Q3 2021 Alignment Healthcare Inc Earnings Call

The various risks and uncertainties and replace our current expectation based on our beliefs assumption and information currently available to us. Although we believed this expectation a reasonable we undertake no obligation to revise any statements to reflect changes that occur. After this call description of some tetris.

That could cause actual starts to differ materially from this forward looking statements are discussed in more detail in our filings with the S. E C, including the risk factors section a prospectus for our initial public offering filed with the SEC On much 29, 2021, and our four N R Form 10-Q.

Four the court ended September 30th 2021. In addition, please note that the company will be discussing certain non-GAAP in Nashville. Mr. Measures. They believe are important in Bellevue any performance detail the relationship between non-GAAP measures did most comparable gap measure and reconciliation of historical none.

Get financial measures can be found in the press release that is posted on the company's website, an art Form 10-Q for decor. It ended September 30th 2021.

Hello, and welcome everyone would work third quarter 2021 earliest conference call.

We're pleased to be reported another quarter, which were significantly exceeded the high end of our guidance across each of our four key K P eyes.

So further dedication to our cultural continuous improvement or health plan membership ended at 86000 members, an increase of 29% compared to last year.

Total revenue of 293 million group, 18% from last year.

Which was led by our health plan premium revenue growth of 24% year over year.

Justin gross profit came in at $42 million with straw MBR performance of 85.7%.

And adjusted EBITDA cause a loss of 6 million.

Thomas will share more regarding our financial performance for the quarter, but I first want to spend some time today talking about how we were able to consistently achieve our objectives of high quality at low cost remembers.

As I said in the past accessing a leveraging data across our enterprise is foundational.

How we run a scale of business.

Partners with the data visibility and transparency to track hospitalizations and other clinical and operational performance metrics on a daily basis without data latency.

This allows us to intervene real time, it gives us a high degree of confidence to understand our financial cost trajectories throughout any given month.

Together, the Eva platform of the care anywhere care model combine to deliver holistic care, allowing us to run approximately 160 inpatient admissions per thousand across our at risk book of business for nearly five years in a row now.

This represents a 35% to 40% improvement versus Medicare fee for service.

Additionally, her most recent M. P S with 82 for care anywhere populations further tangible evidence of the superior quality in satisfaction were able to achieve a lowering costs to the system.

While we were just a couple of weeks in the AVP, we remain growth oriented and focused on delivering consistent and sustainable products in the marketplace year after year to drive market share gains over time.

Our emphasis on tailoring products to meet the personalised needs of different ethnicities acuity and income levels continues to resonate.

Couple fashion that helps feel a long term success.

I also wanted to Shirley thank the alignment T for the hard work and commitment to putting our seniors first ever.

Every day our team at more than 850 associates builds trust of relationships and is committed to serving our seniors through care delivery concierge services and innovative products.

I. Thank you for your continued interest in alignment journey I look forward to update you in the new year.

Now I'll turn the call over the Thomas to cover the third quarter financial results as well as our outlook for the remainder of the year.

On us.

7% year over year note that there was some timing favorability in our third quarter SG&A related to when we incur various expenses related to AEP and our new market launches and we anticipate that those expenses will still be incurred in the fourth quarter.

All of these factors led to an adjusted EBITDA loss of only $6 million in the quarter, which was well ahead of expectations.

As I wrap up our discussion of our third quarter performance, it's worth noting that the results. We shared are inclusive of our DCE performance in the quarter. While it is still too early to set future expectations on DCE unit economics, we did receive another couple of months of CMS claims runoff data, which has improved our visibility in the second quarter dates of service.

We're happy to report that <unk> performance appears to be modestly better than what we shared on our last earnings call, while our third quarter DCE MLR continues to trend in greater than 100%. We are pleased with some of the operational trends. We are beginning to see we believe that with another couple of quarters of outcomes data, we will be able to share more definitive views on the long term.

<unk> profitability potential of the DCE program.

Which reflects the continued increase of new members, representing a greater percentage of our total population as the year progresses.

Our gross profit forecast reflects continued consciousness around <unk> utilization, we continue to closely monitor COVID-19 trends and the potential impact of the flu. This winter to combat this possibility our clinical and operational teams are continuing to support our seniors needs by engaging our communities proactively with our annual flu shot campaign in addition to <unk>.

Reporting ongoing COVID-19 booster shots for our seniors.

For adjusted EBITDA, we expect to see a reversal of a few million dollars and year to date SG&A favorability. While we also look for accretive ways to invest our year to date gross profit outperformance towards our 2022 and 2023 growth efforts. We continue to believe in the importance of making the right foundational investments to date to ensure sustainable growth over the long.

Long term.

Lastly, while it's too early to make any specific comments about 2022, we look forward to sharing more about our overall 2022 outlook next year. After AEP concludes we'll just we'll gain further visibility to our new membership across our portfolio of markets and provider partners.

To wrap up we're very pleased to report our third strong quarter in a row given our recent public market debut and we believe we are in a great position to continue that progress heading into 2022 with that let's open the call to questions operator.

Scheduled for the Delta variance to continue to be present, such as it wasn't both August and September as well as a possibility for the return of flu season, and as you know the fourth quarter in general for our business model is typically a higher quarter MBR as compared to <unk>.

Stepping back to I think what we would say is we feel obviously really really pleased with the third quarter results and and the overall year to date performance in terms of are are exceeding the high end of our gross profit range and analysts expectations and and you saw X rays are full year 2021 metrics accordingly, both in terms of our gross profit and are implied MBR on on full year.

21, so we really feel I think very strongly about the position we're in for our full year outlook, but at the same time I think you are consistently hoping seen us be prudent, but how we think about our forecast.

Guidance on a quarterly basis.

Okay. That's helpful color and then.

Yes, my follow up I'll ask one for John John can you just discuss your expectations for some of the newer products like the virtual first.

Or out I'm Gonna go and maybe it's part of that love to hear what type of.

Benefits you can offer with some of these demographic targeted.

Plans that you're thinking garner market share both in the near and longer term. Thanks.

Hey, Ryan good to hear from you as always.

We're excited about it we're excited about the P. P O products that we announced with the Cedar Sinai in scripts.

Health and hope Memorial we're excited about the element of Coke product.

Last year, we introduced the harmony product that that added a couple of thousand members.

It's too early to say, thus far in terms of AEP for 2022, I think we're a couple of weeks in.

The noise level is positive.

And.

Sometimes and we've we've experienced this in the past.

Sometimes the benefits are so good.

There's a little bit of.

It's too good to be true kind of dynamic.

But but yeah.

Feel good about it.

Meeting the members think it's too good to be true.

And so I think the more and more we get into the marketplace. The more consistent or go to focus on consistency.

Of the product design.

It's gonna it'll catch fire I'm confident of that.

Alright, Thank you I hope I can be cute congrats again.

Thanks right.

Thank you. Your next question comes from the line Leaky gold bathroom multifamily. Please go ahead.

Hey, guys. This is Michael Huh on for Ricky Thanks for your question Congrats on the quarter.

Just a quick question to start.

MLR, but pretty great and <unk> just curious.

If you may have mentioned and updated MLR outlook for for the year I think previously you're at high eighties.

So I just wanted to get that.

Yeah, Hey, Michael This is Thomas here so.

So in terms of our overall MBR outlook for 2021, we don't explicitly guide on that metric, but if you look at sort of our previous guidance shared in August on both our gross profit and revenue outlook, you would've backed into something around and 89% consolidated MBR for full year 2021 inclusive of the DCE.

Performance, which as we shared last quarter is a bit of a headwind on that consolidated MBR. So if you were to compare that approach to our more recent guidance being released today and look at our kind of high end gross profit versus high end revenue you would get about 88, 6% and beyond the full year again inclusive of that DCE performance. So we're continuing to make positive strides on the.

Pull your outlook and that really is a reflection of that third quarter outperformance, you've just alluded to.

Great. Thank you and one more if I may ask.

Taking a step back to center.

And Medicare advantage plan.

Really grown without the use of marketing tactic as begin to kind of invest in building out the brand.

Sales and marketing and how should we think about SG&A developing next year future years, and even with us to open enrollment period. So far has your marketing strategy change in olive groceries prior years.

Yeah, Hey, Michael it's John.

The answer is we're really proud of Q3, but what you don't see us all the work that's not yet reflected in the financials.

And that relates to.

Putting in workflow processes standardization of metrics.

All of which are important and as we sync up and grow into new markets with respect to your brand in question.

Words, we need all the operational kind of infrastructure to be firing on all cylinders.

I think it's fair to say are critical and our provider engagement capabilities are doing pretty good right now and so now we need this operational piece to catch up we're making a lot of strides and we're positioning all of this from a from a branding strategy heading into our 2023.

<unk>.

E T.

I think that's pretty consistent with what we've communicated and so.

I think once once all that is built up.

Uhm.

I'm gonna be really excited I was talking to Don Moroni the leader on the team that runs our our marketing as well she's also seal the plans, but but what what I said was this coming year in 2022.

Is really where I'm my expectation is the alignment starts becoming more and more of a household name a household brand.

And I think you can see that.

In 2022.

Thank you guys.

You got it Michael.

Thank you. Your next question can spend the lineup can run some maintains please go ahead.

Hey, good afternoon.

Thanks for taking my question. So a couple for me.

If I look at your P. M. P M jumped around at 10 O seven one in the first quarter.

16 in the second quarter, and then 1137 in the third quarter.

You help us with some of the dynamics behind how that moves around sort of quarter by quarter.

Okay.

Yeah happy to John So.

On that on that second quarter jump in particular, I think maybe that's where I would start. So there was a couple of things happening in the second quarter that I think you would want to back out in terms of normalizing <unk> versus <unk> revenue Pnp in comparison and so as a reminder of the second quarter, we introduced DCE for the first time and so you saw us.

Up or a spike in the revenue pm PM as compared to the first quarter on a DCE program wasn't an existence and then in terms of the second quarter itself. We also picked up.

About $13 million at that time related to first quarter in 2020 dates of service in terms of our our updated view on our revenue PM Pms for 2021 final sweep and so you saw a bit of a catch up there happened in the second quarter and and the step down sequentially into the third quarter is I think just a reflection of a more normalized quarter.

So so if we think about <unk>, we should kind of think about you being a good run right.

Yeah, I didn't get the right way to look at it with the caveat that what we typically see if you. If you took out some of that noise between the corners that I was just describing when you would typically see with our business is higher revenue PM Pm's in the first quarter, and then sequentially a bit lower than the second and third and fourth over the course of the year, which is the reflection of the mix of members.

Changing in terms of percentage of new members versus are returning members and and the impact of involuntary Disenrollment has over the course of the year and so typically the fourth quarter would be lower revenue PMT and in the third quarter and that is reflected in our updated guidance today.

But otherwise I think you're thinking about it the right way in terms of <unk> being a good baseline to jump off up for <unk>.

And my second question is.

You're kind of new in your rhythm of being a public company.

<unk>.

Land and providing the update and your AEP performance before you report for Q, which would probably be some time in March.

I think we'll see what we do in the first quarter, what typically will happen as CMS will relieve some preliminary enrollment data for January 1st effective membership, which I believe typically happens around the third week of January if I'm recalling correctly.

So I think we may we may speak of that at that point in time, just to make sure. There's no miscommunication between what we're seeing on our side and what CMS puts out for the market and I think more broadly speaking will speak to our overall 2022 outlook on that fourth quarter earnings call.

And.

I know you're kind of made some qualitative comment but are you any trends you are seeing kind of this early that would.

Persuade you one way or the other about how you are right.

In terms of AEP or do you mean, just more broadly across the business.

Avi.

Yes. It is.

It's just a bit early I think to provide any type of specific commentary. So on the sales side, we're only about two weeks and at this point AEP runs through the first part of December and then in terms of Disenrollment that is the piece that always has a little bit more lag compared to the sales visibility we have on a real time basis. So I think at this point, we're going to save that commentary for.

Some kind of 2022.

What will keep you posted as it comes together.

Thanks, so much.

Yeah, great hearing from it.

Thank you. Your next question comes from the lineup.

Zero, 5% Black. Please go ahead.

Yeah. Good afternoon. Thanks for taking the questions I wanted to ask about star ratings and so congrats again on achieving a four star level I just want to ask what the plan is from here to achieve four and a half or five star then certainly recognize that may be a headwind for alignment in for many of the cat.

Survey and and how that influences. The overall score and so you guys are probably not that you have a great NPS at 82 and reflect how your members see you. So just maybe more comments on what your internal member feedback is from a broader base that that just.

Isn't getting reflected in the CMO kept surveys and the star results to get to the.

The highest levels.

Hey, Jeff It's John Great question.

With respect to capture absolutely right.

We're not happy with it but we also understand its meaning.

Yeah.

Similar to risk adjustment headwinds that we experience of 2021.

Would you have dates of service in 2020, you have the same kind of headwind with respect to caps.

Because there's a two year lag as opposed to a one year lag.

And so the ratings that we just got in the capture use that we just saw reflect 2020 dates of service and so we are we are so reliant upon our IPA partners in a medical group partners. They had a rough go of it in the early part of 2020 as well as the fourth quarter of 2020 Richard.

Expect a COVID-19.

So we'll practices weren't open it created a lot of care coordination kind of issues and.

So so it's it's something we understand but I you know.

I feel very confident we're gonna be able to solve it mm mm.

And and it's it's not different than anything else that we've had to had to lean into with our IPA partners.

Whether it be the early years of stars, where the really the focus was fetus and medication adherence and all of that were five stars and continued to be five stars.

And risk adjustment proper accurate Cody working with our care anywhere model I mean, just the level of engagement is always very high and we're gonna solve this issue.

I I think that even in 2021 data service, you're starting to see improvements as more of a normalized.

Kind of steady state with respect to access to providers.

And and we've got some.

Very specific tactics that we're deploying that again give me a high degree of confidence we're going to move that that cap score up.

So we're very focused on it and.

As I've told everybody I'm not gonna be happy until.

Ah scalable five-star M a plan.

Using this model so.

Yeah, I mean, that's that's that's.

It's it's clear to the an area of emphasis.

Great I appreciate all of those comments.

I'll follow up with one on the the underlying longterm MLR since I know theirs.

Several different factors here, but.

Maybe if you could just address the prospect of more normal utilization in 2022, and how that combines with the pricing that you guys have brought out for your 2022 plans.

Well as the investments that you're pursuing in your internal seems to produce better outcomes at lower cost.

Yeah, absolutely so in terms of how we think about 2022.

I would say on the on the first part of your question related to.

How do we I think you're going to get a how do we price our our bids and how does that relate to the costume we might think about for next year, and therefore, how that rolled into overall MBR and profitability and so.

We approach this sort of two ways. One is certainly the way I think you've heard from for many of the folks in our space in terms of taken a very kind of.

Quantitative an actuarially oriented view towards how we think about the 2022 train and we like many others look at our prete COVID-19 experience as a way to try to extrapolate but.

That is to say, we will look back to 2019, we had about 50000 members in California, We know about 83000 today, so given that pace of growth and the fact that the underlying mix of members is changing very quickly from year to year in terms of members by market and buy provider type, we would like to supplement the more actuarial based approach.

<unk> with a much more I would say operational and clinically oriented view of how we think the next year might shape up and what I mean by that is we are working with our clinical partners. Both externally, but also with our internal care delivery teams with actual feet on the street and the local markets to assess what we think overall trend will be year.

Over a year by evaluating on our bottoms up build basis. So we're looking at a category of spend by category spend utilization metrics unit cost metrics to try to have it really informed view as to what we think the overall trend might look like in the 2022 year. So those are the same sort of two approaches we've taken and all that is to say I think we feel really good about.

The way, we approached our bids in terms of growth versus profitability as we think about that that.

That dynamic more holistically and if we think about the investments in 2022, we might be contemplating for future growth I think what we said in the past is that we are absolutely a growth company, we're going to continue to make those important growth oriented investments to ensure we have the right foundation to achieve that sustainable growth over the long term, but at the same time I don't think you're going to see us.

Go Crazy and I think we are.

We're very focused on <unk>.

Not growth at all costs and tried to really find a nice balance between the two and so I think that some kind of feedback in terms of how we will approach. The overall 2022 outlook when we share more early next year.

Excellent thanks for taking the question.

Thank you. Your next question can spend the lineup Gary Taylor Cowan. Please go ahead.

Thank you. Your next question can spend the lineup Gary Taylor Cowan. Please go ahead.

Hey, good afternoon.

I was wondering if you could.

Disclosed parent cash I know total cast with half a million dollars, but do you have parent catchwords.

Yeah, Hey, great. It was right about 400 million or so.

And then yeah, and I think he made a comment about Emma.

M&A.

Which caught my attention I just wonder.

What form that might be if you were in the future consider other health plans or other technology are medical groups like what would we think about it if that within the realm.

Hey, Hey, Gary.

Good to hear from you.

Yeah, I I think it's it's kind of in the all of the above is the short answer.

I think the kind of priority, though is it.

Is kind of accelerating what we've told you in terms of getting beachheads established to.

Get the plan.

Set up an and accelerate the growth by getting the speech had setup and so we've spent a lot of time.

Looking at different health plan assets throughout the country.

We have been.

Been very selective.

About that.

And.

In the context of of building the networks and all the speeches that we're setting up we are meeting a variety of provider entities provider organizations integrated delivery networks that have provider organizations and I think lots of creative and strategic kinds of deals are going to get.

The result from that so I'm actually very excited about that.

And you've always heard me say, we need to have at least.

One.

Uhm product in the marketplace that we can sell directly to the consumer so that we can control our own growth dynamic.

Have that relationship with the customer.

That's not to say we can't have.

Provider organizations or have joint ventures with provider organizations in the marketplace and be nonexclusive, so to speak.

So we're looking at all of it but I think from a priority perspective, it's it's.

It's looking at plans and and.

And then overlaying, our whole model and evil and the care delivery and and a lot of the kind of synergy of of of what we can bring to the table is what's being discussed with a whole variety of people.

Hope that thanks man. It was just one more yeah. It does thank you. They just one more kind of going back to what John was asking about so I followed the Tom.

Thomas the comment about the per member per month revenue and obviously salty adjustments in the queue to and understand the dynamic with new enrollees at lower risk scores, and then voluntary disenrollment et cetera, but.

Uhm, you're actually guiding for total revenue to be down.

$25 million sequentially with health.

Health plan enrollment up just a touch I don't know what you're assuming on D C enrollment.

Enrollment so it isn't just a mix of fat per member per month, you actually are are suggesting revenues down sequentially. So I'm just trying to understand that that are there any other.

A period true ups that helped a revenue in the <unk>.

No not in a meaningful way so.

The <unk> I think I mean, literally maybe a million dollars of that appeared revenue, but nothing that was significant so the three Q versus <unk> is really I think just more reflection of of that revenue Pnp M anticipated trend as you saw on membership we do anticipate it to grow slightly in the fourth.

But this is the time of year, where really all eyes are focused on that AEP period, and so you really don't see a lot of membership growth from the September two the December membership before the new AEP sales take effect. So it's really just more on that revenue Pnp M dynamic that we mentioned earlier.

And I think we feel really good about about hitting those targets we laid out.

So I guess, that's one more.

Thomas I think you mentioned 3 million a favorable medical expense related to 2020 date to surface, but when I look at the prior year development from the queue. It looks like it was only up a million dollars sequentially. So maybe we're not talking the same language I just want to understand you.

Your comment.

Yeah, absolutely. So I think the the million dollars and change I think of the 1.3 or 1.4 was.

With Ivy and are there was another approximately 1.5 million related to our accruals around our part D program.

With specifically with.

With respect to so much as the rebate.

Assumptions around.

Prior spent so those two things combined it to that 2.8, approximately $3 million, we highlighted earlier you're spot on there that are million dollars of Ivy NR was a component of it and I think overall, the Ivy NR change year to date for 2020 data servicing prior is.

It's just about zero I think we basically are spot on for the four year compared to what we booked as at year end 2020.

Okay. Thank you very much.

Yep. Thank you.

Thank you and your next question comes from the line at Kevin Pinchbeck Like Bank of America. Please go ahead.

A this is actually add them on for Kevin Hi, Thanks for taking my question I'm also kind of looking at the implied Q4 bridge.

Bridge, and I guess implied MLR guidance.

And it looks like it's actually I'm doing all this bridging map right higher than what was in spite on the queue for MLR last quarter's guidance.

And I'm just wondering.

MLR is coming in better now what makes you feel worse about Q4.

Adam So.

I don't think we feel worse about it in terms of our of our confidence and sort of our outlook I think it's a reflection of what I was speaking to earlier was there just continue.

Continued consciousness around the Delta variant and then just flu season more generally speaking given that it is the fourth quarter of the year and and then I think the other thing that I would probably highlight in terms of preparing that <unk> versus <unk> numbers sequentially is the fourth quarter is always a time of year, where we look to continue to.

Invest a lot in some of our.

Fourth quarter activities, such as health risk assessments and stars related activities, which obviously are that for the benefit of future revenue years, and so a lot of that happens also in the fourth quarter of the year and so we're continuing to anticipate some of that year to date gross profit will be reinvested in the fourth quarter Accordingly.

And then the last thing I would highlight is and of course, we are launching our new markets right now and we are bringing on board some of our new hires to support that new growth and those those folks who are on the clinical team and so their salaries and such hit our medical expense that ramping up is also reflected in those fourthquarter numbers we shared.

Right, but I'm comparing it to your previous expectation, but I guess the point about reinvesting the outperformances is new.

That makes sense.

And then in terms of so it sounds like the health plan membership number doesn't reflect direct contracting but the premium's do.

Just.

Just wondering if you could give us more.

Is it in the 10-Q that data or do you not expect too.

Give us come along for direct contracting and premiums and membership.

Yeah, So I'm happy to provide some some color we haven't actually broken it out entirely in the 10-Q itself. The revenue is included in the footnote and if you were to back into it you would see that the revenue pm PM on the DCE members is closer to 750 to $800.

And.

And so when we think about obviously, our revenue Pnp and we do evaluated between Emma and and not and May I think the earlier conversation.

I was just speaking to Johns question that he had asked in terms of how he was calculating.

In terms of the MLR, we shared this quarter that we did see the DCE trends continue to run slightly north of 100%.

And.

I think that as much a reflection of what we don't know is what we do know what I mean by that is is we're reliant upon the CMS claims data we get on a lag basis. So sitting here today I think we have obviously very strong visibility now to the second quarter, which while while it was still not where we want it to be improved from we close to a million dollars.

Which we originally shared the now training closer to breakeven, it's still a slight loss, but training closer to break even.

And so I think we'll go to share more with respect to the third quarter and future quarters as we get that claims visibility from from CMS and so I think it's probably too early for us to declare victory in terms of the ultimate profitability potential of that program, but we like some of the operational trends, we're beginning to see and and we're very cognizant of the tree.

Off between potentially a lower gross margin business, but also a significantly less SG&A line of business and so we.

We think net net could still produce a viable business that we're we're excited about so it's still a bit of an early days I would say, but in general we're pleased with some of the trends we're starting to see.

Alright, and then last one for me.

You might have already covered this last quarter, but.

I appreciate that you don't have.

Insight into the AP, yet, but I would imagine that.

For the most part if you want to add D. C partners for next year, you kind of already you need to be.

Late into the process on that though.

Is that part of the plan or.

Previously you Might've said that.

You kind of just sticking with your current group.

Yeah, I think for 2022, what we've said so far is we're really focused on proving out that model and creating.

Almost just more proof points in case studies similar to what we've done with our M. A book of business before we really invest in a lot to grow that further and so for 2022, I think you're spot on that we're going to continue to.

To talk with our existing provider partners and the panels are members associated with our current DCE program and then I think in terms of our investment in future growth that would really probably be more but 2023 growth opportunity as we look to potentially add other providers into the mix to.

To expand the business accordingly.

Alright fair enough. Thank you.

Thank you. Your next question gets frontline at Kevin Kelly and do they UBS. Please go ahead.

Hi, Thanks for taking my call.

I'm interested and you make comments about having your population backs and fully backs and which is great news and I'm. Just wondering if you're seeing anything unusual with the experience post vaccination now that it's been several months mostly.

I guess my question really get do you expect utilization to ever sort of get back to normal you talked about flu season coming up with a lot of your patients are still wearing masks and.

We're still largely seeing Medicare utilization below baseline from almost all the other larger players in the marketplace and I'm wondering.

If there isn't really ever going to be a catch up that maybe that baseline is just sort of lower now and maybe improve a little bit too.

2019 doesn't seem like something that's gonna happen anytime soon is that fair or I mean, how do you guys think about that.

Or what have you seen maybe.

Yeah.

You want to take that time Sir.

Yeah Yeah.

Yeah.

Yeah, I mean, I I think I think COVID-19 isn't is not going to go away.

For Awhile I mean, I I think it's gonna be something we live with I think it's gonna be controlled.

I think that.

Our population is getting boosters.

And we're certainly advocating that.

But I mean like like the flu I mean every every year you get flu vaccines and every year, we see some some trend increases in November December January sometimes into February.

So that's seasonality is baked into our two four numbers.

And again last year.

We were doing great in October and all of a sudden spike in November December with Covid, I don't necessarily expect that actually but you just don't know.

And so I think it's.

Better to be prudent now and and just embed that into our thinking in queue for then to regret. It later so to speak.

But but I I you know.

I just don't think it's gonna go away I mean part of it also is is kind of geographical in nature I mean.

It's it's still pretty.

It's pretty it's pretty stringent here in California and and.

That's obviously, where the bulk of the membership is people are wearing masks.

But you know our seniors are starting to.

Get back to normal to a certain extent just because I think.

The the isolation part of resulting from Covid and the help mental health issues, resulting from Covid or.

Real I mean, it's <unk> and so so we gotta get we kind of need to get people.

Out in a safe way I don't think.

Encouraging the seniors to just stay home would get locked down it's just good for their longterm health when you think about the whole health.

Perspective.

You know.

I Hope you are right.

I hope that.

If we will be kind of normal and COVID-19 will be.

Kind of isolated and but we just we just don't know I mean.

So.

I don't know if that's satisfactory, but that's that's sad I believe on the topic.

No that that's fine I guess make that easy follow up here are you seeing any.

Trend differences in the other markets I know there are obviously a lot smaller for you but.

How much is geography, really and I'm not talking about Covid related you know.

Expenses I'm talking about sort of traditional non COVID-19.

Are you seeing any differences by geography.

I would say at a county level, there's always a little bit more variability but.

You are kind of referring to some of our state presence and you're right.

Caroline Nevada are clearly much smaller stages compared to California today.

And so generally speaking I would say we see the same themes across the board, but then there's always going to be some of those more micro oriented factors that very but but generally speaking I would say I would say that we see similar trends across really all of our markets today.

And just the last one for me do you think that this environment that we're in right now.

Is beneficial to a high touch plan like yourself, meaning Pete.

People are more.

Aware of their health care, they're more aware of the kinds of services that they want and.

Need and that this that you are offering really fits in well basically I'm asking if you think COVID-19.

And then the fear of Covid is actually a beneficial thing for you in terms of generating membership.

I was with you until the last sentence.

Meaning I think.

Dennis.

Benefits and coverages are getting more and more aggressive across the board, we see that every single market.

And I think that's somewhat of a function of what you said, it's some of the tailwinds associated with Covid for the last couple of years and now people are the kind of embedded that into some of their bids heading into 2022.

But.

That's not going to go on forever I don't think.

And so I think the notion of having kind of consistently.

Competitive consistently aggressive kind of top three benefits and all of the markets is going to be something that that seniors are going to appreciate in the long term.

Having said that I.

I I, just think service is going to be everything.

Service and access and affordability I mean, it's the it's the triple lame.

And and I think.

We like to kind of call. It the quintuple aim here at alignment, which in addition to those three just making sure your providers R. A.

Engaged in the line and doing well with you and helping them in their practices be more successful.

And then really having the products that the the service and the products that are designed for the individual I think we're I think we're all kind of nascent in that area.

But but I think that product innovation I think the servicing.

And I would say to your point.

This culture kind of components.

Seems.

Kind of soft feeling but it really is foundational to making sure that the little things are addressed with you remember service teams or clinical teams. Your provider teams. Your sales is all of these folks as they actually care about that senior.

Which which really I think begins to show.

Is is what will differentiate us.

<unk>, you're not just a number so to speak.

And I liked that back to kind of the the comment that Jeff had with respect to caps and it's it's.

It's <unk>.

In <unk>.

Congress to think that.

We get these cap scores were gonna improve those that were still five star rating people like us are M. P. S gorgeous still high.

And so we gotta get get that that addressed.

And I think it's an advantage for us.

People like I said this on the last call people actually like us.

[laughter], that's a good place to be right now well. Thanks, so much for that answer I really appreciate it.

You got it.

Thank you. Your next question concerned the line at Terry Games. The Barclays. Please go ahead.

Hi, guys. Yet this is Steve Brown on for Sarah So, let's see if I get sick.

Hey.

You think about.

B M B R and I guess like maybe can we talk about like some of the.

Like maybe like some longer term opportunities that you have on some of the levers and the business like like like a technology like Eva and how that could offset some of the other headwinds that are potentially going away on the NBER like DCE in COVID-19 and flu season.

Yeah that would be helpful.

Yeah, Yeah, Hey, that's a great question.

So so the the the kind of the secret sauce of alignment is.

Is not only Eva cause I think I do think a that is a huge advantage and we just it was just built to be an advantage to give us. This real time data, but I think the secret sauce is.

The way in which the technology the ingestion of the data the application of the technology.

And the and the results from that.

Kind of technology.

Used by our clinical teams.

And our sales teams that our network provider teams is how we're using it.

And then to make sure that all of that is kind of integrated into the way we report the financials.

And which which you know you've heard US say is really really granular and bottoms up built I mean, we just you know nothing has to chance we just know.

PM Pms Bye bye market bye bye number by provider, I mean et cetera, et cetera, and so would you be work all of that together, that's what gives us the confidence and the seams between the technology independent clinical care model and the product innovation of the financials. The seem so we're we're really.

He focused on building kind of durability in and.

And those workflows.

And so I I I go through that because I think that is going to.

Continue to drive.

M B R toward what we told everybody longterm M P R's, where which you know 82% to 84% I think we're <unk>, we're inching toward that we're heading toward that in spite of this kind of COVID-19 dynamic over the last 18 months.

And I think because of that we're gonna be able to afford to maintain very competitive benefits.

And you know every year, we see crazy things people do on benefits I mean that you get these little guys that will try to buy market share and throw a crazy benefits, they're all gone literally there are gone.

They're out of business you got the big guys. It from year to year will say well, we want margin when you what growth another year.

So they kind of go up and down so.

That lacks the durability of persistency and you've got these not for profits out there to try to kind of do crazy things on benefits.

And bleed into the reserves, so that's not sustainable or the dumped the the incremental benefits on the backs of the global cat providers I mean, that's not sustainable.

And so I think the theme is is kind of consistent.

Aggressive growth, but profitable growth and Thomas <unk>, when we were not going crazy and these bids a lot of people told US just go get the market share you know and lose lots of money and you know have 99% of them be ours. We just just that's not in our DNA. So we have to have this kind of kind of disciplined.

Approach to to growth.

And.

In D C E is.

I look at D. C E. As another book and so you have the HMO products, which are kind of our bread and butter products, but we're introducing P. P O products.

So now you've got these DCE products.

We're not necessarily looking to migrate those members into HMO into and <unk> those folks in D. C E.

Have made the choice to stay fee for service and so we've got to apply our tools.

On on on on top of that kind of customer choice and think of it as a portfolio and be able to take care of them. That's right now so we're still a little bit.

Just cautious about is this a long term product we're gonna we're gonna go go deep it I'm encouraged by it you know.

But but I think the core business is doing really really well I mean, just the core operations in the.

Somewhat call. It the gross margin engine is kind of producing as we had hoped.

Okay, great. Thank you for that detail I appreciate it.

Got it.

And your next question can spend the lineup freaky called Vassar multifamily. Please go ahead.

Hey, guys, it's Mike again, thanks for the extra question.

I know each added about this a bit offline in person but.

Direct contracting pm Kim.

You guys are lower than that around some 50 and I know you can't speak for your peers, but.

Some conflicting perspectives on <unk> Avenue can pm.

Whereas some of your peers actually expect a few P. M. P M can be higher than that may.

And from my understanding I know there exists a benchmark rate methodology difference between dpma that might be structurally driving that kind of difference.

Is that the case or is that not the case and it's more of a function of geography acuity mix of <unk> members restaurants, others. Just wondering if you could help shed some light on that.

Yeah, I can certainly speak at least our own experience. So in terms of comparing our DCE revenue pnp into.

Pm pm.

I think there's absolutely. Some obviously structural differences that are a driver of the delta and so.

And a couple of things on top of my head took the first would be.

Obviously within May we are taking part D risks and we're not doing that that DCE. So you wouldn't see the revenue or the costs on the DCE that you wouldn't M. A and then similarly, where we're taking the risk of a benchmark. If you will is structured around the risks that CMS is taking it so the members.

<unk> sure does not a part of our benchmark the way it would be on the side so absolutely some structural differences.

And then in terms of our specific population. It has been a population I think we mentioned this in one of our other calls where it is.

A lower risk adjustment score population and when we approached district, but people in terms of the assessment of our ability to generate a profit on the program.

We actually were looking at our existing portfolio markets across the country today and as I said before we have a wide variety of different profiles and certainly some of our markets that we're in today that we've proven successful and profitable and are actually pocketed pods are members that are typically healthier lower.

Risk adjustment scores also lower utilization and ultimately between the two of those things were able to make that business model work and so we're sort of applying the same toolkit. We've demonstrated in other areas with this DCE population based on what we know and and obviously, we're coming up on six months and now and we're continuing to learn more about it as we get our clinical teams in place and.

And really begin to apply a lot of things that I made us successful an M. A in terms of our our care anywhere team's doing the proactive outreach engaging them in the home all the things that challenge really just describing earlier as our key differentiators.

Yeah, Michael it's John It just to add to Thomas This way I look at it I mean I.

Structurally and definition Lee D. C E. As we're gonna be taking risks for what CMS wouldn't otherwise to Chris for.

And a and a fee for service structure.

Beneficiary still has to go out and buy.

A supplemental coverage gap get gas insurance coverage. So they are still paying that premium.

And so you know.

Fundamentally the risk that you kind of stepping into his about atheist percent.

Of the kind of.

M a revenue stream.

The way I look at it and so so.

For for those out there that are the plans.

I don't know how they're doing it you know I don't understand that for those that are on the provider side.

You know, it's it's it's I think it's <unk>, it's Kobe, it's how they're doing it is coding and.

And remember there the providers are taking 80, 85% of what whatever.

Global captive taken from the payer so from an apples to apples basis, they're kind of getting maybe around the same as the weather otherwise getting a global cap deal from him it.

Does that makes sense.

Yeah.

Yeah that makes sense.

You know so so for us it's it's what we're looking at is.

What what is the gross margin P. M. P M on that D. C E business.

And then there's thomas's alluded to in the past, there's a lot less SG&A associated with D. C. In terms of sales and marketing utilization and claims or whatnot. So.

So we're looking at zooming and what is that EBITDA potential for D C and Mike.

My initial.

Kind of thinking is it's still gonna be positive both gross margins and EBITDA.

But we're not get scan it slow early and it gives us a couple of quarters.

Got it thank you for the color and congrats man in the corner.

Thanks, Mike.

Thank you so much and we have no frigging question at this time, ladies and gentlemen. This concludes today's conference call. Thank you for participating give me now disconnect.

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That scene and walk into alignment healthcare third quarter 2021 earnings conference call and webcast. All participants are in listen only mode. After today's presentation, there will be an opportunity to ask questions. If you require any further assistance. Please press star zero. Please.

This event is being recorded leading today's call are Jon <unk>, founder and CEO and Thomas Femen, Chief Financial Officer before we begin we'd 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.

Subject to various risks and uncertainties and reflect our current expectation based on our beliefs assumptions and information currently available to us. Although we believe this expectation are reasonable we undertake no obligation to revise any statements to reflect changes that occur after this call.

Friction that some factories.

That could cause actual results to differ materially from these forward looking statements are discussed in more detail in our filings with the U S D C, including the risk factors section.

Prospectus for our initial public offering filed with the SEC On March 29, 2021 and are for and our Form 10-Q for the quarter ended September 32021. In addition, please note that the company will be discussing certain non-GAAP financial message measures. They believe are important and value add.

The first one did.

So the relationship between non-GAAP measures to the most comparable GAAP measure and reconciliations of historical non-GAAP financial measure can be found in the press release that just thoughts on the company's website and our Form 10-Q for the quarter ended September 32021.

Hello, and welcome everyone to our third quarter 2021 earnings conference call.

We're pleased to be reporting another quarter in which we significantly exceeded the high end of our guidance across each of our four key Kpis and show further dedication to our culture of continuous improvement our health plan membership ended at 86000 members, an increase of 29% compared to last year.

<unk>.

<unk>.

Total revenue of $293 million grew 18% from last year.

Which was led by our health plan premium revenue growth of 24% year over year.

Adjusted gross profit came in at $42 million with strong MBR performance of 85, 7%.

And adjusted EBITDA was a loss of 6 million.

Thomas will share more regarding our financial performance for the quarter, but I first want to spend some time today talking about how we were able to consistently achieve our objectives of high quality and low cost for our members.

As I've said in the past accessing and leveraging data across our enterprise, it's foundational to how we run and scale our business.

Opinion by their operating models powered by our proprietary Ava platform, our clinical teams and our business intelligence tools.

Anybody gives us access to real time patient insights and enables us to take action to ensure the best outcomes for our members.

I want to share three specific examples of how we continue to improve as well and how we rely on it to achieve our outcomes first we continue to improve our stratification model.

One example is our Eva and patient risk admission module, which is an AI based model leveraging thousands of data points about each member to identify the population that is at greatest risk of hospitalization.

We are able to accurately predict the highest risk 10% of our members who will represent 50% of inpatient admissions over the next 30 days.

It's 50% recall rate has increased from 33% over the past several years due to continuous improvements we've made using machine learning.

Second is how our care anywhere clinical teams put gave us workflow tool to use to manage this high risk population, specifically via our recently implemented patient panel management module.

This application simplifies the complexity of our clinical teams daily workload by helping to optimize the deployment of our clinicians for the right individuals at the right time.

Secondly, systematizing, our decades of experience managing risk.

Helps us replicate and scale, our quality standards as they grow into new markets.

And third we continue to invest in the business intelligence modules for Dave.

These tools provide management and our provider partners with the data visibility and transparency.

Trac hospitalizations and other clinical and operational performance metrics on a daily basis without data latency.

This allows us to intervene in real time, it gives us a high degree of confidence to understand our financial cost trajectories throughout any given month.

Together, the Ava platform the care anywhere care model combined to deliver a holistic care, allowing us to run approximately 160 inpatient admissions per thousand okay.

Our at risk book of business for nearly five years in a row now.

This represents a 35% to 40% improvement versus Medicare fee for service.

Additionally, our most recent M. P. S. At 82 procure anywhere populations further tangible evidence of the superior quality and satisfaction, we're able to achieve a lowering cost to the system.

While we were just a couple of weeks in the AEP, we remain growth oriented and focused on delivering consistent and sustainable products in the marketplace year after year to drive market share gains over time.

Our emphasis on tailoring products to meet the personalized needs of different ethnicities acuity.

Income levels continues to resonate.

We have also recently announced several leading health system partnerships to support the launch of our P. P O products, including Cedar Sinai Scripps Health and Hope Memorial.

As we head into AEP, we're proud to note that the majority of our products will feature increased benefits in 2022.

We are offering zero dollar monthly premium products in 32 out of our 38 markets.

We continue to enhance our customized product features and supplemental benefit offerings, such as our partnership with Rite aid featuring $75 monthly over the counter allowance that can be used to participate in variety of locations in select markets.

Our 30 dollar debit benefit filed as part of Cms's value based innovation design model or be bid.

Where consumers will get a visa access black card.

Other enhancements such as improved acupuncture and chiropractic benefits increased monthly OTC benefits and they've expanded grocery network to include the Kroger family of stores.

Further CMS recently announced the 2022 plan year Star ratings.

We're pleased to report that we achieved four out of five stars this past year.

Our heater scores, which are an important measure of plan performance on care quality and service medication adherence and rating of health plan all come in at five stars a testament to our clinical model and concierge like services, we provide are seniors.

Well this was our fifth year in a row of achieving four or four and a half stars overall, we are doubling down on our efforts with our provider partners.

Turning to strive for even greater outcomes in the future.

Before turning it over to Thomas I'll reiterate how pleased I am to report another strong quarter of operational results.

We believe our ability to deliver high quality care and manage N P or by leveraging and acting upon data is the key differentiator for alignment.

Over the remainder of AEP, we will stay focused on growing our membership in a reliable fashion.

That helps fuel our long term success.

I also want to sincerely. Thank the alignment team for their hard work and commitment to putting our senior's first.

Every day, our team of more than 850 associates builds trusted relationships.

Committed to serving our seniors through care delivery concierge services.

The other products.

I. Thank you for your continued interest in alignments journey.

I look forward to updating you in the new year.

Now I'll turn the call over to Thomas to cover the third quarter financial results as well as our outlook for the remainder of the year Thomas.

Thanks, John and welcome everyone to our third quarter earnings call as John mentioned, the third quarter was strong across the board and we exceeded our guidance ranges across all four key Kpis are health plan membership of 86000 increased 29% compared to a year ago. As we continued to see strong momentum across our markets total revenue was two.

Under $93 million in the quarter, increasing 18% compared to a year ago, notably our company wide performance was led by our health plan premium revenue up $279 million, which brings our year to date health plan premium revenue growth to 28% for the first nine months of 2021. This outperformance reflects the continued growth of our health.

Plan membership in addition to sustained revenue P. M. P. M performance based on last year's documentation efforts.

The strength of our operating model was further highlighted in our adjusted gross profit and MBR. This quarter adjusted gross profit was $42 million, which represented an 85, 7% medical benefit ratio.

From an inpatient utilization standpoint, we did see a modest increase in COVID-19 utilization in August and September related to the Delta variant. However, non COVID-19 utilization declined and overall inpatient utilization for the quarter. It was still 4% to 5% below a normalized <unk> baseline inclusive of both COVID-19 and non core.

Covid hospitalizations in fact, we are pleased to report that our Covid hospitalization rate ran approximately 30% lower than the third quarter of 2020 as we continue to see a more stabilized operating environment takes shape. We believe this performance is directly related to our overall vaccination rates across our seniors thanks to the successful efforts.

Our internal clinical teams and our external provider partners.

Beyond the continued stabilization of utilization this quarter, we also experienced approximately $3 million of favorability in our medical expense related to 2020 dates of service as part of normal course operations.

We're particularly pleased with this adjusted gross profit in MBR performance, given that our new members, who come on board with lower levels of profitability in their first year of enrollment continue to represent a larger percentage of our total membership as the year progresses with our third quarter gross profit success in mind, we plan to redeploy some of our outperformance towards <unk>.

Arriving 2022, and 2023 growth given our confidence in the unit economics of our flywheel.

Our SG&A in the third quarter was $77 million, excluding equity based compensation expense of $28 million or SG&A in the third quarter was $49 million, which increased 27% year over year note that there was some timing favorability in our third quarter SG&A related to when we incur various expenses related to AEP and our new market.

Launches and we anticipate that those expenses will still be incurred in the fourth quarter.

All of these factors led to an adjusted EBITDA loss of only $6 million in the quarter, which was well ahead of expectations.

As I wrap up our discussion of our third quarter performance, it's worth noting that the results. We shared are inclusive of our DCE performance in the quarter. While it is still too early to set future expectations on DCE unit economics, we did receive another couple of months of CMS claims runoff data, which has improved our visibility in the second quarter dates of service.

We're happy to report that <unk> performance appears to be modestly better than what we shared on our last earnings call, while our third quarter DCE MLR continues to trend in greater than 100%. We are pleased with some of the operational trends and we are beginning to see we believe that with another couple of quarters of outcomes data he will be able to share more definitive views on the long term.

<unk> profitability potential of the DCE program.

From a capital position, we ended the quarter was $347 million and net cash given the strength of our balance sheet. We are continuing to focus our efforts on accretive ways to deploy capital, including M&A in both existing markets as well as new markets.

I'll conclude my remarks today by providing some color on our latest guidance for the fourth quarter of 2021, we expect health plan membership to be between 86180 6300 members revenue to be in the range of $265 million $270 million.

Adjusted gross profit to be between 24% and $28 million.

And adjusted EBITDA to be in the range of a loss of $30 million to a loss of $25 million.

For the full year 2021 outlook, we are raising our health plan membership to be between 86180 6300 members up from 85000 to 85800 members.

Our revenue to be in the range of $1 billion $135 million to $1 billion $140 million up from $1 billion $105 million to $1 billion $120 million.

Our adjusted gross profit to be between 126, and $130 million up from a $117 million to $123 million.

And our adjusted EBITDA to be in the range of a loss of 54% to $49 million up from a loss of $55 million to $50 million.

With our highly predictable recurring revenue model, we believe we're in a strong position in terms of both our membership and revenue <unk> outlook for the remainder of the year, we expect our fourth quarter revenue P. M. P. M to decline modestly from our third quarter P. M. P M, which reflects the continued increase in new members, representing a greater percentage of our total population.

As the year progresses.

Our gross profit forecast reflects continued cautiousness around <unk> utilization, we continue to closely monitor COVID-19 trends and the potential impact of the flu. This winter to combat this possibility our clinical and operational teams are continuing to support our seniors needs by engaging our communities proactively with our annual flu shot campaign. In addition to some.

Appointing ongoing COVID-19 booster shots for our seniors.

For adjusted EBITDA, we expect to see a reversal of a few million dollars and year to date SG&A favorability. While we also look for accretive ways to invest our year to date gross profit outperformance towards our 2022 and 2023 growth efforts. We continue to believe in the importance of making the right foundational investments to date to ensure sustainable growth over the long.

Term.

Lastly, while it's too early to make any specific comments about 2022, we look forward to sharing more about our overall 2022 outlook next year. After AEP concludes which is when we will gain further visibility to our new membership across our portfolio of markets and provider partners to wrap up we're very pleased to report our third strong.

Quarter in a row, given our recent public market debut and we believe we're in a great position to continue that progress heading into 2022 with that let's open the call to questions operator.

Ladies and gentlemen, if you have a question at this time. Please press star one on your telephone keypad and if your question has been answered or you wish you hadn't moved some from the queue press the pound key.

Your first question comes from the line of Ryan Daniels with William.

William Blair. Please go ahead.

Hey, guys congrats on the strong quarter and year to date performance and thanks for taking my questions. Thomas maybe one for you I think you mentioned that hospital utilization is still running 3% to 5% below pre COVID-19 trends and I'm curious one can you confirm that and then number two kind of whats your.

Consideration for Q4, when you build your guidance in regards to that do you think there is some pent up demand that will start to still go forward.

With regards to utilization of the Covid tapering back a bit in some states.

Yeah, Yeah, great to hear from you Ryan.

I can take that one so.

In terms of the third quarter Youre spot on we did see about 4% to 5% lower total inpatient utilization as compared to our baseline for the third quarter in the past and obviously there was an offset where we saw some of that increase on the COVID-19 side related to the Delta area and then we saw a decline in the non COVID-19 inpatient utilization and so as we think about the fourth quarter.

<unk>, what we're really seeing I think very cognizant of is the potential for the Delta variant to continue to be present, such as it wasn't both August and September as well as a possibility for the return of flu season, and as you know the fourth quarter in general for our business model is typically a higher quarter MBR as compared to <unk> and <unk>.

So stepping back I think what we would say is we feel obviously really really pleased with the third quarter results and the <unk>.

Overall year to date performance in terms of our our exceeding the high end of our gross profit range and analysts' expectations and you saw us raise our full year 2021 metrics accordingly, both in terms of our gross profit and our implied MBR on on full year 2021. So we really feel very strongly about the position. We're in for our full year outlook, but same time I think.

Youre consistently hoping seeing us be prudent, but how we think about our forecast and our guidance on a quarterly basis.

Okay. That's helpful color and then.

As my follow up I'll ask one for John John can you just discuss your expectations for some of the newer products like the virtual first.

I'm going to go and maybe it's part of that love to hear what type of unique benefits you can offer with some of these demographic targeted.

The plans that you're thinking garner market share both in the near and longer term. Thanks.

Yeah, Hey, Ryan good to hear from you as always.

We're excited about it we're excited about the PPO products that we announced with the Cedars Sinai and scripts.

Health and hope Memorial we're excited about the Illumina co product.

Last year, we introduced the harmony product that that added a couple of thousand members.

It's too early to say, thus far in terms of AEP for 2022, I think we're a couple of weeks in.

The noise level is positive.

And.

Sometimes.

And we've experienced this in the past.

Sometimes the benefits are so good.

There's a little bit of a.

It's too good to be true kind of dynamic.

But but yeah.

Good about it.

Meaning are the members think it's too good to be true.

And so I think the more and more we get into the marketplace the more consistent.

The focus on consistency.

The product design.

It's going to it'll catch fire I'm confident of that.

Alright, Thank you I'll hop back in the queue Congrats again.

Thanks Ryan.

Thank you. Your next question comes from the line of Ricky Goldwasser with Morgan Stanley. Please go ahead.

Hey, guys. This is Michael ha on for Ricky Thanks for the question congrats on the quarter.

Just a quick question to start.

MLR, but pretty great in <unk> just curious.

If you May have mentioned an updated MLR outlook for the year I think previously you were at high Eighty's.

So just wanted to get that.

Yeah, Hey, Michael This is Thomas here so.

So in terms of our overall MBR outlook for 2021, we don't explicitly guide on that metric, but if you look at sort of our previous guidance shared in August on both our gross profit and revenue outlook.

You would have backed into something around 89% consolidated MBR for full year 2021 inclusive of the TCE performance, which as we shared last quarter was a bit of a headwind on that consolidated MBR. So if you were to compare that approach to our more recent guidance, we released today.

And look at our kind of high end gross profit versus high in revenue you would get about an 88, 6% MBR in the full year again inclusive of that DCE performance. So we're continuing to make positive strides on the full year outlook and that really is a reflection of that third quarter outperformance, you've just alluded to.

Great. Thank you and just one more if I may.

Taking a step back just as a Medicare advantage plan.

Really grown without the use of marketing tactics as you begin to kind of invest in building out the brand.

Sales and marketing spend how should we think about SG&A developing next year and future years and even with this open enrollment period. So far has your marketing strategy change at all versus prior years.

Yeah, Hey, Michael it's John.

The answer is we're really.

Our out of Q3, but what you don't see is all the work that's not yet reflected in the financials.

And that relates to <unk>.

Putting in workflow processes standardization of metrics.

All of which are important.

As we sync up and grow into new markets with respect to your branding question in other words, we need all the operational kind of infrastructure.

Be firing on all cylinders.

I think it's fair to say are critical.

Our provider engagement capabilities are doing pretty good right now and so now we need this operational piece to catch up we're making a lot of strides and we're positioning all of this from a from a branding strategy heading into our 2023.

P.

I think thats pretty consistent with what we've communicated and so.

Once once all of that is built up.

Hum.

I'm going to be really excited I was talking to them early.

I'm going to be really excited I was talking to them early.

The leader on the team that runs our our marketing as well. She is also the plans, but but.

But what I said was you know this coming year in 2022.

Is really where my expectation is that alignment starts becoming more and more of a household name a household brand.

And I think you can see that.

2022.

Thank you guys.

You got it Michael.

Thank you. Your next question comes from the line of John Ransom Raymond James. Please go ahead.

Okay.

Hey, good afternoon.

Thanks for taking my questions. So a couple for me.

If I look at share PMT EM, it's jumped around at $10 71 in the first quarter.

<unk> in the second quarter, and then 137 in the third quarter could you help us with some of the dynamics behind how that moves around sort of quarter by quarter.

Okay.

Yeah happy to John So.

On that on that second quarter jump in particular, I think maybe that's where I would start. So there is a couple of things happening in the second quarter that I think you would want to back out in terms of normalizing our <unk> versus <unk> revenue <unk> comparison, and so as a reminder, the second quarter, we introduced DCE for the first time and so you saw us pick up.

Or a spike in the revenue per <unk>.

As compared to the first quarter when a DCE program wasn't in existence and then in terms of the second quarter itself. We also picked up.

About $13 million at that time related to first quarter in 2020 dates of service in terms of our our updated view on our revenue per <unk> for 2021 final suite and so you saw a bit of a catch up there happened in the second quarter and then the step down sequentially into the third quarter as I think just a reflection of a more normalized quarter.

So if we think about <unk>, we should kind of think about <unk> being a good run rate.

Yeah, I think that's the right way to look at it with the caveat that we typically see if you took out some of that noise between the quarters, but I was just describing what you would typically see with our business is higher revenue P. M. <unk> in the first quarter, and then sequentially a bit lower in the second third and fourth over the course of the year, which is a reflection of the mix of members.

<unk> in terms of our percentage of new members versus our returning members and then the impact of involuntary dis enrollment has over the course of the year and so typically the fourth quarter would be lower revenue PMT ended in the third quarter and that is reflected in our updated guidance today.

But otherwise I think youre thinking about it the right way in terms of <unk> being a good baseline to jump off for <unk>.

And my second question is you are kind of new in your rhythm of being a public company.

<unk>.

Land to provide any update in your AEP performance before year <unk>.

Which would probably be some time in March.

I think we'll see but we do in the first quarter.

Typically what happened is CMS will release, some preliminary enrollment data for January 1st effective membership, which I believe typically happens around the third week of January if im recalling correctly.

And so I think we may we may speak to that at that point in time.

To make sure there is no miscommunication between what we're seeing on our side and what CMS put out for the market.

And I think more broadly speaking will speak to our overall 2022 outlook on that fourth quarter earnings call.

And are you I know you've kind of made some qualitative comments, but are you.

Any trends Youre seeing kind of this early.

Persuade you one way or the other about how your how your frac.

In terms of AEP or do you mean more broadly across the business.

AAV.

Yes <unk>.

It's just a bit early I think to provide any type of specific commentary.

On the sales side were only about two weeks then at this point AEP runs through the first part of December and then in terms of if there is enrollment that is the piece that always has a little bit more lag compared to the sales visibility we have on a real time basis. So I think at this point, we're going to save that commentary for some time in 2022.

We'll keep you posted as it comes together.

Thanks, so much.

Yes, great hearing from you.

Thank you. Your next question comes from the line of Jeff Garro Piper Sandler. Please go ahead.

Yeah. Good afternoon. Thanks for taking the questions I wanted to ask about star ratings and so congrats again on achieving a poor Saar level I just wanted to ask what the plan is from here to achieve four and a half or a five star then certainly recognize that may be a headwind for alignment and for many of the cap survey.

And how that influences the overall score and so you guys are telling us that you have a great NPS at 82 and reflects how you remember Steve. So just maybe more comments on what your internal member feedback is from a broader base that just isn't getting reflected in the CMO kept survey and the star.

To get to that.

At the highest levels.

Hey, Geoff it's John Great question.

With respect to capture absolutely right.

We're not happy with it but we also understand its meaning.

Yes.

Similar to our risk adjustment headwinds that we experienced in 2021.

When you have data service in 2020, you have the same kind of headwind with respect to caps.

Because there was a two year lag as opposed to a one year lag.

So the ratings that we just got in the capture that we just saw reflect 2020 dates of service and so we are so reliant upon our IPA partners in our medical group partners. They had a rough go of it in the early part of 'twenty 'twenty as well as the fourth quarter of 2020 with respect to <unk>.

Covid.

So when practices weren't open it created a lot of care coordination kinds of issues.

And so so it's something we understand.

But.

I feel very confident we're going to be able to solve it.

And it's.

It's not.

Not different than anything else that we've had to had to lean into with our IPA partners.

Whether it be the early years of stars, where the really the focus with cetus.

Medication adherence.

All of that were five stars and continue to be five stars.

And risk adjustment proper accurate coding working with our carrier anywhere model I mean, just the level of engagement is always very high and we're going to solve this issue.

I think that even in 2021 days of service, you're starting to see improvements as more of a normalized.

Kind of steady state with respect to access to providers.

And we've got some <unk>.

Very specific tactics that we're deploying that again gives me a high degree of confidence we're going to move that move.

Move that cap score up.

So we're very focused on it.

As I've told everybody you know I'm not going to be happy until.

Our scalable five star Ma plan.

Using this model so.

Yes.

That's.

It's clearly an area of emphasis.

Great I appreciate all those comments.

I'll follow up with one on.

The underlying long term MLR trends I know there.

Several different factors here, but.

Maybe if you could just address the prospect of more normal utilization in 2022, and how that combines with the pricing that you guys have rolled out for your 2022 plans as well as the investments that youre pursuing in your internal teams to produce better outcomes at lower cost.

Yeah, absolutely so in terms of how we think about 2022.

I would say on the first part of your question related to.

How do we I think you kind of get at how do we price our our bids and how does that relate to the cost sharing we might think about for next year and then therefore, how that rolls into overall MBR and profitability and so.

We approach this sort of two ways. One is certainly the way I think you've heard from many of the folks in our space in terms of taking a very kind of.

Quantitative and Actuarially oriented view towards how we think about 2022 trend and we like many others look at our pre COVID-19 experience as a way to try to extrapolate but.

That's to say, we will look back to 2019, we had about 50000 members in California. We now have about 83000 today, so given that pace of growth and the fact that the underlying mix of members is changing very quickly from year to year in terms of members by market and by provider type.

We'd like to supplement them more actuarial based approaches with a much more I would say operational and clinically oriented view of how we think the next year might shape up and what I mean by that is we're working with our clinical partners. Both externally, but also with our internal care delivery teams with actual feet on the street in these local markets too.

Assess what we think overall trend will be year over year by evaluate it on a bottoms up build basis. So were looking at a category of spend by category spend utilization metric unit cost metrics to try to have a really informed view as to what we think the overall trend might look like in the 2022. So those are sort of two <unk>.

We've taken all of that is to say I think we feel really good about the way we approached our bids in terms of growth versus profitability and as we think about that that.

And that dynamic more holistically and we think about the investments in 2022, we might be contemplating for future growth I think what we said in the past is that we are absolutely a growth company, we're going to continue to make those important growth oriented investments to ensure we have the right foundation to achieve that sustainable growth over the long term, but at the same time I don't think youre going to see us.

Go Crazy and I think we are.

We are very focused on.

Not growth at all costs and trying to really find a nice balance between the two and so I think thats.

Kind of feedback in terms of how we will approach. The overall 2022 outlook when we share more early next year.

Excellent thanks for taking the question.

Thank you. Your next question comes from the line of Gary Taylor with Cowen. Please go ahead.

Hey, good afternoon.

I was wondering if you could.

Disclosed parent cash I know.

Total cash have a $1 billion, but do you have parent cash for us.

Yeah, Hey, great It was right about $400 million or so.

And then yes.

And I think you made a comment about.

M&A.

Which caught my attention I just wondered.

Sure.

What form that might be if you would in the future consider other health plans or other technology, our medical groups like what would we think about it if that was in the room.

Hey, Gary.

Good to hear from you.

Yes, I think it's kind of an all of the above is the short answer.

I think the kind of priority, though is is kind of accelerating what we've told you in terms of getting beachheads established too.

Get the plan setup.

Setup.

And accelerate the growth by getting these speech had setup and so we've spent a lot of time.

Looking at different health plan assets throughout the country.

We have.

<unk> been very selective.

About that.

And.

In the context of.

Building the networks and all these features that we're setting up we are meeting a variety of provider entities provider organizations and integrated delivery networks that have provider organizations and I think lots of creative and strategic kinds of deals are going to we're going to result from that.

So I'm actually very excited about that.

You've always heard me say, we need to have at least.

One.

Product in the marketplace that we can sell directly to the consumers. So that we can control our own growth dynamic.

That relationship with the customer.

Not to say we can have.

Provider organizations or have joint ventures with provider organizations in the marketplace and be nonexclusive, so to speak.

So we're looking at all of it but I think from a priority perspective.

It's.

It's looking at plans and.

And then overlaying our whole model in vivo in the care delivery and a lot of the kind of the synergy of.

What we can bring to the table is what's being discussed with a whole variety of people.

Thanks, guys just one more yeah. It does thank you just one more kind of going back to what John was asking about so I followed the.

Thomas the comment about the per member per month revenue and obviously saw the adjustments.

Uh huh.

Q2, and understand the dynamic with new enrollees at lower risk scores, and then voluntary dis enrollment et cetera, but.

Youre actually guiding for total revenue to be down.

$25 million sequentially with.

Health plan enrollment up.

Just to touch I don't know what Youre assuming on D C.

Enrollment so it isn't just a mix effect on per member per month, you actually are are suggesting revenues down sequentially. So.

Just trying to understand that better if there are any other out of period true up that helped the revenue in the <unk>.

No not in the mid <unk>.

Meaningful way so.

<unk> I think I mean, literally maybe a $1 million of out of period revenue, but nothing that was significant so the <unk> versus <unk> is really I think just more a reflection of of that revenue Pnp unanticipated trend as you saw.

Saw on membership, we do anticipate it to grow slightly in the fourth quarter, but this is the time of year, where really all eyes are focused on the AEP period, and so you really don't see a lot of membership growth from the September to the December membership before those new AEP sales take effect. So it's really just more on that revenue <unk> dynamic that we mentioned earlier.

And I think we feel really good about about hitting those targets we laid out.

If I could ask one more.

Thomas I think you mentioned 3 million of favorable medical expense related to 2020 date to surface, but when I look at the prior year development from the Q. It looks like it was only up $1 million.

<unk>. So maybe we're not talking the same language I just wanted to understand.

Your comment.

Yes, absolutely so I think the $1 million and change.

Change I think of the one three to $1 four was.

With IV NR, there was another approximately $1 $5 million related to our accruals around our part D program.

With specifically with respect to so much is the rebate.

Assumptions around.

Prior spent so those two things combined it to that $2 eight approximately $3 million, we highlighted earlier youre spot on there that are $1 billion of IV NR was a component of it.

Overall, the idea in our change year to date for 2020 data servicing prior is.

It's just about zero.

They are spot on for the full year compared to what we booked as at year end 2020.

Okay. Thank you very much.

Yes. Thank you.

Thank you and your next question comes from the line of Kevin Fischbeck with Bank of America. Please go ahead.

Hey, this is actually Adam on for Kevin Thanks for taking the question.

I'm also kind of looking at the implied Q4.

I'm also kind of looking at the implied Q4.

Bridge, and I guess implied MLR guidance.

It looks like it actually I'm doing all of this bridging math rate higher than what was implied on the Q4 MLR from last quarter's guidance.

I'm just wondering if.

MLR is coming in better now what makes you feel worse about Q4.

Yeah, Adam so.

I don't think we feel worse about it in terms of our confidence in sort of our outlook I think it's a reflection of what I was speaking to earlier, which is just I think continued cautiousness around but delta variant and then just flu season more generally speaking given that it is the fourth quarter of the year.

And then I think the other thing that I would probably highlight in terms of preparing that <unk> <unk> versus <unk> number sequentially as the fourth quarter is always a time of year, where we look to continue to.

Invest a lot in some of our <unk>.

Invest a lot in some of our <unk>.

Fourth quarter activities, such as health risk assessments and stars related activities, which obviously are the benefit of future revenue years, and so a lot of that happens also in the fourth quarter of the year and so we're continuing to anticipate some of that year to date gross profit will be reinvested in the fourth quarter Accordingly.

And then maybe the last thing I'd highlight is and of course, we are launching our new markets right now and we are bringing onboard some of our new hires to support that new growth and those those folks who are on our clinical team and so their salaries and such hit our medical expense that ramping up is also reflected in those fourth quarter numbers, we shared.

Right, but I'm comparing it to your previous expectation, but I guess the point about reinvesting the outperformance is new.

Right, but I'm comparing it to your previous expectation, but I guess the point about reinvesting the outperformance is new.

<unk>.

Makes sense.

And then in terms of so it sounds like the health plan membership number it doesn't reflect direct contracting but the premiums due.

Just.

I was wondering if you could give us more.

And in the 10-Q that data or do you not expect to kind of give us an MLR for direct contracting and premiums in membership.

And in the 10-Q that data or do you not expect to kind of give us an MLR for direct contracting and premiums in membership.

Yes, so I'm happy to provide some color we haven't actually broken it out entirely in the 10-Q itself. The revenue is included in the footnote and if you were to back into it you would see that the revenue <unk> of a DCE members is closer to $750 to $800 Pnp and.

And so when we think about obviously, our revenue Pnp and we do evaluate it between MA and non M&A I think the earlier conversation.

I was just speaking to Jon's question that he had asked in terms of how he was calculating it.

And in terms of the MLR, we shared this quarter that we did see the DCE trends continue to run slightly north of a 100%.

And.

I think that's as much a reflection of what we don't know is what we do know and what I mean by that is as we're reliant upon the CMS claims data we get on a lagged basis. So sitting here today I think we have obviously very strong visibility now to the second quarter, which while while it was still not where we want it to be improved from close to $1 million loss.

Because when we originally shared now trending closer to breakeven its still a slight loss, but trading closer to breakeven.

And so I think we'll be able to share more with respect to the third quarter in future quarters, as we get that claims visibility from CMS and so I think it's probably too early for us to declare victory in terms of the ultimate profitability potential of that program, but we like some of the operational trends, we're beginning to see.

And we're very cognizant of the trade off between potentially a lower gross margin business, but also a significantly less SG&A line of business and so we.

We think net net that could still produce a viable business that we're excited about so it's still a bit of an early days I'd say, but in general we're pleased with some of the trends we're starting to see.

Alright, and then last one for me.

You might have already covered this last quarter, but.

I appreciate that you don't have.

Our insight into the AEP, yet, but I'd imagine that.

For the most part if you want to add BC partners for next year, you're kind of already need to be.

Late into the process on that so.

Is that part of the plan or.

I think previously you might have said that.

Can you kind of just sticking with your current group.

Yes, I think for 2020 to what we've said so far is we're really focused on proving out that model and creating.

All of those just more proof points and case studies similar to what we've done with our MA book of business before we really invest in a lot to grow that further and so for 2022, I think you're spot on that we're going to continue to.

To work with our existing provider partners and the panels of members associated with our current DCE program and then I think in terms of our investment in future growth that would really probably be more of a 2023 growth opportunity as we look to potentially add other providers into the MX to.

To expand the business accordingly.

Alright fair enough. Thank you.

Thank you. Your next question gets from the line of Kevin Caliendo UBS. Please go ahead.

Hi, Thanks for taking my call.

I'm interested and you made comments about having your population vacs and fully backs in.

Which is great news and I'm, just wondering if youre seeing anything unusual with the experience post vaccination now that it's been several months mostly.

I guess my question really is do you expect utilization to ever sort of get back to normal you talked about flu season coming up but a lot of your patients are still wearing masks.

We're still largely seeing Medicare utilization below baseline from almost all of the other larger players in the marketplace and I'm wondering.

If there isn't really ever going to be a catch up that maybe the baseline is just sort of lower now than maybe improved a little bit but 2019, it doesn't seem like something that's going to happen anytime soon.

That fair or I mean, how do you guys think about that.

Or what are you seeing maybe.

Yes.

You want to take that Thomas.

Yeah Yeah.

Hey, Kevin.

Yeah, I mean, I think I think COVID-19 is not going to go away.

For a while.

I think it's going to be something we live with I think it's going to be controlled.

I think that.

Our population is getting boosters.

And.

We're certainly.

Advocating that.

But I mean like the flu I mean every year you get flu vaccines and every year, we see some some trend increases in November December January sometimes into February.

So that seasonality is baked into our Q4 numbers.

And again last year.

We were doing great in October and are all of a sudden you get a spike in November December with Covid.

Not necessarily expect that actually but you just don't know.

And so I think it's.

Better to be prudent now and just embed that into our thinking in Q4, then regret it later so to speak.

But but.

I just don't think it's going to go away I mean part of it also is kind of geographical in nature I mean.

It's still pretty.

It's pretty it's pretty stringent here in California.

<unk>.

Obviously, the bulk of the membership is.

People are wearing masks.

But our seniors are starting to.

Get back to normal to a certain extent just because I think the.

The isolation part of resulting from Covid in the health mental health issues, resulting from Covid or.

They're real I mean.

And so we got to get we kind of need to get people.

Out in a safe way I don't think.

<unk> the seniors to just stay home will get locked down it's just good for their long term health.

When you think about the whole health.

Perspective.

Yeah.

I hope Youre right.

I hope that.

We will be kind of normal and.

Covid will be.

Kind of.

Isolated and but we just we just don't know.

So.

I don't know that satisfactory, but thats exactly we're on the topic.

No that's fine I guess make that easy follow up here is are you seeing any.

Trend differences and the other markets I know there are obviously a lot smaller for you but.

How much is geography, really and I'm not talking about COVID-19 related.

Expenses I am talking about sort of traditional non COVID-19.

Are you seeing any differences by geography.

I would say at a county level, there's always a little bit more variability but.

I would say at a county level, there's always a little bit more variability but.

Referring to some of our state presence and you are right.

North Carolina, Nevada are clearly much smaller stages compared to California today.

And so generally speaking I would say we see the same themes across the board, but then there is always going to be some of those more micro oriented factors that vary but generally speaking I would say I would say that we see similar trends across really all of our markets today.

Okay.

And just last one for me do you think that this environment that we're in right now.

Is beneficial to a high touch plan like yourselves, meaning.

People are more aware of their health care, they're more aware of the kind of services that they want.

People are more aware of their health care, they're more aware of the kind of services that they want.

Need in that.

That you are offering really fits in well basically I'm asking is if you think COVID-19.

And then the fear of Covid, it's actually a beneficial thing for you in terms of generating membership.

I was with you until the last sentence.

[laughter].

Meaning meaning I think.

Benefits and coverages are getting more and more aggressive across the board we see that in every single market.

And I think that's somewhat a function of what you said in some of the tailwind associated with Covid for the last couple of years in our people.

The embedded that into some of their bids heading into 2022.

But.

That's not going to go on forever I don't think.

And so I think the notion of having kind of consistently.

Competitive consistently aggressive kind of top three benefits in all of the markets is going to be something that the seniors are going to appreciate in the long term.

Having said that I do.

Just think service is going to be everything.

Service and access and affordability I mean, it's the triple aim.

And I think.

We like to kind of call. It the quintuple aim here at alignment, which in addition to those three just making sure your providers are.

Engaged and aligned and doing well with you and helping them in their practices be more successful.

And then really having the products the service and the products that are designed for the individual I think we're I think we're all kind of nascent in that area.

But but I think that product innovation I think the servicing.

And I would say to your point.

This culture.

<unk>.

Teams.

Kind of soft do you feel it but it really is foundational to making sure that the little things are addressed with your member service teams are critical teams provider teams. Your sales as all of these folks as they actually care about that senior.

Which which really I think begins to show.

Is what will differentiate us.

Youre not just a number so to speak.

And I would link that back to kind of the the.

The comment that Jeff had with respect to cap so it does.

It's increasing.

In Congress to think that.

We get these cap scores, we're going to improve those but were still five star rating people like us our NPS scores are still high.

And so we've got to get to get that.

Dressed.

Yes.

And I think it's an advantage for us and I think people like I said this on the last call people actually like us.

[laughter], that's a good place to be right now well. Thanks, so much for that answer I really appreciate it.

Got it.

Thank you. Your next question comes from the lineup Sarah Kim with Barclays. Please go ahead.

Hi, guys. This is Steve Brown on for Sarah.

So Steve I guess.

Okay.

As we think about.

The MBR and I guess, maybe can we talk about like some of the.

Like maybe like some longer term opportunities that you have on some of the levers in the business.

Technology, like Ava and how that could offset some of the other headwinds that are potentially going away on the MBR like DCE and COVID-19 in flu season.

Yes that would be helpful. Thanks.

Yeah, Yeah, Hey.

It's a great question.

So so.

The the kind of the secret sauce of alignment is.

Is not only Eva because I think I do think Eva is a huge advantage and we just it was just built to be an advantage to give us this real time data.

The secret sauce is.

The way in which the technology the ingestion of data the application of the technology.

And the results from that.

Kind of technology.

Used by our clinical teams.

Our sales teams at our network provider teams, it's how we're using it.

And then to make sure that all of that is kind of integrated into the way we report the financials.

At which which you've heard us say is really really granular in bottoms up build I mean, we just nothing as to chance, we just know.

<unk> Bye bye market bye bye member by provider et cetera, et cetera, and so would you be work all of that together, that's what gives us the confidence and the seams between the technology and the clinical care model.

Innovation of the financials.

Seems so we're really focused on building kind of durability in.

And those workflows.

So I go through that because I think that is going to come.

<unk> to drive our MBR toward what we told everybody our long term MBR of 82% to 84% I think we're inching towards that we're heading toward that in spite of this kind of COVID-19 dynamics over the last 18 months.

And I think because of that we're going to be able to afford to maintain very competitive benefits.

And every.

Every year, we see crazy things people do on benefits.

You've got these little guys that will try to buy market share and throw a crazy benefits, they're all gone literally they are gone.

There are other business, you've got the big guys that from year to year, we'll say well, we want margin one year what growth another year.

So they kind of go up and down so.

That lacks that durability of persistency and you've got these not for profits out there to try to do crazy things on benefits.

And bleed into the reserves, so that's not sustainable or they'll dumped.

The incremental benefits on the backs of the global Cat providers I mean, that's not sustainable.

And so I think the theme is is kind of consistent.

Aggressive growth, but <unk>.

<unk> growth and Thomas.

We're not going crazy in these bids a lot of people told US just go get the market share.

Lots of money and have 99% and <unk>, we just that's not in our DNA. So we have to have this kind of kind of.

Disciplined approach to.

To growth.

And in.

DCE is.

I look at DCE as another book and so you have the HMO products, which are kind of our bread and butter products, but we're introducing PPO products.

So now you've got these DCE products.

We're not necessarily looking to migrate those members into HMO into Ma.

Folks in D C.

Have made the choice to stay fee for service and so we've got to apply our tools.

On on.

On top of that kind of customer choice, so think of it as a portfolio and be able to take care of them necessarily.

Let's say, we're still a little bit.

Just cautious about is this a long term product, we're going to we're going to go deep in.

<unk> bye.

But but.

I think the core business is doing really really well I mean, just the core operations.

It's somewhat call. It the gross margin engine is kind of producing as we had hoped.

Okay, great. Thank you for that detail I appreciate it.

Got it.

Okay.

And your next question comes from the line of <unk> Goldwasser with Morgan Stanley. Please go ahead.

Hey, guys, it's Mike again, thanks for the extra question.

I know you chatted about this offline in person but.

Direct contracting pm Kim.

You guys are lower than they had around some 50.

And I know you can't speak for your peers, but.

Some conflicting perspectives on <unk> revenue can pm.

Whereas some of your peers actually expect <unk> to be higher than MMA.

And from my understanding I know there exists a benchmark rate methodology difference between Dcs and M&A that might be structurally driving that kind of difference.

Is that the case or is that not the case and it's more of a function of geography acuity mix of <unk> members Richard others. I'm. Just wondering if you could help shed some light on that.

Yes.

I can certainly speak to what our own experience. So in terms of comparing our DCE revenue <unk>.

<unk>.

I think there is absolutely. Some obviously structural differences that are a driver of the delta and so.

Kind of couple of things off the top of my head to the first would be.

Obviously with <unk>, we are taking part D risk and we are not doing that the DCE and so you wouldn't see the revenue or the cost some of DCE that you Wouldnt MA and then similarly, where we're taking the risk of a benchmark. If you will is structured around the risk that CMS is taking it so the members.

Cost share is not a part of our benchmark the way it would be on the MH side, so absolutely some structural differences.

And then in terms of our specific population it has.

It's been a population I think we mentioned this in one of our other calls where it is.

A lower risk adjustment score population and when we approach. This group of people in terms of the assessment of our ability to generate a profit on the program. We actually were looking at our existing portfolio of markets across the country today and as I said before we have a wide variety of different profiles and certainly.

Some of our markets that we're in today that we have proven successful and profitable and are actually pocketing pods are members that are typically healthier lower risk adjustment scores, but also lower utilization and ultimately between the two of those things, we're able to make that business model work and so we're sort of applying the same toolkit, we have demonstrated in other.

Areas with this DCE population based on what we know and obviously, we're coming up on six months and now and we're continuing to learn more about it as we get our clinical teams in place and really begin to apply a lot of things that have made us successful in EMEA in terms of our our care any of our team's doing a proactive outreach engaging them in the home all of the thing.

John was really just describing earlier as our key differentiators.

Yes, Michael its John just to add to Thomas This is the way I look at it.

It kind of structurally and definitional DC.

DCE is we're going to be taking risk for what CMS would otherwise take Chris Corr.

And a fee for service structure and that beneficiaries still has to go out and buy.

Supplemental coverage gap gap gap insurance coverage, so theyre still paying that premium.

So.

Fundamentally the risk that you are kind of stepping into is about 80%.

Of the kind of.

Revenue stream.

That's the way I look at it and so so far.

For for those out there that are the plans.

I don't know how they are doing it.

I don't understand that.

For those that are on the provider side.

Yeah.

I think it's it's Kobe, it's how they are doing it as coding and.

And remember that the providers are taking 80, 85% or whatever.

Global catheter taken from the payer so from an apples to apples basis, they're kind of getting maybe around the same as they would otherwise get in the global cap deal from them yet.

That makes sense.

Yes.

Makes sense.

So so for us.

But we're looking at is.

What is the gross margin <unk> pm on that DCE business.

And then this is.

Thomas has alluded to in the past there is a lot less SG&A associated with DCE in terms of sales and marketing utilization and claims or whatnot.

So we're looking at zeroing on a what is that EBITDA.

Potential for DCE and Mike.

My initial.

Kind of thinking is it still going to be positive both gross margin and EBITDA.

But we're not get scan its low earlier give us a couple of quarters.

Got it thank you for the color and congrats again on the corner.

Thanks, Mike.

Thank you so much and we have no further question at this time, ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.