DH

Devoted Health Financial Model

• Medicare Advantage plan for seniors with a differentiated cost model:
• Revenue formula: County benchmark × Plan risk score + STARS quality bonus.
• Devoted Health Guides: tech-enabled care-coordination teams to reduce medical costs.
• House-call medical group: owned clinical services that simultaneously lower total cost of care for the plan and generate revenue/margin for the medical group subsidiary.
• New technology stack reducing admin costs vs. legacy competitors.
• Lower churn via higher NPS → lower long-run sales costs.
• 4+ STARS rating yields a 5% CMS revenue uplift; 5 STARS allows year-round enrollment.

• Revenue = (County benchmark × Plan risk score) + STARS quality bonus.
• Average risk score assumption: 1.28 (2019), declining to ~1.15–1.16 (2020–2023) as cohort matures.
• Revenue is recognised on a per-member-month (PMPM) basis from CMS capitation payments.
• Medical Group earns separate revenue and margin by delivering clinical services.
• STARS bonus (4+ stars → +5% revenue) is a meaningful upside lever.

All figures from Slide 2 (draft financial projections; marked "Private & Confidential"):

Enrollment | Year | Members | Member-months | YoY Growth | | ----- | -------- | -------------- | ---------- | | 2019 | 5,000 | 45,000 | - | | 2020 | 15,750 | 154,500 | 243% | | 2021 | 33,650 | 343,800 | 123% | | 2022 | 64,358 | 667,890 | 94% | | 2023 | 103,722 | 1,105,311 | 65% |

Average risk score: 1.28 (2019) → 1.16 (2020) → 1.15 (2022–23).

Revenue ($000s) | Year | Revenue | YoY Growth | | ----- | -------- | ---------- | | 2019 | $52,870 | - | | 2020 | $166,806 | 216% | | 2021 | $370,351 | 122% | | 2022 | $721,860 | 95% | | 2023 | $1,193,144 | 65% |

P&L ($000s) | Line | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | | ----- | ----- | ----- | ----- | ----- | ----- | ----- | | Medical Expense | - | 49,146 | 145,313 | 320,236 | 611,248 | 1,002,184 | | % Revenue (MLR) | - | 93% | 87% | 86% | 85% | 84% | | Admin Expense (ex S&M) | 24,020 | 32,601 | 36,505 | 43,078 | 54,144 | 71,845 | | % Revenue | 61.7% | 21.9% | 11.6% | 7.5% | 6.0% | - | | Sales & Marketing | 7,315 | 8,830 | 21,009 | 30,364 | 45,831 | 57,918 | | % Revenue | - | 16.7% | 12.6% | 8.2% | 6.3% | 4.9% | | Operating Income | (31,335) | (37,708) | (36,022) | (23,327) | 10,637 | 61,197 | | % Revenue | - | 71.3% | 21.6% | 6.3% | 1.5% | 5.1% | | R&D Expense | 3,000 | 5,763 | 10,008 | 16,666 | 28,874 | 41,760 | | Taxes | 0 | 0 | 952 | 3,003 | 6,666 | 19,796 | | Net Income | (34,335) | (43,471) | (46,982) | (42,996) | (24,904) | (360) | | % Revenue | - | 82.2% | 28.2% | 11.6% | 3.4% | 0.0% |

Cash & Reserve Requirements ($000s) | | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | | | ----- | ----- | ----- | ----- | ----- | ----- | | Cumul. cash used (pre-reserves) | (34,335) | (77,806) | (124,787) | (167,783) | (192,687) | (193,046) | | Reserves | 10,000 | 14,000 | 34,802 | 52,769 | 98,236 | 147,398 | | % Revenue | - | 26.5% | 20.9% | 14.2% | 13.6% | 12.4% | | Cumul. cash used (incl. reserves) | (44,335) | (91,806) | (159,589) | (220,552) | (290,923) | (340,444) |

From Slide 1 ("Devoted unit economics in 2023, targeted, draft") - Year 5 cohort vs. benchmarks:

• "Year 5 Member" = Year 5 for a member enrolled in 2019 (i.e., 2023 cohort-level view).
• Industry benchmark source: 2017 annual financials, Humana Medical Plan Inc., Medicare line of business.
• Operating income for Devoted is a blended figure earned across health plan + medical group units.

• Incumbents referenced only via benchmark: Humana Medical Plan (5.0% operating margin at industry-best).
• Devoted's stated moat: proprietary tech stack (lower admin), owned care coordination and medical group (lower MLR), STARS quality execution (higher revenue), and higher NPS (lower churn, lower long-run S&M cost).
• No explicit competitive landscape slide in the three available slides.

• Archetype + why: Medicare Advantage GWP / Medical-Loss-Ratio (MLR) operating model - the core economics are capitation revenue driven by member count, risk score, and STARS rating; costs are primarily medical expense (MLR), admin, and S&M. This mirrors the standard managed-care P&L structure. The owned medical group adds a second revenue/margin stream that must be modelled separately and then consolidated. A 3-statement model (IS + BS + CF) is warranted given the significant upfront capital requirements and statutory reserve obligations shown in Slide 2.

• Forecast horizon & granularity: 2018–2023 (matching the deck's own 6-year projection); annual granularity for the base model. Monthly/quarterly detail for the cash-burn and reserve schedule given the regulatory capital-requirement nature of reserves.

• Key drivers & assumptions:
• Member enrollment growth: 5,000 (2019) → 103,722 (2023); growth rates 243%/123%/94%/65%
• Average risk score: 1.28 (2019) → 1.15–1.16 (2020–2023)
• County benchmark PMPM (CMS rate): proxy from CMS published MA benchmark; ~$850–$950 PMPM national average, escalating ~3–5%/yr - needs actual county selection to pin down
• STARS rating uplift: 4+ STARS = +5% revenue; model as a binary flag (achieved/not achieved) per year
• MLR (medical expense % of revenue): 93% (2019) → 84% (2023)
• Target Year-5 member-cohort MLR: 78.9% vs. 82.8% market and 84.1% industry
• Admin expense % of revenue: 61.7% (2018, pre-revenue year) → 6.0% (2023); scale-driven reduction
• Sales & Marketing % of revenue: 16.7% (2019) → 4.9% (2023); lower churn assumption drives decline
• R&D % of revenue: 10.9% (2019) → 3.5% (2023)
• Tax rate: ~35% effective rate implied by projections for 2022 ($3,003 on pre-tax income of ~$10.6K); calibrate to actuals
• Statutory reserves % of revenue: ~26.5% (2019) → ~12.4% (2023)
• Medical Group margin contribution: partially embedded in blended operating income; needs separate segment disclosure - model as incremental margin uplift vs. pure-health-plan MLR
• CAC ($ per new member): derived from S&M spend / new member adds - e.g., 2020 new members ~10,750, S&M $21M → ~$1,950/member; confirm

• Scenarios (Base / Bull / Bear - which variables flex):
• Base: enrollment and P&L per deck projections; STARS 4+ achieved from 2021
• Bull: STARS 5 achieved (year-round enrollment, higher revenue uplift); MLR tracks to 78.9% Year-5 target faster; churn below 10%
• Bear: STARS miss (no bonus, restricted enrollment windows); MLR stickier at 88–90% in early years; enrollment ramp 20% slower; county benchmark cuts by CMS

• Required sheets / outputs:

1. Assumptions & Drivers (risk score, PMPM benchmark, STARS flag, growth rates, margin %s)
2. Enrollment Schedule (members, member-months, new vs. retained vs. churned)
3. Income Statement (Revenue, Medical Expense, Admin, S&M, R&D, Operating Income, Taxes, Net Income - annual 2018–2023 + 5-yr beyond if desired)
4. Medical Group Segment P&L (separate revenue and margin, then consolidated)
5. Cash Flow & Reserve Schedule (cumulative cash used pre/post reserves; statutory reserve calculation)
6. Unit Economics Dashboard (PMPM revenue, MLR, admin ratio, S&M ratio, operating margin per cohort year)
7. Scenario Toggle (Base / Bull / Bear)