Agilon Health's Q3 2025 Earnings Call: Contradictions Emerge on Contracts, 2026 Growth Strategy, Quality Incentives, V-28 Risk Model, and Humana's Impact

Date of Call: None provided

Financials Results

• Revenue: $1.44B in Q3 2025, compared to $1.45B in Q3 2024 (slight YOY decline); FY2025 revenue guidance $5.81B-$5.83B
• Gross Margin: Medical margin -$57M in Q3 2025, compared to -$58M in Q3 2024; FY2025 medical margin guidance -$5M to $15M
• Operating Margin: Adjusted EBITDA -$91M in Q3 2025, compared to -$96M in Q3 2024; FY2025 adjusted EBITDA guidance -$270M to -$245M

Guidance:

• Medicare Advantage membership expected 503k–506k and ACO membership 113k–115k for full-year 2025.
• 2025 revenue expected $5.81B–$5.83B; includes ~ $150M lower-than-expected 2025 risk adjustment and ~$60M exited markets impact.
• FY2025 medical margin guide -$5M to $15M; adjusted EBITDA guide -$270M to -$245M.
• Year-end 2025 cash ~ $310M (including ~$65M ACO cash); expect at least $100M cash at 2026 year-end.

Business Commentary:

* Revenue and Financial Performance: - Agilon Health reported revenue of $1.44 billion for Q3 2025, with a focus on improving medical margin and adjusted EBITDA. - The revenue was impacted by lower-than-expected in-year RAF contribution and continued high costs from exited markets.

• Contracting and Economic Partnerships:
• Agilon is actively negotiating with payer partners for 2026, focusing on reducing Part D exposure, expanding quality incentives, and improving economic terms.

• This strategy is supported by favorable bid designs focusing on MA profitability, including increased premiums, deductibles, and reduced benefits.

• Clinical Initiatives and Quality Improvement:

• Agilon's clinical pathways initiatives, such as the heart failure program, have reduced new inpatient heart failure diagnosis rates from 18% in 2024 to 5% in 2025.

• The implementation of these programs is aimed at improving patient care and outcomes, with expected financial benefits in 2026.

• Cost Optimization and Organizational Structure:

• Agilon has taken steps to reduce operating expenses by $30 million in 2026 through reorganizing the team structure and aligning incentives with physician partners.
• The focus is on streamlining operations and gaining greater operating leverage to support growth objectives.

  Sentiment Analysis:

  Overall Tone: Positive

  • Management reinitiated 2025 guidance and said "2026 is shaping up to be a strong stepping stone," citing an enhanced data pipeline (80% membership risk scores), $30M in operating cost reductions, favorable payer bid dynamics, and clinical-program tailwinds driving expected improvement in 2026.

Q&A:

• Question from Michael Hah (Baird): Is the ACO REACH rebaselining impact roughly $10–15M of EBITDA and does the narrowed savings rate create friction with ACO partners?
  Response: Rebasing of risk adjustment is more meaningful; ACO REACH economics expected to be lower but still contribute positive margin; evaluating some ACOs for MSSP where economics are better; not yet quantifying the impact.

• Question from Jack Slevin (Jefferies): Are market exits on the table or only specific payers, and can you size potential membership reductions?
  Response: Taking a disciplined, market-by-market contracting approach — we will not do business where economics don't justify it; exits may be payer- or market-specific and any membership reduction would improve medical margin/EBITDA; cannot size now.

• Question from Jellendra Singh (Truist Securities): Any update on the CEO search and Q3 medical cost trends / Q4 color?
  Response: CEO search progressing with strong candidates but no timeline; executive team actively running the business; main Q3 cost drivers remain inpatient and Part B oncology drugs, Q1–H1 trends restated favorably (mid‑5%); Q3 conservatively modeled low‑6%.

• Question from Ryan Langston (TD Cowen): How much cash is held in ACO REACH and is there a minimum requirement?
  Response: At quarter end REACH entities held $172M; after Q4 settlements we expect ~$65M included in the $310M year-end cash; no required minimum — dollars retained there largely for tax efficiency but accessible if needed.

• Question from Justin Lake (Wolfe Research): What is CMS's fee‑for‑service trend for REACH and what payer bid benefit designs are you seeing for 2026?
  Response: Latest FFS trend cited ~8.5%; payer bids vary by carrier but broadly show pricing for margin (higher premiums, higher deductibles/max‑OOP, reduced supplemental benefits), which management views as a tailwind for 2026.

• Question from Craig Jones (Bank of America): What savings do palliative and HF programs generate in 2025 and are benefits one‑time or ongoing?
  Response: Programs launched late‑2024/early‑2025, benefits ramp into 2026; management won’t give PMPM specifics but expects permanent, ongoing value with continued iteration and data/AI enrichment driving sustained medical cost reduction.

• Question from Daniel Grosslight (Citi): Are you changing provider contracts, particularly on risk sharing or incentives?
  Response: No material change to provider contracts; incentive‑alignment tweaks were a relatively small component of the $30M operating savings (about half corporate overhead, half market ops); physician contracts remain intact.

• Question from Andrew Mock (Barclays): Are benefit misalignments concentrated in regional or national payers, and how much of membership is already contracted for 2026?
  Response: It’s market‑by‑market and nuanced — not isolated to payer size; roughly half the book was open and substantial progress has been made but final ink is still being completed in Q4, so no precise percent provided.

• Question from Matthew Shea (Needham): Timing to move COPD/dementia pilots to full rollout and plans for additional clinical pilots in 2026?
  Response: Pilots typically validate over ~6–8 months then roll out market‑by‑market starting where value is highest; COPD and dementia to expand in 2026 and additional pilots are planned as advised by medical group network board.

• Question from David Larsen (BTIG): Will the Big, Beautiful BILL Act have material impact on your Medicare business?
  Response: Management does not expect the legislation to have a meaningful impact on the business.

• Question from Amir Barney (Evercore): How does Humana's benefit stability for 2026 affect your medical costs, and what's minimum working capital?
  Response: Benefit designs from each payer are analyzed market‑by‑market as part of contracting; no specific Humana impact quantified; no minimum working capital number provided on the call (management offered to follow up).

• Question from Craig Jones (Bank of America) — duplicate/clarification captured earlier: (Follow‑up about program permanence and ramping timelines)
  Response: Clinical programs are permanent once validated; benefits ramp over time and accrue into 2026 with ongoing data/AI enhancements and further market rollouts.

Contradiction Point 1

Contract and Partnership Review

It involves changes in the approach to reviewing contracts and partnerships, which can impact financial performance and strategic focus.

Are you considering exiting payer contracts, and if so, what would be the scale? - Jack Slevin (Jefferies)

2025Q3: Where economics don’t align, they may choose not to do business with certain payers. Any reduction in membership would be beneficial for medical margin and EBITDA. - Ron Williams(Executive Chairman)

Can you explain potential partner exits due to recent updates? - Ryan Langston (TD Cowen)

2025Q2: There are no immediate plans to exit partnerships. We will continuously evaluate the profitability of business decisions based on payer dynamics and economic trends. - Jeffrey Schwaneke(CFO)

Contradiction Point 2

Growth Strategy for 2026

It involves changes in growth strategy for the following year, which directly impacts future financial projections and strategic goals.

ACO reach is expected to have a negative impact next year. Can you elaborate on this, how you'll offset it, and if the narrowing savings rate creates friction with partners? - Michael Hah (Baird)

2025Q3: Growth in 2026 is under review, focusing on improving profitability. There's a plan to be highly selective about future growth given current performance. - Jeffrey Schwaneke(CFO)

How will 2026 costs be affected by headwinds and membership expectations? - Daniel Grosslight (Citi)

2025Q2: We expect approximately 20,000 glidepath members this year. Contracts for 2026 are under review due to profitability concerns. Focus is on improving performance short-term. - Jeffrey Schwaneke(CFO)

Contradiction Point 3

Quality Incentives and Margin Impact

It involves the impact of quality incentives on margins, which is crucial for financial forecasting and strategic decision-making.

What margin potential exists if all contracts include quality incentives? - Craig Jones (Bank of America)

2025Q3: Quality incentives are already present in many contracts, with escalating dollars due to payer focus on quality improvement. - Jeffrey Schwaneke(CFO)

Can you explain the slight favorable impact from quality incentives in the quarter? - Matthew Shea (Needham)

2025Q2: Quality incentives are part of our strong quality program, aligning with payer needs. Payers are more willing to put dollars at risk for quality, escalating the value of our programs. - Jeffrey Schwaneke(CFO)

Contradiction Point 4

Impact of V-28 Risk Model Transition

It highlights differing perspectives on the impact of the V-28 risk model transition on Agilon's performance, which is crucial for understanding financial stability and strategic decisions.

ACO reach is expected to have a negative impact next year. Can you elaborate? Can you offset this impact, and will the reduced savings rate cause friction with ACO partners? - Michael Hah (Baird)

2025Q3: We are in line with our expectations for risk adjustment in 2025, with a net 2% increase despite a 3% headwind from V-28. - Steve Sell(CEO)

What is the impact of the V-28 risk model transition on Agilon's 2025 performance? Are there pacing expectations for the transition's remaining phases? - Stephen Baxter (Wells Fargo)

2025Q1: We are in line with our expectations for risk adjustment in 2025, with a net 2% increase despite a 3% headwind from V-28. - Steve Sell(CEO)

Contradiction Point 5

Humana's Impact on Medical Costs

It highlights differing perspectives on how Humana's focus on benefit stability might impact medical costs for next year, which is important for financial forecasting and strategic planning.

How will Humana's 2026 benefit stability focus impact next year's medical costs? What is the minimum working capital requirement for your business? - Amir Barney (Evercore)

2025Q3: We analyze benefits from all payers during the contracting process, and the specifics of Humana's impact are incorporated into our economic evaluations. - Jeff Schwaneke(CFO)

How will rate notice improvements contrast with potential losses from Humana's star rating decline, and can you avoid headwinds from it? - Michael Ha (Baird)

2025Q1: We are optimistic about the final rate notice and our strong quality scores mitigating Humana's potential headwind. Increased percentage of premium and other mechanisms can offset the decline. - Steve Sell(CEO)