Astrana Health, Inc. (then Apollo Medical Holdings, Inc.) — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. The filing was signed November 7, 2022. Financial figures below are in millions unless stated otherwise.
Business context
The company operates a physician-centric, risk-bearing healthcare platform, including management services organizations, affiliated physician groups and an accountable care organization. It coordinated care for approximately 1.2 million patients through a network of more than 10,600 contracted physicians at quarter-end. The company reported one operating segment.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $317.0 | $227.1 | $850.0 | $578.8 |
| Income from operations | $50.1 | $53.2 | $91.7 | $95.9 |
| Consolidated net income (loss) | $27.4 | $(5.4) | $50.1 | $68.6 |
| Net income attributable to Apollo Medical Holdings | $26.0 | $34.3 | $51.6 | $60.1 |
| Diluted EPS | $0.56 | $0.74 | $1.12 | $1.33 |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $(2.8) | $82.5 |
- Revenue increased 40% in Q3 and 47% for the nine-month period. Capitation was the largest stream, rising 53% and 55%, respectively; management cited organic membership growth and participation in a value-based Medicare fee-for-service model.
- Cost of services rose 63% in both periods, faster than revenue. Operating margin was approximately 15.8% in Q3 versus 23.4% a year earlier, and 10.8% for nine months versus 16.6%. Management attributed higher medical costs to a return toward pre-COVID utilization levels and membership growth.
- Q3 consolidated net income improved from a loss in 2021, but income attributable to the parent fell 24%. The comparison was affected by investment fair-value movements and changes in non-controlling interests. Nine-month parent-attributable income declined 14%.
- Risk pool settlements and incentives included $48.8 million recognized for savings from the 2021 NGACO performance year. Management also cited higher partner-hospital utilization, with related risk-pool revenues subject to a 15–18 month lag.
Liquidity, cash flow and debt
- At September 30, cash and cash equivalents were $184.0 million and marketable securities were $33.3 million, totaling $217.3 million. Working capital was $287.4 million, compared with $283.4 million at year-end 2021. Management said liquidity was sufficient for at least the next 12 months.
- Cash declined $49.1 million over the first nine months. Operating activities used $2.8 million, investing used $20.3 million and financing used $26.0 million. Management attributed the operating cash-flow decline mainly to working-capital movements, including higher receivables and medical liabilities.
- Total debt was $205.9 million, including $180.0 million drawn on a $400 million revolving facility; $3.2 million was classified current. The revolver rate was 4.17% at quarter-end, versus 1.65% a year earlier. The facility includes maximum leverage and minimum interest-coverage covenants.
- The company had $21.1 million of standby letters of credit for CMS and additional letters totaling $4.1 million for health plans. Certain consolidated VIE assets are restricted to settling VIE obligations; creditors of those VIEs generally have no recourse to the parent’s general credit.
Outlook, developments and risks
- On November 3, management raised 2022 revenue guidance to $1.095–$1.115 billion, net income to $50.5–$67.0 million and EBITDA to $107.5–$133.5 million. Adjusted EBITDA guidance remained $136–$166 million. Management cited continued organic growth and a more favorable membership mix.
- The company revised its Adjusted EBITDA calculation beginning in Q3, excluding provider bonus payments and losses from recently acquired IPAs. Under the revised calculation, management expected to finish toward the lower end of the unchanged Adjusted EBITDA range; it had previously expected the upper end.
- APAACO moved from the NGACO model, which ended in 2021, to CMS’s GPDC model for 2022; the redesigned ACO REACH model was scheduled to begin in 2023.
- After quarter-end, the company closed cash acquisitions of Valley Oaks Medical Group on October 14 and All American Medical Group and For Your Benefit on October 31. Purchase prices were not stated in the provided filing text.
- Key exposures include medical-cost and IBNR estimation, risk-pool settlement uncertainty, reliance on major payors, floating interest rates, healthcare regulation, and possible litigation or contract-interpretation disputes. Payor D represented 40.1% of Q3 revenue and 38% of receivables at quarter-end. Management reported no material changes to previously disclosed risk factors and no material off-balance-sheet arrangements.
Investor verification priorities
- Assess whether capitation-driven growth and membership expansion translate into improved operating margins as medical utilization normalizes.
- Review the collectability and timing of receivables, particularly risk-pool balances, related-party receivables and amounts tied to CMS performance-year settlements.
- Track operating cash conversion and the causes of the significant working-capital use during the first nine months.
- Check debt covenant headroom, floating-rate exposure and the construction loan’s maturity/conversion status; the filing said timely completion needed for conversion appeared remote at September 30.
- Reconcile reported GAAP results with guidance and the revised Adjusted EBITDA definition, including the assumptions for the payer-partner stock price and excluded-asset adjustments.
- Review the financing and integration effects of the two post-quarter acquisitions; the filing does not provide their purchase prices.