Agilon Health, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. Unaudited results for the three and six months ended June 30, 2022, compared with the same 2021 periods. Agilon partners with community physician groups to manage Medicare-focused, capitated care. At quarter-end it served approximately 261,300 Medicare Advantage members, up 44% year over year, and had approximately 90,500 attributed Direct Contracting beneficiaries, up 63%. Six new geographies began generating revenue in 2022.
Key financial results
Amounts below are in millions, except per-share amounts and percentages.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $670.1 | $499.0 | $1,323.6 | $912.1 |
| Medical services revenue | $669.2 | $497.7 | $1,321.6 | $910.1 |
| Medical services expense | $587.1 | $442.5 | $1,153.3 | $802.8 |
| Medical margin | $82.0 | $55.2 | $168.3 | $107.3 |
| Operating loss | $(21.1) | $(298.4) | $(21.8) | $(310.5) |
| Net loss attributable to common shares | $(20.6) | $(298.8) | $(19.4) | $(313.9) |
| Adjusted EBITDA, non-GAAP | $7.5 | $(1.7) | $19.5 | $2.1 |
| Operating cash flow | Not provided by quarter | Not provided by quarter | $(83.5) | $(80.1) |
Medical margin was approximately 12.3% of medical services revenue in Q2 2022 versus 11.1% in Q2 2021, and 12.7% for the first half versus 11.8%. Network contribution, a non-GAAP measure, was $36.5 million in Q2 and $78.1 million for the first half, up from $24.3 million and $54.4 million, respectively.
Liquidity, debt and balance sheet
- At June 30, cash and cash equivalents were $668.6 million; marketable securities were $285.6 million; restricted cash was $15.1 million. Cash, cash equivalents and restricted cash totaled $683.7 million.
- Total debt was approximately $45.9 million, including $5.0 million current and $40.9 million long-term. The term loan’s weighted-average effective rate was 4.87%; facilities mature February 2026. The company reported compliance with debt covenants.
- The $100 million revolving facility had $49.8 million available after $50.2 million of outstanding letters of credit; none had been drawn. Letters of credit included $26.5 million related to Direct Contracting investments.
- Cash, cash equivalents and marketable securities together were approximately $954.2 million. Receivables rose to $607.6 million from $293.4 million at December 31, 2021; medical claims and related payables rose to $458.0 million from $239.0 million.
- First-half investing cash outflow was $305.5 million, including $285.1 million invested in marketable securities. Financing cash inflow was $17.8 million, principally from stock-option exercises.
Material changes and unusual items
- Revenue increased 34% in Q2 and 45% for the first half, primarily from membership growth, including new geographies. Average membership increased 37% in Q2 and 44% in the first half. Q2 capitation rates per member declined 2%; first-half rates increased 1%.
- Medical services expense increased 33% in Q2 and 44% year to date, largely with membership growth. Q2 average medical expense per member declined 3%. Other medical expenses rose 46% in Q2 and 64% year to date, including increased physician-partner incentives and provider costs.
- Reported G&A fell sharply year over year because 2021 included approximately $274.5 million of Q2 and $276.0 million of first-half noncash stock compensation, largely tied to IPO-related partner physician equity. Excluding that exceptional comparison, platform support costs increased to $36.3 million in Q2 and $70.1 million year to date, though each was a lower share of revenue than in 2021.
- Q2 and first-half results included a $5.5 million loss on lease terminations. First-half net loss was substantially lower than 2021, chiefly because of the prior-year IPO-related compensation charge.
- Physician-partner capital commitments increased by $28.4 million to $85.2 million from December 31, 2021.
Outlook, risks and contingencies
- No specific numerical full-year guidance is provided in the supplied filing text. Management expects operating losses and negative operating cash flows for the foreseeable future, while stating that available cash, marketable securities and borrowing capacity are expected to cover working capital and capital expenditure needs for at least the next 12 months.
- COVID-19 effects remain uncertain. Deferred care may later increase utilization and costs, while incomplete diagnosis documentation could reduce future risk-adjusted revenue. Management could not estimate the net medical-cost impact.
- Accrued contingencies for unasserted claims were $68.8 million. The estimated reasonably possible loss in excess of accruals was $0 to $42.2 million.
- A California regulatory matter remains outstanding: the company disclosed historical claims and utilization-management deficiencies to California regulators and responded to investigative interrogatories. It said potential recoupments, fines or sanctions could not be predicted; publicly reported penalties paid by six affected payors totaled $0.2 million, and one payor sought $80,000 indemnification.
- Key risks include medical-cost and incurred-but-not-reported claims estimates, dependence on a small number of payors, Medicare reimbursement and risk-adjustment changes, expansion execution, physician-partner performance, regulatory oversight, and floating-rate debt. The company noted unrealized marketable-security losses primarily due to interest-rate increases, but reported no credit-loss allowance or other-than-temporary impairment.
- Management concluded disclosure controls and procedures were effective as of June 30, 2022; no material change in internal control over financial reporting was reported for the quarter.
Investor verification priorities
- Track medical margin and medical costs per member against membership growth, utilization trends and later claims development, including IBNR reserve adjustments.
- Assess the timing and collectability of the substantial increase in receivables, payor settlements, and the related increase in medical claims payables.
- Reconcile non-GAAP medical margin, network contribution and Adjusted EBITDA to GAAP results, and distinguish recurring performance from IPO-related stock compensation and other exclusions.
- Monitor liquidity use, operating cash burn, marketable-security values, revolving-credit availability, letter-of-credit needs and physician-partner capital commitments.
- Follow developments in the California regulatory matter and other contingencies, alongside COVID-related utilization and risk-adjustment documentation effects.