Astrana Health, Inc. (Apollo Medical Holdings, Inc.) — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The filing is issued under the name Apollo Medical Holdings, Inc. The company operates a physician-centric, risk-bearing healthcare platform focused on value-based care. Its network included more than 9,600 contracted physicians and approximately 1.2 million patients at quarter-end.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $263.3 million | $176.1 million | Up 50% |
| Income from operations | $26.2 million | $21.8 million | Up 20% |
| Consolidated net income | $12.1 million | $14.5 million | Down 16% |
| Net income attributable to Apollo Medical Holdings | $14.3 million | $13.2 million | Up 8% |
| Diluted EPS | $0.31 | $0.30 | Up $0.01 |
| Cash from operating activities | $24.0 million | $10.0 million | Up $14.1 million |
| Adjusted EBITDA (non-GAAP) | $38.2 million | $30.5 million | Up 25% |
Revenue growth was driven mainly by capitation, up $77.3 million, reflecting organic membership growth and participation in a value-based Medicare fee-for-service model. Fee-for-service revenue rose $8.0 million, including contributions from the consolidation of Sun Labs and DMG and higher surgery-center visits. Cost of services increased 57% to $220.7 million, reflecting membership growth and a return toward pre-COVID medical-cost levels. General and administrative expense rose 26% to $11.9 million, partly due to higher stock-based compensation. Operating margin was approximately 10.0%, compared with 12.4% a year earlier.
Other expense, net, was $7.9 million, including a $9.0 million unrealized investment loss, primarily from a decline in the market price of a payor-partner investment. This loss affected consolidated results, but the filing says gains or losses on the relevant excluded assets do not affect net income attributable to Apollo Medical Holdings. Equity-method investment income improved by $2.1 million, principally reflecting the LMA investment.
Balance sheet, cash flow, and liquidity
- Cash and cash equivalents were $237.9 million; marketable securities were $42.9 million. Together, they totaled $280.8 million at March 31, 2022, versus $286.5 million at December 31, 2021.
- Working capital was $284.0 million, versus $283.4 million at year-end. Total current assets were $444.4 million and current liabilities were $160.4 million.
- Operating cash flow was $24.0 million. Investing activities used $19.7 million, including $17.5 million for property and equipment; financing activities provided $0.5 million. Cash increased $4.8 million during the quarter.
- Total debt was $188.6 million, including $180.0 million drawn on a $400.0 million revolving facility. Long-term debt, net of current maturities and financing costs, was $183.1 million. The revolver rate was 2.38% at quarter-end.
- Reported covenant ratios were 1.04 leverage against a maximum of 3.75 and 27.03 interest coverage against a minimum of 3.25. Management said liquidity was sufficient for at least the next 12 months.
- Medical liabilities increased to $95.8 million from $55.8 million at year-end. The filing attributes the balance to claims incurred, including estimates of incurred-but-not-reported claims.
Changes, outlook, and risks
- The company raised its 2022 guidance on May 5, 2022, citing strong organic membership growth and favorable membership mix: 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. Adjusted EBITDA is non-GAAP. Net income and EBITDA guidance assumes a payor-partner share price of $1.93; actual results may differ materially.
- The NGACO model ended December 31, 2021. APAACO was selected for the GPDC model for 2022; CMS renamed and redesigned that program as ACO REACH, scheduled to begin in 2023. The company remained eligible for a settlement related to 2021 NGACO performance.
- In January 2022, the company acquired Orma Health for $1.0 million in cash and $1.0 million in stock. After quarter-end, in April, it completed its acquisition of Jade Health, expected to add approximately 13,000 capitated members.
- Management cited medical-cost normalization and continued growth as operating factors. Key risks include uncertainty in medical-claims estimates and risk-pool settlements, complex healthcare regulation, payor and receivable concentration, litigation and insurance exposure, interest-rate sensitivity, and execution of acquisitions. The company reported no material changes to the risk factors in its 2021 Form 10-K.
- The filing states that disclosure controls were effective and that there were no material changes in internal control over financial reporting during the quarter. It reports no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether membership growth and favorable payer mix continue, and how they translate into capitation revenue and earnings.
- Whether medical costs and claims reserves develop as estimated, particularly given the increase in medical liabilities and the return toward pre-COVID utilization.
- Performance against 2022 guidance, including the payor-partner stock-price assumption and the non-GAAP adjustments used in adjusted EBITDA.
- Cash conversion and working-capital movements, including receivables and the timing of risk-pool settlements.
- Progress on Jade Health integration, acquisition-related costs, and the expected contribution from acquired businesses.
- Exposure to the $180 million variable-rate revolver, interest-rate swaps, debt covenants, and the construction loan whose conversion to permanent financing management described as unlikely by its stated maturity.
- Concentration of revenue and receivables among major payors, and the limits on use or creditor recourse to assets held by consolidated variable-interest entities.