Hello, and thank you for joining us for the Alignment Healthcare presentation. My name is Matthew Gillmor, and I lead healthcare services equity research for KeyBanc. Joining me on screen is John Kao, CEO; Thomas Freeman, CFO; and we have also got Harrison Zhao from Investor Relations. Alignment is a leading Medicare Advantage plan. It is distinguished in a number of ways, but principally by its purpose-built technology platform, AVA, and its integrated value-based care capabilities, which we will dive into. This will be a fireside chat. I will be leading the Q&A. We would love your participation, so if you have any questions, feel free to submit them in the dialogue box at any time. With all that out of the way, John, Thomas, I really want to thank you for being here and welcome. Thank you, Matt. Great to be here. I'm trying to start off these conversations at a higher level before we get into financials and maybe even some of the policy things that are top of mind for investors, but maybe not as much focus for you all specifically. John, where I wanted to start this off is, given my experience, I've come to really appreciate Alignment's payvider model, and particularly the integration of your value-based care capabilities inside of the health plan versus an external model, and what that ultimately means for patients across a bunch of different dimensions. I thought we might just start off at the highest level in terms of getting a little bit of your history, because I think that some of your history really informs the strategy. That's where I sort of wanted to start in terms of what about your history has informed the strategy here. Yeah, no, thank you, Matt. It's great to be here. I would say it starts with the culture of the company, which is really a care delivery culture. It's really not an insurance culture. That stems from my experience, to your point, where I worked at companies like FHP, which is a large health plan, PacifiCare back in the day, which is also a plan that really worked with providers really well, in partnering with providers. I went to a company called TriZetto, which is now owned by Cognizant, to learn really about systems and data and integration work and workflow processes, kind of the operations of how the healthcare system works. I worked at a place called CareMore. I took those skills to go to CareMore and kind of the plan skills, and we were going to work with CareMore that ultimately sold back in 2011 to the old Anthem, now Elevance. What happened was I thought we would take the health plan skills, the scalability skills, and apply it to a small company that we loved their care model. Really what happened was I was the one that was changed. I was the one that was transformed by taking the care model and really having that be all about my ethos. I think that was the most instrumental thing. If you took the FHP experience as vertically integrated models, the PacifiCare experience, which is partnering with providers, having win-win situations, TriZetto is all about technology and data, and CareMore is all about chronic disease management. You put all those together, they form the basis of Alignment. That's great. My sense is that when you have internal value-based care capabilities married up with the health plan data that you're able to respond to patient needs in a differentiated way, and assuming that premise is correct, can you just give us a flavor in terms of how you're able to deploy your value-based care capabilities to your members and how that's different from a traditional health plan model or even maybe your experiences at other organizations? Yeah, no, I would say first and foremost, those care delivery competencies are to us core, core capabilities that really rest on a foundation of this culture of serving the senior, doing everything and putting that senior first. Forget about everything else. Just take care of somebody, whether your mom or your dad. Take care of them the right way. Number two, support the doctor. Number three, use data and technology to revolutionize healthcare. Number four, and I think potentially the most important one, is just you have a serving heart. You actually need to care about taking care of seniors and making their lives better. I think if it starts with that level of foundation, then you get into the need to ensure quality control. Why quality control? We always say you got to have high quality at a lower cost. High quality translates into star ratings. If you take care of seniors clinically, if you take care of their experience, if you do it in an affordable way or for these capabilities, it's absolutely the most capital-efficient way of taking care of seniors. What happens is the whole thing translates into if you can understand what are those quality measures that not only increase star ratings but have a clinical model that is going to be able to consistently bend the cost curve. That's kind of the principles of all this. Why is that important? To your point, it gives us a unit economic advantage, not only in the star ratings, as we all know, a lot of our competitors' star ratings have dropped, but you maintain that high level of quality on stars while you're lowering costs. How do you lower costs? You provide more care, not less care, more care. You just need to apply it to the right people that need the care. It's really that basic. The way you do that is philosophically and kind of operationally pretty basic, but really hard to do. That's you have to have a unified data architecture. That data allows us to react in ways that are actionable. I say this all the time. Last year, we were not immune to high utilization. I mean, a lot of people got hit with utilization last year. We just knew exactly where the hotspots were, who the providers were, what members were impacted. Because we manage this as a senior team daily, every single day we go through a market and we track and manage this, we knew exactly what was going on, and we had the problem resolved within 60 days. It is actionable data with no latency. That is in contrast to a lot of other people. They have back-end systems that are not integrated, and ours is all a unified data architecture. Everything is in one data lake. Everything is there, and the interpretation and the cleansing of that data is done upfront. That gives us the ability to take action. Internally, we use the whole way we operate: transparency, visibility, control, and then durability. You have to have the transparency to be willing to work with the right providers, make them successful, and you have to have the data to do that. If you have the data and you see what you should be doing, you have to have the feet on the ground, the boots on the ground, actually do something about it, which is where we have over 400 employed clinicians that all they do is serve seniors. You take care of them, take care of them more. That is why a lot of it leads to our hospital admissions per thousand. I think last year we did, on a corporate basis, 149 admissions per thousand. You contrast that to what Milliman would say is a well-managed plan, which is about 200, and you contrast that to fee-for-service, which is about 250. It is like 40% better, and the members are happier. Nobody wants to go to the hospital if they do not have to. Now, I'm glad you brought up that ADK metric because it kind of brings home almost everything you're talking about. There's really not, A, that metric is incredible in terms of how low you are, but the fact that you quote it regularly just in my mind sort of shows the discipline in terms of the data and the operations that are underneath the surface. The one follow-up I wanted to ask on that is that I think is still somewhat underappreciated is the fact that those medical savings, by virtue of the way your company is structured, it actually gets reinvested into benefits. Can you talk to that a little bit and then just give us a sense for the long-term advantage that? Yeah, that's a great question, and it's really important, I think, the investors understand this, is really what you're asking is kind of the fundamental calculus of why we think we have a competitive model. If you have a good care model and it is taking care of people, the trick is you have to be able to have seniors happy. They have to be really happy, and it's reflected in Net Promoter S cores, Google ratings, and star ratings. That's number one. You got to have the star ratings and consistently have a company culture that is truly invested in serving that senior. It's not just a departmental function. It's an entire enterprise philosophy. That really is number one. Number two is because we use our data and we use the information, lab data, pharmacy data, encounter data, authorization data, admission, discharge, transfer data from hospitals, and last but not least, claims data. This information is run through our AI models that really stratify who we think are the high-risk, frailest members. Usually that 10% accounts for 80% of the spend. If you can have a core competency that's actually taking care of all of these people but have a particular competency in managing that 10%, which again costs 80% of the MLR, you have the ability to take care of those people. Our program that you've heard us talk about is Care Anywhere, which is where our employed clinicians take care of this high-risk population. They are not only happy; we have an 82 NPS on that cohort, which is crazily good. It bends the cost curve. To your point, if you bend the cost curve consistently, and I'm going to get back to this one calculus point, if you bend the cost curve consistently, CMS doesn't say you can just take all that and profit, to your point. You really have to reinvest that back into products and benefits. The lower your cost structure is, and while maintaining quality, the ability to invest in richer benefits consistently and not bait and switch members, but give them consistently strong benefits is a key competitive advantage. What happens, though, is the rest of the industry have relied upon, and I call it financial engineering, where you pass the risk off to other groups or medical groups that have taken risk. That all kind of works when you have a lot of latitude coding, if you have a lot of increasing revenue all the time in terms of unit economics. Once there's a little bit of compression, as we've been experiencing over the last couple of years with the tighter Tukey stars measures and V28 of the risk model, there's not enough revenue to go around because the plan needs to make its margin. The global cap provider, who's taken, let's say, 85% of the global cap, that's like two insurance companies, one regulated and one not regulated, inside that one supply chain. When revenue goes down and isn't compressed, there's not enough revenue to go around to support two margin profiles. What we have done really is because we have the competency of managing the care ourselves, the margin that would otherwise go to the global cap provider is reinvested instead to the member. That is the magic. You give a better experience, you have better clinical outcomes, and you have more benefits that you can give to these folks. The beauty of the model that we have is it is somewhat independent of what happens with reimbursement. If reimbursement goes down, we have a competitive advantage because our cost structure is lower. If reimbursement goes up, the market wins, the sector wins, but we also win. We may not grow as much because of people getting back into growth, which I think will happen for a couple of years, but our margin profile expands. Either way, because of the model, we win. That's a really important concept for investors. Yeah, no, it's a great bunch of nuggets you threw at us. Why don't we shift a little bit over to growth and to profitability? I wanted to start off with we're coming off of the AEP period for Medicare Advantage, and you all had a pretty successful period. I thought you might start off with, are there areas of your product that's really, you think, resonating in the market that's driving your growth? If you could give us a flavor, remind us sort of how the growth looked like in terms of growth outside of California versus inside of California, duals, non-duals, just a little bit of a flavor for the AEP results would be great. Yeah, no, we grew through 1/1/ 2025 up to 209,900 members. That was really a 35% year-to-year growth rate, 1/1 to 1/1 growth rate. We ended 2024 with something like 58% growth. Thomas, correct me if I'm wrong. I think it's like 58% net membership growth. The most proud thing I am for our employees is the service delivery and the care delivery did not suffer at all. I mean, we were ready for it. We onboarded these members flawlessly. Our star ratings held. Last time this year, people thought we mispriced and thought we were going to blow up like everybody else. We didn't. We could have grown even more than 58% last year. We could have grown even more than 35% for 1/1. We really thought it was important that we were EBITDA positive. We really thought it was important for 2024. We really took time to exit certain products that were not as profitable as we would like. We doubled down working with the right providers, and we want to support our providers, support our doctors, support our IPAs, and have them make more surplus working with us. We just announced our long-term strategic relationship with Sutter Health yesterday. That was a really important deal. They're wonderful people to work with. We have some ideas on how health systems and Alignment can work together to solve some of the challenges these large hospital systems are facing with other payers in MA. We also really terminated certain providers we just did not think we could work successfully with. We really invested in others that we thought we could grow and double down with. It is something that I feel really strongly, not only in 2024, 2025, but I have also gone on record saying in 2026 and 2027, I think we are going to continue to have these unit economic advantages. That is in the form of star ratings. We know what the 2026 star ratings are for everybody. We are at four stars. We have, I think, one player competitor that is at four and a half in California. I think depending upon some of our conversations with CMS, we are hoping that can also get us up to four and a half. We will see how that goes. We are not relying on that, but we think our case is very, very good. V28, remember, 2026 is the third phase-in of V28. A lot of the mitigation efforts of everybody in the sector is pretty much dried up through the first two years of V28. That third year of V28, I think, is going to cause people to be more margin-focused than growth-focused. It would be a guess. I'd be surprised. There might be some people that are going to be aggressive. We've seen in the past, if they go and do crazy stuff in the marketplace, we would say that's not sustainable. We've been right about that. We've not chased bad business. We want very good, profitable growth. I expect that to also occur in 2026 and 2027. I feel just like the raw unit economics are in our favor when combined with the business model where we have a competency that I don't see others really having. Why don't we jump ahead on the, since you brought up the stars question, you guys, I think, have done a really great job articulating the advantage you have in the next sort of several payment years. One of the questions I would have is how do you, and I know this will be an evolving conversation, but how are you thinking about using that funding advantage? One course could be we continue to expand margins, but we really double down on growth and capture a bigger long-term opportunity. There is another avenue where you maybe tack more towards margins. I appreciate there is probably not one answer, but I'd love whatever perspective you want. Yeah, totally. Totally. I mean, from day one, as people have gotten to know us more and more, we've been very, very disciplined around our bids. We always say we try to find the balanced approach, 50% growth, 50% margin expansion. The first couple of years, everyone was buying the business and growing at all costs and other stuff. I think we grew 15%, 18% or something like that five years ago. People go, "What are you guys doing? You didn't grow enough." I had investors say, "John, why don't you grow at 50% back then? It's okay if you lose money." We go, "No, we're not going to keep losing money. We have to be disciplined." The next subsequent couple of years, next year, I think we grew at 20-something percent. Next year was the 58%. This year's, I think, on average, is about 30% ish. The five-year CAGR for us has been about 30%. We have to make sure that every year we're in a position not to chase bad business. If we only grow at, whatever, 20% one year, we'll get it back the next year. It is that disciplined approach on margin. I think 2026 and 2027, we're going to continue to have unit economic tailwinds. The third answer on your question, which is, again, a very good question, is not either/or, but I would say both/and. I think we have done a really good job on member retention. We've done a really good job on scaling the care model. We've done a very good job on really achieving operating scale economies. I think we're going to be down to something like 10, some will be 10 and 10.5% SG&A, which is shocking given our growth. Remember, the commissions in S, the sales and marketing, the commissions are embedded in that number. Our core operating infrastructure is good. The reason I say it's going to be a both/and in terms of good growth and margin expansion really relates to the operating initiatives that we have underway. We really started it two years ago. We made a lot of headway in 2024, and we still have to finish out a lot of these initiatives in 2025. It's really all around operational excellence, workflow, business process automation, and really growing the company up. I'll kind of put this in context. It took us eight years to get to 100,000 members. It took us two years to add another 100,000 members. When that flywheel that we talk about gets more mature and we keep refining it, that growth flywheel is going to get spin faster and faster and faster. Got it. Let me try to pick on Thomas here for a question too. As we're talking about sort of the details on that profitability inflection, I think if I've got the numbers right, EBITDA dollars up last year by about $40 million and you cross break even. I think the guide for 2025 has something similar. There's a range, obviously, but another big step up around $40 million+ of EBITDA dollars. Maybe just talk to us about sort of one question around this is just talk to us about some of the puts and takes or variables we should be thinking about in terms of the 2025 guide. Then can you give us a flavor for what you guys are thinking of long-term in terms of what the business is capable of and kind of the timeframe around when that would be achievable? Yeah, absolutely. As John was saying, I think our goal for 2025 is very similar to that of 2024 and years past, where we really want to continue to balance our growth versus profitability goals. Last year was really quite the exclamation point with our Q4 conclusion. We grew close to 60% membership, but to your point, still improved profitability by almost $40 million of EBITDA year over year and officially achieved our adjusted EBITDA break-even goal for 2024. As you roll that forward to 2025, I think it is a very similar setup where our revenue outlook for 2025 is, I think, in the midpoint, right around $3.75 billion, just under 40% revenue growth year over year for 2025. Conversely, our adjusted EBITDA, the midpoint, is about $47.5 million, which represents about 130 basis points of EBITDA margin expansion year over year. That is really coming through a combination of both MBR improvement and SG&A improvement. From an MBR standpoint and kind of the puts and takes aspect of your question, obviously, there are a few tailwinds year over year that we are leaning into. The first is we have our large bolus of year one members from 2024 transitioning into a year two cohort in 2025. We also have the support of benefit moderation from 2024 into 2025 as well. I would say conversely, we have the ongoing impacts of V28 like everyone else. As John mentioned, I think we feel very confident about our relative advantages as V28 phases in. On an absolute basis for 2025, we, of course, have our own impact that we are navigating. Lastly, a lot of changes with Part D this year under the Inflation Reduction Act. I think we feel really good so far, being over two-thirds of the way through the first quarter about our assumptions there. Particularly on the low end of guidance, that would be a bit of a headwind year over year for us as we think about some of the risk versus opportunities associated with those changes. I think beyond that, just other kind of points I think are worth keeping in mind. We still have over 50% of our members in a year one or year two cohort in 2025. I think one of the major advantages we have is not just what that looks like in 2025, but to your point, how that supports our kind of multi-year margin trajectory. What we have said very consistently is our long-term goal is to continue to grow 20%+ per year consistently for, I'm going to say, into perpetuity. From an adjusted EBITDA margin standpoint, we really want to target about 6%-7%, which represents about a 4.5%-5% pre-tax margin. The way you can kind of think about that math is sort of the golden rule of the North Star is 85% MBR, 10% SG&A, 5% pre-tax margin. I think what's really so impressive about our story in the recent couple of years is we're actually approaching that 10% SG&A mark today, even with only having 200,000 lives, not near at the scale of some of our larger national competitors. Conversely, we're starting to chip away at that MBR goal while still growing the business at the rates we've been growing. I think we got a lot of tailwinds towards those long-term targets, and we made a lot of progress in the last 12 to 24 months. That's great. With our last five minutes here, let me try to tackle policy. Our sense of it, and you can obviously disagree, is that the policymakers remain very supportive of MA. I think there's been some scrutiny around what folks have considered to be sort of excessive benefits. I guess I'm thinking about sort of like reimbursement for golf clubs, that sort of thing. I think there's also been some scrutiny around risk adjustment coding practices. I guess sort of the foundational question would just be, how do you see Medicare Advantage policy evolving under Trump? The follow-up is my view of it was we really should be focused more about the relative advantage that you have because we can always adjust benefits to the funding environment. If the relative advantage sustains, you're still in a great spot to achieve your objectives. Why don't you try to tackle those points? I'd love to hear your perspective. Yeah, no, we agree with your thesis. We think the relative advantage remains intact irrespective of what happens with the policy. We have modeled our entire operating business model based on what one of our board members, Dr. Mark McClellan, who, as you know, was really the author of MA two decades ago, really, 2004. That is just an approach that solved for the Triple Aim. It is just making sure this notion of value creation with a great care experience, clinical outcomes experience, and a great healthcare experience at an affordable price are centered to everything. I think this administration, and really I would even give credit to the previous administration to a certain extent, really is they really tried to eliminate the gaming with the model and really are pushing people back to what they intended, what CMS intended, which was the Triple Aim, really increase the health and wealth of our seniors, of the beneficiaries. I really think it's that fundamental. From a practical basis, we'll hear about the final rate notice for 2026 in a couple of weeks. I would be surprised if the actual benchmark rates did not go up. I'd be surprised. Just looking at the tail runout heading into the first half of utilization trends in 2024, I think that piece of data is something people are looking at that I think just inherently will increase that trend and potential mitigants, the offsets, so to speak, against that benchmark and as it pertains specifically to V28 or normalization or kind of the coding model. I do not think there is going to be sufficient time, obviously, for wholesale changes for 2026. I think you are exactly right. People are going to be looking at their better data sets that can be applied to coding for 2027. And irrespective of what they do, I think we are going to do great because of that relative advantage. Okay. I think this is a great place to conclude the discussion. John, Thomas, and Harrison, really appreciate you spending some time with us, and we can go ahead and conclude. Thank you. Thank you, Matt.