keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participant choosing speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please ask one question and one follow-up question and re-queue for any additional questions. Our first question is from Ryan Daniels with William Blair. Please proceed.

Yeah, hello. This is Matthew Mardula on for Ryan. Thank you for taking the questions. So with you talking about outperforming the full year trend assumption of about 5%, what cost trend are you currently at? And then with commercial above trend, what is impacting that segment and is it the exchange segment? And then lastly, did any segment cost trends needed to be revised versus your expectations?

Hey, Matthew. Thank you for joining the call. So I think there were a few questions. First, on trend, year-to-date, overall trend is tracking slightly better than our guided 5.2 percent assumption blended across the business. By line of business, Medicare Advantage and Original Medicare are slightly favorable to our overall trend. Our ACO populations in Original Medicare are performing well. Medicaid is in line with that trend number and that was inclusive of potential adverse selection effects in our guidance. And commercial, as I mentioned earlier, was slightly above. On commercial, we feel comfortable with our ability to inflect that throughout the year. And it's only slightly higher than what we had anticipated.

So we're not anticipating changing our guidance at this time great thank you for that and then with the new members added in Texas Hawaii as well as in California for Medicare Advantage and with you talking about continue to expand membership as we think about expansion is MA the area that looks most favorable to you and as we think about into the second half and into 2027 should we be expecting MA membership to continue to grow? And do you believe this could maybe offset that decrease in Medicaid membership?

Our model is based on being diagnostic. However, you know, given some of the changes in Medicaid that are to come, naturally there is a higher percentage of revenue that will be coming from Medicare, both Medicare Advantage as well as original Medicare going forward.

Thank you for taking all the questions.

Our next question is from Jack Slevin with Jeffries. Please proceed.

Hey, good afternoon, guys. Thanks for taking the question and ingress on Solid Quarter. Apologies if you tread over this a little bit, but I guess I wanted to just touch on MA a little. And really, really two things, I guess. I know it's a little early without landscape files or other things, but maybe what you're hearing or seeing from payers, given we are past bid deadlines or any chatter that might be in the marketplace on sort of where those things are aligning. And then secondly, as you look at trend and opportunities to moderate there, any pockets you can call out or areas you might see that could be potential drivers of upside in MA as we progress through the year and into the out years.

Hey, thanks for the question. I mean, first of all, on the plan, I know that it's public yet. We do work closely with the plans, especially in those provider-specific plans that we develop in partnership with our client partners to find the right benefits for the populations that we're serving and ensure that the benefits are driving better care coordination and better access to care for those members. I think it's a bit early to comment on the exact bids, but I do think that we feel confident that our success in Medicare Advantage will continue in 2027. Of course, in California, which is our core market and a very competitive market for me, there are always going to be, as we've seen in past years, folks who want to grow their plans dramatically. But this has been a recurring theme, and we've managed through that, and we understand how to do that and kind of spread our membership across our portfolio of health plan partners as we feel confident kind of going to 27, especially with where the final rate notice was. In terms of potential opportunity, you know, there are always opportunities to continue moderating, you know, medical cost trend. However, we're already seeing that outperforming our overall expectations and we feel confident that we can continue doing that going forward. For example, inpatient admins per K in our Medicare business were very well controlled and relatively flat year over year here in the first half of the year. That being said, you know, there's always opportunity to more appropriately code our As we had mentioned before, our risk scores are approximately 1.0, which we believe is lower than the average for Medicare Advantage. So that's something that, you know, in the medium term, we will be looking to capture and diagnose and code more or chart more accurately.

Got it. Okay, really helpful. And then just as a follow-up, you know, the G&A commentary continues to be, I think, pretty optimistic and delivering on some of the upside there. I guess what I'm trying to parse out related to some of the synergies in prospect and then just ongoing efforts you have to make the business more efficient, more automated, more AI forward. If I try to balance those two things, can you just speak a little bit to sort of, are those two things tracking nicely together? Is there room to go on prospect within some of the core initiatives you're putting out across the business that are separate from the synergies. We'd love to just hear sort of on those two tracks how to think about the G&A improvements and how that casts forward.

Right. Consistent with what we've been saying the last couple of quarters, we have been measurably improving our G&A or decreasing G&A spend as a percentage of revenue. This quarter, for example, was over 2% lower than the same quarter last year coming in underneath the 6% mark. and we expect to exit the year at the 6% range. Going forward, we continue to expect to see declines in G&A as a percentage of premiums under management as a result of both increased capture of synergies, which are at the top end of the $12 to $15 million range that we'd previously guided, as well as core operational changes in the legacy Estrana business. So it really is a mix of both. I don't have a breakdown of exactly what percent is coming from each, but it's going to be continued improvements across the board in both capturing synergies as well as improvements in the core platform.

Understood. Appreciate it, Brandon. Thanks.

Our next question is from Michael Ha with Baird. Please proceed.

Thank you. On the rebalancing of Medi-Cal lives from professional full risk, I was wondering if you could elaborate more on this, what's driving it. Is this related to the increased payer appetite you mentioned in your remarks? Is there increased appetite from these Medicaid plans in California who are facing elevated margin pressures? I mean, how many lives are you expecting to convert over the next 12 months, and how should we think about the expected earnings impact?

Hey, Michael, thanks for the question. I think there are a couple of dynamics at play in Medicaid, especially in California, for the Medi-Cal program. You know, one part of it is that a lot of our care model is predicated on saving dollars across both outpatient and inpatient. And so in areas or contracts in which there is no path to a full risk arrangement or in areas where we can push towards a full risk arrangement, we believe that allows us to better align our performance with the financial outcomes that we receive from those contracts, especially in a time of compressing margin and disenrollments in California, both now and potentially in 2027 and beyond after OBVBA comes online, We're making a further push to emphasize that we would want to be fully accountable for the results that our model is driving across all lines of business, but certainly especially in the Medi-Cal business, which we call that in the preparator marks. We also believe that, you know, these transitions are generally amenable with our plan partners, for our plan partners, and we expect, you know, in the order of tens of thousands of members, you know, conservatively moving into these arrangements over the next, call it 12 months, as I mentioned in the prepared remarks. We aren't currently sizing the economics necessarily tied to that. I think what's important is that we want to be aligned with our health plan partners, We want to deliver and be rewarded for the outcomes that we're driving. And we believe that moving to four-risk arrangements, which we have already started, as I mentioned, with one contract in the remarks this quarter, but continuing to do so in the next year, will help us align in that fashion.

Great. Thank you. And on risk score capture, which you talked about in the other question, I guess when I think about it, over the past few years, you've had pretty nice improvement growing your RAF. I think it has grown, I think, like 5% from 0.97 to 1.02, all during V28. And, I mean, now that V28 is ending, trying to think, how should we think about the go-forward annual RAF improvement? Would it be fair to presume, if you were able to do 5% growth during one of the toughest risk-coding environments, V28, that heading out, it might even be greater RAF improvement? So I was wondering if you could talk more about your internal RAF initiatives, investments being made. Are you embedding AI into this coding function? And even for this year, just wondering, how are your AWV rates tracking your data so far? Thank you.

Thanks, Michael. We've historically been strong at the annual wellness visit, you know, driving that engagement with our patient base, especially in the Medicare population. That's something that we report and track as an internal KPI. that's important to us in terms of our ability to get the patients in and really assess them in a comprehensive way. We view RAF and charting, you know, as a natural consequence of that, not the primary motivation. You know, our model, as you know, is primarily focused on driving coordination, you know, access and better outcomes and kind of as an ancillary function charting appropriately so that we're being reimbursed in a fair manner. We believe that improvements in RAF or existing cohorts will continue as before. That being said, as we continue growing membership in new regions, it really depends on what the RAF is for the new cohorts coming in. And so the blended average of that is impactful to the overall RAF number. But we do believe, as in historical periods, that over time each cohort does improve in terms of the risk adjustment profile. And we think that there is still upside in the medium term from being more appropriately coded in our Medicare population.

Our next question is from Jalendria Singh with Truist. Please proceed.

Yeah, thank you, and thanks for taking my questions. First, I want to ask about second-half EBITDA guidance and the implied Q4 outlook. It implies a pretty wide Q4 range of 47 to 67 million. I understand Q4 is seasonally weaker quarter, but the low end seems to imply a meaningful step down from Q3 levels. Is there anything meaningfully different in Q4 versus Q3 this year versus prior years? If not, can you help us understand the swing factors in the Q4 outlook?

Hey, Jalandra, thank you for the question. I think if you're focused on the width of the range, You know, I think that's primarily an artifact, frankly, of just the range that we got it to for the year versus the quarter. I think how we would think about it is that the Q3 and Q4 cadence is very similar to past Q3 is typically a much better quarter, in fact, the best quarter of the year, and there's a sequential step down into Q4 relative to Q3. But I would be more focused on the midpoint, you know, potentially than the range necessarily. which is just an artifact, I think, of the range of the annualized guidance versus the quarterly guidance.

Okay. And then we didn't hear any thoughts on 2027. You have talked about mid to high teens year-over-year organic EBITDA growth in 2027. First, I want to confirm any changes to that thought process. And related to that, how are you thinking of Medicaid? What requirement headwind next year? Is that captured in that mid to high teens number? And the investments you're doing this year, do they have potential to drive incremental growth next year or they're more like supporting your mid to high teens growth? How should we think about that?

Yeah, definitely. I think we have said and we'll stand by and reaffirm medium-term, mid to high teens, EBITDA growth not just for 27 but into the medium-term years as well. You know, there are, you know, Medicaid changes starting 1-1-27, as is well known. And we think that based on the portfolio rebalancing and the changes we're making, we will have the right levers, you know, to continue growing in that range in a go-forward basis. In terms of the investments that we're making, as I mentioned, we're investing mid-to-high single-digit million dollars. Primarily, these are essentially losses in new contracts and new geographies to take on membership faster than we would have otherwise planned. Now, these may not flip to profitability necessarily in 27, but any losses related to them would be contemplated into our 27 guide when we put that out. It's possible, depending on the cadence, some of the cohorts may turn positive more quickly, especially as we continue to compress the slope of the J-curves that we have given our operating system. But at this time, we're contemplating kind of a more normal cohort improvement as in historical periods.

Okay. And one more, if I can sneak in here. You know, some of the large health insurers have talked about, like, exiting Medicaid markets. Some have talked about shrinking their exchange footprint, and some talked about exiting certain MA plans. Some of these decisions are for 2027, and I understand you don't have much exposure to some of these health plans, but I believe others are partners. Generally, how much lead time do you get to contract with plans winning those lives? Is that membership risk or share gain for a dense delegated network? Just help us understand how quickly we can shift these and how much lead time we have generally when it plans exit or get out of these markets?

Yeah, that's an interesting one. I mean, that really depends, pair to pair. I think what really helps us is our unique, you know, pair agnostic model. You know, the idea is that we are acting as a coordinated, unified pair for our downstream delegated networks. And so for example, if one pair were to exit a certain market or exit a certain product, Those members are still there. They will still be needing insurance. They may go to a different plan, a different product. And the idea is that because of our unique model, our providers are not negatively impacted by that because it would simply be a switch in, you know, ID card, benefit, et cetera, and the providers would be extracted, you know, away from those changes. We would handle that on the back end for our providers. That being said, recently, you know, we typically get around a few months in advance of some of these things happening, and our teams are preparing to make sure that those members are moving to a plan that we do have a contract with so that their care is not interrupted and that operationally the providers are not being disrupted either.

Our next question is from David Larson with BTIG. Please proceed.

Hi, this is Jenny Shen on for Dave. Thanks for taking my question. I just wanted to ask about some of the member attrition that you referred to earlier. Just any thoughts on what you're seeing, what you saw this quarter versus last quarter? We were under the impression that the declines that you were seeing were pretty favorable, especially compared to some of your peers. Has that accelerated at all. And if you could put any numbers or quantify that, that would be great. Thank you.

Thanks, Jenny. So you had a day for us. So on Medicaid, or sorry, on attrition broadly, they were largely in line with expectations, breaking that down a little bit by line of business. California Medicaid is in line. It's not a great picture, but it is in line and towards to the higher end of the, you know, low to mid-teens kind of range that we had provided before in terms of Medicaid attrition in California. That was within, you know, the guidance and it's fully contemplated in the revised 2026 guidance that we put out. In terms of the exchange, it is actually running a little better than our 30 to 40 percent assumption at the beginning of the year. However, out of conservatism, we're still contemplating the 30 to 40 percent range for our full-year guidance. And then Medicare, both original and Medicare Advantage, that's fairly stable. So I would say really the only area, you know, if we're watching something for sure is in Medicaid. But as I mentioned, that's the source of some of the strategic balancing and kind of focus on taking full accountability for our members in Medi-Cal.

Perfect. Thank you.

Our next question is from Andrew Mock with Barclays. Please proceed.

Hi, a couple of questions on the revised guidance. First, you noted mid to high single digit reinvestment in the business. So if you're reinvesting, say, $7 plus million from the first half and still raising the guide by $2.5 million, is it fair that the first half outperformed plan by $10 million And is there anything driving that outperformance that's one time in nature that wouldn't necessarily recur in the back half. Thanks.

Hey, Andrew, thanks for the question. I think probably, yes, that's fair. There are obviously puts and takes here and there, but yeah, we felt we were very happy to be able to improve guidance immediately by a small amount, but also reinvest, you know, call it three quarters or so of that back into growing quicker into new markets, some new provider partnerships that I mentioned, taking on new blocks of membership and winning organic growth in some of our expansion markets. And we believe, like I mentioned, that that sets this up really nicely for continued medium-term and long-term earnings expansion. In terms of one-time items, you know, there was not really anything large one-time here. There was an immaterial net effect of prior period development. Do you want to get ahead of that when we file the queue very shortly here, you will see some positive claims restatement from prior periods. That being said, there were also changes in revenue, stop loss, provider share, et cetera. And so on net, the prior period items were immaterial. So in our view, it was purely outperformance, and we reinvested, call it around three quarters of that outperformance into future growth.

And just a follow-up to your response, I think, to Jalindra's question, you noted that Q3 is the best quarter of the year from an EBITDA perspective. Why exactly is that? And does IRA have meaningful – is that going to have a meaningful impact to seasonality this year, different from last year?

Yeah, of course. There are a couple main reasons for that. But it's primarily related to when we accrue and take, you know, some of the profitability from, for example, the MSSP program out of conservatism. We typically do not take any of those dollars until Q3 when we have better visibility, even if we are fairly confident that, you know, we're doing well in that program in terms of other leading metrics. There's also sweeps, for example, in Q3 that we typically take in Q3. IRA is not a really large impact. As we've said before, we don't really take Part D as in dog risk typically, and if we do, it's very minor. It's really driven by the ACO programs and sweeps in Q3. Great. Appreciate all the callers. Thank you. Thanks.

Our next question is from Ryan Langston with TD Cowan. Please proceed.

I want to go back to this $15 million revenue reduction, Chon, you called out, I think, an ACO reach. Can you elaborate what's driving that?

Like, is that related to operations for Estrana? And maybe give us a little bit more detail how that's affecting the P&L. Did that hit all in the second quarter and maybe how that flows through to EBITDA?

Hey, Ryan, how are you? So the $15 million is associated with claims tied to the fraud, waste, and abuse for the ACO REACH program billings. So that is a revenue reduction for 2025 periods as well as an expense reduction also for the 2025 periods.

So there was no impact to EBITDA?

There was a slight. When you net it out, it's really immaterial. Okay, got it.

And then I noticed, I think, management fee income was up pretty substantially in the first half of the year versus last year.

Is that related to the prospect transaction?

Maybe just elaborate a bit on what's driving that. yeah it is a uh it is related to and you should probably see that in uh q3 and q4 last year also it's related to uh the clients that um astrana began managing post the prospect acquisition there have also been some new coin wins you know i think we mentioned that in on the q4 call that started 1-1-27 so kind of in combination inorganic and organically um we continue to grow that business, which we're excited about.

It's a nice kind of EBITDA margin business and continues to play into the AI capabilities that we're developing in-house. Thank you.

Thanks, Ron.

Our next question is from Matthew Gilmer with KeyBank Capital Markets. Please proceed.

Hi. Thanks for the question. On the theme of automation, the slide presentation referenced a statistic about Estrana driving over 500,000 automated member encounters per month. And I was kind of curious what the nature of those interactions were and what the benefit is to the company from those interactions.

Hey, thanks for the question. Those are automated member interactions, including, for example, voice interactions, scheduling interactions, text messages, medication reconciliation, transitions of care, things of that nature, letters as well, or interactions, notifications pushed through our member-facing applications or websites. And as I mentioned in the prepared remarks, historically, the idea of risk ratification was that you would use that to limit the types of of resources that our members get, simply because of the constraint on the amount of humans and time that people have. I think what's really exciting about AI, partially is certainly reducing the amount of G&A, that's great, and we're doing that certainly to a large degree, as you can see in the G&A numbers. But even more exciting to me is that we truly have the ability to fulfill the potential of getting people more care, especially folks who are living in potentially more rural areas or places where it's harder for them to get to a physician's office and being able to engage with them more frequently to support lower cost trend and lower utilization without sacrificing quality. And so it's a question of not having to pick and choose who you're going to engage anymore because you have limited time. Now it's a question of what kind of interventions you choose. Do you have a nurse reach out? Do you have someone go to the home? Or is an AI-supported patient engagement enough? And you just kind of decide when you escalate that, if necessary, into an in-person engagement. So, you know, that's only going to continue to grow, I think, over time. But we're excited because it means we get to not only find some G&A savings, but also over the long run, we believe there will be AI-enabled kind of MLR improvements as well. Just to be clear, we're not underwriting that, you know, into our guidance necessarily, but we do think it'll be great for the outcomes of our patient populations.

Got it. That's great. And then as a follow-up, on the trend discussion, I wanted to see if there was anything to call out in terms of the categories of costs that are trending better within the MA and Medicare book and the categories of costs that are maybe running a little bit higher for commercial. Anything noteworthy to call out there?

Yeah, sure. Medicare has really been a broad-based, strong performance. In particular, we're proud of the inpatient admits per 1,000. That's a number that continues to be extremely stable year over year, and I think is a testament to the care model and the work of our teams, the work of our clinicians and providers. Really, a lot of the trend is really only just the unit cost increase and not so much number of units because the admits per care is so stable kind of year over year. in the Medicare book of business. In commercial, you know, slightly above expectations, you know, we believe it's very manageable. In commercial, of course, there's only a single digit percentage of revenue to begin with, but it's really concentrated in some of the outpatient specialties, interestingly, and we think we have the levers, you know, to really address that this year and don't anticipate that impacting our guidance much of it all.

Okay, thank you.

As a reminder, just star one on your telephone keypad if you would like to ask a question. Our next question is from Matt Shea with Needham & Company. Please proceed.

Hey, thanks for taking the questions. And apologies if any of this was covered, juggling a few calls here tonight. But congrats on the wins in Hawaii and Texas. Maybe off of those, how does Hawaii fit the delegated model? What makes this market attractive? And then in Texas, maybe help us understand why Texas, the Texas ad coming in as professional risk rather than the fully delegated construct that you've been leading with since the start of this year. Is that a deliberate partial risk first on ramp type of stance? And if so, how are you thinking about the timeline to full risk?

Yeah, sure thing. You know, why is an interesting market for us? It's a market that is obviously smaller, you know, than Texas. But we like it because it represents an opportunity to, you know, to quickly build a scaled provider entity, a provider group in a state, given that, you know, again, the size is much smaller and there's an opportunity to do that. But as you may recall, we actually entered Texas in partnership with an electronic house record company. And so there's also opportunities where we've been more deeply embedding our technology platform directly into the EHRs that the providers are already using in Texas. We are seeing good performance in Texas and want to continue growing our presence there. I'm sorry, in Hawaii, I apologize, well, Texas too, but Hawaii first. And in Hawaii, there actually is a history of some elements of delegation. There were other organizations in Hawaii who, you know, who have some semblance of delegated So that's something that we're working on. Yeah, I'm sorry, in the first half, I meant Hawaii, so I apologize for misspeaking there. Texas next. You know, going forward in Texas, you know, as we mentioned before, the 15,000 lives in the full risk contracts delegated, the professional lives that we're adding, the 33,000 members are also delegated, just not in a full-risk arrangement. It's a partial-risk arrangement first. And those are net new members to the organization. So in the full-risk members, we had some gain-share kind of construct for those members already, and then we moved them up the risk curve in the second pillar of our strategy. For these members, these are net new members that were starting off in a partial-risk arrangement. It is still delegated, similar to our partial-risk members in California, and kind of going forward as performance matures, we would hope to move them to Forrest Construct in Texas, too. Sorry for the mix-up on I got too excited about Texas.

No worries. Helpful color there, Brandon. And maybe a higher-level one, just on the tech stack, you know, part of our thesis is that fragmented peers can't replicate the integrated data and orchestration layer that you have, even as they spend heavily on AI. It sounds like with the EBITDA performance to date, there's a good amount of reinvestment in the Outlook. But curious on that reinvestment, is any of that going into incremental tech or AI innovation? And then if we take a step back, are you seeing your tech leadership relative to peers compound at this stage? Or any way to think about how much you're pulling away from peers from a technological perspective?

Yeah, I think the majority of the reinvestment or really all of the reinvestment for this, you know, that we talked about this quarter is really first going into the provider and payer growth. You know, I think down the line there may be, you know, prudent reinvestment that we make in AI. A lot of that is already contemplated in our existing guidance as we had done that, you know, in previous years and talked about that in previous years. we try to be very prudent with our AI spend even though we're developing things in-house we have our own engineers we're not developing training our own models ourselves but we're developing our entire orchestration stack ourselves in-house that is being done in a very prudent way that doesn't we're not going to go out and spend $200 million building out AI but I think we've gotten results and ROI far and beyond what we've invested in the platform. In terms of the talent level, we are always looking for new talent, 100%. That's never going to stop. In fact, just this quarter, we added, not on the technology side necessarily, but we added two senior executives that we put out a press release about in enterprise transformation and to lead a provider growth practice. So it's something that we're always focused on. On the engineering side as well, we continue to add new engineers and upgrade that talent. I think relative to the industry, we think we are working really hard and building some cool things, and hopefully our providers agree with that as well, and certainly the outcomes will reflect that.

There are no further questions at this time. Thank you all. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.