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.
Large Accelerated Filer |
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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 April 30, 2022, there were
agilon health, inc.
INDEX
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PART I. FINANCIAL INFORMATION |
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Item 1. |
Unaudited Financial Statements: |
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Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 |
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Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021 |
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Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 |
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Item 3. |
32 |
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Item 4. |
32 |
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Item 1. |
33 |
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Item 1A. |
33 |
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Item 2. |
33 |
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Item 6. |
34 |
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35 |
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2
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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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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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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2022 |
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2021 |
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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 compensation |
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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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Discontinued operations: |
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Income (loss) before income taxes |
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Income tax benefit (expense) |
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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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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 CONTINGENTLY REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands)
(unaudited)
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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Interest |
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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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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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For the three months ended March 31, 2021:
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Contingently |
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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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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, 2021 |
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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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( |
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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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— |
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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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— |
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March 31, 2021 |
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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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See accompanying Notes to the Condensed Consolidated Financial Statements.
5
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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2022 |
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2021 |
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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 on debt extinguishment |
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Loss (income) from equity method investments |
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Other noncash items |
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Changes in operating assets and liabilities |
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Net cash provided by (used in) operating activities |
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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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( |
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Investment in loans receivable and other |
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( |
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Proceeds from repayment of loans receivable and other |
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Proceeds from sale of business and property, net of cash divested |
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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 exercise of stock options |
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Proceeds from the issuance of long-term debt |
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Repayments of long-term debt |
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Debt issuance costs |
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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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Cash, cash equivalents and restricted cash and equivalents from |
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Cash, cash equivalents and restricted cash and equivalents from |
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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.
6
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, 2022, the Company, through its contracted physician networks, provided care to approximately
See Note 13 for additional discussions related to the Company’s involvement with VIEs.
The Company is ultimately controlled by an investment fund associated with Clayton Dubilier & Rice, LLC (“CD&R”), a private equity firm headquartered in New York, New York. 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”) for interim financial information.
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, 2022, including the impact of COVID-19, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. 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, 2021 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”).
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 the valuation and related recognition of impairments of long-lived assets, including goodwill. Management’s estimates for revenue recognition, medical services expense, and other estimates, judgments, and assumptions, may be materially and adversely different from actual results as a result of the COVID-19 pandemic, among other things. See Note 8 for additional discussion on the impact of the COVID-19 pandemic. These estimates are based on knowledge of current events and anticipated future events, and accordingly, actual results may ultimately differ materially from those estimates.
Goodwill and Amortizable Intangible Assets
As of both March 31, 2022 and December 31, 2021, goodwill of $
7
As of March 31, 2022 and December 31, 2021, the Company’s gross carrying amount of amortizable intangible assets was $
Property and Equipment
As of March 31, 2022 and December 31, 2021, the Company’s gross carrying amount of property and equipment was $
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 generally 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, 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 and stated at the amount expected to be collected.
8
Concentration
The Company is economically dependent on maintaining a base of primary care and specialty care physicians as well as capitation contracts with payors. The loss of certain of those contracts could have a material adverse effect on the Company’s financial position, results of operations, or cash flows.
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.
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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2022 |
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2021 |
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Payor A |
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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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* Less than
The following table provides the Company’s concentration of credit risk with respect to major payors as a percentage of receivables, net:
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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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NOTE 4. Other Assets, net
The following table summarizes the Company’s other assets, net (in thousands):
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March 31, |
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December 31, |
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Loans to physician partners |
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$ |
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$ |
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Indemnification assets |
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Health plan deposits |
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Equity method investments(1) |
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Right-of-use assets |
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Other |
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|
|
|
||
|
|
$ |
|
|
$ |
|
||
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 initial public offering ("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.
9
Indemnification Assets
Indemnification assets have been established to offset certain pre-closing liabilities for which the prior owners of some of the Company’s California subsidiaries are obligated to indemnify the Company. The Company deems the amounts receivable under the indemnification agreements to be fully collectible should indemnification claims arise, and, as such, a valuation allowance is not deemed necessary.
NOTE 5. 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, 2022 and December 31, 2021. 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, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Medical claims and related payables, beginning of the year |
|
$ |
|
|
$ |
|
||
Components of incurred costs related to: |
|
|
|
|
|
|
||
Current year |
|
|
|
|
|
|
||
Prior years |
|
|
|
|
|
|
||
Discontinued operations - current year |
|
|
|
|
|
|
||
Discontinued operations - prior years |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Claims paid related to: |
|
|
|
|
|
|
||
Current year |
|
|
( |
) |
|
|
( |
) |
Prior years |
|
|
( |
) |
|
|
( |
) |
Discontinued operations - current year |
|
|
|
|
|
( |
) |
|
Discontinued operations - prior year |
|
|
|
|
|
( |
) |
|
|
|
|
( |
) |
|
|
( |
) |
Medical claims and related payables, end of the period |
|
$ |
|
|
$ |
|
||
Medical claims and related payables presented in the periods above include immaterial balances related to claims liabilities associated with certain divested California businesses for which the Company has retained the liability for claims incurred prior to the date of divestiture.
10
NOTE 6. Other Liabilities
The following table summarizes the Company’s other liabilities (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
Other long-term contingencies |
|
$ |
|
|
$ |
|
||
Reserve for uncertain tax positions |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Equity method liabilities – DCEs |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
As of March 31, 2022 and December 31, 2021, the Company’s accruals for contingent liabilities related to unasserted claims were $
See Note 13 for equity method liabilities related to the Company's DCE investments.
NOTE 7. 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, 2022, 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
11
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 8. 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. Except as described below, 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.
COVID-19
The Company continues to monitor and assess the estimated operating and financial impact of the COVID-19 pandemic, and as it evolves, the Company continues to process, assemble, and assess member utilization information. The COVID-19 pandemic continues to evolve and the ultimate impact on the Company's business, results of operations, financial condition and cash flows remains uncertain. During 2021 and the first quarter of 2022, overall care activity continued to increase, including a mix of temporary deferral of care activity and COVID-19 related care costs. These costs may be incurred at future points in time, and it is possible that the deferral of healthcare services, or the impact of the Company’s members (who are seniors typically with chronic conditions) being diagnosed with COVID-19, could cause additional health problems in its existing members, which could increase costs in the future. In future periods, care patterns may moderately exceed normal baselines as previously deferred care is obtained and acuity temporarily rises due to missed regular care. From time to time, health system capacity may be subject to possible increased volatility due to the pandemic. The Company cannot accurately estimate the net ultimate impact, positive or negative, to medical services expense at this time.
Given the disruption caused by COVID-19, it is unclear whether the Company’s contracted physicians will be able to document the health conditions of members as comprehensively as they did in historical periods. Because risk adjustment factors in the current period are based on the preceding year’s diagnosed disease conditions, the Company’s revenue in future periods may be adversely impacted.
The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information that may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption. The ultimate impact of these matters to the Company and its financial condition cannot be reasonably estimated at this time.
The Company believes that its cash resources, funds from the IPO in April 2021, borrowing capacity available under the Secured Revolving Facility, and cash flow generated from operations will continue to be sufficient to withstand the financial impact of the pandemic and will enable the Company to continue to support its operations, regulatory requirements, debt repayment obligations, and geography expansion for the foreseeable future.
Regulatory Matters
The healthcare industry is subject to numerous laws and regulations of federal, state, and local governments. Violations of these laws and regulations could result in expulsion from government healthcare programs, together with the imposition of significant fines and penalties. Compliance with such laws and regulations can be subject to future government review and interpretation, as well as regulatory actions unknown or unasserted at this time.
The healthcare regulatory landscape is constantly changing. It is difficult to predict which final rules may be adopted and implemented by federal and state authorities, and if such final rules would result in any material adverse effect on the Company’s business, consolidated financial condition, results of operations, or cash flows. Management is unable to determine how any future government spending cuts will affect Medicare reimbursement. There likely will continue to be legislative and regulatory proposals at the federal and state levels directed at containing or lowering the cost of healthcare that, if adopted, could have a material adverse effect on the Company’s condensed consolidated financial statements.
12
Compliance Requirements
In February 2018, the Company self-disclosed to the California Department of Managed Health Care (“DMHC”), the California Department of Health Care Services, and its affected payors certain noncompliant practices in the Company’s claims and utilization management. The Company submitted various reports in May, June, and August of 2018 and coordinated with the DMHC and certain of its payors to remediate noncompliant claims and utilization management practices and implement improvements through various corrective action plan (“CAPs”). On December 17, 2019, the Company completed substantial remediation of all known deficiencies identified by the DMHC’s audit findings. In February 2021, the Company completed divesting all of its California operations. On March 9, 2021, the Company received a set of investigative interrogatories from the DMHC pursuant to its investigation of conduct and matters described in the Company’s various reports. The interrogatories sought information concerning certain claims data and authorizations denied due to lack of medical necessity, including information regarding the health plans affected thereby. The Company responded timely to such interrogatories and provided requested information. Any adverse review, audit or investigation could result in, among other things: refunding of amounts the Company have been paid pursuant to its contracts; or the imposition of fines, penalties and other sanctions on the Company, or certain of its payors. While the Company does not expect the amount to be material, it is unable to predict the potential dollar value of recoupments or fines, penalties or other sanctions that may be imposed on the Company or the impacted payors related to the DMHC’s audit findings, if any. Per publicly available information,
NOTE 9. Common Stock
Common Stock
As of March 31, 2022, the Company’s authorized capital stock consisted of
2022. During the three months ended March 31, 2022, the Company issued approximately
2021. During the three months ended March 31, 2021, the Company issued approximately
NOTE 10. 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.
13
The following table illustrates the computation of basic and diluted EPS (in thousands, except per share amounts):
|
|
Three Months Ended |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
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 |
|
$ |
|
|
$ |
( |
) |
|
Basic net income (loss) per share is the same as diluted net income (loss) per share for the three months ended March 31, 2021, as the inclusion of all potential common shares outstanding would have been antidilutive.
|
|
Three Months Ended |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Stock options - service only condition |
|
|
|
|
|
|
||
Equity awards - market and/or performance condition |
|
|
|
|
|
|
||
Restricted stock units |
|
|
|
|
|
|
||
NOTE 11. Discontinued Operations
Discontinued operations are a component of an entity that has either been disposed of or is deemed held-for-sale and, (i) the operations and cash flows of the component have been or will be eliminated from ongoing operations as a result of the disposal transaction, and (ii) the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction.
See Note 8 for additional details on the Company's investigative interrogatories from the DMHC.
14
The results of discontinued operations are as follows (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Revenues: |
|
|
|
|
|
|
||
Medical services revenue |
|
$ |
|
|
$ |
|
||
Other operating revenue |
|
|
|
|
|
|
||
Total revenues |
|
|
|
|
|
|
||
Expenses: |
|
|
|
|
|
|
||
Medical services expense |
|
|
( |
) |
|
|
|
|
Other medical expenses |
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Income (loss) from operations |
|
|
|
|
|
( |
) |
|
Other income (expense), net |
|
|
|
|
|
|
||
Gain (loss) on sale of assets |
|
|
|
|
|
|
||
Income (loss) before income taxes |
|
|
|
|
|
( |
) |
|
Income tax benefit (expense) |
|
|
|
|
|
( |
) |
|
Net income (loss) from |
|
$ |
|
|
$ |
( |
) |
|
The following table provides significant non-cash operating items for discontinued operations that are included in the condensed consolidated statements of cash flows (in thousands):
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Non-cash operating activities from discontinued operations: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
$ |
|
|
$ |
|
||
NOTE 12. Supplemental Cash Flow Information
The following table provides supplemental cash flow information (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
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 13. Variable Interest Entities
Consolidated Variable Interest Entities
agilon health, inc.’s consolidated assets and liabilities as of March 31, 2022 and December 31, 2021 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(1) |
|
|
|
|
|
|
||
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(1) |
|
|
|
|
|
|
||
Medical claims and related payables |
|
|
|
|
|
|
||
Accounts payable and accrued expenses |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
Risk-bearing Entities. At March 31, 2022, the Company operates
Unconsolidated Variable Interest Entities
As of March 31, 2022, 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 - DCEs(1) |
|
|
|
|
|
|
||
Equity method liabilities - DCEs(2) |
|
|
( |
) |
|
|
( |
) |
The Company is a partner in
|
|
Three Months Ended |
|
|
Medical services revenue |
|
$ |
|
|
Medical services expense |
|
|
( |
) |
Other medical expenses(1) |
|
|
( |
) |
Net income (loss)(2) |
|
|
|
|
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
All references in this report to “agilon,” “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, 2021, could cause actual results and outcomes to differ materially from those reflected in the forward-looking statements. 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
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.
19
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:
Overview and Recent Developments
Our business is transforming healthcare by empowering the primary care physician (“PCP”) 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), 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.
Our platform, partnership, and network model enable our physician partners to be the quarterback for healthcare delivery in their community, and successfully operate a Medicare-centric, globally capitated line of business. This generates improving quality and cost outcomes, growing membership, and increasing medical margin per member, which we share with our physician partners pursuant to our long-term partnership model. We believe this continuous improvement in patient and physician engagement and experience leads to more PCPs joining our platform and ultimately improves the success of each physician partner on the platform. As our platform grows, we believe we will be able to leverage our scale to drive additional investment in our geographies to accelerate this flywheel for the benefit of our physician partners and their patients.
First Quarter 2022 Results:
20
Membership Details
Medicare Advantage members increased 51% from March 31, 2021, which includes contributions from new geographies and growth within geographies existing prior to 2022. Total members live on the platform includes 250,300 Medicare Advantage members and 91,800 attributed Direct Contracting beneficiaries.
Average Medicare Advantage membership during the first quarter 2022 was approximately 248,000, an increase of 52% from March 31, 2021.
COVID-19
Since March 2020, we have implemented precautionary measures to protect the health and safety of our employees, physicians and members in connection with the COVID-19 pandemic. Because COVID-19 infections have been reported throughout the United States, certain national, provincial, state, and local governmental authorities have issued proclamations and/or directives aimed at minimizing the spread of COVID-19. Additionally, more restrictive proclamations and/or directives may be issued in the future.
The ultimate impact of the COVID-19 pandemic on our operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information that may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or we, may direct, which may result in an extended period of continued business disruption. The ultimate impact of these matters to us and our financial condition cannot be reasonably estimated at this time.
The COVID-19 pandemic continues to evolve and the ultimate impact on our business, results of operations, financial condition, and cash flows remains uncertain. During 2021, overall care activity continued to increase, including a mix of temporary deferral of care activity and COVID-19 related care costs. These costs may be incurred at future points in time and it is possible that the deferral of healthcare services, or the impact of our members (who are seniors typically with chronic conditions) being diagnosed with COVID-19, could cause additional health problems in our existing members, which could increase costs in the future. In future periods, care patterns may moderately exceed normal baselines as previously deferred care is obtained and acuity temporarily rises due to missed regular care. From time to time, health system capacity may be subject to possible increased volatility due to the pandemic. We cannot accurately estimate the net ultimate impact, positive or negative, to medical services expense at this time.
Given the disruption caused by COVID-19, it is unclear whether our contracted physicians will be able to document the health conditions of our members as comprehensively as they did in historical periods. Because risk adjustment factors in the current period are based on the preceding year’s diagnosed disease conditions, our revenue in future periods may be adversely impacted.
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, |
|
|||||||||
|
|
2022 |
|
|
2021 |
|
|
% Change |
|
|||
MA members |
|
|
250,300 |
|
|
|
165,300 |
|
|
|
51 |
|
Medical services revenue |
|
$ |
652,423 |
|
|
$ |
412,412 |
|
|
|
58 |
|
Medical margin |
|
$ |
86,215 |
|
|
$ |
52,058 |
|
|
|
66 |
|
Platform support costs |
|
$ |
33,813 |
|
|
$ |
28,408 |
|
|
|
19 |
|
Network contribution(1) |
|
$ |
41,622 |
|
|
$ |
30,142 |
|
|
|
38 |
|
Adjusted EBITDA(1) |
|
$ |
12,029 |
|
|
$ |
3,762 |
|
|
|
220 |
|
21
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 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 Margin
Medical margin represents the amount earned from 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. Furthermore, in light of COVID-19, we continue to evaluate the ultimate impact of the pandemic on medical margin.
The following table presents our medical margin (dollars in thousands):
|
|
Three Months Ended |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Medical services revenue |
|
$ |
652,423 |
|
|
$ |
412,412 |
|
Medical services expense |
|
|
(566,208 |
) |
|
|
(360,354 |
) |
Medical margin |
|
$ |
86,215 |
|
|
$ |
52,058 |
|
Network Contribution
We define network contribution as medical services revenue less the sum of: (i) medical services expense and (ii) other medical expenses excluding costs incurred in implementing geographies. Other medical expenses consist of physician compensation expense related to surplus sharing and other direct medical expenses incurred to improve care for our members. We believe this metric provides insight into the economics of our Total Care Model, as it includes all medical services expense associated with our members’ care as well as partner compensation and additional medical costs we incur as part of our aligned partnership model. Other medical expenses are largely variable and proportionate to the level of surplus in each respective geography.
The following table presents our network contribution (dollars in thousands):
|
|
Three Months Ended |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Medical services revenue |
|
$ |
652,423 |
|
|
$ |
412,412 |
|
Medical services expense |
|
|
(566,208 |
) |
|
|
(360,354 |
) |
Other medical expenses—live geographies(1) |
|
|
(44,593 |
) |
|
|
(21,916 |
) |
Network contribution |
|
$ |
41,622 |
|
|
$ |
30,142 |
|
See “—Non-GAAP Financial Measures” for information regarding our use of network contribution and a reconciliation of income (loss) from operations to network contribution.
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
22
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 |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Platform support costs |
|
$ |
33,813 |
|
|
$ |
28,408 |
|
% of Revenue |
|
|
5 |
% |
|
|
7 |
% |
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) geography entry costs, (vi) stock-based compensation expense, (vii) severance and related costs, and (viii) 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. Net income (loss) is the most directly comparable GAAP measure to Adjusted EBITDA.
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, accounting for approximately 100% of our total revenues for the three months ended March 31, 2022 and 2021.
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.
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.
23
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 in connection with our IPO), 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, management fees paid to our majority shareholder prior to our IPO, 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.
Total Discontinued Operations
Total discontinued operations consist of the results of our California operations, which include the entirety of our Medicaid line of business. For certain of our California divestiture transactions, we continue to be responsible for any liabilities arising from the business that were incurred prior to the closing date of such transaction, including any fines, penalties, and other sanctions relating to the DMHC matter, the payment of claims for medical services incurred prior to the effective date of each transaction, a liability for unrecognized tax benefits for which we are indemnified, and other contingent liabilities that we currently believe are remote. For additional discussion, see Note 11 to the Consolidated Condensed Financial Statements.
24
Results of Operations
The following table summarizes key components of our results of operations (dollars in thousands):
|
|
Three Months Ended |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Revenues: |
|
|
|
|
|
|
||
Medical services revenue |
|
$ |
652,423 |
|
|
$ |
412,412 |
|
Other operating revenue |
|
|
1,022 |
|
|
|
692 |
|
Total revenues |
|
|
653,445 |
|
|
|
413,104 |
|
Expenses: |
|
|
|
|
|
|
||
Medical services expense |
|
|
566,208 |
|
|
|
360,354 |
|
Other medical expenses |
|
|
44,773 |
|
|
|
23,661 |
|
General and administrative (including noncash stock-based compensation |
|
|
39,834 |
|
|
|
37,777 |
|
Depreciation and amortization |
|
|
3,373 |
|
|
|
3,427 |
|
Total expenses |
|
|
654,188 |
|
|
|
425,219 |
|
Income (loss) from operations |
|
|
(743 |
) |
|
|
(12,115 |
) |
Other income (expense): |
|
|
|
|
|
|
||
Other income (expense), net |
|
|
2,269 |
|
|
|
1,336 |
|
Interest expense |
|
|
(871 |
) |
|
|
(2,941 |
) |
Income (loss) before income taxes |
|
|
655 |
|
|
|
(13,720 |
) |
Income tax benefit (expense) |
|
|
71 |
|
|
|
(16 |
) |
Income (loss) from continuing operations |
|
|
726 |
|
|
|
(13,736 |
) |
Discontinued operations: |
|
|
|
|
|
|
||
Income (loss) from discontinued operations |
|
|
429 |
|
|
|
(1,351 |
) |
Income tax benefit (expense) |
|
|
— |
|
|
|
(64 |
) |
Total discontinued operations |
|
|
429 |
|
|
|
(1,415 |
) |
Net income (loss) |
|
|
1,155 |
|
|
|
(15,151 |
) |
Noncontrolling interests’ share in earnings (loss) |
|
|
75 |
|
|
|
73 |
|
Net income (loss) attributable to common shares |
|
$ |
1,230 |
|
|
$ |
(15,078 |
) |
25
The following table summarizes our results of operations as a percentage of total revenues:
|
|
Three Months Ended |
|
|
|||||
|
|
2022 |
|
|
2021 |
|
|
||
Revenues: |
|
|
|
|
|
|
|
||
Medical services revenue |
|
|
100 |
|
% |
|
100 |
|
% |
Other operating revenue |
|
|
— |
|
|
|
— |
|
|
Total revenues |
|
|
100 |
|
|
|
100 |
|
|
Expenses: |
|
|
|
|
|
|
|
||
Medical services expense |
|
|
87 |
|
|
|
87 |
|
|
Other medical expenses |
|
|
7 |
|
|
|
6 |
|
|
General and administrative (including noncash stock-based compensation |
|
|
6 |
|
|
|
9 |
|
|
Depreciation and amortization |
|
|
1 |
|
|
|
1 |
|
|
Total expenses |
|
|
100 |
|
|
|
103 |
|
|
Income (loss) from operations |
|
|
— |
|
|
|
(3 |
) |
|
Other income (expense): |
|
|
|
|
|
|
|
||
Other income (expense), net |
|
|
— |
|
|
|
— |
|
|
Interest expense |
|
|
— |
|
|
|
(1 |
) |
|
Income (loss) before income taxes |
|
|
— |
|
|
|
(3 |
) |
|
Income tax benefit (expense) |
|
|
— |
|
|
|
— |
|
|
Income (loss) from continuing operations |
|
|
— |
|
|
|
(3 |
) |
|
Discontinued operations: |
|
|
|
|
|
|
|
||
Income (loss) from discontinued operations |
|
|
— |
|
|
|
— |
|
|
Income tax benefit (expense) |
|
|
— |
|
|
|
— |
|
|
Total discontinued operations |
|
|
— |
|
|
|
— |
|
|
Net income (loss) |
|
|
— |
|
|
|
(4 |
) |
|
Noncontrolling interests’ share in earnings (loss) |
|
|
— |
|
|
|
— |
|
|
Net income (loss) attributable to common shares |
|
|
— |
|
% |
|
(4 |
) |
% |
Comparison of the Three Months Ended March 31, 2022 to the Three Months Ended March 31, 2021
Medical Services Revenue
|
|
Three Months Ended |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||
Medical services revenue |
|
$ |
652,423 |
|
|
$ |
412,412 |
|
|
$ |
240,011 |
|
|
|
58 |
% |
% of total revenues |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
||
Medical services revenue increased for the three months ended March 31, 2022 due primarily to growth in average membership of 52%, which was attributable to six new geographies that began to generate revenue in 2022 and growth in our existing geographies. The increase in medical services revenue for the three months ended March 31, 2022 was also driven, to a lesser extent, by an increase in PMPM capitation rates of 4%.
Medical Services Expense
|
|
Three Months Ended |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||
Medical services expense |
|
$ |
566,208 |
|
|
$ |
360,354 |
|
|
$ |
205,854 |
|
|
|
57 |
% |
% of total revenues |
|
|
87 |
% |
|
|
87 |
% |
|
|
|
|
|
|
||
Medical services expense increased for the three months ended March 31, 2022 due primarily to growth in average membership of 52%, which was attributable to six new geographies that became operational in 2022 and growth in our existing geographies. The increase in medical services expense for the three months ended March 31, 2022 was also driven, to a lesser extent, by an increase in average medical services expense per member of 3%.
26
Other Medical Expenses
|
|
Three Months Ended |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||
Other medical expenses |
|
$ |
44,773 |
|
|
$ |
23,661 |
|
|
$ |
21,112 |
|
|
|
89 |
% |
% of total revenues |
|
|
7 |
% |
|
|
6 |
% |
|
|
|
|
|
|
||
Other medical expenses increased by $21.1 million, or 89%, for the three months ended March 31, 2022 compared to 2021. Partner physician incentive expense increased by $16.4 million to $27.4 million in 2022 compared to $11.0 million in 2021. Other provider costs increased by $4.7 million to $17.4 million in 2022 compared to $12.7 million in 2021, resulting from the increase in the number of geographies and members on our platform. Other provider costs for the three months ended March 31, 2022 include $0.2 million of costs related to geographies that will become operational in January 2023, while other provider costs for the three months ended March 31, 2021 include $1.8 million of costs related to geographies that became operational in 2022.
General and Administrative
|
|
Three Months Ended |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||
General and administrative |
|
$ |
39,834 |
|
|
$ |
37,777 |
|
|
$ |
2,057 |
|
|
|
5 |
% |
% of total revenues |
|
|
6 |
% |
|
|
9 |
% |
|
|
|
|
|
|
||
General and administrative expenses increased $2.1 million, or 5%, for the three months ended March 31, 2022 compared to 2021. Operating costs to support our live geographies and enterprise functions (platform support costs) increased by $5.4 million to $33.8 million in 2022 compared to $28.4 million in 2021 due primarily to growth in operating costs incurred to support geographies that became operational in 2022. Operating costs to support our live geographies and enterprise functions as a percentage of revenue decreased to 5% for the three months ended March 31, 2022 compared to 7% for the same period in 2021. Investments to support geography entry increased to $3.8 million in 2022, compared to $3.2 million in 2021, due to increased costs associated with our geographies that become operational in the following calendar year. In aggregate, costs incurred for severance, stock-based compensation, fees paid to our majority shareholder, and accruals for unasserted claims and contingent liabilities decreased by $3.9 million primarily as a result of a reduction in reserves for certain contingent liabilities.
Non-GAAP Financial Measures
In addition to providing results that are determined in accordance with GAAP, we present network contribution and Adjusted EBITDA, which are non-GAAP financial measures.
We define network contribution as medical services revenue less the sum of: (i) medical services expense and (ii) other medical expenses excluding costs incurred in implementing geographies. Other medical expenses consist of physician compensation expense related to surplus sharing and other direct medical expenses incurred to improve care for our members. We believe this metric provides insight into the economics of our Total Care Model as it includes all medical services expense associated with our members’ care as well as partner compensation and additional medical costs we incur as part of our aligned partnership model. Other medical expenses are largely variable and proportionate to the level of surplus in each respective geography.
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) geography entry costs, (vi) stock-based compensation expense, (vii) severance and related costs, and (viii) 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.
Income (loss) from operations is the most directly comparable GAAP measure to network contribution. Net income (loss) is the most directly comparable GAAP measure to Adjusted EBITDA.
We believe network contribution and Adjusted EBITDA help identify underlying trends in our business and facilitate evaluation of period-to-period operating performance of our live geographies 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
27
multiple periods. We also believe network contribution 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 network contribution 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 network contribution and Adjusted EBITDA or similarly titled non-GAAP measures differently from the way we calculate these metrics. As a result, our presentation of network contribution 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 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 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:
The following table sets forth a reconciliation of income (loss) from operations to network contribution using data derived from our condensed consolidated financial statements for the periods indicated (dollars in thousands):
|
|
Three Months Ended |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Income (loss) from operations |
|
$ |
(743 |
) |
|
$ |
(12,115 |
) |
Other operating revenue |
|
|
(1,022 |
) |
|
|
(692 |
) |
Other medical expenses |
|
|
44,773 |
|
|
|
23,661 |
|
Other medical expenses—live geographies(1) |
|
|
(44,593 |
) |
|
|
(21,916 |
) |
General and administrative |
|
|
39,834 |
|
|
|
37,777 |
|
Depreciation and amortization |
|
|
3,373 |
|
|
|
3,427 |
|
Network contribution |
|
$ |
41,622 |
|
|
$ |
30,142 |
|
28
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 |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Net income (loss) |
|
$ |
1,155 |
|
|
$ |
(15,151 |
) |
(Income) loss from discontinued operations, net of income taxes |
|
|
(429 |
) |
|
|
1,415 |
|
Interest expense |
|
|
871 |
|
|
|
2,941 |
|
Income tax expense (benefit) |
|
|
(71 |
) |
|
|
16 |
|
Depreciation and amortization |
|
|
3,373 |
|
|
|
3,427 |
|
Geography entry costs(1) |
|
|
3,984 |
|
|
|
4,967 |
|
Severance and related costs(2) |
|
|
1,702 |
|
|
|
454 |
|
Management fees(3) |
|
|
— |
|
|
|
375 |
|
Stock-based compensation expense |
|
|
3,970 |
|
|
|
1,472 |
|
EBITDA adjustments related to equity method investments |
|
|
1,171 |
|
|
|
— |
|
Other(4) |
|
|
(3,697 |
) |
|
|
3,846 |
|
Adjusted EBITDA |
|
$ |
12,029 |
|
|
$ |
3,762 |
|
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. 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, 2022, we had cash and cash equivalents of $1.0 billion.
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.
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.
Based on our planned operations, we believe that our existing cash and cash equivalents, 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, |
|
|||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|||
Net cash provided by (used in) operating activities |
|
$ |
(23,233 |
) |
|
$ |
(40,828 |
) |
|
$ |
17,595 |
|
Net cash provided by (used in) investing activities |
|
|
(8,869 |
) |
|
|
(9,074 |
) |
|
|
205 |
|
Net cash provided by (used in) financing activities |
|
|
13,506 |
|
|
|
30,298 |
|
|
|
(16,792 |
) |
Net Cash Provided By (Used In) Operating Activities
Net cash used in operating activities was $23.2 million for the three months ended March 31, 2022 compared to $40.8 million for the three months ended March 31, 2021. The decrease in net cash used in operating activities was primarily a result of the increase in medical margin contributed from new and existing geographies, while general and administrative expenses declined as a percentage of revenue from 9% to 6% for the three months ended March 31, 2022.
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 $8.9 million for the three months ended March 31, 2022 compared to $9.1 million for the three months ended March 31, 2021. During the three months ended March 31, 2022, we used $9.6 million to fund investments, including capital expenditures for our technology platform and loans we provided to our physician partner groups in connection with taxes payable on shares distributed to them upon completion of the IPO under the partner physician group equity agreements. During the three months ended March 31, 2021, we used $4.0 million for the acquisition of intangible assets and $3.7 million of cash was sold in the disposition of our remaining California operations.
Net Cash Provided By (Used In) Financing Activities
Net cash provided by financing activities was $13.5 million for the three months ended March 31, 2022 compared to $30.3 million for the three months ended March 31, 2021. During the three months ended March 31, 2022, we received net proceeds of $14.8 million from the exercise of stock options. In February 2021, we refinanced our existing debt with a $100.0 million term loan, receiving net proceeds of $30.1 million.
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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 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 Secured Term Loan Facility requires, among other things, a mandatory prepayment of $50.0 million if gross proceeds from the IPO exceed $1.0 billion. On April 26, 2021, we repaid $50.0 million of the Secured Term Loan Facility. The maturity date of the Credit Facilities was extended to February 18, 2026, with mandatory periodic payments.
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 7 to the Condensed Consolidated Financial Statements for additional information about our outstanding debt.
Equity
As of March 31, 2022, we had 405.7 million shares of common stock outstanding. See Note 9 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. generally accepted accounting principles. 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, 2021 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 2022.
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, 2022.
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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 impact our interest expense by less than $1.0 million for the three months ended March 31, 2022.
We held cash, cash equivalents and restricted cash equivalents of $1.0 billion as of March 31, 2022, consisting of bank deposits, certificates of deposits, and money market funds. Such interest-earning instruments carry a degree of interest rate risk. The goals of our investment policy are liquidity and capital preservation. We believe that we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates due to the short-term nature of our cash, cash equivalents, and restricted cash equivalents.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), evaluated the effectiveness of our disclosure controls and procedures, as defined by Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer) concluded that our disclosure controls and procedures were effective as of March 31, 2022 at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting (as such term as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See the “Legal Proceedings” section of Note 8 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, 2021. 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)
None.
(b)
None.
(c)
None.
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Item 6. Exhibits
Exhibit Number |
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Description |
10.1 |
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10.2 |
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10.3 |
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10.4 |
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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.
† Identifies each management contract or compensatory plan or arrangement.
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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 5, 2022 |
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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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