Good morning and welcome to CareMax' Fourth Quarter 2023 Earnings Call. Please note this call is being recorded. I would now like to turn the conference call over to Roger Ou, Senior Vice President of Investor Relations. Please go ahead..

Good morning and welcome to CareMax' fourth quarter 2023 earnings call. I'm Roger Ou, Senior Vice President of Investor Relations. And I'm joined today by Carlos de Solo, our Chief Executive Officer; and Kevin Wirges, our Chief Financial Officer. During the call, we will be discussing certain forward-looking information.

These forward-looking statements are based on assumptions and assessments made by CareMax' 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-GAAP 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. Now I'd like to turn the call over to Carlos..

first, optimizing our cost structure to give our key stakeholders confidence in our near-term liquidity, this includes cost reductions we've already taken that amount to approximately $20 million of annualized cash savings.

Second, emphasizing performance and profitability in our existing book of business over growth; and third, exploring strategic options across our lines of business to maximize the value of certain assets. These actions are designed to help position CareMax for long-term success as the U.S.

health care system continues its shift towards accountable care. In the past several months, we have streamlined our workforce, including centralizing functions under key operational leaders. Overall, we estimate our net payrolled reductions are contributing $15 million of annual run rate savings.

We have also acted on opportunities to consolidate our center footprint in South Florida by tucking smaller sites into larger ones, allowing us to maintain service levels for patients while lowering operating costs. Since Q3, we have been able to complete six of these consolidations, resulting in fewer but more efficiently run centers.

We believe our center rightsizing efforts to date currently translate to approximately $5 million in annualized cash savings. Furthermore, we continue to work on optimizations in multiple functional areas, including transportation, shared services, IT and facilities, which may contribute additional savings this year.

From a clinical perspective, I am pleased to report that, across all CareMax centers, we achieved an aggregate 5-star quality rating for the third consecutive year, showcasing our commitment to the highest quality of care for our patients.

In addition, we feel confident in the ability of our care processes to drive year-over-year improvement in our centers' medical expense ratio.

While 2023 medical expenses grew at a rapid rate due to increased medical and benefit card utilization, we believe our care management initiatives and changes in payers' benefit designs may contribute to a deceleration in medical expense growth in 2024 compared to 2023. As a reminder.

Our consolidated MER may remain elevated due to new MSO Medicare plans converting to full risk. As discussed on our prior call, we have taken what we believe to be a prudent approach toward adding new contracts in our MSO.

We ended 2023 with over 75,000 MA members and are focused on helping our affiliate providers optimize value-based care savings in their existing panels. We plan on taking increased risk in most of our MA contracts in 2024, including certain contracts moving to full risk.

Full risk lives now represent about 35% of our MSO MA population, up from 15% in 2023. Based on our current projections, we believe our MSO has the ability to achieve similar or better MA medical margins compared to 2023.

In our government ACOs, medical expenditures continue to develop favorably compared to national and regional trends, which we believe reflects our team's success in managing the underlying expense trends for the MSSP and ACO REACH populations. We are optimistic that the investments we've made may lead to a similar or better savings rate in 2024.

Now let me give some highlights on the embedded value we believe we have built in our de novo and MSO assets. Our de novo centers are now serving over 6,000 Medicare patients under capitated at-risk and fee-for-service contracts and are also seeing Medicaid and commercial patients.

We believe we have established a critical mass of operations in dense underserved communities within New York City and Memphis, Tennessee; and we have done so while keeping de novo losses within our guided budgets in both 2022 and 2023.

We believe our work in the past two years has laid the foundation for the de novo centers to achieve attractive margins and maturity. Nonetheless, the reallocation of resources toward clinical performance at our core centers and MSO entails delaying breaking even at the de novos compared to our original plan.

In recent months, we have had conversations with growth-minded parties that see strategic value in our de novos. While early, we believe these discussions may potentially enable us to monetize the platform we have built in new markets, mitigate the impact of de novo losses or realize other financial benefits with these centers.

In our MSO, we believe we have accomplished our key one-year goals, convert traditional fee-for-service contracts into value-based care agreements, with a glide path to full risk; incorporate our tech-enabled workflows to manage complex populations at scale; and foster physician engagement in a way that maximizes their potential earnings and improves patient outcomes.

With over 170,000 senior lives across MSSP, ACO REACH and Medicare Advantage, we estimate our MSO is now accountable for over $2 billion of annual health expenditures. In 2023, we believe we have approximately doubled shared savings under our government ACOs compared to 2021.

And we believe our operating plan can further drive the savings percentage rate to high single digits or better. In our MA book, CareMax has successfully contracted with most of the leading regional health plans in their respective markets, introducing new opportunities for our affiliate providers to participate in savings.

We continue to deepen these partnerships and explore new ones with payers aligned with our measured approach towards taking risk. In summary. Given the recent industry trends, we expect 2024 to be a transition year toward more balanced levels of reimbursements and expenditures.

In continuation of the process begun last year, we plan to work toward further optimizing our business for things we can control to help preserve liquidity and position our business to achieve our longer-term goals. Kevin will now take you through our financial results..

We do not add back prior-year developments or reserves through adjusted EBITDA but disclose them to provide color on the annual performance of our business. Additionally, Q4 GAAP net income was impacted by $369 million of non-cash goodwill impairment.

In the fourth quarter, adjusted EBITDA was impacted in part by approximately $21 million of net unfavorable PYDs. Over half was related to updated historical data from two MSO Medicare plans, while the remainder was due to final sweep accruals related to our membership in our centers.

We also booked $15 million of reserves for adverse deviation that are intended to absorb potential future unexpected changes in revenues or external provider costs. For the full year 2023, adjusted EBITDA was negative $63 million, including unfavorable impacts of $42 million of total PYD and the $15 million of reserves for adverse deviation.

This also includes $23 million of de novo losses, which were slightly favorable to our guidance of approximately $25 million in losses. Reported 2023 revenue was $751 million, including $45 million of headwinds from PYD and $5 million from reserves, putting us toward the lower end of our latest guidance range.

Total medical expense ratio in 2023 was 91.5% and includes approximately 780 basis points from PYD and reserves. MSO members, which have higher MER than our center numbers, had 450 basis points of impact. In addition, we estimate year-over-year increases in benefit card expenses drove about 400 basis points of unfavorability in MER.

Finally, MER was further impacted by Medicaid redeterminations, which have caused the average Medicaid acuity to normalize faster than expected toward higher pre-COVID levels. To share some recent trends within our center population.

We saw elevated hospitalizations in December continue into January which is typically the height of the flu season in South Florida. However, inpatient admissions had shorter average lengths of stay. And January ED visits also moderated month-over-month.

While early, we are cautiously optimistic the seasonal peak is behind us and continue to ramp our clinical programs and better manage avoidable admissions. Looking back.

Our challenges in 2023 have been more about the things we had less control over, namely the timeliness, adequacy and accuracy of data from newer health plan contracts; Medicaid redeterminations; and flex card utilization. In particular, we believe the impact of flex card exceeded $30 million of medical expenses in 2023, nearly tripling from 2022.

While these benefits are likely to stay in some form, we do not expect them to increase at the rate they've grown in the past two years. And we have developed plans designed to mitigate duplicative costs at our centers and more closely review our service funds for potentially improper flex card expenses.

More generally, these developments have reaffirmed to us the importance of strong relationships in our business. With our legacy health plans, we have a good history of alignment and a common view toward the long-term benefits of our high-touch model. With our new payer partners, we couldn't be more excited to embark on that same journey.

With any partner, our efforts are most successful when our payers equip us with the right data, tools and access; and share in the upfront investments needed to manage risk. Along those lines, we expect some of the structural changes Carlos mentioned may entail refocusing resources on payers most aligned with our strategy.

We have done a significant amount of analysis to understand the unit economics of each health plan contract. As you might imagine, some are more favorable than others. We're planning to thoughtfully consider actions where the costs to manage a plan outweigh the financial benefits to the company.

Because the outcome of these processes is uncertain, we believe it is premature to give precise guidance for 2024. In aggregate, our plan is designed to put CareMax on better footing in 2025, which we think will mark a favorable inflection point in revenue and adjusted EBITDA.

We believe headwinds in 2024 regional benchmarks for our core markets will abate or even flip to tailwinds next year. And we believe 2024-star ratings for our core plans follow a net improvement compared to 2023, which should favorably impact revenues in 2025.

As Carlos mentioned, we drew the remaining $60 million of DDTL in Q4 and ended the year with approximately $66 million of cash. Looking ahead, we are in active strategic discussions to maximize the value of certain assets, which may help generate further liquidity to bridge the company to the MSSP payment later this year and to 2025. In closing.

The management team, Carlos and I are deeply appreciative of our team members for their steadfast support and shared vision toward accountable care. We are committed to taking the actions we believe necessary to reposition CareMax for future success. We look forward to connecting with you and updating you on our future developments..

Operator:.