Alignment Healthcare, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed February 28, 2023. This is an annual report, not a standalone fourth-quarter earnings report. Alignment operates Medicare Advantage plans and related care programs, primarily earning per-member payments from CMS while bearing members’ medical costs.
Financial and operating performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $1,434.2 million | $1,167.8 million | +22.8% |
| Medical expenses | $1,249.9 million | $1,039.0 million | +20.3% |
| Medical benefits ratio (MBR) | 86.5% | 87.6% | Down 1.1 percentage points |
| Loss from operations | $(128.6) million | $(178.1) million | Loss narrowed |
| Net loss | $(149.6) million | $(195.3) million | Loss narrowed |
| Adjusted gross profit (non-GAAP) | $193.6 million | $144.4 million | +34.1% |
| Adjusted EBITDA (non-GAAP) | $(26.7) million | $(33.1) million | Loss narrowed |
| Health Plan Membership at year-end | 98,400 | 86,100 | +14.3% |
Revenue growth reflected membership gains and higher revenue per member, primarily from increased CMS benchmark rates. Medical expenses grew more slowly than revenue; management attributed the comparison in part to higher COVID-related inpatient utilization in early 2021. SG&A increased 1.6% as reported, but rose 21.0% excluding equity-based compensation. Basic and diluted loss per share was $0.83, compared with $1.14 in 2021. The company reported an accumulated deficit of $732.2 million.
Cash flow and liquidity: Operating cash used was $45.4 million, compared with $78.8 million in 2021; investing cash used was $28.2 million; financing cash provided was $16.6 million. Cash on the balance sheet was $409.5 million at year-end, plus $1.75 million of restricted cash reported in other assets. Management stated liquid assets were expected to cover operating and organic capital needs for at least 12 months. Current assets were $544.5 million and current liabilities $230.0 million.
Debt: The company had $165.0 million principal outstanding under its Oxford senior secured term loan, reported net of issuance costs at $160.9 million. The loan matures September 2027, bears variable interest at one-month SOFR (1.00% floor) plus 6.50%, and had rates ranging from 9.02% to 10.63% during the period from September through December 2022. An additional $85.0 million may be available subject to facility terms. The company said it complied with its minimum-liquidity and debt-to-revenue covenants at year-end; the stated minimum liquidity covenant is $23.0 million.
Material changes and developments
- Membership and revenue expanded, while the MBR improved year over year. Membership reached approximately 108,300 on January 1, 2023, across 52 markets in six states.
- In September 2022, Alignment refinanced its CRG debt with the Oxford facility. It recorded a $2.2 million loss on extinguishment of debt and paid $14.1 million of payment-in-kind interest in cash during 2022.
- CMS replaced the Direct Contracting model with ACO REACH effective January 1, 2023. Alignment reported approximately 7,900 members in its physician-partner arrangement at that date.
- Cash declined from $466.6 million at year-end 2021 to $409.5 million at year-end 2022. The company continued to invest in technology, infrastructure, acquisitions and market expansion.
Outlook, risks and unusual items
No specific numerical FY2023 revenue, earnings or cash-flow guidance is provided in the supplied filing text. Management expects continued investment and higher absolute expenses as the company expands markets, membership, staffing, technology and marketing. It also notes seasonal patterns: most membership growth takes effect in the first quarter, while medical costs are often higher in the first and fourth quarters.
- Profitability and medical-cost risk: Alignment has a history of annual net losses and expects substantial investment. Profitability depends on pricing plans appropriately, managing medical utilization and accurately estimating incurred-but-not-paid claims.
- CMS and risk-adjustment exposure: CMS finalized a January 2023 rule changing Medicare Advantage risk-adjustment data validation audits, including removing the fee-for-service adjuster. The company says this may materially increase repayments; CMS was conducting audits of certain company plans.
- Medical claims estimates: Medical expenses payable were $170.1 million at year-end, including $88.8 million of incurred-but-not-paid claims. The independent auditor identified this reserve estimate as a critical audit matter. Prior-year claims development was favorable by $11.2 million in 2022.
- Regulatory and funding risk: Revenue is substantially dependent on Medicare Advantage and CMS contracts, payment rates, Star ratings, risk-adjustment rules and compliance. More than 90% of members were in plans rated at least 4 stars for the 2023 rating year/2024 payment year, but future ratings are uncertain.
- Debt, liquidity and capital constraints: Floating-rate debt exposes the company to higher interest expense. State capital requirements and restrictions on distributions from regulated subsidiaries may limit parent-company access to cash; the company also warns that additional financing may be needed.
- Other notable matters: A former employee filed a purported class action alleging meal- and rest-break violations. The company had not accrued a liability because the possible loss could not be estimated. The filing says management believes pending proceedings are not expected to have a material adverse effect. A 2022 lease-related impairment/sublease loss was also recorded.
The financial statements received an unqualified audit opinion, and the auditor reported effective internal control over financial reporting. The auditor’s critical audit matter concerned estimation of incurred-but-not-paid medical claims.
Most important facts for investors to verify
- How the CMS risk-adjustment audits and the 2023 RADV rule affect potential repayments, revenue and cash flows.
- Whether the MBR remains controlled as membership grows, and how medical-claims reserve development compares with subsequent paid claims.
- Cash availability at the parent versus regulated subsidiaries, covenant headroom, and the effect of variable interest rates on debt service.
- Progress toward profitability and whether growth, technology and market-expansion spending yields operating leverage.
- Star ratings, provider-network stability and ACO REACH performance, all of which can affect membership, payment rates and costs.