10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on May 10, 2022
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 |
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For the quarterly period ended March 31, 2022
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from ___ to ___.
Commission File No. 001-37392
(Exact name of registrant as specified in its charter)
| (State or Other Jurisdiction | (I.R.S. Employer | ||||
| of Incorporation) | Identification Number) | ||||
(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 |
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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.
| ☒ | Accelerated filer |
☐ | |||||||||
Non-accelerated filer |
☐ |
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 April 28, 2022, there were 56,048,564 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
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Consolidated Statements of Mezzanine and Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021
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2
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 | ||||
| DMHC | California Department of Managed Healthcare | ||||
| DMG | Diagnostic Medical Group of Southern California | ||||
| GPDC | Global and Professional Direct Contracting | ||||
| 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 | ||||
3
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 Report, including statements describing the participation of APA ACO, Inc. (“APAACO”) in the Next Generation Accountable Care Organization (“NGACO”) model, or the Global and Professional Direct Contracting (“GPDC”) 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, any statements about our business, financial condition, operating results, plans, objectives, expectations, and intentions, any projections of earnings, revenue, or other financial items, such as projected payments from CMS and our future liquidity; 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, GPDC 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, 2021, filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2022, 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
4
APOLLO MEDICAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
| March 31, 2022 |
December 31, 2021 |
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Assets |
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| Current assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Investments in marketable securities | |||||||||||
| Receivables, net | |||||||||||
| Receivables, net – related parties | |||||||||||
| Other receivables | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Loan receivable – related party | |||||||||||
Total current assets |
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| Non-current assets | |||||||||||
| Land, property, and equipment, net | |||||||||||
| Intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Loans receivable | |||||||||||
| Investments in other entities – equity method | |||||||||||
| Investments in privately held entities | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Other assets | |||||||||||
| Total non-current assets | |||||||||||
Total assets (1)
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$ | $ | |||||||||
| Liabilities, mezzanine equity, and stockholders’ equity | |||||||||||
Current liabilities |
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| Accounts payable and accrued expenses | $ | $ | |||||||||
| Fiduciary accounts payable | |||||||||||
| Medical liabilities | |||||||||||
| Income taxes payable | |||||||||||
| Dividend payable | |||||||||||
| Finance lease liabilities | |||||||||||
| Operating lease liabilities | |||||||||||
| Current portion of long-term debt | |||||||||||
5
| March 31, 2022 |
December 31, 2021 |
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Total current liabilities |
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| Non-current liabilities | |||||||||||
| Deferred tax liability | |||||||||||
| Finance lease liabilities, net of current portion | |||||||||||
| Operating lease liabilities, net of current portion | |||||||||||
| Long-term debt, net of current portion and deferred financing costs | |||||||||||
| Other long-term liabilities | |||||||||||
| Total non-current liabilities | |||||||||||
Total liabilities (1)
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| Commitments and contingencies (Note 12) | |||||||||||
| Non-controlling interest in Allied Physicians of California, a Professional Medical Corporation | |||||||||||
Stockholders’ equity |
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Series A Preferred stock, $ |
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Series B Preferred stock, $ |
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Common stock, $ |
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| Additional paid-in capital | |||||||||||
Retained earnings |
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| Non-controlling interest | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities, mezzanine equity, and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
(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 $585.9 million and $567.0 million as of March 31, 2022 and December 31, 2021, 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 $111.0 million and $91.7 million as of March 31, 2022 and December 31, 2021, respectively. The VIE balances do not include $529.6 million of investment in affiliates and $25.2 million of amounts due from affiliates as of March 31, 2022 and $802.8 million of investment in affiliates and $6.6 million of amounts due to affiliates as of December 31, 2021 as these are eliminated upon consolidation and not presented within the consolidated balance sheets. See Note 16 – Variable Interest Entities (VIEs) for further detail.
7
APOLLO MEDICAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
| Three Months Ended March 31, |
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| 2022 | 2021 | ||||||||||
| Revenue | |||||||||||
| Capitation, net | $ | $ | |||||||||
| Risk pool settlements and incentives | |||||||||||
| Management fee income | |||||||||||
| Fee-for-service, net | |||||||||||
| Other income | |||||||||||
| Total revenue | |||||||||||
| Operating expenses | |||||||||||
| Cost of services, excluding depreciation and amortization | |||||||||||
| General and administrative expenses | |||||||||||
| Depreciation and amortization | |||||||||||
| Total expenses | |||||||||||
| Income from operations | |||||||||||
| Other expense | |||||||||||
| Income (loss) from equity method investments | ( |
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| Interest expense | ( |
( |
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| Interest income | |||||||||||
| Unrealized loss on investments | ( |
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| Other income | |||||||||||
| Total other expense, net | ( |
( |
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| Income before provision for income taxes | |||||||||||
| Provision for income taxes | |||||||||||
| Net income | |||||||||||
| Net (loss) income attributable to non-controlling interest | ( |
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| Net income attributable to Apollo Medical Holdings, Inc. | $ | $ | |||||||||
| Earnings per share – basic | $ | $ | |||||||||
| Earnings per share – diluted | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
8
APOLLO MEDICAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF MEZZANINE AND STOCKHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
| Mezzanine Equity – Non-controlling Interest in APC |
Retained Earnings |
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| Common Stock Outstanding | Additional Paid-in Capital |
Non-controlling Interest |
Stockholders’ Equity |
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| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Net (loss) income | ( |
— | — | — | |||||||||||||||||||||||||||||||||||||
| Purchase of non-controlling interest | — | — | — | — | ( |
( |
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| Sale of non-controlling interest | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Share buy back | ( |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Shares issued for vesting of restricted stock awards | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Shares issued for exercise of options and warrants | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Issuance of shares for business acquisition | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Cancellation of restricted stock awards | — | ( |
— | ( |
— | — | ( |
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| Dividends | — | — | — | — | ( |
( |
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| Balance at March 31, 2022 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Mezzanine Equity – Non-controlling Interest in APC |
Retained Earnings |
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| Common Stock Outstanding | Additional Paid-in Capital |
Non-controlling Interest |
Stockholders’ Equity |
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| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Purchase of non-controlling interest | ( |
— | — | — | — | ( |
( |
||||||||||||||||||||||||||||||||||
| Sale of non-controlling interest | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Shares issued for vesting of restricted stock awards | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Shares issued for exercise of options and warrants | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Purchase of treasury shares | — | ( |
— | ( |
— | — | ( |
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| Share-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Cancellation of restricted stock awards | — | ( |
— | ( |
— | — | ( |
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| Balance at March 31, 2021 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
9
APOLLO MEDICAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
| Three Months Ended March 31, |
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| 2022 | 2021 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of debt issuance cost | |||||||||||
| Share-based compensation | |||||||||||
| Unrealized loss (gain) from investment in equity securities | ( |
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| (Income) loss from equity method investments | ( |
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| Unrealized gain on interest rate swaps | ( |
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| Deferred tax | ( |
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| Changes in operating assets and liabilities, net of business combinations: | |||||||||||
| Receivables, net | ( |
( |
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| Receivables, net – related parties | ( |
( |
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| Other receivables | ( |
( |
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| Prepaid expenses and other current assets | |||||||||||
| Right-of-use assets | |||||||||||
| Other assets | ( |
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| Accounts payable and accrued expenses | |||||||||||
| Fiduciary accounts payable | ( |
( |
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| Medical liabilities | |||||||||||
| Income taxes payable | |||||||||||
| Operating lease liabilities | ( |
( |
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| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities | |||||||||||
| Payments for business acquisition, net of cash acquired and shares issued | ( |
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| Proceeds from repayment of loans receivable – related parties | |||||||||||
| Purchases of marketable securities | ( |
( |
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| Purchases of property and equipment | ( |
( |
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| Proceeds from sale of marketable securities | |||||||||||
| Distribution from investment - equity method | |||||||||||
| Contribution to investment - equity method | ( |
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| Net cash (used in) provided by investing activities | ( |
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| Cash flows from financing activities | |||||||||||
| Dividends paid | ( |
( |
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| Repayment of long-term debt | ( |
( |
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| Payment of finance lease obligations | ( |
( |
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| Proceeds from the exercise of stock options and warrants | |||||||||||
| Repurchase of shares | ( |
( |
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| Distribution to non-controlling interest | ( |
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| Proceeds from sale of non-controlling interest | |||||||||||
| Purchase of non-controlling interest | ( |
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| Borrowings on loans | |||||||||||
| Net cash provided by financing activities | |||||||||||
10
| Three Months Ended March 31, |
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| 2022 | 2021 | ||||||||||
| Net increase in cash, cash equivalents, and restricted cash | |||||||||||
| Cash, cash equivalents, and restricted cash, beginning of period | |||||||||||
| Cash, cash equivalents, and restricted cash, end of period | $ | $ | |||||||||
| Supplementary disclosures of cash flow information: | |||||||||||
| Cash paid for income taxes | $ | $ | |||||||||
| Cash paid for interest | |||||||||||
| Supplemental disclosures of non-cash investing and financing activities | |||||||||||
| Fixed asset obtained in exchange for finance lease liabilities | $ | $ | |||||||||
| Common stock issued in business combination | $ | $ | |||||||||
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):
| March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Total cash, cash equivalents, and restricted cash shown in the statement of cash flows | $ | $ | |||||||||
| December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash – current | |||||||||||
| Total cash, cash equivalents, and restricted cash shown in the statement of cash flows | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
11
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”) in December 2017 (the “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 an accountable care organization (“ACO”) participating in the GPDC model. 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 ACO 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.
12
AP-AMH Medical Corporation (“AP-AMH”) and AP-AMH 2 Medical Corporation (“AP-AMH 2”) was formed in May 2019 and July 2021, respectively, 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 and AP-AMH 2. In accordance with relevant accounting guidance, AP-AMH and AP-AMH 2 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.A $545.0 million loan to AP-AMH, 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. 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.A $545.0 million private placement, where AP-AMH purchased 1,000,000 shares of APC Series A Preferred Stock which entitle AP-AMH to receive preferential, cumulative dividends that accrue on a daily basis.
3.A $300.0 million private placement, where APC purchased 15,015,015 shares of the Company’s common stock and in connection therewith, the Company granted APC certain registration rights with respect to the purchased shares.
4.ApolloMed licensed to AP-AMH the right to use certain tradenames for 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 is also payable out of any APC Series A Preferred Stock dividends received by AP-AMH from APC.
As part of the series of transactions, in September 2019, APC and AP-AMH entered into a Second Amendment to the Series A Preferred Stock Purchase Agreement clarifying the term excluded assets (“Excluded Assets”). Excluded Assets means (i) assets received from the sale of shares of the Series A Preferred 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 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 19.61 % as of March 31, 2022 and 19.68 % as of December 31, 2021.
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 March 31, 2022, APC owned 44.50 % 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 of Southern California (“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”).
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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.
DMG is a professional medical California corporation and a complete outpatient imaging center. APC accounted for its 40 % investment in DMG, under the equity method of accounting. In October 2021, DMG entered into an administrative services agreement with a subsidiary of the Company, causing the Company to reevaluate the accounting for the Company’s investment in DMG. Based on the reevaluation and in accordance with relevant accounting guidance, DMG is determined to be a VIE of the Company and is consolidated by the Company. In addition, APC-LSMA is obligated to purchase the remaining equity interest within three years from the effective date. The purchase of the remaining equity value is considered a financing obligation with a carrying value of $8.5 million as of March 31, 2022. As the financing obligation is embedded in the non-controlling interest, the non-controlling interest is recognized in other long-term liabilities in the accompanying consolidated balance sheets.
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, as well as vacant land that is being developed. 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 and in accordance with relevant accounting guidance, it was concluded that Tag 8 is a VIE and is consolidated by APC. 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, and consequently will not affect net income attributable to ApolloMed.
In July 2021, AP-AMH 2, a VIE of the Company, purchased an 80 % equity interest (on a fully diluted basis) in Access Primary Care Medical Group (“APCMG”), a primary care physicians’ group focused on providing high-quality care to senior patients in the northern California cities of Daly City and San Francisco. As a result, APCMG is consolidated by the Company.
In August 2021, Apollo Medical Holdings, Inc. acquired 49 % of the aggregate issued and outstanding shares of capital stock of Sun Clinical Laboratories (“Sun Labs”) for an aggregate purchase price of $4.0 million. Sun Labs is a Clinical Laboratory Improvement Amendments certified full-service lab that operates across the San Gabriel Valley in Southern California. In accordance with relevant accounting guidance, Sun Labs is determined to be a VIE of the Company and is consolidated by the Company (see Note 3). The Company is obligated to purchase the remaining equity interest within three years from the effective date. The purchase of the remaining equity value is considered a financing obligation with a carrying value of at $4.2 million at March 31, 2022. As the financing obligation is embedded in the non-controlling interest, the non-controlling interest is recognized in other long-term liabilities in the accompanying consolidated balance sheets.
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NGACO, GPDC / ACO REACH
APAACO began participating in the NGACO Model of CMS in January 2017. The NGACO Model was a CMS program that allowed 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. With the ending of the NGACO Model on December 31, 2021, APAACO applied, and has been selected by CMS, to participate as a Direct Contracting Entity (“DCE”) in the standard track of CMS’s GPDC Model for Performance Year 2022 (“PY22”), beginning January 1, 2022. CMS has since redesigned the GPDC Model in response to Administration priorities, including their commitment to advancing health equity, stakeholder feedback, and participant experience, and renamed the GPDC Model to ACO Realizing Equity, Access, and Community Health (“ACO REACH”) Model. The ACO REACH Model will begin participation on January 1, 2023.
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2. Basis of Presentation and Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated balance sheets as of March 31, 2022 and December 31, 2021, and the consolidated statements of income for the three months ended March 31, 2022 and 2021, include the accounts of (1) ApolloMed, ApolloMed’s consolidated subsidiaries, NMM, AMM, and APAACO, and its VIEs, AP-AMH, AP-AMH 2, Sun Labs, and DMG; (2) AP-AMH 2’s consolidated subsidiary, APCMG; (3) AMM’s consolidated VIEs, SCHC and AMH; (4) NMM’s VIE, APC; (5) APC’s consolidated subsidiaries, Universal Care Acquisition Partners, LLC (“UCAP”), MPP, AMG Properties, ZLL, and its VIEs, CDSC, APC-LSMA, ICC, and Tag 8; and (6) 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.
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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
Reportable Segments
The Company operates as one one
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.
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Investments in Marketable Securities
Investments in marketable securities consist 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 March 31, 2022 and December 31, 2021, certificates of deposit amounted to approximately $25.0 25.0 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 and unadjusted. The trading volume of certain equity securities we hold is low, thus resulting in our determination that such equity securities do not have an active market with buyers and sellers ready to trade. Accordingly, we classify such equity securities as Level 2 in the valuation hierarchy, and their valuation is based on weighted average share prices from observable market data.
Equity securities held by the Company are primarily comprised of common stock of a payor partner that completed its IPO in June 2021 and Clinigence Holdings, Inc. (“Clinigence”). The common stock of a payor partner were acquired as a result of UCAP selling its 48.9 % ownership interest in Universal Care, Inc. (“UCI”) in April 2020. In September 2021, ApolloMed and Clinigence entered into a stock purchase agreement in which ApolloMed purchased shares of common stock, warrants, and potentially additional common stock if certain metrics are not met (“contingent equity securities”) for $3.0 million. The common stock is included in investments in marketable securities and the warrants and contingent equity securities are classified as derivatives and included in other assets and prepaid expenses and other current assets, respectively, in the accompanying consolidated balance sheets. See Note 2 — “Basis of Presentation and Summary of Significant Accounting Policies - Derivative Financial Instruments” in the accompanying consolidated financial statements for information on the treatment of the derivative instruments.
As of March 31, 2022 and December 31, 2021, the equity securities were approximately $17.8 million and $28.4 million, respectively, in the accompanying consolidated balance sheets. For the three months ended March 31, 2022, the Company recognized unrealized losses of $10.6 million on all equity securities in unrealized loss on investments in the accompanying consolidated statements of income.
Receivables, Receivables – Related Parties, and Loan Receivable - Related Party
The Company’s receivables are comprised of accounts receivable, capitation and claims receivable, risk pool settlements, 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, management fee income and incentive receivables, and other receivables. Receivables – related parties are recorded and stated at the amount expected to be collected.
The Company’s loan receivable – related party consist of promissory notes from a related party payee that accrues interest per annum.
Capitation and claims receivables relate to each health plan’s capitation and are 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 the Company’s 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 consist of recoverable claims paid related to the 2021 APAACO performance year to be administered following instructions from CMS for the NGACO program, receivables from GPDC capitation revenue for the 2022 performance year, fee-for-services (“FFS”) reimbursement for patient care, certain expense reimbursements, transportation reimbursements from the hospitals, and stop-loss insurance premium reimbursements.
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| Three Months Ended March 31, |
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| 2022 | 2021 | |||||||||||||
Commercial |
$ | $ | ||||||||||||
Medicare |
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Medicaid |
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Other third parties |
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Revenue |
$ | $ | ||||||||||||
The Company had major payors that contributed the following percentages of net revenue:
| Three Months Ended March 31, |
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| 2022 | 2021 | ||||||||||
Payor A |
* | % | |||||||||
Payor B |
* | % | |||||||||
| Payor C | % | % | |||||||||
| Payor D | % | * | |||||||||
* Less than 10% of total net revenues
The Company had major payors that contributed to the following percentages of receivables and receivables – related parties:
| As of March 31, 2022 |
As of December 31, 2021 |
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| Payor D | % | * | |||||||||
| Payor E | % | % | |||||||||
| Payor F | % | % | |||||||||
* Less than 10% of total receivables and receivables — related parties, net
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Fair Value Measurements of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, fiduciary cash, restricted cash, investment in marketable securities, receivables, loans receivable, accounts payable, certain accrued expenses, finance lease obligations, 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 amounts of finance lease obligations 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 disclosure 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 March 31, 2022, are presented below (in thousands):
Fair Value Measurements |
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Level 1 |
Level 2 |
Level 3 |
Total |
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Assets |
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| Money market funds* | $ | $ | $ | $ | |||||||||||||||||||
| Marketable securities – certificates of deposit | |||||||||||||||||||||||
| Marketable securities – equity securities | |||||||||||||||||||||||
| Contingent equity securities | |||||||||||||||||||||||
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| Interest rate swaps | |||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| APCMG contingent consideration | |||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | |||||||||||||||||||
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* Included in cash and cash equivalents
The carrying amounts and fair values of the Company’s financial instruments as of December 31, 2021, are presented below (in thousands):
| Fair Value Measurements | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Money market accounts* | $ | $ | $ | $ | |||||||||||||||||||
| Marketable securities – certificates of deposit | |||||||||||||||||||||||
| Marketable securities – equity securities | |||||||||||||||||||||||
| Contingent equity securities | |||||||||||||||||||||||
| Warrants | |||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | |||||||||||||||||||
| APCMG contingent consideration | $ | $ | $ | $ | |||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | |||||||||||||||||||
* Included in cash and cash equivalents
There have been no changes in Level 1, Level 2, or Level 3 classification and no changes in valuation techniques for these assets for the three months ended March 31, 2022.
Intangible Assets and Long-Lived Assets
Intangible assets with finite lives include network-payor relationships, management contracts, member relationships, subscriber relationships, and developed technology and are stated at cost, less accumulated amortization and impairment losses. These intangible assets are amortized using the accelerated method based on the discounted cash flow rate or using the straight-line method.
Intangible assets with finite lives also include a patient management platform, as well as trade names and 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 are amortized using the straight-line method.
Goodwill and Indefinite-Lived Intangible Assets
Under ASC 350, Intangibles – Goodwill and Other, goodwill and indefinite-lived intangible assets are reviewed at least annually for impairment.
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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 reporting units (1) management services, (2) IPAs, and (3) accountable care organizations. 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.
The Company had no
Investments in Other Entities — 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 income (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. There was no
Investments in Privately Held Entities
The Company accounts for certain investments using the cost method of accounting when it is determined that the investment provides the Company with little or no influence over the investee. Under the cost method of accounting, the investment is measured at cost, adjusted for observable price changes and impairments, with changes recognized in net income. The investments in privately held entities that do not report net asset value are subject to qualitative assessment for indicators of impairments.
Medical Liabilities
APC, Alpha Care, Accountable Health Care, and APCMG (“consolidated IPAs”) and APAACO are responsible for integrated care that the associated physicians and contracted hospitals provide to their enrollees. These IPAs and APAACO 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 healthcare 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 services. Such differing interpretations may not come to light until a substantial period of time has passed following the contract implementation.
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Derivative Financial Instruments
Interest Rate Swap Agreements
The Company is exposed to interest rate risk on its floating-rate debt. The Company has entered into interest rate swap agreements to effectively convert its floating-rate debt to a fixed-rate basis. The principal objective of these contracts is to eliminate or reduce the variability of the cash flows in interest payments associated with the Company’s floating-rate debt, thus reducing the impact of interest rate changes on future interest payment cash flows. Refer to Note 9 for further information on our debt. Interest rate swap agreements are not designated as hedging instruments. Changes in the fair value on these contracts are recognized as unrealized gain or loss on investments in the accompanying consolidated statements of income and reflected in the accompanying consolidated statements of cash flows as unrealized gain or loss on interest rate swaps.
The estimated fair value of the interest rate swap agreements was determined using Level 2 inputs. As of March 31, 2022 the fair value of the interest rate swap was $0.5 million and is presented within other assets in the accompanying consolidated balance sheets. As of December 31, 2021, the fair value of the interest rate swap was $1.1 million and is presented within other long-term liabilities in the accompanying consolidated balance sheets.
Warrants
Contingent Equity Securities
In addition to the common stock and warrants purchased under the stock purchase agreement between ApolloMed and Clinigence, ApolloMed is entitled to additional common stock if Clinigence does not pay NMM management fees exceeding a threshold by the end of December 31, 2022. The contingent equity securities are considered derivatives but are not designated as hedging instruments. Changes in the fair value on these contracts are recognized as unrealized gain or loss on investments in the accompanying consolidated statements of income and the accompanying consolidated statements of cash flows. The Company determined the fair value of the contingent equity security using a probability-weighted model, which includes significant unobservable inputs (Level 3). Specifically, the Company considered various scenarios of recognizing management fees and assigned probabilities to each such scenario in determining fair value. As of March 31, 2022 and December 31, 2021, the contingent consideration was valued at $4.3
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.
Nature of Services and Revenue Streams
Revenue primarily consists of capitation revenue, risk pool settlements and incentives, GPDC 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.
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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. 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 sharing. The Company generally estimates the transaction price using the most likely amount 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.
GPDC Capitation Revenue
CMS contracts with Direct Contracting Entities (“DCEs”), which is composed of health care providers operating under a common legal structure and accepts financial accountability for the overall quality and cost of medical care furnished to Medicare FFS beneficiaries aligned to the entity. The combination of the FFS model and the GPDC model changes the distribution of responsibilities, risks, costs, and rewards among CMS, DCEs, and providers. By entering into a contract with CMS, a DCE voluntarily takes on operational, financial, and legal responsibilities and risks that no party has, individually or collectively, under the existing FFS model. Each DCE bears the economic costs, and reaps the economic rewards, of fulfilling its responsibilities and managing its risks as a DCE. APAACO has applied, and been accepted, to participate in the GPDC Model for Performance Year 2022, beginning January 1, 2022.
For each performance year, CMS will pay a total benchmark amount, determined unilaterally by CMS in advance but subject to prospective adjustments throughout the year, for the totality of care provided to the DCE’s population of aligned beneficiaries over the course of that year. The benchmark is net of a quality withholding applied by CMS. At the end of each performance year, a portion, or all, of the quality withholding can be earned based on APAACO’s performance. GPDC capitation revenue is recognized based on the estimated transaction price to transfer the service for a distinct increment of the series (i.e. month) and is recognized net of quality incentives/penalties.
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 hospital’s costs. Advance settlement payments are typically made quarterly in arrears if there is a surplus. The Company’s 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 margin, IBNR completion factors and constraint percentages were used by management in applying the most likely amount methodology.
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Under capitated arrangements with certain HMOs, APC participates in one or more shared risk arrangements relating to the provision of institutional services to enrollees and thus can earn additional revenue or incur losses based upon the enrollee utilization of institutional services. Shared risk 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) risk-sharing surpluses are generated. At the termination of the HMO contract, any accumulated deficit will be extinguished.
The Company’s 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. Final settlement of risk pools for prior contract years generally occur in the third or fourth quarter of the following year.
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 its 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. The Company’s 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
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-like AIPBP payments from CMS on a monthly basis to pay claims from in-network providers. The Company records such AIPBPs 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, while claims from APAACO’s in-network contracted providers are paid by APAACO. 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 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. The Company records NGACO AIPBP revenues monthly. Excess AIPBPs over claims paid, plus an estimate for the related IBNR claims (see Note 8), are deferred and recorded as a liability until actual claims are paid or incurred. CMS will determine if there were any excess AIPBPs for the performance year and the excess is refunded to CMS.
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For each performance year, CMS pays 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 an NGACO Participation Agreement between APAACO and CMS (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 will 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 will 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 will assess simple interest on the unpaid balance at the rate applicable to other Medicare debts under current provisions of law and applicable 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 claims, risk adjustment factors, and 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 likely be recognized in the future and therefore this shared risk pool revenue is considered fully constrained. With the ending of the NGACO Model on December 31, 2021, the Company no longer receives AIPBPs but remains eligible to recognize any shared savings or loss for performance year 2021 upon issuance of the settlement report from CMS.
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 gross 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. The Company recognizes such variable supplemental revenues 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 applicable agreement.
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 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., 10 years ), although they may be terminated earlier under the terms of the applicable 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 professional component of charges for medical services rendered by the Company’s affiliated physician-owned medical groups are billed and collected from third-party payors, hospitals, and patients. FFS revenue related to the patient care services is reported net of contractual allowances and policy discounts and is recognized in the period in which the services are rendered to specific patients. All services provided are
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expected to result in cash flows and are therefore reflected as net revenue in the consolidated 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 together 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.
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 the patients, to whom services are provided, in the period are insured and the 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 statements 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 healthcare 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
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.
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)
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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 consolidated 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 consolidated financial statements.
Share-Based Compensation
The Company maintains a stock-based compensation program for employees, non-employees, directors, and consultants. The value of share-based awards is recognized as compensation expense on a cumulative straight-line basis over the vesting period of the awards, adjusted for forfeitures as they occur. From time to time, the Company issues shares of its common stock to its employees, directors, and consultants, which shares may be subject to the Company’s repurchase right (but not obligation) that lapses based on time-based and performance-based vesting schedules. The fair value of options granted are determined using the Black-Scholes option pricing model and include several assumptions, including expected term, expected volatility, expected dividends, and risk-free rates. The expected term is presumed to be the midpoint between the vesting date and the end of the contractual term. The expected stock price volatility is determined based on an average of historical volatility. The expected dividend yield is based on the Company’s expected dividend payouts. The risk-free interest rate is based on the U.S. Constant Maturity curve over the expected term of the option at the time of grant.
Basic and Diluted Earnings Per Share
Basic earnings per share is computed by dividing net income attributable to holders of the Company’s common stock by the weighted average number of shares of common stock outstanding during the periods presented. Diluted earnings per share is computed using the weighted average number of shares of common stock outstanding, plus the effect of dilutive securities outstanding during the periods presented, using the treasury stock method. Refer to Note 15 for a discussion of shares treated as treasury shares for accounting purposes.
Non-controlling 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 VIEs in which the Company is the primary beneficiary. Non-controlling interests represent third-party equity ownership interests (including equity ownership interests held by certain VIEs) in the Company’s consolidated entities. Net income attributable to non-controlling interests is disclosed in the consolidated statements of income.
Mezzanine Equity
Pursuant to APC’s shareholder agreements, in the event of a disqualifying event, as defined in the agreements, APC could be required to repurchase its shares from the 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 non-controlling interests in APC as mezzanine equity in the consolidated financial statements. As of March 31, 2022 and December 31, 2021, APC’s shares were not redeemable, nor was it probable the shares would become redeemable.
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Recent Accounting Pronouncements
In October 2021, the FASB issued Accounting Standards Update (“ASU”) No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”). This ASU requires the entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 as if it had originated the contracts. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company adopted ASU 2021-08 on January 1, 2022. The adoption of ASU 2021-08 did not have a material impact on the consolidated 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.
Recent Accounting Pronouncements Not Yet Adopted
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.
3. Business Combinations and Goodwill
Orma Health, Inc., and Provider Growth Solutions LLC (together, “Orma Health”)
On January 27, 2022, the Company acquired 100 % of the capital stock of Orma Health, Inc., and Provider Growth Solutions, LLC (together, “Orma Health”) for $1.0 million in cash and $1.0 million in the Company’s capital stock. Orma Health’s real-time Clinical AI platform ingests data from multiple sources and utilizes advanced risk-stratification models to identify patients for various clinical programs, including remote patient monitoring (“RPM”), mental health support, chronic disease management, and more. Its clinical platform is also deeply integrated with Orma Health’s proprietary RPM ecosystem, which consists of smart health devices and a suite of technology tools to help manage patients’ health.
APCMG
In July 2021, the Company acquired an 80 % equity interest (on a fully diluted basis) in APCMG for an aggregate purchase price of $2.0 million. As part of the transaction, the Company paid $1.0 million in cash and the remaining amount will be paid out in cash as a contingent consideration related to APCMG’s financial performance for fiscal year 2022 (“APCMG contingent consideration”). The APCMG contingent consideration is met if gross revenue and earnings before interest, taxes, and depreciation, and amortization (“EBITDA”) targets exceed a threshold for fiscal year 2022. The Company determined the fair value of the contingent consideration using a probability-weighted model that includes significant unobservable inputs (Level 3). Specifically, the Company considered various scenarios of gross revenue and EBITDA and assigned probabilities to each such scenario in determining fair value. As of March 31, 2022, the contingent consideration is valued at $1.0 million and was included within other long-term liabilities in the accompanying consolidated balance sheets.
Sun Labs
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In August 2021, the Company acquired 49 % of the aggregate issued and outstanding shares of capital stock of Sun Labs for an aggregate purchase price of $4.0 million. As Sun Labs was concluded to be a VIE and the Company is the primary beneficiary, Sun Labs is consolidated by the Company. The Company is obligated to purchase the remaining equity interest within three years from the effective date. As the financing obligation is embedded in the non-controlling interest, the non-controlling interest is recognized in other long-term liabilities in the accompanying consolidated balance sheets. The Company recognized goodwill as a result of consolidating Sun Labs as a VIE.
DMG
In October 2021, DMG entered into an administrative services agreement with a subsidiary of the Company, causing the Company to reevaluate the accounting for the Company’s investment in DMG. Based on the reevaluation and in accordance with relevant accounting guidance, DMG is determined to be a VIE and the Company is the primary beneficiary; DMG is consolidated by Apollo. In addition, APC-LSMA is obligated to purchase the remaining equity interest within three years from the effective date. As the financing obligation is embedded in the non-controlling interest, the non-controlling interest is recognized in other long-term liabilities in the accompanying consolidated balance sheets. The Company recognized goodwill as a result of consolidating DMG as a VIE.
The acquisitions were accounted for under the acquisition method of accounting. The fair value of the consideration for the acquired companies were 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 was 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 from the acquisitions have been included in the Company’s financial statements from the date 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 one year from the date of acquisition.
Goodwill is not deductible for tax purposes.
The change in the carrying value of goodwill for the three months ended March 31, 2022 was as follows (in thousands):
| Balance, January 1, 2022 | $ | ||||
| Acquisitions | |||||
| Adjustments | ( |
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| Balance, March 31, 2022 | $ | ||||
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4. Intangible Assets, Net
At March 31, 2022, the Company’s intangible assets, net, consisted of the following (in thousands):
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| Trademarks | N/A | $ | $ | — | $ | ||||||||||||||||||
Amortized intangible assets: |
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( |
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| $ | $ | ( |
$ | ||||||||||||||||||||
At December 31, 2021, the Company’s intangible assets, net, consisted of the following (in thousands):
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Useful
Life
(Years)
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Gross December 31, 2021 |
Accumulated Amortization |
Net December 31, 2021 | ||||||||||||||||||||
| Indefinite lived assets: | |||||||||||||||||||||||
| Medicare license | N/A | $ | $ | — | $ | ||||||||||||||||||
| Amortized intangible assets: | |||||||||||||||||||||||
| Network relationships | ( |
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| Management contracts | ( |
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| Member relationships | ( |
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| Patient management platform | ( |
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| Tradename/trademarks | ( |
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$ | ||||||||||||||||||||
Included in depreciation and amortization on the accompanying consolidated statements of income is amortization expense of $3.7 million and $3.8 million for the three months ended March 31, 2022 and 2021.
Future amortization expense is estimated to be as follows for the following years ending December 31 (in thousands):
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| 2022 (excluding the three months ended March 31, 2022) | $ | ||||
| 2023 | |||||
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| Total | $ | ||||
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5. Investments in Other Entities
Equity Method
Investments in other entities – equity method consisted of the following (in thousands):
| December 31, 2021 |
Allocation of Income (Loss) | Funding | Distribution | March 31, 2022 | |||||||||||||||||||||||||
| LaSalle Medical Associates – IPA Line of Business | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Pacific Medical Imaging & Oncology Center, Inc. | |||||||||||||||||||||||||||||
| 531 W. College, LLC – related party | ( |
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| One MSO, LLC – related party | ( |
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| Tag-6 Medical Investment Group, LLC – related party | |||||||||||||||||||||||||||||
| CAIPA MSO, LLC | |||||||||||||||||||||||||||||
| $ | $ | $ | $ | ( |
$ | ||||||||||||||||||||||||
LaSalle Medical Associates — IPA Line of Business
LMA was founded by Dr. Albert Arteaga in 1996 and operates as an IPA delivering high-quality care. In September 2021, APC-LSMA sold 21.25 % of its interest in LMA back to Dr. Arteaga for $6.4 million, which resulted in APC-LSMA owning a 25 % interest in LMA as of March 31, 2022.
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 three months ended March 31, 2022 and 2021, APC recognized income from this investment of $1.3 million and a loss of $0.7 million, respectively, in the accompanying consolidated statements of income. The accompanying consolidated balance sheets include the related investment balances of $4.3 million and $3.0 million at March 31, 2022 and December 31, 2021, respectively.
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LMA’s summarized balance sheets at March 31, 2022 and December 31, 2021, and summarized statements of income for the three months ended March 31, 2022 and 2021, with respect to its IPA line of business are as follows (in thousands):
Balance Sheets
| March 31, 2022 |
December 31, 2021 |
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Assets |
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Cash and cash equivalents |
$ | $ | |||||||||
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Total assets |
$ | $ | |||||||||
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Current liabilities |
$ | $ | |||||||||
Stockholders’ deficit |
( |
( |
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Total liabilities and stockholders’ deficit |
$ | $ | |||||||||
Statements of Operations
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
Revenues |
$ | $ | |||||||||
Expenses |
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| Net income (loss) | $ | $ | ( |
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Pacific Medical Imaging and Oncology Center, Inc.
APC-LSMA and PMIOC entered into a share purchase agreement whereby APC-LSMA purchased a 40 % ownership interest in PMIOC. Incorporated in California in 2004, 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 its facilities.
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 approximately $0.7 million and $0.5 million, for the three months ended March 31, 2022 and 2021, 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. For the three months ended March 31, 2022 and 2021, APC recognized income from this investment of approximately $6,700 and a loss from this investment of $15,000 , respectively, in the accompanying consolidated statements of income. The accompanying consolidated balance sheets had investment balances of $1.7 million and $1.7 million at March 31, 2022 and December 31, 2021, respectively.
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531 W. College LLC – Related Party
APC has a 50 % ownership in 531 W. College LLC and 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. 531 W. College, LLC owns a former hospital campus in Los Angeles that is now leased to tenants.
For the three months ended March 31, 2022 and 2021, APC recognized a loss from this investment of $0.2 million and $0.1 million, respectively, in the accompanying consolidated statements of income. The accompanying consolidated balance sheets include the related investment balances of $17.0 million and $17.2 million at March 31, 2022 and December 31, 2021, respectively.
One MSO, LLC – Related Party
APC has a 50 % interest in One MSO. One MSO owns an office building in Monterey Park, California that is leased to tenants, including NMM. For the three months ended March 31, 2022 and 2021, APC recognized income of $0.1 million and $0.1 million in the accompanying consolidated statements of income. The accompanying consolidated balance sheets include the related investment balances of $2.8 million and $2.9 million at March 31, 2022 and December 31, 2021, respectively.
Tag-6 Medical Investment Group, LLC — Related Party
APC has a 50 % interest in Tag 6. Tag 6 leases its building to tenants and shares common ownership with certain board members of APC and as such is considered a related party. For the three months ended March 31, 2022, APC recognized income of $66,000 in the accompanying consolidated statements of income. APC did no t recognize any income during the three months ended March 31, 2021. The accompanying consolidated balance sheets include the Tag 6 investment of $6.3 million and $4.8 million at March 31, 2022 and December 31, 2021, respectively.
CAIPA MSO, LLC
In August 2021, ApolloMed purchased 30 % interests in CAIPA MSO, LLC for $11.7 million. CAIPA MSO is a New York-based management services organization affiliated with Chinese-American IPA d/b/a Coalition of Asian-American IPA (“CAIPA”), a leading independent practice association serving the greater New York City area.
ApolloMed accounts for its investment in CAIPA MSO under the equity method of accounting as ApolloMed has the ability to exercise significant influence, but not control over CAIPA MSO’s operations. For the three months ended March 31, 2022 and 2021, ApolloMed recognized income from investment of $0.1 million and $0 , respectively, in the accompanying consolidated statements of income. The accompanying consolidated balance sheets include the related investment balances of $12.1 million and $12.0 million as of March 31, 2022 and December 31, 2021, respectively.
Investments in privately held entities that do not report net asset value
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 an approximately 2.8 % ownership interest. In connection with the initial purchase, APC received a five-year warrant to purchase an additional 270,000 membership interests. A five-year option to purchase an additional 380,000 membership interests and a five-year warrant to purchase 480,000 membership interests were contingent upon the portal completion date. However, APC did not exercise the option after completion of the portal. 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.
AchievaMed
In July 2019, NMM and AchievaMed, Inc., a California corporation (“AchievaMed”), entered into an agreement in which NMM would purchase 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 investments in privately held entities in the accompanying consolidated balance sheets as of March 31, 2022.
34
6. Loan Receivable and Loan Receivable – Related Parties
Loan receivable
Pacific6
In October 2020, NMM received a promissory note from Pacific6 totaling $0.5 million as a result of the sale of the Company’s interest in MWN. Interest accrues at a rate of 5 % per annum and is payable monthly through the maturity date of December 1, 2023.
Loan receivable – related party
AHMC
In October 2020, APC entered into a promissory note with AHMC (the “AHMC Note”) for a principal amount of $4.0 million with a maturity date of April 2022. The contractual interest rate on the AHMC Note is 3.75 % per annum. The AHMC Note was entered into using cash strictly related to the Excluded Assets that were generated from the series of transactions with AP-AMH. As of March 31, 2022, the total principal of $4.0 million remains outstanding. One of the Company’s board members is an officer of AHMC.
The Company assessed the outstanding loan receivable under the CECL model by assessing the party’s ability to pay by reviewing their interest payment history quarterly, financial history annually, and reassessing any insolvency risk that is identified. If a failure to pay occurs, the Company assesses the terms of the notes and estimates an expected credit loss based on the remittance schedule of the note.
7. Accounts Payable and Accrued Expenses
The Company’s accounts payable and accrued expenses consisted of the following (in thousands):
| March 31, 2022 |
December 31, 2021 |
||||||||||
Accounts payable |
$ | $ | |||||||||
Capitation payable |
|||||||||||
Subcontractor IPA payable |
|||||||||||
Professional fees |
|||||||||||
Due to related parties |
|||||||||||
Contract liabilities |
|||||||||||
Accrued compensation |
|||||||||||
| Total accounts payable and accrued expenses | $ | $ | |||||||||
35
8. Medical Liabilities
The Company’s medical liabilities consisted of the following (in thousands):
| March 31, 2022 |
March 31, 2021 |
||||||||||
| Medical liabilities, beginning of period | $ | $ | |||||||||
| Components of medical care costs related to claims incurred: | |||||||||||
| Current period | |||||||||||
| Prior periods | ( |
( |
|||||||||
| Total medical care costs | |||||||||||
| Payments for medical care costs related to claims incurred: | |||||||||||
| Current period | ( |
( |
|||||||||
| Prior periods | ( |
( |
|||||||||
| Total paid | ( |
( |
|||||||||
| Adjustments | |||||||||||
| Medical liabilities, end of period | $ | $ | |||||||||
36
9. Credit Facility, Bank Loans, and Lines of Credit
Credit Facility
The Company’s debt balance consists of the following (in thousands):
| March 31, 2022 | December 31, 2021 | ||||||||||
| Revolver Loan | $ | $ | |||||||||
| Real Estate Loans | |||||||||||
| Construction Loan | |||||||||||
| Total debt | |||||||||||
| Less: Current portion of debt | ( |
( |
|||||||||
| Less: Unamortized financing costs | ( |
( |
|||||||||
| Long-term debt | $ | $ | |||||||||
The estimated fair value of our long-term debt was determined using Level 2 inputs primarily related to comparable market prices. As of March 31, 2022 and December 31, 2021, the carrying value was not materially different from fair value, as the interest rates on the Company’s debt approximated rates currently available to the Company.
The following are the future commitments of the Company’s debt for the years ending December 31 (in thousands):
| Amount | |||||
| 2022 (excluding the three months ended March 31, 2022) | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 and thereafter | |||||
| Total | $ | ||||
37
Amended Credit Agreement
On June 16, 2021, the Company entered into an amended and restated credit agreement (the “Amended Credit Agreement” and the credit facility thereunder, the “Amended Credit Facility”) with Truist Bank, in its capacity as administrative agent for the lenders, issuing bank, swingline lender and lender, Truist Securities, Inc., JPMorgan Chase Bank, N.A., MUFG Union Bank, N.A., Preferred Bank, Royal Bank of Canada, and Fifth Third Bank, National Association, in their capacities as joint lead arrangers and/or lenders, and the lenders from time to time party thereto, to, among other things, amend and restate that certain credit agreement, dated September 11, 2019, by and among the Company, Truist Bank, and certain lenders thereto (the credit facility thereunder, the “Credit Facility”), in its entirety. The Amended Credit Agreement provides for a five-year revolving credit facility to the Company of $400.0 million, which includes a letter of credit sub-facility of up to $25.0 million and a swingline loan sub-facility of $25.0 million. The revolving credit facility will be used to, among other things, refinance certain existing indebtedness of the Company and certain subsidiaries, finance certain future acquisitions and investments, and provide for working capital needs and other general corporate purposes. Under the Amended Credit Agreement, the terms and conditions of the Guaranty and Security Agreement (the “Guaranty and Security Agreement”) between the Company, NMM and Truist Bank remain in effect.
The Company is required to pay an annual agent fee of $50,000 and an annual facility fee of 0.175 % to 0.350 % on the available commitments under the Amended Credit Agreement, regardless of usage, with the applicable fee determined on a quarterly basis based on the Company’s leverage ratio. The Company will pay fees for standby letters of credit at an annual rate equal to 1.25 % to 2.50 %, 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. The Company is also required to pay customary fees between the Company and Truist Bank, the lead arranger of the Amended Credit Agreement.
Generally, amounts borrowed under the Amended Credit Agreement 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 LIBOR, adjusted for any reserve requirement in effect, plus a spread of from 1.25 % to 2.50 %, as determined on a quarterly basis based on the Company’s leverage ratio, or (b) a base rate, plus a spread of 0.25 % to 1.50 %, as determined on a quarterly basis based on the Company’s leverage ratio. As of March 31, 2022, the interest rate on the Credit Agreement was 2.38 %. Borrowings under the Amended Credit Agreement may be prepaid at any time without penalty. If LIBOR ceases to be reported under the Amended Credit Agreement, the Company will use the secured overnight financing rate or the Company and the Agent will agree to an alternative rate of interest.
The Amended 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 total net leverage ratio of not greater than 3.75 to 1.00 as of the last day of each fiscal quarter, provided that for any fiscal quarter during which the Company or certain subsidiaries consummate a permitted acquisition or investment, the aggregate purchase price is greater than $75.0 million, the maximum consolidated total net leverage ratio may temporarily increase by 0.25 to 1.00 to 4.00 to 1.00. 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.
Pursuant to the Guaranty and Security Agreement, the Company and NMM have granted the lenders under the Amended Credit Agreement 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.
In the ordinary course of business, certain of the lenders under the Amended 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, 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
In September 2019, the Company recorded deferred financing costs of $6.5 million related to its entry into the Credit Facility. In June 2021, the Company recorded additional deferred financing costs of $0.7 million related to its entry into the Amended Credit Facility. Deferred financing costs are recorded as a direct reduction of the carrying amount of the related debt liability using straight-line amortization. The remaining unamortized deferred financing costs related to the Credit Facility and the new costs related to the Amended Credit Facility are amortized over the life of the Amended Credit Facility. At March 31, 2022 and December 31, 2021, the unamortized deferred financing cost was $4.0 million and $4.3 million, respectively.
Real Estate Loans
38
On December 31, 2020, using cash comprised solely of Excluded Assets, APC purchased a 100
MPP
On July 3, 2020, MPP entered into a loan agreement with East West Bank with a maturity date of August 5, 2030. As of December 31, 2021, the principal on the loan was $6.1 million with a variable interest rate of 0.50 % less than the independent index, which is the daily Wall Street Journal “Prime Rate.” If the index is not available, East West Bank may designate a substitute index after notifying MPP. Monthly payments on the principal and any accrued interest rate not yet paid began in September 2020. As of March 31, 2022, the balance outstanding was $6.1 million. MPP must maintain a Debt Coverage Ratio (defined as net operating income divided by current portion of long-term debt, plus interest expense) of not less than 1.25 to 1.
AMG Properties
On August 5, 2020, AMG Properties entered into a loan agreement with East West Bank with a maturity date of August 5, 2030. As of December 31, 2021, the principal on the loan was $0.7 million with a variable interest rate of 0.30 % less than the independent index, which is the daily Wall Street Journal “Prime Rate.” If the index is not available, East West Bank may designate a substitute index after notifying AMG Properties. Monthly payments on the principal and any accrued interest rate not yet paid began in September 2020. As of March 31, 2022, the balance outstanding was $0.7 million. AMG Properties must maintain a Debt Coverage Ratio (defined as net operating income divided by current portion of long-term debt, plus interest expense) of not less than 1.25 to 1.
ZLL
On July 27, 2020, ZLL entered into a loan agreement with East West Bank with a maturity date of August 5, 2030. As of December 31, 2021, the principal on the loan was $0.6 million with a variable interest rate of 0.50 % less than the independent index, which is the daily Wall Street Journal “Prime Rate.” If the index is not available, East West Bank may designate a substitute index after notifying ZLL. Monthly payments on the principal and any accrued interest rate not yet paid began in September 2020. As of March 31, 2022, the balance outstanding was $0.6 million. ZLL must maintain a Debt Coverage Ratio (defined as net operating income divided by current portion of long-term debt, plus interest expense) of not less than 1.25 to 1.
Construction Loan
In April 2021, Tag 8 entered into a construction loan agreement with MUFG Union Bank N.A. (“Construction Loan”). Tag 8 is a VIE consolidated by the Company.
The Construction Loan allows Tag 8 to borrow up to $10.7 million with a maturity date of December 1, 2022 (“Construction Loan Term”). Interest rate is equal to an index rate determined by the bank. Monthly interest payments began on May 1, 2021, or can become part of the principal and bear interest. If construction is completed and, there are no events of default or substantial deterioration in the financial condition of Tag 8 or APC, guarantor on the loan agreement, at the maturity date of the Construction Loan Term, the loan shall convert to an amortizing loan with an extended maturity date of December 1, 2032 (“Permanent Loan Term”). Upon conversion to the Permanent Loan Term, monthly principal and interest payments shall be made beginning January 1, 2023. From January 1, 2023 until December 1, 2023, the interest rate will be 2.0 % per annum in excess of the LIBOR rate. As of March 31, 2022, the likelihood of the construction being completed by the maturity date was remote. The outstanding balance as of March 31, 2022 was $1.3 million and was recorded as a current portion of long-term debt in the accompanying consolidated balance sheets. Once the loan converts to the Permanent Loan Term, APC, as Tag 8’s guarantor, must maintain a Cash Flow Coverage Ratio (defined as consolidated EBITDA minus unfinanced capital expenditures and distributions paid divided by the sum of current portion of long-term debt, plus interest expense) of not less than 1.25 to 1.
Effective Interest Rate
The Company’s average effective interest rate on its total debt during the three months ended March 31, 2022 and 2021, was 1.78 % and 2.08 %, respectively. Interest expense in the consolidated statements of income included amortization of deferred debt issuance costs for the three months ended March 31, 2022 and 2021, of $0.2 million and $0.3 million, respectively.
Lines of Credit
APC Business Loan
39
On September 10, 2019, the APC Business Loan Agreement with Preferred Bank (the “APC Business Loan Agreement”) was amended to decrease loan availability to $4.1 million. 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, the APC management services agreement dated as of July 1, 1999, as amended.
Standby Letters of Credit
APC established irrevocable standby letters of credit with Preferred Bank under the APC Business Loan Agreement 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.
10. Mezzanine and Stockholders’ Equity
Mezzanine
As the redemption feature of the APC shares (see Note 2) is not solely within the control of APC, the equity of APC does not qualify as permanent equity and has been classified as non-controlling interest in APC as mezzanine or temporary equity. APC’s shares were not redeemable, and it was not probable that the shares would become redeemable, as of March 31, 2022 and December 31, 2021.
Stockholders’ Equity
As of March 31, 2022, 140,954 holdback shares have not been issued to certain former NMM shareholders who were NMM shareholders at the time of closing of the 2017 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 2017 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 2017 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 2017 Merger.
Treasury Stock
APC owned 10,925,702 shares of ApolloMed’s common stock as of March 31, 2022 and December 31, 2021, 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.
Dividends
11. Stock-Based Compensation
40
| Three Months Ended March 31, |
|||||||||||
| 2022 | 2021 | ||||||||||
| Stock options | $ | $ | |||||||||
| Restricted stock | |||||||||||
| Total stock-based compensation expense | $ | $ | |||||||||
Unrecognized compensation expense related to total share-based payments outstanding as of March 31, 2022, was $21.6 million.
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, 2022 | $ | $ | |||||||||||||||||||||
Options granted |
— | — | |||||||||||||||||||||
Options exercised |
( |
— | |||||||||||||||||||||
Options forfeited |
— | — | |||||||||||||||||||||
| Options outstanding at March 31, 2022 | $ | $ | |||||||||||||||||||||
| Options exercisable at March 31, 2022 | $ | $ | |||||||||||||||||||||
During the three months ended March 31, 2022, options were exercised for 38,500 shares of the Company’s common stock, resulting in proceeds of $0.7 million. During the three months ended March 31, 2021, no stock options were exercised.
During the three months ended March 31, 2022, the Company granted 75,271 stock options to certain ApolloMed employees and Board members. The options granted during the three months ended March 31, 2022 were recognized at fair value, as determined using the Black-Scholes option pricing model as follows:
| March 31, 2022 | |||||
Expected term |
|||||
Expected volatility |
|||||
Risk-free interest rate |
|||||
Market value of common stock |
$ |
||||
Annual dividend yield |
% | ||||
Forfeiture rate |
% | ||||
Restricted Stock
The Company grants restricted stock to officers and employees which are earned based on service conditions. The grant date fair value of the restricted stock is that day’s closing market price of the Company’s common stock. During the three months ended March 31, 2022, the Company granted restricted stock totaling 76,828 shares, including 49,124 restricted stock with performance conditions, with a weighted average grant date fair value of $50.76 . Restricted stock with performance conditions are recognized to the extent the performance conditions are probable of being achieved. The grant date fair value of restricted stock and restricted stock with performance conditions that are probable of being achieved were $3.9 million and will be recognized on a straight-line basis over the awards’ vesting period.
Warrants
41
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, 2022 | |||||||||||||||||||||||
| Warrants granted | — | ||||||||||||||||||||||
| Warrants exercised | ( |
— | |||||||||||||||||||||
| Warrants expired/forfeited | — | ||||||||||||||||||||||
| Warrants outstanding at March 31, 2022 | $ | $ | |||||||||||||||||||||
Exercise Price Per Share |
Warrants Outstanding |
Weighted
Average
Remaining
Contractual Life
|
Warrants
Exercisable
|
Weighted
Average
Exercise Price
Per Share
|
||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
$ |
$ | |||||||||||||||||||||||||
12. 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 risk-bearing organizations, APC, Alpha Care, and Accountable Health Care are required to comply with the California Department of Managed Healthcare (“DMHC”) regulations, including maintenance of minimum working capital, tangible net equity (“TNE”), cash-to-claims ratio, and claims payment requirements prescribed by the DMHC. TNE is defined as net equity less intangibles, less non-allowable assets (which include unsecured amounts due from affiliates), plus subordinated obligations.
Many of the payor and provider contracts with the Company’s affiliated physician-owned medical groups 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
42
APC and Alpha Care established irrevocable standby letters of credit with a Preferred Bank for a total of $0.3 million and $3.8 million, respectively, for the benefit of certain health plans (see Note 9).
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.
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.
13. Related-Party Transactions
During the three months ended March 31, 2022 and 2021, NMM earned approximately $6.3 million and $4.5 million, respectively, in management fees from LMA, which is accounted for under the equity method based on the 25
During the three months ended March 31, 2022 and 2021, APC paid approximately $0.7 million and $0.5 million, respectively, to PMIOC for provider services, which is accounted for under the equity method based on the 40
During the three months ended March 31, 2022 and 2021, APC paid approximately $0 and $1.6 million, respectively, to DMG for provider services, which is accounted for under the equity method based on the 40 % equity ownership interest held by APC. In October 2021, DMG was consolidated by Apollo. As such, DMG is no longer a related party.
During the three months ended March 31, 2022 and 2021, APC paid approximately $39,000 and $22,000 , respectively, to Advanced Diagnostic Surgery Center for services as a provider. Advanced Diagnostic Surgery Center shares common ownership with certain board members of APC.
During the three months ended March 31, 2022 and 2021, APC paid approximately $5,800 and $33,000 , respectively, to Fresenius Medical Care (“Fresenius”) and its subsidiaries for services as a provider. During the three months ended March 31, 2022 and 2021, APAACO paid approximately $0.1 million and $0.2 million, respectively, to Fresenius and its subsidiaries for services as a provider. One of the Company’s board members is an officer of Fresenius and its subsidiaries.
During the three months ended March 31, 2022 and 2021, APC paid approximately $0.1 million and $21,000 , respectively, to Fulgent Genetics, Inc. for services as a provider. One of the Company’s board members is a board member of Fulgent Genetics, Inc.
During the three months ended March 31, 2022 and 2021, APC paid an aggregate of approximately $9.3 million and $7.4 million to shareholders, respectively, which included approximately $1.9 million and $1.7 million, respectively, to shareholders who are also officers of APC.
For the three months ended March 31, 2022 and 2021, SCHC paid approximately $0.1 million and $0.1 million, respectively, to Numen, LLC (“Numen”) for an office lease. Numen is owned by a shareholder of APC.
43
During the three months ended March 31, 2022 and 2021, NMM paid approximately $0.4 million and $0.4 million, respectively, to One MSO for an office lease, which is accounted for under the equity method based on 50
During the three months ended March 31, 2022 and 2021, APC paid approximately $3.5 million and $0 , respectively, to Arroyo Vista Family Health Center (“Arroyo Vista”) for services as a provider. The CEO of Arroyo Vista became a board member with the Company in 2021.
The Company has agreements with Health Source MSO Inc., a California corporation (“HSMSO”), Aurion Corporation (“Aurion”), and AHMC Healthcare Inc. (“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 (in thousands):
| Three Months Ended March 31, |
|||||||||||
| 2022 | 2021 | ||||||||||
| AHMC – Risk pool, capitation, claims payment | $ | $ | |||||||||
| HSMSO – Management fees, net | ( |
( |
|||||||||
| Aurion – Management fees | ( |
( |
|||||||||
| Receipts, net | $ | $ | |||||||||
The Company and AHMC have a risk-sharing agreement with certain AHMC hospitals to share the surplus and deficits of each of the hospital pools. During the three months ended March 31, 2022 and 2021, the Company has recognized risk pool revenue under this agreement of $12.0 million and $16.9 million, respectively, of which $66.0 million and $58.4 million remained outstanding as of March 31, 2022 and December 31, 2021, respectively.
During the three months ended March 31, 2022 and 2021, NMM paid approximately $0 and $44,000 , respectively, to an ApolloMed board member for consulting services.
In addition, affiliates wholly owned by the Company’s officers, including Dr. Thomas Lam, ApolloMed’s Co-CEO and President, 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 and loans receivable from related parties, see Notes 5 and 6, respectively.
14. Income Taxes
The Company uses the liability method of accounting for income taxes as set forth in ASC 740 Income Taxes. 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.
On an interim basis, the Company estimates what its anticipated annual effective tax rate will be and records a quarterly income tax provision in accordance with the estimated annual rate, plus the tax effect of certain discrete items that arise during the quarter. As the fiscal year progresses, the Company refines its estimates based on actual events and financial results during the quarter. This process can result in significant changes to the Company’s estimated effective tax rate. When this occurs, the income tax provision is adjusted during the quarter in which the estimates are refined so that the year-to-date provision reflects the estimated annual effective tax rate. These changes, along with adjustments to the Company’s deferred taxes and related valuation allowance, may create fluctuations in the overall effective tax rate from quarter to quarter.
As of March 31, 2022, due to the overall cumulative losses incurred in recent years, the Company maintained a full valuation allowance against its deferred tax assets related to loss entities the Company cannot consolidate under the federal tax consolidation rules, as realization of these assets is uncertain.
44
The Company’s effective income tax rate for the three months ended March 31, 2022 and March 31, 2021, was 34.0 % and 31.9 %, respectively. The tax rate for the three months ended March 31, 2022, differed from the U.S. federal statutory rate primarily due to state income taxes, income from flow through entities, non-deductible permanent items, and change in valuation allowance.
As of March 31, 2022, 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, 2017 through December 31, 2021, and for the years ended December 31, 2018 through December 31, 2021, respectively. The Company does not anticipate material changes to the unrecognized tax benefits within the next 12 months.
15. Earnings Per Share
Basic earnings 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 attributable to ApolloMed by the weighted average number of shares of the Company’s common stock issued and outstanding during such period. Diluted earnings per share is calculated using the weighted average number of shares of common stock and potentially dilutive shares of common stock outstanding during the period, using the as-if converted method for secured convertible notes, preferred stock, and the treasury stock method for options and common stock warrants.
As of March 31, 2022 and December 31, 2021, APC held 10,925,702 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.
Below is a summary of the earnings per share computations:
| Three Months Ended March 31, | 2022 | 2021 | ||||||||||||
Earnings per share – basic |
$ | $ | ||||||||||||
Earnings per share – diluted |
$ | $ | ||||||||||||
Weighted average shares of common stock outstanding – basic |
||||||||||||||
Weighted average shares of common stock outstanding – diluted |
||||||||||||||
Below is a summary of the shares included in the diluted earnings per share computations:
| Three Months Ended March 31, | 2022 | 2021 | ||||||||||||
| Weighted average shares of common stock outstanding – basic | ||||||||||||||
| Stock options | ||||||||||||||
| Warrants | ||||||||||||||
| Restricted stock awards | ||||||||||||||
| Weighted average shares of common stock outstanding – diluted | ||||||||||||||
16. Variable Interest Entities (VIEs)
45
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 – “Basis of Presentation and Summary of Significant Accounting Policies - Variable Interest Entities” to the accompanying consolidated financial statements for information on how the Company determines VIEs and their treatment.
The following table includes assets that can only be used to settle the liabilities of APC and its VIEs, including Alpha Care and Accountable Health Care, and to which the creditors of ApolloMed have no recourse, and liabilities to which the creditors of APC, including Alpha Care and Accountable Health Care, have no recourse to the general credit of ApolloMed, as the primary beneficiary of the VIEs. These assets and liabilities, with the exception of the investment in a privately held entity that does not report net asset value per share and amounts due to affiliates, which are eliminated upon consolidation with NMM, are included in the accompanying consolidated balance sheets (in thousands). The assets and liabilities of the Company’s other consolidated VIEs were not considered significant.
| March 31, 2022 |
December 31, 2021 |
||||||||||
Assets |
|||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Investment in marketable securities | |||||||||||
| Receivables, net | |||||||||||
| Receivables, net – related party | |||||||||||
| Income taxes receivable | |||||||||||
| Other receivables | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Loan receivable – related party | |||||||||||
| Amount due from affiliate | |||||||||||
Total current assets |
|||||||||||
| Non-current assets | |||||||||||
| Land, property, and equipment, net | |||||||||||
| Intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Loans receivable – related parties | |||||||||||
| Investment in affiliates | |||||||||||
| Investments in other entities – equity method | |||||||||||
| Investment in privately held entities | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Other assets | |||||||||||
| Total non-current assets | |||||||||||
Total assets |
$ | $ | |||||||||
| Current liabilities | |||||||||||
| Accounts payable and accrued expenses | $ | $ | |||||||||
| Fiduciary accounts payable | |||||||||||
| Medical liabilities | |||||||||||
| Income taxes payable | |||||||||||
| Dividends payable | |||||||||||
| Current portion of long-term debt | |||||||||||
| Finance lease liabilities | |||||||||||
46
| March 31, 2022 |
December 31, 2021 |
||||||||||
| Operating lease liabilities | |||||||||||
Total current liabilities |
|||||||||||
| Non-current liabilities | |||||||||||
| Long-term debt, net of current portion and deferred financing costs | |||||||||||
| Deferred tax liability | |||||||||||
| Finance lease liabilities, net of current portion | |||||||||||
| Operating lease liabilities, net of current portion | |||||||||||
| Other long-term liabilities | |||||||||||
| Total non-current liabilities | |||||||||||
Total liabilities |
$ | $ | |||||||||
47
17. Leases
The Company has operating and finance leases for corporate offices, physicians’ offices, and certain equipment. These leases have remaining lease terms of four months eight years 10 one year 1.5 million and $1.3 million, respectively, and accumulated depreciation associated with finance leases were $0.7 million and $0.6 million, respectively.
Also, the Company rents or subleases certain real estate to third parties, which are accounted for as operating leases.
Leases with an initial term of 12 months or less are not recorded on the balance sheets.
The components of lease expense were as follows (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
Operating lease cost |
$ | $ | |||||||||
Finance lease cost |
|||||||||||
Amortization of lease expense |
|||||||||||
Interest on lease liabilities |
|||||||||||
| Sublease income | ( |
( |
|||||||||
| Total lease cost, net | $ | $ | |||||||||
48
Other information related to leases was as follows (in thousands):
| Three Months Ended March 31, |
|||||||||||
| 2022 | 2021 | ||||||||||
| Supplemental Cash Flow Information | |||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows from operating leases | $ | $ | |||||||||
| Operating cash flows from finance leases | |||||||||||
| Financing cash flows from finance leases | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Weighted Average Remaining Lease Term | |||||||||||
| Operating leases | |||||||||||
| Finance leases | |||||||||||
| Weighted Average Discount Rate | |||||||||||
| Operating leases | % | % | |||||||||
| Finance leases | % | % | |||||||||
Future minimum lease payments under non-cancellable leases as of March 31, 2022, is as follows (in thousands):
| March 31, 2022 | Operating Leases |
Finance Leases |
|||||||||
2022 (excluding the three months ended March 31, 2022) |
$ | $ | |||||||||
| 2023 | |||||||||||
| 2024 | |||||||||||
| 2025 | |||||||||||
| 2026 | |||||||||||
Thereafter |
|||||||||||
Total future minimum lease payments |
|||||||||||
Less: imputed interest |
|||||||||||
Total lease liabilities |
|||||||||||
Less: current portion |
|||||||||||
Long-term lease liabilities |
$ | $ | |||||||||
As of March 31, 2022, the Company does not have additional operating and finance leases that have not yet commenced.
49
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited consolidated financial statements and the notes thereto included in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q. In addition, reference is made to our audited consolidated financial statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 28, 2022.
Overview
Apollo Medical Holdings, Inc. is a leading physician-centric, technology-powered, risk-bearing healthcare management company. Leveraging its proprietary population health management and healthcare delivery platform, ApolloMed operates an integrated, value-based healthcare model, which aims to empower the providers in its network to deliver the highest quality of care to its patients in a cost-effective manner. We, together with our affiliated physician groups and consolidated entities, provide coordinated outcomes-based medical care in a cost-effective manner.
The majority of our patients are covered by private or public insurance provided through Medicare, Medicaid, and health maintenance organizations (“HMOs”). However, a small portion of our revenue comes 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, physician and specialist extenders, and hospitalists. We operate primarily through Apollo Medical Holdings, Inc. (“ApolloMed”) and the following subsidiaries: NMM, AMM, and APAACO and their consolidated entities, including consolidated VIEs.
Led by a management team with several decades of experience, we are focused on physicians providing high-quality medical care, population health management, and care coordination for patients. As a result, we are well positioned to take advantage of the shift in the U.S. healthcare industry toward providing value-based and results-oriented healthcare with a focus on patient satisfaction, high-quality care, and cost efficiency.
Through our accountable care organization and a network of IPAs with more than 9,600 contracted physicians, we are responsible for coordinating care for approximately 1.2 million patients primarily in California as of March 31, 2022.
Recent and Other Developments
Jade Health Care Medical Group
In April 2022, the Company completed the previously announced acquisition of 100% of the fully diluted capitalization of Jade Health Care Medical Group (“Jade Health”), a primary and specialty care physicians' group focused on providing high-quality care to local San Francisco Bay area communities. Jade Health is committed to delivering high-quality, affordable healthcare to Medicaid, Medicare, and Commercial members through its over 350 primary and specialty care providers. The transaction will add approximately 13,000 members, primarily located in the City and County of San Francisco and San Mateo County, to ApolloMed's membership under capitated arrangements.
In April 2022, the Company completed the previously announced acquisition of 100% of the fully diluted capitalization of Jade Health Care Medical Group (“Jade Health”), a primary and specialty care physicians' group focused on providing high-quality care to local San Francisco Bay area communities. Jade Health is committed to delivering high-quality, affordable healthcare to Medicaid, Medicare, and Commercial members through its over 350 primary and specialty care providers. The transaction will add approximately 13,000 members, primarily located in the City and County of San Francisco and San Mateo County, to ApolloMed's membership under capitated arrangements.
Key Financial Measures and Indicators
Operating Revenues
Our revenue, which is recorded in the period in which services are rendered and earned, primarily consists of capitation revenue, risk pool settlements and incentives, GPDC revenue, management fee income, and FFS revenue. The form of billing and related risk of collection for such services may vary by type of revenue and the customer.
Operating Expenses
50
Our largest expenses consist of the cost of: (1) patient care paid to contracted physicians; (2) information technology equipment and software and; (3) hiring staff to provide management and administrative support services to our affiliated physician groups, as further described in the following sections. These services include payroll, benefits, physician practice billing, revenue cycle services, physician practice management, administrative oversight, coding services, and other consulting services.
51
Results of Operations
Apollo Medical Holdings, Inc.
Consolidated Statements of Income
(In thousands)
(Unaudited)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | $ Change |
% Change | ||||||||||||||||||||
Revenue |
|||||||||||||||||||||||
| Capitation, net | $ | 222,060 | $ | 144,740 | $ | 77,320 | 53 | % | |||||||||||||||
| Risk pool settlements and incentives | 18,075 | 18,010 | 65 | — | % | ||||||||||||||||||
| Management fee income | 10,473 | 8,550 | 1,923 | 22 | % | ||||||||||||||||||
| Fee-for-services, net | 11,095 | 3,086 | 8,009 | 260 | % | ||||||||||||||||||
| Other income | 1,555 | 1,672 | (117) | (7) | % | ||||||||||||||||||
Total revenue |
263,258 | 176,058 | 87,200 | 50 | % | ||||||||||||||||||
Operating expenses |
|||||||||||||||||||||||
| Cost of services, excluding depreciation and amortization | 220,730 | 140,616 | 80,114 | 57 | % | ||||||||||||||||||
General and administrative expenses |
11,943 | 9,464 | 2,479 | 26 | % | ||||||||||||||||||
Depreciation and amortization |
4,374 | 4,197 | 177 | 4 | % | ||||||||||||||||||
Total expenses |
237,047 | 154,277 | 82,770 | 54 | % | ||||||||||||||||||
| Income from operations | 26,211 | 21,781 | 4,430 | 20 | % | ||||||||||||||||||
| Other expense | |||||||||||||||||||||||
| Income (loss) from equity method investments | 1,433 | (677) | 2,110 | (312) | % | ||||||||||||||||||
Interest expense |
(1,073) | (1,523) | 450 | (30) | % | ||||||||||||||||||
| Interest income | 46 | 349 | (303) | (87) | % | ||||||||||||||||||
| Unrealized loss on investments | (8,962) | — | (8,962) | (100) | % | ||||||||||||||||||
| Other income | 613 | 1,304 | (691) | (53) | % | ||||||||||||||||||
| Total other expense, net | (7,943) | (547) | (7,396) | * | |||||||||||||||||||
| Income before provision for income taxes | 18,268 | 21,234 | (2,966) | (14) | % | ||||||||||||||||||
| Provision for income taxes | 6,195 | 6,776 | (581) | (9) | % | ||||||||||||||||||
| Net income | 12,073 | 14,458 | (2,385) | (16) | % | ||||||||||||||||||
| Net (loss) income attributable to non-controlling interest | (2,191) | 1,307 | (3,498) | (268) | % | ||||||||||||||||||
| Net income attributable to Apollo Medical Holdings, Inc. | $ | 14,264 | $ | 13,151 | $ | 1,113 | 8 | % | |||||||||||||||
* Percentage change of over 500%
Net Income Attributable to Apollo Medical Holdings, Inc.
Our net income attributable to Apollo Medical Holdings, Inc. for the three months ended March 31, 2022, was $14.3 million, as compared to $13.2 million for the same period in 2021, an increase of $1.1 million.
52
Physician Groups and Patients
As of March 31, 2022 and 2021, we managed a total of 12 groups of affiliated physicians, and the total number of patients for whom we managed the delivery of healthcare services was approximately 1.2 million and 1.1 million, respectively.
Revenue
Our revenue for the three months ended March 31, 2022, was $263.3 million, as compared to $176.1 million for the three months ended March 31, 2021, an increase of $87.2 million, or 50%. The increase in revenue was primarily attributable to the following:
(i) Capitation revenue increased by approximately $77.3 million driven by organic membership growth in our core IPAs and participation in a value-based Medicare fee-for-service model.
(ii) Fee for service increased by approximately $8.0 million driven by the consolidation of Sun Labs, beginning August 2021, and DMG, beginning October 2021, which contributed $6.3 million and increased visits to our surgery center, that had been partially closed in the prior year due to COVID-19, which contributed $1.2 million.
Cost of Services, Excluding Depreciation and Amortization
Expenses related to cost of services for the three months ended March 31, 2022, were $220.7 million, as compared to $140.6 million for the same period in 2021, an increase of $80.1 million. The overall increase was primarily due to expected return to pre-COVID medical expense run rates and growth in membership which was commensurate to our increase in revenue.
General and Administrative Expenses
General and administrative expenses for the three months ended March 31, 2022, were $11.9 million, as compared to $9.5 million for the same period in 2021, an increase of $2.5 million, or 26%. The increase was primarily due to an increase in stock-based compensation and other general and administrative expenses to support operational growth.
Depreciation and Amortization
Depreciation and amortization expenses for the three months ended March 31, 2022, were $4.4 million, as compared to $4.2 million for the same period in 2021. This amount includes depreciation of property and equipment and the amortization of intangible assets.
Other Expense
Other expense represents income, or loss, from equity method investments, interest expense, interest income, unrealized loss on investments, and other income. Our total other expense for the three months ended March 31, 2022 was $7.9 million compared to other expenses of $0.5 million in 2021, an increase of $7.4 million. The increase in other expense was due to unrealized loss on investments of $9.0 million and a decrease of $0.7 million due to a stimulus check received during the three months ended March 31, 2021 from the Provider Relief Fund. This was partially offset by an increase in income from equity method investments of $2.1 million.
The $9.0 million unrealized loss on investments is primarily driven by an unrealized loss of $10.6 million due to fluctuations in the stock price of a payor partner in which we hold shares. There was no unrealized gain or loss for the three months ended March 31, 2021 because the payor partner became a publicly traded company in June 2021. The unrealized loss was partially offset by an unrealized gain of $1.6 million due to fluctuations in Tag 8 and APC’s interest rate swap. These shares and interest rate swap are deemed Excluded Assets that are solely for the benefit of APC and its shareholders. Any resulting gain or loss does not impact net income attributable to Apollo Medical Holdings, Inc.
The $2.1 million increase in income from equity method investments was primarily due to APC’s equity method investment in LMA. For the three months ended March 31, 2022, $1.3 million in income was recognized as compared to $0.7 million loss recognized for the three months ended March 31, 2021.
53
Provision for Income Taxes
Provision for income taxes was $6.2 million for the three months ended March 31, 2022, as compared to provision for income taxes of $6.8 million for the same period in 2021. This was due to a decrease in pre-tax income for the three months ended March 31, 2022, period as compared to the same period in 2021, as described above.
Net (Loss) Income Attributable to Non-controlling Interests
Net loss attributable to non-controlling interests for the three months ended March 31, 2022, was $2.2 million, as compared to net income attributable to non-controlling interests for the three months ended March 31, 2021 of $1.3 million, respectively, a decrease of $3.5 million. The decrease was primarily driven by an unrealized loss resulting from a decreased fair value in our marketable securities related to shares held of a payor partner.
2022 Guidance
ApolloMed is raising its guidance for total revenue and the lower end of its guidance ranges for net income, EBITDA, and adjusted EBITDA, previously disclosed on March 14, 2022, as a result of strong organic membership growth and favorable membership mix. Net income and EBITDA include the impact of APC’s investment in a payer partner, which completed an initial public offering to become a publicly traded company in June 2021. As APC’s investment is an excluded asset solely for the benefit of APC and its shareholders, any gains or losses as a result of this investment do not affect the net income attributable to ApolloMed and adjusted EBITDA attributable to ApolloMed. The May 5, 2022, revised net income and EBITDA guidance ranges assume a stock price of the payer partner of $1.93. These assumptions are based on the Company’s existing business, current view of existing market conditions and assumptions for the year ending December 31, 2022.
| ($ in millions) | 2022 Guidance Range | 2022 Guidance Range | ||||||||||||||||||||||||
| (as of March 14, 2022) | (as of May 5, 2022) | |||||||||||||||||||||||||
| Low | High | Low | High | |||||||||||||||||||||||
| Total revenue | $ | 1,030.0 | $ | 1,080.0 | $ | 1,055.0 | $ | 1,085.0 | ||||||||||||||||||
| Net income | $ | 33.0 | $ | 57.0 | $ | 38.0 | $ | 57.0 | ||||||||||||||||||
| EBITDA | $ | 72.0 | $ | 111.0 | $ | 81.0 | $ | 111.0 | ||||||||||||||||||
| Adjusted EBITDA | $ | 130.0 | $ | 166.0 | $ | 136.0 | $ | 166.0 | ||||||||||||||||||
See “Guidance Reconciliation of Net Income to EBITDA and Adjusted EBITDA” and “Use of Non-GAAP Financial Measures” below for additional information. There can be no assurance that actual amounts will not be materially higher or lower than these expectations. See “Forward-Looking Statements” below for additional information.
54
Guidance Reconciliation of Net Income to EBITDA and Adjusted EBITDA*
|
||||||||||||||
| 2022 Guidance Range | ||||||||||||||
| (as of May 5, 2022) | ||||||||||||||
| (in thousands) | ||||||||||||||
| Low | High | |||||||||||||
| Net income | $ | 38,000 | $ | 57,000 | ||||||||||
| Interest expense | 4,000 | 4,000 | ||||||||||||
| Provision for income taxes | 20,000 | 31,000 | ||||||||||||
| Depreciation and amortization | 19,000 | 19,000 | ||||||||||||
| EBITDA | 81,000 | 111,000 | ||||||||||||
| Provider bonus payments | 16,000 | 16,000 | ||||||||||||
| Stock-based compensation | 13,000 | 13,000 | ||||||||||||
| APC excluded assets costs | 9,000 | 9,000 | ||||||||||||
| Net loss adjustment for recently acquired IPAs | 17,000 | 17,000 | ||||||||||||
| Adjusted EBITDA | $ | 136,000 | $ | 166,000 | ||||||||||
| Reconciliation of Net Income to EBITDA and Adjusted EBITDA | |||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||
| (in thousands) | 2022 | 2021 | |||||||||||||||
| Net income | $ | 12,073 | $ | 14,458 | |||||||||||||
| Interest expense | 1,073 | 1,523 | |||||||||||||||
| Interest income | (46) | (349) | |||||||||||||||
| Provision for income taxes | 6,195 | 6,776 | |||||||||||||||
| Depreciation and amortization | 4,374 | 4,197 | |||||||||||||||
| EBITDA | 23,669 | 26,605 | |||||||||||||||
| (Income) loss from equity method investments | (1,433) | 677 | |||||||||||||||
| Other income | (613) | (1) |
(1,304) | ||||||||||||||
| Unrealized loss on investments | 8,962 | — | |||||||||||||||
| Stock-based compensation | 3,055 | 1,346 | |||||||||||||||
| APC excluded assets costs | 750 | — | |||||||||||||||
| Net loss adjustment for recently acquired IPAs | 3,789 | 3,194 | |||||||||||||||
| Adjusted EBITDA | $ | 38,179 | $ | 30,518 | |||||||||||||
(1) Other income excludes the impact of fair value of certain equity securities held by the Company.
55
Use of Non-GAAP Financial Measures
This Quarterly Report on Form 10-Q contains the non-GAAP financial measures EBITDA and adjusted EBITDA, of which the most directly comparable financial measure presented in accordance with U.S. generally accepted accounting principles (“GAAP”) is net (loss) income. These measures are not in accordance with, or an alternative to, GAAP, and may be different from other non-GAAP financial measures used by other companies. The Company uses adjusted EBITDA as a supplemental performance measure of our operations, for financial and operational decision-making, and as a supplemental means of evaluating period-to-period comparisons on a consistent basis. Adjusted EBITDA is calculated as earnings before interest, taxes, depreciation, and amortization, excluding income or loss from equity method investments, unrealized gain or loss, provider bonuses, APC excluded assets costs, stock-based compensation, net loss adjustment for recently acquired IPAs, and other income or expenses recognized that are not related to the Company’s normal operations. Adjusted EBITDA also excludes the effect on EBITDA of certain IPAs we recently acquired.
The Company believes the presentation of these non-GAAP financial measures provides investors with relevant and useful information, as it allows investors to evaluate the operating performance of the business activities without having to account for differences recognized because of non-core or non-recurring financial information. When GAAP financial measures are viewed in conjunction with non-GAAP financial measures, investors are provided with a more meaningful understanding of the Company’s ongoing operating performance. In addition, these non-GAAP financial measures are among those indicators the Company uses as a basis for evaluating operational performance, allocating resources, and planning and forecasting future periods. Non-GAAP financial measures are not intended to be considered in isolation from, or as a substitute for, GAAP financial measures. To the extent this release contains historical or future non-GAAP financial measures, the Company has provided corresponding GAAP financial measures for comparative purposes. The reconciliation between certain GAAP and non-GAAP measures is provided above.
Liquidity and Capital Resources
Cash, cash equivalents, and investment in marketable securities at March 31, 2022, totaled $280.8 million as compared to $286.5 million at December 31, 2021. Working capital totaled $284.0 million at March 31, 2022, as compared to $283.4 million at December 31, 2021, an increase of $0.6 million.
We have historically financed our operations primarily through internally generated funds. We generate cash primarily from capitation contracts, risk pool settlements and incentives, fees for medical management services provided to our affiliated physician groups, and 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 through at least the next 12 months.
Our cash, cash equivalents, and restricted cash increased by $4.8 million from $233.1 million at December 31, 2021, to $237.9 million at March 31, 2022. Cash provided by operating activities for the three months ended March 31, 2022, was $24.0 million, as compared to cash provided by operating activities of $10.0 million for the three months ended March 31, 2021. The increase in cash provided by operating activities was primarily driven cash received from revenues and cash paid for cost of revenues and operating expenses, and changes in operating assets and liabilities, including the timing of income tax payments. Our primary source of cash provided by our operations are capitation revenues and timing of our risk pool and incentive settlements. Use of cash from our operating activities include payments to contracted physicians for providing patient care and personnel-related costs to support our continued growth in operations.
Cash used in investing activities during the three months ended March 31, 2022, was $19.7 million, primarily due to purchases of property and equipment of $17.5 million, payments for business acquisition of $1.0 million, and funding for an equity method investment of $1.4 million. The cash used in investing activities was partially offset by a distribution received from an equity method investment of $0.2 million. Cash provided by investing activities during the three months ended March 31, 2021, was $0.7 million, primarily due to proceeds from sale of marketable securities of $1.1 million offset by purchases of marketable securities of $0.3 million and purchases of property and equipment of $0.1 million.
Cash provided by financing activities during the three months ended March 31, 2022, was $0.5 million as compared to cash provided by financing activities of $1.3 million for the three months ended March 31, 2021. Cash provided by financing activities for the three months ended March 31, 2022 was primarily due to a borrowing on Tag 8’s Construction Loan for $0.7 million and proceeds from the exercise of options and warrants of $1.6 million. This was partially offset by dividend payment of $1.2 million, repurchase of shares of $0.2 million, purchase of non-controlling interest of $0.2 million and repayment of finance lease obligations of $0.1 million. Cash provided for the three months ended March 31, 2021 was due to proceeds from the exercise of stock options and warrants for $4.3 million offset by the Company’s repayment of term loan of $2.4 million, repurchase of shares $0.3 million, and distribution of non-controlling interest of $0.2 million.
56
Excluded Assets
In September 2019, APC and AP-AMH entered into Second Amendment to Series A Preferred Stock Purchase Agreement, which clarified 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 (as defined in the purchase agreement), (ii) the assets of APC that are not Healthcare Services Assets (as defined in the purchase agreement), including APC’s equity interests in 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).
The Excluded Assets as of March 31, 2022, are primarily comprised of assets and liabilities from operating real estate and proceeds from the sale of UCI. Any dividends issued to APC shareholders are paid using cash from Excluded Assets. As of March 31, 2022 and December 31, 2021, the Excluded Assets balance consisted of the following (in thousands):
| March 31, 2022 | December 31, 2021 | ||||||||||
| Cash and cash equivalents | $ | 45,511 | $ | 62,540 | |||||||
| Investment in marketable securities | 38,534 | 49,066 | |||||||||
| Land, property, and equipment, net | 59,150 | 42,114 | |||||||||
| Loan receivable – related parties | 4,000 | 4,000 | |||||||||
| Investments in other entities – equity method | 26,225 | 24,969 | |||||||||
| Other receivable and assets | 584 | 936 | |||||||||
| Other liabilities | (295) | (1,178) | |||||||||
| Long-term debt | (7,955) | (7,645) | |||||||||
| Total Excluded Assets | $ | 165,754 | $ | 174,802 | |||||||
Credit Facilities
The Company’s debt balance consisted of the following (in thousands):
| March 31, 2022 | |||||
| Revolver Loan | $ | 180,000 | |||
| Real Estate Loans | 7,344 | ||||
| Construction Loan | 1,291 | ||||
| Total debt | 188,635 | ||||
| Less: Current portion of debt | (1,503) | ||||
| Less: Unamortized financing costs | (4,031) | ||||
| Long-term debt | $ | 183,101 | |||
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The following are the future commitments of the Company’s debt for the years ending December 31 (in thousands):
| Amount | |||||
| 2022 (excluding the three months ended March 31, 2022) | $ | 1,450 | |||
| 2023 | 215 | ||||
| 2024 | 222 | ||||
| 2025 | 6,748 | ||||
| 2026 and thereafter | 180,000 | ||||
| Total | $ | 188,635 | |||
Credit Agreement
On June 16, 2021, the Company entered into an amended and restated credit agreement (the “Amended Credit Agreement” and the credit facility thereunder, the “Amended Credit Facility”) with Truist Bank, in its capacities as administrative agent for the lenders (in such capacity, the “Agent”), issuing bank, swingline lender and a lender, Truist Securities, Inc., JPMorgan Chase Bank, N.A., MUFG Union Bank, N.A., Preferred Bank, Royal Bank of Canada, and Fifth Third Bank, National Association, in their capacities as joint lead arrangers and/or lenders (the “Lenders”), and Bank of the West, The Toronto-Dominion Bank, New York Branch, Well Fargo, National Association, and City National Bank in their capacities as Lenders, to, among other things, amend and restate that certain credit agreement, dated September 11, 2019, by and among the Company, certain Lenders and the Agent, in its entirety.
The Amended Credit Agreement provides for a five-year revolving credit facility (“Revolver Loan”) to the Company of $400.0 million, which includes a letter of credit sub-facility of up to $25.0 million and a swingline loan sub-facility of $25.0 million. The revolving credit facility will be used to, among other things, refinance certain existing indebtedness of the Company and certain subsidiaries, finance certain future acquisitions and investments, and provide for working capital needs and other general corporate purposes. Under the Amended Credit Agreement, the terms and conditions of the Guaranty and Security Agreement remain in effect.
The Amended Credit Agreement requires the Company to comply with two key financial ratios, each calculated on a consolidated basis.
Covenant Ratios (1)
|
Requirement | March 31, 2022 | ||||||||||||
| Consolidated leverage ratio | Less than 3.75 to 1.00 | 1.04 | ||||||||||||
| Consolidated interest coverage ratio | Greater than 3.25 to 1.00 | 27.03 | ||||||||||||
(1) All covenant ratio titles utilize terms as defined in the respective debt agreements.
Refer to Note 9 – “Credit Facility, Bank Loans, and Lines of Credit” to our consolidated financial statements under Item 1 in this Quarterly Report on Form 10-Q for additional information.
Deferred Financing Costs
In September 2019, the Company recorded deferred financing costs of $6.5 million related to its entry into the Credit Facility. In June 2021, the Company recorded additional deferred financing costs of $0.7 million related to its entry into the Amended Credit Facility. Deferred financing costs are recorded as a direct reduction of the carrying amount of the related debt liability using straight-line amortization. The remaining unamortized deferred financing costs related to the Credit Facility and the new costs related to the Amended Credit Facility are amortized over the life of the Amended Credit Facility.
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Effective Interest Rate
The Company’s average effective interest rate on its total debt during the three months ended March 31, 2022 and 2021, were 1.78% and 2.08%, respectively. Interest expense in the consolidated statements of income included amortization of deferred debt issuance costs for the three months ended March 31, 2022 and 2021, of $0.2 million and $0.3 million, respectively.
Real Estate Loans
On December 31, 2020, using cash comprised solely of Excluded Assets, APC purchased a 100% interest in MPP, AMG Properties, and ZLL. As a result of the purchase on the date of acquisition, APC assumed $6.4 million, $0.7 million, and $0.7 million of existing loans held by MPP, AMG Properties, and ZLL, respectively. Refer to Note 9 – “Credit Facility, Bank Loans, and Lines of Credit” to our consolidated financial statements under Item 1 in this quarterly report on Form 10-Q for additional information.
Construction Loan
In April 2021, Tag 8 entered into a construction loan agreement with MUFG Union Bank N.A. (“Construction Loan”) that allows Tag 8 to borrow up to $10.7 million. Tag 8 is a VIE consolidated by the Company. Refer to Note 9 – “Credit Facility, Bank Loans, and Lines of Credit” to our consolidated financial statements under Item 1 in this quarterly report on Form 10-Q for additional information.
Intercompany Loans
Each of AMH, MMG, AKM Medical Group, Inc. (“AKM”), SCHC, and Bay Area Hospitalist Associates (“BAHA”) has entered into an Intercompany Loan Agreement with AMM under which AMM has agreed to provide a revolving loan commitment to each such affiliated entity 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 upon 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 (in thousands).
| Three months ended March 31, 2022 | ||||||||||||||||||||||||||||||||||||||
Entity |
Intercompany Credit Facility | Interest Rate per Annum |
Maximum
Balance
During
Period
|
Ending
Balance
|
Principal Paid
During Period
|
Interest
Paid
During
Period
|
||||||||||||||||||||||||||||||||
| AMH | $ | 10,000 | 10 | % | $ | 6,588 | $ | 6,588 | $ | — | $ | — | ||||||||||||||||||||||||||
| MMG | 3,000 | 10 | % | 3,663 | 3,663 | — | — | |||||||||||||||||||||||||||||||
| AKM | 5,000 | 10 | % | — | — | — | — | |||||||||||||||||||||||||||||||
| SCHC | 5,000 | 10 | % | 5,362 | 5,362 | — | — | |||||||||||||||||||||||||||||||
| BAHA | 250 | 10 | % | 4,066 | 3,945 | — | — | |||||||||||||||||||||||||||||||
| $ | 23,250 | $ | 19,679 | $ | 19,558 | $ | — | $ | — | |||||||||||||||||||||||||||||
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Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires our management to make judgments, assumptions, and estimates that affect the amounts of revenue, expenses, income, assets, and liabilities, reported in our consolidated financial statements and accompanying notes. Actual results and the timing of recognition of such amounts could differ from those judgments, assumptions, and estimates. In addition, judgments, assumptions, and estimates routinely require adjustment based on changing circumstances and the receipt of new or better information. Understanding our accounting policies and the extent to which our management uses judgment, assumptions, and estimates in applying these policies, therefore, is integral to understanding our financial statements. Critical accounting policies and estimates are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. We summarize our most significant accounting policies in relation to the accompanying consolidated financial statements in Note 2 — “Basis of Presentation” thereto. Please also refer to the Critical Accounting Policies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
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New Accounting Pronouncements
See Note 2 — “Basis of Presentation” to the accompanying consolidated financial statements for recently issued accounting pronouncements, including information on new accounting standards and the future adoption of such standards.
Off-Balance Sheet Arrangements
As of March 31, 2022, we had no off-balance sheet arrangements that are or have been 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.
Inflation
Inflation and changing prices have had de minimis effect on our continuing operations over our two most recent fiscal years.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Borrowings under our Amended Credit Agreement exposed us to interest rate risk. As of March 31, 2022, we had $180.0 million in outstanding borrowings under our Amended Credit Agreement. The amount borrowed under the Credit Agreement bears 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 LIBOR, adjusted for any reserve requirement in effect, plus a spread of 1.25% to 2.50%, as determined on a quarterly basis based on the Company’s leverage ratio, or (b) a base rate, plus a spread of 0.25% to 1.50%, 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. In addition, as of March 31, 2022, Tag 8, a VIE consolidated by the Company, had $1.3 million in outstanding borrowings for the Construction Loan. Interest rate on the “Construction Loan” is equal to an index rate determined by the bank. Furthermore, as of March 31, 2022, APC had $7.3 million in outstanding borrowings for real estate loans related to ZLL, MPP, and AMG Properties (“Real Estate Loans”). Each agreement bears interest that is subject to change from time to time based on changes in an independent index, which is the daily Wall Street Journal Prime Rate, as quoted in the “Money Rates” column of The Wall Street Journal (Western edition) as determined by the Lender (the “Index”). On the dates of the agreement, the Index is 3.25% per annum. Under no circumstances will the interest rate on this loan be less than 3.50% per annum or more than the maximum rate allowed by applicable law. The Company has entered into interest rate swap agreements for certain of these agreements to effectively convert its floating-rate debt to a fixed-rate basis. The principal objective of these contracts is to eliminate or reduce the variability of the cash flows in interest payments associated with the Company’s floating-rate debt, thus reducing the impact of interest rate changes on future interest payment cash flows. A hypothetical 1% change in our interest rates for our outstanding borrowings under our Credit Agreement, Construction Loan, and Real Estate Loans would have increased or decreased our interest expense for the three months ended March 31, 2022, by $1.9 million.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of March 31, 2022, we carried out an evaluation, under the supervision and with the participation of our management, including our Co-Chief Executive Officers and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including Co-Chief Executive Officers and Chief Financial Officer, concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15(d)-15(e) under the Exchange Act, were effective as of March 31, 2022, to ensure that information required to be disclosed by us in this Quarterly Report on Form 10-Q or submitted under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to our management, including our principal executive officers and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under Exchange Act) during our first fiscal quarter of 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of our business, we from time to time become involved in pending and threatened legal actions and proceedings. 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, which may not come to light until a substantial period of time has passed following contract implementation. We may also become subject to other lawsuits which could involve significant claims and/or significant defense costs, but as of the date of this Quarterly Report on Form 10-Q, except as disclosed, we are not a party to any lawsuit or proceeding which management expects to, individually or in the aggregate, have a material adverse effect on us or our 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.
ITEM 1A. RISK FACTORS
Our business, financial condition, and operating results are affected by a number of factors, whether currently known or unknown, including risks specific to us or the healthcare industry, as well as risks that affect businesses in general. In addition to the information and risk factors set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 28, 2022. The risks disclosed in such Annual Report and in this Quarterly Report could materially adversely affect our business, financial condition, cash flows, or results of operations and thus our stock price. We believe there have been no material changes in our risk factors from those disclosed in the Annual Report. However, additional risks and uncertainties not currently known or which we currently deem to be immaterial may also materially adversely affect our business, financial condition, or results of operations.
These risk factors may be important to understanding other statements in this Quarterly Report and should be read in conjunction with the consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q. Because of such risk factors, as well as other factors affecting the Company’s financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None for the three months ended March 31, 2022.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
The following exhibits are either incorporated by reference into or filed or furnished with this Quarterly Report on Form 10-Q, as indicated below.
|
Exhibit
No.
|
Description |
||||||||||
| 2.1† | |||||||||||
| 2.2 | |||||||||||
| 2.3 | |||||||||||
| 2.4† | |||||||||||
| 3.1 | |||||||||||
| 3.2 | |||||||||||
| 3.3 | |||||||||||
| 3.4 | |||||||||||
| 3.5 | |||||||||||
| 3.6 | |||||||||||
| 3.7 | |||||||||||
| 4.1 | |||||||||||
| 4.2 | |||||||||||
| 4.3 | |||||||||||
| 4.4 | |||||||||||
| 4.5 | |||||||||||
| 4.6 | |||||||||||
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| 4.7 | |||||||||||
| 4.8 | |||||||||||
| 4.9 | |||||||||||
| 4.10 |
|
||||||||||
| 31.1* | |||||||||||
| 31.2* | |||||||||||
| 31.3* | |||||||||||
| 32** | |||||||||||
101.INS* |
XBRL Instance Document |
||||||||||
101.SCH* |
XBRL Taxonomy Extension Schema Document |
||||||||||
101.CAL* |
XBRL Taxonomy Extension Calculation Linkbase Document |
||||||||||
101.DEF* |
XBRL Taxonomy Extension Definition Linkbase |
||||||||||
101.LAB* |
XBRL Taxonomy Extension Label Linkbase Document | ||||||||||
101.PRE* |
XBRL Taxonomy Extension Presentation Linkbase Document |
||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||||||||||
* |
Filed herewith. |
||||||||||
** |
Furnished herewith |
||||||||||
† |
The schedules and exhibits thereof have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished to the SEC upon request. | ||||||||||
65
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
APOLLO MEDICAL HOLDINGS, INC. |
||||||||
| Dated: May 10, 2022 | By: | /s/ Thomas Lam | ||||||
| Thomas Lam, M.D., M.P.H. Co-Chief Executive Officer & President (Principal Executive Officer) |
||||||||
| Dated: May 10, 2022 | By: | /s/ Brandon Sim | ||||||
| Brandon Sim Co-Chief Executive Officer (Principal Executive Officer) |
||||||||
| Dated: May 10, 2022 | By: | /s/ Chandan Basho | ||||||
| Chandan Basho Interim Chief Financial Officer (Principal Financial Officer) |
||||||||
66