# Astrana Health, Inc. (ASTH) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Astrana Health, Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1083446/000095017025039122/asth-20241231.htm
Accession: 0000950170-25-039122
Filing date: 2025-03-14
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/ASTH/
All MD&A years: /company/ASTH/mda/
Previous year: /company/ASTH/mda/fy2023/ (FY 2023)
Next year: /company/ASTH/mda/fy2025/ (FY 2025)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following management’s discussion and analysis should be read in conjunction with the audited consolidated financial statements and the notes thereto included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

In this section, “we,” “our,” “ours,” and “us” refer to Astrana Health, Inc. (“Astrana”) and its consolidated subsidiaries and affiliated entities, as appropriate, including its consolidated variable interest entities (“VIEs”).

Overview

Astrana Health, Inc. is a leading physician-centric, technology-powered, risk-bearing healthcare management company. Leveraging its proprietary population health management and healthcare delivery platform, Astrana operates an integrated, value-based healthcare model, which aims to empower the providers in its network to deliver the highest quality of care to its patients in a cost-effective manner. Together with our affiliated physician groups and consolidated entities, we cost-effectively provide coordinated outcomes-based medical care.

Through our RBOs with more than 10,000 contracted physicians, we were responsible for coordinating the care for approximately 1.1 million patients, primarily in California, as of December 31, 2024. These covered patients are comprised of managed care members whose health coverage is provided either through their employers, acquired directly from a health plan, or as a result of their eligibility for Medicaid or Medicare benefits. Our managed patients benefit from an integrated approach that places physicians at the center of patient care and utilizes sophisticated risk management techniques and clinical protocols to provide high-quality, cost-effective care.

2024 Highlights

Astrana Health Recognized with Highest Elite Status in America’s Physician Groups 2024 Standards of Excellence

Eight of Astrana’s affiliates have been recognized as Elite status recipients in the 2024 Standards of Excellence (“SOE”) survey by America’s Physician Groups (“APG”), attaining the highest Elite five-star status in all categories. APG administers this annual comprehensive survey to evaluate which physician groups are best positioned to provide coordinated, patient-centered, and cost-effective care. Now in its 17th year, the APG SOE survey is recognized as the benchmark for evaluating achievements in healthcare delivery among accountable physician practices and organizations. The comprehensive survey assesses various categories, including the sophistication of health information technology, comprehensiveness of population health management programs, ability to provide patient-centered care and advanced primary care, and accountability for costs and quality outcomes.

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Acquired and To Be Acquired Businesses and Assets

Agreement to Acquire Certain Assets and Businesses of Prospect

On November 8, 2024, the Company and certain direct and indirect subsidiaries party thereto entered into an Asset and Equity Purchase Agreement (the “Purchase Agreement”) with Prospect Medical Holdings, Inc. (“Prospect”), as Seller Representative, and the other parties thereto, pursuant to which, subject to satisfaction of customary conditions, the Company agreed to purchase all of the outstanding equity interests of Prospect Health Services RI, Inc. (d/b/a Prospect ACO Rhode Island), Alta Newport Hospital, LLC (d/b/a Foothill Regional Medical Center) and Prospect Health Plan, Inc., and substantially all the assets of certain direct and indirect subsidiaries of PHP Holdings, LLC (“PHPH”), for an aggregate purchase price of $745.0 million, subject to customary adjustments, plus the assumption of certain identified liabilities of the Sellers (the “Transaction”). The Company will finance the Transaction with its credit facility with Truist Bank (see “Recent Developments” below for additional information). On January 11, 2025, Prospect filed for bankruptcy under Chapter 11 of Title 11 of the United States Code in the U.S. Bankruptcy Court for the Northern District of Texas. Certain businesses and assets of Prospect being acquired by the Company are subject to approval by the Bankruptcy Court and the timing of the proposed acquisition could be impacted by the bankruptcy filing and the Bankruptcy Court’s approval of relevant aspects thereof. It is currently anticipated that the Transaction will close in the middle of 2025. The Company cannot provide any assurance that the Transaction will close in a timely manner, or at all.

Prospect is an integrated care delivery system that facilitates and coordinates high-quality clinical care for all. With a network of around 3,000 primary care providers and 10,000 specialists across Southern California, Texas, Arizona, and Rhode Island, Prospect is enabling providers to deliver payer-agnostic, patient-centered care to approximately 610,000 members across Medicare Advantage, Medicaid, and Commercial lines of business. This strategic transaction will significantly expand the Company's provider network and should enhance its ability to offer increased access, quality, and value for its members. This transaction is expected to advance our ability to participate in value-based arrangements across Medicare and Medicaid and Commercial in a peer agnostic way, allowing us to make greater investments in local communities and align reimbursement with clinical outcomes. Further, the partnership will help ensure that healthcare remains local and personalized for patients across four states.

Collaborative Health Systems, LLC (“CHS”)

On October 4, 2024, the Company and its affiliated professional entity acquired all the outstanding membership interests relating to Collaborative Health Systems, LLC (“CHS”), Golden Triangle Physician Alliance, and Heritage Physician Networks for an aggregate purchase price of $37.5 million, subject to customary adjustments, plus earnout payments in an aggregate amount of up to $21.5 million. CHS partners with independent providers in caring for over 129,000 Medicare members across 17 states. The acquisition expands both Astrana's and CHS' payer-agnostic care delivery capabilities, which serve members across all lines of business, and further empower CHS' providers in the delivery of care to the communities it serves.

Elation Health

On July 17, 2024, the Company announced an agreement to partner with Elation Health, a clinical-first technology company powering innovation in primary care with more than 32,000 clinicians caring for over 15 million patients using its electronic health record platform. Jointly, the two organizations will work with a group of over 100 primary care providers serving over 20,000 primarily Medicare patients in the Hawaii market and support the group as it continues to grow while investing in high-quality, high-value, accessible primary and multi-specialty care. As part of its commitment to supporting the partnership, Astrana provided a $5.0 million convertible loan, which was subsequently converted on December 31, 2024, to acquire certain assets of Elation’s subsidiary.

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Community Family Care Medical Group IPA, Inc. (“CFC”) and Advanced Health Management Systems, L.P. (“AHMS”)

In 2023, the Company entered into an Asset and Equity Purchase Agreement to acquire (i) all of the outstanding general and limited partnership interests of AHMS and (ii) substantially all the assets of CFC, in two closings. On January 31, 2024, the Company completed the first closing and acquired certain assets of CFC. On March 31, 2024, the Company completed the second closing and acquired all of the outstanding general and limited partnership interests of AHMS. As a result of the acquisition, the Company took on greater responsibility for the outcomes of the patients it serves with CFC’s full-risk Medicaid Restricted Knox-Keene license.

Other Acquisitions

In addition to the above, the Company also had other acquisitions throughout 2024 which comprised of acquiring assets from a risk-bearing provider organization with over 150 primary care and multi-specialty care providers which serve around 26,000 primarily Medicaid members in the Central Valley of California and purchasing 95% equity interests in a diagnostic and surgical center that also provides ambulatory surgery services.

Partnerships

Partnership with Anthem Blue Cross

On July 15, 2024, the Company announced a new partnership with Anthem Blue Cross to build and operate primary care clinics to improve access to high-quality healthcare for their shared members.

BASS Medical Group

On January 29, 2024, the Company announced its strategic long-term partnership with BASS Medical Group, one of the largest multi-specialty medical groups in the Greater San Francisco Bay Area. The two organizations will aim to bring high-quality care via value-based arrangements to patients of all insurance types, including Medicare, Medicaid, ACA Marketplace, and Commercial. Astrana has provided BASS Medical Group with a $20.0 million senior secured promissory note, which is intended to be used, in partnership with Astrana, to continue to grow their footprint and invest in high-quality, high-value, and accessible primary and multi-specialty care for communities across California. The BASS secured promissory note matures on January 11, 2031 and has an interest rate per annum equal to 2.9% plus the Secured Overnight Financing Rate as administered by the Federal Reserve Bank of New York (or a successor administrator) compounded annually.

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Recent Developments

Second Amended and Restated Credit Agreement

On February 26, 2025, the Company amended its credit agreement with Truist Bank, in its capacities as administrative agent for the lenders. The Second Amended and Restated Credit Agreement provides for (a) a five-year revolving credit facility to the Company of $300.0 million which includes a letter of credit sub-facility of up to $100.0 million and a swingline loan sub-facility of $25.0 million, (b) a five-year term loan A credit facility to the Company of $250.0 million and (c) a five-year delayed draw term loan credit facility to the Company of $745.0 million. The term loan A and revolving credit facilities are intended to be used to, among other things, refinance certain existing indebtedness of the Company and certain subsidiaries, pay transactions costs and expenses arising in connection with the Second Amended and Restated Credit Agreement, and provide for working capital needs and other general corporate purposes, and, in addition to the foregoing, the revolving credit facility will also be used to finance certain future permitted acquisitions and permitted investments and capital expenditures. The delayed draw term loan facility will be used to finance the Transaction.

Share Repurchase and Dividend

On January 15, 2025, the APC board approved the distribution of 699,896 of the Company’s shares and $5.5 million paid to its shareholders in February 2025. APC is a consolidated VIE affiliate whose common shareholders consists of 250+ original providers. APC’s common shareholders own shares of Astrana stock as part of the APC Transactions. Although the shares held by APC are treated as treasury stock, they are for the sole benefit of the original providers. Further on January 17, 2025, the Company repurchased 300,000 shares of the Company’s common stock from APC, pursuant to a stock repurchase agreement with APC, dated January 17, 2025, for an aggregate purchase price of approximately $10.6 million.

Key Financial Measures and Indicators

Operating Revenues

Our revenue, which is recorded in the period in which services are rendered and earned, primarily consists of capitation revenue, risk pool settlements and incentives, management fee income, and fee-for-services (“FFS”) revenue. The form of billing and related collection risk for such services may vary by type of revenue and the customer.

Operating Expenses

Our largest expenses consist of the cost of: (i) patient care paid to contracted providers; (ii) information technology equipment and software; and (iii) hiring staff to provide management and administrative support services to our affiliated physician groups, as further described in the following sections. These services include claims processing, utilization management, contracting, accounting, credentialing, and administrative oversight.

Adjusted EBITDA and Adjusted EBITDA Margin

Our Adjusted EBITDA and Adjusted EBITDA margin are supplemental performance measures of our operations for financial and operational decision-making, and are used as a supplemental means of evaluating period-to-period comparisons on a consistent basis. Adjusted EBITDA is calculated as earnings before interest, taxes, depreciation, and amortization, excluding income or loss from equity method investments, non-recurring and non-cash transactions, stock-based compensation, and costs that were solely for the benefit of APC shareholders (“Excluded Assets”). The Company defines Adjusted EBITDA margin as Adjusted EBITDA over total revenue.

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Results of Operations

2024 Compared to 2023

Our consolidated operating results for the year ended December 31, 2024, as compared to the year ended December 31, 2023 were as follows:

Astrana Health, Inc.

Consolidated Statements of Income (in thousands)

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Risk-Bearing Organizations and Patients

As of December 31, 2024 and 2023, we managed a total of 20 and 15 independent risk-bearing organizations, including both affiliated and non-affiliated, respectively, and the total number of patients for whom we managed the delivery of healthcare services was approximately 1.1 million and 0.9 million, respectively.

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Revenue

Our total revenue in 2024 was $2,034.5 million, as compared to $1,386.7 million in 2023, an increase of $647.9 million or 47%. The increase in total revenue was primarily attributable our recent acquisitions within our Care Partners segment, along with enrollees transitioning to full risk through the Company’s Restricted Knox-Keene plans.

Cost of Services, Excluding Depreciation and Amortization

Expenses related to the cost of services, excluding depreciation and amortization, in 2024 were $1,763.2 million, compared to $1,171.7 million in 2023, an increase of $591.4 million or 50%. The overall increase was primarily due to increased participation in a value-based Medicare FFS model, medical costs associated with both professional and institutional risk of our Restricted Knox-Keene licensed health plan, and increased patient visits, which were commensurate to our increase in revenue.

General and Administrative Expenses

General and administrative expenses in 2024 were $154.1 million, compared to $112.6 million in 2023, an increase of $41.5 million or 37%. This increase was primarily due to an increase in headcount and personnel-related costs to support the continued growth in the depth and breadth of our operations and nonrecurring costs related to acquisitions.

Depreciation and Amortization

Depreciation and amortization expenses were $27.9 million and $17.7 million for the years ended December 31, 2024 and 2023, respectively, an increase of $10.2 million. This amount includes depreciation of property and equipment and the amortization of intangible assets. The increase was primarily related to the amortization of our acquired intangibles as a result of our recent business combinations, partially offset by decreased depreciation associated with property and equipment related to real estate assets that were solely for the benefit of APC’s common shareholders. On December 26, 2023, a restructuring transaction occurred to spin-off the real estate business and investments (“Excluded Assets Spin-off”).

Income From Equity Method Investments

Income from equity method investments in 2024 was $4.5 million, compared to $5.6 million in 2023, a decrease of $1.1 million. This amount includes the Company’s portion of the equity method investment’s net earnings or losses. The decrease was primarily due to a decrease in income from APC’s equity method investment in LaSalle Medical Associates

– IPA Line of Business.

Interest Expense

Interest expense in 2024 was $33.1 million, compared to $16.1 million in 2023, an increase of $17.0 million. The increase in interest expense for the year was primarily due to an increase in amounts borrowed under the Amended Credit Facility. As of December 31, 2024, the Company borrowed $428.2 million on the Amended Credit Agreement, net of payments, compared to $280.0 million as of December 31, 2023.

Interest Income

Interest income in 2024 was $14.5 million, compared to $14.2 million in 2023, an increase of $0.3 million. Interest income reflects interest earned on cash held in bank accounts, money market and certificate of deposit accounts, and the interest from our loan receivables.

Unrealized Gain (Loss) on Investments

Unrealized gain on investments in 2024 was $0.7 million, compared to an unrealized loss on investments of $4.6 million in 2023, an increase of $5.3 million. The increase to an unrealized gain on investments was primarily driven by changes in the fair value of equity securities that remained unsold as of December 31, 2024.

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Other Income

Other income in 2024 was $4.9 million, as compared to other income of $6.1 million in 2023, a decrease of $1.2 million primarily related to APC’s Excluded Assets Spin-off.

Provision for Income Taxes

Provision for income taxes was $30.9 million in 2024, as compared to $32.0 million in 2023, a decrease of $1.1 million. The decrease in the income tax expense is primarily related to the benefits associated with the 2023 tax structuring.

Net Income (Loss) Attributable to Noncontrolling Interests

Net income attributable to non-controlling interests was $6.8 million in 2024, as compared to a net loss of $2.9 million in 2023, an increase of $9.7 million. The increase was primarily attributable to absence of expenses incurred by APC’s Excluded Assets since they were spun-off in 2023.

Net Income Attributable to Astrana Health, Inc.

Net income attributable to Astrana Health, Inc. was $43.1 million in 2024, as compared to net income of $60.7 million in 2023, a decrease of $17.6 million. The decrease was primarily due to an increase in interest expense and income attributable to noncontrolling interests and partially offset by an increase in unrealized gain on investments.

Adjusted EBITDA

Adjusted EBITDA was $170.4 million, as compared to $146.6 million in 2023, an increase of $23.8 million. The increase was primarily due to an increase in gross profit as a result of more affiliated RBOs and increased managed lives. This is primarily attributable to our recent acquisitions with our Care Partners segment. See “Reconciliation of Net Income to EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin” below for additional information.

2023 Compared to 2022

See Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 29, 2024 for a discussion of the Company’s results of operations during the year ended December 31, 2023 compared to the year ended December 31, 2022.

Segment Financial Performance

The Company has three reportable segments: Care Partners, Care Delivery, and Care Enablement. The Company evaluates the performance of its operating segments based on segment revenue growth and operating income. Management uses revenue growth and total segment operating income as a measure of the performance of operating businesses separate from non-operating factors. For more information about our segments, see Note 1—“Description of Business” and Note 20— “Segments” to our consolidated financial statements under Item 8 in this Annual Report on Form 10-K for additional information.

2024 Segments Compared to 2023 Segments

The following table sets forth our revenue and operating income by segment for the year ended December 31, 2024, as compared to the year ended December 31, 2023:

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[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Care Partners Segment

Revenue increased $665.0 million and operating income increased $49.5 million for the year ended December 31, 2024, compared to the corresponding period in 2023. The increase in total revenue and operating income was primarily attributable to our recent acquisitions within our Care Partners segment, along with enrollees transitioning to full risk through the Company’s Restricted Knox-Keene plans, and revenue from MSSP, as it was the first year the Company participated in the program.

Care Delivery Segment

Revenue increased $18.7 million and operating income decreased $5.8 million for the year ended December 31, 2024, compared to the corresponding period in 2023. The increase in revenue was primarily driven by increased volume in patient visits at our primary, multi-specialty, and ancillary Care Delivery entities and over 10% increase in our clinic sites. The decrease in operating income was due to an increase in expenses incurred related to our newer clinic locations that opened.

Care Enablement Segment

Revenue increased $19.6 million and operating income decreased $0.8 million for the year ended December 31,2024, compared to the corresponding period in 2023. The increase in revenue was due to more managed independent physician groups. As of December 31, 2024 and 2023, the total number of affiliated physician groups we managed were 20 groups and 15 groups, respectively. The decrease in operating income was due to increased personnel-related costs to support the increase in our managed Care Partners and Care Delivery segment.

2023 Segments Compared to 2022 Segments

The following table sets forth our revenue and operating income by segment for the year ended December 31, 2023, as compared to the year ended December 31, 2022:

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["Segment Revenue (in thousands)","","2023","","","2022","","","$ Change","","","% Change"],["Care Partners","","$","1,284,081","","","$","1,051,464","","","$","232,617","","","","22","%"],["Care Delivery","","$","117,943","","","$","95,776","","","$","22,167","","","","23","%"],["Care Enablement","","$","135,824","","","$","120,200","","","$","15,624","","","","13","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

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Care Partners Segment

Revenue and operating income increased $232.6 million and $6.5 million, respectively, for the year ended December 31, 2023, compared to the corresponding period in 2022. The increase in revenue and operating income was primarily driven by membership growth in our ACO participating in a value-based Medicare FFS model and our acquisition of a Restricted Knox-Keene licensed health plan in 2023. The increase in revenue was partially offset by a decrease in incentive revenue due to the Company recognizing the shared savings from the NGACO program in 2022 for the 2021 performance year.

Care Delivery Segment

Revenue increased $22.2 million and operating income decreased $3.1 million for the year ended December 31, 2023, compared to the corresponding period in 2022. The increase in revenue was primarily due to more clinic locations opening during 2023 from our primary, multi-specialty, and ancillary Care Delivery entities. The decrease in operating income was due to more costs incurred for expanding to new locations.

Care Enablement Segment

Revenue increased $15.6 million and operating income decreased $8.0 million for the year ended December 31, 2023, compared to the corresponding period in 2022. The increase in revenue was due to more managed independent physician groups. As of December 31, 2023 and 2022, the total number of affiliated physician groups we managed were 15 groups and 14 groups, respectively. The decrease in operating income was due to increased personnel-related costs to support the increase in our managed independent physician groups.

Reconciliation of Net Income to EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin(1)

Set forth below are reconciliations of Net Income to EBITDA and Adjusted EBITDA for the years ended December 31, 2024 and 2023:

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[[/GREPCENT_TABLE]]

(1)
The Company defines Adjusted EBITDA margin as Adjusted EBITDA over total revenue.

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(2)
Other, net for the year ended December 31, 2024 relates to transaction costs incurred for our investments and tax restructuring fees, anticipated recoveries from one time losses relating to third party payor payments associated with the CHS transaction, financial guarantee via a letter of credit that we provided almost three years ago in support of two local provider-led ACOs, reimbursement from a related party of the Company for taxes associated with the December 2023 Excluded Assets Spin-off, non-cash gain on debt extinguishment related to one of our promissory note payables, non-cash realized loss from the sale of one of our marketable equity securities, non-cash changes related to change in the fair value of our call option, change in the fair value of our financing obligation to purchase the remaining equity interests in one of our investments, changes in the fair value of our contingent liabilities, and changes in the fair value of the Company's Collar Agreement.

(3)
Other, net for the year ended December 31, 2023 consists of nonrecurring transaction costs and tax restructuring fees incurred, non-cash gains and losses related to the changes in the fair value of our financing obligation to purchase the remaining equity interests, contingent liabilities, and the Company's Collar Agreement relating to interest on the Revolver Loan, and excise tax related to a nonrecurring buyback of the Company’s stock from APC.

Use of Non-GAAP Financial Measures

This Annual Report on Form 10-K contains the non-GAAP financial measures EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin, of which the most directly comparable financial measure presented in accordance with U.S. generally accepted accounting principles (“GAAP”) is net income. These measures are not in accordance with, or alternatives to, GAAP, and may be calculated differently from similar non-GAAP financial measures used by other companies. The Company uses Adjusted EBITDA as a supplemental performance measure of our operations, for financial and operational decision-making and as a supplemental means of evaluating period-to-period comparisons consistently. Adjusted EBITDA is calculated as earnings before interest, taxes, depreciation, and amortization, excluding income or loss from equity method investments, non-recurring and non-cash transactions, stock-based compensation, and APC excluded assets costs. The Company defines Adjusted EBITDA margin as Adjusted EBITDA over total revenue.

The Company believes the presentation of these non-GAAP financial measures provides investors with relevant and useful information, as it allows investors to evaluate the operating performance of the business activities without having to account for differences recognized because of non-core or non-recurring financial information. When GAAP financial measures are viewed in conjunction with non-GAAP financial measures, investors are provided with a more meaningful understanding of the Company’s ongoing operating performance. In addition, these non-GAAP financial measures are among those indicators the Company uses as a basis for evaluating operational performance, allocating resources, and planning and forecasting future periods. Non-GAAP financial measures are not intended to be considered in isolation, or as a substitute for, GAAP financial measures. Other companies may calculate both EBITDA and Adjusted EBITDA differently, limiting the usefulness of these measures for comparative purposes. To the extent this Form 10-K contains historical or future non-GAAP financial measures, the Company has provided corresponding GAAP financial measures for comparative purposes. The reconciliation between certain GAAP and non-GAAP measures is provided above.

Liquidity and Capital Resources

Cash, cash equivalents, and investments in marketable securities at December 31, 2024 totaled $290.8 million. Working capital totaled $272.9 million at December 31, 2024, compared to $242.8 million at December 31, 2023, an increase of $30.1 million.

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We have historically financed our operations primarily through internally generated funds and borrowings on long-term debt. We generate cash primarily from capitation contracts, risk pool settlements and incentives, fees for medical management services provided to our affiliated physician groups, and FFS reimbursements. We generally invest cash in money market accounts, which are classified as cash and cash equivalents. The Company also had the Amended Credit Agreement, which provided for a five-year revolving credit facility of $400.0 million and a term loan of up to $300.0 million, expiring in June 2026 and November 2028, respectively. In February 2025, the Company entered into the Second Amended and Restated Credit Agreement which amended and restated the Amended Credit Agreement and provides for a five-year revolving credit facility of $300.0 million, a term loan of $250.0 million, and a delayed draw term loan of $745.0 million, which are primarily intended to be used to refinance certain existing indebtedness and fund the costs associated with closing the Transaction. In addition, we have a current shelf registration statement filed with the SEC under which we may issue common stock, preferred stock, debt securities, and other securities that may be offered in one or more offerings on terms to be determined at the time of the offering. We believe we have sufficient liquidity to fund our operations through at least the next 12 months and the foreseeable future.

Cash Flow Activities

Our cash flows for the years ended December 31, 2024 and 2023 are summarized as follows (in thousands):

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["","","2024","","","2023","","","$ Change","","","% Change"],["Net cash provided by operating activities","","$","52,198","","","$","68,227","","","$","(16,029",")","","","(23",")%"],["Net cash used in investing activities","","","(192,395",")","","","(65,523",")","","","(126,872",")","","","194","%"],["Net cash provided by financing activities","","","135,146","","","","3,421","","","","131,725","","","*"],["Net (decrease) increase in cash, cash equivalents, and restricted cash","","$","(5,051",")","","$","6,125","","","$","(11,176",")","","","(182",")%"]]
[[/GREPCENT_TABLE]]

* Percentage change of over 500%

Our change in net cash, cash equivalents, and restricted cash decreased by $11.2 million from $6.1 million net cash inflows in the year ended December 31, 2023, to $5.1 million net cash outflows in the year ended December 31, 2024.

Cash provided by operating activities during the year ended December 31, 2024, was $52.2 million, as compared to $68.2 million during the year ended December 31, 2023. The decrease in cash provided by operating activities was primarily driven by adjusted net income and changes in working capital. For the year ended December 31, 2024, net income exclusive of depreciation and amortization, amortization of debt issuance costs, share-based compensation, non-cash lease expense, changes in fair value of contingent consideration liabilities, gain on debt extinguishment, unrealized gains or losses, income from equity method investments, gains or losses from distribution or consolidation of investments, deferred tax and other was $115.8 million compared to $91.6 million for the year ended December 31, 2023. Working capital for the year ended December 31, 2024, decreased operating cash flow by $63.6 million, compared to a $23.4 million decrease in operating cash flow at December 31, 2023. The change in working capital for the year ended December 31, 2024, was mainly driven by a decrease in accounts payable and accrued expenses due to timing of payments, a decrease from prepaid expenses and other current assets, an increase in receivables, net, primarily due to timing of our receivables, including risk pool settlements that occur approximately 18 months after the risk pool performance year is completed, and a decrease from income taxes payable as a result of timing of income tax payments. The decrease in working capital was partially offset by a decrease in our receivables, net — related parties, decrease in other receivables, net, and an increase in our medical liabilities. The decrease in our receivable, net — related parties and other receivables, net was attributable to cash received from our related party hospital risk pool arrangements and collections on reimbursements, respectively. The increase in our medical liabilities was attributable to the timing of claims paid.

77

Cash used in investing activities during the year ended December 31, 2024, was $192.4 million, primarily due to payments for business and asset acquisitions, net of cash acquired of $146.3 million, issuance of loans of $26.0 million, purchases of property and equipment of $8.0 million, purchase of an equity method investment of $6.0 million, purchase of a call option issued in conjunction with an equity method investment of $3.9 million, purchase of a privately held investment for $2.5 million, and purchase of marketable securities of $0.1 million. The cash used in investing activities was partially offset by proceeds from the repayment of promissory notes of $0.3 million and proceeds from the sale of marketable securities of $0.1 million. Cash used in investing activities during the year ended December 31, 2023, was $65.5 million, primarily due to purchases of property and equipment of $28.5 million, issuance of loans of $26.5 million, business acquisition, net of cash, of $6.5 million, purchase of investments in privately held entities for payments for $4.0 million, contributions to an equity method investment of $0.7 million, and purchase of marketable securities of $2.2 million. The cash used in investing activities was partially offset by proceeds from the repayment of promissory notes of $2.7 million and proceeds from the sale of marketable securities of $0.5 million.

Cash provided by financing activities during the year ended December 31, 2024, was $135.1 million, as compared to cash provided by financing activities of $3.4 million for the year ended December 31, 2023. Cash provided by financing activities during the year ended December 31, 2024, was primarily attributable to borrowings on long-term debt totaling $171.9 million, proceeds from the exercise of stock options of $0.8 million, proceeds from ESPP purchases of $0.3 million, and proceeds from the sale of non-controlling interest of $0.2 million. This was partially offset by repayments of debt of $18.5 million, payment of a financing obligation of $8.5 million, tax payments from net share settlement of restricted stock awards and units of $4.7 million, dividend payments of $4.0 million, repurchase of treasury shares of $0.9 million, repayment of finance lease obligations of $0.7 million, and payment of contingent liabilities of $0.5 million. Cash provided by financing activities during the year ended December 31, 2023, was primarily attributable to borrowings on our debt of $284.5 million and proceeds from the exercise of stock options of $1.5 million. This was partially offset by repayment of debt for $204.7 million, dividends payments of $62.1 million, repurchase of common shares of $10.2 million, debt issuance costs of $3.9 million for our Amended Credit Agreement, payments related to our contingent liabilities of $1.0 million, and repayment of finance lease obligations of $0.7 million.

Credit Facilities

The Company’s debt balance consisted of the following (in thousands):

[[GREPCENT_TABLE]]
[["","","December 31, 2024"],["Term Loan","","$","281,500"],["Revolver Loan","","","146,732"],["Promissory Note Payable","","","9,875"],["Total debt","","","438,107"],["Less: Current portion of debt","","","(9,375",")"],["Less: Unamortized financing costs","","","(3,433",")"],["Long-term debt","","$","425,299"]]
[[/GREPCENT_TABLE]]

The following are the future commitments of the Company’s debt for the years ending December 31 (in thousands):

[[GREPCENT_TABLE]]
[["","","Amount"],["2025*","","$","16,875"],["2026","","","169,232"],["2027","","","34,250"],["2028","","","217,750"],["Total","","$","438,107"]]
[[/GREPCENT_TABLE]]

* Of the future commitments in 2025, $9.4 million was classified within current portion of long-term debt on the consolidated balance sheets as a result of the refinancing as a part of the Second Amended and Restated Credit Agreement with Truist Bank on February 26, 2025 (see “Amended Credit Agreement” below for definition and additional information). This portion represents the portion of the short-term obligation as of December 31, 2024 that was not extended into a long-term obligation through the refinancing.

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Amended Credit Agreement

On June 16, 2021, the Company entered into an amended and restated credit agreement (as subsequently amended as described below, the “Amended Credit Agreement”) with Truist Bank, in its capacity as administrative agent for the lenders, issuing bank, swingline lender and lender, and the banks and other financial institutions from time to time party thereto, to, among other things, amend and restate that certain credit agreement, dated September 11, 2019, by and among the Company, Truist Bank, and certain lenders thereto, in its entirety. The Amended Credit Agreement provides for a five-year revolving credit facility to the Company of $400.0 million (“Revolver Loan”), which includes a letter of credit sub-facility of up to $25.0 million and a swingline loan sub-facility of $25.0 million.

On December 20, 2022, an amendment was made to the Amended Credit Facility, in which all amounts borrowed under the Amended Credit Agreement as of the effective date were automatically converted from London Interbank Offered Rate (“LIBOR”) Loans to Secured Overnight Financing Rate (“SOFR”) Loans with an initial interest period of one month on and as of the amendment effective date.

On September 8, 2023, a Second Amendment to the Amended Credit Agreement was entered into, which, among other things, increased the letter of credit sub-facility from $25.0 million to $50.0 million.

On November 3, 2023, the Company entered into a Third Amendment to the Amended Credit Agreement (“Third Amendment”) with Truist Bank and the other financial institutions party thereto. The Third Amendment provided a new term loan to the Company in an aggregate amount of up to $300.0 million, with $180.0 million funded at the closing of the Third Amendment, and $120.0 million available to be drawn by the Company as delayed draw loans during the six months subsequent to the closing of the Third Amendment (collectively, the “Term Loan”). The Term Loan matures on November 3, 2028 (or such earlier date on which it is terminated in accordance with the provisions of the Amended Credit Agreement) and amortizes quarterly at 5% per annum for each of the first two years, 7.5% per annum for years three and four, and 10% per annum for year five.

In May 2024, the Company entered into a Fourth Amendment to the Amended Credit Agreement, which updates the letter of credit provisions in the Amended Credit Agreement to provide the Company with the ability to have letters of credit issued under the Amended Credit Agreement that extend beyond the maturity date of the Amended Credit Agreement.

On February 26, 2025, the Company entered into an amended and restated credit agreement (the “Second Amended and Restated Credit Agreement”) with Truist Bank, in its capacities as administrative agent for the lenders, issuing bank, swingline lender and a lender, and the banks and other financial institutions from time to time party thereto, to, among other things, amend and restate the Amended Credit Agreement. The Second Amended and Restated Credit Agreement provides for (a) a five-year revolving credit facility to the Company of $300.0 million, which includes a letter of credit sub-facility of up to $100.0 million and a swingline loan sub-facility of $25.0 million, (b) a five-year term loan A credit facility to the Company of $250.0 million and (c) a five-year delayed draw term loan credit facility to the Company of $745.0 million. The term loan A and revolving credit facilities are intended to be used to, among other things, refinance certain existing indebtedness of the Company and certain subsidiaries, pay transactions costs and expenses arising in connection with the Second Amended and Restated Credit Agreement, and provide for working capital needs and other general corporate purposes, and, in addition to the foregoing, the revolving credit facility will also be used to finance certain future permitted acquisitions and permitted investments and capital expenditures. The delayed draw term loan facility will be used to finance the Transaction.

See Note 10—“Credit Facility, Bank Loans, and Lines of Credit” and Note 22–“Subsequent Events” to our consolidated financial statements under Item 8 in this Annual Report on Form 10-K for additional information on the Amended Credit Agreement and Second Amended and Restated Credit Agreement, respectively.

79

Promissory Note Payable

On April 1, 2024, the Company received $8.3 million as a promissory note with a maturity date of March 31, 2027. I Health may accelerate the maturity date if the Company does not exercise the I Health Call Options. On July 1, 2024, an amendment was made to the I Health Promissory Note that, among other things, increased the original principal amount by an additional $1.6 million. As a result, the total amount payable under the I Health Promissory Note is $9.9 million. See Note 10—“Credit Facility, Bank Loans, and Lines of Credit” to our consolidated financial statements under Item 8 in this Annual Report on Form 10-K for additional information on the Promissory Note Payable.

Deferred Financing Costs

As of December 31, 2024, the Amended Credit Agreement had unamortized deferred financing costs of $4.3 million, of which $0.9 million of unamortized deferred financing costs was recognized in other assets in the accompanying consolidated balance sheets, and consisted of unamortized deferred financing costs related to unborrowed amounts available on the Revolver Loan, and $3.4 million of unamortized deferred financing costs was recorded as a direct reduction against the amounts borrowed on the Term Loan and Revolver.

Effective Interest Rate

The Company’s average effective interest rate on its total debt during the years ended December 31, 2024, 2023, and 2022 was 7.05%, 6.19%, and 3.22%, respectively. Interest expense in the consolidated statements of income included amortization of deferred debt issuance costs for the years ended December 31, 2024, 2023, and 2022 of $1.8 million, $1.1 million, and $0.9 million, respectively.

Lines of Credit

On September 10, 2019, APC amended its promissory note agreement with Preferred Bank (“APC Business Loan Agreement”), which is affiliated with one of the Company’s board members, to modify loan availability to $4.1 million. This decrease further limited the purpose of the indebtedness under the APC Business Loan Agreement to the issuance of standby letters of credit, and added as a permitted lien the security interest in all of its assets granted by APC in favor of AHM under a Security Agreement dated on or about September 11, 2019 securing APC’s obligations to AHM under, and as required pursuant to, that certain Management Services Agreement dated as of July 1, 1999, as amended.

Standby Letters of Credit

Under the Amended Credit Agreement, the Company established irrevocable standby letters of credit with Truist Bank for a total of $25.0 million for the benefit of CMS and certain health plans as of December 31, 2024. Unless the institution provides notification that the standby letters of credit will be terminated prior to the expiration date, the letters will be automatically extended without amendment for additional one-year periods from the present, or any future expiration date.

Certain IPAs consolidated by the Company established irrevocable standby letters of credit with a financial institution for a total of $2.1 million for the benefit of certain health plans as of December 31, 2024. The standby letters of credit are automatically extended without amendment for additional one-year periods from the present or any future expiration date, unless notified by the institution in advance of the expiration date that the letter will be terminated.

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Critical Accounting Policies and Estimates

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”), which require management to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and to the reported amounts of revenues and expenses during the period. The Company bases its estimates on historical experience and various other assumptions the Company believes are reasonable under the circumstances. Changes in estimates are recorded if and when better information becomes available. Actual results could differ from those estimates under different assumptions and conditions. The Company believes that the accounting policies discussed below are those that are most important to the presentation of its financial condition and results of operations and that require its management’s most difficult, subjective, and complex judgments. Our significant accounting policies are described in Note 2 —“Basis of Presentation and Summary of Significant Accounting Policies” to our consolidated financial statements under Item 8 in this Annual Report on Form 10-K.

Principles of Consolidation

The consolidated balance sheets as of December 31, 2024 and 2023 and consolidated statements of income for the years ended December 31, 2024, 2023, and 2022 include Astrana’s wholly owned subsidiaries and consolidated variable interest entities (“VIEs”).

Use of Estimates

The preparation of the consolidated financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the consolidated financial statements as well as the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include collectability of receivables, recoverability of long-lived and intangible assets, business combination and goodwill valuation and impairment assessment, accrual of medical liabilities (incurred but not reported (“IBNR”) claims), determination of hospital shared-risk and health plan shared-risk revenue and receivables (including estimations of affiliated hospitals’ claims costs which involves assumptions for IBNR, such as utilization of healthcare services, historical payment patterns, cost trends, seasonality, changes in membership, and other factors), income tax-valuation allowance, share-based compensation, and right-of-use assets and lease liabilities. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ materially from those estimates and assumptions.

Receivables and Receivables – Related Parties

The Company’s receivables are comprised of accounts receivable, capitation and fee for service receivable, risk pool settlements, incentive receivables, management fee income, and other receivables. Accounts receivable are recorded and stated as the amount expected to be collected.

The Company’s receivables – related parties are comprised of risk pool settlements, management fee income, and other receivables. Receivables – related parties are recorded and stated at the amount expected to be collected.

Capitation receivables relate to each health plan’s capitation and are usually received by the Company in the month following the month of service. Capitation receivables also include receivables from CMS related to the Company’s participation in the ACO REACH model. Risk pool settlements and incentive receivables mainly consist of the Company’s hospital shared-risk pool receivable, which is recorded quarterly based on reports received from the Company’s hospital partners and management’s estimate of the Company’s portion of the estimated risk pool surplus for open performance years. Settlement of risk pool surplus or deficits occurs approximately 18 months after the risk pool performance year is completed. Other receivables consist of amounts due from the seller associated with acquisitions, transportation reimbursements from the hospitals, and stop-loss insurance premium reimbursements.

81

The Company maintains reserves for potential credit losses on the receivables. Management reviews the composition of the Company’s receivables and analyzes historical bad debts, customer concentrations, customer creditworthiness, current economic trends, and changes in customer payment patterns to evaluate the adequacy of these reserves. The Company also regularly analyzes the ultimate collectability of accounts receivable after certain stages of the collection cycle using a look-back analysis to determine the amount of receivables subsequently collected, and adjustments are recorded when necessary. Reserves are recorded based on historical trends. Any change in such estimate of reserves are recorded in the period when such change is identified.

Receivables are recorded when the Company is able to determine amounts receivable under applicable contracts and agreements based on information provided, and collection is reasonably likely to occur. Regarding the credit loss standard, the Company continuously monitors its collections of receivables. Our expectation is that the historical credit loss experienced across our receivable portfolio is materially similar to any current expected credit losses that would be estimated under the current expected credit losses (“CECL”) model.

Fair Value Measurements

The Company’s financial instruments include cash and cash equivalents, restricted cash, investment in marketable securities, receivables, loans receivable – related parties, accounts payable, certain accrued expenses, capital lease obligations, bank loan, line of credit – related party, and long-term debt. The carrying values of the financial instruments classified as current in the accompanying consolidated balance sheets are considered to be at their fair values due to the short maturity of these instruments. The carrying amount of the loan receivables – related parties, net of current portion, bank loan, capital lease obligations line of credit - related party, and long-term debt approximate fair value as they bear interest at rates that approximate current market rates for debt with similar maturities and credit quality. The FASB’s Accounting Standards Codification (“ASC”) 820, Fair Value Measurement (“ASC 820”), applies to all financial assets and financial liabilities that are measured and reported on a fair value basis and requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. ASC 820 establishes a fair value hierarchy for disclosures of the inputs to valuations used to measure fair value.

This hierarchy prioritizes the inputs into three broad levels as follows:

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date.

Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates and yield curves), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3—Unobservable inputs that reflect assumptions about what market participants would use in pricing the asset or liability. These inputs would be based on the best information available, including the Company’s own data.

Business Combinations

The Company uses the acquisition method of accounting for all business combinations, which requires assets and liabilities of the acquiree to be recorded at fair value, to measure the fair value of the consideration transferred, including contingent consideration, to be determined on the acquisition date, and to account for acquisition-related costs separately from the business combination which are expensed as incurred.

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Intangible Assets and Long-Lived Assets

Intangible assets with finite lives include network relationships, management contracts, member relationships, patient management platform, tradename/trademarks, and developed technology. The valuations of these intangible assets are based on the multi-period excess earnings method, cost to recreate method, or the relief from royalty method. Network relationships are amortized based on the discounted cash flow rate or using the straight-line method. Management contracts, patient management platform, and tradename/trademarks are amortized using the straight-line method. Member relationships are amortized using the discounted cash flow method. Intangible assets are net of accumulated amortization and impairment losses, if any.

Finite-lived intangibles and long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the expected future cash flows from the use of such assets (undiscounted and without interest charges) are less than the carrying value, a write-down would be recorded to reduce the carrying value of the asset to its estimated fair value. Fair value is determined based on appropriate valuation techniques.

Goodwill and Intangible Assets

Under ASC 350, Intangibles – Goodwill and Other, goodwill and indefinite-lived intangible assets are reviewed at least annually for impairment under a two-step process.

•
Step 1—Under a qualitative assessment, determine if there are indicators of impairment. If so, proceed to Step 2.

•
Step 2—Under a quantitative assessment, if the fair value of each reporting unit is less than its carrying value, there is an impairment.

The Company may also elect to skip the qualitative testing and proceed directly to quantitative testing. The Company’s four reporting units consist of the following:

•
Care Partners – IPA;

•
Care Partners – ACO;

•
Care Delivery; and

•
Care Enablement.

An impairment loss is recognized if the carrying value of a reporting unit exceeds its fair value. If this event arises, the impairment loss recorded is equal to the excess of the carrying value of the reporting unit over its fair value.

At least annually, indefinite-lived intangible assets are tested for impairment. Impairment for intangible assets with indefinite lives exists if the carrying value of the intangible asset exceeds its fair value. The fair values of indefinite-lived intangible assets are determined using valuation techniques based on estimates, judgments, and assumptions management believes are appropriate in the circumstances.

Accrual of Medical Liabilities

The Company’s Care Partners segment is responsible for integrated care that the associated physicians and contracted hospitals provide to their enrollees. The Company’s Care Partners segment provides integrated care to HMOs, Medicare, and Medi-Cal enrollees through a network of contracted providers under sub-capitation and direct patient service arrangements. Medical costs for professional and institutional services rendered by contracted providers are recorded as cost of services, excluding depreciation and amortization, in the accompanying consolidated statements of income.

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An estimate of amounts due to contracted physicians, hospitals, and other professional providers is included in medical liabilities in the accompanying consolidated balance sheets. Medical liabilities include claims reported as of the balance sheet date and estimated IBNR claims. Such estimates are developed using actuarial methods and are based on numerous variables, including the utilization of healthcare services, historical payment patterns, cost trends, product mix, seasonality, changes in membership, and other factors. The estimation methods and the resulting reserves are periodically reviewed and updated. Many of the medical contracts are complex in nature and may be subject to differing interpretations regarding amounts due for the provision of various services. Such differing interpretations may not come to light until a substantial period of time has passed following the contract implementation.

Capitation, Net

The Company participates in the ACO REACH model with CMS. By entering into a contract with CMS, an ACO voluntarily takes on operational, financial, and legal responsibilities and risks that no party has, individually or collectively, under the existing FFS model. For each performance year, CMS will pay a total benchmark amount, determined unilaterally by CMS in advance but subject to prospective adjustments throughout the year, for the totality of care provided to the ACOs’ population of aligned beneficiaries over the course of that year. The benchmark is net of a quality withholding applied by CMS. At the end of each performance year, a portion, or all, of the quality withholding can be earned based on the ACOs’ performance. ACO REACH capitation revenue is recognized based on the estimated transaction price to transfer the service for a distinct increment of the series (i.e., month) and is recognized net of quality incentives/penalties. We recognize revenue related to the ACO Reach Model within capitation revenue in our consolidated statements of income because of the similar shared characteristics to our other capitation revenue. Revenue is recorded on a gross basis and is comprised of capitated fees for medical services provided, for which the Company is assigned the responsibility and management of.

Risk Pool Settlements and Incentives

Certain IPAs enter into hospital shared-risk capitation arrangements with certain health plans and local hospitals, where the hospital is responsible for providing, arranging, and paying for institutional risk, and the IPA is responsible for providing, arranging, and paying for professional risk. Under a hospital shared-risk pool-sharing agreement, the IPA generally receives a percentage of the net surplus from the affiliated hospital’s risk pools with HMOs after deductions for the affiliated hospital’s costs. Advance settlement payments are typically made quarterly in arrears if there is a surplus. The Company’s risk pool settlements under hospital shared-risk capitation arrangements are recognized using the most likely amount methodology, and amounts are only included in revenue to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved. The receivables related to these risk pool arrangements incorporate estimates of the affiliated hospitals’ claims costs, including IBNR claims which include actuarial methods based on utilization of healthcare services, historical payment patterns, cost trends, seasonality, changes in membership, and other factors.

Under capitated arrangements with certain HMOs, certain IPAs participate in one or more health plan shared-risk arrangements relating to the provision of institutional services to enrollees and thus can earn additional revenue or incur losses based upon the enrollee utilization of institutional services. Health plan shared-risk arrangements are entered into with certain health plans, which are administered by the health plan, where the IPA is responsible for rendering professional services, but the health plan does not enter into a capitation arrangement with a hospital, and therefore the health plan retains the institutional risk. Health plan shared-risk deficits, if any, are not payable until and unless (and only to the extent) risk-sharing surpluses are generated. At the termination of the HMO contract, any accumulated deficit will be extinguished. Final settlement of risk pools for prior contract years generally occurs in the third or fourth quarter of the following year. The Company has limited insight from the health plans on the amount and timing of the health plan shared-risk payments. These amounts are considered to be fully constrained and only recorded when such payments can be reasonably estimated and to the extent that it is probable that a significant reversal will not occur once such settlement occurs.

84

In addition to risk-sharing revenues, the Company also receives incentives under “pay-for-performance” programs for quality medical care, based on various criteria. As an incentive to promote quality care, certain HMOs have designed quality incentive programs and commercial generic pharmacy incentive programs to compensate the Company for its efforts to improve the quality of services and efficient and effective use of pharmacy supplemental benefits provided to HMO members. The incentive programs track specific performance measures and calculate payments to the Company based on the performance measures. The Company’s incentives under “pay-for-performance” programs are recognized using the most likely methodology.

Share-Based Compensation

The Company maintains a stock-based compensation program for employees, non-employees, directors, and consultants. From time to time, the Company issues shares of its common stock to its employees, directors, and consultants, which shares may be subject to the Company’s repurchase right (but not obligation), that vest based on time-based and/or performance-based vesting schedules. The value of share-based awards is recognized as compensation expense and adjusted for forfeitures as they occur. Compensation expenses for time-based awards are recognized on a cumulative straight-line basis over the vesting period of the awards. Share-based awards with performance conditions are recognized to the extent the performance conditions are probable to be achieved. Compensation expenses for performance-based awards are recognized on an accelerated attribution method. The grant date fair value of the restricted stock awards is the grant date’s closing market price of the Company’s common stock. The fair value of options granted is determined using the Black-Scholes option pricing model and includes several assumptions, including expected term, expected volatility, expected dividends, and risk-free rates. The expected term is presumed to be the midpoint between the vesting date and the end of the contractual term. The expected stock price volatility is determined based on an average of historical volatility. The expected dividend yield is based on the Company’s expected dividend payouts. The risk-free interest rate is based on the U.S. Constant Maturity curve over the expected term of the option at the time of grant.

Leases

The Company determines if an arrangement is a lease at its inception. The expected term of the lease used for computing the lease liability and right-of-use asset and determining the classification of the lease as operating or financing may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company elected practical expedients for ongoing accounting that were provided by the new standard comprised of the following:

•
The election for classes of underlying assets to not separate non-lease components from lease components, and

•
The election for short-term lease recognition exemption for all leases with under twelve-month terms.

The present value of the lease payments is calculated using a rate implicit in the lease, when readily determinable. However, as most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate to determine the present value of the lease payments for the majority of its leases.

Variable Interest Model

If an entity is determined to be a VIE, the Company evaluates whether the Company is the primary beneficiary. The primary beneficiary analysis is a qualitative analysis based on power and economics. The Company consolidates a VIE if both power and benefits belong to the Company — that is, the Company has:

•
The power to direct the activities of a VIE that most significantly influence the VIE’s economic performance (power), and

•
The obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE (economics).

The Company consolidates VIEs whenever it is determined that the Company is the primary beneficiary.

85

Investment in Other Entities — Equity Method

The Company accounts for certain investments using the equity method of accounting when it is determined that the investment provides the Company with the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if the Company has an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investee’s board of directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the investment, originally recorded at cost, is adjusted to recognize the Company’s share of net earnings or losses of the investee and is recognized in the accompanying consolidated statements of income under “Income from equity method investments” and also is adjusted by contributions to and distributions from the investee. During the year ended December 31, 2024, the Company recognized no impairment loss.

Non-controlling Interests

The Company consolidates entities in which the Company has a controlling financial interest. The Company consolidates subsidiaries in which the Company holds, directly or indirectly, more than 50% of the voting rights, and VIEs in which the Company is the primary beneficiary. Non-controlling interests represent third-party equity ownership interests (including equity ownership interests held by certain VIEs) in the Company’s consolidated entities. Net income (loss) attributable to non-controlling interests is disclosed in the consolidated statements of income.

Mezzanine Deficit

Pursuant to APC’s shareholder agreements, in the event of a disqualifying event, as defined in the agreements, APC could be required to repurchase its shares from the respective shareholders based on certain triggers outlined in the shareholder agreements. As the redemption feature of the shares is not solely within the control of APC, the equity of APC does not qualify as permanent equity and has been classified as mezzanine or temporary equity. Accordingly, the Company recognizes non-controlling interests in APC as mezzanine deficit in the consolidated financial statements. APC’s shares were not redeemable, and it was not probable that the shares would become redeemable as of December 31, 2024 and 2023.

Income Taxes

Federal and state income taxes are computed at currently enacted tax rates less tax credits using the asset and liability method. Deferred taxes are adjusted for both items that do not have tax consequences and for the cumulative effect of any changes in tax rates from those previously used to determine deferred tax assets or liabilities. Tax provisions include amounts that are currently payable, changes in deferred tax assets and liabilities that arise because of temporary differences between the timing of when items of income and expense are recognized for financial reporting and income tax purposes, changes in recognition of tax positions, and any changes in the valuation allowance caused by a change in judgment about the realizability of the related deferred tax assets. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.

The Company uses a recognition threshold of more-likely-than-not and a measurement attribute on all tax positions taken, or expected to be taken, in a tax return in order to be recognized in the consolidated financial statements. Once the recognition threshold is met, the tax position is measured to determine the actual amount of benefit to recognize in the consolidated financial statements.

Effect of New Accounting Standards

See “Recent Accounting Pronouncements” under Note 2—“Basis of Presentation and Summary of Significant Accounting Policies” to our consolidated financial statements under Item 8 in this Annual Report on Form 10-K for additional information.

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