Q2 2021 Cano Health Inc Earnings Call
Okay.
Okay.
Good morning, and welcome to panel helps second quarter 'twenty 'twenty one earnings call.
Currently all participants are in a listen only mode.
Sir the speaker's presentation, there will be a question and answer session today's call will be approximately 60 minutes in length.
Please be advised that today's conference is being recorded.
Hosting todays call are Doctor Marlow Hernandez, co founder Chairman and Chief Executive Officer, and Brian copy Chief Financial Officer.
They can now help press release webcast link and other related materials are available on the Investor Relations section of kernel helps website.
These statements are made as of August 12th 'twenty, 'twenty, one and reflect management's views and expectations at this time and are subject to various risks uncertainties and assumptions.
As a reminder, this call is contained forward looking statements regarding future events and financial performance, including our guidance for the <unk> 'twenty 'twenty, one and 'twenty 'twenty two fiscal years.
We intend these forward looking statements to be covered by the safe Harbor provisions for forward looking statements contained in section 27 eight of the Securities Act and section 21 E of the Securities Exchange Act.
We caution you that the forward looking statements reflect our best judgment as of today based on factors that are currently known to us and actual future events or results could differ materially.
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.
A reconciliation of the GAAP and non-GAAP results 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. Marlowe Hernandez co founder Chairman and CEO of Kanno help. Please go ahead.
Okay.
Thank you fellas and welcome everyone to our second quarter earnings call.
This is a very exciting time for kind of health and I. Appreciate you taking the time to hear about our progress and our plans for continued growth.
I'm proud to report that once again, we had a very strong quarter of revenue growth as well as adjusted EBITDA growth and operational expansion our company since its founding in 2009 has consistently deliver results for its patients and stakeholders.
We're a company that has made and will continue to make transformational social and financial impacts through our sophisticated population health platform, which we grow through building buying and managing medical centers.
We started out as a single medical center today, we're one of the largest primary care operators in the United States.
At its core kind of health has a differentiated growth model with unique assets, both technological and physical.
With market leadership, and some of the country's largest and most attractive managed care markets.
Let me give you an example in Miami Dade County, arguably the country's number one market for managed care. We are the number one primary care provider for Medicare advantage members.
And when I say number one I'm also referring to quality metrics medical cost management and membership growth. We have a five star NCQA ratings for a population that is predominantly low income and has been chronically and historically underserved. We also have lower mortality lower cost, which means more grandmas and more grandpas will be there.
For their families living their retirement date deserve or simply following their passions.
For those that are new to the counter health story.
Let me give you a brief overview of what makes kind of health different.
What makes us special even beyond our numbers are.
Our mission is to provide patients with high quality high touch primary care producing better outcomes at lower costs, creating significant value for all stakeholders, our vision to be the national leader in primary care.
Now let me tell you about the kernel difference from a business perspective.
When you combine our national care platform built on access quality and wellness with our flexible growth model building buying and managing the result is speed density and scale, which translates to capital efficiency and profitable growth.
We primarily operate in the $800 billion Medicare market with a focus on Medicare advantage or Emma that private sector alternative to traditional Medicare for seniors offered by health insurance companies.
This they may market is growing at 8% to 10% per year and yet less than 20% of Medicare patients are currently receiving care within a comprehensive value based model, that's our wheelhouse, which explains the enormous growth potential of our company.
Cano Health is a leader in value based primary care that is we are paid a flat fee per patient per month, rather than a fee for patient visit or procedure approximately 96% of our revenue comes in the form of recurring capital payments from health plans and the centers for Medicare and Medicaid or.
CMS.
We are transforming healthcare from the current analog state, which is transactional and fragmented to one that is digital one that is personalized and coordinated. In addition, we're proud of the role we play in making healthcare in America more equitable reserve predominantly.
Under served communities approximately 80% of our patients are Latinos and African Americans and we reflect the ethnic and cultural makeup of the communities we serve.
Our staff like our patients are 80% minority and that extends all the way to the C suite and board of directors. This is critical in every industry, but particularly in healthcare, where trust and understanding our absolute necessities to provide optimal clinical outcomes.
Let me now address the Covid 19 pandemic.
Life expectancy in the United States fell by 1.5 years, the biggest drop since World War two according to a recent study in the British Medical Journal among Hispanic Americans. The decline was even more three nine years and among African Americans that decline with <unk>.
<unk> pet turning three three years.
Yet at Cowal health, our Covid mortality for seniors and remember our patient population is 80% Hispanic African American.
Has been far lower than the national average, even though we serve an older poor and sicker population as published in the American Journal of managed care in June 2021 kind of halt obtained a 60% reduction in Covid 19 mortality compared to a mirror group in Florida and.
In other words for the same or lower cost than other primary care providers, we have proven our ability to provide patients with a longer and full of life. Even during the Covid 19 pandemic we.
We intend to continue to grow and bring our care model to more patients across the country.
With that let me summarize our growth strategy, which leverages speed density and scale to reach the most patients while ensuring optimal capital efficiency, which has become a clear competitive advantage since 2017, approximately 40% of our membership growth has been organic and the balance inorganic or financial and clinical performance.
Is a direct result of our ability to execute on our business model and our growth avenues simply put we build we buy we manage.
First built we grow organically by expanding our existing practices and building new medical centers.
In the second quarter.
Organic membership growth was 30% year over year.
It is important to note that not all de novo's are created equal.
We have found that in a market, where we have built scale and density a de novo will perform better than one built in isolation. This is due to various contractual local and operational reasons.
Second by.
I kind of hope grows through targeted acquisitions, we source evaluate and rapidly integrate acquisitions, improving their operating and financial performance. Since 2017 kind of health has completed 35 acquisitions and our average adjusted EBITDA growth for acquisitions has been approximately 30% year over year.
Here in the first year and 15% in the second year with continued strong growth thereafter like de Novo's This growth avenues leverages.
Leverages density and scale to optimize performance finally match, we provide management services to affiliated primary care practices, improving their financial and clinical outcomes. These affiliate relationships serve as a robust source of additional clinical capacity, allowing us to wrap.
Thirdly build scale and density.
An important differentiator that I want to talk to you about now is our proprietary technology platform Cano Panorama.
Channel Panorama is the basis for our population health management. It is composed of dozens of modules hundreds of daily metrics and thousands of support tools and algorithms is a systematic approach which goes beyond just the basics of primary care just the basics of testing treatments in vaccinations cannot.
Rama is designed to help predict and prevent disease to individualized care for the patient while optimizing the health of an entire community. It is about connecting people processes and technology to make everyday miracles happen with the results measured by the lives, we touch and buy the lives we save it's about utilizing our protocols to.
The tech cancer early stages to identify heart disease before a patient has a heart attack.
And when our patients do better.
We do better because we have a line clinical and financial outcomes that benefit community staff payers and shareholders.
As an example, if we extrapolated the results from the 'twenty 'twenty one study on Covid 19 outcomes, which I referenced earlier and every senior citizen in Florida since the start of the Covid 19 pandemic had received candle light care powered by a system like kind of Panorama, we believe more.
Then 10000 people in Florida would be alive today.
From a clinical perspective.
This is the counter health difference.
Now, let me describe the cattle model or camera like care, which is what we call our care delivery model.
We provide our members with standardized primary care services based on access quality and wellness.
This is evidenced by our net promoter score of 77% average over the last 12 months, our five star NCQA ratings from our largest health plans and our lower hospitalizations, ER visits and mortality rates, which are well below Medicare averages.
Counter health delivers more accessible care by providing services like transportation 24, 7% urgent care line in home visits and telehealth will provide higher quality through careful ordination preventative screenings and disease management, we provide a wide array of wellness options from exercise classes to.
<unk> workshops.
Another important detail is that kind of held doctors see fewer patients than average and spend their time focused on delivering care rather than filling out forms. That's what drew me as a young physician too.
To build the first county health clinic and partner with an exceptional group of professionals to create our care delivery model.
Now I'd like to spend some time discussing specific strategic highlights from the past few months that have me, particularly excited about <unk> future growth.
On April one we began managing patients under CMS direct contracting entity program or D. C E.
TCE is today in its infancy, but we see great promise in the program.
Health is well positioned to be a solution for this and other value based programs.
Very few companies have the infrastructure and track record, particularly for the underserved population that kind of health has which is in perfect alignment with CMS goals of measurably, increasing quality while controlling costs.
On June 4th kind of held shares began trading on the New York stock exchange as a newly publicly traded company.
On June 11th we acquired University healthcare with 13 facilities and approximately 24000 Medicare advantage members in a few weeks later on July 2nd we acquired Doctor's Medical center or DMC.
While this is a third quarter event, it's an important development that adds additional scale and density to our operations in Florida and allows us to deliver more targeted services to our members.
<unk> operates 18 facilities serves 52000 members, including approximately 7000 Medicare advantage members 31000 Medicaid members in 14000 HCA members. We have also entered into other smaller yet important transactions over the past couple of months that reflect our strategy to build density in our markets.
In June we purchased two small practices in Texas, one in San Antonio, where we have four de Novo centers and one in Corpus Christi, where we'll be opening multiple de novo centers in July we signed an agreement to acquire practice with two medical centers in Las Vegas, Nevada adjacent towards three existing Las Vegas centers.
Also in July we acquired a behavioral health specialty group in South, Florida with 27 providers 14 clinics co located within current kernel health medical centers and two standalone clinics to better serve the mental health needs of Cardinal health members.
We have worked with these providers for several years and as a result of this transaction. We are excited to now have the specialty service in house to directly provide behavioral healthcare to Ah patients, which is particularly timely during the Covid 19 pandemic.
I'm also proud to report that in August 2021, we deployed approximately $140 million of.
Of cash and $30 million in equity to acquire medical practices and infrastructure managing affiliates in four States, Florida, New York, New Jersey, and New Mexico for these medical practices and affiliates in 'twenty and 'twenty. One we expect to recognize approximately $14 million of fee for service and other revenue and <unk>.
5 million of adjusted EBITDA.
In 2022, we expect to recognize approximately 200 million of capital revenue and $16 million of adjusted EBITDA from 15000 Capitate Medicare members served by these medical practices and affiliates the projected increase in revenue and adjusted EBITDA. In 2022 is due to our expected success converting patients in these medical practices.
And Phillies into Cardinal health value base members.
While each of these events service, an important marker or Kendall house expansion taken together they represent the mosaic we are building across our markets to serve more patients while accelerating growth. Our overarching goal is to be able to measurably improve.
Health outcomes profitably and sustainably all while building lifelong bonds with communities and the people we serve.
As a result of the positive events outlined above.
We also announced this mornings press release that we are increasing our guidance for 'twenty 'twenty, one and 2022.
We have built considerable density and scale in our home markets fueling profitable growth and accelerating our build.
By managed strategy across the country.
Brian will provide the details shortly but before Brian begins I want to thank all counter health employees, who did the hard work of delivering this strong quarter. It's been an extraordinary couple of years for our company for many reasons and through it all our employees have proven themselves skilled committed professionals.
Who regularly achieved the impossible with that I'm happy to introduce our Chief Financial Officer, Brian Coffey, who joined US just before our public listing and have since made himself an integral and valuable member of the kind of whole family.
Thank you Marla and thank everyone for joining us today I'm extremely proud to be part of this great company and it's 3000 plus employees.
From my experience of 20 plus years in the healthcare industry I truly believe kanno health, who is patient centered service focused and mission driven driven to deliver superior primary care medical services as the REIT strategy build buy and manage to deliver long term sustainable profitable growth.
Turning now to our results.
In the second quarter, we demonstrated that our core business continues to meet our high expectations. We produced healthy top line membership and adjusted EBIT growth numbers this quarter showcasing not only the strength of our core business and growth strategy, but also our cost and operational management.
We have continued to execute on our flexible growth model and through speed density and scale, we expect to continue to achieve consistent growth.
The positive trends in our performance and the effective integration of our new medical centers and affiliates will provide continued revenue and earnings performance to achieve our guidance.
Our focus on membership growth. So our membership increased 57% to 156000 members in the second quarter. This is a 99000 member increase from a year ago.
In the second quarter, 72% of our members, where Medicare, 16%, where Medicaid and 12% were new.
Note that our quarter end Medicare membership also includes roughly 24000 Medicare advantage members from our June 11 at June 11th acquisition of University healthcare.
Medicare membership also includes about 8000 beneficiaries assigned to us under CMS is DCE program.
This was the first quarter, we reported <unk> results as the program began on April one 2021.
Following the quarter, we closed on the DMC acquisition.
Looking at membership post the DMC acquisition, our pro forma as of June 30, our membership is now approximately 208000, and we have 108 medical centers with over 1000 employed an affiliate providers ready to serve our members.
Additional detail about our membership mix in our PM pm or per member per month revenue by line of business is available in our press release and updated investor slides posted this morning on our website.
Total revenue in the second quarter was $393 million, which included <unk> revenue of $370 million in other revenue of $14 million was up 130% year over year and reflect strong membership growth and operational expansion.
Total capitation Medicare revenue in the second quarter was $335 million.
It includes DCE revenue.
Approximately $29 million the.
The Medicare revenue <unk> was approximately $1180 up 40% year over year, primarily driven by improvements in our Puerto Rico operations.
Medicaid revenue P. M. P M was approximately $610 <unk>.
Projecting Medicaid <unk> going forward. It is important to note that the Medicaid membership acquired through our DMC acquisition runs at a lower <unk> than our current book due to its higher pediatric enrollment and therefore will lower the overall Medicaid <unk> outlook.
The medical claims expense ratio for the second quarter 2021 was 77.0% compares to 73.0% in the first quarter for 2021.
The increase was driven primarily by the inclusion of BCE members, who we initially expect to have higher medical costs and to a lesser extent by higher elective procedure utilization and costs related to Covid 19.
For the first half of 2021, the medical claims expense ratio was 75, 3%.
For the full year of 2021, we are projecting a medical claims expense ratio of approximately 75%.
We expect a stable second half medical medical claims expense ratio, primarily due to ongoing population health management, which leverages, the analytics and treatment protocols of candle Panorama.
Comprehensive care management programs, which we expect to maintain stable stable hospital missions.
As well as lower DCE medical cost per member as they are integrated into the Kanno health platform.
Also high vaccination rates for our Medicare members, which about 87% of these members are vaccinated, adding a level of protection against the Covid. The current Covid 19 surge, which is a surge of the unvaccinated.
And expectations for our north for normal seasonality.
Typically realized lower medical claims in the second half as compared to the first half.
Moving on to direct patient expense for the second quarter direct patient expense was $44 million, an increase of $21 million versus the prior year quarter. The increase was generally volume driven due to our growth.
We're all our direct expense ratio improved 200 basis points to 11, 1%.
Selling general and administrative expenses were $47 million for the second quarter of 2021, an increase of $25 million the increase was incurred to support.
<unk> growth of our business and expansion into other states.
Overall, our SG&A ratio improved 100 basis points to 11, 8%.
The company recorded stock based compensation expense of $3.2 million for the second quarter for.
For the full year 2021, we expect stock based compensation expense to be approximately 16 million to $20 million.
Adjusted EBITDA of $25 million for the second quarter of 2021 compared to $16 million for the second quarter of 2020 represent a 53% increase.
And as a result, our adjusted EBITDA margin for the second quarter was six 3%.
Interest expense was $10 million for the second quarter 2021, an increase of $4 million.
As compared to prior year quarter.
For the full year 2021, we expect interest expense to be approximately $50 million.
Regarding shares outstanding there are about 477 million shares of combined class, a and class B shares outstanding as of June 30.
There is no impact on share count as a result of this filing.
Now, let me turn to our cash flow and liquidity we.
We ended the second quarter with about $319 million in cash and $30 million available under our revolving line of credit.
Debt at the end of the second quarter was $557 million and includes term debt capital leases and payments due to sellers for.
For the six months ending June 30 cash used in operating activities was $57 million, an increase of $43 million and we deployed approximately $618 million for acquisitions.
On July <unk>, we closed on our DMC acquisition and used $300 million in cash and subsequently borrowed an additional $250 million.
In addition throughout July and August we deployed approximately $155 million on the transactions model will discussed.
As a result pro forma for the acquisitions. After the end of the second quarter, our net debt is $693 million and our total net debt to pro forma adjusted EBITDA ratio is four three.
We.
Cash used in operating activities to be approximately $90 million for the full year of 2021 with de Novo and maintenance Capex expenditures in the range of 40 million to $45 million for 2021.
However, as our profitable growth continues we expect to be cash flow positive in the fourth quarter of 2021.
And for the full year of 2022, we expect the strength of our existing operations and the recent acquisitions to generate positive cash flows that will continue to support growth and allow us to delever over time.
Now turning to our updated guidance.
For 2021, we expect membership to be approximately $215000 an increase from the prior range of 205000 to 210000.
For revenue.
Revenue is projected to be approximately $1.6 billion and.
An increase of the prior guidance of $1.5 billion.
Adjusted EBITDA 2021, adjusted EBITDA is now projected to be approximately $115 million, reflecting an increase from the prior guidance of approximately $110 million.
For 2021, we remain on pace to open 15 to 20 de Novo medical centers by the end of the third quarter, we expect to have more than half completed.
By year end, we expect to be operational in eight states plus Puerto Rico. The States include Florida, Texas, Nevada, New York, New Jersey, New Mexico in two additional states that will be announced by the end of the third quarter.
Turning to 2022 guidance.
For membership we expect membership for 2022 to be in the range of 275000 to 280000, an increase from the prior year guidance of approximately $250000.250000 members revenue is expected to be between $2.5 billion to $2.6 billion an increase of the <unk>.
Prior guidance of approximately $2.2 billion.
Adjusted EBITDA adjusted EBITDA for 2022 is now projected to be approximately $165 million to $170 million, reflecting an increase from the prior guidance of approximately $150 million.
In 2022, we expect to open 54 to 59 de Novo medical centers in the states I just mentioned as we execute on our market density strategy.
The capital expenditures for each of our de Novo medical centers are expected to be approximately $1.3 million to $1.8 million each.
Additionally, approximately two thirds of these de Novo centers.
We expect it to be outside of Florida with the majority expected to be completed in the second half of 2022.
Today's guidance is an update from the previous guidance disclosed on July six 2021, and consistent with that guidance. The guidance does not include the impact of any additional acquisitions, which the company expects would be accretive to membership revenue and adjusted EBITDA.
In conclusion the events.
The recent events demonstrate the effectiveness of cat count health strategy to leverage multiple avenues to generate growth.
Through building buying and managing medical practices, Utah.
Utilizing these growth avenues individually or in combination depending on the opportunities available results in the most efficient use of capital, which we believe allows us to manage the greatest number of patients in the shortest amount of time and with the least amount of risk, which ensures profitable growth and market leadership.
With that I'll ask the operator to open the call to your questions.
At this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad to withdraw your question press the pound key.
Your first question comes from the line of Jim then dressing with credit Suisse.
Yes, Thank you and good morning, everyone and congratulations on your earnings.
Earnings call as a public company.
Thanks for all the color around cost trends youre seeing and expectations for second half I was wondering if you could flush out a little bit more about your confidence in second half.
I mean, I'm getting like MLR and MA for second half to improve from first half actually X D. C. I completely understand the trends youre seeing relatively not as bad as peak of Covid, but with all the covid projections being things are likely to get worse before they get better what gives you comfort around your expectation for second half and why you would not like you can just.
The cost trend some of your peers about highlighting but maybe with some lag maybe highlight your at least I'm confident that you are unlikely to be blindsided is it your technology markets. Just so members. So just to give us the comfort that how we should think about second half trends given what some of your peers have been reporting.
Yes, so as your lender. This is Martin thanks for your question.
We've certainly seen an increase in covid cases and hospitalizations.
Which.
Does account for a minority of a medical claims expense increase in first half of the year.
But we.
Are seeing a significant difference in terms of hospitalizations certainly.
In clinical progression and outcomes compared to the rest of Florida and many other primary care providers and those are the statistics that we cited on the supplement deck that I want to point everyone to on our website for example.
Served a seven day average of cases of $14 three <unk>.
<unk> to our peak of 24, even though in Florida.
At record levels, and our hospitalizations or a 2.0.
Per 1000.
Other than six six per 1000, when we were at peak in July of last year. So we're significantly off from the kernel peaks, while Florida is.
Making nearly daily record levels in.
In addition to that.
We have a very sophisticated population health platform that I referenced in my remarks kind of Panorama.
And from the time that a patient joins us when they are in the lobby.
They are going to start to get a risk stratification with personalized care plans than the doctor sees the patient and those diagnoses those referrals those treatments. Those lab results then modify such care plans.
A systematic way using 20 plus modules.
Hundreds.
Different protocols that we employ through our bridges and algorithms and support tools that are all working in concert to intervene early to help predict and prevent disease and this is published data.
The American Journal of managed care and I would point you to read the study.
But also you can see it in how stable are total admissions have been so we have a graph in those.
Supplement materials, which show.
The covid admissions and our total admission and while they are correlated you can see there.
How remarkably stable.
They have been.
And while we are living in unprecedented times and managing during Covid is challenging.
We have 18 months of track record with great financial and clinical results and more broader for years, we have had industry, leading apt's or admissions per thousand quality metrics, we've published a mortality reductions.
For the past four years not just during Covid. Therefore, we feel highly confident in our full year MLR and as a result of our maintaining or increasing our outlook for this year and next year and let me also say that while MLR our medical claims expense.
Ratio is a factor we have multiple other levers that we can pull as part of managing the business. Let me point you to our SG&A coming down in the last few quarters.
Considerably and consistently.
That alongside our.
Other components of the business, which gives us diversification, which.
It gives us an ability to feel highly confident about our outlook, including what Brian mentioned like getting the DCE members now plugged in and you've seen in the past that we have published that.
Remember after six months.
Significantly and rapidly decreases their medical claims as they are fully integrated into the counter model there are.
A number of factors like our vaccination rates for 87% of our Covid.
Our patients are vaccinated with a covid vaccine, 80% of our associates are vaccinated.
Well and on the strength of our care management programs, our pop health platform. Our density the amount of access quality and wellness that we are able to offer our patients each and every day and the multiple levers. We have is why we feel strongly confident in our 'twenty one outlook and also.
Our 22 outlook.
Okay. That's really helpful color just one quick clarification.
Real time data.
And with all of you remember it show up in.
Good hospitalized do you get immediate.
Or something that takes time, just trying to understand like my my point about you getting blindsided like I mean, how real time information you have on your members.
Glad you asked the question Sheila.
It's immediate.
It is real time.
Effectively the minute that a patient is register hits the E. R. It comes to us and our care management processes begin therefore, the data that we're showing you on the supplement so dex data as of August night, we get that on a daily basis. In fact, we track over 140 different variable.
<unk> on a daily basis for Covid alone through kind of Panorama, So you're seeing kind of panorama at work and that gives us a great deal of visibility and confidence.
Okay, and then you talked about looks like.
You feel pretty good about 'twenty 'twenty two outlook on MLR cost trends as well, maybe I understand you might have paid for more specific details, but can you provide.
Maybe Brian.
Let alone the underlying cost trend assumptions for next year whats the 'twenty 'twenty, one on both EMEA as well as U D C book.
Yeah. Thanks Julien.
As you know we've provided both revenue and adjusted EBITDA look for our business.
And overall, we are confident in the adjusted EBITDA margin embedded in our 2022 guidance, which we have an increase with today's announcement.
As more individual details develop we will sure to be able to provide more color on the components of that 2022 financial outlook.
But I'll just return back to for 2021, we feel confident in the projected MLR of approximately 75% for the full year, which is in line with the 75, 3%. We are seeing in the first half of the year and includes the DCE membership, which as we said runs at a higher medical expense ratio than our traditional Medicare advantage. So as we can.
Kind of turned the page into 2022, we feel real good about both that topline and bottomline projection, which would assume some some relative normalcy in the MLR.
Okay and then the next one I had on this.
The.
Medical practices you acquired in four states in August bond to convert to revenue based members next year.
Maybe discuss your comfort and confidence around these and transitioning. These previously unmanaged fee for service lives to value based care clearly I mean, I'm, assuming it comes it somewhat uncertainty and higher MLR right given the lack of experience, but just help us understand the comfort there.
Yes, no I appreciate the question. So we do have data to give us confidence and while not at global cap or even straight cap.
You can still have fee for service historical data on these members and then the addition of MMA contracts.
<unk> contracts give us great confidence given that one way or the other of those members would be within our <unk> book of business and we do have data for.
For those members to give us the comfort in us projecting are both 'twenty, one and 'twenty two margins for those medical practice and affiliates, yes. Julian This is Brian I would just.
Keep in mind, we buy good businesses and with Great management teams. These providers and affiliates that we are acquiring come with superior management teams and we feel real good about how they're going to deliver performance for 2022.
Okay I wasn't big picture last question here.
One other thought concern, which has weighed on shares is around your the company's ability to replicate yield stocks with in Florida to other markets Youre entering maybe you spent some time there.
Do you like.
Like what.
Confidence level, how you would think that you'd experienced in Florida would be handy in other markets as well and.
Just do you plan to provide.
Based on the new centers centers in markets as you open on a regular basis just to give us the color on those two things.
Yes.
I'll take that question.
First as I said that when we go to new markets, we deploy or build buy and manage strategy. We do not like to use a single growth Avenue or build in isolation, we manage.
As a region.
And hence for individual centers.
We do not provide specifics while you do half hour.
Typical de Novo economics that we expect.
But we do.
Have a great deal of confidence in.
In replicating the model outside of Florida, because we're already seeing.
The numbers from membership revenue and margins in our budgets, we've been very successful in Puerto Rico. For example, very successful and our starts in Texas, and Nevada will be announcing various other states as Brian mentioned.
We have not only acquired assets we've acquired some great people that are joining the team.
And that is the key and.
Yes, as we fully integrate.
Those regions into Panorama will provide updates.
You can count on us continuing to expand our care platform of access quality and wellness and growing it in the three key ways that we do buy.
<unk> buying and managing and we always ask ourselves.
The key single question, which is what is the growth avenues that results in the most efficient use of capital to manage the most amount of lives in the shortest amount of time with the least amount of risk and that ensures sustainable profits and market leadership and everywhere across the country, particularly.
In dense pockets of Medicare eligible dual eligible members historically in chronically underserved there is a great deal of costs that could be taken out and we're one of the few companies that have proven our ability to do just that.
And let me also point for 10 years.
Dozens of markets. So multis year, multi geography track record, we have been able to measurably increase quality, while reducing costs and as long as we do that everything else follows.
Great. Thanks, Great job income lab space. Thanks.
Thanks, Julia Thank you.
Your next question comes from the line of Josh Raskin with Nephron research.
Hi, Thanks. Good morning, just one quick follow up to I don't know if it was question three or four from from Dillinger, but the.
Booking of the hospital expenses, so I understand that's real time, but but how do you get color on the actual DRG or cost per admit when do you have a better sense of.
Dan.
Yes, no great question Josh.
We have very sophisticated systems to provide real time accruals literally yesterday based on the number of ER visits admissions referrals ICD codes CPT that we're getting in our system many of which in real time, we're able to very accurately estimate our costs and yes. It is.
Just on historical type of information on a per admission and actually doesn't change all that much on an average per admission basis of course, as we get new data for new disease States like Covid, then we adjust such algorithms and that allows us to very accurately project.
Okay got you and then I think you mentioned a little more on the sort of non covid utilization coming back I'm curious if you view that as pent up demand.
It's a system reopens and then I didn't hear anything about a headwind from risk adjusters, which seems to be.
A common industry Reframed this quarters I'd be curious to get your views there.
Well actually the answer is the same to both questions.
As you know the majority of our business in Florida, Florida had.
One of the shorter stay at home orders and that combined with the fact that we actually increased the number of visits during covid, including during the stay at home orders and we have published data on that as well.
It gives us the necessary confidence in our.
Documentation accuracy to meet the acuity of our patients when you see them and Youre able to document conditions that ensures that <unk> got the revenue to cover your costs as you know and then the second part as to the pent up demand or procedures. We saw some of that in the second half of.
Last year, Florida opened up relatively quickly.
As compared to other parts of the country.
And as you can see by our Apt's, which are influenced.
To a significant extent by elective procedures.
You have remarkable consistency so given that we saw more patients than pre covid.
Covid, particularly in its early stages, and given that Florida opened earlier and Thats, where the majority of our patients are a bit we're expanding rapidly outside.
You also have Texas, which also.
Opened relatively early.
We do not.
Expect.
A material headwind, but as I mentioned.
What is challenging and we did see a modest impact from Covid admissions.
And some of those elective procedures, but thats being baked into our full year forecast and into our 2022.
Gotcha, and then if I could just ask one more quick one on the EBITDA on the <unk>.
Guidance, how much of the EBITDA guidance is coming from acquisitions and I know you've anticipated acquisition. So I guess the real question is did the acquisitions have any impact on your guidance or are you just sort of filling in the bucket that was coming from acquisitions previously.
Yes no.
Great questions. So when we.
But our three year projections November of last year.
For the pipe as we prepared to go public we laid out that three year plan, we have since beaten our 2020 projections because at that time, we didn't have full year 2020.
And we have raised guidance three times in 2021 and included in one of those guidance raises is that we removed.
Physicians from our outlook, so not only have we.
Achieved and exceeded our goals that we set out during.
Our initial <unk>.
Injections in November of last year.
But we now are confident in meeting and exceeding those without acquisitions for 'twenty, one and 'twenty two.
Mind, you we did do of course, some material acquisitions for this year and 'twenty, one, but as a result.
Our acquisitions this year and a rock solid organic growth for this year up 'twenty two does not require a single acquisition now we will continue to do acquisitions.
We have multiple growth avenues that as a major differentiator for us.
But if we do acquisitions those will be.
Directly accretive to our guidance. So if we acquire X amount of revenue and EBITDA you will see us at those directly to the outlook that we're providing.
Perfect. Thanks again.
Your next question comes from the line of Justin Lake with Wolfe Research.
Thanks, Good morning.
Couple of questions here first on D. C. You talked about members, having a little bit higher cost and $29 million of premium can you talk about what youre booking.
Book the MLR at in.
In the second quarter, there to give us some idea on that cost side, and how youre thinking about that into the back half of the year, yes.
Yes, Thanks, Great question.
We're taking a very.
Prudent inappropriate position as far as our DCE members.
As we talked to they are coming into us unmanaged, we expect them, we expect to wrap them into our operating model and over time improve their overall performance as you look at the.
The MLR for that business is going to be 98% or so as we initially start but then as we improve that.
Performance of that.
Membership, we should see that improve over time and as Martin mentioned three to six months, we start to see improvement in our members and that will certainly carry into 2022.
And where do you see that margin now that you've had some time with this business kind of being added.
Let's say next year.
Would you expect that margin to kind of settle out.
Justin This is Marlon I appreciate the question, but at this point, we've got three months of data on a new CMS program.
And as Brian mentioned, we take a very prudent approach to our forecasting we do see DCE as a big source of growth for us very large additional Tam we are effectively not baking any EBITDA.
From D C because like any new membership it will take us some time to fully integrate them into our pop health platform and for US it's about predictability and profitability. We believe that it will be favorable and that is what I can tell you today.
But we cannot give a specific number until we get more data and get those members fully plugged in so stay tuned.
Okay, and then you talked about $155 million of additional acquisitions.
Was that in the prior guidance that you gave in early July or guiding addition, too.
That's the great question I think you were trying to make sure everyone fully understands our guidance last time excluded any incremental upside from acquisitions as we announced today.
Acquisitions were accretive to our guidance and that will be how we think through acquisitions going forward as well. So that's all new upside opportunity and as we mentioned, it's really strong revenue growth and EBITDA for 2022, as we convert those 15000 members or so onto.
Platform.
Okay. So is there anything you can you could tell us or give us some membership number but what you think on revenue for 'twenty, one and 'twenty two as well as EBITDA contribution for 'twenty one into 'twenty two.
This incremental acquisition.
Yes for sure in our press release, we talk about it.
$16 million for 2021, I'm, sorry, 14 million for 'twenty 'twenty, one and then as we convert the members it'll be $200 million of <unk>.
Revenue in 2022, and that's built into the updated guidance that we provided today for both 2021 and 2022.
And did you give EBITDA there as well.
Yes, we did Justin it's $5 million of EBITDA that we expect for the balance of this year and $16 million of adjusted EBITDA for 2022.
Got it most of the most of that.
And then lastly, just you talked about a little bit higher costs on I think you mentioned.
The surgeries.
What are your peers talked about seeing higher outpatient qualified or do they specifically said March and April.
I'm curious if you saw something similar in the same timeframe any market specific anything you could tell us about.
Cost trend there.
What I can tell you is that part a is the single most important variable hence the apt's stability that you have there in the supplemental deck.
Is probably the most important single statistic, but theres a part b.
Cost as well of specialist.
And when you lump them all together.
B and D, which is pharmacy, then you get the full medical claims expense picture and we are not a new ensing what is a minority variance.
In medical claims between the catch up an outpatient procedure versus just covid admissions.
And while we have seen it.
We're comfortable with it we have booked them into.
This year's numbers and feel comfortable about the next for the reasons that I mentioned.
Therefore, the short answer is it.
It exists, but we do not see it as a material headwind and we're confident in our numbers.
Alright, thanks for the call.
Thank you. Thank you.
Yes.
Next question is a follow up from Jay lend dressing with credit Suisse.
Thanks for taking my quick follow up here I was wondering if you could spend some time on Humana partnership how many of your de Novo centers opening this year and next year like Humana focused and economics on the Humana centers any significantly different from what you all know traditional centers.
Thank you Linda So let me first say that we're very proud to have humana as a partner they share our value based philosophy and have great leadership and infrastructure.
We.
Have centers opened under half or Humana Alliance program at this point or seven we do plan on opening a few more this year.
A relative minority of our centers as you know we are opening 15 to 20 centers this year and $54.59 medical centers next year.
And.
We do see it as part of our <unk>.
Market.
Entry supplementation.
Consistent with our speed scale and density objectives of our growth strategy in terms of the economics.
We do see.
Similar.
<unk> and the Humana centers versus non.
Humana and what I mean, humana sensors, I mean sensors that are owned and operated by kind of health that are exclusive to humana's Medicare advantage, but we do take other payors for other lines of business and certainly DCE as well within those centers.
And in those centers a bit slower growth because you have one.
MA payer rather than all of them.
And that is something that is it.
Regardless, whether it is humana anthem United.
<unk>.
A.
<unk>.
A challenge that must be managed through yet were growing significantly.
If you ask them as to our performance believes they would tell you are exceeding expectations.
Our value prop is so strong.
We have embedded demand.
<unk> expectations and.
Thus to reach all patients given that we are payer agnostic.
Overwhelming majority of our centers take all payers and other.
Other great payer partners as well.
United and anthem and Aetna.
Centene and so forth.
Is because we want to make sure that we serve all members who would benefit from counter like care for the statistics that I mentioned.
<unk> increase in mortality, particularly in minority populations.
Huge amount of.
Fraud waste and abuse that we see that could go to.
Meaningfully.
Improving the health of a patient an entire community, it's very important for us too.
B, there and give patients.
All of the Optionality that they need and deserve but again.
We plan to continue opening centers in partnership with Humana.
Well as we do with other payer partners.
Great. Thanks, a lot.
Sure.
And at this time there are no further questions.
Alright. Thank you. Thank you everyone for joining thank.
Thank you.
Ladies and gentlemen that does conclude today's conference. We thank you for participating you may now disconnect.
Okay.
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Yes.
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Hum.
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