Alignment Healthcare outlines 20% membership growth target for 2026 while raising full-year adjusted EBITDA outlook

Earnings Call Insights: Alignment Healthcare (ALHC) Q3 2025

MANAGEMENT VIEW

* CEO John Kao reported that "for the third quarter 2025, we exceeded the high end of each of our guidance metrics. Health plan membership of 229,600 members represented growth of approximately 26% year-over-year. Strong health plan membership growth supported total revenue of $994 million, increasing approximately 44% year-over-year. Adjusted gross profit of $127 million increased by 58% year-over-year." Kao noted, "this produced a consolidated MBR of 87.2%, an improvement of 120 basis points over the prior year."
* Kao stated, "our third quarter results now mark the third consecutive quarter in which we surpassed the high end of our adjusted gross profit and adjusted EBITDA guidance ranges and raised the full year guidance."
* The company highlighted investments in "back-office automation, clinical engagement, AVA AI clinical stratification and Stars durability," which Kao said "will further separate us from our competitors."
* Kao announced, "100% of our health plan members are in plans that will be rated 4 stars or above for rating year 2026, payment year 2027 compared to the national average of approximately 63%." He added, "our California HMO contract earned a 4-star rating. This is its ninth consecutive year rated 4 stars or higher."
* Jim Head, Chief Financial Officer, stated, "revenue of $994 million increased by 44% over the prior year. Outperformance in our revenue growth was predominantly driven by continued momentum in our new member sales during the quarter."
* Head commented, "adjusted SG&A in the third quarter was $95 million and declined as a percentage of revenue by 120 basis points year-over-year to 9.6%."

OUTLOOK

* For Q4, Alignment expects "health plan membership to be between 232,500 and 234,500 members, revenue to be in the range of $995 million to $1.01 billion; adjusted gross profit to be between $104 million and $113 million and adjusted EBITDA to be in the range of negative $9 million to negative $1 million" (Head).
* Full-year 2025 guidance is "revenue to be in the range of $3.93 billion to $3.95 billion; adjusted gross profit to be between $474 million and $483 million and adjusted EBITDA to be in the range of $90 million to $98 million" (Head).
* Kao indicated, "Based on the strength of our early AEP results, we are confident that we are on track to grow at least 20% year-over-year."
* Head reported, "Building upon the strength of our third quarter results, we once again increased the full year outlook for each of our guidance metrics."

FINANCIAL RESULTS

* Health plan membership reached 229,600, up 26% year-over-year (Head).
* Revenue for Q3 was $994 million, with adjusted gross profit of $127 million and adjusted EBITDA of $32 million (Head).
* The consolidated MBR was 87.2%, and adjusted SG&A ratio was 9.6% (Head).
* The company ended Q3 with $644 million in cash, cash equivalents and investments (Head).
* Head explained, "Cash in the quarter was favorably impacted by the timing of certain medical expense payments, which resulted in higher operating cash flow during the third quarter."

Q&A

* Scott Fidel, Goldman Sachs: Asked about market share opportunities amid industry disruption, especially in California versus non-California. Kao replied, "Very, very pleased with across-the-board growth in California and really leveraging the 5 stars in North Carolina and Nevada. Even more importantly is kind of the product mix and the kind of provider networks that we think are very high performing and where the growth is actually occurring."
* Fidel, Goldman Sachs: Inquired about M&A and vertical integration for MLR opportunities. Kao said, "We're looking at a lot of different opportunities. We're being very discerning... to the extent that there are tuck-in opportunities, I think we have to take those more seriously than others relative to, say, buying books of business in completely new markets."
* Matthew Gillmor, KeyBanc: Asked about risk sharing with physicians in California. Kao indicated, "We're about 65% to somewhere between 65% and 70% is in what we would refer to as our shared risk business."
* Jessica Tassan, Piper Sandler: Sought perspective on retention versus gross new adds for '26. Kao stated, "Gross adds are strong across the board and retention is actually better than we anticipated across the board."
* Ryan Langston, TD Cowen: Asked about the frequency of raised EBITDA guidance and internal expectations. Head responded, "What's happened this year is we've just had a lot of good execution in a very difficult year."

SENTIMENT ANALYSIS

* Analysts focused on growth sustainability, market share, risk management, and profitability, expressing interest but also probing for risks and execution details, reflecting a slightly positive to neutral tone.
* Management maintained a confident and measured tone, emphasizing repeatable execution, operational discipline, and readiness for industry volatility. Quotes such as "we are confident" and "we're very pleased" signal strong confidence, while detailed responses to risks and market changes illustrate preparedness.
* Compared to the previous quarter, management's tone remains confident but increasingly focused on operational resilience and strategic discipline, while analyst questions have shifted slightly more toward sustainability and risk mitigation.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for adjusted EBITDA was raised again, now at $90 million to $98 million for 2025 compared to the prior quarter's range of $69 million to $83 million.
* Health plan membership grew from 223,700 in Q2 to 229,600 in Q3.
* The adjusted gross profit margin and SG&A ratio both improved year-over-year and sequentially.
* Management continued its focus on automation, AI, and investment in clinical operations, but increased attention to margin durability and measured growth was evident this quarter.
* Analysts shifted some focus from growth capacity to questions about execution risk and sustainability of improvements.
* Compared to Q2, management’s confidence appears rooted in operational improvements and risk management, with more explicit commentary on provider partnerships and risk-sharing arrangements.

RISKS AND CONCERNS

* Management acknowledged the impact of industry disruption, reimbursement changes, and evolving CMS standards.
* Head flagged seasonality and timing effects on cash flow and claims payable, noting these are expected to normalize.
* There is continued caution around Part D changes and the seasonal impact of flu on Q4 utilization and MBR.
* Analysts raised questions regarding the durability of risk-sharing arrangements, the impact of supplemental benefits, and regulatory changes such as the V28 and potential V29 risk models.
* Management emphasized scalable operating models, prudent investment, and close monitoring of regulatory environment as mitigation strategies.

FINAL TAKEAWAY

Alignment Healthcare delivered another quarter of strong growth and profitability, driven by robust membership gains, disciplined execution, and continued investments in automation, technology, and clinical operations. The company raised its full-year adjusted EBITDA guidance and remains confident in achieving at least 20% year-over-year membership growth for 2026. Leadership highlighted durable high star ratings, operational scalability, and a disciplined approach to balancing growth and margin as key factors positioning the company for continued success amid a dynamic Medicare Advantage landscape.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/alhc/earnings/transcripts]

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