Apollo Medical Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal quarter and nine months ended October 31, 2013. The filing is by Apollo Medical Holdings, Inc.; the supplied company metadata says Astrana Health, so investors should verify the issuer and historical corporate identity.
Business context
ApolloMed operated an integrated physician-services business in California, serving Medicare, commercial, and Medi-Cal beneficiaries through hospital-based services, affiliated physician groups, and an Accountable Care Organization (ACO). During the period it began managing Maverick Medical Group (MMG) and ApolloMed Care Clinic (ACC), and ACC acquired certain assets of a Los Angeles medical clinic on September 1, 2013.
Financial performance
| Metric | Three months ended Oct. 31, 2013 | Three months ended Oct. 31, 2012 | Nine months ended Oct. 31, 2013 | Nine months ended Oct. 31, 2012 |
|---|---|---|---|---|
| Revenue | $2.61 million | $1.97 million | $7.64 million | $5.25 million |
| Gross profit | $465,000 | $166,000 | $1.28 million | $913,000 |
| Gross margin | 17.8% | 8.5% | 16.7% | 17.4% |
| Operating loss | $(813,000) | $(1.44) million | $(2.89) million | $(1.55) million |
| Net loss | $(1.01) million | $(4.72) million | $(3.40) million | $(8.08) million |
| Loss per share, basic and diluted | $(0.03) | $(0.14) | $(0.09) | $(0.26) |
Quarterly revenue increased 32.6%; nine-month revenue increased 45.7%. Growth was attributed mainly to new hospital contracts, expansion with existing clients, and, to a lesser extent, MMG/ACC activity and the VMM acquisition. Quarterly gross margin improved, but the nine-month margin edged down. Nine-month operating loss widened as general and administrative costs rose 69%, including spending on growth initiatives and higher stock-based compensation. Net losses narrowed versus 2012, primarily because the prior-year periods included substantial noncash derivative-liability remeasurement losses.
Cash, liquidity, and debt
- Cash was $1.01 million at October 31, 2013, down from $1.18 million at January 31, 2013.
- Nine-month operating cash flow was negative $929,000; investing cash flow was negative $114,000; financing cash flow was positive $878,000. Financing included $730,000 from common-stock sales and $220,000 from 9% convertible notes, partly offset by distributions and financing costs.
- Current liabilities were $2.09 million and current assets $2.64 million. Total liabilities were $4.29 million; stockholders’ deficit was $1.05 million.
- At October 31, notes and lines of credit payable were $1.04 million current, and convertible notes payable were $2.20 million net of discounts. The filing also describes $2.5 million of long-term borrowings before debt discount.
- A secured revolving facility entered in October had a $2.0 million commitment and $811,878 outstanding at quarter-end, bearing interest at 6.24% then and maturing June 30, 2014. On December 20, 2013, after quarter-end, the commitment was amended to $4.0 million. The filing says proceeds were intended for debt repayment/refinancing, working capital, and general purposes.
Outlook, risks, and notable items
- Management expected operating losses could continue through fiscal 2014 and stated that available liquidity might be insufficient for the next 12 months, raising substantial doubt about the company’s ability to continue as a going concern. Management said additional capital might be needed and warned that failure to raise it could force cessation of operations.
- MMG, ACC, and the ACO were new or developing operations expected to require working capital; the filing cautioned that adequate funding and future cash generation were not assured. No specific revenue or earnings guidance was provided.
- ACC’s clinic-asset acquisition had $225,000 of consideration: $100,000 cash and a seller note recorded at $125,000 fair value. The preliminary allocation recorded $225,000 of goodwill; the purchase accounting remained subject to adjustment.
- Two customers represented 16.3% and 15.5% of nine-month revenue; two customers represented 16.2% and 9.7% of receivables at October 31. Customer concentration is a risk.
- The company disclosed ordinary-course malpractice and other legal matters, uncertainty around insurance adequacy and renewal, and regulatory compliance risks related to Medicare and Medicaid. Management believed pending matters would not have a material adverse effect, while noting outcomes could not be predicted with certainty.
- Disclosure controls and internal control over financial reporting were deemed ineffective as of October 31, 2013, due to three material weaknesses: lack of written control documentation, insufficient segregation of duties, and inadequate financial-reporting review and supervision. Remediation was underway.
Most important facts to verify
- Confirm the issuer’s identity and period: this filing names Apollo Medical Holdings, Inc. and covers the quarter ended October 31, 2013.
- Assess the going-concern warning, operating cash burn, and whether the post-quarter $4.0 million facility was available on usable terms and sufficient to meet near-term needs.
- Check subsequent debt repayments/refinancing, facility covenants and compliance, and the maturity and conversion terms of outstanding notes.
- Evaluate whether growth in revenue can translate into improved operating results after the higher costs of expansion and stock-based compensation.
- Monitor remediation of the disclosed material weaknesses, customer concentration, clinic acquisition accounting, and malpractice/insurance exposure.