10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on August 9, 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 |
For the quarterly period ended June 30, 2022
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___ to ___.
Commission File No. 001-37392
(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 |
|||||||||||||||
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 |
|||||||||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): ☐ Yes ☒ No
As of July 25, 2022, there were 56,461,468 shares of common stock of the registrant, $0.001 par value per share, issued and outstanding.
APOLLO MEDICAL HOLDINGS, INC.
INDEX TO FORM 10-Q FILING
TABLE OF CONTENTS
PAGE |
||||||||
Consolidated Statements of Mezzanine and Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021
|
||||||||
3
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 | ||||
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 |
4
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, EBITDA, Adjusted EBITDA, 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
5
APOLLO MEDICAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
June 30, 2022 |
December 31, 2021 |
||||||||||
(Unaudited) | |||||||||||
Assets |
|||||||||||
Current assets | |||||||||||
Cash and cash equivalents | $ | $ | |||||||||
Investments in marketable securities | |||||||||||
Receivables, net | |||||||||||
Receivables, net – related parties | |||||||||||
Income taxes receivable | |||||||||||
Other receivables | |||||||||||
Prepaid expenses and other current assets | |||||||||||
Loan receivable – related party | |||||||||||
Total current assets |
|||||||||||
Non-current assets | |||||||||||
Land, property, and equipment, net | |||||||||||
Intangible assets, net | |||||||||||
Goodwill | |||||||||||
Loans receivable | |||||||||||
Loan receivable - related party | |||||||||||
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)
|
$ | $ | |||||||||
Liabilities, mezzanine equity, and stockholders’ equity | |||||||||||
Current liabilities |
|||||||||||
Accounts payable and accrued expenses | $ | $ | |||||||||
Fiduciary accounts payable | |||||||||||
Medical liabilities | |||||||||||
Income taxes payable | |||||||||||
Dividend payable | |||||||||||
Finance lease liabilities | |||||||||||
Operating lease liabilities |
6
June 30, 2022 |
December 31, 2021 |
||||||||||
(Unaudited) | |||||||||||
Current portion of long-term debt | |||||||||||
Total current liabilities |
|||||||||||
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)
|
|||||||||||
Commitments and contingencies (Note 12) | |||||||||||
Non-controlling interest in Allied Physicians of California, a Professional Medical Corporation | |||||||||||
Stockholders’ equity | |||||||||||
Series A Preferred stock, $ |
|||||||||||
Series B Preferred stock, $ |
|||||||||||
Common stock, $ |
|||||||||||
Additional paid-in capital | |||||||||||
Retained earnings | |||||||||||
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.
7
(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 $599.7 million and $567.0 million as of June 30, 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 $143.7 million and $91.7 million as of June 30, 2022 and December 31, 2021, respectively. The VIE balances do not include $431.3 million of investment in affiliates and $36.0 million of amounts due from affiliates as of June 30, 2022 and $802.8 million of investment in affiliates and $6.6 million of amounts due from 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.
8
APOLLO MEDICAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||||||||||||||
2022 | 2021 | 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 income (expense) | |||||||||||||||||||||||
Income (loss) from equity method investments | ( |
( |
|||||||||||||||||||||
Interest expense | ( |
( |
( |
( |
|||||||||||||||||||
Interest income | |||||||||||||||||||||||
Unrealized (loss) gain on investments | ( |
( |
|||||||||||||||||||||
Other income (expense) | ( |
( |
|||||||||||||||||||||
Total other income (expense), net | ( |
||||||||||||||||||||||
Income before provision for income taxes | |||||||||||||||||||||||
Provision for income taxes | |||||||||||||||||||||||
Net income | |||||||||||||||||||||||
Net (loss) income attributable to non-controlling interest | ( |
( |
|||||||||||||||||||||
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.
9
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 |
||||||||||||||||||||||||||||||||||||||||
Common Stock Outstanding | Additional Paid-in Capital |
Non-controlling Interest |
Stockholders’ Equity |
||||||||||||||||||||||||||||||||||||||
Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2022 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
Net (loss) income | ( |
— | — | — | |||||||||||||||||||||||||||||||||||||
Purchase of non-controlling interest | — | — | — | — | ( |
( |
|||||||||||||||||||||||||||||||||||
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 | — | ( |
— | ( |
— | — | ( |
||||||||||||||||||||||||||||||||||
Dividends | — | — | — | — | ( |
( |
|||||||||||||||||||||||||||||||||||
Balance at March 31, 2022 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
Net (loss) income | ( |
— | — | — | |||||||||||||||||||||||||||||||||||||
Shares issued for vesting of restricted stock awards | — | — | ( |
— | — | ( |
|||||||||||||||||||||||||||||||||||
Shares issued for exercise of options and warrants | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Purchase of treasury shares | — | ( |
— | ( |
— | — | ( |
||||||||||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Investment in non-controlling interest | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Dividends | ( |
— | — | — | — | ( |
( |
||||||||||||||||||||||||||||||||||
Balance at June 30, 2022 | $ | $ | $ | $ | $ | $ |
10
Mezzanine Equity – Non-controlling Interest in APC |
Retained Earnings |
||||||||||||||||||||||||||||||||||||||||
Common Stock Outstanding | Additional Paid-in Capital |
Non-controlling Interest |
Stockholders’ Equity |
||||||||||||||||||||||||||||||||||||||
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 | — | ( |
— | ( |
— | — | ( |
||||||||||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Cancellation of restricted stock awards | — | ( |
— | ( |
— | — | ( |
||||||||||||||||||||||||||||||||||
Balance at March 31, 2021 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
Net income | — | — | — | ||||||||||||||||||||||||||||||||||||||
Sale of non-controlling interest | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Sale of shares by non-controlling interest | — | — | — | ||||||||||||||||||||||||||||||||||||||
Shares issued for vesting of restricted stock awards | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Shares issued for exercise of options and warrants | — | — | — | ||||||||||||||||||||||||||||||||||||||
Purchase of treasury shares | — | ( |
— | ( |
— | — | ( |
||||||||||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Cancellation of restricted stock awards | — | ( |
— | ( |
— | — | ( |
||||||||||||||||||||||||||||||||||
Investment in non-controlling interest | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Dividends | ( |
— | — | — | — | ( |
( |
||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
11
APOLLO MEDICAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Six Months Ended June 30, |
|||||||||||
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 | |||||||||||
Gain on sale of equity securities | ( |
||||||||||
Unrealized loss (gain) from investment in equity securities | ( |
||||||||||
(Income) loss from equity method investments | ( |
||||||||||
Impairment of beneficial interest | |||||||||||
Unrealized (gain) loss on interest rate swaps | ( |
||||||||||
Deferred tax | |||||||||||
Other | |||||||||||
Changes in operating assets and liabilities, net of business combinations: | |||||||||||
Receivables, net | ( |
( |
|||||||||
Receivables, net – related parties | ( |
( |
|||||||||
Other receivables | ( |
( |
|||||||||
Prepaid expenses and other current assets | |||||||||||
Right-of-use assets | |||||||||||
Other assets | ( |
||||||||||
Accounts payable and accrued expenses | |||||||||||
Fiduciary accounts payable | ( |
( |
|||||||||
Medical liabilities | |||||||||||
Income taxes payable | ( |
( |
|||||||||
Operating lease liabilities | ( |
( |
|||||||||
Other long-term liabilities | |||||||||||
Net cash provided by operating activities | |||||||||||
Cash flows from investing activities | |||||||||||
Payments for business acquisition, net of cash acquired | ( |
( |
|||||||||
Proceeds from repayment of loans receivable – related parties | |||||||||||
Prepayment for investment purchase | ( |
||||||||||
Purchase of marketable securities | ( |
( |
|||||||||
Purchase of investment – equity method | ( |
||||||||||
Purchases of property and equipment | ( |
( |
|||||||||
Cash received from consolidation of VIE | |||||||||||
Proceeds from sale of marketable securities | |||||||||||
Distribution from investment - equity method | |||||||||||
Contribution to investment - equity method | ( |
||||||||||
Net cash used in investing activities | ( |
( |
|||||||||
Cash flows from financing activities |
12
Six Months Ended June 30, |
|||||||||||
2022 | 2021 | ||||||||||
Dividends paid | ( |
( |
|||||||||
Repayment of long-term debt | ( |
( |
|||||||||
Payment of finance lease obligations | ( |
( |
|||||||||
Proceeds from the exercise of stock options and warrants | |||||||||||
Repurchase of shares | ( |
( |
|||||||||
Proceeds from sale of non-controlling interest | |||||||||||
Purchase of non-controlling interest | ( |
( |
|||||||||
Borrowings on loans | |||||||||||
Proceeds from sale of shares | |||||||||||
Payment of debt issuance costs | ( |
||||||||||
Net cash used in financing activities | ( |
( |
|||||||||
Net increase (decrease) 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 | |||||||||||
Dividend declared included in dividend payable | $ | $ | |||||||||
Fixed asset obtained in exchange for finance lease liabilities | $ | $ | |||||||||
Common stock issued in business combination | $ | $ | |||||||||
Cancellation of restricted stock awards | $ | $ | |||||||||
Mortgage loan | $ | $ |
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):
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.
13
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.
14
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 20.02 % as of June 30, 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 June 30, 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”).
15
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.
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.
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 June 30, 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 — “Business Combinations and Goodwill”). 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 $4.2 million as of June 30, 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.
16
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.
17
2. Basis of Presentation and Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated balance sheets as of June 30, 2022 and December 31, 2021, and the consolidated statements of income for the three and six months ended June 30, 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, and Tag 8; and (6) APC-LSMA’s consolidated subsidiaries, ICC, Alpha Care, Accountable Health Care, and AMG.
Reclassifications
Certain amounts disclosed in prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications were made between unrealized loss (gain) on investments and other income (expense) on the accompanying unaudited consolidated income statements for the three and six months ended June 30, 2021. They had no effect on net income, earnings per share, retained earnings, cash flows or total assets.
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
18
•The Company has a variable interest in the legal entity – i.e., variable interests that are contractual, such as equity ownership, or other financial interests that change with changes in the fair value of the entity’s net assets.
If an entity does not meet both criteria above, the Company applies other accounting guidance, such as the cost or equity method of accounting. If an entity does meet both criteria above, the Company evaluates such entity for consolidation under either the variable interest model if the legal entity meets any of the following characteristics to qualify as a VIE, or under the voting model for all other legal entities that are not VIEs.
A legal entity is determined to be a VIE if it has any of the following three characteristics:
1.The entity does not have sufficient equity to finance its activities without additional subordinated financial support;
2.The entity is established with non-substantive voting rights (i.e., where the entity deprives the majority economic interest holder(s) of voting rights); or
3.The equity holders, as a group, lack the characteristics of a controlling financial interest. Equity holders meet this criterion if they lack any of the following:
a.The power, through voting rights or similar rights, to direct the activities of the entity that most significantly influence the entity’s economic performance, as evidenced by:
i.Substantive participating rights in day-to-day management of the entity’s activities; or
ii.Substantive kick-out rights over the party responsible for significant decisions;
iii.The obligation to absorb the entity’s expected losses; or
iv.The right to receive the entity’s expected residual returns.
If the Company determines that any of the three characteristics of a VIE are met, the Company will conclude that the entity is a VIE and evaluate it for consolidation under the variable interest model.
Variable interest model
Reportable Segments
The Company operates as one reportable segment, the healthcare delivery segment, and implements and operates innovative healthcare models to create a patient-centered, physician-centric experience. The Company reports its consolidated financial statements in the aggregate, including all activities in one reportable segment.
19
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.
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 June 30, 2022 and December 31, 2021, certificates of deposit amounted to approximately $25.1 million and $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. Equity securities with low trading volume are determined to 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 Nutex Health Inc. (formerly known as Clinigence Holdings, Inc.) (“Nutex”). The common stock of a payor partner was 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 Nutex entered into a stock purchase agreement in which ApolloMed purchased shares of common stock, warrants, and potentially additional shares of common stock if certain metrics are not met (such additional shares, “contingent equity securities”) for $3.0 million. The common stock is included in investments in marketable securities in the accompanying consolidated balance sheets. In May 2022, the Company exercised the warrants and subsequently recognized the shares within investments in marketable securities in the accompanying consolidated balance sheet. The contingent equity securities are classified as derivatives and included in prepaid expenses and other current assets 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 June 30, 2022 and December 31, 2021, the equity securities were approximately $14.4 million and $28.4 million, respectively, in the accompanying consolidated balance sheets. Gains and losses recognized on equity securities sold are recognized in the accompanying consolidated statements of income under other income.