Sign in

    agilon health inc (AGL)

    Q4 2023 Earnings Summary

    Reported on Feb 25, 2025 (After Market Close)
    Pre-Earnings Price$6.48Last close (Feb 27, 2024)
    Post-Earnings Price$6.12Open (Feb 28, 2024)
    Price Change
    $-0.36(-5.56%)

    What went well

    • Agilon Health is successfully negotiating improved payer economics with health plan partners, increasing the percentage of premium rates and reducing exposure to uncontrollable costs, which is expected to enhance future financial performance. , , , ,
    • The company is demonstrating strong growth prospects with the Class of 2025, adding at least five new physician groups and over 60,000 Medicare Advantage members, expanding its network to include 36 physician groups and 3,000 primary care doctors. ,
    • Agilon Health's clinical programs are effectively reducing medical costs, with inpatient medical costs down 2% in 2023, outperforming national trends, and are expected to contribute significant cost savings in 2024, improving profitability. ,

    What went wrong

    • Higher-than-expected medical costs leading to lowered guidance: agilon health has experienced higher medical costs than anticipated in 2023, resulting in a downward revision of their 2024 medical margin guidance by $155 million to $425 million at the midpoint. The company assumes that the $38 million medical margin shortfall from Q4 2023 is not seasonal and will persist into 2024 , indicating ongoing profitability challenges.
    • Data visibility issues impacting forecasting accuracy: The company acknowledged challenges with data visibility and forecasting due to receiving incomplete claims data from payers. They are now implementing a new financial data pipeline in 2024 to improve data processing and analysis , but this suggests past difficulties in accurately forecasting costs and margins, which may continue to affect financial performance.
    • Negative adjusted EBITDA and cash flow concerns: Despite expecting medical margin growth in 2024, agilon health projects an adjusted EBITDA loss of $38 million at the midpoint for 2024. Additionally, the company expects to use $125 million to $150 million of cash during 2024, raising concerns about its path to profitability and cash flow generation.

    Q&A Summary

    1. Elevated Utilization Trends
      Q: Are rising utilization trends the new normal?
      A: Management observes a dynamic utilization environment, with Q4 trend increasing to 7.7%. They expect this elevated level to persist into 2024 and have adjusted guidance accordingly.

    2. Mitigating High Medical Costs
      Q: How are you mitigating the high medical cost trends?
      A: They are focusing on clinical programs aimed at reducing unnecessary ER and inpatient visits. These programs are expected to provide a 140 basis point improvement in 2024, with inpatient medical down 2% in 2023 due to these efforts.

    3. Payer Contract Adjustments
      Q: Are payers receptive to adjusting contracts amid headwinds?
      A: Management is actively tuning payer economics by increasing their percentage of premium for capitated business and reducing exposure to elements out of their control, such as supplemental benefits. Payers recognize the value provided, and discussions are ongoing.

    4. Margin Expansion Outlook
      Q: What is the margin expansion potential for 2025?
      A: Management believes adjustments in payer bids could lead to significant improvements. For example, a $10 PMPM adjustment across 0.5 million seniors could result in an annual increase of $60 million. Payer conversations about 2025 bids are ongoing.

    5. Class of 2025 Growth
      Q: What are expectations for the Class of 2025?
      A: The Class of 2025 includes at least 5 groups and 60,000 senior patients, with a greater concentration in existing markets. There is potential for growth beyond these numbers, and they are being prudent but see opportunities within their existing footprint.

    6. Cash Flow Expectations
      Q: When do you expect positive cash flow?
      A: In 2024, they expect to use between $125 million and $150 million in cash. If they meet 2024 guidance, 2025 cash use would reduce to about $25 million to $30 million, leading to positive cash flow in 2026.

    7. Data Visibility Improvements
      Q: How is data visibility improving?
      A: They are receiving claims from their largest payer and expect to cover over 50% of members in Q1 and 75% by Q2 with consistent data sets, enhancing their ability to analyze costs and trends.

    8. Impact of Supplemental Benefits
      Q: What's the impact of supplemental benefits on guidance?
      A: Supplemental benefits are expected to be a slight headwind in 2024, about 20 basis points, which is less than the prior year. They are focusing on mitigating these costs through payer negotiations.

    9. Claims Completion Rate
      Q: What is the claims completion rate for 2023?
      A: Currently, the completion rate is about 75%, and with January claims data, they are over 80% complete for 2023, providing better visibility into medical costs.

    10. Geographical Entry Costs
      Q: Why did geographical entry costs change this year?
      A: They achieved a higher-than-projected completion rate of annual wellness visits, increasing incentives paid to physicians. This success drove up 2023 costs, but 2024 costs will be lower due to a smaller Class of 2025.

    11. Cohort Progression
      Q: Can you restore prior economic levels over time?
      A: Despite elevated costs, member cohorts from 2018–2020 are sustaining near $150 PMPM. They are focusing on reducing variability among new physicians and patients to improve economics.

    12. Platform Support Costs
      Q: How do platform support costs look for 2025?
      A: While early to provide guidance, they expect continued leverage, with growth of platform support costs well below revenue growth, achieving operating efficiencies.

    13. ACO REACH Performance
      Q: How did ACO REACH perform in the fourth quarter?
      A: They saw an acceleration in claims expense but overall beat the national benchmark. The full-year national ACO REACH trend was 6.8%, while their performance came in at 2.7%, outperforming by 410 basis points.

    14. Medical Margin for Class of 2024
      Q: Why did the Class of 2024 medical margin decline more than expected?
      A: The Class of 2024 assumption reflects the full step-up in utilization trend, with medical margin dropping from $76 PMPM to $52 PMPM due to the adjusted trend.

    15. Claims Trend for 2023
      Q: What was the actual cost trend for full year 2023?
      A: For 2023, the base claims trend without supplemental benefits is 7%, with the fourth quarter accelerating to 7.7%. Including supplemental benefits, the full-year trend goes up to 8.2%.

    Related Publications