August 9, 2023 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended June 30, 2023


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

For the transition period from ___ to ___.

Commission File No. 001-37392

Apollo Medical Holdings, Inc.

(Exact name of registrant as specified in its charter)


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

1668 S. Garfield Avenue, 2nd Floor, Alhambra, California 91801

(Address of principal executive offices and zip code)

(626) 282-0288

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, $0.001 par value per share

AMEH

Nasdaq Capital Market

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

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

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


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

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

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

As of August 1, 2023, there were 57,562,198 shares of common stock of the registrant, $0.001 par value per share, issued and outstanding which includes 10,299,259 treasury shares that are owned by Allied Physicians of California, a Professional Medical Corporation d.b.a. Allied Pacific of California IPA (“APC”), a consolidated affiliate of Apollo Medical Holdings, Inc. These shares are legally issued and outstanding, but treated as treasury shares for accounting purposes.

APOLLO MEDICAL HOLDINGS, INC.

INDEX TO FORM 10-Q FILING

TABLE OF CONTENTS


		PAGE
	Introductory Note	5
	Note About Forward-Looking Statements	5

	PART I FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements	6
	Consolidated Balance Sheets as of June 30 , 2023 and December 31, 2022	7
	Consolidated Statements of Income for the Three and Six Months Ended June 30 , 2023 and 2022	10
	Consolidated Statements of Mezzanine and Stockholders ’ Equity for the Three and Six Months Ended June 30 , 2023 and 2022	11
	Consolidated Statements of Cash Flows for the Six Months Ended June 30 , 2023 and 2022	13
	Notes to Consolidated Financial Statements	15
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	61
Item 4.	Controls and Procedures	1

	PART II OTHER INFORMATION

Item 1.	Legal Proceedings	63
Item 1A.	Risk Factors	63
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	63
Item 3.	Defaults Upon Senior Securities	63
Item 4.	Mine Safety Disclosures	64
Item 5.	Other Information	64
Item 6.	Exhibits	64

Glossary

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


120 Hellman			120 Hellman LLC
Accountable Health Care			Accountable Health Care IPA, a Professional Medical Corporation
AAMG			All-American Medical Group
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
Jade			Jade Health Care Medical Group, Inc.
LMA			LaSalle Medical Associates
MMG			Maverick Medical Group, Inc.
MPP			Medical Property Partners, LLC
MSSP			Medicare Shared Savings Program
NGACO			Next Generation Accountable Care Organization
NMM			Network Medical Management, Inc.
PMIOC			Pacific Medical Imaging and Oncology Center, Inc.
SCHC			Southern California Heart Centers
Sun Labs			Sun Clinical Laboratories
Tag 6			Tag-6 Medical Investments Group, LLC
Tag 8			Tag-8 Medical Investments Group, LLC
UCAP			Universal Care Acquisition Partners, LLC
UCI			Universal Care, Inc.
VIE			variable interest entity
ZLL			ZLL Partners, LLC

INTRODUCTORY NOTE

Unless the context dictates otherwise, references in this Quarterly Report on Form 10-Q to the “Company,” “we,” “us,” “our,” and similar words are references to Apollo Medical Holdings, Inc., a Delaware corporation (“ApolloMed”), and its consolidated subsidiaries and affiliated entities, as appropriate, including its consolidated variable interest entities (“VIEs”).

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 Global and Professional Direct Contracting Model or the ACO Realizing Equity, Access, and Community Health Model.

Trade names and trademarks of ApolloMed 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, earnings before interest, taxes, depreciation, and amortization (“EBITDA”), Adjusted EBITDA, or other financial items, such as our projected capitation 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 the GPDC Model, ACO REACH 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 our efforts to remediate the material weakness in our internal control over financial reporting and the timing of remediation; 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,” or “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, many of which are difficult to predict and are outside of our control, 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/A for the year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on August 9, 2023, including the risk factors discussed under the heading “Risk Factors” in Part I, Item IA thereof. Although we believe 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. Any forward-looking statement made by the Company in this Form 10-Q speaks only as of the date on which it is made. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws.

PART I - FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

APOLLO MEDICAL HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


	June 30, 2023		December 31, 2022
	(Unaudited)		As restated
Assets

Current assets
Cash and cash equivalents	$	293,921	$	288,027
Restricted cash	345		—
Investments in marketable securities	3,789		5,567
Receivables, net	66,927		49,631
Receivables, net – related parties	82,820		65,147

Other receivables	1,201		1,834
Prepaid expenses and other current assets	15,087		14,798
Loans receivable	973		996
Loan receivable – related party	—		2,125

Total current assets	465,063		428,125

Non-current assets
Land, property, and equipment, net	123,859		108,536
Intangible assets, net	74,421		76,861
Goodwill	274,029		269,053
Income taxes receivable, non-current	15,943		15,943
Investments in other entities – equity method	45,831		40,299
Investments in privately held entities	2,896		896
Operating lease right-of-use assets	17,905		20,444
Other assets	7,229		6,056

Total non-current assets	562,113		538,088

Total assets(1)	$	1,027,176	$	966,213

Liabilities, mezzanine equity and equity

Current liabilities
Accounts payable and accrued expenses	$	49,904	$	49,562
Fiduciary accounts payable	8,603		8,065
Medical liabilities	100,047		81,255
Income taxes payable	20,354		4,279
Dividend payable	638		664
Finance lease liabilities	591		594
Operating lease liabilities	3,027		3,572
Current portion of long-term debt	2,630		619


	June 30, 2023		December 31, 2022
	(Unaudited)		As restated

Total current liabilities	185,794		148,610

Non-current liabilities
Deferred tax liability	12,335		14,217
Finance lease liabilities, net of current portion	1,078		1,275
Operating lease liabilities, net of current portion	17,852		19,915
Long-term debt, net of current portion and deferred financing costs	205,136		203,389
Other long-term liabilities	21,383		20,260

Total non-current liabilities	257,784		259,056

Total liabilities(1)	443,578		407,666

Commitments and contingencies (Note 12)

Mezzanine equity
Non-controlling interest in Allied Physicians of California, a Professional Medical Corporation	13,845		14,237

Stockholders’ equity
Series A Preferred stock, $0.001 par value per share; 5,000,000 shares authorized (inclusive of all preferred stock, including Series B Preferred stock); 1,111,111 issued and zero outstanding	—		—
Series B Preferred stock, $0.001 par value per share; 5,000,000 shares authorized (inclusive of all preferred stock, including Series A Preferred stock); 555,555 issued and zero outstanding	—		—
Common stock, $0.001 par value per share; 100,000,000 shares authorized, 46,553,517 and 46,575,699 shares issued and outstanding, excluding 10,569,340 and 10,299,259 treasury shares, as of June 30, 2023 and December 31, 2022, respectively	47		47
Additional paid-in capital	357,246		360,097
Retained earnings	208,719		182,417
Total stockholders’ equity	566,012		542,561

Non-controlling interest	3,741		1,749

Total equity	569,753		544,310

Total liabilities, mezzanine equity and equity	$	1,027,176	$	966,213

The accompanying notes are an integral part of these unaudited consolidated financial statements.

(1)The Company’s consolidated balance sheets include the assets and liabilities of its consolidated VIEs. The consolidated balance sheets include total assets that can be used only to settle obligations of the Company’s consolidated VIEs totaling $520.8 million and $523.7 million as of June 30, 2023 and December 31, 2022, 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 $136.2 million and $131.8 million as of June 30, 2023 and December 31, 2022, respectively. The VIE balances do not include $325.5 million of investment in affiliates and $5.4 million of amounts due to affiliates as of June 30, 2023 and $304.8 million of investment in affiliates and $30.3 million of amounts due from affiliates as of December 31, 2022 as these are eliminated upon consolidation and not presented within the consolidated balance sheets. See Note 16 — “Variable Interest Entities (VIEs)” for further detail.

APOLLO MEDICAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
			(Restated)				(Restated)
Revenue
Capitation, net	$	300,549	$	227,623	$	600,753	$	449,682
Risk pool settlements and incentives	20,121		18,793		33,583		36,868
Management fee income	12,493		9,984		22,389		20,457
Fee-for-service, net	13,262		11,740		25,324		22,835
Other revenue	1,784		1,557		3,404		3,112

Total revenue	348,209		269,697		685,453		532,954

Operating expenses
Cost of services, excluding depreciation and amortization	292,876		230,070		582,273		450,798
General and administrative expenses	24,056		19,894		45,236		31,837
Depreciation and amortization	4,248		4,351		8,541		8,725

Total expenses	321,180		254,315		636,050		491,360

Income from operations	27,029		15,382		49,403		41,594

Other income (expense)
Income from equity method investments	2,723		1,512		5,207		2,945
Interest expense	(3,632)		(1,854)		(6,901)		(2,927)
Interest income	3,327		421		6,335		467
Unrealized gain (loss) on investments	859		(1,866)		(5,533)		(10,829)
Other income	1,185		3,034		2,389		3,647

Total other income (expense), net	4,462		1,247		1,497		(6,697)

Income before provision for income taxes	31,491		16,629		50,900		34,897

Provision for income taxes	14,009		5,352		20,930		12,170

Net income	17,482		11,277		29,970		22,727

Net income (loss) attributable to non-controlling interest	4,312		(673)		3,668		(2,987)

Net income attributable to Apollo Medical Holdings, Inc.	$	13,170	$	11,950	26,302		$	25,714

Earnings per share – basic	$	0.28	$	0.27	$	0.57	$	0.57

Earnings per share – diluted	$	0.28	$	0.26	$	0.56	$	0.56

The accompanying notes are an integral part of these unaudited consolidated financial statements.

APOLLO MEDICAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF MEZZANINE AND STOCKHOLDERS’ EQUITY

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)


	Mezzanine Equity – 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, 2023 (restated)	$	14,237	46,575,699	$	47	$	360,097	$	182,417		$	1,749	$	544,310
Net (loss) income (restated)	(1,729)		—	—		—		13,132			1,085		14,217
Shares issued for vesting of restricted stock awards	—		57,825	—		(109)		—			—		(109)
Shares issued for exercise of options and warrants	—		125,000	—		1,250		—			—		1,250
Purchase of treasury shares	—		(270,081)	—		(9,539)		—			—		(9,539)
Share-based compensation	—		—	—		3,445		—			—		3,445
Dividends	—		—	—		—		—			(120)		(120)
Transfer of common control entities (restated)	1,769		—	—		(2,447)		—			—		(2,447)
Balance at March 31, 2023 (restated)	$	14,277	46,488,443	$	47	$	352,697	$	195,549		$	2,714	$	551,007
Net income	3,245		—	—		—		13,170			1,067		14,237
Purchase of non-controlling interest	—		—	—		—		—			(50)		(50)
Sale of non-controlling interest	—		—	—		—		—			106		106
Shares issued for vesting of restricted stock awards	—		42,734	—		(464)		—			—		(464)
Share-based compensation	—		—	—		4,213		—			—		4,213
Issuance of shares for business acquisition	—		22,340	—		800		—			—		800

Dividends	(601)		—	—		—		—			(96)		(96)
Tax impact from dividends	(3,076)		—	—		—		—			—		—

Balance at June 30, 2023	$	13,845	46,553,517	$	47	$	357,246	$	208,719		$	3,741	$	569,753


	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 (restated)	$	56,535	44,630,873	$	45	$	310,876	$	137,246	$	5,940	$	454,107
Net (loss) income (restated)	(3,252)		—	—		—		13,764		938		14,702
Purchase of non-controlling interest	—		—	—		—		—		(200)		(200)
Sale of non-controlling interest	—		—	—		—		—		36		36
Share buy back	(230)		—	—		—		—		—		—
Shares issued for vesting of restricted stock awards	—		81,779	—		—		—		—		—
Shares issued for exercise of options and warrants	—		124,735	—		1,573		—		—		1,573
Share-based compensation	—		—	—		3,055		—		—		3,055
Issuance of shares for business acquisition	—		18,756	—		1,000		—		—		1,000
Cancellation of restricted stock awards	—		(11,084)	—		(457)		—		—		(457)
Dividends	—		—	—		—		—		(1,178)		(1,178)
Balance at March 31, 2022 (restated)	$	53,053	44,845,059	$	45	$	316,047	$	151,010	$	5,536	$	472,638
Net (loss) income (restated)	(2,019)		—	—		—		11,950		1,346		13,296
Shares issued for vesting of restricted stock awards	—		108,933	—		(253)		—		—		(253)
Shares issued for exercise of options and warrants	—		15,718	—		165		—		—		165
Purchase of treasury shares	—		(250,000)	—		(9,250)		—		—		(9,250)
Share-based compensation	—		—	—		3,920		—		—		3,920
Investment in non-controlling interest	—		—	—		—		—		371		371
Dividends	(10,000)		—	—		—		—		(1,374)		(1,374)
Balance at June 30, 2022 (restated)	$	41,034	44,719,710	$	45	$	310,629	$	162,960	$	5,879	$	479,513

The accompanying notes are an integral part of these unaudited consolidated financial statements.

APOLLO MEDICAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)


	Six Months Ended June 30,
	2023		2022
			(Restated)
Cash flows from operating activities
Net income	$	29,970	$	22,727
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	8,541		8,725
Amortization of debt issuance cost	474		474
Share-based compensation	7,658		6,975
Gain on sale of equity securities	—		(2,272)
Unrealized loss on investments	5,485		13,659
Income from equity method investments	(5,207)		(2,945)
Unrealized loss (gain) on interest rate swaps	49		(2,830)
Deferred tax	(3,746)		3,361
Changes in operating assets and liabilities, net of business combinations:
Receivables, net	(17,296)		(56,202)
Receivables, net – related parties	(17,673)		(12,151)
Other receivables	1,229		(3,580)
Prepaid expenses and other current assets	(2,277)		4,109
Right-of-use assets	3,240		2,290
Other assets	(21)		1,790
Accounts payable and accrued expenses	(2,864)		14,181
Fiduciary accounts payable	538		(4,464)
Medical liabilities	13,335		55,106
Income taxes payable/receivable	15,396		(14,010)
Operating lease liabilities	(3,309)		(2,254)
Other long-term liabilities	—		370
Net cash provided by operating activities	33,522		33,059

Cash flows from investing activities
Payments for business and asset acquisitions, net of cash acquired	350		(858)
Proceeds from repayment of loans receivable – related parties	2,143		4,030
Purchase of marketable securities	(2,022)		(1,750)
Purchase of investments - privately held	(2,000)		—
Purchase of investments - equity method	(325)		—
Purchases of property and equipment	(17,367)		(18,845)
Proceeds from sale of marketable securities	—		6,480
Distribution from investment - equity method	—		400
Contribution to investment - equity method	—		(1,685)
Net cash used in investing activities	(19,221)		(12,228)

Cash flows from financing activities
Dividends paid	(842)		(12,556)
Repayment of long-term debt	(312)		(200)
Payment of finance lease obligations	(303)		(283)


	Six Months Ended June 30,
	2023		2022
Proceeds from the exercise of stock options and warrants	1,250		1,738
Repurchase of shares	(9,539)		(9,480)
Proceeds from sale of non-controlling interest	—		38
Purchase of non-controlling interest	(50)		(199)
Borrowings on loans	1,734		1,237
Net cash used in financing activities	(8,062)		(19,705)

Net increase in cash and cash equivalents	6,239		1,126

Cash and cash equivalents beginning of period	288,027		233,097

Cash and cash equivalents end of period	$	294,266	$	234,223

Supplementary disclosures of cash flow information
Cash paid for income taxes	$	7,881	$	22,311
Cash paid for interest	6,264		2,231

Supplemental disclosures of non-cash investing and financing activities

Right-of-use assets obtained in exchange for operating lease liabilities	$	701	$	—
Tax impact from dividends	$	3,076	$	—

Fixed asset obtained in exchange for finance lease liabilities	$	—	$	398
Common stock issued in business combination	$	—	$	1,000
Mortgage loan	$	—	$	16,275

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total amounts of cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows (in thousands):


	June 30,
	2023		2022
Cash and cash equivalents	$	293,921	$	234,223
Restricted cash – current	345		—
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	294,266	$	234,223

The accompanying notes are an integral part of these unaudited consolidated financial statements.

APOLLO MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Description of Business

Overview

Apollo Medical Holdings, Inc. (“ApolloMed”) is a leading physician-centric, technology-powered, risk-bearing healthcare company. Leveraging its proprietary end-to-end technology solutions, ApolloMed operates an integrated healthcare delivery platform that enables providers to participate successfully 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. 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”), an accountable care organization (“ACO”) participating in the ACO Realizing Equity, Access, and Community Health (“ACO REACH”) model, and clinical operations. Together, ApolloMed provides value-based care enablement services and care delivery with our consolidated care partners. 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.

Segments

The Company’s reportable segments changed from one to three in the first quarter of 2023 as a result of certain changes to the information regularly provided to the Company’s chief operating decision makers (“CODMs”) when reviewing the Company’s performance as well as an effort to provide additional transparency to investors and other financial statement users. The three segments identified by the Company are Care Enablement, Care Partners and Care Delivery, which are described as follows:

Care Enablement

Our Care Enablement segment is an integrated, end-to-end clinical and administrative platform, powered by our proprietary technology suite, which provides operational, clinical, financial, technology, management, and strategic services in order to enable success in the delivery of high-quality, value-based care for providers and payers. We provide solutions to providers, including independent physicians, provider and medical groups, and accountable care organizations, and payers, including health plans and other risk-bearing organizations. Our platform meets providers and payers where they are, with a wide spectrum of solutions across the total cost of care risk spectrum, ranging from solutions for fee-for-service entities to global risk-bearing entities, and across patient types, including Medicare, Medicaid, commercial, and exchange-insured patients. This segment includes our wholly owned subsidiaries which operate as management services organizations, NMM and Apollo Medical Management (“AMM”), which enter into long-term management and/or administrative services agreements with providers and payers. By leveraging our care enablement platform, providers and payers can improve their ability to deliver high-quality care to their patients and achieve better patient outcomes.

Care Partners

Our Care Partners segment is focused on building and managing high-quality and high-performance provider networks by partnering with, empowering, and investing in strong provider partners with a shared vision for coordinated care delivery. By leveraging our unique care enablement platform and ability to recruit, empower, and incentivize physicians to effectively manage total cost of care, we are able to organize partnered providers into successful multi-payer risk-bearing organizations which take on varying levels of risk based on total cost of care across membership in all lines of business, including Medicare, Medicaid, commercial, and exchange. Through our network of IPAs, ACOs, and Restricted Knox-Keene licensed health plan, our healthcare delivery entities are responsible for coordinating and delivering high-quality care to our patients.

Our consolidated IPAs consist of the following: (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”), (iii) Accountable Health Care IPA, a Professional Medical Corporation (“Accountable Health Care”), (iv) Jade Health Care Medical Group, Inc. (“Jade”), (v) Access Primary Care Medical Group (“APCMG”), and (vi) All American Medical Group (“AAMG”). 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’s Restricted Knox-Keene licensed health plan is held by For Your Benefit Inc. (“FYB”).

Care Delivery

Our Care Delivery segment is a patient-centric, data-driven care delivery organization focused on delivering high-quality and accessible care to all patients. Our care delivery organization includes primary care, multi-specialty care, and ancillary care services. This segment includes our primary care clinics, operating under the AMG, a Professional Medical Corporation (“AMG”) and Valley Oaks Medical Group (“VOMG”) brands, our multi-specialty care clinics and medical groups, operating under the ApolloMed Hospitalists, a Medical Corporation (“AMH”), Southern California Heart Centers, a Medical Corporation (“SCHC”), and AllCare Women’s Health brands, and our ancillary service providers, operating under the 1 World Medicine Urgent Care Corporation (“1 World”), DMG, Concourse Diagnostic Surgery Center, LLC (“CDSC”), and Sun Clinical Laboratories (“Sun Labs”) brands.

On February 23, 2023, AP-AMH 2 purchased 100% of the shares of capital stock of AMG,1 World, and Eleanor Leung M.D., a Professional Medical Corporation from APC-LSMA. As a result of these purchases, these entities are consolidated entities of AP-AMH 2. AMG provides professional and post-acute care services to patients through its network of doctors and nurse practitioners, 1 World is an urgent care center, and Eleanor Leung M.D. provides specialized care for women’s health operating as AllCare Women’s Health.

The Company has a financing obligation to purchase the remaining equity interest in DMG and Sun Labs within three years from the date the Company consolidated DMG and Sun Labs. The purchase of the remaining DMG equity value is considered a financing obligation with a carrying value of $8.5 million as of June 30, 2023 and December 31, 2022. The purchase of the remaining Sun Labs equity value is considered a financing obligation with a carrying value of $7.6 million and $5.8 million as of June 30, 2023 and December 31, 2022, respectively. For the six months ended June 30, 2023, the change in the fair value of Sun Labs equity value obligation is $1.8 million and is presented in unrealized loss on investments in the accompanying consolidated statement of income. As the financing obligations are embedded in the non-controlling interest, the non-controlling interests are recognized in other long-term liabilities in the accompanying consolidated balance sheets.

Other Affiliates

Our other affiliates are not included as a reportable segment and primarily consist of real estate operations.

APC owns a 100% equity interest in each of Medical Property Partners, LLC (“MPP”), AMG Properties, LLC (“AMG Properties”), ZLL Partners, LLC (“ZLL”)”), Tag-8 Medical Investment Group, LLC (“Tag 8”), and Tag-6 Medical Investment Group, LLC (“Tag 6”), and a 50% interest in each of One MSO, LLC (“One MSO”). These entities 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.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated balance sheet at December 31, 2022 has been derived from the Company’s audited consolidated financial statements, but does not include all annual disclosures required by generally accepted accounting principles in the United States of America (“U.S. GAAP”). The accompanying unaudited consolidated financial statements as of June 30, 2023, and for the three and six months ended June 30, 2023 and 2022, have been prepared in accordance with U.S. GAAP for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, these unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes to the financial statements included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2022, as filed with the SEC on August 9, 2023. In the opinion of management, all material adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been made to make the consolidated financial statements not misleading, as required by Regulation S-X, Rule 10-01. Operating results for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023, or any future periods.

Principles of Consolidation

The consolidated balance sheets as of June 30, 2023 and December 31, 2022, and the consolidated statements of income for the three and six months ended June 30, 2023 and 2022, include (i) ApolloMed, ApolloMed’s consolidated subsidiaries, NMM, AMM, APAACO, Orma Health Inc, Provider Growth Solutions, LLC, and FYB and its VIEs, AP-AMH, AP-AMH 2, Sun Labs, DMG, and Valley Oaks Medical Group (“VOMG”); (ii) AP-AMH 2’s consolidated subsidiaries, APCMG, Jade, AAMG, AMG, 1 World, and Eleanor Leung M.D., a Professional Medical Corporation; (iii) AMM’s consolidated VIEs, SCHC and AMH; (iv) NMM’s VIE, APC;(v) APC’s consolidated subsidiaries, Universal Care Acquisition Partners, LLC (“UCAP”), MPP, AMG Properties, ZLL, ICC, 120 Hellman LLC (“120 Hellman”) and its VIEs, CDSC, APC-LSMA, Tag 8, and Tag 6; and (vi) APC-LSMA’s consolidated subsidiaries, Alpha Care and Accountable Health Care.

The unaudited consolidated interim financial statements have been prepared under the assumption that users of the interim financial data have either read or have access to our audited consolidated financial statements for the fiscal year ended December 31, 2022. Accordingly, certain disclosures that would substantially duplicate the disclosures contained in our December 31, 2022, audited consolidated financial statements have been omitted. These unaudited consolidated interim financial statements should be read in conjunction with our audited consolidated financial statements for the fiscal year ended December 31, 2022.

Restatement of Previously Issued Financial Statements

The Company filed Amendment No. 1 on Form 10-K (“Form 10-K/A”) and Amendment No. 1 on Form 10-Q (“Form 10-Q/A”) with the SEC on August 9, 2023 to restate previously issued consolidated financial statements and financial information as of December 31, 2022 and 2021 and for the fiscal years ended December 31, 2022, 2021 and 2020 in the Form 10-K/A and unaudited consolidated financial statements and financial information as of March 31, 2023 and for each of the three months ended March 31, 2023 and 2022 in the Form 10-Q/A. The Form 10-K/A also provided restated interim financial information for the quarterly fiscal 2022 periods.

Use of Estimates

The preparation of the consolidated financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include collectability of receivables, recoverability of long-lived and intangible assets, business combination and goodwill valuation and impairment, accrual of medical liabilities (incurred but not reported (“IBNR”) claims), determination of full-risk and shared-risk revenue and receivables (including constraints, completion factors and historical margins), income tax-valuation allowance, share-based compensation, and right-of-use assets and lease liabilities. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ materially from those estimates and assumptions.

Variable Interest Entities

On an ongoing basis, as circumstances indicate the need for reconsideration, the Company evaluates each legal entity that is not wholly owned by the Company in accordance with the consolidation guidance. The evaluation considers all of the Company’s variable interests, including equity ownership, as well as management services agreements. To fall within the scope of the consolidation guidance, an entity must meet both of the following criteria:

•The entity has a legal structure that has been established to conduct business activities and to hold assets; such entity can be in the form of a partnership, limited liability company, or corporation, among others; and

•The Company has a variable interest in the legal entity; i.e., variable interests that are contractual, such as equity ownership, or other financial interests that change with changes in the fair value of the entity’s net assets.

If an entity does not meet both criteria above, the Company applies other accounting guidance, such as the cost or equity method of accounting. If an entity does meet both criteria above, the Company evaluates such entity for consolidation under either the variable interest model if the legal entity meets any of the following characteristics to qualify as a VIE, or under the voting model for all other legal entities that are not VIEs.

A legal entity is determined to be a VIE if it has any of the following three characteristics:

•The entity does not have sufficient equity to finance its activities without additional subordinated financial support;

•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

•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:

•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:

•Substantive participating rights in the day-to-day management of the entity’s activities; or

•Substantive kick-out rights over the party responsible for significant decisions;

•The obligation to absorb the entity’s expected losses; or

•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 under Accounting Standards Codification (“ASC”) 810, Consolidation, the Company will conclude that the entity is a VIE and evaluate it for consolidation under the variable interest model.

Variable Interest Model

If an entity is determined to be a VIE, the Company evaluates whether the Company is the primary beneficiary. The primary beneficiary analysis is a qualitative analysis based on power and economics. The Company consolidates a VIE if both power and benefits belong to the Company; that is, the Company (i) has the power to direct the activities of a VIE that most significantly influence the VIE’s economic performance (power), and (ii) has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE (economics). The Company consolidates VIEs whenever it is determined that the Company is the primary beneficiary. Refer to Note 16 — “Variable Interest Entities (VIEs)” to the consolidated financial statements for information on the Company’s consolidated VIEs. If there are variable interests in a VIE, but the Company is not the primary beneficiary, the Company may account for the investment using the equity method of accounting.

Business Combinations

The Company uses the acquisition method of accounting for all business combinations, which requires assets and liabilities of the acquiree to be recorded at fair value, to measure the fair value of the consideration transferred, including contingent consideration, to be determined on the acquisition date, and to account for acquisition-related costs separately from the business combination.

Reportable Segments

As of June 30, 2023, the Company operates in three reportable segments: Care Enablement, Care Partners, and Care Delivery. Refer to Note 1 — “Description of Business” and Note 18 — “Segments” to the consolidated financial statements for information on the Company’s segments.

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 ninety days from their date of purchase to be cash equivalents.

The Company maintains its cash in deposit accounts with several banks, which at times may exceed the insured limits of the Federal Deposit Insurance Corporation (“FDIC”). The Company believes it is not exposed to any significant credit risk with respect to its cash and cash equivalents. As of June 30, 2023 and December 31, 2022, the Company’s deposit accounts with banks exceeded the FDIC’s insured limit by approximately $326.8 million and $324.7 million, respectively. The Company has not experienced any losses to date and performs ongoing evaluations of these financial institutions to limit the Company’s concentration of risk exposure.

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 greater than ninety days. As of June 30, 2023 and December 31, 2022, certificates of deposit amounted to approximately $2.0 million and $0, 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 initial public offering (“IPO”) in June 2021 and Nutex Health Inc. (formerly known as Clinigence Holdings, Inc.) (“Nutex”). In May 2022, the Company exercised warrants from Nutex and subsequently recognized the shares within investments in marketable securities in the accompanying consolidated balance sheet. In March 2023, the contingent equity securities were settled and the Company received additional Nutex common stock. The additional common stock received from the contingent equity securities is included in investments in marketable securities in the accompanying consolidated balance sheets.

As of June 30, 2023 and December 31, 2022, the equity securities were approximately $1.8 million and $5.6 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. The components comprising total gains and losses on equity securities are as follows (in thousands) for the periods listed below:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

Total losses recognized on equity securities	$	(1,348)	$	(4,331)	$	(5,701)	$	(14,886)
Gains recognized on equity securities sold	—		2,272		—		2,272
Unrealized losses recognized on equity securities held at end of period	$	(1,348)	$	(2,059)	$	(5,701)	$	(12,614)

Receivables, Receivables – Related Parties, Other Receivables 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 other receivables. Receivables – related parties are recorded and stated at the amount expected to be collected.

The Company’s loan receivable and loan receivable – related party consists of promissory notes that accrue interest per annum. As of June 30, 2023, promissory notes are expected to be collected within 12 months.

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, which 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 receivables from fee-for-services (“FFS”) reimbursement for patient care, certain expense reimbursements, transportation reimbursements from the hospitals, and stop-loss insurance premium reimbursements.

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer creditworthiness, current economic trends, and changes in customer payment patterns to evaluate the adequacy of these reserves. The Company also regularly analyzes the ultimate collectability of accounts receivable after certain stages of the collection cycle using a look-back analysis to determine the amount of receivables subsequently collected and adjustments are recorded when necessary. Reserves are recorded primarily on a specific identification basis.

Receivables are recorded when the Company is able to determine amounts receivable under applicable contracts and agreements based on information provided and collection is reasonably likely to occur. In regard to the credit loss standard, the Company continuously monitors its collections of receivables and our expectation is that the historical credit loss experienced across our receivable portfolio is materially similar to any current expected credit losses that would be estimated under the current expected credit losses (“CECL”) model.

Concentrations of Credit Risks

The Company disaggregates revenue from contracts by service type and payor type. This level of detail provides useful information pertaining to how the Company generates revenue by significant revenue stream and by type of direct contracts. The consolidated statements of income present disaggregated revenue by service type. The following table presents disaggregated revenue generated by payor type for the three and six months ended June 30, 2023 and 2022 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

Commercial	$	38,907	$	42,014	$	78,926	$	84,167
Medicare	222,159		142,641		438,469		276,299
Medicaid	69,112		70,635		136,451		142,299
Other third parties	18,031		14,407		31,607		30,189
Revenue	$	348,209	$	269,697	$	685,453	$	532,954

The Company had major payors that contributed the following percentages of net revenue:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

Payor A	*		10.3	%	*		10.5	%
Payor B	38.2	%	31.0	%	39.8	%	30.7	%

*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 June 30, 2023		As of December 31, 2022
			(Restated)
Payor B	28.0	%	26.0	%
Payor C	50.0	%	52.0	%

Fair Value Measurements of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, fiduciary 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.

There have been no changes in Level 1, Level 2, or Level 3 classification and no changes in valuation techniques for the six months ended June 30, 2023. 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 June 30, 2023, are presented below (in thousands):


	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Assets
Money market accounts*	$	78,647	$	—	$	—	$	78,647
Marketable securities – certificates of deposit	2,022		—		—		2,022
Marketable securities – equity securities	1,767		—		—		1,767
Interest rate swaps	—		3,116		—		3,116
Interest rate collar	—		1,202		—		1,202
Total assets	$	82,436	$	4,318	$	—	$	86,754

Liabilities
APCMG contingent consideration	$	—	$	—	$	1,000	$	1,000
AAMG contingent consideration (see Note 3)	—		—		5,056		5,056
VOMG contingent consideration (see Note 3)	—		—		17		17
DMG remaining equity interest purchase (see Note 1)	—		—		8,542		8,542
Sun labs remaining equity interest purchase (see Note 1)	—		—		7,631		7,631
Total liabilities	$	—	$	—	$	22,246	$	22,246

* Included in cash and cash equivalents

The carrying amounts and fair values of the Company’s financial instruments as of December 31, 2022, are presented below (in thousands):


	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Assets
Money market accounts*	$	135,235	$	—	$	—	$	135,235
Marketable securities – equity securities	5,567		—		—		5,567
Contingent equity securities	—		—		1,900		1,900
Interest rate swaps	—		3,164		—		3,164
Total assets	$	140,802	$	3,164	$	1,900	$	145,866

Liabilities
APCMG contingent consideration	$	—	$	—	$	1,000	$	1,000
AAMG contingent consideration (see Note 3)	—		—		5,851		5,851
VOMG contingent consideration (see Note 3)	—		—		17		17
DMG remaining equity interest purchase (see Note 1)	—		—		8,542		8,542
Sun labs remaining equity interest purchase (see Note 1)	—		—		5,849		5,849
Total liabilities	$	—	$	—	$	21,259	$	21,259

* Included in cash and cash equivalents

The change in the fair value of Level 3 liabilities for the six months ended June 30, 2023 was as follows (in thousands):


	Amount
Balance at January 1, 2023	$	21,259
Unrealized gain recognized from change in fair value of existing Level 3 liabilities*	987
Balance at June 30, 2023	$	22,246

* The change in the fair value of existing Level 3 liabilities is presented in unrealized loss on investments in the accompanying consolidated statement of income.

Derivative Financial Instruments

Interest Rate Swap and Collar Agreements

The Company is exposed to interest rate risk on its floating-rate debt. The Company has entered into interest rate swap and collar agreements to effectively convert its floating-rate debt to a fixed-rate basis or to a rate within the agreed-upon range. 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 — “Credit Facility, Bank Loans, and Lines of Credit” for further information on our debt. Interest rate swap and collar 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 was determined using Level 2 inputs. As of June 30, 2023 and December 31, 2022, the fair value of the interest rate swap was $3.1 million and $3.2 million, respectively, and are presented within other assets in the accompanying consolidated balance sheets.

The Company’s collar agreement is designed to limit the interest rate risk associated with the Company’s Revolver Loan. Under the terms of the agreement, the ceiling is 5.0% and the floor is 2.34%. The estimated fair value of the collar is determined using Level 2. As of June 30, 2023 the fair value of the collar is $1.2 million.

Contingent Equity Securities

In addition to the common stock and warrants purchased under the stock purchase agreement between ApolloMed and Nutex, ApolloMed is entitled to additional common stock if Nutex did not pay NMM management fees exceeding a threshold by the end of December 31, 2022. The contingent equity securities are considered to be derivatives but are not designated as hedging instruments. Changes in the fair value of 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. Based on the outcome, the metric was not achieved and the Company received additional common stock during the six months ended June 30, 2023. As of June 30, 2023, the common stock from the contingent equity securities is recognized within investments in marketable securities in the accompanying consolidated balance sheet. See Note 2 — “Basis of Presentation and Summary of Significant Accounting Policies - Investment in Marketable Securities” in the accompanying consolidated financial statements for information on the treatment of the marketable securities. As of December 31, 2022, the contingent equity securities were valued at $1.9 million, and were presented within prepaid and other current assets in the accompanying consolidated balance sheets.

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.

Revenue primarily consists of capitation revenue, risk pool settlements and incentives, GPDC/ACO REACH 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.

GPDC/ACO REACH Capitation Revenue

CMS contracts with Direct Contracting Entities (“DCEs”), which are composed of healthcare providers operating under a common legal structure and accept 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 and ACO REACH 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 participated in the GPDC Model for Performance Year 2022 and is currently participating in the ACO REACH model for Performance Year 2023, beginning January 1, 2023.

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/ACO REACH 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.

Income Taxes

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 for both 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.

3. Business Combinations, Asset Acquisitions, and Goodwill

FYB

On May 1, 2023, the Company acquired 100% equity interest in FYB. FYB is licensed by the California Department of Managed Health Care as a full-service Restricted Knox-Keene licensed health plan, which enables FYB to assume full financial responsibility, including both professional and institutional risk, for the medical costs of its members under the Knox-Keene Health Care Service Plan Act of 1975.

Chinese Community Health Care Association (“CCHCA”)

On March 1, 2023, the Company acquired certain healthcare assets from CCHCA. CCHCA is a non-profit independent physician association in the San Francisco Community. The purchase price consists of cash funded on May 1, 2023.

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”). The purchase was paid in cash and the Company’s capital stock.

Jade Health Care Medical Group, Inc. (“Jade”)

On April 19, 2022, the Company acquired 100% of the capital stock of Jade. The purchase was paid in cash. Jade is a primary and specialty care physicians’ group focused on providing high-quality care to its patients in the San Francisco Bay Area in Northern California.

VOMG

On October 14, 2022, VOMG was determined to be a VIE of ApolloMed and is consolidated by the Company. VOMG owns nine primary care clinics in Nevada and Texas. The purchase price consists of cash funded upon the close of transaction and additional cash consideration (“VOMG contingent consideration”) contingent on VOMG meeting financial metrics for fiscal years 2023 and 2024. The Company determined the fair value of the contingent consideration using a probability-weighted model that includes significant unobservable inputs (Level 3). The contingent consideration is included within other long-term liabilities in the accompanying consolidated balance sheets.

AAMG

On October 31, 2022, AP-AMH 2, a VIE of the Company, acquired 100% of the equity interest in AAMG. AAMG is an IPA operating in Northern California. The purchase price consists of cash funded upon close of the transaction and additional consideration (“AAMG contingent consideration”) and stock consideration (“AAMG stock contingent consideration”) contingent on AAMG meeting revenue and capitated member metrics for fiscal years 2023 and 2024. The Company determined the fair value of the contingent considerations using a probability-weighted model that includes significant unobservable inputs (Level 3). Specifically, the Company considered various scenarios of revenue and assigned probabilities to each such scenario in determining fair value. As of June 30, 2023, the contingent consideration is valued at $5.1 million and was included within other long-term liabilities in the accompanying consolidated balance sheets. The stock contingent consideration is valued at $5.6 million and is included in additional paid-in capital in the accompanying consolidated balance sheets.

The acquisitions were accounted for under the acquisition method of accounting. The fair value of the consideration for the acquired companies was allocated to acquired tangible and intangible assets and liabilities based on 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. Determining 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 Company had no impairment of its goodwill or indefinite-lived intangible assets during the six months ended June 30, 2023 and 2022.

The change in the carrying value of goodwill for the six months ended June 30, 2023 was as follows (in thousands):


Balance, January 1, 2023 (restated)	$	269,053
Acquisitions	3,924
Adjustments	1,052
Balance, June 30, 2023	$	274,029

4. Intangible Assets, Net

At June 30, 2023, the Company’s intangible assets, net, consisted of the following (in thousands):


	Useful Life (Years)	Gross June 30, 2023		Accumulated Amortization		Net June 30, 2023
Indefinite lived assets:
Trademarks	N/A	$	2,150	$	—	$	2,150
Amortized intangible assets:
Network relationships	11-21	150,679		(100,244)		50,435
Management contracts	15	22,832		(15,982)		6,850
Member relationships	10-14	20,477		(6,302)		14,175
Patient management platform	5	2,060		(2,060)		—
Tradename/trademarks	20	1,011

Form: 10-Q

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