Q1 2025 Alignment Healthcare Inc Earnings Call
Operator: Good afternoon and welcome to Alignment Hlthcr's first quarter 2025 earnings conference call and webcast. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session.
Good afternoon, and welcome to alignment Healthcare's first quarter 2025 earnings conference call and webcast.
At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.
Operator: To ask a question during the session, you will need to press star 11 on your telephone. will then hear an automated message advising your hand has been raised. To withdraw your question, please press star 1 1 again.
Ask a question during the session you will need to press star one one on your telephone.
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Draw. Your question. Please press star one again.
Operator: Please note that this event is being recorded.
Note that this event is being recorded.
John Kao: Leading today's call are John Kao, Founder and CEO, and Thomas Freeman, Chief Financial 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. are subject to various risks and uncertainties.
Jon: Leading today's call are Jon <unk>, founder and CEO, and Thomas Freeman Chief Financial Officer.
Jon: 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.
Jon: These forward looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs assumptions and information currently available to us.
John Kao: Based on our Thank you for watching. Some of the factors that could cause actual results of different material. are discussed in more detail in our filings with the SEC. risk factors section of our annual report on Form 10-K for the fiscal year ended December 31st. Although we believe our expectations are reasonable. We undertake no obligation to revise any statements to reflect changes that occur after this call.
Descriptions of some of the factors that could cause actual results to differ materially from these forward looking statements are discussed in more detail in our filings with the SEC, including the risk factors section of our annual report on Form 10-K for the fiscal year ended December 31 2024.
Although we believe our expectations are reasonable we undertake no obligation to revise any statements to reflect changes that occur after this call.
Jon: In addition, please note that the company will be discussing certain non-GAAP financial measures that they believe are important in evaluating performance.
John Kao: In addition, please note that the company will be discussing certain non-GAAP financial measures that they believe are important in evaluating performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the Press that is posted on the company's website and in our form 10-Q for the fiscal year ended March 31st, 2025.
Jon: Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the press release that is posted on the Companys website and in our Form 10-Q for the fiscal year ended March 31 2025.
Jon: <unk>.
John Kao: Hello, and thank you for joining us on our first quarter earnings conference call. We are pleased to announce a strong start to the year where we surpassed the high end of guidance for each of our four key metrics. For the first quarter 2025, our health plan membership of 217,500 members represented approximately 32% growth year over year. This drove total revenue of $927 million, which grew approximately 47% year-over-year. We also delivered strong margin expansion, even as we grew faster than our initial expectation. Adjusted gross profit of $107 million grew 87% year over year, which produced a consolidated NBR of 88.4%, a 250 basis point improvement versus the prior year.
Speaker Change: Hello, and thank you for joining us on our first quarter earnings conference call.
Speaker Change: We are pleased to announce a strong start to the year, we surpassed the high end of guidance for each of our four key metrics.
Speaker Change: For the first quarter 2025 of our health plan membership of 217500 members represented approximately 32% growth year over year.
Speaker Change: This drove total revenue of $927 million, which grew approximately 47% year over year.
Speaker Change: We also delivered strong margin expansion, even as we grew faster than our initial expectations adjust.
Speaker Change: Adjusted gross profit of $107 million grew 87% year over year, which produced a consolidated MBR of 88, 4% or.
Speaker Change: 250 basis point improvement versus the prior year.
John Kao: Meanwhile, adjusted EBITDA of $20 million resulted in 410 basis points of margin expansion year over year and exceeded the high end of our first quarter guidance. Our strong results are once again demonstrating that our business model is Medicare Advantage done right. Building upon last year's momentum, we continue to scale our clinical model across the enterprise, including our ex-California markets, where we more than doubled our membership year over year. This resulted in first quarter inpatient admissions per thousand of 153 in California and 145 across our ex-California markets, both of which outperformed our expectations. As the Medicare Advantage landscape has evolved around us, our approach to serving our seniors has remained unchanged since our founding.
Speaker Change: Meanwhile, adjusted EBITDA of $20 million resulted in 410 basis points of margin expansion year over year and exceeded the high end of our first quarter guidance.
Speaker Change: Our strong results were once again, demonstrating that our business model is Medicare advantage done right building upon last year's momentum, we continued to scale, our clinical model across the enterprise, including our ex California markets, where we've more than doubled our membership year over year. This.
Speaker Change: This resulted in first quarter inpatient admissions per thousand of 153 in California at 145 across our ex California markets, both of which outperformed our expectations.
Speaker Change: As the Medicare advantage landscape has evolved around us our approach to serving our seniors has remained unchanged since our founding.
John Kao: Our model combines the product control and data visibility of a health plan, clinical insights of a modern technology platform, medical management expertise of a care delivery organization, and member experience of a consumer-first company. By bringing each of these capabilities together, we are creating a durable senior health platform that is enabling us to take share at an accelerated pace while controlling medical costs, just as we have demonstrated again this quarter.
Speaker Change: Our model combines the product control and data visibility of our health plan clinical insights of a modern technology platform medical management expertise of our care delivery organization and member experience of a consumer first company by bringing each of these capabilities together, we are creating a durable <unk>.
Speaker Change: Senior health platform that is enabling us to take share at an accelerated pace, while controlling medical costs just as we have demonstrated again this quarter.
John Kao: Given the strength of our first quarter results and our solid growth momentum, we are raising the midpoint of our guidance ranges across each of our four key metrics.
Speaker Change: Given the strength of our first quarter results and our solid growth momentum, we are raising the midpoint of our guidance ranges across each of our four key metrics Thomas will share more in his remarks.
John Kao: Thomas will share more in his remarks. While we are proud of our recent results, we believe the biggest opportunities are still on the horizon. Despite our rapid growth in recent years, we still have less than 5% share across our existing market. As we prepare to scale the organization in anticipation of the growth opportunity ahead, we are investing in our back office operations, enhancing the member journey, and doubling down on our provider relationships through long-term collaborative partnerships. With Medicare Advantage penetration now over 50% and seniors becoming a larger share of provider patient panels, we believe there will be more symbiotic opportunities to help our provider partners manage their seniors, particularly for those most at risk, like the duly eligible population and seniors with multiple chronic conditions.
Speaker Change: While we are proud of our recent results. We believe the biggest opportunities are still on the horizon.
Our rapid growth in recent years, we still have less than 5% share across our existing markets.
Speaker Change: As we prepare to scale the organization in anticipation of the growth opportunity ahead, we are investing in our back office operations enhancing the member journey and doubling down on our provider relationships through long term collaborative partnerships.
Speaker Change: With Medicare advantage penetration now over 50% in seniors, becoming a larger share of provider patient panels. We believe there will be more symbiotic opportunities to help our provider partners manage their seniors, particularly for those most at risk like the duly eligible population seniors with multiple chronic.
Speaker Change: Conditions.
John Kao: These members benefit most from the enhanced care that our Care Anywhere teams provide through greater care coordination, chronic disease management, and in-home support. We also see opportunity to further expand our competitive advantages by driving continued innovation in our AVA technology. These innovations aim to further advance our ability to improve clinical quality and member experience outcomes at lower cost. Each of these improvements are positioning us for the next phase of growth and maturing our operations as we scale. As we plan for 2026, we remain confident in our multi-year trajectory. Our STARS payment advantages are widening considerably in 2026.
Speaker Change: These members benefit most from the enhanced carrier that are anywhere teams provide through greater care coordination chronic disease management and in home support.
Speaker Change: We also see opportunity to further expand our competitive advantages by driving continued innovation in our Ava technology.
Speaker Change: These innovations aimed to further advance our ability to improve clinical quality and member experience outcomes at lower costs.
Speaker Change: Each of these improvements are positioning us for the next phase of growth.
Speaker Change: During our operations as we scale.
Speaker Change: As we plan for 2026, we remain confident in our multi year trajectory.
Speaker Change: Yes.
Speaker Change: Our stars payment advantages are widening considerably in 2026.
John Kao: when we will have 100% of our California members in plans rated four stars or above, which will be approximately 40% better than competitors in the state with just 59% of members in four star or above plans. Second, we believe we will be less impacted than our competitors by the third and final phase in of the 28 risk model changes. which may create an even greater opportunity for us relative to the first two years of the phase. And third, the final rate notice incorporates a healthy increase in benchmark rates, which more accurately reflects industry utilization trends and positions us well to achieve our financial objectives in 2026.
Speaker Change: When we will have 100% of our California members in plans rated four stars or above which will be approximately 40% better than competitors in the state with just 59% of members in four star or above plans.
Speaker Change: We believe we will be less impacted than our competitors, but the third and final phase of the 28 risk model changes, which may create an even greater opportunity for us relative to the first two years of the phases.
Speaker Change: And third the final rate notice incorporates a healthy increase in benchmark rates, which more accurately reflects industry utilization trends and positions us well to achieve our financial objectives in 2026.
John Kao: Meanwhile, our relative advantages on medical cost management, quality, and STARS reimbursement will continue to support our growth objectives. Over the long term, we believe these differentiators will continue to position us for success, irrespective of the rate environment. Beyond 2026, we are pleased that the final rate notice indicated CMS's intent to continue transitioning the current STARS reward factor into the Health Equity Index reward, now called the Excellent Health Outcomes for All reward. and rating year 2027, payment year 2028. We believe the new methodology more accurately rewards plans that perform well on clinical quality, particularly amongst complex populations.
Speaker Change: Meanwhile, our relative advantages on medical cost management quality and stars reimbursement will continue to support our growth objectives over.
Speaker Change: Over the long term, we believe these differentiators will continue to position us for success irrespective of the rate environment.
Speaker Change: Beyond 2026, we are pleased that the final rate notice indicated cms's intent to continue transitioning the current stars reward factor into the health equity index reward now called the excellent health outcomes for all reward.
Speaker Change: And right a year 2027 payment year 2028.
Speaker Change: We believe the new methodology more accurately rewards plans have performed well on clinical quality, particularly amongst complex populations.
John Kao: Finally, today we announce that Thomas has decided to step down from his role as CFO, and Effective Tomorrow will serve as strategic advisor to the CEO. In this new role, he will focus on ensuring a smooth transition of his CFO responsibilities and supporting the company's long-term strategies and partnerships.
Speaker Change: Finally today, we announced that Thomas has decided to step down from his role as CFO and effective tomorrow will serve as a strategic advisor to the CEO.
Speaker Change: In this new role he will focus on ensuring a smooth transition of the CFO responsibilities and supporting the company's long term strategies and partnerships.
John Kao: As Thomas enters his new role, I'd like to thank him for 10 years of financial leadership and service to Alignment and its members. During this time with Alignment, Thomas helped us grow to a nationally recognized Medicare Advantage leader, profitably serving over 200,000 members across five states. He has been a trusted friend and partner throughout his tenure, and I sincerely appreciate his contributions over the past decade.
Speaker Change: As Thomas interest his new role I'd like to thank him for 10 years of financial leadership and service to alignment and its members. During this time with alignment Thomas helped us grow to a nationally recognized Medicare advantage leader profitably serving over 200000 members across five states. He has been a trusted friend.
Partner throughout his tenure and I sincerely appreciate his contributions over the past decade.
John Kao: After conducting a thoughtful and extensive search, I'm excited to introduce Jim Head, who will succeed Thomas as CFO and provide financial leadership as we continue to scale Alignment's business from its strong foundation. Jim most recently served as the Chief Financial Officer of Claritiv, a publicly traded data analytics company for health plans, and joins us with more than 30 years of experience in strategic finance, health care, and business development. Above all else, Jim is the financial leader best positioned to build upon our unique Medicare Advantage playbook and help us continue to scale Alignment's vision of Medicare Advantage done right.
Speaker Change: After conducting a thoughtful an extensive search I'm excited to introduce Jim head, who will succeed Thomas as CFO and provide financial leadership as we continue to scale alignments business from its strong foundation.
Speaker Change: Joe Most recently served as the Chief financial Officer of clarity to a publicly traded data analytics company for health plans and joins us with more than 30 years of experience and strategic finance healthcare and business development.
Above all else Jim is the financing we are best positioned to build upon our unique Medicare advantage playbook and help us continue to scale alignments vision of Medicare advantage done right.
John Kao: Thomas and I look forward to introducing you to Jim over the coming months as we meet with investors.
Speaker Change: Thomas and I look forward to introducing you to Jim over the coming months as we meet with investors.
John Kao: In conclusion, I'd like to thank our employees for their tireless dedication to our seniors as we continue defying industry expectations. As we step forward to the future ahead, we do so in a stronger financial and competitive position than at any time in our history. With a sturdy foundation to build upon, we are eager to push forward to new frontiers, explore new ways to improve the lives of our members, and bring our model to more seniors everywhere.
Speaker Change: In conclusion I'd like to thank our employees for their tireless dedication to our seniors as we continued to fight industry expectations.
Speaker Change: As we step forward to the future ahead, we do so in a stronger financial and competitive position than at anytime in our history.
Speaker Change: With a sturdy foundation to build upon we are eager to push forward to new frontiers explore new ways to improve the lives of our members and bring our model the more seniors everywhere.
Thomas Freeman: Now I'll turn the call over to Thomas to further discuss our financial results and outlook. Thanks, John. For the quarter ending March 2025, our health plan membership of 217,500 increased 32% year over year. Meanwhile, our first quarter revenue of $927 million represented 47% growth. Our top line was supported by membership outperformance as our AEP momentum continued through OEP as well as higher Part D revenue PMPM due to changes associated with the inflation reduction. Total adjusted gross profit in the quarter of $107 million grew 87% versus the first quarter of 2024. This represented an MBR of 88.4% and an improvement of 250 basis points year-over-year.
Speaker Change: Now I'll turn the call over to Thomas to further discuss our financial results and outlook Thomas.
Thomas: Thanks, John for the quarter ending March 2025, our health plan membership of 217500 increased 32% year over year. Meanwhile, our first quarter revenue of $927 million represented 47% growth year over year. Our top line was supported by membership outperformance as our AEP momentum continued.
Thomas: OUP as well as higher part D revenue <unk> due to changes associated with the inflation production of that.
Total adjusted gross profit in the quarter of $107 million grew 87% versus the first quarter of 2024. This represented an MBR of 88, 4% and an improvement of 250 basis points year over year.
Thomas Freeman: Our first quarter outperformance relative to guidance was driven by favorable inpatient utilization as we continue to demonstrate our ability to scale our clinical model across a larger population. Our overall inpatient admissions per thousand of 152 increased slightly year over year, consistent with our expectations shared last quarter due to changes in membership. Our first quarter out performance was also driven by modest favorability in our Part D MBR, which we anticipate to reverse over the next three quarters. Lastly, we experienced favorable prior period IV&T reserve releases that supported our first quarter results. This further reinforces the strength of our ability to manage through rapid membership growth and sets a solid foundation towards our full year 2025 outlook.
Thomas: Our first quarter outperformance relative to guidance was driven by favorable inpatient utilization as we continue to demonstrate our ability to scale, our clinical model across a larger population. Our overall inpatient admissions per 1000 of 152 increased slightly year over year consistent with our expectations shared last quarter do change in membership mix.
Thomas: Our first quarter outperformance was also driven by modest favorability in our part D MBR, which we anticipate to reverse over the next three quarters.
Thomas: Lastly, we experienced favorable prior period IBM P reserve releases that supported our first quarter results. This further reinforces the strength of our ability to manage their rapid membership growth and sets a solid foundation towards our full year 2025 outlook.
Thomas Freeman: Moving down to P&L, SG&A in the quarter was $104 million. Our adjusted SG&A of $87 million represented 9.4% of revenue, decreasing by 160 basis points year over year. Our first quarter result puts us squarely on track towards our full year operating leverage target, as we continue to see opportunities to scale the business and drive efficiencies throughout 2025, just as we did in 2024. Lastly, our adjusted EBITDA of $20 million represented 410 basis points of margin expansion year-over-year. This was well ahead of our initial expectations and places us in a solid position to achieve our full-year profitability objectives, which we will expand upon shortly.
Thomas: Moving down the P&L SG&A in the quarter was 104 million, our adjusted SG&A of $87 million represent a 94% of revenue decreasing by 160 basis points year over year, our first quarter results puts us squarely on track towards our full year operating leverage target as we continue to see opportunities to scale the business.
Thomas: Efficiencies throughout 2025, just as we did in 2024.
Thomas: Lastly, our adjusted EBITDA of $20 million represented 410 basis points of margin expansion year over year. This was well ahead of our initial expectations and places us in a solid position to achieve our full year profitability objectives, which we will expand upon shortly.
Thomas Freeman: Moving to the balance sheet, we remain in a strong position with $480 million in cash and investments at the end of the quarter.
Thomas: Moving to the balance sheet, we remain a strong position with $480 million in cash and investments at the end of the quarter.
Thomas Freeman: Turning to our guidance for the second quarter, we expect health plan membership to be between 220,000 and 222,000 members, revenue to be in the range of $950 million and $965 million, adjusted gross profit to be between $105 million and $113 million, and adjusted EBITDA to be in the range of $10 million to $18 million. For the full year 2025, we expect health plan membership to be between 228,000 and 233,000 members, revenue to be in the range of $3.77 billion and $3.815 billion, adjusted gross profit to be between $420 million and $445 million, and adjusted EBITDA to be in the range of $38 million to $60 million.
Thomas: Turning to our guidance for the second quarter, we expect health plan membership to be between 220000, and 222000 members revenue to be in the range of $950 million and $965 million.
Thomas: Adjusted gross profit to be between $105 million and $113 million.
Thomas: And adjusted EBITDA to be in the range of $10 million to $18 million.
Thomas: For the full year 2025, we expect health plan membership to be between 228 and 233000 members.
Thomas: Revenue to be in the range of $3 $7 7 billion and $3 eight $1 5 billion.
Thomas: Adjusted gross profit to be between $420 million and $445 million.
Thomas: And adjusted EBITDA to be in the range of 38 million to $60 million.
Thomas Freeman: We are raising the midpoint of our guidance ranges across each of our 14 metrics. The increase to the midpoint of our membership outlook reflects our latest visibility following a strong OEP. Along with our membership increase, we are also raising our full-year revenue outlook to now reflect approximately $3.8 billion and 40% growth in the mid-term. The increase to our revenue outlook also reflects our expectations for a continued increase in our Part D revenue PMPM through the remainder of the year. Although it's early in the year, our strong first quarter also gives us the confidence to increase the low end of both our adjusted gross profit and adjusted EBITDA ranges.
Thomas: We are raising the midpoint of our guidance ranges across each of our four key metrics the increase to the midpoint of our membership outlook reflects our latest visibility following a strong OE season, along with our membership increase we are also raising our full year revenue outlook to now reflect approximately $3 8 billion at 40% growth at the midpoint.
Thomas: The increase to our revenue outlook also reflects our expectations for a continued increase in our part D revenue <unk> through the remainder of the year.
Thomas: Although it's early in the year, our strong first quarter also gives us the confidence to increase the low end of both our adjusted gross profit and adjusted EBITDA ranges.
Thomas Freeman: The following elements are captured within our updated profitability output. First, we expect continued stability in our inpatient admissions per 1,000. Similar to the first quarter, we anticipate inpatient utilization to continue to run modestly higher compared to 2024 for the remainder of the year. This is due to a shift in our mix of membership during AEP and in line with our commentary last quarter. Second, we anticipate our early favorability in Part D gross margin to reverse during the remainder of the year. While our first quarter Part D MBR outperformed, we expect our Part D MBR to be slightly higher in the second through fourth quarters relative to prior expectations, leaving our Part D outlook for the full year roughly unchanged.
Thomas: Following elements are captured within our updated profitability outlook.
Thomas: First we expect continued stability in our inpatient admissions per thousand similar to the first quarter, we anticipate inpatient utilization to continue to run modestly higher compared to 2024 for the remainder of the year. This is due to a shift in our mix of membership during AEP and inline with our commentary last quarter.
Thomas: We anticipate our early favorability in part D gross margin to reverse during the remainder of the year, while our first quarter part D. MBR outperformed we expect our part D MBR to be slightly higher in the second through fourth quarters relative to prior expectations, even our part D outlook for the full year roughly unchanged, we continue to take a prudent stance around our.
Thomas Freeman: We continue to take a prudent stance around our expectations for heightened pharmacy utilization, including oncology drugs, an approach which served us well in the first quarter. Third, we plan to invest a portion of our early out performance towards our ongoing member engagement activities that support both our growth and profitability objectives in 2026 and beyond. And finally, turning to SG&A, the midpoint of our guidance implies an adjusted SG&A ratio of 10.1% for the full year. This reflects a 100 basis point improvement year over year on top of the 320 basis points of operating leverage we delivered in 2024.
Thomas: For heightened pharmacy utilization, including oncology drugs and approach, which served us well in the first quarter.
Thomas: Third we plan to invest a portion of our early outperformance towards our ongoing member engagement activities.
Thomas: That support both our growth and profitability objectives in 2026 and beyond.
Thomas: And finally, turning to SG&A the midpoint of our guidance implies that adjusted SG&A ratio of 10, 1% for the full year. This reflects a 100 basis point improvement year over year on top of the 320 basis points of operating leverage we delivered in 2024.
Thomas Freeman: In terms of seasonality over the remainder of the year, we expect our second half NBR to be higher than the first half NBR. This cadence is driven by assumptions for normal utilization seasonality patterns, including the regular flu season in the fourth quarter and greater Part D liability in the second half due to changes related to the inflation reduction. Additionally, we also expect our second half SG&A ratio to be higher than the first half, with the highest SG&A ratio in the fourth quarter. This is consistent with prior years and driven primarily by AEP sales and marketing costs, as well as increased staffing levels to support anticipated AEP growth.
Thomas: In terms of seasonality over the remainder of the year, we expect our second half MBR to be higher in the first half MBR. This cadence is driven by assumptions for normal utilization seasonality patterns, including the regular flu season in the fourth quarter and greater part D liability in the second half due to changes related to the inflation reduction.
Thomas: Additionally, we also expect our second half SG&A ratio to be higher than the first half with the highest SG&A ratio in the fourth quarter.
Thomas: This is consistent with prior years, and driven primarily by AEP sales and marketing costs as well as increased staffing levels to support anticipated AEP growth.
Thomas Freeman: Taken together and combined with the strength of our first quarter outperformance, we have established a solid foundation for our full year adjusted EBITDA outlook of $49 million at the midpoint of our updated guidance.
Thomas: Taken together and combined with the strength of our first quarter outperformance. We have established a solid foundation for our full year adjusted EBITDA outlook of $49 million at the midpoint of our updated guidance range.
Thomas Freeman: Lastly, as previously shared, this will be my last earnings. My tenure as CFO has been an incredible journey, and I'd like to extend my heartfelt appreciation to our employees for their unwavering partnership. I'd also like to thank our investors and analysts for their immense support over the last four years of the public.
Thomas: Lastly, as previously shared those will be my last earnings call. My tenure as CFO has been an incredible journey and I'd like to extend my heartfelt appreciation to our employees for their unwavering partnership I'd also like to thank our investors and analysts for their immense support over the last four years as a public company.
Thomas Freeman: While it's never an easy time to step away, I'm more optimistic than ever about Alignment's opportunities ahead. As we have demonstrated time and time again, Alignment has set itself apart by balancing industry-leading growth with strong margin expansion as a result of our unique MA strategy and capabilities. I've yet to find a Medicare Advantage company better positioned to succeed as the industry continues to evolve, and I look forward to working with John and Jim to execute a seamless transition.
Thomas: While it's never an easy time to step away I'm more optimistic than ever about alignments opportunities ahead. As we have demonstrated time and time again alignment has set itself apart by balancing industry, leading growth with strong margin expansion as a result of our unique strategy and capabilities I've yet to find a Medicare advantage company better positioned to succeed as the.
John: We continue to evolve and I look forward to working with John and Jim to execute a seamless transition.
Operator: With that, let's open the call to questions. Operator? Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced.
Thomas: With that let's open the call to questions operator.
John: Thank you.
John: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Operator: Destroy your questions. Press star 1, 1 again.
Ryan Daniels: And our first question comes from the line of Ryan Daniels with William Blake. Yeah, congratulations to the team and thanks for taking the questions. John, maybe one for you to start. You had an interesting comment about working more with duals and patients with multiple chronic conditions and doing more care coordination with providers.
Ryan Daniels: And our first question comes from the line of Ryan Daniels with William Blair.
Speaker Change: Yes, congratulations to the team and thanks for taking the questions.
Speaker Change: Maybe one for you to start you had an interesting comment about working more with duals in patients with multiple chronic conditions and doing more care coordination with provider. So im curious if youre alluding there to more things like integrated strategic partnerships, such as Sutter or if theres actually some thoughts on the chalkboard about may be doing.
John Kao: So I'm curious if you're alluding there to more things like the integrated strategic partnerships such as Sutter, or if there's actually some thoughts on the chalkboard about maybe doing a practice partner slash tech platform where you might sell it into the market or help with provider enablement even more so. Hey Ryan, I think it's just that we do so well managing that population. and it's becoming more and more important. in each of our markets. and I think that they're a hard population to actually manage. They have more complex conditions that just require more sophisticated care management.
Speaker Change: Practice partners Slash Tech platform, where you might sell it into the market or help with provider, enabling even more so.
Brian: Hey, Brian.
Brian: No I think it's just that we do so well managing that population.
Brian: And it's becoming more and more important.
Brian: And each of our markets.
Brian: I think that there are populations to actually manage.
Brian: They have more complex conditions.
Brian: Require more sophisticated care management.
John Kao: And I think that that's something that differentiates us from everybody else, which is that that care management capability, that we're not just dependent on, you know, capitating that out to downstream providers. So in the context of how we do that, I think we also are seeing really good ADK performance, ex-California. And so we know it's not limited to just the kind of California phenomenon. And I think when you combine that with the stars, it gives us that much more confidence that we can, to kind of extend that into new markets. I think that's the reference.
Brian: And I think that Thats, something that differentiates us from everybody else, which is that the care management capability that we're not just dependent on.
Brian: Cap, taking that out to downstream providers.
Brian: So in the context of how we do that I think we also.
Brian: Our.
Brian: Seeing really good ATK performance ex California.
Brian: So no. It is not limited to just the kind of California phenomenon and I think when you combine that with the stars.
Brian: Gives us that much more confidence that we can.
Brian: We can.
Brian: Kind of.
Brian: Extend that.
Brian: And the new markets I think thats references.
John Kao: Okay, so maybe it is now that you've proven the model, you're showing that AVA is replicable in other markets, you've hit profitability, you've seen the SG&A leverage. Is this really the time you think you will look to grow in 2026 into new markets or maybe contemplate some M&A activity? Is that what you think? I think, yeah, exactly. I think that We said that we're going to add new markets in the existing markets in 2026. We want to still be very thoughtful and disciplined about how we do that. And we're going to do that from operating CAD.
Brian: Okay. So maybe it is now that you've proven the model youre showing that Eva is replicable in other markets you've hit profitability you've seen the SG&A leverage is this really the time do you think you will look to grow in 2026 into new markets or maybe contemplate M&A activity is that how we should think I think yes exactly.
Brian: I think that.
Brian: Okay.
Brian: We said that we're going to add new markets in the existing markets in 2026.
Brian: We want to still be very thoughtful and disciplined about how we do that.
Brian: And we're going to do that.
Brian: Operating cash.
John Kao: We also said that we're starting initiatives now for 2027 new market launch. which require us to have service area expansions completed in February of 2026. So all of that activity is starting now. And to your point, you know, given our Given our strong growth, our strong marginal performance and a lot of it is really a function of of AVA and the CARE model, and, you know, the scale economies we've been able to garner is, you know, I think going to give us that much more credibility to, you know, think about. building building that business out.
Brian: We also said that we are starting initiatives now for 2027, new market launches.
Brian: Require us to have service area expansion completed in February of 2026.
Brian: So.
Brian: So all of that activity is starting now.
Brian: To your point.
Brian: Given our.
Brian: Sure.
Brian: The way.
Brian: Given given our strong growth strong margin performance.
Brian: And a lot of it is really a function of.
Brian: Eva and the care model.
Brian: The scale economies, we've been able to garner is I think that would give us that much more credibility to.
Brian: Think about.
Brian: Yes.
Brian: Building building that business out, but Ive said in the past you don't we don't want to get ahead of ourselves we want to be again very thoughtful it's a very different business.
John Kao: But I've said in the past, we don't we don't want to get ahead of ourselves, we want to be again, very thoughtful, it's a very different business. Others have tried this, you know. not not been successful. If we do it, we need to make sure it's it's a very, very reference. But I still think, again, it's a strategy that we've contemplated from the beginning and I think all the cards are starting to line up, particularly given some of the challenges that we see in the sector. I think we can help a lot of people.
Brian: Others have tried this.
Brian: Not not been successful it can do it we need to make sure it's <unk>.
Brian: Very very reference of all.
Brian: Yes.
Brian: But I still think again, it's a strategy that we've contemplated from the beginning.
Brian: And I think all the cards are starting to line up.
Brian: Particularly given some of the challenges that we see in the sector. I think we can help a lot of people.
Brian: Thank you.
Michael Ha: And our next question comes from the line of Michael Ha with Bayard. Hi, thank you. Just firstly, really a pleasure working with you, Thomas. One of the best in the game. Also, congrats to Jim. And yes, switching gears, congrats on the quarter. Monster earnings beat. I was wondering first if you could elaborate a bit more on the MLR outperformance. Thomas, I know you mentioned Part D. I think you said benefited 1Q. So, I'm just curious how much of your MLR outperformance this quarter was attributed to any sort of pull forward of earnings into 1Q related to that changing Part D cadence this year?
Michael <unk>: And our next question comes from the line of Michael <unk> with Baird.
Michael <unk>: Hi, Thank you just firstly really pleasure working with you Thomas under the best in the game after a congrats to Jim.
Speaker Change: Yes switching gears congrats on the quarter Monster earnings beat I was wondering first if you could elaborate a bit more on the MLR outperformance comments I know you mentioned part D. I think you said benefited <unk>. So I'm just curious how much of your MLR outperformance. This quarter was attributed to any sort of pull.
Speaker Change: All forward of earnings and some <unk> related to that changing part D. Cadence, if youre trying to parse out figure out what the MLR performance would have been excluding part D and.
Thomas Freeman: Trying to parse out, figure out, you know, what the MLR performance would have been excluding Part D. And because I also thought in your 1Q guidance you may have already reflected that seasonality. Yeah. Hey, Mike. I appreciate the kind words, of course.
Speaker Change: Because I also thought in your <unk> guidance, you may have already reflected that seasonality change.
Yeah, Hey, Mike I appreciate the kind words of course.
Thomas Freeman: So in terms of our first quarter outperformance, we did allude to some early favorability we saw in Part D that we anticipate to reverse over the second to fourth quarters, leaving our kind of our full year expectations on Part D largely unchanged. It was pretty modest, to be quite honest. I would not say it was a significant driver of our outperformance in the quarter, but it was slightly better than our original expectations, where I think we had taken in just a bit more cautiousness and conservatism around what the first quarter Part D results might look like, given the many changing variables for 2025.
Speaker Change: So in terms of our first quarter outperformance, we did allude to some early favorability we saw in part D that we anticipate to reverse over the second to fourth quarters, leaving our kind of our full year expectations on part D largely unchanged.
Speaker Change: It was pretty modest to be quite honest I would not say it was a significant driver of our outperformance in the quarter, but it was slightly better than our original expectations were I think we had taken in just a bit more cautiousness and conservatism around what the first quarter part D results might look like given the many.
Speaker Change: Changing variables for 2025.
Thomas Freeman: Beyond Part D, I would say, you know, we did allude to some favorability in terms of our IV&P reserve releases from the prior year. Not all that fell at the bottom line, of course, because we share part of that back in the form of our risk pool and profit shares with providers. And quite honestly, a little bit of that I think is sort of normal course of operations. And I think it's very demonstrative of our ability to be both conservative, but also appropriate with how we think about our reserve setting, particularly on a big year like last year, where we had a lot of growth, not just in the first half, but in the back half of 2024.
Speaker Change: Beyond part D. I would say, we did allude to some favorability in terms of our IBP reserve releases from the prior year not all of that fell at the bottom line of course, because we share part of that back in the form of our risk pool and profit shares with providers.
Speaker Change: And quite honestly, a little bit of that I think it's sort of normal course of operations and I think is very good.
Speaker Change: Demonstrating our ability to be both conservative but also.
Speaker Change: Appropriate with how we think about our reserve setting, particularly on a big year like last year, where we had a lot of growth not just in the first half but in the back half of 2024, but I think big picture. When you think about the quarter. Our utilization was right in line with expectations slightly better on the inpatient ATK setting I think we're continuing to see solid progress in terms of our cohorts maturing.
Thomas Freeman: But I think big picture, you know, we think about the quarter, our utilization was right in line with expectations, in fact, slightly better on the inpatient ADK setting. I think we're continuing to see solid progress in terms of our cohorts maturing. And notwithstanding the Part D and the IV&R, we would have beaten the high end of our guidance range regardless without those two factors.
Speaker Change: And notwithstanding the part D and the IV in or we would have beaten the high end of our guidance range, regardless without those two factors. So big picture I think a lot of things are going well as we start the year and it really has had a very solid foundation towards our full year outlook.
Michael Ha: So big picture, I think a lot of things are going well as we start the year and really set a very solid foundation towards our full year outlook. Great, thank you.
Speaker Change: Great. Thank you and then just a quick.
Michael Ha: And then just a quick, or not a quick, but my follow-up question. So, heading into 26, you have a very favorable final rate notice. You have HAPs, Admin Measure Downweighting, so more star ratings tailwinds to come. So, it feels like rates are very much on your side next year, especially in a year where your competitors are still, you know, negative margins, benefits likely rational again. Yeah, just understanding that, why don't you get your thoughts on how you're going to approach this favorable rate dynamic next year? Because if my math is right, even, let's say, 300 bits better than expected 26 rates, after you pass through about a third of it to your global cap partners, that's still, I mean, roughly $90 million of additional rate tailwind.
Speaker Change: A quick but my follow up question. So heading into 2006, a very favorable final rate notice you have perhaps admin measure downgrading.
Speaker Change: Star ratings tailwind to come so it feels like rates are very much on your side next year, especially in a year, where your competitors are still negative margin benefits like the rationale again.
Speaker Change: Yes, just understanding that once you get your thoughts on.
Speaker Change: How how youre going to approach these favorable rate dynamic next year, because if my math is right, even let's say 300 bps better than expected 2000 and fixed rates. After you pass through about a third of it to your global cap partners, that's still I mean, roughly $90 million of additional rate tailwind. So.
John Kao: So, it could be a very powerful part of your EBITDA bridge next year if we assume rates flow through to margins. So, just wanted to get your thoughts on, you know, your posture toward margins versus growth next year. And yeah, any color there would be great. Thanks. Yeah. Hey, Michael, it's John. No, I think our relative advantages in STARS and our relative advantages on B28, which we've shared in the past, And I think your assessment of the, I would say, the larger players is actually... But I'd remind you there are still smaller players and not-for-profit types of players where, you know, anything can happen, you know, as we've seen in the past.
Speaker Change: Would be a very powerful part of your EBIT Bridge next year, if we assume rates flow through to margin. So just wanted to get your thoughts on.
Speaker Change: Your posture towards margin versus growth next year and.
John: Any color there would be great. Thanks, Yeah, Hey, Michael It's John.
Speaker Change: No I think our relative advantages in stars relative advantages of <unk> 28, which we've shared in the past will continue.
Speaker Change: So very pleased with the new final rate notice.
Speaker Change: And I think your assessment of I would say the larger players is actually accurate.
Speaker Change: But I'd remind you there are still smaller players and not for profit types of players where.
Speaker Change: Anything can happen.
Speaker Change: We've seen in the past.
John Kao: We've observed that those strategies where people are buying business are not durable, and so I think we've also demonstrated we're not going to go chase, you know, dumb business.
Speaker Change: Observed that those strategies, where people are buying business are not durable and so I think we've also demonstrated we're not going to chase business.
John Kao: And we're right literally in the throes of the bid process now, so we're not going to comment on the margin versus growth question. But we feel very, very well-positioned. Thank you.
Speaker Change: And we're right literally in the throes of the bid process now so we're not going to comment on.
Speaker Change: On the margin versus growth question at this point.
Speaker Change: But.
Speaker Change: We feel very very well positioned.
Speaker Change: Thank you.
John Ransom: And our next question comes from the line of John Ransom with Raymond James. Hey there, can you hear me? Yep. Hey John. Hey Thomas, congratulations, look forward to seeing where you land. So John, a little more of a soft question, but if we think about Ava today. What's it doing at kind of a patient engagement level that maybe is new and different than it was doing, you know, 1.0 version or a couple years ago? And then where else do you see some opportunity to continue to kind of knock down, you know, get into that 20% of the population that's all the cost and continue to drive down that cost curve?
Speaker Change: And our next question comes from the line of John Ransom with Raymond James.
John Ransom: Hi, there can you hear me.
Speaker Change: Hey, John.
John Ransom: Hey, Thomas Congratulations look forward to seeing where you land.
Speaker Change:
John Ransom: So John a little more of a soft question, but.
Speaker Change: If we think about Eva today.
Speaker Change: What's it doing it kind of a patient engagement level.
Speaker Change: That maybe is new and different than it was doing one point a version or a couple of years ago and then we.
Speaker Change: Where else do you see some opportunity to continue to kind of knockdown.
Speaker Change: Get into that 20% of the population that's all of the cost and continue to drive down that cost curve.
John Kao: Yeah, thanks, John. I think the stratification model, kind of the identification of who are the high risk members that ABA gives us is really working well. Our engagement with that population continues to go up, and I think the medical management and the proactive kind of at-home care support, all of that I think is working, both in California and ex-California, so I'm really happy about that. I think to your point, the next evolution of AVA, you know, requires us to have the, I call it the kind of culture of continuous improvement, where we're really looking at it and and zeroing in on what is the efficacy of every single module within AVA and what is the adoption rates, what are the returns, you know, what are we getting out of each module.
John Ransom: Yes, Thanks John.
Speaker Change: I think the stratification model.
Speaker Change: The identification of who are the high risk members.
Speaker Change: But it gives us is really working well.
Speaker Change: Our engagement with that population continues to go up and I think the medical management and proactive.
Speaker Change: Got it.
Speaker Change: At home care support all of that I think is working both in California, and ex California, So really happy about that.
Speaker Change: I think to your point.
Speaker Change: The next evolution of Eva.
Speaker Change: It requires us to have the.
Speaker Change: I would call it.
Speaker Change: The culture of continuous improvement.
Speaker Change: But we're really looking at at it.
Speaker Change: And zeroing in on.
Speaker Change: What is the efficacy of every single module within.
Speaker Change: Within Eva and what is the adoption rates what are the returns.
Speaker Change: What are we getting out of each module.
John Kao: And then we're going to double down on ones that are producing really good outcomes for us. We might sunset ones that are less and then we're going to be very focused on how we deploy capital with respect to our CapEx. Having said that, your question is a really good one, in that I think the entire... I would say member experience or member journey is going to be something that AVA helps us glue together and And as we've talked about from day one, having high quality I.D. stars and making sure that those gaps are closed at affordable costs, which is the M.L.R.
Speaker Change: Then we're going to double down on ones that are producing really good outcomes for us we might.
Speaker Change: Sunset ones that are less and then we're going to be very focused on how we deploy capital with respect to our capex.
Speaker Change: Having said that your questions are really good one.
Speaker Change: Debt.
Speaker Change: I think the <unk>.
Speaker Change: Tire.
Speaker Change: I would say member experience or member journey.
Speaker Change: Is going to be something that helps us glued together end to end.
Speaker Change: And as we've talked about from day, one having high quality IV stars and making sure that those gaps are closed at affordable cost, which is the MLR management clinical management.
John Kao: management, the clinical management and having those be core competencies inside the company is what we need to do. And I think AVA is going to evolve into that. And we're being very mindful for every part of that journey, really starting before a member is a member, that they're a consumer or prospect is part of that journey. And they come in and they become members and how we onboard them, how we support them, how we answer their questions, how we take care of them from a medical management point of view and care for the polychronic at home, as well as ensuring that the I think the administrative functions are really, really well run like star gap closures, be very, very compliant on Medicare risk adjustment and all the kind of the operational functions.
Speaker Change: And having those be core competencies inside the company.
Speaker Change: Is what we need to do and I think Eva is going to evolve into that and.
Speaker Change: We're being very mindful for every part of that journey.
Speaker Change: Really starting before.
Speaker Change: Our members are remember that they are a consumer of prospects as part of that journey and they come in.
Speaker Change: They become members and how we onboard them, how we support them how we answer their questions. How we take care of them from a medical management point of view and care for the other chronic at home.
Speaker Change: No.
Speaker Change: As well as ensuring that the I think the administrative functions are really really well on livestock gap closures to be very very compliant on mix.
Speaker Change: Medicare risk adjustment.
Speaker Change: And all of the kind of the operational functions all of that is working really well right now we need to really automated so that experience is completely seamless for that number.
John Kao: All of that is working really well right now.
John Kao: We need to really automate it so that experience is completely seamless for that. And I think, I think that will get to ultimately what you and I've talked about over the years for that, that consumer platform, the Medicare Advantage consumer platform is, is going to be able to take a lot of different of Revenue Models, and you know, given our performance as a company, we're our best referenceable customer. And so we want that, we want to keep that going, and then we can talk about what opportunities exist on the service side. Thanks so much. Thanks, John.
Speaker Change: And I think I think that will get to ultimately.
Speaker Change: <unk> talked about over the years, where that that consumer platform the Medicare advantage consumer platform.
Speaker Change: Is it is going to be able to take a lot of different.
Yes.
Speaker Change: What kind of revenue.
Speaker Change: Revenue models.
Speaker Change: No.
Speaker Change: Given our performance as a company.
Speaker Change: Where our best referenced in both customer and so we want that we want to keep that going.
Speaker Change: And then we can talk about what opportunities exist.
Speaker Change: On.
Speaker Change: On the services side.
Speaker Change: Thanks, so much.
Speaker Change: Chuck.
Operator: Thank you.
Speaker Change: Thank you.
Whit Mayo: And our next question comes from the line of Whit Mayo with Lyrinc Park. Hey, thanks and best of luck, Thomas. My first question is, given the membership growth this year and some of the peer commentary on RAF issues, can you talk about the visibility that you guys have on RAF on new members with the January premium payment from CMS, and maybe just elaborate more on the process that you have on estimating RAF on new members? Yeah, happy to, and I appreciate it, Whit. I'm not going anywhere overnight, but I appreciate the kind words. You know, in terms of the new member revenue PMPM, that is one of the advantages of being the health plan is we get visibility to our paid revenue PMPM on new members the first month of the year in January.
Speaker Change: Next question comes from the line of Whit Mayo with Leerink partners.
Speaker Change: Hey, Thanks, and best of luck Thomas.
Speaker Change: My first question just given the membership growth this year and some of the peer commentary on RAF issues can you talk about the visibility that you guys have on RAF on new members with the January premium payment from CMS and maybe just elaborate more on the process that you have on estimating graph on new members. Thanks.
Speaker Change: Yes happy to I appreciate it.
Speaker Change: I'm not going anywhere overnight.
Speaker Change: But I appreciate the kind words.
Speaker Change: In terms of the new member revenue <unk> is one of the advantages of being the health plan as we get visibility to our paid revenue Pnp on new members. The first month of January and so from a.
Thomas Freeman: And so from a revenue recognition standpoint, we actually book our revenue on the new members consistent with what we're being paid up until we see the mid-year sweeps. And so that creates a really conservative posture heading into the sweeps and ensures that we don't find ourselves surprised by having overestimated from what we might see on new members, which, again, the revenue PMPM for this year, based on last year's codes and activities, we don't have control over. So I think we've historically taken a conservative approach on that, and we feel very comfortable with our visibility on the new member revenue.
Speaker Change: Revenue recognition standpoint, we actually book our revenue on the new members consistent with what we're being paid up until we see the midyear sweeps and so that creates a really conservative posture heading into the suites and ensures that we don't find ourselves surprised by having overestimated from what we might see on new members, which again the revenue.
Speaker Change: <unk> for this year based on last year's Cogent activities, we don't have control over so I think we've historically taken a conservative approach on that and feel very comfortable with our visibility on the new member revenue Pbms.
Whit Mayo: Got it.
Speaker Change: Got it.
John Kao: And my second question or follow up is just on STARS, John, any new initiatives that have crystallized into 2025 for CAPS or anything that you care to share? Uh, yeah, no, it's been across the board, uh, emphasis on, on, on pretty much... But make sure that Regulatory changes with respect to caps is not something that we're just relying on, you know, nor is just the health equity index. something we're relying on. So it's just core operations, making sure that we are performance managing our IPAs, where they understand how we can improve our CAHPS scores. And in certain situations where the IPA is not doing the kind of job that we need, we are doing it.
Speaker Change: My second question or follow up is just on.
Starz John any.
Speaker Change: New initiatives that have crystallized into $2025 four for caps or anything that you care to share things.
Speaker Change: Yes, no it's been across the board.
Speaker Change: Emphasis.
Speaker Change: Pretty much everything.
Speaker Change: To ensure that.
Speaker Change: The regulatory changes with respect to caps is not something that we're just relying on nor is just the health equity index something we rely so just core operations, making sure that.
That we our performance managing our ipas, where they understand how we can improve our cap scores.
Speaker Change: In certain situations where.
Speaker Change: Yes.
Speaker Change: The IPA is not doing the kind of job that we need we are doing it.
John Kao: I think that's the main one. I think our Part D, our admin are all on track. We feel good about that. It's visibility that we have on a daily basis. And, you know, I feel very good about where we are, you know, I can't comment on the litigation with CMS. I'm not going to comment on that as it relates to the 2026 payment, but I will say that our dates of service in 2024 and our ratings in 2025 are on track. Okay, thanks. Thank you.
And I think Thats. The main one I think our part D. Our admin.
Speaker Change: Are all on track, we feel good about that visibility that we have on a daily basis.
Speaker Change: And.
Speaker Change: I feel very good about where we are.
Speaker Change: I can't comment on the.
Speaker Change: The litigation.
Speaker Change: We're not going to comment on that as it relates to 2026 payment.
Speaker Change: But I will say that.
Speaker Change: Sure.
Speaker Change: <unk> service in 2024, and our ratings from 25 are on track.
Speaker Change: Okay. Thanks.
Speaker Change: Thank you and our next question comes from the line of Jessica.
Jessica Tassan: Our next question comes from the line of Jessica Tassan with Piper Sandler. Hi, guys. Thanks so much for taking the question. Congrats on the quarter. And also, Thomas, congrats, and thanks for all the help the last couple of years.
Speaker Change: Often with Piper Sandler.
Jessica: Hi, guys. Thanks, so much for taking the question congrats on the quarter and also Thomas Congrats and thanks for all the house.
Speaker Change: The last couple of years.
John Kao: I think just I'm interested to know how are you all expecting the competitive landscape in California specifically to change in 26, just as, you know, competitors try to capitalize on the rate announcement? I think we saw a press release from Scan and Sutter a few weeks back. So just interested to know what sorts of investments you might make in the fourth quarter to kind of brace the sales force for increasingly competitive land. Yeah, no, I mean, I think the key thing to think about is that given the rate notice, I think that's going to advantage everybody relative to the advance notice, obviously.
Speaker Change: Thank you.
Speaker Change: And to know how how are you all expecting the competitive landscape in California, specifically the change in 'twenty six.
Speaker Change: Yes.
Speaker Change: Competitors trying to capitalize on the rate announcement I think we saw in <unk>.
Speaker Change: A press release from scanners that are a few weeks back so just interested to know.
Speaker Change: What sorts of investments you might make in the fourth quarter to kind of frame the.
Speaker Change: The sales force.
Speaker Change: And increasingly competitive landscape.
Speaker Change: Yes, no I mean, I think I think the.
Speaker Change: The key thing to think about is that given the rate notice I think thats going to advantage everybody.
Speaker Change: Relative to the.
Advance notice obviously.
John Kao: But the relative advantages for both, I underscore both, STARS and V-28, I think is something that we'd still feel very strongly. You know, the Sutter organization is a friend of ours, we like each other, we are one of two really plans they intend to work with in the coming year. Um, and so we feel good about that. Um, you know, does it create some complexities? Yeah, it does. But I'm not really particularly worried about it. And I think there are some other smaller players that are in the marketplace that we have to be mindful of.
Speaker Change: But the relative advantages to both underscore both.
Speaker Change: Stars and B 28, I think is something that we still feel very strongly.
Speaker Change: Yes.
Speaker Change: The Sutter.
Speaker Change: Organization is a friend of ours.
Speaker Change: We like each other.
Speaker Change: We are one of two really plants, they intend to work with.
In the coming year.
Speaker Change: And so we feel good about that.
Speaker Change: Does it create some complexities yes it does.
Speaker Change: I am not really particularly worried about it.
Speaker Change: And.
Speaker Change: I think there are some other smaller players.
Speaker Change: That are in the marketplace that we have to be mindful of.
John Kao: Um, as it relates to kind of our short term, uh, 2026 considerations. I would be surprised if they had long-term, you know, if they were a long-term threat to us. I don't particularly see that. I think from what we see, what they're doing is not sustainable. And I think, again, we've seen that come and go over the last several years. I think there's going to be a lot of opportunity given the STARS declinations and I would think people are going to be, you know, certainly the larger players that we've all read about are going to be more margin expansion focused.
Speaker Change: As it relates to kind of our short term.
Speaker Change: 2026 considerations.
Speaker Change: I would be surprised if they had long term.
Speaker Change: They were long term threat to us.
Speaker Change: Particularly see that.
Speaker Change: <unk>.
Speaker Change: What we see but what they're doing is not sustainable.
Speaker Change: Again, we've seen that come and go over the last several years.
Speaker Change: I think theres going to be a lot of opportunity.
Speaker Change: The Starz declarations.
Speaker Change: And I would I would think of people.
Speaker Change: People are going to be certainly the larger players that we've all read about are going to be more margin expansion focus and everything else.
Speaker Change: Yeah.
John Kao: So I feel good. But again, like I mentioned, we're right in the middle of the bids.
Speaker Change: So I feel good.
Speaker Change: But again like I mentioned, we're right in the middle of.
Speaker Change: The bids so I'm not going to comment on that part of it.
John Kao: So I'm not going to comment on that part of it. uh but uh I don't think we've been in a stronger position than we are right now. is what I would say, heading into 2020. relative to everybody. And remember, the B28 thing is a big deal, it's a big deal, and many of our competitors are reliant upon global cap providers who are experiencing meaningful declination because of the That's going to impact our competitors rather than us.
Okay.
Speaker Change: But.
Speaker Change: I don't think we have been in a stronger position than we are right now.
Speaker Change: What I would say heading into 2026 rare.
Speaker Change: Relative to that.
Speaker Change: Remember the B 28 thing is a big deal.
Speaker Change: Big deal in many of our competitors are.
Why upon global cap.
Speaker Change: Providers, who are.
Speaker Change: Experiencing mean.
Speaker Change: Meaningful.
Speaker Change: Explanation because it would be 28.
Speaker Change: Going to impacted competitors revenues.
Jessica Tassan: That's really helpful. I guess that actually is my next question. I'm interested to know if you guys are getting any feedback or requests from your capitated providers for increased either MLR concessions or just Part D carve-outs, just any changes in those contracts. I guess the way that we look at it, at least your capitated provider MLRs are considerably higher than your at-risk tenured member MLRs. At what point do you start to reassume that risk from those capitated providers to capture the margin that is effectively getting lost?
Speaker Change: That's really helpful. I guess that actually it's my next question for.
Speaker Change: You guys are getting any feedback or request from your capital providers or.
Speaker Change: Increased.
Speaker Change: They're either MLR concessions or just add.
Speaker Change: Part D carve out and just any changes in the contracts and then I guess.
Speaker Change: The way that we look at it at least capital provider MLR is RF are considerably higher than your at risk tenured member annualized and Theyre just at what point do you start to kind of.
Speaker Change: We assume that risk from Louis capital providers to capture.
Speaker Change: The margin.
Speaker Change: Also possibly getting off thanks.
Thomas Freeman: Thanks.
Thomas Freeman: Hey Jess, Thomas here. So I think in terms of your question on on how we contract with our global cap IPAs and providers, I'd say what we do is maybe a little bit different than a few others, and so our global cap IPAs, more often than not, they do not take any risk on Part D, nor do they have any risk on supplemental benefits, and so what that does is it creates a more, I think, aligned relationship versus what you've heard about in other situations nationally where providers have felt like they're getting dumped benefit adjustments or increases on them without any seat at the table to make any kind of choices around those.
Speaker Change: Hey, just Thomas here so.
Speaker Change: So I think in terms of your question on on how we contract with our global cap.
Speaker Change: And providers.
Speaker Change: I would say.
Speaker Change: What we do is maybe a little bit different than a few others and so.
Speaker Change: Our our global cap Ipas Moura.
Speaker Change: More often than not they do not take any risk on part D. Nor do they have any risk on supplemental benefits and so what that does is it creates a more I think.
Speaker Change: <unk> relationship versus what you've heard about in other situations nationally where providers that felt like they are getting dumped benefit.
Speaker Change: Adjustments or increases on them without any seat at the table to make.
Speaker Change: Any kind of.
Speaker Change: Sure choices around those decisions. So from our perspective is not something we've experienced in terms of providers coming back to the table I think we're in a pretty good place from that perspective.
Thomas Freeman: So, from our perspective, that is not something we've experienced in terms of providers coming back to the table. I think we're in a pretty good place from that perspective. And we're very aligned with them moving forward. And I think as we think about the overall book of business, you know, we do want to continue to grow the at-risk book of business where we manage institutional costs, and that does allow us to share in the profits with the providers as we drive down those MBRs for those more tenured members. At the same time, we have a number of good global cap partners, and we'll continue to work with those so long as we're hitting all of our marks on things like STARS performance, retention, data exchange, and a series of other things that are really important to us as far as ensuring that we have long-term durability to our contracts.
Speaker Change: And we're very aligned with them moving forward and I think as we think about the overall book of business. We do want to continue to grow the at risk book of business, where we manage the institutional costs and that does allow us to share in the profits with the providers as we drive down those MBR. So that's more tenured members.
Speaker Change: At the same time, we have a number of good global cap partners and will continue to work with those so long as we're hitting all of our marks on things like stars performance retention data exchange and a series of other things that are really important to us as far as ensuring that we have long term durability to our contracts.
Thomas Freeman: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you and our next question comes from the line of Joanna Good joke with Bank of America.
Joanna Gudjuk: And our next question comes from the line of Joanna Gudjuk with Bank of America. Oh, hi. Thanks so much for taking the question. So if I made a couple of related questions around the reimbursement, right? So I'll be talking about how the final rate notice was better.
Joanna Good: Hi, Thanks, so much for taking the question so if I may.
Joanna Good: I guess, a couple of related questions around reimbursement right. So I'll be talking about how the final rate notice was better.
John Kao: So first part of the question is, do you expect these rates to keep getting better as CMS tries to catch up with these higher trend levels the last few years? And on the other hand, you know, is there any indication or sense you're getting in D.C. for any appetite for, you know, additional risk adjustment model changes, maybe? And I guess if that was to happen, right, the question is, like, how would you think this would impact your company? Would this be a headwind or kind of, you know, a repeat of the most recent experience, another kind of opportunity to get more market share?
Joanna Good: The first part of the question is do you expect the suite to keep getting better.
Joanna Good: Yes.
Speaker Change: Chop with these.
Joanna Good: Higher trend levels the last few years.
Joanna Good: And on the on the other hand.
Joanna Good: Is there any indication or defense, you're getting in D. C for any appetite for additional risk adjustment model changes maybe.
Joanna Good: And I guess that was to happen where the question is like how would you think this with.
Joanna Good: Impact to your company would be a headwind or kind of.
Joanna Good: Pete on the most recent experience so not there kind of opportunity to get more market share. Thank you.
John Kao: Thank you. Oh, that's a great question. It's John. You know, just I just remind you that We've built the business. with specifically the ability to thrive in either an increasing or decreasing rate of And as you've demonstrated over the last couple of years. If rates are compressed, which they obviously have been in the last four years, but in particular the last couple of years would be 28, and the stars tightening, we have thrived, and it's because we have focused on having the best quality at the lowest cost. So when you're the low-cost producer of quality products, you have an advantage when it's tight.
Joanna Good: That's a great question John.
Just I'll just remind you that.
Joanna Good: We built the business.
Joanna Good: With specifically the ability to thrive in either increasing or decreasing rate environment.
Joanna Good: And as we've demonstrated over the last couple of years.
Joanna Good: If rates are compressed, which they obviously have been really last four years, but particularly the last couple of years would be 28.
Joanna Good: Starz tightening.
Joanna Good: We have slides.
Joanna Good: Because we have focused on.
Joanna Good: Having the best quality at the lowest cost.
Joanna Good: And so when you when you are the low cost producer of quality products.
Joanna Good: You have an advantage when it has tightened up.
John Kao: When rates go up, which they will in 2026, our relative advantages are going to still be in place. So we think that there's an opportunity for marginal expansion. um and and so in the context of all those rise in the rising tide. Now, to some of the previous questions that others have asked, I think that the competitive dynamic is going to play to our favor. just just because of what you've been reading with the bigger. Smaller folks, it's hard to say what they're going to do. But again, I think, given our position, we feel very good about where we are.
Joanna Good: When rates go up which they will in 2026, our relative advantages are going to still be intact, and so we think that there's an opportunity for margin expansion.
Joanna Good: And so.
Joanna Good: In the context of all boats rise in a rising tide.
Joanna Good: Now to some of the previous questions that others have asked.
Joanna Good: I think that.
Joanna Good: The competitive dynamic is going to play to our favor.
Joanna Good: Just just because of what you've been reading with the bigger folks smaller folks it's hard to say, what they're going to do.
Joanna Good: But again I think given our position we feel we feel very we feel very good about where we are.
Joanna Good: Thank you.
Matthew Gillmor: And our next question comes from the line of Matthew Gillmor with KeyBank. Hey, thanks for the question and good luck to Thomas and Jim. But I just wanted to follow up on some of the utilization comments, and we appreciate the visibility you all provided the ADK metric. And we understand the mixed dynamics at play this quarter. Are you able to look at that on a same store, same member basis? And would it be fair to assume that it was sort of flat to down if you normalize for that membership mixed dynamic?
Speaker Change: And our next question comes from the line of Matthew Gilmore with Keybanc.
Speaker Change: Hey, Thanks for the question and good luck to Thomas and Jim.
Speaker Change: But I just wanted to follow up on some of the utilization comments.
Speaker Change: We appreciate the visibility you all provided the ATK metric and we understand that the mix dynamics at play. This quarter are you able to look at that on a on a same store same member basis would it be fair to assume that it was sort of flat to down if you normalize for that membership mix dynamic.
Thomas Freeman: Yeah, it would have been roughly flat.
Speaker Change: Yes, it would've been roughly flat.
Thomas Freeman: And then, Thomas, any additional comments on utilization in terms of, you know, other categories, whether that's outpatient or however else you want to slice and dice it, and anything else kind of to call out in terms of how things are trending relative to expectations? Yeah, happy to. So I think a couple thoughts. First is one of the reasons we like the inpatient KPI is I think it's a very strong leading indicator for other categories of spend, such as skilled nursing, home health. ER visits per thousand, things that are kind of preceding the inpatient admission and that then typically occur post-discharge.
Speaker Change: And then Thomas any any additional comments on utilization in terms of.
Speaker Change: Other categories, whether that's outpatient or however else you want to slice and dice it and anything else.
Speaker Change: To call out in terms of how things are trending relative to expectations.
Speaker Change: Yeah happy to so I think a.
Speaker Change: A couple of thoughts first as.
Speaker Change: One of the reasons, we liked the inpatient Kpis is I think it is a very strong leading indicator for other categories of spend such as skilled nursing home health.
Speaker Change: ER visits per thousand.
Speaker Change: Things that are kind of.
Receding the inpatient admission and that then typically occur post discharge and so when you think about the inpatient kpis stability and in the first quarter outperformance versus expectations. I think we would expect to see similar types of performance along some of those key categories.
Thomas Freeman: And so when you think about the inpatient KPI stability and in the first quarter outperformance versus expectations, I think we would expect to see similar types of performance along some of those key categories.
Thomas Freeman: I think from an overall outpatient standpoint, we continue to feel good about the trends there. I know that was a big topic over the last few years, whereas we didn't quite fully see the increase some of the others saw. I would say particularly with respect to 2024, where we now have pretty much full visibility to last year's claims experience, that was one area that actually ran below expectations in terms of our anticipated year-over-year trend in 2024. So I think we're continuing to feel good about that through the first quarter.
Speaker Change: From an overall outpatient standpoint, we continue to feel good about the trends there.
Speaker Change: I know that was a big topic over the last few years, whereas we didn't quite fully see the increase some of the other saw I would say, particularly with respect to 2024, where we now have pretty much full visibility to last year's claims experience that was one area that actually ran below expectations in terms of our anticipated year over year trend in 2000.
Speaker Change: For so I think we're continuing to feel good about that through the first quarter.
Thomas Freeman: And I would just add that from a pharmacy standpoint, we have many seen, similar to others, seen an increase in some of the pharmacy spend during the first quarter. Generally along with our expectations, but as we've discussed in the past, I think we took a fairly conservative posture on how we thought that would unfold during 2025. And so while it is within the overall realm of expectations, we have seen a pretty sizable increase year-over-year. Similar to others thematically, we've seen that with some of the specialty drugs, some of the non-low-income subsidy populations. But I think we feel good about our ability to forecast from here what the rest of the year will look like based on the first.
Speaker Change: And I would just add that.
Speaker Change: From a pharmacy standpoint, we have seen similar to others seen an increase in some of the pharmacy spend during the first quarter.
Speaker Change: Generally one other expectations, but as we've discussed in the past I think we took a fairly conservative posture on how we thought that would unfold during 2025 and so while it is within the overall revenue expectations, we have seen.
Speaker Change: Pretty sizable increase year over year similar to other somatic, we we've seen that with some of the specialty drugs. Some of the non low income subsidy populations, but I think we feel good about our ability to kind of forecast from here what the rest of the year will look like based on the first quarter results.
Matthew Gillmor: Got it.
Speaker Change: Got it thanks very much.
Jonathan Young: Thanks very much. And our next question comes from the line of Jonathan Young with UBS. Hey, thanks for taking the question. I guess just going back to kind of the Part D portion of the business. Are you seeing any behavior changes that are kind of becoming evident right now? I know it's within the realm of your expectations, but is anything changing from your perspective? And, you know, how much visibility do you have right now into kind of where it's heading towards as we progress throughout the year? Yeah.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Jonathan Young with UBS.
Jonathan Young: Hi, Thanks for taking the question I guess, just going back to kind of the part D portion of the business are you seeing any behavior changes are kind of becoming evident right now I know, it's within the realm of your expectations, but is there anything changing from your perspective and how much visibility do you have right now.
Jonathan Young: Where it's heading towards as we progress throughout the year.
Jonathan Young: Yeah, Hey, Jonathan Thomas Here I think to your point, we have seen I think a little bit of uptick and like I said, the non low income subsidy population, which is where if any there would be some of the behavioral changes that might be caused by the changes in 2025 part D would be inflation reduction act. So I think we've seen.
Thomas Freeman: Hey, Jonathan Thomas here. I think, to your point, we have seen, I think, a little bit of uptick in, like I said, the non-low-income subsidy population, which is where, if any, there would be some of the behavioral changes that might be caused by the changes in 2025 Part D related to the Inflation Reduction Act. So I think we've seen a little bit of that, similar to others. At the same time, though, like I said, one of the great things about the Part D program is you get real-time claims visibility. So as we sit here through the end of April and given that our first quarter generally ran within expectations, I think we feel pretty good about our full-year visibility.
Jonathan Young: Similar to others.
Jonathan Young: At the same time, though like I said, one of the great things about the part D program as you get real time claims visibility. So as we sit here through the end of April and given that our first quarter generally ran within expectations I would feel pretty good about our full year visibility.
John Kao: You know, more to come as we get through the second quarter, but I would say, at this point, it's definitely a good place for us in terms of where we thought we would be when we started the year back in April. Okay. And then, you know, the CMS and the administration has talked about trying to limit or reduce the use of prior authorization. They obviously haven't introduced anything yet, but how are you kind of thinking about this and what it may mean for you and kind of the industry at large? Thanks. So, you know, I think from our perspective, one of the mottos of this company is more care, not less care.
Jonathan Young: More to come as we get to the second quarter, but I would say at this point it's definitely.
Jonathan Young: A good place for us in terms of where we thought we would be when we started the year back in January.
Jonathan Young: Okay and then.
Jonathan Young: The CMS and the administration has talked about trying to limit or reduce the use of prior authorization.
Jonathan Young: Obviously, we haven't introduced anything yet, but how are you kind of thinking about this.
Jonathan Young: Maybe for you and kind of the industry at large.
Jonathan Young: Yeah.
Jonathan Young: So I think from our perspective, one of the models of this company is more care not west care and so.
John Kao: And so, you know, the way we look at it is when we look at our UMOTH and denial rates, we historically have been considerably below the national averages for Medicare Advantage. And our whole theory is built upon this idea that if you provide the right care to the right people, you're going to have the right population engaged in order to control the vast majority of your costs. There's going to be a much, much larger portion of the population that is going to drive a much lower portion of the overall spin, and really ensuring that they're getting directed to the right high-quality networks is our goal.
Jonathan Young: The way we look at it is when we look at our <unk> and denial rates. We historically have been considerably below the national averages for Medicare advantage and our whole theory is built upon this idea that if you can provide the right care to the right people youre going to have the right population engage in order to control the vast majority of your costs.
Jonathan Young: There's going to be a much much larger portion of the population that is going to drive a much lower portion of the overall spend and really ensuring that they're getting direct it to the right high quality networks as our goal. So from our standpoint is not something that keeps us up at night and I would say from a competitive perspective is one of our potential tailwind heading into the years ahead.
John Kao: So from our standpoint, it's not something that keeps us up at night. And I would say from a competitive perspective, it's one of our potential tailwinds heading Thanks. Thank you.
Jonathan Young: Thanks.
Jonathan Young: Thank you.
Ryan Langston: And our next question comes from the line of Ryan Langston with TD Cal. Great, thanks.
Operator: Our next question comes from the line of Ryan Langston with TD Cowen.
Speaker Change: Great. Thanks, welcome Jim and Thomas just thanks always enjoyed our interactions through the year. So I appreciate it.
Thomas Freeman: Welcome, Jim and Thomas. Just thanks. Always enjoyed our interactions through the years, so appreciate it. I know you called out the $6 million favorable EBITDA release, but the total PYD looked really strong. Give us a sense on what maybe drove that that strength. Yeah, so I think you're maybe referring to the the difference in the footnote on our IVNR release versus what is in the table around the prior year. And so that dynamic is really driven more so by the margin in LAE pad that we apply against our IVNR reserves. So the way to think about that is that's roughly an extra 7% that we add to our reserves.
Speaker Change: I know you called out the $6 million favorable EBITDA release, but the total <unk> looked really strong kind of versus historical first quarters can you give us a sense on what maybe drove that strength versus.
Speaker Change: The historical.
Speaker Change: Yes, so I think you're maybe referring to the.
Speaker Change: The difference in the footnote on our IV in our release versus what it is on the table around the prior year and so that dynamic is really driven more so by the margin in L. A L E pad that we apply against our <unk> reserves. So the way to think about that is that's roughly an extra 7% that we add to our reserve.
Thomas Freeman: That is intended to ensure that, you know, in a worst case scenario, we have adequate reserves for run out purposes. But from our perspective, that 7% is something that we never anticipate really needing to use. It's intended to be cushioned and keep us compliant with the states, amongst other things. So I think that's really driving the difference between the tables. So I don't look at the 13, 14 million in the footnote table as the driver in the quarter. I really focus on the 6 million you mentioned in the footnote. And I would note that on that six, again, not all of that falls to the bottom line.
Speaker Change: That is intended to ensure that.
Speaker Change: Worst case scenario, we have adequate reserves for right out purposes, but from our perspective that 7% is something that will be never anticipate really needing to use its intended to be cushion and keep us compliant with the state's amongst other things. So I think that's really driving that difference between the tables. So I don't look at the $13 million to $14 million in footnote <unk>.
Speaker Change: As the driver in the quarter I really focus on the $6 million you mentioned in the footnote.
Speaker Change: And I would note that on that six again, not all of that falls to the bottom line a portion of that we do share back with providers in the form of our risk pools and profit share. So I would say it was a part of the first quarter outperformance, but definitely not one of the larger drivers.
Thomas Freeman: A portion of that we do share back with providers in the form of our risk pools and profit shares. So I would say it was a part of the first quarter outperformance, but definitely not one of the larger drivers. Got it. And. Obviously, the 26 rate over 5% is good. Is there a way, I think historically you've given us the weighted average rate, I think it was about 5% for 2025. Can you give us that for 2026 for alignment versus the just sort of overall rate? Yeah, so, you know, I think we tend to focus, you know, first and foremost on sort of the top line of the table that CMS puts out the effective growth rate as a starting point for us.
Speaker Change: Got it and.
Speaker Change: Obviously, the 26 rate over 5% is good.
Speaker Change: Is there a way I think historically, you've given us the weighted average rate I think it was about 5% for.
Speaker Change: For 2025 can you give us that for 2026 for alignment versus the just sort of overall right.
Speaker Change: Yes, so I think we tend to focus first and foremost on sort of the top line of the table that CMS puts out the effective growth rate starting point for us.
Thomas Freeman: So nationally, it looks to be about 9% for 2026. I think our weighted average across our markets is approximately 8%. And so I think that would compare to last year, you're right, at about 5% for the overall company. So, you know, I think as John was saying, I think that provides us a lot of kind of flexibility as we think through both our growth and margin goals for 2026. All right.
Speaker Change: Nationally it looks to be about 9% for 2026, I think our weighted average across our markets is approximately 8%.
Speaker Change: And so I think that would compare to last year, you're right at about 5% to the overall company. So I think as John was saying I think that provides us a lot of.
Speaker Change: Kind of flexibility as we think through both our growth and margin goals for 2026.
Thomas Freeman: Thank you.
Speaker Change: Alright, thank you.
Speaker Change: Thank you.
Andrew Mok: Our next question comes from the line of Andrew Mok with Barkley. Hi, good evening, just wanted to echo congratulations and best wishes to Thomas in your new role. I wanted to clarify the Part D seasonality. I think the initial expectation was that Part D MLR would improve throughout the year. Now it sounds like Part D MLR will be increasing. Can you help us understand what you're seeing on Part D trends that would flip the cost curve? Because it doesn't sound like 1Q performance was that off plan. Thanks.
Speaker Change: Our next question comes from the line of Andrew Mok with Barclays.
Yes.
Andrew Mok: Hi, Good evening, just wanted to echo congratulations and best wishes to Thomas.
Speaker Change: In your new role.
Speaker Change: I wanted to clarify that part D seasonality I think the initial expectation was that part D. MLR would improve throughout the year now it sounds like part D. MLR will be increasing can you help us understand what you are seeing on part D trends that would flip the cost curve because it doesn't sound like <unk> performance was that off plan. Thanks.
Thomas Freeman: Yeah, I'm happy to take that one. So, well, I think what we would expect is that the second and third quarters do still continue to improve in terms of MBR versus the first quarter, though I think, you know, on the fourth quarter, I think it's possible that there could be an uptick on Part D specifically in the fourth quarter. But I think big picture, you know, we still anticipate the first half MBR to be higher than the second half on Part D.
Speaker Change: Yes happy to take that one so I think what we would expect is that the second and third quarters do still continue to improve in terms of MBR versus the first quarter.
Speaker Change: I think on the fourth quarter I think it is possible that there could be an uptick on part D. Specifically in the fourth quarter, but I think big picture, we still anticipate the first half MBR to be higher than the second half on part D.
Speaker Change: Okay.
Thomas Freeman: Great, and maybe just a follow-up on that. Thomas, I think you made a comment that Part D PMPMs would increase throughout the year. Can you help us understand what would cause that? Thanks. You mean from a medical expense standpoint? I thought it was on a revenue standpoint, but if it makes if it's on a medical expense standpoint, no, that makes perfect sense. I understand the question now. Yeah. So, from from a revenue standpoint, it has to do with both the sweep timing, where I think we'll likely to see some, some revenue PMP impact from the sweeps as we get to the end of the 2nd quarter.
Speaker Change: Great and then just a follow up on that Thomas I think you made a comment that part D. <unk> would increase throughout the year can you help us understand what would cause that thanks.
Speaker Change: You mean from a medical expense standpoint.
Speaker Change: I thought it was on a revenue standpoint, but if it makes episodic medical expense standpoint.
Speaker Change: Okay.
Speaker Change: No that makes perfect sense I understand the question now.
Speaker Change: So from a from a revenue standpoint, it has to do with both the sweet timing, where I think we'll likely to see some some revenue impact from the suites as we get to the end of the second quarter and then it also has to do with the way we book our risk corridor revenue, where today, we are in a payable position and booking contra revenue that we would anticipate that to reverse over the course.
Thomas Freeman: And it also has to do with the way we book our risk corridor revenue, where today we are in a payable position and booking contra revenue that we would anticipate that to reverse over the course of the year and actually start contributing to overall revenue PMP in a positive way. Got it, understood, thank you.
Speaker Change: Of the year and actually start contributing to overall revenue <unk> in a positive fashion.
Speaker Change: Got it understood. Thank you.
Speaker Change: Thank you.
Operator: Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.
Speaker Change: Ladies and gentlemen, thank you for participating this does conclude today's program and you may now disconnect.
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