Alignment Healthcare is still yet to turn a profit, as the company has recorded a net loss of $35 million in the third quarter, but executives are not sweating just yet.
Consistent with previous reporting, Chief Financial Officer Thomas Freeman told investors during an earnings call Thursday that Alignment Health is moving at its own pace to meet long-term financial objectives. While the company ultimately wants to hit membership and revenue goals, it wants to leave open the door for expanding into new markets in 2025 and 2026.
“I think if we were to focus on only driving market share gains in our existing geographies, and not add a single incremental county or new state over time, we could likely reach that goal faster,” said Freeman.
Bank of America Global Research recently downgraded Alignment Health, saying the company is “high quality” but is worried Alignment is not “urgently focused” on expanding margins in the short term, reports Seeking Alpha.
Kao said during the call that he foresees the company’s financial discipline and conservative, compliant tendencies to be a competitive advantage, giving him reason to feel confident in meeting margins moving forward.
The Medicare Advantage (MA) company, which operates in six states in markets comprised of 8.5 million Medicare-eligible seniors, posted revenue of $456.7 million, up 26.7% year over year. Adjusted EBITDA came in at an $8.4 million loss, better than Alignment’s target. Its net loss was stronger than its bottom line this time last year, as the company record a $40.2 million loss in the 2022 third quarter.
An increase in earned premium revenues can be attributed to growth in health plan membership and an increase in Centers for Medicare & Medicaid Services (CMS) benchmark rates, according to a 10-Q filing released Thursday.
MA enrollment increased to 115,600 members, 3,400 more people than last quarter and up 18% year over year. Alignment’s year-end health plan membership guidance was raised to between 117,600 and 118,600, approximately 20% growth year over year.
More than 90% of Alignment’s MA members are enrolled in four-star plans or better. In California, Kao hailed the company’s star rating success, relaying that the California HMO plan has received at least four stars for seven consecutive years.
“Our strong year is particularly notable this year, as the percentage of members and plans rated four stars or better fell from approximately 80% to 55% across our California markets in 2025,” he said. “Many competing plans will now face declining star payments and the phased in effects of the new v28 risk model. Amidst this environment, we will continue to capitalize on our relative funding advantage.”
“According to CMS data, we were one of the top three Medicare Advantage Organizations in terms of HMO net members growth in our California counties between 2016 and 2023,” the 10-Q filing reads. “We believe that there are still significant opportunities for future growth even in our most mature markets where we have a 10-20% market share.”
Excluding ACO REACH, Alignment’s medical benefits ratio sits at 85.7%. That jumps to 86.7% when factoring in ACO REACH. Alignment entered the CMMI Direct Contracting program in 2021, known as ACO REACH since January. Approximately 7,400 ACO REACH seniors are in Alignment’s arrangement with clinician partners.
“It's hard to underwrite when they reset the benchmark every year,” explained Kao. “It’s why we have not deployed capital like some of the others [in the space].”
The company’s net loss per share was $-0.19, meeting market projections set by Zacks Investment Research.
In October, Alignment hosted the grand opening of its Laguna Woods, California, center, a 3,300-square-foot facility for local Medicare beneficiaries to meet with Alignment employees in person. Kao said it would be expensive and unrealistic to expect many more brick-and-mortar locations but that it’s reasonable to think more locations could open in select markets.