Molina Healthcare Inc · NYSE:MOH
Molina Healthcare — Investor Day (May 2023)
79 slides from Molina Healthcare's investor day presentation, May 16, 2023
Slide 1: Investor Day 2023: Sustaining Profitable Growth: The Next Wave
Investor Day 2023Sustaining Profitable Growth:The Next Wave May 15, 2023
Slide 2: Sustaining Profitable Growth: The Next Wave agenda
Sustaining Profitable Growth: The Next Wave Topic Speaker Welcome and Introduction Joe Krocheski Sustaining Profitable Growth Joe Zubretsky Compelling Financial Profile Mark Keim Executive Q&A Joe Zubretsky Mark Keim
Slide 3: Cautionary Statement
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 growth strategy and long-term outlook, the realization of embedde
Slide 4: Sustaining Profitable Growth
Sustaining Profitable Growth Joe Zubretsky President and Chief Executive Officer
Slide 5: Our Historical Performance
Our Historical Performance Our trailing three-year performance has exceeded our long-term targets What We Delivered 2020 to 2023G 20% Premium revenue CAGR $4B of growth in current footprint $3B realized new RFP wins $7B realized from acquisitions 4.5% average adjusted pre-tax margin 24% Adjusted EPS
Slide 6: Our Performance Outlook
Our Performance Outlook Continued execution of growth strategy with updated premium revenue target of $46 billion in 2026 while sustaining margin profile How We Will Do It Maintain our balanced approach to growth Realize $4.5B of premium from recent RFP wins Harvest $4.50 of new store embedded EPS S
Slide 7: Sustaining Profitable Growth sections
Sustaining Profitable Growth Our Value Creating Franchise Retrospective Performance Excellence Our Performance Outlook The Growth Model Current Environment
Slide 8: Our Value Creating Franchise
Our Value Creating Franchise
Slide 9: Franchise
Franchise Leading pure-play, government-sponsored managed care franchise with depth, breadth and scale 125Ranking $32B Premium Revenue 2023G 5.1MMembers YE 2023 22States 2024 3Products Medicaid, Medicare and Marketplace
Slide 10: Balanced Portfolio
Balanced Portfolio 6-10% >10% 5% or less Percent of Total Premium Revenue $32B 2023G Premium 13% Medicare 5% Marketplace 82% Medicaid Synergistic Medicare and Marketplace Segments Complement Medicaid Well Diversified 22 State Portfolio Increasingly geographically diversified portfolio of complementa
Slide 11: Portfolio Synergies
Portfolio Synergies Synergistic product segments provide member continuity and leverage common capabilities Federal Poverty Level 400 - 250 - 138 - 100 - 150 - MAPD Duals Medicaid Marketplace (low subsidy) Marketplace Target (max subsidies) MAPD Target (low-income) <65 >65 Continuity for “age ins” M
Slide 12: Retrospective
Retrospective
Slide 13: Premium Revenue Growth
Premium Revenue Growth Our trailing three-year growth has exceeded our long-term targets 8% - 10% 5% 13% - 15% 10% 10% 20% 2020 - 2023G Achieved 2021 IR Day LT Target
Slide 14: Organic Premium Revenue Growth
Organic Premium Revenue Growth We have delivered total organic growth at the high end of our long-term target 2021 IR Day LT Target 2020 - 2023G Achieved 8% - 10% 5% - 8% 11% - 13% 8% - 10% 10% 2% 12% 12% Weighted Total Marketplace Medicare Medicaid
Slide 15: Molina Wins
Molina Wins Proven success retaining existing contracts and delivering new store growth with RFP wins and accretive acquisitions New Procurements Reprocurements Announced M&A CA MS OH WA KY NV IA NE TX ABD IN LTSS $3B Premium Realized 2021-2023G $4.5B Premium To Be Realized 2024-25 $7B Premium Reali
Slide 16: Premium Revenue Growth
Premium Revenue Growth 20% trailing 3-year CAGR was well balanced between organic growth and M&A 2020 Current Footprint Strategic Initiatives M&A 2023G $18 $32 In $ Billions Organic
Slide 17: Adjusted EPS Growth
Adjusted EPS Growth Trailing 24% EPS CAGR driven by current footprint and realization of new store embedded earnings >$20.25 $17.92 $10.67 $13.54 New Store Realized ($1.00) ($1.50) ($1.00) New Store Additions $1.00 $4.00 $0.50 Ending Balance $2.50 $2.50 $5.00 $4.50 Realized New Store Organic growth
Slide 18: Current Environment
Current Environment
Slide 19: Government Managed Care Market
Government Managed Care Market Our addressable markets exceed $1 trillion in annual spend with attractive and durable growth $443B 58M Members Members Spend $460B 31M Spend Members 16M $105B Sources: CBO, CMS and NHE Spend 8% Projected Long-term CAGR 9% Projected Long-term CAGR 5% Projected Long-ter
Slide 20: Molina Market Share Opportunity
Molina Market Share Opportunity Large enough for scale and relevance yet with significant local market share growth opportunity in all segments Average State Market Share National Market Share ~10% - 25% ~10% ~4% ~10% - 30% ~3% ~5% - 20% Medicaid #4 Nationally ~6% #7 Nationally ~3% ~2% Sources: Heal
Slide 21: Political and Regulatory Environment
Political and Regulatory Environment The political and regulatory environment strongly favors the social safety net of government- sponsored healthcare Medicaid Commitment to continuity of coverage during redetermination Continuing penetration of managed care through carve-ins and expansion Medicare
Slide 22: The Growth Model
The Growth Model Medicaid / Medicare / Marketplace / Accretive M&A
Slide 23: Total Growth
Total Growth Long-Term Premium Revenue Growth - Unchanged Strong organic growth opportunities complemented by a disciplined acquisition strategy 8% - 10% 5% 13% - 15% Organic Growth Weighted Total Medicare Marketplace 8% - 10% 5% with Optionality 11% - 13% 8% - 10% Medicaid
Slide 24: The Growth Model
The Growth Model Our growth model is well balanced between organic drivers and accretive M&A ~5% Bolt-ons in Core Products Lines 4% Member Growth and Rate 4% - 6% New Contracts Market Share Penetration Carve-ins 13% - 15% Industry Leading Profitable Growth Current Footprint Strategic Initiatives ~2/
Slide 25: Medicaid
Medicaid
Slide 26: Medicaid Strategic Initiatives
Strategic Initiatives Organic 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 Pursue LTSS carve-in and expansion opportunities 3 Win new RFP States 4% - 6% 8% - 10%
Slide 27: Increase Market Share
Increase Market Share Focus on fundamental operating tactics to drive significant market share opportunity Service Area Market Shares 11-15% 6-10% 5% or less >15% Engage providers to drive membership loyalty Improve quality scores to drive auto assignment Increase voluntary enrollment through commun
Slide 28: Win New RFP States
Win New RFP States New State procurement opportunities total ~$60 billion in annual premium revenue by 2026 Annual Contract Value 2024 2025 2026 GA ~$30B ~$20B ~$10B TX STAR Kids IN ABD AZ LTSS Contract Inception Year NH NM FL PA KS RI NC OR CO HI
Slide 29: Sizing the New State RFP Opportunity
2026 total premium revenue RFP opportunity ~$60B Pursue subset of opportunities ~40% ~30% Projected competitive win rate ~50% ~92% Projected market share ~20% ~30% 2026 Molina premium revenue opportunity ~$2.5B Sizing the New State RFP Opportunity Significant RFP opportunities and proven track recor
Slide 30: Molina's Winning RFP Formula
Molina’s Winning RFP Formula Our RFP success is built on execution of proven strategy and track record of operational excellence Target Selection Criteria 1 Size and duration of contract 2 Strength of incumbents 3 Number of awardees 4 Access to high-quality low-cost network 5 Rational rate environme
Slide 31: Pursue LTSS Carve-in and Expansion Opportunities
~$26B in Opportunities Pursue LTSS Carve-in and Expansion Opportunities Numerous LTSS carve-in opportunities and potential expansion as States leverage managed care efficiency Pursue announced carve-in programs Leverage Molina’s leading LTSS capabilities and growing platform Advocate for expansion a
Slide 32: Medicare
Medicare
Slide 33: Molina Medicare Product Portfolio
Molina Medicare Product Portfolio Several products within our growing Medicare segment serve high acuity, low-income populations Current Molina Medicare States Product States 2023G Members (K) 2023G Premium (B) ‘20-23G Premium CAGR MMP 5 64 $2.1 6% HIDE/FIDE 8 41 $1.1 54% D-SNP 9 42 $0.7 18% Low Inc
Slide 34: Medicare Organic Premium Revenue Opportunity
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 Increase HIDE / FIDE share and penetration of Medicaid footprint 1 Increase D-SNP and low income MAPD market share 4%
Slide 35: Increase D-SNP and Low-Income MAPD Market Shares
Increase D-SNP and Low-Income MAPD Market Shares Execution of fundamental operating tactics drives significant market share opportunity Capture age-ins Expand direct sales channels Deepen targeted broker relationships Strengthen key provider relationships Improve retention through member engagement
Slide 36: Increase HIDE/FIDE Share and Penetration
Increase HIDE / FIDE Share and Penetration of Medicaid Footprint Penetrating remaining footprint and increasing share in current Molina States provides meaningful growth lever Targeted introduction of HIDE / FIDE in Medicaid footprint Expand direct sales channels Deepen targeted broker relationships
Slide 37: Maximize MMP Conversion into HIDE/FIDE
Maximize MMP Conversion into HIDE / FIDE We will transition MMP members to HIDE or FIDE products in remaining MMP States by 2026 CMS sunsetting MMP demonstrations by 2026 Existing MMP members to be transitioned to alternative integrated HIDE / FIDE products Molina partnering with States to seamlessl
Slide 38: Marketplace
Marketplace
Slide 39: Strong Market Growth
Strong Market Growth Several market dynamics are driving continued growth Source: CMS, Urban Institute and HHS Market Dynamics Enhanced subsidies were extended through 2025 Year-round Special Enrollment Period under 150% FPL was made permanent The “Family glitch” was fixed, expanding access Member t
Slide 40: Marketplace Risk Pool
Marketplace Risk Pool Significant challenges to the stability of the Marketplace risk pool in recent years led to our reallocation of capital to attractive Medicaid and Medicare segments Changes that impacted who could enroll and when were often made after pricing was filed Regulatory Changes New pl
Slide 41: Marketplace Option Value
Strategic Initiatives Molina Market Shares Marketplace Option Value Continued Marketplace presence within Medicaid footprint provides option value for significant revenue growth once risk pools have stabilized ~$2.5B Revenue Opportunity Return to 2018 Market Share 2022 ~5% ~2% 2018 4 Exercise option
Slide 42: Accretive M&A
Accretive M&A
Slide 43: Our M&A Platform
Our M&A Platform M&A is a key element of our long-term premium growth outlook 3 M&A generally as accretive as new procurement economics 4 Previously announced purchase prices are highly capital efficient 1 Ample excess cash flow internally funds acquisitions 2 We buy long-dated revenue streams 6 Exp
Slide 44: Acquisition Pipeline
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 2026 revenue ta
Slide 45: M&A Track Record
2023 2022 2021 2020 M&A Track Record Seven transactions sequenced for manageable integration Announced Closed Confidential YourCare Health Plan YourCare Health Plan Cigna Texas Medicaid Magellan Complete Care Passport Health Plan Affinity Health Plan AgeWell New York My Choice Wisconsin Passport Hea
Slide 46: Performance Excellence
Performance Excellence
Slide 47: Performance Excellence – The What
Performance Excellence – The What We commit to excellent performance across many dimensions 4 Deliver high-quality healthcare and member experience 3 Target 4% - 5% enterprise pretax margins 1 Maintain target segment MCRs 2 Drive G&A ratio below 7% 5 Maintain pristine compliance
Slide 48: Performance Excellence – The How
Performance Excellence – The How Molina achieves and sustains growth and margins while providing quality healthcare 4 Build Industry-Leading Team and Winning Culture 3 Execute the Molina Playbook 1 Focus on the Fundamentals of Managed Care 2 Deliver Value Added Products and Services
Slide 49: Performance Excellence - Execution
Performance Excellence - Execution Larry Anderson Human Resources Deb Bacon Medicare & Marketplace Jeff Barlow Legal Jason Dees Medical Affairs Amir Desai Information Technology Carolyn Ingram Marketing Mark Keim Finance and Strategy Ron Kurtz Chief of Staff Dave Reynolds Regional Health Plans Marc
Slide 50: Our Performance Outlook
Our Performance Outlook
Slide 51: Our Performance Outlook
Our Performance Outlook Continued execution of growth strategy with updated premium revenue target of $46 billion in 2026 while sustaining margin profile How We Will Do It Maintain our balanced approach to growth Realize $4.5B of premium from recent RFP wins Harvest $4.50 of new store embedded EPS S
Slide 52: Compelling Financial Profile
Compelling Financial Profile Mark Keim Chief Financial Officer
Slide 53: Compelling Financial Profile sections
Compelling Financial Profile Strong Capital Foundation and Discipline Long-Term Margin Targets Value Creation Model 2023 Guidance and Revenue Outlook
Slide 54: Long-Term Margin Targets
Long-Term Margin Targets
Slide 55: Long-Term Margin Targets
Medical Care Ratio 87.5% - 88.5% <7% 4% - 5% Pre-Tax Margin Long-Term Margin Targets We will grow premium at 13% - 15% and maintain our current margin profile Weighted Total At current portfolio mix Medicare Marketplace 87.5% - 88.5% 78% - 80% 87% - 88% 88% - 89% Medicaid
Slide 56: Medicaid Rate Environment
Medicaid Rate Environment Core rates are expected to remain actuarially sound with many COVID-era risk sharing corridors now expired Medical Cost Mechanisms COVID-era corridors eliminated in all but three States Remaining COVID-era corridors constrain current EPS by ~$2.00 Continuation of legacy min
Slide 57: Medicaid Margin Sustainability
Medicaid Margin Sustainability Rate setting on total market population allows Molina to continually drive MLR outperformance Example Market MLRs 25% 25% 25% 25% Molina Outperformance Market Risk Pool Cost trend included in rates as CMS requires rate setting to be actuarially sound State actuarial pr
Slide 58: Redetermination Trend Impact
Redetermination Trend Impact Numerous factors are expected to mitigate potential trend impact from redetermination MCR Drivers Cohort analysis indicates minimal exposure Mix effect of lower PMPM members disenrolling reduces impact Gradual disenrollment dilutes any potential 2023 impact ahead of norm
Slide 59: Redetermination Cohort Analysis
Redetermination Cohort Analysis Cohort analysis indicates minimal exposure in Expansion and TANF / CHIP 40% Unchanged Up Slightly Medicaid Revenue Mix Members with greater than 1-year duration Members with less than 25% MCR Unchanged Members with coordination of benefits Negligible Potential Trend I
Slide 60: Disenrollment Timing and Rate Cycle
Disenrollment Timing and Rate Cycle Mid-year disenrollments come in advance of rate cycles, providing ample time for data-driven rate setting Confidential Redetermination Timeline 2023 Apr May Jun Jul Sep Oct 2024 Jan May 1 3 9 4 CMS Completion Deadline 52% 14% 10% 14% 10% MOH States Beginning Disen
Slide 61: Medical Cost Management
Operating Focus State-of-the-art medical economics platform Utilization management High-acuity care management Centers of Excellence for BH, Rx and LTSS Core technology, automation and quality Value based contracting Medical Cost Management Numerous capabilities drive medical cost efficiencies with
Slide 62: G&A Expense Management
Member and provider experience New business development M&A integration Medical economics and data analytics Population health Automation and process redesign Digitization Centralization to Center of Excellence Transparency and discipline Outsourcing commodity services Expense Management Leveraging
Slide 63: G&A Leverage Geography
G&A Leverage Geography New States leverage corporate cost structure while significant growth in legacy States doubles the operating leverage through corporate and local cost structures Full Year 2021E New State Growth Legacy State Growth Example G&A Ratios 3.5% 3.5% Stand-Alone Health Plan 1.75% 3.5
Slide 64: 2023 Guidance and Revenue Outlook
2023 Guidance and Revenue Outlook
Slide 65: Embedded Earnings Power: 2023 Guidance and 2024 Building Blocks
Embedded Earnings Power 2023 Guidance and 2024 Building Blocks Adjusted EPS of at least $20.25 forms solid jump off for next year. 2024 EPS building blocks include current footprint, New Store growth, absence of implementation costs and redetermination Full Year 2021E Affirming Guidance New Store Gr
Slide 66: Medicaid Redetermination
Medicaid Redetermination We expect 2023 premium revenue impact of ~$0.5 billion and an additional ~$1.1 billion in 2024 Timing Duration Eligibility Redeterminations restarted in February, with first terminations effective April. States share timelines CMS requires States to complete by May 2024 Prec
Slide 67: 2024 Premium Revenue Outlook
2023G Current Footprint RFP Wins Acquisitions Redeterminations Rx Carve-outs 2024 Outlook $32 Initial 2024 Premium Revenue Outlook Known building blocks provide line of sight to 13% premium revenue growth in 2024 before additional strategic initiatives >$36 Iowa - $0.9B Indiana - $0.5B Nebraska - $0
Slide 68: 2026 Premium Revenue Target
2023G Current Footprint Announced Identified M&A 2026 Before Regulatory Headwinds Redetermination and Rx Carve-outs 2026 Target $47.5 2026 Premium Revenue Target Premium revenue target drives 14% CAGR before absorbing regulatory headwinds with high visibility to significant portion of revenue driver
Slide 69: 2026 Strategic Initiative Opportunity
2026 Strategic Initiative Opportunity Targeted 2026 premium revenue requires execution of less than 25% of identified strategic initiatives $2.5 $2.0 $6.5 $11 2026 Premium Revenue Opportunity Gap to 2026 Premium Revenue Target $2.0 Increase market share $2.5 Win new RFP States $2.0 Pursue carve-in a
Slide 70: Strong Capital Foundation and Discipline
Strong Capital Foundation and Discipline
Slide 71: Strong Capital Foundation
Strong Capital Foundation Strong balance sheet provides foundation for stability and growth 1Q23 Credit Stats Reserve Strength Acquisition Capacity 2023 Parent Company Cash ~$500M Debt Capacity ~$2.0B Total Deployable Capital ~$2.5B Reserves at 3/31/23 $3.8B Days in Claims Payable 48 Days Net Debt t
Slide 72: Capital Deployment Discipline
Capital Deployment Discipline Capital is deployed to highest return opportunities EPS Accretion Long-Term Target Capital Allocation Organic growth is the highest priority Most efficient use of capital to grow All lines of business are high growth Re-invest in Business 25% Robust pipeline Disciplined
Slide 73: Value Creation Model
Value Creation Model
Slide 74: Total Growth
Total Growth Long-Term Premium Revenue Growth - Unchanged Strong organic growth opportunities complemented by a disciplined acquisition strategy 8% - 10% 5% 13% - 15% Organic Growth Weighted Total Medicare Marketplace 8% - 10% 5% with Optionality 11% - 13% 8% - 10% Medicaid
Slide 75: Long-Term EPS Growth
Long-Term EPS Growth Strong revenue and earnings growth off 2023 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 76: Enterprise Value Creation Model
Strong market growth trends Numerous strategic initiatives Capitalized at <10% of revenue Low volatility Organic Acquisitions Enterprise Value Creation Model Highly efficient capital generation and deployment model creates significant value Numerous pipeline opportunities Announced acquisitions at a
Slide 77: Investment Thesis
Investment Thesis Strong growth, sustained margins and disciplined capital management form the core of shareholder return Pure play government sponsored healthcare Legacy and new market opportunities Double digit revenue growth Attractive margins and operating leverage High return capital deployment
Slide 78: Executive Q&A
22 oRRMOLINA HEALTHCARE Executive Q&A
Slide 79: Reconciliation of Non-GAAP Financial Measures
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 other