Good afternoon, and welcome to the Alignment Healthcare First Quarter 2021 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. Leading today's call are Mr. John Kao, Founder and CEO; and Thomas Freeman, Chief Financial Officer. Before we begin, we would like to like to remind you that certain statements made during this call will be forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions, and information currently available to us. Although we believe these expectations are reasonable, we undertake no obligation to revise any statement to reflect changes that occur after this call. Descriptions of some of the factors that could cause actual results to defer materially from these forward-looking statements are discussed in more detail in our filings with the SEC, including the Risk Factors section of the prospectus for our initial public offering filed with the SEC, on March 29, 2021, and our Form 10-Q for the quarter ended March 31, 2021. In addition, please note that the company will be discussing certain non-GAAP financial measures that they believe are important in evaluating performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the press release that is posted on the company's Web site and in our Form 10-Q for the quarter ended March 31, 2021. I would now like to hand the conference over to your speaker, Mr. John Kao. Please go ahead, sir.

Thank you, Operator, and thank you all for joining our first earnings call as a public company. I'm proud to report that we exceeded our expectations across all of our key performance metrics for the quarter, including our health plan membership, revenue, adjusted gross profit, and adjusted EBITDA. We increased health plan membership by 32% year-over-year, from 62,900 members to over 83,000 members at the end of the first quarter. Our strong growth over the last year reflects how seniors recognize the unique value of our rich offerings. Our revenue of $267 million increased 19% year-over-year on a consolidated basis. More importantly, we described to you in the road show, our health plan premium revenue saw very strong growth, at 30% year-over-year. Our adjusted gross profit came in at $23 million, and our adjusted EBITDA came in at a loss of $14 million. Taking a step back, Thomas and I had a chance to meet with many of you on our recent IPO road show. But for those of you who are new to our story, I'd like to spend a couple of minutes sharing what I believe are key differentiators and what truly makes Alignment Healthcare unlike any other company out there today. We founded Alignment Healthcare, in 2013, with the singular mission, improving healthcare one senior at a time. We are a next-generation consumer-centric platform revolutionizing the healthcare experience for seniors. The foundation of this company is based on the simple belief that we should treat all of our members like we would want our parents to be treated. With decades of experience and lessons learned through my work in health plan, provider, and healthcare IT businesses, I got first-hand experience with how the traditional healthcare system consistently falls short. I realized there has got to be a…

Great. Thanks, John. I'd also like to thank everyone for joining today's call, and for their interest in Alignment Healthcare. From a financial perspective we were pleased with our first quarter results and the momentum we are seeing across the business. In my prepared remarks today, I'll briefly cover our recent IPO, review our first quarter results and conclude by providing our initial outlook for the second quarter and full-year 2021. I'll start with our IPO, which was successfully completed on March 26th. Including the green shoe we sold approximately 30.5 million shares at $18 per share resulted in gross proceeds of approximately $550 million. On a pro forma basis, we have approximately 187.3 million shares outstanding, including approximately 10.5 million restricted shares that are subject to ongoing investing restrictions. Turning to our first quarter results, in spite of the broad COVID related challenges to engage with the senior community during our primary selling season, we were able to generate strong net new enrollment year-over-year and ended the quarter with 83,000 health plan members. Our 32% health plan membership year-over-year growth rate continues to demonstrate our broad value proposition to our senior consumers. In addition to the significant growth opportunity embedded in our 22 markets. Our health by membership growth further translated the strong top-line performance. Total revenue in the first quarter up $267.1 million increased 19% year-over-year, normalizing for the termination of one of our third-party payer capitation contracts in North Carolina our health plan premium revenue growth was quite strong at 30% year-over-year, exceeding our initial expectations. Our revenue per member per month was consistent with our internal expectations for the first quarter. For our returning members, which we define as a member who was with Alignment in 2020, our efforts to engage our seniors and document their…

Thank you. [Operator Instructions] And our first question, coming from the line of Ricky Goldwasser from Morgan Stanley. Your line is open.

Yes, hi, good morning, and congrats on the first quarter. So, first of all, thank you for all the details. I want to just to dig a little bit deeper into what you're seeing in terms of member utilization and acuity levels, how they're progressing versus how you're kind of like shaping your [views] [Ph] for are remainder of the year? And then how is sort of risk scoring activity going on with both new and in the older cohorts?

Yes, thanks, Ricky. Thomas, you want to take that one?

Sure, I can kick it off there, John, but why don't you chime in as well. So, Ricky, nice to chat with you this evening, maybe I'll start on the utilization side and then we can turn towards risk adjustment here. So, as we mentioned, and I think we spoke a little bit on our road show, we did see higher utilization, particularly in the inpatient setting in the beginning of the quarter, which is really a carryover from the fourth quarter of 2020. And then as the quarter progressed and as vaccination rates would continue to improve we did begin to see a decline in utilization that trended back towards what we would kind of refer to as more on normalized baseline or trend line. Right now, however, as we think about the outlook for the year, we are seeing continued utilization through the first part of the second quarter consistent with that more normalized trend. And that is obviously reflected in the guidance that we put forth today. And so, I think we feel good about it. We've not seen anything in terms of surprises related to acuity increases outside of what we would typically expect for a population like ours. And so I think we feel confident, but that's probably all we can say in terms of outlook at the moment. And in terms of risk adjustment, I can maybe comment a little on '21, and also maybe on 2022. And so, in terms of 2021, we are seeing continued visibility on our returning members, which are those we had in 2020. And that's really a result of a lot of the engagement and activity we did in the second-half of last year in order to try to get our clinicians in front of our members, either…

Great, thank you.

And our next question, coming from the line of Ryan Daniels with William Blair. Your line is open.

Yes, thanks for taking the questions. John, very helpful introductory comments, and I'm hoping you can go into a little bit more detail, perhaps on some of the key investments that you're making in AVA as we look out through 2021 and into 2022, that's obviously key to the platform, and the [virtuous] [Ph] growth model, so be curious what you're doing there, number one. And then number two, perhaps you can tie into that some of the novel offerings, like the industry's first virtual plan that I you launched. Curious what the member reaction was to that and what kind of traction you're seeing there and with some of the novel PPO products as well? Thanks.

Hey, Ryan, thanks a lot. Yes, we're continuing to invest in AVA, not only on the kind of algorithm side, so that we get more and more personalized medicine for all the members. So, you'll see more refined stratification algorithms, but also more streamlined workflows associated with our case management and patient management platforms. And so, I'm really excited about that. Everything is designed to allow us to have this notion of predictable, repeatable and scalable outcomes. And I'm really happy with Q1. I'm happy with the investments in AVA. I'll say that we're continuing to make, I'd call it, back office systems investments that enable us to scale. And I'm happy with the progress we're making along that front. I think the degree of provider engagement you're seeing in AVA will continue to get more streamlined also; better dashboards, more specific faster ingestion of data, so we can get information back out to the provider organizations that we partner with faster. All of that is in the works. With respect to your second question, yes, the product innovation, just I'm really proud of the team, we're going to have some exciting products coming out in 2022. We have piloted the AVA product, which is really a virtual product, it's getting very good outcomes, very good engagement. And we'll see more of that in 2022. And then, I think from a provider-sponsored, co-branded perspective, as well as, I call it ethnically-diverse products; you're going to see more coming from us. And all of that I think is going to kind of fold into what I would refer to as just more personalized care for the seniors. And you'll see just more and more refinement, so that we can customize and custom tailor the care plan, the products, et cetera for individual consumers.

Perfect, thank you so much for that. I'll hop back in the queue.

Thanks, Ryan.

And our next question is coming from the line of Kevin Fischbeck with Bank of America. Your line is open.

Great, thanks. I guess one of the things that we've been tracking for all the companies has been, how you guys are thinking about the impact of COVID this year on your results, and how we should think about that as we think about future earnings, is there a headwind kind of embedded in here that we should expect to be a lift either to rate or NOR in future years or that's something that's kind of embedded and you're just going to work through?

Yes, maybe I can take that one.

Thanks, Kevin.

Go ahead, Thomas.

Yes. So, in terms of how COVID has impacted kind of our full-year outlook, I would say that we believe it has had a several sort of percentage point impact in terms of both the revenue side and the cost side. And as a reminder, on the cost side, it's not just the utilization rate, but it's the actual sort of cost of an average hospitalization or our average case rate associated with those COVID cases. So, that has an impact on 2021. But in terms of 2022, we're obviously not going to comment specifically on how that may flow through in the future, but what I would probably remind everyone is the way we think about our business and how we balance sort of consolidated MBR performance in this notion of growth versus profitability is, we're really trying to track our metrics over time along those individual kind of cohorts. And so, to the extent that we continue to invest in growth, and we continue to see our cohorts mature, we would expect those returning, otherwise known as loyal populations to continue to see MBR performance improvement over time, which is typically offset by those newer members that come on with typically higher MBRs. So, if you think about our outlook for future years, the consolidated MBR performance won't just be a function of how does COVID sort of dissipate and transition into future years, but also how does our rate of growth both within our existing markets and new markets also impact that consolidated MBRs. So, just some of the variables do kind of keep in mind in the future and we look forward to speaking to you guys in more specificity as those evolve.

All right, that's helpful. I think, finally, what the stock comp related to the MLR, what is that related to, is that related to the IPO, and is that anniversary at some point next few quarters or is that something that we should kind of expect to persist longer term?

Yes. So, the equity expense that sits inside of the medical expense line means that it's related to either our internal folks who are -- whose salaries are otherwise classified as medical expense. So, it's primarily our internal care delivery teams. And a lot of that kind of one-time major dispense was, in fact, the way the IPO as you mentioned. It also was where some of the expenses headed to our one-time payment for some of our business partners also associated with the IPO. But either way, I would tell you, you'll see some equity-based comp in the medical expense line in the future, but not to the same degree that we saw in the first quarter, which was more materially higher just given the IPO.

Al right, great. Thanks.

Our next question is coming from the line of John Ransom with Raymond James. Your line is open.

Hey, good afternoon. Where do you guys think you will -- as you move through the year in terms of catching up on the backlog of the risk adjustment course?

Well, we've got pretty good visibility on the members that we've had for longer than a year. And we did a very good job at the backend of last year. So, I think you'll see some of those numbers already embedded in the revenue for 2021. As Thomas mentioned earlier, we had over 18,000 new members. And it's just unclear to us, we have no visibility per se, on whether the plans that they were with us again, remember, 85% of our growth comes from switchers. And people like us and they're switching from other legacy plans, where they did the coding or not, whether they did the work or not to actually get the accurate codes defined. And so we'll -- we've just have to wait and see in the major sweeps.

Great. And another company mentioned this week that there's this backlog of something like a billion, it's a nice round number, a billion office visits, physician office visits, and people are getting diagnosed, and they're getting. And I'm just wondering how did you get that sense of gaps of care model? Do you have a sense for your population? Is there in your opinion, as we think about the algorithm of costs is COVID received? But is there an elective way that you're modeling that would related to people finally be able to see the doctor without having to quarantine for two weeks? And do you think, is that part of your assumption for the back-half of the year? It's just more elective type procedures?

Let me take a crack and turn to Thomas. I know you've got some comments on this. I think the algorithms that we have the reason I'm very comfortable with AVAS algorithms with respect to kind of the prioritization of kind of who and when we kind of get the MRI completed, is really with resources that that we have internally. And remember, we have the care anywhere team that takes care of the members, particularly the high acuity, high risk members. And so we're seeing them all the time. And so we make sure that all the information that we capture is included in our thinking with respect to risk adjustment. And so that that part of it is really good. I think with respect to acuity, Thomas, what do you think on that?

Like I said earlier, I don't think right now we're seeing any change in terms of pent-up demand or increases in underlying acuity relative to what we would typically experience or anticipate. Back in 2020 when COVID really first began, we did see sort of that more significant ebb and flow on things like electives. But at this point, we're still are seeing I think, what we would consider to be more standard and customary. So I think we as I mentioned earlier, we want to obviously keep an eye on that ourselves as we think about the rest of your Outlook, but right now there's really no kind of yellow flags or red flags we would highlight for the investors and analysts today.

Great. Thank you so much.

Yes. John, let me just finish the thought also, in February -- back into February, March, April, I mean, it's all kind of back down to normal in terms of admissions per thousand.

Right. Thank you, awesome.

Yes.

Our next question is coming from the line of Jeff Garro with Piper Sandler. Your line is open.

Hi, good afternoon, congrats in the first quarter and thanks for taking the questions. I want to ask a little bit more on member enrollment and you mentioned the modest expectations for the remainder of the year, but I want to ask, what are the key factors that determine how you might perform capturing new members for the rest of the year here in 2021 relative to what's in your internal plan?

Yes, I can take that one, and Thomas again please add color. As you know, I mean, OEP is such material part of our membership growth, and I think we had a very good OEP, which is January through the end of March, and during that period members can switch plans and we did a very good job of growing that. I think once you get into the April to December timeframe, it's just a little bit more unpredictable. And so I think we're taking a probably a conservative view, but again it's a little unpredictable, but we've had a very good first quarter and we'll see what happens when we have the Q2 announcement. Thomas, can you add to that?

I think that's well said and spot on John. Jeff, one other thing I might add in terms of segments of the population, the really the principal growth you might see in a second through the fourth quarter would be people who are aging in to Medicare and kind of choosing inmates in the first time, or potentially duly eligible members. Those who are eligible for both Medicare and Medicaid are allowed to change plans outside of AEP, but you wouldn't see a lot of plans switching obviously happening outside of that AEP period.

Excellent, that helps. One more follow-up from me wanting to ask about stakeholder reception to the IPO and growth so far in 2021, I know you've mentioned that raising awareness was part of the rationale for going public. So I want to ask what the feedback has been, I think most importantly from providers that either are, or could join alignments networks, but also from brokers or other stakeholders?

Yes. Jeff, I can take that. Thank you for that question. It's been fantastic. The provider community is working with us as I mentioned, particularly in our existing states and existing markets, part of the growth is going to be fueled by additional providers in the existing geographic footprint. And that's exactly what's happening. And the teams are working on not only provider contracts, but really strategic kinds of relationships. And it particularly in some of the new markets, what all the providers really want is market share gains. And so what we've been able to prove is kind of consistent high quality low costs translating into these products that are innovative and these innovative competitive products versus the other plans out there is what's driving market share growth. And so, the providers are seeing that and it's really interesting, they love AVA, they love the clinical model, but from a lot of the strategic level dialog, it's around product and product leadership. So, that's too going great. The brokers are excited. They love the innovation. They love the fact that we are -- they just keep saying to us, it's just so good, you guys just keep doing what you say you're going to do, and you keep doing it. So, both have been fantastic responses. Thank you for that question.

Thanks so much.

[Operator Instructions] Our next question is coming from the line of John Ransom with Raymond James. Your line is open.

Hey, sorry, thanks for letting me think one more in. If you think of yourself as a consumer marketing company, I know it's more complicated than that, and you look out as you get bigger, do you think your funnel for new patients is a way that has come in? Some word of mouth, some brokers, some other. Are you looking to move that funnel in any way? Is there something you can do as you get bigger the moral now, and do you think that it's going to continue to be like you've always had it?

Yes, that's a great question, John, thank you. I think about that all the time. And really the growth that we've experienced over the past several years has been really word of mouth. We have not as of yet invested in the brand, Alignment Healthcare. And so, it's really been the performance and living our values, just put the senior first, support the doctor, use data and technology to revolutionize care, and then do it all with a serving heart. That's what we've been focusing on. We've been executing those values. And that's what led to the growth. And so, now as we get bigger and bigger, and as we are expanding the geographic footprint, not only within the existing states, but increasing states, it starts making a lot more sense for us to invest in that brand. So, we're spending a lot of time determining what that means, how we position that, and I think the growth that stems from that it's going to be very, very exciting.

And are you -- I mean certainly juncture, are you thinking more like rifle shots on Web sites, these prospects might visit, are you thinking like more of a mass market like a branding exercise? How you think about spreading the word efficiently?

I would say both end, but we would have really -- as usual it will be very financially disciplined, and be data-driven, metrics-driven, outcomes- driven, and so -- but I think we're going to be very tactical in specific markets, down to the zip code level in many respects. But I do think there's going to be some more broad awareness of the brand, and again, I think it makes sense the bigger we get.

Well, I'm looking forward to your timeline. I mean it tastes great, less filling. I mean the mathematics that [indiscernible] kind of breakthrough. Thanks, guys.

Thanks, John.

Ladies and gentlemen, that's all the time we have for questions. That concludes our conference for today. Thank you for your participation. You may now disconnect.