Hello, and welcome to the agilon health Fourth Quarter 2025 Earnings Conference Call. My name is Carla, and I will be coordinating your call today. I will now hand you over to your host, Evan Smith, to begin. Please go ahead when you're ready.

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. We believe that providing these measures helps investors gain a better and more complete understanding of our financial results, and it 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 the Form 8-K filed with the SEC. And with that, let me turn the call over to Ron.

Thank you, Evan, and thank you all for joining us today. 2025 was a year for building the foundation of sustainable performance through intense focus on operational discipline. While we are navigating a comprehensive transformation, our mission remains unchanged, empowering physicians to lead the transformation of health care through our total care model. The fundamental resilience and effectiveness of our partnership model demonstrates a durable long-term growth runway through trusted relationships with community-based physicians. These individuals are leaders in their communities and have an average 10-year-plus relationship with their patients, creating deep community ties that are difficult to replicate. While we are not satisfied with our financial performance in 2025, we made tangible progress in the areas that matter most for a durable turnaround, which Jeff will provide more detail on in a moment. Our tangible progress includes the advancement of our clinical pathways and quality programs, our disciplined approach to payer relations and our continued focus on data-driven performance. All are driving greater clarity and sustainability across agilon's scalable operating model to support long-term value-based care success for our total care model. Our preparation for the future includes applying our continued discipline and focus across these critical areas as we navigate the potential of a lower-than-expected rate increase in 2027 following CMS's advanced rate. We believe the advanced rate notice does not sufficiently reflect the ongoing population-wide increase in cost and utilization due to the growing chronic disease burden and aging of the Medicare population. In addition, our further review of the risk model revision and normalization outlined in the advance notice, we believe the potential impact will be generally in line with the national average. However, we believe that our clinically focused program remains a critical part of the long-term answer. Continued advancement of our burden of illness and clinical pathway initiatives with our partners will help to mitigate the impact of the risk model changes as they did for V28. In addition, given the focus of our model is the assessment of conditions at the point of care with diagnosis tied to documentation from a visit we believe we have minimal exposure to unlinked or audio-only coding. We believe our ability to differentiate on the management of medical cost and quality outcomes should continue to position us well with health plans and physicians with the expectation that the rate and cost spread will ultimately normalize over time. Throughout the year, we advanced several key transformation priorities, which are embedded in our expectation for material improvement in year-over-year medical margin and adjusted EBITDA. At the midpoint, we expect revenue of $5.5 billion, medical margin of $325 million and adjusted EBITDA at breakeven. Our 2026 outlook reflects the expected positive impacts from the team's execution on payer contracting, clinical and quality programs, cost initiatives as well as premium increases. We also anticipate benefiting from payer benefit design changes, including increases to deductibles and maximum out-of-pocket expenses as well as reductions in supplemental benefits. While this is expected to benefit cost trend, we are assuming that net cost trends will remain elevated in 2026 at approximately 7%. Let me now reinforce key areas we believe are supporting a stronger foundation for execution in 2026 and forward. First, we entered 2026 with an enhanced financial data pipeline and strengthened actuarial and analytical capabilities, improving financial discipline, clinical visibility and overall predictability. We are increasingly able to identify variants earlier and intervene faster. As we have previously stated, we now have greater visibility into detailed revenue and claims information with the ability to calculate member level risk scores, utilizing our enhanced data pipeline, a key difference versus prior years. In addition, we believe the pipeline, AI-assisted advances for high-risk member identification and diagnosis through our burden of illness program as well as execution on clinical pathways will deliver results over and above the final year of the V28 impact. Second, through a disciplined approach to better underwriting the risk we take by contracting, agilon intentionally prioritize economic sustainability over membership growth. This approach included a willingness to pause growth, walk away from unprofitable payer contracts and restructuring arrangements with certain payers in specific markets temporarily migrating to a care coordination fee model as opposed to full risk. As a result, we expect to benefit from incremental percentage of premium and enhanced quality incentives for the value we deliver. A reduction in Part D exposure to less than 15% of our membership as well as shorter average contract term lifts, which we expect will help us better navigate changing market dynamics, including exposure to at-most policy, utilization or payer behaviors. In addition, our disciplined and rigorous recontracting process led us to exit certain payer contracts in specific markets. These contracts did not meet our minimum threshold of profitability. We expect membership will be reduced to approximately 430,000 members in 2026, including approximately 25,000 members in no downside care coordination fee arrangements with upside performance-based fees. We believe care coordination fee arrangements provide a long-term risk-adjusted growth opportunity to potentially move these members when appropriate to a full risk arrangement. Third, we advanced clinical pathways, which are evidence-based data-enabled care models designed to help our partners proactively identify, diagnose and manage the care journey for patients with high-impact chronic conditions. We believe these pathways, including heart failure, dementia and COPD can materially affect utilization, quality and total cost of care. We concluded the year with active heart failure programs adopted in over 90% of our network. Congestive heart failure or CHF is the most mature and scaled pathway, serving as a blueprint for other conditions, including early identification, expanded support for guideline-directed medical therapy and appropriate end-of-life care guided by patient preference and goals. Palliative care is also a core extension of our total care model. It's designed to proactively support patients with advanced illness, often those with late-stage heart failure, COPD, cancer or significant multi-morbidity. While only representing a small subset of our population, we have increased the number of patients engaged with this program. Clinically, it improves quality of life and care coordination. Financially, it helps us reduce avoidable late-stage utilization, particularly inpatient admissions and emergency care. Most importantly, the patients and their families have a better experience and clearer goal of care discussions and more coordinated support. Fourth are our quality initiatives. Our quality programs continue to mature with stronger measuring discipline and improved care gap closures. Quality isn't just a scorecard for us, it's a lever for patient outcomes, member experience, cost and revenue. The strategy recognizes that primary care performance directly drives the majority of Star measures, making agilon's physician-centric model structurally advantaged and an area of increasing focus by payers. Our value-based care model enables exceptional quality performance by providing the necessary tools and support to help our network deliver the highest quality care. To drive additional performance in 2025, we strengthened our data access and analytic capabilities to further enhance our ability to identify care gaps. We also expanded our capabilities for providers to close care gaps in areas such as diabetic eye exams. Our network consistently delivers quality performance for measures we can influence and control ahead of benchmarks at 4.2 stars on a composite basis across the platform, maximizing quality bonus revenue while reinforcing physician alignment. In 2026, we believe we have the opportunity to more than double the incentive contribution. As we indicated last quarter, 2024 results were very strong in ACO REACH and an improvement over 2023 results. ACO REACH continues to demonstrate the value creation agilon can deliver and is shaping the way we are transforming our MA business. CMS recently announced the lead program long-term enhanced ACO design, intended to launch after the REACH model concludes at the end of 2026. LEAD is designed as a 10-year voluntary model with a longer planning horizon, benchmarking enhancements and an emphasis on better serving high needs patients. We see LEAD as a positive signal. It reinforces CMS commitment to value-based care with a longer-term structure that can support sustained investment and consistent operating execution. Lastly, we executed on initiatives to reduce operating costs and controls. We believe we made meaningful progress on forecasting, performance reporting and market level accountability in 2025. These are critical to improving decision speed and execution. We executed on $35 million in operating cost reductions above what we communicated at the end of the third quarter. This will enable greater operating leverage from the platform and support our business objectives. In summary, we are executing with urgency, while cost trends are expected to remain elevated, we believe our transformation actions will support improved operating performance. We plan to build on the progress made last year with a continued emphasis on disciplined execution, collaboration and measurable positive impact for patients. We expect 2026 to mark a strong improvement in medical margin and adjusted EBITDA supported by renegotiating with health insurers to better reflect the reality of today's environment, care costs and plan initiated decisions. A heightened focus on investments in quality performance as health plans continue to increase the incentives available for top quartile performance. Continued progress to improve patient outcomes and reduce total cost of care through proactive chronic disease management and ongoing development and expansion of clinical pathways, strengthening provider engagement and reducing variability in performance across markets and practices, optimizing our cost structure. Lastly, we will continue to advance initiatives, which we expect to support continued performance improvement in 2027. With that, I'll turn it over to Jeff to walk through the financial results.

Thank you, Ron, and good afternoon. As Ron stated, 2025 was a transformational year. We took significant actions focused on improving the profitability of the business, including a disciplined approach to contracting, improvements in our burden of illness program, enhancing our clinical and quality programs, meaningful cost reductions and continuing to advance strategic initiatives related to our data visibility, clinical and cost management programs. Through the execution and implementation of these initiatives, we expect to drive significant improvement in profitability in 2026 while continuing to invest in our platform and partners. As we discussed last quarter, this is supported by several underlying market and payer-related tailwinds, including the 2026 final rate notice by CMS, payer bids, which were focused on margin and our actions we took in 2025 centered on execution and profitability. For today's discussion, I will cover three key areas. First, I will walk through our fourth quarter and full year results and a bridge to our jumping off point for 2026. Second, I will walk through our 2026 guidance, including key assumptions driving improved profitability. And finally, I will discuss the strength of our capital position and a more disciplined near-term growth outlook. Moving to our financial performance for the fourth quarter and full year 2025. Starting with membership. Medicare Advantage membership at the end of the quarter and fiscal year-end 2025 was 511,000 members. Our ACO REACH membership for the quarter and fiscal year-end 2025 was 114,000 members. As a reminder, membership continues to be affected by our decision to take a measured approach to growth, inclusive of previously announced market exits in a smaller 2025 class. Total revenue for the fourth quarter was $1.57 billion and $5.93 billion for full year 2025, respectively. Revenue in both reflects the impact of lower-than-expected risk adjustment revenue and previously disclosed market and payer contract exits. With respect to medical costs, we continue to see favorable development from the first half of 2025, with the respective cost trend now sitting in the mid-5% range. However, for the third quarter of 2025, we experienced elevated costs, primarily attributed to inpatient stays, including a few large discrete multimillion-dollar claims totaling $6.5 million. Based on this, we increased our medical cost trend for the third quarter of 2025 to 7.2%, up from the low 6% range we previously recorded. Given the elevated cost trend we experienced in the third quarter, along with minimal paid claims visibility at the close of the fourth quarter, we took a prudent approach and recorded fourth quarter medical cost trends at 7.4%. This brings our full year 2025 cost trend to approximately 6.5%, which we believe provides a solid foundation heading into 2026. Medical margin for the fourth quarter was negative $74 million and negative $57 million for the full year. Both the fourth quarter and full year results are reflective of the elevated cost trend assumptions just discussed as well as the previously discussed risk adjustment impact. In addition, the full year results include negative $60 million from exited markets and negative $53 million from prior year development. Adjusted EBITDA was negative $142 million and negative $296 million for the fourth quarter and full year, respectively. The fourth quarter reflects the items I already highlighted, partially offset by lower geography entry costs and the benefit from continued operating cost discipline. ACO REACH was in line with our expectations. Adjusted EBITDA for the fourth quarter was negative $6 million and for the full year of 2025 was $41 million. As Ron mentioned previously, ACO REACH performance further supports our confidence in our approach, the total care model and value we bring to our partners and members. On the balance sheet, we ended the quarter with $285 million in cash and marketable securities and $91 million of off-balance sheet cash held by our ACO entities. Year-end cash was ahead of our expectations by approximately $66 million, including $34 million in permanent improvement and $32 million related to expense timing. Last, in tandem with our transformation initiatives, after the quarter, we extended our credit facility and term loan. Details were filed in an 8-K. Next, let me discuss our outlook for 2026. As I previously mentioned, we are optimistic about our ability to deliver significant growth and profitability in 2026, driven by our actions in 2025. We have provided our first quarter and full year 2026 guidance metrics in the press release and earnings presentation posted on our website for you today. We have also provided bridges in the earnings presentation that walk from our jumping off point to the full year 2026 guidance. For the full year 2026, we expect year-end membership on the agilon platform will be in a range of 525,000 to 540,000 members. This includes estimated Medicare Advantage membership of 430,000 and ACO model membership of approximately 103,000 at the midpoint. The estimated Medicare Advantage membership reflects the market exits we announced in 2025, a small amount of growth as well as the impact of our disciplined contracting. As we highlighted on our third quarter earnings call, our contracting efforts were focused on achieving positive adjusted EBITDA across all markets, which embeds our assumptions of medical cost trends, payer-specific bids, quality performance and market-specific cost structure for 2026. As a result of this disciplined profitability-focused approach, we exited several payer-specific contracts for 2026, which reduced overall Medicare Advantage membership by 50,000 members. Additionally, Medicare Advantage membership includes approximately 25,000 members in a care coordination fee structure with additional incentives tied to quality and cost performance. For the full year, we expect revenues in the range of approximately $5.41 billion to $5.58 billion. As highlighted in the slides we provided today, most of the year-over-year improvement is expected to be driven from known factors, including increased percentage of premium from our contracting efforts and payer bids, which were on average at or above the CMS benchmark rate. Combined, these are expected to create over $625 million in incremental value in medical margin in 2026. As mentioned earlier, in addition to exiting structurally unprofitable arrangements, we also reduced exposure to Medicare Part D costs to below 15% of our membership. We prioritize care coordination fee structures with performance-based incentives, more than doubling the quality incentive opportunity from 2025 for the value we deliver to our members and payers. With respect to our burden of illness program, we are confident that the enhanced data pipeline, which now includes over 85% of our members, AI advances for high-risk member identification and diagnosis in our BOI program and execution on clinical pathways are expected to deliver results over and above the final year of V28 implementation. We expect a net 40 basis point improvement year-over-year at the midpoint. As a reminder, over the last two years, we have more than offset the impact of the V28 implementation. Our enhanced data pipeline has shown a 99% plus correlation rate and is expected to improve the accuracy and forecasting of our risk-based revenue. With respect to cost trend, we are assuming a gross cost trend of 7.5% for 2026 as trends remain elevated and net 7% when considering the 50 basis points estimated benefit from payer bids. As we have stated previously, 2026 payer bids across our markets, on average, demonstrated payers bidding for improved profitability with benefit design changes, including increases in premiums, deductibles and maximum out-of-pocket expenses and a reduction in supplemental benefits. It's important to note that this 7.5% cost trend for 2026 comes on top of the higher cost baseline that we are now assuming for 2025, which we believe is an appropriate stance in this continued elevated cost environment. We expect medical margin to be in the range of $300 million to $350 million in 2026. This reflects the positive impact from our disciplined contracting efforts, a slight benefit from our BOI program and a more conservative cost trend assumption heading into 2026 due to the continuation of elevated medical expenses. We anticipate G&A expense of approximately $234 million, which is slightly lower than the full year 2025, and geo entry expenses of approximately $15 million. G&A expense for 2026 includes the benefit from the organizational realignment initiatives we implemented in the second half of 2025, which reduced operating expenses by $35 million, exceeding what we previously communicated. This was partially offset by employee merit and medical cost inflation and the reestablishment of incentive compensation expense, assuming a full target payout. We continue to focus on additional initiatives to optimize our cost structure and drive additional operating leverage heading into 2027. Last, adjusted EBITDA for the full year is expected to be in the range of negative $15 million to positive $15 million or breakeven at the midpoint. This includes the contribution from our ACO REACH programs, which is expected to be in the range of $20 million to $25 million. As a reminder, our ACO REACH outlook reflects announced changes to the ACO REACH program for the 2026 performance year, primarily related to a rebasing of the risk adjustment cap from 2022 to 2019. While we are confident these factors will drive improved performance, we are continuing to actively manage the business to further enhance execution across all initiatives, laying the foundation to drive improved performance beyond 2026. Finally, I will discuss our capital position, which will enable our teams to continue executing on our transformation and deliver our anticipated material year-over-year performance improvement. We expect to end 2026 with at least $125 million of cash on hand, including our ACO REACH entities. This is driven by our better-than-expected year-end cash position, combined with our current 2026 outlook. Additionally, we have extended our credit facility with our existing lenders by two years and currently plan to pursue a reverse stock split as indicated in our proxy filing. We believe the extension reflects the strength of our operating performance outlook and continued lender confidence in our business. Finally, I would like to address the advanced rate notice released by CMS. To reiterate, we are disappointed and believe the proposal does not adequately address the high cost and utilization trends experienced over the last several years. As Ron mentioned, after further analysis of the details provided with the advanced notice, we believe our BOI and clinical pathway initiatives will help mitigate the impact of the risk model revision and normalization factor outlined in the advanced notice. In addition, our initial analysis of the sources of diagnosis indicates we should experience minimal impact as the strength of our model is our primary care partners' physical interaction with their patients. This would set our expected baseline closer to the published effective growth rate. We will continue to analyze and monitor this release and remain hopeful that a more comprehensive and appropriate approach will be taken when final rates are released in April. In summary, we recognize that we are operating in a dynamic macro environment, including industry headwinds and regulatory changes. We have executed on a significant business transformation plan, combined with our physician-centric model and scale, we believe positions agilon health to deliver sustainable value for patients, partners and shareholders. With that, operator, let's move to the Q&A portion of the call.

I just want to kick off on some of the trend discussion because I think I caught all of it, Jeff, but I want to make sure we've got sort of the right understanding in terms of what's baked in for 2025. So I guess I just want to clarify, it sounds like 3Q has stepped up. You sort of roughly match that or maybe step it up slightly. Just a little color or clarification there. And then if there's anything you've seen in some of that true-up in the third quarter on what might be driving that acceleration in cost trend, I would be interested just to hear if there's any color on that at this point.

Yes. Sure, Jack. Thanks for the question. Yes, you're right. So what we saw in the third quarter, in the prepared remarks, we commented on really higher inpatient stays. So we had a lot more inpatient volume. Specifically, we had several cases that were over $1 million. And if you aggregate those, it's roughly $6.5 million of cases that were over $1 million in the third quarter. And so sitting at this point, we took the cost trend in Q3 from the low 6s to 7.2%. And listen, we recognize that we have limited claims visibility, paid claims visibility for the fourth quarter. But we felt it prudent given that Q3 is kind of coming in so high that we moved Q4 up to 7.4%. And so what that did is it took the full year from the low to mid-5s to 6.5%. So right now, we have 2025 at 6.5% cost trend.

I want to follow up on the additional costs related to inpatient admissions you just discussed for Q3. Were those claims associated with specific payers and regions? I am trying to understand if your Q3 reserve of 7.4% compared to 7.2% in Q3 assumes that inpatient stays will continue at a similar level or worsen? I want to know if the buffer built into Q4 is sufficient.

Yes. Thanks, Jailendra. I guess a couple of things. Number one, they weren't concentrated in specific markets is what I would say. And we did see utilization step up, not across the board, but in several of our markets, specifically in inpatient stays. And I would say September appears to be the highest of the quarter. And so it was more focused on the end of the quarter is where we saw that. And I understand your point, you're saying, could these just be random acute events that don't reoccur. That's certainly possible. But again, with limited claims visibility as we closed out the year, we just felt it was prudent to provide a solid foundation from which to jump off into 2026. And so we went ahead and moved that cost trend up to 7.4%. So again, limited claims visibility for us, but we felt it necessary to provide a good stepping off point.

I wanted to hit on quality. Nice to see the medical margin opportunities there. I think in 2025, you've been targeting $25 million of opportunity tied to quality. How did you do on achieving that? And then for 2026, as we think about that opportunity doubling, could you maybe just give us a sense of what those increased incentives look like and pathway to achievement? Is that just greater stars improvement or any discrete strategies you're laying out to achieve that quality opportunity?

Yes. There are a couple of points to consider. First, the quality measurements are still pending, as we need to complete the runout period. However, I believe we are close to reaching our goals for 2025. Secondly, there's significant potential for us to increase our earnings. In 2024, we were around 4.2 stars across our network, and we've made improvements heading into 2025. While we still need to finalize some details, we are confident we will perform better in 2025. Looking ahead to 2026, we see further opportunities, and our guidance reflects performance similar to 2025. Although we have not fully incorporated that potential into our guidance, we are indeed aiming for improved performance. We have various programs in place focused on achieving these goals.

Yes. Look, Jack, I think the ACO new model is encouraging in the sense that it's a 10-year model, which provides for a longer period of time, gives you a basis to plan and perhaps to make investments to support the development of the model. Now we have encouraged, from a policy point of view, further clarity, much greater even stretching out of the implementation of the program. I think that at this point, there's not a lot that we know, but the main thing that we know is that it represents a continuing opportunity. And I think that the work that we've done so far in the current model will position us very well in terms of however the program unfolds. And so we're looking forward to being actively involved. As a matter of fact, I'll be in Washington next week. Dr. Oz is going to be in a meeting on that, and we'll continue to advocate physicians to make that program effective for patients, for physicians and for us.

I have a couple of follow-up questions about what you've already discussed. First, regarding the membership exits and some of the recontracting you've undertaken, is it correct to say that you've moved away from contracts and plans you consider poor partnerships? Will the improvements moving forward primarily depend on execution and hopefully adjusting rates to align with cost trends? Or do you believe there are still further developments expected in this area? Additionally, were there any specific partners that were notable in this situation? Is it mainly concentrated in one or two plans that you decided to move away from, or is this trend more widespread?

Yes, Justin, I guess what I would say is it's probably payer and market specific. So it's not specific to any one payer. I think as you know, economics are different across payers and markets. And so I wouldn't single any payer out to say they were specifically an issue. And so it's broad-based. And ultimately, as we think about it going forward, I think these are members that we can ultimately get to a contract sometime in the future. But obviously, we're in challenging macroeconomic times. And we just couldn't get to a deal this year. So it doesn't mean we can't get to a deal ever. It just means the economics and the risk wasn't right for us at this point in time. And that's the same lens that we'll have as we renew contracts for 2027.

Yes. I think the point I would make, Justin, is that we've been pretty clear about the value that we create. And that if we're not going to be paid for it, then we will not be delivering that value. And we'll see what happens next year as they realize that what we were telling them was really an important contributor to their success. So we're hopeful, but we're also firm about it has to be the right agreement for us and for our physician partners. Thank you. I want to conclude by expressing my deep appreciation and gratitude to our physician partners whose dedication to quality care for their patients is essential to our long-term success. I also want to thank all the employees of agilon who have focused on the transformation we have undergone this year, preparing us for the success we've outlined in our guidance. Thank you for joining the call. We appreciate your questions and the chance to engage with you. Have a good day.

Thank you, everyone. This concludes today's call. Thank you for joining. You may now disconnect.