Q4 2022 Apollo Medical Holdings Inc Earnings Call
Greetings and welcome to Apollo Medical Holdings fourth quarter and year end 2022 financial results at this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to Caroline Sean with the equity group. Thank you you may begin.
Thank you operator, and Hello, everyone. Thank you for joining us.
Press release announcing Apollo Medical Holdings, Inc. 's results for the fourth quarter and year ended December 31st 'twenty 'twenty. Two is available at the investors section of the company's website at Www Dot a polymer dot net.
Can you provide some additional background on it yourself if the company has made a supplemental deck available on our website.
A replay of this broadcast will also be made available at apartments 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 each.
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 company's guidance for the year ending December 31st 2023 continued growth acquisition strategy ability to deliver sustainable long term value.
I'll, let you respond to the changing environment operational focus strategic growth plans and merger integration efforts as well as the impact of the 'twenty 'twenty novel Coronavirus or COVID-19 pandemic on the company's business.
The financial results.
Although the company believes that the expectations reflected in its forward looking things are reasonable as of today. Those 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 a column that is included in its filings with 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.
Regarding the disclaimer language I would also like to refer you to slide two of the conference compensation for further information.
For those of you following along with the accompanying supplement there is an overview of the company on slide three.
On today's call the company's co Chief Executive Officer, Brett and Stan will discuss fourth quarter and year end 2022 highlights and our latest operational developments.
Interim Chief Financial Officer, Shai Pasha will follow with a review of a parliament the results for the year and the quarter ended December 31st 2022.
Randy will conclude the remarks with an update on the company's outlook and long term growth strategy before opening the floor for questions with that I'll turn the call over to a public co Chief Executive Officer Brandon. Please.
Please go ahead Brandon.
Okay.
Thank you Caroline and good morning, everyone.
Thank you for joining us on our year end 2022 earnings call today.
2022 was another exciting year for our company as we continued to deliver industry, leading clinical outcomes and health care experiences for our members.
We achieved strong financial performance and continued to scale the business rapidly while also retaining a balanced approach towards profitability.
We executed against our operational strategy in three key ways.
One growing our membership in court in new geographies.
Q moving members along the risk ladder towards global risk value based contracts.
And three enabling our providers to deliver excellent patient outcomes in order to manage that risk effectively.
And finally, we completed several strategic transactions that we believe will support that growth strategy for years to come.
First I'd like to summarize our strong financial result for the year.
For the quarter ended December 31st 2022.
We recorded total revenue of $294 2 million, an increase of 51% from $195 1 million for the prior year quarter.
And adjusted EBITDA of $23 7 million.
An increase of 54% from $15 4 million for the prior year quarter.
For the full year of 2022, Pollo Med achieved total revenues of over $1.14 billion, an increase of 48% year over year and.
And adjusted EBITDA of $140 million up 5% year over year.
Yielding an adjusted EBITDA margin was 12, 2%, which is within our long term target EBITDA range of 10% to 20%.
And this was despite headwinds due to a return to normalcy in terms of utilization and increased costs due to our investments in growth infrastructure.
Next I'll briefly summarize key operational update in the areas I mentioned earlier.
Firstly, we continue to see strong organic growth in revenues from our risk bearing provider networks and their core and new geographies.
Excluding any restricted Knox keene related impacts, which I'll discuss later, we view our core consolidated affiliates.
Good provider network business, continuing to grow in the teens percentage points year over year.
During 2022, we also completed the acquisition of two physician groups based out of Northern California.
<unk> Health care Medical group and all American medical.
Which in aggregate will add over 20000, Medicare Medicaid and commercial members to a risk bearing platform in the San Francisco Bay area.
We continue to bolster the wide ranging capabilities of our primary and multi specialty care delivery affiliate network via our network of 28.
Owned primary multi specialty and ancillary care delivery centers, and we see strong growth on that side of the business as well.
For example valley Oak Medical group, our brain, Nevada, and Texas has grown visits by over 20%.
Since we closed the deal in mid October of 2022.
Secondly, we've also made great strides in terms of our ability to better engage and manage our patients. We are taking on greater financial responsibility for their total cost of care.
We entered into a definitive agreement in late September of 2022 to acquire for your benefit or F Y B, an entity, which is licensed by the California Department of managed health care as a full service restricted Knox Keene license health plan.
We remain on target to close the transaction by the end of the first quarter of 2023 pending regulatory approval.
The restricted Knox Keene license part of the F Y V transaction will allow us to assume full financial responsibility in California, including both professional and institutional risk for our members' medical costs.
We believe that this will allow us to deploy our care coordination and management capabilities more effectively for those members.
Enhance our demonstrated ability to decrease total cost of care, while improving in quality and patient outcomes.
We view this as a significant opportunity for both revenue and EBITDA, but.
But we do anticipate the process of assuming this risk level across all of our members to be a gradual one spanning several years.
In terms of geographies outside of California, we continue to grow membership, while retaining high quality scores in our clinics.
As a result, we anticipate being able to enter value based arrangements outside of California, with our payer partners. This year.
Finally, I'd like to touch on our capabilities and care and medical cost management.
We've now fully integrated the capability of Ormeau <unk> real time clinical AI platform, which takes data from multiple sources and utilizes our proprietary risk stratification muddles identified patients for various clinical programs that we operate including.
Including remote patient monitoring chronic care management and more.
This critical platform is deeply integrated with our own RPM ecosystem, which consists of smart health devices and a suite of technology tools to help manage our patients health.
It's integrating more of a house, which we acquired just over a year ago, we've been able to strengthen the connected coordinated holistic care ecosystem that we are delivering to our patients.
This along with the ongoing development of our internal provider facing patient facing and care management tools and our.
Historical success.
Give us confidence to continue succeeding in the elevated risk levels I discussed earlier.
In summary, the breadth and depth of our value based care delivery and value based enablement platform provide a strong foundation for growth and expansion in 2023 and beyond.
I'd like to thank our providers and team members in helping us move closer to our mission of bringing high quality value based care to all.
With that I'll turn it over to John to review our financial results John .
Thanks, so much Brandon.
We reported a record.
Total revenue of over 1.14 billion for 2022, an increase of 48% from $773 9 billion in 2021.
Our topline growth was primarily driven by increased capitation revenue from organic membership growth at our core IP as a more favorable membership mix as well as our participation in value based in a value based Medicare fee for service model.
On the fee for service side increased fee for service revenue as a result of more patient visits at a parliament surgery and heart centers and the Companys consolidation of some clinical laboratories and diagnostic medical group.
Capitation revenue increased 57% to $930 1 million during the period.
Accounting for 81% of total revenue in 2022.
B for service revenue increased 86% to $49 5 million from $26 6 million in the prior year.
$17 billion of this increase was primarily due to a full year of revenue contributions from the consolidation of some labs and DMG and one and a half months of revenue contribution from valuable Medical group.
In addition, there was an increase of $3 2 million from increased visits to our surgery and heart centers.
We ended 2022 with our membership at approximately 1.3 million manage slot.
<unk> <unk> from members.
We're under capitate risk bearing arrangements to our consolidated ipas.
Total opex increased to over 1 billion in 2022.
An increase of 54% from $675.7 million in the prior year.
This increase was primarily due to increased cost of services due to the return to pre COVID-19 Medical express expense run rates.
And growth in membership.
Which was commensurate with our increase in capitation revenue.
We also incurred higher G&A expenses related to the hiring of additional personnel to support our continued growth.
Net income attributable to our parliament was $49 million.
Compared to $73 9 million for 2021.
Earnings per share on a diluted basis were 1.18 per share compared to 1.63 per share for the prior year, mainly due to the increase in operating expenses mentioned earlier.
A 10.5 million dollar increase.
In unrealized losses on investments year over year, which was primarily driven by a decrease in the stock price of certain investment holdings, and a $7.6 million increase in our provision for income taxes year over year.
We reported EBITDA of $110 1 million.
An increase of 11% from $99 1 billion for the year ended December 31 2021.
Adjusted EBITDA increased 5% to $140 million for 2022 from 134.
133 5 million for 2021.
We place greater emphasis on the adjusted EBITDA figures as these numbers back out the impact of income from equity method investments stock based compensation and other onetime expenses.
They also.
Back out the impact of excluded assets, which were 2022 included a onetime noncash unrealized loss of 10.5 billion as a result of a decrease in fair value related to the passive investing in a pair of partner and unrealized loss on investments.
These losses are in the excluded asset bucket that we've described in the past as they're solely for the benefit of our affiliate a P C and its shareholders.
Turning over to the balance sheet, we remain well capitalized and well positioned to execute on our growth initiatives.
We ended the fourth quarter with $288 million in cash and cash equivalents compared to $233 1 billion at the end of 2021.
Our working capital increased to $287 8 million from $283 4 million at the end of 2021.
Total stockholders equity increased to 555 million.
At December 31, 2022 from $465 million at December 31st 2021.
Moving further down.
The balance sheet total debt at the end of the fourth quarter was $204 billion.
As Brendan mentioned earlier the impact of Covid provided some temporary tailwind that had a positive impact on our results in 2021 as anticipated. These tailwind subsided as we have returned to pre COVID-19 utilization levels in 2022.
We're seeing a return to more normal visit patterns for routine non COVID-19 related care impacting our medical claims costs and patient visits to the hospital for non emergency procedures affecting our risk pools settlements with our hospital partners.
I'd like to turn it back over to Brendan for a discussion of our growth strategy and the outlook for 2023.
Yeah.
Thanks, John .
I'll first touch on guidance for 2023.
As shown on slide 10 of our earnings supplement we are pleased to be providing the following guidance projections for this year.
Total revenue of between $1 3 billion and $1 5 billion, which would translate to between 14 and 31% year over year growth.
Net income of between $49 5 million and $71 5 billion.
EBITDA of between $89 5 million and $129.5 million.
Adjusted EBITDA of between $120 million and $160 million.
And diluted EPS of between 95 cents and one dollar in 'twenty.
Please note that the net income and EBITDA guidance.
It does take into account the impact the impact of the excluded assets that are solely for the benefit of a b C and its shareholders and we assume no change in value in these excluded assets and our guidance.
These guidance metrics also do not consider any potential acquisitions or other major business transactions, we may complete in 2023.
As any material developments arise, we'll be sure to update the market and reevaluate guidance as appropriate.
We've taken a conservative approach to our guidance given several uncertainties surrounding one investments in new geography.
Q Redetermination and three the retroactive trend adjustment related to the ACO each program.
Firstly, you're planning to invest between five and $15 million to more rapidly develop our newer geographic regions, namely in Nevada in northern California, and enable them to grow differentially.
We also plan to deploy these funds to enable our path to greater risk and value based arrangements in those regions more quickly.
Next with regards to the Redetermination the temporary policy that came out of the COVID-19 public health emergency such as expanded eligibility and coverage of certain services are being rolled back or modified.
Which will result in some beneficiaries, losing their coverage and being subject to redetermination.
We estimate that this will result in 5% to 15% of our Medicaid beneficiaries, losing their coverage.
The state of California has taken steps to make the redetermination process more efficient and accessible.
And we are hoping these efforts along with ours will help to mitigate some of these potential impacts.
Because the polymer serves all patients regardless of insurance type our goal is to ensure that our members continue to receive the care they need in a seamless fashion, even if their insurance coverage does change.
And finally.
We experienced large variances in the ACO reach program benchmark.
Bringing the 2022 calendar year and are therefore being conservative in our assumptions associated with that benchmark until we have one to two quarters of data under our belt for 2020 three.
Overall, we remain confident in our ability to execute on our growth strategy, having better positioned to polymer for success with the work we've done throughout 2022.
Our new leadership team operations and BD teams.
And Department heads have now worked closely together for over a year and we are very excited about the growth opportunities, we see before us with organic and inorganic.
I'll also briefly mention that I'll be attending the Jefferies value based care summit and Barclays Global Healthcare Conference in Miami Beach next months I look forward to seeing some of you there.
The clothes Twenty-twenty too was another milestone year for our Parliament.
We are proud to be serving all patient populations, regardless of ethnicity socioeconomic status.
Our life circumstance.
We are proud to have built a health care ecosystem that can empower our providers to deliver the best possible care and health care experience to their patients.
To drive superior clinical outcomes.
Members to live their best lives possible.
I would like to once again extend my heartfelt thanks to all of our Apollo Med team members across the organization, who are as committed as I am to our mission.
Gather we are working towards a future where all Americans can have access to high quality value based and evidence driven health care.
With that operator, let's open it up for Q&A.
I think yeah, if he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if he was a threep move your question from the queue and.
And for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
Our first question is from Brooks O'neil with Lake Street Capital markets. Please proceed.
Good morning, Brandon Chan and.
Caroline I hope, you're all doing well.
Okay.
Thank you Brooks, so things are calling and hope you're doing well.
I'm doing great, we're having a little snow storm here, but all as well.
I have a bunch of questions. So I'm going to try to ask them quickly first is I've always been a little confused about the Medicare demonstration projects you guys are participating in though you performed exceptionally well in those.
Give us a sense for how you think that might impact the company and the results in 2023.
Sure Yeah. Thank you happy to answer any number of questions. So around the.
Medicare innovation programs that we are participating and we've had a long history of participating in those programs exceeding as you mentioned starting with the next generation ACO program, the global and professional direct contracting program.
Our G P D C and Eto reach program, which we embarked on this year.
We are being fairly conservative in our estimates and guidance for the year due to some of the retroactive benchmark adjustments. We saw in some of these program last year given our experiences.
But we still are great components of the program and our exciting participants in it.
We believe that the program allows us to better manage and coordinate care for original Medicare and Medicare fee for service patients.
And it allows us to.
Gradually introduced providers outside of our core regions to the concept of coordinated value based care.
So we have seen great growth.
<unk> of the business this year and we anticipate it to continue to grow in the years to come.
Alright, Okay second question.
I think I heard you brand and say Knox Keene license your.
You're about to acquire and it's going to allow you to take.
Full global capitation across all of California did I hear that correctly and how do you think that's going to affect the company this year.
Youre, absolutely correct correct Brooks.
There are no pending regulatory approval of the transaction.
The restricted Knox Keene.
What would allow us to assume <unk>.
Risk goes the professional or outpatient and inpatient risk for a.
Ah patient in California.
There will be certain regulatory and contractual negotiations.
We will need to embark on a.
Before we can roll that contract out to all of our members.
But that as is.
Kind of period of two to three years that we had guided to in order to complete that project by the conclusion of it you are correct in that we would be able to assume the global risk for members in California.
Well, let's take.
So.
One of the big.
Issues, I wrestle with a little bit and we've talked about it.
The speed of growth in the scope of growth in terms of both.
New members new geographies.
As you know I'm, a huge believer that value based care.
Is it an opportunity nationwide and I certainly recognize underserved populations such as form the core of your membership.
Or are all over this country as well so let's talk a little bit about how you're viewing.
Our geographic expansion in 2023, and and how are you thinking it'll affect the company this year.
Yeah, absolutely. Thanks for thanks for asking them so.
You know there there are a couple of key geographies, where we think we have we have the ability to spur differential growth in 2020 three I mentioned two of them earlier in terms of Nevada, and Northern California.
We also have entered Texas as you know from from Uh Huh.
That same transaction in late last year.
And we think that there is great opportunity to introduce.
Further value based care to those communities that we're serving in those states.
We plan to invest our dollars into making that happen both in terms of growing the patient population slipping from fee for service to risk and we believe that this year, we will have value based contracts outside of California to assume risk for members total cost of care as a result of those investments.
I'd also like to point out that.
Our EBITDA guidance does take into account.
The effect of those investments that we will be making this year.
Yep, that's good and.
I'll just ask one more and I appreciate all of your thoughtful answers here, but Brendan I know you have.
Much deeper expertise than I do in.
Information technology and they know it's a key part of your underlying platform you mentioned I think in the prepared remarks.
Hi.
Obviously, a topic on every investor's mind right now, but I'd tell you your perspective on how you think AI can impact your.
Your company and the provision of value based care through your providers to your members.
Yeah of course, yeah.
Bit of a nerd myself that's that's.
That's something that's close to my heart.
I do think however that the core of our platform is not necessarily.
Driven by some of the very exciting new developments and AI.
Because there's so much low hanging fruit available for us to solve and coordinate better care for our patients even without all of them I have no doubt that in the year.
Years, and decades to come that absolutely will be on the forefront of incorporating.
Are those new technologies involvement into our technology platform, but even now the ability to pull all of the day all of our fragmented data data ecosystem together to engage members effectively to build risk ratification algorithms and suggests care planning and clinical programs for our members, especially those who are higher risk.
These are the bread and butter tools that we've developed in house.
To enable superior care coordination and outcomes for our patients so I do want to temper.
You know, we probably won't have any chat G. P T.
And our platform anytime soon right now do you believe that right.
Developments are exciting and will continue to stay abreast of all of them of course.
Perfect. Thanks for taking my questions and congratulations on your strong results.
Absolutely. Thank you so much for calling in.
As a reminder, it is star one on your telephone keypad, if he would like to ask a question. Our next question is from Ryan Daniels with William Blair. Please proceed.
Yeah, Hey, guys. This is Jackson done for Ryan Daniel Thank you for taking my question and then I'll also reiterate congrats on a really strong year first off I know you guys don't give guidance on specific line items, but when we look at the risk pool settlements and incentives revenue line, how can how should we think about this going forward with the sunsetting of N or that.
I N G E C. O M. You know fourth quarter, you guys read about 15 and a half million is this kind of a run rate you would expect for 2020 three or if not can you give us any indication on how to kind of think about this moving forward.
Hey, Jack Thanks for calling in.
Good to hear from you again I'll be letting our CFO John answer this one.
Hey, how are you so with the sunsetting of the N. G E. C O you'll will no longer be seen that Q3 bolus in terms of.
The settlement of prior year this pools.
And instead, what you will be seeing is.
US accounting for them.
The ACO reach program quarterly.
And our financials.
Okay understood. Thank you.
And then another quick question two how should we think about margins going forward, especially given in your prepared remarks, you said a return to normal utilization and I'm also just kind of given the redetermination. The sunsetting of the the N D. A C O M. And then also re contracting with payers given the archaic hey, So just kind of curious what your thoughts are on margin expansion.
You know going forward and if you have any long term targets in this area.
Yeah.
Oh.
Oh, sorry, John go ahead.
Go ahead Brenda.
No just kind of start with a couple of quick remarks, we have we have guided towards a long term EBITDA margin of 10% to 20%.
<unk>.
Both from a care delivery and value based enabling platform.
The sides of the business.
We still plan to be in that range at.
At the midpoint of guidance for 2023.
As a 1.4 billion of revenue and $140 million of adjusted EBITDA.
And you know this.
This includes.
You know some of the costs that will go into continuing to develop the platform outside of California, and spring differential growth in those regions.
John could you add to that comment.
You said exactly what I was going to say so.
Yeah.
You know relative to 2022.
Hum.
You know our work, we don't expect medical costs to continue to increase.
And as we said, we do feel we're out of post COVID-19.
Kind of run rate.
Okay perfect. Thanks, guys and then one last quick question that I have so when it comes to pay your concentration you know we saw a solid increase in Medicare in 2022 compared to that of a 2021 jumped from about 40% to 55% and then kind of as a result looks like Medicaid also dropped as well longer term.
Guys have any expectations on where payer mix shakes out you know assuming more Medicare lives provides just that much more incremental revenue. So just kind of curious if you have any you know longer term expectations. When it comes to this and kind of where payer mix eventually what will shake out.
Yeah sure I can go.
Yes.
I do see pair mix very much flattening out.
And.
You know with Redetermination.
Yeah.
It could also be to continue our growth.
Medicaid and commercial segments.
Yeah, I think I didn't I think Medicaid made may dip slightly as a result of Redetermination as John mentioned.
We don't anticipate.
Medicare or commercial to continue.
Continued growing forever.
As we mentioned earlier, we are proud to serve all all Americans, regardless of insurance status and that's a core part of our model and our commitment to serve our communities.
There will be a plateauing at some point, but.
Probably for this year I would expect probably a greater percentage of Medicare are similar to the increase you saw last year Jack.
Okay understood. Thanks, guys.
I'll hop back in the queue and again congrats on the strong year.
Thank you so much.
<unk> reached the end of our question and answer session I would like to turn the conference back over to management for closing comments.
Yeah. Thank you. Thank you all for your time today, we are always open to a dialogue with investors and welcomed visitors to our offices and our Hamburg should any of you being in the Los Angeles area. Please feel free to reach out to us or our Investor relations firm the equity group with any of those any additional questions you may have.
We look forward to speaking to you all again on our next quarterly call or before.
<unk>.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Yeah.
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Yeah.
Right.
Yeah.
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