Good afternoon, and welcome to Alignment Healthcare's Second Quarter 2025 Earnings Conference Call and Webcast. Please note that this event is being recorded. Leading today's call are John Kao, Founder and CEO, and Jim Head, 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 sections 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 comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the press release that is posted on the company's website and in our Form 10-Q for the fiscal quarter ended June 30, 2025. I would now like to turn the call over to John Kao. Sir, you may begin.

Hello, and thank you for joining us on our second quarter earnings conference call. We are pleased to report another quarter of strong and disciplined execution with results that exceeded the high end of each of our guidance metrics for the second quarter in a row this year. Much like 2024 was a breakout year for membership growth, 2025 is well on its way to becoming a breakout year for adjusted EBITDA profitability. For the second quarter 2025, our health plan membership of 223,700 members represented growth of approximately 28% year-over-year. Strong health plan membership growth supported total revenue of $1 billion, increasing approximately 49% year-over-year. Adjusted gross profit of $135 million increased by 76% year-over-year. This produced a consolidated MBR of 86.7%, an improvement of 200 basis points over the prior year. Finally, our adjusted SG&A ratio of 8.8% improved by 160 basis points year-over-year. Taken together, we delivered adjusted EBITDA of $46 million. This handily surpassed the high end of our guidance range of $10 million to $18 million and produced an adjusted EBITDA margin of 4.5%, generating 360 basis points of margin expansion year-over-year. Turning to our first half results. Our MBR of 87.5% improved by 230 basis points compared to last year and our adjusted EBITDA margin of 3.4% improved by 390 basis points. In total, our first half adjusted EBITDA of $66 million exceeded the high end of our initial full year guidance range of $35 million to $60 million. We are proud of our execution towards adjusted EBITDA profitability, especially in light of rapid membership growth that was 7x higher than the industry and a highly dynamic Medicare Advantage environment that includes the second phase-in of V28 risk model changes. Our first half outcomes continue to validate our business model and further increase our confidence in the 2026 bids we submitted earlier this year. The strength of our financial results reflects our operating principles of transparency, visibility, and control over the medical outcomes and consumer experience for our seniors. This begins with AVA and our unified data architecture, which provides us with real-time operating and financial visibility, combined with our approach to comprehensive care management as a core competency instead of relying on global capitation. Demonstrating our ability to successfully manage rapid membership growth, our second quarter inpatient admissions per 1,000 ran in the low-140s and outperformed our expectations. This was supported by both new member performance and ongoing clinical engagement with our loyal members, resulting in solid progress toward the embedded earnings potential in each of our member cohorts. Most importantly, our steady execution is highlighting our model's durability as the Medicare landscape continues to evolve. Following our continued momentum across the business in the second quarter and first half, we are raising our guidance ranges across each of our 4 key metrics. The guidance raise reflects strong fundamental performance across the business, an unchanged Part D outlook, and upside from sweep payments. Jim will expand on this in his remarks. Building upon our success, we are deepening the durability of our provider relationships by more fully integrating our clinical expertise and medical management capabilities. Our increased support aims to improve chronic condition management, create greater coordination of care, and increase adoption of our AVA technology insights. Through closer alignment with our providers, we are driving increased shared savings and profitability for our partnerships. Each provider success story contributes to our growing track record of referenceable outcomes. And as a result, we are increasingly becoming the preferred solution for providers aiming to grow profitably in Medicare Advantage. Looking ahead, we believe CMS' continued focus on improving quality is raising the standard to be successful in Medicare Advantage. The agency's mission to provide seniors with the highest quality of care at the lowest cost rewards senior health companies like ours that stand at the intersection of excellent customer experience, exceptional clinical outcomes, and affordable products and coverage. This is consistent with our core competencies and the strategic framework we have shared with you over the past few years. We believe we are establishing a new paradigm and leading by example with industry-leading star ratings, exceptional member satisfaction, high member retention, world-class medical outcomes, and consistency in our financial performance. The introduction of V28 is further accelerating the importance of our unique capabilities. Since its initial phase-in in 2024 and along with star rating declines across the industry, large incumbent MCOs have lost share in Medicare Advantage for the first time since 2014. Meanwhile, we have maintained our high star ratings and taken share from incumbents through this period of dislocation, demonstrating our ability to leverage our competitive advantages into profitable growth. Turning to our preparation for 2026. We are well positioned to deliver another year of at least 20% growth and continued year-over-year growth in adjusted EBITDA. Even following our strong growth over the past few years, we believe we have substantial capacity to take share in existing markets, expand into new counties, and enter new states. With counties we currently serve, our current membership represents just 5% of 4.6 million total MA enrollees. Further expansion into each county within the existing 5 states would nearly double our reach to an additional 4 million MA enrollees, while additional states in 2027 and beyond could establish our model as the preferred Medicare Advantage platform in the industry. To support our long-term growth objectives, we are making investments across the organization. Much like the investments we made in member experience in 2023 and clinical capabilities in 2024, we are continuing to invest a portion of our strong year-to-date outperformance in administrative automation and care navigation to drive success in 2026 and beyond. We are continuing to invest in our infrastructure to allow us to scale repeatably. We believe these investments will continue to widen our relative advantages over competitors in the years to come. Lastly, we recently announced that our Arizona HMO contract was revised from 3.5 to 4 stars for payment year 2026 and are pleased that our commitment to quality for our Arizona members is being recognized. With this latest update, our stars advantages are poised to widen with 100% of our members in a plan receiving 4 stars or above payment in 2026. Combined with our confidence in our ability to navigate the third and final phase-in of V28 risk model changes, we believe we are well positioned to achieve our growth and profitability objectives next year. In conclusion, our momentum during the first half is demonstrating that our approach to Medicare Advantage as a care management business is a winning long-term strategy. By fully integrating our data visibility, technology insights, clinical expertise, and financial competency, we are showing the power of a dedicated senior consumer platform as we create the blueprint for the future of MA. Now I'll turn the call over to Jim to further discuss our financial results and outlook.

Thanks, John, for welcoming me to my first earnings call with Alignment. I'm excited to join an organization that is charting the future of Medicare Advantage, and I look forward to engaging with many of you over the coming weeks. Now turning to our results. For the quarter ended June 2025, our health plan membership of 223,700 increased 28% year-over-year. Meanwhile, our second quarter revenue of $1.0 billion represented 49% growth year-over-year. Strong revenue growth was driven by continued momentum in new member additions, a year-over-year increase in Part D revenue PMPM, and revenue pickup from the 2024 final sweep, which I'll expand on shortly. Total adjusted gross profit in the quarter of $135 million grew 76% compared to the prior year. This represented an MBR of 86.7% and improved by 200 basis points year-over-year. The strength of our second quarter MBR and gross profit results were underpinned by strong execution in our provider engagement and clinical initiatives, leading to inpatient admissions per 1,000 in the low-140s and outperformance in our core medical expenses. Additionally, our Part D MBR was slightly favorable in the first half. With 6 months of experience, we now have further confidence in our full year expectations for Part D. Lastly, favorability from the 2024 final sweep contributed approximately $14 million to adjusted gross profit. Gross profit from the final sweep is primarily attributed to a large cohort of new members who joined us in 2024. While the size of the final sweep varies from year-to-year, this is very much a normal part of our business, which reflects a catch-up in payment from CMS for members who were previously under reimbursed in 2024 relative to the severity of their chronic conditions. Excluding the final sweep payment, we still would have outperformed the high end of our guidance range across each of our key metrics in the quarter and would have produced an adjusted MBR of 87.7% compared to the MBR implied by the high end of our second quarter guidance of 88.3%. Turning to OpEx. Adjusted SG&A in the second quarter was $89 million and declined as a percentage of revenue by 160 basis points year-over-year to 8.8%. This marks a continuation of the outcomes achieved in the first quarter and once again demonstrates our ability to scale our capital-light operating model. Our SG&A result also included approximately $6 million of timing benefit, which we expect to reverse in the second half, keeping our full year expectations for SG&A roughly unchanged. Finally, adjusted EBITDA was $46 million in the quarter. This reflects an adjusted EBITDA margin of 4.5%, which improved by 360 basis points compared to the second quarter of 2024. Moving to the balance sheet. We ended the second quarter with $504 million in cash, cash equivalents, and investments. Turning to our guidance. For the third quarter, we expect the following: health plan membership to be between 225,000 and 227,000 members, revenue to be in the range of $970 million to $985 million, adjusted gross profit to be between $106 million and $114 million, and adjusted EBITDA to be in the range of $5 million to $13 million. For the full year 2025, we expect the following: health plan membership to be between 229,000 and 234,000 members, revenue to be in the range of $3.885 billion to $3.910 billion, adjusted gross profit to be between $452 million and $469 million, and adjusted EBITDA to be in the range of $69 million to $83 million. Following the strength of our second quarter and first half results, we are increasing our membership guidance in each of our key P&L metrics. Our 2025 sales continue to exceed expectations through the second quarter, supporting our full year membership raise. Continued momentum on new sales is also reflected in our revised outlook of $3.9 billion at the midpoint, which now implies approximately 44% growth year-over-year. Turning to our 2025 profitability expectations. The midpoint of our updated adjusted gross profit guidance of $461 million was raised by $28 million, which is greater than the magnitude of our second quarter beat. This latest update now implies an MBR of 88.2% for the year, a 40 basis point improvement from our prior annual guidance. Meanwhile, the $27 million increase in our adjusted EBITDA guidance to $76 million at the midpoint captures strong performance through the first half of the year and implies a 1.9% adjusted EBITDA margin for the full year. Our profitability outlook includes the following components in the second half. First, we expect continued stability in our inpatient admission per 1,000 results with the second half running modestly higher year-over-year due to changes in our mix of membership. This is consistent with our previous comments. Second, while our first half Part D gross margin ran a few million dollars favorable to expectations, we are keeping our full year assumptions approximately unchanged. Based on the first 6 months of our Part D experience, we feel confident that our outlook assumptions accurately reflect underlying cost trends in Part B and continue to expect our Part D MBR will be modestly lower in the second half compared to the first half. And third, we expect the $6 million of SG&A timing favorability we experienced in the first half to reverse in the second half, leaving our full year SG&A expectations roughly unchanged. For full year 2025, our latest guidance implies an adjusted SG&A ratio of 9.9%, reflecting an improvement of 130 basis points year-over-year. Spending a moment on seasonality, we expect the fourth quarter MBR to be higher than the third quarter due to normal seasonality from the combination of lower revenue PMPM between Q3 and Q4 and regular utilization patterns in Medicare Advantage, including the impact of the flu season. Additionally, we continue to expect changes in Part D seasonality due to the Inflation Reduction Act, including a higher MBR in the fourth quarter relative to prior years. On operating expenses, consistent with normal seasonality, we expect the ramp-up of AEP-related sales and marketing expenses and staffing in preparation for 2026 growth to increase our second half SG&A, particularly in the fourth quarter. With these factors in mind, we expect adjusted EBITDA to be higher in the third quarter than in the fourth quarter. Taken together, we are pleased with our first half results and we're well positioned to deliver on our increased full year expectations. With our latest update and our full year outlook, we now expect to be free cash flow positive on a company-wide basis in 2025. This is a milestone in our organizational maturity and adds to our position of strength as we plan for 2026. Lastly, I'd like to take a moment to express how energized I am to be part of this mission-driven organization. In my first few months, I've been deeply impressed by the expertise of the team, the sophistication of our integrated clinical and technology platform, and the strength of our financial visibility and processes. As I settle into my role as CFO, investors can expect continued consistency in our reserving methodology and financial communication with investors. With that, let's open the call to questions.

Our first question comes from the line of Matthew Gillmore with KeyBanc.

Congrats on the great results. John mentioned your efforts to deepen your provider relationships and to help them better manage costs and that you're becoming a preferred solution for providers that are managing MA costs. I think last call, you mentioned some IPA relationships, but I thought you might provide some details there and give us a sense for how this is different from your prior relationships on the provider side.

Yes, it's John. Great question. The historical acute admissions per 1,000, if you recall, we've shared in the past, has ranged in the kind of 150 to 160 range. And for this past quarter, we were actually closer to the low-140s, and we communicated that. And that's really a result of our having conversations with our IPAs and medical groups and kind of jointly concluding that we have the tools and data to give both the plan and the medical group better visibility and control. As we've worked together collaboratively, it's yielding results, not only for stars and quality metrics but also as reflected in utilization management. The whole concept of alignment and creating operating and financial alignment with these providers is starting to pay off. The result of it is they're benefiting more; they're making more money, members are happier, getting more access, and we'll be continuing to do that throughout the entire book of business. And it's a meaningful differentiator in this world of V28. I think that people really appreciate the increased quality and access that this is also yielding. Does that help, Matt?

No, it does. I appreciate that. And then I wanted to see if you could provide just a little bit of color in terms of what you're seeing from a utilization standpoint. Obviously, great to see inpatient really controlled through your efforts. But any comments you'd make on outpatient or any particular areas to note in terms of either success or what's sort of driving trend?

Yes. If you look closely at utilization and rate, John mentioned our strong focus on ADK, as well as our overall clinical spending. While managing our business actively, we’ve observed a lot of stability. There are some specific areas that require attention, but we are handling those effectively. This stability is evident in both inpatient and outpatient settings. The key difference is in Part D, which we noted during the call, as it shows a higher trend compared to the medical side. However, when we collaborate directly with IPAs and providers, we have a clear understanding of utilization, which is trending positively. Rates typically show a slight upward trend, mainly connected to Medicare fee-for-service trends. Overall, we feel confident about the visibility we have on utilization.

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

Yes. I want to focus on SG&A. So 8.8% this quarter. It looks like your updated guide now implies sub-10% full year. So I was just flipping through my Humana model. I don't think they've ever done a full year of sub-10% and they're roughly 30x your size in revenue, yet you're outperforming them on SG&A, arguably better cost leverage, scale economy. So as we look ahead, it almost feels like you're setting a new benchmark on SG&A for an MA plan or rather a new paradigm, like John said. So thinking ahead, what's the path forward? I understand broker commissions, marketing, general corporate costs will always be at a certain level, but how durable is this level of SG&A as you continue to scale and grow in the coming years? And how much lower could it possibly go over time? Are there any parts of your cost structure where there might even be levers where, for example, AI initiatives haven't even made a dent yet and that could drive more opportunity over time?

Yes. Mike, it's John. Yes, I think the main thing to have clear is we have the benefit of setting up our data architecture with a clean slate. And so when we talk about having a unified data architecture, it's a big competitive advantage we have relative to some of the incumbent legacy players. That has given us the visibility and control we have. When you have that, you don't need the number of FTEs. You have the data, you have the systems. You don't need to have a bunch of people reconciling all this stuff. The secret sauce really with us is sure, the data is critical. AVA, as you've heard us talk about, is critical. Care Anywhere and the clinical model, it's all critical. But it's how the clinical, the operations, and the financial parts of the organization seamlessly operationalized from a workflow point of view. In addition to the outstanding financial performance, behind the scenes, we've spent a lot of time and energy on streamlining workflows, ensuring that the data can get even better because you need those foundational pieces to apply the AI or certainly the Agentic or Generative AI, and we're looking at that very carefully. I do believe there will be opportunity there. The other thing we're doing is investing in training and development of this model, which we've had to conclude that we've got to get the best athletes in the industry and then train them because I don't see many people doing MA the way that we're doing it. So I do think there's potential.

That's great to hear. And then in terms of the final risk adjustment sweep benefit this quarter, I was wondering, does that also include the Part D risk adjustment sweep as well, or is that normally a back half of the year type item? If I'm not mistaken, that's usually a bit of a benefit too. Then, as a quick follow-up on bids, your peers have really commented on '26 bids over the past couple of weeks, a lot of them assuming trends approaching 10%. I know there's a lot of nuance between your different markets, but curious what you're seeing on trend this year? What you're assuming on trend for your bids next year? With the week left until rebate reallocation, have any of your learnings over the past few weeks changed your mind?

This is Jim. I'll take a moment to clarify the $14 million of gross profit we mentioned, which pertains only to the 2024 final sweep. This is not related to any mid-year Part D or Part C sweeps; it specifically refers to the final sweep for 2024. We thought it was necessary to highlight this amount due to its significance and the fact that it falls outside the typical period. Just to be clear, this is a standard aspect of our business, especially as we continue to grow. We record paid MMR for new members, and we're not relying on an increase since these are not the same members from the previous year; they have transitioned. We experienced a large cohort, making the final sweep considerable in size. This is standard for us. If we exclude the final sweep, we would have achieved all our metrics and surpassed the upper end of our guidance. The amount you see is solely due to the final sweep, not any mid-year Part D or Part C adjustments.

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

Just kind of zooming out to a big picture question. Obviously, healthcare insurance companies are unpopular. I know there are some one-size-fits-all rules around audits. From your admittedly kind of small first, what are you doing to move the conversation around public advocacy? Do you think you're getting any traction in D.C. about this?

John, it's John. We were invited to be one of the witnesses in front of the House Ways and Means Subcommittee on Health last week. Our President, Dawn Maroney, did a great job presenting just how we think about MA. People are listening. This is all public, all on video. I think they understand that our approach is differential from the incumbents. One of the Congressmen referred to us as the good guys. It's consistent with what we've talked about in the past. I think the narrative has to change to the principles that we are advocating for in our company, but also for the entire sector and the industry. We're communicating these principles to industry organizations as well. It really boils down to serving the senior population with the right care at the right time. I think this perspective is gaining traction, and I believe we can create a win-win opportunity by providing more care.

And my second question and I'll ring off is, your care model. If we think about value-based care 3 years ago, it was discretely managing costs among COPD, type 2 diabetes, some chronic disease. Where does this sit now in terms of predictive analytics and deflecting trend among this chronic population?

Yes. It's a great question. It's going to just get more and more personalized care. We are looking at evolving our machine learning algorithms and applying AI techniques into our operations. That will give us better and faster insights that we can act upon quickly. The reason we're doing well now is that the entire funding structure is changing. 4 years ago, there were many premium dollars to support both insurance companies in the supply chain and global capitation entities. With V28 and a tighter emphasis on quality, revenue is getting tighter, and you can't afford to simply pass risk down to a global capitation entity. Hence, organizations that can manage the risk effectively while maintaining high star ratings are going to win in this space. You're seeing the beginnings of that in our quarterly performance communication, and this is happening with just 2/3 of V28 phased in during 2025. Once we have the final 1/3 of V28 in 2026, entities that understand how to navigate this will be the winners.

Our next question comes from the line of Jared Haase with William Blair & Company.

John, in the prepared remarks, you mentioned administrative automation and care navigation specifically as key focus areas going forward. I was hoping to see if there are additional examples you could share where you see the biggest opportunities for improvement in those areas. As a follow-up, would you frame this as having a bigger impact on existing member retention or new member growth?

Yes. The answer is both. It relates to our core systems. We're positioning the company to scale effectively, ensuring that workflows are consistent, automated, and systematized. This past year, we implemented a new EHR, Athena, a new HR system, Workday, and a claims adjudication platform. We integrate these systems with AVA, which we've identified as our core system. This will yield better and more accurate claims payments and higher degrees of auto-adjudication, leading to more consistency. Our concierge processes are set up to ensure members are properly guided. We've been successful in keeping our denial rates low at less than 2%. Our core systems are set to pay off, and as we grow larger, I am confident about our future trajectory.

Got it. That makes sense, and that's helpful. And then maybe as a quick follow-up. Appreciate all the color you've shared on utilization trends. I was just curious if you could share your experience on supplemental benefit utilization and expense and how that's tracked relative to your expectations year-to-date?

Yes. Last year, we had some negative variances on our supplemental card. We corrected that this year. Overall, it's all in line.

Our next question comes from the line of Craig Jones with Bank of America.

I want to talk a little about marketing dollar yield and customer acquisition costs. With some of the other plans cutting benefits, focusing on shedding members rather than growing, I was wondering if you've seen a higher yield on your marketing dollars. If so, is that quantifiable? What kind of margin tailwind might it be driving?

Yes, it's a really good question. The answer is yes. But as we are months away from AEP, we're not going to get too specific. We feel good about AEP. Our market and competitive analyses support our position. Much of our growth thus far has been largely through word of mouth and excellent relationships with brokers who care about quality outcomes for our members. I believe as we grow, we'll develop our brand further, something we haven't done quite yet. This will be a foundational pillar for our future success.

Our next question comes from the line of Ryan Langston with TD Cowen.

John, it seems like you remain optimistic about achieving over 20% growth next year and beyond. I'm curious about how you're planning to divide that growth between California and your other markets. Considering some comments from larger plans regarding exits and benefit reductions, do you see an opportunity to potentially increase that growth rate?

Yes, I don't see it as either/or. We look at it as both. Our market share in California remains small, and I believe that achieving a 20% growth in California is achievable. We are gaining some scale in our existing non-California markets, and the broker community is taking note. Some of them are sensitive to comments made by competitors about benefits. I'm optimistic about our position, but I don't think we will adjust our 20% growth direction until we have more visibility into AEP. We're trying to balance growth and margin expansion, and there are tailwinds that still favor us.

Got it. Just a quick follow-up. Given your success on Star scores in Arizona, were you able to go back and adjust your bids? Or do you just keep the excess and reinvest it back into benefits?

Yes, the answer is yes. We made modifications to the bids, and we were able to validate all of that with CMS before making any announcements. During that time, we had the opportunity to modify the bids for '26.

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

Wanted to go back to the $14 million out-of-period benefit in the quarter. I think you grew about 70,000 members last year. I think that implies about $200 at least of annual PMPM benefit across that new base. Is that the right way to think about the true-up on a per member basis? Is that something we should back out of the earnings jump-off point for next year?

Yes. I'll start with the second part first. This will be and it's a normal course part of our business. We wanted to provide some transparency because it was sizable and we needed you, the investor, to understand how the quarter came through. But it is normal course. So as we grow and take a conservative stance on new members, we anticipate this will continue. We just can't predict the magnitude of it. Your math is a bit simplified, but think about it in terms of a marginal percentage. It's not massive amounts. It's marginal percentages, but it was significant enough to make a difference for us.

Got it. So, the gross adds is probably higher than that number. Understood. And maybe just a quick follow-up on the share count since that has a couple of moving pieces with the positive EPS in the quarter. I think the dilutive share count increased from 193 million to 209 million in the quarter. And I think that excludes about $7.5 million of anti-dilutive stock options and another $26 million of anti-dilutive converts. So, is 243 million shares the right way to think about the fully diluted shares once those instruments are in the money? I'm guessing that's why they're not included in the current share count.

Yes. Rather than do this on the call, we can circle back on the right math. We want to make sure you understand the convert and all other components correctly.

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

Congrats on the extremely strong quarter. As we think about the outside of California markets reaching critical mass, can you give us an update on the margin maturation framework for new member cohorts? What does year 1 look like 2, 3, 4, 5? Any acceleration in the timeline to peak margins or new care delivery innovations to take you above and beyond historical peak contribution margins? Anything to flag in this 2024 outcomes report?

Yes. Jess, this is Jim. We do track the maturation of our cohorts. Year 1 has been kind of in the 89% range and driving much lower over time. As we look at this, it's been relatively stable. One of the hallmarks of our performance this year is that execution against a dynamic backdrop where we have a large percentage of our members in year 1 or year 2 cohorts. The message underneath is we're tracking well on these early maturities. However, there's not a giant distinction in any one given year for a year 1. It's been pretty consistent.

Got it. I was hoping you could help us understand California's effort to promote Exclusively Aligned Enrollment or EAE D-SNPs. Does this mean anything for Alignment? It appears it's not impacting you in 2025, but I'm curious about the 2026 expansion of these plans and automatic enrollment could mean for Alignment.

Yes, we've been managing through this issue for the last 3 years. Members don't want to be forced into Medicaid networks. They're actually choosing to opt out in many cases and join Alignment. It's a point of contention that we have in Washington, and we really want to advocate choice; the choice for seniors. Forcing a senior into a plan through these Aligned Networks, which are often Medicaid-centric with low stars, low reimbursement, and low benefits is not our idea of choice. Members have voted with their feet, and they're working closely with us. Therefore, I don't expect any erosion of that in '26.

Our next question comes from the line of Jonathan Yong with UBS.

Congrats on the results here. Just going back to the bid component, did you mention what you went in with for your 2026 bids in terms of trends? I think the comment was everyone else is looking at mid-to-high single digit trends.

Jonathan, no, we're specifically not going to comment on anything related to the bids for competitive reasons.

Understood. One of the larger value-based care providers is talking about walking away from risk or partial risk contracts due to issues in their business. I wouldn't think this impacts your California market, but are you seeing more providers taking that tact ex-California?

I don't see that affecting us. There is some margin pressure at the global cap provider level, which we've talked about for a couple of years now. This model creates inherent tension between the plan and the global cap provider when there is compression in premiums. The tighter stars and phasing of V28 result in insufficient funding to push down to these global cap providers. They are tightening up on coding as a result. This does not surprise me at all. However, our core competency of managing care and risk is crucial. We've focused on this with AVA and Care Anywhere, and we're integrating with some of these medical groups historically taking global cap. This represents a strategic advantage for us.

Our next question comes from the line of Whit Mayo with Leerink Partners.

Any updated numbers that you can share on your membership engagement with new members with Care Anywhere? I'm not sure how that compares to prior years.

We're incrementally better. We've gotten engagement up from the 50% range closer to the 60% range. However, I am not satisfied with that. We should be at least 70% to 75%. Operational changes we've implemented will allow us to achieve that. It's possible, linking to how we work with the IPAs and what we delegate. There's upside opportunity there.

Okay. Last one, John. I know you don't have a perfect crystal ball, but how are you thinking about Stars this year for the industry?

We feel good about our position. I don't have visibility to what everyone else is doing, but our scores feel strong. I think they will be distinctly better than last year. By how much? I'm unsure. We're confident we'll achieve at least 4 stars in most markets. The question is whether we can get above that in select markets.

We have a follow-up question from the line of John Ransom with Raymond James.

Specifically on Stars, where do you see opportunities to continue to improve and provide cushions against negative surprises?

It's CAPS. We are fully 5 stars on most metrics except CAPS. We're focusing on operational transparency, visibility, and control. We've delegated care coordination and access to care to our IPAs. We're working to implement cohesive care routing and navigation to provide beneficiaries with better alternatives if primary options are delayed. Integrating with the IPAs like this will yield better star ratings across the board and increased surpluses for providers. It creates a win-win for the beneficiary.

Ladies and gentlemen, I'm showing no further questions in the queue. And that concludes today's conference call. Thank you for your participation. You may now disconnect.