Astrana Health, Inc. Q4 FY2025 earnings call

• Astrana delivered another year of record revenue, adjusted EBITDA, and free cash flow. - Continued to grow membership deliberately, ending the year serving 1.6 million members in value-based care arrangements. - Growth anchored in disciplined risk progression, with plan to have approximately 80% of revenue and more than 36% of membership in full risk arrangements by end of Q1 2026. - Delivered strong clinical outcomes while maintaining disciplined control over medical cost trend. Engagement was core driver, with annual wellness visit completion rates approaching 80% in Legacy Astrana markets. - Estrana Care Enablement technology platform drives operating leverage. - Prospect integration on track, with expectation to achieve high end of previously communicated 12 to 15 million in annualized synergies. - Addressed 2027 Medicare Advantage Advanced Rate Notice, expecting more favorable impact than industry at large.

In the fourth quarter, total revenue was $950.5 million, increasing 43% year-over-year, and adjusted EBITDA was $52.5 million, up 50% year-over-year. For the full year of 2025, revenue reached $3.2 billion, Adjusted EBITDA totaled $205.4 million. Free cash flow was $104.5 million. California revenue grew 50% year over year. Outside of California, revenue grew 90% year over year as newer markets scaled. At year end, approximately 19% of total revenue was generated from membership outside California. Medical cost and utilization trends remained well controlled in both the fourth quarter and full year. Legacy Astrana performed slightly ahead of projected 4.5% cost trend and Legacy Prospect met expectations. Southern Nevada achieved run rate profitability in 2025 with a 20% year-over-year improvement in medical loss ratio.

For the full year 2026, expect revenue in the range of $3.8 billion to $4.1 billion, adjusted EBITDA between $250 million and $280 million, and free cash flow between $105 million and $132.5 million. For the first quarter of 2026, expect revenue between $900 million and $1 billion and adjusted EBITDA between $60 million and $70 billion. The midpoint of 2026 guidance reflects operating plan; low end assumes stacked downside case. Headwinds include expected declines in Medicaid and exchange enrollment, etc. Tailwinds include improved 2026 Medicare Advantage rates, etc.

Forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from projected. Information about risks associated with investing in Astrana Health is in SEC filings. Annual report filing timelines affected by material weakness in internal controls over financial reporting related to acquisition and purchase accounting processes.

Q: Given that you finished this year with cost trends in line with expectations for the legacy astrana business and the prospect health business, what are the expectations of cost trends for 2026? And how are you expecting the cost trends across the different patient segments for 2026?

A: On 2025, came in slightly ahead of expectations for trend in mid-4% range blended across lines of business. Going forward in 2026, conservatively embedding assumptions of just over a 5% trend, slight increase due to expectations of potential Medicaid and HICS disenrollments etc. Medicare advantage to be slightly lower than that, and Medicaid and commercial and HICS to be slightly higher than that.

Q: On the 2026 EBITDA guide range, 250 to 280, it feels a little bit wider than typical cadence. Can you provide extra quantification?

A: Ended the year just above 205 at adjusted EBITDA. There's run rate full year impact of prospect, as well as synergies coming in on high range of 12 to 15 annualized. Expect in high single digits contribution for 2026 full year from those. Also expect in mid $20 million range in terms of for-risk conversion and contract rates, etc.

Q: On the 2027 MA advance notice, are you willing to put a stake in the ground in terms of what's the all-in rate update mean for you guys, like the advance notice? And in the event rates don't improve in the final notice, how do you think about your ability to hit your 2027 EBITDA target?

A: Astrana will be less materially impacted or will be more positively impacted from the impact of the advanced rate notice versus the industry at large. Astrana's risk adjustment factor across its Medicare Advantage membership is just over 1.0, which is the national average for Medicare Advantage. Not willing to necessarily quantify that at the moment because these risk factors could still change. Still believe that Astrana should be able to hit its 2027 EBITDA target.

Q: Can you talk a little bit more about prospect? It's sort of my understanding that this hospital that you now own, a portion of it is a strand of members where you are bearing risk. What percentage of prospect revenue and earnings is fee-for-service versus risk? And then within that risk pool, how are your margins coming along And can you just remind us of the expected EBITDA contribution from PROSPECT?

A: The vast majority of PROSPECT revenue is from the – maps to what we would call the care partner segment and has been reported in the care partner segment similar to the legacy Australian business. It is not a large portion of the prospect revenue that is fee-for-service. I would say approximately 10% to 15% is fee-for-service. Prospect integration continues to be strong. Provider engagement is extremely strong and retention is strong, with over 97% gross retention among prospect PCPs.

Q: Could you provide color on the nature of those AI tools that represent the tailwind for 2026? And then how are you thinking about sort of the AI opportunities for Estrana over the next couple of years beyond 2026?

A: Have over 100 US-based data scientists, machine learning engineers, AI engineers, software engineers, and staff supporting AI efforts. AI software platform includes automated tools for payer-related functions, provider-facing tools, etc. Expect further G&A improvements as a percentage of revenue, as well as consistent scalability and cohort maturation in expansion markets.

Q: Wanted to touch on the care enablement business. Last quarter talked about a robust pipeline here. Would love to get an update on that. comment on the win to start the year and are there any other late stage deals in the pipeline that might convert in 2026 or any deals contemplated in the guide? And then on the gross margins, how should we think about the right level for the care enablement business?

A: We are pleased to have onboarded the new client that we discussed last year smoothly at the beginning of this year. There continues to be a pipeline for care enablement clients. These are obviously longer sales cycles. We do think that there are There is a strong pipeline of care-enabled clients. On EBITDA margins, we do think that over the last couple of quarters, we have operated at the 20% to 25% EBITDA margin range, and we expect that to be the correct EBITDA margin range going forward for the care-enabled business.

Q: You mentioned Medicaid and HICS disenrollment as drivers of the higher trend this year. Can you share what you're expecting from a disenrollment perspective for each of those business lines and what level of visibility you have into those declines at this point in the year?

A: On Medicaid, expecting approximately around the 10% range in disenrollments, plus or minus a few percent in terms of our base and kind of more aggressive cases, as well as some rate acuity mismatch due to potential adverse selection baked into our 2026 guidance. On HICS, expecting in the low tens of percentages of decline. On Medicaid, we are actively seeing enrollment on a monthly and real-time basis.

Q: I wanted to follow up on the prospect integration, but more focused on the member engagement metrics. I think Brandon mentioned that legacy Astrona wellness visits is up to 80% and prospect is gaining. Can you give us a sense for the AWV improvement you're driving at prospect? What are some of the key systems and processes that are behind that and how that might affect cost trend and your results in 2026 and beyond.

A: While it is early, we are already merging the two organizational structures on the clinical side and the quality teams. We're ensuring that they are engaging in the exact same care processes They are using our technology platform to ensure that they understand or that we understand where the gaps in care are for our patients and using our engagement tools such as our automatic calling systems, our care delivery sites, and the legacy prospect care delivery sites in order to get out in front of the patients and into the community to encourage higher annual wellness visit rates. And as a reminder, we do continue to expect on the high end of the range in terms of synergies because of the advanced state of the integrations thus far.

Q: With respect to the guidance, is there any seasonality to it that you want to call out in particular? And is this guidance all organic? That is to say, is there any tuck-in M&A contemplated?

A: To answer your latter question first, there are no, there's no planned M&A in the currently provided 2026 guidance. In terms of the cadence, we expect as in prior years that the third quarter is a stronger quarter than the other quarters. We also guided to Q1 as well. And so we expect that cadence to hold up into the remainder of this year here.