Astrana Health Inc.

Good day everyone and welcome to today's Astrana's Health fourth quarter and full year 2023 earnings call. At this time, all participants are on a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Today's speakers will be Brandon Sim, President, Chief Executive Officer of Astrona Health, and Chan Basso, Chief Operating and Financial Officer. The press release announcing Astrona's health results for the full and fourth quarter ended December 31, 2023, is available at the Investors section of the company's website at www.astronahealth.com. To provide some additional background on its results, the company has made supplemental deck available on its website. A replay of this broadcast will also be made available at Astrana's health website after the conclusion of the call. Before we get started, I would like to remind everyone that this conference 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 include among other things statements regarding the company's guidance for the year ending December 31st, 2023. Continued growth, acquisition strategy, ability to deliver sustainable long-term value, ability to respond to the changing environment, operational focus, strategic growth, plans, and merger 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 risk and uncertainties that could cause the actual results to differ dramatically from those projected. There can be no assurance that those expectations will prove to be correct. Information about the risk associated with investing in Astronis Health is included in its filings with the Securities and Exchange Commission, which we encourage you to review before making an investment decision. The company does not assume any obligations to update any forward-looking statements as a result of new information, future events, and changes in marketing condition or otherwise except as required by law. Regarding the disclaimer language, I would also like to refer to you to slide two of the conference call presentation for further information. With that, I'll turn the call over to Astronis Health President and Chief Executive Officer, Brandon Sim. Please go ahead, Brandon.

Good evening, and thank you all for joining us today. We are proud to announce another year marked by rapid scaling of our unique care model to empower providers and improve healthcare for local communities at Astrona Health. We coupled that with robust financial achievements, ensuring that our growth efforts are sustainable and maintaining a focus on profitability. We continue to execute against our multidimensional strategic roadmap. One, focusing on expanding our membership base across existing and new geographies. Two, increasing the level of accountability and risk we are responsible for in our value-based care contracts, three, empowering our providers to achieve superior patient outcomes, and four, executing strategic acquisitions to further accelerate our growth trajectory for the foreseeable future. We are confident that the infrastructure we have built and the momentum we have in our value-based care platform will continue to accelerate the country towards our vision, one in which every American has access to high-quality, high-value healthcare. I'll begin by highlighting our financial accomplishments for the fourth quarter of 2023. We recorded total revenue of $353 million, an increase of 20%, and adjusted EBITDA of $29 million, an increase of 22.7% from the fourth quarter of 2022. For the full year of 2023, Estrana Health achieved total revenues of $1.39 billion, an increase of 21.2% year-over-year, and adjusted EBITDA of 146.6 million, up 4.7% year-over-year, yielding an adjusted EBITDA margin of 11%, which is within our short-term target EBITDA range of 10 to 15%. This was despite headwinds in terms of Medicaid redetermination, increased utilization, and costs due to our investments in growth, infrastructure, and new market entry. Turning now to business updates for the year. Since our last earnings call, we have formed a new partnership with Bass Medical Group. A key pillar of Astrana's unique care model is the deep integration between primary care providers and specialist networks, and our long-term strategic partnership with Bass is, in our view, an expression of this thesis. This relationship is set to enhance the value-based care framework and operational capabilities for Bass Medical Group, which boasts over 400 providers across key Northern California counties. Our collaborative efforts aim to deliver top-tier care through value-based models to a diverse patient base across all lines of business throughout Northern California. Operationally, our collaboration with BAS involves establishing a premier high-quality independent provider network, or IPA, in Northern California, which we expect to fully transition to full risk in 2025 and beyond by leveraging our restricted Noxkeen license to foster new aligned care models. Our primary care provider networks will have wider access to an aligned, high-quality specialist network, which will enable care coordination and will help manage cost effectiveness. Access providers will also be supported by our technology platform as they join Astrana's care enablement platform in 2024. This will extend our value-based care footprint in the greater San Francisco Bay Area while enriching our network with more primary care physicians and specialists. Next, I'd like to highlight our ability to replicate our success in Southern California and new markets, having recently entered several new states. Our approach to market expansion is flexible, rooted in our history of building partnerships with physician practices and adapting to local market dynamics. Whether through partnerships, de novo builds, acquisitions, or technology offerings, Our ability to flexibly utilize our care partners, care delivery, and care enablement offerings to adapt to the needs of local providers and communities allows us to remain adaptive and nimble as we enter these new markets. In Nevada, the notable presence of both a payer and a health system partner has guided our expansion into Clark County, where we have established over a year of operational experience. In addition to our initial entry via a chain of own primary care clinics in our care delivery segment, we have now augmented that footprint by building a care partners network of over 300 high quality, high value primary care providers and specialists. We continue to focus on building density in each new market we enter, and we expect our Nevada market to be run rate break even by the end of the year. Following our acquisition of Texas Independent Providers, and Independent Provider Association into our care partner segment in September of 2023, we have achieved significant advancements within the state of Texas as well. Our efforts have successfully expanded our network of exclusive primary care providers and our membership base. As we strategically continue to add specialty coverage in Harris County, we have made notable strides in securing incremental Medicare Advantage contracts with health plans. We are committed to further enlarging our clinical footprint within the region and thereby enhancing our delivery of value-based care. We continue to view our pipeline of partnerships and expansion opportunities as very robust and will provide further updates as they occur. As previously communicated, we plan to enter at least one to two new markets per year and invest five to 10 million per market to do so. The 2024 guidance that John will discuss later on this call will include the costs of planned new market entry. Next, we have significantly advanced our capability to engage and manage our patients in full risk arrangements since announcing our acquisition of Community Family Care, or CFC, in November of 2023. We're excited to share that on January 31st, 2024, we seamlessly onboarded CFC's IPA as an Astrona Care Partner. which manages the healthcare of over 200,000 members in the Los Angeles, California area across Medicare, Medicaid, and commercial payers. The acquisition of the CFC Health Plan and MSO entities are still on track to close by the end of the first quarter, 2024. We are also excited to announce our rebranding to Astrana Health, NASDAQ ticker ASTH, as of February 26, 2024. This new brand identity reflects our expanding national presence and commitment to delivering quality care nationwide as we support forward-thinking providers and care teams in creating a constellation of high-quality care. Additionally, we've made several key leadership changes to continue to support that growth, including new roles for Dr. Thomas Lam, myself, and Sean Basho, while also warmly welcoming Dr. Dinesh Kumar as Chief Medical Officer. Our commitment to accessible, high-quality, value-based care and our proven track record in managing care costs and patient outcomes give us confidence in our ongoing profitability and growth. The momentum we are experiencing is a testament to our team's dedication and the innovative strategies we are employing to enhance healthcare delivery. In closing, I extend my deepest gratitude to our team, our providers, and our partners for their unwavering support and shared vision of transforming healthcare in communities across the nation. I will now pass the discussion to John Basho, Chief Financial and Operating Officer, for a detailed review of our financial results.

Thank you, Brandon. We continue to deliver strong results, reporting total revenue of $1.39 billion for 2023, an increase of 21% from $1.14 billion in 2022. Our top-line growth was driven by growth in all three of our core segments. In aggregate, adjusted EBITDA was $146.6 million, up 4.7% from $140 million in the prior year. Net income attributable to Astrana Health was $60.7 million, an increase of 34.3% from $45.2 million in 2022. Earnings per share on a diluted basis were $1.29, up 30.3% from 99 cents in the prior year. Now turning over to the balance sheet. We remain well capitalized and well positioned to execute on our growth initiatives. We ended the fourth quarter with $293.8 million in cash and cash equivalents compared to $288 million at the end of 2022. Total debt at the end of the fourth quarter was $282 million. Our substantial liquidity continues to support our strategy around sustained growth. I'd like to formally announce the spinoff of the real estate portion of the APC excluded assets, as we have discussed in prior quarters. As a reminder for all, the real estate portion of APC excluded assets are the consolidated real estate assets held by APC common shareholders. As we've described in the past, they are solely for the benefit of our affiliate APC and its shareholders. On December 26, 2023, APC, a consolidated affiliate of Estrana Health, completed a restructuring transaction to separate APC's real estate business. As a result of this strategic spinoff, we're now able to consolidate our tax filing status into a single entity. This will avoid our historical tax implications related to intercompany dividends. Due to this change, our tax rate in 2023 was 35.6% versus our tax rate of 47.2% in 2022. Moving forward, 2024 full-year effective tax rate is expected to be approximately 34%. As a note, as you review our 2023 financials, our balance sheet as of December 31, 2023, no longer reflects the real estate business assets and liabilities. However, our income statement reflects the results of operations of such businesses through December 26, 2023. I want to highlight a nuance in Q4 associated with bonuses paid out by APC-excluded assets to their provider shareholders. This one-time bonus in Q4 2023 of $14 million ran through COGS and will skew medical costs if one is using COGS as the numerator and capitated revenue as the denominator. Going forward post-spinoff, our financial statements will no longer need to be separated between Astrana health assets and excluded assets. As we wrap up 2023 and think about 2024, I'd like to touch on four key areas, ACO, utilization management, HCC model changes, and our movement to full risk. We now have over 37,000 members in a Medicare advanced payment program. In 2024, We launched a new MSSP for providers in our Astrana Health family who are at an earlier stage in their value-based care journey for their fee-for-service Medicare patients. A cornerstone of our strategy is empowering these providers with actionable data to ensure exceptional patient outcomes. Across both our MSSP and our full-risk ACO reach, we continue to invest in our care management and technology infrastructure to ensure both programs continued success. In regards to utilization management, we continue to monitor utilization trends with the latest data indicating a very slight uptick in Medicare Advantage utilization as seen across the industry. However, due to our diverse pair mix, our overall utilization is in line with historical trends. Our 2024 forecast includes these assumptions moving forward. Around the HCC model changes to V28, we see a nominal change within our managed care population in 2024 and a less than 1% change in our ACO population in 2024 versus 2023. Our 2024 forecast also includes the projected impact from these changes moving forward. Now, when we look at our financials today, the majority of our managed care financials are on a partial risk basis. What that means is today we are recording the professional risk of our overall care model. Over the next 24 months, we expect to move more and more from a professional risk basis to a full risk basis. We will capture a higher portion of the premium dollar, improving our ability to coordinate care across the healthcare spectrum for patients and improving our financial unit economics. Last quarter, our full risk book of business made up 46% of total capitation revenue. As of January 1st, Our full risk business makes up 49% of total capitation revenue. We expect our full risk business to continue to grow this year. In summary, we have the capacity today to manage full risk members and to perform delegated pair life functions, such as utilization management, care management, and claims processing. With this change, we're now moving further up the risk continuum while continuing to deliver high quality care for our members. Turning now to our 2024 guidance. We expect to be between $1.65 billion and $1.85 billion of revenue. We remain confident in our growth due to the execution of our organic and inorganic growth plans, as well as our transition to full risk. We anticipate that our adjusted EBITDA will range from 165 million to 185 million. Our expectations are based on the stability of utilization trends across our at-risk portfolio and a conservative approach to projections. As we shift towards accommodating a greater number of full-risk patients, we foresee enhancements in our operational efficiencies and institutional risk management. This strategic shift is expected to positively impact our unit economics. In regards to gap earnings per diluted share, we expect to be between $1.28 a share and $1.52 per share. While we are providing guidance on a full-year basis, we recognize the importance of understanding the nuances that each quarter may present. With the closing of CFC IPA and the future plan closing of CFC Health Plan, we anticipate a notable uplift in our revenue from Q4 2023 to Q1 2024, and even further in Q2 2024, when we will experience a full quarter of impact from CFC in our financials. Historically, our business has experienced seasonal trends in line with industry norms. Our margin typically is normalized for Q1 while expanding in the second and third quarters as one-time settlements are recognized before returning to a normalized level in the fourth quarter. It's important to note that while we strive for operational excellence and margin improvements, our strategic investments in market expansion and transition to full risk are timed to optimize long-term growth. which may result in quarter to quarter margin variability. We believe this context is crucial for our investors as it provides a lens to which to view our quarterly performance within the framework of our annual guidance. Finally, I want to reiterate the bright future ahead for our strong business development pipeline coupled with the strength of our model as we look ahead to 2025, 2026 and beyond. With that, I'm going to hand it back over to Brandon.