Apollo Medical Holdings, Inc. (now Astrana Health, Inc.) — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone fourth-quarter report; the filing does not provide a clear standalone Q4 financial summary. The company operated primarily in California as a physician-centric population-health and healthcare delivery business, with one reportable segment. Its 7,000-plus physician network coordinated care for a large managed population.
Financial performance and position
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Revenue | $560.6 million | $519.9 million | +8% |
| Operating income | $32.4 million | $88.4 million | -63% |
| Operating margin | 5.8% | 17.0% | Down 11.2 percentage points |
| Net income | $17.7 million | $60.3 million | -71% |
| Net income attributable to ApolloMed | $14.1 million | $10.8 million | +30% |
| Diluted EPS | $0.39 | $0.29 | +34% |
| Cash from operations | $13.7 million | $25.5 million | Down $11.8 million |
| Cash, cash equivalents and restricted cash | $104.0 million | $107.6 million | Down $3.6 million |
| Working capital | $223.6 million | $100.8 million | Up $122.8 million |
| Credit-facility debt outstanding | $247.6 million | No comparable year-end facility balance | New borrowing |
Capitation revenue rose 32% to $454.2 million, largely reflecting the Alpha Care and Accountable Health Care acquisitions and growth at APC. Risk-pool settlements and incentives fell 49% to $51.1 million; management cited revised estimates of expected hospital risk-pool surpluses. Management-fee income fell 30% to $34.7 million, and fee-for-service revenue fell 21% to $15.5 million. Cost of services increased 30% to $467.8 million, principally with the acquired businesses and higher medical claims. The filing reports no separate gross-margin measure.
Investing activities used $180.6 million, including $115.4 million of marketable-security purchases, $49.4 million for acquisitions and $11.4 million of loan advances. Financing activities provided $163.3 million, including borrowings, partly offset by $61.7 million in dividends, debt repayments and share repurchases. Cash and marketable securities totaled approximately $219.7 million at year-end. Management said liquidity was sufficient to fund operations at least through March 2021.
Material changes and unusual items
- Acquired Alpha Care in May for approximately $45.1 million, acquired the remaining 75% of Accountable Health Care in August for $7.3 million cash (with total purchase consideration reported at $25.1 million including the existing investment and assumed balances), and acquired AMG in September for approximately $1.6 million. The acquisitions added revenue and medical costs; acquisition accounting added goodwill and intangible assets.
- In September, the company entered into a secured credit agreement, with $247.6 million outstanding at year-end. Borrowings bear variable interest; the reported rate at year-end was 4.54%. The company reported compliance with its financial covenants. The lenders received security interests in company and NMM assets, including rights relating to the AP-AMH loan.
- Under the affiliate transaction structure, ApolloMed made a $545 million, ten-year secured loan to AP-AMH, which used the proceeds to acquire APC preferred stock. The arrangement also included APC’s $300 million purchase of ApolloMed common stock. APC paid $8.9 million in preferred returns in 2019. The filing warns AP-AMH may be unable to repay the loan and APC dividends may be delayed, restricted or unavailable.
- CMS AIPBP payments for APAACO were about $8.3 million monthly from April through August 2019 and were reduced to about $3.7 million monthly beginning in September. The company recognized $56.1 million of 2019 AIPBP revenue. It also recognized $0.9 million of savings for the 2018 performance year in 2019. CMS-reconciliation and medical-claims estimates remain material uncertainties.
- Reported consolidated net income declined sharply, while income attributable to ApolloMed increased. A substantial reduction in income allocated to noncontrolling interests, including the APC preferred-return structure, contributed to this divergence.
- The company recorded $2.0 million of impairment for Medicare licenses it no longer expects to use, and a $0.3 million impairment on its PASC investment. A $3.8 million allowance release related to Accountable Health Care resulted in a negative $1.4 million provision for doubtful accounts.
- Adoption of lease accounting standard ASC 842 added operating-lease right-of-use assets and liabilities to the balance sheet; management said it did not materially affect results or cash flows. The 2018 comparative figures were not restated.
Outlook, risks and contingencies
The filing provides no quantified company-wide revenue or earnings guidance. Management described continued opportunities in value-based care and growth through acquisitions and physician-network expansion, but emphasized uncertainty around the NGACO program, CMS payment calculations and reconciliation, provider participation, and the company’s ability to manage medical costs and risk-bearing contracts. APAACO selected 80% risk under Risk Arrangement A with a 5% cap; the filing estimated potential 2019 shared losses of up to approximately $16.4 million based on its benchmark.
Principal risks include concentration in California and a limited number of payors, exposure to medical-cost and risk-pool estimates, changes in government reimbursement and NGACO rules, and regulatory constraints including California corporate-practice-of-medicine and Knox-Keene requirements. The company also highlighted cyber and privacy risks, litigation, acquisition integration, variable-rate debt, and the possibility that the AP-AMH loan or expected APC dividends do not perform as intended. COVID-19 was identified as a potential emerging business risk in the filing, not as a quantified FY 2019 financial impact.
A Prospect arbitration seeks damages in excess of $5 million; the company disputes the claims, and the potential loss beyond any accrual could not be reasonably estimated. The company reported that disclosure controls and internal control over financial reporting were effective at year-end; a material weakness identified in 2018 concerning review of external risk-pool data was reported as remediated. The auditor issued unqualified opinions on the financial statements and internal control.
Investor facts to verify
- Reconcile the sharp fall in risk-pool revenue with the underlying hospital-pool estimates, collection timing and subsequent settlements.
- Review the AP-AMH loan’s collectability, repayment schedule, security and dependence on APC preferred dividends; assess the credit facility’s covenants, collateral and maturity concentration, particularly the 2024 maturity.
- Track APAACO’s CMS reconciliation, AIPBP adjustments, medical liabilities and required financial guarantees, including any subsequent settlement of the 2019 performance year.
- Separate consolidated revenue and earnings from cash available to ApolloMed; some reported assets and cash are held in consolidated affiliated entities and may not be distributable.
- Confirm the managed-patient count: the filing cites over 980,000 covered patients in its business overview but reports 914,000 patients managed at year-end in its results discussion, versus 992,100 in 2018.
- Check the status and proceeds of the proposed UCI sale to Bright Health, described as pending closing at December 31, 2019.
- Assess payor concentration, acquisition integration and the extent to which acquired growth translates into sustainable margins and operating cash flow.