agilon health, inc. [AGL] Filings

10-Q 1 agl-20230930.htm 10-Q agl-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________________________

FORM 10-Q

_______________________________________________________

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2023


o			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 001-40332

_______________________________________________________

agilon health, inc.

(Exact name of registrant as specified in its charter)


Delaware			37-1915147
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

6210 E Hwy 290, Suite 450

Austin, TX 78723

(Address of principal executive offices)

(562) 256-3800

(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
Common stock, $0.01 par value	AGL	New York Stock Exchange

_______________________________________________________

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. Yes x NO o

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). Yes x No o

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

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging Growth Company

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES o NO x

At October 27, 2023, there were 406,040,924 shares of the registrant’s $0.01 par value common stock outstanding.

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agilon health, inc.

INDEX


PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022	3

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022	4

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2023 and 2022	5

	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three and Nine Months Ended September 30, 2023 and 2022	6

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022	8

	Notes to the Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

Item 4.	Controls and Procedures	37

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	39

Item 1A.	Risk Factors	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 5 .	Other Information	39

Item 6.	Exhibits	40

Signatures		41

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

agilon health, inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)


	September 30, 2023		December 31, 2022
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	168,339	$	497,070
Restricted cash and equivalents	10,204		10,610
Marketable securities	395,878		411,901
Receivables, net	1,345,711		497,574
Prepaid expenses and other current assets	36,512		34,119
Total current assets	1,956,644		1,451,274
Property and equipment, net	26,203		20,050
Intangible assets, net	92,657		67,680
Goodwill	62,387		41,540
Other assets, net	140,184		116,924
Total assets	$	2,278,075	$	1,697,468
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Medical claims and related payables	$	1,005,762	$	346,727
Accounts payable and accrued expenses	290,563		183,364
Current portion of long-term debt	5,000		5,000
Total current liabilities	1,301,325		535,091
Long-term debt, net of current portion	34,780		38,482
Other liabilities	70,370		83,286
Total liabilities	1,406,475		656,859

Commitments and contingencies

Stockholders' equity (deficit):
Common stock, $0.01 par value: $2,000,000 shares authorized; 405,980 and 412,385 shares issued and outstanding, respectively	4,060		4,124
Additional paid-in capital	1,970,930		2,106,886
Accumulated deficit	(1,096,393)		(1,064,230)
Accumulated other comprehensive income (loss)	(6,230)		(5,560)
Total agilon health, inc. stockholders' equity (deficit)	872,367		1,041,220
Noncontrolling interests	(767)		(611)
Total stockholders’ equity (deficit)	871,600		1,040,609
Total liabilities and stockholders’ equity (deficit)	$	2,278,075	$	1,697,468

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 $1.48 billion and $703.30 million as of September 30, 2023 and December 31, 2022, respectively, and total liabilities of the Company’s consolidated VIEs for which creditors do not have recourse to the general credit of the primary beneficiary of $1.23 billion and $462.40 million as of September 30, 2023 and December 31, 2022, respectively. See Note 14 for additional details.

See accompanying Notes to the Condensed Consolidated Financial Statements.

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agilon health, inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues:
Medical services revenue	$	1,212,132	$	693,934	$	3,494,006	$	2,015,541
Other operating revenue	3,528		924		6,853		2,896
Total revenues	1,215,660		694,858		3,500,859		2,018,437
Expenses:
Medical services expense	1,104,396		618,287		3,085,957		1,771,635
Other medical expenses	80,787		50,659		249,936		144,512
General and administrative (including noncash stock-based compensation expense of $20,736, $7,907, $53,980 and $18,430, respectively)	74,138		51,980		222,483		143,738
Depreciation and amortization	5,310		3,450		15,014		9,865
Total expenses	1,264,631		724,376		3,573,390		2,069,750
Income (loss) from operations	(48,971)		(29,518)		(72,531)		(51,313)
Other income (expense):
Income (loss) from equity method investments	14,659		(4,314)		24,507		3,473
Other income (expense), net	5,690		4,888		21,001		6,367
Gain (loss) on lease terminations	—		—		—		(5,458)
Interest expense	(1,651)		(1,000)		(4,772)		(2,816)
Income (loss) before income taxes	(30,273)		(29,944)		(31,795)		(49,747)
Income tax benefit (expense)	(1,210)		(559)		(524)		(1,068)
Income (loss) from continuing operations	(31,483)		(30,503)		(32,319)		(50,815)
Discontinued operations:
Income (loss) before income taxes	—		(224)		—		526
Income tax benefit (expense)	—		(12)		—		(26)
Total discontinued operations	—		(236)		—		500
Net income (loss)	(31,483)		(30,739)		(32,319)		(50,315)
Noncontrolling interests’ share in (earnings) loss	47		71		156		228
Net income (loss) attributable to common shares	$	(31,436)	$	(30,668)	$	(32,163)	$	(50,087)

Net income (loss) per common share, basic and diluted
Continuing operations	$	(0.08)	$	(0.07)	$	(0.08)	$	(0.12)
Discontinued operations	$	—	$	—	$	—	$	—
Weighted average shares outstanding
Basic	405,787		411,065		412,077		406,823
Diluted	405,787		411,065		412,077		406,823

See accompanying Notes to the Condensed Consolidated Financial Statements.

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agilon health, inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income (loss)	$	(31,483)	$	(30,739)	$	(32,319)	$	(50,315)
Other comprehensive income (loss):
Net unrealized gain (loss) on marketable securities, net of tax	114		(5,611)		(758)		(5,098)
Foreign currency translation adjustment	25		—		88		—
Total comprehensive income (loss)	(31,344)		(36,350)		(32,989)		(55,413)
Comprehensive (income) loss attributable to noncontrolling interests	47		71		156		228
Total comprehensive income (loss) attributable to agilon health, inc.	$	(31,297)	$	(36,279)	$	(32,833)	$	(55,185)

See accompanying Notes to the Condensed Consolidated Financial Statements.

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agilon health, inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)

(unaudited)

For the three months ended September 30, 2023:


	Total Stockholders’ Equity
	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (loss)		Noncontrolling Interest		Total Stockholders’ Equity (Deficit)
	Shares	Amount
July 1, 2023	405,427	$	4,054	$	1,947,438	$	(1,064,957)	$	(6,369)	$	(720)	$	879,446
Net income (loss)	—	—		—		(31,436)		—		(47)		(31,483)
Other comprehensive income (loss)	—	—		—		—		139		—		139
Exercise of stock options	424	5		2,718		—		—		—		2,723
Vesting of restricted stock units	132	1		(1)		—		—		—		—
Shares withheld related to net share settlement	(3)	—		(63)		—		—		—		(63)
Common stock repurchase	—	—		102		—		—		—		102
Stock-based compensation expense	—	—		20,736		—		—		—		20,736
September 30, 2023	405,980	$	4,060	$	1,970,930	$	(1,096,393)	$	(6,230)	$	(767)	$	871,600

For the three months ended September 30, 2022:


	Total Stockholders’ Equity
	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (loss)		Noncontrolling Interest		Total Stockholders’ Equity (Deficit)
	Shares	Amount
July 1, 2022	408,204	$	4,082	$	2,076,329	$	(977,096)	$	513	$	(457)	$	1,103,371
Net income (loss)	—	—		—		(30,668)		—		(71)		(30,739)
Other comprehensive income (loss)	—	—		—		—		(5,611)		—		(5,611)
Exercise of stock options	3,390	33		10,356		—		—		—		10,389
Vesting of restricted stock units	149	2		(2)		—		—		—		—
Shares withheld related to net share settlement	(2)	—		(28)		—		—		—		(28)
Stock-based compensation expense	—	—		7,907		—		—		—		7,907
September 30, 2022	411,741	$	4,117	$	2,094,562	$	(1,007,764)	$	(5,098)	$	(528)	$	1,085,289

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agilon health, inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)

(unaudited)

For the nine months ended September 30, 2023:


	Total Stockholders’ Equity
	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (loss)		Noncontrolling Interest		Total Stockholders’ Equity (Deficit)
	Shares	Amount
January 1, 2023	412,385	$	4,124	$	2,106,886	$	(1,064,230)	$	(5,560)	$	(611)	$	1,040,609
Net income (loss)	—	—		—		(32,163)		—		(156)		(32,319)
Other comprehensive income (loss)	—	—		—		—		(670)		—		(670)
Exercise of stock options	2,691	27		13,241		—		—		—		13,268
Vesting of restricted stock units	584	6		(6)		—		—		—		—
Shares withheld related to net share settlement	(65)	(1)		(1,805)		—		—		—		(1,806)
Common stock repurchase	(9,615)	(96)		(201,366)		—		—		—		(201,462)
Stock-based compensation expense	—	—		53,980		—		—		—		53,980
September 30, 2023	405,980	$	4,060	$	1,970,930	$	(1,096,393)	$	(6,230)	$	(767)	$	871,600

For the nine months ended September 30, 2022:


	Total Stockholders’ Equity
	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (loss)		Noncontrolling Interests		Total Stockholders’ Equity (Deficit)
	Shares	Amount
January 1, 2022	400,095	$	4,001	$	2,045,572	$	(957,677)	$	—	$	(300)	$	1,091,596
Net income (loss)	—	—		—		(50,087)		—		(228)		(50,315)
Other comprehensive income (loss)	—	—		—		—		(5,098)		—		(5,098)
Exercise of stock options	11,392	113		31,349		—		—		—		31,462
Vesting of restricted stock units	289	3		(3)		—		—		—		—
Shares withheld related to net share settlement	(35)	—		(786)		—		—		—		(786)
Stock-based compensation expense	—	—		18,430		—		—		—		18,430
September 30, 2022	411,741	$	4,117	$	2,094,562	$	(1,007,764)	$	(5,098)	$	(528)	$	1,085,289

See accompanying Notes to the Condensed Consolidated Financial Statements.

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agilon health, inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net income (loss)	$	(32,319)	$	(50,315)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	15,014		9,865
Stock-based compensation expense	53,980		18,430
Loss (income) from equity method investments	(24,507)		(3,473)
Other noncash items	(1,511)		4,261
Changes in operating assets and liabilities	(105,690)		(59,617)
Net cash provided by (used in) operating activities	(95,033)		(80,849)
Cash flows from investing activities:
Purchase of property and equipment, net	(11,898)		(11,937)
Purchase of intangible assets	(3,535)		(12,415)
Investment in loans receivable and other	(8,778)		(4,510)
Investments in marketable securities	(107,020)		(423,183)
Proceeds from maturities and sales of marketable securities and other	133,894		15,127
Net cash paid in business combination	(44,479)		—
Proceeds from sale of business and property, net of cash divested	—		500
Net cash provided by (used in) investing activities	(41,816)		(436,418)
Cash flows from financing activities:
Proceeds from equity issuances, net	11,462		30,676
Common stock repurchase	(200,000)		—
Repayments of long-term debt	(3,750)		(3,750)
Net cash provided by (used in) financing activities	(192,288)		26,926
Net increase (decrease) in cash, cash equivalents and restricted cash and equivalents	(329,137)		(490,341)
Cash, cash equivalents and restricted cash and equivalents, beginning of period	507,680		1,054,820
Cash, cash equivalents and restricted cash and equivalents, end of period	$	178,543	$	564,479

See accompanying Notes to the Condensed Consolidated Financial Statements.

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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 September 30, 2023, the Company, through its contracted physician networks, provided care to approximately 420,300 Medicare Advantage members enrolled with private health plans. Beginning January 1, 2023, the Company expanded its operations into: (i) Portland, Maine, (ii) St. Paul, Minnesota, (iii) Detroit, Michigan, (iv) Charleston, South Carolina; (v) Statesville, North Carolina; and (vi) Jackson, Tennessee, along with additional partnerships in the Company’s existing Texas markets.

See Note 14 for additional discussions related to the Company’s involvement with VIEs.

The Company’s largest shareholder is an investment fund associated with Clayton Dubilier & Rice, LLC (“CD&R”), a private equity firm. All funds affiliated with CD&R are considered related parties.

Subsequent Events

On October 27, 2023, the Company entered into a definitive agreement to sell MDX Hawaii, Inc. (“MDX Hawaii”), a wholly-owned subsidiary, and its related operations. Acquired by agilon in 2016, MDX Hawaii is a provider network with fully-delegated risk contracts and management services organization capabilities, including claims processing and utilization management. The sale of MDX Hawaii and its related operations closed on October 31, 2023.


NOTE 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The condensed consolidated financial statements include the accounts of agilon health, inc., its wholly-owned subsidiaries, and both joint ventures and VIEs that it controls through voting rights or other means. Intercompany transactions and balances have been eliminated upon consolidation. All adjustments (consisting of normal recurring adjustments unless otherwise indicated), which the Company considers necessary to present fairly its financial position, results of operations, and cash flows, have been included. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The accompanying condensed consolidated financial information should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Use of Estimates

Management is required to make estimates and assumptions in the preparation of financial statements. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates can include, among other things, those used to determine revenues and related receivables from risk adjustments, medical services expense and related payables (including the reserve for incurred but not reported (“IBNR”) claims), and valuation of long-lived assets, goodwill and intangible assets (acquired in business combinations and analysis of impairment). Management’s estimates for revenue recognition, medical services expense, and other estimates, judgments, and assumptions, may be materially and adversely different from actual results. These estimates are based on knowledge of current events and anticipated future events, and accordingly, actual results may ultimately differ materially from those estimates.

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Property and Equipment

As of September 30, 2023 and December 31, 2022, the Company’s gross carrying amount of property and equipment was $38.6 million and $29.5 million, with accumulated depreciation of $12.4 million and $9.4 million, respectively. For the three months ended September 30, 2023 and 2022, the Company recognized $2.1 million and $1.4 million, respectively, in depreciation expense, which is included in depreciation and amortization expense in the condensed consolidated statements of operations. For the nine months ended September 30, 2023 and 2022, the Company recognized $5.6 million and $2.7 million, respectively, in depreciation expense, which is included in depreciation and amortization expense in the condensed consolidated statements of operations.

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 (“ASC 606”), to stand ready on a monthly basis to provide all aspects of necessary medical care to members for the contracted period. The Company recognizes revenue in the month in which eligible members are entitled to receive healthcare benefits during the contract term.

The transaction price for the Company’s capitation contracts is variable, as the PMPM fees to which the Company is entitled are subject to periodic adjustment under CMS’s risk adjustment payment methodology. CMS deploys a risk adjustment model that determines premiums paid to all payors according to each member’s health status and certain demographic factors. Under this risk adjustment methodology, CMS calculates the risk adjusted premium payment using diagnosis data from various settings. The Company and healthcare providers collect and submit the necessary and available diagnosis data to payors and such data is utilized by the Company to estimate risk adjustment payments to be received in subsequent periods. Risk adjustment-related revenues are estimated using the most likely amount methodology and amounts are only included in revenue to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved. PMPM fees are also subject to adjustment for incentives or penalties based on the achievement of certain quality metrics defined in the Company’s contracts with payors. The Company recognizes incentive revenue as earned using the most likely amount methodology and only to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved.

Neither the Company nor any of its affiliates is a registered insurance company because state law in the states in which it operates does not require such registration for risk-bearing providers.

Receivables

Receivables primarily consist of amounts due under capitation contracts with various payors. Receivables due under capitation contracts are recorded monthly based on reports received from payors and management’s estimate of risk

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adjustment payments to be received in subsequent periods for open performance years. Receivables are recorded at the amount expected to be realized.

Concentration

The Company contracts with various payors whereby the Company is entitled to monthly PMPM fees to provide a defined range of healthcare services for members attributed to its contracted primary care physicians. The Company generally accepts full financial risk for such members and therefore is responsible for the cost of all healthcare services required by them. Substantially all of the Company’s receivable balances are from a small number of payors. Revenue from Medicare Advantage payors constitutes substantially all of the Company’s total revenue for the three and nine months ended September 30, 2023 and 2022.

The following table provides the Company’s revenue concentration with respect to major payors as a percentage of the Company’s total revenues:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Payor A	24	%	26	%	24	%	25	%
Payor B	14	%	19	%	15	%	19	%
Payor C	18	%	14	%	17	%	14	%

Payor F	10	%	*		10	%	*

___________________________________________

*Less than 10% of total revenues.

The following table provides the Company’s concentration of credit risk with respect to major payors as a percentage of receivables, net:


	September 30, 2023		December 31, 2022
Payor A	*		13	%
Payor B	18	%	20	%
Payor C	12	%	10	%
Payor D	*		10	%
Payor E	*		11	%
Payor F	26	%	*

___________________________________________

*Less than 10% of total receivables.


NOTE 4. Marketable Securities and Fair Value Measurements

Marketable Securities

The following table summarizes the Company’s marketable securities (in thousands):


	September 30, 2023								December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Marketable securities:
Corporate debt securities	$	241,723	$	—	$	(3,515)	$	238,208	$	255,613	$	60	$	(3,240)	$	252,433
U.S. Treasury notes	150,473		—		(2,751)		147,722		151,873		—		(2,306)		149,567
Other	10,000		—		(52)		9,948		9,975		—		(74)		9,901
	$	402,196	$	—	$	(6,318)	$	395,878	$	417,461	$	60	$	(5,620)	$	411,901

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At September 30, 2023 and December 31, 2022, marketable securities of $373.3 million and $407.4 million, respectively, were in an unrealized loss position for less than twelve months. The Company’s unrealized losses from marketable securities as of September 30, 2023 and December 31, 2022 were caused primarily by interest rate increases. The Company does not intend to sell marketable securities that are in an unrealized loss position, and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity. Therefore, the Company believes these losses to be temporary. There was no allowance for credit losses on available-for-sale marketable securities at September 30, 2023 and December 31, 2022.

The following table summarizes the Company’s marketable securities maturity as of September 30, 2023 (in thousands):


Year	Amortized Cost		Fair Value
2023	$	27,922	$	27,826
2024	155,006		153,241
2025	183,796		179,855
2026	35,472		34,956
	$	402,196	$	395,878

Fair Value Measurements

The Company’s financial instruments consist of cash and cash equivalents, restricted cash and cash equivalents, marketable securities, receivables, other liabilities, accounts payable, certain accrued expenses, and borrowings which consist of a term loan and a revolving credit facility. The carrying values of the financial instruments classified as current in the consolidated balance sheets approximate their fair values due to their short-term maturities. The Company's cash and cash equivalents are classified within Level 1 of the fair value hierarchy. The Company may be required, from time to time, to measure its loans to physician partner groups, primarily in connection with taxes payable on shares distributed to them upon completion of the initial public offering ("IPO"), at fair value on a nonrecurring basis. Such measurements are classified within Level 2 of the fair value hierarchy. The carrying values of the term loan and revolving credit facility are a reasonable estimate of fair value because the interest rates on such borrowings approximate market rates as of the reporting date. Such borrowings are classified within Level 2 of the fair value hierarchy. During the three and nine months ended September 30, 2023 and 2022, there were no material transfers of financial assets or liabilities within the fair value hierarchy.

The Company measures and discloses the fair value of nonfinancial and financial assets and liabilities utilizing a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These inputs have created the following fair value hierarchy:

•Level 1—quoted prices for identical instruments in active markets;

•Level 2—quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

•Level 3—fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

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The table below summarizes the Company’s financial instruments measured at fair value on a recurring basis (in thousands):


	September 30, 2023						December 31, 2022
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Marketable securities:
Corporate debt securities	$	—	$	238,208	$	—	$	—	$	252,433	$	—
U.S. Treasury notes	147,722		—		—		149,567		—		—
Other	9,948		—		—		9,901		—		—
	$	157,670	$	238,208	$	—	$	159,468	$	252,433	$	—


NOTE 5. Other Assets, net

The following table summarizes the Company’s other assets, net (in thousands):


	September 30, 2023		December 31, 2022
Loans to physician partners	$	70,475	$	69,383
Health plan deposits	12,051		11,728
Equity method investments(1)	39,170		17,352
Right-of-use lease assets	14,594		13,029
Other	3,894		5,432
	$	140,184	$	116,924

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(1)See Note 14 for additional discussion related to the Company's equity method investments.

Loans to Physician Partners

Loans to physician partners primarily represent loans in connection with taxes payable on shares distributed to them in connection with the IPO. These loans mature between 2026 and 2031 with nominal interest compounding annually and no prepayment penalties. Such loans are stated at the amount expected to be collected.


NOTE 6. Medical Claims and Related Payables

Medical services expense represents costs incurred for medical services provided to members by physicians, hospitals and other ancillary providers for which the Company is financially responsible and that are paid either directly by the Company or by payors with whom the Company has contracted. Medical services expenses are recognized in the period in which services are provided and include estimates of claims that have been incurred but have either not yet been received, processed, or paid and as such, not reported.

Such estimates are developed using actuarial methods commonly used by health insurance actuaries that include a number of factors and assumptions including medical service utilization trends, changes in membership, observed medical cost trends, historical claim payment patterns and other factors. Generally, for the most recent months, the Company estimates claim costs incurred by applying observed medical cost trend factors to the average PMPM medical costs incurred in prior months for which more complete claims data are available.

Each period, the Company re-examines previously established medical claims payable estimates based on actual claim submissions and other changes in facts and circumstances. As more complete claims information becomes available, the Company adjusts its estimates and recognizes those changes in estimates in the period in which the change is identified. The difference between the estimated liability and the actual settlements of claims is recognized in the period the claims are settled. The Company’s medical claims payable balance represents management’s best estimate of its liability for unpaid medical costs as of September 30, 2023 and 2022. The Company uses judgment to determine the appropriate assumptions for developing the required estimates.

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The following table presents the components of changes in medical claims and related payables (in thousands):


	September 30,
	2023		2022
Medical claims and related payables, beginning of the year	$	339,748	$	239,014
Components of incurred costs related to:
Current year	3,032,501		1,756,943
Prior years	53,456		14,692
Discontinued operations - prior years	—		—
	3,085,957		1,771,635
Claims paid related to:
Current year	(2,046,004)		(1,283,242)
Prior years	(387,161)		(236,413)
Discontinued operations - prior years	—		(154)
	(2,433,165)		(1,519,809)
Medical claims and related payables, end of the period	$	992,540	$	490,840

Medical claims and related payables also include $13.2 million and $7.0 million, as of September 30, 2023 and December 31, 2022, respectively, that is recoverable from other parties under risk sharing arrangements and is presented as prepaid expenses and other current assets, net in the condensed consolidated balance sheets. 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.


NOTE 7. Other Liabilities

The following table summarizes the Company’s other liabilities (in thousands):


	September 30, 2023		December 31, 2022
Other long-term contingencies	$	49,523	$	62,931
Lease liabilities, long-term	11,975		9,885
Equity method liabilities – ACO REACH	—		4,657
Other	8,872		5,813
	$	70,370	$	83,286

As of September 30, 2023 and December 31, 2022, the Company’s accruals for contingent liabilities related to unasserted claims were $49.5 million and $62.9 million, respectively. The accrued amounts represent the Company’s estimate of probable losses in accordance with ASC Topic 450, Contingencies. The Company’s estimate of the range of reasonably possible losses in excess of such accruals was $0 to $69.1 million as of September 30, 2023.

See Note 14 for equity method liabilities related to the Company's ACO REACH investments.


NOTE 8. Debt

On February 18, 2021, the Company executed a credit facility agreement (as amended by the First Amendment to Credit Agreement, dated as of March 1, 2021 and the Second Amendment to Credit Agreement, dated as of May 25, 2023, the “Credit Facilities”). The Credit Facilities include: (i) a $100.0 million 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 $100.0 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

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determined in accordance with a formula tied to repayment of certain of the Company’s indebtedness. The maturity date of the Credit Facilities is February 18, 2026.

As of September 30, 2023, the Company had $40.0 million outstanding under the Secured Term Loan Facility and availability under the Secured Revolving Facility was $32.9 million, as the Company had outstanding letters of credit totaling $67.1 million, of which $37.2 million was for the Company's ACO REACH investments. The standby letters of credit are automatically extended without amendment for one-year periods, unless the Company notifies the institution in advance of the expiration date that the letter will be terminated. No amounts have been drawn on the outstanding letters of credit as of September 30, 2023.

Effective with the Second Amendment to Credit Agreement on May 25, 2023, the Company transitioned to the Secured Overnight Financing Rate ("SOFR") as a benchmark interest rate used in the Credit Agreement. At the Company’s option, borrowings under the agreement can be either: (i) SOFR Rate Loans, (ii) Daily Simple SOFR Rate Loans, or (iii) Base Rate Loans. Daily Simple SOFR Rate Loans and SOFR 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) SOFR, 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, the Company pays 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). The Company must also pay customary letter of credit fees. As of September 30, 2023, the effective interest rate on the Secured Term Loan Facility was 9.349%.

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. Failure to meet any of these covenants could result in an event of default under the agreement. If an event of default occurs, the lenders could elect to declare all amounts outstanding under the agreement to be immediately due and payable. As of September 30, 2023, the Company was in compliance with all covenants under the Credit Facilities.


NOTE 9. Commitments and Contingencies

Legal Proceedings

From time to time, the Company is a party to, or has a significant relationship to, legal proceedings, lawsuits, and other claims. The Company is not aware of any legal proceedings or claims that it believes may have, individually or taken together, a material adverse effect on the Company’s financial condition, results of operations or cash flows. The Company’s policy is to expense legal costs as they are incurred.


NOTE 10. Common Stock

Common Stock

2023. During the three months ended September 30, 2023, the Company issued approximately 0.6 million shares of common stock primarily in connection with exercises and vesting of stock-based awards. During the nine months ended September 30, 2023, the Company issued approximately 3.2 million shares of common stock primarily in connection with exercises and vesting of stock-based awards.

On May 18, 2023, the Company repurchased and retired 9.6 million shares of common stock pursuant to an underwritten secondary public offering of 94.6 million shares of its common stock by CD&R. The Company paid approximately $20.80 per share, which is the same per share price paid by the underwriters to CD&R in the offering.

2022. During the three months ended September 30, 2022, the Company issued approximately 3.5 million shares of common stock primarily in connection with exercises and vesting of stock-based awards. During the nine months ended September 30, 2022, the Company issued approximately 11.6 million shares of common stock primarily in connection with exercises and vesting of stock-based awards.

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NOTE 11. Net Income (Loss) Per Common Share

Basic net income (loss) per common share (“EPS”) is computed based upon the weighted average number of common shares outstanding. Diluted net income (loss) per common share is computed based upon the weighted average number of common shares outstanding plus the impact of common shares issuable from the assumed conversion of stock options, certain performance restricted stock units, and unvested restricted stock units. Only those instruments having a dilutive impact on basic net income (loss) per share are included in diluted net income (loss) per share during the periods presented.

The following table illustrates the computation of basic and diluted EPS (in thousands, except per share amounts):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Numerator
Income (loss) from continuing operations	$	(31,483)	$	(30,503)	$	(32,319)	$	(50,815)
Noncontrolling interests’ share in (earnings) loss from continuing operations	47		71		156		228
Net income (loss) attributable to common stockholders before discontinued operations	(31,436)		(30,432)		(32,163)		(50,587)
Income (loss) from discontinued operations	—		(236)		—		500
Net income (loss) attributable to common stockholders	$	(31,436)	$	(30,668)	$	(32,163)	$	(50,087)
Denominator
Weighted average shares outstanding – basic	405,787		411,065		412,077		406,823
Weighted average shares outstanding – diluted	405,787		411,065		412,077		406,823
Net income (loss) per share attributable to common stockholders
Net income (loss) per common share from continuing operations, basic and diluted	$	(0.08)	$	(0.07)	$	(0.08)	$	(0.12)
Net income (loss) per common share from discontinued operations, basic and diluted	$	—	$	—	$	—	$	—

The following table provides the weighted-average potential shares of common stock that were excluded from the calculation of diluted net income (loss) per share attributable to common stockholders because their effect would have been anti-dilutive (in thousands):


	September 30,
	2023	2022
Stock options	17,424	20,474
Restricted stock units	9,183	1,908


NOTE 12. Goodwill and Amortizable Intangible Assets

As of September 30, 2023 and December 31, 2022, the Company’s goodwill balance was $62.4 million and $41.5 million, respectively, of which $39.0 million was allocated to the Company’s Hawaii reporting unit. The carrying value of the Hawaii reporting unit was negative as of September 30, 2023 and December 31, 2022. There were no events or circumstances that warranted an interim impairment test for goodwill during the three and nine months ended September 30, 2023.

As of September 30, 2023 and December 31, 2022, the Company’s gross carrying amount of amortizable intangible assets was $165.1 million and $130.8 million, with accumulated amortization of $72.4 million and $63.1 million, respectively. For the three months ended September 30, 2023 and 2022, the Company recognized $3.2 million and $2.1 million, respectively, in amortization expense, which is included in depreciation and amortization expense in the

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condensed consolidated statements of operations. For the nine months ended September 30, 2023 and 2022, the Company recognized $9.4 million and $7.2 million, respectively, in amortization expense, which is included in depreciation and amortization expense in the condensed consolidated statements of operations.

Acquisition

On February 28, 2023, the Company completed the acquisition of My Personal Health Record Express, Inc. (the “Acquisition”), a leading provider of value-based care technology and interoperability solutions for cash consideration of $44.5 million, net of cash acquired and subject to certain post-closing adjustments. The Company accounted for the Acquisition utilizing the acquisition method of accounting, which requires assets and liabilities to be recognized based on estimates of their acquisition date fair values. The determination of the values of the acquired assets and assumed liabilities, including other intangible assets and deferred taxes, requires significant judgment. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, the Company estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Measurement period adjustments are recorded in the period in which they are determined, as if they had been completed at the acquisition date. Upon the conclusion of the final determination of the values of assets acquired or liabilities assumed, or one year after the date of acquisition, whichever comes first, any subsequent adjustments are recorded within the Company's consolidated results of operations. The following preliminary allocation of the purchase price related to the Acquisition based upon the fair value of assets and liabilities assumed included developed technology intangible assets of $25.7 million, customer relationship intangible assets of $1.9 million, and assumed net liabilities of $3.7 million, with the residual amount being recorded as goodwill of $20.6 million. The intangible assets acquired have a weighted-average life of 10 years.


NOTE 13. Supplemental Cash Flow Information

The following table provides supplemental cash flow information (in thousands):


	Nine Months Ended September 30,
	2023		2022
Supplemental cash flow information:
Interest paid	$	4,519	$	2,878
Income taxes paid	5,156		4,223
Supplemental disclosure of non-cash investing and financing activities:
Right-of-use asset obtained in exchange for new operating lease liability	3,612		7,288
Non-cash investment in unconsolidated subsidiaries	—		190

The following table summarizes cash, cash equivalents and restricted cash equivalents from continuing operations (in thousands):


	September 30, 2023		December 31, 2022
Cash and cash equivalents	$	168,339	$	497,070
Restricted cash and equivalents(1)	10,204		10,610
Cash, cash equivalents and restricted cash equivalents	$	178,543	$	507,680

___________________________________________

(1)Restricted cash and equivalents primarily consist of amounts used as collateral to secure letters of credit that the Company is required to maintain pursuant to contracts with payors.

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NOTE 14. Variable Interest Entities

Consolidated Variable Interest Entities

agilon health, inc.’s consolidated assets and liabilities as of September 30, 2023 and December 31, 2022 include certain assets of VIEs that can only be used to settle the liabilities of the related VIE. The VIE creditors do not have recourse to agilon health, inc.

agilon health, inc.’s consolidated assets and liabilities include VIE assets and liabilities as follows (in thousands):


	September 30, 2023		December 31, 2022
Assets
Cash and cash equivalents	$	86,581	$	155,819
Restricted cash equivalents	10,202		10,610
Receivables, net	1,334,394		492,077
Prepaid expenses and other current assets, net	20,781		15,515
Property and equipment, net	1,817		1,567
Intangible assets, net	20,187		17,347
Other assets, net	9,790		10,371
Liabilities
Medical claims and related payables	962,505		300,798
Accounts payable and accrued expenses	259,553		159,526
Other liabilities	4,188		2,059

Risk-bearing Entities. At September 30, 2023, the Company operates 29 wholly-owned risk-bearing entities (“RBEs”) for the purpose of entering into risk-bearing contracts with payors. Each RBE’s equity at risk is considered insufficient to finance its activities without additional support, and, therefore, each RBE is considered a VIE. The Company consolidates the RBEs as it has determined that it is the primary beneficiary because it has: (i) the ability to control the activities that most significantly impact the RBEs’ economic performance; and (ii) the obligation to absorb losses or right to receive benefits that could potentially be significant to the RBEs. Specifically, the Company has the unilateral ability and authority, through the RBE governance and management agreements, to make significant decisions about strategic and operating activities of the RBEs, including negotiating and entering into risk-bearing contracts with payors, and approving the RBEs’ annual operating budgets. The Company also has the obligation to fund losses of the RBEs and the right to receive a significant percentage of any financial surplus generated by the RBEs. The assets of the RBEs primarily consist of cash and cash equivalents, receivables, net, intangible assets, net, and other assets, net; its obligations primarily consist of medical claims and related payables as well as operating expenses of the RBEs (accounts payable and accrued expenses), including incentive compensation obligations to the Company’s physician partners. On February 18, 2021, the Company executed the Credit Facilities, which are guaranteed by certain of the Company’s VIEs. Assets generated by the RBEs (primarily from medical services revenues) may be used, in certain limited circumstances, to settle the Company’s contractual debt obligations.

Unconsolidated Variable Interest Entities

As of September 30, 2023, the Company had nine equity method investments (liabilities) that were deemed to be VIEs. The Company has determined that the activities that most significantly impact the performance of these VIEs consist of the allocation of resources to and other decisions related to clinical activities and provider contracting decisions. Because the Company does not have the ability to control these activities due to another party’s control of the VIEs’ board of directors, the Company has determined that it is not the primary beneficiary of and therefore does not consolidate these VIEs. The Company's maximum loss exposure as a result of the Company’s involvement with the VIEs cannot be quantified as the Company has the obligation to provide ongoing operational support to the unconsolidated VIEs, as needed.

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Equity Method Investments

The following table summarizes the Company’s equity method investments (in thousands):


	September 30, 2023		December 31, 2022
Equity method investments - Other(1)	$	9,114	$	8,329
Equity method investments - ACO REACH(1)	30,056		9,023
Equity method liabilities - ACO REACH(2)	—		(4,657)

___________________________________________

(1)Included in Other assets, net in the condensed consolidated balance sheets.

(2)Included in Other liabilities in the condensed consolidated balance sheets.

The Company is a partner in eight wholly-owned ACO REACH entities in collaboration with 12 of its physician group partners operating in 10 geographies. The combined summarized operating results of the Company’s ACO REACH entities are as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Medical services revenue	$	296,937	$	241,408	$	858,286	$	786,171
Medical services expense	(242,431)		(231,910)		(741,752)		(735,924)
Other medical expenses(1)	(31,970)		(9,215)		(71,138)		(34,019)
Income (loss) from operations	18,330		(3,035)		31,515		6,333
Net income (loss)(2)	14,628		(4,361)		24,388		3,345

___________________________________________

(1)For the three months ended September 30, 2023 and 2022, includes physician incentive expenses of $25.1 million and $2.9 million, respectively. For the nine months ended September 30, 2023 and 2022, includes physician incentive expenses of $51.4 million and $15.0 million, respectively.

(2)Included in Income (loss) from equity method investments in the condensed consolidated statements of operations.

The combined summarized balance sheet of the Company’s ACO REACH entities are as follows (in thousands):


	September 30, 2023		December 31, 2022
Current assets	$	165,257	$	70,625
Noncurrent assets	130		—
Total assets	165,387		70,625
Current and total liabilities	136,285		67,343

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

All references in this report to “agilon,” “the Company”, “we,” “us” or “our” mean agilon health, inc., together with its consolidated subsidiaries. Unless the context suggests otherwise, references to “agilon health, inc.” mean the parent company without its subsidiaries.

Cautionary Language Regarding Forward-Looking Statements

Statements in this Quarterly Report on Form 10-Q (the “Report”) that are not historical factual statements are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Some of the forward-looking statements can be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “shall,” “should,” “would,” “could,” “seeks,” “aims,” “projects,” “is optimistic,” “intends,” “plans,” “estimates,” “anticipates” or the negative versions of these words or other comparable terms. Forward-looking statements include, without limitation, all matters that are not historical facts. They appear in a number of places throughout this Report and include, without limitation, statements regarding our intentions, beliefs, assumptions or current expectations concerning, among other things, our financial position, results of operations, cash flows, prospects, and growth strategies.

Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be outside our control. We caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual performance and outcomes, including, without limitation, our actual results of operations, financial condition and liquidity, and the development of the market in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results of operations, financial condition, and cash flows, and the development of the market in which we operate, are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors, including, without limitation, the risks and uncertainties discussed under Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, could cause actual results and outcomes to differ materially from those reflected in the forward-looking statements. As explained in greater detail under Item 9A. “Controls and Procedures” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, we are undertaking a broad range of remedial procedures to address the material weaknesses in our internal control over financial reporting identified as of December 31, 2022. Our efforts to improve our internal controls are ongoing. Furthermore, new risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Report. Factors that could cause actual results and outcomes to differ from those reflected in forward-looking statements include, without limitation:

•our history of net losses, and our ability to achieve or maintain profitability in an environment of increasing expenses;

•our ability to identify and develop successful new geographies, physician partners and health plan payors, and to execute upon our growth initiatives and achieve required operational scale;

•our ability to execute our operating strategies or to achieve results consistent with our historical performance;

•our expectation that our expenses will increase in the future and the risk that medical expenses incurred on behalf of members may exceed the amount of medical revenues we receive;

•our ability to secure contracts with Medicare Advantage (“MA”) payors and to ensure such contracts are on financial terms sufficient to meet our financial targets;

•our ability to recover startup costs incurred during the initial stages of development of our physician partner relationships and program initiatives;

•our ability to obtain additional capital needed to support our business;

•significant reductions in our membership;

•challenges for our physician partners in the transition to our “Total Care Model”;

•inaccuracies in the estimates and assumptions we use to project the size, revenue or medical expense amounts of our target market;

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•the spread of, and response to, COVID-19, potential new variants of COVID-19 and entirely new pandemics, and the inability to predict the ultimate impact of pandemics on us;

•inaccuracies in the estimates and assumptions we use to project our members’ risk adjustment factors, medical services expense, incurred but not reported claims, and earnings under payor contracts;

•the impact of restrictive or exclusivity clauses in some of our contracts with physician partners that may prohibit us from establishing new risk-bearing entities (each, an “RBE”) within certain geographies in the future;

•the impact of restrictive or exclusivity clauses in some of our contracts with physician partners that may subject us to investigations or litigation;

•our ability to retain our management team and key employees or attract qualified personnel in the future;

•our ability to realize the full value of our intangible assets and any negative impact from impairment charges we may record;

•security breaches, loss of data and other disruptions to our data platforms could adversely impact us;

•our ability to protect the confidentiality of our know-how and other proprietary and internally developed information;

•our responsibility for certain liabilities in connection with the disposition of our California operations;

•our subsidiaries’ lack of performance or ability to fund their operations could require us to fund such losses;

•our dependence on a limited number of key health plan payors;

•our contracts with our payors are for limited terms and may not be renewed upon their expiration;

•our reliance on our health plan payors for membership attribution and assignment, data and reporting accuracy, and claims payment;

•our dependence on physician partners and other providers to effectively manage the quality and cost of care, and perform obligations under payor contracts;

•difficulties in obtaining accurate and complete diagnosis data;

•our dependence on physician partners to accurately, timely and sufficiently document their services and potential regulatory or other liability if any diagnosis information or encounter data are inaccurate or incorrect;

•we rely on third party software and data to operate our business and restrictions on the use of third-party resources could adversely affect us;

•our reliance on third parties for internet infrastructure and bandwidth to operate our business and provide services to our members and physician partners;

•consolidation in our industry could adversely impact us;

•reductions in reimbursement rates or methodology applied to derive reimbursement from, or discontinuation of, federal government healthcare programs, from which we derive substantially all of our total revenue;

•uncertain or adverse economic conditions, including a downturn or decrease in government expenditures, including as a result of an inability or failure by the U.S. federal government to fund Medicare;

•our ability to compete in our industry;

•the impact of government performance standards and benchmarks on our compensation and reputation;

•statutory or regulatory changes, administrative rulings, interpretations of policy, and determinations by intermediaries and governmental funding restrictions, and their impact on government funding, program coverage, and reimbursements;

•regulatory proposals directed at containing or lowering the cost of healthcare and our participation in such proposed models;

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•we, our physician partners or affiliates being subject to federal or state investigations, audits and enforcement actions;

•regulatory inquiries and corrective action plans imposed by our health plan payors;

•repayment obligations arising out of payor audits;

•the impact on our revenue of Centers for Medicare & Medicaid Services’ (“CMS”) modifying the methodology used to determine the revenue associated with MA members;

•negative publicity regarding the managed healthcare industry;

•the extensive regulation of the healthcare industry at the federal, state, and local levels;

•if our physician alignment strategies with our physician partners, including the formation of risk and shared savings pools, making downstream payments and joint venture arrangements, are not in compliance with the state and federal fraud and abuse laws, including physician incentive plan laws and regulations, we could be subject to penalties;

•our business development and member engagement activities may implicate laws and regulations regarding marketing, beneficiary inducements, telemarketing and the use of protected health information;

•our physician partners are subject to federal and state healthcare fraud and abuse regulations;

•our use, disclosure and processing of personally identifiable information, personal health information, and de-identified data is subject to HIPAA and state patient confidentiality laws, and our failure to comply with those regulations or to adequately secure the information we hold could adversely impact us;

•our failure to obtain or maintain an insurance license, a certificate of authority or an equivalent authorization allowing our participation in downstream risk-sharing arrangements with payors could adversely impact us;

•laws regulating the corporate practice of medicine could restrict the manner in which we are permitted to conduct our business, and the failure to comply with such laws, or any changes to such laws or regulations or similar laws or regulations could adversely impact us;

•if we or our physician partners inadvertently employ or contract with an excluded person, we may face government sanctions;

•we may face litigation not covered by insurance;

•our indebtedness and the potential that we may incur additional substantial indebtedness;

•the agreements and instruments governing our indebtedness contain restrictions and limitations that could adversely impact us;

•agilon health is a holding company with no operations of its own, and it depends on its subsidiaries for cash to fund all of its operations and expenses;

•under our Certificate of Incorporation, the CD&R Investor and its affiliates and, in some circumstances, each of our directors and officers who is also a director, officer, employee, member or partner of the CD&R Investor and its affiliates, have no obligation to offer us corporate opportunities;

•anti-takeover provisions in our certificate of incorporation and by-laws could discourage, delay or prevent a change of control of our company and may affect the trading price of our common stock;

•we do not intend to pay dividends on our common stock for the foreseeable future and, consequently, a shareholder’s return on investment depends on appreciation in the price of our common stock;

•our certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or stockholders;

•we identified material weaknesses in our internal control over financial reporting and, if our remedial measures are insufficient to address the material weaknesses, or if significant deficiencies or material weaknesses in our internal control over financial reporting are discovered or occur in the future, it may adversely affect us; and

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•risks related to other factors discussed under “Risk Factors” in Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Except as required by law, we do not undertake, and hereby disclaim, any obligation to update any forward-looking statements, which speak only as of the date on which they are made.

The information set forth in this Item 2 is intended to provide readers with an understanding of our financial condition, changes in financial condition, and results of operations. We will discuss and provide our analysis in the following order:

•Overview and Recent Developments

•Key Financial and Operating Metrics

•Key Components of Our Results of Operations

•Results of Operations

•Non-GAAP Financial Measures

•Liquidity and Capital Resources

•Critical Accounting Policies and Estimates

•Recent Accounting Pronouncements

Overview and Recent Developments

Our business is transforming healthcare by empowering the primary care physicians (“PCPs”) to be the agent for change in the communities they serve. We believe that PCPs, with their intimate patient-physician relationships, are best positioned to drive meaningful change in quality, cost, and patient experience when provided with the right infrastructure and payment model. Through our combination of the agilon platform, a long-term partnership model with existing physician groups and a growing network of like-minded physicians, we are poised to revolutionize healthcare for seniors across communities throughout the United States. Our purpose-built model provides the necessary capabilities, capital, and business model for existing physician groups to create a Medicare-centric, globally capitated line of business. Our model operates by forming RBEs within local geographies, that enter into arrangements with payors providing for monthly payments to manage the total healthcare needs of our physician partners’ attributed patients (or, global capitation arrangements). The RBEs also contract with agilon to perform certain functions and enter into long-term professional service agreements with one or more anchor physician groups pursuant to which the anchor physician groups receive a base compensation rate and share in the savings from successfully improving quality of care and reducing costs.

Our business model is differentiated by its focus on existing community-based physician groups and is built around three key elements: (1) agilon’s platform; (2) agilon’s long-term physician partnership approach; and (3) agilon’s network. With our model, our goal is to remove the barriers that prevent community-based physicians from evolving to a Total Care Model, where the physician is empowered to manage health outcomes and the total healthcare needs of their attributed Medicare patients.

Third Quarter 2023 Results:

•Medicare Advantage members of approximately 420,300 as of September 30, 2023 increased 58% from September 30, 2022.

•ACO REACH attributed beneficiaries of approximately 87,700 as of September 30, 2023 decreased 2% from September 30, 2022.

•Total revenue of $1.22 billion increased 75% from the third quarter of 2022.

•Gross profit of $30 million, compared to $26 million in the third quarter of 2022.

•Medical margin of $108 million, compared to $76 million in the third quarter of 2022.

•Net loss of $31 million, compared to $31 million in the third quarter of 2022.

•Adjusted EBITDA loss of $6 million in the third quarter compared to an Adjusted EBITDA loss of $26 million in the third quarter 2022.

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Year to Date 2023 Results:

•Total revenue of $3.50 billion increased 73% from 2022.

•Gross profit of $165 million, compared to $102 million in 2022.

•Medical margin of $408 million, compared to $244 million in 2022.

•Net loss of $32 million, compared to $50 million in 2022.

•Adjusted EBITDA $28 million compared to an Adjusted EBITDA loss of $20 million in 2022.

Membership Details

Medicare Advantage members increased 58% from September 30, 2022, which includes contributions from new geographies and growth within geographies existing prior to 2023. Total members live on the platform includes 420,300 Medicare Advantage members and 87,700 attributed ACO REACH beneficiaries.

Average Medicare Advantage membership was 425,100 during the third quarter of 2023.

Subsequent Events

On October 27, 2023, we entered into a definitive agreement to sell MDX Hawaii, Inc. (“MDX Hawaii”), a wholly-owned subsidiary, and its related operations. Acquired by agilon in 2016, MDX Hawaii is a provider network with fully-delegated risk contracts and management services organization capabilities, including claims processing and utilization management. The sale of MDX Hawaii and its related operations closed on October 31, 2023.

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					As of and For the
	Three Months Ended September 30,					Nine Months Ended September 30,
	2023		2022		% Change	2023		2022		% Change
MA members	420,300		266,600		58	420,300		266,600		58
Medical services revenue	$	1,212,132	$	693,934	75	$	3,494,006	$	2,015,541	73
Gross profit	$	30,477	$	25,912	18	$	164,966	$	102,290	61
Medical margin(1)	$	107,736	$	75,647	42	$	408,049	$	243,906	67
Platform support costs	$	46,629	$	34,764	34	$	141,176	$	104,868	35
Net income (loss)	$	(31,483)	$	(30,739)	(2)	$	(32,319)	$	(50,315)	36
Adjusted EBITDA(1)	$	(5,777)	$	(25,839)	78	$	28,342	$	(20,473)	238

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(1)Medical margin and Adjusted EBITDA are non-GAAP financial measures. Gross profit is the most directly comparable financial measure calculated in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) to medical margin. Net income (loss) is the most directly comparable financial measure calculated in accordance with U.S. GAAP to Adjusted EBITDA. See “—Non-GAAP Financial Measures" for additional information.

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.

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Medical Services Revenue

Our medical services revenue consists of capitation revenue under contracts with various payors. Under the typical capitation arrangement, we are entitled to per member per month ("PMPM") fees to provide a defined range of healthcare services for MA health plan members through our contracted physician partners and affiliated PCPs. Such fees are typically based on a defined percentage of corresponding premium that payors receive from CMS. We recognize capitation revenue over the period eligible members are entitled to receive healthcare services.

Gross Profit

Gross profit represents the amount earned from total revenues less medical services expense and other medical expenses. Total revenues include medical services revenue and other operating revenue. The Company’s costs of revenues consist of medical services expense and other medical expenses, which represents the costs that are directly related to providing the services that generate revenue.

The following table presents our gross profit (dollars in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Total revenues	$	1,215,660	$	694,858	$	3,500,859	$	2,018,437
Medical services expense	(1,104,396)		(618,287)		(3,085,957)		(1,771,635)
Other medical expenses(1)	(80,787)		(50,659)		(249,936)		(144,512)
Gross profit	$	30,477	$	25,912	$	164,966	$	102,290

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(1)Represents physician compensation expense related to surplus sharing and other care management expenses that help to create medical cost efficiency. Includes costs in geographies that are in implementation and are not yet generating revenue and investments to grow existing markets. For the three months ended September 30, 2023 and 2022, costs incurred in implementing geographies were $10.3 million and $7.2 million, respectively. For the nine months ended September 30, 2023 and 2022, costs incurred in implementing geographies were $20.3 million and $10.9 million, respectively.

Medical Margin

We define medical margin as medical services revenue after medical services expense is 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.

See “—Non-GAAP Financial Measures” for information regarding our use of medical margin and a reconciliation of gross profit to medical margin.

Platform Support Costs

Our platform support costs, which include regionally-based support personnel and other operating costs to support our geographies, are expected to decrease over time as a percentage of revenue as our physician partners add members and our revenue grows. Our operating expenses at the enterprise level include resources and technology to support payor contracting, clinical program development, quality, data management, finance, and legal functions.

The table below represents costs to support our live geographies and enterprise functions, which are included in general and administrative expenses (dollars in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Platform support costs	$	46,629		$	34,764		$	141,176		$	104,868
% of Revenue	4		%	5		%	4		%	5		%

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Net Income (Loss) and Adjusted EBITDA

Net income (loss) is the most directly comparable GAAP measure to Adjusted EBITDA. We define Adjusted EBITDA as net income (loss) adjusted to exclude: (i) income (loss) from discontinued operations, net of income taxes, (ii) interest expense, (iii) income tax expense (benefit), (iv) depreciation and amortization, (v) stock-based compensation expense, (vi) severance and related costs, and (vii) certain other items that are not considered by us in the evaluation of ongoing operating performance. We reflect our share of Adjusted EBITDA for equity method investments by applying our actual ownership percentage for the period to the applicable reconciling items on an entity-by-entity basis.

See “—Non-GAAP Financial Measures” for information regarding our use of Adjusted EBITDA and a reconciliation of net income (loss) to Adjusted EBITDA.

Key Components of Our Results of Operations

Revenues

Medical Services Revenue

Our medical services revenue consists of capitation revenue under contracts with various payors. Under the typical capitation arrangement, we are entitled to PMPM fees to provide a defined range of healthcare services for MA health plan members through our contracted physician partners and affiliated PCPs. Such fees are typically based on a defined percentage of corresponding premium that payors receive from CMS. We recognize capitation revenue over the period eligible members are entitled to receive healthcare services.

Medical services revenue constitutes substantially all of our total revenue for the three and nine months ended September 30, 2023 and 2022.

Operating Expenses

Medical Services Expense

In each of our geographies, a network of physicians, hospitals, and other healthcare providers provide care to our members. Medical services expense represents costs incurred for medical services provided to our members. Our medical services expense trends primarily relate to changes in per visit costs incurred by our members, along with changes in health system and provider utilization of services. Medical services expenses are recognized in the period in which services are provided and include estimates of our obligations for medical services that have been rendered by third parties but for which claims have either not yet been received, processed, or paid.

Other Medical Expenses

Other medical expenses include: (i) partner physician compensation expense and (ii) other provider costs. Partner physician compensation expense represents obligations to our physician partners corresponding to a portion of the surplus generated in our geographies, which is a function of medical services revenues less the sum of medical services expenses, other provider costs and market operating costs, for the respective geography. Physician payment obligations are reconciled quarterly, and settlement payments are typically issued to providers on an annual basis in arrears, with interim payments issued periodically. Other provider costs include payments to support physician-patient engagement, certain other medical costs, and other care management expenses that help to create medical cost efficiency. Other provider costs include costs incurred for geographies that are in implementation and are not yet generating revenue.

General and Administrative

General and administrative expenses consist of market-based support personnel and other operating costs to support our geographies, personnel and other operating costs to support our enterprise functions, and investments to support development and expansion of our physician partners. Our enterprise functions include salaries and related expenses, stock-based compensation (including shares issued under partner physician group equity agreements), operational support expenses, technology infrastructure, finance, and legal, as well as other costs associated with the continued growth of our platform. For the purposes of calculating physician partner incentive expense, we allocate a portion of our enterprise general and administrative expenses to our geographies. General and administrative expenses also include severance and accruals for unasserted claims.

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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)

Income (loss) from equity method investments

Income (loss) from equity method investments consists primarily of income associated with our participation in the ACO REACH program.

Other Income (Expense), Net

Other income (expense), net includes the following items:

•Interest income, which consists primarily of interest earned on our cash and cash equivalents, restricted cash and cash equivalents, and marketable securities, including amortization/accretion of discount/premium.

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.

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Results of Operations

The following table summarizes key components of our results of operations (dollars in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues:
Medical services revenue	$	1,212,132	$	693,934	$	3,494,006	$	2,015,541
Other operating revenue	3,528		924		6,853		2,896
Total revenues	1,215,660		694,858		3,500,859		2,018,437
Expenses:
Medical services expense	1,104,396		618,287		3,085,957		1,771,635
Other medical expenses	80,787		50,659		249,936		144,512
General and administrative (including noncash stock-based compensation expense of $20,736, $7,907, $53,980 and $18,430, respectively)	74,138		51,980		222,483		143,738
Depreciation and amortization	5,310		3,450		15,014		9,865
Total expenses	1,264,631		724,376		3,573,390		2,069,750
Income (loss) from operations	(48,971)		(29,518)		(72,531)		(51,313)
Other income (expense):
Income (loss) from equity method investments	14,659		(4,314)		24,507		3,473
Other income (expense), net	5,690		4,888		21,001		6,367
Gain (loss) on lease terminations	—		—		—		(5,458)
Interest expense	(1,651)		(1,000)		(4,772)		(2,816)
Income (loss) before income taxes	(30,273)		(29,944)		(31,795)		(49,747)
Income tax benefit (expense)	(1,210)		(559)		(524)		(1,068)
Income (loss) from continuing operations	(31,483)		(30,503)		(32,319)		(50,815)
Discontinued operations:
Income (loss) before income taxes	—		(224)		—		526
Income tax benefit (expense)	—		(12)		—		(26)
Total discontinued operations	—		(236)		—		500
Net income (loss)	(31,483)		(30,739)		(32,319)		(50,315)
Noncontrolling interests’ share in (earnings) loss	47		71		156		228
Net income (loss) attributable to common shares	$	(31,436)	$	(30,668)	$	(32,163)	$	(50,087)

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The following table summarizes our results of operations as a percentage of total revenues:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues:
Medical services revenue	100	%	100	%	100	%	100	%
Other operating revenue	—		—		—		—
Total revenues	100		100		100		100
Expenses:
Medical services expense	91		89		88		88
Other medical expenses	7		7		7		7
General and administrative (including noncash stock-based compensation expense of 2%, 1%, 1% and 1%, respectively)	6		7		6		7
Depreciation and amortization	—		—		—		—
Total expenses	104		104		102		102
Income (loss) from operations	(4)		(4)		(2)		(2)
Other income (expense):
Income (loss) from equity method investments	1		(1)		1		—
Other income (expense), net	—		1		1		—
Gain (loss) on lease terminations	—		—

agilon health, inc. [AGL] Filings
10-Q	[2023-11-02]
10-Q	[2023-08-03]
10-Q	[2023-05-09]
10-K	[2023-03-01]
10-Q	[2022-11-03]
10-Q	[2022-08-04]
10-Q	[2022-05-05]
10-K	[2022-03-03]
10-Q	[2021-10-28]
S-1	[2021-08-30]
10-Q	[2021-08-04]
10-Q	[2021-05-26]
S-1	[2021-03-18]