Executive Summary / Key Takeaways

• Alignment Healthcare is executing a differentiated Medicare Advantage strategy, leveraging its integrated health plan, technology platform (AVA), and high-touch care delivery model (Care Anywhere) to balance industry-leading membership growth with improving profitability, contrasting with peers facing utilization and regulatory headwinds.
• The company's proprietary AVA platform provides crucial data visibility and actionable insights, enabling efficient care management, improved member outcomes (e.g., 30% institutional claims PMPM improvement post-Care Anywhere engagement), and driving SG&A scale economies (adjusted SG&A ratio expected to improve by 100 bps in 2025 on top of 320 bps in 2024).
• Strong Q1 2025 results exceeded guidance across all key metrics, with membership growing 32% year-over-year to 217,500, revenue increasing 47% to $926.9 million, MBR improving 250 bps to 88.4%, and Adjusted EBITDA reaching $20 million.
• Management raised the midpoint of its full-year 2025 guidance, now projecting membership of 228,000-233,000 and Adjusted EBITDA of $38 million-$60 million (midpoint $49 million), signaling confidence in continued margin expansion driven by cohort maturation, Stars advantages, and operational efficiencies.
• Alignment holds significant competitive advantages, particularly in Stars ratings (100% of CA members in 4+ star plans for 2026 vs. 61% for CA competitors) and less exposure to V28 risk model changes, positioning it for sustained market share gains and profitability improvements in the coming years, funded increasingly by internally generated cash flow.

A Different Approach to Medicare Advantage

Alignment Healthcare, Inc. (ALHC) was founded with a clear vision: to redefine the Medicare Advantage experience for seniors. Eschewing the traditional model focused primarily on actuarial underwriting, Alignment positioned itself as a next-generation, consumer-centric healthcare platform built to deliver high-quality, affordable care with a vastly improved member experience. This strategy is rooted in a "virtuous cycle" where proactive care management leads to better health outcomes, which in turn lowers overall healthcare costs. These savings are then reinvested into richer benefits and enhanced services, making Alignment's plans more attractive to seniors and fueling membership growth.

This integrated approach combines the product control and data visibility of a health plan, the clinical insights of a modern technology platform, the medical management expertise of a care delivery organization, and the member experience focus of a consumer-first company. From its inception, the company has emphasized building a durable model capable of thriving irrespective of the broader industry environment, a strategy that appears to be yielding results in the current dynamic Medicare Advantage landscape.

The Technological Engine: AVA's Power and Potential

Central to Alignment's differentiated model is its proprietary technology platform, Alignments Virtual Application, or AVA. AVA is not merely an administrative tool; it is designed as the intelligence layer that enables personalized care delivery and operational efficiency across the enterprise. The platform integrates data from various sources across the healthcare ecosystem, providing real-time visibility and actionable insights.

AVA's capabilities are leveraged to stratify seniors into categories based on their health status (healthy, healthy utilizer, pre-chronic, chronic), allowing for optimized care tailored to individual needs. For higher-risk and chronically ill members, AVA supports the Care Anywhere program, delivered by Alignment's internal clinical teams. This high-touch model, often provided in the home or virtually, aims to proactively manage complex conditions and prevent unnecessary hospitalizations. The company employs over 400 clinical staff, representing approximately 25% of its full-time employees and roughly 4% of medical expenses for at-risk members, dedicated to this model. Management highlights that Care Anywhere engagement for eligible new members is on target, with a goal to reach 60% engagement by year-end from approximately 30% in the first half of 2024. Historically, the company has observed approximately a 30% improvement in institutional claims PMPM in the 12 months following Care Anywhere engagement compared to a control group.

Beyond clinical management, AVA contributes to operational efficiency. The platform's unified data architecture and automation capabilities streamline workflows, from member onboarding to administrative functions. This technological foundation has been critical in enabling Alignment to seamlessly onboard a significant influx of new members – approximately 63,000 net new members in the 12 months leading up to Q2 2024 – without compromising service levels or operational stability.

Management sees continued opportunity to expand AVA's competitive advantages through ongoing innovation. Initiatives are focused on enhancing the efficacy and adoption of AVA modules, automating back-office functions, improving provider operations workflows to facilitate better collaboration with IPAs, and refining care routing and navigation. While specific quantitative targets for all R&D initiatives are not detailed, the strategic intent is clear: to further improve clinical quality, enhance the member experience, and lower costs, thereby strengthening the company's competitive moat and supporting future margin expansion.

Competitive Arena: Outperforming in a Challenging Market

The Medicare Advantage market is highly competitive, dominated by large national players such as UnitedHealth Group (UNH), Humana (HUM), CVS Health (CVS) via Aetna, and Elevance Health (ELV). While these competitors possess significant scale, extensive networks, and diversified operations, Alignment Healthcare has demonstrated an ability to take market share and differentiate itself, particularly in its core markets.

As of March 31, 2025, Alignment's 217,500 Health Plan Members represented approximately 5% market share across its operating regions. In California, its most mature market, market share stands at about 4.5%, with a long-term goal to capture at least 20% share in its California markets. The company's recent growth has significantly outpaced the industry average. In Q2 2024, Alignment grew membership by 56% year-over-year, adding more members in California than any other health plan in 2024. This contrasts sharply with the average publicly-traded national health plan, which grew MA members by just 2% year-over-year in Q1 2024, while still experiencing MBR increases.

Alignment's competitive positioning is significantly bolstered by its strong performance in CMS Stars Quality Ratings and its relative advantage in navigating the V28 risk adjustment model changes. For the 2026 payment year, 100% of Alignment's California members will be in plans rated 4 stars or above, a considerable advantage compared to California competitors, where only 61% of members will be in 4+ star plans. Across all markets, approximately 98% of Alignment members are in plans rated 4 stars or above for 2026, compared to 64% for the industry. This Stars advantage translates directly into higher reimbursement from CMS, allowing Alignment to offer more competitive benefits while maintaining a focus on profitability. The difference between a 4-star and a 3.5-star plan is estimated to be approximately 5% extra revenue PMPM, while the difference between a 4-star and a 3-star plan is closer to 10%.

Furthermore, Alignment believes it will be less impacted than competitors by the third and final phase-in of the V28 risk model changes, creating another relative funding advantage. While many competitors are reliant on global capitation arrangements with providers who are experiencing meaningful revenue declines due to V28, Alignment's integrated model and direct management of care for higher-risk populations provide greater control and less exposure to these downstream pressures.

Despite these advantages, Alignment faces challenges inherent to its smaller scale compared to national giants. Its operating costs per unit can be higher (estimated 10-15% higher than larger peers), and its Medical Benefits Ratio (MBR), while improving, is still a key focus area. Q1 2025 MBR was 88.4%, and the full-year 2025 guidance implies an MBR of 88.5%. This compares to peers with potentially lower net margins but often better MBRs. The company also acknowledges challenges with CAHPS scores, particularly related to access to care and care routing when utilizing delegated arrangements, and is actively working to improve workflows in this area. However, management believes its tech-enabled model and focus on member experience are key differentiators that drive higher member loyalty (voluntary disenrollment rate improved ~22% YoY in Q2 2024) and retention, which is critical for long-term profitability as member cohorts mature.

Financial Performance: Growth, Efficiency, and the Path to Profitability

Alignment Healthcare's recent financial performance reflects its rapid growth trajectory and increasing operational efficiency. In the first quarter of 2025, the company reported total revenues of $926.9 million, a significant 47% increase compared to $628.6 million in Q1 2024. This growth was primarily driven by a 32% year-over-year increase in Health Plan membership, reaching 217,500 members by period end, and higher revenue per member per month, partly attributable to increases in CMS benchmark rates and Part D revenue rates resulting from the Inflation Reduction Act (IRA). Other revenue also saw an increase, mainly from services to third-party providers and higher interest income from increased cash balances.

Medical expenses totaled $820.9 million in Q1 2025, up 43.2% from $573.2 million in Q1 2024. While medical expenses increased in absolute terms due to membership growth and higher Part D cost sharing from the IRA, they grew at a lower rate than earned premiums. This resulted in a Medical Benefits Ratio (MBR) of 88.4% for Q1 2025, a notable 250 basis point improvement from 90.9% in Q1 2024. This improvement was attributed to favorable inpatient utilization trends, modest early favorability in Part D MBR (though this is expected to reverse later in the year), and favorable prior period medical expense payable (IBNP) reserve releases. The company's IBNP estimates include a provision for moderately adverse conditions, and actual claims experience has recently been better than expected, leading to favorable development.

Selling, general, and administrative (SG&A) expenses increased to $103.8 million in Q1 2025 from $90.5 million in Q1 2024, reflecting ongoing investments in network development, operations, and sales and marketing to support growth. However, SG&A expenses as a percentage of revenue decreased, demonstrating economies of scale. Adjusted SG&A was 9.4% of revenue in Q1 2025, down from 10.4% in Q2 2024 and 11.1% for full-year 2024 (excluding ACO REACH), highlighting significant operating leverage.

The combination of strong revenue growth, MBR improvement, and SG&A leverage drove a substantial improvement in profitability. Loss from operations narrowed significantly to $5.4 million in Q1 2025 from $41.1 million in Q1 2024. Adjusted EBITDA reached $20 million in Q1 2025, compared to $12 million in Q1 2024, representing a 410 basis point margin expansion year-over-year. For the full year 2024, the company achieved positive adjusted EBITDA of $1 million, marking its first year of adjusted EBITDA profitability as a public company.

From a liquidity standpoint, Alignment ended Q1 2025 with a strong cash position. Cash and cash equivalents stood at $446.2 million, with total cash and investments at $480 million. The operating parent company held $178.5 million in cash, cash equivalents, and short-term investments.

The company recently refinanced its debt, issuing $330 million in 4.25% Convertible Senior Notes in November 2024 to repay its prior term loans (which had an average interest rate of 11.84% in Q1 2024). This transaction reduced annual interest expense by approximately $10 million.

Net cash provided by operating activities was $16.6 million in Q1 2025, a significant improvement from net cash used in Q1 2024. While the company anticipates incurring operating losses in the near term due to continued investments, it believes its liquid assets are sufficient to fund operating and organic capital needs for at least the next 12 months and expects to fund future expansion from internally generated cash flow.

Strategic Execution and Operational Detail

Alignment's strategic execution is focused on leveraging its core capabilities to drive profitable growth. The Care Anywhere program continues to be a key operational focus, with efforts to increase engagement among new members to improve utilization outcomes. The company is also ramping up initiatives in pre-service care navigation, post-discharge case management, and IPA performance improvement to further enhance medical cost management.

Investments in the back office and member journey are ongoing, aimed at enhancing efficiency and the overall consumer experience. The company's ability to achieve significant SG&A leverage (330 basis points improvement in adjusted SG&A as a percentage of revenue ex-ACO REACH in 2024) is a testament to the scalability of its operational model and investments in automation. The goal remains to drive the adjusted SG&A ratio down to 10.1% in 2025 and eventually to 10% or below for total SG&A as a percentage of revenue.

The recent CFO transition, with James Head succeeding Thomas Freeman effective May 2, 2025, is part of preparing the organization to scale for future growth. Mr. Head brings extensive experience in strategic finance and healthcare, which management believes will be valuable as the company continues its path towards sustained profitability and expansion.

Outlook and the Road Ahead

Building on its strong Q1 2025 performance, Alignment Healthcare raised the midpoint of its full-year 2025 guidance across all key metrics. For the second quarter of 2025, the company expects Health Plan membership between 220,000 and 222,000, revenue between $950 million and $965 million, adjusted gross profit between $105 million and $113 million, and adjusted EBITDA between $10 million and $18 million.

For the full year 2025, guidance was raised to Health Plan membership of 228,000-233,000, revenue of $3.77 billion-$3.815 billion (implying approximately 40% growth at the midpoint), adjusted gross profit of $420 million-$445 million, and adjusted EBITDA of $38 million-$60 million. The midpoint of the adjusted EBITDA guidance is $49 million, implying 130 basis points of margin expansion year-over-year.

Key assumptions underpinning the 2025 outlook include continued stability in inpatient admissions per 1,000 (expected to run modestly higher than 2024 due to membership mix), anticipation of early Part D gross margin favorability reversing later in the year, and planned investments in member engagement activities to support future growth. The guidance also reflects the expected SG&A leverage. Seasonality is expected to follow historical patterns, with higher MBR and SG&A ratios in the second half of the year, particularly Q4, due to utilization trends and AEP sales/marketing costs, although IRA changes are expected to result in more moderate Part D seasonality.

Looking beyond 2025, management expresses confidence in a multi-year trajectory of robust growth and continued margin expansion. This confidence is supported by the widening Stars payment advantages locked in for 2026 (100% CA members in 4+ stars) and potential tailwinds from future Stars policy changes (e.g., Health Equity Index in 2028 payment year), less impact from the final phase-in of V28 risk model changes, and a healthy increase in benchmark rates. The significant portion of members in Year 1 or Year 2 cohorts (over 50% in 2024/2025) represents substantial embedded gross profit opportunity as these cohorts mature.

The company's strategic focus for 2025 is on margin expansion and capitalizing on its strong position in existing markets, particularly California. The decision not to enter new states in 2025 was deliberate, aimed at prioritizing profitability to fund future market expansion from internally generated cash flow. Management anticipates being "much more aggressive" in market expansion in 2026 and beyond, leveraging its matured operational workflows, automation investments, and potentially partnering with integrated delivery networks.

Risks

While Alignment Healthcare has demonstrated strong execution, investors should be mindful of potential risks. Estimates for medical expenses payable (IBNP) are inherently subject to uncertainty and could differ materially from actual outcomes. The company's risk adjustment data is subject to government review and audit. Participation in Medicare Part D involves risk sharing through risk corridor provisions and annual reconciliation processes. Shared risk arrangements with IPAs carry collection risk for deficits. Concentrations of credit risk exist in cash and investments. Compliance with state minimum capital requirements (RBC, TNE) and restrictions on cash transfers from regulated subsidiaries are ongoing requirements. Legal proceedings could result in material liabilities. While inflation has not been material historically, significant future inflationary pressures could impact profitability. The company's ability to utilize its substantial net operating losses (NOLs) could be limited by future ownership changes under IRC Section 382, and California's suspension of NOL utilization for certain taxpayers in 2024-2026 adds complexity.

Conclusion

Alignment Healthcare is executing a compelling strategy in the competitive Medicare Advantage market, leveraging its unique blend of technology, clinical expertise, and consumer focus to drive both rapid membership growth and improving profitability. The AVA platform and Care Anywhere model are proving to be powerful differentiators, enabling efficient operations, better member outcomes, and significant operating leverage. The company's strong Q1 2025 results and raised full-year guidance underscore its positive momentum and confidence in achieving adjusted EBITDA profitability in 2025.

With significant advantages in Stars ratings and favorable positioning relative to V28 risk model changes, Alignment is well-positioned to continue taking market share and expanding margins in the coming years. While risks related to healthcare costs, regulatory changes, and execution in new markets persist, the company's demonstrated ability to balance growth and profitability, coupled with its strategic focus on leveraging technology and operational efficiency, supports a positive long-term investment thesis. The path ahead involves continued scaling in existing markets, funding future expansion from internal cash flow, and further solidifying its position as a leader in "Medicare Advantage done right."