Filing summary
Period and entity: The supplied filing is Apollo Medical Holdings, Inc.’s Form 10-K for the fiscal year ended March 31, 2015, not a 2014 Q4 filing. The company is now identified in the request metadata as Astrana Health, Inc.; the filing itself uses the Apollo Medical Holdings name. The company changed its fiscal year-end from January 31 to March 31, so the comparable March 2014 period is unaudited and is not a full-year period in the statements.
Business context and results
ApolloMed operated one healthcare-delivery segment, combining hospitalist services, two IPAs, a Medicare ACO, clinics, and palliative care, home health, and hospice services. It reported that all revenue was generated in California, despite beginning ACO operations in Mississippi and Ohio. Growth during the year included acquisitions of AKM, SCHC, Best Choice Hospice, and Holistic Health Home Health, and consolidation of a Bay Area hospitalist group from February 17, 2015.
| Metric | FY ended March 31, 2015 | Comparable period |
|---|---|---|
| Net revenue | $32.99 million | $11.16 million for the unaudited twelve months ended March 31, 2014; up 195.7% |
| Cost of services | $22.07 million; 66.9% of revenue | $9.94 million; 89.1% of revenue |
| Operating expenses | $11.28 million general and administrative; $0.33 million depreciation and amortization | $5.58 million and $0.03 million, respectively |
| Operating loss | $0.69 million; 2.1% of revenue | $4.40 million; 39.4% of revenue |
| Net loss attributable to ApolloMed | $1.80 million; $0.37 per share | $5.64 million; $0.16 per share for the two months ended March 31, 2014 |
| Cash from operating activities | $(0.27) million | $(0.01) million for the two months ended March 31, 2014 |
| Cash from investing activities | $(3.20) million | $(0.01) million for the two months ended March 31, 2014 |
| Cash from financing activities | $1.66 million | $5.40 million for the two months ended March 31, 2014 |
The filing also reports consolidated net loss of $1.35 million; the larger $1.80 million loss attributable to ApolloMed reflects $0.45 million of net income attributable to non-controlling interests. No separate guidance for future revenue, earnings, or margins is provided.
Financial position and changes
- At March 31, 2015, cash and cash equivalents were $5.01 million, restricted cash was $0.53 million, and accounts receivable were $3.80 million. Current assets totaled $9.85 million versus current liabilities of $5.98 million.
- Total liabilities were $15.99 million, compared with total assets of $15.00 million. ApolloMed reported a $0.99 million total stockholders’ deficit and a $19.34 million accumulated deficit.
- Reported borrowings totaled $8.61 million, including NNA term and revolving loans, convertible notes, and a Union Bank line. The 9% subordinated convertible notes, with approximately $1.04 million carrying value at year-end, mature February 15, 2016. Separate contractual debt maturities are presented at $10.72 million gross of discount and net of the conversion-feature liability.
- The NNA financing is secured by substantially all company and subsidiary assets and includes financial covenants, restrictions on additional debt and acquisitions, and limits on dividends and certain corporate actions. ApolloMed reported compliance with amended financial covenants at March 31, 2015. Approximately $0.38 million of line availability was cited in the liquidity discussion, although the NNA revolving line itself was fully drawn at year-end.
- Revenue growth mainly reflected acquisitions, increased MMG patient lives, ACO shared savings, and the Bay Area group consolidation. The company recognized a $5.38 million CMS shared-savings payment, about 16% of annual revenue, relating to savings achieved from July 2012 through December 2013. Management also cited a one-time MMG true-up for fiscal 2015 services, with future amounts expected to be paid as earned.
- Operating loss narrowed from the stated comparable twelve-month loss of $4.40 million to $0.69 million. The ACO payment improved results, while acquisition-related costs, higher medical costs, legal and professional fees, and administrative investment offset part of the improvement. Interest expense rose to $1.33 million. A $0.83 million gain from changes in the fair value of warrant and conversion-feature liabilities reduced other expense.
Outlook, risks, and unusual items
- Management said March 31 cash and approximately $0.38 million of line availability should cover working capital needs for at least twelve months, but warned that cash flows are unpredictable and additional funding may be needed. There is no assurance that financing would be available on acceptable terms.
- Major uncertainties include the ability to integrate acquisitions, manage capitated and other risk-sharing costs, retain key personnel and physicians, and maintain key payor and provider contracts. Three payors represented 60.3% of FY2015 net revenue; Medicare/Medi-Cal alone represented 34.8%.
- ACO shared-savings revenue is contingent, irregular, and dependent on CMS calculations and program rules; future payments were not assured. The filing also notes that the MMG true-up makes results and cash flows harder to predict.
- Healthcare regulatory and reimbursement risks include Medicare and Medicaid changes, billing and documentation reviews, corporate-practice-of-medicine and fee-splitting restrictions, and the possibility that regulators could require a limited Knox-Keene license. The company said it did not hold such a license.
- Management identified three material weaknesses in internal control over financial reporting: lack of written control documentation, insufficient segregation of duties, and inadequate review and supervision. Disclosure controls were deemed ineffective as of March 31, 2015. The independent auditor expressed an opinion on the financial statements, but did not provide an internal-control audit opinion.
- Two competitor-related disputes involving Lakeside and Regal were in arbitration and mediation. The company said it could not yet assess the likelihood or estimate potential loss. Malpractice and other claims, insurance limits, and legal expenses are additional uncertainties.
- Acquisition contingent payments had an aggregate maximum of $1.55 million, of which $0.25 million had been paid by year-end. The company also disclosed $6.83 million of future minimum operating lease payments and no off-balance-sheet arrangements.
- Subsequent events included a 1-for-10 reverse stock split in April 2015 and extensions of the deadline for filing NNA’s resale registration statement to October 24, 2015. Failure to meet the registration deadline could trigger monthly stock-settled damages.
Most important facts for investors to verify
- Confirm the filing identity and reporting period: this is Apollo Medical Holdings’ FY2015 10-K, not a 2014 Q4 filing for a registrant named Astrana Health.
- Assess whether recurring operations can replace the one-time $5.38 million ACO payment and MMG true-up, and whether future ACO savings qualify for payment.
- Review liquidity, debt maturities, NNA covenants and consent rights, and the company’s ability to meet obligations without additional financing.
- Evaluate the sustainability and economics of rapid acquisition-led growth, including medical-cost exposure, contingent consideration, and integration requirements.
- Track remediation of the three material weaknesses and any subsequent changes in financial reporting controls.
- Monitor payor concentration, the Lakeside/Regal arbitration, regulatory or reimbursement developments, and potential dilution from convertible securities, warrants, and registration-rights damages.