Agilon Health, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. Dollar amounts below are in millions unless stated otherwise.
Business context
Agilon partners with community-based physician groups to manage Medicare-focused care under capitated arrangements, generally accepting financial responsibility for members’ healthcare costs. At quarter-end, its platform served approximately 250,300 Medicare Advantage members, up 51% year over year, and approximately 91,800 Direct Contracting beneficiaries. The company added operations in six new markets and additional partnerships in existing Ohio markets; it also began operating three additional Direct Contracting Entities.
Financial and operating results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $653.4 | $413.1 |
| Medical services revenue | $652.4 | $412.4 |
| Medical services expense | $566.2 | $360.4 |
| Medical margin | $86.2 | $52.1 |
| Operating income (loss) | ($0.7) | ($12.1) |
| Net income (loss) | $1.2 | ($15.2) |
| Adjusted EBITDA (non-GAAP) | $12.0 | $3.8 |
| Cash used in operating activities | $23.2 | $40.8 |
Revenue rose 58%, primarily reflecting 52% growth in average membership, six new revenue-generating geographies, and a 4% increase in capitation rates. Medical services expense increased 57%, also reflecting membership growth and a 3% increase in average medical expense per member. Medical margin increased 66%; as a share of medical services revenue, it was approximately 13.2%, versus 12.6% in Q1 2021. Other medical expenses increased 89% to $44.8 million, including higher physician incentive expense. General and administrative expense rose 5% to $39.8 million, while platform support costs declined to 5% of revenue from 7%.
Balance sheet, debt and liquidity
- At March 31, 2022, cash and cash equivalents were $1,021.8 million, with an additional $14.5 million of restricted cash. Combined cash and restricted cash was $1,036.2 million, down $18.6 million from year-end.
- Total assets were $1,855.2 million; total liabilities were $743.7 million. Receivables increased to $571.9 million from $293.4 million, and medical claims and related payables increased to $472.3 million from $239.0 million.
- Balance-sheet debt was approximately $47.2 million, including the current portion. The secured term loan had $47.5 million outstanding; $49.9 million of revolving-facility capacity was available after letters of credit. The term loan’s weighted-average effective interest rate was 4.55%; debt covenants were satisfied at quarter-end.
- Cash used in investing activities was $8.9 million; financing activities provided $13.5 million, mainly from stock-option exercises. Management stated that existing cash and available borrowing capacity were expected to cover working-capital and capital-expenditure needs for at least the next 12 months.
Outlook, risks and unusual items
- No specific revenue or earnings guidance is provided in the filing. Management expects operating losses and negative operating cash flow for the foreseeable future as it invests in expansion and public-company costs, while stating that liquidity should be adequate for at least 12 months.
- COVID-19 effects remain uncertain. Deferred care could increase future utilization and costs; disruptions to physician diagnosis documentation could also adversely affect future risk-adjusted revenue. Management could not estimate the pandemic’s net impact on medical expense.
- Revenue and receivables are highly concentrated in Medicare Advantage and a small number of payors. The company generally bears full financial risk for members’ healthcare costs, and results depend on medical-cost estimates, risk adjustment, claims development, and payor settlements.
- Other long-term liabilities include $67.4 million accrued for contingent claims. The estimated reasonably possible loss in excess of the accrual was $0–$37.3 million. A California regulatory investigation concerns previously disclosed claims and utilization-management practices; the company could not predict potential future recoupments, fines, or other sanctions.
- Agilon consolidates risk-bearing entities whose assets may be used only to settle their obligations. At March 31, 2022, consolidated VIEs had $712.6 million of assets and $535.9 million of liabilities; certain creditors have no recourse to the parent’s general credit. The company also reported that maximum loss exposure from unconsolidated VIEs could not be quantified because it may need to provide ongoing operational support.
- Adjusted EBITDA and network contribution are non-GAAP measures and should be considered alongside GAAP results. The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether membership growth and new markets translate into sustained medical-margin improvement after medical utilization and per-member costs develop.
- Claims-reserve and risk-adjustment estimates, including the timing and collection of payor receivables.
- Cash conversion and working-capital trends, given quarterly operating cash outflow and the growth in receivables and claims payables.
- Developments in the California regulatory matter and any change in the contingent-loss range.
- Revolving-facility availability, letter-of-credit requirements, debt covenants, and the funding obligations or potential support needs of risk-bearing and unconsolidated entities.