Agilon Health, Inc. Q3 FY2025 earnings call

• Clinical and quality programs execution: The quarter benefited from clinical and quality programs, with care gap closure rates exceeding the MA average on key star measures. - Enhanced data pipeline: Went live in Q1, providing more timely direct payer data feeds and member level clinical/claims data on ~80% of members. - Contract negotiations: Actively negotiating 2026 contracts, focusing on reducing Part D exposure, expanding quality incentives, improving Part C economics, and narrowing risk from supplemental benefits. - Cost optimization: Reduced operating costs by $30 million through strategic realignment of organization structure, centralization of functions, and technology implementation. - Stars performance: ~75% of agilon members expected to be in 4+ Star plans in 2026, with a consolidated average of 4.2 stars across markets. - Clinical pathways: Palliative and heart failure programs showing positive results, with reduced inpatient heart failure diagnosis rates and lower readmission rates.

For the third quarter of 2025, agilon Health reported revenue of $1.44 billion. Medicare Advantage membership at the end of Q3 2025 was 503,000 members, down from 525,000 in Q3 2024. ACO REACH membership was 115,000 members, compared to 132,000 in the same period of 2024. Medical margin was negative $57 million and adjusted EBITDA was negative $91 million. First half medical cost trends were approximately 5.7%, and the third quarter reflected continued elevated cost trends with impact from lower-than-expected risk adjustment and exited markets.

• Reinstated 2025 guidance: Expect revenue of $5.82 billion, medical margin of $5 million, and adjusted EBITDA of negative $258 million, including impact of lower risk scores and exited markets but offset by positive first half medical costs and ACO REACH performance. - 2026 outlook: Anticipates positive development in first half, enhanced data pipeline ramping to 80% membership, Part D exposure potentially below 30%, and cost reductions of $30 million. Favorable payer bids expected to act as tailwinds with improved pricing, deductibles, and maximum out-of-pockets.

• Lower-than-expected risk adjustment: Impacted 2025 results, with lower-than-average risk adjustment for remaining 28% of members. - Exited markets: Continued high costs from exited markets affecting quarterly performance. - Payer contract risks: Potential membership reduction if payers' benefit designs and pricing are inconsistent with market dynamics.

Q: Michael Ha with Baird asked about ACO REACH impact and risk corridors narrowing.

A: Jeffrey Schwaneke responded that re-baselining risk adjustment is more meaningful, and they're reviewing ACO models to determine better ones.

Q: Jack Slevin with Jefferies inquired about potential payer contract exits.

A: Jeffrey Schwaneke said they're taking a disciplined approach, and any membership reduction would be beneficial to margin. Ronald Williams added they're focused on profitability and working with supportive partners.

Q: Jailendra Singh with Truist Securities asked about CEO search.

A: Ronald Williams said there are good candidates, process is open, and they're focused on performance despite no permanent CEO.

Q: Ryan Langston with TD Cowen asked about cash in ACO entities.

A: Jeffrey Schwaneke explained cash in REACH entities and access to it, with year-end cash expected at ~$310 million.

Q: Justin Lake with Wolfe Research asked about CMS fee-for-service trend and payer bid benefit designs.

A: Jeffrey Schwaneke said fee-for-service cost trends are 8.5%, and payer bids vary but are pricing for margin.

Q: Craig Jones with BofA Securities asked about savings from palliative and heart failure programs.

A: Jeffrey Schwaneke said programs are ramping, with long-tail benefits and continuous evolution.

Q: Daniel Grosslight with Citigroup asked about provider contract changes.

A: Jeffrey Schwaneke said no changes to provider contracts, but incentive alignment was part of $30M cost savings.

Q: Andrew Mok with Barclays asked about payer contract concentration and contracted membership.

A: Jeffrey Schwaneke said it's market-by-market, and negotiations are ongoing with substantial progress but not finalized. Ronald Williams added physician partners are active in negotiations.

Q: Matthew Shea with Needham asked about clinical program rollout.

A: Jeffrey Schwaneke said pilots are followed by rolling out market-by-market, with COPD and dementia pilots to expand in 2026.

Q: David Larsen with BTIG asked about Big Beautiful Bill Act impact.

A: Jeffrey Schwaneke said no meaningful impact.

Q: Amir Bani with Evercore asked about Humana impact and minimum working capital.

A: Jeffrey Schwaneke said Humana is part of contracting process, and no specific minimum working capital number provided.