Molina Healthcare Inc · NYSE:MOH
Molina Healthcare — Investor Day (September 2021)
69 slides from Molina Healthcare's investor day presentation, Sep 17, 2021
Slide 1: Investor Day 2021: Sustaining Profitable Growth
Investor Day 2021 Sustaining Profitable Growth September 17, 2021
Slide 2: Sustaining Profitable Growth Agenda
2 Sustaining Profitable Growth Topic Speaker 8:30am Welcome and Logistics – Ron Kurtz 8:35am Sustaining Profitable Growth – Joe Zubretsky 9:30am Compelling Financial Profile – Mark Keim 10:00am – 10:45am Executive Q&A – Joe Zubretsky – Mark Keim
Slide 3: Cautionary Statement
3 Cautionary Statement Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: This presentation and the accompanying oral remarks include forward-looking statements regarding, without limitation, the Company’s 2021 guidance, its 2022 premium revenue and revenue growth stra
Slide 4: Sustaining Profitable Growth – Joe Zubretsky
4 Sustaining Profitable Growth Joe Zubretsky President and Chief Executive Officer
Slide 5: Sustaining Profitable Growth Overview
5 Sustaining Profitable Growth Long-Term Financial Targets The Profitable Growth Playbook Attractive Government Managed Care Market Value Creation Dynamics Winning Leadership ModelOur Value Creating Franchise
Slide 6: Long-Term Financial Targets
6 Long-Term Financial Targets
Slide 7: Long-Term Premium Revenue Growth
7 Total Growth Long-Term Premium Revenue Growth Strong organic growth opportunities off of 2022 outlook, complemented by disciplined acquisition strategy Organic Acquisitions Total 8% - 10% ~5% 13% - 15% Organic Growth Weighted Total Medicare Marketplace 8% - 10% 5% - 8% 11% - 13% 8% - 10%Medicaid
Slide 8: Long-Term Margin Outlook
8 Medical Care Ratio Adj. G&A Ratio Pre-Tax Margin Long-Term Margin Outlook Continued margin management will drive net income growth 87% - 88% <7% 4% - 5% Medical Care Ratio Weighted Total Medicare Marketplace 87% - 88% 78% - 80% 87% - 88% 88% - 89%Medicaid Pre-Tax Margin
Slide 9: Total Company Long-Term Outlook
9 Total Company Long-Term Outlook Strong revenue and earnings growth off of 2022 outlook, enhanced by operating leverage and share repurchases Premium Revenue Growth 13% - 15% Hedge to Margins / Operating Leverage 0% - 1% Net Income Growth 13% - 16% Share Repurchases ~2% EPS Growth 15% - 18%
Slide 10: Investment Thesis
10 Investment Thesis Strong growth, sustained margins and disciplined capital management form the core of shareholder return Legacy and new market opportunities Double digit revenue growth Attractive margins and operating leverage Capital efficiency and cashflow generation High return capital deploy
Slide 11: Our Value Creating Franchise
11 Our Value Creating Franchise
Slide 12: Franchise
12 Franchise Leading pure-play, government-sponsored managed care company with breadth and scale 155 Ranking >$27B Total Revenue 2021E 4.7M Members 2Q21 18 States 2021 3 Products Medicaid, Medicare and Marketplace
Slide 13: Mission
13 Mission We improve the health and lives of our members by delivering high-quality health care Members Government Agencies Employees Shareholders Our mission is balanced among all those we serve Molina provides access to high-quality government sponsored healthcare
Slide 14: Transformation
14 Transformation Our transformation has driven strong growth in revenue, EPS and shareholder return Total Revenue Adj. EPS Margin Sustainability 2019 $16.8B $11.57 (11%) (1%) Stock Price Margin Recovery 2017 2018 $19.9B ($8.72) $18.9B $11.74 (5%) nm $77 Growth 2021 Guidance >$27.0B >$13.25 >60% >15
Slide 15: Portfolio
15 Portfolio Geographically diversified government-services portfolio with strong segment synergies 6-10% >10%5% or less Percent of Total Premium Revenue >$26B ‘21 Premium Guidance 12% Medicare 11% Marketplace 77% Medicaid Synergistic Medicare and Marketplace Segments Complement Medicaid Strong Incu
Slide 16: Portfolio Synergies
16 Portfolio Synergies Synergistic product segments provide member continuity and leverage common capabilities F e d e ra l P o v e rt y L e v e l 400 - 250 - 138 - 100 - 150 - MA-PD DualsMedicaid Marketplace (low subsidy) Marketplace Target (max subsidies) MA-PD Target (low-income) <65 >65 Continui
Slide 17: Market Share Upside Opportunity
17 Market Share Upside Opportunity National franchise with significant local market opportunity in all segments Average State Market Share National Market Share ~20% - 30% ~9% ~6% ~20% - 40% ~9% ~15% - 50% Medicaid #4 Nationally ~6% Medicare Duals #6 Nationally ~3% Marketplace #6 Nationally ~5% Sour
Slide 18: Attractive Government Managed Care Market
18 Attractive Government Managed Care Market
Slide 19: The Government Managed Care Market
19 The Government Managed Care Market Our addressable markets exceed $1T in spend with high growth $461B 64M Members Members Spend $470B 29M SpendMembers 16M $105B Sources: CMS Medicaid Actuarial Report, NHE, KFF, HHS and Urban Institute Spend 8% ’22 – ’25 CAGR 13% ’22 – ’25 CAGR 5% ’22 – ’25 CAGR M
Slide 20: Political / Regulatory Environment
20 Political / Regulatory Environment Political and regulatory environment provides favorable conditions for all segments Medicaid Medicare Marketplace Executive Orders Revoked Medicaid work requirements PHE continues telehealth flexibility increasing access Agencies halt sale of limited duration/no
Slide 21: Medicaid Rate Environment
21 Medicaid Rate Environment Core rates are expected to remain actuarially sound with many COVID risk sharing corridors expiring • COVID risk sharing corridors in many states through 2021 • Corridors expected to end with PHE • Corridors already expired in CA, NY, SC, and MI for 2022 fiscal years • P
Slide 22: Medicaid Enrollment During and After the COVID-19 Pandemic
22 r rrr r Medicaid Enrollment During and After the COVID-19 Pandemic, July 16, 2021| Manatt Health Strategies, LLCMedicaid Enrollment During and After the COVID-19 Pandemic, July 16, 2021| Manatt Health Strategies, LLC 0 5 20M 65 80M 60M 55 85 75 -4% 45 -1 8% 0% 5 -3 1 35 9 3 25 4% 7 40M 15 2005 20
Slide 23: The Profitable Growth Playbook
23 The Profitable Growth Playbook Medicaid / Medicare / Marketplace / M&A / Margin Profile
Slide 24: Medicaid
24 Medicaid
Slide 25: Medicaid Long-Term Organic Growth
25 Strategic InitiativesOrganic Premium Revenue Opportunity Medicaid Long-Term Organic Growth Long-term organic growth rate of 8%-10% driven by current footprint and strategic initiatives 1 Increase market share 2 Grow with potential expansion states 3 Pursue carve-in opportunities 4 Win new RFP sta
Slide 26: Increase Market Share
26 Increase Market Share Retain existing contracts and focus on fundamental operating tactics to drive significant market share opportunity Service Area Market Shares 11-15%6-10%5% or less >15% – Engage membership redeterminations proactively – Engage providers to drive membership – Increase auto as
Slide 27: Grow with Potential Expansion States
27 Expansion Opportunity Grow with Potential Expansion States Opportunity in five incumbent states represents ~3 million additional Medicaid managed care lives Potential Medicaid Expansion states Source: KFF, state filings and Company estimates Medicaid Foot-Print ~7% Weighted State Avg Market Share
Slide 28: Pursue Carve-in Opportunities
28 ~$7B in Carve-in Opportunities Pursue Carve-in Opportunities Numerous pending LTSS and BH carve-in opportunities as states leverage managed care efficiency Actions – Pursue announced carve-in programs – Advocate for additional carve-in programs – Leverage Molina’s leading capabilities and $4B LTS
Slide 29: New State RFP Pipeline
29 New State RFP Pipeline New state procurement opportunities total ~$95 billion in annual premium revenue by 2025 2025 Premium Revenue Opportunity Arizona Louisiana Rhode IslandMinnesota ~$15B2022 North Carolina PennsylvaniaMaineFloridaArizona ~$30B2025 Georgia Delaware IowaIndiana TennesseeMissour
Slide 30: Prioritizing Opportunities
30 Key Criteria 2025 total RFP opportunity ~$95B Pursue subset of opportunities ~40% Projected competitive win rate ~50% Projected market share ~20% 2025 Molina revenue opportunity ~$4B Prioritizing Opportunities Significant RFP opportunities drive incremental long-term revenue growth 1 Size and dur
Slide 31: Nevada RFP Win
31 – Award covers beneficiaries through TANF, CHIP and Medicaid expansion programs – Four-year contract term with potential two- year extension – Future opportunities in LTSS and ABD – Strong ground game and innovative differentiation drove success Nevada RFP Win Recently announced Nevada RFP award
Slide 32: Medicare
32 Medicare
Slide 33: Medicare Long-Term Growth
33 Organic Premium Revenue Opportunity Strategic Initiatives Medicare Long-Term Growth Long-term organic growth rate of 11%-13% driven by current footprint and strategic initiatives 2 Penetrate Medicaid service areas 3 Introduce low-income MA-PD product 1 Increase D-SNP market share in current Medic
Slide 34: Increase D-SNP Market Shares in Current Service Areas
34 Increase D-SNP Market Shares in Current Medicare Service Areas Fundamental operating tactics drive significant market share opportunity – Expand direct sales channels – Deepen targeted broker relationships – Develop key provider relationships – Improve retention through member engagement Duals Se
Slide 35: Penetrate Medicaid Service Areas
35 Penetrate Medicaid Service Areas D-SNP penetration of remaining Medicaid footprint provides significant opportunity ~3% New County Target Market Share ~$200M 2025 Revenue Opportunity 56 new counties filed for 2022 ~500 Counties Without D-SNP States with under-penetrated Medicaid service areas Med
Slide 36: Introduce Low-Income MA-PD Products
36 National Managed Medicare Market Actions Introduce Low-Income MA-PD Products Low-income MA-PD products double Molina’s market opportunity in Medicare Sources: CMS and Company estimates ~20% ~55% Duals MA-PD ~25% Low- Income MA-PD ~$470B 2022 Premium Revenue ~$215B Target Market ~$700M 2025 Revenu
Slide 37: Marketplace
37 Marketplace
Slide 38: Strong 2021 Market Growth
38 Strong 2021 Market Growth Increased subsidies through ARP drove strong growth in 2021 with future growth rate expected to moderate 57% 55% 11.4M 11.4M ~15M 2019 2020 2022 59% Source: CMS, Urban Institute and HHS 15-17M 2021 Bronze Silver Market Dynamics – More members are now eligible for zero-do
Slide 39: Marketplace Long-Term Growth
39 Strategic InitiativesOrganic Premium Revenue Opportunity Marketplace Long-Term Growth As a smaller complement to Molina’s core Medicaid franchise, Marketplace margin discipline will be prioritized over volume 0% - 3% 5% - 8% ~5% 3 Penetrate Medicaid service areas 2 Prioritize margin discipline 1
Slide 40: Penetrate Medicaid Service Areas
40 Penetrate Medicaid Service Areas Marketplace penetration of remaining Medicaid footprint provides significant revenue opportunity, balanced with margin discipline States with under-penetrated Medicaid service areas Medicaid Footprint Penetration of Medicaid Footprint 14% Average Service Area Mark
Slide 41: M&A
41 M&A
Slide 42: Our M&A Platform
42 Our M&A Platform M&A is a key element of our long-term premium growth outlook 3 M&A generally more accretive than new procurement economics 4 Previously announced purchase prices are highly capital efficient 1 Ample excess cash flow to deploy for acquisitions 2 No need to access equity markets 6
Slide 43: Acquisition History
43 Acquisition History Five transactions totaling ~$8 billion of run-rate revenue sequenced for manageable integration A n n o u n c e d C lo s e d YourCare Health Plan Magellan Complete Care 2019 2020 2021 Passport Health Plan Affinity Health Plan Cigna Texas Medicaid YourCare Health Plan Passport
Slide 44: Margin Profile
44 Margin Profile
Slide 45: Margin Management Performance
45 Adjusted G&A Ratio Margin Management Performance Strong MCR and G&A management programs continue to drive attractive margins Medical Care Ratio 91.4 % 88.4 % 88.1 % 90.6 % ~89% ~87% ~80% ~88% Medicaid Medicare Marketplace Total Company 2017 2021 Ex Net Effect of COVID 8.0 % ~7.0% 2017 2021
Slide 46: Medical Cost Management
46 Operating Focus – Implemented state-of-the-art medical economics platform – Centralized utilization management – Enhanced high acuity care management – Created Centers of Excellence for Behavioral, Rx and LTSS – Focused on core technology, automation and quality Medical Cost Management Numerous c
Slide 47: Optimal Operating Platform
47 Optimal Operating Platform Fully integrated blend of proprietary and best-of-breed partners provides winning combination Internal – Care management – Provider contracting – Quality – Community engagement – Pricing and rating Hybrid – Utilization management – Transaction services – Risk adjustment
Slide 48: Winning Leadership Model
48 Winning Leadership Model
Slide 49: Proven Operating Model
49 Proven Operating Model While fairly traditional, our operating model and management process are executed with rigor and discipline Organizational Design Management Process Operating Model How We Operate – Flat organizational structure – Empowered local decision making – Simplified matrix – Approp
Slide 50: Executive Team
50 Executive Team Proven industry-leading team with over 20 decades of experience. Operating Council acts as a virtual COO Operating Council Chief of Staff Ron Kurtz President & CEO Joe Zubretsky Marketplace & CMO Jason Dees External Affairs Carolyn Ingram General Counsel Jeff Barlow CFO Mark Keim H
Slide 51: Value Creation Dynamics
51 Value Creation Dynamics
Slide 52: Enterprise Value Creation Dynamics
52 Organic Acquisitions Enterprise Value Creation Dynamics Highly efficient capital generation and deployment model creates significant value – Strong market growth trends – Numerous strategic initiatives – Capitalized at <10% of revenue – Low volatility – Numerous pipeline opportunities – Announced
Slide 53: Investment Thesis
53 Investment Thesis Strong growth, sustained margins and disciplined capital management form the core of shareholder return Legacy and new market opportunities Double digit revenue growth Attractive margins and operating leverage Capital efficiency and cashflow generation High return capital deploy
Slide 54: Compelling Financial Profile – Mark Keim
54 Compelling Financial Profile Mark Keim Chief Financial Officer
Slide 55: Compelling Financial Profile
55 Compelling Financial Profile Strong Capital Foundation G&A Expense Management Attractive Acquisition Metrics 2022 and Long-term Outlooks 2021 GuidanceCapital Deployment Discipline
Slide 56: Strong Capital Foundation
56 Strong Capital Foundation Strong balance sheet provides foundation for stability and growth 2Q21 Credit Stats Reserve Strength Current Acquisition Capacity Parent Company Cash ~$400M Debt Capacity ~$1B Total Deployable Capital ~$1.4B Reserves at 6/30/21 $2.9B Days in Claims Payable 48 Days Net De
Slide 57: Capital Deployment Discipline
57 Capital Deployment Discipline Capital deployed to highest return opportunities Accretive Acquisitions – Robust pipeline – Disciplined approach – Strategic fit, operational synergies and EPS accretion – Organic growth is the highest priority – Most efficient use of capital to grow – All lines of b
Slide 58: Capital Deployment History
58 Capital Deployment History Demonstrated record of capital management enhances shareholder value $1.0B $1.0B 2018 2019 $2.2B 2020 2021F $1.2B Stock / Convertible Repurchase M&A Organic Growth Long-Term Target Allocation // 100% ~25% ~50% ~25% Capital deployed for:
Slide 59: Attractive Acquisition Metrics
59 Attractive Acquisition Metrics Announced acquisitions at attractive valuations drive strong EPS accretion Target Acquired Revenue ($ M) Purchase Price Run Rate EPS Impact Announced Price ($ M) % of Revenue (Including Capital) YourCare Health Plan $300 $40 21% $0.20 Magellan Complete Care $2,900 $
Slide 60: Acquisition Pipeline
60 Acquisition Pipeline Acquisition pipeline remains robust with many remaining opportunities Strategic Fit and Synergies Large franchise opportunities Bolt on plans Turnaround opportunities ~300 Government Health Plans Near-Term Target List 1 Numerous acquisition opportunities remain 4 Long-term re
Slide 61: G&A Expense Management
61 Expense Management Leveraging the Base Building Capabilities G&A Expense Management Continued expense management and positive operating leverage fund investments while reducing G&A ratio – Automation and process redesign – Digitization – Outsourcing – Centralization to Center of Excellence – Tran
Slide 62: Embedded Earnings Power: Full-Year 2021 Guidance
62 Embedded Earnings Power Full-Year 2021 Guidance Reiterating adjusted EPS of no less than $13.25 on higher revenue and underlying earnings power offset by higher expected net effect of COVID Total Revenue >$27 B Premium Revenue >$26 B Adjusted EPS no less than $13.25 Full Year 2021E Net Effect of
Slide 63: Initial 2022 Premium Revenue Outlook
63 Initial 2022 Premium Revenue Outlook 2022 premium revenue growth outlook of 12% before Marketplace enrollment changes and additional strategic initiatives / acquisitions 2021 Premium Revenue Current Footprint CI and Affinity Acquisitions 2022 Premium Revenue >$26B $2.3B $1.0B ~$29B Nevada RFP Win
Slide 64: Medicaid Redetermination
64 Medicaid Redetermination Several factors are expected to drive a soft landing and 2022 revenue impact of ~$0.5B and another ~$0.8B in 2023 Timing Duration Eligibility CMS suggests PHE “likely” extended through 2021 year-end. Several states have already set their own timeline With practical limita
Slide 65: Long-Term Premium Revenue Growth
65 Long-Term Premium Revenue Growth Balanced growth driven by significant organic growth opportunities and disciplined acquisition strategy ~14% CAGR After Impact of Redetermination 2022 2025 ~$29B ~$42B Strategic Initiatives Acquisitions ~$4B ~$5B 4% - 6% CAGR ~5% CAGR ~4% CAGR ~$5B Current Footpri
Slide 66: Long-Term Organic Premium Revenue Growth Model
66 Current Footprint Eligibles + Yield Strategic Initiatives Long-Term Organic Growth Rate 2025 Revenue Opportunity Discounted Outcome 3-Year Implied CAGR off of 2022 Medicaid 4% ~$7.6B 40% - 60% 4% - 6% 8% - 10% Medicare 7% ~$1.2B 40% - 60% 4% - 6% 11% - 13% Marketplace 5% ~$1.5B 0% - 20% 0% - 3% 5
Slide 67: Total Company Long-Term Outlook
67 Total Company Long-Term Outlook Strong revenue and earnings growth off of 2022 outlook, enhanced by operating leverage and share repurchases Premium Revenue Growth 13% - 15% Hedge to Margins / Operating Leverage 0% - 1% Net Income Growth 13% - 16% Share Repurchases ~2% EPS Growth 15% - 18%
Slide 68: Executive Q&A
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Slide 69: Reconciliation of Non-GAAP Financial Measures
69 Reconciliation of Non-GAAP Financial Measures Adjustments represent additions and deductions to GAAP net income as indicated in the table below, which include the non-cash impact of amortization of acquired intangible assets, acquisition-related expenses, and the impact of certain expenses and ot