Agilon Health’s Q2 Call: Risk Adjustment, Cost Trend, and EBITDA Accounting Contradictions Highlight Guidance Uncertainties

Date of Call: Aug 5, 2026

Financials Results

• Revenue: $1.5B, compared to $1.4B in the second quarter of 2025
• Operating Margin: Medical margin of $197M, compared to negative $53M in the second quarter of 2025. Adjusted EBITDA of $70M, compared to negative $83M in the second quarter of 2025.

Guidance:

• Full-year 2026 revenue expected to be approximately $5.8B.
• Full-year 2026 medical margin expected to be approximately $485M.
• Full-year 2026 adjusted EBITDA expected to be approximately $85M.
• Third quarter 2026 revenue expected to be approximately $1.46B.
• Third quarter 2026 medical margin expected to be approximately $110M.
• Third quarter 2026 adjusted EBITDA expected to be approximately $0M.

Business Commentary:

Strong Financial Performance and Guidance Increase:

• Agilon Health reported a medical margin of $197 million for Q2 2026, compared to a negative $53 million in Q2 2025, exceeding the midpoint of their guidance by approximately $74 million.
• Adjusted EBITDA for Q2 2026 was $70 million, compared to negative $83 million in Q2 2025, surpassing the midpoint of guidance by approximately $50 million.
• The strong performance led to an increase in full-year 2026 guidance, with expected revenue of approximately $5.8 billion, medical margin of approximately $485 million, and adjusted EBITDA of approximately $85 million.
• The growth was driven by favorable prior year development, improved risk adjustment revenue estimates, and better-than-expected performance in their Burden of Illness program.

Medical Cost Trends and Risk Adjustment:

• The full-year 2025 cost trend was estimated at 5.8%, down from the previous estimate of 6.2%, and Q1 2026 cost trends were in the low 6% range.
• Risk adjustment revenue was estimated to increase by approximately 3% year-over-year, net of the V28 impact, contributing to the improved financial outlook.
• The favorable medical cost trends were attributed to early signs of moderation in macro cost trends and the impact of Agilon's clinical and quality programs.

Expansion and Strategic Focus:

• Agilon Health's Medicare Advantage membership was 437,000 at the end of Q2 2026, reflecting a disciplined approach to profitability-focused contracting.
• The company is focused on expanding within existing markets by converting care coordination fee contracts to full risk and exploring new ACO opportunities.
• Growth strategies include leveraging demand for their model, reengaging with existing partners, and evaluating new market opportunities for the future.

Clinical Program Impact:

• The Burden of Illness program contributed to better-than-expected risk adjustment revenue, indicating improved diagnosis and treatment of members.
• Clinical programs such as the Heart Failure (CHF) program have successfully reduced inpatient first diagnosis rates from approximately 25% to less than 5%.
• The success of these programs is due to early identification, diagnosis, and intervention of high-risk conditions, improving patient outcomes and reducing unnecessary medical costs.

Sentiment Analysis:

Overall Tone: Positive

• Management stated they 'exceeded our second quarter guidance across our key financial metrics' and are 'raising our full year 2026 guidance.' They noted 'strong second quarter financial performance,' 'positive results,' and that 'our transformation efforts are gaining traction... our operating model is becoming increasingly resilient, scalable, and durable.'

Q&A:

• Question from Jack Slevin (Jefferies): Regarding the $22 million prior year development (PYD), is that the only item affecting EBITDA in the first half? Also, why does Q3 guidance show flat EBITDA despite a strong first half, and what are the assumptions on cost trends and Part D for the back half? What are early thoughts on 2027 payer bids and recontracting?
  Response: The $22 million PYD is the only EBITDA item from prior periods in the first half. For Q3, EBITDA is expected to be flat due to the seasonality of Part D, which is recorded net in revenue. For 2027, discussions with payers are productive and focused on profitability and reducing Part D exposure, which is now less than 15% of the book.

• Question from Jalendra Singh (Truist Securities): For 2026 medical margin guidance, should we consider it net of PYD as a starting point for 2027? Also, what is the growth strategy regarding existing vs. new markets and what financial thresholds are needed for new market expansion?
  Response: The $22 million PYD benefit flows 100% to medical margin and EBITDA, so it's the main adjustment to consider. Growth strategy remains focused on strengthening existing markets, converting care coordination fee contracts to full risk, and evaluating new markets (with a long implementation cycle) starting around 2028.

• Question from George Hill (Deutsche Bank): Can you provide more detail on medical cost trends across inpatient, outpatient, pharmacy, and supplemental, and expectations embedded in guidance? What are key factors for modeling 2027 membership growth?
  Response: Trends are lower in inpatient/surgical/ER but still high historically, consistent with public payer commentary. Guidance assumes ~7% cost trend for Q2-Q4. For 2027 membership growth, opportunities include converting care coordination fee members to full risk and organic growth in existing ACO markets.

• Question from Ryan Langston (TD Callen): How is the new risk contract progressing? How much of membership is in the enhanced data pipeline, and is there more opportunity to improve it?
  Response: The new contract is early but in line with break-even budget expectations. The enhanced data pipeline now includes over 80% of payers; progress is ongoing to add more payers, especially smaller ones.

• Question from Matt Shea (Needham): What drove the 3% risk adjustment uplift, and is it repeatable? What is the status of COPD and dementia clinical pathways, and are there any new programs being contemplated?
  Response: The 3% uplift was driven by the rollout of clinical programs in 2025, with benefits back-loaded. It will be a net positive for 2027 but at a lower level. The focus remains on deploying dementia and COPD pathways across markets, with CHF as the most mature example.

• Question from Andrew Mock (Barclays): Regarding the guidance raise, does the higher risk adjustment revenue benefit flow through for the balance of the year? Was the Q2 trend favorability consistent, and what macro factors are driving the improvement?
  Response: The Q2 beat was ~$50 million, with an additional ~$19 million benefit from risk adjustment in the second half, partially offset by incentive compensation. Trend favorability came from improvements in 2025 and Q1 2026 cost trends. Macro factors include potential moderation in inpatient/ER costs and the impact of clinical programs.

• Question from Michael Ha (Baird): What is the monthly progression of medical cost trends in Q2 and any macro factors driving improvement? How can we bridge from 2026 to 2027 margin recovery?
  Response: Limited paid claims data makes monthly trend analysis difficult. Macro factors include potential moderation in inpatient/ER costs and the impact of clinical interventions. For 2027, early consideration should include risk adjustment benefits, coding improvements, and pricing/benefit design, but it's too early for detailed guidance.

• Question from Daniel Grossleit (CITI): How much of the 2026 medical margin improvement is driven by clinical programs versus macro benefits? Also, could you clarify the $25M benefit cited from 2025?
  Response: The $25M benefit in 2025 was from a quality program, and the opportunity has doubled. For 2026 guidance, quality performance is assumed to be consistent with 2025, so the full benefit is not yet reflected in the guide.

Contradiction Point 1

Risk Adjustment Benefit Progression

Contradiction on whether the Q2 risk adjustment benefit flows through for the rest of the year.

Andrew Mock (Barclays) - Andrew Mock (Barclays)

2026Q2: The Q2 beat of ~$50 million includes a $19 million second-half EBITDA benefit from improved risk scores... - [Jeff Schwaneky](CFO)

Will the Q2 risk adjustment benefit continue for the rest of the year and contribute to the guidance raise? - Matt Shea (Needham)

2026Q2: The 3% risk adjustment benefit is driven by strong clinical program execution in 2025... It is repeatable but likely at a lower net contribution for 2027. - [Jeff Schwaneky](CFO) & [Tim O'Rourke](CEO)

Contradiction Point 2

Medical Cost Trend for Q2 2026

Contradiction on the specific medical cost trend rate for Q2 2026.

Andrew Mock (Barclays) - Andrew Mock (Barclays)

2026Q2: The Q2 cost trend was prudently set in the low 7% range due to limited paid claims data. - [Jeff Schwaneky](CFO)

How does the Q2 trend favorability relate to 2025 or 2026, and what details can you provide on the trend progression? - Jack Slevin (Jefferies)

2026Q2: The guide assumes a cost trend of ~7% for the remainder of 2026. - [Jeff Schwaneke](CFO)

Contradiction Point 3

Treatment of Prior-Year Medical Expense Development in EBITDA

Conflicting statements on whether a prior-year medical benefit flows to EBITDA.

Jack Slevin (Jefferies) - Jack Slevin (Jefferies)

2026Q2: The $22 million PYD is the only material prior-year benefit in EBITDA for the first half. - [Jeff Schwaneky](CFO)

Is the $22 million PYD the only factor causing first-half EBITDA to not reflect current trends? - Jack Slevin (Jefferies)

2026Q1: The ~$12M prior-year medical expense development was offset by added Part D reserves, as final reconciliations are not available until Q3 2026. - [Jeff Schwaneke](CFO)

Contradiction Point 4

Nature of Benefit from New Risk Contracts

Inconsistent characterization of a new contract's financial impact on the year.

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2026Q2: The new contract is budgeted at break-even. - [Jeff Schwaneky](CFO)

Can you provide an update on the specific new risk contract discussed last quarter? - Ryan Langston (TD Cowen)

2026Q1: It is a new payer contract... modeled at roughly break-even margin for 2026. It represents an opportunity for multi-year margin improvement... - [Jeff Schwaneke](CFO)

Contradiction Point 5

Medical Cost Trend Assumptions and Outlook for 2026/2027

Contradiction on the expected cost trend for the second half of 2025 and into 2026.

George Hill (Deutsche Bank), represented by Max Young - George Hill (Deutsche Bank), represented by Max Young

2026Q2: The guide assumes a low 7% trend for Q3 and Q4. - [Jeff Schwaneky](CFO)

Can you provide more detail on medical cost trends across inpatient, outpatient, pharmacy, and supplemental, including the guide's expectations, and the key factors driving 2027 membership growth? - Andrew Mock (Barclays)

20260226-2025 Q4: A prudent 7.4% trend was applied for Q4... The Q2 cost trend was prudently set in the low 7% range... - [Jeff Schwaneky](CFO)