Notes to Unaudited Condensed Consolidated Financial Statements
(amounts in thousands, except share amounts)
1. Organization
Alignment Healthcare, Inc. (collectively, “we” or “us” or “our” or the “Company”), is a next generation, consumer-centric and clinically focused platform designed to improve the healthcare experience for seniors enrolled in Medicare who choose a private Medicare Advantage plan. Our goal is to provide seniors with easier access to care, better coordination among providers, fewer gaps in care and avoidable hospital visits, and support that meets them where they are—at home, online, or in their community. We deliver this experience through our wide variety of Medicare Advantage plans, which offer varied benefits tailored to the diverse needs, preferences, and lifestyles of seniors. The Company’s operations primarily consist of Medicare Advantage Plans in the states of California, North Carolina, Nevada, Arizona and Texas.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The balance sheet as of December 31, 2025, included herein, was derived from audited financial statements, but does not include all disclosures required by GAAP. In accordance with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"), the Company has omitted certain footnote disclosures that would substantially duplicate the disclosures contained in its annual audited consolidated financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year-ended December 31, 2025 as filed with the SEC. Furthermore, the condensed consolidated financial statements include the accounts of the Company, our subsidiaries, and three immaterial variable interest entities in which we are the primary beneficiary. All intercompany transactions have been eliminated in consolidation.
We have no components of other comprehensive income (loss), and accordingly, comprehensive income (loss) is the same as the net income (loss) for all periods presented.
Use of Estimates
The preparation of the condensed consolidated financial statements requires management to make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements. Our significant estimates include, but are not limited to, the determination of medical expenses payable; the impact of risk adjustment provisions related to our Medicare contracts; collectability of receivables; valuation of related impairment recognition of long-lived assets, including goodwill and intangible assets; equity-based compensation expense; and contingent liabilities. Estimates and judgments are based upon historical information and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ materially from those estimates and the impact of any change in estimates is included in earnings in the period in which the estimate is adjusted.
Segments
We have determined that our chief executive officer is the chief operating decision maker (“CODM”) who regularly reviews financial operating results on a consolidated basis for purposes of allocating resources and evaluating financial performance. We operate and manage the business as one reportable segment and one operating segment, which is to provide healthcare services to our seniors. Factors used in determining the reportable segment include the nature of operating activities, our organizational and reporting structure, and the type of information reviewed by the CODM to allocate resources and evaluate financial performance. All of our assets are located in the United States.
The CODM assesses the Company's performance by using consolidated net income (loss) which is reported on the condensed consolidated statements of operations as net income (loss). This measure is used predominantly by the CODM in the annual budget and forecasting process. The CODM considers budget-to-actual variances on a quarterly basis when making decisions about the allocation of operating and capital resources for the Company.
In addition to net income (loss), the CODM is also provided information on certain significant segment expenses which are presented below:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2026 | | 2025 |
| Revenues: | | | | | $ | 1,235,197 | | | $ | 926,932 | |
| Expenses: | | | | | | | |
| Medical expenses (less depreciation and equity-based compensation) | | | | | 1,089,283 | | | 819,715 | |
| Selling, general, and administrative expenses (less equity-based compensation) | | | | | 108,530 | | | 87,796 | |
Other segment expenses (1) | | | | | 21,906 | | | 24,825 | |
| Interest expense | | | | | 4,062 | | | 3,950 | |
| Net income (loss) | | | | | $ | 11,416 | | | $ | (9,354) | |
(1) Other segment items included in segment net income (loss) include equity-based compensation, depreciation and amortization, other expenses (income), and provision for income taxes.
Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Our current assets and current liabilities approximate fair value because of the short-term nature of these financial instruments. Financial instruments measured at fair value on a recurring basis were based upon a three-tier hierarchy as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities
Level 2 - Other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability
Level 3 - Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date
The fair value of cash, cash equivalents, restricted cash and U.S. Treasury bills was determined based on Level 1 inputs. The fair value of certificate of deposits, which are recorded in other assets in the condensed consolidated balance sheets, and long-term debt was determined based on Level 2 inputs. There were no assets or liabilities measured at fair value using Level 3 inputs as of March 31, 2026 and December 31, 2025.
Revenue and Accounts Receivable
Earned premium revenue consisted of premium revenue and capitation revenue for the three months ended March 31, 2026 and 2025 were as follows:
| | | | | | | | | | | | | | | |
| | | Three Months Ended
March 31, |
| | | | | 2026 | | 2025 |
| Premium | | | | | $ | 1,226,308 | | | $ | 916,622 | |
| Capitation | | | | | 258 | | | 1,421 | |
| Total | | | | | $ | 1,226,566 | | | $ | 918,043 | |
Premium revenue is derived monthly from the federal government based on our contracts with the Centers for Medicare and Medicaid Services (“CMS”). In accordance with these arrangements, we assume the responsibility for the outcomes and the economic risk of funding our members’ health care, supplemental benefits and related administration costs. We recognize premium revenue in the month that members are entitled to receive health care services, and premiums collected in advance are deferred. The monthly reimbursement includes a fixed payment per member per month (“PMPM”), which is adjusted based on certain risk factors derived from medical diagnoses and conditions of our members. The adjustments are estimated by projecting the ultimate annual premium and are recognized ratably during the year, with adjustments each period to reflect changes in the estimated ultimate premium. Premiums are also recorded net of estimated uncollectible amounts and retroactive membership adjustments.
In 2025, capitation revenue consisted primarily of capitated fees for medical care services provided by us under arrangements with third-party payors.
Under those arrangements with third-party payors, we received a PMPM payment for a defined member population, and we were responsible for providing health care services to the member population over the contract period. We were solely responsible for the cost of health care services related to the member population and in some cases, we were financially responsible for the supplemental benefits provided by us to the members. We acted as a principal in arranging for and controlling the services provided by our provider network and we were at risk for arranging and providing health care services.
As of January 1, 2026, we no longer have these capitation arrangements with third-party payors.
The premium and capitation payments we receive monthly from CMS for our members are determined from our annual bid or similarly from third-party payors under our capitation arrangement. These payments represent revenues for providing health care coverage, including Medicare Part D benefits. Under the Medicare Part D program, our members and the members of the third-party payors receive standard drug benefits. We may also provide enhanced benefits at our own expense. We recognize premium or capitation revenue for providing this insurance coverage in the month that members are entitled to receive health care services and any premium or capitation collected in advance is deferred. Our CMS payment related to Medicare Part D is subject to risk sharing through the Medicare Part D risk corridor provisions.
In 2025, we also participated in the CMS “ACO Realizing Equity, Access, and Community Health Model” or “ACO REACH” model, formerly the Direct Contracting Model ("DCE"). CMS served as the claim adjudicator for institutional and specialists care, and directly paid for such fee for service claims. The ACO REACH entity ("ACO") was responsible for the cost of health care services related to the patient population attributed to the ACO by participating in 100% savings/losses via the risk share model and in some cases, were financially responsible for the supplemental benefits provided to the patients. The Company acted as an agent in an arrangement where it was not responsible for arranging and controlling the health care services provided to the ACO members, and for providing certain management and support services with respect to ACO operations. The principal assumed the specified upside and downside financial risks relative to the ACO’s performance. As a result of this arrangement, ACO revenue was recorded on a net basis within other revenue on the condensed consolidated statement of operations. We discontinued our participation in the ACO REACH model as of December 31, 2025. This did not have a material impact to our financial results.
Interest income earned on our cash deposits and short-term investments is included within other revenue on the condensed consolidated statements of operations. Interest income for the three months ended March 31, 2026 and 2025 was $8,003 and $6,499, respectively.
Revenue Adjustments
Payments by CMS to health plans are determined via a competitive bidding process with CMS and are based upon the cost of care in a local market and the average utilization of services by the member enrolled. These payments are subject to periodic adjustments under CMS’ “risk adjustment model,” which compensates health plans based on the health severity and certain demographic factors of each individual member. Members diagnosed with certain conditions are paid at a higher monthly payment than members who are healthier. Under this risk adjustment model, CMS calculates the risk adjustment payment using diagnosis data from hospital inpatient, hospital outpatient, and physician treatment settings. The Company and health care providers collect, capture, and submit the necessary and available diagnosis data to CMS within prescribed deadlines. Premium revenues are subject to adjustments under the risk adjustment model.
Throughout the year, we estimate risk adjustment payments based upon the diagnosis data submitted and expected to be submitted to CMS. Those estimated risk adjustment payments are recorded as an adjustment to premium and capitation revenue. Our risk adjustment data is also subject to review by the government, including audit by regulators.
Our recognized premium revenue for our Medicare Advantage Plans are each subject to a minimum annual medical loss ratio (“MLR”) of 85%. The MLR represents medical costs as a percentage of premium revenue. The Code of Federal Regulations defines what constitutes medical costs and premium revenue, including certain additional expenses related to improving the quality of care provided, and the exclusion of certain taxes and fees, in each case as permitted or required by CMS and applicable regulatory requirements. If the minimum MLR is not met, we are required to remit a portion of the premiums back to the federal government. The amount remitted, if any, is recognized as an adjustment to premium revenues in the condensed consolidated statements of operations. The amounts payable under this provision were immaterial at March 31, 2026 and December 31, 2025.
Medicare Part D payments are also subject to a federal risk corridor program, which limits a health plan’s overall losses or profit if actual spending for basic Medicare Part D benefits is much higher or lower than what was anticipated. Risk corridor adjustments are recorded within premium revenue. The risk corridor provisions compare costs targeted in our bids to actual prescription drug costs, limited to actual costs that would have been incurred under the standard coverage as defined by CMS. Variances exceeding certain thresholds may result in CMS making additional payments to us or require us to refund a portion of the premiums we received. We estimate and recognize an adjustment to premium revenue related to these provisions based upon pharmacy claims experience. We record a receivable or payable at the contract level and classify the amount as current or long-term in our condensed consolidated balance sheets based on the timing of expected settlement.
Receivables, including risk adjusted premium due from the government, pharmacy rebates, and other receivables, are shown net of allowances for credit losses and retroactive membership adjustments.
Property and Equipment—Net
Depreciation expense is computed using the straight-line method generally based on the following estimated useful lives:
| | | | | |
| Description | Estimated Service Lives (years) |
| Computer and equipment | 5 |
| Office equipment and furniture | 5-7 |
| Software | 3-5 |
| Leasehold improvements | 15 (or lease term, if shorter) |
Depreciation expense related to property and equipment used to service our members or at our clinics are included within medical expenses in the condensed consolidated statements of operations.
Medical Expenses
Medical expenses include claim payments, capitation payments, pharmacy costs net of rebates, allocations of certain centralized expenses, internal care delivery expenses and various other costs incurred to provide health insurance coverage and care to members, as well as estimates of future payments to hospitals and others for medical care and other supplemental benefits provided.
We have contracts with a network of hospitals, physicians, and other providers and compensate those providers and ancillary organizations based on contractual arrangements or CMS Medicare compensation guidelines. We pay these contracting providers either through fee-for-service arrangement in which the provider is paid negotiated rates for specific services provided or a capitation payment, which represent monthly contractual fees disbursed for each member regardless of medical services provided to the member. We are responsible for the entirety of the cost of health care services related to the member population, in addition to supplemental benefits provided by us to our seniors.
Capitation-related expenses are recorded on an accrual basis during the coverage period. Expenses related to fee-for-service contracts are recorded in the period in which the related services are dispensed.
Pharmacy costs represent payments for members’ prescription drug benefits, net of rebates from drug manufacturers. Receivables for such pharmacy rebates are included in accounts receivable in the condensed consolidated balance sheet.
In August 2022, the Inflation Reduction Act ("IRA") was signed into law. The law intends to increase tax revenue and reduce Medicare costs through lower prescription drug prices, inflation-based rebates, and increased financial responsibility for certain drug manufacturers. The provisions of the law are set to take effect over seven years from 2023 to 2029. For the three months ended March 31, 2026, we experienced an increase in both Part D premium revenues and medical expenses as a result of the IRA. Our 2026 bid pricing (submitted to CMS in June 2025) and budget reflect the expected impact the IRA will have on our business for fiscal year 2026. There were no material unexpected impacts of the IRA for the three months ended March 31, 2026.
Medical Expenses Payable
Medical expenses payable includes estimates of our obligations for medical care services that have been rendered on behalf of our members, but for which claims have either not yet been received or processed, loss adjustment expense reserve for the expected costs of settling these claims, and for liabilities related to physician, hospital, and other medical cost disputes.
We develop estimates for medical expenses incurred but not yet paid (“IBNP”), which includes an estimate for claims incurred but not reported (“IBNR”) and a payable for adjudicated claims. IBNR is estimated using an actuarial process that is consistently applied and centrally controlled. Medical expenses payable also includes an estimate for the costs necessary to process unpaid claims at the end of each period. We estimate the IBNR liability using actuarial methods that are commonly used by health insurance actuaries and meet Actuarial Standards of Practice. These actuarial methods consider factors, such as cost trends and completion factors that are assessed based on historical data for payment patterns, product mix, seasonality, utilization of health care services, and other relevant factors. Each period, we re-examine previously established IBNR estimates based on actual claim submissions and other changes in facts and circumstances. As the IBNR estimates recorded in prior periods develop, we adjust the amount of the estimates and include the changes in estimates in medical expenses in the period in which the change is identified.
Actuarial Standards of Practice generally require that the IBNP estimates be adequate to cover obligations under moderately adverse conditions. Moderately adverse conditions are situations in which the actual claims are expected to be higher than the otherwise estimated value of such claims at the time of estimate. In many situations, the claims amount ultimately settled will be different than the estimate that satisfies the Actuarial Standards of Practice. We include in our IBNP an estimate for medical claims liability under moderately adverse conditions, which represents the risk of adverse deviation of the estimates in our actuarial method of reserving. We believe that medical expenses payable is adequate to cover future claims payments required. However, such estimates are based on knowledge of current events and anticipated future events. Therefore, the actual liability could differ materially from the amounts provided.
We reassess the profitability of contracts for providing coverage to members when current operating results or forecasts indicate probable future losses. A premium deficiency reserve is established in current operations to the extent that the sum of expected future costs, claim adjustment expenses, and maintenance costs exceed related future premiums under contract and investment income. For purposes of determining premium deficiencies, contracts are grouped in a manner consistent with the method of acquiring, servicing, and measuring the profitability of such contracts. Losses recognized as a premium deficiency result in a beneficial effect in subsequent periods as operating losses under these contracts are charged to the liability previously established.
Part D Subsidies
We also receive advance payments each month from CMS related to Catastrophic Reinsurance, Manufacturer Discount Program, the Low-Income Member Cost Sharing Subsidy (“Part D Subsidies”), and Select Drug Prepayments related to the Maximum Fair Price Program. Reinsurance subsidies represent funding from CMS for our portion of prescription drug costs that exceed the member’s out-of-pocket threshold or the catastrophic coverage level. Low-income cost sharing subsidies represent funding from CMS for all or a portion of the deductible, the coinsurance and co-payment for low-income beneficiaries. Additionally, the Inflation Reduction Act mandates consumer discounts on most brand-name prescription drugs for Part D plan participants in the initial coverage and catastrophic phases. These discounts are ultimately funded by the pharmaceutical manufacturers. In 2025, the IRA retired the Coverage Gap Discount Program, introduced the Manufacturer Discount Program, and change the members cost thresholds for the catastrophic phase. New in 2026, CMS is providing prepayment to cover liabilities associated with the Maximum Fair Price Program. These program changes and the corresponding changes in prepayments are reflected in our 2026 experience.
These Part D Subsidies represent cost reimbursements under the Medicare Part D program and are recorded as deposits or payables. These Subsidies received in excess of, or less than, actual subsidized benefits paid are refundable to or recoverable from CMS through an annual reconciliation process following the end of the contract year.
Shared Risk Reserve Arrangements
We established a fund (also referred to as “a pool”) for risk and profit-sharing with various independent physician associations (“IPAs”). The pool enables us and our IPAs to share in the financial responsibility and/or upside associated with providing covered medical expenses to our members. The risk pool is based on a contractually agreed upon medical budget, typically based upon a percentage of revenue. If actual medical expenses are less than the budgeted amount, this
results in a surplus. Conversely, if actual medical expenses are greater than the budgeted amount, this results in a deficit. We will distribute the surplus, or a portion thereof, to each IPA based upon contractual terms. Deficits are charged to shared risk providers’ risk pool as per the contractual term and evaluated for collectability at each reporting period.
We record risk-sharing receivables and payables on a gross basis on the condensed consolidated balance sheets. Throughout the year, we evaluate expected losses on risk-sharing receivables and record the resulting expected losses to the reserve. We systematically build and release reserves based on adequacy and its assessment of expected losses on a monthly basis. Credit loss associated with risk share deficit receivables are recorded within medical expense in the condensed consolidated statements of operations. As of March 31, 2026 and December 31, 2025, we recorded an allowance for credit losses for substantially all of the risk-sharing receivable balance due to collection risk related to the balance. The risk-sharing payable is included within medical expenses payable on the condensed consolidated balance sheets.
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash deposits and current and restricted investments with financial institutions. Accounts at each financial institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to certain limits.
Equity-Based Compensation
Equity-based compensation expense is measured and recognized based on the grant date fair value of the awards. The grant date fair value of stock options is estimated using the Black-Scholes option pricing model. The grant date fair value of restricted stock units (“RSUs”) and performance stock units ("PSUs") is generally estimated based on the fair value of our underlying common stock on the date of grant. For PSUs with market-based performance conditions, the fair value is determined using a Monte Carlo simulation.
The Black-Scholes option pricing model requires the use of highly subjective assumptions, including the award’s expected term, the fair value of the underlying common stock, the expected volatility of the price of the common stock, risk-free interest rates, and the expected dividend yield of the common stock. The assumptions used to determine the fair value of the stock-based awards are management’s best estimates and involve inherent uncertainties and the application of judgment. The expected term represents the period the stock-based awards are expected to be outstanding. As we did not have sufficient historical experience for determining the expected term of the stock option awards granted, we utilized the simplified method available under GAAP. As we did not have a substantial trading history, volatility assumptions were developed using a combination of the Company's historical volatility and the historical volatilities of a set of peer companies, adjusted for debt-equity leverage. Equity-based compensation expense for awards with service-based vesting only is recognized on a graded vesting schedule over the requisite service period of the awards, which is generally three or four years.
Equity-based compensation expense for PSU awards with Company performance-based vesting is recognized over the requisite service period on a graded vesting schedule and is only recognized when the Company concludes that it is probable that the performance condition(s) will be achieved. At each reporting period, the Company reassesses the probability of achieving the performance criteria. Determining whether the performance criteria will be achieved involves judgment, and the estimate of share-based compensation expense may be revised periodically based on changes in the probability of achieving the performance criteria. Revisions are reflected in the period in which the estimate is changed. We account for forfeitures as they occur. For PSU awards with market-based performance conditions, equity-based compensation expense for each performance tranche is recognized on a straight-line basis over the requisite service period. As the grant date fair value is derived using a Monte Carlo simulation, the probability of meeting the market-based performance conditions is factored into the fair value and no reassessment is required.
Equity-based compensation is recorded within selling, general and administrative expenses, and medical expenses based on the function of the applicable employee and non-employee.
Net Income (Loss) per Share
Net income or loss per share is calculated based on net income or loss attributable to Alignment Healthcare, Inc.'s stockholders. Potentially dilutive common stock equivalents for the Company include stock options, unvested RSUs, unvested PSUs, and convertible senior notes.
Diluted net income (loss) per share includes the components of basic net income (loss) per share and also gives effect to dilutive common stock equivalents. Diluted net income (loss) per share reflects the potential dilution that could occur if securities or other instruments that are convertible into common stock were exercised or could result in the issuance of common stock. For the purposes of computing diluted net income (loss) per share, weighted average shares outstanding do not include potentially dilutive securities that are anti-dilutive under the treasury stock method or if-converted method, and performance-based equity awards are included based on the attainment of the applicable performance metrics as of the end of the reporting period.
The following table sets forth the computation of basic and diluted net income or loss per share for the three months ended March 31, 2026 and 2025:
| | | | | | | | | | | | | | | |
| | | | Three Months Ended
March 31, |
| | | | | | 2026 | | 2025 |
| Numerator: | | | | | | | |
| Net income (loss) | | | | | $ | 11,416 | | | $ | (9,354) | |
| Less: Net loss attributable to noncontrolling interests | | | | | — | | | 240 | |
| Net income (loss) attributable to Alignment Healthcare, Inc. | | | | | $ | 11,416 | | | $ | (9,114) | |
| Denominator: | | | | | | | |
| Total weighted-average common shares outstanding | | | | | 205,356,397 | | 193,653,028 |
| Less: Restricted shares of common stock | | | | | — | | | (46,590) |
| Total weighted-average common shares outstanding, net of restricted shares of common stock - basic | | | | | 205,356,397 | | | 193,606,438 |
| | | | | | | |
| Dilutive effect of: | | | | | | | |
| Stock options | | | | | 1,397,763 | | | — | |
| RSUs | | | | | 6,374,071 | | | — | |
| | | | | | | |
| | | | | | | |
| Shares used to compute diluted income (loss) per common share | | | | | 213,128,231 | | | 193,606,438 | |
| | | | | | | |
| Net income (loss) per share: | | | | | | | |
| Basic income (loss) per share | | | | | $ | 0.06 | | | $ | (0.05) | |
| Diluted income (loss) per share | | | | | $ | 0.05 | | | $ | (0.05) | |
Options outstanding that are antidilutive and therefore not factored into the weighted average common shares above were 3,148 for the three months ended March 31, 2026. RSUs outstanding that are antidilutive and therefore not factored into the weighted average common shares above was 9,911 for the three months ended March 31, 2026. Shares used to compute diluted income (loss) per common shares also excludes 23,768,341 potentially outstanding shares related to our convertible senior notes, as these had an antidilutive effect on diluted income (loss) per share. Additionally, we excluded all PSUs as the performance targets have not yet been achieved as of March 31, 2026. See Note 10, Equity-Based Compensation.
Basic net income (loss) per share is the same as diluted net income (loss) per share for periods in which we recorded a net loss as the inclusion of all potentially dilutive shares would have been anti-dilutive.
Recent Accounting Pronouncements Issued
In December 2025, the FASB issued ASU 2025-11 "Interim Reporting (Topic 270): Narrow-Scope Improvements", which clarifies and reorganizes existing U.S. GAAP guidance for interim financial reporting without changing the underlying disclosure requirements. The update refines the scope of Topic 270 to apply to entities that present a complete set of interim financial statements (or condensed financial statements with accompanying notes) and introduces a more principles-based disclosure objective focused on reporting material changes since the most recent annual reporting period. It also consolidates and streamlines interim disclosure guidance—previously dispersed across various topics—into a more accessible framework within Topic 270, with the goal of improving consistency and usability in practice while avoiding unnecessary repetition of annual disclosures. ASU 2025-11 is effective for public business entities for interim periods
beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its financial statements.
In September 2025, the FASB issued ASU 2025-06 "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software", which removes the multi-stage model when determining internal-use software development cost capitalization. Under the new ASU, such software costs are capitalized when management has authorized and committed to funding the software project, and if it is probable that the project will be completed and the software will be used to perform the function intended. If a project is still subject to major uncertainty, capitalization is prohibited. ASU 2025-06 is effective for annual periods beginning after December 15, 2027 (and interim reporting periods within those annual reporting periods). The Company is currently evaluating the impact of this ASU on its financial statements.
In November 2024, the FASB issued ASU 2024-03 “Disaggregation of Income Statement Expenses”, which improves income statement presentation and disclosures related to expenses. It requires a public entity to disaggregate key expense categories such as employee compensation, depreciation and intangible asset amortization within its financial statements. ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim periods within the Company's fiscal year 2027, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its disclosures of income statement expenses.
3. Fair Value
The following tables present the carrying value and fair value of these financial instruments as of March 31, 2026 and December 31, 2025:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2026 |
| | | Fair Value |
| Carrying
Value | | Level 1 | | Level 2 | | Level 3 |
| U.S. Treasury bills | $ | 21,759 | | | $ | 21,757 | | | $ | — | | | $ | — | |
| Certificate of deposits | 2,349 | | | — | | | 2,349 | | | — | |
| Total | $ | 24,108 | | | $ | 21,757 | | | $ | 2,349 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2025 |
| | | Fair Value |
| Carrying
Value | | Level 1 | | Level 2 | | Level 3 |
| U.S. Treasury bills | $ | 29,456 | | | $ | 29,465 | | | $ | — | | | $ | — | |
| Certificate of deposits | 2,345 | | | — | | | 2,345 | | | — | |
| Total | $ | 31,801 | | | $ | 29,465 | | | $ | 2,345 | | | $ | — | |
The Company estimates the fair value of its convertible senior notes based on valuations provided by third-party pricing services. Fair value of the long-term debt as of March 31, 2026 was approximately $458,807. The Company's fair value of long-term debt disclosure is classified within Level 2 of the valuation hierarchy. As of December 31, 2025, the fair value of our long-term debt was approximately $514,614.
The carrying value of long-term debt represents the outstanding balance, net of unamortized debt issuance costs which was $323,616 and $323,176 as of March 31, 2026 and December 31, 2025, respectively.
Our nonfinancial assets and liabilities, which include goodwill, intangible assets, property, and equipment, are not required to be measured at fair value on a recurring basis. However, on a periodic basis, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable, we assess these assets for impairment. No such impairment resulted during the three months ended March 31, 2026. We recorded an impairment charge related to goodwill as of December 31, 2025. See Note 6, Goodwill and Intangible Assets.
U.S. Treasury Securities Investments
As of March 31, 2026 and December 31, 2025, the Company had $20,707 and $28,413, respectively, of investments in U.S. Treasury bills, which were classified as held to maturity and carried at amortized cost. These investments are included in short-term investments in the condensed consolidated balance sheets as the original maturities are greater than three months and less than twelve months. The Company has the intent and ability to hold these securities to maturity and gross unrecognized gains and losses were immaterial.
Restricted Investments
Restricted investments are composed of investments in U.S. Treasury bills and certificates of deposits and are included within other assets in the condensed consolidated balance sheets. As of March 31, 2026 and December 31, 2025, the Company had $1,052 and $1,043 of restricted investments in U.S. Treasury bills and $2,349 and $2,345 of restricted investments in certificates of deposits, respectively. The Company has the intent and ability to hold these investments until maturity; therefore, these investments are stated at amortized cost. Restricted investments are required to be maintained at a financial institution within certain states. As of March 31, 2026 and December 31, 2025, these investments had maturities with less than 12 months. Due to the nature of the state's requirements, these assets are classified as noncurrent assets regardless of the contractual maturity date.
Money Market Funds
As of March 31, 2026 and December 31, 2025, the Company had $257,215 and $216,155, respectively, in money market funds, which are recorded at fair value and included in cash and cash equivalents in the consolidated balance sheet.
4. Accounts Receivable
Accounts receivable consisted of the following as of March 31, 2026 and December 31, 2025:
| | | | | | | | | | | |
| | March 31,
2026 | | December 31,
2025 |
| Government receivables | $ | 100,717 | | | $ | 52,411 | |
| Pharmacy rebate receivables | 161,353 | | | 179,196 | |
| Other receivables | 15,608 | | | 22,433 | |
| Total accounts receivable | 277,678 | | | 254,040 | |
| Allowance for credit losses | — | | | (833) | |
| Accounts receivable, net | $ | 277,678 | | | $ | 253,207 | |
The allowance for expected credit losses for accounts receivable is based primarily on past collections experience relative to the length of time receivables are past due. However, when available evidence reasonably supports an assumption that future economic conditions will differ from current and historical payment collections, an adjustment is reflected in the allowance for expected credit losses. We record pharmacy rebates and other receivables based on contractual terms and expected collections and our estimation process for contractual allowances for such balances generally results in an allowance for balances outstanding greater than 90 days or if expected credit risks are known.
Receivables and any associated allowance are written off only when all collection attempts have failed and such amounts are determined unrecoverable. We regularly review the adequacy of these allowances based on a variety of factors, including age of the outstanding receivable and collection history. When circumstances related to specific collection patterns change, estimates of the recoverability of receivables are adjusted. Because substantially all of our receivable amounts are readily determinable and a large portion of our creditors are governmental authorities, our allowance for credit losses is insignificant.
We recorded no credit losses related to accounts receivable during the three months ended March 31, 2026 and 2025, respectively. The amounts were recorded in selling general, and administrative expenses in the condensed consolidated statements of operations.
5. Property and Equipment
Property and equipment consisted of the following as of March 31, 2026 and December 31, 2025:
| | | | | | | | | | | |
| March 31,
2026 | | December 31,
2025 |
| Computers and equipment | $ | 14,030 | | | $ | 13,815 | |
| Office equipment and furniture | 4,388 | | | 4,338 | |
| Software | 224,349 | | | 218,023 | |
| Leasehold improvements | 6,224 | | | 6,224 | |
| Construction in progress | 1,829 | | | 983 | |
| Subtotal | 250,820 | | | 243,383 | |
| Less accumulated depreciation | (186,953) | | | (179,132) | |
| Property and equipment-net | $ | 63,867 | | | $ | 64,251 | |
Depreciation expense for the three months ended March 31, 2026 and March 31, 2025 was $7,862 and $6,993, respectively, of which $23 and $33, respectively, were included in medical expenses.
6. Goodwill and Intangible Assets
Intangible assets consisted of the following as of March 31, 2026 and December 31, 2025:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2026 |
| Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | | Weighted Average Life |
| Goodwill | $ | 32,060 | | | $ | — | | | $ | 32,060 | | | — |
| License (indefinite lived) | 4,550 | | | — | | | 4,550 | | | — |
| Plan member relationships | 2,700 | | | (2,700) | | | — | | | 9 years |
| Other | 633 | | | (633) | | | — | | | 2 - 10 years |
| Total | $ | 39,943 | | | $ | (3,333) | | | $ | 36,610 | | | |
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| December 31, 2025 |
| Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | | Weighted Average Life |
| Goodwill | $ | 32,060 | | | $ | — | | | $ | 32,060 | | | — |
| License (indefinite lived) | 4,550 | | | — | | | 4,550 | | | — |
| Plan member relationships | 2,700 | | | (2,700) | | | — | | | 9 years |
| Other | 633 | | | (633) | | | — | | | 2 - 10 years |
| Total | $ | 39,943 | | | $ | (3,333) | | | $ | 36,610 | | | |
Amortization expense relating to intangible assets for the three months ended March 31, 2026 and 2025, was $0 and $634, respectively. Included within the amortization balance for the three months ended March 31, 2025 was $634 in impairment charges related to the remeasurement of goodwill associated with one of our subsidiaries.
7. Medical Expenses Payable
The following table is a detail of medical expenses payable as of March 31, 2026 and December 31, 2025:
| | | | | | | | | | | |
| | March 31,
2026 | | December 31,
2025 |
| Claims incurred but not paid | $ | 348,130 | | | $ | 297,368 | |
| Capitation and risk-sharing payable | 111,784 | | | 85,083 | |
| Other | 196,053 | | | 92,118 | |
| Medical expenses payable | $ | 655,967 | | | $ | 474,569 | |
Each period, we re-examine previously established outstanding claims reserve estimates based on actual claims submissions and other changes in facts and circumstances. As more complete claim information becomes available, we adjust the amount of the estimates and include the changes in estimates in claim costs in the period in which the change is identified. Substantially, all of the total claims paid by us are known and settled within the first year from the date of service, and substantially, all remaining claim amounts are paid within a three-year period.
The following table presents components of the change in medical expenses payable as of March 31, 2026 and 2025:
| | | | | | | | | | | |
| March 31,
2026 | | March 31,
2025 |
| Claims incurred but not paid - beginning balance | $ | 297,368 | | | $ | 168,357 | |
| Incurred related to: | | | |
| Current year | 400,763 | | | 282,332 | |
| Prior years | (22,232) | | | (14,596) | |
| Total incurred, net of reinsurance | 378,531 | | | 267,736 | |
| Payments related to: | | | |
| Current year | 139,311 | | | 123,768 | |
| Prior years | 188,458 | | | 115,389 | |
| Total payments, net of reinsurance | 327,769 | | | 239,157 | |
| Claims incurred but not paid - ending balance | 348,130 | | | 196,936 | |
| Capitation payable, risk-sharing payable, and other | 307,837 | | | 199,798 | |
| Total medical expenses payable | $ | 655,967 | | | $ | 396,734 | |
We re-examine previously established outstanding claims reserve estimates based on actual claims submissions and other changes in facts and circumstances. We recognized a favorable prior year development, excluding provision for adverse deviation, of $8,379 and $5,951 for the three months ended March 31, 2026 and March 31, 2025, respectively. The favorable prior year development was primarily due to better-than-expected claims recoveries and actual claims expense being less than expected.
8. Long-Term Debt
Long-term debt is recorded at carrying value in the condensed consolidated balance sheets. The carrying value of long-term debt outstanding, net of unamortized debt issuance costs, consisted of the following as of March 31, 2026 and December 31, 2025:
| | | | | | | | | | | |
| March 31,
2026 | | December 31,
2025 |
| Long-term debt | $ | 330,000 | | | $ | 330,000 | |
| Less unamortized debt issuance costs | (6,384) | | | (6,824) | |
| Long-term debt-net of amortization | 323,616 | | | 323,176 | |
| Less current maturities of long-term debt | — | | | — | |
| Long-term debt - net of current portion | $ | 323,616 | | | $ | 323,176 | |
Convertible Senior Notes
On November 22, 2024 the Company completed the sale of $330,000 of our 4.25% Convertible Senior Notes (the “Notes”). The Notes were issued pursuant to an indenture (the “Indenture”), dated as of November 22, 2024, between the Company and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). The Notes are senior, unsecured obligations of the Company, and interest will be payable semi-annually in arrears at a rate of 4.25% per annum beginning on May 15, 2025. The Notes will mature on November 15, 2029, unless earlier repurchased, redeemed or converted in accordance with their terms. The net cash proceeds from the sale of the Notes was approximately $321,100, after subtracting fees, discounts and estimated expenses in connection with the transaction.
Prior to the close of business on the business day immediately preceding August 15, 2029, the Notes will be convertible at the option of holders during certain periods, upon satisfaction of certain conditions. On or after August 15, 2029, the Notes will be convertible at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. Upon conversion, the Notes may be settled in shares of Company common stock, cash or a combination of cash and shares of Company common stock, at the Company's election.
The Notes have an initial conversion rate of approximately 62.4 shares of Company common stock per $1 principal amount of the Notes. The conversion rate will be subject to adjustment in certain events, including adjustment in the event of certain significant corporate transactions. This represents an initial conversion price of approximately $16.04 per share. The initial conversion price of the Notes represents a premium of approximately 25% to the closing price of the Company's common stock on November 14, 2024. The Company has used the proceeds from the sale of the Notes to repay in full the $215,000 aggregate principal amount, accrued interest and fees related to the Oxford term loans, as well as certain fees and expenses incurred in connection with the transaction.
The Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of at least 25% in principal amount of the outstanding notes may declare 100% of the principal of, and accrued and unpaid special interest, if any, on, all the notes to be due and payable.
The Company has recognized the Notes in their entirety as a liability on the condensed consolidated balance sheet and no portion of the proceeds from the issuance of the convertible debt instrument was accounted for separately as an embedded conversion feature within stockholders’ equity.
Future maturities under the Notes for each of the next five years ending March 31, are as follows:
| | | | | |
| Amount |
| Remainder of 2026 | $ | — | |
| 2027 | — | |
| 2028 | — | |
| 2029 | 330,000 | |
| 2030 | — | |
| $ | 330,000 | |
Revolving Credit Facility
On February 26, 2026 (the “Effective Date”), the Company, Alignment Healthcare USA, LLC, an indirect wholly owned subsidiary of the Company (the “Borrower”) and certain other subsidiaries of the Company (together with the Company and the Borrower, the “Borrower Parties”) entered into a Credit Agreement with Citibank, N.A., as administrative agent, and the lenders party thereto (the “Credit Agreement”). The Credit Agreement matures on February 26, 2029, and provides for a $200,000 senior secured revolving credit facility (the “Credit Facility”), with sublimits of up to $20,000 for the issuance of letters of credit and $5,000 for swingline loans. Subject to meeting certain customary conditions, the Borrower may request an increase to the commitments under the Credit Facility or to establish one or more new term loan facilities by up to an amount equal to the greater of $50,000 or 100% of the Borrower Parties’ Consolidated EBITDA (as defined in the Credit Agreement) for the most recently completed four fiscal quarters of the Borrower Parties for which financial statements have been delivered.
Borrowings under the Credit Facility may be used for permitted acquisitions, working capital, the payment of fees, costs and expenses incurred in connection with the Credit Agreement and other general corporate purposes. The Borrower did not borrow any amounts under the Credit Facility as of the Effective Date.
Loans under the Credit Facility will bear interest at a floating rate, which can be either, at the Borrower’s option, (a) Term SOFR (as defined in the Credit Agreement) plus an applicable margin that ranges from 2.0% to 2.5% per annum with respect to Term SOFR loans or (b) a Base Rate (as defined in the Credit Agreement) plus an applicable margin that ranges from 1.0% to 1.5% per annum with respect to Base Rate loans, based on the consolidated senior secured leverage ratio for the Borrower Parties and their affiliates, as calculated in accordance with the Credit Agreement. The Borrower is also required to pay certain fees in connection with the Credit Agreement, including commitment fees on a quarterly basis in respect of the unutilized portion of the commitments under the Credit Agreement and certain fees to each of the lenders upon the effectiveness of the Credit Agreement. The Borrower may voluntarily repay outstanding borrowings under the Credit Facility at any time, without premium or penalty.
The Credit Agreement includes financial covenants that require us to maintain, as of the last day of each fiscal quarter (commencing with the fiscal quarter ending June 30, 2026), (i) a ratio of senior secured indebtedness that is not subordinated in right of payment to the obligations under the Credit Agreement to Consolidated EBITDA (as defined in the Credit Agreement) for the period of four consecutive fiscal quarters ended on such date, of not more than 2.5 to 1.0 and (ii) Consolidated EBITDA for the period of four consecutive fiscal quarters ended on such date, of amounts specified in the Credit Agreement starting from $60,000 as of June 30, 2026, increasing to $70,000 as of June 30, 2027, and $80,000 as of June 30, 2028 and each fiscal quarter thereafter.
The Borrower’s obligations under the Credit Agreement are guaranteed by the Company and certain subsidiaries of the Company and secured by substantially all of the assets of the Borrower, the Company and such subsidiaries of the Company, subject to customary exceptions. None of the Company’s health plan subsidiaries or other regulated entities are guarantors under the Credit Agreement and the equity in such subsidiaries was not pledged. The Credit Agreement contains customary representations and warranties, as well as affirmative and negative covenants. Negative covenants include, among others, customary covenants that restrict the ability of the Company and its subsidiaries, without the approval of requisite lenders, to engage in certain fundamental transactions, incur debt and liens, enter into transactions with affiliates and make certain restricted payments and restricted investments, in each case, as set forth in the Credit Agreement and subject to certain thresholds and exceptions. The Credit Agreement also contains other customary covenants and events of default for secured credit facilities of this type. Upon an event of default that is not cured or waived within any applicable cure periods, in addition to other remedies that may be available to the lenders, the obligations under the Credit Agreement may be accelerated. As of March 31, 2026, there was no outstanding debt under the credit facility and we were in compliance with all financial covenants.
9. Income Taxes
For the three months ended March 31, 2026 and 2025, we recorded income tax expense of $25 and $21, respectively. The change in tax for the three months ended March 31, 2026 when compared to the three months ended March 31, 2025 is primarily attributable to a change in state taxes. Our future effective tax rate may vary from the statutory tax rate primarily due to changes in our valuation allowance, state taxes, and excess executive compensation.
We have federal and state cumulative net operating losses ("NOLs") as of March 31, 2026 and December 31, 2025. Given the history of losses, and after consideration for the risk associated with estimates of future taxable income, we established a full valuation allowance against net deferred tax assets at March 31, 2026 and 2025. Under the Tax Cuts and Jobs Act
(“TCJA”), federal NOLs generated after 2017 will be carried forward indefinitely but are limited to an 80% deduction of taxable income. NOLs generated prior to 2018 have a 20-year carryforward period and can be used to offset 100% of taxable income. An exception to the TCJA federal NOL rule applies to certain of our subsidiaries and requires all NOLs generated from those entities to have a 20-year carryforward period and offset 100% of taxable income. For the year ended December 31, 2025 federal and state NOL carryforwards were $617,001 and $531,012, respectively. $95,332 of the total federal net operating loss carryforwards have an indefinite life while the remaining federal and state net operating loss carryforwards begin to expire in 2033 if not utilized. On June 27, 2024, California Senate Bill 167 (“SB 167”) was enacted into law, suspending California NOL utilization for taxpayers with more than $1 million of taxable income, effective for tax years 2024, 2025, and 2026. SB 167 includes an extended carryover period for the suspended NOLs with an additional year carryforward for each year of suspension. The Company will continue to monitor this legislation and its impact on our deferred tax assets.
An “ownership change” as defined under Section 382 of the Internal Revenue Code ("IRC"), could potentially limit the ability to utilize certain tax attributes including the Company’s substantial NOLs. Ownership change is generally defined as any significant change in ownership of more than 50% of its stock over a three-year testing period. If, as a result of current or future transactions involving our common stock, we undergo cumulative ownership changes which exceed 50% over a testing period, our ability to utilize our NOL carryforwards would be subject to additional limitations under IRC Section 382. We continue to monitor changes in ownership with respect to these income tax provisions.
The One Big Beautiful Bill Act (“OBBB Act”) was enacted on July 4, 2025 in the United States. The OBBB Act includes several significant provisions, including re-establishing a 100% bonus depreciation deduction, re-establishing rules in calculating business interest expense limitations pursuant to §163(j), and removing the capitalization requirements for domestic research or experimental (“R&E”) expenditures paid or incurred in tax years beginning after December 31, 2024. We have considered applicable tax impact of the OBBB Act within the 2026 financial statements.
10. Equity-Based Compensation
Equity Awards
Stock Options
Our outstanding stock options generally vest 25% annually over four years and generally expire 10 years from the date of the grant. The 2021 Equity Incentive Plan (“Plan”)provides that stock option grants will be made with an exercise price at no less than the estimated fair value of common stock at the date of the grant.
The following is a summary of the stock option transactions as of and for the three months ended March 31, 2026:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Stock Options Outstanding |
| (amounts in thousands, except shares and per share amount) | Shares Subject to Options Outstanding | | Weighted- Average Exercise Price per Option | | Weighted- Average Remaining Contractual Terms (in years) | | Aggregate Intrinsic Value |
| Balances as of December 31, 2025 | 7,408,212 | | $ | 17.05 | | | 5.28 | | $ | 20,001 | |
| Options granted | — | | — | | | | | |
| Options exercised | (137,087) | | 15.85 | | | | | |
| Options forfeited / expired | (216,537) | | 18.00 | | | | | |
| Balances as of March 31, 2026 | 7,054,588 | | 17.05 | | | 5.03 | | 6,477 | |
| | | | | | | |
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| | | | | | | |
| | | | | | | |
| | | | | | | |
| Vested and Exercisable as of March 31, 2026 | 7,040,009 | | $ | 17.16 | | | 5.03 | | $ | 6,390 | |
Aggregate intrinsic value represents the difference between the exercise price of the option and the closing price of our common stock. The aggregate intrinsic value of options exercised for the three months ended March 31, 2026 was $282. No options were granted during the three months ended March 31, 2026.
Restricted Stock Units
Our outstanding Restricted Stock Units ("RSU") generally vest 33% annually over three years or 25% annually over four years.
The following is a summary of RSU transactions as of and for the three months ended March 31, 2026:
| | | | | | | | | | | |
| | Restricted Stock Units | | Weighted-Average Grant Date Fair Value |
| Unvested and outstanding as of December 31, 2025 | 9,356,689 | | $ | 10.49 | |
| Granted | 2,613,707 | | 17.21 |
| Vested | (2,699,553) | | 8.91 |
| Forfeited | (286,686) | | 11.97 |
| Unvested and outstanding as of March 31, 2026 | 8,984,157 | | $ | 12.87 | |
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Performance-based Restricted Stock Units ("PSUs")
Generally, for our outstanding PSUs, each grantee is eligible to vest in a number of PSUs ranging from 0% to 200% of the target number of PSUs granted, based on the aggregated achievement by the Company of certain performance metrics during the applicable performance period. The achievement of PSUs relative to the approved target is based on the following performance metrics and relative weighting: Revenue (50% weighting) and Adjusted EBITDA (50% weighting). 100% of the total number of earned PSUs will become vested upon certification of achievement of the performance metrics by the Compensation Committee on or about March 1st following the end of the applicable performance period, subject to continued service to the Company through such date.
Market-based PSUs
On February 24, 2026 (the “Grant Date”), the Board of Directors of the Company approved the grant of certain PSUs to John Kao, the Company’s Chief Executive Officer (the “PSU Award”), under the Company’s 2021 Equity Incentive Plan.
Tranches of the PSU Award will be earned and vest only upon both (i) the achievement of pre-determined price per share goals (described below) over the period commencing on the Grant Date and ending on the fifth anniversary of the Grant Date (the “Measurement Period”); and (ii) Mr. Kao’s continued employment or service as the Company’s Chief Executive Officer through the third anniversary of the Grant Date, unless otherwise agreed to (the “Service Requirement”).
The PSUs will become earned (“Earned PSUs”) in three tranches based on the achievement of the following volume-weighted average price per share goals during the Measurement Period (the “Stock Price Hurdles”):
| | | | | | | | |
| Price Per Share Goals | Number of Earned PSUs |
| First Stock Price Hurdle | $33.75 | 333,333 |
| Second Stock Price Hurdle | $44.00 | 333,333 |
| Third Stock Price Hurdle | $55.25 | 333,334 |
A Stock Price Hurdle is achieved if the volume-weighted average price per share over any 30-consecutive-trading-day period during the Measurement Period equals or exceeds the applicable price. Any tranche of PSUs that Mr. Kao has earned will become vested upon the later of (i) the date on which the applicable Stock Price Hurdle has been achieved or (ii) the date on which the Service Requirement has been met, subject to his continued service though such later date. PSUs for which the relevant Stock Price Hurdle has not been achieved by the end of the Measurement Period will be forfeited.
The following is a summary of PSU transactions for the three months ended March 31, 2026:
| | | | | | | | | | | |
| | Performance-based restricted stock units | | Weighted-Average Grant Date Fair Value |
| Unvested and outstanding as of December 31, 2025 | 1,685,407 | | $ | 9.35 | |
| Granted | 1,792,525 | | 15.62 | |
| Vested | — | | — | |
| Forfeited | — | | — | |
| Unvested and outstanding as of March 31, 2026 | 3,477,932 | | $ | 12.58 | |
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Equity-Based Compensation Expense
Total equity-based compensation expense was presented on the statement of operations as follows:
| | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| (amounts in thousands) | | | | | 2026 | | 2025 |
| Selling, general and administrative expenses | | | | | $ | 12,608 | | | $ | 16,035 | |
| Medical expenses | | | | | 1,411 | | | 1,152 | |
| Total equity-based compensation expense | | | | | $ | 14,019 | | | $ | 17,187 | |
As of March 31, 2026, there was $105,474 in unrecognized compensation expense related to all non-vested awards (Options, RSUs and PSUs) that will be recognized over the weighted-average period of 2.04 years.
11. Regulatory Requirements and Restricted Funds
Our health plans or risk-bearing entities are required to maintain minimum capital requirements prescribed by various regulatory authorities in each of the states in which it operates.
Risk-Based Capital
The National Association of Insurance Commissioners has adopted rules, which, if implemented by the states, set minimum capitalization requirements for insurance companies, health maintenance organizations ("HMOs"), and other entities bearing risk for health care 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. Our health plans or risk-bearing entities were in compliance with the RBC requirements as of March 31, 2026.
Tangible Net Equity
Our health plans in California are required to comply with the tangible net equity ("TNE") requirements. The required amount is 150% of the larger of: (1) $1,000; (2) the sum of 2% of the first $150,000 of annualized premium revenue and 1% of annualized premium revenue in excess of $150,000; or (3) 8% of the first $150,000 of annualized health care expenditures except those paid on a capitated or managed hospital payment basis, plus 4% of the annualized health care expenditures in excess of $150,000, except those paid on a capitated or managed hospital payment basis, plus 4% of annualized hospital expenditures paid on a managed hospital payment basis. For newer health plans, through the first three years immediately following the health plan’s operational start date, the required amount is 200% of the larger of the TNE calculation described above. We were in compliance with the TNE requirements as of March 31, 2026.
Certain states regulate the payment of dividends, loans, or other cash transfers from our regulated subsidiaries to our non-regulated subsidiaries and parent company. Such payments may require approval by state regulatory authorities and are limited based on certain financial criteria, such as the entity’s level of statutory income and statutory capital and surplus, or the entity’s level of tangible net equity or net worth, amongst other measures. These regulations vary by state.
We have the ability to provide additional capital to each of our health plans or risk-bearing entities when necessary to ensure that the RBC and TNE requirements are met.
Restricted Assets
Pursuant to the regulations governing our subsidiaries, we maintain certain deposits required by the government authorities in the form of cash, certificate of deposit and Treasury bills as protection in the event of insolvency. The use of funds from these investments is limited as required by regulation in the various states in which we operate, or as needed in the event of insolvency. Therefore, these deposits are reported within other assets on the condensed consolidated balance sheets.
We hold these assets until maturity, at which time these assets will renew or are invested in a similar type of investment instrument. Given the regulatory requirements, we expect to hold these investments for long-term. As a result, we do not expect the value of these investments to decline significantly due to a sudden change in market interest rates. These investments are carried at amortized cost, which approximates fair value. See Note 3, Fair Value, for further discussion.
12. Commitments and Contingencies
Legal Proceedings
We record a liability and accrue the costs for a loss when an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. In some cases, no estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made because of the inherently unpredictable nature of legal and regulatory proceedings. While the liability and accrued costs reflect our best estimate, the actual amounts may materially be different.
We may be involved in various litigation matters in the ordinary course of business. In the opinion of management, the ultimate resolution of legal proceedings is not expected to have a material adverse effect on the condensed consolidated financial statements. Amounts accrued for legal proceedings were not material as of March 31, 2026 and December 31, 2025.
Risk Adjustment Data Validation Audit
On June 25, 2025, the Company was notified that its California HMO plan had been selected for an audit of Medicare Advantage contract-specific risk adjustment data validation (“RADV”) with respect to payment year 2019. CMS conducts RADV audits in order to validate the coding practices of and supporting documentation maintained by health care providers and such audits may result in retrospective adjustments to payments made to the Company’s health plans. Under CMS’s final rule issued in 2023, CMS announced its intent to apply a revised methodology, including extrapolated audit findings to estimate contract-wide overpayments and without application of the previously employed “fee-for-service adjuster” that accounted for the error rate in the original Medicare data that CMS used to develop the risk adjustment model. Additionally, in May 2025, CMS announced a significant expansion to its RADV audit program, stating, among other things, that it intended to conduct RADV audits with extrapolation on all eligible MA plans on an annual basis and that it would accelerate the timetable for clearing its backlog of audits with respect to payment years 2018-24. However, on September 25, 2025, a Federal District Court in Texas vacated CMS’s final rule regarding extrapolation of results of RADV audits for payment years beginning with payment year 2018. As of March 31, 2026, the Company is in the process of collecting and reviewing medical records with respect to the member cohort selected for the RADV audit. The Company is continuing to monitor developments with respect to these audits and continuing to assess their potential impact.