Apollo Medical(AMEH) - 2025 Q1 - Quarterly Report

Glossary This section defines key abbreviations and acronyms used throughout the report, ensuring clarity and consistency - The glossary defines key abbreviations and acronyms such as ACO REACH, AHMC, AHM, APC, CMS, DMHC, IPA, and VIE, which are frequently used in the report[10] Introductory Note This note clarifies the entities referred to as 'Company' and specifies the reporting period, while also disclaiming CMS endorsement of report statements - "Company," "we," "us," "our" refer to Astrana Health, Inc. and its consolidated subsidiaries and affiliated entities, including VIEs[13] - The report covers financial statements and management's discussion for the quarter ended March 31, 2025[14] - CMS has not reviewed any statements in this report, including those regarding participation in ACO REACH Model and MSSP[15] Note About Forward-Looking Statements This note highlights the inclusion of forward-looking statements, their inherent risks and uncertainties, and the company's policy on public updates - The report contains forward-looking statements regarding business, financial condition, operating results, plans, objectives, expectations, and intentions, including projections of earnings, revenue, and future liquidity[18] - Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from projections, as detailed in the Annual Report on Form 10-K[19] - The Company undertakes no obligation to publicly update any forward-looking statement, except as required by applicable securities laws[19] PART I – FINANCIAL INFORMATION This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2025 Item 1. Condensed Consolidated Financial Statements This section presents Astrana Health, Inc.'s unaudited condensed consolidated financial statements for the quarter ended March 31, 2025, including balance sheets, income statements, statements of mezzanine deficit and stockholders' equity, cash flow statements, and detailed notes - The financial statements are unaudited and prepared in accordance with U.S. GAAP for interim financial statements[48] - All material adjustments, including normal recurring adjustments and intercompany eliminations, have been made for fair presentation[48] Condensed Consolidated Balance Sheets This section presents the company's condensed consolidated balance sheets, detailing assets, liabilities, and equity as of March 31, 2025, and December 31, 2024 | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Total Assets | $1,331,256 | $1,354,894 | $(23,638) | (1.74)% | | Total Liabilities | $813,550 | $840,726 | $(27,176) | (3.23)% | | Total Equity | $750,439 | $716,726 | $33,713 | 4.70% | Condensed Consolidated Statements of Income This section presents the company's condensed consolidated statements of income, detailing revenues, expenses, and net income for the three months ended March 31, 2025, and 2024 | Metric | 3 Months Ended March 31, 2025 (in thousands) | 3 Months Ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | | :------------------------------------ | :------------------------------------- | :------------------------------------- | :-------------------- | :------- | | Total Revenue | $620,390 | $404,356 | $216,034 | 53.43% | | Cost of services | $549,061 | $330,399 | $218,662 | 66.18% | | Income from operations | $20,583 | $30,139 | $(9,556) | (31.71)% | | Net income attributable to Astrana Health, Inc. | $6,692 | $14,835 | $(8,143) | (54.89)% | | Earnings per share – basic | $0.14 | $0.31 | $(0.17) | (54.84)% | | Earnings per share – diluted | $0.14 | $0.31 | $(0.17) | (54.84)% | Condensed Consolidated Statements of Mezzanine Deficit and Stockholders' Equity This section presents changes in mezzanine deficit and stockholders' equity, including common stock, additional paid-in capital, and retained earnings, for the period ended March 31, 2025 Summary of Mezzanine Deficit and Stockholders' Equity | Metric | Balance at January 1, 2025 (in thousands) | Balance at March 31, 2025 (in thousands) | | :------------------------------------------------ | :---------------------------------------- | :--------------------------------------- | | Mezzanine Deficit – Noncontrolling Interest in APC | $(202,558) | $(232,733) | | Common Stock Outstanding (Shares) | 47,929,872 | 49,028,624 | | Additional Paid-in Capital | $426,389 | $452,439 | | Retained Earnings | $286,283 | $292,880 | | Total Stockholders' Equity | $716,726 | $750,439 | - During Q1 2025, APC repurchased $1.3 million of its common stock, and the Company repurchased 300,000 shares of its common stock from APC for approximately $10.6 million[109][112] Condensed Consolidated Statements of Cash Flows This section presents the company's condensed consolidated statements of cash flows, categorizing cash movements from operating, investing, and financing activities | Metric | 3 Months Ended March 31, 2025 (in thousands) | 3 Months Ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------------ | :------------------------------------- | :------------------------------------- | :-------------------- | :------- | | Net cash provided by operating activities | $16,627 | $5,977 | $10,650 | 178.19% | | Net cash used in investing activities | $(2,394) | $(71,039) | $68,645 | (96.63)% | | Net cash (used in) provided by financing activities | $(44,170) | $106,351 | $(150,521) | (141.53)% | | Net (decrease) increase in cash, cash equivalents, and restricted cash | $(29,937) | $41,289 | $(71,226) | (172.49)% | | Cash, cash equivalents, and restricted cash, end of period | $259,164 | $335,441 | $(76,277) | (22.74)% | Notes to Condensed Consolidated Financial Statements This section provides detailed explanatory notes to the condensed consolidated financial statements, covering business description, accounting policies, and specific financial items Note 1. Description of Business Astrana Health, Inc. is a provider-centric, technology-powered, risk-bearing healthcare company based in Alhambra, California. It operates an integrated healthcare delivery platform, offering Care Enablement services and Care Delivery through its three reportable segments: Care Partners, Care Delivery, and Care Enablement - Astrana Health, Inc. is a leading provider-centric, technology-powered, risk-bearing healthcare company, operating an integrated healthcare delivery platform[45] - The company's three reportable segments are Care Partners, Care Delivery, and Care Enablement, serving patients primarily covered by Medicare, Medicaid, and HMOs[46][47] - The Care Partners segment focuses on building and managing provider networks, participating in models like ACO REACH and MSSP[46] Note 2. Basis of Presentation and Summary of Significant Accounting Policies This note outlines the basis of presentation for the unaudited condensed consolidated financial statements, prepared in accordance with U.S. GAAP for interim reporting. It also details significant accounting policies, including principles of consolidation, use of estimates, business combinations, cash and cash equivalents, receivables, revenue recognition, and income taxes - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial statements and Form 10-Q instructions[48] - Significant estimates and assumptions are made for items such as collectability of receivables, medical liabilities (IBNR claims), goodwill valuation, and income tax valuation allowances[52] - The Company's consolidated financial statements include its wholly owned subsidiaries and consolidated Variable Interest Entities (VIEs)[49] Note 3. Business Combinations and Goodwill The company finalized the purchase price allocation for Advanced Health Management Systems, L.P. (AHMS) and is finalizing Collaborative Health Systems, LLC, Golden Triangle Physician Alliance, and Heritage Physician Networks (CHS) acquisitions. Measurement period adjustments resulted in a net decrease of $2.9 million to goodwill as of March 31, 2025 - Measurement period adjustments for AHMS and CHS acquisitions resulted in a net decrease of $2.9 million to goodwill as of March 31, 2025[72] Goodwill Recognized from Acquisitions | Acquisition | Total Purchase Consideration (in thousands) | Goodwill Recognized (in thousands) | | :------------------------------------------------ | :---------------------------------------- | :--------------------------------- | | AHMS (March 31, 2024) | $60,940 | $25,571 | | CHS (October 4, 2024) | $47,538 | $9,444 | - The change in the carrying value of goodwill for the three months ended March 31, 2025, was a decrease of $2.867 million, from $419.253 million to $416.386 million[79] Note 4. Intangible Assets, Net As of March 31, 2025, net intangible assets totaled $111.9 million, a decrease from $118.2 million at December 31, 2024. The decrease is primarily due to amortization expense, which was $6.3 million for the three months ended March 31, 2025 Net Intangible Assets by Category | Intangible Asset Category | March 31, 2025 (Net, in thousands) | December 31, 2024 (Net, in thousands) | | :------------------------ | :--------------------------------- | :--------------------------------- | | Trademarks (Indefinite) | $2,150 | $2,150 | | Licenses (Indefinite) | $1,900 | $1,900 | | Network relationships | $55,418 | $57,871 | | Management contracts | $4,573 | $4,879 | | Member relationships | $47,184 | $50,671 | | Total Intangible Assets, Net | $111,916 | $118,179 | - Amortization expenses for intangible assets were $6.3 million for the three months ended March 31, 2025, and $4.4 million for the same period in 2024[82] Note 5. Investments in Other Entities The company holds equity method investments in entities like LaSalle Medical Associates, Pacific Medical Imaging & Oncology Center, Inc., CAIPA MSO, LLC, and I Health, Inc. As of March 31, 2025, the total equity method investments were $38.0 million, down from $39.3 million at December 31, 2024, primarily due to a net loss allocation Equity Method Investments Summary | Equity Method Investment | % Ownership | Balance at Dec 31, 2024 (in thousands) | Net (Loss) Income Allocation (in thousands) | Balance at Mar 31, 2025 (in thousands) | | :--------------------------------------- | :---------- | :--------------------------------------- | :------------------------------------------ | :--------------------------------------- | | LaSalle Medical Associates – IPA | 25% | $13,128 | $(343) | $12,785 | | Pacific Medical Imaging & Oncology Center | 40% | $1,660 | $4 | $1,664 | | CAIPA MSO, LLC | 30% | $14,612 | $264 | $14,876 | | I Health, Inc. | 25% | $6,077 | $51 | $6,128 | | Other | 25%-51% | $3,842 | $(843) | $2,552 | | Total Equity Method Investments | | $39,319 | $(867) | $38,005 | - The company's maximum exposure to loss from non-consolidated VIEs accounted for under the equity method was $1.9 million as of March 31, 2025[87] Note 6. Loans Receivable The company has two primary loans receivable: a $25.0 million convertible promissory note with IntraCare (balance $28.3 million as of March 31, 2025) and a $20.0 million senior secured promissory note with BASS Medical Group (non-current portion $19.2 million, current portion $2.8 million as of March 31, 2025) - IntraCare convertible promissory note: $25.0 million principal, 8.81% annual interest, maturing July 27, 2028. Balance as of March 31, 2025: $28.3 million[90] - BASS Medical Group senior secured promissory note: $20.0 million principal, 8.21% annual interest, maturing January 11, 2031. Balance as of March 31, 2025: $19.2 million (non-current) and $2.8 million (current)[91] Note 7. Accounts Payable and Accrued Expenses Total accounts payable and accrued expenses slightly decreased from $106.1 million at December 31, 2024, to $105.6 million at March 31, 2025. Key components include other provider payable ($48.0 million), accrued compensation ($13.8 million), and capitation payable ($15.7 million) Accounts Payable and Accrued Expenses Breakdown | Category | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Accounts payable and other accruals | $14,911 | $15,168 | | Capitation payable | $15,703 | $10,639 | | Accrued compensation | $13,752 | $22,409 | | Other provider payable | $48,039 | $40,101 | | Total accounts payable and accrued expenses | $105,559 | $106,142 | Note 8. Medical Liabilities Medical liabilities decreased from $209.0 million at the beginning of the period to $204.1 million at March 31, 2025. Total medical care costs incurred for the current period were $384.5 million, with total payments for medical care costs being $380.5 million Medical Liabilities Rollforward | Metric | March 31, 2025 (in thousands) | March 31, 2024 (in thousands) | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Medical liabilities, beginning of period | $209,039 | $106,657 | | Current period medical care costs incurred | $384,479 | $234,735 | | Total paid for medical care costs | $(380,503) | $(234,124) | | Medical liabilities, end of period | $204,101 | $136,494 | Note 9. Credit Facility, Bank Loans, and Lines of Credit The company's total debt as of March 31, 2025, was $421.9 million, primarily consisting of a Term Loan ($250.0 million) and a Revolver Loan ($162.0 million) under the Second Amended and Restated Credit Agreement. This agreement, entered into on February 26, 2025, provides for a $300.0 million revolving credit facility, a $250.0 million term loan, and a $745.0 million delayed draw term loan, maturing on February 26, 2030 Total Debt Components | Debt Component | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :---------------------- | :----------------------------- | :----------------------------- | | Term Loan | $250,000 | $281,500 | | Revolver Loan | $162,000 | $146,732 | | Promissory Note Payable | $9,875 | $9,875 | | Total Debt | $421,875 | $438,107 | - The Second Amended and Restated Credit Agreement provides for a $300.0 million Revolver Loan, a $250.0 million Term Loan, and a $745.0 million Delayed Draw Term Loan, all maturing on February 26, 2030[97] - As of March 31, 2025, the interest rate on the Revolver Loan and Term Loan was 5.82%. The company also has a promissory note payable to I Health, Inc. of $9.9 million at 4.30% interest[98][102] Note 10. Mezzanine Deficit and Stockholders' Equity The mezzanine deficit related to non-controlling interest in APC increased to $(232.7) million as of March 31, 2025, from $(202.6) million at January 1, 2025. Total stockholders' equity increased to $750.4 million from $716.7 million in the same period Mezzanine Deficit and Stockholders' Equity Trends | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------------------------------ | :----------------------------- | :----------------------------- | | Noncontrolling interest in APC (Mezzanine Deficit) | $(232,733) | $(202,558) | | Common Stock Outstanding (Shares) | 49,028,624 | 47,929,872 | | Total Stockholders' Equity | $745,368 | $712,720 | - APC repurchased $1.3 million of its common stock during Q1 2025. The Company repurchased 300,000 shares of its common stock from APC for approximately $10.6 million[109][112] - Total treasury stock, including shares held by APC, was 9,903,953 as of March 31, 2025, down from 10,603,849 at December 31, 2024[113] Note 11. Stock-Based Compensation Total stock-based compensation expense for the three months ended March 31, 2025, was $7.8 million, an increase from $5.7 million in the prior year. This includes expenses for restricted stock awards and units ($7.7 million) and stock options/ESPP ($0.07 million) Stock-Based Compensation Expense | Category | 3 Months Ended March 31, 2025 (in thousands) | 3 Months Ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :-------------------- | :------- | | Stock options and ESPP | $70 | $349 | $(279) | (79.94)% | | Restricted stock awards and units | $7,741 | $5,399 | $2,342 | 43.38% | | Total stock-based compensation expense | $7,811 | $5,748 | $2,063 | 35.89% | - Unrecognized compensation expense related to total share-based payments outstanding as of March 31, 2025, was $44.5 million[116] Note 12. Commitments and Contingencies The company is subject to complex healthcare laws and regulations, including DMHC requirements for minimum working capital and tangible net equity. It also has standby letters of credit totaling $27.1 million and surety bonds of approximately $46.4 million. The company is involved in various legal proceedings but does not expect a material adverse effect on its operations - The company must comply with DMHC regulations, including minimum working capital, tangible net equity (TNE), cash-to-claims ratio, and claims payment requirements[120] - As of March 31, 2025, the company has irrevocable standby letters of credit totaling $25.0 million with Truist Bank and $2.1 million with Preferred Bank[122][123] - The company holds surety bonds totaling approximately $46.4 million as required by CMS, expiring through December 31, 2030[124] Note 13. Related-Party Transactions The company engages in various related-party transactions, including payments for provider services to equity method investments (e.g., PMIOC), management fees and interest expenses to I Health, and rent expenses to entities managed by board members. Revenue and expenses with AHMC, HSMSO, and Aurion are also detailed - Paid $0.7 million to Pacific Medical Imaging & Oncology Center, Inc. (PMIOC) for provider services in Q1 2025[128] - Incurred $0.7 million in management fees and interest expense to I Health in Q1 2025[130] Related-Party Transactions (Net) | Entity | 3 Months Ended March 31, 2025 (in thousands) | 3 Months Ended March 31, 2024 (in thousands) | | :----- | :------------------------------------- | :------------------------------------- | | AHMC (Net) | $(24,909) | $2,363 | | HSMSO (Net) | $105 | $301 | | Aurion (Net) | $(100) | $(50) | Note 14. Income Taxes The company uses the liability method for income taxes, estimating its annual effective tax rate quarterly. For the three months ended March 31, 2025, the effective income tax rate was 35.2%, up from 29.8% in the prior year, primarily due to non-deductible expenses, state income taxes, and income from flow-through entities - The effective income tax rate for Q1 2025 was 35.2%, compared to 29.8% for Q1 2024[146] - The difference in tax rate is primarily due to non-deductible expenses, state income taxes, and income from flow-through entities[146] - $1 million of unrecognized tax benefits as of March 31, 2025, would reduce the annual effective tax rate if recognized[147] Note 15. Earnings Per Share Basic and diluted earnings per share for the three months ended March 31, 2025, were $0.14, a decrease from $0.31 in the prior year. The weighted average shares outstanding for diluted EPS were 48.85 million in Q1 2025, up from 47.70 million in Q1 2024 Earnings Per Share and Weighted Average Shares | Metric | 3 Months Ended March 31, 2025 | 3 Months Ended March 31, 2024 | | :------------------------------------------ | :---------------------------- | :---------------------------- | | Earnings per share – basic | $0.14 | $0.31 | | Earnings per share – diluted | $0.14 | $0.31 | | Weighted average shares of common stock outstanding – basic | 48,470,682 | 47,260,351 | | Weighted average shares of common stock outstanding – diluted | 48,850,666 | 47,699,537 | - Restricted stock (409,736 shares) and stock options (125,707 shares) were excluded from diluted EPS computation for Q1 2025 due to being antidilutive[151][152] Note 16. Variable Interest Entities (VIEs) The company consolidates its subsidiaries and Variable Interest Entities (VIEs), such as APC, due to corporate practice of medicine laws and its role as the primary beneficiary. As of March 31, 2025, VIEs had total assets of $868.3 million and total liabilities of $216.6 million - The company consolidates VIEs like APC because state laws prohibit non-physician ownership of medical practices, and Astrana is identified as the primary beneficiary[156][157] VIE Financials Summary | VIE Financials | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------------------------------ | :----------------------------- | :----------------------------- | | Total Assets | $868,286 | $937,199 | | Total Liabilities | $216,644 | $256,076 | - Assets of consolidated VIEs ($678.1 million) can only be used to settle their own obligations, and creditors of VIEs have no recourse to Astrana's general credit ($212.1 million in liabilities)[25] Note 17. Leases The company has operating and finance leases for offices and equipment, with remaining terms up to 21 years. Total lease cost for the three months ended March 31, 2025, was $3.7 million. The weighted average remaining lease term for operating leases was 7.22 years, with a weighted average discount rate of 6.75% Lease Cost Breakdown | Metric | 3 Months Ended March 31, 2025 (in thousands) | 3 Months Ended March 31, 2024 (in thousands) | | :-------------------------- | :------------------------------------- | :------------------------------------- | | Operating lease cost | $3,611 | $3,159 | | Finance lease cost | $163 | $203 | | Total lease cost | $3,730 | $3,136 | Weighted Average Lease Terms and Discount Rates | Metric | March 31, 2025 | March 31, 2024 | | :-------------------------------- | :------------- | :------------- | | Weighted Average Remaining Lease Term (Operating) | 7.22 years | 8.39 years | | Weighted Average Discount Rate (Operating) | 6.75% | 6.15% | Note 18. Segments The company operates through three reportable segments: Care Partners, Care Delivery, and Care Enablement. For Q1 2025, Care Partners generated $601.0 million in revenue (57% YoY increase) and $44.2 million in operating income (2% YoY increase). Care Delivery revenue increased by 9% to $33.4 million, but operating loss increased significantly to $3.1 million. Care Enablement revenue increased by 19% to $39.6 million, with stable operating income Segment Financial Performance | Segment | 3 Months Ended March 31, 2025 Revenue (in thousands) | 3 Months Ended March 31, 2024 Revenue (in thousands) | % Change Revenue | 3 Months Ended March 31, 2025 Operating Income (Loss) (in thousands) | 3 Months Ended March 31, 2024 Operating Income (Loss) (in thousands) | % Change Operating Income (Loss) | | :-------------- | :------------------------------------- | :------------------------------------- | :---------------- | :----------------------------------------------------- | :----------------------------------------------------- | :------------------------------------ | | Care Partners | $600,951 | $382,318 | 57% | $44,215 | $43,196 | 2% | | Care Delivery | $33,388 | $30,719 | 9% | $(3,108) | $(238) | * | | Care Enablement | $39,562 | $33,274 | 19% | $3,535 | $3,504 | 1% | - The increase in Care Partners revenue and operating income was primarily due to recent acquisitions[218] - The increase in Care Delivery operating loss was due to increased expenses related to newer clinic locations[219] Note 19. Fair Value Measurements of Financial Instruments The company's financial instruments include marketable securities, an I Health call option, an interest rate collar, and various contingent consideration liabilities. As of March 31, 2025, total assets measured at fair value were $9.0 million, and total liabilities were $32.1 million, with most contingent consideration classified as Level 3 Fair Value of Financial Instruments | Financial Instrument | March 31, 2025 Fair Value (in thousands) | December 31, 2024 Fair Value (in thousands) | | :------------------------------------------ | :--------------------------------------- | :--------------------------------------- | | Total Assets (Fair Value) | $9,019 | $9,848 | | Total Liabilities (Fair Value) | $32,133 | $30,705 | - The I Health call option is valued at $3.9 million (Level 3) as of March 31, 2025, using a probability-weighted model[180] - Contingent consideration liabilities, primarily for ADSC, CFC, PCCCV, and CHS acquisitions, total $30.0 million (Level 3) as of March 31, 2025[175][185][186][188][189] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's discussion and analysis of Astrana Health, Inc.'s financial condition and results of operations for the three months ended March 31, 2025, covering an overview of the business, recent developments, key financial measures, detailed results of operations, segment performance, liquidity, and critical accounting policies Overview This overview describes Astrana Health, Inc. as a physician-centric, technology-powered healthcare management company serving over one million patients - Astrana Health, Inc. is a leading physician-centric, technology-powered, risk-bearing healthcare management company[192] - The company manages care for over 1.0 million patients through more than 12,000 contracted physicians in value-based care arrangements as of March 31, 2025[193] Recent Developments This section highlights recent leadership appointments and the company's progress on its pending acquisition of Prospect Health - New leadership appointments include Georgie Sam (Chief Data & Analytics Officer), Glenn Sobotka (Chief Accounting Officer), and Rita Pew (Chief People Officer)[194] - Astrana received HSR approval for its pending acquisition of Prospect Health, with closing expected this summer[195] Key Financial Measures and Indicators This section outlines the primary components of operating revenues and expenses, and introduces non-GAAP measures like Adjusted EBITDA for performance evaluation - Operating revenues primarily consist of capitation, risk pool settlements and incentives, management fee income, and fee-for-service (FFS) revenue[196] - Largest operating expenses include patient care, information technology, and staff for management and administrative support services[197] - Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures used for financial and operational decision-making, excluding non-recurring and non-cash transactions[198] Results of Operations This section provides a detailed analysis of the company's financial performance, including revenue, cost of services, and net income, for the three months ended March 31, 2025 | Metric | 3 Months Ended March 31, 2025 (in thousands) | 3 Months Ended March 31, 2024 (in thousands) | $ Change | % Change | | :------------------------------------ | :------------------------------------- | :------------------------------------- | :------- | :------- | | Total Revenue | $620,390 | $404,356 | $216,034 | 53% | | Capitation, net | $583,963 | $365,910 | $218,053 | 60% | | Cost of services | $549,061 | $330,399 | $218,662 | 66% | | Income from operations | $20,583 | $30,139 | $(9,556) | (32)% | | Net income attributable to Astrana Health, Inc. | $6,692 | $14,835 | $(8,143) | (55)% | - The increase in capitation revenue was primarily due to recent acquisitions within the Care Partners segment and enrollees transitioning to full risk through Restricted Knox-Keene plans[203] - The increase in cost of services was due to increased participation in a value-based Medicare FFS model and medical costs associated with professional and institutional risk from recent acquisitions[204] Segment Financial Performance This section analyzes the financial performance of the Care Partners, Care Delivery, and Care Enablement segments, detailing revenue and operating income changes | Segment | 3 Months Ended March 31, 2025 Revenue (in thousands) | 3 Months Ended March 31, 2024 Revenue (in thousands) | % Change Revenue | 3 Months Ended March 31, 2025 Operating Income (Loss) (in thousands) | 3 Months Ended March 31, 2024 Operating Income (Loss) (in thousands) | % Change Operating Income (Loss) | | :-------------- | :------------------------------------- | :------------------------------------- | :---------------- | :----------------------------------------------------- | :----------------------------------------------------- | :------------------------------------ | | Care Partners | $600,951 | $382,318 | 57% | $44,215 | $43,196 | 2% | | Care Delivery | $33,388 | $30,719 | 9% | $(3,108) | $(238) | * | | Care Enablement | $39,562 | $33,274 | 19% | $3,535 | $3,504 | 1% | - Care Partners' growth was primarily due to recent acquisitions[218] - Care Delivery's increased operating loss was due to expenses from newer clinic locations[219] Reconciliation of Net Income to EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin This section reconciles GAAP net income to non-GAAP measures such as EBITDA and Adjusted EBITDA, providing insights into operational profitability | Metric | 3 Months Ended March 31, 2025 (in thousands) | 3 Months Ended March 31, 2024 (in thousands) | $ Change | % Change | | :-------------------- | :------------------------------------- | :------------------------------------- | :------- | :------- | | Net income | $6,221 | $16,862 | $(10,641) | (63)% | | EBITDA | $21,449 | $32,689 | $(11,240) | (34)% | | Adjusted EBITDA | $36,386 | $42,245 | $(5,859) | (14)% | | Total revenue | $620,390 | $404,356 | $216,034 | 53% | | Adjusted EBITDA margin | 6% | 10% | (4)% | (40)% | - The decrease in Adjusted EBITDA was primarily due to a decrease in operating income resulting from higher utilization and increased general and administrative expenses[215] Use of Non-GAAP Financial Measures This section explains the purpose and calculation of non-GAAP financial measures like EBITDA and Adjusted EBITDA, emphasizing their supplementary role to GAAP - EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin are non-GAAP measures used to evaluate operating performance and for financial decision-making[224] - Adjusted EBITDA is calculated as earnings before interest, taxes, depreciation, and amortization, excluding income/loss from equity method investments, non-recurring/non-cash transactions, and stock-based compensation[224] - These non-GAAP measures are intended to supplement, not replace, GAAP financial measures, providing a more meaningful understanding of ongoing operating performance[225] Liquidity and Capital Resources This section assesses the company's liquidity position, including cash, cash equivalents, and working capital, and its ability to fund future operations | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------ | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Cash, cash equivalents, and marketable securities | $260,914 | $290,833 | $(29,919) | (10.29)% | | Working capital | $252,000 | $272,900 | $(20,900) | (7.66)% | - The company believes it has sufficient liquidity to fund operations for at least the next 12 months and the foreseeable future[227] - Liquidity is primarily financed through internally generated funds and borrowings on long-term debt, including the Second Amended and Restated Credit Agreement providing a $1.3 billion credit facility[227] Cash Flow Activities This section details the company's cash flow activities, analyzing movements from operating, investing, and financing for the three months ended March 31, 2025 | Cash Flow Category | 3 Months Ended March 31, 2025 (in thousands) | 3 Months Ended March 31, 2024 (in thousands) | $ Change | % Change | | :------------------------------------------------ | :------------------------------------- | :------------------------------------- | :------- | :------- | | Net cash provided by operating activities | $16,627 | $5,977 | $10,650 | 178% | | Net cash used in investing activities | $(2,394) | $(71,039) | $68,645 | (97)% | | Net cash (used in) provided by financing activities | $(44,170) | $106,351 | $(150,521) | (142)% | | Net (decrease) increase in cash and cash equivalents and restricted cash | $(29,937) | $41,289 | $(71,226) | (173)% | - Operating cash flow increase was driven by adjusted net income and changes in working capital, partially offset by increased receivables and decreased fiduciary accounts payable[229] - Financing cash outflow was primarily due to $428.2 million in debt repayments, $17.2 million in deferred financing costs, and $5.5 million in dividend payments, partially offset by $412.0 million in new debt borrowings[231] Credit Facilities This section outlines the company's credit facilities, including term loans and revolving credit, and their impact on total debt as of March 31, 2025 | Debt Component | March 31, 2025 (in thousands) | | :---------------------- | :----------------------------- | | Term Loan | $250,000 | | Revolver Loan | $162,000 | | Promissory Note Payable | $9,875 | | Total Debt | $421,875 | - The Second Amended and Restated Credit Agreement provides for a $300.0 million revolving credit facility, a $250.0 million term loan, and a $745.0 million delayed draw term loan, maturing on February 26, 2030[233] Critical Accounting Policies and Estimates This section discusses the critical accounting policies and estimates that require significant management judgment and can materially affect financial reporting - Management's judgments, assumptions, and estimates are integral to financial statement preparation and can lead to materially different results under different conditions[234][235] - Key areas requiring significant estimates include revenue recognition, medical liabilities, business combinations, and income taxes[52] Off-Balance Sheet Arrangements This section confirms the absence of material off-balance sheet arrangements as of March 31, 2025 - As of March 31, 2025, the company had no material off-balance sheet arrangements[236] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company is exposed to interest rate risk primarily from its Term Loan and Revolver Loan, which bear floating interest rates. A hypothetical 1% change in interest rates would have increased interest expense by $0.9 million or decreased it by $1.1 million for Q1 2025. The company uses an interest rate collar to limit this risk - The company's Term Loan ($250.0 million) and Revolver Loan ($162.0 million) bear floating interest rates, exposing it to interest rate risk[238] - A hypothetical 1% change in interest rates would have impacted Q1 2025 interest expense by $0.9 million (increase) or $1.1 million (decrease)[238] - An interest rate collar is used for the Revolver Loan, setting a cap of 5.00% and a floor of 2.34% for the SOFR portion of the interest rate[238] Item 4. Controls and Procedures This section details the company's evaluation of disclosure controls and procedures, concluding their effectiveness as of March 31, 2025, and confirms no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as evaluated by management, including the CEO and CFO - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2025[240] - Disclosure controls and procedures are designed to ensure timely recording, processing, summarizing, and reporting of information required by the Exchange Act[239] Changes in Internal Control Over Financial Reporting This section reports that no material changes in internal control over financial reporting occurred during the quarter ended March 31, 2025 - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2025[241] PART II – OTHER INFORMATION This part provides additional information beyond the financial statements, including legal proceedings, risk factors, equity sales, and other disclosures Item 1. Legal Proceedings The company is involved in various legal proceedings in the normal course of business. While outcomes are uncertain, management does not expect current matters to have a material adverse effect on operations, financial position, or cash flows - The company is party to lawsuits, threatened lawsuits, disputes, and other claims arising in the normal course of business[243] - Management does not believe current legal proceedings will have a material adverse effect on operations, financial position, or cash flows[243] Item 1A. Risk Factors The company's business, financial condition, and operating results are influenced by various factors, including risks specific to the company or the healthcare industry. No material changes to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024, have been identified - Business, financial condition, and operating results are affected by risks specific to the company or the healthcare industry[245] - No material changes in risk factors from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024, have been identified[245] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company has a $50.0 million share repurchase plan approved in December 2022, with $40.5 million remaining available as of March 31, 2025. No shares were repurchased under this plan during Q1 2025. However, 444,777 shares were repurchased for tax withholding obligations and 300,000 shares from APC for $10.6 million - A $50.0 million share repurchase plan was approved in December 2022, with $40.5 million remaining as of March 31, 2025. No repurchases under this plan in Q1 2025[248] Share Repurchases for Tax Withholding | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :------------------------------------ | :----------------------------- | :--------------------------- | | January 1, 2025 to January 31, 2025 | 310,303 | $35.20 | | February 1, 2025 to February 28, 2025 | 566 | $37.18 | | March 1, 2025 to March 31, 2025 | 133,908 | $27.36 | | Total (Q1 2025) | 444,777 | $32.84 | - 300,000 shares were repurchased from APC for approximately $10.6 million in January 2025, separate from the publicly announced plan[253] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported for the period - No defaults upon senior securities[251] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[252] Item 5. Other Information This section confirms that no Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by the company's directors or executive officers during the quarter ended March 31, 2025 Rule 10b5-1 Trading Plans This section confirms that no Rule 10b5-1 trading plans or arrangements were adopted, modified, or terminated by company insiders during the quarter - No Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or executive officers during Q1 2025[254] Item 6. Exhibits This section lists all exhibits incorporated by reference or filed/furnished with the Quarterly Report on Form 10-Q, including merger agreements, credit agreements, employment agreements, and certifications - The exhibits include various agreements such as the Agreement and Plan of Merger, Stock Purchase Agreements, and the Second Amended and Restated Credit Agreement[257][259] - Certifications from the Principal Executive Officer and Principal Financial Officer (302 and 906) are filed/furnished[259] SIGNATURES This section provides the formal signatures of the company's principal executive and financial officers, certifying the report's submission - The report was signed on May 9, 2025, by Brandon K. Sim (CEO and President) and Chandan Basho (CFO and COO)[263]