SEC Filing | Alignment Healthcare, Inc.

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40295

ALIGNMENT HEALTHCARE, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware	46-5596242
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1100 W. Town and Country Road, Suite 1600 Orange, California	92868
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (844) 310-2247

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

ALHC

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 4, 2021, the registrant had 187,273,782 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents


		Page

PART I.	FINANCIAL INFORMATION	4

Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Stockholders' Equity	6
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Unaudited Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39

PART II.	OTHER INFORMATION	40

Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	41
Item 6.	Exhibits	42
Signatures		44

FORWARD-LOOKING STATEMENTS

Throughout this quarterly report on Form 10-Q (this “Quarterly Report”), we make “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Quarterly Report are forward-looking statements. Forward-looking statements give our current expectations relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely” and other words and terms of similar meaning. The forward-looking statements contained in this Quarterly Report are generally located in the material set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” but may be found in other locations as well. These statements are based upon management’s current expectations, assumptions and estimates and are not guarantees of timing, future results or performance. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:



our history of net losses, and our ability to achieve or maintain profitability in an environment of increasing expenses;



the impact of the COVID-19 pandemic or any other pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide on our business, financial condition and results of operations;



the effect of our relatively limited operating history on investors’ ability to evaluate our current business and future prospects;



the viability of our growth strategy and our ability to realize expected results;



our ability to attract new members;



the quality and pricing of our products and services;



our ability to maintain a high rating for our plans on the Five Star Quality Rating System;



our ability to develop and maintain satisfactory relationships with care providers that service our members;



our ability to manage our growth effectively, execute our business plan, maintain high levels of service and member satisfaction or adequately address competitive challenges;



our ability to compete in the healthcare industry;



the impact on our business of security breaches, loss of data or other disruptions causing the compromise of sensitive information or preventing us from accessing critical information;



the impact on our business of disruptions in our disaster recovery systems or management continuity planning;



the cost of legal proceedings and litigation, including intellectual property and privacy disputes;



risks associated with being a government contractor;



the impact on our business of the healthcare services industry becoming more cyclical;



our ability to manage acquisitions, divestitures and other significant transactions successfully;



our ability to maintain, enhance and protect our reputation and brand recognition;



our ability to effectively invest in, implement improvements to and properly maintain the uninterrupted operation and data integrity of our information technology and other business systems;



our ability to obtain, maintain, protect and enforce intellectual property protection for our technology;



the potential adverse impact of claims by third parties that we are infringing on, misappropriating or otherwise violating their intellectual property rights;



our ability to protect the confidentiality of our trade secrets, know-how and other internally developed information;



the impact of any restrictions on our use of or ability to license data or our failure to license data and integrate third-party technologies;



risks associated with our use of “open-source” software;



our dependence on our senior management team and other key employees;



the concentration of our health plans in California, North Carolina and Nevada;



the impact on our business of an economic downturn;



our management team’s limited experience managing a public company;



our ability to maintain our corporate culture;



the impact of shortages of qualified personnel and related increases in our labor costs;



the risk that our records may contain inaccurate or unsupportable information regarding risk adjustment scores of members;



our ability to accurately estimate incurred but not reported medical expenses;



the impact of negative publicity regarding the managed healthcare industry;



the impact of weather and other factors beyond our control on our clinics, the centers out of which our external providers operate, and the facilities that host our AVA platform (as defined below);



our dependence on reimbursements by CMS and premium payments by individuals;



the impact on our business of renegotiation, non-renewal or termination of risk agreements with hospitals, physicians, nurses, pharmacists and medical support staff;



risks associated with estimating the amount of liabilities that we recognize under our risk agreements with providers;



our ability to develop and maintain proper and effective internal control over financial reporting;



the potential adverse impact of legal proceedings and litigation;



the impact of reductions in the quality ratings of our health plans;



the risk of our agreements with care providers being deemed invalid;



the impact on our business of the termination of our leases, increases in rent or inability to renew or extend leases;



our ability to engage and maintain our relationships with hospitals, physicians, nurses, pharmacists and medical support staff;



the impact of state and federal efforts to reduce Medicare spending;



our ability to comply with applicable federal, state and local rules and regulations, including those relating to data privacy and security; and



other factors disclosed in the section entitled “Risk Factors” and elsewhere in this Quarterly Report.

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report.

All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other SEC filings and public communications. You should evaluate all forward-looking statements made in this Quarterly Report in the context of these risks and uncertainties.

We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this Quarterly Report are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Alignment Healthcare, Inc.

Condensed Consolidated Balance Sheets

(amounts in thousands, except par value and share amounts)

(Unaudited)


	June 30, 2021			December 31, 2020 (1)
Assets
Current Assets:
Cash	$	494,618		$	207,311
Accounts receivable (less allowance for credit losses of $46 at June 30, 2021 and $0 at December 31, 2020, respectively)		66,472			40,140
Prepaid expenses and other current assets		31,801			17,225
Total current assets		592,891			264,676
Property and equipment, net		29,532			27,145
Right of use asset, net		8,876			9,888
Goodwill and intangible assets, net		35,310			34,645
Other assets		3,447			2,148
Total assets	$	670,056		$	338,502
Liabilities and Stockholders' Equity
Current Liabilities:
Medical expenses payable	$	136,478		$	112,605
Accounts payable and accrued expenses		14,615			15,675
Accrued compensation		22,643			25,172
Total current liabilities		173,736			153,452
Long-term debt, net of debt issuance costs		147,333			144,168
Long-term portion of lease liabilities		8,607			10,271
Total liabilities		329,676			307,891
Commitments and Contingencies (Note 12)
Stockholders' Equity:
Preferred stock, $.001 par value; 100,000,000 and 0 shares authorized as of June 30, 2021 and December 31, 2020 respectively; no shares issued and outstanding as of June 30, 2021 and December 31, 2020		—			—
Common stock, $.001 par value; 1,000,000,000 and 164,063,787 shares authorized as of June 30, 2021 and December 31, 2020 respectively; 187,273,782 and 164,063,787 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively		188			164
Additional paid-in capital		821,384			410,018
Accumulated deficit		(481,207	)		(379,571	)
Total Alignment Healthcare, Inc. stockholders' equity		340,365			30,611
Noncontrolling interest		15			—
Total stockholders' equity		340,380			30,611
Total liabilities and stockholders' equity	$	670,056		$	338,502

(1)

The condensed consolidated balance sheet as of December 31, 2020 was derived from the audited consolidated financial statements as of that date and was retroactively adjusted, including shares and per share amounts, as a result of the Reorganization. See Note 1 to the condensed consolidated financial statements for additional details.

See accompanying notes to unaudited condensed consolidated financial statements.

Alignment Healthcare, Inc.

Condensed Consolidated Statements of Operations

(amounts in thousands, except share and per share amounts)

(Unaudited)


	Three Months Ended June 30,					Six Months Ended June 30,
	2021			2020		2021			2020
Revenues:
Earned premiums	$	308,739		$	243,956	$	575,739		$	468,222
Other		212			357		294			724
Total revenues		308,951			244,313		576,033			468,946
Expenses:
Medical expenses		274,385			194,502		525,480			387,898
Selling, general, and administrative expenses		71,150			33,698		136,064			66,485
Depreciation and amortization		3,908			3,526		7,645			7,091
Total expenses		349,443			231,726		669,189			461,474
Income (loss) from operations		(40,492	)		12,587		(93,156	)		7,472
Other expenses:
Interest expense		4,329			4,192		8,577			8,352
Other (income) expenses		(59	)		30		(97	)		827
Total other expenses		4,270			4,222		8,480			9,179
Income (loss) before income taxes		(44,762	)		8,365		(101,636	)		(1,707	)
Provision for income taxes		—			—		—			—
Net income (loss) attributable to Alignment Healthcare, Inc.	$	(44,762	)	$	8,365	$	(101,636	)	$	(1,707	)

Total weighted-average common shares outstanding - basic and diluted(1)		176,842,122			153,185,039		165,698,982			146,974,618
Net income (loss) per share - basic and diluted	$	(0.25	)	$	0.05	$	(0.61	)	$	(0.01	)

(1)

The weighted-average shares used in computing net loss per share, basic and diluted were retroactively adjusted as a result of the Reorganization. See Note 1 to the condensed consolidated financial statements for additional details.

See accompanying notes to unaudited condensed consolidated financial statements.

Alignment Healthcare, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(amounts in thousands, except par value and share amounts)

(Unaudited)


	Common Stock
	Shares		Amount		Additional Paid-In Capital			Accumulated Deficit			Noncontrolling Interest		Total
Balance at March 31, 2021		187,273,782	$	188	$	790,509		$	(436,445	)	$	—	$	354,252
Net loss attributable to Alignment Healthcare, Inc.		—		—		—			(44,762	)		—		(44,762	)
Noncontrolling interest attributable to subsidiary		—		—		—			—			15		15
Adjustment to issuance cost estimate related to initial public offering		—		—		(12	)		—			—		(12	)
Equity-based compensation		—		—		30,887			—			—		30,887
Balance at June 30, 2021		187,273,782	$	188	$	821,384		$	(481,207	)	$	15	$	340,380


	Common Stock
	Shares		Amount		Additional Paid-In Capital			Accumulated Deficit			Noncontrolling interest		Total
Balance at March 31, 2020(1)		164,063,787	$	164	$	408,880		$	(366,717	)	$	—	$	42,327
Net income attributable to Alignment Healthcare, Inc.		—		—		—			8,365			—		8,365
Adjustment to issuance cost estimates relating to issuance of common stock		—		—		329			—			—		329
Equity-based compensation		—		—		350			—			—		350
Equity repurchase		—		—		(507	)		—			—		(507	)
Balance at June 30, 2020 (1)		164,063,787	$	164	$	409,052		$	(358,352	)	$	—	$	50,864

(1)

The consolidated balances as of March 31, 2020 and June 30, 2020 were derived from the audited consolidated financial statements as of that date and were retroactively adjusted, including shares and per share amounts, as a result of the Reorganization. See Note 1 to the condensed consolidated financial statements for additional details.

See accompanying notes to unaudited condensed consolidated financial statements.

Alignment Healthcare, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(amounts in thousands, except par value and share amounts)

(Unaudited)


	Common Stock
	Shares		Amount		Additional Paid-In Capital			Accumulated Deficit			Noncontrolling interest		Total
Balance at December 31, 2020(1)		164,063,787	$	164	$	410,018		$	(379,571	)	$	—	$	30,611
Net loss attributable to Alignment Healthcare, Inc.		—		—		—			(101,636	)		—		(101,636	)
Noncontrolling interest attributable to subsidiary		—		—		—			—			15		15
Issuance of common stock upon initial public offering at $18.00 per share, net of issuance costs of $29,011		21,700,000		22		361,567			—			—		361,589
Issuance of common stock third-party business partners		573,782		1		6,479			—			—		6,480
Issuance of common stock to stock appreciation rights holders		936,213		1		11,509			—			—		11,510
Equity-based compensation		—		—		33,285			—			—		33,285
Equity repurchase		—		—		(1,474	)		—			—		(1,474	)
Balance at June 30, 2021		187,273,782	$	188	$	821,384		$	(481,207	)	$	15	$	340,380


	Common Stock
	Shares		Amount		Additional Paid-In Capital			Accumulated Deficit			Noncontrolling interest		Total
Balance at December 31, 2019(1)		147,157,801	$	147	$	277,787		$	(356,645	)	$	—	$	(78,711	)
Net loss attributable to Alignment Healthcare, Inc.		—		—		—			(1,707	)		—		(1,707	)
Issuance of common stock at $7.99 per share, net of issuance costs of $3,371		16,905,986		17		131,612			—			—		131,629
Equity-based compensation		—		—		676			—			—		676
Equity repurchase		—		—		(1,023	)		—			—		(1,023	)
Balance at June 30, 2020		164,063,787	$	164	$	409,052		$	(358,352	)	$	—	$	50,864

(1)

The consolidated balances as of December 31, 2020 and 2019 were derived from the audited consolidated financial statements as of that date and were retroactively adjusted, including shares and per share amounts, as a result of the Reorganization. See Note 1 to the condensed consolidated financial statements for additional details.

See accompanying notes to unaudited condensed consolidated financial statements.

Alignment Healthcare, Inc.

Condensed Consolidated Statements of Cash Flows

(amounts in thousands)

(Unaudited)


	Six Months Ended June 30,
	2021			2020
Operating Activities:
Net loss	$	(101,636	)	$	(1,707	)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for credit loss		46			35
Depreciation and amortization		7,751			7,284
Amortization-debt issuance costs and investment discount		1,110			1,082
Payment-in-kind interest		2,054			1,974
Loss on disposal of property and equipment		—			990
Equity-based compensation and common stock payments		51,275			676
Non-cash lease expense		1,314			1,151
Changes in operating assets and liabilities:
Accounts receivable		(25,503	)		(18,674	)
Prepaid expenses and other current assets		(14,393	)		(6,729	)
Other assets		6			35
Medical expenses payable		23,105			(1,108	)
Accounts payable and accrued expenses		(2,368	)		6,408
Accrued compensation		(2,529	)		1,052
Lease liabilities		(1,788	)		3,140
Noncurrent liabilities		—			(3,941	)
Net cash used in operating activities		(61,556	)		(8,332	)
Investing Activities:
Asset acquisition, net of cash received		(1,405	)		—
Purchase of investments		(800	)		(1,000	)
Sale of investments		800			250
Acquisition of property and equipment		(9,462	)		(6,725	)
Proceeds from the sale of property and equipment		—			100
Net cash used in investing activities		(10,867	)		(7,375	)
Financing Activities:
Purchase of noncontrolling interest		15			—
Equity repurchase		(1,474	)		(1,023	)
Issuance of common stock		390,600			135,000
Common stock issuance costs		(29,011	)		(3,371	)
Net cash provided by financing activities		360,130			130,606
Net increase in cash		287,707			114,899
Cash and restricted cash at beginning of period		207,811			86,484
Cash and restricted cash at end of period	$	495,518		$	201,383
Supplemental disclosure of cash flow information:
Cash paid for interest	$	5,413		$	5,293
Supplemental non-cash investing and financing activities:
Acquisition of property in accounts payable	$	418		$	258

The following table provides a reconciliation of cash and restricted cash reported within the consolidated balance sheets to the total above:


	June 30, 2021		June 30, 2020
Cash	$	494,618	$	200,883
Restricted cash in other assets		900		500
Total	$	495,518	$	201,383

See accompanying notes to unaudited condensed consolidated financial statements.

Alignment Healthcare, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(amounts in thousands, except share amounts)

1. Organization

Alignment Healthcare, Inc. (collectively, “we” or “us” or “our” or the “Company”), formerly, Alignment Healthcare Holdings, LLC, is a next generation, consumer-centric health care platform that is purpose-built to provide seniors with high quality, affordable care with a vastly improved consumer experience. Enabled by our innovative technology and care delivery model, the Company focuses on improving outcomes in the Medicare Advantage sector.