Alignment Healthcare, Inc. (ALHC) Earnings

Management highlights

- Core Operational and Clinical Progress • Q2 2026 marked Alignment's lowest MBR as a public company, with year-to-date performance putting the firm well on track to hit full-year 2026 guidance. • Deployed an updated version of the AVA AI-powered member risk stratification model that now accurately dynamically predicts the 10% of members responsible for nearly 70% of hospital admissions in the next 30 days, enabling proactive clinical engagement via the company's Care Anywhere teams. • Approximately 50% of current members are in year one or year two of their enrollment, creating significant embedded earnings potential that will be realized as clinical programs engage the member base over time; embedded adjusted gross profit potential for the current membership base has grown to $880 million, up from the $600 million forecast in early 2025. • The mature California market segment is performing well, with lower MBRs driven by cohort maturation, while non-California markets are still growing and have younger member cohorts with temporarily higher MBRs that are expected to improve over time, and are currently performing in line with expectations. • 50% of 2026 new members are in higher-acuity C-SNP, D-SNP, and dual eligible categories, an intentional strategic choice given Alignment's care model is tailored to serve this population. • Centralization of clinical and medical management functions, and work to build end-to-end risk management capabilities for multiple contract types (from full global capitation to delegated and non-delegated shared risk), is progressing well, giving the firm strategic flexibility to expand into new markets with any provider contracting structure. - Strategic Investments and Scaling Initiatives • Substantial investments have been made in core systems, cross-functional workflows, and talent to strengthen the durability and scalability of the company's MA platform. First-half 2026 adjusted SG&A as a percentage of revenue improved 40 basis points year-over-year and more than 300 basis points over the past three years, even with these ongoing investments. • Additional investments are planned for the second half of 2026, focused on back-office process automation, AI capabilities, new market expansion preparation, branding, and clinical hiring for Care Anywhere, all to drive future operating leverage. • The company's AI strategy is grounded in clinical expertise, with a governance framework to ensure responsible, equitable, and accountable use of AI to improve care and unlock cost efficiencies.

Guidance

- Full-year 2026 guidance has been updated with upward revisions to membership and revenue, driven by stronger-than-expected sales execution: membership is now projected at 298,000 to 301,000, revenue is projected at $5.20 to $5.23 billion (32% year-over-year growth at the midpoint), adjusted gross profit is projected at $630 to $650 million (the low end of the range was raised by $10 million), and adjusted EBITDA is projected at $145 to $163 million (the low end of the range was raised by $7 million). - Q3 2026 guidance calls for membership of 295,500 to 297,500, revenue of $1.30 to $1.32 billion, adjusted gross profit of $148 to $158 million, and adjusted EBITDA of $20 to $30 million. - The company expects approximately 30% of full-year 2026 adjusted EBITDA to be generated in the second half, down from 40% in the second half of 2025, due to a flatter Part D MBR slope, and pre-expansion investments in clinical operations and SG&A that are weighted to Q3 2026. - Alignment maintains its long-term target of ~20% enrollment growth for 2027, and plans 2027 market expansion within its existing state footprint, with new state expansion planned for 2028.

Segment performance

Alignment Healthcare is a Medicare Advantage (MA) insurer operating as a single integrated business segment focused on MA plan services. For Q2 2026, the company reported total revenue of $1.3 billion, a 32% year-over-year increase, driven by 31% year-over-year membership growth to 294,100 total health plan members. Adjusted gross profit for the quarter was $183 million, with an adjusted medical benefit ratio (MBR) of 86.3%, a 40 basis point improvement year-over-year. Adjusted selling, general and administrative (SG&A) expense was $115 million, equal to 8.6% of revenue, a 20 basis point improvement year-over-year. Adjusted EBITDA for Q2 2026 was $68 million, representing a 5.1% adjusted EBITDA margin, 60 basis points of year-over-year margin expansion, and 48% year-over-year adjusted EBITDA growth. For the first half of 2026, total adjusted EBITDA was $106 million, a 60% year-over-year increase. No separate product segment financial data was provided.

Risks & headwinds

- Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations, which are detailed in Alignment's SEC filings, including the 2025 Form 10-K. - Uncertainty remains around the upcoming MA 2028 technical rule currently under OMB review, as the company has no visibility into the final content or scope of the rule. - There is regulatory and legal uncertainty around Medicare STARS rating cut points, with ongoing litigation that could change the implementation of STARS requirements for the entire industry. - Industry competition for 2027 MA enrollment is expected to increase, as one to three historically less aggressive players are expected to pursue more aggressive growth strategies. - Higher-acuity new member cohorts (including a large share of SNP members) result in temporarily higher MBR in the early term, though this is an intentional investment expected to pay off over time.

Analyst Q&A

• Q: Can you provide more detail on the Q3 2026 investment timing, what the investments are, their transience, and expected benefits for 2027 and 2028? /

  A: Q3 guidance reflects three factors driving higher expected MBR: typical seasonality, new member mix, Part D utilization patterns, and deliberate new investments. Investments are split between clinical operations/Care Anywhere (preparing for new market growth, hitting MBR) and SG&A (automation, AI, preparing for 2027 market launches). Additional double-digit million dollar investments will be made across both categories in the second half, with more spending weighted to Q3. All investments are within 2026 financial commitments, deliberate, and expected to deliver long-term returns while the company still meets its full-year 2026 commitments.

• Q: Is the long-term cohort MBR framework (93% year one, 82.1% year five) still valid after the implementation of the MA 2028 V28 rule, and how is Alignment positioning for expected increased 2027 industry competition? /

  A: The cohort trending and MBR framework is fully unchanged from what the company shared previously, and the embedded earnings potential outlook shared in prepared remarks is based on this unchanged framework. Alignment's strategy is focused on scaling its care model to deliver the same level of earnings power in new non-California markets that it has delivered in its mature California market, with all current investments designed to support this scale and portability goal to hit the long-term target of 1 million total lives.

• Q: How is the centralization of clinical and medical management functions (moving away from some delegated capitation arrangements) progressing, and do Q3 2026 clinical investments relate to this work? /

  A: This is a key strategic priority, and the company is building end-to-end operational capabilities to support any provider contracting model, from full global capitation to delegated shared risk to non-delegated directly contracted arrangements. The work is largely complete, and gives Alignment strategic flexibility to expand into new markets regardless of local provider preferences, creating a differential advantage. Q3 2026 clinical investments align with this strategic theme, including work on AI stratification, workflow automation, and administrative tools that support the scaled model. The $6 million 2025 prior year reserve increase is unrelated to this work, which is already resolved and performing very well year-to-date.

• Q: How are California and non-California MBR performance tracking relative to each other and expectations? /

  A: Statutory California filings are not directly comparable to the company's consolidated GAAP results. The mature California market has an older, more tenured member cohort, so it delivers stronger (lower) MBRs, and is currently performing very well. Non-California markets have seen substantial growth over the last two years, so most members are in early enrollment cohorts with higher MBRs, which is expected. The embedded earnings in these markets will be realized as members mature, and performance is currently tracking in line with company expectations across both segments.