Astrana Health Inc.

Good morning, everyone, and welcome to Astrana Health's fourth quarter and year-end 2025 earnings call. At this time, all participants are in listen-only mode. Later, you'll 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 Sean Basho, Chief Operating and Financial Officer. This press release announcing Astrona Health results for the fourth quarter and year ended December 31st, 2025 is available at the investor section of the company's website at www.astronahealth.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 Astrona 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 of the Private Security 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. These can be no assurance, but those expectations will prove to be correct. Information about the risk associations with the Investing in Astronaut Health is included in the filings with the Securities 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, change in market conditions, or otherwise, except as required by law. Regarding the disclaimer language, I'd like you to refer to the slide two 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 healthcare 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 adjustment models, varying macroeconomic and cost trend conditions, and the global pandemic, Estrana has grown revenue by 467%, representing a 34% compound annual growth rate. Over that same six-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, disciplined 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 the clear strategic framework quarter after quarter. First, we continued 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 in disciplined underwriting and aligned partnership across all of our markets. We focus on cultivating physician leadership, partnering with high-quality payers, and deploying the AstranaCare 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 discipline 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 market. 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 a 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 of 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 a 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 remain well controlled in both the fourth quarter and full year. Legacy Estrana 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 remained the core driver of performance. Annual wellness visit completion rates approached 80% in our Legacy Estrana markets. with meaningful gains 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 two-thirds 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 built 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 adopt 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. Our Estrana 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 one. 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 1st, 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 one-time 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 four pillars, discipline 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 two 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 Estrana Care Model. As a result of this progress and early performance, we now expect to achieve the high end of our previously communicated 12 to 15 million in annualized synergies over the coming quarters. Provider engagement has remained strong throughout the integration. More than six 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 Advanced Rate Notice. While the industry-level rate update was approximately flat, our preliminary analysis suggests that the impact to STRANA 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. EMS has estimated that the disallowance of these 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 estimates. 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 three 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 discipline 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 constraint, 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 Estrana and prospect businesses. Before turning to the financial highlights, I wanted to address our annual report filing timelines. We will be filing a form 12B25 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 control 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 will 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 12-B-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 partner 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 Astrana 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 2.6 times. 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 pair 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 billion. 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 and expansion markets, incremental new market entry costs, conservative medical cost trend assumptions, and zero contribution from the California Hospital Quality Assurance Fund, or HCWAF. 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 models. With that, operator, we are happy to take your questions.