UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~September 30, 2021~~March 31, 2022


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

For the transition period from ___ to ___.

Commission File No. 001-37392

Apollo Medical Holdings, Inc.

(Exact name of registrant as specified in its charter)


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

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

(Address of principal executive offices and zip code)

(626) 282-0288

(Registrant’s telephone number, including area code)

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

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, $0.001 par value per share

AMEH

Nasdaq Capital Market

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

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

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


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

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

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

As of ~~October 26, 2021,~~April 28, 2022, there were ~~55,549,053~~56,048,564 shares of common stock of the registrant, $0.001 par value per share, issued and outstanding.

APOLLO MEDICAL HOLDINGS, INC.

INDEX TO FORM 10-Q FILING

TABLE OF CONTENTS


		PAGE
	Introductory Note	4
	Note About Forward-Looking Statements	4

	PART I FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements	4
	Consolidated Balance Sheets as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021	5
	Consolidated Statements of ~~Operations~~Income for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	8
	Consolidated Statements of Mezzanine and Stockholders ’ Equity for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	9
	Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	1110
	Notes to Consolidated Financial Statements	1312
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5149
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	6461
Item 4.	Controls and Procedures	6562

	PART II OTHER INFORMATION

Item 1.	Legal Proceedings	6663
Item 1A.	Risk Factors	6663
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6663
Item 3.	Defaults Upon Senior Securities	6663
Item 4.	Mine Safety Disclosures	6663
Item 5.	Other Information	6663
Item 6.	Exhibits	6764

Glossary

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


Accountable Health Care			Accountable Health Care IPA, a Professional Medical Corporation
AHMC			AHMC Healthcare Inc.
AIPBP			All-Inclusive Population-Based Payments
AKM			AKM Medical Group, Inc.
Alpha Care			Alpha Care Medical Group, Inc.
AMG			AMG, a Professional Medical Corporation
AMG Properties			AMG Properties, LLC
AMH			ApolloMed Hospitalists, a Medical Corporation
AMM			Apollo Medical Management, Inc.
AP-AMH			AP-AMH Medical Corporation
AP-AMH 2			AP-AMH 2 Medical Corporation
APAACO			APA ACO, Inc.
APC			Allied Physicians of California, a Professional Medical Corporation
APCMG			Access Primary Care Medical Group
APC-LSMA			APC-LSMA Designated Shareholder Medical Corporation

BAHA			Bay Area Hospitalist Associates
CAIPA MSO			CAIPA MSO, LLC
CDSC			Concourse Diagnostic Surgery Center, LLC
CMS			Centers for Medicare & Medicaid Services
CQMC			Critical Quality Management Corporation
~~CSI~~			~~College Street Investment LP, a California limited partnership~~
DMHC			California Department of Managed Healthcare
DMG			Diagnostic Medical Group of Southern California
GPDC			Global and Professional Direct Contracting
HSMSO			Health Source MSO Inc., a California corporation

ICC			AHMC International Cancer Center, a Medical Corporation
IPA			independent practice association
LMA			LaSalle Medical Associates
MMG			Maverick Medical Group, Inc.
MPP			Medical Property Partners, LLC
NGACO			Next Generation Accountable Care Organization
NMM			Network Medical Management, Inc.
PMIOC			Pacific Medical Imaging and Oncology Center, Inc.
SCHC			Southern California Heart Centers
Sun Labs			Sun Clinical Laboratories
Tag 6			Tag-6 Medical Investments Group, LLC
Tag 8			Tag-8 Medical Investments Group, LLC
UCAP			Universal Care Acquisition Partners, LLC
UCI			Universal Care, Inc.
VIE			variable interest entity
ZLL			ZLL Partners, LLC

INTRODUCTORY NOTE

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

The Centers for Medicare & Medicaid Services (“CMS”) have not reviewed any statements contained in this ~~Quarterly~~ Report, ~~on Form 10-Q~~including statements describing the participation of APA ACO, Inc. (“APAACO”) in the Next Generation Accountable Care Organization (“NGACO”) ~~Model.~~model, or the Global and Professional Direct Contracting (“GPDC”) model.

Trade names and trademarks of the Company and its subsidiaries referred to herein, and their respective logos, are our property. This Quarterly Report on Form 10-Q may contain additional trade names and/or trademarks of other companies, which are the property of their respective owners. We do not intend our use or display of other companies’ trade names and/or trademarks, if any, to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.

NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, ~~statements about the Company’s guidance for the year ending December 31, 2021,~~ any statements about our business, ~~(including the impact of the COVID-19 pandemic on our business),~~ financial condition, operating results, plans, objectives, expectations, and intentions, any ~~guidance on, or~~ projections of earnings, revenue, or other financial items, such as ~~our~~ projected ~~capitation~~payments from CMS ~~for the year ending December 31, 2021, or otherwise,~~ and our future ~~liquidity, including cash flows;~~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;~~company; any statements concerning proposed services, developments, mergers, or acquisitions; any statements regarding the outlook on our NGACO, ~~Model~~GPDC model, or strategic transactions; any statements regarding management’s view of future expectations and prospects for us; any statements about prospective adoption of new accounting standards or effects of changes in accounting standards; any statements regarding future economic conditions or performance; any statements of belief; any statements of assumptions underlying any of the foregoing; and other statements that are not historical facts. Forward-looking statements may be identified by the use of forward-looking terms, such as “anticipate,”�� “could,” “can,” “may,” “might,” “potential,” “predict,” “should,” “estimate,” “expect,” “project,” “believe,” “think,” “plan,” “envision,” “intend,” “continue,” “target,” “seek,” “contemplate,” “budgeted,” “will,” “would,” and the negative of such terms, other variations on such terms or other similar or comparable words, phrases, or terminology. These forward-looking statements present our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q and are subject to change.

Forward-looking statements involve risks and uncertainties and are based on the current beliefs, expectations, and certain assumptions of management. Some or all of such beliefs, expectations, and assumptions may not materialize or may vary significantly from actual results. Such statements are qualified by important economic, competitive, governmental, and technological factors that could cause our business, strategy, or actual results or events to differ materially from those in our forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K, for the year ended December 31, ~~2020,~~2021, filed with the Securities and Exchange Commission (the “SEC”) on ~~March 15, 2021,~~February 28, 2022, including the risk factors discussed under the heading “Risk Factors” in Part I, Item IA thereof. Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change, and significant risks and uncertainties that could cause actual conditions, outcomes, and results to differ materially from those indicated by such statements.

PART I FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

APOLLO MEDICAL HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021

Assets	Assets					Assets

Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	204,768	$	193,470	Cash and cash equivalents	$	237,942	$	233,097

Investments in marketable securities	Investments in marketable securities	128,558		67,695		Investments in marketable securities	42,893		53,417
Receivables, net	Receivables, net	18,753		7,058		Receivables, net	55,280		10,608
Receivables, net – related parties	Receivables, net – related parties	53,626		49,260		Receivables, net – related parties	76,410		69,376
Other receivables	Other receivables	5,773		4,297		Other receivables	13,260		9,647
Prepaid expenses and other current assets	Prepaid expenses and other current assets	11,734		16,797		Prepaid expenses and other current assets	14,631		18,637
Loan receivable – related party	Loan receivable – related party	4,000		—		Loan receivable – related party	4,000		4,000

Total current assets	Total current assets	427,212		338,577		Total current assets	444,416		398,782

Noncurrent assets
Non-current assets						Non-current assets
Land, property, and equipment, net	Land, property, and equipment, net	49,280		29,890		Land, property, and equipment, net	70,366		53,186
Intangible assets, net	Intangible assets, net	83,594		86,985		Intangible assets, net	80,148		82,807
Goodwill	Goodwill	243,353		239,053		Goodwill	252,379		253,039
Loans receivable	Loans receivable	584		480		Loans receivable	549		569
Loans receivable – related party		—		4,145

Investments in other entities – equity method	Investments in other entities – equity method	45,046		43,292		Investments in other entities – equity method	44,383		41,715
Investments in privately held entities	Investments in privately held entities	896		37,075		Investments in privately held entities	896		896
Restricted cash		—		500
Operating lease right-of-use assets	Operating lease right-of-use assets	16,134		18,574		Operating lease right-of-use assets	14,770		15,441
Other assets	Other assets	5,195		18,915		Other assets	4,424		5,928

Total noncurrent assets		444,082		478,909
Total non-current assets						Total non-current assets	467,915		453,581

Total assets (1)	Total assets (1)	$	871,294	$	817,486	Total assets (1)	$	912,331	$	852,363

Liabilities, mezzanine equity, and stockholders’ equity	Liabilities, mezzanine equity, and stockholders’ equity					Liabilities, mezzanine equity, and stockholders’ equity

Current liabilities	Current liabilities					Current liabilities

Accounts payable and accrued expenses	Accounts payable and accrued expenses	$	57,505	$	36,143	Accounts payable and accrued expenses	$	48,252	$	43,951
Fiduciary accounts payable	Fiduciary accounts payable	8,827		9,642		Fiduciary accounts payable	6,305		10,534
Medical liabilities	Medical liabilities	42,872		50,330		Medical liabilities	95,758		55,783
Income taxes payable	Income taxes payable	4,024		4,224		Income taxes payable	4,894		652
Dividend payable	Dividend payable	556		485		Dividend payable	556		556
Finance lease liabilities	Finance lease liabilities	110		102		Finance lease liabilities	543		486
Operating lease liabilities	Operating lease liabilities	2,658		3,177		Operating lease liabilities	2,625		2,629
Current portion of long-term debt						Current portion of long-term debt	1,503		780


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021

Current portion of long-term debt		207		10,889

Total current liabilities	Total current liabilities	116,759		114,992		Total current liabilities	160,436		115,371

Noncurrent liabilities
Non-current liabilities						Non-current liabilities
Deferred tax liability	Deferred tax liability	19,592		10,959		Deferred tax liability	9,686		9,127
Finance lease liabilities, net of current portion	Finance lease liabilities, net of current portion	221		311		Finance lease liabilities, net of current portion	1,172		973
Operating lease liabilities, net of current portion	Operating lease liabilities, net of current portion	13,856		15,865		Operating lease liabilities, net of current portion	12,558		13,198
Long-term debt, net of current portion and deferred financing costs	Long-term debt, net of current portion and deferred financing costs	182,813		230,211		Long-term debt, net of current portion and deferred financing costs	183,101		182,917
Other long-term liabilities	Other long-term liabilities	6,232		—		Other long-term liabilities	13,706		14,777

Total noncurrent liabilities		222,714		257,346
Total non-current liabilities						Total non-current liabilities	220,223		220,992

Total liabilities (1)	Total liabilities (1)	339,473		372,338		Total liabilities (1)	380,659		336,363

Commitments and contingencies (Note 12)	Commitments and contingencies (Note 12)	0				Commitments and contingencies (Note 12)	0

0Mezzanine equity	0Mezzanine equity					0Mezzanine equity
Noncontrolling interest in Allied Physicians of California, a Professional Medical Corporation		91,500		114,237
Non-controlling interest in Allied Physicians of California, a Professional Medical Corporation						Non-controlling interest in Allied Physicians of California, a Professional Medical Corporation	52,151		55,510

Stockholders’ equity	Stockholders’ equity					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 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 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	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	—		—		Series B Preferred stock, $0.001 par value per share; 5,000,000 shares authorized (inclusive of all preferred stock, including Series A Preferred stock); 555,555 issued and zero outstanding	—		—
Common stock, $0.001 par value per share; 100,000,000 shares authorized, 44,397,050 and 42,249,137 shares issued and outstanding, excluding 10,925,702 and 12,323,164 treasury shares, as of September 30, 2021 and December 31, 2020, respectively		44		42
Common stock, $0.001 par value per share; 100,000,000 shares authorized, 44,845,059 and 44,630,873 shares issued and outstanding, excluding 10,925,702 and 10,925,702 treasury shares, as of March 31, 2022 and December 31, 2021, respectively						Common stock, $0.001 par value per share; 100,000,000 shares authorized, 44,845,059 and 44,630,873 shares issued and outstanding, excluding 10,925,702 and 10,925,702 treasury shares, as of March 31, 2022 and December 31, 2021, respectively	45		45
Additional paid-in capital	Additional paid-in capital	305,994		261,011		Additional paid-in capital	316,047		310,876
Retained earnings	Retained earnings	129,859		69,771		Retained earnings	157,893		143,629
		435,897		330,824			473,985		454,550

Noncontrolling interest		4,424		87
Non-controlling interest						Non-controlling interest	5,536		5,940

Total stockholders’ equity	Total stockholders’ equity	440,321		330,911		Total stockholders’ equity	479,521		460,490

Total liabilities, mezzanine equity, and stockholders’ equity	Total liabilities, mezzanine equity, and stockholders’ equity	$	871,294	$	817,486	Total liabilities, mezzanine equity, and stockholders’ equity	$	912,331	$	852,363

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

(1) The Company’s consolidated balance sheets include the assets and liabilities of its consolidated VIEs. The consolidated balance sheets include total assets that can be used only to settle obligations of the Company’s consolidated VIEs totaling ~~$601.8~~$585.9 million and ~~$576.1~~$567.0 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, and total liabilities of the Company’s consolidated VIEs for which creditors do not have recourse to the general credit of the primary beneficiary of ~~$92.8~~$111.0 million and ~~$88.6~~$91.7 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. The VIE balances do not include ~~$994.8~~$529.6 million of investment in affiliates and ~~$15.8~~$25.2 million of amounts due from affiliates as of ~~September 30, 2021~~March 31, 2022 and ~~$225.1~~$802.8 million of investment in affiliates and ~~$22.7~~$6.6 million of amounts due to affiliates as of December 31, ~~2020~~2021 as these are eliminated upon consolidation and not presented within the consolidated balance sheets. See Note 16 – Variable Interest Entities (VIEs) for further detail.

APOLLO MEDICAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~INCOME

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Revenue	Revenue									Revenue
Capitation, net	Capitation, net	$	149,059	$	135,032	$	438,350	$	416,402	Capitation, net	$	222,060	$	144,740
Risk pool settlements and incentives	Risk pool settlements and incentives	59,923		30,916		94,146		54,155		Risk pool settlements and incentives	18,075		18,010
Management fee income	Management fee income	9,652		8,707		26,345		26,212		Management fee income	10,473		8,550
Fee-for-service, net	Fee-for-service, net	7,260		3,737		14,968		9,434		Fee-for-service, net	11,095		3,086
Other income	Other income	1,223		1,731		5,006		4,194		Other income	1,555		1,672

Total revenue	Total revenue	227,117		180,123		578,815		510,397		Total revenue	263,258		176,058

Operating expenses	Operating expenses									Operating expenses
Cost of services, excluding depreciation and amortization	Cost of services, excluding depreciation and amortization	147,473		121,823		424,303		402,106		Cost of services, excluding depreciation and amortization	220,730		140,616
General and administrative expenses	General and administrative expenses	21,813		16,270		45,476		39,660		General and administrative expenses	11,943		9,464
Depreciation and amortization	Depreciation and amortization	4,671		4,674		13,105		14,004		Depreciation and amortization	4,374		4,197

Total expenses	Total expenses	173,957		142,767		482,884		455,770		Total expenses	237,047		154,277

Income from operations	Income from operations	53,160		37,356		95,931		54,627		Income from operations	26,211		21,781

Other (expense) income
Other expense										Other expense
Income (loss) from equity method investments	Income (loss) from equity method investments	132		403		(3,680)		3,291		Income (loss) from equity method investments	1,433		(677)
Gain on sale of equity method investment		2,193		—		2,193		99,647

Interest expense	Interest expense	(967)		(2,466)		(4,343)		(8,007)		Interest expense	(1,073)		(1,523)
Interest income	Interest income	420		752		1,331		2,544		Interest income	46		349
Unrealized (loss) gain on investments		(60,943)		—		22,826		—
Other income (expense)		500		130		(14,080)		1,514
Unrealized loss on investments										Unrealized loss on investments	(8,962)		—
Other income										Other income	613		1,304

Total other (expense) income, net		(58,665)		(1,181)		4,247		98,989
Total other expense, net										Total other expense, net	(7,943)		(547)

(Loss) income before (benefit from) provision for income taxes		(5,505)		36,175		100,178		153,616
Income before provision for income taxes										Income before provision for income taxes	18,268		21,234

(Benefit from) provision for income taxes		(120)		10,751		31,575		44,204
Provision for income taxes										Provision for income taxes	6,195		6,776

Net (loss) income		(5,385)		25,424		68,603		109,412
Net income										Net income	12,073		14,458

Net (loss) income attributable to noncontrolling interest		(39,664)		8,711		8,515		81,603
Net (loss) income attributable to non-controlling interest										Net (loss) income attributable to non-controlling interest	(2,191)		1,307

Net income attributable to Apollo Medical Holdings, Inc.	Net income attributable to Apollo Medical Holdings, Inc.	$	34,279	$	16,713	60,088		$	27,809	Net income attributable to Apollo Medical Holdings, Inc.	$	14,264	$	13,151

Earnings per share – basic	Earnings per share – basic	$	0.77	$	0.46	$	1.38	$	0.77	Earnings per share – basic	$	0.32	$	0.31

Earnings per share – diluted	Earnings per share – diluted	$	0.74	$	0.45	$	1.33	$	0.75	Earnings per share – diluted	$	0.31	$	0.30

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

APOLLO MEDICAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF MEZZANINE AND STOCKHOLDERS’ EQUITY

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)

Mezzanine
Equity –
Noncontrolling
Interest in APC Retained
Earnings
Common Stock Outstanding Additional
Paid-in Capital Noncontrolling
Interest Stockholders’
Equity
Shares Amount
Balance at January 1, 2021 $ 114,237 42,249,137 $ 42 $ 261,011 $ 69,771 $ 87 $ 330,911
Net income 760 — — — 13,151 547 13,698
Purchase of noncontrolling interest (150) — — — — (75) (75)
Cancellation of restricted stock awards — (5,281) — (144) — — (144)
Shares issued for vesting of restricted stock awards — 7,689 — — — — —
Shares issued for exercise of options and warrants — 421,002 1 4,255 — — 4,256
Repurchase of treasury shares by noncontrolling interest — (34,158) — (342) — — (342)
Share-based compensation — — — 1,346 — — 1,346
Sales of noncontrolling interest — — — — — 37 37
Balance at March 31, 2021 $ 114,847 42,638,389 $ 43 $ 266,126 $ 82,922 $ 596 $ 349,687
Net income 46,859 — — — 12,658 13 12,671
Cancellation of restricted stock awards — (5,426) — (189) — — (189)
Shares issued for vesting of restricted stock awards — 22,284 — — — — —
Shares issued for exercise of options and warrants — 53,504 — 561 — — 561
Repurchase of treasury shares by noncontrolling interest — (100,000) — (2,450) — — (2,450)
Share-based compensation — — — 1,556 — — 1,556
Sale of noncontrolling interest 150 — — — — — —
Sale of shares by noncontrolling interest — 1,638,045 1 40,132 — — 40,133
Investment in noncontrolling interest — — — — — 3,769 3,769
Dividends (20,000) — — — — (1,156) (1,156)
Balance at June 30, 2021 $ 141,856 44,246,796 $ 44 $ 305,736 $ 95,580 $ 3,222 $ 404,582
Net income (40,356) — — — 34,279 692 34,971
Shares issued for exercise of options and warrants — 190,254 — 1,785 — — 1,785
Repurchase of treasury shares by noncontrolling interest — (40,000) — (2,947) — — (2,947)
Share-based compensation — — — 1,420 — — 1,420
Acquisition of noncontrolling interest — — — — — 500 500
Noncontrolling interest capital charge — — — — — 10 10
Dividends (10,000) — — — — — —
Balance at September 30, 2021 $ 91,500 44,397,050 $ 44 $ 305,994 $ 129,859 $ 4,424 $ 440,321


	Mezzanine Equity – 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	$	55,510	44,630,873	$	45	$	310,876	$	143,629	$	5,940	$	460,490
Net (loss) income	(3,129)		—	—		—		14,264		938		15,202
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	$	52,151	44,845,059	$	45	$	316,047	$	157,893	$	5,536	$	479,521


		Mezzanine Equity – Noncontrolling Interest in APC													Retained Earnings												Mezzanine Equity – Non-controlling Interest in APC														Retained Earnings
				Common Stock Outstanding						Additional Paid-in Capital							Noncontrolling Interest				Stockholders’ Equity								Common Stock Outstanding						Additional Paid-in Capital								Non-controlling Interest				Stockholders’ Equity
				Shares			Amount				Retained Earnings												Shares						Amount				Retained Earnings
Balance at January 1, 2020				$	168,725		35,908,057						$	36			$	159,608				$	31,905		$	786				$	192,335
Net (loss) income				(1,160)			—			—					—				4,052		95					4,147
Purchase of noncontrolling interest		(126)				—		—			—				—				—				—
Purchase of treasury shares		—				(16,897)		—			(301)												(301)
Shares issued for exercise of options and warrants		—				151,601		—			722				—				—				722
Share-based compensation		—				—		—			1,058				—				—				1,058
Dividends		(10,000)				—		—			—				—				—				—
Balance at March 31, 2020		$	157,439			36,042,761		$	36		$	161,087			$	35,957			$	881			$	197,961
Balance at January 1, 2021																										Balance at January 1, 2021	$	114,237				42,249,137			$	42			$	261,011			$	69,771			$	87			$	330,911
Net income	Net income	73,666				—		—			—				7,044				291				7,335			Net income	760					—			—				—				13,151				547				13,698
Purchase of noncontrolling interest		(125)				—		—			—				—				—				—
Purchase of non-controlling interest																										Purchase of non-controlling interest	(150)					—	—				—				—				(75)				(75)
Sale of non-controlling interest																										Sale of non-controlling interest	—					—	—				—				—				37				37
Shares issued for vesting of restricted stock awards	Shares issued for vesting of restricted stock awards	—				24,453		—			—				—				—				—			Shares issued for vesting of restricted stock awards	—					7,689	—				—				—				—				—
Shares issued for exercise of options and warrants	Shares issued for exercise of options and warrants	—				242,299		—			2,283				—				—				2,283			Shares issued for exercise of options and warrants	—					421,002	1				4,255				—				—				4,256
Purchase of treasury shares																										Purchase of treasury shares	—					(34,158)	—				(342)				—				—				(342)
Share-based compensation	Share-based compensation	—				—		—			852				—				—				852			Share-based compensation	—					—	—				1,346				—				—				1,346
Cancellation of restricted stock awards	Cancellation of restricted stock awards	—				—		—			(236)				—				—				(236)			Cancellation of restricted stock awards	—					(5,281)	—				(144)				—				—				(144)
Dividends		(20,000)				—		—			—				—				(347)				(347)
Balance at June 30, 2020		$	210,980			36,309,513		$	36		$	163,986			$	43,001			$	825			$	207,848
Net income		8,522				—	—	—			—				16,713				189				16,902
Purchase of noncontrolling interest		(771)				—		—			—				—				—				—
Shares issued for cashless exercise of warrants		—				66,517		—			—				—				—				—
Shares issued for exercise of options and warrants		—				399,787		1			4,019				—				—				4,020
Share-based compensation		—				—		—			648				—				—				648
Cancellation of restricted stock awards		—				—		—			—				—				—				—
Dividends		(20,000)				—		—			—				—				—				—
Balance at September 30, 2020		$	198,731			36,775,817		$	37		$	168,653			$	59,714			$	1,014			$	229,418
Balance at March 31, 2021																										Balance at March 31, 2021	$	114,847				42,638,389	$	43			$	266,126			$	82,922			$	596			$	349,687

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

109

APOLLO MEDICAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)


		Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020			2022		2021
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net income	Net income	$	68,603	$	109,412	Net income	$	12,073	$	14,458
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	13,105		14,004		Depreciation and amortization	4,374		4,197
Amortization of debt issuance cost						Amortization of debt issuance cost	237		351
Share-based compensation						Share-based compensation	3,055		1,346
Unrealized loss (gain) from investment in equity securities						Unrealized loss (gain) from investment in equity securities	10,556		(9)
(Income) loss from equity method investments						(Income) loss from equity method investments	(1,433)		677

Amortization of debt issuance costs		900		1,004
Share-based compensation		4,322		2,558
Unrealized (gain) loss from investment in equity securities		(22,826)		23
Loss (income) from equity method investments		3,680		(3,291)
Gain on sale of equity method investment		(2,193)		(99,647)
Impairment of beneficial interest		15,723		—
Loss on interest rate swaps		1,069		—

Unrealized gain on interest rate swaps						Unrealized gain on interest rate swaps	(1,593)		—
Deferred tax	Deferred tax	6,847		(6,137)		Deferred tax	1,985		(921)
Other		189		—

Changes in operating assets and liabilities, net of business combinations:	Changes in operating assets and liabilities, net of business combinations:					Changes in operating assets and liabilities, net of business combinations:
Receivables, net	Receivables, net	(10,686)		(6,953)		Receivables, net	(44,673)		(9,390)
Receivables, net – related parties	Receivables, net – related parties	(4,367)		6,618		Receivables, net – related parties	(6,865)		(17,612)
Other receivables	Other receivables	(1,477)		12,898		Other receivables	(3,613)		(223)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	5,064		(1,804)		Prepaid expenses and other current assets	4,171		7,165
Right-of-use assets	Right-of-use assets	2,440		2,601		Right-of-use assets	672		836
Other assets	Other assets	(954)		(5,090)		Other assets	2,016		(192)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	14,362		12,644		Accounts payable and accrued expenses	3,735		3,915
Fiduciary accounts payable	Fiduciary accounts payable	(815)		1,958		Fiduciary accounts payable	(4,229)		(2,771)
Medical liabilities	Medical liabilities	(7,633)		(1,566)		Medical liabilities	39,974		1,149
Income taxes payable	Income taxes payable	(300)		11,642		Income taxes payable	4,241		7,835
Operating lease liabilities	Operating lease liabilities	(2,528)		(2,110)		Operating lease liabilities	(645)		(859)

Net cash provided by operating activities	Net cash provided by operating activities	82,525		48,764		Net cash provided by operating activities	24,038		9,952

Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Payments for business acquisition, net of cash acquired		(2,575)		—
Payments for business acquisition, net of cash acquired and shares issued						Payments for business acquisition, net of cash acquired and shares issued	(999)		—
Proceeds from repayment of loans receivable – related parties	Proceeds from repayment of loans receivable – related parties	41		16,500		Proceeds from repayment of loans receivable – related parties	19		16
Purchases of marketable securities	Purchases of marketable securities	(1,009)		(1,793)		Purchases of marketable securities	(21)		(332)
Purchase of investment – equity method		(13,384)		(500)
Proceeds from sale of equity method investment		6,375		52,743

Purchases of property and equipment	Purchases of property and equipment	(16,420)		(553)		Purchases of property and equipment	(17,489)		(98)
Proceeds from sale of marketable securities	Proceeds from sale of marketable securities	1,106		—		Proceeds from sale of marketable securities	—		1,106
Cash received from consolidation of VIE		3,322		—
Distribution from investment - equity method						Distribution from investment - equity method	200		—
Contribution to investment - equity method						Contribution to investment - equity method	(1,435)		—
Net cash (used in) provided by investing activities	Net cash (used in) provided by investing activities	(22,544)		66,397		Net cash (used in) provided by investing activities	(19,725)		692

Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Dividends paid	Dividends paid	(31,089)		(50,133)		Dividends paid	(1,178)		(4)
Repayment of long-term debt	Repayment of long-term debt	(238,254)		(7,125)		Repayment of long-term debt	(52)		(2,434)
Payment of finance lease obligations	Payment of finance lease obligations	(81)		(78)		Payment of finance lease obligations	(141)		(27)
Proceeds from the exercise of stock options and warrants	Proceeds from the exercise of stock options and warrants	6,601		6,552		Proceeds from the exercise of stock options and warrants	1,573		4,256
Repurchase of shares	Repurchase of shares	(5,739)		(1,559)		Repurchase of shares	(230)		(342)
Distribution to non-controlling interest						Distribution to non-controlling interest	—		(225)
Proceeds from sale of non-controlling interest						Proceeds from sale of non-controlling interest	38		38
Purchase of non-controlling interest						Purchase of non-controlling interest	(200)		—
Borrowings on loans						Borrowings on loans	722		—

Net cash provided by financing activities						Net cash provided by financing activities	532		1,262

1110

Nine Months Ended
September 30,
2021 2020
Distribution to noncontrolling interest (75) —
Proceeds from sale of noncontrolling interest 48 —
Borrowings on revolver 180,000 —
Proceeds from sale of shares 40,133 —
Payment of debt issuance costs (727) —
Net cash used in financing activities (49,183) (52,343)
Net increase in cash, cash equivalents, and restricted cash 10,798 62,818
Cash, cash equivalents, and restricted cash, beginning of period 193,970 104,010
Cash, cash equivalents, and restricted cash, end of period $ 204,768 $ 166,828
Supplementary disclosures of cash flow information:
Cash paid for income taxes $ 24,800 $ 37,900
Cash paid for interest 3,330 6,961
Supplemental disclosures of non-cash investing and financing activities
Dividend declared included in dividend payable $ 71 $ 485
Preferred shares received from sale of equity investment $ — $ 36,179
Cancellation of restricted stock awards $ 334 $ —
Deferred tax liability adjustment to goodwill $ 1,786 $ —
Deferred tax liability adjustment related to warrant exercises $ — $ 473


	Three Months Ended March 31,
	2022		2021

Net increase in cash, cash equivalents, and restricted cash	4,845		11,906

Cash, cash equivalents, and restricted cash, beginning of period	233,097		193,970

Cash, cash equivalents, and restricted cash, end of period	$	237,942	$	205,876

Supplementary disclosures of cash flow information:
Cash paid for income taxes	$	—	$	40
Cash paid for interest	845		1,277

Supplemental disclosures of non-cash investing and financing activities
Fixed asset obtained in exchange for finance lease liabilities	$	398	$	—
Common stock issued in business combination	$	1,000	$	—

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):

September 30,
2021 2020
Cash and cash equivalents $ 204,768 $ 166,082
Restricted cash – noncurrent — 746
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows $ 204,768 $ 166,828


	March 31,
	2022		2021


Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	237,942	$	205,876


		December 31,					December 31,
		2020		2019			2021		2020
Cash and cash equivalents	Cash and cash equivalents	$	193,470	$	103,189	Cash and cash equivalents	$	233,097	$	193,470
Restricted cash – current	Restricted cash – current	500		746		Restricted cash – current	—		500
Restricted cash – noncurrent		—		75
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	193,970	$	104,010	Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	233,097	$	193,970

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

1211

APOLLO MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Description of Business

Overview

Apollo Medical Holdings, Inc. (“ApolloMed”) is a leading physician-centric, technology-powered, risk-bearing healthcare company. Leveraging its proprietary end-to-end technology solutions, ApolloMed operates an integrated healthcare delivery platform that enables providers to successfully participate in value-based care arrangements, thus empowering them to deliver high-quality care to patients in a cost-effective manner. ApolloMed was merged with Network Medical Management (“NMM”) in December 2017 (the “2017 Merger”). As a result of the 2017 Merger, NMM became a wholly owned subsidiary of ApolloMed, and the former NMM shareholders own a majority of the issued and outstanding common stock of ApolloMed and maintain control of the board of directors of ApolloMed. Unless the context dictates otherwise, references in these notes to the financial statements, the “Company,” “we,” “us,” “our,” and similar words are references to ApolloMed and its consolidated subsidiaries and affiliated entities, as appropriate, including its consolidated variable interest entities (“VIEs”).

Headquartered in Alhambra, California, ApolloMed’s subsidiaries and VIEs include management services organizations (“MSOs”), affiliated independent practice associations (“IPAs”), and ~~a Next Generation Accountable Care Organization~~an accountable care organization (“~~NGACO”~~ACO”). participating in the GPDC model. NMM and Apollo Medical Management, Inc. (“AMM”) are the administrative and managerial services companies for the affiliated physician-owned professional corporations that contract with independent physicians to deliver medical services in-office and virtually under the following brands: (i) Allied Physicians of California, a Professional Medical Corporation d.b.a. Allied Pacific of California IPA (“APC”), (ii) Alpha Care Medical Group, Inc. (“Alpha Care”), and (iii) Accountable Health Care IPA, a Professional Medical Corporation (“Accountable Health Care”). These affiliates are supported by ApolloMed Hospitalists, a Medical Corporation (“AMH”) and Southern California Heart Centers, a Medical Corporation (“SCHC”). The Company’s ~~NGACO~~ACO operates under the APA ACO, Inc. (“APAACO”) brand and participates in the Centers for Medicare & Medicaid Services (“CMS”) program that allows provider groups to assume higher levels of financial risk and potentially achieve a higher reward from participation in the program’s attribution-based risk-sharing model.

The Company provides care coordination services to each major constituent of the healthcare delivery system, including patients, families, primary care physicians, specialists, acute care hospitals, alternative sites of inpatient care, physician groups, and health plans. The Company’s physician network consists of primary care physicians, specialist physicians, and hospitalists.

MSOs and Affiliates

AMM, a wholly owned subsidiary of ApolloMed, manages affiliated medical groups, ApolloMed Hospitalists, a Medical Corporation (“AMH”) and Southern California Heart Centers, a Medical Corporation (“SCHC”). AMH provides hospitalist, intensivist, and physician advisory services. SCHC is a specialty clinic that focuses on cardiac care and diagnostic testing.

NMM was formed in 1994 as an MSO for the purposes of providing management services to medical companies and IPAs. The management services primarily include billing, collection, accounting, administration, quality assurance, marketing, compliance, and education. Following the 2017 Merger, NMM became a wholly owned subsidiary of ApolloMed.

IPAs and Affiliates

APC was incorporated in 1992 for the purpose of arranging healthcare services as an IPA. APC is owned by California-licensed physicians and professional medical corporations, and contracts with various health maintenance organizations (“HMOs”) and other licensed healthcare service plans, as defined in the California Knox-Keene Health Care Service Plan Act of 1975. Each HMO negotiates a fixed amount per member per month (“PMPM”) that is to be paid to APC. In return, APC arranges for the delivery of healthcare services by contracting with physicians or professional medical corporations for primary care and specialty care services. APC assumes the financial risk of the cost of delivering healthcare services in excess of the fixed amounts received. Some of the risk is transferred to the contracted physicians or professional corporations. The risk is subject to stop-loss provisions in contracts with HMOs.

In July 1999, APC entered into an amended and restated management and administrative services agreement with NMM (the initial management services agreement was entered into in 1997) for an initial fixed term of 30 years. Under this management arrangement, NMM performs only non-medical administrative services, does not represent that it offers medical services, and does not exercise influence or control over the practice of medicine by APC or its physicians. In accordance with relevant accounting guidance, APC is determined to be a VIE of the Company and is consolidated by NMM.

1312

AP-AMH Medical Corporation (“AP-AMH”) and AP-AMH 2 Medical Corporation (“AP-AMH 2”) was formed in May 2019 and July 2021, respectively, as a designated shareholder professional corporation. Dr. Thomas Lam, a shareholder and the Chief Executive Officer and Chief Financial Officer of APC and Co-Chief Executive Officer of ApolloMed, is the sole shareholder of AP-AMH and AP-AMH 2. In accordance with relevant accounting guidance, AP-AMH and AP-AMH 2 is determined to be a VIE of ApolloMed and is consolidated by ApolloMed.

In September 2019, ApolloMed completed the following series of transactions with its affiliates, AP-AMH and APC:

1.~~ApolloMed loaned AP-AMH~~A $545.0 million loan to AP-AMH, pursuant to a 10-year secured loan agreement (the “AP-AMH Loan”). The loan bears interest at a rate of 10% per annum simple interest, is not prepayable, (except in certain limited circumstances), requires quarterly payments of interest only in arrears, and is secured by a first priority security interest in all of ~~AP-AMH~~’~~s assets, including the shares of APC Series A Preferred Stock purchased by AP-AMH, as described below.~~AP-AMH’s assets. To the extent that AP-AMH is unable to make any interest payment when due because it has received dividends on the APC Series A Preferred Stock insufficient to pay in full such interest payment, then the outstanding principal amount of the loan will be increased by the amount of any such accrued but unpaid interest, and any such increased principal amounts will bear interest at the rate of 10.75% per annum simple interest.

2.A $545.0 million private placement, where AP-AMH purchased 1,000,000 shares of APC Series A Preferred Stock for aggregate consideration of $545.0 million in a private placement. Under the terms of the APC Certificate of Determination of Preferences of Series A Preferred Stock (the “Certificate of Determination”),which entitle AP-AMH ~~is entitled~~ to receive preferential, cumulative dividends ~~(“Series A Dividends”)~~ that accrue on a daily basis and that are equal to the sum of (i) APC’s net income from healthcare services (as defined in the Certificate of Determination), plus (ii) any dividends received by APC from certain of APC’s affiliated entities, less (iii) any Retained Amounts (as defined in the Certificate of Determination).basis.

3.A $300.0 million private placement, where APC purchased 15,015,015 shares of ~~ApolloMed’s~~the Company’s common stock ~~for total consideration of $300.0 million~~and in ~~private placement. In~~ connection therewith, ~~ApolloMed~~the Company granted APC certain registration rights with respect to ~~ApolloMed’s common stock that APC~~the purchased and APC agreed that APC votes in excess of 9.99% of ApolloMed’s then outstanding shares will be voted by proxy given to ApolloMed’s management, and that those proxy holders will cast the excess votes in the same proportion as all other votes cast on any specific proposal coming before ApolloMed’s stockholders.shares.

4.ApolloMed licensed to AP-AMH the right to use certain ~~trade names~~tradenames for ~~certain~~ specified purposes for a fee equal to a percentage of the aggregate gross revenues of AP-AMH. The license fee is payable out of any Series A Preferred Stock dividends received by AP-AMH from APC.

5.Through its subsidiary, NMM, the Company agreed to provide certain administrative services to AP-AMH for a fee equal to a percentage of the aggregate gross revenues of AP-AMH. The administrative fee is also is payable out of any APC Series A Preferred Stock dividends received by AP-AMH from APC.

As part of the series of transactions, ~~described above,~~in September 2019, APC and AP-AMH entered into a Second Amendment to the Series A Preferred Stock Purchase Agreement clarifying the term ~~“Excluded Assets.”~~excluded assets (“Excluded Assets”). Excluded Assets means (i) assets received from the sale of shares of the Series A Preferred ~~Stock~~ equal to the Series A Purchase Price, ~~(as defined in the purchase agreement),~~ (ii) the assets of ~~APC~~the Company that are not Healthcare Services Assets, ~~(as defined in~~including the ~~purchase agreement), including APC’s~~Company’s equity interests in ~~Universal Care, Inc.,~~ Apollo Medical Holdings, Inc., and any entity that is primarily engaged in the business of owning, leasing, developing, or otherwise operating real estate, (iii) any assets acquired with the proceeds of the sale, assignment, or other disposition of any of the assets described in clauses (i) or (ii), and (iv) any proceeds of the assets described in clauses (i), (ii), and (iii).

APC’s ownership in ApolloMed was ~~19.77%~~19.61% as of ~~September 30, 2021~~March 31, 2022 and ~~22.58%~~19.68% as of December 31, ~~2020.~~2021.

Concourse Diagnostic Surgery Center, LLC (“CDSC”) was formed in March 2010 in the state of California. CDSC is an ambulatory surgery center in City of Industry, California organized by a group of highly qualified physicians, which utilizes some of the most advanced equipment in the eastern part of Los Angeles County and the San Gabriel Valley. The facility is Medicare-certified and accredited by the Accreditation Association for Ambulatory Healthcare. As of ~~September 30, 2021,~~March 31, 2022, APC owned ~~45.01%~~44.50% of CDSC’s capital stock. In accordance with relevant accounting guidance, CDSC is determined to be a VIE of APC and is consolidated by APC.

APC-LSMA Designated Shareholder Medical Corporation (“APC-LSMA”) was formed in October 2012 as a designated shareholder professional corporation. Dr. Thomas Lam, a stockholder and the Chief Executive Officer and Chief Financial Officer of APC and Co-Chief Executive Officer of ApolloMed, is a nominee shareholder of APC-LSMA. APC makes all investment decisions on behalf of APC-LSMA, funds all investments and receives all distributions from the investments. APC

has the obligation to absorb losses and right to receive benefits from all investments made by APC-LSMA. APC-LSMA’s sole function is to act as the nominee shareholder for APC in other California medical professional corporations. Therefore, APC-LSMA is controlled and consolidated by APC as the primary beneficiary of this VIE. The only activity of APC-LSMA is to hold the investments in medical corporations, including the IPA lines of business of LaSalle Medical Associates (“LMA”), Pacific Medical Imaging and Oncology Center, Inc. (“PMIOC”), Diagnostic Medical Group of Southern California (“DMG”), and AHMC International Cancer Center, a Medical Corporation (“ICC”). APC-LSMA also holds a 100% ownership interest in Maverick Medical Group, Inc. (“MMG”), Alpha Care, Accountable Health Care, and AMG, a Professional Medical Corporation (“AMG”).

Alpha Care, an IPA acquired by the Company in May 2019, has been operating in California since 1993 as a risk-bearing organization engaged in providing professional services under capitation arrangements with its contracted health plans through a provider network consisting of primary care and specialty care physicians. Alpha Care specializes in delivering high-quality healthcare to its enrollees and focuses on Medi-Cal/Medicaid, Commercial, and Medicare and Dual Eligible members in the Riverside and San Bernardino counties of Southern California.

Accountable Health Care is a California-based IPA that has served the local community in the greater Los Angeles County area through a network of physicians and healthcare providers for more than 20 years. Accountable Health Care provides quality healthcare services to its members through 3 federally qualified health plans and multiple product lines, including Medi-Cal, Commercial, and Medicare. In August 2019, APC and APC-LSMA acquired the remaining outstanding shares of Accountable Health Care’s capital stock that they did not already own (comprising 75%) for $7.3 million in cash.

AMG is a network of family practice clinics operating out of 3 main locations in Southern California. AMG provides professional and post-acute care services to Medicare, Medi-Cal/Medicaid, and Commercial patients through its network of doctors and nurse practitioners. In September 2019, APC-LSMA purchased 100% of the shares of capital stock of AMG for $1.2 million in cash and $0.4 million of APC common stock.

DMG is a professional medical California corporation and a complete outpatient imaging center. APC accounted for its 40% investment in DMG, under the equity method of accounting. In October 2021, DMG entered into an administrative services agreement with a subsidiary of the Company, causing the Company to reevaluate the accounting for the Company’s investment in DMG. Based on the reevaluation and in accordance with relevant accounting guidance, DMG is determined to be a VIE of the Company and is consolidated by the Company. In addition, APC-LSMA is obligated to purchase the remaining equity interest within three years from the effective date. The purchase of the remaining equity value is considered a financing obligation with a carrying value of $8.5 million as of March 31, 2022. As the financing obligation is embedded in the non-controlling interest, the non-controlling interest is recognized in other long-term liabilities in the accompanying consolidated balance sheets.

In December 2020, using cash comprised solely of Excluded Assets, APC purchased a 100% interest in each of Medical Property Partners, LLC (“MPP”), AMG Properties, LLC (“AMG Properties”), and ZLL Partners, LLC (“ZLL”) and a 50% interest in each of One MSO, LLC (“One MSO”), Tag-6 Medical Investment Group, LLC (“Tag 6”), and Tag-8 Medical Investment Group, LLC (“Tag 8”). These entities own buildings that are currently leased to tenants, as well as vacant land ~~which they plan to develop in the future.~~that is being developed. MPP, AMG Properties, and ZLL are 100% owned subsidiaries of APC and are included in the consolidated financial statements. In April 2021, Tag 8 entered into a loan agreement with MUFG Union Bank N.A. with APC as their guarantor, causing the Company to reevaluate their consolidation of Tag 8. Based on the reevaluation and in accordance with relevant accounting guidance, it was concluded that Tag 8 is a VIE and is consolidated by APC. One MSO and Tag 6 are accounted for as equity method investments, as APC has the ability to exercise significant influence, but not control over the operations of the entity. These purchases are deemed Excluded Assets that are solely for the benefit of APC and its shareholders. As such, any income pertaining to APC’s interests in these properties has no impact on the Series A Dividend payable by APC to AP-AMH Medical Corporation, and consequently will not affect net income attributable to ApolloMed.

In July 2021, AP-AMH 2, ~~Medical Corporation (“AP-AMH 2”),~~ a VIE of the Company, purchased an 80% equity interest (on a fully diluted basis) in Access Primary Care Medical Group (“APCMG”), a primary care physicians’ group focused on providing high-quality care to senior patients in the northern California cities of Daly City and San Francisco. As a result, APCMG is consolidated by the ~~Company (see Note 3).~~Company.

In August 2021, Apollo Medical Holdings, Inc. acquired 49% of the aggregate issued and outstanding shares of capital stock of Sun Clinical Laboratories (“Sun Labs”) for an aggregate purchase price of $4.0 million. Sun Labs is a Clinical Laboratory Improvement Amendments certified full-service lab that operates across the San Gabriel Valley in Southern California. In accordance with relevant accounting guidance, Sun Labs is determined to be a VIE of the Company and is consolidated by the Company (see Note 3). The Company is obligated to purchase the remaining equity interest within three years from the effective date. The purchase of the remaining equity value is considered a financing obligation with a carrying value of at $4.2 million at ~~September 30, 2021.~~March 31, 2022. As the financing obligation is embedded in the ~~noncontrolling~~non-controlling interest, the ~~noncontrolling~~non-controlling interest is recognized in other long-term liabilities in the accompanying consolidated balance sheets.

NGACO, GPDC / ACO REACH

APAACO ~~jointly owned by NMM and AMM,~~ began participating in the NGACO Model of CMS in January 2017. The NGACO Model iswas a CMS program that ~~allows~~allowed provider groups to assume higher levels of financial risk and potentially achieve a higher reward from participating in this new attribution-based risk-sharing model. With the ending of the NGACO Model on December 31, 2021, APAACO applied, and has been selected by CMS, to participate as a Direct Contracting Entity (“DCE”) in the standard track of CMS’s GPDC Model for Performance Year 2022 (“PY22”), beginning January 1, 2022. CMS has since redesigned the GPDC Model in response to Administration priorities, including their commitment to advancing health equity, stakeholder feedback, and participant experience, and renamed the GPDC Model to ACO Realizing Equity, Access, and Community Health (“ACO REACH”) Model. The ACO REACH Model will begin participation on January 1, 2023.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated balance sheets at December 31, ~~2020,~~2021, have been derived from the Company’s audited consolidated financial statements, but do 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 ~~September 30, 2021,~~March 31, 2022, and for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ 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 for the year ended December 31, ~~2020,~~2021, as filed with the ~~Securities and Exchange Commission (“SEC”)~~SEC on ~~March 15, 2021.~~February 28, 2022. 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 nine~~ months ended ~~September 30, 2021,~~March 31, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2021,~~2022, or any future periods.

Principles of Consolidation

The consolidated balance sheets as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, and the consolidated statements of ~~operations~~income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ include the accounts of ~~ApolloMed; its~~(1) ApolloMed, ApolloMed’s consolidated subsidiaries, NMM, AMM, and ~~APAACO;~~APAACO, and its ~~consolidated~~ VIEs, AP-AMH, AP-AMH 2, Sun Labs, and ~~Sun Labs;~~DMG; (2) AP-AMH 2’s consolidated subsidiary, APCMG; (3) AMM’s consolidated ~~VIE, SCHC;~~VIEs, SCHC and AMH; (4) NMM’s ~~consolidated subsidiaries, APCN-ACO and AP-ACO; NMM’s consolidated~~ VIE, APC; (5) APC’s consolidated subsidiaries, Universal Care Acquisition Partners, LLC (“UCAP”), MPP, AMG Properties, ZLL, and ~~ZLL, APC’s consolidated~~its VIEs, CDSC, APC-LSMA, ICC, and Tag 8; and (6) APC-LSMA’s consolidated subsidiaries, Alpha Care, Accountable Health Care, and AMG.

Use of Estimates

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

Variable Interest Entities

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

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

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

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

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

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

2.The entity is established with non-substantive voting rights (i.e., where the entity deprives the majority economic interest holder(s) of voting rights); or

3.The equity holders, as a group, lack the characteristics of a controlling financial interest. Equity holders meet this criterion if they lack any of the following:

a.The power, through voting rights or similar rights, to direct the activities of the entity that most significantly influence the entity’s economic performance, as evidenced by:

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

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

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

iv.The right to receive the entity’s expected residual returns.

If the Company determines that any of the three characteristics of a VIE are met, the Company will conclude that the entity is a VIE and evaluate it for consolidation under the variable interest model.

Variable interest model

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

The Company operates as 1 reportable segment, the healthcare delivery segment, and implements and operates innovative healthcare models to create a patient-centered, physician-centric experience. The Company reports its consolidated financial statements in the aggregate, including all activities in 1 reportable segment.

Cash and Cash Equivalents

The Company’s cash and cash equivalents primarily consist of money market funds and certificates of deposit. The Company considers all highly liquid investments that are both readily convertible into known amounts of cash and mature within 90 days from their date of purchase to be cash equivalents.

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, cash equivalents, and restricted cash. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company’s deposit accounts with banks exceeded the FDIC’s insured limit by approximately ~~$301.7~~$282.4 million and ~~$294.9~~$285.9 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.

~~Restricted Cash~~

~~Restricted cash consists of cash held as collateral to secure standby letters of credits as required by certain contracts.~~

Investments in Marketable Securities

Investments in marketable securities consist of equity securities and certificates of deposit with various financial institutions. The appropriate classification of investments is determined at the time of purchase and such designation is reevaluated at each balance sheet date.

Certificates of deposit are reported at par value, plus accrued interest, with maturity dates from four months to 24 months. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, certificates of deposit amounted to approximately ~~$67.5~~$25.0 million and ~~$67.6~~$25.0 million, respectively. Investments in certificates of deposit are classified as Level 1 investments in the fair value hierarchy.

Equity securities are reported at fair value. These securities are classified as Level 1 in the valuation hierarchy, where quoted market prices from reputable third-party brokers are available in an active market and unadjusted. The trading volume of certain equity securities we hold is low, thus resulting in our determination that such equity securities do not have an active market with buyers and sellers ready to trade. Accordingly, we classify such equity securities as Level 2 in the valuation hierarchy, and their valuation is based on weighted average share prices from observable market data.

Equity securities held by the Company are primarily comprised of common stock of a payor partner that completed its ~~initial public offering(“IPO”)~~IPO in June 2021 and Clinigence Holdings, Inc. (“Clinigence”). The ~~shares~~common stock of a payor partner were acquired as a result of UCAP selling its 48.9% ownership interest in Universal Care, Inc. (“UCI”) in April 2020. As of September 30, 2021, the equity securities from the payor partner amounted to $57.0 million. As of December 31, 2020, prior to our payor partner’s IPO, the related investment balance was included in investments in privately held entities at its cost basis of $36.2 million in the accompanying consolidated balance sheets. In September 2021, ApolloMed and Clinigence entered into a stock purchase agreement in which ApolloMed purchased shares of common stock, warrants, and ~~warrants~~potentially additional common stock if certain metrics are not met (“contingent equity securities”) for $3.0 million. The common stock is included in investments in marketable ~~securities.~~securities and the warrants and contingent equity securities are classified as derivatives and included in other assets and prepaid expenses and other current assets, respectively, in the accompanying consolidated balance sheets. See Note 2 — “Basis of Presentation and Summary of Significant Accounting Policies - Derivative Financial Instruments” in the accompanying consolidated financial statements for information on the treatment of the derivative instruments.

As of March 31, 2022 and December 31, 2021, the equity securities were approximately $17.8 million and $28.4 million, respectively, in the accompanying consolidated balance sheets. For the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, the Company recognized unrealized losses of ~~$62.0 million and unrealized gains of $21.8~~$10.6 million on all equity securities in unrealized ~~gain or~~ loss on investments in the accompanying consolidated statements of ~~operations.~~income.

Receivables, Receivables – Related Parties, and Loan Receivable - Related Party

The Company’s receivables are comprised of accounts receivable, capitation and claims receivable, risk pool settlements, incentive receivables, management fee income, and other receivables. Accounts receivable are recorded and stated at the amount expected to be collected.

The Company’s receivables – related parties are comprised of risk pool settlements, management fee income and incentive receivables, and other receivables. Receivables – related parties are recorded and stated at the amount expected to be collected.

The Company’s loan receivable – related party consist of promissory notes from ~~payees~~a related party payee that ~~are expected to be collected between two to four years and accrue~~accrues interest per annum.

Capitation and claims receivables relate to each health plan’s capitation and are received by the Company in the month following the month of service. Risk pool settlements and incentive receivables mainly consist of the Company’s full risk pool receivable that is recorded quarterly based on reports received from the Company’s hospital partners and management’s estimate of the Company’s portion of the estimated risk pool surplus for open performance years. Settlement of risk pool surplus or deficits occurs approximately 18 months after the risk pool performance year is completed. Other receivables consist of recoverable claims paid related to the ~~2020~~2021 APAACO performance year to be administered following instructions from CMS for the NGACO program, receivables from GPDC capitation revenue for the 2022 performance year, fee-for-services (“FFS”) reimbursement for patient care, certain expense reimbursements, transportation reimbursements from the hospitals, and stop-loss insurance premium reimbursements.

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 credit worthiness, 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 regards 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 ~~operations~~income present disaggregated revenue by service type. The following table presents disaggregated revenue generated by payor type for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021

Commercial	Commercial	$	36,960	$	25,041	$	102,522	$	75,233	Commercial	$	42,140	$	32,266
Medicare	Medicare	103,919		79,649		232,869		206,567		Medicare	133,659		64,677
Medicaid	Medicaid	74,262		65,849		212,408		200,746		Medicaid	71,663		69,664
Other third parties	Other third parties	11,976		9,584		31,016		27,851		Other third parties	15,796		9,451
Revenue	Revenue	$	227,117	$	180,123	$	578,815	$	510,397	Revenue	$	263,258	$	176,058

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021

Payor A	Payor A	13.8	%	12.7	%	13.1	%	12.1	%	Payor A	*		12.8	%
Payor B	Payor B	*		*		10.1	%	10.1	%	Payor B	*		10.5	%
Payor C	Payor C	13.3	%	16.2	%	15.4	%	17.0	%	Payor C	10.6	%	16.9	%
Payor D	Payor D	17.1	%	16.7	%	12.1	%	14.2	%	Payor D	30.4	%	*

* 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 September 30,
2021 As of December 31,
2020
Payor C 13.7 % *
Payor F 42.0 % 43.9 %
Payor G 25.8 % 36.5 %


	As of March 31, 2022		As of December 31, 2021

Payor D	19.0	%	*
Payor E	28.0	%	45.0	%
Payor F	19.0	%	30.0	%

* Less than 10% of total receivables and receivables — related parties, net

Fair Value Measurements of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, fiduciary cash, restricted cash, investment in marketable securities, receivables, loans receivable, accounts payable, certain accrued expenses, finance lease obligations, and long-term debt. The carrying values of the financial instruments classified as current in the accompanying consolidated balance sheets are considered to be at their fair values, due to the short maturity of these instruments. The carrying amounts of finance lease obligations and long-term debt approximate fair value as they bear interest at rates that approximate current market rates for debt with similar maturities and credit quality.

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurement (“ASC 820”), applies to all financial assets and financial liabilities that are measured and reported on a fair value basis and requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. ASC 820 establishes a fair value hierarchy for disclosure of the inputs to valuations used to measure fair value.

This hierarchy prioritizes the inputs into three broad levels as follows:

Level 1 — Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date.

Level 2 — Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates and yield curves), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 — Unobservable inputs that reflect assumptions about what market participants would use in pricing the asset or liability. These inputs would be based on the best information available, including the Company’s own data.

The carrying amounts and fair values of the Company’s financial instruments as of ~~September 30, 2021,~~March 31, 2022, are presented below (in thousands):


		Fair Value Measurements									Fair Value Measurements
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets	Assets									Assets
Money market funds*	Money market funds*	$	89,678	$	—	$	—	$	89,678	Money market funds*	$	96,213	$	—	$	—	$	96,213
Marketable securities – certificates of deposit	Marketable securities – certificates of deposit	67,540		—		—		67,540		Marketable securities – certificates of deposit	25,046		—		—		25,046
Marketable securities – equity securities	Marketable securities – equity securities	57,108		3,910		—		61,018		Marketable securities – equity securities	13,577		4,270		—		17,847
Contingent equity securities										Contingent equity securities	—		—		4,270		4,270
Warrants	Warrants	—		1,045		—		1,045		Warrants	—		1,135		—		1,135
Interest rate swaps										Interest rate swaps	—		522		—		522
Total assets	Total assets	$	214,326	$	4,955	$	—	$	219,281	Total assets	$	134,836	$	5,927	$	4,270	$	145,033

Liabilities	Liabilities									Liabilities
Interest rate swaps		$	—	$	1,010	$	—	$	1,010
APCMG contingent consideration	APCMG contingent consideration	—		—		1,000		1,000		APCMG contingent consideration	—		—		1,000		1,000
Total liabilities	Total liabilities	$	—	$	1,010	$	1,000	$	2,010	Total liabilities	$	—	$	—	$	1,000	$	1,000

* Included in cash and cash equivalents

The carrying amounts and fair values of the Company’s financial instruments as of December 31, ~~2020,~~2021, are presented below (in thousands):


		Fair Value Measurements									Fair Value Measurements
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets	Assets									Assets
Money market funds*		$	115,769	$	—	$	—	$	115,769
Money market accounts*										Money market accounts*	$	114,665	$	—	$	—	$	114,665
Marketable securities – certificates of deposit	Marketable securities – certificates of deposit	67,637		—		—		67,637		Marketable securities – certificates of deposit	25,024		—		—		25,024
Marketable securities – equity securities	Marketable securities – equity securities	58		—		—		58		Marketable securities – equity securities	24,123		4,270		—		28,393
Total		$	183,464	$	—	$	—	$	183,464
Contingent equity securities										Contingent equity securities	—		—		4,270		4,270
Warrants										Warrants	—		1,145		—		1,145
Total assets										Total assets	$	163,812	$	5,415	$	4,270	$	173,497

Liabilities										Liabilities
Interest rate swaps										Interest rate swaps	$	—	$	1,071	$	—	$	1,071
APCMG contingent consideration										APCMG contingent consideration	$	—	$	—	$	1,000	$	1,000
Total liabilities										Total liabilities	$	—	$	1,071	$	1,000	$	2,071

* Included in cash and cash equivalents

There have been no changes in Level 1, Level 2, or Level 3 classification and no changes in valuation techniques for these assets for the ~~nine~~three months ended ~~September 30, 2021.~~

March 31, 2022.

Intangible Assets and Long-Lived Assets

Intangible assets with finite lives include network-payor relationships, management contracts, ~~and~~ member relationships, subscriber relationships, and developed technology and are stated at cost, less accumulated amortization and impairment losses. These intangible assets are amortized onusing the accelerated method ~~using~~based on the discounted cash flow ~~rate.~~rate or using the straight-line method.

Intangible assets with finite lives also include a patient management platform, as well as trade names and trademarks, whose valuations were determined using the cost to recreate method and the relief from royalty method, respectively. These assets are stated at cost, less accumulated amortization and impairment losses, and are amortized using the straight-line method.

Finite-lived intangibles and long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the expected future cash flows from the use of such assets (undiscounted and without interest charges) are less than the carrying value, a write-down would be recorded to reduce the carrying value of the asset to its estimated fair value. Fair value is determined based on appropriate valuation techniques. The Company determined that there was no impairment of its finite-lived intangible or long-lived assets during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021.

Goodwill and Indefinite-Lived Intangible Assets

Under ASC 350, Intangibles – Goodwill and Other, goodwill and indefinite-lived intangible assets are reviewed at least annually for impairment.

At least annually, at the Company’s fiscal year-end, or sooner if events or changes in circumstances indicate that an impairment has occurred, the Company performs a qualitative assessment to determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount as a basis for determining whether it is necessary to complete quantitative impairment assessments for each of the Company’s 3 reporting units (1) management services, (2) IPAs, and (3) accountable care organizations. The Company is required to perform a quantitative goodwill impairment test only if the conclusion from the qualitative assessment is that it is more likely than not that a reporting unit’s fair value is less than the carrying value of its assets. Should this be the case, a quantitative analysis is performed to identify whether a potential impairment exists by comparing the estimated fair values of the reporting units with their respective carrying values, including goodwill.

An impairment loss is recognized if the implied fair value of the asset being tested is less than its carrying value. In this event, the asset is written down accordingly. The fair values of goodwill are determined using valuation techniques based on estimates, judgments, and assumptions management believes are appropriate in the circumstances.

At least annually, indefinite-lived intangible assets are tested for impairment. Impairment for intangible assets with indefinite lives exists if the carrying value of the intangible asset exceeds its fair value. The fair values of indefinite-lived intangible assets are determined using valuation techniques based on estimates, judgments and assumptions management believes are appropriate in the circumstances.

The Company had no impairment of its goodwill or indefinite-lived intangible assets during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021.

Investments in Other Entities — Equity Method

The Company accounts for certain investments using the equity method of accounting when it is determined that the investment provides the Company with the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if the Company has an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investee’s board of directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the investment, originally recorded at cost, is adjusted to recognize the Company’s share of net earnings or losses of the investee and is recognized in the accompanying consolidated statements of ~~operations~~income under income (loss) from equity method investments and also is adjusted by contributions to, and distributions from, the investee. Equity method investments are subject to impairment evaluation. There was no impairment loss recorded related to equity method investments for the years ended March 31, 2022 and 2021.

Investments in Privately Held Entities

The Company accounts for certain investments using the cost method of accounting when it is determined that the investment provides the Company with little or no influence over the investee. Under the cost method of accounting, the investment is measured at cost, adjusted for observable price changes and impairments, with changes recognized in net income. The

investments in privately held entities that do not report net asset value are subject to qualitative assessment for indicators of impairments.

Medical Liabilities

APC, Alpha Care, Accountable Health Care, and APCMG (“consolidated IPAs”) and APAACO are responsible for integrated care that the associated physicians and contracted hospitals provide to their enrollees. These IPAs and APAACO provide integrated care to HMOs, Medicare, and Medi-Cal enrollees through a network of contracted providers under sub-capitation and direct patient service arrangements. Medical costs for professional and institutional services rendered by contracted providers are recorded as cost of services expenses in the accompanying consolidated statements of ~~operations.~~income.

An estimate of amounts due to contracted physicians, hospitals, and other professional providers is included in medical liabilities in the accompanying consolidated balance sheets. Medical liabilities include claims reported as of the balance sheet date and estimated IBNR claims. Such estimates are developed using actuarial methods and are based on numerous variables, including the utilization of healthcare services, historical payment patterns, cost trends, product mix, seasonality, changes in membership, and other factors. The estimation methods and the resulting reserves are periodically reviewed and updated. Many of the medical contracts are complex in nature and may be subject to differing interpretations regarding amounts due for the provision of various services. Such differing interpretations may not come to light until a substantial period of time has passed following the contract implementation.

Fiduciary Cash and Payable

The consolidated IPAs collect cash from health plans on behalf of their sub-IPAs and providers and pass the money through to them. The fiduciary cash balance of ~~$8.8~~$6.3 million and ~~$9.6~~$10.5 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, is presented within prepaid expenses and other current assets and the related payable is presented as fiduciary payable in the accompanying consolidated balance sheets.

Derivative Financial Instruments

Interest Rate Swap Agreements

The Company is exposed to interest rate risk on its floating-rate debt. The Company has entered into interest rate swap agreements to effectively convert its floating-rate debt to a fixed-rate basis. The principal objective of these contracts is to eliminate or reduce the variability of the cash flows in interest payments associated with the Company’s floating-rate debt, thus reducing the impact of interest rate changes on future interest payment cash flows. Refer to Note 9 for further information on our debt. Interest rate swap agreements are not designated as hedging instruments. Changes in the fair value on these contracts are recognized as ~~interest expense~~unrealized gain or loss on investments in the accompanying consolidated statements of ~~operations.~~income and reflected in the accompanying consolidated statements of cash flows as unrealized gain or loss on interest rate swaps.

The estimated fair value of the interest rate swap agreements was determined using Level 2 inputs. ~~The~~As of March 31, 2022 the fair value of the ~~derivative instrument as~~interest rate swap was $0.5 million and is presented within other assets in the accompanying consolidated balance sheets. As of ~~September 30,~~December 31, 2021, the fair value of the interest rate swap was ~~$1.0~~$1.1 million and is presented within other long-term liabilities in the accompanying consolidated balance sheets.

Warrants

In September 2021, ApolloMed and Clinigence entered into a stock purchase agreement in which ApolloMed purchased shares of common stock and warrants for $3.0 million. The purchased warrants are considered derivatives but are not designated as hedging instruments. Changes in the fair value on these contracts are recognized as unrealized gain or loss on investments in the accompanying consolidated statements of ~~operations.~~income and the accompanying consolidated statements of cash flows. The warrants are classified as a Level 2 instrument as the estimated fair value of the warrants were determined using the Black-Scholes option pricing model and inputs from observable market data. ~~The~~As of March 31, 2022 and December 31, 2021, the fair value of the derivative instrument was $1.1 million and $1.1 million, respectively, and is presented within other assets in the accompanying consolidated balance sheets.

Contingent Equity Securities

In addition to the common stock and warrants purchased under the stock purchase agreement between ApolloMed and Clinigence, ApolloMed is entitled to additional common stock if Clinigence does not pay NMM management fees exceeding a threshold by the end of December 31, 2022. The contingent equity securities are considered derivatives but are not designated as hedging instruments. Changes in the fair value on these contracts are recognized as unrealized gain or loss on investments in the accompanying consolidated statements of ~~September 30,~~income and the accompanying consolidated statements of cash flows. The Company determined the fair value of the contingent equity security using a probability-weighted model, which includes significant unobservable inputs (Level 3). Specifically, the Company considered various scenarios of recognizing management fees and assigned probabilities to each such scenario in determining fair value. As of March 31, 2022 and December 31, 2021, the contingent consideration was ~~$1.0~~valued at $4.3 million, and is 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.

Nature of Services and Revenue Streams

Revenue primarily consists of capitation revenue, risk pool settlements and incentives, ~~NGACO All-Inclusive Population-Based Payments (“AIPBP”),~~GPDC revenue, management fee income, and FFS revenue. Revenue is recorded in the period in which services are rendered or the period in which the Company is obligated to provide services. The form of billing and related risk of collection for such services may vary by type of revenue and the customer. The following is a summary of the principal forms of the Company’s billing arrangements and how revenue is recognized for each.

Capitation, Net

Managed care revenues of the Company consist primarily of capitated fees for medical services provided by the Company under a capitated arrangement directly made with various managed care providers including HMOs. Capitation revenue is typically prepaid monthly to the Company based on the number of enrollees selecting the Company as their healthcare provider. Capitation revenue is recognized in the month in which the Company is obligated to provide services to plan enrollees under contracts with various health plans. Minor ongoing adjustments to prior months’ capitation, primarily arising from contracted HMOs finalizing their monthly patient eligibility data for additions or subtractions of enrollees, are recognized in the month they are communicated to the Company. Additionally, Medicare pays capitation using a “Risk Adjustment” model, which compensates managed care organizations and providers based on the health status (acuity) of each individual enrollee. Health plans and providers with higher acuity enrollees will receive more and those with lower acuity enrollees will receive less. Under Risk Adjustment, capitation is determined based on health severity, measured using patient encounter data. Capitation is paid on a monthly basis based on data submitted for the enrollee for the preceding year and is adjusted in subsequent periods after the final data is compiled. Positive or negative capitation adjustments are made for Medicare enrollees with conditions requiring more or less healthcare services than assumed in the interim payments. Since the Company cannot reliably predict these adjustments, periodic changes in capitation amounts earned as a result of Risk Adjustment are recognized when those changes are communicated by the health plans to the Company.

PMPM managed care contracts generally have a term of one year or longer. All managed care contracts have a single performance obligation that constitutes a series for the provision of managed healthcare services for a population of enrolled members for the duration of the contract. The transaction price for PMPM contracts is variable as it primarily includes PMPM fees associated with unspecified membership that fluctuates throughout the contract. In certain contracts, PMPM fees also include adjustments for items such as performance incentives, performance guarantees and risk sharing. The Company generally estimates the transaction price using the most likely amount methodology and amounts are only included in the net transaction price to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved. The majority of the Company’s net PMPM transaction price relates specifically to the Company’s efforts to transfer the service for a distinct increment of the series (e.g., day or month) and is recognized as revenue in the month in which members are entitled to service.

GPDC Capitation Revenue

CMS contracts with Direct Contracting Entities (“DCEs”), which is composed of health care providers operating under a common legal structure and accepts financial accountability for the overall quality and cost of medical care furnished to Medicare FFS beneficiaries aligned to the entity. The combination of the FFS model and the GPDC model changes the distribution of responsibilities, risks, costs, and rewards among CMS, DCEs, and providers. By entering into a contract with CMS, a DCE voluntarily takes on operational, financial, and legal responsibilities and risks that no party has, individually or collectively, under the existing FFS model. Each DCE bears the economic costs, and reaps the economic rewards, of fulfilling its responsibilities and managing its risks as a DCE. APAACO has applied, and been accepted, to participate in the GPDC Model for Performance Year 2022, beginning January 1, 2022.

For each performance year, CMS will pay a total benchmark amount, determined unilaterally by CMS in advance but subject to prospective adjustments throughout the year, for the totality of care provided to the DCE’s population of aligned beneficiaries over the course of that year. The benchmark is net of a quality withholding applied by CMS. At the end of each performance year, a portion, or all, of the quality withholding can be earned based on APAACO’s performance. GPDC capitation revenue is recognized based on the estimated transaction price to transfer the service for a distinct increment of the series (i.e. month) and is recognized net of quality incentives/penalties.

Risk Pool Settlements and Incentives

APC enters into full-risk capitation arrangements with certain health plans and local hospitals, which are administered by a third party, where the hospital is responsible for providing, arranging, and paying for institutional risk and APC is responsible for providing, arranging and paying for professional risk. Under a full-risk pool sharing agreement, APC generally receives a percentage of the net surplus from the affiliated hospital’s risk pools with HMOs after deductions for the affiliated hospital’s costs. Advance settlement payments are typically made quarterly in arrears if there is a surplus. The Company’s risk pool settlements under arrangements with health plans and hospitals are recognized using the most likely amount methodology and amounts are only included in revenue to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved. The assumptions for historical margin, IBNR completion factors and constraint percentages were used by management in applying the most likely amount methodology.

Under capitated arrangements with certain HMOs, APC participates in one or more shared risk arrangements relating to the provision of institutional services to enrollees and thus can earn additional revenue or incur losses based upon the enrollee utilization of institutional services. Shared risk arrangements are entered into with certain health plans, which are administered by the health plan, where APC is responsible for rendering professional services, but the health plan does not enter into a capitation arrangement with a hospital and therefore the health plan retains the institutional risk. Shared risk deficits, if any, are not payable until and unless (and only to the extent) risk-sharing surpluses are generated. At the termination of the HMO contract, any accumulated deficit will be extinguished.

The Company’s risk pool settlements under arrangements with HMOs are recognized, using the most likely methodology, and only included in revenue to the extent that it is probable that a significant reversal of cumulative revenue will not occur. Given the lack of access to the health plans’ data and control over the members assigned to APC, the adjustments and/or the withheld amounts are unpredictable and as such APC’s risk share revenue is deemed to be fully constrained until APC is notified of the

amount by the health plan. Final settlement of risk pools for prior contract years generally occur in the third or fourth quarter of the following year.

In addition to risk-sharing revenues, the Company also receives incentives under “pay-for-performance” programs for quality medical care, based on various criteria. As an incentive to control enrollee utilization and to promote quality care, certain HMOs have designed quality incentive programs and commercial generic pharmacy incentive programs to compensate the Company for its efforts to improve the quality of services and efficient and effective use of pharmacy supplemental benefits provided to HMO members. The incentive programs track specific performance measures and calculate payments to the Company based on the performance measures. The Company’s incentives under “pay-for-performance” programs are recognized using the most likely methodology. However, as the Company does not have sufficient insight from the health plans on the amount and timing of the shared risk pool and incentive payments these amounts are considered to be fully constrained and only recorded when such payments are known and/or received.

Generally, for the foregoing arrangements, the final settlement is dependent on each distinct day’s performance within the annual measurement period, but cannot be allocated to specific days until the full measurement period has occurred and performance can be assessed. As such, this is a form of variable consideration estimated at contract inception and updated through the measurement period (i.e., the contract year), to the extent the risk of reversal does not exist and the consideration is not constrained.

NGACO AIPBP Revenue

For each performance year, the Company must submit to CMS its selections for risk arrangement, the amount of the profit/loss cap, alternative payment mechanism, benefits enhancements, if any, and its decision regarding voluntary alignment under the NGACO Model. The Company must obtain CMS consent before voluntarily discontinuing any benefit enhancement during a performance year.

Under the NGACO Model, CMS aligns beneficiaries to the Company to manage ~~(direct~~direct care and pay ~~providers)~~providers based on a budgetary benchmark established with CMS. The Company is responsible for managing medical costs for these beneficiaries. The beneficiaries will receive services from physicians and other medical service providers that are both in-network and out-of-network. The Company receives capitation-like AIPBP payments from CMS on a monthly basis to pay claims from in-network providers. The Company records such AIPBPs received from CMS as revenue as the Company is primarily responsible and liable for managing the patient care and for satisfying provider obligations, is assuming the credit risk for the services provided by in-network providers through its arrangement with CMS, and has control of the funds, the services provided, and the process by which the providers are ultimately paid. Claims from out-of-network providers are processed and paid by CMS, while claims from APAACO’s in-network contracted providers are paid by APAACO. The Company’s shared savings or losses in managing the services provided by out-of-network providers are generally determined on an annual basis after reconciliation with CMS. Pursuant to the Company’s risk share agreement with CMS, the Company will be eligible to receive the savings or be liable for the deficit according to the budget established by CMS based on the Company’s efficiency in managing how the beneficiaries aligned to the Company by CMS are served by in-network and out-of-network providers. The Company’s savings or losses on providing such services are both capped by CMS, and are subject to significant estimation risk, whereby payments can vary significantly depending upon certain patient characteristics and other variable factors. Accordingly, the Company recognizes such surplus or deficit upon substantial completion of reconciliation and determination of the amounts. The Company records NGACO AIPBP revenues monthly. Excess AIPBPs over claims paid, plus an estimate for the related IBNR claims (see Note 8), are deferred and recorded as a liability until actual claims are paid or incurred. CMS will determine if there were any excess AIPBPs for the performance year and the excess is refunded to CMS.

For each performance year, CMS pays the Company in accordance with the alternative payment mechanism, if any, for which CMS has approved the Company, the risk arrangement for which the Company has been approved by CMS, and as otherwise provided in an NGACO Participation Agreement between APAACO and CMS (the “Participation Agreement”). Following the end of each performance year and at such other times as may be required under the Participation Agreement, CMS will issue a settlement report to the Company setting forth the amount of any shared savings or shared losses and the amount of other monies. If CMS owes the Company shared savings or other monies, CMS will pay the Company in full within 30 days after the date on which the relevant settlement report is deemed final, except as provided in the Participation Agreement. If the Company owes CMS shared losses or other monies owed as a result of a final settlement, the Company will pay CMS in full within 30 days after the relevant settlement report is deemed final. If the Company fails to pay the amounts due to CMS in full within 30 days after the date of a demand letter or settlement report, CMS will assess simple interest on the unpaid balance at the rate applicable to other Medicare debts under current provisions of law and applicable regulations. In addition, CMS and the U.S. Department of the Treasury may use any applicable debt collection tools available to collect any amounts owed by the Company.

The Company participates in the AIPBP track of the NGACO Model. Under the AIPBP track, CMS estimates the total annual expenditures for APAACO’s assigned patients and pays that projected amount to the Company in monthly installments, and the Company is responsible for all Part A and Part B costs for in-network participating providers and preferred providers contracted by the Company to provide services to the assigned patients.

As APAACO does not have sufficient insight into the financial performance of the shared risk pool with CMS because of unknown factors related to IBNR claims, risk adjustment factors, and stop loss provisions, among other factors, an estimate cannot be developed. Due to these limitations, APAACO cannot determine the amount of surplus or deficit that will likely be recognized in the future and therefore this shared risk pool revenue is considered fully constrained. ~~Pursuant to~~With the ~~Participation Agreement,~~ending of the NGACO Model on December 31, 2021, the Company ~~recognized $21.8 million related~~no longer receives AIPBPs but remains eligible to recognize any shared savings ~~from the 2020 performance years. The settlement was finalized in October 2021 and recorded as revenue in risk pool settlements and incentives in the accompanying consolidated statements of operations~~or loss for ~~the three and nine months ended September 30, 2021.~~

~~For~~ performance year 2021 upon issuance of the ~~Company receives monthly AIPBP payments at a rate of approximately $8.0 million per month~~settlement report from CMS, and must comply with all terms and conditions in the Participation Agreement and various regulatory requirements to be eligible to participate in the AIPBP mechanism and/or NGACO Model. The Company has received approximately $23.9 million and $72.0 million in total AIPBP payments for the three and nine months ended September 30, 2021, respectively, of which $17.6 million and $48.9 million has been recognized as revenue for the three months and nine months ended September 30, 2021, respectively.CMS.

Management Fee Income

Management fee income encompasses fees paid for management, physician advisory, healthcare staffing, administrative and other non-medical services provided by the Company to IPAs, hospitals, and other healthcare providers. Such fees may be in the form of billings at agreed-upon hourly rates, percentages of gross revenue or fee collections, or amounts fixed on a monthly, quarterly, or annual basis. The revenue may include variable arrangements measuring factors such as hours staffed, patient visits, or collections per visit against benchmarks, and, in certain cases, may be subject to achieving quality metrics or fee collections. The Company recognizes such variable supplemental revenues in the period when such amounts are determined to be fixed and therefore contractually obligated as payable by the customer under the terms of the applicable agreement.

The Company provides a significant service of integrating the services selected by the Company’s clients into one overall output for which the client has contracted. Therefore, such management contracts generally contain a single performance obligation. The nature of the Company’s performance obligation is to stand ready to provide services over the contractual period. Also, the Company’s performance obligation forms a series of distinct periods of time over which the Company stands ready to perform. The Company’s performance obligation is satisfied as the Company completes each period’s obligations.

Consideration from management contracts is variable in nature because the majority of the fees are generally based on revenue or collections, which can vary from period to period. The Company has control over pricing. Contractual fees are invoiced to the Company’s clients generally monthly and payment terms are typically due within 30 days. The variable consideration in the Company’s management contracts meets the criteria to be allocated to the distinct period of time to which it relates because (i) it is due to the activities performed to satisfy the performance obligation during that period and (ii) it represents the consideration to which the Company expects to be entitled.

The Company’s management contracts generally have long terms (e.g., 10 years), although they may be terminated earlier under the terms of the applicable contracts. Since the remaining variable consideration will be allocated to a wholly unsatisfied promise that forms part of a single performance obligation recognized under the series guidance, the Company has applied the optional exemption to exclude disclosure of the allocation of the transaction price to remaining performance obligations.

Fee-for-Service Revenue

FFS revenue represents revenue earned under contracts in which the professional component of charges for medical services rendered by the Company’s affiliated physician-owned medical groups are billed and collected from third-party payors, hospitals, and patients. FFS revenue related to the patient care services is reported net of contractual allowances and policy discounts and is recognized in the period in which the services are rendered to specific patients. All services provided are

expected to result in cash flows and are therefore reflected as net revenue in the consolidated financial statements. The recognition of net revenue (gross charges, less contractual allowances) from such services is dependent on such factors as proper completion of medical charts following a patient visit, the forwarding of such charts to the Company’s billing center for medical coding and entering into the Company’s billing system, and the verification of each patient’s submission or representation at the time services are rendered as to the payor(s) responsible for payment of such services. Revenue is recorded

based on the information known at the time of entering of such information into the Company’s billing systems, as well as an estimate of the revenue associated with medical services.

The Company is responsible for confirming member eligibility, performing program utilization review, potentially directing payment to the provider and accepting the financial risk of loss associated with services rendered, as specified within the Company’s client contracts. The Company has the ability to adjust contractual fees with clients and possess the financial risk of loss in certain contractual obligations. These factors indicate the Company is the principal and, as such, the Company records gross fees contracted with clients in revenues.

Consideration from FFS arrangements is variable in nature because fees are based on patient encounters, credits due to clients and reimbursement of provider costs, all of which can vary from period to period. Patient encounters and related episodes of care and procedures qualify as distinct goods and services, provided simultaneously together with other readily available resources, in a single instance of service, and thereby constitute a single performance obligation for each patient encounter and, in most instances, occur at readily determinable transaction prices. As a practical expedient, the Company adopted a portfolio approach for the FFS revenue stream to group together contracts with similar characteristics and analyze historical cash collections trends. The contracts within the portfolio share the characteristics conducive to ensuring that the results do not materially differ under the new standard if it were to be applied to individual patient contracts related to each patient encounter.

Estimating net FFS revenue is a complex process, largely due to the volume of transactions, the number and complexity of contracts with payors, the limited availability at times of certain patient and payor information at the time services are provided, and the length of time it takes for collections to fully mature. These expected collections are based on fees and negotiated payment rates in the case of third-party payors, the specific benefits provided for under each patient’s healthcare plans, mandated payment rates in the case of Medicare and Medicaid programs, and historical cash collections (net of recoveries) in combination with expected collections from third-party payors.

The relationship between gross charges and the transaction price recognized is significantly influenced by payor mix, as collections on gross charges may vary significantly, depending on whether the patients, to whom services are provided, in the period are insured and the contractual relationships with those payors. Payor mix is subject to change as additional patient and payor information is obtained after the period services are provided. The Company periodically assesses the estimates of unbilled revenue, contractual adjustments and discounts, and payor mix by analyzing actual results, including cash collections, against estimates. Changes in these estimates are charged or credited to the consolidated statements of ~~operations~~income in the period that the assessment is made. Significant changes in payor mix, contractual arrangements with payors, specialty mix, acuity, general economic conditions, and healthcare coverage provided by federal or state governments or private insurers may have a significant impact on estimates and significantly affect the results of operations and cash flows.

Contract Assets

Revenues and receivables are recognized once the Company has satisfied its performance obligation. Accordingly, the Company’s contract assets are comprised of receivables and receivables – related parties.

The Company’s billing and accounting systems provide historical trends of cash collections and contractual write-offs, accounts receivable aging, and established fee adjustments from third-party payors. These estimates are recorded and monitored monthly as revenues are recognized. The principal exposure for uncollectible fee for service visits is from self-pay patients and, to a lesser extent, for co-payments and deductibles from patients with insurance.

Contract Liabilities (Deferred Revenue)

Contract liabilities are recorded when cash payments are received in advance of the Company’s performance, or in the case of the Company’s NGACO, the excess of AIPBP capitation received and the actual claims paid or incurred. The Company’s contract liability balance was ~~$17.3~~$20.0 million and ~~$13.0~~$16.8 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, and is presented within accounts payable and accrued expenses in the accompanying consolidated balance sheets. During the ~~nine~~three months ended ~~September 30, 2021, $0.4~~March 31, 2022, $0.5 million of the Company’s contract liability accrued in ~~2020~~2021 has been recognized as revenue.

Income Taxes

2627

Federal and state income taxes are computed at currently enacted tax rates less tax credits using the asset and liability method. Deferred taxes are adjusted both for items that do not have tax consequences and for the cumulative effect of any changes in tax rates from those previously used to determine deferred tax assets or liabilities. Tax provisions include amounts that are currently payable, changes in deferred tax assets and liabilities that arise because of temporary differences between the timing of when items of income and expense are recognized for financial reporting and income tax purposes, changes in the recognition of tax positions and any changes in the valuation allowance caused by a change in judgment about the realizability of the related deferred tax assets. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.

The Company uses a recognition threshold of more-likely-than-not and a measurement attribute on all tax positions taken or expected to be taken in a tax return in order to be recognized in the consolidated financial statements. Once the recognition threshold is met, the tax position is then measured to determine the actual amount of benefit to recognize in the consolidated financial statements.

Share-Based Compensation

The Company maintains a stock-based compensation program for employees, non-employees, directors, and consultants. The value of share-based awards ~~such as options,~~ is recognized as compensation expense on a cumulative straight-line basis over the vesting period of the awards, adjusted for ~~expected forfeitures.~~forfeitures as they occur. From time to time, the Company issues shares of its common stock to its employees, directors, and consultants, which shares may be subject to the Company’s repurchase right (but not obligation) that lapses based on time-based and performance-based vesting schedules. The fair value of options granted are determined using the Black-Scholes option pricing model and include several assumptions, including expected term, expected volatility, expected dividends, and risk-free rates. The expected term is presumed to be the midpoint between the vesting date and the end of the contractual term. The expected stock price volatility is determined based on an average of historical volatility. The expected dividend yield is based on the Company’s expected dividend payouts. The risk-free interest rate is based on the U.S. Constant Maturity curve over the expected term of the option at the time of grant.

Basic and Diluted Earnings Per Share

Basic earnings per share is computed by dividing net income attributable to holders of the Company’s common stock by the weighted average number of shares of common stock outstanding during the periods presented. Diluted earnings per share is computed using the weighted average number of shares of common stock outstanding, plus the effect of dilutive securities outstanding during the periods presented, using the treasury stock method. Refer to Note 15 for a discussion of shares treated as treasury shares for accounting purposes.

~~Noncontrolling~~Non-controlling Interests

The Company consolidates entities in which the Company has a controlling financial interest. The Company consolidates subsidiaries in which the Company holds, directly or indirectly, more than 50% of the voting rights, and VIEs in which the Company is the primary beneficiary. ~~Noncontrolling~~Non-controlling interests represent third-party equity ownership interests (including equity ownership interests held by certain VIEs) in the Company’s consolidated entities. Net income attributable to ~~noncontrolling~~non-controlling interests is disclosed in the consolidated statements of ~~operations.~~income.

Mezzanine Equity

Pursuant to APC’s shareholder agreements, in the event of a disqualifying event, as defined in the agreements, APC could be required to repurchase its shares from the respective shareholders based on certain triggers outlined in the shareholder agreements. As the redemption feature of the shares is not solely within the control of APC, the equity of APC does not qualify as permanent equity and has been classified as mezzanine or temporary equity. Accordingly, the Company recognizes ~~noncontrolling~~non-controlling interests in APC as mezzanine equity in the consolidated financial statements. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, APC’s shares were not redeemable, nor was it probable the shares would become redeemable.

Leases

The Company determines if an arrangement is a lease at its inception. The expected term of the lease used for computing the lease liability and right-of-use asset and determining the classification of the lease as operating or financing may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company elected practical expedients for ongoing accounting that is provided by the new standard comprised of the following: (1) the election for classes of underlying asset to not separate non-lease components from lease components, and (2) the election for short-term lease recognition exemption for all leases under a 12-month term. The present value of the lease payments is calculated using a rate implicit in the lease, when readily determinable. However, as most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate to determine the present value of the lease payments for the majority of its leases.

~~Beneficial Interest~~

In April 2020, when UCAP, a 100% owned subsidiary of APC, sold its 48.9% ownership interest in UCI, APC received a beneficial interest in the equity method investment sold, pursuant to the terms of the stock purchase agreement. The estimated fair value of such interest in April 2020, was $15.7 million and is included in other assets in the accompanying consolidated balance sheets. The beneficial interest is the result of a gross margin provision in the stock purchase agreement which entitles UCAP to potentially receive additional cash and preferred shares (currently held in an escrow account with cash of $15.6 million and preferred shares with an estimated fair value of $6.4 million, total estimated fair value of $22.0 million on the date of sale) based on the gross margin of UCI for calendar year 2020 as measured against a target. The amount to be received varies dependent upon the gross margin as compared to the target but cannot exceed the amounts that are in the escrow account. Additionally, the stock purchase agreement includes a tangible net equity provision that may result in the receipt or payment of additional amounts based on a comparison of final tangible net equity of UCI on the date of sale (determined with the benefit of one year of hindsight) as compared to the estimated tangible net equity at the time of sale. It is expected that settlement of the beneficial interest will begin in the second half of 2021. The Company determined the fair value of the beneficial interest using an income approach which includes significant unobservable inputs (Level 3). Specifically, the Company utilized a probability-weighted discounted cash flow model using a risk-free treasury rate to estimate fair value which considered various scenarios of gross margin adjustment and the impact of each adjustment to the expected proceeds from the escrow account, and assigned probabilities to each such scenario in determining fair value. The gross margin adjustment is defined as three times any deficit in actual gross margin of UCI for the year ended December 31, 2020, below a target gross margin unless such deficit is within a specific dollar amount. In June 2021, UCI’s gross margin for the year ended December 31, 2020, was assessed and beneficial interest was concluded to not be collectible. The $15.7 million was written off and expensed in other income in the accompanying consolidated statements of operations for the nine months ended September 30, 2021.

Recent Accounting Pronouncements

In ~~December 2019,~~October 2021, the FASB issued Accounting Standards Update (“ASU”) No. ~~2019-12,~~ 2021-08, “~~Income Taxes~~Business Combinations (Topic ~~740)~~805): ~~Simplifying the~~ Accounting for ~~Income Taxes~~Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU ~~2019-12”~~2021-08”). This ASU ~~simplifies~~requires the ~~accounting for income taxes by eliminating certain exceptions to~~entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 as if it had originated the ~~guidance in ASC 740~~ ~~Income Taxes~~ ~~related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.~~contracts. The amendments in this ASU are effective for fiscal years beginning after December 15, ~~2020,~~2022, and interim periods within those fiscal years. The Company adopted ASU ~~2019-12~~2021-08 on January 1, ~~2021.~~2022. The adoption of ASU ~~2019-12~~2021-08 did not have a material impact on the consolidated financial statements.

~~Other than~~

With the ~~standard~~exception of the new standards discussed above, there have been no other new accounting pronouncements that have significance, or potential significance, to the Company’s financial position, results of operations, and cash flows.

Recent Accounting Pronouncements Not Yet Adopted

There have been no other new accounting pronouncements that have significance, or potential significance, to the Company’s financial position, results of operations, and cash flows.

3. Business Combinations and Goodwill

~~APCMG~~Orma Health, Inc., and Provider Growth Solutions LLC (together, “Orma Health”)

On January 27, 2022, the Company acquired 100% of the capital stock of Orma Health, Inc., and Provider Growth Solutions, LLC (together, “Orma Health”) for $1.0 million in cash and $1.0 million in the Company’s capital stock. Orma Health’s real-time Clinical AI platform ingests data from multiple sources and utilizes advanced risk-stratification models to identify patients for various clinical programs, including remote patient monitoring (“RPM”), mental health support, chronic disease management, and more. Its clinical platform is also deeply integrated with Orma Health’s proprietary RPM ecosystem, which consists of smart health devices and a suite of technology tools to help manage patients’ health.

APCMG

In July ~~31,~~ 2021, the Company acquired an 80% equity interest (on a fully diluted basis) in APCMG for an aggregate purchase price of $2.0 million. As part of the transaction, the Company paid $1.0 million in cash and the remaining amount will be paid out in cash as a contingent consideration related to APCMG’s financial performance for fiscal year ~~2022.~~2022 (“APCMG contingent consideration”). The APCMG contingent consideration is met if gross revenue and ~~EBITDA~~earnings before interest, taxes, and depreciation, and amortization (“EBITDA”) targets exceed a threshold for fiscal year 2022. The Company determined the fair value of the contingent consideration using a probability-weighted model ~~which~~that includes significant unobservable inputs (Level 3). Specifically, the Company considered various scenarios of gross revenue and EBITDA and assigned probabilities to each such scenario in determining fair value. As of ~~September 30, 2021,~~March 31, 2022, the contingent consideration is valued at $1.0 million and was included within other long-term liabilities in the accompanying consolidated balance sheets.

Sun Labs

In August 1, 2021, the Company acquired 49% of the aggregate issued and outstanding shares of capital stock of Sun Labs for an aggregate purchase price of $4.0 million. As Sun Labs was concluded to be a VIE and the Company is the primary beneficiary, Sun Labs is consolidated by the Company. The Company is obligated to purchase the remaining equity interest within three years from the effective date. As the financing obligation is embedded in the ~~noncontrolling~~non-controlling interest, the ~~noncontrolling~~non-controlling interest is recognized in other long-term liabilities in the accompanying consolidated balance sheets. The Company recognized goodwill as a result of consolidating Sun Labs as a VIE.

28DMG

In October 2021, DMG entered into an administrative services agreement with a subsidiary of the Company, causing the Company to reevaluate the accounting for the Company’s investment in DMG. Based on the reevaluation and in accordance with relevant accounting guidance, DMG is determined to be a VIE and the Company is the primary beneficiary; DMG is consolidated by Apollo. In addition, APC-LSMA is obligated to purchase the remaining equity interest within three years from the effective date. As the financing obligation is embedded in the non-controlling interest, the non-controlling interest is recognized in other long-term liabilities in the accompanying consolidated balance sheets. The Company recognized goodwill as a result of consolidating DMG as a VIE.

The acquisitions were accounted for under the acquisition method of accounting. The fair value of the consideration for the acquired companies were allocated to acquired tangible and intangible assets and liabilities based upon their fair values. The excess of the purchase consideration over the fair value of the net tangible and identifiable intangible assets acquired was recorded as goodwill. The determination of the fair value of assets and liabilities acquired requires the Company to make estimates and use valuation techniques when market value is not readily available. The results of operations ~~of APCMG and Sun Labs~~from the acquisitions have been included in the Company’s financial statements from the date of acquisition. Transaction costs associated with business acquisitions are expensed as they are incurred.

At the time of acquisition, the Company estimates the amount of the identifiable intangible assets based on a valuation and the facts and circumstances available at the time. The Company determines the final value of the identifiable intangible assets as soon as information is available, but not more than one year from the date of acquisition.

Goodwill is not deductible for tax purposes.

The change in the carrying value of goodwill for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 was as follows (in thousands);:


Balance, January 1, ~~2021~~2022	$	~~239,053~~253,039
Acquisitions	~~4,300~~ 1,086
Adjustments	(1,746)
Balance, ~~September 30, 2021~~March 31, 2022	$	~~243,353~~252,379

2930

4. Intangible Assets, Net

At ~~September 30,~~March 31, 2022, the Company’s intangible assets, net, consisted of the following (in thousands):


	Useful Life (Years)	Gross March 31, 2022		Accumulated Amortization		Net March 31, 2022
Indefinite lived assets:
Trademarks	N/A	$	2,150	$	—	$	2,150
Amortized intangible assets:
Network relationships	11-21	150,679		(87,618)		63,061
Management contracts	15	22,832		(13,998)		8,834
Member relationships	12	8,997		(4,976)		4,021
Patient management platform	5	2,060		(1,777)		283
Trade names/trademarks	20	1,011		(219)		792
Subscriber relationships	5	235		—		235
Developed technology	6	772		—		772
		$	188,736	$	(108,588)	$	80,148

At December 31, 2021, the Company’s intangible assets, net, consisted of the following (in thousands):

Useful
Life
(Years)
Gross September 30,
2021 Accumulated
Amortization Net September 30,
2021
Indefinite lived assets:
Trademarks N/A $ 996 $ — $ 996
Amortized intangible assets:
Network relationships 11-15 $ 148,845 $ (82,117) $ 66,728
Management contracts 15 22,832 (13,128) 9,704
Member relationships 12 8,997 (4,129) 4,868
Patient management platform 5 2,060 (1,579) 481
Trade names/trademarks 20 1,011 (194) 817
$ 184,741 $ (101,147) $ 83,594

~~At December 31, 2020, the Company’s intangible assets, net, consisted of the following (in thousands):~~


		Useful Life (Years)	Gross December 31, 2020		Accumulated Amortization		Net December 31, 2020			Useful Life (Years)	Gross December 31, 2021		Accumulated Amortization		Net December 31, 2021
Indefinite lived assets:									Indefinite lived assets:
Medicare license									Medicare license	N/A	$	2,150	$	—	$	2,150
Amortized intangible assets:	Amortized intangible assets:								Amortized intangible assets:
Network relationships	Network relationships	11-15	$	143,930	$	(73,169)	$	70,761	Network relationships	11-15	150,679		(84,865)		65,814
Management contracts	Management contracts	15	22,832		(11,715)		11,117		Management contracts	15	22,832		(13,563)		9,269
Member relationships	Member relationships	12	6,696		(3,234)		3,462		Member relationships	12	8,997		(4,606)		4,391
Patient management platform	Patient management platform	5	2,060		(1,270)		790		Patient management platform	5	2,060		(1,682)		378
Trade names/trademarks		20	1,011		(156)		855
Tradename/trademarks									Tradename/trademarks	20	1,011		(206)		805
			$	176,529	$	(89,544)	$	86,985			$	187,729	$	(104,922)	$	82,807

Included in depreciation and amortization on the accompanying consolidated statements of ~~operations~~income is amortization expense of ~~$4.1~~$3.7 million and ~~$4.0~~$3.8 million for the three months ended ~~September 30, 2021~~March 31, 2022 and ~~2020, respectively, and $11.6 million and $12.3 million for the nine months ended September 30, 2021 and 2020, respectively.~~2021.

Future amortization expense is estimated to be as follows for the following years ending December 31 (in thousands):


		Amount			Amount

2021 (excluding the nine months ended September 30, 2021)		$	4,007
2022		13,962
2022 (excluding the three months ended March 31, 2022)				2022 (excluding the three months ended March 31, 2022)	$	10,168
2023	2023	11,767		2023	11,804
2024	2024	10,584		2024	10,735
2025	2025	9,370		2025	9,558
2026				2026	8,505
Thereafter	Thereafter	32,908		Thereafter	27,228

Total	Total	$	82,598	Total	$	77,998

3031

5. Investments in Other Entities —

Equity Method

~~Rollforward~~Investments in other entities – equity method consisted of ~~Equity Method Investment~~the following (in thousands):


		December 31, 2020		Initial Investment		Allocation of Income (Loss)		Contribution		Entity Consolidated		Sale		September 30, 2021			December 31, 2021		Allocation of Income (Loss)		Funding		Distribution		March 31, 2022
LaSalle Medical Associates – IPA Line of Business	LaSalle Medical Associates – IPA Line of Business	$	13,047	$	—	$	(4,654)	$	—	$	—	$	(4,182)	$	4,211	LaSalle Medical Associates – IPA Line of Business	$	3,034	$	1,258	$	—	$	—	$	4,292
Pacific Medical Imaging & Oncology Center, Inc.	Pacific Medical Imaging & Oncology Center, Inc.	1,413		—		129		—		—		—		1,542		Pacific Medical Imaging & Oncology Center, Inc.	1,719		6		—		—		1,725
Diagnostic Medical Group		2,613		—		330		—		—		—		2,943
531 W. College, LLC – related party	531 W. College, LLC – related party	17,200		—		(149)		—		—		—		17,051		531 W. College, LLC – related party	17,230		(182)		—		—		17,048
One MSO, LLC – related party	One MSO, LLC – related party	2,395		—		379		—		—		—		2,774		One MSO, LLC – related party	2,910		137		—		(200)		2,847
Tag-6 Medical Investment Group, LLC – related party	Tag-6 Medical Investment Group, LLC – related party	4,516		—		240		—		—		—		4,756		Tag-6 Medical Investment Group, LLC – related party	4,830		66		1,435		—		6,331
Tag-8 Medical Investment Group, LLC – related party		2,108		—		—		1,660		(3,768)		—		—
CAIPA MSO, LLC	CAIPA MSO, LLC	—		11,724		45		—		—		—		11,769		CAIPA MSO, LLC	11,992		148		—		—		12,140
		$	43,292	$	11,724	$	(3,680)	$	1,660	$	(3,768)	$	(4,182)	$	45,046		$	41,715	$	1,433	$	1,435	$	(200)	$	44,383

LaSalle Medical Associates — IPA Line of Business

LMA was founded by Dr. Albert Arteaga in 1996 and operates as an IPA delivering high-quality care to patients in Fresno, Kings, Los Angeles, Madera, Riverside, San Bernardino, and Tulare Counties through its network of approximately 2,400 independently contracted primary care physicians and specialist providers. LMA’s patients are primarily served by Medi-Cal, but are also served by Blue Cross, Blue Shield, Molina, Health Net, and Inland Empire Health Plan. During 2012, APC-LSMA and LMA entered into a share purchase agreement whereby APC-LSMA invested $5.0 million for a 25% interest in LMA’s IPA line of business. In December 2020, the Company exercised its option to convert the promissory note totaling $6.4 million due from Dr. Arteaga into an additional 21.25% interest in LMA’s IPA line of business. As a result, APC-LSMA’s interest in LMA’s IPA line of business increased to 46.25%.care. In September 2021, APC-LSMA sold 21.25% of its interest in LMA back to Dr. Arteaga for $6.4 million, which resulted in APC-LSMA owning a 25% interest in LMA as of ~~September 30, 2021.~~March 31, 2022.

APC accounts for its investment in LMA under the equity method as APC has the ability to exercise significant influence, but not control over LMA’s operations. For the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ APC recognized ~~a loss~~income from this investment of ~~$0.3~~$1.3 million and ~~income~~a loss of ~~$0.5~~$0.7 million, respectively, in the accompanying consolidated statements of operations. For the nine months ended September 30, 2021 and September 30, 2020, APC recognized a loss from this investment of $4.7 million and income of $28,000, respectively, in the accompanying consolidated statements of operations.income. The accompanying consolidated balance sheets include the related investment balances of ~~$4.2~~$4.3 million and ~~$13.0~~$3.0 million at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

3132

LMA’s summarized balance sheets at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, and summarized statements of ~~operations~~income for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ with respect to its IPA line of business are as follows (in thousands):

Balance Sheets


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Assets	Assets					Assets

Cash and cash equivalents	Cash and cash equivalents	$	2,150	$	9,350	Cash and cash equivalents	$	10,712	$	6,619
Restricted cash	Restricted cash	695		691		Restricted cash	698		696
Receivables, net	Receivables, net	6,178		3,918		Receivables, net	6,080		2,269
Other current assets		—		881

Loan receivable	Loan receivable	2,250		2,250		Loan receivable	2,250		2,250

Total assets	Total assets	$	11,273	$	17,090	Total assets	$	19,740	$	11,834

Liabilities and Stockholders’ Deficit	Liabilities and Stockholders’ Deficit					Liabilities and Stockholders’ Deficit
Current liabilities	Current liabilities	$	27,141	$	21,589	Current liabilities	$	34,530	$	32,405
Stockholders’ deficit	Stockholders’ deficit	(15,868)		(4,499)		Stockholders’ deficit	(14,790)		(20,571)

Total liabilities and stockholders’ deficit	Total liabilities and stockholders’ deficit	$	11,273	$	17,090	Total liabilities and stockholders’ deficit	$	19,740	$	11,834

Statements of Operations


		Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020			2022		2021

Revenues	Revenues	$	144,417	$	138,490	Revenues	$	67,566	$	47,224
Expenses	Expenses	155,786		138,233		Expenses	61,786		48,776

Net (loss) income		$	(11,369)	$	257
Net income (loss)						Net income (loss)	$	5,780	$	(1,552)

Pacific Medical Imaging and Oncology Center, Inc.

APC-LSMA and PMIOC entered into a share purchase agreement whereby APC-LSMA purchased a 40% ownership interest in PMIOC. Incorporated in California in 2004, PMIOC provides comprehensive diagnostic imaging services using state-of-the-art technology. PMIOC offers high-quality diagnostic services, such as MRI/MRA, PET/CT, CT, nuclear medicine, ultrasound, digital x-rays, bone densitometry, and digital mammography, at its facilities.

~~In July 2015, APC-LSMA and PMIOC entered into a share purchase agreement whereby APC-LSMA invested $1.2 million for a 40% ownership interest in PMIOC.~~

APC and PMIOC have an Ancillary Service Contract together whereby PMIOC provides covered services on behalf of APC to enrollees of the plans of APC. Under the Ancillary Service Contract, APC paid PMIOC fees of approximately $0.7 million and $0.5 million, for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and fees of approximately $1.7 million and $1.5 million for the nine months ended September 30, 2021 and 2020,~~ respectively. APC accounts for its investment in PMIOC under the equity method of accounting as APC has the ability to exercise significant influence, but not control over PMIOC’s operations. For the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ APC recognized ~~a gain~~income from this investment of approximately ~~$0.2 million~~$6,700 and a loss from this investment of ~~$52,000,~~$15,000, respectively, in the accompanying consolidated statements of ~~operations. For the nine months ended September 30, 2021 and 2020, APC recognized income of $0.1 million and $25,000, respectively, in the accompanying consolidated statements of operations.~~income. The accompanying consolidated balance sheets had investment balances of ~~$1.5~~$1.7 million and ~~$1.4~~$1.7 million at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

3233

~~Diagnostic Medical Group~~

In May 2016, David C.P. Chen M.D., individually, and APC-LSMA entered into a share purchase agreement whereby APC-LSMA acquired a 40% ownership interest in DMG. APC accounted for its investment in DMG under the equity method of accounting as APC had the ability to exercise significant influence, but not control over DMG’s operations.

For the three months ended September 30, 2021 and 2020, APC recognized income from this investment of $0.1 million and $0.1 million, respectively, in the consolidated statements of operations. For the nine months ended September 30, 2021 and 2020, APC recognized income from this investment of $0.3 million and $19,000, respectively, in the consolidated statements of operations. The accompanying consolidated balance sheets include the related investment balances of $2.9 million and $2.6 million as of September 30, 2021 and December 31, 2020, respectively.

531 W. College LLC – Related Party

In June 2018, College Street Investment LP, a California limited partnership (“CSI”), APC and NMM entered into an operating agreement to govern the limited liability company, 531 W. College, LLC, and the conduct of its business, and to specify their relative rights and obligations. CSI, APC, and NMM, each owned 50%, 25%, and 25%, respectively, of member units based on initial capital contributions of $16.7 million, $8.3 million, and $8.3 million, respectively.

In June 2018, 531 W. College, LLC closed its purchase of a non-operational hospital located in Los Angeles from Societe Francaise De Bienfaisance Mutuelle De Los Angeles, a California nonprofit corporation, for a total purchase price of $33.3 million. On April 23, 2019, NMM and APC entered into an agreement whereby NMM assigned and APC assumed NMM’s 25% membership interest in 531 W. College, LLC for approximately $8.3 million. Subsequently, APC has a 50% ownership in 531 W. College LLC ~~with a total investment balance of approximately $16.1 million.~~

~~APC~~and accounts for its investment in 531 W. College, LLC under the equity method of accounting as APC has the ability to exercise significant influence, but not control over the operations of this joint venture. 531 W. College, LLC owns a former hospital campus in Los Angeles that is now leased to tenants.

For the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ APC recognized a loss from this investment of ~~$34,000~~$0.2 million and $0.1 million, respectively, in the accompanying consolidated statements of operations. For the nine months ended September 30, 2021 and 2020, APC recorded a loss from this investment of $0.1 million and $0.4 million in the accompanying consolidated statements of operations, respectively.income. The accompanying consolidated balance sheets include the related investment balances of ~~$17.1~~$17.0 million and $17.2 million at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

~~531 W. College LLC’s balance sheets at September 30, 2021 and December 31, 2020, and statements of operations for the nine months ended September 30, 2021 and 2020, are as follows (in thousands):~~

~~Balance sheets~~

September 30,
2021 December 31,
2020
Assets
Cash $ 266 $ 648
Other current assets 25 17
Other assets 122 70
Property and equipment, net 33,689 33,697
Total assets $ 34,102 $ 34,432
Liabilities and Members’ Equity
Current liabilities $ — $ 32
Stockholders’ equity 34,102 34,400
Total liabilities and members’ equity $ 34,102 $ 34,432

~~Statements of Operation~~

Nine Months Ended September 30,
2021 2020
Revenues $ 181 $ —
Expenses 476 828
Loss from operations (295) (828)
Other income — 32
Provision for income tax 2 3
Net loss $ (297) $ (799)

One MSO, LLC – Related Party

~~In December 2020, using cash comprised solely of Excluded Assets,~~ APC ~~purchased~~has a 50% ~~membership~~ interest in One ~~MSO LLC (“One MSO”) for $2.4 million.~~MSO. One MSO owns an office building in Monterey Park, California that is leased to tenants, including NMM. For the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~One MSO~~APC recognized income of $0.1 million and $0.1 million in the accompanying consolidated statements of ~~operations. For the nine months ended September 30, 2021, One MSO recognized income of $0.4 million in the accompanying consolidated statements of operations.~~income. The accompanying consolidated balance sheets include the related investment balances of $2.8 million and ~~$2.4~~$2.9 million at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

Tag-6 ~~Medical Investment Group, LLC and Tag-8~~ Medical Investment Group, LLC — Related Party

~~In December 2020, using cash comprised solely of Excluded Assets,~~ APC ~~purchased~~has a 50% ~~membership~~ interest in Tag 6 for $4.5 million and a 50% membership interest in Tag 8 for $2.1 million. The Company reevaluated Tag 8 as a VIE since APC is a guarantor on the loan agreement between Tag 8 and MUFG Union Bank N.A. Based on the reevaluation, Tag 8 is a VIE and is consolidated by the Company.

6. Tag 6 leases its building to tenants and shares common ownership with certain board members of APC and as such is considered a related party. For the three ~~and nine~~ months ended ~~September 30, 2021, Tag 6~~March 31, 2022, APC recognized income of ~~$45,000 and $0.2 million, respectively,~~$66,000 in the accompanying consolidated statements of ~~operations.~~income. APC did not recognize any income during the three months ended March 31, 2021. The accompanying consolidated balance sheets include the Tag 6 investment of $6.3 million and $4.8 million ~~and $4.5 million~~ at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

CAIPA MSO, LLC

In August 2021, ApolloMed purchased 30% interests in CAIPA MSO, LLC for $11.7 million. CAIPA MSO is a New York-based management services organization affiliated with Chinese-American IPA d/b/a Coalition of Asian-American IPA (“CAIPA”), a leading independent practice association serving the greater New York City area.

ApolloMed accounts for its investment in CAIPA MSO under the equity method of accounting as ApolloMed has the ability to exercise significant influence, but not control over CAIPA MSO’s operations. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ApolloMed recognized income from investment of ~~$45,000,~~$0.1 million and $0, respectively, in the accompanying consolidated statements of ~~operations.~~income. The accompanying consolidated balance sheets include the related investment balances of ~~$11.8~~$12.1 million and $12.0 million as of ~~September 30, 2021.~~March 31, 2022 and December 31, 2021, respectively.

Investments in privately held entities that do not report net asset value

MediPortal, LLC

In May 2018, APC purchased 270,000 membership interests of MediPortal LLC, a New York limited liability company, for $0.4 million or $1.50 per membership interest, which represented an approximately 2.8% ownership interest. In connection with the initial purchase, APC received a five-year warrant to purchase an additional 270,000 membership interests. A five-year option to purchase an additional 380,000 membership interests and a five-year warrant to purchase 480,000 membership interests were contingent upon the portal completion date. However, APC did not exercise the option after completion of the portal. As APC does not have the ability to exercise significant influence, and lacks control over the investee, this investment is accounted for using a measurement alternative, which allows the investment to be measured at cost, adjusted for observable price changes and impairments, with changes recognized in net income.

AchievaMed

In July 2019, NMM and AchievaMed, Inc., a California corporation (“AchievaMed”), entered into an agreement in which NMM would purchase 50% of the aggregate shares of capital stock of AchievaMed over a period of time not to exceed five years. As a result of this transaction NMM invested $0.5 million for a 10% interest. The related investment balance of $0.5 million is included in investments in privately held entities in the accompanying consolidated balance sheets as of ~~September 30, 2021.~~March 31, 2022.

6. Loan Receivable and Loan Receivable – Related Parties

Loan receivable

Pacific6

In October 2020, NMM received a promissory note from Pacific6 totaling $0.5 million as a result of the sale of the Company’s interest in MWN. Interest accrues at a rate of 5% per annum and is payable monthly through the maturity date of December 1, 2023.

Loan receivable – related ~~parties~~party

AHMC

In October 2020, APC entered into a promissory note with AHMC (the “AHMC Note”) for a principal amount of $4.0 million with a maturity date of April 2022. The contractual interest rate on the AHMC Note is 3.75% per annum. The AHMC Note was entered into using cash strictly related to the Excluded Assets that were generated from the series of transactions with AP-AMH. As of ~~September 30, 2021,~~March 31, 2022, the total principal of $4.0 million remains outstanding. One of the Company’s board members is an officer of AHMC.

The Company assessed the outstanding loan receivable under the CECL model by assessing the party’s ability to pay by reviewing their interest payment history quarterly, financial history annually, and reassessing any insolvency risk that is identified. If a failure to pay occurs, the Company assesses the terms of the notes and estimates an expected credit loss based on the remittance schedule of the note.

7. Accounts Payable and Accrued Expenses

The Company’s accounts payable and accrued expenses consisted of the following (in thousands):


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Accounts payable	Accounts payable	$	23,051	$	9,554	Accounts payable	$	9,868	$	9,583
Capitation payable	Capitation payable	2,967		3,541		Capitation payable	3,525		2,697
Subcontractor IPA payable	Subcontractor IPA payable	2,686		1,662		Subcontractor IPA payable	1,918		1,587
Professional fees	Professional fees	697		1,378		Professional fees	900		878
Due to related parties	Due to related parties	2,298		50		Due to related parties	2,339		2,301
Contract liabilities	Contract liabilities	17,259		12,988		Contract liabilities	20,028		16,798
Accrued compensation	Accrued compensation	8,547		6,970		Accrued compensation	9,674		10,107
Total accounts payable and accrued expenses	Total accounts payable and accrued expenses	$	57,505	$	36,143	Total accounts payable and accrued expenses	$	48,252	$	43,951

8. Medical Liabilities

The Company’s medical liabilities consisted of the following (in thousands):


		September 30, 2021		September 30, 2020			March 31, 2022		March 31, 2021
Medical liabilities, beginning of period	Medical liabilities, beginning of period	$	50,330	$	58,725	Medical liabilities, beginning of period	$	55,783	$	50,330
Acquired (see Note 3)		175		—

Components of medical care costs related to claims incurred:	Components of medical care costs related to claims incurred:					Components of medical care costs related to claims incurred:
Current period	Current period	242,619		229,194		Current period	153,535		83,329
Prior periods	Prior periods	(498)		1,731		Prior periods	(175)		(2,018)
Total medical care costs	Total medical care costs	242,121		230,925		Total medical care costs	153,360		81,311
Payments for medical care costs related to claims incurred:	Payments for medical care costs related to claims incurred:					Payments for medical care costs related to claims incurred:
Current period	Current period	(200,582)		(178,796)		Current period	(70,120)		(41,713)
Prior periods	Prior periods	(48,948)		(53,231)		Prior periods	(44,035)		(39,344)
Total paid	Total paid	(249,530)		(232,027)		Total paid	(114,155)		(81,057)
Adjustments	Adjustments	(224)		(168)		Adjustments	770		895

Medical liabilities, end of period	Medical liabilities, end of period	$	42,872	$	57,455	Medical liabilities, end of period	$	95,758	$	51,479

9. Credit Facility, Bank Loans, and Lines of Credit

Credit Facility

The Company’s debt balance consists of the following (in thousands):


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021

Term Loan A		$	—	$	178,125

Revolver Loan	Revolver Loan	180,000		60,000		Revolver Loan	$	180,000	$	180,000
Real Estate Loans	Real Estate Loans	7,447		7,580		Real Estate Loans	7,344		7,396
Construction Loan	Construction Loan	77		—		Construction Loan	1,291		569
Total debt	Total debt	187,524		245,705		Total debt	188,635		187,965

Less: Current portion of debt	Less: Current portion of debt	(207)		(10,889)		Less: Current portion of debt	(1,503)		(780)
Less: Unamortized financing costs	Less: Unamortized financing costs	(4,504)		(4,605)		Less: Unamortized financing costs	(4,031)		(4,268)

Long-term debt	Long-term debt	$	182,813	$	230,211	Long-term debt	$	183,101	$	182,917

The estimated fair value of our long-term debt was determined using Level 2 inputs primarily related to comparable market prices. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the carrying value was not materially different from fair value, as the interest rates on the Company’s debt approximated rates currently available to the Company.

The following are the future commitments of the Company’s debt for the years ending December 31 (in thousands):


		Amount			Amount
2021 (excluding the nine months ended September 30, 2021)		$	55
2022		285
2022 (excluding the three months ended March 31, 2022)				2022 (excluding the three months ended March 31, 2022)	$	1,450
2023	2023	215		2023	215
2024	2024	222		2024	222
2025 and thereafter		186,747
2025				2025	6,748
2026 and thereafter				2026 and thereafter	180,000

Total	Total	$	187,524	Total	$	188,635

Amended Credit Agreement

In September 2019, the Company entered into a secured credit agreement (the “Credit Agreement,” and the credit facility thereunder, the “Credit Facility”) with Truist Bank (f.k.a. SunTrust Bank), in its capacity as administrative agent for the lenders, as a lender, an issuer of letters of credit and as swingline lender, and Preferred Bank, JPMorgan Chase Bank, N.A., MUFG Union Bank, N.A., Royal Bank of Canada, Fifth Third Bank and City National Bank, as lenders. The Credit Agreement provided a five-year revolving credit facility to the Company of $100.0 million, which includes a letter of credit subfacility of up to $25.0 million. The Credit Agreement also provided a term loan of $190.0 million. Amounts borrowed under the Credit Agreement bore interest at an annual rate equal to either, at the Company’s option, (a) the rate for Eurocurrency deposits for the corresponding deposits of U.S. dollars appearing on Reuters Screen LIBOR01 Page (“LIBOR”), adjusted for any reserve requirement in effect, plus a spread of between 2.00% and 3.00%, as determined on a quarterly basis based on the Company’s leverage ratio, or (b) a base rate, plus a spread between 1.00% and 2.00%, as determined on a quarterly basis based on the Company’s leverage ratio. In connection with the closing of the Credit Agreement, the Company, its subsidiary, NMM, and the agent entered into a Guaranty and Security Agreement (the “Guaranty and Security Agreement”), pursuant to which, among other things, NMM guaranteed the obligations of the Company under the Credit Agreement and, together with the Company, granted the lenders a security interest in all of its assets, including, without limitation, all stock and other equity issued by their subsidiaries (including NMM) and all rights with respect to the AP-AMH Loan.

On June 16, 2021, the Company entered into an amended and restated credit agreement (the “Amended Credit Agreement” and the credit facility thereunder, the “Amended Credit Facility”) with Truist Bank, in its ~~capacities~~capacity as administrative agent for the lenders, ~~(in such capacity, the “Agent”),~~ issuing bank, swingline lender and a lender, Truist Securities, Inc., JPMorgan Chase Bank, N.A., MUFG Union Bank, N.A., Preferred Bank, Royal Bank of Canada, and Fifth Third Bank, National Association, in their capacities as joint lead arrangers and/or lenders, ~~(the “Lenders”),~~ and ~~Bank of~~ the ~~West, The Toronto-Dominion Bank, New York Branch, Wells Fargo, National Association, and City National Bank in their capacities as Lenders,~~lenders from time to time party thereto, to, among other things, amend and restate that certain credit agreement, dated September 11, 2019, by and among the Company, Truist Bank, and certain ~~Lenders and~~lenders thereto (the credit facility thereunder, the ~~Agent,~~“Credit Facility”), in its entirety.

The Amended Credit Agreement provides for a five-year revolving credit facility ~~(“Revolver Loan”)~~ to the Company of $400.0 million, which includes a letter of credit sub-facility of up to $25.0 million and a swingline loan sub-facility of $25.0 million. The revolving credit facility will be used to, among other things, refinance certain existing indebtedness of the Company and certain subsidiaries, finance certain future acquisitions and investments, and provide for working capital needs and other general corporate purposes. Under the Amended Credit Agreement, the terms and conditions of the Guaranty and Security Agreement (the “Guaranty and Security Agreement”) between the Company, NMM and Truist Bank remain in effect.

Amounts borrowed under the Amended Credit Agreement will bear interest at an annual rate equal to either, at the Company’s option, (a) the rate for Eurocurrency deposits for the corresponding deposits of U.S. dollars appearing on LIBOR, adjusted for any reserve requirement in effect, plus a spread of from 1.25% to 2.5%, as determined on a quarterly basis based on the Company’s leverage ratio, or (b) a base rate, plus a spread of 0.25% to 1.5%, as determined on a quarterly basis based on the Company’s leverage ratio. As of September 30, 2021, the interest rate on Amended Credit Facility was 1.65%.

The Company is required to pay an annual agent fee of $50,000 and an annual facility fee of 0.175% to ~~0.35%~~0.350% on the available commitments under the Amended Credit Agreement, regardless of usage, with the applicable fee determined on a quarterly basis based on the Company’s leverage ratio. The Company will pay fees for standby letters of credit at an annual rate equal to 1.25% to ~~2.5%~~2.50%, as determined on a quarterly basis based on the Company’s leverage ratio, plus facing fees and standard fees payable to the issuing bank on the respective letter of credit. The Company is also required to pay customary fees between the Company and Truist Bank, the lead arranger of the Amended Credit Agreement.

Generally, amounts borrowed under the Amended Credit Agreement bear interest at an annual rate equal to either, at the Company’s option, (a) the rate for Eurocurrency deposits for the corresponding deposits of U.S. dollars appearing on LIBOR, adjusted for any reserve requirement in effect, plus a spread of from 1.25% to 2.50%, as determined on a quarterly basis based on the Company’s leverage ratio, or (b) a base rate, plus a spread of 0.25% to 1.50%, as determined on a quarterly basis based on the Company’s leverage ratio. As of March 31, 2022, the interest rate on the Credit Agreement was 2.38%. Borrowings under the Amended Credit Agreement may be prepaid at any time without penalty. If LIBOR ceases to be reported under the Amended Credit Agreement, the Company will use the secured overnight financing rate or the Company and the Agent will agree to an alternative rate of interest.

The Amended Credit Agreement requires the Company to comply with 2 key financial ratios, each calculated on a consolidated basis. The Company must maintain a maximum consolidated total net leverage ratio of not greater than 3.75 to 1.00 as of the last day of each fiscal ~~quarter.~~quarter, provided that for any fiscal quarter during which the Company or certain subsidiaries consummate a permitted acquisition or investment, the aggregate purchase price is greater than $75.0 million, the maximum consolidated total net leverage ratio may temporarily increase by 0.25 to 1.00 to 4.00 to 1.00. The Company must maintain a minimum consolidated interest coverage ratio of not less than 3.25 to 1.00 as of the last day of each fiscal quarter.

Pursuant to the Guaranty and Security Agreement, the Company and NMM have granted the lenders under the Amended Credit Agreement a security interest in all of their assets, including, without limitation, all stock and other equity issued by their subsidiaries (including NMM) and all rights with respect to the AP-AMH Loan.

In the ordinary course of business, certain of the lenders under the Amended Credit Agreement and their affiliates have provided to the Company and its subsidiaries and the associated practices, and may in the future provide, (i) investment banking, commercial banking, cash management, foreign exchange, or other financial services, and (ii) services as a bond trustee and other trust and fiduciary services, for which they have received compensation and may receive compensation in the future.

Deferred Financing Costs

In September 2019, the Company recorded deferred financing costs of $6.5 million related to its entry into the Credit Facility. In June 2021, the Company recorded additional deferred financing costs of $0.7 million related to its entry into the Amended Credit Facility. Deferred financing costs are recorded as a direct reduction of the carrying amount of the related debt liability using straight-line amortization. The remaining unamortized deferred financing costs related to the Credit Facility and the new

costs related to the Amended Credit Facility are amortized over the life of the Amended Credit Facility. At ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the unamortized deferred financing cost was ~~$4.5~~$4.0 million and ~~$4.6~~$4.3 million, respectively.

Real Estate Loans

On December 31, 2020, using cash comprised solely of Excluded Assets, APC purchased a 100% interest in MPP, AMG Properties, and ZLL. As a result of this purchase, APC assumed the existing loans held by MPP, AMG Properties, and ZLL.

MPP

On July 3, 2020, MPP entered into a loan agreement with East West Bank with a maturity date of August 5, 2030. As of December 31, ~~2020,~~2021, the principal on the loan was ~~$6.4~~$6.1 million with a variable interest rate of 0.50% less than the independent index, which is the daily Wall Street Journal “Prime Rate.” If the index is not available, East West Bank may designate a substitute index after notifying MPP. Monthly payments on the principal and any accrued interest rate not yet paid began in September 2020. As of ~~September 30, 2021,~~March 31, 2022, the balance outstanding was $6.1 million. MPP must maintain a Debt Coverage Ratio (defined as net operating income divided by current portion of long-term debt, plus interest expense) of not less than 1.25 to 1.

AMG Properties

On August 5, 2020, AMG Properties entered into a loan agreement with East West Bank with a maturity date of August 5, 2030. As of December 31, ~~2020,~~2021, the principal on the loan was $0.7 million with a variable interest rate of 0.30% less than the independent index, which is the daily Wall Street Journal “Prime Rate.” If the index is not available, East West Bank may designate a substitute index after notifying AMG Properties. Monthly payments on the principal and any accrued interest rate not yet paid began in September 2020. As of ~~September 30, 2021,~~March 31, 2022, the balance outstanding was $0.7 million. AMG Properties must maintain a Debt Coverage Ratio (defined as net operating income divided by current portion of long-term debt, plus interest expense) of not less than 1.25 to 1.

ZLL

On July 27, 2020, ZLL entered into a loan agreement with East West Bank with a maturity date of August 5, 2030. As of December 31, ~~2020,~~2021, the principal on the loan was ~~$0.7~~$0.6 million with a variable interest rate of 0.50% less than the independent index, which is the daily Wall Street Journal “Prime Rate.” If the index is not available, East West Bank may designate a substitute index after notifying ZLL. Monthly payments on the principal and any accrued interest rate not yet paid began in September 2020. As of ~~September 30, 2021,~~March 31, 2022, the balance outstanding was $0.6 million. ZLL must maintain a Debt Coverage Ratio (defined as net operating income divided by current portion of long-term debt, plus interest expense) of not less than 1.25 to 1.

Construction Loan

In April 2021, Tag 8 entered into a construction loan agreement with MUFG Union Bank N.A. (“Construction Loan”). Tag 8 is a VIE consolidated by the Company.

The Construction Loan allows Tag 8 to borrow up to $10.7 million with a maturity date of December 1, 2022 (“Construction Loan Term”). Interest rate is equal to an index rate determined by the bank. Monthly interest payments began on May 1, 2021, or can become part of the principal and bear interest. If construction is completed and, there are no events of default or substantial deterioration in the financial condition of Tag 8 or APC, guarantor on the loan agreement, at the maturity date of the Construction Loan Term, the loan shall convert to an amortizing loan with an extended maturity date of December 1, 2032 (“Permanent Loan Term”). Upon conversion to the Permanent Loan Term, monthly principal and interest payments shall be made beginning January 1, 2023. From January 1, 2023 until December 1, 2023, the interest rate will be 2.0% per annum in excess of the LIBOR rate. As of ~~September 30, 2021,~~March 31, 2022, the likelihood of the construction being completed by the maturity date was remote. The outstanding balance ~~outstanding~~as of March 31, 2022 was ~~$0.1 million.~~$1.3 million and was recorded as a current portion of long-term debt in the accompanying consolidated balance sheets. Once the loan converts to the Permanent Loan Term, APC, as Tag 8’s guarantor, must maintain a Cash Flow Coverage Ratio (defined as consolidated ~~earnings before interest, taxes, depreciation, and amortization (“EBITDA”)~~EBITDA minus unfinanced capital expenditures and distributions paid divided by the sum of current portion of long-term debt, plus interest expense) of not less than 1.25 to 1.

Effective Interest Rate

The Company’s average effective interest rate on its total debt during the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, was 1.78% and ~~2020, was 2.15% and 3.79%~~2.08%, respectively. Interest expense in the consolidated statements of ~~operations~~income included amortization of deferred debt issuance costs for the three months ended March 31, 2022 and 2021, of $0.2 million and $0.3 million, respectively.

Lines of Credit

APC Business Loan

~~debt issuance costs for the three and nine months ended September 30, 2021 and 2020, of $0.2 million and $0.3 million, respectively, and $0.9 million and $1.0 million, respectively.~~

~~Lines of Credit – Related Party~~

~~APC Business Loan~~

On September 10, 2019, the APC Business Loan Agreement with Preferred Bank (the “APC Business Loan Agreement”) was amended to decrease loan availability to $4.1 million. This decrease further limited the purpose of the indebtedness under APC Business Loan Agreement to the issuance of standby letters of credit, and added as a permitted lien the security interest in all of its assets granted by APC in favor of NMM under a Security Agreement dated on or about September 11, 2019, securing APC’s obligations to NMM under, and as required pursuant to, the APC management services agreement dated as of July 1, 1999, as amended. ~~One of the Company’s board members is the chairman and CEO of Preferred Bank.~~

Standby Letters of Credit

APAACO established an irrevocable standby letter of credit with Preferred Bank, which is affiliated with one of the Company’s board members, totaling $14.8 million for the benefit of CMS. In August 2020, the irrevocable standby letter of credit was released by CMS. As of September 30, 2021, there were 0 outstanding letters of credit and the Company had $25.0 million available under the Amended Credit Facility.

APC established irrevocable standby letters of credit with Preferred Bank under the APC Business Loan Agreement for a total of $0.3 million for the benefit of certain health plans. The standby letters of credit are automatically extended without amendment for additional one-year periods from the present or any future expiration date, unless notified by the institution in advance of the expiration date that the letter will be terminated.

Alpha Care established irrevocable standby letters of credit with Preferred Bank under the APC Business Loan Agreement for a total of $3.8 million for the benefit of certain health plans. The standby letters of credit are automatically extended without amendment for additional one-year periods from the present or any future expiration date, unless notified by the institution in advance of the expiration date that the letter will be terminated.

10. Mezzanine and Stockholders’ Equity

Mezzanine

As the redemption feature of the APC shares (see Note 2) is not solely within the control of APC, the equity of APC does not qualify as permanent equity and has been classified as ~~noncontrolling~~non-controlling interest in APC as mezzanine or temporary equity. APC’s shares were not redeemable, and it was not probable that the shares would become redeemable, as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

Stockholders’ Equity

As of ~~September 30, 2021, 141,638~~March 31, 2022, 140,954 holdback shares have not been issued to certain former NMM shareholders who were NMM shareholders at the time of closing of the 2017 Merger, as they have yet to submit properly completed letters of transmittal to ApolloMed in order to receive their pro rata portion of ApolloMed common stock and warrants as contemplated under the 2017 merger agreement. Pending such receipt, such former NMM shareholders have the right to receive, without interest, their pro rata share of dividends or distributions with a record date after the effectiveness of the 2017 Merger. The consolidated financial statements have treated such shares of common stock as outstanding, given the receipt of the letter of transmittal is considered perfunctory and the Company is legally obligated to issue these shares in connection with the 2017 Merger.

Treasury Stock

APC owned 10,925,702 ~~and 12,323,164~~ shares of ApolloMed’s common stock as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020, respectively,~~2021, which are legally issued and outstanding but excluded from shares of common stock outstanding in the consolidated financial statements, as such shares are treated as treasury shares for accounting purposes. ~~In March 2021, the Company issued 34,158 shares of common stock to APC as a result of APC exercising their warrants.~~

Dividends

During the three months ended ~~September 30,~~March 31, 2022 and 2021, and 2020, APC paid dividends of $10.0 million and $19.9 million, respectively. During the nine months ended September 30, 2021 and 2020, APC paid dividends of $29.9 million and $49.5 million, respectively.

~~During the three months ended September 30, 2021 and 2020, CDSC did not pay any dividends. During the nine months ended September 30, 2021 and 2020,~~ CDSC paid dividends of $1.5 million and ~~$0.6 million,~~$0, respectively.

11. Stock-Based Compensation

The following table summarizes the stock-based compensation expense recognized under all of the Company’s stock plans for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ and associated with the issuance of restricted shares of common stock and vesting of stock options, which are included in general and administrative expenses in the accompanying consolidated statements of ~~operations~~income (in thousands):

Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Stock options $ 602 $ 298 $ 1,794 $ 1,270
Restricted stock awards 818 350 2,528 1,288
Total share-based compensation expense $ 1,420 $ 648 $ 4,322 $ 2,558


	Three Months Ended March 31,
	2022		2021
Stock options	$	780	$	589
Restricted stock	2,275		757

Total stock-based compensation expense	$	3,055	$	1,346

Unrecognized compensation expense related to total share-based payments outstanding as of ~~September 30, 2021,~~March 31, 2022, was ~~$7.4~~$21.6 million.

Options

The Company’s outstanding stock options consisted of the following:


		Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)			Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Options outstanding at January 1, 2021		725,864	$	13.25	3.75	$	3,400
Options outstanding at January 1, 2022								Options outstanding at January 1, 2022	813,965	$	22.74	3.20	$	41.6
Options granted	Options granted	24,437	23.24		—	—		Options granted	75,271	55.07		—	—
Options exercised	Options exercised	(40,000)	5.20		—	2,800		Options exercised	(38,500)	17.37		—	0.9
Options forfeited	Options forfeited	(9,826)	3.89		—	—		Options forfeited	—	—		—	—

Options outstanding at September 30, 2021		700,475	$	14.18	3.18	$	53,800
Options outstanding at March 31, 2022								Options outstanding at March 31, 2022	850,736	$	25.84	2.94	$	22.8

Options exercisable at September 30, 2021		534,638	$	9.71	2.24	$	41,900
Options exercisable at March 31, 2022								Options exercisable at March 31, 2022	591,725	$	9.33	1.79	$	20.7

During the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, options were exercised for ~~40,000~~38,500 shares of the Company’s common stock, resulting in proceeds of ~~$0.2~~$0.7 million. During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, no stock options were ~~exercised for 120,000 shares of the Company’s common stock, resulting in proceeds of approximately $0.3 million.~~exercised.

During the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, the Company granted ~~24,437~~75,271 stock options ~~with a vesting period of two years~~ to certain ApolloMed ~~executives with an exercise price of $23.24, which~~employees and Board members. The options granted during the three months ended March 31, 2022 were recognized at fair value, as determined using the Black-Scholes option pricing model ~~and the following assumptions:~~

as follows:


~~September 30, 2021~~March 31, 2022	~~Executives~~
Expected term	~~3.5~~2.00 years - 2.25 years
Expected volatility	~~81.10~~		%71.47% - 75.15%
Risk-free interest rate	~~0.19~~		%1.02% - 1.06%
Market value of common stock	$		~~12.86~~	20.23 - $22.73
Annual dividend yield	—0	%
Forfeiture rate	—0	%

Restricted Stock ~~Awards~~

The Company grants restricted stock ~~awards~~ to officers and employees which are earned based on service conditions. The grant date fair value of the restricted stock ~~awards~~ is that day’s closing market price of the Company’s common stock. During the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, the Company granted restricted stock ~~awards~~ totaling ~~159,267~~76,828 shares, including 49,124 restricted stock with performance conditions, with a weighted average grant date fair value of ~~$28.24.~~$50.76. Restricted stock with performance conditions are recognized to the extent the performance conditions are probable of being achieved. The grant date fair value of ~~the~~ restricted stock ~~was $4.5~~and restricted stock with performance conditions that are probable of being achieved were $3.9 million and will be recognized on a straight-line basis over the awards’ vesting ~~period of~~ ~~one~~ ~~to three years.~~period.

Warrants

The Company’s outstanding warrants consisted of the following:


		Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)		Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Warrants outstanding at January 1, 2021		1,878,126	10.39		1.63	14,800
Warrants outstanding at January 1, 2022							Warrants outstanding at January 1, 2022	1,001,740	10.49		0.94	63.1
Warrants granted	Warrants granted	—	—		—	—	Warrants granted	—	—		—	—
Warrants exercised	Warrants exercised	(624,760)	10.23		—	20,618	Warrants exercised	(86,235)	10.49		—	3.6
Warrants expired/forfeited	Warrants expired/forfeited	(17,803)	9.72		—	—	Warrants expired/forfeited	—	—		—	—

Warrants outstanding at September 30, 2021		1,235,563	$	10.49	1.19	99,500
Warrants outstanding at March 31, 2022							Warrants outstanding at March 31, 2022	915,505	$	10.49	0.69	$	34.8


Exercise Price Per Share	Exercise Price Per Share	Warrants Outstanding	Weighted Average Remaining Contractual Life	Warrants Exercisable	Weighted Average Exercise Price Per Share		Exercise Price Per Share	Warrants Outstanding	Weighted Average Remaining Contractual Life	Warrants Exercisable	Weighted Average Exercise Price Per Share
$	10.00	635,428	1.19	635,428	$	10.00	10.00	470,827	0.69	470,827	$	10.00
11.00	11.00	600,135	1.19	600,135	$	11.00	11.00	444,678	0.69	444,678	$	11.00

$ 10.00 – 11.00	$ 10.00 – 11.00	1,235,563	1.19	1,235,563	$	10.49	$ 10.00 – 11.00	915,505	0.69	915,505	$	10.49

During the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ common stock warrants were exercised for ~~624,760~~86,235 and ~~800,709~~421,002 shares of the Company’s common stock, respectively, which resulted in proceeds of approximately ~~$6.4~~$0.9 million and ~~$6.2~~$4.3 million, respectively. The exercise price ranged from $10.00 to $11.00 per share for the exercises during the three months ended March 31, 2022, and $9.00 to $11.00 per share for the exercises during the ~~nine~~three months ended ~~September 30,~~March 31, 2021, ~~and 2020,~~ respectively.

12. Commitments and Contingencies

Regulatory Matters

Laws and regulations governing the Medicare program and healthcare generally are complex and subject to interpretation. The Company believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing. While no regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation, as well as significant regulatory action, including fines, penalties, and exclusion from the Medicare and Medi-Cal programs.

As risk-bearing organizations, APC, Alpha Care, and Accountable Health Care are required to comply with the California Department of Managed Healthcare (“DMHC”) regulations, including maintenance of minimum working capital, tangible net equity (“TNE”), cash-to-claims ratio, and claims payment requirements prescribed by the DMHC. TNE is defined as net equity less intangibles, less non-allowable assets (which include unsecured amounts due from affiliates), plus subordinated obligations.

Many of the payor and provider contracts with the Company’s affiliated physician-owned medical groups are complex in nature and may be subject to differing interpretations regarding amounts due for the provision of medical services. Such differing interpretations may not come to light until a substantial period of time has passed following contract implementation. Liabilities for claims disputes are recorded when the loss is probable and can be estimated. Any adjustments to reserves are reflected in current operations.

Standby Letters of Credit

As part of the APAACO participation with CMS, the Company must provide a financial guarantee to CMS. The guarantee generally must be in an amount equal to 2% of the Company’s benchmark Medicare Part A and Part B expenditures. In August 2020, $14.8 million of the irrevocable standby letters of credit were released by CMS and no amounts remained outstanding as of September 30, 2021.

APC and Alpha Care established irrevocable standby letters of credit with a Preferred Bank for a total of $0.3 million and $3.8 million, respectively, for the benefit of certain health plans (see Note 9).

Litigation

From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of its business. The resolution of any claim or litigation is subject to inherent uncertainty and could have a material adverse effect on the Company’s financial condition, cash flows, or results of operations.

Liability Insurance

The Company believes that its insurance coverage is appropriate based upon the Company’s claims experience and the nature and risks of the Company’s business. In addition to the known incidents that have resulted in the assertion of claims, the Company cannot be certain that its insurance coverage will be adequate to cover liabilities arising out of claims asserted against the Company, the Company’s affiliated professional organizations or the Company’s affiliated hospitalists in the future where the outcomes of such claims are unfavorable. The Company believes that the ultimate resolution of all pending claims, including liabilities in excess of the Company’s insurance coverage, will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows; however, there can be no assurance that future claims will not have such a material adverse effect on the Company’s business. Contracted physicians are required to obtain their own insurance coverage.

Although the Company currently maintains liability insurance policies on a claims-made basis, which are intended to cover malpractice liability and certain other claims, the coverage must be renewed annually, and may not continue to be available to the Company in future years at acceptable costs, and on favorable terms.

13. Related-Party Transactions

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ NMM earned approximately ~~$4.5~~$6.3 million and ~~$4.2 million, respectively, and $13.2 million and $12.6~~$4.5 million, respectively, in management fees from LMA, which is accounted for under the equity method based on the 25% equity ownership interest held by APC in LMA’s IPA line of business (see Note 5)5 — “Investments in Other Entities — Equity Method”).

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ APC paid approximately $0.7 million and $0.5 ~~million, respectively, and $1.7 million and $1.5~~ million, respectively, to PMIOC for provider services, which is accounted for under the equity method based on the 40% equity ownership interest held by APC (see Note 5)5 — “Investments in Other Entities — Equity Method”).

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ APC paid approximately ~~$2.2 million~~$0 and ~~$1.2 million, respectively, and $5.4 million and $3.8~~$1.6 million, respectively, to DMG for provider services, which is accounted for under the equity method based on the 40% equity ownership interest held by ~~APC (see Note 5).~~APC. In October 2021, DMG was consolidated by Apollo. As such, DMG is no longer a related party.

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ APC paid approximately ~~$0.3 million~~$39,000 and ~~$0.1 million,~~$22,000, respectively, ~~and $0.4 million and $0.2 million~~ to Advanced Diagnostic Surgery Center for services as a provider. Advanced Diagnostic Surgery Center shares common ownership with certain board members of APC.

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ APC paid approximately ~~$24,000~~$5,800 and ~~$23,000, respectively, and $0.1 million and $0.1 million,~~$33,000, respectively, to Fresenius Medical Care (“Fresenius”) and its subsidiaries for services as a provider. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ APAACO paid approximately ~~$0.2~~$0.1 million and $0.2 ~~million, respectively, and $0.5 million and $0.5~~ million, respectively, to Fresenius and its subsidiaries for services as a provider. One of the Company’s board members is an officer of ~~Fresenius.~~Fresenius and its subsidiaries.

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ APC paid approximately ~~$0.7~~$0.1 million and ~~$0.1 million, respectively, and $1.1 million and $0.1 million,~~$21,000, respectively, to Fulgent Genetics, Inc. for services as a provider. One of the Company’s board members is a board member of Fulgent Genetics, Inc.

During the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ APC paid an aggregate of approximately ~~$10.1~~$9.3 million and ~~$7.1~~$7.4 million to shareholders, respectively, which included approximately ~~$1.8~~$1.9 million and $1.7 million, respectively, to shareholders who are also officers of APC. During the nine months ended September 30, 2021 and 2020, APC paid an aggregate of approximately $25.3 million and $23.4 million to shareholders, respectively, and $5.6 million and $6.5 million, respectively, to shareholders who are also officers of APC.

During the three and nine months ended September 30, 2021 and 2020, the Company paid approximately $0 and $39,000, respectively, and $0 and $0.3 million, respectively, to Critical Quality Management Corporation (“CQMC”) for an office lease. CQMC shares common ownership with certain board members of APC.

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ SCHC paid approximately $0.1 million and $0.1 ~~million, respectively, and $0.3 million and $0.3~~ million, respectively, to Numen, LLC (“Numen”) for an office lease. Numen is owned by a shareholder of APC.

During the three months ended March 31, 2022 and ~~nine ended September 30,~~ 2021, ~~and 2020, APC~~NMM paid approximately $0.4 million and $0.4 ~~million, respectively, and $1.1 million and $1.1~~ million, respectively, to One MSO for an office lease, which is accounted for under the equity method based on 50% equity ownership interest held by APC (see Note 5)5 — “Investments in Other Entities — Equity Method”).

During the three months ended March 31, 2022 and 2021, APC paid approximately $3.5 million and $0, respectively, to Arroyo Vista Family Health Center (“Arroyo Vista”) for services as a provider. The CEO of Arroyo Vista became a board member with the Company in 2021.

The Company has agreements with Health Source MSO Inc., a California corporation (“HSMSO”), Aurion Corporation (“Aurion”), and AHMC Healthcare Inc. (“AHMC”) for services provided to the Company. One of the Company’s board members is an officer of AHMC, HSMSO, and Aurion. Aurion is also partially owned by one of the Company’s board members. The following table sets forth fees incurred and ~~revenue earned~~income received related to AHMC, HSMSO, and Aurion (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
AHMC – Risk pool, capitation, claims payment	AHMC – Risk pool, capitation, claims payment	$	10,712	$	5,683	$	36,505	$	23,739	AHMC – Risk pool, capitation, claims payment	$	11,366	$	13,097
HSMSO – Management fees, net	HSMSO – Management fees, net	(33)		(109)		(141)		(430)		HSMSO – Management fees, net	(80)		(77)
Aurion – Management fees	Aurion – Management fees	(100)		(100)		(252)		(228)		Aurion – Management fees	(75)		(75)

Receipts, net	Receipts, net	$	10,579	$	5,474	$	36,112	$	23,081	Receipts, net	$	11,211	$	12,945

The Company and AHMC have a risk-sharing agreement with certain AHMC hospitals to share the surplus and deficits of each of the hospital pools. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the Company has recognized risk pool revenue under this agreement of ~~$21.5~~$12.0 million and ~~$10.5~~$16.9 million, respectively, of which $66.0 million and ~~$47.1 million and $31.5 million, respectfully, of which $47.9 million and $45.3~~$58.4 million remained outstanding as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

~~During the nine months ended September 30, 2021 and 2020, NMM paid approximately $44,000 and $27,000, respectively, to an ApolloMed board member for consulting services.~~ During the three months ended ~~September 30,~~March 31, 2022 and 2021, NMM paid approximately $0 and ~~2020, there were no payments~~$44,000, respectively, to ~~such~~an ApolloMed board member for consulting services.

In addition, affiliates wholly owned by the Company’s officers, including ~~the Company’s Co-CEOs, Dr. Kenneth Sim and~~ Dr. Thomas Lam, ApolloMed’s Co-CEO and President, are reported in the accompanying consolidated statements of ~~operations~~income on a consolidated basis, together with the Company’s subsidiaries, and therefore, the Company does not separately disclose transactions between such affiliates and the Company’s subsidiaries as related-party transactions.

For equity method investments and loans receivable ~~and line of credits~~ from related parties, see Notes 5 6, and 9,6, respectively.

14. Income Taxes

The Company uses the liability method of accounting for income taxes as set forth in ASC 740 Income Taxes. Under the liability method, deferred taxes are determined based on differences between the financial statement and tax bases of assets and liabilities using enacted tax rates.

On an interim basis, the Company estimates what its anticipated annual effective tax rate will be and records a quarterly income tax provision in accordance with the estimated annual rate, plus the tax effect of certain discrete items that arise during the quarter. As the fiscal year progresses, the Company refines its estimates based on actual events and financial results during the quarter. This process can result in significant changes to the Company’s estimated effective tax rate. When this occurs, the income tax provision is adjusted during the quarter in which the estimates are refined so that the year-to-date provision reflects the estimated annual effective tax rate. These changes, along with adjustments to the Company’s deferred taxes and related valuation allowance, may create fluctuations in the overall effective tax rate from quarter to quarter.

As of ~~September 30, 2021,~~March 31, 2022, due to the overall cumulative losses incurred in recent years, the Company maintained a full valuation allowance against its deferred tax assets related to loss entities the Company cannot consolidate under the federal tax consolidation rules, as realization of these assets is uncertain.

The Company’s effective income tax rate for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and March 31, 2021, was 34.0% and ~~September 30, 2020, was 31.5% and 28.8%~~31.9%, respectively. The tax rate for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, differed from the U.S. federal statutory rate primarily due to state income taxes, income from flow through entities, ~~nondeductible~~non-deductible permanent items, and change in valuation allowance.

As of ~~September 30, 2021,~~March 31, 2022, the Company does not have any unrecognized tax benefits related to various federal and state income tax matters. The Company will recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.

The Company is subject to U.S. federal income tax as well as income tax in California. The Company and its subsidiaries’ state and federal income tax returns are open to audit under the statute of limitations for the years ended December 31, ~~2016~~2017 through December 31, ~~2020,~~2021, and for the years ended December 31, ~~2017~~2018 through December 31, ~~2020,~~2021, respectively. The Company does not anticipate material changes to the unrecognized tax benefits within the next 12 months.

15. Earnings Per Share

Basic earnings per share is calculated using the weighted average number of shares of the Company’s common stock issued and outstanding during a certain period, and is calculated by dividing net income attributable to ApolloMed by the weighted average number of shares of the Company’s common stock issued and outstanding during such period. Diluted earnings per share is calculated using the weighted average number of shares of common stock and potentially dilutive shares of common stock outstanding during the period, using the as-if converted method for secured convertible notes, preferred stock, and the treasury stock method for options and common stock warrants.

As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, APC held 10,925,702 ~~and 12,323,164~~ shares of ApolloMed’s common stock, ~~respectively,~~ which are treated as treasury shares for accounting purposes and not included in the number of shares of common stock outstanding used to calculate earnings per share.

Below is a summary of the earnings per share computations:


Three Months Ended September 30,		2021		2020
Three Months Ended March 31,						Three Months Ended March 31,	2022		2021
Earnings per share – basic	Earnings per share – basic	$	0.77	$	0.46	Earnings per share – basic	$	0.32	$	0.31
Earnings per share – diluted	Earnings per share – diluted	$	0.74	$	0.45	Earnings per share – diluted	$	0.31	$	0.30
Weighted average shares of common stock outstanding – basic	Weighted average shares of common stock outstanding – basic	44,301,060		36,364,839		Weighted average shares of common stock outstanding – basic	44,681,218		42,336,434
Weighted average shares of common stock outstanding – diluted	Weighted average shares of common stock outstanding – diluted	46,273,640		37,551,740		Weighted average shares of common stock outstanding – diluted	45,994,868		43,566,189

Nine Months Ended September 30, 2021 2020
Earnings per share – basic $ 1.38 $ 0.77
Earnings per share – diluted $ 1.33 $ 0.75
Weighted average shares of common stock outstanding – basic 43,608,116 36,149,692
Weighted average shares of common stock outstanding – diluted 45,339,372 37,249,967

Below is a summary of the shares included in the diluted earnings per share computations:


Three Months Ended September 30,		2021	2020
Three Months Ended March 31,				Three Months Ended March 31,	2022	2021
Weighted average shares of common stock outstanding – basic	Weighted average shares of common stock outstanding – basic	44,301,060	36,364,839	Weighted average shares of common stock outstanding – basic	44,681,218	42,336,434

Stock options	Stock options	583,639	187,843	Stock options	482,337	318,749
Warrants	Warrants	1,083,216	960,806	Warrants	729,422	811,787
Restricted stock awards	Restricted stock awards	305,725	38,252	Restricted stock awards	101,891	99,219
Weighted average shares of common stock outstanding – diluted	Weighted average shares of common stock outstanding – diluted	46,273,640	37,551,740	Weighted average shares of common stock outstanding – diluted	45,994,868	43,566,189

Nine Months Ended September 30, 2021 2020
Weighted average shares of common stock outstanding – basic 43,608,116 36,149,692
Stock options 498,296 178,445
Warrants 971,935 890,489
Restricted stock awards 261,025 31,341
Weighted average shares of common stock outstanding – diluted 45,339,372 37,249,967

16. Variable Interest Entities (VIEs)

A VIE is defined as a legal entity whose equity owners do not have sufficient equity at risk, or, as a group, the holders of the equity investment at risk lack any of the following three characteristics: decision-making rights, the obligation to absorb losses, or the right to receive the expected residual returns of the entity. The primary beneficiary is identified as the variable interest holder that has both the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and the obligation to absorb expected losses or the right to receive benefits from the entity that could potentially be significant to the VIE.

The Company follows guidance on the consolidation of VIEs that requires companies to utilize a qualitative approach to determine whether it is the primary beneficiary of a VIE. See Note 2 – “Basis of Presentation and Summary of Significant Accounting Policies - Variable Interest Entities” to the accompanying consolidated financial statements for information on how the Company determines VIEs and their treatment.

The following table includes assets that can only be used to settle the liabilities of APC and its VIEs, including Alpha Care and Accountable Health Care, and to which the creditors of ApolloMed have no recourse, and liabilities to which the creditors of APC, including Alpha Care and Accountable Health Care, have no recourse to the general credit of ApolloMed, as the primary beneficiary of the VIEs. These assets and liabilities, with the exception of the investment in a privately held entity that does not report net asset value per share and amounts due to affiliates, which are eliminated upon consolidation with NMM, are included in the accompanying consolidated balance sheets (in thousands). The assets and liabilities of the Company’s other consolidated VIEs were not considered significant.


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Assets	Assets					Assets

Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	121,258	$	126,158	Cash and cash equivalents	$	142,862	$	161,762
Investment in marketable securities	Investment in marketable securities	124,569		67,637		Investment in marketable securities	38,534		49,066
Receivables, net	Receivables, net	15,927		5,155		Receivables, net	23,539		7,251
Receivables, net – related party	Receivables, net – related party	50,454		46,718		Receivables, net – related party	69,948		62,180
Income taxes receivable	Income taxes receivable	4,267		—		Income taxes receivable	—		1,342
Other receivables	Other receivables	293		1,084		Other receivables	1,885		1,833
Prepaid expenses and other current assets	Prepaid expenses and other current assets	9,808		14,863		Prepaid expenses and other current assets	7,649		11,734
Loan receivable – related party	Loan receivable – related party	4,000		—		Loan receivable – related party	4,000		4,000
Amount due from affiliate	Amount due from affiliate	15,764		—		Amount due from affiliate	25,150		6,598
Total current assets	Total current assets	346,340		261,615		Total current assets	313,567		305,766

Noncurrent assets
Land, property and equipment, net		47,253		27,599
Non-current assets						Non-current assets
Land, property, and equipment, net						Land, property, and equipment, net	68,598		49,547
Intangible assets, net	Intangible assets, net	61,140		69,250		Intangible assets, net	61,301		58,282
Goodwill	Goodwill	109,460		109,460		Goodwill	116,226		109,656
Loans receivable – related parties	Loans receivable – related parties	104		4,145		Loans receivable – related parties	69		89
Investment in affiliates	Investment in affiliates	994,785		225,144		Investment in affiliates	529,569		802,821
Investments in other entities – equity method	Investments in other entities – equity method	45,046		43,516		Investments in other entities – equity method	44,383		41,715
Investment in privately held entities	Investment in privately held entities	405		36,584		Investment in privately held entities	405		405
Restricted cash		—		500

Operating lease right-of-use assets	Operating lease right-of-use assets	5,258		6,298		Operating lease right-of-use assets	4,644		4,953
Other assets	Other assets	2,533		17,177		Other assets	1,849		3,219

Total noncurrent assets		1,265,984		539,673
Total non-current assets						Total non-current assets	827,044		1,070,687

Total assets	Total assets	$	1,612,324	$	801,288	Total assets	$	1,140,611	$	1,376,453

Current liabilities	Current liabilities					Current liabilities
Accounts payable and accrued expenses						Accounts payable and accrued expenses	$	14,700	$	11,591
Fiduciary accounts payable						Fiduciary accounts payable	6,305		10,534
Medical liabilities						Medical liabilities	61,220		44,000
Income taxes payable						Income taxes payable	481		—
Dividends payable						Dividends payable	556		556

Current portion of long-term debt						Current portion of long-term debt	1,503		780
Finance lease liabilities						Finance lease liabilities	543		110

4746

September 30,
2021 December 31,
2020
Accounts payable and accrued expenses $ 15,202 $ 12,963
Fiduciary accounts payable 8,827 9,642
Medical liabilities 34,998 37,684
Income taxes payable — 4,225
Dividends payable 556 485
Amount due to affiliate — 22,698
Current portion of long-term debt 207 201
Finance lease liabilities 110 102
Operating lease liabilities 1,231 1,242
Total current liabilities 61,131 89,242
Noncurrent liabilities
Long-term debt, net of current portion and deferred financing costs 7,245 7,379
Deferred tax liability 18,941 9,144
Finance lease liabilities, net of current portion 221 311
Operating lease liabilities, net of current portion 4,262 5,242
Other long-term liabilities 1,010 —
Total noncurrent liabilities 31,679 22,076
Total liabilities $ 92,810 $ 111,318


	March 31, 2022		December 31, 2021
Operating lease liabilities	1,249		1,250

Total current liabilities	86,557		68,821

Non-current liabilities
Long-term debt, net of current portion and deferred financing costs	7,063		7,114
Deferred tax liability	3,978		1,982
Finance lease liabilities, net of current portion	1,172		193
Operating lease liabilities, net of current portion	3,651		3,950
Other long-term liabilities	8,542		9,614

Total non-current liabilities	24,406		22,853

Total liabilities	$	110,963	$	91,674

4847

17. Leases

The Company has operating and finance leases for corporate offices, physicians’ offices, and certain equipment. These leases have remaining lease terms of ~~one month~~four months to ~~five~~eight years, some of which may include options to extend the leases for up to 10 years, and some of which may include options to terminate the leases within one year. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, assets recorded under finance leases were ~~$0.3~~$1.5 million and ~~$0.4~~$1.3 million, respectively, and accumulated depreciation associated with finance leases were ~~$0.5~~$0.7 million and ~~$0.4~~$0.6 million, respectively.

Also, the Company rents or subleases certain real estate to third parties, which are accounted for as operating leases.

Leases with an initial term of 12 months or less are not recorded on the balance ~~sheet.~~sheets.

The components of lease expense were as follows (in thousands):


		Three Months Ended September 30,					Three Months Ended March 31,
		2021		2020			2022		2021

Operating lease cost	Operating lease cost	$	1,379	$	1,784	Operating lease cost	$	1,574	$	1,252

Finance lease cost	Finance lease cost					Finance lease cost
Amortization of lease expense	Amortization of lease expense	27		26		Amortization of lease expense	141		27
Interest on lease liabilities	Interest on lease liabilities	3		3		Interest on lease liabilities	20		3

Sublease income	Sublease income	(235)		(206)		Sublease income	(126)		(36)

Total lease cost, net	Total lease cost, net	$	1,174	$	1,607	Total lease cost, net	$	1,609	$	1,246

Nine Months Ended
September 30,
2021 2020
Operating lease cost $ 3,893 $ 5,172
Finance lease cost
Amortization of lease expense 81 78
Interest on lease liabilities 8 11
Sublease income (709) (567)
Total lease cost, net $ 3,273 $ 4,694

4948

Other information related to leases was as follows (in thousands):

Three Months Ended
September 30,
2021 2020
Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 1,414 $ 1,489
Operating cash flows from finance leases 3 3
Financing cash flows from finance leases 27 26
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases $ — —
Nine Months Ended September 30,
2021 2020

Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 3,903 $ 4,369
Operating cash flows from finance leases 8 11
Financing cash flows from finance leases 81 78
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases $ — $ 7,652
Nine Months Ended September 30,
2021 2020
Weighted Average Remaining Lease Term
Operating leases 6.44 years 6.93 years
Finance leases 2.92 years 3.92 years
Weighted Average Discount Rate
Operating leases 6.10 % 6.10 %
Finance leases 3.00 % 3.00 %


	Three Months Ended March 31,
	2022			2021

Supplemental Cash Flow Information

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,547		$	1,196
Operating cash flows from finance leases	20			3
Financing cash flows from finance leases	141			27

















	Three Months Ended March 31,
	2022			2021

Weighted Average Remaining Lease Term

Operating leases	6.09 years			6.68 years
Finance leases	3.31 years			3.42 years

Weighted Average Discount Rate

Operating leases	6.10		%	6.10		%
Finance leases	4.31		%	3.00		%

Future minimum lease payments under non-cancellable leases as of ~~September 30, 2021,~~March 31, 2022, is as follows (in thousands):


September 30, 2021		Operating Leases		Finance Leases
2021 (excluding the nine months ended September 30, 2021)		$	950	$	29
2022		3,529		119
March 31, 2022						March 31, 2022	Operating Leases		Finance Leases
2022 (excluding the three months ended March 31, 2022)						2022 (excluding the three months ended March 31, 2022)	$	2,645	$	470
2023	2023	3,303		119		2023	3,303		539
2024	2024	2,940		79		2024	2,940		473
2025	2025	2,648		—		2025	2,648		310
2026						2026	2,070		55
Thereafter	Thereafter	6,811		—		Thereafter	4,753		—

Total future minimum lease payments	Total future minimum lease payments	20,181		346		Total future minimum lease payments	18,359		1,847
Less: imputed interest	Less: imputed interest	3,667		15		Less: imputed interest	3,176		132
Total lease liabilities	Total lease liabilities	16,514		331		Total lease liabilities	15,183		1,715
Less: current portion	Less: current portion	2,658		110		Less: current portion	2,625		543
Long-term lease liabilities	Long-term lease liabilities	$	13,856	$	221	Long-term lease liabilities	$	12,558	$	1,172

As of ~~September 30, 2021,~~March 31, 2022, the Company does not have additional operating and finance leases that have not yet commenced.

~~18. Subsequent Events~~

~~DMG~~

In October 2021, the Company entered into an agreement to purchase within three years all of the remaining equity interests in DMG. The Company currently owns 40% of DMG and has committed to purchasing the remaining 60% within three years. In accordance with relevant accounting guidance, the Company has determined that DMG is a variable interest entity of the Company; therefore, DMG's financial statements will be consolidated with those of the Company.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited consolidated financial statements and the notes thereto included in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q. In addition, reference is made to our audited consolidated financial statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, filed with the SEC on ~~March 15, 2021.~~February 28, 2022.

Overview

~~We, together with our affiliated physician-owned medical groups and consolidated entities, are~~Apollo Medical Holdings, Inc. is a leading physician-centric, ~~technology-enabled~~technology-powered, risk-bearing healthcare management company. Leveraging ~~our~~its proprietary population health management and healthcare delivery platform, ~~we operate~~ApolloMed operates an integrated, value-based healthcare ~~model. We aim~~model, which aims to empower the ~~healthcare~~ providers in ~~our~~its network to deliver the highest quality of care to ~~our~~its patients in a cost-effective manner.

Headquartered in Alhambra, California, our subsidiaries and VIEs include management services organizations (“MSOs”), affiliated independent practice associations (“IPAs”), and a Next Generation Accountable Care Organization (“NGACO”). Network Medical Management, Inc. (“NMM”) and Apollo Medical Management, Inc. (“AMM”) are the administrative and managerial services companies for the affiliated physician-owned professional corporations that contract with independent physicians to deliver medical services in-office and virtually under brands including (i) Allied Physicians of California, a Professional Medical Corporation d.b.a. Allied Pacific of California IPA (“APC”), (ii) Alpha Care Medical Group, Inc., and (iii) Accountable Health Care IPA. These affiliates are supported by ApolloMed Hospitalists, a Medical Corporation (“AMH”), and Southern California Heart Centers, a Medical Corporation (“SCHC”). Our NGACO operates under the APA ACO, Inc. (“APAACO”) brand and participates in the Centers for Medicare & Medicaid Services program, which allows provider groups to assume higher levels of financial risk and potentially achieve a higher reward under an attribution-based risk-sharing model.

We, together with our affiliated ~~physician-owned medical~~physician groups and consolidated entities, provide coordinated outcomes-based medical care ~~primarily serving patients~~ in ~~California.~~ a cost-effective manner.

The majority of our patients are covered by private or public insurance provided through Medicare, Medicaid, and health maintenance organizations (“HMOs”). However, a small portion of our revenue comes from non-insured patients. We provide care coordination services to each major constituent of the healthcare delivery system, including patients, families, primary care physicians, specialists, acute care hospitals, alternative sites of inpatient care, physician groups, and health plans. Our physician network consists of primary care physicians, specialist physicians, physician and specialist extenders, and hospitalists. We operate primarily through Apollo Medical Holdings, Inc. (“ApolloMed”) and the following subsidiaries: NMM, AMM, and APAACO and their consolidated entities, including consolidated VIEs.

Led by a management team with several decades of experience, we are focused on physicians providing high-quality medical care, population health management, and care coordination for patients. As a result, we are well positioned to take advantage of the shift in the U.S. healthcare industry toward providing value-based and results-oriented healthcare with a focus on patient satisfaction, high-quality care, and cost efficiency.

Through our ~~NGACO model~~accountable care organization and a network of IPAs with more than ~~2,000 primary care~~9,600 contracted physicians, ~~7,000 specialist physicians, 10 dual physicians, and 350 physician and specialist extenders,~~ we are ~~currently~~ responsible for coordinating care for approximately ~~1.1~~1.2 million patients primarily in ~~California.~~California as of March 31, 2022.

Recent and Other Developments

~~DMG~~Jade Health Care Medical Group

In ~~October 2021,~~April 2022, the Company ~~entered into an agreement to purchase within three years all~~completed the previously announced acquisition of 100% of the ~~remaining equity interests in DMG. The Company currently owns 40%~~fully diluted capitalization of ~~DMG~~Jade Health Care Medical Group (“Jade Health”), a primary and ~~has~~specialty care physicians' group focused on providing high-quality care to local San Francisco Bay area communities. Jade Health is committed to ~~purchasing~~delivering high-quality, affordable healthcare to Medicaid, Medicare, and Commercial members through its over 350 primary and specialty care providers. The transaction will add approximately 13,000 members, primarily located in the ~~remaining 60% within three years. In accordance with relevant accounting guidance, the Company has determined that DMG is a variable interest entity~~City and County of ~~the Company; therefore, DMG's financial statements will be consolidated with those of the Company.~~San Francisco and San Mateo County, to ApolloMed's membership under capitated arrangements.

Appointment and Departure of Certain Officers

In November 2021, the Company appointed Brandon Sim as its Co-Chief Executive Officer. With this appointment, Kenneth Sim, M.D. will no longer serve as Co-CEO of ApolloMed but will continue in his role as Executive Chairman. Over the past several months, Mr. Sim has taken leadership of the Company’s corporate strategy, operations and engineering teams, and he will continue to lead all these aspects of ApolloMed��s business as Co-CEO.

Key Financial Measures and Indicators

Operating Revenues

Our revenue, which is recorded in the period in which services are rendered and earned, primarily consists of capitation revenue, risk pool settlements and incentives, ~~NGACO AIPBP~~GPDC revenue, management fee income, and FFS revenue. The form of billing and related risk of collection for such services may vary by type of revenue and the customer.

Operating Expenses

5250

Our largest expenses ~~are~~consist of the cost of: (1) patient care ~~cost~~ paid to contracted ~~physicians~~physicians; (2) information technology equipment and ~~the cost of providing~~software and; (3) hiring staff to provide management and administrative support services to our affiliated physician ~~groups.~~groups, as further described in the following sections. These ~~management~~ services include ~~utilization and case management,~~payroll, benefits, physician practice billing, revenue cycle services, physician practice management, administrative oversight, coding services, and other consulting services.

5351

Results of Operations

Apollo Medical Holdings, Inc.

Consolidated Statements of ~~Operations~~Income

(In thousands)

(Unaudited)

Three Months Ended September 30,
2021 2020 $ Change % Change
Revenue
Capitation, net $ 149,059 $ 135,032 $ 14,027 10 %
Risk pool settlements and incentives 59,923 30,916 29,007 94 %
Management fee income 9,652 8,707 945 11 %
Fee-for-services, net 7,260 3,737 3,523 94 %
Other income 1,223 1,731 (508) (29) %
Total revenue 227,117 180,123 46,994 26 %
Operating expenses
Cost of services, excluding depreciation and amortization 147,473 121,823 25,650 21 %
General and administrative expenses 21,813 16,270 5,543 34 %
Depreciation and amortization 4,671 4,674 (3) — %
Total expenses 173,957 142,767 31,190 22 %
Income from operations 53,160 37,356 15,804 42 %
Other (expense) income
Income from equity method investments 132 403 (271) (67) %
Gain on sale of equity method investment 2,193 — 2,193 100 %
Interest expense (967) (2,466) 1,499 (61) %
Interest income 420 752 (332) (44) %
Unrealized loss on investments (60,943) — (60,943) (100) %
Other income 500 130 370 285 %
Total other expense, net (58,665) (1,181) (57,484) *
(Loss) income before (benefit from) provision for income taxes (5,505) 36,175 (41,680) (115) %
(Benefit from) provision for income taxes (120) 10,751 (10,871) (101) %
Net (loss) income (5,385) 25,424 (30,809) (121) %
Net (loss) income attributable to noncontrolling interest (39,664) 8,711 (48,375) *
Net income attributable to Apollo Medical Holdings, Inc. $ 34,279 $ 16,713 $ 17,566 105 %


	Three Months Ended March 31,
	2022		2021		$ Change		% Change
Revenue
Capitation, net	$	222,060	$	144,740	$	77,320	53	%
Risk pool settlements and incentives	18,075		18,010		65		—	%
Management fee income	10,473		8,550		1,923		22	%
Fee-for-services, net	11,095		3,086		8,009		260	%
Other income	1,555		1,672		(117)		(7)	%
Total revenue	263,258		176,058		87,200		50	%

Operating expenses
Cost of services, excluding depreciation and amortization	220,730		140,616		80,114		57	%
General and administrative expenses	11,943		9,464		2,479		26	%
Depreciation and amortization	4,374		4,197		177		4	%

Total expenses	237,047		154,277		82,770		54	%

Income from operations	26,211		21,781		4,430		20	%

Other expense
Income (loss) from equity method investments	1,433		(677)		2,110		(312)	%

Interest expense	(1,073)		(1,523)		450		(30)	%
Interest income	46		349		(303)		(87)	%
Unrealized loss on investments	(8,962)		—		(8,962)		(100)	%
Other income	613		1,304		(691)		(53)	%
Total other expense, net	(7,943)		(547)		(7,396)		*

Income before provision for income taxes	18,268		21,234		(2,966)		(14)	%

Provision for income taxes	6,195		6,776		(581)		(9)	%

Net income	12,073		14,458		(2,385)		(16)	%

Net (loss) income attributable to non-controlling interest	(2,191)		1,307		(3,498)		(268)	%

Net income attributable to Apollo Medical Holdings, Inc.	$	14,264	$	13,151	$	1,113	8	%

* Percentage change of over 500%

Nine Months Ended September 30,
2021 2020 $ Change % Change
Revenue
Capitation, net $ 438,350 $ 416,402 21,948 5 %
Risk pool settlements and incentives 94,146 54,155 39,991 74 %
Management fee income 26,345 26,212 133 1 %
Fee-for-services, net 14,968 9,434 5,534 59 %
Other income 5,006 4,194 812 19 %
Total revenue 578,815 510,397 68,418 13 %
Operating expenses
Cost of services, excluding depreciation and amortization 424,303 402,106 22,197 6 %
General and administrative expenses 45,476 39,660 5,816 15 %
Depreciation and amortization 13,105 14,004 (899) (6) %
Total expenses 482,884 455,770 27,114 6 %
Income from operations 95,931 54,627 41,304 76 %
Other income
(Loss) income from equity method investments (3,680) 3,291 (6,971) (212) %
Gain on sale of equity method investment 2,193 99,647 (97,454) (98) %
Interest expense (4,343) (8,007) 3,664 (46) %
Interest income 1,331 2,544 (1,213) (48) %
Unrealized gain on investments 22,826 — 22,826 100 %
Other (expense) income (14,080) 1,514 (15,594) *
Total other income, net 4,247 98,989 (94,742) (96) %
Income before provision for income taxes 100,178 153,616 (53,438) (35) %
Provision for income taxes 31,575 44,204 (12,629) (29) %
Net income 68,603 109,412 (40,809) (37) %
Net income attributable to noncontrolling interest 8,515 81,603 (73,088) (90) %
Net income attributable to Apollo Medical Holdings, Inc. $ 60,088 $ 27,809 32,279 116 %

* Percentage change of over 500%

Net Income Attributable to Apollo Medical Holdings, Inc.

Our net income attributable to Apollo Medical Holdings, Inc. for the three months ended ~~September 30, 2021,~~March 31, 2022, was ~~$34.3~~$14.3 million, as compared to ~~$16.7~~$13.2 million for the same period in ~~2020,~~2021, an increase of ~~$17.6~~$1.1 million.

Our net income attributable to Apollo Medical Holdings, Inc. for the nine months ended September 30, 2021, was $60.1 million, as compared to $27.8 million for the same period in 2020, an increase of $32.3 million.

Physician Groups and Patients

As of ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ we managed a total of 12 ~~and 14~~ groups of affiliated physicians, ~~respectively,~~ and the total number of patients for whom we managed the delivery of healthcare services was approximately ~~1.1~~1.2 million and 1.1 million, respectively.

Revenue

Our revenue for the three months ended ~~September 30, 2021,~~March 31, 2022, was ~~$227.1~~$263.3 million, as compared to ~~$180.1~~$176.1 million for the three months ended ~~September 30, 2020,~~March 31, 2021, an increase of ~~$47.0~~$87.2 million, or ~~26%~~50%. The increase in revenue was primarily attributable to the following:

(i) Capitation revenue increased by approximately ~~$14.0 million driven primarily by membership growth at APC and Alpha Care.~~

~~(ii) Risk pool settlement and incentive revenue increased by $29.0~~$77.3 million driven by ~~an incentive payment received from one of~~organic membership growth in our payor partners totaling approximately $14.6 million, increased risk pool revenue of $12.4 million driven by reduced utilization at ApolloMed’s partner hospitals resulting from the suspension of non-emergency medical procedures in early 2020 when the COVID-19 pandemic first began, as these revenues from ApolloMed’s partner hospitals reflect a 15-18 month lag,core IPAs and ~~a $2.0 million increase in the shared savings settlement earned from ApolloMed’s~~ participation in ~~an ACO for performance year 2020.~~a value-based Medicare fee-for-service model.

~~(iii)~~(ii) Fee for service increased by approximately ~~$3.5~~$8.0 million driven by the consolidation of Sun Labs, beginning August 2021, and DMG, beginning October 2021, which contributed ~~$2.0~~$6.3 million and increased visits to our surgery ~~and heart centers, which were~~center, that had been partially closed in the prior year due to COVID-19, ~~of $1.5~~which contributed $1.2 million.

Our revenue for the nine months ended September 30, 2021, was $578.8 million, as compared to $510.4 million for the nine months ended September 30, 2020, an increase of $68.4 million, or 13%. The increase in revenue was primarily attributable to the following:

(i) Capitation revenue increased by approximately $21.9 million driven by membership growth at APC and Alpha Care and higher average capitation rate at APC. APC and Alpha Care contributed additional capitation revenue of approximately $29.9 million and $5.7 million, respectively. This was offset with a decrease in capitation revenue at APAACO and Accountable Health Care of $4.5 million and $9.1 million, respectively. The decrease in revenue at APAACO was due to timing of claims expenditures incurred and the decrease at Accountable Health Care was a result of membership reductions.

(ii) Risk pool settlement and incentive revenue increased by $40.0 million driven by reduced utilization at ApolloMed’s partner hospitals resulting from the suspension of non-emergency medical procedures in early 2020 when the COVID-19 pandemic first began, as these revenues from ApolloMed’s partner hospitals reflect a 15-18 month lag, the reduced utilization resulted in increased risk pool revenue of $23.4 million. The remaining increase was driven by an incentive payment received from one of our payor partners totaling approximately $14.6 million and a $2.0 million increase in the shared savings settlement earned from ApolloMed’s participation in an ACO for performance year 2020.

(iii) Fee for service increased by approximately $5.5 million due to increased visits to our surgery and heart centers, which were partially closed in the prior year due COVID-19 of $3.5 million and $2.0 million as a result of the consolidation of Sun Labs beginning August 2021.

Cost of Services, ~~excluding depreciation~~Excluding Depreciation and ~~amortization~~Amortization

Expenses related to cost of services for the three months ended ~~September 30, 2021,~~March 31, 2022, were ~~$147.5~~$220.7 million, as compared to ~~$121.8~~$140.6 million for the same period in ~~2020,~~2021, an increase of ~~$25.7~~$80.1 million. The overall increase was primarily due to anexpected return to pre-COVID medical expense run rates and growth in membership which was commensurate to our increase in ~~medical claims, capitation, and other health services expenses.~~

Expenses related to cost of services for the nine months ended September 30, 2021, were $424.3 million, as compared to $402.1 million for the same period in 2020, an increase of $22.2 million. The overall increase was primarily due to an increase in medical claims, capitation, and other health services expenses.revenue.

General and Administrative Expenses

General and administrative expenses for the three months ended ~~September 30, 2021,~~March 31, 2022, were ~~$21.8~~$11.9 million, as compared to ~~$16.3~~$9.5 million for the same period in ~~2020,~~2021, an increase of ~~$5.5~~$2.5 million, or ~~34%~~26%. The increase was primarily due to an increase in ~~bonus paid certain physicians driven by the increase in shared savings earned related to the settlement of the 2020 ACO performance year.~~

~~General~~stock-based compensation and other general and administrative expenses ~~for the nine months ended September 30, 2021, were $45.5 million, as compared~~ to $39.7 million for the same period in 2020, an increase of $5.8 million, or 15%. The increase is primarily due to costs incurred as a result of the execution of the Amended Credit Facility agreement and an increase in bonus paid to certain physicians driven

by the increase in shared savings earned related to the settlement of the 2020 ACO performance year. This is partially offset by a reduction in consulting and professional costs as a result of efficiencies gained from our continued development of our in-house technology platform of approximately $1.0 million and the elimination of rent expense for properties leased by MPP, ZLL, and AMG Properties as a result of the Company's acquisition of these entities.support operational growth.

Depreciation and Amortization

Depreciation and amortization expenses for the three months ended ~~September 30, 2021,~~March 31, 2022, were ~~$4.7~~$4.4 million, as compared to ~~$4.7~~$4.2 million for the same period in ~~2020.~~2021. This amount includes depreciation of property and equipment and the amortization of intangible assets.

Depreciation and amortization expenses for the nine months ended September 30, 2021, were $13.1 million, as compared to $14.0 million for the same period in 2020. This amount includes depreciation of property and equipment and the amortization of intangible assets.Other Expense

~~(Loss) Income from Equity Method Investments~~

~~Income~~Other expense represents income, or loss, from equity method investments, interest expense, interest income, unrealized loss on investments, and other income. Our total other expense for the three months ended ~~September 30,~~March 31, 2022 was $7.9 million compared to other expenses of $0.5 million in 2021, an increase of $7.4 million. The increase in other expense was ~~$0.1~~due to unrealized loss on investments of $9.0 million ~~as compared~~and a decrease of $0.7 million due to a stimulus check received during the three months ended March 31, 2021 from the Provider Relief Fund. This was partially offset by an increase in income from equity method investments of ~~$0.4~~$2.1 million.

The $9.0 million ~~for the same period in 2020, a decrease of $0.3 million. The decrease was~~unrealized loss on investments is primarily ~~due to our investment in LMA. The Company incurred a loss of $0.3 million from LMA as a result of increased claims expense for the three months ended September 30, 2021.~~

Loss from equity method investments for the nine months ended September 30, 2021, was $3.7 million, as compared to income from equity method investments of $3.3 million for the same period in 2020, a decrease of $7.0 million. The decrease was partially due to the sale of UCI in April 2020. For the nine months ended September 30, 2020, UCI contributed equity earnings of $3.6 million. The additional decrease is from our investment in LMA. For the nine months ended September 30, 2021, the Company incurred a loss of $4.7 million from LMA as a result of increased claims expense as compared to equity earnings of $1.8 million for the nine months ended September 30, 2020.

~~Interest Expense~~

Interest expense for the three months ended September 30, 2021, was $1.0 million, as compared to $2.5 million for the same period in 2020, a decrease of $1.5 million. The decrease in interest expense for the three months ended September 30, 2021 was due to lower interest rates and lower outstanding debt balance at September 30, 2021 as compared to September 30, 2020.

Interest expense for the nine months ended September 30, 2021, was $4.3 million, as compared to $8.0 million for the same period in 2020, a decrease of $3.7 million. The decrease in interest expense for the nine months ended September 30, 2021, was primarily due to the Company refinancing their Credit Facility to the Amended Credit Facility in June 2021 which resulted in lower interest rates for the nine months ended September 30, 2021, as compared to the same periods in 2020.

~~Interest Income~~

Interest income for the three and nine months ended September 30, 2021, was $0.4 million and $1.3 million, respectively, as compared to $0.8 million and $2.5 million, respectively, for the three and nine months ended September 30, 2020. Interest income reflects interest earned on cash held in money market and certificate of deposit accounts and the interest from notes receivable.

~~Unrealized (Loss) Gain on Investments~~

~~For the three and nine months ended September 30, 2021 we recognized~~driven by an unrealized loss of ~~$60.9~~$10.6 million ~~and unrealized gain of $22.8 million, respectively. The unrealized loss and gain is driven by~~due to fluctuations in the stock price of a payor partner in which we hold ~~shares in.~~shares. There was no unrealized gain or loss for the three months ended March 31, 2021 because the payor partner became a publicly traded company in June 2021. The unrealized loss was partially offset by an unrealized gain of $1.6 million due to fluctuations in Tag 8 and APC’s interest rate swap. These shares and interest rate swap are ~~recorded as marketable securities and~~ deemed an Excluded Assets that are solely for the benefit of APC and its shareholders. Any resulting gain or loss does not impact net income attributable to Apollo Medical Holdings, Inc.

~~Other Income (Expense)~~

~~Other~~The $2.1 million increase in income from equity method investments was primarily due to APC’s equity method investment in LMA. For the three months ended March 31, 2022, $1.3 million in income was recognized as compared to $0.7 million loss recognized for the three months ended ~~September 30, 2021, was $0.5 million, as compared to $0.1 million for the same period in 2020, an increase of $0.4 million.~~March 31, 2021.

5753

Other expense for the nine months ended September 30, 2021, was $14.1 million, as compared to income of $1.5 million for the same period in 2020, a decrease of $15.6 million. The decrease was primarily due to the write-off of certain beneficial interest related to the UCI disposition totaling $15.7 million. The beneficial interest was an Excluded Assets that was deemed solely for the benefit of APC and its shareholders. As such, the write-off did not result in any impact to net income attributable to Apollo Medical Holdings, Inc.

~~(Benefit from)~~ Provision for Income Taxes

~~Benefit from provision~~Provision for income taxes was ~~$0.1~~$6.2 million for the three months ended ~~September 30, 2021,~~March 31, 2022, as compared to provision for income taxes of ~~$10.8~~$6.8 million for the same period in ~~2020.~~2021. This was due to a decrease in pre-tax income for the three months ended ~~September 30, 2021,~~March 31, 2022, period as compared to the same period in ~~2020, as described above.~~

~~Provision for income taxes was $31.6 million for the nine months ended September 30,~~ 2021, as compared to $44.2 million for the same period in 2020. The decrease in provision for income taxes was due to a decrease in pre-tax income for the nine months ended September 30, 2021, period as compared to the same period in 2020, as described above.

Net (Loss) Income Attributable to ~~Noncontrolling~~Non-controlling Interests

Net loss attributable to ~~noncontrolling~~non-controlling interests for the three months ended ~~September 30, 2021,~~March 31, 2022, was ~~$39.7~~$2.2 million, as compared to net income attributable to ~~noncontrolling~~non-controlling interests for the three months ended ~~September 30, 2020~~March 31, 2021 of ~~$8.7~~$1.3 million, respectively, a decrease of ~~$48.4~~$3.5 million. The decrease was primarily driven by an unrealized loss resulting from a decreased fair value in our marketable securities related to shares held of a payor partner.

Net income attributable to noncontrolling interests for the nine months ended September 30, 2021 and September 30, 2020, was $8.5 million and $81.6 million, respectively, a decrease of $73.1 million. The decrease was primarily driven by the sale of UCI which was completed in April 2020.

~~2021~~2022 Guidance

ApolloMed is raising its ~~full-year 2021~~ guidance for total revenue and the lower end of its guidance ranges for net income, EBITDA, and adjusted EBITDA, previously disclosed on ~~August 5, 2021,~~March 14, 2022, as a result of ~~its continued~~strong organic membership growth and increased risk pool settlements and incentives revenue as a result of reduced utilization at ApolloMed’s partner hospitals in 2020 during the COVID-19 pandemic and a shared savings settlement of $21.8 million from ApolloMed's participation in an Accountable Care Organization ("ACO") for the 2020 performance year.favorable membership mix. Net income and EBITDA include the impact of ~~APC~~APC’s investment in a ~~payor~~payer partner, which completed an initial public offering to become a publicly traded company in June 2021. As APC’s investment is an excluded asset solely for the benefit of APC and its shareholders, any gains or losses as a result of this investment do not affect the net income attributable to ApolloMed and adjusted EBITDA attributable to ApolloMed. The ~~November 4, 2021~~May 5, 2022, revised net income and EBITDA guidance ranges assume a stock price of the ~~payor~~payer partner of ~~$8.49.~~$1.93. These assumptions are based on the Company’s existing business, current view of existing market conditions and assumptions for the year ending December 31, ~~2021.~~2022.

(in millions) 2021 Guidance Range 2021 Guidance Range
(as of August 5, 2021) (as of November 4, 2021)
Low High Low High
Total revenue $ 700.0 $ 720.0 $ 751.5 $ 758.5
Net income $ 56.0 $ 66.0 $ 81.0 $ 83.5
Net income attributable to ApolloMed $ 48.0 $ 58.0 $ 71.5 $ 73.5
Earnings per share - diluted * * $ 1.58 $ 1.62
EBITDA $ 100.0 $ 119.0 $ 139.0 $ 143.0
Adjusted EBITDA $ 120.5 $ 130.5 $ 168.5 $ 170.5

*Range was not previously provided as of August 5, 2021.


($ in millions)	2022 Guidance Range				2022 Guidance Range
	(as of March 14, 2022)				(as of May 5, 2022)
	Low		High		Low		High
Total revenue	$	1,030.0	$	1,080.0	$	1,055.0	$	1,085.0
Net income	$	33.0	$	57.0	$	38.0	$	57.0
EBITDA	$	72.0	$	111.0	$	81.0	$	111.0
Adjusted EBITDA	$	130.0	$	166.0	$	136.0	$	166.0

See “Guidance Reconciliation of Net Income to EBITDA and ~~adjusted~~Adjusted EBITDA” and “Use of Non-GAAP Financial Measures” below for additional information. There can be no assurance that actual amounts will not be materially higher or lower than these expectations. See “Forward-Looking Statements” ~~within this Quarterly Report on Form 10-Q.~~

below for additional information.

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Guidance Reconciliation of Net Income to EBITDA and Adjusted EBITDA
Guidance Reconciliation of Net Income to EBITDA and Adjusted EBITDA*										Guidance Reconciliation of Net Income to EBITDA and Adjusted EBITDA*
		2021 Guidance Range				2021 Guidance Range					2022 Guidance Range
		(as of August 5, 2021)				(as of November 4, 2021)					(as of May 5, 2022)
(in thousands)	(in thousands)									(in thousands)
		Low		High		Low		High			Low		High
Net income	Net income	$	56,000	$	66,000	$	81,000	$	83,500	Net income	$	38,000	$	57,000
Interest expense	Interest expense	6,000		8,400		5,000		6,000		Interest expense	4,000		4,000
Interest income		(1,500)		(2,400)		(1,200)		(1,700)
Provision for income taxes	Provision for income taxes	24,000		29,000		37,000		38,000		Provision for income taxes	20,000		31,000
Depreciation and amortization	Depreciation and amortization	15,500		18,000		17,200		17,200		Depreciation and amortization	19,000		19,000
EBITDA	EBITDA	100,000		119,000		139,000		143,000		EBITDA	81,000		111,000

Income (loss) from equity method investments		3,500		(500)		(3,900)		(3,600)
Investment in payor partner		(9,000)		(9,000)		—		—
Provider bonus payments	Provider bonus payments	6,000		6,000		8,900		8,900		Provider bonus payments	16,000		16,000
Stock-based compensation										Stock-based compensation	13,000		13,000
APC excluded assets costs										APC excluded assets costs	9,000		9,000
Net loss adjustment for recently acquired IPAs	Net loss adjustment for recently acquired IPAs	20,000		15,000		24,500		22,200		Net loss adjustment for recently acquired IPAs	17,000		17,000
Adjusted EBITDA	Adjusted EBITDA	$	120,500	$	130,500	$	168,500	$	170,500	Adjusted EBITDA	$	136,000	$	166,000


Reconciliation of Net Income to EBITDA and Adjusted EBITDA

	Three Months Ended March 31,
(in thousands)	2022			2021

Net income	$	12,073		$	14,458
Interest expense	1,073			1,523
Interest income	(46)			(349)
Provision for income taxes	6,195			6,776
Depreciation and amortization	4,374			4,197
EBITDA	23,669			26,605

(Income) loss from equity method investments	(1,433)			677
Other income	(613)		(1)	(1,304)
Unrealized loss on investments	8,962			—


Stock-based compensation	3,055			1,346
APC excluded assets costs	750			—
Net loss adjustment for recently acquired IPAs	3,789			3,194
Adjusted EBITDA	$	38,179		$	30,518

(1) Other income excludes the impact of fair value of certain equity securities held by the Company.

Use of Non-GAAP Financial Measures

This Quarterly Report on Form 10-Q contains the non-GAAP financial measures EBITDA and adjusted EBITDA, of which the most directly comparable financial measure presented in accordance with U.S. generally accepted accounting principles (“GAAP”) is net (loss) income. These measures are not in accordance with, or an alternative to, GAAP, and may be different from other non-GAAP financial measures used by other companies. The Company uses adjusted EBITDA as a supplemental performance measure of our operations, for financial and operational decision-making, and as a supplemental means of evaluating period-to-period comparisons on a consistent basis. Adjusted EBITDA is calculated as earnings before interest, taxes, depreciation, and amortization, excluding income or loss from equity method investments, unrealized gain or loss, provider bonuses, ~~impairment of intangibles, provision of doubtful accounts,~~APC excluded assets costs, stock-based compensation, net loss adjustment for recently acquired IPAs, and other income ~~earned~~or expenses recognized that isare not related to the Company’s normal operations. Adjusted EBITDA also excludes the effect on EBITDA of certain IPAs we recently acquired.

The Company believes the presentation of these non-GAAP financial measures provides investors with relevant and useful information, as it allows investors to evaluate the operating performance of the business activities without having to account for differences recognized because of non-core or non-recurring financial information. When GAAP financial measures are viewed in conjunction with non-GAAP financial measures, investors are provided with a more meaningful understanding of the Company’s ongoing operating performance. In addition, these non-GAAP financial measures are among those indicators the Company uses as a basis for evaluating operational performance, allocating resources, and planning and forecasting future periods. Non-GAAP financial measures are not intended to be considered in isolation from, or as a substitute for, GAAP financial measures. To the extent this release contains historical or future non-GAAP financial measures, the Company has provided corresponding GAAP financial measures for comparative purposes. The reconciliation between certain GAAP and non-GAAP measures is provided above.

Liquidity and Capital Resources

Cash, cash equivalents, and investment in marketable securities at ~~September 30, 2021,~~March 31, 2022, totaled ~~$333.3~~$280.8 million as compared to ~~$261.2~~$286.5 million at December 31, ~~2020.~~2021. Working capital totaled ~~$310.5~~$284.0 million at ~~September 30, 2021,~~March 31, 2022, as compared to ~~$223.6~~$283.4 million at December 31, ~~2020,~~2021, an increase of ~~$86.9 million, or 39%.~~$0.6 million.

We have historically financed our operations primarily through internally generated funds. We generate cash primarily from capitation contracts, risk pool settlements and incentives, fees for medical management services provided to our affiliated physician groups, and ~~fee-for-service~~FFS reimbursements. We generally invest cash in money market accounts, which are classified as cash and cash equivalents. We believe we have sufficient liquidity to fund our operations through at least the next 12 months.

Our cash, cash equivalents, and restricted cash increased by ~~$10.8~~$4.8 million from ~~$194.0~~$233.1 million at December 31, ~~2020,~~2021, to ~~$204.8~~$237.9 million at ~~September 30, 2021.~~March 31, 2022. Cash provided by operating activities for the ~~nine~~three months ended ~~September 30, 2021,~~

March 31, 2022, was ~~$82.5~~$24.0 million, as compared to cash provided by operating activities of ~~$48.8~~$10.0 million for the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. The increase in cash provided by operating activities was primarily driven cash received from revenues and cash paid for cost of revenues and operating expenses, and changes in operating assets and liabilities, including the timing of income tax payments. Our primary source of cash provided by ~~increase in earnings adjusted for non-cash items of approximately $89.4 million for the nine months ended September 30, 2021 compared to $17.9 million for the nine months ended September 30, 2020~~our operations are capitation revenues and timing of ~~working capital accounts. For the nine months ended September 30, 2021, prepaid expenses~~our risk pool and ~~other current assets~~incentive settlements. Use of cash from our operating activities include payments to contracted physicians for providing patient care and ~~accounts payable and accrued expenses resulted~~personnel-related costs to support our continued growth in cash inflow of $19.4 million, while receivable, net, receivable, net - related parties, other receivable, medical liabilities, and income taxes payable resulted in cash outflow of $24.5 million. For the nine months ended September 30, 2020, receivable, net - related parties, other receivables, accounts payable and accrued expenses, fiduciary accounts payable, and income taxes payable resulted in cash inflow of $45.8 million, while receivable, net, prepaid expenses and other current assets, other assets, and medical liabilities resulted in a cash outflow of $15.4 million.operations.

Cash used in investing activities during the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, was ~~$22.5~~$19.7 million, primarily due to purchases of property and equipment of ~~$16.4~~$17.5 million, payments for business acquisition of ~~$2.6~~$1.0 million, and funding for an equity method investment of ~~$13.4 million, and purchase of marketable securities of $1.0~~$1.4 million. The cash used in investing activities was partially offset by ~~cash~~a distribution received from ~~consolidation of Tag 8 of $3.3 million, proceeds from sale of~~an equity method investment of ~~$6.4~~$0.2 million. Cash provided by investing activities during the three months ended March 31, 2021, was $0.7 million, ~~and~~primarily due to proceeds from sale of marketable securities of $1.1 million offset by purchases of marketable securities of $0.3 million and purchases of property and equipment of $0.1 million. ~~This is~~

Cash provided by financing activities during the three months ended March 31, 2022, was $0.5 million as compared to cash provided by ~~investing~~financing activities ~~during~~of $1.3 million for the ~~nine~~three months ended ~~September 30, 2020, of $66.4 million, which~~March 31, 2021. Cash provided by financing activities for the three months ended March 31, 2022 was primarily due to proceeds received related to the sale of UCI totaling $52.7 million and loan receivables of $16.5 million offset with cash outflow related to the purchase of marketable securities of $1.8 million, fundinga borrowing on Tag 8’s Construction Loan for ~~an equity method investment of $0.5 million, and capital expenditures (mainly purchases of property and equipment) of $0.5 million.~~

Cash used in financing activities during the nine months ended September 30, 2021, was $49.2 million as compared to cash used in financing activities of $52.3 million for the nine months ended September 30, 2020. Cash used for the nine months ended September 30, 2021 was primarily due to repayment of long-term debt of $238.3 million, dividend payment of $31.1 million, and repurchase of shares of $5.7 million. The cash used in financing activities was partially offset by a drawdown of $180.0 million on the Amended Credit Facility, proceeds from sale of shares of $40.1$0.7 million and proceeds from the exercise of options and warrants of ~~$6.6~~$1.6 million. This ~~is compared to cash used in financing activities for the nine months ended September 30, 2020~~was partially offset by dividend payment of ~~$52.3~~$1.2 million, ~~which was due to the payments of dividends totaling $50.1 million, repayment on our term loan totaling $7.1 million and~~ repurchase of shares of ~~$1.6~~$0.2 million, ~~offset with~~purchase of non-controlling interest of $0.2 million and repayment of finance lease obligations of $0.1 million. Cash provided for the three months ended March 31, 2021 was due to proceeds from the exercise of stock options and warrants for $4.3 million offset by the Company’s repayment of ~~$6.6~~term loan of $2.4 million, repurchase of shares $0.3 million, and distribution of non-controlling interest of $0.2 million.

Excluded Assets

In September 2019, APC and AP-AMH entered into Second Amendment to Series A Preferred Stock Purchase Agreement, which clarified the term “Excluded Assets”. “Excluded Assets” means (i) assets received from the sale of shares of the Series A Preferred Stock equal to the Series A Purchase Price (as defined in the purchase agreement), (ii) the assets of APC that are not Healthcare Services Assets (as defined in the purchase agreement), including APC’s equity interests in ~~Universal Care, Inc.,~~ Apollo Medical Holdings, Inc., and any entity that is primarily engaged in the business of owning, leasing, developing, or otherwise operating real estate, (iii) any assets acquired with the proceeds of the sale, assignment, or other disposition of any of the assets described in clauses (i) or (ii), and (iv) any proceeds of the assets described in clauses (i), (ii), and (iii).

The Excluded Assets as of ~~September 30, 2021,~~March 31, 2022, are primarily comprised of assets and liabilities from operating real estate and proceeds from the sale of UCI. Any dividends issued to APC shareholders are paid using cash from Excluded Assets. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Excluded Assets balance consisted of the following (in thousands):

September 30, 2021 December 31, 2020
Cash and cash equivalents $ 31,701 $ 38,773
Investment in marketable securities (1)
124,569 66,534
Land, property, and equipment, net 44,014 24,466
Loan receivable – related parties 4,050 4,145
Investments in other entities – equity method 24,581 25,847
Investments in privately held entities — 36,179
Other receivable 824 15,723
Other liabilities (1,341) —
Long-term debt (7,452) (7,580)
Total Excluded Assets $ 220,946 $ 204,087

~~(1)~~ The increase in investment in marketable securities is due to a 1-to-3 conversion of a payor partner’s preferred shares to common stock as a result of the payor partner becoming a public company in June 2021. Prior to the payor partner becoming a public company, the preferred shares were recognized as investments in privately held entities.


	March 31, 2022		December 31, 2021

Cash and cash equivalents	$	45,511	$	62,540
Investment in marketable securities	38,534		49,066
Land, property, and equipment, net	59,150		42,114
Loan receivable – related parties	4,000		4,000
Investments in other entities – equity method	26,225		24,969

Other receivable and assets	584		936
Other liabilities	(295)		(1,178)
Long-term debt	(7,955)		(7,645)

Total Excluded Assets	$	165,754	$	174,802

Credit Facilities

The Company’s debt balance consisted of the following (in thousands):


	~~September 30, 2021~~March 31, 2022

Revolver Loan	$	180,000
Real Estate Loans	~~7,447~~7,344
Construction Loan	771,291
Total debt	~~187,524~~188,635

Less: Current portion of debt	~~(207)~~(1,503)
Less: Unamortized financing costs	~~(4,504)~~(4,031)

Long-term debt	$	~~182,813~~183,101

The following are the future commitments of the Company’s debt for the years ending December 31 (in thousands):

Amount
2021 (excluding the nine months ended September 30, 2021) $ 55
2022 285
2023 215
2024 222
2025 and thereafter 186,747
Total $ 187,524


	Amount
2022 (excluding the three months ended March 31, 2022)	$	1,450
2023	215
2024	222
2025	6,748
2026 and thereafter	180,000

Total	$	188,635

Credit Agreement

On June 16, 2021, the Company entered into an amended and restated credit agreement (the “Amended Credit Agreement” and the credit facility thereunder, the “Amended Credit Facility”) with Truist Bank, in its capacities as administrative agent for the lenders (in such capacity, the “Agent”), issuing bank, swingline lender and a lender, Truist Securities, Inc., JPMorgan Chase Bank, N.A., MUFG Union Bank, N.A., Preferred Bank, Royal Bank of Canada, and Fifth Third Bank, National Association, in their capacities as joint lead arrangers and/or lenders (the “Lenders”), and Bank of the West, The Toronto-Dominion Bank, New York Branch, Well Fargo, National Association, and City National Bank in their capacities as Lenders, to, among other things, amend and restate that certain credit agreement, dated September 11, 2019, by and among the Company, certain Lenders and the Agent, in its entirety.

The Amended Credit Agreement provides for a five-year revolving credit facility (“Revolver Loan”) to the Company of $400.0 million, which includes a letter of credit sub-facility of up to $25.0 million and a swingline loan sub-facility of $25.0 million. The revolving credit facility will be used to, among other things, refinance certain existing indebtedness of the Company and certain subsidiaries, finance certain future acquisitions and investments, and provide for working capital needs and other general corporate purposes. Under the Amended Credit Agreement, the terms and conditions of the Guaranty and Security Agreement remain in effect.

The Amended Credit Agreement requires the Company to comply with two key financial ratios, each calculated on a consolidated basis.

Covenant Ratios (1)

Requirement

~~September 30, 2021~~March 31, 2022

Consolidated leverage ratio

Less than 3.75 to 1.00

~~1.06~~1.04

Consolidated interest coverage ratio

Greater than 3.25 to 1.00

~~25.55~~27.03

(1) All covenant ratio titles utilize terms as defined in the respective debt agreements.

Refer to Note 9 – “Credit Facility, Bank Loans, and Lines of Credit” to our consolidated financial statements under Item 1 in this Quarterly Report on Form 10-Q for additional information.

Deferred Financing Costs

Effective Interest Rate

The Company’s average effective interest rate on its total debt during the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, were 1.78% and ~~2020, were 2.15% and 3.79%~~2.08%, respectively. Interest expense in the consolidated statements of ~~operations~~income included amortization of deferred debt issuance costs for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ of $0.2 million and $0.3 ~~million, respectively, and $0.9 million and $1.0~~ million, respectively.

Real Estate Loans

On December 31, 2020, using cash comprised solely of Excluded Assets, APC purchased a 100% interest in MPP, AMG Properties, and ZLL. As a result of the purchase on the date of acquisition, APC assumed $6.4 million, $0.7 million, and $0.7 million of existing loans held by MPP, AMG Properties, and ZLL, respectively. Refer to Note 9 – “Credit Facility, Bank Loans, and Lines of Credit” to our consolidated financial statements under Item 1 in this quarterly report on Form 10-Q for additional information.

Construction Loan

In April 2021, Tag 8 entered into a construction loan agreement with MUFG Union Bank N.A. (“Construction Loan”) that allows Tag 8 to borrow up to $10.7 million. Tag 8 is a VIE consolidated by the Company. Refer to Note 9 – “Credit

Facility, Bank Loans, and Lines of Credit” to our consolidated financial statements under Item 1 in this quarterly report on Form 10-Q for additional information.

Intercompany Loans

Each of AMH, MMG, AKM Medical Group, Inc. (“AKM”), SCHC, and Bay Area Hospitalist Associates (“BAHA”) has entered into an Intercompany Loan Agreement with AMM under which AMM has agreed to provide a revolving loan commitment to each such affiliated entity in an amount set forth in each Intercompany Loan Agreement. Each Intercompany Loan Agreement provides that AMM’s obligation to make any advances automatically terminates upon the termination of the management agreement with the applicable affiliated entity. In addition, each Intercompany Loan Agreement provides that (i) any material breach by the shareholder of record of the applicable Physician Shareholder Agreement or (ii) the termination of the management agreement with the applicable affiliated entity constitutes an event of default under the Intercompany Loan Agreement. All the intercompany loans have been eliminated in consolidation (in thousands).


						Nine Months Ended September 30, 2021													Three months ended March 31, 2022
Entity	Entity	Intercompany Credit Facility		Interest Rate per Annum		Maximum Balance During Period		Ending Balance		Principal Paid During Period		Interest Paid During Period		Entity	Intercompany Credit Facility		Interest Rate per Annum		Maximum Balance During Period		Ending Balance		Principal Paid During Period		Interest Paid During Period
AMH	AMH	$	10,000	10	%	$	6,588	$	6,588	$	—	$	—	AMH	$	10,000	10	%	$	6,588	$	6,588	$	—	$	—
MMG	MMG	3,000		10	%	3,663		3,663		—		—		MMG	3,000		10	%	3,663		3,663		—		—
AKM	AKM	5,000		10	%	—		—		—		—		AKM	5,000		10	%	—		—		—		—
SCHC	SCHC	5,000		10	%	5,362		5,362		—		—		SCHC	5,000		10	%	5,362		5,362		—		—
BAHA	BAHA	250		10	%	4,066		3,945		—		—		BAHA	250		10	%	4,066		3,945		—		—
		$	23,250			$	19,679	$	19,558	$	—	$	—		$	23,250			$	19,679	$	19,558	$	—	$	—

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires our management to make judgments, assumptions, and estimates that affect the amounts of revenue, expenses, income, assets, and liabilities, reported in our consolidated financial statements and accompanying notes. Actual results and the timing of recognition of such amounts could differ from those judgments, assumptions, and estimates. In addition, judgments, assumptions, and estimates routinely require adjustment based on changing circumstances and the receipt of new or better information. Understanding our accounting policies and the extent to which our management uses judgment, assumptions, and estimates in applying these policies, therefore, is integral to understanding our financial statements. Critical accounting policies and estimates are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. We summarize our most significant accounting policies in relation to the accompanying consolidated financial statements in Note 2 — “Basis of Presentation” thereto. Please also refer to the Critical Accounting Policies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021.

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New Accounting Pronouncements

See Note 2 — “Basis of Presentation” to the accompanying consolidated financial statements for recently issued accounting pronouncements, including information on new accounting standards and the future adoption of such standards.

Off-Balance Sheet Arrangements

As of ~~September 30, 2021,~~March 31, 2022, we had no off-balance sheet arrangements that are or have been reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.

Inflation

Inflation and changing prices have had de minimis effect on our continuing operations over our two most recent fiscal years.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Borrowings under our Amended Credit Agreement exposed us to interest rate risk. As of ~~September 30, 2021,~~March 31, 2022, we had $180.0 million in outstanding borrowings under our Amended Credit Agreement. The amount borrowed under the Credit Agreement bears interest at an annual rate equal to either, at the Company’s option, (a) the rate for Eurocurrency deposits for the corresponding deposits of U.S. dollars appearing on LIBOR, adjusted for any reserve requirement in effect, plus a spread of 1.25% to ~~2.5%~~2.50%, as determined on a quarterly basis based on the Company’s leverage ratio, or (b) a base rate, plus a spread of 0.25% to ~~1.5%~~1.50%, as determined on a quarterly basis based on the Company’s leverage ratio. The base rate is defined in a manner such that it will not be less than LIBOR. In addition, as of ~~September 30, 2021,~~March 31, 2022, Tag 8, a VIE consolidated by the Company, had ~~$0.1~~$1.3 million in outstanding borrowings for the Construction Loan. Interest rate on the “Construction Loan” is equal to an index rate determined by the bank. Furthermore, as of ~~September 30, 2021,~~March 31, 2022, APC had ~~$7.4~~$7.3 million in outstanding borrowings for real estate loans related to ZLL, MPP, and AMG Properties (“Real Estate Loans”). Each agreement bears interest that is subject to change from time to time based on changes in an independent index, which is the daily Wall Street Journal Prime Rate, as quoted in the “Money Rates” column of The Wall Street Journal (Western edition) as determined by the Lender (the “Index”). On the dates of the agreement, the Index is 3.25% per annum. Under no circumstances will the interest rate on this loan be less than ~~3.500%~~3.50% per annum or more than the maximum rate allowed by applicable law. The Company has entered into interest rate swap agreements for certain of these agreements to effectively convert its floating-rate debt to a fixed-rate basis. The principal objective of these contracts is to eliminate or reduce the variability of the cash flows in interest payments associated with the Company’s floating-rate debt, thus reducing the impact of interest rate changes on future interest payment cash flows. A hypothetical 1% change in our interest rates for our outstanding borrowings under our Credit Agreement, Construction Loan, and Real Estate Loans would have increased or decreased our interest expense for the three months ended ~~September 30, 2021,~~March 31, 2022, by $1.9 million.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of ~~September 30, 2021,~~March 31, 2022, we carried out an evaluation, under the supervision and with the participation of our management, including our Co-Chief Executive Officers and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including Co-Chief Executive Officers and Chief Financial Officer, concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15(d)-15(e) under the Exchange Act, were effective as of ~~September 30, 2021,~~March 31, 2022, to ensure that information required to be disclosed by us in this Quarterly Report on Form 10-Q or submitted under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to our management, including our principal executive officers and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under Exchange Act) during our ~~third~~first fiscal quarter of ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the ordinary course of our business, we from time to time become involved in pending and threatened legal actions and proceedings. Many of the Company’s payor and provider contracts are complex in nature and may be subject to differing interpretations regarding amounts due for the provision of medical services, which may not come to light until a substantial period of time has passed following contract implementation. We may also become subject to other lawsuits which could involve significant claims and/or significant defense costs, but as of the date of this Quarterly Report on Form 10-Q, except as disclosed, we are not a party to any lawsuit or proceeding which management expects to, individually or in the aggregate, have a material adverse effect on us or our business. The resolution of any claim or litigation is subject to inherent uncertainty and could have a material adverse effect on the Company’s financial condition, cash flows, or results of operations.

ITEM 1A. RISK FACTORS

Our business, financial condition, and operating results are affected by a number of factors, whether currently known or unknown, including risks specific to us or the healthcare industry, as well as risks that affect businesses in general. In addition to the information and risk factors set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, filed with the SEC on ~~March 15, 2021.~~February 28, 2022. The risks disclosed in such Annual Report and in this Quarterly Report could materially adversely affect our business, financial condition, cash flows, or results of operations and thus our stock price. We believe there have been no material changes in our risk factors from those disclosed in the Annual Report. However, additional risks and uncertainties not currently known or which we currently deem to be immaterial may also materially adversely affect our business, financial condition, or results of operations.

These risk factors may be important to understanding other statements in this Quarterly Report and should be read in conjunction with the consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q. Because of such risk factors, as well as other factors affecting the Company’s financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None for the three months ended ~~September 30, 2021.~~March 31, 2022.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

The following exhibits are either incorporated by reference into or filed or furnished with this Quarterly Report on Form 10-Q, as indicated below.


Exhibit No.						Description

2.1†						Agreement and Plan of Merger, dated December 21, 2016, among Apollo Medical Holdings, Inc., Network Medical Management, Inc., Apollo Acquisition Corp., and Kenneth Sim, M.D. (the “Merger Agreement”) (incorporated herein by reference to Annex A to the joint proxy statement/prospectus filed pursuant to Rule 424(b)(3) on November 15, 2017, that is a part of a Registration Statement on Form S-4)

2.2						Amendment to the Merger Agreement, dated March 30, 2017, among Apollo Medical Holdings, Inc., Network Medical Management, Inc., Apollo Acquisition Corp., and Kenneth Sim, M.D. (incorporated herein by reference to Annex A to the joint proxy statement/prospectus filed pursuant to Rule 424(b)(3) on November 15, 2017 that is a part of a Registration Statement on Form S-4)

2.3						Amendment No. 2 to the Merger Agreement, dated October 17, 2017, among Apollo Medical Holdings, Inc., Network Medical Management, Inc., Apollo Acquisition Corp. and Kenneth Sim, M.D. (incorporated herein by reference to Annex A to the joint proxy statement/prospectus filed pursuant to Rule 424(b)(3) on November 15, 2017 that is a part of a Registration Statement on Form S-4)

2.4†						Stock purchase agreement dated March 15, 2019 (incorporated herein by reference to Exhibit 2.4 to the Company’s Quarterly Report on Form 10-Q filed on May 10, 2019)

3.1						Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on January 21, 2015)

3.2						Certificate of Amendment of Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on April 27, 2015)

3.3						Certificate of Amendment of Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on December 13, 2017)

3.4						Certificate of Amendment of Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed June 21, 2018)

3.5						Restated Bylaws (incorporated herein by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed on November 16, 2015)

3.6						Amendment to Sections 3.1 and 3.2 of Article III of Bylaws (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on December 13, 2017)

3.7						Amendment to Sections 3.1 and 3.2 of Article III of Bylaws (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on June 21, 2018)

4.1						Certificate of Designation of Series A Convertible Preferred Stock (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 19, 2015).

4.2						Amended and Restated Certificate of Designation of Apollo Medical Holdings, Inc. (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on April 4, 2016).

4.3						Form of Certificate for Common Stock of Apollo Medical Holdings, Inc., par value $0.001 per share (incorporated herein by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-K filed on April 2, 2018).

4.4						Form of Warrant issued as Merger Consideration pursuant to the Merger Agreement for the purchase of Common Stock of Apollo Medical Holdings, Inc., exercisable at $11.00 per share (incorporated herein by reference to Exhibit 4.3 to the Company’s Annual Report on Form 10-K filed on April 2, 2018).

4.5						Form of Warrant issued as Merger Consideration pursuant to the Merger Agreement for the purchase of Common Stock of Apollo Medical Holdings, Inc., exercisable at $10.00 per share (incorporated herein by reference to Exhibit 4.4 to the Company’s Annual Report on Form 10-K filed on April 2, 2018).

4.6						Common Stock Purchase Warrant (“Series A Warrant”) dated October 14, 2015, originally issued by Apollo Medical Holdings, Inc. to Network Medical Management, Inc. to purchase 1,111,111 shares of common stock and subsequently issued as Merger Consideration pursuant to the Merger Agreement (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 19, 2015).

6764


4.7						Form of Assignment of Series A Warrant as Merger Consideration pursuant to the Merger Agreement (incorporated herein by reference to Exhibit 4.6 to the Company’s Annual Report on Form 10-K filed on April 2, 2018).

4.8						Common Stock Purchase Warrant (“Series B Warrant”) dated March 30, 2016, originally issued by Apollo Medical Holdings, Inc. to Network Medical Management, Inc. to purchase 555,555 shares of common stock and subsequently issued as Merger Consideration pursuant to the Merger Agreement (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on April 4, 2016).

4.9						Form of Assignment of Series B Warrant as Merger Consideration pursuant to the Merger Agreement (incorporated herein by reference to Exhibit 4.8 to the Company’s Annual Report on Form 10-K filed on April 2, 2018).

4.10						Description of Registered Securities

31.1*						Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*						Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3*						Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32**						Certification of Principal Executive Officers and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*						XBRL Instance Document

101.SCH*						XBRL Taxonomy Extension Schema Document

101.CAL*						XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*						XBRL Taxonomy Extension Definition Linkbase

101.LAB*						XBRL Taxonomy Extension Label Linkbase Document
101.PRE*						XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*						Filed herewith.

**						Furnished herewith

†						The schedules and exhibits thereof have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished to the SEC upon request.

6865

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	APOLLO MEDICAL HOLDINGS, INC.

Dated: ~~November 5, 2021~~May 10, 2022	By:	/s/ Thomas Lam
		Thomas Lam, M.D., M.P.H. Co-Chief Executive Officer & President (Principal Executive Officer)

Dated: ~~November 5, 2021~~May 10, 2022	By:	/s/ Brandon Sim
		Brandon Sim Co-Chief Executive Officer (Principal Executive Officer)

Dated: ~~November 5, 2021~~May 10, 2022	By:	/s/ ~~Eric Chin~~Chandan Basho
		~~Eric Chin~~Chandan Basho Interim Chief Financial Officer (Principal Financial Officer)

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	September 30,
	2021		2020
Cash and cash equivalents	$	204,768	$	166,082

Restricted cash – noncurrent	—		746
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	204,768	$	166,828


	As of September 30, 2021		As of December 31, 2020


Payor C	13.7	%	*
Payor F	42.0	%	43.9	%
Payor G	25.8	%	36.5	%


	Useful Life (Years)	Gross September 30, 2021		Accumulated Amortization		Net September 30, 2021
Indefinite lived assets:
Trademarks	N/A	$	996	$	—	$	996
Amortized intangible assets:
Network relationships	11-15	$	148,845	$	(82,117)	$	66,728
Management contracts	15	22,832		(13,128)		9,704
Member relationships	12	8,997		(4,129)		4,868
Patient management platform	5	2,060		(1,579)		481
Trade names/trademarks	20	1,011		(194)		817
		$	184,741	$	(101,147)	$	83,594


(in millions)	2021 Guidance Range				2021 Guidance Range
	(as of August 5, 2021)				(as of November 4, 2021)
	Low		High		Low		High
Total revenue	$	700.0	$	720.0	$	751.5	$	758.5
Net income	$	56.0	$	66.0	$	81.0	$	83.5
Net income attributable to ApolloMed	$	48.0	$	58.0	$	71.5	$	73.5
Earnings per share - diluted	*		*		$	1.58	$	1.62
EBITDA	$	100.0	$	119.0	$	139.0	$	143.0
Adjusted EBITDA	$	120.5	$	130.5	$	168.5	$	170.5