Astrana Health, Inc. (then Apollo Medical Holdings, Inc.) — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. The filing was submitted under the name Apollo Medical Holdings, Inc.; the company describes a physician-centric, technology-enabled, risk-bearing healthcare platform, primarily in California. At quarter-end, it coordinated care for approximately 1.2 million patients through a network of more than 9,800 contracted physicians.
Financial performance
Amounts below are in millions except per-share data. Results are unaudited.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $269.7 | $175.6 | $533.0 | $351.7 |
| Income from operations | $15.4 | $21.0 | $41.6 | $42.8 |
| Net income | $10.6 | $59.5 | $22.7 | $74.0 |
| Net income attributable to Apollo Medical Holdings, Inc. | $11.4 | $12.7 | $25.7 | $25.8 |
| Diluted EPS | $0.25 | $0.28 | $0.56 | $0.58 |
| Operating margin | 5.7% | 12.0% | 7.8% | 12.2% |
Revenue growth was led by capitation, which rose 57% in Q2 and 55% for the six-month period. Fee-for-service revenue also grew sharply from a smaller base. Cost of services increased 69% in Q2 and 63% year to date, outpacing revenue growth; management cited membership growth and a return toward pre-COVID medical-cost levels. General and administrative expense rose 40% in Q2 and 35% year to date, partly due to higher stock-based compensation and costs supporting growth.
Net income comparisons are distorted by investment valuation changes: Q2 2021 included an $83.8 million unrealized investment gain, while 2022 included investment losses. For the six months, the company recorded a $10.8 million unrealized loss on investments in 2022 versus an $83.8 million gain in 2021. Parent-attributable income was comparatively stable, but operating income declined.
Cash flow, liquidity and debt
- Cash and cash equivalents were $234.2 million at June 30, 2022; marketable securities were $39.5 million. Together these totaled $273.7 million, versus $286.5 million at year-end 2021. Working capital was $275.8 million, down $7.6 million.
- Six-month operating cash flow was $33.1 million, compared with $31.3 million in 2021. Investing activities used $12.2 million, including $18.8 million for property and equipment; financing activities used $19.7 million, including $12.6 million of dividends and $9.5 million of share repurchases. Cash increased $1.1 million over the period.
- Total debt was $205.3 million, including $180.0 million drawn on the $400 million revolving facility, $23.5 million of real estate loans and $1.8 million under a construction loan. The reported long-term debt carrying amount, net of current maturities and financing costs, was $199.1 million. The revolver rate was 4.17% at quarter-end.
- The revolving facility requires a maximum consolidated net leverage ratio of 3.75:1 (temporarily 4.00:1 for qualifying acquisitions) and minimum interest coverage of 3.25:1. Management stated it expected sufficient liquidity for at least the next 12 months. Some consolidated VIE assets are restricted to settling VIE obligations; creditors of those VIEs generally have no recourse to the parent’s general credit.
Material changes, outlook and risks
- Management maintained its 2022 guidance: revenue of $1.055–$1.085 billion; net income of $38–$57 million; EBITDA of $81–$111 million; and Adjusted EBITDA of $136–$166 million. EBITDA and Adjusted EBITDA are non-GAAP measures, and the filing cautions actual results may differ materially.
- Revenue gains reflected organic membership growth and participation in a value-based Medicare fee-for-service model. Consolidation of Sun Labs and DMG contributed to fee-for-service growth; surgery-center activity also recovered from prior COVID-related disruption.
- The company acquired Jade Health Care Medical Group in April 2022 and Orma Health in January 2022. Jade’s purchase-price allocation was still being finalized. APAACO participates in CMS’s 2022 GPDC model, renamed ACO REACH for participation beginning in 2023.
- Medical liabilities rose to $112.5 million from $55.8 million at December 31, 2021. These include reported claims and estimated incurred-but-not-reported claims, which depend on actuarial estimates and can change as experience develops.
- Other exposures include healthcare regulation and contract interpretation, payor concentration, risk-sharing settlement uncertainty, variable-rate debt and potential litigation or insurance claims. The filing reported no material change in risk factors from the 2021 Form 10-K and no material off-balance-sheet arrangements.
- Management reported effective disclosure controls as of June 30, 2022, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether membership growth and Medicare-model participation translate into sustainable operating margins as medical costs normalize.
- Developments in medical-claims reserves, risk-pool settlements and receivable collection, including significant payor concentrations.
- Progress against 2022 guidance and the assumptions and exclusions used in the non-GAAP Adjusted EBITDA outlook.
- Investment valuation changes and the continuing effects of payor-partner share-price movements on reported earnings and equity.
- Debt covenant headroom, floating-rate exposure, and the status and maturity terms of the construction loan; management said construction completion by its then-current maturity was remote.
- Integration and financial contribution of recent acquisitions, and the final purchase-price allocation for Jade.