# Astrana Health, Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [Astrana Health, Inc.](/companies/asth.md) (CIK 1083446)
- Form: 10-Q
- Filed: 2024-11-12
- Accepted by EDGAR: Nov 12, 2024, 14:22 ET
- Period: 2024-09-30
- Accession: 0000950170-24-125133
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1083446/000095017024125133/asth-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1083446/000095017024125133/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $478.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $1.37bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | $28.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | $88.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $8.9m | us-gaap:InterestExpenseNonoperating |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $25.0m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $7.8m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $25.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $16.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $50.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.33 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $1.04 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.34 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $1.05 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 48,223,788 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 47,960,686 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $63.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $5.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2024-01-01 to 2024-09-30 | $2.1m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2024-09-30 | $348.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $597.0m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $1.29bn | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $312.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $778.3m | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $423.1m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-09-30 | $15.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-09-30 | $704.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 47,906 characters.

*The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Part I, Item 1, “Condensed Consolidated Financial Statements” of this Quarterly Report on Form 10-Q. In addition, reference is made to our audited consolidated financial statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 29, 2024.*

### Overview

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

Through our risk-bearing organizations with more than 10,000 contracted physicians, we are responsible for coordinating care in value-based care arrangements for approximately 1.0 million patients primarily in California as of September 30, 2024. These covered patients are comprised of managed care members whose health coverage is provided either through their employers, acquired directly from a health plan, or as a result of their eligibility for Medicaid or Medicare benefits. Our managed patients benefit from an integrated approach that places physicians at the center of patient care and utilizes sophisticated risk management techniques and clinical protocols to provide high-quality, cost-effective care.

### Recent Developments

#### 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 of all 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. 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.

#### 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.

### Key Financial Measures and Indicators

#### Operating Revenues

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

#### Operating Expenses

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

#### Adjusted EBITDA and Adjusted EBITDA Margin

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

### Results of Operations

### Condensed Consolidated Statements of Income

(In thousands)

(Unaudited)

| Revenue | Three Months Ended September 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Capitation, net | $431,401 | $305,678 | $125,723 | 41% |
| Risk pool settlements and incentives | 21,779 | 15,022 | 6,757 | 45% |
| Management fee income | 2,747 | 9,898 | (7,151) | (72)% |
| Fee-for-services, net | 18,692 | 15,892 | 2,800 | 18% |
| Other revenue | 4,091 | 1,683 | 2,408 | 143% |
| Total revenue | 478,710 | 348,173 | 130,537 | 37% |
| **Operating expenses** |  |  |  |  |
| Cost of services, excluding depreciation and amortization | 405,218 | 275,375 | 129,843 | 47% |
| General and administrative expenses | 37,803 | 29,410 | 8,393 | 29% |
| Depreciation and amortization | 7,264 | 4,305 | 2,959 | 69% |
| Total expenses | 450,285 | 309,090 | 141,195 | 46% |
| **Income from operations** | 28,425 | 39,083 | (10,658) | (27)% |
| **Other income** |  |  |  |  |
| Income (loss) from equity method investments | 1,353 | (2,104) | 3,457 | (164)% |
| Interest expense | (8,856) | (3,779) | (5,077) | 134% |
| Interest income | 3,778 | 3,281 | 497 | 15% |
| Unrealized loss on investments | (561) | (342) | (219) | 64% |
| Other income | 2,673 | 1,876 | 797 | 42% |
| Total other expense, net | (1,613) | (1,068) | (545) | 51% |
| **Income before provision for income taxes** | 26,812 | 38,015 | (11,203) | (29)% |
| Provision for income taxes | 7,831 | 10,042 | (2,211) | (22)% |
| **Net income** | 18,981 | 27,973 | (8,992) | (32)% |
| Net income attributable to non-controlling interest | 2,887 | 5,914 | (3,027) | (51)% |
| **Net income attributable to Astrana Health, Inc.** | $16,094 | $22,059 | $(5,965) | (27)% |

51

| Revenue | Nine Months Ended September 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Capitation, net | $1,239,885 | $906,430 | $333,455 | 37% |
| Risk pool settlements and incentives | 57,564 | 48,605 | 8,959 | 18% |
| Management fee income | 8,429 | 32,287 | (23,858) | (74)% |
| Fee-for-services, net | 54,588 | 41,216 | 13,372 | 32% |
| Other revenue | 8,865 | 5,087 | 3,778 | 74% |
| Total revenue | 1,369,331 | 1,033,625 | 335,706 | 32% |
| **Operating expenses** |  |  |  |  |
| Cost of services, excluding depreciation and amortization | 1,148,422 | 857,648 | 290,774 | 34% |
| General and administrative expenses | 112,478 | 74,648 | 37,830 | 51% |
| Depreciation and amortization | 19,801 | 12,846 | 6,955 | 54% |
| Total expenses | 1,280,701 | 945,142 | 335,559 | 36% |
| **Income from operations** | 88,630 | 88,483 | 147 | 0% |
| **Other (expense) income** |  |  |  |  |
| Income from equity method investments | 2,887 | 3,104 | (217) | (7)% |
| Interest expense | (25,028) | (10,680) | (14,348) | 134% |
| Interest income | 11,287 | 9,617 | 1,670 | 17% |
| Unrealized gain (loss) on investments | 415 | (5,875) | 6,290 | (107)% |
| Other income | 4,522 | 4,265 | 257 | 6% |
| Total other (expense) income, net | (5,917) | 431 | (6,348) | (1,473)% |
| **Income before provision for income taxes** | 82,713 | 88,914 | (6,201) | (7)% |
| Provision for income taxes | 25,004 | 30,971 | (5,967) | (19)% |
| **Net income** | 57,709 | 57,943 | (234) | (0)% |
| Net income attributable to non-controlling interest | 7,609 | 9,582 | (1,973) | (21)% |
| **Net income attributable to Astrana Health, Inc.** | $50,100 | $48,361 | $1,739 | 4% |

### Risk-Bearing Organizations and Patients

As of September 30, 2024 and 2023, we managed a total of 18 and 15 independent risk-bearing organizations including both affiliated and non-affiliated, respectively. The total number of patients for whom we managed the delivery of healthcare services was approximately 1.0 million and 0.9 million as of September 30, 2024 and 2023, respectively.

### Revenue

Our total revenue for the three months ended September 30, 2024, was $478.7 million, as compared to $348.2 million for the three months ended September 30, 2023, an increase of $130.5 million, or 37%. The increase in revenue was primarily attributable to capitation revenue. Capitation revenue increased by $125.7 million primarily as a result of our recent acquisitions within our Care Partners segment, including the acquisition of CFC IPA assets that closed on January 31, 2024, and Restricted Knox-Keene licensed health plans acquired on March 31, 2024 and May 1, 2023, along with enrollees transitioning to full risk through the Company’s Restricted Knox-Keene plans.

Our total revenue for the nine months ended September 30, 2024, was $1,369.3 million, as compared to $1,033.6 million for the nine months ended September 30, 2023, an increase of $335.7 million, or 32%. The increase in revenue was primarily attributable to capitation revenue. Capitation revenue increased by $333.5 million primarily as a result of our recent acquisitions within our Care Partners segment, including the acquisition of CFC IPA assets that closed on January 31, 2024, and Restricted Knox-Keene licensed health plans acquired on March 31, 2024, along with enrollees transitioning to full risk through the Company’s Restricted Knox-Keene plans.

### Cost of Services, Excluding Depreciation and Amortization

Expenses related to cost of services for the three months ended September 30, 2024 were $405.2 million, as compared to $275.4 million for the same period in 2023, an increase of $129.8 million. The increase in cost of service was primarily attributable to our recent acquisitions within our Care Partners segment along with enrollees transitioning to full risk through the Company's Restricted Knox-Keene plans.

Expenses related to cost of services for the nine months ended September 30, 2024 were $1,148.4 million, as compared to $857.6 million for the same period in 2023, an increase of $290.8 million. The increase in cost of service was primarily attributable to our recent acquisitions within our Care Partners segment, along with enrollees transitioning to full risk through the Company’s Restricted Knox-Keene plans.

### General and Administrative Expenses

General and administrative expenses for the three months ended September 30, 2024 were $37.8 million, as compared to $29.4 million for the same period in 2023, an increase of $8.4 million. The increase was primarily due to increased general and administrative expenses to support operational growth.

General and administrative expenses for the nine months ended September 30, 2024 were $112.5 million, as compared to $74.6 million for the same period in 2023, an increase of $37.8 million. The increase was primarily due to increased general and administrative expenses to support operational growth.

### Depreciation and Amortization

Depreciation and amortization expenses for the three months ended September 30, 2024 were $7.3 million, as compared to $4.3 million for the same period in 2023, an increase of $3.0 million. This amount includes depreciation of property and equipment and the amortization of intangible assets. The increase in depreciation and amortization was primarily related to the amortization of our acquired intangibles as a result of our recent business combinations.

Depreciation and amortization expenses for the nine months ended September 30, 2024 were $19.8 million, as compared to $12.8 million for the same period in 2023, an increase of $7.0 million. This amount includes depreciation of property and equipment and the amortization of intangible assets. The increase in depreciation and amortization was primarily related to the amortization of our acquired intangibles as a result of our recent business combinations.

### Income (Loss) From Equity Method Investments

Income from equity method investments for the three months ended September 30, 2024 was $1.4 million, as compared to loss from equity method investments of $2.1 million for the same period in 2023, an increase of $3.5 million. The increase was primarily due to APC’s equity method investment in LMA. For the three months ended September 30, 2024 and 2023, APC recognized income of $1.1 million and a loss of $2.2 million, respectively, from this investment.

Income from equity method investments for the nine months ended September 30, 2024 was $2.9 million, as compared to $3.1 million for the same period in 2023, a decrease of $0.2 million. The decrease was primarily due to APC’s equity method investment in LMA. For the nine months ended September 30, 2024 and 2023, APC recognized income from LMA of $2.2 million and $2.6 million, respectively.

### Interest Expense

Interest expense for the three months ended September 30, 2024 was $8.9 million, as compared to $3.8 million for the same period in 2023, an increase of $5.1 million. The increase in interest expense was primarily due to greater amounts borrowed on the Amended Credit Facility. As of September 30, 2024, the Company borrowed $432.0 million on the Amended Credit Facility compared to $180.0 million as of September 30, 2023.

Interest expense for the nine months ended September 30, 2024 was $25.0 million, as compared to $10.7 million for the same period in 2023, an increase of $14.3 million. The increase in interest expense was primarily due to greater amounts borrowed on the Amended Credit Facility. As of September 30, 2024, the Company borrowed $432.0 million on the Amended Credit Facility compared to $180.0 million as of September 30, 2023.

### Interest Income

Interest income for the three months ended September 30, 2024 was $3.8 million, as compared to $3.3 million for the three months ended September 30, 2023, an increase of $0.5 million. Interest income reflects interest earned on cash held in bank accounts, money market and certificate of deposit accounts, and the interest from our loan receivables.

Interest income for the nine months ended September 30, 2024 was $11.3 million, as compared to $9.6 million for the nine months ended September 30, 2023, an increase of $1.7 million. Interest income reflects interest earned on cash held in bank accounts, money market and certificate of deposit accounts, and the interest from our loan receivables.

### Unrealized (Loss) Gain on Investments

Unrealized loss for the three months ended September 30, 2024 was $0.6 million, as compared to unrealized loss of $0.3 million for the same period in 2023, a decrease in unrealized gain of $0.2 million. The decrease in unrealized gain on investments was primarily driven by changes in the fair value of equity securities and interest rate collar.

Unrealized gain for the nine months ended September 30, 2024 was $0.4 million, as compared to unrealized loss of $5.9 million for the same period in 2023, an increase in unrealized gain of $6.3 million. The increase in unrealized gain on investments was primarily driven by changes in the fair value of equity securities that were sold in December 2023.

### Other Income

Other income for the three months ended September 30, 2024 was $2.7 million, as compared to other income of $1.9 million for the same period in 2023, an increase of $0.8 million.

Other income for the nine months ended September 30, 2024 was $4.5 million, as compared to other income of $4.3 million for the same period in 2023, an increase of $0.3 million.

### Provision for Income Taxes

Provision for income taxes was $7.8 million for the three months ended September 30, 2024, as compared to a provision for income taxes of $10.0 million for the same period in 2023, a decrease of $2.2 million. The decrease in provision for income taxes was due to tax restructuring that resulted in a lower tax rate.

Provision for income taxes was $25.0 million for the nine months ended September 30, 2024, as compared to a provision for income taxes of $31.0 million for the same period in 2023, a decrease of $6.0 million. The decrease in provision for income taxes was due to tax restructuring that resulted in a lower tax rate.

### Net Income Attributable to Non-controlling Interests

Net income attributable to non-controlling interests for the three months ended September 30, 2024 was $2.9 million, as compared to net income attributable to non-controlling interests for the three months ended September 30, 2023 of $5.9 million, a decrease in net income attributable to non-controlling interest of $3.0 million. The decrease was primarily driven by a decrease in rental income for the APC Excluded Assets ("Excluded Assets") as a result of the spin-off.

Net income attributable to non-controlling interests for the nine months ended September 30, 2024 was $7.6 million, as compared to net income attributable to non-controlling interests for the nine months ended September 30, 2023 of $9.6 million, a decrease in net income attributable to non-controlling interest of $2.0 million. The decrease was primarily driven by a decrease in unrealized loss resulting from the change in the fair value of equity securities held by Excluded Assets and subsequently sold in December 2023, and a decrease in rental income for the Excluded Assets as a result of the spin-off.

### Net Income Attributable to Astrana Health, Inc.

Our net income attributable to Astrana Health, Inc., for the three months ended September 30, 2024 was $16.1 million, as compared to $22.1 million for the same period in 2023, a decrease of $6.0 million.

Our net income attributable to Astrana Health, Inc., for the nine months ended September 30, 2024 was $50.1 million, as compared to $48.4 million for the same period in 2023, an increase of $1.7 million.

### Segment Financial Performance

The Company currently has three reportable segments consisting of Care Partners, Care Delivery, and Care Enablement. 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. For more information about our segments, see Note 18 — “Segments” to our condensed consolidated financial statements under Item 1 in this Quarterly Report on Form 10-Q for additional information.

The following table sets forth our revenue and operating income by segment for the three and nine months ended September 30, 2024 and 2023 (in thousands):

| Segment Revenue | Three Months Ended September 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Care Partners | $455,760 | $320,885 | $134,875 | 42% |
| Care Delivery | $34,728 | $28,971 | $5,757 | 20% |
| Care Enablement | $40,930 | $36,910 | $4,020 | 11% |

| Segment Operating Income (Loss) | Three Months Ended September 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Care Partners | $38,786 | $40,340 | $(1,554) | (4)% |
| Care Delivery | $(1,357) | $(1,035) | $(322) | 31% |
| Care Enablement | $6,314 | $6,448 | $(134) | (2)% |

| Segment Revenue | Nine Months Ended September 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Care Partners | $1,301,355 | $957,297 | $344,058 | 36% |
| Care Delivery | $100,304 | $79,831 | $20,473 | 26% |
| Care Enablement | $110,376 | $102,451 | $7,925 | 8% |

55

| Segment Operating Income (Loss) | Nine Months Ended September 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Care Partners | $122,305 | $90,489 | $31,816 | 35% |
| Care Delivery | $230 | $(1,432) | $1,662 | (116)% |
| Care Enablement | $16,736 | $19,829 | $(3,093) | (16)% |

### Care Partners Segment

Revenue for the three months ended September 30, 2024 was $455.8 million, as compared to $320.9 million for the three months ended September 30, 2023, an increase of $134.9 million, or 42%. Operating income for the three months ended September 30, 2024 was $38.8 million, as compared to $40.3 million for the three months ended September 30, 2023, a decrease in operating income of $1.6 million, or 4%. The increase in revenue was primarily a result of our recent acquisitions within our Care Partners segment, including the acquisition of CFC IPA assets that closed on January 31, 2024, and Restricted Knox-Keene licensed health plans acquired on March 31, 2024 and May 1, 2023, along with enrollees transitioning to full risk through the Company’s Restricted Knox-Keene plans. The decrease in operating income was primarily due to a timing difference in when certain incentive dollars were recognized.

Revenue for the nine months ended September 30, 2024 was $1,301.4 million, as compared to $957.3 million for the nine months ended September 30, 2023, an increase of $344.1 million, or 36%. Operating income for the nine months ended September 30, 2024 was $122.3 million, as compared to $90.5 million for the nine months ended September 30, 2023, an increase in operating income of $31.8 million, or 35%. The increase in revenue and operating income was primarily a result of our recent acquisitions within our Care Partners segment, including the acquisition of CFC IPA assets that closed on January 31, 2024, and Restricted Knox-Keene licensed health plans acquired on March 31, 2024 and May 1, 2023, along with enrollees transitioning to full risk through the Company’s Restricted Knox-Keene plans.

### Care Delivery Segment

Revenue for the three months ended September 30, 2024 was $34.8 million, as compared to $29.0 million for the three months ended September 30, 2023, an increase of $5.8 million. Operating loss for the three months ended September 30, 2024 was $1.4 million, as compared to a loss of $1.0 million for the three months ended September 30, 2023, an increase in operating loss of $0.3 million. The increase in revenue was primarily driven by increased volume in patient visits at our primary, multi-specialty, and ancillary care delivery entities. The increase in operating loss was due to increase in medical costs incurred as a result of the increase in patient visits.

Revenue for the nine months ended September 30, 2024 was $100.3 million, as compared to $79.8 million for the nine months ended September 30, 2023, an increase of $20.5 million. Operating income for the nine months ended September 30, 2024 was $0.2 million, as compared to a loss of $1.4 million for the nine months ended September 30, 2023, an increase in operating income of $1.7 million. The increase in revenue and operating income was primarily driven by increased volume in patient visits at our primary, multi-specialty, and ancillary care delivery entities.

### Care Enablement Segment

Revenue for the three months ended September 30, 2024 was $40.9 million, as compared to $36.9 million for three months ended September 30, 2023, an increase of $4.0 million. Operating income for the three months ended September 30, 2024 was $6.3 million, as compared to operating income of $6.4 million for the three months ended September 30, 2023, a decrease in operating income of $0.1 million. The increase in revenue was primarily due to managing more IPAs and the decrease in operating income was due to more expenses incurred to support the growth in Care Enablement operations.

Revenue for the nine months ended September 30, 2024 was $110.4 million, as compared to $102.5 million for the nine months ended September 30, 2023, an increase of $7.9 million. Operating income for the nine months ended September 30, 2024 was $16.7 million, as compared to operating income of $19.8 million for the nine months ended September 30, 2023, a decrease in operating income of $3.1 million. The increase in revenue was primarily due to managing more IPAs and the decrease in operating income was due to more expenses incurred to support the growth in Care Enablement operations.

### 2024 Guidance

As we adjust our full-year outlook to incorporate CHS's financial contribution, we are raising our revenue guidance and narrowing our net income attributable to Astrana, Adjusted EBITDA, and EPS guidance for the year ending December 31, 2024.

*($ in millions, except per share amounts)*

|  | 2024 Guidance Range Low | High |
| --- | ---: | ---: |
| Total revenue | $1,950 | $2,030 |
| Net income attributable to Astrana Health, Inc. | $52 | $58 |
| Adjusted EBITDA | $165 | $175 |
| EPS – diluted | $1.06 | $1.19 |

See “Guidance Reconciliation of Net Income to EBITDA and Adjusted EBITDA” and “Use of Non-GAAP Financial Measures” below for additional information. There can be no assurance that actual amounts will not be materially higher or lower than these expectations. See “Note about Forward-Looking Statements” for additional information.

### Guidance Reconciliation of Net Income to EBITDA and Adjusted EBITDA

*(in thousands)*

|  | 2024 Guidance Range Low | High |
| --- | ---: | ---: |
| Net income | $59,340 | $66,240 |
| Interest expense | 18,750 | 18,750 |
| Provision for income taxes | 26,660 | 29,760 |
| Depreciation and amortization | 27,500 | 27,500 |
| **EBITDA** | 132,250 | 142,250 |
| Income from equity method investments | (4,250) | (4,250) |
| Other, net | 5,000 | 5,000 |
| Stock-based compensation | 32,000 | 32,000 |
| **Adjusted EBITDA** | $165,000 | $175,000 |

57

### EBITDA

Set forth below are reconciliations of Net Income to EBITDA and Adjusted EBITDA, as well as the reconciliation to Adjusted EBITDA margin for the three and nine months ended September 30, 2024 and 2023. The Company defines Adjusted EBITDA margin as Adjusted EBITDA over total revenue.

*(in thousands)*

|  | Three Months Ended September 30, 2024 |  | 2023 |  | Nine Months Ended September 30, 2024 |  | 2023 |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Net income | $18,981 |  | $27,973 |  | $57,709 |  | $57,943 |  |
| Interest expense | 8,856 |  | 3,779 |  | 25,028 |  | 10,680 |  |
| Interest income | (3,778) |  | (3,281) |  | (11,287) |  | (9,617) |  |
| Provision for income taxes | 7,831 |  | 10,042 |  | 25,004 |  | 30,971 |  |
| Depreciation and amortization | 7,264 |  | 4,305 |  | 19,801 |  | 12,846 |  |
| **EBITDA** | 39,154 |  | 42,818 |  | 116,255 |  | 102,823 |  |
| (Income) loss from equity method investments | (1,353) |  | 2,016 |  | (2,887) |  | (3,160) |  |
| Other, net | 1,206 | (1) | 1,723 | (2) | 2,663 | (3) | 1,507 | (2) |
| Stock-based compensation | 6,163 |  | 5,706 |  | 19,301 |  | 13,364 |  |
| APC excluded asset costs | — |  | (289) |  | — |  | 3,039 |  |
| **Adjusted EBITDA** | $45,170 |  | $51,974 |  | $135,332 |  | $117,573 |  |
| **Total revenue** | $478,710 |  | $348,173 |  | $1,369,331 |  | $1,033,625 |  |
| **Adjusted EBITDA margin** | 9% |  | 15% |  | 10% |  | 11% |  |

(1) Other, net for the three months ended September 30, 2024 relates to non-cash changes related to change in the fair value of our financing obligation to purchase the remaining equity interests in one of our investments, non-cash changes related to change in the fair value of the Company’s Collar Agreement, non-cash gain on debt extinguishment related to one of our promissory note payables, and transaction costs incurred for our investments and tax restructuring fees.

(2) Other, net for the three and nine months ended September 30, 2023 relates to transaction costs incurred for our investments and tax restructuring fees and non-cash changes related to change in the fair value of our financing obligation to purchase the remaining equity interests in one of our investments, changes in the fair value of our contingent liabilities, and changes in the fair value of the Company's Collar Agreement.

(3) Other, net for the nine months ended September 30, 2024 relates to financial guarantee via a letter of credit that we provided almost three years ago in support of two local provider-led ACOs, non-cash changes related to change in the fair value of our financing obligation to purchase the remaining equity interests in one of our investments, non-cash changes related to change in the fair value of the Company’s Collar Agreement, non-cash gain on debt extinguishment related to one of our promissory note payables, transaction costs incurred for our investments and tax restructuring fees, and reimbursement from a related party of the Company for taxes associated with the Excluded Assets spin-off.

#### Use of Non-GAAP Financial Measures

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

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

### Liquidity and Capital Resources

Cash, cash equivalents, and investment in marketable securities at September 30, 2024 totaled $350.3 million as compared to $296.3 million at December 31, 2023. Working capital totaled $284.1 million at September 30, 2024, as compared to $242.8 million at December 31, 2023, an increase of $41.2 million.

We have historically financed our operations primarily through internally generated funds. We generate cash primarily from capitation contracts, risk pool settlements and incentives, fees for medical management services provided to our affiliated physician groups, and FFS reimbursements. We generally invest cash in money market accounts and certificates of deposit, which are classified as cash and cash equivalents. We also have the Amended Credit Agreement, which provides for a five-year revolving credit facility of $400.0 million and a term loan of up to $300.0 million and expires June 2026 and November 2028, respectively. In addition, we have a current shelf registration statement filed with the SEC under which we may issue common stock, preferred stock, debt securities, and other securities that may be offered in one or more offerings on terms to be determined at the time of the offering. We believe we have sufficient liquidity to fund our operations through at least the next 12 months and the foreseeable future.

### Cash Flow Activities

Our cash flows are summarized as follows (in thousands):

|  | Nine Months Ended September 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net cash provided by operating activities | $63,146 | $48,927 | $14,219 | 29% |
| Net cash used in investing activities | (159,071) | (54,096) | (104,975) | 194% |
| Net cash provided by (used in) financing activities | 150,413 | (8,572) | 158,985 | \* |
| Net increase (decrease) in cash and cash equivalents and restricted cash | $54,488 | $(13,741) | $68,229 | (497)% |

59

\* Percentage change of over 500%

#### Operating Activities

Cash provided by operating activities for the nine months ended September 30, 2024 was $63.1 million, as compared to cash provided by operating activities of $48.9 million for the nine months ended September 30, 2023. The increase in cash provided by operating activities was primarily driven by adjusted net income and changes in working capital. For the nine months ended September 30, 2024, net income, exclusive of depreciation and amortization, amortization of debt issuance cost, share-based compensation, non-cash lease expense, gain on debt extinguishment, unrealized gains or losses, income from equity method investments, deferred tax and other was $97.2 million compared to $88.9 million for the nine months ended September 30, 2023. Working capital for the nine months ended September 30, 2024, decreased operating cash flow by $34.1 million, compared to a $40.0 million decrease in operating cash flow for the nine months ended September 30, 2023. The change in working capital for the nine months ended September 30, 2024 was mainly driven by an increase from receivables, net, including amounts with related parties, primarily due to timing of our receivables, including risk pool settlements that occur approximately 18 months after the risk pool performance year is completed, a decrease from prepaid expenses and other current assets, a decrease from income taxes payable as a result of timing of income tax payments, and increases from accounts payable and accrued expenses and medical liabilities due to timing of payments.

#### Investing Activities

Cash used in investing activities during the nine months ended September 30, 2024, was $159.1 million, due to payments for business and asset acquisitions, net of cash acquired of $115.5 million, issuances of loans of $26.0 million, purchase of an equity method investment of $6.0 million, purchases of property and equipment of $5.5 million, purchase of a call option issued in conjunction with an equity method investment of $3.9 million, purchase of a privately held investment of $2.5 million, and purchases of marketable securities of $0.1 million. The cash used in investing activities was partially offset by proceeds from repayment of loans of $0.3 million and proceeds from sale of marketable securities of $0.1 million. Cash used in investing activities during the nine months ended September 30, 2023, was $54.1 million, primarily due to purchases of property and equipment of $21.5 million, purchases of marketable securities of $2.1 million, purchase of a privately held investment of $2.0 million, purchase of an equity method investment of $0.3 million, contribution to an equity method investment of $0.7 million, issuance of a loan receivable of $25.0 million, and payments for business and asset acquisitions, net of cash acquired of $4.7 million. The cash used in investing activities was partially offset by proceeds from repayment of a loan receivable of $2.2 million.

#### Financing Activities

Cash provided by financing activities during the nine months ended September 30, 2024, was $150.4 million, primarily due to borrowings on long-term debt totaling $171.9 million, proceeds from ESPP purchases of $0.3 million, proceeds from the exercise of stock options of $0.2 million, and proceeds from the sale of non-controlling interest of $0.2 million. This was partially offset by repayments of debt of $14.8 million, tax payments from net share settlement of restricted stock awards and units of $4.0 million, dividend payments of $2.1 million, repurchase of treasury shares of $0.7 million, and repayment of finance lease obligations of $0.5 million. Cash used in financing activities during the nine months ended September 30, 2023 was $8.6 million, primarily due to the repurchase of treasury stock of $9.7 million, dividend payments of $2.3 million, repayment of debt of $0.5 million, a repayment of finance lease obligations of $0.5 million, and purchase of non-controlling interest of $0.1 million. This was partially offset by borrowings from bank loans totaling $3.1 million and proceeds from the exercise of options of $1.3 million.

### Credit Facilities

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

|  | September 30, 2024 |
| --- | ---: |
| Term Loan | $285,250 |
| Revolver Loan | 146,732 |
| Promissory Note Payable | 9,875 |
| Total debt | 441,857 |
| Less: Current portion of debt | (15,000) |
| Less: Unamortized financing costs | (3,738) |
| Long-term debt | $423,119 |

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

|  | Amount |
| --- | ---: |
| 2024 (excluding the nine months ended September 30, 2024) | $3,750 |
| 2025 | 16,875 |
| 2026 | 169,232 |
| 2027 | 34,250 |
| 2028 | 217,750 |
| Total | $441,857 |

### Amended Credit Agreement

The Amended Credit Agreement provides for a five-year revolving credit facility to the Company of $400.0 million, which includes a letter of credit sub-facility of up to $50.0 million and a swingline loan sub-facility of $25.0 million, which expires on June 16, 2026. On November 3, 2023, the Company entered into the third amendment to the Amended Credit Agreement, which provided a new term loan to the Company in an aggregate amount of up to $300.0 million. This increased the Company’s facility under the Amended Credit Agreement to $700.0 million, including the existing $400.0 million revolver. Refer to Note 9 — “Credit Facility, Promissory Notes Payable, Bank Loans, and Lines of Credit” to our condensed consolidated financial statements under Item 1 in this quarterly report on Form 10-Q for additional information.

### Commitment Letter

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 the Banks and the other affiliates of the Banks party thereto, pursuant to which the Banks committed to provide (i) the Bridge Facility, a 364-day senior secured bridge term loan in an aggregate principal amount of up to $1,095.0 million, 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.

### Promissory Note Payable

On April 1, 2024, the Company received $8.3 million as a promissory note with a maturity date of March 31, 2027. I Health may accelerate the maturity date if the Company does not exercise the I Health Call Options. On July 1, 2024, an amendment was made to the I Health Promissory Note that, among other things, increased the original principal amount by an additional $1.6 million. As a result, the total amount payable under the I Health Promissory Note is $9.9 million. Refer to Note 9 — “Credit Facility, Promissory Notes Payable, Bank Loans, and Lines of Credit” to our condensed consolidated financial statements under Item 1 in this quarterly report on Form 10-Q for additional information.

### Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires our management to make judgments, assumptions, and estimates that affect the amounts of revenue, expenses, income, assets and liabilities reported in our condensed consolidated financial statements and accompanying notes. Actual results and the timing of recognition of such amounts could differ from those judgments, assumptions, and estimates. In addition, judgments, assumptions, and estimates routinely require adjustment based on changing circumstances and the receipt of new or better information. Understanding our accounting policies and the extent to which our management uses judgment, assumptions, and estimates in applying these policies, therefore, is integral to understanding our financial statements. Critical accounting policies and estimates are defined as those that reflect significant judgments and uncertainties, potentially resulting in materially different results under different assumptions and conditions. We summarize our most significant accounting policies in relation to the accompanying condensed consolidated financial statements in Note 2 — “Basis of Presentation and Summary of Significant Accounting Policies” thereto. Please also refer to the Critical Accounting Policies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

### Off-Balance Sheet Arrangements

As of September 30, 2024, we had no off-balance sheet arrangements that are, or have been, reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.

## Market risk

As filed, 2,211 characters.

### Interest Rate Risk

Borrowings under the Term Loan provided for under our Amended Credit Agreement, as of September 30, 2024, were $285.3 million. The Term Loan bears 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 from 1.50% to 2.75%, 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 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 Company had borrowed $146.7 million under the Revolver Loan. The Revolver Loan bears 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. Borrowings under the Promissory Note Payable with I Health, as of September 30, 2024, was $9.9 million. The promissory note has an interest rate of 4.30% per annum on the principal amount. The Company has entered into a collar agreement for its Revolver Loan to effectively convert its floating-rate debt to a fixed-rate basis. 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. A hypothetical 1% change in our interest rates for our outstanding borrowings would have increased or decreased our interest expense for the three months ended September 30, 2024, by $4.4 million.

## Controls and procedures

As filed, 1,814 characters.

### Evaluation of Disclosure Controls and Procedures

The Company maintains “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Exchange Act, designed to ensure that information required to be disclosed by a company in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives.

As of September 30, 2024, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial and Operating Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial and Operating Officer, concluded that our disclosure controls and procedures were effective as of September 30, 2024.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 8,296 characters.

Our business, financial condition, and operating results are affected by a number of factors, whether currently known or unknown, including risks specific to us or the healthcare industry, as well as risks that affect businesses in general. In addition to the information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 29, 2024. The risks disclosed in such Annual Report could materially adversely affect our business, financial condition, cash flows, or results of operations, and thus our stock price. We believe there have been no material changes in our risk factors from those disclosed in the Annual Report, other than those set forth below. However, additional risks and uncertainties not currently known or which we currently deem to be immaterial may also materially adversely affect our business, financial condition, or results of operations.

Because of such risk factors, as well as other factors affecting the Company’s financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. In addition, the disclosure of any risk factor should not be interpreted to imply that the risk has not already materialized.

***The Transaction is subject to conditions, some or all of which may not be satisfied, and the Transaction may not be completed on a timely basis, if at all. Failure to complete the Transaction in a timely manner or at all could have adverse effects on the Company.***

There can be no assurance that the proposed Transaction will occur in a timely manner, or at all. The completion of the Transaction is subject to a number of conditions, including, among others, receipt of applicable regulatory and governmental approvals, which make the completion and timing of the completion of the Transaction uncertain. Also, either party may terminate the Purchase Agreement if the Transaction has not been consummated 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), except that this right to terminate the Purchase Agreement is not available to any party that has materially breached any provision of the Purchase Agreement, where such breach has resulted in the failure of certain conditions to closing the Purchase Agreement to be satisfied.

If the Transaction is not completed, our ongoing business, financial condition, financial results, and stock price may be materially adversely affected. Without realizing any of the benefits of having completed the Transaction, we will be subject to a number of risks, including the following:

- the market price of our common stock could decline to the extent that the current market price reflects a market assumption that the Transaction will be completed;
- if the Purchase Agreement is terminated and we seek another acquisition, our stockholders cannot be certain that we will be able to find a party willing to enter into a transaction on terms equivalent to or more attractive than the terms of the Purchase Agreement;
- time and resources committed by our management to matters relating to the Transaction could otherwise have been devoted to pursuing other beneficial opportunities for the Company;
- we may experience negative reactions from the financial markets or from our customers, suppliers or employees;
- we will be required to pay our costs relating to the Transaction, such as legal, accounting, and financial advisory fees, whether or not the Transaction is completed; and
- litigation related to any failure to complete the Transaction or related to any enforcement proceeding commenced against us to perform our obligations pursuant to the Purchase Agreement.

The materialization of any of these risks could adversely impact our ongoing business, financial condition, financial results, and stock price. Similarly, delays in the completion of the Transaction could, among other things, result in additional transaction costs, loss of revenue, or other negative effects associated with uncertainty about completion of the Transaction.

***Financing the Transaction will result in an increase in our indebtedness, which could adversely affect us, including by decreasing our business flexibility and increasing our interest expense.***

To provide additional financial flexibility for the Company, in connection with the execution of the Purchase Agreement, the Company entered into the Commitment Letter, pursuant to which the Banks committed to provide (i) the Bridge Facility, a 364-day senior secured bridge term loan in an aggregate principal amount of up to $1,095.0 million, 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.

This increase in our indebtedness may, among other things, reduce our flexibility to respond to changing business and economic conditions or to fund capital expenditures or working capital needs. In addition, the amount of cash required to pay interest on our increased indebtedness, and thus the demands on our cash resources, will materially increase as a result of the indebtedness to finance the Transaction.

***We may not achieve the intended benefits of the Transaction, and the Transaction may disrupt our current plans or operations.***

There can be no assurance that, following completion of the Transaction, we will be able to successfully integrate the acquired operations or otherwise realize the expected benefits of the Transaction (including operating and other cost synergies). Difficulties in integrating the acquired operations into the Company may result in the Company performing differently than expected, in operational challenges, or in the failure to realize anticipated run-rate cost synergies and efficiencies in the expected timeframe or at all, in which case the anticipated benefits of the Transaction may not be realized fully or may take longer than expected to be realized. Further, it is possible that there could be a loss of our and/or the Sellers’ key employees, disruption of our or the Sellers’ ongoing business or unexpected issues, higher than expected costs and an overall post-completion process that takes longer than originally anticipated. The integration of the acquired operations may result in material challenges, including the diversion of management’s attention from ongoing business concerns; retaining key management and other employees; retaining or attracting business and operational relationships; the possibility of faulty assumptions underlying expectations regarding the integration process and associated expenses; consolidating corporate and administrative infrastructures and eliminating duplicative operations; coordinating geographically separate organizations; unanticipated issues in integrating information technology, communications and other systems; and potential unknown liabilities, unforeseen expenses relating to integration, or delays associated with the Transaction.

Filed Nov 12, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-125133. Last ingested by Listed: Nov 6, 2026, 11:03 ET. No prices; not investment advice.