Alignment Healthcare, Inc. Q4 FY2022 Earnings Call

Good afternoon, and welcome to Alignment Healthcare's Fourth Quarter 2022 Earnings Conference Call and Webcast. 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, 2022. 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 are reconciliation of historical non-GAAP financial measures can be found in the press release that is posted on the company's website and on our Form 10-K for the fiscal year ended December 31, 2022. With that, I would now like to hand the conference over to your speaker today, John Kao, Founder and CEO. Please go ahead.

Hello, and welcome to our fourth quarter earnings conference call. We appreciate you joining us. I'd like to start us off by congratulating our employees for a year of outstanding progress and continued dedication to serving our members. As we approach the 10-year anniversary of our founding, I'd like to take a moment to reflect on our accomplishments together. We've grown our membership from less than 13,000 in 2014 to over 108,000 today, and have grown revenue from just $130 million to an expected $1.7 billion in 2023. During our time together, we have focused on quality in all we do. We have helped improve our members' lives by conducting more than 300,000 face-to-face meetings between our members and our Care Anywhere teams, and completing more than 1.5 million grocery and OTC transactions. Through our Care Anywhere model and partnership with providers, our inpatient utilization outcomes represent a combined total of nearly 24,000 fewer hospital stays relative to traditional Medicare, giving our members precious time with their families and loved ones. And this is just the beginning. Turning to today's results. We are pleased to have concluded the year with strong performance, having met or exceeded our outlook range across each of our 4 key performance indicators for the eighth straight quarter. For the fourth quarter 2022, our total revenue of $362 million represents a 21% growth year-over-year. We ended the quarter with health plan membership of 98,400 members, growing 14% year-over-year. Adjusted gross profit was $38.3 million, resulting in an MBR of 89.4%. Meanwhile, our adjusted EBITDA was negative $23.7 million. Concluding the full year total revenue of $1.434 billion grew 23%. Adjusted gross profit of $193.6 million resulted in an MBR of 86.5%, and adjusted EBITDA was a loss of $26.7 million, all well ahead of our initial and updated expectations. Last year, we conveyed expectations for our California market to be slightly adjusted EBITDA positive in 2022. We are proud to share that we exceeded those expectations and produced an MBR of 86.3%, even as we rapidly brought on new members. This result was driven by ongoing clinical engagement with our provider partners and members through our Care Anywhere clinical teams and greater operating scale. Additionally, each one of our new states ran less than 155 inpatient admissions per thousand, a powerful testament to the replicability of our care model. This is similar to our California performance, which has ranged between 155 to 165 admissions per thousand over the past 6 years, and nearly 40% better than traditional Medicare, which averages over 250 inpatient emissions per thousand. I'd like to share a few statistics that demonstrate how we are consistently improving outcomes across markets by deploying our Care Anywhere clinical engagement model powered by AVA Insights. Number one, members in our Care Anywhere program show a 32% net reduction in institutional claims expense 12 months after engagement versus Care Anywhere eligible members who did not enroll in the program. Number two, at-risk members across all chronic condition cohorts saw 47% lower ER visits per thousand versus traditional Medicare, including a 58% reduction in ER utilization for members with 6 or more chronic conditions. And number three, lastly, at-risk members from our year 1 cohort to our year 6-plus cohorts see a 10% improvement in MBR going from 88% to 78%. The improvement in MBR acts as the funding mechanism for our rich product benefits, and we see even greater opportunity ahead of us as we replicate these results across an increasingly large membership base. These examples and more are described in greater detail on our latest corporate presentation available on our Investor Relations page. Importantly, they showcase how our AVA-powered Care Anywhere clinical model is making a difference in members' lives, while driving our outstanding MBR results in 2022. Furthermore, we are seeing these clinical outcomes materialize, not just in our Medicare Advantage members, but also in our fee-for-service members. CMS recently released data for direct contracting performance year 2021 results, and despite having the second lowest weighted average benchmark PMPM in the country, we produced top quartile net savings results. These results underscore the adaptability of our clinical engagement model and our ability to effectively manage costs across Medicare populations. When we first began our DCE efforts in 2021, we balanced the strategic merits of working more collaboratively with our provider partners across a broader portion of their senior panel with a cautious attitude toward the long-term economics of the program. With our 2021 and 2022 performance in mind, we have grown increasingly comfortable that we could generate a positive long-term margin on the ACO reach book of business, and most importantly, continue to leverage the program as a way to drive more strategic and integrated relationships with providers that complement our MA business. Accordingly, we have continued to invest resources in the ACO reach program for 2023, and began the year with 7,900 aligned beneficiaries, an increase of 52% year-over-year. Turning to the results of this annual enrollment period as of January 1, 2023, we had 108,300 Medicare Advantage members, representing approximately 17% growth year-over-year. We previously shared a few highlights from the selling season, including a successful market launch in Fresno, California with 1,800 new members; improved performance in Southern California versus 2022, netting 16% growth year-over-year; a 50 basis point improvement in our California AEP voluntary disenrollment rate; and lastly, positive momentum in our states outside of California, with membership growth of more than 60% year-over-year. These achievements were a direct result of our ability to replicate our AVA insights and Care Anywhere outcomes, giving us the confidence to create market-leading products. As we continue to target 20% top line growth in 2024, we are focused on 4 areas this year that we believe are key to driving repeatable market success in future years. First, we are doubling down on our quality and cost initiatives, which has been the foundational element of our playbook for sustained growth, both inside and outside of California. Maximizing stars outcomes as part of these efforts remains a strategic priority for us heading into 2023, as evidenced by the successful AEP in North Carolina, where we achieved our first five-star plan. Second, we are deepening relationships with our provider partners and expanding our network to create greater access for members. We have established a significant geographic footprint and remain focused on going deep in each one of our markets. Third, we are laser-focused on creating opportunities to increase the richness of our products heading into 2024 without sacrificing MBR, including looking at how we optimize the allocation of our rebate dollars across benefits. And fourth, we are employing a broader, more balanced distribution strategy. We will continue to invest in our durable relationships with third-party brokers that have consistently delivered, while we will add internal sales agents and a greater online sales presence in areas where we need better performance. While we are pleased with the establishment of our Florida and Texas beachheads and our early traction with provider engagement, we have identified numerous targeted actions to reconfigure our growth strategies, starting with our 4-pillar playbook, with a noted emphasis on distribution. In summary, we have identified key pillars that we believe will elevate us to the next phase of organizational growth and we look forward to sharing our progress as we move through the year. Looking ahead to 2023, I feel confident that we are positioned for continued success as we continue to make strides across each of our key value drivers. Now I'll turn the call over to Thomas to cover the fourth quarter financial results as well as our outlook for 2023.

Thanks, John. I'd like to echo how proud we are of the milestones we've achieved not only in 2022, but throughout our journey over the past 10 years. Now turning to our year-end results. For the year ending December 2022, our health plan membership of 98,400 increased 14% year-over-year. Over the course of the year, we added approximately 5,700 net members from January 22 to December 2022, which is similar to our past experience. Our total revenue in 2022 grew 23% to $1.434 billion. Further, our adjusted gross profit of $193.6 million reflected an MBR of 86.5% for the full year, driven by a continuation of strong medical outcomes in California, while Care Anywhere and our core medical management capabilities began to produce outcomes in our new states as well. SG&A for the year was $295.6 million. Excluding equity-based compensation expense, our SG&A was $223.1 million. Lastly, our full year adjusted EBITDA was negative $26.7 million. This reflects a margin of negative 1.9% and represents approximately 90 basis points of improvement year-over-year, even as we grew revenue by over 20%. As we reflect on the year, we're proud to note that we ultimately delivered a $97 million revenue beat and a $16 million adjusted EBITDA beat, both relative to the respective midpoints of our initial 2022 guidance. We aim to strike a continued balance between both our growth and profitability objectives going forward. Turning to the balance sheet. We ended the quarter with $245 million in net cash. The sequential step down in cash compared to the third quarter included the previously discussed timing impact of an early payment from CMS of approximately $117 million, which temporarily inflated the prior quarter's ending balance. This had no impact on a full year basis. Moving to our 2023 guidance. For the first quarter, we expect health plan membership to be between 109,300 and 109,500 members, revenue to be in the range of $429 million and $434 million, adjusted gross profit to be between $38 million and $41 million, and adjusted EBITDA to be in the range of a loss of $17 million to a loss of $14 million. For the full year 2023, we expect health plan membership to be between 113,000 and 115,000 members, revenue to be in the range of $1.705 billion and $1.730 billion, adjusted gross profit to be between $205 million and $217 million, and adjusted EBITDA to be in the range of a loss of $34 million to a loss of $20 million. Consistent with our long-term outlook, the midpoint of our 2023 revenue guidance represents approximately 20% growth year-over-year. As part of our forecast, we are assuming continued growth of our health plan membership throughout 2023, comparable to our experience from January to December in prior years. Our health plan revenue per member per month forecast contemplates a few moving parts. First, our returning member revenue PMPM is increasing year-over-year, partially offset by new member growth, which on average comes in at lower PMPM. Second, we will realize the full adverse impact of the return of sequestration, which began phasing in during the second quarter last year, and represents a roughly 75 basis point headwind to revenue PMPMs in 2023 versus full year results in 2022. Additionally, our ACO reach membership is increasing year-over-year, and we expect total program revenue of approximately $130 million, which represents over 150% growth compared to 2022 DCE revenue. While we don't include ACO reach beneficiaries in our health plan membership count guidance, the associated benchmark revenue is recognized on our income statement and is included in our guidance. Moving to MBR utilization. We'd like to note a few factors that impact the year-over-year comparison. First, our previously mentioned growth in ACO reach membership is expected to weigh on our consolidated MBR in 2023. At this time, we are forecasting the program to run close to 100% in 2023, presenting a drag on consolidated MBR of roughly 60 basis points year-over-year, but also creating meaningful operating leverage across our SG&A spend. We remain confident in medical improvement over time as we deploy our AVA and Care Anywhere resources and continue to view the ACO reach program as a strategic extension of our relationships with our participating provider partners. It's also worth noting that the MBR implied in our guidance, excluding both ACO reach medical expense and revenue, is approximately 86.8% at the midpoint. Second, we expect new member growth to increase consolidated MBR by approximately 55 basis points this year and trend down in future years as we engage these new members with our Care Anywhere teams. Consistent with our past cohort experience, we are seeing strong year-over-year improvement in MBR results with our returning members, including continuing to expect non-California inpatient admissions per thousand of less than 165 in 2023. Third, we will realize the full year impact of sequestration this year, which we expect to weigh on our consolidated MBR by approximately 15 basis points. Normalizing for these 3 factors, our core MBR of 86.4% at the midpoint of our guidance reflects a continuation of strong underlying trends, and we now also expect an incremental $2 million to $4 million of additional embedded earnings power in our ACO reach members over time as they mature toward our target margins in the future. Lastly, our first quarter guidance contemplates an increase in admissions per thousand, similar to our past seasonal experience. This resulted in a higher MBR in the first quarter and implies MBR over the remainder of the year will be lower than the full year MBR on average. Overall, we feel confident that we are well positioned to deliver on our full year adjusted gross profit objectives. We expect to add significant operating leverage in 2023, with $240 million of operating expense implying an SG&A ratio of 13.9%, an improvement of 140 basis points year-over-year. This is a result of our disciplined focus on deriving economies of scale as we continue to grow, along with the additional benefit from growth in our ACO reach book of business. While we believe the long-term MBR profile of the MA business is more attractive than ACO reach, the incremental SG&A required to grow our ACO reach business is significantly less than MA. Lastly, our adjusted EBITDA outlook range takes each of these factors into account and reflects a margin of negative 1.5%, a 40 basis point improvement year-over-year and on pace with our adjusted EBITDA breakeven objective in 2024. As John mentioned earlier, our California franchise was adjusted EBITDA positive in 2022, and we expect this to continue in 2023. Our consolidated adjusted EBITDA loss guidance in 2023, therefore, continues to reflect the investments we're making to support growth in markets outside of California and future expansion initiatives. As we continue to scale, we foresee a high degree of visibility into the leverage we will achieve over our corporate resources, clinical model costs, and public company expenses. Importantly, our strong balance sheet position and operating projections give us confidence that we will not require additional financing to fund our organic growth objectives in the future. I'm proud of how we are positioned today, and we look forward to updating you all on our progress throughout the year. With that, let's open the call to questions.

Our first question comes from Connor Massari of Morgan Stanley. The next question is from Whit Mayo of SVB.

Can you hear me?

Yes.

John, I just wanted to go back to your prepared comments and kind of unpack some of the initiatives you have around stars, just where you're focused, where you're not particularly happy where you think you can advance some improvement. You sit pretty close on some of the cut points on your largest age contract? And maybe just provide some thinking around how you're sort of reviewing the rebate dollars?

We appreciate the question. We were among the pioneers in our industry, achieving the jump from 3 stars to 4.5 stars early on. Our approach has been to treat stars as a company-wide initiative rather than just a departmental focus, with commitment from the Board down to every member of the organization. We have reinstated this mindset through comprehensive training on all star measures. This is essential in response to the overall rising cut points in the industry. To maintain a 4-star status today, we need to improve continuously. Regarding the rebate concept, I believe we are currently in a strong position, having performed well in the 2022 stars rating; however, aiming for 2023 stars will be more challenging. We must strive for 4.5 to 5 stars in every market. Our medical management and clinical operations are performing exceptionally well, and I am proud of our team's efforts, but there remains room for improvement. This is crucial as we work towards the membership growth we seek in MA. We have received notifications that cut points will rise in 2023, which necessitates an enterprise-level effort to adapt. I feel optimistic about the employees' feedback and their commitment to improving, and I am proud of how the team has responded.

Last question for me is just looking at some of the new markets, North Carolina, Arizona, Nevada, maybe just an update around some of the inroads you're making on physician partnerships and just engagement efforts, gain-sharing strategies? Anything that you've learned.

We have learned many important lessons from our experiences in Florida and Texas. We found that all four growth pillars must work together, starting with achieving quality ratings, specifically five stars. Our experience in North Carolina showed that obtaining five-star ratings significantly enhances our credibility and legitimacy as a new market entrant. Therefore, our current focus in Texas, Florida, and other markets is on achieving this star rating. However, that alone is not sufficient. We need to combine it with effective medical management and the successful deployment of AVA Career Anywhere, which I'm very proud of. Currently, we are seeing around 155 admissions per thousand outside of California, which has been a key factor in our strong performance in new markets last year. Additionally, having quality products is essential, and we have had good offerings in these new areas. The crucial takeaway is that our distribution strategy must be reliable and controllable, and we are making changes to improve it. All four components are necessary not only to enter and grow in a market but to truly succeed. We are committed to winning in every market where we invest, similar to our previous successes in California, and we are actively implementing these lessons at this moment.

One moment for our next question, which comes from the line of Ryan Daniels.

First one on ACO reach. I appreciate all the color there. Nice to see you're going to push more into it given your experience there. But I want to try to pair the commentary of the positive experience with experiencing 100% MBR. Is that mostly due to just the rapid growth in kind of newer patients coming in with a much higher MBR contrasted to existing patients that are lower? And if so, can you give us any color on the delta between those 2 groups?

Ryan, this is Thomas here. I'm happy to address your question. Regarding the overall outlook for 2023, what you're seeing from us is a careful approach to setting expectations given the significant growth we're experiencing. We're moving from 5,000 to 7,900 at the start of the year, but this involves a notable shift in our participant mix across different providers and regions. This is a new population for us in many ways. As you know, we tend to be cautious in our comments about our outlook until we understand the new members and groups better. That said, we are very proud of our results from the 2021 outcomes recently released by CMS. As John mentioned, we were the second lowest benchmark in the country, indicating less opportunity to reduce costs, yet we still achieved top quartile results. Our savings rate for the 2021 calendar year was around 6%, according to CMS metrics. We are also optimistic about our 2022 results. We believe this business line can contribute positively for us and that we can continue to grow alongside our MA relationships. However, we do not plan to pursue this growth at the expense of our MA goals. Our 20% revenue target for MA remains intact, and this opportunity could provide incremental and beneficial growth as we collaborate with providers to reach a larger portion of their senior patients.

Okay. That's very helpful. And then as my follow-up, this one is for John. As you discussed your 4-pillar playbook, one of the things you mentioned, and you discussed this in the Q&A already, is optimizing rebate dollars across benefits. And I think in the context of lower potential MA rate increases for 2024, that becomes even more important. So I'm curious just how you think about that maybe specific opportunities there, especially given what might be lower rebate dollars given the rate outlook for 2024. Kind of what is the organization really focused on there? Is it going to differ market by market? Or are there certain benefits that you really want to push the pedal on because you've seen more engagement with consumers, etc.? Would love some color there.

Ryan, that's a great question, as always. The general increase in standards set by CMS concerning star ratings, particularly with higher cut points and reimbursement, will actually provide us with a strategic advantage over the long term. We've emphasized this point repeatedly, as our company was founded on delivering high quality at a low cost, which will ultimately result in the greatest value for consumers. I believe that the artificial metrics related to COVID we’ve observed in the star ratings over the past few years, along with reimbursement levels, aren't sustainable. The market is going to realign in our favor. We expect that sustainable benefit designs, coverage, and supplemental benefits will prevail, as many of the short-term subsidies that some have relied on will not hold up. We're all anticipating the final notice, and I expect this year's bid cycle to be quite intriguing, with varying strategies on how aggressively companies will maintain their rebate dollars and benefits. Ultimately, if you have the best cost structure, you'll be in the strongest position to deliver the most value. In response to Whit's question, we need to continue improving our star ratings and medical management to enhance our offerings. We are performing well, but there’s always room for improvement, and that's what will drive additional rebate value for consumers. Many of the artificial strategies we've seen will likely fade away.

And I think your color on using AVA and the results you're achieving, not only in existing markets but new markets, is a pretty powerful testament of how you can do that.

Our next question comes from the line of Michael Ha of Morgan Stanley.

To follow up on the last question regarding the advance rate notice, which came in slightly lower than expected, I wanted to delve deeper into your thoughts on competitive positioning for 2024. As you mentioned, there may be a need for some Medicare Advantage plans to reduce their benefits to manage potential rate pressures. This situation could create a significant opportunity for higher-quality Medicare Advantage plans to excel. Given your strong star rating and care delivery model, do you believe this could enhance your chances of gaining market share and achieving substantial growth in 2024? I would appreciate any general or expanded insights you have on this topic.

Yes, Michael, this is Thomas. I think what you're describing is definitely an interesting dynamic that we're contemplating as we look out to 2024. I don't think we're going to comment too specifically on our bid strategies or our product strategies with respect to how we think that impacts the whole growth versus margin conversation today. And just being very thoughtful about not sharing too much that could adversely impact us from a strategic and competitive standpoint in this next upcoming bid cycle. But all that being said, I think you're exactly right. We certainly know there are some competitors in our markets who have benefited from COVID protections around star ratings. They benefited from higher-than-average benchmark increases the last couple of years. And in certain cases, I think have been able to manage some of their benefit offerings in part because they've done a nice job with risk adjustment. And as some of those things change in the future, and as CMS continues to try to tighten the dial around risk adjustment, I think the overall impact for some of our competitors could be worse than the impact on us. And it's that relative dynamic that I think is most important in terms of our ability to compete and, as John said, win in every market we're in, not just in 2024, but really over the long term. So as John said, it will be an interesting bid cycle coming up, but I think we feel optimistic as to what this means for the industry and our relative positioning in the years to come.

That makes sense. Maybe just 1 more question. Looking at California, a great rebound in Southern California, regained your competitive positioning. I'm seeing SCAN, Kaiser, Centene a few top players really taking their foot off the gas pedal in terms of benefit investment. But also now, the competitive dynamics seems to have flipped in Central and North Cal, where you've seen some plans offering really aggressive Part B rebates. So looking forward, how do you view the competitive marketplace in both SoCal and NorCal? Do you think SoCal is back to being fully rational marketplace? And do you think the aggressive offerings in NorCal are sustainable? And also 1 more question on this. The membership headwind in Central Northern California, how much of that was driven by existing member attrition versus lower-than-expected new members?

In terms of the dynamics between Southern California and Northern California, from a broader perspective or a portfolio management viewpoint across our regions, there will always be different competitors who are more aggressive and focused on growth in certain years, while others may be less focused on growth and more focused on margins. This is simply the nature of the business, as we have witnessed this pattern repeatedly over the past decade of our operations in California. Therefore, we believe we should expect this behavior; there will always be competitors who bid more aggressively than what we consider sustainable in the long run. It is our responsibility to ensure that we have the right product strategies, market management strategies, and strong relationships with brokers and providers to protect ourselves from these fluctuations in any given year, while still aiming for consistent 20% top-line growth. It's not merely about one competitor in one market affecting our future performance; we need to take control of our own trajectory, which is what we intend to do moving forward. Regarding the specific issue in some counties in Northern California where we faced lower-than-anticipated growth, it was a mix of challenges on both the retention front and with the acquisition of new sales. It's important to highlight that our overall retention in California improved by 50 basis points this past Annual Enrollment Period compared to 2022, thanks in part to performance in other markets.

Our next question comes from the line of John Ransom of Raymond James.

John, my question for you is the advanced notice part of that, of course, is the ICD-10 changes which are complicated, lots of codes going away. So how do you think about that kind of at a plan level, what calibrations you make? And then also what would be downstream at sort of your downstream provider level?

John, that's a great question. From a systems perspective, I believe we are well prepared. Our engagement with providers, the workflow processes, and data ingestion have been in development for the past couple of years, so I’m not particularly concerned about that. The advanced notice aligns with several industry trends we've been discussing over recent quarters, and we are currently navigating those findings. There appears to be a 3% impact on risk adjustments based on our preliminary analysis, with certain populations of color and lower income facing a disproportionate effect due to specific chronic diseases. We are addressing this, and how it integrates into our product offerings, rebate strategy, and bids is a focus as we plan for 2024. I hope that addresses your question, John.

Well, the follow-up is that we've heard certain provider groups may experience a 3% hit, but for some, it could be much larger, while others might not be affected at all. It comes down to whether you are treating what you're coding for or just coding. When considering your physician partners, you might think some groups are facing challenges while others are doing well, or perhaps that’s too detailed for now.

Yes, we don't necessarily view it that way. We're examining all the changes, both demographic and non-demographic, and their effects on various health conditions. We're observing a disproportionate impact on diabetes and vascular diseases, particularly among lower-income individuals and communities of color. This is something we're focusing on, and it will inform our product strategies and designs. Overall, while we've heard estimates in the 3% to 4% range, some have mentioned figures that are significantly higher. This is an important strategic number as we develop our bidding strategies, and we want to ensure clarity on this matter. We also want to avoid discussing any competitive aspects.

This question comes from the line of Kevin Fischbeck of BofA.

I wanted to discuss the EBITDA guidance. It may not be entirely fair to compare since you just outperformed Q4, but it appears that, in absolute terms, the EBITDA loss will be relatively stable year-over-year, and I appreciate the 40 basis points improvement. However, you will need to demonstrate actual dollar improvements in EBITDA from year to year, especially as we consider 2024. Is there anything unusual in the year-over-year comparison or this year's impacts that might limit the dollar EBITDA improvement in this context?

Kevin, Thomas here. In terms of the year-over-year comparison, we are pleased to see improvement in our margins. As we aim for our breakeven target in the future, we believe it will be a combination of MBR improvement and continued operating leverage in the SG&A line. We have maintained consistency with our cohort MBR performance, and we are optimistic about replicating those results not only in California but also in other regions where we are beginning to gain traction. We recognize the need to improve our SG&A relative to our revenue and membership to reach breakeven. When comparing 2021 to 2022, we did not see significant improvement as we absorbed new expenses as a public company, but we are starting to demonstrate that improvement as we approach 2023. While we've proven capable of managing and improving MBR, we need to show the market our ability to achieve operating leverage on the SG&A side, which positions us well for 2023. With these factors in mind, we feel confident about our chances of moving toward breakeven in the future. We need to continue growing as part of our strategy as we think about our 2024 breakeven goal. Overall, our 2023 guidance prepares us well for that objective in 2024. Lastly, it's still early in the year, and we'll see how things unfold as we are only two months in.

Okay. And then I guess on the MLR bridge, I guess I followed what you were saying on the puts and takes to get to the kind of the core EBITDA, core MLR number. But I guess the one part that I wasn't 100% following was just the 55 basis points of pressure from new members in that number? Because doesn't the 2022 number have a similar 35 basis point headwind in that number as well? So like year-over-year, is that an adjustment to be making?

Yes, the 55 is actually the incremental figure. To clarify, the current 2022 new member MBR is included in our overall 2022 results, and we are comparing the expected new member MBR in 2023 against that of 2022. This represents an incremental 55 in terms of the consolidated headwind year-over-year. Reflecting on the growth we've observed thus far and our expectations for the year, we believe that the distribution of members by market, product, and provider group, along with the corresponding new member revenue PMPMs across these different factors and our expected MLR for each group, market, and product, suggests that our new member MBR will be slightly higher this year than in 2022. However, what's most important to us is not just where the new members start in their first year, as they usually do not contribute much margin initially. Our main focus is on our ability to manage these new members and enhance their MBRs over time. We remain very confident in this outlook.

Thomas, I wanted to follow up on the MBR comments that you made in response to Kevin's question. I guess what I wanted to try to get at is, I think if we make the adjustments for all of the year-over-year items that you mentioned, it seems like it's implying that MBR for returning members is going to be roughly flat year-over-year. I guess, is that roughly right? And if so, are there any factors that you kind of highlight in driving that? I guess I would have thought you'd maybe see some improvement on the MBR for this membership base. So I'd just be curious to get your thoughts there.

Nathan, Thomas here. I think we might view this a bit differently than you described. We do expect improvement in our returning members or loyal members, which aligns with what we've previously shared regarding our historical cohort data. Currently, there’s nothing indicating a deviation from our past experiences. Regarding the new members, the impact of those from 2022 on 2023 remains consistent, plus an additional 55 basis points. If we break down the 2023 figure between loyal and new members, we anticipate an improvement in the loyal or returning members compared to 2022. We feel positive about how these trends are developing, both from a revenue and a medical cost perspective.

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.