Apollo Medical(AMEH) - 2019 Q3 - Quarterly Report

Financial Performance - Total revenue for the quarter ended September 30, 2019, was $156.06 million, a decrease of 6% from $166.73 million in the same quarter of 2018[301]. - Net income for the quarter was $10.74 million, down 72% from $38.63 million in the prior year[301]. - Total revenue for the three months ended September 30, 2019 was $156.1 million, a decrease of $10.6 million or 6% compared to $166.7 million for the same period in 2018[306]. - Net income attributable to Apollo Medical Holdings, Inc. for the three months ended September 30, 2019 was $3.7 million, a decrease of $5.4 million or 59% compared to $9.1 million for the same period in 2018[303]. - Net income attributable to noncontrolling interests for the nine months ended September 30, 2019, decreased to $11.6 million, down 76% from $48.3 million in the same period of 2018[332]. Revenue Sources - Capitation revenue increased by 44% to $130.81 million from $90.61 million year-over-year[301]. - Capitation revenues increased by approximately $40.2 million due to acquisitions, contributing $34.5 million from Alpha Care and $4.6 million from Accountable Health Care for the three months ended September 30, 2019[306]. - Risk pool settlements and incentives decreased significantly by 80%, from $57.79 million to $11.36 million[301]. - Risk pool revenue decreased by $46.4 million due to refined assumptions regarding net surplus from affiliated hospitals' risk pools[307]. - Management fee income decreased by $4.3 million primarily due to a decrease in the number of patients served by affiliated physician groups[308]. Expenses and Costs - Operating expenses rose by 33% to $145.99 million, compared to $110.15 million in the same quarter of 2018[301]. - Total expenses for the nine months ended September 30, 2019 were $360.4 million, an increase of $33.5 million or 10% compared to $326.9 million for the same period in 2018[310]. - Cost of services for the three months ended September 30, 2019 was $131.1 million, an increase of $34.8 million or 36% compared to $96.3 million for the same period in 2018[314]. Debt and Financing - The company provided a $545 million loan to AP-AMH Medical Corporation, secured by a first priority interest in AP-AMH's assets[292]. - The Company entered into a secured credit agreement providing a five-year revolving credit facility of $100.0 million and a term loan of $190.0 million[340]. - The company drew down $39.6 million for capital to acquire Alpha Care during the nine-month period ended September 30, 2019[355]. - Cash provided by financing activities during the nine months ended September 30, 2019, was $173.7 million, mainly from net borrowings of $237.0 million[338]. - The average effective interest rate on the company's total debt was 1.02% for the three months and 0.56% for the nine months ended September 30, 2019[351]. Assets and Cash Flow - Cash, cash equivalents, and investments in marketable securities totaled $231.5 million as of September 30, 2019, an increase of 114.5% from $100.8 million at December 31, 2018[333]. - Cash provided by operating activities during the nine months ended September 30, 2019, was $10.1 million, driven by a net income of $19.0 million[335]. - Cash used in investing activities during the nine months ended September 30, 2019, was $60.4 million, primarily due to acquisitions totaling $49.4 million[337]. Management and Governance - The company appointed Kenneth Sim, M.D. as Co-Chief Executive Officer and Thomas Lam, M.D., M.P.H. as President on September 30, 2019[296]. - The company entered into a new management services agreement effective January 1, 2020, to provide services to an IPA serving approximately 145,000 members[297]. Internal Controls and Compliance - The company did not maintain effective internal controls over the review of completeness and accuracy of data related to revenue recognition[367]. - The company has identified a material weakness in internal controls over the review of completeness and accuracy of data in full risk pool reports, which could lead to potential material misstatements if not addressed[367]. - The company has a remediation plan in place to address the identified material weakness in internal control over financial reporting[368]. - The implementation of ASC 842, Leases, beginning January 1, 2019, resulted in a material impact on the company's financial position due to the recording of an operating lease right-of-use asset and liability[369]. - There were no other changes in internal control over financial reporting during the reporting period that materially affected the company's internal controls[370]. Legal Matters - The company is involved in pending legal actions primarily related to medical malpractice claims, but does not expect any individual case to have a material adverse effect on its financial condition[371].