Agilon Health Inc Aktie

Hello, everyone. Thank you for joining us, and welcome to agilon health First Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question-and-answer session. [Operator Instructions]

I will now hand the conference over to Evan Smith, Senior Vice President, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and welcome to the call. With me are 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. Non-GAAP measures are supplemental and not substitute for GAAP results. However, we believe that providing these non-GAAP measures helps investors gain a better and more complete understanding of our financial results and are 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 today.

And with that, let me turn the call over to Ron.

Thank you, Evan, and good afternoon, everyone. In 2026, we remain focused on disciplined execution and building a durable foundation for sustainable long-term performance. We are advancing the same strategy and mission, empowering best-in-class physicians through long-term partnerships to deliver high-quality, cost-effective patient care that delivers value for all of our stakeholders.

In 2025, we made meaningful progress across all of our initiatives, which has translated into strong first quarter performance and increased expectations for our full year 2026 outlook. As we announced last week, we are excited to welcome Tim O'Rourke as our new CEO beginning tomorrow, May 7. Tim brings significant experience across the payer and provider space with a deep understanding of what is needed to succeed in value-based care. Tim is fully committed to furthering our mission and strategy to continue driving improvement in agilon's performance for all of our stakeholders.

In the first quarter, we delivered results that were above our expectations. Our performance demonstrates operational discipline, the strength of our long-term physician partnerships, and early benefits from the strategic decisions we made last year. Operationally, we are building upon several key initiatives you've heard me discuss before, the enhanced data pipeline and improved actuarial visibility enabling earlier identification and validation of trends, continued advancement of our clinical and quality programs with our congestive heart failure program now scaled broadly across the network, and ongoing execution of disciplined payer contracting and operating expense optimization focused on profitability and sustainability. Each of these efforts are designed to improve predictability and alignment with our physician partners, reduce variability, and support durable margin expansion over time.

With the enhanced data pipeline, we now have more timely direct payer data feeds with validated and highly correlated member level clinical and claims data as well as member level risk scores on approximately 85% of our members. The increased visibility and alignment of our financial and operational data enable us to more quickly identify and drive improvements. As Jeff will discuss in more detail, this has enabled us to increase our revenue and adjusted EBITDA expectations in part due to better progress on the validation of our burden of illness initiatives.

Going forward, we will continue to enhance the data pipeline to support clinically actionable insights as well as improved network design and care model innovation. In combination with our physician reviewers, we are integrating generative AI-based insights directly into clinical workflows to drive more informed physician decision-making at the point of care, and we are seeing encouraging results. This capability is helping physicians intervene at the most appropriate points of care earlier.

We are continuing to increase our focus on high-risk patients, an increasingly important focus for all constituents in the Medicare space. We have grown the richness of our member level data and are now aligning it better with PCP actions. This is helping physicians improve the quality of their intervention with higher-risk patients, identifying gaps in care, and leveraging industry standard guideline-directed clinical pathways.

Greater access to timely and high integrity data has also improved the quality of our forecasting as demonstrated in the ongoing development of our 2025 cost trends. We have favorable medical cost trend development from the second half of 2025 and are seeing slight moderation within patient census so far in 2026. With that said, given it is early in the year, we believe it remains prudent to maintain our net cost trend outlook of approximately 7% for full year 2026.

Our full risk Total Care Model is delivering clinical and quality outcomes and driving strong patient and PCP Net Promoter Scores while demonstrating the ability to effectively manage utilization and medical cost trend.

Next, let me discuss clinical and quality programs, focusing primarily on our clinical execution, which is a core driver for our model. As a reminder, the congestive heart failure or CHF program remains the most mature pathway deployed across 90% of our markets. Let me start with why this program is important to patients. Approximately 40% to 50% of patients nationally are diagnosed at the time of first admission to the hospital. That means missed opportunities for earlier detection, leading to less-than-ideal care and unnecessary hospital costs.

The second thing we know about heart failure is that less than 10% of patients are actually on the right therapies. Through a proactive and guideline-directed approach, our physician partners have been able to shift CHF diagnosis to earlier in the care continuum, with inpatient first diagnosis rates improving from approximately 25% to less than 5%. So less than 5% of heart failure diagnoses are now in the inpatient setting.

Additionally, we are expanding our pharmacy integrated management approach for heart failure patients across the network and observing positive trends in guideline-directed therapy rates, which we expect to improve functional outcomes for patients and prevent downstream complications of disease that lead to admissions.

Current results reflect the combination of our early detection and diagnosis supported by in-office or increased access to diagnostics, structured and physician-supported clinical protocols and ongoing patient engagement, including virtual pharmacy support. These pathways are increasingly informed by AI-driven risk stratification and early detection models, enabling more proactive intervention with this high-risk population.

We plan to utilize this evidence-based approach by rapidly scaling COPD and broader lung health pathways through 2026. The initial focus for these programs will be earlier identification of COPD, expanded lung cancer screenings and increased use of advanced diagnostics by our physician groups, each of which is designed to drive earlier intervention, improve treatment adherence or prevent avoidable complications and hospitalizations.

In addition, we are seeing good engagement as we continue to roll out the dementia program in conjunction with our physician partners. Increased health care costs and the burden on caregivers is being driven by the approximately 50% of dementia patients across the broad population that go undiagnosed, increasing both health care costs and the burden on caregivers. We are working with partners to deploy enhanced caregiver models, structured early-stage pathways and virtual diagnostics.

Moving to our quality and stars performance. agilon stars' performance is a result of a highly integrated quality operating model that combines data infrastructure, physician engagement and payer alignment. Operationally, quality performance starts with our ability to identify care gaps early and deliver actionable insights directly to our physician partners. Because we are working closely with our physician partners, quality measures are embedded into their everyday clinical workflows. Our partners and their care teams have clear visibility into their performance and the actions needed to efficiently close care gaps for their patients.

Looking ahead, we expect to see continued opportunity to expand our performance through deeper data integration and earlier intervention, leveraging analytics to identify patients at risk of missing key quality measures earlier in the measurement year. Ultimately, our approach is about building durable infrastructure that supports physicians in delivering high-quality care that is aligned with the key objectives of the Medicare Advantage program while ensuring performance is accurately measured and rewarded.

Now let me move on to ACO REACH. As evidenced in the quarter's results, we continue to demonstrate the strength of our model and the ability to deliver superior performance across both Medicare fee-for-service programs and Medicare Advantage. In addition, we are pleased that CMS took a pragmatic approach to addressing fraudulent claims related to urinary catheter and suspect skin substitute claims for 2025.

Finally, we have finalized 2026 payer contracts, which Jeff will discuss in a moment. We are beginning our 2027 payer contracting process where we plan to take the same disciplined and partnership-oriented approach with our payers, focused on shared profitability and durable margin expansion.

In closing, we have had a strong start to 2026 and feel good about the progress we are making. We are seeing it across all areas that matter: Payer contract, burden of illness, clinical and quality initiatives and cost discipline. First, the work we have done with our physician partners around burden of illness initiatives and clinical pathways is starting to show up more clearly in our clinical results and financial performance.

Second, our AI-enabled technology platform and enhanced data capabilities deployed in very close proximity to the physician are allowing us to identify opportunities earlier, act faster, and manage performance with greater precision. We are beginning to see the benefits of AI more deeply into both physician and operational workflows.

Third, the discipline we applied, particularly around payer contracting and cost structure is starting to come through.

We are raising our outlook for financial performance this year due to the early impact of these initiatives and remain confident in the long-term strength of our unique partnership model.

With that, I will turn the call over to Jeff to go through the financials.

Thank you, Ron, and good afternoon. As Ron mentioned, we are very pleased that we exceeded our guidance for the first quarter and are increasing our expectations for the full year. The positive results and increase to our full year guidance were driven by the strategic actions we took throughout 2025 and the continued strong work of our physician partners across the country. These include the significant improvement in our data visibility and estimation process, execution of our clinical and quality programs across our network, cost management, and disciplined payer contracting, all of which were focused on improving our operations and creating a strong foundation for durable and predictable performance this year and beyond.

During our call today, I will cover 3 key areas of our financials. First, I will discuss our financial performance for the first quarter. Second, I will provide an update on cost and macroeconomic trends, including the recently announced final rate notice for 2027. And finally, I will discuss our second quarter and revised full year 2026 outlook, along with key assumptions we have made.

Moving to our financial performance for the first quarter of 2026. We exceeded the top end of our guidance range for total revenue, medical margin, and adjusted EBITDA. The performance in the quarter was driven by higher-than-expected revenue from risk adjustment and additional full risk contract with a new payer in an existing market and strong performance in ACO REACH.

Starting with membership. Medicare Advantage membership at the end of the quarter was 426,000 compared to 491,000 in Q1 2025. Our ACO REACH membership for Q1 was 110,000 members compared to 114,000 in the same period of 2025. As a reminder, Medicare Advantage membership was affected by our measured approach to growth, previously disclosed market exits, which were finalized as of January 1, 2026, and payer exits in certain markets, which were a result of our disciplined and profitability-focused contracting efforts. Additionally, a subset of our members are under care coordination fees. These contracts are primarily net neutral to agilon health with financial opportunity based upon strong quality and cost performance.

Next, revenue for the first quarter was approximately $1.42 billion compared to $1.53 billion in the same period of 2025. Our year-over-year revenue decrease is driven by the membership decline I just mentioned, partially offset by more constructive rates for 2026 from both the CMS benchmark and favorable payer contracting benefits as well as increased revenue from higher estimated risk scores from our previous expectations.

Revenue for the first quarter was higher than our expectations, driven by the execution of an additional full risk contract in an existing market and the estimated benefit of higher-than-expected risk scores. Using the enhanced data pipeline for a meaningful portion of our membership, we calculated member level risk scores for the mid-year data period. This enhanced data is based on claims data as well as MAO4 and MMR data that our payer partners receive from CMS. These data files are both claims and plan submitted encounters that are accepted for risk adjustment. As a reminder, we did not have this increased visibility into member level clinical and claims data as well as member level risk scores until the pipeline went live at the end of the first quarter of 2025.

Our revised estimate for the increase in risk scores over 2025 for the full year is now 1.5%, which is above our previous estimate of 0.4% for the full year 2026, both net of the V28 impact. This was driven by the improvement in our data and forecasting capabilities as well as the operational process improvements we put in place over the past 18 months.

Moving on to medical expense. The cost trends for the second half of 2025 continue to develop favorably, further demonstrating our ability to effectively manage medical costs. The full year 2025 cost trend is now estimated at 6.2%, down from the 6.5% we estimated when we reported our 2025 full year results. The favorable development for 2025 medical expense was offset by additional reserves related to Part D costs for 2025, which, as a reminder, are recorded net in premium revenue. Given the lack of data for 2025 Part D costs, we continue to take a prudent approach to Part D reserving as we won't get final reconciliations of the cost typically until the third quarter of this year.

Given we have limited paid claims visibility for the first quarter of 2026, we recorded a cost trend of 7.4% for the quarter. I would note that based on our census data, cost trends remain in line with what has been mentioned nationally by our payer partners and others. However, given our limited paid claims visibility early in the year, we took what we believe is a conservative approach in the quarter.

Medical margin for the first quarter was $149 million compared to $128 million in the first quarter of 2025, which exceeded the high end of guidance. This was driven by higher revenue, as I previously discussed, and lower overall medical expenses in the quarter.

ACO REACH adjusted EBITDA for the first quarter was $27 million and ahead of our expectations by approximately $5 million. The favorable performance was primarily driven by CMS' removal of fraudulent urinary catheter and suspect skin substitute costs from our 2025 performance and the corresponding benchmark changes. Adjusted EBITDA was $54 million as compared to $21 million in the same period of the prior year. The favorable overall performance reflects higher medical margin, OpEx discipline, and the favorable ACO REACH performance I previously highlighted.

As Ron mentioned, ACO REACH results underscore our confidence in our model and the potential for driving continued value creation as we look forward to the advancement of both the MSSP and CMS lead model in 2027.

On the balance sheet, we ended the quarter with $303 million in cash and marketable securities and $47 million of off-balance sheet cash held by our ACO entities. Year-end cash position is still expected to be at least $125 million. Last, we executed a reverse stock split at the end of the quarter. Additional details can be found on our Investor website.

Now moving to guidance. We are revising our full year 2026 guide to reflect the strength of the first quarter results, including better-than-expected revenue associated with higher estimated risk scores for the year and the first quarter performance in ACO REACH. In addition, as previously mentioned, it also includes a new full risk contract signed in Q1 2026 in an existing market with a new payer.

Our confidence remains rooted in the same key tenets we have previously outlined, including operating execution across clinical and quality programs, improved data visibility and forecasting capabilities related to the enhanced data pipeline, payer contracting improvements, which emphasize profitability for both medical margin and cash flow and a conservative cost trend assumption supported by factors previously mentioned.

Utilizing the midpoint of guidance ranges provided within our earnings release, we now expect revenue of approximately $5.7 billion, medical margin of approximately $375 million in 2026 and adjusted EBITDA of approximately $25 million. As I indicated, while the second half of 2025 saw favorable claims development, we continue to be prudent in our reserving and are maintaining our full year net cost trend outlook of 7%. Focusing on the second quarter and utilizing the midpoint of guidance ranges, we expect revenue of $1.45 billion, medical margin of $123 million and adjusted EBITDA of $20 million.

I will close by saying that we are very pleased with our first quarter's performance, including delivering strong positive adjusted EBITDA. The enhanced data and reserving model is improving our visibility to claims and revenue trends. We have executed on our strategic transformation and continue to drive improved performance across all aspects of the business.

As Ron mentioned, we also remain optimistic about our runway for continued improvement beyond 2026 based on the continued execution across our initiatives and the final 2027 rate notice. With respect to the final rate notice for 2027, we believe our starting point across our markets is in line with the 5.33% effective growth rate CMS noted with additional opportunities based on our BOI, quality, and contracting efforts. Based on our model and review across the business, we believe we have minimal exposure to unlinked chart reviews and with respect to the 1.12% normalization factor, I will remind everyone that we have been able to more than offset the V28 hurdle over the past couple of years.

Further supporting our potential will be continued discipline around payer contracting, implementation of programs to lower overall medical costs, and further driving operating efficiencies. The team will remain focused on minimizing risk related to Part D, emphasizing our quality initiatives, and balancing payer priorities with our own profitability.

And last, we believe CMS continues to demonstrate their support for full risk value-based care models focused on clinical and quality programs that drive improved outcomes, reduce costs, and enhance member satisfaction. And therefore, we remain optimistic about the potential for agilon.

With that, operator, let's move to the Q&A portion of the call.

[Operator Instructions] Your first question comes from the line of Jailendra Singh with Truist Securities.

I want to ask about ACO REACH EBITDA, kind of nice number there, $26.5 million. But you guys are maintaining the guidance for full year is $25 million to $30 million now for the full year. Why are you guys not expecting any further contribution for that business for the rest of the year?

Yes. Thanks, Jailendra. The real -- the $5 million benefit that we saw, we just really increased that in the guide for the year for the REACH program, but the $5 million benefit that we saw in the quarter was really related to 2025 performance, and it was associated with the suspect skin substitutes and the urinary catheters. And so CMS decided to back those out of the costs for 2025, and so we got a pickup there. And so that's really what you're seeing. And it's a little early in the year for us to think about, I would say, REACH performance and adjusting that at this point in time, right?

And then my follow-up, you guys talked about AI helping you to capture some more efficiencies in the provider operational workflow and admin stuff there. The efficiencies you're seeing, the gains you're seeing right now, should we think of those like incremental to the OpEx benefit of $35 million you guys have talked about for 2026? Or is that already reflected in your guidance? Just trying to understand the opportunity there.

Yes. Two things. I would say, I would bifurcate the AI programs. One is OpEx efficiencies. The other one would probably impact more of, I would say, above the line, right? So more of medical costs and revenue. So we mentioned the AI-driven risk stratification. I mean that's really looking at medical costs, we use AI in our suspecting algorithms as well. So that's on the revenue side.

And so I guess what I would say is probably limited early impact on the OpEx line, more significant on both the revenue and medical cost line. And as you know, we operate in an environment where you're working on things today, but the value shows up much, much later in the health care environment, right?

Your next question comes from the line of Matthew Shea with Needham.

Nice to hear about the scaling clinical programs. I guess maybe I just want to put some finer points around those. I think at a conference a couple of months ago, you guys have talked about that by the end of Q2, you had expected to get 50% to 70% plus of markets live on dementia and COPD pathways. Is that still the right way to think about the rollout?

And then on the financial side, could you remind us how long it takes to generate outcomes from these programs? Like does scaling COPD and dementia add benefit to 2026 profitability? Or should we look at that as more of a 2027 benefit?

Yes. I would say, yes, on the COPD and dementia rollout. And yes, again, on your second question of would it add value to 2026? However, it has to show up in the claims. And obviously, that takes time, right? But I would say, yes. And scaling, if you think about, we initiated the heart failure program a year ago. It's our most mature program, and we are obviously seeing the benefit of that today. And I think in the prepared remarks, you heard a lot of statistics about how it's really improving the lives of our members. And so we have seen the outcomes of that. And I think we're pretty excited about rolling out the other programs and continuing to focus on other clinical programs as we think about member care going forward.

Yes. Probably the only comment I would make is how our physicians feel about being actively engaged in these clinical pathways. They see this as really part of the reason they went to medical school was to help improve the quality of people's lives. And the ability to earlier identify these conditions to get people on the right therapies, not only avoid perhaps unnecessary hospitalization, but most importantly, improves the lives of the patients. And they really feel very positive about that.

And then maybe to follow-up on that point about provider engagement and working with them. A couple of months ago, you guys have been vocal about maybe some governance changes and that at a physician group level, you're being more aggressive in terms of how you manage networks and sort of going market by market and tightening up that governance. Would love to just have you guys maybe unpack that a little bit. What ultimately are you doing or implementing? And any way to think about what sort of inning we're in with that tightening of the governance and when we might start to see some results from that?

Thank you, Matthew. I think the focus we've had is really working with the payers and basically saying to our payers that we're not going to pay them for the privilege of doing business with them, that our physicians are doing a great job of improving quality, which is reflected in the stars rating that we've often talked about. Our focus has really been working collaboratively with the physicians to articulate to the payer community the value that we can create for them, the value we can create for their patients. So it really hasn't been about the governance of the groups themselves. It's about how we work together to participate and actively develop the kind of contractual negotiating results we've seen this year.

Your next question comes from the line of George Hill with Deutsche Bank.

Just, Jeff, I was wondering if you could talk about your conversations with your ACO REACH clients' customers right now about how they're thinking about the lead program for next year? Like are you expecting to see the same level of participation? Do you guys expect that your economics are going to look the same? And kind of would just be very -- given the contribution that ACO REACH has made to the business, I'd be interested to hear how those conversations are going or standing going forward.

Yes. Yes. I mean, obviously, the details of the lead program just came out. So we're in the process of, I would say, analyzing all that information and really determining which path is best from either a lead or MSSP program. I think the good news for us is that we participated in MSSP and obviously, the REACH program and have been very successful. And so I guess as we think about it, we think we can be successful in both programs moving forward, and they will be positive contributors to our financial performance in 2027 and beyond. So it's a little early, but we're certainly having conversations, and we're running all the calculations to figure out which path is best to go down.

And Jeff, if I can have a quick follow-up. I guess just as you think about kind of the improvement in the guidance in fiscal '26, just from talking to some of the plans, do you feel like the results in fiscal '26 are something that can be built on for 2027? Or what I'm worrying about is to what degree do you think the business faces a reset as you go into contracting for '27 and bids for '27 -- membership bids for '27? Just interested in how you're thinking about sustainability.

Yeah. No, I would certainly say it's a foundation that can be built on. I mean that's what we've been focused on over the last 18 months is really driving towards profitability. We will take that same lens as we think about contract negotiations for 2027, which we are in active discussions at this point in time for all the reasons that Ron just previously mentioned. So I do think it's a solid foundation for us to build off of.

Your next question comes from the line of Stephen Baxter with Wells Fargo.

I just wanted to make sure that we understand all the sources of medical margin upside in the quarter versus your guidance. I think you sized the full year expected benefit from the higher risk scores at the 1% level. I think that on a quarterly basis is something like $14 million or $15 million of additional medical margin. When we look at the balance of the peak, which I think was closer to $35 million, again, trying to make sure we have all the pieces there. I guess you had a benefit from PYD, but you're also saying your booking cost trend to guidance levels versus kind of modeling any kind of improvement. So yes, first, maybe we could clarify that. And then I have a question as a follow-up.

Yes. Maybe I'll start with just for Q1, bridging you to maybe the guide mid for a medical margin perspective. So the variance is roughly $26 million compared to the guide mid, and there's a couple of things in there. You're right, the risk adjustment update. Think of that as $50 million for the full year. Obviously, we would get half of that. And so there's a piece that's associated with the risk adjustment update. And then we mentioned the new contract. So the new contract, although it has -- I would say, we've modeled it as breakeven margin for the year, obviously, Q1, if you lay out the seasonality of our business, there would be margin on that contract in the first quarter. So those are the 2 things that are impacting medical margin in Q1 as you think about the midpoint of the guidance we previously provided.

And then just in terms of the 2027 payer contracting objectives, I would love to just hear a little bit more of an expansion of like what are the things that have sort of been fully accomplished in terms of what you're able to do for 2026? I'm thinking like it sounds like Part D risk is something you've made a lot of progress on, but maybe things like percentage of premium are more of an opportunity prospective. I guess how would you kind of characterize the opportunity set on payer contracting versus what you've been able to do so far?

Yes, certainly. I don't think our perspective has changed as far as the items that we are seeking. You're right, percent of premium is obviously one of the ones at the top of the list. Continued reduction of Part D exposure, we were very successful over the last couple of years. This year, less than 15% exposure on Part D. We'd certainly like to see that go down even more. But we have reduced the magnitude of the risk to where it's manageable. But certainly, we are -- that is on the list.

The other thing is capture corridors or carving out things that are outside of our control like supplemental benefits. But all of those same levers that we were talking about a year ago are the same things that we're focused on for 2027. And again, I think it's just early in our contracting cycle. We're having very productive conversations with the payers. They're very supportive of our model. And so we'll have to play that out as the year goes on.

Your next question comes from the line of Daniel Grosslight with Citigroup.

Hello, this is Luis on for Daniel. You said last quarter that there was $15 million of new geography entry expenses. I know some of those are for current providers, but you also said that some would be -- some of that guidance is embedded for new possible investments for additional growth. Can you provide an update on that, if possible?

Yes. Yes. I think you maybe talking the geo entry that was in the guide maybe for the full year. I think that's what you're talking about. I would say those costs are just generally in line with what we expected in the first quarter. Nothing really out of the ordinary there.

And one more follow-up for me is, are you able to break up the 7.4% cost trend embedded in guidance? Is there any particular categories that are expected to drive much of that? And what would give you comfort to revise that down maybe for?

Say that again, that first part, you kind of cut out there.

Sorry. Are you able to break out the 7.4% cost trend embedded in guidance? Like, I mean, are there any particular categories that are expected to drive like much of that trend?

Yes. I would say the 7.4% was just to clarify, that's what we recorded in the first quarter. For the full year, our guidance is 7% net. And we have limited paid claims visibility as we sit here today in the first quarter. But what we do have, I would say, continues the theme of Part B, Part D escalated Part B costs and inpatient costs. That's where we continue to see the cost escalation. That's been a common theme over the last year. So it's, I would say, consistent. But again, we're setting on limited data here for the first quarter.

Your next question comes from the line of Amir Farahani with Evercore.

You previously discussed roughly 50 bps of tailwind from improved payer bids. I guess how is that tracking year-to-date? And also with the '27 bidding season around the corner, I would love to hear what you guys are hearing from your payer partners in terms of benefit design, premiums, et cetera. And I would appreciate your view on how that's translating into potential impact for next year.

Yes. Maybe I'll do the payer part. The messages that we're hearing in their communications is continuing to have a very strong focus on margin improvement. And so we would expect that their bids, their product positioning, everything is about restoring themselves to what they view as a reasonable level of margin, which we think is good for us.

Yes. And the second piece you talked about was the benefit of the payer contracting. I think the number we quoted in the initial guide was roughly $127 million for the full year. And when we talked about that on the guide, that was done. Those contracts were executed. So that benefit is absolutely flowing through in the first quarter.

In terms of the -- maybe one follow-up question on the group MA mix, maybe you can give an update in terms of where that stands today. We've heard from several payers that have flagged that there is recovery in the MA margin in the group business in '26. I guess are you seeing structurally better economics in your book? And is that upside captured in the guide?

Yes. I guess what I'd say, our group mix roughly hasn't changed from last year, very consistent. And obviously, when we think about negotiations with payer contracts, it's all members. And so the number that we quoted in our initial guide would be inclusive of that.

Your next question comes from the line of Jack Slevin with Jefferies.

Congrats on the quarter. Maybe to start, just to clean up a little bit of what I heard as far as that upside in the quarter, maybe piggybacking on Stephen's comment or question, just to be super clear, there was no PYD that you recognized in the first quarter. Is that the way to understand it? And maybe to add on that, just heard about the favorable development. Would love to hear a little bit about what that may have looked like on that development that you saw in the second half of '25. Was it just not a continuation of some of the outlier cases you had at the end of 3Q? Any incremental color would be really helpful.

Yes. Yes, certainly. So the prior year development, that's a number that you can find in the filing in the 10-Q and the medical cost roll forward is roughly $12 million for the quarter related to 2025 dates of service. And you are correct, effectively, there was really no flow-through because during the quarter, we added additional reserves to Part D. And as you know, we have limited information on Part D costs, and we had 30% of our members had that risk in 2025. And so we just took the opportunity to bolster those reserves because we really don't get final reconciliation until the third quarter of this year. So you are correct that there was really no benefit from the prior year development. And remember, Part D is in revenue for us. So you had a good news from last year in the medical expense line, and that was offset by a reduction in revenue, which really represents the Part D.

And then just as a follow-up on some of the 2027 commentary. Jeff, I think you had said on the last quarter that even with sort of looking at the advance notice, considering what you guys have been able to do on burden of illness, you guys felt like you could possibly expand margins or felt confident about expanding margins in '27. I guess, obviously, the numbers have changed here and gotten more positive. Has anything else really changed as we think about where you were a few months ago as far as confidence for '27 or how you're thinking about that equation on the core side of the business?

Yes. I mean I would say the only thing that I would point to that changes is obviously our performance this quarter with respect to the risk adjustment, right? So I would say now we have more confidence on a going-forward basis. This year, for example, we said we were going to outperform the final year of V28. Now we have more confidence that it's going to be even higher than that. So I guess that gives us more confidence going forward in 2027 and beyond that we can offset, for example, the risk normalization, the normalization factor of 1.12. Again, we've commented that in the prepared remarks that we don't believe we have any material exposure to sources of diagnosis given the design of our model being closely aligned with the primary care physicians. And so as we think about the growth rate for 2027, we're really zeroing in on that 5.33%.

Your next question comes from the line of Ryan Langston with TD Cowen.

Appreciate all the commentary here. On the new risk contract with the new payer, I guess what was attractive about that contract? Like I get it's in an existing market. Are those generally members maybe you had before the switch to this payer's plans? Or is this a new member cohort? And are you able to provide what the pickup in the guidance was from this contract? If you already said it, I'm sorry, just a lot of numbers flying around.

Yes, yes. No, certainly. It's in a market with an existing physician group. And I think from our perspective, it is a new payer contract. So it's a new contract with a payer. And as we think about that, and I just mentioned earlier that we modeled that at roughly -- it's roughly $200 million in revenue. We've modeled it at roughly breakeven margin for the year. And I think for us, it's really an opportunity for a multi-year improvement in margin, and we think we can deliver that. I mean it's not uncommon for us to have year zero conservatively modeled at breakeven margin.

Your next question comes from the line of Craig Jones with Bank of America.

So you mentioned pretty much no impact from the unlinked chart reviews that we're going to see in 2027. But it seems like CMS is pretty Gung ho on continuing to kind of level the playing field. So as you look forward, maybe '28 or even further out there, what about -- what kind of impact would you see from linked chart reviews and maybe health risk assessments? And is there any other kind of low-hanging fruit you see that CMS could go after?

Well, look, I think that we feel good about where we are for the reason that we have 100% chart review, physicians see every patient, physicians -- the charts are audited very carefully. It doesn't mean we won't have some issues, but it means that we're much more rigorous than we think some of the other plans have been in terms of how they have coded historically.

So I think that we can expect CMS will continue to try to spend the taxpayer's dollar wisely. And our focus on making certain it's linked to real care that's delivered to real patients, we think, is the best thing we can do.

Your next question comes from the line of Michael Ha with Baird.

So regarding the lead model, I guess, as you run your calculations to determine which path to go down, how are you contemplating the eventual -- that AI inferred risk adjustment model that's being phased into the lead program? How much visibility do you actually have into how this AI model might impact risk adjustment?

Yes, Michael, there's not a lot of details on that right now, right? So I think it's hard to obviously model in something where there's really no details about how that's going to work. And we'll just have to play that out as we get visibility to whatever that model is.

And then I think last quarter, you mentioned the opportunity to possibly more than double payer incentive contributions in '26, which I think was $25 million for '25, your '26 guide conservatively assumed the same, which presented, I think, an area of upside. So I was wondering how is that tracking so far through '26? How much of that path from $25 million to potentially north of $50 million might you already have visibility into? And I just would love to understand like what it takes to get from $25 million to possibly double that this year.

Yes. I guess what I'd say you're correct that the opportunity has doubled. I think that just shows the importance of quality across the board, specifically for payers. And so the opportunity for us to earn additional dollars is there. What we said as part of the guide is we have a similar level of performance in '26 guide, assuming we performed at the same level of '25. We don't have any -- I mean, it's super early, right? We don't really have any data on that yet. So we're just going to have to wait until time goes on throughout the year. But we feel pretty confident that we are delivering superior quality to our payer partners and our members.

Your next question comes from the line of Ryan Daniels with William Blair.

I'll keep it to just one. Given the operational improvements you're seeing, the clinical pathways, the better data feeds, when does the company consider going back on the offensive a bit, kind of growing the member base, maybe going out and reinvigorating the new partner pipeline, especially as there's a clear demand from payers to continue to expand these partnerships?

Yes. I think one thing that sometimes gets missed is the fact that our partners are deeply embedded in these communities. They've been there for years. They have large commercial panels. And every month, people turn 65 and enter Medicare Advantage. So there is some degree of embedded growth. It's nowhere near like opening a new market, but it means that you don't suffer attrition typically as a result of not expanding in a meaningful way. And also, some of the groups do, in fact, add new physicians, they bring them in. So I would say the focus right now is on in-market growth, in market execution. The time will come when we will turn our attention to other things, but that time is not here yet.

We have reached the end of the Q&A session. I will now turn the call back to Ron Williams for closing remarks.

Yes. I want to thank everyone who joined us this evening. Since stepping in as Executive Chair 8 months ago, I've really worked very closely with the leadership team. We've been highly focused on increasing the sense of urgency, heightened the focus on the key priorities that are focused on really, really driving improved performance for our members, for our primary care partners and for payers. And I think that while we believe that the environment remains dynamic, we are confident that the actions we have taken will deepen the existing strengths of our partnership model. We think it's a very unique model because of the proximity to the physician. It gives us an ability to make certain that the suspects and things that we determine are resulting in real clinical interventions. And we think that is extremely important to patients and please be important to CMS.

I want to close really by welcoming Tim O'Rourke, our new CEO. I am thrilled to have Tim join us today. He brings the right balance of understanding the payer, understanding the provider and understanding the importance of primary care physicians bring to our unique delivery model. So I want to close by thanking Tim for joining us. And I have to say he did extensive due diligence, which was most impressive on making a decision that we feel very good about having him part of our team.

Our employees have really worked very hard to get us where we are, and I want to give a special thank you to everyone in agilon who helped us achieve the results we are reporting today. Thank you all.

This concludes today's call. Thank you for attending. You may now disconnect.

Hi. Welcome back to the Barclays Global Healthcare Conference. My name is Andrew Mok. I'm the Facilities and Managed Care Analyst here at Barclays, and I'm pleased to have agilon Health joining me on stage today. We have Karthik Rao, Chief Medical Officer; and Evan Smith, SVP of Investor Relations. Welcome.

Thank you.

So first, we just -- you just reported fourth quarter results, set 2026 guidance a few weeks ago. Why don't we start with just an overview of kind of the business and recent results, where we are, take stock of where we are today and sort of the outlook for 2026?

So as everybody, if you listened to the call, we've initiated a fairly substantive transformation initiative. So across the board for 2026, we've reset our contracting with about 250 bps or better, $125 million incremental benefit year-over-year where we get from that.

In addition, the rate will ask about $500 million in incremental benefit in 2026. And then our BOI and clinical pathways initiatives will also continue to generate in excess of V28, which we think is positive, and Karthik can talk more about that in a minute.

And then we've also been able, from a contracting standpoint to get substantial incremental potential from our quality initiatives. So higher incentives from payers for quality incentives.

And then going into 2026, if you look at our cost trend, we estimate, I think, prudent, conservative, whichever word you want to use, about 7.5% growth, 7% net, which will actually be -- the net is impacted by payer bids. But if you look at us historically, over the last few years, we had about 7% cost trend in 2023, 7% cost trend in 2024 and about 6.5% in 2025. So we think 7% on a net basis is a good place to start for 2026.

[ Evan ], you mentioned the 50 basis points differential between gross and net trend. Can you help us understand that -- explain that concept a little bit? What specifically did you do during payer contracting yielding that benefit?

Yes. So the 50 basis points is really from the payer side. They're changing their benefit designs across our markets. So we contract individual payers, individual markets. And so basically, across the board, we've seen increase in maximum out-of-pockets, increased deductibles, lower supplemental benefits. And on a net basis across the markets, that will benefit us by about 50 basis points net on a cost trend basis. Those costs are shifted to the members.

Great. And in the fourth quarter, you revised your full year trend assumption from mid-5% to about 6.5%, driven by several high-cost inpatient claims. Can you provide more detail on the nature of those claims, specifically what types of diagnoses or service categories were those related to?

So we said there's slightly higher acuity, but those individual members were actually $1 million-plus claims. Usually, on an annual basis, maybe you get two or three, we actually wound up getting those two or three in 1 individual quarter. So it outsized the impact in that individual quarter. One we indicated was gene therapy, which is one of the largest pieces of that. And then -- but we haven't actually talked about each individual area.

But what we did project is for the fourth quarter, we basically assumed everything status quo, kept it at a high rate, which is how we got to 6.5%. We think, again, it's prudent, it's conservative and setting up a really strong foundation going into 2026. So again, to go into that year so that we don't have any development from the prior -- from 2025.

Agilon has been investing to enhance the Burden of Illness program. You're beginning to see sort of returns on some of those investments, including this year, I think there's approximately $22 million of benefit. Can you provide more color on the key enhancements made over the past year, particularly around the data pipeline and AI investments? How are those improvements translating into medical margin benefit in 2026?

Yes. And so I think three primary things to think about there, and you hit on two. So financial data pipeline to our data architecture and AI algorithms that sit on top of that. And I'd say three are clinical pathways. So double-clicking into each of those a little bit deeper.

So our financial data pipeline, what this is allowing us to do is get accurate condition level data on a member basis and verify actually what is going from the payer to CMS and coming back to us. And looking back a few years, where we've missed is our RAF projections and where our current performance is. So we now have this data across about 80% of our payers and our confidence level on our performance today and our projections is much better.

Two, on the data connectivity. So even our prior panels mentioned this, data is really the fuel for any AI algorithms that your company is running. One of our core levers is appropriately identifying and documenting disease burden. What we've been able to do this year is implement Generative AI technology. And what this is basically helping us do is take unstructured data and parse together basically condition diagnoses, which we haven't been able to do as well before. And we're seeing meaningful suspecting lift on a per patient basis, leveraging that.

Three, the other thing that we've been doing are clinical pathways. So clinical pathways are all about early disease identification and proactive treatment of conditions. There are a subset of diseases where we see we are -- we've got a big delta between benchmarks that exist for that disease category in the community and what we've documented. So to close that gap, we follow evidence-based screening protocols for those conditions in all of our markets. And you've seen that through our earnings and what we've reported on. We've implemented our heart failure pathway in about 90% of markets. We're seeing really good uptake, both on the clinician side and pull-through to outcome on that.

And that's some of what's driving that $20 million benefit that you referenced. And we think there is good runway for us through '26 and '27 on that as well.

Great. And with the enhancements to your data pipeline, can you share what level of visibility you now have into new member RAF scores at this point in the year? And maybe how that compares with where you were at this time in 2025?

So visibility on RAF scores is significantly different year-over-year. So what Karthik was talking about is the ability to have validated [ HCC codes ] directly from the managed care provider as well as through CMS fully validated. And now the data pipeline has a 99-plus percent correlation to what those midyears and finals happened over the last couple of years.

So now as I stand -- as we sit here today, we can actually know our RAF score for January, which is based on June 2024 to June 2025 paid through September, so I can calculate it and actually have it validated today, and then we'll soon get February incrementally. Historically, we were using proxy or operational data metrics to do that, but now we actually have validation on the individual.

In addition, to combine that, we also changed our methodology and processes for actuarial for estimating midyear to final. So we have -- that's also correlated with some of those data sets. So greater predictability, greater data sets and actual high visibility on what RAF scores are on a current basis.

Right. So with all that said, are you expecting a much smoother, less volatile sort of?

Much sooner reconciliation, higher visibility sooner. So traditionally, we reconcile in Q3, you'll get midyears. If that reconciles, you'll have a high visibility for the full year and the midyears, so in second quarter.

Great. Clinical pathways was the third pillar you mentioned, you've been building out the congestive heart failure program over the past year or so with additional programs coming online. Can you share a little bit more detail on that program specifically, what you've implemented, key learnings from the rollout and how we should think about the potential impact from that program?

Yes. I'm happy to. And I actually want to start with the whys of these, which I think are really important. And so we start with clinical problems that we're trying to solve. What we know today is about 40% to 50% of heart failure patients are diagnosed at time of first admission. And so why is that a problem? Well, that's leading to a bunch of unnecessary downstream cost if you're getting an outpatient diagnosis in the inpatient setting. And two, it's just less than ideal patient care. You're having to go through a hospital admission for.

That. The second thing we know about heart failure is less than 10% of patients are actually on the right therapies for heart failure. And so through our pathways, again, what we do on the diagnostic side is we equip our markets with technology in their office to make these diagnoses. So that's point-of-care BNP testing or echo technology that we're able to get into their office or increase access to. Two, on the treatment side, there's a reason patients are not on these therapies. You have to see them frequently. It's tough to titrate these in a manner that actually gets patients on them and adherence to them is not great unless patients actually understand how and the why. And so we are scaling a virtual pharmacy service that will actually meet with patients every week to titrate these medications after diagnosis, and we have pretty clear inclusion criteria for who goes into that program. So that's now live across 90% of our markets.

And on the outcome side, in 2025, what we've seen is that inpatient diagnosis, time of place of first diagnosis, was about 25% on the inpatient side for 2024. For '25, we moved that to less than 5%. So less than 5% of heart failure diagnoses are now in the inpatient setting.

On the treatment side, again, these are smaller market proof points, but we're seeing heart failure readmission rates drop below 10% relative to, I would say, industry averages of around 20%. So we're really starting to see the pull-through on the clinical side of this, and we're seeing in all of these markets, bridging that prevalence gap. So we're able to actually receive the funding to reinvest in care for these patients.

Great. As we think about some of your other pilots, newer programs such as COPD and dementia. Can you provide an update on the implementation progress there and help frame what the rollout of those programs looks like over time and the potential impact you're expecting there?

Yes, happy to. And so on COPD and dementia, I would say from a prevalence perspective, our heart failure prevalence delta to benchmark was 15% to 20% when we started. So it's a pretty big prevalence gap in disease that existed in our patients to what we expected.

In dementia and COPD, it's more in that 5% to 7% range. So pretty meaningful, but not quite as significant. Where we are on the implementation of these is currently live in five to seven markets. By the end of Q2, we expect to get to 70% plus of our markets live on our dementia and COPD pathways.

The problems we're solving are slightly different in those two conditions on dementia, I would say estimates are 50% of seniors actually have undiagnosed dementia today. Why? It's a pretty tough and great diagnosis to make. And so we're partnering with vendors to actually implement virtual technology to help them make that diagnosis. And two, support them in that early treatment phase post diagnosis. We're starting to see good engagement on that, and I expect we'll have a pretty smooth ramp throughout the year.

COPD, and I would actually broaden that to lung health. What we're finding is two things. One, we don't screen for lung cancer well in this country. And a lot of those patients actually have undiagnosed emphysema and COPD. So we are pushing pretty hard on appropriate and evidence-based lung cancer screening. And two, we've actually given a lot of our practices spirometry devices so they can not only do the low-dose CTs that are necessary, but do spirometry follow-up in the clinic to make the diagnosis and actually formulate the treatment path.

And so again, we expect that pathway to be live in 50% to 70% of markets by the end of Q2 as well.

Great. Can you walk us through maybe how you select which disease states are candidates for this pathway program? And what other programs you see forming in the future?

Yes, just roll the dice.

So we largely look at two things. One is, again, a prevalence gap. So what we are studying basically is what should illness burden be in a community relative to where we are today and what are utilization patterns of our highest utilization conditions.

And we know a few things. Conditions where we have the biggest prevalence gaps are heart failure, dementia, COPD, CKD tends to fall in there. Those tend to be in the top 5 to 6. On the utilization side, we know our top utilizing conditions are CHF, COPD, patients with dementia, that's not what drives the utilization, but patients with dementia and end-stage renal disease.

So when you put those two things together, what starts to emerge is you have a set of conditions that you're not documenting well, so you're underdiagnosing. You don't have plans for those patients. That's what's driving excess utilization. And even when you make the diagnosis, you're not getting those patients on the appropriate therapy. And so you can close care gaps on the treatment side.

And so we basically prioritize where we have the biggest opportunity to make a quality of care impact and drive financial value for our business.

Great. And these clinical pathway programs seem to be at the core of what value-based care delivers. What's been the response from your payer partners? How are these conversations evolving as you roll out these programs?

Yes. It's a good question. What's been really interesting, we talk a lot about our proximity to partners and patients, right? How can we leverage our proximity as an enabler to drive differential impact. These are things that payers can't do. You can't get that close to a physician to really reengineer the way that they deliver care. You can't integrate into their EMR to actually nudge them at the point of care with pointed recommendations. And what you need ultimately is to drive adherence to these protocols at a patient level, but you need that trust with the physician to go and do. So I think payers have largely been pretty positive on what we're trying to do here and see that as differential impact that we're driving.

Great. Staying on the contracting side, it's another focus area for the company as you head into 2026. Can you provide a final update on where contracting efforts landed for the year?

Yes. So from a contracting standpoint, we got incremental percentage of premium. We improved our quality incentives opportunity, and we've also decreased our Part D exposure to under 15%. So I think we had a successful year, and that underscores the value, I think, that the payers understand that we're bringing to them and the members that we serve.

With respect to going into next year, we think we're going to take the same disciplined approach and continue to look at across the board, having positive medical margin, positive cash flow throughout the membership while we continue to deliver and have the access for our members.

Right. And as we think about the evolution of this contracting initiative, it seems like some of the low-hanging fruit might have been addressed like Part D carve-outs, things of that nature. What do you look to do in the future around the contracting side?

So we continue the same. So again, the discipline around getting paid for what we deliver. So our clinical pathways programs continue to drive additional quality initiatives, which are highly receptive because we continue to -- across the board, 4.2 stars, we continue to think we're going to do even better this year, so getting more quality incentives. And then the flip side of that, and we'll get to the contracting is also our relationship with our PCP partners, which I'll let Karthik talk about sort of what we're doing there and sort of managing those practices a little bit more diligently.

Yes, happy to. And so Evan talked a little bit about our, I'd say, our hardline stance with payers. We know we're creating value, and we're not going to get into contracts where we can't create value for ourselves or our partnerships.

If you double-click into that at a physician group level, what we're also starting to do is pretty aggressively manage our networks within those markets. And so what does that mean? We know that there's a lot of variability in performance at a physician level. And so if you are an unsustainable panel or a panel that we don't see a path to value creation on, we are trying to find win-win ways for those physicians to either go back to fee-for-service or managing them out of the network.

And so in Michigan, we've talked about that publicly. We've seen pretty meaningful value creation through that. And we think there's pretty meaningful value across the rest of our network. So we're starting to engage in a deeper exercise to go and do that in every single one of our markets.

Great. Maybe another topic I wanted to touch on was the ACO REACH program. I know it's not as big of a business for you, but there was a small headwind embedded in the 2026 EBITDA guidance. Can you provide a little bit more color on what's driving that this year?

Yes. So it was a change in the rebasing of what their risk adjustment lift can be. So they moved the years from -- going the right direction from 2022 back to 2019. So it decreased the ability to drive -- to get value for the performance that we drove, and it was just a mathematical piece.

Our performance continues to be extremely strong. but that was a change in their methodology. And going into -- I'm sure you're going to go into LEAD. We think we're probably the best positioned in the marketplace, top performer in ACO REACH, both on quality performance, execution savings for CMS and going into LEAD, it's a clinically driven program that's well suited to what we've already delivered with our ACO partners. And it also adds elements that we think add significant additional value, including specialists and sort of rural populations, which we think we could actually advance and exceed. So we think there's an opportunity to continue to drive performance, whether it's called ACO REACH or next year called LEAD as driving performance for us in 2027.

Right. And how is the attractiveness of the program evolved, like, say, today versus 5 years ago?

Of ACO REACH?

ACO REACH.

You could go into the details of the...

Yes. I'd say from a program fundamentals perspective, we continue to do pretty well in ACO REACH. We think it enables the right things for our partners. I would also say the data exchange on the ACO REACH side is pretty attractive for us, timely data throughout the year. There's predictability in the program as well. So there are a lot of things that I think have worked in our favor on the ACO REACH side.

And if you look at what we're doing on the MA side, sort of carving out things like Part D, that makes it more similar to the ACO REACH program. So some of those variabilities that we're doing on the MA side, again, are the positive signs for the ACO REACH program.

Great. Let's move on to cash flow. You ended 2025 with $285 million of cash and investments and $91 million of ACO cash. You expect to end 2026 with at least $125 million of cash on hand, including those -- including the ACO cash. Can you walk us through the cash considerations for 2026 and how we should think about the progression towards your previous target of free cash flow breakeven in 2027?

Yes. So the cash flow in 20 -- we have sort of like a cash flow in 2025 informs cash -- actually, adjusted EBITDA in 2025 informs our cash flow in 2026. So if you look at our adjusted EBITDA performance and prior year development in year would be net out of that because that would be settled in year. That's driving that $250 million gap between the $375 million with ACO REACH cash and cash on our balance sheet and the $125 million that we're going to end with.

I'll also remind people that, that's there's additional working capital initiatives that we're doing and additional cost initiatives that we're doing that should actually positively impact that cash position.

And then also remind everybody, we beat our '24 projection, we beat our '25 cash projection. So we think we have ample cash to get through the transformation period.

And also move into 2027. I think given our performance, our expected performance this year, there's a path to getting to breakeven or better from a cash flow standpoint in 2027. So we think we're in a good position as we stand here today.

Right. And if that plays out, presumably, you're in a position to grow membership again. Can you talk about that transition? How does the portfolio look today? Are you -- at what point do you think the portfolio is stabilized and you can start to think about growth in membership in some new markets?

We actually think we did a significant amount of work on the portfolio, both from the physician side and from the payer side. So we think it's fairly stable now. We think there's opportunity. We've put on -- we have about 25,000 care coordination fee members, which look at that as sort of a backlog of potential people to move to risk as long as we can get the economics associated with the payers.

And even the 50,000 members that moved off from the payer negotiations, those are not gone. They're still with their physicians. So as we move into next year, I think those are, again, up for negotiation to figure out with the payers if there's an economic way we can bring those back on. Because remember, the patients or the members value the clinical programs that we provide. They value the quality initiatives that we provide. So the care levels and the access piece go up. So we think that's going to be part of an opportunity set, too.

And from a membership standpoint, we can have -- we would look at sort of balanced growth. It depends upon market conditions, and it depends upon sort of our economics. But we're not going to sway from that disciplined approach. We expect to be medical margin positive and cash flow positive on that.

And the other thing is we're streamlining the onboarding where geo entry costs will be more muted as well as we move forward.

Right. And if we look back on the last few years, it's been very volatile for agilon, but also for the value-based care industry more broadly. What lessons have you learned operationally or from a regulatory perspective that is informing your actions today or how you're applying that to the future?

Yes, I can start. And so maybe I'll say three things. So if you look back 5 years ago, I think everyone showed up in value-based care and full risk care because there's a lot of margin in the space. And you didn't have to do that much to get a piece of that.

I think what we've learned over the years is probably three big things. One, you need the right payer partners, payers who are sophisticated enough to operate in full risk, who can actually set up data exchanges with you to get you that data in a timely way. And if they can't, it's going to be a tough hill to climb.

Two, you need the right partners. And you've seen that with our market exits as well. Not every group is prime time for full risk care. Even within those groups, not every physician is prime time for full risk care, and that comes down to network management for us. And so before we even get into any new growth, it's like, are you willing to actually do these things? These are tough decisions for groups to make.

And three, you got to have the right clinical programs and the actions required by a PCP within those programs and be pretty specific and pretty decisive so you can actually manage variability at a PCP level.

I think over the last 2 years, what you've seen is we've come a long way in being able to do that on the risk adjustment side, the quality side. And I would say on the cost side, we've made a lot of progress on the palliative hospice front. We made some progress on the Pathways front. I think there's a pretty good runway for us to really continue to iterate and make a bigger dent in that vertical.

Great. Well, with that, we're just about out of time. Thank you so much for joining, and please enjoy the rest of the conference.

Yes. Thank you.

Thanks.

Hello, and welcome to the agilon health Fourth Quarter 2025 Earnings Conference Call. My name is Carla, and I will be coordinating your call today.

[Operator Instructions]

I will now hand you over to your host, Evan Smith, to begin. Please go ahead when you're ready.

Thank you, operator. Good afternoon, and welcome to the call. With me are 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 it's 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 the Form 8-K filed with the SEC. And with that, let me turn the call over to Ron.

Thank you, Evan, and thank you all for joining us today. 2025 was a year for building the foundation of sustainable performance through intense focus on operational discipline. While we are navigating a comprehensive transformation, our mission remains unchanged, empowering physicians to lead the transformation of health care through our total care model. The fundamental resilience and effectiveness of our partnership model demonstrates a durable long-term growth runway through trusted relationships with community-based physicians.

These individuals are leaders in their communities and have an average 10-year-plus relationship with their patients, creating deep community ties that are difficult to replicate. While we are not satisfied with our financial performance in 2025, we made tangible progress in the areas that matter most for a durable turnaround, which Jeff will provide more detail on in a moment.

Our tangible progress includes the advancement of our clinical pathways and quality programs, our disciplined approach to payer relations and our continued focus on data-driven performance.

All are driving greater clarity and sustainability across agilon's scalable operating model to support long-term value-based care success for our total care model. Our preparation for the future includes applying our continued discipline and focus across these critical areas as we navigate the potential of a lower-than-expected rate increase in 2027 following CMS's advanced rate.

We believe the advanced rate notice does not sufficiently reflect the ongoing population-wide increase in cost and utilization due to growing chronic disease burden and aging of the Medicare population. In addition, our further review of the risk model revision and normalization outlined in the advance notice, we believe the potential impact will be generally in line with the national average.

However, we believe that our clinically focused program remains a critical part of the long-term answer. Continued advancement of our burden of illness and clinical pathway initiatives with our partners will help to mitigate the impact of the risk model changes as they did for V28.

In addition, given the focus of our model is the assessment of conditions at the point of care with diagnosis tied to documentation from a visit we believe we have minimal exposure to unlinked or audio-only coding.

We believe our ability to differentiate on the management of medical cost and quality outcomes should continue to position us well with health plans and physicians with the expectation that the rate and cost spread will ultimately normalize over time.

Throughout the year, we advanced several key transformation priorities, which are embedded in our expectation for material improvement in year-over-year medical margin and adjusted EBITDA. At the midpoint, we expect revenue of $5.5 billion, medical margin of $325 million and adjusted EBITDA at breakeven.

Our 2026 outlook reflects the expected positive impacts from the team's execution on payer contracting, clinical and quality programs, cost initiatives as well as premium increases.

We also anticipate benefiting from payer benefit design changes, including increases to deductibles and maximum out-of-pocket expenses as well as reductions in supplemental benefits. While this is expected to benefit cost trend, we are assuming that net cost trends will remain elevated in 2026 at approximately 7%.

Let me now reinforce key areas we believe are supporting a stronger foundation for execution in 2026 and forward. First, we entered 2026 with an enhanced financial data pipeline and strengthened actuarial and analytical capabilities, improving financial discipline, clinical visibility and overall predictability.

We are increasingly able to identify variants earlier and intervene faster. As we have previously stated, we now have greater visibility into detailed revenue and claims information with the ability to calculate member level risk scores, utilizing our enhanced data pipeline, a key difference versus prior years.

In addition, we believe the pipeline, AI-assisted advances for high-risk member identification and diagnosis through our burden of illness program as well as execution on clinical pathways will deliver results over and above the final year of the V28 impact.

Second, through a disciplined approach to better underwriting the risk we take by contracting, agilon intentionally prioritize economic sustainability over membership growth.

This approach included a willingness to pause growth, walk away from unprofitable payer contracts and restructuring arrangements with certain payers in specific markets temporarily migrating to a care coordination fee model as opposed to full risk. As a result, we expect to benefit from incremental percentage of premium and enhanced quality incentives for the value we deliver.

A reduction in Part D exposure to less than 15% of our membership as well as shorter average contract term lifts, which we expect will help us better navigate changing market dynamics, including exposure to at-most policy, utilization or payer behaviors.

In addition, our disciplined and rigorous recontracting process led us to exit certain payer contracts in specific markets. These contracts did not meet our minimum threshold of profitability.

We expect membership will be reduced to approximately 430,000 members in 2026, including approximately 25,000 members in no downside care coordination fee arrangements with upside performance-based fees.

We believe care coordination fee arrangements provide a long-term risk-adjusted growth opportunity to potentially move these members when appropriate to a full risk arrangement.

Third, we advanced clinical pathways, which are evidence-based data-enabled care models designed to help our partners proactively identify, diagnose and manage the care journey for patients with high-impact chronic conditions.

We believe these pathways, including heart failure, dementia and COPD can materially affect utilization, quality and total cost of care. We concluded the year with active heart failure programs adopted in over 90% of our network.

Congestive heart failure or CHF is the most mature and scaled pathway, serving as a blueprint for other conditions, including early identification, expanded support for guideline-directed medical therapy and appropriate end-of-life care guided by patient preference and goals.

Palliative care is also a core extension of our total care model. It's designed to proactively support patients with advanced illness, often those with late-stage heart failure, COPD, cancer or significant multi-morbidity.

While only representing a small subset of our population, we have increased the number of patients engaged with this program. Clinically, it improves quality of life and care coordination. Financially, it helps us reduce avoidable late-stage utilization, particularly inpatient admissions and emergency care.

Most importantly, the patients and their families have a better experience and clearer goal of care discussions and more coordinated support. Fourth are our quality initiatives. Our quality programs continue to mature with stronger measuring discipline and improved care gap closures.

Quality isn't just a scorecard for us, it's a lever for patient outcomes, member experience, cost and revenue. The strategy recognizes that primary care performance directly drives the majority of Star measures, making agilon's physician-centric model structurally advantaged and an area of increasing focus by payers.

Our value-based care model enables exceptional quality performance by providing the necessary tools and support to help our network deliver the highest quality care. To drive additional performance in 2025, we strengthened our data access and analytic capabilities to further enhance our ability to identify care gaps.

We also expanded our capabilities for providers to close care gaps in areas such as diabetic eye exams. Our network consistently delivers quality performance for measures we can influence and control ahead of benchmarks at 4.2 stars on a composite basis across the platform, maximizing quality bonus revenue while reinforcing physician alignment.

In 2026, we believe we have the opportunity to more than double the incentive contribution. As we indicated last quarter, 2024 results were very strong in ACO REACH and an improvement over 2023 results.

ACO REACH continues to demonstrate the value creation agilon can deliver and is shaping the way we are transforming our MA business. CMS recently announced the lead program long-term enhanced ACO design, intended to launch after the REACH model concludes at the end of 2026.

LEAD is designed as a 10-year voluntary model with a longer planning horizon, benchmarking enhancements and an emphasis on better serving high needs patients. We see LEAD as a positive signal. It reinforces CMS commitment to value-based care with a longer-term structure that can support sustained investment and consistent operating execution.

Lastly, we executed on initiatives to reduce operating costs and controls. We believe we made meaningful progress on forecasting, performance reporting and market level accountability in 2025. These are critical to improving decision speed and execution.

We executed on $35 million in operating cost reductions above what we communicated at the end of the third quarter. This will enable greater operating leverage from the platform and support our business objectives.

In summary, we are executing with urgency, while cost trends are expected to remain elevated, we believe our transformation actions will support improved operating performance. We plan to build on the progress made last year with a continued emphasis on disciplined execution, collaboration and measurable positive impact for patients.

We expect 2026 to mark a strong improvement in medical margin and adjusted EBITDA supported by renegotiating with health insurers to better reflect the reality of today's environment, care costs and plan initiated decisions.

A heightened focus on investments in quality performance as health plans continue to increase the incentives available for top quartile performance. Continued progress to improve patient outcomes and reduce total cost of care through proactive chronic disease management and ongoing development and expansion of clinical pathways, strengthening provider engagement and reducing variability in performance across markets and practices, optimizing our cost structure.

Lastly, we will continue to advance initiatives, which we expect to support continued performance improvement in 2027. With that, I'll turn it over to Jeff to walk through the financial results.

Thank you, Ron, and good afternoon. As Ron stated, 2025 was a transformational year. We took significant actions focused on improving the profitability of the business, including a disciplined approach to contracting, improvements in our burden of illness program, enhancing our clinical and quality programs, meaningful cost reductions and continuing to advance strategic initiatives related to our data visibility, clinical and cost management programs. Through the execution and implementation of these initiatives, we expect to drive significant improvement in profitability in 2026 while continuing to invest in our platform and partners.

As we discussed last quarter, this is supported by several underlying market and payer-related tailwinds, including the 2026 final rate notice by CMS, payer bids, which were focused on margin and our actions we took in 2025 centered on execution and profitability.

For today's discussion, I will cover 3 key areas. First, I will walk through our fourth quarter and full year results and a bridge to our jumping off point for 2026.

Second, I will walk through our 2026 guidance, including key assumptions, driving improved profitability. And finally, I will discuss the strength of our capital position and a more disciplined near-term growth outlook. Moving to our financial performance for the fourth quarter and full year 2025.

Starting with membership. Medicare Advantage membership at the end of the quarter and fiscal year-end 2025 was 511,000 members. Our ACO REACH membership for the quarter and fiscal year-end 2025 was 114,000 members. As a reminder, membership continues to be affected by our decision to take a measured approach to growth, inclusive of previously announced market exits in a smaller 2025 class.

Total revenue for the fourth quarter was $1.57 billion and $5.93 billion for full year 2025, respectively. Revenue in both reflect the impact of lower-than-expected risk adjustment revenue and previously disclosed market and payer contract exits. With respect to medical costs, we continue to see favorable development from the first half of 2025 with the respective cost trend now sitting in the mid-5% range.

However, for the third quarter of 2025, we experienced elevated costs, primarily attributed to inpatient stays, including a few large discrete multimillion-dollar claims totaling $6.5 million.

Based on this, we increased our medical cost trend for the third quarter of 2025 to 7.2%, up from the low 6% range we previously recorded. Given the elevated cost trend we experienced in the third quarter, along with minimal paid claims visibility at close of the fourth quarter, we took a prudent approach and recorded fourth quarter medical cost trends at 7.4%.

This brings our full year 2025 cost trend to approximately 6.5%, which we believe provides a solid foundation heading into 2026. Medical margin for the fourth quarter was negative $74 million and negative $57 million for the full year.

Both the fourth quarter and full year results are reflective of the elevated cost trend assumptions just discussed as well as the previously discussed risk adjustment impact. In addition, the full year results include negative $60 million from exited markets and negative $53 million from prior year development.

Adjusted EBITDA was negative $142 million and negative $296 million for the fourth quarter and full year, respectively. The fourth quarter reflects the items I already highlighted, partially offset by lower geography entry costs and the benefit from continued operating cost discipline.

ACO REACH was in line with our expectations. Adjusted EBITDA for the fourth quarter was negative $6 million and for the full year of 2025 was $41 million. As Ron mentioned previously, ACO REACH performance further supports our confidence in our approach, the total care model and value we bring to our partners and members.

On the balance sheet, we ended the quarter with $285 million in cash and marketable securities and $91 million of off-balance sheet cash held by our ACO entities. Year-end cash was ahead of our expectations by approximately $66 million, including $34 million in permanent improvement and $32 million related to expense timing.

Last, in tandem with our transformation initiatives, after the quarter, we extended our credit facility and term loan. Details were filed in an 8-K. Next, let me discuss our outlook for 2026. As I previously mentioned, we are optimistic about our ability to deliver significant growth and profitability in 2026, driven by our actions in 2025.

We have provided our first quarter and full year 2026 guidance metrics in the press release and earnings presentation posted on our website for you today.

We have also provided bridges in the earnings presentation that walk from our jumping off point to the full year 2026 guidance. For the full year 2026, we expect year-end membership on the agilon platform will be in a range of 525,000 to 540,000 members. This includes estimated Medicare Advantage membership of 430,000 and ACO model membership of approximately 103,000 at the midpoint.

The estimated Medicare Advantage membership reflects the market exits we announced in 2025, a small amount of growth as well as the impact of our disciplined contracting. As we highlighted on our third quarter earnings call, our contracting efforts were focused on achieving positive adjusted EBITDA across all markets, which embeds our assumptions of medical cost trends, payer-specific bids, quality performance and market-specific cost structure for 2026.

As a result of this disciplined profitability-focused approach, we exited several payer-specific contracts for 2026, which reduced overall Medicare Advantage membership by 50,000 members. Additionally, Medicare Advantage membership includes approximately 25,000 members in a care coordination fee structure with additional incentives tied to quality and cost performance.

For the full year, we expect revenues in the range of approximately $5.41 billion to $5.58 billion. As highlighted in the slides we provided today, most of the year-over-year improvement is expected to be driven from known factors, including increased percentage of premium from our contracting efforts and payer bids, which were on average at or above the CMS benchmark rate.

Combined, these are expected to create over $625 million in incremental value in medical margin in 2026. As mentioned earlier, in addition to exiting structurally unprofitable arrangements, we also reduced exposure to Medicare Part D costs to below 15% of our membership. We prioritize care coordination fee structures with performance-based incentives, more than doubling the quality incentive opportunity from 2025 for the value we deliver to our members and payers.

With respect to our burden of illness program, we are confident that the enhanced data pipeline, which now includes over 85% of our members, AI advances for high-risk member identification and diagnosis in our BOI program and execution on clinical pathways are expected to deliver results over and above the final year of V28 implementation.

We expect a net 40 basis point improvement year-over-year at the midpoint. As a reminder, over the last 2 years, we have more than offset the impact of the V28 implementation. Our enhanced data pipeline has shown a 99% plus correlation rate and is expected to improve the accuracy and forecasting of our risk-based revenue.

With respect to cost trend, we are assuming a gross cost trend of 7.5% for 2026 as trends remain elevated and net 7% when considering the 50 basis points estimated benefit from payer bids. As we have stated previously, 2026 payer bids across our markets, on average, demonstrated payers bidding for improved profitability with benefit design changes, including increases in premiums, deductibles and maximum out-of-pocket expenses and a reduction in supplemental benefits.

It's important to note that this 7.5% cost trend for 2026 comes on top of the higher cost baseline that we are now assuming for 2025, which we believe is an appropriate stance in this continued elevated cost environment.

We expect medical margin to be in the range of $300 million to $350 million in 2026. This reflects the positive impact from our disciplined contracting efforts, a slight benefit from our BOI program and a more conservative cost trend assumption heading into 2026 due to the continuation of elevated medical expenses. We anticipate G&A expense of approximately $234 million, which is slightly lower than the full year 2025 and geo entry expenses of approximately $15 million.

G&A expense for 2026 includes the benefit from the organizational realignment initiatives we implemented in the second half of 2025, which reduced operating expenses by $35 million, exceeding what we previously communicated.

This was partially offset by employee merit and medical cost inflation and the reestablishment of incentive compensation expense, assuming a full target payout. We continue to focus on additional initiatives to optimize our cost structure and drive additional operating leverage heading into 2027.

Last, adjusted EBITDA for the full year is expected to be in the range of negative $15 million to positive $15 million or breakeven at the midpoint. This includes the contribution from our ACO REACH programs, which is expected to be in the range of $20 million to $25 million.

As a reminder, our ACO REACH outlook reflects announced changes to the ACO REACH program for the 2026 performance year, primarily related to a rebasing of the risk adjustment cap from 2022 to 2019. While we are confident these factors will drive improved performance, we are continuing to actively manage the business to further enhance execution across all initiatives, laying the foundation to drive improved performance beyond 2026.

Finally, I will discuss our capital position, which will enable our teams to continue executing on our transformation and deliver our anticipated material year-over-year performance improvement. We expect to end 2026 with at least $125 million of cash on hand, including our ACO REACH entities.

This is driven by our better-than-expected year-end cash position, combined with our current 2026 outlook. Additionally, we have extended our credit facility with our existing lenders by 2 years and currently plan to pursue a reverse stock split as indicated in our proxy filing. We believe the extension reflects the strength of our operating performance outlook and continued lender confidence in our business.

Finally, I would like to address the advanced rate notice released by CMS. To reiterate, we are disappointed and believe the proposal does not adequately address the high cost and utilization trends experienced over the last several years. As Ron mentioned, after further analysis of the details provided with the advanced notice, we believe our BOI and clinical pathway initiatives will help mitigate the impact of the risk model revision and normalization factor outlined in the advanced notice.

In addition, our initial analysis of the sources of diagnosis indicates we should experience minimal impact as the strength of our model is our primary care partners' physical interaction with their patients. This would set our expected baseline closer to the published effective growth rate.

We will continue to analyze and monitor this release and remain hopeful that a more comprehensive and appropriate approach will be taken when final rates are released in April.

In summary, we recognize that we are operating in a dynamic macro environment, including industry headwinds and regulatory changes. We have executed on a significant business transformation plan, combined with our physician-centric model and scale, we believe, positions agilon health to deliver sustainable value for patients, partners and shareholders. With that, operator, let's move to the Q&A portion of the call.

[Operator Instructions]

Our first question comes from Jack Slevin with Jefferies.

I just want to kick off on some of the trend discussion because I think I caught all of it, Jeff, but I want to make sure we've got sort of the right understanding in terms of what's baked in for 2025. So I guess I just want to clarify, it sounds like 3Q has stepped up.

You sort of roughly match that or maybe step it up slightly. Just a little color or clarification there. And then if there's anything you've seen in some of that true-up in the third quarter on what might be driving that acceleration in cost trend, I would be interested just to hear if there's any color on that at this point.

Yes. Sure, Jack. Thanks for the question. Yes, you're right. So what we saw in the third quarter, in the prepared remarks, we commented on really higher inpatient stays. So we had a lot more inpatient volume. Specifically, we had several cases that were over $1 million.

And if you aggregate those, it's roughly $6.5 million of cases that were over $1 million in the third quarter. And so sitting at this point, we took the cost trend in Q3 from the low 6s to 7.2%. And listen, we recognize that we have limited claims visibility, paid claims visibility for the fourth quarter.

But we felt it prudent given that Q3 is kind of coming in so high that we moved Q4 up to 7.4%. And so what that did is it took the full year from the low to mid-5s to 6.5%. So right now, we have 2025 at 6.5% cost trend.

Okay. That's really helpful. I appreciate that color. And then maybe just to follow up on some of the '27 commentary, sort of acknowledging you all have a lot of wood to chop in '26, and I think that seems to be clear in sort of the guidance that's laid out.

But maybe just on '27 on the rate notice and then on the ACO front as well. I guess I'm on record saying I think value-based care players can get to roughly 5% on rev trend. It sounds like you guys maybe have a slightly different bridge there, but are landing in a similar zone. Considering that sort of environment, 7.5% cost trend that seems possibly conservative for '26, but maybe unclear where that goes.

How do you think about what actions you might need to take in '27 on MA, whether it's further contract adjustments? Maybe just -- I'll leave it open ended there, but interested to get sort of what that landscape might look like. And if I can squeeze in a loose second piece on the ACO front, I heard the LEAD commentary. Would love to hear just sort of how you're approaching what to do in '27 on that front with the end of REACH.

Yes. Yes, I'll handle the '27 commentary that you talked about, and then I'll send it to Ron for the ACO part. But really, Jack, it's the same actions we've been taking, right? So it's contracting, it's our burden of illness program. We'll see how the final rate notice shakes out.

But it's the same levers that we've been, I would say, executing on this year. We will do more of that as we think about '27. I would say the 2 open components are what happens with payer bids.

And so obviously, we get a preview of what those bids look like before we enter into our contracting discussions.

So that will be an important piece. And then overall, what the cost trends do. But I think from our perspective, we believe that we can continue to improve margins beyond 2026 through all of these levers that we've talked about today, and that's what we're focused on. So -- and then -- and Ron, on the ACO.

Yes. Look, Jack, I think the ACO new model is encouraging in the sense that it's a 10-year model, which provides for a longer period of time, gives you a basis to plan and perhaps to make investments to support the development of the model. Now we have encouraged from a policy point of view, further clarity, much greater even stretching out of the implementation of the program.

I think that at this point, there's not a lot that we know, but the main thing that we know is that it represents a continuing opportunity. And I think that the work that we've done so far in the current model will position us very well in terms of however the program unfolds.

And so we're looking forward to being actively involved. As a matter of fact, I'll be in Washington next week. Dr. Oz is going to be in a meeting on that, and we'll continue to advocate physicians to make that program effective for patients, for physicians and for us.

And the next question comes from Jailendra Singh with Truist.

I want to follow up on the incremental inpatient admit costs you just were talking about for Q3. Were those claims tied to some specific payers and geographies?

Just trying to understand if your Q3 reserving of 7.4% versus 7.2% in Q3 kind of assumes -- Q4 reserving of 7.4% versus 7.2% in Q3, assumes those inpatient stays continue at a similar level or get worse? Just trying to understand if cushion built in Q4 is enough.

Yes. Thanks, Jailendra. I guess a couple of things. Number one, they weren't concentrated in specific markets is what I would say. And we did see utilization step up, not across the board, but in several of our markets, specifically in inpatient stays. And I would say September appears to be the highest of the quarter.

And so it was more focused on the end of the quarter is where we saw that. And I understand your point, you're saying, could these just be random acute events that don't reoccur. That's certainly possible.

But again, with limited claims visibility as we closed out the year, we just felt it was prudent to provide a solid foundation from which to jump off into 2026. And so we went ahead and moved that cost trend up to 7.4%. So again, limited claims visibility for us, but we felt it necessary to provide a good stepping off point.

Got it. And then my quick follow-up on your OpEx cost initiatives, which is now $35 million benefit in 2026. Do you guys see any additional opportunities in terms of streamlining cost? And what areas that could come from?

Yes. I think it's all the areas that generated the $35 million. Certainly, we're not done looking, okay? Let's put it that way. And so I think there are further opportunities for cost reduction. Some of that's going to require automation and AI and technology. So I think they'll be harder to achieve, but it doesn't mean it's not there. And so that's what we're focused on as we think about executing on 2026 and heading into 2027.

And the next question comes from Michael Ha with Baird.

Wondering, is there any update you've received on the '25 fee-for-service trend within ACO REACH? Is it still 8.5%? And then also just on trends more broadly across both REACH and MA. There's been some conversation about the MA rate notice, I'm saying that back half trends are actually less steep.

So if CMS were to include more back half '25 claims experience, it might actually drive the effective growth rate slightly lower than the advanced notice, but it sounds like your own back half trends have actually stepped higher versus the front half, which would obviously go against that thinking. So I'm curious to hear your thoughts on the ongoing conversation.

Yes. Yes, for sure. Thanks, Michael. I think the first half we commented on is in the mid-5s for us. So in the MA population, we certainly did see an acceleration of cost trends, at least for Q3.

We'll have to see how Q4 plays out. But at least for Q3, we certainly saw that. The fee-for-service cost trend, the latest on that is 8.1%. So it came down a little bit. But what I would say is in the ACO program, it was also concentrated in the back half, and we have a lot more current data there from the government is what I would say. And so those cost trends were tilted toward the back half as well, but they've come down from 8.5% to 8.1%.

And one more on the rate notice. I'm curious, after you've reviewed it yourself, I'm just wondering if you -- there's anything you view as most notable with potential for CMS to improve. Again, there's conversation about another area about the treatment of skin subs and the risk model recalibration.

By that, I mean, they adjusted the effective growth rate to exclude it, but it doesn't look like they did that for -- potentially for the coefficients aligned with those skin subs. So now we have this strange situation potentially where it's distorting the risk model recalibration and driving this rate headwind. I'm curious if that's an area you've been looking at thinking about and just broader thoughts on areas of improvement into the final rate notice.

Yes. Certainly, all of those items that you have mentioned, in addition to what is the final kind of cost trend, all of those items are top of mind for us. I guess what I would say is, again, just broadly, ultimately, we're looking for rates that account for the cost trends that we've seen over the last several years.

However that shakes out. That's ultimately what we're trying to achieve. I guess we'll have to see how all of these things that you mentioned play out. Hopefully, some of those get delayed or lengthened or spread over time to balance, I would say, the cost trend dynamics that we're dealing with. But ultimately, we'll have to see how that shakes out.

[Operator Instructions]

And our next question goes to Ryan Langston with TD Cowen.

A few of the larger public plans have highlighted expected margin recovery in group MA specifically. I think the last disclosure of your mix was around 17% or 18% kind of midway through last year.

I guess where does that percentage sit now and in 2026? And I guess, how is that potential recovery reflected in the guidance?

Yes. Thanks, Ryan. It's a little early to figure out kind of where the membership is going to play out is what I would say. But I don't think that we're going to have too different of a mix heading into 2026.

But obviously, we really don't get final membership until towards the end of the first quarter. And so we'll kind of give an update at that point in time. But right now, there's nothing that says our mix is going to be substantially different from that.

And the next question goes to Matthew with Needham & Co.

I wanted to hit on quality. Nice to see the medical margin opportunities there. I think in 2025, you've been targeting $25 million of opportunity tied to quality. How did you do on achieving that?

And then for 2026, as we think about that opportunity doubling, could you maybe just give us a sense of what those increased incentives look like and pathway to achievement? Is that just greater stars improvement or any discrete strategies you're laying out to achieve that quality opportunity?

Yes. So a couple of things. The quality, obviously, the measures aren't done yet. There's runout that has to happen. But I think we're in the ballpark or getting close to what we thought we would achieve for 2025. That's the first thing.

The second piece, which you mentioned is there's an opportunity for us to -- there's doubling of the potential for us to earn. And what I would say is broadly across our network in 2024, we were roughly at 4.2 stars. We made progress and improved that in 2025. Now the verdict is not all the way out because we have the runout that has to happen, but we're pretty confident that we will do better in 2025.

And as we think about 2026, the opportunity is there. What we have included in our guide is similar performance to 2025. And so we haven't banked on that in the guide, but we're obviously shooting for a higher level of performance. And we have programs that are centered, as you can imagine, around driving that performance.

And the next question comes from Stephen Baxter with Wells Fargo.

Just want to make sure that I'm fully tracking the comments on the advanced notice that you gave and why you think that your view of it is more in line with the effective growth rate. I think you're saying that you have, I guess, little to no exposure to unlinked chart review, which makes perfect sense given the model that you operate. But in terms of the other risk model changes, including the normalization impact, that 330 basis points item in the CMS announcement, are you saying that you just don't have exposure to that? Or you're saying that other things like coding trend and clinical efforts offset that? I'm just trying to get to what an apples-to-apples comparison is for you guys.

Yes, yes. Good clarification. I would say, yes, we are exposed to that. And generally, we've run the math, and we're very close to what is outlined in the rate notice. What we are saying is that we've shown the ability over the last several years to offset the implementation of V28.

And recall, V28 was roughly 3% to 3.5% per year. And so we feel pretty confident that we can do that again in 2027. And so that's what -- that was the comment that was made is we have a way to offset that. And so generally, we're viewing it as the effective growth rate is really the number.

Yes. I would just add that what's been driving has really been the implementation of our clinical pathways and particularly with our congestive heart failure, we ended the year with about 90% of the platform well implemented in that program.

So we think we're crossing over with a pretty good run rate, and we think there's still a lot more prevalence in the communities for us to help patients get diagnosed and get on the right kind of therapy to help better manage that condition. And we also will be implementing additional clinical pathways, which we talked about that we think will be important contributors over time.

And I think that one of the things I would say also is that we recognize that we need to focus on 2027 in terms of taking a step up in order to address this. So we're not saying that what we're doing, we think is perfectly adequate. We think it's a really, really solid foundation, and we're going to be doing more to make certain as best we can that we can get to where we need to.

Got it. And then my actual more tangible question, just on the medical margin bridge that you guys gave us in the slides. The $127 million for the payer contract, there any rough sense you can give on how much of that is percent of premium changes versus having less Part D risk. I'd love to just get a better sense of what inning you feel like you're in on this percentage of premium effort and whether you kind of characterize the success you're having as being relatively broad-based or maybe having more success with a subset of payers and maybe there's more opportunity in front of you?

Yes. I would say the majority of that is either percent of premium or relief from the payers stars -- specific payer stars issues that they've had. And that is contracted and done. So that's -- those are -- that's locked in value is what I would say as we think about the 2026 P&L.

And the next question comes from George Hill with Deutsche Bank.

This is Liz on for George. I just have one question on the special need plans. Could you help frame the current exposure to the special need plans versus the traditional MA membership and whether the mix shift towards a special need plan means a structurally higher margin opportunity over time?

Yes. I don't -- yes, if I just look at our special needs plans, it's roughly 7% roughly for us, right around 7%. And I don't think we have enough information right now with our membership to determine if there's been a big mix shift, but more to come on that one.

And the next question comes from Justin Lake with Wolfe Research.

A couple of follow-ups for you guys on the stuff you've already talked about. First, on the membership exits, right, and some of the recontracting you've done there. I -- is it fair to think that you've kind of walked away from the contracts and the plans that you think are not good partners?

And the kind of go-forward improvement here will be execution and hopefully, rates that reflect cost trends? Or do you still feel like there's more to come on that side? And also, were there any partners that stood out there? Is it concentrated in 1 or 2 plans that you walked away from? Or are you seeing that more broad-based?

Yes, Justin, I guess what I would say is it's probably payer and market specific. So it's not specific to any one payer. I think as you know, economics are different across payers and markets.

And so I wouldn't single any payer out to say they were specifically an issue. And so it's broad-based. And ultimately, as we think about it going forward, I think these are members that we can ultimately get to a contract sometime in the future.

But obviously, we're in challenging macroeconomic times. And we just couldn't get to a deal this year. So it doesn't mean we can't get to a deal ever. It just means the economics and the risk wasn't right for us at this point in time. And that's the same lens that we'll have as we renew contracts for 2027.

Yes. I think the point I would make, Justin, is that we've been pretty clear about the value that we create. And that if we're not going to be paid for it, then we will not be delivering that value.

And we'll see what happens next year as they realize that what we were telling them was really an important contributor to their success. So we're hopeful, but we're also firm about it has to be the right agreement for us and for our physician partners.

Perfect. And then just last follow-up on the -- on trend. I think this question has been out there for a while, but CMS went on their call and said, we think trend is 5.5%. ACO REACH have been pushing 8% to 9% in the last couple of years. Have you been able to -- you sit in a unique position kind of playing in a significant way in both.

Have you been able to sit down and kind of bridge that gap in terms of -- I know skin substitutes is a big part of it. But beyond that, do you think there's 300 basis points of difference between ACO REACH and Medicare Advantage? Or do you think there are a couple of pieces that the industry can kind of bring down the DC and sit down with CMS and say, here's what you're missing.

Yes. I guess what I'd say, Justin, is I think the industry and we are aligned that there seems to be a disconnect between the ultimate rate at the bottom line that's getting paid and the cost trends that everybody, including fee-for-service has seen over the last several years.

So there's no -- I think there's no answer here that bridges that gap is what I would say. And I think that's why everybody is advocating for kind of a revisit of what the initial rate notice is.

The next question goes to Craig Jones with Bank of America.

I want to follow up on the chart review comment you made. So do you say you're in line and be in line with the 1.5% or do you think it will be like closer to 0%? And then as you think about how that spread among your payer partners, is it a pretty tight cluster or some potentially going to have like a 5% impact and some will have a 0% impact?

Yes. I think what we're saying is the removal of selected diagnosis is minimal for us just given our model because we're highly aligned with the primary care physician. And really, we're seeing those members in the office.

And so for us, there's not a lot of unlinked conditions given how our model is designed and our proximity to the primary care physician. So I'd say that's just broad across everywhere. The Part C risk model changes, that obviously would be different by market.

And our last question goes to Daniel Grosslight with Citi.

This is Luis on for Daniel. I just have a quick cleanup question. I know you're intentionally slowing down market growth this year, but guidance still includes $15 million of new geography entry expenses. Can you remind us where exactly that is allocated to?

Yes. That's really capital commitments from prior growth. There's some of that, that drags into the following years, what I would say. And there was a little bit of growth this year. And obviously, there's some other groups that we're talking to, but not really getting into that right now.

And that does conclude the Q&A portion of today's call. So I will hand back over to you, Ron Williams, for any final comments.

Yes. Thank you. I would like to close by really expressing a deep appreciation and a huge thank you to our physician partners whose commitment to quality care to their patients is really fundamental to our long-term success.

I also want to thank all of the employees of agilon who have really been focused on this transformation that we've gone through this year, positioning us for the kind of success that we've outlined in our guidance. So -- and thank you for joining the call. We appreciate your questions and the opportunity to engage with you. Have a good day.

Thank you, everyone. This concludes today's call. Thank you for joining. You may now disconnect.

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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

"

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 provide more detail in a moment.

Our focus is on executing a strong finish to 2025, and a quick start in 2026. Our organization is executing with precision and purpose. Our strategic initiatives are tightly aligned with our mission and partners and centered on embedding urgency, focus, operational rigor, clinical excellence and data-driven executional accountability across the enterprise, which we believe will translate into improved performance in 2026.

Through investment in technology and efforts to expand our access to richer and more timely data, agilon is leveraging data analytics and AI-driven insights to support delivery with a focus to improve the visibility and predictability of our financial performance.

Through our enhanced data pipeline, which went live in the first quarter, we now have more timely direct payer data feeds with validated and highly correlated member level clinical and claims data, as well as member level risk scores on approximately 80% of our members. We expect the increased visibility and alignment of our financial and operational data will enable us to more quickly identify and drive improvements.

We remain extremely focused on the performance optimization initiatives we previously laid out. These are centered on improving the near-term profitability of the business, allowing us to drive improved medical margin, adjusted EBITDA and cash flow performance in 2026. With respect to improved contract economics, we are currently in active negotiation with our payer partners for 2026. Based on our discussions to date, we are making strong progress on several fronts.

First, further reduction in Part D exposure;

second, an expansion of quality incentives;

third, improved economic terms for Part C.

And fourth, we expect a continued narrowing of risk from supplemental benefits through better information.

Based on the public commentary and initial review of payer bids, we expect more favorable bid design, focus on MA profitability, including improved pricing, reduced benefits, increased deductibles and maximum out-of-pockets, which is expected to have a positive impact on agilon's medical margin in 2026.

We are also taking a very disciplined approach to contracting. And for those payers with benefit designs and pricing that are inconsistent with market dynamics, we are prepared to take decisive action. While this may result in reduced membership, we are focused on profitable growth and earning the appropriate economics for the value we are delivering.

With respect to quality or stars, approximately 75% of health plan star ratings are directly impacted by the PCP, making our success in delivering 4 stars in the majority of our markets critical for payers. Our programs enable Care gap closure rates that exceed the overall MA average on key star measures, such as cancer screening and chronic condition management.

To further enhance our Stars performance, we are leveraging our enhanced analytics capabilities and collaborating with our partners to further improve condition identification, diagnosis and screening, leading to documenting and closing of gaps in Care through treatments such as medication adherence.

In early October, CMS released the 2026 Stars ratings, which will impact 2027. Approximately 75% of agilon members are expected to be in 4+ Star plans, an increase from 71% in 2026 payment year. This also compared favorably to 65% in the overall Medicare Advantage market. In addition, with the 2026 star ratings, agilon achieved a consolidated average of 4.2 stars across our markets.

This supports our efforts for improved payer economics that are better aligned with agilon's strong quality performance. Our BOI program is also contributing to improvements in early and accurate identification, assessment and documentation of a patient's comprehensive health conditions. By connecting the burden of illness assessment to our quality and care delivery programs, we can more effectively manage high-acuity chronic disease categories like heart failure.

We are on track for our palliative program and clinical pathways. Based on the performance to date, we believe this will positively contribute to our financial results in 2026. As a reminder, these patient-focused, physician-driven and technology-enabled clinical pathways have been developed in collaboration with our physician partners and national experts. They enable our teams to close Care gaps by looking at some of the highest prevalence chronic conditions, which affect our patient population.

With respect to our heart failure pathway, we are seeing encouraging results by identifying and diagnosing these conditions earlier in the outpatient setting. Our physician partners are better able to manage the progression of each illness and improving the quality of care for the patient. We have reduced new inpatient heart failure diagnosis rates from 18% in 2024 to 5% in 2025 across our MA population.

In markets where our virtual pharmacy solutions are active, about 50% of patients with heart failure and reduced ejection fraction are receiving Guideline-Directed Medication Therapy. This is approximately 30% higher than the national average. Similarly, when virtual pharmacy solutions are combined with transitions of Care cardiology, we have seen 30-day readmission rates fall below 5% as compared to the national average of approximately 20%.

This performance is expected to continue as we expand the program and we move into 2026 as more partners fully implement the program.

With respect to our Palliative Care Program, we continue to make progress in our education, market penetration and enrollment. By focusing on providing care in a hospice or home setting, we see better Care satisfaction for the member and their families and less hospital admissions.

As we move into 2026, in addition to existing programs, we are beginning to expand our COPD and dementia pilots and anticipate further adoption. In the quarter, we have also taken steps to optimize our cost structure to align with current market dynamics, including a more balanced near-term growth outlook. The leadership team is working to strategically realign our organization structure. We have made thoughtful decisions to streamline certain teams while simultaneously investing in other areas that will help drive our next chapter of innovation.

Through the centralization of certain functions, implementation of technology and alignment with our PCP partners, we have reduced our headcount and streamlined our capital requirements and third-party costs, all to gain greater operating leverage from the platform and support our growth objectives. These operating expense initiatives are expected to reduce our costs by approximately $30 million in 2026. Finally, while we are making progress in our search for a CEO, the skills, experience and relationships that are aligned to our new path, we remain committed to moving decisively now to enhance performance and agilon's position for sustainable value creation. Thank you for your continued support during this transition period.

With that, I'll turn it over to Jeff.

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 of the 2024 risk adjustment data and substantially all the midyear 2025 risk adjustment data from our payer partners. This indicated the 2025 risk adjustment for the remaining 28% of members we did not include in our prior results was lower than the average.

The third quarter reflects the impact of lower-than-expected revenue associated with 2025 risk adjustment scores of $73 million, including a 9-month true-up of approximately $50 million for the remaining 28%. We now estimate the full year impact to medical margin for lower-than-expected risk adjustment is approximately $150 million.

The larger-than-average impact for the remaining 28% was primarily driven by one payer representing a new market in 2024, where we also did not have data for 2023. This payer is now in our data pipeline, which provides us with confidence in establishing our risk adjustment baseline and potential for 2026.

In addition, exited markets negatively impacted the quarter by $20 million. First half cost trends continue to develop favorably and were approximately 5.7%. We took a prudent approach in the current quarter and recorded cost trends at a little over 6%. As we have previously stated, we have limited paid claims visibility at this point post quarter close.

Medical margin this quarter was negative $57 million compared to negative $58 million in Q3 2024. The current quarter reflects continued elevated cost trends in line with our expectations for the year. In addition, this includes the previously mentioned risk adjustment and exited market impact.

Adjusted EBITDA for the quarter was negative $91 million compared to negative $96 million in the third quarter of 2024. The third quarter reflects the items I already highlighted, partially offset by lower geography entry costs and benefit from continued operating cost discipline.

We are very pleased with our strong ACO REACH performance during the quarter, including our final 2024 reconciliation. Adjusted EBITDA related to this program this quarter was ahead of expectations at $18 million. ACO REACH continues to demonstrate the value creation agilon can deliver and is shaping the way we are transforming our MA business, reducing our exposure for things outside of our control like Part D and supplemental benefits while focusing on improved economics and incentives for agilon's quality, clinical and medical cost performance.

On the balance sheet, we ended the quarter with $311 million in cash and marketable securities and $172 million of off-balance sheet cash held by our ACO entities.

Next, let's move to our medical cost trend outlook and reinstated 2025 guidance. Managing medical cost trends remains a top priority. For the first half of 2025, medical cost trends have been stable but elevated in areas such as inpatient and Part D oncology drugs and restated favorably relative to our expectations. We anticipate the medical cost trend to remain in line with our expectations.

Now moving to guidance. With greater visibility as we head into the year-end, we are reinstating our full year 2025 guidance. I will also provide some color on our expectations for 2026 based on our actions to date and initial review of payer bids and contracting efforts. For the full year 2025, we expect Medicare Advantage membership in the range of 503,000 to 506,000 with ACO model membership projected to be between 113,000 to 115,000.

We expect revenue for 2025 to be in the range of $5.81 billion to $5.83 billion, reflecting the impact of membership shifts and improved revenue yield from payer contracts. The revenue outlook also reflects lower-than-expected 2025 risk adjustment performance of approximately $150 million, prior year development to date of $70 million, and exited markets of approximately $60 million.

Full year medical margins are projected to be between negative $5 million to $15 million and adjusted EBITDA guidance range of negative $270 million to negative $245 million. We expect to end the year with approximately $310 million of cash on our balance sheet, including approximately $65 million held off balance sheet by our ACO entities.

We have provided a bridge in the earnings presentation we issued today that walks from the current guide for 2025 to our jumping off point for 2026. The expected $135 million medical margin jumping off point for 2026 includes approximately $150 million of lower-than-expected risk adjustment contribution for 2025.

Now let me provide some color on 2026. While we are not prepared to provide specific 2026 guidance at this time, I want to walk through why we are optimistic about next year as illustrated on Slide 7 of our earnings presentation.

We see several tailwinds, including macro factors like the 9% benchmark rate increase, better aligned payer contracts and the disciplined cost actions Ron outlined that we believe will both drive material improvement in our performance in 2026 and establish a path for consistent improvement as we move beyond next year.

First, in the third quarter, we completed restructuring actions to improve our operating expenses. We rationalized other medical expenses, including better alignment of incentives with our PCP partners, reduced overhead and vendor costs in line with our current revenue run rate and more balanced growth outlook. We estimate that this will drive $30 million in cost and adjusted EBITDA benefit in 2026 with additional opportunities for savings in 2027.

Second, we have taken a more disciplined approach to payer contracting, which includes incremental percentage of premium and enhanced quality incentives from payers for the value we deliver. This is expected to drive revenue growth on a PMPM basis potentially greater than the 9% CMS final rate notice for 2026. We have reviewed payer bids across our markets. And on average, we see payers bidding for profitability with benefit design changes, including increases in premiums, deductibles and maximum out-of-pocket expenses and a reduction in supplemental benefits. This is expected to be a positive offset to cost trend in 2026. As a reminder, 2025 included a 1% benefit from payer bids.

As part of our disciplined contracting strategy, we are taking decisive action market by market with payer contracts that do not meet a minimum threshold for profitability. While our contracting for 2026 is not final, if we cannot come to appropriate economic terms in certain markets, we may not contract with specific payers in these markets. As part of our discussions, we may also transition some of these members to a Care coordination fee with additional performance incentives.

Depending on the outcome, this may reduce our overall membership in 2026, though this impact may be mitigated if a member shifts to another payer with more favorable economics for agilon or moves to a coordinated Care fee arrangement. This disciplined approach is expected to be favorable to medical margin and adjusted EBITDA in 2026 and beyond.

Our contracting efforts also include additional steps to reduce variability in our performance by effectively managing multiyear contract terms to reduce our exposure to macro cost trend volatility, interim payer benefit design changes and pricing that may be detrimental to our capitated economics. This includes reducing our payer contract term length if needed or adding additional material adverse change clauses to the contract.

In addition, while our exposure to Part D in 2025 was primarily related to carved out or exited markets, we are continuing to further reduce our exposure.

With respect to BOI, we are confident that the enhanced data pipeline, which now includes the outlier payer from the remaining 28% of our members, AI advances for high-risk member identification and diagnosis in our BOI program, and execution on clinical pathways will deliver results over and above the final year of V28. Our confidence is based on a review of validated codes in our data pipeline and our ability to deliver results above the impact of V28.

Last, on our cash outlook, with the anticipated performance improvement in 2026 from our initiatives and the macro factors I just walked through, combined with our focus on working capital management, we expect to end 2025 with approximately $310 million in cash and 2026 with at least $100 million in cash on our balance sheet, including cash held in our ACO REACH entities. Before I close, given our current stock price, we anticipate pursuing a reverse stock split and expect to seek stockholder approval at our Annual General Meeting in 2026.

In summary, while we continue to operate in a challenging environment, the actions we are taking to refine our strategy, improve operational execution and financial visibility and strengthen our financial position are expected to have a positive impact on our performance in 2026 and beyond. We remain confident in the value we bring to our members, PCP partners and payers and our ability to navigate the near-term headwinds while positioning agilon for long-term success.

With that, operator, let's move to the Q&A portion of the call.

[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.

Good afternoon, and thank you for attending the agilon health Second Quarter 2025 Conference Call. My name is Jason, and I'll be the moderator today.

[Operator Instructions] I would now like to pass the conference over to your host, Evan Smith.

Thank you, operator. Good afternoon, and welcome to the call. With me are Ron Williams, our Executive Chair; 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 reviews 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. Ron?

Thanks, Evan. Good afternoon, everyone, and thank you for joining us on short notice. I am pleased to be with all of you today. For those of you I may not have met before, I've been Chair of agilon health since we founded the company. As we announced today, I have been appointed by the Board to the role of the Executive Chairman, with Steven Sell step down as President, CEO and the Director of the Board. We also reported our second quarter results and withdrew our 2025 guidance. Jeff will walk you through this in detail.

But first, I would like to take a step back, introduce myself and discuss how we are tackling agilon's recent underperformance and positioning the company to realize the value of our unique and differentiated model in 2026 and beyond. I've been fortunate to have served in a number of leadership and operational roles in health care companies, including as Chair and CEO of Aetna. Throughout my long career in the sector and many different economic and market cycles, I've helped organizations at critical inflection points to drive transformation and improve performance, including at Aetna.

From its inception, I believed in agilon's mission and the critical role we serve in the health care industry, helping to transform health care for seniors by empowering primary care physicians to focus on the entire health of their patients and to create value for stakeholders. The foundation of our business and agilon's model is built on a belief that aligning incentives with community-based physicians and a commitment to delivering innovative integrated capabilities will allow primary care physicians to successfully navigate their transition to a health care system defined by providing high-value medical care.

The value that agilon's model provides is more important today than ever. The health care system needs effective solutions to improve quality outcomes and address costs by empowering primary care physicians to support the aging population that is rapidly growing, particularly the growing 80-plus years old segment, which typically have the most complex needs. As we move through 2024, we identified certain challenges our business could face in 2025 recognizing agilon will be operating in a volatile environment and that this year would be an important transition period.

Using learnings we gained in 2024, we took action and launched strategic initiatives last year to strengthen our platform and improve performance, which our team has actively advanced this year. These efforts include deepening our engagement with our physician partners, expanding programs that support the most complex patients, enhancing our operational and business visibility capabilities, including through investments in AI and advanced technology and improving contract economics in our cost structure.

Given the long-term nature of our business cycle, we have not yet captured the full upside from these enhancements this year, but are confident in realizing them in 2026. Nevertheless, as 2025 progressed, the industry complexities and headwinds we believe agilon would face were more acute than previously expected. And our execution was not adequate. This resulted in the underperformance we reported.

There are two key drivers, as Jeff will cover. One, the final 2024 payer data we received indicated our risk adjustment last year was lower than we previously assumed, resulting in a lower 2024 risk baseline. Two, due to the lower 2024 baseline, and because of our enhanced data platform, we see our 2025 risk adjustment is trending lower than expected. And the activity levels that would allow us to overcome this have not yet materialized.

We are clearly disappointed with the financial results as we firmly believe in the value our business creates for physicians, patients and payers and the significant growth opportunities agilon can capture. This is why we are taking additional decisive actions to further strengthen our foundation as we look to drive improved performance and take advantage of what we expect will be a more favorable environment in 2026.

We will be aggressive in aligning our talent and execution to our opportunity. We are transitioning our leadership as announced today, and I will work even more closely with the agilon team as Executive Chairman, while we conduct a search for a permanent CEO. I'm committed to ensuring a smooth transition, but in the meantime, I'm fully focused on improving execution across our business and helping to strengthen all relationships that are critical to our future success.

In addition, I've formed an office of the Chairman to help drive this effort, which includes several key members from across our existing leadership team. This group is recalibrating the culture of the organization against a standard of urgency, accountability and performance. I am meeting with the leadership team daily, with the purpose of shortening the interval between business performance review and actions to accelerate outcome.

This approach is cascading across the organization. We expect this will translate to improved results for our partners and agilon. Together, we are working with urgency to advance and execute efforts now to improve performance.

This includes making economic changes to ensure that agilon and our physician partners capture the appropriate value for the benefits that we deliver through our outcomes-focused total care model, urgently addressing the elements that are in our control, while also navigating the broader market-based challenges and sharpening our commitment to disciplined and operational rigor, which this current environment demands.

I have seen firsthand what is required to stabilize and ultimately reaccelerate an organization that is undergoing a challenging transition and that operates within a prolonged business cycle. In my past roles leading large and complex health care technology companies, I have evaluated and implemented ways to streamline operations, reduce administrative complexity and unlock performance through data-driven decision-making and a culture of empowerment and accountability.

This insight and experience reinforce my confidence in the sustainable value that agilon can deliver if we improve our execution. We've seen time and again that agilon's value-based care model provides significant value to our physician partners and their patients across the U.S.

Our proof of success over the years has been driven by the differentiated value proposition of agilon's platform. Our foundation remains strong today, and with the many competitive advantages agilon has created, including our unique integrated set of capabilities that are specific to primary care physicians, driven value-based care model that reinforce our role as a long-term solution for physicians focused on outcomes.

We have consistently demonstrated that the agilon platform can drive utilization performance 20% to 30% better than local fee-for-service benchmark and quality scores approaching or greater than 4.25 stars. Our deep relationship with community-based physicians, many of which have been leaders in their communities for decades, supports the stability of our business and a durable long-term growth runway.

Our scaled platform that serves over 600,000 senior patients, 2,200 primary care physicians and 30 markets generates consistent quality, clinical cost outperformance and significant value to our payers. Building on this foundation, we are committed to enhancing performance and agilon's position for sustainable value creation, so we can maximize the benefits of the initiatives we have been implementing as well as improved Medicare reimbursement model that takes effect next year.

We know that our powerful model provides important solutions to the industry, and we believe that improved execution and a CEO with the skills, experience and relationships that are aligned to our new path will deliver the results for our physician partners and our shareholders that we know are possible.

Thank you for your continued support during this transition. With that, I'll turn it over to Jeff.

Thanks, Ron, and thanks, everyone, for joining. On today's call, I'll start by providing an update on the initiatives we are actively pursuing to reduce variability and drive improved performance on a go-forward basis before reviewing our second quarter financial results.

As Ron touched on, 2025 is a transition year in which 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. While this is a long business cycle, we are now taking a more assertive approach for improved operational and financial performance.

The increased visibility and alignment of our financial and operational data will enable us to more quickly identify and drive improvements and better manage the business. We believe we're going to start seeing the results of these changes to deliver enhanced performance in growth in 2026 and forward.

As we look at our second quarter results, it is clear that a combination of factors are at play. Some of them are market-based and out of our control. Others are actively addressing through previously exited markets or reducing our exposure to Part D, and these will not reoccur in 2026. While headwinds remain, we are confident they can be addressed through better execution and a sharper focus on our operations and cost discipline.

While our strategic priorities remain consistent, we are confident that with our new leadership structure, we have greater flexibility to pursue these objectives with a faster pull-through from action to outcome. I will run through the changes we are implementing and aggressive steps we are taking to set us up for improved performance one by one.

First, enhancing our platform. During the quarter, we made additional progress in strengthening our network and our platform through advancements in technology, clinical pathways and operating efficiency. By more effectively leveraging data and technology, we are working to bring agilon closer to our PCP partners by providing solutions that drive higher quality of care and reduce variability and care delivery across our network.

Second, data. We have significantly improved our data visibility and timeliness. Approximately 72% of our patient population is validated in our enhanced data platform, which went into effect at the end of the first quarter 2025. For those patients, we are seeing a high correlation with the final 2024 and midyear 2025 data.

The high correlation of the enhanced data platform for estimating and validating cost trends and RAF scores increases our confidence in the foundation and potential for 2026 performance. In addition, in late 2024 and early 2025, we expanded the clinical depth and data of our burden of illness and quality programs while directly integrating clinical evidence and evidence-based guidelines for the physician at the point of care.

These improvements are now driving an increase in early identification of high-risk conditions and potential gap closures, and we expect to make additional advancements this year. These enhanced capabilities support our expectation for improvement in 2026 for burden of illness, expanded clinical pathways and quality scores.

Third, enhancing quality and delivery. Our ability to deliver top-tier quality performance relies on us leveraging the strengths of a PCP's relationship with the senior patient. Overall demand for our total care model remains strong as payers and providers look to agilon to deliver quality and clinical outcomes while reducing costs.

Recent surveys support the strength and demand of the total care model with an NPS score of 85 as well as 92% PCP retention and 90% retention among MA patients. We remain committed to driving 4-plus star quality performance.

Our enhanced burden of illness program provides the foundation for our clinical model through early and accurate identification, assessment and documentation of a patient's comprehensive health conditions at the PCP office. By connecting the burden of illness assessment to our quality and care delivery programs through the design and implementation of care plans, we can impact high acuity chronic disease categories like heart failure, kidney disease and dementia.

Generally, high-risk patients are driving the majority of inpatient utilization. Through early identification, we are making significant progress on our clinical pathways programs by focusing on high-risk patients and seeing them more often, we can help lower costs and improve health outcomes.

Starting with our heart failure program. We continue to make strong progress. While still in the early stages of implementation, we are now live in over half our markets and are seeing strong month-over-month increases in enrollment. We will provide updates on our progress in clinical outcomes later in the year.

Our piloted program is now live across most of our markets. We've been pleased to see a strong increase in patients choosing to receive advanced illness management via our program. We also continue to see improved care quality indicators like a reduction in unnecessary hospital admissions compared to benchmark and increased hospice length of stay.

Given the positive patient and clinical impacts to date, we're focused on expanding this program across partnerships and geographies in '25, which we expect will create additional value in 2026.

Our fourth area of focus is improving our contract economics. We are currently in active negotiations with our payer partners for 2026 with approximately 50% of our membership up for renewal. We believe we can establish agreements that better align economic terms with the value delivered and predictability of performance.

During this renewal process, we remain focused on several areas: first, a further reduction in Part D exposure where we are already seeing positive indications from payers; second, an expansion of quality incentives, which are aligned with payer objectives; third, improved economic terms for Part C; and fourth, a continued narrowing of the risk from supplemental benefits through better information.

We are also optimistic that the recent public commentary from payers will translate to a more normalized payer bidding environment on both pricing and benefits as they focused on improved margin performance; last, we will be working to drive greater efficiency across the platform.

We have launched a process to further evaluate our operating expenses to support improved profitability. Collectively, these levers that we are pulling and our focus on enhanced execution will drive performance recovery in 2026 and beyond.

Before turning toward what is next, I'm going to provide the details of the second quarter results. Let me start by saying that we are clearly disappointed with our financial results for the second quarter. These results reflect a lower-than-expected burden of illness or risk adjustment contribution for both 2024 and 2025, unfavorable development in Part D costs and 2025 cost trends that are in line with expectations.

Our second quarter results are meaningfully influenced by the recent introduction of our enhanced data platform, which we believe has materially improved our financial and clinical data visibility and insights for both operational execution and financial forecasting.

We have further to go with more payers to add, but the data we do have indicates that the burden of illness assessment work our physician partners performed in 2024 did not yield the expected increase in 2024 and 2025 revenue.

Before we provide more detail on risk adjustment, let me highlight some other key metrics. Starting with membership. Our Medicare Advantage membership at the end of Q2 2025 was 498,000 members compared to 513,000 members in Q2 2024, reflective of our measured approach to membership growth and recent market exits.

As a reminder, the class of 2025 contracts are on a glide path approach and are not driving a meaningful variance in our financial results. We expect our same geography growth rate to be in line with the broader industry for 2025. ACO REACH membership in the second quarter was 116,000 members compared to 132,000 members in the second quarter of 2024 and was in line with our expectations.

Turning to revenue. Total revenue for Q2 2025 was $1.4 billion compared to $1.48 billion in Q2 2024. The year-over-year revenue decrease is primarily due to lower risk adjustment in 2024 and 2025 and unfavorable development in Part D.

Medical margin for the second quarter 2025 was negative $53 million compared to positive $106 million in Q2 of 2024. While medical cost trends are in line with our prior expectations, medical margin was below our guidance, driven primarily by the underperformance of our burden of illness program in 2024 and 2025 and unfavorable prior period development. We have provided a bridge in the earnings presentation we issued today that walks from the guide we provided for the second quarter 2025 to our actual results.

During the second quarter, we received substantially all of the final 2024 risk adjustment data from our payer partners that indicated our 2024 risk adjustment was lower than expected. This in combination with additional payer data for 2024 Part D resulted in negative prior period development of $66 million recorded primarily as a reduction of revenue. It is important to point out several things. First, of this amount, $20 million was associated with exited markets.

Second, $13 million was associated with higher 2024 Part D costs from one payer who agreed to carve out Part D beginning in 2025, leaving $37 million of risk adjustment related to 2024 activity in our existing markets.

Last, because of the lower risk score step off from 2024 combined with data that we now have from our enhanced data platform, we see that our 2025 risk adjustment is also trending lower than our expectations. As a result, we have trued up our risk adjustment, resulting in a $48 million reduction in revenue.

This represents the year-to-date true-up for 2025 risk scores for the 72% of our membership on the Enhanced data platform. We have not changed the estimates for the remaining members pending the receipt of midyear risk score information, which we expect late in the third quarter.

Our enhanced data platform provides greater visibility and detail for both revenue and claims which we expect will continue to enhance our forecasting, including on risk adjustment.

Adjusted EBITDA for the quarter was negative $83 million compared to negative $3 million in Q2 2024. The year-over-year movement reflects the items I just mentioned, partially offset by favorability from lower geography entry cost and operating cost initiatives. Adjusted EBITDA related to ACO REACH was $10 million in the second quarter of 2025, in line with our expectations.

Managing medical cost trends remains a top priority. For Q2 2025, our year 2 plus markets medical cost trend was 5.9% compared to 6% in Q2 2024. MA results continue to demonstrate agilon's strong quality performance metrics with readmission, hospital admission and ER visit rates 20% to 30% better than the local fee-for-service benchmark.

Primary care utilization and annual wellness visit volume remained relatively flat, and the overall medical cost trend was within our expected range for the first half of the year. As part of our strategy to manage risk, we have successfully reduced our exposure to Medicare Part D with less than 30% of our membership carrying Part D risk in 2025, and we continue to make progress to reduce it further as we enter 2026. Additionally, we are working closely with our payer partners to refine benefit designs and improve alignment on medical cost management.

On the balance sheet, we ended the quarter with $327 million in cash and marketable securities and $176 million of off-balance sheet cash held by our ACO entities. We believe our current liquidity position gives us the flexibility we need to navigate this challenging period while maintaining our focus on the factors that will drive long-term performance for our business, our physician partners and our shareholders.

In conjunction with the announcement of agilon's leadership change and the evaluation of additional actions to optimize our business as well as continued execution of ongoing initiatives and market uncertainty, which may impact future results, we have made the decision to withdraw our previously issued full year 2025 financial guidance and related assumptions.

In summary, we are extremely focused on improving the near-term profitability of the business that will allow us to drive growth in 2026. Our actions include improving contract economics and bid visibility with payers, continuing to enhance our data platform and burden of illness program, removing variability in the business by reducing exposure to items we don't control, focus on expansion of quality programs that are aligned with our execution and continued cost discipline and capital allocation to strengthen our balance sheet.

Moreover, with a positive rate environment in 2026, continued execution on our clinical and quality initiatives, and improved burden of illness performance, we believe we will significantly enhance profitability in 2026 and beyond.

Finally, I want to thank our employees and our physician partners who have been working tirelessly to navigate these challenges with us. Our people are the foundation of our success and are key to our ability to execute our plan and strategic priorities. To reiterate what we have outlined today, this is a marked pace of change from how we executed the business previously.

With that, operator, let's move to the Q&A portion of the call.

[Operator Instructions] Our first question is from Elizabeth Anderson with Evercore.

I guess a couple of things that has come up. Like one, I just want to understand, just maybe I missed it, so apologies about the -- you're saying that you might have a positive PYD in 3Q. So I just want to clarify that.

And then two, like is there something that you changed about the growth rate going into 2026 in terms of adding new practices or sort of allowing new members until you sort of have the cost trends more in a stable place? Or do you believe that based on what you just said on the 2020 -- on your 2026 outlook, does that sort of continue along the same dynamic?

Yes. Elizabeth, this is Jeff. Thanks for the question. I guess the first thing I would do is point you to the presentation that we've published today that in connection with our earnings, in that presentation, you'll find a bridge from the prior midpoint of the guidance of the medical margin, roughly $60 million, and bridging that to the actual results for the quarter.

And I guess the first thing that I would start out with is, I would say, generally, medical cost trends were in line with our expectations and the cost trends for the first half were roughly around 6%. And then as far as development is concerned, we had a small amount of favorable development on quality programs, roughly $3 million.

I would say the most significant pieces of development were unfavorable. The first is related to the risk adjustment, which we covered in the prepared remarks, $37 million. We do have $13 million of negative development with Part D. That's related to a payer that agreed to carve that out in 2025. So that issue does not go forward. And then $20 million of negative development for exited markets. So again, that development will also not carry forward as well.

So I guess that's how I would frame the negative development. There are two components which aren't really continuing with the business going forward. And then the 2024 risk adjustment that has a, I would say, a step off impact on 2025.

Second, as far as the growth rate is concerned, I think, listen, we're focused on the near-term changes to the business to improve profitability. And I would say 2026 growth is under review. We're going to be highly selective on future growth given the performance of the business. And ultimately, we're looking to improve profitability here in the near term.

Our next question is from Jailendra Singh with Truist.

This is Eduardo Ron on for Jailendra. On cost trends in the quarter, I mean, you said it was 6% for first half. I guess can you break down how those trends develop sequentially from Q1 to Q2 and perhaps what information you might have on July at this point? I guess we'd also be curious if those trends were consistent across your markets and cohorts or if there were anything specific to call out.

Yes. Thanks, Eduardo. I would say the first thing is we had 6% accrued for Q1 cost trends. And at this point in time, that's roughly 85% -- the mid-80s percent complete, roughly around 85% complete. So we feel pretty good about cost trends in Q1.

Q2, you know our data model here, we are on a little bit of a delay. So we don't have a lot of paid data. But generally, what we're seeing is consistent cost trends with Q1. And as far as July is concerned, that would be our least complete month. So I wouldn't really be able to comment on kind of cost trends in July. Obviously, we get a new batch of data here coming this week. But I guess that would be my framing.

I think the first thing that I would say just generally is the cost trends for us development on the medical cost line hasn't been that significant this year from 2024 or from Q1 of 2025. And recall, last year, we made substantial changes to our reserving methodology in the third quarter. That was on the old data model. Now we have those changes that are on the new data model, which has provided, I would say, a higher level of confidence in our reserve estimation.

Great. Maybe if I could just squeeze one more in there. Just on the top line risk adjustment estimate for the 72% of membership. Was that pretty consistent across the board? I'm just trying to figure out why you guys didn't make the additional adjustment on the 28%. Maybe the 72%, it was one payer that had the information which caused the adjustment? Or just trying to see what the variability was that you didn't extrapolate.

Yes, yes. Good call out here. I'll get to that at the end of my comments, but let me just start out with a couple of things on risk adjustment. First, I just want to be clear that ultimately, we are generating, I would say, positive risk adjustment lift both in 2024 and in 2025, really over and above the impact of v28.

I think if you look at the slides that we published today, 2024 net risk adjustment lift is roughly around 1.2%. And if you account for the step-off change, '25 would also be positive after the impact of v28 as well.

And so the issue with '24 is we had an estimate at the end of the year for the midyear to final sweeps that was based on history, based on our historical experience that we've seen by payer in the past, those came in a little bit lighter than we anticipated, obviously, that lower baseline impacts the jumping off point for 2025. And so therefore, we had to change that as well.

I would say the enhanced data pipeline is important here. We have visibility that we did not have a year ago today. And we can calculate member-level risk scores. And as I mentioned in my prepared remarks, there's a high correlation between the data pipeline and some of the midyears we've received. We've received a couple of mid-years from some of our larger payers. But for the vast majority, we haven't.

And here's where I'll get to your question. So the remaining 28% of members, we really don't have any information available because we didn't get the midyear files, and we ultimately won't receive those, until we get later in the third quarter.

I would say we made a lot of changes to the BOI program last year, including updated clinical guidelines, enhanced provider education, the introduction of third-party technology partners to enhance our data and strengthen our ability to identify potential health conditions for our members. But it's a long-cycle business, and we really won't see the value of these changes until 2026.

Early information from the enhanced data pipeline is promising and indicates improvements are working. But again, it's early. But the data pipeline is a massive step forward in providing more accurate information on risk adjustment throughout the year. And as we think about our budget heading into 2026, ultimately, we will use this new process.

And lastly, to your point, I would say there was variability, significant variability by payer, which is why we just didn't extrapolate those dollars. We're ultimately waiting for that information to come in the third quarter.

Our next question is from Daniel Grosslight with Citi.

This is Luis on for Daniel Grosslight. I just had a question on the -- if you are able to give commentary on the 2026 cost given the headwinds, that is still expected to come in at [ 30,000 to 35,000 ] members. And I'm assuming these would be under the glidepath strategy still, correct?

Yes. I'll cover, I guess, both pieces. So first as far as -- we said we were going to have 20,000 glidepath members this year, effectively no downside risk. We are not at that number at the end of Q2. Ultimately, we're still working on economic terms with some of them. And ultimately, if we can't get to those, then they won't show up, which is fine.

I would say I commented earlier about 2026 growth. Again, we're focused on improving profitability in the near term, and that growth, I would say, is under review, and we're going to be highly selective on future growth given where the business is performing.

Our next question is from Justin Lake with Wolfe Research.

Jeff, I heard you talk about 2026 bids and getting clarity there. First, any insight that you can share with us in terms of how you think the bidding looks for your kind of book of business for 2026? Are you expecting a lot of help there?

Yes, Justin, thanks for the commentary. Obviously, it's early and we don't really get the full bid detail until later in the year, but we've been working closely with our payer partners, Justin. And I guess what I would say is the information that we're exchanging back and forth is consistent with the payers' public commentary. I think some have commented a little bit differently than others, but I would say generally, it's pretty consistent that payers are looking for improved economics as they head into 2026.

And is Humana still your biggest payer?

That's a good question. I'd have to look at the 10-Q. We disclosed that information, I think, payer A, B, C, that's disclosed in the filing. So it's not specific, and we're not going to get specific on the call. Certainly, they are one of our larger payers, for sure.

Right. So publicly, they've said that they're not looking to cut benefits. They're going to cut SG&A and improved medical management to get to their margin targets. Just curious your view of that? Do you feel like that's something where you have to have a tough conversation and potentially walk away from membership? And it still didn't have to be about Humana, I doubt you want talk about that specifically.

But just in general, do you feel like you're going to have some of those conversations where you're going to say, look, we're either handing you back the members, here you go, or we're going to see real economic improvement? And when would you be able to share that with us?

Yes. I would say, Justin, those conversations are going on right now, but ultimately, it depends on their final bid. And so as you think about how we negotiate with our payers, we don't conclude our negotiations until we get the full detail. And we can see what we believe those bids are going to do to our economics and our performance in those markets.

And I would say you're absolutely correct. If ultimately, we don't see a situation that provides the economics that we believe are prudent for our business, then yes, we may not do a deal with that payer.

Now if you remember our model, right, we have long-standing relationships with the primary care physicians who have had more than 10-year plus relationships with their members. And so generally, that doesn't mean the member leaves the agilon ecosystem, it may mean that they're just enrolled with another payer.

Our next question is from Ryan Langston with TD Cowen.

Just two things for me. I guess, on the CEO search, I guess, can you give us a sense on kind of what you're looking for in the next CEO? And how should we think about potential partnership exits from here? I guess, with some of the updates that you've kind of laid out here, are there now maybe some partners that just aren't looking as attractive as they would have historically?

I would speak to the CEO search. And first, I would say that we think that given the potential of the business, this would be a very attractive platform for a CEO who is committed to the vision that we have, which is we want someone who really has multi-market management capability, experience in working with primary care physicians as we have these very large independent groups that we have long-standing relationships with, really understands the payer world and most importantly, brings the kind of operating rigor and diligence and focus and alignment that we think is necessary to achieve success in the business. So that's kind of the broad outline that we're looking for.

Yes. Ryan, this is Jeff. I'll just comment on, there's no immediate plans to exit anything right now. But our job is to continuously evaluate the profitability of our business based on payer dynamics, the macro rate environment, cost trends, everything together, and look at those economics on a going forward basis. And so that's what we'll do.

Our next question is from Matt Shea with Needham.

How about slight favorably in the quarter from quality incentives, can you just elaborate on that? Maybe how durable of a benefit do you anticipate that to be in the back half of this year?

And then as you think about the renewal process, talked about going after more quality incentives, what has payer willingness been like to include more of those quality incentives in your contract? Or just how are you thinking about how much opportunity there is to add within your contracts for next year?

Yes, yes, real quick, small amount of favorability here in quality, which is good, really related to our performance in 2024. So I think -- listen, we have a strong quality program. I think that's one of the important values that we deliver to our payer partners is high quality scores. I think if you look at our year 2 plus markets, we are at or above 4.25 stars. So it's really been a strength for us.

And again, I guess I come back to the we want to get paid for how we perform. And I think payers, given some of their own quality challenges, are more willing than ever to put dollars at risk in these quality programs. And so we saw that this year, which is a step-up in dollars available if you earn those quality scores. And I think payers are even more willing to pay for higher level of performance, which is really good for us and really plays to the strength of our model.

So I think that's where payers, where they're coming from now. So I do expect those dollars to increase from '25 to '26, how much, we'll have to see, but I do think it's a mutually agreed upon set of metrics that we can really drive value that ultimately produces economics for the payer and for us.

Our next question is from Craig Jones with Bank of America.

So maybe to follow up on the quality incentives. Let's say you weren't able to get that installed in all of the -- obviously, you only have 50% up for renewal this year, but over the next few years, as you renegotiate all these contracts, if you're able to get those quality incentives into the contracts across 100% of your membership, how much potential margin could there be from getting those installed?

Yes. I would say we already have a lot of these programs in the majority of our contracts today with payers. I think the difference is the dollars are escalating because I mean you know this publicly a lot of the public payers have had challenges in quality specifically, which has cost them a lot of returns.

And so ultimately, they're putting more dollars here in order to, I would say, incentivize performance and outperformance. So this isn't new, the quality metrics have already been there. I would say the difference is the dollars are escalating, which actually plays into our strength.

Our next question is from Jack Slevin with Jefferies.

I just want to follow up on Justin here, just to make sure I got the timing of this right. So it sounds like to me, and please, Ron or Jeff jump in if this is incorrect, but it sounds like the main pillars of what needs to improve to affect the turnaround are sort of still in place and you're working towards them.

But that as we think about further market, on sort of either market exits or really looking at the portfolio and making a decision about what's the right sizing of it or what's the right version of to go with, that's going to come later in the year and bids are the most important piece there. Do I have that right?

Yes. Yes. I guess what I would say is I think some of the -- the majority of the levers that we're pulling in the business are certainly the same. I think the point that Ron and we're trying to make is the business really has to operate differently from an urgency and action perspective.

We really need to reduce the time from evaluating performance to action. I think the data model and the progression of the data model has been an important piece of that, where we are now tying financial outcome back to operational metrics, which is pushing the business forward.

Certainly, looking at our operating cost is something we're always doing, but I would say we're taking an enhanced view here. But ultimately, yes, payer economics is a big component besides all of the other, I would say, macro changes that you guys are aware about. For example, the final rates for next year. So all of these changes kind of come together. But yes, payer bidding is a large component.

Yes. The point I would add is that if you look at our population, the Medicare Advantage population, you look at the top chronic diseases that are affecting them and with the aging population, there is an enormous unmet medical need, undiagnosed medical need in that population.

And so doing a better job there will result in more revenue as a result of doing a good job of taking care of seniors through the total care model that we have. The tools we've put in place support the physicians and give them the ability to enhance their care delivery to that population. And that represents, I think, an important source of value for us and for our physician partners.

Got it. Really helpful. If I can just squeeze in a follow-up. Any details you can give on ACO REACH performance in the quarter? And if that is still tracking to, I think, $35 million to $40 million of EBITDA contribution on the full year?

Yes. Certainly, we're not providing the guide, but I would say REACH performance was in line with our expectations, and so it's been a strong performer for us, and it continues to do so.

Our next question is from George Hill with Deutsche Bank.

One thing on the impact as it relates to the 72% of your book that you guys have the data from the new model on, do you feel like it's safe to extrapolate that to the balance of the book? Or is there a reason why that would be less or that would be more?

And then my next question would just be, is it too early to talk about magnitude of earnings performance improvement in 2026? Or do we really just need to see more there? I guess we're just trying to figure out if the earnings improvement is in like basis points or percentage points.

Yes. The first thing is, I mean, there's a reason -- and I think we talked about this a little earlier, there's a reason why we didn't extrapolate and record and it's because there was variability among payers related to this adjustment, right? So for the payers that we do not have the data for, we're just really waiting for that information.

So I think we've provided you enough here to do whatever you want with that number, I would say, but that's ultimately the adjustment we recorded in the quarter. And we're not really providing a 2025 guide sitting here today. But as you know, there are a lot of things that are happening in 2026.

And first and foremost is we're really -- the final rate notice was a good start, positive impact on our results or it would have a positive impact on our margin spread as you head into next year if you assume cost trends are roughly in line with what we've seen in the first half, which is roughly 6%.

Again, our historical performance and risk adjustment and the actions we're taking with the enhanced data pipeline, we would anticipate a benefit of that from risk adjustment in 2026. I think for 2025 and 2024, we do have a net lift after the impact of v28. So we do think that would be a positive.

Again contracting, 50% of our contracts for 2026 are open for renewal and we're looking for improved economic terms. We continue to focus on carving out Part D this year, it's below 30%. And where we have Part D risk, we've made progress on that, not quite final, but we do think we'll be able to bring that down heading to next year.

Payer bids, we had a little bit of a discussion here today about that. But generally, I would say, stable to favorable commentary if you take the broad brush of payers, and ultimately, lower supplemental benefit underwriting risk due to decreased supplemental benefits and payers have agreed to provide us more information.

Again, we have operating expense optimization that we're working on heading into next year. And then you have the big question mark, which is what our medical cost trends. So I think the things that will impact us in 2026 are similar to what they were before. I think our focus on execution and discipline for the remainder of this year would only add to that.

Our next question is from Andrew Mok with Barclays.

A couple of questions. First, you commented that the burden of illness assessments done last year did not yield the risk adjustment revenue you estimated for '24 and '25. Can you be more specific on the drivers of that downward revision? Did you not have the documentation necessary to support the diagnosis codes or were codes rejected by CMS? Any additional color there will be helpful.

And then secondly, I think you noted a 6% cost trend in the first half of the year and said that was in line. But I thought your full year cost trend previously was 5.3%. So can you clarify your comments there?

Yes, I'll handle the cost trend one first. You are correct. Our previous guidance was 5.3%, but we didn't necessarily lay that out by quarter. What I would say is for the first half of the year, the cost trends were in line with our expectations, and that is kind of as far as I'll go on that.

I would say, as you think about 2024 risk adjustment performance, I think what we're trying to say is, is that we didn't do as good a job of identifying the conditions that our patients had and then enrolling them into the appropriate care. I don't think this is a codes got rejected by CMS or anything of that nature.

It goes back to, I would say, we started up some of these new clinical programs really to attack the disease burden of our existing patient population, and really get them to the care that they need to reduce the burden of illness and ultimately have better health outcomes and lower overall costs.

So I think that's really what we're talking about. We've talked about new programs that we've implemented either late last year or this year, specific to heart failure, COPD, dementia. I think these are clinical pathways that we have here that ultimately will serve to identify these conditions where patients have those and treat that accordingly.

Our next question is from David Larsen with BTIG.

This is Jenny on for Dave. So just more on the cost trend. It's good to hear that it was fairly in line with your own expectations and year-over-year. Just any more details on what you're seeing in that cost trend would be very helpful. Any pockets where the utilization or costs are higher, specifically if there are any.

Yes, yes. I would say for the first quarter, specifically, we have a high percentage of paid claims there. I guess what I would say it continues to be inpatient costs and Part B as in Boy drugs and specific to oncology. So that's been a consistent theme for us exiting last year and into the first quarter of this year. So we -- that's really the pressure points that I would highlight.

Our next question is from Lance Wilkes with Bernstein.

Could you talk a little to the practice partnerships and your tactics and strategies for maintaining stability there? And in particular, if you could talk to concentration kind of in line with payer concentration, but thinking about the partnerships the other medical expenses in the quarter and maybe how it varied from prior period and then the loans shifting to prepaid expenses. And just part of your talent and management process, can you kind of talk about who's on point or what the process is for managing those practice relationships?

Yes. I would maybe start with practice partnerships, we're structured in a way where the partners that we have in those markets are primary care groups predominantly that have been in that market for quite some time they are often one of the largest, if not the largest primary care practices in that group.

We have long-term arrangements with them, and they understand, we think, the cyclical nature of the business, and the fact that we are focused on clinical pathway improvement and evidence-based elimination of variability, I think, deepens the relationship that we have with them.

Because what they care about at the front line is really delivering quality care to people. And clearly, there's always an economic component to that, and that's why we're tackling all the things that Jeff has talked about.

But the model is that there's a market president who works with the group on a regular basis. They're in the market. There's a medical director who supports them and works with the medical directors and our partners. And so that's overall kind of the general model that we have to work with our partners.

Yes. And Lance, your second question on other medical expense, that's just the function of calculating the partner share calculations. It's on a partner-by-partner basis. And so that's the variability you're seeing there.

Our next question is from Lisa Gill with JPMorgan.

Jeff, can you maybe just talk about your cash balances? And do you have enough cash to get you through to '26 and the potential turnaround? I noted in the press release you only talked about the associated unconsolidated ACO model, not the rest of your cash balances.

Yes, yes. Thanks for the question. So on the balance sheet, we ended the quarter with $327 million in cash and marketable securities. And as you mentioned, $176 million of off-balance sheet cash held by our ACO entities. That number, the $176 million for ACOs is higher than normal because we have payments in the next couple of quarters that, ultimately, we think will bring that number down to about $40 million. That's consistent with what -- how the cash flow and the ACO program works.

We believe our current liquidity position gives us the flexibility we need to navigate the challenging environment and focus really on improving the short- and long-term performance of the business. And at a minimum, I would say we're confident that we have enough cash to get through '26, and this excludes any actions we're taking to improve cash flow in the near term.

Looks like there are no more questions. So I'll pass the call back over to the management team for closing...

Well, thank you for your time today, especially on short notice. We look forward to continuing our dialogue with analysts and investors as we advance the performance improving steps we've outlined today, and we look forward to introducing you to agilon's new CEO when we have completed that search.

To our employees and partners who may be listening in, we also want to thank you for your dedication, your partnership. You're playing a crucial role in the health care industry, helping to transform health care for seniors by empowering primary care physicians to focus on the entire health of their patients. We will continue to fulfill this mission together. Thank you. Have a good evening.

That concludes the conference call. Thank you for your participation. Enjoy the rest of your day.