Q2 2022 Apollo Medical Holdings Inc Earnings Call

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Good day and welcome to your Apollo Medical Holdings second quarter 2022 financial results call. All lines have been placed on a listen only mode and the floor will be opened for your questions and comments. Following the presentation. If you should require assistance throughout the conference. Please press star zero to reach a live operator.

At this time it is my pleasure to turn the floor over to Carolyne Sohn of the equity group. The floor is yours. Please go ahead. Thank.

Thank you operator, and Hello, everyone. Thank you for joining us the press release announcing our Pollo Medical Holdings, Inc. 's results for the second quarter and six months ended June 30th 2022 it's available at the investors section of the company's website at Www. He got a polymer had thought yet.

To provide some additional background on its results. The company has made a supplemental deck available on its website.

A replay of this broadcast will also be made available at apologize website. After the conclusion of this call.

Before we get started I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward looking statements within the meaning of the safe Harbor provision of the private Securities Litigation Reform Act of 1995.

These forward looking statements can be identified by terms such as anticipate believe expect future plan outlook and will and include among other things statements regarding the companys guidance for the year ending December 31 2022.

Growth acquisition strategy ability to deliver sustainable long term value ability.

The ability to respond to the changing environment operational focus strategic growth plans and merger integration efforts as well as the impact of the 2020 novel Coronavirus or COVID-19, pandemic and other variants on the company's business operations and financial results.

Although the company believes that the expectations reflected in its forward looking statements are reasonable as of today.

The statements are subject to risks and uncertainties that could cause the actual results to differ dramatically from those projected.

There can be no assurance that those expectations will prove to be correct.

Information about the risks associated with investing in our polymer is included in its filings with the Securities and Exchange Commission, which we encourage you to review before making an investment decision.

The company does not assume any obligation to update any forward looking statements as a result of new information future.

Events changes in market conditions, or otherwise, except as required by law.

The disclaimer language I would also like to refer you to slide two of the conference call presentation for further information.

For those of you following along with the accompanying supplement there is an overview of the company on slide three.

On todays call the Companys co Chief Executive Officer, Brendan Sam will discuss second quarter, and first half 2022 highlights and the latest operational developments in.

Interim Chief Financial Officer, Shawn Bhatia will follow with a review of our polymer results for the second quarter and the first six months ended June 32022.

Brandon, we'll conclude the remarks with an update on the company's outlook and long term growth strategy before opening the floor for questions.

That I will turn the call over to Apollo <unk> co Chief Executive Officer, Brandon <unk>. Please go ahead Brandon.

Thank you Carolyn.

We were pleased to deliver another solid quarter of profitability in the second quarter of 2022.

Even as we continue to see utilization across our organization increased to pre pandemic levels.

As a result of strong organic membership growth within our core IP.

A more favorable membership mix and participation in a value based care model for the Medicare fee for service population.

Revenue grew 57% year over year, allowing us to achieve a 54% increase in total revenue.

Reporting $269 $7 million for three months ended June 32022.

As in Q1 operating expenses increased in line with revenues in Q2.

First on the cost of services side.

Although our medical loss ratio or MLR for our partnered risk bearing provider entities increased by 150 basis points relative to last quarter.

We are still within our previously disclosed range of 4% to 6% increase in MLR for the year.

Which has already been taken into account in our guidance.

We see this as an expected consequence of medical utilization returning to pre COVID-19 levels.

We also continued to incur higher G&A expense related to the hiring of additional key personnel and staff to support our operational growth and expansion into both new geographies and new lines of business as.

As well as an increase in stock based compensation.

Despite the investments we've made not only to increase revenue, but also to fuel operational growth into new regions G&A expenses as a percentage of total revenue actually decreased by 70 basis points from eight 1% in Q2 last year to seven 4% in Q2 of this year.

This demonstrates the operating leverage our platform provides us even as we grow our business rapidly.

Despite our continued membership growth increased utilization trends and ongoing investment in people and infrastructure, we remain profitable reporting net income attributable to Apollo Med <unk>.

Seven $4 million or.

Our diluted EPS of <unk> 25 for.

For the quarter.

Adjusted EBITDA was $36 9 million.

Up 14% from $32 4 million in the prior year period.

Based on current trends within our businesses. We are pleased to be reiterating guidance for full year 2022 revenues as well as net income EBITDA and adjusted EBITDA.

As previously disclosed we anticipate at least 36% growth year over year on the topline to between 1.055 billion to one point <unk> eight 5 billion.

And adjusted EBITDA of between 136 million to $166 million.

In the second half of 2022, we continue working to expand our presence in existing California markets as well as explore opportunities to move into new regions through a series of acquisitions and partnerships with key provider groups that share our vision of empowering independent physicians.

Our business development and M&A efforts have continued to benefit from the addition of <unk> to our tech stack and.

And the pipeline remains incredibly robust.

With that I'll turn it over to John to review our financial results.

Thank you Brandon we continued to deliver strong results reporting total revenue of $269 7 million in the second quarter of 2022.

54% increase from $175 6 million in the prior year quarter.

This was primarily driven by increased competition revenue, resulting from organic membership growth in our core ipas and participation in a value based Medicare fee for service model as well as increased fee for service revenue from the consolidation of some labs and DMG.

Capitation revenue increased 57% to $227 $6 million during the period.

Accounting for 84% of total revenue for the quarter ended June 32022.

Fee for service revenue increased 154% to $11 7 million from $4 6 million in the prior year quarter.

Along with increased visits to our surgery center, which were partially closed in the prior year due to COVID-19, the consolidation of some labs in DMG contributed $5 8 million during this period.

Our membership remained at approximately $1 2 million managed lives at the end of <unk>.

Second quarter ended June 32020 to approximately 600000 or half of our members were under capitate, the risk bearing arrangements through our consolidated IPA.

Total operating expenses increased 64% to $254 3 million in the second quarter of 2022 from $154 7 million in the prior year period.

This was primarily a result of increased cost of services due to higher medical claims competition and other health services expenses commensurate to our increase in revenue.

We also incurred increased general administrative expenses related to share based compensation and salary wages and benefit expenses related to hiring additional key personnel and staff to support our operational growth.

Okay.

Net income attributable to Apollo read was $11 4 million compared to $12 7 million in the second quarter of 2021.

Earnings per share on a diluted basis were <unk> 25.

Compared to <unk> 28 in the prior year period.

The decrease in the bottom line can be attributed to higher cost of services due to a return of pre COVID-19 levels of utilization and increased operating expenses related to the hiring of additional personnel to support the company's growth and development.

We reported EBITDA of $22 4 million in the second quarter of 2022, which compares to $90 million in the prior year period. Adjusted EBITDA was $36 9 million, an increase of 14% compared to $32 4 million in the prior year period.

We placed greater emphasis on the adjusted EBITDA figures.

These numbers back out the impact of excluded assets recently acquired Ipas stock based compensation other income and income from equity method investments.

The adjusted EBITDA figure for Q2, 'twenty 2022 backs out the impact of the noncash unrealized loss of $1 9 million as a result of a decrease in fair value related to the passive investments and a pair partner shares held as marketable securities.

And other investments.

Which compares to $83 8 million in unrealized gains as a result of a $1 three conversion.

Pair partners preferred shares to common stock in the prior year period.

These per partner shares are in the excluded asset bucket that we've described in the past and they are solely for the benefits of our affiliate APC.

Shareholders.

I'll quickly go over a few financial highlights for the first half of 2022.

Total revenue was $533 million up 52% from $351 7 million in the prior year period.

Total opex increased to $491 4 million from $308 9 million in the prior year.

Primarily as a result of increase in cost of services related to higher medical claims computation and other health services expenses in line with our increase in revenue.

Net income attributable to Apollo Med was $25 7 million for the six months ended June 32022, compared to $25 8 million in the six months ended June 32021.

Diluted EPS was <unk> 56 for the first six months ended June 32022, compared to 58 in the prior year period.

Turning over to the balance sheet.

We remain well capitalized and well positioned to execute on our growth initiatives.

We ended the second quarter with $234 2 million in cash and cash equivalents compared to $233 1 million at the end of 2021.

Our working capital was $275 8 million compared to $283 4 million at the end of 2021.

And total stockholders' equity increased to 585.

$8 million.

At June 32022 from $465 million at.

At December 31, 2021.

Total debt at the end of the second quarter was $201 5 million.

I would now like to turn it back over to Brandon for a discussion of our growth strategy and outlook for the remainder of 2022.

Brandon.

Thanks, Jen <unk>.

We expect the second half of 2020 to be very eventful, we continue to observe strong tailwind around value based and accountable care.

Finding that provider groups and health care organizations nationwide.

Excited about the possibilities are unique physician enablement model and technology platform present to them in terms of improving their ability to better serve their patients and drives more positive clinical outcomes.

It relates to our current business I noted earlier, we are reiterating our previously disclosed guidance projections for full year 2022, which we've also listed on slide 11 of our supplement.

Please keep in mind that the net income and EBITDA guidance include potential impacts from the EPC excluded assets, which John also noted in his comments earlier.

For this reason we place greater emphasis on the net income attributable to Apollo made shareholders and adjusted EBITDA metrics.

These guidance metrics do not consider any potential acquisitions or other major business transactions, we may complete in the remainder of 2022.

As any material developments arise, we will be sure to update the markets and reevaluate guidance as appropriate.

In closing, we continue to make progress on our various growth and care management initiatives and are excited about the positive impact we can make by introducing our model to providers and provider groups across the nation.

Our Parliament has a long history of operating successfully and profitably in our core regions and we believe we can replicate our success and other local communities across the country by partnering with like minded physicians.

We remain incredibly excited and energized and our mission to enable providers to excel and value based care and deliver higher quality outcomes to their communities.

With that operator, let's open it up for Q&A.

Thank you the floor is now open for questions. If you do have a question. Please press star one on your telephone keypad at this time, if you're using a speaker phone we ask that while posing your question you pick up your handset to provide the best sound quality.

Again, if you do have a question or comment. Please press star one on your telephone keypad at this time, please hold a moment, while we poll for questions.

Once more ladies and gentlemen, if you do have a question or comment you May press star one on your telephone keypad at this time.

There appear to be no questions. At this time I would now like to turn the call back over to management for closing remarks.

Thank you that concludes our quarter two 2022 earnings call, we look forward to questions or talking by our loss Angeles offices. If you happen to be very thank you everyone can have a great day.

This does conclude today's teleconference. We thank you again for your participation you may disconnect. Your lines at this time and have a great day.

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