Q3 2024 Earnings Summary
- Agilon Health is exiting two unprofitable partnerships and several unprofitable payer contracts, which is expected to improve profitability in 2025. The CEO stated they are taking these actions to "accelerate our path to profitability and cash flow positive" and that other underperforming partnerships are expected to reach profitability in 2025. ,
- The company expects to end 2024 with approximately $365 million in cash, including $35 million of ACO cash, demonstrating a strong cash position to support future growth and profitability goals. They believe they have "adequate capital on the balance sheet to achieve breakeven cash flow," expected in 2027. ,
- Agilon Health has identified and is addressing gaps in their risk adjustment processes, expressing confidence that these issues are a "one-time incident" and they are "pretty comfortable we've got it covered" for 2024 and beyond, reducing the likelihood of future negative adjustments.
- Significant increase in projected cash burn for 2025 from previous expectations of $25 million to $110 million, indicating worsening financial performance and a delayed path to profitability.
- Lowered 2024 medical margin guidance to $225 million from the previous low end of $400 million to $450 million, reflecting deteriorating financial results and unexpected negative prior-period developments of approximately $100 million.
- Despite exiting two unprofitable partnerships, three out of 26 partnerships remain unprofitable, potentially requiring further actions if profitability does not improve, posing ongoing risks to financial performance.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Medicare Advantage (MA) Membership | FY 2024 | Raised to a midpoint of 519,000 members from 513,000 members | Raised to 527,000 members from previous midpoint of 519,000 members | raised |
Revenue Guidance | FY 2024 | Reduced the total revenue guidance range by $125 million | Increased the revenue midpoint by $32 million with full-year revenue guidance of $6.057 billion | raised |
Medical Margin Guidance | FY 2024 | Maintained at $400 million to $450 million | Lowered to $225 million | lowered |
Adjusted EBITDA Guidance | FY 2024 | Maintained at negative $60 million to negative $15 million | Lowered to a range of negative $135 million to negative $155 million | lowered |
Cash Usage Guidance (2024) | FY 2024 | Expected cash usage of $125 million to $150 million | Updated to approximately $165 million | raised |
Cash Usage Guidance (2025) | FY 2025 | Expected cash usage of approximately $25 million | Updated to approximately $110 million | raised |
Year-End Cash Balance | FY 2024 | no prior guidance | Expected to be approximately $365 million (inclusive of off-balance sheet cash) | no prior guidance |
Membership Reduction | FY 2024 | no prior guidance | Exiting partnerships and payer contracts will reduce projected year-end membership by 45,000–75,000 | no prior guidance |
Revenue Reduction | FY 2024 | no prior guidance | Exits will reduce annualized revenue by approximately $470 million to $785 million | no prior guidance |
2025 Medical Margin Step-Off | FY 2025 | no prior guidance | Estimated at $325 million, excluding prior period development and before the impact of strategic actions | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Profitability Improvement Initiatives | Discussed consistently in Q4 2023, Q1 2024 and Q2 2024 via performance action plans, exiting unprofitable contracts, cost management and enhancing payer relationships. | In Q3 2024, the focus is on actively exiting unprofitable partnerships, optimizing operating costs, mitigating Part D risk and managing cash flow to drive a long‐term profitability turnaround. | Consistent focus with an increased emphasis on exiting underperforming relationships and tightening cost controls, reflecting a more aggressive stance amid challenging cost pressures. |
Payer Contract Negotiations and Renewal Risks | Across Q4 2023, Q1 2024 and Q2 2024, detailed discussions were held on renegotiating contracts (including off-cycle premium adjustments, retroactive relief, and exiting certain contracts) to manage renewal risks and set up favorable 2025 terms. | Q3 2024 highlights proactive negotiations with emphasis on renewing 40% of membership, securing improved economic terms, mitigating Part D risk and introducing new economic arrangements for new partners. | Continued proactive management with a shift toward securing favorable renewal terms and risk mitigation in the near term while preparing for 2025. |
Medical Margin Guidance and Cost Management | In Q4 2023, Q1 2024 and Q2 2024, the company maintained or adjusted its full‐year guidance of $400–$450 million while noting challenges such as higher cost trends, negative risk adjustment, and measures like exiting unprofitable contracts and renegotiating terms. | Q3 2024 saw a downward revision of medical margin guidance to $225 million for the period, acknowledging a $100 million negative impact and increased fourth‐quarter cost assumptions, reflecting heightened cost pressures. | Worsening cost pressures and a more conservative outlook are evident, with margins being revised downward and cost management measures tightened amid tougher operating conditions. |
Cash Position and Cash Flow Management | Q4 2023, Q1 2024 and Q2 2024 reported solid cash balances ($500M in Q4, $426M in Q1 and $408M in Q2) with relatively lower cash usage expectations (around $125–$150M for 2024 and turning free cash flow positive by 2026). | In Q3 2024, there is an expectation of ending 2024 with about $365 million in cash, with updated higher cash usage of ~$165M and a revised breakeven cash flow target now set for 2027. | Slight deterioration in near-term cash flow expectations with increased cash usage and a pushback of cash flow breakeven, reflecting the challenges from higher cost and negative developments. |
Growth Strategy and Network Expansion | Q4 2023, Q1 2024 and Q2 2024 consistently emphasized expanding network partnerships, entering new geographies (leveraging existing infrastructure) and engaging strong physician groups, with measured approaches and selective exits. | Q3 2024 emphasizes robust MA membership growth (37% YoY reaching 525,000 members), consistent new doctor and partner additions (with the 2025 class adding ~45,000 members), while also strategically exiting certain partnerships and delaying some onboardings due to local payer dynamics. | Ongoing growth focus with clear positive membership expansion, balanced by strategic exits to drive profitability, indicating disciplined and adaptive network expansion amid evolving market conditions. |
Regulatory Impact and CMS Rate Actions | Q1 2024 and Q4 2023 mentioned regulatory impacts—Q1 highlighted disappointment in the 2025 MA rates final notice and Q4 discussed the implications of Medicare Advantage’s short repricing cycle and rising utilization trends; Q2 had indirect references via risk adjustments and MA cost trends. | Q3 2024 did not provide any specific discussion regarding regulatory impact or CMS rate actions. | Diminished emphasis in the current period; while regulatory issues remain important, they have taken a back seat in Q3 relative to earlier discussions, suggesting less immediate focus on CMS rate actions. |
Data Visibility and Forecasting Challenges | In Q4 2023, Q1 2024 and Q2 2024, efforts were made to build a robust financial data pipeline and data lake (onboarding 55%–75% of member data), though challenges with claim lags, completion ratios and limited risk adjustment data were noted. | Q3 2024 continues the push with initiatives to improve lead indicator data and financial data pipelines, while also facing challenges such as unexpected negative risk adjustment performance and persistent claims lag. | Continuous focus with ongoing investments in data infrastructure; despite progress, forecasting challenges remain, highlighting a persistent need for enhanced visibility and timely data analytics. |
Risk Adjustment Process Improvements | Q2 2024 had some comments about risk adjustment performance being lighter than expected and the impact of V28, while Q1 and Q4 did not detail process improvements specifically. | In Q3 2024, there is a notable emphasis on identifying and closing gaps in risk adjustment processes, investing in better data quality and timeliness, and even strategically exiting contracts that hinder accurate risk adjustment. | Emerging focus in Q3 with proactive measures to address previously underemphasized gaps, indicating an increased priority on strengthening risk adjustment processes to support long-term financial accuracy and performance. |
-
Cash Position and Cash Burn
Q: What's the expected cash at 2024 year-end and 2025 cash burn?
A: AGL expects to end 2024 with $365 million in cash, including about $35 million of ACO cash. They anticipate a cash burn of $110 million in 2025, up from the originally projected $25 million. -
Partnership Exits and Profitability
Q: Why is AGL exiting two partnerships and not the other three unprofitable ones?
A: AGL is exiting two partnerships due to the magnitude of losses and the time required to return to profitability. The remaining three unprofitable partnerships are closer to profitability, with several expected to become profitable in 2025 or very close to it. The decision considers the size of losses, timeline, and payer dynamics. -
Negative Risk Adjustment Impact
Q: What caused the negative risk adjustment and how is it being addressed?
A: The negative impact stems from gaps between the work done in 2023 and the actual risk scores achieved . Despite strong investments in the BOI program, expectations were higher than actual results. AGL is closing these gaps, expecting minimal impact in 2025 and a significant step-up in 2026 . -
2025 Medical Margin Baseline
Q: Is $325 million the baseline for 2025 medical margin?
A: Yes, $325 million is considered the run-rate exiting 2024, after backing out $100 million of prior period development. This serves as a baseline before the impact of exiting partnerships and other actions. -
Trend Assumptions and Seasonality
Q: What drove the Q2 cost trend revision, and how should we model trends?
A: Higher paid claims data in May increased the Q2 trend from 7.3% to 8.2%. AGL advises against using Q4 trends for modeling due to seasonality; historically, Q4 is higher than Q1. -
Part D Impact and Mitigation
Q: How much is Part D affecting margins, and what's being done?
A: Part D negatively impacts margins, but AGL isn't specifying the amount. They're mitigating exposure through carve-outs, corridors, and other arrangements with payers to improve forecasting and reduce lag in settling Part D liabilities . -
Data Exchange and Claims Delegation
Q: Is full claims delegation possible to fix data lag issues?
A: Full claims delegation isn't feasible in most markets. AGL is improving data pipelines and using lead indicator data to reduce lag in trend forecasting. Access to timely data is critical, and lack thereof has led to exiting certain payer contracts. -
Alternative Terms and Glide Path to Risk
Q: What are the new alternative terms in 2025 contracts?
A: In 2025, AGL will have first-year contracts with no downside risk and a care management fee. This glide path to full risk allows time to establish programs and data acquisition before moving to full risk in subsequent years. -
Payer Bids and Tailwinds
Q: Can you quantify the tailwinds from payer bids covering 90% of members?
A: AGL received favorable payer bids covering over 90% of membership, providing a net tailwind for next year . They are not disclosing specific numbers but note variation by market and payer . -
CMS Fee-for-Service Trend Assumption
Q: What's CMS's assumption for fee-for-service trend in ACO?
A: AGL does not have the specific CMS ACO trend number for 2024 available at this time.