Astrana Health Inc.

Good day, everyone, and welcome to Astrana's Health Third Quarter 2025 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 Basso, Chief Operating and Financial Officer. This press release announcing Astrana's health results for the third quarter ended September 30th, 2025 is available at the investor 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 Astronis 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 Legation 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 Astrona 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 marking conditions, or otherwise except as required by law. Regarding the disclaimer language, I would like you 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 Zim. Please go ahead, Brandon.

Good afternoon, and thank you for joining us on Astrona 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 healthcare 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 four 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 Estrada 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 Astrona's core business remained firmly within expectations during the third quarter, underscoring the consistency and predictability of our operating model. In both the legacy Astrona 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 Astrona 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 to 15 million over the coming quarters. Since closing the acquisition in early July, our teams have been focused on three 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 Prospect's physician groups and care teams to the Estrana 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 pair agnostic platform serving all lines of business, Estrana 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 STRANA 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 Estrana 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 to 3.18 billion and adjusted EBITDA to a range of 200 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 Estrana 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 trajectories. 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 Estrana 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 reminded me of why we do what we do. Building a healthcare 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 healthcare platform that empowers physicians, improves outcomes, and lowers cost for patients and their communities. And we are delivering on that vision. building a healthcare system that truly works while driving industry-leading growth and profitability, one community at a time. With that, I'll turn it over to John 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 prospects trend performance more in line with that of legacy astrana operating expenses as a percentage of revenue decline 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 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 2.5 times 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 nine-month total to 118 million. we continue to expect full year free cashflow 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 pair 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 to $3.18 billion and adjusted EBITDA in the range of $200 to $210 million. With that, we'll now open the call for questions.