Q3 2022 Alignment Healthcare Inc Earnings Call

November 3, 2022

Yeah.

Okay.

Good afternoon, and welcome to alignment healthcare third quarter 2022 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 this session you will need to press star one one.

On your telephone.

Here, an automated message advising your hand is raised please note that this event is being recorded leading today's call are Jon <unk>, founder and CEO and Thomas Freeman Chief Financial Officer.

Before we begin we would like to remind you that certain statements made during this call will be forward looking statements as defined by the private Securities Litigation Reform Act. These forward looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs assumptions and information currently available.

Both to us.

Descriptions of some of the factors that could cause actual results to differ materially from these forward looking statements are discussed in more detail in our filings with the SEC, including the risk factor section of our annual report on Form 10-K for the fiscal year ended December 31, 2021, and a quarter.

We report on the Form 10-Q for the quarter ended September 32022, although we believe our expectations are reasonable we undertake no obligation to revise any statements to reflect changes that occur after this call.

In addition, please note that the company will be discussing certain non-GAAP financial measures that they may believe are important in evaluating performances.

Detail 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 press release that is posted on the Companys website and in our Form 10-Q for the quarter ended September 30th two.

'twenty two.

I like to hand, the conference over to your Speaker today, John Co founder and CEO . Please go ahead.

Hello, and welcome to our third quarter earnings Conference call.

We are pleased to announce another strong quarter in which we exceeded the high end of guidance across each of our four key performance indicators and raised guidance for full year 2022 top and bottom line metrics.

For the third quarter, our total revenue of $360 million represented 23% growth year over year beef.

Beating our high end guidance by $25 million.

Our ending health plan membership of 98000 members grew 14% year over year, beating our high end guidance by 700 members and placing us solidly in the range of our previous year end membership guidance of 97390 9000 members.

Adjusted gross profit was $49 5 million reading, our high end guidance of $40 million, resulting in an MBR of 86, 3%.

180 basis points better than implied at the high end of our guidance.

Meanwhile, our adjusted EBITDA was negative $9 5 million, beating the high end of guidance by $10 5 million.

Lastly on the back of our strong performance. We're pleased to share that we are raising our full year revenue guidance to reflect growth of greater than 20% year over year consistent with our long term annual revenue growth objectives.

Closing out the third quarter, we are encouraged to see continued progress in the replica ability on scalability of our operating model.

Investments in our risk prediction models clinical workflow tools provider engagement activities and our local community reps are yielding outstanding results, both inside California, and our new geographies as well.

Meanwhile, our investments to optimize service delivery are on track to produce operating results quicker than anticipated.

Our continued success delivering high quality at a low cost across markets. It gives us confidence in the repeatability of our platform and our long term runway as we carry that momentum into next year.

Key to this repeat ability of our model is Eva.

While plans have historically leaned on scale and unit cost to create the competitive advantage. Our success is founded upon data science information and analytics.

It allows us to effectively compete and outperformed by providing the insights required to optimize our key value drivers at the local level.

Our teams rely on this actionable information to deliver a tailored agile approach to each market.

We believe technology alone cannot change healthcare rather it is the interconnected nature of Eva and actionable insights leveraged by the people across our business, including our clinical care teams and our provider partners that is driving the consistency of our performance across geographies.

Simply said provides it with the right data at the right time to the right people is allowing us to improve member outcomes and deliver durable financial results.

This is the culmination of our founding vision for what value based technology enabled health care should be.

Turning to Star CMS recently announced the 2023 plan year Star ratings, which measure the quality of health and drug services received by our seniors.

We are pleased to report that our California HMO contract achieved four out of five stars, which marks the sixth consecutive year, we have achieved four stars or greater.

In total for the 2023 plan year, we anticipate approximately 95% of our members will be plans that CMS rated as four plus stars.

Additionally, due to the strength of our weighted average parent rating our plans in Florida, Texas, and Arizona, which are currently too new to be measured will also adopt a four star rating.

Given that 2023 stars determined 2020 for reimbursement we are excited for the continued momentum our results will provide us over the next two years.

We are also proud of the strides our teams have made this year to produce a five star result in North Carolina.

This is a crucial step forward in demonstrating the portability of our model in the traditionally fee for service market too.

To achieve this result, our clinical teams community physician partners and remember constant <unk> teams took a hands on approach with members.

The actions of these teams are aided by Eva enabled insights to identify gaps in care and make targeted actions to support share navigation and address member concerns.

These capabilities are core to our model and allow us to consistently deliver high quality at a low cost as.

As we previously shared we are continuing to make focused investments in quality and service delivery to not only maintain our strong company wide results, but also push our ratings higher across all plans in the future.

As we enter this annual enrollment period, we are once again enhancing benefits of lowering monthly premiums for our members while distinguishing our plans through product innovation.

We continue to explore new ways to create benefits that improve our members' standards of living and address social determinants of health.

This summer we published the alignment held 2022, social threats to aging well in America survey results.

Our inaugural report revealed that economic instability, loneliness, and food insecurity of the top three social barriers impacting seniors access to comprehensive affordable high quality health care.

We further recognize that these elements of day to day life for our seniors have been exacerbated by an uncertain economic environment and inflationary pressures.

Understanding these obstacles, we introduced a variety of new products and benefits. This AEP to address these challenges, including a gas and utility benefit for low income subsidy eligible members to address economic instability.

In addition, many of our plants now feature $300 to $600 of annual reimbursement for personal care givers, including family members as we strive to directly aid our senior support system and combat social isolation.

We have also expanded over the counter benefits across our spectrum of products moved many of our plans to zero premium and expanded our flagship black card benefit to include allowance for a wider variety of services.

Our capacity to drive product innovation and improved benefits year. After year is a direct result of our care model powered by Avis insights and the MBR outperformance, we've been able to achieve in.

In aggregate our enhancements this year along with the continued support of our $24 seven concierge services.

You have our seniors greater benefits and choice at no additional cost.

Route of our role in supporting our members I'll look forward to sharing more about AEP results in January .

As I wrap things up I'd like to sincerely. Thank our employees for their continued outstanding contributions to our company and our members while being the.

The results of this quarter added significant momentum to our impressive first half of the year and further solidifies our conviction in our strategy of balancing growth with long term profitability.

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

Thomas.

Thanks, John turning to the third quarter results as John mentioned, we are proud to deliver another strong quarter in which we exceeded the high end of our guidance ranges across each of our four kpis for the quarter ending September 2020 to our health plan membership of $98 increased 14% compared to a year ago, our third quarter revenue of 300.

$60 million represented 23% growth year over year.

Our third quarter outperformance brings our year to date revenue growth of 23% and as John mentioned earlier.

The company up to its full year 2022 revenue growth of greater than 20% consistent with our long term annual revenue growth target.

Our adjusted gross profit in the quarter was $49 5 million, representing an MBR of 86, 3% as our California franchise and newer states both contributed to outperformance versus our MBR expectations.

We previously noted that we hadn't seen an uptick in COVID-19 cases to begin in the third quarter. The early increases in Covid admissions abated as we progressed throughout the remainder of the quarter and total inpatient admissions per thousand continued to run below baseline.

We also benefited from a final adjustment to our 2021 final sweep accrual, which contributed a few million dollars of adjusted gross profit outperformance in the quarter, while we do not anticipate this event to recur in the fourth quarter. We note that we would have still run meaningfully ahead of gross profit and MBR expectation in the third quarter, excluding those pick up.

SG&A in the quarter was $76 5 million, excluding equity based compensation expense or SG&A was $59 7 million, an increase of 22% year over year.

Due to the timing of some of our sales and marketing spend around AEP as well as the ramp up of our <unk> zero market spin we experienced a couple of million dollars of SG&A timing favorability in the quarter that we anticipate to reverse in the fourth quarter.

Lastly, our adjusted EBITDA was negative $9 5 million solidly ahead of expectations as we rounded out the third quarter. We are proud to note that our adjusted EBITDA loss for the first nine months of the year is only negative $3 million. We view this trend and outperformance as another indicator of our ability to leverage our operating model to produce.

Strong growth, while balancing our long term profitability objectives.

Turning to the balance sheet, we ended the quarter with $402 million and net cash our cash position at the end of the quarter included an early fourth quarter payment from CMS of approximately $117 million. We recorded the early payment as deferred premium revenue in Q3, and we will recognize it as revenue in Q4 note that this does not have.

Any impact on our income statement metrics net cash excluding the early payment was $285 million, which was inline with expectations.

And prudent management of our balance sheet during the third quarter, we announced the close of a $250 million senior secured term loan facility of which $165 million was funded upon closing of the transaction the.

The initial proceeds were principally used to refinance our existing term loan facility, which was otherwise do in approximately 12 months the remaining $85 million available under a delay draw subject to certain conditions. We continue to expect our balance sheet strength to fund, our organic growth and working capital needs without requiring external financing.

Turning to our guidance for the fourth quarter, we expect health plan membership to be between $98000 and 99000 members revenue to be in the range of 338 million to $343 million adjusted gross profit to be between 34% and $37 million and adjusted EBITDA to be in the range of a loss of $30 million to a loss.

Loss of $27 million.

For the full year 2022, we expect revenue to be in the range of 141 billion and 141 5 billion adjusted gross profit to be between $189 million and $192 million and adjusted EBITDA to be in the range of a loss of $33 million to a loss of $30 million.

Following continued strong performance in the third quarter, we are raising the lower end of our full year 2022 membership guidance and raising our full year revenue guidance.

Note that the anticipated step down from our third quarter to our fourth quarter revenue takes into account both the additional sweet pickup that we do not anticipate to recur in the fourth quarter as well as normal course seasonality of our revenue <unk> as a portion of our membership that is comprised of new members trends higher throughout the year.

Additionally, we are raising our full year 2022, adjusted gross profit expectations and narrowing our guidance range, which now represents growth of over 30% year over year, we remain cautiously postured against potential increases in utilization due to COVID-19 and flu as we enter the colder months of the year as such our clinical teams and.

Our partners are actively working to encourage our members to get their annual flu shot and latest round of Covid boosters.

As mentioned last quarter. We also continued to invest towards our member engagement and care quality efforts, given our strong outperformance year to date, while a headwind on short term MBR. We believe these efforts will be meaningful to our performance in years to come last.

Lastly, we are also raising our adjusted EBITDA guidance, which reflects our strong year to date outperformance and increased visibility as we approach the final months of the year. Our adjusted EBITDA outlook also takes into account, our SG&A timing favorability from third quarter into fourth quarter.

From our initial 2022 guidance provided in March to our updated outlook as of today, the midpoint of our EBITDA guidance range improved by $11 5 million or 27% and our implied MBR improved by approximately 90 basis points.

In conclusion, we are delighted with our year to date results and believe we are well positioned heading into 2023 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 please standby, while we compile the Q&A roster.

And our next question comes from the line of Ryan Daniels with William Blair. Your line is open.

Okay.

Yeah, Hey, guys. Good morning. This is Jared haase in for Ryan. Thanks for taking my questions and congrats on the strong results year to date.

I wanted to ask a question just around stars and specifically looking at the five star rating in North Carolina would love to hear it it's easier if you're able to share any color here would love to hear a bit more about the dynamics that just led to the early successes in the early days of that franchise for you guys. How much of that is sort of related to the external provider networks.

That market how much of it was just related to that.

The execution of your own internal teams over there and how are you thinking about any kind of learnings there that might be applicable to extend it to other markets.

Yeah, Hey, Jared its John .

Yes.

It's something we're really proud of but I think equally important it's something that forms the basis of a template that that shows us what will work and as we get into some of these new markets.

You really have to focus on.

This notion of high quality low cost.

The ingredients of that.

Or having the right likeminded provider partners.

Overlaying, our clinical model using Eva.

And really just being very hands on with all of the members.

And what you get is what you get which is this five star kind of highly satisfied.

Remember, that's relevant and important because if we get that it helps on the unit economics. It gives us year round marketing.

Allows us to be aggressive on product.

And we'll use that and really.

Kind of force our way into some of these new markets. In every single market is a tough market as we know in MA, but this gives us the kind of the formula to.

Make these new markets very successful and I think that's kind of the significance of it with respect to the portability.

Our business model.

Got it yes, yes, that's helpful color there and then.

Just as a quick follow on from Us.

As Bart related to guidance, maybe one for Tom has said I think at the end of your prepared remarks, you talked a little bit about some SG&A favorability, that's reversing and that sort of factored into the EBITDA guidance.

If I look at where the updated EBITDA guide is it coming in a bit lighter relative to the street. So I guess number one.

Could you actually size that SG&A favorability and were there any other type of index that we're kind of unique to <unk> that are showing up in <unk> that we should be thinking about.

Yeah, Yeah, maybe let me speak to your SG&A question and then also maybe just comment on gross profit because that's obviously a critical factor in terms of looking at EBITDA. So maybe from a from an annual perspective I'll start there I think from an annual perspective, our full year EBITDA guidance increased meaningfully from our previous EBITDA guidance and I Bill.

We've are our updated annual EBITDA guidance as of today is meaningfully ahead of where the consensus EBITDA was heading into the quarter I think with respect to kind of the Q3 versus Q4 timing dynamics. You mentioned I think we shared in our prepared remarks that it was a couple million dollars of SG&A timing favorability from Q3 into Q4, but I think it is also important.

And to highlight that the midpoint of our previous range implied around 15, 9% SG&A as a percentage of revenue excluding stock based comp and our updated guidance actually shifted about 15, 7%. So in other words as we're continuing to outperform on revenue, we're continuing to see operating leverage in SG&A, which is part of that adjusted EBITDA raise for the <unk>.

Full year. So I think it's more of a timing thing than anything else and we're really feeling very proud of the Q3 results and how that sets us up for for Q4 and full year 2022.

Thank you.

One moment for our next question.

And our next question comes from Lisa Gill with Jpmorgan. Your line is open.

Please go go with Jpmorgan Your line is open.

Hi, This is Kyle on for Lisa.

Wanted to ask a quick question on.

Profitability. So I think you guys have talked about 2024 is getting to breakeven.

But you are already outperformed your own initial expectations for this year pretty meaningfully.

Adjusted EBITDA of about $15 million higher at the midpoint versus your original guidance. So I'm just curious how you guys think about the ability to maybe hit EBITDA breakeven in 2023 I'm wondering if you can comment on current consensus I think about $23 million loss for next year and whether you think that's a reasonable estimate.

Hey, Cal Thomas here, So I think in terms of commenting on 2023 guidance, we're probably not going to do that today I think we'll look to share our 2023 guidance.

Our fourth quarter earnings call. After we have the benefit of the full AEP period, and we see what our final new member mix comes in you know by market by providers et cetera.

I think in terms of your question, though.

More directed towards our year to date outperformance and how that translates to our our timeline to profitability in the future I think what we would say is while we are extraordinarily pleased with our first nine months and clear that sets us up to outperform for full year relative to initial expectations. I think we would probably caution folks on how that then translates into our ability.

<unk> to breakeven in 2023, we obviously continue to make that a top priority for the organization to get to EBITDA positive in aggregate, but at the same time I think we're also mindful of the fact that we are launching Florida, and Texas 2023 is year, one markets and those will require investment next year, and we still have North Carolina, Nevada and Arizona.

Which will be year, two and year three markets I think the important thing the last thing I'd emphasize is as we shared on our first call of 2022 that we expected, California to be EBITDA positive this year.

Obviously, given the significant outperformance year to date, we very much maintain that view and so we're looking to create a dynamic where we can continue to drive that performance in California and use some of that to offset some of these investments, we're making in our newer markets in the future.

Great and if I could just ask a follow up.

I know you've talked before about.

<unk> some of the relationships you have with brokers in your distribution strategy. There can you remind us what some of those changes you made were and I know we're early in the AEP, so far but maybe some of the early returns youre seeing on those.

Thanks.

Yeah, Hey, Kyle John Yes, no.

I think.

I think the the Formula that's worked for us for the past several years in terms of some of the <unk>.

We're working with continues to be something that we're comfortable with.

I think that the.

The newer markets, we're really trying to establish a foothold.

As is going to kind of be the areas in which we.

Look at you really using product have been very competitive products, which in turn requires you to have really good stars really good MLR et cetera.

And driving that and we'll work with the with the with the brokers in those markets that that.

Or engaged our loyal or just performing.

And in certain markets that we don't have those we're going to have for our own distribution channels, whether it be telesales <unk> employed sales.

And so.

I just think that if you have the right product and then you have the right partnerships with the with the rate <unk>.

It's going to be a good formula if we can't get the right ones because they are loyal to the big guys. That's okay too will just will force our way in with employed.

Salespeople.

I think we're also continuing to be.

Kind of thoughtful about some of the I'll call them E brokers.

Some of them have been good partners for us we have not been dependent on that.

And therefore, some of our kind.

Kind of our retention initiatives have been pretty good. So we're not really exposed there I think.

Like some other folks who communicated so.

I think youll see more of that particularly as we get more and more positions outside of California.

Alright, thanks, and congrats again on the quarter.

Thanks, Kevin.

Thank you. Please standby for your next question.

And our next question comes from John Ransom with Raymond James Your line is open.

Hey, there.

One boring model question and one strategic question is hopefully a lot more interesting so the.

The <unk> came in a little bit it came in higher this.

Quarter versus our model by about 7%. So maybe you could talk about.

That and then John for you.

Just kind of interesting when you go into.

Market like say, Jacksonville, where nobody knows who you are and there are a bunch of plans just kind of what is the first one or two or.

There are three things that you do and how do you establish your.

Our brand.

In a crowded market.

Some of the incumbents have been there for a long time and has established a foothold much more than you have thanks.

Hey, John Thomas Here, maybe I'll take the first one and then turn it over to John for the second one so.

So in terms of the revenue <unk> the third quarter did benefit from a final true up on our 2021 final sweep from CMS and so we mentioned this on our second quarter earnings call and we actually continued to see a bit of upside in the third quarter and that relates to CMS, having the last two years.

Slightly changed their payment schedule, where they create an interim final in the second quarter and then an actual final which takes place in the fourth quarter and that was really a result of wanting to support the providers.

During the public health emergency related to Covid.

So I think thats a lot of what Youre seeing from Q3 to Q4 as we don't anticipate that portion of the Q3 outperformance to continue in Q4.

Having said that we think Q4 is set up for great success otherwise.

I think maybe John if you want to speak to the second question I'll turn it over.

Yeah, Thanks, Thomas Yeah, Hey, John .

Yes.

It's something that we think about all the time obviously.

And it starts with finding like minded.

Providers.

And pretty much every single market.

California and outside California.

You really start with 20% to 25 Pcp's that understand the model are willing to work with us on stars when they work with us our Eva tools really work with us on our carrier anywhere model home based care.

And then with that it drives a lot of engagement, which then in turn drives the stars that you need to be successful.

Drives.

The utilization management drives our net promoter scores it drives all the we call it value drivers that you need as you create this connection with these providers and then that then in turn gives us the ability to put our clinical infrastructure in place and then have a very aggressive products and as I.

I mentioned before with Kyle's question as you think Thats, how you get into the market and have a.

Kind of durable.

Profitability profile.

And we've done that pretty much everywhere and it's worked pretty much everywhere and then what happens is that product will then.

Attract members and those members will leave other PC piece.

They'll come and joined the Pcbs that we contract with and then you slowly add to that network of engaged.

Providers.

On the augment that obviously with.

Good strong broker relationships, good and strong.

Kind of employed distribution strategies.

And then youll relate that with with Brandy.

That's the only way we think this can work in Jacksonville is very competitive as you know.

And a lot of other established brands.

But then again.

This is not the first time, we've faced particularly in southern California.

Where we have the same set of dynamics and we've made a lot of the providers vary.

This strong and we've helped each other grow we will go to the name of 11 11 health care.

So that's really the model and it will take some time and it always does.

But I'm actually very happy with the work that the team has done.

Florida and Texas.

And we're not relying on a lot of growth from those markets in 'twenty three.

Pretty pretty realistic about that but in terms of the engagement strategies.

I'm very happy with that.

Just as a follow up on that so.

These doctors are pushed her time in 1 million people tried I guess, Sam So you could probably banging away and they will get five minutes. So some guy in the coffee around what's kind of the.

If you just had a little bit of time with this person what do you. What do you tell them that makes them kind of sit up and pay attention and block out the noise from the other.

Dozens and dozens of vendors who are trying to get their attention.

Yes, I've done this hundreds of times in front of that.

Every single time, its pretty much the same which is.

You go on you talk to the physician touch with the office manager or the kind of leaned back in their chair.

Mark them through.

<unk>.

He was alignment story.

Back then you talk about the care model you talk about the data when you talk about how we actually are an extension of their practice whether Eric.

Where programs and while it's their patients.

Our clinicians are not in any kind of provider directory. So then they kind of set up in the chair and I always say I always say this is the way we want to compensate you and we've walked through the unit economics of how Theyre getting paid.

And then they kind of understand the math, we're at the end of the day.

They get paid more for working less and providing jointly with us a better clinical outcome.

And for that for that member.

And that that story resonates with these folks and then the next question that people should ask and always have to ask how do you get this doctor to really care, if you're just a small portion of.

The wallet size so to speak.

You're just starting how do you get them to actually care and change of the practices to be successful in Ma.

We don't expect that we'll do a lot of the lifting will do the work through identifying that 10% to 20% of the population. That's poly chronic is really sick will then do a lot of the work we will do that.

The health assessments will do the coding we will do the you went well we will provide all of that and actually act as an extension of their practice.

Thank you.

This is doctors that have no downside, there's just upside with this relationship.

How we do it stocked by Doc.

Thank you Sir.

Thank you one moment for our next question.

And our next question comes from Michael <unk> with Morgan Stanley . Your line is open.

Hey, Thank you guys for the question and congrats on the fast five North Carolina.

I guess now that <unk> started curious about just your thoughts on the competitive landscape are you seeing evidence of any surprising highly competitive benefit offering dynamic almost similar to what happened with part B buy down last year.

Is it a more rational marketplace and just any early thoughts on M&A growth expectations relative peer, 20% long term growth target. Thank you.

Hey, Michael John here.

We're three weeks in to AEP.

But I can give you a little bit of just kind of what we see and how we think about things first thing I would say is we're a lot happier this year.

Relative to last year, just in terms of just the rationale in terms that we've seen in terms of products.

Having said that I think people are at least for the first two weeks I have been focused a lot on on minimizing churn.

I think given some of the experiences last year.

And that includes some of the broker behaviors, what we see.

I'm encouraged for the last week in terms of kind.

Kind of our apps that we received.

I would say that given three weeks of data.

We would be looking for and again. This is Thomas just to make sure I say this properly.

Not giving any kind of guidance expectations for 2023, not but based on.

Based on three weeks, you kind of extrapolate I think we're kind of in the high teens, the low twenty's kind of growth rate on membership.

Would be something that.

That again.

Again, just you got to remember 70% of the growth comes in the backend of our our AEP process. So its very early.

And so but just to give you some some some expectations that's kind of what we're seeing as of today I'm really proud of the sales organization.

They are doing a great job they are working so hard.

And the last week has any indication I'm really happy about that a couple of other insights I think as I mentioned earlier, we're not going to be expecting a lot of growth coming from Florida, and Texas for 23.

We're going to be more focused on ensuring that we get kind of the infrastructure chassis set up to make sure that we get those stars.

And.

Just get the quality.

<unk> and infrastructure in place.

And so.

Let's see here.

We're fighting every single day.

Pretty much what I can say for now.

Thomas what I would do that right.

Yes, I think thats well said.

Thank you guys I appreciate that color and maybe just a quick follow up a quick one on Starz just related to cap is.

Some of your peers have mentioned.

Basically happened in trouble adapting to the weighting methodology yet now.

The sample size is small.

Our cash, but how do you feel about your care model and Ava performing here do you feel like you have a competitive advantage because of your closely in my model that gives you an upper hand, yes.

Yeah, Michael I mean, the North Carolina is proof in the pudding.

It's how we work with.

Our providers in a very collaborative way.

And I would really make the point that there's kind of a difference between capitation versus delegation.

And I think the market doesn't really understand that too often but there are certain core capabilities that.

That we do.

Claims payment the <unk> process.

The chronic disease management programs.

Utilizing real time data and information that's actionable.

We partner with our community doctors and our IPA doctors, though.

<unk> capabilities that we can control those fully.

We get the outcome, we get North Carolina.

And so we're working hard on ensuring that.

Some of the Ipos that were partnered with the California that would emphasize have been good partners.

We have to work with them and getting.

The Bottomline is more access and faster access for our members that's really the bottom line on caps.

And to do so in a coordinated way.

And the California marketplace, a lot of the just from a legacy perspective, Theres a lot of delegation.

And we got to be very very vigilant and ensuring that it's like a subcontract subcontracts something to somebody they've got to make sure. They do a really good job whether that's on.

The utilization.

The access route that influences caps.

Compliant risk adjustment I mean, all of these things that have to do a good job on and some of the partners that we have can do a better job and we're going to help them get there.

Perfect. Thank you guys.

Thank you one moment for our next question.

And our next question comes from the line of Jessica <unk> with Piper Sandler Your line is open.

Hi, Thank you so much for taking the question.

I'm just curious to know in markets like Nevada, where maybe starts came in a little bit lower than average how does your approach to local marketing change if at all.

Do you kind of take a more passive approach or do you deploy additional resources to kind of.

Helped supplement at health supplement.

Yes.

Hey, Josh it's John Great question.

No.

It's kind of the.

Consistent with my last buy.

By less response.

If your contract with the provider group.

And we have no problem globally caffeine with folks.

They perform people have to just do what they say youre going to do.

I think that we've got a good partner there, we're helping them with a lot of the.

The gaps.

Gaps that I think.

We're frankly, we're just not well executed on caps on stars related items.

And so we're being very aggressive with that.

Working with us so I'm happy about.

About that.

But but it really just shows the contrast that kind of a global cap market versus say North Carolina, where we're going in with kind of our model kind of end to end, where you can take drive and have more durability and consistency with with kind of all aspects of what makes a successful starting with <unk>.

<unk>.

Sure.

Yes.

So so.

Our lesson learned is.

You can't just go in.

Theres no shortcuts catches globally cap somebody and just so you can save a few bucks going into a new market and have a new provider just kind of help you. There you got to make the investments upfront.

Which is what we did in North Carolina, which we were doing in Texas were doing in Florida.

And just work with the community to doctors and and make them successful.

And I think just systemically kind of at a macro level just as like.

Other folks who are experiencing the same thing.

Because you delegate a lot of this stuff to folks they have to deliver for you.

And I think we're taking it one step further and it's what we did in California.

Earlier, when we started the company with the earlier Ipas had the tools to be successful, we help them become successful with <unk>, but with real time action with workflows with best practices and they were receptive and so in Nevada. The same thing theyre being receptive. So we're working together.

And we will get it fixed.

Jeff That's a good question sorry, I was on mute yes. Thank you that was helpful. I just had one follow up how are you seeing flu kind of evolved so far in the fourth quarter and how do we think about flu.

In terms of.

And MTR impact on <unk>.

Normal flu season.

Hey, Jeff Thomas here. So in terms of what we're seeing I would say so far we have not seen much of an uptick in flu, but having said that we also recognize that the last two years have been a typical and we've not really seen much of a flu season, and so as we thought about our fourth quarter guidance and sort of our utilization expectations for the fourth.

Quarter, we approached our kind of a baseline assumption that utilization for the inpatient setting would run.

In line with our historical experience inclusive of a portion of which would be kind of fluid driven and potentially COVID-19 driven, particularly given what we saw at omicron last year.

Having said that we're kind of one month and through October and we're pleased to say that our utilization has remained.

Say kind of in line with where we left things in the third quarter and so far we're feeling pretty good about where things stand so to the extent that.

Some of the flu season does materialize. This year or are we gave a bit of a spike related to Covid I think our guidance is kind of well positioned for that and to the extent that we don't see some of that materialize I think there could be some upside to our guidance, but too early to say at this point.

Okay, great. Thank you.

Thank you one moment for our next question.

And our next question comes from Kevin Fischbeck with Bank of America. Your line is open.

Hey, this isn't mbo Gutierrez on for Kevin Thanks for taking the question.

Can you talk about how direct contracting has been trending for you and can you remind us about the plans for 2023 and beyond thanks.

Happy to this is Thomas here so.

If I flashback to when we first began the direct contracting programs that would be the second quarter of 2021, I think what we shared out of the gate is that we didn't have a lot of visibility around our IV in our experience, but that we had booked our first quarter of the program right around 110% MBR kind of out of the gate and that it was a headwind to our consolidated MBR.

I'd say flashing forward now we've been in the program now for the better part of 18 months and we continue to see some some operational traction and momentum that we're pleased with and so I think on a cumulative basis since when the program began we're probably about even.

EBITDA standpoint.

And I think we saw an opportunity to continue to improve that given some of the traction we've seen.

I think in terms of 2023, we are interested in continuing in the 2023 program with ACO reach.

I think how that plays out will be dependent upon the upcoming enrollment files from CMS and so we're looking forward to getting that here in the next month or two and I think we'll remain cautious in terms of our our views around the long term sustainability of how that program evolves, but we've I think we've learned a lot from participating in the.

<unk>.

And I think we will continue to focus on how we can leverage some of the capabilities we have.

Built around Medicare advantage and continue to look for ways to potentially export or monetize those in other ways in the future such as with direct contract in our ACO reach.

Thanks, and then how are you thinking about utilization next year.

So I think big picture, we're continuing to be pleased what were seeing from an inpatient standpoint, and I give our clinical teams to care anywhere folks a lot of credit for continuing to be very proactive and really engaging those seniors who are most in need and that at greatest risk and so I think our view today is that things continue to trend.

Well in spite of some of the ebb and flow, we've seen with Covid and 2022 and I think we're probably in a good place to see a lot of that trend continue in 2023, I think outside of the inpatient setting we've seen similar trends to what you might've heard others in the industry suggest.

Outpatient seems to be fully back to normal we've really seen that over the last couple of quarters and theres been some some pluses and minuses in other areas, we've seen probably lower ER utilization, but also seeing a bit higher urgent care utilization. So I think in general we feel like what we're seeing today is largely representative of what we'll probably continue to see.

Next year having.

Having said that.

I think if we learned anything in the last two years. During Covid is that these things do change pretty quickly. So I think what we'll give you guys a more comprehensive update when we released our 2023 guidance here in a few months.

Thanks.

Thank you one moment for our next question.

And our next question comes from Nathan Rich Goldman Sachs. Your line is open.

Great. Thank you.

If I could just ask a follow up to that previous question.

As we think about.

Cost trend next year.

Or are you thinking about I wanted to ask on a few different <unk>.

Factors first kind of a normalization of inpatient volumes in <unk>.

Do you feel like there is kind of any notion of pent up demand that might still be out in the system.

Then how are you thinking about potentially paying for.

More of the Covid in vaccine treatments, if thats kind of less footed by the government and then just lastly on the on the cost trend.

Contracting with providers and inflation could you maybe just talk about what youre seeing there.

Great happy to Nathan This is Thomas here so.

In terms of our inpatient results.

I think while we've seen continued performance this year I would really emphasize the continued performance over the last five plus years and really we've run around 155 to 165 inpatient admissions per thousand inclusive of some of that ebbs and flows we've seen around COVID-19 for five years straight now and so I think we feel.

Really good about our continued ability to kind.

Kind of maintain those results in that trend heading into next year and again I would say that the reason we've been able to be so consistent with that while also maintaining the growth and really launching some of the markets. We launched over the last few years is a function of having a very active and hands on care delivery mechanism, which is focused on those chronic.

Trailing in high risk seniors and so I think we feel pretty good about the inpatient trends and today don't see a lot of pent up demand is something that concerns us.

I think in terms of your question around.

The.

Could a COVID-19 vaccine thanks for your second one.

I don't think we view that today as a material headwind I think there's always pluses and minuses that go into our updating forecasting process and so that will just be one of the several that we take into account as we think about next year's outlook.

Lastly from a contracting standpoint, I think we're all aware of some of the pressures that many of the hospitals and other institutions face from a labor standpoint, and as it relates to how that.

Kind of impacts are contracting the vast majority of our contracts are fee for service contracts and so Medicare obviously releases those rates in advanced so we're able to have pretty good visibility as to what type of rate increases, we'll see on those contracts heading into next year and those are typically multi year contracts.

With that with an evergreen mechanism on the back end. So I think we feel pretty good about where we stand from a just pure unit cost standpoint looking out into 2023.

Being respectful of the broader environmental trends that youre alluding to.

Great. Thanks, Thomas for all of those comments off the shorter follow up.

Wanted to follow up on your comments on AEP I'd be curious how traction in new markets like Texas, and Florida is going relative to your expectations I guess.

Pacifically in terms of both growing awareness, but just.

What kind of aspects of kind of planned value, where you feel like you might be differentiated versus competitors.

Yes, Nathan this is John I think I.

I think our product design is pretty good.

But we kind of set the products.

With kind of a multi year view of growth.

I think it's trending slightly below basically from our budgets, but again I don't think there were material to begin with.

I think from a from a kind of an underwriting perspective, what we really needed was the engagement with the provider community.

And to get our staffing.

Particularly on the clinical side in place.

Start deepening the relationship with the brokers all the basic fundamental stuff, we wanted to get in place.

And I think we're going to get traction like we had in Arizona and Nevada.

Going to take a take a couple of years.

Thank you.

Thank you one moment for our next question.

And our next question comes from Whit Mayo.

Okay STB Securities Your line is open.

Hey, thanks.

<unk> got one question.

Can you discuss any of the priorities that you have around Eva for 2023, I know you are going through the budgeting process right now but are there any new modules in development anything that you're particularly excited about are we care to share anything with with care anywhere.

And thats it thanks.

Yeah, Hey, Whit, it's John .

I think yes, the answer is yes.

And.

Give me one second here.

The.

The investments in care coordination.

Coordination chassis.

Is one of the reasons that we were kind of able to get the five stars and maintain the four stars in California.

And so it's kind of a.

It's kind of an integrated approach or you call. It helps CRM system, if you will.

That got put in this year.

And we're going to make sure that that gets continued to be refined next year.

The investments we've made in terms of automating some of the broker online broker app submission processes and how we get some of the brokers paid faster paid more real time apps reconciled.

You're going to see us make investments in.

And.

I think the.

The the kind of the stratification model.

Is going to be incorporating more consumer data.

It is kind of broadly speaking, so we start and really understanding kind.

Social determinants and kind of how that plays into the the entire experience for the consumer.

And while 22 was I would say more focused on kind of clinical and clinical workflows.

I think youre going to see more kind of consumer facing.

Modules in 'twenty, three and I would say, including some of the broker investments that I talked about.

Okay.

Did I Miss anything there Thomas.

Lee Thats whats led.

What we're doing.

Okay. Thanks, guys.

You got it.

Thank you one moment for our next question.

Please standby.

And our next question comes from Sarah James with Barclays. Your line is open.

Thank you.

Can you give us an idea of what the pacing of physician engagement adoption curve looks like for even a new market.

You see this timing become consistent and you iterate entering more and more markets. How does what you're seeing on that engagement adoption curve impact your long term strategy on clinic partnership versus ownership.

Well, that's a that's a.

Those are like two really big questions.

We think about them all the time.

Two to get <unk>.

Physician kind of educated engaged.

Trained on using some of the tools that we have I would say it takes between three to six months.

And it's a combination of our.

Kind of on the ground critical operational and kind of practice management kinds of.

Resources, along with our care anywhere resources.

And a lot of is education.

It really forms the basis of long term strategy and I think our kind of engagement model with providers.

It is really born from a lot of years of experience.

Whether it would be kind of globally cap delegated whether it be staff model.

Whether it be brick and mortar I mean, we've got experience in all of that and where we kind of came out was.

Was really poor.

Partnering with the community doctors Theres still really 40% of all the primary care doctors out there if you take out the peds is still kind of independent.

Owned by a hospital system or owned by some of the consolidators. So there's a lot of physicians out there.

And.

And to work with them and enable them to be successful.

And to be efficient with our collective resources and to not have to reinvest in bricks and mortar and the markets really have the existing physicians in a market that has the bricks and mortar already in place more successful and the way to do that is to know who the 10% to 20% of that poly chronic.

Population or ended the to extend that care team to support that practice.

So as I mentioned before a lot of the heavy lifting we do.

And it's not on the entire population.

Don't expect them to.

To change to all of their workflows cheating changed their EHR et cetera, we'll do a lot of the lifting.

And then what happens is that we can bend the cost curve consistently they make more money.

And most of the physicians we see.

Not just in it for the money they want to make sure that the patient gets the best possible care.

And I think that dynamic is what.

Separates us.

We just think it's a more capital efficient way to do this.

And we share some of the some of the.

Gain shares with these folks and everybody wins.

That's kind of philosophically, how we're thinking about it.

There may be some markets, where we want to augment that with an acquisition of a practice here or there.

But I would say thats very.

It's it's more tactical it's more of a regional level.

We have been.

And we've been successful in that.

In key markets.

That being one of them.

Okay.

And then just digging into.

What kind of details you can see.

As you start to have a new physician partners bend the cost curve.

And youre getting very consistent impatient trend are you actually able to see.

Actions taken by them that our care navigation and inpatient diversion and.

And.

And reward them for that or what level of clarity that you have on that.

It's why we like being planned level because we have.

Top of the food chain access to actionable data.

No latency, no 45, or 60 days latency to a global cap group.

So we get that information to them kind of.

Real time, and our internal clinical teams use that data real time, we know daily if not hourly where our members that are in hospitals are and why they're there and who the referring Doug we know all of that.

<unk>.

Within our company, we talk a lot about our maniacal attention to detail.

And it's not automatic I mean, we work at it and it's driven by the data and but think about this.

Make sure you guys understand this is.

The 80% if not 90% of the population that cost 10 or 20%.

The actual engagement.

With those particular physicians, we think look up a member.

That doctor.

It works pretty well.

It's really the 10% to 20% that really is where all the costs are that's where we would deploy our clinical teams, where we do a lot of the work.

And for them.

Work for them.

And just support their practices and the people that we care for at the home through our care anywhere program.

Theyre not theyre not nine minute office visits there's a 45 minute office visits.

So we really.

Free up their capacity with their practice.

That's how we do it.

And there's full transparency, but they have access to ore.

<unk> hundred 60 patients 360.

<unk>.

Longitudinal patient record they had just full access to it.

I'm not sure if I answered your question there.

Yeah.

That's how we think about it.

Okay. Thank you you got it.

Okay.

Yeah.

Okay.

Thank you I'm showing no further questions at this time.

This.

This concludes today's cocky for participating you may now disconnect.

Okay.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Okay.

[music].

Okay.

[music].

L. A phone you will then hear an automated message advising your hand is raised please note that this event is being recorded leading today's call are John co founder and CEO and Thomas Freeman Chief Financial Officer.

Both to us.

Description of some of the factors that could cause actual results to differ materially from these forward looking statements are discussed in more detail in our filings with the SEC, including the risk factor section of our annual report on Form 10-K for the fiscal year ended December 31, 2021, and our quarterly.

In addition, please note that the company will be discussing certain non-GAAP financial measures that they may believe are important in evaluating performances.

2022, I would now like to hand, the conference over to your Speaker today, John Co founder and CEO . Please go ahead.

Hello, and welcome to our third quarter earnings Conference call.

We are pleased to announce another strong quarter in which we exceeded the high end of guidance across each of our four key performance indicators and raised guidance for full year 2022.

And bottom line metrics.

For the third quarter, our total revenue of $360 million represented 23% growth year over year BT.

Beating our high end guidance by $25 million.

Adjusted gross profit was $49 5 million, beating our high end guidance of $40 million and resulting in an MBR of 86, 3%.

180 basis points better than implied at the high end of our guidance.

Meanwhile, our adjusted EBITDA was negative $9 5 million, beating the high end of guidance by $10 5 million.

Closing out the third quarter, we were encouraged to see continued progress in the replica ability on scalability of our operating model.

Meanwhile, our investments to optimize service delivery are on track to produce operating results quicker than anticipated.

Key to this repeat ability of our model is Eva.

While plans have historically leaned on scale on unit cost to create the competitive advantage. Our success is founded upon data science information and analytics.

It allows us to effectively compete and outperformed by providing the insights required to optimize our key value drivers at the local level.

Our teams rely on this actionable information to deliver a tailored and agile approach to each market.

Simply said provides them with the right data at the right time to the right people is allowing us to improve member outcomes and deliver durable financial results.

This is the culmination of our founding vision for what value based technology enabled health care should be.

Turning to stars CMS recently announced the 2023 plan year Star ratings, which measure the quality of health and drug services received by our seniors.

We are pleased to report that our California HMO contract achieved four out of five stars, which marks the sixth consecutive year, we have achieved four stars or greater.

In total for the 2023 plan year, we anticipate approximately 95% of our members will be implanted CMS rated as four plus stars.

Additionally, due to the strength of our weighted average parent rating our plans in Florida, Texas, and Arizona, which are currently too new to be measured will also adopt a four star rating.

Given that 2023 stars determined 2020 for reimbursement we are excited for the continued momentum our results will provide us over the next two years.

We are also proud of the strides our teams have made this year to produce the five star result in North Carolina.

This is a crucial step forward in demonstrating the portability of our model in the traditionally fee for service market too.

To achieve this result, our clinical teams community physician partners and remember concierge teams took a hands on approach with members.

The absence of these teams are aided by Eva enabled insights to identify gaps in care and make targeted actions to support share navigation and address member concerns.

These capabilities are core to our model and allow us to consistently deliver high quality at a low cost as.

As we previously shared we are continuing to make focused investments in quality and service delivery to not only maintain our strong companywide results, but also push our ratings higher across all plans in the future.

As we enter this annual enrollment period, we are once again enhancing benefits of lowering monthly premiums for our members while distinguishing our plans through product innovation.

We continue to explore new ways to create benefits that improve our members' standards of living and address social determinants of health.

This summer we published the alignment held 2022, social threats to aging well in America survey results.

We further recognized that these elements of David as a life for our seniors have been exacerbated by an uncertain economic environment and inflationary pressures.

Understanding these obstacles, we introduced a variety of new products and benefits as AEP to address these challenges, including a gas and utility benefit for low income subsidy eligible members to address economic instability.

In addition, many of our plants now feature $300 to $600 of annual reimbursement personal caregivers, including family members as we strive to directly aid our senior support system and combat social isolation.

Our capacity to drive product innovation and improved benefits year. After year is a direct result of our care model powered by <unk> insights and the MBR outperformance, we've been able to achieve in <unk>.

<unk> our enhancements this year along with the continued support of our $24 seven concierge services give our seniors greater benefits and choice at no additional cost.

We're proud of our role in supporting our members I'll look forward to sharing more about AEP results in January .

As I wrap things up I'd like to sincerely. Thank our employees for their continued outstanding contributions to our company and our members wellbeing.

The results of this quarter added significant momentum to our impressive first half of the year and further solidifies our conviction in our strategy of balancing growth with long term profitability.

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.

Third $60 million represented 23% growth year over year, our third quarter outperformance brings our year to date revenue growth of 23%.

As John mentioned earlier.

The company up to its full year 2022 revenue growth of greater than 20% consistent with our long term annual revenue growth target.

Our adjusted gross profit in the quarter was $49 5 million, representing an MBR of 86, 3% as our California franchise and newer states both contributed to outperformance versus our MBR expectations.

While we previously noted that we hadn't seen an uptick in COVID-19 cases to begin in the third quarter. The early increases in Covid admissions abated as we progressed throughout the remainder of the quarter and total inpatient admissions per thousand continued to run below baseline.

SG&A in the quarter was $76 5 million, excluding equity based compensation expense or SG&A was $59 7 million, an increase of 22% year over year.

Due to the timing of some of our sales and marketing spend around AEP as well as the ramp up of our year zero market spin we experienced a couple of million dollars of SG&A timing favorability in the quarter that we anticipate to reverse in the fourth quarter.

Strong growth, while balancing our long term profitability objectives.

Turning to the balance sheet, we ended the quarter with $402 million of net cash our cash position at the end of the quarter included an early fourth quarter payment from CMS of approximately $117 million. We recorded the early payment as deferred premium revenue in Q3, and we will recognize it as revenue in Q4, knowing that this does not have.

Any impact on our income statement metrics net cash excluding the early payment was $285 million, which was inline with expectations.

Loss of $27 million.

Following continued strong performance in the third quarter, we are raising the lower end of our full year 2022 membership guidance and raising our full year revenue guidance.

We note that the anticipated step down from our third quarter to our fourth quarter revenue takes into account both the additional sweet pickup that we do not anticipate to recur in the fourth quarter as well as normal course seasonality of our revenue PMT as a portion of our membership that is comprised of new members trends higher throughout the year.

Partners are actively working to encourage our members to get their annual flu shot and latest round of Covid boosters as mentioned last quarter. We also continued to invest towards our member engagement and care quality efforts, given our strong outperformance year to date, while a headwind on short term MBR. We believe these efforts will be meaningful to our performance in years.

Tom.

From our initial 2022 guidance provided in March to our updated outlook as of today, the midpoint of our EBITDA guidance range improved by $11 5 million or 27%.

And our implied MBR improved by approximately 90 basis points.

In conclusion, we are delighted with our year to date results and believe we are well positioned heading into 2023 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 please standby, while we compile the Q&A roster.

And our next question comes from the line of Ryan Daniels with William Blair. Your line is open.

Yeah, Hey, guys. Good morning. This is Jared haase in for Ryan. Thanks for taking my questions and congrats on the strong results year to date.

And that market how much of it was just related to that.

The execution of the your own internal teams over there and how are you thinking about any kind of learnings there that might be applicable to extent to your other markets.

Hey, Jared it's John .

Yes.

It's something we're really proud of but I think equally important it's something that forms the basis of a template that that shows us what will work.

And as we get into some of these new markets.

You really have to focus on.

This notion of high quality low cost.

The ingredients of that.

Or having the right likeminded provider partners.

Overlaying, our clinical model using Eva.

And really just being very hands on with all of the members.

And what you get is what you get which is this five star kind of highly satisfied.

Remember, that's relevant and important because if we get that it helps on the unit economics. It gives us year round marketing.

Allows us to be aggressive on product and.

And we'll use that and really.

Kind of force our way into some of these new markets. In every single market is a tough market as we know in MA, but this gives us the kind of the formula to <unk>.

Make these new markets very successful and I think that.

It's kind of the significance of it with respect to the portability.

Our business model.

Got it yes, yes, that's helpful color there and then.

Just as a quick follow on from Us.

One related to guidance, maybe one for Thomas but I think at the end of your prepared remarks, you talked a little bit about some SG&A favorability, that's reversing and that sort of factored into the EBITDA guidance.

If I look at where the updated EBITDA guide is it coming in a bit lighter relative to the street. So I guess number one.

Would you actually size that SG&A favorability and were there any other dynamics that we're kind of unique to <unk> that are showing up in <unk> that we should be thinking about.

Yeah, maybe let me speak to your SG&A question and also maybe just comment on gross profit because that's obviously a critical factor in terms of looking at EBITDA. So maybe from a from an annual perspective I'll start there I think from an annual perspective, our full year EBITDA guidance increase meaningfully from our previous EBITDA guidance and I Bill.

Leave our our updated annual EBITDA guidance as of today is meaningfully ahead of where the consensus EBITDA was heading into the quarter I think with respect to kind of the Q3 versus Q4 timing dynamics. You mentioned I think we shared in our prepared remarks that it was a couple million dollars of SG&A timing favorability from Q3 into Q4, but I think it's also important to highlight that.

The midpoint of our previous range implied around 15, 9% SG&A as a percentage of revenue excluding stock based comp and our updated guidance actually shifted about 15, 7%. So in other words as we're continuing to outperform on revenue, we're continuing to see operating leverage in SG&A, which is part of that adjusted EBITDA raise for the full year. So.

I think it's more of a timing thing than anything else and we're really feeling very proud of the Q3 results and how that sets us up for for Q4 and full year 2022.

Okay.

Thank you.

One moment for our next question.

And our next question comes from Lisa Gill with Jpmorgan. Your line is open.

Lisa Gill with Jpmorgan Your line is open.

Hi, This is Kyle on for Lisa.

Wanted to ask a quick question on.

Profitability. So I think you guys have talked about 2024 is getting to breakeven.

But you are already outperformed your own initial expectations for this year pretty meaningfully.

Adjusted EBITDA of about $15 million higher at the midpoint versus your original guidance. So I'm. Just curious how you guys think about the ability to maybe hit EBITDA breakeven in 2023 and I'm wondering if you can comment on current consensus I think about $23 million loss for next year, and whether you think thats a reasonable est.

Right.

Hey, Cal Thomas here, So I think in terms of commenting on 2023 guidance, we're probably not going to do that today I think we will look to share our 2023 guidance.

Our fourth quarter earnings call. After we have the benefit of the full AEP period, and we see what our final new member mix comes in you know by market by providers et cetera.

I think in terms of your question, though that's more directed towards our year to date outperformance and how that translates to our our timeline to profitability in the future I think what we would say is while we are extraordinarily pleased with our first nine months and clear that sets us up to outperform for full year relative to initial expectations I think we would probably caution folks.

On how that then translates into our ability to breakeven in 2023, we obviously continue to make that a top priority for the organization to get to EBITDA positive in aggregate, but at the same time I think we're also mindful of the fact that we are launching Florida, and Texas 2023 is year, one markets and those will require investment next year and.

We still have North Carolina, Nevada, and Arizona, which will be year, two and year three markets I think the important thing the last thing I'd emphasize is as we shared on our first call of 2022 that we expected, California to be EBITDA positive this year.

Great and if I could just ask a follow up.

I know you've talked before about.

Alter anthem of the relationships you have with brokers in your distribution strategy. There can you remind us what some of those changes you made were and I know we're early in the AEP, so far but maybe some of the early returns youre seeing on those.

Thanks.

Yeah, Hey, Kyle John Yes, no.

I think.

I think the Formula that's worked for us for the past several years in terms of some of the <unk>.

We're working with continues to be something that we're comfortable with.

I think that the.

The newer markets, we're really trying to establish a foothold.

Is it going to kind of be the areas in which we.

Look at you really using product have been very competitive products, which in turn requires you to have really good stars really good MLR et cetera.

And driving that and we will work with the with the with the brokers in those markets that that.

Or engaged our loyal or just performing.

And in certain markets that we don't have those we're going to have our own distribution channels, whether it be telesales <unk> employed sales.

And so.

I just think that if you have the right product and then you have the right partnerships with the with the rate <unk>.

It's going to be a good formula if we can't get the right ones because they're loyal to the big guys. That's okay too will just will force our way in with employed.

Salespeople.

I think we're also continuing to be.

Kind of thoughtful about some of the I'll call them E brokers.

Some of them have been good partners for us we have not been dependent on that.

And therefore, some of our kind.

Kind of our retention initiatives have been pretty good. So we're not really exposed there I think.

Like some other folks who communicated so.

I think youll see more of that particularly as we get more and more positions outside of California.

Alright, thanks, and congrats again on the quarter.

Thanks, Kevin.

Thank you. Please standby for your next question.

And our next question comes from John Ransom with Raymond James Your line is open.

Hey, there.

One boring model question and one strategic question is hopefully a little more interesting so the.

The <unk> came in a little bit it came in higher this.

Quarter versus our model by about 7%. So maybe you could talk about.

And then John for you.

Just kind of interesting when you go into.

Market like say, Jacksonville, where nobody knows who you are and there are a bunch of plans just kind of what is the first one or two or.

Three things that you do and how do you establish your brand.

In a crowded market where.

Some of the incumbents have been there for a long time and have established.

Much more than you have thanks.

Hey, John Thomas Here, maybe I'll take the first one and then turn it over to John for the second one.

In terms of the revenue <unk> the third quarter did benefit from a final true up on our 2021 final sweep from CMS and so we mentioned this on our second quarter earnings call and we actually continued to see a bit of upside in the third quarter and that relates to CMS, having the last two years.

During the public health emergency related to Covid.

So I think thats a lot of what Youre seeing from Q3 to Q4 is because we don't anticipate that portion of the Q3 outperformance to continue in Q4.

<unk> said that we think Q4 is set up for great success otherwise.

I think maybe John if you want to speak to the second question I will turn it over.

Thanks, Thomas Yeah, Hey, John .

Yes.

It's it's something that we think about all the time obviously.

And it starts with finding like minded.

Providers.

And pretty much every single market inside, California and outside California.

You really start with 20% to 25 Pcp's that understand the model are willing to work with us on stars when they work with US our tools will work with us on our carrier anywhere model home based care.

And then with that it drives a lot of engagement, which then in turn drives the stars that you need to be successful in Ma.

Drives.

Our aggressive products and as I mentioned before with <unk> questions.

That's how you get into the market.

And have a.

Kind of durable.

Profitability profile.

And we've done that pretty much everywhere and it's worked pretty much everywhere and then what happens is that product will then.

Attract members and those members will leave other PC piece.

They'll come and joined the Pcbs that we contract with and then you slowly add so that network of engaged.

Providers.

You augment that obviously with.

Good and strong broker relationships good and strong.

Kind of employed distribution strategies.

And then youll relay that with with Brandy.

That's another way we think this can work in Jacksonville is very competitive as you know.

And a lot of other established brands.

But then again.

This is not the first time, we've faced particularly in southern California.

Where we have the same set of dynamics and we've made a lot of the providers vary.

This strong and we've helped each other grow ergo the name of 11 11 health care.

So that's really the model and it will take some time and it always does.

But I'm actually very happy with the work that the team has done in Florida and Texas.

And we're not relying on a lot of growth from those markets in 'twenty three.

Pretty pretty realistic about that but in terms of the engagement strategies.

I'm very happy with that.

Just as a follow up on that so.

These doctors are pushed her time in 1 million people tried I guess AMC you can probably bang your way in there get five minutes. So some guy in the coffee around what's kind of the.

If you just had a little bit of time that this person what do you. What do you tell them that makes them kind of sit up and pay attention and watch.

Got the noise from the other.

Dozens and dozens of vendors who are trying to get their attention.

Yes.

I've done this hundreds of times in front of it.

Every single time, its pretty much the same which is.

You go on you talk to the physician touch with the office manager of that kind of leave it back in their chair.

Walk them through.

<unk>.

He was alignment story.

Sitting back then you talk about the care model you talk about the data you talk about how we actually are an extension of their practice, whether anywhere programs and while it's their patients.

Our clinicians are not in any kind of provider directory. So then they kind of set up in the chair and I always say they always say this is the way we want to compensate you and we've walked through the unit economics of how Theyre getting paid.

And then they kind of understand the math, we're at the end of the day.

They get paid more for working less and providing jointly with us a better clinical outcome and for that for that member and.

And that that story resonates with these folks and then the next question that people should ask and always do this how do you get this Dr. Due to really care, if you're just a small portion of that.

The wallet size so to speak.

You're just starting how do you get them to actually care and change other practices to be successful in Ma.

We don't expect that we'll do a lot of the lifting we will do the work through identifying that 10% to 20%.

All of the population. This poly chronic is really sick will then do a lot of the work we will do that.

The health assessments will do the coding will do the you went well we will provide all of that and actually act as an extension of their practice.

And I think.

This is Doug.

They have no downside, there's just upside with this relationship.

How we do it stocked by Doc.

Thank you Sir.

Thank you one moment for our next question.

And our next question comes from Michael <unk> with Morgan Stanley . Your line is open.

Hey, Thank you guys for the question and congrats on the <unk> North Carolina.

I guess now that <unk> started I'm curious about just your thoughts on the competitive landscape are you seeing evidence of any surprising highly competitive benefit offering dynamic almost stimulator, what happened, but part b buy downs last year or is it a more rational marketplace and just any early thoughts on M&A.

Both expectations relative to your 20% long term growth target. Thank you.

Hey, Michael John here.

Yeah, I mean, we're three weeks in to AEP.

But I can give you a little bit of just kind of what we see and how we think about things first thing I would say is we're a lot happier this year.

Relative to last year, just in terms of just the rationale in terms that we've seen in terms of products.

Having said that I think people are at least for the first two weeks, but focused a lot on on minimizing churn.

I think given some of the experiences last year.

And that includes some of the broker behaviors, what we see.

I'm encouraged for the last week in terms of kind.

Our apps that we received.

I would say that given three weeks of data.

We would be looking for and again. This is Thomas just to make sure I say this properly.

Not giving any kind of guidance expectations for 2023, not but based on.

Based on three weeks and you can kind of extrapolate I think we're kind of in the high teens, the low twenty's kind of growth rate on membership.

Would be something that.

Again, just you got to remember 70% of the growth comes in the backend of our.

Our AEP process so its very early.

And so but just to give you some some some expectations that's kind of what we're seeing as of today I'm really proud of the sales organization.

They are doing a great job they are working so hard.

If the last week has any indication I'm really happy about that a.

A couple of other insights I think as I mentioned earlier.

We're not going to be expecting a lot of growth coming from Florida, and Texas for 23.

We're going to be more focused on ensuring that we get kind of the infrastructure chassis set up to make sure that we get those stars.

And.

Just get the quality.

<unk> and infrastructure in place.

And so.

Let's see here.

We're fighting every single day.

It's pretty much what I can say for now.

Thomas what I would do that right.

Yes, I think thats well said.

Thank you guys I appreciate that color and maybe just a quick follow up a quick one on starz.

To cap.

Some of your peers have mentioned base.

Likely happened in trouble adapting to the weighting methodology.

The sample size is small.

Our cash, but how do you feel about your current model and Ava performing here do you feel like you have a competitive advantage because of your closely in my model that gives you an upper hand.

Michael I mean, the North Carolina is proof in the pudding.

It's how we work with.

Our providers.

A very collaborative way.

And I would really make the point that this is kind of a difference between capitation versus delegation.

And I.

I think the market doesn't really understand that too often but there are certain core capabilities that.

That we do.

Claims payment the <unk> process.

The chronic disease management programs.

Utilizing real time data and information that's actionable that we partner with our community doctors and IPA doctors, though.

<unk> capabilities that we can control those fully.

We get the outcome, we get North Carolina.

And so we're working hard on ensuring that.

Some of the ipas that we're partnered with the California that would emphasize have been good partners.

We have to work with them and getting.

The bottom line is more access and faster access for our members that's really the bottom line on cats.

And to do so in a can.

In a coordinated way.

And the California marketplace, a lot of the just from a legacy perspective, Theres a lot of delegation.

And we got to be very very vigilant and ensuring that it's like a subcontract subcontracts something to somebody they've got to make sure. They do a really good job whether that's on.

The utilization.

The access whether that influences caps.

Compliant risk adjustment I mean, all of these things that have to do a good job on.

Some of the partners that we have can do a better job and we're going to help them get there.

Perfect. Thank you guys.

Thank you our next question.

And our next question comes from the line of Jessica <unk> with Piper Sandler Your line is open.

Hi, Thank you so much for taking the question.

I'm just curious to know in markets like Nevada, where maybe starts came in a little bit lower than average and how does your approach to local marketing change if at all.

Do you kind of take a more passive approach or do you deploy additional resources to kind of.

Help supplement at help supplement.

Market.

Hey, Jess it's John Great question.

No.

It's kind of the.

Consistent with my last buy.

My last response.

If your contract with the provider group.

And we have no problem globally caffeine with folks.

They perform if people have to just do what they say youre going to do.

I think that we've got a good partner there, we're helping them with a lot of the.

The gaps.

Gaps that I think.

We're frankly, we're just not well executed on caps on stars related items.

And so we're being very aggressive with that.

Working with us so I'm happy about.

About that.

But but really just shows the contrast that kind of a global cap market versus so North Carolina, where we're going in with kind of our model kind of end to end, where you can take drive and have more durability and consistency with with kind of all aspects of what makes a successful starting with.

<unk>.

Sure.

Yes.

So so far.

Lesson learned is.

Yeah.

You can't just go in.

There is no shortcuts catches globally kept somebody and just so you can save a few bucks going into a new market and have a new provider just kind of help you. There you got to make the investments upfront.

Which is what we did in North Carolina, which we were doing in Texas were doing them in.

Florida.

And just.

Work with the.

The community doctors and.

And make them successful.

And I think just systemically kind of at a macro level just as like.

Other folks who are experiencing the same thing.

Delegate a lot of this stuff to folks.

Have to deliver for you.

No.

And I think we're taking it one step further and it's what we did in California. None of these earlier when we start the Q&A earlier ipas had the tools to be successful, we help them become successful with <unk>, but with real time accident workflows with best practices.

And they were receptive and so in Nevada, the same thing Theyre being receptive so we're working together.

And we will get it fixed.

Jeff. That's your question sorry, I was on mute yes. Thank you that was helpful. I just had one follow up how are you seeing flu kind of evolved so far in the fourth quarter and how do we think about flu.

In terms of.

And MTR impact on it.

In a normal flu season.

The fourth quarter, we approached our kind of baseline assumption that utilization for the inpatient setting would run.

In line with our historical experience inclusive of a portion of which would be kind of fluid driven and potentially COVID-19 driven, particularly given what we saw at omnicom last year.

Having said that we're kind of one month and through October and we're pleased to say that our utilization has remained.

Say kind of in line with where we left things in the third quarter and so far we're feeling pretty good about where things stand so to the extent that I.

I think some of the flu season does materialize. This year or are we gave a bit of a spike related to Covid I think our guidance is kind of well positioned for that and to the extent that we don't see some of that materialize I think there could be some upside to our guidance, but too early to say at this point.

Okay, great. Thank you.

Thank you one moment for our next question.

And our next question comes from Kevin Fischbeck with Bank of America. Your line is open.

Hey, this isn't NBL gutierrez on for Kevin Thanks for taking the question.

Can you talk about how direct contracting has been trending for you and can you remind us about the plans for 2023 and beyond thanks.

Happy to this is Thomas here so.

I'd say flashing forward now we've been in the program now for the better part of 18 months and we've continued to see some some operational traction and momentum that we're pleased with and so I think on a cumulative basis since when the program began.

Really about even from a EBITDA standpoint.

And I think we still have opportunity to continue to improve that given some of the traction we've seen.

I think in terms of 2023, we are interested in continuing in the 2023 program with ACO reach.

I think how that plays out will be dependent upon the upcoming enrollment files from CMS and so we're looking forward to getting that here in the next month or two.

And I think we'll remain cautious in terms of our our views around the long term sustainability of how that program evolves, but we've I think we've learned a lot from participating in the program.

And I think we'll continue to focus on how we can leverage some of the capabilities we have.

Built around Medicare advantage and continue to look for ways to potentially export or monetize those and in other ways in the future such as with direct contracting our ACO reach.

Okay.

And then how are you thinking about utilization next year.

Outpatient seems to be fully back to normal we've really seen that over the last couple of quarters.

And theres been some some pluses and minuses in other areas, we've seen probably lower ER utilization, but also seeing a bit higher urgent care utilization. So I think in general we feel like what we're seeing today is largely representative of what we'll probably continue to see next year.

Having said that.

Thanks.

Thank you one moment for our next question.

And our next question comes from Nathan Rich Goldman Sachs. Your line is open.

Great. Thank you if I can.

Just ask a follow up to that previous question.

As we think about.

Cost trend next year.

How are you thinking about I wanted to ask kind of a few different <unk>.

Factors first kind of the normalization of inpatient volumes.

Do you feel like there is kind of any notion of pent up demand that might still be out in the system.

Then how are you thinking about potentially paying for.

More of the Covid in vaccine treatments, if thats kind of left footed by the government and then just lastly on the cost trend.

Contracting with providers and inflation could you maybe just talk about what youre seeing there.

Great happy to Nathan This is Thomas here so.

In terms of our inpatient results.

I think while we've seen continued performance this year I would really emphasize the continued performance over the last five plus years and really we've run around 155 to 165 inpatient admissions per thousand inclusive of some of that ebbs and flows we have seen around COVID-19 for five years straight now and so I think we feel.

Really good about our continued ability to kind.

Kind of maintain those results and that that trend heading into next year.

Again, I would say that the reason we've been able to be so consistent with that while also maintaining the growth and really launching some of the markets. We launched over the last few years is a function of having a very active and hands on care delivery mechanism, which is focused on those chronic trail in high risk seniors and so I think we feel pretty good about that.

The inpatient trends and today don't see a lot of pent up demand is something that concerns us.

I think in terms of your question around.

The.

Could a COVID-19 vaccine. Thank you the second one.

I don't think we view that today as a as a material headwind I think there's always pluses and minuses that go into our updating forecasting process and so that will just be one of the several that we take into account as you think about next year's outlook.

Lastly from a contracting standpoint, I think we're all aware of some of the pressures that many of the hospitals and other institutions face from a labor standpoint, and as it relates to how that kind.

Kind of impacts are contracting the vast majority of our contracts are fee for service contracts and so Medicare obviously releases those rates in advance and so we're able to have pretty good visibility as to what type of rate increases we will see on those contracts heading into next year and those are typically multiyear contracts.

With that with an evergreen mechanism on the back end. So I think we feel pretty good about where we stand from a just pure unit cost standpoint looking out into 2023.

Being respectful of the broader environmental trends that youre alluding to.

Great. Thanks, Thomas or all of those comments off the shorter follow up.

Wanted to follow up on your comments on AEP I'd be curious how traction in new markets like Texas, and Florida is going relative to your expectations I guess.

Pacifically in terms of both growing awareness, but just.

What kind of aspects of kind of planned value, where you feel like you might be differentiated versus competitors.

Yes, Nathan this is John I think.

I think our product design is pretty good.

But we kind of set the products.

With kind of a multi year view of growth.

I think it's trending slightly below basically from our budgets, but again I don't think they were material to begin with.

I think from a from a kind of an underwriting perspective, what we really needed was the engagement with the provider community.

And to get our staffing.

Particularly on the clinical side in place.

Start deepening the relationship with the brokers all the basic fundamental stuff, we wanted to get in place.

And I think we're going to get traction like we had in Arizona and Nevada, It's just going to take a take a couple of years.

Thank you.

Thank you one moment for our next question.

And our next question comes from Whit Mayo.

Okay STB Securities Your line is open.

Hey, thanks.

<unk> got one question.

Can you discuss any of the priorities that you have around Eva for 2023, I know you're going through the budgeting process right now but are there any new modules in development anything that you're particularly excited about are we care to share anything with care anywhere.

And thats it thanks.

Yeah, Hey, Whit, it's John .

I think yes, the answer is yes.

And.

Give me one second here.

The.

The investments in kind of the care coordination chassis.

As one of the reasons that we were kind of able to get five stars and maintain the four stars in California.

And so it's kind of a.

It's kind of an integrated approach or you call. It a CRM system, if you will.

That got put in this year.

And we're going to make sure that that gets continued to be refined next year.

I think the investments we've made in terms of automating some of the broker online broker app submission processes and how we get some of the brokers paid faster paid more real time apps reconciled.

To see us make investments in.

And.

And I think the.

The the kind of the stratification model.

He is going to be incorporating more consumer data.

I think it's kind of broadly speaking so we start really understanding.

Kind of social determinants and kind of how that plays into the entire experience for that consumer.

And while 22 was I would say more focused on kind of clinical and clinical workflows.

I think youre going to see more kind of consumer facing.

Modules in 'twenty, three and I would say, including some of the broker investments that I talked about.

Okay.

Did I Miss anything there Thomas.

Lee Thats whats.

What are you doing.

Okay. Thanks, guys.

You got it.

Thank you one moment for our next question.

Please standby.

And our next question comes from Sarah James with Barclays. Your line is open.

Thank you.

Can you give us an idea of what the pacing of physician engagement adoption curve looks like for even a new market.

You see this timing become consistent and you iterate entering more and more market how does what youre seeing on that engagement adoption curve impact your long term strategy on clinic partnership versus ownership.

Well that's.

Those are like two really big questions.

We think about them all the time.

To get there.

Physician kind of educated engaged.

Trained on using some of the tools that we have I would say it takes between three to six months.

And it's a combination of our.

Kind of on the ground clinical operational and kind of practice management kinds of.

Resources, along with our care anywhere resources.

A lot of is education.

It really forms the basis of long term strategy and I think our kind of engagement model with providers.

It is really born from a lot of years of experience with.

There it would be kind of globally cap delegated whether it be staffed model.

Will it be brick and mortar I mean, we've got experience in all of that and where we kind of came out was.

Was really.

Partner with the community doctors Theres still really 40% of all the primary care doctors out there who could take up the peds is still kind of independent.

Not owned by a hospital system or owned by some of the consolidators. So there's a lot of physicians out there.

<unk>.

And to work with them and enable them to be successful.

And to be efficient with our collective resources and to not have to reinvest in bricks and mortar and the markets.

We have the existing physicians in a market that has the bricks and mortar already in place more successful and the way to do that is to know who the 10% to 20% of that poly chronic population or ended the to extend that care team to support that practice.

And so as I mentioned before a lot of the heavy lifting we do.

And it's not on the entire population.

We don't expect them to.

To change to all of their workflows Chi and change their EHR et cetera, we'll do a lot of the lifting.

And then what happens is that we can bend the cost curve consistently.

Make more money.

And most of the physicians, we see not just in it for the money they want to make sure that the patient gets the best possible care.

And I.

I think that dynamic is what.

Separates us.

We just think it's a more capital efficient way to do this.

And we share some of the some of the.

Gain shares with these folks and everybody wins.

That's kind of philosophically, how we're thinking about it.

There may be some markets, where we want to augment that with an acquisition of a practice here or there.

But I would say thats very.

It's more tactical it's more of a regional level.

We have been.

And we've been successful in that in key markets.

Without it being one of them.

Okay and then.

Just digging into.

What kind of details you can see.

And as you start to have a new physician partners bend the cost curve.

And youre getting very consistent inpatient trend are you actually able to see.

Actions taken by them that our care navigation and inpatient diversion and.

<unk>.

Reward them for that or what level of clarity that you have on that.

It's why we like being planned level because we have.

Top of the food chain access to actionable data.

No latency, no 45, or 60 days latency to a global cap group and so we get that information to them kind of real time, and our internal clinical teams use that data real time, we know daily if not hourly where our members that are in.

For those are and why they are there in and who the referring Doug we know all of that.

<unk>.

Within our company, we talk a lot about our maniacal attention to detail.

And it's not auto Magic I mean, we work at it and it's driven by the data.

But let's think about this.

Make sure you guys understand this as well.

The 80% if not 90% of the population that cost 10 or 20%.

The actual engagement.

With those particular physicians, we think look up a member.

That doctor.

It works pretty well.

It's really the 10% to 20% that really is where all the costs are that's where we would deploy our clinical teams, where we do a lot of the work.

And for them.

Work for them.

And just support their practices and the people that we care for at the home through our carrier anywhere program.

Theyre not theyre not nine minute office visits 45 minute office visits.

So we really.

Free up their capacity with their practice.

That's how we do it.

And there's full transparency in that they have access to ore.

<unk> hundred 60 patients 360.

Longitudinal patient record they've just full access to it.

I'm not sure if I answered your question there.

That's how we think about it.

Okay. Thank you you got it.

Okay.

Thank you I am showing no further questions at this time.

This correct.

This concludes today's cocky for participating you may now disconnect.

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