Note: This is an earnings call transcript. Content may contain errors.

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Date

Thursday, October 30, 2025 at 5 p.m. ET

Call participants

Chief Executive Officer — John Kao

Chief Financial Officer — James Head

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Takeaways

Health Plan Membership – 229,600 members, reflecting 26% year-over-year growth.

Revenue – $994 million in revenue, representing a 44% year-over-year increase, primarily attributed to new member sales momentum.

Adjusted Gross Profit – Adjusted gross profit was $127 million, a 58% year-over-year gain, with outperformance supported by disciplined clinical operations.

Medical Benefit Ratio (MBR) – 87.2%, improving 120 basis points year over year, indicating enhanced risk management and care delivery.

Adjusted SG&A Ratio – 9.6%, an improvement of 120 basis points year over year, attributed to platform scalability and timing benefits in the period.

Adjusted EBITDA – $32 million of adjusted EBITDA, delivering a 3.3% margin and exceeding the high end of prior adjusted EBITDA guidance for the third consecutive quarter.

Cash, Cash Equivalents, and Investments – $644 million at quarter-end, with cash flow boosted by delayed medical expense payments, expected to normalize in coming quarters.

Full-Year Guidance Upward Revision – Midpoint revenue outlook raised by $41 million to nearly $4 billion for full year 2025, following stronger-than-expected membership growth; year-end 2025 membership guidance also raised by 2,000 members at the midpoint.

Full-Year Adjusted EBITDA Guidance – Full-year 2025 adjusted EBITDA is expected to range from $90 million to $98 million, an $18 million midpoint increase, following sustained operating outperformance.

STAR Ratings – 100% of health plan members are in plans rated at least four stars for rating year 2026, payment year 2027, including nine consecutive years of four-plus stars for the California HMO contract and two five-star contracts in North Carolina and Nevada.

Product Design Stability – Management reaffirmed that benefits remain “generally stable to modestly down” across products for the upcoming plan year, according to John Kao, supporting growth while managing through the final phase-in of V ’28 and industry dynamics.

2026 Growth Expectation – CEO Kao stated, “we are confident that we are on track to grow at least 20% year over year,” based on early AEP results for the upcoming plan year.

Shared Risk Business Model – Management reported 65%-70% of business in shared risk arrangements in California, leading to improved clinical and financial outcomes for partners.

Adjusted Gross Profit and EBITDA Guidance Accuracy – Operating performance resulted in the third consecutive quarter exceeding the high end of both adjusted gross profit and adjusted EBITDA guidance ranges, as highlighted by management.

Summary

raising full-year guidance for all major metrics in 2025 in light of robust new member sales and operational execution. Management emphasized the organization’s ability to manage risk and deliver quality outcomes, as evidenced by sustained high STAR ratings in California and strong current ratings in North Carolina, Nevada, and Texas and a track record of scaling clinical models while preserving margin expansion. Guidance reflects the expectation for continued high membership growth of at least 20% into 2026, supported by stable core benefits and ongoing investment in technology, automation, and brand positioning to drive future operational efficiency and market differentiation.

CEO Kao described investments in automation, AIVA AI, and back-office efficiencies as key drivers for further margin and quality improvements, with anticipated benefits extending into 2026 and 2027.

“Outperformance in our revenue growth was predominantly driven by continued momentum in our new member sales during the quarter,” CFO Head said, attributing the revenue surge to sales success rather than benefit changes.

Management noted early AEP activity yielded both higher-than-expected retention and strong gross new adds, indicating balanced momentum in member acquisition and retention without over-reliance on any single source.

On M&A and supplemental benefits strategy, CEO Kao stated the company is “being very discerning” with tuck-in opportunities, specifically targeting vertical integration to capture margin on supplemental products with minimal execution risk.

Industry glossary

STAR Ratings: CMS system for rating Medicare Advantage plans on quality and performance, affecting bonus payments and consumer appeal.

MBR (Medical Benefit Ratio): Proportion of premium revenues spent on medical claims, a key measure of healthcare cost management.

AIVA AI: Alignment’s proprietary artificial intelligence platform used for clinical stratification and operational decision-making.

V ’28: The CMS risk adjustment model update being phased in over three years and referenced regarding impacts on reimbursement and strategic planning.

AEP (Annual Enrollment Period): The period when Medicare beneficiaries can enroll in or switch Medicare Advantage plans.

Shared Risk Arrangements: Payment models where provider partners share in the responsibility (and potential gains/losses) for managing patient care costs and quality.

Full Conference Call Transcript

John Kao: And thank you for joining us on our third quarter earnings conference call. For the third quarter of 2025, we exceeded the high end of each of our guidance metrics. Health plan membership of 229,600 members represented growth of approximately 26% year over year. Strong health plan membership growth supported total revenue of $994 million, increasing approximately 44% year over year. Adjusted gross profit of $127 million increased by 58% year over year. This produced a consolidated MBR of 87.2%, an improvement of 120 basis points over the prior year. Finally, our adjusted SG&A ratio of 9.6% improved by 120 basis points year over year.

Taken together, we delivered adjusted EBITDA of $32 million, suddenly surpassing the high end of our adjusted EBITDA guidance. Our third quarter results now mark the third consecutive quarter in which we surpassed the high end of our adjusted gross profit and adjusted EBITDA guidance ranges and raised the full-year guidance. These results were underpinned by inpatient admissions per thousand in the low one-forties and demonstrate the power of our ability to manage risk and Medicare Advantage by placing care delivery at the center of our operations.

As we’ve demonstrated in 2024 and through our year-to-date performance in 2025, our unique model has positioned us to succeed amidst a paradigm shift in the industry marked by lower reimbursement and higher star standards. We continue to make investments that will improve operations through back-office automation, clinical engagement, AIVA AI clinical stratification, and STARS durability. These investments will further separate us from our competitors. For the full year, we now expect to deliver $94 million of adjusted EBITDA at the midpoint of our guidance range in 2025, compared to our initial full-year guidance of $47.5 million at the midpoint. Jim will expand further on guidance in his remarks.

Moving to STAR’s results, 100% of our health plan members are in plans that will be rated four stars or above for rating year 2026, payment year 2027, compared to the national average of approximately 63%. We are once again demonstrating the consistency and replicability of our high-quality outcomes across each of our markets. For starters, our California HMO contract earned a four-star rating. This is its ninth consecutive year rated four stars or higher. Meanwhile, our competitors in the state only have approximately 70% of members in plans rated four stars or higher for payment year 2027.

Our ability to consistently earn high stars results from AIVA’s centralized data architecture that provides our organization and clinical resources with the cross-functional visibility to execute on each star’s metric. In addition to our strong California performance, we now have two five-star contracts in North Carolina and Nevada. Furthermore, we are in 4.5 stars in Texas in its first rating year. Our results outside of California not only demonstrate our commitment to quality but also underscore the replicability of our outcomes across geographies, demographics, and provider relationships. Our latest results set us apart from our peers and create additional funding advantages in payment year 2027.

Looking ahead, we believe the improvement we made to the raw star score of our California HMO plan in rating year 2026 sets a solid foundation for rating year 2027, payment year 2028. Furthermore, we believe CMS’s transition to the excellent health outcomes for all reward, formerly known as the health equity index, will add cushion to our four-star rating in California. This change rewards health plans that effectively serve the most vulnerable low-income seniors, including those who are dually eligible. Our model is particularly well-suited to manage this population with the clinical expertise and high-touch care provided by our Care Anywhere teams.

Most importantly, we believe the move toward a bonus factor that focuses on clinical outcomes furthers CMS’ mission to create greater alignment between quality and reimbursement. Lastly, I’d like to share some early thoughts on the 2026 AEP. For the upcoming plan year, we are continuing to take an approach towards balancing membership growth and profitability objectives consistent with our strategy in past years. Our ability to deliver low cost through our care management capabilities is creating the capacity to keep benefits across our products generally stable to modestly down. We believe this disciplined approach supports our growth objectives while staying mindful of the third and final phase-in of V ’28.

Given continued disruption in the MA industry in 2026, we believe there will be an incremental opportunity to take share while growing adjusted EBITDA year over year. Based on the strength of our early AEP results, we are confident that we are on track to grow at least 20% year over year. Consistent with our approach in past years, our sales operations are focused on matching seniors with the right products that support their lifestyle and growing in markets where we have the strongest provider relationships. We’re very encouraged by the early activity this selling season and look forward to sharing our full results with investors after the conclusion of the 2026 AEP.

Taken together, our core competency in care management, continuous improvement in member experience, and ongoing investments in AIVA AI are all positioning us for further improvements to quality and outcomes. We believe we are the best Medicare solution for seniors everywhere and we look forward to serving even more seniors across our markets in 2026. Now I’ll turn the call over to Jim to further discuss our financial results and outlook. Jim?

James Head: Thanks, John. I’m pleased to share our results for the third quarter, which were underpinned by strong execution across the board. For the third quarter, health plan membership of 229,600 increased by 26% year over year. Revenue of $994 million increased by 44% over the prior year. Outperformance in our revenue growth was predominantly driven by continued momentum in our new member sales during the quarter. Third quarter adjusted gross profit of $127 million grew 58% compared to the prior year. This represented an MBR of 87.2% and improved by 120 basis points year over year. Outperformance of both adjusted gross profit and MBR was driven by a continuation of disciplined execution of our clinical activities.

This drove inpatient admissions per thousand in the low January. Meanwhile, Part D modestly outperformed our expectations as growth in utilization trends moderated sequentially. Our Part D experience through the first nine months of the year gives us confidence that all of the moving parts related to the IRA changes have been appropriately captured and that we are on pace to meet the Part D margin assumptions embedded within our guidance. Turning to our operating expenses. Adjusted SG&A in the third quarter was $95 million and declined as a percentage of revenue by 120 basis points year over year to 9.6%. The year-over-year improvement to our SG&A ratio was driven by the scalability of our operating platform.

Additionally, we experienced a few million dollars of SG&A timing benefit in the third quarter that we expect to reverse in the fourth quarter, leaving our full-year SG&A outlook roughly unchanged. Taken together, adjusted EBITDA of $32 million resulted in an adjusted EBITDA margin of 3.3%, and represents 240 basis points of margin expansion compared to 2024. Moving to the balance sheet. We ended the third quarter with $644 million in cash, cash equivalents, and investments. Cash in the quarter was favorably impacted by the timing of certain medical expense payments, which resulted in higher operating cash flow during the third quarter.

This timing difference also increased our Q3 days claims payable but we expect this timing difference to normalize in the coming quarters. Our reserving methodology remains consistent, and excluding this timing effect, we estimate that total cash would have been modestly higher sequentially and days claims payable would have been flat to modestly higher year over year. Importantly, this had no impact on the P&L. Turning to our guidance. For the fourth quarter, we expect the following: Health plan membership to be between 232,500 and 234,500 members. Revenue to be in the range of $995 million to $1,010 million.

Adjusted gross profit to be between $104 million and $113 million and adjusted EBITDA to be in the range of negative $9 million to negative $1 million. For the full year 2025, we expect the following. Revenue to be in the range of $3,930 million to $3,950 million, adjusted gross profit to be between $474 million and $483 million, and adjusted EBITDA to be in the range of $90 million to $98 million. Building upon the strength of our third quarter results, we once again increased the full-year outlook for each of our guidance metrics. Given our year-to-date momentum on membership growth, we raised our year-end membership guidance by 2,000 members at the midpoint.

Expectations for higher membership also drove our full-year revenue outlook approximately $41 million higher at the midpoint, and we now expect to finish the year with nearly $4 billion of revenue for the full year 2025. Moving to our full-year profitability expectations. Our updated adjusted gross profit guidance of $479 million at the midpoint increased by $18 million. This implies an MBR of 87.9%, and reflects nearly 100 basis points of MBR improvement year over year. Similarly, we increased the midpoint of our adjusted EBITDA guidance by $18 million, flowing through the entirety of the increase to the midpoint of our adjusted gross profit outlook while full-year SG&A assumptions remain roughly unchanged.

Our guidance assumes a portion of the strong year-to-date ADK performance persists through the fourth quarter. However, as a reminder, the final months of the year are expected to have higher utilization due to the seasonal impact of the flu. Meanwhile, we continue to take a prudent stance to our Part B assumptions given significant changes to the program this year. Lastly, on seasonality. We expect our MBR in the fourth quarter to be higher than the third quarter due to the typical seasonality of medical utilization. As a reminder, our MBR seasonality in 2025 is not comparable to 2024 due to changes to the Part D program, and prior period reserve development in 2024.

On SG&A, we expect an increase in expenses during the fourth quarter associated with growth-related costs consistent with our past experience and the timing of certain expenses which we expect to land in the fourth quarter. In closing, consistent execution of our core capabilities in Care Management is taking root in our financial results in 2025. Reiterating John’s earlier remarks regarding 2026, we remain confident in our membership growth expectation of at least 20% given our progress during the early weeks of this selling season. We believe our balanced approach to growth and profitability positions us well as we close out the remainder of the year and prepare for 2026. With that, let’s open the call to questions. Operator?

Operator: Thank you. Ladies and gentlemen, to ask a question, please press 11 on your telephone, then wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Scott Fidel with Goldman Sachs. Your line is open.

Scott Fidel: First question, and John, appreciate the sort of early insight into the growth on 2026 likely to meet or exceed your 20% growth target? And know you’re not giving guidance at this point, but just curious around the comment that you made around the market share opportunities from industry disruption in clearly, we know there’s a lot of that right now for MA. How would you frame that in terms of thinking about that in the context of California versus the non-California markets?

John Kao: Yeah. Hey, Scott. Yeah. I’d say very, very pleased with across the board growth in California. And really leveraging the five stars in North Carolina and Nevada. So we’re very pleased about the geographic kind of composition of the growth. I’d say even more importantly is kind of the product mix. And the kind of provider networks that we think are very high performing and where the growth is actually occurring. And so I think for all those reasons, we’re very, very pleased just you know, we’re only two weeks into this thing. So yeah, I wanna get too far ahead of ourselves, but know, two weeks in, we’re really pleased with it.

The only thing I would just remind everybody because I know there’s a concern that, you know, we’re gonna grow too much and we’re gonna pick up a bunch of bad business, etcetera, etcetera. I’m less worried about that simply because you know, we had a 60% growth year in 2024, and not only do we onboard it, well, we manage the risk really, really well. And I think we’re proving that we can scale the clinical model, or we can actually manage the polychronic population really, really well. So it’s just a core competency that we have that I’m not sure others can replicate at this point.

So for all those reasons, I’m very pleased as to where we are.

Scott Fidel: Got it. And, pull a quick question. John, I know that at a recent industry conference, you had talked about considerations around potentially pursuing some M&A or sort of partnership opportunities on the vertical integration side. To unlock the MLR opportunities particularly associated with supplemental benefits. And just curious around how you think about weighing or balancing the opportunities that would be related to that like improving the MLR versus the potential risks of sort of entering new markets that may have some different fundamental dynamics and then just maybe sort of moving away from sort of this sort of core strategy you’ve had that’s clearly been working you know, in terms of the focused, you know, strategy on MA?

Thanks.

John Kao: Yeah. Yeah. No. Good question, Scott. I’d say, you know, we’re looking at a lot of different opportunities. And to your point, we’re being very discerning. We’re being very, very careful. To the extent that there are tuck-in opportunities, I think we have to take those, you know, more seriously than others. Relative to, say, you know, buying books of business and completely new markets. I think we’re being very thoughtful about that. I would not I would not worry about that part of it. What I what I said at a prior conference was around basically supplemental benefits and tuck-in acquisitions related to what we would call captives, ancillary captives.

And when you talk about four to 5% of premium being really kind of applied to the supplemental business, and supplemental products. It just makes sense for us to if we bought or started, say, you know, some ancillary business, whether it be a dental PPO or a behavioral HMO or whatever it is. That we could seed it with, you know, 250,000 lives right off the bat. Kind of thing. And I think that there’s gonna be some margin improvement opportunity for us to do that. And I think we can do that with very little execution risk. Does that does that answer where you’re going?

Scott Fidel: Yeah. It does. Obviously, it’s gonna be an evolving story, but appreciate that insight. Thank you.

Operator: Please stand by for our next question. Our next question comes from the line Matthew Gillmor with KeyBanc. Your line is open.

Matthew Gillmor: Hey, thanks for the question. I wanted to follow-up on the 80 ks metric and the favor on inpatient costs. Think last call, John, you talked about giving providers more tools and more data and also maybe moving some of the and inpatient risk back to alignments. Balance sheet. Can you just remind us where you are in terms of risk sharing with physicians? And California, and how do you see that evolving during 2026 and beyond?

John Kao: Yeah. Hey, Matt. Great question. We’re we’re about 65 to somewhere between 65-70% is in what we would refer to as our shared risk business. And what that represents is really we’re we’re working with IPAs, particularly in parts of Southern California where we have shared risk arrangements where we’re managing the inpatient or we’re at risk for the inpatient risk. And what we have done starting last year is really take on more of the component. And we’ve done that in a way that is resulting in better clinical outcomes and improved financial outcomes for our IPA partners. And so it’s it’s kind of a win-win for everybody.

And the other third of the business is still kinda globally capitated. But I think I think you’re you’re gonna start seeing more and more of that shared risk business. I think it’s more durable overall. I think there’s gonna be less kind of abrasion with kind of global cap kinds of entities. You know, as there’s more and more shivering, it’s it’s more aligning longer term I think outside of California, you’re gonna have more shared risk and or directly track business. That’s where we really are the IPA.

You know, we are the network and we are supporting the practices in terms of not only making sure that all the stars gaps are closed the way we want and the risk adjustment gaps are closed the way we want. And, frankly, that’s what’s caused us to get to five stars. Know, in North Carolina, Nevada. We have more visibility and control with the direct providers PCP specialists, and the hospital partners. And so I think that’s a trend that you’re gonna see more and more from us.

And, really, I think the team’s done a very good job of about kind of doing what we it’s called de delegation of And we’ve done it in a win-win way, which is really important to us. Because we want to make sure that we’re aligned with the providers and that collective, we can provide better clinical outcomes and better benefits for the beneficiaries.

Matthew Gillmor: Got it. That’s helpful. As a follow-up, Jim had mentioned some favorability with SG&A, but that’s being reinvested. Can you dimension that a little bit, both in terms of the sizing and then also where that reinvestment is going? Should we think about stars or other items there?

James Head: Yeah. It sure thing. The SG&A, you know, against the consensus guidance was a handful million favorable. In Q3. And as you noticed, we didn’t adjust the full-year expectations for SG&A. We kept those intact. At around $385 million. So what you’re hearing from us is there was a little bit of, timing issue with respect to the investments we’re making. I would also say that we wanna be well-positioned for growth in 2026. And just make sure that we’ve got those, resources ready. And so really, it’s a timing issue. We kept our guidance intact and we outperformed a little bit in the third quarter. We think kind of get it back in Q4.

John Kao: Understood. Thank you, Hans. Really, in addition to Jim’s form is and it’s kind of a part of the question where you’re asking where are we investing is what we’re not talking a lot about yet, but we will. Just the continuous improvement that we’re making to improve automation across the entire organization. Improved AI logic in our care anywhere and AI. And just eve even more would say, kind of productivity improvements and efficiency in a lot of our clinical programs. All of that’s happening behind the scenes, and that’s gonna rear the where the where the dollars are being spent.

And I think I think these investments that we’re making now are really gonna start paying out to be more free for 2627.

Operator: Great. Thanks, guys. Thank you. Please standby for our next question. Our next question comes from the line of Michael Ha with Baird. Your line is open.

Michael Ha: Thank you. And thank you for commenting on the investor debate about doing too much growth. I wanted to quickly clarify first on the flip side, If you were to do less growth, I imagine that would only serve to further empower your EBITDA bridge since you have less lower margin new members. Is that fair to say as well? And then my real question on star ratings, and congrats on your star ratings results, back in September and today. Know you mentioned your overall raw star ratings score increased year to year. Well within four stars. If not, I think you mentioned very close to four and a half.

But when I double click into the contracts, three one five three four three, the summary ratings for part C and Part D seem to be three and a half. But the overall star rating, of course, is four point o. I know that there are certain measures excluded that go into that rating ending up at four. But I guess that face value imply your underlying ratings might have declined instead of improved. So I was wondering if you could help sort of reconcile your commentary on the raw star ratings improvement versus you know, the summary ratings that you know, what they appear to indicate.

John Kao: Yeah. Hey, Michael. It’s John. Yeah. No. Our overall raw score went up. Significantly from 3.7 know, whatever it was, five two or something like that to four point o five or four point o six. So we’re really happy about the raw score increases. I think you know, we can probably have a sidebar conversation with you on the mechanics of it. But, really, it’s it’s it’s a data science. This kind of how you think about the Part C, how you think about the Part D, and kind of all that goes into it. But the raw scores absolutely went up, and we’re happy about that.

Michael Ha: Okay. Got it. Thank you. K. Got it. And then on And then fine. Yeah. And then on G and A, sub 10%, you know, incredibly powerful. I know you’re aiming for some more improvement on g and a going forward. And I think you’re now actually planning for the first time to invest into your brand. I think I saw on LinkedIn, there’s a, like, a commercial video So I was wondering how should we think about the brand investment going forward? Seems like you’re implementing it starting this year. And I guess my main question is, how should we think about this new marketing effort in terms of evolving your member acquisition cost near term, long term?

I imagine driving member growth through marketing and advertisement might present on the cost side versus, say, you know, broker commission costs? Thank you. Yes. And Michael, I’ll take the first half. It’s Jim here.

James Head: And, I’ll let John talk about the brand. But as we continue to scale the business, there’s gonna be a natural decline in our SG&A ratio. But I think we’re gonna take a balanced approach to that. The sense that we want to continue investing in the business. And I would say it’s not just brand, which John will talk about in a minute, but it’s also making sure that we’re reinvesting back in our clinical infrastructure and the other parts of the business so we can, you know, continue to evolve our models, they have to step out of the competition.

So I think as we think longer term, the SG&A trends will go down, but we gotta be measured and balanced about it because we wanna continue to invest. So, John, over to you.

John Kao: Yeah. I think, Michael, the we’re just getting big enough that it’s an opportunity for us to establish not only a brand for alignment, but really, it’s an opportunity for us to demonstrate what is possible if you do Medicare Advantage the way it was designed to be, operated. This is why we always talk about MA done right. And I think it’s gonna start really representing what was kind of reflected in that ad, which is it’s all about serving seniors. Actually, the paradigm and the expectation, changing how people think about MA, and all the good that we do. And what all the good that MA can do.

And so I think we’re being very thoughtful about how to do that and, you know, what the brand is gonna stand for. So stay tuned for that.

Michael Ha: Thank you. Thank you.

Operator: Our next question comes from the line of Jessica Tassan with Piper Sandler. Hi, guys. Thanks for taking the question, and congrats on the really strong results. So I wanted to follow-up on AEP. Can you just maybe offer some perspective on retention versus gross new adds for ’26? Just interested in the dynamic between, obviously, a competitor with really rich dental benefits versus some service area exits from another competitor. Just how should we think about the composition of that 20% net AEP growth between retained members and gross new ads? Thanks. Yeah. We’re we’re happy with both, Jess.

John Kao: Gross ads are strong across the board. And retention is actually better than we anticipated. Across the board. So it’s it’s a it’s a both and situation, which is where we need to be. The investments we’ve made in member experience is paying off. It continues to pay off. So really, really happy with both.

Jessica Tassan: Okay. Got it. That’s helpful. And then just as we look at Plan Finder, it seems like alignment stands out from kind of a core benefits perspective. They’re really favorable on metrics like average medical move, average outpatient max cost sharing, but maybe a little less generous on supplemental benefits. Is this an appropriate conclusion? And can you just explain the rationale or the decision to structure benefits in this way? And then just secondarily, interested to know how alignment seems to be managing through Part D redesign despite having relatively low deductible and co pay versus coinsurance in tier three. Obviously, that’s working for you guys in ’25, and it looks like it’ll continue. Next year.

So just hoping for some comments on structure benefits. Yeah. Thanks.

John Kao: Yeah. No. It’s everything is designed around consistency for the beneficiaries. You know? Everything is year to year. We’re very thoughtful. Market by market. We’ve shared that with you all in the past. Market by market, business plans, strategies, and consistency for value creation for each beneficiary is really paramount. It’s the first thing we think about. And so you’re you’re you’re you’re absolutely right. We have taken the same kind of approach this past year as we have in the past. Very disciplined and detailed. Product design strategies. In our markets in California, part D is very competitive. So we didn’t make any material changes there.

There’s some shifts to coinsurance and a couple of different markets, but I think we’re we’re we’re we’re pretty stable. Across the board.

James Head: Yeah. John, I’d echo that. Stability is the name of the game. And as we said, you know, we’ve done a really good job executing against part D through 2025. And as we went into bids, you know, last year’s bids for this year, we were prudent and thoughtful about how we did it. But we were executing, well through 2025. And so we’re we’re kind of felt good about the stability in our benefits. And so we think that sets up well for next year. With respect to your supplemental question, you know, a lot of our thinking around that is gonna also be by not just the bid economics, but also by quality.

You know, can we ensure our fund members that we can provide direct quality of sufferable benefits. And so that’s just something we always think about. And in some cases, the answer is we couldn’t get ourselves comfortable with ensuring we were absolutely providing our best experience. And so we were it was just something that was factored into it in some of our in similar markets.

Jessica Tassan: Got it. Thank you. Thank you.

Operator: Please standby for our next question. Our next question comes from the line of Ryan Langston with TD Cowen. Your line is open.

Ryan Langston: Thanks. Good afternoon. I guess on the guidance I think you’ve raised the full-year EBITDA guidance four times over the last calendar year. I’m just trying to get an appreciation for what sort of levels you were thinking in your internal budgeting, or was this really sort of a legitimate surprise? I appreciate the conservative guidance. Just wondering how this stacks up versus of where you had initially expected the year to shake out.

James Head: Yeah. And this is this is the new person second call as CFO, but I would say the following. What’s happened this year is we’ve just had a lot of good execution in a very difficult year. Okay? So I guess a couple things coming into 2025 that were new to, the alignment in the industry, which is we continue to have the second step of V ’28 phase in. We had a brand new year of IRA. And we, you know, we had a unique to alignment was we had a very large cohort of new members. And so, against that backdrop and we, know, we weren’t ready to bet on final suites. From 2024.

So you had all those things swirling around as we set the set the year out. And, what’s happened throughout the course of the year is we’ve executed really well. And I would say executed across a whole variety of dimensions. Well. Whether it’s ADK, and some of the moves that we’ve, made with engaging with providers to manage utilization in a very constructive way. I think part D executed well for us across the board. We got some favorability from the final sweep. From our new members. And so there’s an aspect here of working through a pretty big change in the in the business and the model over the last year successfully.

And I think that points well for the future for us. One of the reasons why I joined.

Operator: Great. Just real quick. I appreciate the confidence in the 20% growth, but more just the industry growth. CMS is calling for basically flat year over year enrollment. I think the plan said they actually expect it to decline. Just wondering if you have any view on overall MA market growth in 2026.

Ryan Langston: Yeah. Yeah.

John Kao: California typically is lower than the industry, again, year to year. There’s a lot of disruption out there. There’s a lot of changes going on out there. And so, again, we feel very well positioned. On the gross side. And on the retention side.

Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Craig Jones with Bank of America. Your line is open.

Craig Jones: Great. So I was wondering, as we enter the final year of V ’28, do you have any thoughts on the likelihood of a potential V ’29 in the next few years? And if there is one, do you have any thoughts on the positive or negative implications using more encounter data as part of the risk adjustment calculation? Thanks. Yeah, hey Craig, good questions.

John Kao: I think you’re gonna see some changes. This is what we had popped some changes in respect to how CMS is gonna deal with HRAs. I think it’s gonna be more you know, shall we call it, you know, program integrity around ensuring there’d be clinical validation around an HRA. Same with kind of chart reviews. You know? The encounter-based baselining was referred to in last year’s advance notice. I don’t know if they’re gonna be implementing any of that in this advanced notice. I would be surprised, actually, It’s something that has been discussed. But in terms of how to operationalize it, in a timely way, again, I’d be surprised if it was introduced to impact 2027.

I think I think from a from a policy point of view, a lot of what you’re hearing about really is around, you know, kind of MA program integrity. So to speak. Making sure that you know, trust in the program is high. And kind of gaming is eliminated. I think that’s that’s what we see. And it’s unclear if they did go to an encounter-based baseline methodology. It’s kind of unclear as to what the net impact would be. It’s one of the reasons why we’re we don’t think it’s gonna get implemented. In for twenty seven.

Craig Jones: Got it. Thank you. And then just as a quick follow-up to a question earlier, I think you said your raw score for your primary plan was four dot o five. You’ve talked about how that HealthEquity invest next year will give you, like, a cushion think you said previously point two five. As a tailwind, although it’s being equal. Is that still correct? And then would that mean your primary plan? That’s right. Primary plan.

John Kao: About four and a half. Yep. For next year? For next year. Depending upon where the cut points end up, you know, that’s kinda what we mean by that. It does give us a little bit of cushion. But we just really aren’t sure what’s gonna happen with the cut points. Know, we thought you know, I thought that you know, they would not be as aggressive as they would as they were this past year. They were aggressive. We’re actually really happy with the fact that we still got the four stars for all of our members.

Think you’ve also heard me say in the past, I’m not gonna be happy until we get to five stars for every one of our plans. We’re making progress along that front. But your logic is right. What we don’t know is where the cut points will end up.

Craig Jones: Got it. Makes sense. Thank you.

Operator: Thank you. Our next question comes from the line of Andrew Mok with Barclays. Your line is open.

Andrew Mok: Wanted to follow-up on some of the seasonal flu comments in the context of what’s going on with the broader policy guidance on vaccines. Are you seeing any behavioral changes from seniors or vaccine uptake this year? If so, how are you managing that dynamic? Thanks.

James Head: Yes. It’s a question that we’ve been looking at internally, and we follow our essentially, our Part D cost, which is basically a lot of that is flu shots. And literally tracking it daily, weekly. It seems to be trending pretty much in line with what we’ve seen in the past. I’d say a little bit softer in Q3, but picking up in October. So I don’t think we see a material change in the trajectory of that. I think we’re mindful in Q4 of just kind of flu at it impacts both the Part B cost, but also you know, inpatient 80 k. Q4 is typically a seasonal quarter where that impacts us a little bit more.

So we are cautious about that, but it doesn’t seem to be anomalous.

Andrew Mok: Great. And as a follow-up, John, you made a number of comments today on continued investments in all things operational, clinical, Techstars, Can you help us understand how much of that investment spend is already captured in current spend versus what’s new or incremental? And it’d also be helpful to understand how much of that investment or that spend is directly earmarked for things like STARS, especially in the context of points moving higher? Thanks.

James Head: Well, I don’t think it’s any there’s no leaps and bounds types of investment. What we’re doing is we’re being very smart in applying investment dollars. I’m talking about OpEx and CapEx. Across the enterprise. We’ll that’ll be a little bit in the fourth quarter. What’s really impacting the fourth quarter is more making sure we’re prepared for growth as we typically are in Q4. But as we move forward, we’re making sure that we have enough room to make the investments you know, in the platform in our capabilities, in our human capital, etcetera, as we go forward. But none of it is a none of it is a, you know, dramatic.

It’s just making sure that we find room as we scale to reinvest back in the business and do it smartly. And we’re you know, one of the things that I’m very focused on is making sure that we’re really kinda underwriting that those investments smartly and making our choice as well.

Andrew Mok: Great. Thank you.

Operator: Thank you. Our next question comes from the line of Whit Mayo with Libert Partners. Your line is open.

Whit Mayo: Hey. Thanks. John, do you know what percent of competing plans in your markets were commissionable? Last year and how that compares to this year?

John Kao: I can’t answer that question. I actually don’t know the answer. I know what you’re doing. You have yeah. Do have a couple of plans stop paying commissions. But, you know, I actually don’t know. K. I mean, we can get back to you. K. Most are still paying. Just to be clear. Yeah. Yeah.

Whit Mayo: My follow-up was just on Radley. I was just wondering where we are on that, what the next steps are, and how prepared you think the organization is.

John Kao: Yeah. Yeah. And, you know, there’s a little bit of a pause in the action, as you know, with given the fact that, you know, this Humana case know, the courts overturned Rabi. Procedures, based on procedures act violations. But think our internal point of view is that CMS still has a lot of a lot of ways to pursue this. And we don’t think that it’s gonna go away. So our base case is that it’s gonna be here. It’s just a question of timing. But having said all that, we think we’re well positioned. Our compliance or documentation processes are really good. You know, we feel good about the operations and how we’ve set that up.

And, you know, and especially we’ve never been a organization that has really relied on risk adjustment as a as a revenue tool. So we’re just being prudent about that, but we do feel that the base case is that it’s gonna it’s gonna be there. You know, Washington is not letting go of this topic just yet.

Whit Mayo: Yep. Cool. Thanks.

Operator: Thank you. Our next question comes from the line of Jonathan Yong with UBS. Your line is open.

Jonathan Yong: Hey. Thanks for taking the question here. Just in relation to kind of AEP again, just you know, in terms of the lives that are coming on to your books, how do they look? What’s kind of the makeup in terms of, say, new to MA? There’s and who might be switching on to your books from elsewhere? Just curious on that particular dynamic. And if those members given the volatile we’ve seen in the market, kind of fit into the alignment model?

John Kao: Yes. It’s consistent. It’s it’s still, you know, between 80-85% for switchers. And, really, it’s across the board. It’s not really concentrated with any particular payer that we’re we’re taking share from. It’s kinda consistent across the board. And that’s and really, in all geographies as well.

Jonathan Yong: K. Great. And then just, you know, as we kinda just thinking forward a little bit here, but as we think about, say, next year, final year of V ’28, the pressures in the industry, generally speaking, should hopefully have abated at that point. How do you think about a potentially more competitive environment kind of looking in the medium term particularly with respect to possibly expanding more beyond your current markets into other states or geographies? Thanks.

John Kao: Yeah. Just remember, after B-twenty eight the final third year phase in 2026, They’re not going back to the ’24. I mean, so it’s still gonna be a tight reimbursement environment. Unclear what’s gonna happen on SARS. But I think the way that you should think about us is our ability to manage the care for our beneficiaries allows us to control the costs. And in this new world, of kicking away this is called the gaming associated with coding. The organizations that can provide the highest quality care at the lowest cost will ultimately be the be the winners. Which is why you’ve seen us do so well in ’24 and ’25.

And so when you when you kinda get it in ’26, that’s gonna be even, you know, emphasized even more. So we feel really good about how we’re positioned ’26, and beyond. And I think heading into ’27, you need to start looking at the wall you know, what exactly are they going to do from a policy perspective. And I think we’re all kinda waiting for that. I would just underscore what program integrity. I think it’s it’s it’s paramount to where CMS is focused.

Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Ryan Daniels with William Blair. Your line is open.

Ryan Daniels: Yeah. John, maybe one for you. I noticed during your prepared comments, you mentioned the term replicability several times in discussing your business model. I think we’re seeing that with the good star ratings outside of California. So number one, how is that also translating into MLR performance in overall margins in those newer markets? And then number two, given that you brought that up several times, it wasn’t lost on me. Is that an indication of more willingness from you and the Board to move into additional markets going forward? Thanks.

John Kao: Yes. Hey, Ryan. Yes, absolutely. What I’ve stated in the past is we really wanted to fund that growth from cash flow from operations. And, obviously, we’re we’re gonna kind of, you know, fulfill that promise. We’re being diligent in looking at both new markets within the existing state footprint. That’s gonna be the most capital efficient. Brand efficient as well. As well as looking at some new states for 2027. And so I think you’re gonna see us take a much more systematic kind of best you know, best practice playbook approach toward replicating into these new markets.

I think we’ve come a long way in the last few years with our confidence not only in how we deploy the care model, but how we ensure that our shared services can scale. In terms of ingesting the members, onboarding the members, and then caring for the members. I think that’s gonna be good for, for seniors everywhere. So we feel really comfortable about that.

Operator: Thank you. 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.