August 10, 2020 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___.

Commission File No. 001-37392

Apollo Medical Holdings, Inc.

(Exact name of registrant as specified in its charter)


Delaware			95-4472349
(State or Other Jurisdiction			(I.R.S. Employer
of Incorporation)			Identification Number)

1668 S. Garfield Avenue, 2^nd Floor, Alhambra, California 91801

(Address of principal executive offices and zip code)

(626) 282-0288

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): ☐ Yes ☒ No

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, $0.001 par value per share

AMEH

Nasdaq Capital Market

As of August 3, 2020, there were 53,513,655 shares of common stock of the registrant, $0.001 par value per share, issued and outstanding.

APOLLO MEDICAL HOLDINGS, INC.

INDEX TO FORM 10-Q FILING

TABLE OF CONTENTS


		PAGE
	Introductory Note	4
	Note About Forward-Looking Statements	4

	PART I FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements – Unaudited	4
	Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019	5
	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2020 and 2019	7
	Consolidated Statements of Mezzanine and Stockholders ’ Equity for the Three and Six Months Ended June 30, 2020 and 2019	8
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019	9
	Notes to Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	62
Item 4.	Controls and Procedures	62

	PART II OTHER INFORMATION

Item 1.	Legal Proceedings	63
Item 1A.	Risk Factors	63
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 3.	Defaults Upon Senior Securities	65
Item 4.	Mine Safety Disclosures	65
Item 5.	Other Information	65
Item 6.	Exhibits	66

Glossary

The following abbreviations or acronyms that may be used in this document shall have the adjacent meanings set forth below:


Accountable Health Care			Accountable Health Care IPA, a Professional Medical Corporation
AHMC			AHMC Healthcare Inc.
AIPBP			All-Inclusive Population-Based Payments
Alpha Care			Alpha Care Medical Group, Inc.
AMG			AMG, a Professional Medical Corporation
AMH			ApolloMed Hospitalists, a Medical Corporation
AMM			Apollo Medical Management, Inc.
AP-AMH			AP-AMH Medical Corporation
APAACO			APA ACO, Inc.
APC			Allied Pacific of California IPA
APC-LSMA			APC-LSMA Designated Shareholder Medical Corporation
Apollo Care Connect			Apollo Care Connect, Inc.
BAHA			Bay Area Hospitalist Associates
Bright			Bright Health Company of California, Inc.
CDSC			Concourse Diagnostic Surgery Center, LLC
CQMC			Critical Quality Management Corporation
CSI			College Street Investment LP, a California limited partnership
DMHC			California Department of Managed Healthcare
DMG			Diagnostic Medical Group
HSMSO			Health Source MSO Inc., a California corporation

ICC			AHMC International Cancer Center, a Medical Corporation
IPA			independent practice association
LMA			LaSalle Medical Associates
MMG			Maverick Medical Group, Inc.
MPP			Medical Property Partners
NGACO			Next Generation Accountable Care Organization
NMM			Network Medical Management, Inc.
PASC			Pacific Ambulatory Health Care, LLC
PMIOC			Pacific Medical Imaging and Oncology Center, Inc.
SCHC			Southern California Heart Centers
UCAP			Universal Care Acquisition Partners, LLC
UCI			Universal Care, Inc.
VIE			Variable Interest Entity

INTRODUCTORY NOTE

Unless the context dictates otherwise, references in this Quarterly Report on Form 10-Q to the “Company,” “we,” “us,” “our,” and similar words are references to Apollo Medical Holdings, Inc., a Delaware corporation, and its consolidated subsidiaries and affiliated entities, as appropriate, including its consolidated variable interest entities (“VIEs”) and “ApolloMed” refers to Apollo Medical Holdings, Inc.

The Centers for Medicare & Medicaid Services (“CMS”) have not reviewed any statements contained in this Quarterly Report on Form 10-Q describing the participation of APA ACO, Inc. (“APAACO”) in the Next Generation Accountable Care Organization (“NGACO”) Model.

Trade names and trademarks of the Company and its subsidiaries referred to herein and their respective logos, are our property. This Quarterly Report on Form 10-Q may contain additional trade names and/or trademarks of other companies, which are the property of their respective owners. We do not intend our use or display of other companies’ trade names and/or trademarks, if any, to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.

NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, statements about the Company's guidance for the year ending December 31, 2020, any statements about our business (including the impact of the 2019 Novel Coronavirus (COVID-19) pandemic on our business), financial condition, operating results, plans, objectives, expectations and intentions, any guidance on, or projections of, earnings, revenue or other financial items, such as our projected capitation from CMS for the year ending December 31, 2020 or otherwise, and our future liquidity, including cash flows and any payments under the $545.0 million loan we made to our VIE, AP-AMH; any statements of any plans, strategies and objectives of management for future operations such as the material opportunities that we believe exist for our Company; any statements concerning proposed services, developments, mergers or acquisitions; any statements regarding the outlook on our NGACO Model or strategic transactions; any statements regarding management’s view of future expectations and prospects for us; any statements about prospective adoption of new accounting standards or effects of changes in accounting standards; any statements regarding future economic conditions or performance; any statements of belief; any statements of assumptions underlying any of the foregoing; and other statements that are not historical facts. Forward-looking statements may be identified by the use of forward-looking terms such as “anticipate,” “could,” “can,” “may,” “might,” “potential,” “predict,” “should,” “estimate,” “expect,” “project,” “believe,” “think,” “plan,” “envision,” “intend,” “continue,” “target,” “seek,” “contemplate,” “budgeted,” “will,” “would,” and the negative of such terms, other variations on such terms or other similar or comparable words, phrases or terminology. These forward-looking statements present our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q and are subject to change.

Forward-looking statements involve risks and uncertainties and are based on the current beliefs, expectations and certain assumptions of management. Some or all of such beliefs, expectations and assumptions may not materialize or may vary significantly from actual results. Such statements are qualified by important economic, competitive, governmental and technological factors that could cause our business, strategy, or actual results or events to differ materially from those in our forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K, for the year ended December 31, 2019, filed with the SEC on March 16, 2020, including, the risk factors discussed under the heading “Risk Factors” in Part I, Item IA thereof. Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change, and significant risks and uncertainties that could cause actual conditions, outcomes and results to differ materially from those indicated by such statements.

PART I FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

Table of Contents

APOLLO MEDICAL HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)


	June 30, 2020		December 31, 2019

Assets

Current assets
Cash and cash equivalents	$	152,441	$	103,189
Restricted cash	—		75
Investment in marketable securities	117,656		116,539
Receivables, net	17,588		11,004
Receivables, net – related parties	59,328		48,136
Other receivables	15,919		16,885
Prepaid expenses and other current assets	11,188		10,315
Loans receivable	6,425		6,425
Loans receivable – related parties	—		16,500

Total current assets	380,545		329,068

Noncurrent assets
Restricted cash	746		746
Land, property and equipment, net	11,485		12,130
Intangible assets, net	94,790		103,012
Goodwill	239,053		238,505
Investment in other entities – equity method	26,817		28,427
Investments in privately held entities	37,075		896
Operating lease right-of-use assets	20,219		14,248
Other assets	22,487		1,681

Total noncurrent assets	452,672		399,645

Total assets	$	833,217	$	728,713

Liabilities, mezzanine equity and stockholders’ equity

Current liabilities

Accounts payable and accrued expenses	$	24,788	$	27,279
Fiduciary accounts payable	1,853		2,027
Medical liabilities	70,273		58,725
Income taxes payable	42,210		4,529
Dividend payable	431		271
Finance lease liabilities	102		102
Operating lease liabilities	3,350		2,990

Table of Contents


	June 30, 2020		December 31, 2019

Current portion of long-term debt	9,500		9,500
Total current liabilities	152,507		105,423

Noncurrent liabilities
Deferred tax liability	13,654		18,269
Finance lease liabilities, net of current portion	355		416
Operating lease liabilities, net of current portion	17,418		11,373
Long-term debt, net of current portion and deferred financing costs	230,455		232,172

Total noncurrent liabilities	261,882		262,230

Total liabilities	414,389		367,653

Commitments and contingencies (Note 11)

Mezzanine equity
Noncontrolling interest in Allied Physicians of California, a Professional Medical Corporation	210,980		168,725

Stockholders’ equity
Series A Preferred stock, $0.001 par value per share; 5,000,000 shares authorized (inclusive of all preferred stock, including Series B Preferred stock); 1,111,111 issued and zero outstanding	—		—
Series B Preferred stock, $0.001 par value per share; 5,000,000 shares authorized (inclusive of all preferred stock, including Series A Preferred stock); 555,555 issued and zero outstanding	—		—
Common stock, $0.001 par value per share; 100,000,000 shares authorized, 36,309,513 and 35,908,057 shares outstanding, excluding 17,475,707 and 17,458,810 treasury shares, at June 30, 2020, and December 31, 2019, respectively	36		36
Additional paid-in capital	163,986		159,608
Retained earnings	43,001		31,905
	207,023		191,549

Noncontrolling interest	825		786

Total stockholders’ equity	207,848		192,335

Total liabilities, mezzanine equity and stockholders’ equity	$	833,217	$	728,713

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

APOLLO MEDICAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Revenue
Capitation, net	$	140,949	$	103,224	$	281,370	$	174,740
Risk pool settlements and incentives	12,003		11,191		23,239		21,285
Management fee income	8,690		10,353		17,505		19,349
Fee-for-service, net	2,270		3,878		5,697		7,959
Other income	1,257		1,404		2,463		2,473

Total revenue	165,169		130,050		330,274		225,806

Operating expenses
Cost of services	136,079		101,363		280,283		184,795
General and administrative expenses	11,556		11,818		23,390		22,081
Depreciation and amortization	4,628		4,455		9,330		8,872
Provision for doubtful accounts	—		(2,314)		—		(1,363)

Total expenses	152,263		115,322		313,003		214,385

Income from operations	12,906		14,728		17,271		11,421

Other income (expense)
Income (loss) from equity method investments	834		(42)		2,888		(892)
Gain on sale of equity method investment	99,647		—		99,647		—
Interest expense	(2,673)		(311)		(5,541)		(522)
Interest income	863		474		1,792		797
Other income	1,282		24		1,384		211

Total other income (expense), net	99,953		145		100,170		(406)

Income before provision for income taxes	112,859		14,873		117,441		11,015

Provision for income taxes	31,858		4,209		33,453		2,801

Net income	81,001		10,664		83,988		8,214

Net income attributable to noncontrolling interests	73,957		7,119		72,892		4,529

Net income attributable to Apollo Medical Holdings, Inc.	$	7,044	$	3,545	$	11,096	$	3,685

Earnings per share – basic	$	0.20	$	0.10	$	0.31	$	0.11

Earnings per share – diluted	$	0.19	$	0.09	$	0.30	$	0.10

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

APOLLO MEDICAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF MEZZANINE AND STOCKHOLDERS’ EQUITY

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)


	Mezzanine Equity – Noncontrolling Interest in APC									Retained Earnings
				Common Stock Outstanding								Additional Paid-in Capital				Noncontrolling Interest	Shareholders’ Equity
				Shares			Amount
Balance at January 1, 2020	$	168,725	35,908,057		$	36		$	159,608	$	31,905	$	786	$	192,335
Net (loss) income	(1,161)		—		—			—		4,052		95		4,147
Purchase of treasury shares	—		(16,897)		—			(301)		—		—		(301)
Purchase of noncontrolling interest	(125)		—		—			—		—		—		—
Shares issued for exercise of options and warrants	—		151,601		—			722		—		—		722
Share-based compensation	—		—		—			1,058		—		—		1,058
Dividends	(10,000)		—		—			—		—		—		—
Balance at March 31, 2020	$	157,439	36,042,761		$	36		$	161,087	$	35,957	$	881	$	197,961
Net income	73,667		—		—			—		7,044		291		7,335
Purchase of noncontrolling interest	(126)		—		—			—		—		—		—
Shares issued for vesting of restricted stock awards	—		24,453		—			—		—		—		—
Shares issued for exercise of options and warrants	—		242,299		—			2,283		—		—		2,283
Share-based compensation	—		—		—			852		—		—		852
Cancellation of restricted stock awards	—		—		—			(236)		—		—		(236)
Dividends	(20,000)		—		—			—		—		(347)		(347)
Balance at June 30, 2020	$	210,980	36,309,513		$	36		$	163,986	$	43,001	$	825	$	207,848


	Mezzanine Equity – Noncontrolling Interest in APC									Retained Earnings
				Common Stock Outstanding								Additional Paid-in Capital				Noncontrolling Interest	Shareholders’ Equity
				Shares			Amount
Balance at January 1, 2019	$	225,117	34,578,040		$	35		$	162,723	$	17,788	$	998	$	181,544
Net (loss) income	(3,000)		—		—			—		140		410		550
Purchase of treasury shares	(40)		(93,451)		—			—		—		—		—
Shares issued for exercise of options and warrants	155		17,516		—			140		—		—		140
Share-based compensation	202		1,599		—			143		—		—		143
Dividends	(10,000)		—		—			—		—		—		—
Balance at March 31, 2019	$	212,434	34,503,704		$	35		$	163,006	$	17,928	$	1,408	$	182,377
Net income	6,896		—		—			$	—	3,545		223		3,768
Shares issued for exercise of options and warrants	50		135,108		—			$	758	—		—		758
Share-based compensation	203		—		—			$	128	—		—		128
Dividends	—		—		—			$	—	—		(942)		(942)
Balance at June 30, 2019	$	219,583	34,638,812		$	35		$	163,892	$	21,473	$	689	$	186,089

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

APOLLO MEDICAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)


	Six Months Ended June 30,
	2020		2019
Cash flows from operating activities
Net income	$	83,988	$	8,214
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	9,330		8,872
Amortization of debt issuance costs	658		—
Provision for doubtful accounts	—		(1,363)
Share-based compensation	1,910		676
Unrealized loss (gain) from investment in equity securities	25		(15)
(Income) loss from equity method investments	(2,888)		892
Gain on sale of equity method investments	(99,647)		—
Deferred tax	(4,473)		(549)
Changes in operating assets and liabilities, net of business combinations:
Receivables, net	(6,284)		588
Receivables, net – related parties	(11,191)		(12,665)
Other receivables	966		(11,897)
Prepaid expenses and other current assets	(873)		(2,740)
Right-of-use assets	1,680		1,098
Other assets	(5,095)		(243)
Accounts payable and accrued expenses	(3,043)		3,340
Fiduciary accounts payable	(174)		260
Medical liabilities	11,252		(3,819)
Income taxes payable	37,681		(11,622)
Operating lease liabilities	(1,247)		(1,044)
Net cash provided by (used in) operating activities	12,575		(22,017)

Cash flows from investing activities
Payments for business acquisition, net of cash acquired	—		(41,518)
Proceeds from repayment of loans receivable – related parties	16,500		—
Advances on loans receivable	—

Form: 10-Q

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