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Operator: Thank you all for joining. I would like to welcome you all to the agilon health First Quarter 2023 Earnings Conference Call. My name is Brika, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. And after the speakers’ remarks, you have an opportunity to ask question. [Operator Instructions] Thank you. I would now like to turn the call over to Matthew Gillmor, Vice President of Investor Relations. Matthew, you may begin.

Matthew Gillmor: Thank you, operator. Good afternoon, and welcome to the call. With me is our CEO, Steve Sell; and our CFO, Tim Bensley. Following prepared remarks from Steve and Tim, we will conduct a Q&A session. 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 on 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 measure is available in the earnings press release and Form 8-K filed with the SEC. You’ll note from the press release that we’ve changed the presentation for certain non-GAAP financial measures. Before Steve’s remarks, Tim will review these changes. So with that, let me turn the call over to Tim.

Tim Bensley: Thanks, Matt. Before we give our prepared remarks, I want to review the revised presentation for adjusted EBITDA and gross profit. As you know, we’ve always been committed to transparency and provide a lot of details on our performance. We recently made the determination that we should include geography entry costs within adjusted EBITDA to conform to the SEC’s recent guidance on non-GAAP financial measures. We will continue to provide transparency around these investments on a go-forward basis. For clarity, we want to define gross profit and adjusted EBITDA before we begin the call. We’ve replaced network contribution with GAAP gross profit. Gross profit is total revenues, less medical services expense and other medical expenses, which include a portion of geography entry costs.

Adjusted EBITDA now includes total geography entry costs, which was $12 million in the quarter. This includes the portion of geography entry costs within our other medical expenses and geography entry costs within our G&A expenses. With that, I’ll turn the call over to Steve.

Steve Sell: Thanks, Tim. Good evening, and thank you for joining us. We’ve had a very successful start to the year, and we are making rapid progress against our vision to transform health care in 100-plus communities by empowering primary care doctors. We are hosting today’s call from the Twin Cities in Minnesota, where we recently launched our partnership with two leading physician groups, Entira Family Clinics and Richfield Medical Group. Entira and Richfield are highly respected with a deep history and connectivity across the region. Through our partnership, we have introduced a new model for senior care in Minnesota with a multi-payer, full-risk platform. We see significant opportunities for growth in the Twin Cities as physicians have a strong history of participating in early value-based care models.

Primary care is largely fragmented outside of several large health systems. And our partnership with Entira and Richfield is serving as a catalyst for other physicians to make a similar choice and move to full risk for their senior patients. As discussed at our Investor Day, once the infrastructure for full risk is established in a community, other doctors can easily join our network and access a new and sustainable model for primary care. The associated long-term growth opportunity or in-market TAM in the 14 states and 32 communities we serve is now 10.5 million seniors and 33,000 primary care doctors. We are excited for more of these doctors and their senior patients to join our platform in the Twin Cities and throughout the entire agilon network.

Now to our performance in the first quarter. Our overall momentum remains strong entering 2023. During the quarter, our MA membership grew 61% to 402,000 members and revenues grew 74% to $1.14 billion. This was above our guidance ranges and supported by faster standup of new primary care doctors and pull-through of members in new markets. Our ability to pull through more members in 2023 supports our long-term earnings power as we improve the quality and efficiency of care for those senior patients over time. At the same time, our profitability continues to inflect higher, with first quarter medical margin up 88% to $162 million and adjusted EBITDA more than tripling to $24 million. Our growth in medical margin and adjusted EBITDA was especially impressive given a modest net headwind from prior year claims and revenue.

Even with our stronger membership growth, our medical margin increased 17% on a per member per month basis to $135 and by 110 basis points to 14.3% of revenues. This was primarily supported by strong performance in our maturing partner markets. Our ability to expand margins while driving higher membership growth remains very distinctive, reflecting the power of our partnership model, platform and scale. With our strong start to the year, we are maintaining the full year adjusted EBITDA outlook we provided in March. Under the revised presentation that Tim outlined at the top of the call, our adjusted EBITDA outlook ranges from a loss of $3 million to a gain of $25 million, which includes $78 million to $65 million of geographic entry costs. Our guidance also reflects faster pull-through of members in our new markets and increasing confidence in the contribution from REACH based on higher than initially projected outperformance against national cost benchmarks.

We are also encouraged with the progress we are seeing with enrollment in our clinical programs targeted at the most complex and high-cost patients. These programs such as renal and palliative care leverage our deep alignment with primary care doctors while driving continuous improvement to patient experience, quality and cost. I’m especially proud of our performance given the magnitude of the growth we are driving across different partners, markets and payers. During the first quarter, we added 130,000-plus new Medicare Advantage lives, eight new markets, four new states and nine additional payers. With this growth, we are now operating close to 100 distinct full-risk contracts with nearly 30 payer partners, including national and regional plans.

When you consider that most of our payer partners have never done full risk, our ability to be first in the market and build the infrastructure for risk-based care that all physicians can access is a significant competitive advantage and requires the management of complex data flows such as member and financial data reconciliations. Increasingly, we believe agilon is differentiated in our ability to move new markets to risk and successfully work with a broad diversity of payers. Before updating you on our future growth opportunities, I wanted to say a few words on our revised non-GAAP measures. The most important change is we are now including geographic entry costs within our adjusted EBITDA calculation. I want to stress that our revised presentation does not impact how we think about our business, our cash flow or returns on capital.

Ultimately, our goal is to get members on the platform, improve access, quality and efficiency of care delivery and develop medical margins over the long term. Geographic entry costs are investments we make to set up our partnership; establish processes that enable primary care doctors to be successful in value-based care, especially around patient access and quality; and expand overall primary care capacity. Because we partner with existing physician organizations, the efficiency and returns we generate on our geographic entry costs are very compelling. As we have discussed with you in the past, member acquisition costs have consistently remained in the range of $400 to $600 per member. They generate an LTV to CAC of greater than 10:1, and these costs only grow on an absolute basis as the number of new members increases.

Now for an update on our 2024 partners and some early observations for 2025. As we shared with you in March, we expect 2024 will be another record year of growth. We are currently implementing over 100,000 Medicare Advantage lives across six new partner groups, which include primary care only groups, multi-specialty, scaled networks and health systems. Our implementation work is progressing well supported by a recently completed acquisition of mphrX and our established infrastructure in existing states and markets. Additionally, our early engagement with payers has been encouraging. We are optimistic that the combination of new and existing partner growth could pull through greater than 145,000 total new MA members for 2024, which would be similar to our experience of increasing expectations for final expected membership for 2023.

Our business development team is now shifting their focus to 2025. While it’s very early, we are seeing significant opportunities across diverse partner types and geographies, including new markets and large physician organizations in existing markets. Similar to last year, we are encouraged with the quality of the dialogue this early in the cycle, which should translate into longer implementation periods. In fact, we expect to begin implementing several new partners for the class of 2025 during the second half of the year. As I’ve said in the past, the inflection in demand among physician groups for a sustainable primary care model reflects both structural factors from all payers pushing for value and the level of success that our partner groups are seeing on the platform.

I wanted to close by offering a few comments on the 2024 rate notice and recent policy developments. We are encouraged and supportive of the risk adjustment model changes included in the 2024 rate notice, including the three-year phase-in. We believe the phased approach will limit industry disruption, especially for health plans and at-risk provider organizations that serve high-risk populations. Operationally, we are already implementing the necessary changes for the 2024 notice. As I mentioned on the last call, we believe the rate notice is very manageable for agilon. This reflects our combined power and nimbleness from centralized operations paired with local teams tightly integrated with primary care doctors as well as our focus on historically unmanaged fee-for-service markets that serve the entire Medicare Advantage population and yield relatively lower risk adjustment levels.

In addition, the distinctive levers in our business provides the ability to manage through disruption, levers such as getting more members on the platform early, delivering a more effective and longer implementation for new partners and accelerating quality and medical cost performance in mature markets. The three-year phase-in of the risk model change removes uncertainty and reinforces our confidence in our ability to continue to inflect adjusted EBITDA in 2024 and beyond. From a macro perspective, the rate notice, along with the RADV rule, reinforces the central role of primary care doctors in our health care system, which is very positive for agilon and our partners. With these changes, health plans will need even closer alignment with PCPs to drive better cost and quality outcomes and support competitive benefits, while doctors will need infrastructure, resources and technology to succeed in value-based care and meet the demands from all payers, including CMS.

agilon’s partnership and platform is the solution for existing doctors to move into full risk and the success of our growing network continues to demonstrate the critical role we and our partners are playing in transforming the overall health care system. With that, let me turn things over to Tim.

Tim Bensley: Thanks, Steve, and good evening, everyone. I’ll review highlights from our financial statements to provide some additional details on our guidance for 2023. Starting with our membership for the first quarter. Total members live on the agilon platform increased to 491,000, including both Medicare Advantage members and ACO REACH beneficiaries. Our consolidated Medicare Advantage membership increased 61% to 402,000. This was above our guidance range of 385,000 to 390,000 driven by retro membership from 4Q and the faster pull-through of members in new markets, including better-than-expected payer contracting and attribution. Revenues increased 74% on a year-over-year basis to $1.14 billion during the first quarter, which was also above our guidance range of $1.07 billion to $1.09 billion.

Revenue growth was primarily driven by membership gains in new and existing geographies. On a per member per month basis, or PMPM, revenue increased 8% during the first quarter. This was primarily driven by benchmark updates and membership mix, including higher benchmarks in several new markets. Medical margin increased 88% year-over-year to $162 million during the first quarter. Medical margin increased both as a percentage of revenue and on a PMPM basis, even while accounting for the dilution of our membership growth. Membership margin was 14.3% of revenue during the first quarter compared to 13.2% last year, and medical margin PMPM increased 17% to $135 compared to $116 last year. Medical margin benefited from the maturation of older markets and member cohorts which continue to offset dilution from our year one numbers.

Medical margins for our year two plus partners, which excludes the dilution from year one markets, increased 72% during the first quarter on a dollar basis and by 47% on a PMPM basis. As we’ve discussed with you in the past, medical margin growth in our year two plus partners drives the majority of our adjusted EBITDA gains. Our medical margins for the quarter included a net headwind of $12 million from prior year revenue and claims. This was primarily a function of true-ups with health plans, including new contracts, which includes both prior year claims and revenues, a number of smaller, older high-cost claims and some retro members, which also include both prior year claims and revenue. Gross profit, which is replacing network contribution, increased 82% to $77 million during the first quarter and includes $2 million in geography entry costs.

The year-over-year increase in gross profit reflects our strong medical margin as well as the relative contribution of medical margin across geographies. Platform support costs, which include market and enterprise level G&A, increased 41% to $48 million. Growth in our platform support cost continues to run well below our revenue growth and highlights the light overhead structure of our partnership model. As a percentage of revenue, platform support cost declined to 4.2% during the first quarter compared to 5.2% last year. Adjusted EBITDA was $24 million in the quarter, which is a threefold increase from $8 million last year. Adjusted EBITDA now includes geography entry costs, which was $12 million in the first quarter of 2023 and $4 million in the first quarter of 2022.

The increase to adjusted EBITDA reflects the gains in medical margin and gross profit, along with leverage against platform support costs. Adjusted EBITDA contribution from Direct Contracting was $3 million in the first quarter, similar to last year. Turning to our balance sheet and cash flow. As of March 31, we have over $800 million of cash and marketable securities. Cash flow from operations was negative $61 million for the quarter, which was in line with our expectations. In February, we completed the previously announced acquisition of mphrX, a leading provider of value-based care technology and interoperability solutions, for a cash consideration of $44 million. agilon remains well capitalized. And given our efficient partnership model, we do not anticipate needing any external capital to drive our future growth.

Turning now to our financial guidance for the second quarter and full year 2023. For the second quarter, we expect ending membership live on the agilon platform will grow to a range of 488,000 to 495,000, including 55% growth in MA membership to 403,000 to 405,000, and ACO REACH membership at 85,000 to 90,000. We expect revenue in a range of $1.105 billion to $1.115 billion or 66% growth at the midpoint. We expect medical margin in the range of $138 million to $148 million, representing 74% growth, and adjusted EBITDA of $2 million to $10 million compared to negative $3 million in the prior year. Our adjusted EBITDA outlook for the second quarter now includes $19 million to $16 million in geographic entry costs. For the full year 2023, we expect total membership live on the agilon platform will grow to 490,000 to 500,000 members.

This includes higher MA membership outlook of 405,000 to 410,000, representing growth of approximately 51% at the midpoint, and ACO REACH membership unchanged at 85,000 to 90,000 members. Revenue growth is now expected to increase 63% at the midpoint to a range of $4.41 billion to $4.44 billion. We anticipate medical margin in a range of $535 million to $560 million and adjusted EBITDA in the range of negative $3 million to positive $25 million. Our adjusted EBITDA outlook for the full year 2023 now includes $78 million to $65 million in geography entry costs. Finally, our adjusted EBITDA outlook includes $5 million to $10 million in contribution from REACH, but we now have increased confidence in the higher end of that range. With that, we’re now ready to take your questions.

Operator?

Operator: [Operator Instructions] We have the first question from Lisa Gill of JPMorgan.

Operator: We now have George Hill of Deutsche Bank.

Operator: We now have Ryan Daniels with William Blair.

Operator: We now have Justin Lake of Wolfe Research.

Operator: We now have Stephen Baxter of Wells Fargo Securities.

Operator: We now have Jailendra Singh from Truist.

Operator: We now have Adam Ron of Bank of America.

Operator: We now have Sean Dodge of RBC Capital Markets.

Operator: We now have Ben Mayo of SVB Securities.

Operator: We now have Jamie Perse of Goldman Sachs.

Operator: We now have Gary Taylor of Cowen.

Operator: Our next question comes from David Larsen from BTIG.

Operator: We now have Brian Tanquilut of Jefferies.

Operator: We have no further questions in the queue. So I’d like to hand it back to Steve Sell for any final remarks.

Steve Sell: All right. Thank you, operator. In closing, I’d just like to say we’ve had a really strong start to the year, and we’re making great progress against our vision. I do want to thank our physician partners for the trust they place on agilon. I want to thank my colleagues here at agilon for their hard work and dedication in supporting senior patients and physician partners. And we’re excited about where we’re going. We look forward to updating you on our progress in future calls. And I hope everyone has a great evening. Thank you .

Operator: Thank you all for joining our conference. That does conclude today’s call. Please have a lovely rest of your day, and you may now disconnect your lines.