Good day, and thank you for standing by. Welcome to the Alignment Healthcare First Quarter 2023 earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star one one on your telephone. You will then hear an automated message advising you that your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, CEO John Kao. Please go ahead. Hello, and thank you for joining us on our first quarter earnings conference call. We are pleased to announce a strong start to the year, delivering consistent operating performance and beating all of our key performance indicators. For the first quarter 2023, our total revenue of $439.2 million represented 27% growth year-over-year. We ended the quarter with health plan membership of 109,700 members, growing 16.5% year-over-year. Adjusted gross profit was $45.4 million, producing an MBR of 89.7%. Meanwhile, our adjusted EBITDA was - $5.2 million. Our MBR and profitability outperformance resulted from significant efforts by our Care Anywhere team and continued improvements to AVA. Our ongoing enhancements to AVA allow us to improve both the identification and engagement of our Care Anywhere eligible members, and has been core to keeping our Q1 utilization stable. We continue to believe that AVA, clinical innovation, and our clinical culture serve as the foundation of what differentiates Alignment. More than ever, we believe we are executing Medicare Advantage done right. CMS has taken actions that reinforce its standards for Medicare Advantage that adhere to its vision of maximizing value to the seniors through high quality outcomes at an affordable cost. We believe the following changes will create competitive tailwinds for Alignment over the next several years, beginning in 2024. First, Star Ratings are once again differentiating between high and low performance. For the 2023 rating year, CMS ended COVID disaster provisions which artificially inflated Star scores. We maintain our high Stars in the 2023 rating cycle despite these changes, with over 90% of our members in four-Star or above plans. CMS announced that the weighting of CAHPS measures will be reduced by half for 2026 Star Ratings, shifting the weightings back toward HEDIS scores, which measure clinical outcomes. This has been a strength of ours. Second, third-party marketing standards are being modified to increase consumer protections. CMS is limiting aggressive marketing practices by third-party marketing organizations that have become increasingly pervasive over the last few years. We are supportive of CMS's efforts to protect seniors and believe this will be additive to our retention goals. Last, risk model changes are being implemented in 2024. As many of you well know, CMS recently announced their final rate notice for 2024, phasing in the V28 risk model changes over three years. Since the company's inception, we've predicated our operating philosophy on achieving high quality and low cost. We have always approached risk adjustment as part of our clinical care and quality initiatives. As a reminder, our current RAF score today of 1.13 includes 30% dually eligible members. This approach has served us well and placed us in a solid position as we assess the moving parts within the new risk model. After conducting a full review of the final notice, we believe the net change in PMPM revenue will be neutral to + 1% in 2024. Thomas will share more details during his financial discussion. Most importantly, as we assess the competitive dynamics in each of our markets, we believe we'll be advantaged under the new risk model relative to many of our local competitors, particularly in California. As a reminder, 85% of our new members have historically come from plan switchers as opposed to agents or conversions from traditional Medicare. We believe this is a reflection of consumers finding greater value in our products versus our competitors. This is how we've grown at more than four times the California market growth rate over the past five years. We believe our RAF scores relative to competitors, our star rating tailwinds, and our growth predominantly coming from plan switchers, all help position us for strong growth in 2024 and beyond. Looking toward the 2024 AEP, we are focused on driving deeper share within our existing states to develop a larger market presence and significant local scale economies. As part of this strategy, we will double down on brokers who have delivered for us while also adding more captive and employed agents in markets where needed. In addition to this, we are also taking a focused approach to member retention. While we have noted in the past that we have better retention metrics than the industry, we continue to strive towards a five-Star retention rate under CMS's definition, which has always been our North Star. A few of the actions we've already taken today include employing a more rigorous supplemental benefit vendor management program, enhancing customer service by leveraging our newly deployed CRM application within AVA and insourcing member call center functions. The early results we've seen in these activities give us confidence that we strive towards five Stars. It's an exciting time at our company as we move forward into the next phase of our operating maturity. Having achieved impressive repeated clinical results both within and outside of California, we are now investing in operating scale initiatives which will support the growth in each of our markets. In conclusion, our clinical objectives and retention goals are showing solid progress. Our operating scale initiatives are taking root, and we are excited about how many of the broader Medicare Advantage changes position us competitively over the next several years. Now, I'll turn the call over to Thomas to cover the financial results for the quarter. Thomas? Thanks, John. Turning to the first quarter results, we are pleased to deliver a strong start to the year in which we exceeded the high end of our outlook ranges across each of our four KPIs. For the quarter ending March 2023, our health plan membership of 109,700 members increased 16.5% compared to a year ago. Our first quarter revenue of $439.2 million represented 27% growth year-over-year. The top line outperformance was primarily a function of both higher health plan membership as well as growth of our ACO REACH revenue. Our adjusted gross profit in the quarter was $45.4 million, representing an MBR of 89.7%, with our clinical operations continuing to produce results across markets. Utilization ran generally in line with expectations at approximately 160 inpatient admissions per 1,000, inclusive of January seasonality, which tends to be a higher utilization month due to the flu season. As a reminder, the year-over-year comparison of MBR includes the full return of sequestration as well as the impact of faster growth in our ACO REACH population. SG&A in the quarter was $70.4 million. Excluding equity-based compensation expense, our SG&A was $51 million, an increase of 3.2% year-over-year. SG&A, excluding equity-based compensation expense as a percentage of revenue, decreased by approximately 270 basis points year-over-year, which represents solid progress towards our goal of improving our operating leverage by 150 basis points for full year 2023 relative to 2022 as we continue to scale the business. Note that our SG&A in the quarter was slightly lower than expectations, in part due to timing, and we anticipate some of that to reverse over the next nine months of the year. Lastly, our adjusted EBITDA was - $5.2 million, well ahead of our initial expectations. Moving to the balance sheet, we exited the quarter in a strong capital position with $488 million in cash and investments. Our cash balance at the end of the quarter included an early second quarter payment from CMS of approximately $141 million. We recorded the early payment as deferred premium revenue in Q1 and will recognize it as revenue in Q2. Importantly, this does not have any impact on our income statement metrics. Cash and investments excluding the early payment were $347 million. Turning to our guidance, for the second quarter, we expect health plan membership to be between 111,200 and 111,400 members, revenue to be in the range of $433 million and $438 million, adjusted gross profit to be between $47 million and $50 million, and adjusted EBITDA to be in the range of a loss of $13 million to a loss of $10 million. For the full year 2023, we expect health plan membership to be between 113,000 and 115,000 members, revenue to be in the range of $1.710 billion and $1.735 billion, adjusted gross profit to be between $205 million and $217 million, and adjusted EBITDA to be in the range of a loss of $34 million to a loss of $20 million. In summary, we are largely reiterating our full year 2023 guidance while raising our revenue guidance given the outperformance in the first quarter and our visibility towards our full year revenue PMPM. Given that it is still early, we remain mindful of potential variations in utilization as we progress throughout the year. That said, our initial look at April utilization continued to run in line with our seasonal expectations, and we are pleased with how our first quarter results position us to achieve our full year expectations. As we've said before, it's a strategic imperative of ours to continue to balance our short-term profitability objectives with our longer-term growth objectives, and we look forward to updating you all on our results as we progress through the year. Before we close, I'd like to spend a moment on the final notice. As John noted earlier, we believe the net change in PMPM revenue will be neutral to + 1% in 2024. This consists of all known moving pieces to our current population, including benchmark changes, fee-for-service normalization, Stars, the V28 risk model impact, and our ongoing operational initiatives. As it relates specifically to the V28 risk model and our operating initiative components within that range, we expect the PMPM revenue impact to be -0.8% to +0.2%. This reflects the phased-in risk model impact of approximately -1.3% and offsetting operating initiatives of approximately +0.5%-+1.5% annually over the next three years. Expanding on our operational initiatives, we have identified opportunities to close known risk score gaps under the current risk model given our historically prudent risk scoring position. Additionally, we are deploying training and engagement programs with our employee clinicians and provider network to ensure a smooth transition into the new risk model. We expect these initiatives to amount to a total of 1.5%-4.5% of revenue upside over the next three years. Taken together, we expect the impact of the risk model changes will be mostly or entirely offset by the operating initiatives, both in 2024 and over the course of the full phase-in. We continue to believe the impact of the model changes are highly manageable and in fact are excited by how this positions us competitively both in 2024 and over the course of the phase-in impact. With that, let's open the call to questions. Operator? Thank you. If you have a question at this time, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment for the first question. Our first question comes from the line of Ryan Daniels with William Blair. Your line is open. Please go ahead. Yeah, guys, thank you for taking the questions, and congrats on the strong start to the year. Thomas, perhaps one for you. You talked a little bit about SG&A declining nicely year-over-year. That probably drove a lot of the big EBITDA beat relative to guidance, but it looks like the Q2 EBITDA is below expectations. Can you provide a little bit more color on kind of what timing issues led to that big upside in the period? Number two, you know, how we should expect some of those costs to come back into the income statement over the next few quarters, so we can calibrate our EBITDA expectations. Yeah. Hey, Ryan. Thanks for the question. I'll speak to both the SG&A question and then maybe a couple comments more broadly about the earnings cadence over the course of 2023 that we anticipate. In terms of your question on SG&A, I think you're right. We mentioned that we had a few million dollars of favorability in the first quarter that we would attribute to sort of just timing or temporary favorability based on when certain expenses hit the P&L. That probably is in the neighborhood of $3 million-$4 million that we would anticipate to reverse over the course of second, third, and fourth quarter. A lot of that just has to do with ramping up of new hires to support the membership growth, ongoing sales and marketing expenditures, and things of that nature. In general, though, we feel pretty good about our ability to manage to our overall SG&A target that we had outlined in our initial guidance about 60 days ago. Then in terms of your kinda broader comment about the earnings cadence for the year relative to, I think consensus expectations, which is in part modeled on prior year performance, both 2021 and 2022, I think earnings seasonality, what we would note is that obviously 2021 and 2022 had a bit more, I'd say, atypical variability just due to the impact of COVID on things like our risk adjustment scores, our sweeps, and our IBNR quarter to quarter. I think a little bit of what you're alluding to is the kind of just lack of a true comparable in the prior year as compared to the current year. I think the second thing we would note is that from an MLR standpoint, the second quarter of last year, I think was an outperformer primarily due to the sweeps that we see typically in the second quarter of each year. As a reminder, we don't typically accrue for those on a very aggressive basis, in particular for our new members. As a result, we tend to approach our guidance slightly more conservatively, which may lead to upside for the second quarter relative to our current guidance. We don't rely on it, and it's not something we bank on as we think about all the moving pieces with respect to our full year outlook. I think that's one element of seasonality that you might see in our historicals that you don't see in our guidance today. Okay. Very helpful color. John, maybe one for you. I noticed you hired two pretty senior new market executives, one in the kind of NC, AZ, Texas market and another in Nevada and the core Northern California. Can you speak to maybe some of the goals and objectives of bringing in that talent and how that ties to some of your commentary about investing in sales and marketing to drive membership growth going forward? Yeah. Hey, Ryan Daniels. absolutely. I think we're speaking specifically about Tim Moorhead and Lisa Ferrari, and they are senior people. They know the respective markets in which they're leading. We're excited to have them. They've been integrated wonderfully. They share the same culture and vision that we have, and I'm very excited about that. You know, when I say we're gonna be investing in network resources and when I say we're gonna be investing in distribution, member acquisition resources, I'm serious about it. We're deepening the bench. We're adding talent, and we're doing that with an eye towards scaling. And you can see that, I think, throughout the year as we head into the 2024 AEP, and I'm just very excited about it. You know, I think it starts with the team and the people that we have, the people we're adding, how we get them onboarded, and kind of how they just fit into the whole culture of what we're trying to do. I'm very excited about that. Okay. Very helpful color. Then a quick housekeeping for Thomas. I know last quarter in your guidance, and I'm assuming this hasn't changed, but wanna confirm, you talked about the MBR impact from a few nuances. I think ACO REACH was, like, 60 basis points hit, sequestration 15, and, you know, new members maybe 50, 60 basis points. Is that still kind of the algorithm as we think about the year-over-year bridge in the MBR? Exactly. I think you said it well. When we think about the 2023 overall outlook as compared to the 2022, I think those three elements you just described, which were the ACO REACH incremental growth impact on consolidated NPR, the sequestration year-over-year impact, and some of the lower new member RAF scores we saw in our January payment file. I think those three things are still very much the way we think about that year-over-year bridge. I think that being said, the key to all of it is that our shared risk MLR, which is really the core unit economic driver of the business, remains quite strong. In fact, we're really pleased that we started the year once again with our overall inpatient utilization running right around 160 admissions per 1,000, through not only the first quarter, but also through April. Kind of all of that together gives us a lot of confidence to continue to invest in growth, and continue to drive economies of scale on the SG&A side along with that growth. Got it. Very helpful. Thanks again. Congrats, guys. Thank you. One moment for our next question. Our next question is gonna come from the line of Michael Ha with Morgan Stanley. Your line is open. Please go ahead. Hey, thank you. Just a quick one on mid-year sweep. Last year, second quarter, did you accrue anything for it? I think it drove almost 200 basis points to better MLRs, if I remember correctly. Just trying to get a sense of magnitude and how much suite could potentially benefit next quarter. I think, directionally, you are correct. That was about a 200 basis point pickup in the second quarter of 2022 relative to what we had previously been accruing and guiding to up until that point. I would say last year, we probably over the course of the full year saw slightly higher kind of outperformance than we have seen in other historical periods, again, just due to the impact of COVID and the timing of when encounters are being submitted by some of the downstream providers. That being said, I think, you know, generally speaking, it tends to be a positive item, and it's really something that we're keen to see how we see those come through over the next 60 days. As a reminder, these relate specifically to the new members in particular. That's where we book to what we're being paid just given that the payment for this year is ultimately dependent upon the encounters for that population last year when they obviously were not with Alignment. That's typically where we kind of start more conservative and then reevaluate over the course of the year. Got it. That makes sense. Thank you. Maybe just switching to or looking to 2024. In terms of just modulating benefits, I understand for MA plan, there are PBP rules that don't allow plans to reduce benefits in any given year by more than 20%. To my understanding, this doesn't apply to D-SNP, and while around 30% of your members are dual eligible, I think only about 4,000 of them are in actual D-SNP plans. If I'm not mistaken, I think it's probably because California hasn't accepted new D-SNP licenses in recent years. With that context, given your mix of D-SNP plan offerings and heading into the 2024 rate environment where most plans are probably going to toggle down benefits, how do you view your ability to modulate benefits to protect margins next year? I think in terms of how we think about benefits, we probably won't go into too much specificity just from a competitive standpoint. To your kind of broader statement, I think the reason folks are talking about benefit modulation into 2024 is a reflection of what John described in his prepared remarks, both in terms of some of the star rating headwinds that some of our competitors face, some of the impact of risk adjustment, the V28 phase-in, that I think some of our competitors disproportionately face relative to us, and just given the fact that while the benchmarks are going up in 2024, they're not quite going up at the same rate that they have over the past several years. When you take all those factors into account, I think that's why you're hearing folks in the industry talk a little bit more about potential benefit modulation. We're gonna be very mindful and continue to be disciplined about growth versus profitability the same way you've seen from us, you know, over the last two years since IPO. I think we're also gonna make sure that we're continuing to invest in growth. Because we don't see a star rating headwind, and we think we are very well positioned to navigate the V28 phase-in, I think that presents an opportunity to continue to invest in growth accordingly. Yeah. Hey, and Michael, it's John. Just to you know, kind of remind everybody, I mean, just, and we've talked about this before, but we did a really good job last year on the D-SNP look-alike crosswalking to other products. I mean, I don't think we lost anybody actually through that process. We're very proud of that. I think that with respect to the 2024 benefits, to Thomas' point, we're deep into the product design and bid process right now, and, you know, we'll share more on the Q2 call. I feel very comfortable with that whole process. Great. Thank you guys. Thank you. One moment for our next question. Our next question comes from the line of Whit Mayo with SVB. Your line is open. Please go ahead. Hey, thanks. Good afternoon. Thomas, just back to utilization in the quarter. Can you maybe just comment on visibility on outpatient? Since you provided the inpatient days per thousand of 160 in the quarter, what did that compare to last year? Happy to take that question, Whit. In terms of the performance this quarter as compared to the first quarter of last year, last year was very similar. I wanna say it was in the high 150s. I would sort of view the You know, whatever that is, two or three difference as kind of just normal course of variability given population changes year-over-year. Very, very much in line with our seasonal expectations as well as our performance in the prior year. In terms of your question about outpatient trends, if I kind of go back to when COVID first had a more significant impact on utilization in 2020, I think we first start to experience an increase or a return of some of that outpatient utilization in 2021. We more holistically saw that, I think, more fully return in 2022. As we stand here today, and we kind of look back on 2022 claims experience now with the benefit of fairly significant run-out, I think our overall outpatient utilization today looks similar to that of pre-COVID. I think that would be kind of our expectation on a go-forward basis. Okay. Looking at the membership that you tracked a little bit ahead of your first quarter guidance. I presume you just picked up maybe a few more lives in OEP, just not sure if there are any more details to share. Then maybe more specifically, talk about some of the, you know, the newer products and plans that you saw resonate either better or worse relative to the expectations. You guys have a lot of very tailored specific plans relative to some of the other companies we cover. Yeah. Hey, Whit, it's John. Yeah, I think we're getting some mix tailwinds with respect to what we just talked about in terms of the D-SNP. Just for everybody's benefit, they kind of eliminated this D-SNP look-alike product. We had to crosswalk a lot of these members over into other products last year. That created a little bit of a MBR headwind on that product. As we are actually seeing resulting from OEP, we're getting a bit of the tailwind because we're getting growth from pure D-SNP members into that product design. That's something that we're pretty optimistic about. Okay, thanks. Thank you. One moment for our next question. Our next question comes from the line of Kevin Fischbeck with Bank of America. Your line is open. Please go ahead. Hey, guys, thanks for the question. This is Adam Ron on for Kevin. I think I'd wanna focus my questions around the risk model revision changes and what you think, you know, what leverage you think you have at your disposal to offset it. First, if you could go into more detail about what specific, you know, mitigation steps you're taking to get to that 1.5%-4.5% rate lift over the next two years. Is it all just recoding? Why is it such a wide range? This is Thomas speaking. Thanks, Adam. I think in terms of the range itself, the range partially reflects the full opportunity, but also impacts just or reflects the timing of when we anticipate to realize these results. I think we feel pretty good that the upper bound of the opportunity is at 4.5%. I think we're maybe being a little conservative with the pace of us achieving that opportunity, hence the range you're seeing for us in terms of the 2024 bookends. In terms of the actual operational initiatives, a lot of it is kind of, I'd say, basic blocking and tackling and ensuring things like we have as high of a success rate or engagement rate as possible on annual wellness visits, ensuring that the chronic recapture is as high as possible, and making sure that as many of our members are being seen by both our clinical resources as well as our network of PCPs, again, as is possible. I think over the last several years, just given the pace of overall growth, we have done good on each of those different aspects of the overall wellness visit activities. We haven't been perfect, and I think we are recognizing that, and that is something opportunity we see to ensure that there is a great offset relative to the V28 impact coming down the pipeline. Would that explain why you think you would see less of an impact than others is because you haven't been engaging members in, you know, as many wellness visits, and they would have lower RAF than they should? I would say maybe a little bit differently. I would say our engagement has been quite good, and I think over 80% of our members have had an annual wellness visit between us or our PCPs, which I think is a pretty solid, you know, industry standard type benchmark. I think what we're saying is we can do a better job with the efficacy of each of those visits. I think we can do a slightly better job at increasing the overall completion rate above and beyond our historical trends. I think for a market like California, and it's probably similar in other markets like Florida or Texas. In markets that are generally a bit more mature around Medicare Advantage and value-based care, I suspect that many of our competitors have probably been a little more focused on risk adjustment in the past than we have, whereas so much of our emphasis for the past several years has been this notion of high quality, low cost, i.e., we've been very focused on the clinical model of putting that Care Anywhere team at the center of the member experience and ensuring that our improved health outcomes translate to improved cost outcomes. We haven't necessarily viewed the risk adjustment model as much as revenue cycle management as I think some others have, which is why we think that maybe some of them might not have quite the mitigating factors that we see in front of us. Yeah. Adam, it's John. Okay. You know, we noted that our overall consolidated RAF is, like, 1.13. You know, by, I'd say any standards, that's very much in the safe zone, and we continue to want to be in the safe zone. We've run the business off of a revenue and RAF of 1.13. We've done that from the very beginning because we've known from the beginning that you're gonna have some kind of a adjustment to reimbursement. You know, we've been around this business long enough that we still remember 2012 and what happened there with ACA and normalization. Now that we have clarity, I mean, these kind of changes come around, you know, every five years or so, or five to 10 years, actually. We feel very good about that, and kind of the predictability of that. We feel very good about just to pivot a little bit on where the Stars is going. We kinda know what the rules are. I think that to Thomas's point, we've got some opportunity to grow in those areas. Great. My last question around this is, you're in California, you have a relatively high capitation rate in terms of, like, how many percentage of your members that are seen by capitated doctors. In theory, those doctors are seeing a bigger headwind than what you're seeing. You know, if you cut benefits or adjust your cost structure to offset some of these rate headwinds, in theory, they're getting a bigger rate headwind. Are they gonna turn around and ask you for, you know, a higher capitation rate, or are they going to just see, you know, net margin headwinds, and they'll sort of have to absorb it? Yeah. Just wondering, like, if you're gonna have to support them in any way. Yeah, no. That's something we've been saying from the beginning, from the IPO. Meaning, you know, we have about a third of our business that's globally capitated and about two-thirds that is not globally capitated, and in, you know, what we would call shared risk. It's a contracting environment where we make sure that we are aligned with the providers and that we're managing those institutional risk pools, those hospital risk pools with AVA and with Care Anywhere, et cetera. It, in fact, is going to help us, again, relatively speaking, because to your point, the preponderance of the plans are globally capping, I think, and we've seen this. This is why we haven't built the company on just having, you know, 80%+ global capitation. That's why you also see, I think, the industry going toward more and more, you know, call it virtually vertical integration. I think the folks that are gonna be depending on global capitation kinds of arrangements are, in fact, going to feel that squeeze that you just mentioned. Frankly, we've seen that occur, you know, for 30 years in California. I mean, it's literally, I think the reason why we built the company the way we did, why we built AVA, why we built January, is we think we can be that most efficient delivery model and do so in supporting the individual doctors, not the intermediary groups per se. Now, we also do think that a lot of intermediary IPAs that we work with are actually doing a better job delivering Stars, delivering gap closures on HEDIS, et cetera. But the beauty of it is our Care Anywhere team is there to make sure that we have the control to ensure that we get those outcomes. I think to your exact point, there's gonna be more and more pressure on those that are just relying fully on global capitation. Awesome. Thank you so much. You got it. Thank you. One moment for our next question. Our next question comes from the line of Nate Malicki with Raymond James. Your line is open. Please go ahead. Hey, this is Nate Malicki stepping in for John Ransom. Just on your expansion efforts in new markets, I'm wondering if you can comment on what you're seeing in terms of membership growth there, especially maybe in Florida and Texas, and then anything incremental you can provide on learnings as you continue to expand in those states. How you doing? It's John. I'm feeling very, very comfortable we're gonna be able to hit or exceed our growth rates without relying heavily on Florida and Texas. I do think we're making great progress on network, on distribution, on Stars, which is something we've mentioned in the past, where the focus on working with the provider delivery partners that we have. Just taking a little bit of a playbook out of the North Carolina model, which is get to the five Stars, you know, move toward five Stars, have really good products, have good operational support. The problem we had last year, as you recall, is we had to find the right distribution partners, we've got solutions for that. I'm feeling really good about that. I'm optimistic about both markets. On the other hand, we're not going to just be entirely dependent on those two for the material growth that I expect heading into 2024. Yeah, that's helpful. Then just kind of following up on Stars. Anything you can provide on membership satisfaction or maybe some other internal data that you might have access to and how that'll translate to the 2024 Star Ratings? Yeah. NPS is still very good. It's still in the sixties. I think it's 62. We kind of bounced around between 60 and 68 historically for the whole membership. Our Care Anywhere membership has kind of been around between 75 and 85, and I think the last I saw was 78. I think those triggers are, in fact, very good. I think with respect to CAHPS and the weighting that CMS put on CAHPS, you know, I think you guys know that they're changing the weightings back down for rating year 2026, I think it is. They're gonna reemphasize HEDIS. The other thing I would note is with respect to CAHPS and just member satisfaction, we're spending a lot of time on, and we alluded to this in the remarks, but we're spending a lot of time on, I would say, supplemental vendor management, making sure that the contracted vendors that we work with, and I won't name any of them, but are delivering on the promise, and their service levels to us and to our members. So I'm very confident that that's gonna be dealt with this year heading into 2024. That was a source of abrasion for us from a sort of pure Stars perspective. Great. That's all I have. Thanks so much. You got it. Thank you. One moment for our next question. Our next question comes from the line of Gary Taylor with Cowen. Please go ahead. Hi, good evening, guys. Two quick numbers questions and then a theoretical question. On the numbers, I understand the seasonality around the EBITDA and the MLR from a year ago and the sweeps. The midpoint of the 2Q revenue guide is down a little bit sequentially, and I'm just wondering, does that imply there's anything else retro in the 1Q, or that's just your typical conservatism, Thomas, or anything on that piece? Hey, Gary. Yeah. In terms of the second quarter revenue, I think the sort of two offsetting factors that drive the guidance are, obviously we guided today continued, anticipated membership growth in the second quarter as compared to the first quarter. And on the other hand, what we typically see from a revenue PMPM standpoint is that the revenue PMPM goes down sequentially as we both grow new members, which come out with lower revenue PMPMs, and we see involuntary disenrollment of our older, typically sicker and higher revenue PMPM members. Just the mix of those two things over the course of the year. Then to your point, you know, obviously what I mentioned earlier is that we do expect to see the sweeps from CMS this quarter, and that could be an area of opportunity based on our historical experience. Thanks. Then looking at the Days Claims Payable down sequentially and year to year and from the queue, the bulk of that year to year and sequentially is really coming out of year incurred but not paid bucket. Is there some color you can help us with on why those that dollar reserve isn't floating higher with the medical expense? This has been one of our initiatives ongoing now for the last, really six to nine months, in terms of how we can continue to invest in and increase the productivity of our overall claims department. The benefit of that obviously is earlier visibility to emerging claims trends. This is something we've been actively investing in in terms of just more examiners and kind of different automation tools accordingly. I think you're starting to see a little bit of the benefit of some of those efforts in the first quarter, which we're very pleased to see. I think more broadly speaking, you know, we're continuing to think about how we scale the overall business. Investing in things like the claims system on a go-forward basis will be, I think, areas of opportunity for us to continue to drive down that SG&A as a% of revenue over time. That's really the primary driver of the days payable question you had in terms of the first quarter actuals. Was there a P&L impact from that in the 1Q? Or it's... No. It's the adjudicated claims inventory and the incurred but not paid- Yeah. that you're saying is moving. Got you. Nope. Nope. In fact, we actually had some slight favorability on IBNR in the first quarter from 2022. It wasn't a significant number, but a couple few million dollars. Last one for me. Just give us a quick update on how you're thinking about the Alzheimer's drugs heading into 2024. You know, CMS put nothing in the benchmark form. We've got that existing NCD requiring, you know, trial or registry, but there's chatter now with the latest Lilly drug that maybe the NCD will get reexamined, et cetera. I guess in theory, you could just rely on CMS to do the significant cost calculation and flip it to a pass-through if it's gonna be a material uptake of patients. Do you head into your June bid just assuming CMS will protect you on that? Or do you feel like you have to protect yourself in the bid process? Hey, Gary. John here. You know, that's one specific variable that's of many that I think are gonna impact Part D resulting from the whole IRA initiative. I think that is gonna be a pretty important component of our bid strategy heading into 2024. Generally speaking, I think for your specific question, I do think we're gonna rely, and we've said this in the past also, that we're gonna rely on kinda the CMS factoring that into the whole benchmarks and the whole calculus. I will say that Part D, specific Part D drug strategies as it relates to the bids are gonna be a very important part of the product design heading into 2024. Okay. Thank you. Hey, hey, Gary? Yep. Yeah, just one other thing. Just to Thomas' point on Q2 sweeps, I mean, we are, you know, you know us, we don't know it, you know, so we're relatively conservative. I think, as you know, for the last, I don't know, since we started the business, we've always had some positive pickup in the Q2 sweep numbers. I will say for 2022, they were unusually good because of the whole timing issues associated with COVID. Do you remember that? We're just being very disciplined about that. Gotcha. Ten-four. Seen that playbook, so nothing wrong with that. Thanks. Thank you, and one moment for our next question. Our next question comes from the line of Jessica Tassan with Piper Sandler. Your line is open. Please go ahead. Hi. Thank you guys so much for taking the question, and congrats on the quarter. Can you just remind us what the current criteria for the Care Anywhere program are, and just are those criteria changing in 2024 as you move to adopt, the new V28 risk adjustment model? Yeah. I would sort of entirely separate RAF and V28 from Care Anywhere. Those two things are... Like, in other words, someone's risk score under the current model or the new model has no impact whatsoever on how we think about Care Anywhere criteria. The way we've evolved this over time is, basically using a variety of machine learning algorithms and more recently some AI tools that allow us to take all the data we have on members, including pharmacy data, lab data, demographic data, encounter data, admission discharge transfer data, and a variety of other sources that allow us to, basically try to pinpoint who the people are who would be most likely to have an acute event in the next 30 days, as well as those who have a much higher, or greater, chronic set of factors than the average population or the average senior. All those things kind of go into how we think about our eligibility criteria, and then that gets routed automatically to our outbound call team and to our provider engagement resources so that we can try to get these members enrolled in the program. On average, I would say our Care Anywhere population in terms of age is in the high 70s. They typically have five or six chronic conditions, if not more, and then kind of things of that nature. I don't anticipate any change in how we approach our Care Anywhere engagement or criteria, other than just continuing to ensure we get everyone engaged to the extent we can. Yeah. We got to get closer to that 80% engagement level on the identified Care Anywhere eligible members. Like, we're gonna take care of these people that need the care, you know, irrespective of the reimbursement. We have to do that, and we're gonna continue doing that. Yeah, no, yeah, I think Thomas is exactly right. Great. Got it. Thank you. Just, I wanted to just ask your kind of level of comfort with the 2024 adjusted EBITDA breakeven target and how you think about the balance between potentially accelerating membership gains, in 2024 versus the persistence of that target. That's it for me. Thanks. You got it. Yeah, this is John. I feel good about it predominantly because of the Care Anywhere and AVA investments that we continue to make. The kinda loyal shared risk MLRs in the company are still very, very good. We've got a lot of innovation on the clinical side that we're gonna be putting into production in several of our markets. We've got a bunch of ideas that we're gonna be testing out that I think are gonna, you know, kind of create some tailwinds for us on an MBR basis. I think the initiatives that we've got just kind of from a core operational scale perspective to kinda do blocking and tackling on retention, I think is just a very good opportunity for us, for, you know, like we said before, vendor management, you know, making sure that our vendors are gonna be doing what they say they were gonna do. These are things that I just have a high degree of confidence that will allow to more efficiency in our back office operations. Having said all that, I think that if the market opportunity presents itself, if, you know, we find ourselves from a product design perspective, you know, kind of growing, I do think that, I think if we would... Have said differently, if I see a little bit of an uptick in MBR because we're growing a lot resulting from a lot of new members, I think I would make that trade, you know. That's not backing off any of the core MLR. It's not backing off, you know, our confidence in getting profitability. If you've got a disproportionate share of your membership base, you know, being new members, combined with the fact you're gonna pick up just raw scale economies because of that growth, I think that's something we gotta do, you know. With that little proviso, I still feel good about it, and we'll keep everybody posted on how these initiatives actually get operationalized. Great. Thank you very much. You got it. Thank you. One moment for our next question. Our next question comes from the line of Calvin Sternick with JP Morgan. Your line is open. Please go ahead. Thanks for the question. Kind of a follow-up to the last one. Just curious how you're thinking about some of the opportunities within your markets next year, just given that, you know, it sounds like you guys are going to be a bit advantaged relative to some others where there could be a little bit more volatility. Just curious if you're looking at those changes leading to revisiting potential M&A within any of your markets? Okay, Cal. Yeah, that was good. Let me answer the first one. You know, the way we look at it is this way. I think it's not a secret the last three years have had headwinds on a macro industry perspective. You know, I think people have been aggressive on benefits resulting from technical, you know, kind of loopholes on Stars. I think people have been aggressive on risk adjustment. I think people have been, you know, kind of unyielding on distribution. What we love is the fact that CMS has kind of just closed all of that down and refocused on the way Medicare Advantage was designed. I think you're going to have some of our competitors be impacted by Stars. You're gonna have some of our competitors impacted by risk adjustment. I think everybody's gonna have more of a playing field on the distribution side with the brokers, although I think there can be even more done there. I do feel pretty good about that. I think that, you know, the fact that we've proven we can take share from the bigger competitors over the years, and in fact, 85% of our growth is coming from switchers also is a factor because I do think those folks have been able to maintain their Stars. We'll see what happens with respect to their risk adjustment, though, and particularly in California, that is. I feel really pretty good about that. With respect to M&A, I think the notion of just being very careful. Being very careful, very thoughtful about, you know, kind of what kind of risks are incremental that you would incur because I think we have got a very solid, well-run business right now. We gotta keep that in mind with the trade-off of just getting scale. I mean, I think getting scale is gonna be important in the overall mix of things. Just accelerate the scale economies on the back office in particular, number one. Number two, taking AVA and Care Anywhere and just applying it over more memberships. I think that's just those two kind of thematic synergies, I think are, is cause. We gotta look at stuff, we gotta look at stuff, seriously. Having said that, we got a good thing going, and we gotta make sure we don't goof that up. Got it. Thanks, John. Thank you. One moment for our next question. Our next question comes from the line of Nathan Rich with Goldman Sachs. Your line is open. Please go ahead. Hey, good afternoon, John and Thomas. Thanks for the questions. Maybe kind of, following on the last question, just when we think about the 2024 PMPM, the flat to +1, you know, for a market, you know, like California, I guess, you know, how would you compare where you are relative to the market averages in those counties that you're in? Is really the delta between flat and +1 the ability to offset some of the risk model changes? If so, you know, what kind of pushes you to the high or low end of those ranges? Just sort of what you need to do to make sure you execute on the those offsets. Yeah. In terms of the ability to get to the high end of the range versus the low end of the range, I think it's a matter of ensuring that we're continuing to ramp up our staffing and resources, as well as our training and our engagement in a very timely fashion. This has been a priority of ours now, really for the last, you know, 60 days, and we're starting to see some solid traction, and I anticipate that to continue over the course of the second quarter. I think just that the timing, in other words, is probably the key thing that would put us at the low end or the high end for 24, which is why I still think that the overall opportunity is pretty sizable, though, over the course of a full three-year phase-in, where, you don't have to necessarily have it all in year one. I think in terms of the competitive backdrop relative to our outlook, yes, I think, I suspect at least that some of our competitors may not have the opportunity to offset some of the headwinds that the industry collectively faces. I think furthermore, just based on what we know about California and some of the historical CMS data available from CMS going back several years ago, I think we have at least a sense of some of the risk adjustment scores of some of our competitors. We would anticipate that there could be some headwinds for certain of those competitors in a more kind of significant way or more adverse way than what we are facing. I think it's a little bit of both, but that being said, this is a competitive market. As we said before, you know, I'm sure everyone will be working on different forms of offsets. While we feel quite good about how we're positioned, we'll see how others, you know, continue to navigate the environment over the next couple of quarters and next couple of years. Okay, great. Sorry to go back to the topic of utilization, but, you know, hospitals have talked about increasing kind of capacity and demand is kind of driving their outlooks for the balance of the year. I guess, you know, could you maybe give us your view on how you see inpatient volumes trending over the course of the year? You know, if we do kinda see a pickup, you know, that's kind of contemplated within the range of expectations that you have for MLR in your guidance. Yeah. Yeah. I do think that our ability to kind of maintain our historical performance is quite strong. As a reminder, when we talk about 160 or so admissions per 1,000, that would compare to, for our markets, around 250 admissions per 1,000 for traditional Medicare. The difference between 160 and 250 is about 14 percentage points of MBR. It's a pretty significant driver of our performance over the course of the year. In terms of the consistency factor, we have run between 155 and 165 each year for the last six years, and then obviously for the first four months of this year, as I mentioned, in other words, on track to continue to achieve that, I think, for the seventh year in a row. I think the important part about that is not just the consistency, but it's the consistency in light of the growth. As a reminder, seven years ago, we were significantly smaller than we are today. We were only in seven or eight counties seven years ago. Given the fact that we've expanded to, you know, six states, 52 counties, and grown the membership by a factor of probably 3x over that period of time, I think we've generated a lot of kind of performance and replicability of the care model, which is what gives us confidence that we will be able to continue to perform on that key metric of ours, the inpatient admissions per 1,000, in light of some of these evolving utilization patterns that you're describing on a more national basis. Thank you. Thank you. This does conclude today's question and answer session. Ladies and gentlemen, this also does conclude today's conference call. Thank you for participating. You may now disconnect.