Agilon Health, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Agilon partners with community-based physician groups to manage Medicare-focused care, generally accepting full financial risk for attributed members. It served approximately 402,200 Medicare Advantage members at quarter-end, up 61% year over year.
Financial and operating results
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $1,136.1 million | $653.4 million | +74% |
| Gross profit | $77.3 million | $42.5 million | +82% |
| Medical margin (non-GAAP) | $162.0 million | $86.2 million | +88% |
| Operating income (loss) | $6.3 million | $(0.7) million | Improved |
| Net income | $16.0 million | $1.2 million | Improved |
| Adjusted EBITDA (non-GAAP) | $23.9 million | $8.0 million | +197% |
| Operating cash flow | $(60.8) million | $(23.2) million | More cash used |
Gross margin was approximately 6.8% of revenue, versus 6.5% a year earlier; medical margin was approximately 14.3% of medical services revenue, versus 13.2%. Medical services expense was $972.8 million, or 86% of revenue, compared with $566.2 million, or 87%. Other medical expenses rose 92% to $86.0 million, and general and administrative expense rose 68% to $66.8 million, including $13.7 million of stock-based compensation.
Revenue growth primarily reflected 61% growth in average membership, including new and existing geographies, and an 8% increase in per-member capitation rates. Medical services expense increased 72%, reflecting membership growth and a 7% increase in average medical expense per member. Management reported approximately 88,700 ACO REACH attributed beneficiaries, down 3% year over year.
Cash, debt, and liquidity
At March 31, 2023, cash and cash equivalents were $394.2 million, restricted cash was $10.2 million, and marketable securities were $422.5 million, totaling approximately $826.9 million. Cash, cash equivalents, and restricted cash declined $103.3 million during the quarter. Operating cash use was $60.8 million; investing cash use was $50.8 million, including $44.4 million paid net for an acquisition; financing provided $8.3 million.
Debt was approximately $42.5 million under a secured term loan, with $5.0 million classified current. The company reported $38.2 million available under its revolving facility after $61.8 million of outstanding letters of credit. The term loan’s effective interest rate was 9.218%; facilities mature February 18, 2026. The company said it was in compliance with debt covenants. Management believes available cash, securities, and borrowing capacity will cover working capital and capital expenditures for at least the next 12 months, but cautioned that assumptions may prove incorrect and additional capital may be needed.
Material changes, outlook, and risks
- Agilon acquired My Personal Health Record Express, Inc., a value-based-care technology provider, on February 28 for $44.4 million net of cash acquired. Preliminary purchase accounting recorded $20.6 million of goodwill and $27.5 million of identifiable intangible assets.
- Medical claims and related payables were $745.6 million at quarter-end, versus $346.7 million at year-end 2022; receivables were $1,004.9 million, versus $497.6 million. These balances reflect a rapidly expanded, risk-bearing business and involve estimates, including incurred-but-not-reported claims and risk-adjustment revenue.
- Management expects operating losses and negative operating cash flows for the foreseeable future as it invests in expansion and public-company costs. No specific full-year financial guidance is provided in the filing. Management expects medical margin to increase in absolute dollars as the platform matures, while noting new membership can dilute medical margin per member.
- Revenue and receivables are highly concentrated among a small number of Medicare Advantage payors: the three largest represented 23%, 16%, and 15% of Q1 revenue. The company bears medical-cost risk and depends on payors for membership attribution, data, and payment, as well as physician partners’ ability to manage care and costs.
- Accrued probable losses for unasserted claims were $55.5 million; reasonably possible losses in excess of accruals were estimated at up to $58.1 million. The company reported no known legal proceeding it believed would have a material adverse effect.
- Disclosure controls related to previously identified material weaknesses in internal control over financial reporting were not effective as of March 31, 2023. Remediation efforts were ongoing. The company said there were no material changes in internal control during the quarter.
- Other risks include changes to CMS reimbursement and risk-adjustment rules, medical-cost and claims-estimate uncertainty, expansion execution, payor and provider concentration, regulation, and the possibility of needing additional capital. The filing reports no material changes to the risk factors in its 2022 Form 10-K.
Important facts for investors to verify
- Whether membership growth, capitation rates, and new-market launches translate into sustainable margins as medical costs and physician incentives evolve.
- How receivables, payor settlement timing, medical claims reserves, and risk-adjustment estimates develop in subsequent quarters.
- Whether operating cash use moderates and liquidity remains adequate, including the effect of acquisition spending, letters of credit, and debt interest.
- Progress in remediating internal-control material weaknesses and the final purchase-price allocation for the acquisition.
- Exposure to payor concentration, contingent claims, and the company’s ongoing support obligations to unconsolidated variable-interest entities.