Alignment Healthcare, Inc.: Form 10-Q for the period ended Sep 30, 2026

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis 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, 2025 (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.

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 and clinically focused platform designed to improve 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 consumers.

We have grown Health Plan Membership, which we define as members enrolled in our health maintenance organization ("HMO") and preferred provider organization ("PPO") contracts (the "Alignment Health Plan"), from approximately 13,000 members at inception to 301,200 members as of September 30, 2026, representing a 30% compound annual growth rate. 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.

For the 2026 plan year, Alignment offers plans in 45 markets across California (22 markets), North Carolina (16 markets), Nevada (2 markets), Arizona (3 markets) and Texas (2 markets). There are approximately 8.6 million Medicare-eligible seniors in our current markets.

Factors Affecting Our Performance

Our unique clinical model, led by employed clinical teams known as Care Anywhere, acts upon insights derived from our proprietary technology platform, AVA. This integration between our technology and employed care model is a key element of our business with capabilities that we expect to impact our future performance. AVA’s data insights, combined with the clinical control of our care model, enable us to personalize and manage our member relationships, care quality, and to coordinate and manage risk with our provider partners. AVA’s unified platform, analytical tools and data across the healthcare ecosystem enable 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 routinely take market share from large established players in highly competitive markets, a key source of our health plan membership growth in excess of the industry average. We believe that there are still significant opportunities for future growth even in some of our most mature markets where we have approximately 10-30% market share. As of September 30, 2026, we have approximately 301,200 Health Plan Members, which, according to CMS data, represent only 6% market share of Medicare Advantage enrollees in our markets.
• Drive Growth and Consistent Outcomes Through New Market Expansion: As part of our long-term growth strategy, we may 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 existing markets also feature a diverse array of membership profiles across ethnicities, income levels and acuity. Since 2020, we have expanded into 29 markets and four states.
• 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 important drivers of our financial performance and growth. The CMS Five Star Quality Rating System provides economic incentives to Medicare Advantage plans that achieve Star ratings of 4.0 or higher 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 2027 Ratings occurred in the second half of 2026 and will impact our financial performance in 2028). As of the current 2026 rating year, one hundred percent of our health plan members are enrolled in plans rated 4 stars and above. With respect to the 2027 rating year, CMS recently announced that the Company’s California HMO health plan contract (H3815), which serves approximately 75% of the Company’s health plan membership, was awarded a 3.5-Star Rating. The Company retained a 4.0-Star or higher rating in each of its six other eligible plans, including three plans that achieved a 4.5-Star Rating, for the 2027 rating year. The Company has and will continue to implement enterprise-wide initiatives, including to enhance member and provider engagement, expand care gap closure programs and provide additional quality oversight. The Company believes these actions will strengthen its business and position H3815 to return to at least a 4.0-Star rating in future rating years. The Company has commenced litigation challenging certain Star Ratings measures and methodologies that it believes are inconsistent with applicable law and CMS’s statutory authority.
• 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 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 supplemental 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 significant percentage 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 seasons. 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. In addition, we expect our corporate, general and administrative expenses to increase in absolute dollars for the foreseeable future to support our growth. 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.

Executive Summary

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

(dollars in '000's, except percentages)

(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.

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.

As of January 1, 2026, we no longer participate in the ACO Reach program.

Adjusted Gross Profit and Medical Benefits Ratio

Adjusted gross profit is a non-GAAP financial measure that we define as income (loss) from operations before depreciation and amortization, medical 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 income (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:

(dollars in thousands)

(1) Amortization expense for the nine months ended September 30, 2025 includes $0.6 million in impairment expense related to the remeasurement of goodwill associated with one of our subsidiaries. There was no impairment expense for the three months ended September 30, 2025.

We calculate our MBR by dividing total medical expenses, excluding depreciation, and medical equity-based compensation, by total revenues in a given period. We believe our MBR is an indicator of our adjusted gross profit margin for our Medicare Advantage plans and demonstrates the ability of our clinical model to produce differentiated outcomes by identifying and providing targeted care to our high-risk members resulting in improved member health and reduced total population medical expenses. We expect that this metric may fluctuate over time due to a variety of factors, including our pace of new member growth given that new members typically join Alignment with higher MBRs, while our model has demonstrated an ability to improve MBR for a given cohort over time.

We determine, on an annual basis, whether we have satisfied the CMS minimum Medical Loss Ratio of 85%. As part of this process, 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 income (loss) before interest expense, income taxes, depreciation and amortization expense, certain litigation costs, gains or losses on sale of property and equipment, and equity-based compensation expense. 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, as we do not consider the excluded items to be part of our ongoing results of operations. 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 income (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:

(dollars in thousands)

(1) Amortization expense for the nine months ended September 30, 2025 includes $0.6 million in impairment expense related to the remeasurement of goodwill associated with one of our subsidiaries. There was no impairment expense for the three months ended September 30, 2025.

(2) Represents equity-based compensation related to grants made in the applicable year.

(3) Represents litigation costs considered outside of the ordinary course of business based on the following considerations which we assess regularly: (i) the frequency of similar cases that have been brought to date, or are expected to be brought within two years, (ii) complexity of the case, (iii) nature of the remedies sought, (iv) litigation posture of the Company, (v) counterparty involved, and (vi) the Company's overall litigation strategy.

Results of Operations

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

(dollars in thousands)

33

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

Revenues

(dollars in thousands)

(dollars in thousands)

Earned Premiums. Earned premium revenues were $1,348.3 million and $983.7 million for the three months ended September 30, 2026 and 2025, respectively, an increase of $364.6 million or 37.1%. Earned premium revenues were $3,901.4 million and $2,907.9 million for the nine months ended September 30, 2026 and 2025, respectively, an increase of

$993.5 million or 34.2%. The increase was primarily driven by growth in our Health Plan membership, which increased 31.2% between September 30, 2025 and September 30, 2026.

Other Revenue. Other revenue increased $0.02 million for the three months ended September 30, 2026 compared to the three months ended September 30, 2025, an increase of 0.2%. Other revenue decreased $0.3 million for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025, a decrease of 1.1%. For the three and nine months ended September 30, 2026, other revenue decreased as a result of the Company no longer participating in the ACO Reach program and a decrease in revenue from services provided to third-party providers. This decrease was offset by an increase in our average interest earning cash balances and current investments. Cash and cash equivalents, and other current investments were $743.0 million as of September 30, 2026 compared to $644.1 million as of September 30, 2025.

Expenses

(dollars in thousands)

(dollars in thousands)

Medical Expenses. Medical expenses were $1,217.6 million and $868.0 million for the three months ended September 30, 2026 and 2025, respectively, an increase of $349.6 million, or 40.3%. Medical expenses were $3,463.0 million and $2,570.7 million for the nine months ended September 30, 2026 and 2025, respectively, an increase of $892.3 million, or 34.7%. The increase was driven primarily by the growth in Alignment’s Health Plan membership, which increased 31.2% between September 30, 2025 and September 30, 2026. The increase was also due to medical cost trends that were higher than expected in certain cost categories.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $136.4 million and $110.0 million for the three months ended September 30, 2026 and 2025, respectively, an increase of $26.4 million, or 24.0%. Selling, general and administrative expenses were $388.5 million and $317.6 million for the nine months ended September 30, 2026 and 2025, respectively, an increase of $70.9 million, or 22.3%. The increase was primarily due to an increase in ongoing investments and expenditures in operations, technology, network development, and sales and marketing to drive the growth of Alignment's Health Plan membership. Selling, general, and administrative expenses as a percentage of revenue decreased from 11.1% to 10.0% for the three months ended September 30, 2026 compared to the three months ended September 30, 2025, and from 10.8% to 9.9% for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025. The decrease as a percentage of revenues is mainly attributable to economies of scale gained from Alignment's membership growth.

Depreciation and Amortization. Depreciation and amortization expense was $8.1 million and $8.0 million for the three months ended September 30, 2026 and 2025, respectively, an increase of $0.1 million, or 1.6%. Depreciation and amortization expense was $23.8 million and $22.6 million for the nine months ended September 30, 2026 and 2025, respectively, an increase of $1.2 million, or 5.4%. The increase was primarily due to the amount and timing of our capital expenditures and the associated depreciation relative to 2025. The nine-month increase was offset by a decrease in amortization expense. For the nine months ended September 30, 2025, we recorded impairment expense of $0.6 million related to the remeasurement of goodwill associated with one of our subsidiaries. The goodwill impairment was recorded to amortization expense.

Other Expenses

Interest expense. Interest expense was $4.3 million and $4.0 million for the three months ended September 30, 2026 and 2025, respectively, an increase of $0.3 million or 7.5%. Interest expense was $12.6 million and $11.9 million for the nine months ended September 30, 2026 and 2025, respectively, an increase of $0.7 million or 5.9%. The increase in interest expense was mainly attributable to an increase in debt issuance cost amortization related to the Revolving Credit Facility that was entered into in February 2026.

Other income, net. Other income was $0.0 million and $0.0 million for the three months ended September 30, 2026 and 2025, respectively. Other income was $0.0 million and $0.1 million for the nine months ended September 30, 2026 and 2025, respectively. The decrease was mainly attributable to gains on the sale of property and equipment during the nine months ended September 30, 2025 that did not recur in 2026.

Liquidity and Capital Resources

General

To date, we have financed our operations principally through our IPO, private placements of our equity securities, revenues, and convertible notes (described below). As of September 30, 2026, we had $743.0 million in cash, cash equivalents and short-term investments.

We operate as a holding company in a highly regulated industry. Alignment Healthcare, Inc., the 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. As of September 30, 2026, the operating parent company (an indirect wholly owned subsidiary of the parent company) had $140.6 million in cash, cash equivalents and short-term investments.

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, in further developing our technology 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 cash flows from operations and 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, increase our sales and marketing activities and develop our technology. Additionally, in the future we may enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights, which may also substantially increase our capital needs.

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. The National Association of Insurance Commissioners has adopted rules which, if implemented by the states, set minimum capitalization requirements for insurance companies, HMOs, and other entities bearing risk for healthcare coverage. The requirements take the form of risk-based capital (“RBC”) rules, which may vary from state to state. Certain states in which our health plans or risk bearing entities operate have adopted the RBC rules.

Other states in which our health plans or risk bearing entities operate have chosen not to adopt the RBC rules, but instead have designed and implemented their own rules regarding capital adequacy, such as the tangible net equity ("TNE") requirements for our health plans in California. As of September 30, 2026, our health plans or risk-bearing entities were in compliance with the minimum capital requirements.

Convertible Senior Notes

On November 22, 2024, the Company completed the sale of $330.0 million of its 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 $321.1 million, 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 $215.0 million aggregate principal amount, accrued interest and fees related to the Company's previous term loans with a separate financing company, 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.

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 $200.0 million senior secured revolving credit facility (the “Credit Facility”), with sublimits of up to $20.0 million for the issuance of letters of credit and $5.0 million for swingline loans. Subject to meeting certain customary conditions, the Borrower may increase the commitments under the Credit Facility or establish one or more new term loan facilities by up to an amount equal to the greater of $50.0 million 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 September 30, 2026.

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 2.00% 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 $60.0 million as of June 30, 2026, increasing to $70.0 million as of June 30, 2027, and $80.0 million 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.

Cash Flows

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

(dollars in thousands)

Operating Activities

For the nine months ended September 30, 2026, net cash provided by operating activities was $158.4 million, a decrease of $31.9 million compared to net cash provided by operating activities of $190.3 million for the nine months ended September 30, 2025. The decrease is mainly attributable to the timing of our medical expense payments in the third quarter of 2026 compared to the third quarter of 2025 and an increase in accrued compensation and prepaid expenses and other current assets. The decrease was partially offset by an increase in net income and timing of accounts receivable settlements.

Investing Activities

For the nine months ended September 30, 2026, net cash used in investing activities was $12.3 million, an increase of $4.5 million compared to net cash used in investing activities of $7.8 million for the nine months ended September 30, 2025. The increase primarily relates to a decrease in investment maturities and an increase in capital expenditures for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025. The increase was partially offset by a decrease in investment purchases.

Financing Activities

For the nine months ended September 30, 2026, net cash provided by financing activities was $5.8 million, an increase of $3.1 million, compared to net cash provided by financing activities of $2.7 million for the nine months ended September 30, 2025. The increase is primarily attributable to an increase in proceeds from stock option exercises for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025. This increase was offset by an increase in debt issuance costs related to the revolving credit facility.

Material cash requirements from known contractual and other obligations

There have been no material changes to our contractual obligations disclosed in our Annual Report.

Off-Balance Sheet Arrangements

As of September 30, 2026, the Company had $200.0 million of borrowing capacity under the Revolving Credit Facility, see "Liquidity and Capital Resources - Revolving Credit Facility" for further information.

Critical Accounting Estimates

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 three 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.

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 Estimates" in the Annual Report.

Recent Accounting Pronouncements

See Note 2 to our condensed consolidated financial statements, “Summary of Significant Accounting Policies—Recent Accounting Pronouncements Issued” for more information.

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of exposure due to potential changes in interest rates and inflation.

Interest Rate Risk

As of September 30, 2026, we had $16.3 million of U.S. Treasury bills which were classified as held to maturity and had maturities less than twelve months. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, we believe that our exposure to interest rate risk on these investments is not significant. We do not enter into investments for trading purposes.

In February 2026, we entered into a senior secured revolving credit facility of up to $200.0 million. This agreement exposes us to risks associated with market changes in interest rates through our revolving credit facility agreement, and variability in interest payments due to changes in SOFR interest rates. We manage our exposure to this market risk by monitoring available financial alternatives.

In November 2024, we completed the sale of $330.0 million of 4.25% Convertible Senior Notes. Since the Notes have a fixed annual interest rate, we have no financial or economic interest exposure associated with changes in interest rates. However, the fair value of fixed rate debt fluctuates when interest rates change. Additionally, the fair value of the Convertible Senior Notes can be impacted when the market price of our common stock fluctuates.

Inflation Risk

Based on our analysis of the periods presented, although we have experienced modest increases in unit costs and labor expenses, we believe that inflation has not had a material effect on our operating results. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. There can be no assurance that future inflation will not have an adverse impact on our operating results and financial condition.

Evaluation of Disclosure Controls and Procedures:

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of September 30, 2026.

Changes to our Internal Controls over Financial Reporting:

There were no material changes in our internal control over financial reporting during the three months ended September 30, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Except as set forth below, there have been no material changes to the risk factors disclosed in the Annual Report.

Our Star Rating has declined with respect to our largest Medicare Advantage contract, which will impact our quality bonus payments, and we may not be successful in maintaining or improving our Star ratings in future years.

CMS measures the quality of Medicare Advantage plans through a Five Star Quality Rating System. The Star Rating system considers various measures adopted by CMS, including, among others, quality of care, preventative services, chronic illness management and member satisfaction. The achievement of Star ratings of 4-Star or higher qualifies Medicare Advantage plans for an increase in the benchmark against which they bid (potentially increasing premium payments). With respect to the 2027 rating year, CMS recently announced that the Company’s California HMO health plan contract (H3815), which serves approximately 75% of the Company’s health plan membership, was awarded a 3.5-Star Rating. The Company retained a 4.0-Star or higher rating in each of its six other eligible plans, including three plans that achieved a 4.5-Star Rating, for the 2027 rating year. The rating year 2027 Stars results are not expected to impact our revenue for fiscal years 2026 or 2027. The change in Star Ratings performance for rating year 2027 will impact our quality bonus payments for fiscal year 2028.

We may not be able to maintain or improve upon the Star ratings of our health plans in future years. Failure to maintain satisfactory quality and performance measures may negatively affect our premium rates, impede our ability to compete for new business in existing or new markets or result in the termination of our contracts, or affect our ability to enter into new CMS contracts or expand the service area of current health plans. Star ratings are an important component of how MA beneficiaries select an MA plan, both during each annual enrollment period and throughout each year. Low Star ratings may reduce our membership or result in lower membership growth rates, if members choose to enroll in higher-rated plans.

Various factors may make it difficult for us to maintain or increase our Star ratings. For example, there are numerous providers that serve our plans, and we engage multiple third-party vendors to provide supplemental plan benefits. We may have limited success in obtaining quality health care outcomes and satisfactory member experiences from these providers and vendors. As a result of our dependence upon these relationships, we may have limited ability to directly influence the overall quality rating of our plans. Additionally, our higher concentration of minority members and members residing in socioeconomically disadvantaged neighborhoods generally may make it more difficult for us to achieve and maintain high Star ratings as compared to our competitors, given the well-documented health disparities among different minority and socioeconomic groups. CMS has attempted to address some of this disparity, but the efforts may not work as intended or be sufficient to address the difficulties of serving varying member populations. More recently, based on our review of the data provided by CMS, the decline in Stars performance for H3815 for rating year 2027 was driven primarily by higher industry cut points and a decline in certain triple-weighted measures across Health Outcomes Survey (HOS) and Part D. We have and will continue to implement enterprise-wide initiatives, including to enhance member and provider engagement, expand care gap closure programs and provide additional quality oversight. We believe these actions will strengthen our business and position H3815 to return to at least a 4.0-Star rating in future rating years. However, there can be no assurance that these initiatives will be successful or that H3815 will return to a 4.0-Star or higher rating in future rating years.

The Star Ratings program and the methodologies used to calculate Star Ratings are subject to change and uncertainty, including as a result of CMS actions, litigation and other legal and regulatory developments. For example, in May 2026, a federal district court ruled in favor of Clover Health in litigation challenging CMS’s use of certain measures in calculating its 2026 Star Rating and ordered CMS to recalculate Clover Health’s rating without the challenged measures. In response, CMS issued a memorandum announcing that it would voluntarily recalculate the 2027 quality bonus payment ratings for certain Medicare Advantage contracts and increase ratings where the recalculation resulted in a higher rating. CMS has appealed the district court’s decision. These developments, as well as other pending challenges to CMS’s Star Ratings methodologies, create substantial uncertainty regarding the measures and methodologies CMS may use to calculate Star Ratings in future years.

Additionally, CMS continues to make changes to Star Ratings methodology that could negatively impact our Star Ratings in future years. For example, for the 2027 Star Ratings, CMS determined not to implement the Excellent Health Outcomes for All reward, previously known as the Health Equity Index reward, and instead continued the historical reward factor. The elimination of this reward reduced the impact of investments that we made to align with CMS’s objectives under its prior implementation. Future adjustments to, or legal challenges involving, the Star rating methodology may have a negative impact on our Star ratings.

In addition, audits of our performance for past or future periods may result in downgrades to our Star ratings. For example, if a CMS audit finds that a particular issue of noncompliance impacts the data source for a Star measure, the Star measure may be reduced if the data set is deemed inaccurate or biased.

As a result of the foregoing, our plans may receive a lower Star rating and may not be eligible for full level quality bonus payments, which could adversely affect the benefits we can offer, reduce membership and/or reduce profit margins. Also, CMS has the authority to terminate contracts that have had a rating of less than three Stars for three consecutive years, whereas Medicare Advantage plans with five Stars are permitted to conduct enrollment throughout almost the entire year. Because low quality ratings can potentially lead to the termination of one or more of our contracts, we may not be able to prevent the potential termination of a plan or a shift of members to other plans based upon quality issues, which could, in turn, have a material adverse effect on our business, results of operations, financial condition and cash flows.