Good day, and welcome to the Centene Corporation second quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn the conference over to Jennifer Gilligan, Senior Vice President, Finance, and Investor Relations. Please go ahead, ma'am. Thank you, Rocco, and good morning, everyone. Thank you for joining us on our second quarter 2022 earnings results conference call. Sarah London, Chief Executive Officer, Brent Layton, President and Chief Operating Officer, and Drew Asher, Executive Vice President and Chief Financial Officer of Centene, will host this morning's call, which also can be accessed through our website at centene.com. Any remarks that Centene may make about future expectations, plans, and prospects constitute forward-looking statements for the purpose of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in Centene's most recent Form 10-K, filed on February 22, 2022, and other public SEC filings. Centene anticipates that subsequent events and developments may cause its estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. The call will also refer to certain non-GAAP measures. A reconciliation of these measures with the most directly comparable GAAP measures can be found in our second quarter 2022 press release, which is available on the company's website under the Investors section. Please mark your calendars for our next earnings conference call scheduled for October 25th. With that, I would like to turn the call over to our CEO, Sarah London. Sarah? Thanks, Jen, and thank you everyone for joining us this morning. Centene entered 2022 with a focus on value creation. As a reminder, value creation at Centene means becoming a better partner by simplifying and strengthening our operations, making it easier for our members and providers to work with us. It means focusing on our core business and leveraging trusted local relationships to fuel disciplined growth. It means allocating capital to innovation that delivers better outcomes. Value creation is not measured solely in earnings per share, but importantly in the impact that we have on the members we serve and the communities we support. Over the last six months, our value creation program has gained momentum and scale, with efforts that span our local health plans and enterprise-wide functions. At the same time, the team is executing well on our day-to-day objectives and doubling down on our work to define the long-term trajectory of the organization for 2025 and beyond, with a focus on sustainable growth and market leadership. This morning, I'll provide headlines of our quarterly performance and cover a few more recent value creation updates. Before handing the call over to Brent for an update on product line performance, I'd also like to touch briefly on what I've observed over my first few months as CEO about Centene's ability to differentiate in the marketplace. Let's start with the quarter. Second quarter results were directly in line with the guidance we provided at our June Investor Day. Thoughtful product positioning across lines of business, initiatives to enhance medical management, and a more balanced approach to capital allocation all contributed to our strong first half performance, which provides an excellent foundation to build from as we look to the balance of the year. Today, we once again increased guidance with our full year adjusted EPS outlook now at $5.60-$5.75, which represents a cumulative $0.20 increase since Q1. You will hear more details about the quarter and this improved full year outlook from Drew shortly. On the value creation front, we are full steam ahead. You've now heard quite a bit about the myriad insight initiatives Jim Murray and his team are tracking and supporting in close partnership with our business leaders. We continue to see solid progress on our operating model redesign efforts, as well as our work to optimize key process-driven functions like quality and utilization management. Our plan to establish a pharmacy center of excellence across the health plans continues to advance, and the PBM RFP process remains on track. In the handful of weeks since our June Investor Day, we completed the PANTHERx divestiture, closing out another key milestone in our portfolio review work. As previously announced, a majority of the net proceeds from the sale will be used to repurchase stock and the balance to reduce debt. Yesterday, we announced another important portfolio action with the signing of a definitive agreement to divest our Spanish and Central European assets to Vivalto Santé, which is the third largest private hospital company in France. We believe Vivalto Santé is well positioned to invest in and grow Ribera Salud, Torrejón, and Pro Diagnostics Group while ensuring they continue to provide high-quality care for patients across Europe. Across the remainder of our non-health plan portfolio, the review process remains very active, and the team is leveraging our evolving long-term strategic framework to ensure that we position these assets, either through investment, partnership, or divestiture, to deliver maximum strategic benefit moving forward. Consistent with our capital deployment plans, it is worth highlighting that we repurchased $450 million of our common stock since the beginning of Q2, in part leveraging proceeds from other minor asset sales in the quarter. On the real estate front, we previously described a comprehensive exercise to evaluate our leased and owned real estate portfolio. Today, we took an important step towards the achievement of run rate savings related to that exercise, recognizing a charge reflecting a material reduction in the company's real estate footprint. This allows us to capture savings associated with the space rationalization beginning in Q3. We continue to expect approximately $200 million of run rate savings for 2023 and beyond. This initiative reflects the high value we place on evolving Centene to meet the needs of our incredible workforce. It should also serve as a proof point that we will look to pull forward the benefits of our work wherever possible as we progress on this value creation journey. As you can see, value creation work streams are delivering tangible progress and measurable results. As we move into the second half of the year, we will continue to provide updates on major operational milestones in keeping with our commitment to transparency and to prove that we are building the momentum necessary to carry us through the rest of this year and help us deliver meaningful financial results in 2023 and 2024. Centene's ability to grow, deliver, and transform all at the same time is made possible by our most valuable asset, our 80,000 diverse and innovative employees. Their mission-driven dedication to our members powers everything we do in this organization. I've spent quite a bit of time on the actual and virtual road since taking on this new role, meeting with our health plan leaders, renewing connections with our key state partners, and listening to team members at the front lines of our market operations. I want to report back to you that my conviction regarding the power of Centene's local approach has never been greater. Local matters when it comes to growth, as our unparalleled business development team proved yet again with their recent win in the state of Delaware. Years of boots on the ground personal visits, relationship building, and deep market knowledge were key to securing a contract award in Centene's 30th Medicaid state. Local makes the difference when it comes to outsize impact, as I saw on my visit to our SilverSummit Healthplan in Nevada. There, team members realized how many of our new mothers didn't have access to transportation. They partnered with an organization called Baby's Bounty to create a diaper van that could deliver baby essentials, diapers, and wipes directly to Southern Nevada's tiniest and most vulnerable residents. Local also makes a difference when it comes to innovation, as I experienced firsthand on a recent trip to New Hampshire. Combating the effect of rapidly rising food prices and knowing the risk food insecurity presents to our Medicaid members, our team at New Hampshire Healthy Families jumpstarted their Green to Go program, distributing locally sourced fruits and vegetables from food vans strategically positioned across the Granite State. Let me tell you where local really makes a difference. Local makes a difference when it comes to caring, the kind of deep personal caring that comes when your customer is also your neighbor. On May 14th, when shots rang out in the aisles of a neighborhood grocery store in downtown Buffalo, our extraordinary colleagues at Fidelis Care in New York State sprang into action. No one from headquarters had to call them and tell them what to do. They knew what to do because they were there inside the community because they were local. Within 24 hours, Fidelis employees mobilized to distribute food and needed supplies into a community whose only grocery store was surrounded in police tape. With the neighborhood pharmacy inside that Tops grocery store suddenly closed, our locally based team identified and called every one of the 373 members who'd filled their prescriptions at that pharmacy in recent months. Within 72 hours, each of those 373 members received a personal call from a Fidelis Care employee checking in on them, assuring their supply of medication was in order, and assisting them in identifying additional pharmacy resources in the area. Neighbors engaging in simple but profound acts of human caring. That's the power of local. We are proud of the progress and the financial performance of Centene year- to- date, and we are proud of the work that our team members do every day. Value creation for members leads to value creation for shareholders, and we will continue to focus on this alignment in the coming months and years as we execute on both value creation and our long-term strategic plan for 2025 and beyond. With that, I'd like to pass the call to Brent for more detail on our core business line performance during the quarter. Brent? Thank you, Sarah, and good morning. I'm happy to talk about the performance of our core business lines during the second quarter. Centene is the leader in Medicaid managed care, and I'm pleased to say we continue to grow. Earlier this month, we were honored to be notified by the State of Delaware of an intent to award Centene a contract to serve a statewide Medicaid managed care program. Beginning January 1st, 2023, Centene's health plan, Delaware First Health, will provide integrated services for physical and behavioral health and long-term services and supports through the Diamond State Health Plan and Diamond State Health Plan Plus programs. This is Centene's 30th Medicaid state. It's quite an achievement, and we look forward to this tremendous opportunity in Delaware. In addition to our newest state, earlier in the quarter, we were successful in the reprocurement of our Missouri contract serving TANF, CHIP, and expansion membership. We were also awarded the sole source specialty plan for children in foster care in Missouri. These contracts began July 1st, and we're serving nearly 50,000 foster children and children receiving adoption subsidy assistance in the state. This is our industry-leading fifth sole source and specialty contract serving children and young adults involved with the child welfare system. We are incredibly proud of our innovative programs and outcomes for this membership. Our existing Medicaid membership has increased to 15.4 million members at the end of the second quarter. Medicaid growth continues to be aided by the ongoing suspension of eligibility redeterminations. As you're all aware, the PHE is now extended to at least mid-October. As states consider their programs and budgetary needs post-redetermination, several states are beginning the process to transition new populations into managed care. The state of Indiana has recently released an RFP for long-term services and supports, and we have recently responded to an RFI in Georgia, where the Medicaid agency is asking MCOs about their ability to serve more medically complex populations. Whenever the PHE comes to a close, we'll continue to work with our state partners to support member transition. We remain confident in our ability to attract eligible membership to our marketplace products in 25 states where we have both Medicaid and exchange membership. Speaking of our exchange product, we ended the quarter at over 2 million members. Halfway through 2022, we remained a leader in the marketplace product. The quality and consistency of our product offerings and operations has led to continued membership growth and the ability to partner closely with our providers. We continue to monitor the situation in Washington in regards to enhanced advance premium tax credits and remain cautiously optimistic on the movements of this reconciliation bill. We feel confident in our submitted bids for 2023, and we look forward to targeted geographic expansion and thoughtful expansion of new products that we began to offer in 2022 open enrollment. In Medicare, we ended the quarter at nearly 1.5 million members and are pleased with our continued membership growth of over 18% year- to- date. Utilization continues to be steady, and we're seeing the benefit of our focused clinical initiatives. As we look towards annual enrollment, we are concentrated on margin and network expansion and the further penetration of existing states and markets. We continue to see duals as an area of growth for our company as our core capabilities position us well to serve this complex population. Midway through 2022, our core products continue to perform well. With that, let me turn the call over to Drew. Thank you. Thank you, Brent. This morning, we reported second quarter 2022 results of $35.9 billion in total revenue, an increase of 16% compared to the second quarter of 2021. 11% was organic, with 5% from M&A. We reported adjusted diluted earnings per share of $1.77 in the quarter, up 42% from $1.25 in Q2 of 2021. Overall, I characterize this as a strong quarter, consistent with the update we provided you at Investor Day on June 17th. Let's start with revenue for the quarter. Total revenue grew by $4.9 billion compared to the second quarter of 2021, driven by strong organic growth throughout the last year in Medicaid, primarily due to the ongoing suspension of eligibility redeterminations, strong Medicare membership growth during the annual enrollment period, the acquisitions of Magellan and Circle, and the commencement of contracts in North Carolina. Total membership increased to 26.4 million, up 7% compared to a year ago. Our Q2 consolidated HBR was 86.7%. Medicaid at 89.1% was a little better than expectations. Medicare at 85.6% was right on track, and our commercial business continued to make progress toward our margin goals, aided by the results of risk adjustment, which in Marketplace is zero sum across the industry and tends to settle out pretty quickly in the following year. Given the risk adjustment headwind we experienced in Q2 of 2021, we expected a big year-over-year improvement in HBR, and we got more than we expected. The commercial HBR of 77.5% improved 1,250 basis points year over year, also driven by pricing actions and a return to more normalized utilization compared to the second quarter of 2021. When we look at our consolidated data, our Q2 COVID costs were down about two-thirds from Q1, which included the Omicron variant. Utilization has largely returned to a more normalized cadence as we have encouraged and facilitated our members to access healthcare, including preventative care. Furthermore, throughout 2022, providers seem to be more resilient to managing COVID and non-COVID simultaneously. There are still a few areas that appear to be suppressed compared to 2019, such as non-emergent ER visits. We believe Telehealth and improved primary care connectivity have played a role here. Moving to other P&L and balance sheet items. Our adjusted SG&A expense ratio was 8.2% in the second quarter, compared to 7.3% last year. On a combined basis, the inclusion of Magellan and Circle increased the ratio by approximately 40 basis points compared to the year ago quarter. Additionally, we incurred increased risk adjustment and member engagement costs that accompany the commercial HBR outperformance, higher Medicare broker commissions as we continue to grow, and increased variable compensation. We expect our Value Creation Plan to drive SG&A lower over the next few years, though there will be ROI-based investments along the way. On the topic of the Value Creation Plan, during the second quarter of 2022, we recorded an impairment charge of $1.45 billion related to the reduction in the company's real estate footprint, consisting of $744 million related to leased real estate and $706 million related to owned real estate assets. This was the lion's share of the charge we discussed at Investor Day in June, with approximately $200 million more expected to come over the next couple of quarters related to real estate optimization. Cash flow provided by operations was very strong at $3.4 billion in the second quarter, primarily driven by earnings before the real estate charge and a reduction in receivables, partially due to the receipt of state-directed payments. Our domestic unregulated and unrestricted cash on hand at quarter end was $483 million. During the second quarter, we repurchased $344 million of our common stock through our share repurchase program. As a result of the Value Creation Plan year- to- date, we have repurchased $450 million, including $106 million executed in July. Furthermore, on July 14th, we completed the divestiture of PANTHERx and expect to recognize an after-tax gain of approximately $400 million in Q3. The majority of the net proceeds of approximately $1.3 billion will be used to repurchase stock and reduce debt, as mentioned earlier by Sarah. We are working to close the Magellan Rx transaction by the end of the year. Estimated net deployable proceeds on that transaction would be in the zone of $1.1 billion. We were pleased to announce the sale of a few of our international businesses yesterday. Debt at quarter end was relatively flat at $18.8 billion. Our debt-to-cap ratio was 41.3%, temporarily pushed up from the real estate charge. We continue to target a high thirties debt-to-capitalization ratio longer term. Our debt to Adjusted EBITDA came in at 3.1x, pretty close to the milestone we are seeking of 3x or less. Our medical claims liability totaled $16.6 billion at quarter end and represents 55 days in claims payable, compared to 53 in Q1 of 2022 and 48 in Q2 of 2021. The sequential increase was largely driven by the timing of pharmacy payments and state-directed payments received but not yet paid. As a reminder, on June 17th, we lifted our adjusted EPS range by $0.15 to a range of $5.55-$5.70. Today, we're adding another $0.05 to guide to a range of $5.60-$5.75, largely driven by some of the real estate benefit to be realized in the back half of the year, net of some investment spending such as the Delaware win. In aggregate, since issuing initial 2022 guidance in December, we have increased our full year adjusted EPS outlook by $0.28 or 5% at the midpoint. GAAP EPS guidance has been adjusted to reflect the real estate charge and the gain on the sale of PANTHERx. We've also updated the components of guidance, and I know some of you have models to build, so let me touch on some of the other P&L metrics. Full year premium and service revenue is down $1 billion, and cost of services is down approximately 100 basis points due to the divestiture of PANTHERx. We also adjusted our share count and expect interest expense around $660 million, factoring in the deployment of PANTHERx proceeds. We have ticked down HBR by 10 basis points to reflect performance in Q2 and have lifted adjusted SG&A by 20 basis points. Approximately one-third of that lift is due to PANTHERx, which had a high cost of services ratio, but a very low SG&A rate. The remainder reflects the SG&A items I mentioned earlier, slightly offset by the nickel net SG&A benefit in guidance. For the full year, we would expect investment and other income in the zone of $400 million, excluding the PANTHERx gain, and depreciation in the low to mid $600s. We still assume a November 1st commencement of redeterminations in guidance. Overall, I'm pleased with the tangible results we are showing today, both in terms of performance and value creation. To be balanced, there are areas that we still need meaningful improvement, such as Medicare Stars. Though we have referenced this multiple times, we want to make sure we are explicitly transparent. The Star scores that come out in the fall of 2022, called rating year 2023 Star scores that drive 2024 Medicare revenue, are going to be disappointing and unacceptable to this management team. At Investor Day in June, Sarah touched on the why. We've been rebuilding governance, fortifying operational areas, and making the appropriate investments in people, process, and technology over the past nine months, and that will continue. Execution in 2022 will drive Star scores to be released in the fall of 2023, which drive 2025 revenue, and we expect will create a meaningful rebound from the rating year 2023 Star scores. The senior management team and Value Creation Plan are all over this. While we've made great progress in the first half of this year, this company has plenty of opportunity to improve, which will create long-term value for our members, providers, state and federal customers, and shareholders. That's what we're excited about. Our journey is on track, and thank you for being part of it. Operator, you may now open the line for questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, we ask that you please pick up your handset before pressing the key. To withdraw your question, please press star then two. Today's first question comes from Josh Raskin with Nephron Research. Please go ahead. Thanks, good morning. I wanted to stay on, Medicare Advantage, where you ended up, Drew. You know, if I look at it, your revenues are up. I know you've got a bunch of products in there, but I'm guessing MA is probably up in the low 30% range. The MLR is down, I think about 150 basis points for the first half of the year. You know, that can be atypical. I'm curious, you know, what do you think is driving the MLR improvement, especially when a quarter of the book is new members? What metrics are you watching more closely to confirm that MLR? Lastly, is 2023 still a year where you're targeting further MA margin improvement, or are you getting some of that this year already? Yeah, Josh, thanks for the question. Yeah, I'd say probably the lion's share of the improvement in what we disclose as Medicare HBR is actually in our PDP business. Though, to your point, the Medicare Advantage book is doing a little bit better year-over-year. We priced or the company priced 2022 for stability in HBR back when those bids were filed, you know, right around June of 2021. For 2023, we expect a meaningful move in margin expansion. We actually have Stars revenue in 2023. And, you know, we're gonna balance that with more modest growth. You heard Brent at Investor Day mention low- to mid-single digits Medicare Advantage growth, which quite frankly, I think is a good balance when you're pushing margin going into 2023. Obviously, 2024, we've got a headwind to contend with that we have to think through the structure of the bids for that year with a recovery in Star scores in 2025. That all makes sense. Just the PDP business, I'm assuming is, you know, roughly one-tenth the size of your MA book, just from a revenue perspective. Are we talking about, you know- That's about right. Over 1,000, about 1,000 basis points of PDP improvement? Is it that big? Is that what we're looking at? PDP is doing quite well. There is some of this coming from Medicare Advantage and its clinical initiatives. You know, the metrics we look at, you know, Jim Murray mentioned this at Investor Day, sort of having dashboards that enable you to react and execute. I mean, that's something we've. We're not yet at where we want to be, but we've gotten a lot better at that. Connecting organized clinical initiatives from a centralized body across our health plans and then tracking the cost-benefit of those initiatives, that's also something that we've gotten better at over the past, call it 9 or 12 months. All right. That all makes sense. Thanks. Our next question today comes from A.J. Rice at Credit Suisse. Please go ahead. Hello, everybody. Thanks. Maybe I'll just ask a similar question, but direct it toward the marketplace public exchanges. I know this quarter the reported MLR looks quite low, but I think that's getting benefit from the risk adjustment true up. Can you just give us a flavor for where you're at, you think this year in your margin and your normalized HBR? And then, is this a jumping off point that's sustainable? Do you think you'll give some of that back next year? How do you think about the long-term trajectory of the margins on the exchanges? Yeah. I mean, I'm really pleased with the execution around, you know, member engagement, physician engagement, you know, sort of the risk adjustment process, which is a lot of nuts and bolts execution. That's something I think we can carry forward into future periods and continue to leverage better execution. We're not quite at the stated pre-tax goal of 5%-7.5% in marketplace this year, and we expect to push into that next year as we, you know, look at the momentum we have in execution and, you know, financially and then think about sort of the right pricing and making sure we maintain competitiveness, sort of balancing all those things as we submitted the bids for next year. We expect a little bit of an advancement in margins, even with the improved performance in Q2. All right. Thanks a lot. Our next question today comes from Matthew Borsch at BMO Capital Markets. Please go ahead. Yes. I was hoping you could maybe just give us another walk through as you see it today on 2023. I know you're not guiding yet, but can you talk about your latest thinking in terms of what you're seeing as headwinds and tailwinds going into next year? You're obviously looking at quite a few areas of margin improvement that you've made this year. What's gonna be your jumping off points for 2023, if you could? Yeah, once again, we're pulling levers this year that we expect to bear fruit, you know, not just as we pull those levers in 2022, but that will set us up for 2023, 2024 and beyond. Specifically, if you think about the progression, we're sort of in the mid-5s a little bit, mid-5s plus right now, to that low-6s range that we've been targeting, you know, for the last, you know, six or nine months as we laid that out. Our tailwinds, thinking back to the Investor Day slide, if you can picture that, we had $300 million plus of SG&A towards our $700 million bucket. Obviously with the real estate execution, that's $200 million of that $300 million on a run rate basis. Then there's other, you know, other initiatives as Jim and Sarah laid out at Investor Day, sort of giving us that tailwind. Gross margin, we just talked about a little bit more of a move. We made a big move in margin in 2022, and that's going well. There's a little bit more we can get in 2023, and that's how we constructed the bids. We just talked about Medicare margin. That should be a decent sized advancement tailwind. You go over to that third bucket of the Value Creation Plan, the $0.50 bucket. You know, we've talked about share buyback. We get the annualization, the benefit of some of that share buyback this year. We've divested a couple of businesses. Those are largely in the neutral zone, even though we're deploying those proceeds to both share buyback and to reduce interest expense and debt load. Investment income would be another element in that $0.50 bucket. Then there's some headwinds too. Redeterminations, we talked about at Investor Day. You know, that's a run rate, $7 billion-$7.5 billion revenue headwind at some point when that annualizes, depending on the timing of the commencement of redeterminations. Enhanced APTCs are still outstanding. Jon can probably if one of you guys asked that, Jon can answer that a little bit later. We're always tracking carve-outs of pharmacy in the Medicaid business. There's the ever-present Medicaid rates and trend that could go either way. Obviously it's our job to influence and manage those. Thank you. Our next question today comes from Justin Lake at Wolfe Research. Please go ahead. Thanks. Good morning. I wanted to ask you about the Medicaid MLR. Over the last couple of years, you've talked about paying about $1 billion of COVID-related margin corridors back to the states. Wanted to hear what you're seeing here year- to- date and expecting for the year overall, both in terms of the number of states still having these in place and how you expect that to trend going forward. The reason I'm asking is just your MLR is up over 100 basis points year- to- date, and I'd assume you'd have to eat through on a year-over-year basis a lot of that $1 billion at the state level before your own MLR would be impacted. Just trying to figure out what's going on there. Thanks. Yeah. No, it's a good question. I think, you know, the COVID era and those previous disclosures really isolated the new risk corridors largely that popped up and some acuity adjustments that popped up during the COVID era. That's down to a few hundred million as expected because the sunsetting of those risk corridors. But maybe what's more relevant to your question is the total amount by which we expect to be into risk corridors, paybacks, other mechanisms, whether they originated in the COVID era or not. That's we expect to be at about $1.3 billion in payback this year across our portfolio of 29 states. That $1.3 billion compares to what last year, Drew, in total? Well, a couple billion because the COVID piece of that with the COVID era risk corridors were more present in 2020 and 2021, and they began sunsetting in 2022. Some are still out there, but that was more like a couple billion. Drew, I guess the point is, you're at $1.3 billion of what you're paying back. By definition, I would think you're at max margin in all those states where you're paying back. How is your own MLR up 100 basis points when you're still paying back $1.3 billion? I would assume your MLR couldn't have changed at all in those states. Am I thinking about this wrong? Yeah. It's not sort of all or nothing when you get into risk corridors. There's different stairsteps, there's grades of corridors, and we're not at max, you know, in all of our states. There are states that are underperforming that we need rate action in to improve them over the next couple of years. Just the benefit of having a portfolio. Okay. Thanks. Our next question today comes from Kevin Fischbeck at Bank of America. Please go ahead. Great. Thanks. Maybe just building on that question from a little bit different angle. I guess one of the reasons why companies have kind of said that redeterminations won't necessarily be a headwind to margins has been kind of these risk corridor dynamics. I guess it's just kind of, I struggle with a little bit the thought when companies say things like, "The risk pool hasn't gotten better during redetermination, so, you know, it shouldn't get worse when redeterminations come back in." That risk corridor thing is the thing that leaves me a little bit questioning that, 'cause if you're at kind of max margin in a number of states, then doesn't that speak to somehow the risk pool being better than average? You know, why won't that be a headwind, you know, again, more broadly, either because of the dynamic you mentioned where it's not all or nothing, or then B, the dynamic that you mentioned where you're not in risk corridor in every state? Just trying to understand the MLR implications of redeterminations a little better. Yeah. I don't know that anyone would characterize or try to minimize losing $7 billion-$7.5 billion of revenue in the associated margin, so that's clearly a headwind. What I've pointed out a number of times is that as we exit, the fact that if you look at our growth, you know, since the first time we actually gave a preview of 2022 revenue, we've grown well beyond that $7 billion-$7.5 billion. So when we exit, we'll actually be a bigger company than we originally expected, even though sequentially, at some point, we're gonna be giving back $7 billion-$7.5 billion of run rate revenue. As to the risk pool underneath that, we spent some time at Investor Day, going through, you know, a bunch of the analyses 'cause I agree with the hypothesis, but as we look at the data and we looked at the zero utilizers, and, I mean, the Medicaid expansion population was actually down from a base period of 2018 and 2019. That was pleasantly surprising. TANF was up a little, but there was really nothing alarming, and we jumped to the, okay, let's look at the zero to 25% HBR population. That was up slightly, to your point, but not alarming, especially in the context of being in payback in some states. Yeah, being in a payback position is not a panacea, but it's one of many factors you look at when you assess, all right, what could the impact be on this population? You know, that's sorta as we sit here today before we have any data, that's our best assessment. What I would just add, I think to Drew's point, it doesn't change all the work that we are doing to prepare for the redetermination process, and that includes bringing forward that data in conversations with state partners. Because I think as we said at Investor Day, we believe that it's manageable, but that still creates the mandate for us to manage it in partnership with the states and supported by data. Maybe just to follow up on that point, though, I guess one more time. The fact that the risk still hasn't gotten worse, I guess when redeterminations are suspended, then healthy people and sick people stay on the rolls. In theory, when redeterminations get reimplemented, the healthy people will drop off because they no longer qualify because they got jobs or they don't qualify for the other classifications, but the sick people stay on. I guess why is it that the risk pool hasn't changed a whole lot necessarily mean that it won't change a whole lot prospectively? Well, I mean, you're talking a theory, and I'm looking at data. I mean, we're not gonna declare that there won't be any difference whatsoever between the pools of stayers and leavers. When we look at, you know, the zero utilizers, we look at sort of the minimal utilizers, it's just not that, it's not that concerning. The other mitigating factor is that 88% of our membership is in states that we believe, not based upon some Kaiser study, but we believe based upon our boots on the ground and the local presence that Sarah talked about, that those states will take 10 or more months to redetermine, and therefore, that's why we've got sort of this amped up rate process in place where we're, you know, working with the states, sort of forewarning them, and then are gonna be prepared if there is a differential in the risk pool that we need to get compensated for that. Thank you. Our next question today comes from Lance Wilkes at Bernstein. Please go ahead. Yeah. Could you talk a little bit about 2023 and 2024 Medicaid pricing? How are the states looking at inflation? I guess in discussions you're having with the states, if you could also talk a little about, in addition to redetermination, what sort of recession planning are the states starting to engage in? Thanks. Yeah. On the pricing side, you know, we're constantly sharing data with our state partners. I mean, we're still in 2022, and we still need to get some finality on rates in the back half of the year. Don't yet have visibility on what our forecast will be for 2023 rates. We'll usually give out that number at the December Investor Day. The discussions are constructive. The states are thirsting for data. That's one of the keys of being able to, you know, sort of influence and you know, convince your state partners of what's necessary. Not a lot of movement yet on inflation. I mean, we're not seeing a lot yet, but, you know, we're vigilant there and, once again, forewarning our state partners that to the extent we see those pressures, that's gonna have to be reflected in the rates. State budgets right now are stable, and I would say is as stable as we've seen for many, many years. The states are focused on the PHE when it ends, and ultimately, states actually want their citizens to have access to healthcare and health insurance. Most of our time is working with the states and help planning for whenever the PHE ends on all the paths so that their citizens can have health coverage, whether it's commercial or the exchange or Medicaid or wherever they qualify. The recession planning, I would say, is not there yet, but where the planning is around the PHE and making sure people have coverage. Just a quick follow-up on that. For the recession, I mean, this might be more of a policy question for you, but would a recession require something different than the existing FMAP increase that's in the current COVID bill and tied to the PHE? Or is that really kind of equivalent to what one might normally see during a recession? A state at that point as far as getting a federal match, in the time of a recession, which would be different than the public health emergency, would be whatever their normal state match is between the state and the federal government. Got it. Thanks. Our next question today comes from Scott Fidel with Stephens. Please go ahead. Hey. Yeah, thanks. Good morning. Obviously there's gonna be a few different moving pieces to modeling revenue impact from the divestiture. Thought it may be helpful if you can maybe just walk us through the incremental annualized revenue, you know, when we think about incremental from PANTHERx, then the sale of Magellan Rx, and the sale of the European assets that you talked about yesterday. Really trying to figure out sort of what's now reflected, you know, in the updated revenue guidance versus, you know, how we should think about modeling the impact of divestitures, you know, when we think about annualized out to 2023. We reduced our premium and service revenue by $1 billion for the back half of the year. PANTHERx's a little over $2 billion, although it's growing quickly. The Central and Spain assets were about $700 million in annualized revenue. We don't expect to close Magellan Rx until, you know, late this year or late, you know, I guess late this year is our best estimate, so it wouldn't impact 2022. Okay. Go ahead, Drew. I was just gonna add, and when we announced that in conjunction with PANTHERx, think of it as neutral to slightly accretive, the combination of those two assets, so sort of minimal, if any, impact on earnings. Got it. Just a related follow-up. I think Sarah had mentioned in the prepared comments that you're still pretty actively reviewing the portfolio and, you know, looking at other potential, you know, divestitures or sort of opportunities for value creation. I know that you've now announced, you know, a number of the sort of signature assets that you had identified, you know, initially to us as, you know, sort of, potentially non-core. Just interested maybe if you can just give us an update on sort of, you know, what else may we be thinking about, you know, where you're focused on now, where there may still be some continued divestitures. Thanks. Yeah, thanks. Thanks for the question. You know, we're obviously pleased with the progress to date. We got a lot done in the second quarter. But we still have, you know, the broader portfolio of non-health plan assets, and we're sort of methodically working through those. If you think about the assets that historically have sat within healthcare enterprises, and some of our other non-health plan businesses, all of those are going through a consistent process. You know, we're looking to prioritize that work where we're gonna have the greatest impact. There is still a lot of work going on, and you should expect to hear additional announcements about that. Again, I've hit this a couple of times, you know, the answer in all cases is not necessarily divestiture. In some cases, these are very strategic assets that can be positioned to actually strengthen the core. That's part and parcel of the conversation too, particularly as we think about positioning the company for growth in 2025 and beyond. Thank you. Thank you. Our next question today comes from Nathan Rich at Goldman Sachs. Please go ahead. Hi. Good morning. Thanks for the questions. Drew, you had talked about, you know, taking price action in the marketplace business for 2023 as you work back toward target margins in that segment. You know, I think across the market, it looks like average premiums will be up in the neighborhood of 10%. I guess, like, when you think about your business and enrollment for next year, how are you expecting the consumer to react to those type of price increases, I guess, in the current environment? Do you have any kind of preliminary view on what you think enrollment in that business could look like? Yeah. There's a number of moving parts still. We have to see how the enhanced APTCs end up before the August recess 'cause that's a pretty, you know, decent sized swing factor. We also have to see the timing of the commencement of redeterminations because that's another swing factor. To the extent that the, you know, the family glitch, if that gets improved so that it's you know, sort of better applicability to marketplace. Too many things moving around at this point, and you know, we're still waiting on Congress on the enhanced APTCs. Can't really predict whether it'll be up a little, down a little, or flat. The pricing, we made a pretty big pricing move coming into 2022. It wasn't quite as high as you referenced in the aggregate on a composite basis. So maybe that's a good thing that we didn't have to increase our rates 10% on a composite basis, and we still are achieving meaningful margin expansion this year. Next year, not as big of a move in terms of margin expansion because, you know, we need to pierce into that 5%-7.5%, whereas we were jumping off a pretty, quite frankly, pretty lousy performance in 2021 in marketplace financially. Marketplace, we do not see as kind of a generic national approach. We view it very much local, like Medicaid. It's a market to market. We had mentioned earlier that of our 29 states, we're today soon to be 30 with Delaware. Twenty-five of those states we actually have an overlap of exchange. The relationship between provider and potential future insured or insured distribution and knowing the markets, I think will play well for us, and it actually played out quite well in 2022. Great. Could I just ask a quick follow-up on just, cadence of earnings for the back half of the year? You know, Drew, you highlighted the outperformance in the first half. I think you had previously expected 40% of earnings in the back half. It seems like that's gone down a little bit. Could you maybe just talk about, like, the big drivers for the back half of the year? Obviously, you have, you know, the PANTHERx divestiture, but it sounds like some real estate savings would come through. So any other major moving pieces we should be thinking about? Yeah. Right. At Investor Day, I was pretty explicit that the first half we expected 64%. I guess that's now 63, now that we've printed, because we lifted the full year by a nickel. That nickel, to your point, it's actually a dime of benefit, early benefit on the real estate run rate, minus a nickel of investment. You know, Delaware is one example, but there's other ROI-based investments we're making in the Value Creation Plan that we intend to make in the back half of the year. That's why we increased guidance, the net nickel. Otherwise, it's the normal progression. You know, HBRs in, like, the commercial business and marketplace, those sort of rise throughout the year, and it's sort of a normal cadence thereafter. Thank you. Our next question today comes from George Hill at Deutsche Bank. Please go ahead. Yeah, good morning, guys, and I appreciate you taking the question. Mine's another follow-up on the redetermination process, and I guess I don't know if it'll be national or if it's state by state. Could you talk about, like, the cadence for expectations for redeterminations once the PHE ends? Do you expect a lot of these lives to just kind of be dropped at once and then go through the paperwork process? Or will these lives effectively stay on the Medicaid rolls, and then you'll go through the process of determining eligibility? I'm trying to think about the slope as I think about modeling redeterminations. It's definitely a state-by-state process. Brent, maybe you want to talk about what we're seeing operationally. Well said. It is definitely state by state. At the end of the day, all states are waiting to see when the PHE ends, and they're planning from that standpoint. Some states will take many months in this, and some will be much faster. It really depends both on how the state ultimately sees healthcare coverage or how they want to proceed in their state. Nonetheless, every state are having working groups and meetings and approaches through communication, through education, and really trying to help everybody understand the options they have from that standpoint. One thing I would add that we're tracking pretty closely are the ex parte numbers that each state is accumulating, which are those members that would be automatically either dropped or renewed. States are at very different levels of maturity relative to the volume of members that could go through an automated process. It's actually a helpful proxy for us to understand what would happen in early months versus, as Brent said, most of the states that are gonna take a more measured approach in order not to create member attrition. Also reflective of the fact that, you know, the states have staffing issues and wanna make sure that they have enough support for the process overall. Thank you. Our next question today comes from Michael Ha at Morgan Stanley. Please go ahead. Thanks, guys. Firstly, just a quick clarification following up on A.J.'s question. How much exactly did the favorable 2021 risk adjustment benefit your exchange MLR this quarter? It is obviously a big contributor. We expect that every Q2. The swing was pretty dramatic because if you'll recall, we actually missed our expectation in marketplace in Q2 of 2021. It's an anticipated driver because that's the quarter in which you get first the weekly data and then the final CMS data. But we outperformed that as evidenced by the 1,250 basis point year-over-year improvement. Thank you. Our next question today comes from Calvin Sternick with J.P. Morgan. Please go ahead. Thanks. Wanted to circle back to the Medicare HBR comments you made, specifically on PDP. I guess how much of the PDP performance, outperformance there is intentional in the way you price the business versus how much is coming in maybe a little bit better than expected? How are you thinking about the sustainability of those PDP margins in 2023? Thanks. Most of the year-over-year improvement was planned for in the bids. Plus each year, as the yield drops because of the shifting of the responsibility and sort of the benchmarking that's unique in PDP, I mean, it's a very low yielding product. The HBR has to be low because you have a certain amount of admin to reflect. I think the yield is sort of in the $35-$45 PMPM range, depending on the product. Then there's a little bit to your point, there's a little bit of outperformance on top of that, but most of that was planned. Thank you. Our next question today comes from Gary Taylor at Cowen. Please go ahead. Good morning. Appreciate the way you keep front running the MA Stars so everybody's on the same page with respect to that. Had a couple smaller knits I might see if you can front run for us a little bit. The first would just be on days claims payable. You talked about a couple factors that temporarily pushed that up this quarter. Did those reverse right back out next quarter, just so we should be anticipating, you know, a couple days at least sequentially on DCP? Then the second one would be investment income. To hit your guide, is that gonna be running $150 million a quarter in the back half, just so we're anticipating higher investment income contribution to earnings in the back half. Yes, on investment income with $400 million, I think we were $94 million or so year- to- date first half. That includes. We sort of wrote down a few old investments. We cleaned up some things that hit other income and investment income in the first half of the year. We had some equity investments that obviously took a hit with the equity markets. Yes, we expect around $400 million for a full year, so I don't know if it'll exactly be 150 a quarter because there's a ramping up of the Fed rates obviously embedded in that. You're correct there. Your first question, DCP. Yeah, the state-directed payments element, I would expect that. That's literally we're getting cash from our state, and we've got to push it out to hospitals. That typically happens the next quarter. It may take a couple of quarters depending on, you know, sort of the detail around that, but that's pretty much in and out. You know, pharmacy invoices are tough to predict. I mean, we don't manage to a DCP. It's actually an output. It's interesting. I'm always looking to see where it came out when we close the books, but often there are balance sheet elements that impact that are just timing, you know, things that stretch over the quarter. But fundamentally, I do believe in strength of reserves and that is a measure, an imperfect one, but it is a measure of the strength of reserves. Thank you. Our next question comes from Benjamin Flox at Jefferies. Please go ahead. Hi there. I apologize if this was asked already, but I wanted to follow up on Star scores for plan year 2023, 2024 revenues. Our understanding is the industry as a whole is gonna face some headwinds as some COVID era factors run off. Was the point in the prepared remarks that you kind of expect to underperform that industry headwind? Then can you just give us a bit more color on the key pressures you're expecting? Thanks. The answer is yes. If you go back to first time we started talking about this, Q3 of 2021, you're absolutely right. There's an industry factor, and we benefited from that, probably, I'm thinking an outsized amount relative to peers. For the plan year 2022, so the 2023 revenue, we're just over 50%. As an example, we're just over 50% of our membership in Four Star. That would be less than half of that absent the disaster relief provision. On top of that, as we started to see operational execution and indicators from sort of the end of 2020 and then into the first half of 2021, and then look at results throughout 2021, and now some of that's into 2022 in terms of that rating year 2023 you're talking about, we believe we're gonna underperform. You know, what we're driving now is what we can control, this management team can control, which is execution in 2022 and beyond, which will drive rating year 2024 Star scores that result in 2025 revenue, and those are the star scores you'll get publicly in the fall of 2023. Hopefully you tracked me there. Yeah, maybe just to quickly, at wave top, sort of rehash the history lesson that we went through at Investor Day on the Y. The time period that Drew is pointing to is really that back half of 2020 and early part of 2021, and those 2021 dates of service are what impacted the revenue anticipated from Stars in 2024. Early 2020, we brought Centene and Wellcare together. A couple of things happened, right? We tripled the Medicare book, you know, overnight. We brought two different departments together that were operating in fundamentally different models. One was centralized at Wellcare, and one was decentralized. Very hard to run an enterprise quality program at our level of size and scale in a decentralized model. Then we sent everybody home for COVID. What we saw was the degradation of operations and performance in the back half of 2020 and first half of 2021, which again will impact 2024. Caught that in the middle of 2021, and added new leadership to the quality program, in the back half of last year, tucked them under the value creation office in order for that to be a sort of unified prioritized initiative. This management team, which is different from the past, has committed to quality performance as a priority for the whole company, and we've baked it into our short-term incentive program for every single employee. All of the work that Jim Murray talked about at Investor Day in terms of how we're watching operational performance for 2022 dates of service, the executive team watches those on a weekly basis because that is what is telling us that we can be looking for a meaningful rebound in revenue year 2025. Let me add one more thing. I I know this is a long answer to a short question, but we are still committed to driving and pulling levers to achieve our multi-year plan. While this is gonna be a headwind for an isolated 2024 year, and it'll turn around and be a nice tailwind for 2025 based upon our execution, our compensation is still tied to the targets we laid out, as you saw in the proxy, and this organization is gonna drive towards executing on the multi-year game plan that we laid out for you. Thank you. Ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Jennifer Gilligan for any closing remarks. We wanna thank everyone for joining us this morning. If there are any follow-up calls, please feel free to reach out. Thanks very much. Thank you, ma'am. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.