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Hello, and welcome to the Molina Healthcare First Quarter 2024 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to your host today, Jeffrey Geyer. Please go ahead.

Good morning, and welcome to Molina Healthcare's First Quarter 2024 Earnings Call. Joining me today are Molina's President and CEO, Joe

Thank you, Jeff, and good morning. Today, I will cover our traditional quarterly topics, our reported financial results for the first quarter, which were in line with our expectations, highlighted by $5.73 of earnings per share. An update on our guidance, which we reaffirm at $38 billion of premium revenue and at least $23.50 in earnings per share and 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. Last night, we reported adjusted earnings per share of $5.73, a $9.5 billion of premium revenue, supported by excellent operating metrics across all lines of business. Our 88.5% consolidated MCR reflects continued strong medical cost management with all 3 segments reporting MCRs, in line with our expectations. We produced a 4.5% adjusted pretax 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%. Our expanded platform in California and our new Nebraska health plan, together, added over 0.5 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 shortfall. 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%, our performance in line with our expectations. The higher utilization we experienced in the second half of 2023 due to higher LTSS costs and pharmacy utilization continued into 2024. But the operational improvements and supplemental benefit adjustments to be made in our legacy business have thus far proven to be successful. 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 Marketplace, the first quarter MCR was 73.3% and in line with our expectations. Our membership mix comprised 50% renewal members and 70% of members in our silver product. Strong renewals 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 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 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. Our 2024 revenue and EPS guidance provides a strong foundation for profitable growth in 2025 and beyond. Now some comments on our growth initiatives. In Medicaid, we had mixed success in the quarter. We were awarded a large RFP win in Texas and a large reprocurement win in Michigan, but we're not awarded contracts in 2 other existing states, Virginia and Florida. All these impacts combined caused no net change to our embedded earnings, which remains at $4 per share. Let me provide some commentary on these RFP outcomes. In Texas, the state announced its intent to award us all 7 of our preferred service areas as part of the STAR and CHIP programs. This contract is expected to begin in September 2025 and last for 6 years with the option to extend up to an additional 6 years. The award expands our footprint and increases our market share. We successfully defended our position in Michigan and were awarded a contract in 6 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 share. We were very disappointed with the outcome in the Virginia RFP, but we are exercising our right to challenge this decision. We were also disappointed with the RFP result in Florida, 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 opportunity up for bid over the next 3 years. This includes in-flight RFP bids in 2 states, Kansas and Georgia, and a projected near-term RFP in North Carolina. The Texas STAR Kids program is likely going to RFP soon, where 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 reprocurements and 8 for 10 in new business procurements. 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 8 transactions totaling $11 billion in revenue over the past 4 years, and M&A will continue to be a key component of our strategy. Next, as we look forward into 2025, 2 comments about the outlook for our Medicare portfolio. First, our Medicare product profile has different characteristics than mainstream MAPD business. Our business is a combination of legacy D-SNP, MNP demonstrations and our newly acquired Bright business. 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 dual income will benefit from further integration of Medicare and Medicaid benefits. BMS 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. With our 2024 guidance reaffirmed, we remain committed to delivering on our long-term premium and earnings per share growth earnings. 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. 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. Mark?

Thanks, Joe, and good morning, everyone. 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 reflect continued strong medical cost management. The change health care outage did not materially impact quarterly results, and all of our segments reported MCRs in line with our expectations. 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 My Choice Wisconsin acquisition in late 2023 drove a higher reported MCR in the first quarter. Recall, we have added approximately 800,000 Medicaid members in the past 3 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. 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 G&A 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 redeterminations. In the quarter, we estimated a net loss of 50,000 members due to redeterminations. This was on track with our expectations and brings the total net loss from redetermination since its inception to 550,000. 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. 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 moved to Molina Marketplace products. Turning to our balance sheet. Our capital foundation remains strong. On January 1, we closed the Bright acquisition at a final price of approximately $425 million, funded with cash on hand. 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 1.4x 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, stable earnings profile and high transparency. Days in claims payable at the end of the quarter was 49% and consistent with prior quarters. While the Change Healthcare outage impacted our February operations with claims 20% lower than normal, we're pleased to report that our quick response through alternative clearing houses 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. 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%. 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 $23.50 per share. We see underlying strength in our core business. However, we are maintaining our full year guidance of recognizing any potential earnings headwinds in the second half of the year from potential contract losses in Virginia and Florida. 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 2/3 of our Medicare segment revenue or only 10% of total enterprise revenue is fully subject to these rates. With a heavy concentration in California, we yielded a more favorable rate profile than CMS national averages. The remaining 1/3 of our Medicare segment, the MMP demonstrations received rates determined by CMS and our state partners, 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 Bright this year. 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 role, strategically advantaged us to grow. Currently, many dual eligible members received their medicated Medicare benefits from 2 different MCOs. CMS announced rules that will move these unaligned dual members to the D-SNP plan run by their Medicaid MCO. As such, incumbent Medicaid players will see increased growth opportunities in D-SNP. While the new rule will phase in over time, it's clear that our substantial Medicaid footprint positions us well to grow our D-SNP product to serve due 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 incepting next year to be offset by our best estimate of next year's impact of the Virginia and Florida potential losses. We expect the majority of this new store embedded earnings to emerge in 2025 with the remainder in 2026. giving us further confidence in our 15% to 18% long-term growth rate for EPS. This concludes our prepared remarks. Operator, we are now ready to take questions.

[Operator Instructions] And today's first question comes from Kyle Sternick with JPMorgan.

I guess, first, I wanted to start on the guidance here, is -- you talked about the strength in the core business and the MCR 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, is the outperformance in the current business enough to allow you to maintain guidance? Or if you think about the -- 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.

Okay. We are clearly saying that if we have a revenue loss in the third and fourth quarters due to the contract losses and the related earnings, the strength of the core business will produce enough earnings power to offset that. And it's no one thing. It's just general performance of all our 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 is 90 basis points of improvement projected in the Medicaid of MCRs in the last 3 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 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.

Got it. And then I wanted to ask about the SNP regs as well. Specifically, how does that change your strategic thinking about M&A. I mean, I think the bright deal is really the first big Medicare asset begun purchased. Does this change the way you think about whether you'd be more biased towards MA or Medicaid? Or is it really just more motivation to sort of double down on the organic growth? .

It doesn't really change our M&A strategy. I mean we look for opportunities across all of [indiscernible], most of our M&A activity has been in Medicaid, but the Bright acquisition represents first M&A opportunity that we actioned in Medicare. But what we're really saying is the fact that we have this 20-state footprint in Medicaid and growing. The decent 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 2 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. 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 action in the dual eligible population.

The next question comes from Josh Raskin with Nephron Research.

Just to go back on the Virginia and Florida. I heard the $0.80 from Texas and then the offset Virginia, Florida. Is that $0.80 an annual number? And is it, say, $0.40, $0.45 for 2024 specifically? And then just a second question on the M&A pipeline, a follow-up there as well. I'm curious if your experience with the acquisition of Bright and then the 2025 rate update. Has that changed the way you thought about Medicare Advantage?

I'll kick it to Mark for the question on the Florida and Virginia earnings. Go ahead.

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 on EPS full year. Now the simplifying assumption is we lose both in the fourth quarter, the headwind would be $0.5 billion on revenue and $0.30. But look, we're still working that through. Those are under protest and exactly what the timing is, is somewhat unclear. But if you deposit 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 is $1.10, we recognized $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.

Josh,and your second question related to Bright now that we've owned the business for a full quarter, we are very optimistic and confident in the $1 of ultimate accretion. The way to think about that business is actually very simple. Operationally breakeven in year 1 with a slight earnings drag related to the carrying costs, breakeven in your -- operationally breakeven in year 2. And full $1 accretion in year 3 and we get there by -- we inherited a 95% MCR in the business. We've managed it to 87%. We inherited a 13% G&A ratio in the business. We managed to 8%, that's 1,300 basis points of turnaround, which on $1.6 billion of revenue would show you how we get to the full accretion. The G&A savings will likely happen sooner as we need to go through 2 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.

And the next question comes from Stephen Baxter with Wells Fargo.

Two questions for you. Just first, I was hoping you could potentially spike out the new store Medicaid impact to 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 store coming down or maybe just getting back some of 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 they still take a long time to close was in July, I think, 2022. I was just wondering if you could give us an update on the pipeline there? And it seems like maybe there's been some slowdown maybe as reformation distribution, maybe it's now just kind of hear when you think about the pipeline in Medicaid over the next 6 to 12 months.

Stephen, 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 influenced by 20% of the member month volume in the quarter was on new business, either new business that came in from California and Nebraska on [ 11 ] or our -- second half of our Iowa contract from 2023 in the My Choice 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. 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 way the earnings pattern is emerging this year versus prior years. It starts out high and improved throughout the year. As I said, the MCRs in the last few quarters are 90 basis points better than the first and we're still on target to hit 89% in our full year guidance on Medicaid, which is at the top end of our long-term target range. Mark?

Stephen, I'd just add to that. A year ago, our Medicaid MCR was 88.4%. This quarter, the legacy NCR was very close to that. So as Joe mentioned, coming out at 89.7% 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 consistent with our expectations. We came out really right where we expected. On the deal pipeline, I wouldn't say it 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. Sometimes they're banker processes, but just as often, they're one-off bespoke discussions, relationship development where we're out selling the Molina story, which is very appealing to many not-for-profits. So we've got a good pipeline of both if we could waive our wand and time them exactly where we want it, 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 on that.

The next question comes from Kevin Fischbeck with Bank of America.

Can you talk a little bit about how redeterminations are going, both from the Medicaid and the exchange side of things. It sounds like you're 90% done, but you still expect strong growth on the exchanges. I guess when should that tailwind kind of be fully into the numbers? And then on the Medicaid side, you talked about a 30% recapture rate. Just trying to see any details about the acuity of that population.

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 high of the PHE, we have grown 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% reconnect rate. And once the redetermination process stops, that reconnect rate will continue on into the late spring and perhaps even into the summer. We are seeing a significant increase in our special enrollment in marketplace. Now whether you're coming in from Medicaid or not is a self-reporting feature. So we don't have exact statistics on how many are coming from other companies' Medicaid roles. 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 hour, which is obviously being heavily influenced by members coming off of Medicaid into marketplace. Mark, anything to add?

Yes. 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 had normal lapses through the year. So typically, marketplace volumes declined through the year. in this case, will increase through the year to our guidance of 370,000.I think you asked about the reconnect rate. We're still seeing 30% on reconnects coming back in. 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. .

And the next question comes from A.J Rice with UBS.

Thanks. Hi, everybody. Maybe just to follow on that last train of thought, but a little different focus. Obviously, as we move into next year, you'll have given the redeterminations will subside as we get through the summer. you'll have the full impact of whatever change on the acuity risk pool there is, for legacy, people to stay on the Medicaid. When you sort of look at that at this early date, you got -- you signaled that you got these decent rate increases proactively in 17 states this year. 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 on knowing whether you're getting adequate rate increases for next year?

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. We had 5 retroactive rate adjustments, and we're actually anticipating perhaps 4 more. So the states have been very responsive and rates have been actual really sound. Look, we're guiding to the top end of our MCR rate for the entire year at 89%, and that's with 2 very unprecedented phenomenon going on in the book of business. One is the unprecedented shift in the national [indiscernible] due to the redetermination process, and the other is bringing on 800,000 new members that committed higher MCRs. With those 2 found on 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. We expect rates next year to be actually sound, we expect them to be commensurate with the medical cost trends we're experiencing, fee 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. Mark, anything to add?

You mentioned the rate increase is kind of proactive, there 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. 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 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 only 50,000 were in this last quarter. So it's really leveled off. And we've seen a similar impact with the reAcquity-- redebt acuity impact here. 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 1 which means if there's back half pressure this year, it's time really well for January 1 on the next rate cycle.

Okay. And maybe if I could just ask on the Marketplace product. Obviously, the last 1, 1.5 years, 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?

Sure. A.J., the small silver and stable strategy was a short-term reaction to having to re-position the business to maintain a profile of single digit -- mid-single digit pretax margins. That was a temporal way to look at the business. we invested about 300 basis points of what call 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. 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 -- 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 and where your results are coming out for the prior year. So we're going to 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 pretax margins and grow at this rate I think that's what to expect.

The next question comes from Justin Lake with Wolfe Research.

A couple of questions here. First, last quarter, Joe, you mentioned an expectation 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? And then secondly, Joe, you mentioned that you're assuming 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 wins meaning there's 4 plants in a region, you get 25%. First, is that correct? And then second, what are the level of visibility here? The reason I ask is that your local regional market share in Medicaid varies pretty broadly by state across plans. 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 share. I'm just curious on your visibility on getting that.

Yes. Justin, the -- 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 still at $4, we have actually changed 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. We talked about operating leverage, talk about embedded earnings. 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 to be in the 7 regions that we won and use kind of the 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.

So can you share that market share assumption?

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.

The next question comes from Nathan Rich with Goldman Sachs.

I wanted to ask on Florida. Joe, I think you talked about the protests and the ultimate outcome could be different. I guess 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. Obviously, 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.

In, 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's 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 2 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. On the $46 billion of revenue, but 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 be down North Carolina last time because it was too early in our turnaround plan to bid on anything. So we're looking at the $60 billion pipeline and feeling pretty good about our prospects there. Look, we're for 7 for 9 reprocurements and we started our growth journey. We're 8 for 10 and new business wins. We have 8 M&A transactions totaling $1 billion of revenue over the past 4 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. And our trajectory here, even though we're disappointed with the 2 RFP situations in the second quarter -- in the first quarter.

The next question comes from Gary Taylor with TD Calin.

I had 2 policy questions actually. 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 and the politics of that. Just wondering, from a technical basis, how are you guys thinking about sort of elasticity of demand for exchange product, if some of the income level categories see a fairly material percentage change in the premium that would be required, just what you're thinking now, if end of the worst case, those went away. What 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, managed care, Medicaid rule. I think we were primarily focused on the state-directed payments changes there, but I know there are a few things on MCO transparency, MLR reporting changes. I just wanted to see if there's anything that you felt was material to you going forward.

On the -- I believe your first question was on the enhanced subsidies for Marketplace. I understand it -- it's hard to say. -- bear in mind, they do go away unless legislation is passed to extend them. That's -- sometimes that's misunderstood. They are going away because the subsidy enhancement was temporary. and a less legislation is passed to extend them they will. Now I can go through all types of political scenarios and legislative scenarios. There's lots of people who 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, but it's probably a 50-50 push on how that gets done and if it gets done. 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 members and we didn't benefit a lot by 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 loss. 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.

The managed care, the Medicaid managed care access finance quality accrual that was out earlier this week.

Not significant. We're still analyzing it. We're obviously aware of it. We're analyzing it. lots of different features to it, many of which incept over very extended periods of time. So there's nothing to immediately react to. But nothing in that guideline changes of the long-term trajectory of the business. As I've said many times, I often asked, is there any political legislative or judicial environmental issue that causes you major concern on 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, et cetera. We don't -- we think the legislative and political scenarios are pretty neutral for the sustainability of the businesses we're in.

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.

The next question comes from George Hill, Deutsche Bank.

Joe, just a high-level question. One of your peers this week talked about a normalized individual MA margin 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 MA is and kind of how you think that varies between the D-SNP book and the individual book. And I know that you guys have a heavily subsidized population. So the book is a little bit different, but I appreciate any color.

Yes. Well, our target for our Medicare business is mid-single-digit pretax. I wasn't sure whether you're referring to pretax 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% here over the next couple of years. So we still target mid-single-digit pretax margins in this business. We like the D-SNP business not only can produce excellent profits, but monetizing our Medicaid footprint for dual eligible population here over time is going to be a significant growth category for us. So we're perfectly positioned, but at least we're well, well positioned to take advantage of the growth in the deorgible population here, and we still target mid-single-digit pretax margins, MCRs in 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 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 on 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.

And the next question comes from Scott Fidel with Stephens.

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 is definitely interested in your thoughts on that? And then just second, on the HICS 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 pretax margin offer 2024 for the HICS business.

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 to put their case forward. So that's all I'll say about it. Your last question was about market to marketplace. As I said, we, last year, having good visibility into the business, having priced up, we were producing pretax margins in low double-digit [indiscernible] 10%, 11%. We decided consciously to invest 3 in some places, 400 basis points of that margin into growth, which is why membership grew 30% and revenues grew 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 pretax margin. It's right where we want to be. And as somebody suggested earlier, a very now stable position, half the membership being renewal membership, 70% of it being silver, a nice platform off of which to grow measurably and modestly.

Okay. Got it. So reaffirming the initial guidance you gave us for the exchange MLR margin?

And the next question comes from Andrew Mok with Barclays.

I think I heard you say that you're prudent in your reserves due to change. Was there any favorable PYD in the quarter? And if so, did you reestablish that into your reserves?

It's Mark. Yes, absolutely, there's favorable PYD, and you'll see that in the earnings release where we showed 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, 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?

There always is. That's a normal part of a 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 developed favorably. That is a standard cycle of the actuarial and reserving process and how we recognize earnings. Nothing unusual there in this quarter.

And the next question comes from Sarah James with Cantor Fitzgerald.

I wanted to clarify the mix on the 2026 revenue guide. So IDA, you guys talked about it being about 1/4 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 versus April and September.

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. of our revenue renews on January 1. 21% renews in the fall. The rest of it is [indiscernible] so the renewal pattern is nicely better throughout the year. Right now, given our guidance, we know 82% of rates, we know the rates on 82% of our revenue for this year's revenue guide, which leaves us very little rate risk to our forecast. That's the -- 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, at 52% of the revenue then cycles into January 1, or we capture that nicely. Your other question was?

Yes. On the $46 billion premium rev in 2026, do you 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, 25% from organic?

Yes. I think that's nothing has caused us to change that outlook. I mean it's a very high-level outlook and more of it comes from M&A, that's fine. When you're buying the properties with the capital efficiency, we buy them at which 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, 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.