In Q2 2026 agilon health beat the high end of guidance, posting revenue of ~$1.5B, medical margin of $197M (vs -$53M a year ago) and adjusted EBITDA of $70M (vs -$83M), roughly $74M and $50M above their respective guidance midpoints. Results were driven by a higher risk-adjustment estimate of ~3% YoY net of V28 (up from ~1.5%), favorable prior-year development, and improving cost trends, with full-year 2025 trend revised to 5.8% and Q1 2026 to the low 6% range. Management raised full-year 2026 guidance to ~$5.8B revenue, ~$485M medical margin and ~$85M adjusted EBITDA, while prudently assuming a ~7% back-half cost trend and guiding Q3 to break-even EBITDA. Strategic emphasis centered on the enhanced data pipeline (now above 80% of payers), maturing clinical pathways (CHF cut inpatient first-diagnosis rates from ~25% to under 5%, with dementia and COPD expanding), AI as a physician force multiplier, and disciplined growth that lowered MA membership to 437,000 from 498,000. New CEO Tim O'Rourke framed 2027 upside around care-coordination-fee-to-full-risk conversions and MSSP/ACO LEAD models, cautioning that the elevated risk-adjustment tailwind will remain net-positive but not repeat at this year's level.
Thank you, operator. Good afternoon, and welcome to the call. With me are our CEO, Tim O'Rourke, 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 which we will discuss in this call are non-GAAP financial measures. Non-GAAP measures are supplemental and not a 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 to 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 Tim.
Good afternoon, everyone, and thank you for joining us today. For those I have not yet had the opportunity to meet, I'm Tim O'Rourke. I joined agilon as chief executive officer in early May. Over the past 90 days, I have met with nearly all of our physician partners, shadowed PCPs, and have witnessed firsthand how we can help and continue to improve how they care for their patients. Their passion and caring reinforces our mission at agilon, the proximity and durability of our physician partnerships, and our absolute responsibility to support these physicians in their work across all of our communities. I have been engaged in good discussions with our payer partners, and I've engaged with the agilon team. I am listening, learning, and focusing on key areas to drive additional value for all of our stakeholders.
I came to agilon because I believe it sits at the center of where value-based care is going. By partnering with community-based primary care physicians and providing them with enhanced economics, technology, and clinical tools, we enable PCPs to focus on what they are trained to do, keeping patients healthy. To further our mission, agilon continues to advance new clinical, quality, and AI initiatives that will build upon our historical success in delivering improved patient outcomes while reducing unnecessary medical cost. We believe our collaboration with and proximity to our PCP partners enables us to embed solutions and insights directly into their daily workflows, supporting improved patient care. In turn, our proximity and understanding of our patient populations place both agilon and our PCP partners in what we believe is the best position to have meaningful impact on members' lives.
Against that backdrop, I am pleased to report that agilon exceeded our second quarter guidance across our key financial metrics. We are also raising our full year 2026 guidance driven by three key components: Our performance in the second quarter, the improved medical cost trend we began to see in the first quarter, and a stronger than expected performance of our burden of illness program that reflects the quality and completeness of the care our physician partners are delivering. Our performance for the quarter reflects our disciplined operating approach and execution across our PCP network. Through advances in our enhanced data pipeline, we continue to gain earlier insights to further improve both operational execution and support our PCP partners to drive improved patient outcomes through earlier identification, diagnosis, and intervention of high-risk conditions and gaps in care.
With respect to medical cost trends, we are seeing early signs of moderation in macro cost trends as well as the impact from systematic work at agilon. Investments and execution in clinical and quality programs. Claims and clinical data power the model, helping us stratify high-risk patients more effectively, trigger real-time intervention sooner, and avoid unnecessary medical costs while improving outcomes and member satisfaction. These are not short-term fixes. We believe these are structural changes to how care is delivered in our markets. I don't want this call to be just about a strong quarter. I want to talk about what is happening inside agilon that gives us confidence, not just in 2026, but in the future. We feel the results are evidence that our transformation efforts are gaining traction, our physician partnerships continue to strengthen, and our operating model is becoming increasingly resilient, scalable, and durable.
At agilon, our mission remains unchanged: empowering primary care physicians to transform healthcare for seniors. Everything we do begins and ends with supporting our physician partners in delivering better outcomes, improve the patient experience, and reducing the total cost of care. As we look across our business today, we believe we are positioned to capitalize on the long-term shift toward value-based care. Over the past year, the agilon team has been highly focused on strengthening the fundamentals of our platform. Our transformation initiatives have centered on three priorities. First, driving greater clinical and operational performance across our markets through more consistent execution and deeper physician engagement. Second, enhancing our data, real-time insights, and risk management capabilities to improve both care delivery and financial predictability. Third, creating a more scalable operating model that allows us to support physician groups with greater efficiency while maintaining the local market expertise that differentiates agilon.
We see measurable progress across each of these areas, contributing to stronger medical cost performance, improved care management effectiveness, and better alignment between operating discipline, clinical outcomes, and financial results. The underpinning of the model remains: providing our PCP partners with greater insights and tools embedded in the workflow at the point of care to reduce unnecessary medical cost while driving better patient outcomes. To drive additional improvement, we will look to further reduce variability across our PCP network, implementing operating programs and embedding technology to drive improved performance across the agilon team and our PCP partner network by unlocking deeper insights and standardizing best practices at scale.
A key element of this will be continued investment in AI tools to drive greater operational and clinical insights, creating more efficient workflow and improved member care, reducing administrative burden, and servicing evidence-based interventions so physicians can allocate their time to the highest acuity patient populations. We view AI not as a replacement for physicians, but as a force multiplier for primary care. We are also making significant progress in advancing evidence-based clinical pathways across our network. Through greater alignment around proven care protocols, we are improving consistency of care delivery while preserving physician autonomy. These pathways support better management of chronic disease, more appropriate specialty utilization, and ultimately better health outcomes for the populations we serve. The CHF program is deployed across 90% of our markets. It is our most mature pathway, and as such, it serves as the clearest proof point for what these programs can deliver.
As we have stated before, as a result of the program, our inpatient first diagnosis rates within our network have improved from approximately 25% to less than 5%. These are the types of clinical outcomes that are possible when we more closely link payment and care delivery. We are also expanding our pharmacy-integrated approach for heart failure patients, as fewer than 10% of heart failure patients nationally are on the appropriate medications. We are working systematically to improve that rate for our population, which we expect to further reduce downstream complications and avoidable admissions. We are also moving decisively with our lung health and our dementia guideline-directed programs with the dementia pathway expected to be rolled out to a number of our markets by the end of the year and the continued expansion of the COPD program.
Our focus for both programs is on earlier identification, expanded screenings, and increased utilization of advanced diagnostics by our physician groups, each of which is designed to drive earlier intervention, improve treatment adherence, and prevent avoidable complications and hospitalizations. Looking ahead, we also remain highly encouraged by the opportunities emerging in the next phase of the value-based care ACO models. This is evidenced by our recently announced ACO REACH program results for the 2024 performance year, which found delivery of $229 million in gross savings and an average quality score of 96% across eight ACOs. We believe our continued strong performance in ACO REACH establishes a strong foundation as we move into 2027. For 2027, the Medicare Shared Savings Program and the future ACO LEAD model represent important opportunities to further align incentives around quality, affordability, and patient-centered care.
We are evaluating the best path forward for both existing and new ACO partners as we enter 2027 with the expectation for both to be positive contributors to our performance in the coming years. This quarter's results confirm that our strategy for delivering on our mission is working. We exceeded in our raising guidance. Our transformation is advancing. Our physician partnerships are deepening, and our investments in AI and technology are beginning to show the kind of clinical impact that justifies our conviction. Our competitive advantage is not a product feature nor a technology platform alone. It is our proximity to the patient, mediated through a trusted primary care physician partner who knows that patient, lives in that community, and has aligned economic interest in keeping that patient healthy. That is extraordinarily difficult to replicate. You cannot build it in a quarter.
You build it over years through thousands of individual physician relationships and the trust that forms when a doctor sees that agilon's model is successful in improving patient outcomes. Those relationships create richer clinical insight, earlier intervention opportunities, stronger patient engagement, and ultimately better outcomes. We believe the future of value-based care will increasingly reward organizations that can combine sophisticated technology, actionable data, and local clinical relationships. We believe agilon sits at the intersection of all three. We have more work to do. We are working to reduce physician and group performance variability. We are establishing and advancing clinical pathways for earlier high-risk patient identification and intervention in order to improve outcomes and quality, as well as overall cost. Markets are still maturing, capabilities are still improving, and there are patients whose outcomes we have not yet fully transformed.
I am confident agilon is on the right path, and that path leads to a genuinely better healthcare system for the communities and patients we serve. I want to thank our physician partners, our employees, and our health plan partners for their continued commitment and collaboration. Their dedication is the foundation of our success and the reason we continue to make meaningful progress in our mission. With that, I'll turn the call over to Jeff to discuss our financial results and update outlook in greater detail.
Thank you, Tim. Good afternoon. As Tim mentioned, we're pleased by our second quarter results, which exceeded the high end of our guidance for medical margin and adjusted EBITDA. The positive results and increase to our full year guidance were driven by better than expected performance in the diagnosis, assessment, and treatment of our members in 2025, and favorable medical expense development for both 2025 and the first quarter of 2026. This, combined with our enhanced data visibility and estimation process, provide confidence in the underlying performance of our business. I'll cover three things today. First, our strong second quarter financial performance. Second, an update on cost trends in the macro environment. Finally, our increased full year 2026 outlook and third quarter guidance. First, let me highlight our second quarter performance.
Medicare Advantage membership at the end of the second quarter was 437,000 members, compared to 426,000 members at the end of Q1 2026 and 498,000 members in the second quarter of 2025. As a reminder, the year-over-year decline reflects our disciplined, profitability-focused approach to contracting in 2026 and measured approach to growth. ACO REACH membership for the second quarter was 112,000 members, compared to 110,000 in Q1 2026 and 116,000 in the second quarter of 2025. As a reminder, a subset of our Medicare Advantage members remain in care coordination fee arrangements. These contracts are primarily net neutral to agilon, with an incentive opportunity based on quality and cost performance. We continue to view these as a long-term risk-adjusted growth opportunity to potentially recontract these members to full risk when appropriate. Revenue for the second quarter was approximately $1.5 billion, compared to $1.4 billion in the second quarter of 2025.
The year-over-year increase reflects the membership decline I just mentioned, which was more than offset by more constructive rates for 2026 from the CMS benchmark, favorable payer contracting, and higher revenue associated with improved diagnosis of our members' health conditions. Our performance in the second quarter was driven by higher than expected revenue associated with the risk adjustment, which is now estimated at approximately 3% year-over-year net of the V28 impact. This is above our prior estimate of approximately 1.5% increase at the end of the first quarter. We continue to see the benefit of the enhanced data pipeline, which provided additional visibility from intra-quarter mid-year risk adjustment data from payers, which is validated with mid-year MAO-004 and MMR data. It also reflects the success of our burden of illness program, which serves as the foundation for our clinical and quality programs through the treatment of patients' comprehensive health conditions.
Moving on to medical expense. The cost trends from the second half of 2025 continue to develop favorably. This is supported by early signs of potential moderation in macro trends, as mentioned in public commentary by the large MCOs. We also believe it reflects agilon's ability to impact unnecessary medical costs as we continue to advance our clinical and quality programs. The full year 2025 cost trend is now estimated at 5.8%, down from the 6.2% we estimated when we reported our first quarter results. First quarter 2026 cost trends have developed favorably as well and are now in the low 6% range. In addition, while we have seen some moderation in cost trends, we recorded a second quarter cost trend in the low 7% range, which reflects our prudent reserving approach given the limited paid claims data we have at the end of any given quarter.
Medical margin for the second quarter was $197 million, compared to -$53 million in the second quarter of 2025. This exceeded the midpoint of our second quarter guidance by approximately $74 million. This was driven by favorable prior year development of $22 million, the year-to-date impact from our revised risk score estimates of $38 million, and favorable first quarter cost trend development of $14 million. Adjusted EBITDA for the second quarter was $70 million, compared to -$83 million in the second quarter of 2025. This exceeded the midpoint of our second quarter guidance by approximately $50 million. This was driven by favorable prior year development of $22 million, the year-to-date impact from the increase in our revised estimate for risk adjustment of $20 million, and favorable development of first quarter cost trends of $7 million.
In addition, results include ACO REACH adjusted EBITDA contribution of $7 million, which was roughly in line with our Q2 guidance. On the balance sheet, we ended the quarter with $257 million in cash and marketable securities and $83 million of off-balance-sheet cash held by our ACO entities. We continue to expect year-end 2026 cash of at least $125 million. Let me turn to our outlook. We are revising our full year 2026 guide to reflect the strength of the second quarter results, including better than expected revenue associated with higher estimated risk scores for the year and the second quarter performance. Using the midpoint of our guidance ranges for the full year 2026, we now expect revenue of approximately $5.8 billion, Medical margin of approximately $485 million and adjusted EBITDA of approximately $85 million.
The increased full year 2026 guidance reflects the year-to-date performance, a prudent assumption for cost trends in the 7% range for the remainder of the year, and the positive impact for the second half of the year from the increase in our revenue associated with the better than expected risk adjustment estimate contribution to 3% net the V28 impact. It also includes ACO REACH adjusted EBITDA between $25 million and $30 million. Our confidence is rooted in the same key tenets we have outlined throughout the year. Operating execution across our clinical and quality programs, improved data visibility and forecasting from the enhanced data pipeline, payer contracting improvements that emphasize profitability for both Medical margin and cash flow, and a conservative cost trend assumption.
Turning to the third quarter outlook, utilizing the midpoint of our guidance ranges, we expect revenue of approximately $1.46 billion, Medical margin of approximately $110 million, and break even adjusted EBITDA. I will close by saying we are encouraged by the continued progress across the business. The work our physician partners and employees are doing every day is showing up in our results, and we believe the foundation we are building supports durable, predictable performance into 2027 and beyond. With that, operator, let us move to the Q&A portion of the call.