Astrana Health, Inc. (then Apollo Medical Holdings, Inc.) — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. The filing presents unaudited consolidated results, including subsidiaries and consolidated variable interest entities (VIEs). The company describes itself as a physician-centric, technology-powered, risk-bearing healthcare management business, primarily serving California. Its network coordinated care for approximately 1.1 million patients through more than 7,200 contracted physicians.
Financial highlights
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Revenue | $176.1 million | $165.1 million; up 7% |
| Operating income | $21.8 million | $4.4 million |
| Operating margin | 12.4% | 2.6% |
| Net income | $14.5 million | $3.0 million |
| Net income attributable to Apollo Medical Holdings | $13.2 million; diluted EPS $0.30 | $4.1 million; diluted EPS $0.11 |
| Operating cash flow | $10.0 million provided | $9.3 million used |
| Cash and cash equivalents | $205.9 million | $193.5 million at Dec. 31, 2020 |
| Cash plus marketable securities | $272.8 million | $261.2 million at Dec. 31, 2020 |
| Working capital | $243.9 million | $223.6 million at Dec. 31, 2020 |
| Total debt, gross | $243.3 million | $245.7 million at Dec. 31, 2020 |
Operating cash flow improved year over year, while receivables increased during the quarter, including related-party receivables. Investing activities provided $0.7 million and financing activities provided $1.3 million. The company reported $60.0 million drawn on its $100.0 million revolver, implying $40.0 million of undrawn capacity, subject to facility terms. Management said liquidity was sufficient for at least the next 12 months.
Material changes and drivers
- Capitation revenue rose 3% to $144.7 million, reflecting membership growth at APC and Alpha Care, partly offset by declines at APA ACO and Accountable Health Care.
- Risk-pool settlements and incentives increased 60% to $18.0 million. Management attributed the increase mainly to higher estimated settlements associated with lower hospital-partner claims, including suspension of non-emergency procedures during COVID-19.
- Cost of services declined 2% to $140.6 million, primarily due to lower APA ACO claims expenditures. General and administrative expense fell 20% to $9.5 million, reflecting lower consulting and professional costs and property-related changes.
- Equity-method results shifted from $2.1 million of income to a $0.7 million loss; the prior-year quarter included earnings from UCI, which was sold in April 2020. Lower borrowing rates reduced interest expense to $1.5 million from $2.9 million.
- Cash from operations benefited from higher earnings and approximately $4.5 million collected in Alpha Care escrow and acquisition working-capital amounts.
Guidance, outlook, and risks
- Management maintained its 2021 guidance: revenue of $690–$710 million; net income of $50–$60 million; net income attributable to ApolloMed of $35–$45 million; EBITDA of $95–$105 million; and adjusted EBITDA of $115–$125 million. EBITDA and adjusted EBITDA are non-GAAP measures; the filing provides reconciliations and cautions that actual results may differ materially.
- For 2021, APAACO was receiving approximately $8.0 million per month under CMS’s AIPBP mechanism. Of $23.9 million received in Q1, $17.2 million was recognized as revenue; the remainder was deferred. Shared-savings or loss outcomes are subject to substantial estimation uncertainty and were described as constrained until determined.
- Key risks include the uncertainty of medical claims and IBNR estimates, risk-pool settlements and incentives, healthcare regulation and compliance, complex payor/provider contract interpretations, and potential litigation and insurance adequacy. The company reported no material changes to the risk factors in its 2020 Form 10-K.
- The company reported compliance with its debt covenants at quarter-end: consolidated leverage ratio of 1.44 against a stated maximum of 3.50, and interest coverage ratio of 18.21 against a minimum of 3.25. Floating-rate debt exposes results to rate changes; management estimated a hypothetical 1% rate change would alter quarterly interest expense by $2.4 million.
- Subsequent events: APC sold approximately 1.6 million ApolloMed shares for $40.1 million in April 2021 and distributed $20.0 million to its shareholders. A January agreement to acquire a 30% interest in CAIPA MSO was expected to close by the end of Q2 2021.
Important facts for investors to verify
- Whether the elevated risk-pool revenue and related receivables convert to cash and are ultimately settled as estimated, particularly given the COVID-related reduction in procedures and claims.
- How medical liabilities, IBNR claims, and CMS AIPBP deferred balances develop as claims mature and CMS reconciles performance.
- The composition, collection timing, and collectability of the quarter’s increased receivables, including related-party amounts and the concentration among major payors.
- Whether the company achieves its full-year guidance, including how much adjusted EBITDA depends on non-GAAP adjustments and recently acquired IPAs.
- Debt repayment, variable-rate exposure, covenant headroom, and the availability of liquidity across consolidated entities; certain VIE assets are available only to settle obligations of those entities.
- Completion and terms of the CAIPA MSO investment, and the financial and ownership effects of APC’s subsequent share sale and distribution.