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spk01: Greetings and welcome to the CareMax second quarter 2021 financial results conference 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. It is now my pleasure to introduce your host, Devin Sullivan, Senior Vice President of the Equity Group. Thank you. You may begin.
spk03: Thank you, Jesse. Good morning, and thank you for joining us for CareMax second quarter earnings call. 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 this call are made as of today. and CareMax undertakes no duty to update or revise any 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 forward-looking statements are described in the company's filings with the SEC, including the sections entitled risk factors. In today's remarks by management, we will be discussing non-GAAP financial metrics, a reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in this morning's earnings press release. With that said, I'd now like to turn the call over to Richard Barish, Executive Chairman of CareMax. Richard, please go ahead.
spk06: Thanks, Devin. Hi, everyone. Thanks for joining us this morning for the first quarterly conference call for CareMax. CareMax IMC and our team at Deerfield began this journey approximately a year ago and started talking to potential investors last fall. It's useful to look back at what we planned for the company and what has been accomplished. It's also useful to recognize what we need to do to fulfill the promise of the company. Our thesis was built around the success that CareMax 1.0 had achieved as an entrepreneurial company that was created from the ground up. Carlos and his team, using proprietary software and processes, became quite successful in the ultra-competitive South Florida market. with a care model to work to deliver better care to patients while generating favorable financial outcomes. Our thesis was that success in a competitive Florida market was a key proof point that we could expand this technology-forward model locally, regionally, and nationally. The first significant building block was the addition of IMC, an in-market company that brought immediate scale to our Medicare business and added profitable non-Medicare lives. A significant part of the plan was and still is to integrate the companies and improve the results of IMC to achieve results similar to CareMax 1.0. Although delayed by the lengthy proxy process, this work is well underway and we're benefiting from the talent that both organizations have brought to this newly combined companies. In addition, as Carlos will describe, we are supplementing our team with the additional talent we need to manage the growth that we have planned. The second part of the thesis was that we can achieve organic growth from the space of 26 centers, including Tuckins who are on track to handily exceed the 15% organic growth metric that we set forth. In addition, based on a robust pipeline that came from both CareMax 1.0 and IMC sites, We believe that with the capital we raised in the GoPublic, we could augment our organic growth with selective M&A. The closed transaction of SMA shortly after the D-SPAC and the anticipated closing of our acquisition of DNF proves out this part of the thesis. Both acquisitions are accretive, and each brings significant strategic and geographic benefits. Importantly, DNF accelerates our expansion outside of South Florida. In the aggregate, we are on target to finish 2001 with approximately double the MA membership that we had when we closed the transaction in June. Turning to current operations, we were not immune from the industry and countrywide COVID pressures. The team will elaborate, but we see these impacts as temporary and we remain confident in the underlying thesis that led to this investment. We have more work to do over the next four to five months, but we believe we are on path to meet our 2021 membership and revenue goals. And assuming that we put COVID behind us, we're confident that we will enter 2022 with the building blocks to achieve expected organic growth and profitability in our core markets. Lastly, and most important, we're very excited about the emerging opportunities that have emerged as a result of the platform that Care Max has built. Carlos would describe in more detail our ambitious plans to expand our reach nationally and through our relationship, our new relationship with Related, and as well as our newly expanded relationship with Anthem. And now I'd like to turn it over to Carlos for more detail on our performance year to date and the growth opportunities that lie in the balance of the year and in the future. Carlos?
spk05: Thank you, Richard, and good morning to everyone on the call. With the merger with IMC, the recent closing of our acquisition of senior medical associates, and the anticipated closing of DNF this quarter, we believe that CareMax has a strong, sustainable foundation in Florida from which to take our model nationwide. As Richard noted, we believe we are on path to achieve our 2021 goals, factoring out the one-time effect of COVID. As you all probably know, the Delta variant is having an outsized impact on Florida, which comprises a fifth of the national cases. We estimate that in the first half of the year, COVID had a direct cost of $11 million, consisting of elevated COVID admissions and lower than projected risk adjustment revenue based on 2020 dates of service. Even with these impacts, we still maintained a 76.3% loss ratio for the first half of the year. While we are pleased that our core business is meeting expectations, excluding the COVID headwinds, we take ownership of the results, and our team is relentlessly focused on mitigating these headwinds going forward. First, while we were effective at treating our patients through telemedicine during the early months of the pandemic, it limited our diagnostic capabilities for certain chronic conditions. As we have learned how to safely live with this pandemic, we have increased the frequency of in-person visits. allowing us to accurately capture patient acuity with the goal of driving better health outcomes. Second, we are leveraging our homegrown intelligence platform, Care Optimize, which receives real-time hospital admission data and enhancing the software to accurately predict cost estimates ahead of receiving claims data from our payer partners. Absent this impact, our operating results were in line with internal expectations. giving us confidence that our core model is performing satisfactorily beneath temporary headwinds. We are confident in our operations, growth prospects, and relationships with payers. We think that an event like COVID has served to highlight the importance of value-based care and why this model is the right one for patients, insurers, and taxpayers. Our core belief is that having risk sit at the provider level results in the proper incentives to proactively manage patients' well-being and rather than deal with issues after the fact in facilities and hospitals. Importantly, we are pleased with our pace of member growth and are on track to meet our 2021 membership targets. We ended the second quarter with 21,500 Medicare members, and we expect the closing of DNF this quarter to contribute another 4,000 members. Further, we believe we are on track to reach Medicare membership of 30,000 by year end, approximately doubling our base our base since the combination of CareMax and IMC in June. In other words, we have achieved a significant amount of scale in a short period of time, positioning us strongly to expand our strategy nationally. We view our organic expansion within our existing medical centers as our first engine of growth. Our centers are currently running at approximately 55 percent capacity, which would support incremental net adds of 15,000 if we get to 75 percent capacity in these centers. To that end, we have recently onboarded a new chief marketing officer with a playbook to build a sophisticated, data-driven sales organization and accelerate organic sales. We expect full-risk net ads in our mature Medicare markets like Florida to start contributing attractive unit economics immediately. We've also brought on a chief experience officer to improve member retention, making our dollars go further in terms of lifetime value acquired. Filling up our existing centers is a high priority, and you can expect us to lean into marketing channels that we believe will deliver an attractive ROI. Now I'd like to turn to exciting opportunities ahead that we believe will help our organization from a portfolio of profitable and growing Florida health and wellness centers to a national full-service provider of value-based care. Our national growth engine is our DeNovo Center Strategy, which we expect to deliver membership, revenue, and ultimately profits incremental to our initial forecast we made prior to closing. It is important to stress that we have decided to build de novo centers only in conjunction with strategic partners who help assure rapid membership growth as well as help finance some of the centers. Our foundational agreements with related companies and Anthem are great examples of this strategy. With these two key partners, we believe we have a line of sight into opening at least 15 de novo centers in 2022, 25 centers in 2023, and 35 centers in 2024, with the potential for further acceleration in the future. In a separate press release this morning, we announced a strategic collaboration with Anthem Health Plans to open up 50 medical centers over the next few years, which we plan to span at least eight initial states. Anthem and we are in the process of identifying sites in these states where Anthem has membership that can benefit from our whole person health strategy. We are also very excited to work with Anthem on the innovative project to bring value-based care to the retirees of the city of New York. In July, we announced a strategic relationship with the related companies, one of the largest owners and managers of affordable housing in the country with 55,000 units. Related has a nearly 50-year history of acquiring, preserving, and improving affordable rental properties nationwide for our neediest populations. We will be able to embed our medical centers directly inside or nearby affordable housing complexes owned by Related and at third-party properties identified by Related, giving previously underserved members an unmatched level of accessibility and engagement with our care teams. We believe this approach will allow us to enter markets such as New York where real estate costs and competition have historically made it difficult for value-based care providers to establish a foothold. De Novo centers require upfront investment that we believe will ultimately turn into a highly profitable and visible cash flow stream at maturity. Based on the decade of experience, both building De Novo's from scratch and acquiring underutilized centers, we believe that we can achieve membership growth and long-term center level adjusted EBITDA margins of approximately 20%. Our playbook is consistent, proven, and we believe scalable. We aim to fill up centers through grassroots marketing, payer assignments, and local tuck-in acquisitions, and then implement our whole health model to improve health outcomes while reducing medical costs. Now I'd like to turn it over to Kevin to give a recap on the quarter.
spk04: Thanks, Carlos, and good morning. As you know, we closed the business combination, including the merger with IMC, on June 8th, 2021, and the acquisition of SMA on June 18th, 2021. Our gap numbers include original CareMax Medical Group plus the activities of IMC only for the period of June 8th through June 30th, 2021, and the activities of SMA only for the period of June 18th through June 30th, 2021. Proforma and other non-gap information, including comparisons, gives effect to the business combination and acquisition of SMA as if the transactions had occurred in historical periods. On a pro forma basis, we reported second quarter 2021 total revenue of 98 million and first half 2021 total revenue of $193 million. Our first half adjusted EBITDA was approximately 10 million and we estimate direct COVID headwinds had an $11 million negative impact on our first half results. Approximately 60% of this impact came from an increase in COVID-related admissions. These COVID admissions carry an approximately 55% higher cost per admission than our average admission. Importantly, we do not see an increase in acuity amongst our newer members. The balance of the direct COVID impact is attributable to lower than projected revenue resulting from risk adjustments related to 2020 dates of service. Our initial outlook for 2021 contemplated some pressure on revenue from COVID, but the impact was more than we anticipated. For context, we enjoyed growth in Medicare membership in 2020 but were precluded from adequately assessing new patients for acuity levels and potential new conditions due to COVID. Even though our revalidation rates were in line with historical trends among more tenured cohorts of patients, our ability to accurately capture The acuity of new patients and potentially identifying new conditions of our new and tenured members was impacted by fewer in-person visits with our primary care and specialty care providers and less diagnostic testing. It's important to reiterate, even with the headwind of COVID, our medical expense ratio for the first half of the year was a very respectable 76.3%. Beginning in 4Q 2020 and accelerating through the first half of 2021, our primary care providers and specialists were able to resume routine in-person examinations, giving us confidence that risk adjustment results should have normalized in 2022. At the quarter end, we had just over $170 million in cash on hand and have used $54 million for SMA and some smaller acquisitions. Proforma for pending acquisitions, including DNF, which we intend to close this quarter, will have more than $80 million of cash on hand. Carlos?
spk05: So thinking about the balance of 2021, absent the direct COVID effects, we believe that we are on path to meet our forecast for the year on a proforma basis. We do not know what we will have the continuing headwind on the revenue side, and given the recent upsurge in Delta COVID cases in Florida, it is hard to predict actual medical costs in the second half of 2021. In addition, we expect to lay in more GNA to build the infrastructure for expansions that we have announced. On the positive side, we are now making progress on synergies with IMC, and we believe we are on track to reach our membership numbers and thus our pro forma run rate revenue projections. In the aggregate, given the uncertainties around COVID experience in the second half, we estimate that our 2021 pro forma adjusted EBITDA will come in between $30 to $40 million. This includes the expected full-year effect of the acquisitions we close this year and synergies we expect to achieve by year end. Thinking about 2022, we expect to begin the year with more than 30,000 Medicare Advantage members in Florida and project that our core business will return to its historical level of profitability. At the same time, we will be ramping up our investment in expansion of DeNovo's. We are mindful of the human and financial toll that COVID has taken and hope that we and our community will get through the Delta variant as quickly as possible. Despite the challenges of the pandemic, we have accomplished a lot in a very short period of time to position us for the growth and profitability that we expected. We look forward to keeping you posted on our progress. And now, we look forward to answering your questions. Operator?
spk01: Thank you. At this time, we will be conducting the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate that your line is on the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Josh Raskin with Nefron Research. Please proceed with your question.
spk00: Hi, thanks. Good morning. I appreciate you guys taking the question. I've actually got two questions. The first one is, you know, I assume the 40% of that MLR increase related to risk adjustment, that seems pretty obvious, and, you know, it sounds like you're seeing your patients, and so that probably disappears pretty easily next year. But maybe talk a little bit more, what gives you confidence the other 60% of those cost pressures were specifically COVID-related, that they're transitory, it's not a higher baseline of cost? And I guess I'm basically asking... what data are you using and the processes behind that?
spk05: Yeah, thanks, Josh. That's a great question. So if you look on the deck that we put out, those costs that you see there are directly associated to COVID admissions. So there was some noise in between, but we navigated through that. The direct COVID impact was all direct costs. And if you can see from an MLR that I actually stated earlier, we were still able to achieve a 76.3% MLR throughout that process. So we're confident that this is a one-time COVID impact.
spk00: Gotcha. So those are specific DRGs that you guys have gotten. You've seen the claims, et cetera. You know exactly what those are. You're really just counting specific DRG-related COVID costs, right?
spk05: That is correct. We're only counting DRG codes specifically related to the COVID impact.
spk00: Okay. And then I guess more importantly, you know, as you think about the future, the Anthem agreement that you announced, could you speak to the cadence? I know you gave sort of a center count per year, but maybe how we should be thinking about, you know, the ramp up of those centers and how we should be thinking about that growth. And then, you know, Carlos, you alluded to it in your prepared remarks. Why haven't there been other, you know, MA plans or primary care providers that have built centers in a city as dense as New York?
spk05: Yeah, so I think it's harder to penetrate markets like New York, and it's important to really align yourself with a payer partner in order to be able to make that impact. We think with the combination of that GRS membership that Anthem was awarded, the 250,000 members, alongside our relationship with Related and being able to really embed ourselves at the grassroots level is going to be the differentiator and the difference maker. Healthcare is very much a community-based delivery system. And I think that has been the challenge historically in areas like New York. And we feel that we've been able to solve for that with these relationships and these strategic partnerships. As you consider, and I mentioned this earlier, we are not going to go out and plant flags in a bunch of different locations in a bunch of different states. We're actually looking to align ourselves with strategic partners like Related, like Anthem, and various other payers and are only going to enter markets where we have that strategic relationship going for us. Okay, perfect.
spk00: Thank you.
spk01: Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from the line of Jessica Tassin with Piper Sandler. Please proceed with your question.
spk02: Hi, thank you for taking the question, and congratulations on the first call as a public company. So can you guys maybe talk a little bit, building on that, about the geographic expansion philosophy, your preference for density versus breadth in new markets over time? And then just we know the build-out in New York is going to be a 2022 event, but how should we think about the other seven states that you're planning to enter with Anthem over the next few years? Is that going to be maybe one state a year? Yeah, how should we think about the pace of this new market opening?
spk05: Yeah, so your first question, we definitely prefer areas of greater density. It's very important for us to go into areas where we feel that we can be a dominant player and really build out our delivery system. One of the interesting things and the differentiators about CareMax is how deep we go with our members within the community and at the center and building out the specialties delivery network and bringing the specialists in-house, diagnostics, et cetera, and that. And it's important for us to go into areas where we feel that we can build that delivery system out to really create the best patient outcomes. We're definitely going to be in New York in 2022, and we're currently working with Anthem and with Related to determine the strategic sites for the next locations. I don't know that we're ready to say we're going to be in three different states or four different states next year, but it'll definitely be more than one or two different states next year as we think about the strategic areas that we're going to be partnering with them. And we're just going to go into my earlier point. We're going to make sure that we're going into areas where we can establish density early on.
spk02: That's helpful. And then if I could just follow up, could you just talk a little bit about risk capture and some of the acquired practices? So should we think about that having been I guess on an overall basis in 2020 and then for their new patients in 2020, should we think about that having been in line with core CareMax or better or worse? And thinking mostly about DNF and I guess SMA as well.
spk05: Yeah, I think sometimes when you're acquiring assets that are underperforming or not as accurate at capturing the acuity levels, the impact is potentially less on MRA revenue and capturing the right acuity levels for those members. But I could say that I think most were impacted to some degree in 2020 just because of the fact that we, you know, most entities were conservative in the first half of the year going to telemedicine, seeing those members at home, and that reduced the amount of in-person touches bringing them into the specialist, bringing them in to do further diagnostic testing. And that's ultimately what affected the overall risk score. We see potentially a higher impact for a CareMax legacy versus a DNS, but there'll certainly be some minor impact there as well. All of that has been, you know, as we're looking through and analyzing all the data today, what we can say is that we have returned to normal back to 2019 rates, in fact, exceeding our ability to capture the correct and accurate chronic morbidities of those patients. So we're confident in what that will deliver in our 2022 payment year.
spk06: And, Carlos, this is Richard. Just let me add that, as Carlos mentioned, we have a lot to work with with these new groups in order to improve their capture of acuity. So we think that's an opportunity for us going forward for 2022. That's very helpful.
spk01: Thank you. Thank you. It appears we have no additional questions at this time, so I'd like to pass the floor back over to Carlos DeCillo for concluding comments.
spk05: We'd like to thank everybody that joined the call on our first earnings call. And like I mentioned earlier, we're very excited about 2022 and all of the growth opportunities we have moving forward. I'd like to thank everyone.
spk01: Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time.
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