10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on August 9, 2023
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
(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 |
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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 |
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3
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 |
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 (“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
5
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
6
APOLLO MEDICAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
June 30, 2023 |
December 31, 2022 |
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(Unaudited) | As restated | ||||||||||
Assets | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents | $ | $ | |||||||||
Restricted cash | |||||||||||
Investments in marketable securities | |||||||||||
Receivables, net | |||||||||||
Receivables, net – related parties | |||||||||||
Other receivables | |||||||||||
Prepaid expenses and other current assets | |||||||||||
Loans receivable | |||||||||||
Loan receivable – related party | |||||||||||
Total current assets |
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Non-current assets | |||||||||||
Land, property, and equipment, net | |||||||||||
Intangible assets, net | |||||||||||
Goodwill | |||||||||||
Income taxes receivable, non-current | |||||||||||
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 equity | |||||||||||
Current liabilities |
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Accounts payable and accrued expenses | $ | $ | |||||||||
Fiduciary accounts payable | |||||||||||
Medical liabilities | |||||||||||
Income taxes payable | |||||||||||
Dividend payable | |||||||||||
Finance lease liabilities | |||||||||||
Operating lease liabilities | |||||||||||
Current portion of long-term debt |
7
June 30, 2023 |
December 31, 2022 |
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(Unaudited) | As restated | ||||||||||
Total current liabilities |
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Non-current liabilities | |||||||||||
Deferred tax liability | |||||||||||
Finance lease liabilities, net of current portion | |||||||||||
Operating lease liabilities, net of current portion | |||||||||||
Long-term debt, net of current portion and deferred financing costs | |||||||||||
Other long-term liabilities | |||||||||||
Total non-current liabilities | |||||||||||
Total liabilities(1)
|
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Commitments and contingencies (Note 12) | |||||||||||
Non-controlling interest in Allied Physicians of California, a Professional Medical Corporation | |||||||||||
Stockholders’ equity | |||||||||||
Series A Preferred stock, $ |
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Series B Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital | |||||||||||
Retained earnings | |||||||||||
Total stockholders’ equity | |||||||||||
Non-controlling interest | |||||||||||
Total equity | |||||||||||
Total liabilities, mezzanine equity and equity | $ | $ |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
8
(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.
9
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 | $ | $ | $ | $ | |||||||||||||||||||
Risk pool settlements and incentives | |||||||||||||||||||||||
Management fee income | |||||||||||||||||||||||
Fee-for-service, net | |||||||||||||||||||||||
Other revenue | |||||||||||||||||||||||
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 from equity method investments | |||||||||||||||||||||||
Interest expense | ( |
( |
( |
( |
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Interest income | |||||||||||||||||||||||
Unrealized gain (loss) on investments | ( |
( |
( |
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Other income | |||||||||||||||||||||||
Total other income (expense), net | ( |
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Income before provision for income taxes | |||||||||||||||||||||||
Provision for income taxes | |||||||||||||||||||||||
Net income | |||||||||||||||||||||||
Net income (loss) 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.
10
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) | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
Net (loss) income (restated) | ( |
— | — | — | |||||||||||||||||||||||||||||||||||||
Shares issued for vesting of restricted stock awards | — | — | ( |
— | — | ( |
|||||||||||||||||||||||||||||||||||
Shares issued for exercise of options and warrants | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Purchase of treasury shares | — | ( |
— | ( |
— | — | ( |
||||||||||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Dividends | — | — | — | — | — | ( |
( |
||||||||||||||||||||||||||||||||||
Transfer of common control entities (restated) | — | — | ( |
— | — | ( |
|||||||||||||||||||||||||||||||||||
Balance at March 31, 2023 (restated) | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
Net income | — | — | — | ||||||||||||||||||||||||||||||||||||||
Purchase of non-controlling interest | — | — | — | — | — | ( |
( |
||||||||||||||||||||||||||||||||||
Sale of non-controlling interest | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Shares issued for vesting of restricted stock awards | — | — | ( |
— | — | ( |
|||||||||||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Issuance of shares for business acquisition | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Dividends | ( |
— | — | — | — | ( |
( |
||||||||||||||||||||||||||||||||||
Tax impact from dividends | ( |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Balance at June 30, 2023 | $ |
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$ |
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$ |
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$ |
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$ |
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$ |
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11
Mezzanine Equity – Non-controlling Interest in APC |
Retained Earnings |
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Common Stock Outstanding | Additional Paid-in Capital |
Non-controlling Interest |
Stockholders’ Equity |
||||||||||||||||||||||||||||||||||||||
Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2022 (restated) | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
Net (loss) income (restated) | ( |
— | — | — | |||||||||||||||||||||||||||||||||||||
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 (restated) | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
Net (loss) income (restated) | ( |
— | — | — | |||||||||||||||||||||||||||||||||||||
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 | ( |
— | — | — | — | ( |
( |
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Balance at June 30, 2022 (restated) | $ |
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$ |
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$ |
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$ |
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$ |
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$ |
|
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
12
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 | $ | $ | |||||||||
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 | ( |
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Unrealized loss on investments | |||||||||||
Income from equity method investments | ( |
( |
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Unrealized loss (gain) on interest rate swaps | ( |
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Deferred tax | ( |
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Changes in operating assets and liabilities, net of business combinations: | |||||||||||
Receivables, net | ( |
( |
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Receivables, net – related parties | ( |
( |
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Other receivables | ( |
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Prepaid expenses and other current assets | ( |
||||||||||
Right-of-use assets | |||||||||||
Other assets | ( |
||||||||||
Accounts payable and accrued expenses | ( |
||||||||||
Fiduciary accounts payable | ( |
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Medical liabilities | |||||||||||
Income taxes payable/receivable | ( |
||||||||||
Operating lease liabilities | ( |
( |
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Other long-term liabilities | |||||||||||
Net cash provided by operating activities | |||||||||||
Cash flows from investing activities | |||||||||||
Payments for business and asset acquisitions, net of cash acquired | ( |
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Proceeds from repayment of loans receivable – related parties | |||||||||||
Purchase of marketable securities | ( |
( |
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Purchase of investments - privately held | ( |
||||||||||
Purchase of investments - equity method | ( |
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Purchases of property and equipment | ( |
( |
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Proceeds from sale of marketable securities | |||||||||||
Distribution from investment - equity method | |||||||||||
Contribution to investment - equity method | ( |
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Net cash used in investing activities | ( |
( |
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Cash flows from financing activities | |||||||||||
Dividends paid | ( |
( |
|||||||||
Repayment of long-term debt | ( |
( |
|||||||||
Payment of finance lease obligations | ( |
( |
13
Six Months Ended June 30, |
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2023 | 2022 | ||||||||||
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 | |||||||||||
Net cash used in financing activities | ( |
( |
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Net increase in cash and cash equivalents | |||||||||||
Cash and cash equivalents beginning of period | |||||||||||
Cash and cash equivalents 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 | |||||||||||
Right-of-use assets obtained in exchange for operating lease liabilities | $ | $ | |||||||||
Tax impact from dividends | $ | $ | |||||||||
Fixed asset obtained in exchange for finance lease liabilities | $ | $ | |||||||||
Common stock issued in business combination | $ | $ | |||||||||
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):
June 30, | |||||||||||
2023 | 2022 | ||||||||||
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.
14
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.
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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.
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2. Basis of Presentation and Summary of Significant Accounting Policies
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.
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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.
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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.
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.
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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, |
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2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Total losses recognized on equity securities | $ | ( |
$ | ( |
$ | ( |
$ | ( |
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Gains recognized on equity securities sold | |||||||||||||||||||||||
Unrealized losses recognized on equity securities held at end of period | $ | ( |
$ | ( |
$ | ( |
$ | ( |
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.
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Three Months Ended June 30, |
Six Months Ended June 30, |
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2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Commercial |
$ | $ | $ | $ | |||||||||||||||||||
Medicare |
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Medicaid |
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Other third parties |
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Revenue |
$ | $ | $ | $ |
The Company had major payors that contributed the following percentages of net revenue:
Three Months Ended June 30, |
Six Months Ended June 30, |
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2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Payor A | * | % | * | % | |||||||||||||||||||
Payor B | % | % | % | % |
*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 |
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(Restated) | |||||||||||
Payor B | % | % | |||||||||
Payor C | % | % |
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.
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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 |
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Level 1 |
Level 2 |
Level 3 |
Total |
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Assets | |||||||||||||||||||||||
Money market accounts* | $ | $ | $ | $ | |||||||||||||||||||
Marketable securities – certificates of deposit | |||||||||||||||||||||||
Marketable securities – equity securities | |||||||||||||||||||||||
Interest rate swaps | |||||||||||||||||||||||
Interest rate collar | |||||||||||||||||||||||
Total assets | $ | $ | $ | $ | |||||||||||||||||||
Liabilities | |||||||||||||||||||||||
APCMG contingent consideration | $ | $ | $ | $ | |||||||||||||||||||
AAMG contingent consideration (see Note 3) | |||||||||||||||||||||||
VOMG contingent consideration (see Note 3) | |||||||||||||||||||||||
DMG remaining equity interest purchase (see Note 1) | |||||||||||||||||||||||
Sun labs remaining equity interest purchase (see Note 1) | |||||||||||||||||||||||
Total liabilities | $ | $ | $ | $ |
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* Included in cash and cash equivalents
The carrying amounts and fair values of the Company’s financial instruments as of December 31, 2022, are presented below (in thousands):
Fair Value Measurements | |||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
Assets | |||||||||||||||||||||||
Money market accounts* | $ | $ | $ | $ | |||||||||||||||||||
Marketable securities – equity securities | |||||||||||||||||||||||
Contingent equity securities | |||||||||||||||||||||||
Interest rate swaps | |||||||||||||||||||||||
Total assets | $ | $ | $ | $ | |||||||||||||||||||
Liabilities | |||||||||||||||||||||||
APCMG contingent consideration | $ | $ | $ | $ | |||||||||||||||||||
AAMG contingent consideration (see Note 3) | |||||||||||||||||||||||
VOMG contingent consideration (see Note 3) | |||||||||||||||||||||||
DMG remaining equity interest purchase (see Note 1) | |||||||||||||||||||||||
Sun labs remaining equity interest purchase (see Note 1) | |||||||||||||||||||||||
Total liabilities | $ | $ | $ | $ |
* 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 | $ | ||||
Unrealized gain recognized from change in fair value of existing Level 3 liabilities* | |||||
Balance at June 30, 2023 | $ |
* 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.
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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
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.
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Federal and state income taxes are computed at currently enacted tax rates less tax credits using the asset and liability method. Deferred taxes are adjusted 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.
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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) | $ | ||||
Acquisitions | |||||
Adjustments | |||||
Balance, June 30, 2023 | $ |
4. Intangible Assets, Net
At June 30, 2023, the Company’s intangible assets, net, consisted of the following (in thousands):
Useful
Life
(Years)
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Gross June 30, 2023 |
Accumulated Amortization |
Net June 30, 2023 |
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Trademarks | N/A | $ | $ | — | $ | ||||||||||||||||||
Amortized intangible assets: |
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Network relationships |
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Management contracts |
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Member relationships |
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Patient management platform |
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Tradename/trademarks |