agilon health(AGL) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated financial statements for Q2 and YTD 2024 show significant revenue growth from increased membership, alongside widening net losses due to higher medical services expenses Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $109,490 | $107,570 | | Receivables, net | $1,437,040 | $942,461 | | Total assets | $2,163,315 | $1,740,866 | | Medical claims and related payables | $1,097,664 | $737,724 | | Total liabilities | $1,487,448 | $1,079,845 | | Total stockholders' equity (deficit) | $675,867 | $661,021 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $1,482,758 | $1,069,115 | $3,087,112 | $2,123,427 | | Medical services expense | $1,374,060 | $932,823 | $2,817,902 | $1,830,395 | | Income (loss) from operations | ($43,344) | ($28,957) | ($50,522) | ($28,540) | | Net income (loss) | ($30,662) | ($16,795) | ($36,696) | ($836) | | Net income (loss) per share, diluted | ($0.07) | ($0.04) | ($0.07) | ($0.01) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($66,493) | ($82,015) | | Net cash provided by (used in) investing activities | $69,655 | ($30,782) | | Net cash provided by (used in) financing activities | ($1,155) | ($193,698) | Note 1: Business agilon health empowers physician groups with a Medicare-centric, globally capitated model, serving 512,800 Medicare Advantage members and expanding into new markets and CMS ACO models in 2024 - As of June 30, 2024, the company provided care to approximately 512,800 Medicare Advantage members through its contracted physician networks[19] - On January 1, 2024, the company expanded operations into Lexington, Kentucky, and Augusta, Georgia, and added partnerships in existing markets, also beginning participation in the Medicare Shared Savings Program (MSSP)[19] Note 3: Revenue, Receivables, and Concentration of Credit Risk Revenue from PMPM capitation fees is concentrated among major payors and subject to CMS risk adjustment, with Q2 2024 seeing a $55.9 million reduction due to contract terminations Revenue Concentration by Major Payor | Payor | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Payor A | 22% | 23% | 22% | 21% | | Payor B | 19% | 15% | 17% | 16% | - During Q2 2024, the termination of certain payor contracts, retroactively effective to January 1, 2024, led to a $55.9 million reduction in medical services revenue[36] Note 6: Medical Claims and Related Payables Medical claims and related payables, including IBNR, are actuarially estimated, with current year incurred costs of approximately $2.8 billion and a $15.1 million favorable prior-year development for the six months ended June 30, 2024 Changes in Medical Claims and Related Payables (in thousands) | Description | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Beginning Balance | $723,071 | $339,748 | | Incurred costs - Current year | $2,802,803 | $1,790,634 | | Incurred costs - Prior years | $15,099 | $39,761 | | Claims paid - Current year | ($1,806,692) | ($774,743) | | Claims paid - Prior years | ($650,106) | ($304,682) | | Ending Balance | $1,084,175 | $1,086,960 | - In Q2 2024, the termination of certain payor contracts resulted in a $54.3 million reduction in medical services expense, retroactive to January 1, 2024[52] Note 8: Debt As of June 30, 2024, the company's credit facility had $36.2 million outstanding on its term loan at a 9.376% effective interest rate, with $51.4 million available under the revolving facility - As of June 30, 2024, the company had $36.2 million outstanding under its Secured Term Loan Facility[58] - Availability under the $100.0 million Secured Revolving Facility was $51.4 million, as $48.6 million was utilized for outstanding letters of credit[58] - The effective interest rate on the Secured Term Loan Facility was 9.376% as of June 30, 2024[59] Note 9: Commitments and Contingencies Three putative class action lawsuits filed in early 2024 allege securities fraud regarding medical utilization and financial metrics, with the potential financial impact currently inestimable due to early litigation stages - Three putative class action lawsuits were filed against the company and certain executives in February and March 2024, alleging securities fraud under the Securities Act of 1933 and the Securities Exchange Act of 1934[63] - The lawsuits pertain to statements made between April 2021 and February 2024 regarding medical utilization, claims rates, medical margin, and profit margins, with the company unable to estimate potential liability[63] Note 14: Variable Interest Entities The company consolidates 34 wholly-owned risk-bearing entities as VIEs, holding $1.60 billion in assets and $1.36 billion in liabilities as of June 30, 2024, and also invests in 11 unconsolidated CMS ACO Model VIEs - The company consolidates 34 wholly-owned risk-bearing entities (RBEs) as VIEs, as it is deemed the primary beneficiary[76][79] CMS ACO Models Equity Method Investment Operating Results (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Medical services revenue | $446,914 | $280,820 | $887,074 | $561,349 | | Medical services expense | ($406,921) | ($241,844) | ($805,713) | ($499,321) | | Net income (loss) | $9,921 | $8,426 | $15,552 | $9,760 | Note 15: Discontinued Operations Hawaii operations, including MDX Hawaii, Inc., are reported as discontinued following their October 2023 disposition, resulting in a $9.3 million net loss for the six months ended June 30, 2024, primarily from asset sale losses - The disposition of MDX Hawaii, Inc. and related operations was completed on October 31, 2023, and is reflected as discontinued operations for all periods presented[85] Results of Discontinued Operations (in thousands) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Total revenues | $0 | $161,772 | | Gain (loss) on sales of assets, net | ($8,763) | $0 | | Net income (loss) from discontinued operations | ($9,281) | $5,239 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses significant Q2 and YTD 2024 membership and revenue growth, offset by increased medical expenses leading to declines in gross profit, medical margin, and Adjusted EBITDA, and a larger net loss, while affirming sufficient liquidity for the next 12 months Overview and Recent Developments The company's Q2 2024 revenue grew 39% to $1.5 billion with 38% MA member growth, but medical margin decreased to $106 million, resulting in a $31 million net loss Q2 2024 Financial Highlights vs. Q2 2023 | Metric | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Medicare Advantage members | ~512,800 | Not specified in summary | | Total revenue | $1.5 billion | Not specified in summary | | Medical margin | $106 million | $134 million | | Net loss | $31 million | $17 million | | Adjusted EBITDA | ($3 million) | $12 million | YTD 2024 Financial Highlights vs. YTD 2023 | Metric | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | | Total revenue | $3.1 billion | Not specified in summary | | Medical margin | $263 million | $290 million | | Net loss | $37 million | $1 million | | Adjusted EBITDA | $26 million | $37 million | Key Financial and Operating Metrics For the six months ended June 30, 2024, MA members grew 38% and medical services revenue increased 45% to $3.1 billion, but gross profit, medical margin, and Adjusted EBITDA declined by 16%, 9%, and 28% respectively Key Metrics Comparison (Six Months Ended June 30) | Metric | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | MA members | 512,800 | 372,800 | 38% | | Medical services revenue (in thousands) | $3,080,774 | $2,120,353 | 45% | | Gross profit (in thousands) | $107,263 | $127,699 | (16)% | | Medical margin (in thousands) | $262,872 | $289,958 | (9)% | | Net loss (in thousands) | ($36,696) | ($836) | (4,289)% | | Adjusted EBITDA (in thousands) | $26,224 | $36,507 | (28)% | Results of Operations Total revenues for the first six months of 2024 increased 45% to $3.1 billion due to membership and PMPM rate growth, but medical services expense grew 54%, leading to decreased gross profit and an increased operating loss - Medical Services Revenue (YTD): Increased 45% to $3.1 billion, primarily due to a 39% growth in average membership and a 4% increase in PMPM capitation rates[130] - Medical Services Expense (YTD): Increased 54% to $2.8 billion, driven by 39% membership growth and an 11% increase in average medical services expense per member[132] - Other Medical Expenses (YTD): Decreased 2% to $161.9 million, as a $22.3 million decline in partner physician incentive expense offset an $18.9 million increase in other provider costs[134] - General and Administrative (YTD): Decreased 2% to $146.0 million, mainly due to reduced investments to support new geography entry[136] Non-GAAP Financial Measures The company utilizes non-GAAP measures, Medical Margin and Adjusted EBITDA, for performance evaluation, reporting $262.9 million and $26.2 million respectively for the six months ended June 30, 2024 Reconciliation of Gross Profit to Medical Margin (in thousands) | Line Item | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Gross profit | $107,263 | $127,699 | | Other operating revenue | ($6,338) | ($3,074) | | Other medical expenses | $161,947 | $165,333 | | Medical margin | $262,872 | $289,958 | Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands) | Line Item | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net income (loss) | ($36,696) | ($836) | | Adjustments | $62,920 | $41,461 | | Adjusted EBITDA | $26,224 | $36,507 | Liquidity and Capital Resources As of June 30, 2024, the company held $116.3 million in cash and $291.6 million in marketable securities, with management affirming sufficient liquidity for the next 12 months despite continued operating losses, and net cash used in operations improving to $66.5 million - As of June 30, 2024, the company had cash, cash equivalents, and restricted cash of $116.3 million and marketable securities of $291.6 million[152] - Management believes existing cash, investments, and available borrowing capacity are sufficient to meet working capital and capital expenditure needs for at least the next 12 months[155] Summary of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($66,493) | ($82,015) | | Net cash provided by (used in) investing activities | $69,655 | ($30,782) | | Net cash used in financing activities | ($1,155) | ($193,698) | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations affecting floating-rate debt and investment income, with a 100 basis point change not expected to materially impact interest expense or marketable securities fair value - The company's main market risk is interest rate changes affecting its floating-rate debt and investment income[170] - A hypothetical 100 basis point change in interest rates would not materially impact interest expense or the fair value of marketable securities[171][172] Controls and Procedures As of June 30, 2024, disclosure controls and procedures were deemed ineffective due to an ongoing material weakness in internal control over financial reporting, with no new material changes identified during the quarter - The CEO and CFO concluded that disclosure controls and procedures were not effective as of June 30, 2024, due to a previously disclosed material weakness in internal control over financial reporting[173] - Efforts to remediate the material weakness are ongoing, and no changes occurred in the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[175] PART II. OTHER INFORMATION Legal Proceedings Legal proceedings information, including ongoing putative class action lawsuits, is incorporated by reference from Note 9 of the Condensed Consolidated Financial Statements - Details on legal proceedings are provided in Note 9 to the Condensed Consolidated Financial Statements[177] Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023 - No material changes have been made to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023[178] Other Information Effective August 1, 2024, Veeral Desai resigned as Chief Strategy and Development Officer to transition into a strategic advisor role focusing on future growth and payor strategies - Effective August 1, 2024, Veeral Desai resigned as Chief Strategy and Development Officer and transitioned to a strategic advisor role[182]