Q4 2021 Alignment Healthcare Inc Earnings Call
Yeah.
Good afternoon, and welcome to alignment Healthcare's fourth quarter and full year 2021 earnings conference call and webcast all participants will be in a listen only mode. After today's presentation. There will be an opportunity to ask questions to ask a question. During the session you will need to press star one.
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Please note that disadvantage and is being recorded if you require any further assistance. Please press star zero.
Before we begin we would like to remind you that certain statements made during this call will be forward looking statements as defined by the private Securities Litigation Reform Act.
These forward looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs assumptions and information currently available to us.
Although we believe these expectations are reasonable we undertake no obligation to revise any statements to reflect changes that occur. After this call descriptions of some of the factors that could cause actual results to differ materially from these forward looking statements are discussed in more detail in our filings with the S. C.
You see including the risk factors section of the prospectus for our initial public offering filed with the SEC on March 29th 2021 and in our Form 10-K for the year ended July December 31st 2021 .
In addition, please note that the company will be discussing certain non-GAAP financial measures that they believe are important in evaluating performance.
Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the press release that is posted on the company's website and in our Form 10-K for the year ended December 31, 2021 .
Leading today's call are John Kao, founder and CEO , and Thomas Freeman, Our Chief Financial Officer.
Hello, and welcome to our fourth quarter and full year 2021 earnings conference call.
I appreciate you joining us today.
I am pleased to share that alignment healthcare had a successful 2021 financially and operationally, including a strong fourth quarter across our critical kpis.
We continue to distinguish our business by demonstrating the power of our proprietary <unk> technology platform and our clinical model to deliver strong medical benefits ratio management, while also achieving solid growth.
That performance was driven by our team's steadfast commitment to change healthcare one person at a time and always put the senior first.
I, thank our team for their tireless efforts toward making 2021 as success.
For the fourth quarter, our health plan membership ended at 86100, increasing 26% compared to last year.
Total revenue of $298 million in the quarter grew 23% from last year led by our health plan premium revenue growth up 28% year over year.
Adjusted gross profit came in at $43 million in the quarter with a strong MBR performance of 85.7% and adjusted EBITDA was a loss of $9 million.
Our robust performance to round out the year translated to total revenue of 1.168 billion in 2021, reflecting 22% total revenue growth and 28% health plan premium growth year over year.
Our 2021 adjusted gross profit was $144 million with an MBR of 87, 6%.
Lastly, our adjusted EBITDA was a loss of $33 million ahead of expectations.
As important as our strong financial performance was in 2021, even more important was our continued progress towards building the foundation to achieve our vision of changing health care for seniors across the country.
We believe our data and technology enabled care model produces the highest value for seniors and is the cornerstone of our ability to manage future growth.
That in mind, we successfully continued to invest in our Ava technology platform that allows us to scale our care anywhere clinical model.
We launched our patient pedal management module, which acts as a workflow enablement tool for our carrier anywhere teams.
We improved our risk stratification and inpatient admission prediction module, which is now able to accurately predict the highest 10% of our members who will represent 50% of inpatient admissions over the next 30 days, we implemented our Medicare risk adjustment suite, which improves the tightening that's been.
The accuracy of our Medicare risk adjustment activities of revenue per member.
And we finalized other Eva applications geared towards scaling our clinical best practices.
These investments led to increased member engagement for carrier anywhere from 57% in 2020 to over 64% in 2021.
Better medical management outcomes with 156 inpatient admissions per thousand in 2021, which is approximately 38% lower than fee for service benchmarks.
A 14% readmission rate compared to CMS fee for service benchmark that 19%.
Improved clinical outcomes as reflected in our five star heated scores.
And the net promoter score of 64, which is significantly higher than the national Medicare advantage N. P. S of 38 and includes an all time high NPS score of 82 four carrier anywhere program.
All of this work is paying off at our MBR, while our 87, 6% consolidated MBR for the year was quite strong. It is important to note that our year two and beyond markets are producing MBR of 86% range, while our year one markets D. C E markets are at 98% and a hunter.
And 7% respectively.
We expect these N V ours in our newer markets to come down as we grow market share and deploy our provider engagement and care anywhere best practices consistent with the vintage analysis, we have previously shared.
The strong 86% MBR of our year, two and beyond markets is primarily driven by our successful, California franchise, representing over 99% of this cohort and screen.
<unk> 2021 , California market launches.
This performance consists of 16 diverse and unique counties that required us to leverage Eva to ensure a successful outcome.
This 86% MBR is led by our at risk membership performance, where our more tenured at risk members or even lower that are 86% in aggregate.
As a reminder, we define our at risk membership as their seniors, where we take financial risk for at least a majority of the members claims expenses through our aligned provider partnership relationships.
Our effective MBR management, who has led our California business to approach adjusted EBITDA breakeven in 2021.
We are also forecasting that would be slightly adjusted EBITDA positive for 2022.
Even with the continued growth investments, we're making in the state.
These proof points are prerequisites to being able to successfully manage our future growth ambitions.
We believe this performance validates our clinical operating model it gives us confidence that the model is scalable.
We previously shared their AEP concluded with approximately 92700 members as of January 2022, representing 16% year over year growth.
We discuss where we thought we performed well and we thought we could have done better including being negatively impacted by competitive headwinds in southern California.
Though the level of competitive activity was up normally aggressive, but our floor, California counties. This past AEP it as part of a normal cadence of our business.
With that my our 2022 investments are focused on step two of generating replicable D, which is continuously improving the reliability of our growth model.
We believe that investing in greater depth of market management infrastructure as well as our member experience will allow us to better leverage our geographic diversification irrespective of competitive market dynamics.
First.
We are aggressively resourcing, our market management and network development teams. This includes hiring additional community engagement reps local provider contracting team members and dedicated sales resources to support more consistency in our future market by market growth.
Second we see an opportunity to deliver even better quality by continuously improving our service delivery and focusing our member experience workflows.
Based on the latest National CMS data from 2020, our voluntary just enrollment rate was approximately 37, 5% better than the national average.
Further our AEP voluntary disarmament was minimally higher compared to the prior year in spite of some of the broader churn issues noted across the industry.
We're proud of our current results, we're confident we can deliver even better service to our members.
In summary last year, we exceeded our financial goals, all while accelerating the differentiation of our key competitive advantage our clinical model.
I continue to believe the long term benefits of the work we achieved in 2021 far outweigh the short term membership headwinds we're now attacking.
This year, we're continuing to invest in replicable D add portability through market management resources and member experience of workflows.
When you combine that with our 2021 M B R and clinical outcomes as well as the strength of our balance sheet.
That makes me quite optimistic about our commitment to our long term, 20% growth rate and the scalability of the model.
Thank you for your continued interest alignments journey.
I'll look forward to updating you throughout the year.
Now I'll turn the call over to Thomas to cover our financial results as well as the outlook for 2022.
Pharmacy.
Thanks, John and thanks to everyone, who has joined US on the call today I want to reiterate John's sentiment that we are proud of our 2021 of the results and committed to building upon that in 2022.
Our call today I intend to touch on a few highlights from the year review the fourth quarter results in more detail and conclude with a discussion of our first quarter and initial full year 2020 to outlook for.
For the year ending 2021, our health plan membership surpassed our initial expectations and ended at 86100 members, representing an increase of 26% year over year.
Over the course of the year, we added approximately 6000 members for January 2021 to December 2021, which is in line with what we achieved the prior year as well our total revenue grew 22% to 1.1 dollars 68 billion driven by our strong health plan premium revenue growth of 28%.
Further our adjusted gross profit of $144 million, reflecting an MBR of 87, 6% for the year demonstrating the power of our clinical model in our Ava platform as John mentioned, we're particularly proud of the strength of our California franchise, where our MBR outcomes continue to showcase the differentiation of our <unk>.
Core capabilities relative to the market.
Lastly, our full year adjusted EBITDA was minus 33 million materially exceeding our expectations for the year on the back of strong adjusted gross profit performance as well as continued disciplined through the SG&A line, our consolidated adjusted EBITDA loss for the year reflects our legacy markets continuing to build momentum towards consolidated profitability.
Alrighty.
Meanwhile, given the strength of our MBR outcomes over the last several years, we continue to believe in the importance of reinvesting this performance towards future growth.
Our balanced approach targeting sustainable growth with an eye on long term profitability is something that we will continue to balance moving forward.
Turning to the fourth quarter results total revenue of $298 million in the quarter represents a 23% increase compared to a year ago.
Our health plan premium revenue accounted for $284 million of total revenue and increased 28% year over year.
Our adjusted gross profit in the quarter was $43 million, representing an MBR of 85, 7%.
We approached our fourth quarter guidance with a cautious view towards potential spikes in COVID-19 related utilization, but we're pleased to see overall fourth quarter inpatient utilization of approximately 5% better than contemplated in guidance.
This utilization outperformance along with sustained revenue P. M. P M. In our performance led to our adjusted gross profit outperformance in the quarter.
Our MBR was below 86% for the second quarter in a row in the fourth quarter showcasing the replica ability of the foundation we are building.
SG&A in the quarter was $78 million, excluding equity based compensation expense or SG&A was $53 million, an increase of 7% year over year. This leads to adjusted EBITDA, which was a loss of $9 million in the fourth quarter ahead of expectations.
Our balance sheet remains an area of strength for alignment, where we ended the year with $312 million and net cash. We believe we are well capitalized to support our organic growth ambitions and Meanwhile, continue to look for small, but accretive opportunities to deploy capital towards M&A.
Turning to our guidance.
For the first quarter, we expect health plan membership to be between 93790 3900 members.
Revenue to be in the range of 330 million to $335 million.
Adjusted gross profit to be between $32 million and $35 million and adjusted EBITDA to be in the range of a loss of $17 million to a loss of $13 million.
For full year 2022, we are forecasting health plan membership to be between 97390 9000 members revenue to be in the range of 1.33 billion and 1.345 billion.
Adjusted gross profit to be between $163 million and $173 million.
And adjusted EBITDA to be in the range of a loss of $47 million to a loss of $39 million.
As part of our forecast we are assuming continued growth of our health plan membership throughout 2022, our net growth anticipated from January 2022 to December 2022 is comparable to our experience in prior years and we believe that it is achievable given the continued investments, we're making in our local market management and our member experience.
Revenue P. M. P. M forecast is based on our latest internal data regarding our returning members documentation for payment year 2022, as well as our initial payment we received in January for our new members. This year.
We're pleased with the progress we're seeing on our returning members documentation. However that is slightly offset by new member RAF that is modestly lower than our expectations heading into the calendar year.
Our revenue Pnp and forecast also reflects the adverse impact of the return of sequestration, which is slated to begin in the second quarter. This year.
From a utilization perspective, our adjusted gross profit guidance reflects our recent experienced a first part of 2022.
Omicron had less of an impact on inpatient utilization through the first half of January however, they begin to more significantly increase in the back half of January and the first part of February our Covid inpatient admissions per thousand peaked in January at a rate that was close to two five times of Covid admissions per thousand we experienced during the delta waves.
Last summer as we've seen in prior ways. However, we did experience a partial offset from a reduction in non COVID-19 utilization importantly.
Importantly, the back half of February has stabilized at a more normalized rate of Covid and non COVID-19 inpatient utilization and we're optimistic about the fact that another varian has come in past without causing any significant deviation from our overall expectations. The anticipated seasonality of our adjusted gross profit line and MBR for the first quarter.
Reflects our recent omicron experienced when we feel we are well positioned to deliver on our overall 2022 adjusted gross profit objectives.
Turning to our D. C E venture our DCE membership stands at approximately 5200 members today and we anticipate that membership to continue to remain roughly flat over the course of the year. As a reminder, our health plan membership of 92700 as of January 2022, as well as our forward looking health plan membership guidance <unk>.
<unk>, our DCE membership.
Given the recently announced ACO reach model, we are actively working through our 2023 approach in evaluating some of the underlying model changes similar to our prior comments on the global and professional direct contracting or G. P. D. C model, we will evaluate pursuing the ACO reach model as long as we believe it's a financially viable model for us.
That can lead to better outcomes for seniors in traditional Medicare while we are seeing progress with respect to better outcomes for seniors in the G. P. D. C model. We have remained cautious with respect to that program's long term economic potential we look forward to keeping everyone informed as we work through these new regulatory changes and their potential impact on our go forward strategy.
Lastly, as we said before it is a strategic imperative of ours to drive growth of the business sustainably and responsibly. We believe our 2022 adjusted EBITDA guidance is reflective of this balanced view of growth versus profitability as John mentioned, our California franchise is set to potentially breakeven on an adjusted EBITDA basis.
2022, which is a powerful testament to our gross margin ended our consolidated adjusted EBITDA loss. Therefore reflects the continued investments we're making to support our new 2021, and 2022 health plan markets, our 2023, and 2020 for growth and market expansion initiatives and our recent public company expense.
Says that we expect to achieve operating leverage on over time. These.
These underlying trends and components of our consolidated adjusted EBITDA guidance as well as the strength of our balance sheet, which provides us with significant strategic flexibility give us confidence in our path towards our long term growth and profitability targets.
Wrapping up our fourth quarter results were a strong into an exciting and busy year looking forward as John noted I am confident we are well positioned to further build our foundation towards scalability and long term profitability and we look forward to updating you on our progress throughout the year with that let's open the call to questions operator.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Ryan Daniels of William Blair. Your line is open.
Yes, guys. Good evening and thank you for taking the questions. John you discussed this a little bit, but I want to go back to it in regards to the slower than anticipated membership growth can you can go into how much of that was related to greater churn and existing members versus more difficulty attracting new.
Members, given some of the competitive dynamics in the market.
Sure Hey, Ryan Nice a nice talking with you.
R R.
Churn was slightly above the previous years, and so that fundamentally was not our problem and four.
AEP churn I think for 2020, we were at about five 5% and we think we went up to something like six 5% something in that range and so I don't think that was the big problem.
I think the competitive nature.
And some of our markets was the was the main culprit.
And specifically, we're talking about you know what what we announced was 92700 members for one one compared to 96000. So we're talking about a delta of 3200 members.
And candidly.
That's not something that should have prevented us from hitting our numbers. There's just that is just the truth of it and so we've been very aggressive.
And looking at all the other markets that we have.
And being very aggressive about resourcing those markets without what I would call market management resources.
And specifically community reps building relationships with all of the different senior.
Centers and churches and whatnot in each local market.
As well as more provider contracting individuals that are telling the story of why it works to be part of the alignment.
And so we've just been very aggressive on that end.
No.
We are we happy about.
Being at 16%.
Absolutely not it's pretty much driven all the competitive buyers and the management team to make up for the shortfall and we're aggressively attacking it.
But we're going to get these kinds of.
Competitive products.
Now every year somewhere we always do and we've always been over to overcome it in the past.
And in many respects it's.
It's suffering that I would rather happen to us now.
Talking about 3000 members.
And.
We're making all the changes needed to.
And I'll, let that happen again.
Okay. No I appreciate that that's very insightful and then maybe a totally different topic and I can address this to you again, but both of you can probably comment just in regards to direct contracting.
Margins clearly lower there some providers have seen success, but you continue to take what I would characterize as a more conservative stance to your long term participation in the outlook of the program can you talk maybe about what the main concerns are you have about D C and the economic impact that might keep you from moving forward more aggressively.
Thanks.
Yes.
Hey, Brian This is Thomas here, maybe I can start and then John can chime in so I think in terms of what we've seen so far I think we shared back when we first started in the second quarter of 2021 that our MBR and that program was was just north of a 110% and so we actually have seen a lot of progress over the course of the year and we're pleased with some of the not just fine.
But operational outcomes, we're starting to achieve in terms of engaging the care anywhere population and applying a lot of those lessons learned and best practices from MA towards the seniors in the program.
I think having said that though we clearly are not where we want to be long term.
I think our overall MBR to get to EBITDA breakeven on the program is in the 95% range I don't think we need to be necessarily at 85% to make it work from a from an EBITDA and net income perspective, but we recognize that we're not quite there yet just given our starting point in terms of both members and and benchmark and so we're kind of working.
Through what the new program changes, what and what they might mean for us in the future both from an economic perspective, and I know folks have asked about from a governance perspective, we might have to consider some changes there going forward.
Is it possible participant in the ACO reach program, but I think we're sort of in early days of thinking through what that means for us and how that might impact our 2023 strategy.
Yes, Ryan it's great questions. John I think we're looking at it from a strategic lens also I mean, I I really think that the Medicare.
Medicare advantage.
<unk> continues to go up the market share continues to go up and so I think our strategy with respect to focusing resources on that and M&A is the right one.
However.
We are looking at and I would say I'd underscore early stages looking at really unlocking some of the capabilities that we've developed.
And Eva.
And the Ava health.
Technology platform.
It's been somewhat a result of providers asking us to help them with.
With getting into value based care, specifically in the context of the ACO reach program.
And so we're exploring that.
From a more of a fee based perspective.
And we've touched on it in the past, but if you think about we driving our strategy in MA with their products and our provider engagement and complementing.
What we're doing on the fee for service side with some of the technology there seems to be some some synergy there that we're.
We're exploring.
Okay, Great look forward to hearing more thanks, and congrats on the strong end to the year.
Right.
Thank you. Our next question comes from Ricky Goldwasser of Morgan Stanley . Your question. Please.
Hey, Thanks, guys, it's Michael on for Ricky.
So I just wanted to touch on.
<unk> environment again.
When thinking about the landscape for 2022, and arguably one of the most competitive benefit offering.
Recent history, but as I look at your average benefit rich since this year its own analysis. It looks like you guys are still pretty competitive.
So heading into next year as you'd like to rebuild your membership growth. How do you view the balance of investment into benefit richness versus other contributing factors when based on your comments. It sounds like you are primarily focusing on.
Bolstering things like customer service.
Other member experience factors.
Yeah, Hey, Michael it's John .
Your your comments are correct.
It's really both and I would say and so let me be very specific number was four components. The way I look at it is in addition to benefit design.
One is just the market management and its really just focused community.
Reps are resources that are just in the field in each market.
We are doubling down on that.
Pretty much every single market as we head into 2022.
Historically, we've focused on.
Provider engagement, making sure that we focus on quality, making sure we focused on making sure that the model was working but I would say that we've under resource that part of it so number one.
As is his market management Resourcing in investment number two is what you alluded to which is just improved service delivery. Our NPS scores are high where five stars in terms of of our members liking our plan.
But yeah, we've got.
We've got 22 different supplemental.
Types of benefits, we've got 10 vendors that support that and Theres. A couple that we can improve on and so we're really doubling down and focusing on that and making sure that the experience and the service levels that we give to our members is just.
The best in the business I, just think service delivery is pretty much everything so we got to get that to the next tier.
The third pillar I would say is continuing to execute on our operational scalability.
We've got a multiyear plan, we're about halfway through it in terms of just making sure that all of the workflows are automated.
And we're getting good pnp.
Scalability from those initiatives, but we got to continue doing that that's what's going to fund a lot of the end market resources.
And then lastly is really just to continue making the broker experience more seamless for us.
And for them and we're making investments in <unk> to make sure that.
There is a faster more automated direct payments to the broker community and that's something that they've shared with us that they want faster payment more transparency and I think if we get those foundational layers in place.
I think that combined with <unk>.
Just more specific market tactics.
By market combined with.
The benefits and the products that we're talking about I think we're going to get.
We're gonna get just more consistent growth in terms of both market share increases and new market penetration and in some of your newer markets.
Thanks, John and.
I appreciate that and one more.
I know you've previously discussed.
J P is a provider partnerships.
And.
We assume your larger NCO competitors basically year on year out offer lower than average benefit richness, but theres still growing very strong and gaining market share.
This appears to have a large offering of PPP provider assets I wanted to ask do you see a correlation.
Between that and they plan to act PPP assets and driving membership stickiness or.
Do you think that is a major differentiator and also how are those conversations going.
Yeah, No I think there is a correlation.
Thank you.
The whole thesis.
Really the name of the company alignment health care is to make sure that we create alignment with all <unk>.
<unk> in the marketplace.
And I still believe our model is very very strong.
We're we're very sensitive to the consolidation occurring with some of our larger competitors as well as hospital systems for that matter, but but I have to say.
And just the last year or so meeting and talking with.
Pcp's Theres still a lot of.
The practitioners that want to stay independent and they don't want to be part of a factory.
They want to be able to run their own.
Practice with support from Us.
And they want to grow through product offerings.
And so I think that that is the kind of the best of both worlds, which is kind of this model that we've been talking about is to ensure that the community doctor.
Is empowered as aligned and will help us just produce better clinical outcomes for members.
Great. Thanks Shannon.
You got it Michael.
Thank you. Our next question comes from John Ransom of Raymond James Your line is open.
Hey, good afternoon.
So you mentioned M&A.
You do have.
Sizable cash toward.
What what would.
What kind of screen would you apply to the M&A and.
You think if we looked at 'twenty two is it more or less likely that you might pull the trigger on something and how do you.
Haven't been a ton of transactions so.
Do you think about valuation.
Per member gross profit or other considerations as you think about that.
Yeah, Hey, John This is Thomas here.
So I think we started sharing back really around the time of the IPO that we were considering some of this in addition to our our organic growth strategies.
And we've talked about it both in terms of some potential payer assets things that were small enough to be manageable for us, but but also probably small to where they might not be as meaningful for some of our larger competitors and then also provider assets.
They are in new markets, where they could serve as an entry strategy as a part of our expansion efforts.
Or in some of our existing markets, where we think it fits into our overall competitive framework.
So with that in mind I think we still remain.
Offensive.
Both of those types of areas, but I think what we've seen across the market over the last few months is obviously.
A change with respect to investors' sentiment around profitability.
And I think we're being disciplined and making sure we protect our balance sheet, which obviously is clearly an asset of ours today and so we want to make sure that if we do anything it does not impede our ability to get to EBITDA breakeven and support our organic growth efforts with the cash balance we have but with that said I think we have plenty of capital on the books.
Today, and I think we could explore some smaller and of course highly accretive opportunities in terms of how he might value, though just to your other part of your question I think it depends on the type of asset I think per member valuations are interesting, but I'm not sure. They always tell the whole story because not all not.
Not all businesses and members are made equal and so we would look at our revenue gross profit EBITDA and kind of all of the above in addition to membership.
Thanks, and then my second question is and this is probably not.
Answerable, but I'll take a shot.
Yeah, let's look out to the future and Youre double the size that you are today.
200000 members.
Do you think that and I think that talks about the market.
Tommy.
Yes.
I guess the geographic mix would look similar to today or do you think that.
All of these states.
Hey, John It's John .
I think if we look out.
Two to three years, I think youre going to have.
A couple of the new states that we're in begin to take root and get to that 10, plus thousand member threshold, we talk about.
And we communicated that we want to get too.
Kind of operating breakeven in each market in three years and when I get to 10000 members in five years, that's been consistent with all the new markets that we've entered.
With a couple of exceptions, where we've grown faster specifically in our southern markets and our San Diego markets.
But it didn't really know in our Santa Clara markets, we're up to 15000 members, but but I think I really think our model is going to be.
Well received outside.
A california.
I think the the.
The demand from the as Michael asked earlier, the demand from the primary care community for alternatives.
<unk> is very high.
And I think we can be that solution I think I think as we partner with those Pcbs.
We're going to be able to generate kind of those kinds of growth numbers in.
And we're still we're still mindful of as Thomas mentioned.
<unk> EBITDA and we are still mindful of managing growth and protecting our balance sheet.
And.
And so so if we kind of get the performance I expect.
The markets that we launched in.
'twenty, one and 'twenty two.
We'll probably do.
A couple in <unk> and 'twenty three.
Don't think we're going to do four or five.
I'd be surprised I should say again, just just to make sure that where we are.
It might in cash flow.
Thank you.
You got it thanks, Jeff.
Thank you. Our next question comes from Jeff Garro of Piper Sandler Your line is open.
Hi, good afternoon, congrats on the quarter and thanks for taking the questions I wanted to start with a couple on intra year enrollment. She you mentioned that'll be part of the mix again in FY 'twenty. Two just curious on feedback so far from the spring open enrollment in and also your product mix now has expanded into more.
Special needs plans.
What extent does that allow you to sign up more members outside of those formal interim open enrollment periods.
Yeah, Hey, Jeff Thomas here. So we're obviously about two thirds of the way through through OAP and yeah, I think it's going well so far I think the way, we thought about our full year guidance and.
Our full year enrollment may come together looking at January to December is really in relation to our last couple of years worth of experience, where if you look back at 2020 or 2021, we added about $6 to 7000 lives from January 20 or January of those calendar years to December at the year end before the impact of AEP and so when you think about our guidance and kind of where.
We said we are at as of January 2022, and our range for year end 2022.
You'll see obviously a symmetry between what we're projecting this year and what we've been able to achieve in years' past.
Obviously, our goal is to really start to capitalize on a lot of the investments that John described in terms of our market management initiatives and somebody's member experience initiatives that we hope will start to take root over the course of the year as well.
Excellent.
Any comments on the special needs plans and whether those can be more of the mix this year.
Yes, I think so.
We're actually launching those are as you noted in more markets than we've ever had before and that's certainly a part of our broader product roadmap as we think about 2023 as well I would say, it's maybe a little bit too early to say how much of a material impact that will have on intra year enrollment, but it is one of the drivers that were certainly focused on both in terms of our D. SNP center as well as our C. Snips.
<unk>.
Great. That's helpful. One more from me want to turn to operating expenses, particularly given the comments on and investing more resources in local markets.
Correct me, if I'm wrong here on the math, but I think I back into a modest sequential downtick in adjusted operating expenses from Q4 to your Q1 guidance. So could you walk me through what seasonal AEP expenses roll off and then how we should think about the ramping of expenses.
Throughout the year and specifically as you think about.
Getting ahead of new market launches in 'twenty three.
Yes, it makes a lot of sense. So typically what we experienced over the course of the year is it in SG&A on a quarterly basis that builds from kind of first and fourth quarter, which is reflective of to your point. The AEP portion of our spend which is largely concentrated in the back half of the year relate to sales and marketing as well as some of our year zero launches where we are.
We're starting to onboard and hire folks related to our upcoming new market launches that typically start around June July August and kind of run into the AEP period, as well and so as you think about sort of the first quarter of 2022 relative to the back part of 2021, I think you're seeing a slowdown in some of that sales of <unk>.
Marketing spend that we would anticipate to ramp back up later in the year and I think there's also some other adjustments that happened throughout the year, such as our AIP or our overall incentive plans that tend to ramp up or ramp down throughout the year as well and so I think that's part of what Youre seeing and also in terms of Q4 versus Q1 seasonality.
Excellent thanks for taking the questions.
Our next question comes from Nathan Rich Goldman Sachs. Your line is open.
Hi, good afternoon, thanks for the questions.
Maybe maybe Thomas just to start.
I think the implied P. M. P M growth for 'twenty two is about 2%.
If I heard you correctly I think you said that the new member RAF was maybe a little bit lower than what you had expected and then youre expecting the return of sequestration I didn't know if there was anything else that I might have missed.
Just as we think about P. M. P. M growth this year and can you maybe talk about the ability to kind of manage those higher cost members in just kind of overall level of confidence and visibility in the MLR outlook that you gave.
Yeah, Yeah, absolutely. So in terms of your first question on revenue P. M. P M sort of year over year, I think I think you're right that we have suggested that our new member risk adjustment scores are little bit lighter than expectations, and when I say, a little bit I mean to the tune of a few percent so nothing too significant but modestly lower than what we would've expected.
Did come into the year based on our prior experience by market, which of course it does vary by market.
However that is I think being offset by what we've seen on a returning members where I think 2022 really looks to be a more normalized operating environment based on all of our operational activities in 2021.
And I think the other thing just to keep in mind as every year as we go through a bid cycles and were making benefit investments those do have an impact on our overall revenue P. M. P M from year to year.
And that's of course offset by the benchmark trend. So when you kind of combine those four things are returning members and new members benefit enhancements as well as the benchmark trends all of that for US. This year is kind of rolling together to something like you said I think about 2%.
And in terms of the MBR outlook, I think we feel pretty good and obviously, what we experienced in <unk> over the last part of January and into the early part of February certainly was a bit of an accelerated clip and COVID-19 related inpatient utilization compared to some of our experience with the prior way just given that it was obviously a much more highly transmissible variant.
That being said, it's come down significantly and as at the end of February It was at a much more normalized rate between both COVID-19 and non COVID-19 consistent with our expectations. So I think we feel pretty strong and confident in terms of our overall MBR outlook for the year and look forward keeping you guys updated on it.
That's helpful and any updated thoughts around the timeline to profitability for the overall company.
I think the EBITDA guidance for 'twenty, two is kind of a generally consistent year over year, maybe just what the path looks like from here and it sounds like you may be close to profitability and in California.
And so that was obviously nice progress to see maybe just talk to us about how you expect that market to play out and then what that would mean for the overall business.
Yeah. It makes a lot of sense so to your point.
Obviously I'm looking at this kind of market by market.
And outside of California, and also some of our newer ventures like D. C E N and so we've seen a lot of progress in California over the last two years and we're really pleased with where that is shaping up today and those comments that John I made earlier.
Glu is a lot of these growth investments, we're making in the market management infrastructure as an example, so so really seeing some strong performance there and then Meanwhile, our consolidated EBITDA profile. This year is reflective of a lot of those investments for the 2021 and 2022, new market launches, So that's North Carolina, Nevada, and Arizona as.
Well as some of our 2023 and 2024 expansion initiatives.
So I think to your question on kind of our overall path to profitability I think we're still envisioning that over the next several years the strength of our legacy markets will continue to perform and be able to fund the investments we continue to make in the new markets I think the open question and interrelated relationship is.
The pace of the new market investments and so as John mentioned I think we continue to plan to make new market investments over the next several years given our confidence in some of our historical and more mature market performance, but that being said I think while we're comfortable today with a modest EBITDA loss I don't think youre going to see US go Crazy and.
Kind of chase growth at all costs or drive our EBITDA profile to a much more significant loss in what we've currently put out in guidance. So I think we're on the right path over the next couple of years and importantly, I think we have a strong enough balance sheet to get us there without the need for any type of financing.
Great. Thank you.
Thank you. Our next question comes from Lisa Gill of J P. Morgan. Please go ahead.
Good afternoon, John and Thomas Thanks for taking the question.
Just wanted to go back to Thomas just to spend a couple of minutes talking about your outlook for medical costs for 2022.
We think about Covid specifically.
Things like Antivirals and thinking about the new testing initiatives is there anything specific in your guidance for any of those.
I would expect that that would be kind of added side. The norm of what you explained before where if we saw hospitalization, we saw less outpace and they kind of offset each other so.
Anything specific there that we need to think about for 2022.
Yes, I think youre spot on if there's continues to be progress across the market and I think net net we view that as a positive and the way we sort of think about that is I think we've shared with some of you before our average inpatient unit cost or a case rate for an average COVID-19 hospitalization.
One five times as expensive as a non COVID-19 hospitalization and so over the course of our year and what's contemplated in our guidance is a mix of both COVID-19 and non COVID-19 admits per thousand our inpatient utilization and so to the extent that there is additional expense related to to your point anti viral medications that can help prevent some of those downstream more costly.
Expenses I think net net that could be a positive for us. So it's something we're keeping an eye on but at the time I don't view that necessarily as a risk and potentially an opportunity if anything.
And then just secondly.
I appreciate your comments around moving towards profitability. When we think about long term target margins for your business. How should we think about that longer term is the anticipation that it would be in line with some of the other peers in the 4% to 5% margin range.
When you say four to five that's pre tax yes.
Yes.
Yeah, I think thats, probably in the right realm, I think what we have said.
Starting back when we went public is that our long term adjusted EBITDA margin goal was 6% to 9% and I think we've talked about the kind of 6% to 7% range being sort of the pure health plan business and really the opportunity to strive for 8% to 9% being related to some of our efforts both around vertical and horizontal integration and what I mean by that from a.
Vertical standpoint is our ability to.
To leverage some of our Ava capabilities, the clinical model in some of our other subject matter expertise through provider relationships.
And then from a horizontal standpoint, I think over time, we would look to potentially in source. Some of our things that are currently outsourced such as our supplemental benefits things like behavioral health areas, where we think theres, an opportunity to either buy or build businesses to sell into our existing installed base of membership, which is obviously, becoming pretty decent at this point in terms of size.
Thank you.
Thank you. Our next question comes from Sarah James of Barclays. Your line is open.
Thank you.
At the midpoint.
Looks like about 20 basis points gross margin expansion.
Basis points EBITDA margin compression so.
60 basis point Delta there.
My name is like 8 million so is that how.
We should think about the incremental investment and growth has been.
Built into 'twenty two.
Is there any clinical investment.
And are there any other headwinds.
Factored in there.
I think that Directionally sounds about right.
No specific headwind certainly contemplate I think what what you're probably seeing in terms of the SG&A line is sort of the run rate impact of the new markets, we launched in.
2022, so what would've been quote unquote year zero in 2020, once youre getting kind of a full annualized impact of some of those investments in Arizona. As an example, and then also what were forecasting over the back half of the year related to some of our potential growth and market launches for 2023. So I think it's just sort of the layering on of those additional market investments that we're contemplating.
<unk> I think it might be what you're referring to.
Great.
And then as you think about your 20% long term revenue growth target.
How do you think about that between organic and capital.
Capital deployment or M&A.
Yes, I think our 20% goal remains organic.
I think if we see opportunities for M&A.
We'd look to complement or add to that but I think from a from a just a 20% perspective, we remain focused on trying to achieve that organically year on year out.
Thank you.
Thank you. Our next question comes from Gary Taylor of Cowen. Please go ahead.
Hi, good evening.
My questions.
Third I just want to go back to make sure I understand.
John What you had said about.
The market management folks in the field.
Are you talking about.
<unk> reps or your own internal brokers or what what type of people you're talking about just being around the the market tomorrow.
Yeah, Hey, Gary Great question, Yes, I would say that traditionally are.
Are the people that we had in the markets, we're really provider engagement reps and so we're working with a lot of the.
Ipas and medical groups, and making sure different kind of clinical operational gaps were closed and he does some stars and and as well as MRA gaps and making sure that data was properly ingested defeat Eva.
Kind of thing is and so what we're doing is we're adding additional resources that are what we would call community reps.
And so these folks are going to be working with.
Seniors in senior centers and different kinds of organizations within each community.
To.
<unk> get much more activity on the sales side.
And working with brokers by the way.
And secondarily as to I would say add additional providers into the network both primary care and.
Some specialists in each each of each community.
And we have known that we.
Wanted to do that.
We've been also mindful of again long term profitability, but we've gotten the growth.
By focusing on kind of the former.
And I think I think this is it's caused us to accelerate the investment in this area.
I think we would have probably done it anyways next year, but we're really accelerating into this year and.
Just to get more consistency on on the product growth.
Hope that answered my other.
Yeah. Thanks.
Just on days claims payable comments look like.
Around about three year over year, or two and a half or so.
Sequentially anything there on timing inventory IV or anything.
No I don't think anything overly material or consequential I think if we.
We continue to feel pretty good about our approach to IV in our in our reserving methodologies and I think we shared with many of you in the past that we have a pretty detail oriented view in terms of how we track our inpatient utilization in terms of facility mix in terms of high cost cases that we anticipate would be above and beyond our average.
Average case rates and unit costs and so I.
We feel pretty good about the way we've approached it and nothing too material in terms of the day to day.
You have speed in which we process claims I'd say.
Okay. Thank you.
Thank you. Our next question comes from Kevin Fischbeck of Bank of America. Your line is open.
Alright, great. Thanks.
Obviously, this year, you're growing a little bit slower, which I guess.
Generally speaking, we think about less G&A leverage and kind of think youre, making more investments.
It doesn't sound to me like you've really changed your view on margins meaningfully. So how exactly are you kind of funding. These divestitures deemphasizing something else and G&A are you changing how much you're reinvesting the benefits versus these other things how should we think about the margin implications of what youre doing.
Hey, Kevin This is Thomas here, So I think.
I think it's sort of two things I'd say, one is you're right I think we're looking to make.
Improvements across the business in terms of our operating leverage.
Not just in terms of lot of the fixed cost which of course those are the areas you would expect us to get the fastest operating leverage on overtime as we continue to grow but we're still working through a lot of areas and a lot of our more variable cost centers, where we think those areas. We will obviously continue to grow with membership, but they're a way do we continue to be more efficient so I think.
I think youre seeing some of that improvement come through on both sides, but but I would also say in terms of the membership.
Kind of shortfall as of January as John mentioned being around 3000 member short of our 20% growth target.
You know as much of that is obviously, it's very frustrating to us and something we're working to attack as we speak.
I think overall that 3000 member it doesn't have too much of an impact on our overall kind of leverage.
<unk> objectives, and our ability to achieve those year over year from 'twenty, one to 'twenty two.
So I think it's obviously, a minor headwind, but I wouldn't say, it's causing us to completely rethink how we approach our SG&A for 2022.
Okay. That's that's helpful and I guess, maybe just the competitive marketplace.
It feels like at least.
The larger disruptive companies have gone public.
The market has kind of pulled them you need to be closer to profitability. You guys have always operated that way, but it seems like some of the other companies who have been more focused on growth of our profits are now changing their strategy do you believe the same thing is happening in your local markets that there is reason to believe that the competitive backdrop will get less competitive.
Or is that not necessarily the right way to think about.
The types of companies you're competing against.
Hey, Kevin It's John Yeah, I think it's always going to be competitive.
I think.
The legacy players I think are very good at this you've got a lot of new entrants that have been very aggressive.
I would say that the question at hand is sustainability.
The degree of aggressiveness I think is something that we've also seen come and go.
And I think with some of the tailwind that a lot of the plans experienced the last couple of years I think.
<unk> invested a lot of that.
And the benefits.
We've always said that you really can't get into this business without having some form of.
You know kind of ability to manage risk effectively.
They're doing kind of this clinical model and.
And I think I think we're going to really.
Demonstrate consistency around that that's why we focus so much on.
The clinical model and investing in Eva and investing anywhere in differentiating ourselves from everybody else.
Uh huh.
I just think we have the most efficient model to deliver value to the consumer.
And that's a long winded answer, but I think it's one that we're not taking anything for granted Kevin I think I think you know this little does little blip, we had less for AEP as.
As having us look at look at everything.
Alright, great. Thanks.
Thank you and our final question comes from Kevin Caliendo of UBS.
UBS Your line is open.
Thanks, and thanks for sneaking me in here.
So I'm actually really kind of a follow up on Kevin's question, a little bit about the competitive nature in benefit design and the like and you guys are a high touch plan high benefit plan.
Always have high star ratings in the context of people offering very rich benefits last year.
The fact that the rate update this year being higher is that actually like a negative meaning it kind of allows other people to catch up to you guys or are there things incrementally that you can do that still differ.
Differentiate yourselves on the benefit side like how should we think about how should we think about that because I havent been able to figure out if it's a good thing bad thing or neutral.
Hey, Kevin This is Thomas here.
I tend to agree with you that there is a certain bit of neutrality to it and what I mean by that is.
I think first of all while we I think advanced notice was positive we of course were still waiting to see how it comes out for our specific counties here over the next month or two and and so with that in mind I think youre right that.
To the extent that it is another solid benchmark year like it was in 2022.
I think that gives all planned at the same level of incremental flexibility with respect to benefits and so youre right that that may allow a competitor to invest in their own benefit offering to enhance it but that the same funding mechanism is the same one that we have and so if we're already ahead of them, we should be allowed to or be able to stay ahead of them.
And vice versa, if it happens to be a more modest benchmark increase year same thing I think.
I think ultimately if the funding mechanism for incremental benefits is similar between us and our competitor I mean, what would allow us to continue to win in the marketplace and to maintain.
Our product positioning that's ahead of a lot of our competitors really gets back to our ability to be high quality and low cost to begin with so.
I would never say that a higher benchmark trend as a bad thing I think we are.
We certainly wouldn't say that but at the same time I am not sure that it would cause us to feel very different about our opportunity for growth in 2023, one way or another.
Fair enough, that's actually really helpful and just one quick follow up.
You discussed your improvement in member engagement from 57% in 2020% to 64% in 2021.
And can you sort of quantify what that does in terms of MLR and where do you think that can go to whether it's in 2022 or going forward like what is what is the incremental patient engagement have you quantified the benefit to you or to the to the member and anyway.
Yes, so I don't think I've quantified it in terms of the impact on MBR per se, but maybe I can give you some data points to help triangulate here. So as you guys have heard us say before.
Our historical performance are kind of in that 160 to 165 inpatient admissions per thousand range and we shared with many back in January that we ran about 150 556 for full year 2021, and so I think as you're seeing us continue to improve our engagement rates and you're seeing us continue to improve.
<unk>.
Yeah, you heard John talk about the recall right. So it's the the capture of our Eva inpatient risk prediction models and readmission models.
All of that Lindsay back to the inpatient utilization metric that we track on almost maniacal daily basis, and so I think we're seeing a lot of progress with it and over the long term, we still think there's opportunities to continue to improve it.
Obviously, we want to get to 100% that might be a bit aspirational, but that's probably the long term goal in the short term, though I think you will hopefully continue to see us make strides on that metric and you'll see it come through in the form of improved.
Improved readmission rates.
And hopefully lower MBR as well.
Thank you so much.
And at this time. This concludes today's conference call. Thank you for participating you may now disconnect.
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