Apollo Medical Holdings, Inc.

Greetings, and welcome to the Apollo Medical Holdings, Inc., third quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Caroline Song, Investor Relations for Apollo Medical Holdings, Inc. Thank you. You may begin.

Thank you, operator, and hello, everyone. Thank you for joining us. The press release announcing Apollo Medical Holdings Inc.' 's results for the third quarter and nine months ended September 30th, 2022 is available at the investor section of the company's website at www.apollomed.net. 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 Med'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 31, 2022, continued growth, acquisition strategy, ability to deliver sustainable long-term value, ability to respond to the changing environment, operational focus, strategic growth plans, and merger integration efforts, as well as the impact of the 2020 novel coronavirus or COVID-19 pandemic and other variants on the company's business operations and financial results. Although the company believes that the expectations reflected in its forward-looking statements are reasonable as of today, Those statements are subject to risks and uncertainties that could cause the actual results to differ dramatically from those projected. There can be no assurance that those expectations will prove to be correct. Information about the risks associated with investing in ApolloMed 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 company supplement, there is an overview of the company on slide three. On today's call, the company's Co-Chief Executive Officer, Brandon Sim, will discuss third quarter 2022 highlights and the latest operational developments. Interim Chief Financial Officer, Sean Basho, will follow with a review of the parliament's results for the third quarter and the first nine months ended September 30th, 2022. Brandon will conclude the remarks with an update on the company's outlook and long-term growth strategy before opening the floor for questions. With that, I'll turn the call over to Apollo Med's Co-Chief Executive Officer, Brandon Sim. Please go ahead, Brandon.

Thank you, Caroline. We were pleased to deliver another strong quarter of profitability driven by 40% growth on the top line in Q3, which was primarily due to increased contributions from capitated revenues. This was the result of strong organic membership growth in our core care delivery business a more favorable membership mix, and our participation in a value-based care model for the Medicare fee-for-service population. We reported a 53% year-over-year increase in capitated revenues to $227.6 million, which accounted for nearly three-quarters of total revenue, which was $317 million for the quarter. Before we get into the quarter, I want to highlight a very important fact that sets ApolloMed apart from other providers. It's our desire to serve our entire communities across all peer types, that is, Original Medicare, Medicare Advantage, Medicaid, and commercial patients, and support them across their entire lives. Our willingness and dedication to serving all members of our communities and the unique care model and value-based care infrastructure that we have built in order to do so successfully makes us an extremely valuable partner to both payers and providers. It has also fueled our ability to consistently grow the business profitably, which drives a virtuous cycle as we continue to invest in the long-term health and wellness of the communities we serve and expand our care delivery model into new communities across the country. We believe that the foundational tenet upon which successful healthcare delivery is built is the trusted relationship between a patient and her provider, and we will continue to invest in that sacred relationship in order to affect industry-leading clinical outcomes for our patients. An example of our ability to provide exceptional care while lowering costs is evident through our Accountable Care Organization's stellar performance year after year. During the third quarter of 2022, we booked a $48.8 million shared savings settlement on the revenue line related to participation in an accountable care model for the 2021 performance year. Because of our successful track record and confidence in our care delivery model, we had opted to take on a higher risk corridor in that program. resulting in a $27 million increase from last year's shared savings settlement on the top line. We are pleased to have generated meaningful savings while delivering high-quality care with our ACO once again. Going back to the financials, our operating expenses during the third quarter increased by $93 million, or 53%, primarily due to a return of pre-COVID medical expense run rates and a growth in membership, which is in line with the increase in capitated revenues. As discussed in our last quarterly call, we continue to see an increase in MLR compared to that in 2021, primarily as a result of utilization returning to pre-COVID levels. Despite the increased OPEX, we reported $26 million in net income attributable to ApolloMed shareholders and GAAP earnings per share on a diluted basis of 56 cents for the quarter. Adjusted EBITDA was $57.1 million compared to 62.9 million in Q3 of last year. I'm excited to announce that we are raising our revenue, net income, and EBITDA guidance for full year 2022 as a result of our strong performance in the first three quarters of the year. We are reiterating guidance for adjusted EBITDA because we have revised our adjusted EBITDA calculation beginning this quarter to exclude add-backs for provider bonus payments and losses from recently acquired IPAs. we strive to ensure that our shareholders better understand the clinical and financial outcomes generated by our unique model. And removing these ad backs will bring adjusted EBITDA closer to free cash flow and highlight the unique level of profitability that our model generates as it grows 40% same quarter year over year. In summary, our revenue forecast for the full year is increasing from a range of 1.055 to 1.085 billion to a new range of 1.095 to 1.115 billion. Our net income forecast for the full year is increasing from 38 to 57 million to a new range of 50.5 to 67 million. And our EBITDA forecast is increasing from a range of 81 to 111 million to a new range of 107.5 to 133.5 million. And despite the revised adjusted EBITDA calculation, in which we're moving the ad backs related to one-time provider bonuses and losses due to recent growth, we are maintaining our adjusted EBITDA guidance of 136 to 166 million. Prior to this calculation adjustment, we had expected to beat this range. With the new calculation, we still anticipate being within this range, but on the lower end. For future years, we continue to anticipate to grow at a 30% revenue growth clip year over year with a target EBITDA margin of 10% to 15%. Moving to recent operational developments, we made a couple of very exciting announcements a few weeks ago. We are pleased to have closed on the acquisition of nine primary care clinics in Las Vegas, Houston, and Fort Worth, operating as Valley Oaks Medical Group in mid-October. This marks our official expansion into the Nevada and Texas markets, and we look forward to delivering positive clinical outcomes and improved care experiences to the underserved patients in these local communities through our unique care model. We've talked about making bigger moves into new geographies, and we are thrilled to begin building trusted relationships with patients and communities in Nevada and Texas. In late September, we announced the signing of a definitive agreement to acquire 100% of the fully diluted capitalization of All-American Medical Group, or AAMG, and For Your Benefit, or FYB, as well as certain related managed care assets. AAMG is a physician group in the San Francisco Bay Area, and FYB is affiliated with AAMG and is licensed by the California Department of Managed Healthcare as a full-service restricted Noxkeen licensed health plan. We closed on the acquisition of AAMG on October 31st and expect to complete the remaining transactions by the end of the first quarter of 2023, pending regulatory approval. The restricted Noxkeen license that is a part of the FYB transaction will allow us to assume full financial responsibility, including both professional and institutional risk for the medical costs of its members. This means that for the first time, ApolloMed will be able to recognize a much larger percentage of the premium dollars revenue for its managed care risk-bearing members in California. Instead of recognizing only 40 to 45 cents of each premium dollar for taking on professional risk, we will now be able to recognize closer to 85 cents illustratively of the premium dollar for taking on both professional and institutional risk, or global risk, in capitated revenues. Today, we are currently taking on facility risk by partnering with hospitals or payers where we recognize shared savings and incentive revenue, and we will translate the success we have achieved in doing so to better coordinate care for our members in the future via the restricted NOx scheme license. We view this as a significant opportunity for both revenue and EBITDA. but we do want to note that we anticipate the process of assuming this risk level across all of our members to be a gradual process. The AAMG FYB investment and partnership will also add over 250 physicians to Apollo Med's network of providers and over 15,000 Medicare Advantage, commercial, and Medicaid patients in the city and county of San Francisco and in San Mateo County. We are thrilled to be expanding on our presence in Northern California following the acquisitions of Access Primary Care Medical Group and Jade Healthcare Medical Group in the past year. With the addition of AAMG and FYB to the PolyMed family, we will now serve over 30,000 patients in the San Francisco Bay Area. In the remainder of 2022, we look to continue strengthening our foothold in our core California markets while continuing to build rapidly in newer markets such as New York, Nevada, and Texas. As we continue to empower our physicians to deliver exceptional clinical outcomes, we believe there is a great deal of runway for our unique value-based care and value-based enablement offerings. With that, I'll turn it over to Chan to review our financial results.