Astrana Health, Inc. (formerly Apollo Medical Holdings, Inc.) — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are with FY2020 unless stated otherwise. The filing is issued under the former corporate name, Apollo Medical Holdings, Inc. The company operates an integrated, physician-centric, risk-bearing healthcare platform, primarily in California, through physician groups, IPAs, MSOs, clinics, hospitalists, and an accountable care organization. At year-end it coordinated care for approximately 1.2 million patients through a network of about 9,900 providers.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Total revenue | $773.9 million | $687.2 million | Up 13% |
| Income from operations | $98.2 million | $80.5 million | Up 22% |
| Consolidated net income | $49.3 million | $122.3 million | Down 60% |
| Net income attributable to Apollo Medical Holdings, Inc. | $73.9 million | $37.9 million | Up 95% |
| Diluted EPS | $1.63 | $1.01 | Up |
| Cash provided by operating activities | $70.3 million | $46.2 million | Up |
- Revenue growth reflected higher capitation, risk-pool settlements and incentives, and fee-for-service revenue. Capitation increased 6% to $593.2 million; risk-pool settlements and incentives increased 44% to $111.6 million; fee-for-service revenue more than doubled to $26.6 million.
- Operating expenses rose 11% to $675.7 million, including cost of services of $596.1 million and general and administrative expense of $62.1 million. Management cited higher medical claims, costs from consolidating Sun Labs and DMG, and increased staffing and other growth costs.
- Consolidated net income fell largely because FY2020 included a $99.8 million gain on sale of the UCI equity-method investment. FY2021 also included $10.7 million of unrealized investment losses and a $15.7 million write-off of a beneficial interest related to the UCI sale. The filing reports a $24.6 million net loss attributable to noncontrolling interests in FY2021, versus $84.5 million of noncontrolling-interest income in FY2020; consequently, income attributable to the parent increased despite lower consolidated net income.
- Cash, cash equivalents, and marketable securities totaled $286.5 million at year-end; working capital was $283.4 million. Cash and restricted cash increased by $39.1 million during the year.
- Total debt was $188.0 million, including $180.0 million drawn on a $400.0 million five-year revolving facility. The company reported compliance with its debt covenants: leverage ratio 1.16 versus a maximum of 3.75, and interest coverage 25.44 versus a minimum of 3.25. The company stated that liquidity was sufficient to fund operations at least through February 2023.
- Cash flows were $70.3 million provided by operations, $16.5 million provided by investing activities, and $47.7 million used in financing activities. Financing activity included $238.3 million of debt repayments, $180.0 million of new revolver borrowings, and $31.1 million of dividends paid.
Material changes and notable items
- Patients managed increased to approximately 1.2 million from 1.1 million, while managed physician groups decreased to 12 from 14. Capitation growth was principally associated with APC and Alpha Care membership and rates.
- Sun Labs was acquired in August 2021 (49% ownership, $4.0 million purchase price) and consolidated as a variable interest entity. DMG was consolidated beginning October 2021 after a management-services agreement changed the company’s consolidation assessment. APCMG was also acquired and consolidated in 2021.
- Risk-pool revenue growth included a $21.8 million settlement for the 2020 NGACO performance year, finalized in October 2021. The company received approximately $7.7 million monthly in NGACO AIPBP payments during 2021 and recognized $59.2 million of $92.4 million received as revenue; $16.3 million of deferred revenue related to NGACO remained at year-end.
- The company’s NGACO participation ended December 31, 2021. APAACO applied for the 2022 Global and Professional Direct Contracting model; CMS subsequently renamed the program ACO REACH, scheduled to begin in 2023.
Guidance, outlook, and principal risks
- FY2022 outlook: Management forecast total revenue of $1.03 billion to $1.08 billion, based on existing business and stated assumptions. It provided revenue guidance only, citing uncertainty around CMS innovation-model participation, staffing investment, and other investments affected by macroeconomic factors.
- The company bears medical-cost risk under capitation arrangements. For the 2021 NGACO performance year, it selected 100% risk with a 15% savings/loss cap; the filing estimated a benchmark of approximately $436.4 million and potential shared savings or losses of up to approximately $65.5 million. Final performance results were not yet known at filing.
- Major risks include California and government-payor concentration, dependence on a limited number of payors (four represented 49.6% of FY2021 net revenue), COVID-19 effects, medical-claims estimation, and uncertainty in risk-pool settlements and CMS reconciliation.
- Additional material risks include healthcare regulation and reimbursement changes; corporate-practice-of-medicine and VIE-consolidation challenges; cybersecurity and privacy exposure; acquisition and integration risks; and the possibility that capitation costs exceed revenue.
- The 2019 affiliate financing structure remains a significant exposure: the company made a $545 million, 10-year secured loan to AP-AMH, while the company’s own credit facility is secured by assets of the company and NMM. The filing cautions that AP-AMH may not repay the loan, potentially creating a mismatch between repayment obligations and dividends received.
- Consolidated results include VIEs and assets that may not be available to the parent. The filing states that some consolidated revenue does not translate into cash available or distributable to ApolloMed; APC Excluded Assets are for APC and its shareholders.
Important facts for investors to verify
- Track CMS settlement and final 2021 NGACO risk results, and confirm the status and economics of APAACO’s transition to subsequent CMS models.
- Review the collectability, timing, and assumptions underlying risk-pool receivables, including the significant AHMC-related balance; the auditor identified risk-pool settlements and IBNR medical liabilities as critical audit matters.
- Reconcile consolidated cash and revenue with cash legally available to the parent, including the effect of VIE restrictions and Excluded Assets.
- Monitor the AP-AMH loan and related preferred-dividend flows, the secured $400 million credit facility, debt covenants, and the remaining purchase obligations associated with consolidated entities.
- Assess the sustainability of FY2022 revenue guidance and FY2021 earnings, separating recurring operating performance from settlements, investment revaluations, consolidation gains, and other unusual items.
Audit and controls: The auditors issued an unqualified opinion on the financial statements and internal control over financial reporting; management also reported effective disclosure controls and internal controls as of December 31, 2021.