It's my pleasure to be introducing Alignment Healthcare. Presenting today, we have John Kao, the CEO. Harrison Zhuo is from Investor Relations is also in the room. I think we should jump right into questions. I think one of the things that I've been trying to, you know, dig down into, because I think it's been a confusion point for most people this earning season, is just the difference between the reported numbers from the providers, where hospital companies, med tech companies, reporting really strong volume. The managed care company is kind of saying, "Well, utilization wasn't what we thought it was going to be." Is there anything that you've looked at as far as the data that says, "How let's reconcile those two? You know, our utilization has been so consistent over the last five years. We've been ranging between 155 and 165 admissions per 1,000, just consistently. In Q1, we had about 160. April, we were right around 160. Typically in Q1, you get a little bit of an uptick because of the flu. One of the things we did learn, just taking a lesson out of the COVID days, is just the disparity associated with different geographies. It could be, you know, a possible explanation for what you're talking about. You know, I don't have visibility to any kind of regional data. You know, if we're talking about some of the large hospital systems and where they are predominantly is not necessarily in California, which is where a bulk of our membership is. That's that I don't know. Don't know what to tell you, Kevin. No, it's really interesting. I guess that, so for you, yeah, 'cause you gave that 160 number on the call. I think you said it was, like, up from, like, 157 or something like that the prior year. From your perspective, it's always been between 155 and 165. This is all- Yeah, yeah. ... within the normal course range. It's all normal course. In particular Q1, you know, you get a little bit of it in December and Q4 also, but I mean, just flu. You know, what was very interesting is during the COVID years, you had no flu. It's basically the same high-risk population that's kind of that high-risk cohort. I guess when you think about how you guys priced your business for this year, is this what you assumed, you assume a normalization of pricing, or you're saying pricing utilization is about to be consistent, so there's no real snapback from your perspective that needs to happen? You're talking about for 2023? Well, 2023, yeah. For this year. Yeah. No, I think we've always tried to find that balance between margin and growth. Some markets we have done really well. Some markets I wish we would have done a little bit better from a product design perspective. Overall, I think we did a really good job. I think one of the things we talked about was an opportunity for us to get to that 5-star level of retention rates, which is 7% voluntary disenrollment measured from February to January. In California, we're right around 12%, which is, like, really good compared to the industry average of about 20. I think that extra 5%, just getting better and better on retaining our members, is gonna be very good investment of not only the CRM systems that we've invested in, and a lot of the vendor management initiatives that we've taken. I think, I'm really happy about our progress there. I don't see that impacting our utilization much. Okay. I guess when we think about then 2024, you know, there's a lot of focus on the risk adjustment cuts. I think in particular, there's this concern that the more capitated you are, the more the rate cut's going to be, and that California is a more capitated environment, potentially Alignment's more exposed. How do you guys think about the rate adjustment going forward? Well, I think for the last three years, overall rate adjustment, I think, higher cut points on stars, more regulatory oversight over some of the distribution actions of third-party marketing entities. All of that, I think, is getting, you know, kinda cleaned up. I think if you think about that on a macro level, rather than, you know, call it 9%-10% annual growth of MA on an industry-wide level, you're probably gonna see a little bit of a mid to high single-digit, I would think, on a national level of MA growth. Resulting from all of this, you just do the math on it. If it's, say, for a 1.5 point, 24 hit on just, you know, V28, that's what? $10-$15 PMPM. As you put that against a backdrop of, you know, a $200 rebate, you know, I don't think it's gonna be that big a deal. The key to your point, which I really agree with, is in California, I do think because of the saturation of medical groups and IPAs, that impact on V28, which is the risk model in the final notice, I think could be materially more. I think that's what's gonna be put some pressure on the marketplace to modulate benefits. I think that's why as we head into 2024, you know, we're always gonna be looking at balancing margin and growth. I think with some of the stars tailwinds we have and the risk adjustment tailwinds we have, I feel very comfortable where we are heading into 2024. Yeah. I guess when you think about that dynamic, it's interesting 'cause you guys are in a highly capitated California market, but you yourself are not as capitated maybe as the market is broadly. I guess you can talk a little bit about how your model is different than what most people are seeing in California and why that might result in a different... Yeah. -compact. Just, yeah. About 1/3 of our business is globally capitated. We capitate, you know, some rate and 2/3 of our business is what we like to call shared risk, where we're managing the bulk of the risk. If you think about the trend with the industry, where there's a move toward vertical integration, right? The vertical integration has to do with, you know, more and more re-reliable and durable control over your suppliers, you know, i.e., the doctors. The way we've addressed that in a, you know, I would say a capital efficient way is, again, deploy technology to identify who the high-risk people are, to engage the high-risk people, and then to see the people with our clinical teams at home through what we would call Care Anywhere. It's that 20% of the population account for 80, and now we're seeing close to 90% of the spend of our MLR, of the spend. So exerting that control to assist the community doctors and their practices and extend our services to the practices has been what's kept us competitive because it's been able to drive down these MLRs in a way that our cost structure is competitive. I would just say, in this new world with tighter stars and tighter risk adjustment, you have to have something that you can point to to be a competitive advantage. Otherwise, you're, you know, playing a stars subsidy game that occurred during COVID, you're, you know, kind of, you know, kind of playing a RAF game without the care delivery to support the RAF you get on the higher QD patients. Those are not sustainable. I think heading into 2024, a lot of that is just getting, you know, kind of the playing field is just getting leveled once again, which we really like. Yeah. I guess why doesn't your model generate the same RA, risk adjustment, you know, benefit? 'Cause you're identifying these people in theory, you're engaging them a lot, shouldn't you be risk scoring them just as well as the capitated providers? Well, it's actually a very strategic decision. When we started the business, and this is back in 2014, it was really right after what was instituted in the Affordable Care Act in 2010 and 2011. Remember, what they did was they normalized Medicare Advantage rates to the tune of 14% down to fee-for-service levels and phased it in over five years. That created a lot of abrasion back then. When we started this company, the whole idea was focus on high quality and low cost, not high quality, low cost, and high RAF. That was not what we wanted to do, which was to expose ourself to reimbursement risk. The lesson learned from, you know, the years gone by was these kind of rate adjustments occur every 7-10 years, right? Now that you kinda know what's gonna happen, you can really point your focus on the right areas. I think we've done a good job. We've focused on, like you said, that 20%. I think we can do a better job of more completion factors on the 80% from a coding point of view. So it's strategic and it's philosophical. It's make sure that you are not exposed on your cost structure, your management infrastructure, something dependent on a high RAF score. It's really that simple. Now, do I think we're gonna go, you know, really high? No. I mean, I think do we have upside opportunity? I do. We're gonna be taking care of the 20% irrespective of a RAF score, right? If they need the care, we're gonna give them the care. We just take care of them. That I think, that ethos in the company and that culture in the company, I think is ultimately what's gonna differentiate us. Yeah. 'Cause on the call you mentioned like 1.5%-4.5% kind of revenue offsets. Part of that's gonna be this risk improvement. Yeah. What other levers are there to on that, 1.5%-4.5%? Yeah. It's basically 1.5% per year for three years is the 4.5%. The opportunities are just more engagement with our Care Anywhere members. Right now we're right around 65% of the members we engage. We stratify so we know who the eligible members are. We engage them. We're right about 65%. We really want to get that closer to 80%. I think that's gonna have more precision in our risk adjustment. I think that understanding, we've done a lot of just a deep dive into, well, what are the HCCs that are impacted that have traditionally had lower prevalence now are gonna be increased. We've been spending a lot of time with our IPA partners on just education. You can imagine they're very interested. Okay, what does all this V28 mean? As we've had to walk them through HCC code by HCC code, and list their support for the accurate compliant coding. I think what we're doing from a Care Anywhere point of view, again, is giving us that confidence and assurance of performance management, making sure that the data is correct, the charts are accurate, all of that. That's the control element that we're very comfortable with. I guess often when I hear companies talk about offsets like this, and you're saying like, we're gonna go from engagement from 65% to 80%, like, that sounds like something you would have been doing anyway, right? Like, how is that not part of... Like, it seems like it's part of your long-term strategy, but also somehow also an offset to a rate adjustment. Like, how do we think about that? Yeah. No, I think you're fair. That's a fair statement. I think we do a good job. We can do a better job. You know, our completion factors should just get better. Our expectations for the work that we want our IPAs and medical groups to do, I think should be higher. I think all too often, if a particular medical group is not closing gaps the way we want, we'll take our resources currently in the Care Anywhere team and just deploy them. We'll just get the work done. I think we need to be expecting more from select IPAs. We basically say, "If we're gonna do the work, that's okay, but I don't wanna pay you if I'm doing the work." Right? It's like you're working with a subcontractor. They get paid, they don't do the work. You go do the work, and that's like a square deal, you know. I don't mind. We have a lot of IPAs that do a very good job of closing these gaps, I think we can do a better job on some of the ones that have not delivered as much. Okay. So. I guess, you know, you guys, when you guys went public, you talked about this 20% membership growth that you were targeting, falling short of that a couple of years. Like, how do you think about getting back to that number? When you look at where you were hoping to get versus what you were able to do, where was the shortfall? Just new markets? How do you think about what needs to be fixed? I think we learned a lot with some of our new market entry strategies. I think we've concluded that you need to be good to win on four things. It starts with quality and which is what got us focused in going to IPO to begin with, is we focused on quality, we focused on service. Get to five stars, move toward five stars. That's number one. Number two is you need some aligned providers. You don't need a lot of aligned providers to start, but you need 20-25 primary care doctors, augmented by the Care Anywhere team. You need very competitive products. You gotta have good products. We did a pretty good job on products. I think we missed the mark on a couple markets, then we'll course-correct for that. The big learning for us is the distribution side. We need, you know, more influence and control. We've had a lot of success with field marketing organizations that have worked with us in our markets, both in California and in Nevada and in Arizona and North Carolina. When we did Texas and Florida, we did not have enough, I would say, tailwinds to get the brokers to engage with us. Those are lessons learned, we'll do better at that. I think that's gonna be really important. Those four things, in terms of productizing this care model, so to speak, is something that I still think. The better the care model, the higher the quality manifests itself to higher PMs resulting from the stars, lower PMPMs resulting from the costs, more rebate dollars that we can afford to invest in product. If you have the tailwinds like we have, say, in North Carolina, and you get five stars, you got something that people can point to and say, "Oh, they're a five-star plan. They have solid benefits. They got good doctors in the network." How do we then sell that through the right distribution channels? I think you need all four to win in a market, which is exactly what we've done in California. Everyone has gotten to, it's taken us three years to get to, say, operating cash flow breakeven in pretty much every one of our markets. In five years, we get to right around 10,000 members. Every one, every single one was as, you know, was as hard as, say, some of the new markets that we're investing in right now. Every market, we've figured it out. I mean, these are, these are tough competitors. These are, you know... We've always been able to figure it out. Actually, my hand's not keeping up with everything you're saying. On the distribution, you said you were a little bit weaker in Texas. What was the other state? Florida. Florida. Yeah. We'll course-correct for that. Okay. I guess when we think about next year, I mean, 20% is I guess the bogey every year, but like, is that, does that seem reasonable based upon the rates that we've seen, how you're ramping up the new markets, how is- Yeah. California is playing out? I think, let me put it this way. I'm more optimistic about this year in terms of finding that balance between growth and margin based on all the traction that we're getting from a clinical utilization perspective. I think these what others may view as macro headwinds, we would view as opportunities. We'll never lose sight of the growth versus margin trades as we go through these bids right now. I feel very good of where we stand right now. It was interesting. You made a comment in the, in the call that, I wasn't sure exactly how to interpret it. You kinda made it sound like you guys are still talking about EBITDA breakeven next year. You also kinda said, "We might grow faster than average, and if that means, you know, higher MLR or what have you, that's fine. That's just the cost of doing business." Like, are you saying that next year might not be breakeven if you grow really fast, or you still can do both? Or- What I'm saying is, if the proportion of our membership is relatively higher new members with a higher MLR, and typically, we would have year one members come in at something like, I don't know, 88%- 93%, 94% MLRs, as opposed to you know, our loyal members are closer to 84%, 85%. I think the MLR could tick up. We should offset some of that from SG&A. To me, the real governor, and I think what I really think about is the growth that we would have is really governed by the point at which how soon can you guys get to operating cash flow, operate positive operating cash flow, not just EBITDA breakeven, in the context of your balance sheet cash, so that you don't have to go raise additional cash. I think that to me is the kind of the ultimate governor. You know, I feel good about it, and I think that, you know, we won't put ourselves in a situation where you're growing so much that all of a sudden you need to find yourself, you know, raising additional cash. We don't think we'll find ourself in that situation. You know, if we don't actually make an EBITDA breakeven, and we're, you know, some number close to where we are now, I think the confidence I have in getting those utilization, those risk adjustment, all the different initiatives on new members to be consistent with the kind of cohort performance we've had from, you know, year one, which is, call it 90% down to year five, which you're in the 78%, 80% range. I'm very confident in our ability to do that. To me, it's the care model is taking root. We need to productize that care model into growth, and we're growing into that. It's, you know, we're growing into it. We, we'll be, what, $1.7 billion this year. You know, probably be over $2 billion next year. I mean, there's kind of, call it scale operational improvements that I think will help us. Yeah. You mentioned a number of times your stars, like your stars are some of the best in the industry. I guess in particular, just wanna understand, 'cause North Carolina, new market, five stars. How do you get into a new market and get five stars, which is unusual, generally speaking, but for a new market, I would think in particular? It's, I hate to say it, but the word is control. I mean, it's actually controlling the experience with the doctors, not relying on middlemen to do that or intermediaries to do that. North Carolina, like what we have in other markets outside of California, there isn't that middle intermediary. There's no IPA or medical group that wants to take global cap or shared risk cap. We are the IPA. We're building the direct networks with the doctors, the subspecialists, the PCPs, the hospitals. When we're the ones doing the work, we can ensure quality control. It's also is quality control. You know, when you have that control in every single market that we have, that's how we get the outcomes we get. I would say one thing in California, the identification of who that 20% of the really high-risk population is that costs 80%-90% of spend, if we're controlling that through our Care Anywhere teams and our basically our staff model, home-based clinicians, it's a very efficient use of capital and focused resources to ensure quality control. Where we can do a better job is the 80% of the population that costs 20% of the spend. They're not gonna impact your MLR that much, but they're gonna impact your stars. You've got to give them the right access, the right experience, the right service delivery. All that matters to get to that five stars. We talked about the coding adjustment. You've alluded to some of the marketing changes, the stars qualification's gonna... Yeah. evolve over the next few years. Like, how do you adjust to those things or those headwinds? On stars, I think there's some headwinds coming, but also some tailwinds. What I mean by that is what CMS has done with respect to stars is they use something called Tukey. It's a Tukey methodology. It's a person that developed this methodology that effectively increases the cut points across each of the measures of stars, making it tougher to get the higher stars. We're seeing that as it impacts 2022 dates of service. I think we're gonna be just fine, but it's requiring a lot of focus on our part. I still think the tailwinds coming are they're gonna also change the weightings. This is actually really important, that you're gonna change the weightings on CAHPS scores, which are surveys, customer satisfaction surveys that they do from four weighting down, I think, to two weighting for 2026, rating year, 2027 payment year. That's a big deal because then they're going to increase the HEDIS, certain HEDIS measures back up to the 4 weighting. We're really good on the quality side, and the HEDIS scores were like five stars. As I think about stars longer term, I think we're gonna be, again, relatively stronger positioned with the higher standards that CMS is gonna require from people. Again, it's the focus on quality, it's the focus on clinical outcomes, taking care of people, I think will help us in the long term, position us. We know what the rate notice is. That's really important. 'Cause you can plan against that now. I think given the operational initiatives we're focusing on, just getting scale economies, is also gonna kind of slowly chip away at the advantages the bigger plans have right now on just scale economies. Their SG&A as a percent of premium is a lot lower than ours. We're offsetting that and we're staying competitive because our MLR is really quite good. As we get bigger and bigger, we're gonna have, you know, more opportunities to scale, and that all gets reflected into the bids. To me, the marketing changes, when I think about, like, the potential implications for MA growth, to your point, like $10 or $15 on $200 is not that big of a deal. To me, it feels more like anything that restricts the ability of seniors to learn about it. 'Cause once you see it, the value proposition is clear, but if you can't learn about it, then how do you sign up? But you don't sound worried about the marketing changes. Well, it's our growth has come from switchers. What I mean by that is most of our growth are people that have made the decision to say, "I'm gonna move from a fee-for-service product, or traditional Medicare fee-for-service, into an MA plan, whether it's HMO or PPO. What we have typically done is we'll let the big guys do the marketing to get the overall market share of MA to grow, and it's increasing. It's like 52%, I think, of overall Medicare eligibles. What we do is we say, "Okay, what are the networks? What are the products? Where can we have the best opportunity?" We target those specific payers, and we have a very improved value proposition as measured by the rebates in each market. When the member, the beneficiary switches to us, we just service them. We service them with this Care Anywhere, and that's what keeps them. Again, I think we can improve on that as well, getting to that five-star retention standard. Kind of how the macro world, you know, kind of reacts, you know, call it mid to high single digit growth in MA overall on a national basis. We've been dealing with 4% industry growth in California forever 'cause it gets so saturated already, yet we're still growing 15%, 17%. Yeah, I mean, I'm not backing off the 20 at all. Yeah. I guess, maybe the last question I ask all the companies, like, recession seems to be coming. Like, how do you think about that? I mean, obviously you think you should be insulated, but does the recession make MA more attractive to seniors? I think so. I think so. It's, you know, you look at some of our competitors and where they grew and how they grew and with their product designs, a lot of it would include some form of Part B rebate. You know, that's just like part of their Social Security. It's just cash. Simple. I think, you know, if you can provide the right balance of coverages and benefit designs, people need help. You know, we say we're like a social determinants of health and whatnot. The end of the day, people need health mentally, people need help financially, people need help with their groceries for food insecurities and food vulnerabilities. I think MA is gonna play a more prominent role in solving for some of these issues for people. What we shouldn't do is, you know, just do, you know, massive Part B rebates and not have any coverage. I mean, you gotta take care of people still at the end of the day. I think simple, reliable, benefit designs are gonna be good. I think the other thing to think through is when you're looking at, you know, the growth of the supplemental vendors, there's so much growth in some of these areas. We gotta make sure that the service delivery and the quality of delivery can be maintained. I think that's something that we all have kind of taken for granted, I'm not sure we can afford to. I think people need help during times of recession, MA is one way to do it. All right. I think that's all we have time for. Thank you very much. Thanks, everyone. Thanks, Kevin.