Revenue Recognition

12 Months Ended

Dec. 31, 2018

Revenue from Contract with Customer [Abstract]

17.

Revenue Recognition

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 19).

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.

The impact of the adoption of ASU 2014-09 on the Company’s revenue, when comparing the amount of revenue recognized for the year ended December 31, 2018 to the revenue that would have been recognized under the prior revenue standard ASC 605, are summarized as follows:

The table below presents the impact of the adoption of Topic 606 on the Company’s consolidated statements of income.

	Year Ended December 31, 2018
	Under ASC		Effect of ASC		As Reported
	605		606		Under ASC 606
Risk pool settlements and incentives	$	64,498,841	$	36,429,000	$	100,927,841
Total revenue		483,478,752		36,429,000		519,907,752
Provision for income taxes		12,173,610		10,186,030		22,359,640
Net income		34,024,521		26,242,970		60,267,491
Net income attributable to noncontrolling interest		26,337,701		23,094,788		49,432,489
Net income attributable to Apollo Medical Holdings, Inc.	$	7,686,820	$	3,148,182	$	10,835,002

Earnings per share - basic	$	0.23	$	0.10	$	0.33
Earnings per share - diluted	$	0.21	$	0.08	$	0.29

The table below presents the impact of the adoption of Topic 606 on the Company’s consolidated balance sheet.

	December 31, 2018
	Under ASC		Effect of ASC		As Reported
	605		606		Under ASC 606
Assets
Receivables, net – related party	$	12,292,325	$	36,429,000	$	48,721,325
Total assets		476,570,049		36,429,000		512,999,049
Current liabilities
Income taxes payable		1,435,831		10,186,030		11,621,861
Deferred tax liability		17,181,362		2,434,573		19,615,935
Mezzanine equity
Noncontrolling interest in Allied Pacific of California IPA		202,022,241		23,094,788		225,117,029
Shareholders’ equity
Retained earnings		14,640,021		3,148,182		17,788,203
Total liabilities, mezzanine equity and stockholders' equity	$	476,570,049	$	36,429,000	$	512,999,049

The cumulative effect of changes made to the Company’s consolidated balance sheet as of January 1, 2018 for the adoption of Topic 606 were as follows:

	Balance at December 31, 2017		Adjustments due to Topic 606		Balance at January 1, 2018
Current Assets
Receivables, net – related party	$	12,514,492	$	11,600,000	$	24,114,492

Liabilities, Mezzanine Equity and Stockholders’ Equity

Noncurrent Liabilities
Deferred tax liability	$	24,916,598	$	3,246,098	$	28,162,696

Mezzanine equity
Noncontrolling interest in Allied Pacific of California IPA	$	172,129,744	$	7,351,434	$	179,481,178

Stockholders’ Equity
Retained earnings	$	1,734,531	$	1,002,468	$	2,736,999

The Company operates as one reportable segment, the healthcare delivery segment, and in only a single state, California. The Company disaggregates revenue from contracts by service type and by payor. 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. The following table presents disaggregated revenue generated by each payor type for the year ended December 31, 2018 and 2017:

Year Ended December 31,	2018		2017

Commercial	$	197,008,079	$	116,947,692
Medicare		187,862,209		120,448,509
Medicaid		90,850,313		92,590,894
Other third parties		44,187,151		26,368,835
Revenue	$	519,907,752	$	356,355,930