Alignment Healthcare, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. Alignment operates Medicare Advantage plans and a care-delivery platform, primarily in California, North Carolina, and Nevada.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $267.1 million | $224.6 million |
| Medical expenses | $251.1 million | $193.4 million |
| Medical benefits ratio (MBR) | 91.5% | 86.0% |
| GAAP gross profit | $16.0 million; 6.0% margin | $31.2 million; 13.9% margin |
| Adjusted gross profit (non-GAAP) | $22.6 million; 8.5% margin | $31.3 million; 14.0% margin |
| Operating loss | $52.7 million | $5.1 million |
| Net loss | $56.9 million; $0.37 per share | $10.1 million; $0.07 per share |
| Adjusted EBITDA (non-GAAP) | $(14.0) million | $(1.9) million |
| Cash used in operating activities | $38.1 million | $21.8 million |
- Cash was $528.4 million at March 31, 2021, compared with $207.3 million at December 31, 2020. The quarter-end cash balance includes proceeds from the IPO.
- Long-term debt was $150.9 million gross, or $145.7 million net of issuance costs. The term loan carries a 10.25% stated interest rate and matures in June 2023.
- Medical expenses payable were $128.7 million; total current liabilities were $169.8 million. Management said available liquid assets and anticipated operating revenues should fund operating and capital needs for at least 12 months.
Material changes and notable items
- Revenue increased 18.9%, primarily from membership growth: health plan membership rose 32.1% to 83,100. Medical expenses grew faster than revenue, up 29.8%, and MBR increased 5.5 percentage points.
- Management attributed higher medical costs to membership mix, COVID-19-related inpatient admissions early in the quarter, and $6.6 million of equity compensation recorded in medical expenses.
- SG&A rose 98.0% to $64.9 million, primarily reflecting $25.2 million of IPO-related equity compensation, including an $11.4 million cash settlement of prior awards. Excluding equity compensation, SG&A increased 21%.
- The March IPO issued 21.7 million new shares at $18 per share and generated $361.6 million in net proceeds for the company. Selling shareholders sold additional shares; the company received no proceeds from those sales. Net proceeds are intended for working capital, growth, general corporate purposes, and potentially debt repayment or investments.
- Equity-based compensation expense was $31.8 million in Q1 2021 versus $0.3 million in Q1 2020. Unrecognized compensation expense on nonvested awards was $198.3 million at quarter-end.
Outlook, risks, and contingencies
- The filing gives no specific numerical revenue, earnings, or membership guidance. Management expects continued investment in technology, market expansion, sales and marketing, and public-company costs; it also expects operating losses may continue.
- COVID-19 impacts remain uncertain. The company reported increased COVID-related inpatient admissions in the quarter and said the pandemic has affected documentation of members’ conditions, risk-adjustment scores for new members, outreach, medical-cost seasonality, and operating expenses.
- Key business risks include attracting and retaining members, maintaining plan quality ratings, provider relationships, accurate risk-adjustment data and medical-claims reserves, regulatory compliance, and concentration in a limited number of states. Results are also subject to CMS reimbursement and Medicare policy changes.
- Medical expenses payable depend on estimates of incurred-but-not-paid claims; actual claim costs may differ materially. The company recorded $0.4 million of unfavorable prior-year claims development in Q1 2021, excluding the provision for adverse deviation.
- The term loan is secured by unrestricted subsidiary assets and includes minimum-liquidity and revenue covenants. The company reported compliance with its covenants and state capital requirements at March 31, 2021. Legal accruals were not material, and management did not expect pending legal matters to have a material adverse effect.
- Management reported effective disclosure controls as of March 31, 2021, with no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether membership growth can translate into improved MBR and gross margins, particularly as COVID-19 utilization and member mix change.
- The development and adequacy of medical-claims reserves, risk-adjustment estimates, and related CMS receivables or liabilities.
- How IPO proceeds are deployed, including whether the company repays the high-cost term loan or pursues acquisitions and investments.
- The magnitude and timing of ongoing equity-compensation expense and potential dilution from outstanding awards.
- Whether liquidity, debt-covenant compliance, and regulated-plan capital requirements remain adequate as the company expands.