Astrana Health, Inc. (NASDAQ:ASTH) Q2 2025 Earnings Call Transcript

Astrana Health, Inc. (NASDAQ:ASTH) Q2 2025 Earnings Call Transcript August 8, 2025

Operator: Good day, everyone, and welcome to today’s Astrana Health Second Quarter 2025 Earnings Call. [Operator Instructions] Today’s speakers will be Brandon Sim, President and Chief Executive Officer of Astrana Health; and Chandan Basho, Chief Operating and Financial Officer. The press release announcing Astrana Health, Inc.’s results for the second quarter ended March 31, 2025, is available at the Investors 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 its results, the company has made a supplemental deck available on its website.

A replay of this broadcast will also be made available at Astrana Health website after the conclusion of this call. Before we get started, I would like to remind everyone that this conference call and any accompanying information discussed herein contain 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, liquidity, 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 to refer you to Slide 2 of the conference call presentation for further information. And with that, I’ll turn the call over to Astrana Health President and Chief Executive Officer, Mr. Brandon Sim. Thank you, sir. Please go ahead.

Brandon K. Sim: Good afternoon, and thank you for joining us on Astrana Health’s Second Quarter 2025 Earnings Call. We are pleased to report another quarter of strong financial results and disciplined execution as we advance our strategy to build the nation’s leading patient- centered physician-focused health care platform. We have held a decades-long belief that the future of health care in America depends on building a high-performing network of entrepreneurial physicians and providers, empowering them with purpose-built clinical and technological capabilities and operating as a delegated pseudo-single payer that collaborates with all payer partners. That long-held conviction and the infrastructure we built around it has created a durable and unique moat, one which has only been amplified as short-term tactics like risk adjustment gamesmanship, contract arbitrage and financial engineering disappear across the industry.

For the second quarter of 2025, we delivered strong performance across the business with total revenues of $654.8 million and adjusted EBITDA of $48.1 million, both at the higher end of our guidance ranges. Revenue grew 35% year-over-year, driven primarily by continued growth in our Care Partners segment as our payer partners continue to turn to us for high-quality coordinated care for their members. We also made disciplined progress in transitioning our membership into more strategically aligned full risk arrangements. Approximately 78% of revenue now comes from full risk contracts, up from 60% a year ago and 75% last quarter. Our adjusted EBITDA performance continues to reflect the balanced approach we’ve taken by responsibly growing our risk-bearing membership, while also managing cost trends effectively.

While we continue to invest in growth, integration and technology, we sustained strong profitability and cash flow generation. We expect further EBITDA expansion in 2026 as our full risk cohorts mature and synergies from the Prospect integration ramp. Medical cost trends remained well controlled in the quarter, coming in slightly below our full year expectation of 4.5% on a weighted basis. Both Medicare Advantage and commercial lines of business came in below 4.5%, while Medicaid ran slightly above, although improved sequentially from the first quarter as flu-related utilization declined. Based on our performance year-to-date and forward visibility, we are reaffirming our 4.5% trend outlook for the year and remain confident in our ability to continue delivering industry- leading outcomes.

I’m often asked how Astrana can consistently deliver such differentiated cost trend results. The answer is simple. It’s the power of our fully delegated well-coordinated care model, enabled by a proprietary technology platform and data infrastructure purpose-built for scale. Because we operate end-to-end as a single payer across hundreds of planned line of business combinations. We’re able to build deep longitudinal relationships with patients, driving real behavior change and ultimately, better outcomes. And our delegated model gives us real-time visibility into utilization and claims, allowing from earlier, more coordinated interventions, not episodic reactive care. Shifting next to Prospect. On July 1st, we officially closed our Prospect Health acquisition and are now actively deploying the Astrana playbook to ensure a smooth and value-accretive integration.

Prospect performed in line with our expectations in the second quarter. And over the coming months and quarters, our focus will be on standardizing workflows, accelerating technology integration, aligning clinical operations and executing against the synergy targets we’ve previously outlined. I’m encouraged by the early progress already underway and look forward to the positive impact our combined organizations will continue to make for the over 1.6 million patients that we now collectively serve. Additionally, I wanted to reiterate a few transaction dynamics that we also announced last month. We acquired Prospect for $708 million, down from the $745 million we originally anticipated. This purchase price reduction, which in no way related to the performance of the business, as well as the substantial amount of balance sheet cash that we also received allowed us to close the acquisition at an approximately 2.7x net debt to pro forma adjusted EBITDA leverage ratio, compared to our original estimate of 3.4x, putting us in a materially better leverage position.

With that said, however, we will continue to focus on deleveraging our balance sheet to below 2.5x over the coming 12 to 18 months and will remain laser-focused on ensuring a successful integration. With the close of Prospect and our confidence in its integration, we updated our full year 2025 total revenue and adjusted EBITDA guidance upward to between $3.1 billion to $3.3 billion in revenue and between $215 million and $225 million in adjusted EBITDA. We are reiterating that guidance today, and Chand will provide additional color later in the call. Lastly, I’ll provide some commentary on industry developments. First, on Medicaid, while [ HR1 ] introduces significant changes to funding and eligibility, we continue to view this as a manageable headwind.

The full impact will depend on how states implement the new requirements, but we’re actively engaging with our state and payer partners to preserve coverage and support continuity of care. Given our scale, diversified footprint and extensive experience operating through policy transitions over 3 decades, while maintaining growth and profitability, we believe we’re well positioned to navigate the uncertainty ahead. On health insurance exchanges, our exposure remains limited at under 5% of membership. While the marketplace faces pressure from elevated acuity and potential subsidy changes after 2025, the impact to Astrana has and would be manageable. Finally, on risk adjustment, we continue to see no negative impact from the continued phase-in of the v28 risk model.

Astrana has always taken a principled approach to value-based care, focusing on improving outcomes and quality, not gaining reimbursement mechanics. Our Medicare Advantage RAF remains stable at approximately 1.02, around the same as a year ago despite the continued v28 phase-in, which will further widen our lead on those who are more overextended. As it relates to Part D risk, it’s worth reiterating that we have minimal exposure with fewer than 2% of members carrying any amount of Part D risk. Looking ahead to 2026, we remain optimistic about Medicare Advantage, supported by a favorable final rate notice, increased scale from the Prospect acquisition and a utilization environment that we’re continuing to manage well. To conclude, I’m proud of the strong and consistent execution our team delivered this quarter.

With that, I will now hand it over to Chand to discuss our financials in more detail.

Chandan Basho: Thank you, Brandon, and thank you all for joining today. Turning to our second quarter results. I’m pleased to report that Astrana delivered another strong quarter of financial performance at the higher end of our expectations. Revenue for the quarter was $654.8 million, representing a year-over-year increase of 35%. This growth was primarily driven by strong organic growth in our core business, CHS, and the continued transition of our revenues into full risk arrangements. Adjusted EBITDA came in at $48.1 million. Net income attributable to Astrana for the quarter was $9.4 million and EPS was $0.19 per share. Looking at the balance sheet, we closed the quarter with $342 million in cash and cash equivalents. As Brandon mentioned, pro forma net debt is approximately $700 million, and our pro forma net leverage ratio is currently 2.7x.

Excluding a few notable timing-related items that benefited the quarter, free cash flow was approximately $20 million in the second quarter, representing 40% of adjusted EBITDA. We continue to expect full year free cash flow conversion to be between 40% to 45% of adjusted EBITDA. This would correlate to $90 million to $100 million of free cash flow for the full year at the midpoint of our adjusted EBITDA guidance. This is based on an assumed full year tax rate of approximately 35%. As Brandon mentioned, in conjunction with the close of Prospect, we updated our full year 2025 guidance to a total revenue range of $3.1 billion to $3.3 billion and an adjusted EBITDA range of $215 million to $225 million, which we are reiterating again today. For the third quarter, we expect to generate revenue between $925 million to $965 million and adjusted EBITDA between $65 million to $70 million.

As it relates to seasonality between the third and fourth quarters, we expect both quarters to be approximately similar in terms of adjusted EBITDA contribution. This represents a departure from our usual seasonal trends, primarily due to the impact of Prospect. Finally, we want to reiterate our previously stated medium-term adjusted EBITDA guidance of at least $350 million in 2027. Despite the dynamic operating environment, we remain confident in our ability to continue to execute and drive sustainable, profitable growth. With that, I’ll turn it back to Brandon for closing remarks.

Brandon K. Sim: Thanks, Chand. To wrap up, we are proud of our strong execution in Q2 and excited to welcome so many new physicians, providers and teammates to Astrana. Our consistent, predictable and resilient performance even in a volatile environment reflects the strength of our model and the moat that we’ve built, and we’re confident that this foundation will continue to drive long-term value for our patients, providers, partners and shareholders. With that, we’ll now open it up for questions. Operator?

Q&A Session

Operator: And the first question comes from the line of Michael Ha with Baird.

Hua Ha: So with Prospect closing now more than a month ago, in line with your expectations, much better deal terms, congrats on that. So now that you have full visibility on their updated financials, it’s reassuring to see 3Q, the guide and your full year guide unchanged, reflects, I guess, exactly roughly half of your expected deal accretion, $81 million annualized. But curious, how have their numbers been year-to-date over the first half of the year? Also, anything notable or different than you expected since closing on the deal? Are you more or less optimistic on synergies, possibly new synergy opportunities? And then just wanted to confirm, you’ve now executed a number of large deals over the past couple of years. I wanted to hear your updated thoughts on capital deployment priorities going forward. Is M&A now officially moving down your priority list and now it’s all about integrating all your new pieces? Or are you still looking at assets in the market?

Brandon K. Sim: Michael, this is Brandon. Thanks for the question. We’re very excited to close on the Prospect deal, as you mentioned, on slightly better terms than before. We continue to see strong performance on the Prospect business. In the first half of the year, even though that won’t be reported in our Q3 or Q4 financials, we did see continued strength in the Prospect business as expected when we were doing diligence on the Prospect assets. Going forward, we’ve embarked on our integration process. Sean, Dr. Kumar and I have been meeting with key providers and provider groups. We’ve seen great retention on the provider side as well as on the member side, and we’ll continue to work through integration over the first 12 to 18 months.

We are continuing to reiterate the $12 million to $15 million synergy target over that 12 to 18-month period. But we do believe that over time, there may be upside to that number as we continue to integrate into the business and find opportunities. Going forward, we continue to be excited about the potential for Prospect in 2026, especially in light of the Medicare rate notice and other tailwinds for the business.

Hua Ha: Great. Just a quick or actually a long follow-up question. But with all the upcoming changes from the One Big Beautiful Bill Act, Medicaid Exchange marketplace. I was wondering — I know you sound confident, but I was wondering if you could break out what your view is on sort of worst-case scenario for both Medicaid Exchange. I think you mentioned exchange is only 5% of your revenue, which is not much real risk there, but Medicaid, bigger piece, 30% of your revenue, but probably lowest margin book of business. So, I’m wondering if you could perhaps dimension it for us what that would look like, How, if at all, that could impact your ’27 EBITDA target of $350 million? And then also specifically, as we think about the Medicaid policy changes into ’27, in our conversations with state actuaries, it feels like there could be some pretty notable acuity mix shifts from expansion members dropping off, just given now they’re typically higher PMPMs, lower utilizers than like a typical Medicaid adult or child.

And so if it does drive mix shift and further widen that rate and acuity mismatch, is this something you’re also considering because by ’27, basically all of your — I think your locked rate contracts will be up for renewal by then. Is this a conversation you’re sort of preemptively having with your payer partners to unlock those contracts help provide some protection into ’27?

Brandon K. Sim: Sure. And quickly to answer the second part of the question from the last time, we will be pausing on large-scale M&A capital deployment until we meet our leverage targets of 2.5x or below 2.5x within the first 12 to 18 months. We continue to believe we have a very straightforward path to accomplish that and ultimately get to the around 2.0 or below range over time based on the growth of the EBITDA of the combined business as well as the cash flow generated by the business. So no more large-scale capital deployment. Opportunistically, if there are small items that make a lot of sense for the business, we will evaluate those on a case-by-case basis. On Medicaid, we — we think that the headwinds from the One Big Beautiful Bill Act are manageable, as I mentioned in the prepared remarks.

There are obviously a number of headwinds to the Medicaid program that will phase in over some number of years, many of them starting in 2027. That being said, we do believe that these headwinds are manageable given our exposure. To help you size that impact, Michael, the pro forma business will generate around $3.6 billion of revenue in 2025. Around 28% of that revenue pro forma will be from Medicaid. So we’re talking about $1 billion of Medicaid revenue from both businesses for this year. Even if you assume a very conservative 20% to 25% decline in Medicaid enrollment, that’s hyper conservative here, you’re talking about a $200 million to $250 million revenue headwind. And we’re running a mid-single-digit margin, EBITDA margin on that book of business.

So, we’re talking about $200 million to $250 million of revenue and maybe $10 million to $15 million of EBITDA conservatively. And again, in context the broader business, we do view this as a manageable headwind, and we’ll be doing our best to work with our state and payer partners to make sure that Medicaid is in a good place going forward. In terms of the acuity mix shift that you may have mentioned, obviously, again, we’re still speculating on this as this has not yet taken effect. But broadly, I would mention that we do — we have different pricing in PMPM by acuity band. And so these are conversations we’re working through with our Medicaid payer partners at the moment.

Operator: And the next question comes from the line of Ryan Langston with TD Cowen.

Ryan M. Langston: On the 4.5% blended utilization, I appreciate the insights on sort of the trend by payer. But maybe if you could give us a sense on that number on sort of a geographic level, maybe in terms of California versus non-California markets?

Brandon K. Sim: Hey, Ryan, thanks for the question. We’re not breaking out per geography trend at the moment since a vast majority of our revenue comes from California. However, what I will say is that in both the Care Delivery segment for Nevada, which we have been 4-wall EBITDA profitable in this quarter and same for the risk-bearing entity in Nevada. As for Texas, we are — we continue to track towards run rate breakeven this year as previously guided. So not breaking out the detailed trend as much of the business is in California, it’s going to look basically the same anyway, even if I did break it out, but we are continuing to see the right trends in our ex-California business.

Ryan M. Langston: Got it. And just last thing, when you talk about the RAF scores at 1.02, I think you said those are sort of flat year-over-year, which is good. But do you have that number? Like I don’t know if Prospect actually affects that number or if that included Prospect or didn’t include Prospect? I’m just trying to think how that might trend into 2026, even just directionally if you expect that to be flat or down or up?

Brandon K. Sim: Sure, Ryan. Those numbers, the 1.02 did not include Prospect since that was a Q2 number, but Prospect’s RAP scores are in line with that. And again, we’re not baking in increases in RAF going forward into ’27, but we believe we are insulated and the gap between us and those who are more extended on RAF will continue to grow.

Operator: And the next question comes from the line of Craig Jones with Bank of America.

Craig Jones: Great. So maybe to ask back on Medicaid. So, it’s great to hear that’s improving, the trend improving 1Q to 2Q, but you did have a mismatch last year of the rate versus trend as the rate was not high enough to match the trend. So how have the rates trended so far in 2025? And then how long do you think it may take to get that Medicaid back to where you think target margin should be?

Brandon K. Sim: Thanks for the question. Obviously, Medicaid is still in a very volatile place at the moment. We are sifting through how each state will handle the One Big Beautiful Bill Act. At the moment, in California, where a lot of our Medicaid patients are, there has not yet been a rate update, although we have been, as I mentioned before, in active negotiations with the payers in terms of how to resolve some of the rate acuity mismatch. We haven’t accounted for any of the resolution of those negotiations in our guidance or in our 2027 bridge. All I would say at this point is that a fairly conservative view has been baked in, and we look forward to concluding those negotiations to hopefully close that gap.

Operator: And the next question comes from the line of Jailendra Singh with Truist Securities.

Jailendra P. Singh: Actually, first, I want to confirm your expected cost trend for ’25 is still 4.5% with Prospect deal now closed. And related to that, considering your public exchange exposure, I want to double-click on your comments about the changes happening there. Are you expecting any kind of utilization or rush in the guidance of your second half as individuals, they might lose coverage and subsidies going away, so they might try to push for more utilization. Just any color there, what you’re assuming in your guidance for second half?

Brandon K. Sim: Thanks for the question, Jailendra. First, on Prospect, we aren’t commenting on specific prospect trend numbers at the moment, but I would say that we’ve actually baked in a higher trend for the second half Prospect business than the 4.5% that we assumed in the legacy Astrana business. So, on a blended basis, which we’ll give more updates on in Q3, you will probably see a higher trend for the overall business, not a large amount higher, but slightly higher, and that is baked into the numbers already in terms of our projection for the second half and for 3Q guidance that we just gave. In terms of Exchange, it’s possible that there will be some rush to utilize at the end of the year. Again, we’re being fairly conservative here, and it’s a small part of the revenue. So, we continue to believe that this is a manageable dynamic. If anything changes on that topic, we will certainly inform the markets.

Jailendra P. Singh: Great. And then my follow-up, you called out that in this $12 million to $15 million synergy guidance, you clearly see some opportunity there that you might upsize that, you might beat those numbers. Can you talk about what levers you can pull to achieve kind of upside to that number? I mean we have seen some reports around kind of headcount reductions at prospect. Just trying to understand, is that already helping you in terms of labor efficiencies, in terms of productivity? Just give us a little bit more flavor, upside drivers and what you’re seeing right now from a synergies point of view.

Brandon K. Sim: I think a big part of the question — a big part of the synergies, to answer your question, are going to be driven not just by operational G&A improvements, which we certainly anticipate to make as we integrate into a unified data infrastructure and get Prospect onto our technology systems, but also in terms of the benefits for our patients and our communities in consolidating and streamlining our clinical processes in terms of our operational ability to better coordinate care for our members. And over time, hopefully, that our payer partners will start to value the increased care coordination, the higher quality that we’re providing on a consolidated basis. On that note, for example, we have already spoken to every one of Prospect’s payer customers, and they’ve all been very excited about our combined scale and our stability that we now bring to the combined business and our capabilities to continue to serve their beneficiaries with a well-managed cost trend, especially in the backdrop of a very volatile cost trend environment, which some of you have already noted on this Q&A session.

So, I think it’s really going to be those items on the operational. On the G&A side, our proprietary data infrastructure and our technology platform is built in-house, which I mentioned before. But because of that, it gives us the flexibility and the speed to quickly scale up and down to integrate in a more flexible and scalable way and really to integrate and adopt AI more rapidly than relying on a patchwork of vendors might. I think those are going to be the large items. And over time, we’ll start to see that really pay off certainly to the $12 million to $15 million mark, but perhaps with upside to that number as well.

Operator: And the next question comes from the line of Jack Slevin with Jefferies.

Jack Garner Slevin: I just want to ask on what you’ve really seen in your markets more specifically from the managed care companies, most notably in the MA space on bids for 2026. I know we’ve gotten sort of a smattering of commentary across the public sphere, but would love to hear sort of if it looks like those in California, especially are sort of playing things a little more cool, which I would say is the general tenor in the public space. But just any commentary you have on that would be helpful.

Brandon K. Sim: Thanks for the question. I think broadly, it’s a bit too early, frankly, to weigh in on bids or plan design at this juncture. We certainly plan to share more as the year progresses. But as you’re well aware, somewhat to others, I think folks are playing things close to the vest at this point in time. Bigger picture, I think we’re very bullish still on Medicare Advantage. We think we’ve — our ecosystem and the longitudinal relationships we develop with patients, even sometimes before they even qualify for Medicare Advantage will really continue to serve us well, which you can see in terms of our trend numbers and the continued profitability and growth of the business, especially going into 2026 as rates continue to improve and because of the combined scale of Prospect, which also has a large portion of its revenue coming from Medicare Advantage, we really think that over time, margins will continue to improve in that line of business from where they are today.

But unfortunately, I do think it’s a bit early to comment on bids at this point in time, and we will have more to say on that topic in coming quarters.

Jack Garner Slevin: Okay. Got it. That’s helpful. And then maybe just one more piece in a separate area. I guess, probably too much focus being put on the Exchange business, but humor me here. California is a very different exchange market than the rest of the country. And so I think some of the dynamics that some folks might be extrapolating don’t necessarily apply. I’d just be curious to get your take, Brandon, on given the stability in membership you see there, what, I guess, do you think is happening at the market level heading into next year, assuming these subsidies do expire? Is there a big pullback in membership? Or is that not necessarily the same thing that you might see in some other markets? And does it seem like the plans that are active in Southern California or California broadly have bid things up in a manner that there wouldn’t be a big hit even if you do see a loss of membership.

Just curious to think about things at a little bit of a higher level there.

Brandon K. Sim: Sure. Speaking broadly, I think California is a bit of a unique market. It is an expansion state. There has — again, anecdotally, there has been fraud found in some of the non-expansion states. A lot of folks on Exchange perhaps that don’t even know they’re on an Exchange plan, people who have 0 MLRs, a lot of that going away, which we completely support in terms of CMS and CMMI’s attempts to reduce fraud, waste and abuse in the exchange product. That’s going to make the rest of the pool look riskier. And we’ve seen a lot of that in terms of the zero-sum risk pool givebacks and the changes in those givebacks relative to accruals and expected accruals perhaps that were done before some of that fraud was discovered.

California is a state-based Exchange, way less fraud, we think. We don’t see a lot of those 0 MLR members. There are folks who are using their actual genuine members that qualify for exchange. So, we don’t think we’re going to be hit as badly on that front. That being said, if the subsidies go away, depending on how the states react in terms of funding, certainly, we do expect there to be some sort of headwind. But again, at less than 5% of members and revenue, we do feel this is a manageable business. So, both in terms of our diversity of our business as well as the states that we operate in, we are feeling like this is a manageable headwind given the strength of the rest of the business.

Jack Garner Slevin: Congrats on the quarter and getting Prospect across the finish line.

Operator: And the next question comes from the line of Ryan Daniels with William Blair.

Unidentified Analyst: This is [ Matthew Mardula ] on for Ryan Daniels. And given your exposure to Medicaid in California, how do you anticipate the recent state legislation that passed at the end of June, prohibiting new enrollment of undocumented individuals in Medicaid? And how will that impact your Medicaid book going forward? Are you expecting any material effects on enrollment trends or revenue from this change out in the future?

Brandon K. Sim: Thanks for the question. We have tried to model out our exposure to the UIS undocumented immigrant population. We do believe that there is some exposure. That’s why earlier when I sized the impact conservatively, we said there could be up to a 20% to 25% enrollment drop in rolls. We think that potentially, we’re talking about a high single-digit, low teens type percentage number. Again, that’s hard for us to verify, but we do — we are pricing this in pretty conservatively in terms of the percentage that might drop off the rolls or that growth might slow as enrollment is frozen or as there are costs passed down to those members in order to stay enrolled. So that is an assumption that’s already baked into the scenario analysis I provided earlier.

Unidentified Analyst: Great. And then just one quick follow-up. Any update on the hospital and the pharmacy units that — or the pharmacy units that Prospect has? And I know the hospital has a large Medicaid exposure. So maybe any plans or any strategies on how to deal with that? Any color into those 2 units would be great to hear about.

Brandon K. Sim: Yes. On the pharmacy first, we continue to believe that’s a value-added unit for us. As the industry has commented, there are lots of costs associated, especially in Part B that we believe we can work through with our pharmacy now that, that’s an added capability in- house. So, we’re excited about the potential for synergy there, and we’re just beginning to explore that, frankly, at this moment, but we do think there could be something in terms of improving the care and speed that we can get drugs to our patient population. On the hospital side, we’re using that, again, primarily as a care delivery site for our prospect members in a value-based integrated environment. So, there’s — we are probably less exposed to fee-for-service Medicaid trends or reimbursement than we might otherwise be because it’s — because a large part of its revenue and earnings come from these integrated value-based arrangements.

That being said, we’re continuing to actively evaluate our portfolio of assets. And if something were to change in terms of our noncore businesses, we would certainly inform the market when that happens.

Operator: And the next question comes from the line of Andrew Mok with Barclays.

Andrew Mok: There’s been a lot of discussion around value-based care recontracting across the industry. Would love to hear your view on whether you think you need to make meaningful changes here? And can you help frame how the tone from payers has evolved in recent months in response to emerging pressure?

Brandon K. Sim: Sure thing. I think one of the biggest differences between us and some of the other players in the space is that we’ve been very consistent and partner-oriented in our discussions with our payer partners. What that means is that when things have gotten hard, we haven’t tried to terminate contracts. We haven’t tried to pull out of regions that we committed to helping payers out with. And what that means also going forward in a more difficult environment is that the payers recognize, especially given our scale now, they recognize the criticality we have that we — the role that we play in the delivery fabric of the communities that we serve. They recognize the outcomes that we’re able to achieve for their beneficiaries, and they actually recognize that we are the cheaper option for them without us helping to manage the care, serve in a fully delegated environment, take care of the operating as well as the clinical costs and improve quality for them.

MCOs will actually incur a higher MLR probably than the cost that they’re paying us. So they start to realize that value that we’re adding. We’ve been consistently there for them. We haven’t tried to terminate in rough times, and we’ll continue to be there for them in good and bad times. And because of that, the conversations are quite friendly. As I mentioned earlier, we’ve had conversations with all of the payer partners that Prospect has. Many of them, a vast majority of them are overlapped with the payer partners that the legacy Astrana business has had. And those conversations are going very smoothly. Of course, there are going to be differences as everyone weathers through a more difficult environment, but we believe that with our partnership lens, we’ll come to an agreement in a common ground going forward.

Andrew Mok: Got it. Maybe just a quick follow-up on the acquisition and deal flow. It looks like the add-backs to EBITDA increased from about $30 million pre-deal to $55 million post deal. Can you provide a little bit more detail on the drivers of the increase and help us understand the nonrecurring portion within that? And would love to just hear your thoughts on the pace of synergies we could expect for the balance of the year.

Brandon K. Sim: Thanks for the question. A vast majority of the add-backs are related to one-time transaction fees, associated with the transaction. It was a fairly large transaction. So legal fees, M&A advisory fees, accounting fees, et cetera, are related to the transaction itself. I will note that on a GAAP net income and EPS basis, we continue to be profitable. On a cash flow basis, we continue to be profitable even including some of these dynamics, which we believe is unique in our industry. And then on the timing of synergies, as I mentioned before, $12 million to $15 million of synergies over the first year, 1.5 years, 12 to 18 months is what we’ve currently guided to and reiterated this quarter. We certainly will be racing towards hopefully the higher end of that range and the shorter end of that range, but we’ll provide more updates as we get a little further into the integration process here.

Operator: And the next question comes from the line of Matthew Gillmor with KeyBanc Capital Markets.

Matthew Dale Gillmor: I know it’s been a month, but congrats on the Prospect close nonetheless. Chand had mentioned there were some timing issues that benefited cash flow in the quarter, if I heard that correctly. Can you just give us some details on what those were? And should we expect those to normalize as we move into the third quarter?

Chandan Basho: Yes. So just to reiterate, we — our cash flow for this quarter was much higher than what was shared in the call. That was mainly due to the ACO REACH payments, as well as income taxes. And both of those items will be — are items where you’ll see them kind of revert in Q4. I want to reiterate on a full year basis, we are very confident in terms of our guidance in that $90 million to $100 million number.

Matthew Dale Gillmor: Great. And then I wanted to follow up on the performance outside of California. Brandon, you and I have talked in the past about the importance of getting delegated for claims in states like Texas. And I just want to see if there was any update in terms of your ability to get claims delegation in that market and how you’re feeling about the performance in Texas through the first half of the year.

Brandon K. Sim: Yes. We’re continuing to see progress and openness from payer partners, not all of them, as mentioned before, but certainly on some of our contracts to move towards fully delegated contracts. There are — as I mentioned before, there are contracts turning on in that fashion starting in Q1 of 2026 in Texas. And in Nevada, a couple turning on then, but also some that we’re already in, in terms of Nevada. So there continues to be progress on working towards that delegated environment that we’re used to in California. And as I mentioned earlier, the path towards profitability continues to be on track in terms of our expectations for both of those states.

Operator: And the next question comes from the line of David Larsen with BTIG.

David Michael Larsen: Congratulations on the good quarter. Can you maybe just talk a little bit about the robustness of your data collection? There have been some value-based care organizations that had all kinds of adjustments this quarter. Some plans did as well. There were unfavorable prior period adjustments. There were risk score adjustments to the revenue. I guess, like number one, in terms of coding for each member, making sure that you’re getting the right proper revenue for each member, can you maybe just talk about that process in evaluations? And then number two, the completeness of the data, what is the risk of an unfavorable prior period development sort of charge as we progress through the year?

Brandon K. Sim: Thanks for the question, Dave. Our business model is completely different from the rest of the industry. And so I think our results are completely different, which is what you’re seeing as we continue to have stability, predictability and growth in our numbers even at what others have been calling a uniquely difficult time for the industry. As a reminder, we operate as a single payer, we’re delegated in almost all of our business. What that means is that we, across all of our payers and across all of our lines of business, perform credentialing, we perform prior ops, we pay claims. We handle grievances and appeals. We handle care management and care coordination and quality and risk adjustment. But most importantly, 2 of those items, us and claims means that we have the ability to better project cost and have real-time visibility into the health and status of our patients.

That also means that it makes it easier for our actuarial team to model what that looks like. And again, we can do that across all payer types and all lines of business. So, what that results in is that you aren’t seeing the same massive negative prior period developments that perhaps have been reported by others in the value-based care space because we act as both the provider and that single or pseudo single payer entity in terms of processing claims. In fact, on that book of business, we would actually receive the ops and the claims before our payer partners would. We would actually process that first and then forward that across to our payer partners afterwards once those are adjudicated by our systems. And again, we’ve built our data infrastructure and technology layer fully in-house.

Of course, we rely on infrastructural vendors like Amazon and whatnot. But the rest of the stack is completely built in-house. So, we have that flexibility. We have the unified data architecture that, frankly, no one else does across the industry. And that allows us to operate at a pace and with results that the rest of the industry can’t match. In tough times, you’ll continue to see us extend our lead over the industry because of that dynamic and because of the business model in which we operate.

David Michael Larsen: Okay. And then just in terms of the accuracy of the coding and the revenue that you’re receiving per member, just if you could just touch on that briefly, that would be great.

Brandon K. Sim: Right. We have our in-house RAF modeling program, as well as an NCQA certified HEDIS program. We review all of the charts internally. We obviously submit those records to the plan and ultimately to CMS, and we do audits regularly on that data. So, we believe that our risk adjustment is very accurate. There are probably some opportunities in terms of risk adjustment that I’ve talked about before. But again, at 1.02, and consistency in risk adjustment even as v28 continues to phase in, we feel very comfortable with our risk adjustment practices.

David Michael Larsen: Okay. And what was the percent trend in the quarter? Sorry, last question, percent trend in the quarter?

Brandon K. Sim: Overall, for the legacy Astrana business, which is what was reported in Q2, it was just under 4.5% with MA and commercial slightly below, Medicaid slightly above. Medicaid came in sequentially better than Q1, and we are reiterating the 4.5% trend for the full year.

Operator: There are no further questions at this time. I now would like to turn the floor back over to you Brandon Sim for any closing remarks.

Brandon K. Sim: Thank you all for continuing to follow our story. We look forward to connecting with many of you at upcoming conferences in the months ahead. And in the meantime, please don’t hesitate to reach out to us or our Investor Relations team with any further questions. Thank you again, and see you all soon.

Operator: Thank you. This does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at this time.