Agilon Health, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Agilon partners with community physician groups to manage Medicare-focused, globally capitated care. It reported approximately 184,100 Medicare Advantage members and 52,400 Direct Contracting beneficiaries at quarter-end.
Financial performance and liquidity
Amounts below are in millions, except per-share data and percentages.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $458.6 | $312.7 | $1,370.7 | $897.3 |
| Medical services revenue | $457.6 | $311.7 | $1,367.7 | $894.0 |
| Medical services expense | $414.2 | $260.9 | $1,217.0 | $728.9 |
| Medical margin | $43.4 | $50.8 | $150.7 | $165.1 |
| Operating loss | $(35.6) | $(9.8) | $(346.1) | $(16.9) |
| Net loss attributable to common shares | $(35.8) | $(11.8) | $(349.8) | $(35.8) |
| Adjusted EBITDA (non-GAAP) | $(14.0) | $1.5 | $(11.9) | $18.4 |
- Q3 revenue rose 47% and nine-month revenue rose 53% year over year, primarily reflecting membership growth; average membership increased 43% in Q3 and 45% year to date. Management also cited higher capitation rates.
- Medical margin fell 14% in Q3 and 9% year to date. Medical services expense grew faster than revenue: 59% in Q3 and 67% year to date. Management attributed higher per-member costs in part to healthcare utilization rebounding from COVID-related reductions in 2020. Medical margin was about 9.5% of revenue in Q3 2021 versus 16.3% a year earlier.
- Year-to-date net loss included $288.0 million of stock-based compensation, mainly the $268.5 million expense for shares issued to physician partners upon the April IPO. Excluding this expense through the company’s non-GAAP reconciliation, adjusted EBITDA was still negative.
- Operating cash used was $99.3 million in the first nine months, versus $39.9 million in 2020. Investing cash used was $87.9 million, including $76.0 million of loans to physician partners for taxes on IPO-related shares. Financing cash provided was $1,144.0 million, primarily from the IPO.
- At September 30, cash and cash equivalents were $1,081.6 million, plus $14.3 million restricted cash. Total debt was $49.6 million, including a $5.0 million current portion. The company had $64.4 million available on its $100 million revolving facility after letters of credit; it reported covenant compliance.
- Total assets were $1,685.1 million and total liabilities were $557.7 million. Current assets were $1,452.9 million versus current liabilities of $422.8 million.
Material changes and developments
- The April 2021 IPO generated approximately $1.2 billion in net proceeds. A mandatory $50 million term-loan repayment followed; the credit facilities mature in February 2026. The September secondary offering by CD&R and certain insiders generated no proceeds for Agilon.
- California operations, including the Medicaid business, were classified as discontinued operations; the final divestiture closed in February 2021. The company retained certain pre-divestiture claims and other liabilities.
- Five Direct Contracting Entities began operating in April 2021 with seven physician partners. The company said CMS’s announcement would limit new DCE entrants for 2022, while existing DCEs could serve as a vehicle for existing or new physician groups.
- Expansion partnerships were announced for 2022 in Syracuse, Michigan, North Carolina, and Texas, as well as additional partnerships in existing Ohio and Texas markets.
Outlook, risks and unusual items
- The filing provides no specific numerical financial guidance. Management expects operating losses and negative operating cash flow to continue for the foreseeable future as it invests in expansion and incurs public-company costs. It believes cash and available borrowing capacity should cover working capital and capital needs for at least 12 months, while noting assumptions may prove inaccurate.
- COVID-19 creates uncertainty around care utilization, deferred services and future medical costs. The company also warned that incomplete diagnosis documentation could reduce future risk-adjustment revenue. It could not estimate the pandemic’s net ultimate impact.
- Medical claims payable estimates, including incurred-but-not-reported claims, and risk-adjustment revenue rely on estimates that may differ materially from actual outcomes. Revenue is highly concentrated in Medicare Advantage and a small number of payors; substantially all receivables are due from a small group of payors.
- The company recorded $70.0 million for unasserted claims and disclosed reasonably possible losses above reserves of up to $27.7 million. A California regulatory investigation remains open following prior claims and utilization-management issues; potential recoupments, fines or sanctions could not be predicted. Six affected payors had agreed to aggregate administrative penalties of $0.2 million; at least one sought $80,000 in indemnification.
- Other risks include Medicare reimbursement and regulatory changes, physician and payor dependence, expansion execution, floating-rate debt, and potential funding needs. The company reported no material off-balance-sheet arrangements and no material changes to the risk factors in its prospectus.
Important facts for investors to verify
- Whether membership growth and new markets translate into improved medical margin as utilization and medical costs evolve.
- The composition and recurrence of stock-based compensation, and the company’s GAAP losses alongside non-GAAP adjusted EBITDA.
- Development of operating cash use, settlement timing with payors, and the use and collectability of the $76.0 million in physician-partner loans.
- Progress and financial exposure from the DMHC investigation, retained California liabilities, and the $70.0 million unasserted-claims reserve.
- Actual DCE economics, future CMS program rules, and concentration of revenue and receivables among major payors.