November 5, 2021 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 2021


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

For the transition period from ___ to ___.

Commission File No. 001-37392

Apollo Medical Holdings, Inc.

(Exact name of registrant as specified in its charter)


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

1668 S. Garfield Avenue, 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:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, $0.001 par value per share

AMEH

Nasdaq Capital Market

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

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

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


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

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

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

As of October 26, 2021, there were 55,549,053 shares of common stock of the registrant, $0.001 par value per share, issued and outstanding.

APOLLO MEDICAL HOLDINGS, INC.

INDEX TO FORM 10-Q FILING

TABLE OF CONTENTS


		PAGE
	Introductory Note	4
	Note About Forward-Looking Statements	4

	PART I FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements	4
	Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020	5
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020	8
	Consolidated Statements of Mezzanine and Stockholders ’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020	9
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020	11
	Notes to Consolidated Financial Statements	13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	51
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	64
Item 4.	Controls and Procedures	65

	PART II OTHER INFORMATION

Item 1.	Legal Proceedings	66
Item 1A.	Risk Factors	66
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66
Item 3.	Defaults Upon Senior Securities	66
Item 4.	Mine Safety Disclosures	66
Item 5.	Other Information	66
Item 6.	Exhibits	67

Glossary

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


Accountable Health Care			Accountable Health Care IPA, a Professional Medical Corporation
AHMC			AHMC Healthcare Inc.
AIPBP			All-Inclusive Population-Based Payments
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
AP-AMH 2			AP-AMH 2 Medical Corporation
APAACO			APA ACO, Inc.
APC			Allied Physicians of California, a Professional Medical Corporation
APCMG			Access Primary Care Medical Group
APC-LSMA			APC-LSMA Designated Shareholder Medical Corporation

BAHA			Bay Area Hospitalist Associates
CAIPA MSO			CAIPA MSO, LLC
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 of Southern California
HSMSO			Health Source MSO Inc., a California corporation

ICC			AHMC International Cancer Center, a Medical Corporation
IPA			independent practice association
LMA			LaSalle Medical Associates
MMG			Maverick Medical Group, Inc.
MPP			Medical Property Partners, 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
Sun Labs			Sun Clinical Laboratories
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; 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)


	September 30, 2021		December 31, 2020

Assets

Current assets
Cash and cash equivalents	$	204,768	$	193,470

Investments in marketable securities	128,558		67,695
Receivables, net	18,753		7,058
Receivables, net – related parties	53,626		49,260
Other receivables	5,773		4,297
Prepaid expenses and other current assets	11,734		16,797
Loan receivable – related party	4,000		—

Total current assets	427,212		338,577

Noncurrent assets
Land, property, and equipment, net	49,280		29,890
Intangible assets, net	83,594		86,985
Goodwill	243,353		239,053
Loans receivable	584		480
Loans receivable – related party	—		4,145
Investments in other entities – equity method	45,046		43,292
Investments in privately held entities	896		37,075
Restricted cash	—		500
Operating lease right-of-use assets	16,134		18,574
Other assets	5,195		18,915

Total noncurrent assets	444,082		478,909

Total assets (1)	$	871,294	$	817,486

Liabilities, mezzanine equity, and stockholders’ equity

Current liabilities

Accounts payable and accrued expenses	$	57,505	$	36,143
Fiduciary accounts payable	8,827		9,642
Medical liabilities	42,872		50,330
Income taxes payable	4,024		4,224
Dividend payable	556		485
Finance lease liabilities	110		102
Operating lease liabilities	2,658		3,177


	September 30, 2021		December 31, 2020

Current portion of long-term debt	207		10,889

Total current liabilities	116,759		114,992

Noncurrent liabilities
Deferred tax liability	19,592		10,959
Finance lease liabilities, net of current portion	221		311
Operating lease liabilities, net of current portion	13,856		15,865
Long-term debt, net of current portion and deferred financing costs	182,813		230,211
Other long-term liabilities	6,232		—

Total noncurrent liabilities	222,714		257,346

Total liabilities (1)	339,473		372,338

Commitments and contingencies (Note 12)

Mezzanine equity
Noncontrolling interest in Allied Physicians of California, a Professional Medical Corporation	91,500		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, 44,397,050 and 42,249,137 shares issued and outstanding, excluding 10,925,702 and 12,323,164 treasury shares, as of September 30, 2021 and December 31, 2020, respectively	44		42
Additional paid-in capital	305,994		261,011
Retained earnings	129,859		69,771
	435,897		330,824

Noncontrolling interest	4,424		87

Total stockholders’ equity	440,321		330,911

Total liabilities, mezzanine equity, and stockholders’ equity	$	871,294	$	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 $601.8 million and $576.1 million as of September 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 $92.8 million and $88.6 million as of September 30, 2021 and December 31, 2020, respectively. The VIE balances do not include $994.8 million of investment in affiliates and $15.8 million of amounts due from affiliates as of September 30, 2021 and $225.1 million of investment in affiliates and $22.7 million of amounts due to affiliates as of December 31, 2020 as these are eliminated upon consolidation and not presented within the consolidated balance sheets. See Note 16 – Variable Interest Entities (VIEs) for further detail.

APOLLO MEDICAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenue
Capitation, net	$	149,059	$	135,032	$	438,350	$	416,402
Risk pool settlements and incentives	59,923		30,916		94,146		54,155
Management fee income	9,652		8,707		26,345		26,212
Fee-for-service, net	7,260		3,737		14,968		9,434
Other income	1,223		1,731		5,006		4,194

Total revenue	227,117		180,123		578,815		510,397

Operating expenses
Cost of services, excluding depreciation and amortization	147,473		121,823		424,303		402,106
General and administrative expenses	21,813		16,270		45,476		39,660
Depreciation and amortization	4,671		4,674		13,105		14,004



Total expenses	173,957		142,767		482,884		455,770

Income from operations	53,160		37,356		95,931		54,627

Other (expense) income
Income (loss) from equity method investments	132		403		(3,680)		3,291
Gain on sale of equity method investment	2,193		—		2,193		99,647
Interest expense	(967)		(2,466)		(4,343)		(8,007)
Interest income	420		752		1,331		2,544
Unrealized (loss) gain on investments	(60,943)		—		22,826		—
Other income (expense)	500		130		(14,080)		1,514

Total other (expense) income, net	(58,665)		(1,181)		4,247		98,989

(Loss) income before (benefit from) provision for income taxes	(5,505)		36,175		100,178		153,616

(Benefit from) provision for income taxes	(120)		10,751		31,575		44,204

Net (loss) income	(5,385)		25,424		68,603		109,412

Net (loss) income attributable to noncontrolling interest	(39,664)		8,711		8,515		81,603

Net income attributable to Apollo Medical Holdings, Inc.	$	34,279	$	16,713	60,088		$	27,809

Earnings per share – basic	$	0.77	$	0.46	$	1.38	$	0.77

Earnings per share – diluted	$	0.74	$	0.45	$	1.33	$	0.75

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)
Cancellation of restricted stock awards	—		(5,281)	—		(144)		—		—		(144)
Shares issued for vesting of restricted stock awards	—		7,689	—		—		—		—		—
Shares issued for exercise of options and warrants	—		421,002	1		4,255		—		—		4,256
Repurchase of treasury shares by noncontrolling interest	—		(34,158)	—		(342)		—		—		(342)
Share-based compensation	—		—	—		1,346		—		—		1,346
Sales of noncontrolling interest	—		—	—		—		—		37		37
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
Cancellation of restricted stock awards	—		(5,426)	—		(189)		—		—		(189)
Shares issued for vesting of restricted stock awards	—		22,284	—		—		—		—		—
Shares issued for exercise of options and warrants	—		53,504	—		561		—		—		561
Repurchase of treasury shares by noncontrolling interest	—		(100,000)	—		(2,450)		—		—		(2,450)
Share-based compensation	—		—	—		1,556		—		—		1,556
Sale of noncontrolling interest	150		—	—		—		—		—		—
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
Net income	(40,356)		—	—		—		34,279		692		34,971
Shares issued for exercise of options and warrants	—		190,254	—		1,785		—		—		1,785
Repurchase of treasury shares by noncontrolling interest	—		(40,000)	—		(2,947)		—		—		(2,947)
Share-based compensation	—		—	—		1,420		—		—		1,420
Acquisition of noncontrolling interest	—		—	—		—		—		500		500
Noncontrolling interest capital charge	—		—	—		—		—		10		10
Dividends	(10,000)		—	—		—		—		—		—
Balance at September 30, 2021	$	91,500	44,397,050	$	44	$	305,994	$	129,859	$	4,424	$	440,321


	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
Net income	8,522		—	—	—		—		16,713		189		16,902
Purchase of noncontrolling interest	(771)		—		—		—		—		—		—
Shares issued for cashless exercise of warrants	—		66,517		—		—		—		—		—
Shares issued for exercise of options and warrants	—		399,787		1		4,019		—		—		4,020
Share-based compensation	—		—		—		648		—		—		648
Cancellation of restricted stock awards	—		—		—		—		—		—		—
Dividends	(20,000)		—		—		—		—		—		—
Balance at September 30, 2020	$	198,731	36,775,817		$	37	$	168,653	$	59,714	$	1,014	$	229,418

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)


	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities
Net income	$	68,603	$	109,412
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	13,105		14,004

Amortization of debt issuance costs	900		1,004
Share-based compensation	4,322		2,558
Unrealized (gain) loss from investment in equity securities	(22,826)		23
Loss (income) from equity method investments	3,680		(3,291)
Gain on sale of equity method investment	(2,193)		(99,647)
Impairment of beneficial interest	15,723		—
Loss on interest rate swaps	1,069		—
Deferred tax	6,847		(6,137)
Other	189		—
Changes in operating assets and liabilities, net of business combinations:
Receivables, net	(10,686)		(6,953)
Receivables, net – related parties	(4,367)		6,618
Other receivables	(1,477)		12,898
Prepaid expenses and other current assets	5,064		(1,804)
Right-of-use assets	2,440		2,601
Other assets	(954)		(5,090)
Accounts payable and accrued expenses	14,362		12,644
Fiduciary accounts payable	(815)		1,958
Medical liabilities	(7,633)		(1,566)
Income taxes payable	(300)		11,642
Operating lease liabilities	(2,528)		(2,110)

Net cash provided by operating activities	82,525		48,764

Cash flows from investing activities
Payments for business acquisition, net of cash acquired	(2,575)		—
Proceeds from repayment of loans receivable – related parties	41		16,500
Purchases of marketable securities	(1,009)		(1,793)
Purchase of investment – equity method	(13,384)		(500)
Proceeds from sale of equity method investment	6,375		52,743
Purchases of property and equipment	(16,420)		(553)
Proceeds from sale of marketable securities	1,106		—
Cash received from consolidation of VIE	3,322		—
Net cash (used in) provided by investing activities	(22,544)		66,397

Cash flows from financing activities
Dividends paid	(31,089)		(50,133)
Repayment of long-term debt	(238,254)		(7,125)
Payment of finance lease obligations	(81)		(78)
Proceeds from the exercise of stock options and warrants	6,601		6,552
Repurchase of shares	(5,739)		(1,559)


	Nine Months Ended September 30,
	2021		2020
Distribution to noncontrolling interest	(75)		—
Proceeds from sale of noncontrolling interest	48		—
Borrowings on revolver	180,000		—
Proceeds from sale of shares	40,133		—
Payment of debt issuance costs	(727)		—
Net cash used in financing activities	(49,183)		(52,343)

Net increase in cash, cash equivalents, and restricted cash	10,798		62,818

Cash, cash equivalents, and restricted cash, beginning of period	193,970		104,010

Cash, cash equivalents, and restricted cash, end of period	$	204,768	$	166,828

Supplementary disclosures of cash flow information:
Cash paid for income taxes	$	24,800	$	37,900
Cash paid for interest	3,330		6,961

Supplemental disclosures of non-cash investing and financing activities
Dividend declared included in dividend payable	$	71	$	485
Preferred shares received from sale of equity investment	$	—	$	36,179
Cancellation of restricted stock awards	$

Form: 10-Q

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