Alignment Healthcare, Inc.

Welcome to the Alignment Healthcare First Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. John Cahill, Founder and Chief Executive Officer. Please go ahead.

Hello, and welcome to our first quarter earnings conference call. I appreciate you joining us. We are proud to report another strong quarter, beating guidance across each of our four key performance indicators. For the first quarter, our total revenue of $346 million represented 29% growth year over year. This was led by our health plan premium revenue of $331 million, representing 25% growth. Our health plan membership ended at 94,200 members, growing 13.4% year over year. Adjusted gross profit of $45 million in the first quarter was also ahead of expectations. Our gross margin engine continues to produced strong MBR outcomes, coming in this quarter at 87.0%. Lastly, our adjusted EBITDA was a loss of only $4 million as the vast majority of our adjusted gross profit outperformance fell to the bottom line. The outcomes in our first quarter indicate continued progress towards our long-term profitability objectives. After a solid start to the year, I'm feeling optimistic and about our ability to continue to successfully execute against our strategic and financial objectives for the remainder of 2022. For our conversation today, we would like to cover three topics with you, including an overview of how we uniquely engage with the primary care community, an update on growth and our investments in market management, and a preview into our 2023 planning. During our initial public offering last year, we shared that our operating model centers around core principles that drive our virtuous cycle and are critical to building a successful Medicare Advantage platform. In the past, you've heard us talk about the achievements of our clinical model and our proprietary AVA technology. Today, we want to talk to you about the third key piece of the model, provider engagement, which is an essential component of how we create our strong MBI results that translate into high-value products for seniors. Our engagement was based on three important value propositions for the primary care provider. Number one, better care. Number two, better practice operations. And number three, better financial results. As we've been out in the field focused on our growth initiatives, one of the most encouraging things we've experienced is that our provider engagement model and value proposition continue to uniquely resonate. Our approach to partnering with primary care physicians is different from others, as we do not have to employ primary care physicians in order to achieve successful outcomes. So we are certainly open to that dialogue should the provider have interest. Nor do we force them to change the way they practice medicine at the point of care. Instead, we create clinical, operational, and financial alignment allowing us to form win-win relationships between the doctor, their front office staff, and Alignment Healthcare, all for the benefit of the senior. From a clinical perspective, we believe that most clinicians are great at what they do, and we don't want to change what has made them successful. Alignment is committed to helping its primary care providers become even better and deliver even better care. We support the provider by helping them care for the most vulnerable seniors, through our Care Anywhere program, which we view as an extension of their practice. Our Care Anywhere employed clinical teams provide extra care in the home or virtually to the 10 to 20% of our members who are chronically ill or high risk. This support gives time back to our primary care physicians to provide more care to more patients. We do all of this free of charge for our alignment members and free of charge to the provider. Importantly, members enrolled in our Care Anywhere program stay paneled to the existing primary care provider. In addition, we support our providers with actionable insights and valuable member data, which are made available to them real time. From an operational perspective, our proprietary AVA technology tools and data help providers navigate the complex world of value-based care and optimize their performance. Physicians, front office staff, and provider organization leadership are provided with access to our population health data for their panel, as well as monthly reporting and stratification tools that we believe help them manage their practice. While we do not require providers to use our applications or tools at the point of care, we consistently hear feedback from our network of providers that our approach to sharing information is more transparent, comprehensive, timely, and insightful than other health plans. Whether it's stratification tools, gap closure lists, financial and utilization performance dashboards, or clinical insight applications, our model facilitates greater collaboration and more efficient and streamlined operations. From a financial perspective, we strongly believe in aligned incentives with our provider partners. In order to achieve this, we typically enter into gain share, profit share, and or risk-sharing contracts with aligned physician incentives to align its total cost of care or MBR for their panel. More than 97% of our members are paneled to providers that participate in some form of gainshore or risk-sharing opportunity. Since our partners are financially aligned to provide clinical and quality outcomes, our members are able to have a greater member experience as reflected in our net promoter scores while our providers are able to experience better financial results. These three key components of our provider engagement model have been critical to how we differentiate ourselves in the market and how we plan to grow our business model. Turning to 2022 and 2023 growth initiatives, our ingredients for growth remain the same. Provide high quality at a low cost. Invest in local market management and focus on on our products, partnerships, and expansions. While early, we're starting to see positive traction with our market management initiatives. Our membership as of April, which reflects both the start of Q2 and the end of the open enrollment period, ended at 95,000 health plan members, well on our way toward the 97,300 to 99,000 year-end membership guidance. While our primary Short-term focus is on 2022 growth. Our activities are also designed to support our 2023 growth plans as we build a repeatable, scalable platform. Though it is too early to comment on our specific 2023 product strategies due to the competitive nature of the bids, we intend to maintain our balanced approach targeting sustainable products and profitable growth. Meanwhile, to bolster our 2023 growth objectives, we are planning for both contiguous county expansions to go deeper in our existing states as well as new states in 2023 subject to regulatory approval. Given our 12 to 18-month new market sales cycle, we're very pleased with our progress toward 2023 new provider partnerships and market launches. We look forward to sharing more information later this summer after our bids have been submitted. Wrapping up, 2022 is off to a great start, as evidenced by our first quarter results. In addition to our financial performance, we continue to make great progress scaling our Medicare Advantage platform. Lastly, it is the steadfast commitment of our mission-driven employees that makes all of this possible for our seniors. As always, thank you to the entire alignment team for your tireless work putting seniors first in all you do. With that, I'll turn the call over to Thomas to review our financial performance.

Thomas? Thanks, John. Turning to the first quarter results, as John mentioned, we had another strong quarter in which we exceeded the high end of our guidance ranges across each of our four KPIs. For the quarter ending March 2022, our health plan membership of 94,200 increased 13.4% compared to a year ago as we continue to see positive momentum across our markets. Total revenue was $346 million in the quarter, increasing 29% compared to a year ago. This was led by our health plan premium revenue of $331 million, reflecting growth of 25% year-over-year. It's worth noting that our first quarter health plan premium growth of 25% was a combination of both 13.4% membership growth along with 9% health plan revenue PMPM growth. Our revenue PMPM accrual for the first quarter reflects slightly earlier visibility to our projected full year revenue PMPM compared to this point in time last year. Accordingly, the 9% increase in our health plan revenue PMPM year over year was largely due to timing in the first quarter. On our last earnings call, we commented that our full year 2022 guidance incorporates an increase in our health plan revenue PMPM of approximately 2% compared to 2021. I will cover this in further detail momentarily, but we still believe that to be the case today. And we do not anticipate that the earlier Q1 visibility will change our full year expectations. Our top line outperformance in the quarter was coupled with strong MBR management. Our adjusted gross profit of 45 million reflects an MBR of 87.0%, including the impact of COVID utilization in the back half of January and the first part of February. As a reminder, Our COVID inpatient admissions per thousand peaked in January at a rate that was close to two and a half times the COVID admissions per thousand we experienced during the Delta variant wave last summer. However, as we've seen in prior waves, we did experience an offset from a reduction in non-COVID utilization that continued throughout the remainder of the quarter. It's also worth noting that our $45 million of adjusted gross profit in the quarter included approximately $6 million of prior period favorable adjustments related to incurred but not paid claims estimates. We reflect our latest estimates of prior period development each quarter as part of our normal business cycle. However, this quarter was slightly more favorable than previous quarters. Excluding the prior period favorability, we were pleased to still deliver adjusted gross profit well above the high end of our guidance range. SG&A in the quarter was $74 million. Excluding equity-based compensation expense, our SG&A was $49 million, an increase of 24% year-over-year. Lastly, our adjusted EBITDA was a loss of $4 million, exceeding our expectations for the quarter on the back of our strong adjusted gross profit performance, as well as continued demonstration of SG&A scalability. Our consolidated adjusted EBITDA performance for the first quarter reflects our more mature markets continuing to build momentum towards consolidated profitability while we continue to invest in our newer market and growth initiatives. In terms of the balance sheet, we ended the quarter with $294 million in net cash. As mentioned on previous calls, we view our balance sheet as an area of strength given our ability to continue to fund our organic growth and working capital needs without requiring external financing. With that in mind, we also continue to evaluate small but accretive opportunities to deploy capital towards M&A. Turning to our guidance, for the second quarter, we expect health plan membership to be between 95,500 and 95,700 members, revenue to be in the range of $335 million and $340 million, adjusted gross profit to be between $41 million and $43 million, and adjusted EBITDA to be in the range of a loss of $11 million to a loss of $8 million. For a full year 2022, we expect health plan membership to be between 97,300 and 99,000 members, revenue to be in the range of $1.335 billion and $1.350 billion, adjusted gross profit to be between $165 and $174 million, and adjusted EBITDA to be in the range of a loss of 46 million to a loss of 39 million. We are reiterating our full year 2022 membership guidance and raising our full year revenue guidance on the back of a solid conclusion to the OEP period, as well as revenue outperformance in the first quarter. We know that our revenue forecast includes the 1% return of sequestration in the second quarter, as well as the full 2% return of sequestration beginning in the third quarter. As mentioned previously, Due to our revenue PMPM visibility and first quarter revenue accrual, we note that our second quarter revenue guidance implies a lower growth rate year over year. However, this is simply timing between quarters, and we encourage investors to focus on our full year revenue outlook. Given our first quarter adjusted gross profit outperformance, we are raising our full year 2022 adjusted gross profit expectations in addition to narrowing our guidance range. As we think about our adjusted gross profit and MBR assumptions over the next nine months, We remain mindful that we are early in the calendar year, and we will likely continue to see some variability in utilization as the rest of the year progresses. Our guidance expectations are predicated upon utilization running approximately in line with our historical baseline experience, inclusive of the potential for a modest spike in COVID-related utilization. Lastly, we are raising the low end of our adjusted EBITDA guidance. As we said before, it's a strategic imperative of ours to continue to balance our short-term profitability objectives with our longer-term growth objectives. As the year progresses, we anticipate continuing to evaluate ways to reinvest any adjusted gross profit outperformance towards our 2023 and 2024 growth initiatives. In summary, we are very pleased with our first quarter results and think it's a solid start to the year. Our team is executing on our strategic initiatives across markets, and we look forward to updating you on our progress throughout 2022. With that, let's open the call to questions.