Q4 2024 Earnings Summary
- agilon health has improved its financial performance by exiting unprofitable partnerships and underperforming payer contracts, enhancing bottom line profitability and reducing cash burn. They ended the year with $440 million in cash and expect to use only $110 million in 2025, ending with $330 million, which is $75 million better than previous expectations.
- The company successfully reduced its Medicare Part D exposure to less than 30% of their 2025 membership, down from over 50%, aiming to eliminate Part D exposure over time. This reduction decreases volatility and risk in their business.
- Medical margin is expected to improve 46% in 2025 to $300 million at the midpoint, up from $205 million in 2024. This improvement is driven by enhanced payer contracts, including re-contracting 40% of membership with improved economic terms and increased incentives tied to quality performance. The company is confident in executing $50 million of operating, quality, and clinical initiatives in 2025 , aiming to deliver quality scores of greater than 4.25 stars, which is highly valued by payer partners.
- Declining Medicare Advantage Membership and Revenue in 2025: The company anticipates a full-year Medicare Advantage membership decline of approximately 4% or 22,000 members, resulting in a range of 490,000 to 520,000 members. This decline is due to exits from underperforming partnerships, payor contract terminations, and reduced same geography growth of only 3% or 13,000 members. Additionally, total revenues for 2025 are expected to be between $5.83 billion to $6.03 billion, which is slightly down from 2024, indicating potential revenue stagnation.
- Continued Negative Adjusted EBITDA and Cash Burn: The company projects an adjusted EBITDA loss of $75 million at the midpoint for 2025, following a loss of $154 million in 2024. The expected use of cash for 2025 is approximately $110 million, indicating ongoing cash burn and raising concerns about the company's ability to reach cash flow breakeven, which is not anticipated until 2027.
- Elevated Medical Cost Trends and Underwriting Challenges: The company continues to experience elevated medical cost trends, with a cost trend of 6.8% in 2024 and an estimated 6.3% gross in 2025. Despite efforts to reduce exposure to uncontrollable costs like Medicare Part D and supplemental benefits, these trends are pressuring margins. The challenging Medicare Advantage rate environment has not kept pace with increased costs, impacting profitability.
| Metric | YoY Change | Reason |
|---|---|---|
Data Availability | Improved in Q4 2024 forecast period | Q3 2023 improvements reduced data lag from two months to one month by enhancing collaboration with payers and revamping internal/external data teams, a shift that built on previous periods’ slower data receipt and improved forecasting accuracy |
Risk Adjustment Forecast | Deteriorated in Q4 2024 forecast | Q3 2024 assessments revealed that the company’s earlier overinvestment in the VOI program led to overestimated risk adjustment forecasts; process gaps, operational inefficiencies, and new payer feedback prompted a downward revision compared to prior expectations |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | FY 2025 | no prior guidance | $5.83 billion to $6.03 billion | no prior guidance |
Medical Margin | FY 2025 | no prior guidance | $275 million to $325 million (midpoint: $300 million) | no prior guidance |
Adjusted EBITDA | FY 2025 | no prior guidance | Negative $75 million at the midpoint | no prior guidance |
Medicare Advantage (MA) Membership | FY 2025 | no prior guidance | 490,000 to 510,000 members | no prior guidance |
ACO Model Membership | FY 2025 | no prior guidance | 110,000 members | no prior guidance |
Medical Cost Trend (Gross) | FY 2025 | no prior guidance | 6.3% | no prior guidance |
Medical Cost Trend (Net) | FY 2025 | no prior guidance | 5.3% (after payor bid impact) | no prior guidance |
ACO Model Performance | FY 2025 | no prior guidance | $35 million to $40 million | no prior guidance |
Geography Entry Costs | FY 2025 | no prior guidance | $35 million to $40 million, assuming 30,000 to 45,000 members | no prior guidance |
Cash Usage | FY 2025 | no prior guidance | Approximately $110 million | no prior guidance |
Medicare Advantage (MA) Membership | Q1 2025 | no prior guidance | 490,000 to 510,000 members | no prior guidance |
Revenue | Q1 2025 | no prior guidance | $1.48 billion to $1.52 billion | no prior guidance |
Medical Margin | Q1 2025 | no prior guidance | $125 million to $140 million | no prior guidance |
Adjusted EBITDA | Q1 2025 | no prior guidance | $10 million to $25 million (inclusive of $18 million from ACO REACH at the midpoint) | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Exiting Unprofitable Partnerships and Payer Contract Optimization | In Q1–Q3, the company repeatedly discussed exiting unprofitable partnerships—through strategic exits, retroactive terminations, and selective contract non‐renewals—to address EBITDA losses and reduce cash burn. | In Q4, they detailed exiting two underperforming partnerships and optimizing payer contracts by repricing 40% of membership and reducing Medicare Part D exposure. | Consistent focus with increasing refinement. Actions are evolving toward a more targeted risk mitigation and profitability strategy, fostering a more positive forward‐looking sentiment. |
Medical Margin Performance and Guidance Adjustments | Q1 showed modest margin growth offset by prior-year claims, Q2 reported margins near guidance bottoms, and Q3 highlighted notable underperformance with downward revisions. | Q4 reported an improvement—from a negative $102 million in Q4 2023 to a $1 million margin—and provided guidance for a significant improvement in 2025. | Cautiously optimistic. The sentiment in Q4 is more positive, reflecting recovery and strategic adjustments despite lingering cost pressures. |
Cash Position, Cash Burn, and Path to Profitability | Across Q1–Q3, the company maintained relatively stable cash positions (ranging from ~$399M to ~$426M) and consistent focus on cash burn management and setting a path toward breakeven cash flow. | Q4 ended with improved cash levels ($440M) and disciplined cash usage, with a clear plan to achieve cash flow breakeven by 2027. | Steady and methodical improvement. Consistent management with incremental refinements is building a stronger foundation for future profitability. |
Medicare Membership Composition | Earlier periods (notably Q1 and Q3) showed robust Medicare Advantage growth but also mentioned strategic exits; Q1 focused on growth while Q3 noted declines from exits. | Q4 detailed an anticipated 4% decline in Medicare Advantage membership along with a reduction of Medicare Part D exposure (to less than 30%), emphasizing a defensive, risk‐mitigation strategy. | A strategic shift from broad growth to controlled contraction. The focus is on managing risk by trimming volatile exposures even at the cost of slower membership growth. |
Rising Medical Cost Trends and Underwriting Challenges | Q1 noted high in‐quarter trends (up to 9.1%) and underwriting pressures, while Q2 had a moderate trend (7.3%) and Q3 involved upward revisions and risk adjustment shortfalls. | Q4 reported a full‐year cost trend of 6.8% with a projection of 5.3% for 2025, indicating progress in curbing rising costs and mitigating underwriting challenges. | Downward pressure on costs with improved mitigation. Sentiment shifts from alarm toward cautious optimism as strategic measures start to temper cost trends. |
Payer Negotiations, Contract Renewals, and Off-Cycle Rate Adjustments | Q1–Q3 saw foundational negotiations with early off-cycle rate increases, renegotiation efforts, and exit of unprofitable contracts to set the stage for sustainable terms. | Q4 focused on repricing 40% of the membership for 2025 and securing off-cycle adjustments that directly contributed to improved cash flow. | Evolving favorably. The company’s increasingly effective negotiation efforts are positively impacting margins and cash flow, with sentiment remaining optimistic. |
Strategic Expansion and Network Growth | Q1 highlighted strong new physician partnerships and high demand, while Q2 and Q3 reported robust membership growth (37–38%), although Q3 also mentioned delays and selective exits. | Q4 emphasized measured growth—focusing on quality and clinical enhancements—with a smaller, controlled class of 2025 and plans for larger future cohorts. | Shift from rapid expansion to deliberate, quality-focused growth. The sentiment is more strategic and pruned, prioritizing sustainability over sheer scale. |
ACO REACH Program Performance | In Q2 and Q3, the ACO REACH program demonstrated solid performance with membership around 132,000 and moderate EBITDA, though it was not discussed in Q1. | Q4 showcased strong program performance with $150 million in gross savings and break-even adjusted EBITDA in Q4, with positive outlook discussions for post-2026 periods. | Emerging as a high-impact area. Improved performance metrics and favorable cash‐saving results have led to an increasingly positive view of its long-term strategic importance. |
Risk Adjustment Process Enhancements | Q2 revealed risk adjustment performance coming in lighter than expected, and Q3 acknowledged process gaps that needed closing, while Q1 had no specific mention. | Q4 reported enhanced data analytics and process integration aimed at achieving a 2% increase in risk adjustment revenue, reflecting ongoing improvements ahead of 2025. | Maturing process improvements. The gradual evolution from initial challenges to cautious optimism underlines its potential long-term financial impact. |
Regulatory Impacts and CMS Rate Notice Concerns | Q1 expressed disappointment with the final CMS 2025 rate notice and highlighted regulatory challenges affecting funding and margins. | Q4 addressed a challenging rate environment but noted that cost trend mitigation and early favorable signals for 2026 are helping to ease these concerns. | Transitioning from high concern to a more hopeful outlook. While regulatory risks remain influential, proactive management and improved external signals are shifting sentiment positively. |
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Reduction in Part D Risk Exposure
Q: How will changes to Part D impact your P&L?
A: We've exceeded our goal of reducing Part D risk exposure from less than 50% to 30% of our members. This success reflects strong relationships with payors who recognize we can't control Part D risks like formularies and rebates. For the remaining 30% of members, we've doubled the PMPM loss from '24 to '25 due to the Inflation Reduction Act increasing dollars at risk. Part D is recorded net in revenue and remains a small but loss-making component, which is why it doesn't significantly appear in the medical margin bridge. -
Medical Cost Trend Guidance
Q: What's the impact of the 2 Midnight rule and supplemental benefits on cost trends?
A: The 2 Midnight rule adds 50 basis points to our full-year medical cost trend, and this is incorporated into our estimates. Supplemental benefits saw an overall decrease, with 97% of bids reducing them, lowering the magnitude of these dollars for us in 2025. While we aim to be at risk only for things we control, supplemental benefits remain at risk in 2025. -
Care Management Fee and No Downside Risk
Q: Can you discuss the new care management fee model with no downside risk?
A: For the class of '25, totaling 20,000 members, we're using a care management fee with no downside risk for the vast majority to reduce beta, moving them to full risk as market and payor dynamics improve. This is the first time we've used this model, and payors were receptive. Ultimately, they prefer full risk, but this approach is situational and depends on the environment. -
Growth Expectations for Class of '26
Q: How is the class of '26 shaping up?
A: We have a strong class for '26 with signed letters of intent, and we're feeling good about it. This class will be larger than our 20,000-member class of '25. It's reflective of the primary care physician market needing a new business model, and our success positions us well. There's potential to make the class of '26 even larger, with focus soon turning to the class of '27. -
ACO REACH Program Outlook
Q: What are your expectations for the ACO REACH program beyond 2026?
A: We're optimistic about the post-'26 outlook, whether that's an extension of REACH or a new full-risk Medicare fee-for-service program. Given our strong performance—consistently beating benchmarks and achieving superior quality—we're hopeful about future opportunities. This year will be active in determining the path forward. -
Working Capital Improvements
Q: What drove the working capital improvements in Q4 and expectations for '25?
A: Through disciplined cash management, we ended the year with $440 million in cash, including ACO cash. We expect to use $110 million in 2025, ending at $330 million, which is $75 million better than previous expectations. This improvement was driven by partnership exits, tighter working capital management, and successful payor contract negotiations, particularly around accelerated cash payments. Opportunities remain for further improvements. -
Repricing of Membership Contracts
Q: How did repricing of contracts affect your outlook?
A: We repriced 40% of our membership for 01/01/25 and have another 50% up for 01/01/26. We achieved the increases we sought in the percentage of premium for Part C and reduced Part D risk in about 30% of the 40% repriced. We also secured standard language to protect us moving forward. Repricing is a tailwind as we look toward 2026, providing an opportunity for improvement. -
Medical Cost Trend Projections
Q: What are your final 2024 medical cost trends and expectations for 2025?
A: Our final medical cost trend for 2024 is 6.8%. For 2025, we're projecting 5.3%, bridging from 6.8% by adjusting 50 basis points for the 2 Midnight rule and another 100 basis points due to payor bids reducing member benefits. We believe we have the same level of cost trend from '24 to '25 when accounting for these factors. -
Impact of Payor Bid Changes
Q: How do payor bid changes affect your medical margins?
A: Payors reducing member benefits led to a 100 basis point reduction in our cost trend, from 6.3% to 5.3%. While this decreased our revenue due to bid adjustments, it also reduces our medical expense, resulting in a neutral impact on medical margins. The cost-sharing shifts to members are factored into our projections. -
Part D Risk Reduction Goals
Q: Is the goal to eliminate all Part D risk exposure?
A: Yes, our ultimate goal is to reduce Part D risk exposure to zero, similar to our aim with supplemental benefit exposure. Reducing exposure below 30% was achieved through constructive discussions with payors, who understand the challenges and our inability to control certain Part D risks heightened by the Inflation Reduction Act.