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spk22: you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please note that this event is being recorded. Leading today's call are John Kao, founder and CEO, and Thomas Freeman, chief financial officer. Before we begin, we would like to remind you that certain statements made during this call will be forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions, and information currently available to us. Descriptions of some of the factors that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in our filings with the SEC, including the risk factors section of our annual report on Form 10-K for the fiscal year ended December 31, 2023. Although we believe our expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. In addition, please note that the company will be discussing certain non-GAAP financial measures that they believe are important in evaluating performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the press release that is posted on the company's website and in our Form 10-Q for the fiscal quarter ended March 31, 2024. I would now like to hand the conference over to your speaker today. John Kao, founder and CEO. You may begin.
spk16: Hello, and thank you for joining us on our first quarter earnings conference call.
spk15: For the first quarter 2024, our health plan membership of 165,100 members represented approximately 50% growth year over year. Total revenue of $629 million grew approximately 43%, year-over-year, and approximately 54% excluding ACO reach. Adjusted gross profit was $57 million, producing a consolidated MBR of 90.9% and an MBR excluding Part D of 88.3%. Meanwhile, our adjusted EBITDA of negative $12 million exceeded the high end of our first quarter outlook range and represents solid progress toward our full-year adjusted EBITDA objectives. Growth in the first quarter significantly outperformed expectations. This result continued to be driven by increased member retention, improved sales operations, and competitive product offerings. Meanwhile, our ability to achieve our adjusted EBITDA outlook while scaling to support four times the number of new members demonstrates the power of our integrated data insights, clinical model, shared risk provider partnerships, and operating platforms. Central to our results is AVA's visibility into emerging trends, which allows us to rapidly deploy our clinical teams to improve care outcomes and control our medical costs, even while achieving rapid growth. The combination of these differentiated capabilities led to a first quarter consolidated MBR of 90.9%, reflecting only a modest year-over-year increase in our MBR, despite growing membership 50% relative to 17% a year ago. This strong result is underscored by an MBR excluding Part D of 88.3% and a Part D MBR of 129%, both consistent with expectations and a further indication of our early success in managing our new members. Thomas will expand more on Part D seasonality in his remarks. Following a strong first quarter, we're raising our full-year membership and revenue guidance. raising the low end of our adjusted gross profit guidance, and narrowing our adjusted EBITDA range. Our updated guidance reflects expectations for continued membership growth momentum, a greater mix of new members, our confidence in our clinical model, and improving operating leverage on adjusted SG&A. To manage our significant membership growth, our top priorities in the first quarter were providing our new members with exceptional onboarding experience and engaging with members who have the greatest chronic health needs. From a service delivery standpoint, our past investments in AVA consumer and insourcing member experience delivered exceptional results. These efforts resulted in an MPS of 69 at the end of 2023, a 30% reduction year over year in our first quarter new member voluntary disenrollment rate, and a 4.9 stars Google rating across more than 4,000 reviews. All of this was accomplished while achieving over 50% membership growth. By improving member satisfaction and reducing disenrollment rates, we lower our member acquisition costs, raise our star measures, improve our net growth, and increase the lifetime value of our membership. From a care management standpoint, the visibility created by our real-time utilization data allows us to quickly engage high-risk members to manage care and control costs market by market. we immediately began managing new members who experienced an acute episode in January and successfully engaged approximately 70% of new members post-discharge. This resulted in 141 inpatient admissions per thousand for new members and 151 admissions per thousand overall. We expect to build upon the strength of these results throughout the year as we ramp up our Care Anywhere engagement. AVA stratification of at-risk members sees a significant jump 30 days after enrollment as our real-time data feeds analyze pharmacy data, lab values, admission, discharge, transfer information, and other data sources. This presents us with the greatest cost improvement opportunity in the second, third, and fourth quarters as we raise our high-risk new member engagement levels. Once engaged, high-risk members typically see a 30% net improvement in institutional claims over the following 12 months. This, combined with our focus on improving outpatient quality outcomes, which drives lower costs, gives us confidence in our continued MBR improvement throughout the year, consistent with our full year outlook. Looking ahead to 2025, we believe we are well-positioned to grow health plan membership at or above 20% while expanding margins. As we plan for the current bid cycle, we believe we have distinct tailwinds that support our financial position and competitive advantages. First, there are over 1.2 million HMO members in our California markets who are in plans that will be rated below four stars in 2025, including approximately 700,000 who are in plans that are receiving four star or above payment today but will be dropping below a four-star payment next year. Meanwhile, roughly 95% of our California members are in plans that will have four-star payment level in 2025. The difference between a three-and-a-half-star and a four-star plan is approximately 5% less per member revenue, while the difference between a three-star and a four-star plan is approximately 10% less member revenue. We expect this funding advantage to support our ability to offer attractive benefits while improving consolidated margins. Second, we believe the continued phase-in of the D28 risk model changes will further widen our relative advantage in risk adjustment. And third, following the announcement of the final Medicare Advantage rate notice, we expect a weighted average change in our effective growth rate of 5% which is more than double the national average of 2.4%. These factors combined with our differentiated operating platform and strong retention of new members gives us confidence in our ability to deliver both growth and margin improvement in 2025. In conclusion, I'd like to thank each of our employees for being part of a team that is raising the standard for what it means to do Medicare Advantage right. Our unique degree of visibility, combined with our clinical and operational execution, is enabling us to navigate the dynamics facing the MA sector and gives us confidence in our 2024 outlook. Combined with tailwinds in 2025 on relative STARS advantages, positioning into the continued risk model phase-in, clarity on benchmark changes in 2025, and increased scale, I believe we will achieve both strong growth and margin improvement in 2025. Taken together, we believe our operating model will continue to prove alignment is the optimal Medicare Advantage platform for today and for the future. Now I'll turn the call over to Thomas to further discuss our financial results and outlook. Thomas?
spk04: Thanks, John. For the quarter ending March 2024, our health plan membership of 165,100 increased 50% year-over-year. This exceeded our expectation of 44% membership growth at the midpoint of our first quarter guidance, as well as our year-end guidance range of 162,000 to 164,000 members. Our first quarter revenue of $629 million represented 43% growth year-over-year and 54% growth excluding ACO REACH. The top-line outperformance was primarily a function of higher health plan membership as our superior value proposition continued to resonate in the market. Adjusted gross profit in the quarter was $57 million, representing an NBR of 90.9%. The modest increase year-over-year was driven by a significantly larger portion of new members, reflecting strong control over our medical costs, even as we grew membership by 50% compared to 17% a year ago. First quarter performance was driven by favorable inpatient utilization relative to expectations, with overall inpatient admissions per thousand of 151 declining 8% year over year. Our favorable utilization performance was partially offset by higher inpatient unit costs related to CMS's increase in 2024 fee-for-service rates and greater supplemental benefit utilization. As John mentioned, our first quarter results reflect an MBR excluding Part D of 88.3% and a Part D MBR of 129%, both in line with expectations. As a reminder, Part D profitability improves over the course of the year as the health plan's cost share declines meaningfully after the initial coverage fix. Consistent with normal seasonality, Part D increased our consolidated MBR by 260 basis points during the first quarter. Through the remaining three quarters of the year, we expect Part D to lower our consolidated MBR by 150 basis points. This results in a net change of roughly 400 basis points between the first quarter and the remainder of the year. We expect our Part C MBR to be only modestly higher for the rest of the year, meaning that Part D will be the primary driver of seasonality between the first quarter and the following three quarters. During the quarter, it's worth noting that we were not materially impacted by the cybersecurity incident that disrupted a national claims clearinghouse. Importantly, we do not use this clearinghouse for pharmacy claims, prior authorization, or provider claims payment functions. While we experienced a temporary dip in claims receipt in February due to the use of the impacted clearinghouse by a small number of our providers, we believe we are currently at normalized claims flow levels. SG&A in the quarter was 90.5 million. Our adjusted SG&A was 69 million, an increase of 37% year over year. Adjusted SG&A, the percentage of revenue excluding ACO REITs, decreased by approximately 140 basis points year over year. We continue to expect even greater SG&A ratio improvement over the next three quarters, which I will share more on shortly. Lastly, our adjusted EBITDA was negative 12 million, ahead of expectations and putting us on track to achieve our full year adjusted EBITDA guidance. Moving to the balance sheet, we remain in a strong position with 302 million in cash and investments at the end of the quarter. Turning to our guidance. For the second quarter, we expect health plan membership to be between 167,000 and 169,000 members, revenue to be in the range of 625 million and 635 million, adjusted gross profit to be between 71 million and 77 million, and adjusted EBITDA to be in the range of zero to positive 6 million. For the full year 2024, we expect health plan membership to be between 170 and 172,000 members, revenue to be in the range of $2.495 billion and $2.525 billion, adjusted gross profit to be between $280 million and $310 million, and adjusted EBITDA to be in the range of a loss of $12 million to positive $12 million. The increase to our full-year membership and revenue outlook follows strong first quarter membership outperformance and our expectation that our sales and member retention momentum will continue through the remainder of the year. Our revised membership guidance now reflects 43% membership growth at the midpoint for year-end 2024. Moving down to P&L, we are increasing the low end of our adjusted gross profit range and narrowing our adjusted EBITDA outlook. The following elements are captured within our updated adjusted gross profit outlook. First, while the increase in our year-end membership growth contributes incremental gross profit dollars, the new membership increases the MBR implied by our guidance as new members typically begin at a higher MBR. Second, we expect a continuation of higher inpatient unit costs related to CMS's increase in 2024 fee-for-service rates and greater supplemental benefit utilization, both offsetting the incremental gross profit from higher new member expectations. Third, we expect a moderate decline in inpatient admissions per thousand for the full year, partly due to member mix. The 13 admissions per thousand year over year decline we experienced in the first quarter from 164 to 151 places us well on pace to deliver on this objective. As mentioned earlier, we expect to see continued benefit from the ongoing engagement with new members and deployment of Care Anywhere resources to those identified as high risk. Our differentiated engagement with both new members and providers is a core reason why alignment has not experienced the same degree of utilization headwinds that some others in the sector have experienced. Fourth, in addition to our normal course operations, we have identified new payment integrity programs that are currently being implemented. We expect these solutions to provide additional upside throughout the remainder of the year, particularly in the second half. And lastly, our Part D seasonality is expected to drive roughly 400 basis points of MBR improvement between the first quarter and the remainder of the year. This is consistent with our historical experience and normal course seasonality. Our adjusted EBITDA guidance also highlights continued improvement in our operating leverage. We now expect our adjusted SG&A as a percentage of revenue excluding ACO REACH to be 11.8% at the midpoint, an improvement of 260 basis points year-over-year. Our operating leverage gains over the next three quarters are driven by a combination of factors. including first, continued fixed cost leverage relative to greater membership growth and productivity improvement measures. Second, elimination of one-time expenses associated with the insourcing of member experience functions in 2023, most of which were incurred in the second half of last year. And third, sales and marketing and year zero expense leverage, which is also concentrated in the second half. In conclusion, our strong growth has been well managed by our clinical and operational resources, and is a testament to our differentiated Medicare Advantage platform. After our robust start to the year, we believe we are on pace to deliver against our full-year outlook and are set up for both growth and margin improvement in 2025. With that, let's open the call to questions. Operator?
spk22: Thank you. As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Nathan Rich from Goldman Sachs.
spk25: Hi, good afternoon and thanks for taking the questions. I wanted to John, follow up on your comments on 2025 and the company's positioning. I guess, can you maybe talk about how you plan to use that cost advantage or revenue advantage position in your plan bids and how you see that flowing through to maybe what you're planning for benefits relative to where you see the market going And then one of the things I wanted to ask on more specifically was the changes to the Part D plan design that will go into effect in 2025. And, you know, does that create any unique challenges as you think about, you know, how to price and position your plans for next year?
spk15: Hey, Nate. Thanks for the question. You know, we're acutely aware of our competitive position in each of our markets. We're right in the middle of bids right now. We've been studying IRRA for the last couple of years, so we know the nuances of that. We're very comfortable with how Part D is going to be a very important part of benefit design. I'm not going to comment on bid-related questions right now just due to the nature of the competitive dynamic. I would say, though, that... You know, we've always said 2025 is going to be very much a breakout year for us in the context of margin. And if you kind of look at just the growth that we've had this year and the strong performance in our ability to onboard the growth and then manage the growth from a medical management perspective, just getting to very basic levels of compliant risk adjustment on this new membership, you can do that math, is very exciting for us. And then the continued improvement on margin on the vintage analysis of our existing members just doubles, kind of doubled down on that margin perspective. So I think we are very, very encouraged by that. And for those of you that have been with us for the last couple of years, it's just very disciplined. And it's all leading to a growth year and a margin year that we expect 25 to be very good.
spk25: And maybe if I could just ask a quick follow-up on that. The stronger growth this year, and, you know, it seems like you expect another year of strong growth in 25. Does that change the margin trajectory at all? And I guess, you know, looking at how guidance was updated this quarter, kind of post that the strong membership gain is you know, the top line goes up about a hundred million, but a relatively minimal of impact to kind of gross margin and not much drop through to EBITDA. Do you, do you feel like that dynamic changes at all? Maybe as this year's membership base matures or, you know, do you see the stronger growth kind of dampening the potentially the margin over the next year or two?
spk15: Yeah, that's a great question. I don't, I mean, I'm not, I'm not saying we're going to grow at 50% again next year for 2025. I do think we have good tailwinds in our favor. But really I think margin expansion is going to be really important. And I think we can get the growth, you know, if not 50% growth, we're going to get the growth with, with the focus on the margin piece of it. And yeah, You know, you just look at read and everything that's publicly available. You look at the stars ratings. You know, there might be one or two competitors that do irrational things. You know, they've done that in the past before. But that's part of it. That's okay. You know, and we'll have a very good 2025. I'm very, very confident of that.
spk25: Thanks very much for the questions.
spk22: Thank you. One moment for our next question. Our next question comes from the line of Ryan Daniels from William Blair.
spk08: Yeah, congrats on the strong start to the year. Thanks for taking the question. Thomas, maybe one for you. Interesting data on the admits per thousand related to both new patients and then the overall book of business. Can you dive into that a little bit more? Is the new patient number lower because they are coming in younger and healthier despite the fact that they haven't been in your clinical programs? Just any color there would be interesting as it's a key cost driver.
spk15: Yeah. Hey, Ryan. It's John. I think Thomas is navigating some Wi-Fi issues right now. But the answer to the question is yes. And we're pretty happy with that. And just let me comment on that. We're not immune to certain utilization hotspots with some of the new members that we've picked up. We have a couple of markets, not a lot of members, but we still have some members that had higher inpatient utilization, actually a couple of different markets. And we're just all over it. We have visibility to it. We are addressing the care needs of these patients on a daily basis. And so we're just managing it very aggressively. I'm really happy with the performance on the admissions per thousand. 151 for the whole book is a lot better than what we did a year ago even. And so these kind of continuous improvements that we're making to AVA, and to care anywhere are really starting to pay off. And I actually think there's even more opportunity for us as we start maturing some other initiatives that we've been doing in clinical.
spk08: Perfect. Thank you for that. And then maybe another bigger picture question directed to you. We've seen some data recently talking about Medicare Advantage HMOs versus PPOs. and the ability for providers with HMOs to better control cost and utilization and manage the patient. I know your exposure is mostly HMO lives versus some of your peers. Do you think that also is providing you with a unique advantage as it comes to your MLR stability or MBR stability versus what a lot of the other players are seeing as we enter 2024? Thanks.
spk15: Yeah, I think that's fair. You know, I think that's a fair statement. I think, um, The way we design our provider contracts also I think is part of that answer. Kind of this notion of prior auth though is something that's a bit of a misnomer in that a lot of our provider partners and a lot of what we do is auto-authed. I think it's making sure that we have the proper care navigation in the HMO to get people into the right providers in a kind of a timely fashion for access. That's really important from a CAPS and a STARS perspective. And kind of having, you know, kind of a preferred network, if you will, and care navigating to the right highest quality provider. All those kind of dynamics, I think, are things that you get with the HMO. I think on the PPO, Ryan, you know, the stratification model of identifying who the high-cost vulnerable PPO members and then caring for them with care, that principle still holds as well. And I think one of the things we've done a really better job on with the PPO is engaging those PPO members without a dedicated PCP and engaging them and making sure we get proper documentation on the coding side. That makes a big difference.
spk08: Thank you for all that, Collin. Congrats again.
spk15: Thanks, Ryan.
spk22: Thank you. One moment for our next question. Our next question comes from the line of John Ransom from Raymond James.
spk07: Hey, good evening. You know, one issue for the industry is this thing about claims lag and what do you know and when do you know it when you report a quarter, especially around outpatients. And I know you guys have your AVA technology and your Care Anywhere plan, but what your ability to accrue your costs accurately? How has that changed? And what tools do you use that maybe some of your competitors don't when you stand here and say with confidence what the kind of what the 1Q medical costs look like?
spk04: Yeah. Hey, John, this is Thomas. I appreciate the question. So I think our ability to actually have the visibility that allows us to accrue for our performance in Q1 or any other quarter accurately is very much underpinned by the visibility and control we have from a medical management standpoint. In other words, it's not that we do things from a financial standpoint to create the visibility, it's that we actually run our business day to day with things like admission discharge transfer data, i.e. heads in beds every single day. And then we use that information in order to actually track and accrue our financial reserves or medical expenses. And so more specifically, when I think about the broader spend outside of the inpatient setting, there's a lot of correlation between the different categories of SPIN. And so, for instance, about 90% of our members go through the ER when they're hospitalized. And conversely, on the way out of the hospital, about two-thirds of our discharges go to a skilled nursing facility or a home health facility. So there's a high degree of correlation between how that inpatient KPI moves and how other categories of SPIN claims PMPM also move. And then beyond that, we do, of course, track off data on other things like patient You know, outpatient hospital surgery or ASC metrics, skilled nursing, length of stay, home health per thousand, et cetera. So I think our ability to have pretty good visibility to how the overall claims PMPM is running for the first quarter is quite strong. But it's underpinned by us using that information day to day as opposed to the other way around.
spk06: Great.
spk07: And then my second question, this is my favorite, like wonky in the weeds. Medicare Advantage question, but do you have any visibility on the 2Q mid-year sweep and what's embedded in your guidance as we sit today?
spk04: Yeah. So there's two different sweeps we get in the second quarter. One is the final sweep from last year, which we typically receive at the end of May in our June payment file. And then we also get the mid-year sweep on the 2024 membership, which typically comes at the end of June in the July payment file. So typically speaking, both of those two sweeps would be reflected in our 2Q financial results. We typically don't accrue or expect anything on the financial sweep, the final sweep from the prior year. It depends upon the year. I would say in COVID years in particular, we saw outsized favorability associated with that sweep. But I think if you look at our results last year, which is probably more indicative of a normal year, we didn't have near as much of a pickup last year. But Nonetheless, if we do see any kind of positive favorability there, it would be, I think, in addition to what is currently guided. From a mid-year sweep standpoint, very similarly, we typically see kind of a few basis points of pickup on the new members that allows us to actually have our full year new member RAF be consistent with what we got paid in January. And that's really how we build our guidance over the course of the year on the new members is whatever we get paid in January is whatever we expect to be paid for the full year. To the extent that that comes in more favorable in the mid-year sweep, that could also be upside. We don't like to kind of bank our guidance on that assumption because it's out of our control. That mid-year sweep comes from whatever was documented last year with the members prior health plan. So I think it puts us in a conservative position, but also at the same time, I think given what we've seen last year after COVID, that typically is not going to be a major driver of significant outperformance. It could be some modest upside.
spk23: Okay, thanks a lot.
spk22: Thank you. One moment for our next question. Our next question comes from the line of Adam Ron from Bank of America.
spk09: Hey, guys, appreciate the question. So you mentioned that this year was a growth year and that next year potentially margin could be more important. But if I look at even this year where you're saying new members come in and they don't have super high margins, you still are on track to, I think, increase EBITDA margins to 200 basis points. So if next year margins are more important, is there a reason why we shouldn't see that kind of margin expansion again? Or are there one-time items like ACO REACH kind of skewing that.
spk04: Hey, Adam. Thomas here. On the last part of that question, ACO REACH is not a significant driver of profitability improvement from 23 to 2024. I think we sized that in the kind of like $3 to maybe $4 or $5 million range in terms of dollars of improvement from 23 to 2024 guidance. So the vast majority of our improvement in 2024 is really coming from the Medicare Advantage business. And as we talked about, the vast majority of that is really coming from improved operating leverage through the adjusted SG&A line. And so I think to your broader question on 2025, while we're not going to draw a line in the sand today on our 2025 margin goals for next year, I think what we were really trying to amplify in John's remarks is that we think we have the ability to do both growth and margin improvement again next year also. And I think we're in that position because of some of the tailwinds John described where while we're impacted by V28, I think we are less impacted relative to our local competitors. And then from a star standpoint, we very much have a funding advantage over the vast majority of our competitors for 2025. So I think that gives us a little more flexibility to achieve both next year and continue on the trajectory we've set forth for 2024.
spk09: Makes sense. And then in your remarks, you mentioned a couple of things about a widening relative advantage in 2025 and how your competitors would see reimbursement headwinds. But one thing that was sort of pushing in the other direction is the fact that the LA, where most of your members are, benchmark is expanding by 5%, which is very strong. So does that help your competitors overcome some of their reimbursement headwinds such that maybe they don't actually have to cut benefits and it kind of closes that relative advantage because they needed the reimbursement more? Like, how are you thinking about that? Or is that a tailwind for you relative to your expectation?
spk04: So I think a couple of things. So in terms of the benchmarks and some of the markets, particularly Southern California, to your point, I think some of those markets have also seen higher inpatient and outpatient unit cost increases. And so a little bit of that, I think, is catch up in 2025 relative to the 2024 rate updates with CMS. But I think from a competitive standpoint, we sort of look at it as one kind of pool of overall funding or reimbursement dollars for us and our competitors. And each of us has our own pluses and minuses. So to the extent that we have 5% in a market and our competitor has 5% in a market, I agree that would be sort of a, a neutral factor i don't think it necessarily helps us i don't think it necessarily hurts us but i think what creates that relative advantage are the other two factors where on average there's really only one of our major hmo competitive plans in our markets that's going to be four stars everyone else is either three three and a half or in some cases two and a half and so that extra five to ten percent revenue pmpm funding advantage on stars alone is i think a major advantage for 2025 even if some of the benchmarks in certain counties are going up by 5%.
spk09: If I could squeeze one more in. So Humana recently talked about the industry margin potentially settling out at around 3%. That's like EBIT, not EBITDA. Do you have a view on that? Has your view changed at all based on the new reimbursement environment? That would be my last question. Thank you.
spk04: Yeah, I think our view of long term margins is fundamentally unchanged in that the overall structure of the Medicare Advantage program is unchanged. So when we went public several years ago, we talked about a six to seven percent adjusted EBITDA margin long term, which I think is more like a four to five percent pre-tax margin. And when you think about what has changed in the more recent macro environment, You're right. I think STARS has gotten tougher with the introduction of 2Key and the removal of some of the COVID kind of protection mechanisms that were put in place on STARS. V28 has been introduced. And then broadly speaking across the board, utilization pressures have been seen in a variety of different categories of spin. And so while I think that's put pressure on the industry at large in the short term, I don't think it changes the fundamental opportunity given that At the end of the day, a number of plans have demonstrated the ability to run efficiently with SG&A at 10% or below. We're starting to get pretty close to that, getting down below 12% in 2024. And from an MLR standpoint, the 85% MLR rule is unchanged. So I think just structurally, the opportunity is no different today than it was a year or a couple of years ago. I think the changes in macroeconomic factors, though, have put more pressure on the requirement to be a high-quality, low-cost player. And if you're able to do that, I think you can still win in this current environment and long-term generate the same 4% to 5% pre-tax margins you could have or would have expected several years ago.
spk15: Yeah. Just, Adam, let me echo that. This is John. Let me echo that. It's a It's an opportunity for organizations that have the lowest cost structure or have a model to get to a lowest cost structure without compromising quality. And it gets measured by stars because you get reimbursement that's more the better quality you are. But that's why we've spent so much time and effort making sure that the care model and the belief that if you can manage the care, you're in a position to control the costs. That's from day one that's been our philosophy. And I think there's somewhat of a sea change that those that have just relied on risk adjustment to be successful are the ones experiencing tough margin compression right now. So it's like a structural change intentional by CMS. And so those who have been in this business for 30 years or so have gone through, you know, four or five of these reimbursement blips. But the kind of the wave of aging of seniors and the political kind of power of MA, we just don't see it slowing. You know, in fact, we still see market share penetration going from 52% to, 65% in the next seven years. I mean, so, you know, I think it's an opportunity and I think it requires a structural change in terms of who will win and what will succeed going forward in MA. And I think we're really well positioned for that.
spk09: Awesome, appreciate all the color. Yeah.
spk22: Thank you. One moment for our next question. Our next question comes from the line of Whit Mayo from Learing Partners.
spk10: Hey, good evening or afternoon, guys. The new lives that you picked up in the first quarter, can you maybe quantify how much of those are agents versus switchers? And if there were a lot of switchers, any themes on the switching, if you have any market intelligence on that?
spk04: Yeah. Hey Whit, this is Thomas here. So I'd say our OEP experience, which lasted through the April 1st eligible beneficiaries was, was very similar to our AEP experience. And so what I mean by that is the majority of the membership or the new sales were plan switchers. But we see those plan switchers coming from a variety of our competitors across a broad swath of our markets. And so again, there's not really just kind of one or two or three competitors that we're disproportionately taking share from. We're really, I think, advantaged in most markets this year to take share from a variety of players, both in terms of the local or regional competitors, and also many of the large national competitors. And I think in terms of our product mix, it's also been pretty broadly distributed across the board. And sitting here today, we still have about 30% of our members that are enrolled in one of our special needs, like our CSNIP products, or are dually eligible, which is pretty consistent to where we ended at the end of last year.
spk10: Okay. And maybe this is a dumb question, but looking at the reserve roll forward in your queue, there was $5 million of favorable PYD, but there's a footnote below that references $870,000. I guess I wanted to – what's the difference between the two and what the P&L impact was?
spk04: Yeah, yeah, absolutely. So we typically, on that footnote you're referring to, we try to look at the change in prior period reserves, excluding the, we typically put a 7% kind of margin factor on top of the reserves for adverse trends. And so think about that 7% as you add it when you kind of put your best estimate together for a given month, you add 7% to it. If your estimate on that month is perfect, that 7% will just release in the future. But at the same time, you're always adding new months with an additional 7% pad. And so it kind of becomes a wash from a P&L standpoint where you're constantly releasing it and adding it over time. So we really like to focus on what the change in IVNR is excluding that 7%. And that's the number that we report in our footnote. So it was right. You're correct. Just a little under a million dollars for the first quarter, meaning that our year end reserves for 2023, I think we're very strong and intact relative to the paid claims experience to the end of the first quarter. Makes sense. Thanks, guys.
spk22: Thank you. One moment for our next question. Our next question comes from the line of Jess Tassan from Piper Sandler.
spk21: Hi, guys. Thank you for taking the question. I'm curious to know just, you know, 2025 funding looks favorable in California. You guys obviously have momentum there from a brand perspective, strong provider network. I'm curious just in any updated thoughts around that. the geographies where you intend to participate in in 25 and beyond that, whether, you know, new market entries remains a significant factor in your growth.
spk15: Hey, Jess, it's John. No, we're going to we're not going into dates in 2025. The focus has been on the most efficient way to grow. And we just see so much momentum in our core markets. And even in the ex-California markets that we currently have, you know, we're getting up above kind of that 5,000 member range. And what we've seen in the past is you get to 5,000, to get from 5 to 10,000 is just a lot faster. And then obviously in California, we've got a lot of momentum. I would suspect that we're going to be more aggressive in 2026. You know, what I've said in the past is the goal obviously is to fund new market expansions from internally generated cash. And so I would expect us to be more aggressive in 2026 in terms of new states. I will say that the conversations that we've had with health systems and I would say large provider organizations has been very encouraging. And I think you'll see more of those kinds of arrangements come together heading into 2026, which require us to have the deals pretty much done by the end of this year so that we can file for service area expansions in February of 25.
spk21: That's helpful. And then I guess I'm curious, kind of, any thoughts on the potential for states' alignment initiatives for the dual population to kind of pressure future growth in your DSNP book? Or just how are you thinking about contending with that in the future? Thanks.
spk15: Yeah. It's something that we've had to address over the last couple of years with the alignment and the aligned initiatives. programs and the CCI care coordination programs in California. The rule that just came out certainly, I think, gives some of the Medicaid folks a little bit of an advantage. But what we are advocating for is chronic special needs programs and chronic special needs lookalike programs that in the most recent regs are certainly going to survive beyond kind of the 2030 timeframe. And if you think about the reality of care quality, we think the quality of the products we have and the care model that we have to serve the seniors is better than any kind of forced Medicaid solution. I just think it's better quality. And I think people are actually voting with their feet with respect to some of the C-SNPs that we have. And that's been very successful for us.
spk20: Got it. Thank you.
spk18: Sure.
spk22: Thank you. One moment for our next question. Our next question comes from the line of Andrew Mock from Barclays.
spk19: Hi, this is Tiffany on for Andrew. You called out higher inpatient unit costs and supplemental benefit utilization that you expect to continue into the year. Could you give a little bit more color on the expected cadence of those pressure points into the back half? And separately, just anything else to call out on calendar impact to MLR seasonality? Thanks.
spk04: Hey, Tiffany. So I think nothing specific from a supplemental benefit or inpatient unit cost standpoint over the course of the year. So on the inpatient unit cost side, that obviously will impact any months or quarters where we have higher inpatient utilization overall. So when you think about the next three quarters, we typically would expect inpatient utilization to be lower in the second and third, and then have a bit of an uptick in Q4, specifically December around flu season. But generally speaking, I don't think a lot of seasonality around those unit costs. And similarly, on the supplemental benefit utilization side, we don't anticipate much change there quarter to quarter over the next three remaining quarters of the year. I think from an overall seasonality standpoint, we would expect this year to be similar to other years where 2Q and 3Q tend to be lower on MLR and 4Q tends to be a modest uptick higher, though Q1 tends to be our high point for the year. When you think about, I think, the improvement initiatives underway that we described in our prepared remarks, I think while our first quarter was very strong and I think demonstrates our ability to manage really tremendous growth so far this year, There are some areas where we think we can do better, particularly over the back half of the year. So from a clinical standpoint, getting from, you know, well, how we say it internally is getting from good to great. And there are certain things that we do a very good job of today, but we think we can do an even better job on in the future, such as post-discharge care navigation, SNF length of stay management, SNF readmission rate, things that we are already pretty world-class on, but we still see areas of opportunity given the growth we've achieved where we think we can dial those levers a bit more in our favor over the back half of the year. I think similarly on the payment integrity side, we started to see an uptick in our inpatient unit costs in the back half of last year. And I think as we've kind of looked under the hood on this, we do feel like there's an opportunity to use some third parties to help us to ensure that we have accurate claims submissions from our different provider partners over the course of the year, particularly in the second half. I think those are some of the things that are going to be the biggest kind of drivers of that continuous improvement for us. But nonetheless, as John said earlier in his remarks, you know, I think our first quarter really puts us in a strong position towards our overall full-year guidance range.
spk15: Yeah, and Tiffany, on the acute unit costs, I mean, it's clearly the offset to that has to be improved significantly. kind of admission management, right? I mean, and readmission management and all the clinical quality drivers that we've spent so much time on. And I think last year, Thomas, we were 163 in the month of ADK, admissions per thousand this year were 151. It's going to require that kind of kind of continued excellent clinical performance to offset some of those unit cost increases.
spk22: All right, perfect. Thank you. Thank you. One moment for our next question. Our next question comes from the line of John Ransom from Raymond James.
spk07: I knew I had another good question. I couldn't remember it on the fly. I got you down there. So there's been a lot in the press about, you know, MA plans having more difficulty contracting downstream, you know, with, you know, hospitals pushing back. And then, you know, a lot of plans, you know, you lay your risk off on some of these physician groups that are probably getting killed with B28. So when you think about your provider contracting, how does that look now versus a year ago? And is there anything to call out there, good or bad?
spk15: Great, great question, Jim. Yeah. We talk about our shared risk contracting model. And we think it's much more durable. We think that it comes in the form of either PCP capitation and or professional capitation. And then we share in the risk associated for the institutional costs. And so if we all work together, And we cut these deals not only with the downstream providers, but also with the health systems. And we have aligning principles with hospital systems and IDNs. I think that's going to be part of the future, personally, in terms of how the space shakes out. And so the shared risk model, using the tools, using the data that we have access to, not just limited to the EHR data that's in the providers, but having a holistic view of that patient through some of the tools that we have in AVA and our patient 360 longitudinal patient record. Exposing that information to the providers is what's allowed us to take action with the providers to get the outcomes that we have. And it's in a, I would call it a capital efficient model. You know, at our old company, we had a lot of bricks and mortar. It's very expensive. And so the whole thesis that we have is work with the community doctors that are independent and I don't want consolidated per se and or health systems that have clinically integrated networks and give them the tools and create economics that are aligning. And the other thing I would say, John, is that Health systems have approached us, and apologies for the long winded, but this is really important. They were approaching us going, you know, particularly the top tier health systems, the top ones are over capacity. Meaning they're at 120 to 125% of what their physical capacity will allow. And so what they're asking us is, well, if we partnered, can you help us lower the admissions of seniors into our facilities, and that they are so confident that if they have lower senior admissions, they can backfill those senior admissions with commercial admissions, which they're just getting paid more. Instead of getting 100% of Medicare, they're getting 200% of Medicare. So those kinds of, I think, macro dynamics with respect to reimbursement not only for the plan, but for the facilities and the doctors, all kind of are factored into where we see MA going forward. And I think you're going to see much tighter partnerships. And a lot of these folks are not happy with some of the, I'll call it, you know, kind of claims editing protocols that certain MCOs are using with these health systems. And so they're kind of coming to us as an alternative. And that gets back to some of the questions that I think Jess asked with respect to how do we think about growing in new markets? And it's going to be with provider partners in 2026 is the answer.
spk07: Do you think that's the longest answer you've ever given in your career, John?
spk14: Not by a long shot.
spk07: My other question, and this is kind of into the weeds, but five years ago, we made a lot out of these conveners. You know, we see the headline that Optum is laying people off at Navahealth. Have we done all we can do in terms of redirecting post-acute? I know Thomas mentioned this, but, you know, for every 100 post-acute discharges, are we doing the best we can still in terms of redirecting them to the home health versus SNF? Or is there some wood to chop there, as you guys kind of alluded to?
spk15: You're talking about for the industry or for us?
spk05: Well, for you guys. You guys, you think you're at peak efficiency in terms of...
spk15: I think there is a huge amount of opportunity for us to be better at that. And it's very topical for us. We have, and I alluded to this, we have so much focus on inpatient acute admissions. And I think the opportunity for us to have post-discharged care navigation, SNF rounding, Just all those things that we know how to do, I think, and we do it, and we do it well, but I think we can do it even better is the short answer.
spk07: Is it just hard to compete with the guys playing offense with dropping off the donuts and, you know, charming the discharge planters? What do you have to do to get on your front foot with some of these discharge planters? Because you're kind of up against an industry that is pushing in the other direction.
spk15: I would say alignment with the facilities. alignment and relationships with the facility, not at the discharge planner level, but at the CEO of the health system level. Those are the conversations that we're having now. And what's consistent, John, is people like the care model. At the end of the day, in health services, most of the people we deal with, doctors and health systems, they actually care about optimizing care delivery and quality of care. It matters to them. and they see what we're doing, and to the extent that it is aligned with their economics, people want to work with us.
spk04: One thing I would add to that as well, John, is the bigger we get, the more it affords us the ability to have those conversations. When you think about us today, we're starting to become more significant in many of our markets, and that's, I think, just given us better opportunities to engage across different sites of care and at different levels within those different institutions.
spk07: Yeah, I mean, I'll shut up after this, but it's just been surprising to me going back through MedTech data how stable to well the SNF industry has done when you have all these forces on paper pushing, you know, discharges into, you know, literally cost of care, this one-fifth the cost of the SNF, and yet those, you know, their admissions are growing. That's just been a big surprise to me that the industry is kind of still where we are in 2024. So, anyway, that's my editorial comment. Thank you very much. You got it.
spk22: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. you Thank you.
spk00: Bye. music music you
spk22: Good afternoon and welcome to Alignment Healthcare's first quarter 2024 earnings conference call and webcast. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please note that this event is being recorded. Leading today's call are John Kao, founder and CEO, and Thomas Freeman, chief financial officer. Before we begin, we would like to remind you that certain statements made during this call will be forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are subject to various risks and uncertainties. and reflect our current expectations based on our beliefs, assumptions, and information currently available to us. Descriptions of some of the factors that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in our filings with the SEC, including the Risk Factors section of our annual report on Form 10-K for the fiscal year ended December 31, 2023. Although we believe our expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. In addition, please note that the company will be discussing certain non-GAAP financial measures that they believe are important in evaluating performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the press release that is posted on the company's website and in our Form 10-Q for the fiscal quarter ended March 31, 2024. I would now like to hand the conference over to your speaker today, John Kao, founder and CEO. You may begin.
spk16: Hello, and thank you for joining us on our first quarter earnings conference call.
spk15: For the first quarter of 2024, our health plan membership of 165,100 members represented approximately 50% growth year-over-year. Total revenue of $629 million grew approximately 43% year-over-year and approximately 54%, excluding ACO reach. Adjusted gross profit was $57 million, producing a consolidated MBR of 90.9%, and an MBR excluding Part D of 88.3%. Meanwhile, our adjusted EBITDA of negative 12 million exceeded the high end of our first quarter outlook range and represents solid progress toward our full year adjusted EBITDA objective. Growth in the first quarter significantly outperformed expectations. This result continued to be driven by increased member retention, improved sales operations, and competitive product offerings. Meanwhile, our ability to achieve our adjusted EBITDA outlook while scaling to support four times the number of new members demonstrates the power of our integrated data insights, clinical model, shared risk provider partnerships, and operating platform. Central to our results is AVA's visibility into emerging trends, which allows us to rapidly deploy our clinical teams to improve care outcomes and control our medical costs, even while achieving rapid growth. The combination of these differentiated capabilities led to a first quarter consolidated MBR of 90.9%, reflecting only a modest year-over-year increase in our MBR despite growing membership 50% relative to 17% a year ago. This strong result is underscored by an MBR excluding Part D of 88.3% and a Part D MBR of 129%, both consistent with expectations and further indication of our early success in managing our new members. Thomas will expand more on Part D seasonality in his remarks. Following a strong first quarter, we're raising our full-year membership and revenue guidance, raising the low end of our adjusted gross profit guidance, and narrowing our adjusted EBITDA range. Our updated guidance reflects expectations for continued membership growth momentum, a greater mix of new members, our confidence in our clinical model, and improving operating leverage on adjusted SG&A. To manage our significant membership growth, our top priorities in the first quarter were providing our new members with exceptional onboarding experience and engaging with members who had the greatest chronic health needs. From a service delivery standpoint, Our past investments in AVA Consumer and Insourcing Member Experience delivered exceptional results. These efforts resulted in an MPS of 69 at the end of 2023, a 30% reduction year-over-year on our first quarter new member voluntary disenrollment rate, and a 4.9 stars Google rating across more than 4,000 reviews. All of this was accomplished while achieving over 50% membership growth. By improving member satisfaction and reducing disenrollment rates, we lower our member acquisition costs, raise our star measures, improve our net growth, and increase the lifetime value of our membership. From a care management standpoint, the visibility created by our real-time utilization data allows us to quickly engage high-risk members to manage care and control costs market by market. we immediately began managing new members who experienced an acute episode in January and successfully engaged approximately 70% of new members post-discharge. This resulted in 141 inpatient admissions per thousand for new members and 151 admissions per thousand overall. We expect to build upon the strength of these results throughout the year as we ramp up our Care Anywhere engagement. AVA stratification of at-risk members sees a significant jump 30 days after enrollment as our real-time data feeds analyze pharmacy data, lab values, admission, discharge, transfer information, and other data sources. This presents us with the greatest cost improvement opportunity in the second, third, and fourth quarters as we raise our high-risk new member engagement levels. Once engaged, high-risk members typically see a 30% net improvement in institutional claims over the following 12 months. This, combined with our focus on improving outpatient quality outcomes, which drives lower costs, gives us confidence in our continued MBR improvement throughout the year, consistent with our full year outlook. Looking ahead to 2025, we believe we are well positioned to grow health plan membership at or above 20% while expanding margins. As we plan for the current bid cycle, we believe we have distinct tailwinds that support our financial position and competitive advantages. First, there are over 1.2 million HMO members in our California markets who are in plans that will be rated below four stars in 2025, including approximately 700,000 who are in plans that are receiving four star or above payment today but will be dropping below a four-star payment next year. Meanwhile, roughly 95% of our California members are in plans that will have four-star payment level in 2025. The difference between a three-and-a-half-star and a four-star plan is approximately 5% less per member revenue, while the difference between a three-star and a four-star plan is approximately 10% less member revenue. We expect this funding advantage to support our ability to offer attractive benefits while improving consolidated margins. Second, we believe the continued phase-in of the D28 risk model changes will further widen our relative advantage in risk adjustment. And third, following the announcement of the final Medicare Advantage rate notice, we expect a weighted average change in our effective growth rate of 5% which is more than double the national average of 2.4%. These factors combined with our differentiated operating platform and strong retention of new members gives us confidence in our ability to deliver both growth and margin improvement in 2025. In conclusion, I'd like to thank each of our employees for being part of a team that is raising the standard for what it means to do Medicare Advantage right. Our unique degree of visibility, combined with our clinical and operational execution, is enabling us to navigate the dynamics facing the MA sector and gives us confidence in our 2024 outlook. Combined with tailwinds in 2025 on relative STARS advantages, positioning into the continued risk model phase-in, clarity on benchmark changes in 2025, and increased scale, I believe we will achieve both strong growth and margin improvement in 2025. Taken together, we believe our operating model will continue to prove alignment is the optimal Medicare Advantage platform for today and for the future. Now I'll turn the call over to Thomas to further discuss our financial results and outlook. Thomas?
spk04: Thanks, John. For the quarter ending March 2024, our health plan membership of 165,100 increased 50% year-over-year. This exceeded our expectation of 44% membership growth at the midpoint of our first quarter guidance, as well as our year-end guidance range of 162,000 to 164,000 members. Our first quarter revenue of $629 million represented 43% growth year-over-year and 54% growth excluding ACO REACH. The top-line outperformance was primarily a function of higher health plan membership as our superior value proposition continued to resonate in the market. Adjusted gross profit in the quarter was $57 million, representing an NBR of 90.9%. The modest increase year-over-year was driven by a significantly larger portion of new members, reflecting strong control over our medical costs, even as we grew membership by 50% compared to 17% a year ago. First quarter performance was driven by favorable inpatient utilization relative to expectations, with overall inpatient admissions per thousand of 151 declining 8% year over year. Our favorable utilization performance was partially offset by higher inpatient unit costs related to CMS's increase in 2024 fee-for-service rates and greater supplemental benefit utilization. As John mentioned, our first quarter results reflect an MBR excluding Part D of 88.3% and a Part D MBR of 129%, both in line with expectations. As a reminder, Part D profitability improves over the course of the year as the health plan's cost share declines meaningfully after the initial coverage phase. Consistent with normal seasonality, Part D increased our consolidated MBR by 260 basis points during the first quarter. Through the remaining three quarters of the year, we expect Part D to lower our consolidated MBR by 150 basis points. This results in a net change of roughly 400 basis points between the first quarter and the remainder of the year. We expect our Part C MBR to be only modestly higher for the rest of the year, meaning that Part D will be the primary driver of seasonality between the first quarter and the following three quarters. During the quarter, it's worth noting that we were not materially impacted by the cybersecurity incident that disrupted a national claims clearinghouse. Importantly, we do not use this clearinghouse for pharmacy claims, prior authorization, or provider claims payment functions. While we experienced a temporary dip in claims receipt in February due to the use of the impacted clearinghouse by a small number of our providers, we believe we are currently at normalized claims flow levels. SG&A in the quarter was 90.5 million. Our adjusted SG&A was 69 million, an increase of 37% year-over-year. Adjusted SG&A, the percentage of revenue excluding ACO REITs, decreased by approximately 140 basis points year-over-year. We continue to expect even greater SG&A ratio improvement over the next three quarters, which I will share more on shortly. Lastly, our adjusted EBITDA was negative 12 million, ahead of expectations and putting us on track to achieve our full year adjusted EBITDA guidance. Moving to the balance sheet, we remain in a strong position with 302 million in cash in investments at the end of the quarter. Turning to our guidance. For the second quarter, we expect health plan membership to be between 167,000 and 169,000 members, revenue to be in the range of 625 million and 635 million, adjusted gross profit to be between 71 million and 77 million, and adjusted EBITDA to be in the range of zero to positive 6 million. For the full year 2024, we expect health plan membership to be between 170 and 172,000 members, Revenue to be in the range of $2.495 billion and $2.525 billion. Adjusted gross profit to be between $280 million and $310 million. And adjusted EBITDA to be in the range of a loss of $12 million to positive $12 million. The increase to our full-year membership and revenue outlook follows strong first quarter membership outperformance and our expectation that our sales and member retention momentum will continue through the remainder of the year. Our revised membership guidance now reflects 43% membership growth at the midpoint for year-end 2024. Moving down to P&L, we are increasing the low end of our adjusted gross profit range and narrowing our adjusted EBITDA outlook. The following elements are captured within our updated adjusted gross profit outlook. First, while the increase in our year-end membership growth contributes incremental gross profit dollars, the new membership increases the MBR implied by our guidance as new members typically begin at a higher MBR. Second, we expect a continuation of higher inpatient unit costs related to CMS's increase in 2024 fee-for-service rates and greater supplemental benefit utilization, both offsetting the incremental gross profit from higher new member expectations. Third, we expect a moderate decline in inpatient admissions per thousand for the full year, partly due to member mix. The 13 admissions per thousand year over year decline we experienced in the first quarter from 164 to 151 places us well on pace to deliver on this objective. As mentioned earlier, we expect to see continued benefit from the ongoing engagement with new members and deployment of Care Anywhere resources to those identified as high risk. Our differentiated engagement with both new members and providers is a core reason why alignment has not experienced the same degree of utilization headwinds that some others in the sector have experienced. Fourth, in addition to our normal course operations, we have identified new payment integrity programs that are currently being implemented. We expect these solutions to provide additional upside throughout the remainder of the year, particularly in the second half. And lastly, our Part D seasonality is expected to drive roughly 400 basis points of MBR improvement between the first quarter and the remainder of the year. This is consistent with our historical experience and normal course seasonality. Our adjusted EBITDA guidance also highlights continued improvement in our operating leverage. We now expect our adjusted SG&A as a percentage of revenue excluding ACO REACH to be 11.8% at the midpoint, an improvement of 260 basis points year-over-year. Our operating leverage gains over the next three quarters are driven by a combination of factors. including first continued fixed cost leverage relative to greater membership growth and productivity improvement measures second elimination of one-time expenses associated with the insourcing of member experience functions in 2023 most of which were incurred in the second half of last year and third sales and marketing and years your expense leverage which is also concentrated in the second half in conclusion our strong growth has been well managed by our clinical and operational resources and is a testament to our differentiated Medicare Advantage platform. After our robust start to the year, we believe we are on pace to deliver against our full-year outlook and are set up for both growth and margin improvement in 2025. With that, let's open the call to questions. Operator?
spk22: Thank you. As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Nathan Rich from Goldman Sachs.
spk25: Hi, good afternoon and thanks for taking the questions. I wanted to John, follow up on your comments on 2025 and the company's positioning. I guess, can you maybe talk about how you plan to use that cost advantage or revenue advantage position in your plan bids and how you see that flowing through to maybe what you're planning for benefits relative to where you see the market going And then one of the things I wanted to ask on more specifically was the changes to the Part D plan design that will go into effect in 2025. And does that create any unique challenges as you think about how to price and position your plans for next year?
spk15: Hey, Nate. Thanks for the question. We're acutely aware of our competitive position in each of our markets. We're right in the middle of bids right now. We've been studying IRRA for the last couple of years, so we know the nuances of that. We're very comfortable with how Part D is going to be a very important part of benefit design. I'm not going to comment on bid-related questions right now just due to the nature of the competitive dynamic. I would say, though, that... You know, we've always said 2025 is going to be very much a breakout year for us in the context of margin. And if you kind of look at just the growth that we've had this year and the strong performance in our ability to onboard the growth and then manage the growth from a medical management perspective, just getting to very basic levels of compliant risk adjustment on this new membership, you can do that math, is very exciting for us. And then the continued improvement on margin on the vintage analysis of our existing members just doubles, kind of doubled down on that margin perspective. So I think we are very, very encouraged by that. And for those of you that have been with us for the last couple of years, it's just very disciplined. And it's all leading to a growth year and a margin year that we expect 25 to be very good.
spk25: And maybe if I could just ask a quick follow-up on that. The stronger growth this year, and, you know, it seems like you expect another year of strong growth in 25. Does that change the margin trajectory at all? And I guess, you know, looking at how guidance was updated this quarter, kind of post that the strong membership gain is you know, the top line goes up about $100 million, but a relatively minimal impact to kind of gross margin and not much drop through to EBITDA. Do you feel like that dynamic changes at all, maybe as this year's membership base matures? Or, you know, do you see the stronger growth kind of dampening potentially the margin over the next year or two?
spk15: Yeah, that's a great question. I don't, I mean, I'm not I'm not saying we're going to grow at 50% again next year for 2025. I do think we have good tailwinds in our favor. But really I think margin expansion is going to be really important. And I think we can get the growth, you know, if not 50% growth, we're going to get the growth with, with the focus on the margin piece of it. And yeah, You know, you just look at reading everything that's publicly available. You look at the stars ratings. You know, there might be one or two competitors that do irrational things. You know, they've done that in the past before. But that's part of it. That's okay. You know, and we'll have a very good 2025. I'm very, very confident of that.
spk25: Thanks very much for the questions.
spk22: Thank you. One moment for our next question. Our next question comes from the line of Ryan Daniels from William Blair.
spk08: Yeah, congrats on the strong start to the year. Thanks for taking the question. Thomas, maybe one for you. Interesting data on the admits per thousand related to both new patients and then the overall book of business. Can you dive into that a little bit more? Is the new patient number lower because they are coming in younger and healthier despite the fact that they haven't been in your clinical programs? Just any color there would be interesting. Is that a key cost driver?
spk15: Yeah. Hey, Ryan. It's John. I think Thomas is navigating some Wi-Fi issues right now. But the answer to the question is yes. And we're pretty happy with that. And just let me comment on that. We're not immune to certain utilization hotspots with some of the new members that we've picked up. We have a couple of markets, not a lot of members, but we still have some members that had higher inpatient utilization, actually a couple of different markets. And we're just all over it. We have visibility to it. We are addressing the care needs of these patients on a daily basis. And so we're just managing it very aggressively. I'm really happy with the performance on the admissions per thousand. 151 for the whole book is a lot better than what we did a year ago even. And so these kind of continuous improvements that we're making to AVA, and to care anywhere are really starting to pay off. And I actually think there's even more opportunity for us as we start maturing some other initiatives that we've been doing in clinical.
spk08: Perfect. Thank you for that. And then maybe another bigger picture question directed to you. We've seen some data recently talking about Medicare Advantage HMOs versus PPOs. in the ability for providers with HMOs to better control cost and utilization and manage the patient. I know your exposure is mostly HMO lives versus some of your peers. Do you think that also is providing you with a unique advantage as it comes to your MLR stability or MBR stability versus what a lot of the other players are seeing as we enter 2024? Thanks.
spk15: Yeah, I think that's fair. You know, I think that's a fair statement. I think, um, The way we design our provider contracts also, I think, is part of that answer. This notion of prior auth, though, is something that's a bit of a misnomer in that a lot of our provider partners and a lot of what we do is auto-authed. I think it's making sure that we have the proper care navigation in the HMO to get people into the right providers in a kind of a timely fashion for access. That's really important from a CAPS and a STARS perspective. And kind of having, you know, kind of a preferred network, if you will, and care navigating to the right highest quality provider. All those kind of dynamics, I think, are things that you get with the HMO. I think on the PPO, Ryan, you know, the stratification model of identifying who the high-cost vulnerable PPO members and then caring for them with care, that principle still holds as well. And I think one of the things we've done a really better job on with the PPO is engaging those PPO members without a dedicated PCP and engaging them and making sure we get proper documentation on the coding side. That makes a big difference.
spk08: Thank you for all the color. Congrats again.
spk16: Thanks, Ryan.
spk22: Thank you. One moment for our next question. Our next question comes from the line of John Ransom from Raymond James.
spk07: Hey, good evening. You know, one issue for the industry is this thing about claims lag and what do you know and when do you know it when you report a quarter, especially around outpatients. And I know you guys have your AVA technology and your Care Anywhere plan, but what your ability to accrue your costs accurately? How has that changed? And what tools do you use that maybe some of your competitors don't when you stand here and say with confidence what the kind of what the 1Q medical costs look like?
spk04: Yeah. Hey, John, this is Thomas. I appreciate the question. So I think our ability to actually have the visibility that allows us to accrue for our performance in Q1 or any other quarter accurately is very much underpinned by the visibility and control we have from a medical management standpoint. In other words, it's not that we do things from a financial standpoint to create the visibility. It's that we actually run our business day to day with things like emission discharge transfer data, i.e. heads in beds every single day. And then we use that information in order to actually track and accrue our financial reserves or medical expenses. And so more specifically, when I think about the broader spend outside of the inpatient setting, there's a lot of correlation between the different categories of SPIN. And so, for instance, about 90% of our members go through the ER when they're hospitalized. And conversely, on the way out of the hospital, about two-thirds of our discharges go to a skilled nursing facility or a home health facility. So there's a high degree of correlation between how that inpatient KPI moves and how other categories of SPIN claims PMPM also move. And then beyond that, we do, of course, track auth data on other things like outpatient hospital surgery or ASC metrics, skilled nursing, length of stay, home health per thousand, et cetera. So I think our ability to have pretty good visibility to how the overall claims PMPM is running for the first quarter is quite strong. But it's underpinned by us using that information day to day as opposed to the other way around.
spk06: Great.
spk07: And then my second question, this is my favorite, like wonky in the weeds. Medicare Advantage question, but do you have any visibility on the 2Q mid-year sweep and what's embedded in your guidance as we sit today?
spk04: Yeah, so there's two different sweeps we get in the second quarter. One is the final sweep from last year, which we typically receive at the end of May in our June payment file. And then we also get the mid-year sweep on the 2024 membership, which typically comes at the end of June in the July payment file. So typically speaking, both of those two sweeps would be reflected in our 2Q financial results. We typically don't accrue or expect anything on the financial sweep, the final sweep from the prior year. It depends upon the year. I would say in COVID years in particular, we saw outsized favorability associated with that sweep. But I think if you look at our results last year, which is probably more indicative of a normal year, we didn't have near as much of a pickup last year. But uh nonetheless you know if we do see some any um kind of positive favorability there it would be i think in addition to what is currently guided from a mid-year sweep standpoint very similarly um we typically see um you know a kind of a few basis points of pickup on the new members that allows us to actually have our full year new member raft be consistent with what we got paid in january and that's really how we build our guidance over the course of the year on the new members is whatever we get paid in january is whatever we expect to be paid for the full year. To the extent that that comes in more favorable in the mid-year sweep, that could also be upside. We don't like to kind of bank our guidance on that assumption because it's out of our control. That mid-year sweep comes from whatever was documented last year with the member's prior health plan. So I think it puts us in a conservative position, but also at the same time, I think given what we've seen last year after COVID, that typically is not going to be a major driver of significant outperformance. It could be some modest upside.
spk23: Okay, thanks a lot.
spk22: Thank you. One moment for our next question. Our next question comes from the line of Adam Ron from Bank of America.
spk09: Hey, guys, appreciate the question. You mentioned that, you know, this year was a growth year and that next year potentially margin could be more important. But if I look at like even this year where you're saying new members come in and they don't have super high margins, you still are on track to, I think, increase EBITDA margins 200 basis points. So if next year, you know, margins are more important, is there a reason why we shouldn't see that kind of margin expansion again? Or are there, you know, one-time items like ACO Reach kind of skewing that?
spk04: Hey Adam, Thomas here. On the last part of that question, ACO REACH is not a significant driver of profitability improvement from 23 to 2024. I think we sized that in the kind of like three to maybe four or five million dollar range in terms of dollars of improvement from 23 to 2024 guidance. So the vast majority of our improvement in 2024 is really coming from the Medicare Advantage business And as we talked about, the vast majority of that is really coming from improved operating leverage through the adjusted SG&A line. And so I think to your broader question on 2025, while we're not going to draw a line in the sand today on our 2025 margin goals for next year, I think what we were really trying to amplify in John's remarks is that we think we have the ability to do both growth and margin improvement again next year also. And I think we're in that position because of some of the tailwinds John described where While we're impacted by V28, I think we are less impacted relative to our local competitors. And then from a STAR standpoint, we very much have a funding advantage over the vast majority of our competitors for 2025. So I think that gives us a little more flexibility to achieve both next year and continue on the trajectory we set forth for 2024. Makes sense.
spk09: And then in your remarks, you mentioned like a couple of things about, you know, a widening relative advantage in 2025 and how your competitors would see reimbursement headwinds. But one thing that was like sort of pushing in the other direction is the fact that the L.A., where your most of your members are, benchmark is expanding by 5 percent, which is very strong. So does that help your competitors overcome some of their reimbursement headwinds such that maybe they don't actually have to cut benefits then and it kind of closes that relative advantage because they needed the reimbursement more like how are you how are you thinking about that like or or is that a tailwind for you relative to your expectation um so i think a couple things so in terms of the uh benchmarks and some of the markets uh particularly southern california to your point um i think some of those markets have also seen higher inpatient and outpatient unit cost increases
spk04: And so a little bit of that I think is catch up in 2025 relative to the 2024 rate updates with CMS. But I think from a competitive standpoint, we sort of look at it as one kind of pool of overall funding or reimbursement dollars for us and our competitors. And each of us has our own pluses and minuses. So to the extent that we have 5% in a market and our competitor has 5% in a market, I agree that would be sort of a, a neutral factor. I don't think it necessarily helps us. I don't think it necessarily hurts us. But I think what creates that relative advantage are the other two factors, where on average, there's really only one of our major HMO competitive plans in our markets that's going to be four stars. Everyone else is either three, three and a half, or in some cases, two and a half. And so that extra five to 10% revenue PMPM funding advantage on stars alone is, I think, a major advantage for 2025. even if some of the benchmarks in certain counties are going up by 5%.
spk09: If I could squeeze one more in. So Humana recently talked about the industry margin potentially settling out at around 3%. That's like EBIT, not EBITDA. Do you have a view on that? Has your view changed at all based on the new reimbursement environment? That would be my last question. Thank you.
spk04: Yeah, I think our view of long-term margins is fundamentally unchanged in that the overall structure of the Medicare Advantage program is unchanged. So when we went public several years ago, we talked about a 6% to 7% adjusted EBITDA margin long-term, which I think is more like a 4% to 5% pre-tax margin. And when you think about what has changed in the more recent macro environment, you're right. I think STARS has gotten tougher with the introduction of Tukey and the removal of some of the COVID-19 kind of protection mechanisms that were put in place on STARS. V28 has been introduced. And then broadly speaking across the board, utilization pressures have been seen in a variety of different categories of spin. And so while I think that's put pressure on the industry at large in the short term, I don't think it changes the fundamental opportunity given that at the end of the day, a number of plans have demonstrated the ability to run efficiently with SG&A at 10% or below. We're starting to get pretty close to that, getting down below 12% in 2024. And from an MLR standpoint, the 85% MLR rule is unchanged. So I think just structurally, the opportunity is no different today than it was a year or a couple of years ago. I think the changes in macroeconomic factors, though, have put more pressure on the requirement to be a high quality, low cost player. And if you're able to do that, I think you can still win in this current environment. and long-term generate the same 4% to 5% pre-tax margins you could have or would have expected several years ago.
spk15: Adam, let me echo that. This is John. Let me echo that. It's an opportunity for organizations that have the lowest cost structure or have a model to get to a lowest cost structure without compromising quality. And, and, you know, it gets measured by stars because you get, you get, you know, reimbursement that's more, the better quality you are. But that's why we've spent so much time and effort making sure that the care model and, and, and the belief that if you can, can manage the care, you're in a position to control the costs. That's the, from day one, that's been our philosophy. And I think there's a, somewhat of a sea change that those that have just relied on risk adjustment to be successful are the ones experiencing tough margin compression right now. So it's like a structural change intentional by CMS. And so those who have been in this business for 30 years or so have gone through, you know, four or five of these reimbursement blips, but the kind of the wave of aging of seniors and the political kind of power of MA, we just don't see it slowing. You know, in fact, we still see market share penetration going from 52% to 65% in the next seven years. I mean, so, you know, I think it's an opportunity and And I think it requires a structural change in terms of who will win and what will succeed going forward in MA. And I think we're really well positioned for that.
spk09: Awesome. Appreciate all the color. Yeah.
spk22: Thank you. One moment for our next question. Our next question comes from the line of Whit Mayo from Learing Partners.
spk10: Hey, good evening or afternoon, guys. The new lives that you picked up in the first quarter, can you maybe quantify how much of those are agents versus switchers? And if there were a lot of switchers, any themes on the switching, if you have any market intelligence on that?
spk04: Yeah. Hey, Whit. This is Thomas here. So I think our OEP experience, which lasted through the April 1st eligible beneficiaries, was very similar to our AEP experience. And so what I mean by that is the majority of the membership or the new sales were plan switchers. But we see those plan switchers coming from a variety of our competitors across a broad swath of our markets. And so there's not really just kind of one or two or three competitors that we're disproportionately taking share from. We're We're really, I think, advantaged in most markets this year to take share from a variety of players, both in terms of the local or regional competitors and also many of the large national competitors. And I think in terms of our product mix, it's also been pretty broadly distributed across the board. And sitting here today, we still have about 30% of our members that are enrolled in one of our special needs, like our CSNIP products, or are duly eligible, which is pretty consistent to where we ended at the end of last year.
spk10: Okay. And maybe this is a dumb question, but looking at the reserve roll forward in your queue, there was 5 million of favorable PYD, but there's a footnote below that references 870,000. I guess I wanted to, what's the difference between the two and what the P&L impact was?
spk04: Yeah, yeah, absolutely. So we typically, on that footnote you're referring to, we try to look at the change in prior period reserves, excluding the, we typically put a 7% kind of margin difference factor on top of the reserves for adverse trends. And so think about that 7% as you add it when you kind of put your best estimate together for a given month, you add 7% to it. If your estimate on that month is perfect, that 7% will just release in the future. But at the same time, you're always adding new months with an additional 7% pad. And so it kind of becomes a wash from a P&L standpoint where you're constantly releasing it and adding it over time. So we really like to focus on what the change in IV&R is excluding that 7%, and that's the number that we report in our footnotes. So it was right, you're correct, just a little under a million dollars for the first quarter, meaning that our year-end reserves for 2023, I think, were very strong and intact relative to the paid claims experience through the end of the first quarter. Yeah, makes sense. Thanks, guys.
spk22: Thank you. One moment for our next question. Our next question comes from the line of Jess Tessan from Piper Sandler.
spk21: Hi, guys. Thank you for taking the question. I'm curious to know just, you know, 2025 funding looks favorable in California. You guys obviously have momentum there from a brand perspective, strong provider network. I'm curious just in any updated thoughts around that.
spk15: the geographies where you intend to participate in in 25 and beyond that whether you know new market entries remains um a significant factor in your growth hey jess it's john um now we're going to we're not going into dates in 2025 um the focus has been on the most efficient way to grow and we just see so much momentum in our core markets. And even in the ex-California markets that we currently have, you know, we're getting up above kind of that 5,000 member range. And what we've seen in the past is you get to 5,000, to get from 5 to 10,000 is just a lot faster. And then obviously in California, we've got a lot of momentum. I would suspect that we're going to be more aggressive in 2026. You know, what I've said in the past is the goal obviously is to fund new market expansions from internally generated cash. And so I would expect us to be more aggressive in 2026 in terms of new states. I will say that the conversations that we've had with health systems and I would say large provider organizations has been very encouraging. And I think you'll see more of those kinds of arrangements come together heading into 2026, which require us to have the deals pretty much done by the end of this year so that we can file for service area expansions in February of 25.
spk21: That's helpful. And then I guess I'm curious, kind of, any thoughts on the potential for state alignment initiatives for the dual population to kind of pressure future growth in your DSNP book? Or just how are you thinking about contending with that in the future? Thanks.
spk15: Yeah. It's something that we've had to address over the last couple of years with the alignment and the aligned initiatives. programs and the CCI care coordination programs in California. The rule that just came out certainly, I think, gives some of the Medicaid folks a little bit of an advantage. But what we are advocating for is chronic special needs programs and chronic special needs lookalike programs that in the most recent regs are certainly going to survive beyond kind of the 2030 timeframe. And if you think about the reality of care quality, we think the quality of the products we have and the care model that we have to serve the seniors is better than any kind of forced Medicaid solution. I just think it's better quality. And I think people are actually voting with their feet with respect to some of the C-SNPs that we have. And that's been very successful for us.
spk20: Got it. Thank you.
spk18: Sure.
spk22: Thank you. One moment for our next question. Our next question comes from the line of Andrew Mock from Barclays.
spk19: Hi, this is Tiffany on for Andrew. You called out higher inpatient unit costs and supplemental benefit utilization that you expect to continue into the year. Could you give a little bit more color on the expected cadence of those pressure points into the back half? And separately, just anything else to call out on calendar impact to MLR seasonality? Thanks.
spk04: Hey, Tiffany. So I think nothing specific from a supplemental benefit or inpatient unit cost standpoint over the course of the year. So on the inpatient unit cost side, that obviously will impact any months or quarters where we have higher inpatient utilization overall. So when you think about the next three quarters, we typically would expect inpatient utilization to be lower in the second and third, and then have a bit of an uptick in Q4, specifically December around flu season. But generally speaking, I don't think a lot of seasonality around those unit costs. And similarly, on the supplemental benefit utilization side, we don't anticipate much change there quarter to quarter over the next three remaining quarters of the year. I think from an overall seasonality standpoint, we would expect this year to be similar to other years where 2Q and 3Q tend to be lower on MLR and 4Q tends to be a modest uptick higher, though Q1 tends to be our high point for the year. When you think about, I think, the improvement initiatives underway that we described in our prepared remarks, I think while our first quarter was very strong and I think demonstrates our ability to manage really tremendous growth so far this year, There are some areas where we think we can do better, particularly over the back half of the year. So from a clinical standpoint, getting from, you know, well, how we say it internally is getting from good to great. And there are certain things that we do a very good job of today, but we think we can do an even better job on in the future, such as post-discharge care navigation, SNF length of stay management, SNF readmission rate, things that we are already pretty world-class on, but we still see areas of opportunity given the growth we've achieved where we think we can dial those levers a bit more in our favor over the back half of the year. I think similarly on the payment integrity side, we started to see an uptick in our inpatient unit costs in the back half of last year. And I think as we've kind of looked under the hood on this, we do feel like there's an opportunity to use some third parties to help us to ensure that we have accurate claims submissions from our different provider partners over the course of the year, particularly in the second half. I think those are some of the things that are going to be the biggest kind of drivers of that continuous improvement for us. But nonetheless, as John said earlier in his remarks, you know, I think our first quarter really puts us in a strong position towards our overall full-year guidance range.
spk15: Yeah, and Tiffany, on the acute unit costs, I mean, it's clearly the offset to that has to be improved significantly. kind of admission management, right? I mean, and readmission management and all the clinical quality drivers that we've spent so much time on. And I think last year, Thomas, we were 163 in the month of ADK, admissions per thousand this year were 151. It's going to require that kind of kind of continued excellent clinical performance to offset some of those unit cost increases.
spk22: All right, perfect. Thank you. Thank you. One moment for our next question. Our next question comes from the line of John Ransom from Raymond James.
spk07: I knew I had another good question. I couldn't remember it on the fly. I got you to stand there. So there's been a lot in the press about, you know, MA plans having more difficulty contracting downstream, you know, with, you know, hospitals pushing back. And then, you know, a lot of plans, you know, you lay your risk off on some of these physician groups that are probably getting killed with B28. So when you think about your provider contracting, how does that look now versus a year ago? And is there anything to call out there, good or bad?
spk15: Great, great question. It didn't. We talk about our shared risk contracting model. And we think it's much more durable. We think that it comes in the form of either PCP capitation and or professional capitation. And then we share in the risk associated for the institutional costs. And so if we all work together, And we cut these deals not only with the downstream providers, but also with the health systems. And we have aligning principles with hospital systems and IDNs. I think that's going to be part of the future, personally, in terms of how the space shakes out. And so the shared risk model, using the tools, using the data that we have access to, not just limited to the EHR data that's in the providers, but having a holistic view of that patient through some of the tools that we have in AVA and our patient 360 longitudinal patient record. Exposing that information to the providers is what's allowed us to take action with the providers to get the outcomes that we have. And it's in a, I would call it a capital efficient model. You know, at our old company, we had a lot of bricks and mortar. It's very expensive. And so the whole thesis that we have is work with the community doctors that are independent and I don't want consolidated per se and or health systems that have clinically integrated networks and give them the tools and create economics that are aligning. And the other thing I would say, John, is that health systems have approached us and apologies for the long winded but this is really important they were approaching us going you know particularly the top tier health systems the top ones are over capacity meaning they're at 120 to 125 percent of what their physical capacity will allow and so what they're asking us is well if we partnered can you help us lower the admissions of seniors into our facilities, and that they are so confident that if they have lower senior admissions, they can backfill those senior admissions with commercial admissions, which again, they're just getting paid more. Instead of getting 100% of Medicare, they're getting 200% of Medicare. So those kinds of, I think, macro dynamics with respect to reimbursement not only for the plan, but for the facilities and the doctors, all kind of are factored into where we see MA going forward. And I think you're going to see much tighter partnerships. And a lot of these folks are not happy with some of the, I'll call it, you know, kind of claims editing protocols that certain MCOs are using with these health systems. And so they're kind of coming to us as an alternative. And that gets back to some of the questions that I think Jess asked with respect to how do we think about growing in new markets? And it's going to be with provider partners in 2026 is the answer.
spk07: Do you think that's the longest answer you've ever given in your career, John?
spk14: Not by a long shot.
spk07: My other question, and this is kind of into the weeds, but five years ago, we made a lot out of these conveners. You know, we see the headline that Optum is laying people off at Navahealth. Have we done all we can do in terms of redirecting post-acute? I know Thomas mentioned this, but, you know, for every 100 post-acute discharges, are we doing the best we can still in terms of redirecting them to the home health versus SNF? Or is there some wood to chop there, as you guys kind of alluded to?
spk15: You're talking about for the industry or for us?
spk05: Well, for you guys. You think you're at peak efficiency in terms of...
spk15: I think there is a huge amount of opportunity for us to be better at that. And it's very topical for us. We have, and I alluded to this, we have so much focus on inpatient acute admissions. And I think the opportunity for us to have post-discharged care navigation, SNF rounding, Just all those things that we know how to do, I think, and we do it, and we do it well, but I think we can do it even better is the short answer.
spk07: Is it just hard to compete with the guys playing offense with dropping off the donuts and charming the discharge planters? What do you have to do to get on your front foot with some of these discharge planters? Because you're kind of up against an industry that is pushing in the other direction.
spk15: I would say alignment with the facility. alignment and relationships with the facility, not at the discharge planner level, but at the CEO of the health system level. Those are the conversations that we're having now. And what's consistent, John, is people like the care model. At the end of the day, in health services, most of the people we deal with, doctors and health systems, they actually care about optimizing care delivery and quality of care. It matters to them. And they see what we're doing. And to the extent that it is aligned with their economics, you know, people want to work with us.
spk04: And one thing I would add to that as well, John, is, you know, the bigger we get, the more it affords us the ability to have those conversations. And we think about us today, you know, we're starting to become more significant in many of our markets. And that's, I think, just given us better opportunities to engage across different sites of care and at different levels within those different institutions.
spk07: Yeah, I mean, I'll shut up after this, but it's just been surprising to me going back through MedTech data how stable to well the SNF industry has done when you have all these forces on paper pushing, you know, discharges into, you know, literally cost of care, this one-fifth the cost of the SNF, and yet those, you know, their admissions are growing. That's just been a big surprise to me that the industry is kind of still where we are in 2024. So anyway, that's my editorial comment. Thank you very much. You got it.
spk22: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
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