10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on May 9, 2024
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2024
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___ to ___.
Commission File No. 001-37392
(Exact name of registrant as specified in its charter)
(State or Other Jurisdiction | (I.R.S. Employer | ||||
of Incorporation or Organization) |
Identification Number) |
(Address of principal executive offices and zip code)
(626 ) 282-0288
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
Trading Symbol |
Name of Each Exchange on Which Registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☒ | Accelerated filer |
☐ | |||||||||
Non-accelerated filer |
☐ |
Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of April 29, 2024, there were 56,025,538 shares of common stock of the registrant, $0.001 par value per share, issued and outstanding, which includes 7,132,698 treasury shares that are owned by Allied Physicians of California, a Professional Medical Corporation d.b.a. Allied Pacific of California IPA (“APC”), a consolidated affiliate of Astrana Health, Inc. These shares are legally issued and outstanding but treated as treasury shares for accounting purposes.
Astrana Health, Inc.
INDEX TO FORM 10-Q FILING
TABLE OF CONTENTS
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3
Glossary
The following abbreviations or acronyms that may be used in this document shall have the adjacent meanings set forth below:
AAMG | All-American Medical Group | |||||||
ACO REACH |
ACO Realizing Equity, Access, and Community Health | |||||||
ADSC |
Advanced Diagnostic and Surgical Center, Inc. |
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AHMC | AHMC Healthcare Inc. | |||||||
AHMS |
Advanced Health Management Systems, L.P. |
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AHM |
Astrana Health Management, Inc. (f/k/a Network Medical Management Inc.) |
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AIPBP | All-Inclusive Population-Based Payments | |||||||
APAACO | APA ACO, Inc. | |||||||
APC | Allied Physicians of California, a Professional Medical Corporation | |||||||
APC-LSMA | APC-LSMA Designated Shareholder Medical Corporation | |||||||
Astrana |
Astrana Health Inc. (f/k/a Apollo Medical Holdings, Inc.) |
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Astrana Medical |
Astrana Health Medical Corporation (f/k/a AP-AMH Medical Corporation) |
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Astrana Care Partners Medical |
Astrana Care Partners Medical Corporation (f/k/a AP - AMH 2 Medical Corporation) |
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CAIPA MSO | CAIPA MSO, LLC | |||||||
CFC |
Community Family Care Medical Group IPA, Inc. |
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CMS | Centers for Medicare & Medicaid Services | |||||||
DMHC | California Department of Managed Health Care |
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DMG | Diagnostic Medical Group of Southern California | |||||||
HSMSO | Health Source MSO Inc., a California corporation | |||||||
IPA | Independent Practice Association | |||||||
Jade | Jade Health Care Medical Group, Inc. | |||||||
LMA | LaSalle Medical Associates | |||||||
NGACO | Next Generation Accountable Care Organization | |||||||
Prime Community Care |
Primary Community Care of Central Valley, Inc. |
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PMIOC | Pacific Medical Imaging and Oncology Center, Inc. | |||||||
Sun Labs | Sun Clinical Labs | |||||||
VIE | Variable Interest Entity |
4
INTRODUCTORY NOTE
Unless the context dictates otherwise, references in this Quarterly Report on Form 10-Q to the “Company,” “we,” “us,” “our,” and similar words are references to Astrana Health, Inc., a Delaware corporation (“Astrana”), and its consolidated subsidiaries and affiliated entities, as appropriate, including its consolidated variable interest entities (“VIEs”).
The Centers for Medicare & Medicaid Services (“CMS”) have not reviewed any statements contained in this Report, including statements describing the participation of APA ACO, Inc. (“APAACO”) in the ACO Realizing Equity, Access, and Community Health Model (“ACO REACH Model”) and ApolloMed MSSP I, Inc. in the Medicare Shared Savings Program (“MSSP”).
Trade names and trademarks of Astrana and its subsidiaries referred to herein, and their respective logos, are our property. This Quarterly Report on Form 10-Q may contain additional trade names and/or trademarks of other companies, which are the property of their respective owners. We do not intend our use or display of other companies’ trade names and/or trademarks, if any, to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any statements about our business, financial condition, operating results, plans, objectives, expectations, and intentions; any projections of earnings, revenue, earnings before interest, taxes, depreciation, and amortization (“EBITDA”), Adjusted EBITDA, or other financial items, such as our projected capitation from CMS, our forward-looking guidance and our future liquidity; any statements of any plans, strategies, and objectives of management for future operations, such as the material opportunities that we believe exist for our Company; any statements concerning proposed services, developments, mergers, or acquisitions; any statements with respect to dividends or stock repurchases and timing, methods, and payment of same; any statements regarding the outlook of the ACO REACH Model, the MSSP, or strategic transactions; any statements regarding management’s view of future expectations and prospects for us; any statements about prospective adoption of new accounting standards or effects of changes in accounting standards; our ability to maintain effective internal control over financial reporting and disclosure controls and procedures; any statements regarding potential changes to our tax structure; any statements regarding future economic conditions or performance; any statements of belief; any statements of assumptions underlying any of the foregoing; and other statements that are not historical facts. Forward-looking statements may be identified by the use of forward-looking terms, such as “anticipate,” “could,” “can,” “may,” “might,” “potential,” “predict,” “should,” “estimate,” “expect,” “project,” “believe,” “think,” “plan,” “envision,” “intend,” “continue,” “target,” “seek,” “contemplate,” “budgeted,” “will,” or “would,” and the negative of such terms, other variations on such terms or other similar or comparable words, phrases, or terminology. These forward-looking statements present our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q and are subject to change.
Forward-looking statements involve risks and uncertainties, many of which are difficult to predict and are outside of our control, and are based on the current beliefs, expectations, and certain assumptions of management. Some or all of such beliefs, expectations, and assumptions may not materialize or may vary significantly from actual results. Such statements are qualified by important economic, competitive, governmental, and technological factors that could cause our business, strategy, or actual results or events to differ materially from those in our forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (the “SEC”) on February 29, 2024, including the risk factors discussed under the heading “Risk Factors” in Part I, Item 1A thereof. Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to significant risks and uncertainties that could cause actual conditions, outcomes, and results to differ materially from those indicated by such statements. Any forward-looking statement made by the Company in this Form 10-Q speaks only as of the date on which it is made. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws.
5
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ASTRANA HEALTH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
March 31, 2024 |
December 31, 2023 |
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(Unaudited) | |||||||||||
Assets | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents | $ | $ | |||||||||
Investment in marketable securities | |||||||||||
Receivables, net | |||||||||||
Receivables, net – related parties | |||||||||||
Income taxes receivable | |||||||||||
Other receivables | |||||||||||
Prepaid expenses and other current assets | |||||||||||
Total current assets |
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Non-current assets | |||||||||||
Land, property and equipment, net | |||||||||||
Intangible assets, net | |||||||||||
Goodwill | |||||||||||
Income taxes receivable | |||||||||||
Loans receivable, non-current | |||||||||||
Investments in other entities – equity method | |||||||||||
Investments in privately held entities | |||||||||||
Restricted cash | |||||||||||
Operating lease right-of-use assets | |||||||||||
Other assets | |||||||||||
Total non-current assets | |||||||||||
Total assets(1)
|
$ | $ | |||||||||
Liabilities, mezzanine equity and equity | |||||||||||
Current liabilities |
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Accounts payable and accrued expenses | |||||||||||
Fiduciary accounts payable | |||||||||||
Medical liabilities | |||||||||||
Income taxes payable | |||||||||||
Dividend payable |
6
March 31, 2024 |
December 31, 2023 |
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(Unaudited) | |||||||||||
Finance lease liabilities | |||||||||||
Operating lease liabilities | |||||||||||
Current portion of long-term debt | |||||||||||
Other liabilities | |||||||||||
Total current liabilities |
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Non-current liabilities | |||||||||||
Deferred tax liability | |||||||||||
Finance lease liabilities, net of current portion | |||||||||||
Operating lease liabilities, net of current portion | |||||||||||
Long-term debt, net of current portion and deferred financing costs | |||||||||||
Other long-term liabilities | |||||||||||
Total non-current liabilities | |||||||||||
Total liabilities(1)
|
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Commitments and contingencies (Note 12) | |||||||||||
Mezzanine equity | |||||||||||
Noncontrolling interest in Allied Physicians of California, a Professional Medical Corporation ("APC") | ( |
( |
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Stockholders’ equity | |||||||||||
Series A Preferred stock, $ |
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Series B Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital | |||||||||||
Retained earnings | |||||||||||
Total stockholders’ equity | |||||||||||
Non-controlling interest | |||||||||||
Total equity | |||||||||||
Total liabilities, mezzanine equity and equity | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
(1)The Company’s condensed consolidated balance sheets include the assets and liabilities of its consolidated VIEs. The condensed consolidated balance sheets include total assets that can be used only to settle obligations of the Company’s consolidated VIEs totaling $717.5 million and $540.8 million as of March 31, 2024 and December 31, 2023, respectively, and total liabilities of the Company’s consolidated VIEs for which creditors do not have recourse to the general credit of the primary beneficiary of $179.6 million and $146.0 million as of March 31, 2024 and December 31, 2023, respectively. These VIE balances do not include $299.5 million of investment in affiliates and $110.1 million of amounts due to affiliates as of March 31, 2024, and $273.2 million of investment in affiliates and $107.3 million of amounts due to affiliates as of December 31, 2023, as these are eliminated upon consolidation and not presented within the condensed consolidated balance sheets. See Note 16 — “Variable Interest Entities (VIEs)” for further details.
8
ASTRANA HEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended March 31, |
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2024 | 2023 | |||||||||||||
Revenue | ||||||||||||||
Capitation, net | $ | $ | ||||||||||||
Risk pool settlements and incentives | ||||||||||||||
Management fee income | ||||||||||||||
Fee-for-service, net | ||||||||||||||
Other revenue | ||||||||||||||
Total revenue | ||||||||||||||
Operating expenses | ||||||||||||||
Cost of services, excluding depreciation and amortization | ||||||||||||||
General and administrative expenses | ||||||||||||||
Depreciation and amortization | ||||||||||||||
Total expenses | ||||||||||||||
Income from operations | ||||||||||||||
Other income (expense) | ||||||||||||||
Income from equity method investments | ||||||||||||||
Interest expense | ( |
( |
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Interest income | ||||||||||||||
Unrealized gain (loss) on investments | ( |
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Other (loss) income | ( |
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Total other expenses, net |
( |
( |
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Income before provision for income taxes | ||||||||||||||
Provision for income taxes | ||||||||||||||
Net income | ||||||||||||||
Net income (loss) attributable to non-controlling interest | ( |
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Net income attributable to Astrana Health, Inc. | $ | $ | ||||||||||||
Earnings per share – basic | $ | $ | ||||||||||||
Earnings per share – diluted | $ | $ | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9
ASTRANA HEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF MEZZANINE AND STOCKHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Mezzanine Equity – Non-controlling Interest in APC |
Retained Earnings |
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Common Stock Outstanding |
Additional
Paid-in
Capital
|
Non-controlling Interest |
Stockholders’ Equity |
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Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2024 | $ | ( |
$ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Net income | — | — | — | ||||||||||||||||||||||||||||||||||||||
Purchase of non-controlling interest | — | — | — | — | — | ( |
( |
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Sale of non-controlling interest | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Shares issued for vesting of restricted stock awards | — | — | ( |
— | — | ( |
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Share-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Issuance of shares for business acquisition | — | — | — | ||||||||||||||||||||||||||||||||||||||
Acquisition of non-controlling interest | — | ( |
— | ( |
— | ( |
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Dividends | — | — | — | — | — | ( |
( |
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Balance at March 31, 2024 | $ | ( |
$ | $ | $ | $ | $ |
Mezzanine Equity – Non-controlling Interest in APC |
Retained Earnings |
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Common Stock Outstanding |
Additional
Paid-in
Capital
|
Non-controlling Interest |
Stockholders’ Equity |
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Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2023 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
Net (loss) income | ( |
— | — | — | |||||||||||||||||||||||||||||||||||||
Shares issued for vesting of restricted stock awards | — | — | ( |
— | — | ( |
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Shares issued for exercise of options and warrants | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Purchase of treasury shares | — | ( |
— | ( |
— | — | ( |
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Share-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Dividends | — | — | — | — | — | ( |
( |
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Transfer of common control entities | — | — | ( |
— | — | ( |
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Balance at March 31, 2023 | $ | $ | $ | $ | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
10
ASTRANA HEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended March 31, |
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2024 | 2023 | ||||||||||
Cash flows from operating activities | |||||||||||
Net income | $ | $ | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization | |||||||||||
Amortization of debt issuance cost | |||||||||||
Share-based compensation | |||||||||||
Non-cash lease expense | |||||||||||
Unrealized (gain) loss on investments | ( |
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Income from equity method investments | ( |
( |
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Unrealized loss on interest rate swaps | |||||||||||
Deferred tax | ( |
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Other | |||||||||||
Changes in operating assets and liabilities, net of business combinations: | |||||||||||
Receivable, net | ( |
( |
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Receivable, net – related parties | ( |
( |
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Other receivables | ( |
( |
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Prepaid expenses and other current assets | ( |
( |
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Other assets | ( |
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Accounts payable and accrued expenses | ( |
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Fiduciary accounts payable | |||||||||||
Medical liabilities | ( |
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Income taxes payable/receivable | |||||||||||
Operating lease liabilities | ( |
( |
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Other long-term liabilities | |||||||||||
Net cash provided by operating activities |
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Cash flows from investing activities | |||||||||||
Payments for business acquisition, net of cash acquired | ( |
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Proceeds from repayment of loans receivable – related parties | |||||||||||
Purchase of marketable securities | ( |
( |
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Purchase of investment – equity method | ( |
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Issuance of loans receivable | ( |
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Purchases of property and equipment | ( |
( |
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Deposit for purchase of property | ( |
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Net cash used in investing activities | ( |
( |
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Cash flows from financing activities | |||||||||||
Dividends paid | ( |
( |
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Borrowings on long-term debt | |||||||||||
Repayment of long-term debt | ( |
( |
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Payment of finance lease obligations | ( |
( |
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Proceeds from the exercise of stock options and warrants |
11
Three Months Ended March 31, |
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2024 | 2023 | ||||||||||
Repurchase of treasury shares | ( |
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Proceeds from sale of non-controlling interest | |||||||||||
Purchase of non-controlling interest | ( |
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Net cash provided by (used in) financing activities |
( |
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Net increase (decrease) in cash and cash equivalents | ( |
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Cash, cash equivalents, and restricted cash, beginning of period | |||||||||||
Cash, cash equivalents, and restricted cash, end of period | $ | $ | |||||||||
Supplemental disclosures of cash flow information |
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Cash paid for income taxes | $ | $ | |||||||||
Cash paid for interest | $ | $ | |||||||||
Supplemental disclosures of non-cash investing and financing activities | |||||||||||
Business acquisition in accounts payable and accrued liabilities | |||||||||||
Right-of-use assets obtained in exchange for operating lease liabilities | |||||||||||
Common stock issued in business combination | |||||||||||
Purchase of investments - equity method in accounts payable and accrued liabilities and other liabilities | |||||||||||
Draw on letter of credit through Revolver Loan | |||||||||||
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total amounts of cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows (in thousands):
March 31, | |||||||||||
2024 | 2023 | ||||||||||
Cash and cash equivalents | $ | $ | |||||||||
Restricted cash |
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Total cash, cash equivalents, and restricted cash shown in the statement of cash flows | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
12
ASTRANA HEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Description of Business
Overview
Unless the context dictates otherwise, references in these notes to the financial statements to the “Company,” “we,” “us,” “our,” and similar words are references to Astrana Health, Inc. (“Astrana”), formerly known as Apollo Medical Holdings, Inc., and its consolidated subsidiaries and affiliated entities, as appropriate, including its consolidated variable interest entities (“VIEs”).
Headquartered in Alhambra, California, Astrana is a leading provider-centric, technology-powered, risk-bearing healthcare company. Leveraging its proprietary end-to-end technology solutions, Astrana operates an integrated healthcare delivery platform that enables providers to successfully participate in value-based care arrangements, thus empowering them to deliver accessible, high-quality care to patients in a cost-effective manner. Together with Astrana’s affiliated physician groups and consolidated subsidiaries and VIEs, the Company provides value-based care enablement services and care delivery with its consolidated care partners to serve patients in California, Nevada, and Texas, the majority of whom are covered by private or public insurance provided through Medicare, Medicaid, and health maintenance organizations (“HMOs”), with a small portion of our revenue coming from non-insured patients. The Company provides care coordination services to each major constituent of the healthcare delivery system, including patients, families, primary care physicians, specialists, acute care hospitals, alternative sites of inpatient care, physician groups, and health plans. The Company’s physician network consists of primary care physicians, specialist physicians, physician and specialist extenders, and hospitalists.
Segments
The Company’s three reportable segments are Care Partners, Care Delivery and Care Enablement, which are described as follows:
Care Partners
The Care Partners segment is focused on building and managing high-quality and high-performance provider networks by partnering with, empowering, and investing in strong provider partners aligned on a shared vision for coordinated care delivery. By leveraging the Company’s unique care enablement platform and ability to recruit, empower, and incentivize physicians to effectively manage total cost of care, the Company is able to organize partnered providers into successful multi-payer risk-bearing organizations that take on varying levels of risk based on total cost of care across membership in all lines of business, including Medicare fee for service (“FFS”), Medicare Advantage, Medicaid, Commercial, and Exchange. Through the Company’s network of “independent practice associations” (“IPAs”), “accountable care organizations” (“ACOs”), and Restricted Knox-Keene licensed health plan, the Company’s healthcare delivery entities are responsible for coordinating and delivering high-quality care to the Company’s patients and ensuring continuity of care in Astrana’s ecosystem across age, stage of life, or life circumstance. Beginning in 2024, in addition to participating in the ACO REACH Model, the Company began participating in the Medicare Shared Savings Program (“MSSP”). The MSSP was created to promote accountability and improve coordination of care for Medicare beneficiaries.
Care Delivery
The Company’s Care Delivery segment is a patient-centric, data-driven care delivery organization focused on delivering high-quality and accessible care to all patients. The Company’s care delivery organization includes primary care, multi-specialty care, and ancillary care services. This segment includes the following:
•Primary care clinics, including post-acute care services;
•Multi-specialty care clinics and medical groups, including hospitalist, intensivist, and physician advisory services, cardiac care and diagnostic testing, and specialized care for women’s health; and
•Ancillary service providers, such as urgent care centers, outpatient imaging centers, ambulatory surgery centers, and full-service labs.
13
Care Enablement
The Company’s Care Enablement segment is an integrated, end-to-end clinical, operational, financial, and administrative platform powered by the Company’s proprietary technology suite that enhances the delivery of high-quality, value-based care to patients and leads to superior clinical and financial outcomes. The Company provides solutions to providers, including independent physicians, provider and medical groups, accountable care organizations, and payers, including health plans and other risk-bearing organizations. The Company’s platform meets providers and payers where they are, with a wide spectrum of solutions across the total cost of care risk spectrum, ranging from solutions for fee-for-service entities to hospital-shared risk-bearing entities, and across patient types, including Medicare, Medicaid, Commercial, and Exchange patients. This segment includes the Company’s wholly owned subsidiaries which operate as management services organizations (“MSOs”), which enter into long-term management and/or administrative services agreements with IPAs, ACOs, clinics, or independent providers. By leveraging the Company’s care enablement platform, providers and payers can improve their ability to deliver high-quality care to their patients and achieve better patient outcomes.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
Principles of Consolidation
The condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023, and the condensed consolidated statements of income for the three months ended March 31, 2024 and 2023, include Astrana’s wholly owned subsidiaries and consolidated variable interest entities (“VIEs”).
The unaudited condensed consolidated interim financial statements have been prepared under the assumption that users of the interim financial data have either read or have access to our audited condensed consolidated financial statements for the fiscal year ended December 31, 2023.
Use of Estimates
The preparation of the condensed consolidated financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include collectability of receivables, recoverability of long-lived and intangible assets, business combination and goodwill valuation and impairment, accrual of medical liabilities (incurred but not reported (“IBNR”) claims), determination of hospital shared-risk and health plan shared-risk revenue and receivables (including constraints, completion factors and historical margins), income tax-valuation allowance, share-based compensation, and right-of-use assets and lease liabilities. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ materially from those estimates and assumptions.
14
Business Combinations
The Company uses the acquisition method of accounting for all business combinations, which requires assets and liabilities of the acquiree to be recorded at fair value, to measure the fair value of the consideration transferred, including contingent consideration, to be determined on the acquisition date, and to account for acquisition-related costs separately from the business combination.
Reportable Segments
As of March 31, 2024, the Company operates in three reportable segments:
•Care Partners;
•Care Delivery; and
•Care Enablement.
Refer to Note 1 — “Description of Business” and Note 18 — “Segments” to the condensed consolidated financial statements for information on the Company’s segments.
Cash and Cash Equivalents
The Company’s cash and cash equivalents primarily consist of money market funds and certificates of deposit. The Company considers all highly liquid investments that are both readily convertible into known amounts of cash and mature within ninety days from their date of purchase to be cash equivalents.
Receivables, Receivables – Related Parties, Other Receivables and Loan Receivables
The Company’s receivables are comprised of accounts receivable, capitation and claims receivable, risk pool settlements, incentive receivables, management fee income, and other receivables. Accounts receivable are recorded and stated at the amount expected to be collected.
The Company’s receivables – related parties are comprised of risk pool settlements, management fee income, and other receivables. Receivables – related parties are recorded and stated at the amount expected to be collected.
The Company’s loan receivables consists of promissory notes that accrue interest per annum. As of March 31, 2024, promissory notes are expected to be collected by their maturity dates.
Capitation and claims receivables relate to each health plan’s capitation and are received by the Company in the month following the month of service. Risk pool settlements and incentive receivables mainly consist of the Company’s hospital shared-risk pool receivable, which is recorded quarterly based on reports received from the Company’s hospital partners and management’s estimate of the Company’s portion of the estimated risk pool surplus for open performance years. Settlement of risk pool surplus or deficits occurs approximately 18 months after the risk pool performance year is completed. Other receivables consist of receivables from fee-for-service (“FFS”) reimbursement for patient care, certain expense reimbursements, transportation reimbursements from the hospitals, and stop-loss insurance premium reimbursements.
The Company maintains reserves for potential credit losses on the receivables. Management reviews the composition of the Company’s receivables and analyzes historical bad debts, customer concentrations, customer creditworthiness, current economic trends, and changes in customer payment patterns to evaluate the adequacy of these reserves. The Company also regularly analyzes the ultimate collectability of accounts receivable after certain stages of the collection cycle using a look-back analysis to determine the amount of receivables subsequently collected and adjustments are recorded when necessary. Reserves are recorded primarily on a specific identification basis.
15
Concentrations of Credit Risks
Three Months Ended March 31, |
|||||||||||
2024 | 2023 | ||||||||||
Commercial |
$ | $ | |||||||||
Medicare |
|||||||||||
Medicaid |
|||||||||||
Other third parties |
|||||||||||
Revenue |
$ | $ |
The Company had major payers that contributed the following percentages of net revenue:
Three Months Ended March 31, |
|||||||||||
2024 | 2023 | ||||||||||
Payer A | % | % | |||||||||
Payer B | % | * |
*Less than 10% of total net revenues
The Company had major payers that contributed to the following percentages of receivables and receivables – related parties:
As of March 31, 2024 |
As of December 31, 2023 |
||||||||||
Payer A | % | % | |||||||||
Payer C | % | % |
Revenue Recognition
The Company receives payments from the following sources for services rendered:
•Commercial insurers;
•Federal government under the Medicare program administered by CMS;
•State governments under Medicaid and other programs;
•Other third-party payers (e.g., hospitals and IPAs); and
•Individual patients and clients.
16
Revenue primarily consists of the following:
•Capitation revenue;
•Risk pool settlements and incentives;
•Management fee revenue; and
•FFS revenue.
Revenue is recorded in the period in which services are rendered or the period in which the Company is obligated to provide services. The form of billing and related risk of collection for such services may vary by type of revenue and the customer.
Risk Pool Settlements and Incentives
Medicare Shared Savings Program Revenue
Beginning in 2024, Astrana participates in MSSP. The MSSP has multiple risk tracks, and Astrana is currently participating in the ENHANCED risk track. Under the MSSP Model, Astrana recruits a group of Participant and Preferred (in-network) Providers. Based on the Participant Providers that join our ACO, CMS grants us a pool of Traditional Medicare patients (beneficiaries) to manage (the “MSSP Aligned Beneficiaries”). The Company’s MSSP Aligned Beneficiaries will receive services from physicians and other medical service providers that are both in-network and out-of-network. CMS continues to pay participant and preferred providers on a fee-for-service basis for Medicare-covered services provided to MSSP Aligned Beneficiaries. The Company continues to bear risk on all Medicare expenditures (both in-network and out-of-network), excluding drug expenditures covered by Medicare Part D, based on a budgetary benchmark established with CMS. Astrana’s shared savings or losses in managing the Company’s beneficiaries are generally determined on an annual basis after reconciliation with CMS. Pursuant to Astrana’s risk-share agreement with CMS, the Company is eligible to receive the surplus (“shared savings”) or is liable for the deficit (“shared losses”) according to the budgetary benchmark established by CMS based on Astrana’s efficiency, or lack thereof, in managing the expenditures associated with the Company’s MSSP Aligned Beneficiaries. The Company estimates the shared service revenue by analyzing the activities during the relevant time period in contemplation of the agreed upon benchmarks, metrics, performance criteria, and attribution criteria based on those and any other contractually defined factors. Revenue is not recorded and is constrained until the shared service revenue can be reasonably estimated by the Company and to the extent that it is probable that a significant reversal will not occur once any uncertainty associated with the variable consideration is subsequently resolved.
Income Taxes
Federal and state income taxes are computed at currently enacted tax rates less tax credits using the asset and liability method. Deferred taxes are adjusted for both items that do not have tax consequences and for the cumulative effect of any changes in tax rates from those previously used to determine deferred tax assets or liabilities. Tax provisions include amounts that are currently payable, changes in deferred tax assets and liabilities that arise because of temporary differences between the timing of when items of income and expense are recognized for financial reporting and income tax purposes, changes in recognition of tax positions and any changes in the valuation allowance caused by a change in judgment about the realizability of the related deferred tax assets. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.
The Company uses a recognition threshold of more-likely-than-not and a measurement attribute on all tax positions taken or expected to be taken in a tax return in order to be recognized in the condensed consolidated financial statements. Once the recognition threshold is met, the tax position is then measured to determine the actual amount of benefit to recognize in the condensed consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In November 2023, the Financial Standards Accounting Board (FASB) issued Accounting Standards Update (ASU) 2023-07 "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for the Company’s annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the potential effect that the updated standard will have on its financial statement disclosures.
17
In December 2023, the FASB issued ASU 2023-09 "Income Taxes (Topics 740): Improvements to Income Tax Disclosures" to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for the Company’s annual periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the potential effect that the updated standard will have on its financial statement disclosures.
3. Business Combinations, Asset Acquisitions, and Goodwill
Advanced Health Management Systems, L.P. (“AHMS”)
On March 31, 2024, the Company, through its wholly owned subsidiary, purchased all of the outstanding general and limited partnership interests of Advanced Health Management Systems, L.P. (“AHMS”). AHMS is engaged in the business of providing management, consulting, administrative and other support services to entities that provide or arrange for the provision of professional healthcare services. In addition, one of AHMS’s wholly owned subsidiaries is a Restricted Knox-Keene licensed health plan with members in the Los Angeles, California area. Total consideration for the acquisition was $63.9 million. As the cash was not paid on the closing date, the purchase price was accrued and presented within accounts payable and accrued expenses in the accompanying condensed consolidated balance sheet as of March 31, 2024.
Prime Community Care of Central Valley, Inc. (“PCCCV”)
On March 29, 2024, the Company, through its consolidated subsidiary, acquired certain assets of Prime Community Care of Central Valley, Inc., a California professional medical corporation (“PCCCV”). Total consideration of the acquisition was approximately $10.3 million, consisting of cash funded upon the close date and contingent considerations of $2.3 million (“PCCCV contingent considerations”). Refer to Note 19 - “Fair Value Measurements of Financial Instruments” for additional information on contingent considerations.
Community Family Care Medical Group IPA, Inc. (“CFC”)
On January 31, 2024, the Company, through its consolidated subsidiary, acquired certain assets of CFC. CFC is an IPA that manages the healthcare of members in the Los Angeles, California area. The group serves patients across Medicare, Medicaid, and Commercial payers. The total consideration for the purchase was $120.2 million, consisting of $91.0 million cash funded upon the close date, $22.0 million of the Company’s common stock, resulting in the issuance of 631,712 shares of common stock., and contingent considerations of $7.3 million (“CFC contingent considerations”). Refer to Note 19 - “Fair Value Measurements of Financial Instruments” for additional information on contingent considerations.
Advanced Diagnostic and Surgical Center, Inc. (“ADSC”)
On January 1, 2024, the Company acquired 95 % of the equity interest of Advanced Diagnostic and Surgical Center, Inc. (“ADSC”). ADSC is a diagnostic and surgical center that also provides ambulatory surgery services. The total consideration consisted of cash funded upon close of the transaction and contingent considerations of $3.6 million (“ADSC contingent considerations”). Refer to Note 19 - “Fair Value Measurements of Financial Instruments” for additional information on contingent considerations.
18
The Company is still in the process of finalizing the purchase price allocation for these acquisitions, and therefore, the balances are subject to change as a result of any working capital or fair value adjustments, and seller indemnification obligations. The following table summarizes the preliminary purchase price allocation of the fair value of assets acquired and liabilities assumed related to each acquisition at the acquisition date (in thousands):
CFC |
AHMS | Others * |
Net Total | ||||||||||||||||||||
Total purchase consideration: | |||||||||||||||||||||||
Cash paid | $ | $ | $ | $ | |||||||||||||||||||
Cash payable | |||||||||||||||||||||||
Contingent consideration | |||||||||||||||||||||||
Common stock issued | |||||||||||||||||||||||
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||
Assets: |
|||||||||||||||||||||||
Cash and cash equivalents | $ | $ | $ | $ | |||||||||||||||||||
Investment in marketable securities | |||||||||||||||||||||||
Receivables | |||||||||||||||||||||||
Prepaid expenses and other current assets | |||||||||||||||||||||||
Amounts due from affiliates |
|||||||||||||||||||||||
Land, property and equipment | |||||||||||||||||||||||
Intangible assets | |||||||||||||||||||||||
Goodwill | |||||||||||||||||||||||
Restricted cash | |||||||||||||||||||||||
Total identifiable assets acquired |
$ | $ | $ | $ | |||||||||||||||||||
Liabilities: |
|||||||||||||||||||||||
Accounts payable and accrued expenses | $ | $ | $ | $ | |||||||||||||||||||
Medical liabilities | |||||||||||||||||||||||
Amounts due to affiliates | |||||||||||||||||||||||
Income taxes payable | |||||||||||||||||||||||
Deferred tax liability | |||||||||||||||||||||||
Noncontrolling interest |
|||||||||||||||||||||||
Total identified liabilities assumed |
$ | $ | $ | $ | |||||||||||||||||||
Total net identifiable assets acquired |
$ |
|
$ |
|
$ |
|
$ |
|
* Others consist of estimated fair values of the assets acquired, net of cash acquired, related to ADSC and PCCCV.
Following the acquisition dates of CFC, AHMS, ADSC and PCCCV, the operating results have been included in our consolidated financial statements. For the period from the acquisition dates through March 31, 2024, total revenues and net income were $
Unaudited Pro Forma Financial Information
The pro forma financial information in the table below presents the combined results of the Company and CFC, AHMS, ADSC and PCCCV as if the acquisitions had occurred on January 1, 2023. The pro forma information presented is shown for illustrative purposes only and is not necessarily indicative of future results of operations of the Company or results of operations of the Company that would have actually occurred had the transactions been in effect for the periods presented.
19
Three Months Ended March 31, |
|||||||||||
(in thousands, except per share amounts) |
2024 | 2023 | |||||||||
Total revenue |
$ | $ | |||||||||
Net income |
$ | $ | |||||||||
Net income per share - basic |
$ | $ | |||||||||
Net income per share - diluted |
$ | $ |
The acquisitions were accounted for under the acquisition method of accounting. The fair value of the consideration for the acquired companies was allocated to acquired tangible and intangible assets and liabilities based upon their fair values. The excess of the purchase consideration over the fair value of the net tangible and identifiable intangible assets acquired was recorded as goodwill. Factors leading to goodwill being recognized are the Company’s expectation of synergies from combining operations of entities acquired and the Company, as well as the value of intangible assets that are not separately recognized, such as assembled workforce. The determination of the fair value of assets and liabilities acquired requires the Company to make estimates and use valuation techniques when market value is not readily available. The results of operations from the acquisitions have been included in the Company’s financial statements from the date of acquisition. Transaction costs associated with business acquisitions are expensed as they are incurred.
At the time of acquisition, the Company estimates the amount of the identifiable intangible assets based on a valuation and the facts and circumstances available at the time. The Company determines the final value of the identifiable intangible assets as soon as information is available, but not more than one year from the date of acquisition.
Goodwill is not deductible for tax purposes. The Company had no impairment of its goodwill or indefinite-lived intangible assets during the three months ended March 31, 2024 and 2023.
The change in the carrying value of goodwill for the three months ended March 31, 2024 was as follows (in thousands):
Amount |
|||||
Balance, January 1, 2024 | $ | ||||
Acquisitions | |||||
Adjustments | ( |
||||
Balance, March 31, 2024 | $ |
20
4. Intangible Assets, Net
At March 31, 2024, the Company’s intangible assets, net, consisted of the following (in thousands):
Useful
Life
(Years)
|
Gross March 31, 2024 |
Accumulated Amortization |
Net March 31, 2024 |
||||||||||||||||||||
Indefinite lived assets: | |||||||||||||||||||||||
Trademarks | N/A | $ | $ | — | $ | ||||||||||||||||||
Licenses |
N/A | — | |||||||||||||||||||||
Amortized intangible assets: |
|||||||||||||||||||||||
Network relationships |
( |
||||||||||||||||||||||
Management contracts |
( |
||||||||||||||||||||||
Member relationships |
( |
||||||||||||||||||||||
Patient management platform |
( |
||||||||||||||||||||||
Tradename/trademarks | ( |
||||||||||||||||||||||
Developed technology | ( |
||||||||||||||||||||||
$ | $ | ( |
$ |
At December 31, 2023, the Company’s intangible assets, net, consisted of the following (in thousands):
Useful
Life
(Years)
|
Gross December 31, 2023 |
Accumulated Amortization |
Net December 31, 2023 | ||||||||||||||||||||
Indefinite lived assets: | |||||||||||||||||||||||
Trademarks | N/A | $ | $ | — | $ | ||||||||||||||||||
Amortized intangible assets: | |||||||||||||||||||||||
Network relationships | ( |
||||||||||||||||||||||
Management contracts | ( |
||||||||||||||||||||||
Member relationships | ( |
||||||||||||||||||||||
Patient management platform | ( |
||||||||||||||||||||||
Tradename/trademarks | ( |
||||||||||||||||||||||
Developed technology | ( |
||||||||||||||||||||||
$ | $ | ( |
$ |
For the three months ended March 31, 2024 and 2023, the Company recognized amortization expenses of $4.4 million and $3.0 million, respectively, in depreciation and amortization on the accompanying condensed consolidated statements of income. The Company determined that there was no impairment of its finite-lived intangible or long-lived assets during the three months ended March 31, 2024 and 2023.
Future amortization expense is estimated to be as follows for the following years ending December 31 (in thousands):
21
Amount | |||||
2024 (excluding the three months ended March 31, 2024) | $ | ||||
2025 | |||||
2026 | |||||
2027 | |||||
2028 | |||||
Thereafter | |||||
Total | $ |
5. Investments in Other Entities
Equity Method
For the three months ended March 31, 2024 and 2023, the Company’s equity method investment balance consisted of the following (in thousands):
% of Ownership | December 31, 2023 |
Initial Investment | Allocation of Net Income | Distribution | March 31, 2024 | |||||||||||||||||||||||||||
LaSalle Medical Associates – IPA line of business | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
Pacific Medical Imaging & Oncology Center, Inc. | ||||||||||||||||||||||||||||||||
CAIPA MSO, LLC | ||||||||||||||||||||||||||||||||
I Health, Inc. | ||||||||||||||||||||||||||||||||
Other * | ||||||||||||||||||||||||||||||||
$ | $ | $ | $ | $ |
% of Ownership | December 31, 2022 |
Initial Investment | Allocation of Net Income (Loss) | Distribution | March 31, 2023 | |||||||||||||||||||||||||||
LaSalle Medical Associates – IPA line of business | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
Pacific Medical Imaging & Oncology Center, Inc. | ||||||||||||||||||||||||||||||||
531 W. College, LLC ** | ( |
|||||||||||||||||||||||||||||||
One MSO, LLC ** | ||||||||||||||||||||||||||||||||
CAIPA MSO, LLC | ||||||||||||||||||||||||||||||||
Other * | ||||||||||||||||||||||||||||||||
$ | $ | $ | $ | $ |
* Other consists of smaller equity method investments.
I Health, Inc.
On March 31, 2024, a wholly owned subsidiary of the Company acquired a 25 % equity interest in I Health, Inc. (“I Health”), a management service organization. The Company accounts for its investment in I Health under the equity method of accounting as the Company has the ability to exercise significant influence, but not control over I Health’s operations. The purchase agreement includes a call option that allows the Company to purchase an additional 25 % equity interest on each of the first, second and third anniversary of the purchase (“I Health Call Option”). The cash consideration was not paid on the closing date,
22
and was accrued and presented within accounts payable and accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets.
There was no impairment loss recorded related to equity method investments for the three months ended March 31, 2024 and 2023.
6. Loans Receivable
Loans receivable
IntraCare
In July 2023, the Company entered into a five-year convertible promissory note with IntraCare as the borrower. The principal on the note is $25.0 million, with interest on the outstanding principal amount and unpaid interest at a rate per annum equal to 8.81 %, compounded annually. In the event that the convertible promissory note remains outstanding on or after the maturity date of July 27, 2028, the outstanding principal balance and any unpaid accrued interest shall, upon the election of the Company, convert into IntraCare preferred shares.
BASS Medical Group
On January 29, 2024, the Company provided BASS Medical Group (“BASS”) with a $20.0 million senior secured promissory note (“BASS secured promissory note”). The promissory note is secured by certain assets of BASS. BASS secured promissory note matures on January 11, 2031, and has an interest rate per annum equal to 8.21 % compounded annually. The principal on the note, including unpaid interest, are due and payable on the maturity date.
The Company assessed the outstanding loans receivable under the CECL model by assessing the party’s ability to pay by reviewing their interest payment history quarterly, financial history annually, and reassessing any identified insolvency risk.
7. Accounts Payable and Accrued Expenses
The Company’s accounts payable and accrued expenses consisted of the following (in thousands):
March 31, 2024 |
December 31, 2023 |
||||||||||
Accounts payable and other accruals | $ | $ | |||||||||
Capitation payable | |||||||||||
Subcontractor IPA payable | |||||||||||
Professional fees | |||||||||||
Due to related parties | |||||||||||
Contract liabilities | |||||||||||
Accrued compensation | |||||||||||
Other provider payable | |||||||||||
Total accounts payable and accrued expenses | $ | $ |
23
8. Medical Liabilities
The Company’s medical liabilities consisted of the following (in thousands):
March 31, 2024 |
March 31, 2023 |
||||||||||
Medical liabilities, beginning of period | $ | $ | |||||||||
Acquired (see Note 3) | |||||||||||
Components of medical care costs related to claims incurred: | |||||||||||
Current period | |||||||||||
Prior periods | ( |
( |
|||||||||
Total medical care costs | |||||||||||
Payments for medical care costs related to claims incurred: | |||||||||||
Current period | ( |
( |
|||||||||
Prior periods | ( |
( |
|||||||||
Total paid | ( |
( |
|||||||||
Adjustments | ( |
||||||||||
Medical liabilities, end of period | $ | $ |
9. Credit Facility, Bank Loans, and Lines of Credit
The Company’s debt balance consisted of the following (in thousands):
March 31, 2024 | December 31, 2023 | ||||||||||
Term Loan | $ | $ | |||||||||
Revolver Loan | |||||||||||
Promissory Note Payable | |||||||||||
Total debt |
|||||||||||
Less: Current portion of debt | ( |
( |
|||||||||
Less: Unamortized financing costs | ( |
( |
|||||||||
Long-term debt | $ | $ |
The estimated fair value of our long-term debt was determined using Level 2 inputs primarily related to comparable market prices. As of March 31, 2024, and December 31, 2023, the carrying value was not materially different from fair value, as the interest rates on the Company’s debt approximated rates currently available to the Company.
The following are the future commitments of the Company’s debt for the years ending December 31 (in thousands):
24
Amount | |||||
2024 (excluding the three months ended March 31, 2024) | $ | ||||
2025 | |||||
2026 | |||||
2027 | |||||
2028 | |||||
Total | $ |
Amended Credit Facility
Amended Credit Agreement
On June 16, 2021, the Company entered into an amended and restated credit agreement (as subsequently amended as described below, the “Amended Credit Agreement”) with Truist Bank, in its capacity as administrative agent for the lenders, issuing bank, swingline lender and lender, and the banks and other financial institutions from time to time party thereto, to, among other things, to amend and restate that certain credit agreement, dated September 11, 2019, by and among the Company, Truist Bank, and certain lenders thereto, in its entirety. The Amended Credit Agreement provides for a five-year revolving credit facility (the “Amended Credit Facility”) to the Company of $400.0 million (“Revolver Loan”), which includes a letter of credit sub-facility of up to $25.0 million (which was amended to $50.0 million, as described below) and a swingline loan sub-facility of $25.0 million and which expires on June 16, 2026. As of March 31, 2024, the Company borrowed $94.8 million on the Revolver Loan.
On December 20, 2022, an amendment was made to the Amended Credit Agreement, in which all amounts borrowed under the Amended Credit Agreement as of the effective date were automatically converted from London Interbank Offer Rate (“LIBOR”) Loans to Secured Overnight Financing Rate (“SOFR”) Loans with an initial interest period of one month on and as of the amendment effective date. Amounts borrowed under the Revolver Loan bear interest at an annual rate equal to either, at the Company’s option, (a) the Term SOFR Reference Rate (as defined in the Amended Credit Agreement), adjusted for any Term SOFR Adjustment (as defined in the Amended Credit Agreement) plus a spread ranging from 1.25 % to 2.50 %, as determined on a quarterly basis based on the Company’s Consolidated Total Net Leverage Ratio (as defined in the Amended Credit Agreement), or (b) a base rate, plus a spread ranging from 0.25 % to 1.50 %, as determined on a quarterly basis based on the Company’s Consolidated Total Net Leverage Ratio. As of March 31, 2024, the interest rate on the Revolver Loan was 7.42 %.
On September 8, 2023, a Second Amendment to the Amended Credit Agreement was entered into, which, among other things, increased the letter of credit sub-facility from $25.0 million to $50.0 million.
On November 3, 2023, the Company entered into a Third Amendment to the Amended Credit Agreement (“Third Amendment”) with Truist Bank and the other financial institutions party thereto. The Third Amendment provided a new term loan to the Company in an aggregate amount of up to $300.0 million, with $180.0 million funded at the closing of the Third Amendment, and $120.0 million available to be drawn by the Company as delayed draw loans during the six months subsequent to the closing of the Third Amendment (collectively, the “Term Loan”). The Term Loan matures on November 3, 2028 (or such earlier date on which it is terminated in accordance with the provisions of the Amended Credit Agreement) and amortizes quarterly at 5 % per annum for each of the first two years, 7.5 % per annum for years three and four, and 10 % per annum for year five. As of March 31, 2024, the Company borrowed $296.5 million on the Term Loan. The Term Loan bears interest at an annual rate equal to either, at the Company’s option, (a) the Term SOFR Reference Rate, adjusted for any Term SOFR Adjustment, plus a spread from 1.50 % to 2.75 %, as determined on a quarterly basis based on the Company’s Consolidated Total Net Leverage Ratio, or (b) a base rate, plus a spread of 0.50 % to 1.75 %, as determined on a quarterly basis based on the Company’s Consolidated Total Net Leverage Ratio. As of March 31, 2024, the interest rate on the Term Loan was 7.68 %.
The Amended Credit Agreement requires the Company to comply with two key financial ratios, each calculated on a consolidated basis. The Company must maintain a maximum consolidated total net leverage ratio of not greater than 3.75 to 1.00 as of the last day of each fiscal quarter, provided that for any fiscal quarter during which the Company or certain subsidiaries consummate a permitted acquisition or investment, the aggregate purchase price is greater than $75.0 million, the
25
maximum consolidated total net leverage ratio may temporarily increase by 0.25 to 1.00 to 4.00 to 1.00. The Company must maintain a minimum consolidated interest coverage ratio of not less than 3.25 to 1.00 as of the last day of each fiscal quarter.
Under the Amended Credit Agreement, the terms and conditions of the Guaranty and Security Agreement (the “Guaranty and Security Agreement”) between the Company, Astrana Health Management, Inc. (“AHM”) and Truist Bank remain in effect. Pursuant to the Guaranty and Security Agreement, the Company and AHM have granted the lenders under the Amended Credit Agreement a security interest in substantially all of their assets to secure obligations under the Amended Credit Agreement, including, without limitation, all stock and other equity issued by their subsidiaries (including AHM) and all rights with respect to the $545.0 million loan from the Company to Astrana Medical.
Promissory Note Payable
FYB Promissory Note Agreement with CCHCA
In May 2021, For Your Benefit, Inc. entered into a promissory note agreement with Chinese Community Health Care Association. The principal on the promissory note is $2.0 million, with a maturity date of May 9, 2024. The interest rate is the prime rate plus 1.0 %. The prime rate is updated annually on the effective date of the note and published by the Wall Street Journal.
Deferred Financing Costs
At March 31, 2024, and December 31, 2023, the unamortized deferred financing cost was $5.7 million and $6.1 million, respectively. As of March 31, 2024 and December 31, 2023, $1.6 million and $2.6 million, respectively, of unamortized deferred financing costs was recognized in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets and consisted of unamortized deferred financing costs related to unborrowed amounts available on the Revolver Loan. As of March 31, 2024, and December 31, 2023, $4.1 million and $3.6 million, respectively, of unamortized deferred financing costs was recorded as a direct reduction against the amounts borrowed on the Term Loan and Revolver.
Effective Interest Rate
The Company’s average effective interest rate on its total debt during the three months ended March 31, 2024 and 2023, was 6.51 % and 5.69 %, respectively. Interest expense in the condensed consolidated statements of income included amortization of deferred debt issuance costs for the three months ended March 31, 2024 and 2023 of $0.5 million and $0.2 million, respectively.
Lines of Credit
APC Business Loan
On September 10, 2019, the APC Business Loan Agreement with Preferred Bank (the “APC Business Loan Agreement”) was amended to, among other things, decrease loan availability to $4.1 million, limit the purpose of the indebtedness under the APC Business Loan Agreement to the issuance of standby letters of credit, and include as a permitted lien, the security interest in all of its assets that APC granted to AHM under a Security Agreement dated on or about September 11, 2019, securing APC’s obligations to AHM under their management services agreement dated as of July 1, 1999, as amended.
Standby Letters of Credit
The Company established irrevocable standby letters of credit with Truist Bank under the Amended Credit Agreement for a total of $31.8 million for the benefit of CMS and certain health plans. Unless the institution provides notification that the standby letters of credit will be terminated prior to the expiration date, the letters will be automatically extended without amendment for additional one-year periods from the present or any future expiration date.
Certain IPAs consolidated by the Company established irrevocable standby letters of credit with Preferred Bank under the APC Business Loan Agreement for a total of $3.9 million for the benefit of certain health plans as of March 31, 2024. The standby letters of credit are automatically extended without amendment for additional one-year periods from the present or any future expiration date, unless notified by the institution in advance of the expiration date that the letter will be terminated.
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10. Mezzanine and Stockholders’ Equity
Mezzanine Equity
APC
As the redemption feature of the APC shares is not solely within the control of APC, the equity of APC does not qualify as permanent equity and has been classified as non-controlling interests in APC as mezzanine or temporary equity. APC’s shares were not redeemable, and it was not probable that the shares would become redeemable as of March 31, 2024 and December 31, 2023.
Stockholders’ Equity
As of March 31, 2024, 41,048 holdback shares have not been issued to certain former AHM shareholders who were AHM shareholders at the time of closing of the 2017 merger of Astrana with AHM, as they have yet to submit properly completed letters of transmittal to Astrana in order to receive their pro rata portion of Astrana common stock as contemplated under the 2017 merger agreement. Pending such receipt, such former AHM shareholders have the right to receive, without interest, their pro rata share of dividends or distributions with a record date after the effectiveness of the 2017 Merger. The condensed consolidated financial statements have treated such shares of common stock as outstanding, given the receipt of the letter of transmittal is considered perfunctory and the Company is legally obligated to issue these shares in connection with the 2017 merger.
Treasury Stock
As of March 31, 2024, and December 31, 2023, APC owned 7,132,698 shares of Astrana’s common stock. While such shares of Astrana’s common stock are legally issued and outstanding, they are treated as treasury shares for accounting purposes and excluded from shares of common stock outstanding in the condensed consolidated financial statements. APC’s ownership in Astrana was 13.04 % and 13.22 % as of March 31, 2024, and December 31, 2023, respectively.
As of March 31, 2024, and December 31, 2023, the Company had previously repurchased 3,451,642 shares of its common stock. These are included as treasury stock.
As of both March 31, 2024, and December 31, 2023, the total treasury stock, including the Company’s stock held by APC, was 10,584,340 .
Dividends
During the three months ended March 31, 2024 and 2023, certain consolidated subsidiaries of the Company paid distributions of $0.1 million and $0.1 million, respectively, to the shareholders who own the non-controlling interests in the entities.
11. Stock-Based Compensation
The following table summarizes the stock-based compensation expense recognized under all of the Company’s stock plans for the three months ended March 31, 2024 and 2023, and associated with the issuance of restricted shares of common stock and vesting of stock options that are included in general and administrative expenses in the accompanying condensed consolidated statements of income (in thousands):
Three Months Ended March 31, |
|||||||||||
2024 | 2023 | ||||||||||
Stock options | $ | $ | |||||||||
Restricted stock | |||||||||||
Total stock-based compensation expense | $ | $ |
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Unrecognized compensation expense related to total share-based payments outstanding as of March 31, 2024, was $42.4 million.
Options
The Company’s outstanding stock options consisted of the following:
Shares |
Weighted
Average
Exercise Price
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
Aggregate Intrinsic Value (in millions) |
||||||||||||||||||||
Options outstanding at January 1, 2024 | $ | $ | |||||||||||||||||||||
Options granted |
— | — | |||||||||||||||||||||
Options exercised |
— | — | |||||||||||||||||||||
Options forfeited |
( |
— | — | ||||||||||||||||||||
Options outstanding at March 31, 2024 | $ | $ | |||||||||||||||||||||
Options exercisable at March 31, 2024 | $ | $ |
During the three months ended March 31, 2024, no options were exercised. During the three months ended March 31, 2023, options were exercised for 125,000 shares of the Company’s common stock, resulting in proceeds of $1.3 million.
Restricted Stock
The Company grants restricted stock to officers and employees, which is earned based on service conditions. The grant date fair value of the restricted stock is the grant date’s closing market price of the Company’s common stock. During the three months ended March 31, 2024, the Company granted 296,428 shares of restricted stock with performance-based conditions and 255,781 shares of restricted stock without performance-based conditions. During the three months ended March 31, 2024, the weighted average grant date fair value of restricted stock with and without performance-based conditions was $43.88 and $40.65 , respectively.
Employee Stock Purchase Plan (“ESPP”)
12. Commitments and Contingencies
Regulatory Matters
Laws and regulations governing the Medicare program and healthcare generally are complex and subject to interpretation. The Company believes it complies with all applicable laws and regulations and is unaware of any pending or threatened investigations involving allegations of potential wrongdoing. While no regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation, as well as significant regulatory action, including fines, penalties, and exclusion from the Medicare and Medi-Cal programs.
As a risk-bearing organization, the Company is required to follow regulations of the Department of Managed Health Care (“DMHC”). The Company must comply with a minimum working capital requirement, tangible net equity (“TNE”)
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requirement, cash-to-claims ratio, and claims payment requirements prescribed by the DMHC. TNE is defined as net assets less intangibles, less non-allowable assets (which include amounts due from affiliates), plus subordinated obligations.
Many of the Company’s payer and provider contracts are complex in nature and may be subject to differing interpretations regarding amounts due for the provision of medical services. Such differing interpretations may not come to light until a substantial period of time has passed following contract implementation. Liabilities for claims disputes are recorded when the loss is probable and can be estimated. Any adjustments to reserves are reflected in current operations.
Standby Letters of Credit
The Company established irrevocable standby letters of credit with Truist Bank for a total of $31.8 million for the benefit of CMS and certain health plans as of March 31, 2024 (see Note 9 — “Credit Facility, Bank Loans, and Lines of Credit — Standby Letters of Credit”).
Certain IPAs consolidated by the Company established irrevocable standby letters of credit with Preferred Bank for a total of $3.9 million for the benefit of certain health plans as of March 31, 2024 (see Note 9 — “Credit Facility, Bank Loans, and Lines of Credit — Standby Letters of Credit”).
Litigation
From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of its business. The resolution of any claim or litigation is subject to inherent uncertainty and could have a material adverse effect on the Company’s financial condition, cash flows, or results of operations.
Liability Insurance
The Company believes that its insurance coverage is appropriate based upon the Company’s claims experience and the nature and risks of the Company’s business. In addition to the known incidents that have resulted in the assertion of claims, the Company cannot be certain that its insurance coverage will be adequate to cover liabilities arising out of claims asserted against the Company, the Company’s affiliated professional organizations or the Company’s affiliated hospitalists in the future where the outcomes of such claims are unfavorable. The Company believes that the ultimate resolution of all pending claims, including liabilities in excess of the Company’s insurance coverage, will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows; however, there can be no assurance that future claims will not have such a material adverse effect on the Company’s business. Contracted physicians are required to obtain their own insurance coverage.
Although the Company currently maintains liability insurance policies on a claims-made basis which are intended to cover malpractice liability and certain other claims, the coverage must be renewed annually, and may not continue to be available to the Company in future years at acceptable costs and on favorable terms.
13. Related-Party Transactions
Equity Method Investments
During the three months ended March 31, 2023, AHM recognized approximately $5.0 million in management fees from LMA. On August 31, 2023, the management service agreement between LMA’s IPA and AHM was terminated. LMA is accounted for under the equity method based on the 25 % equity ownership interest held by APC in LMA’s IPA line of business (see Note 5 — “Investments in Other Entities - Equity Method”).
During the three months ended March 31, 2024 and 2023, APC paid approximately $0.8 million and $0.6 million, respectively, to PMIOC for provider services. APC and PMIOC have an Ancillary Service Contract together whereby PMIOC provides covered services on behalf of APC to enrollees of the plans of APC. PMIOC is accounted for under the equity method based on the 40 % equity ownership interest held by APC (see Note 5 — “Investments in Other Entities — Equity Method”).
During the three months ended March 31, 2024 and 2023, the Company paid approximately $0.2 million and $0.2 million, respectively, to James Song, M.D., a Professional Corporation (“Song PC”) for provider services. Song PC is accounted for
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