Good afternoon and welcome to Alignment Healthcare's Second Quarter 2021 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. Please note 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. Although we believe these expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. Descriptions of some of the factors that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in our filings with the SEC including the Risk Factors section of the prospectus for our initial public offering filed with the SEC on March 29th, 2021 and on our Form 10-Q for the quarter ended June 30th, 2021. 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 and the most comparable GAAP measures along with the reconciliation of historical non-GAAP measures can be found in the press release that is posted on the company's website and in our 10-Q for the quarter ended June 30th, 2021.

Hello and welcome everyone to our second quarter earnings conference call. We are pleased to report a solid quarter in which we exceeded the high end of our guidance across each of our four key KPIs. Our health plan membership ended at 84,700, an increase of 32% compared to last year. Total revenue of $309 million grew 26% from last year, which was led by our health plan premium revenue growth of 32% year-over-year. Adjusted gross profit came in at $37 million, and adjusted EBITDA was a small loss of $5 million as we continue to invest in the growth and scaling of the business. Thomas will share more regarding our financial performance for the quarter, but from an operational perspective, we are executing on the growth strategy via our virtuous cycle that we laid out during our IPO road show. As a reminder, this growth strategy consists of three components. These are first, entering new states by establishing anchored beachheads and partnerships; second, delivering contiguous market expansions in our existing states; and third, adding new innovative products and provider partnerships to further grow market share in each of our existing geographies. Across each of these three prongs of our growth strategy, our business is exceeding my expectations. Our ability to deliver upon our growth agenda is due to the consistency of our operating model. I'm thrilled with how we're performing and how our team is skillfully executing on the plan. Though our 2022 AEP market expansions and products are still subject to regulatory approval, we are excited about our strong position. In terms of overall geographic expansion, we are making steady progress to expand our addressable market, to allow a greater number of seniors to experience what makes Alignment unique. We anticipate growing the number of markets we operate in from 22 counties in 2021 to 38 counties in 2022. As a result, we will have access to approximately seven million Medicare eligible members in 2022, an increase of about 27% from today. Since our IPO, we've been very clear about our growth strategy of first establishing beachheads in new states and then expanding into contiguous markets, which means counties in those states over time. With that in mind, on the first strategy, we recently announced that we're entering our fourth state, Arizona by offering plans in Pima and Maricopa counties beginning in 2022. These two new markets provide access to nearly one million eligible seniors and represent a natural extension of our existing operations in California and Nevada. On the second prong of adding contiguous markets, we're planning to add 12 new counties in North Carolina in 2022, which will bring the total number of markets Alignment serves to 15 in the state. We also intend to add two new markets in Nevada next year, as we expand into Washoe and Nye counties. Shifting to our third prong, which is to drive market share gains in our existing markets, our plans and supplemental benefits are designed to meet community needs by ethnicity, income, and health status. Our innovative product offerings, which consider culture and social determinants of health, continue to be well received in the market. We are pleased to recently announce several new products and product line expansions effective January 2022, subject to regulatory approval. After the success of our Harmony product focused on the Asian community in 2021, we are eager to launch our El Unico product designed to serve the Hispanic population in 2022. This product has been developed to better customize the experience of our Spanish-speaking population, which today represents over 25% of our total membership. In addition to our ethnically focused plans, we're also expanding our offering to include PPO plans and plans for dual eligible special needs members or D-SNPs, as well as chronic condition special needs plans or C-SNPs. Beginning in 2022, the PPO plan will be offered in 28 of our markets and provide our members with greater flexibility in their care and coverage decisions. The D-SNP plans will be available in 24 markets and are designed to provide the same level of care and service associated with our regular MA products in conjunction with members' Medicaid benefits. Meanwhile, the C-SNP plans will be offered in 11 markets and targeted to members who can benefit from our chronic disease management programs, such as those with cardiovascular disorders, chronic heart failure, or diabetes. Adding these differentiated plans in 2022 allows us to further penetrate our existing markets and to offer broader value propositions across different senior consumer segments. These product strategies designed to meet the individual needs of a diverse set of consumers demonstrate our product leadership in the market and are consistent with our goal to provide a more personalized experience for our consumers. We look forward to sharing more about these products during this upcoming AEP. On the provider partnership front, we have recently closed several relationships that we plan to announce in the coming weeks as we gear up for our 2022 AEP. We believe the growing list of provider and delivery system organizations that want to work with Alignment reflects the value proposition we deliver to the provider stakeholders in our ecosystem. More specifically, these providers are partnering with us because of our differentiated products, our proprietary AVA technology, and our Medicare Advantage expertise, all of which result in consistent outcomes of high quality and low cost, enabling us to offer market-leading benefits for seniors. This, in turn, drives our ability to help our providers grow and gain market share. As we continue to demonstrate the efficacy of our platform, we believe we will establish more and more partnership arrangements like these in the future, helping us thrive in our existing and new expansion markets. Looking to the remainder of the year ahead with the annual enrollment period right around the corner, we are working diligently to educate our channel partners about Alignment's differentiated approach. It is this powerful combination of market entry strategies, product positioning, provider relationships, and broker engagement and partnerships that allows us to continue to grow our market share across our geographic footprint. As a result of all the work we've done over the past several months, we believe we are well positioned for a successful enrollment season. Finally, before I conclude, I want to touch on our AVA technology platform. AVA represents a core differentiated advantage for our company as it embeds the intelligence from our experience into repeatable and scalable technology and associated processes. This allows us to manage risk consistently and successfully with our provider partners as we implement our high-quality, low-cost growth model. Further, AVA is central to our ability to provide our senior consumers with differentiated products that meet their personal needs. Many of you have begun to see demos of portions of our AVA platform, and we look forward to sharing new and improved features with you in the future. Wrapping up, the first half of 2021 is off to a great start operationally. We are positioning ourselves well for a successful 2022 enrollment period, and we're very focused right now on putting the building blocks in place to set up meaningful and sustainable long-term growth for 2023 and beyond. Our prudent and disciplined approach to continuously investing towards growth and AVA remain priorities for us heading into the back half of the year. I look forward to keeping you updated on our progress across these initiatives. With that, I'll turn the call over to Thomas to review our financial performance. Thomas?

Thank you, John, and thank you everyone for joining us on the call today. Turning to the second quarter results. As John mentioned, we had another strong quarter in which we exceeded the high end of our guidance ranges across each of our four KPIs. Our health plan membership of 84,700 increased 32% over last year as we wrapped up the final month of CMS' open enrollment period in April. Our strong membership growth further translated to revenue outperformance in the quarter. Total revenue of $309 million increased 26% year-over-year representing $39 million over the high end of our guidance range. Notably, our health plan premium revenue of $293 million increased 32% over last year. The strength of our second quarter revenue outcome was supported by a couple of drivers worth highlighting. The $39 million of outperformance versus the high end of our guidance range can generally be thought about in two buckets: our Medicare Advantage or MA health plan business performance and the introduction of our initial DCE venture into our financials, which was launched at the beginning of the second quarter and was previously excluded from guidance. First, our continuing MA business delivered strong results ahead of guidance shared last quarter. Excluding incremental sweep revenue from 2020 and emerging DCE revenue, I would highlight that we exceeded the high end of our 2Q revenue guidance by $21 million. This was due to a combination of better-than-anticipated membership performance as well as increasing our revenue PMPM for the first half of 2021 dates of service based on our latest data. Note that $8 million of the $21 million related to the first quarter of 2021 dates of service. The upward momentum of our revenue PMPM is reflective of the operational efforts we took in the back half of 2020, to engage with our provider partners and our seniors directly in documenting our members' underlying conditions as well as visibility from the midyear sweep for the 24% of our members who were new to Alignment in the first half of 2021. This quarter's revenue also incorporated our 2020 final sweep payment, representing another $5 million of revenue related to 2020 dates of service. These sweep payments for prior periods are standard operating procedure in our industry and happen every year. In total, our continuing MA business contributed $26 million of the $39 million of revenue outperformance in the quarter versus the high end of our previous guidance. Additionally, our second quarter revenue included another $13 million from our direct contracting launch in North Carolina. Through our joint venture with a number of leading independent clinicians, we are leveraging our experience, platform, and capabilities for our Medicare Advantage book of business to take risk on 5,900 seniors in traditional Medicare. Our revenue for the program is reflected on a gross basis, which means that we are accruing for our revenue based on the benchmark expenditures established by CMS. While our participation in the Medicare direct contracting program remains early, we remain cautiously optimistic regarding the long-term economic opportunity as we increasingly apply our AVA technology and related clinical processes to this population. Thus far, our revenue per member per month is meaningfully below our Medicare Advantage population. However, we believe our ability to generate a profit remains positive given the significantly less direct and indirect operating expenditures associated with DCE members compared to our MA population. That said, we reserved a small gross profit loss in the quarter on our DCE partnership, given the early stage nature of the program as well as due to the limited claims data we received from CMS thus far. Just to reiterate, the 5,900 DCE members are in addition to our 84,700 health plan members we reported for the second quarter. Turning to adjusted gross profit, we delivered $37 million in the second quarter as we saw a continued decline of COVID-19 impacting our overall utilization, consistent with our expectations shared on our previous earnings call. Relative to our pre-COVID experience, total inpatient utilization in the quarter was slightly better than what we would consider to be a normal 2Q baseline. Further, in the quarter, we continued to see some of the temporary favorability we discussed on our last earnings call with our internal clinical model spin. That said, we still anticipate this to reverse in the second half of the year. All things considered, our second quarter medical benefit ratio (MBR) of 88% was a marked improvement versus our first quarter MBR of 91.5%. Further, excluding DCE, our MBR for the quarter was 87%, which is comparable to our previous communications which excluded the DCE venture. It's worth noting that we do not anticipate sharing our separate MBR performance in future quarters unless we feel it is necessary to explain the underlying trends of the business. However, we thought that it was appropriate to share this quarter given that our previous guidance excluded DCE. Our SG&A in the second quarter was $71 million. Excluding equity-based compensation expense of $28 million, our SG&A in the second quarter was $43 million, which increased 28% year-over-year. We continued to experience some temporary favorability in SG&A in the quarter, which we intend to reinvest in the second half of the year towards growth in our existing geographies, as well as 22 expansion geographies and potential 2023 target markets. All of these factors resulted in an adjusted EBITDA loss of just $5 million. Turning to the balance sheet, we ended the second quarter with a net cash balance of $343 million. The strength of our balance sheet is allowing us to remain offensively oriented while evaluating new markets and partnerships for 2023, as well as various M&A opportunities in both existing and targeted expansion markets. Finally, I'll conclude my remarks by providing our initial outlook for the third quarter and some color on the increased full-year guidance we announced today. For the third quarter of 2021, we expect health plan membership to be between 84,800 and 85,200 members, revenue to be in the range of $270 million to $275 million, adjusted gross profit to be between $30 million and $32 million, and adjusted EBITDA to be in the range of a loss of $19 million to $17 million. For the full year 2021 outlook, we now expect health plan membership to be between 85,000 and 85,800 members, an increase from our previous range of 83,500 to 84,500; revenue to be in the range of $1.105 billion to $1.120 billion, an increase from our previous range of $1.040 billion to $1.055 billion. Adjusted gross profit to be between $117 million and $123 million, an increase from our previous range of $116 million to $122 million; adjusted EBITDA to be in the range of a loss of $55 million to $50 million, an improvement from our previous range of a loss of $56 million to $51 million. As we think about the second half of the year, we expect continued sales and membership growth, as well as this enrollment to be consistent with our prior experience. As previously discussed, there is an element of seasonality to our business, where a majority of our net membership growth occurs by April 1st of a given calendar year due to the timing of the annual enrollment period and open enrollment period. We therefore, expect more modest membership growth from July to December, and we then expect a step-up in membership effective January 2022, after this upcoming AEP. Given our receipt of the midyear suite, as well as having experienced another three months of data run out for our returning members who were with us in 2020, we now have improved visibility to our revenue PMPM for the second half of the year and feel confident about our second-half revenue outlook. As we think about our gross profit and MBR assumption in the back half of the year, we remain mindful of the potential for utilization to increase, particularly in Q4. We anticipate a return of the flu season, which was largely absent this past winter due to the various COVID-19 protocols that were in place. Furthermore, we are keeping an eye on infection rates in our markets related to the more highly contagious COVID-19 Delta variant, and accordingly, we remain somewhat cautious regarding our second-half claim expense outlook. With that in mind, we continue to further engage and outreach to our members to support their vaccination needs and are pleased to report that we estimate that over 80% of our seniors have been vaccinated. We also have incorporated our new member sales outperformance year-to-date, where newer members that join Alignment typically begin with higher MBRs that then improve over time as we engage our population. As a reminder, this mix of new versus returning members is a key driver of our consolidated MBR performance. Finally, we remain highly focused on executing against our strategic growth plan for this upcoming AEP, as well as developing our 2023 target market opportunities given the 18-month sales cycle associated with our business model. With those two items in mind, we anticipate continuing to make intentional growth and scaling investments to redeploy EBITDA performance and therefore expect to see several million dollars of reversal in early in the year SG&A favorability during the second half of 2021. As John noted, the building blocks we've put in place today are foundational to driving sustainable growth in the out years. Our EBITDA guidance for the remainder of the year also reflects the seasonality of our SG&A spend, whereby we typically have greater growth-oriented investments in the second half of the year such as the timing of our southern marketing spend around AEP. To wrap up, I'm very pleased with how our business has performed in the first half of the year given our recent public market debut, and I believe we're in a strong position to continue that progress in the second half of the year. With that, let's open the call to questions.

Our first question comes from Ricky Goldwasser of Morgan Stanley. Your line is open.

Hi, good afternoon, and thank you, John and Thomas, for the details. My question is about the MLR. You provided a number for the adjustment, but I have a few follow-ups. In your last call, you didn't provide guidance on MLR, but you did give some insight on how to think about it for the second half of the year, mentioning that it would be in the high-80s. Based on your performance this quarter and last quarter, along with what’s expected for the second half, should we anticipate MLR to be in the 84% to 86% range? How should we adjust this for DCE?

Yeah. Great, Ricky. This is Thomas here. So let me play that back. So I think you're absolutely right that I think when we last spoke on our Q1 earnings call, I think we did share that our outlook for the year was in the high-80s. I want to make sure I'm tracking to the 84% to 86% comment there. Are you just intending to somewhat bifurcate the MA comments versus the introduction of DCE? Is that really the core of your question?

Yeah. How should we think about sort of second half of the year MLR now that you're incorporating DCE?

Yeah. So I think I'd say two things. So the first is while we do not explicitly guide on MBR, we do obviously guide on gross profit and revenue. And so I think directionally, you can get a sense of how we're thinking about things just from some sort of back-of-the-envelope math. And I think we still stand by the high-80s comments from the first quarter. In terms of DCE, what I would say is we're in the early stages today. And as a reminder, the strategic rationale for why we entered into that partnership was really to demonstrate our ability to take our toolkit and our MA platform set of capabilities that we're using to manage our existing MA book of business and apply that to the traditional Medicare members in terms of taking the data, stratifying the members, engaging them through our care plans, and working with the providers to provide a more holistic set of care for that population. So I think as that happens, we actually anticipate the MBR on that specific population to continue to improve. I think what we saw in the second quarter was just largely reflective of the early stage nature of the program itself. And so we obviously have about 5,900 members today. And I think for the second quarter, we only had about two months' worth of paid plans data from CMS. So our visibility is a little bit different in that program as compared to our MA book of business, but we do anticipate it to continue to improve over the back half of the year as we continue to apply our AVA technologies and our care models to this specific set of members in traditional Medicare.

And then just a follow-up question on your utilization commentary. It sounds like you're assuming for the second half of the year that we're going to see utilization continuing to accelerate going back to kind of like pre-pandemic baseline, but you're also kind of like assuming higher COVID costs related to the Delta variant. Are you starting to see any change in behavior of your members in terms of how to utilize the health care system for core services now that we're seeing this uptick in COVID cases?

We really haven't quite yet. I guess maybe to respond to the Delta comment first, we have seen a very slight uptick over the last 30 days related to the Delta variant. But just to put that comment in context, our COVID-related hospitalizations today are still five times lower than they were a year ago. And so we're really just not seeing a big spike in our markets today as compared to maybe some of the other folks you're speaking who have a different geographic footprint than we do. That said, I think you're right we do remain cautious just in terms of what that might look like in the back half of the year given the rapidly evolving sets of factors in play. And so I think our guidance is really predicated upon, you're right, a return to sort of pre-pandemic baseline levels of utilization if not a slight uptick just given the nature of what COVID may do to us overall. But that said, I think we're in a pretty strong position and aren't seeing any type of major pent-up demand from electives or any real high-acuity cases related to deferred care, nothing of that nature right now.

Okay. So just to clarify, the higher uptick in utilization is that combining COVID and core together, or is that just core?

Yes, I am referring to the overall situation, including both COVID-related and non-COVID aspects.

Okay. Thank you.

Hey, Ricky, it's John. I wanted to add that we are continuing our virtual town halls with the members. We just wrapped one up last week with over 12,000 participants. We’re seeing excellent engagement with vaccination rates at around 85% to 89%. The members recognize the importance of vaccinations and are keen to get boosters. As Thomas pointed out, when comparing June of last year to June of this year, we have seen five times fewer admissions this year. That said, we are being cautious as we generally are regarding utilization in Q3 and Q4.

Okay. I appreciate the commentary and the conservatism.

Yes. Thanks, Ricky.

Thank you. Our next question comes from Ryan Daniels of William Blair. Your question please.

Yes. Hi. Good afternoon. This is Jared Haase on for Ryan. Thanks for the question, and congrats on the quarter. I wanted to ask one on the health plan membership. Obviously, that continues to grow at a nice clip above 30%, so continuing to see nice growth there. Just curious if you could tease out how much of that is coming from sort of plan switchers? I know in the past you kind of disclosed historically you see the bulk of your membership growth coming from sort of plan switchers in that sense. So just curious if you're still seeing similar dynamics there or if you're starting to see more growth coming from just kind of broader MA market growth.

Yes, Jared. This is Thomas here. So we do see a majority of our membership growth still coming from plan switchers. And so strategically, we obviously target market across really all of the consumer segments in terms of agents as well as those who were switching plans. But one of the things that we think we play well at in terms of the competitive landscape is offering a value proposition of benefit package and overall product inclusive of the supplemental benefits that we think really stand above and beyond some of our competitors in certain markets and that we think attracts some of those plan switchers. So we really pursue a lot of the opportunity that we think could be potential movement from Plan A or Plan B to Alignment, and that's kind of a core part of how we approach our growth both during AEP and outside of AEP such as the second quarter.

Got it. Yes. That makes sense. Thomas, can you just confirm what the magnitude of the contribution of the DCE was in the period?

In terms of revenue?

In terms of revenue, yes.

Yes. It was $13 million of revenue.

$13 million of revenue. Okay. Got it. Thanks. And then just real quick one more quick one. Thinking about the guidance, maybe you can just kind of clarify one more thing for me. In terms of the guidance rates for the rest of the year, can you help maybe tease out how much of that is attributable to the inclusion of DCE revenues for the rest of the year? And how much of that is maybe more favorable risk adjustment than what you had previously assumed in your guidance now that you have better visibility?

Yes. So what I would say is about $20 million to maybe $25 million of that is related to DCE. And then there's a portion beyond that that's related to revenue PMPM for the rest of the year. And so I think all things considered we feel pretty good about where that stands and we'll kind of keep you guys posted as we get into the third quarter here.

Great. Thanks and congrats again.

Thank you. Our next question comes from John Ransom of Raymond James. Your line is open.

Hi. Good afternoon. John, I was curious as we think about you as a consumer marketing company versus healthcare. How do you think that you get the word out and attract membership one year out, two years out versus kind of the traditional ways it's done now mostly through the broker network? Are there any new things to come in terms of your messaging and marketing?

Yes. John, how are you doing? The interesting thing with our growth is it's really a result of our focusing on patient satisfaction and member engagement and just doing everything we said we would do which is just putting that patient first. And I know that sounds kind of cliché, but it really is the truth. And so it's relevant because we haven't really invested in the brand yet and we're going to start doing that. Really we're planning for it now and you can start seeing a lot more branding and positioning of the Alignment brand next year. I think the only thing I would say is the listening part. We actually listen to our members and we ask them what they want. We listen intently to the providers and we listen very carefully to the broker community. They give us a lot of input that we try to embed not only in our products and our care delivery models but also just our core customer service, and we're always looking to get that Net Promoter Score higher and higher. You've heard me say before, I think product leadership is ultimately what's going to define and change healthcare per se. I think getting the ability to fund that product change so that you have a greater value proposition consistently is the hard part, which again we think we're doing a pretty good job on that. But yeah, I think you're going to see more and more of a push toward traditional health services and social determinants and just senior lifestyle. Put that together and you're going to get just a differentiated value proposition going forward. And so product leadership is going to be really important and the branding strategy you'll be expecting that.

No. It's just that you're focused on it, as most healthcare service companies don't view themselves as consumer-oriented.

They didn't like it. So our members actually like us.

Okay. That's funny. So Thomas, do you have a longer-term view just to enter the fray because there's a debate. Let's say the gross profit, the long-term gross profit of the traditional MCO member is X year five. Do you have a view yet of a DCE member adjusted for some of the dynamics including your joint venture relationship? How do we think about the value of that life versus your traditional MA life?

Yeah. Let me comment on what we know today in terms of the economic opportunity and how I think that may evolve. And I'll let you guys help think through how to view those lives in the future. But in terms of what we know today, so we mentioned in our prepared remarks that our revenue PMPM for the 5,900 members is below that of our Medicare Advantage book of business. But we went into this program very eyes wide open about that. And it has actually taken a page out of our California playbook in terms of our approach where we have actually some markets in California that are lower revenue PMPM markets, typically healthier members with lower utilization, and we still demonstrated an ability to generate a profit on that book of business. Therefore, with the DCE population, it is admittedly lower revenue PMPM today for us as compared to our Medicare Advantage book of business overall. But that said, we don't have to do things like as much sales and marketing, paying claims, and a lot of the utilization management or member services efforts. So overall, our SG&A and corporate infrastructure associated with the DCE book of business should really be significantly less than that of what is required to support the Medicare Advantage book of business. So net-net, I'm not sure we're drawing a line on the sand today in terms of what we think the ultimate PMPM profitability looks like in terms of bottom line EBITDA opportunity. But I think we have a strong case to make that it could prove valuable over time as we like I said apply AVA and our care management programs to this new group of members that we just started working with a couple of months ago.

I mean, do you see this strategically long-term as a backdoor into MA, or do you think this population is a stand-alone population for different reasons?

Yeah. This is John. I think we look at it from a kind of a product portfolio perspective. And people want fee-for-service and chosen traditional Medicare fee-for-service for a reason. And so I think we spent a lot of time with our clinical organization to say can we manage this population given our AVA tools, given our Care Anywhere model? And the team seems very optimistic about it. And the goal for us is not to rely on flipping these into MA per se, because I really think we've got to meet the consumer where they are, giving them a value proposition that makes sense. Do I think over time some people will conclude 'Gee, I can save a bunch of monthly premium and join an MA plan to get the same, if not better quality of outcome by joining Alignment'? Yes. I think that will happen. But I don't think we look at it organizationally as just a conversion strategy. We look at it as a product portfolio strategy.

Thanks. That’s it for me. Thank you.

Thanks.

Thank you. Our next question comes from Kevin Fischbeck of Bank of America. Your line is open.

Great, thanks. Yes. It looks like MLR came in a little bit higher than what consensus was thinking. And it does look like your guidance is looking for maybe a higher MLR in the back half of the year than originally. I just want to make sure I understand that I guess a, that's the case; but then b, how we should think about that if the rate is also coming in better. Does that mean that MLR would be even higher if not for a favorable rate experience, or is there some offset in there?

Yes. I'll jump in first. Hey, Kevin, this is Thomas here. So, starting with the second quarter itself. So, as we mentioned in the prepared remarks, part of the reason we wanted to really share the DCE results with you all is we recognize that that did have an impact on the overall consolidated MBR in the quarter. I think we would have had an 87% MBR as opposed to the consolidated have we not introduced the DCE into our second quarter results. So I think with that in mind, I think we feel pretty good about how we performed relative to our kind of internal and external expectations heading into the quarter. In terms of the back half of the year, I think what we're kind of showing in our forecast is a couple of things and obviously there's a lot of puts and takes across the board here. But we have definitely I think some more confidence in our revenue PMPM outlook for the year. But that said, we're also, as we mentioned, watching the overall environment involved with respect to utilization in the Delta variant more specifically, as I think what you're seeing in our forecast for the year is somewhat reflective of that uncertainty and cautiousness. And as we think about the DCE program, we do anticipate, as I mentioned, that to contribute sort of low $20 million of incremental revenue in the back half of the year that was previously excluded from guidance. While I do think that we'll continue to demonstrate improvements around the DCE population and sort of the MBR with respect to that specific group of members, I think the overall DCE program made a bit of a headwind for us on consolidated MBR for the next three to six months, just as we continue to ramp up our programs there and really engage the members most in need of our care. So, I hope that gives you a bit of color on how to think about sort of the second half outlook we shared today and the second quarter more specifically.

Yes. That's helpful.

Kevin, it’s John. As we are getting higher growth, membership growth than we anticipated, and so along with that, is that kind of initial year MBR, that's a little bit higher in the first year. And so I'd factor that into the equation. I think that – but again, just that kind of prudence around COVID utilization, again we don't think it's going to reach the levels that they reached last year. But we've got some appropriateness in there. And then just DCE, if you kind of factor out DCE and the whole thing I think we're actually very much in line.

Okay. Because that's always the question is that we see variations in MLR and particularly after you guys have submitted bids you don't feel like anything has changed about your view about profitability in 2022 or anything like that?

No. I can maybe speak to that. So I think we're feeling pretty good about the way we set up the bids for 2022. And all things considered, I think we're sort of largely consistent with the industry, where we currently foresee 2022 looking more normalized both from a revenue and cost standpoint based on what we see today.

Okay. Great. And then I guess just you guys are doing a lot more PPO products next year. I mean I forget what the number is I think you guys are like 98% HMO membership. Is that – are you going to be able to deliver the differentiated value through the PPO plans, or is that going to look different or feel different than your HMO offering?

That's a great question. Yes. I personally have spent a lot of time making sure from the team both from a bid perspective on the product design as well as the clinical team on the care delivery side. And we get the same if not better outcomes from that population. I think the construction of the network was foundational in the way in which we design the products. I think we just recently announced the kind of the relationship with Cedars-Sinai in Los Angeles. And really we're kind of building that PPO network around that relationship. And as you know, they're one of the preeminent delivery systems in Southern California. So I think the way that we contracted it, the way that we've engaged them on the delivery side, I think has gotten me pretty optimistic because I think that's a great question, because I think that product is going to do pretty well. At least that's the initial feedback from some of the brokers. But yes – no. It's – getting the data, being able to still identify who the 10% to 20% of the individuals that need the care, being able to deploy the Care Anywhere model at home virtually etc., still – are still building blocks that we can leverage for the PPO population.

Okay. Thanks.

Thank you. Our next question comes from Jeff Garro of Piper Sandler. Your question, please.

Yeah. Good afternoon. Thanks for taking my questions. Maybe I'll ask about your FY 2022 new markets with a couple of questions. First, would be what can you tell us about the market leadership you have in place for this new FY 2022 geographies, whether it's new hires that are very familiar with the local markets or existing leaders that know what has made Alignment successful previously in growing membership?

That's another great question. Yeah. So we announced a little bit before the IPO that we hired Raj Shrestha as really the market leader outside of our existing three markets. And just to recall, we wanted to do that, so that we did not take our eye off the ball on California, Nevada, and North Carolina. So we really brought Raj, who's brought in several new players to help us oversee the growth of these new markets and having said that, Raj was the Market President of a large health plan in Arizona. So he knows that market really well. We've hired market leaders or in the process of hiring sales, network, and just overall state leadership that's very familiar with the market. We know them through all of our different relationships and have worked with them, and they've delivered for us in the past. With respect to the kind of contiguous counties expansions in North Carolina and Nevada, it's the same kind of thing. It's a group of people in North Carolina that have delivered both growth and outcomes for us. We've got good strong relationships that we will be announcing with some of these provider partnerships in some of these new markets and actually both these states, so kind of that's coming. So I feel good. I feel good that we are growing, but growing with a high-quality, low-cost view in mind. It's not just putting dots on maps. It's actually getting the infrastructure, getting the people, getting the workflow processes, getting all of that set up in a way that we can ensure that we can execute this virtuous cycle.

Excellent. That really helps. I'll maybe follow up by asking about some of the markets specifically. Arizona, your entrance there includes some very well-known health systems. So, curious whether expectations might be a little bit higher for I think what everyone recognizes as a very attractive market, and then add one in on North Carolina expanding some to the west of your current geographies. There are some health systems there with very strong market share. So, maybe curious a little bit on the network strategy and approach to managing utilization in some of those new geographies in North Carolina.

I can start with North Carolina and then go back to Arizona. North Carolina is interesting because we are entering 12 new counties, although some of them are smaller. This expansion allows us to tap into the triad market. I appreciate the partnership, the contract, and the levels of engagement we have. Whether this could develop into something like Sutter or San Diego is uncertain. We have been very thoughtful about the benefits and engagement, but we haven't specifically modeled the outcomes. We have also been quite prudent and conservative in our growth assumptions across all markets, including Arizona. Tucson and Phoenix are well-known for their competitive managed care environments, with market share penetration for Medicare Advantage exceeding 40 percent. This buyer base is quite savvy, which is advantageous for us as we believe we can offer a superior service. However, it will take a couple of years to establish ourselves in these new markets. Our internal goal is to reach around 10,000 members in each major metropolitan area within five years, aiming for EBITDA breakeven in about three years. We expect to start with an enrollment of between 1,000 to 1,500 members in year one, while setting up all the necessary infrastructure and hiring staff. You're correct that one of these markets could surprise us positively. We previously had no presence in the Sacramento area, but after partnering with Sutter, we have been successful there. Similarly, we started from scratch in San Diego and have achieved around 89,000 members in two years, which would be beneficial for us if we see similar success in these new areas.

Excellent. Appreciate all the comments. Thanks again.

Thanks.

Thank you. That ends our Q&A session and concludes today's conference call. Thank you for participating. You may now disconnect.