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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2021
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___ to ___.
Commission File No. 001-37392
Apollo Medical Holdings, Inc.
(Exact name of registrant as specified in its charter)
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Delaware |
95-4472349 |
(State or Other Jurisdiction |
(I.R.S. Employer |
of Incorporation) |
Identification Number) |
1668 S. Garfield Avenue, 2nd Floor, Alhambra, California 91801
(Address of principal executive offices and zip code)
(626) 282-0288
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class |
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Trading Symbol |
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Name of Each Exchange on Which Registered |
Common Stock, $0.001 par value per share |
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AMEH |
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Nasdaq Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): ☐ Yes ☒ No
As of July 28, 2021, there were 55,340,095 shares of common stock of the registrant, $0.001 par value per share, issued and outstanding.
APOLLO MEDICAL HOLDINGS, INC.
INDEX TO FORM 10-Q FILING
TABLE OF CONTENTS
Glossary
The following abbreviations or acronyms that may be used in this document shall have the adjacent meanings set forth below:
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Accountable Health Care |
Accountable Health Care IPA, a Professional Medical Corporation |
AHMC |
AHMC Healthcare Inc. |
AIPBP |
All-Inclusive Population-Based Payments |
AKM |
AKM Medical Group, Inc. |
Alpha Care |
Alpha Care Medical Group, Inc. |
AMG |
AMG, a Professional Medical Corporation |
AMG Properties |
AMG Properties, LLC |
AMH |
ApolloMed Hospitalists, a Medical Corporation |
AMM |
Apollo Medical Management, Inc. |
AP-AMH |
AP-AMH Medical Corporation |
APAACO |
APA ACO, Inc. |
APC |
Allied Physicians of California, a Professional Medical Corporation |
APC-LSMA |
APC-LSMA Designated Shareholder Medical Corporation |
BAHA |
Bay Area Hospitalist Associates |
CDSC |
Concourse Diagnostic Surgery Center, LLC |
CMS |
Centers for Medicare & Medicaid Services |
CQMC |
Critical Quality Management Corporation |
CSI |
College Street Investment LP, a California limited partnership |
DMHC |
California Department of Managed Healthcare |
DMG |
Diagnostic Medical Group |
HSMSO |
Health Source MSO Inc., a California corporation |
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ICC |
AHMC International Cancer Center, a Medical Corporation |
IPA |
independent practice association |
LMA |
LaSalle Medical Associates |
MMG |
Maverick Medical Group, Inc. |
MPP |
Medical Property Partners, LLC |
NGACO |
Next Generation Accountable Care Organization |
NMM |
Network Medical Management, Inc. |
PMIOC |
Pacific Medical Imaging and Oncology Center, Inc. |
SCHC |
Southern California Heart Centers |
Tag 6 |
Tag-6 Medical Investments Group, LLC |
Tag 8 |
Tag-8 Medical Investments Group, LLC |
UCAP |
Universal Care Acquisition Partners, LLC |
UCI |
Universal Care, Inc. |
VIE |
variable interest entity |
ZLL |
ZLL Partners, LLC |
INTRODUCTORY NOTE
Unless the context dictates otherwise, references in this Quarterly Report on Form 10-Q to the “Company,” “we,” “us,” “our,” and similar words are references to Apollo Medical Holdings, Inc., a Delaware corporation, and its consolidated subsidiaries and affiliated entities, as appropriate, including its consolidated variable interest entities (“VIEs”) and “ApolloMed” refers to Apollo Medical Holdings, Inc.
The Centers for Medicare & Medicaid Services (“CMS”) have not reviewed any statements contained in this Quarterly Report on Form 10-Q describing the participation of APA ACO, Inc. (“APAACO”) in the Next Generation Accountable Care Organization (“NGACO”) Model.
Trade names and trademarks of the Company and its subsidiaries referred to herein and their respective logos, are our property. This Quarterly Report on Form 10-Q may contain additional trade names and/or trademarks of other companies, which are the property of their respective owners. We do not intend our use or display of other companies’ trade names and/or trademarks, if any, to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, statements about the Company’s guidance for the year ending December 31, 2021, any statements about our business (including the impact of the COVID-19 pandemic on our business), financial condition, operating results, plans, objectives, expectations and intentions, any guidance on, or projections of, earnings, revenue or other financial items, such as our projected capitation from CMS for the year ending December 31, 2021, or otherwise, and our future liquidity, including cash flows and any payments under the $545.0 million loan we made to our VIE, AP-AMH Medical Corporation (“AP-AMH”); any statements of any plans, strategies, and objectives of management for future operations, such as the material opportunities that we believe exist for our Company; any statements concerning proposed services, developments, mergers or acquisitions; any statements regarding the outlook on our NGACO Model or strategic transactions; any statements regarding management’s view of future expectations and prospects for us; any statements about prospective adoption of new accounting standards or effects of changes in accounting standards; any statements regarding future economic conditions or performance; any statements of belief; any statements of assumptions underlying any of the foregoing; and other statements that are not historical facts. Forward-looking statements may be identified by the use of forward-looking terms such as “anticipate,” “could,” “can,” “may,” “might,” “potential,” “predict,” “should,” “estimate,” “expect,” “project,” “believe,” “think,” “plan,” “envision,” “intend,” “continue,” “target,” “seek,” “contemplate,” “budgeted,” “will,” “would,” and the negative of such terms, other variations on such terms or other similar or comparable words, phrases or terminology. These forward-looking statements present our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q and are subject to change.
Forward-looking statements involve risks and uncertainties and are based on the current beliefs, expectations, and certain assumptions of management. Some or all of such beliefs, expectations and assumptions may not materialize or may vary significantly from actual results. Such statements are qualified by important economic, competitive, governmental, and technological factors that could cause our business, strategy, or actual results or events to differ materially from those in our forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K, for the year ended December 31, 2020, filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2021, including the risk factors discussed under the heading “Risk Factors” in Part I, Item IA thereof. Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change, and significant risks and uncertainties that could cause actual conditions, outcomes and results to differ materially from those indicated by such statements.
PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
APOLLO MEDICAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021 |
|
December 31, 2020 |
|
|
|
|
Assets |
|
|
|
|
|
|
|
Current assets |
|
|
|
Cash and cash equivalents |
$ |
177,287 |
|
|
$ |
193,470 |
|
|
|
|
|
Investments in marketable securities |
187,206 |
|
|
67,695 |
|
Receivables, net |
16,540 |
|
|
7,058 |
|
Receivables, net – related parties |
68,767 |
|
|
49,260 |
|
Other receivables |
4,562 |
|
|
4,297 |
|
Prepaid expenses and other current assets |
12,188 |
|
|
16,797 |
|
Loan receivable – related party |
4,000 |
|
|
— |
|
|
|
|
|
Total current assets |
470,550 |
|
|
338,577 |
|
|
|
|
|
Noncurrent assets |
|
|
|
Land, property, and equipment, net |
40,738 |
|
|
29,890 |
|
Intangible assets, net |
80,227 |
|
|
86,985 |
|
Goodwill |
239,053 |
|
|
239,053 |
|
Loans receivables |
594 |
|
|
480 |
|
Loans receivables – related parties |
— |
|
|
4,145 |
|
Investment in other entities – equity method |
37,372 |
|
|
43,292 |
|
Investments in privately held entities |
896 |
|
|
37,075 |
|
Restricted cash |
— |
|
|
500 |
|
Operating lease right-of-use assets |
16,928 |
|
|
18,574 |
|
Other assets |
8,072 |
|
|
18,915 |
|
|
|
|
|
Total noncurrent assets |
423,880 |
|
|
478,909 |
|
|
|
|
|
Total assets (1)
|
$ |
894,430 |
|
|
$ |
817,486 |
|
|
|
|
|
Liabilities, mezzanine equity, and stockholders’ equity |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
$ |
53,792 |
|
|
$ |
36,143 |
|
Fiduciary accounts payable |
9,092 |
|
|
9,642 |
|
Medical liabilities |
59,307 |
|
|
50,330 |
|
Income taxes payable |
2,215 |
|
|
4,224 |
|
Dividend payable |
536 |
|
|
485 |
|
Finance lease liabilities |
110 |
|
|
102 |
|
Operating lease liabilities |
2,831 |
|
|
3,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021 |
|
December 31, 2020 |
|
|
|
|
Current portion of long-term debt |
205 |
|
|
10,889 |
|
Total current liabilities |
128,088 |
|
|
114,992 |
|
|
|
|
|
Noncurrent liabilities |
|
|
|
Deferred tax liability |
21,242 |
|
|
10,959 |
|
Finance lease liabilities, net of current portion |
249 |
|
|
311 |
|
Operating lease liabilities, net of current portion |
14,513 |
|
|
15,865 |
|
Long-term debt, net of current portion and deferred financing costs |
182,705 |
|
|
230,211 |
|
Other long-term liabilities |
1,195 |
|
|
— |
|
|
|
|
|
Total noncurrent liabilities |
219,904 |
|
|
257,346 |
|
|
|
|
|
Total liabilities (1)
|
347,992 |
|
|
372,338 |
|
|
|
|
|
Commitments and contingencies (Note 11) |
|
|
|
|
|
|
|
Mezzanine equity |
|
|
|
Noncontrolling interest in Allied Physicians of California, a Professional Medical Corporation |
141,856 |
|
|
114,237 |
|
|
|
|
|
Stockholders’ equity |
|
|
|
Series A Preferred stock, $0.001 par value per share; 5,000,000 shares authorized (inclusive of all preferred stock, including Series B Preferred stock); 1,111,111 issued and zero outstanding |
— |
|
|
— |
|
Series B Preferred stock, $0.001 par value per share; 5,000,000 shares authorized (inclusive of all preferred stock, including Series A Preferred stock); 555,555 issued and zero outstanding |
— |
|
|
— |
|
Common stock, $0.001 par value per share; 100,000,000 shares authorized, 44,246,796 and 42,249,137 shares outstanding, excluding 10,885,732 and 12,323,164 treasury shares, as of June 30, 2021 and December 31, 2020, respectively |
44 |
|
|
42 |
|
Additional paid-in capital |
305,736 |
|
|
261,011 |
|
Retained earnings |
95,580 |
|
|
69,771 |
|
|
401,360 |
|
|
330,824 |
|
|
|
|
|
Noncontrolling interest |
3,222 |
|
|
87 |
|
|
|
|
|
Total stockholders’ equity |
404,582 |
|
|
330,911 |
|
|
|
|
|
Total liabilities, mezzanine equity, and stockholders’ equity |
$ |
894,430 |
|
|
$ |
817,486 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
(1) The Company’s consolidated balance sheets include the assets and liabilities of its consolidated VIEs. The consolidated balance sheets include total assets that can be used only to settle obligations of the Company’s consolidated VIEs totaling $1,347.6 million and $801.3 million as of June 30, 2021 and December 31, 2020, respectively, and total liabilities of the Company’s consolidated VIEs for which creditors do not have recourse to the general credit of the primary beneficiary of $107.1 million and $111.3 million as of June 30, 2021 and December 31, 2020, respectively. See Note 15 – Variable Interest Entities (VIEs) for further detail.
APOLLO MEDICAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
Revenue |
|
|
|
|
|
|
|
Capitation, net |
$ |
144,550 |
|
|
$ |
140,949 |
|
|
$ |
289,290 |
|
|
$ |
281,370 |
|
Risk pool settlements and incentives |
16,214 |
|
|
12,003 |
|
|
34,224 |
|
|
23,239 |
|
Management fee income |
8,143 |
|
|
8,690 |
|
|
16,693 |
|
|
17,505 |
|
Fee-for-service, net |
4,621 |
|
|
2,270 |
|
|
7,707 |
|
|
5,697 |
|
Other income |
2,110 |
|
|
1,257 |
|
|
3,782 |
|
|
2,463 |
|
|
|
|
|
|
|
|
|
Total revenue |
175,638 |
|
|
165,169 |
|
|
351,696 |
|
|
330,274 |
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
Cost of services, excluding depreciation and amortization |
136,214 |
|
|
136,079 |
|
|
276,829 |
|
|
280,283 |
|
General and administrative expenses |
14,199 |
|
|
11,556 |
|
|
23,663 |
|
|
23,390 |
|
Depreciation and amortization |
4,237 |
|
|
4,628 |
|
|
8,434 |
|
|
9,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
154,650 |
|
|
152,263 |
|
|
308,926 |
|
|
313,003 |
|
|
|
|
|
|
|
|
|
Income from operations |
20,988 |
|
|
12,906 |
|
|
42,770 |
|
|
17,271 |
|
|
|
|
|
|
|
|
|
Other income |
|
|
|
|
|
|
|
(Loss) income from equity method investments |
(3,134) |
|
|
834 |
|
|
(3,812) |
|
|
2,888 |
|
Gain on sale of equity method investment |
— |
|
|
99,647 |
|
|
— |
|
|
99,647 |
|
Interest expense |
(1,853) |
|
|
(2,673) |
|
|
(3,376) |
|
|
(5,541) |
|
Interest income |
563 |
|
|
863 |
|
|
912 |
|
|
1,792 |
|
Other income |
67,886 |
|
|
1,282 |
|
|
69,190 |
|
|
1,384 |
|
|
|
|
|
|
|
|
|
Total other income, net |
63,462 |
|
|
99,953 |
|
|
62,914 |
|
|
100,170 |
|
|
|
|
|
|
|
|
|
Income before provision for income taxes |
84,450 |
|
|
112,859 |
|
|
105,684 |
|
|
117,441 |
|
|
|
|
|
|
|
|
|
Provision for income taxes |
24,920 |
|
|
31,858 |
|
|
31,696 |
|
|
33,453 |
|
|
|
|
|
|
|
|
|
Net income |
59,530 |
|
|
81,001 |
|
|
73,988 |
|
|
83,988 |
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interest |
46,872 |
|
|
73,957 |
|
|
48,179 |
|
|
72,892 |
|
|
|
|
|
|
|
|
|
Net income attributable to Apollo Medical Holdings, Inc. |
$ |
12,658 |
|
|
$ |
7,044 |
|
|
25,809 |
|
|
$ |
11,096 |
|
|
|
|
|
|
|
|
|
Earnings per share – basic |
$ |
0.29 |
|
|
$ |
0.20 |
|
|
$ |
0.60 |
|
|
$ |
0.31 |
|
|
|
|
|
|
|
|
|
Earnings per share – diluted |
$ |
0.28 |
|
|
$ |
0.19 |
|
|
$ |
0.58 |
|
|
$ |
0.30 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
APOLLO MEDICAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF MEZZANINE AND STOCKHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine
Equity –
Noncontrolling
Interest in APC
|
|
|
|
|
|
|
|
Retained
Earnings
|
|
|
|
|
|
|
|
|
Common Stock Outstanding |
|
Additional
Paid-in Capital
|
|
|
|
Noncontrolling
Interest
|
|
Stockholders’
Equity
|
|
|
Shares |
|
Amount |
|
|
|
|
|
Balance at January 1, 2021 |
$ |
114,237 |
|
|
42,249,137 |
|
|
$ |
42 |
|
|
$ |
261,011 |
|
|
$ |
69,771 |
|
|
|
|
$ |
87 |
|
|
$ |
330,911 |
|
Net income |
760 |
|
|
— |
|
|
— |
|
|
— |
|
|
13,151 |
|
|
|
|
547 |
|
|
13,698 |
|
Purchase of noncontrolling interest |
(150) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
(75) |
|
|
$ |
(75) |
|
Issuance of treasury shares to APC |
— |
|
|
(34,158) |
|
|
— |
|
|
(342) |
|
|
— |
|
|
|
|
— |
|
|
$ |
(342) |
|
Cancellation of restricted stock awards |
— |
|
|
(5,281) |
|
|
— |
|
|
(144) |
|
|
— |
|
|
|
|
— |
|
|
$ |
(144) |
|
Shares issued for vesting of restricted stock awards |
— |
|
|
7,689 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
$ |
— |
|
Sales of noncontrolling interest |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
37 |
|
|
$ |
37 |
|
Shares issued for exercise of options and warrants |
— |
|
|
421,002 |
|
|
1 |
|
|
4,255 |
|
|
— |
|
|
|
|
— |
|
|
4,256 |
|
Share-based compensation |
— |
|
|
— |
|
|
— |
|
|
1,346 |
|
|
— |
|
|
|
|
— |
|
|
1,346 |
|
Balance at March 31, 2021 |
$ |
114,847 |
|
|
42,638,389 |
|
|
$ |
43 |
|
|
$ |
266,126 |
|
|
$ |
82,922 |
|
|
|
|
$ |
596 |
|
|
$ |
349,687 |
|
Net income |
46,859 |
|
|
— |
|
|
— |
|
|
— |
|
|
12,658 |
|
|
|
|
13 |
|
|
12,671 |
|
Sale of noncontrolling interest |
150 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
Shares issued for vesting of restricted stock awards |
— |
|
|
22,284 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
Shares issued for exercise of options and warrants |
— |
|
|
53,504 |
|
|
— |
|
|
561 |
|
|
— |
|
|
|
|
— |
|
|
561 |
|
Share-based compensation |
— |
|
|
— |
|
|
— |
|
|
1,556 |
|
|
— |
|
|
|
|
— |
|
|
1,556 |
|
Cancellation of restricted stock awards |
— |
|
|
(5,426) |
|
|
— |
|
|
(189) |
|
|
— |
|
|
|
|
— |
|
|
(189) |
|
Repurchase of treasury shares by noncontrolling interest |
— |
|
|
(100,000) |
|
|
— |
|
|
(2,450) |
|
|
— |
|
|
|
|
— |
|
|
(2,450) |
|
Sale of shares by noncontrolling interest |
— |
|
|
1,638,045 |
|
|
1 |
|
|
40,132 |
|
|
— |
|
|
|
|
— |
|
|
40,133 |
|
Investment in noncontrolling interest |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
3,769 |
|
|
3,769 |
|
Dividends |
(20,000) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
(1,156) |
|
|
(1,156) |
|
Balance at June 30, 2021 |
141,856 |
|
|
44,246,796 |
|
|
44 |
|
|
305,736 |
|
|
95,580 |
|
|
|
|
3,222 |
|
|
404,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine
Equity –
Noncontrolling
Interest in APC
|
|
|
|
|
|
|
|
Retained
Earnings
|
|
|
|
|
|
|
|
|
Common Stock Outstanding |
|
Additional
Paid-in Capital
|
|
|
|
Noncontrolling
Interest
|
|
Stockholders’ Equity |
|
|
Shares |
|
Amount |
|
|
|
|
|
Balance at January 1, 2020 |
$ |
168,725 |
|
|
35,908,057 |
|
|
$ |
36 |
|
|
$ |
159,608 |
|
|
$ |
31,905 |
|
|
|
|
$ |
786 |
|
|
$ |
192,335 |
|
Net (loss) income |
(1,160) |
|
|
— |
|
|
— |
|
|
— |
|
|
4,052 |
|
|
|
|
95 |
|
|
4,147 |
|
Purchase of noncontrolling interest |
(126) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
Purchase of treasury shares |
— |
|
|
(16,897) |
|
|
— |
|
|
(301) |
|
|
|
|
|
|
|
|
(301) |
|
Shares issued for exercise of options and warrants |
— |
|
|
151,601 |
|
|
— |
|
|
722 |
|
|
— |
|
|
|
|
— |
|
|
722 |
|
Share-based compensation |
— |
|
|
— |
|
|
— |
|
|
1,058 |
|
|
— |
|
|
|
|
— |
|
|
1,058 |
|
Dividends |
(10,000) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
Balance at March 31, 2020 |
$ |
157,439 |
|
|
36,042,761 |
|
|
$ |
36 |
|
|
$ |
161,087 |
|
|
$ |
35,957 |
|
|
|
|
$ |
881 |
|
|
$ |
197,961 |
|
Net income |
73,666 |
|
|
— |
|
|
— |
|
|
— |
|
|
7,044 |
|
|
|
|
291 |
|
|
7,335 |
|
Purchase of noncontrolling interest |
(125) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
Shares issued for vesting of restricted stock awards |
— |
|
|
24,453 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
Shares issued for exercise of options and warrants |
— |
|
|
242,299 |
|
|
— |
|
|
2,283 |
|
|
— |
|
|
|
|
— |
|
|
2,283 |
|
Share-based compensation |
— |
|
|
— |
|
|
— |
|
|
852 |
|
|
— |
|
|
|
|
— |
|
|
852 |
|
Cancellation of restricted stock awards |
— |
|
|
— |
|
|
— |
|
|
(236) |
|
|
— |
|
|
|
|
— |
|
|
(236) |
|
Dividends |
(20,000) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
(347) |
|
|
(347) |
|
Balance at June 30, 2020 |
210,980 |
|
|
36,309,513 |
|
|
36 |
|
|
163,986 |
|
|
43,001 |
|
|
|
|
825 |
|
|
207,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
APOLLO MEDICAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
2021 |
|
2020 |
Cash flows from operating activities |
|
|
|
Net income |
$ |
73,988 |
|
|
$ |
83,988 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
Depreciation and amortization |
8,434 |
|
|
9,330 |
|
|
|
|
|
Amortization of debt issuance costs |
741 |
|
|
658 |
|
Share-based compensation |
2,902 |
|
|
1,910 |
|
Unrealized (gain) loss from investment in equity securities |
(83,769) |
|
|
25 |
|
Loss (income) from equity method investments |
3,812 |
|
|
(2,888) |
|
Gain on sale of equity method investments |
— |
|
|
(99,647) |
|
Impairment of beneficial interest |
15,723 |
|
|
— |
|
Loss on interest rate swaps |
1,195 |
|
|
— |
|
Deferred tax |
10,283 |
|
|
(4,473) |
|
Other |
189 |
|
|
— |
|
Changes in operating assets and liabilities, net of business combinations: |
|
|
|
Receivables, net |
(9,975) |
|
|
(6,284) |
|
Receivables, net – related parties |
(19,508) |
|
|
(11,191) |
|
Other receivables |
(266) |
|
|
966 |
|
Prepaid expenses and other current assets |
4,613 |
|
|
(873) |
|
Right-of-use assets |
1,646 |
|
|
1,680 |
|
Other assets |
(426) |
|
|
(5,095) |
|
Accounts payable and accrued expenses |
16,984 |
|
|
(3,043) |
|
Fiduciary accounts payable |
(550) |
|
|
(174) |
|
Medical liabilities |
8,977 |
|
|
11,252 |
|
Income taxes payable |
(2,009) |
|
|
37,681 |
|
Operating lease liabilities |
(1,698) |
|
|
(1,247) |
|
|
|
|
|
Net cash provided by operating activities |
31,286 |
|
|
12,575 |
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
Proceeds from repayment of loans receivable – related parties |
31 |
|
|
16,500 |
|
|
|
|
|
|
|
|
|
Payments for business acquisition, net of cash acquired |
(117) |
|
|
— |
|
Prepayment for investment purchase |
(4,450) |
|
|
|
Purchases of marketable securities |
(670) |
|
|
(1,142) |
|
Purchase of investment – equity method |
(1,660) |
|
|
(500) |
|
Proceeds from sale of equity method investment |
— |
|
|
52,743 |
|
Purchases of property and equipment |
(7,364) |
|
|
(451) |
|
|
|
|
|
Cash received from consolidation of VIE |
3,322 |
|
|
— |
|
Proceeds from sale of marketable securities |
1,106 |
|
|
— |
|
Net cash (used in) provided by investing activities |
(9,802) |
|
|
67,150 |
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
Dividends paid |
(21,110) |
|
|
(30,187) |
|
Repayment of long-term debt |
(238,208) |
|
|
(2,375) |
|
Payment of finance lease obligations |
(54) |
|
|
(61) |
|
Proceeds from the exercise of stock options and warrants |
4,816 |
|
|
2,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
2021 |
|
2020 |
Repurchase of shares |
(2,981) |
|
|
(788) |
|
Purchase of noncontrolling interest |
(75) |
|
|
— |
|
Proceeds from sale of noncontrolling interest |
38 |
|
|
— |
|
|
|
|
|
Borrowings on revolver |
180,000 |
|
|
— |
|
Proceeds from sale of shares |
40,134 |
|
|
— |
|
Payment of debt issuance costs |
(727) |
|
|
— |
|
Net cash used in financing activities |
(38,167) |
|
|
(30,548) |
|
|
|
|
|
Net (decrease) increase in cash, cash equivalents, and restricted cash |
(16,683) |
|
|
49,177 |
|
|
|
|
|
Cash, cash equivalents, and restricted cash, beginning of period |
193,970 |
|
|
104,010 |
|
|
|
|
|
Cash, cash equivalents, and restricted cash, end of period |
$ |
177,287 |
|
|
$ |
153,187 |
|
|
|
|
|
Supplementary disclosures of cash flow information: |
|
|
|
Cash paid for income taxes |
$ |
23,324 |
|
|
$ |
— |
|
Cash paid for interest |
2,507 |
|
|
2,623 |
|
|
|
|
|
Supplemental disclosures of non-cash investing and financing activities |
|
|
|
Dividend declared included in dividend payable |
$ |
50 |
|
|
$ |
160 |
|
Preferred shares received from sale of equity investment |
$ |
— |
|
|
$ |
36,179 |
|
Cancellation of Restricted Stock Awards |
$ |
144 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides a reconciliation of cash, 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 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
2021 |
|
2020 |
Cash and cash equivalents |
$ |
177,287 |
|
|
$ |
152,441 |
|
|
|
|
|
Restricted cash – noncurrent |
— |
|
|
746 |
|
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows |
$ |
177,287 |
|
|
$ |
153,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2020 |
|
2019 |
Cash and cash equivalents |
$ |
193,470 |
|
|
$ |
103,189 |
|
Restricted cash – current |
500 |
|
|
746 |
|
Restricted cash – noncurrent |
— |
|
|
75 |
|
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows |
$ |
193,970 |
|
|
$ |
104,010 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
APOLLO MEDICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Description of Business
Overview
Apollo Medical Holdings, Inc. (“ApolloMed”) is a leading physician-centric, technology-powered, risk-bearing healthcare company. Leveraging its proprietary end-to-end technology solutions, ApolloMed operates an integrated healthcare delivery platform that enables providers to successfully participate in value-based care arrangements, thus empowering them to deliver high-quality care to patients in a cost-effective manner. ApolloMed was merged with Network Medical Management (“NMM”) on December 8, 2017 (“2017 Merger”). As a result of the 2017 Merger, NMM became a wholly owned subsidiary of ApolloMed, and the former NMM shareholders own a majority of the issued and outstanding common stock of ApolloMed and maintain control of the board of directors of ApolloMed. Unless the context dictates otherwise, references in these notes to the financial statements, the “Company,” “we,” “us,” “our,” and similar words are references to ApolloMed and its consolidated subsidiaries and affiliated entities, as appropriate, including its consolidated variable interest entities (“VIEs”).
Headquartered in Alhambra, California, ApolloMed’s subsidiaries and VIEs include management services organizations (“MSOs”), affiliated independent practice associations (“IPAs”), and a Next Generation Accountable Care Organization (“NGACO”). NMM and Apollo Medical Management, Inc. (“AMM”) are the administrative and managerial services companies for the affiliated physician-owned professional corporations that contract with independent physicians to deliver medical services in-office and virtually under the following brands: (i) Allied Physicians of California, a Professional Medical Corporation d.b.a. Allied Pacific of California IPA (“APC”), (ii) Alpha Care Medical Group, Inc. (“Alpha Care”), and (iii) Accountable Health Care IPA, a Professional Medical Corporation (“Accountable Health Care”). These affiliates are supported by ApolloMed Hospitalists, a Medical Corporation (“AMH”) and Southern California Heart Centers, a Medical Corporation (“SCHC”). The Company’s NGACO operates under the APA ACO, Inc. (“APAACO”) brand and participates in the Centers for Medicare & Medicaid Services (“CMS”) program that allows provider groups to assume higher levels of financial risk and potentially achieve a higher reward from participation in the program’s attribution-based risk-sharing model.
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.
MSOs and Affiliates
AMM, a wholly owned subsidiary of ApolloMed, manages affiliated medical groups, ApolloMed Hospitalists, a Medical Corporation (“AMH”) and Southern California Heart Centers, a Medical Corporation (“SCHC”). AMH provides hospitalist, intensivist, and physician advisory services. SCHC is a specialty clinic that focuses on cardiac care and diagnostic testing.
NMM was formed in 1994 as an MSO for the purposes of providing management services to medical companies and IPAs. The management services primarily include billing, collection, accounting, administration, quality assurance, marketing, compliance, and education. Following the 2017 Merger, NMM became a wholly owned subsidiary of ApolloMed.
IPAs and Affiliates
APC was incorporated in 1992 for the purpose of arranging healthcare services as an IPA. APC is owned by California-licensed physicians and professional medical corporations, and contracts with various health maintenance organizations (“HMOs”) and other licensed healthcare 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 healthcare 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 healthcare services in excess of the fixed amounts received. Some of the risk is transferred to the contracted physicians or professional corporations. The risk is subject to stop-loss provisions in contracts with HMOs.
In July 1999, APC entered into an amended and restated management and administrative services agreement with NMM (the initial management services agreement was entered into in 1997) for an initial fixed term of 30 years. Under this management arrangement, NMM performs only non-medical administrative services, does not represent that it offers medical services, and does not exercise influence or control over the practice of medicine by APC or its physicians. In accordance with relevant accounting guidance, APC is determined to be a VIE of the Company and is consolidated by NMM.
AP-AMH was formed in May 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. In accordance with relevant accounting guidance, AP-AMH is determined to be a VIE of ApolloMed and is consolidated by ApolloMed.
In September 2019, ApolloMed completed the following series of transactions with its affiliates, AP-AMH and APC:
1.ApolloMed loaned AP-AMH $545.0 million pursuant to a 10-year secured loan agreement (the “AP-AMH Loan”). 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 purchased by AP-AMH, as described below. 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 (“Series A 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).
3.APC purchased 15,015,015 shares of ApolloMed’s common stock for total consideration of $300.0 million in private placement. In connection therewith, ApolloMed granted APC certain registration rights with respect to ApolloMed’s common stock that APC purchased, and APC agreed that APC votes in excess of 9.99% of ApolloMed’s then outstanding shares will be voted by proxy given to ApolloMed’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 ApolloMed’s stockholders.
4.ApolloMed licensed to AP-AMH the right to use certain trade names 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 part of the series of transactions described above, APC and AP-AMH entered into a Second Amendment to Series A Preferred Stock Purchase Agreement clarifying the term “Excluded Assets.” Excluded Assets means (i) assets received from the sale of shares of the Series A Preferred Stock equal to the Series A Purchase Price, (ii) the assets of the Company that are not Healthcare Services Assets, including the Company’s equity interests in Universal Care, Inc., Apollo Medical Holdings, Inc., and any entity that is primarily engaged in the business of owning, leasing, developing, or otherwise operating real estate, (iii) any assets acquired with the proceeds of the sale, assignment, or other disposition of any of the assets described in clauses (i) or (ii), and (iv) any proceeds of the assets described in clauses (i), (ii), and (iii).
APC’s ownership in ApolloMed was 19.77% at June 30, 2021 and 22.58% at December 31, 2020.
Concourse Diagnostic Surgery Center, LLC (“CDSC”) was formed in March 2010 in the state of California. CDSC is an ambulatory surgery center in City of Industry, California organized by a group of highly qualified physicians, which utilizes some of the most advanced equipment in the eastern part of Los Angeles County and the San Gabriel Valley. The facility is Medicare certified and accredited by the Accreditation Association for Ambulatory Healthcare. As of June 30, 2021, APC owned 45.01% of CDSC’s capital stock. In accordance with relevant accounting guidance, CDSC is determined to be a VIE of APC and is consolidated by APC.
APC-LSMA Designated Shareholder Medical Corporation (“APC-LSMA”) was formed in October 2012 as a designated shareholder professional corporation. Dr. Thomas Lam, a stockholder 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, Accountable Health Care, and AMG, a Professional Medical Corporation (“AMG”).
Alpha Care, an IPA acquired by the Company in May 2019, 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 its enrollees and focuses on Medi-Cal/Medicaid, Commercial, and 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 healthcare providers for more than 20 years. Accountable Health Care provides quality healthcare services to its members through three federally qualified health plans and multiple product lines, including Medi-Cal, Commercial, and Medicare. In August 2019, APC and APC-LSMA acquired the remaining outstanding shares of Accountable Health Care’s capital stock that they did not already own (comprising 75%) for $7.3 million in cash.
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 network of doctors and nurse practitioners. In September 2019, APC-LSMA purchased 100% of the shares of capital stock of AMG for $1.2 million in cash and $0.4 million of APC common stock.
In December 2020, using cash comprised solely of Excluded Assets, APC purchased a 100% interest in each of Medical Property Partners, LLC (“MPP”), AMG Properties, LLC (“AMG Properties”), and ZLL Partners, LLC (“ZLL”) and a 50% interest in each of One MSO, LLC (“One MSO”), Tag-6 Medical Investment Group, LLC (“Tag 6”), and Tag-8 Medical Investment Group, LLC (“Tag 8”). These entities own buildings that are currently leased to tenants or vacant land with plans to lease the building in the future. MPP, AMG Properties, and ZLL are 100% owned subsidiaries of APC and are included in the consolidated financial statements. In April 2021, Tag 8 entered into a loan agreement with MUFG Union Bank N.A with APC as their guarantor, causing the Company to reevaluate their consolidation of Tag 8. Based on the reevaluation, it was concluded that Tag 8 is a VIE and is consolidated by APC because APC has the ability to direct the activities that most significantly affect Tag 8’s economic performance. One MSO and Tag 6 are accounted for as equity method investments as APC has the ability to exercise significant influence, but not control over the operations of the entity. These purchases are deemed Excluded Assets that are solely for the benefit of APC and its shareholders. As such, any income pertaining to APC’s interests in these properties has no impact on the Series A Dividend payable by APC to AP-AMH Medical Corporation as described in the definitive proxy statement that ApolloMed filed with the Securities and Exchange Commission (the “SEC”) on July 31, 2019 (the “2019 Proxy Statement”), and consequently will not affect net income attributable to ApolloMed.
NGACO
APAACO, jointly owned by NMM and AMM, began participating in the NGACO Model of CMS in January 2017. The NGACO Model is a 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.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated balance sheets at December 31, 2020, have been derived from the Company’s audited consolidated financial statements, but do not include all annual disclosures required by generally accepted accounting principles in the United States of America (“U.S. GAAP”). The accompanying unaudited consolidated financial statements as of June 30, 2021, and for the three and six months ended June 30, 2021 and 2020, have been prepared in accordance with U.S. GAAP for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, these unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes to the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 15, 2021. In the opinion of management, all material adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been made to make the consolidated financial statements not misleading as required by Regulation S-X, Rule 10-01. Operating results for the three and six months ended June 30, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021, or any future periods.
Principles of Consolidation
The consolidated balance sheets as of June 30, 2021 and December 31, 2020, and the consolidated statements of income for the three and six months ended June 30, 2021 and 2020, include the accounts of ApolloMed; its consolidated subsidiaries, NMM, AMM, and APAACO; its consolidated VIE, AP-AMH; AMM’s consolidated VIE, SCHC; NMM’s consolidated subsidiaries, APCN-ACO and AP-ACO; NMM’s consolidated VIE, APC; APC’s consolidated subsidiaries, Universal Care Acquisition Partners, LLC (“UCAP”), MPP, AMG Properties and ZLL, APC’s consolidated VIEs, CDSC, APC-LSMA, ICC, and Tag 8; and APC-LSMA’s consolidated subsidiaries, Alpha Care, Accountable Health Care, and AMG.
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. 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 (incurred but not reported (“IBNR”) claims), determination of full-risk and shared-risk revenue and receivables (including constraints, completion factors and historical margins), income tax-valuation allowance, share-based compensation, and right-of-use assets and lease liabilities. 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 the Company 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. 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:
1.The entity does not have sufficient equity to finance its activities without additional subordinated financial support;
2.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
3.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:
a.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:
i.Substantive participating rights in day-to-day management of the entity’s activities; or
ii.Substantive kick-out rights over the party responsible for significant decisions;
iii.The obligation to absorb the entity’s expected losses; or
iv.The right to receive the entity’s expected residual returns.
If the Company determines 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
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 belong 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 to Note 15 – “Variable Interest Entities (VIEs)” to the consolidated financial statements for information on the Company’s consolidated VIEs. 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.
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 as one reportable segment, the healthcare delivery segment, and implements and operates innovative healthcare 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.
Cash and Cash Equivalents
The Company’s 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 90 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 the insured limits of the Federal Deposit Insurance Corporation (“FDIC”). The Company believes it is not exposed to any significant credit risk with respect to its cash, cash equivalents and restricted cash. As of June 30, 2021 and December 31, 2020, the Company’s deposit accounts with banks exceeded the FDIC’s insured limit by approximately $268.2 million and $294.9 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.
Investments in Marketable Securities
Investments in marketable securities consisted of equity securities and certificates of deposit with various financial institutions. The appropriate classification of investments is determined at the time of purchase and such designation is reevaluated at each balance sheet date.
Certificates of deposit are reported at par value, plus accrued interest, with maturity dates from four months to 24 months. As of June 30, 2021 and December 31, 2020, certificates of deposit amounted to approximately $67.2 million and $67.6 million, respectively. Investments in certificates of deposit are classified as Level 1 investments in the fair value hierarchy.
Equity securities are reported at fair value. These securities are classified as Level 1 in the valuation hierarchy where quoted market prices from reputable third-party brokers are available in an active market. Equity securities held by the Company are primarily comprised of common stock of a payer partner that completed its initial public offering in June 2021. The shares were acquired as a result of UCAP selling its 48.9% ownership interest in Universal Care, Inc. (“UCI”) in April 2020. As of June 30, 2021, equity securities amounted to $119.9 million. As of December 31, 2020, prior to our payer partner’s IPO, the related investment balance was included in investment in privately held entities at its cost basis of $36.2 million in the accompanying consolidated balance sheets. For the three and six months ended June 30, 2021, the Company recognized unrealized gains of $83.8 million in other income in the accompanying consolidated income statements.