Agilon Health's Q3 2025 Earnings Call: Contradictions Emerge in 2026 Growth Strategy, Risk Adjustments, and ACO REACH Program Changes

Date of Call: November 04, 2025

Financials Results

• Revenue: $1.44 billion in Q3 2025, compared to $1.45 billion in Q3 2024
• Gross Margin: Medical margin of negative $57 million in Q3 2025, compared to negative $58 million in Q3 2024
• Operating Margin: Adjusted EBITDA of negative $91 million in Q3 2025, compared to negative $96 million in Q3 2024

Guidance:

• Reinstated full-year 2025 guidance: revenue $5.81B–$5.83B; Medicare Advantage membership 503k–506k; ACO membership 113k–115k.
• 2025 full-year medical margin expected between negative $5M and $15M; adjusted EBITDA between negative $270M and negative $245M.
• Expect ~ $310M cash at 12/31/25 (including ~$65M held in ACO entities) and at least $100M cash at end of 2026.
• Not providing formal 2026 guidance now but expect material improvement from payer bid tailwinds, $30M operating cost reductions, enhanced data pipeline and reduced Part D exposure.

Business Commentary:

* Revenue and Medical Cost Trends: - agilon Health reported revenue of $1.44 billion for Q3 2025, with a negative medical margin of $57 million. - The company faced lower-than-expected in-year RAF contributions and high costs from exited markets. - Medical cost trends were stable but elevated, particularly in inpatient and Part D oncology drugs, while first-half medical cost trends were favorable relative to expectations.

• Financial Guidance and Forecasting:
• agilon reinstated their 2025 guidance with mid-year revenue projected at $5.82 billion, medical margin at $5 million, and adjusted EBITDA at negative $258 million.

• Expectations for 2026 are positive, with improved forecasting, reduced volatility, and internal and market-driven tailwinds expected to benefit performance.

• Strategic Initiatives and Cost Reduction:

• Agilon has implemented operating expense reductions of $30 million to align costs with current revenue run rates and a more balanced growth outlook.

• This reduction is part of a broader strategy focusing on disciplined payer contracting, improved contract economics, and better alignment with PCP partners.

• Quality Performance and Stars Ratings:

• Approximately 75% of agilon members are expected to be in 4+ Star plans in 2027, compared to 71% in 2026, with an average consolidated rating of 4.2 stars.
• Improved quality performance is attributed to effective care gap closure rates and better incentives for quality performance from payers, supporting favorable contract economics.

Sentiment Analysis:

Overall Tone: Neutral

• Management acknowledged near-term headwinds (lower-than-expected 2025 risk adjustment, exited markets) while reinstating 2025 guidance and emphasizing actions for 2026: “2026 is shaping up to be a strong stepping stone,” $30M in operating cost reductions, enhanced data pipeline covering ~80% of members, and expectation of at least $100M cash at end of 2026.

Q&A:

• Question from Hua Ha (Robert W. Baird & Co. Incorporated, Research Division): Your slide shows ACO REACH as a negative impact for next year given narrowing risk corridors; is ~$10M–$15M of EBITDA impact the right ballpark, can you offset it, and does this create friction with ACO partners?
  Response: Re-baselining of risk adjustment is more meaningful; ACO REACH economics expected to be lower but still contribute; evaluating moving some ACOs to MSSP where economics are better; not sizing impact now.

• Question from Jack Slevin (Jefferies LLC, Research Division): Are market exits on the table or just specific payer exits, and can you size potential membership reductions?
  Response: Taking a disciplined approach—will not do business where economics don't justify it; may exit payer relationships or move members to care coordination fees; any membership reduction would benefit medical margin and EBITDA; cannot size now.

• Question from Jailendra Singh (Truist Securities, Inc., Research Division): Update on the CEO search and whether internal vs external candidates favored?
  Response: Search progressing with strong candidates, no timeline; Executive Chairman and leadership are actively running the business and focused on execution now.

• Question from Jailendra Singh (Truist Securities, Inc., Research Division): Any color on Q3 medical cost trends and Q4 outlook?
  Response: Primary drivers remain inpatient and Part B oncology drug spend; Q1–Q2 trends restated favorably (~mid-5%); Q3 conservatively assumed low-6% due to limited paid claims visibility; monitoring into Q4.

• Question from Ryan Langston (TD Cowen, Research Division): How much cash is required/held at ACO REACH entities and what is contemplated in year-end balances?
  Response: End of Q3 held $172M at REACH; post-Q4 settlements expect ~ $65M remaining there; year-end $310M cash figure includes the ~$65M; funds are accessible though left for tax efficiency.

• Question from Ryan Langston (TD Cowen, Research Division): Why was the risk revenue impact higher for the remaining 28% of enrollment—accrual, incomplete coding, or other?
  Response: Higher-than-average impact driven by one payer new in 2024 lacking 2023 data; that payer is now in the enhanced data pipeline which enables member-level risk scores and better visibility for 2026.

• Question from Jack Slevin (Jefferies LLC, Research Division): (moved earlier) follow-up was embedded — omitted duplicate.
  Response: None provided

• Question from Justin Lake (Wolfe Research, LLC) (asked by Dean Rosales): What is CMS estimating for FFS trend in '25 within ACO REACH and what benefit design changes are you seeing in payer bids for '26?
  Response: Fee-for-service cost trends ~8.5%; payer bids vary by carrier but broadly price for margin—higher premiums, higher deductibles/max OOP and reduced supplemental benefits—which should be a tailwind for agilon into 2026.

• Question from Craig Jones (BofA Securities, Research Division): What savings do you expect in 2025 from Palliative and Heart Failure programs (PMPM or $) and are these one-time or ongoing?
  Response: No PMPM provided; programs rolled out late 2024/early 2025 and benefits mainly accrue into 2026; programs are permanent and expected to drive ongoing value as they scale.

• Question from Daniel Grosslight (Citigroup Inc., Research Division): Are you changing provider-side contracts, particularly on risk-sharing and incentives?
  Response: Not changing provider contracts materially; the $30M operating savings primarily came from corporate and market operating cost reductions; physician incentive adjustments were a relatively small component.

• Question from Andrew Mok (Barclays Bank PLC, Research Division): Is benefit misalignment concentrated in regional vs national plans, and how much membership is already contracted for next year?
  Response: It's market-by-market and nuanced; about half the contracts were open for renewal and substantial progress made on business terms, but finalization remains and an update will be provided at year-end.

• Question from Andrew Mok (Barclays Bank PLC, Research Division): If some payer partners see Stars reductions, does that headwind flow to agilon or is premium compensation expected?
  Response: Stars impacts are part of contracting discussions; agilon seeks total economics that make sense and will negotiate terms to offset any Stars-related headwinds.

• Question from Matthew Shea (Needham & Company, LLC, Research Division): Timing/staging for pilots (COPD/dementia) to permanent programs and ramp to meaningful savings; will you pilot new specialty areas in 2026?
  Response: Pilots typically run ~6–8 months (could be longer) then market-by-market rollouts starting where value is highest; COPD and dementia expected to expand in 2026 and additional pilots are being considered.

• Question from David Larsen (BTIG, LLC, Research Division) (asked by Jenny Shen): Will the Big Beautiful Bill Act have any impact on your Medicare business?
  Response: Do not expect a meaningful impact on the business.

• Question from Amir Bani (Evercore): How does Humana's focus on benefit stability for '26 affect your medical costs and what's your minimum working capital?
  Response: Humana is handled through the same market-level contracting and economics review; no specific working-capital minimum provided—company will follow up separately.

Contradiction Point 1

2026 Growth Strategy

It reflects shifts in the company's growth strategy for 2026, which is critical for understanding their future business direction.

Is the estimated $10M–$15M EBITDA impact from ACO REACH's 10% savings rate narrowing accurate? Could this savings rate reduction cause friction with ACO REACH partners? - Hua Ha (Robert W. Baird & Co. Incorporated, Research Division)

2025Q3: 2026 growth is under review, aiming for improved profitability. - Jeffrey Schwaneke(CFO)

Can you comment on the 2026 costs considering the expected headwinds from [30,000 to 35,000] members and assuming they remain under the glidepath strategy? - Daniel Grosslight (Citi)

2025Q2: We're not finalizing the 2026 membership number yet. The focus is on improving profitability for the near term. Growth is under review with a more selective approach. - Jeffrey Schwaneke(CFO)

Contradiction Point 2

Risk Scores and Savings Rate Adjustments

It involves the interpretation and impact of changes in risk scores and savings rate adjustments, which directly affect the company's financial performance and strategic decisions.

ACO REACH is a negative impact next year, and risk corridors are narrowing to 10% savings rate. Is our estimated $10M–$15M EBITDA impact accurate? - Hua Ha (Robert W. Baird & Co. Incorporated, Research Division)

2025Q3: The re-baselining of the risk adjustment is actually more meaningful for us. While we do expect lower economics from the program, we are reviewing our ACOs and determining the best model. - Jeffrey Schwaneke(CFO)

How is the V-28 transition affecting Agilon's value-based care initiatives regarding risk scores and 2025 expectations? - Stephen Baxter (Wells Fargo)

2025Q1: From a risk adjustment perspective in 2025, we are in line with expectations. We have seen a 2% net increase year over year, inclusive of about a 3% headwind from V-28. - Steve Sell(CEO)

Contradiction Point 3

Medical Cost Trend Expectations

It involves changes in medical cost trend expectations, which are crucial for understanding the company's financial performance and strategic planning.

Can you provide details on medical cost trends in Q3? - Jailendra Singh (Truist Securities, Inc., Research Division)

2025Q3: Medical cost trends continue to improve, with Q3 coming in at better than our projection of low single-digit growth. - Jeffrey Schwaneke(CFO)

How do those cost trends develop sequentially from Q1 to Q2, and what information do you have for July? - Eduardo Ron (Truist)

2025Q2: The medical cost trend for Q2 was in line with expectations, and it was just over 1% for the first half of this year. - Jeffrey Schwaneke(CFO)

Contradiction Point 4

Part D Risk Mitigation and Contracting Strategy

It involves the company's approach to managing Part D risk and negotiating contracts with payers, which are critical for financial stability and growth.

Are you considering market exits currently? Or is it only specific payers? What scale are we looking at moving forward? - Jack Slevin (Jefferies LLC, Research Division)

2025Q3: We are taking a very disciplined approach. If economics don't make sense for the value we deliver, we may not do business with that payer. - Jeffrey Schwaneke(CFO)

Will Part D risk impact 2026 membership declines? What is the group MA member percentage? - Ryan Langston (TD Cowen)

2025Q1: We don't anticipate membership reductions due to Part D. Group MA penetration is at 18%, slightly below market averages. Growth remains disciplined with no significant movement in utilization. - Steve Sell(CEO)

Contradiction Point 5

ACO REACH Program Changes and Impact

It involves changes in the ACO REACH program, which could significantly impact the company's financial performance and strategic direction.

Is a $10 million to $15 million EBITDA impact an accurate estimate? Does the savings rate adjustment create any friction with your ACO REACH partners? - Hua Ha (Robert W. Baird & Co. Incorporated, Research Division)

2025Q3: The re-baselining of the risk adjustment is actually more meaningful for us. While we do expect lower economics from the program, we are reviewing our ACOs and determining the best model. Some ACOs may move to the MSSP program for 2026. - Jeffrey Schwaneke(CFO)

Could you share the Year 1 performance for the Class of '24 and Class of '25, and the potential for the Class of '26? - Justin Lake (Wolfe Research, LLC)

2024Q4: In 2024, ACOs will operate under the MSSP model. In 2025, we will step up to a high-reward, high-risk ACO model, which is ACO REACH. - Steve Sell(CEO)