Good afternoon, and welcome to Alignment Healthcare's second quarter 2022 earnings conference call and webcast. At this time [audio distortion] after the presentation, there will be a question- and- answer session. To ask a question during the session, you will need to press star one one on your telephone. Please be advised that today's conference is being recorded. Leading today's call are John Kao, founder and CEO, and Thomas Freeman, Chief Financial Officer. Before we begin, we would like to remind you that certain statements made during this call will be forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions, and information currently available to us. Description of some of these factors that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in our filings with the SEC, including the Risk Factor sections of our annual report on Form 10-K for the fiscal year ended December 31, 2021, and our quarterly report on Form 10-Q for the quarter ended June 30, 2022. Although we believe our expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. In addition, please note that the company will be discussing certain non-GAAP financial measures that they believe are important in evaluating performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the press release that is posted on the company's website and in our Form 10-Q for the quarter ended June 30, 2022. It is now my pleasure to introduce Founder and CEO, John Kao. Hello, and welcome to our second quarter earnings conference call. I appreciate you joining us. We are pleased to announce another strong quarter in which we exceeded guidance across each of our four key performance indicators and raised guidance for full year 2022 top and bottom line metrics. For the second quarter, our total revenue of $366 million represented 19% growth year-over-year, bringing our year-to-date revenue growth to 24% year-over-year. Our health plan membership ended at 95,900 members, growing 13% year-over-year. Adjusted gross profit of $61 million in the second quarter was solidly ahead of expectations, resulting in an MBR of 83.4%, our lowest quarterly MBR to date as a public company. Lastly, our adjusted EBITDA was +$10 million, reflecting significant gross profit outperformance during the quarter. Our positive adjusted EBITDA in the second quarter brings our year-to-date adjusted EBITDA positive as well, demonstrating the continued success of our care management capabilities, our AVA technology platform, and the progress of our recent investments in local market management resources. Following a solid first half, we plan to invest a portion of our year-to-date outperformance towards service delivery, quality initiatives, and new market investments. I'm confident about our ability to achieve our full year financial metrics in 2022 and our capacity to balance solid growth with long-term profitability. As I reflect on the strength of the quarter, I'd like to take a moment to discuss how we are delivering this performance. The short answer is that the replicability of our business model is starting to take hold in all of our markets. The investments in Ava's tools related to clinical operations and provider engagement are being used by providers and our local market management teams, allowing us to replicate outcomes everywhere. We are proving that this business model derived from the notion of doing well by doing good can be successful across varying types of local geographies, ethnicities, acuities, provider relationships, and income levels. We believe our model is the model for delivering the highest value care to seniors while addressing health equity for seniors. Once again, our care management model, powered by AVA, drove our performance. Across our portfolio of markets, we ran 155 inpatient admissions per thousand in the second quarter, which remains 38% lower than Medicare Fee-for-Service. Even as we ramp up our new markets, we are becoming more precise in identifying clients most in need of our Care Anywhere resources, and we are increasingly efficient and effective in caring for these members collaboratively with our primary care partners. The deliberate investments we've made in these best practice workflows and actionable data enable us to mass customize our operations in a scalable fashion. In addition, our investments in our local market teams, which we internally refer to as the ground game, are beginning to pay off. We are executing against our market- by- market plans with a focus on consistent provider engagement and disciplined market management. We believe this combination of centralized technology, consistent workflow processes, and investments in the ground game give us the playbook to systematically reproduce operating results in each market, irrespective of local dynamics. Lastly, we cannot emphasize enough the importance of our focus on service delivery to the consumer. As we continue to enhance our overall member experience, we strive to provide our members with not only best- in- class benefits and access, but also with the highest level of service. In our opinion, that is ultimately the definition of value-based care, holistic value to the consumer in the form of better health outcomes, improved experience and richer benefits, all at a lower cost. Turning to our recent expansion announcements, subject to CMS approval, we anticipate entering Florida and Texas alongside eight new counties within our four existing states in 2023. These markets are well suited for a diverse array of products in our model of care, while also featuring aligned provider partners. As a reminder, once established in a state, further expansion over time into contiguous counties creates a more capital efficient pathway for growth. As we think about our long-term growth runway and the beachheads we are establishing today, the six states we will be operating in for 2023 represent approximately 20 million Medicare eligibles in aggregate. This is just over 30% of the entire Medicare market. Beyond our geographic expansion, as we look ahead to the 2023 annual enrollment period, we are strengthening our provider relationships, investing in our innovative products, and expanding our local community presence through our targeted hires in 2022. We look forward to sharing more about our products and plans in the coming months. In conclusion, after one of our best quarters since taking the company public, we are encouraged by our core operational execution and remain confident in our team's ability to achieve our long-term 20% annual growth target. Our structurally advantaged medical management capabilities, our product innovation competencies, and our provider development engagement model present a durable path forward. With an anticipated six states, 52 counties, and roughly 96,000 members, we are just starting to put our mark on the map. With that, I'll turn the call over to Thomas to review our financial performance. Thomas? Thanks, John. Turning to the second quarter results, as John mentioned, we are proud to deliver another strong quarter in which we exceeded the high end of our guidance ranges across each of our four KPIs. For the quarter ending June 2022, our health plan membership of 95,900 increased 13% compared to a year ago, as we continue to see positive momentum across our markets. For the second quarter, our total revenue of $366 million represented 19% growth year- over- year, bringing our year-to-date revenue growth to 24% year- over- year. A large part of our revenue outperformance in the period resulted from sweep payments from CMS that exceeded our expectations. This includes both the final sweep from 2021, as well as the mid-year true- up for 2022. Similar to our comments during the second quarter last year, we would reiterate that these sweep payments are standard course of business on our industry and happen every year. It's also worth noting that a significant portion of the sweep dollar payments we receive are shared with our providers through various contract arrangements, including full capitation, partial risk pool, and upside only profit share payments. Accordingly, our revenue outperformance in the quarter does not entirely flow through to our profitability measures. Our top line outperformance in the quarter was coupled with strong MBR management. In fact, as John mentioned, our best quarter yet as a public company. Our adjusted gross profit of $61 million implies an MBR of 83.4%, as utilization continued to run below our seasonal baseline. This is reflected in our 155 inpatient admissions per thousand this quarter, including a lower mix of COVID hospital admissions relative to total hospital admissions than was contemplated in guidance. SG&A in the quarter was $62 million. Excluding equity-based compensation expense, our SG&A was $51 million, an increase of 20% year-over-year. Our SG&A for the second quarter included a couple million of timing favorability that we anticipate reversing over the back half of the year. Lastly, our adjusted EBITDA was a positive $10 million, exceeding our expectations for the quarter. Notably, we're proud to report that our first half of 2022 adjusted EBITDA was positive $6 million, demonstrating the competitive differentiation of our MBR model. Given the strength of our results in the first two quarters of the year, we are assessing areas to redeploy this outperformance over the next two quarters. Turning to the balance sheet, we ended the quarter with $297 million in net cash. We continue to expect our balance sheet strength to fund our organic growth and working capital needs without requiring external financing. Turning to guidance, for the third quarter, we expect health plan membership to be between 97,100 and 97,300 members, revenue to be in the range of $330 million-$335 million, adjusted gross profit to be between $38 million-$40 million, and adjusted EBITDA to be in the range of a loss of $23 million to a loss of $20 million. For full year 2022, we expect health plan membership to be between 97,300 and 99,000 members, revenue to be in the range of $1.365 billion-$1.38 billion, adjusted gross profit to be between $177 million and $184 million, and adjusted EBITDA to be in the range of a loss of $41 million to a loss of $35 million. On the back of our outperformance in the second quarter, we are reiterating our full year 2022 membership guidance and raising our full year revenue guidance. We note that our revenue forecast takes into account the risk pickups in the second quarter and includes the full 2% return of sequestration beginning in the third quarter. Now that we are through the mid-year sweep, and given the high degree of visibility associated with our subscription-like recurring revenue model, we feel confident about our second half revenue outlook. Additionally, we are raising our full year 2022 adjusted gross profit expectations and narrowing our guidance range. We remain mindful of the potential for COVID utilization to increase over the next six months, particularly in the fourth quarter. Of note, our COVID hospital census has increased over a 45-day period into mid-July as the new BA.5 variant became more prevalent. However, while this trend is something we are continuing to monitor, our COVID utilization levels today continue to run lower than our experience with the Omicron wave. Our second half guidance assumes that our overall utilization runs approximately in line with our historical baseline, inclusive of the potential for a modest spike in COVID-related utilization. We are also looking to reinvest some of our year-to-date MBR outperformance towards furthering our care and quality initiatives, as well as ramping up our new market clinical hires as we think about our 2023 launches. Lastly, we are also raising our adjusted EBITDA guidance inclusive of the SG&A timing factors we mentioned previously. As we've said before, we are thoughtfully managing our short-term profitability objectives with our longer-term growth MBR management and scalability objectives. In summary, we are very pleased with how our business has performed in the first half of the year, and we believe we're in a strong position to continue to build upon that progress in the second half. With that, I'd like to turn it back to John to wrap things up. Thanks, Thomas. Lastly, before we close, I would like to spend a moment on our inaugural 2021 ESG report, which we released yesterday. Environmental, social, and governance factors are inherently built into our organizational culture and everything we do here at Alignment. From improving health outcomes to bridging health equity gaps, we strive toward better healthcare access for all, regardless of health or wealth. The cornerstone of our member journey begins with having a serving heart, and we've embedded this value in our ESG oversight approach with three key pillars, all centered around, serving people, serving the environment, and serving responsibly. The comprehensive report highlights many powerful themes and data points, including our positive member outcomes reflected in lower hospital admissions and readmissions, our focus on social determinants, and the impact of diversity and representation of both our employees and members. To explore our ESG focus further, please visit alignmenthealthcare.com/esg. I am proud and appreciative of the strides our employees have made towards a healthier and sustainable future for our members. I look forward to sharing more of these important efforts in the years to come. With that, let's open the call to questions. Operator? Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of Ryan Daniels with William Blair. Yeah, guys. Thanks for taking the questions, and congrats on a great start to the year. Wanted to talk a little bit about your market expansion. We don't have a ton of history with how you've expanded into markets, but this seems pretty significant to me in regards to the number of expansions and the total opportunity set of new members you're targeting. Can you discuss how we can compare and contrast that versus prior years? Also help us think about any potential, cash flow implications as you enter this level of new markets, thinking of the next six-12 months? Thanks. Hey, Ryan, it's John. Happy to talk about it. We announced that we're gonna be entering Texas and Florida for 2023. We really spent a lot of resources on, I would say, five or six potential states that we were looking at entering, and really had a pretty high bar in terms of ensuring that we had the right provider partners, kind of the right competitive dynamic that we thought we could really win in. Really felt comfortable with ending with Texas and Florida. I think it's consistent with what we've shared with everybody in that we want to get into 15 or 16 states over the long term, where we think 70-ish% of the membership of the eligibles are going to be. Right now as it stands with the six states that we'll be in, it represents a little bit over 1/3 of where the seniors are. I think we'll get those beachheads set up. We're gonna continue to do what we refer to as contiguous county expansions, and really focus on portability, really focus on execution. I think we've proven that in California, in every single one of our markets that I would still say are as diverse as anything out of state. We need to do it and prove that. I think we've got really three of the largest opportunities to prove our model, and I feel good about it, you know. I feel like the team really is prepared in terms of the network construction, the engagement, the contracting. I think we feel very prepared from a product perspective. I think equally important, and you always heard me say this, it's not just about planting flags, it's making sure that we have confidence we can grow profitably in each market. I feel very comfortable that our operators and our clinical teams can support this growth. Thomas, you're gonna speak to some of the financial parts of Ryan's question. Yeah. This is Thomas here, Ryan. Just to add on to what John was saying, from an investment standpoint, those dollars really around sort of the sales and marketing expenses to launch those new markets this upcoming AEP, along with the year zero quote-unquote, "expenses," which really includes hiring a lot of our local market leaders, some of the clinicians we'll need in order to go live. A lot of that happens over the back half of the year. Both of those two factors, the sales and marketing piece, as well as the G&A or the medical expense year zero pieces, are both contemplated in guidance and really consistent with our overall financial expectations when we set guidance earlier this year. Okay, super helpful. Maybe another one for you just in regards to the sweep payments, and more specific, how you share those with providers. Is that just your internal group of practitioners, or is that shared externally? If the latter, you know, is that something that is a kind of a unique initiative to you that you think kind of bolsters your position in the community and can help with MA membership growth as well? Thanks, guys. Yeah, I can take that one as well. This is Thomas here. The way we approach this is all of our contracts have different underlying value-based care mechanisms. On one end of the spectrum, obviously some providers might be at a global capitation or a global risk contract. On the other end of the spectrum, even our contracts that don't have any type of downside risk for the provider, we often look to create upside opportunities through either a risk pool or a profit share. Dependent upon where those sweep dollars are coming from, which members and therefore which provider group, how that kinda contract works will vary depending upon that provider organization. Generally speaking, what we really are focused on is ensuring that when we win, our providers win and our members win. That's the strategic and kind of philosophic goal behind how we approach the network contracts. Yeah. Just really to add to that, the kind of percent of premium kinds of reimbursement with the providers, you know, kind of creates that alignment with all the providers, and you know has been a cornerstone of our success, is just making sure that we are partnering with providers. Understood. Thanks, guys. I'll hop back in the queue. Thanks, Ryan. Thank you. Our next question comes from the line of Whit Mayo with SVB Securities. Hey, thanks. I thought I heard you say in your prepared comments that days per thousand were 155. That seems really low. I have, you know, 165 sort of in my head. So, one, if you could just confirm that and just I presume you've studied it. Just interesting to hear, you know, kinda how and why it was so low. So maybe I'll just stop there. Yeah, great. Whit, this is Thomas here. I think you heard correctly our inpatient admissions per thousand for the second quarter were right about 155, which, you know, is a bit better, I would say, than our seasonal kinda historical baseline. At the same time, we've been running about 155 to 165 inpatient admissions per thousand now for over five years straight. That dates back obviously to our IPO experience as well. That is around 35%-40% better than Medicare Fee-for-Service. When you couple that with our industry-leading readmission rates, SNF, you know, ER, et cetera, types of metrics, I think these are all just different forms of how we measure and monitor quality, and making sure that all the proactive investment we're making towards the seniors' health and wellbeing not only improves their health outcomes, but also prevents any unnecessary or potentially avoidable utilization. Yeah, that was really the core driver of the quarter, and pleased to see us continuing to maintain that efficacy of our model as we continue to grow and expand into new markets. Yeah. No, that's helpful. I just wonder if the low days per thousand, can you attribute it more to any of the clinical programs or the Care Anywhere? I'm just still trying to sort of reconcile how, you know, how it's so low. Yeah. So, you know, our model from a high touch care delivery standpoint is what we refer to as Care Anywhere. For those who are less familiar with that, Care Anywhere is a cross-functional interdisciplinary team consisting of doctors, nurses, case managers, social workers, behavioral health coaches, and other types of clinicians who are all focused on taking care of that portion of the population who represents a significant portion of the spend. The 80/20 rule you've heard about in the past, our data actually most recently would suggest that our top 20% of members are closer to 90% of our overall institutional costs. By using AVA to stratify the members, proactively outreach those members and try to engage them in our care delivery model, principally in the home, but alongside of our virtual care center capabilities, you know, we've historically been really successful with, again, trying to improve health outcomes that result in an improved utilization downstream. I think it's really a testament of a lot of the care delivery efforts and again, being willing to make that investment upfront and betting on ourselves that it will pay off kind of multiple times over, in the form of reduced medical expense elsewhere. Yeah. Just one other comment. To me, it's a bit of an early indicator as to the efficacy of the model working in some of the newer markets. Because some of the more established markets, you know, it's always been working. So as we've entered more markets in the last couple of years, getting those markets to be performing with the same model, I think is kind of helping the overall come down. That's— So I look at it from that vantage point. No, that's helpful. Thomas, I think when you say that you plan on spending some of the MBR upside, but we're kind of past the bid season, I presume this is more on marketing broker strategies. Maybe I'm wrong, but just like to hear a little bit more as to what you're thinking, where you're spending, the money. Thanks. Yeah. A couple things. I think, from a quality standpoint, we see incremental opportunities to continue to invest in some of those programs around Stars, and we're continuing to make some of those investments over the back half of the year. From a service delivery standpoint, we're continuing to make strides to improve the overall member experience and making some investments that we think can lead to ultimately higher NPS or higher member satisfaction, you know, better retention, therefore greater lifetime values. Then, some of it has to do with just ramping up our new markets that we were just talking about earlier with Ryan. Kind of across the board, both within medical expense and SG&A, those are some of the areas that we're looking at. Again, it's really on the back of that strong year-to-date performance that we're comfortable making a few of those investments today that are things we might have otherwise made in the future, but we have the opportunity to kind of really go after them here and now. Okay. Thanks, guys. Thanks, Whit. Thank you. Our next question comes from the line of Michael Ha with Morgan Stanley. Hey. Thanks, guys. Congrats on the quarter. Just a question on guidance. With $25 million beat this quarter, only about $4 million-$5 million on the raise on the full year guide, looks like you guys are carrying a lot of that excess earnings cushion into the back half of the year. Is that lower raise on guide more an indication of new conservatism, or are there incremental costs that we should account for? Because some of the outperformance, it sounds like you guys are baking it into new market implementation costs, but I think Thomas also mentioned you guys are stretching areas to redeploy outperformance. I'm a little bit confused. Just any clarity on what's in the back half of the year would be great. Yeah. I'm happy to take that. This is Thomas here. Maybe to kind of start with the gross profit raise. I think if you look at sort of our gross profit year- to- date or our MBR year- to- date, and then kind of think about the back half of the year, there are a couple things that we're being sort of mindful of as we think about the back half gross profit. The first is obviously just the dynamic environment around utilization and COVID. While our recent uptick this summer has not been at the level we experienced with the Omicron wave, it's certainly something we remain mindful of looking out over the back half, and in particular, maybe the fourth quarter, where the last two years we really haven't had much of a flu season either. Something we're just continuing to be, I think, mindful of and kind of thoughtful about just from a pure utilization standpoint. I think that's kind of the first thing. The second thing is just the kind of normalization from some of the items we had in the first half of the year that we would not anticipate to recur in the second half of the year around the sweeps. While those were obviously a favorable contributor to the second quarter, I do think it's worth noting that our MBR in the second quarter would have otherwise been in the 85% MBR range, irrespective of those prior period items. Really a very strong quarter regardless, but we're kind of normalizing the back half of the year for that one-time pickup in the second quarter. Got it. Yeah, I appreciate that commentary. Just one other question. You know, this year seemingly unique in the sense that every managed care plan has basically outperformed this quarter across the board, and now all the MA plans are reinvesting into marketing, distribution. My question is, does this impact the competitive landscape at all, or even your thinking about, you know, with benefit offerings already locked in, like how you stay nimble and decide your strategy into the back half of the year? Yeah. I think in terms of kind of AEP around the quarter and how we're thinking about some of the investments. Obviously, when we set our guidance to begin the year and thought about our budget for the year, we obviously remain growth-oriented as an organization. I wouldn't view some of these investment opportunities based on the year-to-date outperformance as being driven by growth first and foremost. That really, again, is a function of already having contemplated those investments we think we need to be successful, just in the course of our normal budgeting cycle and our normal guidance cycle. Beyond the kind of investment in the sales and marketing season, which happens every year, I think you heard a bit from John in his prepared remarks, just really describing a lot of our focus these days on the ground game, and making sure that the investments we made more recently in some of our provider engagement resources and our community representatives are continuing to help us gain traction, not just for this year's enrollment period, but also looking out towards the 2023 AEP season. Obviously we're sort of in the middle of hearing what others across the industry are doing from a competitive bid standpoint. It's a bit early to comment on what we're seeing across the market landscape, but in terms of our approach, I think we did a nice job with the bids to kind of balance our growth versus profitability objectives and really continue to strive towards that 20% looking out to 2023. All right. Thank you, guys. Thank you. Our next question comes from the line of John Ransom with Raymond James. Hey, good morning. Just another cut at the market expansion question. Let's say you're gonna do $100 of revenue in Texas and Florida. What's the, as a percent of $100, what's the front-loaded investment that you would have in 2022? Then for that book of business in 2023, how do we think about like overhead and MLR? Thanks. I think maybe just to talk to the year zero expense, which would be the back half of 2022, dependent upon the size of the market and therefore the market opportunity, we will scale up or down the investment accordingly. To give you an extreme example, if a county only has 10,000 eligibles, let's say a smaller rural county, frankly, you wouldn't probably see a lot of incremental capital deployed towards that. That would really probably be a contiguous county expansion where we're leveraging a lot of our existing investments, both from a people standpoint as well as from a sales and marketing standpoint, to target the growth in that market. If I were to then contrast that on the other end of the spectrum, where maybe you have hundreds of thousands or 500,00+ eligibles in a county, that's where you would typically see us really deploy a lot more year zero spend, both in the form of sales and marketing and in the form of our year zero clinical and non-clinical hires. In that case, it may be anywhere from $1 million-$2 million, $3 million for a given MSA. It just kind of depends on the market we're talking about. But as we then transition into 2023, what we typically have experienced based on our historical cohort data is an MBR that will often run sort of in the 90% range, or maybe the mid-90s%, depending upon the mix of members. Ultimately, we're really trying to get the EBITDA breakeven by year three. That's been our experience in the past, and it's kind of how we underwrite our investment cases looking out to, not just Florida and Texas, but even some of the contiguous county expansions within California, as an example, that we're really excited about for next year. If we were to look at just Florida and Texas, and, you know, I'm rapidly approaching Medicare age, so if you're not in Tampa, I'm gonna be very disappointed, you know, soon. Just Florida and Texas, two years from now, you'd be disappointed if you didn't have what number of lives in those two markets? I think typically what we have really targeted for a given MSA is getting to 10,000 members over a five-year period. Over the first, call it three years or so, I think we really wanna be striving towards that at least 3,000-5,000 range. I think that puts you on a great kind of trajectory to get to that 10,000 mark over five years. Yeah, John, this is John. That MSA an entire state, or is it like a county by county? I don't know how do you define MSA? Yeah. Like as an example, we're going to Clay and Duval, which are contiguous counties in Florida as an example, in that Jacksonville market. We would view sort of Jacksonville as the MSA with the two counties together. Yeah. The metric. Hey, John, it's John. The metric that Thomas just shared is really just data that we've experienced in all of the different new markets that we've entered. It's kind of striking. It's kind of like it takes about five years to kind of get to 10,000 members. We kind of break even in year three. And that's really our internal underwriting case. There are situations in specific markets that have done a lot better for us. We're not necessarily underwriting to it. Our internal goals, I would say, are more aggressive than what I just shared. For example, our San Diego market, our Sacramento market, I mean, you kinda get to 12,000, 13,000, 14,000 members in, you know, two-three years. I mean, you know, do I think that given the nature of the provider relationships, the product strategies, the distribution strategies that we have in some of these new markets, there's an opportunity for us to outperform? I would hope so. Again, we're, you know us, we're setting the right expectations. I would be disappointed, to your question, in a couple of years, you know, if we didn't have, you know, 10,000 members in each state. So. You are conservative. You know, this is my perpetual, like, fascination. Let's say you're brand new in Duval County. Kind of you're marketing. What is the, you know, how much do you spend, and what's the general strategy just to tell people who you are and how you're different? What channels do you use? Naturally, we use a lot of the same channels you probably heard about from others. From a people standpoint, we're doing a lot of local, kinda grassroots effort. That's the community representative you heard about. These folks are really boots on the ground who are focused on building relationships in the community, whether it's with external brokers, providers, or just community representatives. These are the ones who are hosting events and creating leads that we can ultimately try to, you know, just tell the story of what we think Alignment can do for them. A lot of it is very local-oriented, and then from a kind of more of an advertising or brand standpoint, you would probably see us on TV, newspaper, radio, a lot of digital channels, a lot of the things that you would expect. Yeah. The other thing we're learning, John, is that kind of our reliance on some of the FMO partners that we've been successful with and expanding with them, as we grow out- of- state, is something, you know, we're looking at. We're spending a lot of time focusing on kind of just broad, you know, distribution mix and distribution strategies. Kind of, you know, as a follow-up kind of to what Michael was asking earlier, we're looking at all that. We're obviously looking at our branding and our positioning, particularly in the new markets. I would say we're very efficient on acquisition costs relative to the market. I think we've got to look at, and particularly some of the newer markets, you know, direct and employed strategies. I think the FMOs that have been really great partners of ours are the ones we're gonna rely on to help us in some of these newer markets as well. You know, we have made some of the mistakes where we relied on some of the bigger folks or some of the e-folks that have not grown us, say, for example, in North Carolina. Those are lessons learned. You know, I feel pretty good about this coming to you, Stephen Tanal. Well, I'll conclude that it strikes me living in a MA market. I see the Cigna Blue Phone commercial. I see JJ Walker, and I see Joe Namath. I'm not thinking any of those are— I think MA might have the worst marketing, like mass marketing I think I've ever seen in the consumer product area. It's a low bar. We're rooting for you. Yeah. Yeah. No, it's the service delivery side, I think, is where I think you're gonna find us with a lot of this grassroots referrals and just a lot of just, you know, word- of- mouth is still really important. I mean, we've grown this thing really from that more than any kind of, you know, huge brand investment. You know, I would envision that also happening on the service delivery side. Thank you. Thanks, John. Thank you. Our next question comes from the line of Jeff Garro with Piper Sandler. Hi. Good afternoon, guys. Congrats on the quarter, and thanks for taking the question. Maybe one more on the FY 2023 expansion plans. You know, just wanted to ask, since Florida and Texas, they're huge states, but your entrance is targeted to specific counties that aren't necessarily the biggest each in each state. So what can you tell us about the competition, the populations you anticipate serving, and the provider relationships that you fostered in those markets that make them compelling? Yeah. Hey, Jeff, it's John. That's a great question. I think the big takeaway is that we think this business model can be successful at a local market level, irrespective of whether it's rural or urban, irrespective of ethnicity, or income, it's portable. One of the things we're doing is we're making really focused investments in markets where we think we can win. Not just to hit those metrics that we just talked about, but actually get share and win, frankly, similar to what we've done in some of the rural markets in or smaller, I would say, or mid-sized markets in California, where we've got 20%+ market share. I think that's kind of how we're thinking about it. Then once we get that foothold in and we're kind of producing the kind of profitable growth that we want, and then we'll be very also selective and expand into contiguous markets. Obviously, you know, to your point, those are massive states. I think the same kind of takeaway that we've learned in California is where we kind of can be applied to those two massive states, and every market's different. All the hospital and the provider dynamics are different. Ergo, kind of this conversation around mass customization, where we get all of our processes, our workflows, our best practices, our systems, our dashboards, all of this, all of these kind of operating tools we want to be as portable as possible, but apply it to a, you know, set of local market dynamics. It's just all unique. Healthcare is a local business. That's kind of the idea. I think we just have a better chance of winning in some of these targeted markets, is the bottom line. You know, we looked at all the bigger markets also, and there was just less competitive dynamics that would cause me to have, you know, gee, can we really win in this bigger market when we're small? I think the conclusion is let's go to some of these more secondary markets first, and then we'll work our way up. That's how we thought about it. Excellent. That's super helpful. I love the concept of mass customization. One more question from me. I've heard some discussion from other plans about moderated expectations for Stars ratings in October, given the lapsing of some of the COVID dynamics. You know, you certainly share a lot of positive data about the outcomes that Alignment is delivering for seniors. Curious if you have any insights into how those outcomes will shake out across the peculiarities of measures and cut points into a Stars rating this October? I think the general themes that you're hearing out there are accurate. You know, I think there were a lot of plans that benefit from some of the relaxed standards resulting from COVID, you know, and, you know, particularly as it relates to CAHPS scores. For those of you that don't know, you know, CMS has really, I think, historically focused on kind of clinical outcome quality as measured by what's referred to as HEDIS scores. Clearly, that's where we have traditionally focused our efforts. You know, we have five stars across the board really on HEDIS. But since a couple of years ago, CMS is now focusing on really the member experience. Therefore, they're doing kind of this focus on CAHPS, where the weighting measures for CAHPS is gonna be going up and being paid beginning in 2024 differently. 2024 differently. So we've spent a lot of time and effort focusing on CAHPS scores and, you know, we've been working with our downstream delegated provider partners to make sure that some of these CAHPS scores can really get improved, and we've made good progress there. I feel pretty good about where we stand coming into next couple of months where we'll find out what our marketing is for next year. This Stars, really the entire business, but Stars in particular, is becoming more and more data science. I mean, really it's data and analytics and predictive analytics, and I think we're pretty good at that across the board. I would say areas that we need to improve continue to be around working with our delegated provider partners to make sure that they are helping us increase CAHPS scores across the board. I'm confident we can get there because we did the same thing with them on HEDIS several years ago and you know, they got us to five stars. But I think you're right, Jeff. I think you're gonna have a lot of plans, you know, get you know, half a star or a full star taken down. Great. Thanks for all those comments. Thanks again for taking the questions. Yeah, you got it. Thank you. Our next question comes from Kevin Fischbeck with Bank of America. Great, thanks. Just wanna go back to kind of the reinvest in the outperformance in the second half of the year, 'cause that back half guidance is a little bit different than what we were assuming. Can you maybe help us think about how much of that reinvestment goes back into G&A expense versus MLR expense? Yeah, this is Thomas here. I'm not sure we're gonna kinda break down all the moving pieces, but I think if you kinda look at the gross profit beat in the second quarter, relative to the full year raise, again, obviously part of that sort of, you know, extra conservatism in the back half gross profit, I think relates to COVID, but then a portion of that is certainly the investments themselves, whereas in SG&A, I would say that is generally just investment. I think you can kind of think about it in those two ways. In general, again, I think we're very focused on making sure that we're kind of deploying capital in a way that is very mindful of our short-term profitability objectives, but also making sure that we're doing the right thing and setting ourselves up for success and value creation over the next kind of one-, two-, three- plus years. We're really trying to find that right balance, and that really informs kind of where we're at year- to- date and how we're thinking about the next six months. Okay. Maybe ask it a little differently then. It sounds, if I have this right, you're saying that your view on the back half of the year hasn't changed versus where it was maybe with Q1, even though Q2 was better, and you're building in conservatism on COVID, even though you're not seeing necessarily a reason to be more conservative? I just wanna make sure that I understand. The core hasn't changed, you're just throwing conservatism on without that, rather than there's a reason to be more worried about COVID. Yeah. You know, I think if anything, over the last, you know, two years since the pandemic began, you know, we have learned that there's always something new to learn. With that in mind, I think we've been, you know, just thoughtful and kind of mindful of what that may look like in the back half of the year. I think if you look back to our prior comments last quarter, you heard something similar where we had suggested that we were gonna assume that overall utilization kind of runs in line with our historical baseline experience, but a portion of that would be COVID- driven. To the extent that we had either lower utilization versus baseline and/or we had a lower percentage of the total utilization being driven by COVID, which comes with a higher unit cost, there could be room for outperformance. You clearly saw that come through in the second quarter. We'll see how the back half plays out. I think we feel generally comfortable with where things stand today. Nothing concerning. At the same time, you know, I think we're all kind of highly respectful of this dynamic environment we're in today and just trying to be very thoughtful about it over the back half. Okay. I know it's hard to comment on 2023 since you haven't seen competitor benefits yet, but at least one of your competitors talked about how their benefit design was shaping up and the reception from brokers on the kind of initial peek. I don't know if you have any color like that that you might be able to share for us about how you think 2023 is shaping up. Obviously it's not a full picture. Yeah, hey, Kevin, it's John. Yeah, I was just with the brokers last week. I'm feeling very good about where we stand. I think this whole kind of notion of profitable growth, consistency, discipline around the bids, is just kind of reflected in our Q2 numbers, you know. I think you're gonna see more of that. We're not gonna be doing a grow-at-all-costs strategy. We are pretty thoughtful kind of competitor by competitor. I would say overall, our hypothesis with respect to 2023 is given the better than contemplated rates, final rates. I would say some of the behaviors of some of the other, you know, kind of, let's just call them not-for-profit entities, I think is gonna cause our competitors to be aggressive. That's kinda how we're thinking about this, you know? I think we're still very well-positioned across the board. I think you're gonna see more of these, you know, Part B buybacks. I think you're gonna see focus on duals. I mean, people are gonna be very aggressive across the board. I just think I don't think anybody has the kind of model that we have that can produce kind of consistent growth at these margins. I don't see anybody being able to do that. I think the bigger concept is the bigger we get, the kind of more aggressive we're gonna be, simply because any kind of scale economy disadvantages that we have are gonna start eroding, and we'll get stronger. That's the way I think about the bids. Yeah, I think people are gonna be generally aggressive. I'm not hearing people are gonna be, like, stupid aggressive like last year. I think people are pulling back a little bit. I think some of the big guys are gonna be a little bit more aggressive, you know? I feel good about where we are. Great. Thank you. Yes. Thank you. Our next question comes from the line [audio distortion] with Goldman Sachs. Hey, John. Thanks for taking the question. I wanted to go back to the market expansion. How have you felt about your ability to find provider partners in the markets in Florida and Texas that you're going into, since that's a key part of the differentiation of your value proposition? And kind of building on the discussion around market share assumptions, you know, do you feel like you've been able to put together, you know, a competitive provider network that would enable you to kind of get the share that you would expect when going into a new market? Yeah. Great question. I mean, it's really a tee up for really the focus we had at the beginning of the year, and we talked a lot about provider engagement and provider development and the value proposition. Remember all that, all of that work for really the first half of the year really resulted in finding key providers that we feel really comfortable with. I think that was one of the best investments in not only capital, but just time and effort, is getting you know on the road, meeting with these providers. I gotta tell you, people love what we're trying to do. The doctors love what we're trying to do. They don't wanna get consolidated either by their hospital system or any large consolidator. There's a lot of independent and smaller practices out there that just need some tools and some assistance getting into value-based care in a kind of a rational way. I think we're an option that seems to resonate with a lot of them. We're not kind of you know just going in with the biggest groups. We're working with a lot of you know smaller- to middle-sized practices. We really need, and I've said this before, we need 20 to 25 really engaged doctors that like our model to start. That's what we've done in every single market is you need 20 to 25. I kinda tease our team internally and I go, you know, "How many cell phone numbers do you have of these doctors? I mean, do you really know these doctors?" They understand what we're trying to do and what we're trying to, you know, do for our members and for them, and to help them. I think that's the standard by which we're really, you know, building these networks up. That whole kind of initiative has taken root in a way that has exceeded my expectations. I'm really happy about that. Now we gotta just execute, focus and execute. You know, you complement that with strong benefits, which I'm very comfortable with. And then you complement that with the right distribution mix and the distribution strategy. We've been very thoughtful about that. We'll see what happens. I will say some of the markets that we launched one and two years ago, the engagement level and the MLRs in some of these newer markets are really good. I mean, I'm really happy about that. Again, that leads to kind of why we got this kind of overall 83% and it's like the model, like, is starting to replicate itself consistently. Now we just gotta translate it into the growth dynamic. That's really helpful. If I could just maybe sneak in a quick follow-up. How are you guys thinking about the timeline to break even now? Obviously, the business is performing well. You have some large growth opportunities ahead of you. Just wondering if the timeline and how you're thinking about the path to break even has changed at all. You wanna take that or you want me to take that? I'll give you that. You know, I think our whole philosophy and approach was frankly the right approach since we IPO'd, which is a more measured longer-term strategy of getting the 20% long-term growth. I can talk about why I feel more confident than ever about our ability to achieve that, but also getting to break even. Getting to break even EBITDA is really important. I mean, it still matters. You know, I think that getting there by 2024 is certainly something we're really focused on, for a whole variety of reasons. I think the really compelling argument for us is if we can maintain that 20%+ growth and get there and kinda maintain these MLRs, I don't think anybody else can do that. That's kinda one thing. Just to further differentiate us from everybody else and prove our business model. The second thing is what Thomas referred to in terms of just the balance sheet. I mean, I'm very sensitive to not, you know, not needing to raise more capital. I wanna get there without having to raise any more capital. We want to, you know, not only get to EBITDA positive, but get to cash flow positive as soon as possible. I think we can do that and do so kind of. I still think we can hit these growth rates with these MLR kind of improvements and get to EBITDA positive. I know that's something that's important, you know, to our investors, you know, to prove this thing out. The implication of that is kind of what was kind of inferred by Thomas earlier, which is, you know, we're going to Texas, we're going to Florida, but as we think about— We're making investments now in 2022 about the 2023 new markets. As we head into 2024, the bar's gonna be pretty high in terms of adding new states out there. Just because the TAMs in the existing states are so big and the new market contiguous counties are so big, we need to prove we're taking more and more share and leverage the management infrastructure that we're building in each of these six existing states. 'Cause it's huge. I think it's 20 million in, you know, seniors or something like that. We gotta just execute on that. What that means is, you know, I'm not saying we're not gonna do any new states in 2024. I'm just saying the standard is gonna be pretty high. It's gotta be really, really good, underwriting internally, about that growth case. I also think that like you're gonna see us have more, kind of in-state joint ventures, in-state co-branding opportunities, you know, kind of in-state, just, you know, kind of large, you know, partnerships with different providers and hospitals. This past couple years we've announced, you know, again, Scripps and Hoag and Cedars and Sutter and all these big, you know, strong, wonderful delivery systems that wanna partner with us and we wanna partner with them. You're gonna see more of that, I think, through each of our markets. Hope that helps. Great. Thanks for all the comments. Yeah. It was long-winded, but sorry about that, but. Thank you. Our next question comes from the line of Sarah James with Barclays. Hey, Sarah. Hi. Just wanted to understand this quarter a little bit better. One of your peers talked about ACO REACH having a 7.5% retroactive back to January 1 restatement of cost trends and payments. Did you guys experience any out- of- period adjustments related to that? Is there any change in your view of margin profile of that business? Hey, Sarah. This is Thomas here. In terms of the 7.5% or so, we did get the same sort of information from CMS this past quarter. However, when we were sort of thinking about our first quarter, you know, guidance for the full year that is, we were sort of reflecting on our experience last year, where CMS had also implemented a retrospective sort of, you know, trend adjustment on us. With that in mind, you know, we approached our guidance from a little bit more of a conservative posture. We actually had incorporated, or I guess, in other words, anticipated some of that, as we thought about our previous guidance. We did experience it, but at the same time, it was sort of in line with expectations and therefore did not really cause much of an impact on the quarter's performance. Got it. In the new guidance on 3Q gross profit, it was a little bit off from where consensus was, and I'm wondering if you can help bridge the margin assumptions or MLR assumptions from 2Q to 3Q, if there's anything other than seasonality with deductible wear down going on there. Yeah. Yeah, I'm happy to do that. I think you heard hopefully earlier, so if you kind of take out the benefit or the favorability from some of those one-time prior period items, you know, the sweeps and whatnot, we're sort of in the 85% range for the second quarter. Kinda using that as your launching off point, thinking about sort of the third quarter or back half of the year, obviously a lot of that has to do with expecting utilization to run in line with baseline again, as opposed to second quarter where we were a bit better than baseline. Also, assuming a portion of that has to do with COVID, which comes with a higher unit cost than a non-COVID hospitalization. That's really that COVID headwind when we were discussing earlier, in addition to sort of a minimal amount of some of that investment that falls into medical expense we were also discussing earlier. Great. It's nice to see people put out conservative guidance, so appreciate that. Thank you. Thanks, Sarah. Thank you. Ladies and gentlemen, that does conclude [audio distortion]. Thank you for participating. [audio distortion] disconnect.