Agilon Health, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report. Unless noted, financial results below are continuing operations; Hawaii and California results are presented as discontinued operations.
Business context
Agilon partners with community-based physician groups to manage Medicare populations under value-based, globally capitated arrangements. The company generally bears financial responsibility for members’ medical costs and earns per-member-per-month payments from health plan payors. At year-end, the platform included 25 anchor physician groups across 24 geographies, approximately 388,400 Medicare Advantage (MA) members, and 89,300 beneficiaries attributed to eight ACO REACH organizations.
Key financial and operating metrics
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Total revenue | $4.316 billion | $2.388 billion | +81% |
| Medical services revenue | $4.307 billion | $2.385 billion | +81% |
| Medical services expense | $4.009 billion | $2.094 billion | +91% |
| Gross profit | $69.7 million | $111.4 million | Down $41.7 million |
| Medical margin (non-GAAP) | $298.7 million | $291.0 million | +3% |
| Operating loss | $232.1 million | $105.4 million | Loss widened |
| Net loss | $262.8 million | $106.9 million | Loss widened |
| Adjusted EBITDA loss (non-GAAP) | $95.0 million | $45.5 million | Loss widened |
| Cash used in operating activities | $156.2 million | $130.8 million | Use increased |
| MA members at year-end | 388,400 | 230,800 | +68% |
Revenue growth primarily reflected 69% growth in average MA membership, including eight new geographies, and a 7% increase in PMPM capitation rates. Medical services expense per member rose 14%; management attributed the increase to higher-than-expected utilization, which became apparent in the fourth quarter after updated payor information. Fourth-quarter medical claims expense was $1.16 billion.
Gross profit margin was approximately 1.6% of revenue, versus 4.7% in FY2022. Medical margin, a non-GAAP measure that excludes other medical expenses, was approximately 6.9% of medical services revenue, versus 12.2%. Platform support costs were $163.7 million, or about 4% of revenue, compared with $127.5 million, or about 5%, in 2022.
Liquidity, debt and cash flow
- At December 31, 2023, cash and cash equivalents were $107.6 million and marketable securities were $380.8 million; restricted cash was $6.8 million. Cash, cash equivalents, restricted cash and marketable securities totaled $495.1 million.
- Receivables were $942.5 million, up from $492.4 million; medical claims and related payables were $737.7 million, up from $300.8 million. The filing identifies timing of payor settlements and estimates of unpaid claims as important factors.
- Term-loan debt was $38.8 million before debt costs. The revolving facility had $32.9 million of availability, with $67.1 million of letters of credit outstanding. The term loan’s weighted-average effective interest rate was 9.37%; the facility matures in February 2026. The company reported covenant compliance at year-end.
- Operating cash use was $156.2 million. Investing cash use was $44.0 million, including $45.3 million paid net of acquired cash for the My Personal Health Record Express acquisition. Financing cash use was $193.1 million, including a $200 million share repurchase.
- Management expects operating losses and negative operating cash flow to continue for the foreseeable future, but believes existing cash, cash equivalents and available borrowing capacity will cover working capital and capital expenditures for at least the next 12 months. Future capital needs remain possible.
Material changes and unusual items
- Medical services expense grew faster than revenue, and gross profit declined despite substantial membership and revenue growth.
- Agilon completed the sale of its Hawaii operations on October 31, 2023, exiting Hawaii and the independent practice association line of business. Discontinued operations recorded a $47.5 million loss on sale; total discontinued-operations loss was $67.6 million, versus $14.6 million in 2022.
- General and administrative expense increased 38% to $285.8 million, including $69.3 million of noncash stock-based compensation, versus $28.1 million in 2022. Geography-entry investments also increased.
- The company repurchased 9.6 million shares for $200 million during 2023. At year-end, 406.4 million shares were outstanding. It does not intend to pay dividends for the foreseeable future.
- MA members grew 68%, while ACO REACH beneficiaries remained approximately flat at 89,300. Management said the 2023 ACO REACH benchmark adjustments had a minimal overall effect on its ACOs.
Outlook, risks and contingencies
The filing provides no specific numerical earnings or revenue guidance. Management expects continued investment in expansion and ongoing operating losses and negative operating cash flows. Results are particularly sensitive to medical utilization and cost trends, risk-adjustment revenue estimates, claims reserves, membership growth, payor contract terms, and Medicare policy and reimbursement changes.
Additional material risks include concentration in a small number of payors (five payors each accounted for at least 10% of 2023 revenue), reliance on physician partners to deliver care and accurately document diagnoses, possible payor or government audit recoupments, healthcare regulatory compliance, and cybersecurity and privacy exposures. The filing reports no legal proceeding believed likely to have a material adverse effect, but records $49.0 million for potential exposure from unasserted claims. It also reports $155.6 million of capital commitments, primarily to support physician-partner expansion.
Financial reporting controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end due to a material weakness involving completeness and accuracy of information used in controls over medical claims and related payables, risk-adjusted premium revenue, and certain care management expenses. The auditor issued an adverse opinion on internal control over financial reporting, while expressing an unqualified opinion on the financial statements. Remediation is in progress and was not yet considered complete.
Important facts for investors to verify
- Whether subsequent claims development confirms the $737.7 million year-end medical-claims payable estimate; the auditor identified IBNR valuation as a critical audit matter.
- Whether elevated medical utilization persists and how it affects medical margin, gross profit, and operating cash flow.
- Whether growth in membership and new geographies produces improving unit economics and recovers startup and partner-support costs.
- Progress and independent testing of remediation of the material weakness in financial reporting controls.
- Payor concentration, renewals, risk-adjustment audit exposure, and the effect of Medicare and ACO REACH payment changes on revenue and capital requirements.
- Liquidity available to the parent company: subsidiaries generate operating cash and face contractual or regulatory restrictions on transfers to the parent.