Astrana Health, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; financial statements are unaudited. Dollar amounts below are in millions unless stated otherwise.
Business context
Astrana is a risk-bearing, provider-centric healthcare company operating Care Partners, Care Delivery and Care Enablement businesses. It reported approximately 1.0 million managed patients and more than 10,000 contracted physicians. In 2024, it began participating in the Medicare Shared Savings Program (MSSP), in the ENHANCED risk track, in addition to ACO REACH.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $404.4 | $337.2 | +20% |
| Income from operations | $30.1 | $22.4 | +35% |
| Net income | $16.9 | $12.5 | +35% |
| Net income attributable to Astrana | $14.8 | $13.1 | +13% |
| Diluted EPS | $0.31 | $0.28 | +11% |
| Adjusted EBITDA | $42.2 | $29.8 | +42% |
| Adjusted EBITDA margin | 10% | 9% | +1 percentage point |
| Operating cash flow | $6.0 | $7.7 | −23% |
- Capitation revenue rose 22% to $365.9 million, primarily reflecting acquisitions. Risk pool settlements and incentives increased 29% to $17.4 million; management fee income fell 59% to $4.1 million.
- Cost of services increased 14% to $330.4 million, while general and administrative expense increased 83% to $38.7 million, which management attributed primarily to supporting operational growth.
- Operating margin was approximately 7.5%, versus 6.6% a year earlier; net margin was approximately 4.2%, versus 3.7%.
- Interest expense more than doubled to $7.6 million as borrowings increased. Other expense included a $4.3 million loss, mainly related to a financial guarantee supporting two provider-led ACOs. The effective tax rate was 29.8%, compared with 35.7%.
Liquidity, debt and cash flow
- At March 31, cash and cash equivalents were $334.8 million, marketable securities were $2.5 million, and working capital was $183.5 million. Working capital declined $59.3 million from year-end.
- Gross debt was $393.3 million, including a $296.5 million term loan and $94.8 million drawn on the revolving facility; the facility has $400 million of revolving capacity and a $300 million term-loan commitment. The term loan and revolver carried stated rates of 7.68% and 7.42%, respectively, at quarter-end.
- Operating cash flow of $6.0 million was more than offset by $71.0 million of investing outflows, including $50.6 million for acquisitions and a $20.0 million loan to BASS. Financing provided $106.4 million, primarily from $110.0 million of borrowings.
- Receivables increased materially from year-end; management cited timing, including risk-pool settlements that may take approximately 18 months to settle. Management said liquidity should be sufficient for operations for at least the next 12 months.
Material changes, outlook and risks
- Acquisitions: Astrana acquired CFC assets, AHMS, ADSC and PCCCV during the quarter. Preliminary total consideration was $202.5 million, including $63.9 million accrued for AHMS and contingent consideration. Acquisition-related goodwill increased by $132.3 million. Acquired businesses contributed $33.2 million of revenue and $5.1 million of net income from their acquisition dates through quarter-end. Purchase-price allocations remain preliminary.
- Guidance reaffirmed for 2024: Revenue of $1.65–$1.85 billion; net income attributable to Astrana of $61–$73 million; Adjusted EBITDA of $165–$185 million; and diluted EPS of $1.28–$1.52. The company cautions actual results may differ materially.
- Subsequent financing: Astrana drew a further $52.0 million on its revolver after quarter-end. The filing also reports an April 1 receipt of an $8.3 million I Health promissory note, and elimination of the Series A and Series B convertible preferred-stock designations on April 24.
- Risk-bearing exposure: Under MSSP, Astrana bears risk on Medicare expenditures against CMS benchmarks, excluding Part D drug costs; shared savings or losses are generally determined annually. Medical-liability estimates, payer contract interpretations, regulatory requirements and claims experience could affect results.
- Concentration and contingencies: One payer generated 34% of quarterly revenue. Two payers represented 31% and 33% of receivables and related-party receivables, respectively. The company also disclosed standby letters of credit totaling $31.8 million for CMS and health plans and $3.9 million for certain health plans. It reported ordinary-course legal matters and healthcare regulatory risks, but no material change to the risk factors in its 2023 Form 10-K.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether acquisition integration, preliminary purchase-price allocations and contingent consideration affect earnings, cash needs or leverage beyond current estimates.
- Whether receivables convert to cash as expected and medical-liability reserves adequately reflect incurred-but-not-reported claims and risk-pool settlements.
- How MSSP and other risk-bearing arrangements perform against benchmarks, including exposure to shared losses.
- Whether the reaffirmed 2024 guidance remains achievable after the additional $52 million revolver draw and with higher interest expense.
- The scope and comparability of the reported patient count, which declined from approximately 1.3 million a year earlier to 1.0 million despite revenue growth.
- Debt covenant headroom, variable-rate exposure and the impact of continued borrowing; the filing states a hypothetical 1% rate change would change quarterly interest expense by $3.9 million.
- The company’s reliance on significant payer relationships and the collectability and timing of payer receivables.