Agilon Health, Inc. Q3 FY2024 earnings call

• Overview of Q3 financial results and updated 2024 guidance: Raised MA membership guidance to 527,000 and revenue to $6.057 billion; lowered medical margin and adjusted EBITDA guidance. - Key actions to drive profitability: Exit two partnerships in ~10% of payer contracts, reduce Part D risk exposure, delay onboarding of one 2025 physician partner. - Core business strengths: Greater than 80% of year one plus partnerships have positive market-level MA adjusted EBITDA; high demand from payers/partners with consistent quarterly additions of doctors and members; strong STARS scores and ACO REACH performance. - Execution opportunities: Repricing 40% of membership for January 2025 renewal with improved premium terms and quality incentives; received updated payer bid information for over 90% of membership, a composite tailwind; improved burden of illness assessment and PCP engagement; enhanced data visibility with 85+% of members in financial data pipeline and 80+% with payer census data.

Medicare Advantage (MA) membership continued its growth trend, increasing 37% year-over-year to 525,000 members at the end of the third quarter. Total revenue grew 28% to $1.45 billion in Q3, with year-to-date revenues at $4.53 billion, a 39% increase. Third quarter medical service expense was $1.51 billion, a 47% increase year-over-year. ACO model membership at quarter end was 132,000. MA membership contributes significantly to total revenue, with the growth in MA members driving the top-line growth.

• Raised MA membership guidance for 2024 to 527,000 members and revenue to $6.057 billion. - Lowered 2024 medical margin guidance to $225 million, down from the prior range of $400 million to $450 million. - Adjusted EBITDA guidance range for 2024 is revised lower due to Q3 results and Q4 forecast. - 2025 MA membership step-off expected to be 452,000 to 482,000 before addition of 45,000 members from class of 2025. - Medical margin step-off point for 2025 is ~$325 million before key actions like partnership exits and Part D risk reduction.

• Exposure to Part D and supplemental benefit risk. - Small subset of partnerships in need of meaningful improvement. - Data visibility and claims lag issues, including challenges in fully delegating claims and obtaining timely data from payers.

Q: Lisa Gill asked about repricing 40% of membership and 2025 negotiations.

A: Steven Sell said they're seeing improved premium terms and quality incentives, with 40% of membership up for renewal having repricing, and over 90% of membership in detailed payer bids which are a tailwind.

Q: Justin Lake inquired about cost trend revision.

A: Jeffrey Schwaneke explained Q3 cost trend was revised from 6% to 9.1%, Q4 from 5.2% off a high step-off last year, and historical seasonality considered.

Q: Adam Ron asked about cash, bids, and partnerships.

A: Jeffrey Schwaneke discussed cash position, 90+% of membership in payer bids as a tailwind, and the impact of exiting partnerships being meaningful but details to be shared early next year.

Q: George Hill questioned medical margin step-off and 2025 visibility.

A: Steven Sell outlined the revised step-off run rate, payer activities including repricing, quality incentives, Part D, and payer bids as key moving pieces.

Q: Sameer Patel asked about mid-year risk adjustment.

A: Steven Sell and Jeffrey Schwaneke explained it was an execution opportunity gap, historical restatement favorably, and work to close gaps for 2026.

Q: Ryan Langston asked about partnership exits.

A: Jeffrey Schwaneke said it was based on magnitude of loss, timeline to profitability, and payer dynamics in those markets.

Q: Stephen Baxter asked about cost trend revision.

A: Jeffrey Schwaneke explained recast due to paid claim data and seasonality.

Q: Andrew Mok asked about risk adjustment.

A: Jeffrey Schwaneke said it was an isolated incident of investment not translating, midyear data tied, and confidence in 2024 estimate.

Q: Michael Ha asked about claims delegation.

A: Steven Sell said full claims delegation not feasible in most markets, but progress made with financial data pipeline and leading indicator data.

Q: Thomas Keller asked about alternative risk terms.

A: Steven Sell explained a glide path into full risk with care management fees in initial year due to data needs.

Q: Daniel Grosslight asked about glide path and model.

A: Steven Sell said it's a glide path to full risk value-based care, aligning with payer economics and quality incentives, and 80+% of partnerships already positive adjusted EBITDA.