agilon health, inc. - Quarter Report: 2024 September (Form 10-Q)

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*Less than 10% of total receivables.

$ $()$ $ $ $()$ U.S. Treasury notes () () Other () $ $ $()$ $ $ $()$

For the three months ended September 30, 2024, the Company recognized total interest income of $ million, of which $ million was related to its marketable securities investments and $ million was related to interest on cash and cash equivalent balances. For the three months ended September 30, 2023, the Company recognized total interest income of $ million, of which $ million was related to its marketable securities investments and $ million was related to interest on cash and cash equivalent balances. For the nine months ended September 30, 2024, the Company recognized total interest income of $ million, of which $ million was related to its marketable securities investments and $ million was related to interest on cash and cash equivalent balances. For the nine months ended September 30, 2023, the Company recognized total interest income of $ million, of which $ million was related to its marketable securities investments and $ million was related to interest on cash and cash equivalent balances.

$ 2025 2026 $ $ $ $ $ U.S. Treasury notes $ $ $ $

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$ $ $ U.S. Treasury notes Other $ $ $ $

The Company’s unrealized losses from marketable securities as of September 30, 2024 and December 31, 2023 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 maturity. There was allowance for credit losses on available-for-sale marketable securities at September 30, 2024 or December 31, 2023.

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 Company's 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, 2024 and 2023, 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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$ $ $ $ $ U.S. Treasury notes Other $ $ $ $ $ $

$ Health plan deposits

Equity method investments(1)

Right-of-use lease assets Other $ $

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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.

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$ Components of incurred costs related to:Current year Prior years Discontinued operations - current year Discontinued operations - prior years Claims paid related to:Current year()()Prior years()()Discontinued operations - current year ()Discontinued operations - prior years () ()()Medical claims and related payables, end of the period$ $

Medical claims and related payables also include $ million and $ million, as of September 30, 2024 and December 31, 2023, 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.

$ Lease liabilities, long-term Equity method liabilities – CMS ACO Models Other $ $

As of both September 30, 2024 and December 31, 2023, the Company’s accruals for contingent liabilities related to unasserted claims were $ million. The accrued amounts represent the Company’s estimate of probable losses in accordance with ASC Topic 450, Contingencies.

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

million secured term loan (the “Secured Term Loan Facility”) and (ii) a $ 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 $ 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) $ million plus (ii) an additional amount

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million outstanding under the Secured Term Loan Facility and availability under the Secured Revolving Facility was $ million, as the Company had outstanding letters of credit totaling $ million. The standby letters of credit are automatically extended without amendment for periods, unless the Company notifies the institution in advance of the expiration date that the letter will be terminated. amounts have been drawn on the outstanding letters of credit as of September 30, 2024.

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 Credit 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 % and the higher of (a) SOFR, as defined in the credit agreement, and (b) %. Base Rate Loans bear interest at a rate equal to the sum of % and the highest of: (a) % 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 SOFR rate (adjusted for maximum reserves) plus % and (d) %. Additionally, the Company pays a commitment fee on the unfunded Secured Revolving Facility amount of %. The Company must also pay customary letter of credit fees. As of September 30, 2024, the effective interest rate on the Secured Term Loan Facility was %.

The Credit Facility is 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 Credit Agreement. If an event of default occurs, the lenders could elect to declare all amounts outstanding under the Credit Agreement to be immediately due and payable. The Company was in compliance with all covenants under the Credit Facilities.

million outstanding surety bonds related to health plan payor risk-bearing capital contributions.

class action lawsuits were filed and later consolidated as one matter captioned In re agilon health, inc. Securities Litigation, 1:24-cv-00297 (W.D. Tex.) (the “Consolidated Securities Matter”). The Consolidated Securities Matter names the Company and certain current and former members of the Company’s executive team and Board of Directors as defendants, among others. The Consolidated Securities Matter generally asserts securities fraud claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended and under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended, in connection with statements made between April 2021 and February 2024 in the Company’s annual and quarterly reports and earnings releases related to, among other things, the Company’s financial guidance, medical margin and Adjusted EBITDA results, growth strategy, and data management. The Consolidated Securities Matter seeks compensatory damages, judgment interest, attorney’s fees and costs, and other unspecified equitable and/or injunctive relief. The Company is unable to estimate any ultimate individual or aggregate amount of monetary liability or financial impact due to the early stages of the litigation.

In May and October 2024, putative stockholder derivative class action lawsuits were filed: (1) Douglas v. Steven J. Sell et al., 1:24-cv-00531 (W.D. Tex.) and (2) Bingham v. Steven J. Sell et al., 1:24-cv-01181 (W.D. Tex.) (the “Derivative Matters”). The Derivative Matters name the Company and certain current and former members of the Company’s executive team and Board of Directors as defendants. The Derivative Matters generally assert claims under Sections 14(a) and 10(b) of the Securities Exchange Act of 1934, as well as common law claims including breach of fiduciary duty. The Douglas lawsuit also asserts claims under Section 20(a) of the Exchange Act and seeks contribution

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million shares of common stock primarily in connection with exercises and vesting of stock-based awards. During the nine months ended September 30, 2024, the Company issued approximately million shares of common stock primarily in connection with exercises and vesting of stock-based awards. Additionally, during the nine months ended September 30, 2024, the Company issued approximately million shares of common stock to settle liabilities related to the exchange of common stock for reduced physician partner compensation percentage in certain ACO REACH entities.

2023. During the three months ended September 30, 2023, the Company issued approximately 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 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 approximately million shares of common stock pursuant to an underwritten secondary public offering of approximately million shares of its common stock sold by CD&R. The Company paid approximately $ per share, which is the same per share price paid by the underwriters to CD&R in the offering.

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)$()$()$()Noncontrolling interests’ share in (earnings) loss from continuing operations () Net income (loss) attributable to common stockholders before discontinued operations()()()()Income (loss) from discontinued operations()()()()Net income (loss) attributable to common stockholders$()$()$()$()DenominatorWeighted average shares outstanding – basicWeighted average shares outstanding – dilutedNet income (loss) per share attributable to common stockholdersNet income (loss) per common share from continuing operations, basic and diluted$()$()$()$()Net income (loss) per common share from discontinued operations, basic and diluted$ $()$()$()Restricted stock units

million. There were no events or circumstances that warranted an interim impairment test for goodwill during the nine months ended September 30, 2024.

As of September 30, 2024 and December 31, 2023, the Company’s gross carrying amount of amortizable intangible assets was $ million and $ million, with accumulated amortization of $ million and $ million, respectively. For the three months ended September 30, 2024 and 2023, the Company recognized $ million and $ million, respectively, in amortization expense, which is included in depreciation and amortization expense in the condensed consolidated statements of operations. For the nine months ended September 30, 2024 and 2023, the Company recognized $ million and $ 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 $ 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

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million, and assumed net liabilities of $ million, with the residual amount being recorded as goodwill of $ million. The intangible assets acquired have a weighted-average life of years.

$ Income taxes paid Supplemental disclosure of non-cash investing and financing activities: Right-of-use asset obtained in exchange for new operating lease liability Settlement of liabilities through issuance of stock $

Restricted cash and equivalents(1)

Cash, cash equivalents and restricted cash equivalents$ $

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$ Restricted cash equivalents Receivables, net Prepaid expenses and other current assets, net Property and equipment, net Intangible assets, net Other assets, net LiabilitiesMedical claims and related payables Accounts payable and accrued expenses Other liabilities

Risk-bearing Entities. At September 30, 2024, the Company operates 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. 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 Facility, which is 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, 2024, the Company had equity method investees, including wholly-owned CMS ACO Models entities discussed below, 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 provided support to assist its CMS ACO Models investments in obtaining surety bonds related to risk-bearing capital contributions to CMS. As of September 30, 2024 and December 31, 2023, the ACOs had $ million and $ million outstanding surety bonds. 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 - CMS ACO Models(1)

Equity method liabilities - CMS ACO Models(2)

()()

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(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 wholly-owned CMS ACO Models entities in collaboration with of its physician group partners operating in geographies.

$ $ $ Medical services expense()()()()

Other medical expenses(1)

()()()()

Income (loss) from operations(2)

Net income (loss)(3)

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(1)The three months ended September 30, 2024 and 2023, includes physician incentive expenses of $ million and $ million, respectively. For the nine months ended September 30, 2024 and 2023, includes physician incentive expenses of $ million and $ million, respectively.

(2)The three months ended September 30, 2024 and 2023, includes operating expenses for services provided by the Company of $ million and $ million, respectively. For the nine months ended September 30, 2024 and 2023, includes operating expenses for services received from the Company of $ million and $ million, respectively.

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

$ Noncurrent assets Total assets Current and total liabilities

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$ $ $ Other operating revenue Total revenues Expenses:Medical services expense Other medical expenses General and administrative() Depreciation and amortization Income (loss) from operations()()()()Other income (expense), net Gain (loss) on sales of assets, net () Interest expense () ()Net income (loss) from discontinued operations attributable to common shares$()$()$()$()

The following table provides significant non-cash operating items for discontinued operations that are included in the consolidated statements of cash flows for the nine months ended September 30, 2023 (in thousands):


Non-cash operating activities from discontinued operations:
Depreciation and amortization			$
Stock-based compensation expense

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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, 2023, 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, 2023, 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, 2023. 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 the expectation that our expenses will increase in the future;

•failure to identify and develop successful new geographies, physician partners and payors, or execute upon our growth initiatives;

•success in executing our operating strategies or achieving results consistent with our historical performance;

•medical expenses incurred on behalf of our members may exceed revenues we receive;

•our ability to maintain and secure additional contracts with Medicare Advantage (“MA”) payors on favorable terms, if at all;

•our ability to grow new physician partner relationships sufficient to recover startup costs;

•availability of additional capital, on acceptable terms or at all, to support our business in the future;

•significant reduction in our membership;

•transition to a Total Care Model may be challenging for physician partners;

•public health crises, such as COVID-19, could adversely affect us;

•inaccuracy in estimates of our members’ risk adjustment factors, medical services expense, incurred but not reported claims, and earnings pursuant to payor contracts;

•the impact of restrictive clauses or exclusivity provisions in some of our contracts with physician partners;

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•our ability to hire and retain qualified personnel;

•our ability to realize the full value of our intangible assets;

•security breaches, cybersecurity attacks, loss of data and other disruptions to our information systems;

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

•reliance on our subsidiaries to perform and fund their operations;

•environmental, social, and governance issues;

•our reliance on a limited number of key payors;

•the limited terms of contracts with our payors and our ability to renew them upon expiration;

•our ability to navigate the changing healthcare payor market;

•reliance on our payors, physician partners and other providers to operate our business;

•our ability to obtain accurate and complete diagnosis data;

•reliance on third-party software, data, infrastructure and bandwidth;

•consolidation and competition in the healthcare industry;

•the impact of changes to, and dependence on, federal government healthcare programs;

•uncertain or adverse economic and macroeconomic conditions, including a downturn or decrease in government expenditures;

•regulation of the healthcare industry and our physician partners’ ability to comply with such laws and regulations;

•federal and state investigations, audits and enforcement actions;

•repayment obligations arising out of payor audits;

•negative publicity regarding the managed healthcare industry generally;

•our use, disclosure and processing of personally identifiable information, protected health information, and de-identified data;

•our failure to obtain or maintain an insurance license, a certificate of authority or an equivalent authorization;

•lawsuits not covered by insurance;

•changes in tax laws and regulations, or changes in related judgments or assumptions;

•our indebtedness and our potential to incur more debt;

•dependence on our subsidiaries for cash to fund all of our operations and expenses;

•provisions in our governing documents;

•ability to achieve a return on investment depends on appreciation in the price of our common stock;

•the material weakness in our internal control over financial reporting and our ability to remediate such material weakness; and

•risks related to other factors discussed under Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

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.

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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 and should be read in connection with the accompanying Condensed Consolidated Financial Statements and notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report. 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 risk-bearing entities (“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 2024 Results:

•Medicare Advantage members of approximately 525,200 as of September 30, 2024 increased 37% from September 30, 2023.

•CMS ACO Models (defined below) attributed beneficiaries of approximately 132,200 as of September 30, 2024 increased 51% from September 30, 2023.

•Total revenue of $1.5 billion increased 28% from the third quarter of 2023.

•Gross profit of negative $(64) million, compared to positive $37 million in the third quarter of 2023.

•Medical margin loss of $(58) million, compared to earnings of $111 million in the third quarter of 2023.

•Net loss of $118 million, compared to $31 million in the third quarter of 2023.

•Adjusted EBITDA loss of $96 million, compared to earnings of $6 million in the third quarter 2023.

Year to Date 2024 Results as of September 30, 2024:

•Total revenue of $4.5 billion increased 39% from 2023.

•Gross profit of $43 million, compared to $165 million in 2023.

•Medical margin of $205 million, compared to $401 million in 2023.

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•Net loss of $154 million, compared to $32 million in 2023.

•Adjusted EBITDA loss of $70 million, compared to earnings of $42 million in 2023.

Membership Details

Medicare Advantage members increased 37% from September 30, 2023, which includes contributions from new geographies and growth within geographies existing prior to 2023. Total members live on the platform includes 525,200 Medicare Advantage members and 132,200 attributed CMS ACO Models beneficiaries.

Average Medicare Advantage membership was 535,400 during the third quarter of 2024.

Key Financial and Operating Metrics

All of our key metrics exclude historical results from our Hawaii 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,
	2024		2023		% Change	2024		2023		% Change
MA members	525,200		384,200		37	525,200		384,200		37
Medical services revenue	$	1,447,697	$	1,133,457	28	$	4,528,471	$	3,253,810	39
Gross profit	$	(64,167)	$	36,839	(274)	$	43,096	$	164,538	(74)
Medical margin(1)	$	(58,253)	$	110,586	(153)	$	204,619	$	400,544	(49)
Platform support costs	$	42,353	$	41,590	2	$	129,752	$	126,923	2
Net income (loss)	$	(117,615)	$	(31,483)	274	$	(154,311)	$	(32,319)	377
Adjusted EBITDA(1)	$	(96,469)	$	5,553	(1,837)	$	(70,245)	$	42,060	(267)

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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" below 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.

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 the Centers for Medicare & Medicaid Services' (“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.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Total revenues	$	1,450,932	$	1,136,863	$	4,538,044	$	3,260,290
Medical services expense	(1,505,950)		(1,022,871)		(4,323,852)		(2,853,266)
Other medical expenses(1)	(9,149)		(77,153)		(171,096)		(242,486)
Gross profit	$	(64,167)	$	36,839	$	43,096	$	164,538

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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, 2024 and 2023, costs incurred in implementing geographies were $1.4 million and $10.3 million, respectively. For the nine months ended September 30, 2024 and 2023, costs incurred in implementing geographies were $2.0 million and $20.3 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 and compliance 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,
	2024			2023			2024			2023
Platform support costs	$	42,353		$	41,590		$	129,752		$	126,923
% of Revenue	3		%	4		%	3		%	4		%

Net Income (Loss) and Adjusted EBITDA

Net income (loss) is the most directly comparable U.S. 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.

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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, 2024 and 2023.

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.

Depreciation and Amortization

Depreciation and amortization expenses are associated with our property and equipment and acquired intangible assets. Depreciation includes expenses associated with computer equipment and software, furniture and fixtures, and leasehold improvements. Amortization primarily includes expenses associated with acquired intangible assets.

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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 CMS Shared Savings Program (“MSSP”), along with its existing participation in the Accountable Care Organization Realizing Equity, Access, and Community Health (“ACO REACH”) Model, (collectively, “CMS ACO Models”).

Other Income (Expense), Net

Other income (expense), net includes 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.

Total Discontinued Operations

Total discontinued operations primarily consist of the results of our Hawaii operations. For certain of our divestiture transactions, we continue to be responsible for any liabilities arising from the business that were incurred prior to the closing date of such transaction, including any fines, penalties, and other sanctions, the payment of claims for medical services incurred prior to the effective date of each transaction, a liability for unrecognized tax benefits for which we are indemnified, and other contingent liabilities that we currently believe are remote. For additional discussion, see Note 15 to the Condensed Consolidated Financial Statements.

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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,
	2024		2023		2024		2023
Revenues:
Medical services revenue	$	1,447,697	$	1,133,457	$	4,528,471	$	3,253,810
Other operating revenue	3,235		3,406		9,573		6,480
Total revenues	1,450,932		1,136,863		4,538,044		3,260,290
Expenses:
Medical services expense	1,505,950		1,022,871		4,323,852		2,853,266
Other medical expenses	9,149		77,153		171,096		242,486
General and administrative (including noncash stock-based compensation expense of $13,259, $20,619, $48,375 and $53,650, respectively)	63,123		72,058		209,157		221,064
Depreciation and amortization	6,218		4,075		17,969		11,308
Total expenses	1,584,440		1,176,157		4,722,074		3,328,124
Income (loss) from operations	(133,508)		(39,294)		(184,030)		(67,834)
Other income (expense):
Income (loss) from equity method investments	2,047		14,659		17,686		24,507
Other income (expense), net	16,061		5,423		26,794		20,402

Interest expense	(1,622)		(1,617)		(4,603)		(4,665)
Income (loss) before income taxes	(117,022)		(20,829)		(144,153)		(27,590)
Income tax benefit (expense)	590		(1,210)		306		(524)
Income (loss) from continuing operations	(116,432)		(22,039)		(143,847)		(28,114)
Discontinued operations:
Income (loss) before gain (loss) on sales	(1,183)		(9,444)		(1,701)		(4,205)
Gain (loss) on sales of assets, net	—		—		(8,763)		—
Total discontinued operations	(1,183)		(9,444)		(10,464)		(4,205)
Net income (loss)	(117,615)		(31,483)		(154,311)		(32,319)
Noncontrolling interests’ share in (earnings) loss	—		47		(50)		156
Net income (loss) attributable to common shares	$	(117,615)	$	(31,436)	$	(154,361)	$	(32,163)

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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,
	2024		2023		2024		2023
Revenues:
Medical services revenue	100	%	100	%	100	%	100	%
Other operating revenue	—		—		—		—
Total revenues	100		100		100		100
Expenses:
Medical services expense	104		90		95		88
Other medical expenses	1		7		4		7
General and administrative (including noncash stock-based compensation expense of 1%, 2%, 1% and 2%, respectively)	4		6		5		7
Depreciation and amortization	—		—		—		—
Total expenses	109		103		104		102
Income (loss) from operations	(9)		(3)		(4)		(2)
Other income (expense):
Income (loss) from equity method investments	—		1		—		1
Other income (expense), net	1		—		1		1

Interest expense	—		—		—		—
Income (loss) before income taxes	(8)		(2)		(3)		(1)
Income tax benefit (expense)	—		—		—		—
Income (loss) from continuing operations	(8)		(2)		(3)		(1)
Discontinued operations:
Income (loss) before gain (loss) on sales	—		(1)		—		—
Gain (loss) on sales of assets, net	—		—		—		—
Total discontinued operations	—		(1)		—		—
Net income (loss)	(8)		(3)		(3)		(1)
Noncontrolling interests’ share in (earnings) loss	—		—		—		—
Net income (loss) attributable to common shares	(8)	%	(3)	%	(3)	%	(1)	%

Comparison of the Three and Nine Months Ended September 30, 2024 to the Three and Nine Months Ended September 30, 2023

Medical Services Revenue


	Three Months Ended September 30,						Change
(dollars in thousands)	2024			2023			$		%
Medical services revenue	$	1,447,697		$	1,133,457		$	314,240	28	%
% of total revenues	100		%	100		%

Medical services revenue increased for the three months ended September 30, 2024 due primarily to growth in average membership of 38%, which was attributable to seven new geographies that began to generate revenue in 2024 and growth in our existing geographies. The increase in medical services revenue for the three months ended September 30, 2024 was partially offset by a decrease in PMPM capitation rates of 7%. Medical services revenue also decreased as a

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result of higher costs associated with prescription drug benefits provided under the Medicare Part D program and lower risk adjustment revenue, including unfavorable prior period development.


	Nine Months Ended September 30,						Change
(dollars in thousands)	2024			2023			$		%
Medical services revenue	$	4,528,471		$	3,253,810		$	1,274,661	39	%
% of total revenues	100		%	100		%

Medical services revenue increased for the nine months ended September 30, 2024 due primarily to growth in average membership of 39%, which was attributable to seven new geographies that began to generate revenue in 2024 and growth in our existing geographies. The increase in medical services revenue was partially offset by higher costs associated with prescription drug benefits provided under the Medicare Part D program and lower risk adjustment revenue related to unfavorable prior period development.

Medical Services Expense


	Three Months Ended September 30,						Change
(dollars in thousands)	2024			2023			$		%
Medical services expense	$	1,505,950		$	1,022,871		$	483,079	47	%
% of total revenues	104		%	90		%

Medical services expense increased for the three months ended September 30, 2024 due primarily to growth in average membership of 38%, which was attributable to seven new geographies that became operational in 2024 and growth in our existing geographies. The increase in medical services expense for the three months ended September 30, 2024 was also driven by an increase in average medical services expense per member of 7%, which was primarily due to the continued impact of elevated medical cost trends and unfavorable prior period reserve development.


	Nine Months Ended September 30,						Change
(dollars in thousands)	2024			2023			$		%
Medical services expense	$	4,323,852		$	2,853,266		$	1,470,586	52	%
% of total revenues	95		%	88		%

Medical services expense increased for the nine months ended September 30, 2024 due primarily to growth in average membership of 39%, which was attributable to seven new geographies that became operational in 2024 and growth in our existing geographies. The increase in medical services expense for the nine months ended September 30, 2024 was also driven by an increase in average medical services expense per member of 9%, which was primarily due to the continued impact of elevated medical cost trends and unfavorable prior period reserve development.

Other Medical Expenses


	Three Months Ended September 30,						Change
(dollars in thousands)	2024			2023			$		%
Other medical expenses	$	9,149		$	77,153		$	(68,004)	(88)	%
% of total revenues	1		%	7		%

Other medical expenses decreased by $68.0 million, or 88%, for the three months ended September 30, 2024 compared to the same period in 2023. Partner physician incentive expense decreased by $63.9 million to $(25.4) million in 2024 compared to $38.5 million in the same period in 2023 as a result of the recent losses 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. Other provider costs decreased by $4.2 million to $34.5 million in 2024 compared to $38.7 million in the same period in 2023, resulting from the increase in the number of geographies and

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members on our platform. Other provider costs for the three months ended September 30, 2023 include $10.3 million of costs related to geographies that became operational in 2024.


	Nine Months Ended September 30,						Change
(dollars in thousands)	2024			2023			$		%
Other medical expenses	$	171,096		$	242,486		$	(71,390)	(29)	%
% of total revenues	4		%	7		%

Other medical expenses decreased by $71.4 million, or 29%, for the nine months ended September 30, 2024 compared to the same period in 2023. Partner physician incentive expense decreased by $86.1 million to $54.8 million in 2024 compared to $140.9 million in the same period in 2023 as a result of the recent losses 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. Other provider costs increased by $14.7 million to $116.3 million in 2024 compared to $101.6 million in 2023, resulting from the increase in the number of geographies and members on our platform. Other provider costs for the nine months ended September 30, 2024 and 2023 include $2.0 million and $20.3 million, respectively, of costs related to geographies that became operational in the following year.

General and Administrative


	Three Months Ended September 30,						Change
(dollars in thousands)	2024			2023			$		%
General and administrative	$	63,123		$	72,058		$	(8,935)	(12)	%
% of total revenues	4		%	6		%

General and administrative expenses decreased $8.9 million, or 12%, for the three months ended September 30, 2024 compared to the same period in 2023. Operating costs to support our live geographies and enterprise functions (platform support costs) of $42.4 million in 2024 remained relatively flat compared to $41.6 million in the same period in 2023. Operating costs to support our live geographies and enterprise functions as a percentage of revenue decreased to 3% for the three months ended September 30, 2024 compared to 4% for the same period in 2023. Investments to support geography entry decreased to $5.8 million in 2024, compared to $8.0 million in the same period in 2023 due to decreased costs associated with our geographies that are expected to become operational in the following calendar year and expansion into existing geographies. Stock-based compensation expense decreased $7.3 million in 2024 primarily due to the cancellation of stock-based instruments during 2024.


	Nine Months Ended September 30,						Change
(dollars in thousands)	2024			2023			$		%
General and administrative	$	209,157		$	221,064		$	(11,907)	(5)	%
% of total revenues	5		%	7		%

General and administrative expenses decreased $11.9 million, or 5%, for the nine months ended September 30, 2024 compared to the same period in 2023. Operating costs to support our live geographies and enterprise functions (platform support costs) increased by $2.9 million to $129.8 million in 2024 compared to $126.9 million in the same period in 2023 due primarily to growth in operating costs incurred to support geographies that became operational in 2024. Operating costs to support our live geographies and enterprise functions as a percentage of revenue decreased to 3% for the nine months ended September 30, 2024 compared to 4% for the same period in 2023. Investments to support geography entry decreased to $21.2 million in 2024, compared to $28.6 million in the same period in 2023 due to decreased costs associated with our geographies that are expected to become operational in the following calendar year and expansion into existing geographies. Stock-based compensation expense decreased $5.3 million in 2024 primarily due to the cancellation of stock-based instruments during 2024.

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Income (loss) from equity method investments


	Three Months Ended September 30,						Change
(dollars in thousands)	2024			2023			$		%
Income (loss) from equity method investments	$	2,047		$	14,659		$	(12,612)	(86)	%
% of total revenues	—		%	1		%

Income (loss) from equity method investments decreased $12.6 million, or 86%, for the three months ended September 30, 2024 compared to the same period in 2023 primarily from increases in operating expenses, of which $7.9 million was recognized in the third quarter of 2024, and to a lesser extent, by a decrease in gross profit from our CMS ACO Models investments.


	Nine Months Ended September 30,						Change
(dollars in thousands)	2024			2023			$		%
Income (loss) from equity method investments	$	17,686		$	24,507		$	(6,821)	(28)	%
% of total revenues	—		%	1		%

Income (loss) from equity method investments decreased $6.8 million, or 28%, for the nine months ended September 30, 2024 compared to the same period in 2023 primarily from increases in operating expenses from our CMS ACO Models investments.

Other income (expense), net


	Three Months Ended September 30,						Change
(dollars in thousands)	2024			2023			$		%
Other income (expense), net	$	16,061		$	5,423		$	10,638	196	%
% of total revenues	1		%	—		%

Other income (expense), net increased $10.6 million, or 196%, for the three months ended September 30, 2024 compared to the same period in 2023 primarily from $11.7 million of income related to services rendered to our CMS ACO Models investments that was recognized in the third quarter of 2024.


	Nine Months Ended September 30,						Change
(dollars in thousands)	2024			2023			$		%
Other income (expense), net	$	26,794		$	20,402		$	6,392	31	%
% of total revenues	1		%	1		%

Other income (expense), net increased $6.4 million, or 31%, for the nine months ended September 30, 2024 compared to the same period in 2023 primarily from $11.7 million of income related to services rendered to our CMS ACO Models investments, partially offset by decline in interest income as a result of the maturities of various marketable securities investments.

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Total Discontinued Operations


	Three Months Ended September 30,						Change
(dollars in thousands)	2024			2023			$		%
Total discontinued operations	$	(1,183)		$	(9,444)		$	8,261	87	%
% of total revenues	—		%	(1)		%

Total discontinued operations is related to the sale of our Hawaii operations in October 2023. Total discontinued operations for the three months ended September 30, 2024 is related to various remaining obligations from our Hawaii operations compared to losses from discontinued operations for the three months ended September 30, 2023.


	Nine Months Ended September 30,						Change
(dollars in thousands)	2024			2023			$		%
Total discontinued operations	$	(10,464)		$	(4,205)		$	(6,259)	(149)	%
% of total revenues	—		%	—		%

Total discontinued operations is related to the sale of our Hawaii operations in October 2023. Total discontinued operations for the nine months ended September 30, 2024 is primarily related to various remaining obligations from our Hawaii operations compared to losses from discontinued operations for the nine months ended September 30, 2023.

Non-GAAP Financial Measures

In addition to providing results that are determined in accordance with U.S. GAAP, we present medical margin and Adjusted EBITDA, which are non-GAAP financial measures.

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

Gross profit is the most directly comparable U.S. GAAP measure to medical margin. Net income (loss) is the most directly comparable U.S. GAAP measure to Adjusted EBITDA.

We believe medical margin and Adjusted EBITDA help identify underlying trends in our business and facilitate evaluation of period-to-period operating performance of our operations by eliminating items that are variable in nature and not considered by us in the evaluation of ongoing operating performance, allowing comparison of our recurring core business operating results over multiple periods. We also believe medical margin and Adjusted EBITDA provide useful information about our operating results, enhance the overall understanding of our past performance and future prospects, and allow for greater transparency with respect to key metrics we use for financial and operational decision-making. We believe medical margin and Adjusted EBITDA or similarly titled non-GAAP measures are widely used by investors, securities analysts, ratings agencies, and other parties in evaluating companies in our industry as a measure of financial performance. Other companies may calculate medical margin and Adjusted EBITDA or similarly titled non-GAAP measures differently from the way we calculate these metrics. As a result, our presentation of medical margin and Adjusted EBITDA may not be comparable to similarly titled measures of other companies, limiting their usefulness as comparative measures.

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Adjusted EBITDA is not considered a measure of financial performance under U.S. GAAP, and the items excluded therefrom are significant components in understanding and assessing our financial performance. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as an alternative to such U.S. GAAP measures as net income (loss), cash flows provided by or used in operating, investing, or financing activities or other financial statement data presented in our consolidated financial statements as an indicator of financial performance or liquidity. Some of these limitations are:

•Adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs;

•Adjusted EBITDA does not reflect interest expense or the requirements necessary to service interest or principal payments on debt;

•Adjusted EBITDA does not reflect income tax expense (benefit) or the cash requirements to pay taxes;

•Adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;

•Although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and

•The expenses and other items that we exclude in our calculation of Adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from similarly titled non-GAAP financial measures.

The following table sets forth a reconciliation of gross profit to medical margin using data derived from our condensed consolidated financial statements for the periods indicated (dollars in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Gross profit(1)	$	(64,167)	$	36,839	$	43,096	$	164,538
Other operating revenue	(3,235)		(3,406)		(9,573)		(6,480)
Other medical expenses	9,149		77,153		171,096		242,486
Medical margin	$	(58,253)	$	110,586	$	204,619	$	400,544

___________________________________________

(1)Gross profit is defined as total revenues less medical services expense and other medical expenses.

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The following table sets forth a reconciliation of net income (loss) to Adjusted EBITDA using data derived from our condensed consolidated financial statements for the periods indicated (dollars in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Net income (loss)	$	(117,615)	$	(31,483)	$	(154,311)	$	(32,319)
(Income) loss from discontinued operations, net of income taxes	1,183		9,444		10,464		4,205
Interest expense	1,622		1,617		4,603		4,665
Income tax expense (benefit)	(590)		1,210		(306)		524
Depreciation and amortization	6,218		4,075		17,969		11,308

Severance and related costs	1,453		—		4,736		188
Stock-based compensation expense	13,259		20,619		48,375		53,650
EBITDA adjustments related to equity method investments(1)	9,719		3,702		15,025		8,426
Other(2)	(11,718)		(3,631)		(16,800)		(8,587)
Adjusted EBITDA	$	(96,469)	$	5,553	$	(70,245)	$	42,060

___________________________________________

(1)Includes elimination of certain administrative services provided by agilon health, inc. to equity method investments.

(2)Includes interest income, transaction-related costs and elimination of certain administrative services provided by agilon health, inc. to equity method investments.

Liquidity and Capital Resources

We have historically financed our operations primarily through funds generated from our capitation arrangements with payors, issuances of equity securities, and borrowings under credit agreements. We generally invest any excess cash in money market accounts, which are classified as cash equivalents, and marketable securities. Our investment strategies are designed to provide safety and preservation of capital, sufficient liquidity to meet the cash flow needs of our business operations, and attainment of a competitive return. As of September 30, 2024, we had cash and cash equivalents and restricted cash and equivalents of $153.8 million and investments in marketable securities of $244.8 million.

We expect to continue to incur operating losses and generate negative cash flows from operations for the foreseeable future due to the investments we intend to continue to make in expanding our business and additional general and administrative costs we expect to incur related to our operation as a public company. As a result, we may require additional capital resources in the future to execute strategic initiatives to grow our business.

Our primary uses of cash include payments for medical claims and other medical expenses, general and administrative expenses, costs associated with the development of new geographies and expansion of existing geographies, debt service, and capital expenditures. Final reconciliation and receipt of amounts due from payors are typically settled in arrears, following completion of the contractual program year.

Based on our planned operations, we believe that our existing cash and cash equivalents, investments in marketable securities, as well as available borrowing capacity under the Credit Facility (defined below), will be sufficient to meet our working capital and capital expenditure needs over at least the next 12 months, though we may require additional capital resources in the future. We have based these estimates on assumptions that may prove to be wrong and we could utilize our available capital resources sooner than we expect.

We may require additional financing in the future to fund working capital and pay our obligations. We may seek to raise any necessary additional capital through a combination of public or private equity offerings and/or debt financings. There can be no assurance that we will be successful in acquiring additional funding at levels sufficient to fund our operations or on terms favorable to us, if at all. If adequate funds are not available on acceptable terms when needed, we may be required to significantly reduce operating expenses, which may have a material adverse effect on our business, financial condition, cash flows, and results of operations. If we do raise additional capital through public or private equity, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation

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or other preferences that adversely affect our existing stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends.

Our ability to pay dividends to holders of our common stock is significantly limited as a practical matter by our growth plans as well as the Credit Facility insofar as we may seek to pay dividends out of funds made available to us by agilon health management, inc. (“agilon management”) or its subsidiaries because the Credit Facility restricts agilon management’s ability to pay dividends or make loans to us. The borrower on the Credit Facility is agilon management, our wholly-owned subsidiary. The Credit Facility is guaranteed by certain of our subsidiaries, including those identified as variable interest entities, and contain customary covenants including, among other things, limitations on restricted payments including: (i) dividends and distributions from restricted subsidiaries, (ii) requirements of minimum financial ratios, and (iii) limitation on additional borrowings based on certain financial ratios.

As of September 30, 2024, we had $25.1 million outstanding surety bonds related to health plan payor risk-bearing capital contributions.

Cash Flows

The following summary discussion of our cash flows is based on the condensed consolidated statements of cash flows. The following table sets forth changes in cash flows (dollars in thousands):


	Nine Months Ended September 30,
	2024		2023		Change
Net cash provided by (used in) operating activities	$	(74,196)	$	(95,033)	$	20,837
Net cash provided by (used in) investing activities	116,218		(41,816)		158,034
Net cash provided by (used in) financing activities	(2,561)		(192,288)		189,727

Net Cash Provided By (Used In) Operating Activities

Net cash used in operating activities was $74.2 million for the nine months ended September 30, 2024 compared to $95.0 million for the nine months ended September 30, 2023. The decrease in net cash used in operating activities was primarily as a result of the timing of settlements with payors from new and existing geographies. Our cash flow from operations is dependent upon the number of members on our platform, the timing of settlements with payors, and the level of operating and general and administrative expenses necessary to operate and grow our business, among other factors.

Net Cash Provided By (Used In) Investing Activities

Net cash provided by investing activities was $116.2 million for the nine months ended September 30, 2024 compared to net cash used in investing activities of $41.8 million for the nine months ended September 30, 2023. During the nine months ended September 30, 2024, we received net proceeds from the maturities of marketable securities of $154.8 million and made investments of $38.6 million primarily for the acquisition of intangible assets and property and equipment. During the nine months ended September 30, 2023, we completed the acquisition of My Personal Health Record Express, Inc. for $44.4 million and made investments in marketable securities of $107.0 million, which were partially offset by proceeds from the maturity of marketable securities of $133.9 million.

Net Cash Provided By (Used In) Financing Activities

Net cash used in financing activities was $2.6 million for the nine months ended September 30, 2024 compared to $192.3 million for the nine months ended September 30, 2023. During the nine months ended September 30, 2023, we used $200.0 million to repurchase shares of our common stock in an underwritten secondary public offering.

Debt Obligations

On February 18, 2021, we executed a credit facility agreement (as amended by the First Amendment to Credit Agreement, dated as of March 1, 2021 and the Second Amendment to Credit Agreement, dated as of May 25, 2023, the “Credit Facility”). The Credit Facility includes: (i) a $100.0 million senior secured term loan (the “Secured Term Loan Facility”) and (ii) a $100.0 million senior secured revolving credit facility (the “Secured Revolving Facility”) with a

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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 determined in accordance with a formula tied to repayment of certain of our indebtedness. The maturity date of the Credit Facility was extended to February 18, 2026.

Effective with the Second Amendment to Credit Agreement on May 25, 2023, we transitioned to the Secured Overnight Financing Rate ("SOFR") as a benchmark interest rate used in the Credit Agreement. At our option, borrowings under the Credit Facilities, as defined in the credit 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 3.50% 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 2.50% 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 SOFR rate (adjusted for maximum reserves) plus 1.00% and (d) 0%. Additionally, we pay a commitment fee on the unfunded 2021 Revolving Credit Facility amount of 0.375%. We must also pay customary letter of credit fees.

The Credit Facility contains customary covenants including, among other things, limitations on restricted payments including: (i) dividends and distributions from restricted subsidiaries, (ii) requirements of minimum financial ratios, and (iii) limitation on additional borrowings based on certain financial ratios.

For additional discussion on our debt obligations, see Note 8 to the Condensed Consolidated Financial Statements.

Equity

As of September 30, 2024, we had 412.0 million shares of common stock outstanding. See Note 10 to the Condensed Consolidated Financial Statements for additional information about our equity transactions.

Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions. We base estimates on the best information available to us at the time, our historical experience, known trends and events, and various other assumptions that we believe are reasonable under the circumstances. These estimates affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, it is possible that different accounting would have been applied, resulting in a different presentation of our condensed consolidated financial statements. From time to time, we re-evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 in Part II, Item 7 “Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Critical Accounting Policies” and Note 2 to the Condensed Consolidated Financial Statements. There have been no significant changes to our critical accounting policies during 2024.

Recent Accounting Pronouncements

For the impact of new accounting standards, see Note 2 to the Condensed Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates. We do not use derivative financial instruments in the normal course of business or for speculative or trading purposes.

Our exposures to market risk for changes in interest expense relate primarily to the Credit Facility. Indebtedness under the Credit Facility is floating rate debt and is carried at amortized cost. Therefore, fluctuations in interest rates will

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impact our consolidated financial statements. A rising interest rate environment will increase the amount of interest paid on this debt. A hypothetical 100 basis point change in interest rates would not have a material impact on our interest expense.

We held cash, cash equivalents, restricted cash equivalents, and marketable securities of $398.6 million and $495.1 million as of September 30, 2024 and December 31, 2023, respectively, consisting of bank deposits, certificates of deposits, money market funds, U.S. Treasury notes, and corporate debt securities. Such interest-earning instruments carry a degree of interest rate risk. A hypothetical 100 basis point change in interest rates would not have a material impact on the fair value of our marketable securities. Declines in interest rates over time will reduce our investment income. The goals of our investment policy are liquidity and capital preservation. We do not enter into investments for trading or speculative purposes.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), with the assistance of other members of management, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Our disclosure controls and procedures are intended to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Based on this review, although we continue to work to remediate the material weakness in internal control over financial reporting as described in our Annual Report on Form 10-K for the year ended December 31, 2023, and progress has been made to date, our CEO and CFO have concluded that the disclosure controls and procedures related to this material weakness were not effective as of September 30, 2024.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect every misstatement. An evaluation of effectiveness is subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may decrease over time.

Changes in Internal Control Over Financial Reporting. Under applicable SEC rules (Exchange Act Rules 13a-15(d) and 15d-15(d)), management is required to evaluate any change in internal control over financial reporting that occurred during each fiscal quarter that had materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There were no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

As explained in greater detail under Part II, Item 9A. “Controls and Procedures” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, we are undertaking a broad range of remedial procedures to address the material weakness in our internal control over financial reporting identified as of December 31, 2023. Our efforts to improve our internal controls are ongoing. Therefore, while we determined, with the participation of our CEO and CFO, that there have been no changes in our internal control over financial reporting in the three-month period ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, we continue to monitor the operation of these remedial measures through the date of this report.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See the “Legal Proceedings” section of Note 9 to the Condensed Consolidated Financial Statements for information regarding legal proceedings, which information is incorporated by reference in this Item 1.

Item 1A. Risk Factors

In addition to the information set forth in this Form 10-Q, you should carefully consider the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There have been no material changes to the risk factors disclosed in the Form 10-K.

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

(a)

None.

(b)

None.

(c)

None.

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Item 6. Exhibits


Exhibit Number						Description
31.1						Certification by Steven J. Sell, agilon’s Principal Executive Officer, Pursuant to Securities Exchange Act Rule 13a-14(a).*

31.2						Certification by Jeffrey Schwaneke, agilon’s Principal Financial Officer, Pursuant to Securities Exchange Act Rule 13a-14(a).*

32.1						Certification by Steven J. Sell, agilon’s Principal Executive Officer, Pursuant to Securities Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350.**

32.2						Certification by Jeffrey Schwaneke, agilon’s Principal Financial Officer, Pursuant to Securities Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350.**

101.INS						Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.*

101.SCH						Inline XBRL Taxonomy Extension Schema Document.*

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.*

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.*

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.*

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.*

104						Cover Page Interactive Data File (embedded within the Inline XBRL document).*

___________________________________________

*Filed herewith.

**Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Date: November 7, 2024						agilon health, inc.

						(Registrant)

						/s/ JEFFREY SCHWANEKE
						Jeffrey Schwaneke
						Chief Financial Officer
						(Principal Financial Officer)

agilon health, inc. - Quarter Report: 2024 September (Form 10-Q)

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