Astrana Health Stock

Hello, everyone, and welcome to Astrana Health's Second Quarter 2026 Earnings Call. [Operator Instructions]

Today's speakers will be Brandon Sim, President and Chief Executive Officer of Astrana Health; and Chan Basho, Chief Operating and Financial Officer.

The press release announcing Astrana Health's results for the second quarter ended June 30, 2026, is available in the Investor Relations section of the company's website at www.astranahealth.com. The company will discuss certain non-GAAP measures during this call. Reconciliations to the most comparable GAAP measures are included in the press release. To provide some additional background on the results, the company has made a supplemental deck available on its website. A replay of this broadcast will be available at Astrana Health's website after the conclusion of this call.

Before we get started, I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terms such as anticipate, believe, expect, future, plan, outlook and will and conclude, among other things. Statements regarding the company's guidance, continued growth, acquisition strategy, ability to deliver sustainable long-term value, ability to respond to the changing environment, liquidity, operational focus, strategic growth plans and acquisition integration efforts.

Although the company believes that expectations reflected in these forward-looking statements are reasonable as of today, those statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. There could be no assurance that these expectations will prove to be correct. Information about risks associated with investing in Astrana Health is included in the filings with the Securities and Exchange Commission, which we encourage you to review before making any investment decisions. The company does not assume any obligation to update any forward-looking statements as a result of new information, future events, change in market conditions or otherwise, except as required by law.

Regarding to the disclaimer language, if you would like to refer to Slide 2 of the conference call presentation for further information.

With that, I will turn the call over to Astrana Health's President and Chief Executive Officer, Brandon Sim. Please go ahead, Brandon.

Good afternoon, and thank you for joining us for Astrana Health's Second Quarter 2026 Earnings Call.

Today, I'll begin with an overview of our financial results, then discuss how our Care Model and AI-native operating system for health care are accelerating our ability to deliver high-quality patient-centered care at scale. I'll then provide an update on the Prospect integration, following our first full-year together. Finally, I'll discuss our strategic positioning in each line of business and provide color on our guidance before turning the call over to Chan.

Astrana delivered another strong quarter, reflecting continued momentum across the business. We saw accelerating demand from payer and provider partners, continued maturation of our value-based care cohorts, disciplined medical cost trend management and expanding operating leverage driven by our proprietary technology platform.

In the second quarter, we generated revenue of $973 million, up 49% year-over-year and adjusted EBITDA of $69 million, up 43% year-over-year. Adjusted diluted earnings per share reached a record high $0.80, up 45% year-over-year. Our business continues to generate substantial cash. Free cash flow totaled $93 million in the first half of the year, representing approximately 69% conversion of adjusted EBITDA into free cash flow. That cash generation, combined with continued earnings growth, has enabled us to continue deleveraging ahead of schedule.

Net leverage declined to 2.26x on a trailing 12-month basis. As a reminder, when we first announced the Prospect transaction, we committed to reducing net leverage below 2.5x within 24 months. We have already surpassed that goal by approximately a quarter turn in half the time. These results continue to demonstrate the scalability of our AI-native health care operating system and the consistency of its execution. There is an important distinction between simply adopting AI and actually creating value from AI.

We believe that durable competitive advantage comes from owning the orchestration layer, where data, workflows, clinical decision-making, operational processes and financial accountability are integrated into a single operating system across the enterprise. That unified operating system gives our AI agents a shared context across the enterprise, allowing them to work seamlessly across clinical, operational and administrative functions rather than being confined to isolated point solutions.

The result is intelligent automation that spans the organization, becomes more capable over time and creates more value as the platform scales. Building that operating system has required years of health care expertise, proprietary data, workflow development and organizational learning. creating a set of capabilities that we believe are difficult to replicate. Just as importantly, we've paired that operating system with a delegated payer-agnostic business model that captures the economic value that those better decisions create. That foundation is reflected in our execution across our 4 long-standing strategic priorities.

First, we continue to grow responsibly. Our growth has never been constrained by demand. It's constrained by the economics of each new cohort that we onboard. Every new cohort requires upfront investment before reaching at scale profitability, and our objective is to maximize long-term value by balancing growth with profitability. That equation is changing. As our AI-native health care operating system continues to improve, every new cohort we onboard generates stronger risk-adjusted returns.

New cohorts become more predictable, require less upfront investment and reach profitability more quickly. That allows us to responsibly move further along the growth profitability frontier, capturing more of the demand available to us without compromising our underwriting standards or long-term return thresholds. Because the business has outperformed expectations and generated strong free cash flow in the first half of the year, we've been able to move further along that frontier, accelerating growth by onboarding additional high-return opportunities while simultaneously exceeding our profitability expectations and raising our guidance for the year.

On the payer side, we signed new Medicare Advantage agreements in Hawaii and Texas, expanded existing relationships in California and saw strong demand across the platform. On the provider side, both our Care Partners and Care Enablement pipelines continued to strengthen, including planned new physician partnerships in the South and on the East Coast that we expect to begin contributing to revenue in 2027. We also continue to execute on disciplined strategic tuck-in acquisitions within our expansion markets, further strengthening our Care Delivery capabilities. We expect these investments to progress along the same maturation curve and become meaningful contributors to earnings over time.

Second, we continue to progress prudently into full-risk arrangements. In value-based care, success isn't about avoiding risk entirely, it's about reducing the uncertainty associated with that risk. Our platform continuously strengthens our ability to predict and influence the drivers of performance, fundamentally improving the risk-adjusted economics of value-based care. Our competitive advantage isn't a greater willingness to assume risk. It's a greater ability to reduce uncertainty through better clinical and operational execution. As a result, we're able to responsibly pursue full-risk opportunities that others may view as too uncertain while maintaining the same disciplined underwriting standards.

The full-risk contracts that commenced in Q1 continue to perform in line with our underwriting expectations as those cohorts mature. At quarter end, approximately 81% of capitation revenue and 42% of our membership came from full-risk arrangements. Our expansion markets continue to validate the portability of our operating model. In Texas, our delegated full-risk partnership with a large national payer is now 2 full quarters into operation and continues to perform in line with our expectations.

Based on that performance, we continue to expand our presence in the market, including adding approximately 3,000 new Medicare Advantage professional risk lives with a payer that selected Astrana as its risk partner. Third, we continue to manage medical cost trend through better care. Historically, risk stratification determined which patients received scarce clinical resources. Today, it increasingly determines how every patient receives care.

Higher-risk patients continue to receive physician and nurse-led interventions, while lower-risk patients receive AI-enabled navigation, outreach and longitudinal monitoring. AI does not replace clinicians. It extends their reach across a much larger portion of the population without compromising quality. On a year-to-date basis, overall medical cost trend remains slightly better than our full-year assumption of approximately 5.2%. Medicare Advantage and original Medicare continue to perform favorably relative to our expectations. Medicaid cost trend is tracking in line with our expectations. And although commercial has run slightly above expectations in the quarter, we are confident in our ability to manage those trends through the clinical and operational levers enabled by our delegated model.

For the 2024 performance year, our flagship MSSP ACO ranked seventh out of 476 ACOs nationwide in net shared savings per beneficiary, while our flagship ACO REACH entity ranked in the top 15% nationally in net shared savings. Fourth, we continue to expand operating leverage as we scale. Across the business, our AI agents are creating capacity, improving productivity and enabling our teams to focus on higher-value clinical and operational work. For example, in claims operations and referral management, AI-powered workflows have reduced handling time by more than 50%, creating operational capacity equivalent to approximately 60 full-time employees over the past 12 months.

As a result, G&A as a percentage of revenue improved approximately 210 basis points year-over-year in the second quarter, and we continue to expect to exit the year with G&A at approximately 6% of revenue. Taken together, these 4 pillars demonstrate how Astrana's operating system for health care translates into measurable economic value. And we believe that's what fundamentally differentiates Astrana.

Now, turning to Prospect. July 1 marks the 1-year anniversary of closing the Prospect acquisition. Over the past year, we systematically integrated Prospect onto the Astrana operating system, bringing clinical operations under a unified care model, embedding the workflows and technology that have driven our historical performance across the enterprise and establishing a unified operating and financial framework across the business. The results continue to validate that approach.

Gross provider retention has remained above 99%. We continue to expect operating expense synergies at the high end of our annual target of $12 million to $15 million and medical cost trend within the legacy Prospect business continues to run slightly ahead of our expectations. More importantly, we've established the operational and clinical foundation that we believe will continue to drive improvement over the years ahead.

Now, turning to the positioning of our portfolio. We continue to actively position our business for long-term value creation while remaining disciplined in our planning assumptions. We exited the quarter with approximately 1.5 million members in value-based arrangements, with year-over-year membership changes driven primarily by Medicaid-related attrition that was already contemplated in our guidance.

Medicare Advantage membership remained stable during the quarter. In the exchange product, we continue to expect full-year attrition consistent with both our guidance and our internal planning assumptions. And in Medicaid, we continue to see attrition tracking towards the high end of our expectations, while adverse selection continues to be in line with expectations as we shared last quarter. While these dynamics remain fluid across the industry, we remain comfortable with the assumptions embedded in our outlook and continue to plan conservatively.

At the same time, we are continuing to improve the quality and alignment of our portfolio. In California, we're rebalancing portions of our Medi-Cal business by transitioning members from professional risk arrangements into full-risk arrangements in response to changes in the state's Medicaid program. We expect these transitions with several of our health plan partners to occur over the next 12 months and view them as a natural progression of the strategy we've discussed over the past several years.

Before I turn the call over to Chan, I'd like to provide a bit of color around our raised adjusted EBITDA guidance for 2026. Our underlying performance continues to run ahead of plan. Rather than allowing all of today's outperformance to flow through to earnings, we've deliberately chosen to reinvest a substantial portion of that into the provider and payer growth opportunities that I mentioned earlier. In aggregate, these investments are in the mid- to high single-digit millions of dollars this year.

As I discussed earlier, our operating system continues to improve the economics of growth, giving us the confidence to capture more of the demand available to us even while maintaining the same disciplined investment standards. We believe that allocating some of our outperformance towards these growth opportunities is among the highest return capital allocation decisions available to us and will continue to compound our earnings power over time.

With that, I'll turn the call over to Chan.

Thank you, Brandon, and good afternoon, everyone.

Our second quarter results reflect disciplined execution across the platform. Adjusted EBITDA finished towards the higher end of our guidance range and free cash flow generation remained strong. Also, we made meaningful progress on the balance sheet, retiring $92 million of debt during the quarter.

Today, I will cover 3 areas: our second quarter financial performance, including medical cost trends, the balance sheet and free cash flow and our updated outlook for the year. Total revenue for the second quarter was $973 million, up 49% versus the prior year period, driven by organic growth in our Care Partners segment, the Prospect acquisition and continued ramp-up of our full-risk contracts.

Second quarter revenue was impacted by a one-time $15 million reduction related to CMS' implementation of the adjustments for significant anomalous and highly suspect billing activity for the ACO REACH 2025 performance year. Despite this, we are reaffirming our full-year revenue guidance of $3.8 billion to $4.1 billion.

Adjusted EBITDA for the quarter was $69 million, up 43% versus the prior year period and near the high end of our guidance range of $65 million to $70 million. This reflects controlled trend, solid performance across our full-risk arrangements, continued realization of Prospect synergies and disciplined cost management. Net income attributable to Astrana was $20 million. Adjusted EPS was a record $0.80 per share, up 45% versus the prior year period.

Turning to G&A. We expect to be approximately 6% of revenue for the full year. Free cash flow for the first 6 months was $93 million, an increase of $29 million from Q1 2026. We remain on track to deliver full-year free cash flow within our guidance range of $105 million to $132.5 million.

On the balance sheet, deleveraging moved from commitment to execution this quarter. We used our strong cash generation and position to retire $92 million of debt, bringing pro forma gross leverage down to 3.8x from 4.2x at the end of the first quarter. We ended the quarter with $401 million in cash, $579 million of net debt and pro forma net leverage of 2.26x on a trailing 12-month basis. As Brandon discussed, we're raising our full-year 2026 adjusted EBITDA guidance to $255 million to $280 million.

The increase reflects broad-based outperformance across the business, including the continued maturation of our full-risk cohorts, continued realization of Prospect synergies and operating leverage from our AI-native operating system. We are raising guidance even while continuing to reinvest a substantial portion of our outperformance into attractive long-term growth opportunities. These investments include growth in our core and expansion markets, newly onboarded payer contracts, planned provider partnerships, disciplined strategic tuck-in acquisitions and recently converted risk cohorts that remain early in their maturation curves.

We continue to believe these investments will generate attractive long-term returns while further strengthening our earnings power over time. On revenue, despite the one-time 2025 ACO REACH billing-related adjustment, the continued ramp-up of our full-risk contracts keeps us comfortably within our previously communicated range. Accordingly, we are reaffirming our full-year revenue guidance of $3.8 billion to $4.1 billion, as well as our free cash flow guidance of $105 million to $132.5 million.

Our outlook continues to assume 0 contribution from HQAF and conservative Medicaid membership trends. We expect greater clarity on both items as the year progresses. For the third quarter of 2026, we expect revenue between $1 billion and $1.03 billion and adjusted EBITDA between $72.5 million and $77.5 million.

Taken together, our first half performance, including record profitability and earnings growth, strong free cash flow generation and continued operating momentum gives us confidence in our updated outlook. We enter the second half of the year with momentum, a strong balance sheet and confidence in the long-term trajectory of our business.

With that, operator, we're happy to take questions from the audience.

Our first question is from Ryan Daniels with William Blair.

This is Matthew Mardula on for Ryan. So, with you talking about outperforming the full-year trend assumption of about 5%, what cost trends are you currently at? And then with commercial above trend, what is impacting that segment? And is it the Exchange segment?

And then lastly, did any segment cost trends needed to be revised versus your expectations?

Matthew, thank you for joining the call. So, I think there are a few questions. First, on trend. Year-to-date, overall trend is tracking slightly better than our guided 5.2% assumption blended across the business. By line of business, Medicare Advantage and original Medicare are slightly favorable to our overall trend. Our ACO populations and original Medicare are performing well. Medicaid is in line with that trend number, and that was inclusive of potential adverse selection effects in our guidance. And commercial, as I mentioned earlier, was slightly above. On commercial, we feel comfortable with our ability to inflect that throughout the year. And it's only slightly higher than what we had anticipated. So, we are not anticipating changing our guidance at this time.

Great. And then with the new members added in Texas, Hawaii as well as in California for Medicare Advantage and with you talking about continuing to expand membership, as we think about expansion, is MA the area that looks most favorable to you? And as we think about into the second half and into 2027, should we be expecting MA membership to continue to grow? And do you believe this could maybe offset that decrease in Medicaid membership?

Our model is based on being payer-agnostic. However, given some of the changes in Medicaid that are to come, naturally, there is a higher percentage of revenue that will be coming from Medicare, both Medicare Advantage as well as original Medicare going forward.

Our next question is from Jack Slevin with Jefferies.

Congrats on a solid quarter. Apologies if you tread over this a little bit, but I guess I wanted to just touch on MA a little and really 2 things, I guess. I know it's a little early without landscape files or other things, but maybe what you're hearing or seeing from payers given we are past bid deadlines or any chatter that might be in the marketplace on sort of where those things are aligning?

And then secondly, as you look at that trend and opportunities to moderate there, any pockets you can call out or areas you might see that could be potential drivers of upside in MA as we progress through the year and into the out years?

Thanks for the question. I mean, first of all, on the plan, none of that is public yet. We do work closely with the plans, especially in those provider-specific plans that we develop in partnership with our plan partners to find the right benefits for the populations that we're serving and ensure that they are -- that the benefits are driving better care coordination and better access to care for those members. I think it's a bit early to comment on the exact bids, but I do think that we feel confident that our success in Medicare Advantage will continue into 2027.

Of course, in California, which is our core market and a very competitive market for MA, they're always going to be, as we've seen in past years, folks who want to grow their plans dramatically. But this has been a recurring theme, and we've managed through that and we understand how to do that and kind of spread our membership across our portfolio of health plan partners as we feel confident kind of going to '27, especially with where the final rate notice was.

In terms of potential opportunity, there are always opportunities to continue moderating medical cost trend. However, we're already seeing that outperforming our overall expectations and we feel confident that we can continue doing that going forward. For example, inpatient admits per 1,000 in our Medicare business were very well controlled and relatively flat year-over-year here in the first half of the year. That being said, there's always opportunity to more appropriately code our members. As we have mentioned before, our risk scores are approximately 1.0, which we believe is lower than the average for Medicare Advantage. So, that's something that in the medium term, we will be looking to capture and diagnose and code more or chart more accurately.

Got it. Okay. Really helpful. And then just as a follow-up. The G&A commentary continues to be, I think, pretty optimistic and delivering on some of the upside there. I guess what I'm trying to parse out related to some of the synergies in Prospect and then just ongoing efforts you have to make the business more efficient, more automated, more AI forward. If I try to balance those 2 things, can you just speak a little bit to sort of -- are those 2 things tracking nicely together? Is there room to go on Prospect within some of the core initiatives you're putting out across the business that are separate from the synergies? Would love to just hear sort of on those 2 tracks, how to think about the G&A improvements and how that casts forward?

Right. Consistent with what we've been saying in the last couple of quarters, we have been measurably improving our G&A or decreasing G&A spend as a percentage of revenue. This quarter, for example, was over 2% lower than the same quarter last year, coming in at or underneath the 6% mark, and we expect to exit the year at the 6% range. Going forward, we continue to expect to see declines in G&A as a percentage of premiums under management as a result of both increased capture of synergies, which are at the top end of the $12 million to $15 million range that we previously guided as well as core operational changes in the legacy Astrana business. So it really is a mix of both. I don't have a breakdown of exactly what percent is coming from each, but it's going to be continued improvements across the board in both capturing synergies as well as improvements in the core platform.

Our next question is from Michael Ha with Baird.

On the rebalancing of Medi-Cal lives from professional full risk, I was wondering if you could elaborate more on this, what's driving it? Is this related to the increased payer appetite you mentioned in your remarks? Is there increased appetite from these Medicaid plans in California who are facing elevated margin pressures? I mean, how many lives are you expecting to convert over the next 12 months? And how should we think about the expected earnings impact?

Michael, thanks for the question. I think there are a couple of dynamics at play in Medicaid, especially in California for the Medi-Cal program. One part of it is that a lot of our Care Model is predicated on saving dollars across both outpatient and inpatient utilization. And so in areas or contracts in which there is no path to a full-risk arrangement or in areas where we can push towards a full-risk arrangement, we believe that allows us to better align our performance with the financial outcomes that we receive from those contracts, especially in the time of compressing margin and disenrollments in California, both now and potentially in 2027 and beyond after OBBBA comes online.

We're making a further push to emphasize that we would want to be fully accountable for the results that our model is driving across all lines of business, but certainly, especially in the Medi-Cal business, which we called out in the prepared remarks. We also believe that these transitions are generally amenable for our plan partners, and we expect in the order of tens of thousands of members conservatively moving into these arrangements over the next, call it, 12 months, as I mentioned in the prepared remarks.

We aren't currently sizing the economics necessarily tied to that. I think what's important is that we want to be aligned with our health plan partners. We want to deliver and be rewarded for the outcomes that we're driving. And we believe that moving to full-risk arrangements, which we have already started, as I mentioned, with one contract in the remarks this quarter, but continuing to do so in the next year will help us align in that fashion.

Great. And on risk score capture, which you talked about in the other question, I guess. When I think about it, over the past few years, you've had pretty nice improvement growing your RAF. I think it has grown, I think, like 5% from 0.97 to 1.02 all during V28. And I mean now that V28 is ending, trying to think how should we think about the go-forward annual RAF improvement?

Would it be fair to presume if you were able to do 5% growth during one of the toughest risk coding environments, V28, that heading out, it might even be greater RAF improvement. So, I was wondering if you could talk more about your internal RAF initiatives, investments being made? Are you embedding AI into this coding function? And even for this year, I'm just wondering how are your AWV rates tracking year-to-date so far?

Thanks, Michael. We've historically been strong at the annual wellness visit. driving that engagement with our patient base, especially in the Medicare population. That's something that we report and track as an internal KPI that's important to us in terms of our ability to get the patients in and really assess them in a comprehensive way. We view RAF and charting as a natural consequence of that, not the primary motivation. Our model, as you know, is primarily focused on driving coordination access and better outcomes and kind of as an ancillary function charting appropriately so that we're being reimbursed in a fair manner.

We believe that improvements in RAF for existing cohorts will continue as before. That being said, as we continue growing membership in new regions, it really depends on what the RAF is for the new cohorts coming in. And so the blended average of that is impactful to the overall RAF number. But we do believe as in historical periods that over time, each cohort does improve in terms of the risk adjustment profile. And we think that there is still upside in the medium term from being more appropriately coded in our Medicare population.

Our next question is from Jailendra Singh with Truist.

First, I want to ask about second half EBITDA guidance and the implied Q4 outlook. It implies a pretty wide Q4 range of $47 million to $67 million. I understand Q4 is a seasonally weaker quarter, but the low end seems to imply a meaningful step down from Q3 levels. Is there anything meaningfully different in Q4 versus Q3 this year versus prior years? If not, can you help us understand the swing factors in the Q4 outlook?

Jailendra, thank you for the question. I think if you're focused on the width of the range, I think that's primarily an artifact, frankly, of just the range that we guided to for the year versus the quarter. I think how we would think about it is that the Q3 and Q4 cadence is very similar to past years. Q3 is typically a much better quarter, in fact, the best quarter of the year and there's a sequential step down into Q4 relative to Q3. But I would not -- I would be more focused on the midpoint potentially than the range necessarily, which is just an artifact, I think, of the range of the annualized guidance versus the quarterly guidance.

Okay. And then we didn't hear any thoughts on 2027. You have talked about mid- to high teens year-over-year organic EBITDA growth in 2027. First, I want to confirm any -- if any changes to that thought process? And related to that, how are you thinking of Medicaid work requirement headwind next year? Is that captured in that mid- to high teens number? And the investments you're doing this year, do they have potential to drive incremental growth next year? Or they are more like supporting your mid- to high teens growth? How should we think about that?

Yes. Definitely. I think we have said and we'll stand by and reaffirm medium-term mid- to high teens EBITDA growth, not just for '27, but into the medium-term years as well. There are Medicaid changes starting 1/1/27 as is well known. And we think that based on the portfolio rebalancing and the changes we are making, we will have the right levers to continue growing in that range on a go-forward basis.

In terms of the investments that we're making, as I mentioned, we're investing mid- to high single-digit million dollars. Primarily, these are essentially losses in new contracts and new geographies to take on membership faster than we would have otherwise planned. Now, these may not flip to profitability necessarily in '27, but they are -- but any losses related to them would be contemplated into our '27 guide when we put that out. It's possible depending on the cadence, some of the cohorts may turn positive more quickly, especially as we continue to compress the slope of the J curves that we have given our operating system. But at this time, we are contemplating kind of a more normal cohort improvement as in historical periods.

Okay. And one more, if I can sneak in here. Some of the large health insurers have talked about like exiting Medicaid markets. Some have talked about shrinking their Exchange footprint and some talked about exiting certain MA plans. Some of these decisions are for 2027, and I understand you don't have much exposure to some of these health plans, but I believe others are partners. Generally, how much lead time do you get to contract with plans, winning those lives? Is that membership risk or share gain for a dense delegated network? Just help us understand like how quickly you can shift these and how much lead time you have generally when plans exit or get out of these markets?

Yes. That's an interesting one. I mean, that really depends payer to payer. I think what really helps us is our unique payer-agnostic model. The idea is that we are acting as a coordinated unified payer for our downstream delegated networks. And so for example, if one payer were to exit a certain market or exit a certain product, those members are still there. They will still be needing insurance. They may go to a different plan, a different product. And the idea is that because of our unique model, our providers are not negatively impacted by that because it would simply be a switching ID card benefit, et cetera, and the providers would be extracted away from those changes.

We would handle that on the back end for our providers. That being said, recently, we typically get around a few months in advance of some of these things happening. And our teams are preparing to make sure that those members are moving to a plan that we do have a contract with so that their care is not interrupted and that operationally, the providers are not being disrupted either.

Our next question is from David Larsen with BTIG.

This is Jenny Shen on for Dave. I just wanted to ask about some of the member attrition that you referred to earlier. Just any thoughts on what you're seeing, what you saw this quarter versus last quarter? We were under the impression that the declines that you were seeing were pretty favorable, especially compared to some of your peers. Has that accelerated at all? And if you could put any numbers or quantify that, that would be great.

Thanks, Jenny. Say hi to Dave for us. So on Medicaid -- or sorry, on attrition broadly, they were largely in line with expectations. Breaking that down a little bit by line of business. California Medicaid is in line. It's not a great picture, but it is in line and towards the higher end of the low to mid-teens kind of range that we had provided before in terms of Medicaid attrition in California. That was within the guidance and it's fully contemplated in the revised 2026 guidance that we put out.

In terms of Exchange, it is actually running a little better than our 30% to 40% assumption at the beginning of the year. However, out of conservatism, we're still contemplating the 30% to 40% range for our full-year guidance. And then Medicare, both original and Medicare Advantage, that's fairly stable. So, I would say really the only area if we're watching something for sure is in Medicaid. But as I mentioned, that's the source of some of the strategic rebalancing and kind of focus on taking full accountability for our members in Medi-Cal.

Our next question is from Andrew Mok with Barclays.

Couple of questions on the revised guidance. First, you noted mid- to high single-digit reinvestment in the business. So if you're reinvesting, say, $7-plus million from the first half and still raising the guide by $2.5 million, is it fair that the first half outperformed plan by $10 million or so? And is there anything driving that outperformance that's one-time in nature that wouldn't necessarily recur in the back half?

Andrew, thanks for the question. I think probably, yes, that's fair. There are obviously puts and takes here and there. But yes, we felt we were very happy to be able to improve guidance, admittedly by a small amount, but also reinvest, call it, 3 quarters or so of that back into growing quicker into new markets, some new provider partnerships that I mentioned, taking on new blocks of membership and winning organic growth in some of our expansion markets. And we believe, like I mentioned, that, that sets us up really nicely for continued medium-term and long-term earnings expansion.

In terms of one-time items, there was not really anything large one-time here. There was an immaterial net effect of prior period development. Do you want to get ahead of that that when we file the Q very shortly here? You will see some positive claims restatement from prior periods. That being said, there were also changes in revenue, stop loss, provider share, et cetera. And so on net, the prior period items were immaterial. So in our view, it was purely outperformance and we reinvested, call it, around 3/4 of that outperformance into future growth.

Great. And just a follow-up to your response, I think, to Jailendra's question. You noted that Q3 is the best quarter of the year from an EBITDA perspective. Why exactly is that? And does IRA have meaningful -- is that going to have a meaningful impact to seasonality this year different from last year?

Yes. Of course. There are a couple of main reasons for that. It's primarily related to when we accrue and take some of the profitability from, for example, the MSSP program. Out of conservatism, we typically do not take any of those dollars until Q3 when we have better visibility, even if we are fairly confident that we are doing well in that program in terms of other leading metrics. There's also sweeps, for example, in Q3 that we typically take in Q3. IRA is not a really large impact. As we said before, we don't really take Part D as in dog, risk typically. And if we do, it's very minor. It's really driven by the ACO programs and sweeps in Q3.

Our next question is from Ryan Langston with TD Cowen.

I want to go back to this $15 million revenue reduction, Chan, you called out, I think, in ACO REACH. Can you elaborate what's driving that? Like is that related to operations for Astrana? And maybe give us a little bit more detail how that's affecting the P&L? Did that hit all in the second quarter and maybe how that flows through to EBITDA?

Ryan, how are you? So the $15 million is associated with claims tied to the fraud, waste and abuse for the ACO REACH Program billings. So, that is a revenue reduction for 2025 periods as well as an expense reduction also for the 2025 period.

So, there was no impact to EBITDA? Sorry.

There's a slight -- when you net it out, it's really immaterial.

Okay. Got it. And then I noticed, I think, management fee income was up pretty substantially in the first half of the year versus last year. Is that related to the Prospect transaction? Maybe just elaborate a bit on what's driving that?

Yes, it is related to -- and you should probably see that in Q3 and Q4 of last year also. It's related to the clients that Astrana began managing post the Prospect acquisition. There have also been some new client wins. I think we mentioned that on the Q4 call that started 1/1/27, so kind of in combination. Inorganic and organically, we continue to grow that business, which we're excited about. It's a nice kind of EBITDA margin business and continues to play into the AI capabilities that we're developing in-house.

Our next question is from Matthew Gillmor with KeyBanc Capital Markets.

On the theme of automation, the slide presentation referenced a statistic about Astrana driving over 500,000 automated member encounters per month. And I was kind of curious what the nature of those interactions were and what the benefit is to the company from those interactions.

Thanks for the question. Those are automated member interactions, including, for example, voice interactions, scheduling interactions, text messages, medication reconciliation, transitions of care, things of that nature, letters as well or interactions, notifications pushed through our member-facing applications or websites. And as I mentioned in the prepared remarks, historically, the idea of risk stratification was that you would use that to limit the types of resources that our members get simply because of the constraint on the amount of humans and time that people have.

And I think what's really exciting about AI partially is certainly reducing the amount of G&A. That's great. And we're doing that certainly to a large degree, as you can see in the G&A numbers. But even more exciting to me is that we truly have the ability to fulfill the potential of getting people more care, especially folks who are living in potentially more rural areas or places where it's harder for them to get to a physician's office and being able to engage with them more frequently to support lower cost trends and lower utilization without sacrificing quality.

And so it's a question of not having to pick and choose who you're going to engage anymore because you have limited time. Now it's a question of what kind of intervention do you choose? Do you have a nurse reach out? Do you have someone go to the home? Or is an AI-supported patient engagement enough and you just kind of decide when you escalate that, if necessary, into an in-person engagement. So, that's only going to continue to grow, I think, over time. But we're excited because it means we get to not only find some G&A savings, but also over the long run, we believe there will be AI-enabled kind of MLR improvements as well. Just to be clear, we're not underwriting that into our guidance necessarily, but we do think it will be great for the outcomes of our patient populations.

Got it. That's great. And then as a follow-up. On the trend discussion, I wanted to see if there was anything to call out in terms of the categories of costs that are trending better within the MA and Medicare book and the categories of costs that are maybe running a little bit higher for commercial. Anything noteworthy to call out there?

Yes. Sure. Medicare has really been a broad-based strong performance. In particular, we're proud of that -- we're proud of the inpatient admits per 1,000. That's a number that continues to be extremely stable year-over-year. And I think it's a testament to the Care Model and the work of our teams, the work of our clinicians and providers. Really, a lot of the trend is really only just the unit cost increase and not so much number of units because the admits per care is so stable kind of year-over-year in the Medicare book of business.

In commercial, slightly above expectations. We believe it's very manageable. Commercial, of course, is only a single-digit percentage of revenue to begin with, but it's really concentrated in some of the outpatient specialties interestingly. And we think we have the levers to really address that this year and don't anticipate that impacting our guidance much of at all.

[Operator Instructions] Our next question is from Matt Shea with Needham & Company.

And apologies if any of this was covered, juggling a few calls here tonight. But congrats on the wins in Hawaii and Texas. Maybe off of those, how does Hawaii fit the delegated model? What makes this market attractive? And then in Texas, maybe help us understand why Texas -- the Texas add coming in as professional risk rather than the fully delegated construct that you've been leading with since the start of this year? Is that a deliberate partial risk first on-ramp type of stance? And if so, how are you thinking about the time line to full risk?

Yes. Sure thing. Hawaii is an interesting market for us. It's a market that is obviously smaller than Texas, but we like it because it represents an opportunity to quickly build a scaled provider entity, a provider group in a state given that, again, the size is much smaller and there's an opportunity to do that. As you may recall, we actually entered Texas in partnership with an electronic health record company. And so there's also opportunities where we've been more deeply embedding our technology platform directly into the EHRs that the providers are already using in Texas.

We are seeing good performance in Texas and want to continue growing our presence there -- sorry, in Hawaii, I apologize. Well, Texas too, but Hawaii first. And in Hawaii, there actually is a history of some elements of delegation. There were other organizations -- provider organizations in Hawaii who have some semblance of delegated risk. So, that's something that we're working on.

Yes. I'm sorry. In the first half, I meant Hawaii, so I apologize for misspeaking there. Texas next. Going forward in Texas, as I mentioned before, the 15,000 lives in the full-risk contracts delegated. The professional lives that we're adding to 33,000 members are also delegated, just not in a full-risk arrangement. It's a partial risk arrangement first. And those are net new members to the organization. So in the full-risk members, we had some gain share kind of construct for those members already, and then we moved them up the risk curve as in the second pillar of our strategy.

For these members, these are net new members that we're starting off in a partial risk arrangement. It is still delegated somewhat to our partial risk members in California. And kind of going forward, as performance matures, we would hope to move them to full-risk construct in Texas, too. Sorry for the mix up on that. I'm too excited about Texas.

No worries. Helpful color there, Brandon. And maybe a higher-level one, just on the tech stack. Part of our thesis is that fragmented peers can't replicate the integrated data and orchestration layer that you have even as they spend heavily on AI. It sounds like with the EBITDA performance to date, there's a good amount of reinvestment in the outlook. But curious on that reinvestment, is any of that going into incremental tech or AI innovation? And then if we take a step back, are you seeing your tech leadership relative to peers compound at this stage? Or any way to think about how much you're pulling away from peers from a technological perspective?

Yes. I think the majority of the reinvestment or really all of the reinvestment for this -- that we talked about this quarter is really first going into the provider and payer growth. I think down the line, there may be prudent investment that we make in AI. A lot of that is already contemplated in our existing guidance as we have done that in previous years and talked about that in previous years. We try to be very prudent with our AI spend. Even though we're developing things in-house, we have our own engineers. We're not developing the -- training our own models ourselves, but we're developing our entire orchestration stack ourselves in-house.

That is being done in a very prudent way that doesn't -- we're not going to go out and spend $200 million building out AI. But I think we've gotten results and ROI far and beyond what we've invested in the platform. In terms of the talent level, we are always looking for new talent, 100%. That's never going to stop. In fact, just this quarter, we added, not on the technology side necessarily, but we added 2 senior executives that we put out a press release about in enterprise transformation and to lead our provider growth practice. So it's something that we're always focused on.

On the engineering side as well, we continue to add new engineers and upgrade that talent. And I think relative to the industry, we think we are working really hard in building some cool things. And hopefully, our providers agree with that as well. And certainly, the outcomes will reflect that.

There are no further questions at this time. Thank you all. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.

My name is Craig Jones, I'm of the health care analysts here at Bank of America. And today, I have the pleasure of hosting Brandon Sim, CEO of Astrana Health. So thanks for being here. Do you want to start with an intro or you just want to go straight to Q&A. Yes, go for it.

Yes. Well, thanks so much for having us here. It's beautiful to be in my hometown, I guess. So it's nice. Thank you. It's always a great conference every year. And I'm Brandon Sim. I'm the CEO and President here at Astrana Health. We're a value-based care company, trying to realign the system to build infrastructure that allows for better patient outcomes and ultimately, hopefully, at a lower cost. We've been growing very rapidly over the last 6-, 7-year period.

Last year, it grew over 50% year-over-year and continue to grow in a profitable and free cash flowing manner. Some puts and takes, but broadly, we just reported our Q1 results and things came in pretty well ahead of expectations. We grew free cash flow, I think, 3x year-over-year. Revenue grew well over 40%, 50%. So we're pretty pleased with where things are going and look forward to a strong rest of the year here.

Great. All right. So why don't we start with some of your inorganic growth about a year ago or so, closed the acquisition of Prospect. So after the first year, you've guided the high end of the $12 million to $15 million in synergies. So why don't you talk us -- just walk us through how the first year has gone versus your initial expectations and maybe any positive or negative surprises along the way?

Yes, of course. So it feels like we've been doing the Prospect thing for like multiple years. Craig, we've been certainly chatting about it for over a year. But reality, we actually closed the deal only 9 months ago. It hasn't -- we haven't gotten into the year mark yet. So it's been three quarters of reporting so far.

Prospect has really been on track to ahead of schedule. We're really pleased with how it's turned out. Of course, with any transaction, there are of that size, [ $707 ] million transaction, there are going to be puts and takes. There are going to be some challenges to work through, and even more so because we acquired it out of a bankruptcy situation.

But broadly, we've been able to very quickly integrate from an operational standpoint, get their teams over 1,500 employees that we took on integrated with our teams under a singular operating structure, a single reporting structure and more importantly, using the exact same care plans, care pathways and kind of clinical protocols. And then also kind of supporting all of that is the integration of the technology. So having the prospect teams utilize kind of our unified data layer, our application layer, our agents that we built on top of the data and integrating those into a singular data platform so that you can see members across both.

There isn't kind of a silo of these are Prospect members and these are Astrana members. And then implementing the exact same care planning tools that we built, the care navigation tools that we built the care management tools that we've built for the legacy Astrana population and the Prospect membership, which is substantial, 600,000 members.

I think that's gone well. And because of all that, we've been able to, like you said, track towards the high end of the synergy range, $12 million to $15 million. We've been able to extract some of the revenue synergies already as well by combining contracts with the same payers that we might have held separately, but now are under one unified contract. We've been able to improve or get their trend, Prospect's trend to look a little closer to ours.

For example, when we bought them, we were running legacy core Astrana around 4.5% trend. Prospect was probably around 200 basis points higher than that. We underwrote a 50 basis point improvement year-over-year on Prospect trend, and it's -- even in Q1, that's coming in even better than that 50 basis point improvement. So we're starting to see some of the impact on the care model side, yielding some early dividends. Of course, the full impact is probably going to take 18, 24 months on the MLR side.

Yes, absolutely. So I don't follow up on the 50 basis points there of medical cost trend. I think that's pretty powerful. Can you -- any details in the secret sauce of why adding Prospect to the Astrana platform really enables that you better manage trend better or however this is working?

Yes. I mean there's -- I think I said this before, I mean there's really no magic to what we do. Ultimately, it's a services business although we're taking care of patients. So the -- our doctors are being empowered to take care of patients. I think part of the secret is to not allow any patients to fall through the cracks. And if there's something anomalous or suspicious happening to be on top of the ball and kind of being able to see that early on and address it without it spiling out of control and causing an issue in MLR.

So what the software really does for us, and I think you came over very kindly yesterday to our clinics and got a bit of a demo of some of the software platform is that, one, has everything in a longitudinal data record. And two, has -- you can almost think of it as a harness on top to ensure that no patients are falling through the cracks.

So historically, if someone forgot to call a patient upon discharge, then they forgot and that patient doesn't get a call and they maybe have a readmission that's unnecessary and cost the system $20,000 that didn't need to happen. That can still happen today in a human setting. But if someone forgets, the software is there to remind the patient or increasingly genically just call the patient automatically so that no one is actually falling through the cracks.

That's just one example from a transition of care standpoint. There are tons of other examples in terms of gaps in care, preventive care, their examples around ensuring that patients who need it have their blood pressure controlled or their hemoglobin A1c controlled or even something as simple as making sure that a patient actually gets an appointment for a follow-up with a specialist instead of them trying to call during their lunch break, not being able to find someone picks up their phone and then putting off that visit for 1, 2, 6, 12 weeks and then ultimately having chest pain ending up in the hospital, for example.

So it's a variety of all the little things, kind of maybe each of them doesn't amount to much a basis point here or there, but you kind of automate and ensure that all of those basis points are being picked up, ultimately, you get 50 basis points maybe of improvement, right? And over time, that really compounds, especially as you drive more and more members through that care model.

Some tasty secret sauce there. So maybe you mentioned the revenue synergies a minute ago, you've already started to unlock those, which it's great to hear. And my guessing that was probably a bigger angle when you did make this acquisition. It wasn't necessarily the $12 million to $15 million we're going after. It was this revenue synergy. So can you talk us through sort of what you've already been able to unlock, how big the opportunity is there and maybe some kind of time frame, if you want to throw any numbers out there?

Yes, sure. And I think you're hitting on an important point. It's not necessarily just the G&A synergies, which are nice, certainly to have. But I think more importantly, the opportunity to inflect cost trend, which I guess is, is a cost synergy, but kind of is more core to the mission. And then as you mentioned, to improve the revenue opportunities for the combined business as well.

On the revenue side, I don't want people to think we're just taking kind of the higher of the rates and then asking for that higher rate across both books. I wish we could do that, but it's really not as simple as that because the payers on the other side, obviously, are not incentivized or inclined to allow us to do that for no reason. It really is about a partnership with the payers that we have had for decades, some of these payers and working with them to figure out a way that our now broader network and our broader care management and quality management capabilities can better -- can lead to a win-win for both the payer and us.

I know that's kind of vague talk, but I'll give a concrete example. I mean there are many payers who are still in their margin recovery path. Part of that margin recovery means that they have to pay their capitated networks a lower amount. We would, of course, want a higher amount if we're going to capture revenue synergies. So some of the ways that we can have that work is, well, if there is a group out there that is even higher cost than we are, that either we or legacy Prospect are, could we, with our combined network and our capabilities, combined geographic presence, care management ability, so on and so forth, now take on some of the membership that, that payer had assigned to a more expensive group, thereby helping the payer lower their cost, but also getting us part of what we want.

There are other examples of this kind of collaborative thinking. But ultimately, it's in a choppy environment for MCOs, better this quarter, but in a choppy environment broadly, it's trying to work really closely and figure out how we can both get what we need, so to speak.

Yes. Yes, choppy for sure, but I'm just saying getting better. So that's a good segue into let's pivot to Medicare Advantage or Medicare. cautious optimism, right, out of some of the bigger national Medicare Advantage players around trend specifically. So maybe what are you seeing in trend in Medicare Advantage? What do you start with? What are your assumptions going into the year versus last year? And then how has that played out year-to-date?

Yes, sure. So last year, we had a pretty successful year controlling medical cost trend. We're around 4.5%. We actually ran just under 4.5% for the year, year-over-year. This year, we actually underwrote to 5.2% medical cost trend across the business, so actually a slight increase. And part of -- and all of that really related to kind of the weighted average of the 4.5% from the legacy Astrana and then the 6.5% from the legacy Prospect underwriting a bit of improvement on the 50 basis points for legacy Prospect.

So far this year, we've come in it's early in the year, so I don't want to be too excited, but we've come in well relative to our trend assumptions. Of the 5.2%, breaking that down line of business-wise, we expected Medicare Advantage to be slightly better than that.

We expected commercial and Medicaid to be slightly worse than that. And relative to those expectations across all lines of business, we've outperformed in terms of trend. We do have a lot of California membership. We've got Texas membership. We've got Nevada membership. So of course, weather and flu were not necessarily a large impact for our businesses broadly. And then kind of across the board, we had lower admits. We didn't see any nominal spikes in any kind of particular area. So we feel very comfortable coming out of Q1 around trend.

All right. Awesome. So maybe final rate notice came in better. They delayed the implementation of the new risk adjustment data, but they did remove unlinked charter views. I think you said previously minimal impact from charter views and you think even maybe a lower-than-expected impact from some of the other changes due to lower RAF. So you want to just help us explain why you are more insulated here? And then if CMS does go ahead and implement that -- the new data for next year or for '28, I guess, what would you expect that impact to be?

Yes, for sure. So where we ended up, as you alluded to, the 2.5 net kind of average impact. There's another approximately 1.5, I think, for the disallowed diagnoses, the unlinked charge cases and the audio-only calls. So those are not parts of our model. We don't regularly make audio calls and code based on that. We don't do unlinked drug cases. So we believe that to be a very, very minimal or basically 0 impact to the business. So the real effective kind of rate for us on our average rate book is probably closer to 4%, the 2.5% plus 1.5%. And that's not including the kind of anticipated RAF improvements that CMS thinks kind of all organizations will get better at RAF year-over-year by 2%, 2.5%.

So we feel pretty comfortable that our rate is going to be 4% to 6%, call it, and depending on our ability to inflect RAF next year. And trend, as I mentioned, is around 5.2% and coming down because of the Prospect improvement. So we feel pretty comfortable that this 27 is a margin neutral to a margin accretive year. I think CMS took some of the feedback around the coefficients.

Now to be fair, they also did say that they didn't think [ skin subs ] were a big part of it, so they put out to those [indiscernible] anyway, which is fine. But we took the coefficients that they put out in the initial rate notice and applied them to our population's HCCs, chronic condition prevalence. And we tried to recalculate kind of what would be the net impact to Astrana had they gone live as they were projected to go live. And we found that it was around a 1.5% impact to Astrana headwind. So 1.5% versus a 2.5% for average for the industry as originally constructed. So to your question, if they were to go live next year, without any changes, assuming that they didn't like reregress on kind of additional years of data, that would be an additional 1.5% headwind for us. I just still think it's obviously bad, but better than industry impact.

And net advantage against the industry, I guess.

And then kind of a quick point, [indiscernible] I think you really want to brought this up maybe, but the further away we get from some of the skin sub -- high skin sub fraudulent utilizer years, which were like '24, '25, et cetera, the more those claims kind of move out of the sliding claims window upon which the regression will take place, right? So hypothetically, I mean, to take an extreme, if we went to like 2035 rates and they reregress then, they would use 2032, '33, '34 data. And obviously, none of those years would have the skin sub data in it. And so really, the further away we get from '27 the less skin sub impact we'll have, hopefully.

Yes. Okay. That does make sense. So maybe let's say they potentially can reintroduce those -- that dynamic. Is there anything else like I think [indiscernible] out link chart reviews potentially or maybe health risk to come up. If they were to go after that in 2028, any idea on what the impact would be to you and just -- and maybe to you and just Medicare Advantage in general?

Yes. I mean maybe I can lump all of those into a category. And the category would be broadly ways to make your patient look more risky to the system, like higher cost to the system than they actually are, regardless of what the method is, right? Like it's kind of a whack-a-mole chase of like the folks will try to take advantage of one thing and then you'll get rid of it and then you'll take advantage of something else. So maybe broadly across the entire category. And the way that [indiscernible] and others at CMS and have thought about doing that is which they're piloting in the lead model, they see a lead model is to just say, I can't always keep guessing what the next form of up-coding will be. It could be on linked today, it could be audio-only tomorrow. It could be linked chart chases the next day. It could be HRAs the following day or it could be anything.

So instead, I'm not going to let you guys do coding at all. I'm going to tell you what I think the risk should be using AI or whatever statistical modeling they want to do. From all the information that I have, I CMS have about the patient. And I will just pay you based on what I think the risk is. And that's it. No one gets to code anything.

You guys all get your toys taken away. Only I get to decide what I pay you. So -- and they're piloting that in lead, right, that they are working on this AI and risk model and lead. And so ultimately, I think the convergence of all the things that you're talking about, whether it's HRA or like chart chases or whatever, converge to the idea that CMS ultimately will just pay you what they deserve what they think you deserve, frankly. And I think in that environment, we are pretty okay. I think we feel very comfortable with that, because I think we're actually getting paid less than what we deserve, and we're spending dollars. We're having to spend dollars in investment doing kind of more mundane and boring things that don't really help the patient like coding more accurately than spending those dollars actually benefiting the patient.

So if CMS were to say, you know what, no one's coding anymore. We're just going to pay you what we think you deserve. We might actually get paid more than we're getting paid today and not have to spend all the dollars and waste the doctor's time doing all the coding. So I would welcome it, frankly, and I'm excited to see how it looks like in lead.

Yes. So yes, that would be very cool. Definitely be interesting to watch the AI risk adjustment model in lead. So it does sound like they're keen to do something, right, CMS and potentially as early as '28. So -- but maybe this AI model, maybe that's a little too early to go right into '28. So is there something we think like a middle ground? Like if they want to -- what could they do in the meantime to semi blow up the risk adjustment model, then maybe we'll see a technical notice this fall? Or how would you design this maybe some halfway there type of risk adjustment model that we could see next year or 2?

Yes. I mean even in lead, to your point, it's not phasing in the first year of lead or the second year. I think it's like the third year of lead. And even then it's a 3-year phase in kind of like v28 is like 1/3 at a time. So -- and that's a CMI program, not even Medicare Advantage or MSSP. So probably after that, if it's successful, then they'll start thinking about phasing it into MA. So I agree with you, 2035, again, like you just. Yes, exactly. We're a long ways away from that. And probably the Medicare Trust one is going to be out of money by then.

So it will be too little too late. But -- so I agree with you. I think the -- there are some intermediary measures. I think they're doing a good job, honestly. I think you saw Chris [ Komps ] paper that said that the v28 already decreased the overpayments by not all, but quite a lot of the 10% impact from MedPac down to maybe 2% or 3%. I forget the number. You take out these unlinked charge cases, you take these diagnoses, maybe you get that down even closer to maybe 1% or 2%, I don't know. I haven't run the numbers and you keep kind of hammering around the edges and you get maybe to approximately equal.

I think one thing, this is not be lobbying at all, but naive thought is like one thing is instead of regressing claims on Medicare fee-for-service data to give you coefficients for Medicare Advantage, we all know that Medicare Advantage behavior for providers and for patients is very different than an original Medicare.

So maybe one thought is maybe we just regress claims data against Medicare Advantage claims data instead of Medicare fee-for-service data because part of the Medicare fee -- part of the skin sub issue was that the skin sub fraud was happening a lot more in fee-for-service. Why not just -- or maybe all of it yet, because the incentives were not aligned -- I mean, are aligned that way in fee-for-service for fraud and not aligned that way in Medicare Advantage. So why not just use the same universe to regress, right? That seems reasonable, but...

Yes. No, totally. That definitely makes a lot of sense. So why don't we switch over to Medicaid. Let's start again with enrollment and trend. What do you assume for '26? I think you said Medicaid enrollment maybe a little worse than you initially expected, but the margin is actually better. Does that imply maybe acuity not as bad as you thought? Maybe any way you can dimension those 2 dynamics for us would be great.

Yes, sure. So we originally expected, I think, 0.75% to 1% disenrollment a month, call it, like 10-ish to 12% for the year. And we'd assumed a 150 basis point headwind in terms of rate acuity mismatch. So we thought the trend would rise faster than revenue would rise. And we had originally sized the combination of those effects in the 20, call it, mid-20s million $25 million headwind to EBITDA. What we're seeing in Q1 so far is that disenrollment has been on the high end of that assumption range, so closer to the 1% a month, so closer to 12% a year, whereas acuity has been -- or kind of adverse selection from the disenrolling members has been less impactful than we thought.

And those have broadly canceled out for the most part because we have more members dropping, but the existing members, but the members dropping were less healthy than we thought they would be. And we ran a couple of different slices. We took the members with no claims, for example, and looked at that as a fraction of the total membership before and after this enrollments didn't find a statically different -- statistically meaningful delta.

We took various sensitivity thresholds to not just 0 claims because what if you see the doctor once and then you don't use the system for the rest of the year. So we took members with less than 10% MLR. We took members less than 20% MLR. We took members less than 30% MLR and checked the prevalence of those members pre and post disenrollments and still didn't find a statistically significant delta in any of those kind of thresholds. So the histogram, I suppose, of like MLR distribution looked pretty similar before and after distribution.

So we feel pretty comfortable that that's the case that there is not a huge amount of adverse selection in our model. Part of it, we think, could be due to our -- the way that we receive attribution, which is maybe different from a plan. We receive attribution -- members are attributed to us as risk-bearing members if the member selects an Astrana PCP as their primary care physician or if they see a plurality of of encounters with an Astrana PCP.

Sometimes you can get out of assigned members, too, but these other mechanisms also play a role. So it's pretty hard for us to be a plurality of visits if the member literally has no visits, right? And it's also pretty hard for -- it's atypical for a member to choose -- actively log on, choose a PCP, but then like not use the health care system at all. Typically, those members are not even bothering to choose anyone. And maybe that stays with the plan.

Yes, that's a good point. But -- so in terms of the acuity shift, so it's good to hear you're potentially not as high as you thought. We've heard that from other larger national Medicaid players as well. And it seems like everyone is kind of calling for 2026 as the trough for Medicaid margins. And I know you still have that disparity between rate and trend. Do you think -- is this the bottom? Is this the bottom for the Medicaid margins?

I hope so, but I think maybe we -- last for -- maybe I'm pessimistic, but I think maybe we're -- it's this year, maybe it's a little bit of the next year. And then I feel a lot more comfortable saying '28 is kind of going to be a better year. Look, '27 is being a better year, and we get good rate increases in Medicaid in '27, but that's also great. It just hasn't necessarily been -- I'm not going to be on it.

Yes. Fair enough. So maybe thinking back -- maybe ask you a different way, like thinking back when we have seen this big acuity shift from the disenrollment, how long -- when was sort of the biggest shift? And how long do you think it will take California and others to incorporate that into the rate, right? How much longer is it going to get until we see that big acuity shift finally incorporated?

Yes. I think that's, that's why there's disagreement -- like I may not think it happens until '28, frankly, and maybe some things -- some folks think that that's going to happen next year. But again, we get a percentage of the premium that our partners have. So we're all on the same side here. I would much rather prefer that California or other states, Nevada, Texas, Georgia, where we have Medicaid presences have an appropriate rate update to match the true acuity and the cost of the members that we're paying for.

Okay. Yes. And so it sounds like we don't know when this is going to happen, but so we get stable trend and the rates come back, I mean, how profitable could Medicaid be for you? Like could there be some very profitable years after maybe some not ones?

I think so. I mean all these lines of business kind of operate on cycle, right? We saw the doom and gloom around Medicare Advantage a few years ago and now folks feel good about Medicare Advantage again, maybe or better than they did before. And then that was bookended on the other side, way before during COVID of everyone loving Medicare Advantage and wanting to expose themselves to Medicare Advantage as much as possible.

And Medicaid, we had many years of Medicaid being quite profitable as well. So I think there's certainly an opportunity once states figure out the budget and we figure out the impact of OBVA and that we get back to higher margins in Medicaid. I don't mean 15%. I mean 5% to 10%, but I think that's possible.

All right. So maybe then 2027, we've got potentially work requirements, 6 months coming in. Have you heard any -- we're still waiting from some ruling of the CMS in June. Anything you're hearing from California? I would imagine they're not going to start right away, but anything you're hearing on when we might see work requirements come in for you?

I assume not. We're not hearing -- it's unclear. To us, Yes, it's unclear at this moment. I mean you would think you would think maybe not just given the blue going in the state, but you never know these days.

All right. Interesting. So maybe we've got a couple of minutes left here. We definitely want to hit on AI. We had a great type demo from yesterday. You want to give some use cases you've got implemented, maybe ROI? How do you see AI incorporated into Astrana now and next 2, 3 years?

Yes, sure. I think before you even get into AI, you need to substrate upon which AI has to act, right? And so you need the data, you need the agent needs to be able to see across -- need to see across your enterprise and actually act on that data and then perform actions in that ecosystem.

It almost be like you work at a bank. So you guys have a [ pennies ] wall, right, between certain parts of your bank. And so some things that happen on one side of the wall, you may not be privy to you and vice versa. And so it's somewhat of that. If you have a part of the bank that's doing something on the other side of the wall, you're not going to know about it. No matter how smart you are, even if you're in AI, you wouldn't know about it because...

That's why don't know about it.

Definitely don't know about it, because it's the other side of the wall. And I think a lot of organizations operate that way when they don't really have to -- I mean, you guys have to, but a lot of organizations operate that way when they don't have to.

They have all their information in different silos with different artificially constructed walls. And so even if they were to implement AI or hire a fancy vendor or a consulting firm or whatever to implement AI for them, it's fundamentally going to be stuck inside of its own four walls and not be able to see the side of stuff on the other side of the company.

So what I mean by the substrate is that we have built every time we integrate something, every time we JV with someone, every time we add a new provider group to our platform, we integrate them consistently without fail into the unified kind of data layer and then the conceptual concepts, the semantic layer on top of that, the strong oncology so that the AI has an understanding of the concepts of what value-based care, managed care and health care are and so that it can operate on that unified data layer so that it can see across the enterprise.

We don't have that to start with. No amount of AI is going to do anything because it's just going to be stuck in its little box, right? Now -- of course, once you have that, that's not enough, you've got to build the application layers on top that are patient, provider and care management team facing.

And then you've got to build the agents on top that can autonomously act to hopefully lower G&A or to increase the amount of care or engagement that you're offering to your patient base. So yesterday, you were at some of our clinics, you saw a bit of that. You saw some of our provider-facing tools, single pane of glass because we act as a single payer and we act in a delegated model. We can show not just the quality, the risk adjustment, the pop health, the risk stratification, which a lot of pop health platforms can do, but we can actually combine that with the ability to submit prior auths directly from the same platform.

We can combine that with the ability to see your prior auths and submit your claims and see your claims and see your explanation of payments all on the same platform because we serve as both the provider and the payer entity.

So to put that into practice here today, a provider typically who uses, I won't name a name, like a pop health vendor, for example. Sure, they can see what the next best action could be, maybe. They might be able to see what their gaps in care. I need to fill this [ AWV ], I need to get this mammogram done for December. Ultimately, when it comes time to submit the prior auth to the payer, United or Aetna, whoever it is, I've got to all tab, log into the United website, log into the Aetna website, copy and paste my member information in, copy and paste my diagnosis in, press submit, then wait 3 days or however long for the prior auth to come back.

Then tell my patient, hey, now you can go call such and such doctor, you can go schedule something with the radiology to get your mammogram done, then they've got to wait another 4 weeks to get an appointment and then so on and so forth. And because we have all that under one roof, because we're the provider and the payer, we can really make all that seamless. So you saw yesterday for example, the doctor can just click a button, an agent will actually fill in the prior auth details based on the information that's integrated in the EHR, submitted to us.

Our back-end payer agents are auto approving 70% of prior auth. 70% of the time that is coming back to the doctor's office within a few seconds saying, yes, you're approved. Now you can go see the specialists. And then you can put another button you saw where they can make calls to all the in-network prioritized specialists of a certain type, figure out which of them has the next available appointment or the following available appointment, present those to the patient, they can choose one, book it and then they can just kind of do their visit right away. Or you see, I think we tested the transition of care accended that I was discharged from a hospital and could follow up with me.

We have over 500 patients far more than that discharge from the hospital on a daily basis across our 1.55 million members. Now we can reach out to call every single one of them, make sure that they're not at risk for readmission, make sure that they've gotten the medicine, the meds that they've been prescribed, make sure that they have a follow-up appointment with their PCP. And all of that filters into the back-end care management platform, which you saw where if it doesn't happen, then it's being escalated to a human where someone is calling or even we have a care home team that can go and visit them in person and make sure that they're okay. So those are some of the examples where we're obviously inflecting G&A downward, 70 basis point improvement year-over-year in Q1, but also over time, that's going to inflect medical cost downward, hopefully, too.

Yes. Future is exciting. I think we're out of time, but thank you.

Thanks so much. Appreciate it.

Hello, everyone, and welcome to Astrana Health's First Quarter 2026 Earnings Call. [Operator Instructions]

Today's speakers will be Brandon Sim, President and Chief Executive Officer of Astrana Health; and Chan Basho, Chief Operating and Financial Officer.

This press release announcing Astrana Health's results for the first quarter ended March 31, 2026, is available in the Investor Relations section of the company's website at www.astranahealth.com. The company will discuss certain non-GAAP measures during this call. Reconciliations to the most comparable GAAP measures are included in the press release.

To provide some additional background on the results, the company has made a supplemental deck available on its website. A replay of this broadcast will be available at Astrana Health's website after the conclusion of this call.

Before we get started, I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward-looking statements within the meanings of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terms such as anticipate, believe, expect, future, plan, outlook, and will, and conclude, among other things. Statements regarding the company's guidance, continued growth, acquisition strategy, ability to deliver sustainable long-term value, ability to respond to the changing environment, liquidity, operational focus, strategic growth plans, and acquisition integration efforts.

Although the company believes that the expectations reflected in these forward-looking statements are reasonable as of today, those statements are subject to risks and uncertainties that could cause the actual results to differ materially from those projected. There could be no assurance that those expectations will prove to be correct.

Information about the risk associations with the investing in Astrana Health is included in the filings with the Securities and Exchange Commission, which we encourage you to review before making any investment decisions. The company does not assume any obligation to update any forward-looking statements as a result of new information, future events, change in market conditions, or otherwise, except as required by law.

Regarding the disclaimer language, if you would like to refer to Slide 2 of the conference call presentation for further information.

With that, I will turn the call over to Astrana Health's President and Chief Executive Officer, Brandon Sim. Please go ahead, Brandon.

Good afternoon, and thank you for joining us on Astrana Health's first quarter 2026 earnings call. Today, I'll begin with our first quarter results. Then discuss how we have built and positioned Astrana anchored in our AI-enabled platform and longitudinal payer-agnostic care model and why that model is increasingly advantaged. I'll then provide updates on our 4 strategic pillars and our progress against each. And finally, I'll provide some color on the Prospect integration, expansion market performance, and recent regulatory updates before turning the call over to Chan.

Astrana delivered a strong start to 2026. We saw continued disciplined growth, well-controlled medical cost trend, meaningful operating leverage, and early performance from new full-risk contracts that continue to track in line with our underwriting expectations. More importantly, this quarter reinforces our broader thesis. As the health care environment becomes more complex, advantage will accrue to organizations that can integrate care delivery, data, and financial accountability into a single operating system. Astrana has built that operating system. And we believe that advantage is widening.

In the first quarter, Astrana delivered revenue of $965.1 million, up 56% year-over-year and adjusted EBITDA of $66.3 million, up 82% year-over-year. Non-GAAP adjusted EPS was $0.74, up 76% year-over-year and free cash flow was just over $64 million in the quarter.

Deleveraging also continued to progress ahead of schedule with net leverage declining to approximately 2.3x on a pro forma trailing 12-month basis and to 2.2x based on the midpoint of our full year guidance. As a reminder, when we announced the Prospect transaction, we communicated a path to deleveraging below 2.5 turns of net leverage within 24 months. We have now achieved that milestone in just 3 quarters. And we anticipate ending the year at or below 2 turns of net leverage.

We are pleased with the consistency of our performance and execution against our priorities in the first quarter. And our results increasingly reflect the advantages of the platform we have built and the way we are embedding AI across our platform.

Our view is straightforward. AI can improve individual tasks. But the greatest value accrues to the orchestration layer where data, workflows, clinical decisions, and financial accountability are integrated across the system. In health care, that means connecting how care is financed, coordinated, and delivered and, ultimately, improving outcomes for patients.

We believe that requires deep architectural alignment. Unlike fragmented health care technology stacks assembled across multiple third-party vendors, our platform was designed internally as an integrated operating system because an embedded orchestration across workflows, care delivery, and financial operations requires that.

As a delegated payer-agnostic platform, we sit at the center of the health care ecosystem with a continuous longitudinal view of each patient across plans, settings, and time. We are not tied to a single payer or a single line of business. We follow the patient throughout their health care journey.

That creates 2 structural advantages. First, it creates long-term value. The continuity we build with our patients allows us to engage and manage care over extended periods of time, driving better clinical outcomes, more efficient resource allocation, and more predictable financial performance. Second, it creates a compounding data advantage. Our longitudinal view allows us to build a more complete and persistent understanding of each of our patients, which improves our ability to predict risk, intervene earlier, and coordinate care across settings.

And on top of that foundation, we have built a proprietary data ontology and AI models that translate intelligence into action, embedding real-time insights, next best actions, and workflow orchestration directly into provider workflows and care management operations.

Across our platform, our AI agents are increasingly embedded into operational and clinical workflows, helping manage authorizations, claims processing, care management, quality outreach, and next best actions in real time. Because these agents operate within our broader platform and data infrastructure, they act with longitudinal context across the patient journey rather than within isolated workflows. And these capabilities are embedded directly into the day-to-day workflows of our providers and care teams, driving measurable improvements at the point of care.

Providers actively using our platform achieve a 24% higher gap closure rate and a 30% higher annual wellness visit completion rate. And those outcomes are increasingly powered by AI-enabled patient engagement at scale, including around 500,000 automated member interactions across voice and text each month, the equivalent of several hundred personnel worth of outreach capacity.

We are seeing similar leverage operationally. For example, our AI claims agents have reduced provider payment cycle times to less than half that of manually processed claims. Taken together, these capabilities translate directly into improved clinical outcomes, more efficient operations, and ultimately, more predictable financial performance.

Importantly, because we operate the system our AI is improving and because we maintain longitudinal relationships with patients across payers, the benefits compound over time within our platform. As more patients flow through our system, our models improve, our predictions sharpen, and our ability to allocate resources becomes more precise across the patient journey.

That combination of longitudinal relationships, data continuity, and integrated workflows is what really enables us to translate AI into durable clinical and economic value. We continue to see those platform advantages translates into consistent clinical performance across the enterprise.

In the quarter, medical cost trends slightly outperformed our full year trend assumption of approximately 5.2%, with strong performance across both our core and legacy Prospect populations as we continue integrating Prospect onto the Astrana operating system.

Our original Medicare populations in both ACO REACH and MSSP also performed well, reinforcing the scalability of our platform and the ability of our technology and clinical infrastructure to drive consistent outcomes across lines of business.

We are also seeing that leverage reflected in our operating structure. In the first quarter, G&A as a percentage of revenue was 6.4%, a 70 basis point improvement year-over-year. As we continue embedding agentic workflows and intelligence across the platform, we expect additional operating leverage over time and believe that we will exit the year at levels below where we are today.

Turning to membership. We ended the quarter serving approximately 1.55 million members in value-based care arrangements. On Medicaid and Exchange, trends in the quarter remained generally in line with expectations with puts and takes across the portfolio, largely offsetting one another.

Medicaid membership attrition tracks modestly below expectation, while acuity has remained favorable, reflecting less adverse selection than modeled due in part to our longitudinal patient relationships. On the exchange, attrition tracked somewhat ahead of expectations during the quarter. And overall, we continue to manage these dynamics with a disciplined and appropriately conservative approach. And our broader assumptions and outlook for 2026 remain unchanged.

On prudent risk progression, we delivered on the commitment we made in late 2025 to convert key contracts to full risk arrangements. At quarter end, approximately 80% of care partners' revenue and around 40% of owned membership were in full risk arrangements. Importantly, new contracts that commenced this quarter are performing in line with our underwriting, reinforcing the discipline of our approach.

Collectively, our results reflect continued execution across the 4 strategic pillars we have discussed consistently over the past several years: Disciplined growth, prudent risk progression, strong clinical and medical cost performance, and expanding operating leverage through our platform.

Now, turning to Prospect. Integration remains on track and continues to validate the strategic rationale for the transaction. We have completed financial standardization, established full visibility into medical economics and aligned clinical workflows under the Astrana Care model. Gross provider retention remains above 99% for the quarter. And we continue to track towards the high end of our $12 million to $15 million annual synergy target.

In our expansion markets, Southern Nevada, which reached run rate profitability in 2025 with a 20% year-over-year improvement in MLR, continues to perform well. In Texas, the launch of our full risk delegated model with a large payer partner on January 1 is progressing in line with expectations. And we expect our platform and operating model to drive a similar maturation curve over time in Texas as we've observed in our other markets.

Finally, some quick comments on the regulatory environment. On the 2027 Medicare Advantage final rate notice, we believe there continue to be structural tailwinds for Astrana. Our model is not dependent on diagnosis sources that are being disallowed. And our historically conservative and counter-based approach to risk adjustment positions us well under the revised framework.

More broadly, as regulatory changes continue to minimize risk adjustment as a source of alpha, we expect relative performance across the industry to be increasingly driven by underlying clinical execution and cost management. That is core to how we operate.

To close, our first quarter results reinforce the structural advantages of the Astrana platform. We are growing with discipline, progressing risk responsibly, managing medical costs with consistency, and continuing to widen a durable technology and AI advantage that compounds with every patient we serve.

With that, I'll turn the call over to Chan.

Thank you, Brandon, and good afternoon, everyone. Our first quarter financials reflect solid execution and a strong start to 2026, driven by the commencement of new full risk contracts, continued contribution from Prospect and disciplined platform-wide performance.

Total revenue for the first quarter was $965.1 million, up 56% versus the prior year period, driven by the full quarter contribution from Prospect, commencement of full risk contracts and continued organic growth across our Care Partners segment.

Adjusted EBITDA for the quarter was $66.3 million, up 82% versus the prior year period. Both revenue and adjusted EBITDA came in at the higher end of our guidance range, reflecting the durability of our model.

Net income attributable to Astrana was $14.4 million and adjusted EPS was $0.74 per share. Medical cost performance in the quarter was in line with expectations. Our 2026 plan assumes a blended cost trend of approximately 5.2%. And Q1 actuals across both legacy Astrana and legacy Prospect were consistent or better than planned across all lines of business.

G&A as a percentage of revenue was 6.4% compared to 7.1% in the prior year first quarter. This 70 basis point improvement reflects continued operating leverage as we scale revenue and continue to embed AI capabilities across the enterprise.

Free cash flow for the quarter was $64.1 million due to strong operating performance and conversions to full risk. We continue to expect strong full year free cash flow generation as new full risk contracts ramp, working capital normalizes, and integration-related investments decline. We ended the quarter with $478.4 million of cash and $586.8 million of net debt.

Net leverage on a pro forma basis was approximately 2.3x, down from 2.6x at year-end, reflecting strong free cash flow generation and continued EBITDA growth. We remain committed to meaningful deleveraging over the next 12 months through profitable growth, free cash flow generation, and disciplined debt reduction.

We are reaffirming our full year 2026 outlook. We continue to expect total revenue in the range of $3.8 billion to $4.1 billion, adjusted EBITDA between $250 million and $280 million, and free cash flow between $105 million and $132.5 million.

We're pleased with our first quarter performance and continued execution and remain disciplined in our approach to full year guidance. Our outlook continues to assume conservative Medicaid membership trends and 0 contribution from HQAF. We expect greater clarity on both items as the year progresses. And until then, we will continue to apply an appropriately conservative approach to full year guidance.

As a reminder, the midpoint of our 2026 guidance reflects our operating plan. The low end assumes a stacked downside case rather than a shift in underlying execution. On the headwind side, we have embedded expected declines in Medicaid and exchange enrollment, adverse selection, losses associated with new cohorts and expansion markets, conservative medical cost assumptions, and 0 contribution from HQAF.

On the tailwind side, we have modeled improved 2026 Medicare Advantage rates, continued realization of Prospect synergies, ongoing maturization of full risk cohorts, and operating efficiencies driven by automation and AI deployment.

For the second quarter of 2026, we expect revenue between $965 million and $1 billion and adjusted EBITDA between $65 million and $70 million. Taken together, our first quarter results give us continued confidence in our ability to deliver against our 2026 framework.

With that, operator, we're happy to take questions from the audience.

[Operator Instructions] Our first question is from Jack Slevin with Jefferies.

Candidly, crazy afternoon, so a little trouble processing information. Maybe just to hit on what I think are like the 3 biggest things for everyone here. I heard the commentary on the trend better or in line with what you're expecting across all books.

If I just think about enrollment and trend in Medicare Advantage on the HIC side and in Medicaid, can you just give me the rundown on sort of where that stuff landing versus expectation and how to think about the progression there versus what you sort of already expressed at the last quarter call?

[Technical Difficulty]

Will the speakers please check and see if their line is muted.

Sorry, can you guys hear me?

Yes.

I apologize. Sorry, I know that, that was -- that was a busy quarter, Jack. Thank you for joining anyway. Happy to give an update per line of business on enrollment and trend. For -- starting off with Medicare, enrollment came in, as we had described before, mid-single-digit growth in eligibility. I'll start first with enrollment and then go to trend.

On Medicaid, as I mentioned in my prepared remarks, enrollment or disenrollment tracked slightly ahead of the midpoint of our range. And so we're looking at probably on the high end of our range for disenrollment for the year. And then finally, for exchange, things came in better than expected in terms of disenrollments as has been noted industry-wide.

In terms of trend, we were able to come in at or above our full year range for trend, which is a blended 5.2% cost trend year-over-year. And so trend has performed very well across all lines of business. Notably, trend came in better in Medicaid as well relative to our expectations. So there was lower adverse selection so far throughout the year than we expected even with the slightly higher disenrollment than expected.

So as I mentioned in the prepared remarks, Medicaid and exchange kind of puts and takes there ended up balancing out. And trend ended up performing better than expected really across all lines of business and for both core and legacy Prospect populations.

Just one follow-up for me. The balance sheet, obviously now getting to a better position. I know you called it out and then sort of a lot of where you had been messaging and things progressing nicely and good free cash flow generation in the quarter.

I guess maybe just thinking about, you had done some M&A, nothing obviously on the scale of Prospect beforehand. But as you sort of get that leverage ticking down and think about what you can do with excess free cash, would love to get your thoughts just on what you think the best use of cash is here. If there's ample tuck-in opportunities? If the buyback is something you should look at? Just curious to sort of hear what you're thinking about there.

Yes, of course. Overall, our approach to capital allocation, I think, is going to remain disciplined and consistent with the priorities we've previously communicated. First and foremost, of course, our near-term focus is on deleveraging following the Prospect transaction.

As I mentioned in the remarks, we're very pleased with the pace of progress so far. As I mentioned, net leverage already declining to approximately 2.3 turns on a pro forma TTM basis. And that's far ahead of the timeline we originally communicated when we announced the transaction.

And so when we think about capital deployment, I think our highest priority continues to be investing organically into the platform, including our technology infrastructure, AI capabilities, clinical operations, and expansion markets. And we see strong returns and a meaningful runway ahead in those efforts.

On M&A, though, it's really a question about capital allocation efficiency. I think we already -- we believe we already have the core capabilities required to operate a fully integrated AI-enabled health care operating system internally. So the question is less about acquiring technology capabilities and more about determining the most capital-efficient way to expand membership provider relationships and market density over time.

So it's going to be a bit of a buy versus build question in terms of M&A. That being said, we continue to believe the platform is extremely well positioned to integrate and scale M&A acquisitions over time. Because we've built that proprietary operating platform, I think we've proven that we're able to operationalize acquired assets very efficiently and very consistently across the platform.

And we've demonstrated that capability, as you noted, with Prospect, but also with things like collaborative health systems, CFC, and more in the past. So it's going to be an important opportunity to continue growing the platform. But we're going to remain disciplined and highly selective in the approach.

And finally, on share repo, we did continue to do share repurchases in Q1 as we have in Q4 of last year. And we'll continue to evaluate that capital allocation strategy dynamically based on where we believe the risk-adjusted return for repo will be and where we think we can create kind of long-term shareholder value.

So given the strong cash generation so far and that integration is on track and ahead of schedule, we're pleased with where we are. And we think we have a lot of flexibility over time as we continue growing the platform.

Our next question is from Ryan Daniels with William Blair.

Congrats on the strong start to the year. Brandon, I thought you gave a great overview of the Astrana operating platform and the advantages it gives you both on care and operating efficiencies. So I'm curious how much more leverage do you have there to drive maybe G&A efficiencies? And what type of new programs are you launching? And then as a follow-up, I'd love to learn more about how you plan to commercialize that in the market as other vendors kind of struggle sometimes to manage care as effectively via your care enablement partner offering.

Hello, Ryan, thanks for the question. I think there's a lot of -- I described some of the examples of how we're using technology so far. It's really deeply integrated into the system. And it helps that we have a fully delegated capitated model where we do act as a single payer. And we have the visibility across authorizations, claims, care management, and the entire ecosystem.

So far, as I mentioned, we've really been using a lot of AI in terms of our risk stratification models, our next best action models, creating a suite of agents on both the payer-facing and provider-facing side. On the payer side, for example, on claims adjudication and prior authorization, on the provider and patient side in terms of engagement through voice and text as well as clinical documentation and gap closure.

I think some opportunities remain in further expanding our agentic care management workflows, something we've developed over the last half year or so that we're -- that is already in use, but certainly can lead to further efficiencies on both the OpEx and, hopefully, over time on the cost of care line as well.

We're also looking at, of course, continuing to finish off the integration of Prospect onto the Astrana operating system, which can drive further operating leverage as well as over the medium term, medical cost leverage, and continuing to expand our clinical decision support capabilities embedded directly into the provider workflow as part of the Astrana operating platform.

So I think there are going to be continued opportunities. And like I mentioned in the prepared remarks, already reduced G&A as a percentage of revenue, 70 basis points year-over-year and expect to exit the year even lower than where we came in around -- sorry, lower than where we came in, 6.4% in Q1.

On the second question in terms of commercializing this in the market, I think perhaps an underappreciated part of our story is that there is a segment that we report in which we do commercialize some of these tools to the market in our Care Enablement segment. That segment continues to grow rapidly, has a strong gross margin and EBITDA margin profile. And just in this quarter, we added a new client, which we had disclosed kind of on earnings -- on a previous earnings report to that client base in the Care Enablement business.

So we continue to grow that business rapidly. And we think there is potential to not only improve groups and clients in that business, but also one day potentially, as we did with the Community Family Care acquisition, to look for deeper ways to partner and get them perhaps into our Care Partners business.

And then one quick follow-up. This is more housekeeping. But with the quality assurance fund, I know that's not included in your guidance. Has there been any update there or any thoughts on when we might get timing on that to see if there could be potential contribution to this fiscal year for you guys?

Thanks, Ryan. Yes, I think that's unfortunately going to have to wait until later in the year. We don't have an exact date in mind, but probably in the third or fourth quarters. So again, out of conservatism, we've left that contribution out of the guidance for 2026. But we look forward to hearing more and updating the street when that happens.

Our next question is from Jailendra Singh with Truist Securities.

Congrats on a strong quarter. Brandon, I know you have been cautiously optimistic around your 2027 EBITDA target of $350 million and you've said that there is still a path to get there. But in recent few months, there have been some positive developments around 2027 CMS MA rule. You just said that Medicaid and HICs have been trending better to at least in line to better than expectations and then you're also driving AI-driven efficiencies.

Are you feeling better about that target now versus 3 months back? Or at least you're willing to say that current consensus, which is around $340 million, seems to be at least in a reasonable range. Just trying to understand like how your views about 2027 might have shifted in the last couple of months or 3 months.

Hello, Jailendra, thank you for the question. When we originally provided that 2027 adjusted EBITDA framework, this was back in 2024. Of course, we're in a meaningfully different regulatory and industry environment than the one we're operating in today. But with that being said, I think the more important point, the more salient point is the continued strength and adaptability of the Astrana platform over all environments.

Our model was designed to operate across cycles, as I've mentioned many times before. And we believe the consistency of our performance over really decades of performance. But certainly even in the last 5 or 6 years, certainly reflects that. As an example, from 2019 through guidance for 2026, we've grown revenue at approximately a 32% CAGR and adjusted EBITDA at a 25% CAGR while continuing to generate operating leverage and free cash flow along the way as we grow very, very rapidly.

And against that context, looking forward into '27 and beyond, we think that the business has continued to be positioned to grow organically at a mid to high teens rate while continuing to deliver on free cash flow as well. We see meaningful opportunities, of course, to accelerate that growth past the mid to high teens growth rate through disciplined and selective M&A potentially over the long-term, particularly given the scalability of what we've built. But even without M&A, we still think that it's a mid to high teens organic grower.

And so that being said, I think the key takeaway here is really the operating model and its durability across all regulatory and economic cycles. Our ability to continue compounding growth as we have, 25%, both organically and inorganically over the last 6, 7-year period and our continued expectation that off of the 2026 number, that mid to high teens CAGR on the EBITDA line is firmly within reach over the short to medium-term future.

And then my follow-up on the AI investments. You talked -- I think in the presentation, you said that your G&A has been benefiting from AI-enabled tools. And is the message that all of the 70 basis point year-over-year improvement was driven by these AI tools, which would imply like $7 million benefit in the quarter alone. I just want to confirm that.

And then as we think about broadly your AI investment strategy. How are these investments split between focus on administrative aspect of the business where savings might directly fall to bottom line right now versus investing in clinical workflow, so that these will drive more savings down the road? Just help us understand how do you allocate your AI investment strategy and the dollars there?

Yes, of course. I think it's a little hard to say exactly how much of the 70 bps is driven directly by AI. Certainly, AI is being infused across the board. So I would say a meaningful part of that without quantifying is driven by AI and its ability to help us scale the business without increasing G&A costs associated with that rapid revenue growth.

In terms of the split between more administrative functions and maybe clinical or coordination and navigation-related functions that could potentially have an impact on medical costs in the short and medium-term future. I think it certainly started off on the payer side and on the G&A side. We built agents around claims, around authorizations, around eligibility.

And I think over the last probably year or 2, we've been building a proprietary suite of more clinical-facing tools such as risk stratification, care management, workflow orchestration, and identification that I think will lead to MLR improvements over time.

And you can see that a little bit as we -- maybe getting a little off topic here. But you can see that a little bit with how Prospect has performed as we continue to onboard them onto the Astrana operating system. Prospect, prior to the acquisition had medical cost trend running 6%, 6.5% or so. We modeled around 50 basis points of improvement in 2026 versus that number.

And we're outperforming that by a bit here even in Q1, even though we've already improved by that 50 basis point margin. So I think you'll really start to see even more MLR improvement in the medium term. But I would say the improvement is largely skewed towards G&A at this point in time.

Our next question is from Craig Jones with Bank of America.

So Brandon, I want to follow-up on your comments around your encounter-based risk adjustment model MA. So it sounds like CMS keeps mentioning like leveling the playing field in MA and really wants to rewrite the current MA risk adjustment model.

So if you were in the room with them redoing the risk adjustment model, what would you recommend changing? And then how do you think the potential changes end up making potentially going to this encounter-based model would help Astrana? And then do you think you could see something along these lines as soon as the 2028 technical notices fall?

Thanks for the question. Yes. I think the future of risk adjustment is really interesting. As you can see in the ACO lead preliminary model details. There is the phasing in of an AI inferred risk score, which would depend not necessarily on an organization's ability to document and submit codes, but rather trying to use AI to infer the true acuity of the member and reimbursing appropriately based on that kind of "gold standard" kind of determination of a member's risk.

Again, I think, ultimately, because we've been conservative on risk adjustment, because we see members over a longitudinal period of time and we try to be very appropriate in terms of capturing the clinical complexity of the population. We think that either way, we're well structured, we're well positioned for that future.

We think that because we haven't relied on documentation or coding optimization to generate savings and value for the health care system in the past, it may even be beneficial for us, for example, to have a true determination of what a patient's risk is via AI that the government or CMS is going to determine rather than everyone playing a game to try to improve their risk scores over time on a relative basis.

So I think really, regardless of how all that shakes out, we think we're structurally well positioned for the long-term. That being said, if I had my way, I do think that the -- that risk adjustment as a source of alpha is not really, I think, in the benefit of the health care ecosystem in the long-term and for the Medicare Trust fund in the long-term.

So I would recommend without knowing more that some of these approaches that are being suggested like AI inferred risk models seem very appropriate and seem like a much more efficient way to standardize what risk determination looks like across the American population.

Our next question is from Michael Ha with Baird.

So when it comes to AI, clearly, everyone is talking about it this earnings season, all the large national payers, providers. But the thing is most of them have pretty legacy old infrastructure, fragmented data, as you said yourself.

So when I think about Astrana versus, I guess, almost all of your peers. It's the fact that you built an AI-native tech platform many years ago. And the fact that you yourself are spearheading foreseeing AI adoption across basically every facet of your company. I think that's still widely underappreciated.

So I was wondering if you could talk more about this specifically, the structural differences between you Astrana versus your peers when it comes to unlocking the power of AI? In other words, like what still has to happen -- what still has to be done by your peers to get there versus what can already start to happen at Astrana?

Yes. Thanks so much for the comments, Michael. I think broadly, that's right. I think our thesis has always been building internally. And I think that thesis is being rewarded in an era where it is easier than ever and faster than ever to build internally because of the advent of generative AI and its use in coding.

And I think as long as you have the integrated data infrastructure to support that, the ontology is on top of that, the definitions, the concepts and the relational -- and the relationships between those concepts so that the AI understands how to operate on each of these concepts and how they relate to each other and how they ultimately translate into actionable insights.

I think that's hard to replicate, right? I think if you're operating a system where you've acquired a bunch of stuff. And you haven't integrated them into a unified data layer with a unified set of concepts and vocabulary on top of that, on top of which the AI and the agents can operate. You're going to find it very difficult to kind of build the fifth floor of the building without having the structural supports in the ground floor and the lobby built out.

And I think that's a lot of what our peers are doing perhaps without getting too much into what our peers are doing. I think there's a rush to chase the kind of the sexiest parts of AI to build the top floor, the penthouse unit without having the foundational approach, without having the pick axis, the knowledge about how to dig the hole and the foundation into the ground to build that in an effective manner.

And I think we've spent a lot of time, myself personally, given my engineering background to build out that foundation. And now we think that's going to unlock our business in terms of rapidly adopting AI across the enterprise and embedding it deeply into each and every workflow, both operationally, clinically and on the quality of care side.

So we're really excited about where we can take this platform. We're already seeing the G&A improvements. We're starting to see some of the trend improvements as we continue to integrate new businesses onto the platform. And we're seeing great success as well in terms of our Care Enablement business, selling the tools, and the integrated workflow that we've built to other provider groups and helping them succeed also in an accountable care relationship.

So next question on the final MA rate notice. So I'm getting roughly like 4% net rate increase for Astrana if I exclude -- on the chart reviews. And when I think about Astrana's margin expansion, just how sensitive it is to the rate environment? I know your cost trends are running, I think, 4% to 5% roughly for MA. So at face value, right, that would imply rates are basically they match up.

But if I start at 4%, add maybe 1% to 2% coding, maybe another 1% to 2% help from plans, benefit design pricing. Then we're getting into a different sort of ballpark of 6% to 9% rate versus trend of 4% to 5%, up to 400 basis points of margin expansion.

So it feels quite considerable. And that's not even including right, your regular cohort maturation dynamics, any other trend vendors or G&A. So at a high level, am I missing any major components? Is this even the right way to start thinking about 2027?

Yes. Mike, as always, your math is great. So I would broadly agree with your comments. I think the final rate notice was constructive overall. And the overall top line kind of effective growth rate of 5.33% does more appropriately reflect underlying medical cost trend.

As you mentioned, the disallowed diagnosis -- or the diagnoses, sorry, are expected to be immaterial for Astrana, given our historically conservative and encounter-based approach to risk adjustment. So as you had noted correctly, the average change for us might be the 2.48% plus the 1.53% or approximately 4% in aggregate.

And as we think about '27 more broadly in our models, at our current RAF levels, we probably expect to maintain MA margins consistent with 2026 with that 4% kind of average rate book increase. Beyond that, we continue to see tailwinds and opportunity for more accurately capturing the complexity of our populations and risk adjustments. And there's potential tailwinds above and beyond the 4% from those sources.

Our next question is from David Larsen with BTIG.

Congratulations on the great quarter. Can you talk a bit about your margins for like, I guess, full cap books of business that would include inpatient? And can you remind me what regions or how many members are full cap, including pharmacy, doc, inpatient?

Thanks for the question, Dave. Thanks for tuning in. Our fully capitated arrangements start off in lower kind of EBITDA margin arrangements as we transition them from full risk because as we talked about before, you get the kind of increase in percentage of premium without yet necessarily flowing through the decrease in inpatient utilization as we take on additional portions of the risk dollar.

Over time, the maturation of the full risk cohorts, as we've seen over the past years as we've moved members cohort at a time into full risk arrangements as we continue to do that as we did in Q1 of this year. You see that margin profile mature and ultimately get to hopefully a similar point as the kind of partial risk members as well.

So I think that's what we expect as we continue to move members selectively and prudently into full risk arrangements. We underwrite kind of this margin maturation cycle. We've seen that happen now over several years. And each of those has matured as expected. And so we can kind of space out our membership moving into full risk as appropriate.

I do want to mention that almost all of our full risk arrangements do not include Part D as in dog risk. So there are a handful that do and most of them do not. In terms of the geographies where we are full risk, it really varies. Most of our membership, 80% of the revenue approximately comes from California. So I would say still that California does have a large percentage, a majority of the full risk members. However, we have moved over 14,000 Medicare Advantage members into a full risk delegated construct arrangement with a payer partner, for example, in Texas in the first quarter of this year. So -- and we also have full risk delegated contracts in Nevada.

And of course, the ACO REACH business is in some aspects, the full risk business also. So we're really in the business of properly underwriting and then appropriately and proactively reducing the cost of care for our populations and then making sure that our financial contractual arrangements are conducive to us capturing some of the value that we're generating for our patients and for our communities over time.

And then for Prospect, I think you may have mentioned this earlier. Is it still $80 million of EBITDA? Is that on track?

Yes, that's right, Dave. Prospect was on track for around $80 million of adjusted EBITDA on an annualized basis. And at this point in time, it is currently tracking a bit ahead of those expectations.

And then just one quick one. It looks like your stock has been doing really well over the past couple of months. I guess what do you attribute that to just at a high level? What?

Sure. I mean we're always happy to see that as it's our job to continue generating shareholder value, of course. I think I hope it's a continued recognition of our leadership and our consistency and stability of our model. The differentiation of our technology platform, the 35% revenue CAGR, the 25% adjusted EBITDA CAGR that I mentioned, which I think is fairly unheard of in health care services over a very long period of time, over 7 years.

And ultimately, of course, definitely helps that there's been -- there have been regulatory tailwinds, including the adjustment, the more appropriate, in our view, 2027 Medicare Advantage final rate notice. So I think overall, a lot of positive kind of macro tailwinds lining up and hopefully, an increased recognition of the unique platform that we've built that has really generated free cash flow, profitability, and now rapid growth for over 3 decades.

The best health care is when you don't actually have to see your doctor. And that's the model that you guys have created. So nice quarter.

Our next question is from Ryan Langston with TD Cowen.

This is Christian Borgmeyer on for Ryan. So looking at the second quarter guidance and EBITDA margin, how should we think about puts and takes within the cost of service revenue and G&A lines? For example, any seasonal considerations within medical utilization, in particular that are different this year? Or on the G&A side, any sequential savings from AI or Prospect synergies embedded in that?

In terms of our 2026 guide, probably the best way to think about this is in the first half of the year, we're probably going to see a little over 50% of profitability coming in consistent with what's happened in historical years. As you think about puts and takes, the puts and takes, as we mentioned, it's around HQAF. It's around opportunities with MA and ACO as well as watching in terms of what's going to happen around the Medicaid membership trend.

And then maybe to answer the other part of your question. We didn't see any abnormal utilization necessarily in Q1. I know there's been talk about weather and the flu season and whether that was heavier or lighter. I don't think things came in pretty operationally clean is how I characterized the quarter and tracked pretty consistently both on the inpatient and outpatient side with the broader medical cost trends that we reported across the business, even drilling down into each line of business as I started off the Q&A session with.

So we felt pretty comfortable this quarter. And we're maintaining guidance primarily because we want to take a disciplined and conservative approach early in the year here.

I actually had a quick balance sheet question actually. I see the accounts receivable balance and the medical liabilities balance are each up like $90 million to $100 million sequentially. Anything to call out there related to any one item or program in particular? Or is that the full risk conversions contributing to that?

Yes, that's the full risk conversion that you're seeing in Q1.

Our next question is from Gene Mannheimer with Freedom Capital Markets.

Congrats on a good start to 2026. So coming in or tracking at the high end of cost synergies with Prospect. Can you discuss potential revenue synergies there and when you may start to see that realized? And my follow-up would be on the MLR trends at or better than the 5.2% or so that you called out. Did you or can you break that out across the legacy Astrana and the Prospect book?

Hello, Eugene, thanks for calling in. Sure thing. So on the revenue synergies, we haven't -- those are not included in the $12 million to $15 million synergy range. So we haven't quantified that yet. But we do expect over time that our partners and our providers and ultimately, our members will see the value of our denser network and our ability to drive access to care, high-quality care in a faster way because of the larger network that we now have. So over time, we do think that, that value will be realized by the platform, but we haven't yet quantified necessarily what that looks like.

On the trend item, I would say that, as I mentioned before, Prospect came in 6% to 6.5%, 6.2%, 6.3% trend prior to the acquisition. And we are underwriting a 50 basis point improvement in that trend year-over-year. Our overall trend for the year is around 5.2% on a consolidated basis. And I would say that both core Astrana as well as legacy Prospect businesses performed better than expected here in Q1.

Again, it's still early on in the year. We don't have perfect visibility, claims visibility yet, for example, on March. So we wanted to be conservative, but things are tracking well here to start the first quarter.

Our next question is from Matthew Gillmor with KeyBanc Capital Markets.

I wanted to follow-up on the full risk contract transition discussion. I think this quarter, you had 40% of members in full risk. I think last quarter, you set an expectation of 36 members in full risk as of the first quarter, so maybe a little bit ahead of schedule. I wanted to see if I had those numbers right and then just get an update in terms of how you're thinking about the pacing of members moving to full risk over the course of the year.

Hello, thanks for the question. Yes, I think that's approximately right. Around 40% of our members are in full risk arrangements. And that translates into around 80% of our care partners revenue being -- coming from full risk arrangements. And of course, that's because the percentage of premium that we receive in the full risk arrangements per member is obviously higher than the partial risk arrangements.

So I think you're continuing to see that the percentage of both membership and revenue continue to grow. In Q1, this took a step up because of the forwards contracts that we had started in the first quarter as we had guided to late last year. And all of those have now been completed. And so that's what's led to the spike here in Q1.

On a go-forward basis, I think in our supplemental presentation deck. We did note that we do expect continued growth in the percentage of full risk members. And we'll be phasing that in over time kind of on a regular course basis.

And as a follow-up, we've been particularly interested in your ability to bring this delegated model into new markets. And so the news out of Texas that you've updated us on has certainly been encouraging. I did want to take your temperature in terms of expanding a delegated model either into new markets or even just new states or even just new markets within states like Texas, which many of those places traditionally haven't had fully delegated models.

Yes, it's a great point. And you're absolutely right. A lot of parts of the country have not necessarily operated in a -- don't even mention delegated model. They haven't even operated really in a value-based care setting in a broad way. And so we recognized the challenges of kind of gone 0 to 1 in a very short period of time. And I think that's why we've been really working on a gradated kind of approach to helping providers and payers along as we continue to take the Astrana delegated model outside of California, outside of Nevada, outside of Texas, and through the rest of the country.

And what that looks like really is, first, entering into partial risk arrangements, ensuring that the data feeds that we need are on the ground and ready to go. Ensuring that our relationship with our downstream providers, primary care specialists and even hospitals are strong. Ensuring that our technology platform is integrated directly into the workflow of those providers. And ensuring that kind of our care management orchestration is in place and kind of allowing the economic contractual relationships to kind of follow behind the wake of the operational changes that we're making in terms of how health care is delivered in these new states and/or geographies.

So it is a created kind of stepwise approach to getting folks into the validated model. We think that it ultimately will win out because, frankly, at the end of the day, it's just a more efficient model. It's a more valuable model to the health care system and a more efficient one for both payers and kind of the overall system.

So we think that logic will take the day here and the economics of it will take the day. But we do recognize that change management takes time. And we're prepared to and have engaged in Florida, I mean, sorry, in Texas and Nevada, for example, on that path forward step by step.

Our final question is from Andrew Mok with Barclays.

This is Thomas Walsh on for Andrew. You shared that acuity in the Medicaid population remains favorable in part due to your longitudinal patient relationships. Can you help us understand how those patient relationships mitigated the acuity impact in practice? And are there any other factors on the mix of members disenrolling or otherwise that mitigated the adverse selection?

Yes, definitely. I think what I was alluding to, to put it more clearly is that the patients that tend to be Astrana members, which -- and the patient attribution mechanism is the choice. The selection of a primary care provider who is an Astrana primary care provider. The members that tend to be attributed to us, tend to not be the members who have low to no utilization because they are almost making an active choice to be an Astrana member and to be engaged in our care model and to be engaged in the longitudinal nature of the care model that we have with our patients as we follow them, for example, across line of business.

I mentioned before, the example during COVID, members who lost their jobs and had to switch from a commercial line of business to commercial insurer to potentially something on the exchanges or something on Medicaid, for example, could continue to be in the Astrana ecosystem, continue to have the same care management, continue to see their same PCP and same specialist network.

Those are the benefits, I think, of being in the Astrana network. And that tends to insulate us or we think partly insulate us from the level of adverse selection we expected from the disenrollment of members and kind of potentially their lower MLR. That didn't end up playing out the way that -- or to the degree that we thought it would. And that's what's led to some of the improved acuity in the Medicaid population.

And following up on ACA attrition tracking better than expectations, similar to trends across the industry. Could you share the actual disenrollment you experienced there? And at what point in the year would you expect to have enough visibility to make an informed revision to the full year membership expectation?

Yes. I think at the beginning of the year, embedded in our guidance, we thought it would be a 30% to 40% disenrollment number in exchange throughout the year. And I think we had quantified that at a kind of mid-single-digit EBITDA impact headwind, of course.

What we're seeing so far this year is not quite the 30% to 40%, really closer to high single-digit attrition in the ACA population. It still is early. We're still in May here. And there could be further disenrollments after the 90-day grace period.

But across the industry, as we think about projections for actuarial firms and what others have been saying as well as our own experience. We're now projecting a decline of, call it, 20% to 30% instead of 30% to 40% internally at least. Again, we haven't reflected that in the guidance yet of conservatism, but that's kind of the quantum of the numbers we're talking about.

There are no further questions at this time. I would like to turn the conference back over to management for closing remarks.

Thank you, everyone, for joining our call today. We appreciate your time. And we hope to see you in the near future at one of our -- one of several conferences we'll be attending or we can catch up at any time if you e-mail [email protected]. Again, thank you so much for joining and have a great evening.

Thank you. This will conclude today's conference. You may disconnect at this time. And thank you for your participation.

Great. Welcome back to the Barclays Global Healthcare Conference. My name is Andrew Mok. I'm the facilities and managed care analyst here at Barclays, and I'm pleased to welcome Astrana Health to the stage. And joining me here is Brandon Sim, CEO. Brandon, welcome.

Thank you so much, Andrew. Thanks to Barclays for having us here.

Absolutely. Brandon, you just finished up Q4 results guided for 2026. Why don't you give us a current state of affairs of the business and run through kind of like the highlights of what you see for the year ahead?

Yes, absolutely. So for those of you who are not familiar, Astrana Health is a risk-bearing provider group. We operate a unique single payer model in which we take reimbursement percentage of premium from our payer partners, our large nationals, as well as regional payer partners, and we operate a unified multiline of business and multi-payer downstream provider network that's well coordinated, delivers better care at a lower cost.

I know the industry has obviously been very volatile of late, and we're very proud to continue to deliver on the consistency and stability of our single payer diversified model. Over the last 30 years, we've been profitable. We've continued to grow the business. And since I joined the company around 7 years ago, we've sixfolded revenue, close to eight-folded free cash flow and continue to grow at a very, very rapid clip in the 20% to 30% CAGR over a very period of time.

We just reported results, as Andrew mentioned last week or a couple of weeks ago, where we delivered record revenue, free cash flow and adjusted EBITDA, continuing to grow at a -- I think we grew 40%, 50% year-over-year and have very strong guidance planned for this year as well with another 20% to 30% growth on both the top and the bottom lines. here are obviously a lot of puts and takes to that given the regulatory volatility in the environment and the macro environment that we're in. We believe that our unique care model, the unique technology platform and the diversity of the multi-payer multiline of business model has allowed us to weather some of this volatility better than the market has.

Going forward into this year, we expect tailwinds from strong Medicare Advantage rate updates resulting in -- resulting from the 2026 Medicare Advantage rate notice from last year. We expect some incremental headwinds due to Medicaid and some incremental headwinds from the exchange populations, but well kind of made up for by the increases in the Medicare Advantage rate. We also expect continuing operating leverage from our G&A platform and our technology platform, which we built completely internally in-house proprietary and from '24 to '25, we improved G&A as a percentage of revenue by 75 basis points, 110 on an adjusted basis, and we continue to look for opportunities to scale our platform efficiently.

As a reference point, we ran G&A at 6.8% of revenue last year, the full year of 2025, despite also taking on a lot of payer-related responsibilities such as claims processing, prior ops, network building, credentialing, contracting and even the customer service lines, even patient service lines, we are responsible for. And we're running that at kind of mid- to slightly high single-digit percentages of revenue versus payers who badly run at 10-plus percent of G&A as a percentage of revenue. So we really focus on efficiency and investing and taking those dollars and investing in our patients to prevent long-term, more acute issues, which are a greater burden to the health care ecosystem and the health care dollar.

Overall, we can continue to believe that although there are headwinds that we are relatively more insulated from those headwinds than our peers, we continue to deliver extremely strong growth, both on the top and the bottom lines, and we're well positioned to expand market share across cycles.

Great. Brandon, over the last few years, Astrana has consistently held medical cost trends in that mid-single-digit range even as many value-based care peers have struggled with the volatility. And 2025, trends finished slightly better than your original 4.5% expectation. So to start, can you walk us through what you think has enabled that level of consistency in recent years?

Yes, absolutely. I mean, the biggest part of it is really the business model, which is our ability to engage patients longitudinally over time, the higher LTV of the patient in our system versus in any given insurance company system or any of our peer systems and the ability for that to translate into better outcomes both for the patient and from a financial perspective for us and for the payer partners that we serve.

What I mean by that is that we actually engage the patient across all lines of business regardless of which payer they're with. So obviously, Medicare Advantage patients select a different plan every year and seniors have become quite efficient shoppers. -- of late in terms of understanding which benefit designs are better for their particular situation or shopping around for the best supplemental rebate, whatever the case might be. Regardless of the plan that a senior chooses in any given year, as long as they remain with their PCP or with the PCP that's in our network, they are still Astrana kind of risk-bearing members.

And so we're able to not only have a more complete data map of their history because we are seeing their claims in their chart history and their risk factors throughout time across different plans, but we're also able to manage and build a relationship with the patient, engage them more effectively, have them be more involved in their own health and more effectively invest in them proactively, knowing that the LTV patient and our system is going to be longer and we'll have a longer period of time to so to speak, reap the award of the proactive preventive care.

And so from an economic standpoint, we have more -- we have a greater return on investment in investing proactively in the patient's health than structurally any insurance might have -- company might have because they have no certainty that is that the patient will remain their risk to bear at all in the near future. Whereas for us, given our multi-payer, multiline of business approach, we have a much longer LTV of the patient in our system and therefore, better ROI if we would invest proactively in their health.

So there are a lot of reasons why, from a stability standpoint, sure, there have been headwinds, and we have been hit by some of those headwinds, but the volatility has been smoothed out because of that longer-term relationship and the fundamental business model that we operate.

Great. Moving on to membership. In your 2026 guidance, you're assuming about mid-single-digit growth in Medicare. Roughly a 10% decline in Medicaid and a 20% to 30% decline in ACA exchange lives? So first, how much visibility do you have into those membership forecast today? And how are trends tracking relative to those assumptions so far this year?

Right. So it really varies by line of business, Medicare Advantage, we are -- we already see some of the new enrollment from annual loan from the AEP period. So we are pretty certain good visibility into that M&A growth. Reasonable growth, not extraordinary, but obviously, the industry has had a pullback in terms of benefits this year, and we are downstream of some of those benefit design choices.

On Medicaid, we've -- we have some unique dynamics facing our Medicaid book because a lot of our Medicaid members are in California -- sorry, in the Medicare program. And so in Medicaid, especially in California, we've seen declines in Medicaid enrollment even through last year, I think 7% or 8% last year. We're expecting 10% to 13% this year because of some of the undocumented immigrant status members that were enrolled into Medicaid over the past years. Our payer partners are actually seeing mid-teen impact from the UIS status members.

We tend to have lower indexed UIS membership because those members typically do not have a long-term PCP relationship. So they are less likely to be attributed to our kind of provider groups. That being said, we still expect conservatively 10% to 13% decline in Medicaid, as well as actually built into our guidance are something that there will be a slight mix shift as well because of the acuity of the departing populations.

And then finally, in exchange, while we are actually seeing flat to slightly up, exchange membership early in the year, we do anticipate, as is consistent with the industry commentary, I think that there will be 20% to 30% declines once some of the auto reenrollments or auto reenrolled members drop off in April.

Right. And what gives you the confidence to maintain that mid-single-digit sort of trend forecast throughout all this disruption?

Yes. I mean think the first part of it is really our actuarial team has been very strong in predicting where trend is going to be. I mean last year, even in a time of high single-digit trend for the industry, we predict 4.5%, and we came in under 4.5% on trend. We actually predict -- we actually built into our models a higher trend this year than last year despite trends typically decelerating in our populations for two reasons.

One, because of the adverse selection affected exchange and Medicaid, they wanted to be thought about what that looks like. And then two, because of the recently acquired population in terms of our prospect Health deal that came in operating at a slightly higher trend than our legacy business. So those 2 factors combined led us to be a little more conservative in terms of trend taking kind of a mid like 5-ish percent trend versus the 4.5% and the low 4s that we actually saw last year, again, out of conservatism to ensure that we have room to meet our expectations for the year.

Great. Move on to the Medicare Advantage rate notice. There's been a lot of discussion on the rebasing of the risk model, which places greater coefficient weight on the skin substitutes at the expense of more chronic conditions that seems like a really obvious flow on methodology. Is that argument resonating with the administration? And how likely do you think it is that CMS will revisit that calibration?

Yes. So I think you're referring to the 3.4-ish percent of the risk model renormalization, the new regressed weights on the post-COVID claims. I think administration has a lot of really smart people in it now. They really recruited a lot of very talented folks from the private sector, from entrepreneurs from the private sector to help bolster their ranks.

So actually a lot of respect for the administration and kind of the talent level they brought in. It is very different from well, the government just has a reputation for not having that level of talent perhaps, but that's very different in today's CMS. So really crops to them there.

Now I'm not just saying that I truly mean it. And the reason I say that is because they really have, I think, a pride, which they should have in kind of following the appropriate math mathematics essentially, the right math and the right actuarial analysis to come up with the effective growth rate and the risk model normalization that they end up coming up with. And I think the math is correct.

In fact, if you think about what happened in fee-for-service Medicare post-COVID, if there is a lot -- there are a lot of -- if there is skin substitute or skin graft fraud, then the way that, that would manifest in the data is that there will be a very high claims cost for patients that have diagnosis of skin conditions because of the fraud. It was very high because of the fraud.

And so the question really is, if you run a regression on a data set in which you have very high claims cost, correlated to people with skin conditions, what coefficient comes out of that model for someone with the skin condition. Well, obviously, having a skin condition is explanatory for a lot of claims costs. And so therefore, the coefficient is very high. And the HCC or the chronic condition risk factor that when you add them all up, you get to the risk adjustment factor ultimately, that is essentially the coefficient for the skin condition.

So it almost is very natural coming out of the math, so to speak, that the coefficient for skin conditions would be high simply because of the fraud, almost by definition. Now I think the fix to that, there have been a couple of fixes that industry has talked about. A lot of folks have lobbied for maybe a phase-in of that over a 3-year period, kind of like B28 and this kind of pseudo B29 renormalization.

I would argue that, that fundamentally is just the wrong thing to incentivize altogether, as you said in your question. And so we've been in front of DC or NDC in front of CMS helping them see that you can still run the math, but if you put garbage in, you get garbage out. If you put the right things in, you get the right results out.

So if you put in the right types of claims in, we strip out the kind of extenuating factors, things that relate to fraud, then you might get more reasonable set of patients that truly incentivize a lot of the -- well, frankly, a lot of the things that the administration itself espouses, things like removing fraud waste and beast, things like investing in patients' health proactively and incredibly to preserve long-term health and lower the cost of health care in the United States.

So I think there is receptivity. We've been in front of them. It seems like something less -- it seems more likely anyway than the removal of the disallowed diagnosis, which to me seems more philosophical in the sense that they just fundamentally don't believe that, that should be allowed. And I think there's some room, hopefully, in the effective growth rate as well. I think there are some assumptions in the growth rate that don't seem congress with the data that we're seeing. So again, I think they're really smart folks, and I think they'll figure it out and hopefully, that manifests in the final rate.

I think the industry is aligned on some of those comments as well. despite the roughly flat industry-wide rate update, you've indicated that as Astrana's MA rates are likely to be approximately 2.5% to 3%, so much better than the industry. Can you help us unpack why your experience diverges from the broader industry?

Yes. I mean, historically, we've been very conservative on risk adjustment, as you know. Our RAS score today is 1.02, just above the industry average despite having a very high percentage of duals relative to industry average eligible that is. So we've typically been very conservative.

We -- our RAS score has actually gone up 28 because of that conservatism. We haven't been impacted by a lot of the headwinds that our peers have faced because of aggressive risk coding practices. Also because of that, we're unaffected or less affected by some of the changes in the advanced notice.

So the 1.53% of the disallowed diagnosis, for example, we don't do audio-only calls for risk adjustment. We don't do only charge cases for risk adjustment. Our model is an encounter-based model that is supported by the single payer model that we have where we're paying our claims and we're actually reporting our quality and reporting our risk adjustment ourselves.

And so because of that, the 9 basis point increase, net increase that CMS reported, the 153 to 1.53%, that gets us back up to around 1.6%. You add back kind of even the current coefficients that we -- that CMS has published, even if there's no change with the skin substitutes. If you take those coefficients and run them on our HCC profile in our population, you end up with a still a headwind because of the pushdown of the chronic condition coefficients, but less of a headwind than the industry is facing at 3.4%, closer to around 2.5% to 3%.

And so if you add all this together and add even a bit of the risk adjustment, 2.5% that CMS kind of expects for the industry, you get to that 2.5% to 3% effective rate increase for Astrana. And I'll note that, that 2.5% to 3% is only slightly margin dilutive for us given that our MA book at low 4s% last year. So even a small increase in the advanced final would make MA actually margin accretive for us in '27. So we continue to believe that our ability to control trend allows us to differentiate ourselves even at a time of regulatory volatility.

Right. And there's still room for payers to change benefit or network strategy to protect those margins. Where does Astrana fit into those conversations?

Yes. That varies from plan to plan. Typically, we're not as involved in the benefit design process. That's more of an actuarial thing that's upstream of us. There are certain plans where we've designed plans together products together with the plan and what's called a provider-specific plan.

And so we have that with a few different large plans now where we've designed the benefits, we've designed what the bid will look like, and we work together with the plan to figure out actuarially how we're going to help them grow and design differentiated product for patients while managing cost effectively. So it really depends from plan to plan. But typically, in an environment where plans are cutting back or looking to preserve margin, that would actually pass through to our percentage of premium contracts as well.

Right. Understood. Let's move on to the prospects deal. Shortly after you announced that deal, you laid out a $350 million EBITDA target in 2027 that you framed as conservative at the time. Even though the prospect integration appears to be tracking in line, if not ahead, the regulatory and operating environment has changed such that you're deemphasizing, but not necessarily ruling out that target. So what needs to go right on cost, rates, membership or execution for that target to come back into view?

Right, right. So prospects, I remind folks, we announced back in 2024, November of 2024. So that was prior to actually unfortunate timing, but prior to the election date prior to 03b -- or 0B3 prior to the '27 notice and prior to a lot of kind of seismic shifts in the regulatory environment and even macro shifts in terms of oil prices and so on and so forth. So it's a very different environment before $1 trillion were being planned to be taken out of the health care ecosystem.

That being said, the fact that $350 is still within view does reflect, in my view, the conservatism of the $350 million guide to start with. Now that wouldn't be my modal or median outcome necessarily today, if I had to guess. The factors that would swing it kind of more to where $350 million would be the midpoint would really be around rate and acuity mismatch.

So this year, I think in our bridge from '25 to '26, which I talked about on our earnings call, we are baking in a $25 million to $30 million headwind related to Medicaid related disenrollments related to adverse selection from disenrolled members. Even the reversal, for example, of that $30 million headwind would already take us, I think, from Street consensus of $315 million or whatever it is.

I don't know the exact number, but I don't know where you have us, but low 300s, let's say, closer to $34 close to 50. Not to mention any kind of incremental headwind or tailwind rather that we get from Medicare Advantage rate in QD kind of mismatch the positive way, which we saw this year as a $30 million tailwind.

Next year, for example, we talked about some of the math getting us to almost a margin-neutral environment and even 150, 200 basis points of improvement could get us to a margin accretive territory in which that would add another $15 million, $20 million. Just to run through a quick math. I mean, we're at $4 billion, $3.95 billion at the midpoint for '26. We've grown historically at a 30% CAGR. But even if you assume 10% into next year, you're talking about well above $4 billion of revenue in '27. And 60% of the revenue is Medicare. And so if you -- and out of that 60%, 2/3 of Medicare Advantage.

So at least for this year's numbers, if you take the $4 billion, 60%, you're at $2.4 billion, take 2/3 of that, you're at $1.8 billion, something like that, $1.6 billion. So we take that number and you Think about how much each percentage point of rate acuity is worth, right?

1 percentage point of $1.6 billion is worth $16 million. And so each kind of 100 basis points of improvement, we're going to get $16 million headwind -- or tailwind, sorry, year-over-year. So if you kind of even just roll back the $30 million and even say there's a 1 percentage point tailwind on MA, you're already at $46 million, and you can easily bridge from kind of where Street has us to well above the $350 million number.

And so those are some of the ways that we think about kind of how the shifting landscape has affected what that number is. Regardless of what that number ends up being, depending on where regulatory shakes out, we still continue to believe that our industry-leading ability to maintain trend in the mid-single digits versus high single digits, our resistance and resilience in terms of our conservative risk adjustment posture and our ability to operate in an industry-leading kind of G&A load will continue to allow us to grow market share even at the kind of 6% EBITDA margins that we're running at today.

Great. On the 4Q call, you spent some time discussing the AI tools that are available. Can you help us distinguish which capabilities are furthest along and already deeply embedded in day-to-day operations versus those that are still in the earlier or pilot stages?

Yes, absolutely. And we're very excited about our AI tooling and our overall just the entire technology platform as a whole. When I started the company 7 years ago, I was the first software engineer at the company. Some people here may know that. And my background is actually in computer science and AI. I published papers in AI and machine learning. I did graduate studies in that field. And so part of my enthusiasm for Astrana in the first place and why I wanted to say was because of the massive opportunity we saw to make the health care system more efficient.

Some of you may know that I used to be a quantum trader. I used to spend all my time submitting jobs, Google Cloud, building large models, doing feature engineering and trying to predict and get like 2 basis points of alpha on E-minis. And it was a very fun and competitive experience, but also ultimately not a rewarding one for me personally because 2 basis points on E-minis is just not that exciting even if you put $1 billion through it. What we found in health care was you could -- I could build something kind of over a week and not be measuring percentage point increases in basis points, but in like tens of percent, like I could do something and we'd be improving the efficiency of the process by like 25%, not 2 basis points.

And so that level of progress, the leaps and bounds that we're able to make in health care was very exciting to me. And so where we're furthest along, we've been developing this for 7 years, even before ChatGPT or LLMs or even a thing are primarily in our payer tools business. So 90% of our claims are automatically adjudicated without human intervention. Over 70% of our prior auths are automatically approved. Nothing denied, of course, via AI. And even for those who require human intervention, we're giving tools to our nurses and our medical directors to allow them to make decisions much more quickly.

For example, we now have tools that kind of aggregate all the data, both structured and unstructured data about a patient and our teams can actually ask questions to that patient record. So they can type in, hey, does this patient have CKD? And the AI will scan through OCR, the documents necessary, scan through all the documents, figure out which things are supportive of that diagnosis or even find the page where the 1,000-page PDF that exists and then give all the citations and the nurse or the medical director and click in, automatically scan to the right page in the PDF and apply their own human judgment as to whether the AI was correct or not.

Again, nothing is automatically denied using AI. So on the per tool side, a lot of really great improvements. And increasingly, on the care management side, we built our own care management platform, which risk stratifies our patient populations and also handles a lot of the low-value tasks that allow patients -- or that allow our teams to operate at the top of their license.

So for example, making calls to patients automatically in a post discharge or reaching out to patients for their annual wellness visits, things of that nature are all now conducted by AI versus having a nurse have to make those calls despite them being able to do much more with their knowledge.

Right. Well, with that, we're out of time. So Brandon, thank you so much for joining us here today. Please enjoy the rest of the conference.

Thank you, everyone. Thanks, Andrew.

Good morning, everyone, and welcome to Astrana Health's Fourth Quarter and Year-End 2025 Earnings Call. [Operator Instructions]. Today's speakers will be Brandon Sim, President and Chief Executive Officer of Astrana Health; and Chan Basho, Chief Operating and Financial Officer.

This press release announcing a stronger health results for the fourth quarter and year ended December 31, 2025, is available at the Investors section of the company's website at www.astranahealth.com. The company will discuss certain non-GAAP measures during the call. Reconciliations to the most comparable GAAP measures are included in the press release. To provide some additional background on its results, the company has made a supplemental deck available on its website.

A replay of this broadcast will be available at Astrana Health's website after the conclusion of this call. Before we get started, I'd like to remind everyone that this conference call and any accompanying information discussed herein contains forward-looking statements within the meaning of the safe harbor provisions Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terms such as anticipate, believe, expect, future, plan, outlook and will and include, among other things. Statements regarding the company's guidance, continued growth, acquisition strategy, ability to deliver sustainable long-term value ability to respond to the changing environment, liquidity, operational focus, strategic growth plans and acquisition integration efforts.

Although the company believes that the expectations reflected in these forward-looking statements are reasonable as of today, those statements are subject to risks and uncertainties that could cause the actual results to differ materially from those projected. These can be no insurance, but those expectations will provide to be correct -- will prove to be correct. Information about the risk associations with the investing in Astrana Health is included in the filings with the Securities and Exchange Commission, which we encourage you to review before making any investment decisions.

The company does not assume any obligation to update any forward-looking statements as a result of this new information, future events, changes in market conditions or otherwise, except as required by law. Regarding the disclaimer language, I'd like you to refer to Slide 2 of this conference call presentation for further information.

With that, I'd like to turn the call over to Astrana Health's President and Chief Executive Officer, Brandon Sim. Brandon, please go ahead.

Good morning, and thank you for joining us today. Astrana delivered another year of record revenue, adjusted EBITDA and free cash flow extending our track record of consistent performance. In a year marked by regulatory recalibration, industry cost pressure and broader market volatility. Our model performed exactly as designed, demonstrating stability, predictability and operating leverage.

Our mission remains clear, to deliver high-quality, high-value and accessible care to communities nationwide. We are building the nation's leading patient-centered payer-agnostic health care platform and our results reflect the advantages of that strategy. By empowering providers to deliver the highest quality care at the lowest total cost, we create durable value for patients, physicians, payers and shareholders.

The predictability of our delegated risk model, combined with our integrated care model, diversified payer and market exposure and technology-driven leverage, provides clear visibility into long-term scalable growth. Periods of complexity tend to differentially reward operational excellence. In that environment, we expanded deliberately, strengthened our competitive position and further advanced a business designed to compound consistently across cycles.

I'll begin first with highlights for 2025, then turn the call over to Chan to review our financial results and guidance in greater detail, before we open the line for questions.

In the fourth quarter, total revenue was $950.5 million, increasing 43% year-over-year and adjusted EBITDA was $52.5 million, up 50% year-over-year. For the full year of 2025, revenue reached $3.2 billion, adjusted EBITDA totaled $205.4 million, free cash flow was $104.5 million and non-GAAP adjusted EPS on a fully diluted basis was $2.20, each a record for the company.

Stepping back, since 2019, through multiple regulatory cycles, evolving risk-adjusted models, varying macroeconomic and cost trend conditions and the global pandemic, Astrana has grown revenue by 467% representing a 34% compound annual growth rate. Over that same 6-year period, adjusted EBITDA increased 279% or 25% annually and free cash flow grew 727% or 42% annually.

Taken together, this performance reflects the remarkable consistency and scalability of our model. It underscores the strength of our fully delegated care approach, where aligned physicians, discipline to risk management and the purpose built technology and AI-driven platform work together to deliver predictable clinical and financial outcomes over time. This sustained performance is the result of deliberate execution against a clear strategic framework quarter after quarter.

First, we continue to grow membership deliberately. We ended the year serving 1.6 million members in value-based care arrangements driven by sustained demand from both payer and provider partners for coordinated accountable care. Our expansion remains measured, grounded and disciplined underwriting and aligned partnership across all of our markets. We focus on cultivating physician leadership, partnering with high-quality payers and deploying the Astrana care model, enabled by our technology and AI-driven infrastructure to scale with visibility and control.

That disciplined approach was reflected in a constructive annual enrollment period with mid-single-digit growth in Medicare Advantage membership year-over-year, supported by strong alignment with our payer partners. More broadly, that disciplined growth translated into strong performance across both our core and expansion markets. California revenue grew 50% year-over-year, reflecting continued strength in our foundational markets.

Outside of California, revenue grew 90% year-over-year, as newer markets scaled. At year-end, approximately 19% of total revenue was generated from membership outside California reflecting continued geographic diversification and the progressively more balanced revenue base. Importantly, this growth is anchored in strong provider engagement across the platform, with high retention and disciplined provider network expansion.

Second, our growth continues to be anchored in disciplined risk progression. For more than 30 years, we have taken a measured approach to assuming full risk, entering arrangements only when rates are aligned with underlying medical cost trends. And when the data infrastructure and clinical programs are in place to manage that risk responsibly. That philosophy underpins the long-term stability and predictability of our business. In the current environment, some participants have responded to elevated medical cost trends in the industry by retrenching from risk exposure, that can be prudent when rate alignment or operational readiness is constrained.

But our model was designed to operate through complexity. Our performance is driven by care delivery infrastructure, technology and physician alignment, not by coding intensity or arbitrage. We prioritize repeatable economics over transient performance. The strength of our care model, payer relationships and technology platform enables us to secure appropriate economics and manage medical cost volatility across cycles with discipline and predictability.

As a result, we are able to expand thoughtfully into full risk structures even as others recalibrate. We are still on track for approximately 80% of our revenue and more than 36% of our own membership to be in full risk arrangements by the end of the first quarter 2026, reflecting alignment with patient outcomes while maintaining clear control over the pace and structure of that risk assumption.

Consistent with prior commentary, several full-risk contracts that were expected to commence in mid-2025 instead began in early 2026 as part of the coordinated implementation process. The economics of those arrangements were agreed in line with our underwriting standards, and we are seeing encouraging early performance as they come online.

Third, we continue to deliver strong clinical outcomes while maintaining disciplined control over medical cost trend in 2025. Across both our legacy Astrana and legacy Prospect businesses, medical cost and utilization trends remained well controlled in both the fourth quarter and full year. Legacy Astrana performed slightly ahead of our projected 4.5% cost trend, and legacy Prospect met expectations. This performance underscores the durability of our delegated care model and our ability to manage medical cost volatility across diverse populations.

Engagement remains the core driver of performance. Annual wellness visit completion rates approached 80% in our legacy Astrana markets with meaningful games in newly integrated prospect populations. This level of engagement enables earlier intervention, tighter care coordination across care settings and more predictable cost management. These outcomes are powered by our proprietary platform, which embeds real-time insights, next best action workflows and automated authorization processes directly into provider and care team workflows, increasingly supported by AI agents.

More than 2/3 of prior authorizations are automatically approved, improving access while reducing administrative burden. Within our delegated risk model, providers operate with transparent performance data and financial alignment, reinforcing accountability at the point of care. Importantly, technology engagement directly translates into measurable performance. Engaged providers using our internally platform achieved a 24% higher gap closure rate and a 30% higher annual wellness visit completion rate compared to less engaged providers. These differences translate into stronger quality performance and more consistent financial results, and we expect similar improvements over time as newly integrated populations dock our platform.

We see this translate into predictable cohort maturation in our expansion markets. Southern Nevada achieved run rate profitability in 2025 with a 20% year-over-year improvement in medical loss ratio. This improvement reflects the scalability of our delegated care model, which we have observed across prior expansion markets. As we launch our full risk delegated model in Texas this year, we expect to see a similar maturation curve over time.

Fourth, our Astrana care enablement technology platform continues to drive meaningful operating leverage across the enterprise enabling disciplined, capital-efficient growth in new markets while expanding margins within our existing business. On the growth side, our platform makes the J-curve shallower and accelerates time to profitability as we scale into new markets by standardizing and automating workflows, accelerating clinical integration and embedding real-time data and risk infrastructure from day 1.

This was demonstrated by the successful onboarding and integration of a new care enablement client and its affiliated hospital at the beginning of the year. We also launched a fully delegated partnership with a large payer partner in Texas on January 1, expanding our delegated Medicare Advantage footprint with limited incremental overhead.

Within our existing operations, we continue to drive measurable efficiency gains. G&A as a percentage of revenue was 6.8% in 2025, down 75 basis points year-over-year despite $26 million of onetime transaction-related costs and down 110 basis points on an adjusted basis. This reflects operating leverage embedded in our platform as revenue scales, and we believe our model supports continued EBITDA margin expansion as we scale revenue and continue to embed AI-driven automation across the enterprise.

In combination, these 4 pillars, disciplined membership growth, measured risk progression, consistent clinical execution and technology-driven operating leverage, form a model that is structurally positioned to expand margin and share across cycles.

Before turning it over to Chan, let me briefly address 2 important items.

First, on Prospect. Integration remains on track and continues to validate the strategic rationale for the transaction. During the fourth quarter, we completed the standardization of financial reporting across the combined organization, established live visibility into medical economics and utilization trends and aligned clinical workflows and organizational structure under the Astrana care model. As a result of this progress and early performance, we now expect to achieve the high end of our previously communicated $12 million to $15 million in annualized synergies over the coming quarters.

Provider engagement has remained strong throughout the integration. More than 6 months after closing, we continue to see over 97% gross retention among prospect primary care physicians. This level of stability reflects strong continuity of provider relationships and alignment with the Astrana model.

Looking ahead, I would also like to address the 2027 Medicare Advantage advance rate notice. While the industry level rate update was approximately flat, our preliminary analysis suggests that the impact to Astrana is expected to be meaningfully more favorable than for the industry at large, reflecting the structure of our care model and strengthening our competitive position in the current environment.

First, we do not rely on audio-only visits or unlinked chart reviews for risk adjustment. CMS has estimated that the disallowance of the diagnosis sources represents a 1.53% headwind to the industry. But given our encounter-based longitudinal delegated care model, we expect our exposure to this change to be minimal.

With respect to the risk model revision and normalization, CMS estimates an industry headwind of 3.32%. Based on our initial actuarial review of the updated risk model coefficients, we expect a materially lower impact than the industry-wide estimate, given our historically conservative approach to risk adjustment and our emphasis on preventive care, quality performance and medical cost management. More broadly, this environment favors organizations that generate performance through clinical execution and disciplined cost control rather than coding intensity. That is precisely how Astrana operates.

As regulatory changes level the playing field with respect to risk adjustment, we believe the strength of our clinical infrastructure and technology platform positions us to widen our advantage over time. Over 3 decades and multiple regulatory cycles, we have demonstrated consistent growth and sustained profitability. That track record gives us confidence in the durability of our model and the diversity of our revenue streams.

As we enter 2026, we expect continued disciplined membership growth, measured risk progression, stable medical cost performance and further operating leverage from our technology platform. We are operating from a position of structural strength. Our platform is designed to expand margins, generate consistent free cash flow and gain share across regulatory cycles. Our history demonstrates that resilience clearly. In an environment where underwriting discipline, physician alignment and clinical execution matter more than ever, we believe Astrana is structurally advantaged.

We see opportunity, not constrained, to continue compounding growth and advance our mission to provide high-quality, high-value care to the communities we serve.

With that, I'll turn the call over to Chan to review our financial results and outlook in greater detail.

Thank you, Brandon, and good morning, everyone.

Our fourth quarter and full year results reflect disciplined execution during a period of significant scale and integration. We successfully closed the Prospect Health acquisition while continuing to invest in our platform and maintaining solid performance across the legacy Astrana and Prospect businesses.

Before turning to the financial highlights, I wanted to address our annual report filing time line. We will be filing a Form 12b-25 due to a material weakness in internal controls over financial reporting related to acquisition and purchase accounting processes. The matter relates to the timing and documentation of certain controlled procedures. The financial results reported today are in accordance with U.S. GAAP and the matter did not result in any material misstatement or restatement of prior periods.

We have already implemented enhancements to our accounting processes and expanded our team's resources, and we'll continue to invest in the accounting function in order to complete remediation on an expedited basis. We expect to file the 10-K within the 15-day 12b-25 extension period. We're pleased with the performance of the business in the fourth quarter and full year of 2025.

Total revenue for the fourth quarter was $950.5 million, up 43% versus the prior year quarter, driven by the full quarter contribution from Prospect and continued organic growth in our Care Partners segment. For the full year 2025, revenue was $3.2 billion, representing a 56% year-over-year growth and at the high end of our guidance range. Adjusted EBITDA for the fourth quarter was $52.5 million, up 50% versus the prior year period. Adjusted EBITDA for the full year was $205.4 million, up 21% year-over-year.

Medical cost performance in the quarter for both legacy Astana and legacy Prospect remained well controlled for both and slightly better than our expectations, continuing to reflect the differentiated outcomes of our fully delegated technology-enabled care model.

For the fourth quarter, net income attributable to Astrana was $6 million and earnings per share was $0.12 compared to negative $0.15 in the prior year period. Adjusted earnings per share for the quarter was $0.54 and for the full year 2025 adjusted earnings per share was $2.20.

Turning to cash flow and the balance sheet. For the full year 2025, free cash flow totaled $104.5 million, with an over 50% conversion rate relative to adjusted EBITDA. This exceeded the high end of our previously communicated conversion range and reflects strong underlying cash generation. We continue to expect strong free cash flow growth into 2026 as new full risk contracts ramp, working capital normalizes and integration-related investments decline.

We ended the quarter with $429.5 million of cash and $648.7 million of net debt. Our net leverage ratio on a pro forma basis was 2.6x. We continue to expect meaningful deleveraging over the next 12 months through profitable growth, free cash flow generation and disciplined debt reduction. During the fourth quarter, we repurchased approximately 634,000 shares at an average price of $22.23, reflecting our disciplined capital allocation framework and confidence in the long-term value of the business. In addition, the Board has increased the maximum aggregate amount of shares that may be purchased on the company's existing stock repurchase program from $50 million to $100 million. The company may determine to continue to make repurchases under the program following the filing of the 10-K.

Entering 2026, we expect continued revenue growth and adjusted EBITDA expansion driven by growth across our core and expansion markets, ramping full risk contracts, realization of prospect synergies and sustained cost discipline. While medical cost trends remain elevated across the industry, our disciplined contracting approach, diversified payer mix and proven clinical model position us to manage these pressures while preserving margin discipline and cash flow generation.

For the full year 2026, we expect revenue in the range of $3.8 billion to $4.1 billion, adjusted EBITDA between $250 million and $280 million and free cash flow between $105 million and $132.5 million. For the first quarter of 2026, we expect revenue between $900 million and $1 billion and adjusted EBITDA between $60 million and $70 million. The midpoint of 2026 guidance reflects our operating plan. The low end assumes a stacked downside case rather than a shift in underlying execution or operating trajectory.

Our guidance reflects a deliberately prudent planning framework. On the headwind side, we have embedded expected declines in Medicaid and exchange enrollment, adverse selection associated with expected Medicaid and exchange disenrollment, losses associated with new cohorts in expansion markets, incremental new market entry costs, conservative medical cost trend assumptions and 0 contribution from the California Hospital Quality Assurance Fund or HQAF.

On the tailwind side, we have modeled improved 2026 Medicare Advantage rates, realization of Prospect synergies, continued maturation of full-risk cohorts and ongoing operating efficiencies driven by automation and AI deployment. Performance to the higher end of our range would be driven primarily by medical cost trends, outperforming our conservative assumptions, lower than modeled Medicaid and exchange disenrollment, stronger-than-expected new market maturation and potential continuation of the HQAF program.

Taken together, our guidance reflects disciplined underwriting, embedded conservatism and confidence in the durability and scalability of our operating model.

With that, operator, we are happy to take your questions.

[Operator Instructions]. Our first question is coming from Ryan Daniels from William Blair.

This is Matthew on for Ryan. So given that you finished this year with cost trends in line with expectations for the legacy Astana business and the Prospect health business, what are the expectations of cost trends for 2026? And I know in your prepared remarks, you talked about the conservative cost trend you took for 2026, but if you could share a number, that would be great.

And then how are you expecting the cost trends across the different patient segments for 2026? If you could provide some color into what went into the cost trend guide for the different patient segment and expentations, that would be great?

Thank you for joining the call, and please tell Ryan, hello. On 2025, as we mentioned on the call, we did come in slightly ahead of expectations for our trend, which you may recall was in the mid-4% range blended across our lines of business. Going forward in 2026, we are conservatively embedding assumptions of just over a 5% trend, a slight increase due to our expectations, as Chan outlined in the prepared remarks, of potential Medicaid and disenrollments as well as potential adverse selection related to those disenrollments.

However, we do expect the trend continues to be well controlled in that mid-single-digit range. And our estimates and guidance are predicated on that conservative trend assumption. In terms of per line of business split of that trend assumption, similar to 2024 -- sorry, similar to 2025, we expect Medicare Advantage to be slightly lower than that and Medicaid and commercial and HICS to be slightly higher than that. Hopefully, that helps.

Our next question is coming from Michael Ha from Baird.

On the 2026 EBITDA guide range, 250 to 280 gives a little bit wider than your typical cadence. I know Chan you listed out the headwinds and tailwinds, but I'm trying to get a bit more comfort on the bridge. So I was wondering if you could provide an extra quantification? The way I'm thinking about it is 2 or 5 jump off, you get the full annualized Prospect, so now you're up to, call it, 246, get about $15 million, if I'm not mistaken, coming back from those negotiated full-risk contracts, so you're at 261. That's what I can bridge so far.

The pieces I can't quantify are like how much of $12 million to $15 million prospect synergies, can you realize this year? Expected G&A improvement from the AI efficiency? And then lastly, those expected exchange and Medicaid headwinds, how much is in your guide? And how much offset is from positive MA rates, organic growth? Just more color there and whether you think I'm missing any notable pieces?

Thanks for the question. This is Brandon. With regards to the range of the guide, we do believe it's consistent with past ranges. I believe last year range was around just over 10% of the guidance. This year, it's also actually both around 11%. So it's a similar percentage as the range percentage of -- the ranges of similar percentage of midpoint that is. That being said, happy to provide more color on the earnings call bridge. .

We ended the year just above 205 and adjusted EBITDA. There's obviously the run rate full year impact of Prospect as well as synergies coming in on the high range of the 12 to 15 annualized we expect in the high single digits contribution for the 2026 full year because of the phasing in of those synergies over time. We also expect in the mid-$20 million range in terms of full-risk conversion and contract rates as well as $5 million to $10 million high single digits in terms of expansion market improvements.

We expect in the tens of millions, happy to quantify that more as well on Medicare versus acuity, and that's a tailwind, not a headwind. On the headwind side, however, in terms of Medicaid enrollment and the rate acuity mismatch, we are expecting a approximately 1% to 1.5% negative spread on Medicaid rate acuity as well as conservatively assuming 10% to 15% Medicaid disenrollments throughout the year. And so doing the math there, that's a, call it, a negative $20 million-or-so impact and perhaps another mid-single-digit impact for HIX enrollment and mix.

If you -- there are some other puts and takes including, as Chan mentioned, assuming $0 for the quality assurance fund for the hospital, which is a mid-single-digit impact as well. And so adding all of those together with some puts and takes around the edges, you do get from the 205 number to the midpoint of guide, which is 265. And as Chan implied on the prepared remarks, the low end of that range really is a stacked downside case. It assumes that all of the variables are negative at the exact same time. And we view the midpoint of the range, as Chan mentioned, to be more reflective of our operating plan at this time.

Our next question today is coming from Jailendra Singh from [indiscernible] Securities.

I want to follow up on your comments around 2027 MA advanced notice. Are you willing to put a stake in the ground in terms of what's the all-in rate update mean for you guys, like the advance notice? And in the event rates don't improve in the final notice, hopefully, they do, but if they don't improve, how do you think about your ability to hit your 2027 EBITDA target? My point is that where we stand today, just wondering if you still feel good about that $350 million target?

Thank you for the question. On the Medicare Advantage rate notice, as I mentioned in the prepared remarks, we do believe that Astrana will be less materially impacted or will be more positively impacted that is from the impact of the versus the industry at large.

As I remarked, the 1.53% that CMS has embedded as an industry average is not something is related to disallowed diagnoses that Astrana does not rely on for its risk coding practices. And as we mentioned in the past, Astrana's risk adjustment factor across its Medicare Advantage membership is just over 1.0, which is the national average for Medicare Advantage. And so the risk model renormalization and the risk model coefficients which were published along with advanced rate notice are not a 3.5% or 3.3% headwind as CMS suggested on average for the industry.

A reminder that these 3.32 and 1.53 numbers are industry averages, not necessarily the impact for any given organization. And so when our actuarial team, for example, used the newly modeled -- the newly revised risk model coefficients. On our HCC profiles, we found that in combination with the renormalization factor, that was not as large of an impact. We're not willing to necessarily quantify that at the moment because these risk factors could obviously still change.

The coefficients could still change. And our HEC behavior for our providers could change. But we do believe it places a great floor for us in terms of the maximum negative impact that this could have for us. If nothing changes about the advanced rate notice, as you asked, we still believe that rates should be a positive 2.5% to 3% as it relates to Astrana as an organization, which given our industry-leading ability to control Medicare Advantage cost trend, should position us for either a margin flat or only slightly margin dilutive year even in 2027, even in the face of contracting rates for the industry at large. This is not even including changes that payers may make such as changes to benefit, design or reducing benefits in order to protect their profitability pools.

With regards to the 2027 guide, we continue to believe that the 2027 guide is within the range of outcomes. That being said, much has changed in the world since we put that guidance out, I think, over a year ago now. And we will continue to operate the business in a rational way in order to optimize for medium and long-term value.

Our next question today is coming from Craig Jones from Bank of America.

Great. So maybe to follow up on what we think might happen on the final rate notice, Brandon. So we saw like comments on UNH indicating that the 5% trend, CMS should be 9% to 10%, even like MedPac seem to indicate it might be going higher. Do you have an opinion on what that rate should have been for the national average? And then maybe what you think CMS will actually end up doing for the final notice?

Thanks for the question. We have been working very hard along with other organizations to advocate for a constructive rate notice environment so that we can continue providing great care with great value to American citizens. That being said, it's hard for me to prognosticate necessarily. We do believe that the effective growth rate should be in the high single-digit range. And we have been in contact with CMS in order to inform them of those views and explain how the actuarial analysis and the math might support that view.

That being said, it's very difficult for me on this call to predict what would happen. But I would say that we would agree with industry consensus that the effective growth rate should be in the high single digits. That being said, we are very supportive of efforts to reduce risk coding as a differentiated and competitive advantage. We believe that clinical efficacy and efficiency should be the competitive advantages that organizations have when taking risk rather than risk model gamification. So we are generally broadly supportive of changes to the risk model to make the playing field more equitable and fair for all care reorganizations.

Our next question today is coming from David Larsen from BTIG.

Congratulations on a good quarter and year. Can you talk a little bit more about Prospect? It's sort of my understanding that this hospital that you now own, a portion of it is Astrana members where you are bearing risk. What percentage of prospect revenue and earnings is fee-for-service versus risk? And then within that risk pool, how are your margins coming along? And can you just remind us of the expected EBITDA contribution from Prospect?

David, thank you for the question. You're right in that there is one acute care hospital, which we report as part of the Care Delivery segment. That being said, the vast majority of Prospect revenue is from the -- it maps to what we would call the Care Partners segment and has been reported in the Care Partners segment similar to the legacy Astrana business. And so it is not a large portion of the Prospect revenue that is fee-for-service.

I would say approximately 10% to 15% is see-for-service is my guess, and I'll have that confirm for you. That being said, I think that Prospect integration continues to be strong. As I mentioned earlier, provider engagement is extremely strong and retention is strong with over 97% gross retention among prospect PCPs. And the hospital operates in a very much managed care setting, which means that it is serving Prospect, now Astrana on membership, as well as membership from other managed care organizations in a way that allows us to optimize for quality of care as well as deliver value for our physicians, our patients and our payer partners.

Our next question today is coming from Ryan Langston from TD Cowen.

This is Christian Borgmeyer on for Ryan Langston. Could you provide color on the nature of those AI tools that represent the tailwind for 2026? And then how are you thinking about sort of the AI opportunities for Astrana over the next couple of years beyond 2026?

Thanks for the question. First, clarifying my comment on the last question, it's actually closer to the 10% number. So very similar in terms of fee-for-service versus value-based revenue percentages to the legacy Astrana business.

On the AI question, we're very excited about the AI tools that are being developed on a day-to-day basis here at Astrana Health. Of course, I'd first want to comment that there is an escalating -- or in other parts of the country where payers and providers are not as seamlessly coordinated in a unique delegated risk model, such as the 1 that we run here at Astrana, there is an escalating war, so to speak, in terms of using AI to increase reimbursement and selectively push down reimbursement.

We believe that these are nonproductive items for the American health care system. We believe that we must use AI to fulfill its promise and a layer of lowering health care costs, not increasing it. And that's been the focus for us as we develop the tools here at Astrana. As a reminder, we have over 100 U.S.-based data scientists, machine learning engineers, AI engineers, software engineers and staff supporting our AI efforts to build a fully proprietary platform using state-of-the-art AI technology that's being developed on a day-to-day basis.

Our AI software platform includes automated tools for payer-related functions, such as automating and approving prior authorizations much more quickly and giving members prior authorization approvals in hand, on their phones or in a text message during the visit itself or right after the conclusion of the visit, so that they have access to specialty and follow-up care immediately. We are building -- we have built AI tools for automatically processing and adjudicating claims as well as ensuring that fraud, waste and abuse is minimized in terms of the revenue cycle and reimbursement process. And we've also built AI tools around other parts of the payer delegated functions such as credentialing, eligibility and more.

On the provider-facing side, we built a suite of AI tools that allow providers to have access to real-time data and insights, both at the point of care and for our care teams so that there is continuity of care between episodic visits which is consistent with the Astrana care model and longitudinal care model that we've developed for over 30 years here at Astrana. That means that patients have access to -- sorry, providers have access to next best action workflows, they have access to real-time claims and utilization data as well as real-time insights into where patients might be high risk in their given panels.

That same information is also piped to our care teams, hundreds of clinical staff that we employ that also take care of members, engage them post discharge, engage them in transitions of care and ensure that they're being routed appropriately in the right time frame to the appropriate side of care. And in aggregate, we believe that this AI infrastructure that we built not only allows us to execute our care model in a consistent and scalable way from market to market, including our expansion markets, but also allows us to reduce G&A over time, which is shown in the over 100 basis points of adjusted G&A improvement on a year-to-year basis, even as revenue grows very strongly year-over-year.

We're very excited about the potential going forward, and we expect further G&A improvements as a percentage of revenue as well as consistent scalability and cohort maturation in our expansion markets.

Our next question today is coming from Matt Shea from Needham & Company.

I wanted to touch on the care enablement business. Last quarter, you talked about a robust pipeline here. Would love to get an update on that. Maybe comment on the win to start the year? And are there any other late-stage deals in the pipeline that might convert in 2026 or any deals contemplated in the guide? And then on the gross margins, how should we think about the right level for the care enablement business? Can we get back to 50% plus? Or is this lower level sort of the near-term expectation for the combined business?

Thanks for the question. On the care enablement business, we are pleased to have onboarded the new client, that we discussed last year smoothly, at the beginning of this year. There continues to be a pipeline for care enablement clients. These are obviously longer sales cycles given the extensive nature of the integration and moving infrastructure to the Astrana Health infrastructure. That being said, we do think that there are -- there is a strong pipeline of care enablement clients, and we continue to actively develop that business.

On EBITDA margins, we do think that over the last couple of quarters, we have operated at the 20% to 25% EBITDA margin range, and we expect that to be the correct EBITDA margin range going forward for the care enablement business.

Our next question is coming from Andrew Mok from Barclays.

You mentioned Medicaid and disenrollment as drivers of the higher trend this year. Can you share what you're expecting from a disenrollment perspective for each of those business lines? And what level of visibility you have into those declines at this point in the year?

Thanks for the question, Andrew.

On Medicaid, I think I mentioned in an earlier answer -- on Medicaid, we are expecting in the -- approximately around the 10% range disenrollments, plus or minus a few percent in terms of our base and kind of more aggressive cases as well as some rate acuity mismatch due to potential adverse selection baked into our 2026 guidance.

On we're expecting in the low tens of percentages of decline. And of course, we're not necessarily seeing that at the moment, but that could change as automatic enrollees see the higher premiums, and we're actively watching that concern.

On Medicaid, we are actively seeing enrollment on a monthly and real-time basis. Historically, we have lost members in Medicaid due to some of the effects of at around 0.5% to 1% a month, and that's the assumption going forward as well.

Our next question today is coming from Matthew Gillmor from KeyBanc Capital Markets.

I wanted to follow up on the prospect integration, but more focused on the member engagement metrics. I think Brandon mentioned that legacy Astrana wellness visits is up to 80% and prospect is gaining. Can you give us a sense for the AWD improvement you're driving at Prospect? What are some of the key systems and processes that are behind that? And how that might affect cost trend in your results in 2026 and beyond?

Sure thing. Thanks so much for the question. On Prospect, while it is early, we closed the deal in July of 2025, we already merging the 2 organizational structures on the clinical side and the quality teams. We're ensuring that they are engaging in the exact same care processes. They are using our technology platform to ensure that they understand and or that we understand where the gaps in care are for our patients and using our engagement tools such as our automatic calling systems, our care delivery sites and the legacy Prospect care delivery sites in order to get out in front of the patients and into the community to encourage higher annual visit rates.

And to be clear, it's not that Prospect was doing -- legacy Prospect, that is, was doing a poor job in engaging members, they've been running a very successful business, had to run a very successful business for over 30 years as well and a profitable one also with high quality. And so I think with the combined strength in infrastructure and technology enablement of our platform, we really will expect strong annual wellness visit, engagement and quality score growth in the legacy prospect business.

That being said, it's a bit early to share numbers, but we'll certainly be sharing that as the year progresses. And as a reminder, we do continue to expect on the high end of the range in terms of synergies because of the advanced state of the integration thus far.

Your next question today is coming from [ Jean Mannheimer ] from [ Freedom Capital ].

Congrats on a good finish to 2025. I just wanted to ask, with respect to the guidance, is there any seasonality to it that you want to call out in particular, and is this guidance all organic, that is to say, is there any tuck-in M&A contemplated?

Thanks for the question, [ Jean ]. To answer latter question first, there's no planned M&A in the currently provided 2026 guidance. While the company reserves the right certainly, and we are seeing a lot of opportunities in the market at this time, we will evaluate these opportunities as well as the opportunity to buy back our own stock according to our capital deployment guidelines and models internally from the finance team, but there is no M&A currently embedded in the 2026 guidance. .

In terms of the cadence, we expect, as in prior years, that the third quarter is a stronger quarter than the other quarters. We also guided to Q1 as well. And so we expect that cadence to hold up into the remainder of this year here.

We've reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thank you very much, operator. Thank you for everyone for joining the call. We believe that our delegated care model is built to compound through complexity. We're excited to take on this year and for the opportunities that abound, and we look forward to continue creating value for our patients, our providers, payer partners and shareholders.

If you have any questions, please feel free to reach out to investors at astranahealth.com, and have a wonderful week. Thank you.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Hi, everyone. We are going to get started. So if you could take your seats. Wonderful. Thank you so much.

Good afternoon. My name is Abbey Stanley. I am an associate on the healthcare investment banking team based in New York. And it is my privilege and honor to be here with you all today and introduce Astrana. Today, we are going to have Brandon Sim present, and then that will be followed by a Q&A where CFO, Chan Basho will also be joining us, and he is the Chief Operating and Financial Officer.

So with that, I will pass it off.

All right. Thank you, everyone, for joining us late in the afternoon here. I am recovering from some laryngitis, so I'm going to try to push through for the rest of this presentation, but thank you again.

So I'm here representing Astrana Health, which is a value-based provider organization. Of course, we'll start with some standard SEC statements. And of course, nothing here is to be construed as financial advice. And I'll start officially by saying that I think everything that -- something that everyone in this room already knows, which is that the existing U.S. healthcare infrastructure is fundamentally broken. And it's broken on 3 axes.

One, it's not accessible for patients. Despite spending almost 20% of our GDP on healthcare, as we all know, it's very difficult for patients to get timely, high-quality and accessible health care, both primary care and inpatient care.

Secondly, on satisfaction, it's fundamentally broken for both patients and providers. Providers are dealing with an infinite feeling number of touch points. Patients can't get access to provider networks as they -- as I mentioned earlier, and patients are bouncing back and forth between a fragmented and uncoordinated system.

And finally, something that's near and dear to my heart, it's very limited in terms of technology and coordinated care. And that's where this is a lot of where Astrana comes into play.

What we here at Astrana do is we transform that status quo fundamentally into coordinated, aligned networks that genuinely provide better care and outcomes for patients while aligning financial outcomes in a way that allows value to accrue to Astrana and its shareholders.

On the left, you'll see the status quo payment model. Each provider is contracting separately with different payers. They are receiving typically fee-for-service payments where they're being paid based on volume, not outcomes. And on the right-hand side, you'll see what the Astrana health model is. Instead of all the payers in a multi- to multi-relationship contracting with providers, that entire layer of reimbursement is being subsumed by a single payer or pseudo single payer delegated model that Astrana operates through the technology and care coordination platform that we've built.

What that means is that all of the dollars that the payers might have paid providers directly in this way on the left side of the page, all flow first to Astrana, and Astrana then manages and operates that downstream provider network, coordinates the delivery of care for its members and ultimately generates better outcomes and hopefully, financial savings for itself and for its payer partners. And really, this creates 3 flywheels essentially that lock in members, providers and payers into that ecosystem that I just described.

For members, we're able to engage members longitudinally across their lifetime, whether they're Medicaid members, commercial members on the ACA exchanges or our seniors in Medicare and Medicare Advantage. We can invest in them proactively throughout their life because they are delegated to us through the single payer model regardless of what payer they're with or regardless of what line of business they're with.

What that means in addition is that we have the unique financial ability to make investments in a patient's health in a preventive fashion more so than any payer could possibly do. Take, for example, a hypothetical situation in which we could invest, let's say, $1,000 into a patient's health. And we know for a fact, someone could tell -- an Oracle or God could tell us that, that would save $100,000 of cost in 10 years. It seems like a no-brainer to do. But for any given payer, they may not want to do that because they don't know if that patient will even be their financial risk in 10 years. In fact, they might have spent $10,000 a day to save their largest competitor $100,000 because they happen to have a better benefit design in 9 years when AEP rolls around.

We don't have to worry about that issue because we follow members longitudinally regardless of what payer they're with because of that single payer infrastructure that we've built. The investment that we make in our patients' health has a much higher likelihood of accruing to us in the future. And even if you look at it from a purely economic standpoint, not to mention the obvious moral and kind of societal benefits of this, the present value, so to speak, of that future deferred cost is going to accrue to us at a much higher rate than it might for any given payer.

So we think that the place to build this kind of care coordination model, the place to build this infrastructure is where we have built it, which is as this third-party neutral single payer model that sits outside of any given payer.

For a provider, there are obvious reasons to partner with Astrana. Providers in our ecosystem don't have to worry about the popery of relationships, touch points, reporting and analytics overhead that they might have to on a fee-for-service basis with each individual plan. Instead, they interface with one payer, Astrana. All of their payments come from Astrana, all of their prior auths are approved by Astrana. All of their claims payments are sent to and they receive payments from Astrana. And so there's a much lower burden in terms of administration, and we're supporting them with our clinical teams, over 1,000 clinical members and care managers at the corporate level in order to help them manage the patient, not only on an episodic basis when they come into the clinic for an encounter, but also in between visits as well.

And finally, payers want to partner with Astrana as well. We're helping them reduce the volatility on their medical cost ratio. We're helping them bend the cost curve. We're helping them take risk on populations that they find perhaps troublesome on their own. And ultimately, over time, we're helping them grow differentially because we're providing a great experience to their members.

And I won't go over all the details of this slide, but you might ask, well, if it sounds like such a great model, why are all the other folks who have done this not doing so far? And a big reason is because they aren't doing it exactly the way that we are. A lot of folks who have taken on value-based contracts in the recent 3 to 5 years have taken on value-based contracts without any visibility into contracting, UM, claims payment and without ultimately acting as a single payer, but rather as a financial intermediary that's bearing risk essentially blind. They don't have the ability to see where the members are using -- are utilizing care. They have no ability to understand what the unit cost of that utilization is. And ultimately, at the end of the year, literally at the end of the year, they're handed the bill saying this is how much you owe the payer because of the utilization that happened throughout the year. And oftentimes, by the way, that doesn't even happen at the end of the year, it happens 6 months after the end of the year, which leads to huge retroactive payments or negative prior period adjustments.

In our model, not only are we responsible for financial risk and managing the downstream networks, we're also responsible administratively for all of the things you might associate with the payer. So on the bottom here, you'll see we actually contract all of our networks, both provider -- primary care specialists and inpatient. We credential our networks. We process prior authorizations for our networks. And ultimately, we pay claims using the dollars that the payers give us on a monthly basis.

And this is a model that many people thought was just a California model. And indeed, we did start in California. It's a good guess. On the left side here, you'll see an example of one of our very first markets in the San Gabriel Valley, just east of Los Angeles. And you'll see the model really playing out here. We report in 3 different segments, and I haven't gotten to that. But I think hopefully, this image will show just how synergistic those 3 business segments are.

In the green, you'll see our affiliate network, our contracted providers downstream. In the blue, you'll see our care delivery network, which are the employed sites that we actually own and operate under the Astrana Care and affiliate brand. And together, both the affiliate and the employed physicians together provide the chassis for which we provide care delivery in the regions we serve. And you'll notice that the care delivery sites are strategically placed throughout kind of our footprint of where our members and where affiliate providers operate.

And from our start in East Los Angeles, we've grown across the country. On the right-hand side of the page here is an example of that exact same 3-segment business in Southern Nevada, in Las Vegas, for example. You'll see that we have a large number of primary care specialist affiliate providers as well as employed sites located strategically throughout that area. And from 1 to 2, we've gone to -- we've grown to 16 markets across the country today. So primarily throughout the Sun Belt, but also in the Mid-Atlantic and in the Northeast.

And when we implement our care model with the density providers that I showed you on the earlier slides, we're able to drive better access, outcomes and quality for our patients. For example, in our Medicare Advantage population across the board, 67% fewer hospital admissions versus a Medicare fee-for-service benchmark, shorter inpatient length of stay and a vast majority of prior auths automatically approved. So for the members that are in our model, when they go to their primary care doctor, even if they're in an HMO, they're walking out the door with an approved prior auth in hand, oftentimes able to go see the specialist before they even return to their home. And the bottom is kind of a visual walk-through of how that might look for a given patient journey.

And like I mentioned earlier, we also serve members longitudinally throughout their lifetimes. So we have 1.6 million members in value-based care arrangements today, where we're taking on partial or full risk, 20,000 providers caring for those members with over 98% of them retaining or staying with us on a year-to-year basis and a very well-diversified book of revenue as well. Majority Medicare with 61%, but also Medicaid, commercial exchange and other fee-for-service arrangements as well.

And we're not overly concentrated with any one payer either. Our largest payer is just over 1/4 of revenue, but there is a long tail of kind of revenue partners where we have contracts with over 20 different payers.

And at the end of the day, because of this model and the long-term investment we've made in these populations, we've been able to power strong financial results in all utilization environments, whether it's COVID, whether it's V28, whether its high utilization years coming out of COVID, and we believe for the upcoming future as well. As you can see here, in the last 6 years since I've been at the company, we've grown revenue at a 33% CAGR. We've grown adjusted EBITDA at the same time, and we plan to continue growing in the mid-20s in the medium-term.

So now diving a little deeper into how exactly we're doing this. There are really 4 levers that we're pulling, and they're all pretty simple, frankly, either grow membership, you grow revenue per member. And those obviously multiplied together become overall revenue growth. On the cost side, you are controlling the cost trend in terms of medical costs. And finally, you're driving down G&A operating and finding operating leverage in your business. And if we can push revenue up through both membership growth and revenue per member growth, if you can push medical costs down and we can push G&A down, then you have a winning platform for value-based care.

So first, on membership growth. Over our 30-plus year history, we have grown throughout California in a county-by-county fashion. First, as I mentioned, in Los Angeles, but growing into Inland Empire, going into Central California, Northern California, where we are today. We have a clinic actually a couple of miles from here in San Francisco. And then down in Southern California, growing in Orange County and down to San Diego. And we believe now serving most of the metropolitan areas where most of the population of California resides, starting from the San Francisco Bay Area all the way down to the Mexican border.

Now outside of California, we've continued to grow the model as well in both Nevada and Texas and more recently into Georgia, into the Mid-Atlantic and into the Northeast in Connecticut and Rhode Island.

And really, part of the playbook isn't that we claim that we can change medical outcomes within 12 months when we join. That's very challenging and sometimes impossible. Now there are some low-hanging fruit, but generally very difficult to do. But where we really excel is in using the technology platform we've built to first generate OpEx efficiencies, lowering the cost it takes a group to perform all the administrative functions and then taking those savings and dollars to reinvest in clinical programs and nurses on the ground in care management programs, disease management programs and then using those investments over time to generate value in the value-based care arrangements for our payer partners and ultimately for patient -- to drive patient outcomes.

We've also grown inorganically in the past few years. For example, last July, we announced the closing of a large deal that we did, the acquisition of Prospect Health, which was around 600,000 members and value-based arrangements, primarily in Southern California. Integration for Prospect Health remains on track. We've guided to $12 million to $15 million of synergies in the first 12 to 18 months, and we believe we continue to be on track for executing on those cost synergies.

At the same time, on our third quarter earnings call, we had chatted about certain contract renegotiations that we felt were important to have done. And we are happy to say that a large majority of those outstanding contracts have been finalized for Q1 of 2026 start as we had previously guided to.

And finally, on leverage, there's some concern around the elevated level of leverage that we took on by acquiring Prospect, which is a $707 million deal. We had guided that we would get under 2.5x pro forma net leverage to pro forma net debt to adjusted EBITDA within the first 12 to 18 months. And we're happy to say that we've gotten to around 2.5 actually the very first quarter reporting the consolidated entity.

The next item, as I mentioned, is around revenue per member growth. So obviously, growing the number of total members, but growing the revenue per member as well as important. And a big part of that is the shift from taking partial risk on the members, taking 35% to 40% of the premium dollar to moving up to an 85% to 90% of the premium dollar construct. We're responsible for more of the members' costs, both on the outpatient and on the inpatient side of the house.

And you'll see over here -- sorry, on this graph that over the last 4 years, 4 or 5 years, we've really grown that full risk part of the book dramatically from essentially 0% of our members in '21 in a full risk arrangement to at the beginning of this year, in January, around 80% of our members -- of our revenue, sorry, coming from a full risk arrangement.

And we really think this makes sense because we're able to align our outcomes, both financially or our financial outcomes rather with the patient outcomes, both inpatient and outpatient, rather than having us be accountable for just the outpatient outcomes, but the payer being responsible for the inpatient outcomes, which causes further fragmentation alignment issues when taking care of the patient.

Next, obviously, in addition to optimizing for revenue, we have to do a good job at the end of the day at optimizing for cost. And we think we've done a really good job at doing that because of the longitudinal nature of the care model, because of the software stack that doesn't let the patient follow through the cracks and because we're able to leverage our clinical teams and care management teams to take care of the patient even between episodic visits of care. And what that's resulted in is, as I mentioned earlier, 67% fewer hospital admissions than the Medicare fee-for-service benchmark, vast majority of prior auth auto approved, a lower rate of readmission. So it's not just us getting folks out of the hospital and then them crashing right back in and a very high net promoter score among our patient population.

And finally, the technology suite, the operating system, we believe that drives that drives all these outcomes is reflected in our ability to, one, create a proprietary technology platform from scratch that is built in-house in the U.S. with American engineers, but two, to do it at the same time while growing revenue and EBITDA without a meaningful visible kind of investment, that's a drag on profitability. And we've really built a full set of tools, both for our providers, our internal care teams and ultimately for the payer functions that we serve.

First, for the provider, we built an all-in-one point-of-care tool that exists both on its own and in EHR that powers both quality, care management and administrative functions. And it's clear that providers who use our tool are performing demonstrably better than those who don't. For example, an improvement of around 24% in HEDIS gap closure, which is the Medicare Stars gaps in care and an over 30% improvement in annual wellness visit completion, both at a very statistically significant rate.

On the care management side, we built an in-house tool that connects with the provider-facing tool that uses our proprietary algorithms to classify which members are at risk of an adverse event and suggests a potential next best action to engage in for that member. And taking it a step further, for those actions that are nonclinical in nature, that are purely administrative in nature, such as making a phone call or doing a text outreach, we're able to now automate a lot of those with our AI agents. So our agents are making phone calls automatically or texting the member automatically to remind them about upcoming visits or to have them schedule a visit with the patient -- with their PCP upon discharge from a hospital, for example.

On the back end, our analytics teams are using our command center, so to speak, to look at risk and understand the portfolio of risk that we're taking on in a given market. So we're able to see, for example, are there spikes in costs in a particular specialty or with a particular set of providers in a given region and address those costs in a proactive fashion. And I'll make a note that this is especially useful for our business model because we, as I mentioned earlier in the presentation, have -- are the single payer. And so we're processing the prior auths, we're paying the claims. And so we actually have visibility on those 2 -- on the utilization metrics in our situation even before the payers do. So the prior auths come first to us, then we forward the result of our approval or denial to the payer. The claims come first to us, then we forward the encounters to the payer.

So in a way, by assuming the position of the payer, we're able to have real-time and as up to date as it gets visibility into the utilization of our members and thus build analytics around that in much of a different fashion than some of our value-based care peers who do not have that real-time visibility.

And finally, because we have this platform that's built in-house, we're able to operate at a very cheap cost. Every incremental member that comes on board does not represent -- is a marginally small cost for our platform. We're not paying a vendor a large PMPM amount. We're not paying them a percentage of shared savings. This is a software that we built internally. And so we're able to very quickly onboard members to our technology platform. That's what we're showing with the Prospect Health acquisition, for example.

Finally, I wanted to go over some of the industry challenges that I know exist today. Certainly, an increased scrutiny, including this morning in the press on risk adjustment. And we've never -- and we continue to never play the risk adjustment game. In fact, for the first 2 years of V28 that have phased in, our RAF score has actually gone up in those first 2 years now, not by a lot, to be fair, but we've gone from around 1.0 to 1.02. What that shows me is that not only are our members undercoded, but that post V28, we believe that there's actually an opportunity to have our members be more appropriately coded.

And in fact, if there's a V29 to come, there are rumors of perhaps an inferred risk model where you look at the chart directly or you look at the totality of information by the patient to determine their true level of risk using AI or otherwise, we actually believe that would be a tailwind, if anything, because it would accurately show the risk of our members that we're taking. But in any case, even in a non-V29 world, we believe that we haven't been hurt by V28, and that shows not only in our RAF scores, but also in the continued strength in the financial performance over that time period.

Next, on utilization. The entire industry has been similarly hit with very high utilization across the board. While we're not immune to higher utilization trends, we have managed to predict and to control utilization in a way that the rest of the industry hasn't. So for example, in 2025, we guided to around 4.5% trend blended across our lines of business, and we continue to believe that we are on track to meet or exceed that number.

Next, I think there have been a lot of challenges around kind of the idea of value-based care in general, the idea that there should even be provider groups that can take on full risk in a responsible way. I think from the very beginning, we've talked about even years before many companies, many of our peers even existed, we've talked about taking risk responsibly, taking risk only on the parts of the dollar that we think we actually have control over, for example. So we've always shied away from taking on Part D as in dog risk because we don't have any particular control over the pharmacy. We've shied away from taking risk on supplemental benefits because we don't have control over whether seniors use their flex cards to go buy rounds of golf.

We've really tried to stay away from things that we don't have control over and put our eggs in the basket of things that we genuinely think we have influence over because of the longitudinal care model and the infrastructure that I talked about earlier.

And finally, obvious concerns around Medicaid and exchange, Medicaid in terms of the Big Beautiful Bill, exchange in terms of some of the subsidy negotiations that are happening as we speak. And while those will be potential headwinds to the business, we think we have relatively limited Medicaid and HICS exposure relative to our predominant over 60% of our revenue, which comes from Medicare and Medicare Advantage, and we think that we'll be able to persevere and continue growing even in the face of HICS and Medicaid headwinds.

With that said, we're happy to reiterate guidance for the full year -- for the financial year of 2025. We'll be reporting in early March, and we continue to believe that the results we put out in Q3 are the accurate kind of range for the year.

With that, I'll conclude and just say that we're -- I'm very happy to be at an organization where we think doing the right thing truly leads to great financial outcomes as well. We believe we're building the nation's strongest delegated risk platform, both from a clinical standpoint, the strength and density of our provider networks and the technology and operating system that power it all. We've grown tremendously in the last 5 or 6 years. We look forward to continue growing and continue bringing the Astrana Care model to communities across the country.

And so with that, I'm happy to open it up for questions. And Chan, my COO and CFO, will join me in taking questions as well. Thank you, everyone.

Any questions? I believe we can have some mic runners. But in the case while people are still thinking, I can kick it off.

Can you guys walk us through the strategic rationale behind the Prospect acquisition? And then what are some of the benefits that you're maybe realizing now?

Sure. Happy to do that. We've been on a journey for the last 3 years to build a scalable ecosystem that's high quality and accessible for all. We started with the CFC acquisition in the core Southern California market, along with CHS and most recently, Prospect in midyear 2025. What these acquisitions have allowed us to do is to really scale our platform and build a unique model that allows us to scale in a multi-payer basis.

The biggest advantages that Prospect has brought to us is with our enablement suite, we have a set of services that we believe we can offer to more and more Americans. It's allowed us to quicken that pace and allow us to continue to grow in a prudent manner in a geography very close to us. Post the deal, we've been focused on integration activities that's starting from the contract integration-related activities, our network activities, clinical as well as core technology-related activities. We believe this will create a stronger foundation for our continued growth in the coming years.

Wonderful. Great to hear. I guess maybe switching gears a little bit, and it was touched on during the presentation. But can you maybe tell us how Astrana is adapting to these regulatory changes a little bit more with Medicaid and the health insurance exchange markets? Also, how is the company specifically positioned better or will benefit from MA rate update from 2026?

Yes. For the last 24 months, we have been focused on building out our Medicare book of business. When folks were not really expecting a Medicaid rate -- Medicare rate update, we were investing in Medicare, and you can see that in terms of the percentage of our revenue now coming from Medicare relative to 2 years ago. We remain very bullish in terms of our Medicare Advantage growth, and you'll continue to see that growth in the coming years.

In terms of HICS and Medicaid, on the exchange or HIC side, we do expect subsidies to have a reduction in our membership as well as the continued change in terms of Medicaid enrollment for the undocumented population within California.

On the Medicaid side, our reduction in membership has been about 20% to 30% less than the overall California reduction. We expect to be able to continue on that trajectory in future years, though we are ready for larger cuts in the next 24 months if that does happen. We've tried to position ourselves by working closely with the plans around key quality-related measures to make sure we are the network of choice for them as they continue to focus their membership on higher quality groups.

I think the last point that Chan mentioned is key because it's just -- we view this as a short-term headwind, obviously, and will be for all Medicaid index organizations. But I think what it really does in the long-term is it forces consolidation into entities that can genuinely manage costs, have a very low overhead OpEx kind of budget and can genuinely change patient outcomes and improve quality. And so the smaller organizations that have historically survived on Medicaid are going to be pushed out of Medicaid essentially. And those organizations who can prove that they can handle large-scale Medicaid populations with great outcomes and quality, as Chan mentioned, are those numbers -- the remaining members are going to accrue, we believe, to those organizations.

So what we're trying to do, as Chan mentioned, is to position ourselves as kind of the network of choice as the organization of choice for our payer partners so that we can win together over the long run, over the cycle when Medicaid comes back. The same way that we work with our payers to position ourselves for both of us to win in MA, even when MA was out and people were at this very conference talking about terminating all the MA contracts that they could, we talked about leaning in and helping our payer partners get through a time of MLR volatility. And now it seems like MA is kind of back in vogue again.

I believe we have an audience question, if you do not mind.

How do you guys think about new market expansion? So again in the context of selection criteria, what are the must-haves?

Yes. As you've seen in our expansion to the 16 markets that we're in, we focus on markets that have density for our model, markets that usually have over 1 million to 1.5 million people in terms of population, markets that have a diverse set of providers. And in many cases, markets where payers are looking for an alternative to Optum. And we've had a very prudent approach. We could have grown much faster than we did, and we are continuing to scale our core markets, and we feel there's massive growth still in each of our markets today.

For another question, -- and again, I understand mentioned in the presentation, but maybe more specifically or additional, is there any updates that you could provide on the full risk contract negotiations the company has actually been executing since the close of the Prospect acquisition?

Yes. I can start quickly. As I mentioned, we've come to a resolution on those contracts that the company is very happy with. And I want to emphasize that, again, it's about partnership with the payers, not as much treating it as a zero-sum game where our higher rate means that they're paying us more and they're giving less to their bottom-line. A lot of our arrangements with payers have been creative in the sense that, yes, maybe we're getting a higher rate and that represents a net negative to their P&L, so to speak, but we're helping them find incremental P&L somewhere else where we can be a solution for them and hopefully keeping their books neutral or as close to neutral as possible. So in areas, for example, where they may have higher MLR populations, can we step in and maybe take that off their hands so that they are saving dollars in one area and kind of paying us more dollars in another area where we think our rate is too low? Or can we help them subsume membership from another higher cost entity or another higher cost medical group that maybe is not giving them the outcomes that they might want and they're paying kind of a lot for it. Can we be that alternative instead and help them kind of balance the books in some other way?

So sometimes it is a zero-sum game. But in other areas, we do think that a more collaborative approach with our payer partners has gotten us to the place where we want to be.

All right. As we are kind of coming up on time, any final remarks the team wants to give? Otherwise, we are good to wrap up.

Yes. No, I think we're good. So thank you so much for coming late in the afternoon. I appreciate it. And Chan and I will be around if you have any other further questions as well. Thank you, everyone. Have a great JPMorgan.

Good day, everyone, and welcome to Astrana Health Third Quarter 2025 Earnings Call. [Operator Instructions]

Today's speakers will be Brandon Sim, President and Chief Executive Officer of Astrana Health; and Chan Basho, Chief Operating and Financial Officer. This press release announcing Astrana Health's results for the third quarter ended September 30, 2025, is available at the Investors section of the company's website at www.astranahealth.com.

The company will discuss certain non-GAAP measures during this call. Reconciliations to the most comparable GAAP measures are included in the press release. To provide some additional background on its results, the company has made a supplemental deck available on its website. A replay of this broadcast will also be available at Astrana Health's website after the conclusion of this call.

Before we get started, I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terms such as anticipate, believe, expect, future, plan, outlook and will and conclude, among other things, statements regarding the company's guidance, continued growth, acquisition strategy, ability to deliver sustainable long-term value, ability to respond to the changing environment, liquidity, operational focus, strategic growth plans and acquisition integration efforts.

Although, the company believes that the expectations reflected in the forward-looking statements today are reasonable as of today, those statements are subject to risks and uncertainties that could cause the actual results to differ materially from those projected. These can be no assurance that those expectations will prove to be correct.

Information about the risk associations with the investing in Astrana Health is included in the filings with the Securities and Exchange Commission, which we encourage you to review before making any investment decisions.

The company does not assume any obligation to update any forward-looking statements as a result of the new information, future events, change in market conditions or otherwise, except as required by law.

Regarding the disclaimer language, I would like you to refer to you to Slide 2 of the conference call presentation for further information.

With that, I'll turn the call over to Astrana Health President and Chief Executive Officer, Brandon Sim. Please go ahead, Brandon.

Good afternoon, and thank you for joining us on Astrana Health's Third Quarter 2025 Earnings Call. Today, I'll start with an overview of our third quarter performance, highlight several exciting developments across our AI-enabled technology platform and discuss our new strategic partnerships. I'll then review our updated 2025 guidance and share some early perspective on how we're approaching 2026. After that, I'll turn it over to Chan for the financial review, and we'll open the call for your questions.

Astrana delivered another strong quarter of financial and operational results in the third quarter as we continue to execute on our strategy of building the nation's leading health care delivery platform. This was an especially important quarter for all of us here at Astrana as we welcomed new providers, patients and team members after the close of our acquisition of Prospect Health in July.

Our strategy remains grounded in 4 pillars that define how we have built a durable and profitable enterprise, one that consistently does right by providers and patients. These are smart growth, disciplined risk progression, quality and cost excellence and operating leverage through our technology platform.

First, our model allows us to grow markets with strong physician leadership, payer partnerships and performance visibility, thus delivering consistent quality and financial outcomes at scale.

Next, we take on greater levels of risk in a disciplined fashion, supported by the data, infrastructure and clinical programs needed to manage that risk responsibly. We've built Astrana to be efficient and accountable in both quality and cost. And as we integrate new partners and scale our automation and AI capabilities, we continue to unlock operating leverage where each incremental member, physician and market contributes more to the enterprise than the one before it.

It's in these periods of industry disruption that the Astrana model has continued to differentiate itself in terms of the superior outcomes we're delivering to both our patients and our payer partners. This has allowed us to consistently deliver differentiated financial results as well, and this quarter is no different.

For the third quarter of 2025, we delivered another strong performance across the business with total revenues of $956 million, up 100% year-over-year and 46% sequentially, driven by both the integration of Prospect Health into the company as well as solid organic growth across the core business.

Adjusted EBITDA for the quarter was $68.5 million, up 52% year-over-year and 42% sequentially as we continue to prioritize sustainable industry-leading profitability even as we scale aggressively.

Medical cost trends across both Prospect and Astrana's core business remained firmly within expectations during the third quarter, underscoring the consistency and predictability of our operating model. In both the legacy Astrana and legacy Prospect businesses, medical cost trend was stable and well controlled with no meaningful deviation relative to the assumptions embedded in our guidance.

First, in our legacy Astrana core business, Medicare once again trended favorably below our aggregate 4.5% trend expectation for the year. Importantly, Medicaid trend decelerated relative to the second quarter. Inpatient costs continue to trend favorably, and we continue to expect a full year blended cost trend of approximately 4.5% in the legacy Astrana business.

Moving over to Prospect. Prospect also performed ahead of our expectations during the third quarter, and we remain very excited about the scale, capabilities and talent this acquisition brings to the Astrana platform. We are reiterating our synergy targets of $12 million to $15 million over the coming quarters.

Since closing the acquisition in early July, our teams have been focused on 3 key integration priorities. First, aligning and enhancing the provider and patient experience across both organizations; second, standardizing operating systems and financial reporting to enable consistent execution; and third, implementing the Astrana technology platform, which provides real-time visibility into utilization and outcomes and will drive meaningful synergy capture over time. Much of this work is already complete.

We already have live visibility into utilization and performance metrics, and we remain on track to fully onboard prospects physician groups and care teams to the Astrana platform by mid-2026. Equally as important, we are advancing the cultural integration that underpins long-term success, ensuring that our combined teams are unified around a shared mission, values and operating playbook.

As we've always said, Prospect meaningfully expands our scale across Southern California and strengthens our ability to serve patients and payers with a single integrated delivery model. We remain confident that the integration will position Astrana for even stronger performance heading into 2026.

As we continue integrating Prospect, we are also increasingly excited about the opportunity to leverage AI across our combined enterprise to drive meaningful improvements in both efficiency and care quality. A few examples. Our predictive models identify patients at high medical risk and surface actionable insights to physicians and care teams directly within Astrana's proprietary software, enabling earlier interventions and more coordinated care.

We're also deploying AI-driven tools across claims analytics and clinical documentation to reduce administrative friction and help prevent fraud, waste and abuse. Recently, we introduced a large language model integrated directly into our platform that allows clinicians and care teams to query a patient's longitudinal medical record and receive cited source-based responses.

As a payer-agnostic platform serving all lines of business, Astrana is uniquely positioned with one of the most comprehensive data sets in the industry to power this kind of innovation. Over time, we expect these AI-enabled efficiencies to compound, expanding operating leverage, supporting consistent margin growth and most importantly, improving outcomes for the patients we serve. It's a very exciting time here at Astrana.

The third quarter was also an active period of growth for Astrana, underscoring the strong market demand for our high-quality technology-enabled solutions. We expanded our strategic partnership with Intermountain Health in Nevada, further strengthening Astrana's presence in one of our fastest-growing markets.

This collaboration combines Intermountain's leading clinical infrastructure with Astrana's value-based care management capabilities and care delivery presence to enhance coordination, quality and affordability for patients across Southern Nevada. It reinforces Astrana's position as a trusted partner to major health systems seeking to deliver integrated patient-centered care tailored to local communities.

And in our Care Enablement business, we also entered a new partnership with a provider group in Southern California. The group serves more than 40,000 members in value-based care arrangements across all lines of business and will begin onboarding to the Astrana platform in the first half of 2026.

Next, I would like to address the adjustments we've made to our 2025 guidance, which are detailed in today's press release. To be clear, these updates do not reflect any change in the underlying performance, cost trend or fundamentals of either Prospect or our legacy Astrana operations. Rather, they reflect timing considerations. Specifically, we now expect several payer contracts to transition from partial risk to full risk arrangements in the first quarter of 2026 instead of in mid-2025 as originally anticipated.

At Astrana, we take a disciplined and collaborative approach to growth. We work closely with our payer partners to structure arrangements that are aligned, economically sound and built for long-term success for both parties. We have not and will not enter into full risk contracts simply to accelerate the top line. We do so only when the data, infrastructure and financial alignment are in place to manage that risk responsibly and sustainably.

Accordingly, we are now updating our full year 2025 revenue guidance to a range of $3.1 billion to $3.18 billion and adjusted EBITDA to a range of $200 million to $210 million. The key takeaway is that this is purely a matter of timing. Cost trends and clinical outcomes remain steady across both legacy Astrana and Prospect. Demand from our partners continues to be strong as reflected in several of the partnerships I just mentioned, and our pipeline continues to expand. We remain confident that the contribution from these contracts will be realized in 2026 and will further reinforce the strength and durability of our long-term growth trajectory.

Before I hand it over to Chan for his financial review, I want to share a bit of our perspective on the factors that will shape performance in 2026. While we're not yet providing formal guidance, there are several dynamics already coming into focus.

On the positive side, we expect tailwinds from improved Medicare Advantage rates, the realization of prospect-related synergies and the continued maturation of our full risk cohorts, all of which should support steady revenue growth and margin expansion.

Offsetting these, we do anticipate some headwinds in our Medicaid and exchange businesses, where evolving regulatory dynamics may create pressure on membership and rates in certain markets. We're working proactively with our plan partners and state agencies to navigate these transitions thoughtfully and to position Astrana for sustained performance across all lines of business.

We remain confident that our focus on being a high-quality, responsibly managed care delivery platform will continue to differentiate Astrana and enable growth even in and especially in a more uncertain environment. Our 2026 planning reflects a balanced view that incorporates both the opportunities and the challenges ahead, and we look forward to sharing more detail when we report our fourth quarter results early next year.

Moving over to a personal note. My family recently welcomed our first child, and we had the great privilege of doing so through the Astrana network. It was incredibly meaningful to experience firsthand the level of coordination and care our physicians, providers and teams deliver each and every day. It reminds me of why we do what we do, building a health care system that truly supports physicians and patients through some of life's most important moments.

In closing, I'm so proud of how our team continues to execute in a complex and evolving environment. Astrana's mission remains clear; to build a sustainable, coordinated health care platform that empowers physicians, improves outcomes and lowers cost for patients and their communities. And we are delivering on that vision, building a health care system that truly works while driving industry-leading growth and profitability, one community at a time.

With that, I'll turn it over to Chan to discuss our financials.

Thanks, Brandon, and good afternoon, everyone. Our third quarter results reflect strong execution and continued consistency across the business. We successfully integrated Prospect into our consolidated financials while maintaining solid performance across legacy Astrana operations. These results demonstrate the scalability of our platform and the discipline with which we continue to manage growth, risk and capital deployment.

Total revenue for the quarter was $956 million, representing growth of approximately 100% year-over-year and 46% sequentially. This increase reflects the addition of Prospect Health as well as steady organic growth across our Care Partners segment. Within our Care Enablement segment, we added material scale this quarter, more than doubling revenue quarter-over-quarter as Prospect brings more provider group clients for us to serve with our technology-enabled offerings.

Adjusted EBITDA was $68.5 million, up 52% year-over-year and 42% sequentially, reflecting strong profitability even as the company grew rapidly. Medical cost trend performance in the quarter was stable and in line with our expectations across both legacy Astrana and Prospect. As we continue to bring these companies together over the coming quarters, there remains a material opportunity to bring Prospect's trend performance more in line with that of legacy Astrana.

Operating expenses as a percentage of revenue declined modestly with the integration of Prospect and the continued automation of core administrative workflows. We remain on track to achieve our previously communicated synergy target of $12 million to $15 million of savings through 2026. We ended the quarter with approximately $463 million of cash and short-term investments and net debt of approximately $624 million, ahead of expectations following the close of the Prospect transaction.

Our net leverage ratio at quarter end was approximately 2.5x on a pro forma trailing 12-month adjusted EBITDA basis, and we continue to expect to reduce leverage within the next 12 months through a combination of EBITDA growth and free cash flow generation.

Cash flow from operations for the quarter was approximately $10 million, bringing our 9-month total to $118 million. We continue to expect full year free cash flow conversion of approximately 40% to 45% of adjusted EBITDA, in line with prior commentary.

Turning to guidance. We are updating our 2025 outlook to reflect the timing of full risk contracts with certain payer partners that have shifted from a 2025 start to a first quarter 2026 start date. As Brandon mentioned, this update does not reflect any change in the underlying operating performance of either Prospect or legacy Astrana.

For full year 2025, we now expect total revenue in the range of $3.1 billion to $3.18 billion and adjusted EBITDA in the range of $200 million to $210 million.

With that, we'll now open the call for questions.

[Operator Instructions] Our first question comes from the line of Jailendra Singh with Truist Securities.

Congratulations, Brandon, for the new addition to your family. My question is on the revenue guidance update driven by full risk transition timing delay. Were they related to one payer or multiple payers? You called out tech and data integration. Can you be more specific there? Were these contracts on the Prospect side or legacy Astrana? And do you have enough clarity at this point that this will affect definitely go live 1/1? Or is there a chance of delay further? And related to that, does this delay impact in terms of how you are approaching your other partial risk to full risk transitions?

Jailendra, thank you for the question. Thanks for the warm message. So on the delay, the delay was strictly a timing issue. We remain committed to completing the transitions in the first quarter of 2026. It does relate to both legacy Astrana and the Prospect businesses as we're ensuring contract standardization across both of those businesses and consolidating them into one.

The delay was not due to technical or technology or data issues. In fact, as I described in my prepared remarks, we are making significant progress in integrating Prospect's team and onboarding teams onto our AI-enabled platform, including the capability to have real-time utilization information and data on our population.

Rather, around half of the delay, to dive a little deeper, is procedural in nature, such as regulatory filings and making sure that there is a bidirectional data and operational feed. Half of that delay, we expect to be finalized on 1/1. The other half were in late-stage conversations and do anticipate finalization in Q1 of 2026. And this is across several payer partners, not just a single entity.

And I just want to remind everyone that we are very collaborative partners with our payers. We think that these contracts will mutually benefit both parties given our unique high-quality networks that are differentially well managed. And we're confident again that these contracts will commence in the first quarter of 2026.

On the revenue item, a bit of seasonality on Prospect, but we're not expecting necessarily a step down in the core revenue of the business other than from these full risk delays. Thanks, Jailendra.

And before I actually ask my follow-up quickly, just to make sure that EBITDA reduction of $10 million also all because of this timing delay, right?

That's right. Core trend, medical cost trend in both legacy Astrana and Prospect businesses continue to come in line to slightly better than expected.

Okay. And then my follow-up is on the kind of congrats on the high-profile Intermountain Health partnership. Can you provide any more details around the economics there, level of engagement? What does this open up for you guys in terms of new market, new opportunities? Does this provide an opportunity down the road for Astrana to enter additional states where Intermountain has presence? Maybe spend some time there.

Sure. At the moment, we're very excited about the partnership. Intermountain is obviously a huge presence in Nevada as well as other states in that region. Our partnership today is about utilizing Intermountain's very established and large clinical infrastructure and network and combining that with Astrana's unique presence in our care delivery model in Las Vegas and in other parts of Southern Nevada in order to deliver a more coordinated and accessible approach to members in Nevada.

So we're excited to expand our network to have Intermountain be a part of that network, and we think it's going to drive great outcomes in AEP as we speak and into next year. Going forward, we haven't had those discussions yet, but I do think that there are opportunities to continue expanding on that partnership and other partnerships with health systems. So, we're excited about that as well.

Our next question comes from the line of Ryan Daniels with William Blair.

This is Matthew Mardula on for Ryan Daniels. First, Brandon, congratulations on your child. And it's great to hear that, cost trends were reiterated for Astrana's full year. And in your prepared remarks, you mentioned higher Medicaid cost trends continuing to be above trend, although improvement from Q2. When do you expect kind of Medicaid cost trends to come closer to that 4.5%? And we've just been hearing a bunch of different time frames. So curious to hear what you think. And then given the fourth quarter seasonality, what gives you that confidence that you have enough factored into the guide to account for it?

Thanks, Matthew. We continue to be encouraged by the trend that we're seeing the trend of the trend that is in Medicaid. Look, we do anticipate further continued headwinds in Medicaid as we have some instability in the regulatory environment at this moment. We do think that sometime in '26, perhaps late '26, we expect margins in Medicaid to stabilize. But at this moment, we're encouraged by the trend that we're seeing in terms of the improvement in Medicaid. So, we'll certainly update the market if anything changes there.

Great. And then with the new partnership group in Southern California that serves over 40,000 members across all lines of business, could you kind of provide a breakdown of the payer type of these 40,000 lives? Do they have a similar split as you? And then what's the kind of percentage of full risk lives? And then the kind of last one is, so do you believe this will be profitable from day 1 when you onboard them in the first half of 2026?

Sure thing. It is a similar mix in terms of Medicare, Medicaid and commercial as our business today. It is mostly -- it is actually all shared risk members, not full risk members, and we'll help them manage similar to the rest of the Care Enablement business by charging a fee as a percentage of revenues for that business. We do anticipate it to be additive to EBITDA very early on since our Care Enablement operating leverage allows us to add new members into that business effectively.

Our next question comes from the line of Jack Silvan with Jefferies.

Congrats on the quarter. This is Meghan Holtz on for Jack Slevin. Can you discuss the margins by segment in the quarter? Enablement looks very high, while Care Partners lagged a little bit. So, what's driving that?

Meghan, thanks for joining for the question. On Enablement, you'll notice, as Chan also mentioned in the prepared remarks, that the enablement business grew rapidly in Q3. Part of that is that Prospect, the legacy Prospect business had quite a large enablement business and clients that we have now onboarded. We're excited by the potential of the Care Enablement business as these are members that we are managing well with our AI-enabled technology platform, and we're driving a very strong EBITDA margin in that business, and we expect that to continue to grow in the future. We are adding to the Care Enablement pipeline, as I mentioned, with a new client, and there are several other clients that were -- the pipeline is quite strong in that business.

On the Care Partners side, Care Partners margin we expect it to look a little lower this quarter because as I guided to before, the legacy Prospect business does run at a slightly higher trend than the core business. Again, all of this was contemplated in our guidance and when we did the deal. So, the blended number is going to be a little higher. However, we do see opportunity in the future to bring that business more in line with the legacy Astrana Care Partners MLR. There is also a bit of seasonality in there. But overall, those are the drivers for the strong Care Enablement performance growth and margin-wise as well as the in line to slightly better-than-expected Care Partners margin.

Our next question comes from the line of Michael Ha with Baird.

Congrats, Brendan. Maybe another one on Medicaid. And I know your cost trend guidance is tracking well. You decelerated from 2Q. But if we double-click into it a bit more, nationally, we're seeing elevated member disenrollment trends. And then on a state-specific basis, California is something that I've noticed recent monthly disenrollment trends have really spiked into July and August. And the composition of that disenrollment is a bit alarming too. I'm seeing it at roughly 90% procedural disenrollment. So, I wanted to ask if you're seeing any recent signs of this attrition in California, if you're seeing any emerging acuity mix shift?

And then with Elevance and United also -- not also, but both assuming negative Medicaid margins into next year. Just wondering how you're digesting that all these payer developments and how it might be factoring into your early thinking on '26? I know you called Medicaid out as a headwind, but I would love to hear some expanded thoughts on at all.

Thanks so much, Michael, for the question. We're tracking those numbers closely, too, from California that I think you're referencing. Overall, disenrollment from Medicaid year-to-date has not been as severe as our initial expectations, nor as high as you're probably seeing in the California DHCS reports in aggregate. Things are still early. So, we'll see how 2026 progresses. But year-to-date in 2025, we're seeing an annualized mid- to high single-digit attrition rate in Medicaid in terms of eligibility and enrollment.

Part of this, I think there are 2 reasons. 1, really that these are real Medal Medicaid members that we have built a longitudinal relationship with. We've worked with them over time, whether through line of business change or through as they get older, we really know these members, and we have known them for a long time. It's part of the strength of our model. So, we think that there's a lot of work that we're doing in order to ensure that those who are qualified legitimately continue to be enrolled in Medicaid even in the face of regulatory headwinds.

In addition, as members have been disenrolled, we do believe also that plans are retaining members with us at a disproportionate rate because they want to keep members enrolled in our high-quality network and our well-managed network.

So, with all that being said, we'll continue to observe what happens in 2026, have done some scenario planning internally to deal with these potential headwinds in '26. But disenrollment in that mid- to high single-digit range, not as bad as we think some of the data from the statewide reports are showing, Michael.

Perfect. And just one more question. As we look into '27, I know it's a bit early, but the rate notice, my early thinking on the effective growth rate is -- I mean, I think it could be very strong. Elevated '25 fee-for-service trends seems to be tracking very high. I'm thinking high single-digit effective growth rate might even be possible for '27. So, when I consider that, I consider how MA is tracking to be almost 2/3 of your total revenue. And then I consider how your MA cost trend is less than 4.5%. The immediate thing that pops into my head is significant margin tailwind across most of your company, all those hundreds of basis points of excess rates on top of your trend.

So, a few parts to this question. Firstly, where are you right now in terms of your MA margins? Second, how should we think about margins tracking into next year? I'm thinking margin expansion because rates are good, trend steady, benefits should cut again. And then when you think about '27, just would love to hear your thoughts on how a strong rate notice could drive better margins and help out the overall achievability of your '27 EBITDA target of $350 million.

Thanks for the question, Michael. And you know that I believe you're a leader in thinking about how MA rates are going to evolve in or how they have evolved in '26 and how they might evolve in '27. So, to answer your question in a couple of parts. 1, 26 was a nice increase in MA rates, but we don't believe that they fully accounted for the increasing trend. As a benchmark, for example, it's not fully apples-to-apples, but via the ACO REACH RTA report, we're seeing an 8% to 10% trend nationwide. So good report, but we still believe slightly underfunded, and we think there's more room for growth in the '27 rate announcement, which I think you also mentioned in your question.

We're not sharing per line of business margin at this moment, but we do think that there is room for margin to stabilize and potentially start expanding in '26 and '27 because of these strong rate increases that we're seeing. As I've talked about a lot before, we don't have a strong -- we don't have a strong or any headwind really at all around V28. So, we feel confident that there is room to grow if the rates come in -- continue to come in as expected.

It's a bit early for us to exactly quantify what that looks like now as we're still in the middle of AEP, and we're looking at how we're growing as well as the shift in distribution across Stars in our plan partners. But we do think there's a potential headwind there, as I called out in the prepared remarks. We continue to hope and anticipate that the 27-rate notice, as you mentioned, is going to be strong as well, hopefully, in the mid- to high single digits. So that is our expectation at the moment.

Our next question comes from the line of Ryan Langston with TD Cowen.

Cool news on the kiddo, Brandon. Just I want to make sure about these contracts, I understand it. So, you lowered the full year revenue guidance by $60 million at the midpoint, but you also lowered the EBITDA by $15 million. And assuming that's all from these contracts, that implies like a 25% margin assumption and like a run rate $60 million EBITDA on these contracts. So, is there just other pieces kind of moving parts that are included in the guidance change? Or are those kind of the right numbers to think about?

Thanks for the question. Thanks for the warm message. We believe the run rate is close to $15 million -- around $15 million for the latter half of the year. So closer to a $30 million run rate really. And the revenue was frankly, anticipated to be frankly, a beat. So, the magnitude of the drop is not as severe perhaps as you may expect on the margin assumption there. So, those are really the 2 items around the full risk delay. We're talking about a $15 million over a half year item that we expect to be fully resolved in the first quarter of 2026. And we -- there's not quite the margin that necessarily that you think there is on that business.

Okay. And then just one more thing. On the Prospect commentary, I think you said it kind of beat stand-alone expectations. I'm sorry if I missed this, you already said it, but does that include any of the $12 million to $15 million synergies that you called out that you're reiterating? Or is that just like literally as a stand-alone entity, it exceeded expectations? And maybe just a sense on how much it exceeded, if you could.

Sure thing. No, I'm not yet talking about the synergies in that comment. The comment was simply about the medical cost trend, utilization trends and the financial performance of the stand-alone Prospect business. It wasn't -- it was a slightly better-than-expected number, which was in line with what we did diligence on. And so, we're very pleased to see that, that has continued, and we expect that there are further synergies on both the top and the bottom line as well as opportunities to improve MLR and performance going forward into '26 and '27. But to answer your question, it's really about the stand-alone business for Prospect that the comment was about.

Our next question comes from the line of Andrew Mok with Barclays.

This is Thomas Walsh on for Andrew. I believe you just quoted the legacy Astrana blended cost trend figure. Could you share the relevant Prospect figure? And is the delta between those due to any structural difference between the member populations?

We haven't shared the cost trend number for the stand-alone Prospect business. Part of that is that the integration is combining some of the businesses. Part of the acquisition was an asset purchase. We continue to expect it to be several points higher on trend than the legacy Astrana business. We don't think that necessarily this is something structural in nature. We believe that over time, as we combine the contracts, which we're doing now, as we continue to combine and onboard the team into our clinical pathways and our technology platform, there is opportunity to move that margin to look more similar to the legacy Astrana business.

And again, the Prospect business did perform in line with our expectations, both as a result of the diligence as well as expectations after we've gotten our hands around it. So, everything in line, and we continue to look forward to improving the performance of both businesses as a combined entity in Q4 and into 2026.

Our next question comes from the line of David Larsen with BTIG.

I'm sorry, if I missed this, but what was your medical trend in the quarter? And how does that compare to expectations? Just any color between the commercial, Medicaid and Medicare for that trend? And then what are your expectations for trend in '26?

Thanks for the question. The trend across all lines of business, blended weighted average was just under 4.5%, continues to be in line with our expectations for the legacy strata business. Medicare continues to be better. Medical Medicaid, as I mentioned, has sequentially improved. So, trend decelerated versus Q2 and continues to be going in the right direction and commercial is stable as well. So, we're very pleased with the ability -- the continuing ability to manage cost trend effectively for our population.

Going forward into 2026, we're not sharing our trend expectations specifically yet. I do think that we're going to be conservative just in the face of some of the regulatory potential headwinds that are coming down the line for Medicaid and exchange, but it's a bit early to share the exact trend assumption at this time. We certainly will do that on our Q4 earnings call.

That's very helpful. And then do you have any exposure to the exchanges? Another value-based care company this evening who reported indicated that exchanges could be very material to their '26 earnings. Is there any exposure there or not? I don't think so.

Thanks, Dave. There is some exposure. We do have exchange membership, but it's a fairly small part of the business, around 3% of revenue. So, there's -- we think it's a manageable exposure to the exchange.

Great. And then what percent of claims are complete so we can have confidence that there's not going to be any sort of negative surprise in terms of claims costs in the fourth quarter?

Our completion rates are pretty consistent quarter-over-quarter, over 85%. As a reminder, we haven't had negative prior period development for many quarters in a row now. I can't even count how many, and we continue to be consistent in terms of our medical cost trend forecasting and our ability to actually manage those costs.

Notably, we also don't have any negative prior period developments on risk adjustment either. And again, we think that's a reflection of our consistent and conservative approach in terms of risk adjustment.

Congratulations on becoming a father.

Our next question comes from the line of Craig Jones with Stifel.

Congrats, Brandon. So, I wanted to ask about the implications of the reconciliation bill around work requirements. I'd assume California will be one of the slower there to adopt that. But have you heard anything about how they plan to implement it or the speed that they plan to implement?

Thank you. What we've been hearing as probably similar to all of you is that this is probably a 2027 item as currently constructed. So, we're not necessarily seeing the impacts of that yet. We are anticipating potential headwinds next year if there are other related items such as the UIS status members. But at this moment, we're anticipating this to be a 2027 item.

Got it. And then maybe on Medicare. So, entering the third year of V28, I wanted to ask you any thoughts on potential for V29 soon and maybe how the potential use of nCounter data may impact Astrana.

Sure thing. I know there's been discussion about a potential V29 or a further change to risk adjustment model. As I mentioned before, we feel very comfortable with our risk adjustment. If anything, we actually believe our RAF to be almost too low. So, we really don't think that V28 has hurt us. And even a further V29, we're not extremely -- we're not very concerned about, frankly. We think that there remains to be opportunity to continue to correctly code our members and continue to improve the way that we take care of our patients over time, regardless of the risk adjustment model that's being implemented.

Our next question comes from the line of Matthew Gilmore with KeyBanc Capital Markets.

This is Zach on for Matt. Congratulations, Brandon. Just wanted to touch on the transition to full risk. Based on the delays, I think that percentage ticks up in the first quarter. But do you have any guideposts or frameworks that you can provide in terms of how to think about that shift to full risk through the remainder of '26?

Yes, thanks for the question. We're going to continue the transition to full risk as expected. These contracts, which we expected to turn on in mid-2025 ended up being delayed until the first quarter of 2026. But going forward, we do expect that high 70s percent of revenue coming from full risk to remain in that range going into '26. There are several forest contracts that we had anticipated going live in 2026, separate from the ones that we had discussed. And there's no danger or indication that, that's not going to happen.

We're also seeing success in moving contracts to a delegated model even outside of California. As I mentioned before, Texas is starting on fully delegated, which means we're paying claims, we're doing ops. We have full data visibility, very similar to the model we've successfully run in other parts of the country, starting 1/1 of '26 as well. So by and large, contractual movements are as expected. Unfortunately, a slight delay on these particular items this year.

Our next question comes from the line of Gene Mannheimer with Freedom Capital Markets.

Congrats to the new dad, Brandon. My questions relate to, I guess, growth. So, you doubled revenue year-over-year. Much of that was Prospect. So, if we back out Prospect, what are we looking at for organic growth mid-single digit?

Gene, thanks for the question. I think if you really try to strip out every single part of the Prospect deal, which as I mentioned earlier, is a bit -- in some areas, it's challenging. I think the core Astrana business continues to grow in the mid-teens, low teens area. Prospect, I think we had guided to before, growing in the high single -- mid- to high single digits. But this is exclusive of some of the full risk movements and exclusive of AEP so far. So, we continue to be excited by the growth in all of these businesses and also, more importantly, managing the growth in an effective and stable manner in terms of EBITDA.

Okay. No, that's encouraging. And then my follow-up is on your new group that you signed in Southern California, 40,000 lives. Was that an affiliate or an offshoot of Prospect? Or was Prospect instrumental in getting that win?

Sure, Gene. No, not really. This is a separate client that had no relationship necessarily to us or to Prospect, just one of the clients in our pipeline. So that pipeline continues to be strong. We continue to expand our Care Enablement business. We're building a lot of technology around ensuring that, that offering is attractive and is well priced. And we think that's an area for growth as it has been in the past going forward as well.

There are no further questions at this time. I'd like to pass the call back over to management for any closing remarks.

Thank you so much. To conclude, I wanted to emphasize that Astrana continues to manage medical costs well. We continue to show that the value of Prospect is meaningful, and that integration is going smoothly. We do not believe that the transition to full risk is an ongoing issue. It's a onetime delay and does not reflect any of the -- any cost trend issues or medical cost issues in the core Astrana or the core Prospect businesses.

And we're very happy to share, as Chan mentioned in the prepared remarks, that we are now down to approximately 2.5x net leverage on pro forma adjusted EBITDA, which is far ahead of what the timing was when we announced the deal. So, we continue to focus on deleveraging, continue to focus on execution of the business, and we look forward to continued execution in future quarters in 2026. Thank you all for joining the conference call today, and I look forward to speaking to many of you in the coming months.

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.