Astrana Health, Inc. (then Apollo Medical Holdings, Inc.) — 10-K Summary
Reporting period: The filing is an annual report for the fiscal year ended March 31, 2016, with fiscal 2015 comparisons. Although the request metadata says “2015 Q4,” the filing itself is not a quarterly report.
Business context
The company operated an integrated California healthcare-delivery business spanning hospitalist services, physician groups and IPAs, an accountable care organization (ACO), clinics, and palliative, home-health, and hospice services. It reported one operating segment. Its population-health technology acquired from Healarium entered service in April 2016, after year-end.
Financial results and liquidity
| Metric | FY ended Mar. 31, 2016 | FY ended Mar. 31, 2015 |
|---|---|---|
| Net revenue | $44.05 million | $32.99 million |
| Operating loss | $7.27 million | $0.69 million |
| Net loss | $8.17 million | $1.35 million |
| Net loss attributable to Apollo | $9.34 million | $1.80 million |
| Operating cash flow | $(1.84) million | $(0.27) million |
| Cash and cash equivalents at year-end | $9.27 million | $5.01 million |
- Revenue rose 34%. FY 2016 revenue included approximately $17.3 million from hospitalists, $14.0 million from IPAs, $7.3 million from clinics, and $6.0 million from palliative services.
- Cost of services increased 54% to $34.00 million; general and administrative expense rose 50% to $16.96 million. The resulting operating margin was approximately negative 16.5%, compared with approximately negative 2.1% in FY 2015. Net loss attributable to Apollo was approximately 21.2% of revenue.
- Year-end total assets were $19.57 million and total liabilities were $11.02 million. Current assets of $13.56 million exceeded current liabilities of $7.43 million by about $6.13 million.
- Borrowings were approximately $0.19 million, consisting of subsidiary credit lines; major NNA debt was repaid in October 2015. The balance sheet also included a $2.81 million warrant liability. The company had $530,000 of restricted cash.
- Financing cash flow was $6.34 million, principally reflecting $15.0 million raised through Series A and Series B preferred-stock financings, offset in part by debt repayment and other financing uses. Management said liquidity was sufficient for obligations for at least 12 months, through June 30, 2017, while noting additional funding might be needed.
Material changes and unusual items
- Revenue growth reflected acquired hospice, home-health, and specialty-clinic operations, consolidation of Bay Area Hospitalist Associates, and increased capitated membership at MMG. FY 2015 had included $5.4 million of ACO shared-savings revenue that did not recur.
- Cost increases included higher MMG medical claims, acquired-business costs, and consolidation of Bay Area Hospitalist Associates. Health Net and LA Care reduced Medi-Cal professional capitation rates retroactively, reducing MMG revenue by approximately $1 million.
- The ACO generated $3.9 million of measured savings and a 90.4% quality score for the relevant performance year, but CMS found it did not meet the minimum savings threshold; no FY 2016 shared-savings payment was received. Apollo had received approximately $5.4 million in FY 2015.
- The company recorded a $476,745 loss on disposal of substantially all ACC assets and a $207,285 impairment charge for AKM goodwill and intangible assets. It also expensed approximately $514,000 of postponed public-offering costs and recorded a $266,366 debt-extinguishment loss.
- Management corrected prior-period valuation of certain warrant and debt-related balances in FY 2016, concluding prior financial statements were not materially misstated and remained reliable.
Outlook, risks, and contingencies
- Management expected positive operating cash flow in FY 2017, but emphasized dependence on cash on hand, operations, credit availability, and potential additional financing.
- MMG was not meeting certain California DMHC financial requirements, including positive tangible net equity. It submitted a corrective action plan; management expected positive TNE by FY 2017’s third quarter, but success was not assured. Additional capital support could reduce cash available elsewhere.
- Series A preferred stock carried a potential redemption right if trailing four-quarter net revenue through September 30, 2016 was below $60 million. If exercised, redemption could require repayment of the purchase price plus 10% annual interest, creating a material liquidity risk. Preferred stock, warrants, options, and registration-rights obligations also create potential dilution.
- Three payors accounted for 55.4% of FY 2016 revenue; Medicare/Medi-Cal alone represented 29.8%. Capitation and risk-sharing contracts expose the company to medical costs exceeding payments.
- Disclosure controls and internal control over financial reporting were deemed ineffective, with three material weaknesses: lack of documented controls, insufficient segregation of duties, and inadequate review and supervision. A comprehensive remediation program had not yet been implemented.
- Competitor-related claims against the company, affiliates, and CEO were in arbitration and mediation. The filing said it was too early to assess the likelihood or estimate any potential loss. Healthcare-law compliance, reimbursement changes, malpractice exposure, and reliance on physician-management agreements were also significant risks.
- After year-end, the CEO was appointed interim CFO. The company also amended NNA registration deadlines; failure to meet them could trigger monthly liquidated damages payable in common shares.
Key investor verification points
- Confirm whether revenue growth and cost increases reflect sustainable membership and operations or primarily acquisitions and consolidation.
- Track operating cash flow, liquidity, MMG’s DMHC remediation progress, and any requirement for further capital contributions.
- Verify performance against the Series A revenue threshold and assess any redemption funding requirement.
- Monitor payor concentration, rate reductions, medical-liability reserves, and capitation/risk-pool results.
- Review control-remediation progress, arbitration developments, and potential dilution from preferred securities, warrants, options, and registration obligations.