Astrana Health Inc.

Hello, everyone, and welcome to Astrana Health's first quarter 2026 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. This press release... Announcing Astrona's health results for the first quarter ended March 31, 2026, is available in the investor relations 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 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 Astrona 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 State Park Board 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 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 new information, future events, change in market conditions, or otherwise accept as required by law. regarding the disclaimer language, if you would like to refer to slide two of the conference call presentation for further information. With that, I will turn the call over to Astronauts Health President and Chief Executive Officer, Brandon Sim. Please go ahead, Brandon.

Good afternoon, and thank you for joining us on Astronauts Health's first quarter 2026 earnings call. Today, I'll begin with our first quarter results then discuss how we have built and positioned Estrana, 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 four 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 carrying the call over to John. Estrada 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 healthcare environment becomes more complex, advantage will accrue to organizations that can integrate care delivery, data, and financial accountability into a single operating system. Estrana has built that operating system, and we believe that advantage is widening. In the first quarter, Estrana delivered revenue of $965.1 million, up 56% year-over-year, and it does the EBITDA of $66.3 million, up 82% year-over-year. Non-GAAP adjusted EPS was 74 cents, up 76% year-over-year, and free cash flow was just over $64 million in the quarter. De-leveraging also continued to progress ahead of schedule, with net leverage declining to approximately 2.3 times on a pro-format trailing 12-month basis and to 2.2 times based on the midpoint of our four-year guidance. As a reminder, when we announced the prospect transaction, we communicated a path to deleveraging below two and a half turns of net leverage within 24 months. We have now achieved that milestone in just three quarters and we anticipate ending the year at or below two 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 healthcare, 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 healthcare technology stacks assembled across multiple third-party vendors, our platform was designed internally as an integrated operating system. Because embedded orchestration across workflows, care delivery, and financial operations requires that. As a delegated, payer-agnostic platform, we sit at the center of the healthcare 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 healthcare journey. That creates two 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 engagement 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 translate 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 prospects onto the Estrana 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 of 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 models due in part to our longitudinal patient relationships. On the exchange, attrition tracks 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 CarePartners revenue and around 40% of own 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 four strategic pillars we have discussed consistently over the past several years. Discipline 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 transactions. We have completed financial standardization, established full visibility into medical economics, and aligned clinical workflows under the AstronaCare model. Gross provider retention remains above 99% for the quarter, and we continue to track towards the high end of our $12 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 1st 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 Estrada. 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 Estrana 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 John.

Thank you, Brandon, and good afternoon, everyone. Our first quarter financials reflect solid execution and a strong start to 2026, driven by 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 Estrano 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 Estrada 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 2.3 times, down from 2.6 times 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 zero 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 zero contribution from HCLOS. 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 billion. 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.