Apollo Medical Holdings, Inc. (AMEH) — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; the filing also reports fourth-quarter results. The registrant is identified in the filing as Apollo Medical Holdings, Inc. (not Astrana Health). Unless noted, amounts are in U.S. dollars.
Business context
A physician-centric, risk-bearing healthcare management company operating primarily in California through affiliated physician groups, MSOs, clinics, hospitalists, and its Medicare Next Generation ACO. At year-end, it coordinated care for about 1.1 million patients through more than 7,000 contracted physicians and managed 14 affiliated physician groups.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $687.2 million | $560.6 million |
| Operating income | $80.5 million | $32.4 million |
| Net income | $122.3 million | $17.7 million |
| Net income attributable to ApolloMed | $37.9 million | $14.1 million |
| Diluted EPS | $1.01 | $0.39 |
| Operating cash flow | $46.2 million | $13.7 million |
- Revenue rose 23%; capitation revenue increased 23% to $557.3 million, while risk-pool settlements and incentives increased 51% to $77.4 million. Fee-for-service revenue fell 18% to $12.7 million.
- Operating margin was approximately 11.7%, versus 5.8% in 2019. Net income included a $99.8 million gain, principally from the sale of the UCI investment; therefore, reported net income growth does not represent recurring operating performance. Most of the resulting consolidated income was allocated to noncontrolling interests.
- Cash and cash equivalents were $193.5 million and marketable securities were $67.7 million; management reported working capital of $223.6 million and liquidity sufficient to fund operations at least through March 2022.
- Gross debt was $245.7 million, including a $178.1 million term loan, $60.0 million revolver borrowing, and $7.6 million of real-estate loans. The company reported compliance with debt covenants; year-end leverage and interest-coverage ratios were 1.64x and 13.91x, respectively.
- Fourth-quarter revenue was $176.8 million, operating income $25.9 million, net income $12.9 million, and net income attributable to ApolloMed $10.1 million.
Material changes versus 2019
- Growth reflected a full year of contributions from Alpha Care and Accountable Health Care, along with higher capitation and organic patient growth.
- Risk-pool and incentive revenue benefited from a $19.8 million settlement for the 2019 ACO performance year, recognized in 2020, and lower hospital costs associated with COVID-19.
- COVID-19 reduced inpatient visits, temporarily closed outpatient facilities, and decreased non-emergency procedures. Management estimated claims costs were approximately $25.1 million lower; it did not expect similar COVID-related claims reductions in 2021.
- Operating cash flow increased, while investing cash flow was positive $95.5 million, substantially reflecting proceeds from marketable securities, the UCI sale, and loan repayment. Financing cash flow was negative $51.7 million, including $51.3 million of dividends paid and $9.5 million of term-loan repayment.
Outlook, risks, and unusual items
- For 2021, management guided to revenue of $690–$710 million, net income of $50–$60 million, net income attributable to ApolloMed of $35–$45 million, EBITDA of $95–$105 million, and adjusted EBITDA of $115–$125 million. These are forward-looking estimates, not guarantees.
- APAACO received approximately $7.2 million monthly under its 2020 AIPBP arrangement; its 2021 NGACO participation was extended for one year following the COVID-19 public health emergency. ACO performance-year settlements remain uncertain and subject to reconciliation.
- The UCI sale generated approximately $69.2 million in cash proceeds plus Bright Health preferred stock valued at about $36.2 million and a separately valued beneficial interest. The filing notes that proceeds and gain related to APC “Excluded Assets” did not increase income attributable to ApolloMed.
- Significant risks include capitation and ACO losses if medical costs exceed budgets, dependence on a limited number of payors (four accounted for 53.4% of revenue), California-focused operations, healthcare regulation and corporate-practice-of-medicine restrictions, and reliance on contractual VIE arrangements.
- The $545 million AP-AMH affiliate loan and related financing structure create repayment, dividend-dependence, collateral, and regulatory risks. The company’s credit facility is secured by substantially all assets of the company and NMM.
- The filing reports no material off-balance-sheet arrangements. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Risk-pool estimates and the $50.3 million medical-liability/IBNR estimate were identified as critical audit matters.
Important facts for investors to verify
- How much of reported earnings and future cash generation is recurring, excluding the UCI-sale gain and pandemic-related reductions in claims costs?
- What is the final settlement for the 2020 ACO performance year, and how does it compare with the $12.6 million NGACO-related deferred-revenue disclosure in the financial-statement notes? The MD&A also cites $9.6 million, so the filing contains differing figures to reconcile.
- Can the company and AP-AMH service their respective obligations, and what protections apply to the secured credit facility and affiliate loan?
- How sensitive are medical liabilities and risk-pool receivables to changes in utilization, IBNR assumptions, and settlement data received from hospitals, health plans, or CMS?
- What are the financial and execution implications of payor concentration, California regulatory requirements, and the announced 30% CAIPA MSO investment?