Q2 2021 Alignment Healthcare Inc Earnings Call
[music].
Good afternoon, and welcome to alignment healthcare second quarter 2021 earnings conference call and webcast all participants will be in a listen only mode.
After todays presentation, there will be an opportunity to ask questions to ask a question. During the question and answer session. You will need to press star 1 on your telephone keypad. Please note. This event is being recorded leading today's call are John Kao, founder and CEO and Thomas Friedman.
<unk> financial officer.
Before we begin we would like to remind you that certain statements made during this call will be forward looking statements as defined by the private Securities Litigation Reform Act.
These forward looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs assumptions and information currently available to us. Although we believe these expectations are reasonable we undertake no obligation to revise any statements to reflect changes that occur.
After this call.
Descriptions of some of the factors that could cause actual results to differ materially from these forward looking statements are discussed in more detail in our filings with the SEC, including the risk factors section of the prospectus for our initial public offering filed with the S. E. C on March 29th 22.
1 and are on our form 10-Q for the quarter ended June 30th 'twenty 'twenty 1.
In addition, please note that the company will be discussing certain non-GAAP financial measures that they believe are important in evaluating performance deep.
Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the press release that is posted on the company's website and in our 10-Q for the quarter ended June 30th 'twenty 'twenty 1.
Hello, and welcome everyone to our second quarter earnings Conference call.
We're pleased to report a solid quarter on which we exceeded the high end of our guidance across each of our 4 key kpis.
Our health plan membership ended at 84700, an increase of 32% compared to last year.
Total revenue of $309 million grew 26% from last year, which was led by our health plan premium revenue growth of 32% year over year.
Adjusted gross profit came in at $37 million and adjusted EBITDA was a small loss of $5 million as we continue to invest in growth and scaling of the business.
Thomas will share more regarding our financial performance for the quarter.
From an operational perspective, we are executing on the growth strategy via our virtuous cycle that we laid out during our IPO roadshow.
As a reminder, this growth strategy consists of 3 components. These are first entering new states by establishing anchor beachheads and partnerships second delivering contiguous market expansions on our existing states.
Third, adding new innovative products that provider partnerships to further growth market share in each of our existing geographies.
Across each of these 3 prongs of our growth strategy of our business is exceeding my expectations.
Our ability to deliver upon our growth agenda is due to the consistency of our operating model.
Thrilled with how we're performing and how our team has skillfully executing on the plan.
Though our 2022 AEP market expansions and products are still subject to regulatory approval.
We are excited about our strong position.
In terms of overall geographic expansion, we are making steady progress to expand our addressable market to allow a greater number of seniors to experience what makes alignment unique.
We anticipate growing the number of markets we operate in from 'twenty 2 counties in 2021.
<unk> 38 counties in 2022.
As a result, we will have access to approximately 7 million Medicare eligible members in 2022, an increase of about 27 per cent from today.
Since our IPO, we've been very clear about our growth strategy of first establishing beachheads in new states and then expanding into contiguous markets, which means counties.
And those states overtime.
With that in mind on the first strategy, we recently announced that we're entering our fourth state Arizona.
By offering Plaza, Pima and Maricopa county's beginning in 2022.
These 2 new markets provide access to nearly 1 million eligible seniors and represent a natural extension of our existing operations in California and Nevada.
On the second prong of adding contiguous markets. We are planning to add 12, New counties in North Carolina in 2022, which will bring the total number of markets alignment serves to 15 in the state.
We also intend to add 2 new markets in Nevada next year as we expand the Washoe and night counties.
Shifting to our third problem, which is to drive market share gains in our existing markets. Our plans in supplemental benefits are designed to meet community needs.
Necessity income and health status, our innovative product offerings, which are considered a culture on social determinants of health continues to be well received on the market.
We are pleased to recently announced several new products on product line expansions effective January 2022 subject to regulatory approval.
After the success of our harmony product focused on the Asian community. In 2021, we are eager to launch our LS Nikko product designed to serve the Hispanic population in 2022.
This product has been developed to better customize the experience of our Spanish speaking population, which today represents over 25% of our total membership.
In addition to our ethically focused plans. We're also expanding our offering to include PPO plans and plans for dual eligible special needs members, where D snips as well as chronic condition special needs plans or Ccs.
Beginning in 2022, the PPO plan will be offered in 28 of our markets provide our members with greater flexibility in their care and coverage decisions the day.
This net plans will be available on 24 markets are designed to provide the same level of care and service associated with our regular MA products in conjunction with members Medicaid benefits.
Meanwhile, the 6 net plants will be offered in 11 markets and targeted to members who believe can benefit from our chronic disease management programs, such as those with cardiovascular disorders, chronic heart failure or diabetes.
Adding these differentiates plans of 2022 allows us to further penetrate our existing markets and to offer a broader value proposition across difference to your consumer segments.
These product strategies designed to meet the individual needs of a diverse set of consumers demonstrate our product leadership in the market and are consistent with our goal to provide a more personalized experience for our consumers. We look forward to sharing more about these products during this upcoming AEP.
On the provider partnership front, we have recently closed several relationships that we plan to announce in the coming weeks as we gear up our 2020 to AEP.
We believe the growing list of provider and delivery system organizations that want to work with the alignment reflects the value proposition, we deliver to the provider stakeholders and our ecosystem.
More specifically these providers are partnering with us because of our differentiated products, our proprietary <unk> technology and our Medicare advantage expertise all of which result in consistent outcomes of high quality and low cost.
It should enable us to offer market leading benefits for seniors.
This in turn drives our ability to help our providers grow and gain market share.
As we continue to demonstrate the efficacy of our platform.
We believe will establish more and more partnership arrangements like these in the future.
We must drive in our existing and new expansion markets.
Looking to the remainder of the year ahead with the annual enrollment period of right around the corner. We are working diligently to educate our channel partners about alignment differentiated approach.
It is this powerful combination of market entry strategies product positioning provider relationships and broker engagement and partnerships that allow us to continue to grow our market share across our geographic footprint.
As a result of all this work we've done over the past several months. We believe we are well positioned for a successful enrollment season.
Finally, before I conclude I want to touch on our EBIT technology platform.
Ah represents a core differentiated advantage to our company as it embeds the intelligence from our experience into repeatable scalable technology and associated processes.
This allows us to manage risk consistently and successfully with our provider partners as we implement our high quality low cost growth model.
Further <unk> is central to our ability to provide our senior consumers with differentiated products that meet their personal needs.
Many of you have begun to see demos of portions of our Ava platform and we look forward to sharing new and improved features with you in the future.
Wrapping up the first half of 2021 is off to a great start operationally we're positioning.
Turning ourselves well for a successful 2022 enrollment period.
And we're very focused right now on putting the building blocks on place to set up a meaningful and sustainable long term growth for 2023 and beyond.
Prudent and disciplined approach to continuously investing towards growth and Eva remain priorities for us heading into the back half of the year on.
I look forward to keeping you updated on our progress across these initiatives with that I'll turn the call over to Thomas to review our financial performance Thomas.
Thank you John and thank you everyone for joining us on our call today.
Turning to the second quarter results as John mentioned, we had another strong quarter in which we exceeded the high end of our guidance ranges across each of our 4 Kpis are health plan membership of 84700 increased 32% over last year as we wrapped up the final month of CMS as the open enrollment period in April our strong membership growth further.
2 revenue outperformance in the quarter total revenue of $309 million increased 26 per cent year over year, representing $39 million over the high end of our guidance range, notably our health plan premium revenue of $293 million increased 32% over last year.
The strength of our second quarter revenue outcome was supported by a couple of drivers worth highlighting.
The $39 million of outperformance versus the high end of our guidance range can generally be thought about in 2 buckets are Medicare advantage or it may health plan business performance and the introduction of our initial D. C E venture into our financials, which was launched at the beginning of the second quarter and was previously excluded from guidance.
First our continuing at MA business delivered strong results ahead of guidance shared last quarter.
Excluding incremental sweep revenue from 2020, and excluding incremental D. C revenue I would highlight that we exceeded the high end of our <unk> revenue guidance by $21 million. This was due to a combination of better than anticipated membership performance as well as increasing our revenue P. M. P. M for the first half of 2021 day service.
Based on our latest data.
That $8 million of the $21 million related to the first quarter of 2021 dates of service.
Upward momentum of our revenue P. M. P. M is reflective of the operational efforts, we took on the back half of 2020 to engage our provider partners and our seniors directly and documenting our members underlying conditions as well as visibility from the midyear sweep for the 24% of our members who are new to alignment in the first half of 2021.
This quarter's revenue also incorporated our 2020 final sweep payments, representing another $5 million of revenue related to 2020 day to service. These suite payments for prior periods are standard course of business in our industry and happen every year.
In total our continuing at MA business contributed $26 million of the $39 million of revenue outperformance in the quarter versus the high end of our previous guidance.
Additionally, our second quarter revenue included another $13 million from our direct contracting margins North Carolina.
Joining venture with a number of leading independent clinicians we are leveraging our experience platform and capabilities for our Medicare advantage book of business to take risk on 5900 seniors in traditional Medicare or revenue per the program is reflected on a gross basis, which means that we are accruing for our revenue based on the benchmark expenditures established by CMS.
While our participation in Medicare direct contracting program remains early we remain cautiously optimistic as to the long term economic opportunity as we increasingly apply our AI technology and related critical processes to this population.
Thus far our revenue per member per month is meaningfully below our Medicare advantage population. However, we believe our ability to generate a profit remains positive given the significantly less direct and indirect operating expenditures associated with DCE members as compared to our inmate population.
We reported a small gross profit loss in the quarter on our D. C E partnership given the early stage nature of the program as well as due to the limited claims data we receive from CMS. Thus far just to reiterate the 5900 D. C. E. Members are in addition to our 84700 health plan members, we reported for the second quarter.
Turning to adjusted gross profit, we delivered $37 million in the second quarter as we saw a continued decline of COVID-19 impacting our overall utilization.
Cisco with their expectations, we shared on our previous earnings call.
Relative to our pre Covid experience total inpatient utilization in the quarter. It was slightly better than what we would consider to be a normal <unk> baseline.
Further in the quarter, we continued to see some of the temporary favorability we discussed on our last earnings call with our internal clinical model spin that said, we still anticipate this to reverse in the second half of the year.
All things considered our second quarter medical benefit ratio or MBR of 88% with a market improvement versus our first quarter MBR of <unk> 95 per cent.
Further excluding D C. Our MBR for the quarter was 87%, which is comparable to our previous communications, which excluded the D. C. E venture, it's worth noting that we do not anticipate sharing our separate MBR performance in future quarters, unless we feel it is necessary to explain the underlying trends of the business. However, we felt that it was appropriate to.
Share this quarter given that our previous guidance excluded D C.
Our SG&A in the second quarter was $71 million.
Excluding equity based compensation expense of $28 million or SG&A on a second quarter was $43 million, which increased 28% year over year, we continue to experience some temporary favorability in SG&A in the quarter, which we intend to reinvest in the second half of the year towards the growth in our existing geographies as well as 22 expansion geographies and potential 2020.
<unk> target markets.
All of these factors resulted in adjusted EBITDA loss of just $5 million.
Turning to the balance sheet, we ended the second quarter with a net cash balance of $343 million. The strength of on balance sheet is allowing us to remain offensive oriented while evaluating new markets and partnerships for 2023 as well as various M&A opportunities in both existing as well as targeted expansion markets.
Finally, I'll conclude my remarks by providing our initial outlook for the third quarter and some color on the increased full year guidance, we announced today.
For the third quarter of 2021, we expect health plan membership to be between 84880.5200 members.
Revenue to be in the range of $270 million to $275 million.
Adjusted gross profit to be between 30, and $32 million and adjusted EBITDA to be in the range of a loss of 19% to $17 million.
For the full year 2021 outlook, we now expect health plan membership to be between 85080.5800 members an increase from our previous range of 83580.4500.
Revenue to be in the range of $1 billion and $105 million to $1 billion $120 million, an increase from our previous range of $1.40 to $1.055 billion.
Adjusted gross profit to be between 117, and $123 million, an increase from our previous range of $116 million to $122 million.
And EBITDA to be in the range of a loss of 55 million to $50 million and improvement from our previous range of a loss of $56 million to $51 million.
How do we think about the second half of the year, we expect continued sales and membership growth as well as this enrollment to be consistent with our prior experience. As previously discussed there is an element of seasonality to our business where majority of our net membership growth occurred by April 1st of a given calendar year due to the timing of the annual enrollment period and open enrollment period we.
Therefore, we expect more modest membership growth from July to December and we didn't expect a step up in membership effective January 'twenty 'twenty 2 after this upcoming AEP.
Given our receipt of the midyear sweep as well as having experienced another 3 months of data run out for a returning members who were with US in 2020, we now have improved visibility to our revenue P. M. P. M for the second half of the year and feel confident about our second half revenue outlook.
As we think about our gross profit and MBR assumptions in the back half of the year, we remain mindful of the potential for utilization to increase in particular in Q4, we anticipate a return on the flu season, which was largely absent this past winter due to the various COVID-19 protocols that were in place and further you're keeping an eye on infection rates in our markets related to the more highly contagious.
19th Delta variant and accordingly, we remain somewhat cautious with respect to our second half claims expense outlook with that in mind, we continue to further engage and outreach our members to support their vaccination needs and are pleased to report that we estimate that over 80% of our seniors have been vaccinated.
We also have incorporated our new member sales outperformance year to date were newer members that join alignment typically begin with higher Mbr's then improve over time as we end user population as a reminder, this mix of new versus returning members is a key driver to our consolidated MBR performance.
Finally, we remain highly focused on executing against our strategic growth plan for this upcoming AEP as well as developing our 2023 target market opportunities given the 18 month sales cycle associated with our business model, but those 2 items in mind, we anticipate continuing to make intentional growth and scaling investments to redeploy EBITDA.
And therefore expect to see several million dollars of reversal in early in the year SG&A favorability during the second half of 2021.
As John noted the building blocks, we've put in place today are foundational to driving sustainable growth in the out years, our EBITDA guidance for the remainder of the year also reflects the seasonality of our SG&A spend whereby we typically have greater growth oriented investments in the second half of the year such as the timing of our southern marketing spend around <unk>.
To wrap up I'm very pleased on how our business has performed in the first half of the year given our recent public market debut and I believe we're on a strong position to continue that progress in the second half of the year.
Let's open the call to questions operator.
As a reminder to ask a question you will need to press star 1 on your telephone to withdraw your question press the pound key again Thats star 1 on your touched on telephone to ask question. Please standby, while we compile the Q&A roster.
Our first question comes from the line of Ricky Goldwasser of Morgan Stanley.
Line is open.
Yeah, Hi, good afternoon, and thank you John and Thomas for all the details.
My question is really focused on on.
On the MLR.
He gave us a number for the adjustment, but few follow ups here. So first of all on your last call you didn't guide to MLR, but you gave us some color on how to think about MLR in second half day here. Thank you talked about.
<unk> in the high 80, so when I take kind of like your performance.
On this quarter on last quarter on kind of like what's implied for per second half day here should we think about MLR at around day.
84% to 86% range.
And how is it impacted by or how should we adjust right for D C.
Yeah, Great. Ricky this is Thomas here so.
Let me, let me play that back so I think you're absolutely right that I think when we last spoke on our Q1 earnings call.
I think we did share that our outlook for the year was in the high eighties.
I want to make sure I'm tracking the 84 to 86 commentary are you intending to somewhat bifurcate the.
The MAA comments versus the introduction of D. C. E is that really the core of your question.
Yeah, how should we think about sort of second half here and MLR now that youre incorporating RBC.
Yeah. So I think I think I'd say 2 things so the first is.
While we do not explicitly guide on MBR, We do obviously guide on gross profit and revenue and so I think directionally you can get a sense of how we're thinking about things just from some sort of back of the envelope math and I think we still standby the high Eighty's comments from the first quarter.
In terms of D. C. What I would say is we're in the early stages today and as a reminder, the strategic rationale for why we entered into that partnership with really to demonstrate our ability to take our toolkit in our MA platform set of capabilities that we're using to manage our existing book of business and apply that to.
Traditional Medicare members in terms of taking the data stratify on the members engaging them through our care plans and working with our providers to provide a more holistic set of of care for that population. So I think as that happens we actually anticipate day. The MBR on that specific population to continue to improve I think what we saw on the second quarter was.
Just largely reflecting on the early stage nature of the program itself and so we we obviously have about 50 to 100 members today and I think for the second quarter.
We only had about 2 months worth of paid claims data from CMS. So our visibility just a little bit different in that program as compared to our MA book of business, but we do anticipate it to continue to improve over the back half of the year as we continue to apply our EBIT technologies and our our care models to this specific set of members on traditional Medicare.
And then just a follow up question on your utilization.
Utilization commentary it sounds like Youre, assuming for second half a day here or are they really going to see utilization continuing to.
To accelerate.
Going back to sit on kind of like a pandemic baseline, but you're also kind of like assuming higher COVID-19 costs related to.
The Delta variant.
Are you starting to see any change in behavior on their members.
In terms of how to utilize.
The health care system for car services now that we're seeing this uptick in Covid cases.
We really haven't quite yet I guess, maybe to respond to the Delta comment first.
We have seen a very very slight uptick over the last 30 day as relates to the Delta variant, but just to put that comment in context, our our COVID-19 related hospitalizations today are still.
5 times.
Lower than they were a year ago and so we're really just not seen a big spike in our markets today as compared to maybe some on the other folks you are speaking with you have a different geographic footprint than we do.
That said I think youre right. We do remain cautious just in terms of what that might look like in the back half of the year given the rapidly evolving set of factors in play and so I think our guidance is really predicated upon your right.
On a return to sort of pre pandemic baseline levels of utilization if not a slight uptick just given the nature of what Covid may do to us overall.
But that said I think we're on a pretty strong position and arent seeing any type of major pent up demand from elective or any real high acuity cases related to deferred care.
That nature right now.
Okay. So just if you could just clarify.
The higher uptake in utilization is that combining COVID-19 amcor.
Together.
I'm speaking yeah, absolutely speaking on an overall, including sort of Covid and non Covid correct.
Okay. Thank you.
Ricky it's just.
Just just as additional data point, we continue to have our virtual town halls with our members. So we just concluded 1.
Last week, and we had over 12000 people participate.
And so we're getting some very good engagement data on 85% ish vaccination rates of the members.
Yeah.
89%.
I understand.
<unk>.
Just the.
Good.
Safety of getting vaccinations.
They're anxious to get boosters.
And as Thomas mentioned, we just got to kind of look at June of last year to June of this year. It's just like a 5 times more admissions last year. When we have this year, but having said that.
We're on.
Sure.
Being prudent as we usually are on on.
Q3 Q4 utilization.
Well I appreciate the commentary on the conservatism.
Thanks Ricky.
Thank you. Our next question comes from Ryan Daniels of William Blair. Your question. Please.
Yeah, Hi, good afternoon. This is Jared haase in for Ryan Thanks for the questions and congrats on the quarter.
I wanted to ask 1 on the health plan membership, obviously that continues to grow at a nice clip about 30%.
So continuing to see nice growth there just curious if you could tease out how much of that is coming from sort of planned switchers I know in the past you kind of disclosed historically see the bulk of your membership growth coming from sort of plan switchers.
On that sense. So just curious if youre still seeing similar dynamics, there or if you're starting to see more growth coming from just kind of broader M&A sort of market growth.
Yeah, Hey, Jared this is Thomas here. So we do see a majority of our membership growth still coming from plants switchers and so.
Strategically, we obviously target market across really all of the consumer segments in terms of agents as well as.
Those who were switching plans, but but 1 of the things that we think we play well at in terms of the competitive landscape is offering.
<unk> a value proposition a benefit package and overall product inclusive of the supplemental benefits that we think really stand above and beyond some of our competitors in certain markets and that we think attracts some of those planes swisher. So we really really pursue a lot of the opportunity that we think could be potential movement from some planned on your plan b to alignment.
And Thats kind of a core part of how we approach our growth both during AEP and outside of AEP, such as the second quarter.
Yeah.
Got it yeah about moving.
Since Thomas.
Thomas maybe I'll stick with you can you can you just confirm I think I maybe missed the number can you confirm what the magnitude of the contribution of the D. C. He was in the period.
In terms of revenue.
In terms of revenue yes.
Yeah, It was $13 million on revenue.
Okay got it thanks, and then just real quick 1 more quick 1.
Thinking about the guidance, maybe you can just kind of clarify 1 more thing for me in terms of the guidance range for the rest of the year can you help maybe tease out how much of that is attributable to the inclusion of D. C revenues for the rest of the year and how much of that is maybe more favorable risk adjustment.
Then what you had previously assumed in your guidance now that you have better visibility.
Yeah. So what I would say is about 22, maybe $25 million is that is related to D. C E.
And then there's a portion beyond that that's related to the revenue P. M. P. On for the rest of the year and so I think all things considered we feel pretty good about where that stands.
And then we'll kind of keep you guys posted as we get into the third quarter here.
Great Thanks, and congrats again.
Yeah.
Thank you. Our next question comes from John Ransom of Raymond James Your line is open.
Hey, good afternoon.
John I was curious.
As we think about you as a consumer marketing company versus <unk>.
Health care.
How do you how do you think that you get the word out and attract membership.
1 year out 2 years out versus kind of the traditional ways. It's done now mostly through the broker network are there any new things to come in terms of your.
On messaging and marketing.
Yes.
John how are you doing.
The interesting thing with our growth is it's really a result of.
Focusing on patient satisfaction.
Kind of member engagement.
Doing everything we said, we would do which is just putting the patient first.
But I know that sounds kind of.
Cliche, but really is the truth.
And so it's relevant because we haven't really invested on the brand yet and we're going to start doing that really we're planning for it now and you can start seeing a lot more branding and positioning of the alignment Brad.
Next year.
I think I think the only thing I would say is.
The listening part, we actually listen to.
Our total numbers and we ask them what they want we listened intently to the providers and we listened very carefully to the broker community.
And they give us a lot of input that we try to not only at our products and our care delivery models, but also just our core customer service and we're always looking to get that net promoter score higher and higher.
You've heard me said before I think.
I think product leadership is ultimately what's going to define and change.
On the health care per Se I think getting the ability to fund that product change. So that you have a greater value proposition consistently is kind of the.
The hard part.
Which again, we are we think we're doing a pretty good job on that.
But yes, I think youre going to see more and more.
The push toward.
Traditional health services.
And social determinants, so just senior lifestyle put that together, you're going to get you're going to get.
Just a differentiated value proposition going forward and so product leadership is going to be really important on the brand new strategy.
Youll be expecting that.
Alright.
Oh.
<unk>.
Just as you are focused on it because most health care service companies don't think of themselves as well.
Similarly facing.
This is on top.
On a like you.
[laughter].
So remember it's actually like us.
That's funny.
So Thomas do you have.
A longer term view to just to enter the fray because theres a debate.
Let's say the gross profit the long term gross profit of the traditional mcl member is ex.
<unk> do you have a view yet of a D. C E member adjusted for.
Some of the dynamics, including your joint venture relationship how to how do we think about the value of that line versus your traditional Ma lives.
Yes.
Yeah, let me comment on sort of what we know today in terms of the economic opportunity and how I think that that may evolve.
And.
I'll, let you guys helped.
Help think through how you how you those those lives in the future but.
In terms of what we know today. So we mentioned in our prepared remarks that our our revenue P. M. P. M. For 900 members is below that of our Medicare advantage book of business, but we.
We went into this program very eyes wide open about that and it's actually taken out.
Page out of our California playbook in terms of our approach, where we have actually some markets in California that are kind of lower revenue Pnp on markets typically healthier members with lower utilization and we still demonstrated an ability to generate a profit on that book of business and so with the D. C. E population it is admittedly lower revenue.
P M today for us as compared to our Medicare advantage book of business overall.
But that said, we don't have to do things like as much sales and marketing paying claims.
A lot of the utilization management or member service separate so overall, our SG&A and kind of corporate infrastructure associated with the D. C. E book of business should really be significantly less than that of what is required to support the Medicare advantage book of business. So net net I'm not sure we're drawing a line in the sand today in terms of what we think the ultimate PM TM profitability.
<unk> looks like in terms of bottom line EBITDA opportunity.
But I think we have a strong case to make that you can prove.
Valuable over time.
Said apply Avon and our care management programs to to this new group of members that we just started working with a couple of months ago.
I mean do you see this strategically long term is a backdoor into MAA or do you think this population as a standalone population for different reasons.
Yeah. This is John.
I think we look at it from a.
Kind of a product portfolio perspective.
And people are fee for service and chosen traditional Medicare fee for service for a reason.
And so I think we've spent a lot of time with our clinical organization to see can we manage this population given the tools gave on a given our low.
Share anywhere model.
And the team seems very optimistic about it.
And the goal for us is not to rely on slip on these on a per se.
I really think we've got to meet the consumer where they are give them a value proposition that makes sense.
Do I think over time, some people will conclude Gee I can save a bunch of monthly premium.
And Jordan their MA plan and get the sales a better quality of outcome by joining 1 yeah, I think that'll happen, but I don't think we look at it organizationally is.
You know our convergent strategy.
Looking at the Port.
Product portfolio strategy.
Great. That's it for me thank you.
Thanks.
Thank you. Our next question comes from Kevin Fischbeck Bank.
Bank of America. Your line is open.
Great. Thanks, Yeah, it looks like on.
<unk> came in a little bit higher than what consensus was thinking and it does look like your guidance.
Just looking for maybe a higher MLR on the back half of the year than originally I just want to make sure I understand.
I guess, that's the case, but then b, how we should think about that if the rate is also coming in better does that mean, the MLR would be even higher if not for that.
Favorable rate experience or is there some offset in there.
Yeah, maybe I'll jump in first Hey, Kevin This is Thomas here so.
Starting with the second quarter itself.
So as we mentioned in the prepared remarks.
Part of the reason, we wanted to really share. The DCE results with you. All is we recognize that that did have an impact on the overall consolidated MBR in the quarter and so I think we would have had an 87% MBR as opposed to the consolidated 88 had we not introduce the GCE entered into.
Our second quarter results, So I think.
With that in mind, I think we felt pretty good about how we performed relative to our.
Internal and external expectations heading into the quarter in terms of the back half of the year.
I think what we're kind of showing in our forecast is a couple of things and obviously, there's a lot of puts and takes across the board here, but.
We have we are definitely I think some some more confidence in our revenue outlook for the year, but that said we're also as we mentioned in watching the overall environment evolve with respect to utilization and the delta more specifically.
So I think what youre seeing in our forecast for the year is somewhat reflective of that.
Uncertainty and consciousness and as we think about the D. C. E program, we do anticipate as I mentioned that to contribute.
Sort of low 20 millions of incremental revenue on the back half of the year that was previously excluded from guidance and while I do think that will continue to demonstrate improvements around the GCE population and.
And sort of the MBR with respect to that specific group of members I think the overall DCE program or made a bit of a headwind for us on consolidated MBR for the next 3 to 6 months just as we continue to ramp up our programs. They aren't really engage the members most in need of our care.
So hopefully it gives you a bit of color on how to think about sort of the second half outlook, we share today in our second quarter more specifically.
Yeah that will help.
Kevin This is John.
We are getting higher growth membership growth than we anticipated and so along with that is that kind of initial year MBR, that's a little bit higher.
In the first year, and so I would factor that into the equation I think that with.
Again, just sticking on a prudence around.
Covid.
Utilization again, we don't think its going to reach the levels that they reached last year.
But yeah, we've got some we've got some appropriateness in there.
And then just DCE gave you kind of factor D C and the whole thing I think we're actually very much in line.
Okay. Because that's always the question is that we see variations on MLR and particularly after you guys have submitted bids you don't feel like.
Things changed about your view about profitability in 2022 or anything like that.
Yeah.
No I can maybe just speak to that so I think we're feeling pretty good about the way we set up the base for 2022.
And all things considered I think where we're sort of largely consistent with the industry, where we currently foresee 2022 looking more normalized both from a revenue and cost standpoint based on what we see today.
Yeah, Okay, Great and then I guess, just you guys are doing a lot more PPO product next year.
I forget what the number is I think guys are like 98%.
Chemo membership does that.
Are you gonna be able to deliver the differentiated value through the PPO plans or is that going to look different and they feel different than your hmos on them.
That's a great question.
Yes.
I personally have spent a lot of time.
Making sure from the team both from a bid perspective on the product design as well as the clinical team on the care delivery side, but we can get the same if not better outcomes from that population.
I think the construction of the network was.
On foundational in the way in which we design the products and that.
And I think we just recently announced.
Kind of the relationship with the Cedars Sinai in Los Angeles.
And really we're kind of building that PPO network around that relationship and you know as you know.
1 of the preeminent delivery systems in southern California.
So I think the way that we contracted it the way that we engage them on the on the delivery side I think.
Scott.
We're pretty optimistic.
Because I think that's a.
Great question, because I think that product's going to be pretty well.
At least that's the initial feedback from some of the brokers.
But.
Yeah no it's.
No.
Getting the data being able to still identify who the 10% to 20% of it.
Individuals that need the care being able to deploy the kid anywhere model.
At home virtually et cetera is still are still building blocks.
We can leverage the PPO population.
Alright, great. Thanks.
Okay.
Thank you. Our next question comes from Jeff Garro of Piper Sandler Your question. Please.
Yes, good afternoon, and thanks for taking the questions maybe.
Maybe I'll ask about year FY 'twenty, 2 new markets with a couple of questions first 1 would be what can you tell us about the market leadership you have in place for this new FY 'twenty 2 geographies, whether it's new hires that are very familiar with the local markets or existing leaders that know what has made <unk> successful previously and growing membership.
So another great question.
Yeah, Yeah, so so we announced.
A little bit before the IPO that we hired Raj stress.
Is really the the.
<unk> leader.
Outside of our existing 3 markets.
We're just to recall.
We wanted to do that so that we did not take our eye off the ball on California, Nevada, and North Carolina. So we really brought Raj who's brought in several new players to help us oversee.
The growth of these new markets.
And having said that Raj was the market president of a large.
Health plan in <unk>.
Arizona, So he knows that market really well.
Hired market leaders on the process of hiring sales network.
And just overall.
State leadership, that's very familiar with the market we know them.
Through all of our different relationships have worked with them that they've delivered for us.
In the past.
With respect to the kind of the contiguous counties expansions in North Carolina, and Nevada same kind of thing.
It's a group of people in North Carolina.
Delivered.
Growth on outcomes for us.
Got good strong relationships that we'll be announcing with some of these provider.
Partnerships in some of these new markets.
And actually both new states, so kind of that's forthcoming.
So I feel good I feel good that we are.
Growing but growing with a high quality.
Low cost view in mind, it's not just putting dots on maps.
It's actually getting the infrastructure getting the people getting on workflow processes getting all of that set up on the way that we can ensure that we can execute this virtuous cycle.
That's on that.
Helpful on maybe follow up by asking film asking about some of the markets specifically in Arizona Youre. Your interest there and include some some very well known health system. So curious about their expectations might be a little bit higher for.
What everyone recognizes a very attractive market and then add 1 in on North Carolina.
On expanding some to the west of your current geographies. There were some health systems, there with very strong market share. So so maybe curious a little bit on the network strategy and approach to managing utilization in some of those new geographies in North Carolina.
Yeah.
So I can start with North Carolina, and I'll go back to I'll go back to Arizona.
On the North Carolina is interesting in that.
There's 12, new counties, but some of our smaller counties.
But they do get us into that that triad market as opposed to where we are now.
And.
I'd like the partnership I like the contract like the engagement levels.
It could turn into.
Sutter or San Diego, maybe it's just hard to say.
We've been very thoughtful with benefits.
Thoughtful with engagement.
But.
Meaning.
How do we model that no we haven't modeled that we've been I think very prudent very conservative relative growth assumptions and all of those markets.
Same with Arizona.
I think.
But he knows Tucson, and Phoenix are very competitive very.
Managed care.
The market share penetration for M&A, there's 40 plus percent. So it's a very savvy buyer base.
And I think.
That kind of profile is good for us and just that we think we can come in with a better mousetrap.
But again, it's going to it'll all these new markets take a couple of years and just to remind you know our goal kind of internally is to get to that kind of 10000.
Remember Mark and each got a large MSA within 5 years kind of on EBITDA breakeven around 3 years.
We're really starting year 1 this year 2000, 1500, something like that that.
We get all the infrastructure all the people hired et cetera.
Hum.
It's kind of the way we looked at it but.
Youre right I mean it could.
1 of them.
Pop Yeah, I think so it's possible I mean, we had nothing in.
On the Sacramento market and we had to deal with the southern I think we're doing really well there same with San Diego, We had nothing there like zero in 2 years, we've got about 9000 members there.
So.
Those are would be all good guys for all of us, but those things happen.
Excellent I appreciate all the comments thanks again.
Thanks, guys.
Thank you that ends our Q&A session and concludes today's conference call. Thank you for participating you may now disconnect.
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