Astrana Health Inc.

Hello, everyone, and welcome to Estrana Health's second 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 Estrana Health, and Chandan Basho, Chief Operating and Financial Officer. The press release announcing Astrona Health's results for the second quarter ended June 30, 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 Astana 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 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 expectations reflected in these forward-looking statements are reasonable as of today, those statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. There could be no assurance that these expectations will prove to be correct. Information about risks associated with investing in Estrana 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, except as required by law. Regarding to 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 Estrana Health's president and chief executive officer, Brandon Sim. Please go ahead, Brandon.

Good afternoon, and thank you for joining us for Estrana Health's second quarter 2026 earnings call. Today, I'll begin with an overview of our financial results, then discuss how our care model and AI Native Operating System for Healthcare are accelerating our ability to deliver high quality patient-centered care at scale. I'll then provide an update on the prospect integration following our first full year together. Finally, I'll discuss our strategic positioning in each line of business and provide color on our guidance before turning the call over to Chan. Estrana delivered another strong quarter. reflecting continued momentum across the business. We saw accelerating demand from payer and provider partners, continued maturation of our value-based care cohorts, disciplined medical cost trend management, and expanding operating leverage driven by our proprietary technology platform. In the second quarter, we generated revenue of $973 million, up 49% year-over-year, and adjusted EBITDA of 69 million, up 43% year over year. Adjusted diluted earnings per share reached a record high 80 cents, up 45% year over year. Our business continues to generate substantial cash. Free cash flow totaled 93 million in the first half of the year, representing approximately 69% conversion of adjusted EBITDA into free cash flow. That cash generation, combined with continued earnings growth, has enabled us to continue deleveraging ahead of schedule. Net leverage declined to 2.26 times on a trailing 12-month basis. As a reminder, when we first announced the prospect transaction, we committed to reducing net leverage below 2.5 times within 24 months. We've already surpassed that goal by approximately a quarter turn in half the time. These results continue to demonstrate the scalability of our AI-native healthcare operating system and the consistency of its execution. There is an important distinction between simply adopting AI and actually creating value from AI. We believe that durable competitive advantage comes from owning the orchestration layer where data, workflows, clinical decision making, Thank you for joining us. is intelligent automation that spans the organization, becomes more capable over time, and creates more value as the platform scales. Building that operating system has required years of healthcare expertise, proprietary data, workflow development, and organizational learning, creating a set of capabilities that we believe are difficult to replicate. Just as importantly, we've paired that operating system with a delegated, pair agnostic business model that captures the economic value that those better decisions create. That foundation is reflected in our execution across our four longstanding strategic priorities. First, we continue to grow responsibly. Our growth has never been constrained by demand. It's constrained by the economics of each new cohort that we onboard. Every new cohort requires upfront investment before reaching at-scale profitability, and our objective is to maximize long-term value by balancing growth with profitability. That equation is changing. As our AI-native healthcare operating system continues to improve, every new cohort we onboard generates stronger risk-adjusted returns. New cohorts become more predictable Thank you for joining us. accelerating growth by onboarding additional high return opportunities while simultaneously exceeding our profitability expectations and raising our guidance for the year. On the payer side, we signed new Medicare Advantage agreements in Hawaii and Texas, expanded existing relationships in California, and saw strong demand across the platform. On the provider side, Both our care partners and care enablement pipelines continued to strengthen, including planned new physician partnerships in the South and on the East Coast that we expect to begin contributing to revenue in 2027. We also continued to execute on disciplined strategic tuck-in acquisitions within our expansion markets, further strengthening our care delivery capabilities. We expect these investments to progress along the same maturation curve and become meaningful contributors to earnings over time. Second, we continue to progress prudently into full risk arrangements. In value-based care, success isn't about avoiding risk entirely. It's about reducing the uncertainty associated with that risk. Our platform continuously strengthens our ability to predict and influence the drivers of performance, fundamentally improving the risk-adjusted economics of value-based care. Our competitive advantage isn't a greater willingness to assume risk. It's a greater ability to reduce uncertainty through better clinical and operational execution. As a result, we're able to responsibly pursue full risk opportunities that others may view as too uncertain. while maintaining the same disciplined underwriting standards. The full risk contracts that commenced in Q1 continue to perform in line with our underwriting expectations as those cohorts mature. At quarter end, approximately 81% of capitation revenue and 42% of our membership came from full risk arrangements. Our expansion markets continue to validate the portability of our operating model. In Texas, our delegated full risk partnership with a large national payer is now two full quarters into operation and continues to perform in line with our expectations. Based on that performance, we continue to expand our presence in the market, including adding approximately 3,000 new Medicare Advantage professional risk lives with the payer that selected Estrana as its risk partner. Third, we continue to manage medical cost trend through better care. Historically, risk stratification determined which patients received scarce clinical resources. Today, it increasingly determines how every patient receives care. Higher risk patients continue to receive physician and nurse led interventions, while lower risk patients receive AI enabled navigation, outreach, and Longitudinal Monitoring. AI does not replace clinicians. It extends their reach across a much larger portion of the population without compromising quality. On a year-to-date basis, overall medical cost trend remains slightly better than our full year assumption of approximately 5.2%. Medicare Advantage and Original Medicare continue to perform favorably relative to our expectations. Medicaid cost trend is tracking in line with our expectations. And although commercial has run slightly above expectations in the quarter, we are confident in our ability to manage those trends through the clinical and operational levers enabled by our delegated model. For the 2024 performance year, our flagship MSSP ACO ranked seventh out of 476 ACOs nationwide in net shared savings per beneficiary. while our flagship ACO Reach entity ranked in the top 15% nationally in net shared savings. Fourth, we continue to expand operating leverage as we scale. Across the business, our AI agents are creating capacity, improving productivity, and enabling our teams to focus on higher value clinical and operational work. For example, in claims operations and referral management, AI-powered workflows have reduced handling time by more than 50%, creating operational capacity equivalent to approximately 60 full-time employees over the past 12 months. As a result, G&A as a percentage of revenue improved approximately 210 basis points year-over-year in the second quarter. And we continue to expect to exit the year with G&A at approximately 6% of revenue. Taken together, these four pillars demonstrate how Astrana's operating system for healthcare translates into measurable economic value. And we believe that's what fundamentally differentiates Astrana. Now, turning to Prospect. July 1st marks the one-year anniversary of closing the Prospect acquisition. Over the past year, we systematically integrated Prospect onto the Astrana operating system. bringing clinical operations under a unified care model, embedding the workflows and technology that have driven our historical performance across the enterprise, and establishing a unified operating and financial framework across the business. The results continue to validate that approach. Gross provider retention has remained above 99%. We continue to expect operating expense synergies at the high end of our annual target of 12 to 15 million, and medical cost trend within the legacy prospect business continues to run slightly ahead of our expectations. More importantly, we've established the operational and clinical foundation that we believe will continue to drive improvement over the years ahead. Now turning to the positioning of our portfolio. We continue to actively position our business for long-term value creation while remaining disciplined in our planning assumptions. We exited the quarter with approximately 1.5 million members in value-based arrangements, with year-over-year membership changes driven primarily by Medicaid-related attrition that was already contemplated in our guidance. Medicare Advantage membership remained stable during the quarter. In the exchange product, we continue to expect full-year attrition consistent with both our guidance and our internal planning assumptions. And in Medicaid, we continue to see attrition tracking towards the high end of our expectations, while adverse selection continues to be in line with expectations, as we shared last quarter. While these dynamics remain fluid across the industry, we remain comfortable with the assumptions embedded in our outlook and continue to plan conservatively. At the same time, We are continuing to improve the quality and alignment of our portfolio. In California, we're rebalancing portions of our Medi-Cal business by transitioning members from professional risk arrangements into full risk arrangements in response to changes in the state's Medicaid program. We expect these transitions with several of our health plan partners to occur over the next 12 months and view them as a natural progression of the strategy we've discussed over the past several years. Before I turn the call over to Chan, I'd like to provide a bit of color around our raised adjusted EBITDA guidance for 2026. Our underlying performance continues to run ahead of plan. Rather than allowing all of today's outperformance to flow through to earnings, we've deliberately chosen to reinvest a substantial portion of that into the provider and payer growth opportunities that I mentioned earlier. In aggregate, these investments are in the mid to high single digit millions of dollars this year. As I discussed earlier, our operating system continues to improve the economics of growth, giving us the confidence to capture more of the demand available to us, even while maintaining the same disciplined investment standards. We believe that allocating some of our outperformance is among the highest return capital allocation decisions available to us and will continue to compound our earnings power over time. With that, I'll turn the call over to Chan.

Thank you, Brandon, and good afternoon everyone. Our second quarter results reflect disciplined execution across the platform. Adjusted EBITDA finished towards the higher end of our guidance range and Free Cash Flow Generation remain strong. Also, we made meaningful progress on the balance sheet, retiring $92 million of debt during the quarter. Today, I will cover three areas, our second quarter financial performance, including medical cost trends, the balance sheet and free cash flow, and our updated outlook for the year. Total revenue for the second quarter was $973 million. up 49% versus the prior year period, driven by organic growth in our care partner segment, the prospect acquisition, and continued ramp up of our full risk contracts. Second quarter revenue was impacted by a one-time $15 million reduction related to CMS's implementation of the adjustments for significant anomalous and highly suspect billing activity for the ACO REACH 2025 performance year. Despite this, we are reaffirming our full-year revenue guidance of $3.8 to $4.1 billion. Adjusted EBITDA for the quarter was $69 million, up 43% versus the prior year period and near the high end of our guidance range of $65 to $70 million. This reflects controlled trend, solid performance across our full risk arrangements, continued realization of prospect synergies, and disciplined cost management. Net income attributable to Estrana was $20 million. Adjusted EPS was a record $0.80 per share, up 45% versus the prior year period. Turning to GNA, we expect to be approximately 6% of revenue for the full year. Free cash flow for the first six months was $93 million, an increase of $29 million from Q1 2026. We remain on track to deliver full-year free cash flow within our guidance range of $105 to $132.5 million. On the balance sheet, deleveraging moved from commitment to execution this quarter. We used our strong cash generation and position to retire $92 million of debt, bringing pro forma gross leverage down to 3.8 times from 4.2 times at the end of the first quarter. We ended the quarter with $401 million in cash, $579 million of net debt, and pro forma net leverage of 2.26 times on a trailing 12-month basis. As Brandon discussed, we're raising our full-year 2026 adjusted EBITDA guidance to $255 to $280 million. The increase reflects broad-based outperformance across the business, including the continued maturation of our full-risk cohorts, continued realization of prospect synergies and operating leverage from our AI native operating system. We are raising guidance even while continuing to reinvest a substantial portion of our outperformance into attractive long-term growth opportunities. These investments include growth in our core and expansion markets, newly onboarded pair contracts, plan provider partnerships, disciplined strategic tuck-in acquisitions, and recently converted risk cohorts that remain early in their maturation curves. We continue to believe these investments will generate attractive long-term returns while further strengthening our earnings power over time. On revenue, despite the one-time 2025 ACO REACH billing related adjustment, the continued ramp up of our full risk contracts keeps us comfortably within our previously communicated range. Accordingly, We are reaffirming our full-year revenue guidance of $3.8 to $4.1 billion, as well as our free cash flow guidance of $105 to $132.5 million. Our outlook continues to assume zero contribution from HQAF and conservative Medicaid membership trends. We expect greater clarity on both items as the year progresses. For the third quarter of 2026, We expect revenue between $1 and $1.03 billion and adjusted EBITDA between $72.5 and $77.5 billion. Taken together, our first half performance, including record profitability and earnings growth, strong free cash flow generation, and continued operating momentum gives us confidence in our updated outlook. We enter the second half of the year with momentum, strong balance sheet, and confidence in the long-term trajectory of our business. With that, operator, we're happy to take questions from the audience.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participant choosing speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please ask one question and one follow-up question and re-queue for any additional questions. Our first question is from Ryan Daniels with William Blair. Please proceed.

Yeah, hello. This is Matthew Mardula. I'm for Ryan. Thank you for taking the questions. So with you talking about outperforming the full year trend assumption of about 5%, what cost trend are you currently at? And then with commercial above trend, What is impacting that segment and is it the exchange segment? And then lastly, did any segment cost trends needed to be revised versus your expectations?

Hey, Matthew. Thank you for joining the call. I think there are a few questions. First on trend, year-to-date overall trend is tracking slightly better than our guided 5.2% assumption blended across the business. By line of business, Medicare Advantage and Original Medicare are slightly favorable to our overall trend. Our ACO populations and Original Medicare are performing well. Medicaid is in line with that trend number, and that was inclusive of potential adverse selection effects in our guidance. And commercial, as I mentioned earlier, was slightly above. On commercial, we feel comfortable with our ability to inflect that throughout the year. and it's only slightly higher than what we had anticipated. So we're not anticipating changing our guidance at this time.

Great, thank you for that. And then with the new members added in Texas, Hawaii, as well as in California for Medicare Advantage, and with you talking about continuing to expand membership, as we think about expansion, is MA the area that looks most favorable to you? and as we think about into the second half and into 2027, should we be expecting MA membership to continue to grow and do you believe this could maybe offset that decrease in Medicaid membership?

Our model is based on being pair agnostic. However, given some of the changes in Medicaid that are to come, naturally there is a higher percentage of revenue that will be coming from Medicare both Medicare Advantage as well as Original Medicare going forward.

Great. Thank you for taking all the questions.

Our next question is from Jack Fleven with Jefferies. Please proceed.

Hey, good afternoon, guys. Thanks for taking the question and congrats on a solid quarter. Apologies if you tread over this a little bit, but I guess I wanted to just touch on MA a little. and really two things, I guess. I know it's a little early without landscape files or other things, but maybe what you're hearing or seeing from payers, given we are past bid deadlines or any chatter that might be in the marketplace on sort of where those things are aligning. And then secondly, as you look at trend and opportunities to moderate there, any pockets you can call out or areas you might see that could be potential drivers of upside in MA as we progress through the year and into the out years.

Hey, thanks for the question. I mean, first of all, on the plan, I know that it's public yet. We do work closely with the plans, especially in those provider-specific plans that we develop in partnership with our plan partners to find the right benefits for the populations that we're serving and ensure that the benefits are driving better care coordination and better access to care for those members. I think it's a bit early to comment on the exact bids, but I do think that We feel confident that our success in Medicare Advantage will continue into 2027. Of course, in California, which is our core market and a very competitive market for me, there are always going to be, as we've seen in past years, folks who want to grow their plans dramatically. But this has been a recurring theme and we've managed through that and we understand how to do that and kind of spread our membership across and our portfolio of health plan partners as we feel confident kind of going to 27, especially with where the final rate notice was. In terms of potential opportunity, there are always opportunities to continue moderating medical cost trend. However, we're already seeing that outperforming our overall expectations and we feel confident that we can continue doing that going forward. For example, inpatient admins per K in our Medicare business were very well controlled and relatively flat year over year here in the first half of the year. That being said, you know, there's always opportunity to more appropriately code our members. As we had mentioned before, our risk scores are approximately 1.0, which we believe is lower than the average for Medicare Advantage. So that's something that, you know, in the medium term we will be looking to capture and diagnose and code more or chart more accurately.

Got it. Okay, really helpful. And then just as a follow-up, the G&A commentary continues to be, I think, pretty optimistic and delivering on some of the upside there. I guess what I'm trying to parse out related to some of the synergies in prospect and then just ongoing efforts you have to make the business more efficient, more automated, more AI forward, if I try to balance those two things, can you just speak a little bit to sort of are those two things Tracking nicely together, is there room to go on prospect within some of the core initiatives you're putting out across the business that are separate from the synergies? We'd love to just hear sort of on those two tracks how to think about the G&A improvements and how that casts forward.

Right. Consistent with what we've been saying the last couple of quarters, we have been measurably improving our G&A or decreasing G&A spend as a percentage of revenue. This quarter, for example, was over 2% lower than the same quarter last year, coming in underneath the 6% mark, and we expect to exit the year at the 6% range. Going forward, we continue to expect to see declines in G&A as a percentage of premiums under management as a result of both increased capture of synergies, which are at the top end of the $12 to $15 million range that we'd previously guided, as well as core operational changes in the legacy of strana. Business. So it really is a mix of both. I don't have a breakdown of exactly which, you know, what percent is coming from each, but it's going to be continued improvements across the board in both capturing synergies as well as improvements in the core platform.

Understood. Appreciate it, Brandon.

Thanks.

Our next question is from Michael Ha with Baird. Please proceed.

Hi. Thank you. On the rebalancing of Medi-Cal lives from professional floor risk, I was wondering if you could elaborate more on this. What's driving it? Is this related to the increased payer appetite you mentioned in your remarks? Is there increased appetite from these Medicaid plans in California? We're facing elevated margin pressures. I mean, how many lives are you expecting to convert over the next 12 months? And how should we think about the expected earnings impact?

Hey, Michael. Thanks for the question. I think there are a couple of dynamics at play in Medicaid, especially in California for the Medi-Cal program. One part of it is that a lot of our care model is predicated on saving dollars across both outpatient and inpatient utilization. And so in areas or contracts in which there is no path to a full risk arrangement or in areas where we can push towards a full risk arrangement, we believe that allows us to better align our performance with the financial outcomes that we received from those contracts, especially in a time of compressing margin and disenrollments in California, both now and potentially in 2027 and beyond after OBVBA comes online. We're making a further push to emphasize that we would want to be fully accountable for the results that our model is driving across all lines of business, but certainly especially in the Medi-Cal business, which we call that in the prepared remarks. We also believe that These transitions are generally amenable for our plan partners and we expect in the order of tens of thousands of members conservatively moving into these arrangements over the next call it 12 months as I mentioned in the prepared remarks. We aren't currently sizing the economics necessarily tied to that. I think what's important is that we want to be aligned with our health plan partners. We want to deliver and be rewarded for the outcomes that we're driving. and we believe that moving to full risk arrangements which we have already started as I mentioned with one contract in the remarks this quarter but continuing to do so in the next year will help us align in that fashion.

Great, thank you. And on risk score capture which you talked about in the other question, I guess when I think about it, over the past few years you've had pretty nice improvement growing your RAF. I think it has grown like 5% from 0.97 to 1.02 all during V28. And I mean, now that V28 is ending, I'm trying to think, how should we think about the go forward annual RAF improvement? Would it be fair to presume if you were able to do 5% growth during one of the toughest risk coding environments, V28, that heading out, it might even be greater RAF improvement? So I was wondering if you could talk more about your internal RAF initiatives, investments, being made. Are you embedding AI into this coding function? And even for this year, just wondering, how are your AWV rates tracking you today so far? Thank you.

Thanks, Michael. We've historically been strong at the annual wellness visit, you know, driving that engagement with our patient base, especially in the Medicare population. That's something that we report and track as an internal KPI that's important to us in terms of our ability to get the patients in and really assess them in a comprehensive way. We view RAF and charting as a natural consequence of that, not the primary motivation. Our model, as you know, is primarily focused on driving coordination, access and better outcomes and kind of as an ancillary function charting appropriately so that we're being reimbursed in a fair manner. We believe that improvements in RAF or existing cohorts will continue as before. that being said as we continue growing membership in new regions there's you know it really depends on what the RAF is for the new cohorts coming in and so the blended average of that you know is impactful to the overall RAF number but we do believe as historically as in historical periods that over time each cohort does improve in terms of the risk adjustment profile and we think that there's still upside in the medium term from being and more appropriately coded in our Medicare population.

Our next question is from Jill Andrea Singh with Truist. Please proceed.

Yeah, thank you and thanks for taking my questions. First, I want to ask about second half EBITDA guidance and the implied Q4 outlook. It implies a pretty wide Q4 range of 47 to 67 million. I understand Q4 is seasonally weaker quarter, but the low end seems to imply a meaningful step down from Q3 levels. Is there anything meaningfully different in Q4 versus Q3 this year versus prior years? If not, can you help us understand the swing factors in the Q4 outlook?

Hey, Jalandhra, thank you for the question. I think if you're focused on the width of the range, I think that's primarily an artifact, frankly, of just the range that we got to do for the year versus the quarter. I think how we would think about it is that the Q3 and Q4 cadence is very similar to past years. Q3 is typically a much better quarter, in fact, the best quarter of the year. and there's a sequential step down into Q4 relative to Q3, but I would not, I'd be more focused on the midpoint potentially than the range necessarily, which is just an artifact I think of the range of the annualized guidance versus the quarterly guidance.

Okay, and then we didn't hear any thoughts on 2027. You have talked about mid to high themes, year over year organic EBITDA growth in 2027 first. I wanna confirm any, see if any changes to that thought process. And related to that, how are you thinking of Medicaid? What requirement headwind next year? Is that captured in that mid to high teens number? And the investments you're doing this year, do they have potential to drive incremental growth next year or they are more like supporting your mid to high teens group? How should we think about that?

Yeah, definitely. I think we have said and we'll stand by and reaffirm you know, medium term, mid to high teens, not just for 27, but into the medium term years as well. You know, there are, you know, Medicaid changes starting 1-1-27, as is well known. And we think that based on the portfolio rebalancing and the changes we are making, we will have the right levers, you know, to continue growing in that range in the go forward basis. In terms of the investments that we're making, as I mentioned, we're investing mid to high single-digit million dollars. Primarily, these are essentially losses in new contracts and new geographies to take on membership faster than we would have otherwise planned. Now, these may not flip to profitability necessarily in 27, but any losses related to them would be contemplated into our 27 guide when we put that out. It's possible, depending on the cadence, some of the cohorts may turn positive more quickly. especially as we continue to compress the you know the slope of the J curves that we have given our operating system but you know at this time we're contemplating kind of a more normal cohort improvement as in historical periods.

Okay and one more if I can sneak in here you know some of the large health insurers have talked about like exiting Medicaid markets. Some have talked about shrinking their exchange footprint and some talk about exiting certain MA plans. Some of these decisions are for 2027 and I understand you don't have much exposure to some of these health plans, but I believe others are partners. Generally, how much lead time do you get to contract with plans, winning those lives, is that membership risk or share gain for a dense delegated network? Just help us understand how quickly we can shift these and how much lead time we have generally when plants exit or get out of these markets.

Yeah, that's an interesting one. I mean, that really depends pair to pair. I think what really helps us is our unique pair agnostic model. The idea is that we are acting as a coordinated, unified network for our downstream delegated networks. And so, for example, if one payer were to exit a certain market or exit a certain product, those members are still there. They will still be needing insurance. They may go to a different plan, a different product. And the idea is that because of our unique model, our providers are not negatively impacted by that because it would simply be a switch in ID card benefit, et cetera, and the providers would be extracted away from those changes We would handle that on the back end for our providers. That being said, recently we typically get around a few months in advance of some of these things happening, and our teams are preparing to make sure that those members are moving to a plan that we do have a contract with so that their care is not interrupted and that operationally the providers are not being disrupted either.

Great. Thanks a lot.

Our next question is from David Larson with BTIG. Please proceed.

Hi, this is Jenny Shen on for Dave. Thanks for taking my question. I just wanted to ask about some of the member attrition that you referred to earlier, just Any thoughts on what you're seeing, what you saw this quarter versus last quarter? We were under the impression that the declines that you were seeing were pretty favorable, especially compared to some of your peers. Has that accelerated at all? And if you could put any numbers or quantify that, that would be great. Thank you.

Thanks, Jenny. Say hi to Dave for us. So on Medicaid, or sorry, on nutrition broadly, They were largely in line with expectations, breaking that down a little bit by line of business. California Medicaid is in line. It's not a great picture, but it is in line and towards the higher end of the low to mid-teens kind of range that we had provided before in terms of Medicaid attrition in California. That was within the guidance and is fully contemplated in the revised 2026 guidance that we put out. In terms of the exchange, it is actually running a little better than our 30 to 40% assumption at the beginning of the year. However, out of conservatism, we're still contemplating the 30 to 40% range for our full year guidance. And then Medicare, both original and Medicare Advantage, that's fairly stable. So I would say really the only area, if we're watching something for sure, is in Medicaid. But as I mentioned, that's the source of some of the strategic balancing and kind of focus on taking full accountability for our members in Medi-Cal.

Perfect. Thank you.

Our next question is from Andrew Mock with Barclays. Please proceed.

Hi, a couple of questions on the revised guidance. First, you noted mid to high single digit reinvestment in the business. So if you're reinvesting, say, seven plus million from the first half and still raising the guide by two and a half million, is it fair that the first half outperformed plan by 10 million or so? And is there anything driving that outperformance that's one time in nature that wouldn't necessarily recur in the back half? Thanks.

Andrew, thanks for the question. I think probably, yes, that's fair. There are obviously puts and takes here and there, but yeah, we felt we were very happy to be able to improve guidance, admittedly by a small amount, but also reinvest, call it three quarters or so of that back into growing quicker into new markets, some new provider partnerships that I mentioned, taking on new blocks of membership and winning organic growth in some of our expansion markets. Like I mentioned, that sets us up really nicely for continued medium-term and long-term earnings expansion. In terms of one-time items, there was not really anything large one time here. There was an immaterial net effect of prior period development. Do you want to get ahead of that? That when we file the queue very shortly here, you will see some positives. claims restatement from prior periods. That being said, there were also changes in revenue, stop loss, provider share, et cetera. And so on net, the prior period items were immaterial. So in our view, it was purely outperformance, and we reinvested, call it around three-quarters of that outperformance into future growth.

Great. And just a follow-up to your response, I think, to Jalindra's question. You noted that Q3 is the best quarter of the year from an EBITDA perspective. Why exactly is that? And does IRA have meaningful – is that going to have a meaningful impact to seasonality this year, different from last year? Thanks.

Yeah, of course. There are a couple of main reasons for that. It's primarily related to when we accrue and take – you know some of the profitability from for example the MSSP program out of conservatism we typically do not take any of those dollars until until Q3 when we have better visibility even if we are fairly confident that you know we're doing well in that program in terms of other leading metrics there's also sweeps for example in Q3 that we are that we typically take in Q3 IRA is not a really large impact as we've said before we don't really take Part D is in dog risk typically, and if we do, it's very minor. It's really driven by the ACO programs and sweeps in Q3. Great. Appreciate all the color. Thank you. Thanks.

Our next question is from Ryan Langston with TD Cowen. Please proceed.

Thanks. Good evening.

I want to go back to this $15 million revenue reduction, John, you called out, I think in ACO Reach. Can you elaborate what's driving that? Like, is that related to operations for Estrana?

And maybe give us a little bit more detail how that's affecting the P&L. Did that hit all in the second quarter and maybe how that flows through to EBITDA?

Hey, Brian, how are you? So the $15 million is associated with claims tied to the fraud, waste, and abuse for the ACO REACH program billings. So that is a revenue reduction for 2025 periods, as well as an expense reduction also for the 2025 period.

So there was no impact to EBITDA? Sorry.

There was a slight, when you net it out, it's really immaterial.

Okay, got it. And then I noticed, I think, management fee income was up pretty substantially in the first half of the year versus last year. Is that related to the prospect transaction? Maybe just elaborate a bit on what's driving that? Thank you.

Yeah, it is related to, and you should probably see that in Q3 and Q4 last year also. It's related to the clients that... Estrana began managing post the prospect acquisition.

There have also been some new client wins. You know, I think we mentioned that on the Q4 call that started 1-1-27. So kind of in combination, inorganic and organically, we continue to grow that business, which we're excited about. It's a nice kind of EBITDA margin business and continues to play into the AI capabilities that we're developing in-house. Got it. Thank you.

Thanks, Fran.

Our next question is from Matthew Gilmer with KeyBank Capital Markets. Please proceed.

Hi, thanks for the question.

On the theme of automation, the slide presentation referenced a statistic about Astrona driving over 500,000 automated member encounters per month, and I was kind of curious what the nature of those interactions were and what the benefit is to the company from those interactions.

Hey, thanks for the question. Those are automated member interactions including, for example, voice interactions, scheduling interactions, text messages, you know, medication reconciliation, transitions of care, things of that nature, letters as well, or interactions, notifications pushed through our member-facing applications or websites. And as I mentioned, the prepared remarks, you know, historically, the idea of risk stratification was that you would use that to limit the types of resources that our members get simply because of the constraint on the amount of humans and time that people have. I think what's really exciting about AI partially is certainly reducing the amount of G&A. That's great. And we're doing that certainly to a large degree, as you can see in the G&A numbers. But even more exciting to me is that we truly have the ability to fulfill the potential of getting people more care, especially folks who are living in potentially more rural areas or places where it's harder for them to get to physician's office and being able to engage with them more frequently to support lower cost trend and lower utilization without sacrificing quality. And so it's a question of not having to pick and choose who you're gonna engage anymore because you have limited time. Now it's a question of, What kind of interventions do you choose? Do you have a nurse reach out? Do you have someone go to the home? Or is an AI-supported patient engagement enough? And you just kind of decide when you escalate that, if necessary, into an in-person engagement. So that's only going to continue to grow, I think, over time. But we're excited because it means we get to not only find some G&A savings, but also over the long run, we believe there will be AI-enabled kind of MLR improvements as well. Just to be clear, we're not underwriting that into our guidance necessarily, but we do think it'll be great for the outcomes of our patient populations.

Got it. That's great.

And then as a follow-up, on the trend discussion, I wanted to see if there was anything to call out in terms of the categories of costs that are trending better within the MA and Medicare book.

the categories of costs that are maybe running a little bit higher for commercial. And anything noteworthy to call out there?

Yeah, sure. Medicare has really been a broad-based, strong performance. In particular, we're proud of the inpatient admits per 1,000. That's a number that continues to be extremely stable year over year. And I think it's a testament to the care model and the work of our teams, the work of our clinicians and providers. really a lot of the trend is really only just the unit cost increase and not so much number of units because the average per care is so stable kind of year over year in the Medicare book of business. In commercial, slightly above expectations. We believe it's very manageable. In commercial, of course, there's only a single digit percentage of revenue to begin with, but it's really concentrated in some of the outpatient specialties, interestingly, and we think we have the levers to really address that this year and don't anticipate that impacting our guidance much of it all. Okay, thank you.

As a reminder to star one on your telephone keypad if you would like to ask a question. Our next question is from Matt Shea with Needham and Company. Please proceed.

Yeah, hey, thanks for taking the questions. An apology if any of this was covered, juggling a few calls here tonight. But congrats on the wins in Hawaii and Texas. Maybe off of those, how does Hawaii fit the delegated model? What makes this market attractive? And then in Texas, maybe help us understand why the Texas ad coming in is professional risk rather than the fully delegated risk. and so forth. So, you know, it's a really interesting construct that you've been leading with since the start of this year. Is that a deliberate partial risk first on ramp type of stance? And if so, how are you thinking about the timeline to full risk?

Yeah, sure thing. You know, Wai is an interesting market for us. It's a market that is obviously smaller, you know, than Texas, but we like it because it represents an opportunity to, you know, Provider Entity, a provider group in the state, given that, again, the size is much smaller and there's an opportunity to do that. As you may recall, we actually entered Texas in partnership with an electronic health record company. And so there's also opportunities where we've been more deeply embedding our technology platform directly into the EHRs that the providers are already using in Texas. We are seeing good performance in Texas and want to continue growing our presence there. I'm sorry, Hawaii, I apologize. Well, Texas too, but Hawaii first. And in Hawaii, there actually is a history of some elements of delegation. There were other organizations, provider organizations in Hawaii who have some semblance of delegated risk. So that's something that we're working on. Yeah, I'm sorry. In the first half, I meant Hawaii, so I apologize for misspeaking there. Texas next. Going forward in Texas, you know as we mentioned before the 15,000 lives in the full risk contracts delegated the professional lives that we're adding the 33,000 members are also delegated just not in a full risk arrangement it's a partial risk arrangement first and those are net new members to the organization so in the full risk members we had some gain share kind of constructs for those members already and then we moved them up the risk curve as in the second pillar of our strategy for these members these are net new members that we're starting off in a partial risk arrangement. It is still delegated, similar to our partial risk members in California. And kind of going forward as performance matures, we would hope to move them to full risk construct in Texas too. Sorry for the mix up on, got too excited about Texas. Thanks.

No worries. Helpful color there, Brandon. And maybe a higher level one, just on the tech stack, part of our thesis is that fragmented peers can't replicate the integrated data and orchestration layer that that you have, even as they spend heavily on AI. It sounds like with the EBITDA outperformance today, there's a good amount of reinvestment in the outlook. But curious on that reinvestment, is any of that going into incremental tech or AI innovation? And then if we take a step back, are you seeing your tech leadership relative to peers compound at this stage? Or any way to think about how much you're pulling away from peers from a technological perspective?

Yeah, I think the majority of the reinvestment or really all the reinvestment for this that we talked about this quarter is really first going into the provider and payer growth. I think down the line there may be prudent reinvestment that we make in AI. A lot of that is already contemplated in our existing guidance as we had done that in previous years and talked about that in previous years. We try to be very prudent with our AI spend. Even though we're developing things in-house, We have our own engineers. We're not developing, you know, we're not developing the, you know, training our own models ourselves, but we're developing our entire orchestration stack ourselves in-house. You know, that is being done in a very prudent way that doesn't, you know, we're not going to go out and spend $200 million, you know, building out AI. But I think we've gotten results and ROI far and beyond what we've invested in the platform. And in terms of the talent level, You know, we are always looking for new talent, 100%. That's never going to stop. In fact, just this quarter, we added, not on the technology side necessarily, but we added two senior executives that we put out a press release about in enterprise transformation and to lead a provider growth practice. So it's something that we're always focused on. On the engineering side as well, you know, we continue to add new engineers and upgrade that talent. And I think relative to the industry, you know, we think we are, you know, working really hard and building some cool things and hopefully our providers agree with that as well and certainly the outcomes will reflect that.

There are no further questions at this time. Thank you all. This will conclude today's conference. You may disconnect at this time and thank you for your participation.