Q1 2023 Agilon Health Inc Earnings Call
Okay.
Thank you for joining I would like to welcome you teach the Agila in house basketball, which at 2023 earnings Conference call.
My name is breaker and.
And I will be operator for today's call.
At this time all participants are in a listen only mode and after the Speakers' remarks, you'll have an opportunity to ask a question.
Did you say please press Star then one on your telephone keypad. If you change your mind. Please press Star then two.
For operator assistance at any point this godsey Ricky thank you.
I would now like to turn the call over to Matthew Campbell, Vice President of Investor Relations site Motley you may begin.
Thank you.
Later, good afternoon, and welcome to the call with me is our CEO , Steve sell and our CFO , Tim Bensley following prepared remarks from Steve and Tim We will conduct a Q&A session.
Like to remind you that our remarks and responses to your questions may include forward looking statements actual results may differ materially from those stated or implied by forward looking statements due to risks and uncertainties associated with our business.
These risks and uncertainties are discussed in our SEC filings. Please note that we assume no obligation to update any forward looking statements. Additionally, certain financial measures. We will discuss in this call are non-GAAP financial measures. We believe that providing these measures helps investors gain a better and more complete understanding of our financial results.
And is consistent with how management views our financial results. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measure is available in the earnings press release and form 8-K filed with the SEC Youll note from the press release that we've changed the presentation for certain non-GAAP financial measures.
Steve's remarks, Tim will review these changes so with that let me turn the call over to Tim. Thanks, Matt before we give our prepared remarks I want to review the revised presentation for adjusted EBITDA and gross profit as you know we've always been committed to transparency and provide a lot of details on our performance. We recently made the determination that we should include geography entry costs within adjusted.
<unk> EBITDA to conform to the SEC recent guidance on non-GAAP financial measures. We will continue to provide transparency around these investments on a go forward basis for clarity, we want to define gross profit and adjusted EBITDA before we begin the call.
We've replaced network contribution with GAAP gross profit gross profit is total revenues less medical services expense and other medical expenses, which include a portion of geography entry costs.
Adjusted EBITDA now includes total geography entry cost, which was $12 million in the quarter. This includes the portion of geography entry costs within our other medical expenses and geography entry costs within our G&A expenses with that I will turn the call over to Steve.
Thanks, Tim Good evening and thank you for joining US we've had a very successful start to the year and we are making rapid progress against our vision to transform healthcare and 100 plus communities by empowering primary care doctors.
We are hosting today's call from the twin cities in Minnesota.
Where we recently launched our partnership with two leading physician groups and Tyra family clinics in Richfield Medical group.
And tie written Richfield are highly respected with a deep history and connectivity across the region through our partnership we have introduced a new model for senior care in Minnesota with a multi payer full risk platform we.
We see significant opportunities for growth in the twin cities as physicians have a strong history of participating in early value based care models primary care is largely fragmented outside of several large health systems.
And our partnership with Integra enrich field is serving as a catalyst for other physicians to make a similar choice and moved to full risk for their senior patients.
As discussed at our Investor day once the infrastructure for full risk is established in the community.
Other doctors can easily join our network and access a new and sustainable model for primary care.
The associated long term growth opportunity or end market Tam in that 14 States and 32 communities. We serve is now $10 5 million seniors and 33000 primary care doctors.
We are excited for more of these doctors and their senior patients to join our platform in the twin cities and throughout the entire agile on network.
Now to our performance in the first quarter, our overall momentum remains strong entering 2023.
During the quarter, our MA membership grew 61% to 402000 members and revenues grew 74% to 114 billion. This was above our guidance ranges and supported by faster stand up of new primary care doctors and pull through of members in new markets.
Our ability to pull through more members in 2023 supports our long term earnings power as we improve the quality and efficiency of care for those senior patients over time.
At the same time, our profitability continues to inflect higher with first quarter medical margin up 88% to $162 million and adjusted EBITDA more than tripling to $24 million or growth in medical margin and adjusted EBITDA was especially impressive given the modest net.
Headwind from prior year claims and revenue.
Even with our stronger membership growth our medical margin increased 17% on a per member per month basis to $135 and by 110 basis points to 14, 3% of revenues.
This was primarily supported by strong performance in our maturing partner market.
Our ability to expand margins, while driving higher membership growth remains very distinctive reflecting the power of our partnership model platform and scale.
With our strong start to the year, we are maintaining the full year adjusted EBITDA outlook. We provided in March under the revised presentation that Tim outlined at the top of the call. Our adjusted EBITDA outlook ranges from a loss of $3 million to a gain of $25 million, which includes $78 million to $65 million of.
<unk> entry costs.
Our guidance also reflects faster pull through of members in our new markets and increasing confidence in the contribution from reach based on higher than initially projected outperformance against national cost benchmarks.
We are also encouraged with the progress we are seeing with enrollment in our clinical programs targeted at the most complex and high cost patients.
These programs such as renal and palliative care leverage our deep alignment with primary care doctors will driving continuous improvement to patient experience quality and cost.
I'm, especially proud of our performance given the magnitude of the growth we are driving across different partners markets and payers. During the first quarter. We added 130000, plus new Medicare advantage lives eight new markets for new States and nine additional payors with this growth we are now operating.
Two 100 distinct full risk contracts with nearly 30 payer partners, including National and regional plans.
When you consider that most of our payer partners have never done full risk our ability to be first in the market and build the infrastructure for risk based care that all physicians can access is a significant competitive advantage and requires the management of complex data flows such as member and financial data reconciliations.
Increasingly we believe agile on is differentiated in our ability to move new markets to risk and successfully work with a broad diversity of payers.
Before updating you on our future growth opportunities I wanted to say a few words on our revised non-GAAP measures. The most important change as we are now including geographic entry costs within our adjusted EBITDA calculation.
I want to stress that our revised presentation does not impact how we think about our business our cash flow or returns on capital.
Ultimately our goal is to get members on the platform improve access quality and efficiency of care delivery and developed medical margins over the long term geographic.
Geographic entry costs are investments, we make to set up our partnership established processes that enabled primary care doctors to be successful in value based care, especially around patient access and quality and expand overall primary care capacity.
Because we partner with existing physician organizations, the efficiency and returns we generate on our geographic entry costs are very compelling as we have discussed with you in the past member acquisition costs have consistently remained in the range of 400 to $600 per member they generate an LTV to CAC of greater than 10.
One and these costs only grow on an absolute basis as the number of new members increases.
Now for an update on our 2024 partners and some early observations for 2025 as we shared with you in March we expect 2024 will be another record year of growth. We are currently implementing over 100000 Medicare advantage lives across six new partner groups, which include primary care only groups multi <unk>.
<unk> scaled networks and health systems, our implementation work is progressing well supported by our recently completed acquisition of <unk> and our established infrastructure in existing states and markets. Additionally, our early engagement with payers has been encouraging.
We are optimistic that the combination of new and existing partner growth could pull through greater than 145000 total new MMA members for 2024.
Which would be similar to our experience of increase in expectations for final expected membership for 2023.
Our business development team is now shifting their focus to 2025, well. It's very early we are seeing significant opportunities across diverse partner types and geographies, including new markets and large physician organizations in existing markets.
Similar to last year, we are encouraged with the quality of the dialogue. This early in the cycle, which should translate into longer implementation periods.
In fact, we expect to begin implementing several new partners for the class of 2025 during the second half of the year as I've said in the past the inflection in demand among physician groups for a sustainable primary care model reflects both structural factors from all payers pushing for value and.
The level of success that our partner groups are seeing on the platform.
I wanted to close by offering a few comments on the 2024 rate notice and recent policy developments, we are encouraged and supportive of the risk adjustment model changes included in the 2024 rate notice, including the three year phase and we believe the phased approach will limit industry disruption, especially.
For health plans and at risk provider organizations that serve high risk populations.
Operationally, we are already implementing the necessary changes for the 2024 notice as I mentioned on the last call. We believe the rate notice is very manageable for agile on.
This reflects our combined power and nimbleness from centralized operations paired with local teams tightly integrated with primary care doctors as well as our focus on historically unmanaged fee for service markets that serve the entire Medicare advantage population and yield relatively lower risk adjustment levels.
In addition, the distinctive levers in our business provides the ability to manage through disruption.
<unk> such as getting more members on the platform early delivering a more effective and longer implementation for new partners and accelerating quality and medical cost performance in mature markets. The three year phase in of the risk model change removes uncertainty and reinforces our confidence in our ability.
<unk> to continue to inflect adjusted EBITDA in 2024 and beyond.
From a macro perspective, the rate notice along with the <unk> final rule reinforces the central role of primary care doctors in our healthcare system, which is very positive for <unk> and our partners with these changes health plans will need even closer alignment with pcp's to drive better cost and quality.
Outcomes and support competitive benefits, while doctors will need infrastructure resources and technology to succeed in value based care and meet the demands from all payers, including CMS.
<unk> partnership and platform is the solution for existing doctors to move into full risk and the success of our growing network continues to demonstrate the critical role we and our partners are playing in transforming the overall health care system with that let me turn things over to Tim.
Thanks, Steve and good evening, everyone I'll review highlights from our financial statements and provide some additional details on our guidance for 2020.
Starting with our membership for the first quarter total members live on the <unk> platform increased to 491000, including both Medicare advantage members and ACO reach beneficiaries are consolidated Medicare advantage membership increased 61% to 400 in 2000 and this was above our guidance range of 308.
<unk> 5 million to 390000, driven by retro membership from <unk> and the faster pull through of members in new markets, including better than expected payer contracting and attribution.
Revenues increased 74% on a year over year basis to 114 billion. During the first quarter, which was also above our guidance range of $1.07 million to $1.09 million.
Revenue growth was primarily driven by membership gains in new and existing geographies on a per member per month basis <unk> revenue increased 8%. During the first quarter. This was primarily driven by benchmark updates and membership mix, including higher benchmark in several new markets.
Medical margin increased 88% year over year to $162 million during the first quarter medical margin increase as both a percentage of revenue and on a <unk> basis, even while accounting for the dilution of our membership growth.
Membership margin was 14, 3% of revenue during the first quarter compared to 13, 2% last year and medical margin <unk> increased 17% to $135 compared to $116 last year.
Medical margin benefited from the maturation of older markets and remember cohorts with continue which continue to offset dilution from our year, one member's medical margins for our year to plus partners, which exclude the dilution from year, one markets increased 72% during the first quarter on a dollar basis and by 47% on a <unk> basis.
As we've discussed with you in the past medical margin growth and our year to plus partners drives the majority of our adjusted EBITDA gains.
Our medical margins for the quarter included a net headwind of $12 million from prior year revenue and claims. This was primarily a function of true ups with health plans, including new contracts, which include both prior year claims in revenues a number of smaller older high cost claims.
And some retro members, which also include both prior year claims and revenue.
Gross profit, which is replacing network contribution increased 82% to $77 million during the first quarter and includes $2 million in geography entry costs.
The year over year increase in gross profit reflects our strong medical margin as well as the relative contribution of medical margin across geographies.
Platform support costs, which include market and enterprise level, G&A increased 41% to $48 million growth in our platform support cost continues to run well below our revenue growth and highlighted the light overhead structure of our partnership model as a percentage of revenue platform support cost declined to four 2% during the first quarter compare.
A five 2% last year.
EBITDA was $24 million in the quarter, which is a threefold increase from $8 million last year. Adjusted EBITDA now includes geography entry cost, which was $12 million in the first quarter of 2023 and $4 million in the first quarter of 2022.
The increase to adjusted EBITDA reflects the gains in medical margin and gross profit along with leverage against platform support costs adjusted EBITDA contracting for a direct adjusted EBITDA contribution from direct contracting was $3 million in the first quarter similar to last year.
Turning to our balance sheet and cash flow as of March 31, we have over $800 million of cash and marketable securities cash flow from operations was negative $61 million for the quarter, which was in line with our expectations. In February we completed the previously announced acquisition of <unk>, a leading provider of value based care.
Technology and interoperability solutions for a cash consideration of $44 million.
<unk> remains well capitalized and given our efficient partnership model, we do not anticipate needing any external capital to drive our future growth.
Turning now to our financial guidance for the second quarter and full year 2023 for.
For the second quarter, we expect ending membership live on the agile platform will grow to a range of 488 to 495, including 55% growth in MA membership to 403 to 405000 in ACO reach membership of $85 to 90000.
We expect revenue in a range of 110 5 billion to $1 115 billion or 60% growth in the mid 66% growth at the midpoint, we expect medical margin in the range of $138 million to $148 million, representing 74% growth in adjusted EBITDA of $2 million to 10.
Compared to negative $3 million in the prior year.
Our adjusted EBITDA outlook for the second quarter now includes 19 million to $60 million in geographic entry costs.
For the full year of 2023, we expect total membership live on the agile platform will grow to $490 to 500000 members. This includes higher MA membership outlook of 405 to 410000, representing growth of approximately 51% at the midpoint and ACO reach membership unchanged at 85%.
<unk> 90000 members.
Revenue growth is now expected to increase 63% at the midpoint to a range of $4 four one to 444 billion.
We anticipate medical margin in a range of $535 to $560 million and adjusted EBITDA in a range of negative $3 million to positive $25 million, our adjusted EBITDA outlook for the full year 2023, now includes $78 million to $65 million in geography entry costs.
Finally, our adjusted EBITDA outlook includes $5 million to $10 million in contribution from reach but we now have increased confidence in the higher end of that range.
We're now ready to take your questions operator.
Yes.
Thank you.
We'll now begin the question and answer session.
If you ask a question. Please press Star then one on your telephone keypad.
If you change your mind any time, please press star two.
Please note that we ask you to limit yourself to one question and then we ask you. Please get back in the queue for follow ons.
We have the first question from Lisa Gill with J P. Morgan.
Okay.
Thanks, very much good afternoon, and congratulations on a great quarter.
I want to go back to the comments that you made about the 2020 for class.
There's just so many things are changing right now and I understand what you're saying around the risk model changes in your ability to absorb that but we also have changes coming for many of the plans. When it comes to star would you have raised that.
Not as robust as they've been in the last few years I'm just curious about the conversations that youre, having with the physician group one is that helping to maybe accelerate some things as we think about you are now talking about the 2025 class already very early in that first quarter or second quarter here of 2023, just curious around when those conversations that youre having.
And two is there any more detail that you can give us to really give us the comfort going into 2024, and we think about margins and the potential impact with all these changes.
Sure. Thanks Lee.
A great Great question I think for the class of 24, and even as I shared with the class of 25.
Encouraged by the conversations I think never has the case been stronger for physician groups to make the move to value.
And that's really a macro thing structurally more payers are pushing for value in the constrained world you talked about the benefits of better quality the benefits of better experience the way Medicare pays for that all rewards a total care tight relationship between.
The primary care Doctor.
And their patients and so I think that is really at the heart. The second thing I would say is the fee for service challenges just become that much more dramatic.
Rising labor costs for doctors compressed primary care rates with the Medicare fee schedule all of that makes the status quo that much more difficult and so the combination of those structural factors are really pushing these groups forward.
The payer conversations.
Our extremely constructive payers are looking for us to go to new markets, bringing on new members the pull through that Tim talked about.
Is accelerating.
Continue to bring on new members fat.
Faster and early growth is really impactful.
That will benefit us in 'twenty four two year two year forward question.
And I think the maturation in our mature partner markets, coupled with a rate noticed that as I said is really very manageable and we're implementing that right now and that's going very well I think that all leads to a very strong picture for us not just in 'twenty, three but in 'twenty four and beyond.
<unk>.
And we are becoming the partner of choice for physicians, and we're moving more and more markets to value for the first time.
Thank you.
We now have George Hill with Deutsche Bank.
Yes.
Guys and I. Appreciate you taking my question, Steve kind of a popular topic that we're hearing a lot about these days is the changes in insulin drug pricing.
Think insulin could be a meaningful cost contributor.
Then it population as it relates to Medicare advantage I guess my question was just really is are the changes in insulin prices big enough to be needle movers as you guys think about medical costs.
And kind of the.
Provider partners pace.
Yes, no. Thanks, George I really appreciate it diabetics represent.
25% to 30% of the of the senior population as we shared with you at our Investor Day, we do an exceptionally good job of managing that that diabetic population.
And controlling blood glucose levels.
And in showing improvements in cost and keeping people out of the hospital at a magnitude of two to three times better than the overall Medicare advantage population insulin is a component of that I don't think the changes that are contemplated with da a massive game changer for us and it would be.
Each year, there are things that move up and down and we believe we'd be able to manage that within the context of our overall outlook.
Thanks, Thanks storage break I wanted to go to the next question. Please.
We now have Ryan Daniels with William.
Hey, guys I'll Echo the congrats on the strong start to the year. My question relates to the acceleration you saw in same store growth in Q1 being up 14%.
Up from Q4, despite what appears to be kind of slower overall MA growth is there any nuances there to explain that you talked about bringing on members more quickly, but I assume you've also got novel payer partners and providers joining maybe some share gains just what explains the relative strength versus the market which is.
Bigger delta than what we've seen in the past thanks.
Yes, Thanks Ryan.
I mean, we typically outperform above the market growth rate, we shoot for one and a half to up to two times that.
Same geography growth has continued to be a really strong area for us I think if you would ask what's really different on that is that our doctors continue to win in a really meaningful way.
And other doctors are wanting to join us.
Bringing new patients with them.
We also have got tighter pull through with our health plans as Tim kind of dimensions.
Which is really resulting in a faster acceleration of that same geography growth, but Tim would you add yes, just a couple of other things George one is we did mentioned in our comment that we had a little bit of retro membership coming through from last year. So thats going to help our Q1 and that is going to look like better same geography growth as well and then the second thing.
As if you remember back to last year, we did have a chunk of retro membership that came in in Q2, and so that actually depressed. Our Q1 same geography overlap a little bit and we had a very very strong Q2, we still think for the full year. This year. Our overall same geography growth is going to be around that double digit range.
Kind of refer back to the guidance that we provided at Investor day.
Okay.
Thanks, Brian .
We now have.
Justin Lake with Wolfe Research.
Yes.
Thanks.
First wanted to say I appreciate the increased transparency on the new market costs I think it's really helpful.
Then just talking a lot of questions around cost trend. So maybe you can talk to us about the first quarter and how it shaped up first.
What drove the <unk>, how do you see a trend in the quarter and what all I mean, there was a fair amount of <unk>.
Well in the quarter to offset it and still allow you to kind of get the numbers.
Yeah.
Yes, Thanks Justin.
I'll start with what I said in my prepared remarks, I mean, the Q1 performance was really strong.
Membership growth revenue growth.
Membership up 61%.
We were able to drive that inflection in medical margin of 110 basis points year over year, even inclusive of that higher growth in the it's a net $12 million of prior period development.
Both from a revenue and a cost perspective, and Tim can kind of dimension that for you I think part of it Justin is really a function of the true ups that we've got I called out were up to almost 100 risk contracts with payers last year. It was at 60 across 20 different organ.
Nations many of those organizations, we're doing it for the first time and so there is a lot of data flowing back and forth and we need to have credible information to the point at which we can book revenue and cost and that that was a big part of the of the period.
The utilization was very much in line with what we would expect.
But I think the power of our clinical programs that I talked about the power of the primary care physician touch points were really strong in the quarter, we enrolled thousands of seniors within those complex medical programs I talked about things like palliative care in renal care they had an impact in the quarter.
Adjusted but the impact is going to be far greater on a on a forward basis. So those were the things that I would dimension Tim.
Yes, the only other thing Steve that I would say just first before I jump into Georgia, I'm, sorry, Justin Thanks for the comment on the transparency on the July because although I would say I think we've been very transparent all along and what those costs are.
But yes, we're going to we're going to continue not are reported under this new presentation. So thanks for that comment the only other thing I would add to what Steve said around.
Drivers in the first quarter as well.
We also did have obviously incremental membership that help drive some incremental medical margin.
That helped that helped the quarter as well both retro and just just overall on higher membership than we expected as Steve said, we've got a very complex model, we are bringing a lot of new players and a lot of new markets for the first time and Thats. A result overtime that is having some true ups.
As we move along of course have.
Really are committed to trying to have the most accurate accruals for revenue and cost that we can and so we want those true ups to be obviously in a manageable level and I think for the first quarter of $12 million net number between revenue. It was actually quite manageable for us I mean, when you look at the factors that drive it are the factors that kind of come out of that complexity.
Some true ups around both revenue and claims across a number of payers as we got more more data. After we had already reported the fourth quarter.
We had a couple of old very high cost claims that were kind of spread out through the year that we got visibility to after we close Q4 and then we also talked about we had some retro members that came in and those members come with of.
Of course both.
As I mentioned in my prepared comments, both revenue and claims as well so theres going to be those kinds of true ups, but again, we want to try to keep that as accurate as possible and obviously within a manageable manageable range, which I think it was for the first quarter.
Thanks, a lot Justin breaker why don't we move to the next one.
We now have Stephen Baxter with Wells Fargo.
Ravi for Cherokee.
Hi, This is carol.
So we see in the 10-Q and you pay a disclosure at that it looks like a lot of your growth is coming outside of your top two payers. Despite both of these plans putting up membership.
The industry as a whole.
Can you talk a little bit more about what trends you're seeing across the payors and whether these top players can be looking into spirit members.
And so in a primary care assets any color there would be helpful. Thank you.
Thanks for the question I think the payer dynamic is increasingly favorable for us we consider our payer partners to be great partners.
As I said, we added nine payers.
This year.
So we continue to expand the number of payers that we're working with I think it reflects the fact that.
More payers want to be in value in a much larger way. It also reflects that we're going to new markets that had been 100% fee for service and we're moving the market and these payers into that and so well.
We will continue to diversify we will continue to add new payors as we expand a new park do new markets are large national payers.
This is what's driving them that makes you up that you are seeing in the in the in the queue reporting.
Thanks for the question why don't we move to the next one place.
Oh.
Uh-huh.
Insurance.
Hi, Thanks for thanks for taking my question <unk> I wanted to better understand your 2023 medical margin out look I know, it's unchanged, but it seems I'm moving parts. There now it has b Y D from Q run and then it looks like utilization is probably attending maybe for everybody expectation maybe talk.
Put some puts in banks, which are annoying the guidance given that you're coming in at the revenue membership higher than what you previously taut flesh something over there.
Guidance.
Sure I'll I'll start Tim and then you can fill in I mean, I I think it starts to your lender with our queue. One performance is really strong and you've got that inflection in medical margin and adjusted EBITDA, even with the <unk>. So I think that the run right out of the first quarter is extremely.
Strong I think if you look at sort of the rest of year and reaffirming that guide would have us within that 80 to 150 basis point improvement and we just had a run rate that was north of north of 200 and in the first quarter of X that that PPD.
We were.
We're able to digest sort of additional members coming on which are going to be at a obviously a lower medical margin. The maturation of our year two markets was strong in Q1 and that continues within the.
The balance of the year.
And then just the power from our clinical programs, but that Tim what else would you address I think to know, but do you have any of those are all the primary components driving it I think that you know pointing out that.
Coming off of a strong Q1, and absorbing that Ah the $12 million a part of your development and then looking that looking going forward I think that range of <unk>.
He was quoting I'd say 80, or 90 to 150 basis points improvement is kind of kind of right Amish run that way.
Showed in the first quarter.
Thanks to your lender.
Right right you move to the next question place.
We now have either.
America.
Hey, Thanks for the question if I could go back to the 2024 right model revision maybe from a different angle on.
The.
If you want or any call from few men are they were kind of put them on there and they were saying that they think it would be a net headwind you've been you know when.
<unk> contemplating benefit changes and they would look for.
<unk> overtime.
But it sounds like you're saying, it's gonna be a little bit more manageable than how they are painting. It uhm and you did touch on geographic differences there are more exposed to Florida, where.
Evaluates cares more penetrated and record the higher but on the other hand being a new market you would probably be more of an outlier.
New entrant and so that would make it harder to overcome benefit changes and so I'm. Just wondering how you would frame your your characterization versus maybe humana and what the differences you see between the two organizations. Thanks.
Yeah. Thanks, Adam I really appreciate the question I mean, I think I would start with the headline of.
There are real differences between our partnership model and payers. It is a it is a very different model I think that the <unk>.
Risk adjustment changes really.
Emphasize the importance of the primary care physician patient relationship.
And that that's our bread and butter why do we focus on we focus on increasing touch points identifying the most complex patients getting them enrolled in the clinical programs and that's what we saw within the quarter and what gives us sort of confidence that just in 2003, but it but in 24.
I think as I said, we're we're encouraged by the risk model changes in the phase in.
We've started implementing them.
And continue to see it as very manageable I think it's a function of that <unk>.
Patient physician relationship and the proximity there, but also what you said, which as we are and markets that are 100% fee for service and and lower overall, but I think the last thing I would say is the levers in our business and this is a big difference versus a payor is the value of really getting men.
<unk> on the platform earlier in a long term subscription model the ability to have these longer implementation period. So our year. One members are going to start in a higher place and then the ability to show this maturation, which we saw again Q1 to Q1 in mature markets that just continues as you move going.
Forward so all of that is.
Leading to our ability to say, it's very manageable.
Uh-huh.
Sure.
Okay.
Yep Thank God.
Maybe just going back to the medical margins again, historically talked about your one being in the 30 to $60.
PM range, when we look at the class of 2020 <unk>.
Different about composition the geography.
You all have a little bit longer lead time on implementations and you've had in the past.
The capabilities from B M. P. H R acquisition that would cost you.
One medical margins for 2020 point of view a bit different than.
And they've been in the past.
And then I get Directionally, where I'm headed and it could they be higher than that or at least for the higher end of that range.
Yeah sure I think you've answered the question [laughter] I think all three of those things one thing that can that can impact is just as a starting point is what sort of the level of sophistication of the partners that were in that we're starting with and I think we have a pretty high level, they're going into the class of 2004, so that gives us a little bit of a starting point the second thing is.
As we have talked about and you pointed out we definitely have a longer implementation cycle for these for these members coming onboard and and that's going to help us as well and now with the acquisition and implementation of M. P. HR Act, we really are prioritising that again.
You know getting up to speed faster with with data that will help US also moved upward and will allow us to impact both the revenue side as well as getting market up and started on some of our clinical programs earlier than they would otherwise. So I think all three of those are contributors and because of that we did say.
You know where normally in that 30 to $60 range of the class of 2003. It looks like it's you know dead center in that range more or less and we do think that the class of 24 and yours, we talked about on our best today is gonna be at or above the high end of that range.
There's one more thing I'd love to see it on on that so just be when you're adding groups, where you have existing infrastructure. If there is a little bit of a different dynamic facility yeah.
The class of 2004, Sean is really the first class in which you start to see really scaled new partners across multiple markets coming on any existing geographies in which we've got a team we've got existing payer contracts, we've got existing clinical programs.
And they are able to take advantage of all of that as they go through their implementation, which is K.
Can be longer is Kim said for this class of 2024, So you put that as an added.
Sort of modifier on top of it and it leads you to really strong potential year one performance.
Sean Thanks for the question break and why don't we move to the X one place.
Nah.
Okay.
Hey, Thanks, Tim Sorry, I'm I'm, just a little confused on the reserve development. The net 12 million that's net of the retro payment and the 10-Q has 28 million reserve development.
I'm just trying to make sure I get these numbers right sorry.
Yeah, Yeah. So if you break down into component, but if we wanted to make sure that.
For all the reasons that we talked about.
And we do have some of these very variations or have a versus our original estimates. After we've already reported in and not just going to be driven by all the factors that we talked about that could happen on both the revenue and nickname side of course of the 10-Q.
In that section, we do have to report out what they claimed development was which was a little over $28 million, we have about $16 million of revenue prior period that goes against that so when you are positive prior periods. When you get those two it's about $12 million.
Million dollars impact in Q1 from all Empire period.
Okay No sorry, that's.
That's helpful and just [laughter] looking at at your plan partner. So are you seeing any.
Changes with the payers to speed up the attribution process I'm just wondering if there was anything that you're seeing that's enhancing your your.
Visibility on that process going forward.
With our longer term partners absolutely with.
We are working particularly with some of the larger nationals accelerating.
<unk> the period to get a member attributed and getting them into a total care relationship as a goal of both of our organizations agile on and the payers. So that that is definitely true.
We have we added nine players this year.
The vast majority of which had never done risk before and so.
They don't even have an attribution process. So we start from zero and we kind of work through that's part of what we're doing is we're moving these markets to risk for the first time, it's just not the groups and the patients. It's also the health plans and so we've got sort of folks across the spectrum in terms of where they're at on this process.
But we continually work to it to improve across all of those players.
Well, thanks, very much breaker why don't we move to the next one.
We now have.
Hey, good afternoon guys.
Just a longer term question you guys just gave guidance for 2026 adjusted EBITDA over $600 million I'm wondering if he can help us bridge that given the new presentation structure in any longer term considerations for geography entry costs.
To connect those pieces apart a little bit more.
Thanks.
Sure.
Jamie Sue the.
Just to kind of reiterate the geographic entry costs they've been there all along they are part of our business. They are really important for getting these physicians and partners into value for the first time and allows us to get patients and and started a really good standing point. This is really just a report.
Change. So we're just moving the no pun intended the geography of these costs to within our natural statements. So they are part of the adjusted EBITDA calculation.
They're super predictable and so it should be relatively easy to do the math, it's in that range of 400 to $600 per.
Per patient that will be added for the coming year and so they only grow in absolute dollars when that that membership grows the return on them continues to be extremely strong the LTP to CAC is greater than 10 to one.
And our commitment is to.
Can you two dimension. This for you so that we've given you guidance for next quarter. We've given you guidance for the full year and we will continue to do that on a go forward basis and then.
Yeah, most of them I think that's right. So have you tried to dimension and specifically, we just said that we're going to do about $65 million to $78 million in geography entry costs. This year and that's gonna support about 145000 member growth that we've guided two for 2024, because the costs, obviously the investment and growth.
The supporting that membership the year before they go big alive or the year before.
Sure we can get him attributed or go live and if you look forward into kind of a 24% to 26 jury. We said we continue to add I'm about 150000 members of the year to get the 2026, so that would say that if you use that same range of 406 hundred Bucks is going to be your geography entry costs will be in the same dollars range, obviously, you'll be a much.
Smaller percentage of our overall EBITDA EBITDA is growing to a larger number out at that point and to 6.1 of the reasons why ebitdas Roger larger numbers, because we're making these investments and growth each year and yeah. The return on investment and these are a phenomenon museum quoted the yoga a lifetime to either customer acquisition cost ratio.
No other way to look at it as we are typically paying those costs back in.
Less than two years, usually posted to an average of about one year or so.
Continue to make those investments but.
I think the Cedar point, if you look at the members if there was ever going to grow use that 400 to $600 per member range I figured it'd be about right.
Thanks, a lot Jamie are afraid it won't we move to the next question. Please.
You know <unk>.
Hey, good afternoon.
Just one I think that's pretty clear, but that is what I guess.
So if we look at the net development of 12, and 35 million and EBITDA under old presentation really somebody review this with a 47 million EBITDA quarter versus you guys <unk>.
32 to 37, that's all that's all you're looking at this on on that basis right.
No so Gary the $12 million net development would be medical margin.
Not not EBITDA I think you are where you're saying just add you'll see wouldn't add that to our EBITDA.
Is that what you're asking.
Yeah.
Yeah, So what I'm doing it over the net development.
Yeah, so under the old report yes.
Yeah, so the old reporting before under either reporting the $12 million net under any reporting because we haven't changed medical margin definition, the $12 million would be would have been incremental to medical margin had we not had that prior period of development typically about half of that incremental medical margin dollars flow through the EBITDA, so you're going to be.
About half that number.
Does that make sense you know.
Yeah.
And then just clean.
Just.
Gary Once you go ahead, just because I know it was a number of questions. So.
Alright move on for those of US that are trying to trying to follow and make sense of the claim table in there <unk> I mean, both of those approximately doubled.
Sequentially versus like 65% revenue growth sequentially. It I think that's just a function of <unk>.
New markets, new contracts, new payers and nothing's actually gonna settle out until the year progresses set the right way to think about both.
Both of those balance sheet and you'll see an app.
Yeah.
It is Garry that's right you're always going to see a sequential increase four hour DCP for instance between Q4 and Q1 I'm driven by exactly the phenomena that you were talking about so and as we move through this year and we get more and more visibility to pay claims with our new payer partners in our new markets.
By the time, we get the queue for you'll see that that that number moderate back down again as it has in the previous couple of years.
Alright, thanks very much.
Breaker why don't we move to our next question place.
Our next question comes from David Crosby.
B T I T.
Hi, I think you announced five new 2024, a partnership wins, which seems like a lot to me.
I'm, assuming you're on track for 670000 lives for fiscal 24, and how how far along are you in that life sort of count add guide with these five wins that you've announced like halfway there. Thanks.
So we have announced five of six new partners David for the class of 2024.
And what we said in our remarks is that we are at 145000, but just like with 2003 member growth there.
There is the potential for that that number to go higher through it through a variety of factors.
And then we're already on to the class of 25.
And so what I also said in my prepared remarks is that we will begin implementing.
Two partners for the last 25 in the second half of this year. So you continue to see this faster sales cycle, you continue to see longer implementation periods.
And while there is opportunity in 24 member growth. We're on to 25 in terms of new partners in the work that we're doing there.
And David I thought I would just add that the the.
Six one will be announced yet when we're ready to announce and we're just thoughtful about the timing of around that so.
Breaking why don't we move to our next question place.
You know <unk>.
<unk>.
Hey, Good afternoon, guys. Just a quick question as I think about your comment about 20 to 25 development and that's a focus area now and how 24 is really.
A bunch of scaled once how are those conversations conversations changing in terms of like trying to pitch.
A potential new partners and then.
Like market competition for deals that seems like there's more money chasing.
There are more money or more practices.
Practices looking to these shipped evaluate so just curious what the competitive market looks like.
Yeah, I think the the power of our network is really sort of helping us within these conversations when you think about the facts.
Ryan that we've got.
30, plus markets Swift, leading groups, we've got we're approaching 1.5% of the primary care doctors in the country.
Our on our platform and they're bringing their senior patience with them and.
And then we've got national scale like things in the clinical programs that I.
That I talked about the.
The track record of the success that our partners are having in addition to the push for more value from payers that I talked about it's accelerating the sales cycle shortening.
We are already talking to two.
Partners about implementing them.
<unk> in the back half of this year.
And as I said in my remarks were really extremely encouraged the breath of the types of partners that were serving we were not working with virtually every type of physician organization in the country. So any group that wants to talk to us or is thinking about making the moved value not only can we say here's our well.
Track record, but here's a group that looks like you thinks like you in here has been their experience.
And that's the best track record that you can have.
In in groups that are thinking about making making those types of decisions.
Brian Thanks very much.
Thank you.
The questions and accused I'd like to have <unk>.
Alright, Thank you operator.
In closing I'd, just like to say, we've had a really strong start to the year and we're making great progress against our vision.
I do want to thank our physician partners for the trust they placed an agile on I want to thank my colleagues here at <unk> for their hard work and dedication.
In supporting senior patient and physician partners and we're excited about where we're going we look forward to updating you on our progress in future calls and I hope everyone has a great evening. Thank you.
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