SEC Filing | Alignment Healthcare, Inc.

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10-Q

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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 September 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 November 1, 2021, the registrant had 187,250,836 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)


	September 30, 2021			December 31, 2020 (1)
Assets
Current Assets:
Cash	$	500,485		$	207,311
Accounts receivable (less allowance for credit losses of $74 at September 30, 2021 and $0 at December 31, 2020, respectively)		47,671			40,140
Prepaid expenses and other current assets		29,236			17,225
Total current assets		577,392			264,676
Property and equipment, net		31,505			27,145
Right of use asset, net		8,272			9,888
Goodwill and intangible assets, net		35,213			34,645
Other assets		4,545			2,148
Total assets	$	656,927		$	338,502
Liabilities and Stockholders' Equity
Current Liabilities:
Medical expenses payable	$	128,775		$	112,605
Accounts payable and accrued expenses		16,557			15,675
Accrued compensation		29,810			25,172
Total current liabilities		175,142			153,452
Long-term debt, net of debt issuance costs		148,967			144,168
Long-term portion of lease liabilities		7,743			10,271
Total liabilities		331,852			307,891
Commitments and Contingencies (Note 12)
Stockholders' Equity:
Preferred stock, $.001 par value; 100,000,000 and 0 shares authorized as of September 30, 2021 and December 31, 2020, respectively; no shares issued and outstanding as of September 30, 2021 and December 31, 2020		—			—
Common stock, $.001 par value; 1,000,000,000 and 164,063,787 shares authorized as of September 30, 2021 and December 31, 2020, respectively; 187,250,836 and 164,063,787 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		188			164
Additional paid-in capital		851,895			410,018
Accumulated deficit		(527,023	)		(379,571	)
Total Alignment Healthcare, Inc. stockholders' equity		325,060			30,611
Noncontrolling interest		15			—
Total stockholders' equity		325,075			30,611
Total liabilities and stockholders' equity	$	656,927		$	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 September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Revenues:
Earned premiums	$	293,275		$	245,491		$	869,014		$	713,713
Other		191			2,376			485			3,100
Total revenues		293,466			247,867			869,499			716,813
Expenses:
Medical expenses		253,990			190,080			779,470			577,978
Selling, general, and administrative expenses		76,846			38,794			212,910			105,279
Depreciation and amortization		4,080			3,933			11,725			11,024
Total expenses		334,916			232,807			1,004,105			694,281
Income (loss) from operations		(41,450	)		15,060			(134,606	)		22,532
Other expenses:
Interest expense		4,414			4,271			12,991			12,623
Other (income) expenses		(48	)		(57	)		(145	)		770
Total other expenses		4,366			4,214			12,846			13,393
Income (loss) before income taxes		(45,816	)		10,846			(147,452	)		9,139
Provision for income taxes		—			—			—			—
Net income (loss) attributable to Alignment Healthcare, Inc.	$	(45,816	)	$	10,846		$	(147,452	)	$	9,139

Total weighted-average common shares outstanding - basic and diluted(1)		177,828,872			152,255,955			169,786,542			148,747,914
Net income (loss) per share - basic and diluted	$	(0.26	)	$	0.07		$	(0.87	)	$	0.06

(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 June 30, 2021		187,273,782		$	188	$	821,384	$	(481,207	)	$	15	$	340,380
Net loss attributable to Alignment Healthcare, Inc.		—			—		—		(45,816	)		—		(45,816	)
Noncontrolling interest attributable to subsidiary		—			—		—		—			—		—
Adjustment to issuance cost estimate related to initial public offering		—			—		—		—			—		—
Issuance of common stock third-party business partners		—			—		—		—			—		—
Forfeitures		(22,946	)		—		—		—			—		—
Equity-based compensation		—			—		30,511		—			—		30,511
Balance at September 30, 2021		187,250,836		$	188	$	851,895	$	(527,023	)	$	15	$	325,075


	Common Stock
	Shares		Amount		Additional Paid-In Capital			Accumulated Deficit			Noncontrolling interest		Total
Balance at June 30, 2020(1)		164,063,787	$	164	$	409,052		$	(358,352	)	$	—	$	50,864
Net income attributable to Alignment Healthcare, Inc.		—		—		—			10,846			—		10,846
Adjustment to issuance cost estimates relating to issuance of common stock		—		—		—			—			—		—
Equity-based compensation		—		—		304			—			—		304
Equity repurchase		—		—		(338	)		—			—		(338	)
Balance at September 30, 2020 (1)		164,063,787	$	164	$	409,018		$	(347,506	)	$	—	$	61,676

(1)

The consolidated balances as of June 30, 2020 and September 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.		—			—		—			(147,452	)		—		(147,452	)
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
Forfeitures		(22,946	)		—		—			—			—		—
Equity-based compensation		—			—		63,796			—			—		63,796
Equity repurchase		—			—		(1,474	)		—			—		(1,474	)
Balance at September 30, 2021		187,250,836		$	188	$	851,895		$	(527,023	)	$	15	$	325,075


	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 income attributable to Alignment Healthcare, Inc.		—		—		—			9,139			—		9,139
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		—		—		980			—			—		980
Equity repurchase		—		—		(1,361	)		—			—		(1,361	)
Balance at September 30, 2020		164,063,787	$	164	$	409,018		$	(347,506	)	$	—	$	61,676

(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)


	Nine Months Ended September 30,
	2021			2020
Operating Activities:
Net income (loss)	$	(147,452	)	$	9,139
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for credit loss		74			54
Depreciation and amortization		11,884			11,304
Amortization-debt issuance costs and investment discount		1,681			1,634
Payment-in-kind interest		3,118			2,989
Loss on disposal of property and equipment		—			990
Equity-based compensation and common stock payments		81,786			980
Non-cash lease expense		2,001			1,756
Changes in operating assets and liabilities:
Accounts receivable		(6,731	)		(972	)
Prepaid expenses and other current assets		(11,829	)		(10,249	)
Other assets		8			35
Medical expenses payable		15,402			(2,115	)
Accounts payable and accrued expenses		(443	)		(3,495	)
Accrued compensation		4,638			7,236
Lease liabilities