Astrana Health delivers 100% revenue growth in Q3, updates 2025 guidance due to risk transition timing

OPERATOR - (00:00:57)

Good day everyone and welcome to Astrana's Health third quarter 2025 earnings call. @ this time, all participants are in a listen only mode. Later, you 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 30, 2025 is available at the Investors section of the company's website@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 Astrana Health's website after the conclusion of this call. Before we get started, I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward looking statements within the 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 plan 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 Astrana 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 market conditions or otherwise accept as required by law. Regarding the disclaimer language, I would like you to refer you to slide two of the conference call presentation for further information. With that, I'll turn the call over to astranas Health President and Chief Executive Officer Brandon Sim. Please go ahead. Brandon.

Brandon Sim - (00:04:21)

Good afternoon and thank you for joining us on Astrana 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 costs. And as we integrate new partners and scale our automation and AI capabilities, we continue to unlock operating leverage for 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 Astrana's core business remained firmly within expectations during the third quarter, underscoring the consistency and predictability of our operating model in both the Legacy Astrana 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 Astrana 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 Strana 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 prospects, physician groups and care teams to the astrana 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 payer agnostic platform serving all lines of business, Astrana 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 the 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 Astrana 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 Astrana 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 trajectory. Before I hand it over to Chon 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 Estrada 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 and in. A complex and evolving environment. Astrana's mission remains clear to build a sustainable, coordinated health care 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.

Chan Basso - Chief Operating and Financial Officer - (00:18:18)

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 Prospect's trend performance more in line with that of Legacy Astrana. Operating expenses as a percentage of revenue declined modestly with the integration of Prospect and 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 2.5x on a pro forma trailing twelve 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 cash flow 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 payer 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 question.

OPERATOR - (00:21:38)

Thank you. We will now conduct a Q and A session. If you would like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. One moment please while we pull for questions. Thank you. Our first question comes from the line of Jalindra with Sing and with Truist Securities. Please proceed.

Jalindra - (00:22:24)

Rasim from Truist Securities. Thanks for taking my questions and congratulations Brandon for the new addition to your family. My question on the Revenue Guidance update driven by full risk transition timing delay, were they related to one pair or multiple pairs? You called out tech and data integration. Can you be more specific there were these contracts in a prospect side or legacy Astrana and do you have enough clarity at this point that this will affect definitely go live one one or is there a chance of delay further and related to that? Does this delay impact in terms of how you are approaching other partial list to fullness transitions?

Brandon Sim - (00:23:06)

Hey Jalindra, thank you for the question. Thanks for the warm message. So on the delay, the delay was. Strictly a timing issue. We remain committed to completing the transitions in the first quarter of 2026. It does relate to both Legacy Astrana and the Prospect businesses as we're ensuring contract standardization across both of those businesses and consolidating them into one. The delay was not due to technical or technology or data issues. In fact, as I described in my prepared remarks, we are making significant progress in integrating Prospect's team and onboarding teams onto our AI enabled platform, including the capability to have real time utilization information and data on our population. Rather, around half of the delay to. Dive a little deeper is procedural in nature such as regulatory filings and making sure that there is a bidirectional data and operational feed. Half of that delay we expect to be finalized on 1 1. The other half we're in late stage conversations and do anticipate finalization in Q1 of 2026. This is across several payer partners, not just a single entity. I just want to remind everyone that. We are very collaborative partners with our payers. We think that these contracts will mutually benefit both parties given our unique high quality networks that are differentially well managed. And we're confident again that these contracts will commence in the first quarter of 2026. On the revenue item, you know a bit of seasonality on Prospect, but we're not expecting necessarily a step down in the core revenue of the business other than from these full risk delays. Thanks Jalindra.

Jalindra - (00:24:52)

Before I actually ask my follow up quickly, just make sure that ebitda reduction of 10 million also all because of this timing delay, right?

Brandon Sim - (00:25:02)

That's right. Core trend, medical cost trend in both. Legacy Astrana and Prospect businesses continue to come in line to slightly better than expected.

Jalindra - (00:25:11)

Okay then my follow up is on the kind of Congrats on the high profile Intermountain Health Partnership. Can you provide any more details around the economics there level of engagement? What does this open up for you guys in terms of new market, new opportunities? Does this provide an opportunity down the road for Astrana to enter additional states where Intermountain has presence? Maybe spend some time there?

Brandon Sim - (00:25:35)

Sure. At the moment we're very excited about the partnership. Intermountain is obviously a huge presence in Nevada as well as other states in that region. Our partnership today is about utilizing Intermountain's very established and large clinical infrastructure and network and combining that with Astrana's unique presence in our care delivery model in Las Vegas and in other parts of Southern Nevada in order to deliver a more coordinated, an accessible approach to members in Nevada. So we're excited to expand our network to have Intermountain be a part of that network and we think it's going to drive great outcomes in AEP as we speak and into next year going forward. We haven't had those discussions yet, but I do think that there are opportunities to continue expanding on that partnership and other partnerships with health systems. So we're excited about that as well.

Jalindra - (00:26:29)

Great. Thanks a lot.

OPERATOR - (00:26:30)

Thanks, Sandra. Thank you. Our next question comes from the line of Ryan Daniels with William Blair. Please proceed.

Matthew Mardula - (00:26:42)

Hello, this is Matthew Mardula on for Ryan Daniels. Thank you for taking my question. And first, Brandon, congratulations on your child and it's great to hear that cost trends were reiterated for Astrana's full year. And in your prepared remarks you mentioned higher Medicaid cost trends continuing to be above trend, although improvements from Q2. When do you expect kind of Medicaid cost trends to come closer to that 4.5%? And we just been hearing a bunch of different timeframes. So curious to hear what you think. And then given the fourth quarter seasonality, what gives you that confidence that you have enough factor into that guide to account for it?

Brandon Sim - (00:27:26)

Thanks, Matthew. We continue to be encouraged by the. Trend that we're seeing. The trend of the trend that is in Medicaid. Look, we do anticipate further continued headwinds in Medicaid as we have some instability in the regulatory environment at this moment. We do think that sometime in 26, perhaps late 26, we expect margins in Medicaid to stabilize. But at this moment we're encouraged by the trend that we're seeing in terms of the improvement in Medicaid. So we'll certainly update the market if anything changes there.

Matthew Mardula - (00:28:07)

Great. And then with the new partnership group in Southern California that serves over 40,000 members across all lines of business. Could you kind of provide a breakdown of the payer type of these 40,000 lives? Do they have a similar split as you and then what's the kind of percentage of full risk lives and then. The kind of last one is also. Do you believe this will be profitable from day one when you onboard them in the first half of 2026?

Brandon Sim - (00:28:35)

Sure thing. It is a similar mix in terms of Medicare, Medicaid and commercial as our as our business today. It is mostly it is actually all shared risk members, not full risk members and we'll help them manage similar to the rest of the care enablement business by charging a fee as a percentage of revenues for that business. We do anticipate it to be additive to EBITDA very early on since our care enablement operating leverage allows us to add new members into that business effectively. Great.

Matthew Mardula - (00:29:12)

Thank you so much for that.

Brandon Sim - (00:29:15)

Thanks Matthew.

OPERATOR - (00:29:18)

Thank you. Our next question comes from the line of Jack Sylvan with Jeffries. Please proceed. Hey guys, congrats on a quarter. This is Megan Holtzah for JACS 11. Can you discuss the margins by segment? In the corner, enablement looks very high while Care Partners lagged a little bit. So what's driving that?

Megan Holtzah - (00:29:37)

Hi Megan, thanks for joining. For the question on enablement, you'll notice as John also mentioned in the prepared remarks that the enablement business grew rapidly in Q3. Part of that is that prospect. The legacy prospect business had quite a large enablement business and clients that we have now onboarded. We're excited by the potential of the care enablement business as these are members that we are managing well with our AI enabled technology platform and we're driving a very strong EBITDA margin in that business and we expect that to continue to grow in the future. We are adding to the care enablement pipeline as I mentioned with a new client and there are several other clients that were, you know, the pipeline is quite strong, you know, in that business.

Brandon Sim - (00:30:22)

On the Care partner side, Care Partners. Margin, we expect it to look a little lower this quarter because as I guided to before, the legacy prospect business does run at a slightly higher trend than the core business. Again, all this was contemplated in our guidance and when we did the deal. So the blended number is going to be a little higher. However, we do see opportunity in the. Future to bring that business more in line with the legacy Astrana Care Partners mlr. There is also a bit of seasonality in there, but overall those are the drivers for the strong care enablement performance. Growth and margin wise as well as. The in line to slightly better than expected care partners margin.

Megan Holtzah - (00:31:08)

Thank you.

Brandon Sim - (00:31:10)

Thanks Megan.

OPERATOR - (00:31:13)

Thank you. Our next question comes from the line of Michael Ha with Baird. Please proceed.

Michael Ha - (00:31:20)

Thank you. Congrats, Brandon. Maybe another one on Medicaid and I know your cost trend guidance is tracking well. You decelerated from 2Q. But if we double click into it a bit more nationally we're seeing elevated member disenrollment trends. And then on a state specific basis, California is something that I've noticed. Recent monthly disenrollment trends have really spiked into July and August and the composition of that disenrollment, it's a bit alarming too. I'm seeing it at roughly 90% procedural disenrollment. So I wanted to ask if you're seeing any recent signs of this attrition in California, if you're seeing any emerging acuity mix shift and then with elevance and United also. Well, not also, but both assuming negative Medicaid margins into next year. Just wondering how you're digesting that all these para developments and how it might be factoring into your early thinking on 26. I know you called Medicaid out as a headwind, but I'd love to hear some expanded thoughts on it all. Thank you.

Brandon Sim - (00:32:25)

Thanks so much, Michael, for the question. We're tracking those numbers closely too from California that I think you're referencing. Overall disenrollment from Medicaid year to date. Has not been as severe as our initial expectations, nor as high as you're probably seeing in the California DHCS reports in aggregate. You know, things are still early, so we'll see how 2026 progresses. But year to date in 2025 we're seeing an annualized mid to high single digit attrition rate in Medicaid in terms of eligibility and enrollment. You know, part of this, I think there are two reasons one really that these are real Medi cal Medicaid members that we have built a longitudinal relationship with. We worked with them over time, whether through line of business change or through as they get older. We really know these members and we. Have known them for a long time. It's part of the strength of our model. So we think that there's a lot of work that we're doing in order to ensure that those who are qualified legitimately continue to be enrolled in Medicaid even in the face of regulatory headwinds. In addition, as members have been disenrolled. We do believe also that plans are Retaining members with us at a disproportionate rate because they want to keep members enrolled in our high quality network and our well managed network. So with all that being said, we'll continue to observe what happens in 2026. Have done some scenario planning internally to deal with these potential headwinds in 26. But this enrollment, you know, in that mid to high single digit range, not as bad as we think. You know, some of the data from the statewide reports are showing. Michael, thanks.

Michael Ha - (00:34:02)

Perfect. Thank you. And just one more question as we look into 27, I know it's a bit early, but the rate notice my early thinking on the effective growth rate is, I mean I think it could be very strong. Elevated 25 fee for service trends seem to be tracking very high. I'm thinking high single digit effective growth rate might even be possible for 27. So when I consider that, I consider how MA is tracking to be almost two thirds of your total revenue and then I consider how your MA cost trend is less than 4.5%. The immediate thing that pops into my head is significant margin tailwind across most of your company. All those hundreds of basis points of exit rates on top of your trend. So a few parts to this question. Firstly, where are you right now in terms of your MA margin? Second, how should we think about margins tracking into next year? I'm thinking margin expansion because rates are good, trend steady benefits are cut again. And then when you think about 27, just would love to hear your thoughts on how a strong rate notice could drive better margins and help out the overall achievability of your 27 EBITDA target of 350 million. Thank you.

Brandon Sim - (00:35:15)

Thanks for the question. Michael And I, and you know that I believe you're a leader in thinking about how MA rates are going to evolve, you know, in 26 or how they have evolved in 26 and how they might evolve in 27. So to answer your question in a couple parts. One, you know, 26 was a, was a nice increase in MA rates, but we don't believe that they fully accounted for the increase in trend as a benchmark. For example, it's not fully apples to apples, but you know, via the ACO Reach RTA report, we're seeing an 8 to 10% trend nationwide. So good report, but we still believe slightly underfunded and we think there's more room for growth in the 27 rate announcement, which I think you also mentioned in your question. We're not sharing per line of business margin at this moment, but we do think that there is room for margin to stabilize and potentially start expanding in 26 and 27 because of these strong rate increases that we're seeing. As I've talked about a lot before, we don't have a strong, we don't have, you know, strong or any headwind really at all around V28. So we feel confident that there is room to grow if the rates come in, continue to come in as expected. It's a bit early for us to exactly quantify what that looks like now as we're still in the middle of AEP and we're looking at how we're growing as well as the shift in distribution across stars in our plan partners. But we do think there's a potential headwind there. As I called out in the prepared remarks, we continue to hope and anticipate that the 27 rate notice, as you mentioned, is going to be strong as well, you know, hopefully in the mid to high single digits. So that is our expectation at the moment.

Michael Ha - (00:36:57)

Thank you.

Brandon Sim - (00:36:59)

Thanks, Mike.

OPERATOR - (00:37:03)

Thank you. Our next question comes from the line of Ryan Langston with TD Cowan. Please proceed.

Ryan Langston - (00:37:10)

Thanks. Good evening. And cool news on the kiddo. Brandon, just I want to make sure about these contracts. I understand it. So you lowered the full year revenue guidance by 60 million at the midpoint, but you also lowered the EBITDA by 15 million. And assuming that's all from these contracts, that implies like a full 25% margin assumption and like a run rate, $60 million EBITDA on these contracts. So is there just other pieces kind of moving parts that are included in the guidance change or are those kind. Of the right numbers to think about?

Brandon Sim - (00:37:47)

Thanks for the question, thanks for the warm message. We believe the run rate is. Close. To $15 million, around $15 million for. The latter half of the year. So closer to a 30 mil run rate really. And the, and the revenue was frankly anticipated to be, you know, frankly a beat, you know, so, you know, the magnitude of the drop is not as severe perhaps as you may expect on the margin assumption there. So those are really the two items around the 4 risk delay. We're talking about a $15 million over half year item that we expect to be fully resolved in the first quarter of 2026. And we, you know, there's not quite the margin that necessarily that you think there is on that business.

Ryan Langston - (00:38:42)

Okay, thank you. And then just one more thing on the, on the prospect commentary, I think you said it kind of beat standalone expectations. I'm sorry if I missed this. You already said it. But does that include any of the 12 to 15 million dollars synergies that you called out that you're reiterating? Or is that just like literally as a standalone entity it exceeded expectations and maybe just a sense on how much it exceeded. If you could. Thanks.

Brandon Sim - (00:39:07)

Sure thing. No, I'm not yet talking about the synergies in that comment. The comment was simply about the medical cost trend, utilization trends and the financial performance of the standalone prospect business. It wasn't, you know, it was a slightly better than expected number which was in line with what we did diligence on. And so we're very pleased to see that that has continued and we expect that there are further synergies on both the top and the bottom line, as well as opportunities to improve MLR and performance going forward into 26 and 27. But to answer your question, it's really. About the standalone business for prospect that the comment was about.

Ryan Langston - (00:39:54)

Okay, thanks. Thank you.

OPERATOR - (00:40:01)

Thank you. Our next question comes from the line of Andrew Mock with Barclays. Please proceed.

Thomas Walshon - (00:40:08)

Hi, this is Thomas Walshon for Andrew. I believe you just quoted the legacy. Astrana blended cost trend figure. Could you share the relevant prospect figure and is the delta between those due to any structural difference between the member populations?

Brandon Sim - (00:40:29)

We haven't shared the cost trend number for the standalone prospect business. Part of that is that the integration has, you know, is combining some of the businesses. Part of the, part of the acquisition was an asset purchase. We continue to expect it to be several points higher on trend than the legacy Astrana business. We don't think that necessarily this is. Something structural in nature. We believe that over time, as we combine the contracts which we're doing now, as we continue to combine and onboard the team into our clinical pathways and our technology platform, there is opportunity to move that margin to look more similar to the legacy Astrana business. And again, the prostate business did perform in line with our expectations, both as a result of the diligence as well as expectations after we've gotten our hands around it. So everything in line and we continue to look forward to improving the performance of both businesses as a combined entity in Q4 and into 2026.

Thomas Walshon - (00:41:34)

Great, thank you.

OPERATOR - (00:41:36)

Thanks.

David Larson - (00:41:40)

Thank you. Our next question comes from the line of David Larson with btig. Please proceed. Hi, I'm sorry if I missed this, but what was your medical trend in the quarter and how does that compare to expectations? Just any color between like commercial Medicaid, Medicare for that trend and then what are your expectations for trend in 26? Thank you.

Brandon Sim - (00:42:05)

Hey, Dave, thanks for the question. The trend across all lines of business blended weighted average was just under 4.5%. Continues to be in line with our expectations for the legacy Strana business. Medicare continues to be better. Medi cal, Medicaid, you know, as I mentioned has sequentially improved. So trend decelerated versus Q2 and continues to be going in the right direction and commercial stable as well. So we're very pleased with the ability, the continuing ability to manage cost trend effectively for our population going forward into 2026. We're not sharing our trend expectations specifically yet. I do think that we're going to be conservative just in the face of some of the regulatory potential headwinds that are coming down the line for Medicaid and exchange. But it's a bit early to share the exact trend assumption at this time. We certainly will do that on our Q4 earnings call.

David Larson - (00:43:05)

That's very helpful. And then do you have any exposure to the exchanges? Another value based care company this evening who reported indicated that exchanges could be very immaterial to their 26 earnings. Is there any exposure there or not? I don't think so. Thanks Dave.

Brandon Sim - (00:43:23)

There is some exposure. We do have exchange membership but it's a fairly small part of the business, around 3% of revenue. So there's, you know, we think it's a manageable exposure to the exchange.

David Larson - (00:43:38)

Great. And then what percent of claims are complete so we can have confidence that there's not going to be any sort of negative surprise in terms of claims costs in the fourth quarter.

Brandon Sim - (00:43:54)

Our completion rates are pretty consistent quarter over quarter over 85%. As a reminder, we haven't had negative prior period development for many quarters in a row now. Can't even count how many. And we continue to be consistent in terms of our medical cost trend forecasting and our ability to actually manage those costs. Notably, we also don't have any negative prior period developments on risk adjustment either. And again we think that's a reflection of our consistent and conservative approach in terms of risk adjustment.

David Larson - (00:44:27)

Great. Congratulations on becoming a father. Thank you.

Brandon Sim - (00:44:31)

Thanks so much, Dave.

OPERATOR - (00:44:36)

Thank you. Our next question comes from the line of Craig Jones with Depot. Please proceed.

Craig Jones - (00:44:43)

Thanks for the questions and congrats Brandon. So one asked about the implications of the reconciliation bill around work requirements. I'd assume California would be one of the slower there to adopt that. But have you heard anything about how they plan to implement it or the speed that they plan to implement?

Brandon Sim - (00:45:04)

Hey, thank you. You know what we've been hearing as probably similar to all of you is that this is probably a 2027 item as currently constructed. So we're not necessarily seeing the impacts of that yet. We are anticipating potential headwinds next year if there are other related items such as the UIS status members. But at this moment, we're anticipating this to be a 2027 item.

Craig Jones - (00:45:36)

Got it. Thank you. And then maybe on Medicare. So entering the third year of V28, wanted to ask you any thoughts on potential for a V29 soon and maybe how the potential use of encounter data may impact astronaut.

Brandon Sim - (00:45:49)

Thanks. Sure thing. I know there's been discussion about a potential V29 or a further change to risk adjustment model. You know, as I mentioned before, we feel very comfortable with our risk adjustment. If anything, we actually believe our raft to be almost too low. So we really don't think that V28, you know, has hurt us. And even a further V29, we're not extremely, you know, we're not very concerned about, frankly, we think that there remains to be opportunity to continue to correctly code our members and continue to improve the way that we take care of our patients over time, regardless of the risk adjustment model that's being implemented.

Craig Jones - (00:46:36)

Okay, great.

Brandon Sim - (00:46:37)

Thank you. Thanks so much.

OPERATOR - (00:46:42)

Thank you. Our next question comes from the line of Matthew Gilmore with TBANK Capital Markets. Please proceed.

Zach Anthromatt - (00:46:50)

Hey, this is Zach Anthromatt. Congratulations, Brandon. Just want to touch on the transition to full risk. Based on the delays, I think that. Percentage ticks up in the first quarter. But do you have any guideposts or frameworks that you can provide in terms. Of how to think about that shift to full risk through the remainder of 26?

Brandon Sim - (00:47:12)

Yeah, I think. Thanks for the question. We're going to continue the transition of full risk as expected. You know, these contracts, which we expected to turn on in mid-2025, ended up being delayed until the first quarter of 2026. But going forward, we do expect that high 70s percent of revenue coming from full risk to remain, you know, in that range going into 26. There are several full risk contracts that. We had anticipated going live in 2026, separate from the ones that we had discussed. And there's no danger or indication that that's not going to happen. We're also seeing success in moving contracts to a delegated model even outside of California. As I mentioned before, you know, Texas is starting on fully delegated, which means we're paying claims, we're doing ops, we have full data visibility very similar to the model we've successfully run in other parts of the country. You know, starting 11 of 26 as well. So by and large, contractual movements are as expected. Unfortunately, you know, a slight delay on these particular items this year. Great, thank you, thank you.

OPERATOR - (00:48:24)

Thank you. Our next question comes from the line Jeanine Manheimer with Freedom Capital Markets. Please proceed.

Jeanine Manheimer - (00:48:34)

Thanks for taking the question and congrats to the new dad, Brandon. My questions relate to, I guess, growth. You see double revenue year over year. Much of that was prospect. So if we back out Prospect, what. Are we looking at for organic growth? Mid single digits. Hey Gene, thanks for the question.

Brandon Sim - (00:49:02)

Yep. You know, I think if you really. Try to strip out every single part. Of the Prospect deal, which as I mentioned earlier is a bit, you know, in some areas it's challenging. I think the core strana business continues to grow in the mid teens, low teens area. Prospect, as I mentioned, I think we had guided to before growing in the high single mid to high single digits. But this is exclusive of some of the full risk movements and exclusive of AEP so far. So you know, we continue to be excited by the growth in all these businesses and also more importantly, managing the growth in an effective and stable manner in terms of ebitda. Okay, now that's encouraging. And then my follow up is on your new group that you signed in.

Jeanine Manheimer - (00:49:56)

Southern California, 40k lives. Was that an affiliate or an offshoot of Prospect or was Prospect instrumental in getting that win? Thanks. Sure, Gene. No, not, not really.

Brandon Sim - (00:50:11)

This is a separate client that had no relationship necessarily to us or to Prospect, just one of the clients in our pipeline. So that pipeline continues to be strong. We continue to expand our care enabled business. We're building a lot of technology around ensuring that that offering is attractive and is well priced. And we think that's an area for growth as it has been in the past going forward as well. All right, great.

OPERATOR - (00:50:40)

Thank you. Thank you. There are no further questions at this time. I'd like to pass the call back over to management for any closing remarks.

Brandon Sim - (00:50:53)

Thank you so much. To conclude, I wanted to emphasize that Astrana continues to manage medical cost well. We continue to show that the value of Prospect is meaningful and that integration is going smoothly. We do not believe that the transition of full risk is an ongoing issue. It's a one time delay and does not reflect any of the any cost trend issues or medical cost issues in the core Astrana or the core Prospect businesses. And we're very happy to share, as. John mentioned in the prepared remarks, that we are now down to approximately 2.5 times net leverage on pro forma adjusted EBITDA, which is far ahead of what the timing was when we announced the deal. So we continue to focus on deleveraging, continue to focus on execution of the business, and we look forward to continued execution in Future Quarters and 2026. Thank you all for joining the conference call today, and I look forward to speaking to many of you in the coming months.

OPERATOR - (00:52:00)

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.