UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading symbol(s) |
Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated Filer |
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Non-accelerated Filer |
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Smaller Reporting Company |
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Emerging Growth Company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES
At May 1, 2023, there were
agilon health, inc.
INDEX
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PART I. FINANCIAL INFORMATION |
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Item 1. |
Financial Statements: |
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Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 |
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Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022 |
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Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 |
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8 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
32 |
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Item 4. |
32 |
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Item 1. |
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Item 1A. |
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Item 2. |
33 |
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Item 6. |
34 |
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35 |
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2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
agilon health, inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
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March 31, |
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December 31, |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash and equivalents |
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Marketable securities |
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Receivables, net |
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Prepaid expenses and other current assets, net |
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Total current assets |
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Property and equipment, net |
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Intangible assets, net |
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Goodwill |
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Other assets, net |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
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Current liabilities: |
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Medical claims and related payables |
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$ |
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$ |
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Accounts payable and accrued expenses |
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Current portion of long-term debt |
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Total current liabilities |
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Long-term debt, net of current portion |
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Other liabilities |
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Total liabilities |
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Stockholders' equity (deficit): |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive income (loss) |
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( |
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( |
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Total agilon health, inc. stockholders' equity (deficit) |
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Noncontrolling interests |
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Total stockholders’ equity (deficit) |
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Total liabilities and stockholders’ equity (deficit) |
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$ |
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$ |
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The condensed consolidated balance sheets include assets and liabilities of consolidated variable interest entities (“VIEs”) as agilon health, inc., together with its consolidated subsidiaries and variable interest entities (the “Company”), is the primary beneficiary of these VIEs. The condensed consolidated balance sheets include total assets that can only be used to settle obligations of the Company’s consolidated VIEs totaling $
See accompanying Notes to the Condensed Consolidated Financial Statements.
3
agilon health, inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
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Three Months Ended |
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2023 |
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2022 |
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Revenues: |
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Medical services revenue |
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$ |
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$ |
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Other operating revenue |
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Total revenues |
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Expenses: |
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Medical services expense |
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Other medical expenses |
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General and administrative (including noncash stock-based |
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Depreciation and amortization |
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Total expenses |
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Income (loss) from operations |
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Other income (expense): |
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Other income (expense), net |
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Interest expense |
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Income (loss) before income taxes |
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Income tax benefit (expense) |
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Income (loss) from continuing operations |
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Total discontinued operations |
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Net income (loss) |
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Noncontrolling interests’ share in (earnings) loss |
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Net income (loss) attributable to common shares |
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$ |
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$ |
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Net income (loss) per common share, basic and diluted |
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Continuing operations |
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$ |
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$ |
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Discontinued operations |
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$ |
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$ |
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Weighted average shares outstanding |
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Basic |
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Diluted |
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See accompanying Notes to the Condensed Consolidated Financial Statements.
4
agilon health, inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
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Three Months Ended |
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2023 |
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2022 |
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Net income (loss) |
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$ |
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$ |
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Other comprehensive income (loss): |
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Net unrealized gain (loss) on marketable securities, |
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Foreign currency translation adjustment |
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Total comprehensive income (loss) |
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Comprehensive (income) loss attributable to |
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Total comprehensive income (loss) attributable to |
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$ |
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$ |
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See accompanying Notes to the Condensed Consolidated Financial Statements.
5
agilon health, inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands)
(unaudited)
For the three months ended March 31, 2023:
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Total Stockholders’ Equity |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated Other Comprehensive |
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Noncontrolling |
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Total |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income (loss) |
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Interest |
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(Deficit) |
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January 1, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net income (loss) |
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— |
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— |
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— |
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— |
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( |
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Other comprehensive |
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— |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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Vesting of restricted stock units |
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( |
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— |
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— |
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— |
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— |
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Shares withheld related to |
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( |
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— |
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— |
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— |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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March 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
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For the three months ended March 31, 2022:
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Total Stockholders’ Equity |
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Common Stock |
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Additional |
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Accumulated |
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Noncontrolling |
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Total |
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Shares |
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Amount |
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Capital |
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Deficit |
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Interests |
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(Deficit) |
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January 1, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net income (loss) |
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— |
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— |
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— |
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( |
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Exercise of stock options |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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March 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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See accompanying Notes to the Condensed Consolidated Financial Statements.
6
agilon health, inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Three Months Ended March 31, |
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2023 |
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2022 |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Stock-based compensation expense |
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Loss (income) from equity method investments |
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( |
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( |
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Other noncash items |
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( |
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Changes in operating assets and liabilities |
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( |
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Net cash provided by (used in) operating activities |
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( |
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( |
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Cash flows from investing activities: |
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Purchase of property and equipment, net |
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( |
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( |
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Purchase of intangible assets |
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( |
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Investment in loans receivable and other |
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( |
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( |
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Investments in marketable securities |
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( |
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Proceeds from maturities and sales of marketable securities and other |
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Net cash paid in business combination |
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Net cash provided by (used in) investing activities |
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Cash flows from financing activities: |
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Proceeds from equity issuances, net |
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Repayments of long-term debt |
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( |
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Net cash provided by (used in) financing activities |
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Net increase (decrease) in cash, cash equivalents and restricted cash and equivalents |
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( |
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Cash, cash equivalents and restricted cash and equivalents, |
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Cash, cash equivalents and restricted cash and equivalents, end of period |
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$ |
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$ |
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See accompanying Notes to the Condensed Consolidated Financial Statements.
7
agilon health, inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Business
Description of Business
agilon health, inc., through its partnerships and platform, provides the necessary capabilities, capital, and business model for existing physician groups to create a Medicare-centric, globally capitated line of business. As of March 31, 2023, the Company, through its contracted physician networks, provided care to approximately
See Note 14 for additional discussions related to the Company’s involvement with VIEs.
The Company’s largest shareholder is an investment fund associated with Clayton Dubilier & Rice, LLC (“CD&R”), a private equity firm. All funds affiliated with CD&R are considered related parties.
NOTE 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The condensed consolidated financial statements include the accounts of agilon health, inc., its wholly-owned subsidiaries, and both joint ventures and VIEs that it controls through voting rights or other means. Intercompany transactions and balances have been eliminated upon consolidation. All adjustments (consisting of normal recurring adjustments unless otherwise indicated), which the Company considers necessary to present fairly its financial position, results of operations, and cash flows, have been included. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The accompanying condensed consolidated financial information should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Use of Estimates
Management is required to make estimates and assumptions in the preparation of financial statements. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates can include, among other things, those used to determine revenues and related receivables from risk adjustments, medical services expense and related payables (including the reserve for incurred but not reported (“IBNR”) claims), and valuation of long-lived assets, goodwill and intangible assets (acquired in business combinations and analysis of impairment). Management’s estimates for revenue recognition, medical services expense, and other estimates, judgments, and assumptions, may be materially and adversely different from actual results. These estimates are based on knowledge of current events and anticipated future events, and accordingly, actual results may ultimately differ materially from those estimates.
Property and Equipment
As of March 31, 2023 and December 31, 2022, the Company’s gross carrying amount of property and equipment was $
8
Income Taxes
The Company determined the income tax provision for interim periods using an estimate of the Company’s annual effective tax rate, applied to year-to-date results, adjusted for discrete items arising in that quarter. In each quarter, the Company updates its estimated annual effective tax rate, and if the estimated annual effective tax rate changes, a cumulative catch-up adjustment is recorded in that quarter. The Company applied the intra-period tax allocation rules to allocate income taxes between continuing operations and discontinued operations as prescribed in U.S. GAAP, where the tax effect of income (loss) before income taxes from continuing operations is computed without regard to the tax effects of income (loss) before income taxes from the other categories.
NOTE 3. Revenue, Receivables, and Concentration of Credit Risk
Medical Services Revenue
Medical services revenue consists of capitation fees under contracts with various Medicare Advantage payors (“payors”). Under the typical capitation arrangement, the Company is entitled to monthly per-member, per-month (“PMPM”) fees to provide a defined range of healthcare services for Medicare Advantage health plan members (“members”) attributed to the Company’s contracted primary care physicians. PMPM fees are determined as a percent of the premium payors receive from the Centers for Medicare & Medicaid Services’ (“CMS”) for these members. The Company generally accepts full financial risk for members attributed to its contracted primary care physicians and therefore is responsible for the cost of all healthcare services required by those members. Fees are recorded gross in revenue because the Company is acting as a principal in coordinating and controlling the range of services provided (other than clinical decisions) under its capitation contracts with payors. Capitation contracts with payors are generally multi-year arrangements and have a single performance obligation that constitutes a series, as defined by Accounting Standards Codification (“ASC”) 606, Revenue From Contracts With Customers (“ASC 606”), to stand ready on a monthly basis to provide all aspects of necessary medical care to members for the contracted period. The Company recognizes revenue in the month in which eligible members are entitled to receive healthcare benefits during the contract term.
The transaction price for the Company’s capitation contracts is variable, as the PMPM fees to which the Company is entitled are subject to periodic adjustment under CMS’s risk adjustment payment methodology. CMS deploys a risk adjustment model that determines premiums paid to all payors according to each member’s health status and certain demographic factors. Under this risk adjustment methodology, CMS calculates the risk adjusted premium payment using diagnosis data from various settings. The Company and healthcare providers collect and submit the necessary and available diagnosis data to payors and such data is utilized by the Company to estimate risk adjustment payments to be received in subsequent periods. Risk adjustment-related revenues are estimated using the most likely amount methodology and amounts are only included in revenue to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved. PMPM fees are also subject to adjustment for incentives or penalties based on the achievement of certain quality metrics defined in the Company’s contracts with payors. The Company recognizes incentive revenue as earned using the most likely amount methodology and only to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved.
Neither the Company nor any of its affiliates is a registered insurance company because state law in the states in which it operates does not require such registration for risk-bearing providers.
Receivables
Receivables primarily consist of amounts due under capitation contracts with various payors. Receivables due under capitation contracts are recorded monthly based on reports received from payors and management’s estimate of risk adjustment payments to be received in subsequent periods for open performance years. Receivables are recorded at the amount expected to be realized.
Concentration
The Company contracts with various payors whereby the Company is entitled to monthly PMPM fees to provide a defined range of healthcare services for members attributed to its contracted primary care physicians. The Company generally accepts full financial risk for such members and therefore is responsible for the cost of all healthcare services required by them. Substantially all of the Company’s receivable balances are from a small number of payors. Revenue from Medicare Advantage payors constitutes substantially all of the Company’s total revenue for the three months ended March 31, 2023, and 2022.
9
The following table provides the Company’s revenue concentration with respect to major payors as a percentage of the Company’s total revenues:
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Three Months Ended |
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2023 |
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2022 |
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Payor A |
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% |
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% |
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Payor B |
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% |
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% |
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Payor C |
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% |
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% |
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March 31, |
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December 31, |
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Payor A |
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% |
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% |
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Payor B |
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% |
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% |
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Payor C |
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% |
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% |
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Payor D |
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* |
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% |
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Payor E |
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* |
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% |
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Payor F |
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% |
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* |
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* Less than
NOTE 4. Marketable Securities and Fair Value Measurements
Marketable Securities
The following table summarizes the Company’s marketable securities (in thousands):
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||||||||||||||||||
|
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
||||||||
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Corporate debt securities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||
U.S. Treasury notes |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
Other |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||
At March 31, 2023 and December 31, 2022, marketable securities of $
The following table summarizes the Company’s marketable securities maturity as of March 31, 2023 (in thousands):
Year |
|
Amortized Cost |
|
|
Fair Value |
|
||
2023 |
|
$ |
|
|
$ |
|
||
2024 |
|
|
|
|
|
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
10
Fair Value Measurements
The Company’s financial instruments consist of cash and cash equivalents, restricted cash and cash equivalents, marketable securities, receivables, other liabilities, accounts payable, certain accrued expenses, and borrowings which consist of a term loan and a revolving credit facility. The carrying values of the financial instruments classified as current in the consolidated balance sheets approximate their fair values due to their short-term maturities. The Company's cash and cash equivalents are classified within Level 1 of the fair value hierarchy. The Company may be required, from time to time, to measure its loans to physician partner groups in connection with taxes payable on shares distributed to them upon completion of the initial public offering ("IPO") at fair value on a nonrecurring basis. Such measurements are classified within Level 2 of the fair value hierarchy. The carrying values of the term loan and revolving credit facility are a reasonable estimate of fair value because the interest rates on such borrowings approximate market rates as of the reporting date. Such borrowings are classified within Level 2 of the fair value hierarchy. During the three months ended March 31, 2023 and 2022, there were no material transfers of financial assets or liabilities within the fair value hierarchy.
The Company measures and discloses the fair value of nonfinancial and financial assets and liabilities utilizing a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These inputs have created the following fair value hierarchy:
The table below summarizes the Company’s financial instruments measured at fair value on a recurring basis (in thousands):
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||||
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Corporate debt securities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
U.S. Treasury notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
NOTE 5. Other Assets, net
The following table summarizes the Company’s other assets, net (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
Loans to physician partners |
|
$ |
|
|
$ |
|
||
Health plan deposits |
|
|
|
|
|
|
||
Equity method investments(1) |
|
|
|
|
|
|
||
Right-of-use lease assets |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Loans to Physician Partners
The Company provided loans to its physician partners in connection with taxes payable on shares distributed to them in connection with the IPO. These loans mature between 2026 and 2031 with nominal interest compounding annually and no prepayment penalties. Such loans are stated at the amount expected to be collected.
11
NOTE 6. Medical Claims and Related Payables
Medical services expense represents costs incurred for medical services provided to members by physicians, hospitals and other ancillary providers for which the Company is financially responsible and that are paid either directly by the Company or by payors with whom the Company has contracted. Medical services expenses are recognized in the period in which services are provided and include estimates of claims that have been incurred but have either not yet been received, processed, or paid and as such, not reported.
Such estimates are developed using actuarial methods commonly used by health insurance actuaries that include a number of factors and assumptions including medical service utilization trends, changes in membership, observed medical cost trends, historical claim payment patterns and other factors. Generally, for the most recent months, the Company estimates claim costs incurred by applying observed medical cost trend factors to the average PMPM medical costs incurred in prior months for which more complete claims data are available.
Each period, the Company re-examines previously established medical claims payable estimates based on actual claim submissions and other changes in facts and circumstances. As more complete claims information becomes available, the Company adjusts its estimates and recognizes those changes in estimates in the period in which the change is identified. The difference between the estimated liability and the actual settlements of claims is recognized in the period the claims are settled. The Company’s medical claims payable balance represents management’s best estimate of its liability for unpaid medical costs as of March 31, 2023 and 2022. The Company uses judgment to determine the appropriate assumptions for developing the required estimates.
The following table presents the components of changes in medical claims and related payables (in thousands):
|
|
March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Medical claims and related payables, beginning of the year |
|
$ |
|
|
$ |
|
||
Components of incurred costs related to: |
|
|
|
|
|
|
||
Current year |
|
|
|
|
|
|
||
Prior years |
|
|
|
|
|
|
||
Discontinued operations - prior years |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
||
Claims paid related to: |
|
|
|
|
|
|
||
Current year |
|
|
( |
) |
|
|
( |
) |
Prior years |
|
|
( |
) |
|
|
( |
) |
Discontinued operations - prior years |
|
|
|
|
|
|
||
|
|
|
( |
) |
|
|
( |
) |
Medical claims and related payables, end of the period |
|
$ |
|
|
$ |
|
||
Medical claims and related payables also include $
NOTE 7. Other Liabilities
The following table summarizes the Company’s other liabilities (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
Other long-term contingencies |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|||
Equity method liabilities – ACO REACH |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
12
As of March 31, 2023 and December 31, 2022, the Company’s accruals for contingent liabilities related to unasserted claims were $
See Note 14 for equity method liabilities related to the Company's ACO REACH investments.
NOTE 8. Debt
On February 18, 2021, the Company executed a credit facility agreement (as amended by the First Amendment to Credit Agreement, dated as of March 1, 2021, the “Credit Facilities”). The Credit Facilities include: (i) a $
As of March 31, 2023, the Company had $
At the Company’s option, borrowings under the agreement can be either: (i) LIBO Rate Loans or (ii) Base Rate Loans. LIBO Rate Loans bear interest at a rate equal to the sum of
The Credit Facilities are guaranteed by certain of the Company’s subsidiaries, including those identified as VIEs, and contain customary covenants including, among other things, limitations on restricted payments including: (i) dividends and distributions from restricted subsidiaries, (ii) requirements of minimum financial ratios, and (iii) limitation on additional borrowings based on certain financial ratios.
NOTE 9. Commitments and Contingencies
Legal Proceedings
From time to time, the Company is a party to, or has a significant relationship to, legal proceedings, lawsuits, and other claims. The Company is not aware of any legal proceedings or claims that it believes may have, individually or taken together, a material adverse effect on the Company’s financial condition, results of operations or cash flows. The Company’s policy is to expense legal costs as they are incurred.
NOTE 10. Common Stock
Common Stock
2023. During the three months ended March 31, 2023, the Company issued approximately
2022. During the three months ended March 31, 2022, the Company issued approximately
13
NOTE 11. Net Income (Loss) Per Common Share
Basic net income (loss) per common share (“EPS”) is computed based upon the weighted average number of common shares outstanding. Diluted net income (loss) per common share is computed based upon the weighted average number of common shares outstanding plus the impact of common shares issuable from the assumed conversion of stock options, certain performance restricted stock units, and unvested restricted stock units. Only those instruments having a dilutive impact on basic loss per share are included in diluted loss per share during the periods presented.
The following table illustrates the computation of basic and diluted EPS (in thousands, except per share amounts):
|
|
Three Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Numerator |
|
|
|
|
|
|
||
Income (loss) from continuing operations |
|
$ |
|
|
$ |
|
||
Noncontrolling interests’ share in (earnings) loss from |
|
|
|
|
|
|
||
Net income (loss) attributable to common stockholders |
|
|
|
|
|
|
||
Income (loss) from discontinued operations |
|
|
|
|
|
|
||
Net income (loss) attributable to common stockholders |
|
$ |
|
|
$ |
|
||
Denominator |
|
|
|
|
|
|
||
Weighted average shares outstanding – basic |
|
|
|
|
|
|
||
Weighted average shares outstanding – diluted |
|
|
|
|
|
|
||
Net income (loss) per share attributable to |
|
|
|
|
|
|
||
Net income (loss) per common share from |
|
$ |
|
|
$ |
|
||
Net income (loss) per common share from |
|
$ |
|
|
$ |
|
||
The following table provides the weighted-average potential shares of common stock that were excluded from the calculation of diluted net income (loss) per share attributable to common stockholders because their effect would have been anti-dilutive (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Stock options - service only condition |
|
|
|
|
|
|
||
Equity awards - market and/or performance condition |
|
|
|
|
|
|
||
Restricted stock units |
|
|
|
|
|
|
||
NOTE 12. Goodwill and Amortizable Intangible Assets
As of March 31, 2023 and December 31, 2022, the Company’s goodwill balance was $
As of March 31, 2023 and December 31, 2022, the Company’s gross carrying amount of amortizable intangible assets was $
Acquisition
On February 28, 2023, the Company completed the acquisition of My Personal Health Record Express, Inc.(the “Acquisition”), a leading provider of value-based care technology and interoperability solutions for cash consideration of $
14
significant judgment. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, the Company estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Measurement period adjustments are recorded in the period in which they are determined, as if they had been completed at the acquisition date. Upon the conclusion of the final determination of the values of assets acquired or liabilities assumed, or one year after the date of acquisition, whichever comes first, any subsequent adjustments are recorded within the Company's consolidated results of operations. The following preliminary allocation of the purchase price related to the Acquisition based upon the fair value of assets and liabilities assumed included developed technology intangible assets of $
NOTE 13. Supplemental Cash Flow Information
The following table provides supplemental cash flow information (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Supplemental cash flow information: |
|
|
|
|
|
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Income taxes paid |
|
|
|
|
|
|
||
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
||
Right-of-use asset obtained in exchange for new operating lease liability |
|
|
|
|
|
|
||
Non-cash investment in unconsolidated subsidiaries |
|
|
|
|
|
|
||
The following table summarizes cash, cash equivalents and restricted cash equivalents from continuing operations (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash and equivalents(1) |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash equivalents |
|
$ |
|
|
$ |
|
||
15
NOTE 14. Variable Interest Entities
Consolidated Variable Interest Entities
agilon health, inc.’s consolidated assets and liabilities as of March 31, 2023 and December 31, 2022 include certain assets of VIEs that can only be used to settle the liabilities of the related VIE. The VIE creditors do not have recourse to agilon health, inc.
agilon health, inc.’s consolidated assets and liabilities include VIE assets and liabilities as follows (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
Assets |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash equivalents |
|
|
|
|
|
|
||
Receivables, net |
|
|
|
|
|
|
||
Prepaid expenses and other current assets, net |
|
|
|
|
|
|
||
Property and equipment, net |
|
|
|
|
|
|
||
Intangible assets, net |
|
|
|
|
|
|
||
Other assets, net |
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
||
Medical claims and related payables |
|
|
|
|
|
|
||
Accounts payable and accrued expenses |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
Risk-bearing Entities. At March 31, 2023, the Company operates
Unconsolidated Variable Interest Entities
As of March 31, 2023, the Company had
16
Equity Method Investments
The following table summarizes the Company’s equity method investments (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
Equity method investments - Other(1) |
|
$ |
|
|
$ |
|
||
Equity method investments - ACO REACH(1) |
|
|
|
|
|
|
||
Equity method liabilities - ACO REACH(2) |
|
|
( |
) |
|
|
( |
) |
The Company is a partner in
|
|
Three Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Medical services revenue |
|
$ |
|
|
$ |
|
||
Medical services expense |
|
|
( |
) |
|
|
( |
) |
Other medical expenses(1) |
|
|
( |
) |
|
|
( |
) |
Income (loss) from operations |
|
|
|
|
|
|
||
Net income (loss)(2) |
|
|
|
|
|
|
||
The combined summarized balance sheet of the Company’s ACO REACH entities are as follows (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
Current and total assets |
|
$ |
|
|
$ |
|
||
Current and total liabilities |
|
|
|
|
|
|
||
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
All references in this report to “agilon,” “the Company”, “we,” “us” or “our” mean agilon health, inc., together with its consolidated subsidiaries. Unless the context suggests otherwise, references to “agilon health, inc.” mean the parent company without its subsidiaries.
Cautionary Language Regarding Forward-Looking Statements
Statements in this Quarterly Report on Form 10-Q (the “Report”) that are not historical factual statements are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Some of the forward-looking statements can be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “shall,” “should,” “would,” “could,” “seeks,” “aims,” “projects,” “is optimistic,” “intends,” “plans,” “estimates,” “anticipates” or the negative versions of these words or other comparable terms. Forward-looking statements include, without limitation, all matters that are not historical facts. They appear in a number of places throughout this Report and include, without limitation, statements regarding our intentions, beliefs, assumptions or current expectations concerning, among other things, our financial position, results of operations, cash flows, prospects, and growth strategies.
Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be outside our control. We caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual performance and outcomes, including, without limitation, our actual results of operations, financial condition and liquidity, and the development of the market in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results of operations, financial condition, and cash flows, and the development of the market in which we operate, are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors, including, without limitation, the risks and uncertainties discussed under Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, could cause actual results and outcomes to differ materially from those reflected in the forward-looking statements. As explained in greater detail under Item 9A. “Controls and Procedures” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, we are undertaking a broad range of remedial procedures to address the material weaknesses in our internal control over financial reporting identified as of December 31, 2022. Our efforts to improve our internal controls are ongoing. Furthermore, new risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Report. Factors that could cause actual results and outcomes to differ from those reflected in forward-looking statements include, without limitation:
18
19
Except as required by law, we do not undertake, and hereby disclaim, any obligation to update any forward-looking statements, which speak only as of the date on which they are made.
The information set forth in this Item 2 is intended to provide readers with an understanding of our financial condition, changes in financial condition, and results of operations. We will discuss and provide our analysis in the following order:
20
Overview and Recent Developments
Our business is transforming healthcare by empowering the primary care physicians (“PCPs”) to be the agent for change in the communities they serve. We believe that PCPs, with their intimate patient-physician relationships, are best positioned to drive meaningful change in quality, cost, and patient experience when provided with the right infrastructure and payment model. Through our combination of the agilon platform, a long-term partnership model with existing physician groups and a growing network of like-minded physicians, we are poised to revolutionize healthcare for seniors across communities throughout the United States. Our purpose-built model provides the necessary capabilities, capital, and business model for existing physician groups to create a Medicare-centric, globally capitated line of business. Our model operates by forming RBEs within local geographies, that enter into arrangements with payors providing for monthly payments to manage the total healthcare needs of our physician partners’ attributed patients (or, global capitation arrangements). The RBEs also contract with agilon to perform certain functions and enter into long-term professional service agreements with one or more anchor physician groups pursuant to which the anchor physician groups receive a base compensation rate and share in the savings from successfully improving quality of care and reducing costs.
Our business model is differentiated by its focus on existing community-based physician groups and is built around three key elements: (1) agilon’s platform; (2) agilon’s long-term physician partnership approach; and (3) agilon’s network. With our model, our goal is to remove the barriers that prevent community-based physicians from evolving to a Total Care Model, where the physician is empowered to manage health outcomes and the total healthcare needs of their attributed Medicare patients.
First Quarter 2023 Results:
Membership Details
Medicare Advantage members increased 61% from March 31, 2022, which includes contributions from new geographies and growth within geographies existing prior to 2023. Total members live on the platform includes 402,200 Medicare Advantage members and 88,700 attributed ACO REACH beneficiaries.
Average Medicare Advantage membership was 399,800 during the first quarter of 2023.
21
Key Financial and Operating Metrics
All of our key metrics exclude historical results from our California operations (which are included as discontinued operations in our condensed consolidated financial statements).
We monitor the following key financial and operating metrics to help us evaluate our business, identify trends affecting our business, formulate business plans and make strategic decisions. We believe the following key metrics are useful in evaluating our business (dollars in thousands):
|
|
As of and For the |
|
|||||||||
|
|
Three Months Ended March 31, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
|||
MA members |
|
|
402,200 |
|
|
|
250,300 |
|
|
|
61 |
|
Medical services revenue |
|
$ |
1,134,830 |
|
|
$ |
652,423 |
|
|
|
74 |
|
Gross profit |
|
$ |
77,296 |
|
|
$ |
42,464 |
|
|
|
82 |
|
Medical margin(1) |
|
$ |
162,003 |
|
|
$ |
86,215 |
|
|
|
88 |
|
Platform support costs |
|
$ |
47,678 |
|
|
$ |
33,813 |
|
|
|
41 |
|
Net income (loss) |
|
$ |
15,959 |
|
|
$ |
1,155 |
|
|
|
1,282 |
|
Adjusted EBITDA(1) |
|
$ |
23,860 |
|
|
$ |
8,045 |
|
|
|
197 |
|
Medicare Advantage Members
Our MA members include all individuals enrolled in an MA plan that are attributed to the PCPs on our platform at the end of a given period.
Medical Services Revenue
Our medical services revenue consists of capitation revenue under contracts with various payors. Under the typical capitation arrangement, we are entitled to per member per month ("PMPM") fees to provide a defined range of healthcare services for MA health plan members through our contracted physician partners and affiliated PCPs. Such fees are typically based on a defined percentage of corresponding premium that payors receive from CMS. We recognize capitation revenue over the period eligible members are entitled to receive healthcare services.
Gross Profit
Gross profit represents the amount earned from total revenues less medical services expense and other medical expenses. Total revenues include medical services revenue and other operating revenue. The Company’s costs of revenues consist of medical services expense and other medical expenses, which represents the costs that are directly related to providing the services that generate revenue.
The following table presents our gross profit (dollars in thousands):
|
|
Three Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Total revenues |
|
$ |
1,136,147 |
|
|
$ |
653,445 |
|
Medical services expense |
|
|
(972,827 |
) |
|
|
(566,208 |
) |
Other medical expenses(1) |
|
|
(86,024 |
) |
|
|
(44,773 |
) |
Gross profit |
|
$ |
77,296 |
|
|
$ |
42,464 |
|
Medical Margin
We define medical margin as medical services revenue after medical services expenses are deducted. Medical services expense represents costs incurred for medical services provided to our members. As our platform matures over time, we expect medical margin
22
to increase in absolute dollars. However, medical margin PMPM may vary as the percentage of new members brought onto our platform fluctuates. New membership added to the platform is typically dilutive to medical margin PMPM.
See “—Non-GAAP Financial Measures” for information regarding our use of medical margin and a reconciliation of gross profit to medical margin.
Platform Support Costs
Our platform support costs, which include regionally-based support personnel and other operating costs to support our geographies, are expected to decrease over time as a percentage of revenue as our physician partners add members and our revenue grows. Our operating expenses at the enterprise level include resources and technology to support payor contracting, clinical program development, quality, data management, finance, and legal functions.
The table below represents costs to support our live geographies and enterprise functions, which are included in general and administrative expenses (dollars in thousands):
|
|
Three Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Platform support costs |
|
$ |
47,678 |
|
|
$ |
33,813 |
|
% of Revenue |
|
|
4 |
% |
|
|
5 |
% |
Net Income (Loss) and Adjusted EBITDA
Net income (loss) is the most directly comparable GAAP measure to Adjusted EBITDA. We define Adjusted EBITDA as net income (loss) adjusted to exclude: (i) income (loss) from discontinued operations, net of income taxes, (ii) interest expense, (iii) income tax expense (benefit), (iv) depreciation and amortization, (v) stock-based compensation expense, (vi) severance and related costs, and (vii) certain other items that are not considered by us in the evaluation of ongoing operating performance. We reflect our share of Adjusted EBITDA for equity method investments by applying our actual ownership percentage for the period to the applicable reconciling items on an entity-by-entity basis.
See “—Non-GAAP Financial Measures” for information regarding our use of Adjusted EBITDA and a reconciliation of net income (loss) to Adjusted EBITDA.
Key Components of Our Results of Operations
Revenues
Medical Services Revenue
Our medical services revenue consists of capitation revenue under contracts with various payors. Under the typical capitation arrangement, we are entitled to PMPM fees to provide a defined range of healthcare services for MA health plan members through our contracted physician partners and affiliated PCPs. Such fees are typically based on a defined percentage of corresponding premium that payors receive from CMS. We recognize capitation revenue over the period eligible members are entitled to receive healthcare services.
Medical services revenue constitutes substantially all of our total revenue for the three months ended March 31, 2023 and 2022.
Operating Expenses
Medical Services Expense
In each of our geographies, a network of physicians, hospitals, and other healthcare providers provide care to our members. Medical services expense represents costs incurred for medical services provided to our members. Our medical services expense trends primarily relate to changes in per visit costs incurred by our members, along with changes in health system and provider utilization of services. Medical services expenses are recognized in the period in which services are provided and include estimates of our obligations for medical services that have been rendered by third parties but for which claims have either not yet been received, processed, or paid.
23
Other Medical Expenses
Other medical expenses include: (i) partner physician compensation expense and (ii) other provider costs. Partner physician compensation expense represents obligations to our physician partners corresponding to a portion of the surplus generated in our geographies, which is a function of medical services revenues less the sum of medical services expenses, other provider costs and market operating costs, for the respective geography. Physician payment obligations are reconciled quarterly, and settlement payments are typically issued to providers on an annual basis in arrears, with interim payments issued periodically. Other provider costs include payments to support physician-patient engagement, certain other medical costs, and other care management expenses that help to create medical cost efficiency. Other provider costs include costs incurred for geographies that are in implementation and are not yet generating revenue.
General and Administrative
General and administrative expenses consist of market-based support personnel and other operating costs to support our geographies, personnel and other operating costs to support our enterprise functions, and investments to support development and expansion of our physician partners. Our enterprise functions include salaries and related expenses, stock-based compensation (including shares issued under partner physician group equity agreements), operational support expenses, technology infrastructure, finance, and legal, as well as other costs associated with the continued growth of our platform. For the purposes of calculating physician partner incentive expense, we allocate a portion of our enterprise general and administrative expenses to our geographies. General and administrative expenses also include severance and accruals for unasserted claims.
Depreciation and Amortization
Depreciation and amortization expenses are associated with our property and equipment and acquired intangible assets. Depreciation includes expenses associated with buildings, computer equipment and software, furniture and fixtures, and leasehold improvements. Amortization primarily includes expenses associated with acquired intangible assets.
Other Income (Expense)
Other Income (Expense), Net
Other income (expense), net includes the following items:
Interest Expense
Interest expense consists primarily of interest expense associated with our outstanding debt, including amortization of debt discounts and costs.
Income Tax Benefit (Expense)
We are subject to corporate U.S. federal, state, and local income taxation. Deferred tax assets are reduced by a valuation allowance to the extent management believes it is not more likely than not to be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. Management makes estimates and judgments about future taxable income based on assumptions that are consistent with our plans and estimates.
24
Results of Operations
The following table summarizes key components of our results of operations (dollars in thousands):
|
|
Three Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Revenues: |
|
|
|
|
|
|
||
Medical services revenue |
|
$ |
1,134,830 |
|
|
$ |
652,423 |
|
Other operating revenue |
|
|
1,317 |
|
|
|
1,022 |
|
Total revenues |
|
|
1,136,147 |
|
|
|
653,445 |
|
Expenses: |
|
|
|
|
|
|
||
Medical services expense |
|
|
972,827 |
|
|
|
566,208 |
|
Other medical expenses |
|
|
86,024 |
|
|
|
44,773 |
|
General and administrative (including noncash stock-based |
|
|
66,846 |
|
|
|
39,834 |
|
Depreciation and amortization |
|
|
4,189 |
|
|
|
3,373 |
|
Total expenses |
|
|
1,129,886 |
|
|
|
654,188 |
|
Income (loss) from operations |
|
|
6,261 |
|
|
|
(743 |
) |
Other income (expense): |
|
|
|
|
|
|
||
Other income (expense), net |
|
|
9,472 |
|
|
|
2,269 |
|
Interest expense |
|
|
(1,533 |
) |
|
|
(871 |
) |
Income (loss) before income taxes |
|
|
14,200 |
|
|
|
655 |
|
Income tax benefit (expense) |
|
|
1,759 |
|
|
|
71 |
|
Income (loss) from continuing operations |
|
|
15,959 |
|
|
|
726 |
|
Total discontinued operations |
|
|
— |
|
|
|
429 |
|
Net income (loss) |
|
|
15,959 |
|
|
|
1,155 |
|
Noncontrolling interests’ share in earnings (loss) |
|
|
63 |
|
|
|
75 |
|
Net income (loss) attributable to common shares |
|
$ |
16,022 |
|
|
$ |
1,230 |
|
25
The following table summarizes our results of operations as a percentage of total revenues:
|
|
Three Months Ended |
|
|
|||||
|
|
2023 |
|
|
2022 |
|
|
||
Revenues: |
|
|
|
|
|
|
|
||
Medical services revenue |
|
|
100 |
|
% |
|
100 |
|
% |
Other operating revenue |
|
|
— |
|
|
|
— |
|
|
Total revenues |
|
|
100 |
|
|
|
100 |
|
|
Expenses: |
|
|
|
|
|
|
|
||
Medical services expense |
|
|
86 |
|
|
|
87 |
|
|
Other medical expenses |
|
|
8 |
|
|
|
7 |
|
|
General and administrative (including noncash stock-based |
|
|
6 |
|
|
|
6 |
|
|
Depreciation and amortization |
|
|
— |
|
|
|
1 |
|
|
Total expenses |
|
|
99 |
|
|
|
100 |
|
|
Income (loss) from operations |
|
|
1 |
|
|
|
— |
|
|
Other income (expense): |
|
|
|
|
|
|
|
||
Other income (expense), net |
|
|
1 |
|
|
|
— |
|
|
Interest expense |
|
|
— |
|
|
|
— |
|
|
Income (loss) before income taxes |
|
|
1 |
|
|
|
— |
|
|
Income tax benefit (expense) |
|
|
— |
|
|
|
— |
|
|
Income (loss) from continuing operations |
|
|
1 |
|
|
|
— |
|
|
Total discontinued operations |
|
|
— |
|
|
|
— |
|
|
Net income (loss) |
|
|
1 |
|
|
|
— |
|
|
Noncontrolling interests’ share in earnings (loss) |
|
|
— |
|
|
|
— |
|
|
Net income (loss) attributable to common shares |
|
|
1 |
|
% |
|
— |
|
% |
Comparison of the Three Months Ended March 31, 2023 to the Three Months Ended March 31, 2022
Medical Services Revenue
|
|
Three Months Ended |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
Medical services revenue |
|
$ |
1,134,830 |
|
|
$ |
652,423 |
|
|
$ |
482,407 |
|
|
|
74 |
% |
% of total revenues |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
||
Medical services revenue increased for the three months ended March 31, 2023 due primarily to growth in average membership of 61%, which was attributable to eight new geographies that began to generate revenue in 2023 and growth in our existing geographies. The increase in medical services revenue for the three months ended March 31, 2023 was also driven, to a lesser extent, by an increase in PMPM capitation rates of 8%.
26
Medical Services Expense
|
|
Three Months Ended |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
Medical services expense |
|
$ |
972,827 |
|
|
$ |
566,208 |
|
|
$ |
406,619 |
|
|
|
72 |
% |
% of total revenues |
|
|
86 |
% |
|
|
87 |
% |
|
|
|
|
|
|
||
Medical services expense increased for the three months ended March 31, 2023 due primarily to growth in average membership of 61%, which was attributable to eight new geographies that became operational in 2023 and growth in our existing geographies. The increase in medical services expense for the three months ended March 31, 2023 was also driven, to a lesser extent, by an increase in average medical services expense per member of 7%.
Other Medical Expenses
|
|
Three Months Ended |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
Other medical expenses |
|
$ |
86,024 |
|
|
$ |
44,773 |
|
|
$ |
41,251 |
|
|
|
92 |
% |
% of total revenues |
|
|
8 |
% |
|
|
7 |
% |
|
|
|
|
|
|
||
Other medical expenses increased by $41.3 million, or 92%, for the three months ended March 31, 2023 compared to 2022. Partner physician incentive expense increased by $30.3 million to $57.7 million in 2023 compared to $27.4 million in 2022. Other provider costs increased by $10.9 million to $28.3 million in 2023 compared to $17.4 million in 2022, resulting from the increase in the number of geographies and members on our platform. Other provider costs for the three months ended March 31, 2023 include $2.3 million of costs related to geographies that will become operational in January 2024, while other provider costs for the three months ended March 31, 2022 include $0.2 million of costs related to geographies that became operational in 2023.
General and Administrative
|
|
Three Months Ended |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
General and administrative |
|
$ |
66,846 |
|
|
$ |
39,834 |
|
|
$ |
27,012 |
|
|
|
68 |
% |
% of total revenues |
|
|
6 |
% |
|
|
6 |
% |
|
|
|
|
|
|
||
General and administrative expenses increased $27.0 million, or 68%, for the three months ended March 31, 2023 compared to 2022. Operating costs to support our live geographies and enterprise functions (platform support costs) increased by $13.9 million to $47.7 million in 2023 compared to $33.8 million in 2022 due primarily to growth in operating costs incurred to support geographies that became operational in 2023. Operating costs to support our live geographies and enterprise functions as a percentage of revenue decreased to 4% for the three months ended March 31, 2023 compared to 5% for the same period in 2022. Investments to support geography entry increased to $9.3 million in 2023, compared to $3.8 million in 2022 due to increased costs associated with our geographies that become operational in the following calendar year. Stock-based compensation expense increased $9.7 million in 2023 primarily due to the granting of certain stock-based instruments to third parties after the first quarter of 2022. In aggregate, costs incurred for severance and accruals for unasserted claims and contingent liabilities decreased by $2.0 million primarily as a result of a reduction in reserves for certain contingent liabilities.
Other income (expense), net
|
|
Three Months Ended |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
Other income (expense), net |
|
$ |
9,472 |
|
|
$ |
2,269 |
|
|
$ |
7,203 |
|
|
|
317 |
% |
% of total revenues |
|
|
1 |
% |
|
|
— |
% |
|
|
|
|
|
|
||
27
Other income (expense), net increased $7.2 million, or 317%, for the three months ended March 31, 2023 compared to 2022 primarily from interest income as a result of our marketable securities investments, which were made after the first quarter of 2022.
Non-GAAP Financial Measures
In addition to providing results that are determined in accordance with U.S. GAAP, we present medical margin and Adjusted EBITDA, which are non-GAAP financial measures.
We define medical margin as medical services revenue after medical services expenses are deducted. Medical services expense represents costs incurred for medical services provided to our members. As our platform matures over time, we expect medical margin to increase in absolute dollars. However, medical margin PMPM may vary as the percentage of new members brought onto our platform fluctuates. New membership added to the platform is typically dilutive to medical margin PMPM. We believe this metric provides insight into the economics of our capitation arrangements as it includes all medical services expense directly associated with our members’ care.
We define Adjusted EBITDA as net income (loss) adjusted to exclude: (i) income (loss) from discontinued operations, net of income taxes, (ii) interest expense, (iii) income tax expense (benefit), (iv) depreciation and amortization, (v) stock-based compensation expense, (vi) severance and related costs, and (vii) certain other items that are not considered by us in the evaluation of ongoing operating performance. We reflect our share of Adjusted EBITDA for equity method investments by applying our actual ownership percentage for the period to the applicable reconciling items on an entity-by-entity basis.
Gross profit is the most directly comparable GAAP measure to medical margin. Net income (loss) is the most directly comparable GAAP measure to Adjusted EBITDA.
We believe medical margin and Adjusted EBITDA help identify underlying trends in our business and facilitate evaluation of period-to-period operating performance of our operations by eliminating items that are variable in nature and not considered by us in the evaluation of ongoing operating performance, allowing comparison of our recurring core business operating results over multiple periods. We also believe medical margin and Adjusted EBITDA provide useful information about our operating results, enhance the overall understanding of our past performance and future prospects, and allow for greater transparency with respect to key metrics we use for financial and operational decision-making. We believe medical margin and Adjusted EBITDA or similarly titled non-GAAP measures are widely used by investors, securities analysts, ratings agencies, and other parties in evaluating companies in our industry as a measure of financial performance. Other companies may calculate medical margin and Adjusted EBITDA or similarly titled non-GAAP measures differently from the way we calculate these metrics. As a result, our presentation of medical margin and Adjusted EBITDA may not be comparable to similarly titled measures of other companies, limiting their usefulness as comparative measures.
Adjusted EBITDA is not considered a measure of financial performance under U.S. GAAP, and the items excluded therefrom are significant components in understanding and assessing our financial performance. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as an alternative to such U.S. GAAP measures as net income (loss), cash flows provided by or used in operating, investing, or financing activities or other financial statement data presented in our consolidated financial statements as an indicator of financial performance or liquidity. Some of these limitations are:
28
The following table sets forth a reconciliation of gross profit to medical margin using data derived from our condensed consolidated financial statements for the periods indicated (dollars in thousands):
|
|
Three Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Gross profit(1) |
|
$ |
77,296 |
|
|
$ |
42,464 |
|
Other operating revenue |
|
|
(1,317 |
) |
|
|
(1,022 |
) |
Other medical expenses |
|
|
86,024 |
|
|
|
44,773 |
|
Medical margin |
|
$ |
162,003 |
|
|
$ |
86,215 |
|
The following table sets forth a reconciliation of net income (loss) to Adjusted EBITDA using data derived from our condensed consolidated financial statements for the periods indicated (dollars in thousands):
|
|
Three Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Net income (loss) |
|
$ |
15,959 |
|
|
$ |
1,155 |
|
(Income) loss from discontinued operations, net of income taxes |
|
|
— |
|
|
|
(429 |
) |
Interest expense |
|
|
1,533 |
|
|
|
871 |
|
Income tax expense (benefit) |
|
|
(1,759 |
) |
|
|
(71 |
) |
Depreciation and amortization |
|
|
4,189 |
|
|
|
3,373 |
|
Severance and related costs(1) |
|
|
188 |
|
|
|
1,702 |
|
Stock-based compensation expense |
|
|
13,672 |
|
|
|
3,970 |
|
EBITDA adjustments related to equity method investments |
|
|
1,967 |
|
|
|
1,171 |
|
Other(2) |
|
|
(11,889 |
) |
|
|
(3,697 |
) |
Adjusted EBITDA(3) |
|
$ |
23,860 |
|
|
$ |
8,045 |
|
Liquidity and Capital Resources
We have historically financed our operations primarily through funds generated from our capitation arrangements with payors, issuances of equity securities, and borrowings under credit agreements. We generally invest any excess cash in money market accounts, which are classified as cash equivalents, and marketable securities. Our investment strategies are designed to provide safety and preservation of capital, sufficient liquidity to meet the cash flow needs of our business operations, and attainment of a competitive return. As of March 31, 2023, we had cash and cash equivalents and restricted cash and equivalents of $404.4 million and investments in marketable securities of $422.5 million.
We expect to continue to incur operating losses and generate negative cash flows from operations for the foreseeable future due to the investments we intend to continue to make in expanding our business and additional general and administrative costs we expect to incur related to our operation as a public company. As a result, we may require additional capital resources in the future to execute strategic initiatives to grow our business.
Our primary uses of cash include payments for medical claims and other medical expenses, general and administrative expenses, costs associated with the development of new geographies and expansion of existing geographies, debt service, and capital expenditures. Final reconciliation and receipt of amounts due from payors are typically settled in arrears, following completion of the contractual program year.
Based on our planned operations, we believe that our existing cash and cash equivalents, investments in marketable securities, as well as available borrowing capacity under the credit facilities, will be sufficient to meet our working capital and capital expenditure needs over at least the next 12 months, though we may require additional capital resources in the future. We have based these estimates on assumptions that may prove to be wrong and we could utilize our available capital resources sooner than we expect.
29
We may require additional financing in the future to fund working capital and pay our obligations. We may seek to raise any necessary additional capital through a combination of public or private equity offerings and/or debt financings. There can be no assurance that we will be successful in acquiring additional funding at levels sufficient to fund our operations or on terms favorable to us, if at all. If adequate funds are not available on acceptable terms when needed, we may be required to significantly reduce operating expenses, which may have a material adverse effect on our business, financial condition, cash flows, and results of operations. If we do raise additional capital through public or private equity, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends.
Our ability to pay dividends to holders of our common stock is significantly limited as a practical matter by our growth plans as well as our credit facilities insofar as we may seek to pay dividends out of funds made available to us by agilon health management, inc. (“agilon management”) or its subsidiaries because our credit facilities restrict agilon management’s ability to pay dividends or make loans to us. The borrower on our credit facilities is agilon management, our wholly-owned subsidiary. Our credit facilities are guaranteed by certain of our subsidiaries, including those identified as variable interest entities, and contain customary covenants including, among other things, limitations on restricted payments including: (i) dividends and distributions from restricted subsidiaries, (ii) requirements of minimum financial ratios, and (iii) limitation on additional borrowings based on certain financial ratios.
Cash Flows
The following summary discussion of our cash flows is based on the condensed consolidated statements of cash flows. The following table sets forth changes in cash flows (dollars in thousands):
|
|
Three Months Ended March 31, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|||
Net cash provided by (used in) operating activities |
|
$ |
(60,811 |
) |
|
$ |
(23,233 |
) |
|
$ |
(37,578 |
) |
Net cash provided by (used in) investing activities |
|
|
(50,814 |
) |
|
|
(8,869 |
) |
|
|
(41,945 |
) |
Net cash provided by (used in) financing activities |
|
|
8,339 |
|
|
|
13,506 |
|
|
|
(5,167 |
) |
Net Cash Provided By (Used In) Operating Activities
Net cash used in operating activities was $60.8 million for the three months ended March 31, 2023 compared to $23.2 million for the three months ended March 31, 2022. The increase in net cash used in operating activities in 2023 compared to 2022 was primarily as a result of increased provider costs, including partner physician incentive expenses and the timing of settlements with payors from new and existing geographies, partially offset by the increase in gross profit contributed from new and existing geographies.
Our cash flow from operations is dependent upon the number of members on our platform, the timing of settlements with payors, and the level of operating and general and administrative expenses necessary to operate and grow our business, among other factors.
Net Cash Provided By (Used In) Investing Activities
Net cash used in investing activities was $50.8 million for the three months ended March 31, 2023 compared to $8.9 million for the three months ended March 31, 2022. The increase in net cash used in investing activities in 2023 compared to 2022 was due primarily to the acquisition of My Personal Health Record Express, Inc. for $44.4 million in February 2023.
Net Cash Provided By (Used In) Financing Activities
Net cash provided by financing activities was $8.3 million for the three months ended March 31, 2023 compared to $13.5 million for the three months ended March 31, 2022. During the three months ended March 31, 2023, we received net proceeds of $9.6 million from the exercise of stock options compared to $14.8 million for the three months ended March 31, 2022.
Debt Obligations
On February 18, 2021, we executed a credit facility agreement (as amended by the First Amendment to Credit Agreement, dated as of March 1, 2021, the “Credit Facilities”). The Credit Facilities include: (i) a $100.0 million senior secured term loan (the “Secured Term Loan Facility”) and (ii) a $100.0 million senior secured revolving credit facility (the “Secured Revolving Facility”) with a capacity to issue standby letters of credit in certain circumstances up to a maximum of $80.0 million. Subject to specified conditions and receipt of commitments, the Secured Term Loan Facility may be expanded (or a new term loan facility, revolving credit facility or letter of
30
credit facility added) by up to (i) $50.0 million plus (ii) an additional amount determined in accordance with a formula tied to repayment of certain of our indebtedness. The maturity date of the Credit Facilities was extended to February 18, 2026.
At our option, borrowings under the Credit Facilities, as defined in the credit agreement, can be either: (i) LIBO Rate Loans or (ii) Base Rate Loans. LIBO Rate Loans bear interest at a rate equal to the sum of 4.00% (stepping down to 3.50% on and following October 1, 2023) and the higher of (a) LIBO, as defined in the credit agreement, and (b) 0%. Base Rate Loans bear interest at a rate equal to the sum of 3.00% (stepping down to 2.50% on and following October 1, 2023) and the highest of: (a) 0.50% in excess of the overnight federal funds rate, (b) the prime rate established by the administrative agent from time to time, (c) the one-month LIBO rate (adjusted for maximum reserves) plus 1.00% and (d) 0%. Additionally, we pay a commitment fee on the unfunded 2021 Revolving Credit Facility amount of 0.50% (stepping down to 0.375% on and following October 1, 2023). We must also pay customary letter of credit fees.
The Credit Facilities contain customary covenants including, among other things, limitations on restricted payments including: (i) dividends and distributions from restricted subsidiaries, (ii) requirements of minimum financial ratios, and (iii) limitation on additional borrowings based on certain financial ratios.
For additional discussion on our debt obligations, see Note 8 to the Condensed Consolidated Financial Statements for additional information about our outstanding debt.
Equity
As of March 31, 2023, we had 414.5 million shares of common stock outstanding. See Note 10 to the Condensed Consolidated Financial Statements for additional information about our equity transactions.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions. We base estimates on the best information available to us at the time, our historical experience, known trends and events, and various other assumptions that we believe are reasonable under the circumstances. These estimates affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, it is possible that different accounting would have been applied, resulting in a different presentation of our condensed consolidated financial statements. From time to time, we re-evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Critical Accounting Policies” and Note 2 to the Condensed Consolidated Financial Statements. There have been no significant changes to our critical accounting policies during 2023.
Recent Accounting Pronouncements
There are no new accounting standards that have been issued and we have not adopted that are material to us as of March 31, 2023.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates. We do not use derivative financial instruments in the normal course of business or for speculative or trading purposes.
Our exposures to market risk for changes in interest expense relate primarily to the Credit Facilities. Indebtedness under the Credit Facilities is floating rate debt and is carried at amortized cost. Therefore, fluctuations in interest rates will impact our consolidated financial statements. A rising interest rate environment will increase the amount of interest paid on this debt. A hypothetical 100 basis point change in interest rates would not have a material impact on our interest expense.
We held cash, cash equivalents, restricted cash equivalents, and marketable securities of $826.9 million and $919.6 million as of March 31, 2023 and December 31, 2022, respectively, consisting of bank deposits, certificates of deposits, money market funds, U.S. Treasury notes, and corporate debt securities. Such interest-earning instruments carry a degree of interest rate risk. A hypothetical 100 basis point change in interest rates would not have a material impact on the fair value of our marketable securities. Declines in interest rates over time will reduce our investment income. The goals of our investment policy are liquidity and capital preservation. We do not enter into investments for trading or speculative purposes.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), with the assistance of other members of management, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Our disclosure controls and procedures are intended to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Based on this review, although we continue to work to remediate the material weaknesses in internal control over financial reporting as described in our Annual Report on Form 10-K for the year ended December 31, 2022, and progress has been made to date, our CEO and CFO have concluded that the disclosure controls and procedures related to these material weaknesses were not effective as of March 31, 2023.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect every misstatement. An evaluation of effectiveness is subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may decrease over time,
Changes in Internal Control Over Financial Reporting. Under applicable SEC rules (Exchange Act Rules 13a-15(d) and 15d-15(d)), management is required to evaluate any change in internal control over financial reporting that occurred during each fiscal quarter that had materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
As explained in greater detail under Part II, Item 9A. “Controls and Procedures” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, we are undertaking a broad range of remedial procedures to address the material weaknesses in our internal control over financial reporting identified as of December 31, 2022. Our efforts to improve our internal controls are ongoing. Therefore, while we determined, with the participation of our CEO and CFO, that there have been no changes in our internal control over financial reporting in the three-month period ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, we continue to monitor the operation of these remedial measures through the date of this report.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See the “Legal Proceedings” section of Note 9 to the Condensed Consolidated Financial Statements for information regarding legal proceedings, which information is incorporated by reference in this Item 1.
Item 1A. Risk Factors
In addition to the information set forth in this Form 10-Q, you should carefully consider the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. There have been no material changes to the risk factors disclosed in the Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a)
Unregistered Sales of Equity Securities
Certain of our agreements with our physician partner entities provide for grants of time-vested restricted stock units and performance-based restricted stock units (collectively, RSUs) to the physician partner entities. On February 3, 2023, and March 24, 2023, we issued 36,627 and 31,871 shares of our common stock upon vesting of RSUs, respectively, to our physician partners for a total of $1,722,004. The issuances of the common stock were exempt from registration under the Securities Act by virtue of Section 4(a)(2) of the Securities Act. These transactions did not involve any public offering, any underwriters, any underwriting discounts or commissions, or any general solicitation or advertising. The shares of common stock issued are subject to appropriate restrictive legends and the physician partner entities represented they would not transfer or distribute the common stock until all restrictions were cleared. All recipients had access, through their relationships with us or otherwise, to adequate information about us.
(b)
None.
(c)
None.
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Item 6. Exhibits
Exhibit Number |
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Description |
31.1 |
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31.2 |
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32.1 |
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32.2 |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.* |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document.* |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document.* |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document.* |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document.* |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document.* |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document).* |
* Filed herewith.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 9, 2023 |
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agilon health, inc. |
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(Registrant) |
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/s/ TIMOTHY S. BENSLEY |
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Timothy S. Bensley |
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Chief Financial Officer |
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(Principal Financial Officer) |
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