Q2 2021 agilon health Inc Earnings Call
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Hello, everyone and welcome to the Agila and the health second quarter 2021 earnings Conference call. My name is brita and I'll be the moderator for today's event.
If you would like the opportunity to ask a question today. Please remember to press star followed by 1 on the telephone keypads and.
And I will now hand, it over to Matthew go move to stop the Matthew. Please go ahead when you're ready.
Thank you breaker good morning, and welcome to our second quarter Conference call with me. This morning, as our CESC of cell and our CFO, Tim Pendley following prepared remarks from Steve and Sam We will conduct the Q&A session before.
Before we begin I'd like to remind you that our remarks and responses to questions may include forward looking statements actual results may differ materially from those stated or implied by forward looking statements due to risks and uncertainties associated with our business. These risks and uncertainties are discussed in our SEC filings. Please note that we assume no.
Nation to update any forward looking statements.
Additionally, certain financial measures, we will discuss and this call are non-GAAP financial measures. We believe the providing these measures helps investors gain a better and more complete understanding of our financial results and is consistent with how management views our financial results of <unk>.
And for partners and East, Texas that are currently and the implementation and will go live in 2022.
Our cost of the experience of local and now statewide growth and independent primary care and the resulting benefits in terms of senior patient care quality and access is an experienced that we can see replicated further and Texas and and numerous communities and states across the country.
Now the the focus of our call I will cover for areas and my prepared remarks for.
Some highlights from our second quarter results.
And our collaboration and recently launching primary care for America.
Third and update on our progress and driving growth for new markets and 2022 and 2023.
And finally, a wrap up with some comments on direct contracting.
Starting with a few highlights from the second quarter. We were pleased with our performance of this quarter revenues increased 70% of reported basis, and we're up 58% normalized for retroactive membership from the first quarter.
Membership increased 45% and stained geography membership growth was up 17 per cent are.
Our same geography growth approach is distinctive and highly efficient as is driven by strong retention patients within existing panels, choosing Medicare advantage or new physicians, joining our anchor partners on the platform.
This quarter of strong growth was amplified as investments and and technology and tighter operational alignments with health plan partners accelerated the pull through of attributed senior patients and our partner practices.
We have added a record number of members to the agile and platform and 2021, and we now support more than 280000 senior patients.
This includes 33000 members at of January 1st of this year from new geographies, and Hartford, Buffalo and Toledo.
20000 members to existing partners and our same geographies.
More than 50000 attributed direct contracting beneficiaries added on April 1st and finally 49000 Medicare advantage members currently and implementation for January 2022.
This compares to approximately 115000 live and implementing members on the platform at the end of 2019 the.
This incredible growth reflects the flexibility of our purpose built platform to onboard and serve at the scale a diverse set of the groups and geographies and the demand among health care stakeholders for innovative primary care centric delivery models.
At the same time, our partners are growing their Medicare advantage of membership, we're seeing the strong trend of growth and underlying medical margin.
With our queue to results medical margin has advanced to $100 per member per month year to date in 2021.
This is down from last year, due to COVID-19, which significantly depressed utilization, particularly and Q2 of 2020, but overall medical margin is up from the same year to date periods and 2019.
We have made this progress despite the temporary dilution from the new members on the platform, indicating a very strong improvement from our earlier cohort patient groups.
Additionally over the same period, we've given substantial leverage against our platform support, resulting and improvement and our adjusted EBITDA.
Turning now for the launch of primary care for America.
In late June we partnered with 10, leading health care organizations, including the American Academy of family Physicians and American College of physicians to form this new group in terms of influencing the government health policy.
This collaboration is focused on demonstrating the value of primary care and the need for increased investment and innovative payment models.
The recent report from the National Academy of Sciences outlines primary care is the only discipline of medicine, where of greater supply results and better health outcomes, along with longer life expectancies and lower costs.
In the coming months primary care for America will engage policymakers through a series of briefings recommendations and round table discussions.
Now, let me turn to our progress on driving growth and new markets for 2022 and 2023.
As we have previously discussed the class of 2022 include 6 physician partner groups with 49000, Medicare advantage of members, including the 2 groups and East, Texas I mentioned earlier.
As a reminder, these members are on our platform, but won't start generating revenue until January of next year.
The class of 2022 includes of diverse set of geographies, both in terms of new and existing states as well as different levels of penetration and plan next we've made strong progress implementing these new geographies by hiring the local leadership and completing the initial technology and data integration with multiple.
New electronic medical record and payer systems.
Annual wellness visits or tracking in line with our plan and we continue to make strong progress on contracted with new health plans in the 6 markets.
With respect to the pipeline for new partners and 2023, our business development team has made great progress and the last couple of months the pace and tempo and this work is very encouraged with signed letters of intent or advanced dialogue with multiple groups and the new markets, both and existing and new states.
This development work will continue through the back half of this year and what we will share more holistic details and future calls we remind you that implementation for signed letter of intent groups will begin in the coming months.
Within the class of 2023, and we are seeing higher levels of interest in the operating and integrated Medicare line of business income of seen both Medicare advantage and direct contracting and each of these groups is compelled by the opportunity to shift their senior patients to a subscription based total care model.
With the additions from the class of 2022, and the strong and 2023 prospects. Our network continues to grow and impressive rates and we are leveraging this breath to share best practices accelerate onboarding and improve outcomes for senior patients are partners and agile on.
And late July we gathered was 60 physician partners for 3 days and traverse City, Michigan for a retreat. We were hosted by 1 of our new partners and the gap gathering included all of our existing partners. The entire class of 2022 as well as potential members of the class of 2023 the energy.
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Let me close by providing and update on direct contracting we have been pleased with our initial performance and this new program. While it's still early or launch has gone the relatively smoothly and attributed membership and adjusted EBITDA came and modestly above our initial expectations.
Importantly, our physician partners are already noticing the benefits of operating consistently across the entire Medicare line of business.
Over the past several months, we've been able to spend time with the Medicare Innovation center as well as members of Congress and other interested stakeholders to discuss the program. We've been encouraged with the dialogue and hope to advanced policies that could improve the sustainability and predictability of the program and.
As I said on prior calls government programs changed over time, but we continue to believe direct contract and is fundamentally aligned with the administration's goals of improving equity and access to primary care delivery models over.
Over the next few months, we will of Formalise, our plans for participating in the direct contract and program with new and existing partners in 2022, and we expect to update you on those decisions and our next call with that I will now turn the call over to Tim.
Thanks, Steve and good morning, everyone I'll review some highlights from our financial statements and provide some additional details and our guidance for the third quarter and full year 2021, starting with membership membership increased by 45% on a year over year basis. During the second quarter to approximately 182000 and membership growth was driven.
By a combination of the same geography growth and the impact and 3 new geographies. The went live in January.
The same geography membership growth with 17% for the second quarter similar to the last quarter same geography growth was broad based across market with all of our same geography's growing at or above the national growth rate for Medicare advantage of enrollment.
<unk> membership was approximately 194000 during the quarter, which was up 57% from last year and it's important to keep in mind that our average membership metric includes 13000 retroactive members attributes of the first quarter.
This retro impact reflects the large group contract we mentioned on the last call. Additionally, as the referenced average membership benefitted from faster member of attribution during the quarter, which drove some additional retro impact.
Revenue increased 70% or and a year over year basis.
The $499 million year to date revenues increased 56% to $912 million second quarter results include $35 million and retro revenue associated with the first quarter. Excluding this revenue growth would of been 58% and the quarter.
Revenue growth was primarily driven by membership gains from new geographies and same geography's of.
On a per member of per month basis or PM PM revenue increased 8.5% during the second quarter. The increase the revenue PM PM was primarily driven by update the CMS County, benchmarks change changes and number of and member of acuity or burden of illness.
And 1 extra month of secret duration suspension relative to prior year of.
Additionally, revenue PM PM was also impacted by a few year to day true ups and the mixed impact from retro members revenue PM PM growth would of been closer to 6% normalized for these true ups retro mix and the secret duration benefit.
Medical margin was $55 million during the second quarter compared to $72 million and the prior year on the year to date basis medical margin was $107 million compared to $114 million during the same period last year.
The year over year decline and medical margin reflect the lower utilization and prior year due to COVID-19, which more than offset the positive impact and clinical programs and the maturation of numbers on the platform.
Medical margin on the PM PM basis was $95 during the second quarter compared to $195 and the prior year, but was roughly consistent with $106 and the first quarter of 2021.
Network contribution, which is defined as medical margin after the surplus sharing with a physician partners was $24 million during the second quarter compared to $39 million and the prior year on a year to date basis network contribution was $54 million compared to $63 million last year, the year over year decline and network.
Contribute share and primarily reflects the COVID-19 impact on prior year medical margin.
Platform support costs, which include market and enterprise level of G&A increased 22% of $31 million on a year to date basis platform support costs increased 21% of $59 million the growth and our platform support cause remains well below a revenue growth, which highlight the light overhead structure of our partnership model.
As the percent of revenue platform support with 6% during the second quarter down from approximately 9% and the prior year on of Pnp and basis platform support declined approximately 20%.
Sid EBITDA for the quarter was negative $2 million versus positive $14 million and the prior year on a year to date basis, adjusted EBITDA was positive $2 million compared deposits $60 million last year the.
The year over year changed to adjusted EBITDA reflects the dynamics. We previously discussed for medical margin. This was partially offset by leverage against platform support costs and contributions from direct contracting which is included and other income.
Turning to our balance sheet and cash flow and we ended the quarter with $50 million and debt outstanding and $1.1 billion and cash which reflects proceeds from the initial public offering we completed and April.
Cash flow from operations with negative $39 million and the quarter, which included of $12 million premium payment for public company, DNO insurance $10 million and geography entry costs and capital support $8 million and annual incentive comp as well as $4 million and severance expense triggered by the IPO.
Turning to our financial guidance for the third quarter and full year 2021 for.
For the third quarter, we expect ending membership and a range of 183000 to 184000 and revenue and a range of $450 million to $453 million the sequential decline and revenue from second quarter results. The third quarter guidance is primarily due to the revenue from retroactive membership that we recognized and the second.
Quarter.
For the full year 2021, and we have increased our ending membership outlook to a range of of 184000 to 185000, and our revenue outlook to a range of 1.81 billion to $182 billion.
We continue to expect adjusted EBITDA loss of 41 million to $38 and $38 million.
We expect the adjusted EBITDA loss will be somewhat weighted to the fourth quarter. This is due to the normal seasonality and our expectation that utilization and will approach pre COVID-19 levels as we move through the year of.
Additionally, our adjusted EBITDA outlook reflects the temporary dilution from higher membership growth and and unchanged view of full year profitability for direct contracting with that we're now ready to take your questions operator.
Thank you. Thank you would like to ask the question came from and about a star followed by 1 and you're kind of think keypads.
And she changed your mind, the anytime Keith K, 2 and made the question.
The first question, we have comes from Janet Hail from day, Shebang fishing and is.
And can you kind of hacking and I think.
Good morning, guys, and that's George Health and Deutsche Bank and I. Appreciate you guys taking the question.
Could you talk a little bit more of the attribution as a driver of the strong membership number in queue too and then of quick kind of follow up question would be.
The other medal of medical expense kind of came and a little hide and we expect by now it's kind of a small number will just love and incremental calling that you can provide are on that.
Sure of.
Thanks George.
And I'll take the first 1 Tim and and you can take the second 1 so.
George I think we're really pleased with our strong growth and the quarter.
Attribution I think is something that we do really well and has a distinctive part of our model.
It allows us to work very closely with health plans and get more members attributed to our partners.
We are making investments and technology and working on operations with our health plan partners to do that and so the the biggest driver of the step up from the 15% same geography growth for the 17% that you saw.
And Q2 really was around attribution. These are members that typically we might have expected to bring out of the platform and the back half of the year, but by getting a better process and the technology and we were able to pull them into the first half of the year.
And of Tim shared and his remarks, they are of retroactive to January 1st of this year and I think that was about 3100 of the members that you see within the the retroactivity. So area of of strength 1 that we think we're getting better at all the time.
Disproportion amount of those members or PPO, which is an area of of strength for us. So hopefully that gives the context, yes, yes, thanks, George and overall the.
The medical margin number and at the MGM basis that were reported and the quarter of $95 NFC of said the and the overall medical margin Pnp and your date of $100 is pretty much in line with where we expected expected it to be and that $100. Obviously is down versus prior year because of the advancement other medical expenses of other medical true Oh, I'm, sorry, I thought I thought we were.
Talking about all of other medical expenses were up and.
And.
Overall other medical expenses essentially are include R. A W. V incentives that we pay to to a physician partner that can be kind of lumpy on a quarter to quarter basis, depending on when those awd's happened and when we pay those incentives.
So when the number is up it means that work is the was talking to other actually and really good shape, so far and getting our awd's uncompleted earlier and the year and then paying those incentives out.
And I can talk more about the medical margin year over year of if you want you to Joshua.
Well you know what that's great color I'll pause, there and I'll hop back and the care and all that other people ask some questions. Thank you.
Thank you the next question coming from.
Kevin and Fishback of Bank of America say, Kevin. Please go ahead.
Hey, Thanks is actually of Adam on for Kevin off the back to your comment about the medical costs seems like.
<unk> EBITDA and the quarter and you don't guide to MLR, but it came and a little higher and then while we were estimating and I got the consensus.
But then you also reiterated EBITDA for the year, even though your feet. So I would just kind of wondering.
Thoughts on the medical costs utilization patterns, and then by reiterating EBITDA basically expecting higher costs and the back half. Thanks.
Yeah, So I can start and the tin can chime in.
On the first day I think we're pleased by where we're at from medical margin I think the biggest the fact of of medical margin.
Coming in and where it did is the dilution of effect.
Of the the new members coming on the platform right. There has been incredible growth 53000 of our members of 30% of our June 30th membership has come on since January 1st of this year.
And those those members obviously, new members always will come in at lower medical margins that and more mature.
Cohorts over time, and as we look internally at that progression Adam I think we're really encouraged by the improvement that we're seeing in our earlier patient cohort groups as.
As we said in our and our prepared remarks. So that's.
That's kind of commentary and medical margin.
Asked about EBITDA guidance and the back half of the year.
I think the pair face that we're keeping our EBIT the guidance and lying even though we beat in queue too and and we're we're reflecting of higher revenues I mean, I think the biggest parts of that.
And there is a few packs of the 2 I'd really call out is 1 is with him talked about around direct contracting right. So we're even though we were higher than expected and we had initially expected and Q2, we're not changing our full year outlook on that new government program.
And so we're just we're taking that that approach as we're getting we will get more information over the next couple of months and then the second part is just the dilutive effect of those new members coming on and.
And then yeah, and if I can I can just quickly quantify the impact of that first direct contracting impact it's direct contract and contributed about 2 and a half million dollars to our adjusted EBITDA and the quarter and as the said and for the factors you've talked about we expect that on the full year to migrate back to original expectation of around breakeven for the full year. So we're not flowing that too.
The $5 million.
Through and the second half guidance.
And got it thanks.
Thank you and we now have the next question from test and light and school free for that.
Test and please go ahead and you are at all.
And it is Harrison on current cast and just thinking about 1 question mechanically on the direct contracting.
We're kind of a.
Guess forward your direct contact and.
Would you normally expect enter your <expletive> from from the.
Program and I know most of it's kind of the line and say.
And then they come in at the beginning of the year, but would you expect any and for your ads for maybe.
And and and the other line and and that's it and then.
And then.
People expiring kind of contributed to general decline throughout the year.
I think that we might see sort of modest and.
And throughout the year through the voluntary attribution process that you talked about.
Harrison.
The vast majority of our members are coming through that claims based approach state and talked about.
I think there will be kind of of progression and it looks a little bit like Medicare advantage throughout the year and so I think we think if the growth and will be relatively modest throughout the year for direct contracting, but it's it's early and we're going to see sort of how it plays through.
Got it and can I appreciate it.
And the reminder, if you would like to ask any fact the question. Please press staffing and buy 1 and you kind of think he pets.
And we now have a question from 9 and 10 years of 20 and Dash 9. Please go ahead.
Yeah, guys congrats on the quarter and thanks for taking the questions and another 1 and direct contracting obviously, but a nice contribution.
For a short period relative to what you expect and I'm curious other than conservatism will could actually bring the EBITDA down to break even for the full year, so kind of turn that into a loft and and the second half of the year of their investments or changes. Thanks.
Yeah, I think Ryan and what we've got is early information from our claims and and revenue perspective, we're going to be getting a lot more information here in the next month or 2 so I think it's really sort of better visibility and.
On that which would be the biggest.
Driver that would would drive it there and then I think there's also just this seasonal progression that Tim talked about and his remarks, and which direct contracting while soda of follow the same path as anime.
And which you see lower medical margin and therefore, it obviously lower overall EBIT.
And in the back half of the year and.
And just the tack onto that and like in the <unk> business. We do expect that utilization is going to increase in the back half of the year of our so it was on Q2. So we would expect that the profitability under a contracting would that would contribute to the lower profitability and the second half of the year also.
Okay that makes sense and then you mentioned in your pipeline conversations with new provider groups and they're looking for more integrated Medicare solutions with both MAA and the.
She is that giving you and advantage given the you are already and the D. C program 1 of 3 dozen or so such the those you'd want that integrated solution of a more limited set of potential partners given the things that aren't already and can kind of go into it next year. Thanks.
Yeah, Thanks, Ryan and I think it does give us an advantage.
And we have.
5 active dce's and and for more of that.
And come online and 2022, we have the ability to add.
New physician groups in underneath those and.
And so the ability to have it integrated full Medicare line of business is very attractive to these groups and different Emma penetration rates and in different markets. As you look at the as we as we look at new States.
So we see it as a real advantage.
Okay. Thank you I'll hop back and the cute.
Okay.
And you have had my side of the question. So how did that come at day.
Great and we appreciate your interest and the company and we look forward to speaking with you at the future calls and future events and thank you.
Thanks to everyone.
Ladies and gentlemen, and that does cocaine. Thanks cool. Thank you and again for joining he may now disconnect your lines.
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