Agilon Health, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. The company provides a platform and assumes financial risk through capitated healthcare arrangements with physician groups, primarily serving Medicare Advantage members. It reported approximately 266,600 Medicare Advantage members and 89,400 Direct Contracting beneficiaries at quarter-end.
Financial performance and key metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $694.9 million | $458.6 million | $2,018.4 million | $1,370.7 million |
| Medical margin | $75.6 million | $43.4 million | $243.9 million | $150.7 million |
| Operating loss | $29.5 million | $35.6 million | $51.3 million | $346.1 million |
| Net loss | $30.7 million | $36.0 million | $50.3 million | $350.1 million |
| Adjusted EBITDA (non-GAAP) | $(4.7) million | $(14.0) million | $14.9 million | $(11.9) million |
| Operating cash flow | Not separately provided | Not separately provided | $(80.8) million | $(99.3) million |
Q3 revenue increased 52% year over year and nine-month revenue increased 47%, primarily reflecting membership growth, new geographies and modestly higher capitation rates. Medical services expense increased 49% in Q3 and 46% year to date, broadly tracking membership growth. Medical margin rose 74% in Q3 and 62% year to date. Q3 average medical expense per member increased 2% year over year. Adjusted EBITDA improved, but remained negative for the quarter.
Nine-month net loss was substantially lower than in 2021, principally because 2021 included $288.0 million of noncash stock-based compensation, largely associated with the IPO and partner physician equity agreements. General and administrative expense for the nine-month period fell 64% year over year; excluding the IPO-related comparison, the company reported higher support and geography-entry costs.
Liquidity, debt and balance sheet
- At September 30, 2022, cash and cash equivalents were $551.3 million, restricted cash was $13.2 million and marketable securities were $408.0 million. The company reported $972.5 million in cash, cash equivalents, restricted cash and marketable securities combined.
- Receivables were $637.7 million, versus $293.4 million at December 31, 2021; medical claims and related payables were $490.8 million, versus $239.0 million. Timing of payor settlements and claims estimates are important working-capital factors.
- Total debt was $44.7 million, including a $5.0 million current portion. The term loan had $45.0 million outstanding, matures February 2026 and carried a 7.145% effective rate. Revolver availability was $49.8 million after letters of credit; no letters of credit had been drawn. The company reported compliance with debt covenants.
- Nine-month investing cash use was $436.4 million, including $423.2 million of marketable-security purchases. Financing provided $26.9 million, primarily from stock-option exercises. Cash, cash equivalents and restricted cash decreased by $490.3 million during the period.
- Marketable securities had $5.1 million of net unrealized losses recorded in other comprehensive loss, attributed primarily to higher interest rates; the company reported no credit-loss allowance or other-than-temporary impairment.
Outlook, risks and unusual items
- No specific numerical revenue, earnings or cash-flow guidance is provided in the filing. Management expects operating losses and negative operating cash flows for the foreseeable future, while stating that existing cash, marketable securities and borrowing capacity should meet working-capital and capital needs for at least 12 months.
- Management cited continued investment in expansion. Capital commitments to physician partners increased $79.9 million from year-end 2021 to $136.7 million at September 30, 2022. Geography-entry costs were $21.2 million in Q3 and $35.3 million year to date, as defined in the company’s non-GAAP reconciliation.
- COVID-19-related care costs, deferred care and potentially higher future utilization remain uncertain. The company also warned that incomplete diagnosis documentation could adversely affect future risk-adjusted revenue. Claims reserves and risk-adjustment revenue depend on estimates that may differ from actual outcomes.
- Medicare Advantage accounts for nearly all revenue, and revenue and receivables are concentrated among a small number of payors. Healthcare reimbursement, CMS methodology, regulation and government funding are significant risks. The company reported approximately $63.0 million accrued for unasserted claims and a reasonably possible loss range of up to $47.4 million above that accrual.
- The company consolidates risk-bearing entities whose assets are restricted to settling their obligations; consolidated VIE assets were $805.9 million and related liabilities were $587.8 million. It also reported nine unconsolidated VIE equity-method investments and stated its maximum exposure cannot be quantified because it may need to provide ongoing operational support.
- CD&R ceased to control a majority of voting power in August 2022. The company is transitioning to NYSE independence requirements and disclosed that it did not yet have a majority-independent board or fully independent compensation and nominating/governance committees.
Investor verification points
- Assess whether membership expansion and new geographies can sustain medical margin growth after related implementation costs and physician incentives.
- Track medical claims reserves, payor settlement timing, receivables growth and risk-adjustment estimates against subsequent actual results.
- Reconcile non-GAAP Medical Margin and Adjusted EBITDA to GAAP results, including excluded geography-entry costs and other adjustments.
- Review liquidity consumption, physician-partner capital commitments, revolver availability, floating-rate debt exposure and covenant headroom.
- Monitor payor concentration, CMS and ACO REACH policy changes, COVID-related utilization effects, and the resolution or change in contingent claims accruals.