Alignment Healthcare, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; compared with the corresponding 2022 periods. Alignment operates Medicare Advantage plans and related healthcare arrangements in six states. Amounts below are in millions of dollars unless noted.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $456.7 | $360.3 | $1,358.2 | $1,072.3 |
| Medical expenses | $397.9 | $312.9 | $1,204.8 | $923.9 |
| Medical benefits ratio (MBR) | 86.7% | 86.3% | 88.2% | 85.5% |
| Operating loss | $(29.8) | $(33.4) | $(85.9) | $(76.5) |
| Net loss | $(35.1) | $(40.2) | $(100.9) | $(92.6) |
| Adjusted gross profit (non-GAAP) | $60.6 | $49.5 | $159.6 | $155.4 |
| Adjusted EBITDA (non-GAAP) | $(8.4) | $(9.5) | $(15.6) | $(3.1) |
Q3 net loss attributable to Alignment was $35.0 million, or $0.19 per share, versus $40.2 million, or $0.22 per share, a year earlier. For the nine months, attributable net loss was $100.8 million, or $0.54 per share, versus $92.6 million, or $0.51 per share.
- Revenue growth: Revenue increased 26.7% in both Q3 and the first nine months. Earned premiums rose 25.1% and 25.2%, respectively, driven by membership growth and higher revenue per member, including higher CMS benchmarks. Other revenue grew primarily from increased interest income.
- Membership and medical costs: Health plan membership grew 18% year over year to 115,600 at period end. Medical expenses rose faster than earned premiums in the first nine months, reflecting membership and ACO REACH growth, richer benefits, and less favorable prior-year claims development. Q3 MBR increased modestly; year-to-date MBR was higher by 2.7 percentage points.
- Margins and losses: Q3 operating and net losses narrowed year over year, while nine-month losses widened. Adjusted gross profit increased 2.7% year to date, but Adjusted EBITDA loss increased from $3.1 million to $15.6 million. These are company-defined non-GAAP measures and should be considered alongside GAAP results.
- Cash flow: Nine-month operating cash flow was $128.3 million, versus $103.8 million. It included a $146.0 million increase in deferred premium revenue, primarily because October premiums were received in September. Excluding that deferred premium revenue, the company reported operating cash use of $17.8 million, compared with $12.5 million in 2022. Investing used $146.2 million, largely for short-term Treasury securities; financing provided $0.06 million. Cash, cash equivalents and restricted cash ended at $393.4 million.
- Liquidity and balance sheet: Cash, cash equivalents and short-term investments totaled $515.6 million, including $146.3 million of deferred premium revenue. Current assets were $667.0 million and current liabilities $410.3 million. Total assets were $770.8 million; total liabilities $581.2 million; stockholders’ equity $189.6 million.
- Debt: Gross term-loan principal was $165.0 million; carrying value, net of issuance costs, was $161.6 million. The variable interest rate was 11.64%–11.83% in Q3; principal and accrued interest are due September 2027. The company reported compliance with its $23 million minimum-liquidity and other financial covenants.
Material changes, outlook and risks
- Management said liquid assets should fund operating and organic capital needs for at least the next 12 months, while noting that actual cash needs may differ and future financing may be required. No specific revenue, earnings or membership guidance was provided in the supplied filing text.
- The company reported 115,600 health plan members across 52 markets in California, North Carolina, Nevada, Arizona, Texas and Florida, plus approximately 7,400 seniors in its ACO REACH arrangement. Management emphasized continued growth, market expansion, investment in its technology and clinical model, and service quality. More than 90% of health plan members were enrolled in plans rated four stars or higher.
- CMS requires an annual minimum 85% medical loss ratio for the company’s plans; failure to meet the applicable requirement can require premium remittances. Revenue depends on CMS payments and risk-adjustment estimates, while medical expense results rely on actuarial estimates of incurred-but-not-reported claims. Management reported favorable prior-year claims development of $2.9 million in Q3 and $5.8 million year to date.
- A wage-and-hour class action reached a tentative settlement for approximately $0.9 million, subject to court approval expected in Q1 2024; the company accrued the amount. Management stated that no material changes had occurred to previously disclosed risk factors. Principal risks include claims-cost estimation, risk-adjustment accuracy, CMS and regulatory dependence, competitive and growth execution, provider relationships, cybersecurity, and debt covenants.
- Management reported effective disclosure controls as of September 30, 2023, no material change in internal control over financial reporting during the quarter, and no off-balance-sheet arrangements.
Key facts for investors to verify
- Whether membership growth and CMS benchmark changes translate into improved unit economics as medical costs and MBR evolve.
- How much reported operating cash flow reflects recurring cash generation versus the timing of CMS premium receipts and deferred revenue.
- Claims reserve development, including the assumptions behind favorable prior-year development and the adequacy of medical expenses payable.
- Liquidity available at the parent versus regulated subsidiaries, potential restrictions on intercompany transfers, and compliance with term-loan covenants.
- Final court approval and payment timing for the wage-and-hour settlement, and the impact of other legal matters.