agilon health, inc.

Thank you, operator. Good afternoon and welcome to the call. With me is our CEO, Steve Sell, and our CFO, Jeff Schwanage. Following our prepared remarks, 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 measures is available in the earnings press release and Form 8K filed with the SEC. And with that, let me turn the call over to Steve. Steve?

Thanks, Evan. Good afternoon, and thank you for joining us. We are pleased with our first quarter results, demonstrating both the resilience and growth potential of our business model. For the quarter, we reported membership, revenue, medical margin, and adjusted EBITDA in line with our Q1 guidance range. And we remain on track to deliver in line with our full year 2025 guidance. These collective results reflect the benefit of our previously disclosed partnership and payer exits, continued execution on quality and clinical initiatives, and better payer contracting terms to reduce Medicare Part D exposure and improve percentage of premium rates. As expected, these results were tempered by a continued elevated cost trend in the quarter. In terms of membership, I want to underscore that our Q1 membership of 491,000 is relatively flat year over year, and these are essentially the same members we had on the platform in 24, net of partnership and payer plan exits, and irrespective of plan changes. To remind you, given underlying market dynamics, we have taken a prudent and more cautious stance to 2025 member growth with essentially no underwriting risk on a reduced class of 25 and measured same geography growth of approximately 3%. As with prior years, we do expect some retroactive membership assignments in Q2 as we finalize contracting and attribution with payers. With these actions, essentially all of our Q1 membership, where we take financial risk, sits in year two plus markets with a consistent and longstanding PCP patient relationship rooted in prevention, early detection, and active intervention. While delivering results in line with expectations, we continued to make significant progress this quarter in strengthening our network and enhancing our platform through advancements in technology, clinical pathways, and operating efficiency. Our partnerships with leading physician groups continue to drive value for all stakeholders while enhancing our competitive position in a Medicare Advantage and Medicare fee-for-service market that continues to migrate towards full-risk, value-driven models. As the year progresses, we expect to continue our disciplined approach to performance through reduced exposure to costs outside of our control, measured growth aligned with current market dynamics, strengthened clinical and operational capabilities to enhance quality and reduce variability, and maintained operating cost discipline. We expect these initiatives will build a stronger foundation to drive additional operating leverage and long-term performance. Looking to 2026, we are pleased to see an increase of 280 basis points in the final rate notice from CMS. which begins to meaningfully address the high cost and utilization trends experienced in recent years. We have been encouraged by supportive comments from administration officials on the topics of value-based care and addressing the burden of chronic disease. As you will recall, early identification, diagnosis, and evidence-based treatment of chronic disease is a strong focus of our model. As we look toward the remainder of 2025, we expect to see clearer signals from Congress and the administration on broader elements of Medicare policy, including Medicare Advantage. For ACO REACH, we are encouraged that CMMI maintain the model despite efforts to narrow its portfolio. Their commentary that all remaining models are expected to produce savings and or quality improvement aligns with our experience in the REACH program and we continue advocating for a full risk pathway beyond 2026. We expect to learn more on this topic as we progress through the year. Now let me provide you with our current viewpoint on underlying market trends and an update on the initiatives we are actively pursuing to reduce variability and drive improved performance. Jeff will then provide additional color on our first quarter financial results and our outlook for the second quarter. From a utilization perspective, overall market trends in 2025 remain consistent with the prior year and in line with our initial outlook of a 5.3% full year trend. Inpatient medical admissions were up in part driven by the flu, primary care utilization and annual wellness visit volume was flat, and overall medical cost trend was within our expected range. In terms of growth trends, The Medicare Advantage market continues to expand, with CMS data showing trends of 3.9% year-over-year and 1.9% year-to-date. In addition, demand from payers and PCPs for full-risk, value-based care partners that can deliver on quality and cost metrics is also expanding. Against this backdrop, we see growth as a controllable lever given our consistent ability to demonstrate utilization performance 20% to 30% better than the local fee-for-service benchmark and quality scores approaching or greater than 4.25 stars. As such, our focus remains on profitable growth in current markets and new geographies. As I have stated in the past, Our ability to weather this down cycle in MA and differentiate on medical cost and quality outcomes should position us well with health plans and physicians as the macro rate and cost spread ultimately corrects. As a starting point, the recent favorable trends in payer bids and the 2026 final notice from CMS make us optimistic we will see a more favorable overall environment in 26 and beyond. As I outlined in our last call, we believe we have made significant progress in reducing operating variability and exposure in areas like Part D. In addition, we have negotiated improved economic terms with payers while improving our efficiency through market exits, cost discipline, and advancements in technology. But there is more work to be done, and we are actively pursuing additional opportunities to strengthen performance through contracting, cost optimization, and cash management. With approximately 50% of our membership up for renewal on January 1st, 2026, payer negotiations this year present a further opportunity to improve economic terms and predictability of performance. We have several focus areas, including one, a further reduction in Part D exposure, two, an expansion of quality incentives, three, improved economic terms for Part C, and four, a continued narrowing of risk from supplemental benefits through better information and more rational payer bidding. We expect the first three areas will have the greatest impact on our business moving forward. With respect to the fourth area, it is important to frame that our historical supplemental benefit headwind over the past two years was materially less than Part D. and is anticipated to have an even lower impact in 2025, as recent payer benefit design changes reduced exposure across approximately 97% of our membership. In addition, given our financial data pipeline is running across a majority of our payer partners as of Q1, we now have greater visibility into detailed revenue and claims information, including Part D. As renewal discussions are ongoing with payers, we will provide more detail on our progress as we move through the year. We see our investment in technology driving a key competitive advantage going forward via improved automation and efficiency and ultimately better quality and clinical outcomes. Our enhanced data and AI capabilities will enable us to improve our execution and day-to-day operating visibilities. As an example, in 2023, we acquired MPHRX, enhancing our ability to gather and process data and derive insights across healthcare delivery networks. Since then, we've improved integration with health information exchanges, labs, EMRs, and payers to speed up onboarding of Agilon partners and integrate clinical data quickly, benefiting patients and physicians. Using AI and advanced technology, we ensure accurate identification and documentation of patients' health conditions, aiming for high-quality, cost-effective senior care. We believe our documentation practices strengthen clinical accuracy and support our value-based care model, ensuring timely care for patients. For high-risk and chronically ill patients, we provide specialized programs for proactive, coordinated care to improve health outcomes and reduce hospitalizations. Our investment in technology also allows improved efficiency, faster insights, and real-time feedback for continuous improvement. Performance visibility across markets, payers, and EMRs let us spot patterns and highlight best practices nationwide to facilitate PCP learning. Technology is vital in our clinical pathways program. helping connect opportunities across our burden of illness, quality, and care delivery programs to identify and manage chronic diseases like heart failure. These capabilities enable early primary care physician intervention to prevent disease progression, alleviate symptoms, and avoid unnecessary ER visits and hospital stays. Our recently launched heart failure program is a good example with two very pragmatic quality opportunities. One, to identify and diagnose the disease earlier via the primary care doctor versus later during an acute event in the ER or hospital. And two, to support our PCPs in initiating guideline-directed therapies to slow disease progression, extend survival, and reduce acute exacerbations. Many of our partnerships are in the early stages of implementing the heart failure pathway, and we look forward to reporting updates on our progress and clinical outcomes later in the year or early in 2026. With respect to our palliative program, we are now live across most of our markets. This program relies on the trust between a senior patient and their primary care doctor and offers significant quality-of-life benefits. to patients and family members. For patients electing to enroll in the program, we have seen a significant reduction in hospital admissions per thousand. And in the first quarter, we saw a material increase in patients choosing to receive advanced illness management via our program. Given the positive clinical and business impacts to date, we're focused on additional expansion across partnerships and geographies in 2025. which we expect will create additional value in 2026. Finally, we continue to maintain cost discipline while investing in technology and clinical programs to further support medical margin and patient outcome improvements, as well as strengthen our position with payers and PCPs. In closing, we see 2025 as both a transition year financially and an inflection year in terms of quality and clinical programs, payer underwriting, and cost discipline, which we expect will create a stronger foundation for growth and financial performance. As we look to 2026, we are encouraged by the recent final notice and positive comments from administration officials in support of value-based care models. As the macro shows some promising signs, our investments in technology and clinical programs are starting to bear fruit, giving us confidence in our ability to accelerate performance and speed to value for our stakeholders. With that, let me turn the call over to Jeff.

Thanks, Steve, and good afternoon. For today's discussion, I will cover three key areas. First, I will walk through our financial performance for the first quarter. Second, I'll provide an update on cost trends and the steps we are taking to manage risk and improve medical margin. And finally, I'll discuss our Q2 outlook and full year 2025 guidance, including our expectations for membership, revenue, and adjusted EBITDA. Starting with membership, Medicare Advantage membership at the end of Q1 2025 was 491,000 members compared to 523,000 members in Q1 2024. As we discussed last quarter, Our decision to take a measured approach to membership growth has resulted in a slight year-over-year decline driven by previously disclosed partner exits in a smaller 2025 class. We continue to expect our overall same geography growth rate to be in line with the broader industry for 2025. Additionally, our first quarter membership came in at the low end of our guidance range due to the timing of contract signings for the 2025 class. As a reminder, The 2025 class contracts are on a glide path approach and as such are not driving a meaningful variance in our financial results. Our ACO REACH membership for Q1 was 114,000 members compared to 131,000 members in Q1 2024. This decrease primarily reflects the strategic decision to exit an underperforming MSSP partnership as we've previously discussed. Turning to revenue, Total revenue for Q1 2025 was $1.53 billion, compared to $1.6 billion in Q1 2024. The primary drivers of year-over-year revenue decrease include the market and partnership exits we have previously discussed, partially offset by the 2025 class, and premium growth. Additionally, during the first quarter of 2025, we recognized $10 million of revenue and $10 million of medical expense associated with retroactively assigned members from 2024. Medical margin for Q1 2025 was $128 million compared to $157 million in Q1 2024. Medical costs for the first quarter of 2025 were in line with expectations and driven by continued elevated utilization, incremental flu-related costs, and negative prior period development. As Steve mentioned, during the first quarter, our AWV and PCP visits were in line with expectations and medical costs continue to be driven by inpatient cases and Part B drug spend. The first quarter 2025 results included negative prior period development of $22 million, of which $7 million was associated with exited markets. The remaining development was tied specifically to one payer, including $10 million from 2023 dates of service and additional claims in the third quarter of 2024. I want to highlight that we went live on our new financial data pipeline in the first quarter that covers a significant number of our membership. We now have greater visibility and detail for both revenue and claims as we move forward, which we expect to enhance our forecasting capabilities. Our margin performance reflects discipline cost management, improvements in payer terms, and ongoing investments in clinical initiatives. While medical cost trends remained elevated, we are beginning to see the impact of our strategic actions to partially mitigate these pressures. Adjusted EBITDA for the quarter was $21 million, compared to $29 million in Q1 2024. The year-over-year movement reflects continued elevated cost trends, offset by lower geography entry costs and operating cost initiatives. Geography entry costs were lower in the first quarter of 2025, reflecting the timing of capital funding needs related to new market entries for 2026. Adjusted EBITDA related to ACO REACH was $20 million in the first quarter of 2025. Managing medical cost trends remains a top priority. For Q1 2025, our year two plus markets medical cost trend was 5.5% compared to 6.7% in Q1 2024. As a reminder, we expect cost trends in 2025 to run approximately 150 basis points lower than 2024 due to the effect of payer bidding and the two midnight rule. For the first quarter of 2025, we continue to take a conservative approach in our assumptions given ongoing utilization pressures in areas such as inpatient services and Part B drugs in combination with the negative prior period development. A component of the negative prior period development was associated with the third quarter of 2024, which has an updated cost trend of 9.6% year over 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. Additionally, we are working closely with our payer partners to refine benefit designs and improve alignment on medical cost management. Now I would like to provide a few highlights for our Q2 and full year 2025 guidance. Looking ahead, we remain focused on disciplined execution and financial improvement. For Q2, we expect Medicare Advantage membership in the range of 485,000 to 515,000, with ACO model membership projected to be between 105,000 to 115,000. For the full year, our guidance for Medicare Advantage members remains unchanged at 490,000 to 520,000. For the second quarter, revenues are expected to be between 1.44 billion to 1.51 billion, While full-year 2025 revenue is expected to be in the range of $5.85 billion to $6.03 billion, reflecting the impact of membership shifts and improved revenue yield from payer contracts. The bottom end of our full-year guidance range has been increased to reflect the retroactive membership assignment and corresponding revenue recognized in the first quarter. For the second quarter, medical margin is expected to be between $50 million and $70 million, and full-year medical margins are projected to be between $275 million to $325 million, driven by targeted initiatives in our BOI program, clinical initiatives, and operating performance. As a reminder, the Class of 2025 will have a lower revenue and margin PMPM due to our measured glide path approach mentioned last quarter. Second quarter 2025 adjusted EBITDA is expected to be between negative 35 million to negative 20 million. Our full year 2025 adjusted EBITDA guidance range remains unchanged at negative 95 million to negative 55 million, consistent with our plan to achieve financial stability while investing in long-term growth. On the balance sheet, we ended the quarter with $369 million in cash and marketable securities and another $25 million of off-balance sheet cash held by our ACO entities. We expect to use approximately $110 million of cash in 2025, and we continue to maintain a disciplined approach to capital allocation, ensuring we have the resources needed to support our business objectives while progressing toward our goal of cash flow break-even in 2027. In summary, while we continue to operate in a challenging environment, The actions we are taking to refine our strategy, improve operational execution and financial visibility, and strengthen our financial position are evident in our first quarter performance. We remain confident in our ability to navigate the near-term headwinds and to position Agilon for long-term success. With that, operator, let's move to the Q&A portion of the call.