Alignment Healthcare, Inc.

Good afternoon, and welcome to Alignment Healthcare's second quarter 2022 earnings conference call and . At this time, . After the presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. Please be advised that today's conference is being recorded. Leading today's call are John Cahill, founder and CEO, and Thomas Freeman, Chief Financial Officer. Before we begin, we would like to remind you that certain statements made during this call will be forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions, and information currently available to us. Description of some of these factors that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in our filings with the SEC, including the risk factor sections of our annual report on Form 10-K for the fiscal year ended December 31st, 2021, and our quarterly report on Form 10-Q for the quarter ended June 30th, 2022. Although we believe our expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. In addition, please note that the company will be discussing certain non-GAAP financial measures that they believe are important in evaluating performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the press release that is posted on the company's website and in our Form 10-Q for the quarter ended June 30th, 2022. It is now my pleasure to introduce founder and CEO, John Cahill.

Hello, and welcome to our second quarter earnings conference call. I appreciate you joining us. We are pleased to announce another strong quarter in which we exceeded guidance across each of our four key performance indicators and raised guidance for full year 2022 top and bottom line metrics. For the second quarter, our total revenue of $366 million represented 19% growth year over year, bringing our year-to-date revenue growth to 24% year over year. Our health plan membership ended at 95,900 members, growing 13% year over year. Adjusted gross profit of $61 million in the second quarter was solidly ahead of expectations, resulting in an MBR of 83.4%, our lowest quarterly MBR to date as a public company. Lastly, our adjusted EBITDA was positive $10 million, reflecting significant gross profit outperformance during the quarter. Our positive adjusted EBITDA in the second quarter brings our year-to-date adjusted EBITDA positive as well. demonstrated the continued success of our care management capabilities, our AVA technology platform, and the progress of our recent investments in local market management resources. Following a solid first half, we plan to invest a portion of our year-to-date outperformance towards service delivery, quality initiatives, and new market investments. I'm confident about our ability to achieve our full-year financial metrics in 2022 and our capacity to balance solid growth with long-term profitability. As I reflect on the strength of the quarter, I'd like to take a moment to discuss how we are delivering this performance. The short answer is that the replicability of our business model is starting to take hold in all of our markets. The investments in AVA's tools related to clinical operations and provider engagement are being used by providers and our local market management teams, allowing us to replicate outcomes everywhere. We are proving that this business model derived from the notion of doing well by doing good can be successful across varying types of local geographies, ethnicities, acuities, provider relationships, and income levels. We believe our model is the model for delivering the highest value care to seniors while addressing health equity for seniors. Once again, our care management model powered by AVA drove our performance. Across our portfolio of markets, we ran 155 inpatient admissions per thousand in the second quarter, which remains 38% lower than Medicare fee-for-service. Even as we ramp up our new markets, we are becoming more precise in identifying who's most in need of our Care Anywhere resources, and we are increasingly efficient and effective in caring for these members collaboratively with our primary care partners. The deliberate investments we've made in these best practice workflows and actionable data enable us to mass customize our operations in a scalable fashion. In addition, our investments in our local market teams, which we internally refer to as the ground game, are beginning to pay off. We're executing against our market by market plans with a focus on consistent provider engagement and disciplined market management. We believe this combination of centralized technology, consistent workflow processes, and investments in the ground game give us the playbook to systematically reproduce operating results in each market, irrespective of local dynamics. Lastly, we cannot emphasize enough the importance of our focus on service delivery to the consumer. As we continue to enhance our overall member experience, we strive to provide our members with not only best-in-class benefits and access, but also with the highest level of service. In our opinion, that is ultimately the definition of value-based care, holistic value to the consumer in the form of better health outcomes, improved experience, and richer benefits, all at a lower cost. Turning to our recent expansion announcements, subject to CMS approval, we anticipate entering Florida and Texas alongside eight new counties within our four existing states in 2023. These markets are well suited for a diverse array of products in our model of care, while also featuring aligned provider partners. As a reminder, Once established in this state, further expansion over time into contiguous counties creates a more capital-efficient pathway for growth. As we think about our long-term growth runway and the beachheads we are establishing today, the six states we will be operating in for 2023 represent approximately 20 million Medicare eligibles in aggregate. This is just over 30% of the entire Medicare market. Beyond our geographic expansion, as we look ahead to the 2023 annual enrollment period, we are strengthening our provider relationships, investing in our innovative products and expanding our local community presence through our target hires in 2022. We look forward to sharing more about our products in the coming months. In conclusion, After one of our best quarters since taking the company public, we are encouraged by our core operational execution and remain confident in our team's ability to achieve our long-term 20% annual growth target. Our structurally advantaged medical management capabilities, our product innovation competencies, and our provider development engagement model present a durable path forward. With an anticipated six states, 52 counties, and roughly 96,000 members, we are just starting to put our mark on the map. With that, I'll turn the call over to Thomas to review our financial performance. Thomas?

Thanks, John. Turning to the second quarter results, as John mentioned, we are proud to deliver another strong quarter in which we exceeded the high end of our guidance ranges across each of our four KPIs. For the quarter ending June 2022, our health plan membership of 95,900 increased 13% compared to a year ago, as we continue to see positive momentum across our markets. For the second quarter, our total revenue of $366 million represented 19% growth year over year, bringing our year-to-date revenue growth to 24% year over year. A large part of our revenue outperformance in the period resulted from sweep payments from CMS that exceeded our expectations. This includes both the final sweep from 2021 as well as the mid-year true-up for 2022. Similar to our comments during the second quarter last year, we would reiterate that these sweep payments are standard course of business on our industry and happen every year. It's also worth noting that a significant portion of the sweep dollar payments we receive are shared with our providers through various contract arrangements, including full capitation, partial risk pool, and upside-only profit share payments. Accordingly, our revenue outperformance in the quarter does not entirely flow through to our profitability measures. Our top line outperformance in the quarter was coupled with strong MBR management. In fact, as John mentioned, our best quarter yet as a public company. Our adjusted gross profit of $61 million implies an MBR of 83.4% as utilization continued to run below our seasonal baseline. This is reflected in our 155 inpatient admissions per thousand this quarter, including a lower mix of COVID hospital admissions relative to total hospital admission than was contemplated in guidance. SG&A in the quarter was $62 million, excluding equity-based compensation expense, our SG&A was $51 million, an increase of 20% year-over-year. Our SG&A for the second quarter included a couple million of timing favorability that we anticipate reversing over the back half of the year. Lastly, our adjusted EBITDA was a positive $10 million, exceeding our expectations for the quarter. Notably, we're proud to report that our first half of 2022 adjusted EBITDA was positive 6 million, demonstrating the competitive differentiation of our MBR model. Given the strength of our results in the first two quarters of the year, we are assessing areas to redeploy this outperformance over the next two quarters. Turning to the balance sheet, we ended the quarter with 297 million in net cash. We continue to expect our balance sheet strength to fund our organic growth and working capital needs without requiring external financing. Turning to guidance, for the third quarter, we expect health plan membership to be between 97,100 and 97,300 members, revenue to be in the range of 330 million and 335 million, adjusted gross profit to be between 38 million and 40 million, and adjusted EBITDA to be in the range of a loss of $23 million to a loss of $20 million. For full year 2022, we expect health plan membership to be between 97,300 and 99,000 members, revenue to be in the range of $1.365 billion and $1.38 billion, adjusted gross profit to be between $177 million and $184 million, and adjusted EBITDA to be in the range of a loss of $41 million to a loss of $35 million. On the back of our outperformance in the second quarter, we are reiterating our full-year 2022 membership guidance and raising our full-year revenue guidance. We note that our revenue forecast takes into account the sweep pickups in the second quarter and includes the full 2% return of sequestration beginning in the third quarter. Now that we are through the mid-year sweep, and given the high degree of visibility associated with our subscription-like recurring revenue model, we feel confident about our second half revenue outlook. Additionally, we are raising our full year 2022 adjusted gross profit expectation and narrowing our guidance range. We remain mindful of the potential for COVID utilization to increase over the next six months, particularly in the fourth quarter. Of note, our COVID hospital census has increased over a 45-day period into mid-July, as the new BA.5 variant became more prevalent. However, while this trend is something we are continuing to monitor, our COVID utilization levels today continue to run lower than our experience with the Omicron wave. Our second half guidance assumes that our overall utilization runs approximately in line with our historical baseline, inclusive of the potential for a modest spike in COVID-related utilization. We are also looking to reinvest some of our year-to-date MDR outperformance towards furthering our care and quality initiatives, as well as ramping up our new market clinical hires as we think about our 2023 launches. Lastly, we are also raising our adjusted EBITDA guidance inclusive of the SG&A timing factors we mentioned previously. As we've said before, we are thoughtfully managing our short-term profitability objectives with our longer-term growth, MBR management, and scalability objectives. In summary, we are very pleased with how our business has performed in the first half of the year, and we believe we're in a strong position to continue to build upon that progress in the second half. With that, I'd like to turn it back to John to wrap things up.