Good afternoon, and welcome to Alignment Healthcare's Fourth Quarter 2024 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 risks and uncertainties and reflect our current expectations based on 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, 2024. 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 current comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in a press release that is posted on the company's website and in our Form 10-K for the fiscal year ended December 31, 2024. I would now like to hand the call over to your speaker today, John Kao. Please go ahead.

Hello, and thank you for joining us on our fourth quarter earnings conference call. For the fourth quarter 2024, our health plan membership of 189,100 concluded a milestone year where we grew membership approximately 59%. Our final result is more than 25,000 members above the high end of our initial guidance range and reflects an additional 21% growth relative to initial expectations. As a result of our continued membership outperformance, total revenue of $701 million in the quarter grew approximately 51% year-over-year and 61% excluding ACO REACH. In the fourth quarter, each of our key margin ratios improved year-over-year even as our membership growth accelerated beyond expectations. Adjusted gross profit of $88 million produced a consolidated MBR of 87.5%, a 200 basis point improvement year-over-year and a 50 basis point improvement, excluding ACO REACH. Combined with substantial scale economies, we delivered adjusted EBITDA of positive $1 million in the quarter and 400 basis points of margin expansion year-over-year. For the full year, total revenue of $2.7 billion grew 48% year-over-year and 59% excluding ACO REACH. Adjusted gross profit of $303 million resulted in an MBR of 88.8%. Lastly, we delivered positive adjusted EBITDA of $1 million, which reflects 200 basis points of margin expansion year-over-year and marks our first year of adjusted EBITDA profitability as a public company. Our exceptional results in 2024 highlight our differentiated ability to navigate a dynamic MA environment and demonstrate that plans can win by providing more care, not less. Our success starts with approaching Medicare Advantage as a care management business, not just an actuarial underwriting business. To execute our model, we employ more than 400 clinical staff who represent approximately 25% of our full-time employees and roughly 4% of medical expenses for at-risk members. These home and virtual-based resources leverage actionable insights from AVA to create greater control over medical quality and costs. As a result, we were able to offer market-leading benefits and grow confidently in 2024, while others in the industry took a step back to rising star standards, the first year of V28 phase-in and changes in utilization patterns. Taken together, the results of 2024 are demonstrating our ability to capitalize on a changing MA environment that will favor plans with low-cost, high-quality outcomes. Turning to our AEP results. We entered January 2025 with 209,900 health plan members, representing 35% growth year-over-year. This resulted from a combination of 28% growth in California and more than 100% growth in our ex-California markets. Much like 2024 was a breakout year for consolidated growth, 2025 is a breakout year for growth outside of California. Nevada now has over 10,000 members, while each of our other ex-California states have between 5,000 and 8,000 seniors. Our ex-California growth during AEP was enabled by our industry-leading Stars results, including our 5-star contract in Nevada and North Carolina and strong medical management performance, including 2024 admissions per 1,000 of 144 for ex-California markets. These factors increased reimbursement from CMS and lowered costs by improving the health of our members, both of which allow us to afford richer product benefits. In total, our successful AEP provides us with line of sight to our full year membership guidance of 227,000 to 233,000 members and further positions us to drive greater economies of scale and adjusted EBITDA margin improvement in 2025. Thomas will share more on our 2025 guidance shortly. Looking beyond 2025, we believe our relative advantages on Stars and the final phase-in of the V28 risk adjustment model create a multiyear pathway for robust growth and continued margin expansion. For 2025 payment year, 95% of our California members are in plans rated 4 stars or above compared to 68% for competitors in California. This is already 27% higher than competitors, and our advantage is further widening for the 2026 payment year when we will have 100% of our California members and plans rated 4 stars or above. This will be nearly 40% better than the competitors in the state who are declining to just 61% of members in 4-star or above plans. We are similarly well positioned at a national level. Approximately 98% of all alignment members are in plans that will be rated 4 stars or above in payment year 2026, which is 34% better than the industry of just 64%. Beyond our rating year 2025 star scores, which impact our 2026 payment, we see multiple years of meaningful stars tailwinds ahead of us. For rating year 2026 impacting payment year 2027, caps and admin weightings will be reduced from 4 to 2. This change would have resulted in an increase to our Raw score by approximately 0.23 during the past rating cycle for our California HMO contract, further reinforcing our Stars position. For rating year 2027 impacting payment year 2028, CMS is replacing the current reward factor with a health equity index. Our California HMO contract doesn't currently receive any benefit from the existing reward factor. So this change creates an additional potential tailwind to our raw Star score. Based on our early analysis, we believe we could achieve a star score bonus of 0.25 or greater under the new Health Equity index. Each of these tailwinds increases our confidence in maintaining at least 4 stars and strengthens our conviction in growing membership 20% or above over the coming years while balancing margin expansion objectives. Lastly, I'd like to spend a moment to talk about the embedded gross margin opportunity within our existing membership. Due to our rapid growth in 2024 and 2025, over 50% of our members are expected to be in a year 1 or year 2 cohort. As we engage our at-risk members with our clinical resources, gross profit grows from $90 PMPM for our at-risk year 1 members to $230 PMPM for our at-risk members in year 5 and beyond. This dynamic creates embedded gross profit of approximately $600 million just within our existing membership base, creating a pathway to double the $300 million of gross profit we delivered in 2024 without any incremental membership growth. In closing, 2024 was a milestone year on growth and profitability improvement, while we again demonstrated the resiliency of our Stars results. By prioritizing health outcomes and putting the senior first, we have created a durable cost and quality moat that positions us to win irrespective of the policy and rate environment. For their dedication to our seniors, I'd like to thank each of our employees for playing their part in fulfilling our mission for Medicare Advantage done right. With that, I'll turn the call over to Thomas to further discuss our financial results and outlook.

Thanks, John. For the year ending December 2024, our health plan membership of 189,100 increased 59% year-over-year. This drove total revenue just north of $2.7 billion for full year 2024, representing 48% growth year-over-year and 59% growth, excluding ACO REACH. As membership continued to accelerate during the year, we ultimately exceeded the midpoint of our initial 2024 revenue guidance by over $300 million. Full year adjusted gross profit of $303 million exceeded the high end of our latest guidance by $6 million and represented an MBR of 88.8%. We continue to demonstrate the strength of our medical management capabilities during the fourth quarter with our MBR of 87.5%, marking our lowest MBR quarter of the year. Our strong finish drove our full year inpatient admissions per 1,000 for our at-risk members to 149, showing continued improvement from 156 in 2023 and 159 in 2022. Our adjusted gross profit results in the fourth quarter also benefited from the release of prior period IBNP reserves. Given the atypically large cohort of new members we onboarded during 2024, we took a prudent approach to setting initial reserves during the first through third quarters. As we closed out the year, our favorable claims runout allowed us to deliver upside relative to our prior expectations. Our strong admission performance in 2024, combined with our latest visibility into our 2024 claims experience together give us confidence in our 2025 outlook. Turning to OpEx. Our operating cost ratios showed year-over-year improvement given our continued growth and the elimination of one-time costs associated with the in-sourcing of our member experience functions that we incurred in the second half of last year. Full year 2024 SG&A was $371 million. Our adjusted SG&A was $301 million, an increase of just 23% year-over-year relative to membership growth of 59% year-over-year. Adjusted SG&A as a percentage of revenue, excluding ACO REACH declined from 14.4% in 2023 to 11.1% in 2024, representing an improvement of approximately 330 basis points. Taken together, we achieved our breakeven profitability goal with full year adjusted EBITDA of positive $1 million and did so while onboarding more net new members in 2024 than in the prior 4 years combined. This demonstrates the differentiated power of our model to scale outcomes and places us on track to drive continued adjusted EBITDA margin expansion in 2025. Turning to the balance sheet. We ended the year with $471 million in cash and investments. This includes net proceeds from the sale of $330 million aggregate principal convertible senior notes in the fourth quarter. The funds from this transaction were used to pay down $215 million in outstanding term loan principal and added $106 million of cash to the balance sheet, net of transaction costs. This significantly lowers our cost of capital and reduces annual interest expense by approximately $10 million moving forward. Moving to our guidance. For the first quarter, we expect health plan membership to be between 211,000 and 215,000 members, revenue to be in the range of $880 million and $895 million, adjusted gross profit to be between $89 million and $97 million and adjusted EBITDA to be between $2 million and $10 million. For the full year 2025, we expect health plan membership to be between 227,000 and 233,000 members, revenue to be in the range of $3.72 billion and $3.78 billion, adjusted gross profit to be between $415 million and $445 million and adjusted EBITDA to be in the range of $35 million and $60 million. Given our strong sales momentum through the first 2 months of the year, we are raising the midpoint of our year-end health plan membership guidance by 2,000 relative to our early guidance commentary provided in January. Our products continue to resonate across our markets and the strength of our early results gives us confidence in our full year trajectory. Turning to revenue. The midpoint of our initial revenue guidance range of approximately $3.75 billion represents nearly 40% growth year-over-year. Beyond our strong membership growth, our revenue outlook is supported by increases to our Part D revenue PMPM due to changes related to the Inflation Reduction Act and the retention of our 2024 new member cohort, partially offset by the impact of the second phase in of V28 risk model changes. Moving to our adjusted gross profit guidance. Our midpoint of $430 million represents 42% growth year-over-year. This implies an MBR of 88.5% and compounds off of our strong 2024 result where we grew adjusted gross profit by 45%. Our outlook embeds the MBR improvement from the retention of 2024 new members and modifications to our product design. These factors are balanced by the impact of the second phase in of the V28 risk model, initial assumptions on Part D changes associated with the Inflation Reduction Act and modestly higher utilization volume expectations due to our mix of membership. Progressing down the P&L, we expect to see further improvement in our SG&A ratio as we continue to scale our back-office functions and ex-California markets, while driving automation and productivity improvements across our shared services. Taken together, the midpoint of our adjusted EBITDA guidance range of $47.5 million implies 130 basis points of margin expansion year-over-year and reflects our confidence in underlying cost trends and operating leverage opportunities in 2025. In terms of our first quarter guidance, it's worth noting that our MBR seasonality is anticipated to shift in 2025 due to changes related to the Inflation Reduction Act. Similar to prior years, we anticipate that our Part D MBR will improve sequentially throughout the year, however, at less of a slope than in years past. Accordingly, the change in seasonality will modestly lower MBR in the first half of the year and conversely increase MBR in the second half of the year relative to prior year's experience, all else being equal. Beyond changes to Part D seasonality, our first quarter guidance broadly reflects our regular seasonality, which incorporates higher utilization in the first quarter of the year. In conclusion, our consistent strategy of balancing growth and profitability, combined with our differentiated Medicare Advantage platform enabled us to deliver breakout performance in 2024. As we step into 2025 with momentum on growth and confidence in our 2025 outlook, we believe we are well positioned to continue distancing ourselves from competitors this year as well as looking ahead to 2026 and beyond.

Our first question is going to come from the line of Scott Fidel with Stephens.

First question, I would like to discuss the guidance for 2025 regarding adjusted EBITDA, which indicates a significant improvement in profitability at both the higher and lower ends of the range. There seems to be a reasonable range between these ends. I was hoping you could share your thoughts on the key assumptions that could help you reach the higher end compared to the midpoint and lower end of the range.

Thomas here. Happy to take the question. So I guess, first off, I think it's probably worth noting that we feel just great about where we landed for the fourth quarter and full year 2024, which is not only important in terms of the actual outcome looking backwards, but really what it means for us looking forward as we march into 2025. And so to your question on sort of what would send us towards sort of the low end of the range versus the high end of the range, I think there's a few variables that are kind of key to us this year. So the first is, as you've heard many others in the space talk about, we are stepping into some new aspects of the Part D program under the Inflation Reduction Act. I think we've taken a prudent approach in terms of thinking through what the MLR should look like on that program in 2025. And I would say the low end of our range, in particular, has a bit more conservatism on how that would look relative to prior years. I think our 2024 experience on Part D ultimately landed within about $1 PMPM of what we expected. So I think we feel really good about our ability to forecast what that looks like. But we are being a little more conservative there on the low end just given some of the changes coming our way. I think beyond that, it's sort of the usual suspects in terms of where our utilization and admissions per 1,000 run for the year, how our growth progresses sort of intra-quarter throughout the year and how our overall just cohorts mature from year 1 to year 2, year 2 to year 3 and so forth. But I think big picture, we feel very confident in our overall range for the year, particularly given that we do still have 50% of our members in the year 1 or year 2 cohort. I think we're in a great place looking ahead to 2025.

Okay. Great. And then just as my follow-up question, I would be interested if you have this, if you have sort of the breakdown of when looking at the guidance you've given for membership growth for the full year of 2025, what do you expect that split would be between California and then non-California. Certainly nice to see growth playing out in both of those areas. And then just related to that, just in terms of engagement, are there any sort of initial indicators that you have or that you could share with us around how the new members are engaging with Aeva in the non-California markets versus the home California market?

Yes. Regarding membership, we anticipate that our results from January 1 through the Annual Enrollment Period will serve as a solid indicator of what we expect for all of 2025. We expect that outside of California, growth will continue to significantly outpace growth within California, similar to our previous observations, with Nevada being a key area for continued growth along with other markets outside of California. However, we still expect California to account for over 50% of our total net member growth, due to the success we've experienced during the Annual Enrollment Period and our expectation that this will carry through the rest of the year. As for engagement, we are highly focused on the replicability of our care model outside California and continue to gather evidence to support this. We noted in our prepared remarks that outside California, we saw about 144 inpatient admissions per 1,000, which surpasses the averages for our consolidated enterprise and California. We believe we are effectively hiring and training staff, fostering adoption of our tools, and maintaining consistency in our approach to care in each market. From an engagement perspective, it doesn’t matter which market it is; seniors are receiving improved care without cost, conveniently at home or virtually according to their preferences, effectively extending their primary care relationships. Therefore, we do not see significant differences in our engagement capabilities across different counties or states.

And the next question is going to come from the line of Adam Ron with Bank of America.

I have two questions. First, regarding the MLR guidance for 2025, based on the information in the press release, it seems you're indicating that MLR will decrease by 30 basis points in 2025 after an increase of 30 basis points in 2024, which was another significant growth year. In contrast, if I look at how United and Humana are discussing this, United, which primarily deals with Medicare, is forecasting a 100 basis point increase in MLR for 2025, while you are anticipating a decrease, and Humana is suggesting it will remain flat, albeit while exiting unprofitable markets. I assume they are also cutting benefits more than you are. Additionally, you have many new members joining who may have a more dilutive impact on MLR compared to their new members. Could you explain how they are projecting a greater MLR increase than you are? I have a follow-up question as well.

I can certainly address that. While I can't comment specifically on what our peers are experiencing, many organizations in the industry are facing significant challenges. These include changes related to STAR ratings affecting payments in 2025, the second year of the V28 risk model adjustments, and broad utilization issues that have been evident over the past 12 to 18 months. I believe 2024 marks the beginning of differentiating our results from others. Earlier this year at a conference, we indicated that our year-to-date Medical Benefit Ratio (MBR) through the third quarter had increased by around 200 basis points year-over-year, after normalizing for ACO REACH in 2023, and this coincided with a membership growth of about 50%. If we were to revisit that analysis now, our MBR for the entire 2024 is up approximately 130 basis points compared to 2023, alongside a membership growth of 59%. In contrast, many of our peers reported MBR increases of 200% to 300% in 2024, often with stagnant or declining membership. Those who did achieve membership growth over 10% to 20% saw an MBR increase of 500 to 600 basis points year-over-year. Thus, 2024 showcases our capacity to manage MBR while still expanding our membership. Looking ahead to 2025, we have some challenges ahead, such as the V28 adjustments and Part D changes related to the Inflation Reduction Act, but we also have many members transitioning from their first to second year, which is a positive factor. We slightly reduced benefits in select areas between 2024 and 2025, and the benchmark rate update for 2025 will be advantageous. Given these factors, we are optimistic about meeting the 2025 guidance we have provided.

If I could ask two quick questions. First, could you provide one insight into what you believe sets you apart from your competitors? Is it related to the rate notice, risk adjustment, or something else? Secondly, could you share your thoughts on the 2026 rate bonus from CMS, which you mentioned in the release?

I'm not sure you can say it's one thing because all these variables are so interrelated. I mean I think fundamentally, our model starts with our differentiated ability to engage members and drive up quality, i.e., Stars and control costs by managing care and engaging with that chronic acute high-risk population. I think that's the foundation, but it then, I think, flows through how we think about changes around V28. It impacts how we think about the benefits we can offer in the market. It impacts our ability to perform on stars to manage utilization and navigate changes such as Part D and Inflation Reduction Act. So I'm not sure you can pinpoint one specific variable and say why our trends are different than others across those different more financial variables. I think it starts with just our fundamental approach to this business being different than the others. It's not just an actuarial underwriting model for us. It really starts from the perspective of care delivery, care management. And I think the other things then kind of flow down from there.

Our next question comes from the line of Michael Ha with Baird.

Congrats on the earnings. It's still rare that I think sitting here in February 2025, there's really so much visibility into tailwinds all the way out to '28. You mentioned star rates weightings driving, I think, 0.23 benefit to your rough start rating for '27 and then '28, another tailwind. I think you said 0.25 for your reward factor change. So my question is, what is your current raw star rating score for that California HMO contract? And would it be fair to assume your competitors likely won't see the same magnitude benefit? Some plans might already be getting a reward factor, which means if I'm thinking about it right, just from the star rating program changes alone, you have line of sight to moving that contract up from 4 to 4.5 or even 5. And then also your competitive advantage might even widen even further. So massive tailwind. I just wanted to confirm this thesis and better understand the magnitude.

Yes, absolutely. So I think you sort of hit the nail on the head there. I think at minimum, it provides a lot of buffer for us in terms of maintaining the 4-star rating for that California HMO contract. Beyond that, it certainly is a tailwind as we continue to strive towards 4.5 or 5 stars, which remains our objective. I think from a competitive standpoint, for 2024, 3 of our toughest competitors were 4 or 4.5 stars, and we still grew membership 59%. For 2025, a couple of those continue to fall below 4 stars. And looking ahead to 2026, there's really only one competitor of ours that is above 4 stars or at or above 4 stars. And so I think from our perspective, we do see a significant opportunity to continue to grow through 2026 just based on that alone. But what I would emphasize is that it's not just Stars. And while I think these tailwinds certainly help us with our own Stars visibility, to the extent that any others in the industry benefit from some of these changes in the future, I think it goes back to all the variables I was describing previously in terms of our ability to differentiate and continue to grow disproportionately relative to our markets. And so at the end of the day, I think our ability to be high quality and low cost is the key to success. Things like not relying on the global capitation model and really wanting to engage with our seniors directly and manage the risk ourselves are really the secret sauces that allow us to continue to grow faster than the market year in, year out. I think as you get out into 2027 and 2028, I think we still continue to see a very positive opportunity for us to continue to grow 20% or above based on the Stars results and certainly those other variables as well.

And maybe one more question. Regarding your cohort maturation, I understand that the biggest improvement in the medical loss ratio typically occurs between year 1 and year 2, which is usually around 300 basis points. A lot of this is due to the risk adjustment, which shows about a 10% improvement. The extent of this impact is considerable. We estimate it could account for nearly the entire transition from 2024 to 2025. That said, concerning this cohort maturation, everything so far is aligning with expectations, particularly the risk adjustment for the 2024 cohort and Care Anywhere engagement. Nothing seems to hinder that maturation story; everything is progressing as anticipated and supporting this maturation dynamic.

Yes. I think we continue to remain confident in our ability to drive those cohort results over time. I think in terms of that 2024 cohort maturing into year 2 and 2025, similarly, we feel very good about how that's continuing to evolve. I would say, keep in mind, in the second half of the year alone last year, we grew membership by about 15,000 between end of June and end of December. And so what I would say is for some of those members that we've only had on board for a couple of months, we're still continuing to engage with those. And so I think that just provides an incremental tailwind for us as we think about not just 2026, but also the margin opportunity moving towards 2027, where we are still just continuing to engage some of those members that have been on board for a few months. But big picture, I would say our engagement for last year did exceptionally well. We got close to that 60% goal we had previously described, and that was really a major driver of our ability to land at 149 inpatient admissions per 1,000 for full year 2024, including Q4 being our best MBR quarter of the year.

Our next question is going to come from the line of Matthew Gilmore with KeyBanc.

I had the first one on guidance. Thomas had mentioned a modestly higher utilization assumption due to mix of membership. I was hoping you could unpack that a little bit. Is that just a reflection of the favorable duals mix or something else underlying that?

Yes, that's exactly correct. So both during 2024 and then through AEP 2025, we have continued to see solid growth in our duals membership, which tends to come with slightly higher utilization. So I think in total for full year 2025, we wouldn't expect too much of a change in terms of total admissions per 1,000. It might be up a couple of percent year-over-year. But it is something that we are mindful of just given the changes in PDP mix from '23 to '24 and then '24 to '25.

Got it. That's great. And then, Thomas, do you have any commentary for us in terms of expectations for cash flow and sort of how you're thinking about CapEx and sort of where that money is going?

Yes. So without kind of getting into full guidance on cash flow for 2025, I guess, a couple of data points worth noting. So from an EBITDA standpoint, obviously, we did share our guidance today with the midpoint of $47.5 million. Beyond that, we would expect probably about $14 million of interest expense in 2025 and CapEx probably to the tune of $30 million to $35 million. So I think those are sort of the kind of major variables to consider. Working capital tends to not be a major driver of overall cash kind of year in, year out. It just kind of depends on how some of the medical expense payables evolve relative to some of the receivables. And so I think we feel like we're in a great spot from an overall cash standpoint. We ended 2024 with over $200 million of cash at hand. And as we think about our organic growth pathway over the next several years, I think we're in a great spot to continue to achieve those targets without the need for external financing.

Our next question comes from the line of Jessica Tassan with Piper Sandler.

Congratulations on the guidance increase and strong results. I wanted to ask, since new members typically have a negative impact on MBR in the first couple of years, are new members in your markets outside California starting with higher MBRs compared to the California members? Will that MBR trajectory eventually align, and if so, in what year is that expected to happen?

I can take that one. So I'd say it depends. It depends on the market. It depends on the product type. It depends on the provider group. So it's variable, I think, is the simple answer. There are certain markets, products, provider combinations that do start higher MBR, but what we typically see with those is there's just a greater opportunity to drive MBR improvement from year 1 through year 3, year 3 through year 5, et cetera. So sort of a steeper slope of improvement curve opportunity. But it does just depend on some of those variables I mentioned earlier.

Got it. So they eventually do converge at roughly the same level of profitability?

Yes. In fact, I would say we actually see in instances where there's actually a greater opportunity to drive MBR performance ex-California than even inside of California.

Okay, that's helpful. Can you provide some comments about retention during AEP? I know you mentioned more than 50% in year 1 and 2 cohorts, but I would appreciate any commentary on retention during AEP, especially since you emphasized margin in the 2025 benefit. Is AEP churn higher year-over-year in '25, or did something unexpected happen?

No. Going back a year to January 1, 2024, we achieved our best AEP retention percentage in the history of the company, especially in the last three to five years. The retention rate on January 1, 2025, was very similar to that of January 1, 2024. We feel optimistic about the evolution of that rate over the year. We made some strategic decisions regarding certain markets and provider contracts to ensure the durability of our overall MBR trajectory over multiple years, aiming for longevity in those contracts and products. While we did lose a few thousand lives due to some of these decisions, overall, we are pleased with how retention performed during AEP.

That's helpful. And then I want to sneak in just one quick one and ask if you guys have any thoughts or just based on expectations for the final rate notice that you would like to share with us.

Jess, it's John. The last couple of years have shown us that regardless of whether reimbursement rates go up or down, we are well positioned compared to others. This is not only due to what Thomas mentioned about stars, but also because of our cautious approach to risk adjustment since the beginning of the company. I anticipate that the rates might rise slightly, based on my instincts. The national benchmark increase of 5.93% may have the potential to go up a bit. This expectation is based on the increase in ACO rates, fee-for-service increases, and the possibility of some runout in the first half of 2024. Additionally, it's worth noting that there will likely be significant utilization increases at the start of 2024 that may not be reflected in the 5.93%. Overall, we’re optimistic about the situation, regardless of the outcome.

Our next question comes from the line of Andrew Mok with Barclays.

This is Tiffany on for Andrew. I think some of your peers are pointing to like a significantly more dramatic upward slope on MLR from 1Q to 4Q due to the Part D IRA changes. But it seems like you guys are still assuming Part D MLR improvement throughout the year just at a flatter slope. Can you help us understand why there might be some differences in experience and whether that has anything to do with your Part D like benefit structure versus peers?

Yes, I'm happy to address that. I don't want to overly speculate on others, but I suspect part of it has to do with the fact that they also have broader stand-alone Part D or PDP offerings, which we don't have. I think in terms of our experience, going back to 2024, we shared previously that Q1 tends to be our higher MBR quarter for Part D and then it improves sequentially over the course of the year. And as I mentioned earlier, our kind of ability to forecast that and track that is quite strong, including the fact that we have sort of real-time claims visibility on Part D. Ultimately, for 2024, as I mentioned earlier, we land within about $1 where we expected PMPM. And so moving into 2025, I do think it will be similar to years past, just less of a slope. And so as we said in our prepared remarks, I would expect that it would cause the first half to be slightly lower than prior years, all else being equal and conversely would be a slight headwind to the second half of the year year-over-year.

Okay. That's helpful. And just a quick follow-up on G&A. I think 4Q G&A came in a little bit higher than what was implied in the guide and your 1Q guide implies about a 200 basis point Q-over-Q step down. Like can you give a little bit of color on what drove the slightly higher 4Q result and how we should think about quarterly G&A progression in 2025?

Yes. Ma'am, I would say, in general, you obviously have sort of a step-up as a percentage of revenue kind of as the quarters progress, typically in the back half of the year, in particular, where you have a concentration of the sales and marketing spend. I think the fourth quarter for us was a combination of that normal dynamic, including the timing of some of the sales and marketing dollars as well as the fact that we did ultimately meaningfully outperform relative to our membership expectations. So with that comes higher commission costs and certain other variable expenses that we have to continue to incur to support the incremental membership growth. And I guess, I know we've said in our prepared remarks, but worth noting again, I think in terms of sort of where we landed for the full year, I think our full year operating leverage improvement from '23 to '24 was about 330 basis points year-over-year, given that significant 59% membership growth. So I think our confidence in our ability to continue to control SG&A and kind of manage it relative to our membership growth in '25 moving forward is quite high given the success of 2024.

This is going to conclude our question-and-answer session. Ladies and gentlemen, this is also going to conclude today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.