Alignment Healthcare, Inc. (NASDAQ: ALHC), a tech-enabled Medicare Advantage company, today reported financial results for its third quarter ended Sept. 30, 2022.

“Alignment Healthcare’s solid performance in the third quarter is a testament to the repeatability and scalability of our operating model,” said John Kao, founder and CEO. “The quarter shows how strategic long-term investments in our people and our technology allow us to effectively deliver durable financial results across the markets we serve.”

“Key to this success is Alignment’s proprietary data platform AVA® and the insights it provides across our business to drive value and innovation year after year, as evidenced by our 2023 star ratings,” Kao added. “Achieving 5 out of 5 stars in North Carolina in our first year and maintaining a notable 4 out of 5 stars for our HMO plan in California for the sixth consecutive year puts approximately 95% of our members in plans rated 4 stars or greater, at a time when the number of plans nationwide achieving 4- and 5-star ratings have dropped by double-digit percentages over the last year. This quarter’s results have added significant momentum to an already impressive first half of the year and drive confidence in our team’s ability to achieve our full-year financial targets.”

Third Quarter 2022 Financial HighlightsAll comparisons, unless otherwise noted, are to the three months ended Sept. 30, 2021.

  • Health plan membership at the end of the quarter was approximately 98,000, up 14.0% year over year
  • Total revenue was $360.3 million, up 22.8% year over year
  • Health plan premium revenue of $345.4 million represented 23.9% growth year over year
  • Adjusted gross profit was $49.5 million and loss from operations was ($33.4) million
    • Adjusted gross profit excludes depreciation and amortization of $4.5 million and selling, general, and administrative expenses of $76.5 million (which includes $16.8 million of equity-based compensation). Adjusted gross profit also excludes an additional $1.9 million of equity-based compensation recorded within medical expenses
    • Medical benefits ratio based on adjusted gross profit was 86.3%
  • Adjusted EBITDA was ($9.5) million and net loss was ($40.2) million
  • As of Sept. 30, 2022, total cash was $567.4 million, and debt was $165.0 million (excluding unamortized debt issuance costs)
    • Total cash includes an early payment of approximately $117 million from the Centers for Medicare & Medicaid Services, reflected in an increase to deferred premium revenue

Adjusted Gross Profit is reconciled as follows:

    Three Months EndedSeptember 30,   Nine Months EndedSeptember 30,
      2022       2021       2022       2021  
(dollars in thousands)                
Loss from operations   $ (33,410 )   $ (41,450 )   $ (76,533 )   $ (134,606 )
Add back:                
Equity-based compensation (medical expenses)     1,912       2,435       6,751       11,458  
Depreciation (medical expenses)     57       53       149       159  
Depreciation and amortization     4,456       4,080       12,586       11,725  
Selling, general, and administrative expenses     76,452       76,846       212,418       212,910  
Total add back     82,877       83,414       231,904       236,252  
Adjusted gross profit   $ 49,467     $ 41,964     $ 155,371     $ 101,646  
Adjusted gross profit %     13.7 %     14.3 %     14.5 %     11.7 %
Medical benefit ratio     86.3 %     85.7 %     85.5 %     88.3 %
                                 

Adjusted EBITDA is reconciled as follows:

    Three Months EndedSeptember 30,   Nine Months EndedSeptember 30,
      2022       2021       2022       2021  
(dollars in thousands)                
Net loss   $ (40,247 )   $ (45,816 )   $ (92,644 )   $ (147,452 )
Add back:                
Interest expense     4,605       4,414       13,496       12,991  
Depreciation and amortization     4,513       4,133       12,735       11,884  
Income taxes     167             167        
EBITDA     (30,962 )     (37,269 )     (66,246 )     (122,577 )
Equity-based compensation(1)     18,687       30,511       58,833       93,185  
Reorganization and transaction-related expenses(2)     579       457       579       4,058  
Acquisition expenses(3)     7       789       1,066       1,090  
Loss on sublease(4)                 509        
Loss on extinguishment of debt     2,196             2,196        
Adjusted EBITDA   $ (9,493 )   $ (5,512 )   $ (3,063 )   $ (24,244 )
(1) 2022 represents equity-based compensation related to grants made in the current year, as well as equity-based compensation related to the timing of the IPO, which includes previously issued stock appreciation rights liability awards, modifications related to transaction vesting units, and grants made in conjunction with the IPO. 2021 represents equity-based compensation related to the timing of the IPO as previously discussed. Equity-based compensation expense for the nine months ended September 30, 2021 includes $11.4 million related to the cash settlement of pre-IPO stock appreciation rights.
(2) Represents legal, professional, accounting and other advisory fees related to our pre-IPO corporate reorganization and the IPO that are considered non-recurring and non-capitalizable.
(3) Represents acquisition-related fees, such as legal and advisory fees, that are non-capitalizable.
(4) Represents loss related to right of use (“ROU”) assets that were subleased in the second quarter of 2022.
   

Outlook for Fourth Quarter and Fiscal Year 2022

    Three Months EndingDecember 31, 2022   Twelve Months EndingDecember 31, 2022
$ Millions   Low   High   Low   High
Health Plan Membership   98,000   99,000   98,000   99,000
Revenue   $338   $343   $1,410   $1,415
Adjusted Gross Profit1   $34   $37   $189   $192
Adjusted EBITDA2   ($30)   ($27)   ($33)   ($30)

_______________________

  1. Adjusted gross profit is a non-GAAP financial measure that is presented as supplemental disclosure, that we define as loss from operations before depreciation and amortization, clinical equity-based compensation expense, and selling, general, and administrative expenses. We cannot reconcile our estimated ranges for adjusted gross profit to loss from operations, the most directly comparable GAAP measure, and cannot provide estimated ranges for loss from operations, without unreasonable efforts because of the uncertainty around certain items that may impact loss from operations, including equity-based compensation expense and depreciation and amortization, that are not within our control or cannot be reasonably predicted.
  2. Adjusted EBITDA is a non-GAAP financial measure that is presented as supplemental disclosure, that we define as net loss before interest expense, income taxes, depreciation and amortization expense, reorganization and transaction-related expenses, equity-based compensation expense, loss on sublease and loss on extinguishment of debt. We cannot reconcile our estimated ranges for Adjusted EBITDA to net loss, the most directly comparable GAAP measure, and cannot provide estimated ranges for net loss, without unreasonable efforts because of the uncertainty around certain items that may impact net loss, including equity-based compensation expense and depreciation and amortization, that are not within our control or cannot be reasonably predicted.

Conference Call DetailsThe company will host a conference call at 5:30 p.m. EDT today to discuss these results and management’s outlook for future financial and operational performance. Participants can pre-register for or join the webcast at the start of the conference call by navigating to https://edge.media-server.com/mmc/p/bp29iep6. A live audio webcast will be available online at https://ir.alignmenthealth.com/. A replay of the call will be available via webcast for on-demand listening shortly after the completion of the call, at the same web links, and will remain available for approximately 12 months.

About Alignment HealthAlignment Health is championing a new path in senior care that empowers members to age well and live their most vibrant lives. A consumer brand name of Alignment Healthcare (NASDAQ: ALHC), Alignment Health is a tech-enabled Medicare Advantage company that offers more than 40 benefits-rich, value-driven plans that serve 38 counties across four states. The company partners with nationally recognized and trusted local providers to deliver coordinated care, powered by its customized care model, 24/7 concierge care team and purpose-built technology, AVA®. Based in California, the company’s mission-focused team makes high-quality, low-cost care a reality for members every day. As it expands its offerings and grows its national footprint, Alignment upholds its core values of leading with a serving heart and putting the senior first. For more information, visit www.alignmenthealth.com.

Forward-Looking Statements

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements include statements regarding our future growth and our financial outlook for the fourth quarter ending December 31, 2022, and year ending December 31, 2022. Forward-looking statements are subject to risks and uncertainties and are based on assumptions that may prove to be inaccurate, which could cause actual results to differ materially from those expected or implied by the forward-looking statements. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance. Important risks and uncertainties that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: our ability to attract new members and enter new markets, including the need for certain governmental approvals; our ability to maintain a high rating for our plans on the Five Star Quality Rating System; risks associated with being a government contractor; changes in laws and regulations applicable to our business model; risks related to our indebtedness, including the potential for rising interest rates; changes in market or industry conditions and receptivity to our technology and services; results of litigation or a security incident; the impact of shortages of qualified personnel and related increases in our labor costs; and the impact of COVID-19 on our business and results of operation. For a detailed discussion of the risk factors that could affect our actual results, please refer to the risk factors identified in our Annual Report on Form 10-K for the year ended December 31, 2021, and the other periodic reports we file with the SEC. All information provided in this release and in the attachments is as of the date hereof, and we undertake no duty to update or revise this information unless required by law.

 
Condensed Consolidated Balance Sheets(in thousands, except par value and share amounts)(Unaudited)
 
    September 30, 2022   December 31, 2021
Assets        
Current Assets:        
Cash   $ 567,446     $ 466,600  
Accounts receivable (less allowance for credit losses of $217 at September 30, 2022 and $111 at December 31, 2021, respectively)     88,220       58,512  
Prepaid expenses and other current assets     36,493       27,747  
Total current assets     692,159       552,859  
Property and equipment, net     35,577       30,358  
Right of use asset, net     6,085       7,853  
Goodwill and intangible assets, net     37,618       35,116  
Other assets     6,104       4,709  
Total assets   $ 777,543     $ 630,895  
Liabilities and Stockholders' Equity        
Current Liabilities:        
Medical expenses payable   $ 171,395     $ 125,886  
Accounts payable and accrued expenses     20,691       16,962  
Deferred premium revenue     116,767       469  
Accrued compensation     31,411       23,928  
Total current liabilities     340,264       167,245  
Long-term debt, net of debt issuance costs     160,677       150,620  
Long-term portion of lease liabilities     4,458       6,975  
Total liabilities     505,399       324,840  
         
Stockholders' Equity:        
Preferred stock, $.001 par value; 100,000,000 and 0 shares authorized as of September 30, 2022 and December 31, 2021, respectively; no shares issued and outstanding as of September 30, 2022 and December 31, 2021            
Common stock, $.001 par value; 1,000,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 187,263,976 and 187,193,613 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively     187       187  
Additional paid-in capital     947,295       888,547  
Accumulated deficit     (675,338 )     (582,694 )
Total Alignment Healthcare, Inc. stockholders' equity     272,144       306,040  
Noncontrolling interest           15  
Total stockholders' equity     272,144       306,055  
Total liabilities and stockholders' equity   $ 777,543     $ 630,895  

Condensed Consolidated Statements of Operations(in thousands, except per share amounts)(Unaudited)
 
    Three Months EndedSeptember 30,   Nine Months EndedSeptember 30,
      2022       2021       2022       2021  
Revenues:                
Earned premiums   $ 359,978     $ 293,275     $ 1,071,450     $ 869,014  
Other     370       191       898       485  
Total revenues     360,348       293,466       1,072,348       869,499  
Expenses:                
Medical expenses     312,850       253,990       923,877       779,470  
Selling, general, and administrative expenses     76,452       76,846       212,418       212,910  
Depreciation and amortization     4,456       4,080       12,586       11,725  
Total expenses     393,758       334,916       1,148,881       1,004,105  
Loss from operations     (33,410 )     (41,450 )     (76,533 )     (134,606 )
Other expenses:                
Interest expense     4,605       4,414       13,496       12,991  
Other expenses (income)     (131 )     (48 )     252       (145 )
Loss on extinguishment of debt     2,196             2,196        
Total other expenses     6,670       4,366       15,944       12,846  
Loss before income taxes     (40,080 )     (45,816 )     (92,477 )     (147,452 )
Provision for income taxes     167             167        
Net loss attributable to Alignment Healthcare, Inc.   $ (40,247 )   $ (45,816 )   $ (92,644 )   $ (147,452 )
                 
Total weighted-average common shares outstanding - basic and diluted     182,123,363       177,828,872       180,765,300       169,786,542  
Net loss per share - basic and diluted   $ (0.22 )   $ (0.26 )   $ (0.51 )   $ (0.87 )

Condensed Consolidated Statements of Cash Flows(in thousands)(Unaudited)
 
    Nine Months EndedSeptember 30,
      2022       2021  
Operating Activities:        
Net loss   $ (92,644 )   $ (147,452 )
Adjustments to reconcile net loss to net cash used in operating activities:        
Provision for credit loss     150       74  
Loss on sublease     510        
Depreciation and amortization     12,735       11,884  
Amortization-debt issuance costs and investment discount     1,608       1,681  
Amortization of payment-in-kind interest     2,943       3,118  
Equity-based compensation and common stock payments     58,833       81,786  
Non-cash lease expense     2,151       2,001  
Loss on extinguishment of debt     2,196        
Changes in operating assets and liabilities:        
Accounts receivable     (29,840 )     (6,731 )
Prepaid expenses and other current assets     (8,742 )     (11,829 )
Other assets     (137 )     8  
Medical expenses payable     45,509       15,402  
Accounts payable and accrued expenses     2,030       (539 )
Deferred premium revenue     116,298       96  
Accrued compensation     7,484       4,638  
Lease liabilities     (3,126 )     (2,779 )
Payment-in-kind interest     (14,122 )      
Net cash provided by (used in) operating activities     103,836       (48,642 )
Investing Activities:        
Purchase of business, net of cash received     (2,393 )      
Asset acquisition, net of cash received           (1,405 )
Purchase of investments     (2,825 )     (2,475 )
Sale of investments     2,425       1,425  
Acquisition of property and equipment     (17,317 )     (15,409 )
Net cash used in investing activities     (20,110 )     (17,864 )
Financing Activities:        
Repurchase of noncontrolling interest     (100 )     15  
Equity repurchase           (1,474 )
Issuance of long-term debt     165,000        
Debt issuance costs     (4,601 )      
Repayment of long-term debt     (143,179 )      
Issuance of common stock           390,600  
Common stock issuance costs           (29,011 )
Net cash provided by financing activities     17,120       360,130  
Net increase in cash     100,846       293,624  
Cash and restricted cash at beginning of period     468,350       207,811  
Cash and restricted cash at end of period   $ 569,196     $ 501,435  
Supplemental disclosure of cash flow information:        
Cash paid for interest   $ 22,447     $ 8,193  
Supplemental non-cash investing and financing activities:        
Acquisition of property in accounts payable   $ 290     $ 438  
Purchase of business in accounts payable   $ 375     $  
         

The following table provides a reconciliation of cash and restricted cash reported within the condensed consolidated balance sheets to the total above:

    September 30,2022   September 30,2021
Cash   $ 567,446     $ 500,485  
Restricted cash in other assets     1,750       950  
Total   $ 569,196     $ 501,435  
         

Non-GAAP Financial Measures

Certain of these financial measures are considered “non-GAAP” financial measures within the meaning of Item 10 of Regulation S-K promulgated by the SEC. We believe that non-GAAP financial measures provide an additional way of viewing aspects of our operations that, when viewed with the GAAP results, provide a more complete understanding of our results of operations and the factors and trends affecting our business. These non-GAAP financial measures are also used by our management to evaluate financial results and to plan and forecast future periods. However, non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP. Non-GAAP financial measures used by us may differ from the non-GAAP measures used by other companies, including our competitors. To supplement our consolidated financial statements presented on a GAAP basis, we disclose the following non-GAAP measures: Medical Benefits Ratio, Adjusted EBITDA and Adjusted Gross Profit as these are performance measures that our management uses to assess our operating performance. Because these measures facilitate internal comparisons of our historical operating performance on a more consistent basis, we use these measures for business planning purposes and in evaluating acquisition opportunities.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that we define as net loss before interest expense, income taxes, depreciation and amortization expense, reorganization and transaction-related expenses, equity-based compensation expense, loss on sublease and loss on extinguishment of debt.

Adjusted EBITDA should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted EBITDA in lieu of net loss, which is the most directly comparable financial measure calculated in accordance with GAAP.

Our use of the term Adjusted EBITDA may vary from the use of similar terms by other companies in our industry and accordingly may not be comparable to similarly titled measures used by other companies.

Medical Benefits Ratio (MBR)

We calculate our MBR by dividing total medical expenses excluding depreciation and equity-based compensation by total revenues in a given period.

Adjusted Gross Profit

Adjusted Gross Profit is a non-GAAP financial measure that we define as loss from operations before depreciation and amortization, clinical equity-based compensation expense, and selling, general, and administrative expenses.

Adjusted Gross Profit should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted Gross Profit in lieu of loss from operations, which is the most directly comparable financial measure calculated in accordance with GAAP.

Our use of the term Adjusted Gross Profit may vary from the use of similar terms by other companies in our industry and accordingly may not be comparable to similarly titled measures used by other companies.

Investor Contact Harrison Zhuohzhuo@ahcusa.com

Media Contact Maggie HabibmPR, Inc. for Alignment Healthcarealignment@mpublicrelations.com

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