John Johnson: Yes. Let me go through just how we do revenue recognition for MSSP. Typically, we will start recognizing revenue in the third quarter of the performance year. The first dollar of revenue we recognized for the ’23 performance year, which is Q3 of last year. Each quarter, we received from CMS an updated claims file, other external factors, regional benchmarks and risk adjustment information and so on. That allows us to narrow our actuarial range. Each quarter, we’re then doing a true-up based on that narrowed range. Our orientation is to be conservative here. As we’re doing that true-up each quarter, we’re remaining on the conservative end. We’re still booked well below where the percent shared savings came out 4Q 2022, for example. We’d expect to true-up to the final number in this Q3 when we get the final settlement information.
Jessica Tassan: That’s so helpful. My quick last question is, on the Medicaid re-determinations, did you see an incremental sequential headwind related to Medicaid re-determinations or was the number you cited in aggregate? Thanks.
John Johnson: Good question. That was incremental. And to said another way, cumulatively, since the whole process began, we have seen a headwind of $5.5 million per quarter, a headwind to adjusted EBITDA. That’s consistent with our expectations. It’s about where we thought the quarter would end.
Operator: The next question is from Ryan Daniels with William Blair.
Ryan Daniels: Thanks for taking the Congrats on the strong start to the year. I hate to ask another one on this, but you probably anticipated it. In regards to the leading indicators peaking in March and then declining in April, if we take a broader purview and look at the data through the first four months of the year acknowledging it’s somewhat limited due to change. But if we look at the four month period, how does that period reflect upon your guidance for the full year and assumptions for the performance rate?
John Johnson: It’s a good question, Ryan. I think what you are seeing here in our second quarter guide is that $10 million buffer that we talked about for the full year. And so, if March is a new normal, then we would initiate some of these contractual protections and we may be in the lower end of that guide. If March was an aberration and April is more normal, more like the rest of the year, then we could be close to the higher end of the guide. It’s always a little tricky in a risk business to draw a line between just two points. We’ve sought not to do that. But given the lower visibility, it feels appropriate at this time.
Ryan Daniels: A quick follow-up, if I could. Regarding the contract provisions you have, are those kind of automatic where you just go back with the data and there’s an agreement, for things like, if there’s increased cancer prevalence, that’s not your fault. You’re paid to manage the cases, not to avoid cases. Is it automatic? Or do you have to go back and actually kind of negotiate things with these payers? Depends on the specific contract. Generally speaking, the contracts will outline the specific calculations and corridors and there is a real mathematical element to it.
John Johnson : Ryan, it’s — I’ll add one of the comment to your question, but also Jeff’s question earlier that, as we said in the prepared remarks, this is not sort of a new territory for us. This is something we regularly participate in each year. It’s a little bit different this year given the data, but it’s not really a different process. So we understand how it works. We’ve done it multiple times in the past and are able to, I think, pretty accurately bake all that into our forecast. So when we reiterate this or just Q2, it’s with a lot of experience having done this many times before and have a pretty good sense of how it’ll play out.
Ryan Daniels : Yes, that’s a good call and I think there’s just heightened sensitivity to it, but that makes a ton of sense.
Operator: The next question is from Jailendra Singh with Truist Securities.
Jailendra Singh : I actually want to go back to the gross margin discussion. Can you speak to your 180 basis point decline the quarter? So MSSP revenue which came through likely helps in gross margin, but offsetting you called out more performance revenue, higher reserves, and claims visibility and authorization. Can you provide a little bit more that granularity, like on the individual buckets on those gross margin impact? And related to that, how do you think about gross margin trends first of the year?
John Johnson : Yes, let me take that last question first, Jailendra, and then I can add a little bit more color. As we’ve sort of gone through before, the biggest driver of our enterprise percent gross margin is the mix between performance suite and tech and services. And to what you saw in Q1, what you saw in Q4 true also was the impact of continued rapid growth in the performance suite, which has a lower gross margin. It’s also true that the Q1 gross margin is depressed, because of a lot of new go lives. For example, we had over $125 million of performance revenue in the quarter that was still relatively new and contributing minimally to the gross profit line. If you were to proforma that closer to target margins, that would increase enterprise gross margins by 230 basis points plus.
So as we think about gross margin trends across the year absent new go lives in the performance suite, we would anticipate them ticking up. As we think longer term, it is going to continue to be driven by the mix of our growth between the performance suite and the tech and services suite, which as I sort of highlighted in the prepared remarks, we seek to have a balance.
Jailendra Singh: Then my quick follow up, actually, I want to go back to 2025 MA final notice. Clearly a lot of focus there. I want to ask a question too is like, first how are your conversation with payers progressing in terms of carving out some risks for new customers are taking more risk with existing customers because of the cost pressure they’re seeing? And would be curious on your thoughts regarding potential membership changes that might occur in 2025 as some plants focus on pricing for margin. Just maybe provide some color there.
John Johnson: Seth, do you want to talk about the conversations?
