• Health Plan Membership: 182,300 members, 58% growth year over year.
• Total Revenue: $692 million, 52% growth year over year, 62% growth excluding ACO reach.
• Adjusted Gross Profit: $81 million, with a consolidated MBR of 88.4%.
• Adjusted EBITDA: Positive $6 million for the quarter.
• SG&A Expenses: $91 million, with adjusted SG&A at $75 million, an 8% increase year over year.
• Adjusted SG&A as a Percentage of Revenue: Improved from 16.2% to 10.8% year over year, excluding ACO reach.
• Cash and Investments: $381 million at the end of the quarter.
• Fourth Quarter Guidance - Revenue: Expected between $663 million and $678 million.
• Fourth Quarter Guidance - Adjusted Gross Profit: Expected between $67 million and $82 million.
• Fourth Quarter Guidance - Adjusted EBITDA: Expected between a loss of $10 million to a positive $5 million.
• Full Year 2024 Revenue Guidance: Expected between $2.67 billion and $2.68 billion.
• Full Year 2024 Adjusted Gross Profit Guidance: Expected between $282 million and $297 million.
• Full Year 2024 Adjusted EBITDA Guidance: Expected between a loss of $10 million to a positive $5 million.

• Warning! GuruFocus has detected 6 Warning Signs with ALHC.

Release Date: October 29, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Alignment Healthcare Inc (NASDAQ:ALHC) reported a 58% year-over-year growth in health plan membership, surpassing their year-end guidance.
• Total revenue for the third quarter was $692 million, marking a 52% increase year-over-year and 62% growth excluding ACO reach.
• The company achieved an adjusted EBITDA of positive $6 million, reaching the high end of their guidance range for the second consecutive quarter.
• 98% of health plan members are in plans rated four stars or above for 2025, with significant star rating achievements in California, Nevada, and North Carolina.
• ALHC is well-positioned for future growth with a focus on profitability and margin expansion, expecting at least 20% growth in 2025.

Negative Points

• The company faces challenges adapting to CMS's higher star standards and tighter reimbursement, which affects many organizations in the industry.
• Despite strong growth, the mix of new members has modestly increased the Medical Benefit Ratio (MBR), impacting profitability.
• The company has had to adjust its guidance ranges due to the timing of certain clinical initiatives and investments, affecting gross profit and SG&A expenses.
• There is ongoing pressure from new membership on MBR, as new members typically have higher MBRs.
• ALHC's star ratings, while strong, still face challenges with CAPS scores, which remain a point of concern.

Q & A Highlights

Q: Can you share some of the initiatives Alignment Healthcare is undertaking to continue innovation and improvement? A: John Kao, CEO, explained that the company is deepening its provider operations by automating workflows to better collaborate with IPAs, aiming to enhance provider performance. They are also scaling clinical operations, focusing on areas like pre-service and post-discharge case management, to improve access to care and star ratings. This approach is part of a continuous improvement philosophy, leveraging data from their AVA system to manage and solve local market issues effectively.

Q: What factors contributed to the significant membership growth and outperformance versus expectations? A: John Kao attributed the growth to a disciplined bid process that balanced growth and margin. The company anticipated a stars advantage and a V28 relative advantage, which informed their bid and product strategies. Investments in member experience and services infrastructure over the past year and a half have also paid off, positioning the company well for future growth cycles.

Q: With the updated 2024 guidance, how does the implied full-year MLR reflect new member growth and clinical initiatives? A: Thomas Freeman, CFO, noted that the midpoint of gross profit guidance is slightly lower due to ongoing investments to support growth outperformance and incremental investments for 2025. The full-year implied MLR has increased by about 40 basis points, offset by continued SG&A leverage. Despite new membership pressure, utilization has been excellent, supporting confidence in 2025 assumptions.

Q: How does Alignment Healthcare's star rating performance provide a competitive advantage for future bids? A: Thomas Freeman highlighted that the difference between a four-star and a 3.5-star plan can mean about 5% extra revenue per member per month, and 10% for a three-star plan. This advantage, combined with the V28 impact, positions Alignment favorably against competitors, allowing for continued growth and market share gains.

Q: Can you discuss the impact of the IRA Part D redesign on Alignment's strategy and MLR for 2025? A: Thomas Freeman stated that Part D will be a tailwind to MLR in 2025, as it is expected to remain slightly lower than Part C MLR. The company leverages its Care Anywhere program to manage medication adherence and pharmaceutical management, particularly for high-acuity members, providing a competitive advantage as the IRA changes take effect.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.