Q2 2025 agilon health inc Earnings Call

Good afternoon, and thank you for attending the agilon health Q2 2025 conference call. My name is Jason, and I'll be the moderator today. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end.

I now like to pass the conversation over to your host, Evan Smith.

Thank you, operator. Good afternoon, and welcome to the call. With me are Ron Williams, our Executive Chair, and our CFO, Jeff Sherwani.

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

These risks and uncertainties are discussed in our SEC filings. Please note that we assume no obligation to update any forward-looking statements. Additionally, certain financial measures we will discuss in this call are non-GAAP financial measures. We believe that providing these measures helps investors gain a better and more complete understanding of our financial results and is consistent with how management reviews our financial results. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures is available in the earnings press release and Form 8-K filed with the SEC. And with that, let me turn the call over to Ron.

Thanks 7.

Good afternoon, everyone, and thank you for joining us on short notice. I am pleased to be with all of you today.

For those of you I may not have met before, I've been Chair of agilon Health since we founded the company.

As we announced today, I have been appointed by the board to the role of the Executive Chairman of State, with your sales stepping down as President, CEO, and Director of the Board.

We also reported our second quarter results and withdrew our 2025 guidance. Jeff will walk you through this in detail.

But first, I want to take a step back, introduce myself, and discuss how we are tackling Alon's recent underperformance.

And positioning the company to realize the value of our unique and differentiated model in 2026 and beyond.

I've been fortunate to have served in a number of leadership and operational roles in healthcare companies, including as Chair and CEO of Edna.

Throughout my long career in the sector and many different economic and market cycles, I've helped organizations at critical inflection points to drive transformation and improve performance, including Edmond.

From its inception, I believe that agilon's mission and the critical role we serve in the healthcare industry.

Helping to transform health care for seniors by empowering primary care physicians to focus on the entire health of their patients and to create.

Value for stakeholders.

The foundation of our business and agile operating model is built on a belief that aligning incentives with community-based physicians and a commitment to delivering innovative integrated capabilities will allow primary care physicians to successfully navigate their transition to a health care system defined by providing high-value medical care.

The value that the Agile model provides is more important today than ever.

The health care system needs effective solutions to improve quality outcomes.

And address costs by empowering primary care physicians to support the aging population that is rapidly growing.

Particularly the growing 80-plus years old segment, which typically has the most complex needs.

As we move through 2024, we identified certain challenges our business could face in 2025.

Recognizing that agilon would be operating in a volatile environment and that this year would be an important transition period.

Using the learnings we gained in 2024, we took action and launched strategic initiatives last year to strengthen our platform and improve performance.

Which our team has actively advanced this year.

These efforts include deepening our engagement with our physician partners.

Expanding programs that support the most complex patients.

Enhancing our operational and business visibility capabilities, including through investments in AI and advanced technology, and improving contract economics in our cost structure.

Given the long-term nature of our business cycle, we have not yet captured the full upside from these enhancements this year, but we are confident in realizing them in 2026.

Nevertheless, as 2025 progressed, the industry complexities and headwinds we believed agilon would face were more acute than previously expected.

And our execution was not adequate.

There are two key drivers, as Jeff will cover.

The final 2024 payer data we received indicated that our risk adjustment last year was lower than we previously assumed.

Resulting in a lower 2024 risk baseline.

Due to the lower 2024 baseline, and because of our enhanced data platform, we see our 2025 risk adjustment trending lower than expected.

In the activity levels that would allow us to overcome, this has not yet materialized.

We are clearly disappointed with the financial results. As we firmly believe in the value our business creates for physicians, patients, and payers, and the significant growth opportunities agilon can capture.

This is why we are taking additional decisive actions to further strengthen our foundation as we look to drive improved performance and take advantage of what we expect will be a more favorable environment in 2026.

We will be aggressive in aligning our talent and execution to our opportunity.

We are transitioning. Our leadership has announced today.

And I will work even more closely with the Agilent team as Executive Chairman while we conduct a search for a permanent CEO.

I'm committed to ensuring a smooth transition, but in the meantime, I'm fully focused on improving execution across our business and helping to strengthen all relationships that are critical to our future success.

In addition, I formed an Office of the Chairman to help thrive this effort.

Which includes several key members from across our existing leadership team.

This group is recalibrating the culture of the organization against a standard of.

urgency accountability and performance.

Our meeting with the leadership team is daily, with the purpose of shortening the interval between business performance review and actions to accelerate outcomes.

This approach is cascading across the organization.

We expect this will translate to improved results for our partners and Agilon.

Together, we are working with urgency to advance and execute efforts now to improve performance.

This includes making economic changes to ensure that agilon and our position partners capture the appropriate value for the benefits that we deliver through our outcomes-focused Total Care model.

Urgently addressing the elements of our control while also navigating the broader market-based challenges and sharpening our commitment to disciplined operational rigor, which the current environment demands.

I have seen firsthand what is required to stabilize and ultimately react in an organization that is undergoing a challenging transition and that operates within a prolonged business cycle.

In my past roles, leading large and complex healthcare technology companies, I have evaluated and implemented ways to streamline operations, reduce administrative complexity, and unlock performance through data-driven decision-making and a culture of empowerment and accountability.

This insight and experience reinforced my confidence in the sustainable value. The agilon can deliver if we improve our execution.

We've seen time and again that the agilon value-based care model provides significant value to our position partners and their patients across the U.S.

Our proven success over the years has been driven by the differentiated value proposition of the Agilent platform.

Our foundation remains strong today, and with the many competitive advantages agilon has created—including our unique integrated set of capabilities that are specific to primary care—physicians are driven by value-based care models that reinforce our role as a long-term solution for physicians focused on outcomes.

We have consistently demonstrated that the agilon platform can drive utilization performance 20% to 30% better than the local FIFA service benchmark, with quality scores approaching or greater than 4.25 stars.

Leaders in their communities for decades. Supports the stability of our business and durable long-term growth. Lovely.

Our scaled platform that serves over 600,000 senior patients.

2,200 primary care physicians and 30 markets generate consistent quality clinical cost outperformance and significant value to our payers.

Building on this foundation, we are committed to enhancing performance and Agilent's position for sustainable value creation.

So we can maximize the benefits of the initiatives we have been implementing, as well as the improved Medicare reimbursement model that takes effect next year.

We know that our powerful model provides important solutions to the industry.

And we believe that improved execution and the CEO with the skills, experience, and relationships that are aligned to our new path will deliver the results for our position partners and our shareholders that we know are possible.

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

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

Before reviewing our second quarter financial results.

As Ron touched on, 2025 is a transition year in which we are advancing strategic initiatives that we started putting in place last year to improve our contract economics, reduce our risk, and optimize our cost structure.

While this is a long business cycle, we are now taking a more assertive approach for improved operational and financial performance.

The increased visibility and alignment of our financial and operational data will enable us to more quickly identify and drive improvements and better manage the business.

We believe we're going to start seeing the results of these changes to deliver enhanced performance and growth in 2026 and forward.

As we look at our second-quarter results, it is clear that a combination of factors are at play.

Some of them are market-based and out of our control. Others we are actively addressing through previously exited markets or by reducing our exposure to Part D. These issues will not reoccur in 2026.

Ball. Headwinds remain.

We are confident they can be addressed through better execution, with a sharper focus on our operations and cost discipline.

While our strategic priorities remain consistent, we are confident that with our new leadership structure, we have greater flexibility to pursue these objectives with a faster pull-through from action to outcome.

I will run through the changes we are implementing and the aggressive steps we are taking to set us up for improved performance, one by one.

First enhancing our platform.

During the quarter, we made additional progress in strengthening our network and our platform through advancements in technology, clinical pathways, and operating efficiency.

By more effectively leveraging data and technology, we are working to bring agilon closer to our PCP partners by providing solutions that drive higher quality of care and reduce variability in care delivery across our network.

Second data.

We have significantly improved our data visibility and timeliness. Approximately 72% of our patient population is validated in our enhanced data platform, which went into effect at the end of the first quarter 2025.

For those patients, we are seeing a high correlation with the final 2024 and mid-year 2025 data.

The high correlation of the enhanced data platform for estimating and validating cost trends and Raft scores increases our confidence in the foundation and potential for 2026 performance.

In addition, in late 2024 and early 2025, we expanded the clinical depth and data of our burden of illness and quality programs while directly integrating clinical evidence and evidence-based guidelines for the physician at the point of care.

These improvements are now driving an increase in early identification of high-risk conditions and potential gap closures, and we expect to make additional advancements this year.

These enhanced capabilities support our expectation for improvement in 2026 for the burden of illness, expanded clinical pathways, and quality scores.

Third.

Enhancing quality and delivery.

Our ability to deliver top-tier quality performance relies on us leveraging the strengths of a PCP's relationship with the senior patient.

Scheduling to deliver quality and clinical outcomes while reducing costs.

Recent surveys support the strength and demand of the total care model, with an NPS score of 85, as well as 92% PCP retention and 90% retention among MA patients.

We remain committed to driving 4+ Star Quality performance.

Our enhanced Burden of Illness program provides the foundation for our clinical model through early and accurate identification, assessment, and documentation of a patient's comprehensive health conditions at the PCP office.

By connecting the burden of illness assessment to our quality and care delivery programs through the design and implementation of care plans.

We can impact high acuity chronic disease categories, like heart failure, kidney disease, and dementia.

Generally, high-risk patients are driving the majority of inpatient utilization.

Through early identification, we are making significant progress on our clinical pathways programs.

By focusing on high-risk patients and seeing them more often, we can help lower costs and improve health outcomes.

Starting with our heart failure program.

We continue to make strong progress.

While still in the early stages of implementation, we are now live in over half our markets and are seeing strong month-over-month increases in enrollment.

We will provide updates on our progress in clinical outcomes later in the year.

Our palliative program is now live across most of our markets. We've been pleased to see a strong increase in patients choosing to receive advanced illness management via our program.

We also continue to see improved Care Quality indicators, like a reduction in unnecessary hospital admissions compared to benchmark, and an increase in hospice length of stay.

Given the positive patient and clinical impacts to date, we are focused on expanding this program across partnerships and geographies in 2025, which we expect will create additional value in 2026.

Our fourth area of focus is improving our contract economics.

We are currently in active negotiations with our payer partners for 2026, with approximately 50% of our membership up for renewal.

We believe we can establish agreements that better align economic terms with the value delivered and the predictability of performance.

During this renewal process, we remain focused on several areas.

First, a further reduction in Part D exposure, where we are already seeing positive indications from payers.

An expansion of quality incentives, which are aligned with payer objectives.

Third, improved economic terms for Part C and Part D, a continued narrowing of the risk from supplemental benefits through better information.

We are also optimistic that the recent public commentary from payers will translate to a more normalized payer bidding environment on both pricing and benefits as they focus on improved margin performance.

Last, we will be working to drive greater efficiency across the platform.

We have launched a process to further evaluate our operating expenses to support improved profitability.

Collectively, these levers that we are pulling and are focused on enhanced execution will drive performance recovery in 2026 and beyond.

Before turning toward what is next, I'm going to provide the details of the second quarter results.

Let me start by saying that we are clearly disappointed with our financial results for the second quarter.

These results reflect a lower than expected burden of illness or risk adjustment contribution for both 2024 and 2025.

Unfavorable development in part D costs.

And 2025 cost trends that are in line with expectations.

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

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

Before we provide more detail and risk adjustment, let me highlight some other key metrics.

Starting with membership.

Recent Market exits.

As a reminder, the Class of 2025 contracts are on a glide path approach and are not driving a meaningful variance in our financial results.

We expect our same geography growth rate to be in line with the broader industry for 2025.

ACO Reach membership in the second quarter was 116,000 members, compared to 132,000 members in the second quarter of 2024, and was in line with our expectations.

Turning to revenue, total revenue for Q2 2025 was $1.4 billion compared to $1.48 billion in Q2 2024.

The year-over-year revenue decrease is primarily due to lower risk adjustment in 2024 and 2025 and unfavorable development in Part D.

Medical margin for the second quarter 2025 was -$53 million.

Compared to a positive $106 million in Q2 of 2024.

While medical cost trends are in line with our prior expectations, the medical margin was below our guidance, driven primarily by the underperformance of our burden of illness program in 2024 and 2025, as well as unfavorable prior period development.

We have provided a bridge in the earnings presentation. We issued today that walks from the guidance we provided for the second quarter of 2025 to our actual results.

During the second quarter, we received substantially all of the final 2024 risk adjustment data from our payer partners, which indicated our 2024 risk adjustment was lower than expected.

This, in combination with additional payer data for 2024 Part D, resulted in a negative prior period development of $66 million, recorded primarily as a reduction of revenue.

It is important to point out several things.

First.

Of this amount, $20 million was associated with exited markets.

The second $13 million was associated with higher 2024 Part D costs from 1 peer, who agreed to carve out Part D, beginning in 2025.

Leaving $37 million of risk adjustment related to 2024 activity in our existing markets.

Last, because of the lower risk score step-off from 2024, combined with data that we now have from our enhanced data platform.

We see that our 2025 risk adjustment is also trending lower than our expectations.

As a result, we have true'd up our risk adjustment, resulting in a $48 million reduction in revenue.

This represents the year-to-date true-up for 2025 risk scores for the 72% of our membership. On the enhanced data platform,

We have not changed the estimates for the remaining members, pending the receipt of midyear risk score information, which we expect late in Q3.

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

Adjusted EBITDA for the quarter was negative $83 million compared to negative $3 million in Q2 2024. The year-over-year movement reflects the items I just mentioned, partially offset by favorability from lower geography entry costs and operating cost initiatives.

Adjusted EBITDA related to ACIO reached 10 million in the second quarter of 2025, in line with our expectations.

Managing medical cost trends remains a top priority.

For Q2 2025, our year, the 2 plus markets medical cost trend was 5.9% compared to 6% in Q2 2024.

My results continue to demonstrate Agilon's strong quality performance metrics, with readmission hospital admission and ER visit rates 20% to 30% better than the local fee-for-service benchmark.

Primary care utilization and annual wellness visit volume remain relatively flat, and the overall medical cost trend was within our expected range for the first half of the year.

As part of our strategy to manage risk, we have successfully reduced our exposure to Medicare Part D, with less than 30% of our membership carrying Part D risk in 2025. We continue to make progress to reduce it further as we enter 2026.

Additionally, we are working closely with our payer partners to refine benefit designs and improve alignment on medical cost management.

On the balance sheet, we ended the quarter with $327 million in cash and marketable securities and $176 million of off-balance sheet cash held by our ACO entities.

navigate this challenging period while maintaining our focus on the factors that will drive long-term performance for our business, our physician partners, and our shareholders.

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

In summary, we are extremely focused on improving the near-term profitability of the business that will allow us to drive growth in 2026. Our actions include improving contract economics and bid visibility with payers.

Continuing to enhance our data platform and burden of illness program.

Removing variability in the business by reducing exposure to items we don't control.

Focus on the expansion of quality programs that are aligned with our execution, and continue our cost discipline and capital allocation to strengthen our balance sheet.

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

Finally, I want to thank our employees and our physician partners who have been working tirelessly to navigate these challenges with us.

Our people are the foundation of our success and our key to our ability to execute our plan and strategic priorities.

To reiterate, what we have outlined today. This is a marked pace of change from how we executed the business previously with that operator. Let's move to the Q&A portion of the call.

If you'd like to ask a question, please press star, followed by 1 on your telephone keypad. If, for any reason, you'd like to remove that question, please press star, followed by 2 again. To ask a question, it's R1 on your telephone keypad.

Our first question is from Elizabeth Henderson. Evercore, your line is now open.

Hey guys. Good afternoon and thanks so much for the the question. Um I guess a couple of things that has come up like 1, I just want to understand just maybe I missed it. So apologies about the you're saying that you might have a positive pyd in 3Q. So I just want to clarify that and then 2 like is there something that you change about the growth rate going into 2026 in terms of adding new practices or sort of allowing new members until you sort of have the cost Trends more in a stable place? Or do you believe that based on what you just said on the 2020 on your 2026 Outlook, that that that should sort of continue along the same Dynamic? Um, thanks so much.

Yeah, Elizabeth. This is Jeff. Thanks. Thanks for the question. I guess, the first thing I would do is point you to the presentation that we've published today, that in connection with our earnings, in that presentation, you'll find a bridge from the, the prior midpoint of the guidance of the medical margin, roughly million dollars and bridging that to the actual actual results for the quarter. And I guess the first thing that I would start out with is I would say, you know, generally medical cost Trends were in line with our expectations and and the cost trends for the first half were roughly around 6%.

And then, as far as developments are concerned, we had a small amount of favorable development on quality programs, roughly $3 million. I would say the most significant pieces of development were unfavorable.

Um the first is related to uh the risk adjustment which we covered in the prepared, remarks 37 million, we do have 13 million dollars of negative development with Part D, that's related to a payer that agreed to carve that out in 2025. So that issue does not does not go forward and then 20 million dollars of negative development for um exited markets. So again that that development will also not carry forward as well. So I I guess that's how I would frame the negative development. There are 2 components, which aren't really continuing with the business going forward. And then the 2024 risk adjustment that that has a, I would say a step off impact on on 2025.

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

Great. Thanks so much for the clarification.

And draw a scene with Truist and Line is now.

Hi guys. This is Eduardo. Ron on for Dilendra. Thanks for taking the question. Yes, on call trends in the quarter, I mean you said it was 6% for the first half. I guess, can you break down how those trends developed sequentially from Q1 to Q2 and perhaps what information you might have on July at this point? I guess we'd also be curious if those trends were consistent across your markets and cohorts or if there were any specifics to call out.

Yeah, thanks Eduardo. I I would say um the first thing is we had 6% accured for q1 cost Trends and at this point in time that's roughly 85. The mid 888% complete roughly around 85% complete so we feel pretty good about uh cost Trends in q1 uh Q2 um you know you know our data model here we we are on a little bit of a delay uh so we don't have a lot of paid data but generally what we're seeing is consisting cost Trends with with q1 and as far as July is concerned that would be our our least complete month. So I wouldn't really be able to calm comment on kind of cost Trends in July. Obviously we get a new batch of data here, uh, coming this week but I guess that that would be my framing. I think the first thing that I would say just generally is is the cost trends for us um development on the on the medical cost line uh hasn't been that significant this year from from 2024 or from q1 to 2025

And recall, last year we made substantial changes to our reserving methodology in the third quarter that was on the old data model. Now we have those changes that are on the new data model, which is provided, I would say, a higher level of confidence in our reserve estimation.

Uh great maybe maybe if I could just squeeze 1 more in there just on the the Top Line risk adjustment estimate for the 72% of membership. Um was that can pretty consistent across the board. I'm just trying to figure out why you guys didn't make the additional adjustment on the 28th percent. You know maybe the 72%. It was 1. 1 payer that had the information that where it which uh, caused the adjustment or just trying to see what the variability was that you didn't extract the weight.

Yeah, yeah, good, good call out here. I'll I'll get to that. Uh, I'll get to that at the end of my comment, but let let me just start out with a couple things on risk adjustment.

First, I just want to be clear that ultimately we are generating, I would say, positive risk adjustment lift both in 2024 and in 2025, really over and above the impact of V28. I think if you look at the slides that we published today, the 2024 net risk adjustment lift is roughly around 1.2%, and if you account for the step-off change, 2025 would also be positive after the impact of V28 as well. And so the issue with 2024 is we had an estimated at the end of the year for the mid-year to final sweeps. That.

Was based on history based on our historical experience that we've seen by payer in the past. Those came in a little bit lighter than we anticipated, obviously that lower Baseline impacts, the jumping off point uh, for 2025 and and so therefore, we had to, we had to change that as well. Um, I would say the enhanced data pipeline is important here. Uh, we have visibility um, that we did not have a year ago today and we can calculate member level risk scores. And as I mentioned, in my prepared remarks, there's a high correlation between the data Pipeline, and some of the mid years we've received, we've received a couple of mid years uh from some of our larger payers. But for the vast majority, we haven't

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

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

Come in the third quarter.

Thanks.

Our next question is from Daniel Gross Light with City. Your line is now open.

Hey, this is Lisa. I just had a question on if you are able to get comments here in the 2026 class during the headwinds that still expect to come in at 30,000 to 35,000 members. And I'm assuming these would be under, but you still correct.

Uh yeah. Yeah I'll cover I guess both pieces. Um so for first is far as uh yeah we we said we were going to have 20,000 Glide path uh, members this year, you know, effectively no downside risk. Um, we are not at that number at the, at the end of Q2. Um, ultimately, you know, we're still working on economic terms with some of them and and, you know, ultimately if we can't get to those then, uh, they won't show up. Um, which is fine. I would say, I commented earlier about 2026 growth. Again, we're focused on improving profitability in the near term. And that growth I would say is under review, uh, and we're going to be highly selective on future growth given given where the business is performing.

Got it. Thank you.

Our next question is from Justin Lake with Wolf Research. Your line is now.

Thanks. Uh, Jeff, I heard you talk about, uh, 2026 bids and getting clarity there. First, you know, any, uh, any insight that you can share with us in terms of, uh, you know, how you think.

The bidding, uh, looks for your kind of book of business for 2026. They're expecting a lot of help there.

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

And, uh, if you manage to still your biggest payer,

Uh that's a good question. I would have to look at the at the 10q I don't, you know we we disclose that information I think pay or a b c that's disclosed in the filing. So it's it's not specific and and we're not going to get specific on the call. Certainly they are 1 of our larger payers for sure.

Right. So, publicly they've said that, uh, they're not looking to cut benefits.

They're going to cut FTA and, uh,

And improve medical management to get to their margin targets.

Just curious, you know, your, your view of that. Do you feel like, uh, you know, that's something where, you know, you have to have a tough conversation and potentially walk away from, uh, from membership. But it just doesn't have to be about Yumana. I doubt you'd want to talk about that specifically but just in general, if you feel like you're going to have some of those conversations where you're going to say look we're either you know handing you back the members here you go or we're going to see real economic Improvement and when would you be able to share that with us?

Yeah, I would say, Justin, those conversations are going on right now, but ultimately it depends on their final bid. And so, you know, as you think about how we negotiate with our payers, we don't conclude our negotiations until we get the full detail.

And we can see what we believe. Those bids are going to do to our economics and our performance in those markets.

And I would say you're absolutely correct. If, if ultimately, we don't see a situation that provides the economics that uh, that we believe our our, our uh, prudent for our business, then then, then yes, we may not do a deal with that payor. Uh, now if you remember our model, right? We have long-standing relationships with the primary care. Physicians who have had, you know, more than 10 years plus relationships with their members. And so. So generally, that doesn't mean the member leaves, the agilon ecosystem. It may mean that they're just enrolled with another pair.

Got it.

All right, thanks.

Our next question is from Ryan Langston with CDC. Calling your line is now.

Great, thanks. Um, just two things for me. I guess I'm the CEO search. Can you give us a sense of what you're looking for in the next CEO? And how should we think about potential?

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

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

All right. Thank you.

Our next question is from Matt. Shea, with me, your line is not open.

Hey, thanks for taking the question. Um, called out flight favorability in the quarter from quality incentives. Can you just elaborate on that? Maybe how durable of a benefit you anticipate that to be in the back half of this year? And then, as you think about the renewal process, talked about going after more quality incentives. What is payer willingness to spend like to include more of those quality incentives in your contracts? Or just how are you thinking about how much opportunity there is to add within your contracts for next year? Thanks.

Yeah, yeah. Real real quick small amount of favorability here in quality which is good really related to our performance in in 2024. So uh I think listen we have a strong quality program. I think what's 1 of the important, you know values that we deliver to our payer Partners is is high quality scores? I think if you look at our year 2 plus markets, we are at or above 4.25 stars. Um, so it's really been a strength for us. And again, I, I guess I come back to the we want to get paid for how we perform. And I think payers, um, given some of their own quality challenges or more willing than ever to put dollars at risk, um, in these quality programs. And so, we saw that this year, which is a step up in in dollars available if you earn those quality,

Scores. Uh, and I think pairs are even more willing to pay uh for higher level of performance which is really good uh, for us and really plays to the strengths of our model. So I think that's where payers um, where they're coming from now. So I, I do expect those dollars to to increase from from 25 to 26. How much will have to see? Uh, but I do think it's a, it's a mutually agreed upon set of metrics that that we can really Drive value that ultimately, um, produces economics for the payer and for us

Our next question is from Craig Jones with Bank of America. Your line is now open.

Thank you. Um okay, thanks for the question. So maybe to follow up on the quality incentives, um, let's say you weren't able to get that installed in all the obviously you're only a 50% up for know this year. But over the next few years, as you renegotiate, all these contracts, if you're able to get those quality incentives into the into the contracts across 100% of your membership, you know how much how much potential margin could there be um from from getting those installed? Thanks.

Yeah, I would, I would say we we already have a lot of these programs, uh, in the majority of our contracts today with payers, I think the difference is the dollars are escalating because I mean you, you know, this uh publicly a lot of the public payers have had challenges in quality specifically uh, which is, you know, cost them a lot of a lot of returns. And so ultimately they're putting more dollars here in order to I would say incentivize performance and outperformance. Um so this isn't new, the quality metrics of already been there. I would say. The difference is the dollars are are escalating which actually plays into our strength.

Okay, got it. Thank you.

Our next question is from Jack. Leven with Jeff, your line is now open.

I'm here just to make sure I've got the timing of this right. So it sounds like to me, and please Ron or Jeff jump in if this is incorrect, but it sounds like the main pillars of...

What needs to improve?

To affect the turnaround, we are sort of still in place and you're working towards them.

But that, as we think about further Market on sort of either Market exits or or really looking at the portfolio and making a decision about what's the right

Size of it, or what's the right version to go with?

That's going to come later in the year, and bids are the most important piece there.

Do I have that right? Yeah, uh, yeah, I guess what I would say is I think some of the some of the the majority of the levers that we're pulling in the business are, are certainly the same. Um, I think, you know, the point that Ron and we're trying to make is the business really has to operate differently. From an urgency in action perspective, we really need to reduce the time from evaluating performance to to action. I think the the data model and the progression of the data model has been an important piece of that where we are now tying, um, you know, Financial outcome, back to operational metrics which is pushing the business forward. Certainly um, you know, looking at our operating costs is is something we're always doing, but I would say we're taking an enhanced view here. But ultimately yes, pair economics is a big component beside all of the other. I would say macro changes that you guys are aware about.

For example, uh, you know, the final rates for next year. Um, so all of these changes kind of come together, but yes, payer bidding is a large component.

Yeah, I think what I would add is that, if you look at our population, the Medicare Advantage population. You look at the top chronic diseases that are affecting them. And with the Aging population, there is an enormous unmet. Medical need undiagnosed, medical need in that population. And so doing a better job, there will result in more Revenue as a result of doing a good job of taking care of seniors through the total care model that, that we have the tools, we've put in place support the Physicians and give them the ability to enhance their care. Delivery to that population. And that represents I, I think in, in in important source of value for us, and for our position partners,

Got it, really helpful if I can just squeeze in a follow-up. Um, any details you can give on Atto Reach's performance in the quarter and if that is still tracking to, I think, $35 to $40 million of UTO contribution for the full year?

Yeah, so certainly, we're not providing the guide, but I would say reach performance was in line with our expectations. Um, and so, uh, you know, it's been a strong performer for us, and it continues to do so.

Our next question is from George Hill with Deutsche Bank. Line is now open.

Good evening, Jeff, and thanks for taking the question. One thing on the impact, as it relates to the 72% of your book that you guys have the data from the new model on, do you feel like it's safe to extrapolate that to the balance of the book? Or is there a reason why that would be less, or that would be more? And then my next question would just be, is it too early to talk about the magnitude of earnings performance improvement in 2026, or do we really just need to see more there? I guess we're just trying to figure out if the earnings improvement is in basis points or percentage points. Thank you.

Yeah, yeah, the first thing is, I mean, there's a reason and I think we talked about this a little earlier. There's a reason why we we didn't extrapolate and record and it's because there was variability among payers uh, related to this adjustment, right? So, so for the payers that we do not have the data for we're just really waiting for that information. Um so I think we've provided you enough here you know to do whatever you want with that number. I would say but that's that's ultimately the adjustment we recorded in the quarter and you know, we're not really providing a a 2025 guide setting here today. Um, but but as you know, there are a lot of things that are happening.

% of our contracts for 2026 are open for renewal, and we're looking for improved economic terms. We continue to focus on carving out Part D this year; it's below 30%. Where we have Part D risk, we've made progress on that. It's not quite final, but we do think we'll be able to bring that down heading into next year. Regarding payer bids, we had a little bit of a discussion here today about that, but generally, I would say there is stable to favorable commentary if you take the broad brush of payers. Ultimately, there is lower supplemental benefit underwriting risk due to decreased supplemental benefits, and payers have agreed to provide us more information.

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

Our next question is from Andrew Mock with Barclays. Your line is now open.

Hi, good evening. A couple of questions. First, you commented that the burden of illness assessments done last year did not yield the risk adjustment revenue you estimated for 2024 and 2025. Can you be more specific on the drivers of that? Was there a downward revision? Did you not have the documentation necessary to support the diagnosis codes, or were codes rejected by CMS? Any additional color there would be helpful. And then, secondly, I think you noted a 6% cost trend in the first half of the year, and that was in line. But I thought your full-year cost trend previously was 5.3%. So can you clarify your comments there? Thanks.

Yeah, I'll I'll handle the cost Trend, 1 first. Um, uh, you are correct. Our previous guidance was 5.3%, but we didn't, we didn't necessarily lay that out by quarter or what I would say is for the first half of the year, the cost Trends were in line with our expectations. And that's is you know, kind of as far as far as I'll go on that. I would say as you as you think about uh, 2024 risk adjustment performance. I think what we're trying to say is is that we didn't do as good a job of identifying the conditions that our patients had and enrolling them into the appropriate care.

Um, I don't think this code got rejected by CMS or anything of that nature. It goes back to, you know, I would say we started up some of these new clinical programs really to attack the disease burden of our existing patient population.

Uh, and really get them to the care that they need to reduce the burden, uh, the burden of illness, uh, and ultimately have, you know, better health outcomes and lower overall costs. So I think that's really what we're talking about. We've talked about new programs that we've implemented either late last year or this year specific to heart failure, COPD, and dementia. I think these are clinical pathways that we have here that ultimately will serve to identify these conditions where patients have those and treat them accordingly.

Great. Thank you.

Our next question is from David Larsen with BTIG.

Your line is now open.

Jenny on.

So I'm just more on the cost trend. It's good to hear that it was early in line with your own expert expectations, and a year-over-year. Just any more details on what you're seeing and that cost trend would be very helpful. Any pockets where.

The utilization or costs are higher, specifically if there are any. Thanks.

Yeah. Yeah, I would, I would say for, um, the the first, the first quarter, uh, specifically we have, you know, a high percentage of paid claims there. And I guess what I would say, it continues to be inpatient, inpatient costs and Part B is invoid drugs and specific to oncology. Um, so that's been a consistent theme for us exiting last year and into the first quarter of this year. Um, so we that's really the the pressure points that I would I would highlight

That's helpful. Thank you.

Our next question is from Lance Wills with Bernstein. Your line is now open.

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

Yeah, I would maybe start with, uh, practice partnerships. We're structured in a way where the partners that we, uh, have in those markets are primary care groups, predominantly that have been in that market for quite some time. They are often one of the largest, if not the largest, primary care practices in that group. We have long-term arrangements with them, and they understand, we think, the cyclical nature of the business, uh, and the fact that we are focused on clinical pathway improvement and evidence-based elimination of variability. I think deepens the relationship that we have with them because what they care about at the front line is really delivering quality care to people, and clearly there's always an economic component to that. And that's why we're tackling all the things that Jeff has talked about. The model is that there's a market presence.

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

Yeah, Atlanta. Your second question on other medical expenses is just a function of calculating the partner share calculations. It's done on a partner-by-partner basis, and so that's the variability you're seeing there.

Great. Thanks a lot.

All right. Next question is from Lisa Gil with J.P. Morgan. Your line is now open.

Ed: Um, do you have enough cash to...?

Through to 26 and the potential turnaround. I noted in the press release you only talked about the associated unconsolidated Akko model, not the rest of your cash balances.

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

And the ACO program works, uh, we believe our current liquidity position gives us the flexibility. We need to chat to navigate the challenging environment and focus really on improving the short and long-term performance of the business. And and at a minimum, I would say we're confident that we have enough cash to get through 26.

And this excludes any actions we're taking to improve cash flow in the near term.

Helpful. Thank you.

It looks like there are no more questions, so I'll pass the call back over to the management team for closing.

Well, thank you for your time today, especially on short notice.

We look forward to continuing our dialogue with analysts and investors as we advance the performance-improving steps we've outlined today.

And we look forward to introducing you to Agilent's new CEO when we have completed that search.

To our employees and partners who may be listening in, we also want to thank you for your dedication and your partnership.

You're playing a crucial role in the health care industry by helping to transform health care for seniors. By empowering primary care physicians to focus on the entire health of their patients, we will continue to fulfill this mission together. Thank you, and have a good evening.

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