Good day, everyone, and welcome to today's Astrana Health Third Quarter 2024 Earnings Call. Later, you will have the opportunity to ask questions during the question-and-answer session. Today's speakers will be Brandon, President and Chief Executive Officer of Astrana Health, and Chan Basho, Chief Operating and Financial Officer. The press release announcing Astrana Health Inc. results for the third quarter ended September 30, 2024, is available at the Investors section of the company's website at www.astranahealth.com. The company discussed certain non-GAAP measures during the call. Reconciliations to 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 made available at Astrana Health 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 provision 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 include, among other things, statements regarding the company's guidance for the year ending December 31, 2024, continued growth, acquisition strategy, ability to deliver sustainable long-term value, ability to respond to the changing environment, operational focus, strategic growth plans, and merger integration efforts. Although the company believes that the expectations reflected in its forward-looking statements are reasonable as of today, those statements are subject to risks and uncertainties that could cause the actual results to differ materially from those projected. There can be no assurance that those expectations will prove to be correct. Information about the risks associated with investing in Astrana Health is included in its filings with the Securities and Exchange Commission, which we encourage you to review before making investment decisions. The company does not assume any obligation to update any forward-looking statements as a result of new information, future events, changes in market conditions, or otherwise, except as required by law. Regarding the disclaimer language, I would also like to refer you to Slide 2 of the conference call presentation for further information. With that, I'll turn the call over to Astrana Health's President and Chief Executive Officer, Brandon Sim. Please go ahead, Brandon.

Thank you, operator. Good evening, and thank you all for joining us today. Adding to a strong first half of the year, the third quarter results we reported today continue to reflect the progress we are making as we build the nation's leading patient-centered care agnostic health care platform. As we continue to drive our mission to deliver high-quality, high-value, and accessible care to communities across the country, I want to remind the audience of the four pillars we have executed on for years, which we believe will allow us to achieve that goal. First, we will sustainably grow our membership in order to bring better care to more Americans. Next, we will increase alignment with outcomes by responsibly taking on greater levels of total cost of care responsibility for our members through value-based and accountable care arrangements. Third, we will focus on achieving superior patient outcomes while managing total cost of care by empowering our providers with our technology and clinical infrastructure. And finally, we will continue to drive operating leverage across our business through our Care Enablement suite. I'll start with some key financial and operational updates for the quarter that reflect the success we are having driving each of these four operational imperatives. Then I'll provide an update on the close and integration of Collaborative Health Systems. And finally, Chan will discuss our financial performance and guidance outlook. Starting with financial highlights. We continue to execute at a high level, as Astrana Health revenue grew to $478.7 million. Adjusted EBITDA was $45.2 million, continuing to demonstrate our differentiated ability to grow profitably even while bringing on newer cohorts of membership. As we have previously guided, earnings cadence was different this year compared to last year due to a timing difference in when certain incentive dollars were received as well as the move to accruing ACO REACH results throughout the year. To paint a clearer picture, on a year-to-date basis, adjusted EBITDA has grown 15% from $117.6 million in the first three quarters of 2023 to $135.3 million in the first three quarters of 2024. Moving on to core business updates. We continue to execute on our first strategic pillar, sustainably growing membership to bring better care to more Americans. Membership was around 1 million members as of September 30 and to set the stage for future membership growth, Astrana Care Partners Affiliates organically added over 200 primary care providers and over 900 specialists to our network across our core markets. We also continue to make progress on our second goal, increasing our responsibility for members' total cost of care and value-based arrangements. As of October 1, 2024, our full risk business makes approximately 61% of total capitation revenue compared to 46% as of October 1, 2023. We continue to be on track to meet our previously stated goal of having around 2/3 of our capitation revenue coming from a full risk ecosystem by January 1, 2025. Moving on to utilization and cost trends in the third quarter. We continue to experience overall cost trends blended across all of our lines of business evolving, as expected, in the mid-single-digit percentage range. We believe that this is an ongoing reflection of our efforts to ensure access to high-quality care for members as well as the technology-enabled care management, disease management, and care coordination programs that we operate for over 1 million members across the country. Diving a bit deeper into our utilization trends. For our senior lines of business, Medicare Advantage and ACO REACH, we are experiencing stabilizing cost trends, which came in within our expectations. In our managed commercial book of business, we are seeing a slower trend than expected and for our Medicaid book of business, we are seeing a slightly higher trend than expected. For our Medicaid business, excess cost trend relative to expectation was a few hundred basis points of increase due to an acuity rate mismatch because of Medicaid redetermination, a situation we expect to be resolved in the future as redetermination and rates normalize. At a blended level, this was partially offset by lower-than-expected cost trend in our commercial book of business. We believe that our ability to manage overall cost trend within our predicted range is a feature of our payer and line of business agnostic platform as well as a testament to the investments we have made in care delivery and care coordination. Moving on to recent activity. Our acquisition of Collaborative Health Systems has closed as of October 4, with integrations well underway in terms of people, processes, and technology. As a reminder, CHS has a complementary footprint of around 2,500 primary care providers serving around 100,000 primarily senior members with a set of payer-agnostic relationships across the South and the East Coast. Financially, we expect to see an approximately negative $4 million adjusted EBITDA impact in Q4 but continue to believe that we are on track for approximately $450 million of revenue contribution in full year 2025 and breakeven adjusted EBITDA contribution by the end of 2025 from this business. We will continue to provide updates about the progression of this business in future quarters. With the closing of CHS after the quarter end, Astrana Health now serves over 1.1 million patients in value-based care arrangements across 12 states. By deploying our technology platform and leveraging our operations to drive efficiencies and reinvesting those savings into improving access to care and enhancing local clinical capabilities for our patients, we have the unique ability to drive better patient outcomes and savings in risk-bearing arrangements. That approach is continuing to pay off, driving what we believe is sustainable profitability, even as we grow rapidly in communities across the country. I look forward to continuing to accelerate our reach and our impact as we strive to provide accessible, high-quality, high-value care to all. To conclude, I want to thank all of our teammates, new and old, our providers and our partners for their continued belief in our mission to transform health care delivery nationwide. With that, I'll turn it over to Chan Basho to discuss our financial performance and guidance outlook.

Thanks, Brandon. Turning to our financial performance. We reported total revenue of $478.7 million, a 37% increase from the prior year period. This growth was driven by our continued progress in the transition to full risk as well as additional contributions from the CFC acquisition. Adjusted EBITDA for the quarter was $45.2 million, a 13% decrease from $52 million in the prior year period. As Brandon previously mentioned, our cadence in earnings was different this year compared to last year due to timing differences related to the recognition of certain incentive dollars and ACO REACH performance. As a result, viewing financials on a year-to-date basis better reflects the growth of our business. We reported adjusted EBITDA of $135.3 million for the nine months ending September 30, 2024, up 15% from $117.6 million in the prior year period. Similarly, while net income attributable to Astrana for the quarter was $16.1 million, down 27% from $22.1 million in the prior year quarter. On a year-to-date basis, net income attributable to Astrana was $50.1 million, up 4% from $48.4 million in the prior year period. Earnings per diluted share for the quarter stood at $0.33, down from $0.47 in the prior year period. Year-to-date earnings per diluted share were $1.04 compared to $1.03, a 1% increase from the prior year period. From a balance sheet perspective, we remain well capitalized, ending the quarter with $348 million in cash and cash equivalents and total debt of $442 million compared to $325 million in cash and $446 million in debt at the close of the previous quarter. As we adjust our full-year outlook to incorporate CHS' financial contribution, we're revising our guidance ranges. For revenue, we now expect between $1.95 billion and $2.03 billion, up from our prior range of $1.75 billion to $1.85 billion. We anticipate adjusted EBITDA to range somewhere between $165 million to $175 million compared to our previous outlook of $165 million to $185 million. Lastly, we now project earnings per diluted share to be between $1.06 and $1.19 compared to our prior guidance range of $1.12 to $1.36. To conclude, Astrana Health has made significant progress this year through strategic growth and disciplined execution. Looking ahead, we're focused on the seamless integration of acquisitions and new provider partners, strengthening our financial position and delivering sustainable value for our members, providers, payer partners, and shareholders. We appreciate your continued support and confidence in Astrana Health. With that, I'll turn it over to you, operator, for questions.

Congrats on the quarter. This is Jack Senft on for Ryan. I wanted to touch on the updated guidance that now incorporates CHS. Can you just remind us on the top line and bottom line impact of adding CHS? I believe you said it was maybe a negative $4 million EBITDA hit in the fourth quarter. I'm just trying to parse out the magnitude of the third quarter performance on your updated guide versus the CHS individual performance.

In terms of top line for CHS, in Q4, we're expecting about $200 million in additional top line. In terms of adjusted EBITDA, we are anticipating about a $4 million hit to EBITDA.

Okay. Perfect. And then if I could just sneak in a follow-up here. We recently saw a headline regarding, I believe it's called Proposition 35 in California. It's basically giving doctors in California a boost in pay for those that serve Medi-Cal patients. Can you guys just elaborate on what this is and maybe just if this will impact you? And if it is going to impact you, maybe the magnitude and then kind of how this impacts each of your business lines?

Jack, this is Brandon. Thanks for the question. I'm just going to say a few quick words and then hand it off to Chan to discuss the financial impact. We just wanted to say that we're pleased to see increased Medicaid funding in California. It's a population that we think we spend a lot of investment and time on, and it's something that we think is going to be great for those communities. Chan, do you want to discuss some of our anticipated impact?

Sure. Thanks, Brandon. So Jack, in terms of overall what this means to us, we value that the voters of California believe in Medicaid, believe in the fact of continuing to make sure networks are sustainable. With this higher funding, we expect to continue to reach more Californians and continue to build high-quality networks. In terms of specifics for '26 and beyond, we are in ongoing discussions with payers, and we'll keep you apprised as those discussions continue.

I wanted to just pick your brains a little bit at a high level, recognizing your gradually expanding from your California roots across the Southeast and up into New England. I'm hoping you could give us a sense of physicians, payers, and hospital players as it relates to capitated health care and the role you can play to help them be successful in what they're trying to do. And then I'd also love any color as it relates to major geographic variations on the theme you might discuss.

Brooks, this is Brandon. Thanks for joining the call and for the questions. It's good to hear from you. You have a great point. And as we've talked about many times, health care is very local. Each region is extremely different in terms of community that we're serving, in terms of the payer mix, demographics, social determinants that may apply or may not apply, etc. That's something we're taking into account as we look at drastically different communities, ranging from Texas to the Southeast to the Northeast. What we're trying to focus on, which is our strategy, is to reduce the variability that can be reduced while giving tools to local providers and clinical teams to address the actual needs of the community that they are serving. Nationwide items such as claims variation, fraud, waste, and abuse, as well as care management protocols, which we strive to be evidence-driven, are standardized by our technology platform, including our Pathways care management and disease management proprietary technology. However, at the local market level, we are working with regional leaders and regional chief medical officers to create the right network topology, whether that's primary care, specialty care, or hospitals, as well as the right relationships so that we can appropriately influence providers to succeed and help them succeed in value-based care contracts. I won't go into detail on each particular region and its systems and its players, but I think it's extremely important, and it's a great point that you brought up that we're keeping in mind as we continue to grow.

Apologies if I already covered this because I missed some of the prepared remarks. I want to ask about the medical cost trends. Did you have any update to your first half medical cost trend as more claims stand up? As a follow-up, you previously discussed reinvesting some of the upside you experience in medical claims back into the business to drive future growth. Just curious what areas are you reinvesting back into?

Thanks for the question. In terms of medical cost trend, despite having concentration in regions that are expressing higher-than-average trends such as Los Angeles, our ACO trend continues to be relatively lower than national. In terms of Medicare Advantage, I'd say we're also trending lower than regional trends, kind of low to single-digit numbers. Medicaid, on the flip side, has been trending higher. We think as excess redetermination kind of works through the system, that trend will start to stabilize. In terms of how we are reinvesting, we continue to reinvest in our clinical programs and our care management programs to really continue to provide the necessary care for our members that need it the most.

Just following on Medicaid. I mean, this is something some of the managed care companies talked about, the rate mismatch. Is that what you're referring to that you're seeing some rate mismatch on your book of business? Is that something kind of in a manageable range? Just can you elaborate more on that?

I think it's partially that. I think it's partially just as others have said, as we determine members are moving into other lines of business, we are seeing that net impact.

So firstly, I just wanted to confirm, is the narrowing of the full year EBITDA guide to the lower end of the range totally related to that CHS dilution in fourth quarter? And I guess, my main question is also on redetermination. Is that part of the guide update as well? Or are you expecting sort of that better exchange marketplace trend to continue offsetting this elevated utilization? And I guess, ultimately, sorry for the run-on question. Just given the magnitude of impact these large Medicaid plans are seeing and the fact that they've been blindsided by it, like what's your sense on the magnitude of concern? And do you have any sort of risk corridors in place embedded in your contracts to potentially insulate or protect from any unexpected trends in Medicaid?

Thank you for the question. To address your first question regarding our guidance, we indicated that $4 million of that guidance is primarily linked to CHS. There are several other factors at play. Regarding the second topic on Medicaid trends, we are observing changes in the overall mix of Medicaid members, and we anticipate that this will normalize by next year. We expect margins to begin stabilizing in mid to late 2025 and into 2026.

I think you had about 30% of members in full risk. What could you get that up to over, say, 2.5 or 5 years? Could that get up to 60%? And what kind of revenue impact would that have on your overall book of business?

It's great to hear from you, Dave. Regarding our business strategy and long-term goals, I believe a part of our operations will always remain outside of full risk. As we grow and develop, it takes time for ecosystems to reach a level of comfort. Additionally, there are specific business lines where full risk may not be the best approach. If I were to address your question about the potential long-term increase, I would estimate it could reach around 50%, compared to the 30% you mentioned.

It's Brandon. Thanks for the question. I apologize for not providing a complete list of factors. We usually address that more thoroughly later in the year. To answer your questions, I agree that Medicare MLR has supportive factors, especially considering our concentration of members in areas like Los Angeles, which experience a larger benchmark adjustment. This adjustment affects both Medicare Advantage and ACO REACH, so we expect it to be a positive influence in Medicare Advantage. We are also moving more members into full risk arrangements in Medicare Advantage, which is part of our strategy to achieve a two-thirds rate by January 1, 2025. Additionally, we have organic growth from our new business in CHS and existing markets, which will drive further growth. However, we anticipate some margin pressure with the newer cohorts of members, typically for around two years. We also expect some Medicaid redetermination effects, which may impact us by a few hundred basis points, though not significantly. Lastly, ongoing new market development costs will continue into next year. It's Brandon. We have never really taken advantage of some of the maybe margin prior to the two midnight rule. I think others have spoken about this as well, but given the contracting landscape in the health care ecosystem in California, that's not really as much of a factor, frankly. And so when that happened, it also was not much of a factor for us. It has not really been a drag on margin at all in our experience. On some of the other items, it's a constant balance that we work with the plans to figure out how we design a benefit package and formulary and co-pays to ensure that costs are not spiraling out of control for one reason or another. I also didn't mention earlier, partially the limitations of risk on things that we can and cannot control. We are, at the end of the day, not a plan despite partnering with some plans to create some provide specific plans or offerings. However, for the items that you mentioned, we don't view those as large risks to the business, and we haven't experienced them as a large headwind so far this year.

At this time, there are no further questions in queue. Thank you, everyone, for joining our third quarter 2024 earnings call. We look forward to seeing you again next quarter. If you are ever in Los Angeles or Las Vegas, we remain open to meet with you in person. Thank you again, and have a good evening.