Alignment Healthcare Reports Second Quarter 2024 Results

Rhea-AI Summary

Alignment Healthcare (NASDAQ: ALHC) reported strong Q2 2024 results, with total revenue up 47.3% year-over-year to $681.3 million. The company saw exceptional Medicare Advantage membership growth of 56.1%, reaching approximately 175,100 members. Key financial highlights include:

- Adjusted gross profit: $76.8 million
- Loss from operations: $(18.4) million
- Medical benefits ratio: 88.7%
- Adjusted EBITDA: $6.0 million
- Net loss: $(24.0) million

Alignment Healthcare increased its year-end membership and revenue guidance while maintaining full-year adjusted gross profit and adjusted EBITDA guidance. The company's CEO, John Kao, expressed confidence in the firm's positioning for robust growth in 2025.

Positive

• Total revenue increased 47.3% year-over-year to $681.3 million
• Medicare Advantage membership grew 56.1% year-over-year to approximately 175,100 members
• Adjusted gross profit rose to $76.8 million
• Adjusted EBITDA improved to $6.0 million from $(2.1) million in Q2 2023
• Increased year-end membership and revenue guidance for 2024

Negative

• Net loss of $(24.0) million
• Loss from operations of $(18.4) million
• Medical benefits ratio of 88.7%, indicating high medical costs relative to premiums

Insights

Financial Analyst

Alignment Healthcare's Q2 2024 results demonstrate robust growth and improving financial health, signaling a potential turning point for the company. The 47.3% year-over-year revenue increase to $681.3 million is impressive, driven largely by a 56.1% surge in Medicare Advantage membership to approximately 175,100 members.

The company's adjusted gross profit of $76.8 million and adjusted EBITDA of $6.0 million indicate improving operational efficiency, despite a net loss of $24.0 million. The medical benefits ratio of 88.7% suggests reasonably good cost management in their core business.

Particularly noteworthy is the company's increased guidance for year-end membership and revenue while maintaining adjusted gross profit and adjusted EBITDA projections. This implies confidence in their ability to scale efficiently.

However, investors should monitor the ongoing net losses and the sustainability of the rapid membership growth. The company's ability to translate this growth into profitability will be important for long-term success in the competitive Medicare Advantage market.

Healthcare Industry Analyst

Alignment Healthcare's exceptional growth in the Medicare Advantage (MA) sector is a standout feature of their Q2 results. The 56.1% year-over-year membership increase outpaces the industry average, suggesting effective market penetration strategies and attractive plan offerings.

This growth is particularly significant given the competitive nature of the MA market and the increasing scrutiny from regulators on marketing practices. Alignment's ability to attract members at this rate indicates strong product-market fit and effective distribution channels.

The company's focus on operational efficiency is evident in the improving adjusted EBITDA, moving from a loss of $2.055 million in Q2 2023 to a positive $6.034 million in Q2 2024. This trend, if sustained, could lead to full-year profitability sooner than expected.

However, the ongoing net losses and the need for non-GAAP metrics to show profitability highlight the challenges in achieving sustainable profitability in the MA space. Investors should closely monitor Alignment's ability to maintain growth while improving bottom-line results in the coming quarters.

Market Research Analyst

Alignment Healthcare's Q2 results reveal a company capitalizing on the growing Medicare Advantage market, which is projected to cover nearly 50% of all Medicare beneficiaries by 2025. The company's membership growth rate of 56.1% significantly outpaces the industry average, suggesting they're capturing market share from established players.

The increase in revenue guidance for the full year, from a previous range of $2,550-2,580 million to $2,610-2,640 million, indicates strong momentum and confidence in continued growth. This upward revision, coupled with maintained profitability guidance, suggests improving operational leverage.

Interestingly, Alignment's success comes amid increased regulatory scrutiny of Medicare Advantage marketing practices. Their ability to grow rapidly in this environment may indicate strong word-of-mouth referrals and customer satisfaction, which could be a significant competitive advantage.

However, the market should watch for potential challenges in maintaining this growth rate as the company scales. The ability to manage medical costs effectively while expanding into new markets will be important for long-term success and eventual consistent profitability.

• Reports $681.3 million in total revenue, up 47.3% year-over-year
• Records strong Medicare Advantage membership growth, up 56.1% year-over-year to approximately 175,100 members, beating expectations
• Increases year-end membership and revenue guidance, and maintains full-year adjusted gross profit and adjusted EBITDA guidance
  

ORANGE, Calif., Aug. 01, 2024 (GLOBE NEWSWIRE) -- Alignment Healthcare, Inc. (NASDAQ: ALHC), today reported financial results for its second quarter ended June 30, 2024.

“Our exceptional health plan membership growth and strong margin results in the second quarter show we’re doing Medicare Advantage right,” said John Kao, founder and CEO. “With the scale we have added year-to-date and strong execution on our margin objectives, we're now at an inflection point on both growth and profitability. I’m confident that the progress we’re making in 2024 is firmly positioning us for another robust year in 2025.”

Second Quarter 2024 Financial Highlights
All comparisons, unless otherwise noted, are to the three months ended June 30, 2023

• Health plan membership at the end of the quarter was approximately 175,100, up 56.1% year over year
• Total revenue was $681.3 million, up 47.3% year over year. Revenue excluding ACO REACH was $682.0 million, up 57.8% year over year
• Adjusted gross profit was $76.8 million and loss from operations was $(18.4) million
  • Adjusted gross profit excludes depreciation and amortization of $6.5 million and selling, general, and administrative expenses of $87.9 million (which includes $16.0 million of equity-based compensation). Adjusted gross profit also excludes $0.02 million of restructuring costs and an additional $0.8 million of equity-based compensation recorded within medical expenses
  • Medical benefits ratio based on adjusted gross profit was 88.7%.
• Adjusted EBITDA was $6.0 million and net loss was $(24.0) million

Adjusted Gross Profit is reconciled as follows:

	Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
(dollars in thousands)
Loss from operations	$	(18,382	)		$	(23,659	)		$	(59,488	)		$	(56,148	)
Add back:
Equity-based compensation (medical expenses)		762				1,767				1,895				4,291
Depreciation (medical expenses)		46				69				98				130
Restructuring costs (medical expenses)(1)		21				—				796				—
Depreciation and amortization		6,493				5,195				12,470				10,116
Selling, general, and administrative expenses		87,863				70,199				178,375				140,607
Total add back		95,185				77,230				193,634				155,144
Adjusted gross profit	$	76,803			$	53,571			$	134,146			$	98,996

(1)  Represents severance and related costs incurred as part of a corporate restructuring designed to streamline our organizational structure and drive operational efficiencies.

Adjusted EBITDA is reconciled as follows:

	Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
(dollars in thousands)
Net loss	$	(24,003	)		$	(28,494	)		$	(70,578	)		$	(65,865	)
Less: Net (income) loss attributable to noncontrolling interest		(7	)			17				47				104
Adjustments:
Interest expense		5,691				5,262				11,118				10,281
Depreciation and amortization		6,539				5,264				12,568				10,246
Income taxes		22				1				22				2
Equity-based compensation(1)		16,784				15,636				37,638				37,614
Acquisition expenses(2)		12				548				12				680
Litigation costs (3)		401				—				721				—
(Gain) loss on ROU assets(4)		—				(289	)			143				(289	)
Restructuring costs(5)		595				—				2,363				—
Adjusted EBITDA	$	6,034			$	(2,055	)		$	(5,946	)		$	(7,227	)

(1) Represents equity-based compensation related to grants made in the applicable year, as well as equity-based compensation related to the timing of the IPO, which includes previously issued stock appreciation rights ("SARs") liability awards, modifications related to transaction vesting units, and grants made in conjunction with the IPO.

(2) Represents acquisition-related fees, such as legal and advisory fees, that are non-capitalizable.

(3) Represents litigation costs considered outside of the ordinary course of business based on the following considerations which we assess regularly: (i) the frequency of similar cases that have been brought to date, or are expected to be brought within two years, (ii) complexity of the case, (iii) nature of the remedies sought, (iv) litigation posture of the Company, (v) counterparty involved, and (vi) the Company's overall litigation strategy.

(4) Represents gains or losses related to ROU assets that were terminated or subleased in the respective period.

(5) Represents severance and related costs incurred as part of a corporate restructuring designed to streamline our organizational structure and drive operational efficiencies.

Outlook for Third Quarter and Fiscal Year 2024

	Three Months Ending September 30, 2024		Twelve Months Ending December 31, 2024
$ Millions	Low	High	Low	High
Health Plan Membership	176,000	178,000	178,000	180,000
Revenue	655	665	2,610	2,640
Adjusted Gross Profit(1)	75	81	280	310
Adjusted EBITDA(2)	—	6	(12)	12

_______________________

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, clinical restructuring costs 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, acquisition expenses, certain litigation costs, gains or losses on right of use ("ROU") assets, restructuring costs and equity-based compensation expense. 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 Details
The 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. A live audio webcast will be available online at https://ir.alignmenthealth.com/. At the start of the conference call, participants may access the webcast at the following link: https://edge.media-server.com/mmc/p/kd6mifpg. 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 Health
Alignment 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 offers more than 50 benefits-rich, value-driven Medicare Advantage plans that serve 53 counties across six 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 third quarter ending September 30, 2024 and year ending December 31, 2024. 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; our ability to develop and maintain satisfactory relationships with care providers that service our members; 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; and the impact of shortages of qualified personnel and related increases in our labor costs. 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, 2023, 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)
	June 30, 2024				December 31, 2023
Assets
Current Assets:
Cash and cash equivalents	$	339,007			$	202,904
Accounts receivable (less allowance for credit losses of $95 at June 30, 2024 and $0 at December 31, 2023)		183,214				119,749
Investments - current		24,701				115,914
Prepaid expenses and other current assets		52,191				44,970
Total current assets		599,113				483,537
Property and equipment, net		62,430				51,901
Right of use asset, net		8,085				9,959
Goodwill		34,826				34,826
Intangible Assets, net		5,201				5,252
Other assets		6,603				6,405
Total assets	$	716,258			$	591,880
Liabilities and Stockholders' Equity
Current Liabilities:
Medical expenses payable	$	315,369			$	205,399
Accounts payable and accrued expenses		23,336				23,511
Accrued compensation		32,834				34,112
Total current liabilities		371,539				263,022
Long-term debt, net of debt issuance costs		211,742				161,813
Long-term portion of lease liabilities		8,179				8,974
Total liabilities		591,460				433,809
Stockholders' Equity:
Preferred stock, $.001 par value; 100,000,000 shares authorized as of June 30, 2024 and December 31, 2023, respectively; no shares issued and outstanding as of June 30, 2024 and December 31, 2023		—				—
Common stock, $.001 par value; 1,000,000,000 shares authorized as of June 30, 2024 and December 31, 2023; 191,236,747 and 188,951,643 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively		191				189
Additional paid-in capital		1,074,303				1,037,015
Accumulated deficit		(950,789	)			(880,258	)
Total Alignment Healthcare, Inc. stockholders' equity		123,705				156,946
Noncontrolling interest		1,093				1,125
Total stockholders' equity		124,798				158,071
Total liabilities and stockholders' equity	$	716,258			$	591,880

Condensed Consolidated Statements of Operations (in thousands, except per share amounts) (Unaudited)
	Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
Revenues:
Earned premiums	$	674,094			$	456,877			$	1,295,650			$	891,689
Other		7,192				5,502				14,237				9,845
Total revenues		681,286				462,379				1,309,887				901,534
Expenses:
Medical expenses		605,312				410,644				1,178,530				806,959
Selling, general, and administrative expenses		87,863				70,199				178,375				140,607
Depreciation and amortization		6,493				5,195				12,470				10,116
Total expenses		699,668				486,038				1,369,375				957,682
Loss from operations		(18,382	)			(23,659	)			(59,488	)			(56,148	)
Other expenses:
Interest expense		5,691				5,262				11,118				10,281
Other income, net		(92	)			(428	)			(50	)			(566	)
Total other expenses		5,599				4,834				11,068				9,715
Loss before income taxes		(23,981	)			(28,493	)			(70,556	)			(65,863	)
Provision for income taxes		22				1				22				2
Net loss	$	(24,003	)		$	(28,494	)		$	(70,578	)		$	(65,865	)
Less: Net (income) loss attributable to noncontrolling interest		(7	)			17				47				104
Net loss attributable to Alignment Healthcare, Inc.	$	(24,010	)		$	(28,477	)		$	(70,531	)		$	(65,761	)
Total weighted-average common shares outstanding - basic and diluted		190,891,787				185,991,460				189,948,725				184,560,652
Net loss per share - basic and diluted	$	(0.13	)		$	(0.15	)		$	(0.37	)		$	(0.36	)

Condensed Consolidated Statements of Cash Flows (in thousands) (Unaudited)
	Six Months Ended June 30,
		2024				2023
Operating Activities:
Net loss	$	(70,578	)		$	(65,865	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for credit loss		95				51
Loss (gain) on right of use assets		143				(289	)
Depreciation and amortization		12,568				10,246
Amortization-investment discount		(1,762	)			(1,716	)
Amortization-debt issuance costs		612				734
Equity-based compensation		37,638				37,614
Non-cash lease expense		930				1,348
Changes in operating assets and liabilities:
Accounts receivable		(63,560	)			3,914
Prepaid expenses and other current assets		(7,221	)			(35,077	)
Other assets		92				(112	)
Medical expenses payable		109,970				37,063
Accounts payable and accrued expenses		1,373				(8,996	)
Deferred premium revenue		(310	)			147,169
Accrued compensation		(1,278	)			(1,632	)
Lease liabilities		(1,421	)			(2,165	)
Net cash provided by operating activities		17,291				122,287
Investing Activities:
Purchase of investments		(40,000	)			(156,943	)
Maturities of investments		132,525				36,150
Acquisition of property and equipment		(22,854	)			(15,845	)
Net cash provided by (used in) investing activities		69,671				(136,638	)
Financing Activities:
Proceeds from long-term debt		50,000				—
Debt issuance costs		(512	)			—
Payment of employment taxes related to release of restricted stock		(350	)			—
Contributions from noncontrolling interest holders		15				60
Net cash provided by financing activities		49,153				60
Net increase (decrease) in cash		136,115				(14,291	)
Cash, cash equivalents and restricted cash at beginning of period		204,954				411,299
Cash, cash equivalents and restricted cash at end of period	$	341,069			$	397,008
Supplemental disclosure of cash flow information:
Cash paid for interest	$	10,247			$	8,986
Supplemental non-cash investing and financing activities:
Acquisition of property in accounts payable	$	122			$	42

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

	June 30, 2024				June 30, 2023
Cash and cash equivalents	$	339,007			$	395,258
Restricted cash in other assets		2,062				1,750
Total	$	341,069			$	397,008

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, acquisition expenses, certain litigation costs, gains or losses on right of use ("ROU") assets, restructuring costs and equity-based compensation expense.

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, equity-based compensation and clinical restructuring costs, 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, clinical restructuring costs 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 Zhuo
hzhuo@ahcusa.com

Media Contact
Priya Shah
mPR, Inc. for Alignment Health
alignment@mpublicrelations.com

FAQ

What was Alignment Healthcare's revenue growth in Q2 2024?

Alignment Healthcare (ALHC) reported a 47.3% year-over-year increase in total revenue, reaching $681.3 million in Q2 2024.

How much did Alignment Healthcare's Medicare Advantage membership grow in Q2 2024?

Alignment Healthcare (ALHC) saw a 56.1% year-over-year growth in Medicare Advantage membership, reaching approximately 175,100 members in Q2 2024.

What was Alignment Healthcare's adjusted EBITDA in Q2 2024?

Alignment Healthcare (ALHC) reported an adjusted EBITDA of $6.0 million for Q2 2024, an improvement from $(2.1) million in the same quarter of the previous year.

Did Alignment Healthcare update its guidance for 2024?

Yes, Alignment Healthcare (ALHC) increased its year-end membership and revenue guidance for 2024, while maintaining its full-year adjusted gross profit and adjusted EBITDA guidance.