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Astrana Health, Inc. (AMEH)·Q3 2023 Earnings Summary

Executive Summary

  • Q3 2023 revenue was $348.2M, up 10% year over year; diluted EPS was $0.47 versus $0.50 in Q3 2022 and $0.28 in Q2 2023. Adjusted EBITDA was $52.0M, with management highlighting a 15% adjusted EBITDA margin .
  • Guidance was narrowed: revenue to $1.34–$1.39B (low raised, high lowered), net income $59.5–$71.5M (low raised), EBITDA $114.5–$129.5M (low raised), adjusted EBITDA $135–$150M (low raised/high lowered), and diluted EPS $1.10–$1.20 (low raised) .
  • Strategic catalysts: agreement to acquire Community Family Care (≈200k members), expanded provider partnerships, $700M credit capacity including a new $300M term loan, and a $100M share repurchase agreement with APC, intended to be financed via the amended credit facility .
  • Execution headwinds: YoY decline in risk pool settlements and incentives and lower operating income versus the prior year, offset by strong capitation growth (+34% YoY) .

What Went Well and What Went Wrong

What Went Well

  • Capitation growth and margin profile: Capitated revenue rose 34% YoY to $305.7M; adjusted EBITDA was $52.0M, and management emphasized a 15% adjusted EBITDA margin for the quarter .
  • Strategic expansion: Announced intent to acquire Community Family Care (≈200k members), plus partnerships with Associated Hispanic Physicians (~25k members) and Advantage Health Network (~4.5k members), reinforcing growth in value-based care arrangements .
  • Financing flexibility: Amended credit agreement added a $300M term loan and increased capacity for specified share repurchases (up to $300M), raising total facility to $700M and enabling a $100M repurchase from APC .

Management quotes:

  • “I’m pleased to report strong third quarter performance with total revenue up 10% and capitated revenue up 34% compared to a year ago. We delivered a 15% adjusted EBITDA margin…” — Brandon Sim, Co-CEO .
  • “Our platform’s momentum is accelerating as we work towards our mission of ensuring that everyone across the country has access to high-quality and high-value healthcare…” — Brandon Sim, Co-CEO .

What Went Wrong

  • Operating income compression: Income from operations declined to $39.1M versus $50.1M in Q3 2022, reflecting higher costs and lower risk pool settlements YoY .
  • Lower risk pool settlements and incentives: Fell to $15.0M from $64.8M YoY, creating a headwind to the revenue mix .
  • Segment pressure in Care Delivery: Care Delivery posted an operating loss of $(1.0)M in Q3 2023, reflecting ongoing investment and mix evolution .

Financial Results

MetricQ3 2022Q2 2023Q3 2023
Revenue ($USD Millions)$317.0 $348.2 $348.2
Diluted EPS ($USD)$0.50 $0.28 $0.47
Net Income Attributable to AMEH ($USD Millions)$23.2 $13.2 $22.1
EBITDA ($USD Millions)$48.2 $36.0 $42.8
Adjusted EBITDA ($USD Millions)$57.1 $35.8 $52.0
Capitation Revenue ($USD Millions)$227.6 $300.5 $305.7
Risk Pool Settlements & Incentives ($USD Millions)$64.8 $20.1 $15.0
Management Fee Income ($USD Millions)$10.0 $12.5 $9.9
Fee-for-Service, net ($USD Millions)$12.9 $13.3 $15.9

Segment breakdown (Q3 2023):

SegmentRevenue ($USD Thousands)Income from Operations ($USD Thousands)
Care Partners$326,499 $40,340
Care Delivery$29,261 $(1,035)
Care Enablement$36,910 $6,448
Other$294 $(657)
Intersegment Elimination$(44,791) $1,070
Corporate Costs$— $(7,083)
Consolidated Total$348,173 $39,083

KPIs:

KPIValue
Total value-based lives~0.9M
Payer mix (9M 2023)Medicare 63%, Medicaid 20%, Commercial 12%, Other 5%

Guidance Changes

MetricPeriodPrevious Guidance (Feb 23, 2023)Current Guidance (Nov 7, 2023)Change
Total Revenue ($USD Millions)FY 2023$1,300–$1,500 $1,340–$1,390 Narrowed (low raised; high lowered)
Net Income ($USD Millions)FY 2023$49.5–$71.5 $59.5–$71.5 Low raised; high maintained
EBITDA ($USD Millions)FY 2023$89.5–$129.5 $114.5–$129.5 Low raised; high maintained
Adjusted EBITDA ($USD Millions)FY 2023$120–$160 $135–$150 Narrowed (low raised; high lowered)
Diluted EPS ($USD)FY 2023$0.95–$1.20 $1.10–$1.20 Low raised; high maintained

Notes: Net income and EBITDA guidance include the impact of APC excluded assets; Adjusted EBITDA and EPS diluted are unaffected by gains/losses from APC excluded assets .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 and Q2)Current Period (Q3)Trend
Provider network and partnershipsQ1: “growing our membership in core and new geographic regions” . Q2: TIP (Houston), IntraCare (TX/OK), CA primary care partnerships .Expanded LA partnerships: Associated Hispanic Physicians (~25k members), Advantage Health Network (~4.5k), Wider Circle joint initiative for Medicaid Enhanced Care Mgmt .Broadening footprint; accelerating value-based reach
M&A and strategic assetsQ2: Definitive agreement to acquire TIP; $25M convertible note to IntraCare .Announced intent to acquire Community Family Care (≈200k members; RKK license) with $202M total consideration (cash/equity/milestones) and identified synergy pathways (transition to full-risk) .Scaling via acquisitions; focus on Medicaid and full-risk
Risk-bearing and capitationQ1: Emphasis on taking global risk with RKK license approval via FYB . Q2: Capitation + management services growth .Capitation up 34% YoY to $305.7M; management reiterates focus on full-risk transitions and outcomes .Strengthening capitation; moving lives into full-risk
Financing and capital allocationQ2: reiteration of FY 2023 guidance; tax restatement clarifications; ongoing buyback authorization .Credit facility increased to $700M (new $300M term loan); $100M repurchase from APC under amended agreement; potential for up to $300M buybacks (specified) .Enhanced balance sheet flexibility; opportunistic repurchases
Tax restatement / normalizationQ2 supplement: identified tax accounting errors and plan to normalize tax rate by Q4 2023; restatements detailed .Continued disclosure of restatement and its scope; reiterated non-GAAP unaffected .Resolution underway; transparency maintained

Management Commentary

  • “We delivered a 15% adjusted EBITDA margin, we narrowed our guidance range for the full year, and we ended the third quarter well-positioned to generate sustainable and profitable growth going forward.” — Brandon Sim, Co-CEO .
  • “Today, we also announced our intent to acquire assets relating to Community Family Care Medical Group… diversifying our membership mix and providing us a pathway to expand our value-based Care Partners business.” — Brandon Sim, Co-CEO .
  • “Our strong second quarter performance reflects the sustained momentum and scalability of the ApolloMed model, with revenue up 29%… and adjusted EBITDA up 44%…” — Brandon Sim, Co-CEO (Q2) .
  • “We began 2023 on a strong note… growing our membership… and taking additional financial responsibility for care delivery in our risk-bearing entities… [RKK license] allows us to take global risk.” — Brandon Sim, Co-CEO (Q1) .

Q&A Highlights

  • Focus areas included guidance narrowing and its drivers (capitation growth, risk pool dynamics), capital allocation (credit amendment, APC share repurchase), and strategic rationale/expected synergies for the Community Family Care acquisition (transitioning lives to full-risk) .
  • Management reiterated that APC excluded asset impacts do not affect adjusted EBITDA or diluted EPS, and highlighted operational progress in Care Enablement and Care Partners .
  • Clarifications on membership onboarding timelines for Associated Hispanic Physicians and Advantage Health Network to platform/care segments supported near-term growth visibility .

Estimates Context

  • S&P Global consensus estimates for AMEH Q3 2023 (EPS, revenue, EBITDA) were unavailable due to missing CIQ mapping; as a result, we cannot provide definitive comparisons versus Wall Street consensus for this quarter [SpgiEstimatesError; GetEstimates].
  • Implication: The narrowing and raising of the low end of FY2023 guidance suggests management confidence despite variability in risk pool settlements; sell-side models may adjust upward at the low end for revenue, EBITDA, EPS to reflect updated ranges .

Key Takeaways for Investors

  • Durable top-line growth with capitation up 34% YoY and total revenue +10% YoY; adjusted EBITDA rebounded sequentially in Q3 to $52.0M from $35.8M in Q2, underscoring margin stabilization into year-end .
  • Guidance tightening at higher lows across revenue, EBITDA, EPS signals increased confidence; watch for execution against full-risk transitions and membership onboarding to sustain margin momentum .
  • Strategic M&A (CFC) and partnerships deepen Medicaid/Medicare reach, with identified synergies from moving members to full-risk arrangements; monitor deal close timing and integration KPIs in early 2024 .
  • Enhanced financing capacity (now $700M) and targeted buybacks (including $100M from APC) provide capital deployment flexibility; this can support inorganic growth and shareholder returns without constraining operations .
  • Risk pool volatility is a known headwind; diversified payer mix (63% Medicare, 20% Medicaid) and platform investments aim to mitigate variability and improve outcomes/costs over time .
  • Tax restatement disclosures continued, with non-GAAP measures unaffected; normalization efforts remain an important governance/tax efficiency milestone to track .
  • Near-term trading: Catalysts include regulatory/closing milestones on CFC, updates on onboarding timelines, and any additional capital allocation actions; medium-term thesis centers on scaling full-risk membership and sustaining double-digit revenue growth with improving EBITDA margins .