Q2 2024 Agilon Health Inc Earnings Call

Unknown Executive: Hello, and welcome to the Agilon Health Second Course at 2024 Earnings Conference.

Hello, and welcome to the actual on health second quarter 2024 earnings Conference. My name is I think it is and I'll be coordinating a cold spring.

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Leland Thomas: Oh, now I like to hand it to Leland Thomas; please go ahead.

Speaker Change: I'd like to hand over to Thomas <unk>. Please go ahead.

Leland Thomas: Thank you, operator. Good afternoon, and welcome to the call. With me is our CEO, Steve Sell, and our CFO, Jeff Schwaneke. Following our prepared remarks, we will conduct a Q&A session. Before we begin, I'd like to remind you that our remarks and responses to questions may include forward-looking statements. However, 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.

Leland Thomas: Thank you, operator. Good afternoon, and welcome to the call. With me is our CEO, Steve Sell, and our CFO, Jeff Swannicky, following our prepared remarks. We will conduct a Q&A session before we begin. I'd like to remind you that our remarks and responses to questions may include forward-looking statements. Actual results made different 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 obligations to update any forward-looking statements.

Speaker Change: Thank you operator, good afternoon, and welcome to the call with me is our CEO, Steve <unk> and our CFO, Jeff <unk>. Following our prepared remarks, we will conduct the Q&A session before we begin I'd like to remind you that our remarks and responses to questions may include forward looking statements.

Speaker Change: Actual results may differ materially from those stated or implied by forward looking statements due to risks and uncertainties associated with our business.

Speaker Change: These risks and uncertainties are discussed in our SEC filings. Please note that we assume no obligations to update any forward looking statements.

Leland Thomas: Please note that we assume no obligation to update any forward-looking statement. 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 8K filed with the SEC. And with that, I will turn things over to Steve. Thanks, Lisa.

Leland Thomas: 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 for these non-gap financial measures to the most comparable gap measures are available in the earnings press release and form a K filed with the SEC.

Speaker Change: Additionally, certain financial measures, we will discuss on this call are non-GAAP financial measures.

Speaker Change: 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.

Steve: A reconciliation for these non-GAAP financial measures to the most comparable GAAP measures are available in the earnings press release and form 8-K filed with the SEC and with that let me turn things over to Steve.

Steve Sell: And with that, let me turn things over to Steve.

Steve Sell: Thanks Leland. Good afternoon, and thank you for joining us. On today's call, I would like to walk you through the following elements: our Q2 results and forward guidance, including our latest outlook on utilization. The tangible and rapid progress we are making against our performance action plan and important context around a series of recent organizational changes within our company. Turning to our second quarter results. MA membership grew 38% year over year to 513,000 members, and MA revenue grew 39% to $1.5 billion.

Steve Sell: Thanks, Leland.

Steve: Thanks, Leland good afternoon, and thank you for joining us.

Steve Sell: Good afternoon, and thank you for joining us. Today's call, I would like to walk you through the following elements. Our Q2 results and forward-looking statements. This is one of the most important questions we have ever heard from guidance, including our latest outlook on utilization. The tangible and rapid progress we are making against our performance action plan, and important context around a series of recent organizational changes within our company, turning to our second quarter results. MA membership grew 38% year-over-year to 513,000 members, and MA revenue grew 39% to $1.5 billion. These results were at the lower end of our guidance range, reflecting stronger than expected growth, offset by determination of select, unprofitable pay-or-group contracts, retroactive to January 1st.

Steve Sell: These results were at the lower end of our guidance range, reflecting stronger than expected growth, offset by the termination of select, unprofitable payer group contracts retroactive to January 1st, versus our previously communicated forecast of termination dates at the end of the second quarter. As a result of our strong core membership growth, we are raising our full year membership guidance to a midpoint of 519,000 members while modestly lowering our full year revenue guidance due to a series of factors, including the retroactive contract termination.

Steve: Today's call I would like to walk you through the following elements, our Q2 results and forward guidance, including our latest outlook on utilization.

Steve: The tangible and rapid progress, we are making against our performance action plan.

Steve: And important context around a series of recent organizational changes within our company.

Steve Sell: The second quarter medical margin was $106 million, which translates to $69 per member per month and 7.1% of revenue. These amounts were in line or slightly below the midpoint of our guidance range, partially due to our decision to book a higher 7.3% Q2 cost trend versus our guidance of 6.8%. We continue to take a prudent posture on in-quarter cost trends until data and visibility prove otherwise. Year-to-date medical margin was $263 million. This amount also reflects the contract exits mentioned above.

Steve: Turning to our second quarter results.

Steve: Membership grew 38% year over year to 513000 members and MA revenue grew 39% to one 5 billion. These results were at the lower end of our guidance range, reflecting stronger than expected growth offset by the termination of select.

Steve: Unprofitable Payor group contracts retroactive to January one versus our previously communicated forecast of termination dates at the end of the second quarter.

Steve Sell: Versus our previously communicated forecast of termination dates at the end of the second quarter. As a result of our strong core membership growth, we are raising our full-year membership guides to a midpoint of 519,000 members, while modestly lowering our full-year revenue guidance due to a series of factors, including the retroactive contract terminations. The second quarter medical margin was $106 million, which translates to $69 per member per month in 7.1% of revenue. These amounts were in line or slightly below the midpoint of our guidance range, partially due to our decision to book a higher 7.3% Q2 cost trend versus our guidance of 6.8%.

Steve: As a result of our strong core membership growth, we are raising our full year membership guidance to a midpoint of 519000 members, while modestly lowering our full year revenue guidance due to a series of factors, including the retroactive contract terminations.

Steve: The second quarter medical margin was $106 million, which.

Steve: Which translates to six to $9 per member per month, and seven 1% of revenue. These amounts were in line or slightly below the midpoint of our guidance range, partially due to our decision to book a higher seven 3% Q2 cost trend versus our guidance of six 8%.

Jeff Schwaneke: We continue to take a prudent posture on in-quarter cost trends until data invisibility proves otherwise. Year-to-date medical margin was $263 million. This amount also reflects the contract exits mentioned above. We are maintaining our full-year medical margin guidance at $400 to $450 million, but expect to be toward the lower end of this range. As lower revenue will partially be offset by several factors, including higher volume and better pay-or-arrange. Management. Adjusted EBITDA for the second quarter was minus $3 million, putting it at the high end of our guidance range. Largely due to lower operations costs and some timing differences on new partner incentive payments, offset by slightly lower MA medical margins.

Steve: We continue to take a prudent posture on in quarter cost trends until data and visibility prove otherwise.

Year to date medical margin was $263 million. This amount also reflects the contract exits mentioned above.

Steve Sell: We are maintaining our full-year medical margin guidance at 400 to $450 million but expect to be towards the lower end of this range, as lower revenue will partially be offset by several factors, including higher volume and better payer arrangements. Adjusted EBITDA for the second quarter was minus $3 million, putting it at the high end of our guidance range, largely due to lower operating costs and some timing differences on new partner incentive payments offset by slightly lower MA medical margins. On a year-to-date basis, adjusted EBITDA was $26 million.

Steve: We are maintaining our full year medical margin guidance at $400 million to $450 million, but expect to be towards the lower end of this range is lower revenue will partially be offset by several factors, including higher volume and better payer arrangements.

Steve: Adjusted EBITDA for the second quarter was minus $3 million putting.

Steve: Putting it at the high end of our guidance range, largely due to lower operations costs and some timing differences on new partner incentive payments offset by slightly lower MA medical margins.

Jeff Schwaneke: On a year-to-day basis, adjusted EBITDA was $26 million. For the full year, we are maintaining our adjusted EBITDA guidance range, reflecting lower MA medical margins, offset by better overall market entry costs. Our Q2 results and guidance for the rest of the year assumes that medical cost trends remain at elevated levels, with Part B drugs and inpatient medical admissions being the principal driver. Paid claims data for our largest national payers, which are relatively complete through April, indicates that cost trends for the first quarter have restated favorably and moderated further through the second quarter, although we have recorded a slightly higher Q2 cost trend relative to our prior guidance.

Steve: On a year to date basis, adjusted EBITDA was $26 million.

Steve Sell: For the full year, we are maintaining our adjusted EBITDA guidance range, reflecting lower MA medical margins, offset by better overall market entry costs. Our Q2 results and guidance for the rest of the year assume that medical cost trends remain at elevated levels, with Part B drugs and inpatient medical admissions being the principal drivers. Paid claims data for our largest national payers, which are relatively complete through April, indicate that cost trends for the first quarter have receded favorably and moderated further through the second quarter, although we have recorded a slightly higher Q2 cost trend relative to our prior guidance.

Steve: For the full year, we are maintaining our adjusted EBITDA guidance range, reflecting lower Emma medical margins offset by better overall market entry costs.

Steve: Our Q2 results and guidance for the rest of the year assumes that medical cost trends remain at elevated levels with part D drugs and inpatient medical admissions being the principal driver pay.

Steve: Paid claims data for our largest national Payors, which are relatively complete through April indicate the cost trends for the first quarter have receded favorably and moderated further through the second quarter. Although we have recorded a slightly higher Q2 cost trend relative to our prior guidance.

Steve Sell: This decline in trend line from Q1 to Q2 is also consistent with our real-time indicators, including our expanded use of pay or census data, which indicates that inpatient utilization was down quarter to quarter, with some intra-quarter variability. We'll leave indicators are early. We view these data points as encouraging, relative to where we book Q2 and our guidance trend assumptions.

Steve Sell: This decline in the trend line from Q1 to Q2 is also consistent with our real-time indicators, including our expanded use of payer census data, which indicates that inpatient utilization was down quarter to quarter with some intra-quarter variability. However, these indicators are early.

Steve: This decline in trend line from Q1 to Q2 is also consistent with our real time indicators, including our expanded use of payer census data, which indicates that inpatient utilization was down quarter to quarter with some intra quarter variability.

Steve Sell: We view these data points as encouraging relative to where we book Q2 and our guidance trend assumption. Turning to our performance action plan, we are making tangible progress executing our plan, which positions us to accelerate performance and profitability. As a reminder, our plan includes the following four elements.

Steve: While these indicators are early we view these data points is encouraging relative to where we both Q2 and our guidance trend assumptions.

Steve Sell: Turning to our performance action plan, we are making tangible progress executing our plan, which positions us to accelerate performance and profitability. As a reminder, our plan includes the following four elements. One, refining our strong-patter relationships. Two, increasing the engagement of our primary care doctors to narrow variability. Three, improving data visibility and analytics. And four, accelerating our operating efficiency. Let me provide a few updates. Starting with our payer relationships. I have discussed on our last call, our physician partnerships are critically important to payers as a key part of their network and value-based care strategies. Ongoing changes in the environment continue to drive productive discussions with health plans reflected in our year-to-date results and second-half forecast.

Steve: Turning to our performance action plan, we are making tangible progress executing our plan, which positions us to accelerate performance and profitability.

Steve: As a reminder, our plan includes the following four elements.

Steve Sell: One, refining our strong payer relationships. Two, increasing the engagement of our primary care doctors to narrow variability. Three, improving data visibility and analytics. And four, accelerating our operating efficiency. Let me provide a few examples, starting with our payer relations.

Steve: One refining our strong payer relationships to increasing the engagement of our primary care doctors to narrow variability three improving data visibility and analytics and for accelerating our operating efficiency. Let me provide a few updates starting with our payer relationships as disk.

Steve Sell: As discussed on our last call, our physician partnerships are critically important to payers as a key part of their network and value-based care strategy. Ongoing changes in the environment continue to drive productive discussions with health plans, as reflected in our year-to-date results and second half forecast. These discussions include off-cycle percentage of premium rate increases to reflect higher costs from payer bids and macro utilization in year 2024, as well as relief for payer specific issues. And three, exiting unprofitable MA contracts.

Speaker Change: <unk> on our last call our physician partnerships are critically important to payers as a key part of their network and value based care strategies.

Steve: Ongoing changes in the environment continue to drive productive discussions with health plans reflected in our year to date results in the second half forecast.

Steve Sell: These discussions include off-cycle percentage of premium rate increases to reflect higher costs from payer bids and macro utilization. In year 2024, relief for payer-specific issues. And three, exiting unprofessional MA contract. As previously discussed, each health plan contract change has been and will be made in close collaboration with our local physician partners. Most of our discussions with health plans have focused on 2025, specifically the scope and magnitude of our 2025 risk arrangements and the payer's respective bid filing. These discussions continue, and the next few months will be a critical period for firming up our network payer and product next for the coming year.

Steve: These discussions include off cycle percentage of premium rate increases to reflect higher costs from payer bids and macro utilization.

Steve: In year 2020 for relief for payer specific issues and three exiting unprofitable contracts as previously discussed each health plan contract change has been and will be made in close collaboration with our local physician partners.

Steve Sell: As previously discussed, each health plan contract change has been and will be made in close collaboration with our local physician partner. Most of our discussions with health plans have focused on 2025, specifically the scope and magnitude of our 2025 risk arrangements and the payers' respective bid filing. These discussions continue, and the next few months will be a critical period for firming up our network payer and product mix for the coming year.

Steve: Most of our discussions with health plans that focused on 2025, specifically the scope and magnitude of our 2025 risk arrangements.

Steve: And the payers respective bid filings these.

Steve: These discussions continue in the next few months will be a critical period for firming up our network payer and product mix for the coming year.

Steve Sell: Turning to our work with our physician partners to reduce PCP variability in delivering care. Director. We have made great progress in educating and supporting PCPs and caring for their highest risk patients across 20 plus markets and approximately 75% of our primary care doctors. We have initiated an active panel review with the local medical director and care team helping each PCP one understand and benchmark their performance in our total care model to create clear action plans for their highest risk patients, which drives 50% of our overall spend and three identifying any operational issues that may be inhibiting performance.

Steve Sell: Turning to our work with our physician partners to reduce PCP variability in delivering care, we have made great progress in educating and supporting PCPs in caring for their highest-risk patients across 20 plus markets and approximately 75% of our primary care doctors. We have initiated an active panel review with the local medical director and care team, helping each PCP, one, understand and benchmark their performance in our total care model, two, create clear action plans for their highest-risk patients, which drive 50% of our overall spend, and three, identify any operational issues that may be inhibiting performance.

Steve: Turning to our work with our physician partners to reduce PCP variability and delivering care. We have made great progress in educating and supporting pcp's and carrying for their highest risk patients across 20, plus markets and approximately 75% of our primary care doctors, we have initiated.

Speaker Change: Active panel review with local medical director and care team, helping each PCP, one understand and benchmark their performance and our total care model to create clear action plans for their highest risk patients, which drive 50% of our overall spend.

Speaker Change: And three identify any operational issues that may be inhibiting performance.

Steve Sell: The early results from our scaled markets that have implemented this process are encouraging. We are seeing an 8% average reduction in ER and hospital admin events for high risk patients when we compare January and February to May of this year. By comparison, markets that have not implemented this process are seeing no change in admin events for their high-risk patients. To accelerate and further support this process, we have invested in adding executive medical director positions to guide our local medical directors and have filled these positions from experienced primary care leaders in our network. Well, it is very early in both the execution and measurement of this focused PCP activity.

Steve Sell: The early results from our scaled markets that have implemented this process are encouraging. We are seeing an 8% average reduction in ER and hospital admin events for high-risk patients when we compare January and February to May of this year. By comparison, markets that have not implemented this process are seeing no change in administrative events for their high-risk patients.

Speaker Change: The early results from our scaled markets that have implemented this process are encouraging.

Speaker Change: We are seeing an 8% average reduction in ER and hospital admin events for high risk patients. When we compare January and February to May of this year by comparison markets that have not implemented. This process are seeing no change in adverse events for their high risk patients.

Steve Sell: To accelerate and further support this process, we have invested in adding executive medical director positions to guide our local medical directors and have filled these positions with experienced primary care leaders in our network. However, it is very early in both the execution and measurement of this focused PCP activity. The results reinforce the potential of Agilon's network of engaged, informed, and appropriately supported primary care doctors to deliver differentiated cost and quality results for senior high-risk patients.

Speaker Change: To accelerate and further support this process, we have invested in adding executive medical director positions to guide our local medical directors and have filled these positions from experienced primary care leaders in our network.

Steve: While it is very early in both the execution and measurement of this focused PCP activity.

Steve Sell: The results reinforce the potential of Agilom's network of engaged, informed, and appropriately supported primary care doctors to deliver differentiated cost and quality results for senior high-risk patients. Turning to data visibility and analytics, we are continuing our financial data pipeline implementation and have approximately 75% of our total lives onboarded. We remain on track to onboard the remaining balance of member data as we move through the third quarter in full year. This quarter, we also moved all partner administrative data into our new data lake. This combined health plans and partner data visibility is a vital component of our cost and quality management strategy.

Speaker Change: The results reinforce the potential of <unk> network of engaged informed and appropriately supportive primary care doctors to deliver differentiated costs and quality results for senior high risk patients.

Steve Sell: Turning to data visibility and analytics, we are continuing our financial data pipeline implementation and have approximately 75% of our total lives onboarded. We remain on track to onboard the remaining balance of member data as we move through the third quarter and full year. This quarter, we also moved all partner administrative data into our new data lake. This combined health plan and partner data visibility is a vital component of our cost and quality management strategy.

Speaker Change: Turning to data visibility and analytics, we are continuing our financial data pipeline implementation and have approximately 75% of our total lives on imported.

Speaker Change: We remain on track to onboard the remaining balance of member data as we move through the third quarter and full year. This quarter. We also moved all partner administrative data into our new data Lake.

Speaker Change: This combined health plan and partner data visibility is a vital component of our cost and quality management strategy since our data pipeline enabled internal teams to process and analyze medical cost trends in detail by payer and service category faster.

Steve Sell: Since our data pipeline enables internal teams to process and analyze medical cost trends in detail by payer and service category faster. With this increased visibility, longitudinal analyses of performance such as disease-day cohort masterration and patient complexity inform PCPs to deliver differentiated cost and quality results for their high-risk patients. Similarly, our finance teams have a more comprehensive payer level analysis of revenue, risk adjustment, medical expenses, and product mix, which allows us to better manage payer contracts and understand how payer decisions affect overall Agilom performance. We are pleased with this progress so far and expect to continue to refine how we incorporate this improved visibility into our clinical, operational, and financial functions.

Steve Sell: Since our data pipeline enables internal teams to process and analyze medical cost trends in detail by payer and service category quickly, with this increased visibility, longitudinal analyses of performance, such as disease state, cohort maturation, and patient complexity, inform PCPs to deliver differentiated cost and quality results for their high-risk patients.

Speaker Change: With this increased visibility longitudinal analyses of performance such as disease state cohort maturation and patient complexity informed PCP to deliver differentiated cost and quality results for their high risk patients. Similarly, our finance teams have a more comprehensive payer level enel.

Steve Sell: Similarly, our finance teams have a more comprehensive payer-level analysis of revenue, risk adjustment, medical expenses, and product mix, which allows us to better manage payer contracts and understand how payer decisions affect overall Agilon performance. We are pleased with this progress so far and expect to continue to refine how we incorporate this improved visibility into our clinical, operational, and financial functions. Finally, we have made significant strides through accelerated centralization and better use of technology to reduce our platform support to approximately 3% of revenues, reflecting a 110 basis point year over year improvement.

Speaker Change: Ounces of revenue risk adjustment medical expenses and product mix, which allows us to better manage payer contracts and understand how payer decisions affect overall agile on performance.

Speaker Change: We are pleased with this progress so far and expect to continue to refine how we incorporate this improved visibility into our clinical operational and financial functions.

Steve Sell: Finally, we have made significant strides through accelerated centralization and better use of technology to reduce our platform to support to approximately 3% of revenues. We are reflecting a 110 basis point year-over-year improve. Benjamin.

Speaker Change: Finally, we have made significant strides through accelerated centralization and better use of technology to reduce our platform to support to approximately 3% of revenues, reflecting a 110 basis point year over year improvement.

Steve Sell: On the organizational side, I am encouraged by the recent moves that had strengthened our team and positioned our network of position partners to further differentiate our performance in this dynamic environment. First, just over a month ago, we welcomed Jeff Schwaneke as our new CFO. Jeff brings a deep set of experience with and manage care and sent team former CFO and previously served on our board of directors. Just the positive impact on our management team and the broader organization is already being felt, and I am very appreciative that he is in the CFO chair. Similarly, on July 10th, we announced Dr. Karthik Rao as our Chief Medical Officer, co-leading our clinical strategy and overseeing network performance alongside Agilon's Chief Clinical Officer, Dr. Kevin Spencer.

Steve Sell: On the organizational side, I am encouraged by the recent moves that have strengthened our team and positioned our network of physician partners to further differentiate our performance in this dynamic environment. First, just over a month ago, we welcomed Jeff Schwaneke as our new CFO. Jeff brings a deep set of experience within managed care as Centene's former CFO and previously served on our board of directors. His positive impact on our management team and the broader organization is already being felt, and I am very appreciative that he is in the CFO chair.

Speaker Change: On the organizational side I am encouraged by the recent moves that have strengthened our team and positioned our network of physician partners to further differentiate our performance in this dynamic environment.

Jeff <unk>: First just over a month ago, we welcome Jeff <unk> as our new CFO.

Speaker Change: Jeff brings a deep set of experience within managed care as Centene former CFO and previously served on our board of directors just positive impact on our management team and the broader organization is already being felt and I am very appreciative that he is in the CFO chair.

Steve Sell: Similarly, on July 10, we announced Dr. Karthik Rao as our Chief Medical Officer, co-leading our clinical strategy and overseeing network performance alongside Agilon's Chief Clinical Officer, Dr. Kevin Spence. Together, Kevin and Karthik have revamped the critical roles of our regional and market medical directors and strengthened our system to provide information to each PCP on the identification and care management of their senior patients with a particular emphasis on their most complex patients This work sits at the heart of what differentiates us from our partner physicians.

Speaker Change: Similarly on July 10th we announced Dr. Karthik Rao as our Chief Medical Officer co, leading our clinical strategy and overseeing network performance alongside <unk>, Chief Clinical officer, Dr. Kevin Spencer together, Kevin and Karthik have revamped the critical roles of our regional and market.

Steve Sell: Together, Kevin and Karthik have revamped the critical roles of our regional and market medical directors and strengthened our system to provide information to each PCP on the identification and care management of their senior patients, with a particular emphasis on their most complex patients. This work fits at the heart of what differentiates our credibility with our partner physicians. Today, we announced in our 10-Q filing that Bureau decided our chief strategy and development officer will assume a new long-term strategic advisor role focused on future growth opportunities and payer strategies for the company. I am pleased we will continue to benefit from Bureau's deep understanding of our business model and commitment to our mission.

Speaker Change: Medical directors and strengthened our system to provide information to each PCP on the identification and care management of their senior patients with a particular emphasis on their most complex patients.

Speaker Change: This work sits at the heart of what differentiates our credibility with our partner physicians.

Steve Sell: Today, we announce in our 10-Q filing that Bureau Deci, our Chief Strategy and Development Officer, will assume a new long-term strategic advisor role focused on future growth opportunities and payer strategies for the company. I am pleased we will continue to benefit from his deep understanding of our business model and commitment to our mission. Given the importance of our health plan relationships and strategy execution, our payer team will now report directly to me. This team will be led by Sarah Mockover, a veteran senior leader within Agilon who has extensive experience in our business model and strong relationships with our payer partners.

Speaker Change: Today, we announced in our 10-Q filing that Bureau, Desai, our chief strategy and development Officer will assume a new long term strategic adviser role focused on future growth opportunities and payer strategies for the company I am pleased we will continue to benefit from Bureau, deep understanding of our business model.

Speaker Change: <unk> commitment to our mission.

Steve Sell: Given the importance of our health plan relationships and strategy execution, our payer team will now report directly to me. This team will be led by Sarah Mockover, a veteran senior leader with an Agilon who has extensive experience in our business model and strong relationships with our payer partners.

Speaker Change: Given the importance of our health plan relationships and strategy execution. Our payer team will now report directly to me. This team will be led by Sarah makeover of veteran senior leader with an agile on who has extensive experience in our business model and strong relationships with our payer partners.

Steve Sell: In closing, we are making continued progress towards our vision of enabling primary care doctors to transform the delivery of senior patient health care in their communities. The success we are seeing with payers and the higher than expected growth in both PCPs and senior patients on our platform are important indicators of the unique position we have established in the scaled management of full risk care across 13 states and 30 plus communities. While the environment for Medicare Advantage remains challenging in the near term, we remain disciplined in our focus to differentially managed controllable costs and receive equitable reimbursement, which is only strengthening our relative position to positions and health plans.

Jeff Schwaneke: In closing, we are making continued progress towards our vision of enabling primary care doctors to transform the delivery of senior patient health care in their community. The success we are seeing with payers and the higher than expected growth in both PCPs and senior patients on our platform are important indicators of the unique position we have established in the scaled management of full-risk care across 13 states and 30 plus communities. While the environment for Medicare Advantage remains challenging in the near term, we remain disciplined in our focus to differentially manage controllable costs and receive equitable reimbursement, which should only strengthen our relative position with physicians and health care. With that, I will turn the call over to Jeff.

Speaker Change: In closing, we are making continued progress towards our vision of enabling primary care doctors to transform the delivery of senior patient healthcare in their communities.

Speaker Change: The success, we are seeing with Payors and the higher than expected growth in both <unk> and senior patients on our platform are important indicators of the unique position. We have established in the scaled management of full risk care across 13 States and 30 plus communities, while the environment for Medicare advantage remains.

Speaker Change: <unk> in the near term.

Jeff: We remain disciplined in our focus to differentially manage controllable costs and receive equitable reimbursement, which has only strengthened our relative position to physicians and health plans with that let me turn the call over to Jeff.

Jeff Schwaneke: With that, let me turn the call over to Jeff.

Jeff Schwaneke: Thanks, Steve, and good afternoon. I'm glad to be here and in the CFO seat again and very excited to be at the company. Just a couple of thoughts before I dig into the financials for this quarter. Being involved in Agilon over the last two years as a director has solidified my belief in the Agilon model and how it is transforming health care for physicians and patients. As many of you know, I have significant experience in the payer space managing high-growth companies that assume risk. And I hope to bring that experience here.

Jeff Schwaneke: Thanks to you in a good afternoon. I'm glad to be here and being the CFOC again and very excited to be at the company. Just a couple of thoughts before I dig into the financials for this quarter. Being involved in Agilon over the last two years as a director solidified my belief in the Agilon model and how it is transforming health care for positions and patients. As many of you know, I have significant experience in the payer space managing high-growth companies that assume risk, and I hope to bring that experience here. My goal is to help Agilon continue to enable positions to transform health care in their communities as well as meet the high demand that exists for doing so.

Jeff: Thanks, Steve and good afternoon.

Jeff: Glad to be here and be in the CFO seat again and very excited to be at the company just a couple of thoughts before I dig into the financials for this quarter being.

Jeff: Being involved in <unk> over the last two years as a director solidified my belief in the agile model and how it is transforming healthcare for physicians and patients.

Jeff: As many of you know I have significant experience in the payer space managing high growth companies that assume risk and I hope to bring that experience here.

Jeff Schwaneke: My goal is to help Agilon continue to enable physicians to transform health care in their communities, as well as meet the high demand that exists for doing so. I've now been in this role for almost a month and have had the tremendous support of both Tim, who has remained with us in an advisory role, as well as Agilon's full finance team, which remains in place. During this time, as I am still new to the role, I will aim to answer all that I can but understand that I am getting up to speed each day. So I just want to thank you for your patience in advance as I become integrated with the team.

Jeff: My goal is to help Angela continue to enable physicians to transform health care in their communities as well as meet the high demand that exists for doing so.

Jeff Schwaneke: I've now been in this role for almost a month and have had the tremendous support of both 10, who has remained with us in an advisory role, as well as Agilon's full finance team, which remains in place.

Speaker Change: Now, but in this role for almost a month and have had the tremendous support of both 10, who has remained with us in an advisory role as well as agile owns full finance team, which remains in place.

Jeff Schwaneke: Davis. During this time, as I am still new to the role, I will aim to answer all that I can, but understand that I am getting up to speed each day. So I just want to thank you for your patience in advance as I become integrated with the team now for the financial details. Membership was approximately 513,000 members at the end of the second quarter, representing a year-over-year increase of 38%. Our quarter and membership growth would have been higher without the impact of the retroactive payer contracts, Steve mentioned earlier. The terminations were expected in mid-year; however, we agreed with the payer to retroactively terminate the contracts back to January 1 of 2024, given they had no effect on our medical margin for the six months.

Speaker Change: During this time as I'm still new to the role I will aim to answer all that I can.

Jeff: But understand that I am getting up to speed each day.

Jeff: So I just want to thank you for your patience in advance as they become integrated with the team now for the financial details membership was approximately 513000 members at the end of the second quarter, representing a year over year increase of 38% or.

Jeff Schwaneke: Now for the financial details. Membership was approximately 513,000 at the end of the second quarter, representing a year-over-year increase of 38%. Our quarter-end membership growth would have been higher without the impact of the retroactive payer contracts Steve mentioned earlier. The terminations were expected at mid-year, but we agreed with the payers to retroactively terminate the contracts back to January 1st of 2024, given they had no effect on our medical margin for the six months.

Jeff: Our quarter end membership growth would have been higher without the impact of the retroactive payer contracts Steve mentioned earlier.

Steve: The terminations were expected at mid year. However, we agreed with the payer to retroactively terminate the contracts back to January one 2024, given they had no effect on our medical margin for the six months. This reduced membership by 17000 members and reduced total revenues by $110 million compared to our guidance and had no.

Jeff Schwaneke: This reduced membership by 17,000 members and reduced total revenues by 110 million compared to our guidance and had no effect on medical margin during the second quarter. Total revenues during the quarter were 1.48 billion, representing a 39% increase over the second quarter of 2023. This growth was primarily driven by the class of 2024 markets and solid organic growth in our existing classes. Medical services expense increased to 1.37 billion compared to 933 million in the second quarter of last year. The 47% growth compared to last year was driven by the expansion of the 2024 class and higher utilization compared to the second quarter of last year.

Jeff Schwaneke: This reduced membership by 17,000 members and reduced total revenues by $110 million compared to our guidance and had no effect on medical margin during the second quarter. Total revenues during the quarter were $1.48 billion, representing a 39% increase over the second quarter of 2023. This growth was primarily driven by the Class of 2024 markets and solid organic growth in our existing classes. Medical services expense increased to $1.37 billion compared to $933 million in the second quarter of last year.

Jeff: Effect on medical margin during the second quarter.

Jeff: Total revenues during the quarter were 148 billion, representing a 39% increase over the second quarter of 2023.

Jeff: This growth was primarily driven by the class of 2024 markets and solid organic growth in our existing classes.

Jeff: Medical services expense increased to $1 37 billion compared to $933 million in the second quarter of last year.

Jeff Schwaneke: The 47% growth compared to last year was driven by the expansion of the 2024 class and higher utilization compared to the second quarter of last year. Our first quarter 2024 cost trend estimate is now 8.2%, down from the 9.1% that we recorded last quarter. Additionally, we have moderated our cost trend line for the year, recording a Q2 cost trend of 7.3% compared to our previously expected 6.8%. While we don't have substantial paid claims data for Q2, we believe it is prudent in this environment to assume a higher cost trend. Ultimately, we will see how that plays out over the next several quarters.

Jeff Schwaneke: Our first quarter, 2024 cost trend estimate is now 8.2%, down from the 9.1% that we recorded last quarter. Additionally, we have moderated our cost trend line for the year, recording a Q2 cost trend of 7.3% compared to our previously expected 6.8%. While we don't have substantial paid claims data for Q2, we believe it prudent in this environment to assume higher trend. Ultimately, we will see how that plays out over the next several quarters. Medical margin for the second quarter was $106 million or 7.1% of total revenue, compared to $134 million or 12.6% last year. As mentioned earlier, medical margin was closer to the low end of our guidance range as a result of recording a higher estimated cost trend for Q2 2024.

Jeff Schwaneke: Medical margin for the second quarter was $106 million, or 7.1% of total revenue compared to $134 million, or 12.6% last year. As mentioned earlier, medical margin was closer to the low end of our guidance range as a result of recording a higher estimated cost trend for Q2 2024. Platform support costs were $42 million, and they were consistent with the second quarter of 2023. And geo entry costs were $5 million, representing a significant decrease from the prior year.

Jeff Schwaneke: Platform support costs were $42 million and consistent with the second quarter of 2023, and geo entry costs were $5 million, representing a significant decrease from the prior year. Lower geo entry costs were primarily driven by the timing of new partner and synim payments and the removal of a planned expansion in 2025. ACO Reach continues to perform well, and our quarter in membership was $132,000, which is slightly ahead of our expectations. Reach EBITDA was $11 million during the second quarter of 2024 and 2023. Adjusted EBITDA was a loss of $3 million compared to positive $12 million last year.

Jeff: Were $42 million and consistent with the second quarter of 2023, and Geo entry costs were $5 million, representing a significant decrease from the prior year.

Jeff Schwaneke: Lower geo entry costs were primarily driven by the timing of new partner incentive payments and the removal of a planned expansion in 2025. ACO REACH continues to perform well, and our quarter-end membership was 132,000, which is slightly ahead of our expectations. REACH EBITDA was $11 million during the second quarter of 2024 and 2023, and adjusted EBITDA was a loss of $3 million compared to positive $12 million last year.

Jeff: Lower Geo entry costs were primarily driven by the timing of new partner incentive payments and the removal of a planned expansion in 2025.

Jeff: ACO reach continues to perform well and our quarter in membership was 132000, which is slightly ahead of our expectations.

Jeff: <unk> EBITDA was $11 million during the second quarter of 2024 and 2023.

Jeff: Adjusted EBITDA was a loss of $3 million compared to positive $12 million last year. The year over year decline was driven by higher utilization experienced in the second quarter of this year relative to the increased revenue.

Jeff Schwaneke: The year-over-year decline was driven by higher utilization experience in the second quarter of this year relative to the increased revenue. Adjusted EBITDA was better than our expectations, driven by lower medical margin that was more than offset by lower geo entry and platform support costs.

Jeff Schwaneke: The year-over-year decline was driven by higher utilization experienced in the second quarter of this year relative to increased revenue. However, adjusted EBITDA was better than our expectations, driven by lower medical margin that was more than offset by lower geo entry and platform support costs. Turning to our balance sheet and cash flow, Agilon ended the quarter with cash and marketable securities of $408 million and another $104 million of off-balance sheet cash associated with our ACO reach into. Cash associated with our ACO model entities includes unsettled payments, which will occur in the third quarter of this year.

Jeff: Adjusted EBITDA was better than our expectations driven by lower medical margin that was more than offset by lower Geo entry and platform support costs.

Jeff Schwaneke: Turning to our balance sheet and cash flow. Agilon ended the quarter with cash and marketable securities of $408 million and another 104 million of off-balance-sheet cash associated with our ACO Reach entities. Cash associated with our ACO model entities includes unsettled payments, which will occur in the third quarter of this year. We used $18 million a cash during the second quarter, consistent with our expectations, reflecting the seasonality of our annual wellness visits and distributions to position partners and settlements with payers. Our expected use to cash for the year remains unchanged at $125 to $150 million. As we have discussed previously, our cash flow from operations improves during this second half of the year as we settle with payers for performance from the prior year.

Jeff: Turning to our balance sheet and cash flow.

Speaker Change: <unk> ended the quarter with cash and marketable securities of $408 million in.

Jeff: And another $104 million of off balance sheet cash associated with our ACO reach entities cash.

Jeff: Cash associated with our ACO model entities includes unsettled payments, which will occur in the third quarter of this year.

Jeff Schwaneke: We used $18 million of cash during the second quarter, consistent with our expectations, reflecting the seasonality of our annual wellness visits and distributions to physician partners and settlements with payers. As we have discussed previously, our cash flow from operations improves during the second half of the year as we settle with payers for performance from the prior year.

Jeff: We used $18 million of cash during the second quarter consistent with our expectations, reflecting the seasonality of our annual wellness visits and distributions to physician partners and settlements with Payors.

Jeff Schwaneke: Consistent with the outlook we previously shared with you, our 2024 guidance would result in a cash usage of approximately $25 million in 2025. We continue to expect to be free cash flow positive starting in 2026 and continuing thereafter.

Jeff Schwaneke: Consistent with the outlook we previously shared with you, our 2024 guidance would result in a cash usage of approximately $25 million in 2025. We continue to expect to be free cash flow positive starting in 2026 and continuing thereafter. Turning now to our updated outlook for the full year 2024, we have raised our membership guidance range from 513,000 members to 519,000 members at the midpoint, recognizing our growth through the second quarter. We have reduced our total revenue guidance range by $125 million at the top and bottom ends, reflecting several moving pieces. An increase in total revenue driven by incremental membership for the company, This increase was more than offset by several items.

Jeff Schwaneke: Turning now to our updated outlook for the full year 2024. We have raised our membership guidance range from 513,000 members to 519,000 members at the midpoint, recognizing our growth through the second quarter. We have reduced our total revenue guidance range by $125 million at the top and bottom end, reflecting several moving pieces, an increase in total revenue driven by incremental membership for the year. This increase was more than offset by several items: the retroactive termination of the contracts that we discussed at the beginning of the call, updated payer and member mix, which produced a lower overall premium yield versus expectations, and lower expected risk adjustment for 2024.

Jeff Schwaneke: The retroactive termination of the contracts that we discussed at the beginning of the call. Updated payer and member mix, which produced a lower overall premium yield versus expectation and a lower Expected Risk Adjustment for 2024. We have limited data regarding our 2024 risk adjustment performance from our payer partners, but the limited data we do have indicates less improvement for 2024 than we expected. We have recorded that expectation through the second quarter and reflected that for the remainder of 2024.

Jeff Schwaneke: We have limited data regarding our 2024 risk adjustment performance from our payer partners, but the limited data we do have indicates less improvement for 2024 than we expected. We have recorded that expectation through the second quarter and reflected that for the remainder of 2024. We are continuing to work on ensuring our hard work around the B.O.I. programs is accurately reflected in our risk scores. We are maintaining our medical margin guidance of $400 to $450 million. We expect several items to partially offset the lower expected revenue for 2024. These include updated cost trends based on Q1 and Q2 results, incremental margin on the additional membership for the year, updated member mix, and our payer and other initiatives.

Jeff Schwaneke: We are continuing to work on ensuring our hard work around the BOI programs is accurately reflected in our risk score. We are maintaining our medical margin guidance of $400 to $450 million. We expect several items to partially offset the lower expected revenue for 2024. These include updated cost trends based on Q1 and Q2 results, Incremental Margin on Additional Membership for the Year, Updated Member Mix, and our Payer and Other Initiatives.

Jeff: Accurately reflected in our risk scores.

Jeff: We are maintaining our medical margin guidance of $400 million to $450 million, we expect several items to partially offset the lower expected revenue for 2024.

Jeff: These include updated cost trends based on Q1, and Q2 results incremental margin on the additional membership for the year.

Jeff: Updated member mix and our payer and other initiatives given this dynamic we now expect our medical margin to be more towards the lower end of our guidance range.

Jeff Schwaneke: Given this dynamic, we now expect our medical margin to be more toward the lower end of our guidance range. We are maintaining our adjusted EBITDA guidance of negative $60 million to negative $15 million. Our adjusted EBITDA guidance remains unchanged as our medical margin near the low end of the range is offset by lower overall geo entry and platform support costs.

Jeff Schwaneke: Given this dynamic, we now expect our medical margin to be more toward the lower end of our guidance. We are maintaining our adjusted EBITDA guidance of negative $60 million to negative $15 million. Our adjusted EBITDA guidance remains unchanged as our medical margin near the low end of the range is offset by lower overall geoentry and platform support costs.

Jeff: We are maintaining our adjusted EBITDA guidance of negative $60 million to negative $15 million, our adjusted EBITDA guidance remains unchanged as our medical margin near the low end of the range is offset by lower overall Geo entry and platform support costs.

Unknown Executive: With that, I think we're ready for the Q&A.

Unknown Executive: With that, I think we're ready for the Q&A. Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two when preparing to ask a question.

Speaker Change: With that I think we're ready for the Q&A.

Unknown Executive: Thank you. If you would like to ask the question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two.

Unknown Executive: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask a question, please ensure your device is unmuted locally. And in order to allow everyone an opportunity to ask a question, we ask you to limit yourself to one question only. The first question comes from Lisa Gill with JP Morgan. Your line is open. Please go ahead.

Speaker Change: Thank you. Thank you I would like to ask a question. Please press star followed by one on your telephone keypad.

Speaker Change: If you would like to withdraw your question. Please press star followed by two.

Unknown Executive: when preparing to ask a question, ensure your device is unmuted locally, and in order to allow everyone an opportunity to ask a question, we ask you limit yourself to one question only.

Speaker Change: When preparing to ask a question. Please ensure your devices on muted locally.

Jeff: And in order to allow everyone an opportunity to ask a question. We ask you limit yourself to one question only.

Lisa Gill: First question comes from Lisa Gill with JP Morgan; your line is open, please go ahead.

Steve Sell: Thanks for the question, Lisa. I think when it comes to utilization, we have incorporated in our guidance a step up in inpatient medical admits from the two midnight rule. We have seen that, and it is coming in line with kind of our expectation. As I talked about, as we look at our leading indicator data, we are seeing a slight decline in terms of those inpatient admits as we move from Q1 into Q2. And so we're encouraged by that.

Speaker Change: First question comes from Lisa Gill with Jpmorgan. Your line is open. Please go ahead.

Speaker Change: Okay fair enough.

Speaker Change: Good afternoon.

Lisa Gill: Wanted to start with the POS trends, Steve I heard you talk both inpatient and part D.

Lisa Gill: And then suddenly when we think about, you know, cost trend, we think about risk adjustment, as you talked about, what's the impact that you're seeing from the 28 in 2024? Thanks for the question, Lisa. I think when it comes to utilization, we had incorporated in our guidance a step up and in patient medical admins from the two midnight rule. We have seen that, and it is coming in line with kind of our expectation. As I talked about, as we look at our leading indicator data, we are seeing a slight decline in terms of those inpatient admins as we move from Q1 into Q2.

Steve Sell: But as both Jeff and I talked about, we did book up our Q2 cost trend at 7.3% versus what we previously forecasted at 6.8%, because we think that's really a prudent thing to do in this environment. And then, as it relates to V-28, we are seeing that impact in line with our expectations. We had expected roughly a 2% impact from V-28, and that's about what we're seeing to date.

Steve Sell: And so we're encouraged by that.

Steve Sell: But, as both Jeff and I talked about, we did book up our Q2 cost trend at 7.3% versus what we previously forecasted at 6.8%. Because we think that's really a prudent thing to do in this environment. And then, as it relates to B28, we are seeing that impact in line with our expectations. We saw roughly; we had expected roughly a 2% impact from B28, and that's about what we're seeing to date.

Jeff Schwaneke: Jeff, anything you'd add to that? No. Our next question comes from Justin Lake with Wolf Research. Your line is open, please go ahead. Hi, this is Dean Rosales.

Jeff Schwaneke: Jeff, anything you'd add to that?

Jeff Schwaneke: No, no.

Justin Lake: Our next question comes from Justin Lake with Wolf Research. Your line is open; please go ahead.

Unknown Executive: Our next question comes from Justin Lake with Wolf Research. Your line is open, please go ahead. Thank you.

Dean Rosales: Hi, this is Dean Resolven for Justin. Any update on medical margin improvement in the 2021 and 2022 classes? Would you say those cohorts are starting to trend in that $150 to $200 medical margin range quite yet? Could you speak to the ramp there?

Speaker Change: Margin improvement in the 2021 and 2022 classes are would you say those cohorts are starting to trend in that $1 50 to 200 dollar medical margin range quite yet could you speak to the the ramp there. Thank you so much.

Dean Rosales: Thank you so much.

Steve Sell: So thanks for the question, Dean. I mean, across that cohort, we do have groups and markets that are at that level. And we are seeing a step up year-over-year on an incurred basis. On a year-over-year basis, we did see an improvement across all of our cohorts. So I think we're beginning to track up, and within specifically the class of 21 and 22, we do have markets at that level.

Steve Sell: So thanks for the question, Dean. I mean, across that cohort, we do have groups and markets that are at that level. And we are seeing a step up year over year on an incurred basis. On a year over year basis, we did see an improvement across all of our cohorts. So I think we're beginning to track up and within specifically the class of 21 and 22. We do have markets at that. We now turn to Stephen Baxter with Wells Fargo. Your line is open, please go ahead. Hi, thanks. I'm trying to make sure that we understand the trend commentary correctly. So, Q1 looks

Steve: Thanks for the question Deane I mean across that that cohort, we do have groups and markets that are at that level and we are seeing a step up year over year on an incurred basis on a year over year basis. We did we did see an improvement across all of our cohorts.

Jeff: I think we're beginning to track up and within specifically the class a 'twenty one and 'twenty two we do have markets at that level.

Stephen Baxter: We now turn to Stephen Baxter with Wells Fargo.

Unknown Executive: We now turn to Stephen Baxter with Wells Fargo. Your line is open. Please go ahead.

Jeff: We now turn to Stephen Baxter with Wells Fargo. Your line is open. Please go ahead.

Stephen Baxter: Your line is open; please go ahead. Hi, thanks. I'm just trying to make sure that we understand the trend commentary correctly. So Q1 looks like it's coming in better, but you're booking Q2 higher than you initially expected.

Stephen Baxter: Hi, Thanks.

Stephen Baxter: Try to make sure that we understand the trend commentary correctly. So Q1 looks like it's coming in better but you are booking Q2 higher than you initially expected I guess first.

Stephen Baxter: So I guess first, what are you implying you're booking the back half of the year at in this guidance?

Speaker Change: What are you.

Speaker Change: Playing your bookings in the back half of the year at in this guidance and I think you also discussed cost trend as an offset to the lower revenues, but then it seems like you're also discussing booking it prudently in the current environment and just trying to understand which one of those thank you.

Jeff Schwaneke: And I think you also discussed, you know, cost trends and offset to the lower revenues, but then it seems like you're also discussing booking appropriately in the current environment that you're trying to understand which one I did. Thanks.

Ryan Daniels: Yeah, hey, this is Jeff. A couple of things, you're right. So, on the first quarter, 9.1 percent down to 8.2, we had originally, you know, forecasted 6.8 percent, booking it up slightly. Really, we're just moderating that trend line. And just, you mentioned, you know, we're just being prudent given the environment we're in. I will tell you, on the back half of the year, specifically Q3, our cost trend from our previous assumption really hasn't changed much. We're around 6 percent cost trend, and as you get to the fourth quarter, it's kind of hard to apply a trend from Q4 last year, but we really looked at the PMPMs and, you know, looking at historical seasonality of those from a cost perspective. And so, yes, you are correct, there is a piece and a component that's driven by yield as well, right? So, we have updated cost trends with our performance in Q1 and Q2, and then ultimately we have some premium yield there, there being offsetting cost piece as well. But in general, I think we're still taking a prudent posture on the back half cost trend. Our next question comes from Ryan Daniels with William Blair. Your line is open, please go ahead. Yeah, thanks for taking the questions, Steve. One for you, you talked a little bit about the new data lake. I'm curious if you can go into a bit more detail how you were using that, not in regards to, you know, how you model the financial outlook or expectations on cost, but rather, you know, how you're using that data to analyze care trends and really to intervene faster at the practice level. How do you get that data to individuals? How do you move in the workflow or get patients in when needed? Give us a little more color on that, as it seems like a big potential point. Thanks. Yeah, Ryan, thank you. I really appreciate the question. I think our whole partnership is built around our proximity to that primary care physician and the ability for us to be able to provide them timely information on what's happening with their senior patients allows for earlier intervention, better enrollment in our clinical programs. And so, when I talked about our active panel management and the ability for to have a discussion with a physician about their entire senior population, focus on those highest risk patients that are driving 50 percent of the cost and have active care plans, what we've been able to do with our data lake is triangulate the data from our health plans, and they'll have senior patients in three, four, or five different health plans along with their EMR data. And so, they have the ability to look at that population, identify those most complex patients, look at what's happening across time, but really it just gives us a better and faster mechanism to benchmark where they're at relative to kind of practice in terms of dealing with the most complex patients. So, it's been very well received. We're in the early days. I talked about we've been able to roll this out now in 20 of our markets to about 75 percent of our PCPs. I think the early results, that 8 percent reduction that I talked about in terms of ER and inpatient admits, is encouraging. It is early, but that's a meaningful move, particularly in this elevated environment. So, that's how the technology is really tying into the partnership that. As a reminder, if you'd like to ask a question, or have any follow-ups, please press star one on your telephone keypad.

Jeff Schwaneke: Yeah, hey, this is Jeff. A couple things. You're right. So for the first quarter, 9.1% down to 8.2%. We had originally forecasted 6.8%, booking it up slightly. Really, we're just moderating that trend line. And as Steve mentioned, we're just being prudent given the environment we're in.

Jeff Schwaneke: I will tell you on the back half of the year, specifically Q3, our cost trend from our previous assumption really hasn't changed much. We're around 6% cost trend. And as you get to the fourth quarter, it's kind of hard to apply a trend from Q4 of last year, but we really looked at the PMPMs and looked at historical seasonality of those from a cost perspective. And so, yes, you are correct.

Jeff Schwaneke: There is a piece and a component that's driven by yield as well, right? So we have updated cost trends with our performance in Q1 and Q2. And then ultimately, we have some premium yield that is being offset by the cost piece as well. But in general, I think we're still taking a prudent posture on the back half cost.

Unknown Executive: Our next question comes from Ryan Daniels with William Blair. Your line is open, please go ahead.

Steve Sell: Yeah, thanks for taking the question. Steve, one for you. You talked a little bit about the new data lake. I'm curious if you can go into a bit more detail about how you are using that, not in regards to, you know, how you model the financial outlook or expectations about cost, but rather, you know, how you're using that data to analyze care trends and really intervene faster at the practice level. How do you get that data to individuals? How do you move in the flow of the work or get patients in when needed?

Steve Sell: Give us a little more color on that as it seems like a big potential point. Thanks.

Steve Sell: Ryan, thank you. I really appreciate the question. I think our whole partnership is built around our proximity to that primary care physician, and the ability for us to be able to provide them with timely information on what's happening with their senior patients allows for earlier intervention and better enrollment in our clinical programs. And so when I talked about our active panel management and the ability for physicians to have a discussion with a physician about their entire senior population, focus on those highest-risk patients that are driving 50 percent of the cost and have active care plans, what we've been able to do with our data lake is triangulate the data from our health plans, and they'll have senior patients in three, four, or five different health plans along with their EMR data.

Speaker Change: Interactive panel management and the ability for it to have a discussion with a physician about their entire senior population focus on those highest risk patients that are driving 50% of the cost and have active care plans, what we've been able to do with our data Lake is triangulate the data from our <unk>.

Speaker Change: <unk> plans and they will have senior.

Speaker Change: Senior patients in three four or five different health plans, along with their EMR data and so they have the ability to look at that population identify those most complex patients look at what's happening across time, but really it just gives us a better and faster and mechanism to benchmark where they're at relative.

Steve Sell: And so they have the ability to look at that population, identify those most complex patients, look at what's happening across time, but really, it just gives us a better and faster mechanism to benchmark where they are relative to kind of best practice in terms of dealing with the most complex patients.

Speaker Change: Two kind of best practice in terms of dealing with the most complex patients. So it's been very well received we are in the early days as I talked about we've been able to roll. This out now in 20 of our markets to about 75% of our Pcp's.

Unknown Executive: So it's been very well received. We're in the early days, as I talked about. We've been able to roll this out now in 20 of our markets to about 75 percent of our PCPs. I think the early results, that eight percent reduction that I talked about in terms of ER and inpatient admits, are encouraging. It is early, but that's a meaningful move, particularly in this elevated environment. So that's how the technology is really tying into the partnership. As a reminder, if you'd like to ask a question or have any follow-ups, please press star one on your telephone keypad. We now turn to a

Speaker Change: I think the early results that 8% reduction that I talked about in terms of ER and inpatient.

Speaker Change: Inpatient admits is encouraging.

Speaker Change: It is early but that's a meaningful move particularly in this elevated environment. So that's how the technology is really tying into the partnership that we've got.

Unknown Executive: As a reminder, if you'd like to ask a question or have any follow-ups, please press star 1 on your telephone keypad. We now turn to Elizabeth Anderson with Evercore ISI.

Elizabeth Anderson: We now turn to Elizabeth Anderson with Evacore ISI. Your line is open; please go ahead.

Unknown Executive: Your line is open. Please go ahead. Hi guys. Thanks so much for the questions.

Elizabeth Anderson: Hi guys, thanks so much for the question. Appreciate the early commentary on some of the primary care doctor engagement that you were just talking about. How do we think about that in terms of translating that into an opportunity for sort of the back half of 24?

Elizabeth Anderson: Is that continues to roll out and then kind of in the 2025 plus type category?

Steve Sell: Great question, Elizabeth. So it's early, I think, to Jeff's theme of being prudent. We're trying to be really measured in both how we've recorded Q2 and how we're forecasting the back half. But our clinical initiatives are included in our forecast. That PCP engagement and the work around active panel management to really help them understand where they are, to develop these care plans, and to remove any of the operational issues that could be in the way are part of those clinical activities.

Steve Sell: Great question, Elizabeth. So it's early, I think, to Jeff's theme of being prudent. We're trying to be really measured in both how we recorded Q2 and how we're forecasting the back half, but our clinical initiatives are included in our forecast. That PCP engagement and the work around active panel management to really help them understand where they're at to develop these care plans, and to remove any of the operational issues they could be in the way are part of those clinical activities. So they're incorporated in what we think is kind of a prudent guide on the back half, but it's something that we believe really kind of differentiates our partnership and our network with PCPs and in our ability to better manage cost-trend over time.

Steve Sell: So they're incorporated in what we think is kind of a prudent guide on the back half, but it's something that we believe really kind of differentiates our partnership and our network with PCPs, and in our ability to better manage cost trends over time. We now turn to Andrew.

Tiffany: We now turn to Andrew Mock with, but please, your line is open. Please go ahead. Hi, this is Tiffany on for Andrew. I was wondering if you could give a little bit more color on how discussions with players are trending around your off-cycle premium increases and maybe quantify how much benefit you've gotten from virtual release this far into the year.

Unknown Executive: We now turn to Andrew Mock with Barclays. Your line is open, please go ahead. Hi, this is Tiffany.

Steve Sell: Thanks for the question, Tiffany. I think we talked a lot about this on our last call, and what I would say is our discussions have really progressed well. The improvement we talked about in Q1 was $10 million for the full year. In the second quarter, we've been able to update you on some of these terminations previously communicated. We're now back to January 1st.

Steve Sell: Thanks for the question, Tiffany. I think we talked a lot about this on our last call, and what I would say is our discussions have really progressed well. The improvement we talked about on Q1 was $10 million on the full year. In the second quarter, we've been able to update you on some of these terminations previously communicated. They're now back to January. First, that has no medical margin impact, but obviously the impact on revenue and cost that Jeff talked about. But I think we're really encouraged, encouraged enough that as we look at our second half, we've incorporated further improvements into our guidance.

Steve Sell: That has no medical margin impact, but obviously the impact on revenue and cost that Jeff talked about. But I think we're really encouraged, encouraged enough that as we look at our second half, we've incorporated further improvements into our guidance. We're not going to quantify that as we're in the middle of that right now, but we feel good enough, even in this prudent environment, to incorporate that. Then I'll just say the majority of the discussions are focused on 2025.

Steve Sell: We're not going to quantify that as we're in the middle of that right now, but we feel good enough, even in this prudent environment, to incorporate that.

Steve Sell: Then I'll just say the majority of the discussions are focused on 2025. What we're going to take risk for across that time, a big area of discussion is around Part B drug with the Inflation Reduction Act impact. How that looks, we've talked to our payers about the desire to carve that out, or to cap it. For two-thirds of our payers and one-third of our membership, we've been able to do that to date, and we would like to expand that. I think the discussions are progressing well.

Speaker Change: And then I will just say the majority of the discussions are focused on 2025.

Speaker Change: What.

Speaker Change: We're going to take risk for across that time, a big area of discussion is around part b drug with the inflation reduction Act impact.

Speaker Change: And so how that looks we've talked to our payors about the desire to carve that out or tap it for two thirds of our payers and one third of our membership we have been able to do that to date.

Speaker Change: And we would like to expand that so.

Speaker Change: Think the discussions are progressing well.

Adam Ron: We now turn to Adam Ron with Box America. Your line is open.

Unknown Executive: We now turn to Adam Ron with Bank of America. Your line is open, please go ahead. Hey, thanks for the question.

Steve Sell: What we're going to take risk for across that time, a big area of discussion is around Part B drugs with the Inflation Reduction Act impact. How that looks, we've talked to our payers about the desire to carve that out or to cap it. For two-thirds of our payers and one-third of our membership, we've been able to do that to date, and we would like to expand that. I think the discussions are progressing well. We now turn to Adam Ron with Bank of America. Your line is open, please go ahead. Hey, thanks for the question. I'll take a look.

Speaker Change: We now turn to Adam Ron with Bank of America. Your line is open. Please go ahead.

Adam Ron: Please go ahead.

Jeff Schwaneke: Yeah, thanks. This is this is Jeff.

Jeff Schwaneke: Hey, thanks for the question. Taking a look at the reserve metrics like DCP's and completion ratio. It looks like they printed in kind of the wrong direction, like completion ratio, having like a pretty big swing year over year. And so just wondering what's driving that. And if it's related to, you know, moving to the new data. And if that's the case, how do you determine from like what's happening with court trend and the movement. So appreciate the any color around that.

Adam Ron: Okay. Thanks for the question.

Adam Ron: Taking a look at the reserve metrics.

Speaker Change: <unk> and completion ratio it looks like.

Adam Ron: And kind of the wrong direction completion ratio, having like a pretty big swing year over year. So just wondering what's driving that and if it's related to move.

Speaker Change: Moving to the new data pipeline and if Thats the case, how do you discern from like.

Speaker Change: What's happening with core trend in the movement.

Speaker Change: Any color around that.

Jeff Schwaneke: Yeah, thanks. This is, this is Jeff. You know, real quick on, you know, DCP.

Jeff Schwaneke: Yeah, real quick on DCP, I wouldn't say that's a good measure to use for this business, because there's timing of when we get the information on the page, that we release them from our balance sheet. So that's a different metric than you would find in a payer world. Not sure how you're calculating the completion factors.

Speaker Change: Yes. Thanks this is Jeff.

Speaker Change: Real quick on DCP I wouldn't say, that's a good measure to use for this business because theres timing of when we get the information on the page.

Jeff Schwaneke: I wouldn't say that's a good measure to use for this business because there's timing of when we get the information on the page. That we release them from our balance sheet. So that's a, that's a different metric than you would find in a, in a pair of world.

Jeff Schwaneke: Not sure how you're calculating the completion factors, but in general, I guess when we looked at the data, the census data that we have shows it, you know, trends are coming down from Q1. We still show, you know, as far as this year goes, January being the highest month, and that month is relatively paid by now. And so ultimately, you know, I think to Steve's point, we just took a prudent approach to reserving at the end of the quarter and flattened out that trend line, right? So really we're going from 8, 2 to 7, 3 versus 8, 2 to 6, 8.

Jeff Schwaneke: But, but in general, I guess, when we looked at the data, the census data that we have shows that, you know, trends are coming down. From Q1, we still show, as far as this year goes, January being the highest month, and that month is relatively paid off now. And so ultimately, you know, I think, to Steve's point, we just took a prudent approach to reserving at the end of the quarter and flattened out that trend line, right. So really, we're going from 8.2 to 7.3 versus 8.2 to 6.8. So, you know, feel good about where we are. But ultimately, we'll see how that reserve plays out over the next couple quarters.

Jeff Schwaneke: So, you know, feel good about where we are, but ultimately we'll see how that was played out of the next couple quarters.

Jelaine Dress: Oh, next question comes from Jelaine: sorry, Jelaine dressing with service. Your line is open. Please go ahead.

Unknown Executive: Our next question comes from Jailendra Singh with Truist. Your line is open, please go ahead.

Jelaine Dress: Hi guys, this is a word of honor for Jelaine dress. Thanks for taking the question. Just curious if you could provide some thoughts on the class of 2025. You know, at this point last year, you guys gave some color on Class of 2024. I know you talked about five physician groups adding more than 6,000 lives. And I think last year this time you sort of talked about, you know, the class of 24 are coming in at like a $30 to $60 p.m. Obviously, just given the elevation challenges with the industry, curious if there's any color you can provide on what your expectation would be for the class of 2025 cohort as you step into year one.

Steve Sell: Hi guys, this is Eduardo Ron for Jailendra. Thanks for taking the time to answer my question. Just curious if you could provide some thoughts on the Class of 2025. You know, at this point last year, you guys gave some color on the Class of 2024. I know you talked about five physician groups adding more than 60,000 lives. And I think last year at this time, you sort of talked about the Class of 2024 coming in at like $30 to $60 per patient per year. Obviously, just given the utilization challenges with the industry. Curious if there's any color you can provide on what your expectations would be for the Class of 2025 cohort as you step into year one. Eduardo

Steve Sell: Eduardo, thanks for the question. I mean, I think we're really excited about the class of 25. As you mentioned, it is five new partners. Just to mention that, there's only one new state in the class of 25. And as we've talked about, there's tremendous opportunity for growth in our existing 13 states footprint. In this class of 25, really reflects that. It also brings in incredibly strong groups like Grace Gilbert, Otakintucki in a really well-respected group that's had a very strong ACO performance. All of the groups in this class are quite strong around that. It's a mix of multi-specialty and primary care groups.

Steve Sell: Eduardo, thanks for the question. I mean, I think we're really excited about class 25. As you mentioned, it's five new partners. Just to mention that there's only one new state in the class of 25. And as we've talked about, there's tremendous opportunity for growth in our existing 13 state footprint, and this class of 25 really reflects that. It also brings in incredibly strong groups like Grace Gilbert out of Kentucky and a really well respected group that's had a very strong ACO performance.

Steve Sell: All of the groups in this class are quite strong around that. It's a mix of multispecialty and primary care groups. In terms of the starting point for 2025, I think we're going to be pretty prudent as we think about where that will land. I think it'll be within the, you know, the range that you talked about, but we're probably not ready to communicate exactly where that will land as we're better reading sort of the overall utilization trends and also working through some of the rate details with payers in those markets. But I, again, we're quite excited, a really strong class, and it's another year of strong growth.

Steve Sell: In terms of the starting point for 2025, I think we're going to be pretty prudent as we think about where that will land. I think it'll be within the range that you talked about, but we're probably not ready to communicate exactly where that will land as we're better at reading sort of the overall utilization trends and also working through some of the rate details with payers in those markets. But again, we're quite excited; really strong class, and it's another year of strong growth.

George Hill: Thanks.

George Hill: We now turn to George Hill with Deutsche Bank. Your line is open.

Unknown Executive: We now turn to George Hill with Deutsche Bank. Your line is open, please go ahead.

George Hill: Please go ahead. Yeah.

Unknown Executive: Yeah, good afternoon, guys. Thanks for taking the question. I guess I would ask about Medicare risk adjustment.

George Hill: Good afternoon, guys. Thanks for taking the question. I guess I wouldn't ask about Medicare or risk adjustment. And it sounds like that came in. Well, first I'll ask: was that a meaningful contributor or detractor at the revenue line in the quarter? From the parent commentary, it sounds like it came in a little bit later, where some of the MPs were all calling it out as being a positive indicator. And if I'm reading it right through, it did come in a little bit lighter. Can you talk about kind of what is a positive offset as it relates to the guide and how big adjustment that would be?

Jeff Schwaneke: And it sounds like that came in. Well, first, I'll ask, was that a meaningful contributor or detractor to the revenue line in the quarter? From the prior commentary, it sounds like it came in a little bit later, where some of the MCOs were calling it out as being a positive indicator. And if I'm reading it right, did it come in a little bit lighter? Can you talk about kind of what the positive offset as it relates to the guide and how big of an adjustment that would be?

Jeff Schwaneke: Yeah, yeah, real quick. So we have limited information here. So it did come in lighter; we recorded, I mentioned in my prepared comments that we did record that through the six months, and then we kind of pushed that in for the rest of the year. And so the offset in the quarter, you know, you have higher membership than that, obviously, we anticipated. So we trued that up, and then we had some favorable developments in Q1, partially offset by recording a higher cost trend in Q2.

Jeff Schwaneke: Yeah, yeah, real quick. So, so we have limited information here. So it did come in lighter. We recorded. I mentioned in my prepared comments that we did record that through the six months. And then we kind of push that in for the rest of the year. And so the offset in the quarter, you know, you have higher membership. Then, then obviously we anticipated, so we drew that up. And then we had some, you know, favorable development on Q1, partially offset by recording a higher cost training Q2. For the year, you know, I'm not going to really bifurcate.

Jeff Schwaneke: For the year, I'm not going to really bifurcate, I would say, what the yield component and the RAF component are, just because, really, we just have this limited data. And so the offsets to that lower revenue, as we mentioned in the prepared commentary, were the updated cost trends, given the first and second quarter results, and margin on the additional membership that we had for the rest of the year, and then, of course, additional visibility, as Steve mentioned, on the payer initiatives that we have.

Jeff Schwaneke: I would say what the yield component and the rap component is just because really we just have this limited data. And so the offsets, the offsets to that lower revenue, as we mentioned in the prepared commentary, was the updated cost trends, you know, given the first and second quarter results. And margin on the additional membership that we add for the rest of the year. And then, of course, additional visibility, as Steve mentioned, on the payer initiatives that we have. So if I could sneak in a quick follow-up, is the $17,000 member change versus a par a guide.

Speaker Change: And so the offsets the offsets to that lower revenue as we mentioned in the prepared commentary was the updated cost trends given the first and second quarter results and margin on the additional membership that we add for the rest of the year and then of course additional visibility as Steve mentioned on the payer initiatives.

Speaker Change: We have.

Steve Sell: That's great. If I could sneak in a quick follow-up, what is the $17,000 member change versus a prior guide? Is that an incremental contract exit? Or is that kind of incremental lives rolled into the prior announced exit? Yeah, George, no, it's...

Speaker Change: That's great if I could sneak in a quick follow up.

Speaker Change: The $17000 member member change versus the prior guide is that an incremental contract exit or is that kind of incremental large rolled into the announced exits.

George Hill: Is that an incremental contract exit? Or is that kind of incremental lives rolled into the prior announced exit? Yeah, George, no, it's, it's contracts that we talked about before. The difference is we had expected them to be terming at the end of Q2. And we worked it out with the payer departure to make it retroactive back to January 1st. There was no medical margin impact from those. And so that, that's how we agreed to do with them. And obviously with our partners. I got it.

Steve Sell: Yeah, George, no. It's contracts that we talked about before. The difference is we had expected them to be terminating at the end of Q2, and we worked it out with the payer partner to make it retroactive back to January 1st. There was no medical margin impact from those, and so that's how we agreed to do it with them and, obviously, with our partner.

George Page: Yes, George no.

Speaker Change: Yes.

Speaker Change: It's contracts that we talked about before the difference is we had expected them to be determined at the end of Q2, and we worked it out with the payer partner to make it retroactive back to January one there was no medical margin impact from those and so thats how we.

Speaker Change: We agreed to do with them and obviously with our partners.

Speaker Change: I got it thank you.

George Hill: Thank you.

Michael Ha: Our next question comes from Michael Ha with Bed. Your line is open.

Unknown Executive: Our next question comes from Michael Ha with Baird. Your line is open, please go ahead.

Michael <unk>: Our next question comes from Michael <unk> with Baird. Your line is open. Please go ahead.

Michael Ha: Please go ahead. Thank you.

Unknown Executive: All right, thank you. Just a quick question first on my real one.

Michael <unk>: Alright. Thank you just a quick question first and then my real one on the star ratings retook I understand there wasn't much benefits of a larger payers, but my understanding is most of that benefit that happened in the smaller private plans that I think make up about a third of your revenue I'm. Just curious if you expect Tom or any talent at all the flow through.

Michael Ha: It's just a quick question first than my real one on the star ratings recalc. I understand there wasn't much benefits of larger pairs, but my understanding is most of that benefits that happen to the smaller private planet. I think make up about third year revenue. I'm just curious if you expect some or any talent at all to flow through from their private pairs star ratings improving.

Michael Ha: And then the real question. Just regarding your off-cycle percent of premium rate increases. As we look forward to 25. I know you're having the ongoing combo with pairs. And it's very new on the at a super high level. I think it's very new. I think it's very new on the at a super high level. I think it's very new on the super high level.

Steve Sell: Michael, there's a lot in those questions that I had to write them all down. So, I think the headline would be our value proposition to our payer partners has never been strong. They want to have more senior patients with us. They want us to do this in more markets. And I think the value that we're providing them, the scale we're providing is allowing us to get some of the results that I've talked about in terms of our relationships with them. As to your specifics, the start ratings recalc is really a nominal impact for us. Less than 1% of our membership would have seen an increase up above a four star plan.

Steve Sell: So it's really kind of a nothing related to forward impact. In terms of 25 benefits, I would say that all of our private conversations are very consistent with the public comments that health plans have made about adjusting back those benefits pretty meaningfully. You are correct; improvements in their overall margin posture would flow through to us. And we expect that that could be a tailwind; excuse me, as we looked towards 2025.

Unknown Executive: On the star ratings recalculation, I understand there wasn't much benefit to the larger payers. But my understanding is that most of that benefit did happen to the smaller private plans that I think make up about a third of your revenue. So I'm just curious if you expect some or any talent at all to flow through from your private payers star ratings improving. And then the real question, just regarding your off-cycle percent of premium rate increases, as we look forward to 2025, I know you're having those ongoing conversations with payers, and it's very nuanced, but at a super high level, plans across the country are likely to reduce benefits, basically at the maximum TDC threshold, that presumably should flow through as a benefit to Agilon.

Unknown Executive: So just given that, and given the fact that you just received rate increases this year, should we be expecting those payers to come back to the table, flip those rate increases back down to account for those benefit reductions next year? Or is it just given the IRA, Year 3, B-28, all those variables, it'd be reasonable to assume those rate increases do hold into next year? Michael, there's a lot in those questions.

Steve Sell: And then the percentage of premium increases. It's really a market-by-market situation looking at what was the underwriting, what's the information they provided, what were the benefits, the adjustments that they made. Or other actions that could have affected our overall cost structure or revenue structure. And so that that's how we've worked it with them. These are typically multi-year arrangements. And so, you know, we're approaching 40% of our book that's being reprised this year, if not more given some of the off-cycle adjustments. Thank you.

Jack Slevin: We now turn to Jack's Levin with Jeffries. Your line is open.

Jack Slevin: Please go ahead. Hey, thanks for taking the question, and congrats on the solid showing this quarter. I wanted to add a couple on ACO REACH looking at the performance: one year term, one a little bit longer term. So if you look at the performance margins down quarter, quarter and down year over year, just trying to get a sense of what you're seeing on the utilization front. And if it feels like that's sort of the right trajectory, you know, the thing the last year and then, and then maybe the last one on that being, is there a difference you're seeing between the new lives you added with a lot of that growth coming this year versus lives that have been in place already or ACOs that have been in place already.

Jack Slevin: And then, longer term, just seeing sort of on performance, better margins out of that group when you're seeing in the core business. You know, how are you feeling about the opportunity given some of the moving pieces coming out of CMS on benchmarking and, you know, the change in the discount and possibly the end of the model in 26. Thanks.

Steve Sell: Michael, there's a lot in those questions that I had to write them all down. But so I think the headline would be that our value proposition to our payer partners has never been stronger. They want to have more senior patients with us; they want us to do this in more markets. And I think the value that we're providing to them, the scale that we're providing is allowing us to get some of the results that I've talked about in terms of our relationships with them.

Steve Sell: Jack, thanks for the question. So I think the headline is ACO Reach continues to be a really strong contributor for us, another really strong quarter. I think we're taking a proven posture on how we're recording the results for ACO Reach the same way we are from Medicare Advantage. To your point, we have grown and we have new lives this year, and typically, just like in Medicare Advantage, those new lives come on closer to break even. Historically, we have beaten that national benchmark by 200 to 300 basis points a year and had another really strong 23.

Steve Sell: As to your specifics, the star ratings recalc is really a nominal impact for us; less than 1% of our membership would have seen an increase up to above a four-star plan. So it's, it's really kind of nothing related to forward impact.

Steve Sell: This year, just to remind you, our expectation was at 100 basis points, which we thought was pretty measured, and I think we continue to feel that way. But we just want to be really prudent in terms of how we think about that. Longer term, your question was, how do we think about kind of post 26, and how do we think about the 25 changes? Those changes that are coming in for 25 were expected. We have standard ACOs, and the impact on us is relatively nominal for 25 and for 26. We've consistently saved money for CMS. 22 is all that's public; we have a 9.7% growth saving rate, $107 million, $24 million to the trust run from the Agilon Network within ACO reach, so those are all encouraging.

Steve Sell: In terms of 25 benefits, I would say that all of our private conversations are very consistent with the public comments that health plans have made about adjusting back those benefits pretty meaningfully. You are correct, improvements in their overall margin posture would flow through to us, and we expect that that could be a tailwind, excuse me, as we look towards 2025. And then the, you know, the percentage of premium increases; it's really a market by market situation looking at what was the underwriting, what was the information they provided, what were the benefit bid adjustments that they made or other actions that could have affected our overall cost structure or revenue structure.

Steve Sell: 23 will be public here, and we can talk more about those results, but we continue to be a very solid contributor to the overall Medicare Trust Fund and the savings the government is looking for in that program. Longer term, post 26, there is really strong bipartisan support for a full risk vehicle for the Medicare Fee-for-Service population. That could happen a number of different ways; there could be another innovation center program, there could be a version of MSSP that has a full risk track, or other. But there is on the hill bipartisan support within OMB and others. People really see the power within the model, and so I think we feel comfortable there's going to be a long-term program for the Medicare fee-for-service population, and it's going to continue to be a strong contributor for Agilon on our network of partners.

Michael <unk>: And so I think we feel comfortable there's going to be a long term.

Speaker Change: Program for the Medicare fee for service population and it is going to continue to be a strong contributor for agile on our network of partners.

Jack Slevin: I got it. Appreciate the color.

Speaker Change: Got it I appreciate the color.

Mayo: Oh, next question comes from with Mayo with Lee Rink partners. Your line is open. Please go ahead. Hey, thanks. You guys have covered a lot, but see that just had a follow-up to George's question. I guess I don't understand, like, why did you retroactively cancel to 111? I just say, you know, we're going to in this contract on seven and one. I'm not sure I get the benefit of doing it retroactive when you were providing care for those members. And then in the 10 queue, it looks like there's minus or 54 million of negative medical costs from these members.

Speaker Change: Our next question comes from Whit Mayo with Leerink Partners. Your line is open. Please go ahead.

Whit Mayo: Hey, Thanks, you guys have covered a lot, but Steve I just had a follow up to George's question I guess I don't understand why did you retroactively cancel to one one why not just say working it in.

Speaker Change: This contract on seven one I'm not sure I get the benefit of doing it retroactive when you were providing care for those.

Speaker Change: And then in the 10-Q it looks like there is minus.

Speaker Change: $54 million of negative medical costs from these members do I just take the $110 million of revenue that you've sized divide that by two and the $50 million less premium is offset by the $50 million of course is that the right way to think about this.

Mayo: So I just take the 110 million of revenue that you size, divide that by two, and the 50 million less premium is all set by the 50 million of costs. Is that the right way to think about this?

Steve Sell: I'll take the first one, and Jeff can give you the technical answer about the income statement. So why did we retro this back to 11 because we have deep relationships with our payer partners and with our physician partners. And this payer partner, as we're working on some things long term. Talk to us about that. That would be their preferred method to do it. We are able to work it with our physician partners in a way that made sense. And we're laying the groundwork for some go-forward relationships with them that I think are really going to be positive.

Speaker Change: I'll take the first one and Jeff can give you the technical answer about the income statement. So why did we retro this back to one one because we have deep relationships with our payer partners and with our physician partners and this payer partner as we are working on some things long term talk to us about.

Steve Sell: And so that's how we've worked it with them. These are typically multi-year arrangements. And so, you know, we're approaching 40% of our book that's being repriced this year, if not more given some of the off-cycle adjustments.

Jeff <unk>: That would be their preferred method to do it we are able to work it with our physician partners in a way that made sense and we're laying the groundwork for some go forward.

Jeff <unk>: Relationships with them that I think are really going to be positive. So it's really based on relationship and talking with them about what made sense, but the net impact on medical margins should be zero, but Jeff Yes, Yes quick bifurcation here. The 110 was compared to our expectations right because we had it in for the first six months so youre.

Jeff Schwaneke: So it's really based on relationship and talking with them about what made sense, but the net impact on medical margin should be zero.

Jeff Schwaneke: But Jeff, yeah, yeah, quick bifurcation here. The 110 was compared to our expectations, right? Because we had it in for the first six months. So you're backing out 110 of revenue. You're backing out 110 of costs and zero on the med margin. Okay. In the 10 queue. What you're seeing is you actually didn't record any revenue or cost. For Q2, and you're just reversing Q1, right? So there's there's a there's a split between, you know, number one is our expectations. It still gets you to the same answer. No impact for the six months, but in the 10 queue, we didn't really record anything for Q2 and we had reversed the Q1 revenue, which is why you see the 55.

Jeff <unk>: Backing out one center of revenue Youre backing out 110 of of course in the <unk>.

Speaker Change: Zero on the med margin okay. In the 10-Q, what Youre seeing is you actually you didn't record any revenue or cost for Q2, and you're just reversing Q1.

Speaker Change: So there is a split between number one is our expectations. It still gets you to the same answer no no impact for the six months.

Speaker Change: But in the 10-Q, we didn't really record anything for Q2, and we had reverse the Q1 revenue, which is why you see the 55%.

Mayo: Okay.

Speaker Change: Okay. Thank you.

Mayo: Thank you.

Jenny Shen: We now turn to David Lawson with BTIG. Your line is open. Please go ahead.

Unknown Executive: We now turn to Jack Slevin with Jeffrey.

Speaker Change: We now turn to David Larsen with <unk>.

David Larsen: Your line is open. Please go ahead.

Jenny Shen: Hi, this is Jenny Shen on for Dave Larson. Congrats on the quarter, and thanks for taking my question. I'm just a clarification from me, and I apologize if you mentioned this earlier, but why does the cost trend that you need to see in the back half of Tony Ford? Or, in order to get to your margin and earnings guidance? And I think you mentioned that 3 queue is tracking at about 6%. So what do you need to see in 4 queue? And that's a significant step down. What makes you confident that you'll be able to reach that?

Unknown Executive: Hey, thanks for taking the questions. And congrats on a solid showing this quarter. I wanted to ask a couple of questions on ACO reach.

Jenny Chen: Hi, This is Jenny Chen on for Dave Larsen, Congrats on the quarter and thanks for taking my question just a clarification from me and I apologize. If you mentioned this earlier, but what is the cost trend that you need to see in the back half of Tony for in order to get to your margin.

Unknown Executive: Looking at the performance, he has one near term and one a little bit longer term. So if you look at the performance, margins down quarter over quarter and down year over year, just trying to get a sense of what you're seeing on the utilization front. And if it feels like that's sort of the right trajectory, you know, looking to last year, and then maybe the last one on that being, is there a difference you're seeing between the new lives you added with a lot of that growth coming this year versus lives that have been in place already or ACOs that have been in place already?

Unknown Executive: And then, longer term, just seeing sort of strong performance, better margins out of that group that you're seeing in the core business. You know, how are you feeling about the opportunity given some of the moving pieces coming out of CMS on benchmarking and, you know, the change in the discount and possibly the end of the model in 26? Thanks.

Speaker Change: <unk> earnings guidance and I think you mentioned <unk> is tracking at about 6%.

Speaker Change: What do you need to see in four Q and then that's a.

Speaker Change: <unk> stepped on what makes you confident that you'll be able to reach that thank you.

Jeff Schwaneke: Thank you. Yeah, I think I mentioned this earlier. We didn't actually give out a cost trend for 4 queue because you're trending over a quarter, which was very, very high in the prior year. So what we did is we looked at the per member per month cost and we trended that based on historical experience over the last two years. Between the quarter, so queue 1, 2, 3, and 4. So we didn't give a full year trend number, and the confidence that we have is again, we took a prudent approach. We looked at the trend at PMPMs, and we think we're in a good position there.

Steve Sell: And typically, just like in Medicare Advantage, those new lives come on closer to break even. Historically, we have beaten that national benchmark by 200 to 300 basis points a year and had another really strong 23. This year, just to remind you, our expectation was at 100 basis points, which we thought was pretty reasonable. 23 will be public here, and we can talk more about those results.

Steve Sell: Jack, thanks for the question. So I think the headline is ACO REACH continues to be a really strong contributor for us. Another really strong quarter. I think we're taking a prudent posture on how we're recording the results for ACO REACH the same way we are for Medicare Advantage. To your point, we have grown, and we have new life this year.

Speaker Change: Yes, I think I mentioned this earlier, we didn't actually give out our cost trend for <unk>, because youre trending over a quarter, which was very very high in the prior year. So what what we did is we looked at the per member per month costs, and we trended that based on historical experience over the last two years between the quarters. So Q1 two three.

Steve Sell: But we continue to be a very solid contributor to the overall Medicare trust fund, the savings that the government is looking for in that program. Longer term, post-26, there is really strong bipartisan support for a full-risk vehicle for the Medicare fee-for-service population. That could happen in a number of different ways. For example, there could be another Innovation Center program. There could be a version of MSSP that has a full-risk track or another. But there is, on the Hill, bipartisan support within OMB and others.

Steve Sell: People really see the power within the model, and so I think we feel comfortable there's going to be a long-term program for the Medicare fee-for-service population, and it's going to continue to be a strong contributor for Agilon and our network of partners.

Speaker Change: Three and four so we didn't give a full year trend number and.

Speaker Change: The confidence that we have is again, we took a prudent approach we looked at the trend at <unk> and we think we're in a good position there.

Unknown Executive: Got it. I appreciate the caller.

Steve Sell: Jenny, the only addition I would give to what Jeff added is our second half PMPM cost levels for our year two plus markets are above our first half. So the percentage is coming down is important to understand. But I think, to Jeff's point, we step back and look at the PMPMs, and you're actually recording at a higher or forecasting at a higher level than we landed in. Thank you in the first half. Got it. Thank you.

Unknown Executive: Our next question comes from Whit Mayo with Lerink Partners. Your line is open, please go ahead.

Jenny Chen: And Jenny the only addition, I would give to what Jeff added as our second half PM PM cost levels for our year to plus markets are above our first half so.

Jenny Chen: Percentages coming down.

Speaker Change: <unk> is important to understand but I think to Jeff's point, we stepped back and looked at the PM Pms and you are actually recording at a higher level of forecasting it at a higher level than we landed in Q in the first half.

Speaker Change: Got it thank you.

Daniel Grosslight: Our final question comes from Daniel Grosslight with City. Your line is open.

Steve Sell: Hey, thanks, you guys have covered a lot. But Steve, I just had a follow-up to George's question. I guess I don't understand, like, why did you retroactively cancel to 111? I just say in working it out in this contract on 71. I'm not sure I understand the benefit of doing it retroactive when you were providing care for those Members, and then in the 10-Q, it looks like there were minus or 54 million in negative medical costs from these members.

Daniel <unk>: Our final question comes from Daniel <unk> with Citi. Your line is open. Please go ahead.

Steve Sell: Do I just take the 110 million of revenue that you've sized, divide that by two, and the 50 million less premium is offset by the 50 million in costs? Is that the right way to think about this? I'll take the first one, and Jeff can give

Daniel Grosslight: Please go ahead. Hey guys, thanks for taking the question.

Steve Sell: I'll take the first one, and Jeff can give you the technical answer about the income statement. So, why did we retrograde this back to 1-1? Because we have deep relationships with our payer partners and with our physicians, and this payer partner, as we're working on some things long term, talked to us about that being their preferred method to do it. We are able to work it out with our physician partners in a way that makes sense, and we're laying the groundwork for some going forward relationships with them that I think are really going to be positive.

Daniel: Hey, guys. Thanks for taking the question.

Daniel Grosslight: I know it's relatively early and see you know you can attach it on this response to a couple different questions, but it's hoping to maybe just get your high level thoughts on how your contract current negotiations are going for 2025. As we think about the different levers you have, you know, increasing the percent of premium car vows, both on parking supplemental and risk or doors. We're using the most risk activity at the moment. Do you think we'll see potentially some accelerated contract termination next year. And then in your comment area around lower geographic entry costs.

Speaker Change: It's relatively early and Steve you kind of touched on this.

Speaker Change: Response to a couple of different questions, but I was hoping to.

Speaker Change: Maybe just get your high level thoughts on how your contract renegotiations are going for 2025, as we think about the different levers you have increasing the percent of premium carve outs, both on <unk> and supplemental.

Speaker Change: Risk corridor, where you're seeing the most risky receptivity at the moment do you think we'll see potentially some accelerated contract terminations next year and then in your commentary around lower geographic entry costs.

Jeff Schwaneke: Yes, you mentioned that some of that was due to a removal of plan expansion 25.

Speaker Change: You mentioned that some of that was due to a removal of plant expansion and 25% I was just hoping to get a little more detail on that as well.

Steve Sell: I was just hoping to get a little more detail on that as well. Sure. So on pay your discussions for 2025, it's early. I think, you know, we're just getting visibility here. And like I said, the next few months will really dictate kind of our payer and product mix for next year. But understanding those bids will have a major impact in terms of where we land on percentage of premium. Where we land on carving out or capping things like party or supplemental benefits, and it varies somewhat by payers. But I think we're encouraged. I think we have very deep relationships with these payers, and we're going to work with them for a long time, just like we work with our physician partners across the 20-year exclusive joint venture partnerships.

Jeff Schwaneke: So it's really based on relationships and talking with them about what makes sense. But the net impact on medical margin should be zero. Yeah, yeah, quick bifurcation here. The 110 was compared to our expectations, right? Because we had it in for the first six months. So you're backing out 110 of revenue, you're backing out 110 of costs, and zero on the med margin, okay? In the 10Q, what you're seeing is you actually didn't record any revenue or costs for Q2, and you're just reversing Q1. Correct. So there's there's a split between, you know, number one is our expectations. It still gets you to the same answer.

Unknown Executive: We now turn to David Larsen with BTIG. Your line is open, please go ahead.

Unknown Executive: No, no impact for the six months. But in the 10Q, we didn't really record anything for Q2. And we had reversed the Q1 revenue, which is why you see the 55.

Speaker Change: Sure so on.

Speaker Change: On payer discussions for 2025, it's early.

Daniel: I think we're just getting visibility here and like I said the next few months will really dictate kind of.

Jeff Schwaneke: Hi, this is Jenny Shen, on behalf of Dave Larsen. Congratulations on the quarter, and thanks for taking my question. Just a clarification from me, and I apologize if you mentioned this earlier, but what is the cost trend that you need to see in the back half of Tony IV in order to get to your margin and earnings guidance? And I think you mentioned that 3Q is tracking at about 6%. So what do you need to see in 4Q? And that's a significant step down. What makes you confident that you'll be able to reach that? Thank you. Yeah, I think I mentioned this earlier; we didn't actually get it.

Jeff Schwaneke: Yeah, I think I mentioned this earlier. We didn't actually give out a cost trend for 4Q because you're trending over a quarter, which was very, very high in the prior year. So what we did is we looked at the per member per month cost, and we trended that based on historical experience over the last two years between the quarters, so Q1, 2, 3, and 4. So we didn't give a full year trend number, and the confidence that we have is that, again, we took a prudent approach.

Daniel: Our payer and product mix for next year.

Speaker Change: But understanding those bids will have a major impact in terms of where we land on percentage of premium.

Speaker Change: Where we land on carving out or capping things like part D or supplemental benefits and.

Speaker Change: It varies somewhat by payers.

Speaker Change: But I think I think we're encouraged I think we have very deep relationships with these payers and we're going to work with them for a long time, just like we work with.

Jeff Schwaneke: We looked at the trend for PM, and PMs, and we think we're in a good position there. And Jenny, the only addition I would make to what Jeff added is that our second half PMPM cost levels for our year two plus markets are above our first half. So the percentages coming down are important to understand. But I think to Jeff's point, we step back and look at the PMPMs, and you're actually recording at a higher level or forecasting at a higher level than we landed in the first place.

Unknown Executive: Our final question comes from Daniel Grosslight, WIPP City. Your line is open. Please go ahead.

Unknown Executive: Hey, guys, thanks for taking the question. I know it's relatively early, and you kind of touched on this in response to a couple different questions, but I was hoping to maybe just get your high-level thoughts on how your contract renegotiations are going for 2025. As we think about the different levers you have, you know, increasing the percent of premium carve outs, both on RTM supplemental and risk corridors, where are you seeing the most risk receptivity at the moment?

Speaker Change: Our physician partners across a 20 year exclusive joint venture partnership. So I think we're encouraged around those.

Steve Sell: So I think we're encouraged around those, you know, where is the greatest area of progress or receptive. It varies based on market and on payer. I mean the three categories I talked about are all things that we've sort of addressed with a different payer and a different market depending upon the circumstances. So I just laid out those categories as areas that will continue to work with them on the geo entry costs.

Speaker Change: Where is the greatest area of <unk>.

Speaker Change: Progress or receptivity it varies based on market and on payer I mean, the three categories I talked about are all things that we've sort of addressed with a different payer in a different market depending upon the circumstances. So.

Daniel: I just laid out those categories as areas that we'll continue.

Daniel: To work with them on.

Unknown Executive: Do you think we'll see potentially some accelerated contract terminations next year? And then, in your commentary around lower geographic entry costs, you mentioned that some of that was due to a removal of plan expansion in 25. I was just hoping to get a little more detail on that as well.

Steve Sell: Sure, so on payer discussions for 2025, it's early. I think, you know, we're just getting visibility here, and like I said, the next few months will really dictate kind of our payer and product mix for next year, but understanding those bids will have a major impact in terms of where we land on the percentage of the premium, where we land on carving out or capping things like Part D or supplemental benefits, and it varies somewhat by payer, but I think we're encouraged.

Daniel: The Geo entry costs, Jeff talked about some favorability around timing when we built our.

Steve Sell: I think we have very deep relationships with these payers, and we're going to work with them for a long time, just like we work with our physician partners across a 20-year exclusive joint venture partnership, so I think we're encouraged around those. Where is the greatest area of progress or receptivity? It varies based on market and on payer.

Steve Sell: Jeff talked about some favorably around timing. When we built our budget for this year, we had the prospect of another partner coming on board for 25. We made a decision to push that out as we work with payers on it. It would be a new state. Can we get that market and those payer agreements to a place that makes sense, and we just agreed with that partner to pause that activity until that became clear. And so, with that clarity, we reflected that in the geo entry, not just what we booked in the quarter, but the forecast for the second.

Steve Sell: I mean, the three categories I talked about are all things that we've sort of addressed with a different payer and a different market, depending upon the circumstances, so I just laid out those categories as areas that we'll continue to work with them on. On the geo entry costs, Jeff talked about some favorability around timing. When we built our budget for this year, we had the prospect of another partner coming on board for 25.

Jeff <unk>: Budget for this year, we had the prospect of a another partner.

Steve Sell: We've made a decision to push that out as we work with payers on it. It would be a new state. Can we get that market and those payer agreements to a place that makes sense, and we just agreed with that partner to pause that activity until that became clear, and so with that clarity, we've reflected that in the geo entry, not just what we booked in the quarter, but the forecast for the second half.

Jeff <unk>: Coming on board for 2005.

Jeff <unk>: We've made a decision to push that out as we work with payers on it would be a new state.

Jeff <unk>: Can we get that market and those payer agreements to a place that makes sense and we just agreed with that partner to pause.

Daniel: That activity until that became clear and so with that clarity.

Daniel: We've reflected that in the <unk>.

Daniel: Not just what we booked in the quarter, but the forecast for the second half.

Unknown Executive: Thank you.

Speaker Change: Makes sense. Thank you.

Unknown Executive: Ladies and gentlemen, we have no further questions, so this concludes our Q&A and today's conference call. We'd love to thank you for your participation. You may now disconnect your lines. Thank you very much.

Unknown Executive: Ladies and gentlemen, we have no further questions. So this concludes our Q&A and today's conference call. We'd love to thank you for your participation. You may now disconnect your lines.

Speaker Change: Ladies and gentlemen, we have no further questions. So this concludes our Q&A.

Speaker Change: Today's conference call, we'd like to thank you for your participation you may now disconnect your lines.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Sure.