|
|
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following management’s discussion and analysis should be read in conjunction with the audited consolidated financial statements and the notes thereto included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
In this section, “we,” “our,” “ours” and “us” refer to Apollo Medical Holdings, Inc.(“ApolloMed”) and its consolidated subsidiaries and affiliated entities, as appropriate, including its consolidated variable interest entities (“VIEs”).
Overview
We together with our affiliated physician groups and consolidated entities are a physician-centric integrated population health management company working to provide coordinated, outcomes-based medical care in a cost-effective manner and serving patients in California, the majority of whom are covered by private or public insurance such as Medicare, Medicaid and health maintenance organizations (“HMOs”), with a small portion of our revenue coming from non-insured patients. We provide care coordination services to each major constituent of the healthcare delivery system, including patients, families, primary care physicians, specialists, acute care hospitals, alternative sites of inpatient care, physician groups and health plans. Our physician network consists of primary care physicians, specialist physicians and hospitalists. We operate primarily through the following subsidiaries of ApolloMed: Network Medical Management (“NMM”), Apollo Medical Management, Inc. (“AMM”), APA ACO, Inc. (“APAACO”) and Apollo Care Connect, Inc. (“Apollo Care Connect”), and their consolidated entities.
Through our next generation accountable organization (“NGACO”) model and our network of independent practice associations (“IPAs”) with more than 7,000 contracted physicians, which physical groups have agreements with various health plans, hospitals and other HMOs, we were responsible for coordinating the care for over 980,000 patients in California as of December 31, 2019. These covered patients are comprised of managed care members whose health coverage is provided through their employers or who have acquired health coverage directly from a health plan or as a result of their eligibility for Medicaid or Medicare benefits. Our managed patients benefit from an integrated approach that places physicians at the center of patient care and utilizes sophisticated risk management techniques and clinical protocols to provide high-quality, cost effective care. To implement a patient-centered, physician-centric experience, we also have other integrated and synergistic operations, including (i) MSOs that provide management and other services to our affiliated IPAs, (ii) outpatient clinics and (iii) hospitalists.
On December 8, 2017, ApolloMed completed its business combination with NMM (the “Merger”). The combination of ApolloMed and NMM brought together two complementary healthcare organizations to form one of the nation’s largest integrated population health management companies. As a result of the Merger, NMM became a wholly-owned subsidiary of ApolloMed and the former NMM shareholders received a majority of the issued and outstanding common stock of ApolloMed. For accounting purposes NMM was considered the accounting acquirer and accordingly, as of the closing of the Merger, NMM’s historical results of operations replaced ApolloMed’s historical results of operations for periods prior to the Merger, and the results of operations of both companies are included in the accompanying consolidated financial statements for periods following the Merger.
2019 Highlights
On May 31, 2019, Allied Physicians of California, a Professional Medical Corporation, a California professional medical corporation (“APC”), through its consolidated VIE, APC-LSMA, acquired Alpha Care Medical Group, an IPA that has been operating in California since 1993 as a risk bearing organization engaged in providing professional services under capitation arrangements with its contracted health plans through a provider network consisting of primary care and specialty care physicians. Alpha Care specializes in delivering high-quality healthcare to over 174,000 enrollees, as of December 31, 2019, and focuses on Medi-Cal, Medicaid, Commercial, Medicare and Dual Eligible members in the Riverside and San Bernardino counties of Southern California.
Accountable Health Care is a California based IPA that has served the local community in the greater Los Angeles County area through a network of physicians and health care providers for more than 20 years. Accountable Health Care currently has a network of over 400 primary care physicians and 700 specialty care physicians, and five community and regional hospital medical centers that provide quality health care services to more than 84,000 members of three federally qualified health plans and multiple product lines, including Medi-Cal, Commercial, Medicare and the California Healthy Families program. On August 30, 2019, APC and APC-LSMA, acquired the remaining 75% of outstanding shares of capital stock of Accountable Health Care that were not already owned by APC and APC-LSMA.
AP-AMH Medical Corporation ("AP-AMH") was formed on May 7, 2019 as a designated shareholder professional corporation. Dr. Thomas Lam, a shareholder, and the Chief Executive Officer and Chief Financial Officer of APC and Co-Chief Executive Officer and President of ApolloMed, is the sole shareholder of AP-AMH. ApolloMed makes all the decisions on behalf of AP-AMH and funds and receives all the distributions from its operations. ApolloMed has the right to receive benefits from the operations of AP-AMH and has the option, but not the obligation, to cover losses. AP-AMH's sole function and only activity is to act as the nominee shareholder for ApolloMed's investments in APC. Therefore, AP-AMH is controlled and consolidated by ApolloMed as the primary beneficiary of this VIE.
On September 11, 2019, ApolloMed completed the following series of transactions with its affiliates, AP-AMH and APC:
|
|
1.
|
The Company loaned AP-AMH $545.0 million pursuant to a ten-year secured loan agreement. The loan bears interest at a rate of 10% per annum simple interest, is not prepayable (except in certain limited circumstances), requires quarterly payments of interest only in arrears, and is secured by a first priority security interest in all of AP-AMH's assets, including the shares of APC Series A Preferred Stock to be purchased by AP-AMH. To the extent that AP-AMH is unable to make any interest payment when due because it has received dividends on the APC Series A Preferred Stock insufficient to pay in full such interest payment, then the outstanding principal amount of the loan will be increased by the amount of any such accrued but unpaid interest, and any such increased principal amounts will bear interest at the rate of 10.75% per annum simple interest.
|
|
|
2.
|
AP-AMH purchased 1,000,000 shares of APC Series A Preferred Stock for an aggregate consideration of $545.0 million in a private placement. Under the terms of the APC Certificate of Determination of Preferences of Series A Preferred Stock (the "Certificate of Determination"), AP-AMH is entitled to receive preferential, cumulative dividends that accrue on a daily basis and that are equal to the sum of (i) APC's net income from Healthcare Services (as defined in the Certificate
|
of Determination), plus (ii) any dividends received by APC from certain of APC's affiliated entities, less (iii) any Retained Amounts (as defined in the Certificate of Determination). During the year ended December 31, 2019, APC distributed $8.9 million to ApolloMed as preferred returns.
|
|
3.
|
APC purchased 15,015,015 shares of the Company's common stock for total consideration of $300.0 million in private placement. In connection therewith, the Company granted APC certain registration rights with respect to the Company's common stock that APC purchased, and APC agreed that APC votes in excess of 9.99% of the Company's then outstanding shares will be voted by proxy given to the Company's management, and that those proxy holders will cast the excess votes in the same proportion as all other votes cast on any specific proposal coming before the Company's stockholders.
|
|
|
4.
|
The Company licensed to AP-AMH the right to use certain tradenames for certain specified purposes for a fee equal to a percentage of the aggregate gross revenues of AP-AMH. The license fee is payable out of any Series A Preferred Stock dividends received by AP-AMH from APC.
|
|
|
5.
|
Through its subsidiary, NMM, the Company agreed to provide certain administrative services to AP-AMH for a fee equal to a percentage of the aggregate gross revenues of AP-AMH. The administrative fee also is payable out of any APC Series A Preferred Stock dividends received by AP-AMH from APC.
|
As of a result of the transaction, APC's ownership in ApolloMed increased to 32.50% at December 31, 2019 from 4.82% at December 31, 2018.
531 W. College
On April 23, 2019, NMM and APC entered into an agreement whereby NMM assigned and APC assumed NMM’s 25% membership interest in 531 W. College LLC for approximately $8.3 million. Subsequently, APC has a 50% ownership in 531 W. College LLC with a total investment balance of approximately $16.1 million.
Acquisitions
AMG
On September 10, 2019, APC and APC-LSMA purchased all of the shares of all shareholders of AMG, a professional medical corporation ("AMG") for $1.6 million. AMG is a network of family practice clinics operating out of three main locations in Southern California. AMG provides professional and post-acute care services to Medicare, Medi-Cal/Medicaid, and Commercial patients through its networks of doctors and nurse practitioners.
Other
On October 2, 2019, the Company entered into a new MSA, effective January 1, 2020, to provide select management services, via a subcontract agreement, to an IPA. The IPA currently serves approximately 145,000 members in the following three main markets within Southern California: South Los Angeles, San Fernando Valley, and Antelope Valley. The majority of the members are enrolled in Medi-Cal, with members also enrolled in Medicare Advantage and Commercial health plans, and are supported by a network of hundreds of primary care physicians and nearly a thousand specialists.
On December 31, 2019, Universal Care Acquisition Partners, LLC (“UCAP”), a wholly-owned subsidiary of APC, and other sellers entered into a stock purchase agreement with Bright Health Company of California, Inc. (“Bright”) to sell to Bright all of the shares of capital stock of Universal Care, Inc., a California corporation doing business as Brand New Day (“UCI”). UCAP has a 48.9% ownership interest in UCI. The sale is subject to certain closing conditions and pending completion.
Recent Developments
Refer to 2019 highlights for significant developments that occurred during the year ended December 31, 2019.
Key Financial Measures and Indicators
Operating Revenues
Our revenue primarily consists of capitation revenue, risk pool settlements and incentives, NGACO AIPBP revenue, management fee income, MSSP surplus revenue and fee-for-services (“FFS”) revenue. Revenue is recorded in the period in which services are rendered. The form of billing and related risk of collection for such services may vary by type of revenue and the customer.
Operating Expenses
Our largest expenses consist of the cost of patient care paid to contracted physicians, the cost of information technology equipment and software and the cost of hiring staff to provide management and administrative support services to our affiliated physician groups, as further described below. These services include payroll, benefits, human resource services, physician practice billing, revenue cycle services, physician practice management, administrative oversight, coding services, and other consulting services.
Results of Operations
As noted above, although ApolloMed was the legal acquirer in the Merger, for accounting purposes, NMM is considered the accounting acquirer and ApolloMed is the accounting acquiree. Accordingly, (i) the financial statements included in this Annual Report, and the description of our results of operations set forth below for the period in 2017 prior to the Merger reflect the operations of NMM and its consolidated entities and VIEs, and (ii) the financial statements and the description of our results of operations for 2019 and 2018 reflect the combined operations of ApolloMed and NMM and their consolidated VIEs. Because the financial results for 2017 exclude the results of ApolloMed, the results of operations in 2019 and 2018 are not directly comparable to our results of operations in 2017.
2019 Compared to 2018
Our consolidated operating results for the year ended December 31, 2019, as compared to the year ended December 31, 2018 were as follows:
Apollo Medical Holdings, Inc.
Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
$ Change
|
|
% Change
|
Revenue
|
|
|
|
|
|
|
|
Capitation, net
|
$
|
454,168,024
|
|
|
$
|
344,307,058
|
|
|
$
|
109,860,966
|
|
|
32
|
%
|
Risk pool settlements and incentives
|
51,097,661
|
|
|
100,927,841
|
|
|
(49,830,180
|
)
|
|
(49
|
)%
|
Management fee income
|
34,668,358
|
|
|
49,742,755
|
|
|
(15,074,397
|
)
|
|
(30
|
)%
|
Fee-for-services, net
|
15,475,264
|
|
|
19,703,999
|
|
|
(4,228,735
|
)
|
|
(21
|
)%
|
Other income
|
5,208,790
|
|
|
5,226,099
|
|
|
(17,309
|
)
|
|
—
|
%
|
Total revenue
|
560,618,097
|
|
|
519,907,752
|
|
|
40,710,345
|
|
|
8
|
%
|
Operating expenses
|
|
|
|
|
|
|
|
Cost of services
|
467,804,899
|
|
|
361,132,111
|
|
|
106,672,788
|
|
|
30
|
%
|
General and administrative expenses
|
41,482,375
|
|
|
43,353,787
|
|
|
(1,871,412
|
)
|
|
(4
|
)%
|
Depreciation and amortization
|
18,280,198
|
|
|
19,303,179
|
|
|
(1,022,981
|
)
|
|
(5
|
)%
|
Provision for doubtful accounts
|
(1,363,363
|
)
|
|
3,887,647
|
|
|
(5,251,010
|
)
|
|
(135
|
)%
|
Impairment of goodwill and intangibles assets
|
1,994,000
|
|
|
3,798,866
|
|
|
(1,804,866
|
)
|
|
(48
|
)%
|
Total expenses
|
528,198,109
|
|
|
431,475,590
|
|
|
96,722,519
|
|
|
22
|
%
|
Income from operations
|
32,419,988
|
|
|
88,432,162
|
|
|
(56,012,174
|
)
|
|
(63
|
)%
|
Other (expense) income
|
|
|
|
|
|
|
|
Loss from equity method investments
|
(6,900,859
|
)
|
|
(8,125,285
|
)
|
|
1,224,426
|
|
|
(15
|
)%
|
Interest expense
|
(4,733,256
|
)
|
|
(560,515
|
)
|
|
(4,172,741
|
)
|
|
744
|
%
|
Interest income
|
2,023,873
|
|
|
1,258,638
|
|
|
765,235
|
|
|
61
|
%
|
Other income
|
3,030,203
|
|
|
1,622,131
|
|
|
1,408,072
|
|
|
87
|
%
|
Total other expense, net
|
(6,580,039
|
)
|
|
(5,805,031
|
)
|
|
(775,008
|
)
|
|
13
|
%
|
Income before provision for income taxes
|
25,839,949
|
|
|
82,627,131
|
|
|
(56,787,182
|
)
|
|
(69
|
)%
|
Provision for income taxes
|
8,166,632
|
|
|
22,359,640
|
|
|
(14,193,008
|
)
|
|
(63
|
)%
|
Net income
|
$
|
17,673,317
|
|
|
$
|
60,267,491
|
|
|
$
|
(42,594,174
|
)
|
|
(71
|
)%
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interests
|
3,556,772
|
|
|
49,432,489
|
|
|
(45,875,717
|
)
|
|
(93
|
)%
|
Net income attributable to Apollo Medical Holdings, Inc.
|
$
|
14,116,545
|
|
|
$
|
10,835,002
|
|
|
$
|
3,281,543
|
|
|
30
|
%
|
Net Income
Our net income in 2019 was $17.7 million, as compared to $60.3 million in 2018, a decrease of $42.6 million or 71%.
Physician Groups and Patients
As of December 31, 2019 and 2018, the total number of affiliated physician groups we managed was 13 groups and 11 groups, respectively, and the total number of patients for whom we managed the delivery of healthcare services was 914,000 and 992,100, respectively.
Revenue
Our revenue in 2019 was $560.6 million, as compared to $519.9 million in 2018, an increase of $40.7 million or 8%. The increase in revenue was primarily attributable to the following:
(i) an increase of $109.9 million in capitation revenue due to the acquisitions of Alpha Care and Accountable Health Care which were acquired as of May 31, 2019 and August 30, 2019, respectively, resulting in our recognition of approximately $79.2 million and $17.2 million in revenue, respectively, from these acquired IPAs, in addition to capitation revenue growth at APC of $22.4 million. These increase was offset by the delayed commencement by the Centers for Medicare & Medicaid Services ("CMS") of APAACO's 2019 Next Generation ACO performance year from January 1, 2019, to April 1, 2019 which resulted in decreased revenue of approximately $8.9 million.
(ii) a decrease of $49.9 million in risk pool revenue due to the refinement of the assumptions used to estimate the amount of net surplus expected to be received from the risk pool of our affiliated hospitals. Our estimated risk pool receivable is calculated based on reports received from our hospital partners and on management's estimate of the Company's portion of any estimated risk pool surpluses in which payments have not been received. The actual risk pool surpluses are settled approximately 18 months later.
(iii) a decrease in management fee income of $15.1 million, primarily due to the acquisition of Accountable Health Care and a decrease in the number of patients served by some of our affiliated physician groups, including Golden Shore Medical Group, which contributed approximately $3.8 million in management fee income for the year ended December 31, 2018, that ceased operations on January 31, 2019 as their primary health plan canceled their contract.
(iv) a decrease in FFS revenue of $4.2 million, primarily due to our wind down of affiliated medical groups, Bay Area Hospitalist Associates ("BAHA"), AKM Medical Group, Inc. ("AKM"), and Maverick Medical Group, Inc. ("MMG").
Cost of Services
Expenses related to cost of services in 2019 were $467.8 million, as compared to $361.1 million in 2018, an increase of $106.7 million or 30%. The increase was due to a $100.4 million increase in medical claims, capitation and other health services expenses driven by the Alpha Care and Accountable Health Care acquisitions, a $2.8 million increase in management fee expense paid to a third party MSO during Alpha Care's transition, and an increase of $3.5 million in personnel costs to support the continued growth in the depth and breadth of our operations.
General and Administrative Expenses
General and administrative expenses in 2019 were $41.5 million, as compared to $43.4 million in 2018, a decrease of $1.9 million or 4%. The decrease was primarily due to a reduction in professional services costs of $2.0 million.
Depreciation and Amortization
Depreciation and amortization expense was $18.3 million and $19.3 million for the years ended December 31, 2019 and 2018, respectively. These amounts included depreciation of property and equipment and the amortization of intangible assets.
Provision for Doubtful Accounts
During the year ended December 31, 2019, we released reserves related to certain management fees in the amount of $3.8 million as the collectability of the outstanding amount was no longer in doubt. These reserves related to Accountable Health Care and were no longer necessary as a result of our acquisition of the company. As such our provision for doubtful accounts was a negative $1.4 million.
Impairment of Goodwill and Intangible Assets
Impairment of goodwill and intangible assets was $2.0 million for the year ended December 31, 2019, as compared to $3.8 million for the year ended December 31, 2018. During 2019, we impaired intangible assets related to Medicare licenses obtained as part of the Merger. In 2018, we impaired the goodwill related to MMG. We will no longer utilize the Medicare licenses and MMG has been wound down. Accordingly, we do not expect to receive future economic benefits from such assets and goodwill.
Loss from Equity Method Investments
Loss from equity method investments in 2019 was $6.9 million, as compared to $8.1 million in 2018, a decrease of $1.2 million, or 15%. The decrease was primarily due to equity losses related to our investments in LMA's IPA line of business, Accountable Health Care, UCI, MWN Community Hospital, LLC, and 531 W. College LLC of $2.8 million, $2.5 million, $1.2 million, $0.2 million and $0.2 million, respectively, which was offset by equity earnings of $0.3 million from our investment in Diagnostic Medical Group ("DMG") for the year ended December 31, 2019. In addition, during the year ended December 31, 2019 we recognized an impairment loss of $0.3 million related to our investment in Pacific Ambulatory Surgery Center, LLC ("PASC") as we do not expect to recover our investment. This is compared to equity losses of $6.0 million, $2.4 million, $0.4 million and $0.3 million allocated from our investments in UCI, LSMA, 531 W. College, LLC and PASC, respectively, which were offset by income of $1.0 million allocated from our investment in DMG for the year ended 2018.
Interest Expense
Interest expense in 2019 was $4.7 million as compared to interest expense of $0.6 million in 2018. The increase was primarily due to interest incurred from a new credit facility we secured in September 2019 to fund growth, primarily through acquisitions.
Interest Income
Interest income in 2019 was $2.0 million as compared to $1.3 million in 2018, an increase of $0.7 million or 61%. The increase in interest income was a result of additional cash held in money market, certificates of deposit accounts and increased loan receivables issued in 2019.
Other Income
Other income was $3.0 million for 2019 as compared to $1.6 million in 2018, an increase of $1.4 million or 87%. The increase was primarily attributable to the assumption of a loan receivable as a result of the Accountable Health Care acquisition.
Provision for Income Taxes
Provision for income taxes was $8.2 million in 2019, as compared to $22.4 million in 2018, a decrease of $14.2 million or 63%. This decrease was primarily attributable to a decrease in the amount of pre-tax income in 2019 as compared to 2018.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests was $3.6 million for the year ended December 31, 2019, as compared to $49.4 million for the year ended December 31, 2018, a decrease of $45.8 million or 93%. This decrease was primarily due to reduced net income generated from APC mainly attributable to a decrease in risk pool revenue as a result of the refinement of the assumptions used to estimate the amount of net surplus expected to be received from the risk pools of our affiliated hospitals and our completion of a series of transactions with APC as further described in "2019 Highlights" above, which resulted in preferred, cumulative dividends from APC being allocated to AP-AMH.
2018 Compared to 2017
Our consolidated operating results for the year ended December 31, 2018, as compared to the year ended December 31, 2017 were as follows:
Apollo Medical Holdings, Inc.
Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
2018
|
|
2017
|
|
$ Change
|
|
% Change
|
Revenue
|
|
|
|
|
|
|
|
Capitation, net
|
$
|
344,307,058
|
|
|
$
|
272,921,240
|
|
|
$
|
71,385,818
|
|
|
26
|
%
|
Risk pool settlements and incentives
|
100,927,841
|
|
|
44,598,373
|
|
|
56,329,468
|
|
|
126
|
%
|
Management fee income
|
49,742,755
|
|
|
26,983,695
|
|
|
22,759,060
|
|
|
84
|
%
|
Fee-for-services, net
|
19,703,999
|
|
|
7,449,249
|
|
|
12,254,750
|
|
|
165
|
%
|
Other income
|
5,226,099
|
|
|
4,403,373
|
|
|
822,726
|
|
|
19
|
%
|
Total revenue
|
519,907,752
|
|
|
356,355,930
|
|
|
163,551,822
|
|
|
46
|
%
|
Operating expenses
|
|
|
|
|
|
|
|
Cost of services
|
361,132,111
|
|
|
273,453,287
|
|
|
87,678,824
|
|
|
32
|
%
|
General and administrative expenses
|
43,353,787
|
|
|
26,249,532
|
|
|
17,104,255
|
|
|
65
|
%
|
Depreciation and amortization
|
19,303,179
|
|
|
19,075,353
|
|
|
227,826
|
|
|
1
|
%
|
Provision for doubtful accounts
|
3,887,647
|
|
|
—
|
|
|
3,887,647
|
|
|
100
|
%
|
Impairment of goodwill and intangibles assets
|
3,798,866
|
|
|
2,431,791
|
|
|
1,367,075
|
|
|
56
|
%
|
Total expenses
|
431,475,590
|
|
|
321,209,963
|
|
|
110,265,627
|
|
|
34
|
%
|
Income from operations
|
88,432,162
|
|
|
35,145,967
|
|
|
53,286,195
|
|
|
152
|
%
|
Other (expense) income
|
|
|
|
|
|
|
|
Loss from equity method investments
|
(8,125,285
|
)
|
|
(1,112,541
|
)
|
|
(7,012,744
|
)
|
|
630
|
%
|
Interest expense
|
(560,515
|
)
|
|
(79,689
|
)
|
|
(480,826
|
)
|
|
603
|
%
|
Interest income
|
1,258,638
|
|
|
1,015,204
|
|
|
243,434
|
|
|
24
|
%
|
Change in fair value of derivative instrument
|
—
|
|
|
(44,886
|
)
|
|
44,886
|
|
|
(100
|
)%
|
Gain on settlement of preexisting note receivable from ApolloMed
|
—
|
|
|
921,938
|
|
|
(921,938
|
)
|
|
(100
|
)%
|
Gain from investments - fair value adjustments
|
—
|
|
|
13,697,018
|
|
|
(13,697,018
|
)
|
|
(100
|
)%
|
Other income
|
1,622,131
|
|
|
168,102
|
|
|
1,454,029
|
|
|
865
|
%
|
Total other (expense) income, net
|
(5,805,031
|
)
|
|
14,565,146
|
|
|
(20,370,177
|
)
|
|
(140
|
)%
|
Income before provision for income taxes
|
82,627,131
|
|
|
49,711,113
|
|
|
32,916,018
|
|
|
66
|
%
|
Provision for income taxes
|
22,359,640
|
|
|
3,886,785
|
|
|
18,472,855
|
|
|
475
|
%
|
Net income
|
$
|
60,267,491
|
|
|
$
|
45,824,328
|
|
|
$
|
14,443,163
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interests
|
49,432,489
|
|
|
20,022,486
|
|
|
29,410,003
|
|
|
147
|
%
|
Net income attributable to Apollo Medical Holdings, Inc.
|
$
|
10,835,002
|
|
|
$
|
25,801,842
|
|
|
$
|
(14,966,840
|
)
|
|
(58
|
)%
|
Net Income
Our net income in 2018 was $60.3 million, as compared to $45.8 million in 2017, an increase of $14.5 million or 32%.
Physician Groups and Patients
As of December 31, 2018 and 2017, the total number of affiliated physician groups we managed was 11 groups, respectively, and the total number of patients for whom we managed the delivery of healthcare services was 992,100 and 795,960, respectively.
Revenue
Our revenue in 2018 was $519.9 million, as compared to $356.4 million in 2017, an increase of $163.5 million or 46%. The increase in revenue was attributable to the following:
(i) an increase of $71.4 million in capitation revenue due to increases in membership and capitation rates, as well as, revenue received from CMS associated with APAACO,
(ii) an increase of $56.3 million in risk pool revenue due to favorable healthcare utilization trends and the recognition of full risk pool, as well as shared risk revenue arrangements with certain health plans,
(iii) an increase in management fee income of $22.8 million, which was mainly driven by an increase in the number of patients served by our affiliated physician groups that were primarily driven by Accountable Health Care (effective December 2017) and Golden Shore Medical Group (effective January 1, 2018), and
(iv) an increase in FFS revenue of $12.2 million, which was mainly due to increased surgery center income from the increase in patients and fees received, as well as revenue generated from our hospitalist and heart center services and increases in other income of $0.8 million. ApolloMed’s operations acquired in the Merger accounted for $91.7 million of such increase.
Cost of Services
Expenses related to cost of services in 2018 were $361.1 million, as compared to $273.5 million in 2017, an increase of $87.6 million, or 32%. Of this increase, $97.1 million was attributable to the net increase in medical claims, primarily driven by APAACO and MMG, capitation and other health services expense, $22.2 million was attributable to increased personnel costs and related benefits and $5.3 million related to increased outsourced and temporary labor. This was offset by decreases in provider bonuses of $35.7 million, which were discretionary and provider share based compensation expense of $1.3 million.
General and Administrative Expenses
General and administrative expenses in 2018 were $43.4 million, as compared to $26.2 million in 2017, an increase of $17.2 million, or 65%. The increase was attributable to a $1.0 million increase in legal fees, $0.8 million increase in legal settlement costs, $0.8 million increase in technology expenses, $0.8 million increase in accounting expenses, a $2.9 million increase in other operating expenses, $2.0 million increase related to ICC operations and $8.9 million increase related to ApolloMed’s operations acquired in the Merger.
Depreciation and Amortization
Depreciation and amortization expense in 2018 was $19.3 million, as compared to $19.1 million in 2017, an increase of $0.2 million, or 1%. The increase was attributable to additional property and equipment purchased during 2018 and the addition of intangible assets from the Merger.
Provision for Doubtful Accounts
Provision for doubtful accounts was $3.9 million for the year ended December 31, 2018. During 2018, the Company recorded an allowance against certain management fees receivable based on management’s assessment of collectability. There was no provision for doubtful accounts for the year ended December 31, 2017.
Impairment of Goodwill and Intangible Assets
Impairment of goodwill and intangible assets was $3.8 million for the year ended December 31, 2018, as compared to $2.4 million in 2017. During 2018, we impaired the goodwill related to MMG as this IPA was no longer utilized and therefore were no longer expected to provide any future economic benefit. During 2017, we impaired the remaining intangible assets balance of APCN-ACO and AP-ACO that were acquired in 2016, as these member relationships were no longer utilized by ApolloMed and therefore were no longer expected to provide any future economic benefit.
Loss from Equity Method Investments
Loss from equity method investments in 2018 was $8.1 million, as compared to $1.1 million in 2017. This was mainly due to the losses of $6.0 million, $2.4 million, $0.4 million and $0.3 million allocated from our investments in UCI, LSMA, 531 W. College and PASC, respectively, offset by income of $1.0 million allocated from our investment in DMG.
Interest Expense
Interest expense in 2018 was $0.6 million as compared to interest expense of $0.1 million in 2017. The increase was mainly driven by increased drawdown on our line of credit.
Interest Income
Interest income in 2018 was $1.3 million for 2018, as compared to $1.0 million in 2017, an increase of $0.3 million or 24%, mainly due to more cash held in money market accounts which resulted in more interest earned and the interest from notes receivable.
Change in Fair Value of Derivative Instrument
Change in fair value of derivative instrument in 2017 was $45,000 due to fluctuations of ApolloMed’s stock price. ApolloMed did not have any derivative instruments in 2018.
Gain on Settlement of Preexisting Note Receivable from ApolloMed
Gain on settlement of preexisting note receivable between NMM and ApolloMed prior to the Merger was $0.9 million in 2017, there was no comparable amount in 2018.
Gain from investments – fair value adjustments
Gain from investments – fair value adjustment was $13.7 million in 2017. ApolloMed’s preferred stock (previously accounted for under the cost method) was $8.6 million and gain from NMM’s noncontrolling interest in APAACO (previously accounted for under the equity method) was $5.1 million as a result of the fair value adjustment related to the Merger. There was no comparable amount in 2018.
Other Income
Other income was $1.6 million for 2018 as compared to $0.2 million in 2017, an increase of $1.4 million or 865%. The increase was primarily attributable to dividends received from our investment in DMG and rental income from our sublet properties.
Provision for Income Taxes
Provision for income taxes was $22.4 million for 2018, as compared to $3.9 million in 2017, an increase of $18.5 million or 475%. This increase was primarily attributable to the increase in the amount of pre-tax income in 2018 as compared to 2017.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests was $49.4 million for the year ended December 31, 2018, as compared to $20.0 million for the year ended December 31, 2017, an increase of $29.4 million or 147%. This increase was primarily due to net income generated from APC mainly attributable to its increased revenue due to favorable healthcare utilization trends and the recognition of full risk pool surplus.
Liquidity and Capital Resources
Cash, cash equivalents and investment in marketable securities at December 31, 2019 totaled $219.7 million. Working capital totaled $223.7 million at December 31, 2019, compared to $100.8 million at December 31, 2018, an increase of $122.9 million, or 122%.
We have historically financed our operations primarily through internally generated funds. We generate cash primarily from capitations, risk pool settlements and incentives, fees for medical management services provided to our affiliated physician
groups, as well as FFS reimbursements. We generally invest cash in money market accounts, which are classified as cash and cash equivalents. We believe we have sufficient liquidity to fund our operations at least through March 2021.
Our cash and cash equivalents and restricted cash decreased by $3.6 million from $107.6 million at December 31, 2018 to $104.0 million at December 31, 2019. Cash provided by operating activities during the year ended December 31, 2019 was $13.7 million, as compared to $25.5 million during the year ended December 31, 2018. The cash generated from operations during the year ended December 31, 2019 is a function of net income of $17.7 million, adjusted for the following non-cash operating activities: depreciation and amortization of $18.8 million, impairment of intangible assets of $2.0 million, share-based compensation of $1.5 million and loss from equity method investments of $6.9 million, which were offset by a reduction in our provision for doubtful accounts of $1.4 million, gain related to assumption of loan receivables of $2.2 million and a reduction in deferred tax liability of $6.8 million. Our cash provided by operating activities includes a net decrease in operating assets and liabilities of $22.8 million.
Cash used in investing activities during the year ended December 31, 2019 was $180.6 million, as compared to cash used by investing activities of $25.2 million during the year ended December 31, 2018. This increase was primarily attributable to purchases of marketable securities of $115.4 million, payments for business acquisitions, net of cash acquired of $49.4 million, advances on loans receivable of $11.4 million, investments made in our equity method investments and investments in privately held entities of $3.6 million and purchases of property and equipment of $1.0 million, which were offset with dividends received of $0.2 million during the year ended December 31, 2019.
Cash provided in financing activities during the year ended December 31, 2019 was $163.3 million, as compared to $11.2 million used during the year ended December 31, 2018. The increase was primarily attributable to proceeds from borrowings on the line of credit and long term debt of $289.6 million and proceeds from exercise of stock options and warrants of $3.1 million, common stock offering of $0.8 million, which were offset by dividend payments of $61.7 million, repayments of bank loans totaling $55.0 million, repurchase of common shares totaling $7.6 million, cost related to debt and equity issuances of $5.8 million, and repayment of capital lease obligations totaling $0.1 million.
Credit Facilities
Credit Facility
The Company's credit facility consisted of the following:
|
|
|
|
|
|
December 31, 2019
|
|
|
Term Loan A
|
$
|
187,625,000
|
|
Revolver Loan
|
60,000,000
|
|
Total Debt
|
247,625,000
|
|
|
|
Less: current portion of debt
|
(9,500,000
|
)
|
Less: unamortized financing cost
|
(5,952,866
|
)
|
|
|
Long-term debt
|
$
|
232,172,134
|
|
The following table presents scheduled maturities of the Company's credit facility as of December 31, 2019:
|
|
|
|
|
|
Amount
|
2020
|
$
|
9,500,000
|
|
2021
|
10,687,500
|
|
2022
|
14,250,000
|
|
2023
|
15,437,500
|
|
2024
|
197,750,000
|
|
|
|
Total
|
$
|
247,625,000
|
|
Credit Agreement
On September 11, 2019, the Company entered into a secured credit agreement (the “Credit Agreement”) with SunTrust Bank, in its capacity as administrative agent for the lenders (in such capacity, the “Agent”), as a lender, an issuer of letters of credit and as a swingline lender, and Preferred Bank, which is affiliated with one of the Company's board members, JPMorgan Chase Bank, N.A., MUFG Union Bank, N.A., Royal Bank of Canada, Fifth Third Bank and City National Bank, as lenders (the “Lenders”). In connection with the closing of the Credit Agreement, the Company, its subsidiary, NMM, and the Agent entered into a Guaranty and Security Agreement (the “Guaranty and Security Agreement”), pursuant to which, among other things, NMM guaranteed the obligations of the Company under the Credit Agreement.
The Credit Agreement provides for a five-year revolving credit facility to the Company of $100.0 million ("Revolver Loan"), which includes a letter of credit subfacility of up to $25.0 million. As of December 31, 2019 the Company has outstanding letters of credit totaling $14.8 million and the Company has $25.2 million available under the revolving credit facility. The Credit Agreement also provides for a term loan of $190.0 million, ("Term Loan A"). The unpaid principal amount of the term loan is payable in quarterly installments on the last day of each fiscal quarter commencing on December 31, 2019. The principal payment for each of the first eight fiscal quarters is $2.4 million, for the following eight fiscal quarters thereafter is $3.6 million and for the following three fiscal quarters thereafter is $4.8 million. The remaining principal payment on the term loan is due on September 11, 2024.
The proceeds of the term loan and up to $60.0 million of the revolving credit facility may be used to (i) finance a portion of the $545.0 million loan made by the Company to AP-AMH, concurrently with the closing of the Credit Agreement (the “AP-AMH Loan”) as described in the May 13, 2019, Current Report and the August 29, 2019, Current Report, (ii) refinance certain indebtedness of the Company and its subsidiaries and, indirectly, APC, (iii) pay transaction costs and expenses arising in connection with the Credit Agreement, the AP-AMH Loan and certain other related transactions and (iv) provide for working capital, capital expenditures and other general corporate purposes. The remainder of the revolving credit facility will be used to finance future acquisitions and investments and to provide for working capital needs, capital expenditures and other general corporate purposes.
The Company is required to pay an annual facility fee of 0.20% to 0.35% on the available commitments under the Credit Agreement, regardless of usage, with the applicable fee determined on a quarterly basis based on the Company’s leverage ratio. The Company is also required to pay customary fees as specified in a separate fee agreement between the Company and SunTrust Robinson Humphrey, Inc., the lead arranger of the Credit Agreement.
Amounts borrowed under the Credit Agreement will bear interest at an annual rate equal to either, at the Company’s option, (a) the rate for Eurocurrency deposits for the corresponding deposits of U.S. dollars appearing on Reuters Screen LIBOR01 Page (“LIBOR”), adjusted for any reserve requirement in effect, plus a spread of from 2.00% to 3.00%, as determined on a quarterly basis based on the Company’s leverage ratio, or (b) a base rate, plus a spread of 1.00% to 2.00%, as determined on a quarterly basis based on the Company’s leverage ratio. The base rate is defined in a manner such that it will not be less than LIBOR. As of December 31, 2019 the interest rate on the Credit Agreement was 4.54%. The Company will pay fees for standby letters of credit at an annual rate equal to 2.00% to 3.00%, as determined on a quarterly basis based on the Company’s leverage ratio, plus facing fees and standard fees payable to the issuing bank on the respective letter of credit. Loans outstanding under the Credit Agreement may be prepaid at any time without penalty, except for LIBOR breakage costs and expenses. If LIBOR ceases to be reported, the Credit Agreement requires the Company and the Agent to endeavor to establish a commercially reasonable alternative rate of interest and until they are able to do so, all borrowings must be at the base rate.
The Credit Agreement requires the Company and its subsidiaries to comply with various affirmative covenants, including, without limitation, furnishing updated financial and other information, preserving existence and entitlements, maintaining properties and insurance, complying with laws, maintaining books and records, requiring any new domestic subsidiary meeting
a materiality threshold specified in the Credit Agreement to become a guarantor thereunder and paying obligations. The Credit Agreement requires the Company and its subsidiaries to comply with, and to use commercially reasonable efforts to the extent permitted by law to cause certain material associated practices of the Company, including APC, to comply with, restrictions on liens, indebtedness and investments (including restrictions on acquisitions by the Company), subject to specified exceptions. The Credit Agreement also contains various other negative covenants binding the Company and its subsidiaries, including, without limitation, restrictions on fundamental changes, dividends and distributions, sales and leasebacks, transactions with affiliates, burdensome agreements, use of proceeds, maintenance of business, amendments of organizational documents, accounting changes and prepayments and modifications of subordinated debt.
The Credit Agreement requires the Company to comply with two key financial ratios, each calculated on a consolidated basis. The Company must maintain a maximum consolidated leverage ratio of not greater than 3.75 to 1.00 as of the last day of each fiscal quarter. The maximum consolidated leverage ratio decreases by 0.25 each year, until it is reduced to 3.00 to 1.00 for each fiscal quarter ending after September 30, 2022. The Company must maintain a minimum consolidated interest coverage ratio of not less than 3.25 to 1.00 as of the last day of each fiscal quarter. As of December 31, 2019, the Company was in compliance with the covenants relating to its credit facility.
Pursuant to the Guaranty and Security Agreement, the Company and NMM have granted the Lenders a security interest in all of their assets, including, without limitation, all stock and other equity issued by their subsidiaries (including NMM) and all rights with respect to the AP-AMH Loan. The Guaranty and Security Agreement requires the Company and NMM to comply with various affirmative and negative covenants, including, without limitation, covenants relating to maintaining perfected security interests, providing information and documentation to the Agent, complying with contractual obligations relating to the collateral, restricting the sale and issuance of securities by their respective subsidiaries and providing the Agent access to the collateral.
The Credit Agreement contains events of default, including, without limitation, failure to make a payment when due, default on various covenants in the Credit Agreement, breach of representations or warranties, cross-default on other material indebtedness, bankruptcy or insolvency, occurrence of certain judgments and certain events under the Employee Retirement Income Security Act of 1974 aggregating more than $10.0 million, invalidity of the loan documents, any lien under the Guaranty and Security Agreement ceasing to be valid and perfected, any change in control, as defined in the Credit Agreement, an event of default under the AP-AMH Loan, failure by APC to pay dividends in cash for any period of two consecutive fiscal quarters, failure by AP-AMH to pay cash interest to the Company, or if any modification is made to the Certificate of Determination or the Special Purpose Shareholder Agreement that directly or indirectly restricts, conditions, impairs, reduces or otherwise limits the payment of the Series A Preferred dividend by APC to AP-AMH. In addition, it will constitute an event of default under the Credit Agreement if APC uses all or any portion of the consideration received by APC from AP-AMH on account of AP-AMH’s purchase of Series A Preferred Stock for any purpose other than certain specific approved uses described in the following sentence, unless not less than 50.01% of all holders of common stock of APC at such time approve such use; provided that APC may use up to $50.0 million in the aggregate of such consideration for any purpose without any requirement to obtain such approval of the holders of common stock of APC. The approved uses include (i) any permitted investment, (ii) any dividend or distribution to the holders of the common stock of APC, (iii) any repurchase of common stock of APC, (iv) paying taxes relating to or arising from certain assets and transactions, or (v) funding losses, deficits or working capital support on account of certain non-healthcare assets in an amount not to exceed $125.0 million. If any event of default occurs and is continuing under the Credit Agreement, the Lenders may terminate their commitments, and may require the Company and its guarantors to repay outstanding debt and/or to provide a cash deposit as additional security for outstanding letters of credit. In addition, the Agent, on behalf of the Lenders, may pursue remedies under the Guaranty and Security Agreement, including, without limitation, transferring pledged securities of the Company’s subsidiaries in the name of the Agent and exercising all rights with respect thereto (including the right to vote and to receive dividends), collect on pledged accounts, instruments and other receivables (including the AP-AMH Loan), and all other rights provided by law or under the loan documents and the AP-AMH Loan.
In the ordinary course of business, certain of the Lenders under the Credit Agreement and their affiliates have provided to the Company and its subsidiaries and the associated practices, and may in the future provide, (i) investment banking, commercial banking (including pursuant to certain existing business loan and credit agreements being terminated in connection with entering into the Credit Agreement), cash management, foreign exchange or other financial services, and (ii) services as a bond trustee and other trust and fiduciary services, for which they have received compensation and may receive compensation in the future.
Deferred Financing Costs
The Company recorded deferred financing costs of $6.4 million related to the issuance of the Credit Facility. This amount was recorded as a direct reduction of the carrying amount of the related debt liability. The deferred financing costs related to the term loan will be amortized over the life of the Credit Facility using the effective interest rate method. The deferred financing costs related to the revolver will be amortized using the straight line method over the term of the revolver. During the year ended
December 31, 2019, $0.5 million of amortization relating to deferred financing costs is included under "Depreciation and Amortization" of the cash flow statement.
Effective Interest Rate
The Company’s average effective interest rate on its total debt during the years ended December 31, 2019, 2018 and 2017 was 3.39%, 4.72% and 2.27%, respectively.
Bank Loans
In December 2010, ICC obtained a loan of $4.6 million from a financial institution. The loan bears interest based on the Wall Street Journal “prime rate” or 5.50% per annum, as of December 31, 2018. The loan is collateralized by the medical equipment ICC owns and guaranteed by one of ICC’s shareholders. The loan matured on December 31, 2018 and final payment was made in January 2019.
Lines of Credit – Related Party
NMM Business Loan
On June 14, 2018, NMM amended its promissory note agreement with Preferred Bank, which is affiliated with one of the Company’s board members, (“NMM Business Loan Agreement”), which provides for loan availability of up to $20.0 million with a maturity date of June 22, 2020. One of the Company’s board members is the chairman and CEO of Preferred Bank. The NMM Business Loan Agreement was amended on September 1, 2018 to temporarily increase the loan availability from $20.0 million to $27.0 million for the period from September 1, 2018 through January 31, 2019, further extended to October 31, 2019 to facilitate the issuance of an additional standby letter of credit for the benefit of CMS. The interest rate is based on the Wall Street Journal “prime rate” plus 0.125%, or 5.625%, as of December 31, 2018. The loan was guaranteed by Apollo Medical Holdings, Inc. and is collateralized by substantially all of the assets of NMM. The amounts outstanding as of June 30, 2019 of $5.0 million was fully repaid on September 11, 2019.
On September 5, 2018, NMM entered into a non-revolving line of credit agreement with Preferred Bank, which is affiliated with one of the Company’s board members, (“NMM Line of Credit Agreement”) which provides for loan availability of up to $20.0 million with a maturity date of September 5, 2019. This credit facility was subsequently amended on April 17, 2019 and July 29, 2019 to reduce the loan availability from $20.0 million to $16.0 million and from $16.0 million to $2.2 million, respectively. The interest rate is based on the Wall Street Journal “prime rate” plus 0.125%, or 4.875%, as of December 31, 2019. The line of credit is guaranteed by Apollo Medical Holdings, Inc. and is collateralized by substantially all assets of NMM. NMM obtained this line of credit to finance potential acquisitions. Each drawdown from the line of credit is converted into a five-year term loan with monthly principal payments plus interest based on a five-year amortization schedule.
On September 11, 2019, the NMM Business Loan Agreement, dated as of June 14, 2018, between NMM and Preferred Bank, as amended, and the Line of Credit Agreement, dated as of September 5, 2018, between NMM and Preferred Bank, as amended, was terminated in connection with the closing of the Credit Facility. Certain letters of credit issued by Preferred Bank under the Line of Credit Agreement were terminated and reissued under the Credit Agreement. These outstanding letters of credit totaled $14.8 million as of December 31, 2019 and the Company has $10.2 million available under the letter of credit subfacility.
APC Business Loan
On June 14, 2018, APC amended its promissory note agreement with Preferred Bank, which is affiliated with one of the Company’s board members, (“APC Business Loan Agreement”) which provides for loan availability of up to $10.0 million with a maturity date of June 22, 2020. This credit facility was subsequently amended on April 17, 2019 and June 11, 2019 to increase the loan availability from $10.0 million to $40.0 million and extend the maturity date through December 31, 2020. On August 1, 2019 and September 10, 2019, this credit facility was further amended to increase loan availability from $40.0 million to $43.8 million, and decrease loan availability from $43.8 million to $4.1 million, respectively. This decrease further limited the purpose of the indebtedness under APC Business Loan Agreement to the issuance of standby letters of credit, and added as a permitted lien the security interest in all of its assets granted by APC in favor of NMM under a Security Agreement dated on or about September 11, 2019 securing APC’s obligations to NMM under, and as required pursuant to, that certain Management Services Agreement dated as of July 1, 1999, as amended. The interest rate is based on the Wall Street Journal “prime rate” plus 0.125%, or 4.875% and 5.625%, as of December 31, 2019 and December 31, 2018, respectively. As of December 31, 2019 there is no additional availability under this line of credit.
Standby Letters of Credit
On March 3, 2017, APAACO established an irrevocable standby letter of credit with Preferred Bank, which is affiliated with one of the Company’s board members, (through the NMM Business Loan Agreement) for $6.7 million for the benefit of CMS. The letter of credit expired on December 31, 2018 and was automatically extended without amendment for additional one - year periods from the present or any future expiration date, unless notified by the institution to terminate prior to 90 days from any expiration date. APAACO may continue to draw from the letter of credit for one year following the bank’s notification of non-renewal. As of December 31, 2019, CMS has released the Company from this obligation.
On October 2, 2018, APAACO established a second irrevocable standby letter of credit with Preferred Bank, which is affiliated with one of the Company’s board members, (through the NMM Business Loan Agreement) for $6.6 million for the benefit of CMS. The letter of credit expires on December 31, 2019 and is automatically extended without amendment for additional one - year periods from the present or any future expiration date, unless notified by the institution to terminate prior to 90 days from any expiration date. APAACO may continue to draw from the letter of credit for one year following the bank’s notification of non-renewal. This standby letter of credit was subsequently amended on August 14, 2019 to increase the amount from $6.6 million to $14.8 million and extended the expiration date to December 31, 2020 while all other terms and conditions remained unchanged. In connection with the closing of the Credit Facility, this letter of credit was terminated and reissued under the Credit Agreement.
APC established irrevocable standby letters of credit with a financial institution for a total of $0.3 million for the benefit of certain health plans. The standby letters of credit are automatically extended without amendment for additional one-year periods from the present or any future expiration date, unless notified by the institution in advance of the expiration date that the letter will be terminated.
Alpha Care established irrevocable standby letters of credit with Preferred Bank, which is affiliated with one of the Company’s board members, under the APC Business Loan Agreement for a total of $3.8 million for the benefit of certain health plans. The standby letters of credit are automatically extended without amendment for additional one-year periods from the present or any future expiration date, unless notified by the institution in advance of the expiration date that the letter will be terminated.
Intercompany Loans
Each of AMH, MMG, BAHA, ACC, AKM and SCHC has entered into an Intercompany Loan Agreement with AMM under which AMM has agreed to provide a revolving loan commitment to each of the affiliated entities in an amount set forth in each Intercompany Loan Agreement. Each Intercompany Loan Agreement provides that AMM’s obligation to make any advances automatically terminates concurrently with the termination of the management agreement with the applicable affiliated entity. In addition, each Intercompany Loan Agreement provides that (i) any material breach by the shareholder of record of the applicable Physician Shareholder Agreement or (ii) the termination of the management agreement with the applicable affiliated entity constitutes an event of default under the Intercompany Loan Agreement. All the intercompany loans have been eliminated in consolidation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
Entity
|
|
Facility
|
|
Interest rate
per
Annum
|
|
Maximum
Balance
During
Period
|
|
Ending
Balance
|
|
Principal
Paid
During
Period
|
|
Interest Paid
During Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMH
|
|
$
|
10,000,000
|
|
|
10
|
%
|
|
$
|
5,798,674
|
|
|
$
|
5,798,674
|
|
|
$
|
770,000
|
|
|
$
|
—
|
|
ACC
|
|
1,000,000
|
|
|
10
|
%
|
|
1,288,643
|
|
|
1,283,078
|
|
|
5,565
|
|
|
—
|
|
MMG
|
|
3,000,000
|
|
|
10
|
%
|
|
3,395,588
|
|
|
3,395,588
|
|
|
—
|
|
|
—
|
|
AKM
|
|
5,000,000
|
|
|
10
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
SCHC
|
|
5,000,000
|
|
|
10
|
%
|
|
4,710,385
|
|
|
4,710,385
|
|
|
—
|
|
|
—
|
|
BAHA
|
|
250,000
|
|
|
10
|
%
|
|
4,065,992
|
|
|
4,065,992
|
|
|
—
|
|
|
—
|
|
|
|
$
|
24,250,000
|
|
|
|
|
$
|
19,259,282
|
|
|
$
|
19,253,717
|
|
|
$
|
775,565
|
|
|
$
|
—
|
|
Contractual Obligations
The following summarizes our contractual obligations as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Less than One Year
|
|
One to Three Years
|
|
Three to Five Years
|
|
More than Five Years
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
$
|
17,570,789
|
|
|
$
|
3,781,174
|
|
|
$
|
5,087,961
|
|
|
$
|
3,918,273
|
|
|
$
|
4,783,381
|
|
Finance leases
|
554,935
|
|
|
118,920
|
|
|
237,840
|
|
|
198,175
|
|
|
—
|
|
Debt
|
247,625,000
|
|
|
9,500,000
|
|
|
24,937,500
|
|
|
213,187,500
|
|
|
—
|
|
Interest on debt
|
60,000,000
|
|
|
12,000,000
|
|
|
24,000,000
|
|
|
24,000,000
|
|
|
—
|
|
Total contractual obligations
|
$
|
325,750,724
|
|
|
$
|
25,400,094
|
|
|
$
|
54,263,301
|
|
|
$
|
241,303,948
|
|
|
$
|
4,783,381
|
|
Critical Accounting Policies and Estimates
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which require management to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and to the reported amounts of revenues and expenses during the period. The Company bases its estimates on historical experience and on various other assumptions that the Company believes are reasonable under the circumstances. Changes in estimates are recorded if and when better information becomes available. Actual results could significantly differ from those estimates under different assumptions and conditions. The Company believes that the accounting policies discussed below are those that are most important to the presentation of its financial condition and results of operations and that require its management’s most difficult, subjective and complex judgments.
Principles of Consolidation
The consolidated balance sheets as of December 31, 2019 and 2018 and consolidated statements of income for the years ended December 31, 2019, 2018 and 2017 include the accounts of ApolloMed, its consolidated subsidiaries NMM, AMM, APAACO and Apollo Care Connect, including ApolloMed's consolidated VIE, AP-AMH, NMM’s subsidiaries, APCN-ACO and AP-ACO, NMM’s consolidated VIE, APC, APC’s subsidiary, UCAP, and APC’s consolidated VIEs, CDSC, APC-LSMA and ICC, and APC-LSMA's consolidated subsidiaries Alpha Care and Accountable Health Care.
Use of Estimates
The preparation of consolidated financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant items subject to such estimates and assumptions include collectability of receivables, recoverability of long-lived and intangible assets, business combination and goodwill valuation and impairment, accrual of medical liabilities (including historical medical loss ratios (“MLR”), and incurred, but not reported (“IBNR”) claims), determination of full-risk revenue and receivables (including constraints and completion factors), income taxes and valuation of share-based compensation. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ materially from those estimates and assumptions.
Receivables and Receivables – Related Parties
The Company’s receivables are comprised of accounts receivable, capitation and claims receivable, risk pool settlements and incentive receivables, management fee income and other receivables. Accounts receivable are recorded and stated at the amount expected to be collected.
The Company’s receivables – related parties are comprised of risk pool settlements and incentive receivables, management fee income and other receivables. Receivables – related parties are recorded and stated at the amount expected to be collected.
Capitation and claims receivable relate to each health plan’s capitation, which is received by the Company in the month following the month of service. Risk pool settlements and incentive receivables mainly consist of the Company’s full risk pool
receivable that is recorded quarterly based on reports received from our hospital partners and management’s estimate of the Company’s portion of the estimated risk pool surplus for open performance years. Settlement of risk pool surplus or deficits occurs approximately 18 months after the risk pool performance year is completed. Other receivables include fee-for-services (“FFS”) reimbursement for patient care, certain expense reimbursements, and stop loss insurance premium reimbursements from IPAs.
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. The Company also regularly analyzes the ultimate collectability of accounts receivable after certain stages of the collection cycle using a look-back analysis to determine the amount of receivables subsequently collected and adjustments are recorded when necessary. Reserves are recorded primarily on a specific identification basis.
Amounts are recorded as a receivable when the Company is able to determine amounts receivable under applicable contracts and/or agreements based on information provided and collection is reasonably likely to occur. The Company continuously monitors its collections of receivables and its policy is to write off receivables when they are determined to be uncollectible. As of December 31, 2019 and 2018, the Company's allowance for doubtful accounts were approximately $2.9 million and approximately $4.3 million, respectively.
Fair Value Measurements
The Company’s financial instruments consist of cash and cash equivalents, restricted cash, investment in marketable securities, receivables, loans receivable – related parties, accounts payable, certain accrued expenses, capital lease obligations, bank loan, line of credit – related party, and long-term debt. The carrying values of the financial instruments classified as current in the accompanying consolidated balance sheets are considered to be at their fair values, due to the short maturity of these instruments. The carrying amount of the loan receivables – related parties, net of current portion, bank loan, capital lease obligations line of credit - related party, and long-term debt approximate fair value as they bear interest at rates that approximate current market rates for debt with similar maturities and credit quality. The FASB ASC 820, Fair Value Measurement (“ASC 820”), applies to all financial assets and financial liabilities that are measured and reported on a fair value basis and requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. ASC 820 establishes a fair value hierarchy for disclosures of the inputs to valuations used to measure fair value.
This hierarchy prioritizes the inputs into three broad levels as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date.
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates and yield curves), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3—Unobservable inputs that reflect assumptions about what market participants would use in pricing the asset or liability. These inputs would be based on the best information available, including the Company’s own data.
Business Combinations
We use the acquisition method of accounting for all business combinations, which requires assets and liabilities of the acquiree to be recorded at fair value, to measure the fair value of the consideration transferred, including contingent consideration, to be determined on the acquisition date, and to account for acquisition related costs separately from the business combination.
Investments in Other Entities
Variable interest model
We perform a primary beneficiary analysis on all our identified variable interest entities, which comprises a qualitative analysis based on power and economics. We consolidate a VIE if both power and benefits belong to us – that is, we (i) have the power to direct the activities of a VIE that most significantly influence the VIE’s economic performance (power), and (ii) have the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE (benefits). We consolidate VIEs whenever it is determined that we are the primary beneficiary.
Equity Method
We account for certain investments using the equity method of accounting when it is determined that the investment provides us the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if the Company has an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investee’s board of directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the investee and is recognized in the consolidated statements of income under “Income from equity method investments” and also is adjusted by contributions to and distributions from the investee. Equity method investments are subject to impairment evaluation. During the period ended December 31, 2019, the Company recognized an impairment loss of approximately $0.3 million related to its investment in PASC as the Company does not believe it will recover its investment balance. Such impairment loss is included in loss from equity method investment in the accompanying consolidated statements of income. No impairment loss was recognized on equity method investments for the years ended December 31, 2018 and 2017.
Noncontrolling Interests
The Company consolidates entities in which the Company has a controlling financial interest. The Company consolidates subsidiaries in which the Company holds, directly or indirectly, more than 50% of the voting rights, and variable interest entities (VIEs) in which the Company is the primary beneficiary. Noncontrolling interests represent third-party equity ownership interests (including certain VIEs) in the Company’s consolidated entities. The amount of net income attributable to noncontrolling interests is disclosed in the consolidated statements of income.
Mezzanine Equity
Based on the shareholder agreements for APC, in the event of a disqualifying event, as defined in the agreements, APC could be required to repurchase the shares from their respective shareholders based on certain triggers outlined in the shareholder agreements. As the redemption feature of the shares is not solely within the control of APC, the equity of APC does not qualify as permanent equity and has been classified as mezzanine or temporary equity. Accordingly, the Company recognizes noncontrolling interests in APC as mezzanine equity in the consolidated financial statements. APC’s shares were not redeemable and it was not probable that the shares would become redeemable as of December 31, 2019 and 2018.
Revenue Recognition
The Company adopted Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)”, using the modified retrospective method on January 1, 2108. Modified retrospective adoption required entities to apply the standard retrospectively to the most current period presented in the financial statements, requiring the cumulative effect of the retrospective application as an adjustment to the opening balance of retained earnings and noncontrolling interests at the date of initial application. Revenue from substantially all of the Company’s contracts with customers continues to be recognized over time as services are rendered. The 2017 comparative information has not been restated and continues to be reported under the accounting standards in effect for that period (“ASC 605”) (See Note 16).
Income Taxes
Federal and state income taxes are computed at currently enacted tax rates less tax credits using the asset and liability method. Deferred taxes are adjusted both for items that do not have tax consequences and for the cumulative effect of any changes in tax rates from those previously used to determine deferred tax assets or liabilities. Tax provisions include amounts that are currently payable, changes in deferred tax assets and liabilities that arise because of temporary differences between the timing of when items of income and expense are recognized for financial reporting and income tax purposes, changes in the recognition of tax positions and any changes in the valuation allowance caused by a change in judgment about the realizability of the related deferred tax assets. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.
The Company uses a recognition threshold of more-likely-than-not and a measurement attribute on all tax positions taken or expected to be taken in a tax return in order to be recognized in the financial statements. Once the recognition threshold is met, the tax position is then measured to determine the actual amount of benefit to recognize in the financial statements.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation known as the Tax Cuts and Jobs Act (the "TCJA"). The TCJA established new tax laws that took effect in 2018, including, but not limited to (1) reduction of the U.S.
federal corporate tax rate from a maximum of 35% to 21%; (2) elimination of the corporate alternative minimum tax; (3) a new limitation on deductible interest expense; (4) the transition tax; (5) limitations on the deductibility of certain executive compensation; (6) changes to the bonus depreciation rules for fixed asset additions; and (7) limitations on net operating losses generated after December 31, 2018, to 80% of taxable income.
ASC Topic 740, Income Taxes (“ASC 740”), requires the effects of changes in tax laws to be recognized in the period in which the legislation is enacted. However, due to the complexity and significance of the TCJA’s provisions, the SEC staff issued Staff Accounting Bulletin (“SAB 118”), which provides guidance on accounting for the tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740.
Goodwill and Intangible Assets
Under FASB ASC 350, Intangibles – Goodwill and Other (“ASC 350”), goodwill and indefinite-lived intangible assets are reviewed at least annually for impairment.
At least annually, at the Company’s fiscal year end, or sooner, if events or changes in circumstances indicate that an impairment has occurred, the Company performs a qualitative assessment to determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount as a basis for determining whether it is necessary to complete quantitative impairment assessments for each of the Company’s three main reporting units, (1) management services, (2) IPA, and (3) ACO. The Company is required to perform a quantitative goodwill impairment test only if the conclusion from the qualitative assessment is that it is more likely than not that a reporting unit’s fair value is less than the carrying value of its assets. Should this be the case, a quantitative analysis is performed to identify whether a potential impairment exists by comparing the estimated fair values of the reporting units with their respective carrying values, including goodwill.
An impairment loss is recognized if the implied fair value of the asset being tested is less than its carrying value. In this event, the asset is written down accordingly. The fair values of goodwill are determined using valuation techniques based on estimates, judgments and assumptions management believes are appropriate in the circumstances.
At least annually, indefinite-lived intangible assets are tested for impairment. Impairment for intangible assets with indefinite lives exists if the carrying value of the intangible asset exceeds its fair value. The fair values of indefinite-lived intangible assets are determined using valuation techniques based on estimates, judgments and assumptions management believes are appropriate in the circumstances.
Effect of New Accounting Standards
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASC 842”), which amends the existing accounting standards for leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of right-of-use assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.
The Company adopted ASC 842 effective January 1, 2019 on a modified retrospective using the following practical expedients as permitted under the transition guidance within the new standard; (i) not reassess whether any expired or existing contracts are or contain leases; not reassess the lease classification for any expired or existing leases; not reassess initial direct costs for existing leases; and (ii) use hindsight in determining the lease term and in assessing impairment of the entity’s right-of-use assets. The Company has also implemented additional internal controls to enable future preparation of financial information in accordance with ASC 842.
The standard had a material impact on our consolidated balance sheets, but did not materially impact our consolidated results of operations and had no impact on cash flows. The most significant impact was the recognition of right-of-use assets of $9.0 million and lease liabilities of $8.9 million for operating leases, while our accounting for finance leases remained substantially unchanged. The 2018 comparative information has not been restated and continues to be reported under the accounting standards in effect for that period (ASC 840). See Note 19 for further details.
The Company elected to adopt the standard using the “package of practical expedients”, which permits it not to reassess under the new standard its prior conclusions about lease identification, lease classification, and initial direct costs, and the use-of-hindsight in determining the lease term and in assessing impairment of right-of-use assets. In addition, the new standard provides
practical expedients for an entity’s ongoing accounting that the Company anticipates making, comprised of the following: (1) the election for classes of underlying asset to not separate non-lease components from lease components, and (2) the election for short-term lease recognition exemption for all leases that qualify.
See “Recent Accounting Pronouncements” under “Note 2 — Basis of Presentation and Summary of Significant Accounting Policies.”
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
|
|
Item 8.
|
Financial Statements and Supplementary Data
|
|
|
|
Index to the Consolidated Financial Statements
|
Page
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Apollo Medical Holdings, Inc.
Alhambra, California
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Apollo Medical Holdings, Inc. (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of income, mezzanine and shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 16, 2020 expressed an unqualified opinion thereon.
Change in Accounting Method Related to Leases and Revenue
As discussed in Notes 2 and 19 to the consolidated financial statements, the Company changed its method for accounting for leases effective January 1, 2019 as a result of the adopting Accounting Standards Codification (“ASC”) 842 - Leases.
As discussed in Notes 2 and 16 to the consolidated financial statements, the Company changed its method for recognizing revenue from contracts with customers effective January 1, 2018 as a result of adopting ASC 606 - Revenue from Contracts with Customers.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
|
|
|
/s/ BDO USA, LLP
|
|
|
|
We have served as the Company’s auditor since 2014.
|
|
|
|
Los Angeles, California
|
|
|
|
March 16, 2020
|
|
|
|
|
|
|
|
|
|
|
|
APOLLO MEDICAL HOLDINGS, INC.
|
CONSOLIDATED BALANCE SHEETS
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
103,189,328
|
|
|
$
|
106,891,503
|
|
Restricted cash
|
|
75,000
|
|
|
—
|
|
Investment in marketable securities
|
|
116,538,673
|
|
|
1,127,102
|
|
Receivables, net
|
|
11,003,563
|
|
|
7,734,631
|
|
Receivables, net – related parties
|
|
48,136,313
|
|
|
48,721,325
|
|
Other receivables
|
|
16,885,448
|
|
|
1,003,133
|
|
Prepaid expenses and other current assets
|
|
10,315,093
|
|
|
7,385,098
|
|
Loans receivable
|
|
6,425,000
|
|
|
—
|
|
Loans receivable - related parties
|
|
16,500,000
|
|
|
—
|
|
|
|
|
|
|
Total current assets
|
|
329,068,418
|
|
|
172,862,792
|
|
|
|
|
|
|
Noncurrent assets
|
|
|
|
|
Land, property and equipment, net
|
|
12,129,901
|
|
|
12,721,082
|
|
Intangible assets, net
|
|
103,011,849
|
|
|
86,875,883
|
|
Goodwill
|
|
238,505,204
|
|
|
185,805,880
|
|
Loans receivable – related parties
|
|
—
|
|
|
17,500,000
|
|
Investments in other entities – equity method
|
|
28,427,455
|
|
|
34,876,980
|
|
Investments in privately held entities
|
|
896,000
|
|
|
405,000
|
|
Restricted cash
|
|
746,104
|
|
|
745,470
|
|
Operating lease right-of-use assets
|
|
14,247,727
|
|
|
—
|
|
Other assets
|
|
1,680,689
|
|
|
1,205,962
|
|
|
|
|
|
|
Total noncurrent assets
|
|
399,644,929
|
|
|
340,136,257
|
|
|
|
|
|
|
Total assets
|
|
$
|
728,713,347
|
|
|
$
|
512,999,049
|
|
|
|
|
|
|
|
|
|
|
|
APOLLO MEDICAL HOLDINGS, INC.
|
CONSOLIDATED BALANCE SHEETS (Continued)
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Liabilities, Mezzanine Equity and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
27,279,579
|
|
|
$
|
25,075,489
|
|
Fiduciary accounts payable
|
|
2,027,081
|
|
|
1,538,598
|
|
Medical liabilities
|
|
58,724,682
|
|
|
33,641,701
|
|
Income taxes payable
|
|
4,528,867
|
|
|
11,621,861
|
|
Bank loan
|
|
—
|
|
|
40,257
|
|
Dividend payable
|
|
271,279
|
|
|
—
|
|
Finance lease liabilities
|
|
101,741
|
|
|
101,741
|
|
Operating lease liabilities
|
|
2,990,686
|
|
|
—
|
|
Current portion of long term debt
|
|
9,500,000
|
|
|
—
|
|
|
|
|
|
|
Total current liabilities
|
|
105,423,915
|
|
|
72,019,647
|
|
|
|
|
|
|
Noncurrent liabilities
|
|
|
|
|
Lines of credit - related party
|
|
—
|
|
|
13,000,000
|
|
Deferred tax liability
|
|
18,269,448
|
|
|
19,615,935
|
|
Liability for unissued equity shares
|
|
—
|
|
|
1,185,025
|
|
Finance lease liabilities, net of current portion
|
|
415,519
|
|
|
517,261
|
|
Operating lease liabilities, net of current portion
|
|
11,372,597
|
|
|
—
|
|
Long-term debt, net of current portion and deferred financing costs
|
|
232,172,134
|
|
|
—
|
|
|
|
|
|
|
Total noncurrent liabilities
|
|
262,229,698
|
|
|
34,318,221
|
|
|
|
|
|
|
Total liabilities
|
|
367,653,613
|
|
|
106,337,868
|
|
|
|
|
|
|
Commitments and Contingencies (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine equity
|
|
|
|
|
Noncontrolling interest in Allied Physicians of California, a Professional Medical Corporation ("APC")
|
|
168,724,586
|
|
|
225,117,029
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
Series A Preferred stock, par value $0.001; 5,000,000 shares authorized (inclusive of Series B Preferred stock); 1,111,111 issued and zero outstanding
|
|
—
|
|
|
—
|
|
Series B Preferred stock, par value $0.001; 5,000,000 shares authorized (inclusive of Series A Preferred stock); 555,555 issued and zero outstanding
|
|
—
|
|
|
—
|
|
Common stock, par value $0.001; 100,000,000 shares authorized, 35,908,057 and 34,578,040 shares outstanding, excluding 17,458,810 and 1,850,603 Treasury shares, at December 31, 2019 and 2018, respectively
|
|
35,908
|
|
|
34,578
|
|
Additional paid-in capital
|
|
159,608,293
|
|
|
162,723,051
|
|
Retained earnings
|
|
31,904,748
|
|
|
17,788,203
|
|
|
|
191,548,949
|
|
|
180,545,832
|
|
|
|
|
|
|
Noncontrolling interest
|
|
786,199
|
|
|
998,320
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
192,335,148
|
|
|
181,544,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, mezzanine equity and shareholders’ equity
|
|
$
|
728,713,347
|
|
|
$
|
512,999,049
|
|
See accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APOLLO MEDICAL HOLDINGS, INC.
|
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
Years ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
Capitation, net
|
|
$
|
454,168,024
|
|
|
$
|
344,307,058
|
|
|
$
|
272,921,240
|
|
Risk pool settlements and incentives
|
|
51,097,661
|
|
|
100,927,841
|
|
|
44,598,373
|
|
Management fee income
|
|
34,668,358
|
|
|
49,742,755
|
|
|
26,983,695
|
|
Fee-for-service, net
|
|
15,475,264
|
|
|
19,703,999
|
|
|
7,449,249
|
|
Other income
|
|
5,208,790
|
|
|
5,226,099
|
|
|
4,403,373
|
|
|
|
|
|
|
|
|
Total revenue
|
|
560,618,097
|
|
|
519,907,752
|
|
|
356,355,930
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
Cost of services
|
|
467,804,899
|
|
|
361,132,111
|
|
|
273,453,287
|
|
General and administrative expenses
|
|
41,482,375
|
|
|
43,353,787
|
|
|
26,249,532
|
|
Depreciation and amortization
|
|
18,280,198
|
|
|
19,303,179
|
|
|
19,075,353
|
|
Provision for doubtful accounts
|
|
(1,363,363
|
)
|
|
3,887,647
|
|
|
—
|
|
Impairment of goodwill and intangible assets
|
|
1,994,000
|
|
|
3,798,866
|
|
|
2,431,791
|
|
|
|
|
|
|
|
|
Total expenses
|
|
528,198,109
|
|
|
431,475,590
|
|
|
321,209,963
|
|
|
|
|
|
|
|
|
Income from operations
|
|
32,419,988
|
|
|
88,432,162
|
|
|
35,145,967
|
|
|
|
|
|
|
|
|
Other (expense) income
|
|
|
|
|
|
|
Loss from equity method investments
|
|
(6,900,859
|
)
|
|
(8,125,285
|
)
|
|
(1,112,541
|
)
|
Interest expense
|
|
(4,733,256
|
)
|
|
(560,515
|
)
|
|
(79,689
|
)
|
Interest income
|
|
2,023,873
|
|
|
1,258,638
|
|
|
1,015,204
|
|
Change in fair value of derivative instrument
|
|
—
|
|
|
—
|
|
|
(44,886
|
)
|
Gain on settlement of preexisting note receivable from ApolloMed
|
|
—
|
|
|
—
|
|
|
921,938
|
|
Gain from investments – fair value adjustments
|
|
—
|
|
|
—
|
|
|
13,697,018
|
|
Other income
|
|
3,030,203
|
|
|
1,622,131
|
|
|
168,102
|
|
|
|
|
|
|
|
|
Total other (expense) income, net
|
|
(6,580,039
|
)
|
|
(5,805,031
|
)
|
|
14,565,146
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
25,839,949
|
|
|
82,627,131
|
|
|
49,711,113
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
8,166,632
|
|
|
22,359,640
|
|
|
3,886,785
|
|
|
|
|
|
|
|
|
Net income
|
|
17,673,317
|
|
|
60,267,491
|
|
|
45,824,328
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interests
|
|
3,556,772
|
|
|
49,432,489
|
|
|
20,022,486
|
|
|
|
|
|
|
|
|
Net income attributable to Apollo Medical Holdings, Inc.
|
|
$
|
14,116,545
|
|
|
$
|
10,835,002
|
|
|
$
|
25,801,842
|
|
|
|
|
|
|
|
|
Earnings per share – basic
|
|
$
|
0.41
|
|
|
$
|
0.33
|
|
|
$
|
1.01
|
|
|
|
|
|
|
|
|
Earnings per share – diluted
|
|
$
|
0.39
|
|
|
$
|
0.29
|
|
|
$
|
0.90
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding – basic
|
|
34,708,429
|
|
|
32,893,940
|
|
|
25,525,786
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding – diluted
|
|
36,403,279
|
|
|
37,914,886
|
|
|
28,661,735
|
|
See accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APOLLO MEDICAL HOLDINGS, INC.
|
|
CONSOLIDATED STATEMENTS OF MEZZANINE AND SHAREHOLDERS’ EQUITY
|
|
Mezzanine
Equity –
Noncontrolling
Interest in APC
|
|
|
|
|
|
Additional
Paid-in Capital
|
|
Retained
Earnings
(Accumulated
Deficit)
|
|
Noncontrolling
Interest
|
|
Shareholders'
Equity
|
|
|
Common Stock Outstanding
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
|
|
|
Balance at December 31, 2016
|
$
|
162,855,554
|
|
|
25,067,953
|
|
|
$
|
25,068
|
|
|
$
|
87,954,346
|
|
|
$
|
(773,311
|
)
|
|
$
|
381,617
|
|
|
$
|
87,587,720
|
|
Net income
|
18,472,212
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25,801,842
|
|
|
1,550,274
|
|
|
27,352,116
|
|
Shares repurchased
|
(1,523,550
|
)
|
|
(132,752
|
)
|
|
(133
|
)
|
|
(1,652,153
|
)
|
|
—
|
|
|
—
|
|
|
(1,652,286
|
)
|
Shares issued for cash and exercise of options
|
266,000
|
|
|
232,254
|
|
|
233
|
|
|
2,059,300
|
|
|
—
|
|
|
—
|
|
|
2,059,533
|
|
Share-based compensation
|
809,528
|
|
|
—
|
|
|
—
|
|
|
1,933,588
|
|
|
—
|
|
|
—
|
|
|
1,933,588
|
|
Distribution of derivative assets - warrants
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,294,000
|
)
|
|
—
|
|
|
(5,294,000
|
)
|
Noncontrolling interest capital change
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
859,430
|
|
|
859,430
|
|
Dividends
|
(8,750,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(18,000,000
|
)
|
|
(1,697,923
|
)
|
|
(19,697,923
|
)
|
Reclassification of liability for unissued shares to equity
|
—
|
|
|
508,135
|
|
|
508
|
|
|
1,237,142
|
|
|
—
|
|
|
—
|
|
|
1,237,650
|
|
Effect of share exchange in Merger
|
—
|
|
|
6,109,205
|
|
|
6,109
|
|
|
61,273,274
|
|
|
—
|
|
|
3,142,000
|
|
|
64,421,383
|
|
Shares issued upon conversion of Alliance Note
|
—
|
|
|
520,081
|
|
|
520
|
|
|
5,375,695
|
|
|
—
|
|
|
—
|
|
|
5,376,215
|
|
Balance at December 31, 2017
|
172,129,744
|
|
|
32,304,876
|
|
|
32,305
|
|
|
158,181,192
|
|
|
1,734,531
|
|
|
4,235,398
|
|
|
164,183,426
|
|
ASC 606 Adoption
|
7,351,434
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,002,468
|
|
|
—
|
|
|
1,002,468
|
|
Net income
|
47,889,877
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,835,002
|
|
|
1,542,612
|
|
|
12,377,614
|
|
Purchase price adjustment from Merger
|
—
|
|
|
—
|
|
|
—
|
|
|
868,000
|
|
|
—
|
|
|
—
|
|
|
868,000
|
|
Repurchase of treasury shares
|
(1,263,554
|
)
|
|
(168,493
|
)
|
|
(168
|
)
|
|
(3,783,921
|
)
|
|
4,216,202
|
|
|
—
|
|
|
432,113
|
|
Shares issued for exercise of options and warrants
|
200,000
|
|
|
884,259
|
|
|
884
|
|
|
3,995,796
|
|
|
—
|
|
|
—
|
|
|
3,996,680
|
|
Share-based compensation
|
809,528
|
|
|
37,593
|
|
|
37
|
|
|
631,524
|
|
|
—
|
|
|
—
|
|
|
631,561
|
|
Noncontrolling interest capital change
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
27,500
|
|
|
27,500
|
|
Dividends
|
(2,000,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,975,010
|
)
|
|
(1,975,010
|
)
|
Acquisition of additional shares in consolidated entity
|
—
|
|
|
—
|
|
|
—
|
|
|
2,831,980
|
|
|
—
|
|
|
(2,832,180
|
)
|
|
(200
|
)
|
Release of 50% holdback shares
|
—
|
|
|
1,519,805
|
|
|
1,520
|
|
|
(1,520
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at December 31, 2018
|
225,117,029
|
|
|
34,578,040
|
|
|
34,578
|
|
|
162,723,051
|
|
|
17,788,203
|
|
|
998,320
|
|
|
181,544,152
|
|
Net income
|
1,807,747
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,116,545
|
|
|
1,749,025
|
|
|
15,865,570
|
|
Repurchase of treasury shares
|
(283,300
|
)
|
|
(601,581
|
)
|
|
(601
|
)
|
|
(7,285,784
|
)
|
|
—
|
|
|
—
|
|
|
(7,286,385
|
)
|
Shares issued for exercise of options and warrants
|
—
|
|
|
418,619
|
|
|
418
|
|
|
3,232,824
|
|
|
—
|
|
|
—
|
|
|
3,233,242
|
|
Share-based compensation
|
607,146
|
|
|
1,599
|
|
|
2
|
|
|
939,713
|
|
|
—
|
|
|
—
|
|
|
939,715
|
|
Stock subscription
|
754,998
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Shares issued in connection with business acquisition
|
414,250
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Cost of equity issuance of preferred shares
|
(878,309
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Noncontrolling interest capital change
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
27,500
|
|
|
27,500
|
|
Dividends
|
(60,000,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,988,646
|
)
|
|
(1,988,646
|
)
|
Reclassification of options liability to equity
|
1,185,025
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance of 50% holdback shares
|
—
|
|
|
1,511,380
|
|
|
1,511
|
|
|
(1,511
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at December 31, 2019
|
$
|
168,724,586
|
|
|
35,908,057
|
|
|
$
|
35,908
|
|
|
$
|
159,608,293
|
|
|
$
|
31,904,748
|
|
|
$
|
786,199
|
|
|
$
|
192,335,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APOLLO MEDICAL HOLDINGS, INC.
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
Years ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net income
|
|
$
|
17,673,317
|
|
|
$
|
60,267,491
|
|
|
$
|
45,824,328
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
18,753,270
|
|
|
19,303,179
|
|
|
19,075,353
|
|
Loss on disposal of property and equipment
|
|
—
|
|
|
41,784
|
|
|
—
|
|
Impairment of goodwill and intangible assets
|
|
1,994,000
|
|
|
3,798,866
|
|
|
2,431,791
|
|
Provision for doubtful accounts
|
|
(1,363,363
|
)
|
|
3,887,647
|
|
|
—
|
|
Share-based compensation
|
|
1,546,861
|
|
|
1,441,089
|
|
|
2,743,116
|
|
Gain on loan assumption
|
|
(2,250,000
|
)
|
|
—
|
|
|
—
|
|
Unrealized (gain) loss from investment in equity securities
|
|
(9,119
|
)
|
|
25,005
|
|
|
(86,005
|
)
|
Gain on settlement of preexisting note receivable from ApolloMed
|
|
—
|
|
|
—
|
|
|
(921,938
|
)
|
Gain from investments – fair value adjustments
|
|
—
|
|
|
—
|
|
|
(13,697,018
|
)
|
Change in fair value of derivative instrument
|
|
—
|
|
|
—
|
|
|
44,886
|
|
Loss from equity method investments
|
|
6,900,859
|
|
|
8,125,285
|
|
|
1,112,541
|
|
Deferred tax
|
|
(6,800,919
|
)
|
|
(8,345,235
|
)
|
|
(20,675,807
|
)
|
Changes in operating assets and liabilities, net of acquisition amounts:
|
|
|
|
|
|
|
Receivable, net
|
|
10,713,803
|
|
|
(263,191
|
)
|
|
4,108,970
|
|
Receivable, net – related parties
|
|
(1,435,306
|
)
|
|
(28,363,108
|
)
|
|
6,593,783
|
|
Other receivable
|
|
(15,079,346
|
)
|
|
—
|
|
|
—
|
|
Prepaid expenses and other current assets
|
|
(2,755,599
|
)
|
|
(2,813,564
|
)
|
|
1,260,064
|
|
Right-of-use assets
|
|
2,479,862
|
|
|
—
|
|
|
—
|
|
Other assets
|
|
(572,213
|
)
|
|
2,446
|
|
|
(220,925
|
)
|
Accounts payable and accrued expenses
|
|
(4,883,243
|
)
|
|
(22,669,230
|
)
|
|
(3,687,022
|
)
|
Fiduciary accounts payable
|
|
488,483
|
|
|
—
|
|
|
—
|
|
Capitation incentives payable
|
|
—
|
|
|
(21,500,000
|
)
|
|
1,878,355
|
|
Medical liabilities
|
|
(2,391,459
|
)
|
|
4,134,209
|
|
|
5,661,313
|
|
Income taxes payable
|
|
(7,092,994
|
)
|
|
8,423,366
|
|
|
388,138
|
|
Operating lease liabilities
|
|
(2,243,511
|
)
|
|
—
|
|
|
—
|
|
Net cash provided by operating activities
|
|
13,673,383
|
|
|
25,496,039
|
|
|
51,833,923
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
Cash acquired from Merger
|
|
—
|
|
|
—
|
|
|
37,112,775
|
|
Cash received from consolidation of VIE
|
|
—
|
|
|
—
|
|
|
228,287
|
|
Purchases of marketable securities
|
|
(115,402,452
|
)
|
|
(9,013
|
)
|
|
(5,283
|
)
|
Proceeds from loan receivable
|
|
—
|
|
|
—
|
|
|
200,000
|
|
Advances on loans receivable
|
|
(11,425,000
|
)
|
|
(7,500,000
|
)
|
|
(10,000,000
|
)
|
Dividends received from equity method investments
|
|
240,000
|
|
|
607,411
|
|
|
1,240,000
|
|
Proceeds on sale of investments in a privately held entity
|
|
—
|
|
|
—
|
|
|
25,000
|
|
Payments for business acquisitions, net of cash acquired
|
|
(49,402,514
|
)
|
|
—
|
|
|
—
|
|
Purchases of investments in privately held entities
|
|
(491,000
|
)
|
|
(405,000
|
)
|
|
—
|
|
Purchases of investments – equity method
|
|
(3,108,000
|
)
|
|
(16,706,152
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
(1,041,670
|
)
|
|
(1,170,064
|
)
|
|
(2,084,770
|
)
|
Net cash (used in) provided by investing activities
|
|
(180,630,636
|
)
|
|
(25,182,818
|
)
|
|
26,716,009
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
Dividends paid
|
|
(61,717,367
|
)
|
|
(17,758,808
|
)
|
|
(10,447,923
|
)
|
Change in noncontrolling interest capital
|
|
27,500
|
|
|
27,300
|
|
|
—
|
|
Borrowings on long-term debt
|
|
250,000,000
|
|
|
8,000,000
|
|
|
5,000,000
|
|
Borrowings on line of credit
|
|
39,600,000
|
|
|
—
|
|
|
—
|
|
Advances by NMM to ApolloMed prior to the Merger
|
|
—
|
|
|
—
|
|
|
(9,000,000
|
)
|
Repayments on long-term debt
|
|
(2,375,000
|
)
|
|
—
|
|
|
—
|
|
Repayments on bank loan, and lines of credit
|
|
(52,640,258
|
)
|
|
(495,134
|
)
|
|
—
|
|
Payment of capital lease obligations
|
|
(101,741
|
)
|
|
(98,735
|
)
|
|
(102,348
|
)
|
Proceeds from exercise of stock options included in liabilities
|
|
—
|
|
|
—
|
|
|
425,025
|
|
Proceeds from exercise of stock options and warrants
|
|
3,123,709
|
|
|
3,996,677
|
|
|
164,797
|
|
Proceeds from common stock offering
|
|
754,998
|
|
|
200,000
|
|
|
2,160,736
|
|
Repurchase of common shares
|
|
(7,569,685
|
)
|
|
(5,047,643
|
)
|
|
(3,175,836
|
)
|
Cost of debt and equity issuances
|
|
(5,771,444
|
)
|
|
—
|
|
|
—
|
|
Net cash provided by (used in) financing activities
|
|
163,330,712
|
|
|
(11,176,343
|
)
|
|
(14,975,549
|
)
|
|
|
|
|
|
|
|
Net (decrease) increase in cash, cash equivalents and restricted cash
|
|
(3,626,541
|
)
|
|
(10,863,122
|
)
|
|
63,574,383
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, beginning of year
|
|
107,636,973
|
|
|
118,500,095
|
|
|
54,925,712
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, end of year
|
|
$
|
104,010,432
|
|
|
$
|
107,636,973
|
|
|
$
|
118,500,095
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
20,200,000
|
|
|
$
|
23,642,662
|
|
|
$
|
24,362,223
|
|
Cash paid for interest
|
|
4,257,536
|
|
|
462,336
|
|
|
51,043
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash investing and financing activities
|
|
|
|
|
|
|
Cashless exercise of stock options
|
|
$
|
—
|
|
|
$
|
109
|
|
|
$
|
—
|
|
Dividend declared included in dividend payable
|
|
271,279
|
|
|
—
|
|
|
—
|
|
APC stock issued in exchange for AMG
|
|
414,250
|
|
|
—
|
|
|
—
|
|
Deferred tax liability adjusted to goodwill
|
|
6,334,368
|
|
|
1,110,456
|
|
|
—
|
|
Reclassification of liability for equity shares
|
|
1,185,025
|
|
|
—
|
|
|
—
|
|
Purchase price adjustment for acceleration of vested stock options
|
|
—
|
|
|
868,000
|
|
|
—
|
|
Conversion of loan receivable to investment in Accountable Health Care, IPA
|
|
—
|
|
|
5,000,000
|
|
|
—
|
|
Reclassification of dividends related to share repurchase
|
|
—
|
|
|
4,216,202
|
|
|
—
|
|
Reclassification of APS noncontrolling interest to equity related to purchase of additional shares
|
|
—
|
|
|
2,832,180
|
|
|
—
|
|
Distribution of warrants to former NMM shareholders
|
|
—
|
|
|
—
|
|
|
5,294,000
|
|
Issuance of common stock upon conversion of debt and accrued interest
|
|
—
|
|
|
—
|
|
|
5,376,215
|
|
Reclassification of liability for unissued common shares payable to equity
|
|
—
|
|
|
—
|
|
|
1,237,650
|
|
Non-cash purchase consideration for acquisition – fair value of equity consideration to pre-Merger ApolloMed shareholders
|
|
—
|
|
|
—
|
|
|
61,092,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash purchase consideration for acquisition – fair value of preferred stock held by former NMM shareholders
|
|
—
|
|
|
—
|
|
|
19,118,000
|
|
Non-cash purchase consideration for acquisition – fair value of NMM’s 50% share of APAACO
|
|
—
|
|
|
—
|
|
|
5,129,000
|
|
Non-cash purchase consideration for acquisition – acceleration of unvested stock compensation
|
|
—
|
|
|
—
|
|
|
187,333
|
|
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total amounts of cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Cash and cash equivalents
|
$
|
103,189,328
|
|
|
$
|
106,891,503
|
|
|
$
|
99,749,199
|
|
Restricted cash – long-term - letters of credit
|
746,104
|
|
|
745,470
|
|
|
745,235
|
|
Restricted cash – short-term
|
75,000
|
|
|
—
|
|
|
18,005,661
|
|
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows
|
$
|
104,010,432
|
|
|
$
|
107,636,973
|
|
|
$
|
118,500,095
|
|
See accompanying notes to consolidated financial statements.
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
|
|
1.
|
Description of Business
|
Apollo Medical Holdings, Inc. (“ApolloMed”) entered into an Agreement and Plan of Merger dated as of December 21, 2016 (as amended on March 30, 2017 and October 17, 2017) (the “Merger Agreement”) with Apollo Acquisition Corp., a California corporation and wholly-owned subsidiary of ApolloMed, (“Merger Subsidiary”), Network Medical Management, Inc. (“NMM”), and Kenneth Sim, M.D., in his capacity as the representative of the shareholders of NMM, pursuant to which Merger Subsidiary merged with and into NMM, with NMM as the surviving corporation (the “Merger”). The Merger closed and became effective on December 8, 2017 (the “Closing”) (see Note 3). As a result of the Merger, NMM is now a wholly-owned subsidiary of ApolloMed and the former NMM shareholders own a majority of the issued and outstanding common stock of ApolloMed and control of the board of directors of ApolloMed. Effective as of the Closing, ApolloMed’s board of directors approved a change in ApolloMed’s fiscal year end from March 31 to December 31 to correspond with NMM’s fiscal year end prior to the Merger.
The combined company, following the Merger, together with its affiliated physician groups and consolidated entities (collectively, the “Company”) is a physician-centric integrated population health management company working to provide coordinated, outcomes-based medical care in a cost-effective manner and to patients in California, the majority of whom are covered by private or public insurance such as Medicare, Medicaid and health maintenance organization (“HMO”) plans, with a portion of the Company’s revenue coming from non-insured patients. The Company provides care coordination services to each major constituent of the healthcare delivery system, including patients, families, primary care physicians, specialists, acute care hospitals, alternative sites of inpatient care, physician groups and health plans. The Company’s physician network consists of primary care physicians, specialist physicians and hospitalists. The Company operates primarily through the following subsidiaries of ApolloMed: NMM, Apollo Medical Management, Inc. (“AMM”), APA ACO, Inc. (“APAACO”) and Apollo Care Connect, Inc. (“Apollo Care Connect”), and their consolidated entities.
NMM was formed in 1994 as a management service organization (“MSO”) for the purposes of providing management services to medical companies and independent practice associations (“IPAs”). The management services cover primarily billing, collection, accounting, administrative, quality assurance, marketing, compliance and education.
Allied Physicians of California IPA, a Professional Medical Corporation d.b.a. Allied Pacific of California (“APC”) was incorporated on August 17, 1992 for the purpose of arranging health care services as an IPA. APC has contracts with various HMOs or licensed health care service plans as defined in the California Knox-Keene Health Care Service Plan Act of 1975. Each HMO negotiates a fixed amount per member per month (“PMPM”) that is to be paid to APC. In return, APC arranges for the delivery of health care services by contracting with physicians or professional medical corporations for primary care and specialty care services. APC assumes the financial risk of the cost of delivering health care services in excess of the fixed amounts received. Some of the risk is transferred to the contracted physicians or professional corporations. The risk is also minimized by stop-loss provisions in contracts with HMOs.
On July 1, 1999, APC entered into an amended and restated management and administrative services agreement with NMM (initial management services agreement was entered into in 1997) for an initial fixed term of 30 years. In accordance with relevant accounting guidance, APC is determined to be a VIE as NMM is the primary beneficiary with the ability to direct the activities that most significantly affect APC’s economic performance through its majority representation of the APC Joint Planning Board. Accordingly, APC is consolidated by NMM.
AP-AMH Medical Corporation (“AP-AMH”) was formed on May 7, 2019 as a designated shareholder professional corporation. Dr. Thomas Lam, a shareholder, and the Chief Executive Officer and Chief Financial Officer of APC and Co-Chief Executive Officer of ApolloMed, is the sole shareholder of AP-AMH. ApolloMed makes all the decisions on behalf of AP-AMH and funds and receives all the distributions from its operations. ApolloMed has the right to receive benefits from the operations of AP-AMH and has the option, but not the obligation, to cover its losses. AP-AMH's sole function and only activity is to act as the nominee shareholder for ApolloMed's investments in APC. Therefore, AP-AMH is controlled and consolidated by ApolloMed as the primary beneficiary of this variable interest entity (“VIE”).
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
On September 11, 2019, ApolloMed completed the following series of transactions with its affiliates, AP-AMH and APC:
|
|
1.
|
The Company loaned AP-AMH $545.0 million pursuant to a ten-year secured loan agreement. The loan bears interest at a rate of 10% per annum simple interest, is not prepayable (except in certain limited circumstances), requires quarterly payments of interest only in arrears, and is secured by a first priority security interest in all of AP-AMH's assets, including the shares of APC Series A Preferred Stock to be purchased by AP-AMH. To the extent that AP-AMH is unable to make any interest payment when due because it has received dividends on the APC Series A Preferred Stock insufficient to pay in full such interest payment, then the outstanding principal amount of the loan will be increased by the amount of any such accrued but unpaid interest, and any such increased principal amounts will bear interest at the rate of 10.75% per annum simple interest.
|
|
|
2.
|
AP-AMH purchased 1,000,000 shares of APC Series A Preferred Stock for aggregate consideration of $545.0 million in a private placement. Under the terms of the APC Certificate of Determination of Preferences of Series A Preferred Stock (the "Certificate of Determination"), AP-AMH is entitled to receive preferential, cumulative dividends that accrue on a daily basis and that are equal to the sum of (i) APC's net income from Healthcare Services (as defined in the Certificate of Determination), plus (ii) any dividends received by APC from certain of APC's affiliated entities, less (iii) any Retained Amounts (as defined in the Certificate of Determination). During the year ended December 31, 2019, APC distributed $8.9 million to ApolloMed as preferred returns.
|
|
|
3.
|
APC purchased 15,015,015 shares of the Company's common stock for total consideration of $300.0 million in private placement. In connection therewith, the Company granted APC certain registration rights with respect to the Company's common stock that APC purchased, and APC agreed that APC votes in excess of 9.99% of the Company's then outstanding shares will be voted by proxy given to the Company's management, and that those proxy holders will cast the excess votes in the same proportion as all other votes cast on any specific proposal coming before the Company's stockholders.
|
|
|
4.
|
The Company licensed to AP-AMH the right to use certain tradenames for certain specified purposes for a fee equal to a percentage of the aggregate gross revenues of AP-AMH. The license fee is payable out of any Series A Preferred Stock dividends received by AP-AMH from APC.
|
|
|
5.
|
Through its subsidiary, NMM, the Company agreed to provide certain administrative services to AP-AMH for a fee equal to a percentage of the aggregate gross revenues of AP-AMH. The administrative fee also is payable out of any APC Series A Preferred Stock dividends received by AP-AMH from APC.
|
As of a result of the transaction, APC's ownership in ApolloMed increased to 32.50% at December 31, 2019 from 4.82% at December 31, 2018.
Concourse Diagnostic Surgery Center, LLC (“CDSC”) was formed on March 25, 2010 in the state of California. CDSC is an ambulatory surgery center in City of Industry, California, is organized by a group of highly qualified physicians, and the surgical center utilizes some of the most advanced equipment in Eastern Los Angeles County and San Gabriel Valley. The facility is Medicare Certified and accredited by the Accreditation Association for Ambulatory Healthcare, Inc. As of December 31, 2019 APC's ownership percentage in CDSC’s capital stock was 45.01%. CDSC is consolidated as a VIE by APC as it was determined that APC has a controlling financial interest in CDSC and is the primary beneficiary of CDSC.
APC-LSMA Designated Shareholder Medical Corporation ("APC-LSMA") was formed on October 15, 2012 as a designated shareholder professional corporation. Dr. Thomas Lam, a shareholder and the Chief Executive Officer and Chief Financial Officer of APC and Co-Chief Executive Officer of ApolloMed, is a nominee shareholder of APC-LSMA. APC makes all investment decisions on behalf of APC-LSMA, funds all investments and receives all distributions from the investments. APC has the obligation to absorb losses and right to receive benefits from all investments made by APC-LSMA. APC-LSMA’s sole function is to act as the nominee shareholder for APC in other California medical professional corporations. Therefore, APC-LSMA is controlled and consolidated by APC as the primary beneficiary of this VIE. The only activity of APC-LSMA is to hold the investments in medical corporations, including the IPA lines of business of LaSalle Medical Associates (“LMA”), Pacific Medical Imaging and Oncology Center, Inc. (“PMIOC”), Diagnostic Medical Group (“DMG”) and AHMC International Cancer Center, a Medical Corporation (“ICC”). APC-LSMA also holds a 100% ownership interest in Maverick Medical Group, Inc. (“MMG”), Alpha Care Medical Group, Inc. (“Alpha Care”), Accountable Health Care IPA, a Professional Medical Corporation ("Accountable Health Care"), and AMG, a Professional Medical Corporation ("AMG").
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
Alpha Care, an IPA, was acquired 100% by APC-LSMA on May 31, 2019 for an aggregate purchase price of $45.1 million in cash, has been operating in California since 1993 and is a risk bearing organization engaged in providing professional services under capitation arrangements with its contracted health plans through a provider network consisting of primary care and specialty care physicians. Alpha Care specializes in delivering high-quality healthcare to over 174,000 enrollees, as of December 31, 2019, and focuses on Medi-Cal/Medicaid, Commercial, Medicare and Dual Eligible members in the Riverside and San Bernardino counties of Southern California (see Note 3).
Accountable Health Care is a California based IPA that has served the local community in the greater Los Angeles County area through a network of physicians and health care providers for more than 20 years. Accountable Health Care currently has a network of over 400 primary care physicians and 700 specialty care physicians, and five community and regional hospital medical centers that provide quality health care services to more than 84,000 members of three federally qualified health plans and multiple product lines, including Medi-Cal, Commercial, Medicare and the California Healthy Families program. On August 30, 2019, APC and APC-LSMA acquired the remaining outstanding shares of capital stock they did not already own (comprising 75%) for $7.3 million in cash (see Note 3 and Note 6).
AMG is a network of family practice clinics operating in three main locations in Southern California. AMG provides professional and post-acute care services to Medicare, Medi-Cal/Medicaid, and Commercial patients through its networks of doctors and nurse practitioners. On September 10, 2019, APC-LSMA acquired 100% of the aggregate issued and outstanding shares of capital stock of AMG for $1.2 million in cash and $0.4 million of APC common stock (see Note 3).
Universal Care Acquisition Partners, LLC (“UCAP”), a 100% owned subsidiary of APC, was formed on June 4, 2014, for the purpose of holding the investment in Universal Care, Inc. (“UCI”).
APAACO, a wholly-owned subsidiary of ApolloMed, has participated in the next generation accountable care organization (“NGACO") model of the Centers for Medicare & Medicaid Services (“CMS”) since January 2017. The NGACO Model is a new CMS program that allows provider groups to assume higher levels of financial risk and potentially achieve a higher reward from participating in this new attribution-based risk sharing model. In addition to APAACO, NMM and AMM previously operated three accountable care organizations (“ACOs”) that participated in the Medicare Shared Savings Program (“MSSP”), the goal of which was to improve the quality of patient care and outcomes through more efficient and coordinated approach among providers. MSSP revenues are uncertain, and, if such amounts are payable by CMS, they will be paid on an annual basis significantly after the time earned, and are contingent on various factors, including achievement of the minimum savings rate for the relevant period. Such payments are earned and made on an “all or nothing” basis.
AMM, a wholly-owned subsidiary of ApolloMed, manages affiliated medical groups, consisting of ApolloMed Hospitalists (“AMH”), a hospitalist company and Southern California Heart Centers (“SCHC”). AMH provides hospitalist, intensivist and physician advisor services. SCHC is a specialty clinic that focuses on cardiac care and diagnostic testing.
Apollo Care Connect, a wholly-owned subsidiary of ApolloMed, provides a cloud and mobile-based population health management platform that includes digital care plans, a case management module, connectivity with multiple healthcare tracking devices and the ability to integrate with multiple electronic health records to capture clinical data.
|
|
2.
|
Basis of Presentation and Summary of Significant Accounting Policies
|
Basis of Presentation
The accompanying consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Principles of Consolidation
The consolidated balance sheets as of December 31, 2019 and 2018 and consolidated statements of income for the years ended December 31, 2019, 2018 and 2017 include the accounts of ApolloMed, its consolidated subsidiaries NMM, AMM, APAACO, and Apollo Care Connect, including ApolloMed's consolidated VIE, AP-AMH, NMM’s subsidiaries, APCN-ACO and AP-ACO, NMM’s consolidated VIE, APC, APC’s subsidiary, UCAP, and APC’s consolidated VIEs, CDSC, APC-LSMA, ICC, and APC-LSMA's consolidated subsidiaries Alpha Care and Accountable Health Care.
All material intercompany balances and transactions have been eliminated in consolidation.
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
Use of Estimates
The preparation of the consolidated financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant items subject to such estimates and assumptions include collectability of receivables, recoverability of long-lived and intangible assets, business combination and goodwill valuation and impairment, accrual of medical liabilities (including historical medical loss ratios (“MLR”), and incurred, but not reported (“IBNR”) claims), determination of full-risk revenue and receivables (including constraints and completion factors), income taxes and valuation of share-based compensation. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ materially from those estimates and assumptions.
Variable Interest Entities
On an ongoing basis, as circumstances indicate the need for reconsideration, the Company evaluates each legal entity that is not wholly owned by it in accordance with the consolidation guidance. The evaluation considers all of the Company’s variable interests, including equity ownership, as well as management services agreements (“MSA”). To fall within the scope of the consolidation guidance, an entity must meet both of the following criteria:
|
|
•
|
The entity has a legal structure that has been established to conduct business activities and to hold assets; such entity can be in the form of a partnership, limited liability company, or corporation, among others; and
|
|
|
•
|
The Company has a variable interest in the legal entity – i.e., variable interests that are contractual, such as equity ownership, or other financial interests that change with changes in the fair value of the entity’s net assets.
|
If an entity does not meet both criteria above, the Company applies other accounting guidance, such as the cost or equity method of accounting. If an entity does meet both criteria above, the Company evaluates such entity for consolidation under either the variable interest model if the legal entity meets any of the following characteristics to qualify as a VIE, or under the voting model for all other legal entities that are not VIEs.
A legal entity is determined to be a VIE if it has any of the following three characteristics:
|
|
•
|
The entity does not have sufficient equity to finance its activities without additional subordinated financial support;
|
|
|
•
|
The entity is established with non-substantive voting rights (i.e., where the entity deprives the majority economic interest holder(s) of voting rights); or
|
|
|
•
|
The equity holders, as a group, lack the characteristics of a controlling financial interest. Equity holders meet this criterion if they lack any of the following:
|
|
|
•
|
The power, through voting rights or similar rights, to direct the activities of the entity that most significantly influence the entity’s economic performance, as evidenced by:
|
|
|
•
|
Substantive participating rights in day-to-day management of the entity’s activities; or
|
|
|
•
|
Substantive kick-out rights over the party responsible for significant decisions;
|
|
|
•
|
The obligation to absorb the entity’s expected losses; or
|
|
|
•
|
The right to receive the entity’s expected residual returns.
|
If the Company concludes that any of the three characteristics of a VIE are met, the Company will conclude that the entity is a VIE and evaluate it for consolidation under the variable interest model.
Variable interest model
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
If an entity is determined to be a VIE, the Company evaluates whether the Company is the primary beneficiary. The primary beneficiary analysis is a qualitative analysis based on power and economics. The Company consolidates a VIE if both power and benefits belongs to the Company – that is, the Company (i) has the power to direct the activities of a VIE that most significantly influence the VIE’s economic performance (power), and (ii) has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE (benefits). The Company consolidates VIEs whenever it is determined that the Company is the primary beneficiary. Refer Note 18 – “Variable Interest Entities (VIEs)” to the consolidated financial statements for information on the Company’s consolidated VIE. If there are variable interests in a VIE but the Company is not the primary beneficiary, the Company may account for the investment using the equity method of accounting, refer to Note 6 – “Investments in Other Entities” for entities that qualify as VIEs but the Company is not the primary beneficiary.
Business Combinations
The Company uses the acquisition method of accounting for all business combinations, which requires assets and liabilities of the acquiree to be recorded at fair value, to measure the fair value of the consideration transferred, including contingent consideration, to be determined on the acquisition date, and to account for acquisition related costs separately from the business combination.
Reportable Segments
The Company operates under one reportable segment, the healthcare delivery segment, and implements and operates innovative health care models to create a patient-centered, physician-centric experience. The Company reports its consolidated financial statements in the aggregate, including all activities in one reportable segment.
Reclassifications
Certain amounts disclosed in prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no material effect on net income, cash flows or total assets.
Cash and Cash Equivalents
Cash and cash equivalents primarily consist of money market funds and certificates of deposit. The Company considers all highly liquid investments that are both readily convertible into known amounts of cash and mature within ninety days from their date of purchase to be cash equivalents.
The Company maintains its cash in deposit accounts with several banks, which at times may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits. The Company believes it is not exposed to any significant credit risk on its cash and cash equivalents. As of December 31, 2019 and 2018, the Company’s deposit accounts with banks exceeded the FDIC’s insured limit by approximately $226.5 million, which included approximately $116.5 million in certificates of deposit that was treated as marketable securities (see section below) and $118.6 million, respectively. The Company has not experienced any losses to date and performs ongoing evaluations of these financial institutions to limit the Company’s concentration of risk exposure.
Restricted Cash
Restricted cash consists of cash held as collateral to secure standby letters of credits as required by certain contracts. As of December 31, 2019 and December 31, 2018, there was $0.1 million and $0, respectively, included in restricted cash short-term in the accompanying consolidated balance sheets.
Investments in Marketable Securities
The appropriate classification of investments is determined at the time of purchase and such designation is reevaluated at each balance sheet date. As of December 31, 2019 and 2018, marketable securities in the amount of approximately $116.5 million and $1.1 million, consist of certificates of deposit with various financial institutions with maturity dates from four months to twenty-four months (see fair value measurements of financial instruments below). Investments in certificates of deposits are classified as Level 1 investments in the fair value hierarchy.
Receivables and Receivables – Related Parties
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
The Company’s receivables are comprised of accounts receivable, capitation and claims receivable, risk pool settlements and incentive receivables, management fee income and other receivables. Accounts receivable are recorded and stated at the amount expected to be collected.
The Company’s receivables – related parties are comprised of risk pool settlements and incentive receivables, management fee income and other receivables. Receivables – related parties are recorded and stated at the amount expected to be collected.
Capitation and claims receivable relate to each health plan’s capitation, which is received by the Company in the month following the month of service. Risk pool settlements and incentive receivables mainly consist of the Company’s full risk pool receivable that is recorded quarterly based on reports received from our hospital partners and management’s estimate of the Company’s portion of the estimated risk pool surplus for open performance years. Settlement of risk pool surplus or deficits occurs approximately 18 months after the risk pool performance year is completed. Other receivables include fee-for-services (“FFS”) reimbursement for patient care, claims recovery, certain expense reimbursements, and stop loss insurance premium reimbursements.
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. The Company also regularly analyzes the ultimate collectability of accounts receivable after certain stages of the collection cycle using a look-back analysis to determine the amount of receivables subsequently collected and adjustments are recorded when necessary. Reserves are recorded primarily on a specific identification basis.
Amounts are recorded as a receivable when the Company is able to determine amounts receivable under these contracts and/or agreements based on information provided and collection is reasonably likely to occur. The Company continuously monitors its collections of receivables and its policy is to write off receivables when they are determined to be uncollectible. As of December 31, 2019 and 2018, the Company's allowance for doubtful accounts were approximately $2.9 million and approximately $4.3 million, respectively.
Concentrations of Risks
The Company disaggregates revenue from contracts by service type and payor type. This level of detail provides useful information pertaining to how the Company generates revenue by significant revenue stream and by type of direct contracts. The consolidated statements of income present disaggregated revenue by service type. All of the revenues are generated from healthcare delivery in the state of California. The following table presents disaggregated revenue generated by each payor type:
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Years Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Commercial
|
$107,339,950
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|
$113,000,115
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|
$116,947,692
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Medicare
|
226,001,659
|
|
|
226,353,120
|
|
|
120,448,509
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|
Medicaid
|
192,595,964
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|
|
134,904,142
|
|
|
92,590,894
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|
Other third parties
|
34,680,524
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|
|
45,650,375
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|
|
26,368,835
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|
Revenue
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$
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560,618,097
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|
|
$
|
519,907,752
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|
|
$
|
356,355,930
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|
The Company had major payors that contributed the following percentages of net revenue:
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|
|
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|
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|
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Years Ended December 31,
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2019
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2018
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2017
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Payor A
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13.6
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%
|
|
14.6
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%
|
|
14.1
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%
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Payor B
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13.4
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%
|
|
18.7
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%
|
|
18.1
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%
|
Payor C
|
*%
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|
|
*%
|
|
|
11.1
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%
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Payor D
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*%
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|
|
14.1
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%
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|
11.3
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%
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Payor E
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11.7
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%
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|
14.1
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%
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*%
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Payor F
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12.9
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%
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|
*%
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|
|
*%
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|
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
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*
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Less than 10% of total net revenues
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The Company had major payors that contributed to the following percentages of gross receivables:
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As of December 31,
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2019
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2018
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Payor G
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30.4
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%
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|
34.1
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%
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Payor H
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|
36.0
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%
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|
42.2
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%
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Land, Property and Equipment, Net
Land is carried at cost and is not depreciated as it is considered to have an infinite useful life.
Property and equipment, including leasehold improvements, are carried at cost less accumulated depreciation and amortization. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets ranging from three to ten years. Leasehold improvements are amortized on a straight-line basis over the shorter of the terms of the respective leases or the expected useful lives of those improvements.
Maintenance and repairs are charged to expense as incurred. Upon sale or retirement, the asset cost and related accumulated depreciation and amortization is removed from the accounts, and any related gain or loss is included in the determination of consolidated net income.
Fair Value Measurements of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, restricted cash, investment in marketable securities, receivables, loans receivable – related parties, accounts payable, certain accrued expenses, capital lease obligations, bank loan, and current portion of long-term debt. The carrying values of the financial instruments classified as current in the accompanying consolidated balance sheets are considered to be at their fair values, due to the short maturity of these instruments. The carrying amounts of the loans receivable – related parties, finance lease liabilities, net of current portion, operating lease liabilities, net of current portion, line of credit – related party, and long-term debt approximate fair value as they bear interest at rates that approximate current market rates for debt with similar maturities and credit quality.
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurement (“ASC 820”), applies to all financial assets and financial liabilities that are measured and reported on a fair value basis and requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. ASC 820 establishes a fair value hierarchy for disclosures of the inputs to valuations used to measure fair value.
This hierarchy prioritizes the inputs into three broad levels as follows:
Level 1 —Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date.
Level 2 —Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates and yield curves), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 —Unobservable inputs that reflect assumptions about what market participants would use in pricing the asset or liability. These inputs would be based on the best information available, including the Company’s own data.
The carrying amounts and fair values of the Company’s financial instruments as of December 31, 2019 are presented below:
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
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Fair Value Measurements
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|
Level 1
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|
Level 2
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Level 3
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Total
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Assets
|
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|
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Money market accounts*
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$
|
50,731,008
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|
|
$
|
—
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|
|
$
|
—
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|
|
$
|
50,731,008
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|
Marketable securities – certificates of deposit
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|
116,468,555
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|
|
—
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|
|
—
|
|
|
116,468,555
|
|
Marketable securities – equity securities
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|
70,118
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|
|
—
|
|
|
—
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|
|
70,118
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|
|
|
|
|
|
|
|
|
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Total
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|
$
|
167,269,681
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|
|
$
|
—
|
|
|
$
|
—
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|
|
$
|
167,269,681
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|
The carrying amounts and fair values of the Company’s financial instruments as of December 31, 2018 are presented below:
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|
|
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|
|
Fair Value Measurements
|
|
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|
|
Level 1
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|
Level 2
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Level 3
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Total
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Assets
|
|
|
|
|
|
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|
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Money market accounts*
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$
|
85,500,745
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|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
85,500,745
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|
Marketable securities – certificates of deposit
|
|
1,066,103
|
|
|
—
|
|
|
—
|
|
|
1,066,103
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|
Marketable securities – equity securities
|
|
60,999
|
|
|
—
|
|
|
—
|
|
|
60,999
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|
|
|
|
|
|
|
|
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Total
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|
$
|
86,627,847
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|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
86,627,847
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|
|
|
*
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Included in cash and cash equivalents
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There were no Level 2 or Level 3 inputs measured on a recurring or non-recurring basis for the years ended December 31, 2019 and 2018.
There have been no changes in Level 1, Level 2, or Level 3 classifications and no changes in valuation techniques for these assets for the year ended December 31, 2019.
Intangible Assets and Long-Lived Assets
Intangible assets with finite lives include network/payor relationships, management contracts and member relationships and are stated at cost, less accumulated amortization and impairment losses. These intangible assets are amortized on the accelerated method using the discounted cash flow rate.
Intangible assets with finite lives also include a patient management platform and tradename/trademarks whose valuations were determined using the cost to recreate method and the relief from royalty method, respectively. These assets are stated at cost, less accumulated amortization and impairment losses and is amortized using the straight-line method.
Finite-lived intangibles and long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the expected future cash flows from the use of such assets (undiscounted and without interest charges) are less than the carrying value, a write-down would be recorded to reduce the carrying value of the asset to its estimated fair value. Fair value is determined based on appropriate valuation techniques. The Company determined that there was no impairment of its finite-lived intangible or long-lived assets during the year ended December 31, 2019 and 2018. For the year ended December 31, 2017 the Company wrote off the remaining carrying value of the intangible assets of APCN-ACO and AP-ACO of $2.4 million (included in impairment of goodwill and intangible assets in the accompanying consolidated statement of income), as these member relationships are no longer utilized by an entity controlled by NMM and therefore do not provide any future economic benefit.
Goodwill and Indefinite-Lived Intangible Assets
Under FASB ASC 350, Intangibles – Goodwill and Other (“ASC 350”), goodwill and indefinite-lived intangible assets are reviewed at least annually for impairment.
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
At least annually, at the Company’s fiscal year end, or sooner if events or changes in circumstances indicate that an impairment has occurred, the Company performs a qualitative assessment to determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount as a basis for determining whether it is necessary to complete quantitative impairment assessments for each of the Company’s three main reporting units (1) management services, (2) IPA, and (3) ACO. The Company is required to perform a quantitative goodwill impairment test only if the conclusion from the qualitative assessment is that it is more likely than not that a reporting unit’s fair value is less than the carrying value of its assets. Should this be the case, a quantitative analysis is performed to identify whether a potential impairment exists by comparing the estimated fair values of the reporting units with their respective carrying values, including goodwill.
The impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. If the carrying value of a reporting unit exceeds the reporting unit's fair value, an impairment loss is recognized for the difference. The fair values of goodwill are determined using valuation techniques based on estimates, judgments and assumptions management believes are appropriate in the circumstances.
At least annually, indefinite-lived intangible assets are tested for impairment. Impairment for intangible assets with indefinite lives exists if the carrying value of the intangible asset exceeds its fair value. The fair values of indefinite-lived intangible assets are determined using valuation techniques based on estimates, judgments and assumptions management believes are appropriate in the circumstances.
The Company wrote off indefinite-lived intangible assets of approximately $2.0 million related to Medicare licenses, acquired as part of the Merger, and approximately $3.8 million of goodwill related to MMG during the years ended December 31, 2019 and December 31, 2018, respectively, as the Company will no longer utilized these assets and therefore these assets will not provide any future economic benefits. The write-offs are included in impairment of goodwill and intangible assets in the accompanying consolidated statements of income (refer to Note 3 and 5). There was no impairment of indefinite-lived intangible assets for the year ended December 31, 2017.
Investments in Other Entities – Equity Method
Equity Method
The Company accounts for certain investments using the equity method of accounting when it is determined that the investment provides the Company with the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if the Company has an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investee’s board of directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the investment, originally recorded at cost, is adjusted to recognize the Company’s share of net earnings or losses of the investee and is recognized in the accompanying consolidated statements of income under “Loss from equity method investments” and also is adjusted by contributions to and distributions from the investee. Equity method investments are subject to impairment evaluation. During the years ended December 31, 2019, the Company recognized an impairment loss of approximately $0.3 million related to its investment in PASC as the Company does not believe it will recover its investment balance. Such impairment loss is included in loss from equity method investments in the accompanying consolidated statements of income. There was no impairment loss recorded related to equity method investments for the years ended December 31, 2018 and 2017.
Medical Liabilities
APC, Alpha Care, Accountable Health Care, APAACO and MMG are responsible for integrated care that the associated physicians and contracted hospitals provide to its enrollees. APC, Alpha Care, Accountable Health Care, APAACO and MMG provide integrated care to HMOs, Medicare and Medi-Cal enrollees through a network of contracted providers under sub-capitation and direct patient service arrangements. Medical costs for professional and institutional services rendered by contracted providers are recorded as cost of services expenses in the accompanying consolidated statements of income.
An estimate of amounts due to contracted physicians, hospitals, and other professional providers is included in medical liabilities in the accompanying consolidated balance sheets. Medical liabilities include claims reported as of the balance sheet date and estimated IBNR claims. Such estimates are developed using actuarial methods and are based on numerous variables, including the utilization of health care services, historical payment patterns, cost trends, product mix, seasonality, changes in membership, and other factors. The estimation methods and the resulting reserves are periodically reviewed and updated. Many of the medical contracts are complex in nature and may be subject to differing interpretations regarding amounts due for the provision of various
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
services. Such differing interpretations may not come to light until a substantial period of time has passed following the contract implementation.
During the year ended December 31, 2017, as APAACO’s NGACO program was new and there was insufficient claims history, the medical liabilities for the NGACO program were estimated and recorded at 100% of the revenue less actual claims processed for or paid to in-network providers. The Company was notified by CMS that under the NGACO alternative payment arrangement the Company was paid an excess amount of approximately $34.5 million and $7.8 million related to the first performance year (January 1, 2017 through December 31, 2017) and second performance year (February 1, 2018 through December 31, 2018) with 18 month claims run outs, respectively. The excess amount for the first performance year was paid by the Company on December 4, 2018, the excess for the second performance year will be paid in February 2020 and have been accrued in accounts payable and accrued expense account in the accompanying consolidated balance sheet as of December 31, 2019 and 2018. The excess amount related to the first performance year was previously accrued as part of the medical liabilities accrual on December 31, 2017. In 2018 and 2019, the Company had sufficient claims history and was able to estimate such IBNR amount using the aforementioned method.
Revenue Recognition
The Company receives payments from the following sources for services rendered: (i) commercial insurers; (ii) the federal government under the Medicare program administered by CMS; (iii) state governments under the Medicaid and other programs; (iv) other third party payors (e.g., hospitals and IPAs); and (v) individual patients and clients.
On January 1, 2018, the Company adopted the new revenue recognition standard Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)”, using the modified retrospective method. Modified retrospective adoption requires entities to apply the standard retrospectively to the most current period presented in the financial statements, requiring the cumulative effect of the retrospective application as an adjustment to the opening balance of retained earnings and noncontrolling interests at the date of initial application. Revenue from substantially all of the Company’s contracts with customers continues to be recognized over time as services are rendered. The Company has elected to apply the modified retrospective method only to contracts not completed as of January 1, 2018. The 2017 comparative information has not been restated and continues to be reported under the accounting standards in effect for that period (“ASC 605”) (See Note 16).
Under the new revenue standard, the Company has elected to apply the following practical expedients and optional exemptions:
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•
|
Recognize incremental costs of obtaining a contract with amortization periods of one year or less as expense when incurred. These costs are recorded within general and administrative expenses.
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|
•
|
Recognize revenue in the amount of consideration to which the Company has a right to invoice the customer if that amount corresponds directly with the value to the customer of the Company’s services completed to date.
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|
|
•
|
Exemptions from disclosing the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts for which revenue is recognized in the amount of consideration to which the Company has a right to invoice for services performed, and (iii) contracts for which variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation.
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|
|
•
|
Use a portfolio approach for the fee-for-service (FFS) revenue stream to group contracts with similar characteristics and analyze historical cash collections trends.
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|
•
|
No adjustment is made for the effects of a significant financing component as the period between the time of service and time of payment is typically one year or less.
|
Nature of Services and Revenue Streams
Revenue primarily consists of capitation revenue, risk pool settlements and incentives, NGACO All-Inclusive Population-Based Payments (“AIPBP”) revenue, management fee income, and FFS revenue. Revenue is recorded in the period in which services are rendered or the period in which the Company is obligated to provide services. The form of billing and related risk of collection for such services may vary by type of revenue and the customer. The following is a summary of the principal forms of the Company’s billing arrangements and how revenue is recognized for each.
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
Capitation, net
Managed care revenues of the Company consist primarily of capitated fees for medical services provided by the Company under a capitated arrangement directly made with various managed care providers including HMOs. Capitation revenue is typically prepaid monthly to the Company based on the number of enrollees selecting the Company as their healthcare provider. Under both ASC 605 and ASC 606, capitation revenue is recognized in the month in which the Company is obligated to provide services to plan enrollees under contracts with various health plans. Minor ongoing adjustments to prior months’ capitation, primarily arising from contracted HMOs finalizing their monthly patient eligibility data for additions or subtractions of enrollees, are recognized in the month they are communicated to the Company. Additionally, Medicare pays capitation using a “Risk Adjustment” model, which compensates managed care organizations and providers based on the health status (acuity) of each individual enrollee. Health plans and providers with higher acuity enrollees will receive more and those with lower acuity enrollees will receive less. Under Risk Adjustment, capitation is determined based on health severity, measured using patient encounter data. Capitation is paid on a monthly basis based on data submitted for the enrollee for the preceding year and is adjusted in subsequent periods after the final data is compiled. Positive or negative capitation adjustments are made for Medicare enrollees with conditions requiring more or less healthcare services than assumed in the interim payments. Since the Company cannot reliably predict these adjustments, periodic changes in capitation amounts earned as a result of Risk Adjustment are recognized when those changes are communicated by the health plans to the Company.
PMPM managed care contracts generally have a term of one year or longer. All managed care contracts have a single performance obligation that constitutes a series for the provision of managed healthcare services for a population of enrolled members for the duration of the contract. The transaction price for PMPM contracts is variable as it primarily includes PMPM fees associated with unspecified membership that fluctuates throughout the contract. In certain contracts, PMPM fees also include adjustments for items such as performance incentives, performance guarantees and risk shares. The Company generally estimates the transaction price using the most likely methodology and amounts are only included in the net transaction price to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved. The majority of the Company’s net PMPM transaction price relates specifically to the Company’s efforts to transfer the service for a distinct increment of the series (e.g. day or month) and is recognized as revenue in the month in which members are entitled to service.
Risk Pool Settlements and Incentives
APC enters into full risk capitation arrangements with certain health plans and local hospitals, which are administered by a third party, where the hospital is responsible for providing, arranging and paying for institutional risk and APC is responsible for providing, arranging and paying for professional risk. Under a full risk pool sharing agreement, APC generally receives a percentage of the net surplus from the affiliated hospital’s risk pools with HMOs after deductions for the affiliated hospitals costs. Advance settlement payments are typically made quarterly in arrears if there is a surplus. Under ASC 605, the Company has historically recognized revenue from risk pool settlements under arrangements with health plans and hospitals when such amounts are known as the related revenue amounts were not deemed to be fixed and determinable until that time. Under ASC 606, risk pool settlements under arrangements with health plans and hospitals are recognized using the most likely amount methodology and amounts are only included in revenue to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved. The assumptions for historical MLR, IBNR completion factor and constraint percentages were used by management in applying the most likely amount methodology.
Under capitated arrangements with certain HMOs APC participates in one or more shared risk arrangements relating to the provision of institutional services to enrollees (shared risk arrangements) and thus can earn additional revenue or incur losses based upon the enrollee utilization of institutional services. Shared risk capitation arrangements are entered into with certain health plans, which are administered by the health plan, where APC is responsible for rendering professional services, but the health plan does not enter into a capitation arrangement with a hospital and therefore the health plan retains the institutional risk. Shared risk deficits, if any, are not payable until and unless (and only to the extent of any) risk sharing surpluses are generated. At the termination of the HMO contract, any accumulated deficit will be extinguished.
Under ASC 605, the Company has historically recognized revenue from risk pool settlements under arrangements with HMOs when such amounts are known. Under ASC 606, risk pool settlements under arrangements with HMOs are recognized, using the most likely methodology, and only included in revenue to the extent that it is probable that a significant reversal of cumulative revenue will not occur. Given the lack of access to the health plans’ data and control over the members assigned to APC, the adjustments and/or the withheld amounts are unpredictable and as such APC’s risk share revenue is deemed to be fully constrained until APC is notified of the amount by the health plan. Risk pools for the prior contract years are generally final settled in the third or fourth quarter of the following year.
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
In addition to risk-sharing revenues, the Company also receives incentives under “pay-for-performance” programs for quality medical care, based on various criteria. As an incentive to control enrollee utilization and to promote quality care, certain HMOs have designed quality incentive programs and commercial generic pharmacy incentive programs to compensate the Company for our efforts to improve the quality of services and efficient and effective use of pharmacy supplemental benefits provided to HMO members. The incentive programs track specific performance measures and calculate payments to the Company based on the performance measures. Under ASC 605, the Company has historically recognized incentives under “pay-for-performance” programs when such amounts are known as the related revenue amounts were not deemed to be fixed and determinable until that time. Under ASC 606, incentives under “pay-for-performance” programs are recognized using the most likely methodology. However, as the Company does not have sufficient insight from the health plans on the amount and timing of the shared risk pool and incentive payments these amounts are considered to be fully constrained and only recorded when such payments are known and/or received.
Generally, for the foregoing arrangements, the final settlement is dependent on each distinct day’s performance within the annual measurement period but cannot be allocated to specific days until the full measurement period has occurred and performance can be assessed. As such, this is a form of variable consideration estimated at contract inception and updated through the measurement period (i.e. the contract year), to the extent the risk of reversal does not exist and the consideration is not constrained.
NGACO AIPBP Revenue
APAACO and CMS entered into a Next Generation ACO Model Participation Agreement (the “Participation Agreement”) with an initial term of two performance years through December 31, 2018, which has been extended for another two renewal years.
For each performance year, the Company shall submit to CMS its selections for risk arrangement; the amount of the profit/loss cap; alternative payment mechanism; benefits enhancements, if any; and its decision regarding voluntary alignment under the NGACO Model. The Company must obtain CMS consent before voluntarily discontinuing any benefit enhancement during a performance year.
Under the NGACO Model, CMS aligns beneficiaries to the Company to manage (direct care and pay providers) based on a budgetary benchmark established with CMS. The Company is responsible for managing medical costs for these beneficiaries. The beneficiaries will receive services from physicians and other medical service providers that are both in-network and out-of-network. The Company receives capitation from CMS on a monthly basis to pay claims from in-network providers. The Company records such capitation received from CMS as revenue as the Company is primarily responsible and liable for managing the patient care and for satisfying provider obligations, is assuming the credit risk for the services provided by in-network providers through its arrangement with CMS, and has control of the funds, the services provided and the process by which the providers are ultimately paid. Claims from out-of-network providers are processed and paid by CMS and the Company’s shared savings or losses in managing the services provided by out-of-network providers are generally determined on an annual basis after reconciliation with CMS. Pursuant to the Company’s risk share agreement with CMS, the Company will be eligible to receive the savings or be liable for the deficit according to the budget established by CMS based on the Company’s efficiency or lack thereof, respectively, in managing how the beneficiaries aligned to the Company by CMS are served by in-network and out-of-network providers. The Company’s savings or losses on providing such services are both capped by CMS, and are subject to significant estimation risk, whereby payments can vary significantly depending upon certain patient characteristics and other variable factors. Accordingly, the Company recognizes such surplus or deficit upon substantial completion of reconciliation and determination of the amounts. Under both ASC 605 and ASC 606, the Company records NGACO capitation revenues monthly, as that is when the Company is obligated to provide services to its members. Excess, over claims paid plus an estimate for the related IBNR (see Note 9), monthly capitation received are deferred and recorded as a liability until actual claims are paid or incurred. CMS will determine if there were any excess capitation paid for the performance year and the excess is refunded to CMS.
For each performance year, CMS shall pay the Company in accordance with the alternative payment mechanism, if any, for which CMS has approved the Company; the risk arrangement for which the Company has been approved by CMS; and as otherwise provided in the Participation Agreement. Following the end of each performance year and at such other times as may be required under the Participation Agreement, CMS will issue a settlement report to the Company setting forth the amount of any shared savings or shared losses and the amount of other monies. If CMS owes the Company shared savings or other monies, CMS shall pay the Company in full within 30 days after the date on which the relevant settlement report is deemed final, except as provided in the Participation Agreement. If the Company owes CMS shared losses or other monies owed as a result of a final settlement, the Company shall pay CMS in full within 30 days after the relevant settlement report is deemed final. If the Company fails to pay the amounts due to CMS in full within 30 days after the date of a demand letter or settlement report, CMS shall assess simple interest on the unpaid balance at the rate applicable to other Medicare debts under current provisions of law and applicable
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
regulations. In addition, CMS and the U.S. Department of the Treasury may use any applicable debt collection tools available to collect any amounts owed by the Company.
The Company participates in the AIPBP track of the NGACO Model. Under the AIPBP track, CMS estimates the total annual expenditures for APAACO’s assigned patients and pays that projected amount to the Company in monthly installments, and the Company is responsible for all Part A and Part B costs for in-network participating providers and preferred providers contracted by the Company to provide services to the assigned patients.
As APAACO does not have sufficient insight into the financial performance of the shared risk pool with CMS because of unknown factors related to IBNR, risk adjustment factors, stop loss provisions, among other factors, an estimate cannot be developed. Due to these limitations, APAACO cannot determine the amount of surplus or deficit that will probably not be reversed in the future and therefore this shared risk pool revenue is considered fully constrained. The Company received $0.9 million and $5.9 million in risk pool savings, related to the 2018 and 2017 performance year, respectively, and have recognized it as revenue in risk pool settlements and incentives in the accompanying consolidated statements of income for the year ended December 31, 2019 and 2018, respectively.
In October 2017, CMS notified the Company that it would not be renewed for participation in the AIPBP mechanism of the NGACO Model for performance year 2018 due to certain alleged deficiencies in performance. The Company submitted a reconsideration request. In December 2017, the Company received the official decision on its reconsideration request that CMS reversed the prior decision against the Company’s continued participation in the AIPBP mechanism. As a result, beginning in February 2018, the Company was eligible to receive monthly AIPBP at a rate of approximately $7.3 million per month from CMS, which was reduced to $5.5 million per month beginning October 1, 2018. The Company will need to continue to comply with all terms and conditions in the Participation Agreement and various regulatory requirements to be eligible to participate in the AIPBP mechanism and/or NGACO Model. The Company continues to be eligible in receiving AIPBP under the NGACO Model for performance year 2019, with the effective date of the performance year beginning April 1, 2019. The monthly AIPBP received by the Company for performance year 2019 was approximately $8.3 million per month for the period from April 1, 2019 through August 30, 2019. Subsequently, CMS adjusted the AIPBP to approximately $3.7 million for the period starting September 1, 2019 based on CMS' updated estimate of total claims to be incurred. The Company has received approximately $56.1 million in total AIPBP for the year ended December 31, 2019 of which $56.1 million has been recognized as revenue. The Company also recorded assets of approximately $6.5 million related to recoverable claims paid during the year ended December 31, 2019 which will be administered following instructions from CMS, a receivable of $8.5 million related to IBNR incurred, $3.0 million related to final settlement of the 2017 performance year, and $0.9 million related to the Company's shared risk earnings for the 2018 performance year. These balances are included in “Other receivables” in the accompanying consolidated balance sheet.
Management Fee Income
Management fee income encompasses fees paid for management, physician advisory, healthcare staffing, administrative and other non-medical services provided by the Company to IPAs, hospitals and other healthcare providers. Such fees may be in the form of billings at agreed-upon hourly rates, percentages of revenue or fee collections, or amounts fixed on a monthly, quarterly or annual basis. The revenue may include variable arrangements measuring factors such as hours staffed, patient visits or collections per visit against benchmarks, and, in certain cases, may be subject to achieving quality metrics or fee collections. Under both ASC 605 and ASC 606, such variable supplemental revenues are recognized as revenue in the period when such amounts are determined to be fixed and therefore contractually obligated as payable by the customer under the terms of the respective agreement. The Company’s MSA revenue also includes revenue sharing payments from the Company’s partners based on their non-medical services.
The Company provides a significant service of integrating the services selected by the Company’s clients into one overall output for which the client has contracted. Therefore, such management contracts generally contain a single performance obligation. The nature of the Company’s performance obligation is to stand ready to provide services over the contractual period. Also, the Company’s performance obligation forms a series of distinct periods of time over which the Company stands ready to perform. The Company’s performance obligation is satisfied as the Company completes each period’s obligations.
Consideration from management contracts is variable in nature because the majority of the fees are generally based on revenue or collections, which can vary from period to period. The Company has control over pricing. Contractual fees are invoiced to the Company’s clients generally monthly and payment terms are typically due within 30 days. The variable consideration in the Company’s management contracts meets the criteria to be allocated to the distinct period of time to which it relates because (i) it
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
is due to the activities performed to satisfy the performance obligation during that period and (ii) it represents the consideration to which the Company expects to be entitled.
The Company’s management contracts generally have long terms (e.g., ten years), although they may be terminated earlier under the terms of the respective contracts. Since the remaining variable consideration will be allocated to a wholly unsatisfied promise that forms part of a single performance obligation recognized under the series guidance, the Company has applied the optional exemption to exclude disclosure of the allocation of the transaction price to remaining performance obligations.
Fee-for-Service Revenue
FFS revenue represents revenue earned under contracts in which the Company bills and collects the professional component of charges for medical services rendered by the Company’s contracted physicians and employed physicians. Under the FFS arrangements, the Company bills, and receive payments from, the hospitals and third-party payors for physician staffing and further bills patients or their third-party payors for patient care services provided. Under both ASC 605 and ASC 606, FFS revenue related to the patient care services is reported net of contractual allowances and policy discounts and are recognized in the period in which the services are rendered to specific patients. All services provided are expected to result in cash flows and are therefore reflected as net revenue in the financial statements. The recognition of net revenue (gross charges less contractual allowances) from such services is dependent on such factors as proper completion of medical charts following a patient visit, the forwarding of such charts to the Company’s billing center for medical coding and entering into the Company’s billing system and the verification of each patient’s submission or representation at the time services are rendered as to the payor(s) responsible for payment of such services. Revenue is recorded based on the information known at the time of entering of such information into the Company’s billing systems as well as an estimate of the revenue associated with medical services.
The Company is responsible for confirming member eligibility, performing program utilization review, potentially directing payment to the provider and accepting the financial risk of loss associated with services rendered, as specified within the Company’s client contracts. The Company has the ability to adjust contractual fees with clients and possess the financial risk of loss in certain contractual obligations. These factors indicate the Company is the principal and, as such, the Company records gross fees contracted with clients in revenues.
Consideration from FFS arrangements is variable in nature because fees are based on patient encounters, credits due to clients and reimbursement of provider costs, all of which can vary from period to period. Patient encounters and related episodes of care and procedures qualify as distinct goods and services, provided simultaneously together with other readily available resources, in a single instance of service, and thereby constitute a single performance obligation for each patient encounter and, in most instances, occur at readily determinable transaction prices. As a practical expedient, the Company adopted a portfolio approach for the FFS revenue stream to group contracts with similar characteristics and analyze historical cash collections trends. The contracts within the portfolio share the characteristics conducive to ensuring that the results do not materially differ under the new standard if it were to be applied to individual patient contracts related to each patient encounter. Accordingly, there was not a change in the Company's method to recognize revenue under ASC 606 from the previous accounting guidance.
Estimating net FFS revenue is a complex process, largely due to the volume of transactions, the number and complexity of contracts with payors, the limited availability at times of certain patient and payor information at the time services are provided, and the length of time it takes for collections to fully mature. These expected collections are based on fees and negotiated payment rates in the case of third-party payors, the specific benefits provided for under each patient's healthcare plans, mandated payment rates in the case of Medicare and Medicaid programs, and historical cash collections (net of recoveries) in combination with expected collections from third party payors.
The relationship between gross charges and the transaction price recognized is significantly influenced by payor mix, as collections on gross charges may vary significantly, depending on whether and with whom the patients the Company provides services to in the period are insured and the Company's contractual relationships with those payors. Payor mix is subject to change as additional patient and payor information is obtained after the period services are provided. The Company periodically assesses the estimates of unbilled revenue, contractual adjustments and discounts, and payor mix by analyzing actual results, including cash collections, against estimates. Changes in these estimates are charged or credited to the consolidated statement of income in the period that the assessment is made. Significant changes in payor mix, contractual arrangements with payors, specialty mix, acuity, general economic conditions and health care coverage provided by federal or state governments or private insurers may have a significant impact on estimates and significantly affect the results of operations and cash flows.
Contract Assets
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
Typically, revenues and receivables are recognized once the Company has satisfied its performance obligation. Accordingly, the Company’s contract assets are comprised of receivables and receivables – related parties. Generally, the Company does not have material amounts of other contract assets.
The Company's billing and accounting systems provide historical trends of cash collections and contractual write-offs, accounts receivable aging and established fee adjustments from third-party payors. These estimates are recorded and monitored monthly as revenues are recognized. The principal exposure for uncollectible fee for service visits is from self-pay patients and, to a lesser extent, for co-payments and deductibles from patients with insurance.
Contract Liabilities (Deferred Revenue)
Contract liabilities are recorded when cash payments are received in advance of the Company’s performance, or in the case of the Company’s NGACO, the excess of AIPBP capitation received and the actual claims paid or incurred. The Company’s contract liability balance was $8.9 million and $9.1 million as of December 31, 2019 and December 31, 2018, respectively, and is presented within the “Accounts Payable and Accrued Expenses” line item of the accompanying consolidated balance sheets. Approximately $0.5 million of the Company’s contracted liability accrued in 2018 has been recognized as revenue during the year ended December 31, 2019.
Income Taxes
Federal and state income taxes are computed at currently enacted tax rates less tax credits using the asset and liability method. Deferred taxes are adjusted both for items that do not have tax consequences and for the cumulative effect of any changes in tax rates from those previously used to determine deferred tax assets or liabilities. Tax provisions include amounts that are currently payable, changes in deferred tax assets and liabilities that arise because of temporary differences between the timing of when items of income and expense are recognized for financial reporting and income tax purposes, changes in the recognition of tax positions and any changes in the valuation allowance caused by a change in judgment about the realizability of the related deferred tax assets. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.
The Company uses a recognition threshold of more-likely-than-not and a measurement attribute on all tax positions taken or expected to be taken in a tax return in order to be recognized in the financial statements. Once the recognition threshold is met, the tax position is then measured to determine the actual amount of benefit to recognize in the financial statements.
Basic and Diluted Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding during the periods presented. Diluted earnings per share is computed using the weighted average number of common shares outstanding plus the effect of dilutive securities outstanding during the periods presented, using treasury stock method. See Note 17 for a discussion of shares treated as treasury shares for accounting purposes.
The weighted-average number of common shares outstanding (the denominator of the EPS calculation) during the period in which the reverse acquisition occurred (2017) was computed as follows:
|
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a)
|
The number of common shares outstanding from the beginning of that period to the acquisition date was computed on the basis of the weighted-average number of common shares of the legal acquiree (accounting acquirer - NMM) outstanding during the period multiplied by the exchange ratio established in the Merger.
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|
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b)
|
The number of common shares outstanding from the acquisition date to the end of that period was the actual number of common shares of the legal acquirer (the accounting acquire -ApolloMed) outstanding during that period.
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Noncontrolling Interests
The Company consolidates entities in which the Company has a controlling financial interest. The Company consolidates subsidiaries in which the Company holds, directly or indirectly, more than 50% of the voting rights, and variable interest entities (VIEs) in which the Company is the primary beneficiary. Noncontrolling interests represent third-party equity ownership interests (including certain VIEs) in the Company’s consolidated entities. The amount of net income attributable to noncontrolling interests is disclosed in the consolidated statements of income.
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
Mezzanine Equity
Based on the shareholder agreements for APC, in the event of a disqualifying event, as defined in the agreements, APC could be required to repurchase the shares from their respective shareholders based on certain triggers outlined in the shareholder agreements. As the redemption feature of the shares is not solely within the control of APC, the equity of APC does not qualify as permanent equity and has been classified as mezzanine or temporary equity. Accordingly, the Company recognizes noncontrolling interests in APC as mezzanine equity in the consolidated financial statements. APC’s shares are not redeemable and it is not probable that the shares will become redeemable as of December 31, 2019 and 2018.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASC 842”), which amends the existing accounting standards for leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of right-of-use assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.
The Company adopted ASC 842 effective January 1, 2019 on a modified retrospective basis using the following practical expedients as permitted under the transition guidance within the new standard; (i) not reassess whether any expired or existing contracts are or contain leases; not reassess the lease classification for any expired or existing leases; not reassess initial direct costs for existing leases; and (ii) use hindsight in determining the lease term and in assessing impairment of the entity’s right-of-use assets. The Company has also implemented additional internal controls to enable future preparation of financial information in accordance with ASC 842.
The standard had a material impact on our consolidated balance sheets, but did not materially impact our consolidated results of operations and had no impact on cash flows. The most significant impact was the recognition of right-of-use assets of $9.0 million and lease liabilities of $8.9 million for operating leases on the date of adoption, while our accounting for finance leases remained substantially unchanged. The 2018 comparative information has not been restated and continues to be reported under the accounting standards in effect for that period (ASC 840). See Note 19 for further details.
In addition, the Company elected practical expedients for ongoing accounting that is provided by the new standard comprised of the following: (1) the election for classes of underlying asset to not separate non-lease components from lease components, and (2) the election for short-term lease recognition exemption for all leases under 12 months term.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326)-Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). The new standard requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. ASU 2016-13 became effective on January 1, 2020. Based on the composition of the Company's investment portfolio and historical credit loss activity of receivables, the adoption of ASU 2016-13 is not expected to have a material impact on its consolidated financial statements.
In July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260): Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part 1) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception” (“ASU 2017-11”). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. The amendments in Part 1 of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in any interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company adopted ASU 2017-11 on January 1, 2019. The adoption of ASU 2017-11 did not have a material impact on the Company’s consolidated financial statements.
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
In October 2018, the FASB issued ASU No. 2018-17, “Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities” (“ASU 2018-17”). This ASU reduces the cost and complexity of financial reporting associated with consolidation of variable interest entities (VIEs). A VIE is an organization in which consolidation is not based on a majority of voting rights. The new guidance supersedes the private company alternative for common control leasing arrangements issued in 2014 and expands it to all qualifying common control arrangements. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of ASU 2018-17 is not expected to have a material impact on its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" ("ASU 2019-12"). This ASU simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The amendments in this ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of ASU 2019-12 will have on the Company's consolidated financial statements.
In January 2020, the FASB issued ASU No. 2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)" ("ASU 2020-01"). This ASU clarifies the interaction between accounting for equity securities, equity method investments and certain derivative instruments. This amendment in this ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of ASU 2020-01 will have on the Company's consolidation financial statements.
With the exception of the new standards discussed above, there have been no other new accounting pronouncements that have significance, or potential significance, to the Company’s financial position, results of operations and cash flows.
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3.
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Business Combination and Goodwill
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On December 8, 2017, (the “Effective Time”) the merger (the “Merger”) of ApolloMed’s wholly-owned subsidiary, Apollo Acquisition Corp., with Network Medical Management, Inc. was completed, in accordance with the terms and conditions of the Agreement and Plan of Merger, dated as of December 21, 2016 (as amended on March 30, 2017 and October 17, 2017), by and among the Company, Merger Sub, NMM and Kenneth Sim, M.D., as the NMM shareholders’ representative. As a result of the Merger, NMM now is a wholly-owned subsidiary of ApolloMed and former NMM shareholders own a majority of the issued and outstanding common stock of the Company and control the Board of ApolloMed. As of the Effective Time, the Company’s board of directors approved a change in the Company’s fiscal year end from March 31 to December 31.
Pursuant to the Merger Agreement, at the Effective Time, each issued and outstanding share of NMM common stock converted into the right to receive (i) such number of fully paid and nonassessable shares of ApolloMed’s common stock that resulted in the NMM shareholders having a right to receive an aggregate number of shares of ApolloMed’s common stock that represented 82% of the total issued and outstanding shares of ApolloMed common stock immediately following the Effective Time, with no NMM dissenting shareholder interests as of the Effective Time (the “exchange ratio”), plus (ii) an aggregate of 2,566,666 ApolloMed’s common stock, with no NMM dissenting shareholder interests as of the Effective Time, and (iii) common stock warrants to purchase a pro-rata portion of an aggregate of 850,000 shares of common stock of ApolloMed, exercisable at $11.00 per share and warrants to purchase an aggregate of 900,000 shares of common stock of ApolloMed at $10.00 per share. At the Effective Time, pre-Merger ApolloMed stockholders held their existing shares of ApolloMed’s common stock. At the Effective Time, ApolloMed held back 10% of the total number of shares of ApolloMed’s common stock issuable to pre-Merger NMM shareholders in the Merger to secure indemnification of ApolloMed and its affiliates under the Merger Agreement. Separately, indemnification of pre-Merger NMM shareholders under the Merger Agreement was made by the issuance by ApolloMed to pre-Merger NMM shareholders of new additional shares of common stock (capped at the same number of shares of ApolloMed’s common stock as are subject to the holdback for the indemnification of ApolloMed). These holdback shares will be held for a period of up to 24 months after the closing of the Merger (to be distributed on a pro-rata basis to former NMM shareholders), during which ApolloMed may seek indemnification for any breach of, or noncompliance with, any provision of the Merger agreement, by NMM. Half of these shares will be issued on the first and second anniversary of the Effective Time respectively. As of December 31, 2019 all holdback shares had been released.
For purposes of calculating the exchange ratio, (A) the aggregate number of shares of ApolloMed common stock held by the NMM shareholders immediately following the Effective Time excluded (i) any shares of ApolloMed common stock owned by NMM shareholders immediately prior to the Effective Time, (ii) the Series A warrant and Series B warrant issued by ApolloMed to NMM to purchase ApolloMed common stock (the “ApolloMed Warrants”) and (iii) any shares of ApolloMed common stock issued or
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
issuable to NMM shareholders pursuant to the exercise of the ApolloMed Warrants, and (B) the total number of issued and outstanding shares of ApolloMed common stock immediately following the Effective Time excluded 520,081 shares of ApolloMed common stock issued or issuable under a Convertible Promissory Note to Alliance Apex, LLC (“Alliance”), whose 50% member and manager is a member of ApolloMed’s board of directors, for $5.0 million and accrued interest pursuant to the Securities Purchase Agreement between ApolloMed and Alliance dated as of March 30, 2017.
The consideration for the transaction was 18% of the total issued and outstanding shares of ApolloMed common stock, or 6,109,205 (immediately following the Merger).
In addition, the fair value of NMM’s 50% interest in APAACO, an entity that was owned 50% by ApolloMed and 50% by NMM, was remeasured at fair value as of the Effective Time and added to the consideration transferred to ApolloMed as a result of NMM relinquishing its equity investment in APAACO in order to obtain control of ApolloMed. The fair value of NMM’s noncontrolling interest in APAACO was $5.1 million.
Total purchase consideration consisted of the following:
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Equity consideration (1)
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$
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61,092,050
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Fair value of ApolloMed preferred stock held by NMM (2)
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19,118,000
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|
Fair value of NMM’s noncontrolling interest in APAACO (3)
|
5,129,000
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Fair value of the outstanding ApolloMed stock options (4)
|
1,055,333
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Total purchase consideration
|
$
|
86,394,383
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Immediately following the Effective Time, pre-merger ApolloMed stockholders continued to hold an aggregate of 6,109,205 shares of ApolloMed common stock.
The equity consideration, which represents a portion of the consideration deemed transferred to the pre-Merger ApolloMed stockholders in the Merger, is calculated based on the number of shares of the combined company that the pre-Merger ApolloMed stockholders would own as of the closing of the Merger.
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Number of shares of the combined company that would be owned by pre-Merger ApolloMed stockholders (*)
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6,109,205
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Multiplied by the price per share of ApolloMed’s common stock (**)
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$
|
10.00
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Equity Consideration
|
$
|
61,092,050
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(*)
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Represents the number of shares of the combined company that pre-Merger ApolloMed stockholders would own at closing of the Merger.
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(**)
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Represents the closing price of ApolloMed’s common stock on December 8, 2017.
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(2)
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Fair value of ApolloMed’s preferred shares held by NMM
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NMM currently owns all the shares of ApolloMed Series A preferred stock and Series B preferred stock, which were acquired prior to the Merger. As part of the Merger, the ApolloMed Series A preferred stock and Series B preferred stock are remeasured at fair value and included as part of the consideration transferred to ApolloMed. The fair value of the Series A preferred stock and Series B preferred stock is reflective of the liquidation preferences, claims of priority and conversion option values thereof. In aggregate, the Series A preferred stock and Series B preferred stock were valued to be $19.1 million. The valuation methodology was based on an Option Pricing Method ("OPM") which utilized the observable publicly traded common stock price in valuing the Series A preferred stock and the Series B preferred stock within the context of the capital structure of the Company. OPM assumptions included an expected term of 2 years, volatility rate of 37.9%, and a risk-free rate of 1.8%. The fair value of the liquidation preference for the Series A preferred stock and the Series B preferred stock was determined to be $12.7 million and the fair value of the conversion option was determined to be $6.4 million or an aggregate total fair value of $19.1 million.
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
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(3)
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Fair value of NMM’s 50% share of APA ACO Inc.
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Prior to the Merger, APAACO was owned 50% by ApolloMed and 50% NMM. NMM’s noncontrolling interest in APAACO has been remeasured at fair value as of the closing date and is added to the consideration transferred to ApolloMed as a result of NMM relinquishing its equity investment in APAACO in order to obtain control of ApolloMed. The fair value of NMM’s noncontrolling interest in APAACO has been estimated to be $5.1 million using the discounted cash flow method and NMM recorded a gain on investment for the same amount to reflect the fair value of this investment prior the Merger.
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(4)
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Fair value of the ApolloMed outstanding stock options
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The fair value of the outstanding ApolloMed stock options is included in consideration transferred in accordance with ASC 805. The outstanding ApolloMed stock options are expected to vest in conjunction with the Merger due to a pre-existing change-of-control provision associated with the awards. There is no future service requirement.
The following table sets forth the final allocation of the purchase consideration to the identifiable tangible and intangible assets acquired and liabilities assumed of ApolloMed and MMG (see “MMG Transaction” below), with the excess recorded as goodwill:
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Balance Sheet
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Assets acquired
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Cash and cash equivalents
|
$
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36,367,555
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Accounts receivable, net
|
7,261,588
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Other receivables
|
3,211,028
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Prepaid expenses
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249,193
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Property, plant and equipment, net
|
1,114,332
|
|
Restricted cash
|
745,220
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Fair value of intangible assets acquired
|
14,984,000
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Deferred tax assets
|
2,498,417
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Other assets
|
217,241
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|
Goodwill
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86,197,395
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|
Accounts payable and accrued liabilities
|
(8,632,893
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)
|
Medical liabilities
|
(39,353,540
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)
|
Line of credit
|
(25,000
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)
|
Convertible note payable, net
|
(5,376,215
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)
|
Convertible note payable - related party
|
(9,921,938
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)
|
Noncontrolling interest
|
(3,142,000
|
)
|
Net assets acquired
|
$
|
86,394,383
|
|
|
|
Total purchase consideration
|
$
|
86,394,383
|
|
During the year ended December 31, 2018, goodwill related to the Merger increased by $0.7 million due to the $0.9 million increase in the fair value of the outstanding ApolloMed stock options, which was partially offset by the $0.2 million decrease in the related deferred tax asset with a commensurate adjustment recorded to additional paid in capital. In addition, during the year ended December 31, 2018, goodwill and deferred tax assets decreased by $0.9 million resulting from an adjustment associated with the allocation of the Merger transaction costs. As a result, in aggregate, during the year ended December 31, 2018, goodwill decreased by $0.2 million.
Convertible Note Payable – Related Party
On March 30, 2017, ApolloMed issued a Convertible Promissory Note to Alliance Apex, LLC (“Alliance Note”) for $5.0 million. Alliance’s 50% member and manager is a member of ApolloMed’s board of directors. The Alliance Note was due and payable to Alliance Apex, LLC on (i) March 31, 2018, or (ii) the date on which the Change of Control Transaction is terminated, whichever occurs first. As a result of the Merger, the Alliance Note together with the accrued and unpaid interest, automatically converted
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
into shares of the Company’s common stock, at a conversion price of $10.00 per share (see Note 12). The Alliance Note was guaranteed by NMM prior to its conversion.
Pro Forma Combined Historical Results
The pro forma combined historical results, as if ApolloMed had been acquired as of January 1, 2017, are estimated as follows (unaudited):
|
|
|
|
|
|
Year Ended
December 31, 2017
|
Net revenues
|
$
|
478,873,780
|
|
Net income attributable to Apollo Medical Holdings, Inc.
|
$
|
9,982,706
|
|
Weighted average common shares outstanding:
|
|
Basic
|
25,525,786
|
|
Earnings per share:
|
|
Basic
|
$
|
0.39
|
|
Weighted average common shares outstanding:
|
|
Diluted
|
28,661,735
|
|
Earnings per share:
|
|
Diluted
|
$
|
0.35
|
|
The pro forma information has been prepared for comparative purposes only and does not purport to be indicative of what would have occurred had the acquisition actually been made at such date, nor is it necessarily indicative of future operating results.
Alpha Care Medical Group, Inc.
On May 31, 2019, APC and APC-LSMA completed their acquisition of 100% of the capital stock of Alpha Care from Dr. Kevin Tyson for an aggregate purchase price of approximately $45.1 million in cash, subject to post-closing adjustments. As part of the transaction the Company deposited $2.0 million into an escrow account for potential post-closing adjustments. As of December 31, 2019 no post-closing adjustment is expected to be paid to Dr. Tyson and the full amount of the escrow account is expected to be returned to the Company. As such, the escrow amount is presented within Prepaid expenses and other current assets in the accompanying consolidated balance sheet.
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed, as of the acquisition date:
|
|
|
|
|
|
Preliminary
Balance Sheet
|
Assets acquired
|
|
Cash and cash equivalents
|
$
|
3,568,554
|
|
Accounts receivable, net
|
10,335,664
|
|
Other current assets
|
4,360,850
|
|
Network relationship intangible assets
|
22,636,000
|
|
Goodwill
|
28,585,209
|
|
Accounts payable
|
(2,776,631
|
)
|
Deferred tax liabilities
|
(6,334,368
|
)
|
Medical liabilities
|
(15,319,714
|
)
|
Net assets acquired
|
$
|
45,055,564
|
|
|
|
Cash paid
|
$
|
45,055,564
|
|
Accountable Health Care, IPA
On August 30, 2019, APC and APC-LSMA, acquired the remaining outstanding shares of capital stock they did not already own (comprising 75%) in Accountable Health Care in exchange for $7.3 million in cash. In addition to the payment of $7.3 million APC assumed all assets and liabilities of Accountable Health Care, including loans payable to NMM and APC of $15.4 million, which has been eliminated upon consolidation. Including the 25% investment valued at $2.4 million already owned by APC the total purchase price was $25.1 million (see Note 6).
The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed, as of the acquisition date:
|
|
|
|
|
|
Preliminary
Balance Sheet
|
Assets acquired
|
|
Cash and cash equivalents
|
$
|
581,965
|
|
Accounts receivable, net
|
5,150,060
|
|
Other current assets
|
198,056
|
|
Network relationship intangible assets
|
11,411,000
|
|
Goodwill
|
23,018,675
|
|
Accounts payable
|
(3,211,349
|
)
|
Medical liabilities
|
(12,154,726
|
)
|
Subordinated loan
|
(15,327,013
|
)
|
Net assets acquired
|
$
|
9,666,668
|
|
|
|
Equity investment contributed
|
$
|
2,416,668
|
|
Cash paid
|
$
|
7,250,000
|
|
The Company also completed one additional acquisition (AMG) on September 10, 2019 for total consideration of $1.6 million, of which $0.4 million was in the form of APC common stock. The business combination did not meet the quantitative thresholds to require separate disclosures based on the Company's consolidated net assets, investments and net income.
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
Pro Forma Financial Information for All 2019 Acquisitions
The following unaudited pro forma supplemental information is based on estimates and assumptions that ApolloMed believes are reasonable. However, this information is not necessarily indicative of the Company's consolidated results of income in future periods or the results that actually would have been realized if ApolloMed and the acquired businesses had been combined companies during the periods presented. These pro forma results exclude any savings or synergies that would have resulted from these business acquisitions had they occurred on January 1, 2018. This unaudited pro forma supplemental information includes incremental intangible asset amortization and other charges as a result of the acquisitions, net of the related tax effects.
The supplemental information on an unaudited pro forma financial basis presents the combined results of ApolloMed and its 2019 acquisitions as if each acquisition had occurred on January 1, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2019
(unaudited)
|
|
Year Ended
December 31, 2018
(unaudited)
|
|
|
|
|
|
Revenue
|
|
$
|
658,010,954
|
|
|
$
|
726,074,752
|
|
Net income
|
|
$
|
10,867,496
|
|
|
$
|
58,879,491
|
|
Net income attributable to Apollo Medical Holdings, Inc.
|
|
$
|
7,310,724
|
|
|
$
|
9,447,002
|
|
EPS - Basic
|
|
$
|
0.21
|
|
|
$
|
0.29
|
|
EPS - Diluted
|
|
$
|
0.20
|
|
|
$
|
0.25
|
|
The acquisitions were accounted for under the acquisition method of accounting. The fair value of the consideration for the acquired company was allocated to acquired tangible and intangible assets and liabilities based upon their fair values. The excess of the purchase consideration over the fair value of the net tangible and identifiable intangible assets acquired were recorded as goodwill. The determination of the fair value of assets and liabilities acquired requires the Company to make estimates and use valuation techniques when market value is not readily available. The results of operations of the company acquired have been included in the Company's financial statements from the respective dates of acquisition. Transaction costs associated with business acquisitions are expensed as they are incurred.
At the time of acquisition, the Company estimates the amount of the identifiable intangible assets based on a valuation and the facts and circumstances available at the time. The Company determines the final value of the identifiable intangible assets as soon as information is available, but not more than 12 months from the date of acquisition.
Goodwill is not deductible for tax purposes.
The following is a summary of goodwill activity for the years ended December 31, 2019 and 2018:
|
|
|
|
|
|
Amount
|
|
|
Balance at January 1, 2018
|
$
|
189,847,202
|
|
Adjustments
|
(242,456
|
)
|
Impairment - (MMG)
|
(3,798,866
|
)
|
Balance at December 31, 2018
|
$
|
185,805,880
|
|
Acquisitions
|
52,699,324
|
|
|
|
Balance at December 31, 2019
|
$
|
238,505,204
|
|
During December 31, 2018, the Company wrote off the remaining goodwill balance of MMG of $3.8 million (included in impairment of goodwill and intangible assets in the accompanying consolidated statements of income), as MMG was no longer utilized and therefore did not provide any future economic benefit.
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
|
|
4.
|
Land, Property and Equipment, Net
|
Land, property and equipment, net consisted of:
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
|
|
Land
|
$
|
3,300,000
|
|
|
$
|
3,300,000
|
|
Buildings
|
2,357,709
|
|
|
2,326,189
|
|
Computer software
|
3,088,508
|
|
|
2,929,317
|
|
Furniture and equipment
|
12,584,619
|
|
|
11,786,345
|
|
Construction in progress
|
167,248
|
|
|
144,008
|
|
Leasehold improvements
|
6,654,993
|
|
|
6,236,189
|
|
|
|
|
|
|
28,153,077
|
|
|
26,722,048
|
|
|
|
|
|
Less accumulated depreciation and amortization
|
(16,023,176
|
)
|
|
(14,000,966
|
)
|
|
|
|
|
Land, property and equipment, net
|
$
|
12,129,901
|
|
|
$
|
12,721,082
|
|
As of December 31, 2019 and 2018, the Company had finance leases totaling $0.5 million and $0.6 million, respectively, included in Land, property and equipment, net in the accompanying consolidated balance sheets.
Depreciation expense was $2.0 million, $2.2 million and $1.6 million for the years ended December 31, 2019, 2018, and 2017, respectively, which is included in depreciation and amortization in the accompanying consolidated statements of income.
|
|
5.
|
Intangible Assets, Net
|
At December 31, 2019, intangible assets, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful
Life
(Years)
|
|
Gross
January 1, 2019
|
|
Additions
|
|
Impairment/
Disposal
|
|
Gross
December 31, 2019
|
|
Accumulated
Amortization
|
|
Net
December 31, 2019
|
Indefinite Lived Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare license
|
N/A
|
|
$
|
1,994,000
|
|
|
$
|
—
|
|
|
$
|
(1,994,000
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Amortized Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network relationships
|
11-15
|
|
109,883,000
|
|
|
34,047,000
|
|
|
—
|
|
|
143,930,000
|
|
|
(60,524,996
|
)
|
|
83,405,004
|
|
Management contracts
|
15
|
|
22,832,000
|
|
|
—
|
|
|
—
|
|
|
22,832,000
|
|
|
(9,676,381
|
)
|
|
13,155,619
|
|
Member relationships
|
12
|
|
6,696,000
|
|
|
—
|
|
|
—
|
|
|
6,696,000
|
|
|
(2,352,133
|
)
|
|
4,343,867
|
|
Patient management platform
|
5
|
|
2,060,000
|
|
|
—
|
|
|
—
|
|
|
2,060,000
|
|
|
(858,329
|
)
|
|
1,201,671
|
|
Tradename/trademarks
|
20
|
|
1,011,000
|
|
|
—
|
|
|
—
|
|
|
1,011,000
|
|
|
(105,312
|
)
|
|
905,688
|
|
|
|
|
$
|
144,476,000
|
|
|
$
|
34,047,000
|
|
|
$
|
(1,994,000
|
)
|
|
$
|
176,529,000
|
|
|
$
|
(73,517,151
|
)
|
|
$
|
103,011,849
|
|
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
At December 31, 2018, intangible assets, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful
Life
(Years)
|
|
Gross
January 1,
2018
|
|
Additions
|
|
Impairment/
Disposal
|
|
Gross
December 31, 2018
|
|
Accumulated
Amortization
|
|
Net
December 31, 2018
|
Indefinite Lived Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare license
|
N/A
|
|
$
|
1,994,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,994,000
|
|
|
$
|
—
|
|
|
$
|
1,994,000
|
|
Amortized Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network relationships
|
11-15
|
|
109,883,000
|
|
|
—
|
|
|
—
|
|
|
109,883,000
|
|
|
(48,361,773
|
)
|
|
61,521,227
|
|
Management contracts
|
15
|
|
22,832,000
|
|
|
—
|
|
|
—
|
|
|
22,832,000
|
|
|
(7,447,581
|
)
|
|
15,384,419
|
|
Member relationships
|
12
|
|
6,696,000
|
|
|
—
|
|
|
—
|
|
|
6,696,000
|
|
|
(1,289,667
|
)
|
|
5,406,333
|
|
Patient management platform
|
5
|
|
2,060,000
|
|
|
—
|
|
|
—
|
|
|
2,060,000
|
|
|
(446,333
|
)
|
|
1,613,667
|
|
Tradename/trademarks
|
20
|
|
1,011,000
|
|
|
—
|
|
|
—
|
|
|
1,011,000
|
|
|
(54,763
|
)
|
|
956,237
|
|
|
|
|
$
|
144,476,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
144,476,000
|
|
|
$
|
(57,600,117
|
)
|
|
$
|
86,875,883
|
|
Amortization expense was $16.3 million, $17.1 million and $17.5 million (including $0.3 million, $0.4 million and $0.4 million of amortization expense for exclusivity incentives) for the years ended December 31, 2019, 2018, and 2017, respectively, which is included in depreciation and amortization in the accompanying consolidated statements of income.
During the year ended December 31, 2019, the Company wrote off indefinite-lived intangible assets of $2.0 million related to Medicare licenses it acquired as part of the Merger. The Company will no longer utilize these licenses and as such the Company will not receive future economic benefits.
Future amortization expense is estimated to be as follows for the years ending December 31:
|
|
|
|
|
|
Amount
|
|
|
2020
|
$
|
16,026,000
|
|
2021
|
14,542,000
|
|
2022
|
12,673,000
|
|
2023
|
10,842,000
|
|
2024
|
9,830,000
|
|
Thereafter
|
39,099,000
|
|
|
|
|
$
|
103,012,000
|
|
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
|
|
6.
|
Investments in Other Entities
|
Equity Method
Investments in other entities – equity method consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
|
|
|
Universal Care, Inc.
|
|
$
|
1,438,199
|
|
|
$
|
2,635,945
|
|
LaSalle Medical Associates – IPA Line of Business
|
|
6,396,706
|
|
|
7,054,888
|
|
Diagnostic Medical Group
|
|
2,334,083
|
|
|
2,257,346
|
|
Pacific Medical Imaging & Oncology Center, Inc.
|
|
1,395,878
|
|
|
1,359,494
|
|
Pacific Ambulatory Surgery Center, LLC
|
|
—
|
|
|
285,198
|
|
Accountable Health Care IPA
|
|
—
|
|
|
4,977,957
|
|
531 W. College, LLC
|
|
16,697,898
|
|
|
16,273,152
|
|
MWN, LLC
|
|
164,691
|
|
|
33,000
|
|
|
|
|
|
|
|
|
$
|
28,427,455
|
|
|
$
|
34,876,980
|
|
LaSalle Medical Associates - IPA Line of Business
LMA was founded by Dr. Albert Arteaga in 1996 and currently operates six neighborhood medical centers through its network of more than 2,300 PCP and Specialists providers, treating children, adults and seniors in San Bernardino County. LMA’s patients are primarily served by Medi-Cal and they also accept Blue Cross, Blue Shield, Molina, Care 1st, Health Net and Inland Empire Health Plan. LMA is also an IPA of independently contracted doctors, hospitals and clinics, delivering high quality care to more than 310,000 patients in Fresno, Kings, Los Angeles, Madera, Riverside, San Bernardino and Tulare Counties. During 2012, APC-LSMA and LMA entered into a share purchase agreement whereby APC-LSMA invested $5.0 million for a 25% interest in LMA’s IPA line of business. NMM has a management services agreement with LMA. APC accounts for its investment in LMA under the equity method as APC has the ability to exercise significant influence, but not control over LMA’s operations. For the year ended December 31, 2019, APC recorded a net loss of $2.8 million from its investment in LMA as compared to net loss of $2.4 million for the year ended December 31, 2018, in the accompanying consolidated statements of income. During the year ended December 31, 2019, the Company contributed $2.1 million to LMA as part of its 25% interest. The investment balance was $6.4 million and $7.1 million at December 31, 2019 and 2018, respectively.
LMA’s IPA line of business unaudited summarized balance sheets at December 31, 2019 and 2018 and unaudited summarized statements of operations for the years ended December 31, 2019 and 2018 are as follows:
Balance Sheets
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
(unaudited)
|
|
December 31, 2018
(unaudited)
|
|
|
|
|
|
Assets
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,345,195
|
|
|
$
|
18,444,702
|
|
Receivables, net
|
|
5,123,228
|
|
|
2,897,337
|
|
Other current assets
|
|
3,526,319
|
|
|
5,459,442
|
|
Loan receivable
|
|
2,250,000
|
|
|
1,250,000
|
|
Restricted cash
|
|
683,358
|
|
|
667,414
|
|
|
|
|
|
|
Total assets
|
|
17,928,100
|
|
|
28,718,895
|
|
Liabilities and Stockholders’ (Deficit) Equity
|
|
|
|
|
Current liabilities
|
|
$
|
23,529,745
|
|
|
$
|
26,837,814
|
|
Stockholders’ (deficit) equity
|
|
(5,601,645
|
)
|
|
1,881,081
|
|
|
|
|
|
|
Total liabilities and stockholders’ (deficit) equity
|
|
$
|
17,928,100
|
|
|
$
|
28,718,895
|
|
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2019
(unaudited)
|
|
Year Ended
December 31, 2018
(unaudited)
|
|
|
|
|
|
Revenues
|
|
$
|
194,020,435
|
|
|
$
|
239,031,485
|
|
Expenses
|
|
205,153,162
|
|
|
251,738,193
|
|
|
|
|
|
|
Loss from operations
|
|
(11,132,727
|
)
|
|
(12,706,708
|
)
|
|
|
|
|
|
Other Income
|
|
—
|
|
|
173,356
|
|
|
|
|
|
|
Loss before income tax benefit
|
|
(11,132,727
|
)
|
|
(12,533,352
|
)
|
|
|
|
|
|
Income tax benefit
|
|
—
|
|
|
(3,334,332
|
)
|
|
|
|
|
|
Net loss
|
|
$
|
(11,132,727
|
)
|
|
$
|
(9,199,020
|
)
|
Pacific Medical Imaging and Oncology Center, Inc.
PMIOC was incorporated in 2004 in the state of California. PMIOC provides comprehensive diagnostic imaging services using state-of-the-art technology. PMIOC offers high quality diagnostic services such as MRI/MRA, PET/CT, CT, nuclear medicine, ultrasound, digital x-rays, bone densitometry and digital mammography at their facilities.
In July 2015, APC-LSMA and PMIOC entered into a share purchase agreement whereby APC-LSMA invested $1.2 million for a 40% ownership in PMIOC.
APC and PMIOC have an Ancillary Service Contract together whereby PMIOC provides covered services on behalf of APC to enrollees of the plans of APC. Under the Ancillary Service Contract APC paid PMIOC fees of $2.7 million and $2.5 million for the years ended December 31, 2019 and 2018, respectively. APC accounts for its investment in PMIOC under the equity method of accounting as APC has the ability to exercise significant influence, but not control over PMIOC’s operations. During the year ended December 31, 2019, APC recorded net income of $36,384 from its investment as compared to net loss of $41,199 for the
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
year ended December 31, 2018 in the accompanying consolidated statements of income and has an investment balance of $1.4 million at December 31, 2019 and 2018, respectively.
Universal Care, Inc.
UCI is a privately held health plan that has been in operation since 1985 in order to help its members through the complexities of the healthcare system. UCI holds a license under the California Knox-Keene Health Care Services Plan Act (Knox-Keene Act) to operate as a full-service health plan. UCI contracts with the CMS under the Medicare Advantage Prescription Drug Program.
On August 10, 2015, UCAP, an entity solely owned 100% by APC with APC’s executives, Dr. Thomas Lam, Dr. Pen Lee and Dr. Kenneth Sim, as designated managers, purchased from UCI 100,000 shares of UCI class A-2 voting common stock (comprising 48.9% of the total outstanding UCI shares, but 50% of UCI’s voting common stock) for $10 million. APC accounts for its investment in UCI under the equity method of accounting as APC has the ability to exercise significant influence, but not control over UCI’s operations.
During the years ended December 31, 2019 and 2018, APC recorded losses from this investment of $1.2 million and $6.0 million, respectively, in the accompanying consolidated statements of income and has an investment balance of $1.4 million and $2.6 million at December 31, 2019 and 2018, respectively.
UCI’s unaudited balance sheets at December 31, 2019 and 2018 and unaudited statements of operations for the years ended December 31, 2019 and 2018 are as follows:
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
(unaudited)
|
|
December 31, 2018
(unaudited)
|
Assets
|
|
|
|
|
Cash
|
|
$
|
33,889,962
|
|
|
$
|
27,812,520
|
|
Receivables, net
|
|
63,843,009
|
|
|
46,978,703
|
|
Other current assets
|
|
38,280,156
|
|
|
18,670,350
|
|
Other assets
|
|
882,243
|
|
|
661,621
|
|
Property and equipment, net
|
|
4,021,341
|
|
|
2,786,996
|
|
|
|
|
|
|
Total assets
|
|
$
|
140,916,711
|
|
|
$
|
96,910,190
|
|
|
|
|
|
|
Liabilities and stockholders’ deficit
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
128,330,389
|
|
|
$
|
89,731,133
|
|
Other liabilities
|
|
33,132,948
|
|
|
25,024,043
|
|
Stockholders’ deficit
|
|
(20,546,626
|
)
|
|
(17,844,986
|
)
|
|
|
|
|
|
Total liabilities and stockholders’ deficit
|
|
$
|
140,916,711
|
|
|
$
|
96,910,190
|
|
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2019
(unaudited)
|
|
Year Ended
December 31, 2018
(unaudited)
|
Revenues
|
|
$
|
500,374,910
|
|
|
$
|
326,719,634
|
|
Expenses
|
|
502,566,659
|
|
|
335,242,582
|
|
|
|
|
|
|
Loss before income tax provision
|
|
(2,191,749
|
)
|
|
(8,522,948
|
)
|
Income tax provision
|
|
257,628
|
|
|
3,692,818
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,449,377
|
)
|
|
$
|
(12,215,766
|
)
|
Diagnostic Medical Group
APC accounts for its 40% investment in DMG, under the equity method of accounting as APC-LSMA, a designated shareholder professional corporation, has the ability to exercise significant influence, but not control over DMG’s operations. APC recorded income from this investment of $0.3 million and $1.0 million in 2019 and 2018, respectively, in the accompanying consolidated statements of income. During the years ended December 31, 2019 and 2018, APC received dividends of $0.2 million and $0.6 million, respectively, from DMG. The investment balance was $2.3 million December 31, 2019 and 2018, respectively.
Pacific Ambulatory Surgery Center, LLC
Pacific Ambulatory Surgery Center, LLC (“PASC”), a California limited liability company, is a multi-specialty outpatient surgery center that is certified to participate in the Medicare program and is accredited by the Accreditation Association for Ambulatory Health Care. PASC has entered into agreements with organizations such as healthcare service plans, independent practice associations, medical groups and other purchasers of healthcare services for the arrangement of the provision of outpatient surgery center services to subscribers or enrollees of such health plans. APC accounts for its 40% investment in PASC under the equity method of accounting as APC has the ability to exercise significant influence, but not control over PASC’s operations.
During the year ended December 31, 2019, the Company recognized an impairment loss of $0.3 million related to its investment in PASC as the Company does not believe it will recover its investment balance. Such impairment loss is included in loss from equity method investment in the accompanying consolidated statement of income.
During the year ended December 31, 2018, APC recorded a loss from this investment of $0.3 million, in the accompanying consolidated statements of income and has an investment balance of $0.3 million at December 31, 2018.
Accountable Health Care, IPA
Accountable Health Care is a California professional medical corporation that has served the local community in the greater Los Angeles County area through a network of physicians and health care providers for more than 20 years. Accountable currently has a network of over 400 primary and 700 specialty care physicians, and five community and regional hospital medical centers that provide quality health care services to more than 84,000 members of three federally qualified health plans and multiple product lines, including Medi-Cal, Commercial, Medicare and Healthy Families.
On September 21, 2018, APC and NMM each exercised their option to convert their respective $5.0 million loans into shares of Accountable capital stock (see Note 7). As a result, APC’s $5.0 million loan was converted into a 25% equity interest with the remaining $5.0 million loan held by NMM to be converted into an equity interest that will be determined based on a third party valuation of Accountable’s current enterprise value. On August 30, 2019, APC and APC-LSMA entered into separate agreements with Dr. Jayatilaka to acquire the remaining outstanding shares of capital stock (comprising 75%) of Accountable Health Care in exchange for $7.3 million in cash. In addition to the payment of $7.3 million, APC assumed all liabilities and assets of Accountable Health Care (See Note 3 and Note 7).
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
The Company recognized a gain of approximately $1.8 million as a result of the transaction, which represented the difference between the fair value of the 25% ownership held and the Company's basis at the time of acquisition. Such gain is included in loss from equity method investment in the accompanying consolidated statements of income for the year ended December 31, 2019.
Effective September 1, 2019, Accountable Health Care's financial result is included in the consolidated balance sheets and the consolidated statements of income for the year ended December 31, 2019.
531 W. College LLC
In June 2018, College Street Investment LP, a California limited partnership (“CSI”), a related party, APC and NMM, entered into an operating agreement to govern the limited liability company, 531 W. College, LLC and the conduct of its business, and to specify their relative rights and obligations. CSI, APC and NMM, each owns 50%, 25% and 25%, respectively, of member units based on initial capital contributions of $16.7 million, $8.3 million, and $8.3 million, respectively.
On June 29, 2018, 531 W. College, LLC closed its purchase of a non-operational hospital located in Los Angeles from Societe Francaise De Bienfaisance Mutuelle De Los Angeles, a California nonprofit corporation, for a total purchase price of $33.3 million. In June 2018, APC, NMM and AMHC Healthcare, Inc. on behalf of CSI, wired $8.3 million, $8.3 million and $16.7 million, respectively into an escrow account for the benefit of 531 W. College, LLC to purchase the hospital pursuant to the Purchase Agreement. The transaction closed on June 28, 2018. On April 23, 2019, NMM and APC entered into an agreement whereby NMM assigned and APC assumed NMM's 25% membership interest in 531 W. College, LLC for approximately $8.3 million. Subsequently, APC has a 50% ownership in 531 W. College LLC with a total investment balance of approximately $16.1 million.
APC accounts for its investment in 531 W. College, LLC under the equity method of accounting as APC has the ability to exercise significant influence, but not control over the operations of this joint venture. APC’s investment is presented as an investment of equity method in the accompanying consolidated balance sheets as of December 31, 2019 and 2018.
During the years ended December 31, 2019 and 2018, NMM and APC recorded losses from its investment in 531 W. College LLC of $0.2 million and $0.4 million, respectively, in the accompanying consolidated statements of income. During the year ended December 31, 2019, APC contributed $0.7 million to 531 W. College, LLC as part of its 50% interest. The accompanying consolidated balance sheet includes the related investment balance of $16.7 million and $16.3 million, respectively, related to APC's investment at December 31, 2019 and APC's and NMM's investment at December 31, 2018.
531 W. College LLC’s unaudited balance sheet at and unaudited statement of operations for the years ended December 31, 2019 and 2018 are as follows:
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
(unaudited)
|
|
December 31, 2018
(unaudited)
|
|
|
|
|
|
Assets
|
|
|
|
|
Cash
|
|
$
|
139,436
|
|
|
$
|
158,088
|
|
Other current assets
|
|
16,500
|
|
|
16,137
|
|
Other assets
|
|
70,000
|
|
|
70,000
|
|
Property and equipment, net
|
|
33,581,438
|
|
|
33,394,792
|
|
|
|
|
|
|
Total assets
|
|
$
|
33,807,374
|
|
|
$
|
33,639,017
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
Current liabilities
|
|
$
|
1,061,577
|
|
|
$
|
1,007,413
|
|
Stockholders’ equity
|
|
32,745,797
|
|
|
32,631,604
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
33,807,374
|
|
|
$
|
33,639,017
|
|
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2019
(unaudited)
|
|
Year Ended
December 31, 2018
(unaudited)
|
|
|
|
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
Expenses
|
|
1,010,423
|
|
|
875,771
|
|
|
|
|
|
|
Loss from operations
|
|
(1,010,423
|
)
|
|
(875,771
|
)
|
|
|
|
|
|
Other income
|
|
474,617
|
|
|
162,451
|
|
|
|
|
|
|
Net loss
|
|
$
|
(535,806
|
)
|
|
$
|
(713,320
|
)
|
MWN LLC
On December 18, 2018, NMM along with 6 Founders LLC, a California limited liability company doing business as Pacific6 Enterprises (“Pacific6”), and Health Source MSO Inc., a California corporation (“HSMSO”) entered into an operating agreement to govern MWN Community Hospital, LLC and the conduct of its business and to specify their relative rights and obligations. NMM, Pacific6, and HSMSO each owns 33.3% of membership shares based on each member’s initial capital contributions of $3,000 and working capital contributions of $30,000. NMM invested an additional $0.3 million, as part of its 33.3% interest, for working capital purpose. As of December 31, 2019 and 2018, NMM’s investment balance of $0.2 million and $33,000 are included in investments in other entities - equity method in the accompanying consolidated balance sheet.
Investment in privately held entities
MediPortal, LLC
In May 2018, APC purchased 270,000 membership interests of MediPortal LLC, a New York limited liability company, for $0.4 million or $1.50 per membership interest, which represented approximately 2.8% ownership. APC also received a 5-year warrant to purchase 270,000 membership interests. A 5-year option to purchase an additional 380,000 membership interests and a 5-year warrant to purchase 480,000 membership interests are contingent upon the portal completion date, which has not been completed as of December 31, 2019. As APC does not have the ability to exercise significant influence, and lacks control, over the investee, this investment is accounted for using a measurement alternative which allows the investment to be measured at cost, adjusted for observable price changes and impairments, with changes recognized in net income. During the year ended December 31, 2019 there were no observable price changes to our investment.
AchievaMed
On July 1, 2019, NMM and AchievaMed, Inc. a California corporation ("AchievaMed") entered into an agreement in which NMM would purchase up to 50% of the aggregate shares of capital stock of AchievaMed over a period of time not to exceed five years. As a result of this transaction, NMM invested $0.5 million for a 10% interest. The related investment balance of $0.5 million is included in "Investment in a privately held entities" in the accompanying consolidated balance sheet as of December 31, 2019. As NMM does not have the ability to exercise significant influence, and lacks control, over the investee, this investment is accounted for using a measurement alternative which allows the investment to be measured at cost, adjusted for observable price changes and impairments, with changes recognized in net income. During the year ended December 31, 2019 there were no observable price changes to our investment.
|
|
7.
|
Loans Receivable and Loans Receivable – Related Parties
|
Loan Receivable
Dr. Albert Arteaga
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
On June 28, 2019, APC entered into a convertible secured promissory note with Dr. Albert H. Arteaga, M.D. ("Dr. Arteaga"), Chief Executive Officer of LMA, to loan $6.4 million to Dr. Arteaga. Interest on the loan accrues at a rate that is equal to the prime rate plus 1% (5.75% as of December 31, 2019) and payable in monthly installments of interest only on the first day of each month until the maturity date of June 28, 2020, at which time, all outstanding principal and accrued interest thereon shall be due and payable in full. The note is secured by certain shares of LMA common stock held by Dr. Arteaga.
At any time on or before June 28, 2020, and upon written notice by APC to Dr. Arteaga, APC has the right, but not the obligation, to convert the entire outstanding principal amount of this note into shares of LMA common stock which equal 21.25% of the aggregate then-issued and outstanding shares of LMA common stock to be held by APC's designee, which may include APC-LSMA. If converted, APC-LSMA and APC's designee will collectively own 46.25% of the equity of LMA with the remaining 53.75% to be owned by Dr. Arteaga. The entire note receivable has been classified under loans receivable - related parties in the consolidated balance sheet in the amount of $6.4 million as of December 31, 2019.
Loans Receivable - Related Parties
Accountable Health Care IPA
On August 30, 2019, APC and APC-LSMA acquired the remaining outstanding shares of capital stock they did not already own (comprising 75%) in Accountable Health Care in exchange for $7.3 million in cash. In addition to the payment of $7.3 million APC assumed all assets and liabilities of Accountable Health Care, these liabilities include the loan payable due to NMM of $5.0 million and the remaining loan receivable of $7.3 million originally to be paid to George M. Jayatilaka, M.D. As a result of the net loans assumed, APC recognized a gain of $2.3 million recorded in other income in the accompanying consolidated statement of income for the year ended December 31, 2019. All loan payables and receivables has been eliminated upon consolidation (see Note 3 and Note 6).
Universal Care, Inc.
In 2015, APC advanced $5.0 million on behalf of UCAP to UCI for working capital purposes. On June 29, 2018, November 28, 2018 and December 13, 2019 APC advanced an additional $2.5 million, $5.0 million and $4.0 million, respectively. The loans accrue interest at the prime rate plus 1%, or 5.75% and 6.50%, as of December 31, 2019 and 2018, respectively, with interest to be paid monthly. The entire note receivable has been classified under loans receivable - related parties in the consolidated balance sheets in the amount of $16.5 million and $12.5 million as of December 31, 2019 and 2018, respectively. As part of the stock purchase agreement to sell UCI, between UCAP, Bright Health Company of California, Inc., a California corporation, Bright Health, Inc., a Delaware corporation, and UCI, the outstanding loans receivable will be repaid prior to close of the transaction, which is subject to certain closing conditions, including but not limited to, certain regulatory or governmental filings and approvals having been made or obtained, and receipt of various third party consents.
|
|
8.
|
Accounts Payable and Accrued Expenses
|
Accounts payable and accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
|
|
|
Accounts payable
|
|
$
|
6,914,680
|
|
|
$
|
4,481,544
|
|
Capitation payable
|
|
2,812,652
|
|
|
300,000
|
|
Subcontractor IPA payable
|
|
3,360,282
|
|
|
2,532,750
|
|
Professional fees
|
|
1,837,434
|
|
|
2,251,741
|
|
Due to related parties
|
|
225,000
|
|
|
1,488,313
|
|
Contract liabilities
|
|
8,891,966
|
|
|
9,024,235
|
|
Accrued compensation
|
|
3,237,565
|
|
|
4,996,906
|
|
|
|
|
|
|
|
|
$
|
27,279,579
|
|
|
$
|
25,075,489
|
|
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
Medical liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
33,641,701
|
|
|
$
|
63,972,318
|
|
Acquired (see Note 3)
|
|
27,474,440
|
|
|
—
|
|
Claims paid for previous year
|
|
(33,396,932
|
)
|
|
(36,549,348
|
)
|
Claims paid on acquired liabilities
|
|
(25,236,286
|
)
|
|
—
|
|
Incurred health care costs
|
|
274,670,676
|
|
|
209,002,961
|
|
Claims paid for current year
|
|
(218,564,072
|
)
|
|
(167,537,480
|
)
|
Payment to CMS
|
|
—
|
|
|
(34,464,826
|
)
|
Adjustments
|
|
135,155
|
|
|
(781,924
|
)
|
|
|
|
|
|
Balance, end of year
|
|
$
|
58,724,682
|
|
|
$
|
33,641,701
|
|
|
|
10.
|
Credit Facility, Bank Loan and Lines of Credit - Related Party
|
Credit Facility
The Company's credit facility consisted of the following:
|
|
|
|
|
|
December 31, 2019
|
|
|
Term Loan A
|
$
|
187,625,000
|
|
Revolver Loan
|
60,000,000
|
|
Total Debt
|
247,625,000
|
|
|
|
Less: current portion of debt
|
(9,500,000
|
)
|
Less: unamortized financing cost
|
(5,952,866
|
)
|
|
|
Long-term debt
|
$
|
232,172,134
|
|
The following table presents scheduled maturities of the Company's credit facility as of December 31, 2019:
|
|
|
|
|
|
Amount
|
2020
|
$
|
9,500,000
|
|
2021
|
10,687,500
|
|
2022
|
14,250,000
|
|
2023
|
15,437,500
|
|
2024
|
197,750,000
|
|
|
|
Total
|
$
|
247,625,000
|
|
Credit Agreement
On September 11, 2019, the Company entered into a secured credit agreement (the “Credit Agreement”) with SunTrust Bank, in its capacity as administrative agent for the lenders (in such capacity, the “Agent”), as a lender, an issuer of letters of credit and as swingline lender, and Preferred Bank, which is affiliated with one of the Company's board members, JPMorgan Chase Bank, N.A.,
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
MUFG Union Bank, N.A., Royal Bank of Canada, Fifth Third Bank and City National Bank, as lenders (the “Lenders”). In connection with the closing of the Credit Agreement, the Company, its subsidiary, NMM, and the Agent entered into a Guaranty and Security Agreement (the “Guaranty and Security Agreement”), pursuant to which, among other things, NMM guaranteed the obligations of the Company under the Credit Agreement.
The Credit Agreement provides for a five-year revolving credit facility to the Company of $100.0 million ("Revolver Loan"), which includes a letter of credit subfacility of up to $25.0 million. As of December 31, 2019 the Company has outstanding letters of credit totaling $14.8 million and the Company has $25.2 million available under the revolving credit facility. The Credit Agreement also provides for a term loan of $190.0 million, ("Term Loan A"). The unpaid principal amount of the term loan is payable in quarterly installments on the last day of each fiscal quarter commencing on December 31, 2019. The principal payment for each of the first eight fiscal quarters is $2.4 million, for the following eight fiscal quarters thereafter is $3.6 million and for the following three fiscal quarters thereafter is $4.8 million. The remaining principal payment on the term loan is due on September 11, 2024.
The proceeds of the term loan and up to $60.0 million of the revolving credit facility may be used to (i) finance a portion of the $545.0 million loan made by the Company to AP-AMH Medical Corporation, a California professional medical corporation (“AP-AMH”), concurrently with the closing of the Credit Agreement (the “AP-AMH Loan”) as described in the May 13, 2019, Current Report and the August 29, 2019, Current Report, (ii) refinance certain indebtedness of the Company and its subsidiaries and, indirectly, APC, (iii) pay transaction costs and expenses arising in connection with the Credit Agreement, the AP-AMH Loan and certain other related transactions and (iv) provide for working capital, capital expenditures and other general corporate purposes. The remainder of the revolving credit facility will be used to finance future acquisitions and investments and to provide for working capital needs, capital expenditures and other general corporate purposes.
The Company is required to pay an annual facility fee of 0.20% to 0.35% on the available commitments under the Credit Agreement, regardless of usage, with the applicable fee determined on a quarterly basis based on the Company’s leverage ratio. The Company is also required to pay customary fees as specified in a separate fee agreement between the Company and SunTrust Robinson Humphrey, Inc., the lead arranger of the Credit Agreement.
Amounts borrowed under the Credit Agreement will bear interest at an annual rate equal to either, at the Company’s option, (a) the rate for Eurocurrency deposits for the corresponding deposits of U.S. dollars appearing on Reuters Screen LIBOR01 Page (“LIBOR”), adjusted for any reserve requirement in effect, plus a spread of from 2.00% to 3.00%, as determined on a quarterly basis based on the Company’s leverage ratio, or (b) a base rate, plus a spread of 1.00% to 2.00%, as determined on a quarterly basis based on the Company’s leverage ratio. As of December 31, 2019 the interest rate on the Credit Agreement was 4.54%. The base rate is defined in a manner such that it will not be less than LIBOR. The Company will pay fees for standby letters of credit at an annual rate equal to 2.00% to 3.00%, as determined on a quarterly basis based on the Company’s leverage ratio, plus facing fees and standard fees payable to the issuing bank on the respective letter of credit. Loans outstanding under the Credit Agreement may be prepaid at any time without penalty, except for LIBOR breakage costs and expenses. If LIBOR ceases to be reported, the Credit Agreement requires the Company and the Agent to endeavor to establish a commercially reasonable alternative rate of interest and until they are able to do so, all borrowings must be at the base rate.
The Credit Agreement requires the Company and its subsidiaries to comply with various affirmative covenants, including, without limitation, furnishing updated financial and other information, preserving existence and entitlements, maintaining properties and insurance, complying with laws, maintaining books and records, requiring any new domestic subsidiary meeting a materiality threshold specified in the Credit Agreement to become a guarantor thereunder and paying obligations. The Credit Agreement requires the Company and its subsidiaries to comply with, and to use commercially reasonable efforts to the extent permitted by law to cause certain material associated practices of the Company, including APC, to comply with, restrictions on liens, indebtedness and investments (including restrictions on acquisitions by the Company), subject to specified exceptions. The Credit Agreement also contains various other negative covenants binding the Company and its subsidiaries, including, without limitation, restrictions on fundamental changes, dividends and distributions, sales and leasebacks, transactions with affiliates, burdensome agreements, use of proceeds, maintenance of business, amendments of organizational documents, accounting changes and prepayments and modifications of subordinated debt.
The Credit Agreement requires the Company to comply with two key financial ratios, each calculated on a consolidated basis. The Company must maintain a maximum consolidated leverage ratio of not greater than 3.75 to 1.00 as of the last day of each fiscal quarter. The maximum consolidated leverage ratio decreases by 0.25 each year, until it is reduced to 3.00 to 1.00 for each fiscal quarter ending after September 30, 2022. The Company must maintain a minimum consolidated interest coverage ratio of not less than 3.25 to 1.00 as of the last day of each fiscal quarter. As of December 31, 2019, the Company was in compliance with the covenants relating to its credit facility.
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
Pursuant to the Guaranty and Security Agreement, the Company and NMM have granted the Lenders a security interest in all of their assets, including, without limitation, all stock and other equity issued by their subsidiaries (including NMM) and all rights with respect to the AP-AMH Loan. The Guaranty and Security Agreement requires the Company and NMM to comply with various affirmative and negative covenants, including, without limitation, covenants relating to maintaining perfected security interests, providing information and documentation to the Agent, complying with contractual obligations relating to the collateral, restricting the sale and issuance of securities by their respective subsidiaries and providing the Agent access to the collateral.
The Credit Agreement contains events of default, including, without limitation, failure to make a payment when due, default on various covenants in the Credit Agreement, breach of representations or warranties, cross-default on other material indebtedness, bankruptcy or insolvency, occurrence of certain judgments and certain events under the Employee Retirement Income Security Act of 1974 aggregating more than $10.0 million, invalidity of the loan documents, any lien under the Guaranty and Security Agreement ceasing to be valid and perfected, any change in control, as defined in the Credit Agreement, an event of default under the AP-AMH Loan, failure by APC to pay dividends in cash for any period of two consecutive fiscal quarters, failure by AP-AMH to pay cash interest to the Company, or if any modification is made to the Certificate of Determination or the Special Purpose Shareholder Agreement that directly or indirectly restricts, conditions, impairs, reduces or otherwise limits the payment of the Series A Preferred dividend by APC to AP-AMH. In addition, it will constitute an event of default under the Credit Agreement if APC uses all or any portion of the consideration received by APC from AP-AMH on account of AP-AMH’s purchase of Series A Preferred Stock for any purpose other than certain specific approved uses described in the following sentence, unless not less than 50.01% of all holders of common stock of APC at such time approve such use; provided that APC may use up to $50.0 million in the aggregate of such consideration for any purpose without any requirement to obtain such approval of the holders of common stock of APC. The approved uses include (i) any permitted investment, (ii) any dividend or distribution to the holders of the common stock of APC, (iii) any repurchase of common stock of APC, (iv) paying taxes relating to or arising from certain assets and transactions, or (v) funding losses, deficits or working capital support on account of certain non-healthcare assets in an amount not to exceed $125.0 million. If any event of default occurs and is continuing under the Credit Agreement, the Lenders may terminate their commitments, and may require the Company and its guarantors to repay outstanding debt and/or to provide a cash deposit as additional security for outstanding letters of credit. In addition, the Agent, on behalf of the Lenders, may pursue remedies under the Guaranty and Security Agreement, including, without limitation, transferring pledged securities of the Company’s subsidiaries in the name of the Agent and exercising all rights with respect thereto (including the right to vote and to receive dividends), collect on pledged accounts, instruments and other receivables (including the AP-AMH Loan), and all other rights provided by law or under the loan documents and the AP-AMH Loan.
In the ordinary course of business, certain of the Lenders under the Credit Agreement and their affiliates have provided to the Company and its subsidiaries and the associated practices, and may in the future provide, (i) investment banking, commercial banking (including pursuant to certain existing business loan and credit agreements being terminated in connection with entering into the Credit Agreement), cash management, foreign exchange or other financial services, and (ii) services as a bond trustee and other trust and fiduciary services, for which they have received compensation and may receive compensation in the future.
Deferred Financing Costs
The Company recorded deferred financing costs of $6.4 million related to the issuance of the Credit Facility. This amount was recorded as a direct reduction of the carrying amount of the related debt liability. The deferred financing costs related to the term loan will be amortized over the life of the Credit Facility using the effective interest rate method. The deferred financing costs related to the revolver will be amortized using the straight line method over the term of the revolver. During the year ended December 31, 2019, $0.5 million of amortization relating to deferred financing costs is included under "Depreciation and Amortization" of the cash flow statement.
Effective Interest Rate
The Company’s average effective interest rate on its total debt during the years ended December 31, 2019, 2018 and 2017 was 3.39%, 4.72%, and 2.27%, respectively.
Bank Loan
In December 2010, ICC obtained a loan of $4.6 million from a financial institution. The loan bears interest based on the Wall Street Journal “prime rate” or 5.50% per annum, as of December 31, 2018. The loan was collateralized by the medical equipment ICC owns and guaranteed by one of ICC’s shareholders. The loan matured on December 31, 2018 and final payment was made in January 2019.
Lines of Credit – Related Party
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
NMM Business Loan
On June 14, 2018, NMM amended its promissory note agreement with Preferred Bank, which is affiliated with one of the Company’s board members, (“NMM Business Loan Agreement”), which provides for loan availability of up to $20.0 million with a maturity date of June 22, 2020. One of the Company’s board members is the chairman and CEO of Preferred Bank. The NMM Business Loan Agreement was amended on September 1, 2018 to temporarily increase the loan availability from $20.0 million to $27.0 million for the period from September 1, 2018 through January 31, 2019, further extended to October 31, 2019 to facilitate the issuance of an additional standby letter of credit for the benefit of CMS. The interest rate is based on the Wall Street Journal “prime rate” plus 0.125%, or 5.625%, as of December 31, 2018. The loan was guaranteed by Apollo Medical Holdings, Inc. and is collateralized by substantially all of the assets of NMM. The amounts outstanding as of June 30, 2019 of $5.0 million was fully repaid on September 11, 2019.
On September 5, 2018, NMM entered into a non-revolving line of credit agreement with Preferred Bank, which is affiliated with one of the Company’s board members, (“NMM Line of Credit Agreement”) which provides for loan availability of up to $20.0 million with a maturity date of September 5, 2019. This credit facility was subsequently amended on April 17, 2019 and July 29, 2019 to reduce the loan availability from $20.0 million to $16.0 million and from $16.0 million to $2.2 million, respectively. The interest rate is based on the Wall Street Journal “prime rate” plus 0.125%, or 4.875%, as of December 31, 2019. The line of credit is guaranteed by Apollo Medical Holdings, Inc. and is collateralized by substantially all assets of NMM. NMM obtained this line of credit to finance potential acquisitions. Each drawdown from the line of credit is converted into a five-year term loan with monthly principal payments plus interest based on a five-year amortization schedule.
On September 11, 2019, the NMM Business Loan Agreement, dated as of June 14, 2018, between NMM and Preferred Bank, as amended, and the Line of Credit Agreement, dated as of September 5, 2018, between NMM and Preferred Bank, as amended, was terminated in connection with the closing of the Credit Facility. Certain letters of credit issued by Preferred Bank under the Line of Credit Agreement was terminated and reissued under the Credit Agreement. These outstanding letters of credit totaled $14.8 million as of December 31, 2019 and the Company has $10.2 million available under the letter of credit subfacility.
APC Business Loan
On June 14, 2018, APC amended its promissory note agreement with Preferred Bank, which is affiliated with one of the Company’s board members, (“APC Business Loan Agreement”) which provides for loan availability of up to $10.0 million with a maturity date of June 22, 2020. This credit facility was subsequently amended on April 17, 2019 and June 11, 2019 to increase the loan availability from $10.0 million to $40.0 million and extend the maturity date through December 31, 2020. On August 1, 2019 and September 10, 2019, this credit facility was further amended to increase loan availability from $40.0 million to $43.8 million, and decrease loan availability from $43.8 million to $4.1 million, respectively. This decrease further limited the purpose of the indebtedness under APC Business Loan Agreement to the issuance of standby letters of credit, and added as a permitted lien the security interest in all of its assets granted by APC in favor of NMM under a Security Agreement dated on or about September 11, 2019 securing APC’s obligations to NMM under, and as required pursuant to, that certain Management Services Agreement dated as of July 1, 1999, as amended. The interest rate is based on the Wall Street Journal “prime rate” plus 0.125%, or 4.875% and 5.625%, as of December 31, 2019 and December 31, 2018, respectively. As of December 31, 2019 there is no additional availability under this line of credit.
Standby Letters of Credit
On March 3, 2017, APAACO established an irrevocable standby letter of credit with Preferred Bank, which is affiliated with one of the Company’s board members, (through the NMM Business Loan Agreement) for $6.7 million for the benefit of CMS. The letter of credit expired on December 31, 2018 and was automatically extended without amendment for additional one - year periods from the present or any future expiration date, unless notified by the institution to terminate prior to 90 days from any expiration date. APAACO may continue to draw from the letter of credit for one year following the bank’s notification of non-renewal. As of December 31, 2019, CMS has released the Company from this obligation.
On October 2, 2018, APAACO established a second irrevocable standby letter of credit with Preferred Bank, which is affiliated with one of the Company’s board members, (through the NMM Business Loan Agreement) for $6.6 million for the benefit of CMS. The letter of credit expires on December 31, 2019 and is automatically extended without amendment for additional one - year periods from the present or any future expiration date, unless notified by the institution to terminate prior to 90 days from any expiration date. APAACO may continue to draw from the letter of credit for one year following the bank’s notification of non-renewal. This standby letter of credit was subsequently amended on August 14, 2019 to increase amount from $6.6 million to $14.8 million and extended the expiration date to December 31, 2020 with all other terms and conditions to remain unchanged. In connection with the closing of the Credit Facility, this letter of credit was terminated and reissued under the Credit Agreement.
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
APC established irrevocable standby letters of credit with a financial institution for a total of $0.3 million for the benefit of certain health plans. The standby letters of credit are automatically extended without amendment for additional one-year periods from the present or any future expiration date, unless notified by the institution in advance of the expiration date that the letter will be terminated.
Alpha Care established irrevocable standby letters of credit with Preferred Bank under the APC Business Loan Agreement for a total of $3.8 million for the benefit of certain health plans. The standby letters of credit are automatically extended without amendment for additional one-year periods from the present or any future expiration date, unless notified by the institution in advance of the expiration date that the letter will be terminated.
Provision for income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Current
|
|
|
|
|
|
Federal
|
$
|
9,034,736
|
|
|
$
|
21,058,703
|
|
|
$
|
19,219,251
|
|
State
|
5,924,933
|
|
|
9,646,172
|
|
|
5,336,885
|
|
|
|
|
|
|
|
|
14,959,669
|
|
|
30,704,875
|
|
|
24,556,136
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
Federal
|
(3,508,348
|
)
|
|
(5,954,666
|
)
|
|
(18,718,113
|
)
|
State
|
(3,284,689
|
)
|
|
(2,390,569
|
)
|
|
(1,951,238
|
)
|
|
|
|
|
|
|
|
(6,793,037
|
)
|
|
(8,345,235
|
)
|
|
(20,669,351
|
)
|
|
|
|
|
|
|
Total provision for income taxes
|
$
|
8,166,632
|
|
|
$
|
22,359,640
|
|
|
$
|
3,886,785
|
|
The Company uses the liability method of accounting for income taxes as set forth in ASC 740. Under the liability method, deferred taxes are determined based on differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. As of December 31, 2019, the Company had Federal and California net operating loss carryforwards of approximately $45.6 million and $61.3 million, respectively. The Federal and California net operating loss carryforwards will expire at various dates from 2026 through 2039; however, $23.1 million of the Federal operating loss does not expire and will be carried forward indefinitely. Pursuant to Internal Revenue Code Sections 382 and 383, use of the Company's net operating loss and credit carryforwards may be limited if a cumulative change in ownership of more than 50% occurs within any three years' period since the last ownership change. The Company had a change in control under these Sections with the completion of the Merger. The Company has performed an analysis of the limitation on the NOLs acquired with the Merger and has determined it will be able to utilize all of the net operating losses (“NOLs”) before they expire.
Significant components of the Company's deferred tax assets (liabilities) as of December 31, 2019 and December 31, 2018 are shown below. During the year ended December 31, 2019, the Company recorded a non-cash reclassification $0.9 million of deferred tax liabilities to income tax payable related to utilization of NOLs. A valuation allowance of $8.2 million and $3.4 million as of December 31, 2019 and December 31, 2018, respectively, has been established against the Company's deferred tax assets related to loss entities the Company cannot consolidate under the Federal consolidation rules, as realization of these assets is uncertain.
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
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|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Deferred tax assets (liabilities)
|
|
|
|
State taxes
|
$
|
1,110,659
|
|
|
$
|
1,886,010
|
|
Stock options
|
1,293,164
|
|
|
1,660,664
|
|
Accrued payroll and related cost
|
277,682
|
|
|
238,633
|
|
Accrued hospital pool deficit
|
188,075
|
|
|
168,413
|
|
Allowance for bad debts
|
544,028
|
|
|
1,124,917
|
|
Investment in other entities
|
2,977,431
|
|
|
884,922
|
|
Net operating loss carryforward
|
13,849,685
|
|
|
6,414,256
|
|
Lease liability
|
3,567,302
|
|
|
—
|
|
Property and equipment
|
(927,011
|
)
|
|
(1,286,087
|
)
|
Acquired intangible assets
|
(29,195,045
|
)
|
|
(24,084,892
|
)
|
Right-of-use assets
|
(3,544,315
|
)
|
|
—
|
|
Risk Pool Receivable
|
(1,623,049
|
)
|
|
(2,434,573
|
)
|
Other
|
1,403,446
|
|
|
(792,781
|
)
|
|
|
|
|
Net deferred tax liabilities before valuation allowance
|
(10,077,948
|
)
|
|
(16,220,518
|
)
|
|
|
|
|
Valuation allowance
|
(8,191,500
|
)
|
|
(3,395,417
|
)
|
Net deferred tax liabilities
|
$
|
(18,269,448
|
)
|
|
$
|
(19,615,935
|
)
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Tax valuation allowance
|
|
|
|
Beginning balance
|
$
|
3,395,417
|
|
|
$
|
3,224,517
|
|
Charged (credited) to tax expense
|
1,085,842
|
|
|
170,900
|
|
Charged to goodwill
|
3,710,241
|
|
|
—
|
|
Ending balance
|
8,191,500
|
|
|
3,395,417
|
|
On December 22, 2017, the U.S. government enacted comprehensive tax legislation known as the Tax Cuts and Jobs Act (the "TCJA"). The TCJA establishes new tax laws that will take effect in 2018, including, but not limited to (1) reduction of the U.S. federal corporate tax rate from a maximum of 35% to 21%; (2) elimination of the corporate alternative minimum tax; (3) a new limitation on deductible interest expense; (4) the Transition Tax; (5) limitations on the deductibility of certain executive compensation; (6) changes to the bonus depreciation rules for fixed asset additions: and (7) limitations on NOLs generated after December 31, 2018, to 80% of taxable income.
ASC 740, Income Taxes, requires the effects of changes in tax laws to be recognized in the period in which the legislation is enacted. However, due to the complexity and significance of the TCJA’s provisions, the SEC staff issued Staff Accounting Bulletin (“SAB 118”), which provides guidance on accounting for the tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740.
During the first nine months of 2018, the Company recorded provisional amounts for certain enactment-date effects of the TCJA, for which the accounting had not been finalized, by applying the guidance in SAB 118. The Company recorded a decrease in its deferred tax assets and deferred tax liabilities of $6.6 million and $16.3 million, respectively, with a corresponding net adjustment to deferred income tax benefit of $9.7 million for the year ended December 31, 2017. Accordingly, the Company completed its accounting for the tax effects of the TCJA in 2018 and did not recognize any material adjustments to the 2018 provisional income tax expense.
The provision for income taxes differs from the amount computed by applying the federal income tax rate as follows for the years ended December 31:
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
|
|
|
|
|
|
Tax provision at U.S. Federal statutory rates
|
21.0
|
%
|
|
21.0
|
%
|
|
35.0
|
%
|
State income taxes net of federal benefit
|
8.1
|
|
|
6.7
|
|
|
4.4
|
|
Non-deductible permanent items
|
3.3
|
|
|
1.3
|
|
|
(9.7
|
)
|
Non-taxable entities
|
(2.7
|
)
|
|
(0.7
|
)
|
|
(1.9
|
)
|
Stock-based compensation
|
(1.5
|
)
|
|
(1.8
|
)
|
|
0.9
|
|
Change in valuation allowance
|
13.7
|
|
|
—
|
|
|
(2.9
|
)
|
Entity Conversion
|
(10.5
|
)
|
|
0.5
|
|
|
—
|
|
Change in rate
|
—
|
|
|
—
|
|
|
(19.4
|
)
|
Other
|
0.2
|
|
|
0.1
|
|
|
1.4
|
|
|
|
|
|
|
|
Effective income tax rate
|
31.6
|
%
|
|
27.1
|
%
|
|
7.8
|
%
|
The Company's effective tax rate is different from the federal statutory rate of 21% due primarily to state taxes, share-based compensation and permanent adjustments. As of December 31, 2019 and 2018, the Company does not have any unrecognized tax benefits related to various federal and state income tax matters. The Company will recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.
The Company is subject to U.S. federal income tax as well as income tax in California. The Company and its subsidiaries' state and Federal income tax returns are open to audit under the statute of limitations for the years ended December 31, 2015 through December 31, 2018 and for the years ended December 31, 2016 through December 31, 2018, respectively. The Company does not anticipate material unrecognized tax benefits within the next 12 months.
12. Mezzanine and Shareholders’ Equity
APC
As the redemption feature (see Note 2) of the shares is not solely within the control of APC, the equity of APC does not qualify as permanent equity and has been classified as noncontrolling interests in mezzanine or temporary equity. APC’s shares were not redeemable and it was not probable that the shares would become redeemable as of December 31, 2019, 2018 and 2017.
On September 10, 2019, APC-LSMA, a holding company of APC, acquired 100% of the aggregate issued and outstanding shares of capital stock of AMG for $1.2 million in cash and $0.4 million of APC common stock.
On September 11, 2019, AP-AMH purchased 1,000,000 shares of APC Series A Preferred Stock for aggregate consideration of $545.0 million in a private placement. This investment was eliminated in consolidation. In relation to the issuance of APC Series A Preferred Stock, APC incurred $0.9 million in cost (see Note 1).
Shareholders’ Equity
Preferred Stock – Series A
On October 14, 2015, ApolloMed entered into an agreement with NMM pursuant to which ApolloMed sold to NMM, and NMM purchased from ApolloMed, in a private offering of securities, 1,111,111 units, each unit consisting of one share of ApolloMed’s Preferred Stock (the “Series A”) and a common stock warrant (a “Series A Warrant”) to purchase one share of ApolloMed’s common stock at an exercise price of $9.00 per share. NMM paid ApolloMed an aggregate of $10.0 million for the units, the proceeds of which were used by ApolloMed primarily to repay certain outstanding indebtedness owed by ApolloMed to NNA of Nevada and the balance for working capital.
As required by ASC 805-10-25-10, NMM, who was the accounting acquirer, remeasured its previously held interest in ApolloMed’s (the accounting acquiree) Series A at its acquisition-date fair value of $12.7 million and was added to the consideration transferred
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
in the exchange. As part of the Merger between NMM and ApolloMed (see Note 3), the fair value of $12.7 million of such shares of Series A were included in purchase price consideration. The valuation methodology was based on an Option Pricing Method ("OPM") which utilized the observable publicly traded common stock price in valuing the Series A preferred stock within the context of the capital structure of the Company. OPM assumptions included an expected term of 2 years, volatility rate of 37.9%, and a risk-free rate of 1.8%.
At December 31, 2019 and 2018, this investment was eliminated in consolidation due to the merger between ApolloMed and NMM (see Note 3).
Preferred Stock – Series B
On March 30, 2016, ApolloMed entered into an agreement with NMM pursuant to which ApolloMed sold to NMM, and NMM purchased from ApolloMed, in a private offering of securities, 555,555 units, each unit consisting of one share of ApolloMed’s Series B Preferred Stock (“Series B”) and a common stock warrant (a “Series B Warrant”) to purchase one share of ApolloMed’s common stock at an exercise price of $10.00 per share. NMM paid ApolloMed an aggregate $5.0 million for the units.
As required by ASC 805-10-25-10, NMM, who was the accounting acquirer, remeasured its previously held interest in ApolloMed’s (the acquiree) Series B at its acquisition-date fair value of $6.4 million, and was added to the consideration transferred in the exchange. As part of the Merger between NMM and ApolloMed (see Note 3), the fair value of $6.4 million of such shares of Series B were included in purchase price consideration. The valuation methodology was based on an OPM which utilized the observable publicly traded common stock price in valuing the Series B preferred stock within the context of the capital structure of the Company. OPM assumptions included an expected term of 2 years, volatility rate of 37.9%, and a risk-free rate of 1.8%.
NMM recorded a gain of approximately $8.6 million to reflect the fair values of the Series A and Series B prior to the Merger date, which is included in gain from investments in the accompanying consolidated statement of income for the year ended December 31, 2017.
At December 31, 2019 and 2018, this investment was eliminated in consolidation due to the merger between ApolloMed and NMM (see Note 3).
2017 Share Issuances and Repurchases
Prior to the Merger date, NMM received cash in the aggregate amount of approximately $0.3 million from the exercise of stock options to purchase 102,199 shares of NMM common stock at $2.44 per share. In accordance with relevant accounting guidance, the amounts collected through December 7, 2017 were reflected as a long-term liability for unissued equity shares as of December 7, 2017 based on the terms of the forfeiture feature of the option, as noted above. In connection with the merger, the amount included in long-term liability of approximately $1.2 million for unissued equity shares were reclassified to equity to reflect the issuance of 508,133 shares of NMM common stock, which also resulted in the acceleration of the unvested portion of stock options in the amount of approximately $0.8 million which was recorded as share-based compensation expense in the consolidated statements of income.
Prior to the Merger date, an option (non-exclusivity) was exercised for the purchase of 102,641 shares of NMM common stock at $1.46 per share for gross proceeds of approximately $0.2 million.
Prior to the Merger date, NMM sold an aggregate of 129,651 shares of common stock at $14.61 per share for aggregate proceeds of approximately $1.9 million.
Prior to the Merger date, an aggregate of 109,123 shares of NMM common stock were repurchased for approximately $1.6 million at a price of $14.61 per share. An aggregate of 23,628 shares of NMM common stock were repurchased for $0.1 million at a price of $2.44 per share. Such share repurchases reduced the number of shares issued and outstanding as they were subsequently retired.
On December 8, 2017, ApolloMed completed its business combination with NMM following the satisfaction or waiver of the conditions set forth in the Merger Agreement, pursuant to which Merger Subsidiary merged with and into NMM, with NMM surviving as a wholly owned subsidiary of ApolloMed (see Note 3).
In connection with the Merger and as of the effective time of the Merger (the “Effective Time”):
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
|
|
•
|
each issued and outstanding share of NMM common stock was converted into the right to receive such number of shares of common stock of ApolloMed that results in the former NMM shareholders who did not dissent from the Merger (“former NMM Shareholders”) having a right to receive an aggregate of 30,397,489 shares of common stock of ApolloMed, subject to the 10% holdback pursuant to the Merger Agreement;
|
|
|
•
|
ApolloMed issued to former NMM Shareholders each former NMM Shareholder’s pro rata portion of (i) warrants to purchase an aggregate of 850,000 shares of common stock of ApolloMed, exercisable at $11.00 per share, and (ii) warrants to purchase an aggregate of 900,000 shares of common stock of ApolloMed, exercisable at $10.00 per share; and
|
|
|
•
|
ApolloMed held back an aggregate of 3,039,749 shares of common stock issuable to former NMM Shareholders, representing 10% of the total number of shares of ApolloMed common stock issuable to former NMM Shareholders, to secure indemnification rights of AMEH and its affiliates under the Merger Agreement (the “Holdback Shares”). The Holdback Shares were issued and outstanding as of December 31, 2019. The first tranche of 1,519,805 shares were issued in December 2018 and the remaining 1,511,380 were issued in December 2019, net of shares repurchase (see Note 13).
|
The shares of common stock issuable to former NMM shareholders in the exchange were 25,675,630 (net of 10% holdback and Treasury Shares) (see Note 3). The 10% holdback shares will be released to all the former NMM shareholders based on their respective pro rata ownership interest in NMM at the Effective Time without regard to whether the former NMM shareholders are providing any services to the Company at the time of this distribution. This holdback accommodation was made as indemnification protection to the accounting acquiree (ApolloMed), and as such, is not considered compensatory. At the time when these holdback shares were issued to the former NMM shareholders, the Company recorded the stock issuance with a reduction to additional paid-in capital to properly reflect the shares outstanding.
Upon consummation of the Merger, the Company issued 520,081 shares its common stock with a fair value of approximately $5.4 million from the conversion of the Alliance Note and accrued interest.
Common Stock
As of the date of this Report, 535,392 holdback shares have not been issued to certain former NMM shareholders who were NMM shareholders at the time of closing of the Merger, as they have yet to submit properly completed letters of transmittal to ApolloMed in order to receive their pro rata portion of ApolloMed common stock and warrants as contemplated under the Merger Agreement. Pending such receipt, such former NMM shareholders have the right to receive, without interest, their pro rata share of dividends or distributions with a record date after the effectiveness of the Merger. The consolidated financial statements have treated such shares of common stock as outstanding, given the receipt of the letter of transmittal is considered perfunctory and the Company is legally obligated to issue these shares in connection with the Merger.
On March 21, 2018, the Company issued 37,593 shares of the Company’s common stock to the Company’s Chief Operating Officer for prior services rendered. The stock price on the date of issuance was $16.80 per share, which resulted in the Company recording $0.6 million of share-based compensation expense. See options and warrants section below for common stock issued upon exercise of stock options and stock purchase warrants.
Equity Incentive Plans
In connection with the Merger (see Note 3), the Company assumed ApolloMed’s 2010 Equity Incentive Plan (the “2010 Plan”) pursuant to which 500,000 shares of the Company’s common stock were reserved for issuance thereunder. The 2010 Plan provides for awards including incentive stock options, non-qualified options, restricted common stock, and stock appreciation rights. As of December 31, 2019, there were no shares available for grant.
In connection with the Merger (see Note 3), the Company assumed ApolloMed’s 2013 Equity Incentive Plan (the “2013 Plan”), pursuant to which 500,000 shares of the Company’s common stock were reserved for issuance thereunder. The Company received approval of the 2013 Plan from the Company’s stockholders on May 19, 2013. The Company issues new shares to satisfy stock option and warrant exercises under the 2013 Plan. As of December 31, 2019, there were no shares available for future grants under the 2013 Plan.
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
In connection with the Merger (see Note 3), the Company assumed ApolloMed’s 2015 Equity Incentive Plan (the “2015 Plan”), pursuant to which 1,500,000 shares of the Company’s common stock were reserved for issuance thereunder. In addition, shares that are subject to outstanding grants under the Company’s 2010 Plan and 2013 Plan but that ordinarily would have been restored to such plans reserve due to award forfeitures and terminations will roll into and become available for awards under the 2015 Plan. The 2015 Plan provides for awards, including incentive stock options, non-qualified options, restricted common stock, and stock appreciation rights. The 2015 Plan was approved by ApolloMed’s stockholders at ApolloMed’s 2016 annual meeting of stockholders that was held on September 14, 2016. As of December 31, 2019, 2018 and 2017, there were approximately 0.5 million, 0.9 million and 1.0 million shares available for future grants under the 2015 Plan, respectively.
Options
The Company’s outstanding stock options consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
|
Aggregate
Intrinsic
Value
(in millions)
|
|
|
|
|
|
|
|
|
Options outstanding at January 1, 2017
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Options assumed in the Merger (see Note 3)
|
1,141,040
|
|
|
3.95
|
|
|
5.85
|
|
|
22.6
|
|
Options granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Options exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Options forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Options outstanding at December 31, 2017
|
1,141,040
|
|
|
$
|
3.95
|
|
|
5.79
|
|
|
$
|
22.6
|
|
Options granted
|
155,000
|
|
|
9.85
|
|
|
—
|
|
|
—
|
|
Options exercised
|
(639,800
|
)
|
|
4.11
|
|
|
—
|
|
|
9.8
|
|
Options forfeited
|
(9,000
|
)
|
|
3.41
|
|
|
—
|
|
|
—
|
|
Options outstanding at December 31, 2018
|
647,240
|
|
|
$
|
5.62
|
|
|
4.13
|
|
|
$
|
9.2
|
|
Options granted
|
279,698
|
|
|
17.24
|
|
|
—
|
|
|
—
|
|
Options exercised
|
(241,214
|
)
|
|
6.09
|
|
|
—
|
|
|
2.7
|
|
Options forfeited
|
(78,378
|
)
|
|
17.62
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2019
|
607,346
|
|
|
$
|
9.22
|
|
|
3.42
|
|
|
$
|
5.6
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2019
|
439,776
|
|
|
$
|
4.58
|
|
|
2.09
|
|
|
$
|
5.6
|
|
During the year ended December 31, 2019 and 2018, stock options were exercised for 241,214 and 488,464 shares, respectively, of the Company’s common stock, which resulted in proceeds of approximately $1.5 million and $1.8 million, respectively. The exercise prices ranged from $1.50 to $10.00 per share for the exercises during the year ended December 31, 2019 and ranged from $0.01 to $10.00 per share for the exercises during the year ended December 31, 2018.
During the year ended December 31, 2018, stock options were exercised pursuant to the cashless exercise provision of the option agreement, with respect to 151,346 shares of the Company’s common stock, which resulted in the Company issuing 109,438 net shares. During the year ended December 31, 2019, no stock options were exercised pursuant the cashless exercise provision.
During the year ended December 31, 2019, the Company granted 145,228 and 56,092 five year stock options to certain ApolloMed board members and executives, respectively, with exercise price ranging from $15.35 - $18.11 and $18.91, respectively, which were recognized at fair value, as determining using the Black-Scholes option pricing model and following:
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Board Members
|
|
Executives
|
Expected Term
|
|
3.0 years
|
|
|
3.0 years
|
|
Expected volatility
|
|
90.50% - 100.27%
|
|
|
84.42
|
%
|
Risk-free interest rate
|
|
1.60% - 2.51%
|
|
|
1.65
|
%
|
Market value of common stock
|
|
$15.35 - $18.11
|
|
|
$
|
18.91
|
|
Annual dividend yield
|
|
—
|
%
|
|
—
|
%
|
Forfeiture rate
|
|
0
|
%
|
|
0
|
%
|
During the year ended December 31, 2019, the Company recorded approximately $0.9 million of share-based compensation expense associated with the issuance of restricted shares of common stock and vesting of stock options which is included in General and administrative expenses in the accompanying consolidated statement of income.
Stock Options Issued Under Primary Care Physician Agreements
On October 1, 2014, NMM and APC entered into an Exclusivity Amendment Agreement as part of the Primary Care Physician Agreement to issue stock options to purchase shares of NMM and APC common stock.
The medical providers agreed to exclusivity to APC for health enrollees in consideration per provider of an exclusivity incentive in the amount of $25,000 (or $15,000 if already a preferred provider). The stock options were granted from the date of agreement through May 1, 2015 and are treated as issuances to non-employees. The exercise price of the stock options was $2.44 (for NMM pre-merger) and $0.17 (for APC) per share and providers were able to exercise anytime between August 1, 2015 and October 1, 2019, as long as the providers continue to provide services pursuant to the terms of the agreement through October 1, 2019. If the agreement is terminated by the provider with or without cause, the exclusivity incentive and any capitation payment above standard rates made in accordance with the terms of the agreement shall be fully repaid to APC by the terminating medical provider. In addition, any unexercised share options held by the terminating medical provider will be forfeited on effective date of termination, and any share options that have been exercised will be bought back by NMM and APC at the original purchase price.
As of December 31, 2018 and 2017, a total of 7,110,150 APC stock options were exercised for the purchase of shares of common stock that resulted in aggregate proceeds received by APC of $1.2 million. In accordance with relevant accounting guidance the options are reflected as long-term liability for unissued equity shares as of December 31, 2018 and 2017 of $1.2 million based on the features noted above. As of December 31, 2019, the liability totaling $1.2 million was reclassified to the appropriate equity account as the contingency to repurchase these options expired on October 1, 2019.
The stock options under the Exclusivity Amendment Agreement were accounted for at fair value, as determined using the Black-Scholes option pricing model and the following assumptions:
|
|
|
|
|
|
Years ended December 31,
|
|
2018
|
|
2017
|
|
|
|
|
Expected term
|
0.75 years
|
|
0.93 - 1.75 years
|
Expected volatility
|
38.10% - 41.60%
|
|
38.10% - 41.60%
|
Risk-free interest rate
|
1.64% - 1.86%
|
|
1.64% - 1.86%
|
Market value of common stock
|
$0.52 - $0.76
|
|
$0.52 - $0.76
|
Annual dividend yield
|
2.23% - 3.53%
|
|
2.23% - 3.53%
|
Forfeiture rate
|
0% - 6.8%
|
|
0% - 6.8%
|
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
Outstanding stock options granted to primary care physicians to purchase shares of APC’s common stock consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
Options outstanding at January 1, 2017
|
1,910,400
|
|
|
$
|
0.167
|
|
|
2.75
|
|
|
$
|
1.1
|
|
Options granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Options exercised
|
(1,056,600
|
)
|
|
0.167
|
|
|
—
|
|
|
(0.6
|
)
|
Options forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Options outstanding at December 31, 2017
|
853,800
|
|
|
$
|
0.167
|
|
|
1.75
|
|
|
$
|
0.5
|
|
Options granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Options exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Options forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Options outstanding at December 31, 2018
|
853,800
|
|
|
$
|
0.167
|
|
|
0.75
|
|
|
$
|
0.5
|
|
Options granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Options exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Options forfeited
|
(853,800
|
)
|
|
0.167
|
|
|
—
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
Options outstanding and exercisable at December 31, 2019
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
The aggregate intrinsic value is calculated as the difference between the exercise price and the estimated fair value of common stock as of December 31, 2018 and 2017.
Share-based compensation expense related to option awards granted to primary care physicians with Exclusivity Agreements to purchase shares of APC’s common stock, are recognized over their respective vesting periods, and consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Share-based compensation expense:
|
|
|
|
|
|
General and administrative
|
$
|
607,146
|
|
|
$
|
809,528
|
|
|
$
|
2,113,116
|
|
|
$
|
607,146
|
|
|
$
|
809,528
|
|
|
$
|
2,113,116
|
|
The Company has no unrecognized share based compensation stock option awards granted in connection with the Exclusivity Amendment Agreements as of December 31, 2019.
Warrants
Common stock warrants, to purchase 1,111,111 shares of ApolloMed common stock, issued to NMM in connection with the Series A Preferred Stock investment in ApolloMed may be exercised at any time after issuance and through October 14, 2020, for $9.00 per share, subject to adjustment in the event of stock dividends and stock splits. As part of the Merger between NMM and ApolloMed (see Note 3), such warrants were distributed to former NMM shareholders on a pro-rata basis utilizing the percentage of shares of NMM held by each shareholder prior to the merger date.
Common stock warrants, to purchase 555,555 shares of ApolloMed common stock, issued to NMM in connection with the Series B Preferred Stock investment in ApolloMed may be exercised at any time after issuance and through March 30, 2021, for $10.00 per share, subject to adjustment in the event of stock dividends and stock splits. As part of the Merger between NMM and ApolloMed
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
(see Note 3), such warrants were distributed to former NMM shareholders on a pro-rata basis utilizing the percentage of shares of NMM held by each shareholder prior to the Merger date.
The Company’s outstanding warrants consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
|
Aggregate
Intrinsic
Value
(In Millions)
|
Warrants outstanding at January 1, 2017
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Warrants assumed in the Merger
|
1,898,541
|
|
|
9.06
|
|
|
2.69
|
|
|
1.8
|
|
Warrants granted (see Note 3)
|
1,750,000
|
|
|
10.49
|
|
|
5.00
|
|
|
—
|
|
Warrants outstanding at December 31, 2017
|
3,648,541
|
|
|
$
|
9.75
|
|
|
3.74
|
|
|
$
|
52.0
|
|
Warrants granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Warrants exercised
|
(286,357
|
)
|
|
7.84
|
|
|
—
|
|
|
3.0
|
|
Warrants forfeited
|
(30,189
|
)
|
|
4.50
|
|
|
—
|
|
|
—
|
|
Warrants outstanding at December 31, 2018
|
3,331,995
|
|
|
$
|
9.93
|
|
|
2.97
|
|
|
$
|
33.1
|
|
Warrants granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Warrants exercised
|
(177,405
|
)
|
|
9.32
|
|
|
—
|
|
|
1.60
|
|
Warrants forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Warrants outstanding at December 31, 2019
|
3,154,590
|
|
|
$
|
9.96
|
|
|
2.01
|
|
|
$
|
26.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise Price Per
Share
|
|
Warrants
Outstanding
|
|
Weighted
Average
Remaining
Contractual Life
|
|
Warrants
Exercisable
|
|
Weighted
Average
Exercise Price
Per
Share
|
|
|
|
|
|
|
|
|
|
$
|
9.00
|
|
|
948,498
|
|
|
0.79
|
|
948,498
|
|
|
$
|
9.00
|
|
10.00
|
|
|
1,386,083
|
|
|
2.30
|
|
1,386,083
|
|
|
10.00
|
|
11.00
|
|
|
820,009
|
|
|
2.94
|
|
820,009
|
|
|
11.00
|
|
|
|
|
|
|
|
|
|
|
$ 9.00 –11.00
|
|
3,154,590
|
|
|
2.01
|
|
3,154,590
|
|
|
$
|
9.96
|
|
During the years ended December 31, 2019 and 2018, common stock warrants were exercised for 177,405 and 286,357 shares of the Company’s common stock, respectively which resulted in proceeds of approximately $1.7 million and $2.2 million, respectively. The exercise price ranged from $9.00 to $11.00 per share during year ended December 31, 2019 and $4.00 to $11.00 per share during year ended December 31, 2018.
Dividends
During the years ended December 31, 2019, 2018 and 2017, NMM paid dividends of $0, $13.8 million and $0, respectively. The dividends paid in the year ended December 31, 2018 was declared in December 31, 2017 as part of the merger between ApolloMed and NMM and was classified as restricted cash (see Note 3).
During the years ended December 31, 2019, 2018 and 2017, APC paid dividends of $60 million, $2.0 million and $8.75 million, respectively.
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
During the years ended December 31, 2019, 2018 and 2017, CDSC paid distributions of $2.6 million, $2.0 million and $1.7 million, respectively.
Treasury Stock
APC owns 17,290,317 shares of ApolloMed's common stock as of December 31, 2019 and 1,682,110 shares of ApolloMed’s common stock as of December 31, 2018 and 2017, respectively, which are legally issued and outstanding but excluded from shares of common stock outstanding in the consolidated financial statements, as such shares are treated as treasury shares for accounting purposes (see Note 1).
During the year ended December 31, 2019, APC established a brokerage account to invest excess capital in the equity market. The brokerage account is managed directly by an independent investment committee of the APC board, for which Dr. Kenneth Sim and Dr. Thomas Lam has been excluded. As of December 31, 2019 the brokerage account only held shares of ApolloMed, as such the brokerage account totaling $7.3 million has been recorded as treasury shares.
On December 18, 2018 the Company entered into a settlement agreement and mutual release with former APCN shareholders to repurchase all the equity interests in ApolloMed and APC previously held by these shareholders pursuant to the stipulation. Total common shares repurchased was 168,493 and 1,662,571 from ApolloMed and APC, respectively (See Note 13).
|
|
13.
|
Commitments and Contingencies
|
Regulatory Matters
Laws and regulations governing the Medicare program and healthcare generally are complex and subject to interpretation. The Company believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing. While no regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from the Medicare and Medi-Cal programs.
As a risk-bearing organization, the Company is required to follow regulations of the DMHC. The Company must comply with a minimum working capital requirement, tangible net equity (“TNE”) requirement, cash-to-claims ratio and claims payment requirements prescribed by the DMHC. TNE is defined as net assets less intangibles, less non-allowable assets (which include amounts due from affiliates), plus subordinated obligations. At December 31, 2019 and 2018, APC, Alpha Care and Accountable Health Care were in compliance with these regulations.
Many of the Company’s payor and provider contracts are complex in nature and may be subject to differing interpretations regarding amounts due for the provision of medical services. Such differing interpretations may not come to light until a substantial period of time has passed following contract implementation. Liabilities for claims disputes are recorded when the loss is probable and can be estimated. Any adjustments to reserves are reflected in current operations.
Standby Letters of Credit
As part of the APAACO participation with CMS, the Company must provide a financial guarantee to CMS, the guarantee generally must be in an amount of 2% of our benchmark Medicare Part A and Part B expenditures. The Company has established irrevocable standby letters of credit with Preferred Bank, which is affiliated with one of the Company’s board members, of $8.2 million and $6.6 million for the 2019 and 2018 performance years, respectively (see Note 10).
APC established irrevocable standby letters of credit with a financial institution for a total of $0.3 million for the benefit of certain health plans. The standby letters of credit are automatically extended without amendment for additional one-year periods from the present or any future expiration date, unless notified by the institution in advance of the expiration date that the letter will be terminated (see Note 10).
Alpha Care established irrevocable standby letters of credit with Preferred Bank under the APC Business Loan Agreement for a total of $3.8 million for the benefit of certain health plans. The standby letters of credit are automatically extended without amendment for additional one-year periods from the present or any future expiration date, unless notified by the institution in advance of the expiration date that the letter will be terminated.
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
Litigation
From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of its business. The resolution of any claim or litigation is subject to inherent uncertainty and could have a material adverse effect on the Company’s financial condition, cash flows or results of operations.
Prospect Medical Systems
On or about March 23, 2018 and April 3, 2018, a Demand for Arbitration and an Amended Demand for Arbitration were filed by Prospect Medical Group, Inc. and Prospect Medical Systems, Inc. (collectively, “Prospect”) against MMG, ApolloMed and AMM with Judicial Arbitration Mediation Services in California, arising out of MMG’s purported business plans, seeking damages in excess of $5.0 million, and alleging breach of contract, violation of unfair competition laws, and tortious interference with Prospect’s current and future economic relationships with its health plans and their members. MMG, ApolloMed and AMM dispute the allegations and intend to vigorously defend against this matter. The resolution of this matter and any potential range of loss in excess of any current accrual cannot be reasonably determined or estimated at this time primarily because the matter has not been fully arbitrated and presents unique regulatory and contractual interpretation issues.
APCN Shareholders
On December 18, 2018 the Company entered into a settlement agreement and mutual release with former APCN shareholders to repurchase all the equity interests in ApolloMed and APC previously held by these shareholders pursuant to the stipulation. ApolloMed and APC paid approximately $4.2 million and $1.7 million, respectively, to repurchase 168,493 and 1,662,571 shares of common stock of each company, respectively. The Company recognized approximately $0.8 million of legal settlement liability based on the settlement amount which exceeded the fair value of the repurchased ApolloMed and APC shares of common stock and warrants.
Liability Insurance
The Company believes that its insurance coverage is appropriate based upon the Company’s claims experience and the nature and risks of the Company’s business. In addition to the known incidents that have resulted in the assertion of claims, the Company cannot be certain that its insurance coverage will be adequate to cover liabilities arising out of claims asserted against the Company, the Company’s affiliated professional organizations or the Company’s affiliated hospitalists in the future where the outcomes of such claims are unfavorable. The Company believes that the ultimate resolution of all pending claims, including liabilities in excess of the Company’s insurance coverage, will not have a material adverse effect on the Company’s financial position, results of operations or cash flows; however, there can be no assurance that future claims will not have such a material adverse effect on the Company’s business. Contracted physicians are required to obtain their own insurance coverage.
Although the Company currently maintains liability insurance policies on a claims-made basis, which are intended to cover malpractice liability and certain other claims, the coverage must be renewed annually, and may not continue to be available to the Company in future years at acceptable costs, and on favorable terms.
|
|
14.
|
Related Party Transactions
|
On November 16, 2015, UCAP entered into a subordinated note receivable agreement with UCI, a 48.9% owned equity method investee (See Note 6), in the amount of $5.0 million. On June 28, 2018 and November 28, 2018, UCAP entered into two new subordinated note receivable agreements with UCI in the amount of $2.5 million and $5.0 million, respectively (see Note 7).
During the years ended December 31, 2019 and 2018, NMM earned approximately $17.3 million and $21.6 million, respectively, in management fees, of which $2.0 million and $0.8 million, remained outstanding, respectively, from LMA, which is accounted for under the equity method based on 25% equity ownership interest held by APC (see Note 6).
During the years ended December 31, 2019 and 2018, APC paid approximately $2.7 million and $2.5 million, respectively, to PMIOC for provider services, which is accounted for under the equity method based on 40% equity ownership interest held by APC (see Note 6).
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
During the years ended December 31, 2019 and 2018, APC paid approximately $7.8 million and $7.0 million, respectively, to DMG for provider services, which is accounted for under the equity method based on 40% equity ownership interest held by APC (see Note 6).
During the year ended December 31, 2019 and 2018, APC paid approximately $0.4 million and $0.3 million, respectively, to Advance Diagnostic Surgery Center for services as a provider. Advance Diagnostic Surgery Center shares common ownership with certain board members of APC.
During the years ended December 31, 2019 and 2018, NMM paid approximately $1.1 million and $1.0 million to Medical Property Partners (“MPP”) for an office lease. MPP shares common ownership with certain board members of NMM (see Note 19).
During the years ended December 31, 2018, APC paid approximately $0.2 million to Tag-2Medical Investment Group, LLC (“Tag-2”) for an office lease. Tag-2 shares common ownership with a board member of APC.
During the years ended December 31, 2019 and 2018, the Company paid approximately $0.5 million and $0.4 million, respectively, to Critical Quality Management Corp (“CQMC”) for an office lease. CQMC shares common ownership with certain board members of APC (see Note 19).
During the years ended December 31, 2019 and 2018, SCHC paid approximately $0.4 million and $0.5 million, respectively, to Numen, LLC (“Numen”) for an office lease. Numen is owned by a shareholder of APC (see Note 19).
The Company has agreements with HSMSO, Aurion Corporation (“Aurion”), and AHMC Healthcare (“AHMC”) for services provided to the Company. One of the Company’s board members is an officer of AHMC, HSMSO and Aurion. Aurion is also partially owned by one of the Company’s board members. The following table sets forth fees incurred and income received related to AHMC, HSMSO and Aurion Corporation:
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2019
|
|
2018
|
AHMC – Risk pool revenue
|
$
|
49,300,000
|
|
|
$
|
68,200,000
|
|
HSMSO – Management fees, net
|
(1,700,000
|
)
|
|
(2,600,000
|
)
|
Aurion – Management fees
|
(300,000
|
)
|
|
(317,000
|
)
|
|
|
|
|
Receipts, Net
|
$
|
47,300,000
|
|
|
$
|
65,283,000
|
|
The Company and AHMC has a risk sharing agreement with certain AHMC hospitals to share the surplus and deficits of each of the hospital pools. During the years ended December 31, 2019 and 2018 the Company has recognized risk pool revenue under this agreement of $49.3 million and $68.2 million respectively, of which $40.4 million and $44.2 million, respectively, remain outstanding as of December 31, 2019 and 2018, respectively.
During the years ended December 31, 2019 and 2018, APC paid an aggregate of approximately $22.0 million and $35.2 million, respectively, to shareholders of APC for provider services, which included approximately $8.8 million and $13.5 million, respectively, to shareholders who are also officers of APC.
During the year ended December 31, 2019, NMM paid approximately $0.2 million to an Apollo board member for consulting services.
In addition, affiliates wholly-owned by the Company’s officers, including our Co-CEO, Dr. Lam, are reported in the accompanying consolidated statements of income on a consolidated basis, together with the Company’s subsidiaries, and therefore, the Company does not separately disclose transactions between such affiliates and the Company’s subsidiaries as related party transactions.
For equity method investments, loans receivable and line of credits from related parties, see Notes 6, 7 and 10, respectively.
|
|
15.
|
Employee Benefit Plan
|
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
NMM has a qualified 401(k) plan that covers substantially all employees who have completed at least six months of service and meet minimum age requirements. Participants may contribute a portion of their compensation to the plan, up to the maximum amount permitted under Section 401(k) of the Internal Revenue Code. Participants become fully vested after six years of service. NMM matches a portion of the participants’ contributions. NMM’s matching contributions for the years ended December 31, 2019 and 2018 were approximately $0.2 million.
At the adoption of Topic 606, the cumulative effect of initially applying the new revenue standard is required to be presented as an adjustment to the opening balance of retained earnings. This cumulative effect amount was determined to be related to the full risk pool arrangements of APC, a variable interest entity (see Note 18). Due to uncertainty surrounding the settlement of the related IBNR reserve, under ASC Topic 605, the Company has historically recognized revenue from full risk pool settlements under arrangements with hospitals when such amounts are known as the related revenue amounts were not deemed to be fixed and determinable until that time. Under ASC Topic 606, the transaction price includes an assessment of variable consideration; therefore, full risk pool settlements under these arrangements are recognized using the most likely method and amounts are only included in revenue to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved. The assumptions for historical medical loss ratios, IBNR completion factors and constraint percentages were used by management in applying the most likely method. Accordingly, the Company has estimated an additional amount of revenue to recognize the expected amount that is most likely to be paid upon settlement of each of the open full risk pool fiscal year, which amount was included in the adoption date adjustment to retained earnings. Therefore, the cumulative net effect of initially applying Topic 606 in the amount of $10.2 million, which is comprised of $11.6 million of additional revenue, offset by $1.4 million in related management fee expense, has been presented as an adjustment to the opening balance of the mezzanine equity, “Noncontrolling interest in Allied Pacific of California IPA.” Consequently, as a result of APC recording additional receivables, NMM recorded a corresponding entry of $1.4 million to retained earnings related to management fee income. These adjustments were offset by an aggregate adjustment to deferred tax liability of $3.2 million.
Basic net income per share is calculated using the weighted average number of shares of the Company’s common stock issued and outstanding during a certain period, and is calculated by dividing net income by the weighted average number of shares of the Company’s common stock issued and outstanding during such period. Diluted net income per share is calculated using the weighted average number of common and potentially dilutive common shares outstanding during the period, using the as-if converted method for preferred stock and the treasury stock method for options and common stock warrants.
Pursuant to the Merger Agreement, ApolloMed held back 10% of the shares of its common stock that were issuable to NMM shareholders (“Holdback Shares”) to secure indemnification of ApolloMed and its affiliates under the Merger Agreement. The Holdback Shares will be held for a period of up to 24 months, with 50% issued on the first anniversary of the merger and the remaining 50% issued on the second anniversary, after the closing of the Merger (to be distributed on a pro-rata basis to former NMM shareholders), during which ApolloMed may seek indemnification for any breach of, or noncompliance with, any provision of the Merger Agreement, by NMM. The Holdback Shares are excluded from the computation of basic earnings per share, but included in diluted earnings per share. As of December 31, 2019, APC held 17,290,317 shares of ApolloMed's common stock and as of December 31, 2018 and 2017, APC held 1,682,110 shares of ApolloMed’s common stock, which are treated as treasury shares for accounting purposes and not included in the number of shares of common stock outstanding used to calculate earnings per share (see Note 12). The noncontrolling interests in APC are allocated their share of ApolloMed’s income from APC’s ownership of ApolloMed common stock and this is included in the net income attributable to noncontrolling interests on the consolidated statements of income. Therefore, none of the shares of ApolloMed held by APC are considered outstanding for the purposes of basic or diluted earnings per share computation.
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
Below is a summary of the earnings per share computations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Earnings per share – basic
|
|
$
|
0.41
|
|
|
$
|
0.33
|
|
|
$
|
1.01
|
|
Earnings per share – diluted
|
|
$
|
0.39
|
|
|
$
|
0.29
|
|
|
$
|
0.90
|
|
Weighted average shares of common stock outstanding – basic
|
|
34,708,429
|
|
|
32,893,940
|
|
|
25,525,786
|
|
Weighted average shares of common stock outstanding – diluted
|
|
36,403,279
|
|
|
37,914,886
|
|
|
28,661,735
|
|
Below is a summary of the shares included in the diluted earnings per share computations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding – basic
|
|
34,708,429
|
|
|
32,893,940
|
|
|
25,525,786
|
|
10% shares held back pursuant to indemnification clause
|
|
—
|
|
|
2,935,512
|
|
|
3,039,749
|
|
Stock options
|
|
295,672
|
|
|
459,440
|
|
|
44,716
|
|
Warrants
|
|
1,384,078
|
|
|
1,625,994
|
|
|
51,484
|
|
Restricted stock units
|
|
15,100
|
|
|
—
|
|
|
—
|
|
Weighted average shares of common stock outstanding – diluted
|
|
36,403,279
|
|
|
37,914,886
|
|
|
28,661,735
|
|
18. Variable Interest Entities (VIEs)
A VIE is defined as a legal entity whose equity owners do not have sufficient equity at risk, or, as a group, the holders of the equity investment at risk lack any of the following three characteristics: decision-making rights, the obligation to absorb losses, or the right to receive the expected residual returns of the entity. The primary beneficiary is identified as the variable interest holder that has both the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and the obligation to absorb expected losses or the right to receive benefits from the entity that could potentially be significant to the VIE.
The Company follows guidance on the consolidation of VIEs that requires companies to utilize a qualitative approach to determine whether it is the primary beneficiary of a VIE. See Note 2 to the accompanying consolidated financial statements for information on how the Company determines VIEs and its treatment.
The following table includes assets that can only be used to settle the liabilities of APC and the creditors of APC have no recourse to the Company. These assets and liabilities, with the exception of the investment in a privately held entity and amounts due to affiliate, which are eliminated upon consolidation with NMM, are included in the accompanying consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
87,110,226
|
|
|
$
|
71,726,342
|
|
Restricted cash – short-term
|
|
75,000
|
|
|
—
|
|
Investment in marketable securities
|
|
123,948,391
|
|
|
1,066,103
|
|
Receivables, net
|
|
9,300,076
|
|
|
4,512,000
|
|
Receivables, net – related party
|
|
42,976,262
|
|
|
44,651,502
|
|
Other receivables
|
|
743,757
|
|
|
—
|
|
Prepaid expenses and other current assets
|
|
7,403,057
|
|
|
3,647,654
|
|
Loans receivable
|
|
6,425,000
|
|
|
—
|
|
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
Loans receivable - related parties
|
|
16,500,000
|
|
|
—
|
|
|
|
|
|
|
Total current assets
|
|
294,481,769
|
|
|
125,603,601
|
|
|
|
|
|
|
Noncurrent assets
|
|
|
|
|
Land, property and equipment, net
|
|
9,546,924
|
|
|
9,602,228
|
|
Intangible assets, net
|
|
81,439,224
|
|
|
58,984,420
|
|
Goodwill
|
|
108,912,763
|
|
|
56,213,450
|
|
Loans receivable – related parties
|
|
—
|
|
|
12,500,000
|
|
Investments in other entities – equity method
|
|
28,486,593
|
|
|
26,707,404
|
|
Investment in privately held entities
|
|
4,725,000
|
|
|
4,725,000
|
|
Restricted cash – long-term
|
|
746,104
|
|
|
745,470
|
|
Operating lease right-of-use assets
|
|
4,750,944
|
|
|
—
|
|
Other assets
|
|
1,056,828
|
|
|
839,085
|
|
|
|
|
|
|
Total noncurrent assets
|
|
239,664,380
|
|
|
170,317,057
|
|
|
|
|
|
|
Total assets
|
|
$
|
534,146,149
|
|
|
$
|
295,920,658
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
11,186,808
|
|
|
$
|
6,378,751
|
|
Fiduciary accounts payable
|
|
2,027,081
|
|
|
1,538,598
|
|
Medical liabilities
|
|
49,019,200
|
|
|
24,983,110
|
|
Income taxes payable
|
|
4,529,667
|
|
|
11,621,861
|
|
Dividend payable
|
|
271,279
|
|
|
—
|
|
Amount due to affiliate
|
|
28,057,793
|
|
|
11,505,680
|
|
Bank loan, short-term
|
|
—
|
|
|
40,257
|
|
Finance lease liabilities
|
|
101,741
|
|
|
101,741
|
|
Operating lease liabilities
|
|
1,088,260
|
|
|
—
|
|
|
|
|
|
|
Total current liabilities
|
|
96,281,829
|
|
|
56,169,998
|
|
|
|
|
|
|
Noncurrent liabilities
|
|
|
|
|
Deferred tax liability
|
|
14,058,528
|
|
|
15,693,159
|
|
Liability for unissued equity shares
|
|
—
|
|
|
1,185,025
|
|
Finance lease liabilities, net of current portion
|
|
415,519
|
|
|
517,261
|
|
Operating lease liabilities, net of current portion
|
|
3,741,811
|
|
|
—
|
|
|
|
|
|
|
Total noncurrent liabilities
|
|
18,215,858
|
|
|
17,395,445
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
114,497,687
|
|
|
$
|
73,565,443
|
|
The Company has operating and finance leases for corporate offices, doctors’ offices, and certain equipment. These leases have remaining lease terms of 1 month to 5 years, some of which may include options to extend the leases for up to 10 years, and some of which may include options to terminate the leases within one year. As of December 31, 2019 and December 31, 2018, assets recorded under finance leases were $0.5 million and $0.6 million, respectively, and accumulated depreciation associated with finance leases was $0.3 million and $0.2 million, respectively.
Also, the Company rents or subleases certain real estate to third parties, which are accounted for as operating leases.
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
Leases with an initial term of 12 months or less are not recorded on the balance sheet.
The components of lease expense were as follows:
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
Operating lease cost
|
$
|
5,437,078
|
|
|
|
Finance lease cost
|
|
Amortization of lease expense
|
101,741
|
|
Interest on lease liabilities
|
17,179
|
|
|
|
Sublease income
|
$
|
(414,704
|
)
|
|
|
Total lease cost, net
|
$
|
5,141,294
|
|
Other information related to leases was as follows:
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
Supplemental Cash Flows Information
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
Operating cash flows from operating leases
|
$
|
5,254,079
|
|
Operating cash flows from finance leases
|
17,179
|
|
Financing cash flows from finance leases
|
101,741
|
|
|
|
Right-of-use assets obtained in exchange for lease liabilities:
|
|
Operating leases
|
16,727,589
|
|
Finance leases
|
—
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
Weighted Average Remaining Lease Term
|
|
|
|
Operating leases
|
6.48 years
|
|
Finance leases
|
4.67 years
|
|
|
|
Weighted Average Discount Rate
|
|
|
|
Operating leases
|
6.11
|
%
|
Finance leases
|
3.00
|
%
|
Apollo Medical Holdings, Inc.
Notes to Consolidated Financial Statements
Future minimum lease payments under non-cancellable leases as of December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
Years ending December 31,
|
Operating Leases
|
|
Finance Leases
|
2020
|
$
|
3,781,174
|
|
|
$
|
118,920
|
|
2021
|
2,711,802
|
|
|
118,920
|
|
2022
|
2,376,159
|
|
|
118,920
|
|
2023
|
2,130,226
|
|
|
118,920
|
|
2024
|
1,788,047
|
|
|
79,255
|
|
Thereafter
|
4,783,381
|
|
|
—
|
|
|
|
|
|
Total future minimum lease payments
|
17,570,789
|
|
|
554,935
|
|
Less: imputed interest
|
3,207,506
|
|
|
37,675
|
|
Total lease obligations
|
14,363,283
|
|
|
517,260
|
|
Less: current portion
|
2,990,686
|
|
|
101,741
|
|
Long-term lease obligations
|
$
|
11,372,597
|
|
|
$
|
415,519
|
|
As of December 31, 2019, the Company does not have additional operating and finance leases that have not yet commenced.
Supplemental Information for Comparative Periods
As of December 31, 2018, prior to the adoption of ASC 842, future minimum payments under operating leases having initial or remaining non-cancellable lease terms in excess of one year were as follows:
|
|
|
|
|
|
|
|
|
Years ending December 31,
|
Operating Leases
|
|
Finance Leases
|
2019
|
$
|
2,848,000
|
|
|
$
|
119,000
|
|
2020
|
2,267,000
|
|
|
119,000
|
|
2021
|
783,000
|
|
|
119,000
|
|
2022
|
487,000
|
|
|
119,000
|
|
2023
|
489,000
|
|
|
119,000
|
|
Thereafter
|
243,000
|
|
|
79,000
|
|
|
|
|
|
Total future minimum lease payments
|
7,117,000
|
|
|
674,000
|
|
Rent expense for leases for the years ended December 31, 2018 and 2017 was approximately $4.3 million and $2.4 million, respectively.