# Astrana Health, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Astrana Health, Inc.](/companies/asth.md) (CIK 1083446)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 15:19 ET
- Period: 2023-09-30
- Accession: 0001628280-23-038192
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1083446/000162828023038192/ameh-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1083446/000162828023038192/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $348.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.03bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $39.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $88.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $3.8m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $10.7m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $10.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $31.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $22.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $48.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.47 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $1.03 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.47 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $1.04 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 46,920,607 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 46,881,567 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $48.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $21.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $9.7m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $273.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $476.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $1.07bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $203.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $457.6m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $206.2m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $3.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $593.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 49,252 characters.

*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. The financial information for the three and nine months ended September 30, 2022 included herein has been restated as more fully described in Note 2 to the unaudited consolidated financial statements included in Item 1 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/A for the year ended December 31, 2022, filed with the SEC on August 9, 2023.*

### Overview

Apollo Medical Holdings, Inc. is a leading physician-centric, technology-powered, risk-bearing healthcare management company. Leveraging its proprietary population health management and healthcare delivery platform, ApolloMed operates an integrated, value-based healthcare model, which aims to empower the providers in its network to deliver the highest quality of care to its patients in a cost-effective manner. Together with our affiliated physician groups and consolidated entities, we provide coordinated outcomes-based medical care in 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. Refer to Note 2 — “Basis of Presentation and Summary of Significant Accounting Policies” to our consolidated financial statements under Item 1 in this Quarterly Report on Form 10-Q for all consolidated entities.

Led by a management team with several decades of experience, we focus on physicians providing high-quality medical care, population health management, and patient care coordination. As a result, we believe 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 accountable care organization and a network of IPAs with more than 10,000 contracted physicians, we are responsible for coordinating care in value-based care arrangements for approximately 0.9 million patients primarily in California as of September 30, 2023.

### Recent Developments

#### Truist Amended Credit Agreement

On November 3, 2023, the Company entered into the Credit Agreement Amendment which provided a new term loan to the Company in an aggregate amount of up to $300.0 million. This increased the Company’s facility under the Amended Credit Agreement to $700.0 million, including our existing $400.0 million revolver. Pursuant to the Credit Agreement Amendment, among other changes, the Company (i) increased the maximum levels of certain forms of permitted indebtedness, (ii) increased the maximum levels of certain forms of restricted payments, including the ability to pursue certain specified share repurchases (up to $300 million) subject to certain conditions and (iii) increased the maximum levels for certain permitted investments.. Refer to Note 20 — “Subsequent Events” to our consolidated financial statements under Item 1 in this Quarterly Report on Form 10-Q for additional information. As of November 9, 2023, the Company made drawdowns of $280.0 million under the Amended Credit Agreement, of which $180.0 million was used to pay the outstanding amount borrowed on the revolving line of credit.

#### Share Repurchase

On November 6, 2023, the Company entered into a stock repurchase agreement with APC, to repurchase approximately $100.0 million of the Company’s common stock from APC. The Company intends to finance the share repurchase with borrowings under its Amended Credit Agreement. Refer to Note 20 — “Subsequent Events” to our consolidated financial statements under Item 1 in this Quarterly Report on Form 10-Q for additional information.

#### Community Family Care Medical Group IPA, Inc. and I Health, Inc.

On November 7, 2023, the Company announced that it and its affiliated professional entity have entered into an agreement to acquire assets relating to CFC, including the CFC independent physician association, the CFC Health Plan and CFC’s management services organization entities. CFC manages the healthcare of over 200,000 members in the Los Angeles, California area, serving patients across Medicare, Medicaid, and Commercial payers and has a Restricted Knox Keene (“RKK”) license for Medicaid members. The Company intends to finance the acquisition with cash on hand and borrowings under its Amended Credit Agreement. The CFC acquisition remains subject to customary closing conditions. Refer to Note 20 — “Subsequent Events” to our consolidated financial statements under Item 1 in this Quarterly Report on Form 10-Q for additional information.

#### Associated Hispanic Physicians

On November 7, 2023, the Company announced a partnership with Associated Hispanic Physicians, a group of over 150 primary care providers and over 450 specialists in Los Angeles with around 25,000 Medicaid, Medicare, and Commercial members in value-based care arrangements, in order to support their group with our Care Enablement offering. We expect Associated Hispanic Physicians’ providers will be onboarded onto our Care Enablement platform by March 2024.

#### Advantage Health Network

On November 7, 2023, the Company announced its expanded relationship with Advantage Health Network, a group of approximately 15 primary care providers and several hundred specialists in Los Angeles which supports around 4,500 Medicaid, Medicare, and Commercial members in value-based care arrangements. As part of the partnership, Advantage’s providers are expected to join our Care Partners business. We also acquired five primary care clinics in the Advantage Health Network, which will be integrated into our Care Delivery business.

#### Wider Circle

On November 7, 2023, the Company announced its strategic partnership with Wider Circle, a peer-based community health organization working with payers and providers to connect neighbors for better health. Under this partnership, the two organizations will provide comprehensive patient-centered care and enhanced care management for Medicaid members with complex needs, an integral component of the California Advancing and Innovating Medi-Cal, or CalAIM, initiative.

### 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, GPDC/ACO REACH revenue, management fee income, and fee-for-services (“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

Our largest expenses consist of the cost of: (i) patient care paid to contracted providers; (ii) information technology equipment and software; and (iii) hiring staff to provide management and administrative support services to our affiliated physician groups, as further described in the following sections. These services include claims processing, utilization management, contracting, accounting, credentialing, and administrative oversight.

### Results of Operations

### Consolidated Statements of Income

(In thousands)

(Unaudited)

| Revenue | Three Months Ended September 30, 2023 | 2022 (Restated) | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Capitation, net | $305,678 | $227,571 | $78,107 | 34% |
| Risk pool settlements and incentives | 15,022 | 64,849 | (49,827) | (77)% |
| Management fee income | 9,898 | 10,030 | (132) | (1)% |
| Fee-for-services, net | 15,892 | 12,859 | 3,033 | 24% |
| Other revenue | 1,683 | 1,692 | (9) | (1)% |
| Total revenue | 348,173 | 317,001 | 31,172 | 10% |
| **Operating expenses** |  |  |  |  |
| Cost of services, excluding depreciation and amortization | 275,375 | 240,768 | 34,607 | 14% |
| General and administrative expenses | 29,410 | 21,388 | 8,022 | 38% |
| Depreciation and amortization | 4,305 | 4,754 | (449) | (9)% |
| Total expenses | 309,090 | 266,910 | 42,180 | 16% |
| **Income from operations** | 39,083 | 50,091 | (11,008) | (22)% |
| **Other income (expense)** |  |  |  |  |
| (Loss) income from equity method investments | (2,104) | 1,452 | (3,556) | (245)% |
| Interest expense | (3,779) | (2,422) | (1,357) | 56% |
| Interest income | 3,281 | 223 | 3,058 | \* |
| Unrealized (loss) on investments | (342) | (6,763) | 6,421 | (95)% |
| Other income (expense) | 1,876 | (1,318) | 3,194 | (242)% |
| Total other expense, net | (1,068) | (8,828) | 7,760 | (88)% |
| **Income before provision for income taxes** | 38,015 | 41,263 | (3,248) | (8)% |
| Provision for income taxes | 10,042 | 17,366 | (7,324) | (42)% |
| **Net income** | 27,973 | 23,897 | 4,076 | 17% |
| Net income attributable to non-controlling interest | 5,914 | 712 | 5,202 | \* |
| **Net income attributable to Apollo Medical Holdings, Inc.** | $22,059 | $23,185 | $(1,126) | (5)% |

\* Percentage change of over 500%

| Revenue | Nine Months Ended September 30, 2023 | 2022 (Restated) | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Capitation, net | $906,430 | $677,253 | $229,177 | 34% |
| Risk pool settlements and incentives | 48,605 | 101,717 | (53,112) | (52)% |
| Management fee income | 32,287 | 30,487 | 1,800 | 6% |
| Fee-for-services, net | 41,216 | 35,694 | 5,522 | 15% |
| Other revenue | 5,087 | 4,804 | 283 | 6% |
| Total revenue | 1,033,625 | 849,955 | 183,670 | 22% |
| **Operating expenses** |  |  |  |  |
| Cost of services, excluding depreciation and amortization | 857,648 | 691,566 | 166,082 | 24% |
| General and administrative expenses | 74,648 | 53,224 | 21,424 | 40% |
| Depreciation and amortization | 12,846 | 13,480 | (634) | (5)% |
| Total expenses | 945,142 | 758,270 | 186,872 | 25% |
| **Income from operations** | 88,483 | 91,685 | (3,202) | (3)% |
| **Other income (expense)** |  |  |  |  |
| Income from equity method investments | 3,104 | 4,397 | (1,293) | (29)% |
| Interest expense | (10,680) | (5,348) | (5,332) | 100% |
| Interest income | 9,617 | 690 | 8,927 | \* |
| Unrealized loss on investments | (5,875) | (17,591) | 11,716 | (67)% |
| Other income | 4,265 | 2,328 | 1,937 | 83% |
| Total other income (expense), net | 431 | (15,524) | 15,955 | (103)% |
| **Income before provision for income taxes** | 88,914 | 76,161 | 12,753 | 17% |
| Provision for income taxes | 30,971 | 29,537 | 1,434 | 5% |
| **Net income** | 57,943 | 46,624 | 11,319 | 24% |
| Net income (loss) attributable to non-controlling interest | 9,582 | (2,275) | 11,857 | \* |
| **Net income attributable to Apollo Medical Holdings, Inc.** | $48,361 | $48,899 | $(538) | (1)% |

\* Percentage change of over 500%

### Physician Groups and Patients

As of September 30, 2023 and 2022, we managed a total of 15 and 14 independent physician groups that are affiliated and non-affiliated, respectively. The total number of patients for whom we managed the delivery of healthcare services was approximately 0.9 million and 1.2 million as of September 30, 2023 and 2022, respectively.

### Revenue

Our revenue for the three months ended September 30, 2023 was $348.2 million, as compared to $317.0 million for the three months ended September 30, 2022, an increase of $31.2 million, or 10%. The increase in revenue was primarily attributable to the following:

(i) Capitation revenue increased by $78.1 million, driven by membership growth as a result of our recent IPA acquisitions and increased participation in a value-based Medicare fee-for-service model.

(ii) Risk pool settlements and incentives decreased by $49.8 million due to the settlement of the NGACO program for the 2021 performance year being recognized during the three months ended September 30, 2022.

(iii) Fee for service revenue increased by $3.0 million due to increased volume in patient visits at our primary, multi-specialty, and ancillary care delivery entities.

Our revenue for the nine months ended September 30, 2023, was $1,033.6 million, as compared to $850.0 million for the nine months ended September 30, 2022, an increase of $183.7 million, or 22%. The increase in revenue was primarily attributable to the following:

(i) Capitation revenue increased by $229.2 million as a result of our recent IPA acquisitions and increased participation in a value-based Medicare fee-for-service model.

(ii) Risk pool settlements and incentives decreased by $53.1 million due to the settlement of the NGACO program for the 2021 performance year being recognized during the nine months ended September 30, 2022.

(iii) Fee for service revenue increased by $5.5 million due to increased volume in patient visits at our primary, multi-specialty, and ancillary care delivery entities.

### Cost of Services, Excluding Depreciation and Amortization

Expenses related to cost of services for the three months ended September 30, 2023 were $275.4 million, as compared to $240.8 million for the same period in 2022, an increase of $34.6 million. The overall increase was primarily due to increased participation in a value-based Medicare fee-for-service model, growth in membership, and increased patient visits, which were commensurate to our increase in revenue.

Expenses related to cost of services for the nine months ended September 30, 2023, were $857.6 million, as compared to $691.6 million for the same period in 2022, an increase of $166.1 million. The overall increase was primarily due to increased participation in a value-based Medicare fee-for-service model, growth in membership, and increased patient visits which were commensurate to our increase in revenue.

### General and Administrative Expenses

General and administrative expenses for the three months ended September 30, 2023 were $29.4 million, as compared to $21.4 million for the same period in 2022, an increase of $8.0 million, or 38%. The increase was primarily due to an increase in headcount and other general and administrative expenses to support operational growth.

General and administrative expenses for the nine months ended September 30, 2023, were $74.6 million, as compared to $53.2 million for the same period in 2022, an increase of $21.4 million, or 40%. The increase was primarily due to an increase in headcount and other general and administrative expenses to support operational growth.

### Depreciation and Amortization

Depreciation and amortization expenses for the three months ended September 30, 2023 were $4.3 million, as compared to $4.8 million for the same period in 2022. 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, 2023, were $12.8 million, as compared to $13.5 million for the same period in 2022. This amount includes depreciation of property and equipment and the amortization of intangible assets.

### Income From Equity Method Investments

Loss from equity method investments for the three months ended September 30, 2023 was $2.1 million, as compared to income from equity method investments of $1.5 million for the same period in 2022, a decrease of $3.6 million. The decrease in income from equity method investments was primarily due to APC’s equity method investment in LMA. For the three months ended September 30, 2023 and 2022, APC recognized a loss from this investment of $2.2 million and income of $1.4 million, respectively.

Income from equity method investments for the nine months ended September 30, 2023, was $3.1 million, as compared to income from equity method investments of $4.4 million for the same period in 2022, a decrease of $1.3 million. The decrease was due to APC’s equity method investment in LMA. For the nine months ended September 30, 2023 and 2022, APC recognized income from this investment of $2.7 million and $3.9 million, respectively.

### Interest Expense

Interest expense for the three months ended September 30, 2023 was $3.8 million, as compared to $2.4 million for the same period in 2022, an increase of $1.4 million. The increase in interest expense was due to higher interest rates. On September 30, 2023, the interest rate on the Amended Credit Agreement with the collar was 5% compared to 4.17% on September 30, 2022.

Interest expense for the nine months ended September 30, 2023, was $10.7 million, as compared to $5.3 million for the same period in 2022, an increase of $5.3 million. The increase in interest expense was due to higher interest rates. On September 30, 2023, the interest rate on the Amended Credit Agreement with the collar was 5% compared to 4.17% on September 30, 2022.

### Interest Income

Interest income for the three months ended September 30, 2023 was $3.3 million compared to $0.2 million for the three months ended September 30, 2022. Interest income reflects interest earned on cash held in bank accounts, money market and certificate of deposit accounts and the interest from notes receivable. The increase in interest income is due to more bank accounts becoming interest-bearing and interest income from the IntraCare convertible promissory note.

Interest income for the nine months ended September 30, 2023, was $9.6 million compared to $0.7 million for the nine months ended September 30, 2022. Interest income reflects interest earned on cash held in bank accounts, money market and certificate of deposit accounts and the interest from notes receivable. The increase in interest income is due to more bank accounts becoming interest-bearing and interest income from the IntraCare convertible promissory note.

### Unrealized Gain (Loss) on Investments

Unrealized loss for the three months ended September 30, 2023 was $0.3 million, as compared to unrealized loss of $6.8 million for the same period in 2022, a decrease in unrealized loss of $6.4 million. The decrease in unrealized loss on investments was primarily driven by a decrease in the stock price and quantity of equity securities we hold.

Unrealized loss for the nine months ended September 30, 2023 was $5.9 million, as compared to $17.6 million for the same period in 2022, a decrease in unrealized loss of $11.7 million. The decrease in unrealized loss on investments was primarily driven by a $12.7 million decrease due to fluctuations in the stock price of equity securities we hold and the quantity of those shares. This was partially offset by a $1.3 million increase in unrealized gain related to the change in the fair value of the collar.

### Other Income (Loss)

Other income for the three months ended September 30, 2023 was $1.9 million, as compared to other loss of $1.3 million for the same period in 2022, an increase of $3.2 million. The increase in other income was primarily due to a $0.4 million increase in rental income, a $1.6 million write-off recognized during the three months ended September 30, 2022 related to a deposit that is not expected to be collected, and a $0.8 million gain recognized during the three months ended September 30, 2023 for the a portion of the deposit that is now expected to be collected. There was no similar write-off during the three months ended September 30, 2023.

Other income for the nine months ended September 30, 2023 was $4.3 million, as compared to other income of $2.3 million for the same period in 2022, an increase of $1.9 million. The increase in other income was primarily due to an increase in rental income.

### Provision for Income Taxes

Provision for income taxes was $10.0 million for the three months ended September 30, 2023 as compared to a provision for income taxes of $17.4 million for the same period in 2022, a decrease of $7.3 million. The decrease in provision for income taxes was due to a decrease in pretax income.

Provision for income taxes was $31.0 million for the nine months ended September 30, 2023 as compared to a provision for income taxes of $29.5 million for the same period in 2022, an increase of $1.4 million. The increase in provision for income taxes was due to an increase in pretax income.

### Net Income (Loss) Attributable to Non-controlling Interests

Net income attributable to non-controlling interests for the three months ended September 30, 2023 was $5.9 million, as compared to net income attributable to non-controlling interests for the three months ended September 30, 2022 of $0.7 million, an increase in net income attributable to non-controlling interest of $5.2 million. The increase was primarily driven by a decrease in unrealized loss resulting from the change in the fair value of equity securities held by APC.

Net income attributable to non-controlling interests for the nine months ended September 30, 2023 was $9.6 million, as compared to net loss attributable to non-controlling interests for the nine months ended September 30, 2022 of $2.3 million, an increase in net income attributable to non-controlling interest of $11.9 million. The increase was primarily driven by a decrease in unrealized loss resulting from the change in the fair value of equity securities held by APC.

### Net Income Attributable to Apollo Medical Holdings, Inc.

Our net income attributable to Apollo Medical Holdings, Inc. for the three months ended September 30, 2023 was $22.1 million, as compared to $23.2 million for the same period in 2022, a decrease of $1.1 million.

Our net income attributable to Apollo Medical Holdings, Inc. for the nine months ended September 30, 2023, was $48.4 million, as compared to $48.9 million for the same period in 2022, a decrease of $0.5 million.

### Segment Financial Performance

The Company currently has three reportable segments consisting of Care Partners, Care Delivery and Care Enablement. The Company evaluates the performance of its operating segments based on segment revenue growth as well as operating income. Management uses revenue growth and total segment operating income as a measure of the performance of operating businesses separate from non-operating factors. For more information about our segments, Refer to Note 1 — “Description of Business” and Note 18 - “Segments” to our consolidated financial statements under Item 1 in this Quarterly Report on Form 10-Q for additional information.

The following table sets forth our revenue and operating income by segment for the three and nine months ended September 30, 2023 and 2022 (in thousands):

| Segment Revenue | Three Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Care Partners | $326,499 | $293,599 | $32,900 | 11% |
| Care Delivery | $29,261 | $24,828 | $4,433 | 18% |
| Care Enablement | $36,910 | $30,305 | $6,605 | 22% |

60

| Segment Operating Income (Loss) | Three Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Care Partners | $40,340 | $46,297 | $(5,957) | (13)% |
| Care Delivery | $(1,035) | $3,151 | $(4,186) | (133)% |
| Care Enablement | $6,448 | $5,089 | $1,359 | 27% |

| Segment Revenue | Nine Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Care Partners | $966,397 | $782,188 | $184,209 | 24% |
| Care Delivery | $81,362 | $68,506 | $12,856 | 19% |
| Care Enablement | $102,451 | $89,253 | $13,198 | 15% |

| Segment Operating Income (Loss) | Nine Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Care Partners | $90,489 | $71,653 | $18,836 | 26% |
| Care Delivery | $(1,432) | $7,627 | $(9,059) | (119)% |
| Care Enablement | $19,829 | $23,758 | $(3,929) | (17)% |

### Care Partners Segment

Revenue for the three months ended September 30, 2023 was $326.5 million, as compared to $293.6 million for the three months ended September 30, 2022, an increase of $32.9 million, or 11%. Operating income for the three months ended September 30, 2023 was $40.3 million, as compared to $46.3 million for the three months ended September 30, 2022, a decrease in operating income of $6.0 million, or 13%. The increase in revenue was primarily due to recent acquisitions within our Care Partners segment and increased participation in a value-based Medicare fee-for-service model. The decrease in operating income was due to more costs incurred as a result of our recent IPA acquisitions and medical expenses for our value-based Medicare fee-for-service model.

Revenue for the nine months ended September 30, 2023 was $966.4 million, as compared to $782.2 million for the nine months ended September 30, 2022, an increase of $184.2 million, or 24%. Operating income for the nine months ended September 30, 2023 was $90.5 million, as compared to $71.7 million for the nine months ended September 30, 2022, an increase of $18.8 million, or 26%. The increase in revenue and operating income was primarily due to organic membership growth in our consolidated IPAs and increased participation in a value-based Medicare fee-for-service model.

### Care Delivery Segment

Revenue for the three months ended September 30, 2023 was $29.3 million, as compared to $24.8 million for the three months ended September 30, 2022, an increase of $4.4 million, or 18%. Operating loss for the three months ended September 30, 2023 was $1.0 million, as compared to income of $3.2 million for the three months ended September 30, 2022, a decrease of $4.2 million, or 133%. The increase in revenue was primarily driven by increased volume in patient visits at our primary, multi-specialty, and ancillary care delivery entities. The decrease in operating income was primarily due to the Company’s ongoing investment in expanding its care delivery footprint in Nevada and Texas.

Revenue for the nine months ended September 30, 2023 was $81.4 million, as compared to $68.5 million for the nine months ended September 30, 2022, an increase of $12.9 million, or 19%. Operating loss for the nine months ended September 30, 2023 was $1.4 million, as compared to operating income of $7.6 million for the nine months ended September 30, 2022, a decrease of $9.1 million, or 119%. The increase in revenue was primarily driven by increased volume in patient visits at our primary, multi-specialty, and ancillary care delivery entities. The decrease in operating income was primarily due to the Company’s ongoing investment in expanding its care delivery footprint in Nevada and Texas.

### Care Enablement Segment

Revenue for the three months ended September 30, 2023 was $36.9 million, as compared to $30.3 million for the three months ended September 30, 2022, an increase of $6.6 million, or 22%. Operating income for the three months ended September 30, 2023 was $6.4 million, as compared to operating income of $5.1 million for the three months ended September 30, 2022, an increase in operating income of $1.4 million, or 27%. The increase in revenue and operating income was primarily due to an increase in managed independent physician groups. As of September 30, 2023 and 2022, we managed a total of 15 and 14 independent physician groups that are affiliated and non-affiliated, respectively.

Revenue for the nine months ended September 30, 2023 was $102.5 million, as compared to $89.3 million for the nine months ended September 30, 2022, an increase of $13.2 million, or 15%. Operating income for the nine months ended September 30, 2023 was $19.8 million, as compared to $23.8 million for the nine months ended September 30, 2022, a decrease of $3.9 million, or 17%. The increase in revenue was due to an increase in managed IPAs. As of September 30, 2023 and 2022, we managed a total of 15 and 14 independent physician groups that are affiliated and non-affiliated, respectively. The decrease in operating income was primarily due to more expenses incurred for the nine months ended September 30, 2023 as a result of increase in headcount to support the increase in our managed independent physician groups.

### 2023 Guidance

ApolloMed is narrowing its full-year 2023 guidance. The net income and EBITDA guidance ranges below include the impact of the Excluded Assets held by APC, which are solely for the benefit of APC and its shareholders. Any gains or losses associated with these Excluded Assets do not have an impact on Adjusted EBITDA and earnings per share — diluted. These guidance ranges are based on the Company’s existing business, current view of existing market conditions, and assumptions for the year ending December 31, 2023.

*($ in millions)*

|  | 2023 Guidance Range (as of November 7, 2023) Low | High | 2023 Guidance Range (as of February 23, 2023) Low | High |
| --- | ---: | ---: | ---: | ---: |
| Total revenue | $1,340.0 | $1,390.0 | $1,300.0 | $1,500.0 |
| Net income | $59.5 | $71.5 | $49.5 | $71.5 |
| EBITDA | $114.5 | $129.5 | $89.5 | $129.5 |
| Adjusted EBITDA | $135.0 | $150.0 | $120.0 | $160.0 |
| EPS – diluted | $1.10 | $1.20 | $0.95 | $1.20 |

See “Guidance Reconciliation of Net Income to EBITDA and 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 “Note about Forward-Looking Statements” for additional information.

*Guidance Reconciliation of Net Income to EBITDA and Adjusted EBITDA*

*(in thousands)*

|  | 2023 Guidance Range (as of November 7, 2023) Low | High | 2023 Guidance Range (as of February 23, 2023) Low | High |
| --- | ---: | ---: | ---: | ---: |
| Net income | $59,500 | $71,500 | $49,500 | $71,500 |
| Interest expense | 1,500 | 1,500 | 1,000 | 1,000 |
| Provision for income taxes | 36,500 | 39,500 | 23,000 | 38,000 |
| Depreciation and amortization | 17,000 | 17,000 | 16,000 | 19,000 |
| **EBITDA** | 114,500 | 129,500 | 89,500 | 129,500 |
| Loss (income) from equity method investments | (4,500) | (4,500) | (750) | (750) |
| Other, net | 1,000 | 1,000 | 3,250 | 3,250 |
| Stock-based compensation | 20,000 | 20,000 | 16,000 | 16,000 |
| APC excluded assets costs | 4,000 | 4,000 | 12,000 | 12,000 |
| **Adjusted EBITDA** | $135,000 | $150,000 | $120,000 | $160,000 |

### EBITDA

Set forth below are reconciliations of Net Income to EBITDA and Adjusted EBITDA as well as the reconciliation to Adjusted EBITDA margin for the three and nine months ended September 30, 2023 and 2022. The Company defines Adjusted EBITDA margin as Adjusted EBITDA over total revenue.

*(in thousands)*

|  | Three Months Ended September 30, 2023 |  | 2022 (Restated) |  | Nine Months Ended September 30, 2023 |  | 2022 (Restated) |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Net income | $27,973 |  | $23,897 |  | $57,943 |  | $46,624 |  |
| Interest expense | 3,779 |  | 2,422 |  | 10,680 |  | 5,348 |  |
| Interest income | (3,281) |  | (223) |  | (9,617) |  | (690) |  |
| Provision for income taxes | 10,042 |  | 17,366 |  | 30,971 |  | 29,537 |  |
| Depreciation and amortization | 4,305 |  | 4,754 |  | 12,846 |  | 13,480 |  |
| **EBITDA** | 42,818 |  | 48,216 |  | 102,823 |  | 94,299 |  |
| Income from equity method investments | 2,016 |  | (1,469) |  | (3,160) |  | (4,358) |  |
| Other, net | 1,723 | (1) | 1,382 | (2) | 1,507 | (1) | 1,382 | (2) |
| Stock-based compensation | 5,706 |  | 3,502 |  | 13,364 |  | 10,477 |  |
| APC excluded assets costs | (289) | (3) | 5,505 |  | 3,039 | (3) | 14,574 |  |
| **Adjusted EBITDA** | $51,974 |  | $57,136 |  | $117,573 |  | $116,374 |  |
| **Total revenue** | 348,173 |  | 317,001 |  | 1,033,625 |  | 849,955 |  |
| **Adjusted EBITDA margin** | 15% |  | 18% |  | 11% |  | 14% |  |

(1) Other, net for the three and nine months ended September 30, 2023 relates to transaction costs incurred for our investments and tax restructuring fees and non-cash changes related to change in the fair value of our financing obligation to purchase the remaining equity interests, changes in the fair value of our contingent liabilities, and changes in the fair value of the Company's Collar Agreement.

(2) Other, net for the three and nine months ended September 30, 2022 relates to transaction costs incurred, net of the write-off related to APCMG contingent consideration to reflect the fair value as of September 30, 2022.

(3) Certain APC minority interests where APC owns the asset but not the right to the dividends is reclassified from APC excluded asset costs to income from equity method investments.

#### 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 income. These measures are not in accordance with, or alternatives to GAAP, and may be calculated differently from similar 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, non-recurring and non-cash transactions, stock-based compensation, and APC excluded assets costs. Beginning in the third quarter ended September 30, 2022, the Company has revised the calculation for Adjusted EBITDA to exclude provider bonus payments and losses from recently acquired IPAs, which it believes to be more reflective of its business.

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, or as a substitute for, GAAP financial measures. Other companies may calculate both EBITDA and Adjusted EBITDA differently, limiting the usefulness of these measures for comparative purposes. To the extent this Form 10-Q 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, 2023 totaled $277.0 million as compared to $293.6 million at December 31, 2022. Working capital totaled $273.3 million at September 30, 2023, as compared to $279.5 million (restated) at December 31, 2022, a decrease of $6.2 million. In the long term, the Company aims to have the leverage ratio to be within the range 2.25-2.75. The Company defines leverage ratio as total debt less free cash flow consisting of cash less current liabilities over the last twelve months of EBITDA.

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 FFS reimbursements. We generally invest cash in money market accounts, which are classified as cash and cash equivalents. We also have the Amended Credit Agreement, which provides for a five-year revolving credit facility of $400.0 million and expires in June 2026. In addition, we have a current shelf registration statement filed with SEC under which we may issue common stock, preferred stock, debt securities and other securities that may be offered in one or more offerings on terms to be determined at the time of the offering. We believe we have sufficient liquidity to fund our operations through at least the next 12 months and the foreseeable future.

### Cash Flow Activities

Our cash flows are summarized as follows (in thousands):

|  | Nine Months Ended September 30, 2023 | 2022 (Restated) | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net cash provided by (used in) operating activities | $48,927 | $(2,811) | $51,738 | \* |
| Net cash used in investing activities | (54,096) | (20,314) | (33,782) | 166% |
| Net cash used in financing activities | (8,572) | (25,956) | 17,384 | (67)% |
| Net decrease in cash and cash equivalents | $(13,741) | $(49,081) | $35,340 | (72)% |

\* Percentage change of over 500%

#### Operating Activities

Cash provided by operating activities for the nine months ended September 30, 2023 was $48.9 million, as compared to cash used in operating activities of $2.8 million for the nine months ended September 30, 2022. The increase in cash provided by operating activities was primarily driven by changes in net income and working capital. For the nine months ended September 30, 2023, net income exclusive of depreciation and amortization, amortization of debt issuance cost, share-based compensation, unrealized gains or losses, income or loss from equity method investments, and deferred tax was $83.7 million compared to $80.1 million for the nine months ended September 30, 2022. Working capital for the nine months ended September 30, 2023 decreased operating cash flow by $34.8 million, compared to an $82.9 million decrease in operating cash flow at September 30, 2022. The change in working capital for the nine months ended September 30, 2023 was mainly driven by an increase in receivables, net, and increase in medical liabilities related to the Company’s participation in value-based Medicare fee-for-service model, increase in related party receivables primarily due to timing of risk pool settlements that occur approximately 18 months after the risk pool performance year is completed, and increase in accounts payable and accrued liabilities and income tax payable due to timing of payments.

#### Investing Activities

Cash used in investing activities during the nine months ended September 30, 2023 was $54.1 million, primarily due to purchases of property and equipment of $21.5 million, purchases of marketable securities of $2.1 million, purchase of a privately held investment of $2.0 million, purchase of an equity method investment of $0.3 million, contribution to an equity method investment of $0.7 million, issuance of a loan receivable of $25.0 million, and payments for business and asset acquisitions, net of cash acquired of $4.7 million. The cash used in investing activities was partially offset by proceeds from repayment of a loan receivable of $2.2 million. Cash used in investing activities during the nine months ended September 30, 2022, was $20.3 million, primarily due to purchases of property and equipment of $22.1 million, payments for business acquisition, net of cash, of $5.6 million, purchase of marketable securities of $1.8 million, and funding for an equity method investment of $1.8 million. The cash used in investing activities was partially offset by proceeds from the sale of marketable securities of $6.4 million, repayment of a loan receivable of $4.1 million, and distributions from an equity method investment of $0.4 million.

#### Financing Activities

Cash used in financing activities during the nine months ended September 30, 2023 was $8.6 million, primarily due to repurchase of treasury stock of $9.7 million, dividend payments of $2.3 million, repayment of debt of $0.5 million, a repayment of finance lease obligations of $0.5 million, and purchase of non-controlling interest of $0.1 million. This was partially offset by borrowings from bank loans totaling $3.1 million and proceeds from the exercise of options of $1.3 million. Cash used in financing activities during the nine months ended September 30, 2022, was $26.0 million. Cash used in financing activities during the nine months ended September 30, 2022, was primarily due to dividend payments of $12.7 million, repurchase of shares of $9.6 million, repayment of debt of $3.7 million, purchase of non-controlling interest of $4.3 million, and a repayment of finance lease obligations of $0.4 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”). 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 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, 2023 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, 2023 and December 31, 2022, the assets and liability included in Excluded Assets consisted of the following (in thousands):

|  | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Cash and cash equivalents | $11,630 | $30,163 |
| Investment in marketable securities | 522 | 4,543 |
| Land, property, and equipment, net | 120,409 | 101,349 |
| Investments in other entities – equity method | 20,642 | 19,999 |
| Other receivables and assets | 6,753 | 3,907 |
| Other liabilities | (5,374) | (4,754) |
| Long-term debt | (29,755) | (27,264) |
| Total Excluded Assets | $124,827 | $127,943 |

For the nine months ended September 30, 2023 and 2022, the Excluded Assets net income consisted of the following (in thousands):

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Total operating expenses | $3,277 | $2,877 |
| Total other income (expense), net | $(1,734) | $(13,132) |
| Excluded Assets net income (loss) | $(5,028) | $(16,014) |

### Credit Facilities

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

|  | September 30, 2023 |
| --- | ---: |
| Revolver Loan | $180,000 |
| Real Estate Loans\* | 22,707 |
| Construction Loan\* | 7,106 |
| Promissory Note Payable | 2,000 |
| Total debt | 211,813 |
| Less: Current portion of debt | (2,991) |
| Less: Unamortized financing costs | (2,609) |
| Long-term debt | $206,213 |

66

\*Loans are deemed Excluded Assets that are solely for the benefit of APC and its shareholders.

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

|  | Amount |
| --- | ---: |
| 2023 (excluding the nine months ended September 30, 2023) | $158 |
| 2024 | 3,234 |
| 2025 | 7,895 |
| 2026 | 181,164 |
| 2027 | 1,182 |
| Thereafter | 18,180 |
| Total | $211,813 |

### Credit Agreement

The Amended Credit Agreement provides for a five-year revolving credit facility to the Company of $400.0 million, which includes a letter of credit sub-facility of up to $50.0 million and a swingline loan sub-facility of $25.0 million, which expires on June 16, 2026. On November 3, 2023, the Company entered into the Credit Agreement Amendment, which provided a new term loan to the Company in an aggregate amount of up to $300.0 million. This increased the Company’s facility under the Amended Credit Agreement to $700.0 million, including the existing $400.0 million revolver. As of November 8, 2023, the Company made drawdowns of $280.0 million under the Amended Credit Agreement, of which $180.0 million was used to pay the outstanding amount borrowed on the revolving line of credit.

Refer to Note 9 — “Credit Facility, Bank Loans, and Lines of Credit” and Note 20 — “Subsequent Events” to our consolidated financial statements under Item 1 in this Quarterly Report on Form 10-Q for additional information.

### Real Estate Loans (Excluded Assets for the benefit of APC and its subsidiaries)

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.

On January 25, 2022, 120 Hellman entered into a real estate loan agreement with MUFG Union Bank N.A. and borrowed $16.3 million. 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 (Excluded Assets for the benefit of APC and its subsidiaries)

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.

### Promissory Note Payable

In May 2021, FYB entered into a promissory note agreement with CCHCA. The principal on the promissory note is $2.0 million with a maturity date of May 9, 2024. 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.

### 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 reflect significant judgments and uncertainties, potentially resulting 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 and Summary of Significant Accounting Policies” 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/A for the fiscal year ended December 31, 2022.

### Off-Balance Sheet Arrangements

As of September 30, 2023, 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.

## Market risk

As filed, 2,754 characters.

### Interest Rate Risk

Borrowings under our Amended Credit Agreement exposed us to interest rate risk. As of September 30, 2023, we had $180.0 million in outstanding borrowings under our Amended Credit Agreement. As of September 30, 2023, the amount borrowed under the Amended Credit Agreement bears interest at an annual rate equal to either, at the Company’s option, (a) the Term SOFR Reference Rate, calculated two U.S. Government Securities Business Days prior to the first day of such interest period, as such rate is published by the Term SOFR Administrator (Federal Reserve Bank of New York), adjusted for any Term SOFR Adjustment, 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. In addition, as of September 30, 2023, Tag 8, a VIE consolidated by the Company, had $7.1 million in outstanding borrowings for the Construction Loan. The interest rate on the Construction Loan is equal to an index rate determined by the bank. Furthermore, as of September 30, 2023, APC had $22.7 million in outstanding borrowings for real estate loans related to ZLL, MPP, AMG Properties, and 120 Hellman (“Real Estate Loans”). These loans, other than 120 Hellman’s Real Estate Loan, bear 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. Under no circumstances will the interest rate on these loans be less than 3.50% per annum or more than the maximum rate allowed by applicable law. 120 Hellman’s Real Estate Loan has a variable interest rate of 2.0% in excess of Daily Simple SOFR, which is the daily rate per annum equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York. The Company has entered into interest rate swap agreements and collar agreements for certain agreements to effectively convert its floating-rate debt to a fixed-rate basis or to a rate within the agreed-upon range. The principal objective of these contracts is to eliminate or reduce the variability of the cash flows in interest payments associated with the Company’s floating-rate debt, thus reducing the impact of interest rate changes on future interest payment cash flows. A hypothetical 1% change in our interest rates for our outstanding borrowings under our Credit Agreement, Construction Loans, and Real Estate Loans would have increased or decreased our interest expense for three months ended September 30, 2023 by $2.1 million.

## Controls and procedures

As filed, 4,969 characters.

### Evaluation of Disclosure Controls and Procedures

The Company maintains “disclosure controls and procedures,” as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act, designed to ensure that information required to be disclosed by a company in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives.

As of September 30, 2023, 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. As a result of a material weakness in internal control over financial reporting associated with income taxes that is described below, our Co-Chief Executive Officers and Chief Financial and Strategy Officer determined that our disclosure controls and procedures were not effective as of September 30, 2023.

### Material Weakness in Internal Control over Financial Reporting Associated with Company’s Tax Provision

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual and interim financial statements will not be detected or prevented on a timely basis. As disclosed in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2022, management has identified a material weakness in internal controls relating to the inadequate design of controls associated with income taxes resulting in insufficient analysis, documentation, and review regarding the completeness and accuracy of the Company’s tax filing structure with related impact on intercompany transactions and consolidated tax filing groups.

This material weakness resulted in errors in the unaudited consolidated financial statements for the three and nine months ended September 30, 2022 that are restated in this Form 10-Q. Additionally, this material weakness could result in misstatements of the related accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

### Management’s Remediation Plans

Management is actively engaged in the implementation of remediation plans to address the controls contributing to the material weakness associated with the tax provision. The Company’s remediation actions include, but are not limited to, the following:

i. We have hired additional personnel that are experienced in tax matters and are implementing controls to ensure the completeness and accuracy of the Company’s tax filing structure.

ii. We continue to design and implement relevant controls to enable an effective and timely review of the income tax consequences of intercompany transactions and consolidated tax group determinations. This includes the identification of relevant supporting documentation and the retention of sufficient detailed evidence of review procedures performed.

We believe these measures will remediate the material weakness, but management is assessing the need for any additional steps to remediate the underlying causes that gave rise to this weakness. The material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. There is no assurance that additional remediation steps will not be necessary.

Notwithstanding the identified material weakness, management believes the consolidated financial statements included in this Form 10-Q fairly present, in all material respects, our results of operations and cash flows for the three and nine months ended September 30, 2023 and our financial condition as of such date, in accordance with GAAP.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, other than implementation of the measures described above to remediate the material weakness.

## Risk factors

As filed, 2,808 characters.

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/A for the year ended December 31, 2022, filed with the SEC on August 9, 2023. 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, other than with respect to the risk factor discussed below. 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. In addition, the disclosure of any risk factor should not be interpreted to imply that the risk has not already materialized.

***We currently, and may in the future, have assets held at financial institutions that exceed the insurance coverage offered by the Federal Deposit Insurance Corporation; the loss of such assets would have a severe negative affect on our operations and liquidity.***

We maintain our cash assets at certain financial institutions in the U.S. in amounts that are significantly in excess of the FDIC insurance limit of $250,000. As of September 30, 2023, our deposit accounts with banks exceeded the FDIC’s insured limit by approximately $301.8 million. In the event of a failure of any financial institutions where we maintain our deposits or other assets, we may incur a significant loss to the extent such loss exceeds the FDIC insurance limitation, which could have a material adverse effect on our liquidity, financial condition and our results of operations.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-038192. Last ingested by Listed: Oct 30, 2026, 13:39 ET. No prices; not investment advice.