Astrana Health Inc.

Good day, everyone, and welcome to today's Astrana Health Third Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session, and instructions will be provided at that time. 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 Astrona Health Incorporated's results for the third quarter ended September 30, 2024, is available at the Investors section of the company's website at www.astronahealth.com. The company will discuss certain non-GAAP measures during this call. Reconciliations to the most comparable GAAP measure 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 made 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 provision 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 include, among other things, statements regarding the company's guidance for the year ending December 31st, 2024. 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 its 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 can be no assurance that those expectations will prove to be correct. Information about the risks associated with investing in Astrona Health is included in its filings with the Securities and Exchange Commission, which we encourage you to review before making investment decisions. The company does not assume any obligation to update any forward-looking statements as a result of new information, future events, changes in market conditions, or otherwise, except as required by law. Regarding the disclaimer language, I would also like to refer you to slide two of the conference call presentation for further information. With that, I'll turn the call over to Health President and Chief Executive Officer Brandon Sims. Please go ahead, Brandon. Thank you, operator.

Good evening, and thank you all for joining us today. Heading to a strong first half of the year, the third quarter results we reported today continue to reflect the progress we are making as we build the nation's leading patient-centered, diagnostic healthcare platform. As we continue to drive our mission to deliver high-quality, high-value, and accessible care to communities across the country, I want to remind the audience of the four pillars we have executed on for years, which we believe will allow us to achieve that goal. First, we will sustainably grow our membership in order to bring better care to more Americans. Next, we will increase alignment with outcomes by responsibly taking on greater levels of total cost of care responsibility for our members through value-based and accountable care arrangements. Third, we will focus on achieving superior patient outcomes while managing total cost of care by empowering our providers with our technology and clinical infrastructure. And finally, we will continue to drive operating leverage across our business through our care enablement suite. I'll start with some key financial and operational updates for the quarter that reflect the success we are having driving each of these four operational imperatives. Then I'll provide an update on the close and integration of collaborative health systems. And finally, Chan will discuss our financial performance and guidance outlook. Starting with financial highlights, we continued to execute at a high level as Estrana Health revenue grew to $478.7 million. Adjusted EBITDA was $45.2 million, continuing to demonstrate our differentiated ability to grow profitably, even while bringing on newer cohorts of membership. As we had previously guided, earnings cadence was different this year compared to last year, due to a timing difference in when certain incentive dollars were received, as well as the move to accruing ACO reach results throughout the year. To paint a clearer picture, on a year-to-date basis, Adjusted EBITDA has grown 15%, from $117.6 million in the first three quarters of 2023 to $135.3 million in the first three quarters of 2024. Moving on to core business updates, we continue to execute on our first strategic pillar, sustainably growing membership to bring better care to more Americans. Membership was at around 1 million members as of September 30th, and to set the stage for future membership growth, Astronaut Care Partners affiliates organically added over 200 primary care providers and over 900 specialists to our network across our core markets. We also continue to make progress on our second goal, increasing our responsibility for members' total cost of care in value-based arrangements. As of October 1, 2024, our full risk business makes up approximately 61% of total capitation revenue, compared to 46% as of October 1st of 2023. And we continue to be on track to meet our previously stated goal of having around two-thirds of our capitation revenue coming from a full risk ecosystem by January 1st of 2025. Moving on to utilization and cost trends in the third quarter, we continue to experience overall cost trend blended across all of our lines of business, evolving as expected in the mid single digit percentage range. We believe that this is an ongoing reflection of our efforts to ensure access to high-quality care for our members, as well as to the technology-enabled care management, disease management, and care coordination programs that we operate for over a million members across the country. Diving a bit deeper into our utilization trends, for our senior lines of business, Medicare Advantage and ACO REACH, we are experiencing stabilizing cost trends, which came in within our expectations. In a managed commercial book of business, we are seeing a slightly lower trend than expected. And for our Medicaid book of business, we are seeing a higher trend slightly than expected. For our Medicaid business, excess cost trend relative to expectation was a few hundred basis points of increase due to an acuity rate mismatch because of Medicaid redetermination, a situation we expect to be resolved in the future as redetermination and rates renormalize. At a blended level, This was partially offset by lower-than-expected cost trend in our commercial book of business. We believe that our ability to manage overall cost trend within our predicted range is a feature of our payer and line-of-business agnostic platform, as well as a testament to the investments we have made in care delivery and care coordination. Moving on to recent activity, our acquisition of collaborative health systems has closed as of October 4th. with integrations well underway in terms of people, processes, and technology. As a reminder, CHS has a complimentary footprint of around 2,500 primary care providers, serving around 100,000 primarily senior members, with a set of payer-agnostic relationships across the South and the East Coast. Financially, we expect to see an approximately negative $4 million adjusted EBITDA impact in Q4. I continue to believe that we are on track for approximately $450 million of revenue contribution in full year 2025 and break even adjusted EBITDA contribution by the end of 2025 from this business. We will continue to provide updates about the progression of this business in future quarters. With the closing of CHS after the quarter end, Astrana Health now serves over 1.1 million patients in value-based care arrangements across 12 states. By deploying our technology platform and leveraging our operations to drive efficiencies and reinvesting those savings into improving access to care and enhancing local clinical capabilities for our patients, we have the unique ability to drive better patient outcomes and savings and risk-bearing arrangements. That approach is continuing to pay off, driving what we believe is sustainable profitability, even as we grow rapidly in communities across the country. I look forward to continuing to accelerate our reach and our impact as we strive to provide accessible, high-quality, high-value care to all. To conclude, I want to thank all of our teammates, new and old, our providers, and our partners for their continued belief in our mission to transform healthcare delivery nationwide. With that, I'll turn it over to John Bosho to discuss our financial performance and guidance outlook. John? Thanks, Brandon. Turning to our financial performance, we reported total revenue of $478.7 million, a 37% increase from the prior year period. This growth was driven by our continued progress in the transition to full risk, as well as additional contributions from the CFC acquisition. Adjusted EBITDA for the quarter was $45.2 million, a 13% decrease from $52 million in the prior year period. As Brandon previously mentioned, our cadence in earnings was different this year compared to last year due to timing differences related to the recognition of certain incentive dollars and ACO reach performance. As a result, viewing financials on a year-to-date basis better reflects the growth of our business. We reported adjusted EBITDA of $135.3 million for the nine months ending September 30, 2024. up 15% from $117.6 million in the prior year period. Similarly, while net income attributable to Astrana for the quarter was $16.1 million, down 27% from $22.1 million in the prior year quarter, on a year-to-date basis, net income attributable to Astrana was $50.1 million, up 4% from $48.4 million in the prior year period. Earnings per diluted share for the quarter stood at $0.33. down from 47 cents in the prior year period. Year-to-date earnings per diluted share were $1.04 compared to $1.03, a 1% increase from the prior year period. From a balance sheet perspective, we remain well capitalized, ending the quarter with $348 million in cash and cash equivalents and total debt of $442 million. compared to $325 million in cash and $446 million in debt at the close of the previous quarter. As we adjust our full-year outlook to incorporate CHS's financial contribution, we're revising our guidance ranges. For revenue, we now expect between $1.95 billion and $2.03 billion, up from our prior range of $1.75 billion to $1.85 billion. We anticipate adjusted EBITDA to range somewhere between $165 million to $175 million, compared to our previous outlook of $165 million to $185 million. Lastly, we now project earnings for diluted share to be between $1.06 to $1.19, compared to our prior guidance range of $1.12 to $1.36. To conclude, Astrana Health has made significant progress this year through strategic growth and disciplined execution. Looking ahead, we're focused on the seamless integration of acquisitions and new provider partners, strengthening our financial position and delivering sustainable value for our members, providers, pair partners, and shareholders. We appreciate your continued support and confidence in Astrana Health. With that, I'll turn it over to you, operator, for questions.

All right. First up, we have Ryan Daniels of William Blair.