Good afternoon, and welcome to Alignment Healthcare Second Quarter 2023 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one, one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one, one again. As a reminder, this conference is being recorded. Leading today's call are John Kao, Founder and CEO, and Thomas Freeman, Chief Financial Officer. Before we begin, we would like to remind you that certain statements made during this call will be forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are subject to various risks, uncertainties, and reflect our current expectations based on our beliefs, assumptions, and information currently available to us. Descriptions of some of the factors that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in our filings with the SEC, including the Risk Factors section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Although we believe our expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. In addition, please note that the company will be discussing certain non-GAAP financial measures and that they believe are important in evaluating performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the press release that is posted on the company's website and in our Form 10-Q for the fiscal year ended June 30th, 2023. Hello, and thank you for joining us. We are pleased to deliver another strong quarter in which we met or exceeded each of our key performance indicators for the tenth consecutive quarter since our IPO. For the second quarter of 2023, our total revenue of $462.4 million represented 26% growth year-over-year. We ended the quarter with health plan membership of 112,200 members, growing 17% year-over-year. Adjusted gross profit of $53.6 million, producing a consolidated MBR of 88.4%, better than our implied outlook range of 88.6%-89.1%. Importantly, we delivered an MBR of 87.1%, excluding our ACO REACH business. Meanwhile, our adjusted EBITDA was -$2.1 million, well ahead of our outlook range. As I reflect on our year-to-date results, I'm pleased with the progress we have made across the organization. We continue to improve upon our care model each year. In the second quarter, inpatient admissions per thousand ran at 151, an improvement from 163 in the first quarter and one of our best Q2 results in the history of the company. This brings our year-to-date inpatient admissions per thousand to 157, which is in line with the prior year and consistent with our expectations, all while growing well above the industry. While Thomas will drill into more detail during his remarks, I'd like to emphasize that we feel confident in our ability to drive our MBR lower in the second half and achieve our adjusted gross profit guidance for the full year. Our confidence is underpinned by our successful utilization outcomes, driven by Care Anywhere and AVA in the second quarter. We also see further upside as we continue to improve our Care Anywhere engagement rates and execute against our network performance management initiatives. Together with regular Part D seasonality, we believe these factors will deliver our anticipated MBR improvement in the back half of the year and position us for a robust 2024. As we think about our 2024 objectives and our long-term MBR target, we are laser-focused on actions to improve our member mix by network and product in 2024. We believe our shared risk networks provide the best clinical experience for members, and as we've shared in the cohort data, create the best MBR opportunity for us over the long term. With this strategic priority in mind, we are designing products to direct growth to our shared risk book of business, making changes to our networks, investing in AVA's external provider capabilities, and enhancing infrastructure to engage and manage these networks. Beyond our gross margin trends, I'd like to highlight the progress our team is making against our sales and retention goals as we laid out at the beginning of the year. During the second quarter, we saw a 50 basis point improvement in our total retention rate year-over-year. This result was supported by our recently deployed CRM application within AVA and improvements toward insourcing member call center functions. We expect more of the total opportunity to materialize in 2024, following our transition to higher quality supplemental benefit vendors, retention initiatives with our distribution partners, and continued deployment of our call center plan. As we scale up our business, we are actively seeking to improve our mix of internal versus external sales, while also making improvements to our sales operations infrastructure. To date, 24% of our sales have been generated internally versus 20% last year, an improvement of 4% year-over-year. This improved mix is partially a result of our 37% year-over-year improvement to our lead to sales conversion rates from internal sales channels. These efforts complement our plans to double down on high-performing external brokers as we gear up for the upcoming AEP. While it's still early, I'd like to share some comments on our bids. As we previously discussed, we believe competitors within our markets will be challenged on lower Star Ratings payment and face risk adjustment pressure. With the competitive landscape shifting in our favor in 2024, we are leaning into the opportunity by maintaining or increasing our product richness across each of our markets. This cycle, we also refined our product strategy to more directly address our seniors in a similar fashion to how we think about our clinical operations. This approach curates distinct products that complement the need of two key member types: low-utilizing healthy seniors who value immediate savings, and high-risk seniors, with whom we tend to see the greatest level of engagement with our Care Anywhere programs. We are creating clear and more competitive products by simplifying member benefits and concentrating benefit value in high-impact areas that we believe will drive growth. Taken together, we are excited that our product approach, combined with relative tailwinds on stars and RAF, will decisively set us apart from other plans in the upcoming AEP. Lastly, given our confidence in our existing market growth strategies and our focus on achieving Adjusted EBITDA breakeven, we are limiting our new market expansions to in-state expansions in 2024. We are actively engaged in strategic discussions with provider partners and health systems in new and existing states as we plan for 2025. These opportunities center around joint ventures and other innovative ways to deploy our differentiated Care Anywhere, AVA, and other provider engagement capabilities to help solve for the strategic needs of many providers and health systems. We are optimistic about our opportunity set, and we look forward to sharing more about our growth pipeline in the future. Before I close, I'd like to thank each and every employee who has helped us further our mission to improve healthcare, one senior at a time. Our investments and activities in the first half position us well to deliver on our full year commitments and achieve our 2024 growth and breakeven objectives. With that, I'll turn the call over to Thomas to review our financial performance. Thomas? Thanks, John. For the quarter ending June 2023, our health plan membership of 112,200 increased 17% compared to a year ago. Our second quarter revenue of $462.4 million represented 26% growth year-over-year. The strong result was driven by Medicare Advantage membership that exceeded our outlook, combined with favorability in our revenue PMPM due to the timing of the annual CMS sweep cycle. Our adjusted gross profit in the quarter was $53.6 million, reflecting an MBR of 88.4%, or 87.1%, excluding our ACO REACH book of business. The outperformance in the second quarter was a direct result of our actions to drive higher engagement with our Care Anywhere-eligible population, including targeted efforts towards our ESRD and skilled nursing facility members. In the first half, MBR, excluding ACO REACH, was 88.2%, compared to 84.9% a year ago. As we previously noted, the year-over-year comparison is distorted by atypically favorable prior period items last year due to COVID-related dynamics, including higher sweep payments. This dynamic comprises roughly two-thirds of the year-over-year difference in MBR. While revenue in the quarter benefited from some positive sweep payments this year, the gross profit impact was meaningfully lower due to contract mix. The remaining approximately one-third relates to other factors we discussed in the past, including sequestration and member mix by product and network, specifically as it relates to the 2023 look-alike transition. We see this as an additional MBR opportunity, which we took into consideration for our 2024 bids. On outpatient utilization, our paid claims PMPM for all outpatient elective procedures in the first quarter remained roughly in line year-over-year, including hip and knee replacements, which were within $3 PMPM of the prior year. While we have partial second quarter outpatient paid claims data, we are able to track outpatient authorization data on the vast majority of our at-risk members to evaluate our second quarter trends. This data is strongly correlated with total outpatient claims volume, and authorizations received through June indicate that we are running at levels similar to last year, consistent with our expectations. In aggregate, we feel comfortable that Care Anywhere, AVA, and our provider engagement efforts are continuing to give us a competitive advantage towards managing overall utilization trends, and we believe we are in a solid position to achieve our back-half outlook. Turning to OpEx, SG&A in the quarter was $70.2 million. Excluding equity-based compensation expense, our SG&A was $56.3 million, an increase of 9.8% year-over-year. SG&A, excluding equity-based compensation expense as a percentage of revenue, decreased by approximately 180 basis points year-over-year. A portion of the favorability was driven by the timing of expenses that we expect to reverse in the second half. Lastly, our adjusted EBITDA was -$2.1 million, well ahead of our expectations. Moving to the balance sheet, we ended the quarter with $517.5 million in cash and investments. Our cash balance at the end of the quarter again included an early payment from CMS of approximately $147.5 million. We recorded the early payment as deferred premium revenue in Q2 and will recognize it as revenue in Q3. As a reminder, this does not have any impact on our income statement metrics. Cash and investments, excluding the early payment, were $370 million. Turning to our guidance. For the third quarter, we expect health plan membership to be between 113,500 and 113,700 members, revenue to be in the range of $440 million and $445 million, adjusted gross profit to be between $54 million and $57 million, Adjusted EBITDA to be in the range of a loss of $12 million to a loss of $9 million. For the full year 2023, we expect health plan membership to be between 113,500 and 115,500 members, revenue to be in the range of $1.76 billion and $1.785 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. Given the strong results of our year-to-date sales and retention efforts, we are raising our full year 2023 membership guidance. We are pleased to see our year-to-date focus on these activities start to pay off, and we continue to feel optimistic about how this positions us for AEP. We are also raising our full-year revenue guidance on the back of our second quarter revenue outperformance, which now implies 24% growth year-over-year at the midpoint of the outlook range. We are reiterating our adjusted gross profit guidance for the full year. Second half seasonality, which implies an MBR of 86.6%-87.7%, reflects a favorable mix of duals achieved year-to-date, a continuation of utilization trends experienced in the first half, and normal seasonality of Part D MBR, which is more profitable in the second half as compared to the first half. We additionally see opportunity resulting from our initiatives to drive increased provider relationship alignment and operational efficiency. This entails extending AVA and Care Anywhere to more of our contracted doctors to reduce high-cost cases and improve medical management. Further, we are actively managing payment integrity vendors and processes and anticipate tailwinds associated with those efforts to materialize in the third and fourth quarter. These items are partially offset by higher than expected new membership, given our year-to-date sales outperformance and increasing investment in our clinical and Annual Wellness Visit activities in preparation for our AEP growth and 2024 risk model changes. Our overall views on SG&A and Adjusted EBITDA are unchanged in spite of our higher membership growth, and we now anticipate delivering a 190 basis point improvement in SG&A as a% of revenue in 2023 relative to 2022. Lastly, as mentioned earlier, we feel good about our overall utilization outlook and believe we have fully incorporated our medical cost experience into our bid assumptions for 2024. We remain on track with our previously announced operational initiatives to completely offset the impact of V28 and are showing clear signs of continuous improvement on medical utilization management through our clinical operations. Each of these factors leave us optimistic about our 2024 objectives, and we look faorward to keeping you updated as the year progresses. With that, let's open the call to questions. Operator? Thank you. As a reminder to ask a question, 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 while we wait for the Q&A to compile. Our first question will come from the line of Michael Ha with Morgan Stanley. Your line is open. Hi. Thank you. Yeah, very solid earnings outperformance so far year-to-date, about $20 million better than expectations, but you're keeping full-year EBITDA guide unchanged. Thomas Freeman, I think you might have explained it, but wondering, should we view it as more prudent conservatism or unanticipated cost expectations in the back-half of the year? I think you mentioned possibly accelerated investments. Just any color, color there would be helpful. Also, could you help us quantify the midyear sweep payment benefit MLR? Yeah. Happy to start with the first question in terms of the kind of back half outlook and how we see things evolving over the next six months. I think a lot is kind of moving in our favor, and some things we outlined include the favorable mix of the dually eligible membership we've achieved year to date. As a reminder, those are members who tend to be most engaged with our Care Anywhere programs, and therefore, we often see the highest returns from a financial standpoint as we continue to grow that book of business. Second, I think, in spite of some of the concerns across the industry, we still feel really confident in how our utilization trends are evolving, and we delivered one of our best second quarters we've had in the history of the company in terms of our inpatient utilization metric, which is you, as you know, is one of our major KPIs we track in terms of monitoring overall claim spend. Lastly, we do have some tailwinds from the first half heading into the second half with Part D, where the fourth quarter in particular, tends to be most profitable in terms of quarterly seasonality, just as it relates to the catastrophic protections that come into play over the course of the year as members incur more drug costs. I think additionally, you mentioned a couple of investment items, and what we're talking about there is really a lot of our clinical efforts, both with our employee resources as well as our external provider partners, to ensure that we're seeing as many members as possible this year to put care plans in place as it relates to 2024, both in terms of our AEP growth coming up, as well as the impact of V28 on overall risk model changes. We're continuing to invest an extra few million dollars in the back half of the year, given our year-to-date outperformance, and that's also reflected in our, our overall MBR updated outlook. I think the last thing is, you know, you've seen our cohorts before. Our new members typically come in around 90% MBR and then trend down into the low 80s and even the high 70s over time. Just given that year-to-date sales outperformance, we are absorbing a bit of higher MBR related to that new membership. We're holding the line on SG&A to ensure that we offset that from an SG&A as a% of revenue standpoint, to show flat, if not improving, overall EBITDA margin in 2023. Great. Thank you. Appreciate that. While the focus has been basically break-even target next year, given the rate environment, just how unique 2024 is, with it possibly being, I mean, quite arguably the biggest year for planned shopping and the relative strength of your Star Ratings, I think John mentioned you're actually maintaining or increasing product riches next year, which is quite powerful since I think most plans are reducing benefits. You know, golden opportunity to grab market share. You know, the average member retention is quite high. The lifetime value is extremely attractive. With that said, two questions. One, what level of membership growth in excess of your 20% target next year do you believe could begin to place some pressure on your 2024 break-even target? Two, how much incremental long-term earning value does outsized membership growth provide to Alignment in your multi-year story? For example, let's say every 100 bits of excess member growth above 20%. Is there a way to quantify or articulate just how beneficial it is for your long-term earning trajectory? Thank you. Yeah, so in terms of the overall AEP outlook, as John described, we're really excited, and we're really, you know, comfortable with the way we've tried to find that balance between growth and profitability. As we think about, I think your question was, is there a certain, you know, level of growth that would cause us concern about achieving our break-even target next year on an EBITDA basis? I think the answer is, is no. The reason we say that is, yes, new members do tend to come on with a bit higher MBR than a kind of more tenured member that's been with us for a few years. However, any MBR pressure we might see from significantly outsized growth, we also would expect to see an offset on SG&A. Part of our SG&A is, of course, variable that we have to continue to grow to support our membership, but we have a lot of fixed costs, particularly those we've incurred establishing ourselves as a public company over the last few years, that we anticipate seeing economies of scale on as we continue to grow overall membership. We, we don't look at it as a trade-off, where if you get a certain amount of growth, it's a problem to our EBITDA break-even target. We actually think it would be neutral, if not additive, to that objective. To your point, the compounding benefit is that group growth in 2024 really starts to pay dividends in the form of lifetime value into years two, three, and four. The way I would think about it, in terms of our previous cohort analyses we've shared, as I mentioned earlier, is you can see about at least a 10, if not 15 percentage point improvement in MBR from year 1 through year 5, as we manage the membership, engage them clinically, and, and continue to deploy all of our, our Care Anywhere efforts. That's sort of the way we think about it, is the investments we make today, drive the, the short-term membership growth, but really pay long-term dividends in the form of MLR improvement. Perfect. Thank you, guys. Thank you. One moment for our next question. Once again. That, that will come from the line of John Ransom with Raymond James. Your line is open. Hey, good, good morning. you know, we have the Stars coming up in September, and, yeah, I know that your big plan is on a raw basis, kind of close to some of the cut points, the 3.5. Just wondering how you're thinking about that dynamic as we head into the fall. Thanks. Hey, John, it's John. Hey, John. I feel a lot better, actually, right now than I did, you know, 90 days ago. I think a lot of the execution, around all of the measures, is coming in, better and, and, and on, on the better side, on, I would say, 4 or 5 specific measures than we had originally thought. It's still early, obviously. We're still waiting for the overall cut points. You know, I had shared earlier in the year it was pretty close for comfort. It's too close for comfort, but right now I feel really very positive, certainly in the California, maintaining the 4. I think there's opportunity in some of the other states to even, get better. And, and, and, so we'll see. You know, I, I think industry-wide, and we're not an exception, I think CAHPS is challenging for everybody. I think we're so good on some of the HEDIS admin and Part D measures that we're gonna be okay. That's my latest thinking. Again, it's subject to the final cut points that we'll know in the next couple of months. When you mentioned four or five things, what four or five things? I mean, there, there's so many different measures, but which four or five do you focus on today? We're doing better on these. Yeah, they were, they were, TTY was one example. dysrhythmia was another example. Statin was another example. In a lot of our analysis, we were kind of on the bubble on, on some of these different metrics. As we've gotten more and more data, we're starting to edge toward the good side of, of, of, of, of, of those different measures. whether it was a, you know, kind of we're right sitting in the middle between a 3 and a 4 or a 4 and a 5, et cetera. We're kind of, you know, getting more data to get us more comfortable. We're, we're rolling on the, on the good, good guy side of that. Mm-hmm. And just lastly, I know I keep asking about stars, but do you agree with the general thesis that they're just raising the bar, and so the overall number of-- if you had 100 people in MA across the country, you're gonna have fewer and 4-star plans under the new measures than you did this year? Do you think they're just trying to shrink that and raise the bar? That's what it looks like, but do you agree with that, that general thought? I think so. I mean, I think the whole thesis of MA was to encourage high quality at a lower cost, thereby increasing value to that beneficiary. I think over the last two to three years, there have been a variety of reasons and loopholes and whatnot, that I think different players have used different loopholes to get around that original thesis. I think CMS is getting back to that original thesis, and I think it's gonna be good for all the companies that provide higher quality at a low cost. I think at the end of the day, it's gonna be better for the beneficiary. I think those two concepts form, you know, a lot of the foundational comments we've made around, you know, we being very disciplined around growth versus margin the last couple of years, and why we are so optimistic about the 2024 AEP. I think we, you know, we've, we've held the line, you know, not chasing growth, you know, at the expense of margin. I think, I think this year we're, we're, we're gonna turn the jets on a little bit. You know, so I think it's a good thing for the industry overall, John. Yep. Anyways. Now, having said that, I'll have a slide for that, but which is, I think, the shift of the weighting of CAHPS next year, I think is a really good thing for the industry. I think having that be, you know, a 4-weighted measure, you know, for a fraction of the membership on surveys, is, was not indicative of the overall quality of all the plans, you know? I think that's gonna be a healthy thing. When you put that in context to some of where we sit with these measures, I think we're super good on quality on HEDIS, super good on Part D, and super good on admin. I think net-net, that's gonna be very advantageous for us in the short and long term. Right. Thank you, sir. I'll jump back in queue. You got it. Thank you. One moment for our next question. That will come from the line of Kevin Fischbeck with Bank of America. Your line is open. Hey, this is Adam Ron on for Kevin. Yeah, I guess my question would just be around utilization. You know, obviously, we covered the, the larger health plans, and United and Humana and CVS and Centene all talked about higher utilization, MA. I, I appreciate you saying the data you have doesn't support, you know, seeing higher utilization trends. Just wondering, you know, in the, in the outlook, you kind of maintained, you know, the, the gross profit you expected. Is there anything you have that could, like, absorb potential, you know, spikes in utilization if that were to materialize? Like, are you boosting reserves or just what, what are you seeing and what gives you the confidence that, you know, you won't see that kind of pressure materialize? Yeah. Hey, Adam, this is Thomas. I, I think a lot of the commentary, across the industry, dependent upon the plan, has, has been probably centered around the outpatient setting in general. I guess just to expand upon some of the comments we made in our prepared remarks, you know, we started to see some outpatient increases coming out of COVID back in the, I'd say, kind of summer months, 2, 3 Q of 2022, so about a year ago. We saw that continue into the fourth quarter and the early part of this year. What I would say is that, it's not that we haven't seen some of the outpatient spend come back from the, depressed levels we saw during COVID. I would just say that what we've seen so far this year is very much in line with our expectations, and it's not that different than what we experienced in 2022. In other words, I think we did a nice job of, of trying to take into account all the moving pieces when we put together our 2023 biz, as well as our 2023 guidance. As we sit here today, obviously, we continue to see some ebb and flow across the different individual categories of spend. Big picture, I think based on our auth data on the outpatient side through the 2Q, we continue to feel like the utilization trends are trending pretty stably and in line with expectations as we think about our 2H outlook. Then, soundedly, you know, we just got off the phone with John's earnings call, and they, they made it sound like they got some positive data from CMS on, like, a positive retro trend adjustment, and that they meaningfully increased their outlook in terms of, you know, what they're expecting for DC contribution. I'm just wondering if you're seeing similar things or if, if you've noticed any changes in ACO REACH this year, that, that makes you feel more confident in the program? I, I can't comment on, on their specific messaging. I would say in terms of what we've seen so far, I know CMS has put out a data point on the first quarter with respect to the retro trend benchmark. That number, you're right, was, I wanna say in the 3%-4% range, lower than the 5%-6% we ultimately saw in 2021 and 2022. That being said, what I would suggest is that, If we were to go back in 2021 and 2022 and look at it on a quarterly basis, that number does move around from quarter to quarter. I think we're anticipating getting the next update from CMS over the next 30 days on the second quarter, then we'll continue to see how the third and fourth quarter evolves. Big picture, I would say, probably too early for us to call that an outright win. Relative to our expectations, I would agree that we are running pretty in line with how we set the year to begin with in terms of guidance. I think big picture, we continue to view ACO REACH as a strategic sort of extension of what we're trying to do on our health plan networks. In other words, we view it as a way to more deeply align with our provider partners and to apply some of our best practices around Care Anywhere and AVA across a broader portion of their panels. We, we think that has a benefit both to the senior and to us as the plan. What we said in the past is that we also think that the ACO REACH program will continue to run at much higher MBRs than the MA book of business. While it has much lower SG&A, it's probably comparative profitability long term. For us, it's not something you're going to see us go crazy on in terms of growth. I don't think you'll see us expand into new states or new markets just to pursue ACO REACH growth, but rather something that is, is accretive to what we're otherwise trying to accomplish from a health plan growth standpoint. Awesome. Thank you so much. Thank you. One moment for our next question. That will come from the line of Jared Haas with William Blair. Yeah, good afternoon, Jared on for Ryan Daniels, and thanks for taking our questions. You know, John, you talked a little bit about some of the progress you're seeing in regards to retention goals, and I think you called out some improvements on the sort of internal CRM application. I guess I'd be curious if there's any more color around, I guess, specific updates or innovations that you think are really driving retention. I guess to ask a little bit more broadly, are there any other technology investments that you think could enhance engagement with seniors? Yeah. Hey, hey there. Yeah, absolutely. It's been, I would say, a, an absolute focal point operationally for us to be lasered in on improving retention. So the kind of like four things we've done is apply the technology across all the touch points of that consumer, and, and, and also make sure that the vendors that we subcontract to, particularly on some of the supplemental vendors that we've used, that we've actually really improved the, I'd call it, the vendor management and the quality and the service level expectations across the board. I, I think there was so much just emphasis and focus on supplemental benefits being incorporated into the 23 benefits, you know, a lot of the vendors were stressed, frankly. I think that, that caused some abrasion for us as the plan. We've really focused on that, and done a really good job on, on frankly, replacing some of them. The second thing we've done is we've decided to insource a lot of the member call functions from also vendors, and we're, we're just taking more control over that member experience, end-to-end. You know, I think our story is so differentiated, so to speak, with, with Care Anywhere, our care model, you know, transparency with providers, et cetera. A lot of that we've taken control of, and then you combine that with the, with, with the implementation of the CRM, and, and, you know, if you just look at the Google results, like it's really, really encouraging. I mean, all the feedback and the service levels are getting us back to really what got us here to begin with, which is focusing on, on serving that senior. You, you know, it's really a testament to, just the hard work of the member experience team across the board. Really, it, it's a shout-out to that whole group of, of people. I think, I think as we... Kind of related to your question, is I, I think the market and the way we've approached the 2024 bids, it's just making sure you give the senior what you commit to them. So, so it's, it's, you know, obviously, aggressive benefits. We're very comfortable with being opportunistic about that. If you say you're going to do something, do it. It's like as simple as that, both to members that are generally healthy, you know, so make sure that the benefit delivery is just consistent and reliable. Then also for the, you know, the higher acuity patients, make sure that we take care of them reliably, you know, with Care Anywhere. So both of those, I think, are gonna not only improve the stars, it's gonna improve retention, it's gonna improve the risk adjustment of the people that we retain, and I think it's gonna improve NPS. It's all, you know, all roads lead to just service delivery to the consumer. Absolutely. Yeah, I appreciate all of the color there. I guess just one quick follow-up that, that we had, and Thomas, I think you mentioned the sort of year-over-year SG&A leverage that's implied in the guidance. Yeah, I'm curious, like, how sustainable do you think that level of operating leverage is going forward, especially as we think about the sort of breakeven target in 2024? Obviously, there's some moving parts with some of these investment areas that, that you guys have outlined this year. I guess just kind of how sustainable should we think about that level of operating leverage going forward? Yeah. I would absolutely expect SG&A as a percentage of revenue improvement from 2023 heading into 2024. I'm not sure we're going to kind of provide specific guidance today in terms of what that looks like. Though the one thing I would probably say is that when you think about what drove the improvement in 2023 relative to 2022, there was sort of two pieces. One was the kind of economies of scale associated with our MA book of business, where though we're growing membership in that sort of, you know, high teens range this year, we're still able to deliver a pretty considerable SG&A improvement relative to the revenue growth associated with that membership. We also saw a benefit from the ACO REACH growth in 2023, which, as we mentioned on our prior call, has been a headwind to MBR on a consolidated basis this year, but has also contributed to the SG&A improvement year-over-year. As I think about our 2024 outlook, what I would say is, while I would absolutely expect SG&A as a% of revenue to continue to decline next year, I think given that we don't anticipate ACO REACH growth in 2024 to be quite as significant as it was in 2023, you might not see the same 180-190 basis points of improvement in 2024 that you saw in 2023. Again, I would take that into consideration with how that ACO REACH growth impacts both SG&A and MBR. In other words, it should also be less of a headwind on MBR as we think about year-over-year 2024 versus 2023. Okay, that's perfect. That makes sense. I'll hop back in the queue. Thanks. Thank you. One moment for our next question. That will come from the line of Whit Mayo with Leerink Partners. Your line is open. Hey, thanks. Just 2 quick ones. John, would love to hear just an update on the broker strategy. I know that's been a big focus and sort of evolving in terms of your thinking, so I'd love to hear some color there. Then secondly, can you remind us just the percentage of your members today in shared risk networks, and where you think that could perhaps, perhaps go next year? Maybe just remind us, you know, kind of the difference on MLR in those shared risk arrangements versus the ones that aren't. Thanks. Hey, Whit. Congrats on Leerink Partners. That's awesome. Thank you. Yeah, no, we, we are gonna do a couple things. One is double down on the good FMO partners that we have that we've had great kind of retention with and growth with. Overall, I think the standards are gonna be just increased across the board in both existing markets and new markets. We are being intentional about, I would say, more direct, you know, kind of 1099 relationships with agents in certain markets where we don't have the kind of strength that we want with some of the FMOs. I think the direct employed captive strategy is gonna be used in select markets. It's already starting to pay off. I think we alluded to it, we're about 20 to going to 24% kind of controlled and captive. I'm happy about that. I think the, I'd say the economic impact is gonna be really felt, I think, in retention more so than, like, G&A. I think more control and reliability of the, and we alluded to this also, kind of the lead gen and the lead gen conversion and the Salesforce automation initiatives. I think that we've got some new leaders in here that augment the existing leaders that we currently have, that I think are just giving us more bench strength across the board, particularly in some of the newer markets. We've been intentional about that. I, I, and, and I, and I think the... You know, we said this, and I'll, and I'll link this to Texas and Florida. I, I think, I think in, in, particularly some of these newer markets, that has been a challenge for us, building and establishing those relationships. This year, I feel pretty good about it, and I've been out to some of these markets. We've looked and worked with these brokers, and, and I think we're giving them something that they want, that they, they haven't had, which is, I would call it durable relationships that they can rely on because there's been a lot of people going in and out of markets on the plan side. I feel good about some of the newer markets, and, and, and the relationships that we have there. In California, I think we're, you know, always strong. I feel good about that. We're tightening the belt there with just performance. You know, just no disenrollments, five-star brokers, you, we're gonna work with you. On the second, Thomas, you want to take the second one? Yeah, sure, I, I'd be happy to. We, we shared in the past with that, just over a third, about 35% of our business today is, is a global cap. The way we sort of think about that is a couple of things. First is some of those organizations really that created the global cap model grew up in, in California. In certain markets, those are some of the, the best provider partners to work with in terms of quality and in terms of sort of overall service delivery. Having said that, our, our overall strategic objective is to continue to grow our shared risk book of business faster than our global cap book of business, both inside of California, particularly outside of California. The reason we think about it that way is because, as you've seen with our, our cohort data, we tend to not only provide the best clinical experience for members, but we also provide the best financial returns in terms of lifetime value when we manage the risk ourselves, as opposed to passing it on to someone else. I, I think you had asked about the, the global cap MLRs. What I would say is, while we don't break out our MLRs by contract type or by county or anything of that nature, the California global cap MLRs are probably slightly higher than global cap MLRs across the rest of the country, just because they tend to get paid a bit extra for certain services, like paying claims and doing UM. Generally speaking, we view it as one of our kind of key long-term goals, is to drive that shared risk or at-risk book of business to a higher percentage of the total membership over the next 5 years, as we continue to march towards that long-term MBR target. Okay, thanks. Thank you. One moment for our next question. That will come from the line of Jessica Tassan with Piper Sandler. Your line is open. Hi, thanks for taking the question. I just am curious to know, given that next year's growth is gonna be confined to new geographies in existing states, would you expect new members to come online that may be slightly lower or more favorable MBR relative to the historical experience, or even despite the planned benefit design enhancements? Yeah, I'll take that one, Jess. It, you know, it just depends on the market, on the product and the provider that's contracted for that membership. To put it in perspective, you've seen a kind of our average year one at-risk MBR is kind of in the high 80s, if not 90%. To your point, there is variability, where some of those new members come on in the kind of low to mid-90s, and on other cases, come in kind of closer to the mid-80s, very occasionally low 80s, but I'd say that's more rare. It just kind of depends on the nature of where that growth is coming from. One of the things that we've taken into consideration in our 2024 bid is less about whether we get the growth in a brand new market or not, but it's how do we continue to invest in the product benefit value in the geographies and with the provider partners that we think are gonna be the greatest tailwinds towards that MBR goal in 2024 and beyond. So that was really a part of our bid planning process this year, I think in a, in a, in a really strategic fashion, and hopefully we'll see that continue to pay dividends next year. Got it. Then just my quick follow-up would be, as you think about growing the percent of membership in, shared risk networks, I guess, what is the preferred structure of your shared risk contracts? Then I was hoping you could quantify the, the MBR benefit in the second half from the, Part D seasonality as members move into the catastrophic phase of coverage. That's it for me. Thank you. Yeah. I think one of the things we pride ourselves on in terms of our, our non-global cap contracting is really flexibility. What I mean by that is, we have contracts today that include fee for service to the PCP, with quality incentives and some type of upside-only arrangement layered on top of that, whether it be an MLR share or a gross profit or net income share. We have PCP capitation contracts that also have the same thing in terms of quality incentives and some form of risk share or profit share. We have professional capitation, where we're essentially paying both PCP and specialist capitation. Then again, we have an aligned incentive on the institutional costs to MLR share or profit share. So it depends on the market, what the provider really wants, and we try to tailor our approach, using the same consistent toolkit, but to do it in a contracting that meets their suits and preferences, or suits their preferences. In terms of Part D, that is a probably a 2- to 3-point tailwind in the second half as compared to the first half, with a little bit more of that concentrated in the fourth quarter versus the third quarter. Great. Thank you again. Thank you. One moment for our next question. That will come from the line of Nathan Rich with Goldman Sachs. Your line is open. Great. Good afternoon, thanks for the questions. I wanted to maybe start by going back, excuse me, to utilization. I think, you know, Thomas, you had said outpatient PMPMs were relatively consistent year-over-year, and you mentioned, you kind of called out hips and knees. I'd just be curious, some of the, you know, other categories that we've heard called out, you know, during the 2Q, cardio, behavioral, dental, you know, maybe outside of the, you know, outpatient ortho surgeries, what you're seeing from a utilization standpoint. Yeah. I, I'd say a couple of things in, in that list. I mean, we, we are continuing to shift, see a shift on things like hips and knees, but, but broader outpatient surgeries to ASC settings where appropriate. We think that's really a win-win from the consumer standpoint as well as from the plan standpoint. That's something we're continuing to see year to date. We have not seen, I think, some of the comments you've heard from others about their dental benefits, that's really more of a supplemental benefit, but that's something we have not necessarily seen to the same degree as I think some others may have. I think the bigger picture, you know, we're continuing to see lower ER utilization maybe than we used to in the past, a bit more urgent care as opposed to ER. You know, there's a few things like that, but I guess big picture, you know, in any given year, if I went back, you know, even before some of the recent commentary of some of the larger players out there on utilization, there's sort of always pluses and minuses in a given year. At the end of the day, I think big picture, we feel good about the overall trends, all those pluses and minuses taken into consideration. Great, appreciate that. Maybe, John, be curious to get your thoughts, you know, in markets like Southern California, that, you know, tend to be competitive and have been competitive in the past, you know, how are you positioning in those markets specifically? Kind of where do you see the biggest opportunity to differentiate yourself next year as you look to capitalize on seniors that may be looking to switch plans? Yeah. Hey, hey, Nate. What I would say is looking at our product strategy in a way that is consistent with our care delivery models. What I mean by that is really identifying the individuals that are really in that 10%-20%, that cost 80%-90% of the spend, and then designing specific products around that and the kind of the high acuity and the low income. What we did this year was also really look at the 80%-90% of the population. They're generally healthy, and to design products for them that they're gonna be very confident and reliable in receiving. It's a little bit different than what we've done in the past. I think the degree of, I would call it, competitive analysis, is, you know, just much more rigorous, factoring in not only the actuarial benefit values within each market, but looking at network, looking at distribution realities, looking at our trend analysis. All of that got factored into the bid process this year, at a I would say, just a more rigorous level. I think what we will expect from that is something that's gonna be very attractive to beneficiaries. Again, part of that competitive analysis is looking at where some of our competitors stack up and change from Star Ratings year to year. I think that's very public, as well as the impact on B28, you know? We're, we're thinking about all of that. We also know a lot of our competitors are, you know, kind of lowering and at best, maintaining benefits. I think that's been a common theme we've heard. I think we're yet again, taking a bit of a contrarian view in terms of increasing in a lot of the markets. In Southern California, it's a tough market, but I think with that product strategy, and you combine that with our network strategy, what we've seen in the past is seniors are gonna be very, very loyal to their doctors. We all know that. Except for situations where the benefit design is materially better, they will shop, and I think this is the year that they're gonna do it. We'll see. When you add that with retention focus, when you add that with, you know, kind of deeper provider engagement, when you add that with, you know, new sales, operation, kind of distribution capabilities and leadership, I feel, I feel pretty optimistic. Great. Appreciate the details. You got it. Thank you. As I'm showing no further questions in this queue at this time, this concludes today's program. Thank you for participating. You may now disconnect.