Good day, everyone, and welcome to today's Astrana's Health Fourth Quarter and Full Year 2023 Earnings Call. Today's speakers will be Brandon Sim, President, Chief Executive Officer for Astrana Health; and Chan Basho, Chief Operating and Financial Officer. The press release announcing Astrana's health results for the full-year and fourth quarter ended December 31, 2023 is available at the Investors section of the company's website at www.astranahealth.com. To provide some additional background on its results, the company has made a supplemental deck available on its website. A replay of this broadcast will also be made available at Astrana's Health website, after the conclusion of the call. Before we get started, I would like to remind everyone that this conference and any accompanying information discussed herein contains certain forward-looking statements within the meaning of the Safe-Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terms such as anticipate, believe, expect, future, plan, outlook, and will and include, among other things, statements regarding the Company's guidance for the year ended December 31, 2023, continued growth acquisition strategy, ability to deliver sustainable long-term value, ability to respond to the changing environment, operational focus, strategic growth, plans and merger integration efforts. Although the company believes that the expectations reflected in these forward-looking statements are reasonable as of today, those statements are subject to risks and uncertainties that could cause the actual results to differ dramatically from those projected. There could be no assurance that those expectations will prove to be correct. Information about the risks associated with investing in Astrana's Health is included in its filings with the Securities and Exchange Commission. While we encourage you to review before making an investment decision. The company does not assume any obligations to update any forward-looking statements as a result of new information, future events, and changes in marketing conditions or otherwise, except as required by law. Regarding the disclaimer language, I would also like to refer you to Slide 2 of the conference call presentation for further information. With that, I'll turn the call over to Astrana's Health, President and Chief Executive Officer, Brandon Sim. Please go ahead, Brandon.

Good evening, and thank you all for joining us today. We are proud to announce another year marked by rapid scaling of our unique care model to empower providers and improve healthcare for local communities at Astrana Health. We coupled that with robust financial achievements, ensuring that our growth efforts are sustainable and maintaining a focus on profitability. We continue to execute against our multi-dimensional strategic roadmap. One, focusing on expanding our membership base across existing and new geographies. Two, increasing the level of accountability and risk we are responsible for in our value-based care contracts. Three, empowering our providers to achieve superior patient outcomes, and four, executing strategic acquisitions to further accelerate our growth trajectory for the foreseeable future. We are confident that the infrastructure we have built and the momentum we have in our value-based care platform will continue to accelerate the country towards our vision, one in which every American has access to high-quality, high-value healthcare. I'll begin by highlighting our financial accomplishments for the fourth quarter of 2023. We recorded total revenue of $353 million, an increase of 20% and adjusted EBITDA of $29 million, an increase of 22.7% from the fourth quarter of 2022. For the full year of 2023, Astrana Health achieved total revenues of $1.39 billion, an increase of 21.2% year-over-year and adjusted EBITDA of $146.6 million, up 4.7% year-over-year. Yielding an adjusted EBITDA margin of 11%, which is within our short-term target EBITDA range of 10% to 15%. This was despite headwinds in terms of Medicaid redetermination, increased utilization, and costs due to our investments in growth, infrastructure, and new market entry. Turning now to the business updates for the year. Since our last earnings call, we have formed a new partnership with BASS Medical Group. A key pillar of Astrana's unique care model is the deep integration between primary-care providers and specialists networks, and our long-term strategic partnership with BASS is, in our view, an expression of this thesis. This relationship is set to enhance the value-based care framework and operational capabilities for BASS Medical Group, which boasts over 400 providers across key Northern California counties. Our collaborative efforts aimed to deliver top-tier care through value-based models to a diverse patient base across all lines of business throughout Northern California. Operationally, our collaboration with BASS involves establishing a premier, high-quality independent provider network in Northern California, which we expect to fully transition to full-risk in 2025 and beyond, by leveraging our restricted Knox-Keene license to foster new aligned care models. Our primary care provider networks will have wider access to an aligned high-quality specialist network, which will enable care coordination and will help manage cost-effectiveness. As these providers will also be supported by our technology platform, as they join Astrana's Care Enablement platform in 2024. This will extend our value-based care footprint in the Greater San Francisco Bay Area, while enriching our network with more primary care physicians and specialists. Next, I'd like to highlight our ability to replicate our success in Southern California and new markets, having recently entered several new states. Our approach to market expansion is flexible, rooted in our history of building partnerships with physician practices and adapting to local market dynamics. Whether through partnerships, de novo build acquisitions, or technology offerings, our ability to flexibly utilize our Care Partners, Care Delivery, and Care Enablement offerings to adapt to the needs of local providers and communities allows us to remain adaptive and nimble as we enter these new markets. In Nevada, the notable presence of both the payer and the health system partner has guided our expansion into Clark County, where we have established over a year of operational experience. In addition to our initial entry via a chain of our own primary care clinics in our care delivery segment, we have now augmented that footprint by building a care partners network of over 300 high-quality, high-value primary care providers and specialists. We continue to focus on building density in each new market we enter, and we expect our Nevada market to be run-rate break-even by the end of the year. Following our acquisition of Texas Independent Providers and Independent Provider Association into our care partner segment in September of 2023, we have achieved significant advancements within the state of Texas as well. Our efforts have successfully expanded our network of inclusive primary care providers and our membership base. As we strategically continue to add specialty coverage in Harris County, we have made notable strides in securing incremental Medicare Advantage contracts with health plans. We are committed to further enlarging our clinical footprint within the region, thereby enhancing our delivery of value-based care. We continue to view our pipeline of partnerships and expansion opportunities as very robust and will provide further updates as they occur. As previously communicated, we plan to enter at least one to two new markets per year and invest $5 million to $10 million per market to do so. The 2024 guidance that Chan will discuss later on this call will include the costs of planned new market entry. Next, we have significantly advanced our capability to engage and manage our patients in full-risk arrangements since announcing our acquisition of Community Family Care, or CFC, in November of 2023. We're excited to share that on January 31, 2024, we seamlessly onboarded CFC's IPA as an Astrana Care partner, which manages the healthcare of over 200,000 members in the Los Angeles, California area across Medicare, Medicaid, and commercial payers. The acquisition of the CFC health plan and MSO entities are still on track to close by the end of the first quarter of 2024. We are also excited to announce our rebranding to Astrana Health NASDAQ ticker ASTH as of February 26, 2024. This new brand identity reflects our expanding national presence and commitment to delivering quality care nationwide as we support forward-thinking providers and care teams in creating a constellation of high-quality care. Additionally, we've made several key leadership changes to continue to support that growth, including new roles for Dr. Thomas Lam, myself, and Chan Basho, while also warmly welcoming Dr. Dinesh Kumar as Chief Medical Officer. Our commitment to accessible, high-quality, value-based care and our proven track record in managing care costs and patient outcomes give us confidence in our ongoing profitability and growth. The momentum we are experiencing is a testament to our team's dedication and the innovative strategies we are employing to enhance healthcare delivery. In closing, I extend my deepest gratitude to our team, our providers, and our partners for their unwavering support and shared vision of transforming healthcare in communities across the nation. I will now pass the discussion to Chan Basho, Chief Financial and Operating Officer, for a detailed review of our financial results.

Thank you, Brandon. We continue to deliver strong results, reporting total revenue of $1.39 billion for 2023, an increase of 21% from $1.14 billion in 2022. Our top-line growth was driven by growth in all three of our core segments. In aggregate, adjusted EBITDA was $146.6 million, up 4.7% from $140 million in the prior year. Net income attributable to Astrana Health was $60.7 million, an increase of 34.3% from $45.2 million in 2022. Earnings per share on a diluted basis were $1.29, up 30.3% from $0.99 in the prior year. Now turning over to the balance sheet. We remain well-capitalized and well-positioned to execute on our growth initiatives. We ended the fourth quarter with $293.8 million in cash and cash equivalents compared to $288 million at the end of 2022. Total debt at the end of the fourth quarter was $282 million. Our substantial liquidity continues to support our strategy around sustained growth. I'd like to formally announce the spin-off of the real estate portion of the APC excluded assets as we have discussed in prior quarters. As a reminder for all, the real estate portion of APC excluded assets are the consolidated real estate assets held by APC common shareholders. As we have described in the past, they are solely for the benefit of our affiliate APC and its shareholders. On December 26, 2023, APC, a consolidated affiliate of Astrana Health, completed a restructuring transaction to separate APC's real estate business. As a result of this strategic spinoff, we're now able to consolidate our tax filing status into a single entity. This will avoid our historical tax implications related to intercompany dividends. Due to this change, our tax rate in 2023 was 35.6% versus our tax rate of 47.2% in 2022. Moving forward, the 2024 full-year effective tax rate is expected to be approximately 34%. As a note, as you review our 2023 financials, our balance sheet as of December 31, 2023 no longer reflects the real estate business assets and liabilities. However, our income statement reflects the results of operations of such businesses through December 26, 2023. I want to highlight a nuance in Q4 associated with bonuses paid out by APC-excluded assets to their provider shareholders. This one-time bonus in Q4 2023 of $14 million ran through COGS and will skew medical costs if one is using COGS as the numerator and capitated revenue as the denominator. Going forward post-spinoff, our financial statements will no longer need to be separated between Astrana Health assets and excluded assets. As we wrap up 2023 and think about 2024, I'd like to touch on four key areas. ACO, utilization management, HCC model changes, and our movement to full risk. We now have over 37,000 members in the Medicare Advanced Payment Program. In 2024, we launched a new MSSP for providers in our Astrana Health family who are at an earlier stage in their value-based care journey for their fee-for-service Medicare patients. The cornerstone of our strategy is empowering these providers with actionable data to ensure exceptional patient outcomes. Across both our MSSP and our full-risk ACO reach, we continue to invest in our care management and technology infrastructure to ensure both programs' continued success. In regards to utilization management, we continue to monitor utilization trends, with the latest data indicating a very slight uptick in Medicare Advantage utilization as seen across the industry. However, due to our diverse payer mix, our overall utilization is in line with historical trends. Our 2024 forecast includes these assumptions moving forward. Around the HCC model changes to V28, we see a nominal change within our managed care population in 2024 and a less than 1% change in our ACO population in 2024 versus 2023. Our 2024 forecast also includes the projected impact from these changes moving forward. Now, when we look at our financials today, the majority of our managed care financials are on a partial risk basis. What that means is today we are recording the professional risk of our overall care model. Over the next 24 months, we expect to move more and more from a professional risk basis to a full-risk basis. We will capture a higher portion of the premium dollar, improving our ability to coordinate care across the healthcare spectrum for patients and improving our financial unit economics. Last quarter, our full-risk book of business makes up 46% of total capitation revenue. As of January 1st, our full-risk business makes up 49% of total capitation revenue. We expect our full-risk business to continue to grow this year. In summary, we have the capacity today to manage full-risk members and to perform delegated payer-like functions, such as utilization management, care management, and claims processing. With this change, we're now moving further up the risk continuum while continuing to deliver high-quality care for our members. Turning now to our 2024 guidance. We expect to be between $1.65 billion and $1.85 billion of revenue. We remain confident in our growth due to the execution of our organic and inorganic growth plans as well as our transition to full risk. We anticipate that our adjusted EBITDA will range from $165 million to $185 million. Our expectations are based on the stability of utilization trends across our at-risk portfolio and a conservative approach to projections. As we shift towards accommodating a greater number of full-risk patients, we foresee enhancements in our operational efficiencies and institutional risk management. This strategic shift is expected to positively impact our unit economics. In regards to gap earnings per diluted share, we expect to be between $1.28 a share and $1.52 per share. While we are providing guidance on a full-year basis, we recognize the importance of understanding the nuances that each quarter may present. With the closing of CFC IPA and the future planned closing of CFC Health Plan, we anticipate a notable uplift in our revenue from Q4 2023 to Q1 2024 and even further in Q2 2024 when we will experience a full quarter of impact from CFC in our financials. Historically, our business has experienced seasonal trends in line with industry norms. Our margin typically is normalized for Q1 while expanding in the second and third quarters as one-time settlements are recognized before returning to a normalized level in the fourth quarter. It's important to note that while we strive for operational excellence and margin improvements, our strategic investments in market expansion and transition to full risk are timed to optimize long-term growth, which may result in quarter-to-quarter margin variability. We believe this context is crucial for our investors as it provides a lens through which to view our quarterly performance within the framework of our annual guidance. Finally, I want to reiterate the bright future ahead for our strong business development pipeline coupled with the strength of our model as we look ahead to 2025, 2026, and beyond.

In conclusion, we are proud of the positive impact we've had on the communities we serve, our growth partnerships, our financial achievements, and our capital deployment strategy over the past year, showcasing our platform's capacity to consistently achieve three main operational objectives. One, expanding our member base in both existing and new geographies. Two, supporting our care delivery and care partners providers in their transition to value-based care. And three, empowering our providers to achieve outstanding patient outcomes for full risk. The recent partnership with BASS Medical Group, the acquisition of CFC IPA and CFC Health plan, and the continued move towards full risk further diversify our membership mix and provide us with pathways to expand our value-based care exposure. The Astrana Health platform provides a highly differentiated, peer-play, value-based care company that is not only growing rapidly but also yields profitable and sustainable growth. We have made strong progress across all three objectives and have established a solid foundation for a bright future of continued growth and impact in 2024. And we're excited to further accelerate our mission to provide every American with access to high quality, high value healthcare. Thank you all for your time today. With that, Operator, let's open it up for Q&A.

Our first question comes from Ryan Daniels with William Blair. Please go ahead with your question.

Yes, hi guys, this is Jack Senft on for Ryan Daniels. Thanks for taking the questions. In terms of EBITDA margins, you ended 2023 with EBITDA margins of about 11%. And if we take the midpoint of the 2024 guide adjusted EBITDA margin, it is right at about 10%, which is still impressive. But I know the integration of the RKK license is supposed to bring some margin improvement. And I know that you're focused on operational efficiency. So, is the flat margin outlook just more conservatism? Is it that the RKK won't have too much of an impact yet in 2024, or is it maybe just like the new market entry costs causing it? Can you just kind of walk us through the puts and takes of the EBITDA margin for 2024? Thanks.

Hi, Jack. Thank you for joining the call, and thanks for the question. You're right, the midpoint of revenue and the adjusted EBITDA margin of 5% to 10%. There are a couple of puts and takes there. You know, we'd first note that we've historically been conservative in our first attempt out at a guidance set of range numbers for the year. We'd also point out that there are a couple of headwinds in the industry, obviously around Medicare Advantage, around the risk model, while we think we are relatively insulated from some of the changes that others may be experiencing. Again, due to an abundance of caution, we've, you know, that does put a slight headwind towards versus historical margins. I would also note that the impacts of Medicaid redetermination as well as any lingering effects of that as well as continued investment in our platform and new market entry are all baked into our guidance as currently contemplated. I'll turn it over to Chan to add anything else.

Yes, no. I think you covered everything, Brandon.

Okay. Great. Thanks, guys. I appreciate that. Just a quick follow-up then, too. So, just kind of focusing on the growth outside of California, I'm just kind of curious how we should think about that. I know a lot of the commentary lately has been focused on the California market, just, you know, given the RKK for Medicare and Medicaid. So. And I think, too, in your prepared remarks, you mentioned that Nevada will be run-rate break-even by year-end. So just kind of given the success that you are seeing outside of California, are you beginning to possibly look at additional geographies as well? Or just kind of what is your mindset with respect to furthering penetration outside of the California market?

Yes, definitely. So, as previously guided, we will continue to look to expand into one or two new markets per year. Those market entry costs, which we've typically run at the low end of the $5 million to $10 million range that I got to on the call, have been baked into our guidance ranges for the year as well on the adjusted EBITDA line. We typically look at markets in terms of building depth rather than, you know, trying to fill every single state on the map. So, I think there's a certain level of deliberation when we enter a new market. But when we do, we want to ensure that the care model, the technology infrastructure is deployed in a systematic way that allows us to continue breaking even within that two-year time period as we had guided to before as well. So, that's kind of the intent. You know, with Nevada and Texas ramping up and Nevada expected to be run-rate profitable this year, we are certainly looking towards additional markets.

Okay. Great, thanks. And then if we can just sneak one final one in here. So, PP&E decreased pretty substantially this quarter. Just wanted to double-check. Is this all because of the APC real estate spinoff, or was there something else that just caused that impact? Thanks again, guys.

Yes, I think you're correct in terms of changes in terms of the real estate spin-off, you will see those appropriate changes in the balance sheet.

Thank you. Our next question comes from the line of Brooks O'Neil with Lake Street Capital Markets. Please proceed with your question.

Thank you very much. Good afternoon. Just following up on Jack's last question, I just want to be 100% clear that you guys are including this $5 million to $10 million per new market entry, but you haven't included any assumption about the impact of whatever you do to enter these new markets in terms of affiliations, partnerships, et cetera.

Hi, Brooks, how are you? Great to hear you. So our '24 forecast includes the investments we will be making for these, one to two markets. So, it is built into the numbers today.

The investments are, but not the impact of a new group or a new partnership or whatever in these new markets. See what I'm asking.

Both the investment into, you know, business development, marketing, etc., as well as potential ongoing operating costs of operating the group are baked into the guidance.

Okay. Okay. I think, I got that. Obviously, there's been a lot of talk about elevated medical costs from some of the payers in particular, United, Aetna, Humana. I'm curious, do you have any sense that providers in your core markets saw elevated medical costs, and do you have a sense that it was your approaches to medical management and value-based care that enabled you to do a good job of controlling those medical costs? Or do you have any comments? Do you see what I'm asking?

Yes, let me give it a try, Brooks. Thank you for the question. I think, I would say that it's difficult for us to comment on the regional performance of any of our payer partners. But given the level of interest that we are seeing from our payer partners in terms of aligning members to our value-based care platform, we think that, you know, what we can speak about is that the strength of our care model and the durability and management of costs, medical costs associated with the patient that we are financially and clinically responsible for has been a value add to our payer partners. We continue to see strong interest in partnership and expanding our already successful partnerships into new regions, into growing the book of business that we have with our payer partners. And we look forward to continue serving them and helping them decrease any fluctuations that they may be facing as well for our patient panels.

Sure. All that makes sense. That's very helpful. Thank you. So, let me just ask one last one. And, you know, I'm just trying to get my arms around the whole notion of you guys taking full risk, which I believe is a great development and something you're more than capable of handling. I'm assuming that the big opportunity in the marketplace is to reduce inpatient hospital costs. Can you just talk a little bit about that and how the hospitals are viewing the transition that's going on out there in the world? Not that, you know, you ask the deer how he feels about the hunter being in the field. But just tell me what you see in the marketplace and what the conversations are like out there?

Thanks for the question. I think there is a bit of a divergence in the health systems and hospitals we work with. You know, those that have a plan in place as there are changes in Medicare Advantage and as there are changes in utilization trends. We've seen been successful, especially when they're working with us to keep the lower acuity and lower dollar per bed-day patients out of the hospital and ensuring that the appropriate place of care is being used for a given procedure or for a given patient. While we think there's greater and greater awareness among hospitals and health systems around the benefits of doing that, we continue to be in conversations with a lot of large health systems and hospitals to bring that model to the geographies that we serve. Brooks, I may have missed one of your earlier questions. I apologize around what was baked into our '24 estimates as well, so maybe I'll answer that quickly. All the costs of new market entry are baked into the bottom-line guidance, but our revenues are pretty minimal, zero to minimal, baked in on the top line for new groups that we may partner with this year. So, that's the top and the bottom line for new partnerships and new markets for 2024.

Thank you for clarifying that. I was thinking that was the answer, but I didn't actually hear you say it. So, hearing you say it is very helpful. Thank you again.

Thank you, Brooks.

Thank you. Our next question comes from the line of David Larsen with BTIG. Please proceed with your question.

Can you please talk a little bit more about the data files, Chan, how current they are? Like Agilent talked about getting more data, higher utilization claims, Privia talked about getting sort of more accurate forecasts with data and higher utilization. Do you basically have all the '23 data now? Are we through that? And we have high conviction that we're there. Sorry for the background noise. Thank you.

Hi, David, thank you for the question. Good to hear from you. Around our visibility into data, you know, I think we have as good of visibility as could be had. As we had mentioned before, we operate in a delegated environment where we are responsible for authorizing prior authorization requests, managing the referrals in our network, as well as paying the claims associated or the cost of the claims associated with the claims and authorizations that we process. That combined with our proprietary data infrastructure and our team's ability to predict based on historical usage and the trends that we are seeing give us a good amount of visibility into where utilization might trend, call it a quarter or two ahead of time. That's not to say, of course, you know, that something couldn't happen, you know, we're talking about elective procedures here, but in terms of our data visibility, we think we are pretty confident in our ability to see how trends are evolving over time. As far as 2023, I think Chan can answer you know, how much of that is baked in today.

Yes, thanks, Brandon.

Okay. That's great. No, go-ahead, please.

So, yes, sure, David. Our unique delegated model really allows us to have close to real-time authorization data. At this time, in terms of our authorizations, it's in the 98, 99 percentile range in terms of claims that we expect in the future. So, we feel quite comfortable around our management business.

Okay. That's great. And can you talk a little bit about BASS, please? Privia mentioned them. And from what they said, it sounds like their relationship with BASS isn't going to change. Can you just talk about how that's going to fit into your entire network? It seems like it makes a lot of sense to me, like they have specialty services, your primary care groups can refer there. You can basically keep the care in your network and perhaps improve cost trend as well. A little more description there would be helpful. Thank you.

Sure thing. I haven't heard the exact comments, but I think based on your portrayal, I would agree. You know, there are different services that are being provided to BASS Medical Group. And at the end of the day, our goal is to help those providers, you know, multi-specialty as well as some primary care in BASS Medical Group, to be as successful as possible and to deliver a high quality of care to their patient population in a differentiated way. What we are going to provide to them is that we are going to provide our risk ecosystem, including contracts, value-based care infrastructure, the full suite of delegated services, as we talked about before, contracting, credentialing, utilization management, care management, claims payments, etc., to BASS, in addition to performing some of the care management and clinical programs necessary in order to succeed in a value-based care contract over time. That's something we're beginning to do this year. I think in my prepared remarks, we talked about creating a network, an IPA, as well as moving that as appropriate into the Restricted Knox-Keene full-risk upside-down side construct as time goes on, probably in 2025. We think that this will lead to better accountable care results for the patients that BASS serves. And I think that is a separate business than the one that BASS may be currently using another company for. Again, at the end of the day, we think there's room for everyone, and we look forward to helping BASS and its providers execute and provide really good care to the San Francisco Bay Area community.

Okay. That's very helpful. Thank you. And then just one last quick one. For CFC, I think that they bring an incremental $20 million or more of EBITDA. Is that included in your guidance? Thanks very much, and then I'll hop back in the queue.

Yes. In terms of CFC, CFC is baked into our guidance. We did close in terms of a two-step acquisition, the IPA, in January. And we're still on track to close the second part, which is the full risk-bearing Restricted Knox-Keene in months at the end of Q1.

Okay. Great. Thanks. Congrats on a great quarter. Thank you.

Thanks.

Thank you. Our next question comes from the line of Adam Ron with Bank of America. Please proceed with your question.

Hi, I have a question about, you know, how this RKK license flows in over the next 24 months, as you mentioned. I was a little surprised to hear that you said, you know, the full risk, the percentage of total capitation went from like 46 to 49. I would have expected a bigger swing given it was January and that, you know, if you were going to renegotiate a contract with an insurer, I would assume most of it would happen in January. And so when you mentioned 24 months, did you really mean like 12 months from now and then 12 months after that when those things take effect or can you renegotiate throughout the year?

Hi, Adam. Thanks for the question. So, first, it's less about the contract negotiation and it's more about the regulatory approvals. So, even if the contract's negotiated, there's a joint filing and then there's a process with the DMHC for us to be able to move these members to full risk. So, as you're thinking about the Medicare Advantage FYB membership, if that will continue to happen throughout this year in terms of the CFC and Medicaid-related members, you won't see that change until the CFC RKK closes.

Okay. So, what would cause it to be evenly distributed then across 24 months if it's waiting on a regulatory license? Like is it something that's going to be lumpy where one quarter is finally approved and you get most of the benefit there or?

Yes, it is going to be lumpy. It's not going to be evenly distributed. And so, as we have a contract that the DMHC approves, you will see that step up in membership.

Okay. When you mention contract, do you mean that for each individual payer and each product line, separate approval is required?

That's correct. Yes, for every county for each line of business and contract, there's a separate approval.

Okay. And are you specifically trying to, you know, do this in a more, like, are you trying to measure the pacing of it or is it just you're applying, you know, basically as fast as you can and you just expect that it would take 12 to 24 months?

We are going as fast as we can through the process. It does take time.

Yes. Okay. And then on the MSSP, it was interesting. So can you give us like how many members are in MSSP versus ACO REACH in 2024? And then kind of recap maybe what happened with ACO REACH in 2023? And then, you know, you mentioned the V28 might be, you know, 50 basis points, 100 basis points of revenue of ACO REACH in 2024. And I think there is an increase in the discount rate of another 1%. So, you know, would you expect 2024 performance to repeat or would there be a degradation in ACO REACH? And maybe that's why you're moving into MSSP. And so just understanding more of, you know, some of the original Medicare programs would be really helpful.

Sure thing. I don't think we have officially disclosed MSSP numbers. I would say it's between, you know, certainly more than 5,000 members since it has to be. And then I would say probably less than 10,000 members. So, it's in that range. The rest of the Accountable Care Organization members are in our ACO REACH program. In terms of V-28 impact, Chan will take that part of the question.

So, in terms of our impact on the ACO REACH, we're expecting a 1% impact due to V-28 in 2024; those numbers are baked into our full-year guidance. Is that helpful, or?

But is there any way to think about how, I guess, maybe just so we have the ACO REACH numbers in '22 from the government. And so, did 2023 an improvement? And do you expect further improvement in '24?

Yes. We expect our performance in '24 to be a little bit better than 2023, so about overall 2% to 3% margin in 2024.

Just to be clear, the 2% to 3% margin Chan's discussing is post, you know, I would say that's care platform contribution, post distributions to providers, post incentives, post bonuses, quality, etc.

Oh, interesting. Okay. And then, so just to understand your comment about the quarterly cadence earlier, it sounds like the quarters are going to be somewhat, you know, variance in terms of earnings contribution. And so is the seasonality going to be similar to '23 or '22, or is it the way we could think about, you know, first half, second half just so we don't have to be surprised in Q1? You know, maybe that's going to be the highest contributor, just more of a finer point around that would be helpful.

Yes, you'll see some - you will see similarity to 2023. Q3, as we've seen historically, is the highest quarter, followed by Q2, then Q1, and lastly Q4.

That's helpful. And on the MA utilization comment, that was a new comment. I thought that the previous commentary or the way you were kind of talking about it was that you weren't seeing really MA utilization pressure and that you know, maybe you thought that regionally it was more of a problem elsewhere, but it sounds like in Q4 you were kind of surprised by that. And so, you do have like, you know, with delegated claims more visibility into it, but, you know, why wouldn't that have been picked up kind of in like the Q3 call?

Yes, I think what we're trying to say is in Q4, November, December, we saw a slight uptick, as we have seen in historical years, and that is captured in our guidance.

Okay. So slight uptick is similar to, like, sequentially, you're saying, and that's a similar sequential increase to historical, or you're saying you're starting to see some of the pressure that - the outsized pressure that other payers are talking about?

Yes, that's correct, Adam. I think we had commented before that we are seeing slight increases in certain pockets, you know, inpatient, senior utilization, for example, certain elective surgeries. I think we had discussed that on previous earnings calls, but nothing that we couldn't manage through and nothing that would have changed our guidance. You know, I don't want to say that there is literally zero impact that we are feeling. It is something that we have managed through and is included in our guidance for 2024.

Okay. And I heard you, I heard you, just want to clarify the last thing. If I heard you correctly, you're saying that what is the $14 million bonus you were mentioning that was in cost of services?

So, pre the spin-off of the APC excluded assets, if APC excluded assets does a bonus distribution as they did in Q4 to their shareholders, that ends up running through the consolidated P&L. So, oftentimes there's a question around, well, why did implied MCR go up? So, I just wanted to be very clear in terms of what that bonus was, the amount, and when it happened.

Yes, going forward, you won't see this happen.

Okay. I guess last one, if I could squeeze it in. The cost-of-service ratio, if we just divide and maybe take out the $14 million payment in 2023, would you think it'd be higher or lower in 2024, and what would be the drivers around that? That would be my last question. Thanks.

I would say it's going to be pretty consistent. If you look at the partners segment specifically and the cost of care ratio for '23, we expect it to be pretty consistent in '24.

Thank you. Our next question comes from the line of Jack Slevin with Jeffries. Please proceed with your question.

Hi, guys. Congrats on the quarter and thanks for taking the question. Happy to be jumping on here. A lot of them already asked. For me, I guess looking forward, right, it's been a couple months since we've seen announcements of new partnerships, whether it be enablement or some others, right, since 3Q call. How is the pipeline shaping up when you think about the enablement business, both in California and then maybe filling out some of the other geographies? Any color you can get there would be really great?

Hi, Jack. Thank you for joining the call. So, I think overall, the new business development pipeline remains very strong, probably as strong as we've ever seen it. With the turmoil in the market and some of the headwinds facing some of our other companies in this space, we think where we are one of the few differentiated players who can take risk, we're not shying away from taking risk in a prudent fashion, in a data-driven and analytics-driven fashion, and are able to succeed in those constructs. That means that when we go talk to provider groups, when we look for partnerships, even when we're selling our Care Enablement solutions into the market. And remember, it's a flexible model, you know, for a given geography, depending on what the provider's preferences are in that market. We have a variety of tools to address those preferences. When we are selling those suite of products across enablement delivery and partners, we're seeing a tremendous response. You know, I think over the past couple of years, there have been - there has been noise. There has been a lot of capital at very low costs of capital that has shielded or hidden - you know, kept hidden actual performance or lack thereof. And as that environment has changed, as we're all aware on this call, our model continues to stand out as a differentiated model and that's helping us win and participate in a large number of business development opportunities, some of which we have already shared with the public. So, it's very strong and we're excited to continue growing our impact across the country.

Got it. Really, really helpful. One more for me. Just thinking about the commentary on continued 25% growth in the medium term and beyond in the presentation, you know, when you look at that, revenue growth has been really strong. I guess the sense that the rest of the industry has is that '24 is sort of the bottom when it comes to margins and profitability in risk-based businesses. Do you get the sense that you've scaled through it and weathered some of it and there's opportunity for an acceleration in sort of core economics as you look to '25 and '26 or let me know, I guess, how you're thinking about, you know, that sustainable growth outlook and where we sort of sit as far as your financials from a utilization perspective in '24?

Sure. No, thanks for the question. I want to start off quickly by remembering, you know, what the company looked like in 2019 when I joined this organization. We had done $561 million of revenue, $54.2 million of adjusted EBITDA. The point of guidance for this year is $1.75 billion of revenue and $175 million of adjusted EBITDA. That is, we have grown the business at a 26% CAGR clip on both the top and the bottom lines for five years in a row. And that's not going to change going forward. That's something that we have the proven ability to manage through, whether a cycle comes, a cycle goes, companies come, peers come, peers go. Our model has been durable. It is diversified across lines of business. It is now becoming increasingly diversified across geography, and it is backed by a world-class data engineering team and software engineering platform that allows us to have visibility into the future that we think will serve us well as we take on more risk. Given the immediate levers that Chan had discussed, for example, some of the movement into - sorry, movement into full-risk contracts in California. We believe that already has - that already gives us strong visibility into that continued near-term revenue and EBITDA growth. And frankly, any geographies continuing to succeed are almost a cherry on top. But it is part of our growth algorithm to continue growing in one or two markets a year. We are seeing new markets so far ramp as expected, and we're very optimistic, especially given the business development pipeline, as I mentioned earlier, around where we can go for the next three to five years at least.

Really helpful color, Brandon. Appreciate it. Congrats again on the quarter and all the recent developments.

Thank you. Our next question comes from the line of Jailendra Singh with Truist Securities.

Thank you and thanks for taking my questions. First of all, I want to go back to BASS Medical Group Partnership topic. Was this a comparative process or more of an exclusive discussion? And there was some confusion on the loan that was offered to BASS as part of the inter-partnership. Maybe you can help clarify that as well.

Hi, Jailendra. Thank you for joining the call. It's great to hear from you. Yes, happy to answer those questions. Without saying too much, I would say that the process was a competitive one. We were not the only bidder in the process, and we are glad that we were chosen. And I think the durability of the model, that we've proven the growth - the consistent growth of that model, both on the revenue and adjusted EBITDA lines, were proof points, you know, for that group, among others, including our, you know, demonstration of our technology, the demonstration of our care models, the alignment mechanisms that we use, et cetera, to help win that process. But to answer your question, to our knowledge, it was a competitive process. Around the loan, I think we disclosed more information around the loan in our press release associated with our four-year earnings. So, I'm happy to answer any other questions around the loan if that has not been answered, but the intent is for them to invest those dollars alongside us to continue to expand the footprint of both primary and multi-specialty care across the San Francisco Bay Area.

Okay. And then my follow-up here is that I know you gave some color around revenue and EBITDA growth on a consolidated basis. I was just wondering if you can provide a little bit more color around expectations across the three business segments like care enablement, partners, and delivery, either directionally or qualitatively in terms of revenue growth and EBITDA trends in '24 versus last year?

Hi, Jailendra. Thanks for the question. The majority of our growth will be based in our partners division, since it is the majority of our revenue today. With our continued growth in relationships, as well as our rich BD pipeline, you will see a large portion of that growth come through partners. Enablement will grow equivalently to partners. And in terms of delivery, I would not - delivery will grow as it's grown historically. It won't scale at the level of partners.

Okay. And then my last one around this community family group acquisition, I believe when you announced the deal, it was expected to generate like around $190 million revenue and $25 million EBITDA. But based on some filings in California, it looks like perhaps it's generating a higher run rate of revenue. Is that driven by moving some of these lives to full risk with the RKK license that is being acquired here?

Yes, exactly, Jailendra. Thank you for doing the research there. That's great. I think we had previously noted that in the middle of 2023, when CFC was still a care enablement client of ours, that we had helped them successfully move from a partial risk to a full-risk construct. And the $190 million number was a trailing 12-month number as of the reported date. I forget exactly the date, but it was not including the full year impact of that change from partial risk to full risk. That's also part of why we had previously noted in previous calls that there was infrastructure we had invested in, technology, people, services, et cetera, operations in 2022 and '23 in order to fully enable that shift of our care enablement clients, you know, close to 200,000, maybe 190,000 members into a four-way construct. That's also why we guided to us being confident that we can redo this or continue to do this rather across both our own Restricted Knox Keene license that we had already had as well as the one that we hope to close on that Chan mentioned earlier sometime, you know, by the end of Q1. So, to answer your question, yes, that was part of the impact was the movement into the Restricted Knox Keene full-risk construct for the 190,000 or so members.

Great. Thanks, guys.

Thank you so much, Jailendra.

Thank you. Our next question comes from the line of Gary Taylor with TD Cowen. Please proceed with your question.

Hi. Good evening. Most of my questions answered. Just wanted to ask a couple. You talked about just a little bit of elevated trend in MA and obviously you're moving increasingly to full risk. How are you guys tackling supplemental benefits, particularly around OTC and flex that really seem to catch a lot of capitated groups off guard because one, they haven't carted those out and two, they haven't been able to find much ability to impact that benefit consumption.

Hi, Gary, good to hear from you. So, it is a continuous focus within the California market, especially Los Angeles County being one of the most competitive in terms of OTC and supplemental benefits. Over time, we've worked with the plans to get to the appropriate contract type that allows us to make sure we are getting the appropriate dollars that we need to take care of the members and we're not impacted by potential changes around OTC benefits and other supplementary benefits.

Also, there's good payer diversity in terms of the percentage of our revenue that comes from any one health plan. And so, there is, you know, there's a bit of a hedge across our business, across both lines of business, you know, Medicaid and Medicare, commercial as well as in terms of which plan that we are talking about in terms of these specific subliminal benefits involved.

Got it. Well, apparently some pretty good foresight there, then, versus peers. My last one would just be, my understanding is California DHCS is going to hold Restricted Knox-Keene and other risk-bearing groups to 85% MLR in 2025, but the actual formula for how that will be calculated hasn't been finalized in the regs, or at least I haven't seen it. Do you know if those regs are finalized, and then how do you think about that minimum MLR impacting your shift to full risk in California in the next couple of years?

Yes, it's a great question, Gary. First part of your question, the regs have not yet been finalized, and we're working closely with other providers in the coalition to better understand the regulations as they're coming together. In terms of the second part of your question, you are right. There is this DHCS requirement associated with the Medi-Cal book of business and the MLR associated with it. Now I just want to remind you we have multiple lines of business and we believe we will be able to work through this as we have done with other regulatory changes within the state.

Thank you. There are no further questions at this time.

Thank you all for joining our earnings call today and for discussing some of the results from our 2023 full year, as well as some of our guidance for 2024. We greatly appreciate the time you spent this evening. And please reach out to us at [email protected] if you have any further questions. Thank you again and good evening.

Thank you. That concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.