Q2 2023 Apollo Medical Holdings Inc Earnings Call
Hello, and welcome to the Apollo Medical Holdings second quarter 2023 financial results conference call and webcast if any much of the prior operator assistance. Please press star zero on your telephone keypad, a question and answer session will follow the formal presentation. You May press star one at any time to be placed in the question queue has it.
Reminder, this conference is being recorded its now my pleasure to turn the call over to Carolyn Stone Vice President Investor Relations. Please.
Please go ahead.
You, operator, and Hello, everyone. Thank you for joining us the press release announcing Apollo Medical Holdings, Inc. 's results for the second quarter ended June 30th 2023, it's available at the investors section of the company's website at Www Dot a polymer had gotten.
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 Apollo Mint's 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 company's guidance for the year ending December 31st 2023 continued growth acquisition strategy ability to deliver sustainable long term value and ability to respond.
As to the changing environment operational focus strategic growth plans and merger integration efforts.
Although the company believes that the expectations reflected in its forward looking statements 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 it.
There can be no assurance that those expectations will prove to be correct.
Information about the risks associated with investing in Poland that 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.
Regarding 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 today's call the company's co Chief Executive Officer, Brian and Sam will discuss second quarter 2023 highlights and our latest operational developments chiefs.
Chief Financial Officer, John Bhatia will follow with a review of the Parliament. The results for the second quarter and six months ended June 30th 2023.
And we'll 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 that polymer co Chief Executive Officer. Brendan said. Please go ahead Brian .
Thank you Caroline.
We were pleased to deliver another strong quarter, achieving 29% growth on the topline and 44% growth in adjusted EBITDA compared to the same quarter in 2022.
Revenue growth was primarily driven by strong organic membership growth and a more favorable payer mix and our care partners business.
We continued to execute on our three key operational goals.
One growing our membership in court in new geographies.
To.
Empowering our care delivery and care partners providers to successfully move along the glide path towards value based care.
And three enabling our providers to deliver excellent patient outcomes in order to manage that risk effectively.
On the first school growing our membership in court in new geographies, we continue to see strong growth as a result of the strength and quality of our care partners business as well as the technology operational and care management support we bring to bear and our care enablement business.
Our core business in California continues to demonstrate robust growth, both organically and our partner groups as well as the new partnership side.
We recently formed a long term partnership with a primary care group in California with a network of over 50 providers, joining our newly signed class of partners in 2020 three.
We expect to onboard this group onto our care enablement platform by September <unk> of this year.
We also want to highlight what we believe is our ability to replicate our success in southern California and other markets.
As previously communicated our playbook for empowering providers I mean your market includes first.
Entering the market in partnership with a high quality anchor group for a risk bearing care partners business.
Second investing in local operational and care management teams to ensure successful onboarding onto our care enablement platform for these providers.
And finally partnering with additional groups in the market, who would benefit from joining our platform.
This flywheel accelerates as we reach critical mass in each market.
And we believe that'd be enabling platform, we built and proven to generate great patient outcomes and profitability in southern California will allow us to demonstrate is progressing rapidly.
Each new market entry.
Yes.
Texas for example, we entered with the acquisition of Valley Oops Medical Group last October .
As we build out our local market leadership in Texas, we were pleased to share that Jamie milk enough a health care executive with over 20 years of experience in the industry.
Has joined US as president of Apollo care, Enablement, Texas, and senior Vice President of business development.
Jamie is expected to play a key role in expanding our care partners network across the country and further building out our care enablement platforms capabilities.
Powering providers to advance along the value based care glidepath responsibly in Texas.
We are thrilled to welcome Jamie to our leadership team and look forward to your contributions to our expansion efforts.
Next we continue to partner with groups across the region to empower their providers to provide high quality value based care.
Firstly, we recently announced the acquisition of certain assets related to Texas independent providers or tip.
Through its network of 120 primary care providers chip is expected to be an anchor for our high quality care partner segment at Houston.
And we expect to onboard chips providers onto our care enablement platform.
The end of 2023.
We are pleased that we will continue to benefit from the leadership Eclipse President Dr. Carlos Glasseous, who will join the Parliament as Chief Medical Officer for Texas to spearhead clinical initiatives for local providers.
And Kip Executive Director Vincent Ross.
Who will join US as group Vice President of operations for Texas and lead to continued growth and development of our Texas network.
We also announced a partnership with inter care to advance value based care in Dallas Fort worth.
El Paso.
And in Oklahoma City.
Through a network of over 425 primary care providers and took care of managing the care of over 40000 members.
And through this partnership intra care's providers are expected to join our care partners business in these regions and be on boarded onto our care, enabling platform by the end of the year.
We are thrilled by the continued strong momentum we've been seeing in terms of the excitement around our care partners in care enablement offerings in both California, Texas and beyond.
Our next strategic pillar is an empowering our care delivery and care partners providers to successfully move along the glide path towards value based care.
In California, we shared during our previous quarterly calling me that we had closed on the acquisition for your benefit or F Y B and.
And received regulatory approval for the change in control of FY <unk> full service restricted Knox Keene license health plan.
We are working closely with the department of managed health care to expand the RK K two other counties within California and to add more members within existing counties and we believe that the process is on track relative to our expectations.
Finally, the most important strategic pillar is ensuring that we are successfully empowering our providers to deliver excellent patient outcomes, thereby managing that risk effectively.
We continue to closely monitor utilization trends and did not see an increase in utilization in Q2 compared to Q1.
Based on prior authorization data. However, we do see a slight uptick in utilization for Q3.
But do not believe that this will significantly impact our overall performance our guidance for 2023.
With regards to Medicaid Redetermination.
Bulk of our Medicaid members in value based arrangements residing in California, which began just enrollment in July .
We have not yet seen a significant impact on either our membership or makes but we continue to monitor and assist in the redetermination process for our members to ensure they have access to care.
With these recent developments and our solid financial performance through the first half of 2023.
We are pleased to be reiterating our previously provided guidance for full year 2023.
We continued to grow membership in our core, California markets and in our new Nevada, and Texas geographies.
Gannett growth, new partnerships and inorganic activities.
We continue to responsibly salaried providers towards a value based aligned feature.
And we continue to make ongoing strategic investments in our business our teams and our technology, which we believe are necessary to support growth in the years to come.
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 $348 2 million in the second quarter of two.
2023.
A 29% increase from $269 7 million in the prior year quarter.
This was primarily driven by increased revenue from our care partners segment.
Quickly reviewing results in each of our business segments for the second quarter versus the prior year quarter. Our care partner segment reported revenue of $325 2 million.
An increase of 32% compared to the second quarter of 2022, primarily driven by organic membership growth in our consolidated risk bearing entities and a more favorable payer mix.
Segment operating income increased 250% to $27 8 million for the period.
This was primarily driven by a larger mid year M. A risk adjustment payment this period and the retrospective trend adjustment related to the CMS DTE program in the prior year period.
Yeah.
Moving to our care enablement segment revenue increased 18% to $35 million in the second quarter of 2023.
Segment operating income was $7 6 million for the period compared to $7 3 million in the prior year period.
We continue to make investments in infrastructure technology and people to support our operational growth in new geographies and capabilities surrounding our our K K.
We expect these investments to result in additional revenue and margin expansion over time as we onboard more clients.
Membership under management within our care Enablement segment was approximately $1 3 million manage lives at the end of the second quarter ended June 32023.
Approximately 650000 or half of these members were also within our care partners business.
Finally.
Our care delivery segment revenue increased 14 per se to $26 7 million during the period.
This was primarily driven by increased volume and patient visits at our primary multi specialty and ancillary delivery entities.
Segment operating income was <unk> 6 million for the period compared to $3 4 million in the prior year period.
The decrease was a result of our ongoing investments in expanding our care delivery footprint in Nevada and Texas.
As you may recall in the past, we highlighted our commitment to invest up to an incremental $10 million in 2023 to scale, new geography across all lines of business.
Due to this reason do you view the results in this segment as in line to better than guidance, we provided last quarter.
In aggregate income from operations, including corporate expenditures was $27 million, an increase of 75, 7% from $15 4 million in the prior year period.
Adjusted EBITDA was $35 8 million up 44% from $24 9 billion in the prior year period.
Net income attributable to Apollo met with $13 2 million, an increase of 10% from 12 million in the second quarter of 2022.
Earnings per share on a diluted basis were 28 sets up 8% from 26 cents in the prior year period.
Yeah.
I wanted to note that our tax rate this quarter is 45%.
Earlier this year in my capacity as the new CFO , the finance team and I completed inventory, if our tax filings and with the assistance of outside consultants determined we did not appropriately account for the income tax impact associated with certain intercompany dividends and also neglected to include certain loss generated.
[noise] entities.
Certain consolidated tax filing groups between 2019 and 2022.
Specifically income tax expense was appropriately accrued or the income generated by the entity that made the intercompany dividend. However.
However, the additional tax associated with the dividend itself was not accrued.
This resulted in a decrease to previously reported net income of $8 million.
With a net cash impact of $7 7 million for the period of 'twenty 'twenty to 2022.
Today.
After the market close.
We filed an 8-K with additional information about the restatement.
To be clear this restatement has no impact on the historically reported GAAP and non-GAAP measures which include revenue.
Gross profit pre tax income from continuing operations EBITDA or adjusted EBITDA.
We do not believe the tax related restatement will have any impact whatsoever on the strength of the business, our ongoing operations or ongoing liquidity or our need to raise capital.
Going forward were evaluating changes to our tax structure to reduce the current effective tax rate and the amount of cash taxes.
We expect to have this put into place by the fourth quarter, which we believe will result in a normalized tax rate going forward.
Yeah.
It has no impact on the measures the company reports such as revenue gross profit pre tax income from continuing operations EBITDA or adjusted EBITDA.
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 294 billion in cash and cash equivalents.
Compared to 288 million at the end of 2022.
Our working capital was $284 million compared to 288 million at the end of 2022.
Also total debt at the end of the second quarter was 208 million.
I wanted to reiterate our 2023 outlook.
We continue to be on track for total revenue between 1.3 and $1 5 billion adjusted.
EBITDA of 120 to 116 billion and EPS of <unk>.
<unk> 95 cents to $1.20 cents per share.
Despite the elevated tax rate for Q1 to Q3.
We expect to still be within guidance for E. P. S.
So it will most likely be in the lower half of the range.
I'd like to now turn it back to Brendan for closing comments Brandon.
Thanks, Sean.
In closing we are pleased with the progress we've made thus far in 2023 and look forward to taking advantage of the positive momentum we built in the first half of the year.
We believe the recent partnerships announced with a group in California chip.
Kipp and Intercare demonstrate the enthusiasm and need in the market for our physician centric value based care platform.
We remain laser focused on delivering excellent growth improving quality of care and clinical outcomes and accomplishing those goals sustainably by continuing our strong track record of profitability.
With that operator, let's open it up for Q&A.
Certainly when I'll be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad you May press star two if he'd like to remove your question from a Q1 moment. Please while we poll for questions. Our first question is coming from Ryan Daniels from William Blair. Your line is now live.
Yeah, Hey, guys. This is Jackson on for Ryan Daniels. Thanks for taking my question first in your prepared remarks, you noted the RK K expansion can you just elaborate on this and kind of what specifically this involves and then two if you can just provide any possible timing on this expansion.
Yeah.
Hey, Jack this is Brandon.
Thanks for joining the call today appreciate it that was it.
At the time so for.
With regards to your question.
Around the restricted Knox Keene license as I noted in the script prepared remarks, we are working closely with the department of managed health care in California to expand the restricted Knox Keene license to other counties within California.
And at that point, we would be able to add more members into that.
Restriction under that restricted Knox Keene license houseplant. The process includes our contracting with payers.
Payers are include contracting downstream with provider groups as well as with institutional entities and that is all a process that we believe is on track relative to our expectations.
Okay, great. Thanks.
Follow up to our adjusted EBITDA came in you know sequentially better.
How should we assess the quarterly cadence going forward through the rest of the year, possibly thinking about you have the uptick and you know pre authorization that you noted in your prepared remarks to how would that impact third quarter adjusted <unk> adjusted EBITDA and just kind of make sure. We're thinking about this correctly and modeling it accurately.
Hey, it's Sean.
Thanks, So much for the question as we think about the rest of the year I I'd say Q3 is gonna be inline with.
Q2, and then you'll see a.
Drop in Q4 as as we've seen in historical years.
Okay perfect. Thank you and then just one really quick final one can you just give us an update on the Medicaid return Redetermination and kind of how that's progressed over the past few months and I think on the last call. You noted that you're just starting to see some developments in may So I'm just kind of curious how that the past few months have progressed.
Hey, Jack Yeah, definitely so that's something we're keeping a close eye on all of them.
Most all of our Medicaid members in value based contracts are residing in California as I noted on this in the in.
In the prerecorded comments so.
California has been one of the slower states to start dis enrollments.
We started seeing that.
Slightly in July and it hasn't been material, thus far we've been working very closely with community groups with payers and others to ensure that folks have access to.
Medicaid and chip and access to care, if they qualify them and making sure they're not being just enrolled for administrative reasons.
So I would say I would reiterate that there's no material impact that we're seeing yet.
Although we do expect that to happen.
Perhaps in the quarter or two to kind of we've accounted for that in the guidance I mean, it's part of.
What China is talking about when he mentioned the.
A fairly strong Q3, and a slightly weaker Q4.
Awesome great color thanks, guys.
Thank you.
Thank you next question is coming from Adam wrong from Bank of America. Your line is that life.
Hey, guys. Thanks for the question on <unk>.
I have a couple of questions, but on the utilization can you be a little you know provide a little bit more color around what you're seeing in terms of prioritization for Q3 is that like outpatient surgeries, specifically is it and it may just any additional color on that would be helpful.
Yeah sure.
So in Q2, so far no theres another question, but and Q2, so far we actually haven't seen.
Large tick up in utilization at all relative to Q1 however.
Reviewing the prior authorization that are coming in we are seeing a slight uptick in inpatient Medicare advantage utilization.
And so that's.
Baked into some of our guidance for Q3 and Q4 coming up.
Alright makes sense.
And then in terms of your normalized tax structure comment.
Yeah, I noticed that your tax rate, it's kind of higher than any other company would really cover and I wasn't sure. If that was because you were in California, but it sounds like some of it is structural that you see.
You know that there was ways to actually produce that so you know most of the managed care companies and kind of hover around mid Twenty's tax rate is that something you see as achievable or what.
No reference would be like a reasonable target.
Yeah, I'd say, it's closer to low to mid thirties.
Okay and.
That's really the only thing driving down your net income guidance low end of the range as higher taxes unexpected for the trigger.
That's correct.
And then one of your competitors had two interesting comments, one saying that direct contracting was coming in better than I had expected based on data. They were getting from CMS I guess like a positive retro adjustment or at least relative to expectation. So is that all factored in your guidance or results here.
For the direct contracting is coming in better than expected.
For the guidance today, we're not assuming.
Any positive incremental.
Impacts for either drug contracting from last year or have you seen a reach.
For this year.
But that does remain a possibility certainly but.
In the spirit of a conservative conservatism, we have not.
Our crude or <unk>.
Or incorporated any positive impact from those two programs again, either from a true up from 2020, do which we'll know by August or ongoing operations and they see you reach this year into our full year projections.
And if there are anything but is there any data that you're getting from CMS. That's like positive one way or the other thing. It's just too early to make that call.
On the direct contracting entity program from 2022.
We have not gotten any information from CMS that would suggest.
Any differences relative to.
Information, we already had at the end of the year and that final report, we do expect to come sometime this month or early next from CMS relating to the final true up for the D. C program last year, if you're asking about the ACO reach program for this year.
We are getting monthly reports around the retroactive benchmark adjustment that.
Has been around in line with expectations.
Not noticeably positives.
<unk>.
Got it.
Another comment they made that was interesting was that they had gone. They are in discussions with payers are now that the payers have submitted their bids for 'twenty 'twenty four and they were gonna see.
Supplemental benefit cuts and they said they were larger than expected just because of the.
You know rate pressure that they're seeing and so I'm wondering.
You were able to get visibility into your payer partners and what you're seeing in terms of something up about it because for next year and how do you think that will impact your numbers and if it gives you more confidence in.
Sure.
To manage through that rate headwind for next year.
Yeah.
Yeah, I think that's accurate on average across the board of course, each plant is going to look a little different but I think on average that is also the trend that we're seeing are due to their due to payers management of.
Some of the risk adjustment changes or premium changes and star rating changes on their end and so I think what you're saying is accurate and we're seeing it as well I think given the longevity of our model.
And the fact that we're already providing a lot of the items.
That may or may not have been included in the supplementary benefits from some of the plans.
And we're going to continue providing those services, which we always have them I think we have a good shot we think where are we expect our model to be able to weather through that pretty.
Pretty consistently as we as we have with.
Decades of.
And if it changes up and down.
We haven't seen that impact our financials.
Or a cure or ability to deliver care.
At all.
And then sorry for all these first of all with my last question would be so I think one of the T. O ensure care I think it was you you mentioned 425 providers, but 40000 patients in.
Generally I would think about for CPU patient panel and like the hundreds if not over a thousand I'm sort of wondering.
One why that's a low bar.
For provider and not sure if it's maybe like email me or something and then second if you could.
Maybe help give context to what do you think like between these three deals that you are not in the quarter, how many patients that should add to the.
The total number of patients and if those are all risk lives.
Sure.
The 40000 members are not all seniors.
So you're right in that the ratio of.
Yeah P C P to seniors probably bit high relatively speaking.
But they're not necessarily.
All of Medicare advantage patients in aggregate.
I'm, sorry, and I missed it.
That wasn't clear just let me know but in aggregate we.
It's a little early to tell exactly how many patients and the exact mix between Medicaid commercial and Medicare advantage because of our model.
Does encompass and take on risk in all three areas.
I would.
Yeah.
I would probably not want to you venture a number at this at this point in time, but we do expect the revenue impact I would say to be.
Right.
You know in the tens if not.
Higher Ah okay.
Great. Thank you.
Thank you as a reminder, thats star one to be placed in the question queue.
Our next question is coming from Brooks O'neil from Lake Street. Your line is now live.
Good afternoon, guys I'm, just curious I think Brendan mentioned in his prepared remarks.
Elevated risk adjustment payments in there I'm just curious if you could talk about what's driving that number one number two is do you think the trend is sustainable into the end of the year at MBS.
Thanks Brooks.
Brookfield is question great to hear from you so on the elevated.
Our risk score relative to last year that drove some of the.
Incremental outperformance.
For this quarter relative to the same quarter last year.
That was related to our efforts.
In more accurately capturing the kind of conditions of our senior population I.
Which is something that we've been focused on as part of the operational and technological platform that we've been deploying into our provider offices over the last 12 to 24 months.
You all know it takes quite a bit of time for Mr. Jeremy just been payments to catch up with it.
Actual act of coding.
The chronic condition and so some of the results.
And uplift from the.
The kind of platform we've deployed over the past couple of years are now starting to come to bear. We also noted before that are.
Aggregate RAF score for our senior population was was quite low them under 1.0.
And we believed that at the time that was an appropriately.
So relative to the actual acuity of the chronic conditions of the patients and so we're seeing some of that come.
Into integration in terms of these rap payments.
But do you think you can probably keep seeing additional improvement as you implement your systems is that a fair way to characterize it.
I think related to the performance year with which these payments were.
Related I think that is actually it for that payment year of course in future payments.
We do have we do think that there is feature.
Improvement to be had as we continue to roll out the platform to all of our providers.
Okay that makes sense I mean, that's just one other one.
Curious Jack was asking you about Knox Keene license.
And that's a particular fascination of mine I was hoping you might go just a little bit deeper and talking about not just the timing and the fact that you're on pace, but it's.
What exactly do you think the impact of having that license will be on your business.
In terms of.
What does it mean for your provider networks, what does it mean in terms of the premium dollar capture you can have on a per patient basis.
Hey, Brooks. Thanks, so much for the question.
Jerry.
Hi, we're very excited about the <unk>.
Our expansion of the art K K into new counties, it will allow us to.
Quickly deploy.
Our risk base ecosystem into new <unk>.
Counties as well as geographies.
Allow us to differentially.
It will allow us to differentially capture the premium dollar as well as really.
Expand our enablement services.
In terms of timing we are working.
Quickly with the D M H C to expand to our current counties as well as.
Counties, where new partners are and as you know this is a this takes time in terms of the regulatory efforts and we'll keep you apprised as we get further traction.
Great. Let me just ask one more follow up and I'm not trying to be too too to pick out in that but I'm curious.
I think having that next Kindle I mean, you can accept.
Mobile capitation, which would include the hospital or chicken.
If I'm not mistaken the premiums you've gotten historically don't include that.
Hospital that hospital portion could potentially be quite significant for you isn't that true.
Definitely yes, you you brought up a great point with our KK, we will now.
Be able to.
Take on the hospital risk along with the professionals risk in terms of our revenues and where.
We are looking forward to moving down this path.
Essentially what that sounds like yeah, we are we will be.
Recognize revenue revenues for.
85 ish percent of the premium dollar versus the.
35% to 40% that we are recognizing today.
And do you think ultimately you can expand them more or less for all patients that you will serve across the entire state of California.
Isn't that is that do I have that right.
Yes, we will start with our Medicare advantage population. The goal is to expand it across multiple lines of business of course this does take time.
It's not overnight, but yes that is the long term.
Cool. Thank you I'll leave it at that good quarter good outlook I'm excited for you guys.
Thanks, So much Brooks great to hear you.
Thank you Bruce.
We've reached end of our question and answer session I'd like to turn the floor back over for any further or closing comments.
Well. Thank you all for your time today, we are always open to a dialogue with investors and welcoming visitors to our offices, but no ambra should any of you being the Los Angeles area.
Please feel free to reach out to us with any additional questions. We look forward to speaking to you all again on our next quarterly call. Thank you.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.
Yeah.