Good afternoon, and welcome to Alignment Healthcare Third Quarter 2022 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. Please note that this event 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. Descriptions of some of the 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 Factors section of our annual report on Form 10-K for the fiscal year ended December 31, 2021, and our quarterly report on the Form 10-Q for the quarter ended September 30, 2022. Although we believe our expectations are reasonable, we undertake no obligations 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 may 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 press release that is posted on the company's website and in our Form 10-Q for the quarter ended September 30, 2022. I would now like to hand the conference over to your speaker today, John Kao, Founder and CEO. Please go ahead. Hello, and welcome to our third quarter earnings conference call. We are pleased to announce another strong quarter in which we exceeded the high end of guidance across each of our four key performance indicators and raised guidance for full year 2022, top and bottom line metrics. For the third quarter, our total revenue of $360 million represented 23% growth year-over-year, beating our high-end guidance by $25 million. Our ending health plan membership of 98,000 members grew 14% year-over-year, beating our high-end guidance by 700 members and placing us solidly in the range of our previous year-end membership guidance of 97,300 to 99,000 members. Adjusted gross profit was $49.5 million, beating our high-end guidance of $40 million and resulting in an MBR of 86.3%, 180 basis points better than implied at the high end of our guidance. Meanwhile, our adjusted EBITDA was -$9.5 million, beating the high end of guidance by $10.5 million. Lastly, on the back of our strong performance, we're pleased to share that we are raising our full year revenue guidance to reflect growth of greater than 20% year-over-year, consistent with our long-term annual revenue growth objective. Closing out the third quarter, we're encouraged to see continued progress in the replicability and scalability of our operating model. Our investments in our risk prediction models, clinical workflow tools, provider engagement activities, and our local community reps are yielding outstanding results both inside California and our new geographies as well. Meanwhile, our investments to optimize service delivery are on track to produce operating results quicker than anticipated. Our continued success delivering high quality at a low cost across markets gives us confidence in the repeatability of our platform and our long-term runway as we carry that momentum into next year. Key to this repeatability of our model is AVA. While plans have historically leaned on scale and unit cost to create their competitive advantage, our success is founded upon data science, information, and analytics. AVA allows us to effectively compete and outperform by providing the insights required to optimize our key value drivers at the local level. Our teams rely on this actionable information to deliver a tailored and agile approach to each market. We believe technology alone cannot change healthcare. Rather, it is the interconnected nature of AVA and its actionable insights leveraged by the people across our business, including our clinical care teams and our provider partners, that is driving the consistency of our performance across geographies. Simply said, providing the right data at the right time to the right people is allowing us to improve member outcomes and deliver durable financial results. This is the culmination of our founding vision for what value-based technology-enabled healthcare should be. Turning to Stars, CMS recently announced the 2023 plan year Star Ratings, which measure the quality of health and drug services received by our seniors. We are pleased to report that our California HMO contract achieved 4 out of 5 stars, which marks the sixth consecutive year we have achieved 4 stars or greater. In total, for the 2023 plan year, we anticipate approximately 95% of our members will be in plans that CMS rated as 4+ stars. Additionally, due to the strength of our weighted average parent rating, our plans in Florida, Texas, and Arizona, which are currently too new to be measured, will also adopt a 4-star rating. Given that 2023 stars determine 2024 reimbursement, we are excited for the continued momentum our results will provide us over the next two years. We are also proud of the strides our teams have made this year to produce a 5-star result in North Carolina. This is a crucial step forward in demonstrating the portability of our model in the traditionally fee-for-service market. To achieve this result, our clinical teams, community physician partners, and member concierge teams took a hands-on approach with members. The actions of these teams are aided by AVA-enabled insights to identify gaps in care and make targeted actions to support care navigation and address member concerns. These capabilities are core to our model and allow us to consistently deliver high quality at a low cost. As we previously shared, we are continuing to make focused investments in quality and service delivery to not only maintain our strong company-wide results, but also push our ratings higher across all plans in the future. As we enter this annual enrollment period, we are once again enhancing benefits and lowering monthly premiums for our members while distinguishing our plans through product innovation. We continue to explore new ways to create benefits that improve our members' standards of living and address social determinants of health. This summer, we published the Alignment Health 2022 Social Threats to Aging Well in America survey results. Our inaugural report revealed that economic instability, loneliness, and food insecurity are the top three social barriers impacting seniors' access to comprehensive, affordable, high-quality healthcare. We further recognize that these elements of day-to-day life for our seniors have been exacerbated by an uncertain economic environment and inflationary pressures. Understanding these obstacles, we introduced a variety of new products and benefits this AEP to address these challenges, including a gas and utility benefit for low-income subsidy-eligible members to address economic instability. In addition, many of our plans now feature $300 to $600 of annual reimbursement for personal caregivers, including family members, as we strive to directly aid our seniors' support system and combat social isolation. We have also expanded over-the-counter benefits across our spectrum of products, moved many of our plans to $0 premium, and expanded our flagship Black Card benefit to include a flex allowance for a wider variety of services. Our capacity to drive product innovation and improve benefits year after year is a direct result of our care model, powered by AVA's insights and the MBR outperformance we've been able to achieve. In aggregate, our enhancements this year, along with the continued support of our 24/7 concierge services, give our seniors greater benefits and choice at no additional cost. We are proud of our role in supporting our members and look forward to sharing more about AEP results in January. As I wrap things up, I'd like to sincerely thank our employees for their continued outstanding contributions to our company and our members' well-being. The results of this quarter added significant momentum to our impressive first half of the year and further solidifies our conviction in our strategy of balancing growth with long-term profitability. Now I'll turn the call over to Thomas to cover the third quarter financial results, as well as our outlook for the remainder of the year. Thomas? Thanks, John. Turning to the third 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 September 2022, our health plan membership of 98,000 increased 14% compared to a year ago. Our third quarter revenue of $360 million represented 23% growth year-over-year. Our third quarter outperformance brings our year-to-date revenue growth to 23% and, as John mentioned earlier, sets the company up to its full year 2022 revenue growth of greater than 20%, consistent with our long-term annual revenue growth target. Our adjusted gross profit in the quarter was $49.5 million, representing an MBR of 86.3% as our California franchise and newer states both contributed to outperformance versus our MBR expectations. While we previously noted that we had seen an uptick in COVID cases to begin the third quarter, the early increases in COVID admissions abated as we progressed throughout the remainder of the quarter. In total, inpatient admissions per thousand continued to run below baseline. We also benefited from a final adjustment to our 2021 final sweep accrual, which contributed a few million of adjusted gross profit outperformance in the quarter. While we do not anticipate this event to recur in the fourth quarter, we note that we would have still run meaningfully ahead of gross profit and MBR expectations in the third quarter, excluding this pickup. SG&A in the quarter was $76.5 million. Excluding equity-based compensation expense, our SG&A was $59.7 million, an increase of 22% year-over-year. Due to the timing of some of our sales and marketing centered around AEP, as well as the ramp up of our year zero market spend, we experienced a couple million of SG&A timing favorability in the quarter that we anticipate to reverse in the fourth quarter. Lastly, our adjusted EBITDA was -$9.5 million, solidly ahead of expectations. As we rounded out the third quarter, we are proud to note that our adjusted EBITDA loss for the first 9 months of the year is only -$3 million. We view this trend and outperformance as another indicator of our ability to leverage our operating model to produce strong growth while balancing our long-term profitability objectives. Turning to the balance sheet, we ended the quarter with $402 million in net cash. Our cash position at the end of the quarter included an early fourth quarter payment from CMS of approximately $117 million. We recorded the early payment as deferred premium revenue in Q3, and we'll recognize it as revenue in Q4. Note that this does not have any impact on our income statement metrics. Net cash, excluding the early payment, was $285 million, which was in line with expectations. In prudent management of our balance sheet, during the third quarter, we announced the close of a $250 million senior secured term loan facility, of which $165 million was funded upon closing of the transaction. The initial proceeds were principally used to refinance our existing term loan facility, which was otherwise due in approximately 12 months. The remaining $85 million is available under a delayed draw, subject to certain conditions. We continue to expect our balance sheet strength to fund our organic growth and working capital needs without requiring external financing. Turning to our guidance. For the fourth quarter, we expect health plan membership to be between 98,000 and 99,000 members, revenue to be in the range of $338 million to $343 million, adjusted gross profit to be between $34 million to $37 million, and adjusted EBITDA to be in the range of a loss of $30 million to a loss of $27 million. For the full year 2022, we expect revenue to be in the range of $1.41 billion to $1.415 billion, adjusted gross profit to be between $189 million to $192 million, and adjusted EBITDA to be in the range of a loss of $33 million to a loss of $30 million. Following continued strong performance in the third quarter, we are raising the lower end of our full year 2022 membership guidance and raising our full year revenue guidance. We note that the anticipated step down from our third quarter to our fourth quarter revenue takes into account both the additional sweep pickup that we do not anticipate to recur in the fourth quarter, as well as normal course seasonality of our revenue PMPM as a portion of our membership that is comprised of new members trends higher throughout the year. Additionally, we are raising our full year 2022 adjusted gross profit expectations and narrowing our guidance range, which now represents growth of over 30% year-over-year. We remain cautiously postured against potential increases in utilization due to COVID and the flu as we enter the colder months of the year. As such, our clinical teams and provider partners are actively working to encourage our members to get their annual flu shot and latest round of COVID boosters. As mentioned last quarter, we also continue to invest towards our member engagement and care quality efforts given our strong outperformance year to date. While a headwind on short- term MBR, we believe these efforts will be meaningful to our performance in years to come. Lastly, we are also raising our adjusted EBITDA guidance, which reflects our strong year-to-date outperformance and increased visibility as we approach the final months of the year. Our adjusted EBITDA outlook also takes into account our SG&A timing favorability from third quarter into fourth quarter. From our initial 2022 guidance provided in March to our updated outlook as of today, the midpoint of our EBITDA guidance range improved by $11.5 million or 27%, and our implied MBR improved by approximately 90 basis points. In conclusion, we are delighted with our year-to-date results and believe we are well positioned heading into 2023. With that, let's open the call to questions. Operator? As a reminder, to ask a question, you'll need to press star one one on your telephone. Please stand by while we compile the Q&A roster. Our next question comes from the line of Ryan Daniels with William Blair. Your line is open. Yeah. Hey, guys. Good morning. This is Jared Haase for Ryan. Thanks for taking the questions and congrats on the strong results year to date. Wanted to ask a question just around Stars and specifically looking at the five-star rating in North Carolina. You know, would love to hear if you're able to share any color here. Would love to hear a bit more about the dynamics that just led to the early successes in the early days of that franchise for you guys. You know, how much of that is sort of related to the external provider networks in that market? You know, how much of it is just related to the execution of your own internal teams over there? How are you thinking about any kind of learnings there that might be applicable to extend to your other markets? Yeah. Hey, Jared, it's John. Yeah, it's something we're really proud of, but I think equally important, it's something that forms the basis of a template that shows us what will work. As we get into some of these new markets, I think you really have to focus on, you know, this notion of high quality to low cost. The ingredients of that are, you know, having the right like-minded provider partners, overlaying our clinical model, using AVA, and really just being very hands-on with all of the members. What you get is what you get, which is this five-star kind of highly satisfied member. That's relevant and important because if we get that, it helps on the unit economics, it gives us year-round marketing, and it allows us to be aggressive on product. We'll use that and really kind of force our way into some of these new markets. Every single market is a tough market, as we know in MA. But this gives us the kind of formula to you know make these new markets very successful. I think that's kind of the significance of it with respect to the portability of our business model. Gotcha. Yeah, that's helpful color there. You know, just as a quick follow on from us, this is more related to guidance, maybe one for Thomas. You know, I think at the end of your pre-prepared remarks today, you talked a little bit about some SG&A favorability that's reversing, and that was sort of factored into the EBITDA guidance. I mean, if I look at where the updated EBITDA guide is, it's coming in a bit lighter relative to the street. I guess number one, where did you actually size that SG&A favorability, and were there any other dynamics that were kind of unique to 3Q or that are showing up in 4Q that we should be thinking about? Maybe let me speak to your SG&A question and then also maybe just comment on gross profit, 'cause that's obviously a critical factor in terms of looking at EBITDA. Maybe from an annual perspective, I'll start there. I think from an annual perspective, our full year EBITDA guidance increased meaningfully from our previous EBITDA guidance, and I believe our updated annual EBITDA guidance as of today is meaningfully ahead of where the consensus EBITDA was heading into the quarter. I think with respect to kind of the Q3 versus Q4 timing dynamics you mentioned, we shared in our prepared remarks that it was a couple million of SG&A timing favorability from Q3 into Q4. I think it's also important to highlight that the midpoint of our previous range implied around 15.9% SG&A as a percentage of revenue, excluding stock-based comp. Our updated guidance actually shows at about 15.7%. In other words, as we're continuing to outperform on revenue, we're continuing to see operating leverage in SG&A, which is part of that adjusted EBITDA raise for the full year. I think it's more of a timing thing than anything else, and we're really feeling very proud of the Q3 results and how that sets us up for Q4 and full year 2022. Thank you. One moment for our next question. Our next question comes from Lisa Gill with JP Morgan. Your line is open. Lisa Gill with JP Morgan, your line is open. Hi, this is Cal on for Lisa. Wanted to ask a quick question on profitability. I think you guys have talked about 2024 as getting to breakeven, but you've already outperformed your own initial expectations this year pretty meaningfully. I think adjusted EBITDA about $15 million higher at the midpoint versus your original guidance. Just curious how you guys think about the ability to maybe hit EBITDA breakeven in 2023. Wondering if you can comment on, you know, current consensus, I think about $23 million loss for next year, and whether you think that's a reasonable estimate. Hey, Cal, Thomas here. I think in terms of commenting on 2023 guidance, we're probably not gonna do that today. I think we'll look to share our 2023 guidance in our fourth quarter earnings call after we have the benefit of the full AEP period, and we see where our final new member mix comes in, you know, by market, by provider group, et cetera. I think in terms of your question, though, that's more directed towards our year-to-date outperformance and how that translates to our timeline to profitability in the future. I think what we would say is, while we are extraordinarily pleased with our first nine months, and including that sets us up to outperform for a full year relative to initial expectations, I think we would probably caution folks on how that then translates into our ability to break even in 2023. We obviously continue to make that a top priority for the organization to get the EBITDA positive in aggregate. At the same time, I think we're also mindful of the fact that we are launching Florida and Texas come 2023 as year one markets, and those will require investment next year. We still have North Carolina, Nevada, and Arizona, which will be year two and year three markets. I think the important thing, the last thing I'd emphasize is, as we shared on our first call of 2022, that we expected California to be EBITDA positive this year. Obviously, given the significant outperformance here to date, we very much maintain that view. We're looking to create a dynamic where we can continue to drive that performance in California and use some of that to offset some of these investments we're making in our newer markets in the future. Great. If I could just ask a follow-up. I know you've talked before about, you know, altering some of the relationships you have with brokers and your distribution strategy there. Can you remind us what some of those changes you made were? I know we're early in the AEP so far, but maybe some of the early returns you're seeing on those? Thanks. Yeah. Hey, Cal, John. Yeah, no, I think the formula that's worked for us for the past several years in terms of some of the FMOs that we're working with continues to be something that we're comfortable with. I think that the newer markets where we're really trying to establish a foothold is gonna kind of be the areas in which we look at really using product, having very competitive products, which in turn requires you to have really good Stars, really good MLRs, et cetera, and driving that. We'll work with the brokers in those markets that you know are engaged, are loyal, are just performing. In certain markets that we don't have those, we're gonna have our own distribution channels, whether it be telesales and/or employed sales. I just think that if you have the right product and then you have the right partnerships with the right FMOs, it's gonna be a good formula. If we can't get the right ones 'cause they're loyal to the big guys, that's okay too. We'll just force our way in with employed salespeople. I think we're also continuing to be you know, kind of thoughtful about some of the, I'll call them, e-brokers. Some of them have been good partners for us. You know, we have not been dependent on that, and therefore, some of our, you know, kind of our retention initiatives have been pretty good. We're not really exposed there, I think, like some other folks who communicated. I think you can see more of that, particularly as we, you know, get more and more positions outside of California. All right. Thanks. Congrats again on the quarter. Thanks, Cal. Thank you. Please stand by for our next question. Our next question comes from John Ransom with Raymond James. Your line is open. Hey there. One boring model question and one strategic question that's hopefully a little more interesting. The PMPM came in higher this quarter versus our model by about 7%. Maybe you could talk about that. John, for you, just kind of interested when you go into a market like, say, Jacksonville, where nobody knows who you are, and there are a bunch of plans, just kind of what is the first one or two or three things that you do, and how do you establish your brand in a crowded market where you're some of the incumbents have been there for a long time and have established, you know, foothold much more than you have? Thanks. Hey, John, Thomas here. Maybe I'll take the first one and then turn it over to John for the second one. In terms of the revenue PMPM, the third quarter did benefit from a final true-up on our 2021 final sweep from CMS. We mentioned this on our second quarter earnings call, and we actually continued to see a bit of upside in the third quarter, and that relates to CMS having the last two years slightly changed their payment schedule, where they created an interim final in the second quarter and then an actual final, which takes place in the fourth quarter. That was really a result of wanting to support the providers during the public health emergency related to COVID. I think that's a lot of what you're seeing from Q3 to Q4, is just we don't anticipate that portion of the Q3 outperformance to continue in Q4. Having said that, we think Q4 is set up for great success otherwise. I think maybe, John, if you wanna speak to the second question, I'll turn it over. Yep. Thanks, Thomas. Yeah. Hey, John. Yeah, it's something that we think about all the time, obviously, and it starts with finding like-minded providers. Pretty much every single market kinda inside California and outside California, you really start with 20-25 PCPs that understand the model, are willing to work with us on Stars, willing to work with us on our AVA tools, willing to work with us on our Care Anywhere model, home-based care. With that, it drives a lot of engagement, which then in turn drives the Stars that you need to be successful in MA. It drives the utilization management. It drives Net Promoter Scores. It drives all the value drivers that you need as you create this connection with these providers. That in turn gives us the ability to put our clinical infrastructure in place and then have very aggressive products. As I mentioned before with Cal's questions, I think that's how you get into the market and have a, you know, kind of durable profitability profile. We've done that pretty much everywhere, and it's worked pretty much everywhere. What happens is that product will then attract members, and those members will leave other PCPs, and they'll come and join the PCPs that we contract with. You slowly add to that network of engaged providers. You augment that obviously with good and strong broker relationships, good and strong kind of employed distribution strategies, and then you overlay that with branding. That's the only way we think this can work. Jacksonville is very competitive, as you know, and you know, a lot of other established brands. But then again, you know, that's like not the first time we've faced that, particularly in Southern California, where we have the same set of dynamics and we've made a lot of the providers very just strong. We've helped each other grow. We'll go to the name Alignment Healthcare. That's really the model, and it'll take some time, you know, it always does. But I'm actually very happy with the work that the team has done in Florida and Texas, you know. You know, we're not relying on a lot of growth from those markets, you know, in 2023. We're pretty realistic about that. In terms of the engagement strategies, I'm very happy with that. Just as a follow-up on that. I mean, these doctors are pushed for time, and a million people try to go see them, so you finally bang your way in there, get five minutes with some guy in the coffee room. What's kind of the if you just have a little bit of time with this person, what do you tell them that makes them kinda sit up and pay attention and, you know, block out the noise from the other, you know, dozen and dozens of vendors who are trying to get their attention? Well, yeah. I've done this hundreds of times. Every single time, it's pretty much the same, which is you go, and you talk to the physician, talk to the office manager. They're kinda leaning back in their chair. You walk them through our you know, here's the Alignment story. They're kind of sitting back. You talk about the care model, you talk about the data, you talk about how we actually are an extension of their practice with our Care Anywhere programs. While it's their patient, you know, our clinicians are not in any kind of provider directory. They kinda sit up in the chair. Okay. We say, "This is the way we wanna compensate you." We walk through the unit economics of how they're getting paid. They kinda understand the math, where at the end of the day, it's they get paid more for working less and providing jointly with us a better clinical outcome for that member. That story resonates with these folks. The next question that people should ask and always do ask was. How do you get this doctor to really care if you're just a small portion of their wallet size, so to speak? You know, if you're just starting, how do you get them to actually care and change all the practices to be successful in MA? I said, "We don't expect that. We'll do a lot of the lifting. We'll do the work through identifying that 10%-20% of the population that's polychronic, that's really sick. We'll then do a lot of the work. We'll do the health assessments. We'll do the coding. We'll do the UM. We'll provide all of that and actually act as an extension of their practice." I think then the doctor say, "Well, they have no downside. There's just upside with this relationship." That's how we do it, doc by doc. Thank you, sir. Thank you. One moment for our next question. Our next question comes from Michael Ha with Morgan Stanley. Your line is open. Hey, thank you guys for the question, and congrats on the five stars in North Carolina. I guess now that AEP has started, curious about just your thoughts on the competitive landscape. Are you seeing evidence of any surprising, highly competitive benefit offering dynamics, almost similar to what happened with, you know, Part B buy downs last year? Or is it a more rational marketplace? Just any early thoughts on MA growth expectations relative to your 20% long-term growth target. Thank you. Hey, Michael, John here. Yeah. I mean, we're three weeks in to AEP. I can give you a little bit of just kinda what we see and how we think about things. First thing I would say is we're a lot happier this year than relative to last year, just in terms of just the rationale in terms of what we've seen in terms of products. Having said that, I think people are, at least for the first two weeks, have been focused a lot on minimizing churn, I think given some of the experiences last year. That includes some of the broker behaviors, what we see. I'm encouraged for the last week in terms of our kind of apps that we received. I would say that given three weeks of data, we would be looking for. Again, this is Thomas's make sure I say this properly. We're not giving any kind of guidance expectations for 2023. Not. Based on three weeks, and you kind of extrapolate, I think we're kind of in the high teens%-low 20s% kind of growth rate on membership would be something that you know, again, just. You gotta remember, 70% of the growth comes in the back end of our AEP process, so it's very early. But you know, just to give you some expectations, that's kinda what we're seeing as of today. I'm really proud of the sales organization. They are doing a great job. They are working so hard. If the last week is any indication, I'm really happy about that. A couple other insights. I think, as I mentioned earlier, you know, we're not gonna be expecting a lot of growth coming from Florida and Texas for 2023. We're gonna be more focused on ensuring that we get kind of the infrastructure chassis set up to make sure that we get those Stars and you know, just get the quality you know, investment and infrastructure in place. Let's see here. You know, we're fighting every single day. I mean, it's pretty much what I can say for now. Thomas, did I do that right? Yeah. I think that's well said. Thank you, guys. I appreciate that. John, maybe just a quick follow-up, a quick one on Stars. Just related to CAHPS. You know, some of your peers have mentioned just basically having trouble adapting to the weighting methodology. I know the sample size is small per CAHPS. But how do you feel about your current model and AVA performing here? Do you feel like you have a competitive advantage because of your closed HMO model that gives you an upper hand? Yeah, Michael. I mean, North Carolina is proof in the pudding. I mean, it's how we work with our providers in a very collaborative way. You know, I'd really make the point that there's kind of a difference between capitation versus delegation. I think the market doesn't really understand that too often. There are certain core capabilities that we do, claims payment, the UM process, the chronic disease management programs, you know, utilizing real-time data and information that's actionable, that we partner with our community doctors and our IPA doctors. Those capabilities that if we can control those fully, we get the outcome we get in North Carolina. We're working hard on ensuring that some of the IPAs that we're partnered with in California that I would emphasize have been good partners. We have to work with them. The bottom line is more access and faster access for our members. That's really the bottom line on CAHPS. To do so in a kinda coordinated way. In the California marketplace, a lot of the just from a legacy perspective, there's a lot of delegation. We gotta be very vigilant in ensuring that. It's like a subcontract. If you subcontract something to somebody, they gotta make sure they do a really good job, whether that's on you know the utilization the access that influences CAHPS you know compliant risk adjustment. I mean, just all these things they have to do a good job on. You know, some of the partners that we have, you know, can do a better job, and we're gonna help them get there. Perfect. Thank you, guys. Thank you. One moment for our next question. Our next question comes from line of Jessica Tassan with Piper Sandler. Your line is open. Hi. Thank you so much for taking the question. I'm just curious to know, in markets like Nevada, where maybe Stars came in a little bit lower than average, how does your approach to local marketing change, if at all? Do you kind of take a more passive approach, or do you deploy additional resources to kind of help supplement in the market? Hey, Jess. It's John. Great question. No, it's kind of a you know, consistent with my last response. You know, if you contract with a provider group, you know, they. We have no problem globally capping with folks, you know, if they perform. You know, if people have to just do what they say you're gonna do. I think that we've got a good partner there. We're helping them with a lot of the gaps that I think we're frankly just not well executed on CAHPS, on Stars related items. We're being very aggressive with that. They're working with us, so I'm happy about that. It really just shows. You contrast that, you know, kind of a global cap market versus say, North Carolina, where we're going in with kind of our model kinda end to end, where you can like drive and you know, have more durability and consistency with kind of all aspects of what makes MA successful, starting with Stars. Our lesson learned is, you know, you can't just go in and there's no shortcut. You can't just globally cap somebody and just, oh, you're gonna save a few bucks going into a new market and have a new provider just kinda help you there. You gotta make the investments upfront, which is what we did in North Carolina, which we're doing in Texas, we're doing in Florida. just, you know, work with the community doctors and, you know, make them successful. I think just systemically, kinda at a macro level, Jess, is like other folks are experiencing the same thing, you know. Because if you delegate a lot of this stuff to folks, they have to deliver for you. You know? It's, you know. I think we're taking it one step further, and it's what we did in California. None of these earlier, you know, when we started the company, none of the earlier IPAs had the tools to be successful. We helped them become successful with AVA, with real-time action, with workflows, with best practices, and they were receptive. in Nevada, the same thing. You know, they're being receptive. we're working together and we'll get it fixed. Jess, does that answer your question? Sorry, I was on mute. Yes, thank you. That was helpful. I just had one follow-up. How are you seeing flu kind of evolve so far in the fourth quarter, and how do we think about flu just in terms of MBR impact, you know, in a normal flu season? Hey, Jess, Thomas here. In terms of what we're seeing, I would say so far we have not seen much of an uptick in flu. Having said that, we also recognize that the last two years have been atypical and we've not really seen much of a flu season. As we thought about our fourth quarter guidance and sort of our utilization expectations for the fourth quarter, we approached our kind of baseline assumption that utilization for the inpatient setting would run in line with our historical experience, inclusive of a portion of which would be kind of flu driven and potentially COVID driven, particularly given what we saw with Omicron last year. Having said that, we're kind of one month in through October, and we're pleased to say that our utilization has remained, I'd say, kind of in line with where we left things in the third quarter. So far, we're feeling pretty good about where things stand. To the extent that I think some of the flu season does materialize this year or we do have a bit of a spike related to COVID, I think our guidance is kind of well positioned for that. To the extent that we don't see some of that materialize, I think there could be some upside to our guidance, but too early to say at this point. Okay, great. Thank you. Thank you. One moment for our next question. Our next question comes from Kevin Fischbeck with Bank of America. Your line is open. Hey, this is Nabil Gutierrez on for Kevin. Thanks for taking the question. Can you talk about how Direct Contracting has been trending for you? Can you remind us about the plans for 2023 and beyond? Thanks. Happy to. This is Thomas here. You know, if I flash back to when we first began the Direct Contracting program, that'd be the second quarter of 2021. I think what we shared out of the gate is that we didn't have a lot of visibility around our IBNR experience, but that we had booked our first quarter of the program right around 110% MBR kinda out of the gate, and that it was a headwind to our consolidated MBR. I'd say flashing forward now, we've been in the program now for the better part of 18 months, and we continue to see some operational traction and momentum that we're pleased with. I think on a kind of cumulative basis since when the program began, we're probably about even from a EBITDA standpoint. I think we saw an opportunity to continue to improve that given some of the traction we've seen. I think in terms of 2023, we are interested in continuing in the 2023 program with ACO REACH. I think how that plays out will be dependent upon the upcoming enrollment files from CMS, and so we're looking forward to getting that here in the next month or two. I think we'll remain sort of cautious in terms of our views around the long-term sustainability of how that program evolves. I think we've learned a lot from participating in the program and I think we'll continue to focus on how we can leverage some of the capabilities we've built around Medicare Advantage and continue to look for ways to potentially export or monetize those in other ways in the future, such as with Direct Contracting or ACO REACH. Thanks. How are you thinking about utilization next year? I think big picture, we're continuing to be pleased with what we're seeing from an inpatient standpoint, and I give our clinical teams, the Care Anywhere folks, a lot of credit for continuing to be very proactive and really engaging those seniors who are most in need and at greatest risk. I think our view today is that things continue to trend well in spite of some of the ebb and flow we've seen with COVID in 2022, and I think we're probably in a good place to see a lot of that trend continue in 2023. I think outside the inpatient setting, we've seen similar trends to what you might have heard others in the industry suggest. Outpatient seems to be fully back to normal. We've really seen that over the last couple of quarters. There's been some pluses and minuses in other areas. You know, we've seen probably lower ER utilization, but also seen a bit higher urgent care utilization. I think in general, we feel like what we're seeing today is largely representative of what we'll probably continue to see next year. Having said that, you know, I think if we learned anything in the last two years during COVID, it's that these things do change pretty quickly. I think we'll give you guys a more comprehensive update when we release our 2023 guidance here in a few months. Thanks. Thank you. One moment for our next question. Our next question comes from Nathan Rich with Goldman Sachs. Your line is open. Great. Thank you. If I could just ask a follow-up to that previous question. As we think about, you know, cost trend next year, how are you thinking about. I wanted to ask on a few different factors. First, kind of the normalization of inpatient volumes, and do you feel like there's kind of any notion of pent-up demand that might still be out in the system? And then how are you thinking about potentially paying for more of the COVID and vaccine treatments if that's kind of less funded by the government? And then just lastly on the cost trend, contracting with providers and inflation, could you maybe just talk about what you're seeing there? Great. Happy to, Nathan. This is Thomas here. In terms of our inpatient results, I think while we've seen continued performance this year, I would really emphasize the continued performance over the last 5+ years. Really, we've run around 155 to 165 inpatient admissions per thousand, inclusive of some of the ebbs and flows we've seen around COVID, for 5 years straight now. I think we feel really good about our kind of continued ability to kind of maintain those results and that trend heading into next year. I would say that the reason we've been able to be so consistent with that while also maintaining the growth and really launching some of the markets we've launched over the last few years is a function of having a very active and hands-on care delivery mechanism, which is focused on those chronic, frail, and high-risk seniors. I think we feel pretty good about the inpatient trends, and to date don't see a lot of pent-up demand as something that concerns us. I think in terms of your question around the COVID vaccines, I think it's your second one, I don't think we view that today as a material headwind. I think there's always pluses and minuses that go into our updating forecasting process. That would just be one of the several that we take into account as we think about next year's outlook. Lastly, from a contracting standpoint, I think we're all aware of some of the pressures that many of the hospitals and other institutions face from a labor standpoint. As it relates to how that kind of impacts our contracting, the vast majority of our contracts are fee-for-service contracts. Medicare obviously releases those rates in advance. We're able to have pretty good visibility as to what type of rate increases we'll see on those contracts heading into next year. Those are typically multiyear contracts with an evergreen mechanism on the back end. I think we feel pretty good about where we stand from a just pure unit cost standpoint looking out into 2023, while also being respectful of the broader environmental trends that you're alluding to. Great. Thanks, Thomas, for all those comments. I'll ask a shorter follow-up. I wanted to follow up on your comments on AEP. I'd be curious how traction in new markets like Texas and Florida is going relative to your expectations. I guess specifically in terms of both growing awareness, but just, you know, kind of aspects of kind of planned value where you feel like you might be differentiated versus competitors. Yeah. Hey, Nathan, it's John. I think our product design is pretty good. We kind of set the products with kind of a multiyear view of growth. I think it's trending slightly below basically from our budgets. Again, I don't think they were material to begin with. I think from a kind of an underwriting perspective, what we really needed was the engagement with the provider community, and to get our staffing particularly on the clinical side in place, start deepening the relationship with the brokers, all the basic fundamental stuff we wanted to get in place. I think we're gonna get traction like we had in, you know, Arizona and Nevada. It's just gonna take a couple years. Thank you. Thank you. One moment for our next question. Our next question comes from Whit Mayo with SVB Securities. Your line is open. Hey, thanks. I've really got one question. Can you discuss any of the IT priorities that you have around AVA for 2023? I know you're going through the budgeting process right now, but are there any new modules in development? Anything that you're particularly excited about or would care to share, you know, anything with Care Anywhere that's new? That's it. Thanks. Yeah. Hey, Whit, it's John. I think, yeah, the answer is yes. Give me one second here. The investments in kind of the care coordination chassis is one of the reasons that we were kind of able to get the five stars and maintain the four stars in California. It's kind of an integrated approach or you'd call it a health CRM system, if you will. That got put in this year. We're gonna make sure that that gets continued to be refined next year. I think the investments we've made in terms of automating some of the broker, online broker app submission processes and how we get some of the brokers paid faster, more real time, apps reconciled. You're gonna see us make investments in. I think the stratification model is going to be incorporating more consumer data, I think is kind of broadly speaking. We start really understanding kind of social determinants and kinda how that plays into the entire experience for that consumer. While 2022 was, I would say, more focused on kind of clinical workflows, I think you're gonna see more kind of consumer-facing modules in 2023. I would say including some of the broker investments that we talked about. Okay. Did I miss anything there, Thomas? Yes. I mean, I think directly that's what we're doing. Okay. Thanks, guys. You got it. Thank you. One moment for our next question. Please stand by. Our next question comes from Sarah James with Barclays. Your line is open. Thank you. Can you give us an idea of what the pacing of physician engagement adoption curve looks like for AVA in a new market? As you see this timing become consistent and you iterate entering more and more markets, how does what you're seeing on that engagement adoption curve impact your long-term strategy on clinic partnership versus ownership? Well, those are, like, two really big questions. We think about them all the time. To get a physician kind of educated, engaged, trained on using some of the tools that we have, I would say takes between three and six months. It's a combination of our kind of on-the-ground clinical, operational, and kind of practice management kinds of resources along with our Care Anywhere resources. A lot of it is education. It really forms the basis of long-term strategy. I think our kind of engagement model with providers is really born from a lot of years of experience, whether it be, you know, kind of globally capitated delegated, whether it be, you know, staff model, whether it be brick-and-mortar. I mean, we've got experience in all of that. Where we kind of came out was really partner with the community doctors. You know, there's still really 40% of all the primary care doctors out there, if you take out the peds, is still kind of independent, you know, if not owned by a hospital system or owned by some of the consolidators. There's a lot of physicians out there. And to work with them and enable them to be successful and to be efficient with our collective resources and to not have to reinvest in bricks and mortar in the markets, but to really have the existing physicians in a market that have the bricks and mortar already in place more successful. The way to do that is to know who the 10%-20% of that polychronic population are, and then to extend that care team to support that practice. As I mentioned before, a lot of the heavy lifting we do, and it's not on the entire population. We don't expect them to, you know, to change all their workflows, change their EHRs, et cetera. We'll do a lot of the lifting. Then what happens is if we can bend the cost curve consistently, they make more money. They, and most of the physicians we see are not just in it for the money. They wanna make sure that patient gets the best possible care. I think that dynamic is what, you know, separates us. It's just that we just think it's a more capital efficient way to do this. You know, we share some of the gain shares with these folks, and everybody wins. That's kind of philosophically how we're thinking about it. You know, there may be some markets where we want to augment that with an acquisition of a practice here or there. I would say that's very, you know, it's more tactical. It's more at a regional level. We've been successful in that in key markets, you know, that being one of them. Great. Just digging into what kind of details you can see, as you start to have a new physician partner bend the cost curve, and you're getting these very consistent inpatient trends, are you actually able to see actions taken by them that are care navigation and inpatient diversion, and, you know, reward them for that? Or what level of clarity do you have on the outcome? Yeah. It's why we like being at the plan level because we have top of the food chain access to actionable data. There's no latency. There's no 45- or 60-day latency to a global cap group. I mean, so we get that information to them kind of, you know, real time. Our internal clinical teams use that data real time. We know daily, if not hourly, you know, where our members that are in hospitals are and why they're there and, you know, who they're referring to. We know all of that. It's, you know, within our company, we talk a lot about a maniacal attention to detail. It's not out of magic. I mean, we work at it, and it's driven by the data. But think about this, I mean, I'm gonna really make sure you guys understand this, is for the 80%, if not 90% of the population that costs 10% or 20%, you know, the actual engagement with those particular physicians, we think a member, you know, that sees that doctor, it works pretty well. It's really the 10%-20% that really is where all the costs are. That's where we would deploy our clinical teams, where we do a lot of the work with and for them. In fact, we work for them and, you know, just support their practices. The people that we care for at the home through our Care Anywhere program, you know, they're not 9-minute, you know, office visits. They're, like, 45-minute office visits. We really free up their capacity with their practice. That's how we do it. There's full transparency. I mean, they have access to our P360, our Patient P360, longitudinal patient record. They have just full access to it. Not sure if I answered your question there, Sarah, but that's how we think about it. Okay. Thank you.