Astrana Health Inc

Description of Business

Overview

Unless the context dictates otherwise, references in these notes to the financial statements to the “Company,” “we,” “us,” “our,” and similar words are references to Astrana Health, Inc. (“Astrana”), formerly known as Apollo Medical Holdings, Inc., and its consolidated subsidiaries and affiliated entities, as appropriate, including its consolidated variable interest entities (“VIEs”).

Headquartered in Alhambra, California, Astrana is a leading provider-centric, technology-powered, risk-bearing healthcare company. Leveraging its proprietary end-to-end technology solutions, Astrana operates an integrated healthcare delivery platform that enables providers to successfully participate in value-based care arrangements, thus empowering them to deliver accessible, high-quality care to patients in a cost-effective manner. Together with Astrana’s affiliated physician groups and consolidated subsidiaries and VIEs, the Company provides value-based care enablement services and care delivery with its consolidated care partners to serve patients in California, Nevada, and Texas, the majority of whom are covered by private or public insurance provided through Medicare, Medicaid, and commercial, with some portion of revenue from self-pay patients. The Company provides value-based care services to each major constituent of the healthcare delivery system, including patients, families, primary care physicians, specialists, acute care hospitals, alternative sites of inpatient care, ancillary providers, and health plans. The Company’s physician network consists of primary care physicians, specialist physicians, physician and specialist extenders, and hospitalists.

Segments

The Company’sthree reportable segments are Care Partners, Care Delivery, and Care Enablement, which are described as follows:

Care Partners

The Care Partners segment is focused on building and managing high-quality and high-performance provider networks by partnering with, empowering, and investing in strong provider partners aligned on a shared vision for coordinated care delivery. By leveraging the Company’s unique care enablement platform and ability to recruit, empower, and incentivize physicians to effectively manage total cost of care, the Company is able to organize partnered providers into successful multi-payer, risk-bearing organizations that take on varying levels of risk based on total cost of care across membership in all lines of business, including Medicare Advantage, Medicaid, Commercial, Exchange, and Medicare fee for service (“FFS”). The Company’s healthcare delivery entities consist of a network of risk-bearing organizations (“RBOs”) that encompass independent practice associations (“IPAs”), accountable care organizations (“ACOs”), and state-specific entities such as Restricted Knox-Keene licensed health plans in California. These entities are tasked with the coordination and provision of high-quality care to patients within Astrana’s ecosystem. This helps provide a seamless continuity of care among patients in different age groups, stages of life, and life circumstances. Beginning in 2024, in addition to participating in the ACO REACH Model, the Company began participating in the Medicare Shared Savings Program (“MSSP”). The MSSP was created to promote accountability and improve coordination of care for Medicare beneficiaries.

Care Delivery

The Company’s Care Delivery segment is a patient-centric, data-driven care delivery organization focused on delivering high-quality and accessible care to all patients. The Company’s care delivery organization includes primary care, multi-specialty care, and ancillary care services. This segment includes the following:

•

Primary care clinics, including post-acute care services;

•

Specialty care clinics and inpatient services, including cardiac care, endocrinology, and ophthalmology as well as hospitalist and intensivist services; and

•

Ancillary service providers, such as urgent care centers, outpatient imaging centers, ambulatory surgery centers, and full-service labs.

Care Enablement

The Company’s Care Enablement segment represents a comprehensive platform that integrates clinical, operational, financial, and administrative information, all powered by the Company’s proprietary technology suite. This platform enhances the delivery of high-quality, value-based care to patients and helps lead to superior clinical and financial outcomes. The Company provides solutions to payers and providers, including independent physicians, provider and medical groups, and ACOs. The Company’s platform meets providers and payers wherever they are on the spectrum of total cost of care, offering solutions for fee-for-service entities to providers open to taking upside and downside risk on professional and institutional spend, and across all patient types, including Medicare, Medicaid, Commercial, and Exchange patients. This segment includes the Company’s wholly owned subsidiaries that operate as management services organizations (“MSOs”), which enter into long-term management and/or administrative services agreements with RBOs and other providers. By leveraging the Company’s care enablement platform, providers and payers can improve their ability to deliver high-quality care to their patients and achieve better patient outcomes.

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated balance sheet at December 31, 2023, has been derived from the Company’s audited consolidated financial statements, but does not include all annual disclosures required by generally accepted accounting principles in the United States of America (“U.S. GAAP”). The accompanying unaudited condensed consolidated financial statements as of September 30, 2024, and for the three and nine months ended September 30, 2024 and 2023, have been prepared in accordance with U.S. GAAP for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes to the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 29, 2024. In the opinion of management, all material adjustments (consisting of normal recurring adjustments as well as intercompany accounts and transactions, which have been eliminated) considered necessary for a fair presentation have been made to make the condensed consolidated financial statements not misleading, as required by Regulation S-X, Rule 10-01. Operating results for the three and nine months ended September 30, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, 2024, or any future periods.

Principles of Consolidation

The condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, and the condensed consolidated statements of income for the three and nine months ended September 30, 2024 and 2023, include Astrana’s wholly owned subsidiaries and consolidated VIEs.

The unaudited condensed consolidated interim financial statements have been prepared under the assumption that users of the interim financial data have either read, or have access to, our audited consolidated financial statements for the fiscal year ended December 31, 2023.

Use of Estimates

The preparation of the condensed 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 condensed 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 claims), determination of hospital shared-risk and health plan shared-risk revenue and receivables (including constraints and completion 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.

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.

Reportable Segments

As of September 30, 2024, the Company operates inthree reportable segments:

•

Care Partners;

•

Care Delivery; and

•

Care Enablement.

Refer to Note 1 — “Description of Business” and Note 18 — “Segments” to the condensed consolidated financial statements for information on the Company’s segments.

Cash and Cash Equivalents

The Company’s cash and cash equivalents primarily consist of money market funds and certificates of deposit. The Company considers all highly liquid investments that are both readily convertible into known amounts of cash and mature within ninety days from their date of purchase to be cash equivalents.

The Company maintains its cash in deposit accounts with several banks, which at times may exceed the insured limits of the Federal Deposit Insurance Corporation (“FDIC”). The Company believes it is not exposed to any significant credit risk with respect to its cash and cash equivalents and restricted cash. As of September 30, 2024 and December 31, 2023, the Company’s deposit accounts with banks exceeded the FDIC’s insured limit by approximately$359.3 million and$318.9 million, respectively. The Company has not experienced any losses to date and performs ongoing evaluations of these financial institutions to limit the Company’s concentration of risk exposure.

Receivables, Receivables – Related Parties, Other Receivables, and Loan Receivables

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 at 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.

The Company’s loan receivables consist of promissory notes that accrue interest per annum. As of September 30, 2024, promissory notes are expected to be collected by their maturity dates.

Capitation receivables relate to each health plan’s capitation and are 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 receivables from fee-for-service (“FFS”) reimbursement for patient care, certain expense reimbursements, transportation reimbursements from the hospitals, and stop-loss insurance premium reimbursements.

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 primarily on a specific identification basis.

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.

Concentrations of Credit Risks

The Company disaggregates revenue from contracts by service type and payer type. This level of detail provides useful information pertaining to how the Company generates revenue by significant revenue stream and by type of direct contracts. The condensed consolidated statements of income present disaggregated revenue by service type. The following table presents disaggregated revenue generated by payer type for thethree and nine months ended September 30, 2024 and 2023 (in thousands):

The Company had major payers that contributed the following percentages of net revenue for thethree and nine months ended September 30, 2024 and 2023:

*Less than 10% of total net revenues

The Company had major payers that contributed to the following percentages of receivables and receivables – related parties:

Revenue Recognition

The Company receives payments from the following sources for services rendered:

•

Commercial insurers;

•

Federal government under the Medicare program administered by CMS;

•

State governments under Medicaid and other programs;

•

Other third-party payers (e.g., hospitals and IPAs); and

•

Individual patients and clients.

Revenue primarily consists of the following:

•

Capitation revenue;

•

Risk pool settlements and incentives;

•

Management fee revenue; and

•

FFS revenue.

Revenue is recorded in the period in which services are rendered or the period in which the Company is obligated to provide services. The form of billing and related risk of collection for such services may vary by type of revenue and the customer.

Risk Pool Settlements and Incentives

Medicare Shared Savings Program Revenue

Beginning in 2024, Astrana participates in MSSP. The MSSP has multiple risk tracks, and Astrana is currently participating in the ENHANCED risk track. Under the MSSP Model, Astrana recruits a group of Participant and Preferred (in-network) Providers. Based on the Participant Providers that join our ACO, CMS grants the Company a pool of Traditional Medicare patients (beneficiaries) to manage (the “MSSP Aligned Beneficiaries”). The Company’s MSSP Aligned Beneficiaries will receive services from physicians and other medical service providers that are both in-network and out-of-network. CMS continues to pay participants and preferred providers on a fee-for-service basis for Medicare-covered services provided to MSSP Aligned Beneficiaries. The Company continues to bear risk on all Medicare expenditures (both in-network and out-of-network), excluding drug expenditures covered by Medicare Part D, based on a budgetary benchmark established with CMS. Astrana’s shared savings or losses in managing the Company’s beneficiaries are generally determined on an annual basis after reconciliation with CMS. Pursuant to Astrana’s risk-share agreement with CMS, the Company is eligible to receive the surplus (“shared savings”) or is liable for the deficit (“shared losses”) according to the budgetary benchmark established by CMS based on Astrana’s efficiency, or lack thereof, in managing the expenditures associated with the Company’s MSSP Aligned Beneficiaries. The Company estimates the shared service revenue by analyzing the activities during the relevant time period in contemplation of the agreed-upon benchmarks, metrics, performance criteria, and attribution criteria based on those and any other contractually defined factors. Revenue is not recorded and is constrained until the shared service revenue can be reasonably estimated by the Company and to the extent that it is probable that a significant reversal will not occur once any uncertainty associated with the variable consideration is subsequently resolved.

Contract Liabilities (Deferred Revenue)

Contract liabilities are recorded when cash payments are received in advance of the Company’s performance. As of September 30, 2024 and December 31, 2023, the Company’s contract liability balance was$2.2 million and $0.7 million, respectively. Approximately$0.7 million of the Company’s contract liability accrued as of December 31, 2023, has been recognized as revenue during the nine months ended September 30, 2024. Contract liability is presented within accounts payable and accrued expenses in the accompanying condensed balance sheets.

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 condensed 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 condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In November 2023, the Financial Standards Accounting Board (FASB) issued Accounting Standards Update (ASU) 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for the Company’s annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted. The Company does not expect the adoption of ASU 2023-07 to have a significant impact on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topics 740): Improvements to Income Tax Disclosures” to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for the Company’s annual periods beginning January 1, 2025, with early adoption permitted. The Company does not expect the adoption of ASU 2023-09 to have a significant impact on its consolidated financial statements and related disclosures.

Business Combinations and Goodwill

Airline Complete Healthcare of Texas, Ltd. (“Airline Complete”)

On July 1, 2024, the Company, through its consolidated VIE, purchased 100% of the equity interest in Airline Complete. Airline Complete is a primary care clinic located in Texas. The purchase price consisted of cash funded on July 1, 2024.

Advanced Health Management Systems, L.P. (“AHMS”)

On March 31, 2024, the Company, through its wholly owned subsidiary, purchased all of the outstanding general and limited partnership interests of AHMS. AHMS’s wholly owned subsidiary operates a Restricted Knox-Keene licensed health plan in Los Angeles, California. Total consideration for the acquisition was $63.9 million. The consideration is subject to changes based on working capital adjustments, which are settled one year from the close date as per the purchase agreement.

Prime Community Care of Central Valley, Inc. (“PCCCV”)

On March 29, 2024, the Company, through its consolidated VIE, acquired certain assets of PCCCV, a professional medical corporation that operates in Central California. Total consideration of the acquisition was approximately $10.5 million, consisting of cash funded upon the close date and contingent consideration fair valued at $2.5 million on March 29, 2024 (“PCCCV contingent considerations”). Refer to Note 19 - “Fair Value Measurements of Financial Instruments” for additional information on contingent considerations.

Community Family Care Medical Group IPA, Inc. (“CFC”)

On January 31, 2024, the Company, through its consolidated VIE, acquired certain assets of CFC. CFC is an RBO that manages the healthcare of members in the Los Angeles, California, area. The group serves patients across Medicare, Medicaid, and Commercial payers. At September 30, 2024, the total consideration for the purchase was $121.0 million, consisting of $91.0 million cash funded upon the close date as per the purchase agreement, $22.0 million of the Company’s common stock, resulting in the issuance of 631,712 shares of common stock, and contingent consideration with a fair value of $8.0 million on January 31, 2024 (“CFC contingent considerations”). The consideration is subject to changes based on working capital adjustments which is settled one year from the close date as per the purchase agreement. Refer to Note 19 - “Fair Value Measurements of Financial Instruments” for additional information on contingent considerations.

Advanced Diagnostic and Surgical Center, Inc. (“ADSC”)

On January 1, 2024, the Company acquired 95% of the equity interest of ADSC. ADSC is a diagnostic and surgical center that also provides ambulatory surgery services. The total consideration consisted of cash funded upon the close of the transaction and contingent consideration with a fair value of $3.6 million on January 1, 2024 (“ADSC contingent considerations”). Refer to Note 19 - “Fair Value Measurements of Financial Instruments” for additional information on contingent consideration.

The Company is in the process of finalizing the purchase price allocation for CFC and AHMS as a result of the purchase price not being finalized until one year from the close date. Therefore, the balances are subject to change as a result of any working capital adjustments. The following table summarizes the purchase price allocation of the fair value of assets acquired and liabilities assumed related to each acquisition at the acquisition date for acquisitions that closed during thenine months ended September 30, 2024 (in thousands):

*Others consist of estimated fair values of the assets acquired, net of cash acquired, related to ADSC, PCCCV, and Airline Complete.

Following the acquisition dates, the operating results have been included in our condensed consolidated financial statements. For the period from the acquisition dates through September 30, 2024, the total revenue and net income of CFC, AHMS, ADSC, PCCCV, and Airline Complete, in the aggregate, were$235.9 million and$26.4 million, respectively.

Unaudited Pro Forma Financial Information

The pro forma financial information in the table below presents the combined results of the Company and CFC, AHMS, ADSC, PCCCV, and Airline Complete as if the acquisitions had occurred on January 1, 2023. The pro forma information presented is shown for illustrative purposes only and is not necessarily indicative of future results of operations of the Company or results of operations of the Company that would have actually occurred had the transactions been in effect for the periods presented.

The acquisitions were accounted for under the acquisition method of accounting. The fair value of the consideration for the acquired companies was allocated to acquired tangible and intangible assets and liabilities based upon their fair values. The excess of the purchase consideration over the fair value of the net tangible and identifiable intangible assets acquired was recorded as goodwill. Factors leading to goodwill being recognized are the Company’s expectation of synergies from combining operations of entities acquired and the Company, as well as the value of intangible assets that are not separately recognized, such as assembled workforce. The determination of the fair value of assets and liabilities acquired requires the Company to make estimates and use valuation techniques when market value is not readily available. Transaction costs associated with business acquisitions are expensed as they are incurred.

At the time of acquisition, the Company estimates the amount of the identifiable intangible assets based on a valuation and the facts and circumstances available at the time. The Company determines the final value of the identifiable intangible assets as soon as information is available, but not more than one year from the date of acquisition.

Goodwill is not deductible for tax purposes. The Companyhadno impair ment of its goodwill or indefinite-lived intangible assets during the three and nine months ended September 30, 2024 and 2023.

The change in the carrying value of goodwill for thenine months ended September 30, 2024 was as follows (in thousands):

Intangible Assets, Net

At September 30, 2024, the Company’s intangible assets, net, consisted of the following (in thousands):

At December 31, 2023, the Company’s intangible assets, net, consisted of the following (in thousands):

For the three months ended September 30, 2024 and 2023, the Company recognized amortization expenses of$6.7 million and$3.2 million, respectively, in depreciation and amortization on the accompanying condensed consolidated statements of income. For the nine months ended September 30, 2024 and 2023, the Company recognized amortization expenses of$18.0 million and$9.5 million, respectively, in depreciation and amortization on the accompanying condensed consolidated statements of income. The Company determined that there wasno impai rment of its finite-lived intangible or long-lived assets during the nine months ended September 30, 2024 and 2023.

Future amortization expense is estimated to be as follows for the following years ending December 31 (in thousands):

Investments in Other Entities

Equity Method

For thenine months ended September 30, 2024 and 2023, the Company’s equity method investment balance consisted of the following (in thousands):

*Other consists of smaller equity method investments.

** Investments were solely for the benefit of APC and its shareholders.

For three months ended September 30, 2024 and 2023, the Company’s equity method investment balance consisted of the following (in thousands):

• Other consists of smaller equity method investments.

** Investments were solely for the benefit of APC and its shareholders.

I Health, Inc.

On March 31, 2024, a wholly owned subsidiary of the Company acquired a 25% equity interest in I Health, Inc. (“I Health”), a management service organization. The Company accounts for its investment in I Health under the equity method of accounting as the Company has the ability to exercise significant influence, but not control over, I Health’s operations. The purchase agreement includes a call option that allows the Company to purchase an additional 25% equity interest on each of the first, second, and third anniversary of the purchase (“I Health Call Option”). The total purchase price for this arrangement was $9.9 million, consisting of $3.9 million in the form of a call option, and $6.0 million as the initial investment of the 25% equity interest. Refer to Note 19 - “Fair Value Measurements of Financial Instruments” for additional information about the I Health Call Option.

There wasno impairment loss recorded related to equity method investments for the three and nine months ended September 30, 2024 and 2023.

Loans Receivable

Loans receivable

IntraCare

In July 2023, the Company entered into afive-year convertible promissory note with IntraCare as the borrower. The principal on the note is $25.0 million, with interest on the outstanding principal amount and unpaid interest at a rate per annum equal to 8.81%, compounded annually. In the event that the convertible promissory note remains outstanding on or after the maturity date of July 27, 2028, the outstanding principal balance and any unpaid accrued interest shall, upon the election of the Company, convert into IntraCare preferred shares.

BASS Medical Group

On January 29, 2024, the Company provided BASS Medical Group (“BASS”) with a $20.0 million senior secured promissory note (“BASS secured promissory note”). The promissory note is secured by certain assets of BASS. The BASS secured promissory note matures on January 11, 2031, and has an interest rate per annum equal to 8.21%, compounded annually. The principal on the note, including unpaid interest, is due and payable on the maturity date.

DWGAS, Inc. ("DWGAS")

On July 17, 2024, the Company entered into afive-year secured convertible promissory note with DWGAS, Inc. as the borrower (“DWGAS convertible note”). The principal on the DWGAS convertible note is $5.0 million, with interest on the outstanding principal amount and unpaid interest at a rate per annum equal to 7.5%. The promissory note is secured by a pledge of all the assets of DWGAS. On or before December 31, 2024, the Company has the option to convert the outstanding principal amount and unpaid interest into 80% ownership of DWGAS’s issued and outstanding capital stock. If the conversion is not exercised by December 31, 2024, the note will mature on July 17, 2029.

The Company assessed the outstanding loans receivable under the CECL model by assessing the party’s ability to pay by reviewing their financial history quarterly and reassessing any identified insolvency risk.

Accounts Payable and Accrued Expenses

The Company’s accounts payable and accrued expenses consisted of the following (in thousands):

Medical Liabilities

The Company’s medical liabilities consisted of the following (in thousands):

*The acquired balance includes medical liabilities from current and prior periods.

Credit Facility, Promissory Notes Payable, Bank Loans, and Lines of Credit

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

The estimated fair value of our long-term debt was determined using Level 2 inputs primarily related to comparable market prices. As of September 30, 2024 and December 31, 2023, the carrying value was not materially different from fair value, as the interest rates on the Company’s debt approximated rates currently available to the Company.

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

Amended Credit Facility

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 as party thereto, to, among other things, to 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 afive-year revolving credit facility (the “Amended 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 (which was amended to $50.0 million, as described below) and a swingline loan sub-facility of $25.0 million which expires on June 16, 2026.

On December 20, 2022, an amendment was made to the Amended Credit Agreement, in which all amounts borrowed under the Amended Credit Agreement as of the effective date were automatically converted from London Interbank Offer 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. Amounts borrowed under the Revolver Loan bear interest at an annual rate equal to either, at the Company’s option, (a) the Term SOFR Reference Rate (as defined in the Amended Credit Agreement), adjusted for any Term SOFR Adjustment (as defined in the Amended Credit Agreement) plus a spread ranging from 1.25% to 2.50%, as determined on a quarterly basis based on the Company’s Consolidated Total Net Leverage Ratio (as defined in the Amended Credit Agreement), or (b) a base rate, plus a spread ranging from 0.25% to 1.50%, as determined on a quarterly basis based on the Company’s Consolidated Total Net Leverage Ratio. As of September 30, 2024, the Company had borrowings of$146.7 million outstanding on the Revolver Loan, and the interest rate on the Revolver Loan was 7.20%.

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. The Term Loan bears interest at an annual rate equal to either, at the Company’s option, (a) the Term SOFR Reference Rate, adjusted for any Term SOFR Adjustment, plus a spread from 1.50% to 2.75%, as determined on a quarterly basis based on the Company’s Consolidated Total Net Leverage Ratio, or (b) a base rate, plus a spread of 0.50% to 1.75%, as determined on a quarterly basis based on the Company’s Consolidated Total Net Leverage Ratio. As of September 30, 2024, the outstanding borrowings on the Term Loan were$285.3 million, and the interest rate on the Term Loan was 7.20%.

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.

The Amended Credit Agreement requires the Company to comply withtwo key financial ratios, each calculated on a consolidated basis. The Company must maintain a maximum consolidated total net leverage ratio of not greater than 3.75 to 1.00 as of the last day of each fiscal quarter, provided that for any fiscal quarter during which the Company or certain subsidiaries consummate a permitted acquisition or investment, and the aggregate purchase price is greater than $75.0 million, the maximum consolidated total net leverage ratio may temporarily increase by 0.25 to 1.00 to 4.00 to 1.00. The Company must maintain a minimum consolidated interest coverage ratio of not less than 3.25 to 1.00 as of the last day of each fiscal quarter.

Under the Amended Credit Agreement, the terms and conditions of the Guaranty and Security Agreement (the “Guaranty and Security Agreement”) between the Company, Astrana Health Management, Inc. (“AHM”), and Truist Bank remain in effect. Pursuant to the Guaranty and Security Agreement, the Company and AHM have granted the lenders under the Amended Credit Agreement a security interest in substantially all of their assets to secure obligations under the Amended Credit Agreement, including, without limitation, all stock and other equity issued by their subsidiaries (including AHM) and all rights with respect to the $545.0 million loan from the Company to Astrana Medical.

Promissory Note Payable

FYB Promissory Note Agreement with CCHCA

On May 1, 2023, the Company acquired 100% of the equity interest in For Your Benefit, Inc. (“FYB”). As part of the acquisition, the Company assumed FYB's promissory note payable to Chinese Community Health Care Association (“CCHCA”). The principal on the promissory note was $2.0 million, with a maturity date of May 9, 2024. The interest rate was the prime rate plus 1.0%. The prime rate was updated annually on the effective date of the note and as published by the Wall Street Journal. On September 30, 2024, upon the settlement of the purchase price of the Company’s acquisition of FYB, the FYB promissory note was forgiven to resolve the settlement amount due from the sellers to the Company. As a result, during the three and nine months ended September 30, 2024, the Company wrote off the principal of $2.0 million and any unpaid interest within other income in the accompanying condensed consolidated statements of income.

I Health Promissory Note Payable - Related Party

On April 1, 2024, the Company received $8.3 million as a promissory note (the“I Health 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 Option (see Note 5 — “Investments in Other Entities - Equity Method”). The promissory note has an interest rate of 4.30% per annum on the principal amount. Accrued interest is payable on each anniversary of the promissory note payable. I Health is accounted for under the equity method based on the 25% equity ownership interest held by the Company (see Note 5 — “Investments in Other Entities - Equity Method”). 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.

Deferred Financing Costs

At September 30, 2024 and December 31, 2023, unamortized deferred financing costs were$4.8 million and$6.1 million, respectively. As of September 30, 2024 and December 31, 2023,$1.0 million and$2.6 million, respectively, of unamortized deferred financing costs was recognized in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets, and consisted of unamortized deferred financing costs related to unborrowed amounts available on the Revolver Loan. As of September 30, 2024 and December 31, 2023,$3.7 million and$3.6 million, respectively, of unamortized deferred financing costs was recorded as a direct reduction against the amounts borrowed on the Term Loan and Revolver. The remaining unamortized deferred financing costs related to the Revolver Loan are amortized over the life of the Revolver Loan using the straight-line method. The remaining unamortized deferred financing costs related to the Term Loan are amortized over the life of the Term Loan using the effective interest rate method. Interest expense in the condensed consolidated statements of income included amortization of deferred debt issuance costs.

Effective Interest Rate

The Company’s average effective interest rate on its total debt during the nine months ended September 30, 2024 and 2023, was 7.08% and 6.07%, respectively.

Lines of Credit

APC Business Loan

On September 10, 2019, the APC Business Loan Agreement with Preferred Bank (the “APC Business Loan Agreement”) was amended to, among other things, decrease loan availability to $4.1 million, limit the purpose of the indebtedness under the APC Business Loan Agreement to the issuance of standby letters of credit, and include as a permitted lien, the security interest in all of its assets that APC granted to AHM under a Security Agreement dated on or about September 11, 2019, securing APC’s obligations to AHM under their management services agreement dated as of July 1, 1999, as amended.

Standby Letters of Credit

The Company established irrevocable standby letters of credit with Truist Bank under the Amended Credit Agreement for a total of$25.0 million for the benefit of CMS and certain health plans as of September 30, 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 additionalone-year periods from the present or any future expiration date.

Certain IPAs consolidated by the Company established irrevocable standby letters of credit with Preferred Bank under the APC Business Loan Agreement for a total of$3.9 million for the benefit of certain health plans as of September 30, 2024. The standby letters of credit are automatically extended without amendment for additionalone-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.

Mezzanine and Stockholders’ Equity

Mezzanine Equity

APC

As the redemption feature of the APC shares is not solely within the control of APC, the equity of APC does not qualify as permanent equity and has been classified as non-controlling interests in APC as mezzanine or temporary equity. APC’s shares were not redeemable, and it was not probable that the shares would become redeemable as of September 30, 2024 and December 31, 2023.

Stockholders’ Equity

As of September 30, 2024,41,048 holdback shares have not been issued to certain former AHM shareholders who were AHM shareholders at the time of closing of the 2017 merger of Astrana with AHM, as they have yet to submit properly completed letters of transmittal to Astrana in order to receive their pro rata portion of Astrana common stock as contemplated under the 2017 merger agreement. Pending such receipt, such former AHM shareholders have the right to receive, without interest, their pro rata share of dividends or distributions with a record date after the effectiveness of the 2017 merger. The condensed consolidated financial statements have treated such shares of common stock as outstanding, given the receipt of the letter of transmittal is considered perfunctory, and the Company is legally obligated to issue these shares in connection with the 2017 merger.

Preferred Stock – Series A and Series B

In October 2015, AHM purchased from Astrana, in a private offering of securities,1,111,111 units, each unit consisting ofone share of Astrana’s Series A Convertible Preferred Stock (the “Series A Preferred Stock”), and a common stock warrant to purchaseone share of Astrana’s common stock at an exercise price of $9.00 per share, which expired in October 2020. In March 2016, AHM purchased from Astrana, in a private offering of securities,555,555 units, each unit consisting ofone share of Astrana’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”), and a common stock warrant to purchaseone share of Astrana’s common stock at an exercise price of $10.00 per share, which expired in March 2021. In April 2024, the Company repurchased all outstanding shares of preferred stock held by AHM. On April 24, 2024, the Company filed a Certificate of Elimination to its Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, eliminating from the Restated Certificate of Incorporation all matters set forth in the Amended and Restated Certificate of Designation with respect to the Company’s Series A Preferred Stock and Series B Preferred Stock and returning each of the Series A Preferred Stock and Series B Preferred Stock to the status of authorized and unissued shares of preferred stock of the Company, without designation as to series. As a result, there wereno authorized or outstanding shares of the Series A Preferred Stock or Series B Preferred Stock as of September 30, 2024.

Treasury Stock

As of September 30, 2024 and December 31, 2023, APC owned 7,132,698 shares of Astrana’s common stock. While such shares of Astrana’s common stock are legally issued and outstanding, they are treated as treasury shares for accounting purposes and excluded from shares of common stock outstanding in the condensed consolidated financial statements. APC’s ownership in Astrana was 13.00% and 13.22% as of September 30, 2024 and December 31, 2023, respectively.

As of September 30, 2024 and December 31, 2023, the Company had repurchased 3,466,051 and 3,451,642 shares, respectively, of its common stock. These are included as treasury stock.

As of September 30, 2024 and December 31, 2023, the total treasury stock, including the Company’s stock held by APC, was 10,598,749 and 10,584,340, respectively.

Dividends

During the three months ended September 30, 2024 and 2023, certain consolidated subsidiaries of the Company paid distributions of$0.2 million and$1.4 million, respectively, to the shareholders who own the non-controlling interests in the entities. During the nine months ended September 30, 2024 and 2023, certain consolidated subsidiaries of the Company paid distributions of$2.1 million and$1.6 million, respectively, to the shareholders who own the non-controlling interests in the entities.

Stock-Based Compensation

The following table summarizes the stock-based compensation expense recognized under all of the Company’s stock plans for thethree and nine months ended September 30, 2024 and 2023, and associated with the issuance of restricted stock awards and units and vesting of stock options that are included in general and administrative expenses in the accompanying condensed consolidated statements of income (in thousands):

Unrecognized compensation expense related to total share-based payments outstanding as of September 30, 2024, was$31.7 million.

Options

The Company’s outstanding stock options consisted of the following:

No options were granted during the three and nine months ended September 30, 2024. For the three and nine months ended September 30, 2024, there were 75,455 options exercised from which the Company received cash proceeds of $0.2 million and from which 21,655 shares were withheld from issuance upon exercise of options in order to cover the cost of the exercise by the participants. During thenine months ended September 30, 2023, options were exercised for 125,000 shares of the Company’s common stock, resulting in proceeds of$1.3 million. There wereno shares withheld from issuance upon exercise of options in order to cover the cost of the exercise by the participant during the three and nine months ended September 30, 2023.

Restricted Stock Awards and Units

The Company grants restricted stock awards and units to officers and employees, which are earned based on service and/or performance conditions. The grant date fair value of the restricted stock awards and units are the grant date’s closing market price of the Company’s common stock. During the nine months ended September 30, 2024, the Company granted 519,696 shares of restricted stock awards and units with performance-based conditions and 405,164 shares of restricted stock awards and units without performance-based conditions. During the nine months ended September 30, 2024, the weighted average grant date fair value of restricted stock awards and units with and without performance-based conditions was$43.01 and$41.31, respectively.

Employee Stock Purchase Plan (“ESPP”)

The Company’s ESPP is a shareholder-approved plan that allows eligible employees to contribute a portion of their eligible earnings toward the semi-annual purchase of the Company’s common stock at a discounted price equal to 85% up to 90% of the fair market values of the stock on the exercise date, subject to a maximum number of shares that can be purchased during any single offering period as well as an annual maximum dollar amount of shares during any single calendar year. A maximum of 5,000,000 shares were authorized for issuance at the time the ESPP was approved. There were 7,789 shares issued for the nine months ended September 30, 2024.

Commitments and Contingencies

Regulatory Matters

Laws and regulations governing the Medicare program and healthcare generally are complex and subject to interpretation. The Company believes it complies with all applicable laws and regulations and is unaware of any pending or threatened investigations involving allegations of potential wrongdoing. While no regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation, as well as significant regulatory action, including fines, penalties, and exclusion from the Medicare and Medi-Cal programs.

As a risk-bearing organization, the Company is required to follow regulations of the Department of Managed Health Care (“DMHC”). The Company must comply with a minimum working capital requirement, tangible net equity (“TNE”) requirement, cash-to-claims ratio, and claims payment requirements prescribed by the DMHC. TNE is defined as net assets less intangibles, less non-allowable assets (which include amounts due from affiliates), plus subordinated obligations.

Many of the Company’s payer and provider contracts are complex in nature and may be subject to differing interpretations regarding amounts due for the provision of medical services. Such differing interpretations may not come to light until a substantial period of time has passed following contract implementation. Liabilities for claims disputes are recorded when the loss is probable and can be estimated. Any adjustments to reserves are reflected in current operations.

Standby Letters of Credit

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 September 30, 2024 (see Note 9 — “Credit Facility, Promissory Notes Payable, Bank Loans, and Lines of Credit — Standby Letters of Credit”).

Certain IPAs consolidated by the Company established irrevocable standby letters of credit with Preferred Bank for a total of$3.9 million for the benefit of certain health plans as of September 30, 2024 (see Note 9 — “Credit Facility, Promissory Notes Payable, Bank Loans, and Lines of Credit — Standby Letters of Credit”).

Litigation

From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of its business. The resolution of any claim or litigation is subject to inherent uncertainty and could have a material adverse effect on the Company’s financial condition, cash flows, or results of operations.

Liability Insurance

The Company believes that its insurance coverage is appropriate based upon the Company’s claims experience and the nature and risks of the Company’s business. In addition to the known incidents that have resulted in the assertion of claims, the Company cannot be certain that its insurance coverage will be adequate to cover liabilities arising out of claims asserted against the Company, the Company’s affiliated professional organizations or the Company’s affiliated hospitalists in the future where the outcomes of such claims are unfavorable. The Company believes that the ultimate resolution of all pending claims, including liabilities in excess of the Company’s insurance coverage, will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows; however, there can be no assurance that future claims will not have such a material adverse effect on the Company’s business. Contracted physicians are required to obtain their own insurance coverage.

Although the Company currently maintains liability insurance policies on a claims-made basis which are intended to cover malpractice liability and certain other claims, the coverage must be renewed annually and may not continue to be available to the Company in future years at acceptable costs and on favorable terms.

Related-Party Transactions

Equity Method Investments

During the three and nine months ended September 30, 2023, the Company recognized approximately$4.3 million and$16.2 million, respectively, in management fees from LaSalle Medical Associates – IPA line of business (“LMA”). On August 31, 2023, the management service agreement with LMA’s IPA was terminated. LMA is accounted for under the equity method based on the 25% equity ownership interest held in LMA’s IPA line of business (see Note 5 — “Investments in Other Entities - Equity Method”).

During the three months ended September 30, 2024 and 2023, the Company paid approximately$0.8 million and$0.8 million, respectively, to Pacific Medical Imaging & Oncology Center, Inc. (“PMIOC”) for provider services. During the nine months ended September 30, 2024 and 2023, the Company paid approximately$2.2 million and$1.9 million, respectively, to PMIOC for provider services. PMIOC provides covered services on behalf of the Company’s RBOs to enrollees of the plans. PMIOC is accounted for under the equity method based on the 40% equity ownership interest held (see Note 5 — “Investments in Other Entities - Equity Method”).

During each of the three months ended September 30, 2024 and 2023, the Company paid approximately$0.3 million and$0.3 million, respectively, for provider services to an equity method investment in which the Company has a 25% equity ownership in(see Note 5 — “Investments in Other Entities - Equity Method”). During the nine months ended September 30, 2024 and 2023, the Company paid approximately$0.7 million and$0.8 million, respectively, for provider services.

During the three and nine months ended September 30, 2024, the Company incurred expenses of approximately$0.6 million and$1.2 million, respectively, in management fees to I Health. The Company has a management service agreement with I Health. I Health is accounted for under the equity method based on the 25% equity ownership interest held (see Note 5 — “Investments in Other Entities - Equity Method”).

Astrana Board Members and Officers

During the three months ended September 30, 2024 and 2023, the Company recognized approximately$0.4 million and$0.5 million, respectively, in revenue, net of costs, from Arroyo Vista Family Health Center (“Arroyo Vista”). During the nine months ended September 30, 2024 and 2023, the Company recognized approximately$1.5 million and$1.3 million, respectively, in revenue, net of costs. Revenue consisted of management fees and surplus from shared risk arrangements. Expenses consisted of fees for provider services. Arroyo Vista’s chief executive officer is a member of the Company’s board of directors.

During the three months ended September 30, 2024 and 2023, the Company incurred rent expenses of approximately$1.3 million and$0.8 million, respectively, from certain properties that are managed by Allied Pacific Holdings Investment Management, LLC. During the nine months ended September 30, 2024 and 2023, the Company incurred$3.0 million and$2.5 million, respectively, in rent expense from the same properties. As of September 30, 2024, and December 31, 2023, the Company’s operating right-of-use asset balance included$2.0 million and$14.1 million, respectively, and the Company’s operating lease liabilities included$2.0 million and$14.5 million, respectively, for certain properties that are managed by Allied Pacific Holdings Investment Management, LLC. These properties were previously consolidated and eliminated by Astrana until they were spun off on December 26, 2023. The chief executive officer of Allied Pacific Holdings Investment Management, LLC is a member of the Company’s board of directors.

During the nine months ended September 30, 2024, Allied Pacific Holdings Investment Management, LLC paid APC$5.3 million for taxes associated with the APC Excluded Assets spin-off on December 26, 2023.

During the three months ended September 30, 2024 and 2023, the Company incurred approximately$0.4 million and$0.5 million, respectively, in expenses payable to Third Way Health for call center and credentialing services. During the nine months ended September 30, 2024 and 2023, the Company incurred approximately$2.1 million and$0.9 million, respectively, in expenses for call center services. As of September 30, 2024 and December 31, 2023, via a Simple Agreement for Future Equity, the Company funded $6.0 million and $3.5 million, respectively, in Third Way Health. The investment is included in investments in privately held entities in the accompanying condensed consolidated balance sheets. One of Astrana’s officers is a board member of Third Way Health.

During the three months ended September 30, 2024 and 2023, the Company paid approximately$0.1 million and$0.2 million, respectively, to Sunny Village Care Center for services as a provider. During the nine months ended September 30, 2024 and 2023, the Company paid approximately$0.3 million and$1.0 million, respectively, for provider services. The Company has provider contracts with Sunny Village Care Center. Sunny Village Care Center shares common ownership with certain Astrana board members.

During the three and nine months ended September 30, 2024, Astrana paid approximately $0.7 million to purchase Astrana’s stock from a board member. During thenine months ended September 30, 2023, Astrana paid approximately $9.5 million to purchase Astrana’s stock from a board member.

During the three months ended September 30, 2024 and 2023, the Company incurred rent expenses of approximately$0.1 million and$0.1 million, respectively, from First Commonwealth Property, LLC for an office lease. During the nine months ended September 30, 2024 and 2023, the Company incurred rent expenses of approximately$0.1 million and$0.1 million, respectively. First Commonwealth Property, LLC shares common ownership with certain board members of APC and AHM.

As of September 30, 2024 and December 31, 2023, the Company’s operating right-of-use asset balance included$0.7 million and$0.8 million, respectively, and the Company’s operating lease liabilities included$0.8 million and$0.8 million, respectively, for certain properties owned by First Commonwealth Property, LLC.

The Company has agreements with Health Source MSO Inc., a California corporation (“HSMSO”), Aurion Corporation (“Aurion”), and AHMC Healthcare Inc. (“AHMC”) for services provided to the Company. One of the Company’s board members is an officer of AHMC, HSMSO, and Aurion. Aurion is also partially owned by one of the Company’s board members. Revenue with AHMC and HSMSO consists of capitation, risk pool, and miscellaneous fees and expenses consisting of claims expenses, management fees, and consulting fees.

The following tables set forth revenue recognized and fees incurred related to AHMC, HSMSO, and Aurion for thethree and nine months ended September 30, 2024 and 2023 (in thousands):

The Company and AHMC have a risk-sharing agreement with certain AHMC hospitals to share the surplus and deficits of each of the hospital pools. Under this agreement, during the three months ended September 30, 2024 and 2023, the Company had recognized risk pool revenues of$9.4 million and$4.2 million, respectively. During the nine months ended September 30, 2024 and 2023, the Company had recognized risk pool revenues of$28.5 million and$33.0 million, respectively. The Company had a risk pool receivable balance of$74.7 million and$54.0 million as of September 30, 2024 and December 31, 2023, respectively.

APC Board Members

During the three months ended September 30, 2024 and 2023, the Company paid an aggregate of approximately$4.6 million and$11.6 million, respectively, to board members for provider services which included approximately$0.8 million and$0.7 million, respectively, to Astrana board members and officers who are also board members and officers of APC. During the nine months ended September 30, 2024 and 2023, the Company paid an aggregate of approximately$14.1 million and$30.5 million, respectively, to board members for provider services which included approximately$2.2 million and$2.3 million, respectively, to Astrana board members and officers who are also board members and officers of APC.

In addition, affiliates wholly owned by the Company’s key personnel are reported in the accompanying condensed consolidated statements of income on a consolidated basis, together with the Company’s subsidiaries, and therefore, the Company does not separately disclose transactions between such affiliates and the Company’s subsidiaries as related-party transactions.

Intercompany Transactions

Because of corporate practice of medicine laws, the Company uses designated shareholder professional corporations, of which the sole shareholder is a member of the Company’s key personnel, to engage in certain transactions and make intercompany loans from time to time.

For equity method investments, see Note 5 — “Investment in Other Entities - Equity Method”.

Income Taxes

The Company uses the liability method of accounting for income taxes as set forth in ASC 740 Income Taxes. Under the liability method, deferred taxes are determined based on differences between the financial statement and tax bases of assets and liabilities using enacted tax rates.

On an interim basis, the Company estimates what its anticipated annual effective tax rate will be and records a quarterly income tax provision in accordance with the estimated annual rate, plus the tax effect of certain discrete items that arise during the quarter. As the fiscal year progresses, the Company refines its estimates based on actual events and financial results during the quarter. This process can result in significant changes to the Company’s estimated effective tax rate. When this occurs, the income tax provision is adjusted during the quarter in which the estimates are refined so that the year-to-date provision reflects the estimated annual effective tax rate. These changes, along with adjustments to the Company’s deferred taxes and related valuation allowance, may create fluctuations in the overall effective tax rate from quarter to quarter.

The Company’s effective income tax rate for the nine months ended September 30, 2024 and 2023, was 30.2% and 34.8%, respectively. The tax rate for the nine months ended September 30, 2024, differed from the U.S. federal statutory rate primarily due to state income taxes and income from flow-through entities.

As of September 30, 2024, the Company doesnot have any unrecognized tax benefits related to various federal and state income tax matters. The Company will recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.

The Company is subject to U.S. federal income tax as well as income tax in California. The Company and its subsidiaries’ state and federal income tax returns are open to audit under the statute of limitations for the years ended December 31, 2019 through December 31, 2023, and for the years ended December 31, 2020 through December 31, 2023, respectively.

Earnings Per Share

Basic earnings per share is calculated using the weighted average number of shares of the Company’s common stock issued and outstanding during a certain period and is calculated by dividing net income attributable to Astrana by the weighted average number of shares of the Company’s common stock issued and outstanding during such period. Diluted earnings per share is calculated using the weighted average number of shares of common stock and potentially dilutive shares of common stock outstanding during the period, using the as-if converted method for secured convertible notes and preferred stock, and the treasury stock method for options and common stock warrants.

As of September 30, 2024 and December 31, 2023, APC held 7,132,698 shares of Astrana’s common stock, which are treated as treasury shares for accounting purposes and not included in the number of shares of common stock outstanding used to calculate earnings per share.

For the three and nine months ended September 30, 2024, there wereno restricted stock awards and units excluded from the computation of diluted weighted average common shares outstanding as calculated under the treasury stock method. For the three and nine months ended September 30, 2023,243,689 of restricted stock awards and units were excluded from the computation of diluted weighted average common shares outstanding because the assumed proceeds, as calculated under the treasury stock method, resulted in these awards being antidilutive.

For the three and nine months ended September 30, 2024, stock options of 155,990 were excluded from the computation of diluted weighted average common shares outstanding because the assumed proceeds, as calculated under the treasury stock method, resulted in these awards being antidilutive. For the three and nine months ended September 30, 2023, stock options of 200,978 were excluded from the computation of diluted weighted average common shares outstanding because the assumed proceeds, as calculated under the treasury stock method, resulted in these awards being antidilutive.

For the three and nine months ended September 30, 2024, contingently issuable shares of 1,085,808 were excluded from the computation of diluted weighted average common shares outstanding because these conditions were not achieved as of September 30, 2024. For the three and nine months ended September 30, 2023, contingently issuable shares of 925,558 were excluded from the computation of diluted weighted average common shares outstanding because these conditions were not achieved as of September 30, 2023.

Below is a summary of the earnings per share computations:

Below is a summary of the shares included in the diluted earnings per share computations:

Variable Interest Entities (VIEs)

The Company’s condensed consolidated financial statements include its subsidiaries and consolidated VIEs. A VIE is defined as a legal entity whose equity owners do not have sufficient equity at risk, or, as a group, the holders of the equity investment at risk lack any of the following three characteristics: decision-making rights, the obligation to absorb losses, or the right to receive the expected residual returns of the entity. The primary beneficiary is identified as the variable interest holder that has both the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and the obligation to absorb expected losses or the right to receive benefits from the entity that could potentially be significant to the VIE.

Certain state laws prohibit a professional corporation that has more than one shareholder from being a shareholder in another professional corporation. As a result, the Company cannot directly own shares in other professional corporations. However, an exception to this regulation permits a professional corporation that has only one shareholder to own shares in another professional corporation. In reliance on this exception, the Company designated certain key personnel as the nominee shareholders of professional corporations that hold controlling and non-controlling ownership interests in several medical corporations. Via a Physician Shareholder Agreement with the nominee shareholder, the Company has the ability to designate another person to be the equity holder of the professional corporation. In addition, these entities are managed by the Company’s wholly owned MSOs via MSA. In accordance with relevant accounting guidance, the professional corporations and their consolidated medical corporations are consolidated by the Company in the accompanying condensed financial statements.

Due to corporate practice of medicine laws, the Company operates by maintaining long-term MSAs with its affiliated IPAs and medical groups, each of which is owned and operated by physicians only, and employs or contracts with additional physicians to provide medical services. AHM is a wholly owned subsidiary of the Company and has entered into MSAs with several affiliated IPAs, including APC. APC arranges for the delivery of healthcare services by contracting with physicians or professional medical corporations for primary care and specialty care services. The physicians in the IPA are exclusively in control of, and responsible for, all aspects of the practice of medicine for enrolled patients. In accordance with relevant accounting guidance, APC has been determined to be a VIE of AHM, as AHM is its primary beneficiary with the ability, through majority representation on the APC Joint Planning Board and otherwise, to direct the activities (excluding clinical decisions) that most significantly affect APC’s economic performance. Therefore, APC and its wholly owned subsidiaries and VIEs are consolidated in the accompanying financial statements.

Astrana Medical and Astrana Care Partners Medical were formed in May 2019 and July 2021, respectively, as designated shareholder professional corporations. The Company’s Vice Chairman is the sole shareholder of Astrana Medical and Astrana Care Partners Medical. Via a Physician Shareholder Agreement, Astrana makes all the decisions on behalf of Astrana Medical and Astrana Care Partners Medical. Astrana has the obligation to absorb losses of, or the right to receive benefits from, Astrana Medical and Astrana Care Partners Medical. Therefore, Astrana Medical and Astrana Care Partners Medical are controlled by and consolidated by Astrana as the primary beneficiary of the VIEs.

On January 1, 2024, a 25% equity interest of Eleanor Leung M.D. was re-acquired by the Company. As a result, Astrana Care Partners Medical now owns 100% of Eleanor Leung M.D.

The following table includes assets that can only be used to settle the liabilities of the Company’s VIEs, and to which the creditors of Astrana have no recourse, and liabilities to which the creditors of the Company’s VIEs have no recourse to the general credit of Astrana, as the primary beneficiary of the VIEs. These assets and liabilities, with the exception of investments in affiliates and amounts due to, or from, affiliates, which are eliminated upon consolida tion, are included in the accompanying condensed consolidated balance sheets (in thousands).

*Investment in affiliates includes the Company’s VIEs’ investment in Astrana, which is reflected as treasury shares and eliminated upon consolidation. Amounts due to, or from, affiliates are receivables with Astrana’s subsidiaries. As a result, these balances are eliminated upon consolidation and are not reflected on Astrana’s condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023.

Leases

The Company has operating and finance leases for corporate offices, physicians’ offices, and certain equipment. These leases have remaining lease terms ofone month to 16 years. Some of the leases may include options to extend the lease terms for up toten years, and some of the leases may include options to terminate the leases withinone year. As of September 30, 2024 and December 31, 2023, assets recorded under finance leases were$1.4 million and$1.7 million, respectively, and accumulated depreciation associated with finance leases was$2.0 million and$1.6 million, respectively.

Also, the Company rents or subleases certain real estate to third parties, which are accounted for as operating leases.

Leases with an initial term of 12 months or less are not recorded on the balance sheets.

The components of lease expense were as follows (dollars in thousands):

Other information related to leases was as follows (in thousands):

The following are future minimum lease payments under non-cancellable leases for the years ending December 31 (in thousands) below:

Segments

The Company evaluates the performance of its operating segments based on segment revenue growth as well as 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. The Company’s operations are based in the United States. All revenues of the Company are derived from the United States. The Company’s segments are not evaluated using asset information.

In the normal course of business, the Company’s reportable segments enter into transactions with each other. While intersegment transactions are treated like third-party transactions to determine segment performance, the revenues recognized by a segment and expenses incurred by the counterparty are eliminated in consolidation and do not affect consolidated results.

Corporate costs are unallocated and primarily include corporate initiatives, corporate infrastructure costs and corporate shared costs, such as finance, human resources, legal, and executives.

Certain amounts disclosed in the prior period have been recast to conform to the current period presentation. Specifically, reclassifications were made between cost of services and general and administrative expenses in the accompanying segment table for thethree and nine months ended September 30, 2023, and the segments are presented net of intrasegment eliminations. The following table presents information about our segments (in thousands):

(1)

Balance includes general and administrative expenses, and depreciation and amortization.

(2)

Income from operations for the intersegment elimination represents rental income from segments renting from other segments. Rental income is presented within other income that is not presented in the table.

19. Fair Value Measurements of Financial Instruments

The carrying amounts and fair values of the Company’s financial instruments as of September 30, 2024, are presented below (in thousands):

• Included in cash and cash equivalents

The carrying amounts and fair values of the Company’s financial instruments as of December 31, 2023, are presented below (in thousands):

• Included in cash and cash equivalents

The change in the fair value of Level 3 liabilities for thenine months ended September 30, 2024, was as follows (in thousands):

Investments in Marketable Securities

Certificates of deposit are reported at par value, plus accrued interest, with maturity dates greater than ninety days. As of September 30, 2024 and December 31, 2023, certificates of deposit amounted to approximately$2.3 million and$2.2 million, respectively. Investments in certificates of deposit are classified as Level 1 investments in the fair value hierarchy.

Equity securities are reported at fair value. These securities are classified as Level 1 in the valuation hierarchy, where quoted market prices from reputable third-party brokers are available in an active market and unadjusted. As of September 30, 2024 and December 31, 2023, the equity securities were approximately$0.1 million and$0.3 million, respectively, in the accompanying condensed consolidated balance sheets. Gains and losses recognized on equity securities sold are recognized in the accompanying condensed consolidated statements of income as other income. The components comprising total gains and losses on equity securities are as follows (in thousands) for the periods listed below:

Derivative Financial Instruments

Interest Rate Collar Agreements

The Company’s collar agreement is designed to limit the interest rate risk associated with the Company’s Revolver Loan. The principal objective of the collar agreement is to eliminate or reduce the variability of the cash flows in interest payments associated with the Company’s floating-rate debt, thus reducing the impact of interest rate changes on future interest payment cash flows. Refer to Note 9 — “Credit Facility, Promissory Notes Payable, Bank Loans, and Lines of Credit” for further information on the Company’s debt. Under the terms of the agreement, the ceiling is 5.0% and the floor is 2.34%. The collar agreement is not designated as a hedging instrument. Changes in the fair value of this contract are recognized as unrealized gain or loss on investments in the accompanying condensed consolidated statements of income and reflected in the accompanying condensed consolidated statements of cash flows as unrealized (gain) loss on investments. The estimated fair value of the collar was determined using Level 2. As of September 30, 2024 and December 31, 2023, the fair value of the collar was$0.2 million and$0.3 million, respectively, and presented within other long-term liabilities, in the accompanying condensed consolidated balance sheets. For thethree months ended September 30, 2024 and 2023, the Company recognized unrealized loss of$0.6 million and unrealized gains of$0.1 million, respectively. For the nine months ended September 30, 2024 and 2023, the Company recognized unrealized gains of$0.1 million and$1.3 million, respectively.

I Health Call Option

The Company acquired a 25% equity interest in I Health which included a call option that allows the Company to purchase an additional 25% equity interest on each of the first, second, and third anniversaries of the purchase. The Company determined the fair value of the contingent considerations using a probability-weighted model that includes significant unobservable inputs (Level 3). Specifically, the Company considered various scenarios of revenue and assigned probabilities to each such scenario in determining fair value. As of September 30, 2024, the value of the call option was valued at$3.9 million. The I Health call option is presented within other assets in the accompanying condensed consolidated balance sheet. The 25% equity interest in I Health is accounted for under the equity method (see Note 5 — “Investments in Other Entities - Equity Method”).

Remaining equity interest purchase

In 2021, the Company entered into a financing obligation to purchase the remaining equity interest in Diagnostic Medical Group of Southern California (“DMG”) and Sun Clinical Laboratories (“Sun Labs”) within three years from the date the Company consolidated DMG and Sun Labs. The purchase of the remaining DMG equity value is considered a financing obligation with a carrying value of$8.5 million as of September 30, 2024 and December 31, 2023. Changes in the fair value of the remaining equity purchase are presented in unrealized gain and loss on investments in the accompanying condensed consolidated statements of income. The purchase of the remaining Sun Labs equity value is considered a financing obligation with a carrying value of$7.4 million and$7.8 million as of September 30, 2024 and December 31, 2023, respectively. For the three months ended September 30, 2024 and 2023, the Company recognized a loss of$0.1 million and$0.5 million, respectively, due to the change in the fair value of Sun Labs equity value obligation. For the nine months ended September 30, 2024 and 2023, the Company recognized an unrealized gain of$0.4 million and unrealized loss of$2.3 million, respectively, due to the change in the fair value of Sun Labs equity value obligation. As the financing obligations are embedded in the non-controlling interest, the non-controlling interests are recognized in other liabilities in the accompanying condensed consolidated balance sheets.

Contingent considerations

All American Medical Group (“AAMG”)

Upon acquiring 100% of the equity interest in AAMG, the purchase price consisted of cash funded upon close of the transaction and additional consideration (“AAMG contingent consideration”) and stock consideration (“AAMG stock contingent consideration”) contingent on AAMG meeting revenue and capitated member metrics for fiscal years 2023 (“2023 metric”) and 2024 (“2024 metric”). If the contingent consideration metrics are met, the settlement will be paid in the Company’s common stock. The total amount of stock that can be issued for the 2023 and 2024 metrics is 157,059 and 184,357, respectively. The Company determined the fair value of the contingent considerations using a probability-weighted model that includes significant unobservable inputs (Level 3). Specifically, the Company considered various scenarios of revenue and assigned probabilities to each such scenario in determining fair value.

As of September 30, 2024, the AAMG contingent consideration for the 2023 metric was met and 78,535 shares were issued to the sellers. On the day of issuance, the shares were valued at$4.0 million. which is included in additional paid-in capital in the accompanying condensed consolidated balance sheets. As of December 31, 2023, the AAMG contingent consideration for the 2023 metric was valued at$2.6 million and was presented within other liabilities in the accompanying condensed consolidated balance sheets.

The AAMG contingent consideration for the 2024 metric was valued at$3.9 million and$2.9 million as of September 30, 2024 and December 31, 2023, respectively, and was included in other liabilities and other long-term liabilities in the accompanying condensed consolidated balance sheets, respectively. Changes in the AAMG contingent consideration are presented in general and administrative expenses in the accompanying condensed consolidated statements of income.

As of September 30, 2024, the AAMG stock contingent consideration for 2023 metric was met, and 78,524 shares were issued to the sellers. The AAMG stock contingent consideration for 2023 and 2024 metric was valued at$5.6 million, in aggregate, as of September 30, 2024 and December 31, 2023, and is included in additional paid-in capital in the accompanying condensed consolidated balance sheets.

ADSC

Upon acquiring 95% of the equity interest of Advanced Diagnostic and Surgical Center in 2024, the total consideration of the acquisition included contingent consideration. The contingent consideration will be settled in cash contingent on ADSC achieving revenue and EBITDA metrics for fiscal years 2023 (“ADSC 2023 Metric”) and 2024 (“ADSC 2024 Metric”) (collectively, “ADSC contingent considerations”). The Company determined the fair value of the contingent consideration using a probability-weighted model that includes significant unobservable inputs (Level 3). Specifically, the Company considered various scenarios of revenue and assigned probabilities to each such scenario in determining fair value. As of September 30, 2024, the ADSC 2023 Metric and the 2024 Metric were valued at $2.1 million and $2.1 million, respectively, and were included in other liabilities in the accompanying condensed consolidated balance sheets. Changes in the ADSC contingent considerations are presented in general and administrative expenses in the accompanying condensed consolidated statements of income.

CFC

Upon acquiring certain assets of CFC in 2024, the total consideration of the acquisition included contingent consideration. The contingent consideration will be settled in cash contingent upon CFC maintaining or exceeding the target member month amount for the first, second, and third measurement period (“CFC contingent considerations”). The first measurement period means the period commencing on the first day of the month immediately following the close of AHMS and ending on the one-year anniversary thereof. The second measurement period is for one year after the first measurement period, and the third measurement period is for one year after the second measurement period. The contingent liability will be paid after achieving the metric in each measurement period. The Company will pay $5.0 million for each metric achieved for each measurement period, or a total of $15.0 million. In the event that the CFC first and/or second contingent consideration metrics are not achieved during the first and/or the second measurement period, if the metric is met within the second and/or third measurement period, there is a catch-up payment that shall be paid concurrently with the payments of the CFC second contingent consideration and/or CFC third contingent consideration. The Company determined the fair value of the contingent consideration using a probability-weighted model that includes significant unobservable inputs (Level 3). Specifically, the Company considered various scenarios of revenue and assigned probabilities to each such scenario in determining fair value. As of September 30, 2024, the first metric was valued at $3.7 million and was included in other liabilities in the accompanying condensed consolidated balance sheets. As of September 30, 2024, the second and third metrics were valued at $5.4 million in aggregate, and were included in other long-term liabilities in the accompanying condensed consolidated balance sheets. Changes in the CFC contingent considerations are presented in general and administrative expenses in the accompanying condensed consolidated statements of income.

PCCCV

Upon acquiring certain assets of PCCCV in 2024, the total consideration of the acquisition included contingent consideration. The contingent consideration will be settled in cash, contingent upon PCCCV meeting certain metrics related to financial ratios and member months for the first and second measurement periods (“PCCCV contingent consideration”). The first measurement period is the first day of the month immediately following the close and ending on June 30, 2024. The second measurement period is for one year after the first measurement period. The Company determined the fair value of the contingent consideration using a probability-weighted model that includes significant unobservable inputs (Level 3). Specifically, the Company considered various scenarios of revenue and assigned probabilities to each such scenario in determining fair value. As of September 30, 2024, the value of the contingent consideration was valued at$2.6 million. Changes in the PCCCV contingent considerations are presented in general and administrative expenses in the accompanying condensed consolidated statements of income.

Subsequent Events

Closing of Collaborative Health Systems, LLC Securities Purchase

On July 24, 2024, the Company and its affiliated professional entity entered into a definitive agreement to acquire all of the outstanding membership interest 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. On October 4, 2024, the Company closed the acquisition ofall of the outstanding membership interest in Collaborative Health Systems, LLC and all of the outstanding equity interests in Golden Triangle Physician Alliance and Heritage Physician Networks. The transaction was funded with cash. CHS partners with independent providers in caring for over 129,000 Medicare members across 17 states. CHS provides comprehensive support for its physician partners by providing management services, risk contracting, and population health capabilities, including actionable data and other tools, to deliver care coordination and closure of gaps in care. CHS provides additional services to secure and deliver favorable value-based contracts with commercial and other health plans. The Company is in the process of finalizing its purchase price allocation.

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 PHP Holdings, LLC (“PHPH”), PHS Holdings, LLC (“PHS”), Prospect Intermediate Holdings, LLC (“PIH” and, together with PHPH and PHS, the “Prospect Equity Sellers”), certain other related entities party thereto (such entities, the “Prospect Asset Sellers” and, together with the Prospect Equity Sellers, the “Sellers”) and Prospect Medical Holdings, Inc. (“Prospect”), as Seller Representative. Under the terms of the Purchase Agreement, subject to satisfaction of customary conditions, the Company will 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) (the “Hospital”) and Prospect Health Plan, Inc., and substantially all the assets of certain direct and indirect subsidiaries of PHPH, for an aggregate purchase price of $745.0 million, including $55.0 million that will be held in escrow for purchase price adjustment and indemnity purposes, subject to customary adjustments, plus the assumption of certain identified liabilities of the Sellers (the “Transaction”).

The Sellers provide a range of services through owned and managed medical groups, IPAs, and a Managed Services Organization, which provides administrative support to Sellers’ affiliated medical groups and IPAs. The Sellers also support health plan delegated functions for Medicare Advantage, Medicaid/Medi-Cal, and commercial insurance products, while participating in risk models such as Accountable Care Organizations and Direct Contracting Entities. The Hospital, as a direct subsidiary of PIH, is a fully accredited acute care hospital based in Tustin, California, that offers a variety of services and programs, including general and specialized surgery, orthopedics and spine surgery, rehabilitation, imaging and radiology, intensive care and skilled nursing.

The Purchase Agreement includes customary representations, warranties, indemnification provisions, covenants, conditions and other agreements, including that each party is bound by a non-solicitation covenant and Sellers will abide by certain exclusivity and non-competition covenants. The Purchase Agreement also contains certain customary termination rights, including termination by either party if the conditions to closing the Purchase Agreement have not been met or waived by August 8, 2025, provided, that if certain required regulatory approvals have not been met by such date, then the Sellers may extend such date for up to an additional three months. The obligations of the parties to complete the Transaction are subject to the satisfaction, or waiver, of customary closing conditions, including receipt of applicable regulatory and governmental approvals. 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.

To provide additional financial flexibility for the Company, in connection with the execution of the Purchase Agreement, the Company entered into a commitment letter (the “Commitment Letter”), dated as of November 8, 2024, with Truist Bank and JPMorgan Chase Bank, N.A. (together, the “Banks”) and the other affiliates of the Banks party thereto, pursuant to which the Banks committed to provide (i) a 364-day senior secured bridge term loan in an aggregate principal amount of up to $1,095.0 million (the “Bridge Facility”) and (ii) a five-year senior secured revolving credit facility in an aggregate principal amount of up to $100.0 million. The Company intends to use the proceeds of the Bridge Facility, together with cash on hand, to fund the Transaction, to refinance the Company’s existing credit facilities and to pay for fees, costs and expenses incurred in connection with the foregoing. The funding of the Bridge Facility provided for in the Commitment Letter is contingent on the satisfaction of customary conditions, including but not limited to (i) the execution and delivery of definitive documentation with respect to the Bridge Facility in accordance with the terms set forth in the Commitment Letter, and (ii) the consummation of the Transaction in accordance with the Purchase Agreement. Amounts funded under the Bridge Facility, if any, will be reduced by the aggregate amount of gross proceeds that the Company elects to raise in a long-term debt and/or equity financing transaction on or prior to the closing of the Transaction as further set forth in the Commitment Letter.