Q3 2021 Cano Health Inc Earnings Call
[music].
Yeah.
Good morning, and welcome to Dinos Health third quarter 2010, two on earnings call.
Currently all participants are in a listen only mode.
Third the speaker's presentation, there will be a question and answer session.
Please be advised that today's conference is being recorded.
Hosting todays call are Dr. Romano Hernandez golf, founder, Chairman, and Chief Executive Officer, and Brian Coffey, Chief Financial Officer.
Mcdonald press release that gasoline and other related materials are available on the Investor Relations section of Scanno House website.
These statements are made as of November nine 2021, and reflect management's 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 provision for forward looking statements.
The infection twenty-seven E 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 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 our 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 deferred.
In accordance with GAAP.
A reconciliation of the historical 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 a doctor in Marlow Hernandez co founder Chairman and CEO CEO of Kaino health.
Please go ahead.
Thank you and welcome everyone to our third quarter earnings call.
We appreciate you joining us to discuss our third quarter, and which kind of helped 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 on the quarter I want to thank first and foremost the entire counter health team are 3600 dedicated professionals, who through their passion and commitment to provide patients with industry, leading health care and perhaps more importantly, they provide.
Patients with hope and dignity everyday, 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 principally is to a 21st century model.
Thanks to our team.
This 21st century motto is about removing barriers to optimal patient outcomes by ensuring access quality and wellness for all patients.
This is the basis for kind of <unk> 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 in 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 and lower costs.
Our strategy to build buy and manage medical centers drive scale and density in key markets, which is in turn continuing to feel our profitable growth. We're also enhancing care delivery by launching novel programs such as healthy carved by Dr. Juan Rivera to tackle the high incidents and high cost of cardiovascular.
These 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 kind of pan around IP.
I've discussed this in previous calls channel Panorama is a unique population health platform that provides an end to end solution for patients clinicians and health care professionals to improve the health of an individual patient while optimizing the health of an entire community.
During these difficult times kind of Panorama has helped us navigate the COVID-19 pandemic by allowing us to coalesce real time actionable data from multiple sources, including hospital admissions and emergency room visits laboratory diagnostic primary care visits and specialist counsels taken together this.
Integrated data are used by primary care providers and other clinicians to assess risk and guide customized treatment plans, while along counter health to optimize their wellbeing of our entire patient population.
In addition, Mccann Panorama platform supports the rapid scalability of our operations by empowering medical centers to achieve counter 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 am 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.
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 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 increase 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 corn markets in Florida.
In addition, we are very excited to have expanded our presence in new Mexico, and south Eastern Texas, including de Novo's, and Florida, and Nevada, We have thus far opened 16 de Novo medical centers in 2021 on pace for 'twenty by the end of this year.
Turning to our acquisitions, we're very happy with our performance to date both of our major acquisitions. This year University health care and doctors medical centers or D. M C.
<unk> 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 cannot panorama empowered integration.
Health newly onboard of clinicians and health care professionals can leverage counter panorama to measurably improve patient care and their way that they have always wanted to.
Moreover, they can also participate in various equity ownership programs the.
The combination of professional fulfillment and ownership stake makes kernel health are great and unique place to work the results speak for themselves for example within University in D. M. C. 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 belief that.
Healthy heart by Doctor, one will have such a dramatic positive impact in U S health care.
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 television network. He is a trusted health care figure, particularly within the Hispanic community.
And we are honored to be working with them on this important endeavor. The healthy heart program is designed to predict and prevent cardiovascular disease through early detection individualized treatment of risk factors and education about healthy lifestyle choices.
The program is designed to significantly reduce the probability of a patients 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'll find slides showing our seven day daily average for COVID-19 case incidence in hospital admissions. It also illustrates our average monthly total in COVID-19 admissions per 1000 patients since may of 2020 as you can see in the illustration, our case incidents and <unk>.
Hospitalizations have fallen dramatically over the last two months, which were already below.
Cantos pandemic peaks.
As we continue to managed successfully through the cases in admissions experienced by our members we're evolving our protocols to address variants like Delta and stand ready to adopt new anti retrovirals 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 of <unk>.
Right 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 that a candle health Medical center as one of our members.
Lastly, I want to touch on the counter 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.
<unk> spent 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 health care 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 extender expenditures.
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 capitate revenue for our members illustrates that revenue increases by a 6% CAGR as members age in chronic conditions are identified.
But here's the more important news.
We find that due to channel 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.
Medical costs decline.
By a 6% CAGR.
Bears repeating because that is a dramatic contrast, not only to the 6%.
Increase in revenues because of age and chronic conditions, but we would expect a 9% CAGR increased.
For the similar cohort of Medicare advantage patients outside of the counter 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 an advance 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 copy, who will walk you through additional details on our financial performance and outlook.
Thank you Michael 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 managed strategy to deliver long term sustainable profitable growth.
Our goal is to achieve consistent growth in 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 EBIT growth.
We controlled our third party and direct patient care expenses, while expanding our corporate spending in 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 211000 members in the third quarter.
This is an approximate 108000 member increase from a year ago.
In the quarter, 57% of our members, where Medicare, 30%, where Medicaid and 13% where HCA.
Note that our quarter end membership includes roughly 7000 Medicare advantage members 31000 Medicaid members in 14000 HCA members from our July 2nd acquisition of Doctor's Medical Center our DMC.
Additional detail about our membership mix in <unk> and R. P. M. P M. Our 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 capitation revenue of $502 million in other revenue of $25 million and was up 100% year over year.
This reflects strong membership growth and operational expansion.
Total capitation Medicare revenue in the third quarter was $447 million Medicare revenue P. M. P. M was approximately $1241 an increase primarily driven by recent acquisitions and improvements in our Puerto Rico operations and increased member engagement.
Medicaid revenue P. M. P M was approximately $271.
As mentioned on our second quarter call the acquisition of DMC with its high pediatric enrollment reduced our Medicaid P. M. P. M. In the quarter. We expect this lower P. M. P M 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.
Sequential decline was primarily driven by the continued effectiveness of our candle Panorama powered care and utilization management programs based on data driven prediction prevention and intervention.
We expect our 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.
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 <unk> growth.
Overall, our direct patient expense ratio sequentially improved approximately 10 basis points to 11%.
Selling general and 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%.
Primary drivers of the sequential increase were higher stock compensation expense and higher professional fees primarily related to transactions.
The company recorded 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 our previous estimate the.
The increase from the prior estimate was primarily driven by the implementation of the company's employee stock purchase plan or SPP.
As well as employee stock grants awarded during the quarter.
The rollout of our E. S. P. P 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 'twenty 'twenty.
A 53% increase as a result, our adjusted EBITDA margin for the third quarter was six 7% versus six 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 were 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 third quarter that are currently held in escrow and which will be leased 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.
We ended the third quarter with about $209 million in cash and $60 million available under our revolver revolving line of credit <unk>.
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 eight.
For the nine months ending September 30 cash used in 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 used in operating activities to be approximately $90 million confirming our previous estimate that cash used in operations in the fourth quarter will be slightly positive.
De novo in 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 delever overtime.
Now turning to our updated 2021 guidance, we expect membership to be approximately 218000, an increase from the prior range of approximately 215000 revenue was 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 from 2022 to be in the range of 280000 to $285000 from the previous estimate of 275000 to 280000.
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.
<unk> to be $170 million to $175 million, an increase from the previous estimate of $165 million to 170 million <unk>.
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 novo's 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 Kendall health 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.
A 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.
Thank you we will now begin the question and answer session and as a reminder, please press star one on your telephone keypad and limit yourselves to two questions and press star one again to get back in the queue. Once again press star one if you wish to ask a question.
Your first question is from the line of Jay <unk> from Credit Suisse. Your line is now open.
Great. Thanks, and good morning, Congrats on a good quarter a couple of questions if I can.
Brian just wanted to follow up on your implied for Q MLR outlook of 74%.
Some of your peers have talked about for Q MLR seasonally higher than <unk>.
Then there are variance at the on the stop loss protection etcetera, but anything else would you call out compared with what some other companies have talked about and remind us about that first of all for the stop loss protection you guys have any data out on what pushed some data for your members to have already hit that threshold.
Sure, Yes, as we talked about we're projecting a full year medical cost medical claims expense ratio of approximately 75%, which then given the year to date.
<unk> ratio of 75, 4% implies.
Approximately 74% in the fourth quarter.
This is a lot about what we talked about last time in terms of our.
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 is has our proprietary health care analytics and treatment protocols, which is all powered by a candle panorama, which we've been talking about.
Yeah.
And further we have comprehensive care management programs that result in stable hospital missions 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 theres no seasonality from that perspective.
It's a relatively stable or.
Raul MCR throughout the year with the exception as you move into the back half of the year you have some of the seasonality, but as you mentioned, we also do have the stop loss protection that will kick in for those high claim instead of incurred costs.
First half or three quarters, a year and generally speaking thats roughly about $150000 attachment point on those give or take it does vary by by the various payers, but that's generally.
Where the attachment point will.
B for most of the members.
From that perspective, we feel really good about what we've done and being able to accomplish this year in managing our medical claims ratio throughout the.
The pandemic and to feel good about our full year projection of approximately 75%.
Great and then my quick follow up on.
It seems you guys are well on track on hitting de novo's outlook for this year in Florida.
Patients for next year seems like Youre, maintaining that this is another area, where there has been some confuse them 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 would be helpful. Thank you.
Yes, let me take that question that Andre.
Despite COVID-19 related delays, we are on track for this year and next year and Thats really the bottom line some centers have taken a bit longer than what we would've liked to open but overall, we're doing very well.
And we are reiterating our forecast of $34 59 and for this year, we're confident and obviously the high end of our initial range.
15% to 20 at 'twenty Jenny.
Generally we opened centers more in the second half of the year. The reason for that is of course open enrollment.
And that.
Our indexes the enrollment those periods Q3 Q4.
We generally have in Q1 Q2 for example, and US having the centers opened in January February with cash burn until you get a material number of enrollments is not the best use of capital So primary.
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 were flowing through next in terms of revenue.
<unk> $100 million in the membership beat.
The strength.
Our model is really that we've got a proven track record of <unk>.
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 digit single digits in terms of.
The number of Humana exclusive centers, 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.
<unk> and Illinois.
Thanks, guys and congrats again.
Thank you.
Your next question is from the line of Ralph and vehicles from Cp's. Your line is now open.
Great. Thanks, good morning.
12, 41, Medicare P. M. P. M was a little bit higher than recent trends and thats that has bounced around a little bit just wondering is that largely related to the deal maybe maybe TCE.
And how do you see that as sort of a sustainable base or do you expect volatility within that.
Yes, no that is a lot of the continued improvement that is coming with the mix of the acquisitions as we bring them on board.
That 1200, or so <unk> that is certainly what we would view as a run ratable.
Projection for our Medicare population and similar with the on the Medicaid as we talked about the acquisitions the mix of those coming in.
Change the.
The overall <unk> for that around 270, and once again, we still 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.
6% premium CAGR in that sort of illustrative example.
I guess as we think about 2022 and sort of the better rate outlook overall, and the risk adjustment piece, which I think is going to be a smaller tailwind given what you sort of suggested in the past, but nonetheless I imagine it's still positive for next year, how should we think about P. M. P M rate increase for.
For 2022.
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 Novo's particular.
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 it consistency with what Youre seeing this year, but also in investment.
With those new members, which come in at generally lower premiums and lower contribution margins. Therefore.
<unk>.
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 topline growth in membership, but we're growing our our bottom line as well.
And we're investing.
A lot of those profits right back into the business.
Opening more centers.
Been able to continue to.
Fine tune our already highly differentiated.
Population health platform.
And tuck in affiliates.
Accelerating the pace.
Of our de novo's and organic growth in the process. So.
As a result of our scale and density that we already have our market leadership in <unk>.
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.
<unk> continuing to invest in the growth and in the platform, which is already highly differentiate it.
Got it okay. Thank you very much.
Your next.
Your next question is from the line of Josh Raskin from Nephron Research. Your line is now open.
Thanks, Ed good morning.
My question I guess two questions. The first one is just in eight states in Puerto Rico, I think you'd find that now has 40 specific markets. So when do you think you have enough data to get a sense of operating trends, including the medical cost management. The implementation of Carnival Panorama etcetera, and then maybe even taking a step back with 40.
But markets now how is that working from a management perspective, what gives you confidence that you're going to be able to sort of juggle.
Doug will 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 continued to stress that we believe in scale and density. Therefore, we're focused on key markets 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 two panel health quality standards I'll highlight one for example, our NPS score or NPS score for the company is consistently now in the low.
Ladies and you see that NPS score across multiple states within multiple markets.
Great amount of.
Of.
Scalability and portability.
Got it.
Is being proved out in patient service, but also in quality scores in apt's and in a number of other operating metrics.
So that gives us combined with the demand and the 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 over our model, it's a necessary service recurring revenues to a growing population and not only as a 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 everyday highly confident in our market leadership highly confident in our corporate leadership and.
And this is why.
We are now forecasting increases to top and bottom line this year and next.
That's really helpful. Marlow, Thanks, and then maybe.
Second question just on leverage you know, let's call. It four five 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 is your leverage ratio now an impediment in some ways to potential M&A would you consider using equity for larger transactions.
Yes.
It's a great question and we keep a close eye to our pipeline understanding what opportunities are out there.
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 our recent acquisitions.
To support our growth and allow us to delever over time.
And.
We will keep all opportunities on the table as we look at.
The various growth.
Options that we have in front of us and what we continue to do is we continue to <unk>.
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 allows us to reduce our overall leverage so.
We will continue to do that in this.
This quarter I think is a great example of our continued financial improvement as we go through next couple of quarters and continuing this momentum that will open us up to greater opportunities.
Okay. Thanks, guys.
Your next question is from the line of Matthew <unk> from Piper Sandler Your line is now open.
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.
Im missing something was there not an acquisition there or did you lead with de Novo's, just looking for some color.
Yes, our strategy is always to build buy and manage.
And generally we standup all three legs of the stool.
Any market at scale, we opened de novo's.
In both of those marks in Los Angeles, and Chicago and we.
We have and will continue to do.
Locally adjacent tuck in acquisitions that conserve as accelerated de novo's. 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 hands.
Or 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 the membership.
<unk> bring a number of other synergies. Therefore, the short answer is yes opened de novo's.
Tuck in local acquisitions plus.
If the opportunity is right we.
They make a.
A larger type of acquisition or more.
Material, one, which we would of course report at the time and just to be clear there is no specifics that I.
Hi.
I would like to share.
A day, but we.
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 and the least amount of time with the least amount of risk, yes, I'd just add its 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 and multiple avenues in.
So we keep that option on the table every time, we look at.
The various markets, we enter and the deployment of capital.
Got it yes that was exactly what I was getting at and then just drilling into the de Novo side. Now opened 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 somewhere opened in October and what gave you the confidence to raise the full year.
The numbers for 2022.
Well.
As I said there were several centers that.
It took us a little bit longer because of COVID-19.
To have them open.
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 and open surgery patients.
We've got clear visibility.
220 <unk>.
And also the visibility into the 54 to 59.
Well ahead of our forecast for centers that membership.
Got it thank you.
Your next question is from the line of Brian.
From Jefferies. Your line is now open.
Hey, good morning, guys. Congrats on the quarter, So I guess just.
Housekeeping question for me to start as I look at your three key number of months.
It seems to imply that membership was above the quarter and the number of.
MAA commercial numbers.
Above the quarter, one 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.
The ending.
Ending quarter number.
No I don't think I mean, the membership comes in pretty.
Ratably and then keep in mind, it's difficult when you how youre thinking about the member months with the acquisition. So that will skew some of the analysis I think what you are trying to get to but.
Generally.
It's pretty stable other than when acquisitions come in and that will when we roll them into our systems that will.
Materially change the member month count as we go through each of the quarters, if that's what you're driving at.
Okay got you and then just a follow up.
About your direct contracted numbers just anything you can share with us in terms of the performance to date that you're seeing there.
Yes, it's very consistent with what we saw in the second quarter.
We are still very bullish on the <unk> 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 Cana Panorama and our clinical operations teams takeover to manage the care of the DC members. We really believe we will continue to improve that book of business and integrate them into the overall Medicare population, so very happy with.
How it's moving along and where we expect the growth to come from as we move into 2022.
With that DCD program.
Awesome. Thanks, guys.
Once again, if you wish to ask a question simply press Star then the number one on your telephone keypad.
Our next question is from the line of just didn't make from Wolfe Research. Your line is now open.
Thanks, Good morning.
I wanted to ask a question one of your peers.
Got the Doj request the road transportation and third party marketing.
Relationships so.
I believe you didn't you haven't received anything but wanted to confirm that and then also just ask you.
In terms of your relationships with third party agents are you are you sourcing any of your patient growth.
From brokers.
Or anything else like that third parties are as you know.
100% of what your of your patients coming from your direct efforts your own employees.
Yes.
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.
Used third party marketers.
We believe demand generation as 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 Cros 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 a faster growing primary care company in the country.
Since going public we have exceeded.
All expectations.
Within <unk>.
A culture of compliance that is centered on our provision of services centered on patients.
So short answer is we do not use third party marketers and will not use third party marketers.
That's helpful. Thanks, and then my follow up here is around center growth. So you've got a very robust.
<unk> for next year, just as we think about <unk>.
From there is that is that kind of high 50 number in terms of new centers.
A kind of target that we should use to kind of think about.
Future growth post 2022 in terms of de Novo's.
Or what where would you kind of focus thoughts in terms of the three to five year outlook in terms of several growth without being denied very property specific.
No great question and I will just take US back we focus on building by any 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 2022.
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 we'll continue to refine those longer term outlooks as we.
Start to continue to increase our density and our.
Scale in the various markets.
Given our build by managed strategy. So I think that's the way to think about it as of now.
Great. Thanks for all the color guys.
There are no further questions presenters. Please continue.
Alright, well. Thank you everyone for joining and if theres any follow up questions. Please reach out to.
For myself or Amy Wilson, Thank you.
Everyone I appreciate your time.
And with that this concludes today's conference call. Thank you for attending you may now disconnect.
[music].
Yes.
[music].
Right.
Okay.
[music].