Agilon Health, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Amounts are in millions of dollars unless otherwise noted. The company operates a Medicare-focused, globally capitated care platform through physician partnerships; it reported approximately 181,700 Medicare Advantage members at quarter-end.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $499.0 | $293.6 | $912.1 | $584.6 |
| Medical services revenue | $497.7 | $292.5 | $910.1 | $582.3 |
| Medical services expense | $442.5 | $220.4 | $802.8 | $468.0 |
| Medical margin | $55.2 | $72.1 | $107.3 | $114.3 |
| Operating loss | $(298.4) | $(1.3) | $(310.5) | $(7.1) |
| Net loss | $(298.9) | $(7.9) | $(314.1) | $(24.0) |
| Adjusted EBITDA (non-GAAP) | $(1.7) | $14.3 | $2.1 | $16.9 |
- Medical margin was approximately 11.1% of medical services revenue in Q2 2021, versus 24.7% a year earlier; for the first half, it was approximately 11.8%, versus 19.6%. The filing attributes the comparison in part to unusually low utilization during the prior-year COVID-19 period.
- Q2 average membership was approximately 194,000, up 57% year over year; this included about 13,100 retroactive members and $35 million of related revenue. Ending membership rose 45% to approximately 181,700. Management cited new geographies and existing-market growth as revenue drivers.
- Q2 medical services expense increased 101%, faster than revenue growth of 70%; average medical expense per member increased 28%. First-half medical expense rose 72%, versus revenue growth of 56%.
- Reported losses were dominated by $274.5 million of Q2 stock-based compensation, primarily from 11.7 million shares issued to physician partners upon the IPO. Adjusted EBITDA is non-GAAP and excludes stock compensation and other items.
- Operating cash flow was negative $80.1 million for the first half, compared with negative $35.5 million in 2020. Investing cash flow was negative $76.3 million, including $67.8 million of physician-partner loans. Financing cash flow was positive $1.14 billion, primarily from the IPO.
- At June 30, cash and cash equivalents were $1,109.4 million, restricted cash was $16.3 million, and total debt was $49.6 million ($3.8 million current). The company also had $64.4 million available under its revolving facility, after $35.6 million of letters of credit. Term-loan effective interest rate was 4.46%; maturity is February 2026. It reported compliance with covenants.
- Total assets were $1,701.7 million and stockholders’ equity was $1,150.3 million. Capital commitments to physician partners were $41.9 million.
Material changes and unusual items
- The company completed its IPO on April 19, 2021, issuing 53.59 million shares at $23.00 per share and receiving approximately $1.2 billion net proceeds. It also issued partner-physician shares, triggering the large non-cash compensation charge. Contingently redeemable shares were reclassified to permanent equity.
- A new $100 million secured term loan and $100 million revolving facility refinanced prior debt. Following the IPO, the company repaid $50 million of the term loan as required and extended facility maturity to February 2026.
- California operations, including the Medicaid business, were classified as discontinued operations; the remaining California business was sold in February 2021. First-half discontinued-operations loss was $3.0 million, versus $12.7 million a year earlier.
- Five Direct Contracting Entities launched April 1, 2021 with seven physician partners; they served over 50,000 traditional Medicare beneficiaries at quarter-end. Management said CMS’s limit on new DCE entrants for 2022 would not prevent use of existing DCEs for physician groups.
Outlook, commentary and risks
- No specific revenue, earnings, or membership guidance is provided. Management expects operating losses and negative operating cash flow for the foreseeable future as it invests in expansion and incurs public-company costs. It believes cash, IPO proceeds, available borrowing capacity, and operating cash flows should support operations for at least the next 12 months, while noting assumptions may prove incorrect.
- COVID-19 creates uncertainty around deferred care and future medical costs, as well as completeness of diagnosis documentation that affects future risk-adjusted revenue. Management cannot estimate the pandemic’s ultimate net impact.
- Revenue and receivables are highly concentrated among a small number of payors; substantially all revenue is from Medicare Advantage. The business also depends on physician partners, accurate member attribution and diagnosis data, and government reimbursement and regulation.
- The company disclosed a California Department of Managed Health Care investigation related to historical claims and utilization-management practices. Potential recoupments, fines, or sanctions remain uncertain; one payor sought $80,000 indemnification. The filing says the company cannot predict future claims or demands.
- Other long-term contingencies were $74.8 million, with reasonably possible losses above recorded reserves estimated at up to $23.3 million. The company also noted exposure to floating interest rates and healthcare regulatory changes.
Investor verification points
- Assess underlying medical-cost performance, including claim reserves and the impact of utilization returning from depressed 2020 levels.
- Separate recurring operating trends from IPO-related stock compensation and review the company’s non-GAAP reconciliations.
- Verify membership growth, retroactive-member revenue, payor concentration, and whether new markets can sustain medical margins.
- Monitor operating cash burn, physician-partner loans and commitments, debt availability, and covenant headroom.
- Track outcomes of the DMHC inquiry, related indemnification requests, and the stated contingent-loss range.
- Evaluate whether COVID-related diagnosis documentation, reimbursement rules, or CMS program changes affect future revenue.