Alignment Healthcare, Inc.

Good afternoon and welcome to Alignment Healthcare's first quarter 2026 earnings conference call-in webcast. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask questions during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please note that this event is being recorded. Leading today's call are John Kao, founder and CEO, and Jim Head, 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. Descriptions of some of the 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 factors section on our annual report on Form 10-K for the fiscal year ended December 31, 2025. 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 in our form 10-Q for the fiscal quarter ended March 31st, 2026. I would now like to hand the conference over to CEO John Kao. Please go ahead, sir.

Hello, and thank you for joining us on our first quarter earnings conference call. For first quarter 2026, health plan membership of 284,800 represented year-over-year membership growth of approximately 31%. This supported total revenue of $1.2 billion, which increased 33% year over year. Adjusted gross profit of $146 million represented an adjusted MBR of 88.2%, which improved by 20 basis points year over year. Meanwhile, adjusted SG&A of $108 million improved as a percentage of revenue by 60 basis points year over year to 8.7%. Our adjusted EBITDA was $38 million, which grew by 88% compared to the prior year. This result exceeded the high end of our guidance range and implies an adjusted EBITDA margin of 3.1%. Our results this quarter reflect strong execution across sales and member retention, as well as our clinical operations. Performance in our SG&A ratio also reflects the early outcomes of investments we've made to scale our infrastructure. Progress we are making across each of these areas is giving us even more confidence today that we are on the right path towards our goal of 1 million members. Growing and scaling a business as rapidly as we are in an industry as complex as Medicare Advantage is not a straight line. That being said, we are progressing very nicely as we continue to scale the company and achieve our near-term growth and margin expansion objectives. Importantly, our operational discipline and unique model gives us swift visibility across the organization. This enables us to identify issues quickly and take actions to manage their near-term impact. We focus deeply on continuously identifying opportunities to improve and deploy solutions to create even greater durability across our company. For example, the CMS rule change impacted our observation determination process and drove inpatient admissions per thousand towards the higher end of our expectations in Q1. This process change was resolved by the end of February, but impacted our first quarter inpatient admissions per thousand, which was in the high 150s this quarter. We absorbed this headwind within our Q1 adjusted EBITDA beat and are well positioned as we enter the second quarter. As we build upon our culture of continuous improvement, this year we are scrutinizing and revalidating every aspect of our people, process, technology, and clinical culture to ensure they are positioned to scale. Through this process, we focused on opportunities to deliver more cost efficiencies through claims automation, improvements to our contract management infrastructure, and scalability of our provider data management. For example, just 12 months ago, our claims auto adjudication rate was less than 15%. Now our year-to-date auto adjudication rate is over 60%, and we expect to drive even higher claims automation as we've progressed throughout this year. Meanwhile, we are also deploying contract management solutions that leverage AI to create a more dynamic contract management platform and taking the next leap forward in our AVA AI risk gratification models to create even greater precision in our clinical engagement efforts. We are also investing in our talent by adding team members who will drive greater scalability within our technology infrastructure. These are just a few of the actions we are taking to support our near-term results and accelerate progress toward long-term growth and margin objectives. Finally, before I turn the floor over to Jim, I'd like to spend a few minutes discussing the 2027 final rate notice which was announced earlier this month. At a high level, we are encouraged by the administration's continued pursuit of actions that drive sustainability within the MA program. In a continuation of meaningful policy changes like the Wiser Pilot Program that tackle overspending in traditional Medicare, we also applaud the administration's actions to address overutilization of skin substitute products and fee-for-service. By taking action to create more accountability across every stakeholder in the healthcare ecosystem, we believe the program will increasingly reward those who deliver true, measurable value to members over the long term. Importantly, these dynamics continue to reinforce a core point. Medicare Advantage is a durable program that is here to stay. In that context, we also believe alignment is particularly well positioned to succeed regardless of the rate environment. Our clinical first approach enables us to deliver high quality outcomes at a low cost and forms the sustainable competitive moat that sets us apart from our competitors. In closing, our first quarter results reinforce the strength and durability of our model. We are executing with discipline, scaling thoughtfully, and continuing to translate our clinical approach into consistent financial performance. We're continuing to invest in the scalability of our platform, including automation, AI-enabled workflows, and enhancements to our clinical infrastructure, all of which position us to drive further efficiency and growth over time. With a path toward a million members and unique opportunity to take share and grow profitably across all of our markets, We believe we are well positioned for the years ahead. With that, I'll turn the call over to Jim to further discuss our financial results and outlook. Jim? Thanks, John.

I'll dive straight into our first quarter results. For the quarter ended March 2026, health plan membership of 284,800 increased 31% year over year, driven by strong execution on sales and retention. Increase in membership supported revenue of $1.2 billion in the quarter, representing 33% growth year over year. First quarter adjusted gross profit of $146 million represented an NBR of 88.2%, which reflects an improvement of approximately 20 basis points year over year. Our adjusted gross profit performance this quarter was underpinned by strong engagement from our clinical teams. Their disciplined execution held inpatient admissions per thousand within our range of expectations, despite the temporary disruption to our utilization management process that John previously discussed. Meanwhile, the remainder of our medical costs were in line, with supplemental benefit costs and Part D running modestly favorable through the first three months of the year. Moving on to operating expenses, our SG&A discipline and scalability initiatives, such as back office automation, supported outperformance in our operating cost ratio. For the first quarter, GAAP SG&A was 121 million. Our adjusted SG&A was 108 million, an increase of 24% year over year. Adjusted SG&A as a percentage of revenue declined from 9.4% in the first quarter of 25 to 8.7% in the first quarter of 2026. This represents approximately 60 basis points of improvement year over year and outperformed the midpoint of our implied guidance range by 50 basis points, even as we continued to make focused investments. Taken together, first quarter adjusted EBITDA of $38 million produced an adjusted EBITDA margin of 3.1%, which represents 90 basis points of margin expansion year over year. Turning to our balance sheet, we generated strong operating cash flow in the quarter and concluded with $726 million in cash, cash equivalents, and short-term investments. Our liquidity profile remains strong with ample cash available to the parent company. The funded leverage ratio at the end of Q1 improved to 2.6 times trailing 12-month EBITDA. Turning to our guidance, for the full year 2026, we expect Health plan membership to be between 294,000 and 299,000 members. Revenue to be in the range of 5.16 to 5.21 billion. Adjusted gross profit to be between 620 million and 650 million. And adjusted EBITDA to be in the range of 138 to 163 million. For the second quarter, we expect health plan membership to be between 288,000 and 290,000 members, revenue to be in the range of $1.30 to $1.32 billion, adjusted gross profit to be between $167 million and $177 million, and adjusted EBITDA to be in the range of $50 to $60 million. As it pertains to our full-year guidance, we are increasing our membership growth expectation given continued strength within our sales operations and outperformance in member retention through the open enrollment period. We believe our disciplined approach to sales growth and focus on retention is serving us well this year, particularly as we absorb the impact of the third and final phase-in of V28. In conjunction with the increase in our membership outlook, We are also raising our full-year revenue guidance to approximately $5.2 billion at the midpoint, which reflects 31% growth year-over-year. With respect to our profitability metrics, we are raising the low end of each of our adjusted gross profit and adjusted EBITDA guidance ranges by $5 million to reflect confidence in our full-year objectives following the strong start to the year. Within our outlook expectations, we continue to assume that inpatient admissions per thousand will run higher year over year. As a reminder, this is primarily due to changes in our mix of membership. In 2026, we intentionally focused on growth amongst high acuity populations whom we believe will benefit most from our clinical model. Consistent with past years, we also do not incorporate any assumption for final suite pickup from new members into our outlook assumptions. Taken together, our implied first half guidance reflects confidence that the strong performance we delivered in Q1 will continue into Q2. The midpoint of our guidance implies that approximately 60% of our full-year EBITDA will be generated in the first half of 2026. This compares to approximately 55% of the full-year EBITDA in the first half of 2025, excluding new member final sweeps. Further, on that same basis, this represents nearly 100 basis points of first half adjusted EBITDA margin expansion year over year. In closing, we continue to deliver upon our promises each quarter as we assess, refine, and scale our core workflows and processes. Each of the transformational projects we are investing in and deploying today are establishing the foundation upon which we can scale to achieve our ultimate potential. Our meticulous and disciplined execution to date leaves us even more encouraged about the opportunities ahead. With that, let's open the call to questions. Operator?