Alignment Healthcare, Inc. Q2 FY2025 earnings call

• Strong execution with second quarter results exceeding high end of guidance metrics. Membership growth of 28% YOY supported revenue growth. Adjusted EBITDA of $46 million surpassed guidance range. - First half adjusted EBITDA of $66 million exceeded full year initial guidance. - Raising guidance ranges across key metrics due to strong fundamental performance, unchanged Part D outlook, and upside from sweep payments. - Deepening provider relationships by integrating clinical expertise and medical management capabilities. - Confidence in 2026 bids validated by first half outcomes and model durability in evolving Medicare landscape. - Steady execution highlighting model durability despite Medicare landscape changes, with inpatient admissions per 1,000 in low-140s outperforming expectations.

For the second quarter 2025, Alignment Healthcare's health plan membership was 223,700 members, representing a 28% year-over-year growth. Total revenue was $1 billion, up 49% year-over-year. Adjusted gross profit was $135 million, a 76% year-over-year increase. The consolidated MBR was 86.7%, an improvement of 200 basis points from the prior year. Adjusted SG&A ratio was 8.8%, improving by 160 basis points year-over-year. For the first half, MBR was 87.5%, improving by 230 basis points, and adjusted EBITDA margin was 3.4%, improving by 390 basis points. Revenue contribution is primarily from the health plan segment.

• Raised guidance for health plan membership, revenue, adjusted gross profit, and adjusted EBITDA. For third quarter 2025, membership expected to be 225,000-227,000, revenue $970 million-$985 million, adjusted gross profit $106 million-$114 million, adjusted EBITDA $5 million-$13 million. For full year 2025, membership expected to be 229,000-234,000, revenue $3.885 billion-$3.910 billion, adjusted gross profit $452 million-$469 million, adjusted EBITDA $69 million-$83 million. - Part D outlook unchanged, with seasonality effects on MBR in fourth quarter due to Medicare Advantage utilization and Inflation Reduction Act impacts. - SG&A timing favorability in first half expected to reverse in second half, but full year SG&A expectations roughly unchanged.

• Evolution of the Medicare landscape posing challenges. - Potential issues with provider relationships and margin pressure on global cap providers. - Seasonality effects on MBR and SG&A, including fourth quarter MBR impact from Medicare Advantage utilization and Part D seasonality changes. - Part D cost trends and potential gross drug cost escalation in second half.

Q: Congrats on the great results. John mentioned efforts to deepen provider relationships. Can you provide details on IPA relationships and how it's different from prior?

A: John Kao stated that historical acute admissions per 1,000 have improved, with closer collaboration with IPAs and medical groups yielding results in utilization management and quality metrics, creating operating and financial alignment.

Q: Focus on SG&A. 8.8% this quarter, updated guide implies sub-10% full year. How durable is this level and any AI opportunities?

A: John Kao mentioned unified data architecture and streamlined workflows as key, with AI initiatives expected to pay off in coming years, leveraging clean data and workflows for cost efficiency.

Q: Final risk adjustment sweep benefit. Does it include Part D?

A: Jim Head clarified the $14 million gross profit from 2024 final sweep is not Part D or Part C mid-year sweep, a normal part of business related to catch-up payment for 2024 members.

Q: Big picture on public advocacy. What's being done to move the conversation?

A: John Kao mentioned being a witness before the House Ways and Means Subcommittee, emphasizing serving seniors and creating win-win for care provision.

Q: Administrative automation and care navigation. Any examples and impact on retention/growth?

A: John Kao stated both existing member retention and new member growth are impacted, with new core systems like EHR, HR, and claim adjudication platforms being implemented to scale and improve workflows.

Q: Marketing dollar yield and customer acquisition costs. Any quantifiable info?

A: John Kao said results are positive but specific details near AEP will be shared later, with growth driven by word of mouth and FMO/broker partners.

Q: Growth split between California and other markets. Any opportunity to push higher?

A: John Kao said both are important, with California market share still small and existing markets gaining broker attention, well-positioned for growth.

Q: Arizona Star scores. Did it impact bids?

A: John Kao said yes, modifications to bids were made based on Arizona's Star score improvement.

Q: $14 million out-of-period benefit. Per member basis and impact on next year?

A: Jim Head said it's a normal part of business, conservative forecasting on new members leads to such outcomes, and it's expected to continue but magnitude is unpredictable.

Q: Margin maturation framework for new member cohorts. Year 1, 2, 3, 4, 5?

A: Jim Head said year 1 MBR is around 89% and relatively stable, tracking well with early cohorts.

Q: California's Exclusively Aligned Enrollment. Impact on Alignment?

A: John Kao said members are choosing to opt out and join Alignment, with no expected erosion in 2026 due to members favoring choice.

Q: Bids for 2026. Trends mentioned?

A: John Kao said not commenting on bids for competitive reasons.

Q: Providers walking away from risk contracts. Impact on Alignment?

A: John Kao said theme of margin pressure on global cap providers, but Alignment's core competency in managing care and risk is a strategic advantage.

Q: Membership engagement with Care Anywhere. Update?

A: John Kao said engagement is incrementally better, around 60-ish percent, with room for improvement through operational changes.

Q: Stars for industry this year. John's thoughts?

A: John Kao said confident in Alignment's star scores, expecting them to be distinctly better than last year, with efforts to improve via care routing and navigation.

Q: Part D favorability in first half and second half expectations. What's driving it?

A: James M. Head said first half favorability was due to prudent forecasting and low bar set, with second half expecting reversal due to potential gross drug cost escalation trends.

Q: National average monthly benchmarks for '26. Thoughts?

A: James M. Head said not commenting on bids related to benchmarks as it's competitive.