Astrana Health Inc — Earnings Call Q3 2026

Operator: Hello, everyone, and welcome to Astrana Health's Third Quarter 2020 Earnings Call. At this time, participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and-answer session. And instructions will be provided at that time. Today's speakers will be Brandon Sim, President and Chief Executive Officer of Astrana Health and Chandan Basho, Chief Operating and Financial Officer. Press release announcing Astrana's Health results for the third quarter ended 09/30/2026 is available in the Investor Relations section of the company's website at www.astranahealth.com. The company will discuss certain non GAAP measures during this call. Reconciliations to the most comparable GAAP measures are included in the press release. To provide some additional background on the results, the company has made a supplemental deck available on its website. A replay of this broadcast will be available on 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 meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 2 thousand. These forward looking statements could be identified by such terms as anticipate, believe, expect, future, plan, outlook, and will and include among other things. Statements regarding the company's guidance, continued growth, acquisition strategy, ability to deliver sustainable long-term value ability to respond to changing environment, liquidity, operational focus, strategic growth plans, and acquisition integration efforts. Although the company believes that the expectations reflected in these forward looking statements are reasonable as of today. Those statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. There can be no assurance that these expectations will prove to be correct. Information about risks, associations, with 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 decision. The company does not assume any obligation to update any forward looking statement as a result of new information, future events, change in market conditions or otherwise, except as required by law regarding the disclaimer language, if you would like to refer to Slide 2 of the conference call presentation for further information. With that, I will turn the call over to Astrana Health's President and Chief Executive Officer, Brandon Sim. Please go ahead, Brandon. Brandon Sim: Good afternoon and thank you for joining us today. Astrana delivered another strong quarter driven by continued growth margin expansion and disciplined execution across the business. Revenue in the third quarter reached a record $1.02 billion up 7% year over year and adjusted EBITDA was a record $77.2 million up 13% year over year and near the high end of guidance. Adjusted diluted earnings per share was $0.71 With Prospect now included in both comparison periods, these results provide a clearer view of the underlying earnings power of our combined business. Importantly, our 13% year over year adjusted EBITDA growth was driven organically reflecting the maturation of our risk bearing cohorts particularly in Texas, improved medical cost performance across our care partners business, and continued operating efficiencies. Capitation revenue grew 8.5% despite Medicaid and exchange membership attrition. While adjusted EBITDA grew approximately twice as fast as total revenue. Demonstrating the operating leverage and resilience of our business. Free cash flow also remains strong. Through the first 9 months of the year, we have generated approximately $105 million in free cash flow and repaid $116 million of debt. This brings net leverage to approximately 2.2x well ahead of the deleveraging commitments we made when we acquired Prospect. And we remain on track to deliver on our free cash flow guidance for the year. Underlying these results is the differentiated operating platform we have built at Astrana. Bringing together 3 foundational capabilities intelligence, alignment, and delivery. Intelligence is how we leverage our vast clinical and operational dataset together with proprietary models and AI to identify what care patients need when they need it, and how to deliver it most effectively. Alignment is how we use our delegated payer agnostic model and provider facing technology platform to align clinical and financial incentives around delivering the right care. And delivery is how we put this into practice. Using our broad integrated network of physician, providers, and care teams to translate those insights into action, and better outcomes for patients. What makes this platform particularly powerful is the feedback loop between these capabilities, We can identify opportunities to improve care enable physicians to act on them, and then measure the resulting clinical outcomes and total cost of care. Those insights then feed back into our platform continuously improving our recommendations execution, and underwriting. As the flywheel compounds, we believe we can reduce the upfront investment required enter new markets accelerate the path to profitability for new populations, and deliver increasingly consistent and predictable outcomes and economics. Our third quarter results demonstrate the growing impact of our platform. I will walk through our progress against the 4 strategic priorities we have consistently focused on. Our first priority is growing membership responsibly. We ended the quarter with approximately 1.5 million members under management. Medicare Advantage membership grew organically at a high single digit rate year over year even as many health plans across the industry continue to reduce Medicare Advantage footprints. This growth was partially offset by Medicaid and Exchange membership attrition. With Medicaid attrition expected to be at the middle to high end of the 10% to 15% range we assumed at the beginning of the year. As we discussed last quarter, our strong operating performance has given us greater flexibility to invest in growth while maintaining our profitability and balance sheet objectives. We continue to reinvest a portion of that outperformance towards attractive new opportunities across markets and business lines, while remaining on track to deliver on our full year financial commitments. And we are seeing those investments translate into tangible progress. On the provider side, we completed a tuck-in acquisition of an independent physician association in Georgia on October 1st, further expanding our presence in the Southeast. We also added 2 new clients to our AI powered care enablement platform during the quarter. A leading primary and multi specialty provider group in Connecticut and a hospital client in California. We expect both to be onboarded onto the Astrana platform by early 2020. On the payer side, we have entered into several new Medicare Advantage partnerships, effective January 1, 2027. Building upon our existing networks and geographic expansion efforts. Together, these opportunities demonstrate the breadth of our growth model. Spanning risk bearing populations, physician network expansion, and technology enabled services. All leveraging our shared platform to drive scalable, capital efficient growth. Our second priority continuing to progress responsibly into full risk arrangements. We are on track for approximately 82% of our capitation revenue to be generated under full risk arrangements by year end. Up from 76% at year-end 2025. Within our care partners business, approximately 46% of our members in full risk arrangements. Compared to 34% a year ago Importantly, the full risk cohorts that we added earlier this year continue to perform in line with or ahead of our underwriting expectations. Texas is a particularly compelling example. Throughout 2026, we transitioned approximately 7 thousand Medicare Advantage members from gainshare to global risk. And added another 3 thousand members under professional risk arrangements through a new payer partnership. Since then, we have onboarded those populations onto Astrana's technology platform, and deployed our integrated care model. Equipping local physicians and care teams with the clinical insights, care coordination capabilities, and operational support to manage patients more effectively. 3 quarters in, our Texas business is performing ahead of plan, with medical cost trends running favorably to our underwriting assumptions and profitability improving faster than anticipated. This is an important proof point for our ability to enter new markets assume greater risk responsibly, and improve profitability as cohorts mature. We believe the same operating model can be replicated across additional markets, with Texas becoming an increasingly meaningful contributor over time. Our third priority is managing medical cost trend through better clinical outcomes. Our delegated model enables us to intervene earlier, coordinate care more effectively, and aligns clinical decision making with the long-term health of our patients. Year to date, overall medical cost trend remains slightly better than the approximately 5.2% assumption embedded in our full year guidance. Within that, Medicare Advantage and Original Medicare continue to perform favorably relative to our expectations. Medicaid medical cost trend is running above our initial assumptions, while commercial is slightly above expectations, primarily due to clinician administered drug costs. These pressures remain manageable within our diversified portfolio, and our consolidated medical cost performance continues to outperform our expectations at the beginning of the year. Underpinning our approach is our growing suite of technology enabled clinical programs. Our annual wellness visit program has reached nearly 65% of eligible members so far this year. Helping identify risks earlier and close gaps in care. We also continue to advance our disease management programs, for high risk conditions, including congestive heart failure, COPD, and chronic kidney disease. Alongside our care at home capabilities. These programs, together with our annual wellness visit program, run on our proprietary care management platform, Pathways. Enabling us to coordinate interventions, and standardize care across markets. By building these capabilities directly into our own technology platform, we are creating a repeatable clinical operating model that can deliver consistent, high quality care as we expand across physicians, populations, and geographies. Our fourth priority is continuing to expand operating leverage as we scale. Last quarter, we highlighted how AI powered workflows in claims operations and referral management reduced handling times by more than 50%. Since then, we have continued advancing beyond individual task automation towards automating entire business processes. 1 example is in claims administration. Where we are building an AI orchestrated process that translates the economic terms of a provider contract directly into accurate claims configuration and payment. Historically, these contracts required hours of manual work to process. Our newest AI agents are reducing that process from hours to minutes. While improving accuracy. Importantly, all of these capabilities are being built into our own operating platform. Allowing us to deploy them across our network and capture the benefits as we scale. On the provider side, just this week, we launched Atlas, the next generation of our provider facing platform. Atlas helps physicians prioritize patients who need attention most identify gaps in care, respond to high risk events in real time directly within their existing workflows. These applications are built on shared infrastructure allowing us to deploy new capabilities across markets and business lines. Without rebuilding them independently. We are seeing the improvements to our platform continue to translate into tangible operating leverage. Year to date G&A has declined to approximately 6.2% of revenue. An improvement of approximately 80 basis points year over year even as we continue investing in growth and new capabilities. We expect full year G&A to remain around this level with meaningful opportunity for further operating leverage over the medium term as our AI capabilities mature and as we continue to scale. Turning briefly to Prospect. More than a year after closing the transaction, performance continues to validate our original investment thesis. Gross provider retention remained >99% Operating expense synergies are at the high end of our original annual target of $12 million to $15 million an aggregate medical cost trend across the legacy Prospect business remains below our underwriting assumptions. Just as importantly, the operational transformation has taken hold. We are consolidating legacy prospect payer arrangements into our enterprise contracts with shared health plan partners. Our California growth efforts now operate through a unified team and pipeline, and legacy prospect physicians increasingly integrated into its chronic care model. As a result, we now view and manage prospect as part of our core business rather than as a separate integration initiative going forward. Turning now to initial thoughts about 2027. In Medicare Advantage, the annual enrollment period is underway. We expect our weighted average paid star rating to improve modestly in 2027 versus 2026. And remain relatively stable in 2028. With our membership diversified across more than a dozen health plans, our exposure to any individual contract remains limited. Regarding the 2027 Medicare Advantage final rate notice, we continue to believe that we face immaterial impact from the exclusion of certain diagnosis sources. And we expect Medicare Advantage margins to remain stable into 2027. In Medicaid, we continue to plan conservatively for changes in 2027. Including the transition of UIS members to fee for service, work requirements, more frequent eligibility redeterminations, and changes to asset limits. We are working closely with our health plan partners and our community to manage these transitions and support continuity of care for our members. We have been incorporating these developments into our planning for some time, and currently anticipate a 10 to 15% decline in Medicaid membership in 2027. In the exchange business, membership attrition has been more favorable than our original assumption, of a 30% to 40% decline this year, the business remains approximately 3% of revenue. Commercial membership also remains stable. Stepping back, entered 2027 with several meaningful growth drivers. A continued maturation of new cohorts, in core and expansion markets, additional full risk conversions, new Medicare Advantage payer partnerships, and continued operating leverage from our platform. These opportunities are balanced against membership changes we have discussed in Medicaid and Exchange, all of which will be reflected in our formal 2027 guidance. In all, we remain confident in our ability to deliver at least mid teens annual adjusted EBITDA growth over the medium term. We believe we are still in the early innings of realizing the full potential of the platform we have built. At its core, Astrana's long term opportunity is not defined by any single payer program, or reimbursement model. We are a physician centric company that uses technology to help doctors deliver better, more consistent care at a lower total cost. That value proposition extends across Medicare Advantage, original Medicare, Medicaid, and commercial populations. And regardless of how health care policy and reimbursement evolve, improving quality, expanding access, and managing health care costs will remain fundamental national priorities. And we believe Astrana is uniquely positioned to help address them. As we scale our platform nationally, we see a significant opportunity to improve outcomes for more Americans. While delivering increasingly predictable and attractive economics for our business. With that, I will turn the call over to Chandan to review our financial results and outlook in more detail. Chandan Basho: Thank you, Brandon and good afternoon, everyone. Our third quarter results demonstrate continued financial and operating discipline. Adjusted EBITDA was at the high end of our guidance range, We generated strong year to date free cash flow and we continued reducing leverage. Our performance puts us in a strong position entering the fourth quarter. We are maintaining the midpoint of our full year adjusted EBITDA outlook while continuing to invest in pair relationships recently converted risk cohorts, new care enablement clients, and geographic expansion opportunities that we expect to contribute to growth beyond 2026. Today, I will review our third quarter financial results, cash flow and balance sheet, the evolving revenue presentation of our ACO business, and our updated outlook for the year. Total revenue for the third quarter was $1.02 billion, up 7% versus the prior year period. With prospect included in both comparison periods for the first time, these results provide a clearer view of the underlying performance of our combined business. Revenue growth was driven by the continued ramp of full risk contracts including conversions in California and Texas, organic Medicare Advantage membership growth, and Medicaid members transitioned to us during the quarter. These contributions were partially offset by Medicaid and exchange membership attrition. Adjusted EBITDA for the quarter was $77.2 million, up 13% versus the prior year period and at the high end of our guidance range of $72.5 million to $77.5 million. This reflects strong performance in Texas. Favorable results in our original Medicare business, continued improvement in our care partners medical cost ratio. Net income attributable to Astrana was $13 million and adjusted diluted EPS was $0.71 G&A was 6.6% of revenue in the quarter and 6.2% year to date. Reflecting continued operating discipline as we scale the business and invest in new capabilities. Turning to cash flow. We generated approximately $105 million in free cash flow through the first 9 months of the year. As we noted last year, cash flow in the second half of the year is seasonally lighter. As a portion of our first half cash flow, reflected the timing of ACO settlement receipts. We remain on track to deliver full year free cash flow within our guidance range of $107.5 million to $100 million On the balance sheet, we repaid approximately $12 million of debt during the quarter. Bringing year to date debt reduction to approximately $116 million We ended the quarter with $396 million in cash and $581 million of net debt. Trailing 12 months gross leverage declined to 3.7x. Down from a pro forma LTM gross leverage of 4.4x in the prior year period. Net leverage declined to 2.2x on a trailing 12 month basis. Down from a pro forma LTM net leverage of 2.5x in the prior year period. We remain on track to approach 2x net leverage by year end, well ahead of the deleveraging trajectory we originally outlined following the Prospect acquisition. Separately, we continue to make progress on remediating the material weakness we disclosed previously. The work remains on schedule, and we are currently expecting to complete our assessment by year end. Turning briefly to our ACO business. With the ACO reach model concluding at the end of 2020, we are preparing for CMS's transition to its new LEAD Model in 2027. We remain disciplined in our approach to ACO programs. Prioritizing opportunities where we believe our clinical and operating model can consistently deliver strong outcomes and attractive economics. I want to spend a moment on how these programs show up in our reported revenue because the accounting differs by program. Under ACO REACH, we recognize the full Medicare benchmark as revenue. With the associated medical costs in our expenses. We expect lead to be treated in the same manner. Under MSSP, we recognize only our share of the savings on net basis. As a result, as our ACO program mix evolves, changes in our reported GAAP revenue will not necessarily reflect changes in the total Medicare spend we are managing or in our opportunity to generate shared savings. Importantly, our focus remains on the underlying economics of these programs, rather than how revenue is presented. We believe our clinical and operating capabilities position us to continue generating attractive shared savings as the accountable care landscape evolves. To provide investors with a more consistent view of the scale of our business across programs, we are introducing supplemental measure, Gross equivalent consolidated premiums or premiums at risk. It represents our MSSP populations on the same gross basis as REACH by including their full Medicare expenditure, benchmarks rather than only the net revenue recognized under GAAP. On this basis, we expect approximately $4.45 billion in premiums at risk for 2026 compared to our reported revenue guidance of $3.9 billion to $4 billion The difference reflects the MSSP benchmarks that were not included in GAAP revenue. We will provide additional details on the anticipated financial impact of any ACO program transitions when we issue formal 2027 guidance with our fourth quarter results. Finally, turning to our full year outlook. We are narrowing our full year guidance ranges for revenue, adjusted EBITDA, and free cash flow while maintaining the midpoint of each. We now expect revenue of $3.9 billion to $4 billion adjusted EBITDA of $261 million to $274 million and free cash flow of $107.5 million to $130 million. These updates reflect greater visibility in our full year performance with 1 quarter remaining. Our outlook continues to assume conservative Medicaid membership trends and no contribution from HQAF. Importantly, our adjusted EBITDA outlook remains above our original expectations for the year even as we are deliberately reinvesting a portion of our operating outperformance into new payer relationships, risk cohorts, care enablement expansion, and geographic growth opportunities. We believe this demonstrates our ability to deliver on our financial commitments while investing in the next phase of growth. For the fourth quarter, we expect revenue between $939 million and $1.04 billion and adjusted EBITDA between $48.5 million and $61.5 million Consistent with prior years, we expect the fourth quarter to be our lowest quarter of the year in terms of profitability. Our third quarter results included recognition of MSSP shared savings and final Medicare Advantage risk adjustment sweeps, which are not expected to recur in the fourth quarter. Our fourth quarter outlook incorporates continued Medicaid membership attrition and investments associated with onboarding new payer contracts and other growth opportunities. We will provide formal 2027 guidance with our fourth quarter results. Taken together, our record revenue and quarterly adjusted EBITDA strong free cash flow generation and continued deleveraging reinforce our confidence in the trajectory of our business. We enter 2027 with a stronger balance sheet a growing base of profitable risk bearing populations, and the financial flexibility to continue investing in our long term growth opportunities. With that operator, happy to take questions. Operator: Thank you. Before pressing the star keys. Our first question is from Jack Slevin with Jefferies. Please proceed. Jack Slevin: Hey, good evening guys. Thanks for taking the question and nice work on the quarter. I wanted to pick up on some of the care enablement pieces that you guys talked about the prepared remarks. I think, Brandon, in my impression, this is something you have been speaking more about or it feels like there is a level of excitement. And the notion of that contract win in Connecticut or ex California felt somewhat meaningful. Was wondering if you could just talk a little bit about some of the efforts you are doing to bring that to other markets and maybe baseline for us some of the use cases you have of care enablement business that you have already developed outside of California? Thanks. Brandon Sim: Hey, Jack. Brandon here. Thank you for the question and good evening. Absolutely, we are continuing to become more and more excited about our opportunity in our Care Enablement business is a large business already, over $300 million of segment revenue you know, operating at very healthy gross and operating margins. But historically, as you. As the street knows, built our technology and clinical infrastructure primarily as a way to support our own physician networks and our own risk bearing populations. We are finding now more and more that many other health care organizations risk bearing entities, payer like entities face many of the similar challenges that we do. And there is a growing demand organically for the capabilities we have developed. Even now, we still have not a single dedicated growth business development or development individual on this business. And yet, we still keep kind of signing additional clients such as the multi specialty group in Connecticut and the client in California. We are really excited about the opportunity going forward. I think there is opportunity to certainly invest a little bit more into sales, and we view it as a way to increasingly scale our technology and care enablement capabilities without taking on necessarily premium risk at the very beginning. Or deploying significant capital to acquire, you know, clinics or large networks? Admittedly, we are still in the early stages of expanding the business externally outside of California especially. But we believe this can become increasingly meaningful growth driver over time. So in summary, pretty excited about it. Just a few. A couple logos this quarter, but continuing to invest more behind this capability in this segment. Awesome. Really helpful. And then just as a follow-up here, thinking about the Medicare Advantage business a little bit, plan bids are in. I am sure you have gotten a look at those. We would just be curious how some of that is stacked up. Then as you continue to talk about layering in some new you know, full risk partnerships in non California markets with some of the upside. I guess, any color you can provide on sort of how those payers are approaching it or how the terms look relative to other things you have entered on the front end. Would just be curious about that side of things as well. Yes, for sure. We are happy to continue expanding our partnerships in Medicare Advantage We feel that the rate notice going into 2027 was constructive. And like I mentioned in the prepared remarks, we believe that the environment, especially given our conservatism around risk adjustment and some of the disallowed diagnoses allows us to maintain a stable margin in MA going forward into 2027 We think that our partnerships with new plans are struck at economically sound. First, we are happy with where we are there. We believe that to drive growth. into our MA business going into 2027. There is some impact of stars into 2027 as well. Close to around 30% of our members today are in 4 star plans. And we expect that to be barring any dramatic changes in annual enrollment, >50% of our membership in 4 star plans going forward into 2027. So we believe that MA is going to be a large and significant driver you know, of our continued growth in the medium term. Really helpful. Appreciate the color. Thanks, Jack. Operator: Our next question is from Michael Ha with Baird. Please proceed. Michael Ha: Thank you. I think this is the first time you provided your AWV rate nearly 65% year to date. Just wondering how does that compare to recent years at this time? And then as we think about 2027, 2027 EBITDA, I know you guys are targeting mid- to high teens growth target. that is exactly where The Street is. So as you think about what could allow you to hit the high end or move above the range, are there like, 1 or 2 levers you would call out aside from like, cost trends? Would it be like, RAS improvement or maybe a smaller headwind on Medicaid? Or are there other things that you would view as a bigger potential leverage for next year? Brandon Sim: Thanks for the question, Michael. I will take them in turn. The first around, annual wellness visits, we do report that number every year. In fact, it is part of our incentive plan as well. So it is an important measure that we track and that we want to drive among other. Our other measures, including our disease management programs our care at home programs, and more. Last year, we were approximately around 4 out of every 5 members, 80% of our members. Eligible members had an AWV. Year, we shared the 65% number year to date. Which does track a little better than we were. Where we were last year. So on a year over year basis, we continue to improve our ability to engage our members get them in for preventive care, and continue employing the AstranaCare model. In terms of the Sorry. In terms of the levers for mid teens EBITDA growth going into next year, Happy to provide a more detailed bridge at some point, but a lot of it is maybe I will just share it now. We believe there is around mid-single-digits EBITDA growth from new membership and growth inclusive of earnings drag from new cohorts that are yet to become profitable? We believe there is probably around a mid teens increase based on our ability to control medical cost trend. Versus our rates and as well as progression of our existing cohorts up the j curve as we as those cohorts mature in our ecosystem. We think there is around a probably low- to mid-3% to 5%, let's say, percentage point increase from improvement in expansion markets? And these are balanced, unfortunately, by or I am sorry, an increase of mid- to high-single digits in operating leverage. as well, and that is balanced by kind of some of our Medicaid challenges and potential changes to the ACO program. So in aggregate, these building blocks allow us to feel comfortable in the mid-teens EBITDA growth even with some of the headwinds potentially from Medicaid. Hope that is helpful. Super helpful. Thank you. And then on that topic of Medicaid, big changes, California governor, of course. So we will see if there is you know, favorable policies to come. But also, in the real. In real time, just over the past week, seeing 2 things actively taking shape in California. Number 1 being California submitted a request for a good faith waiver exemption. 6-month delay in the work requirements. Number 2, last week's medical frailty exemption ruling, and California being 1 of the 25 plaintiffs. This has strong potential to moderate early just enrollment, acuity pressure next year. So I am just wondering how are you thinking about these new developments as potential tailwinds relative to your I think you mentioned 10% to 15% attrition assumption for next year. So, yeah, we would love to hear an update there. Sure thing. I agree. It is a dynamic environment in Medicaid, especially in California. With our new governor who we supported and we are discussing some of this with continue to, though, take a deliberately conservative approach going into 2027. Certainly, some of these items that you mentioned medical frailty, a waiver, 6-month waiver, for example, could stem some of the bleeding that we anticipating in Medicaid. However, at this time, especially with elections having just happened, earlier this week, I think it is a bit too early to necessarily incorporate that all into our guidance at this moment. So at this at this point, we are still expecting a like I mentioned earlier, mid-single-digit net headwind to EBITDA. Growth from Medicaid in 27 and kind of the 10 to 15% membership drop that we talked about in the prepared remarks. Thank you. Operator: Our next question is from Jailendra Singh with Truist Securities. Please proceed. Analyst: Hi, guys. it is Eduardo on for Jailendra. Thanks for taking the question. I just wanted to clarify 1 thing. I think, Chandan, I think you mentioned that there are some MSSP shared savings that hit in the quarter. I thought the final 2025 results were not out yet. So just curious if that has to do with the performance year 2025 or it is something different? Chandan Basho: Hey, Eduardo. How are you? The MSSP accrual that we spoke about is for 2026. Analyst: Okay. So there are no changes in terms of 2025. Okay. And then just on the on the Medicaid trend running above your sort of initial assumptions, while attrition is, I think you said, at the middle to high end of the 10% to 15%, I guess how far above is Medicaid trend and is this attrition sort of leaving you with a sicker remaining population? Is that is that sort of being embedded in your thought process for 2027? Brandon Sim: Hey, Eduardo. I will take this 1. that is right. We the trend is slightly higher than we expected at the beginning of the year. And higher than the overall blended average 5.2%, which we are coming in under Earlier this year, we said that we were not seeing as much adverse selection as we expected. We are starting to see signs of that ticking up a bit. Modest changes in the risk profile of the members that are remaining as the year progresses. And so we are embedding some of these assumptions into our 2027 approach. As I mentioned earlier, we are expecting a mid to high or closer to mid, EBITDA headwind from Medicaid net of rate, net of rate adjustments from both membership attrition as well as potential adverse selection going into 2027. So we are not being dismissive of this. We are incorporating that into our thoughts around 2027. But given the strength of the overall platform, diversification of the business, and especially the strength of our Medicare both original and MA performance, We believe that even with Medicaid headwinds, there is a mid teens adjusted EBITDA growth guidance going forward into 2027? Great. Thank you, guys. Chandan Basho: Thanks. Operator: Our next question is from Andrew Mok with Barclays. Please proceed. Andrew Mok: Hi. Good afternoon. I appreciate the new premiums at risk disclosure. it is the first time I have seen a company do that, but I think it makes a lot of sense. Can you talk about why you chose to introduce that and what it signals about the trajectory of the ACO business over the next year or 2? Thanks. Brandon Sim: Hey, Andrew. Thanks for the question. While we are not able to confirm at this time exactly--you know, there is an embargo and so on and so forth. Exactly what the plans are The reason we are sharing this in general is that the accounting treatment from a GAAP perspective is slightly different between ACO REACH and MSSP ACO. And so all we have done in that kind of premiums at risk measure is to share essentially what the benchmark is for MSSP as if as if the benchmark were accrued on a on a gross basis versus a net basis. That being said, I think we will continue to evaluate all of our opportunities for original Medicare and see where it makes sense for our members know, to be and where we can best serve our physician partners and our members a. On a go forward basis. Not sure there is an implication necessarily Right now, we thought it would be a helpful measure to compare apples to apples, you know, from a gross versus a net basis across multiple programs today that we are in, including region and MSSP. Great. And just wanted to follow-up on the Medicaid trends. comment, which is obviously running above target now. It sounded like most of that was driven by acuity. Can you help us understand, like, what the maybe patterns look like on continuing membership or, you know, whether rate is playing into that at all? Is this all acuity driven? Thanks. I think it is a bit of everything, Andrew, to be honest. Certainly, we could use higher rates We hope that the actuarial process in California specifically, but across the country, we will continue to reflect the acuity of the Medicaid population over the last several years. The way that Medicare Advantage has done has taken steps towards in the last couple of years as well. So we do think that there are actual adjustments to be made and that rate should hopefully catch up to the acuity that we are seeing in the populations. But there are a lot of moving pieces as well. Chandan Basho: For example, in our conversations with Medi Cal health plan partners, you know, there is a large percentage call it anywhere. it is a wide range, but anywhere from 10 to 20 percent of those members are in the UIS status bucket. Which, as you know, is moving to fee for service next year. So it is really a mix of both attrition planned attrition into 2027 and some rate acuity dynamics. We continue to work very closely with the community partners in our enhanced care management program which is part of CalAIM. And other care management programs to serve our Medicaid members as best as possible. At the same time pushing for the appropriate contractual and rate changes with our payer partners upstream. Brandon Sim: Great. If I if I could sneak in 1 more. The 4Q guidance implies like a pretty wide range for the quarter. Can you just help us understand what is embedded in the assumptions at the low end to high end of that? Thanks. Operator: We are having technical difficulties. The conference will be resuming momentarily. You may resume. Brandon Sim: Hey, Andrew. Sorry about that. I dropped our landline on accident. Could you repeat your last question? Yes. The 4Q implied guidance range or the 4Q guidance range, over, you know, $13 million or so. Pretty big step up from what we have seen all year, like, plus or minus 5. Just what is what is driving the wider range and what is implied at the low and high end? In your assumptions? Thanks. Hey, Andrew. Sorry about that again. I hope you guys enjoyed the hold music. But I think the wider range is really just frankly, an artifact. We did narrow the overall range and we continue to believe that we will perform as we have you know, this year and in past years around the midpoint of guidance. You know, I am not sure necessarily that there is too much to read into the wider range at this time. Okay. Thank you. Operator: Our next question is from Ryan Langston with TD Cowen. Please proceed. Ryan Langston: Good afternoon. Can you give us an update on the cyber incident that you announced in September, maybe anything in terms of sizing the impacts maybe what issues there is still left to alleviate or any other new details you can give us since the press release in September? Brandon Sim: Hey, Ryan. Sure thing. Well, as we have previously communicated, we experienced an incident and obviously involves criminal activity there is an ongoing investigation including with law enforcement We have taken the matter extremely seriously. We have engaged leading independent cybersecurity council and cyber and digital forensics experts to investigate, contain, and remediate the incident. Given the ongoing investigation and the criminal nature of the activity, I am going to be appropriately measured you know, in what I share publicly. I am not sure it is extremely productive to speculate, you know, and get ahead of that process. Our focus remains on protecting our patients our providers, our payer partners, maintaining integrity of our systems and continuing to execute on the very strong growth trajectory of the business And certainly, we will provide additional updates as appropriate. Thanks, Ryan. Ryan Langston: Okay. And then just 1 quick follow-up. On the prepared remarks, you talked about some sweeps revenue that hit in the third quarter. Can you give us a sense of the actual net benefit in the quarter? Thanks. Chandan Basho: Hey, Ryan. Good. How are you? The pickup in terms of our sweeps revenue was about $5 million to $10 million for this period. It was in line with our expectations. And, consistent with what we had experienced in our prior-year quarter. Okay. Thank you. Operator: Our next is from Matthew Gillmor with KeyBanc Capital Markets. Please proceed. Matthew Gillmor: Wanted to ask about the provider agreement you all announced with Alignment Healthcare. I was just curious about the scope of that agreement, if that include any value-based care arrangement. And, if there was anything material to call out for the 2027 period. Brandon Sim: Sure. Yeah. It is a our agreement with all of our new partners in MA including the 1 that you mentioned are consistent with all of our value based care contracts which is to say, you know, it is a delegated MA contract with the percentage of premium we are implementing the AstranaCare model to improve the outcomes and manage the total cost of care for the members. So pretty standard, nothing out of the ordinary. There, but we are excited to continue growing with our new and existing partners and believe that is the path for us continue bringing our model to more patients. Matthew Gillmor: Great. And then I wanted to see if you would be willing to give a comment on sort of the margin profile by line of business just so we can sort of understand how things are tracking and if there is any sort of embedded earnings to the extent, margins are below any 1 of the business lines. Brandon Sim: We have not shared exact numbers. I would maybe directionally share that commercial and Medicare are higher than our overall Care Partners margin profile and Medicaid is far lower. In terms of where the embedded upside could be, I think it really exists across the board. Not just in Medicaid, obviously, because of some of the actuarial rate change. You know, rate dynamics that I mentioned earlier, we think that over the long term, Medicaid should be perhaps not as high as it once was, but higher than where we are today. Maybe back into the mid to high single digit kind of margins over the long term. In terms of the other lines of business, margin potential is really around our ability to mature our newer cohorts. Which we have seen great progress of for example, like I mentioned in our prepared remarks in Texas, Nevada, and other and other states where we have onboarded new Medicare Advantage members. So I would say that if we are thinking about upside opportunity, really exists across all lines of business. Some of it because of structural reasons like in Medicaid, where we need kind of the actual process to play out appropriately relative to the acuity that we have seen. And some of it because of the growth that we have you know, that we have brought on And as those cohorts mature, we will see those segment or line of business margins asymptotically reach kind of our at scale margins. Okay. Great. Thanks a lot. Chandan Basho: Thanks. Operator: Our next question is from David Larsen with BTIG. Please proceed. David Larsen: Hi. Can you talk about your MA rate expectations for next year please? And what sort of margin expansion we might see? Thanks. Brandon Sim: Hey, David. Thanks for the question. Good to hear from you. As I mentioned earlier, we think Medicare Advantage is in a stable position going into next year. The CMS 2027 final rate notice was just under 5%, around 5% effective growth rate. Going into next year, And given our broad exposure across the country, we see something like that as well. However, as I have mentioned before, we are not affected by the discontinued diagnoses. Sources. And we think that even given average rate performance we should experience a fairly strong rate increase going into next year that is approximately where we expect our trend to be as well. And so that is kind of, you know, the revenue and the rate and trend going up at the same pace is how we get to a stable margin in Medicare Advantage going forward into 2027. That combined with our higher percentage of members and 4 star plans and our plan growth across existing and new Medicare Advantage partners, really is getting us excited about the opportunity in Medicare Advantage going forward into 2027. So we certainly expect to contribute to the mid-teens EBITDA growth that we projected for 2027? Analyst: Great. David Larsen: And then also, I think I heard you say that you were taking more risk on a set of lives perhaps related to like, the prospect deal? Just any more color you can add there would be helpful, like, the incremental revenue lift, number of lives, how that how that sort of incremental penetration for full risk is progressing? Thanks. Brandon Sim: Sure thing, David. We continue to as part of our overall corporate strategy, continue to move up the risk progression ladder not just in the prospect the legacy prospect populations, but across the business. In our prepared remarks, I think I called out, for example, around 7 thousand lives that we have moved into full-risk arrangements in Texas, for example, that have been doing well We are starting new members along that track in professional risk, that should move into full risk. In coming years in Texas as well. Then in California, the legacy Astrana and Prospect businesses, we continue to move members up the forward progression track as in our second kind of strategic pillar. We provide quarterly updates on the percentage of members in full risk arrangements, and we expect our around 43% of our members to be in full risk arrangements by the end of the year. So certainly more runway to go. In terms of that driver of future growth. Now caveat, we will never probably hit 100% of our members in full risk necessarily given the progression that we take in a prudent fashion as we bring on new cohorts. But certainly, we expect that to be a much higher number than 43, you know, in the medium term. Thanks a lot. Congrats on a good quarter. Thanks, David. Operator: Our next question is from Ryan Daniels with William Blair. Please proceed. Ryan Daniels: Yes. Thanks for taking the questions, gentlemen. Hope you are doing well. I--hopefully this was not asked. I have been jumping around a bunch of calls. But in regards to the 2 Care Enablement clients you announced tonight, I thought it was curious that 1 was a hospital in California So I am hoping you could dig a little bit deeper into that. I guess I was not familiar with you selling tech solutions to health systems and hospitals more thinking it is provider groups. So is that unique? Or do you have a lot of those? And if it is more unique, can you talk about that as a potential growth driver going forward? Thanks. Brandon Sim: Thanks for joining the call, Ryan. Know that it is a busy afternoon, so. Or evening, so we appreciate your time. that is right. We have sold historically to hospitals and health systems before. So we have a couple of hospital health system clients in our Care Enablement business already today. Admittedly, as you mentioned, it is not as large of a business as our physician risk bearing entity business. Or clients. But it is a very similar offering that we are selling to them, which is, you know, tools around population health management, around their value based care infrastructure, their ability to manage risk pools in much the same way that physician groups are managing risk pools. So I would not view this necessarily as hospital IT in terms of you know, selling an EHR or something to a hospital, but rather helping health systems think through their value based care strategy, how they can continue to succeed in value based care, especially at a very difficult time for health systems in value based and accountable care ecosystems and kind of the technology they would need to be successful just as we are providing those tools to our physician, outpatient, or organizations. Okay. that is very helpful color. Thank you. And then final 1 here. It seems like there is been a lot of momentum this year in the industry with enablers working with practices to move them into MSSP. You know, moving from reach into lead, and I am curious what kind of momentum you are seeing there. I know I think if I remember correctly, earlier this year, you talked about you know, working more with PACS, the Physician Association of California, to kind of enable more providers to move into MSSP. So I just want to get your view on state of the marketplace there and kind of the momentum you are seeing nationally with MSSP growth into 2027 and beyond? Chandan Basho: Thanks, Ryan. I agree. there is a ton of interest from the provider community in joining accountable care organization programs. Think it is a testament to the way that CMS has designed these programs statutorily with MSSP, but also with some of the innovation models such as ACO REACH and soon to come in ACO LEAD. So really excited about those models too. We think they have been in excellent way for providers to take accountability for the cost of their members and the quality of the care delivered to the members. Against that backdrop, we are seeing really strong growth. We have had strong ACO performance before in both the ACO reach and MSSP programs. You know, MSSP was top in the country. And we are seeing a ton of membership growth a bit early to say exactly what that will be, given the changing programs, but we do expect at least mid to high teens membership growth in our ACO programs going into 2027. So there is really strong membership growth and interest we think that is a large growth lever for us going forward in the medium term as well. Okay. Appreciate the color. Congrats. Thanks, guys. Thanks, Ryan. Operator: Our final question is from Gene Mannheimer with Freedom Capital Markets. Please proceed. Gene Mannheimer: Thanks for squeezing me in, and I echo the sentiment on the good quarter. So you lapped the Prospect deal, around July 1st. And you mentioned in your remarks Brandon, that you are tracking at the high end of those synergies of 12 million to $15 million that you called out. My question is whether you think you can gain additional synergies in 2027 and beyond And how about any revenue synergies that you might touch on? Brandon Sim: Thanks, Gene, for the question. Always appreciate joining our calls. On prospects, we continue to be excited about that synergy opportunity. We are at the high end already. On an annualized basis. Certainly, there could be. We think there is additional opportunity. But increasingly, as I mentioned in the prepared remarks, we are viewing prospect as just part of the core business. So we are maybe starting to see this more as just operating leverage in our business as both of the combined entities scale on our platform versus specific enumerated integration synergies And so on an ongoing basis, especially now with kind of purely apples to apples prospect included in both comparison period, comparisons year over year. that is kind of how we are viewing it going forward. That being said, you know, we were very pleased with the synergies, very pleased with the execution against our investment thesis And going forward, we think there is a lot of operate. Operating leverage on the cost side. As well as revenue opportunities in terms of securing the appropriate rates for the risk and the cost that we are taking on. Got it. Thank you. Thanks, Gene. Operator: There is no further questions. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.