agilon health, inc. Q1 2026 earnings call

Thank you, operator. Good afternoon, and welcome to the call. With me are Executive Chairman Ron Williams and our CFO, Jeff Schwaneke. Following our prepared remarks, we will conduct a Q&A session. Before we begin, I would 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. Non-GAAP measures are supplemental and not substitute for GAAP results.

However, we believe that providing these non-GAAP measures helps investors gain a better and more complete understanding of our financial results and are consistent with how management views our financial results. A reconciliation of these non-GAAP financial measures for the most comparable GAAP measures is available in the earnings press release and Form 8-K filed with the SEC today. With that, let me turn the call over to Ron.

Thank you, Evan. Good afternoon, everyone. In 2026, we remain focused on disciplined execution and building a durable foundation for sustainable long-term performance. We are advancing the same strategy and mission, empowering best-in-class physicians through long-term partnerships to deliver high-quality, cost-effective patient care that delivers value for all of our stakeholders. In 2025, we made meaningful progress across all of our initiatives, which has translated into strong first quarter performance and increased expectations for our full year 2026 outlook. As we announced last week, we are excited to welcome Tim O'Rourke as our new CEO beginning tomorrow, May 7th. Tim brings significant experience across the payer and provider space with a deep understanding of what is needed to succeed in value-based care. Tim is fully committed to furthering our mission and strategy to continue driving improvement in agilon's performance for all of our stakeholders.

In the first quarter, we delivered results that were above our expectations. Our performance demonstrates operational discipline, the strengths of our long-term physician partnerships, and early benefits from the strategic decisions we made last year. Operationally, we are building upon several key initiatives you've heard me discuss before, the enhanced data pipeline and improved actuarial visibility enabling earlier identification and validation of trends, continued advancement of our clinical and quality programs with our congestive heart failure program now scaled broadly across the network, and ongoing execution of disciplined payer contracting and operating expense optimization focused on profitability and sustainability. Each of these efforts are designed to improve predictability and alignment with our physician partners, reduce variability, and support durable margin expansion over time.

With the enhanced data pipeline, we now have more timely direct payer data feeds with validated and highly correlated member-level clinical and claims data, as well as member-level risk scores on approximately 85% of our members. The increased visibility and alignment of our financial and operational data enable us to more quickly identify and drive improvements. As Jeff will discuss in more detail, this has enabled us to increase our revenue and Adjusted EBITDA expectations, in part due to better progress on the validation of our burden of illness initiatives. Going forward, we will continue to enhance the data pipeline to support clinically actionable insights, as well as improve network design and care model innovation. In combination with our physician reviewers, we are integrating generative AI-based insights directly into clinical workflows to drive more informed physician decision-making at the point of care. We are seeing encouraging results.

This capability is helping physicians intervene at the most appropriate points of care earlier. We are continuing to increase our focus on high-risk patients, an increasingly important focus for all constituents in the Medicare space. We have grown the richness of our member-level data and are now aligning it better with PCP actions. This is helping physicians improve the quality of their intervention with higher-risk patients, identifying gaps in care, and leveraging industry-standard guideline-directed clinical pathways. Greater access to timely and high-integrity data has also improved the quality of our forecasting, as demonstrated in the ongoing development of our 2025 cost trends. We have favorable medical cost trend development from the second half of 2025 and are seeing slight moderation within patient census so far in 2026.

With that said, given it is early in the year, we believe it remains prudent to maintain our net cost trend outlook of approximately 7% for full year 2026. Our full-risk total care model is delivering clinical and quality outcomes, and driving strong patient and PCP Net Promoter Scores, while demonstrating the ability to effectively manage utilization and medical cost trend. Let me discuss clinical and quality programs, focusing primarily on our clinical execution, which is a core driver for our model. As a reminder, the congestive heart failure, or CHF program, remains the most mature pathway deployed across 90% of our markets. Let me start with why this program is important to patients. Approximately 40%-50% of patients nationally are diagnosed at the time of first admission to the hospital.

That means missed opportunities for earlier detection, leading to less than ideal care and unnecessary hospital costs. The second thing we know about heart failure is that less than 10% of patients are actually on the right therapies. Through a proactive and guideline-directed approach, our physician partners have been able to shift CHF diagnosis to earlier in the care continuum, with inpatient first diagnosis rates improving from approximately 25% to less than 5%. Less than 5% of heart failure diagnoses are now in the inpatient setting. Additionally, we are expanding our pharmacy-integrated management approach for heart failure patients across the network and observing positive trends in guideline-directed therapy rates, which we expect to improve functional outcomes for patients and prevent downstream complications of disease that lead to admissions.

Current results reflect the combination of our early detection and diagnosis supported by in-office or increased access to diagnostics, structured and physician-supported clinical protocols, and ongoing patient engagement, including virtual pharmacy support. These pathways are increasingly informed by AI-driven risk stratification and early detection models, enabling more proactive intervention with this high-risk population. We plan to utilize this evidence-based approach while rapidly scaling COPD and broader lung health pathways through 2026. The initial focus for these programs will be earlier identification of COPD, expanded lung cancer screenings, and increased use of advanced diagnostics by our physician groups, each of which is designed to drive earlier intervention, improve treatment adherence, or prevent avoidable complications and hospitalizations. We are seeing good engagement as we continue to roll out the dementia program in conjunction with our physician partners.

Increased healthcare costs and the burden on caregivers is being driven by the approximately 50% of dementia patients across the broad population that go undiagnosed, increasing both healthcare costs and the burden on caregivers. We are working with partners to deploy enhanced caregiver models, structured early-stage pathways, and virtual diagnostics. Moving to our quality and Stars performance. agilon health's Stars performance is a result of a highly integrated quality operating model that combines data infrastructure, physician engagement, and payer alignment. Operationally, quality performance starts with our ability to identify care gaps early and deliver actionable insights directly to our physician partners. We are working closely with our physician partners, quality measures are embedded into their everyday clinical workflows. Our partners and their care teams have clear visibility into their performance and the actions needed to efficiently close care gaps for their patients.

Looking ahead, we expect to see continued opportunity to expand our performance through deeper data integration and earlier intervention, leveraging analytics to identify patients at risk of missing key quality measures earlier in the measurement year. Ultimately, our approach is about building durable infrastructure that supports physicians in delivering high-quality care that is aligned with the key objectives of the Medicare Advantage program while ensuring performance is accurately measured and rewarded. Let me move on to ACO REACH. As evidenced in the quarter's results, we continue to demonstrate the strength of our model and the ability to deliver superior performance across both Medicare fee-for-service programs and Medicare Advantage. We are pleased that CMS took a pragmatic approach to addressing fraudulent claims related to urinary catheter and suspect skin substitute claims for 2025. We have finalized 2026 payer contracts, which Jeff will discuss in a moment.

We're beginning our 2027 payer contracting process, where we plan to take the same disciplined and partnership-oriented approach with our payers, focused on shared profitability and durable margin expansion. In closing, we have had a strong start to 2026 and feel good about the progress we are making. We're seeing it across all areas that matter, payer contract, burden of illness, clinical and quality initiatives, and cost discipline. First, the work we have done with our physician partners around burden of illness initiatives and clinical pathways is starting to show up more clearly in our clinical results and financial performance. Second, our AI-enabled technology platform and enhanced data capabilities deployed in very close proximity to the physician are allowing us to identify opportunities earlier, act faster, and manage performance with greater precision.

We are beginning to see the benefits of AI more deeply into both physician and operational workflows. Third, the discipline we applied, particularly around payer contracting and cost structure, is starting to come through. We are raising our outlook for financial performance this year due to the early impact of these initiatives and remain confident in the long-term strength of our unique partnership model. With that, I will turn the call over to Jeff to go through the financials.

Thank you, Ron. Good afternoon. As Ron mentioned, we are very pleased that we exceeded our guidance for the first quarter and are increasing our expectations for the full year. The positive results and increase to our full-year guidance were driven by the strategic actions we took throughout 2025 and the continued strong work of our physician partners across the country. These include the significant improvement in our data visibility and estimation process, execution of our clinical and quality programs across our network, cost management, and disciplined payer contracting, all of which were focused on improving our operations and creating a strong foundation for durable and predictable performance this year and beyond. During our call today, I will cover three key areas of our financials. First, I will discuss our financial performance for the first quarter.

Second, I will provide an update on cost and macroeconomic trends, including the recently announced final rate notice for 2027. Finally, I will discuss our second quarter and revised full-year 2026 outlook, along with key assumptions we have made. Moving to our financial performance for the first quarter of 2026. We exceeded the top end of our guidance range for total revenue, medical margin, and Adjusted EBITDA. The performance in the quarter was driven by higher-than-expected revenue from risk adjustment, an additional full risk contract with a new payer in an existing market, and strong performance in ACO REACH. Starting with membership. Medicare Advantage membership at the end of the quarter was 426,000 compared to 491,000 in Q1 2025.

Our ACO REACH membership for Q1 was 110,000 members compared to 114,000 in the same period of 2025. As a reminder, Medicare Advantage membership was affected by our measured approach to growth, previously disclosed market exits, which were finalized as of January first, 2026, and payer exits in certain markets, which were a result of our discipline and profitability-focused contracting efforts. Additionally, a subset of our members are under care coordination fees. These contracts are primarily net neutral to agilon health, with financial opportunity based upon strong quality and cost performance. Revenue for the first quarter was approximately $1.42 billion compared to $1.53 billion in the same period of 2025.

Our year-over-year revenue decrease is driven by the membership decline I just mentioned, partially offset by more constructive rates for 2026 from both the CMS benchmark and favorable payer contracting benefits, as well as increased revenue from higher estimated risk scores from our previous expectations. Revenue for the first quarter was higher than our expectations, driven by the execution of an additional one full risk contract in an existing market and the estimated benefit of higher-than-expected risk scores. Using the enhanced data pipeline for a meaningful portion of our membership, we calculated member-level risk scores for the mid-year data period. This enhanced data is based on claims data as well as MAO-004 and MMR data that our payer partners receive from CMS. These data files are both claims and plan-submitted encounters that are accepted for risk adjustment.

As a reminder, we did not have this increased visibility into member-level clinical and claims data, as well as member-level risk scores until the pipeline went live at the end of the first quarter of 2025. Our revised estimate for the increase in risk scores over 2025 for the full year is now 1.5%, which is above our previous estimate of 0.4% for the full year 2026, both net of the V28 impact. This was driven by the improvement in our data and forecasting capabilities, as well as the operational process improvements we put in place over the past 18 months. Moving on to medical expense. The cost trends for the second half of 2025 continue to develop favorably, further demonstrating our ability to effectively manage medical costs.

The full year 2025 cost trend is now estimated at 6.2%, down from the 6.5% we estimated when we reported our 2025 full year results. The favorable development for 2025 medical expense was offset by additional reserves related to Part D costs for 2025, which as a reminder, are recorded net in premium revenue. Given the lack of data for 2025 Part D costs, we continue to take a prudent approach to Part D reserving, as we won't get final reconciliations of the cost typically until the third quarter of this year. Given we have limited paid claims visibility for the first quarter of 2026, we recorded a cost trend of 7.4% for the quarter.

I would note that based on our census data, cost trends remain in line with what has been mentioned nationally by our payer partners and others. Given our limited paid claims visibility early in the year, we took what we believe is a conservative approach in the quarter. Medical margin for the first quarter was $149 million, compared to $128 million in the first quarter of 2025, which exceeded the high end of guidance. This was driven by higher revenue, as I previously discussed, and lower overall medical expenses in the quarter. ACO REACH Adjusted EBITDA for the first quarter was $27 million and ahead of our expectations by approximately $5 million.

The favorable performance was primarily driven by CMS's removal of fraudulent urinary catheter and suspect skin substitute costs from our 2025 performance and the corresponding benchmark changes. Adjusted EBITDA was $54 million as compared to $21 million in the same period of the prior year. The favorable overall performance reflects higher medical margin, OpEx discipline, and the favorable ACO REACH performance I previously highlighted. As Ron mentioned, ACO REACH results underscore our confidence in our model and the potential for driving continued value creation as we look forward to the advancement of both the MSSP and CMS lead model in 2027. On the balance sheet, we ended the quarter with $303 million in cash and marketable securities and $47 million of off-balance sheet cash held by our ACO entities.

Year-end cash position is still expected to be at least $125 million. Last, we executed a reverse stock split at the end of the quarter. Additional details can be found on our investor website. Moving to guidance. We are revising our full year 2026 guide to reflect the strength of the first quarter results, including better than expected revenue associated with higher estimated risk scores for the year and the first quarter performance in ACO REACH. In addition, as previously mentioned, it also includes a new full risk contract signed in Q1 2026 in an existing market with a new payer.

Our confidence remains rooted in the same key tenets we have previously outlined, including operating execution across clinical and quality programs, improved data visibility and forecasting capabilities related to the enhanced data pipeline, payer contracting improvements, which emphasize profitability for both medical margin and cash flow, and a conservative cost trend assumption supported by factors previously mentioned. Utilizing the midpoint of guidance ranges provided within our earnings release, we now expect revenue of approximately $5.7 billion, medical margin of approximately $375 million in 2026, and Adjusted EBITDA of approximately $25 million. As I indicated, while the second half of 2025 saw favorable claims development, we continue to be prudent in our reserving and are maintaining our full year net cost trend outlook of 7%.

Focusing on the second quarter and utilizing the midpoint of guidance ranges, we expect revenue of $1.45 billion, medical margin of $123 million, and Adjusted EBITDA of $20 million. I will close by saying that we are very pleased with our first quarter's performance, including delivering strong positive Adjusted EBITDA. The enhanced data and reserving models improving our visibility to claims and revenue trends. We have executed on our strategic transformation and continue to drive improved performance across all aspects of the business. As Ron mentioned, we also remain optimistic about our runway for continued improvement beyond 2026 based on the continued execution across our initiatives and the final 2027 rate notice.

With respect to the final rate notice for 2027, we believe our starting point across our markets is in line with the 5.33% effective growth rate CMS noted. With additional opportunities based on our BOI quality and contracting efforts. Based on our model and review across the business, we believe we have minimal exposure to unlinked chart reviews. With respect to the 1.12% normalization factor, I will remind everyone that we have been able to more than offset the V28 hurdle over the past couple of years. Further supporting our potential will be continued discipline around payer contracting, implementation of programs to lower overall medical costs, and further driving operating efficiencies. The team will remain focused on minimizing risk related to Part D, emphasizing our quality initiatives, and balancing payer priorities with our own profitability.