Agilon Health, Inc. — Q2 2023 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and six months ended June 30, 2023. Agilon partners with community physician groups and generally accepts full financial risk for Medicare Advantage members through capitated contracts. At quarter-end, it served approximately 408,900 Medicare Advantage members and had approximately 87,000 ACO REACH attributed beneficiaries.
Financial and operating results
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Total revenue | $1.149 billion | $670.1 million | $2.285 billion | $1.324 billion |
| Gross profit | $57.2 million | $33.9 million | $134.5 million | $76.4 million |
| Medical margin (non-GAAP) | $138.3 million | $82.0 million | $300.3 million | $168.3 million |
| Operating loss | $29.8 million | $21.1 million | $23.6 million | $21.8 million |
| Net loss | $16.8 million | $20.7 million | $0.8 million | $19.6 million |
| Adjusted EBITDA (non-GAAP) | $10.3 million | Loss of $2.7 million | $34.1 million | $5.4 million |
- Revenue grew 71% in Q2 and 73% in the first half year over year. Management attributed growth mainly to increased average membership (54% in Q2; 58% in the first half), with a smaller contribution from higher capitation rates.
- Medical services expense increased 72% in both periods, to $1.009 billion in Q2 and $1.982 billion in the first half. Medical margin rose in dollars, while new membership is typically dilutive to medical margin per member.
- General and administrative expense rose 57% in Q2 and 62% in the first half. Stock-based compensation was $19.6 million in Q2 and $33.2 million in the first half.
- Operating cash flow was negative $82.0 million in the first half, versus negative $83.5 million a year earlier. Investing cash flow was negative $30.8 million; financing cash flow was negative $193.7 million, including $200 million used for share repurchases.
- At June 30, cash and cash equivalents were $191.0 million, restricted cash $10.2 million, and marketable securities $389.0 million. Current assets were $2.045 billion and current liabilities $1.362 billion, including $1.418 billion of receivables and $1.100 billion of medical claims and related payables.
- Debt totaled approximately $41.0 million: $5.0 million current and $36.0 million long-term, net. The $100 million revolving facility had $39.4 million available after letters of credit. The facilities mature February 2026; the term loan’s effective rate was 9.645% at quarter-end.
Changes, outlook and material items
- Medicare Advantage membership increased 57% year over year. ACO REACH attributed beneficiaries declined 4% year over year. The company expanded into new geographies and existing markets.
- Agilon acquired My Personal Health Record Express for $44.4 million net of cash acquired; preliminary purchase accounting included $20.6 million of goodwill and $27.5 million of acquired intangible assets.
- In May, the company repurchased and retired 9.6 million shares for approximately $200 million, at $20.80 per share, in connection with a secondary offering by related party CD&R.
- Management expects operating losses and negative operating cash flow for the foreseeable future as it invests in expansion. It believes cash, marketable securities, and available borrowing capacity will cover working capital and capital expenditure needs for at least the next 12 months, but notes estimates may prove incorrect and additional capital could be needed. No quantified full-year guidance is provided in the filing.
- Medical claims expense and receivables rely on estimates, including risk-adjustment revenue and incurred-but-not-reported claims; actual results may differ materially. A small number of payors account for substantially all receivables and revenue. Medical services revenue is substantially all of total revenue.
- Accrued contingencies for unasserted claims were $52.7 million; reasonably possible losses above the accrual were estimated at $0–$63.5 million. The company reported no known legal proceedings it believed would have a material adverse effect.
- Disclosure controls and procedures were concluded to be ineffective as of June 30, 2023 because previously identified material weaknesses in internal control over financial reporting remained under remediation.
Key facts for investors to verify
- Whether medical-cost trends, claims reserve estimates, and risk-adjustment receivables support reported margins and cash collections.
- Membership growth and the profitability of new and existing geographies, including the impact of new members on per-member medical margin.
- Payor concentration, contract renewals, CMS reimbursement or risk-adjustment changes, and exposure to utilization or medical-cost increases.
- Cash conversion, future funding needs, debt availability and covenants, and the effect of floating interest rates.
- Progress in remediating material weaknesses and the status or resolution of accrued contingencies.