Hello and welcome to today's Oak Street Health Q3 2022 earnings conference call. My name is Elliot, and I'll be coordinating your call today. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. I would now like to hand over to our host, Sarah Cluck, Head of Investor Relations. The floor is yours. Please go ahead. Good morning, and thank you for joining us today. With me are Mike Pykosz, Chief Executive Officer, and Tim Cook, Chief Financial Officer. Please be advised that today's conference call is being recorded and that the Oak Street Health press release, webcast link, and the other related materials are available on the investor relations section of Oak Street Health's website. Today's statements are made as of November eighth, reflect management's view and expectation at this time, and are subject to various risks, uncertainties and assumptions. In addition to historical information, certain statements made during today's call are forward-looking statements. Please refer to our 2021 annual report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission, where you will see a discussion of certain risks, uncertainties, and other important factors that could cause the company's actual results to differ materially from these statements. Certain statements made during this call include non-GAAP financial measures. These non-GAAP financial measures are in addition to and not as a substitute or superior to measures of financial performance prepared in accordance with GAAP. Please refer to the appendix of our earnings release for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. With that, I'll turn the call over to our CEO, Mike Pykosz. Mike. Thank you, Sarah, and thank you to everyone for joining us this morning. Joining me in today's call in addition to Sarah is Tim Cook, our Chief Financial Officer. I continue to be impressed by the impact our team is making on our patients in the communities we serve every day. Their hard work and dedication leads to outstanding results from our care model, driving the performance of the organization. For Q3, our performance led to results above the top end of our guidance range for revenue, centers, at-risk patients, and adjusted EBITDA. The two main drivers of both our impact and the financial results our centers generate are the number of at-risk patients we serve and the effectiveness of our care model in improving outcomes and lowering hospitalizations, leading to lower third-party medical costs. For Q3 and year-to-date 2022, we've achieved strong results on both of these drivers, leading to center-level performance in line with the cohort expectations we shared coming into the year. Our patient experience and the resulting patient engagement enable both drivers of our model. Our patient acquisition approach is predicated on educating older adults on the superior patient experience we provide at Oak Street with delighters such as longer visits, additional services such as insurance navigation, and easy access generally only found in concierge provider groups. We communicate our differentiated patient experience through our community outreach model as well as our central marketing channels. We've launched our first meaningful television brand advertising campaign in Q3. The theme of the advertisements was the differentiated level of patient experience we provide compared to traditional doctor's offices. We plan to continue and expand upon this campaign in 2023 and beyond. On the care model side, our differentiated patient experience leads to much higher patient engagement, which enables our care model. Oak Street cares for a patient population that historically has had less access to and engagement with the healthcare system. Even in the face of these headwinds, Oak Street drives strong patient engagement. For example, using annual wellness visits as a proxy for the level of engagement for our patients, we complete over three times the percentage of annual wellness visits on our patients compared to Medicare overall. Patients engaged in our model have significantly lower hospitalization rates and better patient health outcomes. Oak Street's patient experience allows us to drive significantly higher engagement than the average provider, leading to increased impact. As we've shared in the past, we can offer a superior patient experience because of our consistent de novo approach to rebuilding healthcare. As we continue to scale, we will continue to invest in our technology, data infrastructure, and culture, allowing us to further differentiate our experience. We believe this will continue to drive results on patient acquisition and patient engagement while further differentiating Oak Street from existing primary care groups. In addition to our focus on patient experience, we continue to invest in Canopy, our technology and data platform, to both improve the consistency and scalability of our core model and add additional capabilities to drive better outcomes, such as point-of-care decision support for our providers. Our largest investment in capabilities to date was our acquisition of RubiconMD last year. We've completed integrating the core eConsult approach in our Canopy Referrals module and have seen a further uptick in eConsults. This both saves money on referrals, but just as importantly, provides an outstanding and differentiated patient experience by saving our patients significant time and hassle while giving our providers additional information to help them care for their patients. When using eConsults, we get feedback from specialists within hours compared to the months that it often takes for patients to complete visits with specialists. Additionally, leveraging RubiconMD avoids the cost and hassle for patients as well as the duplicative evaluation testing by specialists. We are pleased with our performance in both the Q3 and year-to-date. In the Q3, we generated record revenue of $545.7 million in the quarter, exceeding the high end of our guidance range. Our revenue growth continues to be driven by our organic B2C marketing approach. This revenue growth, combined with expenses in line with our expectations, contributed to an adjusted EBITDA loss of $88.3 million for the quarter, which is favorable to the top end of our Q3 guidance. Our performance for this year continues to be in line with the projected center ramps for 2022 by cohort we shared earlier this year. We believe our continued performance on these center ramps on what is now 167 centers across 21 states demonstrates the effectiveness, consistency, and scalability of our model and approach. We believe the depth and breadth of our clinical model and the consistent approach to executing it will drive differentiated results over the medium and long term, and that the business has strong momentum propelling us forward. Consistent performance along these center ramps going forward will create an outstanding financial return on the capital invested in new center development. We remain confident in our ability not only to scale our model, but continue to invest in our model and technology platform and further differentiate results from traditional primary care. Now I'll turn it over to Tim to cover some more of the details regarding our financial performance in the Q2. Thank you, Mike, and good morning. As Mike shared, we were pleased with our Q3 as we delivered results above the high end of guidance for all metrics. In terms of membership, our at-risk patient base, the key driver of our financial performance, grew by 44% to 145,000 patients, driven by our B2C marketing model and growth in the number of our centers. At the end of the Q3, we operated 161 centers, an increase of 51 centers or 46% versus the 110 centers we operated at the end of the Q3 of 2021. Capitated revenue of $537.9 million grew 43% year-over-year, driven primarily by growth in our at-risk patient base. Capitated revenue in the Q3 of 2022 included a $5.9 million reduction related to prior periods due to matters relating to the Direct Contracting program, specifically the retrospective trend adjustments made by CMS and the retroactive removal of a small number of patients following a review of our patient panel. Adjusting for prior period impacts in 2022 and 2021, Q3 capitated revenue grew 51% year-over-year. For the quarter, total reported revenue grew 40% year-over-year to $545.7 million. Total revenue adjusted for prior period changes grew 48%. Our medical claims expense for the Q3 of 2022 was $427.4 million, representing growth of 38% compared to prior year. Medical claims expense in the Q3 of 2022 included a favorable $12.8 million reduction in prior period medical claims expense due to 2022 costs developing more favorably versus our estimates and the aforementioned Direct Contracting patient retroactivity. When adjusting for prior period changes in the Q3 of 2022 and 2021, medical claims expense grew 47% year-over-year in the Q3, approximately 400 basis points slower than our comparable capitated revenue growth. Our cost of care, excluding depreciation and amortization, was $113.6 million for the Q3, an increase of 49% versus the prior year, driven by growth in the number of centers we operate and the number of team members supporting our significantly larger patient base. Sales and marketing expense was $44.1 million during the Q3, representing an increase of 45% year-over-year as we continue to invest in this area to support patient growth and a much larger footprint of centers. Corporate, general, and administrative expense was $81.7 million in the Q3, an increase of 6% year-over-year. As a reminder, this line item includes the majority of our stock-based compensation, which is inflated due to the treatment of our pre-IPO management equity plan. With our second anniversary as a public company, there has been a step down in our pre-IPO equity plan stock-based compensation, resulting in 20% decline for total stock-based compensation relative to the Q3 of last year. Looking ahead, we expect to see another material step down in Q3 of 2023, when the bulk of the remaining pre-IPO equity awards vest, and we expect normalized stock-based compensation from Q4 of 2023 forward. When factoring in the prior period changes to revenue, we improved our corporate, general, and administrative expense, excluding stock-based compensation as a percent of total revenue by approximately 90 basis points in Q3 of 2022 compared to Q3 of 2021, continuing our expected trend of declining corporate costs as a percent of revenue. I'll now discuss three non-GAAP financial metrics we find useful in evaluating our financial performance. Patient contribution, which we define as capitated revenue less medical claims expense, grew 65% year-over-year to $110.5 million during the Q3. Excluding the impact of prior period revenue and medical costs, patient contribution grew approximately 70% year-over-year. Platform contribution, which we define as total revenue, less the sum of medical claims expense, the cost of care excluding depreciation and amortization, and stock-based compensation, was $6 million, an increase of 94% year-over-year. As an individual center matures, we would expect both platform contribution dollars and margins to expand as we leverage the fixed costs associated with our centers, as well as improving our per-patient economics over time. Adjusted EBITDA, which we calculate by adding depreciation and amortization, transaction and operating-related costs, one-time litigation costs, and stock-based compensation, but excluding other income to net loss, was a loss of $88.3 million in the Q3 of 2022, compared to a loss of $64.4 million in the Q3 of 2021. Moving to cash flow and the balance sheet. We paid out the RubiconMD contingent earn-out as all the performance milestones were achieved, and the contingent consideration was awarded in a cash and stock combination, with $27.5 million paid in cash and approximately 1.2 million shares, or $32.5 million, issued to certain sellers of RubiconMD during the quarter. As we shared last quarter, we expect that over the course of the year that our adjusted EBITDA loss will approximate our uses of operating cash flow. While those figures diverged in the H1 of the year due to working capital seasonality, we expect them to converge over the H2 of the year. In Q3, cash used for operating activities was $33.9 million, which included approximately $6 million related to the RubiconMD earn-out, compared to EBITDA loss in the quarter of $88.3 million. For the nine months ended September 30th, cash used by operating activities was $213.3 million, and our capital expenditures were $67.6 million, both in line with our expectations. Additionally, at the end of the Q3, we entered into a loan agreement providing us with up to $300 million of new debt capital, which we can draw on tranches over time. We were required to draw $75 million at the closing of the loan. This debt raise was important, as with our cash on hand and the capital available to us via this loan, we are confident that we have sufficient capital to execute our growth plan of 30-40 new centers in 2023 and 2024. It will not need to raise incremental equity capital between now and when we are profitable. In total, we finished the Q3 with significant liquidity in the business. As of September 30th, we held approximately $543 million in unrestricted cash and marketable securities and an incremental $225 million of availability under our loan agreement. I also want to provide an update on two key trends from 2021 and their impact on our 2022 results, COVID costs and new patient economics. First, COVID continues to impact our medical costs, and we remain cautious on expectations for the remainder of the year, given the surges we experienced in the Q4s of both 2020 and 2021, as well as the recent headlines around the new variants and the flu. Year to date, we estimate that COVID represented $21 million in medical claims expense. Regarding new patient economics, for those patients who are new to Oak Street in 2022, performance to date is in line with expectations we shared at the beginning of the year, which were better relative to what we experienced in 2021, but not back to the level we experienced pre-pandemic. I would note that for patients who were new to Oak Street in 2021, we are generating historically normal profitability on that cohort of patients in 2022, despite the headwinds we experienced from them last year, which speaks to the efficacy of our care model and the degree to which we engage patients relative to the market at large. Moving along to our financial outlook for the remainder of the year. We are increasing our full-year guidance for at-risk patients to 157-159 thousand patients and raising our total revenue range to $2.15-2.155 billion. Our full-year expectation for centers remains at 169, and we are raising and significantly narrowing our adjusted EBITDA range to between a loss of $292.5 million and a loss of $287.5 million. We remain confident in the underlying trends we are seeing in the business and committed to providing exceptional care for our patients. With that, we will now open the call to questions. Operator. Thank you. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. Please note that today's call will end at the top of the hour. To provide the greatest opportunity for participation, please limit yourself to one question. Please reenter the queue if you have further questions. Thank you. Our first question today comes from Lisa Gill from JPMorgan. Your line is open. Thanks very much, and thanks for all the detail. I just wanna go back, Tim, to your comment around COVID costs and utilization trends for the Q4. Can you just talk about what's implied in the Q4 guidance around COVID, flu, et cetera, maybe we just call it respiratory at this point, and anything else that you would call out on utilization? Just as a follow-up, are there any other DC, direct contracting members that you know believe will roll off into the Q4? Maybe just help us to understand a little bit, you know, the fact that you were proactive in your thoughts that perhaps they wouldn't meet the criteria from a CMS perspective. Just wanna understand that a little bit better. Thanks. Morning, Lisa. Thanks. This is Tim. For Q4 utilization and cost estimates for COVID or, to your point, respiratory illnesses, I'd say our expectations, our experience is consistent with our experience year to date, as well as, you know, some element of conservatism just given historical experience, as I mentioned in Q4. Obviously, there's a lot to learn. We have about five weeks of data, which is pretty inconclusive, but supportive at this point, and we'll see how the remainder of the quarter evolves. Regarding Direct Contracting, we will continue to evaluate the panel. You know, part of it is where we sit at certain points in the year, right? We still have time over the course of the year to evaluate where we think that patient count will end up and ensure that if there are reasons why we think patients might drop to proactively mitigate those reasons. We will continue to do that. At this point, you know, we wanted to make sure that we were being proactive about managing this particular risk. The reality is that in Medicare Advantage, the patient decides to leave Oak Street, that patient needs to call the health plan, make a decision, call the health plan, proactively change their doctor. What happens from that point on is prospectively, that patient moves off Oak Street's rosters. Direct Contracting is different. You know, next year, CMS will look at our patient panel for 2022 and may make a determination that certain patients shouldn't have been included in our roster despite the fact that CMS paid us for those patients during 2022 and will retroactively drop those patients for all of 2022. Ultimately, given the relative size of our Direct Contracting population, it isn't that impactful from an EBITDA perspective, but obviously it creates choppiness, and we wanted to do what we could to make sure we're keeping that ahead of us as we continue to learn more about the Direct Contracting program. Our next question comes from Ryan Daniels from William Blair. Your line is open. Yeah, guys, thanks for taking the questions. Mike, I wanted to ask you about the programs for the all-inclusive care for the elderly. I noticed that Illinois is expanding. It looks like you guys are participating in that. Can you go into a little bit more detail about that opportunity, number one? Number two, will that be offered out of an existing Oak Street Health center, or is that gonna be a totally new asset base? Thanks. Yeah, thanks, Brad. I appreciate the question. I mean, for those of you who are less familiar with the PACE program, I look at it as almost an extension of what we do at Oak Street Health for some of our most vulnerable and highest need patients. We look at it as a natural extension of what we do, and as a way to get a lot more resources for those patients and help us care for them. We were very excited when Illinois decided to offer the PACE program, because we think it can be a really valuable offering for our patients. There's some pretty specific rules around PACE of what you need to provide. We'll need at least one kind of dedicated PACE center. We can also offer care out of our current centers as satellite PACE centers. I think it'll be a really great complement to what we're doing, allow us to leverage our current centers. Frankly, for a lot of our patients who really can benefit from PACE, we'll be able to get them a lot more resources, and that can drive, you know, better clinical outcomes for them, most importantly, but also better financial results. We think it's a great kind of complement and synergy opportunity, and we're really excited to be part of the program, although, you know, it's a relatively slow rollout program, so I don't expect to have a huge impact in the near term. Our next question comes from Gary Taylor from Cowen. Your line is open. Hi, good morning. Two quick ones. One, could you just touch on the CHW acquisition a little bit, just, what exactly that is and the motivation for that one? Yeah. It is a senior-focused primary care group in Washington Heights in New York City. I think the simplest way to say it is that they were a group that started a couple years ago, and I think kind of had a very similar approach to what we're doing at Oak Street Health and started with one center and you know serve a meaningful patient population. I think as they were working on the model, realized just the complexity of actually getting to be a risk-taking provider group and you know the cost associated with scaling that type of model. I think realized they could provide a better care quality and do it faster and a higher degree of success if they joined up with Oak Street versus trying to do it on their own. From our standpoint, it was a great opportunity to, you know, take something over that center-based, senior-focused, most importantly, a great culture fit between the team there and our teams. Really felt that it'd be kind of a essentially a way to, you know, kind of get a center that was a little further along on the maturation curve. We love those types of opportunities. We did something similar in Philadelphia a couple years ago. There's not many out there that kind of fit that criteria, would be senior-focused, center-based, and have that strong culture fit with what we do. You know, we will selectively look at this type of opportunity when they come up. As you know, it's one center, it's relatively small, but it's a nice way to kind of accelerate the patient ramp if we can find them. We now turn to Justin Lake from Wolfe Research. Your line is open. Thanks. A couple things. One, can you know, congrats on the revolver. I think it makes a lot of sense. I just wanna make sure I'm understanding it from a financial perspective in that, you know, just previously you had said 30-40 centers, and you think you get to breakeven and self-financing by 2025 and therefore don't need to raise capital. Has something changed that you need the revolver now, or is this just insurance? Secondly, you know, last year, I think it was at the JPMorgan conference, you gave us an overview, and you kinda talked through, you know, your maturity curve and gave us an update on how the different, you know, vintages were performing. Can we expect something similar at JPMorgan? What would be the timing on that? Thanks. Justin, good morning. It's Tim. Thanks for the question. On the debt deal, you know, from our perspective, the term loan now is more just a function of prudence and good corporate housekeeping from our perspective. Our expectations haven't necessarily changed. We felt as though, particularly the volatility in the market and the uncertainty, that it was better to have it than to not. That's the response on the debt deal. Regarding the ramps, yes, I mean, to your point, we did share our expectation for our cohort level performance in 2022 in January. Our guidance for 2022 was based upon those ramps, just simply the sum product of the profitability of each cohort multiplied by the number of centers in each cohort. Yeah, given our performance thus far, we're tracking well against those cohorts. Our expectation would be that in January, we update folks on performance, you know, early results for performance in 2022 against those 2022 targets, as well as our expectations for 2023. Our next question comes from Jessica Tassan from Piper Sandler. Your line is open. Thanks for taking the question. I was hoping you could give us some detail about the nurse practitioner fellowship program you guys launched in September. What's the receptivity been like, and just how scaled is the program today, and maybe the plan for future growth? Thanks. Hey, Jess, appreciate the question. This is Mike. It's a program we're incredibly excited about because one thing we've identified is there's a huge interest in nurse practitioners, especially new grad nurse practitioners in the Oak Street model, and practicing in value-based care and practicing in team-based care and being able to make the impact on our patient population that we do. But I think one of the big differences between, you know, nurse practitioners and doctors is, you know, nurse practitioners traditionally don't have a residency. They, you know, they generally spend time as a nurse for a period of time, go to NP school, and then come right back out and see patients. If you're, you know, in a more of a urgent care or, you know, that type of place, it's, you know, what you're seeing is not that difficult and you don't really need a lot of extra training. But obviously, our patient population is very different than it. It's complex and presents a number of challenges. This can be hard for a new grad nurse practitioner to come into Oak Street and just kinda hit the ground running. To bridge that gap, we're actually partnered, I believe, with the University of Michigan, and have created kind of a similar to, you know, what I guess providers give as residency, a more of a rotational program to give people extra support, give people extra guidance, give people extra mentorship, but help them get a lot of reps on our patient population. Really be able to extend our kind of hiring practices and our development practices, you know, to new grad NP students. We're pretty excited about, you know, both the program now, but also what the implications for the future and continue to build the best provider team in healthcare. We now turn to John Ransom from Raymond James. Your line is open. Hey, good morning. Just a couple questions for me. You mentioned last night that you paid the earn-out on the RubiconMD deal this quarter. Could you just kinda give us a high-level review of how that deal has gone relative to your expectations? In particular, are they giving you insight into real-time costs that you didn't have a year ago? I have a follow-up. Thanks. Yeah. Appreciate the question. I think it's going very well compared to our expectations. I think the whole thesis behind the RubiconMD acquisition was that so much of the specialist spend out there is not needed, right? It's redoing work, where you know, you really just want a second opinion. You really just wanna double-check that you're managing these complex patients and complex conditions correctly as a primary care doctor. Your only mechanism to do that in a kind of traditional fee-for-service medicine is to send them to a specialist, where from a patient perspective, they have to make a new appointment. It's gonna take months to get in the appointment. They gotta get to the doctor's office. There's less specialists, so it's usually less convenient. They gotta wait in the exam room. They gotta do a whole battery of testing and redo those things, et cetera, et cetera, et cetera. It's both high cost and poor experience. Really what you want is a second opinion on a lot of specialists. Obviously, not all, but a meaningful portion. eConsults are a perfect way to do that. I think what we identified as one of the barriers to that happening more prevalently is a lot of administrative work and it's hard for primary care docs to actually get the eConsult, right? There's only so much, you know, adherence you're gonna have to guidelines when you have to go into a new portal, retype information, et cetera, et cetera. We felt that to really get the full benefit of eConsults and the patient experience and medical cost impact, we really need to integrate it into our core technology platform. That's why we decided to make the acquisition. As I mentioned, I think in my script, we just finished what I call phase one integration work. It is just part of our Referrals module. There's no extra portals, et cetera. And as expected, you know, we're seeing a really strong uptick in the, you know, the amount of eConsults being used, which, you know, we believe both will save direct specialist costs because a lot of the eConsults will avoid having to send someone to a specialist for the second opinion. More importantly, I think we'll create a great patient experience where within hours we can get the results back from specialists versus, you know, what takes, you know, oftentimes months to get in to see a specialist. Just as importantly, it's a really great resource for our providers to get extra information on how to manage some of their toughest patients. So far we feel great about the results. You know, it's been a process as we've talked about to you know, drive the integration over the course of the year. Kind of the number of e-consults has gone up as the years progress and continues to trend up, you know, month-over-month. You know, we don't obviously have claims for the near term periods to compare. The way we you know actually kind of validate the cost savings. We check, okay, eConsult happens. Is there ever a specialist claim? Validate that it actually is reducing costs. We know it does in the early days of you know Q1, Q2 on much smaller volume of eConsults. We have a lot of confidence that it's gonna drive results kind of Q4 and really most importantly next year and beyond at Oak Street. We now turn to Elizabeth Anderson from Evercore. Your line is open. Elizabeth, your line is now open. We move on to Sandy Draper from Guggenheim. Your line is open. Thanks very much, and good morning. A question, when I'm just looking at the patient growth, one thing that jumped out sort of over the last three quarters is you've had really strong growth on the fee-for-service side. It seems to me that's a potential feeder source of, you know, moving people into the at-risk population. I'm just trying to, you know, get some color on, you know, how you can market to those people, why someone who comes on in fee-for-service would not switch over to at-risk. Obviously, you know, mid-year, some of those may not, but, you know, is it reasonable to think that the majority of those move into an at-risk model at the beginning of next year? Just trying to see how much of a leading indicator that is to growth for the at-risk patients. Thanks. Yeah. I appreciate the question. I think you're thinking about correctly as that population being a feeder. But I wanna point, there's always kind of, call it, you know, structural percentage of patients who can't be at risk. There's a couple reasons for that. You know, one, on Direct Contracting, as we talked about, there's a fair amount of people who are on traditional Medicare that are seeing Oak Street Health, have actually filled out the voluntary alignment form. They want to join Oak Street Health as a PCP. As of today, if you were going to a primary care doctor in the past who was part of or part of a health system that was part of the Medicare Shared Savings Program, that would trump that backward-looking, visiting a primary care doctor as part of MSSP would trump forward-looking your patient decision to join Oak Street. Which, again, isn't probably how I would do it if I was designing it, but that is how the rules work today. Because of that, you have to wait until the patient becomes claims aligned, which could take a couple would take two years. We do see some set of people who are patients who are kind of fee-for-service who want to be part of Direct Contracting, it's just they're waiting to get through. Obviously we don't differentiate the care. That's not a patient decision, right? It's just, it is what it is. There's another subset of people that don't have, you know, full Medicare Part B, so they're not eligible for Direct Contracting, who are on traditional Medicare, kind of same. You know, these are not huge buckets, but they're buckets that there's not really much we can do about to move to risk. There are situations where people have completed a visit with Oak Street Health, and we're just waiting for them to flow through. Again, this is a big one for Direct Contracting, where if someone, you know, sees us today, fills out the voluntary alignment form, they won't go to risk until January. When we report Q4 results, that's gonna be a person who is listed as fee-for-service. To your point, that is a great example of the feeder growth, right? They're gonna flow through to risk contracts. Similar to some of our new markets are when we go to new markets, sometimes we don't have risk, you know, day one. We have risk kind of the first January 1st, and it's just usually an administrative thing. There's only, you know, if you have a dozen patients, it's really not worth all the processes to go to risk, so we build the population first, and those contracts flip. I think there are a number of reasons why we have, you know, patients who are not at risk, but I do think that over time, the majority of those people will eventually flow to risk, although obviously there'll be new ones that come in that are not at risk, right? And then there'll be some smaller portion that just are kind of, you know, structurally always not at risk. As a reminder, to provide the greatest opportunity for participation, please limit yourself to one question. Please reenter the queue if you have any further questions. We now turn to Richard Close from Canaccord Genuity. Your line is open. Richard, your line is now open. We now turn to Kevin Fischbeck from Bank of America. Your line is open. Hey, thanks. This is Adam Ron on for Kevin Fischbeck. If I understood correctly, I think you're saying new patient economics are still hovering between 2019 and 2021 levels. I thought that was the main swing factor into the unit economic range. That was the basis for 2022 guidance. If that's not coming in better, then what is giving you confidence to raise the range? If I'm understanding that correctly, what do we need to see to get back to 2019 levels? Is it better risk coding, lower year one utilization? Is it patient capacity? Any color would be appreciated. Yeah. Hi, Adam, it's Tim. For 2022 guidance, if you recall, we had a range of outcomes we provided in January. The high end of which was assuming we got back to 2019 levels of new patient economics, and there were no COVID costs. We never thought that that range was necessarily relevant for 2022, because when we provided that in January, obviously the Omicron surge was underway and we weren't, you know, we didn't expect new patient economics to swing back that quickly. Our guidance for the year was predicated upon the low end of that range of outcomes provided in January to about the midpoint. As we think about performance for the year, for 2022, us coming in at the high end of guidance, that would be at about the midpoint of that, of those center economic ramps that we provided in January. It would make sense that if patient economics are somewhere between 2019 and 2021 levels, that would be in line with the midpoint of that range. That is the answer to that first question. And I'm sorry, you, what was your, the other question? We now turn to Elizabeth Anderson from Evercore. Your line is open. Hey there. Thanks. This is Sameer Patel speaking for Elizabeth Anderson. I was just wondering, just sort of on the same framework for Q4, rest of fiscal year 2022, do you have any color you can provide on MLR and directionally, you know, which way this is gonna be going, and then the puts and takes related to it? We do not guide in MLR. I'm not gonna provide any input on where we think MLR will be for Q4. As we discussed, there's a number of factors that affect MLR in our business that are different than what you might see in the market more broadly, at least with MA plans, right? Where new patients, which are a large portion of our total patient mix, are going to increase MLR. To the extent that we are outperforming on new patients, we'd expect MLR to be higher than expectations. I think the market tends to look at each of these metrics in a siloed basis, and the reality is there's interplay. We don't talk about MLR. I'd say, look at stepping back for a moment, medical costs are the single largest expense line on the P&L. For us to now be centered on the high end of our prior guidance range for full year EBITDA, you cannot be there without having MLR or medical cost results, generally speaking in line with your expectations, right? It's very hard to offset headwinds on MLR through expense management, just given the relative size of each of those buckets. From our perspective, we're in line with where we were, where we thought we'd be for the year, which is great. Beyond that, I'm not gonna provide any specifics on where we think MLR will be for Q4. Our next question comes from Andrew Mok from UBS. Your line is open. Hi. Good morning. Question on MA Star scores, given some of the recent volatility for the 2024 plan year. I understand that the impact is ultimately based on county level contract exposure and plan benefit design. Can you help us understand how this works mechanically? Does the starting point for your capitated contracts with plans include rebate revenue, such that if a contract declines in Star scores, that lower rebate revenue then flows through to the clinic? Thanks. Yeah. I think it's a bit more complicated than just thinking through star scores go down, revenue goes down, and that flows to Oak Street. I think there's a big portion of that and a big governor on our economics, which is the plan bid. Oftentimes when there's higher star scores or higher revenues, plans will reinvest those dollars into a better, more compelling benefit offer and more supplemental benefits. Yes, there is more revenue to Oak Street when that happens. There's also more cost to Oak Street because you know obviously there's cost to those supplemental benefits as well. The reverse is true. We're somewhat, you know, buffered and insulated from kind of rate changes and in this case, you know, Star performance changes, because oftentimes there are adjustments to the benefits, and those adjustments can be reductions in the benefits or just a lack of an increase in the benefits that would have happened otherwise. We get the question on both sides. Oftentimes, you know, oh, 2023 is gonna be a great rate year. You know, will that mean it's gonna be a wonderful year for Oak Street? The answer is, you know, yes, revenue will be higher, but so will cost because, you know, the plans will bid more aggressively. In the future, when we have a bad rate year, the opposite will be true. There won't be aggressive growth of benefits likely because of that, and therefore it'll kind of buffer out. I think the same thing will happen with the Star scores to that extent. When these changes happen, it has you know a much more limited impact on the bottom line of Oak Street than kind of the top line of the plan. Our next question comes from Michael Ha from Morgan Stanley. Your line is open. Hey, good morning. This is Connor Massari for Michael Ha. Just wanted to look at the AARP partnership. Are there any updates or visibility on the membership growth associated with this? In the future, will there be a way for us to kind of track the membership contribution that comes from that partnership? Thank you. Yeah. Appreciate the question. You know, we don't break out membership by channel, and I don't expect to do that into the future. You know, the AARP partnership one is to talk about. We're very excited about, because the AARP brand name is the most trusted brand name for older adults. They have an incredible reach in that organization. As we continue to go forward and kind of activate more and more pieces of AARP, again, we just get increasingly excited about the opportunity there, and I think it is something that's very differentiating. We are the only and exclusive group to kind of be able to, from a provider standpoint, to be able to leverage the AARP name. We think, you know, a long-term built-in advantage. With the conversations we've had with AARP leadership, I think they share our excitement. I think they're really excited about the Oak Street Health mission and excited about kind of helping more and more AARP members and leveraging their incredible reach to further educate people about the importance of primary care and preventative medicine and what we do here at Oak Street. Again, we're in the early days, I think, or early innings of this partnership, so to speak. I mean, somebody asked me to put baseball game innings and things, I'd say we're still in the first inning on this one. We're incredibly excited as this game progresses to see the impact it's gonna make, and I think it can be a really true differentiator in the medium term. We now turn to David Larsen from BTIG. Your line is open. Hey, can you please provide your thoughts on the announcement yesterday where VillageMD is acquiring Summit Health and, you know, your thoughts on Walgreens' investment into the space? What impact will that have on you if any? And it seems like, you know, CVS is interested in the primary care space. Just quickly, I think in the JPMorgan deck from last year, you highlighted that there were 19 centers that were in a year six plus vintage range with a platform contribution of around $6 -7 million for 2022. How is that sort of cohort or vintage range trending relative to expectations? Thanks very much. Yeah. Appreciate the questions. On the first one regarding the acquisition, I think that really highlights a couple things. One is just the market size and market opportunity for primary care. Again, you have all read the stats probably more than I have. But a meaningful acquisition in a group that, you know, essentially urgent care centers in New York City and a large multi-specialty group in New Jersey. So kind of, you know, really kind of one market. And, you know, we're in New York City today, and it's been a phenomenal growth market for us over the last couple years. We just got involved, and we're, you know, I think we're just kind of tip of the iceberg on what will grow in New York from a center perspective and patient perspective. Again, I think we actually coexist quite well with them. I don't look at them as competitive at all, today. I think that just highlights kind of the number of different primary care offerings and the size of the market. I think the fact that you're seeing more interest in the M&A side, I think more and more organizations are coming to something we would totally agree with, which is, you know, the key to addressing the cost and quality challenge we have in healthcare is through primary care. Innovative primary care assets can really drive a huge amount of value to the system. Again, we totally agree with that. I think it just highlights the size of the market here and the kind of just so many different approaches to leverage in primary care. To your second question, as Tim said earlier, I think on this call, we will share kind of updates on how we're doing by vintage in January and as well as kind of expectations for 2023. I think you should strongly imply based on the fact that we're kind of hitting our quarterly numbers and just you know slightly raised our range that our cohorts are progressing as we describe them progressing. I think that would be a very fair assumption to make that those 19 are kind of in the range we talked about. I think that's one of the things that is making us incredibly confident in the trajectory of the business is we're seeing what we hoped would trend out this year is kind of getting to a more normalized period. It's trending that way. We're seeing really strong performance. You know, it's been a tough operating year and, you know, with all the things going on in the economy and healthcare, and despite that, our teams have just done an incredible job driving incredible results, you know, across all our vintages. The new vintages are going well. The mature ones are going well. Again, we're excited to share the results, but I think you should infer from the results today and guidance that it's going well. We now turn to Jamie Perse from Goldman Sachs. Your line is open. Hey, good morning, guys. You opened 17 centers in the quarter, that's like 12% sequential growth, you know, clearly had an impact on the P&L. I'm trying to understand that a little bit. First on patient growth, how much of that came from the new centers? I imagine they're slow in the early days, and most of the growth is attributable to earlier centers, if you can comment on that. Then on cost of care, same type of question. Just if you can remind us what the, you know, those first few months of cost of care, you know, center level costs look like, for new centers if we bridge from 2Q to 3Q. Is that the difference? Lastly, just on Direct Contracting, you've always described it as higher revenue, higher cost, but similar margin contribution. Is that still the right framework to be thinking about Direct Contracting/ACO REACH going into next year? Thank you. Yeah. This is Mike again. On the growth front, I would think about, especially on the growth side, new center adds, other than the small handful of centers we have that are basically full, our centers grow at a similar amount per month every year. There's not like a slower or much faster ramp for new centers. It's generally pretty consistent, from, you know, kind of your first couple of months to, you know, a couple of years in on the kind of number of patients you're adding per center per day. So I would just kinda look at it more proportionally on the growth front. On cost of care, I mean, yes, the more centers you open up in any given period, the higher the cost of care you have by definition 'cause you have people working at those centers. Generally, cost of care is less at a newer center because you don't hire all six, you know, care teams day one, right? You hire one the first month, then you hire another one, you know, a month or two in, et cetera, et cetera. You do ramp costs of care over time with centers, so that wouldn't be totally proportional. You'd have less cost of care for newer centers. I think your frame of reference on Direct Contracting is correct, you know, directionally. I think we see kind of when you adjust it for patient tenure, I think you see similar, you know, dollar contributions, relatively similar for Direct Contracting you do for MA. Jamie, this is Tim. One thing I'd add is that to the extent that we have more centers in a period than otherwise expected, that would lead to greater losses in the period all else equal, just given the fact that obviously new centers, we're gonna invest in those centers for the first couple of years to get them to break even. You know, more centers all else equal would be a greater loss, just to make sure that was clear. Our next question comes from Craig Jones from Stifel. Your line is open. Hey. Thank you. I just wanted to ask around the new debt. It looked like there was a covenant in there around trailing 12-month contribution margin once you draw down a certain amount. I was wondering if you could, you know, give us what that would be at, say, 100, 200, or fully drawn. If you do end up having to draw that, you know, over $100 million, would that make it more likely you would slow your center growth closer to 30, as you'd have to be more focused on profitability? Is it, you know, a fairly easy covenant to achieve even at, you know, 40 centers? Thanks. Hi, Craig. This is Tim. The covenant is set assuming 40 centers. The simple answer is no, we wouldn't have to necessarily adjust our center pace depending upon how much of the loan we drew or ultimately draw. We did not disclose what those covenant levels are set at. Our next question comes from John Ransom from Raymond James. Your line is open. Hey. Back in the queue. So my second question is, you know, last year you guys had the issue, of course, with delayed visibility into medical costs, just given the delay at the payer level. So I'm just wondering, a year down the road, kinda how you're thinking about that issue. You know, if you knew X% of what you needed to know a year ago, what do you know this year? Or is it just one of those structural issues that you just sort of have to cover with getting bigger and more actuarially predictable and just kind of brute force reserves? Thanks. Yeah, John, appreciate the question. I think it's actually been almost 18 months since the kinda late Q1, early Q2 challenges of 2021. Time flies when you're having fun, I guess. I think that when we look back at that period, I think it really was absolutely an anomaly, the biggest challenge there. You know, we obviously have full run rate now and have full visibility into. You know, as we discussed, when the vaccines came back, people went back to specialists in much higher numbers than they've ever done before. It was actually the percentage of referrals that got completed was just much higher. When we booked Q2 2020, I think we prudently decided to assume those trends would continue throughout the year. They ended up not continuing throughout the year, and it ended up being a two-month issue. Actually, probably, you know, we ended up performing better than we expected or we shared kind of in our results. In hindsight, we could have kept our earnings range the same and not made changes, but I think that felt like the right decision at the time. The further we get away from that, the more I think it really was a kind of a one-time issue driven by the unwinding of the pandemic, because since then, it's been really strong. Now, I think, to Tim and team's credit, I think they did a lot of work also to upgrade, you know, our capabilities, our predictive capabilities, the different data points that go into our IBNR modeling. I think we are much better than we were then. We also have a much bigger patient base than we did then also, which helps, and that will continue to grow and help more and more. I think we try to be very prudent in how we book our kind of near-term quarters. As you've probably seen, we've reduced med costs the last three or four quarters from prior periods as we kind of prudently book. Again, I think that a number of things that we've done to improve. I think the root cause issue, again, looking back, knowing what we know today, was very much of a kind of a one-off behavior change in a very dramatic way by patients that has not been repeated, and I don't expect will happen again. We have a follow-up from Sandy Draper from Guggenheim. Your line is open. Thanks very much for taking my follow-up. Pretty quick, I think. Could you just comment on, I know you said this year operating cash flow is sort of aligning with EBITDA. Is that a good sort of long-term way to think about the model, or is it gonna trend back one way or the other? That would just be helpful to get thoughts on that. Thanks. Yeah, Sandy, it's Tim. I think generally speaking, that is the right way of thinking about it. Again, give or take a little bit, right? Roughly speaking, they should approximate. I think if you look back historically speaking, you will see that trend, again, on an annual basis, and we'll expect that going forward. As a reminder to ask any further questions, please press star one on your telephone keypad now. We now turn to Jessica Tassan from Piper Sandler. Your line is open. Hi. Thanks for taking the follow-up. Can you just describe what Oak Street's role is during AEP, and kind of what are your priorities during that time in terms of patient retention, and patient recruitment? Thanks. Yeah. Thanks, Jess. I think AEP is a very different period for Oak Street, and frankly, less important period for Oak Street than it would be for a health plan. Because, you know, we're adding patients throughout the year because they're picking us as their primary care provider, and there's no implications on the open enrollment there. We do see a little higher growth in the AEP period because people are being activated to think about healthcare decisions because of all the advertising things happening in the Medicare Advantage front. You know, oftentimes we'll partner with and coordinate with insurance advisors who are signing people up for plans who need primary care doctors. Again, there's a little bit of a lift through the period, but it's not the kind of this outlier period of growth like it is for a health plan where it sets year up. Look, one of the things we do all year round, not just during AEP, but certainly during AEP, is we wanna make sure that our patients are on the right plan for them and leveraging the benefits appropriately. What we find is there's a lot of supplemental benefits and formulary rules and things of that nature that you know are relatively complex. We have a resource in all of our centers we call a patient relations manager. Essentially what the PRM we call them does is, among their many roles, they help our patients navigate all things insurance, right? Making sure that, you know, our providers understand the formulary so do patients, making sure that people who, you know, have a benefit around, you know, certain supplementals or certain activities are leveraging that if they're interested, etc. We find that one is most importantly a great benefit for our patients. Number two, if they're using those things, it leads to better retention for the health plans as well as an ancillary benefit. We do that all year round, but obviously in AEP it has increased importance. You know, the last thing I'll say on this is, I think one of the advantages of being a multi-payer platform is, you know, patients, if there is a better plan offering, can switch plan offerings and stay with Oak Street Health. As the MA market has been more and more competitive the last couple of years, as there's been more and more dollars flowing into marketing, you know, we've been able to navigate that well in large part because of our true multi-payer nature. This concludes our Q&A and today's conference call. We'd like to thank you for your participation. You may now disconnect your line.