CareMax, Inc. (NASDAQ:CMAX) Q4 2022 Earnings Call Transcript

CareMax, Inc. (NASDAQ:CMAX) Q4 2022 Earnings Call Transcript March 9, 2023

Operator: Ladies and gentlemen, good morning. My name is Abby, and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the CareMax Fourth Quarter 2022 Financial Results Conference Call. Today’s conference is being recorded and all lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you. And I will now turn the conference over to Samantha Swerdlin, Vice President of Investor Relations. You may begin.

Samantha Swerdlin: Thank you, and good morning, everyone. Welcome to CareMax’s fourth quarter and full year 2022 earnings call. I’m Samantha Swerdlin, Vice President of Investor Relations, and I’m joined this morning by Carlos de Solo, our Chief Executive Officer and Kevin Wirges, our Chief Financial Officer. During the call, we will be discussing certain forward-looking information. These forward-looking statements are based on assumptions and assessments made by CareMax’s management in light of their experience and assessment of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. Any forward-looking statements made during the call are made as of today, and CareMax undertakes no duty to update or revise such statements whether as a result of new information, future events or otherwise.

Important factors that could cause actual results, developments and business decisions to differ materially from the forward-looking statements are described in the company’s filings with the SEC, including the section entitled Risk Factors. In today’s remarks by management, we will be discussing certain non-GAAP financial metrics. A reconciliation of these non-GAAP financial metrics, the most comparable GAAP measures can be found in this morning’s earnings press release. With that, I’d now like to turn the call over to Carlos.

Carlos de Solo: Thank you, Samantha. Good morning, everyone and thank you for joining our call today. 2022 was a great year for CareMax marked by significant growth and national expansion. We exceeded our guidance on revenue and membership. Delivered adjusted EBITDA within our guidance range and added 17 new centers, ending with 62 locations across four states. We also took a major step forward in accelerating our national presence with the acquisition of stored value-based care and expanded our MSO platform to 10 states with 245,000 lives in value-based care arrangements, and approximately 2000 primary care providers in our network. We have made tremendous progress integrating stores and are very excited about the opportunity.

We believe our hybrid model of a capital light MSO, combined with our high touch centers, provides us with a strong platform for leadership in the industry as we transition to value-based care across the country. Now turning to some highlights from the quarter, Medicare Advantage membership increased to 93,500. And we’re pleased to report that our medical expense ratio for the quarter was 69.5%. It’s worth noting that center level NER remained at approximately 70% for the year. These metrics reflect our continued commitment to providing high quality care while maintaining operational efficiency. We continued to deliver strong operational performance during the quarter, we remain focused on ensuring members across our CareMax family have access to consistent high-quality care.

Our physical rebranding efforts are well underway with 80% of our footprint already rebranded to enhance our one CareMax value proposition. We continue to benefit from investments we’ve made in patient experience, as evidenced by our five-star rating and quality across all of our Florida senators in 2022. We believe that this underscores our ability to maintain best-in-class care as we grow rapidly. Further, we’ve received a net promoter score of over 97 for member satisfaction and saw 93% of patients during the year. A testament to our efforts to provide accessible patient centered care. Among other initiatives, we continue to build out the specialty services offered at our centers in areas such as cardiology, diagnostic services, pulmonology, endocrinology and gastroenterology.

We believe that by offering these services in-house, we can significantly reduce total cost of care and allow for better and more seamless care coordination between primary care physicians and specialists. We understand that building strong relationships with our primary care providers is critical to delivering exceptional care to our patients. That’s why we’re proud to report that we achieved an impressive 94% retention rate for our employee providers over 2022. We believe that our strong success in retaining providers is directly attributable to the comprehensive range of services and support that we provide from technology to streamline administrative processes. We’re committed to making it easy as possible for our providers to focus on what they do best caring for patients.

At CareMax, we’re committed to delivering comprehensive care solutions that meet the unique needs of our patients. As part of this commitment, we’ve been expanding our in-house pharmacy operations. Recently, we launched a pharmacy for Central Florida locations and are currently in the process of creating a standard pharmacy offering throughout the region. Our investment in expanding our pharmacy offering goes beyond just providing medication to our patients. By having a larger pharmacy present, we’re able to manage patients’ total cost of care. We also provide medication adherence programs, helping to ensure that our members take their medications as prescribed and stay healthy. Overall, we’re excited about the progress we’ve made and expanding our pharmacy operations.

And we believe that these efforts will help us deliver better outcomes for our patients and drive continued growth. Early in 2022, we began opening up centers outside of our core Florida market. We have expanded our presence to Memphis and Houston and continue to build density in New York City, where we now have seven centers, including our first Center in the Bronx, which opened during Q4. The results we’ve seen from the center open earlier in the year have been very encouraging. We have exceeded our membership goals, and now have 1,000 patients in New York City driven by strong organic sales from our team and hiring a PCPs with deep roots in their respective communities. We’ve also had success in Memphis, where we now have approximately 500 Medicare Advantage patients.

Our growth in both markets has been driven by our focus on providing high quality care and building strong relationships with patients, their families and the broader community. Looking ahead, we’re excited about the growth opportunities in our new markets. Now I’d like to update you on the progress of stored integration efforts, which have been gaining momentum since our acquisition in November. The acquisition of stores value-based care business provided us immediate scale to deliver value-based care across the country. Our expanded network now comprises approximately 2,000 providers and over 200,000 Medicare value-based care patients in 10 states and 30 markets. To support this growth, we onboard 65 full time employees to ensure a smooth transition.

We are encouraged to see that local practices in the store network are eager to adopted value-based care. And we have been working closely with them to provide education and resources they need to successfully transition this model of care. On the payer side, we’ve made significant progress in transitioning stores that Medicare Advantage fee-for-service beneficiaries into Medicare Advantage value-based care arrangements. We have also moved some of the legacy stored value-based care contracts into contracts with higher levels of risk sharing. We are pleased to report that our care partners are receptive to aligning with our glide path risk strategy. We believe that our momentum in this area will continue, as more payers seek to shift their business into value-based arrangements, and that this puts us in a strong position to ultimately shift a significant portion of the stored Medicare Advantage fee-for-service population into risk-based arrangements over time.

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Since the founding of CareMax, we have been committed to taking an innovative approach to healthcare delivery, which includes our proprietary system of blending targeted technology with comprehensive high touch care. This unique approach has been a key driver of our strong results. As we continue to pursue deliberate growth plans. We believe that our hybrid delivery model of a capital light MSO integrated with our high performing centers, that’s us apart from others in the healthcare industry. As we look ahead to the next several years, we couldn’t be more excited about the momentum we’ve established and the opportunities that lie ahead for us. Over the past year, we’ve made significant strides in transforming our business, expanding our operations to a national scale, and establishing ourselves as one of the largest value-based care operators in the country.

We believe that our focus on delivering high quality value-based care will continue to drive significant growth and value for our shareholders. And that we have the opportunity to unlock $400 million to $550 million and adjusted EBITDA value over the next five to 10 years. Now, I want to take a moment to discuss our upcoming Investor Day on March 13th. We have a great day plan for you, which will include presentations from many members of our leadership team, we hope you will come away with a deeper understanding of our business, vision and strategy and the deep impact we have on the communities we serve. We are looking forward to seeing you in Miami next week. Before I hand over the call to Kevin, I want to thank our incredible team members for all their hard work and dedication over the past year.

They continue to exceed our expectations with their commitment to growing the business while going above and beyond to deliver exceptional health care and always keeping the needs of our members first. With that, I’ll turn it over to Kevin to provide greater detail on our fourth quarter financial performance.

Kevin Wirges: Thanks, Carlos and good morning. As those of you who have followed us know, we had big ambitions to bring our differentiated care platform to seniors in new markets. And we’ve done just that. With 17 de novo clinics open to date across New York City, Memphis, Tennessee, Houston, Texas and the Space Coast in Florida. We’re now serving over 2000 new Medicare members and our de novo as of year-end 2022. All while continuing to grow membership and EBITDA in our core Florida centers. And now we are taking our next step in growth with the integration of the national MSO from Steward. I will first recap our results in the fourth quarter and full year 2022 And then provide financial guidance for 2023. As a reminder, a reconciliation of GAAP to non-GAAP metrics like adjusted EBITDA can be found in our earnings release in presentation all year-over-year comparisons with 2021 our pro forma for the combination of CareMax and IMC Health as if they had occurred at the beginning of 2021.

Before going into the fundamentals, I’d like to note that we recognize the $70 million goodwill impairment charge in the fourth quarter offset by a gain of approximately equal size related to the remeasurement of earnout liabilities from the Steward transaction. These items may arise due to fluctuations in our stock price, but they have no impact on our cash or non-GAAP financials. We reported fourth quarter revenue of $164 million up 39% from the fourth quarter of 2021. This looks full year revenue at $631 million, up 57% from 2021. Coming above the high-end of our latest guidance and exceeding the midpoint of our original guidance by 15%. Medical expense ratio for the quarter was 69.5%, bringing full year MER to 72.7%. For clarity MER figures exclude de novo or acquired national MSO patients that are not full risk.

Importantly, MER in 2022 was approximately 70% for members in our centers and approximately 85% for members in our existing MSO, both in line with historical and long-term targeted performance. Platform contribution in the fourth quarter was $25.6 million growing approximately 60% over the fourth quarter of 2021. Full year platform contribution was $85.1 million, up approximately 71% over 2021 and rebounding as we had expected from COVID related headwinds in 2021. As a reminder, platform contribution represents a blend of centers at different stages of maturity, including some of our most established centers at over 20% platform contribution margin. We continue to see opportunity to scale not just de novos, but also less mature core Florida centers to a 20% platform contribution margin or better.

As for adjusted EBITDA, we’ve adopted a change in our reporting that no longer adds back de novo preopening costs and post opening losses in the figure. Had we done this for 2022, our adjusted EBITDA guidance would have been $10 million to $20 million, reflecting expected de novo post opening losses of approximately $10 million, and another $10 million of internally budgeted preopening costs, which include onetime expenses to enter new markets and build out related professional fees. Together, these de novo costs and losses were approximately $13 million for 2022, putting our adjusted EBITDA at $22 million, or over $7 million favorable to the midpoint of our recast guidance. With this shows is our team has done a great job deploying capital judiciously towards de novo growth.

And by leveraging the national MSL, we believe there are opportunities to be even more efficient and growing membership and new markets. Cash as of the end of December, was $42 million. As a reminder, we pulled down $45 million from our delayed drop term loan facility in November to help fund the Steward VBC acquisition. This week, we entered into an amendment with our term loan lenders to add an additional delay draw facility of $60 million. Together with the $65 million of remaining capacity under our current DTTL and $42 million of cash as of year-end, we would have had $167 million of total liquidity to continue our de novo expansion and invest and value creation and our MSO. On top of that, we have worked with our lenders to increase our ability to raise a further $45 million in revolving credit from $30 million previously to fund additional working capital needs.

Amidst the challenging macro backdrop, we are fortunate to be in partnership with long-term oriented stakeholders that have high conviction in the financial viability of our business. With these sources of liquidity, we expect to be able to fund our current growth strategy for the foreseeable future. Now, let me turn to 2023 guidance. We plan to continue executing on Medicare Advantage member growth across both our centers and MSO, reaching 110,000 to 120,000 MA VBC members by the end of 2023, representing 23% growth at the midpoint over our year-end 2022 membership. This reflects a combination of organic growth and our core and de novo markets and collaborative efforts with payers and providers to transition Medicare fee-for-service beneficiaries and to value based care plans.

We expect full year revenue of $700 million to $750 million or 15% growth over 2022 at the midpoint. As noted in previous calls. 2022 revenue included favorable impacts from true ups and GAAP risk revenues. Due to the retrospective recognition of full risk membership and certain health plans. We consider $600 million as an appropriate annual run rate for the pre-Steward CareMax business exiting Q4. To reach the midpoint of the guidance, we assume low double-digit percentage growth off of this run rate, and the remainder coming from the acquired national MSO revenues. As most of our MSO lives are not yet in full risk arrangements, GAAP revenues from MSSP, ACO reach and Medicare Advantage partial risk contracts will primarily be recognized on a net basis, effectively as if external provider costs were already deducted from premiums.

We expect full year adjusted EBITDA fully burdened by de novo post opening losses and pre-opening costs of $25 million to $35 million or 36% gross at the midpoint. This includes approximately $25 million of de novo costs and losses, reflected continued center openings and a full year of operating losses for the 2022 cohort. We plan to take a measured and opportunistic approach towards center openings, as we believe our MSO provides us a pipeline of high performing providers to seed new locations. Finally, similar to last year, we expect the revenue to be distributed relatively evenly throughout the year. Adjusted EBITDA should also be roughly consistent between the first half and the second half as favorable seasonality and external provider costs in the second half, partially offset increased de novo losses.

Even with the greater de novo investment this year, our ability to grow adjusted EBITDA reflects the immediate earnings accretion from the National MSO acquisition, as well as continued growth in our core Florida membership improvement in PMPM economics and operating leverage over corporate general and administrative expenses. As Carlos noted, integration with the national MSO is well underway. With provider engagement and clinical teams already in close collaboration with key MSO accounts with their goals to drive improvements and medical utilization and shared savings. Since the 2022 MSSP receivable will go toward repayment of the Steward AR facility. We expect to reinvest most of this year’s cash flows from the national MSO into human and technological capital to support taking increasing risk under our new Medicare Advantage contracts.

We look forward to going into more detail on financial drivers of the national MSO next Monday at our Investor Day. We still well positioned to execute on our multi prong strategy, and are excited to demonstrate how our efforts have the potential to unlock significant earnings and cash flow for the coming yours. Operator, we will now open it up for questions.

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Q&A Session

Operator: And we’ll pick our first question from Joshua Raskin with Nephron Research. Your line is now open.

Joshua Raskin: Hi, thanks. Good morning. Just a quick clarification to make sure we get this all right. So, if I recast the reported EBITDA for 2022, the $22 million. And then you know from the slides, I add back the $5.9 million in de novo post up opening losses and the other $7.1 for the preopening costs. That’s the $35 million, is that comparable to the old guidance? Is that the right way to think about it?

Carlos de Solo: Hey, good morning, Joshua. Yeah, that sounds right. I mean, what we’re doing now the company is no longer reporting EBITDA with the add back of the de novo. There was some clarifying guidance from the SEC additionally on December. We also think it makes it more clear this way. So, the way we’re reporting moving forward is without adding back those de novo losses. But that’s sure.

Joshua Raskin: And then the external MLR, it was down 570 basis points sequentially came in below 70. And I just would have expected with a little bit of a flu season in December, and then I don’t know what you guys are booking on the ACO reach or the MSSP lives, I assume that’s, that’s higher added from Steward. I would have thought maybe there would have been a little bit more pressure. So, the 70 was a little bit favorite was that I guess the question is, was that payroll to your expectations? And if so, maybe you could talk a little bit about the cost drivers and what you’re seeing in terms of underlying medical costs?

Kevin Wirges: Hi, Josh, it’s Kevin. That’s came in a little favorable to our expectations. I would note that from a flu standpoint, in South Florida, we typically don’t fill that impact until Q1 of ’23. And so, we’ll see that coming in the next quarter. You talked about the MSSP and ACO ratio, those, as we look at on our part, are deemed partial risk contracts because of the risk sharing arrangement there. So, they’re not actually calculated anymore in our MER calculations, we’re really taking full risk in there. So, anything that we have substantially all risk for, we’re booking full gross revenues and medical expenses that the MSSP, ACO reach, and even the Medicare Advantage, partial risk contracts are all being recorded kind of net.

And so therefore, the revenue PMPM on those is significantly lower. So that’s why when you look at the MER standpoint, those aren’t included. The only thing I would tell you is the reason it came in one of the reasons we believe it came in favorable to our expectations, typically, on the MSO side, which is obviously a little bit more of our population now. It has been during 2022. It’s been one of our folks growth, those tend to have those patients in that contracting tend to have a higher MER, just due to how the calculation works. And so just the mix shift alone, we would have expected a little bit higher of an MER. But we’re very pleased that we’re we came in at 69.5%.

Operator: And we will take our next question from Andrew Mok with UBS. Your line is open.

Andrew Mok: Hi, good morning. The 2023 revenue guide of $700 million to $750 million, I think is about $70 million to $120 million below the proxy revenue in the deal filings. Can you help us understand the change in that outlook and the clinic expansion built into the 2023 revenue guide versus your previous expectations of I think 25 new clinics for 2023? Thanks.

Carlos de Solo: Maybe I’ll take the first part, I think when you think about our revenue, it’s all about our glide path to risk. So, we wanted to make sure that we guided conservatively, as we shift our membership from partial risk to full risk, the company’s taken a prudent approach, which is put us in a very, very strong position to not have those, that deterioration in an earnings from assuming risk too early. So, I think what you’re seeing there is that is our ability to increase that revenue will come, if we elect to take risks sooner. Generally, our contracts are taking risk from 18 months to a 24 months period, but we have the ability to trigger risk before that, depending on if we have favourability in those specific markets.

So, there is the opportunity for favourability in that in that guidance, but we want to make sure that we’re getting prudent because it could definitely carry over to the first quarter of the following year, et cetera. So, we just want to make sure that we’re taking that same kind of prudent conservative approach as we guide to revenue moving forward

Andrew Mok: And do you expect to open the same level of clinics for 2023? Maybe just any color?

Carlos de Solo: Well, we’re going to be doing with our clinics and I’ve said this on previous calls is we’re going to be very opportunistic now on how we open clinics, we’re still in growth mode, but because of the fact that we now have this very large MSO, we’re looking at areas where we have that density in those specific markets, and identifying those physicians that have sizable panels between 100 and 300 Medicare Advantage members so that we can open what we call seated de novo, and this is really going to allow us to open in a capital efficient way. So, we don’t have that cash burn on the OpEx that really affects those de novo in those first several years and with 2000 physicians under our platform, we think there’s going to be a lot of exciting opportunities this year.

Andrew Mok: And then on the 2024 MA rate notice, we’d love to hear your preliminary thoughts on the impact to your business and where you think you sit in relation to the minus 3% industry risk model adjustment? Thanks.

Kevin Wirges: Hi, Andrew it’s Kevin. Yeah, we’re still in the process of evaluating I think there’s still one it’s, the initial call letter, want to understand how the finals is going to shake out. The other pieces as we’ve had a significant growth this year, it’s very important to understand exactly which HCC is these new patients have attributed. And so, as we get those final estimates or the actual final suites that come in mid-year for 2022 payment year, which will reflect specifically which HCCs those new patients have. We have a good understanding of them, but there’s additional HCCs that are coming in from specialists and hospitals as well. And so, from our standpoint, we want to make sure that we have all the data when we aggregate that information, more to come on that one.

Operator: And we’ll take our next question from Jailendra Singh with Truist Securities. Your line is open.

Jailendra Singh: Thank you, and thanks for the color. One quick clarification question. I guess you talked about around as I mentioned that 1/3 of the around 387,000 Medicare fee-for-service lives, you will convert into partial risk cap and agreements with some upside for 2023. Just curious, like what portion of lives actually converted? Was it in line with expectation? Are there any variances there?

Carlos de Solo: Yeah, so we’re still converting I mean, that’s part of our plan for 2023, 2024 and beyond. And actually, I think on Monday, when we do our Investor Day presentation, we’re going to walk everybody in detail to how we’re going to convert this membership and kind of that glide path to moving the members into value-based care arrangements. So, I think a lot more information to come there. But so far, everything has been kind of in line with the expectations, and we look forward to really explaining how we’re going to move that membership. And as I mentioned, what we’ll also be giving 2026 guidance on the entire business in the Stewart acquisition.

Jailendra Singh: Okay. And a quick follow-up on Andrews question around MSO. As we think about the pipeline for future owned physicians with your affiliated physicians under the MSO model, and again, you might convert this on Monday. I’ve talked about this on Monday, but what is the opportunity to convert those physicians over to the own model? How are these acquisitions typically structured? How do you evaluate them? Like there’s some time you wait? I’m just curious, like if you can spend some time on the strategy there?

Carlos de Solo: So, all that happens boots on the ground. And what I can tell you is that we’re very encouraged by what we’re hearing from a lot of those physicians on the ground and all of the various different markets in Florida, Massachusetts, Texas, really embracing value-based care. So, I think the initial reception has been very positive. And our team and our business development team work on the ground, specifically identifying all of those independent practices that we are working with, and identifies the right positions, the right fit and the right panel size. So, we expect there to be a lot of interest in being able to tuck-in or aqua hire opportunities into our future de novo clinics or new de novo clinics.

Jailendra Singh: Kind of a last quick one. Just going back to the goodwill impairment of $70 million. Can you provide a little bit more color? Like what exactly it relates to?

Kevin Wirges: As I’m sure you’ve heard from a lot of folks over the last few weeks, the biggest component when you estimate that goodwill impairment really is the stock price. And so, as the stock price fluctuates, and especially how it ended, December 31st, has a major impact on that calculation. And so that’s probably the number one driver of that goodwill impairment.

Operator: And we will take our next question from Jessica Tassan with Piper Sandler. Your line is open.

Jessica Tassan: Hi, thank you for taking my questions. So roughly 19,500 full risk MA adds over the course of the year. Can you just help us understand the cadence of those adds? And then how many of those are coming from, like recruitment at CareMax de novo centers versus conversion of some of the Steward of value-based care live?

Kevin Wirges: Hi, Jessica its Kevin. So, the cadence on those, we’ll have a little bit of a tranche come January. As you know, we’ve been working with all of our payer partners, specifically on the national MSO side, from a contract conversion, flipping those Medicare Advantage fee-for-service contracts and Medicare Advantage value-based care contracts. So once that conversion happens, those patients, we begin to attribute them to us and we add them to our Medicare Advantage line item. When I would tell you is that, we have big ambitions on the MSO side. I would say it’s consistent growth within our legacy core business, so the core 45 and South Florida. There’s a few thousand or our de novo clinics that are open in ’22 and opening in ’23. But the bulk, a significant amount of that membership growth is going to be coming from those contract conversions and also working with our payer partners and providers and converting those fee-for-service.

Jessica Tassan: Got it. And then just kind of given the different platform contribution of the center base versus MSO. MA patients are you going to clarify going forward what that mix looks like?

Kevin Wirges: Yes, it’s a great question. I’m not sure we have an answer for that just yet. Obviously, it’s something that we’re looking into. From a platform contribution standpoint, the way we’ve looked at it historically specifically, MSO is typically around the 15% and the synergy typically around the 20%. Obviously, we have some high performing the legacy synergy are high performing, getting closer to 25% from a platform contribution standpoint. But MER, I think is where there’s a big variation in that 85 to 70. But I think from a platform contribution standpoint, they’re similar. But something that we’re definitely evaluating, and we’ll let you know.

Carlos de Solo: Yeah, but I assume not to give too much away but you’ll see some of that in the Investor Day presentation as you think about mature medical margins on the different lines of business. And as we think about guidance for ’23 and ’26. So, you have some information kind of back into that as well.

Jessica Tassan: And my last one is just can you kind of explain how you went about identifying or deciding which of the fee for service and my patients from Steward will be moved into full risk. And just like whether these decisions are being made on a provider by provider basis, or just how we should think about that? And then of the 17 centers built or opened year-to-date, how many of those are kind of built in collaboration with Stewart and how many are standalone CareMax? Thank you, guys.

Carlos de Solo: Sorry, can you repeat that last, the beginning of the question, Jessica?

Jessica Tassan: Yeah, how many of those spends year-to-date? And then maybe for the full year going to be standalone kind of CareMax vendors? And how many will be built in Stewart geographies in collaboration with the that’s up?

Carlos de Solo: Yeah, I think when we think about as I answered the question before, I think, because we’re going to be opportunistic on the new centers, we’re not going to guide to a specific number. So, the intent is really to identify opportunity by opportunity, as we think about which clinics to open and all. What I can tell you is the majority of our de novo clinics that we open will be seated de novo with membership, either from our existing MSO in the Florida business, or the additional membership that we added on the MSO and all the various different markets.

Operator: And we’ll take our next question from Gary Taylor with Cowen. Your line is open.

Gary Taylor: Hi, good morning. I was wondering if you give it some color on the cash from ups in the 4Q which the loss seems to be larger there and just kind of what you’re thinking about 2023 cash from ops and free cash flow?

Kevin Wirges: Hey, Gary, it’s Kevin. Yeah. So, as you think about our cash flow, one of the leading components that we always look at obviously is, from an MSSP standpoint, there’s a delay in receiving that payment. So, we talked about this on the call a little bit, but essentially the, what we earn on the MSSP side for 2023, obviously will be accruing. Those will be hitting accounts receivable, but the government doesn’t pay that until really Q4 of ’24. And so that receivable is going to continue to get larger and larger. As we think about cash flow and cash flow projections, our core business continues to perform, we do have those de novo centers that are ever opened kind of late this year, or during this year, but most of them late this year.

Those operating losses are going to continue. If you remember that J-curve that we’ve always talked about, those operating losses will continue into 2023. And so, there’s going to be a drag on cash which we anticipated. And so, I think as we think about the cash flow components of this, it’s really, when that MSSP payment comes and kind of Q4 of 2024 is really what we think is kind of like the breakeven point, at that point, we will be in a position where we’re cash flow positive. Going forward, the other way to think about it is if you know it’s MSSP paid similar to how Medicare Advantage pays, meaning we know, there’s only a three- or four-month lag from our Medicare Advantage plans. Then that payment will be pushed forward meeting, we would probably break even a little sooner.

And so, there’s just a little bit of a delay, and it’s such a material amount of our business now. It’s causing a little bit of a cash drag. It’s really why we need to be very prudent and how we deploy capital this year specifically. And that’s why we’re reinvesting really all those fees that we’re getting on the MA side, from the MSO really just reinvesting those and making sure that we’re prepared to take risk next year, but we also didn’t want to over invest, because we know that, the cash flow is going to be a little bit of a burden.

Gary Taylor: So, the AR growth in the 4Q, I think a lot of that, or maybe most of that attributed to Steward, is that all that receivable, largely would be collected in 4Q ’23 then?

Carlos de Solo: The bulk of that, probably close to $50 million or so that specifically around the Steward receivables, not all of that is MSSP. But yes, that would be collectible, and collected in Q4 of ’23. But remember, there is an AR facility that we entered into where we, add those funds are technically owed to the store. But we also have an AR facility where we prepaid those. And so essentially, those funds are going to go to pay back that AR facility that we took out. Does that make sense?

Kevin Wirges: Yes. The best way to think about it, Gary is in 2023, in the last two months of 2022, the data service that we actually owned the MSSP platform will actually receive the payment in Q4 of 2024. So, you’re really looking at almost two years, just under two years of a lag and payments and that’s really just the cash flow and why Kevin went into the kind of cash flow positive Q4 of 2024 rather than potentially even a year sooner.

Gary Taylor: Okay. I just want to go back to the risk or model change for a minute, because I think it’s could be really important for ’24, particularly how it seems to maybe impact some of the Florida physician groups, maybe not yours, but some. But I mean, I understand that you don’t have full risk or settlement on patients that you have, that you’ve gained this year. But certainly, you’ve been able to take your population, you can run it through the new risk score model and sort of see what the impact is. So even before that final, those final sweeps and settlements. Is there any indication that, you look better or worse than sort of that national average negative 3% that CMS is promulgated?

Carlos de Solo: I was going to say, Yes, we’re still in the process of evaluating that. I think the other important process priority for you. I think the other important piece of this is, there’s going to be, there’s going to be some impact or risk, or I’m going to understand what that is that 3% also includes the CMS normalization. So, we need to understand, when we segment those two things out what’s really that fee-for-service adjuster. But ultimately, that’s the national average, we need to understand exactly what that means for our patients. So that’s kind of the first step. I think the other step is as you think about health plans and how they bid, the build their bids. Those bids have to be normalized to a 1.0 using the acuity of the population which has to be recast under this new methodology.

And so, there’s going to be some flexibility in the health plans on how they build their bids. And how they’re going to attribute, what did into rebates, what goes to the AB at 1.0. And ultimately from there, there’s some wiggle room with the health plans are going to have. So, whatever the impact, and again, we’re still evaluating. Whatever that impact is from a top line standpoint, we think there’s some impact also offsetting impact on the medical expense side. We’re still evaluating.

Gary Taylor: Yes. That’s right. I just wanted to make that point clear that that rescoring is also part of the calculation when setting the bids. So, I think there is going to be some potential relief to the extent of what that is, we don’t we don’t know yet.

Carlos de Solo: Okay, thank you.

Operator: And we will take our next question from Brian Tanquilut with Jefferies. Your line is open.

Brian Tanquilut: Hi, good morning, guys. Carlos, I know you’re going to lay out a lot of things and then yesterday on Monday, but as we think about Stewart, and the integration, and the strategizing around that. Just maybe if you can share with us kind of like the milestone for success that at least for the next 12 to 24 months that you’re thinking about to say, okay, we’re on the right path. And we’re hitting the right, we’re hitting our Stewart.

Carlos de Solo: Yeah, I think when we think about that, it’s all going to boil down to boots on the ground, the integration, and I am going to talk specifically on some of the things that we’ve already done. And we’re going to talk about the membership on Monday. So, a lot more detail to come there. But it’s really going to be integrating our technology or workflows, all that process has already begun. Negotiating the value-based care agreements and making sure that we took advantage of potential arbitrage. Most of those have actually already been done as well. So, we’re really tracking very, very positively and probably ahead of schedule in some of these areas. And then additionally, it’s going to be how quickly we’re able to transition the membership from the Medicare Advantage fee for service to Medicare Advantage value-based care.

And then finally, how quickly we can make an impact into moving memberships from partial risk to full risk arrangements. And as I mentioned earlier, the majority of our contracts are negotiated with an 18 to 24-month glide path to risk meaning we have that time. But we can also elect to go into risk at our discretion earlier. So, there is some wiggle room for favourability, both on the earnings and the revenue if we’re able to execute sooner than then once expected. So those are really the metrics that we’re looking at. And we’ve deployed a lot of folks, we brought in 67 new full-time employees, just a focus that are dedicated on the Steward integration. So, making sure that we have the right amount of folks on the ground, working with provider to provider physician to physician identifying those physician leaders.

So, a lot of work has been done, and a lot more work to be done. But we’re really excited that, everything seems to be ahead of schedule right now.

Brian Tanquilut: I appreciate that. And then, in your prepared remarks, you guys talked about expansions in new markets, the New York obviously and Memphis among others. Maybe if you can share with us, what you the learning and the portability of the model into markets outside of Florida. Just anything you can share with us. If there’s a what those clinics look like today and how they’re performing? Thanks.

Carlos de Solo: Yeah, again, we’re exceeding expectations as well. New York, we’re already over 1000 patients, we have seven medical centers. And we’re really excited. I mean, it’s just such a huge opportunity. There really isn’t any density with true value-based care delivery systems like ours. So, I think the opportunity there is huge and you don’t have to deal with the same competition that you have in Florida. So arguably a lot easier in a lot of ways and the ability then to impact patient behavior, which we’re doing successfully, as well as is really where we were putting most of our attention and focus and really educating the communities. And the physicians on how to practice in a value-based care environment to really create those better outcomes that we’ve been so successful here in Florida, but we’re really encouraged by what we’ve seen in New York and in Memphis as well.

And we think it in many ways, the portability of it is actually going to be easier, outside of Florida.

Operator: And there are no further questions at this time. So, I will now turn the call back to Carlos de Solo for closing remarks.

Carlos de Solo: So, I’d like to thank you all for joining the call today and for your continued support. We’re excited for the year ahead as we execute on our strategy and work to realize the significant benefits of the Steward acquisition. We believe we will drive sustainable long-term growth and increased value for our shareholders and stakeholders. And we look forward to seeing you all on Monday at our investor day in Miami. Thanks again. Have a great day.

Operator: And ladies and gentlemen, this concludes today’s conference call and we thank you for your participation. You may now disconnect.