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" Robert W. Baird & Co. Incorporated, Research Division

" Jefferies LLC, Research Division

" Truist Securities, Inc., Research Division

" TD Cowen, Research Division

" Wolfe Research, LLC

" BofA Securities, Research Division

" Citigroup Inc., Research Division

" Barclays Bank PLC, Research Division

" Needham & Company, LLC, Research Division

" BTIG, LLC, Research Division

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Good afternoon, and thank you all for attending the agilon Health Third Quarter 2025 Earnings Conference Call. My name is Brika, and I will be your moderator for today. [Operator Instructions] I would now like to pass the conference over to your host, Evan Smith, Investor Relations at agilon Health. Thank you. You may proceed, Evan.

Thank you, operator. Good afternoon, and welcome to the call. With me is Executive Chairman, Ron Williams; and our CFO, Jeff Schwaneke. Following our prepared remarks, we will conduct a Q&A session. Before we begin, I would like to remind you that our remarks and responses to questions may include forward-looking statements. Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with our business. These risks and uncertainties are discussed in our SEC filings. Please note that we assume no obligation to update any forward-looking statements. Additionally, certain financial measures we will discuss in this call are non-GAAP financial measures. We believe that providing these measures helps investors gain a better and more complete understanding of our financial results and is consistent with how management views our financial results. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures is available in the earnings press release and Form 8-K filed with the SEC. And with that, let me turn the call over to Ron.

Thank you, Evan. Good afternoon, everyone, and thank you for joining us. I'm pleased to be with all of you today. For the third quarter, we reported revenue of $1.44 billion, medical margin of negative $57 million and adjusted EBITDA of negative $91 million. We are also reinitiating 2025 guidance. While the quarter benefited from the execution of our clinical and quality programs as well as cost discipline, we nevertheless were impacted by lower-than-expected in-year RAF contribution as well as continued high costs from exited markets. As we look forward, we believe 2026 is shaping up to be a strong stepping stone in our transformation with positive development in the first half, the enhanced financial data pipeline ramping to 80% in membership and Part D exposure potentially moving below 30% we believe we are establishing a solid 2026 baseline. We expect to have improved forecasting and lower volatility as well as significant internal and market-driven tailwinds. These tailwinds include our burden of illness and clinical pathways initiatives driving broader identification and diagnosis of high-risk conditions, increased incentives for our quality performance and more disciplined and favorable contracting. This is further supported by more favorable payer bids, including increased premiums, maximum out-of-pocket and deductibles, benefiting agilon's financial performance. And last, we believe we are establishing a more efficient platform to drive additional operating leverage and have reduced our operating costs by $30 million. With increased visibility, we have reinstated our 2025 guidance. At the midpoint, we expect revenue of $5.82 billion, medical margin of $5 million and adjusted EBITDA of negative $258 million, which includes the impact of lower-than-expected risk scores for 2025 and costs related to exited markets, partially offset by positive development in first half medical costs, strong performance in ACO REACH and continued operating cost discipline. Jeff will…

Thanks, Ron, and good afternoon. As Ron touched on, 2025 is a transformational year. We are advancing strategic initiatives that we started putting in place last year to improve our contract economics, reduce our risk and optimize our cost structure. We believe the increased visibility gained from the enhanced data pipeline, advances we have made in our BOI and clinical pathways programs, a $30 million reduction in operating expenses and a more disciplined approach to growth is expected to have positive impact in 2026. For today's discussion, I will cover 4 key areas: First, I will walk through our third quarter results. Second, I will provide details on our reinstated 2025 guidance and a bridge to our jumping off point for 2026. Third, I will provide color on the significant number of tailwinds we believe will support improvement in our 2026 performance. And finally, I will discuss the strength of our capital position based on our expectations for 2026 and a more disciplined near-term growth outlook. Moving to our financial performance for the third quarter. Starting with membership. Medicare Advantage membership at the end of Q3 2025 was 503,000 members compared to 525,000 members in Q3 2024. Our ACO REACH membership for Q3 was 115,000 members compared to 132,000 members in the same period of 2024. As we discussed previously, our decision to take a measured approach to membership growth has resulted in a slight year-over-year decline driven by previously disclosed partner exits in a smaller 2025 class. Total revenue for the third quarter of 2025 was $1.44 billion compared to $1.45 billion in the same period of 2024. Our year-over-year revenue comparison continues to be impacted by lower-than-expected risk adjustment as well as the impact from market and payer contract exits. During the third quarter, we received the remainder…

[Operator Instructions] The first question we have from the phone lines comes from Michael Ha with Baird.

I see on your slide that you have ACO REACH as a negative impact for next year. And I know the risk corridors are narrowing next year to 10% savings rate. I think agilon is at 13%. If, on our back of the envelope math, we're getting somewhere around $10 million to $15 million of EBITDA impact. Is that the right ballpark to frame it? Is that what you're highlighting in your slide? Are you able to offset it? Does this narrowing of the savings rate create any friction with your ACO REACH partners? Just thoughts there would be great.

Yes. Thanks, Michael, for the question. This is Jeff. I actually think the re-baselining of the risk adjustment is actually more meaningful for us. And so yes, what we are reflecting here is that there were several changes to the ACO REACH program. And I think we've commented about this before that we do expect lower economics from the program while still contributing, I would say, very good margin. And we're reviewing our ACOs right now and determining what model is actually better. And I think we've made the decision on some of our ACOs to move them to the MSSP program as we think about 2026 because the economics would be better in that program. Not going to really size the impact right now. We're getting a little ahead here on the '26 guide. But you are correct, it's really driven by those changes.

We will now move on to the next question. We have Jack Slevin with Jefferies on the line.

I appreciate all the color included in the deck in the release. I guess this might be a little high level because I acknowledge it's a bit early, but I just wanted to frame some of your commentary around potential further exits from payer contracts. And maybe I'll just broaden it out to say, are you contemplating, I guess, one, market exits on the table at this point? Or is it really just specific payers? And then two, if there's any way to get a sense of the order of magnitude that might be at play here? Just trying to frame out sort of what we might be looking at going forward. And any thoughts or sort of qualitative color would be really helpful.

Yes. Thanks, Jack, for the question. You're right, it is a little early. We're kind of midstream on the contracting here as we think about 2026. I think the takeaway for you would be, listen, we are taking a very disciplined approach and where the economics don't make sense for the value that we're delivering, ultimately, we don't have to do business with that payer. Some of those members may move to another payer in that market; and, or we may enter into a Care management deal, a Care coordination fee with upside for quality and things like that. I think the point I would take away is any potential reduction in membership would be beneficial to the medical margin and the EBITDA for agilon. And that's really what we're focused on. So unfortunately, I can't size it for you right now, but any reduction would ultimately be to the benefit of the bottom line.

Yes. I would just add, Ron here, that we have been very clear with the payers about the value that our physician partners create, both in terms of the Stars Program as well as closing gaps in Care. And I think we've been very clear that we are contracting for tomorrow and not the historical relationship that we've had in a more normalized trend, more normalized utilization. I think the good news is that we've been working with some of our partners who understand this, who are exhibiting an attitude that's supportive of the kinds of objectives that we have. But we're very clear, this is about being profitable and achieving the kind of margin that we want, and we're committed to working through that.

We now have Jailendra Singh with Truist Securities.

This is [Indiscernible] on for Jailendra. I guess just to start, is there any type of update you can provide on the CEO search and how that's going? And if you guys have made a decision between like internal and external candidates?

Yes. I would say that I've been spending a good deal of time. I think I'm pleased to say that we have some very good candidates coming forward. The process is open to all candidates who are interested in applying for the opportunity. And I would say that we feel good about where we are in pace and timing. I certainly wouldn't forecast a conclusion here. I think the most important thing for you to know is that while we don't have a permanent CEO, I am 100% focused on what we need to do to improve performance in the business. I meet regularly on a daily basis. The office of the Executive Chairman meets every day. We focus on the critical priorities and objectives with the goal of having a very strong finish to the year and a strong start for next year. So, while no time line on the process, this is not caretaking. This is active engagement and focused execution.

And if you don't mind, if I could squeeze in just a quick follow-up. Thank you for all the color on the medical cost trends. Is there just anything to call out in terms of what you saw in Q3 in areas that were maybe high or cooling off a little bit? And then also if there's any color you can provide into Q4?

Yes. I think it's the same issues we've highlighted in the past quarters, really, its in-patient Part B drug spend, specifically oncology; In-patient continues to run a little bit high as well. I think those have been consistent over the last several quarters. So, nothing new here. I would say that the first half medical cost trends have all restated favorably. So Q1 has come down. Q2 has come down since we last spoke, which is good, and it's just a little bit over the mid-5% range. And again, for Q3, we just took what I call a relatively conservative approach in the low 6s. Ultimately, we don't have a lot of paid claims for that. And so, we'll have to see how that estimate plays out as we get into the fourth quarter.

Your next question comes from Ryan Langston with TD Cowen.

I think I heard you say there's about $65 million currently at the ACO entity level. I guess, is there a minimum amount of cash you need to have allocated to the REACH entities? And in the year-end 2026 balance for cash, what's contemplated at the ACO REACH level?

Yes. So actually, at the end of the quarter, we had $172 million in the REACH entities, and there's cash settlements that happen in the fourth quarter. And so, the way we think about it is once those settlements are processed in Q4, we'll roughly be at the $65 million. And as you think about the year-end balance, the $310 million we quoted, it includes that $65 million. So, we expect to end the year at roughly $310 million. That includes $65 million from REACH. I would say there's no requirement to hold those dollars in the REACH entities. It's more from a tax perspective because they're outside of our consolidated umbrella. There's some tax efficiencies gained by leaving it there and then monetizing that over time. But we have access to that if we needed it.

Okay. Great. And then on the sort of higher-than-average impact on the risk revenue for the remaining 28% of the enrollment, I guess, was there any particular reason you expected these members to have higher scores? Was it accrual driven incomplete coding? Just trying to understand the potential implications for 2026.

Yes. I think we highlighted that in the prepared remarks. It's really, I would say, the higher than average is really driven by one payer that was new to us in 2024. We did not have data for them in 2023. So, I think that made the estimation, I would call it, more challenging, obviously, because you have to have '23 and '24 to really determine the increase in actual risk scores. The good news is that, that payers now on our enhanced data pipeline. And what I will say is sitting here today, we actually have the ability to calculate member level risk scores. We did not have that ability a year ago. And so, as you think about what happened in the second quarter, we were able to calculate member level risk scores that tied or that agreed highly correlated with the midyear data from CMS and the final year risk scores as well. And so, we're in a much better position this year to calculate member level risk scores. That's all been driven by the process change associated with the enhanced data pipeline. So, we feel pretty good that we have a solid foundation in order to, I would say, set a foundation for this year and obviously project forward as we think about a 2026 guide.

We now have Justin Lake with Wolfe Research on the line.

This is Dean Rosales on for Justin. Is there any color you can give on what CMS is estimating for fee-for-service trend in '25 within the ACO REACH program? And then my second question is in your earnings presentation, you stated that you expect payer bids to act as a tailwind in '26. Is there any color on the benefit designs that you're seeing that you could share? Would you say reduction of benefit is largely consistent across your payers?

Yes. First, I'll handle the REACH question. The latest data, I think we have is fee-for-service cost trends are 8.5%, and so that's the latest information we have on the cost trends in the fee-for-service business. And then as far as the bid detail, it is different by payer is what I would say. And obviously, everybody kind of reads the public announcements from all of our payer partners. But generally, I would say it's different. But broadly across our network, what we've seen is really pricing for margin. And it's maximum out of pockets, it's all of the things and the levers that the payers have in the bid design. And so, across our book, generally, I would say what we see is pricing for margin, which we believe is going to be a tailwind for us as we head into '26. So not all payers are the same, but across our footprint and our network, it's going to be a positive for next year.

We now have a question from the line of Craig Jones with Bank of America.

So looking at your Palliative and Heart Failure Program, I think you've rolled those out about most of your geographies now. For 2025, what kind of savings do you expect from those, either PMPM or millions? And then as we think about these test programs going forward, once you kind of get installed in all your geographies, is this sort of like a onetime boost that then kind of oscillates up and down based on participation? Or is it sort of an annual continued margin accretion?

Yes. I would say, just to go back, we implemented a lot of these clinical programs, I would say, late in 2024, early in 2025. So there certainly is a ramp period, and some of that benefit will accrue to 2026, given the long-tail nature of our business. We're not going to get into any specific PMPM savings, but I think Ron highlighted in his prepared remarks, some of the outcomes that we're seeing from those programs. They have been very successful. Ultimately, it is reducing medical expense and improving, I would say, the identification of disease burden for our members so that we can get them into the appropriate treatment programs. And so, we look to, I would say, continue the evolution of these programs as we exit '25 into '26. And they will be permanent programs. So, they will continuously drive value, and we would continue to iterate on these programs to continue to make them successful.

Yes. Probably the only thing I would add is that we will continue to enrich the data sets and the AI algorithms that we use to identify potential suspects and the burden of illness in patients that has not yet been detected along with other diagnostic techniques that our medical groups have invested in, and we've supported. So, I think you can expect that this will continue some level of progression into the future, while at the same time, we expect to ramp up other programs that our medical groups have determined represent good clinical care for their patients.

We have Daniel Grosslight with Citigroup

I think you've covered the changes you're making to payer contracting well. But correct me if I'm wrong, I may have misheard this. I think I heard in your prepared remarks that you're also altering how you're contracting on the provider side. Can you just provide a little bit more detail on how, if at all, your provider contracts are changing, particularly with regard to risk sharing and how this may shift receptivity on the provider side to contracting?

Yes. On the provider side, we're not changing any of the contracts on the provider side. I think what you're referring to is there was a comment about the $30 million of operating savings really executed on for next year. I think part of that was aligning the incentives with our physician partners. So, we did take a fresh look at incentive alignment, and that was a component of that $30 million.

Okay. Can you provide a bit more detail on what that means in practice with incentive alignment, how incentives are changing?

Probably not here. I mean it wasn't a substantial piece of the $30 million is what I would say. And so, as you think about that $30 million, I would say half was generally corporate, what I'd call corporate overhead costs. And then the other half would have been, I would say, more market operating costs that we are looking at. So the physician incentive piece was relatively small.

We now have a question from Andrew Mok with Barclays.

I wanted to follow up on the payer contract discussion. When you see benefit misalignment with your payer partners, is that concentrated more in small regional health plans or large national carriers? And how much of your current membership is already contracted for next year? And how much is still outstanding?

Yes. I guess what I would say is it's a market-by-market item, right? So it's not just broadly across one payer or this payer. You have to go into each specific market and understand the benefit designs that impact us. And ultimately, as part of our contracting process, we get the bid information, we analyze that, and that is a key component of our request on economics, as you can imagine. And so I would say it's a little more nuanced than kind of what you're saying. And then the second part of your question, what was that?

How much of your membership is already contracted for next year when you think about what's left outstanding?

Yes. I would say it's kind of hard to put a pin on exactly how much is where the ink is dry, if you will. I think we've come to general business terms with; remember, we had about 50% of our contracts open for renewal. We've come to, I'd say, relative agreement on a substantial portion of that. But obviously, you have to dot the I’s and cross the T’s and that matters. And so I would hesitate to say right now at this point how much. But obviously, we're going to work through the bulk of this in the fourth quarter, and we'll have an update for you when we do our year-end call.

Yes. The only thing I would add is that the negotiations have really been extensively supported by our physician partners because they are in that community. They have the relationship with the patient. And so they have been really actively at the table with us in markets to assist in delivering the important messages to payers who may not have heard us as clearly as we had hoped.

Great. And if I could sneak in one additional question. I would love to follow up on Stars. I appreciate the comment that bonus year 2027 Star scores will increase. But as we think about bonus year 2026 and some of the volatility there, to the extent some of your payer partners have a reduction in Stars, can you help us understand whether this headwind flows downstream to you? Or are you getting a fair premium increase to offset that Stars headwind?

Yes. Obviously, that's another key component of what we're talking about when we're doing our contracting. So again, I would say we are looking for total overall economics that makes sense for our partners in agilon, and that's what we're focused on. And that's when we said we're taking a disciplined approach, that would be part of that equation.

We now have Matthew Shea with Needham on the line.

I wanted to hit on the clinical programs again and the broader COPD and dementia rollout. What is the staging or timing of going from a pilot to permanent program look like? And based on your success with palliative, how long do these broader launches tend to take to ramp towards meaningful savings with that, I guess, given the early success from your existing programs and some of your commentary, do you plan on rolling out incremental programs or piloting new specialty areas in 2026? Or how should we think about clinical programs sort of evolving from here?

Yes. I would say you're heading down the correct path, meaning the first thing we typically do is pilot some of these programs and validate that ultimately, it's improving the Care for the member. And so we would pilot those. You have to have enough data, obviously, to make sure that, that's happening. So I'd say the pilot phase is relatively 6 to 8 months could be longer. But then ultimately, we would roll that out. And of course, it's, you can't roll it out to everyone at all times, right? And so we roll it out market by market, starting with the markets that we believe would provide the most value. And so yes, I would say we plan to take the pilots of COP and dementia. I think we're going to roll those out to more markets in 2026. And then yes, obviously, potential new pilots are on the table, and we're thinking about those as we think about our 2026 guide and what we're planning on doing for next year.

Yes. All of these programs are developed in consultation with our partners, and we have network Advisory Board where the leaders of the principal medical groups come and advise, review the evidence and support and endorse these types of initiatives as good patient care for their members. And so we do have some teed up, as Jeff described. And we feel like as we've implemented congestive heart failure, we've learned a lot about that process of diffusion of both the clinical evidence technology, training and support of the physicians.

We have the next question on the line from David Larson with BTIG.

This is Jenny Shen on for David. I just wanted to ask about the Big Beautiful Bill Act. Do you expect that on the Medicare side to have any impact on your business at all? And if you do, what do you expect those impacts to be?

Yes. We don't expect it to have a meaningful impact on the business. And I guess we'll just leave it at that.

[Operator Instructions] And we now have Amir Bani with Evercore on the line.

So Humana is one of your largest payer partners, I believe, and it looks like they're focused on benefit stability for '26. So I guess I'm trying to get a sense for how you think this impacts your medical costs for next year. Some numbers around that would be very helpful. And if I could squeeze in a quick follow-up. What do you see as minimum working capital for your business?

Yes. So real quick, I think we've kind of covered this maybe the first question as far as Humana. I think we've kind of covered this in the contracting phase, which is ultimately, we get the benefits for each of our markets. We get the plan designs, and we analyze that, and that's part of our overall contracting efforts looking for the economics that we think makes sense for us. And so I would say that's just one, you're just talking specifically about one payer, but the process is the same across all payers. And so I think that's where we are from that standpoint. It's part of the overall contracting process and the economics we look for. And your second question on minimum working capital, I don't know what you're trying to really get at there. I don't have a number off the top of my head for what you're trying to pinpoint, but we can certainly follow up.

[Operator Instructions] I can confirm that will conclude the question-and-answer session here. And I would like to hand it back to Ron Williams for some final closing comments.

Well, thank you for joining us today. agilon will post 2025 with a sharpened focus and momentum driven by a suite of high-impact initiatives that are fundamentally reshaping our operating discipline and executional rigor. I want to thank our employees and our partners who may be listening and I also want to thank you for your dedication and partnership with us. You're playing a crucial role in the health care industry, helping to transform health care to our employees and empowering our primary care physicians to focus on the entire health of their patients. We will continue to fulfill this mission with our employees. Thank you. Have a good evening.

Thank you. I can confirm that does conclude the agilon Health Third Quarter 2025 Earnings Conference Call. Thank you all for your participation. You may now disconnect, and please enjoy the rest of your day.