Earnings Call Transcript - ASTH Q1 2026

Operator, Operator

Hello, everyone, and welcome to Astrana Health's First Quarter 2026 Earnings Call. Today's speakers will be Brandon Sim, President and Chief Executive Officer of Astrana Health; and Chan Basho, Chief Operating and Financial Officer. This press release announcing Astrana Health's results for the first quarter ended March 31, 2026, is available in the Investor Relations section of the company's website at www.astranahealth.com. The company will discuss certain non-GAAP measures during this call. Reconciliations to the most comparable GAAP measures are included in the press release. To provide some additional background on the results, the company has made a supplemental deck available on its website. A replay of this broadcast will be available at Astrana Health's website after the conclusion of this call. Before we get started, I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward-looking statements within the meanings of the safe harbor provisions 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, continued growth, acquisition strategy, ability to deliver sustainable long-term value, ability to respond to the changing environment, liquidity, operational focus, strategic growth plans, and acquisition integration efforts. Although the company believes that the expectations reflected in these forward-looking statements are reasonable as of today, those statements are subject to risks and uncertainties that could cause 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 the filings with the Securities and Exchange Commission, which we encourage you to review before making any investment decisions. The company does not assume any obligation to update any forward-looking statements as a result of new information, future events, change in market conditions, or otherwise, except as required by law. Regarding the disclaimer language, if you would like to refer to Slide 2 of the conference call presentation for further information. With that, I will turn the call over to Astrana Health's President and Chief Executive Officer, Brandon Sim. Please go ahead, Brandon.

Brandon Sim, President and Chief Executive Officer

Good afternoon, and thank you for joining us on Astrana Health's first quarter 2026 earnings call. Today, I'll begin with our first quarter results. Then discuss how we have built and positioned Astrana anchored in our AI-enabled platform and longitudinal payer-agnostic care model and why that model is increasingly advantaged. I'll then provide updates on our four strategic pillars and our progress against each. And finally, I'll provide some color on the Prospect integration, expansion market performance, and recent regulatory updates before turning the call over to Chan. Astrana delivered a strong start to 2026. We saw continued disciplined growth, well-controlled medical cost trend, meaningful operating leverage, and early performance from new full-risk contracts that continue to track in line with our underwriting expectations. More importantly, this quarter reinforces our broader thesis. As the health care environment becomes more complex, advantage will accrue to organizations that can integrate care delivery, data, and financial accountability into a single operating system. Astrana has built that operating system. And we believe that advantage is widening. In the first quarter, Astrana delivered revenue of $965.1 million, up 56% year-over-year and adjusted EBITDA of $66.3 million, up 82% year-over-year. Non-GAAP adjusted EPS was $0.74, up 76% year-over-year and free cash flow was just over $64 million in the quarter. Deleveraging also continued to progress ahead of schedule with net leverage declining to approximately 2.3x on a pro forma trailing 12-month basis and to 2.2x based on the midpoint of our full year guidance. As a reminder, when we announced the Prospect transaction, we communicated a path to deleveraging below 2.5 turns of net leverage within 24 months. We have now achieved that milestone in just three quarters. And we anticipate ending the year at or below two turns of net leverage. We are pleased with the consistency of our performance and execution against our priorities in the first quarter. And our results increasingly reflect the advantages of the platform we have built and the way we are embedding AI across our platform. Our view is straightforward. AI can improve individual tasks. But the greatest value accrues to the orchestration layer where data, workflows, clinical decisions, and financial accountability are integrated across the system. In health care, that means connecting how care is financed, coordinated, and delivered and, ultimately, improving outcomes for patients. We believe that requires deep architectural alignment. Unlike fragmented health care technology stacks assembled across multiple third-party vendors, our platform was designed internally as an integrated operating system because an embedded orchestration across workflows, care delivery, and financial operations requires that. As a delegated payer-agnostic platform, we sit at the center of the health care ecosystem with a continuous longitudinal view of each patient across plans, settings, and time. We are not tied to a single payer or a single line of business. We follow the patient throughout their health care journey. That creates two structural advantages. First, it creates long-term value. The continuity we build with our patients allows us to engage and manage care over extended periods of time, driving better clinical outcomes, more efficient resource allocation, and more predictable financial performance. Second, it creates a compounding data advantage. Our longitudinal view allows us to build a more complete and persistent understanding of each of our patients, which improves our ability to predict risk, intervene earlier, and coordinate care across settings. And on top of that foundation, we have built a proprietary data ontology and AI models that translate intelligence into action, embedding real-time insights, next best actions, and workflow orchestration directly into provider workflows and care management operations. Across our platform, our AI agents are increasingly embedded into operational and clinical workflows, helping manage authorizations, claims processing, care management, quality outreach, and next best actions in real time. Because these agents operate within our broader platform and data infrastructure, they act with longitudinal context across the patient journey rather than within isolated workflows. And these capabilities are embedded directly into the day-to-day workflows of our providers and care teams, driving measurable improvements at the point of care. Providers actively using our platform achieve a 24% higher gap closure rate and a 30% higher annual wellness visit completion rate. And those outcomes are increasingly powered by AI-enabled patient engagement at scale, including around 500,000 automated member interactions across voice and text each month, the equivalent of several hundred personnel worth of outreach capacity. We are seeing similar leverage operationally. For example, our AI claims agents have reduced provider payment cycle times to less than half that of manually processed claims. Taken together, these capabilities translate directly into improved clinical outcomes, more efficient operations, and ultimately, more predictable financial performance. Importantly, because we operate the system our AI is improving and because we maintain longitudinal relationships with patients across payers, the benefits compound over time within our platform. As more patients flow through our system, our models improve, our predictions sharpen, and our ability to allocate resources becomes more precise across the patient journey. That combination of longitudinal relationships, data continuity, and integrated workflows is what really enables us to translate AI into durable clinical and economic value. We continue to see those platform advantages translate into consistent clinical performance across the enterprise. In the quarter, medical cost trends slightly outperformed our full year trend assumption of approximately 5.2%, with strong performance across both our core and legacy Prospect populations as we continue integrating Prospect onto the Astrana operating system. Our original Medicare populations in both ACO REACH and MSSP also performed well, reinforcing the scalability of our platform and the ability of our technology and clinical infrastructure to drive consistent outcomes across lines of business. We are also seeing that leverage reflected in our operating structure. In the first quarter, G&A as a percentage of revenue was 6.4%, a 70 basis point improvement year-over-year. As we continue embedding agentic workflows and intelligence across the platform, we expect additional operating leverage over time and believe that we will exit the year at levels below where we are today. Turning to membership. We ended the quarter serving approximately 1.55 million members in value-based care arrangements. On Medicaid and Exchange, trends in the quarter remained generally in line with expectations with puts and takes across the portfolio, largely offsetting one another. Medicaid membership attrition tracks modestly below expectation, while acuity has remained favorable, reflecting less adverse selection than modeled due in part to our longitudinal patient relationships. On the exchange, attrition tracked somewhat ahead of expectations during the quarter. And overall, we continue to manage these dynamics with a disciplined and appropriately conservative approach. And our broader assumptions and outlook for 2026 remain unchanged. On prudent risk progression, we delivered on the commitment we made in late 2025 to convert key contracts to full risk arrangements. At quarter end, approximately 80% of Care Partners' revenue and around 40% of owned membership were in full risk arrangements. Importantly, new contracts that commenced this quarter are performing in line with our underwriting, reinforcing the discipline of our approach. Collectively, our results reflect continued execution across the four strategic pillars we have discussed consistently over the past several years: disciplined growth, prudent risk progression, strong clinical and medical cost performance, and expanding operating leverage through our platform. Now, turning to Prospect. Integration remains on track and continues to validate the strategic rationale for the transaction. We have completed financial standardization, established full visibility into medical economics and aligned clinical workflows under the Astrana Care model. Gross provider retention remains above 99% for the quarter. And we continue to track towards the high end of our $12 million to $15 million annual synergy target. In our expansion markets, Southern Nevada, which reached run rate profitability in 2025 with a 20% year-over-year improvement in MLR, continues to perform well. In Texas, the launch of our full risk delegated model with a large payer partner on January 1 is progressing in line with expectations. And we expect our platform and operating model to drive a similar maturation curve over time in Texas as we've observed in our other markets. Finally, some quick comments on the regulatory environment. On the 2027 Medicare Advantage final rate notice, we believe there continue to be structural tailwinds for Astrana. Our model is not dependent on diagnosis sources that are being disallowed. And our historically conservative and encounter-based approach to risk adjustment positions us well under the revised framework. More broadly, as regulatory changes continue to minimize risk adjustment as a source of alpha, we expect relative performance across the industry to be increasingly driven by underlying clinical execution and cost management. That is core to how we operate. To close, our first quarter results reinforce the structural advantages of the Astrana platform. We are growing with discipline, progressing risk responsibly, managing medical costs with consistency, and continuing to widen a durable technology and AI advantage that compounds with every patient we serve. With that, I'll turn the call over to Chan.

Chan Basho, Chief Operating and Financial Officer

Thank you, Brandon, and good afternoon, everyone. Our first quarter financials reflect solid execution and a strong start to 2026, driven by the commencement of new full risk contracts, continued contribution from Prospect and disciplined platform-wide performance. Total revenue for the first quarter was $965.1 million, up 56% versus the prior year period, driven by the full quarter contribution from Prospect, commencement of full risk contracts and continued organic growth across our Care Partners segment. Adjusted EBITDA for the quarter was $66.3 million, up 82% versus the prior year period. Both revenue and adjusted EBITDA came in at the higher end of our guidance range, reflecting the durability of our model. Net income attributable to Astrana was $14.4 million and adjusted EPS was $0.74 per share. Medical cost performance in the quarter was in line with expectations. Our 2026 plan assumes a blended cost trend of approximately 5.2%. And Q1 actuals across both legacy Astrana and legacy Prospect were consistent or better than planned across all lines of business. G&A as a percentage of revenue was 6.4% compared to 7.1% in the prior year first quarter. This 70 basis point improvement reflects continued operating leverage as we scale revenue and continue to embed AI capabilities across the enterprise. Free cash flow for the quarter was $64.1 million due to strong operating performance and conversions to full risk. We continue to expect strong full year free cash flow generation as new full risk contracts ramp, working capital normalizes, and integration-related investments decline. We ended the quarter with $478.4 million of cash and $586.8 million of net debt. Net leverage on a pro forma basis was approximately 2.3x, down from 2.6x at year-end, reflecting strong free cash flow generation and continued EBITDA growth. We remain committed to meaningful deleveraging over the next 12 months through profitable growth, free cash flow generation, and disciplined debt reduction. We are reaffirming our full year 2026 outlook. We continue to expect total revenue in the range of $3.8 billion to $4.1 billion, adjusted EBITDA between $250 million and $280 million, and free cash flow between $105 million and $132.5 million. We're pleased with our first quarter performance and continued execution and remain disciplined in our approach to full year guidance. Our outlook continues to assume conservative Medicaid membership trends and zero contribution from HQAF. We expect greater clarity on both items as the year progresses. And until then, we will continue to apply an appropriately conservative approach to full year guidance. As a reminder, the midpoint of our 2026 guidance reflects our operating plan. The low end assumes a stacked downside case rather than a shift in underlying execution. On the headwind side, we have embedded expected declines in Medicaid and exchange enrollment, adverse selection, losses associated with new cohorts and expansion markets, conservative medical cost assumptions, and zero contribution from HQAF. On the tailwind side, we have modeled improved 2026 Medicare Advantage rates, continued realization of Prospect synergies, ongoing maturization of full risk cohorts, and operating efficiencies driven by automation and AI deployment. For the second quarter of 2026, we expect revenue between $965 million and $1 billion and adjusted EBITDA between $65 million and $70 million. Taken together, our first quarter results give us continued confidence in our ability to deliver against our 2026 framework. With that, operator, we're happy to take questions from the audience.

Operator, Operator

Our first question is from Jack Slevin with Jefferies.

Jack Slevin, Analyst (Jefferies)

Candidly, it's been a crazy afternoon, so I'm having a little trouble processing information. Maybe just to hit on what I think are the three biggest things for everyone here. I heard the commentary that the trend is better or in line with what you expected across all books. If I think about enrollment and trends in Medicare Advantage on the HIC side and in Medicaid, can you give me the rundown on where those areas are landing versus expectations and how to think about the progression relative to what you said on the last quarter call?

Operator, Operator

Will the speakers please check and see if their line is muted.

Brandon Sim, President and Chief Executive Officer

Sorry, can you guys hear me? I apologize. I know that was a busy quarter, Jack. Thank you for joining anyway. Happy to give an update per line of business on enrollment and trend. Starting off with Medicare, enrollment came in, as we had described before, mid-single-digit growth in eligibility. I'll start first with enrollment and then go to trend. On Medicaid, as I mentioned in my prepared remarks, enrollment or disenrollment tracked slightly ahead of the midpoint of our range. So we're looking at probably on the high end of our range for disenrollment for the year. And then finally, for exchange, things came in better than expected in terms of disenrollments as has been noted industry-wide. In terms of trend, we were able to come in at or above our full year range for trend, which is a blended 5.2% cost trend year-over-year. And so trend has performed very well across all lines of business. Notably, trend came in better in Medicaid as well relative to our expectations. So there was lower adverse selection so far throughout the year than we expected even with the slightly higher disenrollment than expected. So as I mentioned in the prepared remarks, Medicaid and exchange puts and takes ended up balancing out. And trend ended up performing better than expected really across all lines of business and for both core and legacy Prospect populations.

Jack Slevin, Analyst (Jefferies)

Just one follow-up for me. The balance sheet, obviously now getting to a better position. I know you called it out and then sort of a lot of where you had been messaging and things progressing nicely and good free cash flow generation in the quarter. I guess maybe just thinking about, you had done some M&A, nothing obviously on the scale of Prospect beforehand. But as you sort of get that leverage ticking down and think about what you can do with excess free cash, would love to get your thoughts just on what you think the best use of cash is here. If there's ample tuck-in opportunities? If the buyback is something you should look at? Just curious to sort of hear what you're thinking about there.

Brandon Sim, President and Chief Executive Officer

Of course. Overall, our approach to capital allocation is going to remain disciplined and consistent with the priorities we've previously communicated. First and foremost, our near-term focus is on deleveraging following the Prospect transaction. As I mentioned in the remarks, we're very pleased with the pace of progress so far. Net leverage already declining to approximately 2.3 turns on a pro forma TTM basis. That's far ahead of the timeline we originally communicated when we announced the transaction. When we think about capital deployment, our highest priority continues to be investing organically into the platform, including our technology infrastructure, AI capabilities, clinical operations, and expansion markets. We see strong returns and a meaningful runway ahead in those efforts. On M&A, it's a question about capital allocation efficiency. We believe we already have the core capabilities required to operate a fully integrated AI-enabled health care operating system internally. So the question is less about acquiring technology capabilities and more about determining the most capital-efficient way to expand membership, provider relationships, and market density over time. It's going to be a buy versus build decision in terms of M&A. That being said, we continue to believe the platform is extremely well positioned to integrate and scale acquisitions over time. Because we've built that proprietary operating platform, we have proven we can operationalize acquired assets efficiently and consistently across the platform. We've demonstrated that capability with Prospect and with prior transactions like Collaborative Health Systems and CFC. So it's an important opportunity to continue growing the platform, but we'll remain disciplined and highly selective in the approach. Finally, on share repurchases, we did continue to do share repurchases in Q1 as we have in Q4 of last year. We'll continue to evaluate that capital allocation strategy dynamically based on where we believe the risk-adjusted return for repurchases will be and where we think we can create long-term shareholder value. Given the strong cash generation so far and that integration is on track and ahead of schedule, we're pleased with where we are and believe we have a lot of flexibility over time as we continue growing the platform.

Operator, Operator

Our next question is from Ryan Daniels with William Blair.

Ryan Daniels, Analyst (William Blair)

Congrats on the strong start to the year. Brandon, I thought you gave a great overview of the Astrana operating platform and the advantages it gives you both on care and operating efficiencies. So I'm curious how much more leverage do you have there to drive maybe G&A efficiencies? And what type of new programs are you launching? And then as a follow-up, I'd love to learn more about how you plan to commercialize that in the market as other vendors kind of struggle sometimes to manage care as effectively via your care enablement partner offering.

Brandon Sim, President and Chief Executive Officer

Hello, Ryan, thanks for the question. I think there's a lot of opportunity. Our technology is deeply integrated into the system, and it helps that we have a fully delegated capitated model where we act as a single operator with visibility across authorizations, claims, care management, and the entire ecosystem. So far, we've used AI for risk stratification models, next best action models, and a suite of agents on both the payer-facing and provider-facing sides. On the payer side, for example, we have agents around claims adjudication and prior authorization. On the provider and patient side, we have engagement through voice and text as well as clinical documentation and gap closure. There are opportunities to further expand our agentic care management workflows, which we've developed over the last year or so. Those are already in use and can lead to further efficiencies in OpEx and, over time, on the cost of care. We're also continuing to finish the integration of Prospect onto the Astrana operating system, which can drive further operating leverage and, over the medium term, medical cost leverage. We're expanding clinical decision support capabilities embedded directly into the provider workflow as part of the Astrana operating platform. As I mentioned, there are continued opportunities. We already reduced G&A as a percentage of revenue by 70 basis points year-over-year and expect to exit the year even lower than Q1's 6.4%. On commercializing this in the market, an underappreciated part of our story is the Care Enablement segment, where we commercialize some of these tools. That segment continues to grow rapidly, with strong gross margin and EBITDA profile. This quarter, we added a new client in the Care Enablement business. We continue to grow that business rapidly and see potential to both improve that segment and to look for deeper ways to partner and potentially move clients into our Care Partners business over time.

Ryan Daniels, Analyst (William Blair)

And then one quick follow-up. This is more housekeeping. But with the quality assurance fund, I know that's not included in your guidance. Has there been any update there or any thoughts on when we might get timing on that to see if there could be potential contribution to this fiscal year for you guys?

Brandon Sim, President and Chief Executive Officer

Thanks, Ryan. That's unfortunately going to have to wait until later in the year. We don't have an exact date in mind, but probably in the third or fourth quarters. So out of conservatism, we've left that contribution out of the guidance for 2026. We'll update the market when we have more clarity.

Operator, Operator

Our next question is from Jailendra Singh with Truist Securities.

Jailendra Singh, Analyst (Truist Securities)

Congrats on a strong quarter. Brandon, I know you have been cautiously optimistic around your 2027 EBITDA target of $350 million and you've said that there is still a path to get there. But in recent few months, there have been some positive developments around 2027 CMS MA rule. You just said that Medicaid and HICs have been trending better to at least in line to better than expectations and then you're also driving AI-driven efficiencies. Are you feeling better about that target now versus three months back? Or at least are you willing to say that current consensus, which is around $340 million, seems to be in a reasonable range? Just trying to understand how your views about 2027 might have shifted in the last couple of months.

Brandon Sim, President and Chief Executive Officer

Thanks, Jailendra. When we originally provided that 2027 adjusted EBITDA framework, it was back in 2024. We're in a meaningfully different regulatory and industry environment today. The more important point is the continued strength and adaptability of the Astrana platform across environments. Our model was designed to operate across cycles. From 2019 through guidance for 2026, we've grown revenue at approximately a 32% CAGR and adjusted EBITDA at a 25% CAGR while generating operating leverage and free cash flow. Looking into '27 and beyond, we believe the business is positioned to grow organically at a mid- to high-teens rate while delivering free cash flow. We see opportunities to accelerate growth through disciplined and selective M&A, given the scalability of our platform. But even without M&A, we expect mid- to high-teens organic growth. So the key takeaway is the operating model's durability and our continued expectation of solid compounded growth off the 2026 base.

Jailendra Singh, Analyst (Truist Securities)

And then my follow-up on the AI investments. You talked in the presentation that your G&A has been benefiting from AI-enabled tools. Is the message that all of the 70 basis point year-over-year improvement was driven by these AI tools, which would imply about a $7 million benefit in the quarter alone? I want to confirm that. And broadly, how are these AI investments split between administrative aspects of the business where savings might directly fall to the bottom line now versus investing in clinical workflow so these will drive more savings down the road? How do you allocate your AI investment strategy and dollars?

Brandon Sim, President and Chief Executive Officer

It's hard to attribute the full 70 basis points exactly to AI. AI is being infused across the board and is a meaningful part of the improvement, but I wouldn't quantify the entire amount as directly from AI. The improvements are skewed toward G&A at this point. Initially, our AI efforts targeted payer and administrative functions—agents for claims, authorizations, eligibility. Over the past year or two, we've built clinical-facing tools: risk stratification, care management, workflow orchestration, and identification models that will lead to MLR improvements over time. You're already seeing some of that in Prospect's performance as we onboarded them—Prospect historically had trend around 6% to 6.5% and we modeled about a 50 basis point improvement for 2026. We're outperforming that a bit in Q1 even as that improvement was already assumed. So you'll see more MLR improvement over the medium term, but today the gains are largely skewed toward G&A.

Operator, Operator

Our next question is from Craig Jones with Bank of America.

Craig Jones, Analyst (Bank of America)

So Brandon, I want to follow-up on your comments around your encounter-based risk adjustment model and Medicare Advantage. It sounds like CMS keeps mentioning leveling the playing field in MA and really wants to rewrite the current MA risk adjustment model. If you were in the room with them redoing the risk adjustment model, what would you recommend changing? And then how do you think the potential changes, potentially going to an encounter-based model, would help Astrana? Do you think you could see something along these lines as soon as the 2028 technical notices fall?

Brandon Sim, President and Chief Executive Officer

Thanks. The future of risk adjustment is interesting. In the ACO REACH preliminary model details, there is phasing in of an AI-inferred risk score that would depend not on documentation and submitted codes, but rather using AI to infer true acuity and reimbursing appropriately based on that determination. Because we've been conservative on risk adjustment and because we see members longitudinally, we are well structured for that future. We haven't relied on documentation or coding optimization to generate value; so having a true determination of a patient's risk via an AI-determined approach could be beneficial for us relative to competitors that relied on documentation. Broadly, I believe risk adjustment as a source of alpha is not ideal for the health care ecosystem or the Medicare Trust Fund long-term. Approaches like AI-inferred risk models seem like a more efficient way to standardize risk determination across the population.

Operator, Operator

Our next question is from Michael Ha with Baird.

Michael Ha, Analyst (Baird)

When it comes to AI, clearly, everyone is talking about it this earnings season—large national payers and providers. But many have legacy infrastructure and fragmented data. Astrana built an AI-native tech platform many years ago and is spearheading AI adoption across the company. That structural difference versus peers seems underappreciated. Could you talk more about the structural differences between Astrana and peers when it comes to unlocking AI? What still has to happen for peers to get there versus what can already start to happen at Astrana?

Brandon Sim, President and Chief Executive Officer

Thanks, Michael. That's right. Our thesis has been to build internally, and that thesis is being rewarded in the era of generative AI and improved coding tools. If you have an integrated data infrastructure, an ontology, definitions, concepts and relationships between those concepts, the AI can operate effectively. That's hard to replicate if you've assembled a stack of disparate systems without a unified data layer and concept vocabulary on which AI agents operate. Many peers may be building top-floor features without having the foundational data and integration in place. We've spent years building that foundation and now can rapidly adopt AI across the enterprise and embed it into workflows—operationally, clinically, and on quality of care. We're seeing G&A improvements, early trend improvements as we integrate new businesses, and success in our Care Enablement business selling tools and integrated workflows to other provider groups.

Michael Ha, Analyst (Baird)

A follow-up on the final MA rate notice. I'm approximating roughly a 4% net rate increase for Astrana if I exclude chart reviews. When I think about margin expansion sensitivity to the rate environment—if your cost trends are running 4% to 5% for MA, then adding 1% to 2% coding and another 1% to 2% from plans and benefit design could get to 6% to 9% effective rate versus trend of 4% to 5%, implying substantial margin expansion. That doesn't even include cohort maturation, other trend improvements, or G&A. Is that the right way to think about 2027?

Brandon Sim, President and Chief Executive Officer

Your math is good. The final rate notice was constructive. The effective top-line growth of 5.33% more appropriately reflects underlying medical cost trend. The disallowed diagnoses are expected to be immaterial for Astrana given our historically conservative and encounter-based approach to risk adjustment. The average change for us might be 2.48% plus 1.53%, roughly 4% in aggregate. At current RAF levels, we expect to maintain MA margins consistent with 2026 with that ~4% average rate increase. Beyond that, there remain tailwinds and opportunities for more accurately capturing population complexity and additional tailwinds above and beyond the 4% from those sources.

Operator, Operator

Our next question is from David Larsen with BTIG.

David Larsen, Analyst (BTIG)

Congratulations on the great quarter. Can you talk about margins for full cap books of business that would include inpatient? And can you remind me which regions and how many members are full cap, including pharmacy, doctor, inpatient?

Brandon Sim, President and Chief Executive Officer

Thanks, Dave. Our fully capitated arrangements start off with lower EBITDA margins during the transition from partial to full risk because you receive a higher percentage of premium before the full behavioral changes in utilization fully materialize. Over time, as cohorts mature, you see the margin profile improve and approach levels similar to partial risk members. We've observed that margin maturation cycle over several years and underwrite accordingly. I should note that almost all our full risk arrangements do not include Part D drug risk; there are a handful that do, but most do not. In terms of geographies, about 80% of our revenue comes from California, and California contains a majority of our full risk members. We've also moved over 14,000 Medicare Advantage members into a full risk delegated arrangement with a payer partner in Texas in Q1. We have full risk delegated contracts in Nevada and ACO REACH also operates in a full risk manner in certain respects. We underwrite and transition members selectively and prudently into full risk arrangements to capture value from cost reductions over time.

David Larsen, Analyst (BTIG)

And then for Prospect, I think you may have mentioned this earlier. Is it still around $80 million of EBITDA? Is that on track?

Brandon Sim, President and Chief Executive Officer

Yes, Prospect is on track for around $80 million of adjusted EBITDA on an annualized basis, and it is currently tracking a bit ahead of those expectations.

David Larsen, Analyst (BTIG)

One quick one. It looks like your stock has been doing really well over the past couple of months. What do you attribute that to at a high level?

Brandon Sim, President and Chief Executive Officer

We're pleased when the stock recognizes our performance. I think it's a combination of recognition of consistent leadership and model execution, the differentiation of our technology platform, the 32% revenue CAGR and 25% adjusted EBITDA CAGR we've sustained, and regulatory tailwinds like the more constructive 2027 Medicare Advantage final rate notice. Overall, positive macro tailwinds and recognition of our platform that has generated free cash flow, profitability, and rapid growth.

Operator, Operator

Our next question is from Ryan Langston with TD Cowen.

Christian Borgmeyer, Analyst (TD Cowen)

This is Christian Borgmeyer on for Ryan. Looking at the second quarter guidance and EBITDA margin, how should we think about puts and takes within the cost of service, revenue, and G&A lines? For example, any seasonal considerations within medical utilization that are different this year? Or on the G&A side, any sequential savings from AI or Prospect synergies embedded in that?

Chan Basho, Chief Operating and Financial Officer

For 2026 guidance, think of the first half of the year contributing a little over 50% of profitability consistent with historical years. The key puts and takes are HQAF, opportunities with MA and ACO, and Medicaid membership trend. We're managing those conservatively in our guidance.

Brandon Sim, President and Chief Executive Officer

To add, we didn't see any abnormal utilization in Q1. There were industry conversations about weather and flu, but operationally the quarter was clean and tracked consistently across inpatient and outpatient with the broader medical cost trends we reported across the business. We felt comfortable this quarter and are maintaining guidance out of conservatism early in the year.

Christian Borgmeyer, Analyst (TD Cowen)

I had a quick balance sheet question. I see accounts receivable and medical liabilities are each up around $90 million to $100 million sequentially. Anything to call out related to any one item or program in particular? Or is that full risk conversions contributing to that?

Chan Basho, Chief Operating and Financial Officer

Yes, that's the full risk conversion you're seeing in Q1. That affects working capital-related balances as we take on different risk profiles associated with the conversions.

Operator, Operator

Our next question is from Gene Mannheimer with Freedom Capital Markets.

Eugene Mannheimer, Analyst (Freedom Capital Markets)

Congrats on a good start to 2026. Coming in or tracking at the high end of cost synergies with Prospect—can you discuss potential revenue synergies and when you may start to see that realized? And my follow-up would be on the MLR trends at or better than the 5.2% you called out. Did you or can you break that out across legacy Astrana and the Prospect book?

Brandon Sim, President and Chief Executive Officer

On revenue synergies, those are not included in the $12 million to $15 million synergy range; we haven't quantified them yet. Over time, we expect providers, partners, and members to see value from a denser network and improved access to high-quality care because of scale. That value should be realized by the platform over time, but it's not quantified yet. On trend, Prospect came in prior to acquisition around 6% to 6.5% trend. We underwrote about a 50 basis point improvement year-over-year for Prospect. Our consolidated trend for the year is around 5.2%. Both legacy Astrana and legacy Prospect performed better than expected in Q1. It's still early in the year and claim visibility for March and beyond is not complete, so we remain conservative in our guidance, but things are tracking well to start the year.

Operator, Operator

Our next question is from Matthew Gillmor with KeyBanc Capital Markets.

Matthew Gillmor, Analyst (KeyBanc Capital Markets)

I wanted to follow-up on the full risk contract transition. This quarter you had about 40% of members in full risk, and I think last quarter you set an expectation of 36% members in full risk as of Q1, so maybe a bit ahead of schedule. Can you confirm and give an update on pacing of members moving to full risk over the course of the year?

Brandon Sim, President and Chief Executive Officer

Yes, around 40% of our members are in full risk arrangements, which translates into about 80% of Care Partners' revenue coming from full risk arrangements because premium per member is higher in those contracts. The step-up in Q1 was due to forward contracts that commenced as we guided. We expect continued growth in the percentage of full risk members and will phase that in over time on a regular basis consistent with our underwriting discipline.

Matthew Gillmor, Analyst (KeyBanc Capital Markets)

As a follow-up, how do you feel about expanding the delegated model into new markets or new states like Texas, where many places haven't had fully delegated models historically?

Brandon Sim, President and Chief Executive Officer

Many parts of the country haven't operated in delegated models broadly. We use a gradated approach to take the Astrana delegated model outside California, Nevada, and Texas. That approach starts with partial risk arrangements to ensure data feeds are in place, provider relationships and networks are established, the technology platform is integrated into provider workflows, and care management orchestration is operating. Economic contractual relationships follow the operational changes. This stepwise approach to change management is how we expand the model. We believe the efficiency and value of the delegated model will ultimately win in new markets, but change management takes time and we are prepared to engage step by step.

Operator, Operator

Our final question is from Andrew Mok with Barclays.

Thomas Walsh, Analyst (Barclays) on behalf of Andrew Mok

This is Thomas Walsh on for Andrew. You shared that acuity in the Medicaid population remains favorable in part due to your longitudinal patient relationships. Can you help us understand how those patient relationships mitigated the acuity impact in practice? And are there any other factors on the mix of members disenrolling or otherwise that mitigated adverse selection?

Brandon Sim, President and Chief Executive Officer

Put more clearly, members attributed to Astrana tend to be engaged patients who make an active choice to select an Astrana primary care provider. Those members are less likely to be zero-utilization members. The continuity we provide—members keeping the same PCP and specialists even if they move between lines of business during employment changes—helps insulate us from adverse selection. During COVID, for example, members who changed insurance status could remain in the Astrana ecosystem and keep continuity of care. That continuity and longitudinal relationship tends to reduce adverse selection impact and has contributed to the improved acuity we've observed in Medicaid so far.

Thomas Walsh, Analyst (Barclays) on behalf of Andrew Mok

Following up on ACA attrition tracking better than expectations, could you share the actual disenrollment you experienced there? At what point in the year would you expect to have enough visibility to revise the full year membership expectation?

Brandon Sim, President and Chief Executive Officer

At the beginning of the year, we embedded a 30% to 40% disenrollment assumption in exchange for the year, which we estimated as a mid-single-digit EBITDA headwind. So far this year, attrition in ACA is not quite at 30% to 40%—it's closer to high single-digit attrition. We're now projecting a decline closer to 20% to 30% instead of 30% to 40% internally. We haven't reflected that change in our guidance yet out of conservatism, and we expect to have greater clarity as the year progresses after the 90-day grace period and as more enrollment data settles. We may update assumptions later in the year once visibility improves.

Operator, Operator

There are no further questions at this time. I would like to turn the conference back over to management for closing remarks.

Brandon Sim, President and Chief Executive Officer

Thank you, everyone, for joining our call today. We appreciate your time. We hope to see you in the near future at one of the conferences we'll be attending or we can catch up at any time if you email investors@astranahealth.com. Again, thank you so much for joining and have a great evening.

Operator, Operator

Thank you. This will conclude today's conference. You may disconnect at this time. And thank you for your participation.