SEC Form 10-Q Summary
Filing identity: The supplied filing is for Apollo Medical Holdings, Inc., not a registrant named Astrana Health, Inc. It covers the quarter and nine months ended December 31, 2015, and was signed February 16, 2016. The company provides integrated healthcare delivery and related physician-management services in California.
Financial results
| Metric | Three months ended Dec. 31, 2015 | Prior-year quarter | Nine months ended Dec. 31, 2015 | Prior-year period |
|---|---|---|---|---|
| Revenue | $10.66 million | $7.64 million | $32.23 million | $23.40 million |
| Operating loss | $1.46 million | $1.53 million | $3.54 million | $0.86 million |
| Net loss | $1.53 million | $1.39 million | $4.06 million | $1.36 million |
| Net loss attributable to Apollo Medical | $1.69 million | $1.69 million | $4.70 million | $1.99 million |
| Operating cash flow | Not separately stated | Not separately stated | $(1.83) million | $0.65 million |
- Quarterly revenue increased 39.5%; nine-month revenue increased 37.7%. Management attributed growth to BAHA consolidation, acquired hospice/home-health businesses, and increased MMG patient lives.
- Calculated operating margins were approximately (13.7)% for the quarter and (11.0)% for the nine months. Cost of services grew 39% for the quarter and 57% year over year for the nine months, outpacing revenue growth in the nine-month comparison.
- Quarterly operating loss improved about 5%, while nine-month operating loss increased by $2.68 million. Nine-month net loss attributable to the company increased 136%.
- Cash and cash equivalents were $4.64 million at December 31, 2015, versus $5.01 million at March 31, 2015. Current assets were $9.19 million and current liabilities $6.83 million. Stockholders’ deficit was $2.29 million; preferred stock was classified as mezzanine equity.
- At quarter-end, reported debt included $1.09 million of current convertible notes and $0.09 million on a line of credit; the large NNA term loan and revolving debt had been repaid. Management described net borrowings of approximately $1.2 million and available credit lines of about $0.5 million.
Changes, financing, and unusual items
- In October 2015, the company raised $10 million from NMM through preferred-stock-and-warrant units. It used most proceeds to repay approximately $7.5 million of NNA debt, with the remainder for working capital. The transaction included a $266,000 debt-extinguishment loss.
- The NMM preferred stock has a $9-per-share liquidation preference and a redemption feature tied to revenue: NMM may seek redemption if revenue for the four quarters ending September 30, 2016 is below $60 million. Redemption would include 10% annual interest. The associated warrants are liability-classified.
- NNA’s $2 million 8% convertible note and related warrants were settled through 600,000 common shares and $47,112 cash interest. The company also recorded an out-of-period correction to prior derivative and debt accounting; management said prior statements were not materially misstated.
- Nine-month revenue comparison was affected by $5.4 million of ACO shared-savings revenue recorded in the prior-year period that did not recur. Although the ACO reported $3.9 million in 2014 savings and a 90.4% quality score, CMS found it did not meet the minimum savings threshold, so no fiscal 2016 incentive payment was received.
- Medical liabilities rose to $1.94 million from $1.26 million at March 31, 2015, reflecting claims estimates and risk-capitation exposures. The company’s full-risk arrangements and estimated incurred-but-not-reported claims are subject to estimation uncertainty.
Outlook, liquidity, risks, and contingencies
- Management said internal forecasts provide a path to profitability and expected positive operating cash flow for fiscal 2016. However, it stated that funding working capital, debt service, and planned capital spending for at least the next 12 months was uncertain; additional financing or cost reductions may be needed, with no assurance of success.
- Liquidity risks include a history of operating losses, a $24 million accumulated deficit, nine-month operating cash use of $1.83 million, and dependence on payors and uncertain MSSP payments. Medicare/Medi-Cal, LA Care, and Healthnet represented 32%, 16%, and 11% of nine-month revenue, respectively.
- Two competitor-related disputes involving the company, affiliates, and its CEO were in arbitration and mediation. The company said it could not yet assess the likelihood or amount of loss. Other ordinary-course claims, including malpractice matters, also remain possible.
- Disclosure controls and internal control over financial reporting were deemed ineffective at December 31, 2015, with three material weaknesses: lack of written control documentation, insufficient segregation of duties, and inadequate review and supervision. Remediation included hiring a full-time accountant and seeking a permanent CFO.
- Other items include a headquarters move and lease obligations of $7.15 million in future minimum rent, and a January 2016 asset acquisition involving 275,000 shares valued at approximately $1.5 million plus $200,000 paid by the seller. Subsequent to quarter-end, holders converted about $420,000 of 9% notes into approximately 105,000 shares.
Most important facts for investors to verify
- Confirm the registrant identity and reporting period: this filing names Apollo Medical Holdings, Inc.
- Track quarterly cash burn, cash availability, refinancing needs, and whether management achieves its fiscal 2016 operating-cash-flow expectation.
- Assess whether revenue growth can improve margins, given nine-month cost-of-services growth above revenue growth.
- Monitor the NMM revenue threshold and redemption provisions, dilution from preferred conversion and warrants, and the remaining 9% notes.
- Verify CMS/MSSP payment outcomes, medical-claims reserve development, litigation progress, and remediation of the disclosed material weaknesses.