Alignment Healthcare 2026 Q2 Earnings Call

Sir, you may begin. Hello, and thank you for joining us on our second quarter earnings conference call.

For second quarter 2026, health plan membership of 294,100 represented year-over-year membership growth of approximately 31%. This drove total revenue of $1.3 billion, which increased 32% year-over-year. Adjusted gross profit of $183 million represented an adjusted MBR of 86.3%, which improved by 40 basis points year-over-year. Meanwhile, adjusted SG&A of $115 million improved as a percentage of revenue by 20 basis points year-over-year to 8.6%. Taken together, Q2 adjusted EBITDA of $68 million produced an adjusted EBITDA margin of 5.1% and represents 60 basis points of margin expansion year-over-year.

This quarter marks our lowest MBR as a public company and culminated in a first half adjusted EBITDA of $106 million, putting us well on track to achieve our full-year guidance of $154 million at the midpoint. Importantly, we accomplished this while continuing to invest in our business. Our year-to-date performance reflects our unique ability to balance both growth and margin objectives by actively managing our members through our Care Anywhere clinical teams. With six months of experience into the year, we have strong visibility into the acuity profile of our members and remain focused on engaging our polychronic population who are most at risk. Strong second quarter performance is supported by the deployment of the newest version of our AVA AI-powered stratification model. This advancement improved our ability to predict which members are going to be hospitalized.

Our model now accurately and dynamically predicts the 10% of members who account for nearly 70% of hospital admissions over the next 30 days. Innovations such as this and the deployment of our disease state registries support the proactive engagement activities of our Care Anywhere teams. While we continue to demonstrate strong year-over-year improvement across each of our key financial indicators, an even greater opportunity remains ahead of us. Given our rapid growth in recent years, approximately 50% of our members are still in a year 1 or year 2 cohort. This results in significant embedded earnings potential within our existing membership, which we expect to realize as we engage members through our clinical programs over time. When we first shared the embedded gross profit potential within our membership in early 2025, we indicated a total opportunity of approximately $600 million of adjusted gross profit.

Today, the midpoint of our 2026 full-year guidance already indicates expectations for $640 million of adjusted gross profit. Meanwhile, the embedded gross profit potential of today's membership has grown to approximately $880 million. This positions us well to deliver further earnings growth from the existing members we serve today, while future membership growth further expands our embedded earnings potential. Equally important are the investments we have made in our core systems, cross-functional workflows, and talent. Each of which are strengthening the durability and scalability of our MA platform. These investments are translating into better clinical outcomes, reinforcing the confidence we have in our operations, and highlighting a core principle of our business. Creating alignment among providers, members, and shareholders, which enables us to do well by doing good.

While we invest thoughtfully for the future, our near-term SG&A leverage demonstrates the efficiency of our operating model in improving unit economics. First half adjusted SG&A as a percentage of revenue of 8.7%, improved 40 basis points year-over-year, and more than 300 basis points over the past three years. All of this was achieved while making investments like implementing a more scalable human resources platform, clinical EHR capabilities, and enhanced claims processing systems. Looking ahead, we continue to see opportunities to invest in the second half of the year to drive further operating leverage in the future through automation of back-office processes and greater economies of scale. As we capture these efficiencies, we expect to reinvest a portion of our savings in areas with tangible, measurable returns. This includes new market expansions, branding initiatives, and deepening our AI capabilities.

Beyond its potential to unlock efficiencies in our cost structure, AI represents a meaningful opportunity to further enhance our care model and support providers. Most importantly, our approach to AI is grounded in decades of clinical expertise and reinforces our commitment to high-quality care. This is further supported by a governance framework to ensure responsible use, human accountability, and equitable treatment of our members. In closing, our strategy of balancing rapid growth, disciplined margin expansion, and continuous investment to scale our operations remain unchanged and continues to underpin our story. We achieve this by putting seniors first and supporting our providers. Our second quarter results underscore the strength of our model. As we move forward, we will maintain our disciplined approach to strike the right balance between growth and profitability. With that, I'll turn the call over to Jim to further discuss our financial results and outlook.

Jim? Thanks, John. I'll dive into our second quarter results.

For the quarter ended June 2026, health plan membership of 294,100 increased 31% year over year, supported by strong new member additions and high retention amongst our existing members. This drove revenue of $1.3 billion in the quarter, representing 32% growth year over year. Second quarter adjusted gross profit of $183 million represented an adjusted MBR of 86.3%, which reflects an improvement of approximately 40 basis points year over year. Adjusted MBR, excluding the final sweep pickup related to our new members, was 86.7%, which was favorable to the midpoint of our guidance range. Overall medical cost trends continued to track closely to our expectations. Consistent with typical seasonal patterns and our outlook for the year, inpatient admissions per thousand declined sequentially, and core medical utilization was in line with our assumptions.

Part D and supplemental benefits expense ran modestly favorable to our expectations year to date. We believe each of these factors are supportive of our full year guidance. Turning to operating expenses, our adjusted SG&A was $115 million, an increase of 29% year over year. Adjusted SG&A as a percentage of revenue was 8.6%, which improved 20 basis points year over year and outperformed the midpoint of our implied guidance range by 40 basis points, even as we continued to invest in our automation and scalability initiatives, as John highlighted earlier. Second quarter adjusted EBITDA of $68 million grew by 48% year over year and produced an adjusted EBITDA margin of 5.1%, which represents approximately 60 basis points of margin expansion year over year. In addition, first half adjusted EBITDA of $106 million represents an increase of 60% versus the prior year.

Moving on to cash flow and the balance sheet. We generated $111 million in operating cash flow during the first half of the year, and our liquidity profile remains strong. We concluded the quarter with $702 million in cash equivalents, and short-term investments. Our funded leverage ratio at the end of Q2 improved to 2.2 times our trailing 12 months EBITDA. Moving to our guidance. For the full year 2026, we expect health plan membership to be between 298,000 and 301,000 members, revenue to be in the range of $5.20 billion-$5.23 billion, adjusted gross profit to be between $630 million-$650 million, and adjusted EBITDA to be in the range of $145 million-$163 million.