Alignment Healthcare, Inc. (ALHC)·Q2 2025 Earnings Summary

Executive Summary

• Q2 delivered breakout profitability: revenue $1.015B (+49% YoY), adjusted EBITDA $45.9M (4.5% margin), MBR 86.7%, and membership 223,700 (+27.8% YoY); management exceeded the high end of all Q2 guidance metrics and raised full-year outlook across membership, revenue, adjusted gross profit, and adjusted EBITDA .
• Guidance raised: FY25 revenue to $3.885–$3.910B (midpoint +$125M), adjusted gross profit to $452–$469M (midpoint +$28M), adjusted EBITDA to $69–$83M (midpoint +$27M), membership to 229–234K; Q3 revenue guided to $970–$985M and adjusted EBITDA to $5–$13M .
• Execution drivers: inpatient admissions per thousand ran “in the low 140s,” Part D MBR slightly favorable 1H, ~$14M 2024 final sweep uplift to adjusted gross profit; SG&A timing benefit of ~$6M in 1H expected to reverse in 2H; company expects to be free-cash-flow positive in 2025 .
• Quality/regulatory tailwinds: court ruling lifted Arizona HMO stars to 4.0, putting 100% of members in plans rated 4+ stars for PY2026; management expects widening star advantages and at least 20% growth with EBITDA up in 2026 .

What Went Well and What Went Wrong

What Went Well

• Strong beat across all Q2 metrics: “results that exceeded the high end of each of our guidance metrics for the second quarter in a row” and adjusted EBITDA of $46M vs $10–$18M guided .
• Utilization control: “inpatient admissions per thousand ran in the low 140s and outperformed our expectations,” supporting MBR improvement and gross profit strength .
• Stars and market share: “100% of our members in a plan receiving four star or above payment in 2026” and taking share amid incumbent dislocation under V28 . Arizona legal win bolsters star positioning and benefits funding .

What Went Wrong

• Part D caution for 2H: despite slight 1H favorability, management held assumptions “approximately unchanged” and expects Part D MBR modestly lower in 2H to provide cushion vs drug cost escalation and utilization in non-LIS cohorts .
• SG&A timing reversal: ~$6M timing benefit in 1H will reverse in 2H; Q4 SG&A expected higher due to AEP ramp and 2026 staffing, limiting Q4 EBITDA vs Q3 .
• Seasonality headwind: Q4 MBR expected “higher than Q3” given lower PMPM revenue, flu season utilization, and IRA-induced Part D seasonality changes .

Financial Results

GAAP Financials and Core KPIs

Revenue Composition

Analyst Consensus vs Actuals (S&P Global)

Values marked with * retrieved from S&P Global.

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We are pleased to report another quarter of strong, disciplined execution with results that exceeded the high end of each of our guidance metrics for the second quarter in a row this year.” — John Kao, CEO .
• “Our second quarter inpatient admissions per thousand ran in the low 140s and outperformed our expectations... highlighting our model's durability.” — John Kao .
• “Favorability from the 2024 final sweep contributed approximately $14 million to adjusted gross profit… a normal part of our business.” — Jim Head, CFO .
• “With this latest update, our stars advantages are poised to widen, with 100% of our members in a plan receiving four star or above payment in 2026.” — John Kao . Arizona HMO revised to 4 stars via court ruling .

Q&A Highlights

• Provider partnerships: deeper integration with IPAs and medical groups drives utilization control and shared savings; differentiation under V28 environment .
• Part D: cautious stance for 2H to guard against drug cost escalation and non-LIS utilization; slight 1H favorability acknowledged .
• SG&A leverage: Q2 adjusted SG&A ratio 8.8%; clean data architecture and streamlined workflows viewed as competitive advantage; timing benefit ~$6M to reverse in 2H .
• Growth and bids: at least 20% growth targeted for 2026; management declines to disclose bid specifics; opportunity from competitor benefit cuts/plan exits .
• Membership engagement: Care Anywhere engagement ~60%, aiming for 70–75% via operational changes and IPA delegation refinements .

Estimates Context

• Q2 2025 revenue beat: actual $1,015.3M vs consensus $961.0M*, driven by strong member additions, Part D PNPM uplift, provider execution, and ~$14M final RAF sweep; EPS (Primary/normalized) $0.1382* vs $0.0125*; note GAAP diluted EPS was $0.07 . Values marked with * retrieved from S&P Global.
• Prior quarters: Q1 2025 actual $926.9M vs $888.3M*; Primary EPS actual $0.0443* vs $(0.045); Q4 2024 actual $701.2M vs $677.4M; Primary EPS actual $(0.057)* vs $(0.105)* . Values marked with * retrieved from S&P Global.
• Implications: Street estimates likely to move up on FY25 revenue and EBITDA following raised guidance and operational momentum; model updates should adjust MBR trajectory (FY implied 88.2%) and incorporate SG&A timing reversal, seasonality, and Part D conservatism .

Key Takeaways for Investors

• Momentum plus discipline: sustained beats and raised FY guidance signal durable execution; watch Q3 EBITDA > Q4 per seasonality guide .
• Quality moat: Arizona stars upgrade and 100% of members in 4+ star plans for PY2026 enhance benefit funding and competitive positioning .
• Utilization control: inpatient admissions per thousand “low 140s” and strong provider alignment are key to MBR improvement and EBITDA scaling .
• Part D risk managed: slight 1H favorability but prudent 2H posture under IRA; expect higher Q4 MBR seasonality and controlled assumptions .
• Free cash flow turning positive: company expects to be FCF positive in 2025, adding balance sheet flexibility (cash/cash equivalents/investments $504M) .
• 2026 growth: management targets at least 20% growth with EBITDA up; investments in automation, care navigation, and data architecture should widen cost/quality advantages .
• Trading setup: near-term catalysts include Q3 delivery vs guide, star score confirmations, AEP outcomes, and evidence of SG&A reversal magnitude and Part D seasonality impacts .