Good morning, and welcome to the MSP Recovery Second Quarter Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to MSP Recovery’s General Counsel, Alexandra Plasencia. Please go ahead..

Good morning. I am Alexandra Plasencia, General Counsel of MSP Recovery. Welcome to our second quarter 2022 earnings conference call.

Before we begin, please note that statements made during this presentation, which state the Company or management's intentions, beliefs, expectations, or predictions of the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act and actual results could differ in a material manner.

Additional information about factors that could cause results to differ from those in the forward-looking statements is contained in the Company's SEC filings.

This includes, but is not limited to, risk factors contained in our quarterly report on Form 10-Q for the quarter ended June 30, 2022, subsequent SEC filings and in the news release issued earlier today. A copy of these materials can be found in the Investors Section of our website at msprecovery.com.

Non-GAAP financial measures are included in our comments today and in our presentation slides. The reconciliation of these non-GAAP measures to the corresponding GAAP measures is included at the end of the presentation slides and can be found in the Investors Section of our website. At this time, all participants are in a listen-only mode.

The participants on today's call will be John H. Ruiz, Founder and CEO of MSP Recovery. Frank Quesada, Co-Founder and Chief Legal Officer and Calvin Hamstra, Chief Financial Officer. I would now like to turn the call over to John H. Ruiz..

Good morning, everyone. This is John H. Ruiz, Founder and CEO of MSP Recovery. We welcome you to today's earnings call. Today, we will discuss MSP Recovery’s second quarter 2022 earnings, including an overview on MSP. I will provide some color on the MSP ecosystem.

I started this business in 2014, and at the time, it was designed to disrupt a Medicare, Medicaid and commercial reimbursement system with data-driven solutions. Over time, our mission has evolved as a result of uncovering the major issues that confront the U.S. patient, provider and payer ecosystems.

In this regard, we have created solutions that will correct the significant flaws that occur daily and in the process, identify waste, fraud and improper payments in a real-time solution, providing patients with better care and at the same time save lives, while decreasing further injury for many as well as providing efficiency for patients, providers and payers.

All this will lead to better care for patients, higher collections for the providers and less improper payments for healthcare providers, including Medicare, Medicaid, and commercial payers, when those payers are at financial risk.

In 2014, Frank Quesada and I identified a problem where the government was incorrectly paying for billions of dollars for healthcare expenses, where other parties were ultimately the responsible parties.

In addressing this issue, MSP's innovative solutions support the long-term sustainability of Medicare and Medicaid programs relied upon by over 100 million people in the United States of America. By ensuring that the responsible parties known as primary payers properly pay in those instances where such payers are liable.

Billions of dollars in improper payments are identified, which in turn helps sustain the Medicare and Medicaid programs for years to come by preventing improperly paid claims by government programs. MSP continues to be a disruptor in the healthcare technology space, supported by three key pillars.

I truly believe that no one has a better understanding of healthcare, healthcare data and the law all combined, which makes our business unique and very difficult to replicate. We own a unique asset.

Irrevocably assigned recovery rights that as of June 30, 2022 were valued at $88.3 billion and identified recovery opportunities, which represents 31% of the recovery rights associated with the Medicare Advantage market. As of June 30, 2022, the total amount of owned claims was $370.2 billion in paid and $1.553 trillion in build amounts.

Further, our winning legal and recovery strategies have strengthened the Medicare secondary payer laws as shown by the legal precedent we have created since starting this business.

And lastly, our intellectual property, which consists of over 1,400 proprietary algorithms will only serve to strengthen our association with Palantir, whose innovative engineers are working together closely with our team to bolster our next-generation recovery detection systems.

We further that with the creation of LifeWallet, a self-contained ecosystem that was designed for patients, providers and payers. LifeWallet works in its own self-contained ecosystem and can be utilized throughout the entire world.

Now I'd like to walk you through some of our second quarter highlights regarding our recovery efforts and MSP’s LifeWallet platform. On our recovery efforts, our paid value of potentially recoverable claims continues to grow. As of June 30, we have $88.3 billion in paid value of potentially recoverable claims.

During the second quarter, we focused on deploying new strategies that will enable primary payers to make the required payments prior to engaging in litigation. This effort is truly focused on accident-related recoveries. Additionally, we continue to see investor interest in our very unique asset, the claim rights.

As evidenced by our agreement with Prudent Group, which has committed to invest up to $250 million related to our recovery efforts.

To significantly bolster our recovery efforts, MSP Recovery has formed strategic alliances with Milberg Bryson Phillips Grossman law firm as well as the Rivero Mestre law firm, both of which will bring significant resources and nationally recognized litigators to secure recoveries.

Milberg is considered a preeminent firm for mass torts and federal class action cases. They have recovered more than $50 billion for their clients. Rivero Mestre, is known for handling bet-the-house litigation for its large corporate clients. Recently, Rivero Mestre prevailed at trial in a $600 billion dispute where they successfully represented Dr.

Craig Wright, who is considered by many to be the creator of Bitcoin. We have made significant progress in our recovery efforts with several cases in settlement discussions, others that have already settled.

As it pertains to LifeWallet, we entered into an agreement with SeguriTech, a Mexican data company to position LifeWallet for international growth. Also, Cano Health and La Colonia Medical Centers have agreed to load all their patient data onto the LifeWallet ecosystem.

We also are working with Tokenology on a tokenized healthcare initiative on the Polygon network, the initiative combined with LifeWallet’s biometric technologies should significantly reduce fraud and abuse in the healthcare system as the – invoicing our 837 Form as known in the industry will be embedded with biometric technology, signifying to the payer that the patient was actually there.

I want to take a moment to highlight significant growth, which I believe is indicative of the success we have achieved since starting MSP. When we first started, we had very few assignors, which made up just over $2.7 million in paid amounts in our portfolio.

Today, as it stands, we have over 150 assignors with over $370 billion paid amounts of which $88.3 billion have been identified as potentially recoverable. 2021 was a positive year in terms of growth, as we finalize a number of agreements with prospects that we had been working on since 2019 and 2020.

As we have stated previously, MSP has engaged in data matching with over 10 auto insurance carriers. Through this process, we have identified over $4.4 billion in accident-related treatments that were paid by our assignors. In June 2022, MSP deployed a new strategy, depicted by demand letters.

This will enable primary payers to make the required payments outside of the purview of litigation and in the ordinary course of business.

As we announced in June of 2022, MSP commenced sending individual claim demands, totaling more than $1.5 billion in build amounts for payment by auto insurers who admitted to the federal government CMS that they were the primary payers for the underlying accidents.

Now I'll hand it over to Frank Quesada, Co-Founder and Chief Legal Officer of MSP to discuss our recent accomplishments and provide 2022 guidance..

Good morning. This is Frank Quesada, Co-Founder and Chief Legal Officer of MSP Recovery. I oversee the legal strategy that is employed in our recovery efforts here at MSP Recovery. The 2022 guidance was developed as part of our business combination.

As of June 30, 2022, we surpassed our 2022 guidance as it relates to the paid value of potentially recoverable claims by 3.2x. We estimated by the end of 2026, we would have approximately $26.9 billion of paid value of potential recoverable claims. Today, as it stands, we have $88.3 billion.

Our total gross recoverable revenue guidance is dependent on the completion of data matching and achieving settlements in our cases. While there are extension risks, we feel comfortable that there is progress being made towards meaningful settlements in our recovery efforts.

MSP Recovery is currently in data matching or settlement discussions with approximately 27% of the auto liability market. MSP has brought a majority of the data matching exercises in-house and eliminating the need for third-party administrator. This has increased the speed and efficiency of MSP's ability to identify previously unknown claims.

All current data matching exercises have reached the final phases in which claims information is being exchanged with primary payers to detail amounts owed.

Due to the volume of claims identified through the data matching process, MSP has consulted with a robust team of statisticians to develop a model, which uses sampling techniques to estimate the aggregate recoveries attributable to a given primary payer.

This model is a cornerstone of settlement conversations as it allows MSP Recovery to push forward a lump sum number and avoid a claim-by-claim analysis.

MSP Recovery in conjunction with some primary payers is also in the process of developing a real-time recovery platform, which will allow for immediate recoveries without the need to resort to litigation for both past and future claims. We believe that if we can achieve a settlement in 2022, we can hit our projected revenue.

Although we have yet to publicize a recovery multiple at this time, we have achieved settlements in the past that exceed 1.9x multiple that we projected for 2022. In the past, MSP Recovery has entered into settlement agreements to recover amounts in excess of the paid amount.

For example, Ocean Harbor agreed to pay more than a Medicare fee-for-service schedule rate by 3.5x, for Medicare Part A emergency services and Medicare Part D claims.

We also entered into a settlement agreement with Horace Mann in which it has agreed to pay match claims according to applicable commercial rates, subject to the assertion of certain agreed upon defenses. We believe the difference between the paid amount of claims in that case and commercial rates are generally between 4x to 6x.

I would now like to turn the call back over to John, so that he can explain how MSP has developed a solution to address the pain of problem going forward. Thank you..

Focusing on the American healthcare system, this system relies upon a series of data systems, which are currently fragmented. Data is stored in passive knowledge silos that are ill-equipped to handle the complexity of the healthcare system.

In analyzing the medical claims data for millions of Americans, we came to the realization that there are three main components when providing care to patients; knowledge of the law, knowledge of medicine and knowledge of healthcare data. We believe our team's knowledge of all three has continued to grow our legal and healthcare data ecosystem.

To identify the proper payer, you need medical expertise, legal expertise, and healthcare data expertise. MSP's LifeWallet combines these three areas and further supplements our existing business.

For example, from a patient's perspective, LifeWallet is delivering biometrics and giving patient ultimate access and control over their own healthcare data.

From a payer's perspective, LifeWallet is providing blockchains for billing in an effort to eliminate fraud and abuse from the billing process by combining biometrics with the particular bills in question. Lastly, with MSP's legal expertise, LifeWallet will have the technology to identify the proper payer at the point-of-care.

Through the functionality of billing the proper payer in real-time, LifeWallet will ultimately lead to visible and predictable revenues for our company, something that is not always the case in historical claims recovery business.

The LifeWallet, or Chase to Pay revenue streams will allow MSP to transition its financials to more consistent and predictable revenue. Now I'd like to introduce Calvin Hamstra, our CFO who will walk you through our quarterly financials..

Thank you, John. Good morning, everyone. I'll be giving a brief overview of our quarter two 2022 financials. To start, I'd like to cover some highlights of our financials as this is the first quarter reporting as a public company under MSPR.

Our balance sheet consists mostly of our intangible assets or claims recovery rights assets of $2.1 billion and investments in rights to claim recovery cash flows of $3.7 billion. These assets are held at cost, not fair value.

The intangible assets are amortized over eight years while the investments and rights to claim recovery cash flows are a financial instrument and therefore not amortized. There are also increases in cash to $25.0 million, restricted cash to $11.4 million and prepaids to $36.9 million.

These were driven by the cash from the business combination and the funds from the related party loan obtained during the quarter.

For liabilities outside of the related party loan, our liabilities also increased related to the mark-to-market of the warrants, the derivative liability related to the Cantor facility noted in previous filings and liabilities payable and stock related to the purchase of claims recovery assets also noted in previous filings.

Our income statement for the period has a lot of noise from the business combination transaction. And I'll go into further detail on this in another slide.

But overall, the majority of the items driving the increase in expenses are due to one-time and non-cash items such as change in fair value of warrants and derivative liability, stock-based compensation, interest expense and claims amortization expense.

Also, during the period, we strategically entered into alliances with other law firms as noted previously. While these have increased expenses in the short-term, we anticipate these alliances will drive and accelerate claims recoveries and allow us to push the biggest return out of our historical portfolio.

Next I'd like to provide the overall balance sheet. Some items to highlight here are on the asset side. As noted previously, the increase is driven by the asset acquisitions as part of the business combination as well as increases in cash, prepaids and acquisitions of other intangible assets. These increases are all related to the business combination.

Our liabilities are mostly non-current when the guarantee obligation is excluded as this is a gross up of Virage Recovery Master LP full return and offset by the indemnification asset. The non-current assets consists of claims, financing obligations and notes payable, related interest accrual and loans from the related parties.

One item to keep in mind on the claims financing obligations and notes payable and related interest payable is approximately $134.3 million is non-recourse and represents a sale of future revenue on claims portfolios. On the income statement, as previously noted, the main drivers of our quarter and year-to-date losses are one-time and non-cash.

Outside of the items noted previously, expenses within general and administrative and professional fees have increased from previous periods. This is related to the development of additional revenue sources, such as LifeWallet, as John mentioned earlier.

Our management team has been focused on not only extracting the value from our historical portfolio, but also addressing the go-forward problem in healthcare billing by developing these new revenue streams that will drive consistent revenue period-to-period.

While the unique assets we hold as a part of our historical portfolio will provide significant revenue, we feel MSP’s value to shareholders will be through developing these applications that will address the healthcare billing problem go-forward.

In order to help look past some of the noise in the financials related to the business combination, we have highlighted the one-time and non-cash items that are flowing through the financials. This is a non-GAAP measure, but we feel it is important in order to understand what we would anticipate an expenses going forward.

Within the income statement for the three and six months ended June 30, 2022, there were one-time, non-cash items related to a share grant to non-employees of $20.1 million and changes in the fair value of warrants and derivative liabilities related to the Cantor facility, which was disclosed in previous filings of $14.4 million.

Additionally, there are non-cash items for the period related to claims amortization expense and paid in kind interest. These along with the one-time items noted totaled $69.2 million for the three months and $82.3 million for the six months.

Excluding these one-time and non-cash items, our net loss was approximately $8 million for the three months and approximately $9 million for the six months.

While we anticipate being able to start generating more meaningful revenue from our operations in the next few quarters, we have also publicly announced several other sources of cash that could provide resources to cover current needs.

Based on our current cash, the funds included in prepaids to fund law firm-related expenses and our announced facilities or agreements with Cantor, Virage and Prudent, we have potential sources of approximately $1.5 billion to continue to fund our operations.

As noted in each of the announcements of these agreements or facilities, these are all still in process of being implemented.

In summary, our current balance sheet and publicly announced resources should provide the ability for MSP to execute on driving strong cash flows from operations through our historical claims portfolio and continue to develop additional revenue streams we have disclosed. Thank you all for joining us today..

This is Diana Diaz, Chief Communications Officer of MSP Recovery. We encourage everyone to visit our website in the Investor Relations portion for a recording with the attached presentation of what you just heard. Thank you so much..

We will now begin the question-and-answer session. Our first question today comes from Meyer Shields of KBW. Please go ahead..

Thanks. Two quick questions, if I can. First, is there any way of getting a little bit more insight into the $1.3 million of claims recovery income in the quarter in terms of, I guess, how long those were being litigated? I don't know if you can characterize the sources of income..

Yes. Good morning. How are you? This is John H. Ruiz. So there are a couple of different buckets of claims that we process, and I'll break them down in this fashion. So there are claims that are in litigation and then there are claims that we process day in and day out. And they fall into three sort of categories.

One type of claim is one where the insurer actually ensures the Medicare beneficiary directly. The other type of claim is where there's already been a settlement with a Medicare beneficiary, but those claims have not been extinguished, those liens that we own.

And then the third category, our claims that are actually in process, meaning in progress, whereby people are injured and have lawyers, and those lawyers in particular have claims that they're processing and we own those lien rights.

As it pertains to the 1.3 in total, half of that subset were actual claims that were paid by primary payer for a batch of claims that were sent to them where they acknowledged that they owed primary responsibility and those were paid only at the paid amount. This payer has previously been paying at the build amount.

So even in those revenues that we reported, there is an upside even with what we've already collected, we're in the process of getting that difference. As it relates to some of the other claims also with established settlements as Mr.

Quesada indicated, which is a company and another primary payer that is paid, they also paid the paid amount, but the settlement agreement requires them to pay 4x to 6x the amount that we've already collected. So what we're seeing futuristically with what Mr.

Quesada said, and we've explained because we have significant progress in data matching and in conversations with sort of settlement strategy with a significant portion of the bigger primary payers, that's the path that we're taking.

So to answer that question directly, that recovery is probably half, what I call the daily flow of what transpires and then the other half is for historical claims that we have been processing from before..

Okay. Thank you. That's very helpful.

And bigger picture question, when we talk about the relationships and partnerships with other law firms, is that – should we assume that there's a particular percentage of the recoveries that they're going to collect? They assume that they're doing this on a percentage basis instead of billable hours?.

Yes. So great question. The numbers that we've projected do not change at all because even though we have a lot more lawyers, I think collectively, now we have over a 100 lawyers working on these cases between all the respective law firms. The dynamics of the monetary impact to MSPR doesn't change.

So while we add more and more lawyers, we're just adding more soldiers so to speak, but it doesn't cost MSPR anymore. One of the things that we feel is very positive is there had been two major cases decided by the federal public court.

One was decided in late 2020 where the insurers petitioned the United States Supreme Court for review and the United States Supreme Court rejected that. So that's the law of the land and that established the rights of downstream providers in addition to Medicare Advantage Organizations, to be able to prosecute these cases and collect upon them.

So we won that significant issue. And just within the last two weeks, we won another significant case, which is called MSP versus Metropolitan, where the court established that we had established the necessary elements to file the lawsuit, the claims in the manner in which we were doing.

Because of that we've seen, which is reported in all the docket entries, the judges are starting to put more pressure on the primary payers, which are the defendants to essentially respond to the lawsuits and we're starting to see a huge move.

And one of the things that we've also reported already publicly is we started a huge drive to send out all these demand letters. And as a result of that, we feel that there's going to be a lot less litigation and a lot more of what normally happens in the industry, which is bills are sent and paid automatically.

So if you look at this in the bigger scope, we had to, for many, many years establish the rights of these Medicare Advantage Organization and downstream providers in the courts. We've done that. That's over and done with. There's not a lot of room for primary payers, if any, at all, to try to defend themselves against these kinds of claims.

So now we're just doing the data matching and we strongly feel and believe that this paves a way for the processing of these claims the way that it happens every day. And if you look at the entire structure of how bills get processed, there's about 7 billion of them, nationwide between car accidents, slip and falls and normal healthcare treatment..

Okay. Fantastic. Thank you so much..

You're welcome..

I am seeing no more questions in the queue. This concludes our question-and-answer session as well as the conference. Thank you for your participation. You may disconnect..