ALIGNMENT HEALTHCARE, INC. 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 over 95,000 as of June 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 , subject to regulatory approval by CMS. If we obtain such
approval for the 2023 Medicare Advantage plan year, with these expansions, we
will reach an additional 1.1 million Medicare-eligible seniors, resulting in a
total of 8.2 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 ourCalifornia counties between 2016 and 2022. Further, there are approximately 3.7 million Medicare-eligible individuals enrolled in Medicare Advantage plans in our existing 38 counties, of which our approximately 95,900 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. InApril 2021 , we entered intoCMS 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 ofJune 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. InJune 2022 , we announced our anticipated expansion for the 2023 plan year, subject to regulatory approval by CMS, into 14 additional markets across our four existing states and two new states,Florida andTexas .
•
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 2022 Ratings occurred in the second half of 2021 and will impact our financial performance in 2023). Historically, we have earned additional bonus payments from CMS based on our performance under CMS's Five Star Quality Rating System. For the last five years (CMS Rating Years 2018-2022), over 98% of ourCalifornia members have been in a CMS contract achieving at least a 4 Star overall rating (the remaining members were in a CMS contract that had too few members to be measured). 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. Our Medicare Advantage plans inCalifornia currently have a 4 Star rating, and our plans inNevada ,North Carolina andArizona do not yet have independent Star ratings due to our limited operating history in those markets. As a result, payments inNevada ,North Carolina , andArizona are expected to be based on our Star rating inCalifornia for the next several years.
•
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 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
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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 SummaryThe following table presents key financial statistics for the periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
(dollars in '000's, except
percentages) 2022 2021 % Change 2022 2021 % Change
Health plan membership (at
period end) 95,900 84,700 13.2 % 95,900 84,700 13.2 %
Medical benefits ratio 83.4 % 88.0 % -4.6 % 85.1 % 89.6 % -4.5 %
Revenues $ 366,474 $ 308,951 18.6 % $ 712,000 $ 576,033 23.6 %
Loss from Operations
$ (11,580 ) $ (44,762 )
NM(2)
$ 10,320 $ (4,690 )
NM(2)
77.4 %
(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 ofJune 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 June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Loss from operations $ (6,648 ) $ (40,492 ) $ (43,123 ) $ (93,156 )
Add back:
Equity-based compensation (medical expenses) 1,718 2,457 4,839 9,023
Depreciation (medical expenses) 49 54 92 106
Depreciation and amortization 4,180 3,908 8,130 7,645
Selling, general, and administrative expenses 61,673 71,150 135,966 136,064
Total add back 67,620 77,569 149,027 152,838
Adjusted gross profit $ 60,972 $ 37,077 $ 105,904 $ 59,682
Adjusted gross profit % 16.6 % 12.0 % 14.9 % 10.4 %
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 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
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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, and loss on sublease. 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 Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(dollars in thousands)
Net loss $ (11,580 ) $ (44,762 ) $ (52,397 ) $ (101,636 )
Add back:
Interest expense 4,490 4,329 8,891 8,577
Depreciation and amortization 4,229 3,962 8,222 7,751
EBITDA (2,861 ) (36,471 ) (35,284 ) (85,308 )
Equity-based compensation(1) 12,099 30,887 40,146 62,674
Reorganization and transaction-related
expenses(2) - 593 - 3,601
Acquisition expenses(3) 573 301 1,059 301
Loss on sublease(4) 509 - 509 -
Adjusted EBITDA $ 10,320 $ (4,690 ) $ 6,430 $ (18,732 )
(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.
(2)
Represents legal, professional, accounting and other advisory fees related to the Reorganization and the IPO 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 current quarter.
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Results of OperationsThe following table sets forth our consolidated statements of operations data for the periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Revenues:
Earned premiums $ 366,180 $ 308,739 $ 711,472 $ 575,739
Other 294 212 528 294
Total revenues 366,474 308,951 712,000 576,033
Expenses:
Medical expenses 307,269 274,385 611,027 525,480
Selling, general and administrative expenses 61,673 71,150 135,966 136,064
Depreciation and amortization 4,180 3,908 8,130 7,645
Total expenses 373,122 349,443 755,123 669,189
Loss from operations (6,648 ) (40,492 ) (43,123 ) (93,156 )
Other expenses:
Interest expense 4,490 4,329 8,891 8,577
Other expenses (income) 442 (59 ) 383 (97 )
Total other expenses 4,932 4,270 9,274 8,480
Loss before income taxes (11,580 ) (44,762 ) (52,397 ) (101,636 )
Provision for income taxes - - - -
Net loss $ (11,580 ) $ (44,762 ) $ (52,397 ) $ (101,636 ) 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 June 30 ,
Six Months Ended
2022 2021 2022 2021
(% of revenue)
Revenues:
Earned premiums 100 % 100 % 100 % 100 %
Other - - - -
Total revenues 100 100 100 100
Expenses:
Medical expenses 84 89 86 91
Selling, general and administrative
expenses 17 23 19 24
Depreciation and amortization 1 1 1 1
Total expenses 102 113 106 116
Loss from operations (2 ) (13 ) (6 ) (16 )
Other expenses:
Interest expense 1 1 1 2
Other expenses (income) - - - -
Total other expenses 1 1 1 2
Loss before income taxes (3 ) (14 ) (7 ) (18 )
Provision for income taxes - - - -
Net loss (3 )% (14 )% (7 )% (18 )%
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Revenues
Three Months Ended
June 30, Change
2022 2021 $ %
(dollars in thousands)
Revenues:
Earned premiums $ 366,180 $ 308,739 $ 57,441 18.6 %
Other 294 212 82 38.7 %
Total revenues $ 366,474 $ 308,951 $ 57,523 18.6 %
Six Months Ended
June 30, Change
2022 2021 $ %
(dollars in thousands)
Revenues:
Earned premiums $ 711,472 $ 575,739 $ 135,733 23.6 %
Other 528 294 234 79.6 %
Total revenues $ 712,000 $ 576,033 $ 135,967 23.6 %
Revenues. Revenues were $366.5 million and $309.0 million for the three months
ended June 30, 2022 and 2021, respectively, an increase of $57.5 million or
18.6%. Revenues were $712.0 million and $576.0 million for the six months ended
June 30, 2022 and 2021, respectively, an increase of $136.0 million or 23.6%.
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 13.2% between June 30, 2021 and June 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
June 30, Change
2022 2021 $ %
(dollars in thousands)
Expenses:
Medical expenses $ 307,269 $ 274,385 $ 32,884 12.0 %
Selling, general and
administrative expenses 61,673 71,150 (9,477 ) (13.3 )%
Depreciation and amortization 4,180 3,908 272 7.0 %
Total expenses $ 373,122 $ 349,443 $ 23,679 6.8 %
Six Months Ended June 30, Change
2022 2021 $ %
(dollars in thousands)
Expenses:
Medical expenses $ 611,027 $ 525,480 $ 85,547 16.3 %
Selling, general and
administrative expenses 135,966 136,064 (98 ) (0.1 )%
Depreciation and amortization 8,130 7,645 485 6.3 %
Total expenses $ 755,123 $ 669,189 $ 85,934 12.8 %
Medical Expenses. Medical expenses were $307.3 million and $274.4 million for
the three months ended June 30, 2022 and 2021, respectively, an increase of
$32.9 million , or 12.0%. Medical expenses were $611.0 million and $525.5 million
for the six months ended June 30, 2022 and 2021, respectively, an increase of
$85.5 million , or 16.3%. The increase was driven primarily by the growth in
Alignment's Health Plan membership. Overall, medical expenses for the six months
ended June 30, 2022 grew at a lower rate than total revenues compared to the six
months ended June 30, 2021 primarily due to the impact of COVID-19 on
utilization in 2021. For January and February 2021 , we experienced an increase
in inpatient admissions due to COVID-related hospitalizations. However, for the
remainder of fiscal year 2021 and the first half of 2022, we saw a decline in
COVID-related inpatient utilization (compared to the first half of 2021) as
vaccination rates improved across our senior population and the milder omicron
variant became dominant. The
29
--------------------------------------------------------------------------------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$61.7 million and$71.2 million for the three months endedJune 30, 2022 and 2021, respectively, a decrease of$9.5 million , or 13.3%. Selling, general and administrative expenses were$136.0 million and$136.1 million for the six months endedJune 30, 2022 and 2021, respectively, a decrease of$0.1 million , or 0.1%. The decrease for the three months endedJune 30, 2022 compared to the three months endedJune 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 endedJune 30, 2022 , our selling, general and administration expenses increased 20.1% from the three months endedJune 30, 2021 . Excluding equity-based compensation in the six months endedJune 30, 2022 , our selling, general and administration expenses increased 22.1% from the six months endedJune 30, 2021 . Depreciation and Amortization. Depreciation and amortization expense was$4.2 million and$3.9 million for the three months endedJune 30, 2022 and 2021, respectively, an increase of$0.3 million , or 7.0%. Depreciation and amortization expense was$8.1 million and$7.6 million for the six months endedJune 30, 2022 and 2021, respectively, an increase of$0.5 million , or 6.3%. 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$4.5 million and$4.3 million for the three months endedJune 30, 2022 and 2021, respectively, an increase of$0.2 million or 4.7%. Interest expense was$8.9 million and$8.6 million for the six months endedJune 30, 2022 and 2021, respectively, an increase of$0.3 million or 3.5%. 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$0.4 million and$(0.1) million for the three months endedJune 30, 2022 and 2021, respectively. Other expenses (income) were$0.4 million and$(0.1) million for the six months endedJune 30, 2022 and 2021, respectively. The increase in expense was primarily due to a loss recorded on ROU assets that were subleased. Liquidity and Capital Resources
General
To date, we have financed our operations principally through our IPO, private placements of our equity securities, revenues, and a loan agreement (described below). As ofJune 30, 2022 , we had$453.2 million in cash. 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$293.4 million atJune 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 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. TheNational 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 30 -------------------------------------------------------------------------------- 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. Term Loan OnAugust 21, 2018 , we entered into a term loan agreement (the "Term Loan") withCR Group ("CRG") for$80.0 million , with an option to borrow up to an additional$20.0 million . InApril 2019 , we amended the Term Loan to increase its borrowing capacity by$75.0 million and drew down$35.0 million inMay 2019 . The Term Loan was subject to a commitment fee of$6.8 million and we incurred debt issuance costs of$3.6 million . Subsequent to the balance sheet date we extended the maturity of the term loan toSeptember 30, 2023 . While we believe our liquid assets are sufficient to repay the Term Loan and meet our projected operating requirements, we expect to refinance the Term Loan prior to maturity. The commitment fees are deferred as part of debt issuance costs and are amortized to interest expense over the term using the effective interest method. The debt issuance costs are being amortized to interest expense over the term using the effective interest method. The Term Loan bears interest at a rate of 10.25% payable on a quarterly basis. We have 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 is also subject to a commitment fee of 5%. The cash and payment-in-kind interest rates were 7.75% and 2.50%, respectively, throughApril 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. Our total long-term debt balance of$156.3 million as ofJune 30, 2022 included the principal balance of$135.0 million , the initial commitment fee of$6.8 million , and the payment-in-kind interest on the principal balance of$14.1 million . The payment-in-kind interest on the principal balance is also subject to the commitment fee of$0.4 million for the three months endedJune 30, 2022 . The amount was included in the long-term debt balance. In addition, the Term Loan includes financial covenants regarding the maintenance of minimum liquidity of$6.0 million of operating cash, as defined, on a consolidated basis, at least$10.0 million in its cash accounts on a daily basis and minimum consolidated revenue amounts in the calendar years through 2022. As ofJune 30, 2022 , we were in compliance with the financial covenants. The Term Loan is guaranteed by certain of our wholly owned subsidiaries and collateralized by all unrestricted assets.
Cash Flows
The following table presents a summary of our consolidated cash flows from operating, investing and financing activities for the periods indicated:
Six Months Ended June 30 ,
(dollars in thousands) 2022 2021
Net cash used in operating activities$ (1,284 ) $ (61,556 ) Net cash used in investing activities (11,982 ) (10,867 ) Net cash (used in) provided by financing activities (100 )
360,130
Net change in cash (13,366 )
287,707
Cash and restricted cash at beginning of period 468,350
207,811
Cash and restricted cash at end of period$ 454,984 $ 495,518 Operating Activities For the six months endedJune 30, 2022 , net cash used in operating activities was$1.3 million , a decrease of$60.3 million compared to net cash used in operating activities of$61.6 million for the six months endedJune 30, 2021 . The decrease is mainly attributable to the decrease in net loss for the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 , as well as an improvement in our working capital accounts.
Investing Activities
For the six months endedJune 30, 2022 , net cash used in investing activities was$12.0 million , an increase of$1.1 million compared to net cash used in investing activities of$10.9 million for the six months endedJune 30, 2021 . The increase primarily relates to incremental capital expenditures related to information technology and infrastructure projects and asset acquisitions.
Financing Activities
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For the six months ended June 30, 2022 , net cash used in financing activities
was $0.1 million , a decrease of $360.2 million compared to net cash provided by
financing activities of $360.1 million for the six months ended June 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 obligationsThere have been no material changes to our contractual obligations disclosed in our Annual Report.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of
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 PronouncementsSee Note 2 to our condensed consolidated financial statements, "Summary of Significant Accounting Policies-Recent Accounting Pronouncements Adopted" for more information.
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