Molina Healthcare to slash two-thirds of real estate footprint amid permanent shift to remote work

Molina Healthcare will significantly reduce its real estate footprint as it moves to remote work permanently, executives said on the company's earnings call Thursday morning.

CEO Joseph Zubretsky told investors that the company will cut its real estate reach by about two-thirds, which would lead to significant general and administrative cost savings. The plan is one of several "building blocks" that puts Molina on a "very attractive earnings trajectory for 2023 and beyond," he said.

Zubretsky also said that Molina renegotiated and extended its pharmacy benefit management contract with CVS Caremark, and the two were able to reach "substantially more favorable pricing," which Molina expects to have significant benefits on its pharmacy cost trend.

"Although it is too early in the cycle to provide specific earnings guidance for 2023, we are very confident in this earnings outlook," Zubretsky said.

Molina currently leases about 2 million square feet of office space and plans to have the reductions finalized by the end of this year. The company spent $216 million on financial lease liabilities in the second quarter of 2022 alone.

Zubretsky said that Molina readily adapted to a remote work environment and has successfully worked in that model for nearly two years, so the switch made sense.

"We are constantly working the system to try to find ways to attain fixed cost leverage, drive down our G&A ratios and perform at the top end of our long-term ranges for the [medical cost ratio]," he said.

Molina isn't the only insurer planning significant decreases in its real estate footprint. Centene is also slimming down its leased space as part of its broad value creation initiative.

Molina Healthcare reported $248 million in profit for the quarter as well as $8.1 billion in revenue. Both figures beat Wall Street expectations, according to Zacks Investment Research, and pushed the company to boost its annual guidance to $17.60 in earnings per share.

Molina expects to bring in $30 billion in revenue for the year.