Earnings call transcript: Astrana Health Q3 2025 misses EPS expectations

Astrana Health Inc. reported its third-quarter 2025 earnings, revealing a significant shortfall in earnings per share (EPS) compared to forecasts. The company posted an EPS of $0.01, far below the expected $0.47, marking a surprise miss of 97.87%. Despite this, revenue slightly exceeded forecasts, coming in at $956 million against the anticipated $952.86 million. Following the earnings announcement, Astrana's stock showed minimal movement, closing at $33.24, a 0.57% increase from the previous close.

Key Takeaways

• Astrana Health's Q3 EPS fell significantly short of expectations.
• Revenue increased 100% year-over-year, surpassing forecasts.
• Stock price remained relatively stable post-earnings announcement.
• The company updated its full-year revenue guidance to $3.1-$3.18 billion.
• Strategic partnerships and technology enhancements were highlighted.

Company Performance

Astrana Health demonstrated robust revenue growth in the third quarter of 2025, reporting a 100% year-over-year increase. This growth was driven by the successful integration of the Prospect Health acquisition and strategic partnerships in California and Nevada. However, the substantial EPS miss indicates potential challenges in cost management or unexpected expenses.

Financial Highlights

• Revenue: $956 million, up 100% YoY and 46% QoQ.
• Adjusted EBITDA: $68.5 million, a 52% increase YoY.
• Cash and Short-Term Investments: $462 million.
• Net Debt: $624 million.

Earnings vs. Forecast

Astrana Health's Q3 EPS of $0.01 fell significantly below the forecasted $0.47, resulting in a 97.87% negative surprise. This marks a notable deviation from the company's historical performance, where earnings have typically aligned more closely with analyst expectations. In contrast, revenue slightly exceeded forecasts, suggesting strong sales performance despite the EPS miss.

Market Reaction

Despite the earnings miss, Astrana Health's stock price showed a modest 0.57% increase to $33.24 in post-market trading. The stock remains closer to its 52-week low of $21.20, indicating cautious investor sentiment. The minimal price movement suggests that investors may be focusing on the company's revenue growth and strategic initiatives rather than the EPS miss.

Outlook & Guidance

Astrana Health revised its full-year 2025 revenue guidance, now projecting $3.1 to $3.18 billion. The company anticipates benefiting from improved Medicare Advantage rates and synergies from the Prospect Health acquisition. However, it acknowledges potential challenges in the Medicaid and exchange markets.

Executive Commentary

CEO Brandon Sim emphasized the company's strategic focus on "smart growth, disciplined risk progression, quality and cost excellence, and operating leverage through our technology platform." He expressed confidence in Astrana Health's ability to drive industry-leading growth and profitability.

Risks and Challenges

• Regulatory headwinds in the Medicaid market could impact future earnings.
• Integration of recent acquisitions may present operational challenges.
• Market saturation in key regions could limit growth opportunities.
• Macroeconomic pressures may affect healthcare spending patterns.

Q&A

During the earnings call, analysts raised concerns about the delayed contracts due to procedural and regulatory reasons. The company reassured investors of its confidence in the 2026 performance, highlighting potential for margin expansion in the coming years.

Full transcript - Astrana Health Inc (ASTH) Q3 2025:

Unidentified Operator/Moderator: Good day, everyone, and welcome to Astrana Health's Third Quarter 2025 earnings call. At this time, all participants are in a listen-only mode. Later, you'll have the opportunity to ask questions during the question-and-answer session, and instructions will be provided at that time. Today's speakers will be Brandon Sim, President and Chief Executive Officer of Astrana Health, and Chandan Basho, Chief Operating and Financial Officer. This press release announcing Astrana Health's results for the third quarter ended September 30th, 2025, is available at the Investor 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 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 conclude, 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 the forward-looking statements today 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. These can be no assurance that those expectations will prove to be correct. Information about the risk associations with the 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 the new information, future events, change in market conditions, or otherwise except as required by law. Regarding the disclaimer language, I would like you to refer to you to slide two of the conference call presentation for further information.

With that, I'll turn the call over to Astrana's Health President and Chief Executive Officer Brandon Sim. Please go ahead, Brandon.

Brandon Sim, President and Chief Executive Officer, Astrana Health: Good afternoon, and thank you for joining us on Astrana Health's Third Quarter 2025 earnings call. Today, I'll start with an overview of our third quarter performance, highlight several exciting developments across our AI-enabled technology platform, and discuss our new strategic partnerships. I'll then review our updated 2025 guidance and share some early perspective on how we're approaching 2026. After that, I'll turn it over to Chan for the financial review, and we'll open the call for your questions. Astrana delivered another strong quarter of financial and operational results in the third quarter as we continue to execute on our strategy of building the nation's leading healthcare delivery platform. This was an especially important quarter for all of us here at Astrana as we welcomed new providers, patients, and team members after the close of our acquisition of Prospect Health in July.

Our strategy remains grounded in four pillars that define how we have built a durable and profitable enterprise, one that consistently does right by providers and patients. These are smart growth. Disciplined risk progression, quality and cost excellence, and operating leverage through our technology platform. First, our model allows us to grow markets with strong physician leadership, payer partnerships, and performance visibility, thus delivering consistent quality and financial outcomes at scale. Next, we take on greater levels of risk in a disciplined fashion, supported by the data, infrastructure, and clinical programs needed to manage that risk responsibly. We've built Astrana to be efficient and accountable in both quality and costs, and as we integrate new partners and scale our automation and AI capabilities, we continue to unlock operating leverage where each incremental member, physician, and market contributes more to the enterprise than the one before it.

It's in these periods of industry disruption that the Astrana model has continued to differentiate itself in terms of the superior outcomes we're delivering to both our patients and our payer partners. This has allowed us to consistently deliver differentiated financial results as well. And this quarter is no different. For the third quarter of 2025, we delivered another strong performance across the business with total revenues of $956 million, up 100% year over year and 46% sequentially, driven by both the integration of Prospect Health into the company as well as solid organic growth across the core business. Adjusted EBITDA for the quarter was $68.5 million, up 52% year over year and 42% sequentially, as we continue to prioritize sustainable industry-leading profitability even as we scale aggressively.

Medical cost trends across both Prospect and Astrana's core business remained firmly within expectations during the third quarter, underscoring the consistency and predictability of our operating model. In both the legacy Astrana and legacy Prospect businesses, medical cost trend was stable and well-controlled, with no meaningful deviation relative to the assumptions embedded in our guidance. First, in our legacy Astrana core business, Medicare once again trended favorably below our aggregate 4.5% trend expectation for the year. Importantly, Medicaid trend decelerated relative to the second quarter. Inpatient costs continue to trend favorably, and we continue to expect a full-year blended cost trend of approximately 4.5% in the legacy Astrana business. Moving over to Prospect. Prospect also performed ahead of our expectations during the third quarter, and we remain very excited about the scale, capabilities, and talent this acquisition brings to the Astrana platform.

We are reiterating our synergy targets of $12 to $15 million over the coming quarters. Since closing the acquisition in early July, our teams have been focused on three key integration priorities. First, aligning and enhancing the provider and patient experience across both organizations. Second, standardizing operating systems and financial reporting to enable consistent execution. And third, implementing the Astrana technology platform, which provides real-time visibility into utilization and outcomes and will drive meaningful synergy capture over time. Much of this work is already complete. We already have live visibility into utilization and performance metrics, and we remain on track to fully onboard Prospect's physician groups and care teams to the Astrana platform by mid-2026. Equally as important, we are advancing the cultural integration that underpins long-term success. Ensuring that our combined teams are unified around a shared mission, values, and operating playbook.

As we've always said, Prospect meaningfully expands our scale across Southern California and strengthens our ability to serve patients and payers with a single integrated delivery model. We remain confident that the integration will position Astrana for even stronger performance heading into 2026. As we continue integrating Prospect, we are also increasingly excited about the opportunity to leverage AI across our combined enterprise to drive meaningful improvements in both efficiency and care quality. A few examples. Our predictive models identify patients at high medical risk and surface actionable insights to physicians and care teams directly within Astrana's proprietary software, enabling earlier interventions and more coordinated care. We're also deploying AI-driven tools across claims analytics and clinical documentation to reduce administrative friction and help prevent fraud, waste, and abuse.

Recently, we introduced a large language model integrated directly into our platform that allows clinicians and care teams to query a patient's longitudinal medical record and receive cited, source-based responses. As a payer-agnostic platform serving all lines of business. Astrana is uniquely positioned with one of the most comprehensive data sets in the industry to power this kind of innovation. Over time, we expect these AI-enabled efficiencies to compound, expanding operating leverage, supporting consistent margin growth, and most importantly, improving outcomes for the patients we serve. It's a very exciting time here at Astrana. The third quarter was also an active period of growth for Astrana, underscoring the strong market demand for our high-quality technology-enabled solutions. We expanded our strategic partnership with Intermountain Health in Nevada, further strengthening Astrana's presence in one of our fastest-growing markets.

This collaboration combines Intermountain's leading clinical infrastructure with Astrana's value-based care management capabilities and care delivery presence to enhance coordination, quality, and affordability for patients across Southern Nevada. It reinforces Astrana's position as a trusted partner to major health systems seeking to deliver integrated, patient-centered care tailored to local communities. And in our care enablement business, we also entered a new partnership with a provider group in Southern California. The group serves more than 40,000 members in value-based care arrangements across all lines of business and will begin onboarding to the Astrana platform in the first half of 2026. Next, I would like to address the adjustments we've made to our 2025 guidance, which are detailed in today's press release. To be clear, these updates do not reflect any change in the underlying performance, cost trend, or fundamentals of either Prospect or our legacy Astrana operations.

Rather, they reflect timing considerations. Specifically, we now expect several payer contracts to transition from partial risk to full risk arrangements in the first quarter of 2026 instead of in mid-2025, as originally anticipated. At Astrana, we take a disciplined and collaborative approach to growth. We work closely with our payer partners to structure arrangements that are aligned, economically sound, and built for long-term success for both parties. We have not and will not enter into full risk contracts simply to accelerate the top line. We do so only when the data, infrastructure, and financial alignment are in place to manage that risk responsibly and sustainably. Accordingly, we are now updating our full-year 2025 revenue guidance to a range of $3.1 to $3.18 billion and adjusted EBITDA to a range of $200 to $210 million. The key takeaway is that this is purely a matter of timing.

Cost trends and clinical outcomes remain steady across both legacy Astrana and Prospect. Demand from our partners continues to be strong, as reflected in several of the partnerships I just mentioned, and our pipeline continues to expand. We remain confident that the contribution from these contracts will be realized in 2026 and will further reinforce the strength and durability of our long-term growth trajectory. Before I hand it over to Chan for his financial review, I want to share a bit of our perspective on the factors that will shape performance in 2026. While we're not yet providing formal guidance, there are several dynamics already coming into focus. On the positive side, we expect tailwinds from improved Medicare Advantage rates, the realization of Prospect-related synergies, and the continued maturation of our full-risk cohorts, all of which should support steady revenue growth and margin expansion.

Offsetting these, we do anticipate some headwinds in our Medicaid and exchange businesses, where evolving regulatory dynamics may create pressure on membership and rates in certain markets. We're working proactively with our planned partners and state agencies to navigate these transitions thoughtfully and to position Astrana for sustained performance across all lines of business. We remain confident that our focus on being a high-quality, responsibly managed care delivery platform will continue to differentiate Astrana and enable growth, even in, and especially in, a more uncertain environment. Our 2026 planning reflects a balanced view that incorporates both the opportunities and the challenges ahead, and we look forward to sharing more detail when we report our fourth-quarter results early next year. Moving over to a personal note, my family recently welcomed our first child, and we had the great privilege of doing so through the Astrana network.

It was incredibly meaningful to experience firsthand the level of coordination and care our physicians, providers, and teams deliver each and every day. It reminded me of why we do what we do. Building a healthcare system that truly supports physicians and patients through some of life's most important moments. In closing, I'm so proud of how our team continues to execute in a complex and evolving environment. Astrana's mission remains clear: to build a sustainable, coordinated healthcare platform that empowers physicians, improves outcomes, and lowers costs for patients and their communities. And we are delivering on that vision, building a healthcare system that truly works while driving industry-leading growth and profitability, one community at a time. With that, I'll turn it over to Chan to discuss our financials. Thanks, Brandon, and good afternoon, everyone. Our third-quarter results reflect strong execution and continued consistency across the business.

We successfully integrated Prospect into our consolidated financials while maintaining solid performance across legacy Astrana operations. These results demonstrate the scalability of our platform and the discipline with which we continue to manage growth, risk, and capital deployment. Total revenue for the quarter was $956 million, representing growth of approximately 100% year-over-year and 46% sequentially. This increase reflects the addition of Prospect Health as well as steady organic growth across our care partners segment. Within our care enablement segment, we added material scale this quarter, more than doubling revenue quarter over quarter as Prospect brings more provider group clients for us to serve with our technology-enabled offerings. Adjusted EBITDA was $68.5 million, up 52% year-over-year and 42% sequentially, reflecting strong profitability even as the company grew rapidly. Medical cost trend performance in the quarter was stable and in line with our expectations across both legacy Astrana and Prospect.

As we continue to bring these companies together over the coming quarters, there remains a material opportunity to bring Prospect's trend performance more in line with that of legacy Astrana. Operating expenses as a percentage of revenue declined modestly with the integration of Prospect and the continued automation of core administrative workflows. We remain on track to achieve our previously communicated synergy target of $12 to $15 million of savings through 2026. We ended the quarter with approximately $462 million of cash and short-term investments and net debt of approximately $624 million, ahead of expectations following the close of the Prospect transaction. Our net leverage ratio at quarter-end was approximately 2.5 times on a pro forma trailing 12-month adjusted EBITDA basis, and we continue to expect to reduce leverage within the next 12 months through a combination of EBITDA growth and free cash flow generation.

Cash flow from operations for the quarter was approximately $10 million, bringing our nine-month total to $118 million. We continue to expect full-year free cash flow conversion of approximately 40 to 45% of adjusted EBITDA, in line with prior commentary. Turning to guidance, we are updating our 2025 outlook to reflect the timing of full-risk contracts with certain payer partners that have shifted from a 2025 start to a first quarter 2026 start date. As Brandon mentioned, this update does not reflect any change in the underlying operating performance of either Prospect or legacy Astrana. For full-year 2025, we now expect total revenue in the range of $3.1 to $3.18 billion and adjusted EBITDA in the range of $200 to $210 million. With that, we'll now open the call for questions. Thank you. We'll now conduct a Q&A session.

If you would like to ask a question, please press Star 1 on your telephone 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 participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. One moment, please, while we pull for questions. Thank you. Our first question comes from the line of Jalindra with. Truist Securities. Please proceed. Interesting from Truist Securities. Thanks for taking my questions. And congratulations, Brandon, for the new addition to your family. My question is on the revenue guidance update driven by full-risk transition timing delay. Were they related to one payer or multiple payers? You called out tech and data integration. Can you be more specific there?

Were these contracts on the Prospect side or legacy Astrana? And do you have enough clarity at this point that this will effectively go live one-one, or is there a chance of delay further? And related to that, does this delay impact in terms of how you are approaching your other partial risk to full-risk transitions? Hey, Jalindra. Thank you for the question. Thanks for the warm message. So. On the delay, the delay was strictly a timing issue. We remain committed to completing the transitions in the first quarter of 2026. It does relate to both legacy Astrana and the Prospect businesses as we're ensuring contract standardization across both of those businesses and consolidating them into one. The delay was not due to technical or technology or data issues.

In fact, as I described in my prepared remarks, we are making significant progress in integrating Prospect's team and onboarding teams onto our AI-enabled platform, including the capability to have real-time utilization. Information and data on our population. Rather, around half of the delay to dive a little deeper is procedural in nature, such as regulatory filings and making sure that there is a bidirectional data and operational feed. Half of that delay we expect to be finalized on one-one. The other half, we're in late-stage conversations and do anticipate finalization in Q1 of 2026. This is across several payer partners, not just a single entity. I just want to remind everyone that we are very collaborative partners with our payers. We think that these contracts will mutually benefit both parties, given our unique high-quality networks that are differentially well-managed.

And we're confident, again, that these contracts will commence in the first quarter of 2026. On the revenue item, a bit of seasonality on Prospect, but we're not expecting necessarily a step down in the core revenue of the business other than from these full-risk delays. Thanks, Jalindra. And before I actually ask my. Follow-up quickly, just to make sure that the EBITDA reduction of $10 million is all because of this timing delay, right? That's right. Core trend, medical cost trend in both legacy Astrana and Prospect businesses continue to come in line just slightly better than expected. Okay. And then my follow-up is on the kind of congrats on the high-profile Intermountain Health Partnership. Can you provide any more details around the economic sphere, level of engagement? What does this open up for you guys in terms of new market, new opportunities?

Does this provide an opportunity down the road for Astrana to enter additional states where Intermountain has presence? Maybe spend some time there. Sure. At the moment, we're very excited about the partnership. Intermountain is obviously a huge presence in Nevada as well as other states. In that region. Our partnership today is about. Utilizing Intermountain's very established and large clinical infrastructure and network and combining that with Astrana's unique presence in our care delivery model in Las Vegas and in other parts of Southern Nevada in order to deliver a more coordinated. And accessible approach to members in Nevada. So we're excited to expand our network, to have Intermountain be a part of that network, and we think it's going to drive great outcomes in AEP as we speak and into next year.

Going forward, we haven't had those discussions yet, but I do think that there are opportunities to continue expanding on that partnership and other partnerships with health systems. So we're excited about that as well. Great. Thanks a lot. Thanks, Jalindra. Thank you. Our next question comes from the line of Ryan Daniels with William Blair. Please proceed. Hello. This is Matthew Mardula on for Ryan Daniels. Thank you for taking my question. And first, Brandon, congratulations on your child. And it's great to hear that cost trends were reiterated for Astrana's full year. And in your prepared remarks, you mentioned higher Medicaid cost trends continuing to be above trend, although improvements from Q2. When do you expect kind of Medicaid cost trends to come closer to that 4.5%? And we've just been hearing a bunch of different time frames, so curious to hear what you think.

And then given the fourth-quarter seasonality, what gives you that confidence that you have enough factors into that guide to account for it? Thanks, Matthew. We continue to be encouraged by the. Trend that we're seeing, the trend of the trend, that is, in Medicaid. Look, we do anticipate further. Continued headwinds in Medicaid as we have some instability in the regulatory environment at this moment. We do think that sometime in '26, perhaps late '26, we expect margins in Medicaid to stabilize. But at this moment, we're encouraged by the trend that we're seeing in terms of the improvement in Medicaid. So we'll certainly update the market if anything changes there. Great. And then with the new partnership group in Southern California that serves over 40,000 members across all lines of business, could you kind of provide a breakdown of the payer type of these 40,000 lives?

Do they have a similar split as you? And then what's the kind of percentage of full-risk lives? And then the kind of last one is, so do you believe this will be profitable from day one when you onboard them in the first half of 2026? Sure thing. It is a similar mix in terms of Medicare, Medicaid, and commercial as our business today. It is mostly. It is actually all shared risk members, not full-risk members. And we'll help them manage similar to the rest of the care enablement business. By charging a fee as a percentage of revenues. For that business. We do anticipate it to be. Additive to EBITDA very early on since our care enablement operating leverage allows us to add new members into that business effectively. Great. Thank you so much for that. Thanks, Matthew. Thank you.

Our next question comes from the line of Jack Sullivan with Jeffries. Please proceed. Hey, guys. Congrats on a quarter. This is Megan Holtzahn for Jack Sullivan. Can you discuss the margins by segment in the quarter? Enablement looks very high while care partners lagged a little bit. So what's driving that? Hi, Megan. Thanks for joining for the question. On enablement, you'll notice, as John also mentioned in the prepared remarks, that the enablement business grew rapidly in Q3. Part of that is that. The legacy Prospect business had quite a large enablement business and clients that we have now onboarded. We're excited by the potential of the care enablement business as. These are members that we are managing well with our AI-enabled technology platform, and we're driving a very strong EBITDA margin in that business. And we expect that to continue to grow in the future.

We are adding to the care enablement pipeline, as I mentioned, with a new client. And there are several other clients that we're the pipeline is quite strong in that business. On the care partner side, care partners' margin, we expect it to look a little lower this quarter because, as I guided to before, the legacy Prospect business does run at a slightly higher trend than the core business. Again, all of this was contemplated in our guidance and when we did the deal. So the blended number is going to be a little higher. However, we do see opportunity in the future to bring that business more in line with the legacy Astrana care partners' MLR. There is also a bit of seasonality in there, but. Overall, those are the drivers for the strong care enablement performance, growth and margin-wise, as well as the.

In-line to slightly better-than-expected care partners' margin. Thank you. Thanks, Megan. Thank you. Our next question comes from the line of Michael Haas with Baird. Please proceed. Thank you. And congrats, Brandon. Maybe another one on Medicaid. And I know your cost trend guidance is tracking well. You decelerated from Q2. But if we double-click into it a bit more, nationally, we're seeing elevated member disenrollment trends. And then. On a state-specific basis, California is something that I've noticed recent monthly disenrollment trends have really spiked into July and August. And the composition of that disenrollment, it's a bit alarming too. I'm seeing it at roughly 90% procedural disenrollment. So I wanted to ask if you're seeing any recent signs of this attrition in California, if you're seeing any emerging acuity mix shifts. And then with.

Relevance and United also, well, not also, but both assuming negative Medicaid margins into next year, just wondering how you're digesting all these payer developments and how it might be factoring into your early thinking on '26. I know you called Medicaid out as a headwind, but would love to hear some expanded thoughts on it all. Thank you. Thanks so much, Michael, for the question. We're tracking those numbers closely too from California that I think you're referencing. Overall, disenrollment from Medicaid year to date has not been as severe as our initial expectations, nor as high as you're probably seeing in the. California DHCS reports in aggregate. Things are still early, so we'll see how 2026 progresses. But year to date in 2025, we're seeing an annualized mid to high single-digit attrition rate in Medicaid in terms of eligibility and enrollment.

Part of this, I think there are two reasons. One, really, that these are real Medi-Cal Medicaid members that we have built a longitudinal relationship with. We've worked with them over time, whether through line of business change or through as they get older. We really know these members, and we have known them for a long time. It's part of the strength of our model. So we think that there's a lot of work that we're doing in order to ensure that those who are qualified legitimately continue to be enrolled in Medicaid, even in the face of regulatory headwinds. In addition, as members have been disenrolled, we do believe also that plans are retaining members with us at a disproportionate rate because they want to keep members enrolled in our high-quality network and our well-managed network.

So with all that being said, we'll continue to observe what happens in 2026. I've done some scenario planning internally to deal with these potential headwinds in '26. But. Disenrollment in that mid to high single-digit range, not as bad as we think. Some of the data from the statewide reports are showing, Michael. Thanks. Perfect. Thank you. And just one more question. As we look into '27, I know it's a bit early, but the rate notice, my early thinking on the effective growth rate is, I mean, I think it could be very strong. Elevated 25 fee-for-service trends seem to be tracking very high. I'm thinking high single-digit effective growth rate might even be possible for '27. So when I consider that, I consider how MA is tracking to be almost two-thirds of your total revenue.

And then I consider how your MA cost trend is less than 4.5%. The immediate thing that pops into my head is significant margin tailwind across most of your company, all those hundreds of basis points of excess rates on top of your trend. So a few parts to this question. Firstly, where are you right now in terms of your MA margin? Second, how should we think about margins tracking into next year? I'm thinking margin expansion because rates are good, trends steady, benefits are cut again. And then when you think about '27, just would love to hear your thoughts on how a strong rate notice could drive better margins and help out the overall achievability of your '27 EBITDA target of $350 million. Thank you. Thanks for the question, Michael.

And you know that I believe you're a leader in thinking about how MA rates are going to evolve. In '26 or how they have evolved in '26 and how they might evolve in '27. So to answer your question in a couple of parts. One. '26 was a nice increase in MA rates, but we don't believe that they fully accounted for the increase in trend. As a benchmark, for example, it's not fully apples to apples, but via the ACO Reach RTA report, we're seeing an 8 to 10% trend nationwide. So good report, but we still believe slightly underfunded. And we think there's more room for growth in the '27 rate announcement, which I think you also mentioned in your question. We're not sharing. Per line of business margin at this moment, but we do think that there is room for margin to.

Stabilize and potentially start expanding in '26 and '27 because of these strong rate increases that we're seeing. As I've talked about a lot before, we don't have a strong. We don't have. A strong or any headwind really at all around V28. So we feel confident that. There is room to grow if the rates continue to come in as expected. It's a bit early for us to exactly quantify what that looks like now, as we're still in the middle of AEP, and we're looking at how we're growing as well as the shift in. Distribution across stars in our planned partners. But we do think there's a potential headwind there, as I called out in the prepared remarks. We continue to hope and anticipate that the '27 rate notice, as you mentioned, is going to be strong as well, hopefully in the mid to high single digits.

So that is our expectation at the moment. Thank you. Thanks, Mike. Thank you. Our next question comes from the line of Ryan Langston with TD Cowan. Please proceed. Thanks. Good evening and cool news on the kiddo, Brandon. Just I want to make sure about these contracts, I understand it. So you lowered the full-year revenue guidance by $60 million at the midpoint. But you also lowered the EBITDA by $15 million. And assuming that's all from these contracts, that implies a 25%. Margin assumption and a run rate, $60 million EBITDA on these contracts. So is there just other pieces, kind of moving parts that are included in the guidance change, or are those kind of the right numbers to think about? Thanks for the question. Thanks for the warm message. We believe the run rate is. Close to.

Around $15 million for the latter half of the year, so closer to a 30-mill run rate, really. And. The revenue. Was. Frankly anticipated to be. Frankly a beat. So. The magnitude of the drop is not as severe, perhaps, as you may expect on the margin assumption there. So those are really the two items around the. Full-risk delay. We're talking about a $15. Million over a half-year item that we expect to be fully resolved in the first quarter of 2026. And. There's not quite the margin necessarily that you think there is. On that business. Okay. Thank you. And then just. One more thing on the prospect commentary. I think you said it kind of beat standalone expectations. I'm sorry if I missed this.

You already said it, but does that include any of the $12 to $15 million synergies that you called out that you're reiterating, or is that just literally as a standalone entity? It exceeded expectations. And maybe just a sense on how much it exceeded, if you could. Thanks. Sure thing. No, I'm not yet talking about the synergies in that comment. The comment was simply about the medical cost trend, utilization trends, and the. Financial performance of the standalone prospect business. It was. A slightly better-than-expected number, which. Was in line with what we did diligence on. And so we're very pleased to see that that has continued. And we expect that there are further synergies on both the top and the bottom line, as well as opportunities to improve MLR and performance going forward into '26 and '27.

But to answer your question, it's really about the standalone business. For prospect that the comment was about. Okay. Thanks. Thank you. Thank you. Our next question comes from the line of Andrew Mock with Barclays. Please proceed. Hi. This is Thomas Walsh on for Andrew. I believe you just quoted the legacy Astrana blended cost trend figure. Could you share the relevant prospect figure, and is the delta between those due to any structural difference between the member populations? We haven't shared the. Cost trend number for the standalone prospect business. Part of that is that. The integration. Is combining some of the businesses. Part of the acquisition was an asset purchase. We continue to expect it to be several points higher on trend than the legacy Astrana business. We don't think that necessarily this is something structural in nature.

We believe that over time, as we combine the contracts, which we're doing now, as we continue to combine and onboard the team into our clinical pathways and our technology platform. There is opportunity to move that margin to look more similar to the legacy Astrana business. And again, the prospect business did perform in line with our expectations, both as a result of the diligence as well as. Expectations after we've gotten our hands around it. So everything in line, and we continue to look forward to improving the performance of both businesses as a combined entity in Q4 and into 2026. Great. Thank you. Thanks. Thank you. Our next question comes from the line of David Larson with BTIG. Please proceed. Hi. I'm sorry if I missed this, but what was your medical trend in the quarter, and how does that compare to expectations?

Just any color between commercial Medicaid, Medicare for that trend, and then what are your expectations for trend in '26? Thank you. Hey, Dave. Thanks for the question. The. Trend across all lines of business blended weighted average was just under 4.5%, continues to be in line with our expectations for the legacy Astrana business. Medicare continues to be better. Medi-Cal. Medicaid, as I mentioned, has sequentially improved, so trend decelerated versus Q2 and continues to be going in the right direction, and commercial stable as well. So we're very pleased with the continuing ability to manage cost trend effectively for our population. Going forward into 2026. We're not sharing our trend expectations specifically yet. I do think that we're going to be conservative just in the face of some of the regulatory.

Potential headwinds that are coming down the line for Medicaid and Exchange, but it's a bit early to share the exact trend assumption at this time. We certainly will do that on our Q4 earnings call. That's very helpful. And then do you have any exposure to the exchanges? Another value-based care company this evening who reported. Indicated that exchanges could be very immaterial to their '26 earnings. Is there any exposure there or not? I don't think so. Thanks, Dave. There is some exposure. We do have exchange membership. But it's a fairly small part of the business, around 3%. Of revenue. So. We think it's a manageable exposure to the exchange. Great. And then what percent of claims are complete so we can have confidence that there's not going to be any sort of negative surprise in terms of. Claims costs in the fourth quarter?

Our completion rates are pretty consistent quarter over quarter, over 85%. As a reminder, we haven't had negative prior period development. For many quarters in a row now. Can't even count how many. And we continue to be consistent in terms of our medical cost trend forecasting. And our ability to actually manage those costs. Notably, we also don't have any negative prior period. Developments on risk adjustment either. And again, we think that's a reflection of our consistent and conservative approach in terms of risk adjustment. Great. Congratulations on becoming a father. Thank you. Thanks so much, Dave. Thank you. Our next question comes from the line of Craig Jones with Depot. Please proceed. Thanks for the questions. And congrats, Brandon. So I wanted to ask about the implications of the reconciliation bill around work requirements.

I'd assume California would be one of the slower there to adopt that, but have you heard anything about how they plan to implement it or the speed that they plan to implement? Hey, thank you. What we've been hearing, as. Probably similar to all of you, is that this is probably a 2027 item. As currently constructed. So we're not necessarily seeing the impacts of that yet. We are anticipating potential headwinds next year. If there are other related items such as the UIS status members, but. At this moment, we're anticipating this to be a 2027 item. Got it. Thank you. And then maybe on Medicare, so entering the third year of V28, I wanted to ask you if you have any thoughts on the potential for a V29 soon and maybe how the potential use of encounter data may impact Astrana. Thanks. Sure thing.

I know there's been discussion about a potential V29 or a further change to risk adjustment model. As I mentioned before, we feel very comfortable with our risk adjustment. If anything. We actually believe our RAF to be almost too low. So we really don't think that. V28 has hurt us, and even a further V29. We're not extremely—we're not very concerned about, frankly. We think that there remains to be opportunity to continue to correctly code our members. And continue to. Improve the way that we take care of our patients. Over time, regardless of the risk adjustment model that's being implemented. Okay. Great. Thank you. Thanks so much. Thank you. Our next question comes from the line of Matthew Gilmore with Key Bank Capital Markets. Please proceed. Hey, this is Zach Hunt from Matt. Congratulations, Brandon. Just wanted to touch on the transition to full risk.

Based on the delays, I think that percentage ticks up in the first quarter, but do you have any guideposts or frameworks that you can provide in terms of how to think about that shift to full risk through the remainder of '26? Yeah. I think thanks for the question. We're going to continue the transition to full risk as expected. These contracts, which we expected to turn on in mid-2025. Ended up being delayed till the first quarter of 2026. But going forward, we do expect that high 70% of revenue coming from full risk to remain. In that range going into '26. There are several. Full-risk contracts that we had. Anticipated going live in 2026, separate from the ones that we had discussed, and there's no danger or indication that that's not going to happen. We're also seeing.

Success in moving contracts to a delegated model, even outside of California. As I mentioned before, Texas is starting on fully delegated, which means we're paying claims, we're doing ops, we have full data visibility, very similar to the model we've successfully run in other parts of the country starting 1/1 of '26 as well. So. By and large, contractual movements are as expected. Unfortunately, a slight delay on these particular items this year. Great. Thank you. Thank you. Thank you. Our next question comes from the line of Janine Manheimer with Freedom Capital Markets. Please proceed. Thanks for taking the question, and congrats to the dude dad, Brandon. My questions relate to, I guess, growth. You say double revenue year over year. Much of that was prospect. So if we back out prospect, what are we looking at for organic growth? Mid-single digit? Hey, Gene. Thanks for the question.

Yep. I think if you really try to strip out every single part of the prospect deal, which, as I mentioned earlier, is a bit. In some areas challenging, I think the core Astrana business continues to grow in the mid-teens, low-teens area. Prospect, as I mentioned, I think we had guided to before growing in the mid-to-high single digits. But. This is exclusive of some of the full-risk movements and exclusive of AEP so far. So. We continue to be excited by the growth. In all of these businesses and also, more importantly, managing the growth in an effective and. Stable manner in terms of EBITDA. Okay. No, that's encouraging. And then my follow-up is. On your new group that you signed in Southern California, 40K Lives. Was that an affiliate or an offshoot of Prospect, or was Prospect instrumental in getting that win? Thanks. Sure, Gene.

No, not really. This is a separate client that. Had no relationship necessarily to us or to Prospect, just one of the clients in our pipeline. So that pipeline continues to be strong. We continue to expand our care-enabled business. We're building a lot of technology around ensuring that that offering is attractive and is well-priced. And we think that's an area for growth, as it has been in the past. Going forward as well. All right. Great. Thank you. Thank you. There are no further questions at this time. I'd like to pass the call back over to management for any closing remarks. Thank you so much. To conclude, I wanted to emphasize that Astrana continues to manage medical costs well. We continue to show that the value of Prospect is meaningful and that integration is going smoothly.

We do not believe that the transition of full risk is an ongoing issue. It's a one-time delay and does not reflect any. Cost trend issues or medical cost issues in the core Astrana or the core Prospect businesses. And we're very happy to share, as Sean mentioned in the prepared remarks, that. We are now down to approximately 2.5 times net leverage on pro forma adjusted EBITDA, which is far ahead of what. The timing was when we announced the deal. So we continue to focus on deleveraging, continue to focus on execution of the business. And we look forward to continued. Execution in future quarters and in 2026. Thank you all for joining the conference call today, and I look forward to speaking to many of you in the coming months. This concludes today's teleconference. You may now disconnect your lines at this time.

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