SEC Info - agilon health, inc. - ‘10-K’ for 12/31/22

it is (or is not) the primary beneficiary of a VIE. That assessment involves the consideration of various factors, including, but not limited to, the form of the Company’s ownership interest, its representation on the VIE’s governing body, the size and seniority of its investment, its ability and the rights of other variable interest holders to participate in policy making decisions, its ability to manage its ownership interest relative to the other variable interest holders, and its ability to liquidate the entity.

Use of Estimates

Management is required to make estimates and assumptions in the preparation of financial statements. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates can include, among other things, those used to determine revenues and related receivables from risk adjustment, medical services expense and related payables (including the reserve for incurred but not reported (“IBNR”) claims), and the valuation and related recognition of impairments of long-lived assets, including goodwill. Management’s estimates for revenue recognition, medical services expense and other estimates, judgments, and assumptions may be materially and adversely different from actual results. These estimates are based on knowledge of current events and anticipated future events, and accordingly, actual results may ultimately differ materially from those estimates.

Revenue Recognition and Receivables

Medical Services Revenue

Medical services revenue consists of capitation fees under contracts with various Medicare Advantage payors (“payors”). Under the typical capitation arrangement, the Company is entitled to monthly per-member, per-month (“PMPM”) fees to provide a defined range of healthcare services for Medicare Advantage health plan members (“members”) attributed to the Company’s contracted primary care physicians. PMPM fees are determined as a percent of the premium payors receive from the Centers for Medicare & Medicaid Services’ (“CMS”) for these members. The Company generally accepts full financial risk for members attributed to its contracted primary care physicians and therefore is responsible for the cost of all healthcare services required by those members. Fees are recorded gross in revenue because the Company is acting as a principal in coordinating and controlling the range of services provided (other than clinical decisions) under its capitation contracts with payors. Capitation contracts with payors are generally multi-year arrangements and have a single performance obligation that constitutes a series, as defined by Accounting Standards Codification (“ASC”) 606, Revenue From Contracts With Customers (“ASC 606”), to stand ready on a monthly basis to provide all aspects of necessary medical care to members for the contracted period. The Company recognizes revenue in the month in which eligible members are entitled to receive healthcare benefits during the contract term.

The transaction price for the Company’s capitation contracts is variable, as the PMPM fees to which the Company is entitled are subject to periodic adjustment under CMS’s risk adjustment payment methodology. CMS deploys a risk adjustment model that determines premiums paid to all payors according to each member’s health status and certain demographic factors. Under this risk adjustment methodology, CMS calculates the risk adjusted premium payment using diagnosis data from various settings. The Company and healthcare providers collect and submit the necessary and available diagnosis data to payors and such data is utilized by the Company to estimate risk adjustment payments to be received in subsequent periods. Risk adjustment-related revenues are estimated using the most likely amount methodology and amounts are only included in revenue to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved. PMPM fees are also subject to adjustment for incentives or penalties based on the achievement of certain quality metrics defined in the Company’s contracts with payors. The Company recognizes incentive revenue as earned using the most likely amount methodology and only to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved.

Neither the Company nor any of its affiliates is a registered insurance company because state law in the states in which it operates does not require such registration for risk-bearing providers.

F-11

Receivables

Receivables primarily consist of amounts due under capitation contracts with various payors. Receivables due under capitation contracts are recorded monthly based on reports received from payors and management’s estimate of risk adjustment payments to be received in subsequent periods for open performance years. Receivables are recorded at the amount expected to be collected.

Medical Services Expenses and Related Payables

Medical Services Expense

Medical services expense represents costs incurred for medical services provided to members by physicians, hospitals and other ancillary providers for which the Company is financially responsible and that are paid either directly by the Company or by payors with whom the Company has contracted. Medical services expenses are recognized in the period in which services are provided and include estimates of claims that have been incurred but have either not yet been received, processed, or paid and as such, not reported.

Such estimates are developed using actuarial methods commonly used by health insurance actuaries that include a number of factors and assumptions including medical service utilization trends, changes in membership, observed medical cost trends, historical claim payment patterns and other factors. Generally, for the most recent months, the Company estimates claim costs incurred by applying observed medical cost trend factors to the average PMPM medical costs incurred in prior months for which more complete claims data are available.

Each period, the Company re-examines previously established medical claims payable estimates based on actual claim submissions and other changes in facts and circumstances. As more complete claims information becomes available, the Company adjusts its estimates and recognizes those changes in estimates in the period in which the change is identified. The difference between the estimated liability and the actual settlements of claims is recognized in the period the claims are settled. The Company’s medical claims payable balance represents management’s best estimate of its liability for unpaid medical costs as of December 31, 2022 and 2021. The Company uses judgment to determine the appropriate assumptions for developing the required estimates.

The Company assesses the profitability of its managed care capitation arrangement to identify contracts where current operating results or forecasts indicate probable future losses. If anticipated future variable costs exceed anticipated future revenues, a premium deficiency reserve is recognized. Premium deficiency reserves as of December 31, 2022 and 2021 were immaterial.

Other Medical Expenses

Other medical expenses include: (i) partner physician compensation expense and (ii) other provider costs. Partner physician compensation expense relates to surplus sharing obligations to the Company’s physician partners. Other provider costs include payments for additional compensation to support physician-patient engagement and other care management expenses.

Goodwill and Amortizable Intangible Assets

Goodwill represents the excess purchase price consideration over the estimated fair value of net assets acquired in a business combination. The Company tests goodwill for impairment annually in the fourth quarter, and on an interim basis when events or changes in circumstances indicate that the carrying value may not be recoverable. The Company first assesses qualitative factors to determine whether it is more likely than not that the carrying value of a reporting unit exceeds its fair value. Qualitative analysis involves assessing situations and developments that could affect key drivers used to evaluate whether the value of goodwill is impaired. The Company’s procedures include assessing its financial performance, macroeconomic conditions, industry and market considerations, various asset-specific factors, and entity-specific events. The Company may also elect to skip the qualitative testing and proceed directly to the quantitative testing.

F-12

In the quantitative assessment, the fair value of the reporting unit is determined primarily by an income approach, utilizing discounted cash flows and a market approach looking at comparable companies and related transactions. An impairment is recognized only to the extent that the carrying value of a reporting unit exceeds its fair value. If the fair value exceeds the carrying amount, goodwill is not considered impaired.

Amortizable intangible assets primarily relate to health plan contracts, trade names, provider networks and noncompete enforcement agreements. Amortizable intangible assets are amortized using the straight-line method over the useful life of these assets, generally between two and i 30 years. The Company considers the period of expected cash flows and related underlying data used to measure the fair value of the intangible assets (or the length of time for a noncompete agreement) when selecting a useful life.

Amortizable intangible assets are subject to impairment tests when events or circumstances indicate that the carrying value of the asset, or related asset group, may not be recoverable. The Company compares the carrying value of an amortizable intangible asset (or asset group) to the future undiscounted cash flows generated by the asset (or asset group). The expected future undiscounted cash flows are calculated using the lowest level of identifiable cash flows that are largely independent of the cash flows of other assets and liabilities. When the carrying value of an intangible asset (or asset group) exceeds its expected future undiscounted cash flows, an impairment charge is recognized to the extent that the carrying value of the asset (or asset group) exceeds its fair value.

The impairment tests are based on financial projections prepared by management that incorporate anticipated results from programs and initiatives being implemented. If projections are not met, or if negative trends occur that impact the outlook, the intangible assets may be impaired.

Cash, Cash Equivalents, and Restricted Cash Equivalents

Cash and cash equivalents consist of cash on hand and highly liquid financial instruments with maturities of three months or less when purchased, which includes investments in short-term money market funds. The Company maintains its cash on hand in bank deposit accounts which, at times, may exceed federally insured limits. Restricted cash and equivalents primarily consist of amounts used as collateral to secure letters of credit which the Company is required to maintain pursuant to contracts with payors. Such amounts are generally maintained in certificates of deposit to satisfy these obligations and are presented as restricted cash equivalents in the consolidated balance sheets. As of December 31, 2022 and 2021, certificates of deposit totaled $ i 8.2 million and $ i 9.8 million, respectively.

Marketable Securities

The Company's investments in marketable debt securities are classified as available-for-sale and are carried at fair value, with the unrealized gains and losses reported as a component of accumulated other comprehensive income (loss) in total stockholders' equity (deficit). The Company determines the appropriate classification of these investments at the time of purchase and reevaluates such designation at each balance sheet date. In general, the Company’s marketable securities are classified as current assets without regard to the securities’ contractual maturity dates because they may be readily liquidated.

Interest income, premium accretion/discount amortization, realized gains and losses on sales of securities, and other-than-temporary declines in the fair value of marketable securities, if any, are included as a component of other income (expense), net in the consolidated statements of operations. The cost of securities sold is based on the specific identification method.

At each reporting period, the Company evaluates available-for-sale marketable securities for any credit-related impairment when the fair value of the investment is less than its amortized cost. The Company evaluates the underlying credit quality and credit ratings of the issuers, and, if necessary, the expected cash flows of the financial instruments. When the Company determines that the decline in fair value of an investment is below the carrying value and this decline is other-than-temporary, the Company reduces the carrying value of the marketable security it holds and records a loss for the amount of such decline. As of December 31, 2022, the Company did not record any impairment related to other-than-temporary declines in the fair value of marketable securities. See Note 4 for additional information.

F-13

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation. If acquired through a business combination, property and equipment are recorded at fair value at the date of acquisition. Costs incurred that significantly extend the useful life of the related assets are capitalized, while repairs and maintenance costs are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, except for land, which is not depreciated.

The following represents the estimated useful lives for property and equipment:


		Years
Computer equipment and software		i 3 – i 5
Furniture and fixtures		i 5 – i 7

Leasehold improvements are depreciated over the shorter of the assets’ estimated useful life or term of the lease.

Leases

The Company determines whether a contract contains a lease based on whether it has the right to obtain substantially all of the economic benefits from the use of an identified asset that the Company does not own and whether it has the right to direct the use of that identified asset in exchange for consideration. The Company determines whether an arrangement constitutes a lease at inception. Under ASC 842, a practical expedient was offered to lessees to make a policy election, which the Company elected, to not separate lease and non-lease components, but rather account for the combined components as a single lease component. The Company’s operating leases consist primarily of long-term leases for office space. The Company’s leases do not contain any material residual value guarantees or material restrictive covenants. Right of use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Most leases include one or more options to renew, with renewal terms that can extend the lease. The exercise of renewal options is at the sole discretion of the Company. ROU assets are recognized as the lease liability, adjusted for initial direct costs incurred and tenant lease incentives received. Lease liabilities are recognized as the present value of the future minimum lease payments at the lease commencement date. Since none of the Company’s leases provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments. The incremental borrowing rate is a hypothetical rate based on the Company’s understanding of what its credit rating would be to borrow and based on the resulting interest the Company would pay to borrow an amount equal to the lease payments in a similar economic environment over the lease term on a collateralized basis. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Lease payments may be fixed or variable, however, only fixed payments or in-substance fixed payments are included in the Company’s lease liability calculation. Variable lease payments are recognized in operating expenses in the period in which the obligation for those payments is incurred. Short-term leases (those with terms of i 12 months or less) are not recorded as ROU assets or liabilities in the consolidated balance sheets. For short-term leases, the Company recognizes rent expense in the consolidated statements of operations on a straight-line basis over the lease term.

Operating leases are included in other assets, net, accounts payable and accrued expenses, and other liabilities on the Company’s consolidated balance sheets. See Note 6 for additional information.

F-14

Issuance Costs

Debt issuance costs related to debt instruments (excluding line of credit arrangements) are deferred, recorded as a reduction of the related debt liability, and amortized to interest expense over the remaining term of the related debt liability utilizing the effective interest method. Debt issuance costs related to line of credit arrangements are deferred, included in other assets, and amortized to interest expense on a straight-line basis over the remaining term of the related line of credit arrangement. Costs incurred in connection with the issuance of common shares are recorded as a reduction of additional paid-in capital.

Contingently Redeemable Common Stock

Prior to the completion of the IPO in April 2021, certain of the Company’s investment agreements with third-party investors could require the Company to repurchase shares in certain limited circumstances. As the redemption feature was outside the control of the Company, the related capital contributions did not qualify as permanent equity and were classified as temporary equity in the mezzanine section of the consolidated balance sheets. Such redemption feature terminated upon the completion of the IPO in April 2021 and accordingly, such common stock was reclassified from temporary equity in the mezzanine section of the consolidated balance sheet to permanent equity.

Net Income (Loss) Per Share

Basic net income (loss) per common share is computed by dividing net income (loss) attributable to common shares by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is calculated by including the effect of dilutive securities using the treasury stock method. The treasury stock method assumes a hypothetical issuance of shares to settle stock-based awards, with the assumed proceeds used to purchase common stock at the average market price for the period. Assumed proceeds include the amount the employee must pay upon exercise and the average unrecognized compensation cost. The difference between the number of shares assumed issued and number of shares assumed purchased represents the dilutive shares. Basic net loss per share is the same as diluted net loss per share for the periods presented, as the inclusion of all potential common shares outstanding would have been anti-dilutive.

Stock-based Compensation

Stock-based compensation expense for common stock options is recognized based on the fair value of the award as determined on the grant date using the Black-Scholes option pricing model. Stock-based compensation expense is generally recognized on a straight-line basis over the vesting period. Compensation cost for options that vest based on performance conditions, in addition to the continued service period, is recognized when the related performance condition is deemed to be probable of achievement. The fair value of awards with market conditions are valued using the Monte Carlo simulation model. Forfeitures of stock-based awards are recognized as they occur.

Prior to the IPO, the Company determined the fair value of its shares at the grant dates by considering several objective and subjective factors, including the price paid by investors for common stock, actual and forecasted operating and financial performance, market conditions and performance of comparable publicly traded companies, developments and milestones in the Company, the likelihood of achieving a liquidity event, and transactions involving its common stock. The fair value of the Company’s common stock prior to the IPO was determined in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants, Valuation of Privately Held Company Equity Securities Issued as Compensation. See Note 14 for additional information.

Income Taxes

Current tax liabilities and assets are recognized for the estimated taxes payable or refundable, respectively, on the tax returns for the current year. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The carrying value of the Company’s net deferred tax assets is based on whether it is more likely than not that the Company will

F-15

generate sufficient future taxable income to realize the deferred tax assets. A valuation allowance is established for deferred tax assets, which the Company does not believe meet the “more likely than not” threshold. The Company’s judgments regarding future taxable income may change over time due to changes in market conditions, changes in tax laws, tax planning strategies, or other factors. If the Company’s assumptions and, consequently, its estimates, change in the future, the valuation allowance may materially increase or decrease, resulting in a decrease or increase, respectively, in income tax benefit and the related impact on the Company’s reported net income (loss).

The Company utilizes a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining whether the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than likely of being realized and effectively settled. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments, and that may not accurately forecast actual outcomes. The Company recognizes interest and penalties accrued related to unrecognized tax benefits as additional income taxes.

Fair Value Measurement

The Company’s financial instruments consist of cash and cash equivalents, restricted cash and cash equivalents, marketable securities (see Note 4), receivables, other liabilities, accounts payable, certain accrued expenses, and borrowings which consist of a term loan and a revolving credit facility (see Note 11). The carrying values of the financial instruments classified as current in the consolidated balance sheets approximate their fair values due to their short-term maturities. The Company's cash and cash equivalents are classified within Level 1 of the fair value hierarchy. The Company may be required, from time to time, to measure its loans to physician partner groups in connection with taxes payable on shares distributed to them upon completion of the IPO at fair value on a nonrecurring basis. Such measurements are classified within Level 2 of the fair value hierarchy. The carrying values of the term loan and revolving credit facility are a reasonable estimate of fair value because the interest rates on such borrowings approximate market rates as of the reporting date. Such borrowings are classified within Level 2 of the fair value hierarchy. During the years ended December 31, 2022 and 2021, there were no material transfers of financial assets or liabilities within the fair value hierarchy.

The Company measures and discloses the fair value of nonfinancial and financial assets and liabilities utilizing a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These inputs have created the following fair value hierarchy:

•

Level 1—quoted prices for identical instruments in active markets;

•

Level 2—quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

•

Level 3—fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The Company is responsible for determining fair value, as well as for assigning the appropriate level within the fair value hierarchy, based on the significance of unobservable inputs. The Company reviews methodologies, processes and controls of third-party pricing services and performs ongoing analyses of both prices received from third-party pricing services and those developed internally to determine whether they represent appropriate estimates of fair value.

Segment Reporting

The Company is organized as a single operating and reportable segment based on the manner in which the Chief Executive Officer, who is the chief operating decision maker, evaluates performance and makes decisions about how to allocate resources.

F-16

Disposition of California Operations

During 2020, the Company implemented a plan to divest its California operations, which included the entirety of its Medicaid line of business, via three separate transactions with different parties. In August 2020, the Company disposed of its Southern California operations for a gross sales price of $ i 2.5 million and recognized a gain on sale of $ i 1.3 million. In October 2020, the Company disposed of its Fresno, California operations for a gross sales price of $ i 26.0 million and recognized a gain on sale of approximately $ i 19.1 million. In December 2020, the Company signed a definitive agreement to sell its remaining California operations for a gross sales price of $ i 1.0 million. The sale closed in February 2021. The Company’s decision to exit California and the Medicaid line of business represents a strategic shift that will have a major effect on its operations and financial results. As such, the Company’s California operations are reflected in the consolidated financial statements as discontinued operations. See Note 20 for additional information.

NOTE 3. Concentration of Credit Risk

The Company is economically dependent on maintaining a base of primary care and specialty care physicians as well as capitation contracts with payors. The loss of certain of those contracts could have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

The Company contracts with various payors whereby the Company is entitled to monthly PMPM fees to provide a defined range of healthcare services for members attributed to its contracted primary care physicians. The Company generally accepts full financial risk for such members and therefore is responsible for the cost of all healthcare services required by them. Substantially all of the Company’s receivable balances are from a small number of payors.

Revenue from Medicare Advantage payors constitutes substantially all of the Company’s total revenue for the years ended December 31, 2022, 2021, and 2020.

The following table provides the Company’s revenue concentrations with respect to major payors as a percentage of the Company’s total revenues:


	Year Ended December 31,
	2022			2021			2020
Payor A		i 25	%		i 26	%		i 38	%
Payor B		i 19	%		i 20	%		i 20	%
Payor C		i 14	%		i 16	%		i 11	%
Payor D		i 10	%		i 11	%	*

* Less than i 10% of total revenues.

The following table provides the Company’s concentrations of credit risk with respect to major payors as a percentage of receivables, net:


	December 31,
	2022			2021
Payor A		i 13	%		i 18	%
Payor B		i 20	%		i 21	%
Payor C		i 10	%		i 14	%
Payor D		i 10	%		i 12	%
Payor E		i 11	%	*

* Less than i 10% of total receivables.

NOTE 4. Marketable Securities and Fair Value Measurements

Marketable Securities

The following table summarizes the Company’s marketable securities (in thousands):

December 31, 2022

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Fair Value

Marketable securities:

Corporate debt securities

i 255,613

i 60

( i 3,240

)

i 252,433

U.S. Treasury notes

i 151,873

i —

( i 2,306

)

i 149,567

Other

i 9,975

—

( i 74

)

i 9,901

i 417,461

i 60

( i 5,620

)

i 411,901

For the year ending December 31, 2022, the Company recognized total interest income of $ i 14.5 million, of which $ i 8.1 million was related to its marketable securities investments and $ i 6.4 million was related to interest on cash and cash equivalent balances. At December 31, 2022, substantially all the Company's investment positions were in an unrealized loss position. The Company’s unrealized losses from marketable securities as of December 31, 2022 were caused primarily by interest rate increases. At December 31, 2022, the Company had $ i 407.4 million marketable securities in an unrealized loss position for less than twelve months. The Company does not intend to sell marketable securities that are in an unrealized loss position, and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity. Therefore, the Company believes these losses to be temporary. There was i no allowance for credit losses on available-for-sale marketable securities at December 31, 2022.

The following table summarizes the Company’s marketable securities maturity as of December 31, 2022 (in thousands):


Year	Amortized Cost		Fair Value
2023	$	i 128,537	$	i 127,517
2024		i 141,385		i 139,332
2025		i 147,539		i 145,052
	$	i 417,461	$	i 411,901

Fair Value Measurements

The table below summarizes the Company’s financial instruments measured at fair value on a recurring basis (in thousands):

December 31, 2022

Level 1

Level 2

Level 3

Marketable securities:

Corporate debt securities

i —

i 252,433

i —

U.S. Treasury notes

i 149,567

i —

Other

i 9,901

i —

i 159,468

i 252,433

i —

NOTE 6. Leases

The Company has operating leases for corporate offices and certain equipment. The following tables provide information regarding the Company’s operating leases for which it is the lessee (in thousands):


	December 31,
	2022		2021
ROU asset:
Other assets, net	$	i 13,029	$	i 11,739
Lease liabilities:
Accounts payable and accrued expenses	$	i 3,704	$	i 3,307
Other liabilities		i 9,885		i 7,904
Total operating lease liabilities	$	i 13,589	$	i 11,211

Year Ended December 31,

2021

2020

Operating lease costs

i 5,106

i 4,832

i 4,152

Short-term lease costs

i —

i 29

Variable lease costs

i 1,044

i 965

i 949

Total lease costs

i 6,150

i 5,797

i 5,130


	Year Ended December 31,
Supplemental Cash Flow Information	2022		2021		2020
Cash paid for amounts included in the measurement of lease liability:
Operating cash flows from operating leases	$	i 4,960	$	i 4,409	$	i 4,495
ROU asset obtained in exchange for new lease liability:
Operating leases	$	i 8,200	$	i 5,116	$	i 363


	December 31,
Weighted Average Lease Term and Discount Rate	2022			2021
Weighted average remaining lease term (years):
Operating leases		i 6			i 5
Weighted average discount rate:
Operating leases		i 5.47	%		i 8.15	%

F-19

The following table summarizes future minimum lease obligations under non-cancelable operating leases as of December 31, 2022 (in thousands):


Year	Amount
2023	$	i 3,840
2024		i 2,444
2025		i 2,348
2026		i 2,223
2027		i 1,140
Thereafter		i 3,955
Undiscounted minimum lease payments payable		i 15,950
Less: imputed interest		( i 2,361	)
Present value of lease liability	$	i 13,589

NOTE 7. Goodwill and Amortizable Intangible Assets

Goodwill

As of December 31, 2022 and 2021, goodwill of $ i i 39.0 / million was allocated to the Company’s Hawaii reporting unit, which has a negative carrying amount of net assets as of December 31, 2022 and 2021. The Company completed the required annual goodwill impairment test during the fourth quarters of 2022 and 2021, and i i no / impairment was recognized.

Amortizable Intangible Assets

The following table summarizes the Company’s amortizable intangible assets as of December 31, 2022 (dollars in thousands):

Useful Life
(Years)

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Value

Health plan contracts

i 15

i 39,700

( i 16,983

)

i 22,717

Trade names

i 15- i 30

i 20,300

( i 4,342

)

i 15,958

Provider networks

i 10- i 15

i 8,400

( i 3,593

)

i 4,807

Noncompete enforcement agreements

i 1- i 5

i 59,669

( i 36,100

)

i 23,569

Other

i 4- i 15

i 2,700

( i 2,071

)

i 629

i 130,769

( i 63,089

)

i 67,680

The following table summarizes the Company’s amortizable intangible assets as of December 31, 2021 (dollars in thousands):

Useful Life
(Years)

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Value

Health plan contracts

i 15

i 39,700

( i 14,336

)

i 25,364

Trade names

i 15- i 30

i 20,300

( i 3,665

)

i 16,635

Provider networks

i 10- i 15

i 8,400

( i 3,033

)

i 5,367

Noncompete enforcement agreements

i 2- i 5

i 37,599

( i 30,355

)

i 7,244

Other

i 4- i 15

i 2,700

( i 1,912

)

i 788

i 108,699

( i 53,301

)

i 55,398

For the years ended December 31, 2022, 2021, and 2020, the Company recognized $ i 9.7 million, $ i 11.9 million, and $ i 11.4 million, respectively, in amortization expense which is included in depreciation and amortization expense in the consolidated statements of operations.

F-20

The following table summarizes the estimated annual amortization for each of the five succeeding fiscal years and thereafter as of December 31, 2022 (in thousands):


Year	Amount
2023	$	i 8,800
2024		i 7,777
2025		i 7,162
2026		i 6,905
2027		i 6,359
Thereafter		i 30,677
	$	i 67,680

NOTE 9. Medical Claims and Related Payables

Medical claims and related payables include estimates for amounts owed for claims incurred for services provided to members by various providers. Changes in amounts reported for medical claims related to prior years result from claims being paid at amounts different than originally estimated. Liabilities are continually reviewed and re-estimated as information regarding actual claim payments becomes known. This information is compared to the originally established liability at year end. i The following table presents the components of changes in medical claims and related payables (in thousands):

2021

2020

Medical claims and related payables, beginning of the year

i 239,014

i 164,161

i 121,779

Components of incurred costs related to:

Current year

i 2,387,374

i 1,645,137

i 1,026,940

Prior years

i 12,424

i 2,522

( i 5,063

)

Discontinued operations - current year

i —

i 1,234

i 85,732

Discontinued operations - prior years

i 34

( i 2,099

)

( i 1,543

)

i 2,399,832

i 1,646,794

i 1,106,066

Claims paid related to:

Current year

( i 2,051,036

)

( i 1,416,404

)

( i 870,979

)

Prior years

( i 247,873

)

( i 151,128

)

( i 94,868

)

Discontinued operations - current year

i —

( i 1,234

)

( i 80,754

)

Discontinued operations - prior years

( i 189

)

( i 3,175

)

( i 17,083

)

( i 2,299,098

)

( i 1,571,941

)

( i 1,063,684

)

Medical claims and related payables, end of the year

i 339,748

i 239,014

i 164,161

Beginning and ending balances of medical claims and related payables disclosed above for December 31, 2020, include $ i 1.1 million and $ i 1.3 million, respectively, that are presented as current liabilities held for sale and discontinued operations. As of December 31, 2021 and 2020, medical claims and related payables also include $ i 0.2 million and $ i 4.1 million, respectively, of claims liabilities associated with certain divested California businesses for which the Company has retained the liability for claims incurred prior to the date of divestiture. Ending balance of medical claims and related payables disclosed above for December 31, 2022, includes $ i 7.0 million that is recoverable from other parties under risk sharing arrangements and is presented as prepaid expenses and other current assets, net in the consolidated balance sheets.

NOTE 14. Stock-Based Compensation

The Company offers certain employees the ability to purchase common shares of the Company and/or receive common stock options under its Amended and Restated Stock Incentive Plan (the “Plan”) that was approved by the stockholders. In connection with the IPO, the Company’s Board of Directors approved the Omnibus Incentive Plan. As of December 31, 2022, the Company is authorized to grant i 83.0 million shares related to employee stock options, of which i 36.0 million shares remain available for grant as of December 31, 2022. Shares granted are not transferrable, except upon the employee’s death, repurchase by the Company, or with the Company’s consent.

The Omnibus Incentive Plan provides for the grant of stock options, restricted stock awards, restricted stock units ("RSUs"), performance-based awards, and other awards. Stock options expire i 10 years after the date of grant and forfeiture of awards is recognized as it occurs. The stock options granted under the Plan generally consist of: (i) stock options that vest in four equal annual installments, subject to the employee’s continued service until the applicable vesting date (the “Base Options”), and (ii) stock options that vest if CD&R realizes a certain return on its investment, subject to the employee’s continuous employment through such date and beyond, in certain grants (the “Upside Options”).

Stock Options

Base Options. Compensation cost for Base Options is recognized on a straight-line basis generally over the requisite vesting period of four years. The fair value of each Base Option was estimated on the date of grant using the Black-Scholes option pricing model. Expected volatilities are based on the historical equity volatility of comparable publicly traded companies. The expected term of Base Options is calculated via the simplified method and reflects the midpoint between the vesting date and the end of the contractual term, as our historical share option exercise experience does not provide a reasonable basis upon which to estimate the expected term. The risk-free rates utilized for periods throughout the contractual life of Base Options are based on U.S. Treasury security yields at the time of grant.

The assumptions used for the Black-Scholes option pricing model to determine the fair value of Base Options granted are as follows:

2021

2020

Risk-free interest rate

i 1.94% - i 4.18%

i 0.75% - i 1.58%

i 0.43% - i 1.68%

Expected dividends

i —

Expected volatility

i 48.66% - i 64.29%

i 58.95% - i 63.33%

i 59.39% - i 63.47%

Expected term (in years)

i 6.25

F-26

The Company’s outstanding Base Options consisted of the following (shares in thousands):

Weighted-
Average
Exercise
Price

Weighted-
Average
Remaining
Contractual Term
(in years)

Aggregate
Intrinsic
Value
(in thousands)

Stock options outstanding as of January 1, 2022

i 17,201

i 4.26

Granted

i 995

i 22.80

Exercised

( i 6,776

)

i 1.70

Forfeited

( i 782

)

i 10.62

Stock options outstanding as of December 31, 2022

i 10,638

i 7.15

i 6.6

i 109,236

Expected to vest as of December 31, 2022

i 4,293

i 12.04

i 7.9

i 29,284

Exercisable as of December 31, 2022

i 6,345

i 3.85

i 5.9

i 79,952

The weighted-average grant-date fair value of Base Options granted during the year ended December 31, 2022, 2021, and 2020 was $ i 13.83, $ i 13.10, and $ i 2.70, respectively, per option. The total intrinsic value of Base Options exercised for the years ended December 31, 2022, 2021, and 2020 was $ i 140.8 million, $ i 196.3 million, and $ i 8.2 million, respectively. During the years ended December 31, 2022 and 2021, the Company recognized $ i 9.5 million and $ i 8.1 million, respectively, of stock-based compensation expense related to Base Options. During the year ended December 31, 2020, the total stock-based compensation expense related to Base Options was $ i 6.5 million, of which $ i 0.2 million is recorded in income (loss) from discontinued operations in the consolidated statements of operations.

As of December 31, 2022, the Company had $ i 23.4 million of total unrecognized compensation cost related to non-vested Base Options, which is expected to be recognized over a weighted-average period of approximately i three years.

Additionally, the Company recognized $ i 2.6 million of expense related to stock options that vested upon the completion of the IPO in April 2021, which are included in general and administrative expenses in the statements of operations.

Upside Options. Upside Options vest if CD&R realizes a certain return on its investment, subject to the employee’s continuous employment through such date and beyond, in certain grants. During the year ended December 31, 2020, the Company did not recognize any stock-based compensation expense related to Upside Options as achievement of the underlying performance condition was not probable. During the year ended December 31, 2021, the Company recognized $ i 8.5 million of stock-based compensation expense as a result of the satisfaction of a performance condition associated with Upside options. During the year ended December 31, 2022, the Company recognized $ i 1.7 million of stock-based compensation expense related to Upside Options. The fair value of Upside Options was estimated on the date of grant using the Monte Carlo simulation model.

F-27

The Company’s outstanding Upside Options consisted of the following (shares in thousands):

Weighted-
Average
Exercise Price

Weighted-
Average
Remaining
Contractual Term
(in years)

Aggregate
Intrinsic
Value
(in thousands)

Stock options outstanding as of January 1, 2022

i 14,428

i 6.21

Exercised

( i 5,147

)

i 4.35

Forfeited

( i 114

)

i 14.80

Stock options outstanding as of December 31, 2022

i 9,167

i 7.16

i 5.9

i 85,160

Expected to vest as of December 31, 2022

i 2,335

i 11.38

i 7.5

i 13,072

Exercisable as of December 31, 2022

i 6,832

i 5.71

i 5.4

i 72,088

The weighted-average grant-date fair value of Upside Options granted during the years ended December 31, 2021 and 2020 was $ i 1.72 and $ i 1.58, respectively, per option. No Upside Options were granted in 2022. As of December 31, 2022, the Company had $ i 3.2 million of total unrecognized compensation cost related to non-vested Upside Options, which is expected to be recognized over a weighted-average period of approximately i two years.

Restricted Stock Units

Restricted stock awards, including restricted stock units and performance stock units are granted subject to certain restrictions. Conditions of vesting are determined at the time of grant. The fair market value of restricted stock units, both time vesting and those subject to specific performance criteria, are expensed over the period of vesting. Restricted stock units, which vest based solely upon passage of time and requisite service generally vest over the requisite period of four years. Performance stock units, which are restricted stock units that vest dependent upon attainment of various levels of performance that equal or exceed threshold levels, generally vest in their entirety at the end of the relevant performance period, generally three years. The number of shares that ultimately vest can vary from i 0% to i 200% of target depending on the level of achievement of the performance criteria. The fair value of restricted stock units and performance stock units are determined based on the closing market price of the Company's shares on the grant date. The value of the shares withheld to settle tax withholding obligations is dependent on the closing market price of the Company’s common stock on the trading date prior to the relevant transaction occurring.

The following table summarizes employee restricted stock award activity, including performance stock units, for the year ended December 31, 2022 (units in thousands):


	Restricted Stock Units			Weighted-Average Grant-Date Fair Value
Unvested as of January 1, 2022		i 1,125		$	i 18.41
Granted		i 1,320			i 21.89
Vested		( i 404	)		i 9.77
Forfeited		( i 219	)		i 22.49
Unvested as of December 31, 2022		i 1,822			i 22.35

For the years ended December 31, 2022, 2021, and 2020, the Company recognized $ i 9.6 million, $ i 4.7 million, and $ i 0.2 million, respectively, of stock-based compensation expense related to RSUs. The weighted-average grant-date fair value of RSUs granted during the years ended December 31, 2022, 2021, and 2020 was $ i 21.89, $ i 23.56, and $ i 4.49, respectively. The total fair value of RSUs vested during 2022 was $ i 9.2 million. As of December 31, 2022, the Company had $ i 30.1 million of total unrecognized compensation cost related to RSUs, which is expected to be recognized over a weighted-average period of approximately three years.

F-28

Non-Employee Awards

Certain of the Company’s agreements provide for the granting of certain stock-based instruments to third parties (the “Physician Partners Equity Awards”). The Company's Board of Directors approved i 9.7 million shares to be granted as Physician Partners Equity Awards, of which i 3.2 million shares remain available for grant as of December 31, 2022. The fair market value of restricted stock units, both time vesting and those subject to specific performance criteria, are expensed over the period of vesting. Restricted stock units, which vest based solely upon passage of time and requisite service generally vest over the requisite period of two years. Performance stock units, which are restricted stock units that vest dependent upon attainment of various levels of performance that equal or exceed threshold levels, generally vest in their entirety at the end of the relevant performance period, from one to four years. The number of shares that ultimately vest can vary from i 0% to i 125% of target depending on the level of achievement of the performance criteria. The fair value of restricted stock units and performance stock units are determined based on the closing market price of the Company's shares on the grant date. No shares are withheld to settle tax withholding obligations of the physician partners.

The following table i summarizes Physician Partners Equity Awards activity, including performance stock units, for the year ended December 31, 2022 (units in thousands):


	Restricted Stock Units			Weighted-Average Grant-Date Fair Value
Unvested as of January 1, 2022		i 292		$	i 25.95
Granted		i 5,206			i 21.93
Vested		( i 38	)		i 25.95
Unvested as of December 31, 2022		i 5,460			i 22.12

For the years ended December 31, 2022 and 2021, the Company recognized $ i 7.6 million and $ i 0.2 million, respectively, of stock-based compensation expense related to Physician Partner Equity Awards. The weighted-average grant-date fair value of Physician Partner Equity Awards granted during the years ended December 31, 2022 and 2021 was $ i 21.93 and $ i 25.95, respectively. As of December 31, 2022, the Company had $ i 113.9 million of total unrecognized compensation cost related to Physician Partner Equity Awards, which is expected to be recognized over a weighted-average period of approximately i four years.

Upon the completion of the IPO, the Company issued i 11.7 million shares of common stock under partner physician group equity agreements and recognized stock-based compensation expense of $ i 268.5 million in April 2021. Various of the Company’s agreements provided for the vesting of certain stock-based instruments to third parties (physician partners) at the time of an initial public offering, or upon the occurrence of certain events deemed a “change of control” in the Company or certain of the Company's subsidiaries (“Change of Control Event”). The stock-based instruments granted to third parties were accounted for as non-employee awards for which compensation cost was recognized upon achievement of the underlying performance condition of a Change of Control Event. As the instruments were liability-classified, the amount of shares ultimately issued and related compensation cost was measured on the vesting date. A Change of Control Event is not deemed probable until consummated.

NOTE 15. Income Taxes

The Company applied the intra-period tax allocation rules to allocate income taxes between continuing operations and discontinued operations as prescribed by U.S. GAAP, where the tax effect of income (loss) before income taxes is computed without regard to the tax effects of income (loss) before income taxes from the other categories. i Income tax expense (benefit) from continuing operations consisted of the following (in thousands):

Year Ended December 31,

2021

2020

Current:

Federal

i 113

i —

State

i 997

i 1,289

i 856

i 1,110

i 1,289

i 856

Deferred:

Federal

i 288

( i 166

)

i 38

State

i 242

( i 237

)

( i 29

)

i 530

( i 403

)

i 9

Income tax expense (benefit)

i 1,640

i 886

i 865

The principal items accounting for the difference between taxes computed at the U.S. statutory rate and taxes recorded consisted of the following (in thousands):

Year Ended December 31,

2021

2020

Computed tax at US federal statutory rate of i 21%

( i 21,211

)

( i 84,966

)

( i 13,129

)

Increase (decrease) in taxes resulting from:

State taxes, net of federal impact

i 723

i 715

i 840

Stock-based compensation

( i 47,868

)

( i 44,088

)

i —

Nondeductible compensation

i 23,570

i 4,054

i —

Unrecognized tax benefit

i —

i 238

( i 71

)

Permanent differences

( i 155

)

i 1,336

i 850

Valuation allowance

i 45,234

i 122,599

i 12,443

Other, net

i 1,347

i 998

( i 68

)

Income tax expense (benefit)

i 1,640

i 886

i 865

F-30

The net deferred tax liability comprises the tax effect of temporary differences between U.S. GAAP and tax reporting related to the recognition of income and expenses. The net deferred income tax liabilities are included in other liabilities in the consolidated balance sheets. i Components of the net deferred tax liability consisted of the following (in thousands):


	December 31,
	2022			2021
Deferred income tax assets:
Net operating and capital losses	$	i 293,221		$	i 237,877
State taxes		i 260			i 332
Accrued expenses		i 15,920			i 19,828
Transaction costs		i 736			i 811
Stock-based compensation		i 6,314			i 4,331
Lease liabilities		i 3,285			i 2,610
Interest limitation		i 4,226			i 5,850
Intangible assets		i —			i 4,022
Other, net		i 1,156			i 111
Total deferred income tax assets	$	i 325,118		$	i 275,772
Deferred income tax liabilities:
Property and equipment	$	i —		$	( i 203	)
ROU assets		( i 3,155	)		( i 2,728	)
Intangible assets		( i 6,220	)		( i 11,032	)
Investments in partnerships and affiliates		( i 2,238	)		( i 1,402	)
Total deferred income tax liabilities	$	( i 11,613	)	$	( i 15,365	)
Valuation allowance		( i 314,166	)		( i 260,571	)
Net deferred income tax liabilities	$	( i 661	)	$	( i 164	)

The Company regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance when it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. In making this assessment, the Company is required to consider all available positive and negative evidence to determine whether, based on such evidence, it is more likely than not that some portion or all of the net deferred tax assets will not be realized in future periods. As of December 31, 2022 and 2021, the Company believed that it is more likely than not that its deferred tax assets in excess of deferred tax liabilities will not be realized. Accordingly, the Company has provided a valuation allowance of $ i 314.2 million and $ i 260.6 million on the Company’s deferred tax assets as of December 31, 2022 and 2021, respectively. The increase in valuation allowance of $ i 53.6 million recorded in current year activities is primarily attributable to current year losses. The net deferred tax liability as of December 31, 2022 principally relates to deferred tax liabilities associated with long-term investments in partnerships and affiliates, which are expected to reverse against net operating losses which can only offset i 80% of taxable income.

As of December 31, 2022, the Company has federal and state net operating losses of $ i 1.2 billion and $ i 676.1 million, respectively. As of December 31, 2021, the Company has federal and state net operating losses of $ i 1.0 billion and $ i 570.3 million, respectively. As of December 31, 2022, $ i 1.2 billion of the total federal net operating losses are carried forward as indefinite-lived net operating losses. The remaining net operating losses are carried forward and will expire beginning in i 2027 if unutilized. Utilization of these operating loss carryforwards may be subject to an annual limitation based on changes in ownership, as defined by Section 382 of the Internal Revenue Code of 1986, as amended. As of December 31, 2022, $ i 32.3 million and $ i 32.7 million of the Company’s federal and state net operating loss carryforward, respectively, are attributable to prior acquisition transactions and are subject to Section 382 limitations. The Company’s analysis indicates that none of the acquired net operating loss carryforwards will expire unutilized solely as a result of the Section 382 limitations. As of December 31, 2022, the Company has both federal and state capital loss carryforward of $ i 0.8 million, which will expire in 2026 if unused.

F-31

Unrecognized Tax Benefits

As of December 31, 2022, the Company had unrecognized tax benefits of $ i 5.2 million, $ i 0.9 million of which, if recognized, would impact its effective tax rate. As of December 31, 2021, the Company had unrecognized tax benefits of $ i 5.9 million, $ i 1.5 million of which, if recognized, would impact its effective tax rate. As of December 31, 2020, the Company had unrecognized tax benefits of $ i 8.9 million, $ i 7.1 million of which, if recognized, would impact its effective tax rate.

The following table summarizes the activity related to the Company’s unrecognized tax benefits (in thousands):

2021

2020

Balance at beginning of the year

i 5,919

i 8,914

i 10,839

Additions related to current year

i 35

i 2,636

i 384

Additions (reductions) related to prior years

( i 137

)

i —

i 565

Reductions related to settlements with taxing authorities

( i 605

)

( i 5,631

)

i —

Reductions related to the lapse of applicable statute of
limitations

i —

( i 2,874

)

Balance at end of the year

i 5,212

i 5,919

i 8,914

As of December 31, 2022, the Company recorded a liability for unrecognized tax benefit of $ i 1.6 million, inclusive of $ i 0.7 million of accrued interest and penalties. As of December 31, 2021, the Company recorded a liability for unrecognized tax benefit of $ i 2.1 million, inclusive of $ i 0.6 million of accrued interest and penalties. As of December 31, 2020, the Company recorded a liability for unrecognized tax benefit of $ i 10.0 million, inclusive of $ i 2.9 million of accrued interest and penalties. As of both December 31, 2022 and 2021, $ i 4.3 million of unrecognized benefits were reflected as a reduction in deferred tax asset balances. The unrecognized tax benefit of $ i 1.6 million is subject to a tax indemnification agreement between the prior owners of some of the Company’s California subsidiaries and the Company. Thus, the Company does not bear significant risk for these uncertain tax positions, as any assessment on future tax examinations is expected to be recovered from the prior owners. The indemnification assets are reflected in other assets in the consolidated balance sheets. During the year ended December 31, 2022, the Company reversed $ i 0.6 million of tax liability and $ i 0.1 million of accrued interest on unrecognized tax benefits due to payments of an amended state return related to the period ended June 30, 2016. During the year ended December 31, 2021, the Company reversed $ i 5.6 million of tax liability, $ i 1.1 million of accrued interest and $ i 1.1 million of accrued penalties on unrecognized tax benefits and realized a tax benefit of $ i 1.8 million attributable to discontinued operations due to the settlement of the IRS exam for the period ended June 30, 2016. During the year ended December 31, 2020, due to expiration of the 2015 state statute of limitations, the Company reversed $ i 2.9 million of tax liability, $ i 0.6 million of accrued interest and $ i 0.6 million of accrued penalties on unrecognized tax benefits and realized a tax benefit of $ i 4.1 million attributable to discontinued operations. The tax benefit from the statute expiration was offset by $ i 0.6 million, $ i 0.6 million, and $ i 0.1 million of additional accruals for taxes, interest, and penalties, respectively, on uncertain tax positions during 2020 resulting in a net tax benefit of $ i 2.8 million attributable to discontinued operations. It is reasonably possible that during the next 12 months the Company may realize a $ i 0.5 million decrease in its liability for uncertain tax positions, inclusive of $ i 0.1 million related to the reversal of interest and penalties on uncertain tax positions, as a result of closing of the tax years.

The amount of income taxes the Company pays is subject to ongoing audits. The estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of the relevant risks, facts, and circumstances existing at the time. However, future results of operations may include favorable or unfavorable adjustments to the estimated tax liabilities in the period the assessments are made or resolved. The Company operates in several taxing jurisdictions, including U.S. federal and multiple U.S. states. The statute of limitations has expired for all tax years prior to 2019 for federal and prior to 2016 for various state tax purposes. However, the net operating loss generated on the Company’s federal and state tax returns in prior years may be subject to adjustments by the federal and state tax authorities.

For additional discussion regarding income taxes and unrecognized tax benefits related to discontinued operations, see Note 20.

F-32

On August 16, 2022, the Inflation Reduction Act was signed into law. The Inflation Reduction Act includes various tax provisions, which are effective for tax years beginning on or after January 1, 2023. For tax years beginning after December 31, 2021, the Tax Cuts & Jobs Act of 2017 eliminated the option to deduct research and development expenditures as incurred and instead required taxpayers to capitalize and amortize them over five or 15 years beginning in 2022. These changes in tax laws did not have a material impact on the Company’s results of operations for the years ended December 31, 2022 and 2021. The Company will continue to monitor possible future impact of changes in tax legislation.

NOTE 16. Net Income (Loss) Per Common Share

Basic net income (loss) per common share (“EPS”) is computed based upon the weighted average number of common shares outstanding. Diluted net income (loss) per common share is computed based upon the weighted average number of common shares outstanding plus the impact of common shares issuable from the assumed conversion of stock options, certain performance restricted stock units and unvested restricted stock units. Only those instruments having a dilutive impact on basic loss per share are included in diluted loss per share during the periods presented.

The following table illustrates the computation of basic and diluted EPS (in thousands, except per share amounts):


	Year Ended December 31,
	2022			2021			2020
Numerator
Income (loss) from continuing operations	$	( i 107,329	)	$	( i 405,484	)	$	( i 63,208	)
Noncontrolling interests’ share in (earnings) loss from continuing operations		i 311			i 300			i —
Net income (loss) attributable to common stockholders before discontinued operations		( i 107,018	)		( i 405,184	)		( i 63,208	)
Income (loss) from discontinued operations		i 465			( i 1,303	)		i 3,156
Net income (loss) attributable to common stockholders	$	( i 106,553	)	$	( i 406,487	)	$	( i 60,052	)
Denominator
Weighted average shares outstanding, basic and diluted		i 408,154			i 372,931			i 323,462
Net income (loss) per share attributable to common stockholders
Net income (loss) per common share from continuing operations, basic and diluted	$	( i 0.26	)	$	( i 1.09	)	$	( i 0.20	)
Net income (loss) per common share from discontinued operations, basic and diluted	$	i —		$	i —		$	i 0.01

Basic net income (loss) per share is the same as diluted net income (loss) per share for the years ended December 31, 2022, 2021, and 2020 as the inclusion of all potential common shares outstanding would have been anti-dilutive. i The following table provides the potential shares of common stock that were excluded from the calculation of diluted net income (loss) per share attributable to common stockholders because their effect would have been anti-dilutive (in thousands):

2021

2020

Stock options - service only condition

i 10,638

i 17,201

i 23,646

Stock options - market and performance condition(1)

i 9,167

i 14,428

i 17,675

Restricted stock units

i 7,282

i 894

i 110

(1)

Market and performance conditions were satisfied during 2021.

NOTE 17. Supplemental Cash Flow Information

The following table provides supplemental cash flow information (in thousands):

Year Ended December 31,

2021

2020

Supplemental cash flow information:

Interest paid

i 3,672

i 4,824

i 7,086

Income taxes paid (refunded), net

i 5,313

i 1,819

i 2

Supplemental disclosure of non-cash financing activities:

Reclassification of contingently redeemable common stock
in connection with IPO

i —

i 309,500

i —

Issuance of common stock under partner physician group
equity agreements upon IPO

i —

i 268,467

i —

Offering costs accrued at end of period

i —

i 295

i —

Non-cash investment in unconsolidated subsidiaries

i 190

i 763

i —

Settlement of stock-based liabilities

i —

i 1,500

Settlement of loans receivable with services provided

i —

i 2,047

The following table summarizes cash, cash equivalents and restricted cash equivalents from continuing operations (in thousands):


	December 31,
	2022		2021
Cash and cash equivalents	$	i 497,070	$	i 1,040,039
Restricted cash and equivalents		i 10,610		i 14,781
Cash, cash equivalents and restricted cash equivalents	$	i 507,680	$	i 1,054,820

NOTE 18. Variable Interest Entities

Consolidated Variable Interest Entities

agilon health, inc.’s consolidated assets and liabilities as of December 31, 2022 and 2021 include certain assets of VIEs that can only be used to settle the liabilities of the related VIE. The VIE creditors do not have recourse to agilon health, inc.

agilon health, inc.’s consolidated assets and liabilities include VIE assets and liabilities as follows (in thousands):


	December 31,
	2022		2021
Assets(1)
Cash and cash equivalents	$	i 155,819	$	i 104,741
Restricted cash equivalents		i 10,610		i 13,210
Receivables, net		i 492,077		i 276,590
Prepaid expenses and other current assets, net		i 15,515		i 7,046
Property and equipment, net		i 1,567		i 1,147
Intangible assets, net		i 17,347		i 7,220
Other assets, net		i 10,371		i 10,580
Liabilities(1)
Medical claims and related payables		i 300,798		i 195,812
Accounts payable and accrued expenses		i 159,526		i 81,702
Other liabilities		i 2,059		i 4,521

(1)

Assets and liabilities of VIEs presented above include the assets and liabilities of the Company’s Independent Practice Associations in California, which are consolidated VIEs and whose operations are reflected in the consolidated financial statements as discontinued operations.

Risk-bearing Entities. At December 31, 2022, the Company operates i 28 wholly-owned risk-bearing entities (“RBEs”) for the purpose of entering into risk-bearing contracts with payors. Each RBE’s equity at risk is considered insufficient to finance its activities without additional support, and, therefore, each RBE is considered a VIE. i The Company consolidates the RBEs as it has determined that it is the primary beneficiary because it has: (i) the ability to control the activities that most significantly impact the RBEs’ economic performance; and (ii) the obligation to absorb losses or right to receive benefits that could potentially be significant to the RBEs. Specifically, the Company has the unilateral ability and authority, through the RBE governance and management agreements, to make significant decisions about strategic and operating activities of the RBEs, including negotiating and entering into risk-bearing contracts with payors, and approving the RBEs’ annual operating budgets. The Company also has the obligation to fund losses of the RBEs and the right to receive a significant percentage of any financial surplus generated by the RBEs. The assets of the RBEs primarily consist of cash and cash equivalents, receivables, net, intangible assets, net, and other assets, net; its obligations primarily consist of medical claims and related payables as well as operating expenses of the RBEs (accounts payable and accrued expenses), including incentive compensation obligations to the Company’s physician partners. On February 18, 2021, the Company executed the Credit Facilities, which are guaranteed by certain of the Company’s VIEs. Assets generated by the RBEs (primarily from medical services revenues) may be used, in certain limited circumstances, to settle the Company’s contractual debt obligations.

F-35

Unconsolidated Variable Interest Entities

As of December 31, 2022, the Company had i nine equity method investments (liabilities) that were deemed to be VIEs. The Company has determined that the activities that most significantly impact the performance of these VIEs consist of the allocation of resources to and other decisions related to clinical activities and provider contracting decisions. Because the Company does not have the ability to control these activities due to another party’s control of the VIEs’ board of directors, the Company has determined that it is not the primary beneficiary of and therefore does not consolidate these VIEs. The Company's maximum loss exposure as a result of the Company’s involvement with the VIEs cannot be quantified as the Company has the obligation to provide ongoing operational support to the unconsolidated VIEs, as needed.

Equity Method Investments

The following table summarizes the Company’s equity method investments (in thousands):


	December 31,
	2022			2021
Equity method investments - Other(1)	$	i 8,329		$	i 6,690
Equity method investments - DCEs(1)		i 9,023			i —
Equity method liabilities - DCEs(2)		(4,657	)		( i 6,380	)

(1)

Included in Other assets, net in the consolidated balance sheets.

(2)

Included in Other liabilities in the consolidated balance sheets.

The Company is a partner in i eight wholly-owned DCEs in collaboration with i 12 of its physician group partners operating in i 10 geographies. i The combined summarized operating results of the Company’s DCEs, which are recognized as equity income (loss), are as follows (in thousands):


	Year Ended December 31,
	2022			2021
Medical services revenue	$	i 1,071,302		$	i 437,081
Medical services expense		( i 991,565	)		( i 424,816	)
Other medical expenses(1)		( i 52,041	)		( i 12,219	)
Income (loss) from operations		i 14,294			( i 6,737	)
Net income (loss)(2)		i 10,556			( i 7,143	)

(1)

For the years ended December 31, 2022 and 2021, includes physician compensation expenses of $ i 27.1 million and $ i 1.0 million, respectively.

(2)

Included in Other income (expense), net in the consolidated statement of operations.

The combined summarized balance sheet of the Company’s DCEs are as follows (in thousands):


	December 31,
	2022		2021
Current and total assets	$	i 70,625	$	i 80,890
Current and total liabilities		i 67,343		i 88,033

NOTE 20. Discontinued Operations

Discontinued operations is a component of an entity that has either been disposed of or is deemed held-for-sale and, (i) the operations and cash flows of the component have been or will be eliminated from ongoing operations as a result of the disposal transaction, and (ii) the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction.

i During 2020, the Company implemented a plan to divest its California operations, which included the entirety of its Medicaid line of business, via three separate transactions with different parties. In August 2020, the Company disposed of its Southern California operations for a gross sales price of $ i 2.5 million and recognized a gain on sale of $ i 1.3 million. In October 2020, the Company disposed of its Fresno, California operations for a gross sales price of $ i 26.0 million and recognized a gain on sale of approximately $ i 19.1 million. The Company retained the working capital of both disposal groups and therefore such working capital accounts are not presented as assets and liabilities related to discontinued operations in the consolidated balance sheets. In December 2020, the Company signed a definitive agreement to sell its remaining California operations for a gross sales price of $ i 1.0 million. The sale closed in February 2021.

The Company’s decision to exit California and the Medicaid line of business represents a strategic shift that will have a major effect on its operations and financial results. As such, the Company’s California operations are reflected in the consolidated financial statements as discontinued operations. Net income (loss) from discontinued operations for the year ended December 31, 2020 includes $ i 3.7 million of severance related to the sale of the Company’s California operations.

F-37

The results of discontinued operations are as follows (in thousands):

Year Ended December 31,

2021

2020

Revenues:

Medical services revenue

i 511

i 6,408

i 155,108

Other operating revenue

i 14

i 36

i 188

Total revenues

i 525

i 6,444

i 155,296

Expenses:

Medical services expense

i 34

( i 865

)

i 84,189

Other medical expenses

i —

i 2,739

i 57,546

General and administrative

—

i 5,919

i 30,341

Depreciation and amortization

i —

i 126

i 568

Income (loss) from operations

i 491

( i 1,475

)

( i 17,348

)

Other income (expense), net

i —

( i 1,851

)

( i 2,351

)

Gain (loss) on sales of assets, net

i —

i 473

i 20,401

Interest expense

i —

( i 137

)

( i 350

)

Income (loss) before income taxes and noncontrolling interests

i 491

( i 2,990

)

i 352

Income tax benefit (expense)

( i 26

)

i 1,687

i 2,804

Net income (loss) from discontinued operations
attributable to common shares

i 465

( i 1,303

)

i 3,156

The following table provides significant non-cash operating items for discontinued operations that are included in the consolidated statements of cash flows (in thousands):


	Year Ended December 31,
	2021			2020
Non-cash operating activities from discontinued operations:
Depreciation and amortization	$	i 126		$	i 568
Stock-based compensation expense		i —			i 217
Deferred income taxes and uncertain tax positions		( i 1,697	)		( i 2,809	)
Release of indemnification assets		i 1,705			i 3,475
Other non-cash items		i —			( i 1,212	)

There were no non-cash operating activities from discontinued operations for the year ended December 31, 2022.

Indemnification Assets

Indemnification assets have been established to offset certain pre-closing liabilities for which the prior owners of some of the Company’s California subsidiaries are obligated to indemnify the Company. The Company deems the amounts receivable under the indemnification agreements to be fully collectible should indemnification claims arise and, as such, a valuation allowance is not deemed necessary. During the years ended December 31, 2021 and 2020, the Company released $ i 1.7 million, and $ i 2.8 million, respectively, of indemnification assets in discontinued operations in the consolidated statements of operations as the corresponding pre-closing liabilities were released as a result of closing certain tax years (see below). No amounts were released during 2022.

Unrecognized Tax Benefits

As of December 31, 2022 and 2021, the Company has recorded a liability for unrecognized tax benefits of $ i 1.6 million and $ i 2.1 million, respectively, inclusive of accrued interest and penalties on unrecognized tax benefits. The liability, if reversed, would result in a tax benefit attributable to discontinued operations. During the year ended December 31, 2021, due to expiration of the 2016 U.S. federal statute of limitations, the Company reversed $ i 5.6 million of tax liability, $ i 1.1 million of accrued interest and $ i 1.1 million of accrued penalties on unrecognized tax benefits and realized a tax benefit of $ i 1.8 million attributable to discontinued operations.

Schedule I: Condensed Financial Information Of Registrant

agilon health, inc.

(Parent Company Only)

CONDENSED BALANCE SHEETS

(in thousands, except per share data)


	December 31,
	2022			2021
ASSETS
Prepaid expenses and other current assets, net	$	i 467		$	i 481
Total current assets		i 467			i 481
Investment in wholly owned subsidiary		i 977,883			i 1,015,564
Loans receivable		i 69,383			i 76,614
Total assets	$	i 1,047,733		$	i 1,092,659
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Other liabilities	$	i 953		$	i 763
Stockholders' equity (deficit):
Common stock, $ i i 0.01 / par value: i i 2,000,000 / shares authorized; i i 412,385 / and i i 400,095 / shares issued and outstanding, respectively		i 4,124			i 4,001
Additional paid-in capital		i 2,106,886			i 2,045,572
Accumulated deficit		( i 1,064,230	)		( i 957,677	)
Total stockholders' equity (deficit)		i 1,046,780			i 1,091,896
Total liabilities and stockholders’ equity (deficit)	$	i 1,047,733		$	i 1,092,659

See accompanying Notes to the Condensed Financial Statements.

F-39

agilon health, inc.

(Parent Company Only)

CONDENSED STATEMENTS OF OPERATIONS

(in thousands)


	Year Ended December 31,
	2022			2021			2020
Equity in net income (loss) of subsidiary	$	( i 107,281	)	$	( i 406,936	)	$	( i 60,052	)
Interest income		i 728			i 449			i —
Net income (loss) attributable to common shares	$	( i 106,553	)	$	( i 406,487	)	$	( i 60,052	)

See accompanying Notes to the Condensed Financial Statements.

F-40

agilon health, inc.

(Parent Company Only)

NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE 1. Description of agilon health, inc.

agilon health, inc., formerly Agilon Health Topco, Inc., (“Parent”) was incorporated in Delaware and indirectly owns i 100% of the equity interest in agilon health management, inc. (“agilon”). Parent has no significant operations or assets other than its indirect ownership of the equity of agilon. Accordingly, Parent is dependent upon distributions from agilon to fund its obligations. However, under the terms of the agreements governing agilon’s borrowings, agilon’s ability to pay dividends or lend to Parent is restricted. While certain exceptions to the paying of dividends or lending funds restrictions exist, these restrictions have resulted in the restricted net assets (as defined in Rule 4-08(e)(3) of Regulation S-X) of Parent’s subsidiaries exceeding i 25% of the consolidated net assets of Parent and its subsidiaries. agilon has no obligation to pay dividends to Parent.

Condensed statements of cash flows have not been presented, as agilon health, inc. did not have any cash as of, or for the years ended December 31, 2022, 2021 and 2020; see Note 3 for issuance of common stock.

NOTE 2. Basis of Presentation

The accompanying condensed Parent-only financial statements include the amounts of Parent and its investment in agilon under the equity method, and do not present the financial statements of Parent and agilon on a consolidated basis. Under the equity method, Parent’s investment in agilon is stated at cost plus contributions and equity in undistributed income (loss) of agilon less distributions received since the date of acquisition.

These condensed Parent-only financial statements have been prepared using the same accounting principles and policies described in the notes to the agilon health, inc. consolidated financial statements, with the only exception being that Parent accounts for its subsidiaries using the equity method. These condensed Parent-only financial statements should be read in conjunction with the agilon health, inc. consolidated financial statements and their accompanying notes.

NOTE 3. Equity

A discussion of Parent’s contingently redeemable common stock and stockholders’ equity activities for the years ended December 31, 2022, 2021 and 2020 can be found in Note 13 in “Notes to the Consolidated Financial Statements” of the consolidated financial statements of agilon health, inc.

There were i i i no / / cash dividends paid to Parent from agilon’s consolidated subsidiaries for the years ended December 31, 2022, 2021 and 2020.

Supplemental Cash Flow Information

The following table provides supplemental cash flow information (in thousands):

Year Ended December 31,

2021

2020

Supplemental disclosure of non-cash financing activities:

Reclassification of contingently redeemable common stock
in connection with IPO

i —

i 309,500

i —

Issuance of common stock under partner physician group
equity agreements upon IPO

i —

i 268,467

i —

Non-cash investment in unconsolidated subsidiaries

i 190

i 763

i —

Settlement of stock-based liabilities

i —

i 1,500

F-41