Apollo Medical Holdings, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; comparisons are with Q1 2019 unless stated otherwise. The filing identifies the registrant as Apollo Medical Holdings, Inc. (Nasdaq: AMEH). The company operates an integrated, physician-centric healthcare and population-health business, primarily in California.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change / context |
|---|---|---|---|
| Revenue | $165.1 million | $95.8 million | Up 72% |
| Operating income (loss) | $4.4 million | $(3.3) million | Operating margin about 2.6%, versus a loss |
| Net income (loss), consolidated | $3.0 million | $(2.5) million | Improved $5.4 million |
| Net income attributable to Apollo Medical Holdings | $4.1 million | $0.1 million | EPS was $0.11 basic and diluted |
| Cash from operating activities | $(9.3) million | $(4.0) million | Higher use of cash, including working-capital movements |
| Cash from investing activities | $(0.9) million | $(0.1) million | |
| Cash from financing activities | $(12.1) million | $(9.8) million | Included $2.4 million term-loan repayment and $9.9 million of dividends paid |
- Revenue mix: Capitation was $140.4 million, up from $71.5 million; risk-pool settlements and incentives were $11.2 million; management fees $8.8 million; fee-for-service revenue $3.4 million.
- Margins and costs: Cost of services rose to $144.2 million from $83.4 million, broadly tracking revenue growth. Medical claims and other healthcare costs increased mainly with acquisitions and NGACO activity; provider bonus payments declined by $10.0 million. General and administrative expense rose 15% to $11.8 million.
- Liquidity: At March 31, cash and equivalents were $80.9 million and marketable securities $117.1 million, totaling $198.0 million. Working capital was $211.5 million, down from $223.7 million at year-end 2019. Cash, cash equivalents and restricted cash totaled $81.7 million, down $22.3 million during the quarter.
- Debt: Credit-facility borrowings were $245.3 million, including a $185.3 million term loan and $60.0 million revolver borrowing; $9.5 million was classified as current. The company reported covenant compliance. Term-loan and revolver rates were 3.57% and 3.24%, respectively.
Material changes and notable items
- Revenue growth was driven principally by the 2019 acquisitions of Alpha Care and Accountable Health Care, organic capitation growth, and $21.9 million of recognized NGACO AIPBP revenue. APAACO had received no such program revenue in the comparable 2019 quarter, when the program was temporarily suspended.
- Managed patient count increased to approximately 1.1 million from 0.8 million, and affiliated physician groups increased to 13 from 10.
- Equity-method investment income was $2.1 million versus a loss of $0.9 million, principally reflecting earnings from Universal Care, Inc. (UCI). Interest expense rose to $2.9 million from $0.2 million, mainly due to the September 2019 credit facility.
- COVID-19 reduced procedures at surgery and heart centers, contributing to a $0.6 million decline in fee-for-service revenue. The company also reported remote-work and accounting-process disruption that delayed this 10-Q filing.
- On April 30, 2020, after quarter-end, the company’s consolidated VIE APC completed the sale of its UCI interest. APC received approximately $69.2 million in cash, including $16.5 million repayment of debt owed to APC, plus preferred shares stipulated at approximately $33.3 million; additional amounts were subject to escrow and potential claims. The filing says UCI was an excluded asset for APC and that the sale would not affect income attributable to Apollo Medical Holdings.
Outlook, risks and other disclosures
- 2020 guidance: Revenue remained $665–$675 million and adjusted EBITDA $75–$90 million. Net income guidance was raised to $100–$110 million and EBITDA to $155–$167 million, primarily reflecting the expected UCI-sale gain. The filing explains that this gain does not affect net income or adjusted EBITDA attributable to Apollo Medical Holdings; investors should distinguish consolidated guidance from attributable results.
- Management said it believed liquidity was sufficient for at least the next 12 months. Guidance is subject to uncertainty and actual results may differ materially.
- Key risks include COVID-19 effects on operations, employee productivity and healthcare supply chains; medical-cost and IBNR estimation; payor concentration; complex healthcare regulation; and variable shared-risk settlements. A hypothetical 1% interest-rate change would have changed quarterly interest expense by approximately $2.5 million.
- The company disclosed a disputed arbitration claim against MMG seeking damages in excess of $5 million; Apollo Medical Holdings and AMM were dismissed without prejudice in April 2020, while MMG continued to dispute the allegations. The filing says any additional loss could not be reasonably estimated.
- Management reported effective disclosure controls as of March 31, 2020. The company changed its independent auditor from BDO to Ernst & Young in April 2020 and attributed the delayed filing partly to COVID-related remote-work disruption and the transition.
Important facts for investors to verify
- Whether capitation growth and the expanded membership base translate into sustainable earnings after medical claims and utilization costs.
- How operating cash use, receivable collection, medical-liability estimates and NGACO settlements develop in subsequent quarters.
- The final cash and preferred-stock value received from the UCI sale after escrow, claims and any restrictions, and how consolidated versus attributable results are presented.
- Debt levels, interest-rate exposure, credit-agreement covenants and the company’s liquidity after dividends and other cash needs.
- The assumptions underlying 2020 guidance, particularly the substantial UCI-sale-related increase in consolidated net income and EBITDA guidance compared with adjusted EBITDA guidance.