# agilon health, inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [agilon health, inc.](/companies/agl.md) (CIK 1831097)
- Form: 10-Q
- Filed: 2023-08-03
- Accepted by EDGAR: Aug 3, 2023, 16:08 ET
- Period: 2023-06-30
- Accession: 0001628280-23-027201
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1831097/000162828023027201/agl-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1831097/000162828023027201/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $1.15bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $2.29bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | −$29.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | −$23.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $1.6m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-01-01 to 2023-06-30 | $3.1m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $1.1m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | −$686.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | −$16.7m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | −$727.0k | us-gaap:NetIncomeLoss |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 410,338,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 411,748,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | −$82.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $7.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 6 months, 2023-01-01 to 2023-06-30 | $200.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-06-30 | $191.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $2.04bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $2.35bn | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $1.36bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $1.47bn | us-gaap:Liabilities |
| Long-term debt | at 2023-06-30 | $36.0m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-06-30 | $5.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-06-30 | $880.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 57,950 characters.

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

### Cautionary Language Regarding Forward-Looking Statements

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

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

- our history of net losses, and our ability to achieve or maintain profitability in an environment of increasing expenses;
- our ability to identify and develop successful new geographies, physician partners and health plan payors, and to execute upon our growth initiatives and achieve required operational scale;
- our ability to execute our operating strategies or to achieve results consistent with our historical performance;
- our expectation that our expenses will increase in the future and the risk that medical expenses incurred on behalf of members may exceed the amount of medical revenues we receive;
- our ability to secure contracts with Medicare Advantage (“MA”) payors and to ensure such contracts are on financial terms sufficient to meet our financial targets;
- our ability to recover startup costs incurred during the initial stages of development of our physician partner relationships and program initiatives;
- our ability to obtain additional capital needed to support our business;
- significant reductions in our membership;
- challenges for our physician partners in the transition to our “Total Care Model”;
- inaccuracies in the estimates and assumptions we use to project the size, revenue or medical expense amounts of our target market;
- the spread of, and response to, COVID-19, potential new variants of COVID-19 and entirely new pandemics, and the inability to predict the ultimate impact of pandemics on us;
- inaccuracies in the estimates and assumptions we use to project our members’ risk adjustment factors, medical services expense, incurred but not reported claims, and earnings under payor contracts;
- the impact of restrictive or exclusivity clauses in some of our contracts with physician partners that may prohibit us from establishing new risk-bearing entities (each, an “RBE”) within certain geographies in the future;
- the impact of restrictive or exclusivity clauses in some of our contracts with physician partners that may subject us to investigations or litigation;
- our ability to retain our management team and key employees or attract qualified personnel in the future;
- our ability to realize the full value of our intangible assets and any negative impact from impairment charges we may record;
- security breaches, loss of data and other disruptions to our data platforms could adversely impact us;
- our ability to protect the confidentiality of our know-how and other proprietary and internally developed information;
- our responsibility for certain liabilities in connection with the disposition of our California operations;
- our subsidiaries’ lack of performance or ability to fund their operations could require us to fund such losses;
- our dependence on a limited number of key health plan payors;
- our contracts with our payors are for limited terms and may not be renewed upon their expiration;
- our reliance on our health plan payors for membership attribution and assignment, data and reporting accuracy, and claims payment;
- our dependence on physician partners and other providers to effectively manage the quality and cost of care, and perform obligations under payor contracts;
- difficulties in obtaining accurate and complete diagnosis data;
- our dependence on physician partners to accurately, timely and sufficiently document their services and potential regulatory or other liability if any diagnosis information or encounter data are inaccurate or incorrect;
- we rely on third party software and data to operate our business and restrictions on the use of third-party resources could adversely affect us;
- our reliance on third parties for internet infrastructure and bandwidth to operate our business and provide services to our members and physician partners;
- consolidation in our industry could adversely impact us;
- reductions in reimbursement rates or methodology applied to derive reimbursement from, or discontinuation of, federal government healthcare programs, from which we derive substantially all of our total revenue;
- uncertain or adverse economic conditions, including a downturn or decrease in government expenditures, including as a result of an inability or failure by the U.S. federal government to fund Medicare;
- our ability to compete in our industry;
- the impact of government performance standards and benchmarks on our compensation and reputation;
- statutory or regulatory changes, administrative rulings, interpretations of policy, and determinations by intermediaries and governmental funding restrictions, and their impact on government funding, program coverage, and reimbursements;
- regulatory proposals directed at containing or lowering the cost of healthcare and our participation in such proposed models;
- we, our physician partners or affiliates being subject to federal or state investigations, audits and enforcement actions;
- regulatory inquiries and corrective action plans imposed by our health plan payors;
- repayment obligations arising out of payor audits;
- the impact on our revenue of Centers for Medicare & Medicaid Services’ (“CMS”) modifying the methodology used to determine the revenue associated with MA members;
- negative publicity regarding the managed healthcare industry;
- the extensive regulation of the healthcare industry at the federal, state, and local levels;
- if our physician alignment strategies with our physician partners, including the formation of risk and shared savings pools, making downstream payments and joint venture arrangements, are not in compliance with the state and federal fraud and abuse laws, including physician incentive plan laws and regulations, we could be subject to penalties;
- our business development and member engagement activities may implicate laws and regulations regarding marketing, beneficiary inducements, telemarketing and the use of protected health information;
- our physician partners are subject to federal and state healthcare fraud and abuse regulations;
- our use, disclosure and processing of personally identifiable information, personal health information, and de-identified data is subject to HIPAA and state patient confidentiality laws, and our failure to comply with those regulations or to adequately secure the information we hold could adversely impact us;
- our failure to obtain or maintain an insurance license, a certificate of authority or an equivalent authorization allowing our participation in downstream risk-sharing arrangements with payors could adversely impact us;
- laws regulating the corporate practice of medicine could restrict the manner in which we are permitted to conduct our business, and the failure to comply with such laws, or any changes to such laws or regulations or similar laws or regulations could adversely impact us;
- if we or our physician partners inadvertently employ or contract with an excluded person, we may face government sanctions;
- we may face litigation not covered by insurance;
- our indebtedness and the potential that we may incur additional substantial indebtedness;
- the agreements and instruments governing our indebtedness contain restrictions and limitations that could adversely impact us;
- agilon health is a holding company with no operations of its own, and it depends on its subsidiaries for cash to fund all of its operations and expenses;
- under our Certificate of Incorporation, the CD&R Investor and its affiliates and, in some circumstances, each of our directors and officers who is also a director, officer, employee, member or partner of the CD&R Investor and its affiliates, have no obligation to offer us corporate opportunities;
- anti-takeover provisions in our certificate of incorporation and by-laws could discourage, delay or prevent a change of control of our company and may affect the trading price of our common stock;
- we do not intend to pay dividends on our common stock for the foreseeable future and, consequently, a shareholder’s return on investment depends on appreciation in the price of our common stock;
- our certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or stockholders;
- we identified material weaknesses in our internal control over financial reporting and, if our remedial measures are insufficient to address the material weaknesses, or if significant deficiencies or material weaknesses in our internal control over financial reporting are discovered or occur in the future, it may adversely affect us; and
- risks related to other factors discussed under “Risk Factors” in Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

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

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

- Overview and Recent Developments
- Key Financial and Operating Metrics
- Key Components of Our Results of Operations
- Results of Operations
- Non-GAAP Financial Measures
- Liquidity and Capital Resources
- Critical Accounting Policies and Estimates
- Recent Accounting Pronouncements

### Overview and Recent Developments

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

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

### Second Quarter 2023 Results:

- Medicare Advantage members of approximately 408,900 as of June 30, 2023 increased 57% from June 30, 2022.
- ACO REACH attributed beneficiaries of approximately 87,000 as of June 30, 2023 decreased 4% from June 30, 2022.
- Total revenue of $1.15 billion increased 71% from the second quarter of 2022.
- Gross profit of $57 million, compared to $34 million in the second quarter of 2022.
- Medical margin of $138 million, compared to $82 million in the second quarter of 2022.
- Net loss of $17 million, compared to $21 million in the second quarter of 2022.
- Adjusted EBITDA of $10 million in the second quarter compared to an Adjusted EBITDA loss of $3 million in the second quarter 2022.

### Year to Date 2023 Results:

- Total revenue of $2.29 billion increased 73% from the first half of 2022.
- Gross profit of $134 million, compared to $76 million in the first half of 2022.
- Medical margin of $300 million, compared to $168 million in the first half of 2022.
- Net loss of $1 million, compared to $20 million in the first half of 2022.
- Adjusted EBITDA of $34 million compared to $5 million in the first half of 2022.

### Membership Details

Medicare Advantage members increased 57% from June 30, 2023, which includes contributions from new geographies and growth within geographies existing prior to 2023. Total members live on the platform includes 408,900 Medicare Advantage members and 87,000 attributed ACO REACH beneficiaries.

Average Medicare Advantage membership was 409,700 during the second quarter of 2023.

### Key Financial and Operating Metrics

*All of our key metrics exclude historical results from our California operations (which are included as discontinued operations in our condensed consolidated financial statements).*

We monitor the following key financial and operating metrics to help us evaluate our business, identify trends affecting our business, formulate business plans and make strategic decisions. We believe the following key metrics are useful in evaluating our business (dollars in thousands):

|  | As of and For the Three Months Ended June 30, 2023 | 2022 | % Change | As of and For the Six Months Ended June 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| MA members | 408,900 | 261,200 | 57 | 408,900 | 261,200 | 57 |
| Medical services revenue | $1,147,044 | $669,184 | 71 | $2,281,874 | $1,321,607 | 73 |
| Gross profit | $57,193 | $33,914 | 69 | $134,489 | $76,378 | 76 |
| Medical margin(1) | $138,310 | $82,044 | 69 | $300,313 | $168,259 | 78 |
| Platform support costs | $46,869 | $36,291 | 29 | $94,547 | $70,104 | 35 |
| Net income (loss) | $(16,795) | $(20,731) | 19 | $(836) | $(19,576) | 96 |
| Adjusted EBITDA(1) | $10,259 | $(2,679) | 483 | $34,119 | $5,366 | 536 |

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

### Medicare Advantage Members

Our MA members include all individuals enrolled in an MA plan that are attributed to the PCPs on our platform at the end of a given period.

### Medical Services Revenue

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

### Gross Profit

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

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

|  | Three Months Ended June 30, 2023 | 2022 | Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Total revenues | $1,149,052 | $670,134 | $2,285,199 | $1,323,579 |
| Medical services expense | (1,008,734) | (587,140) | (1,981,561) | (1,153,348) |
| Other medical expenses(1) | (83,125) | (49,080) | (169,149) | (93,853) |
| Gross profit | $57,193 | $33,914 | $134,489 | $76,378 |

(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 June 30, 2023 and 2022, costs incurred in implementing geographies were $7.7 million and $3.6 million, respectively. For the six months ended June 30, 2023 and 2022, costs incurred in implementing geographies were $10.0 million and $3.7 million, respectively.

### Medical Margin

We define medical margin as medical services revenue after medical services expense is deducted. Medical services expense represents costs incurred for medical services provided to our members. As our platform matures over time, we expect medical margin to increase in absolute dollars. However, medical margin PMPM may vary as the percentage of new members brought onto our platform fluctuates. New membership added to the platform is typically dilutive to medical margin PMPM.

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

### Platform Support Costs

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

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

|  | Three Months Ended June 30, 2023 | 2022 | Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Platform support costs | $46,869 | $36,291 | $94,547 | $70,104 |
| % of Revenue | 4% | 5% | 4% | 5% |

### Net Income (Loss) and Adjusted EBITDA

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

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

### Key Components of Our Results of Operations

### Revenues

#### Medical Services Revenue

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

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

### Operating Expenses

#### Medical Services Expense

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

#### Other Medical Expenses

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

#### General and Administrative

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

#### Depreciation and Amortization

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

### Other Income (Expense)

#### Other Income (Expense), Net

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

- Equity income (loss) from unconsolidated joint ventures; and
- 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.

### Results of Operations

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

| Revenues: | Three Months Ended June 30, 2023 | 2022 | Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Medical services revenue | $1,147,044 | $669,184 | $2,281,874 | $1,321,607 |
| Other operating revenue | 2,008 | 950 | 3,325 | 1,972 |
| Total revenues | 1,149,052 | 670,134 | 2,285,199 | 1,323,579 |
| **Expenses:** |  |  |  |  |
| Medical services expense | 1,008,734 | 587,140 | 1,981,561 | 1,153,348 |
| Other medical expenses | 83,125 | 49,080 | 169,149 | 93,853 |
| General and administrative (including noncash stock-based compensation expense of $19,572, $6,553, $33,244 and $10,523, respectively) | 81,499 | 51,924 | 148,345 | 91,758 |
| Depreciation and amortization | 5,515 | 3,042 | 9,704 | 6,415 |
| Total expenses | 1,178,873 | 691,186 | 2,308,759 | 1,345,374 |
| **Income (loss) from operations** | (29,821) | (21,052) | (23,560) | (21,795) |
| **Other income (expense):** |  |  |  |  |
| Other income (expense), net | 15,687 | 6,997 | 25,159 | 9,266 |
| Gain (loss) on lease terminations | — | (5,458) | — | (5,458) |
| Interest expense | (1,588) | (945) | (3,121) | (1,816) |
| **Income (loss) before income taxes** | (15,722) | (20,458) | (1,522) | (19,803) |
| Income tax benefit (expense) | (1,073) | (580) | 686 | (509) |
| **Income (loss) from continuing operations** | (16,795) | (21,038) | (836) | (20,312) |
| **Discontinued operations:** |  |  |  |  |
| Income (loss) before income taxes | — | 321 | — | 750 |
| Income tax benefit (expense) | — | (14) | — | (14) |
| **Total discontinued operations** | — | 307 | — | 736 |
| **Net income (loss)** | (16,795) | (20,731) | (836) | (19,576) |
| Noncontrolling interests’ share in (earnings) loss | 46 | 82 | 109 | 157 |
| **Net income (loss) attributable to common shares** | $(16,749) | $(20,649) | $(727) | $(19,419) |

28

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

| Revenues: | Three Months Ended June 30, 2023 | 2022 | Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Medical services revenue | 100% | 100% | 100% | 100% |
| Other operating revenue | — | — | — | — |
| Total revenues | 100 | 100 | 100 | 100 |
| **Expenses:** |  |  |  |  |
| Medical services expense | 88 | 88 | 87 | 87 |
| Other medical expenses | 7 | 7 | 7 | 7 |
| General and administrative (including noncash stock-based compensation expense of 2%, 1%, 1% and 1%, respectively) | 7 | 8 | 6 | 7 |
| Depreciation and amortization | — | — | — | — |
| Total expenses | 103 | 103 | 101 | 102 |
| **Income (loss) from operations** | (3) | (3) | (1) | (2) |
| **Other income (expense):** |  |  |  |  |
| Other income (expense), net | 1 | 1 | 1 | 1 |
| Gain (loss) on lease terminations | — | (1) | — | — |
| Interest expense | — | — | — | — |
| **Income (loss) before income taxes** | (1) | (3) | — | (1) |
| Income tax benefit (expense) | — | — | — | — |
| **Income (loss) from continuing operations** | (1) | (3) | — | (1) |
| Discontinued operations: |  |  |  |  |
| Income (loss) before income taxes | — | — | — | — |
| Income tax benefit (expense) | — | — | — | — |
| Total discontinued operations | — | — | — | — |
| **Net income (loss)** | (1) | (3) | — | (1) |
| Noncontrolling interests’ share in (earnings) loss | — | — | — | — |
| **Net income (loss) attributable to common shares** | (1)% | (3)% | —% | (1)% |

### Comparison of the Three and Six Months Ended June 30, 2023 to the Three and Six Months Ended June 30, 2022

### Medical Services Revenue

*(dollars in thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Medical services revenue | $1,147,044 | $669,184 | $477,860 | 71% |
| % of total revenues | 100% | 100% |  |  |

Medical services revenue increased for the three months ended June 30, 2023 due primarily to growth in average membership of 54%, which was attributable to eight new geographies that began to generate revenue in 2023 and growth in our existing geographies. The increase in medical services revenue for the three months ended June 30, 2023 was also driven, to a lesser extent, by an increase in PMPM capitation rates of 11%.

*(dollars in thousands)*

|  | Six Months Ended June 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Medical services revenue | $2,281,874 | $1,321,607 | $960,267 | 73% |
| % of total revenues | 100% | 100% |  |  |

Medical services revenue increased for the six months ended June 30, 2023 due primarily to growth in average membership of 58%, which was attributable to eight new geographies that began to generate revenue in 2023 and growth in our existing geographies. The increase in medical services revenue for the six months ended June 30, 2023 was also driven, to a lesser extent, by an increase in PMPM capitation rates of 10%.

### Medical Services Expense

*(dollars in thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Medical services expense | $1,008,734 | $587,140 | $421,594 | 72% |
| % of total revenues | 88% | 88% |  |  |

Medical services expense increased for the three months ended June 30, 2023 due primarily to growth in average membership of 54%, which was attributable to eight new geographies that became operational in 2023 and growth in our existing geographies. The increase in medical services expense for the three months ended June 30, 2023 was also driven, to a lesser extent, by an increase in average medical services expense per member of 11%.

*(dollars in thousands)*

|  | Six Months Ended June 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Medical services expense | $1,981,561 | $1,153,348 | $828,213 | 72% |
| % of total revenues | 87% | 87% |  |  |

Medical services expense increased for the six months ended June 30, 2023 due primarily to growth in average membership of 58%, which was attributable to eight new geographies that became operational in 2023 and growth in our existing geographies. The increase in medical services expense for the six months ended June 30, 2023 was also driven, to a lesser extent, by an increase in average medical services expense per member of 9%.

### Other Medical Expenses

*(dollars in thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Other medical expenses | $83,125 | $49,080 | $34,045 | 69% |
| % of total revenues | 7% | 7% |  |  |

Other medical expenses increased by $34.0 million, or 69%, for the three months ended June 30, 2023 compared to 2022. Partner physician incentive expense increased by $18.3 million to $44.7 million in 2023 compared to $26.4 million in 2022. Other provider costs increased by $15.7 million to $38.4 million in 2023 compared to $22.7 million in 2022, resulting from the increase in the number of geographies and members on our platform. Other provider costs for the three months ended June 30, 2023 include $7.7 million of costs related to geographies that will become operational in January 2024, while other provider costs for the three months ended June 30, 2022 include $3.6 million of costs related to geographies that became operational in 2023.

*(dollars in thousands)*

|  | Six Months Ended June 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Other medical expenses | $169,149 | $93,853 | $75,296 | 80% |
| % of total revenues | 7% | 7% |  |  |

Other medical expenses increased by $75.3 million, or 80%, for the six months ended June 30, 2023 compared to 2022. Partner physician incentive expense increased by $48.6 million to $102.4 million in 2023 compared to $53.8 million in 2022. Other provider costs increased by $26.7 million to $66.8 million in 2023 compared to $40.1 million in 2022, resulting from the increase in the number of geographies and members on our platform. Other provider costs for the six months ended June 30, 2023 include $10.0 million of costs related to geographies that will become operational in January 2024, while other provider costs for the six months ended June 30, 2022 include $3.7 million of costs related to geographies that became operational in 2023.

### General and Administrative

*(dollars in thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| General and administrative | $81,499 | $51,924 | $29,575 | 57% |
| % of total revenues | 7% | 8% |  |  |

General and administrative expenses increased $29.6 million, or 57%, for the three months ended June 30, 2023 compared to 2022. Operating costs to support our live geographies and enterprise functions (platform support costs) increased by $10.6 million to $46.9 million in 2023 compared to $36.3 million in 2022 due primarily to growth in operating costs incurred to support geographies that became operational in 2023. Operating costs to support our live geographies and enterprise functions as a percentage of revenue decreased to 4% for the three months ended June 30, 2023 compared to 5% for the same period in 2022. Investments to support geography entry increased to $11.3 million in 2023, compared to $6.6 million in 2022 due to increased costs associated with our geographies that become operational in the following calendar year and expansion into existing geographies. Stock-based compensation expense increased $13.0 million in 2023 primarily due to the granting of certain stock-based instruments to third parties after the second quarter of 2022.

*(dollars in thousands)*

|  | Six Months Ended June 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| General and administrative | $148,345 | $91,758 | $56,587 | 62% |
| % of total revenues | 6% | 7% |  |  |

General and administrative expenses increased $56.6 million, or 62%, for the six months ended June 30, 2023 compared to 2022. Operating costs to support our live geographies and enterprise functions (platform support costs) increased by $24.4 million to $94.5 million in 2023 compared to $70.1 million in 2022 due primarily to growth in operating costs incurred to support geographies that became operational in 2023. Operating costs to support our live geographies and enterprise functions as a percentage of revenue decreased to 4% for the six months ended June 30, 2023 compared to 5% for the same period in 2022. Investments to support geography entry increased to $20.6 million in 2023, compared to $10.4 million in 2022 due to increased costs associated with our geographies that become operational in the following calendar year and expansion into existing geographies. Stock-based compensation expense increased $22.7 million in 2023 primarily due to the granting of certain stock-based instruments to third parties after the second quarter of 2022.

### Other income (expense), net

*(dollars in thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Other income (expense), net | $15,687 | $6,997 | $8,690 | 124% |
| % of total revenues | 1% | 1% |  |  |

Other income (expense), net increased $8.7 million, or 124%, for the three months ended June 30, 2023 compared to 2022 primarily from interest income as a result of our marketable securities investments, which were made at the end of the second quarter of 2022, and equity income from our ACO REACH equity investments as a result of stronger performance during 2023 compared to 2022.

*(dollars in thousands)*

|  | Six Months Ended June 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Other income (expense), net | $25,159 | $9,266 | $15,893 | 172% |
| % of total revenues | 1% | 1% |  |  |

Other income (expense), net increased $15.9 million, or 172%, for the six months ended June 30, 2023 compared to 2022 primarily from interest income as a result of our marketable securities investments, which were made at the end of the second quarter of 2022, and equity income from our ACO REACH equity investments as a result of stronger performance during 2023 compared to 2022.

### 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 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. We believe this metric provides insight into the economics of our capitation arrangements as it includes all medical services expense directly associated with our members’ care.

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 GAAP measure to medical margin. Net income (loss) is the most directly comparable 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.

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 June 30, 2023 | 2022 | Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Gross profit(1) | $57,193 | $33,914 | $134,489 | $76,378 |
| Other operating revenue | (2,008) | (950) | (3,325) | (1,972) |
| Other medical expenses | 83,125 | 49,080 | 169,149 | 93,853 |
| Medical margin | $138,310 | $82,044 | $300,313 | $168,259 |

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

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 June 30, 2023 | 2022 | Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net income (loss) | $(16,795) | $(20,731) | $(836) | $(19,576) |
| (Income) loss from discontinued operations, net of income taxes | — | (307) | — | (736) |
| Interest expense | 1,588 | 945 | 3,121 | 1,816 |
| Income tax expense (benefit) | 1,073 | 580 | (686) | 509 |
| Depreciation and amortization | 5,515 | 3,042 | 9,704 | 6,415 |
| (Gain) loss on lease terminations | — | 5,458 | — | 5,458 |
| Severance and related costs(1) | — | 256 | 188 | 1,958 |
| Stock-based compensation expense | 19,572 | 6,553 | 33,244 | 10,523 |
| EBITDA adjustments related to equity method investments | 2,757 | 492 | 4,724 | 1,663 |
| Other(2) | (3,451) | 1,033 | (15,340) | (2,664) |
| Adjusted EBITDA(3) | $10,259 | $(2,679) | $34,119 | $5,366 |

(1) For the three and six months ended June 30, 2022, includes taxes and related costs on stock option exercises for departed executives of $0.2 million and $1.4 million.

(2) Includes interest income, non-cash accruals for unasserted claims and contingent liabilities, and transaction-related costs.

(3) Effective 2023, we no longer exclude geography entry costs from our computation of Adjusted EBITDA. Adjusted EBITDA for the prior period presented has been restated to the current period computation methodology.

### 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 June 30, 2023, we had cash and cash equivalents and restricted cash and equivalents of $201.2 million and investments in marketable securities of $389.0 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 facilities, 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 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 our credit facilities 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 our credit facilities restrict agilon management’s ability to pay dividends or make loans to us. The borrower on our credit facilities is agilon management, our wholly-owned subsidiary. Our credit facilities are 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.

### 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):

|  | Six Months Ended June 30, 2023 | 2022 | Change |
| --- | ---: | ---: | ---: |
| Net cash provided by (used in) operating activities | $(82,015) | $(83,496) | $1,481 |
| Net cash provided by (used in) investing activities | (30,782) | (305,480) | 274,698 |
| Net cash provided by (used in) financing activities | (193,698) | 17,815 | (211,513) |

#### Net Cash Provided By (Used In) Operating Activities

Net cash used in operating activities was $82.0 million for the six months ended June 30, 2023 compared to $83.5 million for the six months ended June 30, 2022. Net cash used in operating activities in 2023 was flat compared to 2022 primarily resulting from 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 used in investing activities was $30.8 million for the six months ended June 30, 2023 compared to $305.5 million for the six months ended June 30, 2022. During the six months ended June 30, 2023, we completed the acquisition of My Personal Health Record Express, Inc. for $44.4 million and made investments in marketable securities of $65.6 million, which were partially offset by proceeds from the maturity of marketable securities of $97.3 million. During the six months ended June 30, 2022, we made investments in marketable securities of $285.1 million.

#### Net Cash Provided By (Used In) Financing Activities

Net cash used in financing activities was $193.7 million for the six months ended June 30, 2023 compared to net cash provided by financing activities of $17.8 million for the six months ended June 30, 2022. During the six months ended June 30, 2023, we used $200.0 million to repurchase common stock. During the six months ended June 30, 2023, we received net proceeds of $8.8 million from the exercise of stock options compared to $20.3 million for the six months ended June 30, 2022.

### 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 Facilities”). The Credit Facilities include: (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 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 Facilities 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 4.00% (stepping down to 3.50% on and following October 1, 2023) and the higher of (a) SOFR, as defined in the credit agreement, and (b) 0%. Base Rate Loans bear interest at a rate equal to the sum of 3.00% (stepping down to 2.50% on and following October 1, 2023) and the highest of: (a) 0.50% in excess of the overnight federal funds rate, (b) the prime rate established by the administrative agent from time to time, (c) the one-month 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 0.50% (stepping down to 0.375% on and following October 1, 2023). We must also pay customary letter of credit fees.

The Credit Facilities 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.

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

### Equity

As of June 30, 2023, we had 405.4 million shares of common stock outstanding. See Note 10 to the Condensed Consolidated Financial Statements for additional information about our equity transactions.

### Critical Accounting Policies and 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, 2022 in “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 2023.

### Recent Accounting Pronouncements

There are no new accounting standards that have been issued and we have not adopted that are material to us as of June 30, 2023.

## Market risk

As filed, 1,471 characters.

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 Facilities. Indebtedness under the Credit Facilities is floating rate debt and is carried at amortized cost. Therefore, fluctuations in interest rates will 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 $590.2 million and $919.6 million as of June 30, 2023 and December 31, 2022, 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.

## Controls and procedures

As filed, 2,775 characters.

*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 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 weaknesses in internal control over financial reporting as described in our Annual Report on Form 10-K for the year ended December 31, 2022, and progress has been made to date, our CEO and CFO have concluded that the disclosure controls and procedures related to these material weaknesses were not effective as of June 30, 2023.

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.

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, 2022, we are undertaking a broad range of remedial procedures to address the material weaknesses in our internal control over financial reporting identified as of December 31, 2022. Our efforts to improve our internal controls are ongoing. 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 June 30, 2023, 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.

## Risk factors

As filed, 279 characters.

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, 2022. There have been no material changes to the risk factors disclosed in the Form 10-K.

Filed Aug 3, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-027201. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.