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spk09: Ladies and gentlemen, good morning. My name is Abby and I will be your conference operator today. At this time, I would 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 speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one once again. Thank you. And I will now turn the conference over to Samantha Swerdlin, Vice President of Investor Relations. You may begin.
spk08: 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 DeSolo, our Chief Executive Officer and Kevin Worges, 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 Care Massive 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 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-debt financial metrics. A reconciliation of these non-GAAP financial metrics to 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.
spk04: 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 Steward value-based care and expanded our MSO platform to 10 states with 245,000 lives in value-based care arrangements and approximately 2,000 primary care providers in our network. We have made tremendous progress integrating Steward 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 MER 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 centers in 2022. We believe that this underscores our ability to maintain best-in-class care as we grow rapidly. Further, We 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 employed 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 streamlined 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 our 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 presence, we're able to manage a patient's 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 in 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 centers opened 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 of 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 steward integration efforts. which have been gaining momentum since our acquisition in November. The acquisition of Steward's 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 onboarded 65 full-time employees to ensure a smooth transition. We are encouraged to see that local practices in the steward network are eager to adopt 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 stewards of 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 payer partners are receptive to aligning with our glide path to full 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. 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 sets 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 to $550 million in adjusted EBITDA value over the next 5 to 10 years. Now, I want to take a moment to discuss our upcoming Investor Day on March 13th. We have a great day planned 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 of 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 healthcare 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.
spk06: 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 2,000 new Medicare members in our de novos 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 Stuart. I will first recap our results in the fourth quarter and full year of 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 and presentation. All year-over-year comparisons with 2021 are 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 recognized a $70 million goodwill impairment charge in the fourth quarter, offset by a gain of approximately equal size related to the re-measurement of earn-out liabilities from the Stewart 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 puts 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 Denovo's, 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 Denovo pre-opening cost and post-opening losses in the figure. Had we done this for 2022, our adjusted EBITDA guidance would have been 10 to 20 million, reflecting expected de novo post-opening losses of approximately $10 million and another $10 million of internally budgeted pre-opening costs, which include one-time 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. What this shows is our team has done a great job deploying capital judiciously toward de novo growth. And by leveraging the national MSO, we believe there are opportunities to be even more efficient in growing membership in new markets. Cash as of the end of December was $42 million. As a reminder, we pulled down $45 million from our delayed draw term loan facility in November to help fund the Stewart VBC acquisition. This week, we entered into an amendment with our term loan lenders to add an additional delayed draw facility of $60 million. Together with the $65 million of remaining capacity under our current DDTL 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 in value creation in 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 MAVBC 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 in our core and de novo markets and collaborative efforts with payers and providers to transition Medicare fee-for-service beneficiaries into value-based care plans. We expect full-year revenue of $700 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 gap risk revenues due to the retrospective recognition of full risk membership in certain health plans. We consider $600 million as an appropriate annual run rate for the pre-Stewart CareMax business exiting Q4. And 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, gap 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 to 35 million, or 36% growth 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 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 offsets 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 a goal to drive improvements and medical utilization and shared savings. Since the 2022 MSSP receivable will go toward repayment of the Stewart 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 feel well positioned to execute on our multi-pronged strategy and are excited to demonstrate how our efforts have the potential to unlock significant earnings and cash flow for the coming years. Operator, we will now open it up for questions.
spk09: Thank you. And as a reminder, if you would like to ask a question, press star, then the number one on your telephone keypad. And we will pause for just a moment to compile the Q&A roster. And we will take our first question from Joshua Raskin with Nefron Research. Your line is open.
spk07: 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 from the slides, I add back the $5.9 million in de novo post-op opening losses and the other $7.1 for the pre-opening costs. That's the $35 million. Is that comparable to the old guidance? Is that the right way to think about it?
spk04: Hey, good morning, Josh. 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.
spk07: But that's true. Okay. That's easy enough. And then the external MLR, you know, that was down, say, 570 basis points sequentially, came in below 70. And I just would have expected with, you know, 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 higher, you know, added from Stuart. I would have thought maybe there would have been a little bit more pressure. So the 70 was a little bit favorable. Was that, I guess the question is, was that favorable 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.
spk06: Yeah. Hey, Josh, it's Kevin. Yeah, that's right. It came in a little favorable to our expectations. I would note that, you know, from a flu standpoint in South Florida, we typically don't fill that impact until Q1 of 23. And so, you know, we'll see that coming in the next quarter. You know, you talked about the MSSP and ACO rates. You know, those, as we look at them, are deemed partial risk contracts because of the risk sharing arrangement there. So they're not actually calculated in our MER calculations. We're only taking full risk in there. So anything that we have substantially all risk for, we're booking full gross revenues and medical expenses. The MSSP, ACO REACH, and even the Medicare Advantage partial risk contracts are all being recorded kind of net. And so therefore, you know, the revenue PMPM on those is significantly lower. So that's why when you look at the MER standpoint, those are included. The other thing I would tell you is, you know, the reason it came in, well, one of the reasons we believe it came in favorable to our expectations, typically on the MSO side, which is, you know, obviously a little bit more of our population now, it has been during 2022. It's been one of our folks' growth. You know, 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 makeshift alone, we would have expected a little bit higher of an MER, but we were very pleased where we came in at 69.5%.
spk05: All right. Perfect. Thanks.
spk09: And we will take our next question from Andrew Mock with UBS. Your line is open.
spk11: Hi. Good morning. The 2023 revenue guide of $700 to $750 million I think is about $700 $70 to $120 million below the proxy revenue and 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.
spk04: Yeah, 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 shifted our membership from partial risk to full risk. The company's taken a prudent approach, which has put us in a very, very strong position, you know, to not have those, you know, that deterioration in earnings from assuming risk too early. So I think what you're seeing there is that, is our ability to, you know, 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-month period, but we have the ability to trigger risk before that, depending on if we have favorability in those specific markets. So there is the opportunity for favorability 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. So we just want to make sure that we're taking that same kind of prudent and conservative approach as we guide to revenue moving forward.
spk11: And do you expect to open the same level of clinics for 2023? Maybe just any color?
spk04: What 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 novos. 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 novos in those first several years. And with 2,000 physicians under our platform, we think there's going to be a lot of exciting opportunities this year.
spk11: Got it. 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.
spk06: Yeah, hey, Andrew. It's Kevin. Yeah, we're still in the process of evaluating, and I think there's still one that's, you know, the initial call letter. I want to understand how the final is going to shake out. The other piece is, you know, we've had a significant growth this year. It's very important to understand exactly which HTCs these new patients have attributed. And so as we get, you know, those final estimates or the actual final sweeps that come in mid-year for 2022 payment year, which will reflect, you know, specifically which HCCs those new patients have. We have a good understanding of them, but there's additional HCCs that are coming in from, you know, specialists in hospitals as well. And so, you know, 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.
spk11: Got it. Thanks for the call.
spk09: And we will take our next question from Jalendra Singh with Truist Securities. Your line is open.
spk01: Yeah, thank you. And thanks for all the color. So quick clarification question. I guess you talked about around assumption that one third of the around 387,000 Medicare fee for service lives will convert into partial risk cap and agreements with some upside for 2023. I'm just curious, like what portion of lives actually converted? Was it in line with expectation? Or were there any any variances there?
spk04: 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, we'll also be giving 2026 guidance on the entire business and the steward acquisition.
spk01: Okay. And a quick follow-up on Andrew's 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 talk about this on Monday, but what is the opportunity to convert those physicians over to the own model? How are these equations typically structured? How do you evaluate them? Is there some time you wait for them? Just curious if you can spend some time on the strategy there.
spk04: Yeah, 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 in 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 works 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 acquihire opportunities into our future de novo clinics or new de novo clinics.
spk01: Okay, one 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?
spk06: Yeah, just wondering, Kevin. Yeah. So 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.
spk05: All right. Thanks, guys.
spk09: As a reminder, it is star one if you would like to ask a question. And we will take our next question from Jessica Tafon with Piper Sandler. Your line is open.
spk10: Hi. Thank you guys for taking the questions. So of the roughly 19,500 full-risk MA ads over the course of the year, can you just help us understand the cadence of those ads and then how many of those are coming from like recruitment at CareMax de novo centers versus conversion of some of the steward value-based care lives.
spk05: Hey, Jessica. That's Kevin.
spk06: Yeah, 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 into 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. What I would tell you is that we have big ambitions on the MSO side. I would say it's It's consistent growth within our legacy core business, so the core 45 in South Florida. There's a few thousand for 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 in converting those panels of fee-for-service.
spk10: Got it. And then just kind of given the different platform contribution of the center-based versus MSO MA patients, are you going to clarify going forward what that mix looks like?
spk05: Yeah, it's a great question.
spk06: 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, you know, the way we've looked at it historically, specifically MSO is typically around the 15%. and the centers are typically around the 20%. Obviously, we have some high-performing, the legacy centers 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.
spk04: Yeah, and I think not to give too much away... But you'll see some of that in the Invest Your 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'll have some information kind of back into that as well.
spk10: Got it. And my last one is just can you kind of explain how you went about identifying or deciding which of the fee-for-service MA 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 Steward and how many are standalone Care Max?
spk05: Thank you, guys. I'm sorry.
spk04: Can you repeat that last, the beginning of the question, Jessica?
spk10: Yeah. How many of the centers
spk04: year-to-date and then maybe for the full year are going to be standalone kind of care max centers and how many will be built in steward geographies in in collaboration with the um that's up yeah i think when we think about as i answered the question before i think because we're going to be opportunistic on on on the center on the new centers uh 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. What I can tell you is the majority of our de novo clinics that we open will be seated de novos 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. Thank you.
spk09: And we will take our next question from Kerry Taylor with Cowan. Your line is open.
spk03: Hi, good morning. I was wondering if you'd give us some color on, you know, the cash from ops and the 4Q, which, you know, the loss seemed to be larger there and just kind of what you're thinking about 2023 cash from ops and free cash flow.
spk06: hey hey gary it's kevin yeah um so as you think about our our cash flow one of the leading components that we always look at obviously is you know from from an mssp standpoint um there's a delay in receiving that payment so we talked about this on the call a little bit but you know essentially the what we earn on the mssp side for 2023 obviously we'll be accruing those uh those will be hitting accounts receivable but the government doesn't pay that until really Q4 of 24, right? And so that receivable is going to continue to get larger and larger. As I think about cash flow and cash flow projections, you know, our core business continues to perform. We do have those DeNovo centers that were open 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 the 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, you know, I think as we think about the cash flow components of this, it's really, you know, when that MSSP payment comes in kind of Q4 of 2024 is really what we think is kind of like the break-even point. At that point, you know, 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, if MSSP paid similar to how know medicare advantage pays meaning you know there's only a three or four month lag from our medicare advantage plans uh then that payment would be pushed forward meaning we would probably break even a little sooner um and so there's just a little bit of a delay and it's such a material amount of our business now um it's causing a little bit of a cash a cash drag it's really why we need to be very prudent in how we deploy capital um 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 risks next year. But we also didn't want to over invest because we know that that cash flow is going to be a little bit of a burden.
spk03: So the AR growth in the 4Q, I think a lot of that, maybe most of that attributed to Steward, is that all, is that receivable, you know, largely would be collected in 4Q of 23 then?
spk06: Yeah, so the bulk of that, probably close to $50 million or so that's specifically around the Stewart 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, those funds are technically owed to Stewart, but we also have an AR facility where we prepaid those. And so essentially those funds are gonna go to pay back that AR facility that we took out. Does that make sense?
spk04: Yeah, the best way to think about it, Gary, is in 2023 and the last two months of 2022, the dates of service that we actually owned the MSSP platform will actually receive the payments in Q4 of 2024. So you're really looking at almost two years, just under two years of a lag in 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.
spk03: Okay. And I just want to go back to the risk or model change for a minute because I think it 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, you know, risk score settlement on, you know, 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 you know, the impact is. So even before that final, you know, those final sweeps and settlements, is there any, you know, indication that, you know, you look better or worse than sort of that national average negative 3% that CMS has promulgated? Yeah.
spk06: Go ahead.
spk04: I was just going to add something, but I'll add it.
spk06: Yeah. I was going to say, yeah, we're still in the process of evaluating that. I think the other important, Carlos is probably where you were going. I think the other important piece of this is there's going to be, there's going to be some impact to risk scores, right? We've got to understand what that is. That 3% also includes the CMS normalization. So we need to understand, you know, 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, is you think about health plans and how they build their bids, right? 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. 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 gets into rebates, what goes to the AB at a 1.0. Ultimately, from there, there's some wiggle room that the health plans are going to have. 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. But we're still evaluating.
spk04: Yeah, that's right. Yeah, I just wanted to make that point clear that RAF scoring 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 know yet.
spk05: Okay, thank you.
spk09: As a reminder, press star one if you would like to ask a question. And we will take our next question from Brian Tancillot with Jeffries. Your line is open.
spk02: Hey, good morning, guys. Carla, I know you're going to lay out a lot of things on the investor day on Monday. But as we think about, you know, Steward and the integration and the strategizing around that, just maybe if you can share with us kind of like the milestones 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 our strides as stewards?
spk04: 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, our workflows, All that process has already begun, you know, 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 favorability, both on the earnings and the revenue, if we're able to execute sooner than what's expected. So those are really the metrics that we're looking at. And we've deployed a lot of folks. We've brought in 67 new full-time employees, just to 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, you know, everything seems to be ahead of schedule right now.
spk05: I appreciate that.
spk02: And then you're prepared to mark, you guys talked about expansions in new markets in New York, obviously, and Memphis, among others. Maybe if we can, if you can share with us, you know, what you, the learning and the portability of the model into the markets outside of Florida, just anything you can share with us in terms of what those clinics look like today and how they're performing. Thanks.
spk04: Yeah, again, we're exceeding expectations as well. New York, we're already over 1,000 patients. We have seven medical centers, and we're really excited. I mean, there'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, is really where we're 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. 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 in many ways the portability of it is actually going to be easier outside of Florida.
spk05: Awesome. Thank you, guys.
spk09: And there are no further questions at this time, so I will now turn the call back to Carlos DeSolo for closing remarks.
spk04: 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 increase value for our shareholders and stakeholders. And we look forward to seeing you all on Monday at our Investor Day in Miami. Thanks and have a great day.
spk09: And ladies and gentlemen, this concludes today's conference call and we thank you for your participation. You may now disconnect.
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