Thank you. Welcome, everyone. My name is Michael Ha, the Managed Care and Healthcare Services analyst at Morgan Stanley. Our next session is with Alignment Healthcare, a technology-enabled managed care company focused on the Medicare Advantage business. I am pleased to have with us today Chief Executive Officer John Kao and Chief Financial Officer Thomas Freeman. So yeah, just to jump right into it, Star Ratings. So, you know, now that you've received updated cut points, has your level of conviction changed at all? How are you thinking about it? Did the cut point surprise you at all? I might have another one or two or three follow-ups. Michael, first of all, thanks for having us here. On stars, we are super happy with the outcome. Not only for what we just found out this year, I think our prediction models around two key and the different cut points, pretty much spot on. W e feel really good about that. I think equally important is how we're positioned for dates of service in 2023, and you feel even better about that. So overall, very, very happy about it. T hat's with the proviso that I won't ever be happy until we get to five stars everywhere. But other than that, I think with respect to what we communicated in the last earnings call, I think we're feeling really good. Terrific, terrific. Y ou mentioned your predictive model. I wanna get into that, but maybe one more on the cut points first. It might be a little bit technical, but with the two key outlier deletion, how it impacted cut points from what you're seeing, is it true that the lower end of the range got became more competitive, got worse, while the higher end was relatively unchanged? So the implication would be lower performing plans might be worse off, while higher performing plans might be less impacted. Is that fair? I think in general, it's probably fair, but there were a couple of specific measurements that did not necessarily hold toward that. F or example, just a couple of different measures. So TTY is one measure that went up a little bit. I'm not sure that would have just advantaged the bigger guys. Retention, actually, traditionally, to get five stars, you had to be at 7%, I think it went up to 8%. W e're a five-star entity now, and so I'm not sure that would just advantage the bigger folks. But I do think just overall, you know, the standards have just gone up, you know? I think, like, the only beneficiary of that is the member, which is a good thing. So, that's why we love MA. That's why we think high quality and a low cost, and the winners, they should be able to do that. So. It's great to hear. So I did want to dive deeper into AVA later on, but you mentioned predictive model, and one of the most attractive differentiated capabilities I noticed when I was given the AVA demo, was really your live Star Ratings tracker. I was wondering if you could talk about the capabilities within AVA that allow you to track Star Ratings throughout the year, and just how accurate your predictive model is? Yeah. Yeah, no. So, I just... The first thing I think we came to the conclusion was, it, it's not just AVA as a tool, and it's not just a departmental function for stars. It's actually a cultural, enterprise-wide philosophy and culture of ensuring that the entire company is actually taking care of the member, and taking care of and supporting the doctor. So it starts there. But that starts with me, and we implemented this just several years ago, where we're looking at measure by measure. Think about this, measure by measure, numerators and denominators. Like, actually, what human being is doing what, but when, to ensure that we are closing these gaps and taking care of our seniors? Y ou start there, and then you go to your question, Michael, on AVA, and it's literally just real-time tracking, day-to-day focus, day-to-day transparency on every single measure. W e have weekly trackers, and I'm involved weekly. We've got people involved daily, clinical people involved, network people involved. Our stars team is tracking it. Our provider teams are working with providers, closing gaps. Our Care Anywhere teams are closing gaps. It's a holistic cultural approach. O rganizations that think they're gonna just fix stars with departmental, you know, kind of resource, it can't do it. You have to do it systemically. A VA allows us to enforce that, to execute that, and that's how we do it. Great. Just to clarify, the live trackers project out where, where you think the cut points will be and measures against that? Yeah. Got it. This is just to your point, stars is nothing short of data science. I mean, it is just data science. It is extremely detailed, extremely, there's algorithms, and AVA allows us to think through all the permutations, possibilities, with you know, you know, publicly available data, two key data, and we were pretty good on that. W e were not surprised on where some of these cut points. Maybe one or two, but generally, we were pretty spot on. Great. Appreciate all that color. Maybe we can pivot now and talk utilization. I understand outpatient utilization in 1Q remained in line with last year's trend, and 2Q tracking similarly, which is all still within your expectations. But, given your prior off visibility, could you provide an update on how outpatient trends are tracking so far through 3Q, and any notable utilization categories to call out? A lso, one of your peers mentioned inpatient COVID admits spiking a bit. Curious to get your thoughts on that. Yeah, maybe even starting with that first and foremost, just 'cause, you know, the inpatient spend category represents 50% of our total institutional cost. So we think about that as sort of our leading KPI and our North Star, not just from an MLR management standpoint, but also from a quality of care standpoint, because nobody wants to be hospitalized when we could have provided a better care setting or a better preventative care model to keep them out of the hospital in the first place if they didn't need to go. That has typically run 155-165 inpatient admissions per thousand for the last six years, and that's why, while growing from 10 or 20,000 members to, you know, 112,000 and change as of the end of the second quarter. T hat consistency is what has underpinned our MLR model. So our 160 call on average compared to Medicare, traditional Medicare at 250 is worth 14 points on MLR. T hat has, for the first half of the year and through the third quarter to date, continued to run right around that 160 range. No real change, including no real spike or change in COVID over the last 30 days. I do think COVID and flu season will be something that everybody will be talking about towards the end of the year, in the back half of the fourth quarter, but today, that's not something we're seeing in our utilization during the third quarter. In terms of your outpatient question, yeah, so we shared in our last call that we had seen a bit of minimal increase on a PMPM basis in the first quarter. W hen I say minimal, I mean $2-$3 PMPM. I mean, truly quite minimal. T hrough the second quarter, our auth data was showing that our utilization was trending in line with expectations, which was generally in line with the prior year second quarter, and maybe a bit of an increase. I think part of the divergence that's happened over the course of summer is folks talking about what's happening on outpatient on an absolute basis, i.e., what's the trend year-over-year compared to last year, versus on a relative to expectations basis. Now, I think for us, we have seen, like many others, some increase year-over-year, and really, we started to see it in the back half of last year. I would say where maybe where we differ than others is it hasn't diverged significantly relative to our expectations. So as we've kind of gotten into the third quarter, I think as we generally continue-- we've generally continued to see some of that outpatient increase, but very low levels of increase relative to expectations. I think big picture, as you think about our guidance, we feel really comfortable with our range that we iterated back on the third, second quarter call, which was $205 million-$217 million of gross profit. I think it's fair to say that there's probably not as much upside to the high end this cycle as past years, just given what we're seeing on utilization. But we feel really confident about what we put forward, and that's really important, not just for this year, but also sets us up for a successful 2024. W e've been really clear that getting to EBITDA break even next year is a priority of ours, and part of that calculus, obviously, is how we manage our MLR of our business and the utilizations assumptions that went into our bid, and so we're feeling about that really well as well. Great. I definitely want to get into 2024 in depth, but maybe one more question on 2023, and specifically the guidance and the implied second half guidance. So year to date, solid EBITDA outperformance, two quarters of these, but you kept the full year guide unchanged. I was wondering if you could walk us through just the rationale and the thinking around that. How much of keeping 2023 guidance unchanged is more prudent conservatism versus maybe increased investment or unanticipated cost headwinds? And Thomas, I know you mentioned some investment into clinical efforts related to the V28 model changes. Yep. If you could expand more on that, that would be great. Yeah. So the whole, the V28 model change is something that really got us feeling very optimistic about the growth opportunity this fall. W hile we certainly are facing our own headwind on that, we shared on our May call that it was about a 1.3% incremental revenue PMPM headwind to us on an annual basis over the next three years. So call it kind of mid-single digits before the offset of any of our mitigating efforts. We also know that many of our planned competitors are facing, you know, somewhere between 2x-3x that headwind on a cumulative basis because they have RAF scores that are 1.2, 1.3, 1.4. We've been very transparent that our RAF score is only a 1.13, and that's with 30% dually eligible members. So it was with that data in mind that we were, I think, just a bit more inclined to be more growth-oriented on our 2024 bids, i.e., making sure that we were not only maintaining, but increasing our benefit investments in certain places, but doing it in a way that didn't compromise our MLR goals for 2024. And so to your question, in terms of the overall guidance for the year, we are making a slight increase of investment in the MLR line for our clinical model resources that are continuing to make sure we're seeing members over the back half of the year. T hen I think the other thing from an EBITDA standpoint is some of that SG&A is just simply timing in terms of whether that spend hits in Q1, Q2, Q3 or Q4. Obviously, a lot of our SG&A is backloaded towards the back half of the year, given the timing of sales and marketing. So I think big picture, there is a little bit of incremental investment in the MLR line. SG&A is just more timing, but in general, we're continuing to make improvements year-over-year on our EBITDA margin, and I think that sets us up for that 2024 break even goal. Perfect. Perfect segue to 2024 path to profitability. So I thought you guys made a pretty strong comment on the last earnings call about next year's MA offering, as you just mentioned, right? Y our break-even target as well, just maintaining, increasing benefit richness also assuming or expecting no level of growth to compromise your breakeven target next year. So with the vast majority of MA plans looking to reduce benefits, now you're in a strong competitive advantage to grab outsized growth. So confidence level next year that no growth will compromise your breakeven target is what I wanna focus on. Does that mean if you were to do 30%, 40%, 50%, 100% growth. I'm doing like 100%. You could still hit breakeven? Yeah, because our, Michael, our, like, we're not bidding negative margins, right? We're... So, our MLR, even like a year one member, is kind of high 80s or low 90s% MLR. It's still positive gross profit margin. L ike, just the way we've designed the bids, it should be accretive to gross margin. So when you add that to the mix, that we've made significant improvements to the back office, both in terms of focus on retention and also on just scale economies PMPM, where I think year-over-year, we've made a 100 basis point improvement on SG&A. You put those two together, and kind of irrespective of your growth level, you should-- it should be accretive to EBITDA. Now, your MLR may be ticking up a little bit if you get to what you're saying, some really, really, you know, high level of growth. But, you know, our loyal MLR is still gonna be very, very good. And that, I think that's kind of. I'm very confident in that. J ust, and that's just the unit economics of the business. I feel very good about that. Touching a little bit about 2024 positioning, and Thomas alluded to this, it is we have been extremely disciplined on our pricing strategies over the last couple of years. W ith some of the macro effects that are impacting Medicare Advantage, you're seeing a normalization on stars. L ike, we're really happy about that. You know, it's just like the cream is rising to the top. I think, I think we're gonna be having tailwinds competitively in some of our key markets, with some of our competitors. Alternatively, we're gonna have tailwinds also on V28, because we have run the business at a very kind of controlled risk adjustment level. We haven't run the business as if we were 1.3 or 1.4, 1.5. We run it at 1.13. W hen V28 hit, we anticipated it. We weren't sure all the specific details, but on a relative basis, we're gonna be advantaged. So you have stars and risk adjustment heading into the bid process, we were like, "Now is the time to be aggressive. Now is the time to push it." T he other nuance I would say is, the way we thought about product design is looking at our membership cohorts into, you know, call it the 10%-20% of the polychronic, the people that need a lot of care. So you've got CSNPs, chronic special needs plans, CSTEP lookalike plans to attract some of the dually eligible members. T hey're very well rich HMO products for lots of care delivery, and we're pushing the care delivery. We haven't really pushed Care Anywhere or the care delivery aspects of it, so the marketing and the focus on that 10%-20%, I feel really good about. We're getting good growth, even through 2023. The other 80%-90% really are generally accounting for 15%-30% of your costs. Well, you can afford to be pretty aggressive with that population. That's gonna represent your growth. And so the kind of the philosophy there is simplicity, accessibility, and just doing what you say you're going to do to deliver to the customer. Keep it simple and give them what you promise and execute. I'm really encouraged by that, and that's simplifying benefits. You know, groceries are important, OTC is important, rebates are important. I mean, I think people that can tangibly get a hold of and be very reliable, those two philosophical product changes, again, with the macro backdrop, I feel very well positioned for this AEP. Terrific. I, I definitely want to get into benefit richness, have a few questions there. But in terms of new markets, Texas and Florida, I understand it's more of a multi-year story, you know, significant long-term upside, and you're currently taking the necessary steps to build those markets, for example, captive broker and distribution channels. But more immediately, the 2024, do you need these two markets to outperform next year in order to achieve your membership growth target? No, no, no. We're very comfortable with the growth that we're saying. We're not relying on those markets. We're actually optimistic about those markets, but we're not relying on it. The other thing I would say is, I think it was important for us to get a foothold in each of these two, you know, obviously very large states. But the focus on 2024 has been more market share, deeper penetration in the existing footprint, and really getting to EBITDA breakeven for 2024. That's really been the focus. But having a couple of flags planted and state HMO licenses was important to us. I think you're gonna see us do not only so we've obviously talked about the growth, the 20% growth. We've talked about EBITDA breakeven. But one thing we haven't talked that much about, Michael, is kind of the portability, the replicability of pulling all these different things together with delivery system partners, providers, and health systems, and entering markets, not just to enter a market, but to enter a market to win, to actually take share. And so that requires your stars to be strong, pretty good; your product strategies to be strong, it's pretty good; our engagement level with providers, pretty good, okay? Y our distribution network, and I'm super happy with our distribution. Just deepening the leadership team there is going to yield, I think, differential on that part, both inside and outside of California. T he fifth leg really is the repeatability of the back office. That just has to work, and we've made a lot... You've heard us talk a lot about vendor management, cleaning that up, and getting scalability. So I think all the pieces are now starting to come together for us to now focus on implementing new markets with certain health system providers for 25. That's kind of how we're positioning this. Great. Now, that was actually my next question. You had one sentence where, on the earnings call, where you mentioned just that, for 2025, you're actively engaged in strategic discussions with provider partners, health systems in new states, and this is spanning across AVA, Care Anywhere, other provider engagement capabilities. So could you expand on what that opportunity set looks like? It's I think thematically in the entire industry, if you take kind of the trend toward the aging of America to start, the raw demographics of the number of people becoming seniors, that's not going to stop, right? The age wave is not going to stop. If you apply that thinking then to what's happening with our delivery system partners, integrated delivery networks, the admissions that represent their admissions into their hospital systems, typically is what? 40%-50% are seniors. I f the macro universe is going to have more and more seniors, that percentage is gonna go up, right? Now, they're getting paid Medicare, typically, for a senior admission, right? They're getting paid 200% of Medicare. I'm being, you know, generalistic, but 200 of Medicare for a commercial admission. So it stands to reason that they're looking for solutions to have more say on product design to move market share to the delivery systems, to not be commoditized by the large payers on just raw unit economics. I t also stands to reason that these branded delivery systems are over capacity. They have access problems. So the solve for all of that is there. This is the reason we're getting calls, and it's like, we know you know what you're doing on MA, but your admissions of 200 or 150 admissions per 1,000 relative to 250, boy, if you can get me down to 150, get my admissions as a percentage of my total admissions down on seniors, I get to backfill that with commercial volume. So their hospital wins and makes money. It's, it's just, right? The doctors were aligned. We're all about doctor alignment. They make money without having to sell half their business to somebody or their entire business to somebody. T he doctors have a value proposition, and we're aligned with some kind of a joint venture or a co-branded scenario on the plan side. So, so if you put all that together, it's like, it's like the opportunity for us is to have these kind of conversations where we're helping them, they're helping us. It's extremely symbiotic and friction, friction-free, and it's a way to grow for us in chunky, chunky ways. We're not talking a lot about that until we actually get one of these done, then I think you're gonna be hearing a lot about it. Great. So then, in 2025, it sounds like you're adding potentially new revenue drivers to the Alignment story. You mentioned potentially JVs, licensing out the AVA module application. Is that a way to think of it? Well, the way to think of it is just engaging with providers, creating value for the providers, and doing what we do. We've proven that, I think, in California, working with IPAs, which are the doctors and providers. We're extending that to the health systems in newer geographies. To the extent that we need to, you know, partner or share parts of AVA and the care model, we call it Care as a Service or CaaS, that kind of more fee-based model, that to me is part of a solution, not necessarily just the end game to get into just pure, you know, software as a service. I'm not sure that's, that's like a fundamentally different business, but it could be a solution to help us get there. So, for example, if we're working on health plan, co-branded health plan with a delivery system launching in 2025, is it okay for us to work with them in 2024 on, with their doctors, on optimizing stars and risk adjustment? Why not? Because then if you do that for 2024, you're gonna get the payment in 2025. So it's a win-win for everybody. That kind of thing is how we're thinking about, you know, kind of care as a service, CaaS. Great, that's exciting. So then taking a step back, you've been vocal in the past about eventually entering 15-16 states, covering 70% eligible MA members. Now you're in, right, roughly 6 states. Looking forward past 2024, it sounds like that may accelerate. So how should we think about the balance of expanding and still growing your existing? I wanna, yeah, that's still the objective. It's finding these delivery system partners. I think not only are you aligned with the delivery system partners, you're gonna get chunkier membership growth. I think this optimal world that we're, in our eyes, is to fund that growth from operations. So you get. So, like, you think about getting the cash flow or the EBITDA breaking in 2024, get the cash flow breakeven 2025-ish. You start funding this growth with delivery system partners, you know, and you're not burning cash. That's the picture that's in our head right now. T he you know, the use cases with how we work with the providers is the most encouraging thing to me. All this other stuff, stars is critical, risk adjustment is critical, utilization is critical, benefit strategy is critical, distribution, all that you have to have. At the end of the day, it's working with doctors, doctors talking to doctors, engaging doctors to provide a better outcome for our seniors. That's, at the end of the day, I see that, and we do it from cash flow. Great. Great. So maybe I'll weave a couple benefit questions into one. So number one, the national presentation of brokers has occurred. You have some sense into how competitive benefits are looking. I mean, over the past couple of years, we've seen the advent of Part B buy downs, OTC flex cards. Anything that caught you by surprise in terms of innovation that, or is it more consistent and stable? No, if anything, I think the industry went a little bit overboard on supplemental benefits, and I think there's gonna be a trend toward, well, how do these supplemental benefits are actually managed? How are they actually executed and fulfilled? In that, if you don't have good execution, it impacts your stars, basically. It impacts your retention. So I think people, at least we are looking at it from whatever we have in the benefit isn't just the coolest, next, best thing. It's like, can it be delivered, can it be managed, and can it actually correlate to improvement in care delivery and care quality? I think those things are easy to understand, easy to operationalize, easy to sell, easy to support. And the senior is like, "This is a square deal. These folks are actually doing what they're saying they're doing." I think that's gonna be important. And also just a thought, I do think there's gonna be... Dental is a super important piece, and I think a lot of the winners last year, we've had very rich benefits on dental. And that's obviously something that we're very sensitive to. But other than that, you know, flex card execution, I think it'd just be simpler. OTC, still transportation is so important, but so. Great. So I think it's the last couple of minutes. So you don't see many or any other MA plans actively deploying wraparound care teams, 24/7 concierge services. So I wanted to talk more specifically about Care Anywhere, and even more specifically, your care team, the home setting. Could you dive deeper and explain the power of this team and how it's differentiated, how it plays a pivotal part? Yeah, absolutely. It's the answer there is scalability and portability of the care model. I don't think you can have I don't think you can own every one of your doctors. I don't think you can have bricks and mortar everywhere. It's just too expensive, it's too costly. Even if you own, you know, PCP groups with bricks and mortar, a staff model, if you will, it would represent a portion of your network. And so definitionally, you have to make your network more efficient, more productive. And so our logic in all that is, let the doctors be doctors. Let them care for all the patients, but let us help them and extend the care anywhere with AVA to that 10%, 15% of the population are the highest risk. They represent our office visit in the PCP office. And we say to the doctor, "Let us help you for free on these Care Anywhere members, and we'll see them at the home." And you have to have the data to identify who they are first, and then you have to engage them to let them work with you, and then you set forth the interdisciplinary care teams to work with that, with that member. And everybody wins in that. And so applying that in a way to scale is critical. And from, I would say, a clinical deployment perspective, we've achieved that. Even with these small markets that we have in some of these other states, the admissions per thousand is like 150. It's really good. And so doctors and clinicians working with clinicians, serving seniors, is the ethos. So then the question is, okay, if you have this capability and you've got, you know, 100,000+ members, and it's gonna be, I think we're gonna do good in AEP, but what happens if you apply that to 200,000 members, 500,000 members, 1 million members? That delta on value creation, I think, is the secret sauce of changing healthcare in the country. Perfect, and we're at time. Thank you, John. Thank you, Thomas. Thank you, Harrison, and thank you, everyone. Thank you, Michael. Appreciate it. Thanks. Thanks very much. Thanks.