Alignment Healthcare, Inc. (ALHC) is a next-generation, consumer-centric healthcare platform that is purpose-built to provide seniors with high-quality, affordable care and an enhanced consumer experience. The company's innovative model combines a proprietary technology platform and a high-touch clinical model to improve health outcomes while controlling costs, allowing it to reinvest savings back into its platform and products.

Business Overview

Alignment Healthcare operates primarily in the Medicare Advantage (MA) market, offering plans in 53 markets across California, North Carolina, Nevada, Arizona, Texas, and Florida. The company's Health Plan Membership, which includes members enrolled in its HMO and PPO contracts, grew from approximately 13,000 at inception to 165,100 as of March 31, 2024, representing a 29% compound annual growth rate.

Alignment's business model is centered around a "virtuous cycle" that starts with listening to and engaging with its senior consumers to provide a superior healthcare experience. The company's proprietary technology platform, Alignment's Virtual Application (AVA), utilizes data and predictive algorithms to deliver personalized care, which in turn improves healthcare outcomes and lowers costs. This allows Alignment to reinvest its savings into richer coverage and benefits, further enhancing its value proposition and driving growth in revenue and membership.

Financials

For the full year 2023, Alignment reported annual revenue of $1,823,630,000 and a net loss of $148,017,000. The company's annual operating cash flow was -$59,187,000, and its annual free cash flow was -$95,182,000.

In the first quarter of 2024, Alignment's total revenue was $628,601,000, representing a 43.1% increase compared to the same period in 2023. The company's Health Plan Membership grew by 50.5% year-over-year to 165,100 members. Adjusted gross profit for the quarter was $57,343,000, resulting in a medical benefits ratio (MBR) of 90.9%. Adjusted EBITDA was -$11,980,000, a decline compared to -$5,172,000 in the first quarter of 2023.

Guidance and Outlook

For the full year 2024, Alignment expects Health Plan Membership to be between 170,000 and 172,000 members, revenue to be in the range of $2,495,000,000 to $2,525,000,000, adjusted gross profit to be between $280,000,000 and $310,000,000, and adjusted EBITDA to be in the range of a loss of $12,000,000 to a profit of $12,000,000.

The company believes it is well-positioned to grow Health Plan Membership at or above 20% in 2025 while expanding margins. Alignment cites several tailwinds that support its financial position and competitive advantages, including:

1. Significant opportunity in California, where over 1.2 million HMO members are in plans that will be rated below 4 stars in 2025, while approximately 95% of Alignment's California members are in plans that will have 4-star payment levels.

2. Continued phase-in of the V28 risk model changes, which Alignment believes will further widen its relative advantage in risk adjustment.

3. An expected weighted average change in its effective growth rate of 5% for 2025, more than double the national average of 2.4%.

These factors, combined with Alignment's differentiated operating platform and strong retention of new members, give the company confidence in its ability to deliver both growth and margin improvement in 2025.

Liquidity

As of March 31, 2024, Alignment had $301,712,000 in cash, cash equivalents, and short-term investments. The company operates as a holding company in a highly regulated industry and maintains significant levels of aggregate excess statutory capital and surplus in its state-regulated operating subsidiaries.

Alignment has a term loan agreement with Oxford Finance LLC, under which it received an initial term loan of $165,000,000 on September 2, 2022. The company may borrow up to an additional $85,000,000 in delayed draw term loans. As of March 31, 2024, Alignment was in compliance with the financial covenants under the term loan agreement.

Risks and Challenges

Alignment faces several risks and challenges, including:

1. Ability to attract and retain members in its existing markets, which are highly competitive. 2. Successful expansion into new markets and the ability to replicate its model effectively. 3. Maintaining high levels of consumer satisfaction and service quality. 4. Effectively managing the quality of care to improve member outcomes. 5. Achieving superior unit economics and managing the financial risk of its members as they age. 6. Navigating the seasonality of its business, with higher medical costs typically in the first and fourth quarters. 7. Regulatory and compliance requirements in the highly regulated healthcare industry.

Conclusion

Alignment Healthcare is a next-generation Medicare Advantage platform that is well-positioned for continued growth and margin expansion. The company's innovative model, differentiated technology platform, and focus on improving health outcomes while controlling costs have enabled it to achieve strong membership growth and financial performance.

With a robust pipeline of growth opportunities, a favorable regulatory environment, and a commitment to operational excellence, Alignment appears poised to capitalize on the significant and growing Medicare Advantage market. As the company continues to execute on its strategy, investors will be closely watching its ability to drive both top-line growth and margin improvement in the coming years.