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Fair Value Measurements of Financial Instruments | 9 Months Ended
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Sep. 30, 2023
Fair Value Disclosures [Abstract] |
Fair Value Measurements of Financial Instruments | Fair Value Measurements of Financial Instruments The Company’s financial instruments consist of cash and cash equivalents, fiduciary cash, investment in marketable securities, receivables, loans receivable, accounts payable, certain accrued expenses, finance lease obligations, and long-term debt. The carrying values of the financial instruments classified as current in the accompanying consolidated balance sheets are considered to be at their fair values, due to the short maturity of these instruments. The carrying amounts of finance lease obligations and long-term debt approximate fair value as they bear interest at rates that approximate current market rates for debt with similar maturities and credit quality. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurement (“ASC 820”), applies to all financial assets and financial liabilities that are measured and reported on a fair value basis and requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. ASC 820 establishes a fair value hierarchy for disclosure of the inputs to valuations used to measure fair value. There have been no changes in Level 1, Level 2, or Level 3 classification and no changes in valuation techniques for the nine months ended September 30, 2023. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1 — Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date. Level 2 — Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates and yield curves), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). Level 3 — Unobservable inputs that reflect assumptions about what market participants would use in pricing the asset or liability. These inputs would be based on the best information available, including the Company’s own data. The carrying amounts and fair values of the Company’s financial instruments as of September 30, 2023, are presented below (in thousands):
| Fair Value Measurements |  |
| Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |
Money market accounts* | $ | 30,313 |  |  | $ | — |  |  | $ | — |  |  | $ | 30,313 |
Marketable securities – certificates of deposit | 2,125 |  |  | — |  |  | — |  |  | 2,125 |
Marketable securities – equity securities | 896 |  |  | — |  |  | — |  |  | 896 |
Interest rate swaps | — |  |  | 4,187 |  |  | — |  |  | 4,187 |
Interest rate collar | — |  |  | 1,328 |  |  | — |  |  | 1,328 |
Total assets | $ | 33,334 |  |  | $ | 5,515 |  |  | $ | — |  |  | $ | 38,849 |
Liabilities |  |  |  |  |  |  |
AAMG contingent consideration | $ | — |  |  | $ | — |  |  | $ | 5,235 |  |  | $ | 5,235 |
VOMG contingent consideration | — |  |  | — |  |  | 17 |  |  | 17 |
DMG remaining equity interest purchase | — |  |  | — |  |  | 8,542 |  |  | 8,542 |
Sun Labs remaining equity interest purchase | — |  |  | — |  |  | 8,121 |  |  | 8,121 |
Total liabilities | $ | — |  |  | $ | — |  |  | $ | 21,915 |  |  | $ | 21,915 |
* Included in cash and cash equivalents The carrying amounts and fair values of the Company’s financial instruments as of December 31, 2022, are presented below (in thousands):
| Fair Value Measurements |  |
| Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |
Money market accounts* | $ | 135,235 |  |  | $ | — |  |  | $ | — |  |  | $ | 135,235 |
Marketable securities – equity securities | 5,567 |  |  | — |  |  | — |  |  | 5,567 |
Contingent equity securities | — |  |  | — |  |  | 1,900 |  |  | 1,900 |
Interest rate swaps | — |  |  | 3,164 |  |  | — |  |  | 3,164 |
Total assets | $ | 140,802 |  |  | $ | 3,164 |  |  | $ | 1,900 |  |  | $ | 145,866 |
Liabilities |  |  |  |  |  |  |
APCMG contingent consideration | $ | — |  |  | $ | — |  |  | $ | 1,000 |  |  | $ | 1,000 |
AAMG contingent consideration | — |  |  | — |  |  | 5,851 |  |  | 5,851 |
VOMG contingent consideration | — |  |  | — |  |  | 17 |  |  | 17 |
DMG remaining equity interest purchase | — |  |  | — |  |  | 8,542 |  |  | 8,542 |
Sun Labs remaining equity interest purchase | — |  |  | — |  |  | 5,849 |  |  | 5,849 |
Total liabilities | $ | — |  |  | $ | — |  |  | $ | 21,259 |  |  | $ | 21,259 |
* Included in cash and cash equivalents The change in the fair value of Level 3 liabilities for the nine months ended September 30, 2023 was as follows (in thousands):
| Amount
Balance at January 1, 2023 | $ | 21,259 |
Unrealized loss recognized from change in fair value of existing Level 3 liabilities* | 1,656 |
APCMG contingent consideration paid | (1,000) |
Balance at September 30, 2023 | $ | 21,915 |
* The change in the fair value of existing Level 3 liabilities is presented in unrealized loss on investments in the accompanying consolidated statement of income. Investments in Marketable Securities Investments in marketable securities consist of equity securities and certificates of deposit with various financial institutions. The appropriate classification of investments is determined at the time of purchase, and such designation is reevaluated at each balance sheet date. Certificates of deposit are reported at par value, plus accrued interest, with maturity dates greater than ninety days. As of September 30, 2023 and December 31, 2022, certificates of deposit amounted to approximately $2.1 million and $0, respectively. Investments in certificates of deposit are classified as Level 1 investments in the fair value hierarchy. Equity securities are reported at fair value. These securities are classified as Level 1 in the valuation hierarchy, where quoted market prices from reputable third-party brokers are available in an active market and unadjusted. Equity securities held by the Company are primarily comprised of common stock of a payer partner that completed its initial public offering (“IPO”) in June 2021 and Nutex Health Inc. (formerly known as Clinigence Holdings, Inc.) (“Nutex”). In May 2022, the Company exercised warrants from Nutex and subsequently recognized the shares within investments in marketable securities in the accompanying consolidated balance sheet. In March 2023, the contingent equity securities were settled and the Company received additional Nutex common stock. The additional common stock received from the contingent equity securities is included in investments in marketable securities in the accompanying consolidated balance sheets. As of September 30, 2023 and December 31, 2022, the equity securities were approximately $0.9 million and $5.6 million, respectively, in the accompanying consolidated balance sheets. Gains and losses recognized on equity securities sold are recognized in the accompanying consolidated statements of income under other income. The components comprising total gains and losses on equity securities are as follows (in thousands) for the periods listed below:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Total losses recognized on equity securities | $ | (870) |  |  | $ | (6,251) |  |  | $ | (6,571) |  |  | $ | (21,138) |
Gains recognized on equity securities sold | — |  |  | — |  |  | — |  |  | 2,272 |
Unrealized losses recognized on equity securities held at end of period | $ | (870) |  |  | $ | (6,251) |  |  | $ | (6,571) |  |  | $ | (18,866) |
Derivative Financial Instruments Interest Rate Swap and Collar Agreements The Company is exposed to interest rate risk on its floating-rate debt. The Company has entered into interest rate swap and collar 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. Refer to Note 9 — “Credit Facility, Bank Loans, and Lines of Credit” for further information on our debt. Interest rate swap and collar agreements are not designated as hedging instruments. Changes in the fair value on these contracts are recognized as unrealized gain or loss on investments in the accompanying consolidated statements of income and reflected in the accompanying consolidated statements of cash flows as unrealized gain or loss on interest rate swaps. The estimated fair value of the interest rate swap was determined using Level 2 inputs. As of September 30, 2023 and December 31, 2022, the fair value of the interest rate swap was $4.2 million and $3.2 million, respectively, and was presented within other assets in the accompanying consolidated balance sheets. The Company’s collar agreement is designed to limit the interest rate risk associated with the Company’s Revolver Loan. Under the terms of the agreement, the ceiling is 5.0% and the floor is 2.34%. The estimated fair value of the collar was determined using Level 2. As of September 30, 2023 the fair value of the collar was $1.3 million. Contingent Equity Securities In addition to the common stock and warrants purchased under the stock purchase agreement between ApolloMed and Nutex, ApolloMed was entitled to additional common stock if Nutex did not pay NMM management fees exceeding a threshold by the end of December 31, 2022. The contingent equity securities were considered to be derivatives but were not designated as hedging instruments. Changes in the fair value of these contracts are recognized as unrealized gain or loss on investments in the accompanying consolidated statements of income and the accompanying consolidated statements of cash flows. The Company determined the fair value of the contingent equity security using a probability-weighted model, which includes significant unobservable inputs (Level 3). Specifically, the Company considered various scenarios of recognizing management fees and assigned probabilities to each such scenario in determining fair value. Based on the outcome, the metric was not achieved and the Company received additional common stock during the nine months ended September 30, 2023. As of September 30, 2023, the common stock from the contingent equity securities is recognized within investments in marketable securities in the accompanying consolidated balance sheet. As of December 31, 2022, the contingent equity securities were valued at $1.9 million, and were presented within prepaid and other current assets in the accompanying consolidated balance sheets. Remaining equity interest purchase The Company has a financing obligation to purchase the remaining equity interest in DMG and Sun Labs within three years from the date the Company consolidated DMG and Sun Labs. The purchase of the remaining DMG equity value is considered a financing obligation with a carrying value of $8.5 million as of September 30, 2023 and December 31, 2022. The purchase of the remaining Sun Labs equity value is considered a financing obligation with a carrying value of $8.1 million and $5.8 million as of September 30, 2023 and December 31, 2022, respectively. For the nine months ended September 30, 2023, the change in the fair value of Sun Labs equity value obligation was $2.3 million and is presented in unrealized loss on investments in the accompanying consolidated statement of income. As the financing obligations are embedded in the non-controlling interest, the non-controlling interests are recognized in other long-term liabilities in the accompanying consolidated balance sheets. Contingent considerations VOMG Upon consolidating VOMG as a VIE, the purchase price consisted of cash funded upon the close of transaction and additional cash consideration (“VOMG contingent consideration”) contingent on VOMG meeting financial metrics for fiscal years 2023 and 2024. The Company determined the fair value of the contingent consideration using a probability-weighted model that includes significant unobservable inputs (Level 3). The contingent consideration is included within other long-term liabilities in the accompanying consolidated balance sheets. AAMG Upon acquiring 100% of the equity interest in AAMG, the purchase price consisted of cash funded upon close of the transaction and additional consideration (“AAMG contingent consideration”) and stock consideration (“AAMG stock contingent consideration”) contingent on AAMG meeting revenue and capitated member metrics for fiscal years 2023 and 2024. The Company determined the fair value of the contingent considerations using a probability-weighted model that includes significant unobservable inputs (Level 3). Specifically, the Company considered various scenarios of revenue and assigned probabilities to each such scenario in determining fair value. The AAMG contingent consideration was valued at $5.2 million and $5.9 million as of September 30, 2023 and December 31, 2022, respectively, and was included within other long-term liabilities in the accompanying consolidated balance sheets. The AAMG stock contingent consideration was valued at $5.6 million as of September 30, 2023 and December 31, 2022 and is included in additional paid-in capital in the accompanying consolidated balance sheets.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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