Apollo Medical Holdings Inc. Q1 2023 Earnings Call
Greetings and welcome to Apollo Medical Holdings first quarter 2023 financial results at this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I would now turn the conference over to Caroline Caroline Shan Vice President of Investor Relations. Thank you you may begin.
Thank you operator, and Hello, everyone. Thank you for joining us the press release announcing our Pollo Medical Holdings, Inc. 's results for the first quarter ended March 31st 2023 is available at the investors section of the company's website at Www Dot a polymer dot net.
Provide some additional background on its results. The company has made a supplemental deck available on its website.
I play of this broadcast will also be made available out of Parliament website. After the conclusion of this call.
Before we get started I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward looking statements within the meaning of the safe Harbor provision of the private Securities Litigation Reform Act of 1995.
Forward looking statements can be identified by terms such as anticipate believe expect future plan outlook and will and include among other things statements regarding the company's guidance for the year ending December 31st 2023.
Gross ability to decrease cost of care, while improving quality and outcomes.
Deliver sustainable revenue and EBITDA growth as well as long term value.
The only to respond to the changing environment.
To offset anticipated losses in the Caribbean segment.
Our ability to successfully implement operational streamlining and successful implementation of strategic growth plans acquisition strategy and merger integration efforts.
Although the company believes that the expectations reflected in its forward looking statements are reasonable as of today. Those statements are subject to risks and uncertainties that could cause the actual results to differ dramatically from those projected.
There can be no assurance that those expectations will prove to be correct.
Information about the risks associated with investing in the Parliament has included in its filings with the Securities and Exchange Commission, which we encourage you to review before making an investment decision.
The company does not assume any obligation to update any forward looking statements as a result of new information future events changes in market conditions or otherwise, except as required by law.
Regarding the disclaimer language I would also like to refer you to slide two of the conference call presentation for further information.
For those of you following along with the accompanying supplement there was an overview of the company on slide three.
On today's call the company's co Chief Executive Officer, Brandon Zane will discuss first quarter 2023 highlights and the latest operational developments.
Chief Financial Officer, John Bhatia will follow with a review of a problem. Its results for the first quarter ended March 31st 2023.
Brandon, we'll conclude the remarks with an update on the company's outlook and long term growth strategy before opening the floor for questions.
With that I'll turn the call over to apologize co Chief Executive Officer. Brendan said. Please go ahead credits.
Thank you Caroline and good evening everyone.
Thank you for joining us today.
We began 2023 with a strong first quarter as we continued to rapidly scale, our leading value based care enablement delivery platform.
While maintaining our long history of outstanding clinical outcomes.
Health care experiences for our members and sustained profitability.
I will first summarize our key quarterly financial results.
In reporting improvements and then provide updates on operations.
For the first quarter ended March 31 2023.
We reported total revenue of $337 $2 million of.
28% increase from the prior year quarter.
And $29 8 million and adjusted EBITDA.
We are also introducing segment based reporting.
<unk>, which are included on slide seven of our earnings supplement.
As our business continues to grow we felt it was important for us to provide greater clarity into each segment's revenue growth and operating profitability, which are the metrics by which we also evaluate our businesses excluding non operator factors.
We believe this information will allow investors to better evaluate changes in the operating results of our business segments outside of nonoperational factors that affect net income.
That's providing insight into both operations and other factors impacting our results our reported results.
Beginning with the first quarter ended March 31, 2023, we are reporting our financial results based on the following three business segments.
Our enablement.
Care partners and care delivery.
Our care enablement segment as an integrated end to end clinical administrative platform powered by our proprietary technology suite.
Which provides operational clinical financial technology management, and strategic services to providers and payers.
Revenue for this segment is primarily comprised of management software CS.
Charged as a percentage of gross revenue or on a per member per month basis.
Our care partners segment is focused on building and managing high quality and high performance provider networks by par.
Entering with Empyrean and investing in strong provider partners with a shared vision for coordinated care delivery.
By leveraging our unique care enablement platform and ability to recruit empower and incentivize physicians, we are able to organize partnered providers into successful risk bearing organizations, which take on varying levels of risk based on total cost of care across membership in all lines of business.
Medicare Medicaid commercial and exchange.
Revenue for this segment is primarily comprised of capitation and risk pool settlements and incentives.
Finally, our care delivery segment seeks to provide high quality and accessible health care services through a patient centric care delivery organization.
It consists of outpatient clinics, providing primary care multi specialty care, including cardiology in women's health.
It doesn't care.
As well as ancillary services, such as ambulatory surgical centers diagnostic laboratory imaging services and hospitals.
Revenue for this segment is primarily earned based on fee for service reimbursements amputation and performance based incentives.
Moving next to operations, we continue to execute on our operational goals of one growing our membership in core and new geographies to moving members along the risk later towards global risk value based contracts and three enabling our providers to deliver excellent patient outcomes.
In order to manage that risk effectively.
On the first goal, we've seen strong and steady progress.
As John will detail later, we grew our care partners business by over 30% from the prior year quarter due.
Jude organic membership growth and more favorable payer mix and our risk bearing business.
We also continued to make inroads in our newer in Nevada, and Texas geographies. Following our acquisition of Valley Oaks Medical Group last October .
Since that time, we have increased unique members scene by 120% and we're very excited about the ongoing growth in those regions. As we continue to provide excellent care to members of those communities.
We believe that this growth will be sustainable for the years to come as we execute on our second operational target and moving towards taking global risks on total cost of care for our patients.
Last week, we closed on the acquisition of for your benefit where S y b.
Along with receiving regulatory approval for the change in control of FY B's full service restricted Knox Keene license health plan.
Which will allow us to take one more risk for the professional and institutional cost of care for members in the plant.
This is a significant opportunity for us to deploy our care coordination and management capabilities more effectively and.
And enhances our demonstrated ability to decrease total cost of care, while improving quality and patient outcomes.
We expect that this will drive both revenue and EBITDA growth over the next several years.
As guided to in the past, we plan to assume additional risk and a prudent measured fashion over the next several years.
But we strongly believe that the infrastructure technology and operations, we have developed position us strongly to succeed in this transition.
Finally on our third goal.
We continue to see MLR trends to be favorable versus both prior periods and in line quarter over quarter.
This is the result of improvements we've made in medical costs in our existing markets as well as new ones. We've added over the past year.
In addition to executing on our three stated goes above we also strongly believe in investing in the care delivery ecosystem at March.
While we have built what we believe to be a world class platform for managing global risk in a multi payer setting across all patient types. We also know that there are others building innovative and exciting solutions the value based care delivery ecosystem.
To that end in recent months, we've made small venture investments in areas, we feel will enhance our ability to empower providers in the delivery of value based care.
We let the pre feed funding for third way house accompanying looking to transform the front office for care delivery organizations.
We also invested in two other companies one focused on providing care to high risk Medicare members and another focused on delivering technology enabled services and infrastructure for value based care providers and organizations.
We're excited by the progress we have made so far in working with these innovators and look forward to continuing those partnerships.
I also have two more operational updates to share.
Recently, we were unable to come to mutually agreeable terms for the renewal of a management services contract with Lasalle Medical associates, one of our clients and our care enablement business with approximately 370000 members.
That contract will does terminate by the end of August of this year.
In 2020 to Lasalle contributed 21 4 million in net revenue on an annualized basis for the care enabling business.
I want to emphasize that the impact of Lasalle only impacts our care enablement segment and that that impact is under 2% of our total revenues for 2022 there.
There will be no effect on our risk bearing care partners segment.
We expect to partially offset losses in revenue from this contract as we continually add new clients to our care enablement business.
We are also taking this opportunity to streamline our operations and organizational structure.
You have grown significantly over the course of the past several years.
While this was necessary to support the growth of the company. We currently have over 1500 employees across our organization.
We will be focusing on performance management, especially within our operating departments in order to ensure that the profitability and margins in our care enablement segment remain on track against our expectations.
We are confident that we will be able to continue delivering high quality health care experiences and driving positive outcomes for our members with a leaner operating structure that will position the company for greater success.
Given the strength of our first quarter and despite the recent development. We are reiterating our full year 2023 guidance on both the top and bottom line.
As listed in full on slide 11 of our supplement.
We aim to continue growing membership in our core, California markets, while scaling rapidly in our newer markets.
Basically progress on moving patient cohorts towards global risks and.
And managing towards excellent clinical and financial outcomes.
We are excited by our progress so far on these fronts and believe we are well positioned going forward into the rest of 2023.
Before I turn it over to John I wanted to congratulate him on his official appointment as Chief Financial Officer of a parliament effective last Friday.
He will continue in his role as Chief strategy Officer.
We're very pleased to have his leadership in the areas of finance operations strategy and corporate development.
Bringing his over 20 years of experience in these areas at various other health care companies and his made invaluable contributions over the past year.
I'm thrilled to continue building with him in the years ahead.
With that I'll turn it over to China.
Thank you Brandon I wanted to thank you for the support.
And greatly value the opportunity.
As you highlighted we continued to deliver strong results reporting total revenue of $337 2 million in the first quarter of 2023.
28% increase from $263 3 million in the prior year quarter.
This was primarily driven by increased revenue within our care partners segment.
I'll quickly highlight.
Our per segment results and offer a brief commentary on each.
First our care enablement segment reported revenue of 36 million for the quarter.
An increase of 4% from $29 4 million in the prior year period.
Segment operating income decreased 49, 3% to $5 7 million for the period.
Which was driven by our additional investments in infrastructure technology and people to support our operational and growth.
We believe that these investments are necessary as we prepare to take on management services contracts related to global risk and we expect margin expansion once fees for managing these global risk contracts begin to offset some of the investments made over the past year.
Membership under management within our care enablement business segment was approximately $1 3 million vantage lives.
And the first quarter ended March 31 2023.
Approximately 650000 or half of these members were also within our care partners business and have capital risk bearing arrangements through our consolidated risk bearing entities.
Deep diving into our care partners segment revenue increased 34% to $314 7 million during the period, primarily driven by organic membership growth in our consolidated risk bearing entities and a more favorable payer mix.
Segment operating income increased 22% to $22 3 billion, which was primarily driven by our ability to maintain a steady medical loss ratio and cost structure.
Even with rising revenue.
This is a result, we're pleased with.
And we will continue driving further growth in this segment by growing our membership base and new cohorts of patients into global risk value based arrangements.
Finally, our care delivery segment revenue increased by 24, 9% relative to the prior year period to $25 4 million.
This was primarily driven by increased volume in patient visits to our primary multi specialty and ancillary care delivery entities.
<unk> operating loss was $1 million relative to an operating income of $1 1 billion in the prior year period.
This was due to our continued investment in expanding our care delivery footprint in Nevada and Texas.
We view the results in this segment as in line to better than the guidance that we provided last quarter around investing an incremental $5 billion to $10 billion in 2023 to scale in new geographies.
Net income attributable to our Parliament was $14 6 million up 3% relative to $14 3 million in the first quarter of 2022.
Earnings per share on a diluted basis were <unk> 31, which is flat compared to 31 cents in the prior year period.
Mainly due to increased operating expenses that I referenced earlier.
We reported EBITDA of $24 million in the first quarter of 2023 up one 2% from $23 7 billion in the prior year period.
Adjusted EBITDA for this period was $29 8 million.
We placed greater emphasis on the adjusted EBITDA figure as these numbers back out the impact of excluded assets stock based compensation other income and income from equity method investments.
Turning over to the balance sheet, we remain well capitalized and well positioned to execute on our growth initiatives. We ended the first quarter with $274 6 million in cash and cash equivalents compared to 288 million at the end of 2022.
Our working capital was $292 7 million compared to $287 8 million at the end of 2022.
Total stockholders equity increased to $563 2 million at the end of March 31, 2023 from 555 million as of December 31, 2022.
Total debt at the end of the first quarter was $205 6 billion.
Lastly.
This past December our board authorized the repurchase of up to $15 million of the company's shares of common stock from time to time in the open market as well as privately negotiated transactions the.
The company repurchased nine 5 million or approximately 270000 shares.
During the first quarter.
As a note this share repurchase plan has no expiration date.
In summary, we remain confident in the long term prospects of our business and operational strategy and are looking forward to the year ahead.
Yeah.
I'd now like to turn it back to Brendan for a discussion of our growth strategy and outlook for the remainder of 2023.
Brandon.
Thanks, John .
In closing we have hit the ground running in 2023 and are very excited about our prospects for the remainder of the year.
We are making notable progress on the key operational goals of organic growth in our core and new markets moving our risk based membership towards global risk and empowering our growing network of providers to deliver superior outcomes for their patients in order to effectively manage our increasing book of risk based business.
With that operator, let's open it up for Q&A.
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Our first question is from Ryan Daniels with William Blair. Please proceed.
Hey, guys. Thanks for taking the questions love to get a little bit more color on some of the G&A investments, you're making and how we should think about that going forward given some.
Some of the streamlining you mentioned and in particular, you know would love to hear more about what youre doing in care enablement, I know that nearly doubled year over year, even though it's only about 10% of your sales. So it's not the biggest G&A area. So yeah, maybe wanted to talk about how we think about overall G&A going forward and number two specifically in care enablement.
Yeah.
Hey, Ryan this is Brandon thanks for joining the call good to hear from you so around care enablement and overall G&A.
I think there've been a lot of areas, where we've invested in starting.
Last year, and that's where you're seeing the same quarter year over year increases in G&A.
With particular respect to care and even when we've made a lot of investment.
And our analytics and software engineering departments for example, which which are leading to causing some of the increased G&A.
We both have made investments into preparing for.
Management services around institutional claims processing authorization case management et cetera, which we've been doing in anticipation of one of our clients and the care enablement segment are.
Signing on for additional institutional related services as well as our own restricted Knox Keene license going live this year and so we'll start to see revenue come in to offset the increased G&A.
With next quarter or two.
For the institutional investment.
We do believe that G&A is going to slow down a bit for the rest of the year and maybe Jonathan can talk a little bit about that.
Yeah.
Okay.
Yeah. Thanks.
Thanks Brandon.
Kevin Thanks for the question so.
So as we previously mentioned.
The G&A increase that we saw.
Last year really kicking in.
Q3 and Q4.
Is running at a steady state in Q1, and we will.
Yeah.
We expect 'twenty three to be in line with.
With full year 'twenty.
2022.
Okay, sorry about that Brian and I are in terms of the name.
No worries at all and then maybe another big picture one just on Medicaid Redetermination I know that's down to 20% of sales now, but any thoughts on the potential impact given your exposure to California, Medicaid I know your payer agnostic, but certainly some of those lives are going to lose coverage. So is that contemplated in guidance and then how big of an impact.
Half.
Yeah, we are.
We're just starting to see Redetermination kicking in.
In may and we.
Those numbers are built into our guidance give us about till next quarter to give you exactly.
Movement that we're seeing from.
Medicaid over to the exchange.
With the robust policies that are in place in California, we.
We do expect to capture many of those members as they are.
The process happens.
Okay. Okay, perfect and then maybe last one just any more color I'm sure we'll get some questions on Lasalle medical group and in the care of enablement.
Agreement, there with the MSA being.
Discontinued as of August was was it a pricing issue was it you know.
Anything with dissatisfaction with the technology just normal business and then maybe you can remind us what the typical length of contract terms on your historic retention rates. Thanks.
Sure thing right I can I can take this one around Lasalle.
Yeah, I would say that all of our EM. So our care enablement clients are are important to us.
We we.
We really do our best not to lose any if this is actually.
Pretty rare occurrence for us I think our retention rates well into the 90, then net retention from a revenue basis, it's probably over 100.
To answer your other question, but I think in this particular instance.
And those numbers I cited earlier, obviously, excluding Lasalle just to date and that contract ends August 31 of this year. Unfortunately with Lasalle we were.
Unable to come to terms with.
Pricing that supported the long term margins that we've we wanted and business, which are 20% to 30%.
And there's a bit of a difference in.
The strategy that I, probably won't go too.
Have you been to you on this call, but unfortunately.
Unfortunately, these things happen.
I can say is that going forward.
Do you anticipate the built to ensure that the care enablement segment is still on track towards the 20% to 30% EBITDA margins that we've talked about and there is a pipeline kind of our folks who are excited to get back on board where to get onboard sorry in the care of any one segment.
Okay I appreciate all the color and thank you for the new disclosure I think it's super helpful. So I applaud you for kind of continuing to advance your communication efforts. Thanks, so much.
Thanks, Ryan I appreciate it.
Our next question is from Brooks O'neil with Lake Street Capital markets. Please proceed.
Oh, good afternoon, guys congrats.
Congratulations on the strong start to the year Gratulation John that thinking.
Let's take a look.
Forward to continuing to work with.
So I have a couple of questions I guess I'd like to start off obviously, when you comment about tripping up.
Workforce.
Hum.
Other rumblings from some other.
L. A play in the organization.
That they're considering.
Staffing reductions.
You say that in response to.
Reimbursement level.
Any parts of your business in particular by a bench.
Redetermination in Medicaid, but I've heard that.
There are some pressures in the Medicare advantage business broadly defined.
But if you guys are seeing that feeling that.
Sure Yeah Brooks, thanks for joining a good to hear from you.
I can certainly comment on that I think around Medicare.
We haven't seen.
As much pressure as perhaps the organization.
Perhaps the industry on average has been I think some of those.
Some of the pressure that folks are anticipating are related to the red bee changes that will be phased in over the next three years risk adjustment changes from CMS I think as we've stated before and continue to believe the risk adjustment changes will not affect us as much as other organizations.
We've run some analyses around the prevalence of certain co.
Codes or combinations of codes that will be.
Eliminated or reduced in terms of risk adjustment.
Contributions.
And it's just not as high as we as we think that that combined with the rate of growth for us and the height heightened.
Base value score.
Demographic score for risk adjustment.
So you end up being a bit of a wash so I think where we're feeling okay on the Medicare side of things are the main realignment or streamlining so to speak for for the organization will really be you know we grew very quickly grew 200 1500 more than 1500 employees.
Currently we're.
We're talking about cuts of 5% or less.
To be honest, it's not a it's not a large thing but it is something we have to do to ensure.
That our margins would be care enablement business are going to be robust and on track for the 20% to 30%.
Long term margins that we've we've guided towards in the past so that's really the scope and the rationale for the streamlining.
Makes total sense, thanks for that color bread.
The second question I have or I got to make a quick comment that I am wildly excited about your opportunity with the restricted back in end of life.
I was hoping you might tell us a little bit about how you expect to get there and then just bad obviously, San Francisco market is one opportunity.
Applies to the whole stage seems like indoor.
An enormous opportunity for you on that.
Maybe you could share with all of us.
Sort of how you envision the financial impact of the.
That and how you expect to take advantage of it back.
Yes.
Okay.
Sure. Thanks, Yeah. Thanks for the question Brooks. So we received regulatory approval from the state for for the restricted Knox Keene license Health plan.
And then as you mentioned currently what you're counties are.
So it's a fairly small group of members today are around 5000 senior members.
Which we're taking global risk on via the restricting that scheme license.
John and myself are working.
Hard to make sure that that's operationalize across other counties in California, including ones in which we have the bulk of our risk bearing care partners membership.
Until you'll start seeing.
Most of that show up in the care partners segment as we as we do that John do you want to talk a little more in depth about the impact to top and bottom line.
Sure.
Thanks, so much for the kind of where it's great to hear from you.
Yes, it's short term in terms of topline.
Yes, it's short term in terms of topline.
Topline.
Topline.
We are we have about under 10000 members that AR will initially be within.
F Y B and we're working to quickly expand it from the San Francisco Bay areas to other.
Locales within California in terms of.
Bottom line I would say for the initial 12 months, it's as we invest and build up this is it's going to be breakeven and we expect over time.
Yeah.
The it will come in line with our overall long term margins.
So we've guided to historically.
Great.
Just ask one.
One more follow up on that.
Obviously.
Why.
Experience managing mobile.
Capitation well progressed.
They know organization more broadly has.
Significant.
With that or is that gonna be.
Alerting her work.
The organization.
Paul.
Yeah, we've been managing our institutional risk via our dual risk arrangements are full risk arrangements are as it's called in California for some time, even in southern California on a fairly large book of business. We've also hired.
Most if not all of the F O b related staff, which.
Contributed partially to the increased G&A and the care enablement segment.
Because the revenues haven't come in yet, but we've already hired the staff and so that's kind of a bit of what I was leading to earlier with some of the fees related to institutional.
<unk> revenue coming in to offset the increased G&A that we had to invest in four and there's a bit of a quarter.
Issue there. So we expect those margins to kind of climb back up in line on the care enablement segment under care partner segment, where the actual risk will be borne Sean mentioned earlier, we think we can get 10% to 20% long term margins even on the you know close to doubled revenue in that segment too.
To answer your question Yeah, we're we're confident in our ability to do it we've hired the folks and made the investments we need to you and what's left is really operationalize the contract across across the state of California.
Great.
That's one more appreciated all the color.
Give us an update on what's going on if anything with regard to sort of the traditional Medicare program you've been involved in in the past.
Incredibly well just curious what's your vision either this year or next year in those areas. Thanks a lot.
Hey, Brooks.
So last year, we were in the D. C E program.
For our.
And that has now transitioned to the ACO reach program.
As we think about or as we think about 2022.
We really view this as a breakeven business in 2023, we continue to evaluate and and as we get further data, especially around the retro active retrospective trend adjustment factor, which.
Is it which is a benchmark used by CMS around historical.
Revenues versus current revenues.
Be able to provide more insight probably by Q3.
Fantastic. Thanks for taking my questions guys. Congratulations again.
Thank you.
Yeah.
As a reminder, the star one on your telephone keypad, if he would like to ask a question. Our next question is from Adam run with Bank of America. Please proceed.
Hey, guys. Thanks for having me on the call I have a couple of questions. So I guess.
Following up on the ACO reassuring thing last year was breakeven and this year, you're accruing for basically 100% MLR in the program and if so you.
You know if that's how things end up playing out like is that a program still worth being in like it adds scale and revenue and.
It was kind of breakeven introduces new provider relationships or is it not really playing out versus what expectations were and then you know.
Or would you seek out like a M. S. S. P R.
You know what what is the general thought process around that.
Yeah I mean.
A long term.
Wood.
We would want to be in a.
In a business, where we are able to achieve a margin similar to other books of business.
And you're right in your earlier statements Adam that for 2022 is breakeven and weird.
In terms of 2023, that's where we're starting it.
I think we are still we're being very conservative and we're still learning about the program and so as we see our.
Hum.
Hum and we've had so much fluctuations in the retrospective adjustment.
Adjustment factor that it's hard to.
It's really hard to.
Uh huh.
To get.
You know to move.
The other way.
And so we will be getting our may.
In May we'll be getting our summary for 2022 and then the final reconciliation happens in August and so we'll be able to provide a lot more insight on 22.
There in terms of 'twenty three as as we start seeing that retrospective trend adjustment factor a stabilized we can also provide more insight.
Around your third question around our other programs, where we're definitely evaluating other programs.
In terms of our long term focus around.
Help providing a full range of offerings.
In services for.
All members.
In terms of viewing the ACO program in terms of a growth lever. It definitely is a growth lever, it's a way for us to.
<unk> built a relationship with new providers.
And further expand it.
Over the years.
As well as for our existing providers to make sure we have a program for all of their members.
Yeah.
Alright, I appreciate that and then going back to another question about the box can conversion.
You could add some additional color around.
You know a potential timing of converting it across your other.
Compensated lives in California, like what is it tied to the tied to <unk>.
Provider or payer contracts and so those expire over the course of two to three years and as you renegotiate those you need to get full risk contracts from them and so we might it might take two to three years to get fully converted.
And you know if that's the case like what is the lumpiness associated with that.
And then second I didn't fully understand.
How the EBITDA conversion on that would work like would it be symmetrical if you're going from like 40% risk to 100% risk of EBITA should convert that way or was your hospital partner.
We're already sharing through the risk pool incentives some of what the upside would be if taking full risk and so it's it's somewhere in between the 40% of entrepreneurship.
Hey, Adam This is Brandon. Thank you for joining the call good to hear from you I can take this one so we.
And the timing of their operational Operationalization of the arcade K license.
You're right there will be lumpiness to it because it depends on the specific health plan partner.
And county combination.
And for that to be signed and then approved and moved into these global risk arrangements, we don't necessarily have to wait until the end of the exploration of each contract. So it's not like we have to wait two or three years if that's the.
Under the current contract that's something we're negotiating on a plan by plan.
Basis to ensure it gets done as soon as possible I would guide towards at least.
You know one.
I would say at least a one plant in southern California.
We expect to be.
Within the restricted not seen umbrella this year 23 in the neck and the rest should be phased in.
Over the next 18 to 24 months the delay really is around contracting with each payer and we're very diversified in terms of our payer mix as well as contracting with the appropriate hospital systems for the bolus of members that are included in each plant.
We have network adequacy. So that's something we've been working on already some of the investments we've been making on the care enablement side and.
Like I said earlier, we should have some resort results to show.
Sometimes this year.
And then in terms of conversion to EBITDA.
The increased revenue the risk revenue related to those numbers moving into global risk.
We're conservatively, saying that we wish we should all expect only a couple of percent of that to convert to EBITDA Your zero.
Because we're going to try to maintain the existing hospital relationships that can keep them poll from financials, but from a financial perspective.
Over time, we certainly expect to accrue more of that EBITDA that crew are such that in the long term, it's 10% to 20% EBITDA margin on the Tiger.
Book of business, including the institutional part of the risk and that's just not going to happen near zero because it takes time to.
Move the hospital partners into the right economic arrangements. So I would guide to that they also happened over 18 to 36 months for the EBITDA contribution to get to the scaled margin contribution that we expect.
Hope that helps them.
Yeah.
Yeah, not Super Bowl and you made an interesting comment about the new the new geography investments coming in better than you expect so less dilutive than the five to 10 million you initially guided to.
What it is.
Specifically is driving that is it.
Like you're growing patients faster and so theres more fixed cost.
Cost coverage or MLR ramping better than you.
Based on what you're seeing them I guess, just is there anything to call out or do you see an opportunity to invest further or like what what you.
Metrics are you seeing and what do you need.
We need to see to.
Expand I guess further into into next year and in these new markets.
Yeah totally so in Q1, you can see in our care delivery segment, which is a which is most of the investments we're making in new geographies came in around two more or less.
Our operating income relative to last year's Q1.
And that's kind of the extent of the investments we've been making them that's around eight bell.
The annualized run rate basis.
We guided towards five to 10 each of the new markets. So it's.
On track to slightly lower in terms of an operating income hit than than guided towards the progress has been good you know we've been adding a lot of the investments include adding net new providers for example, and it takes time to ramp those providers up in terms of their patient panels.
They've been moving the service folks into.
A partial risk arrangements over time as well.
There's been some investment needed are needed for <unk>.
The infrastructure on the ground to operationalize that so.
No I'd say has gone better than expected membership as I mentioned earlier in the prepared remarks has been that's been growing ahead of curve.
We're monitoring the number of fee for service members number of Capitate member Star scores.
Incentive reimbursement and so on and so forth.
And things are tracking so really it's going to be small.
A J curve quote unquote as we add on your providers to ramp for our patients, but we expect it to be.
Kind of.
In the 10000, Medicare Mark sooner than expected.
Okay, Great and then I guess my last question is broader.
Basically our we cover a lot of the managed care companies and it seems like trends.
Lee has been you know a more controlled or tighter than maybe some expected in your comparable companies in med tech companies talking about accelerating volumes and so just curious what you're seeing in terms of your calculated risk business around trend and you know what.
What are you assuming for the rest of the year, how things came in versus expectations. Thanks.
Yeah.
Yeah, you can see.
See our care partners business that operating income actually grew.
Quite well in line with revenue growth.
So if I'm. Please correct me if I'm misunderstanding your question, but.
Where we're seeing volumes moderate and we're keeping our medical loss ratios in control you mentioned, it's it's favorable relative to Q1 of last year and approximately in line I think it was like a 30 basis point increase from Q4 of last year to this year.
But let me know if I didn't let me know if I missed your question Yeah, No I I guess thing things came in better than expected I'm, just curious like into April and things are continuing.
Our crude.
And then in built into guidance.
Yeah, we're seeing them.
Margins in line.
With with Q1 going into Q2, yeah, I wouldn't say, it's materially better it's probably in line.
Okay, great. Thank you so much.
Sure thing.
Yeah Yeah.
Yeah, We said never a question answer session I would like to turn the call back over to Brendan for closing comments.
Great well. Thank you all for your time today, we appreciate it we thank you for joining the call. We're always open to a dialogue with investors.
And welcome visitors to our offices in Los Angeles, Please feel free to reach out to us or our Investor relations firm. The equity group do you have any additional questions and we look forward to speaking to you all again on our next quarterly call. Thank you.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Oh.
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