My name is Craig Jones. I'm a Healthcare Analyst here at Bank of America. Today, I have the pleasure of hosting John Kao, CEO, and Thomas Freeman, Senior Advisor to the new CFO from Alignment Healthcare. First of all, I guess, guys, how about we start with maybe the most surprising news from the last quarter, Thomas? Why don't you tell us why you decided now is the best time to step aside from your current role? Excuse me. Then, John, if you could dive into why you think new CFO Jim Head is right here for the job and maybe go into a little bit of the transition plan. Yeah, yeah, happy to. Good afternoon, everyone. Yeah, I've been with the company 10 years, as CFO. I really think it's sort of the convergence of some personal factors and considerations, but also, probably more importantly, just sort of the stability and momentum of the company that made it seem like a really kind of natural time to think about this. On a personal level, I said I've been here a long time without getting into all the gory detail, working through a few different personal health issues. Big picture, when you think about where the company's been in the last couple of years, we had a breakout 2024, both from a growth and from a profitability standpoint. I feel really confident that 2025 is very much on the trajectory to make it even a better year than 2024. It is really with that strong foundation and the depth of my team in mind that it felt like the right time to begin a transition conversation. I think most important from my perspective is I'm not going anywhere anytime soon. There's no new job, no new company. I'll be here until at least in 2025. My objective is to both support John and Jim on the transition over an extended period of time, but also to help John with a few other things. I think one of the benefits I have is having been here 10 years, I think I can bring a financial lens to a lot of what we do operationally, continue to help partner with different parts of the business in terms of how we scale the company, and continue to kind of hit our growth and financial objectives, not just for this year, but future years. Yeah, I just echo what Thomas said. We've got a strong team, a strong bench. Under Thomas's leadership, the process, the infrastructure, the team is all very much in place. I can reassure you that there's going to be no change in any of that. We talk a lot about visibility and control in our business, and that's going to remain intact. With respect to Jim, we did an exhaustive search. As you can imagine, it's hard to replace somebody like Thomas. We really had to make a decision as to, do we get somebody from the existing space, or do we get somebody different and new? We basically concluded that there's not a lot of people that know how we do Medicare Advantage. We didn't want anybody that was wed to kind of the old ways of doing Medicare Advantage. We went outside kind of what you would think would maybe be a traditional path. We got the person that we thought was the smartest person with the most experience, a great leader, and that could work with the rest of the team. When I combine that with the infrastructure already in place, I think we're going to be just fine. Awesome. All right. Thanks for the call, guys. Now let's talk a little bit about the business. This week, some news out of United, right, talking about Medicare Advantage trends, getting worse utilization. Why don't you talk about what you've seen maybe first quarter and then maybe quarter to date, and then kind of how you see 2025 playing out? Yeah, I'm happy to. One of the things that we often talk about is our inpatient admissions per 1,000. The reason we start with that is both because I think it's a really important quality metric from the senior's perspective, but also from a financial standpoint, inpatient spend represents about 50% of institutional costs. If you're going to really focus on and try to perform well on any one measure in this business, that's probably the number one cost measure to really be zeroed in on. We had a great first quarter. I think we ran about 152, better than expectations. We said that for the year, we anticipate that we will continue to run around that range, which is a slightly step higher than last year, given a higher mix of duals and CSNP products this year. Quarter- to- date, we're feeling very good about it still. Nothing's really changed in the last few weeks since we last spoke. I think that continues to be really our kind of number one area of differentiation is to invest more care upfront to the right people. From a financial perspective, it's pretty simple math. You can spend a few hundred dollars per visit to send a nurse to someone's home, try to provide better proactive preventative care. If you do the right things, you can avoid very expensive and unnecessary downstream utilization that costs a lot more than a few hundred dollars for a home visit. It's something that I think is going very well. I think beyond the inpatient setting, we feel good about our outpatient visibility. That's something that has been a common topic now for at least 18 months. Haven't seen anything deviate relative to expectations there. I think I would add, though I think some of the recent commentary is more utilization-driven. I think we feel very good about our revenue visibility as well for 2025. I know there's been some kind of confusion around sort of the global cap provider model from the plan model. When we think about the health plan business that we're in, we see what we get paid from CMS every month on our new members. I feel very, very comfortable that our both year-to-date and kind of full-year outlook is right in line with where it should be given what we've seen so far. Okay. Great. Next, I'd like to talk sort of about the first-year cohort mix. You've been growing so quickly the last couple of years. You've captured a lot of market share. Members up 50% in 2024, 30% in 2025. Can you remind us and walk us through sort of that MLR delta you see between that year-one member, the year-two member, and then, say, a member at a more stable, more mature MLR? Yeah. It is one of the most powerful parts of our model, the sort of strategic objective to want to partner with providers to manage the risk ourselves as opposed to just transferring that risk to a third party. When we do it with that approach in mind, our year-one members typically run around 89%-90% MLRs in the first year. Over time, that improves into the low 80s and, in some cases, even the high 70s. When you think about what we are trying to do from a bid standpoint, we are essentially using that margin outperformance on our more tenured membership over time to reinvest into a richer product offering that, in turn, drives growth and retention. I think last year, given that we grew close to 60% membership in 2024, that obviously was a headwind in terms of our MLR in 2024, just the large percentage of new members. We have seen a very solid retention through AEP, and we are very pleased with the first, whatever it is, four and a half months now of progress in terms of that cohort going from year one to year two. I think from a year-one perspective in 2025, obviously, we still have quite a bit of growth so far this year, but things are looking kind of right in line with what we expected to be. Awesome. Okay. Great. Then from a forecasting perspective, I think it's important to highlight Alignment has been really sort of above and beyond the rest of the industry in being able to project their MLR at the beginning of the year. While a lot of the others in the space were kind of caught sort of by surprise around higher utilization the last two years, you were really able to dial it in well before others. Can you give us some clarity around what enables this around your tech stack and your process and just what is it that you're doing differently in that regard to have that heightened visibility? Yeah. Internally, we would reference it as transparency, visibility, control that leads to durability. The transparency part is really important because it forces each of the functional areas in the company to challenge itself to get better. This concept of continuous improvement is something that we've instilled culturally. When we were a smaller company, we had more manual workflows. We're changing that to automating and systematizing those workflow processes. That has led, in combination with our unified data architecture, to this concept of visibility. We have a maniacal attention to detail. Operating metrics, financial metrics, clinical metrics, we track daily. We just know where we stand on all census. We know what our daily admissions per 1,000 is by market. We know what our ops rates are. We know what our readmission rates are. We know what our RAF score is. We know what our stars. It's very simple. My brain is numerators and denominators. Do you know what your numerators are? Do you know what your denominators are? We're tracking all of that, and we've systematized it into our AVA platform so that if there's a variance, it pops out. We know if there's a hotspot. I remind you, last year when we grew so much in Q1 of 2024, we had one market, and it was about 1,500 members that had some outsized utilization. We picked up on that. We knew what was going on. We had boots on the ground that actually did something about that. We changed the trends in like 90 days. We got it fixed. That gives you the visibility and the control. I would even say that actionable information, actual data that includes lab values, that includes pharmacy values, that includes authorizations, ADT information, all of that goes into our data stack to give us clues as to what areas are potential risks. We're just looking at it on a daily basis, market- by- market, and we manage it. It's not automatic. What it is, is it requires the information available to you that you need boots on the ground to do something about it. It's a huge competitive advantage when combined then with the clinical model of identifying that 10-20% of the membership that account for 70-80% of your spend in your MLR, pointing the resources in the most capital-efficient way to take care of those people is kind of the magic. We found it to be the most repeatable and scalable of any model. We do not invest in a lot of bricks and mortar. We do not compete with our provider partners, with our PCP partners. We help them become more successful. I think these words are the same things we have been saying from day one that I think the market is beginning to understand more and more. Okay. Great. Thanks for that. Part D, I think it's important to hit there. We've seen some changes this year around how that's being implemented, sort of impacting seasonality, potential profitability. Can you walk us through sort of how this has trended versus expectations this year and how you expect it to reshape your margin seasonality? I believe you expect it to be more downward sloping, but you've also got medical cost liability increasing through the year. Maybe just explain that dynamic and sort of how that works. Yeah. Yeah. Happy to. In terms of the Part D MLR, which again is a fairly small portion of the overall MLR, in terms of the Part D MLR, we would expect the first half to be higher and the second half to be lower. I think to really understand that you have to separate the expense from the revenue component. In terms of your comment on the expense side, that's spot on. We do expect our expense PMPM to continue to grow, particularly given some of the changes this year associated with the Inflation Reduction Act. We've already seen some of that in Q1, where in particular, our non-low-income population in particular has seen higher increases year over year. We expect that to continue, I think, similar to what you're hearing from others across the industry. I think maybe where our view is a little bit different is really more related to the revenue PMPM dynamic. That is a function of, I think, two things. One is the risk corridor, and the second is the sweeps. In terms of the risk corridor, as a reminder for the group, the way this is set up is that if your expenses run ultimately at least 5% greater than what you put in the bids, some portion of that gets reimbursed by CMS. For us in the first quarter, we actually are booking negative revenue or contra revenue because our expenses in Q1 are running less than what we put in the bids for the full year. As the year progresses, we're going to flip from a payable position to a receivable position, i.e., we're going to actually start booking risk corridor revenue as our expenses continue to grow. It's just that that's helping support our revenue PMPM growth faster than the expense growth. I would contrast that with others where that's certainly not the case. Some of our larger competitors have talked about actually already booking that risk corridor revenue in Q1, whereas we are not. The second is in the sweeps itself. I think we try to take a conservative posture on our RAF accruals, particularly for our new members, where we have less visibility. Typically what happens is we get more of an uptick in the second or third quarters from a revenue PMPM perspective, both on Part C and Part D, but in this case, talking about Part D. I think some of the big guys who have less new members and therefore probably accrue a little bit greater and earlier than what we do. I think for those two reasons, you get a little more of a revenue PMPM bump that supports that MLR seasonality you were asking about. Yeah. That's super helpful. I guess looking to next year, would you change how you do that accrual? Or would the seasonality again change next year? Would you expect to kind of run the same way? No. I think probably similar. I think everyone's learning a lot right now and thinking about what they've seen thus far for the 2026 bids. I think, obviously, the anticipation is that utilization that we've seen thus far is here to stay. I think some of these changes that were driven due to the Inflation Reduction Act aren't going to be going anywhere. As we sit here today, at least, I think we would anticipate similar results and a similar approach to how we think about our bids for 2026 as well. Okay. Got it. And then maybe on the final rate notice, right, came in above expectations for most, should be a rising tide for the entire Medicare Advantage industry. But Alignment's actually really outperformed in the last few years when it was tight, right? You all really sort of started taking a ton of market share then. Maybe first, why don't you highlight why was it that Alignment was able to do so much better than their peers when the margins were tighter over the last few years? Yeah. I can respond to that. It starts with really the strategy of the business. And so you think about what the fundamental risk in Medicare Advantage, it's really reimbursement exposure. And so when we set up the company, we had to make sure that we could win and have durability irrespective of what happens to reimbursement. And so if rates go up like they have in the final notice, we win, all boats rise in a rising tide. I think there's opportunity for margin expansion. The relative advantage that we have on stars and the less exposure that we have to V28 still remains intact. And so we feel good about it. We feel really good about it. Actually, I'll take credit. I mean, I called this out in January in San Francisco. And sure enough, in California, it's about 8% was the top line, net 9% nationally. If rates go down like they have the last couple of years, our competitive advantage is even greater. The way you do that is you have to have the ability to produce high quality at the lowest cost structure. That is how you insulate yourself from this reimbursement exposure. We never got hooked on the strategy of optimizing risk adjustment. We did not do that. We never thought of it as rev cycle. We always thought of it as an extension of documenting the care and care and quality plans for our members. I think the strategy was the right thing to do. It created less exposure to RAF changes. The investments that we made in stars is also paying off. I think that's the main takeaway is you got to have the most efficient cost structure, which is why, by the way, from a core competency point of view, we had to make sure we were really good at managing the risk. And managing the risk in MA is all about providing care. It's fundamentally a care management and care delivery model. It's not just an insurance community-rated commercial actuary model. It's care deliveries. You have to have a care delivery model that can scale. Got it. Yeah. No, that makes a ton of sense. I guess looking forward to 2026 now at the final rate notice, plus 5% is a lot better than plus 0% as it's been the last couple of years. I think it's probably fair to say that's more likely plans will be more likely to maintain their benefits versus perhaps cutting the last couple of years. Is there any rule of thumb or color you can provide? When a plan does maintain benefits, what's the likelihood a member will look to potentially switch or stay on the plan they're currently at? Yeah. I would suspect the industry is going to maintain or, in some cases, degrade to the maximum allowable with their TVC limits are. I think that typically when you factor in the TVC issues, it takes two to three years to kind of get back to the margins which you need to get to. That's what I would expect. We, obviously, are not going to comment on what we're going to do since we're right in the throes of bids right now. We feel really good about our ability to produce both growth and margin expansion because of the relative advantages in stars and V28. That holds through in 2026. I also think there's some structural changes that are occurring to the stars model, specifically as it relates to the caps that impact 2027 that we're also going to be advantaged in. We feel pretty good about where we are for the next couple of years. We feel strong about our visibility in 2025. Yeah. I did want to hit on the structural advantage of the star ratings for sure. Maybe just remind us, right? We do have, I think, a couple of star ratings in this year. Next year, we'll have some sort of structural changes in how they're calculated. Maybe you just want to walk us through what the tailwinds are there. Yeah. Yeah. Absolutely. Right now, cap scores represent about 33% of the overall star rating. They're called four-weighted measures. That's actually going to go down to a two-weighted measure. They're going to be emphasizing more quality or HEDIS metrics, which we're really, really good at. I think we're four and a half or five in most markets. That's going to be an advantage from a broader perspective on overall stars as it relates to 2026. In addition to that structural change, the initiatives that we've got going are really paying off. We feel good about where we stand on stars. What Craig's talking about in 2027 is there's changes to the Health Equity Index. They changed the name of it. I forgot what they call it. They call it something. Basically, it's going to allow us the opportunity to participate in the reward factor in 2027. I think the opportunity in California specifically, where most of our members are in our California HMO contract, we don't get any reward factor right now because of the caps issue. With caps actually being less important and the fact that we feel very well positioned for the Health Equity Index and the reward factor opportunity, we think both of those give us a stronger position to increase our stars for the next couple of years. Yeah. Yeah. Absolutely. So these changes have obviously been in place for a little bit of time. The new administration has been in there for six months or so. Anything out of Washington seems more positive, right, in general towards Medicare Advantage? Anything you're hearing that any color you might have or any good news? Yeah. We were in Washington last week. We spent the week there. We met with both sides of the House Ways and Means Committee staff and leadership. Same with the Senate Finance Committee, both sides. We spent time at CMS. We also spent time in the White House. We were really sharing what we do and this notion of the ability to make Medicare Advantage work by providing more care, not less care, but more care in a very data-driven way. I think people were very, very interested in that. Our denial rates are like 1.9% compared to the industry of about 10%. There are certainly some outliers or even higher than that. They were kind of scratching their heads going, "Well, how are you doing it?" I said, "Well, we use a lot of data. You've heard me talk about this. We identify who in that 10-20% of our membership account for 70-80% of the MLR spend. We really envelop that membership with home-based interdisciplinary care teams: doctors, nurses, case managers, social workers. We make sure that for that high-risk polychronic population, they're just taken care of. We make sure the little things do not turn into big things. All of that clinical model is something that they really liked hearing. I think they were very preoccupied with the reconciliation bill. They were very preoccupied with Medicaid and the $880 billion that they want to cut in the next 10 years. There is a lot of focus on that. As they kind of come out of this reconciliation phase, I do think they're going to focus on MA. I think there was sensitivity to ensuring that risk adjustment was going to ensure better clinical outcomes for the beneficiary, i.e., if we're going to pay you more in higher risk scores, we want to make sure that you're providing more care. There's a correlation between that, not dissimilar to what currently exists with the Chronic Special Needs Plan population. For that CSNP population, if you enroll in one of these products, you as a plan need to document a fully documented care plan and get that submitted over to CMS from a regulatory compliance perspective. There's a possibility of expanding that. They do not want gaming going on in risk adjustment. They want it to be correlated and it's a documentation and extension of care delivery, which I think is great. I think they're concerned about the distribution and some of the broker activities going on. I think you've read about that. Those are things that they were asking us a lot of questions about. The other thing I would say is they want to get more data on the efficacy of the supplemental benefits. We said we would absolutely share with them what kind of data we have. For example, if you have a grocery benefit that you're providing for the seniors, what are they spending the money on? We can tell them it's eggs, it's milk, it's whatever. We're going to give them that data. I think they appreciated that. I think they're going to get on this right after they get the reconciliation bill dealt with and the taxes dealt with. I think they're going back and forth on that. I will say that it was really interesting. When we went and talked to the Democratic side of both the House and Ways and Means Committee and the Senate Finance Committee on the Democratic side, we were not thrown out. They actually listened to what we were saying because of the kind of disruptive kind of talk track that we were talking about. It was very different than what they were hearing from others. Wow. Sounds like quite the week. It was exciting. All right. I believe switch gears to a pretty exciting milestone coming up. You're getting pretty close to free cash flow positive. Hopefully this year, maybe next year, but getting dialed in there. As you think about expanding more to states outside of California, you've got a handful of states currently right now. You said you want to use free cash flow to fund new state expansion. Going forward, as we reach that free cash flow positive, how do you think about growth in terms of prioritizing new states, existing smaller states, and maybe scaling California further? Yeah. I think the answer is both and. It's not either or. It's both and. We have like 5% market share in our existing geographic footprint. We think the opportunity to double that is very achievable. We've shared that, at least internally, we're really talking about how do you get to the, I think we're at 3.8. We're guiding to $3.8 billion in revenue. It's rounded to $4 billion. How do you get from $4 billion to $10 billion? How do you do that in a responsible way? We're about 220,000 lives. You need to get to about 600,000 to get to $10 billion. If you think about it in those terms, it's very achievable. I think we're going to continue to take share in our existing footprint. We need to start planting flags in new states really starting in 2027. What gives me confidence in that is our ability to get star ratings. It is five stars in North Carolina, five stars in Nevada. It is a big deal because everybody is focusing on quality outcomes now. The deployment of the care model is super important. That is becoming more and more replicable. As evidenced by 145 admissions per 1,000 in our ex-California markets, even with the growth that we have. The last piece of it is, I think with those two levers, it gives us the latitude to have competitive benefits. I think the broker and distribution communities now outside of California are hearing more about us. They are just hearing more about us. They are more able to and willing to work with us from a distribution point of view. It is not lost on them that some of the historical folks that they've been working with are not growing to the extent that they had in the past. They are more open to working with us. All of those combined with the fact that our back office operations is working really well. I mean, we onboarded over 100,000 members in the last year and a half with no abrasion. I mean, our stars are still holding, our member service, our onboarding is working, our clinical model is working, and we're just getting more and more mature to absorb that. All those things give me confidence that in 2027, we're going to be able to, I would say, have a much higher expected value to grow profitably sooner than we had in the past. Awesome. I think we're out of time. But thanks so much. This was great. Thanks, Craig. Thanks, Craig. Thank you all. Thanks, guys.