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spk07: Good morning, and welcome to Kano's Health Third Quarter 2021 Earnings Call. Currently, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. Hosting today's call are Dr. Marlo Hernandez, co-founder, chairman, and chief executive officer. and Brian Coffey, Chief Financial Officer. The KanoHealth press release, webcast link, and other related materials are available on the investor relations section of KanoHealth's website. These statements are made as of November 9, 2021, and reflect managers' views and expectations at this time and are subject to various risks, uncertainties, and assumptions. As a reminder, this call contains forward-looking statements regarding future events and financial performance, including our guidance for the 2021 and 2022 fiscal year. We intend these forward-looking statements to be covered by the Safe Harbor Prohibition for Forward-Looking Statements contained in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. We caution you that the forward-looking statements reflect our best judgment as of today based on the factors that are currently known to us. And actual future events or results could differ materially. we undertake no obligation to revise or update any forward-looking statements, whether as a result of a new information, future events, or otherwise. During the call, we will also discuss non-GAAP financial measures. The non-revenue financial measures we will discuss today are not prepared in accordance with GAAP. Our reconciliation of the historical gap and non-gap result is provided in today's press release and on the investor relations section of our website. With that, I'll turn the call over to Dr. Marlo Hernandez, co-founder, chairman, and CEO of Cano Health. Please go ahead.
spk05: Thank you, and welcome everyone to our third quarter earnings call. We appreciate you joining us to discuss our third quarter in which KanoHealth delivered strong results and operational expansion. As a result of our continued momentum, we're once again raising guidance for 2021 and 2022. Before I go into more detail in the quarter, I want to thank, first and foremost, the entire KanoHealth team, our 3,600 dedicated professionals who, through their passion and commitment, provide patients with industry-leading health care, and perhaps more importantly, they provide patients with hope and dignity. Every day, we're bringing new solutions to patients and communities across the country, and we're transforming health care from the inequitable and unsustainable status quo that it presently is to a 21st century model, thanks to our team. This 21st century model is about removing barriers to optimal patient outcomes by ensuring access, quality, and wellness for all patients. This is the basis for KanoHealth's vision to become America's primary care provider. And that vision got closer to becoming reality this past quarter. Once again, we drove strong revenue and earnings growth through increased membership and medical care optimization. Today, we have the privilege of serving more members than ever because we have continued to produce better outcomes for our patients at lower costs. Our strategy to build, buy, and manage medical centers drives scale and density in key markets, which is in turn continuing to fuel our profitable growth. We're also enhancing care delivery by launching novel programs such as Healthy Heart by Dr. Juan Rivera to tackle the high incidence and high cost of cardiovascular disease in America. At the core of our strong financial and clinical performance this quarter is our tech-enabled value-based care model that helps control costs while keeping our members healthy and out of the hospital. The backbone of that model is Canal Panorama. I've discussed this in previous calls. Canal Panorama is a unique population health platform that provides an end-to-end solution for patients, clinicians, and healthcare professionals to improve the health of an individual patient while optimizing the health of an entire community. During these difficult times, Canal Panorama has helped us navigate the COVID-19 pandemic by allowing us to coalesce real-time actionable data from multiple sources, including hospital admissions, emergency room visits, laboratory diagnostic, primary care visits, and specialist consults. Taken together, this integrated data are used by primary care providers and other clinicians to assess risk and guide customized treatment plans while allowing Cattle Health to optimize the well-being of our entire patient population. In addition, The Kano Panorama platform supports the rapid scalability of our operations by empowering medical centers to achieve Kano Health's high standards for clinical quality and financial performance within just a few months. Drive growth through building, buying, and managing medical centers. In fact, It's because of our technical infrastructure and growth avenues that I'm pleased to announce that we have already accomplished our stated 2021 goal of being operational in eight states plus Puerto Rico. As I've discussed in the past, our corporate strategy is to build scale and density in key markets, which we define as those with high Medicare advantage density and underserved populations. And we achieved that through a flexible growth model. An important component of that growth model is the opening of de novo medical centers. As I've shared with you before, a de novo in a market where we have already built scale and density will always outperform a de novo in isolation. So far this year, we have entered several new markets and increased our density in existing markets. We're especially excited about our recent market entries into Los Angeles and Chicago. We believe the opportunity in these markets is substantial, which is why we think, in due time, they will rival our presence in our largest current markets in Florida. In addition, we are very excited to have expanded our presence in New Mexico and southeastern Texas, including de novos in Florida and Nevada. We have thus far opened 16 de novo medical centers in 2021, on pace for 20 by the end of this year. Turning to our acquisitions, we are very happy with our performance to date. Both of our major acquisitions this year, University Healthcare and Doctors Medical Centers, or DMC, have validated the rigorous standards which we apply when we selected them. We objectively evaluate their clinical quality, track record of care management and compliance, and potential for membership growth, as well as other synergies. We then enhance performance in these key areas through Canon Panorama-empowered integration. At Canon Health, newly onboarded clinicians and healthcare professionals can leverage Canon Panorama to measurably improve patient care in the way that they have always wanted to. Moreover, they can also participate in various equity ownership programs. The combination of professional fulfillment and ownership stake makes Canon Health a great and unique place to work. The results speak for themselves. For example, within university and DMC, we have a voluntary clinician retention rate of nearly 100%. Let me now talk to you about an exciting new program within our medical centers. We're constantly refining primary care delivery and setting new industry standards. That is why we believe that Healthy Heart by Dr. Hwang will have such a dramatic and positive impact in U.S. healthcare. Dr. Juan Rivera is a highly respected leader in cardiovascular care. After completing his cardiovascular fellowship at Johns Hopkins, he built a thriving private practice, became a national medical thought leader, and serves as chief medical correspondent for the Univision TV network. He's a trusted healthcare figure, particularly within the Hispanic community, and we are honored to be working with him on this important endeavor The Healthy Heart Program is designed to predict and prevent cardiovascular disease through early detection, individualized treatment or risk factors, and education about healthy lifestyle choices. The program is designed to significantly reduce the probability of a patient suffering heart attack or stroke. And when our patients live healthier lives, we all do better. because through our value-based model, our clinical and financial objectives are aligned. Speaking about keeping our patients healthy, let me give you an update on COVID-19 and how that has been impacting our patients since our last quarterly call in August. In the financial supplement deck posted on our website this morning, you will find slides showing our seven-day daily average for COVID-19 case incidence and hospital admissions. It also illustrates our average monthly total in COVID-19 admissions per 1,000 patients since May of 2020. As you can see in the illustration, our case incidence and hospitalizations have fallen dramatically over the last two months, which were already below Cano's pandemic peaks. As we continue to manage successfully through the cases and admissions experienced by our members, we're evolving our protocols to address variants like Delta and stand ready to adopt new antiretrovirals and other therapies which have strong clinical data. We are very proud of the success we've achieved in protecting our patients from the virus with a mortality rate that is at least 50% lower than the senior population in Florida. I've said this before. But it bears repeating. Statistically, one of the safest places for patients to be during this pandemic or at any time is at a Canon Health Medical Center as one of our members. Lastly, I want to touch on the Canon Health value proposition. We have provided additional slides in our financial supplement posted today on our website to illustrate this topic. we perform a necessary service to a growing population under a recurring revenue model supported by the government. Our services are substantially different from other models, offering significantly more benefits to members for the same or lower cost. We can provide more services because our outsized investment in primary care, where we focus on prevention, and thereby lower downstream costs. CounterHealth spends about 12% of the revenue it receives from payers on primary care. That's roughly two times more than the national average. By investing more to see our patients who come to our centers on average 20 times per year, we can identify new conditions earlier, actively manage chronic conditions better, and coordinate care more efficiently. Our providers serve as the trusted source for members' healthcare needs, keeping our members healthier and out of the emergency rooms. Our focus and investment in primary care reduces medical waste and other third-party medical expenditures, and that in turn lowers the cost to patients while improving their physical and economic health so that they can be there for their families and pursue their passions. Our operating model has demonstrated the benefits of our investment in primary care by improving quality while driving down overall medical costs. Our cohort analysis of Medicare Advantage capitated revenue for our members illustrates that revenue increases by a 6% CAGR as members' age and chronic conditions are identified. But here's the more important news. We find that due to Cano Panorama, our platform for managing those chronic conditions combined with our ability to change member behavior through removing the barriers to access quality and wellness, the medical costs decline by a 6% CAGR. There's repeating because that is a dramatic change contrast, not only to the 6% increase in revenues because of aging chronic conditions, but we would expect a 9% CAGR increase for the similar cohort of Medicare Advantage patients outside of the Townhill Health model. The bottom line is this. Our improvement in our medical claims ratio is primarily driven by medical cost reductions, not premium increases. In summary, our achievements this quarter have advanced our vision to become America's primary care provider because we have continued to produce better outcomes at a lower cost, and this creates significant value for all stakeholders. Now I will turn the call over to our Chief Financial Officer, Brian Coffey, who will walk you through additional details on our financial performance and outlook.
spk04: Thank you, Marlo, and thanks, everyone, for joining us today. We posted excellent financial results in the quarter, which are a testament to our employees who work every day to provide patient-centered, service-focused, and mission-driven primary care medical services to our members. We continue to execute on our build, buy, and manage strategy to deliver long-term, sustainable, profitable growth. Our goal is to achieve consistent growth and operating results as we grow rapidly in key markets. This quarter demonstrates our ability to do just that. We produced healthy revenue, membership, and adjusted EBITDA growth. We controlled our third party and direct patient care expenses while expanding our corporate spending and anticipation for future growth into new markets. We also continued the effective integration of our newly acquired medical centers and affiliates. This quarter's solid results puts us on track to beat our prior guidance for 2021 and 2022. Membership increased 105% year over year to approximately 211,000 members in the third quarter. This is an approximate 108,000 member increase from a year ago. In the quarter, 57% of our members were Medicare, 30% were Medicaid, and 13% were ACA. Note that our quarter-end membership includes roughly 7,000 Medicare Advantage members, 31,000 Medicaid members, and 14,000 ACA members from our July 2nd acquisition of Doctors Medical Center, or DMC. Additional detail about our membership mix and our PMPM, or per member per month, revenue by line of business is available in our press release and updated financial supplement slides posted this morning on our website. Total revenue in the third quarter was $527 million, which included capitated revenue of $502 million and other revenue of $25 million. It was up 100% year over year. This reflects strong membership growth and operational expansion. Total capitated Medicare revenue in the third quarter was $447 million, Medicare revenue PMPM was approximately $1,241, an increase primarily driven by recent acquisitions, improvements in our Puerto Rico operations, and increased member engagement. Medicaid revenue PMPM was approximately $271. As mentioned on our second quarter call, the acquisition of DMC, with its high pediatric enrollment, reduced our Medicaid PMPM in the quarter. We expect this lower PMPM to continue in future periods. The medical claims expense ratio for the third quarter of 2021 was 75.6% compared to 77% in the second quarter of 2021. The sequential decline was primarily driven by the continued effectiveness of our Cano Panorama-powered care and utilization management programs based on data-driven prediction, prevention, and intervention. We expect a fourth quarter medical claims expense ratio of approximately 74%. As discussed last quarter, we typically realize a lower medical claims expense ratio in the second half as compared to the first half. The fourth quarter tends to have the lowest medical claims expense ratio of the year because members and specialists defer elective procedures due to the holidays and more of our higher cost members are covered by stop loss insurance. For the full year of 2021, we continue to project a medical claims expense ratio of approximately 75%. Moving on to direct patient expense. For the third quarter, direct patient expense was $58 million, an increase of $14 million versus the second quarter of 2021. The increase was generally volume-driven due to our growth. Overall, our direct patient expense ratio sequentially improved approximately 10 basis points to 11%. Selling general administrative expenses were $76 million for the third quarter of 2021, an increase of $29 million from the second quarter of 2021. Overall, our SG&A ratio increased 260 basis points sequentially to 14.4%. The primary drivers of the sequential increase were higher stock compensation expense and higher professional fees, primarily related to transactions. The company recorded a stock-based compensation expense of approximately $9 million for the third quarter. For the full year 2021, we expect stock-based compensation expense to be approximately $27 million based on currently granted awards, which is higher than the previous estimate. The increase from the prior estimate was primarily driven by the implementation of the company's Employee Stock Purchase Plan, or ESPP, as well as employee stock grants awarded during the quarter. The rollout of our ESPP plan was very well received by our employees, and we are encouraged by the participation rate, which further aligns our employees with creating long-term value for our shareholders. Adjusted EBITDA was $35 million for the third quarter of 2021, compared to $23 million for the third quarter of 2020, a 53% increase. As a result, our adjusted EBITDA margin for the third quarter was 6.7% versus 6.3% last quarter. Interest expense was $16 million for the quarter of 2021, for the third quarter of 2021, which includes $3.5 million in one-time expenses related to our recent financing activities. For the full year 2021, we expect interest expense to be approximately $50 million. And as a reminder, regarding shares outstanding, there are about 480 million shares of combined Class A and Class B shares outstanding as of today. This includes approximately 2.7 million shares issued as consideration for an acquisition in the third quarter that are currently held in escrow and which will be released to the seller upon the satisfaction of certain performance metrics in 2022 and 2023. Now let me turn to our cash flow and liquidity. We ended the third quarter with about $209 million in cash and $60 million available under our revolving line of credit. Total debt at the end of the third quarter was $952 million and includes term debt, capital leases, and payments due to sellers. Our total net debt is $743 million, defined as total debt less cash. Our ratio of total net debt to adjusted EBITDA pro forma for completed acquisitions is 4.8. For the nine months ending September 30th, cash use and operating activities was $91 million, an increase of $70 million from the prior year, and we deployed approximately $1.1 billion for acquisitions. For the full year 2021, we expect cash use and operating activities to be approximately $90 million, confirming our previous estimate that cash use and operations in the fourth quarter will be slightly positive. De novo and maintenance CapEx expenditures are expected to be approximately $50 million for 2021. For the full year of 2022, we expect the strength of our existing operations and the recent acquisitions to generate positive operating cash flows that will continue to support growth and allow us to deliver over time. Now turning to our updated 2021 guidance. We expect membership to be approximately $218,000, an increase from the prior range of approximately $215,000. Revenue is projected to be approximately $1.7 billion versus prior guidance of $1.6 billion. Adjusted EBITDA is now projected to be approximately $118 million compared to our prior guidance of approximately $115 million. We expect to open 20 de novo medical centers and operate approximately 130 owned medical centers by year-end. For 2022, we are also improving our outlook. We expect membership for 2022 to be in the range of $280,000 to $285,000 from the previous estimate of $275,000 to $280,000. Revenue is expected to be approximately $2.6 billion to $2.7 billion compared to the previous estimate of $2.5 billion to $2.6 billion. And adjusted EBITDA is expected to be $170 to $175 million, an increase from the previous estimate of $165 million to $170 million. Importantly, as the 2022 open enrollment period is underway, we will provide updated projections early next year. In 2022, we continue to expect to open 54 to 59 de novo medical centers to support our market density strategy. A majority of these de novas will be built outside of Florida, and most are expected to be completed in the second half of 2022. The capital expenditures expected for each of our de novo medical centers remains at approximately $1.5 million. In conclusion, our ongoing success continues to build momentum and demonstrate the effectiveness of Kennell Health's strategy to build scale and density by generating growth through building, buying, and managing medical practices. Using these growth avenues individually or in combination, depending on the opportunities available, results in the most efficient use of capital. This allows us to manage the greatest number of patients in the shortest amount of time and with the least amount of risk, ensuring consistent, sustainable, and profitable growth and market leadership. With that, I'll ask the operator to open the call to your questions.
spk07: Thank you. We will now begin the question and answer session. And as a reminder, please press star 1 on your telephone keypad and limit yourselves to two questions and press star 1 again to get back in the queue. Once again, press star 1 if you wish to ask a question. Your first question is from the line of Jaylandra Singh from Credit Suisse. Your line is now open.
spk01: Thanks and good morning. Congrats on a good quarter. A couple of questions if I can. Brian, just want to follow up on your implied 4Q MLR outlook of 74%. Some of your peers have talked about 4Q MLRs seasonally higher than 3Q MLR. I understand there are variances around the stop loss protection, etc. But anything else would you call out compared with what some of other companies have talked about? And remind us about the threshold for the stop loss protection you guys have.
spk04: and any data around what percentage of your members have already hit that threshold sure yeah as we talked about um we're projecting a full year medical medical claims expense ratio approximately 75 which then you know given the year-to-date uh expense ratio of 75.4 implies uh approximately 74 in the fourth quarter uh you know this is a lot about what we talked about last time in terms of our um pattern within our medical claims expense ratio. We certainly expect the second half MCR to be lower than the first half, and it really truly is driven by our population health management, which has our proprietary healthcare analytics and treatment protocols, which is all powered by Cano Panorama, which we've been talking about. And further, we have comprehensive care management programs that result in stable hospital admissions as demonstrated throughout the COVID pandemic, for example. And then you really do have favorable seasonality in the second half of the year, generally due to lower utilization, lower business days given the holidays, which will drive down the fourth quarter medical cost ratio. and when you think about our the medicare advantage benefit plans most of them have zero co-pays or deductibles so there's no uh seasonality from that perspective it's it's it's a relatively stable um overall mcr throughout the year with the exception as you move into the back half of the year you have uh some of the seasonality but as you mentioned we also do have the stop loss protection that will will kick in for those high claimants that have incurred costs uh in the in the first half or three quarters a year and generally speaking that's a roughly about a hundred fifty thousand dollar attachment point on those uh give or take it does vary by by the various payers but that's generally um where uh the attachment point will will um be for most of the members. You know, so from that perspective, we feel really good about what we've done and being able to accomplish this year and managing our medical claims ratio throughout the pandemic and to feel good about our full year projection of approximately 75%. Great.
spk01: And then my quick follow-up on, you know, it seems you guys are well on track on hitting DeNovo's outlook for this year and for 2021. Expectation for next year seems like you are maintaining that. This is another area where there has been some confusion. Maybe spend some time on the visibility you have on those 2022 de novo targets. How many of those are related to Humana partnership? Any color you can provide on first half, second half cadence? Any details will be helpful. Thank you.
spk05: Yeah, let me take that question, Jalindra. Despite COVID-related delays, we're on track for this year and next year, and that's really the bottom line. Some centers have taken a bit longer than what we would have liked to open, but overall, we're doing very well, and we are reiterating our forecast of And for this year, we're confident in obviously the high end of our initial range of 15 to 20 at 20. Generally, we open centers more in the second half of the year. The reason for that is, of course, open enrollment. and that out-indexes the enrollment, those periods, Q3, Q4, that we generally have in Q1, Q2, for example, and thus having the centers open in January, February, with cash burn until you get a material number of enrollments is not the best use of capital. So primarily because of that, we tend to stagger them in the second half of the year. But as I mentioned, well on track for this year and next. In fact, we're seeing better than expected demand, and that is also driving why we are increasing our guidance this year, which we're flowing through next in terms of revenue by $100 million, and the membership beat the strength of our model is really that we've got a proven track record of improving patient outcomes in multiple geographies and that's bringing us a lot of new patients and ensuring profitable growth as it relates to your Humana affiliated centers Humana is a great partner of ours we expect low digits, single digits in terms of the number of Humana exclusive. We will continue to open them as part of our buy, build, manage strategy. But the majority will be payer, the overwhelming majority will be payer agnostic centers. Also, let me say that the majority will be outside of Florida in markets like Texas, California, and Illinois. Thanks, guys, and congrats again.
spk07: Thank you. Your next question is from the lineup. Ralph Giacobbe from CT. Your line is now open.
spk04: Great, thanks. Good morning. The 1241 Medicare PMPM was a little bit higher than recent trends, and that has bounced around a little bit. Just wondering, is that largely related to the deal, maybe TCE? And how do you see that as sort of a sustainable base, or do you expect volatility within that? Yeah, thanks. Yeah, no, that is a lot of the continued improvement that is coming with the mix of the acquisitions as we bring them on board. And at that 1200 or so p.m. p.m., that is certainly what we would view as a run rateable projection for our Medicare population and similar with the on the Medicaid. As we talked about, the acquisitions, the mix of those coming in changed the overall PMPMs for that around 270. And once again, we also believe that that will be the run rate projections for our Medicaid business going forward. Okay. That's helpful. And then just related to that, you showed on the slide the, you know, 6% premium CAGR in that sort of illustrative example. You know, I guess as we think about 2022 and sort of the better rate outlook overall and the risk adjustment piece, which, you know, I think is going to be a smaller tailwind given what you sort of suggested in the past. But nonetheless, I'd imagine it's still positive for next year. How should we think about PMPM rate increase for 2022? Thanks.
spk05: I would say that we would expect to continue the historical trend, which you have seen in our materials, of significantly lowering medical expense over a member tenure, clearly with the high number of de novos, particularly in 2022, and the need to integrate all of those new populations into Panorama, which occurs within a three to six month period, there will be, I believe, a consistency with what you're seeing this year, but also an investment with those new members which come in at generally lower premiums and lower contribution margins. Therefore, the full value will not be seen for another year or two. But certainly very excited about next year. We are not only significantly growing our top-line growth and membership, but we're growing our bottom line as well. And we're investing a lot of those profits right back into the business, opening more centers, being able to continue to fine tune our already highly differentiated population health platform and tuck in affiliates, accelerating the pace of our de novos and organic growth in the process. So as a result of our scale and density that we already have, our market leadership in some of the country's top markets for value-based care and Medicare Advantage, we've got an enviable opportunity to continue to build out not only in those markets but across the country as well and do so profitably, continuing to invest in the growth and in the platform, which is already highly differentiated.
spk04: Got it. Okay. Thank you very much.
spk07: Your next question is from the line of Josh Raskin from Nefron Research. Your line is now open.
spk06: Thanks. Good morning. You know, my question, I guess two questions. The first one is just, you know, in eight states and Puerto Rico, I think you define that now as 40 specific markets. So when do you think you have enough data to get a sense of operating trends, you know, including the medical cost management, the implementation, account panorama, et cetera? And then. maybe even taking a step back with 40 you know separate markets now how is that working from a management perspective what gives you confidence that you're going to be able to sort of you know juggle all of the markets as they all come on yes thanks for the question josh we are very excited about the opportunities in our new markets let me also continue to stress that we believe in scale and density therefore we're focused on key markets
spk05: within those states. We have experience to date, not only a greater expected demand, but a very pleasant surprise has been how quickly those markets, medical centers, affiliates perform to canal health quality standards. I'll highlight one for example. Our NPS score, our NPS score for the company is consistently now in the low 80s. And you see that NPS score across multiple states within multiple markets. A great amount of scalability and portability that is being proved out in patient service but also in quality scores in apts and in a number of other operating metrics so that gives us combined with the demand and differentiation a great deal of confidence in our model so operating for 10 plus years now in 40 markets with scale within a number of them and getting to scale rather quickly. And it goes back to the basic business thesis of our model. It's a necessary service, recurring revenues to a growing population. And not only is it highly differentiated, it's incredibly scarce. And that Combined with the real-world data that I just mentioned for patient service and quality outcomes, and that of course leads to financial performance, which is ahead of plans. You can add to that the fact that we've got a great and experienced team, and we're building that further every day, highly confident in our market leadership, highly confident in our corporate leadership, and this is why we are now forecasting increases to top and bottom line this year and next.
spk06: That's really helpful, Marlo. Thanks. And then maybe a second question just on leverage, you know, let's call it four and a half times EBITDA at this point. Is that an impediment? And I understand there's no M&A in guidance, so I know you don't need this in terms of guidance. But as you think about opportunities that are going to arise, to your point, incredibly scarce, fragmented industry, first inning, is your leverage ratio now an impediment in some ways to potential M&A? Would you consider using equity for larger transactions?
spk04: Yeah, you know, it's a great question. And, you know, we keep a close eye to our pipeline, understanding what opportunities are out there. But we continue to believe we are well positioned to deliver on our growth strategy. While current debt levels are at the upper range of where we would like to be, we expect the strength of our existing operations and the recent acquisitions to support our growth and allow us to deliver over time. And we'll keep all opportunities on the table as we look at the various growth uh options that we have in front of us and you know what we continue to do is we continue to uh find very good businesses and we continue to improve upon those businesses which help us grow which generate cash and which generates improved earnings which general allows us to reduce our overall leverage so uh you know we'll continue to do that and uh this quarter i think is a great example of our continued financial improvement as we go through the next couple of quarters, continuing this momentum, that will open us up to greater opportunities.
spk07: Okay, thanks, guys. Your next question is from the line of Matthew Shea from Piper Sandler. Your line is now open.
spk03: Hey, good morning. Thanks for the question, and congrats on the quarters, guys. I'm wondering if you could expand on the Los Angeles and Chicago expansions
spk05: i missing something was there not an acquisition there or did you leave with the novos just looking for some color yeah our strategy is always to build buy and manage and generally we stand up all three legs of the stool in any market at scale we have opened the novos in both of those markets in los angeles and chicago and uh we have and will continue to do locally adjacent tuck-in acquisitions that can serve as accelerated de nobles. Many of these are practices that have been in those communities respected for many years, but simply do not have the tools, the infrastructure to do value-based care, and hence they are not serving value-based members today. Some are at very limited scale, and once we plug them into kind of panorama, we're able to measurably improve patient outcomes and increase significantly membership and bring a number of other synergies therefore the short answer is yes open the Novos tuck in local acquisitions plus If the opportunity is right, we may make a larger type of acquisition, a more material one, which we would, of course, report at the time. And just to be clear, there is no specifics that I would like to share today. But we are always looking to capitalize on our platform and enviable market opportunity. And we believe we do that, as Brian mentioned. And we've said repeatedly, by achieving scale and density, and then we select out the growth avenue that allows us to manage the most amount of patients in the least amount of time with the least amount of risk.
spk04: Yeah, and I'll just add, it's one where I think your question was implying, do we always lead with an acquisition? That's the nice part about the model. we have the optionality to lead market expansion in multiple avenues. And so we keep that option on the table every time we look at the various markets we enter and the deployment of capital.
spk03: Got it. Yeah, that was exactly what I was getting at. And then just drilling into the de novo side, now open 16 centers to date. Is there any way to think about how many were opened in Q3 versus maybe in Q4, such as like October, and then assuming some were opened in October, what gave you the confidence to raise the full year numbers for 2022?
spk05: Well, as I said, there were several centers that took us a little bit longer because of COVID to have them open. Don't know the exact count in September as we opened quite a number and we had soft opening on some. The confidence is that we've got 16 open-serving patients, and we've got clear visibility to 20, and also the visibility into the 54 to 59, well ahead of our forecast for centers and membership.
spk03: Got it. Thank you.
spk07: Your next question is from the line of Brian from Jefferies. Your line is now open.
spk02: Hey, good morning, guys. Congrats on your quarter. So I guess just a housekeeping question for me to start. As I look at your three key number months, it seems to imply that membership was above the quarter and the number of MAA commercial numbers was above the quarter month end. Is that the right way to think about that? And is there anything on revenue recognition, prior period revenue recognition we should be thinking about in terms of the ending quarter number?
spk04: No, I don't think. I mean, the membership comes in pretty, you know, radically. And then keep in mind, it's difficult how you're thinking about the member months with the acquisitions. So that'll skew some of the analysis, I think, what you're trying to get to. But generally, you know, it's pretty stable other than when acquisitions come in and when we roll them into our systems, that will, you know, materially change the member month count as we go through each of the quarters, if that's what you're driving at.
spk02: Yeah, okay, gotcha. And then just to follow up, as I think about your direct contracting members, just anything you can share with us in terms of the performance to date that you're seeing there?
spk04: Yeah, it's very consistent with what we saw in the second quarter. You know, we are still very bullish on the DCE program. We think it provides long-term sustainable growth opportunities. And importantly, as we've talked about today and in the past, is as we bring them onto our, into our system and our kind of panorama and our clinical operations teams take over to manage the care of the DCE members, we really believe we'll continue to improve that book of business and integrate them into the overall Medicare population. So I'm very happy with how it's moving along and where we expect the growth to come from as we move into 2022 with that DCE program.
spk02: Awesome. Thank you.
spk07: Once again, if you wish to ask a question, simply press star, then the number one on your telephone keypad. Your next question is from the line of Justin Lake from Wolf Research. Your line is now open.
spk00: Thanks. Good morning. I wanted to ask a question. One of your peers had gotten a DOJ request around transportation and third-party marketing relationships. I believe you haven't received anything, but wanted to confirm that. And then also just to ask you, in terms of your relationships with third-party agents, are you sourcing any of your patient growth from brokers or anything else like that, third parties, or is 100% of your patients coming from your direct efforts, your own employees? Yes.
spk05: So, Justin... We have not received any such notice. We provide transportation to facilitate access to essential primary care services as it relates to the use of third party marketers. We have not, we do not, and will not use third party marketers. We believe demand generation is part of our competitive work and want to control every aspect of it, including compliance there are bright lines for us that we simply don't cross and our strategy is proven and let me reiterate here our track record of growth compliance our history over a 10-year period. Prior to going public, we were listed as the fastest-growing primary care company in the country. Since going public, we have exceeded all expectations within a culture of compliance that is centered on our provision of services centered on patients. Short answer is we do not use third party marketers and will not use third party marketers.
spk00: That's helpful. Thanks. And then my follow up here is around center growth. So you've got, you know, a very robust plan for next year. Just, you know, as we think about, you know, forward from there, is that in a kind of high 50s number in terms of new centers a, you know, kind of target that we should use to kind of think about future growth post-2022 in terms of de novos? Or, you know, where would you kind of focus us in terms of, you know, the three- to five-year outlook in terms of center growth? Without being, I know it's tough to be too specific.
spk04: Yeah, no, great question. And, you know, I'll just take us back. You know, we focus on building, buying, and managing. So our projections for de novo growth, de novo centers will be flexible and change over time depending on opportunities that are presented to us. But as we said, we have 54 to 59 in 2022. You know, I know everyone's looking for where we would want to go from there. I think that's probably a good benchmark to use. But I'll reserve the statement that, you know, we'll continue to refine those longer-term outlooks as we, you know, start to continue to increase our density and our scale in the various markets given our build-buy-manage strategy. So I think that's the way to think about it as of now.
spk00: Great. Thanks for all the color, guys.
spk07: There are no further questions. Presenters, please continue.
spk04: All right. Well, thank you, everyone, for joining. And if there's any follow-up questions, please reach out to myself or Amy Wilson. Thank you.
spk05: Thanks, everyone. Appreciate your time.
spk07: And with that, this concludes today's conference call. Thank you for attending. You may now disconnect.
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