Alignment Healthcare Inc

Previous wording

Alignment is a next generation, consumer-centric platform designed to improve the healthcare experience for seniors. We deliver this experience through our Medicare Advantage plans, which are customized to meet the needs of a diverse array of seniors. Our innovative model of consumer-centric healthcare is purpose-built to provide seniors with care as it should be: high quality, low cost and accompanied by a vastly improved consumer experience. We combine a proprietary technology platform and a high-touch clinical model that enhances our members’ lifestyles and health outcomes while simultaneously controlling costs, which allows us to reinvest savings back into our platform and products to directly benefit the senior consumer. We have grown Health Plan Membership, which we define as members enrolled in our health maintenance organization ("HMO") and preferred provider organization ("PPO") contracts (the "Alignment Health Plans"), from approximately 13,000 at inception to 175,100 as of June 30, 2024, representing a 30% compound annual growth rate across 53 markets and 6 states. Our ultimate goal is to bring this differentiated, advocacy-driven healthcare experience to millions of senior consumers in the United States and to become the most trusted senior healthcare brand in the country.

Current wording

Alignment is a next generation, consumer-centric platform designed to improve the healthcare experience for seniors. We deliver this experience through our Medicare Advantage plans, which are customized to meet the needs of a diverse array of seniors. Our innovative model of consumer-centric healthcare is purpose-built to provide seniors with care as it should be: high quality, low cost and accompanied by a vastly improved consumer experience. We combine a proprietary technology platform and a high-touch clinical model that enhances our members’ lifestyles and health outcomes while simultaneously controlling costs, which allows us to reinvest savings back into our platform and products to directly benefit the senior consumers. We have grown Health Plan Membership, which we define as members enrolled in our health maintenance organization ("HMO") and preferred provider organization ("PPO") contracts (the "Alignment Health Plans"), from approximately 13,000 at inception to 182,300 as of September 30, 2024, representing a 30% compound annual growth rate across 53 markets and 6 states. Our ultimate goal is to bring this differentiated, advocacy-driven healthcare experience to millions of senior consumers in the United States and to become the most trusted senior healthcare brand in the country.

Previous wording

•Capitalize on Our Existing Market Growth Opportunity: Our ability to attract and retain members to grow in our existing markets depends on our ability to offer a superior value proposition. We have proven that we can compete against, and take market share from, large established players in highly competitive markets. According to CMS data, we were one of the top three Medicare Advantage Organizations in terms of HMO net members growth in our California counties between 2016 and 2024. There are approximately 4.7 million Medicare-eligible individuals enrolled in Medicare Advantage plans in our existing 53 counties, of which our approximately 175,100 Health Plan Members represent only 4% market share. We believe that there are still significant opportunities for future growth even in our most mature markets where we have a 10-35% market share. Additionally, we are evaluating other opportunities to leverage our historical investments in our technology platform and our comprehensive clinical model across our existing and potentially new geographies.

Current wording

•Capitalize on Our Existing Market Growth Opportunity: Our ability to attract and retain members to grow in our existing markets depends on our ability to offer a superior value proposition. We have proven that we can compete against, and take market share from, large established players in highly competitive markets. According to CMS data, we were one of the top three Medicare Advantage Organizations in terms of HMO net members growth in our California counties between 2016 and 2024. There are approximately 4.7 million Medicare-eligible individuals enrolled in Medicare Advantage plans in our existing 53 counties, of which our approximately 182,300 Health Plan Members represent only 4% market share. We believe that there are still significant opportunities for future growth even in our most mature markets where we have a 10-35% market share. Additionally, we are evaluating other opportunities to leverage our historical investments in our technology platform and our comprehensive clinical model across our existing and potentially new geographies.

Previous wording

We define Health Plan Membership as the number of members enrolled in our HMO and PPO contracts as of the end of a reporting period. We believe this is an important metric to assess growth of our underlying business, which is indicative of our ability to consistently offer a superior value proposition to seniors. This metric excludes third party payor members with respect to which we are at-risk for managing their healthcare expenditures, which represented 400 members as of June 30, 2024 and 2023. It also excludes the approximately 8,600 and 7,600 ACO REACH members as of June 30, 2024 and 2023, respectively.

Current wording

We define Health Plan Membership as the number of members enrolled in our HMO and PPO contracts as of the end of a reporting period. We believe this is an important metric to assess growth of our underlying business, which is indicative of our ability to consistently offer a superior value proposition to seniors. This metric excludes third party payor members with respect to which we are at-risk for managing their healthcare expenditures, which represented 400 members as of September 30, 2024 and 2023. It also excludes the approximately 8,500 and 7,400 ACO REACH members as of September 30, 2024 and 2023, respectively.

Previous wording

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 is a key measure used by our management and our Board to understand and evaluate our operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operating plans. In particular, we believe that the exclusion of the amounts eliminated in calculating Adjusted EBITDA provides useful measures for period-to-period comparisons of our business, as we do not consider the excluded items to be part of our ongoing results of operations. Given our intent to continue to invest in our platform and the scalability of our business in the short to medium-term, we believe Adjusted EBITDA over the long term will be an important indicator of value creation.

Current wording

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, gains or losses on sale of property and equipment, restructuring costs and equity-based compensation expense. Adjusted EBITDA is a key measure used by our management and our Board to understand and evaluate our operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operating plans. In particular, we believe that the exclusion of the amounts eliminated in calculating Adjusted EBITDA provides useful measures for period-to-period comparisons of our business, as we do not consider the excluded items to be part of our ongoing results of operations. Given our intent to continue to invest in our platform and the scalability of our business in the short to medium-term, we believe Adjusted EBITDA over the long term will be an important indicator of value creation.

Previous wording

(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.

Current wording

(2)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.

Previous wording

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

Current wording

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

Previous wording

(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.

Current wording

(4)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.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Earned Premiums. Earned premium revenues were $674.1 million and $456.9 million for the three months ended June 30, 2024 and 2023, respectively, an increase of $217.2 million or 47.5%. Earned premium revenues were $1,295.7 million and $891.7 million for the six months ended June 30, 2024 and 2023, respectively, an increase of $404.0 million or 45.3%. The increase was primarily driven by growth in our Health Plan membership, which increased 56.1% between June 30, 2023 and June 30, 2024. The increase was offset by a decrease in ACO REACH revenue due to the change from gross to net revenue treatment. ACO REACH revenue decreased $31.3 million, or 104.0%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 and decreased $63.2 million, or 101.6%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Current wording

Earned Premiums. Earned premium revenues were $684.5 million and $450.2 million for the three months ended September 30, 2024 and 2023, respectively, an increase of $234.3 million or 52.0%. Earned premium revenues were $1,980.1 million and $1,341.9 million for the nine months ended September 30, 2024 and 2023, respectively, an increase of $638.2 million or 47.6%. The increase was primarily driven by growth in our Health Plan membership, which increased 57.7% between September 30, 2023 and September 30, 2024. The increase was offset by a decrease in ACO REACH revenue due to the change from gross to net revenue treatment. ACO REACH revenue decreased $30.8 million, or 101.0%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 and decreased $94.0 million, or 101.4%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Previous wording

Other Revenue. Other revenue increased $1.7 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, an increase of 30.7%. Other revenue increased $4.4 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, an increase of 44.6%. The increase is mainly attributable to an increase in the interest rate of our interest earning cash balances and the change in gross to net revenue treatment for ACO REACH.

Current wording

Other Revenue. Other revenue increased $1.5 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, an increase of 22.6%. Other revenue increased $5.9 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, an increase of 35.9%. The increase is mainly attributable to an increase in the interest rate of our interest earning cash balances and the change in gross to net revenue treatment for ACO REACH.

Previous wording

Medical Expenses. Medical expenses were $605.3 million and $410.6 million for the three months ended June 30, 2024 and 2023, respectively, an increase of $194.7 million, or 47.4%. Medical expenses were $1,178.5 million and $806.9 million for the six months ended June 30, 2024 and 2023, respectively, an increase of $371.6 million, or 46.0%. The increase was driven primarily by the growth in Alignment’s Health Plan membership. Overall, medical expenses for the six months ended June 30, 2024 grew at a slightly higher rate than earned premium revenues compared to the six months ended June 30, 2023, primarily due to 2024 having a higher percentage of new members relative to returning members, richer member benefits and increases in unit costs, offset by lower inpatient admissions per thousand and the change in ACO REACH accounting.

Current wording

Medical Expenses. Medical expenses were $613.4 million and $397.9 million for the three months ended September 30, 2024 and 2023, respectively, an increase of $215.6 million, or 54.2%. Medical expenses were $1,792.0 million and $1,204.8 million for the nine months ended September 30, 2024 and 2023, respectively, an increase of $587.1 million, or 48.7%. The increase was driven primarily by the growth in Alignment’s Health Plan membership, which increased 57.7% between September 30, 2023 and September 30, 2024. Overall, medical expenses for the three and nine months ended September 30, 2024 grew at a slightly higher rate than earned premium revenues compared to the three and nine months ended September 30, 2023, primarily due to 2024 having a higher percentage of new members relative to returning members, richer member benefits and increases in unit costs, offset by lower inpatient admissions per thousand and the change in ACO REACH accounting.

Previous wording

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $87.9 million and $70.2 million for the three months ended June 30, 2024 and 2023, respectively, an increase of $17.7 million, or 25.2%. Selling, general and administrative expenses were $178.4 million and $140.6 million for the six months ended June 30, 2024 and 2023, respectively, an increase of $37.8 million, or 26.9%.The increase was primarily due to an increase in ongoing investments and expenditures in network development, operations and sales and marketing to drive the growth of Alignment's Health Plan membership. Selling, general, and administrative expenses grew at a slower rate than revenue for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 due to economies of scale gained from Alignment's 2024 membership growth.

Current wording

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $90.9 million and $83.1 million for the three months ended September 30, 2024 and 2023, respectively, an increase of $7.8 million, or 9.4%. Selling, general and administrative expenses were $269.2 million and $223.7 million for the nine months ended September 30, 2024 and 2023, respectively, an increase of $45.6 million, or 20.4%.The increase was primarily due to an increase in ongoing investments and expenditures in network development, operations and sales and marketing to drive the growth of Alignment's Health Plan membership. Selling, general, and administrative expenses grew at a slower rate than revenue for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023 due to economies of scale gained from Alignment's 2024 membership growth.

Previous wording

$2.4 million, or 23.3%. The increase was primarily due to the amount and timing of our capital expenditures and the associated depreciation relative to 2023.

Current wording

Depreciation and Amortization. Depreciation and amortization expense was $7.6 million and $5.5 million for the three months ended September 30, 2024 and 2023, respectively, an increase of $2.1 million, or 39.0%. Depreciation and amortization expense was $20.1 million and $15.6 million for the nine months ended September 30, 2024 and 2023, respectively, an increase of $4.5 million, or 28.8%. The increase was primarily due to the amount and timing of our capital expenditures and the associated depreciation relative to 2023. Additionally, for the three and nine months ended September 30, 2024, we recorded amortization expense of $0.6 million related to the impairment of intangible assets associated with an inactive medicare license that was terminated during the period.

Previous wording

Interest expense. Interest expense was $5.7 million and $5.3 million for the three months ended June 30, 2024 and 2023, respectively, an increase of $0.4 million or 8.2%. Interest expense was $11.1 million and $10.3 million for the six months ended June 30, 2024 and 2023, respectively, an increase of $0.8 million or 8.1%. The increase in interest expense was primarily due to a higher interest rate on our debt balance during the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023. The average interest rate during the three months ended June 30, 2024 and 2023 was 11.83% and 11.49%, respectively. The average interest rate during the six months ended June 30, 2024 and 2023 was 11.84% and 11.27%, respectively.

Current wording

Interest expense. Interest expense was $6.9 million and $5.5 million for the three months ended September 30, 2024 and 2023, respectively, an increase of $1.4 million or 25.5%. Interest expense was $18.1 million and $15.7 million for the nine months ended September 30, 2024 and 2023, respectively, an increase of $2.3 million or 14.7%. The increase in interest expense was partially due to an increase in the debt balance as a result of the $50.0 million draw down of the Oxford Delayed Draw term loan in June 2024. Additionally, we experienced a higher interest rate on our debt balance during the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023. The average interest rate during the three months ended September 30, 2024 and 2023 was 11.77% and 11.74%, respectively. The average interest rate during the nine months ended September 30, 2024 and 2023 was 11.77% and 11.35%, respectively.

Previous wording

Other income, net. Other income was $(0.1) million and $(0.4) million for the three months ended June 30, 2024 and 2023, respectively, a decrease of $0.3 million or (78.5)%. Other expenses (income) were $(0.1) million and $(0.6) million for the six months ended June 30, 2024 and 2023, respectively, a decrease of $0.5 million or (91.2)%. The decrease is primarily attributable to a gain recorded for the three months ended June 30, 2023 related to ROU assets that were subleased.

Current wording

Other income, net. Other income was $(0.02) million and $(0.1) million for the three months ended September 30, 2024 and 2023, respectively, a decrease of $0.1 million or (80.0)%. Other income was $(0.1) million and $(0.7) million for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $0.6 million or (85.7)%. The decrease is primarily attributable to the timing of gains and losses related to ROU assets subleased during the respective periods.

Previous wording

To date, we have financed our operations principally through our IPO, private placements of our equity securities, revenues, and certain term loans (described below). As of June 30, 2024, we had $363.7 million in cash, cash equivalents and short-term investments.

Current wording

To date, we have financed our operations principally through our IPO, private placements of our equity securities, revenues, and certain term loans (described below). As of September 30, 2024, we had $381.0 million in cash, cash equivalents and short-term investments.

Previous wording

We operate as a holding company in a highly regulated industry. Alignment Healthcare, Inc., our parent company, is dependent upon dividends and administrative expense reimbursements from our subsidiaries, most of which are subject to regulatory restrictions. We maintain significant levels of aggregate excess statutory capital and surplus in our state-regulated operating subsidiaries. As of June 30, 2024, our operating parent company (an indirect wholly owned subsidiary of our parent company) had $140.5 million in cash, cash equivalents and short-term investments.

Current wording

We operate as a holding company in a highly regulated industry. Alignment Healthcare, Inc., our parent company, is dependent upon dividends and administrative expense reimbursements from our subsidiaries, most of which are subject to regulatory restrictions. We maintain significant levels of aggregate excess statutory capital and surplus in our state-regulated operating subsidiaries. As of September 30, 2024, our operating parent company (an indirect wholly owned subsidiary of our parent company) had $104.8 million in cash, cash equivalents and short-term investments.

Previous wording

Certain states in which we operate as a CMS-licensed Medicare Advantage company may require us to meet certain capital adequacy performance standards and tests. The National Association of Insurance Commissioners has adopted rules which, if implemented by the states, set minimum capitalization requirements for insurance companies, HMOs, and other entities bearing risk for healthcare coverage. The requirements take the form of risk-based capital (“RBC”) rules, which may vary from state to state. Certain states in which our health plans or risk bearing entities operate have adopted the RBC rules.

Current wording

Certain states in which we operate as a CMS-licensed Medicare Advantage company may require us to meet certain capital adequacy performance standards and tests. The National Association of Insurance Commissioners has adopted rules which, if implemented by the states, set minimum capitalization requirements for insurance companies, HMOs, and other entities bearing risk for healthcare coverage. The requirements take the form of risk-based capital (“RBC”) rules, which may vary from state to state. Certain states in which our health plans or risk bearing entities operate have adopted the RBC rules. Other states in which our health plans or risk bearing entities operate have chosen not to adopt the RBC rules, but instead have designed and implemented their own rules regarding capital adequacy. As of September 30, 2024, our health plans or risk-bearing entities were in compliance with the minimum capital requirements.

Previous wording

Interest on the Term Loans is a variable rate equal to (i) the secured overnight financing rate administered by the Federal Reserve Bank of New York for a one-month tenor, subject to a floor of 1.00%, plus (ii) an applicable margin of 6.50%. All unpaid principal and accrued and unpaid interest with respect to each Term Loan is due and payable in full on September 1, 2027. The interest rate applied during the six months ended June 30, 2024 ranged from 11.82% to 11.85%.

Current wording

Interest on the Term Loans is a variable rate equal to (i) the secured overnight financing rate administered by the Federal Reserve Bank of New York for a one-month tenor, subject to a floor of 1.00%, plus (ii) an applicable margin of 6.50%. Beginning January 1, 2025, principal payments of $0.5 million, 0.25% of the gross principal amount borrowed, are due on a quarterly basis. All unpaid principal and accrued and unpaid interest with respect to each Term Loan is due and payable in full on September 1, 2027. The interest rate applied during the nine months ended September 30, 2024 ranged from 11.70% to 11.85%.

Previous wording

For the six months ended June 30, 2024, net cash provided by operating activities was $17.3 million, a decrease of $105.0 million compared to net cash provided by operating activities of $122.3 million for the six months ended June 30, 2023. The decrease is mainly attributable to the timing of our monthly premium revenue payments from CMS. We typically receive our monthly premium payments from CMS on the first day of the month. However, as the first day of July 2023 did not occur on a business day, we received the July 2023 premium payments on the last day of June 2023. At June 30, 2023 we recorded deferred premium revenue of $147.5 million. Excluding deferred premium revenue, net cash provided by operating activities increased $42.5 million, mainly attributable to an increase in medical expenses payable as a result of the increased Health Plan membership growth during the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Current wording

For the nine months ended September 30, 2024, net cash provided by operating activities was $43.5 million, a decrease of $84.8 million compared to net cash provided by operating activities of $128.3 million for the nine months ended September 30, 2023. The decrease is mainly attributable to the timing of our monthly premium revenue payments from CMS. We typically receive our monthly premium payments from CMS on the first day of the month. However, as the first day of October 2023 did not occur on a business day, we received the October 2023 premium payments on the last day of September 2023. At September 30, 2023 we recorded deferred premium revenue of $146.0 million. Excluding deferred premium revenue, net cash provided by operating activities increased $61.4 million, mainly attributable to an increase in medical expenses payable as a result of the increased Health Plan membership growth during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Previous wording

For the six months ended June 30, 2024, net cash provided by investing activities was $69.7 million, an increase of $206.3 million compared to net cash used in investing activities of $136.6 million for the six months ended June 30, 2023. The increase primarily relates to the purchase of short-term treasury securities during the six months ended June 30, 2023.

Current wording

For the nine months ended September 30, 2024, net cash provided by investing activities was $45.1 million, an increase of $191.4 million compared to net cash used in investing activities of $146.2 million for the nine months ended September 30, 2023. The increase primarily relates to increased purchases of short-term treasury securities during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2024.

Previous wording

For the six months ended June 30, 2024, net cash provided by financing activities was $49.2 million, an increase of $49.1 million, compared to net cash provided by financing activities of $0.06 million for the six months ended June 30, 2023. The increase in net cash provided by financing activities is mainly attributable to the $50.0 million draw down of the Oxford Delayed Draw term loan that occurred during the three months ended June 30, 2024.

Current wording

For the nine months ended September 30, 2024, net cash provided by financing activities was $49.2 million, an increase of $49.1 million, compared to net cash provided by financing activities of $0.06 million for the nine months ended September 30, 2023. The increase in net cash provided by financing activities is mainly attributable to the $50.0 million draw down of the Oxford Delayed Draw term loan that occurred during the nine months ended September 30, 2024.