Filing summary
Filing and period: The supplied filing is Apollo Medical Holdings, Inc.’s Form 10-K for the fiscal year ended March 31, 2017, filed June 29, 2017. This does not match the request metadata identifying Astrana Health, Inc. and “2016 Q4”; the filing reports annual results, not standalone Q4 results.
Business context
Apollo Medical Holdings operated a California-focused healthcare delivery business spanning hospitalist services, physician groups and an IPA, Medicare ACO programs, specialty clinics, hospice and home health, and population-health technology. The company reported one operating segment. It began participating in the CMS Next Generation ACO (NGACO) Model through APAACO in January 2017.
Financial results and liquidity
| Metric | FY ended Mar. 31, 2017 | FY ended Mar. 31, 2016 |
|---|---|---|
| Net revenue | $57.4 million | $44.0 million |
| Cost of services | $48.7 million | $34.0 million |
| General and administrative expense | $18.6 million | $17.0 million |
| Operating loss | $10.5 million | $7.3 million |
| Consolidated net loss | $8.7 million | $8.2 million |
| Net loss attributable to Apollo Medical Holdings | $9.0 million | $9.3 million |
| Cash used in operating activities | $8.1 million | $1.8 million |
- Revenue increased 30%, primarily from hospitalist contracts and growth in IPA membership; cost of services rose 43%, partly reflecting contract labor used to staff new hospitalist work. Operating loss widened. The smaller parent-attributable loss primarily reflects changes in noncontrolling interests and other items, not improved consolidated operations.
- Net loss per share was $1.49, versus $1.79. The filing does not present a standalone fourth-quarter income statement.
- Operating margin was approximately negative 18.4% (operating loss divided by revenue), compared with approximately negative 16.5% in FY2016.
- At March 31, 2017, cash and cash equivalents were $8.7 million; current assets were $14.9 million and current liabilities $14.5 million. Restricted cash of $0.8 million was separately reported. Net borrowings from notes and lines of credit were approximately $9.9 million; total stockholders’ equity was $0.3 million.
- Financing activities provided $8.9 million, including a $5.0 million NMM loan and a $4.99 million Alliance convertible note. The Alliance note is due December 31, 2017, or earlier if the merger is terminated, unless converted under its terms. The NMM note is due January 2019.
- The auditor issued an unmodified opinion but highlighted substantial doubt about the company’s ability to continue as a going concern. Management said it lacked sufficient liquidity for at least the next 12 months without additional funds and was substantially dependent on completing the NMM merger.
Material changes and notable items
- Hospitalist revenue from AMH and BAHA increased by about $12.2 million; the filing attributes much of the overall revenue growth to new hospitalist contracts. The company acquired BAHA in November 2016.
- MMG revenue increased about $4.3 million, reflecting membership growth and a better full-risk surplus; hospice and home-health revenue declined about $2.1 million on lower census and restructuring.
- Effective January 1, 2017, ApolloMed deconsolidated LALC and Hendel after amending their management agreements. It recorded a $0.24 million gain; deconsolidation reduced reported cash by about $0.86 million.
- The MSSP ACO received no payment for performance year 2015, reported in FY2017. A possible payment for performance year 2016, if awarded, would be received in FY2018. No NGACO revenue was recognized in FY2017.
- Other income included a $1.63 million non-cash gain from changes in fair value of warrant and conversion-feature liabilities. FY2016 included a $0.27 million debt-extinguishment loss.
- The company reported that material weaknesses in internal-control documentation, segregation of duties, and financial-reporting review had been remediated by March 31, 2017. Management concluded internal control over financial reporting was effective; the auditor did not provide an internal-control audit opinion.
Outlook, risks, and contingencies
- Management expected positive operating cash flow in FY2018, but provided no quantified revenue, earnings, or cash-flow guidance. It cautioned that this expectation was not assured.
- The pending NMM merger was expected to close in the second half of calendar 2017, subject to regulatory and stockholder approvals and other conditions. Under the stated terms, NMM shareholders would own 82% and existing ApolloMed shareholders 18% of the combined company at closing. Failure to close could trigger repayment of the Alliance note and other financing and liquidity pressures.
- APAACO selected NGACO Risk Arrangement A, bearing 80% of Part A and Part B risk, with a 5% savings/loss cap; the filing describes an effective exposure cap of 4%, or approximately $13.4 million against the stated $335 million benchmark. APAACO provided a $6.7 million letter of credit. Results and settlements were uncertain, and the program carried material claims, cash-flow, provider-retention, and CMS implementation risks.
- MMG had previously failed California DMHC tangible-net-equity requirements and was under a corrective action plan. ApolloMed said MMG had regained positive tangible net equity and believed it was compliant, but DMHC confirmation was pending. Further capital contributions could reduce cash available elsewhere.
- Revenue concentration remained material: four payors represented 47.2% of FY2017 revenue. The company also disclosed substantial exposure to hospital contracts, capitation and risk-pool losses, reimbursement changes, and California healthcare regulation.
- Additional risks include healthcare-law compliance and audits, corporate-practice-of-medicine and Knox-Keene licensing issues, malpractice claims and reserve estimates, acquisition integration, and reliance on key personnel. The company reported no off-balance-sheet arrangements.
Investor verification priorities
- Confirm the issuer and reporting period: the filing is for Apollo Medical Holdings, Inc., FY2017, not Astrana Health, Inc. or a standalone 2016 Q4.
- Review the complete financial statements and notes for cash runway, debt maturities, working-capital needs, and the going-concern disclosure.
- Verify whether the NMM merger closed, whether the Alliance note converted or was repaid, and the resulting ownership and dilution.
- Track APAACO’s NGACO performance, settlement exposure, letter-of-credit requirements, provider participation, and actual cash receipts under AIPBP.
- Confirm DMHC’s final status for MMG and assess any subsequent risk-pool claims, payor concentration, and operating cash-flow performance.