ALIGNMENT HEALTHCARE, INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is intended to help the reader understand
our business, financial condition, results of operations, liquidity and capital
resources. This discussion should be read in conjunction with our audited
financial statements and the accompanying notes as well as "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in our Annual Report on Form 10-K for the year ended
December 31, 2021 (our "Annual Report"), as well as our unaudited condensed
consolidated financial statements and related notes presented herein in Part I,
Item 1 included elsewhere in this Quarterly Report. Unless the context otherwise
indicates or requires, the terms "we", "our" and the "Company" as used herein
refer to Alignment Healthcare, Inc. and its consolidated subsidiaries, including
Alignment Healthcare Holdings, LLC, which is Alignment Healthcare, Inc.'s
predecessor for financial reporting purposes.

In addition to historical data, the discussion contains forward-looking
statements about the business, operations and financial performance of the
Company based on our current expectations that involves risks, uncertainties and
assumptions. Actual results could differ materially from those discussed in or
implied by forward-looking statements as a result of various factors, including
those discussed above in "Forward-Looking Statements," and Part II, Item 1A,
"Risk Factors."

                                    Overview

Alignment is a next generation, consumer-centric platform designed to
revolutionize the healthcare experience for seniors. We deliver this experience
through our Medicare Advantage plans, which are customized to meet the needs of
a diverse array of seniors. Our innovative model of consumer-centric healthcare
is purpose-built to provide seniors with care as it should be: high quality, low
cost and accompanied by a vastly improved consumer experience. We combine a
proprietary technology platform and a high-touch clinical model that enhances
our members' lifestyles and health outcomes while simultaneously controlling
costs, which allows us to reinvest savings back into our platform and products
to directly benefit the senior consumer. We have grown Health Plan Membership,
which we define as members enrolled in our health maintenance organization
("HMO") and preferred provider organization ("PPO") contracts, from
approximately 13,000 at inception to 98,000 as of September 30, 2022,
representing a 29% compound annual growth rate across 38 markets and 4 states.
Our ultimate goal is to bring this differentiated, advocacy-driven healthcare
experience to millions of senior consumers in the United States and to become
the most trusted senior healthcare brand in the country.

Our model is based on a flywheel concept, referred to as our "virtuous cycle,"
which is designed to delight our senior consumers. We start by listening to and
engaging with our seniors in order to provide a superior experience in both
their healthcare and daily living needs. Through our proprietary technology
platform, Alignment's Virtual Application ("AVA"), we utilize data and
predictive algorithms that are specifically designed to ensure personalized care
is delivered to each member. When our information-enabled care model is combined
with our member engagement, we are able to improve healthcare outcomes by, for
example, reducing unnecessary hospital admissions, which in turn lowers overall
costs. Our ability to manage healthcare expenditures while maintaining quality
and member satisfaction is a distinct and sustainable competitive advantage. Our
lower total healthcare expenditures allow us to reinvest our savings into richer
coverage and benefits, which propels our growth in revenue and membership due to
the enhanced consumer value proposition. As we grow, we continue to listen to
and incorporate member feedback, and we are able to further enhance benefits and
produce strong clinical outcomes. Our virtuous cycle, based on the principle of
doing well by doing good, is highly repeatable and a core tenet of our ability
to continue to expand in existing and new markets in the future.

For the 2022 plan year, Alignment offers plans in 38 markets across California
(18 markets), North Carolina (15 markets), Nevada (three markets) and Arizona
(two markets). There are approximately 7.0 million Medicare-eligible seniors in
our current markets.

In June 2022, we announced our anticipated expansion for the 2023 plan year into
14 additional markets across our four existing states and two new states,
Florida and Texas. With these expansions, we will reach an additional 1.1
million Medicare-eligible seniors, resulting in a total of 8.1 million
Medicare-eligible seniors across 52 counties in six states.

                       Factors Affecting Our Performance

Our proprietary technology platform, AVA, is a key element of our business with
capabilities that we expect to impact our future performance. AVA enables us to
personalize and manage our member relationships, care quality and experience,
and to coordinate and manage risk with our provider partners. AVA's unified
platform, analytical tools and data across the healthcare ecosystem enable

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us to produce consistent outcomes, unit economics and support new member growth.
Additionally, our historical financial performance has been, and we expect our
financial performance in the future will be, driven by our ability to:

•

Capitalize on Our Existing Market Growth Opportunity: Our ability to attract and
retain members to grow in our existing markets depends on our ability to offer a
superior value proposition. We have proven that we can compete against, and take
market share from, large established players in highly competitive markets.
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 2022. Further, there are approximately 3.8 million
Medicare-eligible individuals enrolled in Medicare Advantage plans in our
existing 38 counties, of which our approximately 98,000 Health Plan Members
represents only 3% market share. 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. Additionally, we are evaluating other opportunities to
leverage our historical investments in our technology platform and our
comprehensive clinical model across our existing and potentially new
geographies. In April 2021, we entered into CMS Innovation Center's Direct
Contracting program, which allows us to partner directly with physicians to help
manage their Medicare FFS patient populations and participate in the upside and
downside risk associated with managing the health of such patients. As of
September 30, 2022, we had approximately 5,000 members in our Direct Contracting
Entity ("DCE") arrangement with our clinician partners. While our participation
in this program is still in its relatively early stages, we believe this DCE
partnership is indicative of the value we can potentially deliver to a broader
set of seniors in traditional Medicare over time.

•

Drive Growth and Consistent Outcomes Through New Market Expansion: We enter new
markets with the goal of building brand awareness across our key stakeholders to
achieve meaningful market share over time. We intend to focus on markets with
significant senior populations where we expect to be able to replicate our model
most effectively. Our analytical framework for selecting new markets to enter
evaluates a number of factors, including: the presence of aligned provider
partners, our ability to compete effectively based on the richness of our
products, and our ability to build and deploy local market care delivery teams
efficiently. We believe that investment in new market development is required to
drive sustained long-term growth, and our willingness to make such investments
is underpinned by our proven success in a diverse array of markets across our
existing geographic footprint. Enabled by AVA, we have been successful in rural,
urban and suburban markets, as well as markets with varying degrees of provider
and health system competition and control. Our existing markets also feature a
diverse array of membership profiles across ethnicities, income levels and
acuity. We expanded into six new markets in 2021 and 16 new markets in 2022. In
June 2022, we announced our anticipated expansion for the 2023 plan year into 14
additional markets across our four existing states and two new states, Florida
and Texas.

•

Provide Superior Service, Care and Consumer Satisfaction: We are highly focused
on providing superior service and care to our members and on maintaining high
levels of consumer satisfaction, which are key to our financial performance and
growth. The CMS Five Star Quality Rating System provides economic incentives to
Medicare Advantage plans that achieve higher Star ratings by (i) meeting certain
care criteria (such as completing particular preventative screening procedures
or ensuring proper follow-up care is provided for specific conditions or
episodes) and (ii) receiving high member satisfaction ratings. These incentives
impact financial performance in the year following the CMS Rating Year (for
example, CMS's announcement of the 2023 Ratings occurred in the second half of
2022 and will impact our financial performance in 2024). Historically, we have
earned additional bonus payments from CMS based on our performance under CMS's
Five Star Quality Rating System. For the last six years (CMS Rating Years
2018-2023), we have achieved at least a 4 Star overall rating for our California
HMO contract, which has historically represented either the entirety or a vast
majority of our health plan membership. We also achieved a 5 Star rating for our
North Carolina HMO plan for Rating Year 2023. This is important to our financial
performance, as (i) earning a 4 Star rating generally allows us to receive a 5%
bonus to our revenue benchmark rate in our bids (subject to certain county-level
adjustments), and (ii) a 4.5 Star rating allows us to retain a larger portion of
the savings our model creates relative to our benchmark by increasing our rebate
percentage from 65% to 70% of savings, both of which allow us to offer richer
coverage and supplemental benefits. A 5 Star rating also allows for year-round
enrollment. Our plans in Arizona, Texas, and Florida do not yet have independent
Star ratings due to our limited operating history in those markets. As a result,
payments in Arizona, Texas, and Florida are expected to be based on the weighted
average Star rating of the entire company for the next several years. In
aggregate, more than 90% of our health plan members are enrolled in plans rated
4 stars and above, meaning the vast majority of members consistently receive a
high-quality care experience, as defined under CMS star measurement criteria.

•

Effectively Manage the Quality of Care to Improve Member Outcomes: Our care
delivery model is based on a clinical continuum through which we have created a
highly personalized experience that is unique to each member depending on their
personal health and circumstances. Utilizing data and predictive analytics
generated by AVA, our clinical continuum separates seniors into four categories
in order to provide optimized care for every stage of a senior's life: healthy,
healthy utilizer, pre-chronic and chronic. We partner with our broader network
of community providers to service members in our

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non-chronic categories, and we have developed a Care Anywhere program
implemented by our internal clinical teams to care for our higher risk and/or
chronically ill members. By investing in our members' care proactively, our
model has consistently reduced unnecessary and costly care while improving the
quality of our members' lifestyle and healthcare experience. By delivering
superior care and preventing avoidable utilization of the healthcare system, we
are able to reduce our claims expenditures in some of our largest medical
expense categories, which translates to superior medical benefits ratio ("MBR")
financial performance and ultimately the ability to offer richer products in the
market.

•

Achieve Superior Unit Economics: As our senior population ages, their healthcare
needs become more frequent and complex. To combat the healthcare cost increases
that typically result, we proactively look to (i) connect with our population
early in their enrollment with Alignment to assess their care needs, (ii)
develop care plans and engage those members with more chronic, complex health
challenges in our clinical model, and (iii) continue to monitor and evaluate our
healthier members in a preventative fashion over time. Given the Medicare
Advantage payment mechanism and the retention of the vast majority of our
members who continue to choose Alignment after their initial selection year, we
are able to focus our efforts on driving favorable long-term health outcomes for
our entire population. As a result, our clinical model efforts have demonstrated
the ability to lower the MBRs of our returning members. We believe this is
evidence of our ability to manage the financial risk of our members as they age,
and that these favorable underlying unit economic trends translate directly to
our ability to continue to deliver a richer product to the marketplace. With
this dynamic in mind, our consolidated MBR may be impacted year-to-year based on
our pace of new member growth and mix of members by cohort. However, we believe
our ability to sustain MBR performance improvement over time positions us well
to invest in new member growth to drive long-term financial performance.

•

Invest in our Platform and Growth: We plan to continue to invest in our business
in order to further develop our AVA platform, pursue new expansion opportunities
and create innovative product offerings. In addition, in order to maintain a
differentiated value proposition for our members, we continue to invest in
innovative product offerings and supplementary benefits to meet the evolving
needs of the senior consumer. We anticipate further investments in our business
as we expand into new markets and pursue strategic acquisitions, which we expect
will primarily be focused on healthcare delivery groups in key geographies,
standalone and provider-sponsored Medicare Advantage plans and other
complementary risk bearing assets.

•

Navigate Seasonality to our Business: Our operational and financial results will
experience some variability depending upon the time of year in which they are
measured. We experience the largest portion of member growth during the first
quarter, when plan enrollment selections made during the annual enrollment
period ("AEP") from October 15th through December 7th of the prior year take
effect. As a result, we expect to see a majority of our member growth occur on
January 1 of a given calendar year. As the year progresses, our per-member
revenue often declines as new members join us, typically with less complete or
accurate documentation (and therefore lower risk-adjustment scores), and senior
mortality disproportionately impacts our higher-acuity (and therefore greater
revenue) members. Medical costs will vary seasonally depending on a number of
factors, but most significantly the weather. Certain illnesses, such as the
influenza virus, are far more prevalent during colder months of the year, which
will result in an increase in medical expenses during these time periods. We
therefore expect to see higher levels of per-member medical costs in the first
and fourth quarters. The design of our prescription drug coverage (Medicare Part
D) results in coverage that varies as a member's cumulative out-of-pocket costs
pass through successive stages of a member's plan period, which begins annually
on January 1 for renewals. These plan designs generally result in us sharing a
greater portion of the responsibility for total prescription drug costs in the
early stages of the year and less in the latter stages, which typically results
in a higher MBR on our Part D program in the first half of the year relative to
the second half of the year. In addition, we expect our corporate, general and
administrative expenses to increase in absolute dollars for the foreseeable
future to support our growth and because of additional costs of being a public
company. Due to the timing of many of these investments, including our primary
sales and marketing season, we typically incur a greater level of investment in
the second half of the year relative to the first half of the year.

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                               Executive Summary

The following table presents key financial statistics for the periods indicated:

                                  Three Months Ended
                                     September 30,                               Nine Months Ended September 30,
(dollars in '000's, except
percentages)                     2022             2021         % Change            2022                   2021            % Change
Health plan membership (at
period end)                       98,000           86,000           14.0 %              98,000                86,000           14.0 %
Medical benefits ratio              86.3 %           85.7 %          0.6 %                85.5 %                88.3 %         -2.8 %
Revenues                      $  360,348       $  293,466           22.8 %   $       1,072,348       $       869,499           23.3 %
Loss from Operations          $  (33,410 )     $  (41,450 )        NM(2)     $         (76,533 )     $      (134,606 )        NM(2)
Net loss                      $  (40,247 )     $  (45,816 )        NM(2)     $         (92,644 )     $      (147,452 )        NM(2)
Adjusted EBITDA(1)            $   (9,493 )     $   (5,512 )        NM(2)     $          (3,063 )     $       (24,244 )        NM(2)
Adjusted gross profit (1)     $   49,467       $   41,964           17.9 %   $         155,371       $       101,646           52.9 %



(1)
See "Adjusted EBITDA" and "Adjusted Gross Profit" below for a reconciliation to
the most directly comparable financial measure calculated in accordance with
GAAP and related disclosures.
(2)
Not meaningful

Health Plan Membership

We define Health Plan Membership as the number of members enrolled in our HMO
and PPO contracts as of the end of a reporting period. We believe this is an
important metric to assess growth of our underlying business, which is
indicative of our ability to consistently offer a superior value proposition to
seniors. This metric excludes third party payor members with respect to which we
are at-risk for managing their healthcare expenditures, which represented
approximately 500 members and 600 members as of September 30, 2022 and 2021,
respectively. It also excludes the approximately 5,000 traditional Medicare
seniors for which we are at-risk for managing their healthcare expenditures
through our DCE contract with CMS.

Adjusted Gross Profit and Medical Benefits Ratio

Adjusted gross profit is a non-GAAP financial measure that we define as loss
from operations before depreciation and amortization, clinical equity-based
compensation expense, and selling, general, and administrative expenses.
Adjusted gross profit is a key measure used by our management and Board to
understand and evaluate our operating performance and trends before the impact
of our consolidated selling, general and administrative expenses.

Adjusted gross profit should not be considered in isolation of, or as an
alternative to, measures prepared in accordance with GAAP. There are a number of
limitations related to the use of adjusted gross profit in lieu of loss from
operations, which is the most directly comparable financial measure calculated
in accordance with GAAP.

Our use of the term adjusted gross profit may vary from the use of similar terms
by other companies in our industry and accordingly may not be comparable to
similarly titled measures used by other companies.

Adjusted gross profit is reconciled as follows:

                                                    Three Months Ended
                                                       September 30,             Nine Months Ended September 30,
                                                   2022             2021             2022                2021
(dollars in thousands)
Loss from operations                            $  (33,410 )     $  (41,450 )   $       (76,533 )     $  (134,606 )
Add back:
Equity-based compensation (medical expenses)         1,912            2,435               6,751            11,458
Depreciation (medical expenses)                         57               53                 149               159
Depreciation and amortization                        4,456            4,080              12,586            11,725
Selling, general, and administrative expenses       76,452           76,846             212,418           212,910
Total add back                                      82,877           83,414             231,904           236,252
Adjusted gross profit                           $   49,467       $   41,964     $       155,371       $   101,646
Adjusted gross profit %                               13.7 %           14.3 %              14.5 %            11.7 %


We calculate our MBR by dividing total medical expenses, excluding depreciation
and equity-based compensation, by total revenues in a given period. We believe
our MBR is an indicator of our gross profit for our Medicare Advantage plans and
demonstrates the

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ability of our clinical model to produce superior outcomes by identifying and
providing targeted care to our high-risk members resulting in improved member
health and reduced total population medical expenses. We expect that this metric
may fluctuate over time due to a variety of factors, including our pace of new
member growth given that new members typically join Alignment with higher MBRs,
while our model has demonstrated an ability to improve MBR for a given cohort
over time.

When we determine, on an annual basis, whether we have satisfied the CMS minimum
Medical Loss Ratio of 85%, adjustments are made to the MBR calculation to
include certain additional expenses related to improving the quality of care
provided, and to exclude certain taxes and fees, in each case as permitted or
required by CMS and applicable regulatory requirements.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that we define as net loss
before interest expense, income taxes, depreciation and amortization expense,
reorganization and transaction-related expenses, equity-based compensation
expense, loss on sublease and loss on extinguishment of debt. Adjusted EBITDA is
a key measure used by our management and our Board to understand and evaluate
our operating performance and trends, to prepare and approve our annual budget
and to develop short and long-term operating plans. In particular, we believe
that the exclusion of the amounts eliminated in calculating Adjusted EBITDA
provides useful measures for period-to-period comparisons of our business. Given
our intent to continue to invest in our platform and the scalability of our
business in the short to medium-term, we believe Adjusted EBITDA over the long
term will be an important indicator of value creation.

Adjusted EBITDA should not be considered in isolation of, or as an alternative
to, measures prepared in accordance with GAAP. There are a number of limitations
related to the use of Adjusted EBITDA in lieu of net loss, which is the most
directly comparable financial measure calculated in accordance with GAAP.

Our use of the term Adjusted EBITDA may vary from the use of similar terms by
other companies in our industry and accordingly may not be comparable to
similarly titled measures used by other companies.

Adjusted EBITDA is reconciled as follows:

                                             Three Months Ended           Nine Months Ended
                                                September 30,               September 30,
                                             2022          2021          2022           2021
(dollars in thousands)
Net loss                                   $ (40,247 )   $ (45,816 )   $ (92,644 )   $ (147,452 )
Add back:
Interest expense                               4,605         4,414        13,496         12,991
Depreciation and amortization                  4,513         4,133        12,735         11,884
Income taxes                                     167             -           167              -
EBITDA                                       (30,962 )     (37,269 )     (66,246 )     (122,577 )
Equity-based compensation(1)                  18,687        30,511        58,833         93,185
Reorganization and transaction-related
expenses(2)                                      579           457           579          4,058
Acquisition expenses(3)                            7           789         1,066          1,090
Loss on sublease(4)                                -             -           509              -
Loss on extinguishment of debt                 2,196             -         2,196              -
Adjusted EBITDA                            $  (9,493 )   $  (5,512 )   $  (3,063 )   $  (24,244 )




(1)
2022 represents equity-based compensation related to grants made in the current
year, as well as equity-based compensation related to the timing of the IPO,
which includes previously issued stock appreciation rights ("SARs") liability
awards, modifications related to transaction vesting units, and grants made in
conjunction with the IPO. 2021 represents equity-based compensation related to
the timing of the IPO as previously discussed. Equity-based compensation expense
for the nine months ended September 30, 2021 includes $11.4 million related to
the cash settlement of SARs.

(2)

Represents legal, professional, accounting and other advisory fees related to
the Reorganization, IPO, and secondary offerings that are considered
non-recurring and non-capitalizable.

(3)

Represents acquisition-related fees, such as legal and advisory fees, that are
non-capitalizable.

(4)

Represents loss related to right of use ("ROU") assets that were subleased in
the second quarter of 2022.

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                             Results of Operations

The following table sets forth our consolidated statements of operations data
for the periods indicated:

                                                   Three Months Ended
                                                      September 30,                Nine Months Ended September 30,
                                                  2022             2021              2022                   2021
(dollars in thousands)
Revenues:
Earned premiums                                $  359,978       $  293,275     $      1,071,450       $        869,014
Other                                                 370              191                  898                    485
Total revenues                                    360,348          293,466            1,072,348                869,499
Expenses:
Medical expenses                                  312,850          253,990              923,877                779,470
Selling, general and administrative expenses       76,452           76,846              212,418                212,910
Depreciation and amortization                       4,456            4,080               12,586                 11,725
Total expenses                                    393,758          334,916            1,148,881              1,004,105
Loss from operations                              (33,410 )        (41,450 )            (76,533 )             (134,606 )
Other expenses:
Interest expense                                    4,605            4,414               13,496                 12,991
Other expenses (income)                              (131 )            (48 )                252                   (145 )
Loss on extinguishment of debt                      2,196                -                2,196                      -
Total other expenses                                6,670            4,366               15,944                 12,846
Loss before income taxes                          (40,080 )        (45,816 )            (92,477 )             (147,452 )
Provision for income taxes                            167                -                  167                      -
Net loss                                       $  (40,247 )     $  (45,816 )   $        (92,644 )     $       (147,452 )

The following table sets forth our consolidated statements of operations data
expressed as a percentage of total revenues for the periods indicated:

                                                  Three Months Ended September 30,            Nine Months Ended September 30,
                                                   2022                     2021               2022                     2021
(% of revenue)
Revenues:
Earned premiums                                          100 %                    100 %              100 %                    100 %
Other                                                      -                        -                  -                        -
Total revenues                                           100                      100                100                      100
Expenses:
Medical expenses                                          87                       87                 86                       90
Selling, general and administrative expenses              21                       26                 20                       24
Depreciation and amortization                              1                        1                  1                        1
Total expenses                                           109                      114                107                      115
Loss from operations                                      (9 )                    (14 )               (7 )                    (15 )
Other expenses:
Interest expense                                           1                        2                  2                        2
Other expenses (income)                                    -                        -                  -                        -
Loss on extinguishment of debt                             1                        -                  -                        -
Total other expenses                                       2                        2                  2                        2
Loss before income taxes                                 (11 )                    (16 )               (9 )                    (17 )
Provision for income taxes                                 -                        -                  -                        -
Net loss                                                 (11 )%                   (16 )%              (9 )%                   (17 )%




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Revenues

                            Three Months Ended
                               September 30,                  Change
                            2022           2021            $           %
(dollars in thousands)
Revenues:
Earned premiums          $   359,978     $ 293,275     $  66,703       22.7 %
Other                            370           191           179       93.7 %
Total revenues           $   360,348     $ 293,466     $  66,882       22.8 %

                             Nine Months Ended
                               September 30,                  Change
                            2022           2021            $           %
(dollars in thousands)
Revenues:
Earned premiums          $ 1,071,450     $ 869,014     $ 202,436       23.3 %
Other                            898           485           413       85.2 %
Total revenues           $ 1,072,348     $ 869,499     $ 202,849       23.3 %




Revenues. Revenues were $360.4 million and $293.5 million for the three months
ended September 30, 2022 and 2021, respectively, an increase of $66.9 million or
22.8%. Revenues were $1,072.3 million and $869.5 million for the nine months
ended September 30, 2022 and 2021, respectively, an increase of $202.8 million
or 23.3%. The increase was driven by a combination of growth in our Health Plan
membership and higher revenue per member per month in 2022 as compared to 2021.
Health plan membership increased 14.0% between September 30, 2021 and September
30, 2022. The increase in revenue per member per month is primarily attributable
to an increase in the CMS benchmark rates.

Expenses

                                           Three Months Ended
                                              September 30,                             Change
                                       2022                   2021                $                %
(dollars in thousands)
Expenses:
Medical expenses                 $        312,850       $        253,990     $    58,860              23.2 %
Selling, general and
administrative expenses                    76,452                 76,846            (394 )            (0.5 )%
Depreciation and amortization               4,456                  4,080             376               9.2 %
Total expenses                   $        393,758       $        334,916     $    58,842              17.6 %

                                     Nine Months Ended September 30,                    Change
                                       2022                   2021                $                %
(dollars in thousands)
Expenses:
Medical expenses                 $        923,877       $        779,470     $   144,407              18.5 %
Selling, general and
administrative expenses                   212,418                212,910            (492 )            (0.2 )%
Depreciation and amortization              12,586                 11,725             861               7.3 %
Total expenses                   $      1,148,881       $      1,004,105     $   144,776              14.4 %




Medical Expenses. Medical expenses were $312.9 million and $254.0 million for
the three months ended September 30, 2022 and 2021, respectively, an increase of
$58.9 million, or 23.2%. Medical expenses were $923.9 million and $779.5 million
for the nine months ended September 30, 2022 and 2021, respectively, an increase
of $144.4 million, or 18.5%. The increase was driven primarily by the growth in
Alignment's Health Plan membership. Overall, medical expenses for the nine
months ended September 30, 2022 grew at a lower rate than total revenues
compared to the nine months ended September 30, 2021 primarily due to the impact
of COVID-19 on utilization in 2021. For the three months ended March 31, 2021,
we experienced an increase in inpatient admissions due to COVID-related
hospitalizations. However, for the remainder of fiscal year 2021 and the first
nine months of 2022, we saw a decline in COVID-related inpatient utilization
(compared to the first quarter of 2021) as vaccination rates improved across our
senior

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population and the milder omicron variant became dominant. The ultimate impact
of COVID-19 to us and our financial condition is presently unknown and we
continue to monitor the impact of COVID-19 on our claims reserve estimate.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $76.5 million and $76.9 million for the three
months ended September 30, 2022 and 2021, respectively, a decrease of $0.4
million, or 0.5%. Selling, general and administrative expenses were $212.4
million and $212.9 million for the nine months ended September 30, 2022 and
2021, respectively, a decrease of $0.5 million, or 0.2%. The decrease for the
three months ended September 30, 2022 compared to the three months ended
September 30, 2021 was primarily due to a decrease in equity-based compensation,
offset by ongoing investments and expenditures in network development and sales
and marketing to drive the growth of Alignment's Health Plan membership.
Excluding equity-based compensation in the three months ended September 30,
2022, our selling, general and administrative expenses increased 22.4% from the
three months ended September 30, 2021. Excluding equity-based compensation in
the nine months ended September 30, 2022, our selling, general and
administration expenses increased 22.2% from the nine months ended September 30,
2021.

Depreciation and Amortization. Depreciation and amortization expense was $4.5
million and $4.1 million for the three months ended September 30, 2022 and 2021,
respectively, an increase of $0.4 million, or 9.2%. Depreciation and
amortization expense was $12.6 million and $11.7 million for the nine months
ended September 30, 2022 and 2021, respectively, an increase of $0.9 million, or
7.3%. The increase was primarily due to the amount and timing of our capital
expenditures and the associated depreciation relative to 2021.

Other Expenses

Interest expense. Interest expense was $4.6 million and $4.4 million for the
three months ended September 30, 2022 and 2021, respectively, an increase of
$0.2 million or 4.5%. Interest expense was $13.5 million and $13.0 million for
the nine months ended September 30, 2022 and 2021, respectively, an increase of
$0.5 million or 3.8%. The increase in interest expense was primarily due to a
higher principal balance caused by the payment-in-kind interest under our loan
agreement (described below).

Other expenses (income). Other expenses (income) were $(0.1) million for the
three months ended September 30, 2022 and 2021, respectively. Other expenses
(income) were $0.3 million and $(0.2) million for the nine months ended
September 30, 2022 and 2021, respectively. The increase in expense was primarily
due to a loss recorded on ROU assets that were subleased.

Loss on extinguishment of debt. During the three months ended September 30, 2022
we recorded a $2.2 million loss on extinguishment of debt due to the write-off
of debt issuance costs related to our debt refinance discussed below.

                        Liquidity and Capital Resources

General

To date, we have financed our operations principally through our IPO, private
placements of our equity securities, revenues, and certain term loans (described
below). As of September 30, 2022, we had $567.4 million in cash. Deferred
premium revenue represented $116.8 million of the cash balance as of September
30, 2022 and is primarily due to the timing of our monthly premium revenue
payments from CMS.

In addition, we operate as a holding company in a highly regulated industry.
Alignment Healthcare, Inc., our parent company, is dependent upon dividends and
administrative expense reimbursements from our subsidiaries, most of which are
subject to regulatory restrictions. We maintain significant levels of aggregate
excess statutory capital and surplus in our state-regulated operating
subsidiaries. Cash at the parent company was $303.7 million at September 30,
2022.

We may incur operating losses in the future due to the investments we intend to
continue to make in expanding our operations and sales and marketing and due to
the general and administrative costs we expect to incur in connection with
continuing to operate as a public company. As a result, we may require
additional capital resources to execute strategic initiatives to grow our
business.

We believe that our liquid assets will be sufficient to fund our operating and
organic capital needs for at least the next 12 months. Our assessment of the
period of time through which our financial resources will be adequate to support
our operations is a forward-looking statement and involves risks and
uncertainties. Our actual results could vary because of, and our future capital
requirements will depend on, many factors, including our growth rate, the timing
and extent of spending to expand our presence in existing markets, expand into
new markets and increase our sales and marketing activities. We may in the
future enter into arrangements to acquire or invest in complementary businesses,
services and technologies, including intellectual property rights. We have based
this estimate on assumptions that may prove to be wrong, and we could use our
available capital resources sooner than we currently expect. We may be required
to seek additional equity or debt financing. In the event that additional
financing is required from outside sources, we may not be able to raise it on
terms acceptable to us or at all. If we are unable to raise additional capital
when desired, or if we cannot

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expand our operations or otherwise capitalize on our business opportunities
because we lack sufficient capital, our business, results of operations, and
financial condition would be adversely affected.

Certain states in which we operate as a CMS-licensed Medicare Advantage company
may require us to meet certain capital adequacy performance standards and tests.
The National Association of Insurance Commissioners has adopted rules which, if
implemented by the states, set minimum capitalization requirements for insurance
companies, HMOs, and other entities bearing risk for healthcare coverage. The
requirements take the form of risk-based capital ("RBC") rules, which may vary
from state to state. Certain states in which our health plans or risk bearing
entities operate have adopted the RBC rules. Other states in which our health
plans or risk bearing entities operate have chosen not to adopt the RBC rules,
but instead have designed and implemented their own rules regarding capital
adequacy. Our health plans or risk-bearing entities were in compliance with the
minimum capital requirements for all periods presented.

CRG Term Loan

On August 21, 2018, we entered into a term loan agreement (the "CRG Term Loan")
with CR Group ("CRG") for $80.0 million, with an option to borrow up to an
additional $20.0 million. In April 2019, we amended the CRG Term Loan to
increase its borrowing capacity by $75.0 million and drew down $35.0 million in
May 2019. The CRG Term Loan was subject to a commitment fee of $6.8 million and
we incurred debt issuance costs of $3.6 million. The commitment fees were
deferred as part of debt issuance costs and were amortized to interest expense
over the term using the effective interest method. The debt issuance costs were
amortized to interest expense over the term using the effective interest method.
On July 14, 2022, the maturity of the CRG Term Loan was extended to September
30, 2023.

The CRG Term Loan bore interest at a rate of 10.25% payable on a quarterly
basis. We had the option to pay a portion of the interest in cash with the
remaining portion of the interest added to the principal balance as a
payment-in-kind. The payment-in-kind was also subject to a commitment fee of 5%.
The cash and payment-in-kind interest rates were 7.75% and 2.50%, respectively,
through April 2019, and then converted to 7.50% and 2.75%, respectively. In 2022
and 2021, we utilized our option to pay the quarterly interest payments in both
cash and payment-in-kind. The amount was included in the long-term debt balance.
In connection with the new credit facility with Oxford Finance, as noted below,
we repaid all amounts outstanding under the term loan with CRG.

Oxford Term Loan

On September 2, 2022 (the "Effective Date"), we, Alignment Healthcare USA, LLC,
an indirect subsidiary of the Company (the "Borrower") and certain of our other
subsidiaries (together with the Company and the Borrower, the "Borrower
Parties") entered into a term loan agreement (the "Oxford Loan Agreement") with
Oxford Finance LLC ("Oxford"), as administrative agent, collateral agent and a
lender, and the other lenders from time to time party thereto (collectively, the
"Lenders"), pursuant to which the Lenders have agreed to lend the Borrower an
aggregate principal amount of up to $250.0 million in a series of term loans
(the "Term Loans"). Pursuant to the Oxford Loan Agreement, the Borrower received
an initial Term Loan of $165.0 million on the Effective Date (the "Initial Term
Loan") and may borrow up to an additional $85.0 million of Term Loans at its
option (such additional Term Loans, the "Delayed Draw Term Loans"). Interest on
the Term Loans is a variable rate equal to (i) the secured overnight financing
rate administered by the Federal Reserve Bank of New York for a one-month tenor,
subject to a floor of 1.00%, plus (ii) an applicable margin of 6.50%. All unpaid
principal and accrued and unpaid interest with respect to each Term Loan is due
and payable in full on September 1, 2027. The interest rate applied during the
month ended September 30, 2022 was 9.02%.

Substantially all of the proceeds from the Initial Term Loan were used to repay
in full the $159.3 million aggregate principal amount, accrued interest
(including "payment in kind" interest) and fees related to the CRG Term Loan, as
well as certain fees and expenses payable to Oxford.

The Term Loans are guaranteed by certain of our wholly owned subsidiaries and
collateralized by all unrestricted assets.

For certain prepayments of the Term Loans prior to the second anniversary of the
Effective Date, the Borrower will be required to pay a prepayment fee ranging
from 1.00% to 2.00% of the principal amount of the Term Loans being prepaid.

The Oxford Loan Agreement includes customary events of default, including, among
others, payment defaults, breach of representations and warranties, covenant
defaults, judgment defaults, insolvency and bankruptcy defaults, and change of
control. The occurrence of an event of default could result in the acceleration
of the obligations under the Loan Agreement, termination of the Term Loan
commitments and the right to foreclose on the collateral securing the
obligations. During the existence of an event of default, the outstanding Term
Loans will accrue interest at a rate per annum equal to 2.00% plus the otherwise
applicable interest rate. Additionally, in the event of any contemplated asset
sale or series of asset sales yielding net proceeds in excess of $2,500, except
those excluded per the Loan Agreement, we are required to prepay the aggregate
outstanding principal balance of the Term Loans in an amount equal to the entire
amount of the asset sale net proceeds, plus any accrued and unpaid interest.

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The Oxford Loan Agreement includes financial covenants that require the Borrower
Parties to (i) maintain minimum liquidity, as defined in the Loan Agreement, of
$23.0 million and (ii) satisfy a maximum permitted ratio of debt to trailing
twelve-month revenue, as set forth in the Loan Agreement. As of September 30,
2022, we were in compliance with the financial covenants.

Cash Flows

The following table presents a summary of our consolidated cash flows from
operating, investing and financing activities for the periods indicated:

                                                            Nine Months Ended September 30,
(dollars in thousands)                                        2022          

2021

Net cash provided by (used in) operating activities $ 103,836

    $        (48,642 )
Net cash used in investing activities                            (20,110 )              (17,864 )
Net cash provided by financing activities                         17,120                360,130
Net change in cash                                               100,846                293,624
Cash and restricted cash at beginning of period                  468,350                207,811
Cash and restricted cash at end of period               $        569,196       $        501,435


Operating Activities

For the nine months ended September 30, 2022, net cash provided by operating
activities was $103.8 million, an increase of $152.4 million compared to net
cash used in operating activities of $48.6 million for the nine months ended
September 30, 2021. The increase is mainly attributable to an increase in
deferred premium revenue of $116.3 million due to the timing of our monthly
premium revenue payments from CMS, as compared to the nine months ended
September 30, 2021. The increase was partially offset by cash paid for
paid-in-kind interest related to the debt refinancing. Excluding deferred
premium revenue for the nine months ended September 30, 2022, net cash used in
operating activities decreased $36.3 million from the nine months ended
September 30, 2021. The decrease is mainly attributable to the decrease in net
loss for nine months ended September 30, 2022 compared to the nine months ended
September 30, 2021.

Investing Activities

For the nine months ended September 30, 2022, net cash used in investing
activities was $20.1 million, an increase of $2.2 million compared to net cash
used in investing activities of $17.9 million for the nine months ended
September 30, 2021. The increase primarily relates to incremental capital
expenditures related to information technology and infrastructure projects and
asset acquisitions.

Financing Activities

For the nine months ended September 30, 2022, net cash provided by financing
activities was $17.1 million, a decrease of $343.0 million compared to net cash
provided by financing activities of $360.1 million for the nine months ended
September 30, 2021. The decrease primarily relates to proceeds from the IPO in
the first quarter of 2021.

    Material cash requirements from known contractual and other obligations

Our principal commitments consist of repayments of long-term debt, operating
leases and certain purchase obligations. The following table summarizes our
contractual and other obligations as of September 30, 2022:

                                                           Payments due by Period
                                                 Less than                         3-5          More than
                                    Total         1 year         1-3 years        years          5 years
(dollars in thousands)                                         (in 

thousands)

Long term debt obligations(1) $ 165,000 $ - $ 1,237

     $ 163,763     $           -
Operating lease obligations           8,246           3,947           4,075           224                 -
Purchase obligations(2)              11,522           7,173           4,349             -                 -
Other obligations                       683             524             159             -                 -
Total                             $ 185,451     $    11,644     $     9,820     $ 163,987     $           -

(1) Represents the estimated full cash repayment to Oxford Finance upon maturity
of the Term Loan in September 2027.

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(2) Includes fixed, minimum and estimated payments under our existing
contractual obligations that are legally enforceable and binding for goods and
services. These obligations include agreements that are cancelable with the
payment of an early termination penalty and other funding commitments that
require fixed or minimum levels of service to be purchased with a specific
timing established. Purchase obligations exclude agreements that are cancelable
without penalty.

Not included in the table above are our medical expenses payable which are
included within current liabilities in our financial statements included in this
Quarterly Report on Form 10-Q.

                         Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of September 30, 2022.

                          Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations
are based upon our condensed consolidated financial statements, which have been
prepared in accordance with U.S. generally accepted accounting principles and
include the accounts of our wholly-owned subsidiaries and four variable interest
entities ("VIEs") in California and North Carolina that meet the consolidation
requirements for accounting purposes. All intercompany transactions have been
eliminated in consolidation. Noncontrolling interest is presented within the
equity section of the condensed consolidated balance sheets.

There have been no significant changes in our critical accounting estimate
policies or methodologies to our condensed consolidated financial statements.
For a description of our policies regarding our critical accounting policies,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations-Critical Accounting Policies" in the Annual Report.

                        Recent Accounting Pronouncements

See Note 2 to our condensed consolidated financial statements, "Summary of
Significant Accounting Policies-Recent Accounting Pronouncements Adopted" for
more information.

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