agilon health, inc.

Hello and a warm welcome to today's Agilon Health third quarter 2022 earnings call. My name is Candice and I will be your moderator for today's call. All lines have been placed on mute during the presentation portion of the call with an opportunity for question and answer at the end. If you'd like to ask a question, please press start followed by one on your telephone keypad. I would now like to pass the conference over to our host, Matthew Gilmore, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good evening and welcome to the call. With me is our CEO, Steve Sell, and our CFO, Tim Bensley. Following prepared remarks from Steve and Tim, 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 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 views our financial results. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measure is available in the earnings press release and Form 8K filed with the SEC. With that, I'll turn the call over to Steve.

Thanks, Matt. Good evening, and thanks for joining us. Momentum across our business remains strong, and the success of our aligned partnership model is enabling Agilon to make rapid progress against our vision to transform healthcare in communities by empowering primary care doctors. Agilon's platform, partnership model, and network create the local infrastructure that enables physician organizations to access a new and sustainable model for primary care, one that aligns physician outcomes with improvements in the quality and experience of their senior patients. As a result, patients are receiving higher quality, comprehensive care from their trusted physicians. And primary care doctors are enjoying greater satisfaction as they share in the value created from a more effective approach to care delivery. In 2023, our national network will include 2,200 primary care physicians and 500,000 senior patients across 12 states, making Agilon one of the largest organizations in the country supporting full-risk, value-based care for senior patients. Our growth is a function of the value that Agilon's platform delivers to physicians, patients, and communities. And the value we are delivering continues to expand. Year to date, we have reinvested over $130 million back into local communities through surplus sharing from reductions in wasteful spending and quality incentives to doctors for spending more time with their most complex patients. This reinvestment is helping to sustain and grow access to primary care and transform healthcare delivery. Turning to our results for the quarter, membership, revenue, and medical margins were above the high end of our guidance ranges, and adjusted EBITDA was in line, even with a modest drag from direct contracting. Our core Medicare Advantage business performed better than forecasted on all key measures, Year over year, MA membership grew 45 percent, medical margin increased 74 percent, and medical margin PMPM increased 19 percent. This reflects strong performance across our 16 partner markets, inclusive of higher than forecasted membership growth. This year, we are driving substantial growth in medical margin PMPM. Even as the proportion of members in year one markets has increased from 19 percent to 22 percent. This dynamic is powered by our more mature markets accelerating their year-over-year performance, as evidenced by our 10 year two-plus partners increasing year-to-date medical margin 24 percent from 104 to 128 per member per month. At the same time, for the six year one partners that went live in January, medical margin PMPM has been trending towards the higher end of our expectations as these new partners are benefiting from the platform getting smarter and the learnings of our mature markets. Our powerful same store performance measured in this meaningful improvement to medical margin unit economics while generating same market growth of 14% has been driven by one, the local scale we leverage to improve care delivery. Two, the ability to leverage common data and learnings on our purpose-built platform. And three, the embedded membership growth that comes from working through existing physician capacity in our partners' practices. These factors are all reinforcing our growing first-mover advantage as we introduce multi-payer full risk in more geographies across the country. Direct contracting was a modest but manageable drag to our adjusted EBITDA this quarter due to the impact of an updated retro trend adjustment that Tim will walk through. Importantly, the program remains profitable on a year-to-date basis, and our underlying cost and quality performance remains strong. For our direct contracting patients, our healthcare costs are significantly lower on a PM-PM basis versus national benchmarks. And our year-over-year trend is 1% lower in 2022 versus the national reference population. Additionally, we are driving strong quality performance in areas such as post-hospital discharge timely follow-ups. We continue to view the program as highly strategic, as direct contracting creates a single, full-risk experience for our primary care partners across their entire senior population. We remain engaged with the Innovation Center on potential program adjustments to create greater visibility and predictability for all participating groups and their senior patients. From a guidance perspective, we are raising our full year 2022 outlook for MA membership, revenue, and medical margins, and tightening our adjusted EBITDA. This reflects strong performance in our MA business and an appropriately cautious approach in forecasting direct contracting. Looking forward to 2023 and beyond, we continue to make great progress in fundamental areas that drive future performance, such as renewing payer contracts, onboarding our new markets for 2023, and supporting our physician partners for a successful annual enrollment period. For payer contracting, We are on track to complete important renewals that are in line with our base case assumptions. This renewal activity with 10 different health plans constitutes a significant portion of our membership, revenue, and earnings. The overall positive tenor and success of this fall's renewal season reflects the significant value health plans enjoy with a scaled first mover partner like Agilon that moves the entire market to value while providing best-in-class member growth and consistently strong quality and member experience. Next year, with the addition of several new health plan partners, we will have full risk contracts with nearly 30 different payers. Pivoting to the class of 2023, the onboarding of our largest class to date has gone quite well in terms of integrating with our partners various electronic medical records, synthesizing payer and clinical data, negotiating value-based contracts, hiring and training local market staff, and most importantly, increasing the level of access and volume of high-quality visits for senior patients. In short, we are creating the building blocks for these partners to shape and control value-based care in these markets for decades. The significance of successfully onboarding partners in four new states cannot be overstated. While Medicare is a national program, healthcare ecosystems are effectively built at the state and local level. The ability to expand within a state and add additional doctors and senior patients in full-risk models is far easier once we have deployed local infrastructure and connected the ecosystem. Similarly, the ability to actually change care delivery and reduce wasteful healthcare spending while improving quality is materially improved when you are able to scale around a trusted medical group. Our experience in Ohio, Texas, and now Michigan are excellent examples of this phenomenon. In these states, we have added approximately 450 doctors and 190,000 senior patients since our initial year one anchor partnership. Our growth in these states reflects both success within our partners' local geographies and the expansion with new partners into other cities or markets within these states. The concentration and scale within these markets has allowed Agilon with our partners to make substantial infrastructure investments. to improve care delivery with enhanced care team resources, including nurse practitioners, pharmacists, embedded nurses at high-volume ERs, and in-home care teams for our most complex patients, including those with complex kidney disease or end-stage renal disease. These investments and the resulting improvements in patient quality and cost have allowed the newer partners in these states to enjoy accelerated performance immediately in year one, which creates even more satisfaction and engagement for our partners. We will have the opportunity to replicate this performance across more and more states over time. Before updating you on our future growth in the class of 2024, I wanted to highlight our performance on quality and STARS measures and how that connects to better patient health. Our partnerships continue to generate quality outcomes that are well above national benchmarks, which reflects the alignment between PCPs and their patients supported by Agilon's platform. For 2023 star ratings, a significantly higher percentage of Agilon members will remain in four-plus star-rated plans compared to the national average. Additionally, drilling down to Agilon's specific performance, we have maintained four-plus-star performance across all of our partner markets, and our mature markets perform meaningfully above this average. We continue to excel in areas such as preventative cancer screenings, medication adherence, and diabetes management. For these measures, we are at five-star performance levels across the entire network. Additionally, we have consistently demonstrated year-over-year improvements in quality gap closures, well in excess of national trends. As an example, for diabetic patients, our PCP partners had driven a two times greater improvement in A1C control compared to the national MA average. We know that patients with better controlled diabetes spend less time in the ER and hospital, and in the long run, they are less likely to lose their vision or a limb, go on dialysis, or suffer a heart attack or stroke. Preventing these long-term, potentially debilitating complications and keeping our patients well is really the goal of our model and why our PCP partners are so deeply committed to our mission. Looking ahead to 2024, our business development team has made significant progress over the past few months. The breadth and depth of the pipeline for 2024 remains very strong and includes diverse partner types and geographies. including independent groups and health systems in both new and existing states. The acceleration in demand we are seeing reflects both the success of our partners and powerful macro forces, including payer demand for value and the growing senior population. These dynamics have also shortened our sales cycle. I'm pleased to report that we have now signed four new partners for the class of 2024. These four new partners include groups in existing states and new states and include primary care only, multispecialty, and network organizations. We are excited to have made this much progress at this point in the cycle for 2024. The longer implementation for these groups, along with their quality and strong governance, will position our new partners to generate outcomes earlier in their life cycle. With that, let me turn things over to Tim.