how medical cost emerge producing an MCR at the high end of our long term range.
Mark Stephen: Something we're very very pleased with the answer is no. We expect next year to be Actuarially sound and we expect them to be commensurate with the medical cost trends, we're experiencing a fee schedule increases benefits carved in and out that's the normal process that we have every reason to believe that rates will be actuarially sound going into next year.
Mark Lowell Keim: Next, a few comments on our 2024 guidance. As Joe mentioned, we reaffirm our full-year guidance with premium revenue of approximately $38 billion. Our revenue guidance remains unchanged as we work with state partners to understand the timing and impact of any contract losses in Virginia and Florida. Our full-year consolidated MCR is unchanged at 88.2.
Mark Stephen: Mark anything to add Hey, a J. Good morning, you mentioned the rate increase is kind of proactive probably more reactive right as so many of the states react to observed trend as opposed to proactively put it in I wish they did but as Joe mentioned we.
Mark Lowell Keim: Medical cost trends are in line with expectations across all businesses, and we remain appropriately conservative in our outlook on utilization and acuity trends at this stage in the year. We continue to expect full-year EPS of at least $2,350 per share. We see underlying strength in our core business. However, we are maintaining our full-year guidance, recognizing any potential earnings headwinds in the second half of the year for potential contract losses in Virginia and Florida.
Mark Lowell Keim: We're okay with the rate increases for this year.
Mark Lowell Keim: The rate increases we've seen look like they match the trend we're expecting.
Mark Lowell Keim: In Q1, we saw the acuity impact on trend really level off and I think that's commensurate with the volume.
Mark Lowell Keim: So far we've had 550000 members leave only 50000 word in this last quarter. So it's really leveled off and we've seen a similar impact with the re acuity the readout acuity impact here. So right now I'd say rates look okay for the year, if theyre not the good news.
Mark Lowell Keim: Looking ahead to 2025, a few observations on our Medicare portfolio. The CMS final rate notice for Medicare Advantage has received a lot of attention. For Molina, it's important to note that only two-thirds of our Medicare segment revenue, or only 10% of total enterprise revenue, is fully subject to these rates.
Mark Lowell Keim: News is 50% of our revenue comes up for new rates every January one which means if theres back half pressure. This year, it's time to really well for January one on the next rate cycle.
Mark Lowell Keim: With a heady concentration in California, we yielded a more favorable rate profile than the CMS National Average. The remaining one-third of our Medicare segment, the MMP demonstrations, receives rates determined by CMS and our State Department, which continue to be appropriately commensurate with cost trends. We remain confident that the rate environment and our product profile will position us to grow our Medicare business profitably. The integration of our recent Bright acquisition is off to a great start. Recall that we are expecting modest dilution from BRITE this year.
Speaker Change: Okay, and then maybe if I could just ask Oh, the marketplace product, obviously, the last year year and a half you been focus on repricing of margin now that you're sort of I have got that in place any any update in your long term strategy toward marketplace and growing that or whats your thought.
Speaker Change: On that.
Speaker Change: Sure a J the small silver and stable strategy was a short term reaction.
Speaker Change: Two having to re position the business.
Mark Lowell Keim: To maintain a profile of single digit bid.
Mark Lowell Keim: Mid single digit pre tax margins that was a temporary way to look at the business.
Mark Lowell Keim: We expect an improvement to break even in 2025 and then full run rate accretion of $1 EPS in 2026. Looking at our Medicare segment from a different perspective, as Joe mentioned earlier, we believe that the recent CMS 2025 final rule strategically advantages us to grow. Currently, many dual eligible members receive their Medicaid and Medicare benefits from two different MCOs. CMS announced rules that will move these unaligned dual members to the D-SNF plan run by their Medicaid MCO.
Mark Lowell Keim: We invested about 300 basis points of what our excess margin from last year into the business. This year and that's why we're growing membership at 30% and premium revenues are growing at 20%. So we like the nice steady progression of the business, we do expect to grow it.
Mark Lowell Keim: Being in the insurance business as long as I have you never try to grow any portfolio organically.
Mark Lowell Keim: That quickly because when underwriting isn't a wild which that's what this product is you have to be very wary of where you're bidding against the market who else is in the market.
Mark Lowell Keim: As such, incumbent Medicaid players will see increased growth opportunities immediately, while the new rule will phase in over time. It's clear that our substantial Medicaid footprint positions us well to grow our DSNP product to serve dual eligible members. This shift, along with demand from state partners to service these complex populations, gives us confidence our Medicare portfolio will meet our long-term growth and margin targets. Turning to embedded earnings, we continue to guide to $4 of new store embedded earnings as we now expect approximately $0.80 from the new contract win in Texas, commencing next year, to be offset by our best estimate of next year's impact of the Virginia and Florida potential losses.
Mark Lowell Keim: And.
Mark Lowell Keim: Where your results are coming out from the prior year, So we're going to be cautious.
Mark Lowell Keim: But the nice steady growth we saw this year.
Mark Lowell Keim: Feels really good to us we're able to maintain a profile of high single digit pre tax margins and grow at this rate I think that's what to expect.
Speaker Change: Okay. Thanks, a lot.
Speaker Change: Thank you and our next question comes from Justin Lake with Wolfe Research.
Justin Lake: Thanks, Good morning, a couple of questions here first of all last quarter, Joe you mentioned that expectation of the company.
Justin Lake: You know have visibility to grow EPS at the low end of your 15% 18% outlook for 2025.
Mark Lowell Keim: We expect the majority of this new store's embedded earnings to emerge in 2025 with the remainder in 2026, giving us further confidence in our 15-18% long-term growth rate for EPS. Operator, we are now ready to take questions.
Justin Lake: Is that still the expectation and then secondly, Joe you you mentioned that youre assuming in taxes.
Justin Lake: Looks like you're assuming in Texas that you get an average about a share of the state from your new wins.
Justin Lake: Meeting.
Justin Lake: For players in a region you get 25% first is that correct and then second what's your level of visibility or the reason I ask is that your local regional market share in Medicaid berries pretty broadly by state of growth plans no taxes. Mr share currently appears to be in the high single digits.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw it, please press star, then 2. At this time, we will pause momentarily to assemble the roster. And today's first question comes from Kyle Sternick with J.P. Moore.
Justin Lake: As a state like Washington, where I recall, you are way above average share.
Speaker Change: Just curious on your visibility on getting there. Thanks.
Speaker Change: Yes, Jeff.
Speaker Change: Last quarter, we gave you the building blocks for an outlook into 2025, and we have not changed our view of those building blocks.
Calvin Alexander Sternick: Hey, good morning. Thanks for the question.
Joshua Raskin: I guess first I wanted to start with the guidance here. You know, you talked about the strength in the core business and the MCR sort of being in line with your expectations. So I guess, is it the right way to think that the strength is really coming from G&A? And then, you know, when we think about the back half, is, I guess, the outperformance in the current business enough to allow you to maintain guidance?
Speaker Change: Obviously embedded earnings still at $4, we have actually changed.
Jeff: The composition of that and how those emerge in upcoming years has changed slightly but the building blocks haven't changed we continue to harvest earnings out of our existing footprint.
Jeff: We talked about operating leverage talked about embedded earnings obviously, there likely will be a natural headwind from interest rate declines into.
Joshua Raskin: Or if you think about those potential contracts going away, are there additional SG&A savings you'd need to target in the back half to be able to offset those losses? Just any color to help us frame that would be great.
Speaker Change: Into next year, so the building blocks haven't changed and that's still our forward look for 2025 again not guidance, but an outlook.
Joshua Raskin: Okay, we are clearly saying that if we have a revenue loss in the third and fourth quarters due to the contract loss and Related Earnings, the strength of the core business will produce enough earnings power to offset that. And it's not just one thing; it's just the general performance of all the portfolios. The loss ratios in our Medicaid and Medicare business get better as the year progresses for a variety of reasons. Obviously, in Marketplace, it's higher in the back half due to the normal seasonality of that business, but there are, you know, 90 basis points of improvement projected in the Medicaid MCRs in the last three quarters of the year and 90 basis points of improvement in the Medicare MCRs in the second, third, and fourth quarters. So it's just the general performance of the business. Seasonality happens for a variety of reasons. General strength of the business to offset any potential earnings drag from
Speaker Change: On taxes, we don't know.
Speaker Change: Used very conservative estimates of what our market share would likely to be in the seven regions that we won.
Speaker Change: And used kind of average portfolio margins I don't think there's anything more to read into it than that we think it's a.
Speaker Change: Conservative and reasonable estimate of what that business will produce.
Speaker Change: So can you share that market share assumptions.
Speaker Change: It's far too early and we don't want to get ahead of our customer on that so.
Speaker Change: We'll wait and see until we have more visibility into how the membership will be allocated I think that's the prudent thing to do here.
Speaker Change: Got it thanks.
Speaker Change: Okay.
Speaker Change: Thank you and our next question comes from Nathan Rich with Goldman Sachs.
Speaker Change: Yeah.
Nathan Rich: Great Good morning, and thanks for the questions.
Nathan Rich: Wanted to ask on Florida.
Nathan Rich: I think you talked about the protest.
Nathan Rich: The ultimate outcome could be different I guess.
Joshua Raskin: Got it. And then I wanted to ask about the SNP's plans as well.
Speaker Change: I'd be curious to get your view, Florida kind of shifted to more of a comprehensive care model in the state and in your view does that create I guess more friction than normal for the appeals process and potential changes there and then as a follow up I wanted to ask if you had an updated view on the 46 billion revenue target by 2026 obvious.
Joshua Raskin: Specifically, you know, how does that change your strategic thinking about, you know, M&A? I mean, I think the bright deal is really the first big Medicare asset you've gotten purchased. Does this change the way you think about whether you'd be more biased toward M&A or Medicaid? Or is it really just more, you know, motivation to sort of double down on the organic growth? It doesn't really change our image.
Speaker Change: That included some assumption for RFP wins, but there are a number of other factors in that bucket. So just curious if you still feel like that's the right shooting point for 2026 revenue.
Joshua Raskin: It doesn't really change our M&A strategy. I mean, we look for opportunities across all of our products.
Speaker Change: Well on Florida, we're not making a prediction on how the process will unfold, we're citing historical precedent.
Joshua Raskin: Here to form, most of our M&A activity has been in Medicaid, but the Bright Acquisition represents the first M&A opportunity that we have actioned in Medicare. What we're really saying is the fact that we have this 20-state footprint in Medicaid and growing. The de-SNP opportunity is just one more way to monetize your significant Medicaid footprint and the fact that we have a very robust and very... operationally excellent, decent business. Those two platforms, combined, will allow us to participate in the duly eligible population growth rate that's going to happen here over the next number of years.
Nathan Rich: Historical precedent would suggest that this is not the end its sort of the beginning of the end of the process that there's there's more discussions that will take place. So I don't want to again get ahead of the state on this but.
Nathan Rich: If you look at the past two procurements in Florida are there again extended conversations and there are regions in.
Nathan Rich: Florida is still do not have maximum award given.
Nathan Rich: So again deciding historical precedent on.
Nathan Rich: On the $46 billion of revenue, but we have a $60 billion new contract pipeline, Kansas and Georgia are sitting out there currently live in in process as I mentioned, the Texas Star Kids, we have great momentum in the state of Texas, North Carolina, We didn't bid on North Carolina last time, because it was too early.
Joshua Raskin: So we're very, very pleased with the final rule that came out from CMS, which basically says that Medicaid will be the anchor tenant for actioning the dual eligible population. Thank you. And the next question comes from Josh Raskin with NetFund Research. Hi, thanks. Just to go back to Virginia and Florida, I heard the 80s.
Nathan Rich: In our turnaround plan debate on anything.
Nathan Rich: So we're looking at the $60 billion pipeline and feeling pretty good about our prospects. There look we're seven for 90 re procurements and we started our growth journey, where April 10, and new business wins, we have eight M&A transactions totaling $7 billion of revenue over the past four years, we're feeling really good about the long term.
Joshua Raskin: Thank you. The next question comes from Josh Raskin with Net Fund Research.
Nathan Rich: Revenue target here and our ability to produce.
Nathan Rich: Continued 13% to 15% revenue growth and 15% to 18% earnings per share growth nothing is changed.
Nathan Rich: And our trajectory here, even though we are disappointed with.
Unknown Executive: I can't get to Mark for the question on Florida and Virginia. Hey Josh, good morning.
Nathan Rich: The two RFP situations in the second quarter and the first quarter.
Mark Lowell Keim: On Virginia and Florida, just to set the stage, we think right now that's about a $2 billion revenue run rate and about $1.10 in EPS for the full year.
Speaker Change: Great. Thank you.
Speaker Change: Thank you and the next question comes from Gary Tenner of D TD Cowen.
Speaker Change: Okay.
Gary Taylor: Hey, good morning, guys.
Gary Taylor: Two policy questions actually.
Mark Lowell Keim: Now, the simplifying assumption is we lose both in the fourth quarter. The headwind would be a half billion in revenue and 30 cents. But look, we're still working that through. Those are under protest, and exactly what the timing is is somewhat unclear.
Gary Taylor: One just because I get asked a lot just about the expiring.
Gary Taylor: Credits for 2026, maybe leaving aside.
Gary Taylor: Whether or not they get renewed.
Gary Taylor: Politics of that I'm, just wondering from a technical basis.
Mark Lowell Keim: But if you posit that assumption, it would be a $0.30 component to this year's guidance, which, as we mentioned in our prepared remarks, is offset by the underlying strength of the business. So if the full run rate's $1.10, we recognize $0.30 this year. What's left is $0.80 for embedded earnings, and that is exactly offset by the $0.80 of accretion we see in STAR and CHIP.
Gary Taylor: How are you guys thinking about sort of elasticity of demand for exchange product if some of the.
Speaker Change: Income level category see it fairly material percentage change in the premium that would be.
Speaker Change: Require just just what your what Youre thinking now.
Speaker Change: The worst case those went away what the impact.
Speaker Change: B how much is retained.
Speaker Change: And then second question would just be.
Speaker Change: The big Medicaid rule that was out earlier this week.
Speaker Change: Managed care Medicaid rule I think we were primarily focused on the state directed payments changes there, but I know there were a few things on.
Speaker Change: M C O transparency MLR reporting changes I just wanted to see if there was anything that you felt was materially going forward.
Speaker Change: On the I believe your first question was on the enhanced subsidies for marketplace understanding.
Mark Lowell Keim: break even in the first year, operationally break even in year two, and full $1 accretion in year three.
Speaker Change: Yeah, Yeah, if it's hard to say bear.
Speaker Change: Bear in mind.
Mark Lowell Keim: And we get there by; we inherited a 95% MCR in the business, and we've managed it to 87. We inherited a 13% G&A ratio in the business, and we've managed to improve it to eight. That's 1300 basis points of turnaround, which on a billion six of revenue would show you how we get to full accretion. The G&A savings will likely happen sooner as we need to go through two pricing cycles to get the MCR down to 87. But now that we've owned it for a quarter and have excellent line of sight to the operating metrics and the dynamics of the business, we're very confident in producing that portion of our embedded earnings.
Speaker Change: They do go away unless the legislation is passed to the extent that that's sometimes gets misunderstood they are going away because of the subsidy enhancement was temporary and unless the legislation is passed to the extent that they will now I could go through all types of political scenarios of legislative scenarios, there as well.
Speaker Change: That's what people would think that that can easily be given up for an extension of the Trump tax cuts I'm not going to make any political conclusions here.
Speaker Change: But it's.
Speaker Change: It's probably a 50 50 push on how that gets done and if it gets done.
Speaker Change: We did not grow significantly windows enhanced subsidies came in because our members keep in mind, we leverage our Medicaid footprint. We go after highly subsidized low income members and we didn't benefit a lot by the enhanced subsidies as most of our membership is already very very highly subsidized so from our perspective.
Stephen Baxter: Thank you. The next question comes from Stephen Baxter with Wells Fargo.
Joshua Raskin: Hi, thanks. I just wanted to potentially spike out the new store Medicaid impact, the MLR, and then when you think about the 90 basis point improvement that you're talking about, how much of that is normal seasonality versus maybe new stores coming down or maybe just getting back some of the last bit of acuity adjustment. And then the second question is just about the Medicaid deal pipeline.
Speaker Change: We're not looking at it as a huge issue for us in terms of membership loss and that's the way I would answer the first part of your question.
Joshua Raskin: I think your last announcement on that front, I know these still take a long time to close, was in July 2022. I was just wondering if you could give us an update on the pipeline there. And it seems like, you know, maybe there's been some slowdown, maybe it's redetermination distributed, maybe it's not. I'd love to just kind of hear what you think about the Medicaid pipeline over the next six to 12 months. Thanks.
Speaker Change: The second part had to do with which ruling I want to make sure I understood. Your question no. The the managed care.
Speaker Change: Medicaid managed care access finance quality accrual.
Speaker Change: That was out earlier this week.
Speaker Change: Alright.
Joshua Raskin: David, I'll answer the first question first and then kick it to Mark on the Medicaid MCR. The Medicaid MCR of 89.7 in the quarter was as expected and heavily informed; 20% of the member month volume in the quarter was new business. Either new business that came in from California and Nebraska on 1.1 or our second half of our Iowa contract from 2023 in the MyChoice acquisition. That new business runs in the 90s, so you can do the math. That created pressure on the Medicaid MCR in the first quarter.
Speaker Change: Not significant we're still analyzing it we're obviously aware of it we're analyzing it.
Speaker Change: Lots of different.
Speaker Change: Features many of which are in stepped over very extended periods of time. So there's nothing to immediately react to but nothing in that guideline changes the long term trajectory of the business as I've said many times I'm often asked is there any political or legislative or judicial.
Speaker Change: Shall invite.
Speaker Change: Environmental.
Speaker Change: Issue that causes you a major concern on the viability of the business as you ran and the answer is no.
Speaker Change: Oh by the way the election comes out whether Congress is split where things can get done are these are the.
Joshua Raskin: As we work through the Molina playbook, operational improvements across all the dimensions of managed care, that performance improves in the second, third, and fourth quarter, which really creates a very different tilt to the way the earnings pattern is emerging this year versus prior years. It starts out high and improves throughout the year. As I said, the MCRs in the last three quarters are 90 basis points better than the first, and we're still on target to hit 89% of our full-year guidance on Medicaid, which is at the top end of our long-term target. Mark, Stephen, I just
Speaker Change: The 60 votes in the Senate needed to do something fundamental the reconciliation process et cetera, We don't we think the legislative and political scenarios are pretty neutral for the sustainability of the business is run.
Speaker Change: The one thing I would point out is certainly when they streamline Medicaid and chip eligibility and all the procedural items that folks have to go through to maintain or get eligibility.
Speaker Change: It just makes it easier for the appropriate coverage to go to the right people and we think that's obviously.
Mark Lowell Keim: Mark? Steven, I'd just add to that, a year ago, our Medicaid MCR was 88.4. This quarter, the legacy MCR was very close to that. So, as Joe mentioned, coming out at 89.7 is a function of that new store, which comes in hot.
Speaker Change: A good tailwind for our business.
Speaker Change: Thank you.
Speaker Change: Thank you. The next question comes from George Hill with Deutsche Bank.
Speaker Change: Yeah.
Mark Lowell Keim: And recall, we said that this year's margins and earnings were a little bit back-end loaded, so consistent with our expectations. We came out really right where we expected. You know, on the deal pipeline, I wouldn't say it's slowed down. It's always in fits and starts. What's most important to Joe and me is that we constantly have a pipeline of advanced stage discussions. Sometimes they're banker processes, but just as often, they're one-off bespoke discussions, relationship development, where we're outselling the Molina story, which is very appealing to many not-for-profits.
Speaker Change: Yeah.
George Hill: Please go ahead your line is live.
George Hill: Oh, I'm, sorry about that Joe just a high level question one of your peers. This week talked about a normalized individual MA margin up north of 3% or better I know that your book of business is a little bit different but I was just wondering if you guys would be willing to kind of speak to what you think the normalized margin profile of individual M&A is and kind of how you think that varies.
George Hill: Between the D SNP Buck in the individual book and I know that you guys have a heavily subsidized population. So the book sold but different but appreciate any color.
Speaker Change: Yeah, well, our targets or our target for our Medicare business is mid single digit pretax wasn't sure whether you're referring to pre tax or after tax our NCR range for the products. We're in is 87 to 88 as we said we hope to get not hope, we're projecting to get right down to 87% year.
Mark Lowell Keim: So, we've got a good pipeline of both. You know, if we could wave our wand and time them exactly where we want them, you might have seen one this quarter. But look, we are always hopeful that the pipeline is developing. We like what we see, so stay tuned.
Speaker Change: Over the next couple of years, so we still target mid single digit.
Kevin Mark Fischbeck: Thank you. And the next question comes from Kevin Fischbeck with Bank of America. Please go ahead, Mr. Fischbeck, your line is live.
Speaker Change: Pre tax margins in this business we.
Speaker Change: We like the DC.
Speaker Change: The D SNP business not only can produce excellent profit.
Speaker Change: But monetizing our Medicaid footprint for dual eligible populations here over time is going to be a significant growth catalyst for us so it.
Speaker Change: Perfectly position, but at least we're well positioned to take advantage of the growth into two hours of a population here and we still target mid single digit pre tax margins MCR and the 87% to 88% range George the only thing I'd add is it's really hard to compare a molina book of business to some of our big competitor.
Joshua Raskin: I'll start off and then I'll kick it to Mark. But just to recap the entire redetermination process from start to finish, we estimate that at the height of the PHE, we had grown by 1 million members due to the pause in the redetermination process. We are now projecting to lose 600,000 of those, 550,000 lost to date, another 50,000 in the second quarter. We have been experiencing a 30% reconnection rate. And, you know, once the redetermination process stops, that reconnect rate will continue into the late spring and perhaps even into the summer.
Speaker Change: <unk> in Medicare remember, we skew.
Speaker Change: Really heavily to the dual eligible.
Speaker Change: So we've got an awful lot of our book in you know in the high teens to $2000 P. M. P M, which are high acuity, if you're very good at managing medical costs.
Speaker Change: There's a big opportunity on those high dollar members to get to the margins that Joe talked about.
Speaker Change: Even in the presence of some headwinds so I think it's really hard to make that comparison to others.
Speaker Change: I recognize that but I appreciate the color thanks guys.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Question comes from Scott Fidel with Stephens.
Scott J. Fidel: Hi, Thanks.
Joshua Raskin: We are seeing a significant increase in our special enrollment in Marketplace. Now, whether you're coming in for Medicaid or not is a self-reported feature, so we don't have exact statistics on how many are coming from other companies' Medicaid rolls, but we've been averaging 12,000 to 15,000 SEP members in prior quarters, and that's double. It's up to 30,000 now, which is obviously being heavily influenced by members coming off of Medicaid into the Marketplace. Mark, anything to add? Yeah, if you look at our
Scott J. Fidel: <unk> the first one just on.
Scott J. Fidel: <unk> gotten the scoring results yet from Florida and have been able to start to develop.
Scott J. Fidel: Factual wall.
Scott J. Fidel: Points that may be the basis of your appeal in Florida are definitely interested in your thoughts on that and then just second on the hip side. Just if you want to refresh us at this point after seeing results. So far are what you're expecting for a full year MLR and a pre tax margin for 2024 for the X business. Thanks.
Scott J. Fidel: Okay.
Scott J. Fidel: Oh.
Mark Lowell Keim: Yeah, if you look at our Marketplace, we reported 346,000 members in the first quarter. We'll go to 370,000 per our original guidance, that's unchanged, and that's on the continued strength of folks coming in from redeterminations, which is obviously an anomaly this year. Remember, Marketplace always has normal lapses through the year, so typically, Marketplace volumes decline through the year. In this case, we'll increase through the year to our guidance of 370,000. I think you asked about the reconnect rate; we're still seeing 30% of reconnects coming back in.
Scott J. Fidel: On these protest processes I think I've said about all I really should say about them. They are legal processes and we have to see how they unfold.
Scott J. Fidel: But of course through various requests I'm sure everybody's got the information they need to document their findings and.
Scott J. Fidel: And to put their case for it so that's all I'll say about it.
Scott J. Fidel: Your last question was about market the marketplace.
Scott J. Fidel: As I said.
Scott J. Fidel: We last year, having good visibility into the business, having priced Oh, we were producing pretax margins and low double digit territory 10, 11%, we decided consciously to invest three in some places 400 basis points of that margin into growth, which is why membership grew 30% and revenues grew at 20%.
Mark Lowell Keim: And both the folks coming in to Marketplace as well as the reconnects, we're not seeing an anomaly on the MORs that would really change our outlook for the year. So pretty much right on track, Kevin, right where we want to be.
Scott J. Fidel: So we're.
Scott J. Fidel: We're well positioned to continue to produce our target MCR range, which is 78 to 80 and this year, we expect to finish the year at the low end of that range, which would produce a high single digit pre tax margin, it's right, where we want to be and if somebody suggested earlier a very stable position.
Albert Rice: Thank you. And the next question comes from A.J. Rice with UBS.
Albert Rice: Thanks. Hi everybody.
Joshua Raskin: Maybe just to follow on that last train of thought, but with a little different focus. Obviously, as we move into next year, you'll have, given that redeterminations will subside as we get through the summer, the full impact of whatever change on the acuity risk pool there is for legacy people to stay on Medicaid. When you sort of look at that at this early date, you signal that you've got these decent rate increases proactively in 17 states this year.
Scott J. Fidel: After membership being renewable membership, 70% of it being silver a nice platform off of which to grow measurably and modestly.
Speaker Change: Okay got it so reaffirming the initial guide you gave us for the exchange MLR margin. Okay. Thank you alright.
Speaker Change: Correct correct.
Speaker Change: Thank you and the next question comes from Andrew Mok with Barclays.
Joshua Raskin: Do you need a second year, do you think, of above-average rate increases when that acuity is fully reflected in the run rate for all of next year? And what is the timing of knowing whether you're getting adequate rate increases for next year?
Andrew Mok: Hi, Good morning, I think I heard you say that you were prudent in our reserves due to change was there any favorable <unk> in the quarter and if so did you reestablish that into your reserves.
Andrew Mok: Hey, good morning, its Mark yes, absolutely there is favorable PID and Youll see that.
Joshua Raskin: Let me recap where we are in the rate environment and then I'll kick it to Mark for some more color. We couldn't be more pleased with the way our state customers have responded to having rates be commensurate with normal cost trends and trends that have been influenced by the acuity shift. We received acuity-related adjustments in 19 states, representing 95% of our revenue.
Mark Lowell Keim: In the earnings release, where we show the prior year development on current year reserves attracts about as as as it normally does not higher not lower and of course, we always replenish that so we feel very confident.
Mark Lowell Keim: Showed a 49% days claims payable which is right in the middle of our standard range, we feel very good about our reserves, even with a little bit of noise from the changed situation that happened back in February so very confident reserves replenished.
Joshua Raskin: We had five retroactive rate adjustments, and we're actually anticipating perhaps four more. So the states have been very responsive, and rates have actually been really sound. Look, we're guiding to the top end of our MCR rate for the entire year at 89%, and that's with two very unprecedented phenomena going on in the book of business. One is the unprecedented shift in the national risk pool due to the redetermination process, and the other is bringing on 800,000 new members that commit at higher MCR. With those two phenomena influencing how medical costs emerge, producing an MCR at the high end of our long-term range is something we're very, very pleased with. The answer is no.
Andrew Mok: Feel adequately reserved.
Andrew Mok: Was there any P&L impact in the quarter from the people I D.
Speaker Change: Oh, there always is that's a normal part of our reserving cycle typically the way you reserve is in the current period you pick a number which is generally a little bit conservative and typically prior periods develop favorably that is a standard cycle of.
Speaker Change: The actuarial reserving process and how we recognize earnings nothing unusual there this quarter.
Speaker Change: Understood. Thank you.
Speaker Change: Thank you and the next question comes from Sarah James with Cantor Fitzgerald.
Joshua Raskin: We expect rates next year to be actually sound. We expect them to be commensurate with the medical cost trends we're experiencing. We schedule increases, benefits carved in and out. That's the normal process, and we have every reason to believe that rates will be actually sound going into next year.
Sarah James: Thank you I wanted to clarify the mix on the 2026 revenue guide to it.
Sarah James: You guys talked about it being about a quarter of organic quarter, M&A and 50% contracts contract wins do you still see that as the mix and then could you give us any clarity on your rate renewal timing what percentage of your book Renews in January April and September.
Mark Lowell Keim: Mark, anything to add?
Mark Lowell Keim: Hey AJ, good morning. You mentioned the rate increase is kind of proactive. They're probably more reactive, right, as so many of the states react to observe trends as opposed to proactively put it in. I wish they did.
Speaker Change: I'll answer the second question first.
Mark Lowell Keim: But, as Joe mentioned, we're okay with the rate increases for this year. The rate increases we've seen look like they match the trend we're expecting. In Q1, we saw the acuity impact on trend really level off, and I think that's commensurate with the volume. So far, we've had 550,000 members leave, and only 50,000 were in this last quarter. So it's really leveled off, and we've seen a similar impact with the redead acuity impact here.
Speaker Change: We have a really nicely.
Speaker Change: <unk> renewal pattern in our portfolio, which is great from a risk management perspective, 52% of our revenue renews on January 1st.
Sarah James: 21%.
Sarah James: Renews into fall the rest of it is one April in about four or five july's. So that pattern is nicely ladder throughout the year right now.
Sarah James: Given our guidance, we know 82% of rates we know.
Mark Lowell Keim: So right now, I'd say rates look okay for the year. If they're not, the good news is 50% of our revenue comes up for new rates every January 1st, which means if there's back-half pressure this year, it's timed really well for January 1st of the next rate cycle.
Sarah James: The rates on 82% of our revenue.
Sarah James: For this year's revenue guide.
Speaker Change: Which leaves us very little.
Speaker Change: Right risk to our forecast.
Speaker Change: That's the that's how we have great visibility and as Mark said, if you get pressure cost pressure.
Speaker Change: In the second half of the year in fact at 52% of the revenue cycles into January one we would capture that nicely.
Joshua Raskin: Okay, and maybe if I could just ask about the Marketplace product, obviously, the last year, year and a half, you've been focused on repricing and margin. Now that you sort of have gotten that in place, any update on your long-term strategy toward Marketplace and growing that, or what's your thought on that?
Speaker Change: Your other question was.
Speaker Change: Yeah on the 46 billion premium raws in 2026 do you still think of it as the buckets that you laid out at I day, which was about 50% of the growth being from contract wins 25 from M&A twenty-five from organic.
Joshua Raskin: Sure, A.J., you know, the small, silver, and stable strategy was a short-term reaction to having to reposition the business to maintain a profile of single-digit, mid-single-digit pre-tax margins. That was a temporal way to look at the business.
Speaker Change: Yeah, I think that's nothing nothing has caused us to change that outlook I mean, it is a very high level I look at more of it comes from M&A that's fine when.
Speaker Change: When you are buying the properties with the capital efficiency, we buy them.
Speaker Change: At which we buy them.
Speaker Change: But the actual mix could change, but that's probably the way to think about it that that is the way we think about it.
Speaker Change: But again, if the mix changes and we have more contract wins and more M&A.
Joshua Raskin: We invested about 300 basis points of what we call excess margin from last year into the business this year. That's why we're growing membership at 30%, and premium revenues are growing at 20%. So we like the nice, steady progression of the business. We do expect to grow it, but being in the insurance business as long as I have, you never try to grow any portfolio organically that quickly because when underwriting isn't allowed, which is what this product is, you have to be very wary of where you're bidding against the market, who else is in the market, and where your results are coming out for the prior year.
Speaker Change: It's all very accretive and and as long as we're refilling the bucket even better earnings we feel good about it.
Speaker Change: Great. Thanks.
Speaker Change: Thank you and this concludes our question session as well as the call itself. Thank you. So much for attending today's presentation. You may now disconnect your phone lines.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: [music].
Joshua Raskin: So we're gonna be cautious, but the nice steady growth we saw this year feels really good to us. We're able to maintain a profile of high single-digit pre-tax margins and grow at this rate. I think that's what to expect. OK.
Albert Rice: Okay, thanks a lot.
Justin Lake: Thank you. The next question comes from Justin Lake with Wolf Research.
Justin Lake: Thanks. Good morning.
Speaker Change: Yes.
Joshua Raskin: A couple of questions here. First, last quarter, Joe, you mentioned that the company had visibility to grow EPS at the low end of your 15 to 18% outlook for 2025. Is that still the expectation?
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Joshua Raskin: And then, secondly, Joe, you mentioned that in Texas, or it looks like you're assuming in Texas, that you get an average amount of share of the state from your new wind. If meeting, you know, if there's four plans in a region, you get 25%. First, is that correct?
Joshua Raskin: And then second, what's your level of visibility here? The reason I ask is that your local regional market share in Medicaid varies pretty broadly by state across plans. You know, Texas, your share currently appears to be in the high single digits, versus a state like Washington where I recall you have way above average visibility. I'm just curious about your visibility on Getty. Thanks.
Joshua Raskin: Yeah, Justin, last quarter we gave you the building blocks for an outlook into 2025, and we have not changed our view of those building blocks. Obviously, embedded earnings are still at $4. We have actually changed the composition of that, and so how those emerge in upcoming years has changed slightly, but the building blocks haven't changed. We continue to harvest earnings out of our existing footprint. We talked about operating leverage and talked about embedded earnings.
Joshua Raskin: Obviously, there likely will be a natural headwind from interest rate declines into next year, so the building blocks haven't changed, and that's still our forward look for 2025. Again, not guidance, but an outlook. On Texas, we don't know. We used very conservative estimates of what our market share would likely be in the seven regions that we won and used a kind of average portfolio margins. I don't think there's anything more to read into it than that. We think it's a conservative and reasonable estimate of what that business will produce.
Joshua Raskin: So can you share that market share assumption?
Joshua Raskin: I don't, it's far too early, and we don't want to get ahead of our customer on that. So we'll wait and see until we have more visibility into how membership will be allocated. I think that's the prudent thing to do here.
Nathan Rich: Thank you. And the next question comes from Nathan Rich with Goldman Sachs.
Nathan Rich: Great. Good morning, and thanks for the questions. I wanted to ask you about Florida, you know, Joe. I think you talked about the protests and, you know, the ultimate outcome could be different. I guess I'd be curious to get your view on how Florida kind of shifted to more of a comprehensive care model in the state. And, you know, in your view, does that create, I guess, more friction than normal for the appeals process and potential changes there?
Nathan Rich: And then as a follow-up, you know, I wanted to ask if you had an updated view on the $46 billion revenue target by 2026. Obviously, that included some assumptions about RFP wins, but there are a number of other factors in that bucket. So just curious if you still feel like that's the right shooting point for 2026 revenue. Thank you.
Joshua Raskin: On Florida, we're not making a prediction on how the process will unfold. We're citing historical precedent. Historical precedent would suggest that this is not the end. It's sort of the beginning of the end of the process, that there are more discussions that will take place. So I don't want to, again, get ahead of the state on this, but if you look at the past two procurements in Florida, there have been extended conversations, and there are regions in Florida that still do not have maximum awards given. So, again, just citing historical precedent.
Joshua Raskin: On the $46 billion in revenue, look, we have a $60 billion new contract pipeline. Kansas and Georgia are sitting out there currently live and in process. As I mentioned, Texas Star Kids, we have great momentum in the state of Texas. North Carolina, we didn't bid on North Carolina last time because it was too early in our turnaround plan to bid on anything.
Joshua Raskin: So we're looking at the $60 billion pipeline and feeling pretty good about our prospects there. Look, we're seven for nine in re-procurements since we started our growth journey. We're eight for 10 in new business wins. We have had eight M&A transactions, totaling $11 million in revenue over the past four years. We're feeling really good about the long-term revenue target here and our ability to produce continued 13% to 15% revenue growth and 15% to 18% earnings per share growth. Nothing's changed in our trajectory here, even though we were disappointed with the two RFP situations in the second quarter and in the first quarter.
Gary Taylor: Thank you. And the next question comes from Gary Taylor with the TD Callen.
Joshua Raskin: Hey, good morning, guys. I actually had two policy questions. One, just because I get asked a lot just about the expiring ACA credits for 2026, maybe leaving aside whether or not they get renewed in the politics of that. I'm just wondering from a technical point of view. How are you guys thinking about sort of the elasticity of demand for exchange products if some of the income level categories see it, you know, a fairly material percentage change and the premium that would be required, just what you're thinking now?
Joshua Raskin: If, in the worst case, those went away, what would the impact might be, how much is retained? And then the second question would just be the big Medicaid rule that was out earlier this week, the managed care Medicaid rule. I think we were primarily focused on the state-directed payments changes there, but I know there were a few things about MCOs, transparency, MLR, reporting changes, and just wanted to see if there was anything that you felt was material to you going forward.
Joshua Raskin: On the, I believe your first question was about the enhanced subsidies for the marketplace. It's hard to say, but bear in mind, they do go away unless legislation is passed to extend them. Sometimes that's misunderstood.
Joshua Raskin: They are going away because the subsidy enhancement was temporary, and unless legislation is passed to extend them, they will. Now, I could go through all types of political scenarios and legislative scenarios. There are lots of people that think that that can easily be given up for an extension of the Trump agenda. I'm not going to make any political conclusions here, but... It's probably a 50-50 push on how that gets done and if it gets done.
Joshua Raskin: We did not grow significantly when those enhanced subsidies came in, because our members, keep in mind, we leverage our Medicaid footprint. We go after highly subsidized, low-income... And we didn't benefit a lot from the enhanced subsidies, as most of our membership was already very, very highly subsidized. So from our perspective, we're not looking at it as a huge issue for us in terms of membership laws, and that's the way I would answer the first part of your question. The second part had to do with which ruling? I want to make sure I understood your question correctly.
Joshua Raskin: No, the Medicaid managed care access finance equality rule that was out earlier this week. All right, not significant. We're still analyzing it. We're obviously aware of it. Lots of different features to it, many of which take effect over very extended periods of time, so there's nothing to immediately react to.
Joshua Raskin: But nothing in that guideline changes the long-term trajectory of the business. As I've said many times, I'm often asked, is there any political, legislative, or judicial, or environmental issue that causes you major concern about the viability of the businesses you're in? And the answer is no, the way the election comes out, whether Congress is split, whether things can get done vis-a-vis, the 60 votes in the Senate needed to do something fundamental, the reconciliation process, etc. We think the legislative and political scenarios are pretty neutral for the sustainability of the business. Hey Gary, the one thing I would point out...
Mark Lowell Keim: Hey Gary, the one thing I would point out is certainly when they streamline Medicaid and CHIP eligibility and all the procedural items that folks have to go through to maintain or get eligibility, it just makes it easier for the appropriate coverage to go to the right people, and we think that's obviously a good tailwind for our business. Thank you.
George Hill: Thank you. And the next question comes from George Hill with Deutsche Bank. Please go ahead, Mr. Hill. Your line is live.
Joshua Raskin: Yeah, well, our target for Medicare business is mid single-digit pre-tax. I wasn't sure whether you're referring to pre tax or after tax. Our NCR range for the products we're in is 87 to 88.
Mark Lowell Keim: As we said, we hope to get, not hope, we're projected to get right down to 87% here over the next couple of years. So we still target mid single-digit pre-tax margins in this business. We like the decent business; not only can it produce excellent profits, but monetizing our Medicaid footprint for dual eligible populations here over time is going to be a significant growth catalyst for us. So we're perfectly positioned, or at least we're well positioned to take advantage of the growth in the dirigible population here. And we still target mid-single-digit pre-tax margins, MCRs, in the 87 to 88 percent range. George, the only thing I'd add is that it's really hard to
Joshua Raskin: George, the only thing I'd add is it's really hard to compare a Molina book of business to some of our big competitors in Medicare. Remember, we skew really heavily to the dual eligibles. So we've got an awful lot of our book in the high teens to $2,000 PMPMs, which are high acuity. If you're very good at managing medical costs, there's a big opportunity for those high-dollar members to get to the margins that Joe talked about, even in the presence of some headwinds. So I think it's really hard to make that comparison to others.
Mark Lowell Keim: Thank you. And the next question comes from Scott Fidel with Stevens.
Scott J. Fidel: Hi, thanks. I have two questions. The first one, just if you've gotten the scoring results yet from Florida and have been able to start to develop the factual points that may be the basis of your appeal in Florida, I'd definitely be interested in your thoughts on that. And then, just second, on the HIC side, just if you want to refresh us at this point after seeing results so far, what you're expecting for full-year MLR and pre-tax margin for
Joshua Raskin: On these protest processes, I think I've said about all I really should say about them. They are legal processes, and we have to see how they unfold. But, of course, through various requests, I'm sure everybody's got the information they need to document their findings and put their case forward.
Joshua Raskin: So that's all I'll say about it. Your last question was about the marketplace. As I said, last year, having good visibility into the business, having priced up, we were producing pre-tax margins in low double-digit territory, 10%, 11%. We decided consciously to invest three, in some places four, a basis point of that margin into growth, which is why membership grew at 30% and revenues grew at 20%. So we're well-positioned to continue to produce our target MCR range, which is 78 to 80, and this year we expect to finish the year at the low end of that range, which would produce a high single-digit pre-tax margin. It's right where we want to be, and, as somebody suggested earlier, a very stable position, half the membership being renewal membership, 70% of it being silver, a nice platform off
Joshua Raskin: Okay, got it. So, reaffirming the initial guide you gave us for the Exchange MLR and Margin.
Andrew Malk: Thank you, and the next question comes from Andrew Malk with Barclays. Hi, good morning.
Joshua Raskin: Okay, thank you. Right. Correct. Thank you, and the next question comes from Andrew Malk with Barclays.
Andrew Malk: Hey, good morning. It's Mark.
Mark Lowell Keim: Yes, absolutely, there's favorable PYD, and you'll see that in the earnings release where we show the prior year development on current year reserves. It tracks about as it normally does, not higher, not lower. And, of course, we always replenish that, so we feel very confident. I showed a 49% days claims payable rate, which is right in the middle of our standard range. We feel very good about our reserves, even with a little bit of noise from the change situation that happened back in February. So very confident, reserves replenished; we feel adequately reserved. Was there any P&L impact in the quarter from the PYD? Thanks.
Mark Lowell Keim: Oh, there always is. That's a normal part of the reserving cycle. Typically, the way you reserve is, in the current period, you pick a number which is generally a little bit conservative. And typically, prior periods develop favorably. That is a standard cycle of the actuarial and reserving process, and how we recognize earnings. There's nothing unusual there this quarter.
Sarah James: Thank you. The next question comes from Sarah James with Cantor Fitzgerald.
Sarah James: Thank you. I wanted to clarify the mix on the 2026 revenue guide. So at I-DAY, you guys talked about it being about a quarter organic, a quarter M&A, and 50% contracts and contract wins. Do you still see that as the mix?
Joshua Raskin: And then could you give us any clarity on your rate renewal timing? What percentage of your book renews in January versus, you know, April and September? Thank you.
Joshua Raskin: I'll answer the second question first. We have a really nicely laddered renewal pattern in our portfolio, which is great from a risk management perspective. 52% of our revenue renews on January 1st, and 21% renews in the fall. The rest of it is 1 April and about 4 or 5 July. So the renewal pattern is nicely laddered throughout the year. Right now, given our guidance, we know the rates on 82% of our revenue for this year's revenue guidance, which means there's very little rate risk to our forecast.
Joshua Raskin: That's how we have great visibility, and as Mark said, if you get pressure, cost pressure, in the second half of the year, in fact, if 52% of the revenue then cycles into January 1, we'll capture that nicely. Your other question was?
Joshua Raskin: Yeah, on the $46 billion premium revenue in 2026, do you still think of it as the buckets that you laid out at I-Day, which was about 50% of the growth being from contract wins, 25 from M&A, and 25 from organic growth? I think that's enough.
Joshua Raskin: Yeah, I think that's nothing. Nothing has caused us to change that outlook. I mean, it's a very high-level outlook; if more of it comes from M&A, that's fine. When you're buying properties with capital efficiency, we buy them at the price we buy them, but that actual mix could change, but that's probably the way to think about it. That is the way we think about it. But again, if the mix changes and we have more contract wins and more M&A, it's all very accretive, and as long as we're refilling the bucket of embedded earnings, we feel good about it.
Operator: Thank you. And this concludes the question session as well as the call itself. Thank you so much for attending today's presentation. You may now disconnect your phone lines.