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MH

MOLINA HEALTHCARE, INC. (MOH)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 revenue grew 11% YoY to $11.48B, while adjusted EPS fell 69% YoY to $1.84 as medical trend pressure intensified across segments; consolidated MCR rose to 92.6% .
  • Management cut full‑year 2025 adjusted EPS guidance from ≥$19.00 to ~$14.00 and raised premium revenue guidance to ~$42.5B; implied Q4 adjusted EPS is ~$0.35, driven by Medicaid strength (+$3.00 EPS) offset by Medicare/Marketplace (-$2.65 EPS) .
  • Marketplace underperformance was the largest surprise: Q3 MCR 95.6% with elevated utilization and limited risk‑adjustment offset; management plans materially higher 2026 pricing and a smaller footprint to restore margins .
  • Preliminary 2026 outlook: EPS likely approximates 2025’s updated ~$14 baseline with upside from rate catch‑up in Medicaid, break‑even or better in Medicare/Marketplace, and partial realization of $8.65 “embedded earnings” from new contracts and acquisitions .

What Went Well and What Went Wrong

What Went Well

  • Medicaid delivered premium revenue growth (Q3: $8.02B) and maintained positive margins despite elevated trend; management characterized results as “best in class” in this environment .
  • G&A discipline persisted: Q3 GAAP/adjusted G&A ratios were 6.4%/6.3% and full‑year 2025 adjusted G&A guided to ~6.5% .
  • Capital position steady: aggregate RBC ~340% and total subsidiary capital ~70% above state minimums; parent harvested ~$278M in dividends in Q3, ending parent cash at ~$108M .

What Went Wrong

  • Sharp EPS shortfall versus Street and internal expectations: adjusted EPS $1.84 vs consensus ~$3.89; consolidated MCR rose to 92.6% (from 90.4% in Q2), compressing medical margins *.
  • Marketplace MCR 95.6% on elevated utilization and limited relative risk‑adjustment relief; Medicare MCR rose to 93.6% on higher LTSS and pharmacy utilization in high‑acuity members .
  • Operating cash flow was an outflow of $237M YTD (vs +$868M last year) due to Medicaid risk corridors, Marketplace risk transfer payments, and timing of government receivables/payables .

Financial Results

Core P&L and Margins versus prior quarters (oldest → newest)

MetricQ1 2025Q2 2025Q3 2025
Total Revenue ($USD Millions)$11,147 $11,427 $11,477
Premium Revenue ($USD Millions)$10,628 $10,868 $10,841
GAAP EPS – Diluted ($)$5.45 $4.75 $1.51
Adjusted EPS – Diluted ($)$6.08 $5.48 $1.84
Consolidated MCR (%)89.2% 90.4% 92.6%
GAAP G&A Ratio (%)6.9% 6.2% 6.4%
Adjusted G&A Ratio (%)6.8% 6.1% 6.3%
After‑Tax Margin (%) (GAAP)2.7% 2.2% 0.7%

Segment Premium Revenue and MCR (oldest → newest)

SegmentQ1 2025 Premium ($MM)Q1 MCRQ2 2025 Premium ($MM)Q2 MCRQ3 2025 Premium ($MM)Q3 MCR
Medicaid$8,130 90.3% $8,029 91.3% $8,015 92.0%
Medicare$1,468 88.3% $1,608 90.0% $1,610 93.6%
Marketplace$1,004 81.7% $1,200 85.4% $1,197 95.6%
Other$26 87.7% $31 82.7% $19 84.1%

KPIs and Balance Metrics (oldest → newest)

KPIQ1 2025Q2 2025Q3 2025
Ending Membership (Total)5.752M 5.746M 5.628M
Days in Claims Payable46 43 46
Diluted Weighted Avg Shares (mm)54.8 53.7 52.5
Parent Company Cash ($MM)$191 ~$100 ~$108
Operating Cash Flow (YTD) ($MM)$190 (Q1) $(112) (H1) $(237) (9M)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Premium RevenueFY 2025~$42.0B ~$42.5B Raised
Total RevenueFY 2025~$44.0B ~$44.5B Raised
GAAP EPS – DilutedFY 2025≥$16.90 ~$11.90 Lowered
Adjusted EPS – DilutedFY 2025≥$19.00 ~$14.00 Lowered
Consolidated MCRFY 202590.2% 91.3% Higher (worse)
Medicaid MCRFY 202590.9% 91.5% Higher (worse)
Medicare MCRFY 202590.0% 91.3% Higher (worse)
Marketplace MCRFY 202585.1% 89.7% Higher (worse)
GAAP G&A RatioFY 20256.7% 6.6% Slightly Lower (better)
Adjusted G&A RatioFY 20256.6% 6.5% Slightly Lower (better)
Effective Tax RateFY 202525.3% 21.7% Lower
Diluted SharesFY 202554.1M 53.0M Lower
Implied Q4 Adjusted EPSQ4 2025n/a~$0.35 New disclosure

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Medical cost trend drivers (behavioral, LTSS, pharmacy, inpatient/outpatient)Q1: Moderate increases offset by new rates . Q2: “Unprecedented” persistence; acceleration in Medicaid quarterly trend; higher LTSS/Rx; ER → inpatient flow .Continued elevated utilization across segments; Medicaid MCR 92.0%, Medicare 93.6%, Marketplace 95.6% .Worsening in Q3 vs Q2 (higher MCRs).
Marketplace strategyQ1: Small “silver/stable” approach; mid‑single‑digit margin target . Q2: Guidance to 85% MCR; 2026 reprice with second-pass filings .2026 average rate +30%, footprint reduced ~20%, aim for break‑even or better; 50→10% #1/#2 price positions .Margin restoration with lower exposure.
Medicaid rate outlookQ1: States responsive; rates slightly higher; trend assumption raised conservatively . Q2: Industry underfunded by 300–500 bps; advocacy for catch‑up; 2026 rates modestly > trend .Early Jan cycle view: rates modestly ahead of trend; EPS sensitivity: +100bps MCR → +$4.50/share .Improving rate trajectory into 2026.
Embedded earningsQ1: Raised to $8.65; ~1/3 to emerge in 2026 . Q2: Components detailed (acquisitions ~$2.25, new contracts ~$5.4, +$1 implementation reversal) .$8.65 intact; harvest “some portion” in 2026; timing depends on rate normalization .Intact; realization timing cautious.
Capital allocationQ2: Dry powder $1–$2B; opportunistic M&A near book; share repurchases ongoing .Repurchased ~2.8M shares ($500M) in Q3; debt temporarily higher to fund buyback .Active buybacks; disciplined M&A pipeline.
Program integrity / eligibilityQ1: Integrity initiatives increase; Marketplace member reconciliations nonrecurring . Q2: Duplicative enrollment phenomenon small; SEP dynamics noted .Medicaid eligibility discipline causing ~1% membership decline per quarter; Virginia termination drove loss of ~120K in Q3 .Ongoing headwind to membership; manageable.

Management Commentary

  • “Approximately half of our underperformance is driven by the Marketplace business, and…Medicaid…is producing strong margins. We continue to grow…margin improvement potential in 2026.” — CEO, Joseph Zubretsky .
  • “Our full-year 2025 adjusted EPS guidance is now…$14 per share…consolidated MCR of 91.3%…Marketplace…projected to produce a loss of $2 per share.” — CEO .
  • “Our 2026 rate increases average 30%…we have exited difficult geographies…reduced our county footprint by 20%.” — CFO, Mark Keim .
  • “Each 100 basis points of MCR yields $4.50 of earnings per share [Medicaid].” — CFO .
  • “New store embedded earnings remain at $8.65 per diluted share.” — Press release .

Q&A Highlights

  • Marketplace pressure specifics: Elevated utilization across cohorts; limited risk‑adjustment benefit as the national risk pool acuity rose ~8% YoY; 2026 pricing targets break‑even to mid‑single‑digit margins on reduced volume .
  • Medicaid rates vs trend: Industry underfunded by 300–500 bps; states increasingly responsive; early Jan cycle points to rates modestly ahead of trend .
  • Medicare outlook: Focus on duals; MMP conversion to FIDE/HIDE with cautious near‑term margins; Bright assets improving into year three .
  • Capital deployment: Buybacks deemed value‑accretive at current prices; pipeline of smaller regional plans at near‑book multiples due to operating stress .
  • Membership dynamics: Medicaid declines ~1% per quarter from tighter eligibility; Virginia exit ~120k members in Q3; Marketplace SEP adds but with similar acuity/utilization .

Estimates Context

MetricQ3 2025 ConsensusActualSurprise
Primary EPS ($)3.89*1.84 —2.05 (Miss; —53%)
Revenue ($)10,983.6M*11,477M +493.4M (Beat; +4.5%)

Values retrieved from S&P Global.*
Implication: Significant EPS miss despite a modest revenue beat, reflecting higher medical costs and weaker margins, especially in Marketplace and Medicare .

Key Takeaways for Investors

  • EPS miss and guidance cut were driven by medical trend overshoot; watch 2026 Jan rate cycle (Medicaid) and Marketplace repricing/footprint reduction as catalysts for margin normalization .
  • Medicaid remains core earnings engine (Q3 MCR 92.0%; FY25 pre‑tax margin guided ~3.2%); upside sensitivity to rates is high (+100bps MCR ≈ +$4.50 EPS) .
  • Marketplace strategy shifts to profitability over volume: average +30% 2026 rates, ~20% footprint reduction, fewer #1/#2 price positions; expect revenue to shrink but margins to improve toward break‑even or better .
  • Capital allocation supportive: ongoing buybacks and ample capacity for near‑book M&A to add Medicaid revenue streams; embedded earnings ($8.65) intact, though realization paced by rate normalization .
  • Near‑term trading: sentiment tied to confidence in rate catch‑up and visible improvement in MCR trajectory; any state rate updates or clarity on Marketplace subsidies could move the stock .
  • Medium‑term thesis: diversified government-sponsored portfolio with strong operational discipline (G&A ~6.5%); as rates realign with trend and Marketplace exposure is rationalized, margins can revert toward historical targets .