Good day, everyone, and welcome to today's Astrana Health Fourth Quarter and Full Year 2024 Earnings Call. Later, you will have the opportunity to ask questions during the question-and-answer session. Today's speakers will be Brandon Sim, 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. 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 on the 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 and include, among other things, statements regarding the company's guidance for the year ending December 31, 2025, continued growth, acquisition strategy, ability to deliver sustainable long-term value, ability to respond to the changing environment, operational focus, strategic growth plans and acquisition 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 an investment decision. 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 you to refer to Slide 2 of the conference call presentation for further information. With that, I'll turn the call over to Astrana Health President and Chief Executive Officer, Brandon Sim. Please go ahead, Brandon.

Good afternoon, and thank you all for joining us today. Our fourth quarter and full-year results reinforce the strong momentum we continue to build as we scale the nation's leading patient-centered, payer-agnostic healthcare platform. We are proud of what Astrana has accomplished this year, advancing our mission to deliver high quality, high value, and accessible care to communities nationwide. In 2024, we expanded our footprint significantly, while delivering strong financial performance across both the top and bottom lines. Our ability to execute and sustain rapid growth, even amid a complex macroeconomic environment, challenging reimbursement dynamics and shifting utilization trends underscores the strength of our model and the discipline of our execution. Our success is built on the consistent execution of the four key pillars in the Astrana playbook, quarter after quarter. First, we are sustainably growing our membership and patients served, expanding access to high-quality care for more Americans. Second, we are deepening our alignment with patient outcomes through responsible risk progression in our value-based contracts. Third, we are delivering excellent patient outcomes and improving care quality while effectively managing costs. And fourth, we are driving operational excellence across our organization through our proprietary Care Enablement platform. To bring our playbook to life, I'll begin by sharing a recent patient story. Then I'll highlight some of our financial results for the year, which reflect our success in executing on these four strategic pillars. After that, I'll provide a review of our progress and provide key business updates before handing the call to Chan, who will go into more detail on our financial performance and guidance outlook. While today's call is focused on our financial performance, the true heart and soul of our business, what drives everything that we do, is the impact that we have on the lives of our patients. So with that in mind, I'd like to share an anonymized patient vignette, one of many, which illustrates the meaningful difference our technology-enabled care model is making for our members each and every day. Recently, one of our dual eligible members, Amy, was identified as a patient requiring highly personalized support by the risk stratification model we built in our homegrown care management tool named Pathways. This determination was made due to the complex set of health challenges that Amy faces, including COPD, diabetes, hypertension, high cholesterol, and serious mental illness. To make things worse, upon checking in with her, our care management team discovered that previously unreported cataracts were significantly impacting her daily life and that the patient did not want to seek surgery due to her fear of anesthesia. Our team stepped in with a personalized and holistic care plan created in Pathways, which addressed not only Amy's physical and mental health needs but also tackled food insecurity and aimed to ease her anxiety about the cataract procedure. Pathways also helped the care team coordinate with our team of community health workers who kept her engaged, connected her to essential community resources, and even explored the possibility of her utilizing a service animal to help address her anxiety. Our utilization and care management teams worked closely with specialists in our care partners network to coordinate her cataract surgery in a comfortable outpatient setting, a key advantage of our fully integrated delegated care model. They also worked to make sure that she could afford her medications, take them as prescribed, and adhere to the appropriate treatment plan. Amy's heartfelt words to our team, "I can see again," serve as a powerful reminder of the impact of our model, allowing her to live independently going forward. Amy's story is one of many that showcase how closing gaps and driving coordination in our complex healthcare system isn't just a moral imperative; it also creates meaningful business value as we make investments in our patients' health today that prevent costly and unnecessary inpatient utilization later in their lives. I'll now segue into covering key highlights of our financial performance in 2024. In the fourth quarter, we delivered total revenue of $665.2 million, an 88.4% increase over the prior year period, and adjusted EBITDA of $35 million, reflecting 20.8% growth year-over-year. For the full year of 2024, Astrana generated $2.03 billion of total revenue, a 47% increase from the prior year, while adjusted EBITDA reached $170.4 million, up 16.2% year-over-year. Growth was driven primarily by our Care Partners segment, which grew 52% year-over-year to $1.95 billion. These strong results were achieved even as we made significant strategic investments in our growth initiatives and integration capabilities, which caused an approximately $13 million drag to earnings. With that, let's take a deeper dive into the four pillars of the Astrana playbook. We continue to make significant headway in our first pillar, sustainable membership growth. In 2024, we saw 55% membership growth in our care partner segment, driven primarily by the conversion of CFC from our Care Enablement client business to our care partners business, the acquisition of CHS, and our organic growth efforts. We also made significant progress in the second pillar of our strategy, responsible risk progression in our value-based contracts. By the end of 2024, approximately 73% of our total capitation revenue came from full risk arrangements. We anticipate this percentage will continue to grow year-over-year in the short-to-medium term. We have taken a disciplined approach to inpatient care management as we transition more of our membership from shared risk to full risk arrangements. As a result, inpatient utilization in our full risk business has remained flat to slightly down on a mix and seasonality adjusted basis, reflecting our disciplined approach to care coordination and cost management. Turning to the third pillar, we remain focused on driving quality and patient outcomes while managing cost trends. We are proud of the meaningful work we have done in improving care quality across our membership. In 2024, approximately three quarters of our senior members received an annual wellness visit. Based on the insights from these visits, patients were proactively referred into the appropriate care management and disease management programs, supported by our clinical teams and care partners network to help manage chronic conditions more effectively as in Amy's story earlier. We continue to leverage our care platform to increase gap closures across our membership, yielding improvements in closure rates and star ratings across key metrics, including but not limited to blood pressure control and hemoglobin A1c. And further underscoring our commitment to quality, 8 of Astrana's affiliate provider groups were recognized with the highest elite 5 Star status in all categories in the 2024 Standards of Excellence survey by America's Physician Groups. Moving on to medical cost trend. Like the rest of the industry, we experienced some utilization headwinds in 2024 but were able to mitigate much of their impact. In aggregate, across all lines of business, we ended 2024 with a 5.3% utilization trend, approximately half the national blended average trend across Medicare, Medicaid, and commercial. We avoided double-digit expense trends in all of our lines of business, maintaining a low single-digit trend in Medicare, a mid-single digit trend in commercial, and a high single-digit trend in Medicaid. These results reflect our continued commitment to providing members with high-quality care while leveraging technology-driven care management, disease management, and care coordination programs that now serve over a million members nationwide. Closing with our fourth pillar, we continue to expand our proprietary Care Enablement platform to better serve physicians and providers while driving operational excellence across the organization. Late last year, we began a Care Enablement partnership with Provider Health Link or PHL, a provider network in Georgia. We will support PHL in serving approximately 10,000 Medicare Advantage members, and we expect the group to be successfully onboarded onto our platform in the first half of 2025. Additionally, we have made significant investments in automation and AI-driven enhancements within our platform to improve efficiency and scalability. We plan to continue these investments in 2025 as we position ourselves for sustained growth and M&A integration activity. We anticipate realizing approximately $10 million in operational efficiencies from these investments by early 2026. I'll conclude my prepared remarks by highlighting our recent organic growth in M&A activity, which took place against the backdrop of a more cautious approach for many of our peers. While we were relatively less aggressive in M&A activity during 2022 and 2023, we shifted to a more strategic and assertive approach in 2024 for several key reasons. First, based on our analysis of publicly available data, our expectations for Medicare Advantage rates were more favorable than the industry average. And early indications from the 2026 Medicare Advantage Advanced Rate Notice suggest that outlook is materializing. Second, due to our long-standing care model and disciplined execution, we believed we were less exposed to sector-wide headwinds such as risk adjustment changes and utilization trends. This positioned us to scale rapidly given our uniquely profitable financial profile. Finally, our proprietary and flexible technology platform allows us to scale and integrate large-scale acquisitions more efficiently. After carefully evaluating hundreds of deals over the past several years, we announced two acquisitions that we believe are most strategically aligned with Astrana's mission. First, we announced Collaborative Health Systems or CHS. We anticipate integration for CHS will be substantially completed by Q2 of 2025. In the fourth quarter of 2024, CHS delivered approximately $170 million of revenue, aligning with our expectations. Looking ahead, we expect CHS to contribute approximately $350 million to $400 million of revenue for the full year of 2025 and approach break even late in the year with profitability coming in 2026. We also announced our plans to acquire Prospect Health, a move that aligns strategically and operationally with Astrana. With over three decades of experience serving communities in Southern California, Prospect operates a payer agnostic, line of business agnostic, risk bearing business, just like our care partners business. Importantly, Prospect's delegated operational model aligns very closely with our own, presenting a compelling opportunity to drive operating leverage through our technology platform. We also see significant potential to enhance care quality and access, particularly in California, where Prospect's network is highly complementary to ours, especially in Orange County, which is geographically adjacent to our Los Angeles headquarters. Chan will provide more detailed updates on prospects later in this call. In closing, we are proud of the impact we've made and our disciplined execution against our playbook throughout 2024. We remain excited about the opportunities ahead, and we look forward to continuing to drive long-term value for patients, physicians, payers, and shareholders. With that, I'll hand it over to Chan.

Thank you, Brandon, and thanks, everyone, for joining us today. I'll dive into our 2024 financials in more detail. We delivered another year of strong performance, generating $2.03 billion in total revenue for 2024, an increase of 47% from $1.39 billion reported in 2023. This growth was fueled by gains across all three of our core business segments. Collectively, adjusted EBITDA reached $170.4 million, reflecting a 16.2% rise from $146.6 million in the previous year. As Brandon discussed, new market and integration costs related to Astrana's strategic growth efforts resulted in approximately $13 million of drag to profitability in 2024. As for utilization, we experienced a mid-single digit total expense trend, which included a 2% to 3% change in unit cost and a 3% to 4% utilization trend in aggregate, with variations across lines of business. We closed the year with a solid liquidity position, ending with $288.5 million in cash and cash equivalents. This reflects our strategic initiatives, including the acquisition of CFC, CHS, as well as the buyout of the remaining equity interest in GMG. On the debt side, total debt, including lease liabilities, stood at $471.8 million compared to $475.8 million in the prior quarter. Our strong liquidity profile continues to support our commitment to long-term sustainable growth. In 2024, we announced the acquisition of the Physician Assets along with the businesses and assets of Prospect Health Systems. We remain enthusiastic about the potential for the Prospect acquisition to significantly expand our provider network and enhance our ability to offer high-quality accessible care to our members. On January 11, 2025, the non-physician assets within Prospect Health System filed for bankruptcy under Chapter 11. We're working closely with the Prospect team to ensure this filing does not impact our close timing. We still expect this transaction to close in Q2 2025. Prospect has been performing in line with our expectations since the transaction was announced. We have received their fiscal year 2024 audited financials. For the calendar year 2024, Prospect generated $1.2 billion in revenue and $94 million in adjusted EBITDA. To give us financial flexibility ahead of the Prospect acquisition, we have successfully replaced our previously committed $3.64 bridge with a new upsized credit agreement, supported by an expanded and highly supportive lender group. This new facility includes a $300 million revolver, a $250 million term Loan A, and a $745 million delayed draw TLA for Prospect. We were able to secure a reduction in pricing, extended maturity date through 2029, and enhanced financial covenants, giving us further flexibility as well as strengthening our capital structure. As we have previously discussed, our best estimate of pro forma net leverage based on 2024 financials for Prospect and Astrana is approximately 3.4 times at close. We remain committed to delever below the 3x range within nine months post-close. I'll wrap things up here by sharing our guidance for the full year 2025, guidance for the first quarter of 2025, and for the medium term. For the full year of 2025, we expect revenues to be in the range of $2.5 billion to $2.7 billion with adjusted EBITDA projected between $170 million and $190 million. For the first quarter of 2025, we expect to generate between $600 million and $650 million of revenue, with adjusted EBITDA ranging between $32 million and $37 million. Finally, we want to reiterate our previously stated medium-term adjusted EBITDA guidance of at least $350 million in 2027. Despite the current environment, we remain confident in our ability to drive sustainable, profitable growth. I want to share several assumptions that we are making in providing 2025 guidance. On the cost trend, we are expecting a mid-single digit cost trend similar to 2024. We're also including approximately $15 million in costs associated with continued strategic investments in integration, automation, and AI. In line with our commitment to risk progression, we anticipate approximately 75% to 85% of revenue to be from full risk arrangements in 2025. In addition, the guidance we have shared today does not incorporate contributions from the anticipated close of Prospect. However, it does reflect ongoing and expected integration costs associated with Prospect. We will update our outlook to include Prospect after the transaction closes, likely in the latter half of the year. Lastly, I want to inform you that we will be filing a Form 12b-25 to extend the deadline for our annual report due to delays in finalizing certain financial information related to the closing of an acquisition during Q4 2024. We plan to file our 10-K within the 15-day extension period. We continue to make strategic decisions that we believe will deliver on long-term value for Astrana and its shareholders. We're pleased with the year and quarter and feel that Astrana is on a strong position for continued growth. We look forward to keeping you updated as the year unfolds. With that, operator, we can open it up for Q&A.

This is Jack Senft for Ryan. Thanks for taking the questions and congrats on the strong year-end quarter. First, maybe just on the adjusted EBITDA guide. It looks like the margin is down, but also kind of flat on a dollar basis. Can you guys just dive a little bit deeper into this maybe on the bridge, just kind of what the puts and takes are and what kind of gets you to the low end of the adjusted EBITDA guidance range and maybe what the higher end? Thanks.

Thanks so much. In terms of our guide for 2025, we're assuming a consistent 4.5% trend. We're also assuming our continued investments next year. And then in terms of overall margin, the margin was down because of CHS next year.

Okay, perfect. Thank you. And then maybe if I can just add a quick follow-up in here too. You guys have a goal to delever to a little over 2x within the two years, I think you said nine months after the close of the acquisition. I think a chunk of this was supposed to come from the free cash flow conversion. So can you just give us like high-level comments on what you expect free cash flow to look like this year? And then kind of like what levers you have to kind of drive the increased cash flow this year and then post-acquisitions as well? Thanks.

Yes. Free cash flow was a bit odd in 2024 due to some one-time items, one related to post CHS that there's some one-time related items probably in the $10 million range, which will be recouped in '25. So you'll see that bump in free cash flow there. There's also an item around some licenses around software that ran through one-time also. So you will see that revert next year. And we've guided in the past, free cash flow comes in about 45% of adjusted. And you'll see that as a higher percentage in '25.

Hi. Thank you. So I understand your Medicaid trend has been running hotter this year. Think about 4% to 5% versus your original expectations. I think it's mainly driven by Proposition 35 and redeterminations. But then as we head into next this year, 2025 with Proposition 35 now past, redetermination headwinds subsiding as we get as states reflect better rates, wouldn't that imply a pretty visible, sizable EBITDA bridge component here as this excess trend declines? If so, how should we think about the magnitude of that benefit? Because optically, super high level, 5% excess trend on your Medicaid revenue, I'm getting something like $30 million of embedded earnings, which is pretty significant. So wondering if this is baked into guidance at all or if it could represent an upside driver?

Thank you for the question about Medicaid, Michael. You're correct that the Medicaid trend has been significantly higher, ranging from 8% to 9%, compared to previous years. However, the year-over-year Medicaid reimbursement only increased slightly from 23% to 24%. This discrepancy resulted in a higher Medical Loss Ratio in our Medicaid business, affecting earnings from that segment as you noted. Additionally, Prop 35 has now passed, and the state is currently negotiating how this will affect the large managed care organizations and us. Our guidance does not include any anticipated rate relief, as we aim to be conservative. We will provide an update given the current uncertainties in the Medicaid landscape. We wanted to avoid including any assumptions about Medicaid that might require adjustment later. Therefore, we are planning for a similar trend in 2025 as seen in 2024, without presuming any renegotiations of contracts or new reimbursements from Medicaid in the $170 million to $190 million guidance.

Got it. Okay. So it sounds like it could be an upside driver once you're able to recognize it. And then I guess my next question would be a couple on costs. I think you mentioned CHS approaching break even late in the year. Curious what you have embedded in guide for full year CHS dilution, also the $15 million expected loss. I was wondering if you could help us sort of break out the buckets. And sorry, lastly, for prospect accretion, I know it's $94 million. The closing mid-year, is it fair to assume half of that comes through? Or I know you mentioned ongoing cost per prospect. How much would we expect for you guys to be making on that? Thank you.

We anticipate integration costs between $5 million and $10 million that will be reflected in our financial statements, fully expensed regardless of when the Prospect transaction concludes, whether mid-year or slightly earlier. The guidance of $170 million to $190 million includes these integration expenses, as well as an additional $5 million to $10 million for automation and technology investments, irrespective of the transaction's closing date. These costs are being recognized in our financials in preparation for the transaction. Regarding the transaction, the $94 million of adjusted EBITDA is derived from both the audited and unaudited financials, as there is a mismatch between their fiscal year and the calendar year. However, we do not expect the contribution for 2025 to necessarily match the $94 million figure, and we believe that $81 million is a more realistic starting point. We wanted to mention the $94 million because it's based on the audited financials we received for Prospect, ensuring transparency. If the transaction closes by the end of the first half of the year, we would expect the ongoing run rate to be closer to the $81 million figure we previously guided, aligned with our accounting practices and how we will report to investors.

Yes. Hi, this is Jalendra Singh from Truist Securities. Thanks for the color on the Medicaid rate acuity mismatch you talked about, which could be a potential upside hopefully in this year. But I also want to talk about the Medicaid; the new administration seems to be focused on reimbursement cuts there. Any comments on how some of these discussed possible cuts could impact your business? Or does being in California insulate you like kind of protect you in any ways?

Hi, Jailendra. Thanks for the question. This is obviously an ongoing situation. A couple of weeks ago, we heard that Medicaid would not be touched. Obviously, that may or may not still be the case. We do believe that having almost all of our Medicaid membership in California does insulate us partially. Although, obviously, federal funding is still going to be an important part of the puzzle in terms of reimbursement in 2025 and going forward. I don't really want to comment or speculate at the moment given I think it's unclear probably to most what the administration will do in terms of the funding for Medicaid and Medicaid expansion. I think what we're going to do is ensure that we are taking care of the Medicaid patients that we do have. We're not assuming any reimbursement increases in our guidance. And we do believe that hopefully, we'll have to prevail at the end of the day and a very important part of the healthcare system is going to be preserved in terms of funding to Medicaid. In terms of California itself, again, we're not including any incremental reimbursement due to Prop 35 or including any renegotiations that may occur throughout the year of 2025.

Okay. And then my quick follow-up, clearly very unfortunate events around California wildfires, but any sort of impacts you can talk about. Did you see in the business in Q1? Did that perhaps lead to any impact on utilization worth calling out, any cost? And then also on the flu activity, just maybe you can combine like what you're capturing in your Q1 comments?

Sure. One last point on Medicaid. We believe that the flexibility of our business model has previously helped us manage disturbances to Medicaid, such as redeterminations, which may allow us to partially offset some of the impact. However, we are still monitoring how this situation develops. Regarding the wildfires, they significantly impacted our community, located less than five miles from our Los Angeles headquarters, displacing many families, including those of our teammates. We had to close around six or seven clinics for several days to a week depending on their locations, but we do not expect this to significantly affect carrier delivery revenues in Q1. In terms of utilization, thankfully, we are not observing any material differences in inpatient utilization related to the fires. Therefore, we do not expect a significant impact there either. Concerning the flu, as some of you might recall, we indicated a couple of quarters ago that we anticipated this flu season would be severe, and it has turned out to be one of the worst in recent memory. Our suspicions were based on the very bad flu season noted in the Southern Hemisphere early in their winter. We accounted for some of this in our trends, and as Chan mentioned earlier, we performed as expected. Given our accruals and the ongoing accruals for 2025 regarding our claims reserve, we feel confident about the trend related to the flu.

Great. Thanks. Good evening. Just want to go back to the guidance. The midpoint seems to assume, I believe, a 6.9% margin and you guys finished the year with 8.4%, so a $150 million Delta. I think the $15 million you called out might be worth around 60 basis points if we assume CHS is running around sort of a $10 million drag that might be another $40 million. So that leaves you another 50 basis points of decline. So if my math is right, can you maybe just give us a sense on what that other 50 basis points is or maybe just kind of an overall picture of what's driving that EBITDA margin decline year to year?

Hey, Brian, great to hear from you. Thanks for the question and the thoughtful analysis. I think the main item is that we have MedEx trend that is increasing faster than, I guess, our revenue. And so that's making up for that 50 basis points.

Okay, got it. And then just one follow-up if I could. I don't believe you were booking any profits on the MSSP side in 2024. Can you give us a sense on what's built into the guidance in terms of MSSP for 2025? And I'll hop back in the queue. Thanks, guys.

Thanks, Ryan. We did get further clarity around MSSP in terms of our data, and we felt we were in a good place to book MSSP-related revenues. So we did book $5 million in Q4. And so that $5 million was for $24 million, and then for $23 million we booked another between $5 million to $6 million. And then in terms of guidance for '25, we're booking $5 million to $6 million.

we were a little redundant, but I'm also going to ask about the guidance. So if I take out the new market costs you mentioned and integration costs you mentioned in 2025 and 2024, I come up with 5% EBITDA growth on a, let's call it, same market basis, even though revenue is up 28%. And so this is effectively the margin question, but it seems like a very, very wide difference between 28% revenue growth and 5% EBITDA growth. And I understand that probably the main factor is trend, but trend was really high in 2024 as well. And so that implies a lot of this new revenues coming in at like no margin. And so if you could just give more detail on what you're expecting for trends and the rate notice in LA is pretty strong for Medicare and it seems like alignment is talking about benefiting from that. So curious why you're not seeing more of the MA rate notice benefit and specifically why trend is coming in worse if there's anything outside of Medicaid, I guess? Thanks.

Thanks for the question, Adam. You're correct in pointing out that my previous response might resemble my answer regarding margins. The two key contributors to our revenue are the CHS acquisition and the ongoing transition to full risk, both of which are relatively low-margin revenue sources. As mentioned earlier, CHS is expected to break even, and the initial year of transitioning to full risk typically doesn't yield significant margins, as it takes time to renegotiate and enhance the unit economics under a forward risk contract for inpatient services. Our priority is to ensure we're adequately prepared for the anticipated closing of the Prospect deal, leaning towards being slightly more proactive in our integration efforts. We expect cost trends for 2025 to remain similar to those in 2024, around 4.5% to 5%. We don't foresee rates increasing as much as we would hope, but if there are adjustments throughout the year due to negotiations with payers or the state, or if there's more clarity on Medicaid, we will update the market accordingly. I want to reiterate that we are committed to achieving at least $350 million in adjusted EBITDA by 2027, and this target remains unchanged. We are being a bit more conservative this year, and it's important to recognize that improving off a high base of adjusted EBITDA reported in 2024 presents different challenges compared to increasing from a smaller figure in a difficult and uncertain macroeconomic climate.

Thank you for the question. I would like to get an update on the margins for Houston and Las Vegas. I believe you're transitioning out of three markets while entering two others in those areas. I'm just curious about how those margins are performing. Thank you.

Hey, good to hear from you. Thanks for the question. On Slide 5 of our supplemental deck, we did provide a couple of updates on both Nevada as well as our Texas markets. They continue to ramp within expectations. For example, Nevada, I'll just provide some highlights. Care delivery visits year-over-year grew by 58%, right around $200,000 a month loss at the moment. And we expect to be break even to profitable in early 2025, probably in a couple of months here. In Texas, similar story, we may be even a little faster, we're on track to break even already in 2025 and start turning a profit late 2025, early 2026. Non-California business will represent around 15% of revenue in 2025 and that number appears poised to grow given the rate of growth in those non-California markets.

Thank you very much. So Brandon, you just alluded to Slide 5. I want to ask you about Slide 6 in the supplemental deck. And you mentioned that the transition to full risk arrangements in year one has very little impact. But I see the increasing trend on Slide 6, and I guess it was my assumption that that would be a potentially very favorable transition for you guys. So maybe you could just talk a little bit about the underlying economics in those arrangements, maybe why you're pursuing those and what the longer-term opportunity might be?

Thanks so much for the question, Brooks. As you highlighted, we continue in our pathway to expanding to full risk contracts. We are focused on this because we truly believe that with these incremental dollars, we can differentially continue to invest in our members. As you can see, it's not an immediate impact in terms of year one. Over time through these investments, we will start seeing through high quality and access to care, we will see trend change. And that is why we're embarking on this journey for the last few years, and that is why we'll continue to do so. And you can see in Slide 6 the improvements beyond that two-thirds level that we had discussed in the past.

Hi. Can you talk about the completeness of data for 2024? It looks like a 5.3% trend for the year and you're guiding like I think 4.5%. Quite frankly, that sounds very good to me. Some of your peers were like in the 7% to 9% range for the first three quarters of 2024. I guess I just worry about being surprised with additional claims files from health plans. Just any sort of comfort you can provide around that would be great. Thank you.

Thanks for the question, Dave. Our claims reserves, including the incurred but not reported (IBNR) reserves, are not solely based on our claims triangles. They also factor in initial information regarding authorizations and other indicators of usage, as we've mentioned before. This gives us a reasonable level of confidence in our estimates. Additionally, we manage the vast majority of our own claims, which allows us to quickly monitor how claims are developing, reinforcing that our trend closely aligns with actual performance. You're also touching on why the midpoint guidance doesn't show a larger increase. I want to emphasize that we're facing substantial integration costs, and it's important to prioritize doing things correctly rather than rushing the integration process. We're making strategic investments to exceed the $350 million target we've set for the medium term. Our focus is not solely on optimizing for 2025 but rather on creating long-term value, ensuring we not only meet but exceed the $350 million commitment for 2027. The path to achieving this may not appear linear, but we are currently investing for future growth, even if it means engaging with lower-margin business segments. Furthermore, considering the trends we've observed—5.3% for 2024 and a projected 4.5% to 5% for 2025—this informs where our adjusted EBITDA stands. Growing at this pace while aiming for $170 million of adjusted EBITDA in 2024 presents its own challenges. I hope that addresses your concerns, Dave.

It does answer my question. Thank you. And then for Prospect at maturity, what would you expect the margin to be? I think you're being conservative with sort of break even. And I mean, what's interesting is fine, 93% of the revenue is capitated, but that's only 33% of members, which means you have a lot of runway to go to basically grow your fully capitated revenue book. So what would you expect the prospect margins to be at maturity, let's call it in three years?

Yes. I may have missed your year, so I apologize. But I think when you mentioned margins being close to break even, you may have meant CHS, and maybe that's what you said. But CHS is break even. We do anticipate that to be in the given the mix of ACO reach and MSSP members versus Medicare Advantage members, probably in the low to mid-single digit percentages at scale. For Prospect, which is coming in at mid-to-high single digits, we expect that to be 7% to 8% at scale, which is similar to our existing business, especially given the similarity of the delegated model and the similarity of the geographic regions of the members and where they live. And then in terms of the full risk conversion, you're right, even though 73% of the revenue comes from a full risk value-based contract, only a third of the members are in such a contract. And so your point is absolutely correct. There's still a lot of runway to go in terms of moving additional members into full risk arrangements. We continue to do that in cohorts even as we speak. There were additional members that went live on one-one. There are additional members that will go live in February or in March, and that's a continual process. Of course, the percentage of revenue that is associated with full risk is going to asymptotically kind of taper off over time, but the number of members will continue to grow probably into the 50% to 55% range. As I mentioned before, not all the members will end up in a full risk arrangement, just given dynamics around growth, not wanting to put members in a full risk arrangement day one, something we've never done, as well as commercial lines of business.

Hey, guys. This is Zach on for Matt. Just on the $10 million annualized AI savings, wondering if you could quantify that in terms of incremental benefit in 2025 and 2026, and maybe just your longer-term thoughts on that opportunity going forward, especially as prospect is integrated? Thanks.

Sure. Maybe I misinterpreted the question, so just let me know. We are spending around $15 million in integration and development for AI in 2025. We expect that to translate into approximately $10 million of savings in 2026 that will probably show up in the G&A line and that will probably continue to grow into 2027. So that would be the approximate magnitude of the investments and then the approximate value of the savings and all of that would flow through down to P&L or to EBITDA. Yes. So it takes time to improve care margin in a population. It takes time to grow a population from zero to the scale that you need to support the infrastructure that you need to build to get into a new market. We typically think about getting to around 10,000 Medicare equivalent membership in a market. So you need some level of density, that would approximately the 10,000 comes from generating approximately $100 million of annualized premiums. You need to be able to operate in an OpEx level that supports that could be supported by $100 million of premium review. So if you assume 10% of gross margin, for example, you need to be able to keep OpEx below $10 million essentially to break even in a new market. And so those are really the levers that we're using. We have to go into a market, build enough density to attract membership, provide a differentiated product with the provider network and the technology platform, so that we can attract additional providers and therefore additional patients. We need to be able to then use that differentiated network and differentiated outcomes that we're driving to receive payer contracts. We need to be able to drive operating leverage in the technology platform, so that we can operate at that cost level. And over time, as we increase scale and get to that number, and if our OpEx is low enough, then you get to break even. Over time is when the preventive care that you provide, such as in the story of Amy that I mentioned earlier in the prepared remarks section, start to shine and you're starting to see decreases in MLR because of the longitudinal nature of the model and the length of time in which patients can be in the care model and be part of our risk-bearing ecosystem. So maybe succinctly, for the first one and a half to two years, it's really about growth and being operationally very efficient. Years two through five, you're starting to do that; you're continuing to do that obviously, and you're also really bringing down medical costs as a percentage of revenue as well.

Thanks. Hey, gentlemen, great year, great quarter. I appreciate the color around all the acquisitions. And did you or can you share the pro forma contribution to revenue from prospect this year? And secondly, just based on your experience historically driving EBITDA synergies through your acquisitions, what might you expect for Prospect, say, after this year given that it has such a similar profile and geography to your current business? Thanks.

Hey, Gene, great to hear from you. Prospect has not closed yet. I'm thinking you may be thinking about CHS?

Well, I am asking about Prospect, but understood that it isn't closed. So maybe you're not comfortable talking about it from a synergy standpoint?

Yes. I think it's best to wait and see when close happens because that's really going to affect its run rate. And in terms of revenue and EBITDA, I would assume what we've shared the revenue run rate is about $1.2 billion, and in terms of EBITDA, it's that $81 million that we have guided to historically.

Thank you. Our first question comes from Ryan Daniels with William Blair. Please proceed.