Molina (MOH) Q1 2026 Earnings Transcript

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Date

Thursday, April 23, 2026 at 8:00 a.m. ET

Call participants

- Chief Executive Officer — Joseph Zubretsky

- Chief Financial Officer — Mark Keim

Full Conference Call Transcript

Joseph Zubretsky; and our CFO, Mark Keim. A press release announcing our first quarter 2026 earnings was distributed after the market closed yesterday and is available on our Investor Relations website. Shortly after the conclusion of this call, a replay will be available for 30 days. The numbers to access the replay are in the earnings release. For those of you who listen to the rebroadcast of this presentation, we remind you that all of the remarks are made as of today, Thursday, April 23, 2026, and have not been updated subsequent to the initial earnings call. On this call, we will refer to certain non-GAAP measures.

A reconciliation of these measures with the most directly comparable GAAP measures can be found in the earnings release. During the call, we will be making certain forward-looking statements, including, but not limited to, statements regarding our 2026 guidance, the medical cost and utilization trend during the year, the political, legislative and regulatory landscape, the impact of Medicaid work requirements and redeterminations, our expected growth and margin expansion, the estimated amount of our embedded earnings power and future earnings realization, Medicaid rate adjustments and updates, our RFP awards and our acquisitions and M&A activity.

Listeners are cautioned that all of our forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from our current expectations. We advise listeners to review the risk factors discussed in our Form 10-K annual report filed with the SEC as well as our risk factors listed in our Form 10-Q and Form 8-K filings with the SEC. After the completion of our prepared remarks, we will open the call to take your questions. I will now turn the call over to our Chief Executive Officer, Joe Zubretsky. Joe?

Joseph Zubretsky: Thank you, Jeff, and good morning. Today, I will discuss several topics. Our reported financial results for the first quarter, our full year 2026 guidance, which we reaffirm at approximately $42 billion of premium revenue and at least $5 in adjusted earnings per share, the political and regulatory landscape and a brief glimpse of our Investor Day agenda and growth outlook. Let me start with our first quarter performance. Last night, we reported adjusted earnings per share of $2.35 on $10.2 billion of premium revenue. We would characterize the results as solid under the circumstances but that characterization is against the backdrop of current modest expectations.

Our 91.1% consolidated MCR reflects strong operating performance as we continue to navigate a challenging medical cost environment. We produced a 1.6% adjusted pretax margin in the quarter. In Medicaid in the first quarter, the business produced an MCR of 92%. While the January 1 rate updates came in as expected, our medical cost trend was modestly favorable to our expectations. We continue to work to enhance our medical cost management protocols to address the areas of high cost trend we observed in 2025. Last year, we observed a 7.5% medical cost trend that included 250 basis points of acuity shift related to the post-pandemic redetermination process. However, the acuity shift in core utilization impacts diminished as the year progressed.

Our expectation that the acuity shift trend that we had experienced in 2025 was behind us and would not recur is holding up. We feel confident in our 5% medical cost trend assumption for 2026. In Medicare, we reported a first quarter MCR of 89.8%. At the beginning of the year, we successfully completed the transition of MMP members to the new integrated products. Our Duals business is the strategic focus for us in Medicare. As previously mentioned, we will exit the MAPD product for 2027. In Marketplace, the first quarter MCR was 84%.

Membership stands at 305,000 and is slightly higher than our prior guidance, but the profile of our membership is as expected, following our decision to reduce our exposure in this highly volatile segment. The majority of our members are renewal members, and we remain concentrated in the silver tier, which leads to greater stability and predictability in our membership base. Turning now to our 2026 guidance. Although the quarter was strong when compared to internal and external expectations, we are merely reaffirming our full year 2026 adjusted earnings per share guidance of at least $5. Our full year 2026 premium revenue guidance remains at approximately $42 billion.

We note that our forecast for Medicaid membership attrition increased slightly, but the associated revenue loss is projected to be offset by higher revenue in marketplace. We remain optimistic that states may provide off-cycle and retro rate updates throughout the year as they did last year. We are keenly aware that medical cost trend and earnings came in modestly favorable to expectations in the quarter. That being said, merely reaffirming our prior full year guidance is a prudent approach at this early point in the year and in this current environment.

When we report second quarter results, we will update our full year 2026 guidance to reflect the first and second quarter results, which will provide a time-tested base off of which to project the second half of the year. Turning now to the political and legislative landscape. In Medicaid, States continue to evaluate their processes and how to implement work requirements and biannual redeterminations. The guidance from CMS affords States some flexibility on how to proceed with these requirements, particularly as it relates to the timing of these reviews. We are working closely with our state partners on the administrative requirements needed to implement these new policies.

We continue to believe that membership impact will be minor and emerge gradually through 2027 and 2028 and therefore, any impact due to changes in the risk pool will be small. In Medicare, we are pleased with the improvement in the CMS final rate notice compared to the preliminary notice. In addition, the continued progress of States promoting the integration of Medicaid and Medicare supports the long-term competitive position of our duals products. In Marketplace, as we approach the 2027 pricing cycle, we will likely remain cautious as it is still possible for disruptive regulatory changes to occur. We look forward to updating you on our 3-year outlook at our Investor Day event on Friday, May 8.

We see a clear path to margin expansion to the correction of the rate and trended balance that exists today and the revenue growth opportunities continue to be attractive in our businesses. We will provide a detailed financial outlook for premium revenue and earnings per share through 2029 and demonstrate how we will again realize the intrinsic value of the franchise we have built over the past 8 years. We will do so with the same level of detail and specificity that has been our hallmark. In summary, we are pleased with our solid first quarter results and continued disciplined approach to medical cost management.

Our reaffirmed full year 2026 guidance reflects a prudent view of full year results at this early point in the year. With that, I will turn the call over to Mark for some additional color on the financials. Mark?

Mark Keim: Thanks, Joe, and good morning, everyone. Today, I'll discuss additional details on our first quarter performance, the balance sheet and our 2026 guidance. Beginning with our first quarter results. For the quarter, we reported approximately $10.2 billion of premium revenue with adjusted EPS of $2.35. Our first quarter consolidated MCR was 91.1% and reflects continued disciplined medical cost medicine. In Medicaid, our first quarter reported MCR was 92%. The January 1 rate update came in as expected, while medical cost trend was modestly favorable to our expectations. In Medicare, our first quarter reported MCR was 89.8%, in line with our expectations. We remain confident in the pricing and benefit adjustments we implemented for 2026.

In particular, our duals products, which now include last year's MMP members are off to a good start. In Marketplace, our first quarter reported MCR was 84%. Adjusted for prior year risk adjustment and program integrity impacts reduces that metric to approximately 79.5%. Given the pricing actions we took in our Marketplace segment this year, we have reduced our exposure and prioritized margin improvement. Our adjusted G&A ratio for the quarter was 6.9% and reflects the timing of certain operating expenses with no change to our full year outlook. Turning to the balance sheet. Our capital foundation remains strong.

In the quarter, we harvested approximately $35 million of subsidiary dividends and our parent company cash balance was approximately $213 million at the end of the quarter. Our operating cash flow for the quarter was $1.1 billion and driven by the timing of government payments in Medicaid and Marketplace. Debt at the end of the quarter was 6.1x trailing 12-month EBITDA, and our debt-to-cap ratio was about 48 we continue to have ample cash and access to capital to fuel our growth initiatives. Days in claims payable at the end of the quarter was 44, modestly lower than is typical due to the timing of payments at quarter end.

We remain confident in the strength and consistency of our actuarial process and our reserve position. Next, a few comments on our 2026 guidance. As Joe mentioned, we continue to expect full year premium revenue to be approximately $42 billion. Within that number are a few moving pieces. We now expect same-store membership in Medicaid to decline 6% this year, up from previous guidance of a 2% decline. We expect to end the year with approximately 4.5 million members. Meanwhile, Marketplace sold moderately higher paid renewals, ending the first quarter at 305,000. With normal market attrition, we expect membership in our Marketplace segment to end the year at approximately 250,000. Renewing members now represent 70% of our book.

Lower membership in Medicaid and higher membership in marketplace results in our premium guidance remaining at approximately $42 billion. With low and no utilizers now at the lowest level we have seen, we do not expect any acuity shift from additional Medicaid membership declines. Our full year consolidated MCR and each of our segment MCRs are unchanged. In Medicaid, the full year MCR of 92.9% includes rate increases of 4% and medical cost trend at 5%. States continue to update their actuarial data to reflect higher observed trends. We remain optimistic States may provide off-cycle and retro rate updates throughout the year as they did last year.

Several of our States have already provided off-cycle rate increases, and these would represent upside to our guidance. Full year medical cost trend guidance remains in line with our previous expectations. States continue to evaluate program design and benefit changes to address medical cost categories with the highest observed trends. Our MCR guidance on Medicare is 94%. We remain confident in the performance of our Medicare duals and integrated product business. In Marketplace, our full year MCR guidance is 85.5% and includes the normal expected seasonality. We continue to expect the full year G&A ratio to be approximately 6.4% as we drive efficiencies in our operations.

The higher ratio reported in the first quarter with simply timing of a few items within the year. We reaffirm our full year EPS guidance of at least $5. We continue to expect earnings seasonality to be front-end loaded this year, reflecting the January 1 Medicaid rate cycle in the first half of the year and implementation of the Florida CMS contract in the second half. Turning to embedded earnings. Recall that our definition of embedded earnings is the future incremental contribution of our new contract wins and acquisitions. Recall that $2.50 a share of embedded earnings is the combination of 2026 MAPD losses and Florida CMS first year implementation costs.

Both are certain to be positive impacts to our 2027 performance. Embedded earnings will remain a driver of value in the future. We look forward to providing you with an updated view of this important measure at our Investor Day. This concludes our prepared remarks. Operator, we are now ready to take questions.

Operator: [Operator Instructions] The first question comes from Andrew Mok with Barclays.

Andrew Mok: I appreciate the updated comments around lower Medicaid membership. Can you help us understand which states are driving that incremental pressure and how that impacts the MLR outlook and cadence for the balance of the year?

Joseph Zubretsky: Sure, Andrew. I'll frame it and I'll kick it to Mark. We are pretty spot on with our membership forecast in Medicaid for about 15 or 17 of our states at about 2%. We underestimated the impact in California, Illinois and New York and somewhat in Texas. And in California, it was certainly influenced by the undocumented immigrant population. I'll kick it to Mark to talk about why we don't expect a continued acuity shift here. And it has to do with what we call low and no utilizers and the fact that, that's a much smaller component of our population today than it was in the past. Mark?

Mark Keim: Yes. Absolutely. Andrew. Yes, so the States that Joe mentioned are driving why we're looking for a little bit higher attrition this year, California, Illinois, New York, Texas, Joe mentioned in California, it's the UIS, the undocumented immigration status members that are probably very disproportionately driving that State. Now our guidance has -- membership attrition was 2% for the year. In our new guidance, it's now 6%. So certainly on volume, that's down. In our prepared remarks, we said the revenue would be offset by marketplace. But to Joe's point, the acuity impact, potential acuity impact on a higher attrition assumption for Medicaid, we're really not seeing it.

When we look at the low and no users, most of them came out over the last 1.5 years or 2 years since the start of redetermination after the pandemic. Right now, we're seeing a lower percentage of low users and no users in our Medicaid population than we ever have, at least since we've been recording it.

The other point I'd mention is when we look at our stairs, levers analysis, on Medicaid, the people that are staying with us versus the people that are leaving us, the levers at this point are leaving very close to portfolio averages, which is just one more data point that suggests to us that any of this pent-up acuity shift is largely behind us. So yes, lower on Medicaid membership, but we don't really see an acuity impact here.

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